SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) 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, 1995
OR
[]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition to
period from _______ _______
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, NY 14150
_________________________
(Address of Principal Executive
Offices
(716) 693-4550
_______________________
(Registrant's telephone number,
including area code)
Name of each
Title of each class exchange on which
registered
____________________ _________________
Common stock $1 par Boston Stock
value Exchange
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. ( )
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
At February 6, 1996 the aggregate market value of the publicly
traded voting stock held by nonaffiliates of the Registrant was
$2,200,105 based upon the closing price of the Registrant's
Common Stock on that date as reported by the Boston Stock
Exchange. Solely for the purposes of this calculation all
persons who are or may be Officers or Directors of the Registrant
and all persons or groups that have filed Schedules 13D with
respect to the Registrant's stock have been deemed to be
affiliates.
As of February 6, 1996, the Registrant had outstanding 481,995
shares of $1 par value Common Stock.
Documents Incorporated by Reference
Portions of the Registrant's 1993 Form 10-K, Form 10-Q for the
period ended September 30, 1993, Form 10-Q for the period ended
March 31, 1995, and the Proxy Statement dated April 5, 1996 are
incorporated by reference in Parts I, II and III of this report.
Exhibit Index - page 66
Total Pages - 134
PART I
Item 1. Business
EXOLON-ESK COMPANY
(a) General Development of the Business
The Exolon Company was founded in 1914 as a Massachusetts
corporation and reincorporated as a Delaware corporation in 1976.
On April 27, 1984, ESK Corporation merged into the Exolon Company
and the resulting company was renamed Exolon-ESK Company. (As
used herein, the Company refers to Exolon-ESK Company and its
wholly owned Canadian Subsidiary.) The Company issued 499,219
shares of its Class A Common Stock and 31,523 shares of its
Series B Convertible Preferred Stock to Wacker Chemical
Corporation as a result of the merger. In December of 1995,
Wacker Chemical Corporation transferred all of its Company stock
to Wacker Chemicals (USA), Inc. ( Wacker USA ).
The Company is engaged in the business of manufacturing and
selling products which are used principally for abrasive,
refractory and metallurgical applications. The primary products
of the Company are fused aluminum oxide and silicon carbide.
Other product lines include fused specialty products sold to the
refractory industry.
Effective at the time of the merger, the Company entered
into a Restated Patent License Agreement with Elektroschmelzwerk
Kempten GmbH ("Kempten"). Both Kempten and Wacker USA are wholly
owned subsidiaries of Wacker Chemie GmbH. At the time of the
merger, the Company also entered into an exclusive
distributorship and sales representation agreement with Kempten
for the United States and Canada relating to silicon carbide
products. The Company makes sales as a distributor and as a
sales representative under this agreement. The Company is
currently in discussions with Kempten with regard to amendments
of this agreement. Should the agreement be terminated, the
Company believes that purchases of the products now covered by
the agreement can be made in sufficient quantities and at
prevailing market prices from alternative suppliers, including
from its Norwegian joint venture. In addition, the Company
represents Kempten as a distributor of boron carbide grains to
selected markets.
(b) Financial Information about Industry Segments
The Company has only one business segment, the manufacture
of abrasive materials and products for abrasive, metallurgical
and refractory uses. The Company regards its principal business
as being in a single industry segment.
(c) Narrative Description of Business
The Company's crude silicon carbide is produced at the
Company's plant in Hennepin, Illinois. The Company produces
crude aluminum oxide and certain other products at its plant in
Thorold, Canada owned by Exolon-ESK Company of Canada, Ltd.
("Exolon Ltd."), its wholly owned subsidiary. Some of the crude
products are sold directly to customers, but most of the crude
products are shipped to the Company's plant in Tonawanda, New
York, where the Company crushes, grades and formulates the crude
products into granular products for sale to customers.
Methods of distribution. While most of the Company's
products are sold directly to its customers by sales
representatives employed by the Company, a portion of the sales
are made through industrial distributors located throughout the
United States and Canada. Export sales are made on a direct
basis and through agents.
Raw materials. The principal raw materials used by the
Company are abrasive grade bauxite, petroleum coke, silica sand
and cast iron borings.
The Company purchases many other products such as fiber
drums, wood pallets, bags, oil, natural gas, chemicals,
electrodes and carbon products.
The abrasive grade bauxite used by the Company presently
comes from the Republic of Guinea in West Africa, Australia and
The People's Republic of China. Petroleum coke and silica sand
originate from United States sources.
Large quantities of electric power are purchased from
Ontario Hydro for use by the Company's Canadian furnace plant and
from the Illinois Power Company for use in its Hennepin plant.
The Company believes that adequate supplies of power will
continue to be available. Adequate supplies of raw materials
have in general been available to the Company at competitive
prices.
Employees. As of December 31, 1995, the Company had 267
employees. A new collective bargaining agreement was negotiated
at the Tonawanda, New York plant in the third quarter of 1995.
In 1993 and 1994, the Company negotiated new three year
agreements with its Hennepin, Illinois and Thorold, Ontario
manufacturing employees, respectively. In 1993, 1994 and 1995,
agreement was reached on methods to further reduce employment
levels, consolidate jobs and improve operational efficiencies.
Major Customers. Sales to one customer accounted for 8% and
12% of consolidated net sales of the Company for the years ended
December 31, 1995 and 1994. As of December 31, 1995 this
customer's accounts receivable balance accounted for
approximately 8% of the Company's total trade receivables. In
management's opinion, the loss of this customer would not have a
material adverse effect on the Company.
Competition. The industry in which the Company is engaged
is highly competitive. Principal North American competition is
from three well established North American companies. In
addition, substantial quantities of grain are imported and sold
in North America by foreign based producers of abrasive grain.
Each of the North American competitors, in addition to the
Company, have silicon carbide grain processing facilities. Two
of the three also have aluminum oxide crude and grain production
operations, and all but one have silicon carbide crude production
facilities.
Competition in the industry is based upon pricing, service,
and product performance. The Company's products are sold to
other manufacturers and, as a result, the distribution to the
industry markets is highly competitive. Major customers are
continually striving to remain competitive by controlling the
costs for raw materials purchased from the Company. In order to
meet customer demand and for competitive purposes, the Company
maintains substantial inventories. In addition, it has been
Company policy to confine its primary operations to the electric
furnace production and processing of grain products.
Backlog. As of December 31, 1995, the Company had a
consolidated backlog of $5,235,000 as compared to $2,873,000 a
year earlier. The increase in backlog principally results from
increased 1995 sales recorded and reduced shipment levels in
December 1995 resulting from the Company s holiday shut down
between Christmas and New Years Day. All of this backlog is
expected to be shipped in 1996.
Seasonal Effect. The Company's business is generally not
seasonal. However, vacation shutdowns by a number of its
customers can influence third quarter sales.
Pollution Control. The Company is involved in operations in
which there is a continued risk that the environment could be
adversely affected. The Company is in frequent contact with the
various environmental agencies in the jurisdictions in which it
operates in an attempt to maintain environmental compliance. The
following represents the primary outstanding environmental issues
currently being addressed.
The Government of Norway has held discussions with certain
Norwegian industries including the abrasive industry concerning
the implementation of reduced gaseous emission standards. The
Company's Norwegian 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 ( 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.
The Company has been directed by the Illinois Environmental
Protection Agency to control its sulfur emissions at its
Hennepin, Illinois silicon carbide furnace plant. Reference is
made to the information contained in Note 14(a) of the Notes to
Financial Statements beginning on page 40, which is hereby
incorporated herein by reference.
Management believes all necessary pollution control
equipment at the Company's plants in Tonawanda, New York and
Thorold, Ontario are in place, and all current pollution
control requirements are being met at both plants.
Norwegian Operations. The Company's wholly-owned
subsidiary, Norsk Exolon A/S is a limited partner in a Norwegian
partnership, Orkla Exolon K/S (the "Partnership"), which is
engaged in the manufacture and sale of silicon carbide crude and
grain products.
Norsk Exolon A/S has a 50% interest in the Partnership, with
another Norwegian company, Orkla A/S, owning the balance. The
furnace plant, processing plant and other facilities of the
Partnership were constructed in the early 1960's under the
guidance and technical direction of the Company. The partnership
began manufacturing operations during 1963.
(d) Financial Information about Foreign and Domestic Operations
and Export Sales
Financial information about foreign and domestic operations
and export sales is incorporated by reference to Note 5 of Notes
to Consolidated Financial Statements, appearing on pages 26-28 of
Part II, Item 8.
The financial statements of Orkla Exolon K/S are also
included in this Form 10-K on the financial statement schedules
on pages 49-64. The Company's interest in the Norwegian
partnership is subject to the usual risks of foreign investment,
including currency fluctuations. Currency fluctuation is also a
risk associated with the Company's Canadian plant operations.
The Company reduces Canadian currency exposure with the use of
foreign currency forward contracts as hedges against certain
commitments in Canadian dollars.
Item 2. Properties
The Company's main office and grain processing plant are
located in Tonawanda, New York. The plant and office buildings,
which are owned by the Company, contain 273,000 square feet of
space, and occupy 6 of 34 acres owned by the Company at this
site. The facilities were originally completed in 1943, and
substantial additions to the plant have been made since that
date.
The Company has an electric furnace plant situated in
Thorold, Ontario, Canada. All plant and office buildings at the
plant are owned by the Company, as well as the 43 acres of land
on which the facilities are located. In total, the buildings
consist of 251,000 square feet of space. The plant was
originally built in 1914. Substantial additions have been made
in subsequent years, including the construction of a new aluminum
oxide furnace in 1985.
The Company's Hennepin, Illinois plant includes four outdoor
furnace groups and buildings of 47,800 square feet, located on a
78 acre site which is owned by the Company. Construction began
in late 1977 and was completed in the Spring of 1979 for three
furnace groups. The expansion to a fourth furnace group was
completed in 1989.
The Company also has operations in Norway conducted through
a joint venture, Orkla Exolon K/S, of which the Company owns 50%
through the Company's wholly-owned subsidiary, Norsk Exolon A/S,
a holding company. The office and plant of the Norwegian joint
venture are located in Gjolme, Norway. The plant and office
building, and the land upon which it is situated, are owned by
the joint venture. In total, the plant and office consist of
154,000 square feet of space, on 88 acres of land. The plant and
office were constructed from 1961-1963, with substantial
additions made thereafter.
The Company believes that all of these plants are in good
condition and suited for the purposes for which they are
operated.
Item 3. 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 14(a) to the Notes to Consolidated Financial
Statements contained in this Form 10-K Report, which is hereby
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.
c. Federal Proceedings
Reference is made to the information contained in Part I,
"Item 3. Legal Proceedings" under the heading "e. Federal
Indictments" in the Company's Form 10-K Report for the year ended
December 31, 1993, which is hereby incorporated herein by
reference. The proceedings described thereunder are hereinafter
referred to as the "Antitrust Proceedings".
Reference is made to information concerning the DLA
suspension contained in Note 14(b) "Legal Matters" of Part II,
Item 8, Notes to Consolidated Financial Statements beginning on
page 41, which is hereby 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 hereby 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 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters
The Company's Common Stock is traded on the Boston Stock
Exchange. The quarterly common stock price ranges are as
follows:
PRICE RANGE OF COMMON STOCK BOSTON STOCK EXCHANGE
QUARTER
1 2 3 4
_________ __________ ______________ _____________
High-Low $17-1/2 -16 $18-1/2 -15 $18-1/2 -18-1/2 $22 - 18-5/8
1995
High-Low $22 - 20 $20 - 18 $18 - 17 $17-1/4 -17-1/4
1994
Information concerning limitations on the payment of
dividends on the Company's Common Stock is hereby incorporated by
reference to Notes 8 and 10 to Notes to Consolidated Financial
Statements beginning on pages 29 and 33, respectively.
The number of stockholders of record of the Company's Common
Stock, $1 par value, was 178 as of February 6, 1996. The
Company did not pay any dividends on its Common Stock in 1995 or
1994.
The shares of the Company's Class A Common Stock, all of
which are owned by Wacker Chemical (USA), Inc., are not publicly
traded.
<PAGE>
Item 6. Selected Financial Data
The "Selected Financial Information" for the five years
ended December 31, 1995 appears on pages 8 and 9.
<TABLE>
EXOLON-ESK COMPANY AND SUBSIDIARIES
(thousands of dollars except share amounts)
<CAPTION>
SELECTED FINANCIAL INFORMATION YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Net Sales $68,592 $59,494 $58,225 $58,387 $53,390
Cost of Goods Sold 53,212 46,631 45,860 46,009 40,889
Depreciation 2,873 2,992 3,210 3,182 3,084
Selling, General and 4,958 5,039 5,478 4,673 5,875
Administrative Expense
Research and Development 22 289 54 64 249
Environmental Compliance Charges - 1,357 - 210 -
______ ______ _____ _____ _____
Operating Income 7,527 3,186 3,623 4,249 3,293
Other (Income) Expenses:
Equity in (Earnings) Loss of (793) (431) 32 151 796
Norwegian Joint Venture
Interest Expense 1,469 1,480 1,441 1,367 1,974
Other (6) 195 232 495 (145)
_____ _____ _____ _____ ____
Earnings before Income Taxes and Cumulative
Effect of Accounting Change 6,857 1,942 1,918 2,236 668
Income Tax Expense 2,893 426 712 923 125
_____ _____ _____ _____ _____
Earnings before Cumulative Effective of
Accounting Change 3,964 1,516 1,206 1,313 543
Cumulative Effect of Accounting Change -
Net of Income Tax Benefit (502) - (1,173) - -
_____ _____ ______ _____ _____
Net Earnings $3,462 $1,516 $33 $1,313 $543
===== ===== ===== ===== =====
Primary Earnings (Loss) per share of Common
Stock:
Earnings before Cumulative Effect
of Accounting Change $4.07 $1.53 $1.21 $1.42 $0.56
Cumulative Effect of Accounting Change -
Net of Tax Benefit ($0.52) - ($1.22) - -
______ _____ ______ _____ _____
Net Earnings (Loss) per share $3.55 $1.53 ($0.01) $1.42 $0.56
===== ===== ====== ===== =====
Primary Earnings (Loss) per share of Class A Common
Stock:
Earnings before Cumulative Effect of
Accounting Change $3.82 $1.44 $1.14 $1.16 $0.46
Cumulative Effect of Accounting Change -
Net of Tax Benefit ($0.49) - ($1.15) - -
______ _____ ______ _____ _____
Net Earnings (Loss) per share $3.33 $1.44 ($0.01) $1.16 $0.46
====== ===== ====== ===== =====
</TABLE>
</PAGE>
<TABLE>
EXOLON-ESK COMPANY AND SUBSIDIARIES
(thousands of dollars except share amounts)
<CAPTION>
SELECTED FINANCIAL INFORMATION -
CONTINUED YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
_____ _____ _____ _____ _____
<S> <C> <C> <C> <C> <C>
Fully Diluted Earnings per share of Common
Stock:
Earnings before Cumulative Effect
of Accounting Change $3.93 $1.50 $1.20 $1.39 $0.58
Cumulative Effect of Accounting Change -
Net of Tax Benefit ($0.49) -($1.17) - -
______ _____ _____ _____ _____
Net Earnings per share $3.44 $1.50 $0.03 $1.39 $0.58
===== ===== ===== ===== =====
Fully Diluted Earnings per share of Class A Common
Stock:
Earnings before Cumulative Effect of
Accounting Change $3.71 $1.42 $1.13 $1.14 $0.47
Cumulative Effect of Accounting Change -
Net of Tax Benefit ($0.47) -($1.10) - -
_____ _____ _____ _____ _____
Net Earnings per share $3.24 $1.42 $0.03 $1.14 $0.47
===== ===== ===== ===== =====
Weighted Average Shares Outstanding:
Primary: Common Stock 482 482 482 482 482
===== ===== ===== ===== =====
Class A Common 513 513 513 513 513
Stock ===== ===== ===== ===== =====
Fully Common Stock 504 504 504 504 504
Diluted: ===== ===== ===== ===== =====
Class A Common 535 535 535 535 535
Stock ===== ===== ===== ===== =====
Dividends per share:
Series A Cumulative Preferred $1.1250 $0.8437$1.1250 $1.1250$1.9688
Stock
Series B Cumulative Preferred $1.1250 $0.8437$1.0517 $0.8316$1.4552
Stock
Common Stock - - - - -
Class A Common Stock - - - - -
SUMMARY BALANCE SHEET
INFORMATION: DECEMBER 31,
1995 1994 1993 1992 1991
_____ _____ _____ _____ _____
Current Assets $29,395 $25,441$25,434 $23,937$23,126
Current Liabilities 7,981 7,387 8,660 8,021 11,783
______ ______ ______ ______ ______
Working Capital 21,414 18,054 16,774 15,916 11,343
Total Assets 50,215 45,309 45,834 45,925 47,614
Long-Term Debt 15,350 14,900 16,900 18,691 16,509
Stockholders' Equity 22,298 18,628 16,770 16,813 16,286
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis reviews certain
factors which produced significant changes in the Company's
results of operations during the three years ended December 31,
1995.
RESULTS OF OPERATIONS 1995 COMPARED TO 1994
In 1995, the Company s net sales increased $9,098,000 to
$68,592,000, an increase of 15% compared to net sales of
$59,494,000 in 1994. The 1995 increase was primarily a result of
an 18% increase in the Company s shipment volume of its principal
manufactured and purchased products due to a strong demand for
abrasive products during 1995, when compared to 1994. Average
selling prices for the Company s principal manufactured and
purchased products increased by approximately 1% during 1995,
when compared to 1994.
Consolidated net earnings were $3,462,000 or $3.55 per
common share for the year ended December 31, 1995. This compares
to consolidated net earnings of $1,516,000 or $1.53 per share for
the 1994 year. During 1995, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 106 (SFAS 106)
for its Canadian subsidiary, which resulted in a one time non-
cash after tax charge of $502,000 or $.52 per share. This
statement requires that the cost of postretirement benefits,
including health care and life insurance, be accrued during an
employee s active working career. In years prior to 1995, these
costs were expensed as paid. The Company s U.S. operations
adopted SFAS 106 during 1993. Prior to the effect of this charge
related to SFAS 106, the Company s consolidated net earnings were
$3,964,000 for the 1995 year or $4.07 per share, when compared to
$1,516,000 or $1.53 per share for 1994. In addition, 1994's net
earnings were adversely affected by a $1,357,000 unusual charge
related to the 1994 settlement of environmental litigation.
(This charge is discussed further within Note 14(a) of the Notes
to Consolidated Financial Statements, which is incorporated
herein by reference and within the operating expense comparisons
to follow.)
Cost of sales, excluding depreciation, as a percentage of
sales declined to 77.6% in 1995, when compared to 78.4% in 1994;
therefore gross margins, as a percent of sales increased to 22.4%
in 1995 compared to 21.6% in 1994. The 1995 enhancement is due
primarily to the economies of scale available at the higher sales
levels recognized in 1995 and the continued focus on increased
manufacturing efficiencies at all Company facilities.
Total operating expenses including depreciation were
$7,853,000 during 1995 versus $9,677,000 during 1994. As a
result operating income increased to $7,527,000 in 1995 compared
to $3,186,000 for the 1994 year. The 1995 decrease in operating
expenses of $1,824,000 is a result of the decreases of $119,000,
81,000, $267,000 and $1,357,000 in depreciation, selling and
general and administrative, research and development and
environmental compliance charges, respectively.
Depreciation, as a percent of sales, was 4.2% for 1995
compared to 5.0% for 1994.
Selling, general and administrative expense decreased by
$81,000 in 1995, due principally to a $334,000 reduction in legal
fees recorded during 1995 versus the prior year. Other selling
and general and administrative expense categories were generally
increased, with the exception of reduced health care costs, due
to the increased 1995 sales volume of products shipped. As a
percent of net sales, selling and general and administrative
expense decreased to 7.2% in 1995, from 8.5% for the 1994 year.
Research and development expense decreased by $267,000 for
1995 mainly as a result of the $188,000 decrease in expenses
associated with R&D costs related to specialty refractory
products at the Company s Canadian operation. During 1995, the
Company eliminated R&D spending related to one of its specialty
products produced at its Canadian plant.
Interest expense from continuing operations declined to
$1,469,000 in 1995 from $1,480,000 in 1994. Higher average
interest rates experienced on the Company s variable rate debt
were offset by lower average borrowing levels during 1995 versus
the 1994 year. The average interest rate on the U.S. revolving
and demand lines of credit was 8.4% during 1995 compared to 7.3%
in 1994. The Company recorded lower average borrowing levels in
1995 on its U.S. and Canadian revolving and demand lines of
credit and its U.S. term loan. The average total borrowing
outstanding for the three revolving lines of credit combined with
the term loan was $8.9 million for 1995, when compared to $10.5
million for the 1994 year.
The Company s Norwegian joint venture, Orkla Exolon K/S,
reported the Company s 50% share in the pre-tax income of the
venture was $793,000 for the 1995 year versus pre-tax income of
$431,000 for the 1994 year. The Company s share of the venture s
net sales increased 19% in 1995 to $8,140,000 compared to
$6,832,000 in 1994. Net sales, in terms of native currency,
increased by 8% in 1995 compared to 1994. The increase in net
sales was a result of the 1995 improved product mix and increases
in selling prices. The joint venture s gross margins, prior to
depreciation, increased to 24% for the 1995 year versus 18% for
1994, principally due to increased operational efficiency and a
more favorable product mix.
The 1995 income tax provision was $2,893,000, representing
an effective rate of 42%. The 1995 effective rate reflects a
rate which is more than the U.S. Federal statutory rate of 34%
principally due to the inclusion of state and provincial income
taxes. In addition, the Company has reserved $571,000 included
in the 1995 tax provision for future taxes payable related to
the repatriation of earnings of the Company s foreign
subsidiaries.
RESULTS OF OPERATIONS 1994 COMPARED TO 1993
Net sales in 1994 were $59,494,000, representing an increase
of 2.2% when compared to $58,225,000 in the year ended December
31, 1993. The Company's shipment volume for its primary
products, which include manufactured and purchased products,
increased by 3.2% in 1994 when compared to 1993. Average selling
prices of the Company's primary products declined by
approximately 1% in 1994, principally resulting from a less
favorable product mix in 1994 when compared to the previous year.
Consolidated net earnings were $1,516,000 for the year ended
December 31, 1994 compared to net earnings, prior to the
cumulative effect of an accounting change, of $1,206,000 during
1993. In 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 106 (SFAS 106) for its U.S.
operations. This statement requires that the costs of
postretirement benefits, including health care and life
insurance, be accrued during an employee's active working career.
In years prior to 1993, these costs were expensed as paid. The
cumulative effect of this one-time non-cash accounting change was
$1,173,000 after taxes, therefore, net earnings after this one-
time accounting change were $33,000 for the year ended December
31, 1993.
Gross margins, prior to depreciation expense, increased to
21.6% in 1994 versus 21.2% in 1993. Depreciation expense
decreased to $2,992,000 for the year ended December 31, 1994 when
compared to $3,210,000 for the 1993 year. Depreciation as a
percent of sales, was 5.0% for 1994 versus 5.5% for 1993.
Selling, general and administrative expense decreased to
$5,039,000 in 1994, when compared to $5,478,000 in 1993. The
$439,000 reduction was primarily a result of a $400,000 decrease
in bad debt expense during the 1994 year when compared to bad
debt expense recorded for 1993. In 1993, a separate bad debt
expense of $400,000 was recorded to reflect the estimated
unrealizable portion of the outstanding receivable in connection
with the Hennepin desulfurization project. In addition, the
Company decreased office expenses by approximately $57,000 in
1994. Several of the remaining categories included in selling,
general and administrative expense increased marginally in 1994
when compared to the previous year.
Research and development expense increased to $289,000 in
1994 when compared to $54,000 during 1993. The increase
primarily related to the 1994 additional research and development
spending for specialty refractory products at the Company's
Canadian facility.
Environmental compliance charges of $1,357,000 were recorded
in 1994 related to a $1,300,000 civil penalty associated with the
October, 1994 settlement with the Illinois Environmental
Protection Agency (IEPA). See "Liquidity and Capital Resources",
below. In addition, the Company increased a reserve for its
Canadian subsidiary by $57,000 for the environmental penalties
assessed by the Ontario Ministry of Environment (MOE) upon a
settlement between the Company and the MOE in August, 1994.
Interest expense from continuing operations increased to
$1,480,000 in 1994 from $1,441,000 for the 1993 year. The
$39,000 increase in primarily to result of higher average
interest rates during 1994 compared to average rates during 1993.
The 1994 increase in average interest rates for the Company's
revolving lines of credit was approximately 20%. The average
interest rate on the U.S. revolving and demand lines of credit
was 7.3% during 1994 versus 6.1% during 1993. The Company
recorded lower average borrowing levels in 1994 on its U.S. and
Canadian revolving and demand lines of credit. The average
borrowing outstanding for the three revolving lines of credit was
$10.5 million in 1994, when compared to $11.2 million during
1993. This 1994 reduction of average bank debt contributed to
partially offset the adverse effect of the higher average
interest rates incurred. The interest rate increases resulted
from higher U.S. and Canadian prime rates experienced during 1994
versus the prior year.
The Company's Norwegian joint venture, Orkla Exolon K/S,
reported the Company's 50% share in the pre-tax income of the
venture was $431,000 for the 1994 year versus a pre-tax loss of
$32,000 for the 1993 year. The Company's share of the venture's
net sales increased 25.5% in 1994 to $6,832,000 compared to
$5,445,000 in 1993. The increase in net sales was a result of
the 1994 increase in shipment volume, an improved product mix and
increases in selling prices due to the strengthening European
economy. The joint venture's gross margins, prior to
depreciation, increased to 18% for the 1994 year versus 11% for
1993, principally due to increased operational efficiency and a
more favorable product mix.
Other expense of $195,000 was recorded in 1994, when
compared to $232,000 in 1993. The continued stronger U.S. dollar
against the Canadian dollar accounted for the recognition of
transaction losses in translating the Canadian subsidiary's
balance sheet from Canadian dollars to U.S. dollars.
The 1994 income tax provision was $426,000 representing an
effective rate of 22%. The 1994 effective rate reflects a rate
which is less than the U.S. Federal statutory rate of 34%
principally due to the 1994 recognition of Canadian investment
tax credit carryforwards on the Company's books as deferred tax
assets which were not recorded in the prior year. In addition,
the Company's Norwegian joint venture eliminated a substantial
income tax reserve related to a tax case which was settled during
1994. The aforementioned reduction in the Company's 1994 income
tax provision were partially offset, however, by the recording of
an increase to the current year provision of $442,000 due to the
non-deductibility of $1,357,000 of environmental compliance
charges which were discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995, working capital (current assets
less current liabilities) has increased to $21,414,000, when
compared to $18,054,000 as of December 31, 1994. Accounts
receivable increased by $1,960,000 as of December 31, 1995 versus
1994 year end primarily as a result of the increase in net sales
during 1995 versus 1994. Inventory increased by $2,596,000 at
December 31, 1995 when compared to December 31, 1994. Income
taxes payable and accounts payable increased by $1,194,000 and
$424,000, respectively, as of December 31, 1995 versus December
31, 1994. The adverse effect of the income taxes payable and
accounts payable increase was offset by an $800,000 net decrease
in notes payable and long-term debt during 1995.
For the year ended December 31, 1995, net cash provided by
operating activities was $3,539,000. Outstanding bank
indebtedness decreased by $800,000, and cash reserves decreased
by $27,000 at December 31, 1995 compared to December 31, 1994.
Net cash provided by operating activities was sufficient to fund
$2,695,000 of capital expenditures in the year ended December 31,
1995.
The Company's current ratio increased to 3.7 to 1.0 at
December 31, 1995 from 3.5 to 1.0 as of December 31, 1994. The
ratio of total liabilities to shareholder's equity was 1.3 to 1.0
as of December 31, 1995 and 1.4 to 1.0 as of December 31, 1994.
Current financial resources including the availability of
the revolving and short-term lines of credit financing and
anticipated funds from operations are expected to be adequate to
meet normal requirements for the year ahead. The Company
currently has lines of credit with borrowing capacities of
$12,000,000 in the U.S. and $800,000 in Canada.
The Company in its long-term cash planning normally covers
capital expenditures with funds generated internally. Where
abnormally large capital expenditure programs are involved, long-
term financing vehicles are sometimes used. Total 1996 normal
capital expenditures are forecasted at $3,000,000 to maintain and
upgrade production facilities. The Company believes that funds
generated internally should be sufficient to finance normal
capital expenditure requirements in 1996. In addition to the
Company s recurring capital expenditures of approximately
$3,000,000 during 1996, the Company will incur capital costs
within the range of $12,000,000 to $14,000,000 over the next two
years to comply with its environmental permit in Illinois. As of
December 31, 1995, the Company has incurred approximately
$1,400,000 of capital costs related to the facility improvements.
The Company expects to finance the costs of the required capital
improvements through a bond offering possibly on a tax-exempt
basis. The Company has obtained a modification of its Industrial
Revenue Bond Agreement to allow for the required capital
expenditures under the Consent Order. For further information
see Note 14(a) to the Notes to Consolidated Financial Statements
beginning on page 40, which is incorporated herein by reference.
Reference is made to the descriptions of the following legal
matters, under the caption Legal Matters beginning on page 41
of this Form 10-K Report, which descriptions are incorporated
herein by reference: (i) 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 and a related
insurance settlement; (ii) antitrust proceedings commenced in
February 1994 against the Company and others; (iii) a temporary
suspension imposed upon the Company and others in December 1994
by the U.S. Defense Logistics Agency; and (iv) 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.
<PAGE>
<TABLE>
A table presented below, to assist further in interpreting
the changes in financial operations for the three years
indicated, sets forth the following (I) percentages which certain
items presented in the financial statements bear to net sales of
the Company and (ii) change of such items as compared to the
indicated prior year.
<CAPTION>
PERIOD TO PERIOD
INCREASE
(DECREASE)
IN RELATIONSHIP
RELATIONSHIP TO NET SALES TO
NET SALES
YEARS ENDED DECEMBER 31, YEARS ENDED
1995 1994 1993 1994-95 1993-94
_____ _____ _____ _____ _____
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 0% 0%
_____ ______ _____ ______ _____
Cost of Goods Sold,
excluding 77.6 78.4 78.8 (0.8) (0.4)
Depreciation
Depreciation 4.2 5.0 5.5 (0.8) (0.5)
Selling, General
and Administrative 7.2 8.5 9.4 (1.3) (0.9)
Expense
Research and 0.0 0.4 0.1 (0.4) 0.3
Development
Environmental
Compliance Charges - 2.3 - (2.3) 2.3
_____ _____ _____ _____ _____
89.0 94.6 93.8 (5.6) 0.8
_____ _____ _____ _____ _____
Operating Income 11.0 5.4 6.2 5.6 (0.8)
Other (Income)
Expense: Equity in
Loss (Income) of
Norwegian Joint
Venture (1.2) (0.7) 0.1 (0.5) (0.8)
Interest Expense 2.2 2.5 2.4 (0.3) 0.1
Other 0.0 0.3 0.4 (0.3) (0.1)
_____ _____ _____ _____ _____
1.0 2.1 2.9 (1.1) (0.8)
_____ _____ _____ _____ _____
Earnings Before 10.0 3.3 3.3 6.7 0.0
Income Taxes
Income Tax Expense 4.2 0.7 1.2 3.5 (0.5)
_____ _____ _____ _____ _____
Earnings Before
Cumulative Effect
of Acctg Change 5.8 2.6 2.1 3.2 0.5
Cumulative Effect
of Acctg Change (0.8) - (2.0) (0.8) 2.0
_____ _____ _____ _____ _____
Net Earnings 5.0 % 2.6 % 0.1 % 2.4% 2.5%
==== ==== ==== ==== ====
</TABLE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements, together with the
reports thereon of Ernst & Young LLP and Arthur Andersen LLP
dated January 12, 1996 and January 27, 1994 respectively, appear
on pages 16 through 43 to follow.
Report of Independent Auditors
Board of Directors
Exolon-ESK Company
We have audited the accompanying consolidated balance sheets of
Exolon-ESK Company and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income,
stockholders equity, and cash flows for the years then ended.
Our audits also included the financial statement schedule listed
in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company s management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits. The financial
statements and schedule of Exolon-ESK Company and subsidiaries
for the year ended December 31, 1993, were audited by other
auditors whose report dated January 27, 1994, expressed an
unqualified opinion on those statements and included an
explanatory paragraph that described the accounting change
discussed in Note 11 to these financial statements.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards 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. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Exolon-ESK Company and subsidiaries at
December 31, 1995 and 1994, and the results of their operations
and their cash flows for the years then ended in conformity with
generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As discussed in Note 11 to the financial statements, in 1995 the
Company changed its method of accounting for postretirement
benefits other than pensions for its Canadian subsidiary.
S/ Ernst & Young LLP
Buffalo, New York
January 12, 1996
Except for Note 14 b.(ii), as to which the date is
February 29, 1996
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Exolon-ESK Company:
We have audited the accompanying consolidated statements of
operations, changes in stockholders equity and cash flows of
Exolon-ESK Company (a Delaware corporation) and subsidiaries for
the year ended December 31, 1993. These consolidated financial
statements and the schedules referred to below are the
responsibility of the Company s management. Our responsibility
is to express an opinion on these consolidated financial
statements and schedules based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards 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. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of
operations and cash flows of Exolon-ESK Company and subsidiaries
for the year ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Note 11 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of
accounting for postretirement benefits for U.S. employees in
accordance with Statement of Financial Accounting Standards No.
106, Employers Accounting for Postretirement Benefits Other
Than Pensions.
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules per
Item 14(a)(2) are presented for purposes of complying with the
Securities and Exchange Commission s rules and are not a required
part of the basic financial statements. These schedules have
been subjected to the auditing procedures applied in our audit of
the basic financial statements and, in our opinion, fairly state
in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken
as a whole.
Rochester, New York, S/ Arthur Andersen LLP
January 27, 1994
(Except with respect to
the matters discussed in
Note 14, as to which the
date is March 24, 1994
and October 6, 1994.)
<PAGE>
EXOLON-ESK COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
(thousands of dollars except per
share amounts) 1995 1994 1993
_____ _____ _____
Net Sales $68,592 $59,494 $58,225
Cost of Goods Sold 53,212 46,631 45,860
______ ______ ______
Gross Profit Before Depreciation 15,380 12,863 12,365
Depreciation 2,873 2,992 3,210
Selling, General & Administrative 4,958 5,039 5,478
Expenses
Research and Development 22 289 54
Environmental Compliance Charges - 1,357 -
______ ______ ______
Operating Income 7,527 3,186 3,623
Other (Income) Expenses:
Interest Expense 1,469 1,480 1,441
Equity in (Income) Loss of (793) (431) 32
Norwegian Joint Venture
Other (6) 195 232
______ ______ ______
Earnings before Income Taxes and Cumulative
Effect of
Accounting Change 6,857 1,942 1,918
Income Tax Expense 2,893 426 712
______ ______ ______
Earnings before Cumulative Effect of 3,964 1,516 1,206
Accounting Change
Cumulative Effect of Accounting
Change -
Net of Income Tax Benefit (502) - (1,173)
______ ______ ______
Net Earnings $3,462 $1,516 $33
====== ====== ======
Primary Earnings (Loss) Per Common
Share:
Earnings before Cumulative Effect $4.07 $1.53 $1.21
of Accounting Change
Cumulative Effect of Accounting ($0.52) - ($1.22)
Change ______ ______ ______
Net Earnings (Loss) $3.55 $1.53 ($0.01)
====== ====== ======
Primary Earnings (Loss) Per Class A Common
Share:
Earnings before Cumulative Effect $3.82 $1.44 $1.14
of Accounting Change
Cumulative Effect of Accounting ($0.49) - ($1.15)
Change ______ ______ ______
Net Earnings (Loss) $3.33 $1.44 ($0.01)
====== ====== ======
Fully Diluted Earnings Per Common
Share:
Earnings before Cumulative Effect $3.93 $1.50 -
of Accounting Change
Cumulative Effect of Accounting ($0.49) - -
Change ______ ______ ______
Net Earnings $3.44 $1.50 -
====== ====== ======
Fully Diluted Earnings Per Class A Common
Share:
Earnings before Cumulative Effect $3.71 $1.42 -
of Accounting Change
Cumulative Effect of Accounting ($0.47) - -
Change ______ ______ ______
Net Earnings $3.24 $1.42 -
====== ====== ======
Weighted Average Shares Outstanding
(in thousands):
Common Stock 482 482 482
====== ====== ======
Class A Common Stock 513 513 513
====== ====== ======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
EXOLON-ESK COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(thousands of dollars except share amounts)
DECEMBER 31,
1995 1994
______ ______
Assets
Current assets:
Cash $440 $467
Accounts receivable (less allowance for 8,896 6,936
doubtful accounts of $419 in 1995 and $309
in 1994)
Inventories 19,700 17,104
Prepaid expenses 359 399
Deferred income taxes - 535
______ ______
Total Current Assets 29,395 25,441
______ ______
Investment in Norwegian joint venture 5,230 4,173
Property, plant and equipment, net of
accumulated depreciation
15,193 15,395
Other assets 397 300
______ ______
Total Assets $50,215 $45,309
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable - $2,000
Current maturities of long-term debt 1,550 800
Current maturities of capital lease - 25
obligations
Accounts payable 3,229 2,805
Accrued expenses 1,713 1,622
Income taxes payable 1,329 135
Deferred income taxes 160 -
______ ______
Total Current Liabilities 7,981 7,387
______ ______
Deferred income taxes 1,300 1,548
Long-term debt 15,350 14,900
Other long-term liabilities 3,286 2,846
Commitments and Contingencies
Stockholders' equity:
Preferred stock
Series A (liquidation preference - 276 276
$484)
Series B (liquidation preference - 166 166
$484)
Common stock, issued 512,897 ($1 par 513 513
value)
Class A common stock, issued 512,897 ($1 513 513
par value)
Additional paid-in capital 4,345 4,345
Retained earnings 16,952 13,545
Cumulative translation adjustment (99) (362)
Treasury stock, at cost (368) (368)
______ ______
Total Stockholders' Equity 22,298 18,628
______ ______
Total Liabilities and Stockholders' Equity $50,215 $45,309
====== ======
The accompanying notes to consolidated financial statements are
an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
EXOLON-ESK COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
(thousands of dollars) 1995 1994 1993
______ ______ ______
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net earnings $3,462 $1,516 $33
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 2,873 2,992 3,210
Cumulative effect of change in 502 - 1,173
accounting for post-retirement
benefits
Equity in (income) loss of (793) (431) 32
Norwegian joint venture
(Gain) loss on fixed asset 16 (56) (15)
disposals
Deferred income taxes 729 176 (1,060)
Foreign currency adjustments (2) (14) 20
Change in Assets and Liabilities:
Accounts receivable (1,960) 656 (936)
Inventories (2,596) (347) 47
Prepaid expenses 40 (26) (22)
Other assets (97) 155 450
Accounts payable 424 (639) (510)
Due to affiliates - - (825)
Accrued expenses 91 6 (22)
Income taxes payable 1,194 (590) 230
Other liabilities (344) 778 392
______ ______ ______
77 2,660 2,164
______ ______ ______
Net Cash Provided by Operating 3,539 4,176 2,197
Activities
Cash Flow from Investing Activities:
Capital expenditures (2,695) (2,068) (2,185)
Proceeds from fixed asset 8 328 42
disposals ______ ______ ______
Net Cash Used for Investing Activities (2,687) (1,740) (2,143)
Cash Flow from Financing Activities:
Net (payments) of long-term debt (800) (2,000) (29)
Dividends paid (54) (32) (43)
Principal (payments) borrowings under (25) (50) 5
capital lease obligations ______ ______ ______
Net Cash Used by Financing (879) (2,082) (67)
Activities
Net Increase (Decrease) in Cash (27) 354 (13)
Cash at Beginning of Year 467 113 126
______ ______ ______
Cash at End of Year $440 $467 $113
====== ====== ======
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
Interest $1,493 $1,465 $1,400
Income Taxes $991 $852 $817
The accompanying notes to consolidated financial statements are
an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
EXOLON-ESK COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
PREFERRED STOCK CLASS A
(thousands of dollars SERIES A SERIES B COMMON STOCK COMMON STOCK
except share amounts) SHARES AMT SHARES AMT SHARES AMT SHARES AMT
______ ____ ______ ____ ______ ____ ______ ____
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 19,364 $276 19,364 $166 512,897 $513 512,897 $513
31, 1992
Net earnings
Dividends declared:
Preferred stock Series A -
$1.1250 per share
Preferred stock Series B -
$1.0517 per share
Change in cumulative
translation adjustment
______ ____ ____________ _______ _____ _______ ____
Balance at December 19,364 $276 19,364 $166 512,897 $513 512,897 $513
31, 1993
Net earnings
Dividends declared:
Preferred stock Series A -
$.8437 per share
Preferred stock Series B -
$.8437 per share
Change in cumulative
translation adjustment
______ ____ _______ ____ _______ _____ _______ ____
Balance at December 19,364 $276 19,364 $166 512,897 $513 512,897 $513
31, 1994
Net earnings
Dividends declared:
Preferred stock Series A -
$1.1250 per share
Preferred stock Series B -
$1.1250 per share
Change in cumulative translation
adjustment
______ ____ ______ _____ _______ _____ _______ ____
Balance at December 19,364 $276 19,364 $166 512,897 $513 512,897 $513
31, 1995 ====== ==== ====== ==== ======= ===== ====== ====
The accompanying notes to consolidated financial statements are an
integral part of these statements.
</TABLE>
</PAGE>
EXOLON-ESK COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(CONT'D.)
CUMU-
ADDI- LATIVE
TIONAL TRANS-
(thousands of dollars PAID-IN RETAINED LATION TREASURY STOCK
except share amounts) CAPITAL EARNINGS ADJ SHARES AMOUNT
______ ________ ______ ______ ______
Balance at December 31, $4,345 $12,071 ($703) (30,902) ($368)
1992
Net earnings 33
Dividends declared:
Preferred stock Series A - (22)
$1.1250 per share
Preferred stock Series B - (21)
$1.0517 per share
Change in cumulative (33)
translation adjustment
______ _______ ______ _______ _____
Balance at December 31, $4,345 $12,061 ($736) (30,902) ($368)
1993
Net earnings 1,516
Dividends declared:
Preferred stock Series A - (16)
$.8437 per share
Preferred stock Series B - (16)
$.8437 per share
Change in cumulative 374
translation adjustment
______ ______ ______ _______ _____
Balance at December 31, $4,345 $13,545 ($362) (30,902) ($368)
1994
Net earnings 3,462
Dividends declared:
Preferred stock Series A - (28)
$1.4062 per share
Preferred stock Series B - (27)
$1.4062 per share
Change in cumulative 263
translation adjustment
______ _______ _____ _______ _____
Balance at December 31, $4,345 $16,952 ($99) (30,902) ($368)
1995 ====== ======= ===== ======= =====
The accompanying notes to consolidated financial statements are an
integral part of these statements
</PAGE>
EXOLON-ESK COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 and 1993
1. Summary of significant accounting policies
a. Principles of consolidation
The accompanying consolidated financial statements include
the accounts of the Exolon-ESK Company and its wholly-owned
subsidiaries (The Company"): (Exolon-ESK Company of Canada,
Ltd; Norsk-Exolon A/S; Exolon-ESK International Sales
Corporation.) All significant intercompany balances and
transactions have been eliminated.
b. Investment in Norwegian joint venture
Norsk Exolon A/S, a wholly-owned Norwegian nonoperating
subsidiary, has as its only significant asset a 50% investment in
a Norwegian partnership, Orkla Exolon K/S, engaged in the
manufacture of silicon carbide abrasive products. The investment
is stated at cost plus the Company's share of undistributed
earnings and translation adjustments since acquisition. The
earnings of the joint venture are reportable for Norwegian tax
purposes by the partners. Taxes attributable to Norsk Exolon
A/S's share of earnings from the joint venture are included as a
component of income taxes (Note 9).
c. Inventories
Inventories are stated at the lower of cost or market.
Approximately 75% and 74% of the dollar value of inventories is
stated at last-in, first-out (LIFO) cost at December 31, 1995 and
1994, with the balance being stated at average cost.
d. Property, plant and equipment
Property, plant and equipment is stated at cost.
Depreciation is computed for financial reporting purposes using
straight-line and declining balance methods over the estimated
useful lives of the assets as follows:
Years
Buildings 15-50
Machinery and 3-20
Equipment
The cost of assets sold or otherwise disposed of and the
related accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in the results of
operations. Maintenance and repairs are charged to expense as
incurred and renewals and betterments are capitalized.
e. Foreign currency translation
The Company has determined that the United States dollar is
the functional currency of the Canadian subsidiary and that the
Norwegian krone is the functional currency of the Norwegian
subsidiary and the joint venture.
Property, plant and equipment of the Canadian subsidiary are
translated at historical exchange rates and all other assets and
liabilities are translated at year-end exchange rates. Income
statements of the Canadian subsidiary are translated at average
rates for the year, except for depreciation, which is translated
at historical rates. Gains and losses arising as a result of the
translation of the financial statements of the Canadian
subsidiary are reflected directly in the results of operations.
Assets and liabilities of the Norwegian subsidiary and joint
venture are translated at year-end exchange rates and the income
statements are translated at the average exchange rates for the
year. Resulting translation adjustments are recorded as a
separate component of equity.
Net gains (losses) arising as a result of the remeasurement
of the Canadian subsidiary's financial statements into the United
States dollar and from other foreign currency transactions
amounted to ($30,000), ($143,000), and ($188,000) in 1995, 1994,
and 1993, respectively.
f. Income taxes
The liability method prescribed in Statement of Financial
Accounting Standards No. 109 (SFAS 109) is used in accounting for
income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities as measured
using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse.
The Company does not provide U.S. Federal income taxes on
the entire balance of the undistributed earnings of foreign
subsidiaries as these earnings are permanently reinvested. In
1995, the Company decided to repatriate up to $3,100,000 of
undistributed earnings from its Canadian subsidiary through a
future stock redemption and has provided for all applicable
income taxes in the 1995 statement of operations. At December
31, 1995, undistributed earnings of the Canadian and Norwegian
foreign subsidiaries combined were $8,657,000.
g. Pension and other retirement plans
Pension benefits under the Company's Tonawanda defined
benefit pension plan for hourly employees are based principally
on years of service. Benefits under the Tonawanda and Hennepin
salaried employees defined contribution plan are based on a
percentage of compensation for eligible employees. Pension cost
and related disclosures for these plans are determined under the
provisions of SFAS 87 (see Note 11).
h. Earnings per share
Primary earnings per share of Common Stock and Class A
Common Stock are based on the weighted average number of shares
of the respective classes outstanding during each year. Earnings
applicable to Common Stock and Class A Common Stock are
determined by using the earnings entitlement of each (as
discussed in Note 10) and giving effect to the total current
dividend requirements on the preferred stock. On a fully-diluted
basis, both net earnings and shares outstanding are adjusted to
assume the conversion of convertible Series A and Series B
Preferred Stock from the date of issue. The effects of
considering conversion of convertible Series A and Series B
Preferred Stock in 1993 was anti-dilutive, therefore, it is not
presented.
i. Currency forward contracts
From time to time, the Company enters into currency forward
contracts in management of foreign currency transaction exposure.
Forward foreign currency exchange contracts are purchased to
reduce the impact of foreign currency fluctuations on operating
results. Realized and unrealized gains and losses on these
contracts are recorded in net income currently, with the
exception of gains and losses on contracts designated to hedge
specific foreign currency commitments which are deferred and
recognized in net income in the period of the commitment
transaction. The discount or premium of the forward contract is
recognized over the life of the contract. At December 31, 1995,
the Company had open currency forward contracts to purchase the
U.S. dollar equivalent of $3,861,000 of Canadian dollars, all of
which mature within 12 months. Their fair market value, at
December 31, 1995 market exchange rates, was $3,903,000.
j. Environmental remediation and compliance
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 cost
can be reasonably estimated. Generally, the timing of these
accruals coincides with completion of a feasibility study or the
Company's commitment to a formal plan of action. At December
31, 1995 and 1994, liabilities for environmental costs of
$780,000 and $1,097,000 were recorded in other accrued
liabilities.
k. Other
Use of estimates: The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Long-Lived Assets: In March 1995, the Financial Accounting
Standards Board issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of , which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets
carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed
of. The Company will adopt Statement No. 121 in the first
quarter of 1996 and, based on current circumstances, does not
believe the effect of adoption will be material.
2. Business segment information
The Company has only one business segment, the manufacture
of abrasive materials and products for abrasive, metallurgical
and refractory uses. The Company regards its principal business
as being in a single industry segment.
The Company had sales to one major customer which accounted
for approximately 12% and 11% of consolidated net sales in 1994
and 1993, respectively. This customer's receivable balance was
approximately 8% and 14% of total trade receivables at December
31, 1994 and 1993, respectively. No one customer accounted for
10% or more of net sales in 1995.
3. Inventories
If the average cost method, which would approximate current
or replacement costs, had been used for valuing all inventories
of the Company, inventories would have been $2,070,000 and
$2,083,000 higher than reported at December 31, 1995 and 1994,
respectively. The Company generally records the adjustment for
LIFO inventory in the fourth quarter. In 1995 and 1994 this
adjustment reduced cost of goods sold by approximately $12,000
and $375,000, respectively.
The following are the major classes of inventories as of
December 31 (in thousands):
1995 1994 1993
_____ _____ _____
Raw Materials $2,119 $3,051 $2,868
Semi-Finished and 18,640 15,085 15,379
Finished Goods
Supplies and Other 1,011 1,051 967
______ ______ ______
21,770 19,187 19,214
Less: LIFO Reserve (2,070) (2,083) (2,457)
_______ _______ _______
$19,700 $17,104 $16,757
======= ======= =======
4. Property, Plant and Equipment
Property, plant and equipment consists of (in
thousands):
1995 1994
_______ _______
Land $283 $170
Buildings 8,233 8,227
Machinery & equipment 45,087 44,620
Construction in progress 2,300 421
_______ _______
55,903 53,438
Less - accumulated 40,710 38,043
depreciation _______ _______
$15,193 $15,395
======= =======
5. Operations
The Company conducts operations through its manufacturing
facilities in the United States and Canada, and its equity
interest in a Norwegian joint venture.
Transfers between Canada and the United States are based
upon established arm's length prices for the Canadian operation.
Operating income represents total revenues less operating
expenses before general corporate expenses. General corporate
expenses include directors and officers salaries, and donations.
Identifiable assets are those assets of the Company that are
identified with the operations in each geographic area.
Information about the Company's operations in different
geographic areas is set forth below.
(thousands of dollars) YEAR ENDED DECEMBER 31, 1995
UNITED ELIMINA-
STATES CANADA TIONS CONSOLIDATED
_______ _______ _______ ___________
Sales to unaffiliated
customers $62,799 $5,793 - $68,592
Transfers between
geographic areas - 11,888 (11,888) -
_______ _______ _________ __________
Total revenue $62,799 $17,681 ($11,888) $68,592
======= ======= ======== =======
Operating income, before general
corporate expense $5,483 $2,441 - $7,924
======= ======= ========
General corporate expenses (391)
Income before income taxes of
Norwegian joint
venture 793
Interest Expense (1,469)
_______
Earnings before income taxes and
cumulative effect of account $6,857
change =======
Identifiable assets $37,714 $9,720 ($2,449) $44,985
======= ======= ========
Investment in Norwegian joint
venture 5,230
_______
Total assets at December 31,
1995 $50,215
=======
(thousands of dollars) YEAR ENDED DECEMBER 31, 1994
UNITED ELIMINA- CONSOLI-
STATES CANADA TIONS DATED
______ ______ ______ ______
Sales to unaffiliated
customers $55,997 $3,497 - $59,494
Transfers between
geographic areas - 11,457 (11,457) -
_______ ______ _______ _______
Total revenue
$55,997 $14,954 ($11,457) $59,494
======= ====== ======== =======
Operating income, before general
corporate expense $2,161 $1,415 - $3,576
====== ====== =======
General corporate expenses (585)
Income before taxes of
Norwegian joint venture 431
Interest Expense (1,480)
_______
Earnings before income taxes $1,942
=======
Identifiable assets $36,078 $9,952 ($4,894) $41,136
======= ====== =======
Investment in Norwegian joint 4,173
venture _______
Total assets at December 31, 1994 $45,309
=======
(thousands of dollars) YEAR ENDED DECEMBER 31, 1993
UNITED ELIMIN- CONSOLI-
STATES CANADA ATIONS DATED
______ ______ _______ _______
Sales to unaffiliated $55,154 $3,071 - $58,225
customers
Transfers between - 10,590 (10,590) -
geographic areas _______ ______ ________ _______
Total revenue $55,154 $13,661 ($10,590) $58,225
======== ======= ======== =======
Operating income, before general
corporate expense $3,265 $740 - $4,005
====== ====== =======
General corporate expenses (614)
(Loss) before income taxes of
Norwegian joint venture (32)
Interest Expense (1,441)
________
Earnings before income taxes and
cumulative effect of accounting change $1,918
=======
Identifiable assets $37,928 $10,986 ($6,434) $42,480
======= ======= ========
Investment in Norwegian joint 3,354
venture ________
Total assets at December 31, 1993 $45,834
=======
6. Investment in Norwegian Joint Venture
The Company's 50% share of the results of operations of the
Norwegian joint venture has been determined after adjustments to
reflect the application of United States generally accepted
accounting principles relating principally to the recording of
depreciation and pension expenses and adjustments to the carrying
values of the ventures's year-end inventories. The Company's
share of the venture's assets, liabilities, and results of
operations is set forth in the following condensed financial
information (in thousands):
DECEMBER 31,
Balance Sheet Data 1995 1994
______ ______
Current assets $4,704 $4,093
Non-current assets 2,644 1,951
Current liabilities 1,458 1,243
Non-current Liabilities 363 375
Statement of Operations 1995 1994 1993
______ ______ ______
Net Sales $8,140 $6,832 $5,445
Gross profit 2,097 1,221 629
Income (Loss) before income 793 431 (32)
taxes
The Company does not provide U.S. Federal income taxes on
the undistributed earnings of the Norwegian joint venture as
these earnings are permanently reinvested. At December 31, 1995,
undistributed earnings of the joint venture were $4,285,000.
7. Notes payable
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. The demand loan had a
zero balance as of December 31, 1995, 1994 and 1993. The
approximate average borrowings (Canadian funds) outstanding
during 1995, 1994 and 1993 equaled $83,000, $204,000, and
$242,000, respectively, with the approximate weighted average
interest rates of 9.9%, 6.9% and 7.0%, respectively. The maximum
amount of short-term debt (Canadian funds) outstanding as of any
month-end during 1995, 1994 and 1993 was $200,000, $425,000 and
$650,000, respectively.
The Canadian agreement requires the subsidiary to maintain
specified financial ratios and minimum net worth levels. The
maintenance of financial covenants may preclude the Canadian
subsidiary's transfer, by dividend or otherwise, funds to the
U.S. parent company. All borrowings under the Canadian agreement
are guaranteed by the Company and the Canadian bank has a
security interest in the Canadian accounts receivable, inventory
and machinery and equipment. Interest on the borrowings is based
upon the Canadian prime rate.
At December 31, 1994 borrowings of $2,000,000 were
outstanding under the demand line of credit portion of a Credit
Agreement with a U.S. bank. The U.S. Credit Agreement is
discussed further in Note 8 to follow.
8. Long-Term debt
Long-term debt consists of (in
thousands):
1995 1994
______ ______
Revolving credit and term loan $7,100 $5,100
agreement with a U.S. Bank. Interest
at prime rate plus % (8.75% at
December 31, 1995).
Term loan agreement with a U.S. Bank. 1,800 2,600
Interest at prime rate plus % (9.0%
at December 31, 1995).
Industrial revenue bond held by an 8,000 8,000
insurance company. Interest is at a
fixed rate of 8 %. Bond maturity is ______ ______
January 1, 2018.
$16,900 $15,700
Less - current maturities 1,550 800
______ ______
$15,350 $14,900
======= =======
U.S. Credit Agreement
The Company entered into a Credit Agreement on December 22,
1992 with a U.S. bank. The proceeds were used to refinance the
Company's previous Revolving Credit and Term Loan Agreement with
a different U.S. bank. The Credit Agreement provides 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 December 31, 1995 borrowings of $7,100,000 were
outstanding under the revolving portion of the Credit Agreement.
The revolving portion converts, in whole or any portion, to a
term note on March 31, 1996. Any principal balance of the
revolver which is not converted is required to be repaid by the
conversion date. Upon conversion, the term loan is payable in
sixteen quarterly principal installments as follows: fifteen
equal quarterly installments, each equal to the lesser of
$250,000 or 2.5% of the principal balance of the revolver
converted on the conversion date beginning April 1, 1996 and
continuing to October 1, 1999 and one final payment on January 1,
2000 in an amount equal to the remaining balance of the term
note.
At December 31, 1995 borrowings of $1,800,000 were
outstanding under the term loan portion of borrowings under the
Credit Agreement. The term loan is due in twenty equal quarterly
principal payments of $200,000 which began April 1, 1993 and end
January 1, 1998.
In addition to the revolver and term loan under the Credit
Agreement, the Company has a $2,000,000 demand line of credit.
At December 31, 1995 the line had a zero balance.
Borrowings under the three segments of the Credit Agreement
bear interest at either a defined base rate, contingent upon the
bank's prime lending rate, or a rate based on the London
Interbank Offered Rate (LIBOR). The Company has the option to
convert the interest rate on all or a portion of the principal of
its borrowings from the base rate to the rate based on LIBOR.
Interest is payable monthly.
The U.S. Credit Agreement requires the Company to maintain
certain financial covenants and include, the maintenance of
specified working capital; debt to tangible net worth ratios;
minimum tangible net worth levels; a minimum current ratio; and
minimum cash flow ratios. In addition, the agreement sets forth
limits on capital expenditures and dividends. The agreement
contains certain other covenants including restriction on
mergers, consolidations and sales of assets. The Company is
precluded from paying or declaring any dividends or other
distributions on its Common Stock without written consent from
its U.S. bank. The Company may declare Preferred Stock dividends
not to exceed $50,000 in the aggregate in any fiscal year.
As collateral for the U.S. Credit Agreement, the bank has
security interest in all U.S. accounts receivable and inventory
as well as certain additional assets of the Tonawanda, New York
facility.
Industrial Revenue Bonds
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 and require quarterly interest payments which
began March 1, 1993. The bonds bear interest, payable to a bank
as trustee at a fixed rate of 8 %. Amortization of principal
commences in January, 1999 until maturity in the year 2018. The
Bond Agreement requires the Company to maintain specified
financial ratios including, cash flow ratios, current ratios and
debt to tangible net worth ratios. Additionally, the Company is
required to maintain minimum working capital and tangible net
worth levels.
The Bond Agreement limits new (non-replacement) capital
expenditures, with the exception of capital expenditures incurred
in 1995 or 1996 related to a desulfurization unit, to $500,000
per year at the Company's Illinois facility. The Agreement
further restricts the Company by disallowing any new liens
incurred on the Hennepin facility with the exception of existing
liens as of January 22, 1993 and liens to secure indebtedness
arising under the U.S. Credit Agreement or liens arising from the
financing of the aforementioned new equipment at Hennepin of up
to $500,000 per year.
Aggregate annual maturities of long-term debt under the U.S.
Credit Agreement and the term loan with a Canadian bank are as
follows: 1996 - $1,550,000; 1997 - $1,800,000; 1998 -
$1,200,000, ; 1999 - $1,000,000; 2000 - $1,000,000; 2001 and
beyond - $10,350,000.
9. Income taxes
The components of income tax expense are as follows (in
thousands):
1995 1994 1993
______ ______ ______
Current provision
(benefit):
United States
Federal $1,226 $68 $848
State 178 76 145
Foreign 768 112 47
______ ______ ______
Total Current 2172 256 1040
______ ______ ______
Deferred provision
(benefit):
United States
Federal 494 152 (151)
State (36) 65 (141)
Foreign 263 (47) (36)
______ ______ ______
Total Deferred 721 170 (328)
______ ______ ______
Total $2,893 $426 $712
====== ====== ======
As of December 31, 1995, the Company has available
investment tax credit carryforwards of approximately $24,000 for
state purposes.
The actual tax expense differs from the "expected" tax
expense (computed by applying the U.S. Federal corporate tax rate
of 34% in 1995, 1994 and 1993 to earnings before income taxes) as
follows:
(thousands of dollars) 1995 1994 1993
______ ______ ______
Computed "expected" tax expense $2,332 $660 $652
Effect of differing tax rates applicable to foreign
subsidiary income (267) (109) -
Utilization of Norwegian net operating losses
not
previously recognized - (149) -
Foreign subsidiary losses not benefited for
Federal tax purposes - - 9
Recognition of investment tax credits - (214) -
Effect of permanent differences 9 (16) 25
State and Provincial taxes, net of 465 217 192
Federal benefit
Non-deductible environmental - 442 -
penalties
Norwegian tax reserve - (225) (130)
U.S. reserve for dividend 571 - -
repatriation
Other (217) (180) (36)
______ ______ ______
Total income tax expense $2,893 $426 $712
====== ====== ======
Effective tax rate 42.2% 21.9% 37.1%
====== ====== ======
Deferred income taxes for 1995 and 1994 reflect the 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. These "temporary
differences" are determined in accordance with SFAS 109 (see Note
1(f)). The types of "temporary differences" that give rise to
significant portions of deferred tax liabilities or (assets) are
as follows (in thousands):
1995 1994
______ ______
Excess tax depreciation $2,235 $2,347
Canadian NOL -- (25)
Norwegian NOL (180) --
Canadian ITC carryforwards -- (214)
Inventory accounting methods (192) (311)
Norwegian tax assessment 59 ---
reserve
Dividend repatriation reserve 571 --
Pension and payroll accruals 52 1
Accounts receivable and other (22) (122)
asset reserves
Post retirement accrual (1,044) (771)
Other, net (19) 108
______ ______
Net deferred tax liability at 1,460 1,013
end of year
Less:
Effect of Norwegian 8 6
translation
Tax benefit recorded on
cumulative effect of (282) ---
accounting change
Net deferred tax liability at 1,013 837
beginning of year ______ ______
Deferred expense for income $721 $170
taxes ====== ======
10. Capital Stock
The Company has two classes of Common Stock. At December
31, 1995 there were 600,000 shares of $1 par value Common Stock
authorized, of which 512,897 shares were issued and 481,995
shares were outstanding. At the same date there were 600,000
shares of $1 par value Class A Common Stock, of which 512,897
shares were issued and outstanding.
Additionally, there were 100,000 shares of no par value
Preferred Stock authorized. At December 31, 1995 there were
19,364 shares of Series A and 19,364 shares of Series B Preferred
Stock outstanding.
At December 31, 1995, the shares of Series A and Series B
Preferred Stock are entitled to receive, when declared by the
Board of Directors, cumulative annual cash dividends at the rate
of $1.125 per share. The Series A and Series B Preferred Stock
have a preference upon liquidation of $25.00 each per share.
Each share of Series A and Series B Preferred Stock is
convertible into 1.125 shares of Common Stock and Class A Common
Stock, respectively. The shares of Common Stock, voting with the
shares of the Series A Preferred Stock, have the right to elect
one-half of the members of the Board of Directors and the shares
of Class A Common Stock voting with the Series B Preferred Stock,
owned by Wacker Chemical (USA), Inc. ("Wacker USA"), have the
right to elect the remaining one-half of the members of the Board
of Directors.
11. Pension and other retirement benefits
The Company sponsors contributory and non-contributory
pension plans in the United States and Canada covering
substantially all hourly and salaried employees with the
exception of union employees at the Company's Hennepin plant, who
are covered by a union-sponsored pension plan. The Company's
U.S. defined contribution plan which covers all of its domestic
salaried employees and its Canadian defined contribution plan
covering substantially all Canadian employees, provide for the
Company to make regular contributions based on salaries of
eligible employees. Payments upon retirement or termination of
employment are based on vested amounts credited to individual
accounts. Contributions to the U.S. defined contribution plan
totaled $146,000 in 1995, $147,000 in 1994 and $158,000 in 1993.
Contributions to the Canadian defined contribution plan were
$66,000 in 1995 and $65,000 in 1994. Contributions to the
Canadian plan were not made in 1993 due to a surplus in the plan.
The Company also provides a defined benefit plan for hourly
employees at the Tonawanda plant. Benefits are based primarily
on years of service. Total pension expense for all plans
amounted to $361,000, $391,000 and $405,000 in 1995, 1994 and
1993, respectively.
<PAGE>
The following table summarizes the funded status of the
Company's Tonawanda hourly employees defined benefit plan and the
related amounts recognized in the Company's consolidated balance
sheet as of December 31, 1995 and 1994:
DECEMBER 31,
(thousands of dollars) 1995 1994
______ ______
Actuarial present value of benefit obligations:
Accumulated benefit obligations,
including vested benefit obligations
of $1,475 at December 31, 1995
and $1,324 at December 31, 1994 ($1,475) ($1,327)
======= =======
Projected benefit obligations ($1,475) ($1,327)
Plan assets at fair value, primarily long-term
fixed income investments 2,036 1,494
______ ______
Plan assets in excess of plan 561 167
obligations
Unrecognized net loss at transition, being
amortized approximately 17 years 137 154
Unrecognized prior service cost 162 173
Unrecognized net (gain) arising since (428) (141)
transition ______ ______
Prepaid pension expense $432 $353
====== ======
Prepaid pension asset 295 199
Intangible asset, net of amortization 137 154
______ ______
Prepaid pension expense $432 $353
====== ======
The actuarially computed pension cost for 1995, 1994 and 1993
included the following
components:
(thousands of dollars) 1995 1994 1993
______ ______ _____
_
Service costs $54 $59 $70
Interest on projected benefit obligation 106 100 98
Actual (return) on plan assets (404) (54) (178)
Amortization of transition liability and 324 (18) 142
deferrals _____ _____ _____
Net periodic pension expense $80 $87 $132
====== ====== ====
Unrecognized gain (losses) and prior service costs are
amortized on a straight-line basis over a period approximating
the average remaining service period for active employees.
An assumed discount rate of 8% has been used in determining
the actuarial present value of the projected benefit obligation.
The expected long-term rate of return on plan assets is 7%.
Benefits under the Canadian subsidiary's pension plans are
based on employee and employer matching contributions for the
defined contribution plan and years of service for the defined
benefit plan. The Company has applied for the termination of the
Canadian defined benefit plan with the Pension Commission of
Ontario. Upon formal procedural approval by the Pension
Commission of Ontario, the defined benefit plan will be
terminated and a projection of the employees benefit at
retirement age will be calculated and subsequently rolled over
into the defined contribution plan. The defined benefit plan had
a surplus of approximately $120,000 (Canadian) as of December 31,
1993, the date of the most recent actuarial valuation. Assets of
the plan at December 31, 1995 and 1994 included 26,000 shares of
the Common Stock of Exolon-ESK Company valued at $780,000
(Canadian) at December 31, 1995.
In addition to providing pension benefits, 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 may amend or change the plan
periodically.
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. The
Company recognized the initial obligation as a one-time, after-
tax charge to earnings of $1,173,000 (net of income tax effect of
$703,000) in the year ended December 31, 1993. 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 amounts recognized in the Company's December 31, 1995
and 1994 balance sheets for its U.S. operations were as follows
(in thousands):
DECEMBER 31,
1995 1994
_____ _____
Accumulated postretirement
benefits obligation:
Retirees $887 $756
Fully eligible active 366 348
participants
Terminated participants not 39 73
yet receiving benefits _____ _____
Total accumulated postretirement $1,292 $1,177
benefits obligation
Unrecognized net (gain) (623) (777)
______ ______
Accrued postretirement benefit $1,915 $1,954
obligation ====== ======
These obligations are included in other long-term
liabilities on the Company's December 31, 1995 and 1994
balance sheets.
Net periodic postretirement benefit costs for 1995 and
1994 included the following components (in thousands):
1995 1994 1993
______ _____ ____
Service cost - benefits earned $12 $14 $12
during the period
Interest cost 92 115 145
Amortization (42) (4) -
_____ _____ ____
Net periodic postretirement $62 $125 $157
benefit cost ===== ==== ====
For measuring the postretirement benefit obligation as of
December 31, 1995 an 8% annual rate of increase in health care
rates was assumed for the next 7 years and 6% per year thereafter
applicable to Blue Cross and Medicare Reimbursements. It was
also assumed that reimbursable expenses for post-1990 retirees
would be at least equal to the dollar reimbursement limitation.
Increasing the annual rate of increase in health care rates by
one percentage point would increase the accumulated post-
retirement obligation by $55,000 and would increase the periodic
post-retirement cost by $7,000. Group life insurance premiums
and limitations on dollar reimbursements (applicable to post-1990
retirees) are not assumed to be subject to increases. An assumed
discount rate of 8% has been used in determine the actuarial
present value of the projected benefit obligation.
Unrecognized gains and losses are amortized on a straight-
line basis over the average remaining service period of active
participants.
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 (net of income tax effect of $282,000) in
the year ended December 31, 1995.
The accumulated post-retirement benefits obligation at
January 1, 1995 for the Canadian subsidiary includes the
following (in thousands):
Retirees and beneficiaries $600
Fully eligible active participants 184
_____
Total accumulated post-retirement $784
benefits obligation =====
The amounts recognized in the Canadian subsidiary's December
31, 1995 balance sheet was as follows (in thousands):
DECEMBER 31,
1995
______
Accumulated postretirement benefits
obligation:
Retirees $445
Fully eligible active 151
participants ______
Total accumulated postretirement $596
benefits obligation
Unrecognized net (gain) (233)
______
Accrued postretirement benefit $829
obligation ======
These obligations are included in other long-term liabilities
on the Canadian subsidiary s December 31, 1995 balance sheet.
Net periodic postretirement benefit costs for 1995 included the
following components (in thousands):
1995
_____
Service cost - benefits earned during $13
the period
Interest cost 61
Amortization -
______
Net periodic postretirement benefit $74
cost ======
The pro forma effect of the change on years prior to 1995
was not determinable.
For measuring the post-retirement benefits obligation as of
January 1, 1995, an 8% annual rate of increase in the health care
rates was assumed for the next 6 years and 6% per year
thereafter. Increasing the annual rate of increase in the health
care rates by one percentage point in each year would increase
the accumulated post-retirement benefits obligation by $73,000
(Canadian) and would increase the periodic post-retirement
benefits cost by $11,000 (Canadian). The group life insurance
premiums are not assumed to be subject to increase. An assumed
discount rate of 8% was used.
Unrecognized gains and losses are amortized on a straight-
line basis over the average remaining service period of active
participants.
The Company's current policy is to fund these benefits on a
pay-as-you-go basis.
12. Related party transactions
The Company purchased combined totals of $4,320,000,
$2,626,000 and $4,426,000 of products from its affiliates,
Elektroschmelzwerk Kempten GmbH, and its Norwegian joint venture
during 1995, 1994 and 1993, respectively.
The Company has two royalty agreements with affiliates of a
shareholder of the Company as described in Note 13(c).
13. Commitments
a. Lease agreements
The Company leases certain machinery and equipment under
operating leases. Amounts charged to expense for the years ended
December 31, 1995, 1994 and 1993 were $370,000, $351,000 and
$448,000, respectively. Total minimum lease payments, at
December 31, 1995, under operating leases are summarized as
follows (in thousands):
Operating
Year Leases
_______ _________
1996 334
1997 249
1998 205
_____
$788
=====
b. Purchase Commitments
The Company has entered into a one-year agreement to
purchase abrasive grade bauxite. Total cost remaining at
December 31, 1995 under the agreement is approximately $1,928,000
and is scheduled for payment by March, 31, 1996.
c. 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 new furnace plant. A separate royalty agreement covers
production of specialty product for 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 $725,000, $543,000 and $641,000 in the
twelve months ended December 31, 1995, December 31, 1994 and
December 31, 1993, respectively. The expiration of the royalty
agreement in July 1996 covering production of crude aluminum
oxide will reduce operating costs by approximately $475,000 per
year beginning August 1, 1996.
14. 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 is in the process of obtaining a
construction permit to implement the BACT.
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 Consent Order and complete
facility improvements, the Company expects to incur capital costs
within the range from $12,000,000 to $14,000,000 over the next
two years. As of December 31, 1995, the Company has incurred
approximately $1,400,000 of capital costs related to the facility
improvements. The Company expects to finance the costs of the
required capital improvements through an underwritten credit
enhanced bond offering possibly on a tax-exempt basis. 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 has 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 ( Authority ) on March 1, 1995. The Authority
has prepared an internal study of the report and the Authority s
draft for new concessions was expected to be 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) sometime prior to the mid-1980's and 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 permanent injunction dated
November 16, 1948 on the Company and its officers against
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 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, but 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 and,
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, but is not otherwise expected to
impact the Company's operations as the Company does not otherwise
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 from its stockpiles of such
grains 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 one year 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, and 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 law suit 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. 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 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. 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 (the
Perrotto Case ) 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 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 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.
15. Quarterly Financial Data (unaudited)
Summarized quarterly financial data for 1995 and 1994 is as
follows:
QUARTER
(thousands of dollars FIRST SECOND THIRD FOURTH
except per share amounts) ______ _______ _______ _______
Year Ended December 31,
1995
Net Sales $17,177 $17,131 $17,094 $17,190
Gross Profit Before 3,788 3,922 4,052 3,628
Depreciation
Earnings Before Cumulative
Effect of Accounting Change 938 1,014 1,175 837
Cumulative Effect of (762) - - 260
Accounting Change ______ ______ ______ ______
Net Income $176 $1,014 $1,175 $1,097
====== ====== ====== ======
Primary Earnings Per Common
Share Before Cumulative $0.96 $1.04 $1.21 $0.86
Effect of Accounting Change
Cumulative Effect of (0.79) - - 0.27
Accounting Change ______ ______ ______ ______
Primary Earnings Per Common $0.17 $1.04 $1.21 $1.13
Share
Primary Earnings Per Class
A Common Share Before $0.90 $0.98 $1.14 $0.80
Cumulative Effect of
Accounting Change
Cumulative Effect of ($0.74) - - $0.25
Accounting Change ______ ______ ______ ______
Primary Earnings Per Class $0.16 $0.98 $1.14 $1.05
A Common Share ====== ====== ====== ======
Year Ended December 31,
1994
Net Sales $14,155 $15,252 $15,185 $14,902
Gross Profit Before 2,644 3,159 3,435 3,625
Depreciation
Net Income (Loss) 121 75 (171) 1,491
====== ====== ====== ======
Primary Earnings (Loss) Per $0.11 $0.07 ($0.17) $1.52
Common Share
Primary Earnings (Loss) Per
Class A Common Share $0.11 $0.06 ($0.16) $1.43
====== ====== ====== ======
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Reference is made to the form 8-K s dated October 12, 1994
and October 24, 1994 which are hereby incorporated herein by
reference.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
See the information relating to directors and officers of
the Company under the captions "The Election of Directors",
contained in the Company's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April 24, 1996,
which is hereby incorporated by reference.
Item 11. Executive Compensation
See the information relating to "Compensation of Executive
Officers" presented in the Company's definitive Proxy Statement
relating to the Annual Meeting of Shareholders to be held on
April 24, 1996, which is incorporated herein by reference, except
that information appearing under the headings "Report of the
Executive Committee on Executive Compensation" and "Summary Share
Performance Graph" is not incorporated herein and should not be
deemed to be included in this document for any purpose.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
See the information relating to directors and officers of
the Company under the captions "Security Ownership of Certain
Beneficial Owners and Management", contained in the Company's
definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on April 24, 1996, which is hereby
incorporated by reference.
Item 13. Certain Relationships and Related Transactions
See the information relating to directors and officers of
the Company under the captions "Certain Relationships and Related
Transactions", contained in the Company's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be
held on April 24, 1996, which is hereby incorporated by
reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
(a) The following documents are filed as part of this
report
Page In
Form 10-K
1) Report of Independent Accountants:
Financial Statements:
Consolidated Statements of
Operations, three years ended 18
December 31, 1995
Consolidated Balance Sheets at 19
December 31, 1995 and 1994
Consolidated Statements of Cash
Flows, three years ended December 31, 20
1995
Consolidated Statements of Changes in
Stockholders' Equity, three years 21-22
ended December 31, 1995
Notes to Consolidated Financial 23-43
Statements
2) Financial Statement Schedule for
three years ended December 31, 1995:
II. Valuation and qualifying accounts 48
All other required schedules have
been omitted because they do not
apply to the Company.
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K (Continued)
(a) (3) Exhibits
Exhibit
No. Description Reference
3A Restated Certificate of Exhibit 3A.
Incorporation
3A(1) Certificate of Merger Exhibit 3A(1).
3E Amendment to By-Laws dated Exhibit 3E to the Report
March 23, 1991 on Form 10-Q dated March
31, 1991*
3F Certificate of Amendment of Exhibit 3F to the Report
Restated Certificate of on Form 10-K for the
Incorporation dated April year ended December 31,
23, 1986 1994*
3G Certificate of Amendment of Exhibit 3G to the Report
Restated Certificate of on Form 10-K for the
Incorporation dated May 4, year ended December 31,
1987 1994*
3H By-Laws Exhibit 3H to the Report
on Form 10-K for the
year ended December 31,
1994*
4 Instruments Defining Rights Articles of
of Security Holders Incorporation, Exhibits
3A, and Exhibits 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.
dated as of April 26, 1984
between the Registrant and
Wacker Chemical Corporation
10G Restated License Agreement Exhibit 10G.
dated as of April 26, 1984
among Elektroschmelzwerk
Kempten GmbH, ESK
Corporation and the
Registrant
10H Distributorship Agreement Exhibit 10H.
dated April 27, 1984 between
Elektroschmelzwerk Kempten
GmbH, and the Registrant
10I Indemnification Agreement Exhibit 10I.
dated as of December 15,
1984 between Wacker Chemical
Corporation and the
Registrant
10K Contract between Theeb, Ltd. Exhibit 10K to the
and The Exolon-ESK Company Report on Form 10-K for
of Canada, Ltd. dated the year ended December
February 28, 1985 31, 1992*
10M Federal Indictments dated Exhibit 10M to the
February 11, 1994 Report on Form 10-K for
the year ended December
31, 1993*
11 Statement of computation of Exhibit 11
per share earnings
21 Amendment of Certificate of Exhibit 21 to the Report
Incorporation dated October of Form 10-Q for the
28, 1992 quarter ended September
30, 1992.
22 Subsidiaries of the Exhibit 22
registrant
27 Financial Data Schedule Exhibit 27
(b) Reports on Form 8-K:
None.
(c) All exhibits required by Item 601 of Regulation S-K
are included in Item 14(a)(3).
(d) Separate Financial Statements of Subsidiary Not
Consolidated and 50% Owned
See the accompanying index to Orkla Exolon K/S
financial statements and financial statement schedules
on pages 49-64.
<PAGE>
Schedule II
EXOLON-ESK COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1995
(thousands of dollars)
ADDITIONS NET
BALANCE CHARGED ACCOUNTS
AT TO COSTS RECEIVABLE BALANCE
BEGINNING AND CHARGED AT END
DESCRIPTION OF YEAR EXPENSES OFF OF YEAR
___________________ ________ ________ _________ _______
Deducted from assets -
Allowance for
doubtful accounts
Year ended December $309 $110 -- $419
31, 1995
Year ended December $307 $20 ($18) $309
31, 1994
Year ended December $293 $20 ($6) $307
31, 1993
</PAGE>
Orkla Exolon KS, Orkanger - Norway
Index to Financial Statements
Page
Report of independent auditor 2
Balance sheets at December 31, 1995 and 1994 3 - 4
Statements of income and retained earnings for the three
years ended December 31, 1995, 1994 and 1993 5
Statements of cash flows for the three
years ended December 31, 1995, 1994 and 1993 6 - 7
Notes to the financial statements 8 - 13
Financial schedules for the three years ended
December 31, 1995, 1994 and 1993:
II Valuation and qualifying accounts and reserves 14
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
To The Partners of
Orkla Exolon KS
Trondheim, February 9, 1996
Report of Independent Public Accountant.
We have audited the accompanying balance sheets of Orkla Exolon
KS as of December 31, 1995 and 1994, and the related statements
of income and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements and
related schedules referred to below 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 audit in accordance with generally accepted
auditing standards. Those standards 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. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Orkla Exolon KS as of December 31, 1995 and 1994, and the
results of its operations and cash flows for the three years in
the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules
listed in the index to financial statements are presented for
purposes of complying with the Securities and Exchange
Commission' s rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole, .
ERNST & YOUNG - TRONDHEIM AS
Hans J Jonassen
State Authorized Public Accountant, (Norway)
<PAGE>
BALANCE SHEET AT DECEMBER 31st
Assets NOK 1995 NOK 1994
Current Assets
Cash 14,461,939 9,386,111
Trade receivables, less allowance
for doubtful accounts of NOK 380 000 16,499,168 17,120,092
Other accounts receivable and
prepayments 2,776,714 2,665,939
Receivable from related parties 5,570,011 5,214,232
(Note 4)
Inventories (Note 3) 20,194,000 20,960,000
__________ __________
Total current assets 59,501,832 55,346,374
Long-Term Receivables and Other 7,025,136 6,466,136
Assets (Note 5)
Property, Plant and Equipment
At cost
Land 507,930 507,930
Buildings 18,127,175 17,988,414
Machinery, equipment and
installations 43,779,235 35,526,285
__________ __________
62,414,340 54,022,629
Accumulated depreciation (35,989,31) (34,109,640)
___________ ____________
Net property, plant and equipment 26,425,030 19,912,989
__________ __________
Total assets 92,951,998 81,725,499
The accompanying notes are an integral part of these financial
statements.
<PAGE>
BALANCE SHEET AT DECEMBER 31st
Liabilities and Partners' Interest NOK 1995 NOK 1994
Current Liabilities
Bank indebtedness (Note 6) 3,000,000 3,000,000
Accounts payable and accruded
expenses 14,960,958 13,329,427
Portion of long-term debt repayable
within one year (Note 7) 483,334 483,334
__________ __________
Total current liabilities 18,444,292 16,812,761
Long-Term Debt
Mortgage loans (Note 7) 5,074,999 5,558,333
Portion repayable within one year (483,334) (483,334)
(Note 7) __________ __________
Total long-term debt 4,591,665 5,074,999
Partners' Interest
Paid-in capital (Note 8) 11,349,100 11,349,100
Retained earnings 58,566,941 48,488,639
__________ __________
Total partners' interest 69,916,041 59,837,739
__________ __________
Total liabilities and partners' 92,951,998 81,725,499
interest
Commitments and Contingent Liabilities (Note 9)
The accompanying notes are an integral part of these financial
statements.
<PAGE>
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31st
Income from Operations NOK 1995 NOK 1994 NOK 1993
Sales 103,426,909 96,220,973 77,449,041
Cost of sales exclusive
of depreciations shown
below 78,782,750 79,020,248 68,495,781
Gross income 24,644,159 17,200,725 8,953,260
Depreciation 2,129,670 1,597,094 1,423,216
Selling, general and
administrative expenses 12,742,064 9,129,804 10,402,262
Bad debts, net (107,430) 94,260 (867,869)
__________ __________ __________
Income/loss from
operations 9,879,855 6,379,567 (2,004,349)
Other Income/Expense
Interest on mortgage
loans and bank overdraft (394,659) (631,827) (620,949)
Interest income 489,941 156,774 53,744
Foreign exchange
gain/loss 103,165 (245,073) 884,133
Gain on investments 0 0 0
__________ __________ __________
Income/loss from other
activities 198,447 (720,126) 316,928
Income/loss for the yr. 10,078,302 5,659,441 (1,687,421)
Retained earnings at
January 1st 48,488,639 42,829,198 44,516,619
__________ __________ __________
Retained earnings at
December 31st 58,566,941 48,488,639 42,829,198
The accompanying notes are an integral part of these financial
statements.
<PAGE>
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31st
Cash Flows from
Operating Activities NOK 1995 NOK 1994 NOK 1993
Net income 10,078,302 5,659,441 (1,687,421)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciations 2,129,670 1,597,094 1,423,216
Gain/Loss sale property, (250,000) (452,521) 28,500
plant & equipment
Gain/Loss on other 0 0 0
investments
Change in assets and liabilities:
Increase/Decrease 154,370 1,302,797 (6,449,710)
inreceivables and
prepayments
Increase/Decrease in 766,000 892,000 3,021,000
inventories
Increase/Decrease in (559,000) (585,129) (659,084)
pension benefit
plan/prepaid pension
premiums
Increase/Decrease in 1,631,531 1,557,980 105,008
accounts payable and _________ _________ _________
accrued expenses
3,872,571 4,312,221 (2,531,070)
__________ _________ __________
Cash flow from operating 13,950,873 9,971,662 (4,218,491)
activities
<PAGE>
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31st
Cash Flow from
Investment Activities NOK 1995 NOK 1994 NOK 1993
Capital expenditures (8,641,711) (2,575,169) (392,000)
Sales of bonds 0 0 0
Sale of property, plant 250,000 715,000 84,000
and equipment __________ __________ __________
Cash flow from (8,391,711) (1,860,169) (308,000)
investment activities
Cash Flow from Financial Activities
Increase in bank 0 2,282,000 3,518,000
indebtedness
Repayment of long-term (483,334) (2,230,762) (435,722)
debt __________ __________ __________
Cash from financial (483,334) 51,238 3,082,278
activities __________ __________ __________
Net increase/decrease 5,075,828 8,162,731 (1,444,213)
in cash and cash
equivalents
Cash and cash 9,386,111 1,223,380 2,667,593
equivalents at the __________ __________ __________
beginning of year
Cash and cash 14,461,939 9,386,111 1,223,380
equivalents at the end
of year
Supplemental disclosure of cash flow information
Cash paid during the 403,178 584,058 640,468
year for interest:
The accompanying notes are an integral part of these financial
statements.
<PAGE>
Orkla Exolon KS
NOTES TO THE FINANCIAL STATEMENTS (All amounts expressed in NOK)
1) Operations
The company is organized as a limited partnership under
Norwegian law. The main business activity is the
manufacture and processing in Norway of Silicon Carbide, an
abrasive product.
2) Summary of Significant Accounting Policies
a. Taxes
No provisions for taxes are made in the financial statements
of the company because, as a limited partnership, it is not
subject to income tax, the tax effect of its activities
accruing to the partners.
b. Inventories
Finished goods and work in progress are stated at the lower
of average production cost and market. Cost comprises raw
materials, power, direct labour and manufacturing overhead.
Raw materials and supplies are stated at the lower of
average purchase cost and market. Cost comprises materials,
freight and handling.
c. Property, plant and equipment and related depreciation
Property, plant and equipment are stated at cost.
Depreciation has been recorded on the basis of cost using
the straight line method at the following rates which are
estimated to depreciate the assets over their useful lives
in the business:
Land 0%
Buildings 2%
Machinery and installations 6%
Equipment and vehicles 10%
Maintenance and repairs are expensed as incurred, major
renewals and betterments are capitalized.
Transactions denominated in foreign currencies are
translated into Norwegian kroner at the approximate exchange
rates ruling at the date of the individual transaction.
Foreign currency denominated assets and liabilities are
translated into Norwegian kroner at the approximate exchange
rates ruling at the year end.
e. Pension
The company has an insured pension plan which provides
pension for eligible employees on retirement at the age of
67 years or earlier in the event of disability, and for
widows, widowers and dependent children of deceased
employees covered by the plan. The basis for the pension on
retirement is the final salary at that date. Number of
service years required to obtain full pension is 30 years.
The pension benefits are secured by collective insurance
policy. The company's insured pension is coordinated with
the obligatory state pension scheme and is a benefit plan
per. FASB 87.
f. Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3) Inventories
Inventories consist of: 1995 1994
________ ________
Finished Goods 7,385,000 7,895,000
Work in progress 8,937,000 8,469,000
Raw materials 2,836,000 2,800,000
Supplies (net)*) 1,036,000 1,796,000
__________ __________
20,194,000 20,960,000
*) Supplies are included net of an obsolescence provision
of NOK 1 282 000.
4) Related Party Transactions
Amounts receivable from/payable to related parties consist of:
Receivable from: 1995 1994
______ ______
The Exolon - ESK Company, 963,436 522,343
New York, USA
Orkla Exolon AS 4,606,575 4,691,889
Norsk Exolon AS 0 0
_________ _________
Total receivable from 5,570,011 5,214,232
related parties
Payable to:
Orkla AS 106,440 76,600
Sales: 1995 1994 1993
_______ _______ _______
Exolon ESK Comp 5,255,893 5,567,746 4,641,462
ESK Germany 0 679,386 0
The Exolon - ESK Company, New York, USA is the ultimate
holding company of Norsk Exolon AS.
Purchases
Purchases of goods and services from related parties during
the year were as follows:
1995 1994 1993
_____ _____ _____
Orkla AS 341,607 337,633 302,845
Borregaard 297,422 0 0
The Exolon - ESK Company,
New York, USA 0 0 77,750
Elektrosmeltzwerk, Kempten,
Germany 371,500 215,100 334,900
_______ _______ _______
Total purchases from
related parties 1,010,529 552,733 715,495
5) Pensions
For the calculation for Orkla Exolon KS is used main
assumptions of 5% interest, 7% rate of return and 2% salary
increases. The company's funding exeed their obligations
and net value of funding and obligations is classified as
long term receivables. Total assets of the pension plan at
December 31, 1995 were NOK 26 286 000.
Prior years the company has booked pension premium fund
only. Pension premium fund is used for advance payments for
insured collective pensions plan to obtain deductions for
tax purposes. Some changes to the fund, such as bonuses,
was booked upon as revaluation and amortized over 12 years.
This amortization plan is continued and will cause yearly
credit of NOK 209 000.
<PAGE>
This years movements in caption for long term receivables
and other assets can be summarized as follows:
1995
_________
Net value of benefit plan as of 1.1.95 7,224,279
Difference between actuarial calculation and
pension premium fund as of 1.1.95 0
Rest revaluation pension premium fund as of 1.1.95 (758,143)
Prepaid pension premium as of 1.1.95 0
Booked pension premium fund as of 12.31.94 6,466,136
Net pension premium 1995 350,000
Revaluation pension premium fund 1995 209,000
________
Booked value of benefit plan as of 12.31.95 7,025,136
Rest revaluation pension premium fund as of 299,269
12.31.95 ________
Net value of benefit plan as of 12.31.95 7,324,405
6) Bank Indebtedness
The company has an overdraft facility of NOK 3 000 000. The
company pays a commission on the total facility of 1%. Interest
on the amount utilised is the banks prime rate + 0.5%. In
addition, the bank is comitted to lend the company up to NOK 3
000 000 in equivalent DEM amount until September 31, 1996. The
interest rate is LIBOR + 1.5%. These loan-facilities are secured
on properties, plant and equipment, raw materials, work in
progress and finished goods. Unused line of credit at December
31, 1995 was NOK 3 000 000 and NOK 3 000 000 at December 31,
1994.
<PAGE>
7) Long-Term Debt
Long-term debt consist of:
INTEREST
LENDER SECURITY RATE 1995 1994 1993
__________ _________ ________ _______ _______ _______
Den Norske First 12.70% 0 0 0
Industribank mortgage
Second 12.70% 0 0 175,000
mortgage
(Buildings,
machinery &
equipment)
Den Norske Third 8.00% 0 0 123,526
Industribank mortgage
(Buildings,
machinery &
equipment)
Den Norske Fourth 9.70% 0 0 461,540
Industribank mortgage
Den Norske Fifth 8.00% 0 0 861,529
Industribank mortgage
(Buildings,
machinery &
equipment)
Den Norske Sixth 12.00% 0 0 367,500
Industribank mortgage _______
(Buildings,
machinery &
equipment)
SND First 6.80% 5,075,000 5,558,333
mortgage _________ _________
(Buildings,
machinery &
equipment)
Mortgage loans as of December 31st 5,075,000 558,333 1,989,095
<PAGE>
REPAYMENT TERMS
1996 483,333
1997 483,333
1998 483,333
1999 483,333
2000 onwards 3,141,668
__________
5,075,000
8) Paid-in Capital
THE PAID-IN CAPITAL IS AS FOLLOWS:
SHARE IN
PARTNERSHIP NOK
Norsk Exolon AS, Orkanger 42.3285% 4,803,900
Orkla AS, Oslo 42.3285% 4,803,900
Orkla Exolon AS, Orkanger 15.3430% 1,741,300
________ _________
100.0000% 11,349,100
9) Commitments and Contingent Liabilities
Environmental standards
The company is still involved in discussions with the
Norwegian State Pollution Control Authority (SFT) regarding
environmental issues. These issues are mainly related to dust
and SO2-emission.
Following open issues exists:
Authorities have not yet specified which environmental
requirements the company has to follow.
These are uncertainties connected to which technological
methods to use to meet environmental requirements.
There exist uncertainty regarding the financial consequences
connected to environmental requirements.
The Authorities (SFT) has announced that the existing
permission for emission is withdrawn from January 1, 1996. The
company has presented plans to SFT for how to solve environmental
issues. These plans will form basis for the Authorities
evaluation of further permission for future emission.
SFT's draft for a new concession will be presented in
February 1996.
10) Unrecorded Adjustments
The adjustments shown below have been made to present the
accompanying financial statements in accordance with US generally
accepted accounting principles and Exolon ESK company accounting
principles:
Increase(+)/decreace(-) in:
STATEMENT RETAINED
OF INCOME EARNINGS
1995 *) 16,579 9,670,117
1994 *) (56,955) 9,653,538
1993 (Change in N GAAP re. (261,450)
Acc. principles
for pensions)
1993 766,758 9,971,943
1992 **) (9,667,305) 9,205,185
1991 ***) (13,401,790) 18,872,490
*) Differences in 1995 and 1994
is due to:
Statement of income: 1995 1994
_______ _______
Effect of different (392,421) (265,955)
depreciation rates
Effect of different capital 200,000 0
expenditures
Effect on accounting of 209,000 209,000
pension per FASB 87
Effect on different loss on 0 0
disposal fixed assets
16,579 (56,955)
Retained earnings:
Inventory obsolensence (1,282,000) (1,282,000)
(supplies)
Benefit plan per FASB 87 (299,268) (508,268)
Fixed assets 11,251,385 11,443,806
__________ __________
9,670,117 9,653,538
**) The decrease in difference between retained earnings per
US GAAP and local books in 1992 is mostly due to change
in Norwegian accounting principles.
***) The decrease in difference between retained earning per
US GAAP and local books in 1991 is mostly due to changes
in Norwegian tax regulation as some of the tax related
reserves were made permanent as of January 1, 1991. This
does not effect the financial statements of Orkla Exolon
KS per US GAAP (see note 2a)
<PAGE>
Valuation and Qualifying Accounts and Reserves Schedule II
REALIZED
ADDITION LOSSES
BALANCE CHARGED BALANCE ON
AT TO AT END ACCOUNTS
BEGINNING COST AND OF RECEIV-
CLASSIFICATIONS OF PERIOD EXPENSES PERIOD ABLES
________________ _________ _________ ______ ________
Year ended December 31, 1995
Allowance for 380,000
doubtful accounts
Year ended December 31,1994
Allowance for 343,000 37,000 380,000 57,260
doubtful accounts
Year ended December 31,1993
Allowance for 1,230,000 (887,000) 343,000 19,131
doubtful accounts
<PAGE>
Pursuant to the requirements of Section 13 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.
March 15, 1996 EXOLON-ESK COMPANY
S/ J. Fred Silver
By:________________________
J. Fred Silver,
President and
Chief Executive Officer
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
dates indicated.
S/ J. Fred Silver
_____________________
J. Fred Silver,
President and Chief
Executive Officer
S/ James A. Bernardoni
_____________________
James A. Bernardoni,
Vice President Finance,
and Principal Accounting
Officer
S/ Theodore E. Dann, Jr.
________________________
Theodore E. Dann, Jr. Chairman of the March 15, 1996
Board
S/ Brent D. Baird
________________________
Brent D. Baird Director March 15, 1996
S/ Dirk Benthien
_______________________
Dirk Benthien Director March 15, 1996
S/ Dr. Hans Essler
_______________________
Dr. Hans Essler Director March 15, 1996
S/ Dr. Hans Herrmann
_______________________
Dr. Hans Herrmann Director March 15, 1996
S/ Patrick W. E. Hodgson
________________________
Patrick W.E. Hodgson Director March 15, 1996
S/ Joseph R. Pinotti
_______________________
Joseph R. Pinotti Director March 15, 1996
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Reference
3A Restated Certificate of Exhibit 3A on pages 68-84
Incorporation
3A(1) Certificate of Merger Exhibit 3A(1) on pages
85-93
3 Amendment to By-Laws 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 By-Laws Exhibit 3H to the report
on Form 10-K for the year
ended December 31, 1994*
4 Instruments Defining Rights Articles of
of Security Holders Incorporation, Exhibits
3A, and Exhibits 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 on pages 94-
dated as of April 26, 1984 100
between the Registrant and
Wacker Chemical Corporation
10G Restated License Agreement Exhibit 10G on pages 101-
dated as of April 26, 1984 115
among Elektroschmelzwerk
Kempten GmbH, ESK
Corporation and the
Registrant
10H Distributorship Agreement Exhibit 10H on pages 116-
dated April 27, 1984 129
between Elektroschmelzwerk
Kempten GmbH and the
Registrant
10I Indemnification Agreement Exhibit 10I on pages 130-
dated as of December 15, 131
1984 between Wacker
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*
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 132
per share earnings
21 Amendment of Certificate of Exhibit 21 to the Report
Incorporation dated October on Form 10-Q for the
28, 1992 quarter ended September
30, 1992*
22 Subsidiaries of the Page 133
registrant
27 Financial Data Schedule Submitted Electronically
* Incorporated herein by reference
Exhibit 3A
RESTATED
CERTIFICATE OF INCORPORATION
OF
The Exolon Company
The original Certificate of Incorporation of The Exolon
Company was filed with the Secretary of State of the State of
Delaware on December 5, 1975. This Restated Certificate of
Incorporation was duly adopted by the stockholders on April 12,
1984, in accordance with the provisions of Sections 245 & 242 of
the General Corporation Law of the State of Delaware.
FIRST. The name of the Corporation is Exolon-ESK
Company.
SECOND. The address of its registered office in the
State of Delaware is 100 West Tenth Street in the City of
Wilmington, County of New Castle. The name of the registered
agent at such address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage
in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of
Delaware.
FOURTH. The number of shares of all classes which the
Corporation is authorized to have outstanding is 1,300,000
shares, consisting of (I) one hundred thousand (100,000)
preferred shares without par value, issuable in series
(hereinafter designated "Preferred Stock"), (ii) six hundred
thousand (600,000) common shares with a par value of one Dollar
($l) per share (hereinafter designated "Common Stock"), and (iii)
six hundred thousand (600,000) common shares with a par value of
$1 (hereinafter designated "Class A Common Stock"). The express
terms and provisions of the shares of each class are as follows:
SUBDIVISION A
PREFERRED STOCK ISSUABLE IN SERIES
The Preferred Stock may from time to time be divided
into and issued in one or more series. Except to the extent
herein provided, the different series shall be established and
designated, the rights and preferences thereof established and
the variations in the relative rights and preferences as between
the different series shall be established by the Board of
Directors as herein provided. In all other respects all shares
of Preferred Stock shall be identical.
The Preferred Stock may be issued from time to time by
authority of the Board of Directors for such consideration as
from time to time may be fixed by vote of the Board of Directors.
The Board of Directors is hereby expressly authorized,
subject to the provisions of these Articles, to establish one or
more additional series of Preferred Stock and, with respect to
each such series, to establish:
(1) the number of shares constituting such series and
the distinctive designation thereof;
(2) the dividend rate on the shares of such series and
the dividend payment dates, and whether the shares of such series
shall be entitled to any participating or other dividends in
addition to dividends at such rate, and if so on what terms;
(3) whether or not the shares of such series shall be
redeemable and, if redeemable, the redemption prices and the
terms and manner of redemption;
(4) the preferences, if any, and the amount or amounts
per share which the shares of such series shall be entitled to
receive upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation;
(5) whether or not the shares of such series shall be
subject to the operation of retirement or sinking funds to be
applied for redemption of such shares and, if so, the annual
amount thereof and the terms and provisions relative to the
operation thereof;
(6) the terms and conditions, if any, upon which
shares of such series shall be convertible into, or exchangeable
for, shares of stock of any other class or classes, including the
price or prices or the rate or rates of conversion or exchange
and the terms of adjustment, if any:
(7) the conditions under which and matters on which
the shares of such series shall vote as a separate class;
(8) limitations or restrictions, if any, on the
issuance of additional shares of such series or any shares of any
other series of Preferred Stock; and
(9) such other preferences or restrictions or
qualifications thereof as the Board of Directors may deem
advisable and as are not inconsistent with law and the provisions
of this Restated Certificate of Incorporation.
Each share of Preferred Stock of any series shall be
entitled to one vote per share, each such series voting as a
single class with the holder of common shares of a stated class
of the Corporation. Votes need not be written ballot unless
requested by the holder of shares entitled to vote thereon.
Notwithstanding the fixing of the number of shares
constituting a particular series, the Board of Directors may any
time thereafter authorize the issuance of additional shares of
the same series.
Holders of Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of
funds legally available therefor, cumulative cash dividends at
the annual rates fixed hereby or by the Board of Directors for
the respective series. Until all accrued dividends on all series
of Preferred Stock shall have been declared and set apart for
payment through the last preceding dividend date set for all such
series, no cash payment or distribution shall be made to holders
of any other class of stock of the Corporation. Arrearages in
the payment of dividends shall not bear interest. No dividend
shall be declared and set apart for payment on any series of
Preferred Stock if dividends are in arrears on any other series.
Nothing herein contained shall be deemed to limit the right of
the corporation to purchase or otherwise acquire at any time any
shares of its capital stock, provided that no shares of capital
stock shall be repurchased at any time when dividends on any
series of Preferred Stock are in arrears.
Any shares of Preferred Stock which shall have been
purchased or redeemed, or which shall at any time have been
surrendered for conversion o r exchange or for cancellation
pursuant to any retirement or sinking fund provision with respect
to any series of Preferred Stock, shall be retired and shall
thereafter have the status of authorized and unissued shares of
Preferred Stock undesignated as to series.
SUBDIVISION B
SPECIAL TERMS AND PROVISIONS APPLICABLE
TO $1.12-1/2 SERIES A CONVERTIBLE PREFERRED STOCK
There shall be a series of Preferred Stock which shall
consist of Thirty-one Thousand Five Hundred Twenty-three (31,523)
shares of said Preferred Stock and which shall constitute a
series designated as the $1.12-1/2 Series A Convertible Preferred
Stock (hereinafter referred to as the "Series A Preferred
Stock").
(1) Dividends.
The holders of the Series A Preferred Stock shall be
entitled to receive, as and when declared by the Board of
Directors out of any funds legally available therefor, cumulative
cash dividends at the annual rate of $1.12-1/2 per share held,
payable quarterly on the last day of November, February, May and
August in each year.
(2) Redemption.
(a) The Corporation may, pursuant to a resolution
adopted by the Board of Directors, redeem on any dividend payment
date all or any part of the Series A Preferred Stock at the time
outstanding at a redemption price of $25 per share, together with
all dividends accrued thereon to the date fixed for such
redemption. If less than all of the outstanding shares of the
Series A Preferred Stock are to be redeemed, the shares to be
redeemed, the shares to be redeemed shall be determined by lot or
pro rata in such manner as the Board of Directors may prescribe.
(b) Notice of every redemption shall be mailed,
addressed to the holders of record of the shares to be redeemed
at their respective addresses as they shall appear on the books
of the Corporation, at least twenty (20) days and not more than
sixty (60) days prior to the date fixed for redemption.
(c) If on or before the redemption date the
redemption price, together with accrued dividends to the date
fixed for redemption, shall have been set aside by the
Corporation, separate from its other funds in trust for the pro
rata benefit of the holders of the shares called for redemption,
then after the date of redemption notwithstanding that any
certificate for shares of the Series A Preferred Stock so called
for redemption shall not have been surrendered for cancellation,
the shares represented thereby shall no longer be deemed
outstanding, the dividends thereon shall cease to accrue, and all
rights with respect to such shares shall terminate on the
redemption date, except for the right of the holders thereof to
receive the redemption price of and dividends accrued on the
shares so redeemed without interest.
(3) Liquidation, Dissolution and Winding-Up.
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the
Corporation, then before any distribution or payment shall be
made to the holders of the common shares of any class, the
holders of the Series A Preferred Stock shall be entitled to be
paid in full an amount equal to $25 per share, together with all
dividends accrued thereon to such distribution or payment date.
If the amounts so payable are not paid in full, the holders of
all of the outstanding shares of Series A Preferred Stock shall
share ratably in any distribution of assets in proportion to the
full amounts to which they would otherwise be respectively
entitled.
(b) Neither a consolidation nor merger of the
Corporation with or into any other corporation, nor a
reorganization of the Corporation, nor a sale or transfer of the
business or assets of the Corporation as or substantially as an
entirety, shall be considered a liquidation, dissolution or
winding-up of the affairs of the Corporation within the meaning
of the foregoing provisions.
(c) As used herein, the term "dividends accrued"
means, with respect to the shares of the Series A Preferred
Stock, an amount equal to simple interest at the rate of
$1.12-1/2 per share per annum from the date of issuance, or from
the last date on which a dividend was paid on such shares, to the
date as of which the computation is to be made, as the case may
be.
(4) Retirement Fund.
Shares of the Series A Preferred Stock shall not
be subject to the operation of a retirement or sinking fund to be
applied for redemption of such shares.
(5) Conversion Rights.
(a) Shares of the Series A Preferred Stock shall
be convertible into fully paid and non-assessable shares of the
Corporation's Common Stock at the rate of 1.12-1/2 shares of the
Common Stock for each share of Series A Preferred Stock. Such
shares shall be converted by giving written notice of the
election to convert to any Transfer Agent and surrendering the
certificate or certificates for such shares to such Transfer
Agent in transferable form. In case of the Corporation's
redemption of any shares of the Series A Preferred Stock, such
right of conversion shall end, as to the shares called for
redemption, at the close of business on the sixth business day
prior to the date fixed for redemption, unless default shall be
made in the payment of the redemption price. In the event of the
liquidation or dissolution of the Corporation, such right of
conversion shall end at the close of business on the tenth
business day prior to the date fixed for the first distribution
to the holders of Series A Preferred Stock. Upon conversion, the
Corporation shall make no payment or adjustment on account of
dividends accrued on the shares of Series A Preferred Stock
surrendered for conversion, except that in the case of shares
called for redemption accrued dividends shall be paid through the
date fixed for redemption.
(b) The number of shares of the Common Stock into
which each share of the Series A Preferred Stock is convertible
shall be subject to the following adjustments from time to time
after the happening of the following events as follows:
(i) In case the Corporation shall (1)
declare a dividend on the Common Stock payable in shares of the
Common Stock, (2) subdivide the outstanding shares of the Common
Stock, (3) combine the outstanding shares of the Common Stock
into a smaller number of shares, or (4) issue by reclassification
of the Common Stock any shares of the Corporation, each holder of
the Series A Preferred Stock shall thereafter be entitled upon
conversion to receive for each share the number of shares of the
Corporation which he would have owned or have been entitled to
receive after the happening of such event had such share been
converted immediately prior to the happening of such event. Such
adjustment shall become effective immediately after the close of
business on the record day for such dividend or the day upon
which any subdivision, combination or reclassification shall
become effective.
(ii) In case the Corporation shall
consolidate or merge into or with another corporation, or in case
the Corporation shall sell or convey all or substantially all of
its property, each share of the Series A Preferred Stock then
outstanding shall thereafter be convertible into the kind and
amount of shares of stock, other securities, cash and/or property
received by a holder of the number of shares of Common Stock into
which such share might have been converted immediately prior to
such event, and shall have no other conversion rights. In any
such event, effective provision shall be made in the certificate
or articles of incorporation or organization of the resulting or
surviving corporation or otherwise or in any contracts of sale
and conveyance for said conversion rights of the shares of the
Series A Preferred Stock.
(iii) In case the Corporation shall issue
rights to the holders of the Common Stock entitling them to
subscribe for or purchase shares of the Common Stock at a price
per share less than the current market price of the Common Stock
(as defined in Subsection (v) below) on the record date thereof
the number of shares of the Common Stock into which each share of
the Series A Preferred Stock shall thereafter be convertible
shall be determined by multiplying the number of shares of the
Common Stock into which such shares of the Series A Preferred
Stock was theretofore convertible by a fraction, of which the
numerator shall be the number of shares of the Common Stock
outstanding on the record date plus the number of additional
shares of the Common Stock offered for subscription or purchase,
and of which the denominator shall be the number of shares of the
Common Stock outstanding on the record date plus the number of
shares of the Common Stock which the aggregate offering price of
the total number of shares so offered would purchase at such
current market price. Such adjustment shall be made whenever
such rights are issued and shall become effective immediately
after the record date for the determination of stockholders
entitled to receive such rights.
(iv) In case the Corporation shall distribute
to all holders of its Common Stock rights to subscribe to-its
debt securities or equity securities other than Common Stock,
then in each such case the number of shares of Common Stock into
which each such share of Series A Preferred Stock shall be
convertible after the record date for such distribution shall be
determined by multiplying the number of shares of Common Stock
into which such share of Series A Preferred Stock was theretofore
convertible by a fraction, of which the numerator shall be the
current market price per share of the Common Stock (as defined in
Subsection (v) below) on such record date and of which the
denominator shall be the current market price per share of the
common Stock on such record date less the value of the
subscription rights so distributed applicable to one of the
outstanding shares of Common Stock. Value shall be determined by
the Board of Directors of the Corporation, whose determination
shall be conclusive and shall be described in a statement filed
with the Transfer Agent or Transfer Agents for such shares of
such series and for the Common Stock and sent to the holders of
the Series A Preferred Stock.
(v) The current market price per share of
the Common Stock on any date shall be deemed to be the average of
the daily closing prices for the fifteen (15) consecutive
business days commencing thirty (30) business days before such
record date. The closing price for each day shall be the last
reported sales price regular way or, in case no such reported
sale takes place on such day, the average of the reported closing
bid and asked prices regular way, in either case on the Boston
Stock Exchange or the American Stock Exchange or, if the Common
Stock is not listed on either Exchange, the average of the
closing bid and asked prices as furnished by any member of the
New York Stock exchange selected from time to time by the
Corporation. The term "business day" means any day on which such
Exchange shall be open for trading.
(vi) No fractional shares of the Common Stock
shall be issued upon any conversion but, in lieu thereof, there
shall be paid to each holder of shares of the Series A Preferred
Stock surrendered for conversion who would otherwise be entitled
to receive a fraction of a share on such conversion, as soon as
practicable after the date such shares are surrendered for
conversion, an amount in cash equal to the same fraction of the
market value of a full share of the Common Stock, unless the
Board of Directors shall determine to adjust fractional shares by
the issue of fractional scrip certificates or in some other
manner. For such purpose, the market value of a share of the
Common Stock shall be the last reported sales price regular way
on the day immediately preceding the date upon which shares are
surrendered for conversion, or, in case no such sale takes place
on such day, the average of the reported closing bid and asked
prices regular way on such day, in either case on the Boston
Stock Exchange or American Stock Exchange, or, if the shares of
Common Stock are not listed on either Exchange, the average of
the closing bid and asked prices as furnished by any member of
the New York Stock Exchange selected from time to time by the
Corporation.
(vii) No adjustment in the number of
shares of the Common Stock into which each share of the Series A
Preferred Stock is convertible shall be required unless such
adjustment would require an increase or decrease of more than
1/5Oth of a share in the number of shares of the Common Stock
into which such share is then convertible; provided, however,
that any adjustments which are not required to be made shall be
carried forward cumulatively and taken into account in any
subsequent calculation.
(viii) Whenever any adjustment is required
in the shares of Common Stock into which each share of the Series
A Preferred Stock is convertible, the Corporation shall keep
available at each of its offices and the offices of each Transfer
Agent or Transfer Agents for such shares of such series and for
the Common Stock a statement describing in reasonable detail the
adjustment and the method of calculation used, and shall cause a
copy of such statement to be mailed to the holders of record of
the shares of the Series A Preferred Stock.
(c) The Corporation shall at all times reserve
and keep available out of the authorized but unissued shares of
the Common Stock the full number of shares of the Common Stock
into which all shares of the Series A Preferred Stock from time
to time outstanding are convertible, but shares of the Common
Stock held in the treasury of the Corporation may in its
discretion be delivered upon any conversion of shares of the
Series A Preferred Stock.
(d) Shares of the Series A Preferred Stock
converted into Common Stock shall have the status of authorized
but unissued shares of Preferred Stock and any such shares may be
reissued as shares of the Series A Preferred Stock or of any
other series.
(e) In case securities other than Common Stock,
cash or property shall be issuable, payable or deliverable by the
Corporation upon conversion as aforesaid, then all references in
this paragraph shall be deemed to apply, so far as appropriate
and as nearly as may be, to such other securities.
(6) Voting.
Each share of the Series A Preferred Stock shall be
entitled to one vote per share, voting as a single class with the
shares of Common Stock. So long as any shares of the Series A
Preferred Stock are outstanding, no provisions hereof relating to
such stock may be amended without the consent of the holders of
at least two-thirds of all outstanding shares of the Series A
Preferred Stock, which consent may be given in writing without a
meeting or at a meeting duly held for such purpose.
(7) Issuance of Other Shares of Preferred Stock.
The Board of Directors of the Corporation may authorize
the issuance of additional shares of Series A Preferred Stock and
of shares Of one or more other series of Preferred Stock,
provided that no other series shall have any preference over the
Series A Preferred Stock upon any liquidation, dissolution or
winding-up of the affairs of the Corporation, but other series
may be so authorized ranking on a parity with the series A
Preferred Stock in such respects pro rata based on the amount of
the respective preferences on liquidation.
SUBDIVISION C
SPECIAL TERMS AND PROVISIONS APPLICABLE TO $1.12-1/2
SERIES B CONVERTIBLE PREFERRED STOCK
There shall be a series of Preferred Stock which shall
consist of Thirty-one Thousand Five Hundred Twenty-three (31,523)
shares of said Preferred Stock and which shall constitute a
series designated as the $1.12-1/2 series B Convertible Preferred
Stock (hereinafter referred to as the "Series B Preferred
Stock").
The shares of Series B Preferred Stock shall have the
same per share rights, preferences, voting powers and privileges
as the Series A Preferred Stock except as otherwise expressly
provided in this Restated Certificate of Incorporation and as
follows:
(1) Dividends.
The holders of the Series B Preferred stock shall
be entitled to receive, as and when declared by the Board of
Directors out of any funds legally available therefor, cumulative
dividends from January 1, 1984 at the annual rate of 0.8315 per
share held, payable quarterly on the last day of November,
February, May and August in each year until the earliest of (i)
December 31, 1992, (ii) the sale of all or substantially all of
the assets of the Corporation, or (iii) the transfer of a
controlling interest in the Common Stock and the Series A
Preferred Stock (taken together as a whole), and thereafter at
the annual rate of $1.12-1/2. In the event of an adjustment of
the Common Stock Percentage from 57.5%, the amount of such
cumulative dividend shall be adjusted, effective on the date of
issuance of the Series B Preferred Stock, to an amount that bears
the same relation to $1.12-1/2 as (a) 100% minus, the adjusted
Common Stock Percentage bears to (b) the adjusted Common Stock
Percentage.
(2) Redemption.
For purposes of Subdivision B, Section (2) hereof, as
made applicable to the shares of Series B Preferred Stock hereof,
the redemption price shall be the same amount as the amount of
the preference under Section (3) of this Subdivision C.
(3) Liquidation, Dissolution and Winding-Up.
(a) The holders of the Series B Preferred Stock
shall be entitled to a preference of $18.48 per share in the
event of any liquidation, dissolution or winding-up of the
affairs of the Corporation until the earliest of (i) December 31,
1992, (ii) the sale of all or substantially all of the assets of
the Corporation (other than a sale as a result of proceedings
under the Bankruptcy Act or other insolvency law), (iii) a
voluntary liquidation, or (iv) the transfer of a controlling
interest in the Common Stock and the Series A Preferred Stock
(taken together as a whole), and thereafter of $25 per share. In
the event of an adjustment of the Common Stock Percentage from
57.5%, the amount of such preference shall be adjusted to an
amount that bears the same relation to $25 as (a) 100% minus the
adjusted Common Stock Percentage bears to (b) the adjusted Common
Stock Percentage.
(b) Neither a consolidation nor merger of the
Corporation with or into any other corporation, nor a
reorganization of the Corporation, nor a sale or transfer of the
business or assets of the Corporation as or substantially as an
entirety, shall be considered a liquidation, dissolution or w
winding-up of the affairs of the Corporation within the meaning
of the foregoing provision.
(c) As used herein, the term "dividends accrued"
means, with respect to the shares of the Series B Preferred
Stock, an amount equal to simple interest at the annual dividend
rate in effect during the period involved from January 1, 1984,
or from the last date on which a dividend was paid on such
shares, to the date as of which the computation is to be made, as
the case may be.
(4) Retirement Fund.
Shares of Series B Preferred Stock shall not be
subject to the operation of a retirement or sinking fund to be
applied for redemption of such shares.
(5) Conversion Rights.
Shares of Series B Preferred Stock shall be
convertible into shares of Class A Common Stock, at the same rate
and on the same terms and conditions as contained in Subdivision
B, Section (5) hereof, as the shares of Series A Preferred Stock
are convertible into shares of Common Stock, and for the purposes
hereof references to "Common Stock" in said section 5 shall be
deemed to be to "Class A Common Stock" and references to "Series
A Preferred Stock" shall be deemed to be to "Series B Preferred
Stock." For purposes of clause (v) and (vi) of Section 5(b) as
applied to the Class A Common Stock hereunder the market value of
the shares of Class A Common Stocks shall be as determined in
good faith by the Board of Directors by the affirmative vote of
not less than five members thereof based upon the value of the
shares of Common Stock at the times provided in said Clauses (v)
and (vi).
(6) Voting.
Each share of the Series B Preferred Stock shall
be entitled to one vote per share, voting as a single class with
the shares of Class A Common Stock. So long as any shares of the
Series B Preferred Stock are outstanding, no provisions hereof
relating to such stock may be amended without the Consent of the
holders of at least two-thirds of all outstanding shares of the
Series B Preferred Stock, which consent may be given in writing
without a meeting or at a meeting duly held for such purpose.
(7) Issuance of Other Shares of Preferred Stock.
The Board of Directors of the Corporation may
authorize the issuance of additional shares of Series B Preferred
Stock and of shares of one or more other series of Preferred
Stock, provided that no other series shall have any preference
over the Series B Preferred Stock upon any liquidation,
dissolution or winding-up of the affairs of the Corporation, but
other series may be so authorized ranking on a parity with the
Series B Preferred Stock in such respects pro rata based on the
amount of the respective preferences on liquidation.
SUBDIVISION D
PROVISIONS APPLICABLE TO COMMON STOCK AND CLASS A COMMON STOCK
Each of the shares of Class A Common Stock and each of
the shares of Common Stock shall have the same rights,
preferences, voting powers and privileges, except as otherwise
expressly provided in this Restated Certificate of Incorporation.
(1) Voting Rights.
(a) Except as provided with respect to the shares
of Preferred Stock and except as hereinafter provided, the
holders of Common Stock and of the Class A Common Stock shall
have exclusive voting rights for the election of directors and
for all other purposes and shall be entitled to one vote for each
share held.
(b) The holders of a majority of the shares of
Class A Common Stock and the Series B Preferred Stock, voting
together as a class, shall be entitled to elect one-half of the
members of the Board of Directors of the Corporation. The
directors thus elected shall be entitled to appoint one-half of
members of any Executive Committee established by the Board of
Directors pursuant to the By-Laws of the Corporation and shall
further be entitled to cause the Corporation to appoint such
directors' designees to one-half of the directorships in any
subsidiary of the Corporation other than Norsk Exolon A/S.
(c) The holders of a majority of the shares of
Common Stock and the Series A Preferred Stock, voting together as
a class, shall be entitled to elect one-half of the members of
the Board of Directors of the Corporation. The directors thus
elected shall be entitled to appoint one-half of the members of
any Executive Committee established by the Board of Directors
pursuant to the By-Laws of the Corporation and shall further be
entitled to cause the Corporation to appoint such directors'
designees to one-half of the directorships in any subsidiary of
the Corporation other than Norsk Exolon A/S.
(d) Votes for the election of directors and on
other matters need not be by written ballot unless requested by
the holder of shares entitled to vote thereon.
(2) Dividends.
Out of any assets of the Corporation available for
dividends remaining after full cumulative dividends up to the
then current dividend period on all shares of Preferred Stock
then outstanding shall have been paid or declared and a sum
sufficient for the payment thereof set apart, and after or
concurrently with making payment of or declaring full dividends
on all shares of Preferred Stock then outstanding for the then
current dividend period for such stock and setting aside a sum
sufficient for the payment thereof, then, and not otherwise,
dividends may be paid upon the shares of Common Stock and the
Class A Common Stock to the exclusion of the shares of Preferred
Stock. Until (a) an amount equal to 45% of the Corporation's
consolidated net earnings after taxes and Preferred Stock
dividends for the period January 1, 1984 through December 31,
1992 has been paid as dividends on the shares of the common stock
and the Class A Common Stock, or (b) until the earlier sale of
all or substantially all of the assets of the Corporation or the
transfer of a controlling interest in the Common Stock and the
Series A Preferred Stock (taken together as a whole), the shares
of the Common Stock shall be entitled to the Common Stock
Percentage of the aggregate amount of dividends on the shares of
Common Stock and Class A Common Stock as and when paid and the
shares of Class A Common Stock to the remainder thereof;
thereafter shares of Common Stock and Class A Common Stock shall
be entitled to equal dividends on a share for s hare basis
regardless of class; provided that in the event of the transfer
of a controlling stock interest referred to in clause (b) the
shares of Common Stock and of Class A Preferred Stock not so
transferred shall continue to have the same rights as if such
transfer had not taken place, i.e., such shares shall continue to
be entitled to their pro rata share of the Common Stock
Percentage of the aggregate amount of dividends on the Common
Stock and Class A Common Stock until 45% of such net earnings
have been paid as dividends; such dividend rights shall be
determined by multiplying the aggregate amount of the dividend
declared for both the Common Stock and the Class A Common Stock
by the Common Stock Percentage, and then dividing such amount by
the number of all outstanding shares of Common Stock; the
dividend for each other share of Common Stock and for each share
of Class A Common Stock shall be equal on a share for share basis
regardless of class.
(3) Distribution of Assets.
In the event of any dissolution, liquidation or
winding-up of the Corporation, after there shall have been paid
or set aside in cash for the holders of shares of Preferred Stock
the full preferential amounts to which they are entitled, the
holders of the shares of Common Stock and Class A Common Stock
shall be entitled to receive pro rata all of the remaining assets
of the Corporation available for distribution to its
stockholders, except as hereinafter provided. The Board of
Directors by vote of a majority of the members thereof may
distribute in kind to the holders of the shares of Common Stock
and Class A Common such remaining assets of the Corporation or
may sell, transfer, or otherwise dispose of any or all of the
remaining assets of the Corporation to any other corporation and
receive payment therefor wholly or in part in cash or in stock or
obligations of such other corporation and may sell all or any
part of the consideration received therefor and distribute the
balance thereof in kind to the holders of the Common Stock and
Class A Common Stock. Until December 31, 1992, or the earlier
sale of all or substantially all of the assets of the Corporation
(other than a sale as a result of proceedings under the
Bankruptcy Act or other insolvency law), or a transfer of a
controlling interest in the Common Stock and the Series A
Preferred Stock (taken together as a whole), the shares of Common
Stock shall be entitled to the Common stock Percentage of such
remaining assets of the Corporation and the shares of Class A
Common Stock to the remainder thereof; provided, that after
December 31, 1992 or at the time of any such sale of assets the
shares of Common Stock shall first be entitled to receive the
amount of dividends then payable with respect to such shares in
of the amount payable on the shares of Class A Common Stock prior
to any such distribution to the shares of Class A Common Stock;
and further provided, that in the event of any such transfer of a
controlling interest in the Common Stock and the Series A
Preferred Stock, the shares of Common Stock not so transferred
shall continue to be entitled to such amount of dividends payable
on such shares prior to any distribution to the shares of Common
Stock so transferred or to the shares of Class A Common Stock,
and shall be entitled to the amount of assets of the Corporation
to which such shares would have been entitled in the absence of
such transfer of a controlling interest, determined by
multiplying the aggregate amount of the assets of the Corporation
by the Common Stock Percentage, and then dividing such amount by
the number of all outstanding shares of Common Stock, with each
other share of Common Stock and each share of Class A Common
Stock entitled to an equal amount of assets on a share for share
basis regardless of class.
(4) The Common Stock Percentage.
As used in this Restated Certificate of
incorporation, the term "the Common Stock Percentage" means
57.5%, (I) reduced, if more the 10,000 shares of Common Stock and
Series A Preferred Stock demand appraisal in connection with the
merger of ESK Corporation into the Corporation, to a percentage
determined by multiplying 57.5% by a fraction of the numerator of
which is the number of shares of Common Stock and Series A
preferred Stock not demanding appraisal and the denominator of
which is 534,682; and (ii) reduced, if additional federal taxes
(including interest thereon net of tax benefit from its
deductibility) in excess of $100,000 are assessed against the
corporation for years prior to 1983, by .025% for each whole
$10,000 of such additional payments (i.e., from 57.5% to 57.25%
if there are $100,000 of additional payments); and (iii)
increased, if the tax loss carry forward for federal income tax
purposes of ESK Corporation available to the Corporation after
the merger of ESK Corporation into the Corporation is less than
$2,893,000, by .025% for each $21,700 by which the tax loss carry
forward is less than $2,893,000 (i.e., from 57.5% to 57.75% if
the tax loss carry forward is $217,000 less than $2,893,000).
(5) Determination of Earnings.
Consolidated net earnings for purposes of this
Subdivision D shall be computed on a pooling of interests basis
without regard to non-cash amortization of the excess of the fair
market value over the historical cost of the assets of ESK
Corporation.
FIFTH. The number of directors shall be eight. 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 or by vote of such shares if
the previous director was elected by such shares, and by vote of
the directors elected by the shares of Class A Common Stock and
Series B Preferred Stock or by vote of such shares if the
previous director was elected by such shares. In no event shall
the term of a director expire until his successor shall be
elected and shall qualify. The Corporation may also have one or
more Consulting Directors appointed by the directors elected by
the shares of Common Stock and Class A Preferred Stock.
SIXTH. (1) The Board of Directors by the
affirmative vote of not less than five directors is hereby
authorized to amend the By-Laws of the Corporation.
(2) The holders of a majority of the shares
of Common Stock and the Series A Preferred Stock, voting together
as a class, and the holders of a majority of the shares of Class
A Common Stock and the Series B Preferred Stock, voting together
as a separate class, may amend the by-laws of the Company.
SEVENTH. The Corporation shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented
from time to time, indemnify ant and all directors and officers
which it shall have power to indemnify under said section 145
from and against any and all expenses, liabilities or other
matters referred to in or covered by said Section. The
indemnification provided for herein shall not be deemed exclusive
of any other rights to which those indemnified may be entitled
under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while
holding such office, and shall 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.
EIGHTH. The Corporation hereby reserves the right to
amend or repeal any provision contained in this Restated
Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
NINTH. A stockholder of the Company shall have the
right to demand payment of the value of his stock in the event of
a merger or consolidation notwithstanding the fact that the
Corporation's stock may be listed on a national securities
exchange.
TENTH. Except as provided in Article Eleventh, this
Restated Certificate of Incorporation may be amended by vote of
the holders of a majority of the shares of Common Stock and the
Series A Preferred Stock, voting together as a class, and the
vote of a majority of the shares of Class A Common Stock and the
Series B Preferred Stock, voting together as a separate class.
ELEVENTH. Notwithstanding any provision of the General
Corporation Law of the State of Delaware now or hereafter in
force requiring for any corporate action the vote or consent of a
lesser number of directors or a lesser portion of the shares of
the Corporation or of any class of shares thereof or of any other
securities having voting power, the affirmative vote or consent
of a majority of all of the directors, and of the holders of two-
thirds of the aggregate number of outstanding shares (1) of the
Common Stock and the Series A Preferred Stock voting as one class
and also (2) of the Class A Common Stock and the Series B
Preferred Stock voting as a second class, shall be required:
(a) to approve (I) the sale, lease or exchange by the
Corporation of all or substantially all of its property and
assets to any other corporation, person or other entity, or
(ii) the merger or consolidation of the Corporation with or
into any other corporation or corporations;
(b) to approve any agreement, contract or other
arrangement with any corporation or corporations providing
for any of the transactions described in subparagraph (a)
above; or
(c) to effect any amendment of the Restated
Certificate of Incorporation of the Corporation which
amends, alters, changes or repeals any of the provisions of
this Article Eleventh.
Executed at Boston, Massachusetts on April 12, 1984.
THE EXOLON COMPANY
Attest: (now Exolon-ESK Company)
S/ L. Harrison Thayer II By: S/ John K. Shurie
Secretary President
<PAGE>
EXHIBIT 3A(1)
AGREEMENT OF MERGER
AGREEMENT OF MERGER dated April 12, 1984, between THE EXOLON
COMPANY, a Delaware corporation having its registered office in
Wilmington, Delaware ("Exolon"), and E S K CORPORATION, a
Delaware corporation having its registered office in Wilmington,
Delaware ("ESK").
WITNESSETH:
WHEREAS, the Boards of Directors of Exolon and ESK (the
"Constituent Corporations") have approved this Agreement of
Merger providing for the merger of ESK into Exolon upon the terms
and conditions hereinafter set forth; and
WHEREAS, Exolon is authorized to have outstanding 600,000
shares of Common Stock, $1 par value ("Exolon Common Stock"), of
which 499,219 shares were issued and outstanding on the date
hereof, and 60,000 shares of Preferred Stock, without par value,
of which 31,523 shares are designated Series A $1.12
Convertible Preferred Stock and are issued and outstanding
("Series A Preferred Stock") and will have, upon completion of
the merger to be effected herewith, an authorized capitalization
of 600,000 shares of such Common Stock, $1 par value, 600,000
shares of Class A Common Stock, $1 par value (the "Class A Common
Stock"), and 100,000 shares of Preferred Stock, without par
value, of which (a) 31,523 shares will be designated such
Series A Preferred Stock and will be issued and outstanding, and
(b) 31,523 shares will be designated Series B Convertible
Preferred Stock and will be issued and outstanding ("Series B
Preferred Stock"); and
WHEREAS, ESK is authorized to have outstanding 1,000 shares
of Common Stock, $10 par value ("ESK Common Stock"), 11 of which
shares are now issued and outstanding and are owned by Wacker
Chemical Corporation, a New York corporation ("Wacker"); and
WHEREAS, this Agreement of Merger was submitted to the
stockholders of Exolon at a special meeting of stockholders held
on April 12, 1984, duly called for such purpose, and was duly
approved by the affirmative note of the holders of at least two
thirds of the Exolon Common Stock and Exolon Series A Preferred
Stock (voting together as a single class); and
WHEREAS, the Agreement of Merger has been approved by
Wacker, the sole stockholder of ESK, pursuant to a Written
Consent of Sole Stockholder dated January 9, 1984;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained and in accordance with the
laws of the State of Delaware, Exolon and ESK (the "Constituent
Corporations") hereby agree that, subject to the conditions
hereinafter set forth, ESK shall be merged into Exolon and Exolon
shall be the surviving corporation, and that the terms and
conditions of such merger (the "Merger") shall be as follows:
FIRST: The name of the surviving corporation shall be
Exolon-ESK Company (the "Surviving Corporation"), and it shall
exist by virtue of, and be governed by, the laws of the State of
Delaware. The Restated Certificate of Incorporation shall be the
Certificate of Incorporation of the Surviving Corporation.
SECOND: The address of the registered office of the
Surviving Corporation in the State of Delaware shall be 100 West
Tenth Street, in the City of Wilmington, County of New Castle.
THIRD: The purpose of the Surviving Corporation shall be
to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State
of Delaware.
FOURTH: The directors of the Surviving Corporation shall
be the following: Kurt M. Hertzfeld, L. Harrison Thayer II,
Edward R. Speare, Hollis French, Dr. Ludwig Eberle, Mr. Hans
Pfingstl, Dr. Dieter Normann and
FIFTH: The officers of the Surviving Corporation shall be
as follows:
Kurt M. Hertzfeld Chairman of the Board and Chief
Executive Officer
John K. Shurie President
Dr. Ludwig Eberle Executive Vice President and
Vice Chairman of the Board
R. Philip Harty Senior Vice President
William H. Nehill Vice President-Finance, and
Treasurer
David A. Matthew Vice President-Marketing and
Sales
L. Harrison Thayer II Secretary
All corporate acts, approvals, contracts and authorizations
of Exolon and of ESK, their respective shareholders, Boards of
Directors, committees elected or appointed by their Board of
Directors, their officers and agents, which were valid and
effective immediately prior to the Effective Time of the Merger
(as that term is defined in Article Eighth), shall be taken for
all purposes as the acts, approvals, contracts and authorizations
of the Surviving Corporation and shall be as effective and
binding thereon as the same were with respect to Exolon or ESK.
The employees of Exolon shall continue to be, and the employees
of ESK shall become, the employees of the Surviving Corporation,
and continue to be entitled to the same rights and benefits which
they enjoyed heretofore.
SIXTH: At the Effective Time of the Merger, the separate
existence of ESK shall cease, and the Surviving Corporation shall
possess all assets and property of every description, and every
interest therein, wherever located, and the rights, privileges,
immunities, powers, franchises and authority, of a public as well
as of a private nature, of ESK shall be vested in the Surviving
Corporation without further act or deed. Title to any real
estate or any interest therein vested in ESK shall not revert or
in any way be impaired by reason of the Merger.
The Surviving Corporation shall be liable for all of the
obligations of ESK. Any claim existing, or action or proceeding
pending, by or against ESK, may be prosecuted to judgment, with
right of appeal, as if the Merger had not taken place, or the
Surviving Corporation may be substituted in its place.
All of the rights of creditors of ESK shall be preserved
unimpaired, and all liens upon the property of ESK shall be
preserved unimpaired, on only the property affected by such
liens, immediately prior to the Effective Time of the Merger.
SEVENTH: The terms of the Merger, the mode of carrying the
same into effect, and the manner and basis of making
distributions to the stockholders of the Constituent Corporations
in extinguishment of and in substitution for shares of the
Constituent Corporations, shall be as follows:
(d) At the Effective Time of the Merger each share of
ESK Common Stock outstanding immediately prior to the Merger or
held in the treasury of ESK, and all rights in respect thereof,
shall forthwith cease to exist and shall be cancelled.
(e) At the Effective Time of the Merger, each share of
Common Stock and of Series A Preferred Stock of Exolon other than
treasury stock and the certificates representing such shares
outstanding shall remain outstanding and shall be and represent
such Common Stock and Series A Preferred Stock of the Surviving
Corporation with the rights and preferences provided in the
Restated Certificate of Incorporation of Exolon, except for any
shares as to which dissenters' appraisal rights may be demanded
by the holders thereof.
(f) At the Effective Time of the Merger, all of the
issued and outstanding shares of ESK Common Stock shall be
converted into 499,219 shares of the Surviving Corporation's
Class A Common Stock and 31,523 shares of the Surviving
Corporation's Series B Preferred Stock.
(g) From and after the Effective Time of the Merger,
the holder of the certificate or certificates representing shares
of ESK Common Stock outstanding immediately prior to the
Effective Time of the Merger shall, upon presentation of such
certificate or certificates for surrender to the Surviving
Corporation or its agent, be entitled to receive in exchange
therefor certificates representing the shares of fully paid and
non-assessable Class A Common Stock and Series B Preferred Stock
of the Surviving Corporation to which such holder shall be
entitled upon the aforesaid basis of exchange. Until so
surrendered, each outstanding certificate which prior to the
Merger represented shares of ESK Common Stock shall be deemed,
for all corporate purposes, to evidence ownership of the number
of shares of Class A Common Stock and Series B Preferred Stock of
the Surviving Corporation into which the same shall have been
converted and exchanged; provided, however, that no dividends or
other distributions declared with respect to the Class A Common
Stock and Series B Preferred Stock of the Surviving Corporation
shall be paid to the holder of any unsurrendered certificate or
certificates of ESK Common Stock until such holder shall
surrender such certificate or certificates, at which time the
holder shall be paid the amount of dividends and other
distributions, without interest, which theretofore became payable
with respect to the shares of Class A Common Stock and Series B
Preferred Stock of the Corporation evidenced by such certificate
or certificates.
EIGHTH: The Merger shall not become effective until, and
shall become effective at, the time (the "Effective Time of the
Merger") at which an executed copy of this Agreement of Merger is
filed with the Secretary of State of the State of Delaware in
accordance with Section 251 of the General Corporation Law of the
State of Delaware.
NINTH: Each of the Constituent Corporations hereby agrees
to do promptly all such acts and to take promptly all such
measures as may be appropriate to enable it to perform as early
as practicable the covenants and agreements herein provided to be
performed by it.
TENTH: ESK and Exolon, by mutual consent and majority
vote of their respective Boards of Directors, may amend, modify
and supplement this Agreement of Merger in such manner as may be
agreed upon by them in writing at any time before or after action
thereon by the stockholders of ESK or Exolon or both; provided,
however, that no such amendment, modification or supplement made
following such action by stockholders shall affect the rights of
the stockholders of ESK or Exolon in a manner which is materially
adverse to such stockholders in the judgment of the Board of
Directors of ESK or Exolon, as the case may be, or shall change
any of the principal terms of this Agreement of Merger. ESK or
Exolon may, by a majority vote of its Board of Directors, by an
instrument in writing, extend the time for or waive the
performance of any of the obligations of the other or waive
compliance by the other with any of the covenants or conditions
contained herein; provided, however, that no such waiver or
extension shall affect the rights of the stockholders of ESK or
Exolon in a manner which is materially adverse to such
stockholders in the judgment of their respective Board of
Directors.
ELEVENTH: This Agreement of Merger shall terminate, without
further action by or on behalf of the Constituent Corporations,
if an affirmative vote of the holders of two-thirds of the
outstanding shares of the Common Stock and Series A Preferred
Stock of Exolon (voting together as a single class) is not
obtained prior to April 30, 1984. In addition, prior to the
Effective Time of the Merger, this Agreement of Merger may be
terminated, at the option of the respective Boards of Directors
of the Constituent Corporations and notwithstanding the adoption
of this Agreement by the respective stockholders of the
Constituent Corporations by (a) mutual consent of the Board of
Directors of both Constituent Corporations; or (b) the Board of
Directors of either Constituent Corporation if:
1. The holders of an aggregate of more than 53,000 shares
of the Common Stock and of the Series A Preferred Stock of Exolon
have filed written demands for the payment of fair cash value of
their shares; or
2. Such Board of Directors determines in good faith that,
in its judgment, the Merger does not then appear to be in the
best interests of the stockholders of that corporation.
In the event of any such termination, the Merger shall
thereupon be abandoned.
TWELFTH: The By-laws of the Surviving Corporation shall be
the By-laws of Exolon in effect at the Effective Time of the
Merger.
THIRTEENTH: This Agreement may be executed in any number
of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, each of the Constituent Corporations has
caused this Agreement of Merger to be signed by its officers
thereunto duly authorized and its corporate seal to be hereunto
affixed, all as of the day and year first above written.
THE EXOLON COMPANY,
a Delaware Corporation
(Corporate Seal) By: S/ John K. Shurie
President
Attest:
S/ L. Harrison Thayer II
Secretary
ESK CORPORATION,
a Delaware Corporation
(Corporate Seal) By:___________________________
President
Attest:
S/ William Schurtman
Secretary
THE UNDERSIGNED, President of ESK Corporation, who executed
on behalf of said corporation the foregoing Agreement of Merger,
of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said corporation, the foregoing
Agreement of Merger to be the corporate act of said corporation
and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein
with respect to the approval thereof are true in all material
respects, under the penalties of perjury.
__________________________________
President
Subscribed and sworn to before me this 12th day of April,
1984.
S/ Thomas L. Krawczyk
Notary Public
My Commission expires: 3/30/86
THE UNDERSIGNED, President of The Exolon Company, who
executed on behalf of said corporation the foregoing Agreement of
Merger, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said corporation, the
foregoing Agreement of Merger to be the corporate act of said
corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set
forth therein with respect to the approval thereof are true in
all material respects, under the penalties of perjury.
S/ John K. Shurie
President
Subscribed and sworn to before me this 12th day of April,
1984.
S/ Thomas L. Krawczyk
Notary Public
My commission expires: 3/30/86
I, L. Harrison Thayer II, Secretary of The Exolon Company, a
corporation organized and existing under the laws of the State of
Delaware, hereby certify as such Secretary under the seal of said
corporation, that the Agreement of Merger dated April 12, 1984,
between the Exolon Company and ESK Corporation to which this
certificate is attached was duly submitted to the stockholders of
The Exolon Company at a meeting of said stockholders duly called
and held after at least 20 days' notice by mail as provided in
Section 251 of the Delaware General Corporation Law on the 12th
day of April, 1984, for the purpose, among other things, of
considering and taking action upon the Agreement of Merger; that
499,219 shares of Common Stock and 32,881 shares of Series A
Preferred Stock of said Corporation were issued and outstanding
on the record date for such meeting; that said Agreement of
Merger was approved and adopted by the affirmative vote of the
holders of at least two-thirds of the shares of such Common and
Preferred Stock, voting together as a single class, said shares
of Common and Preferred Stock being the only shares of said
Corporation then outstanding and entitled to vote thereon; that
thereby the Agreement of Merger was at said meeting duly adopted
in the manner required by Section 251 of the Delaware General
Corporation Law and the Certificate of Incorporation of the
Exolon Company, as the act of the stockholders of The Exolon
Company and the duly adopted agreement of said Corporation.
WITNESS my hand and seal of The Exolon Company on this 12th
day of April, 1964.
S/ L. Harrison Thayer II, Secretary
I, William Schurtman, Secretary of ESK Corporation, a
corporation organized and existing under the laws of the State of
Delaware, hereby certify as such Secretary under the seal of said
corporation, that the Agreement of Merger dated as of April 2,
1984, between The Exolon Company and ESK Corporation to which
this certificate is attached was duly adopted by the written
consent of the sole stockholder of ESK Corporation on the 9th day
of January, 1984, in accordance with the provisions of Section
228 of the Delaware General Corporation Law; that 11 shares of
Common Stock of said Corporation were issued and outstanding on
the date of such consent; that said Agreement of Merger was
approved and adopted by the affirmative vote of the holders of
said 11 shares of Common Stock, being the only shares of said
Corporation then outstanding and entitled to vote thereon; that
thereby the Agreement of Merger was duly adopted in the manner
required by Section 251(c) of the Delaware General Corporation
Law as the act of the stockholders of ESK Corporation and the
duly adopted agreement of said Corporation.
WITNESS my hand and seal of ESK Corporation on this
12th day of April, 1984.
S/ William Schurtman
Secretary
The above Agreement of Merger, having been approved by
the Board of Directors of each corporate party thereto, and
having been approved and adopted separately by the stockholders
of each corporate party thereto, in accordance with the
provisions of the General Corporation Law of the State of
Delaware, and that fact having been certified on said Agreement
of Merger by Secretary of The Exolon Company and the Secretary of
ESK Corporation, the undersigned do now hereby execute the said
Agreement of Merger under the corporate seals of their respective
corporations, by authority of the directors and stockholders
thereof, as the respective act, deed and agreement of each of
said corporations, on this 12th day of April, 1984.
THE EXOLON COMPANY
(SEAL) By:S/ John K. Shurie
President
Attest:
By: L. Harrison Thayer II
Secretary
THE EXOLON COMPANY
(SEAL) By: ____________________________
President
Attest:
By: S/ William Schurtman
Secretary
<PAGE>
EXHIBIT 10F
STOCKHOLDERS AGREEMENT
AGREEMENT dated as of April 26, 1984, between The
Exolon Company ("Exolon"), a Delaware corporation, and Wacker
Chemical Corporation ("Wacker"), a New York corporation.
WHEREAS, Exolon, Wacker and ESK Corporation ("ESK"), a
Delaware corporation and a wholly-owned subsidiary of Wacker,
have entered into a Plan and Agreement of Reorganization provid-
ing for the merger of ESK into Exolon, and
WHEREAS, Exolon has presently outstanding shares of
Common Stock and $1.12-1/2 Series A Convertible Preferred Stock
("Series A Preferred Stock"), of which 99,938 shares of Common
Stock are beneficially owned (as "beneficial ownership" is
defined in Rule 13d-3 of the Securities Exchange Act of 1934) by
officers and directors of Exolon immediately prior to such merger
(the "Management Group"), and
WHEREAS, upon the effectiveness of such merger, Wacker
will receive shares of the Class A Common Stock and $1.12-1/2
Series B Convertible Preferred Stock ("Series B Preferred Stock")
of Exolon, the name of which will be changed to Exolon-ESK
Company, and
WHEREAS, the parties wish to provide for certain rights
and obligations with respect to the shares of the Class A Common
Stock of Exolon and to regulate Wacker's purchase of Common Stock
and Series A Preferred Stock,
NOW, THEREFORE, it is hereby agreed as follows:
3. Acquisition For Investment. Wacker acknowledges
that it is acquiring the shares of stock of Exolon to be issued
to it upon the merger of ESK into Exolon for investment with no
present intention of selling or distributing such shares.
4. Right of Wacker to Participate in Registration for
Sale by Exolon at Exolon's Expense. In case of any proposed
registration no sooner than September 30, 1984, by Exolon of
Common Stock of Exolon on Form S-3 or other applicable form for
public sale by Exolon under the Securities Act of 1933 (the
"Act"), Exolon will give written notice to Wacker of its
intention to do so and, on the written request of Wacker given
within 21 days after receipt of any such notice (which request
shall specify the number of shares of Class A Common Stock
intended to be sold), Exolon will, at its expense (excluding
Wacker's pro rata share of underwriters' commissions and expenses
and the fees of counsel for Wacker other than counsel for
Exolon), use its best efforts to cause all such shares specified
in the request to be registered under the Act concurrently with
the registration of such Common Stock. All expenses,
disbursements and fees in connection with such registration
except as specifically provided above shall be borne by Exolon,
whether so specified or not.
If the underwriters advise Exolon that the sale of
shares owned by Wacker would materially interfere with the public
offering of Common Stock of Exolon pursuant to the proposed
registration statement, then Exolon shall have the right to
reduce the number of shares of Class A Common Stock that may be
offered for sale as part of the public offering of Common Stock
pro rata with a reduction in the number of shares to be sold by
other selling stockholders (other than a selling stockholder who
is bearing all or part of the costs of such registration), but
without any reduction in the number of shares to be sold by
Exolon or other selling stockholders bearing such costs.
Nevertheless, Wacker shall have the right to have any of its
shares specified in its request to Exolon but not included in the
public offering of Common Stock included in the registration on a
"to be sold" basis, provided that any sale of such shares shall
not occur earlier than 90 days after the effective date of the
public offering of Common Stock and that Wacker shall bear any
additional costs resulting from keeping such registration
statement effective after the sale of the shares of Common Stock.
5. Right of Wacker to Registration for Sale by It at
Its Expense. Exolon will, upon written request made no sooner
than September 30, 1984, that Wacker wishes to dispose of at
least 100,000 shares of Exolon Class A Common Stock, file a
registration statement under the Act on Form S-3 or other
applicable form covering the number of shares of Exolon Class A
Common Stock specified in such request and shall use its best
efforts to have such registration statement declared effective,
provided that Exolon shall have an obligation to register such
shares on only two occasions. Any such sales shall be through a
broker or principal underwriter which is a member of the New York
Stock Exchange and which shall be subject to the reasonable
approval of Exolon. Wacker shall pay all of the expenses of such
registration, including applicable legal, accounting and printing
expenses; provided, however, that if Exolon causes Common Stock
of other shareholders of Exolon to be registered under the Act
concurrently with the registration of such Class A Common Stock,
such other shareholders shall pay their pro rata (based on the
number of shares offered for sale by each) shares of such
expenses.
If the underwriters or brokers advise Wacker that the
sale of shares owned by such other shareholders would materially
interfere with the public offering of Wacker's Class A Common
Stock, then Exolon will, on demand by Wacker, reduce the number
of shares that may be offered for sale by the other Shareholders
in connection with such public offering.
6. Right of Wacker at Its Expense to Participate in
Registration for Sale by Other Shareholders of Exolon. In case
of any proposed registration no sooner than September 30, 1984,
of Common Stock of Exolon on Form S-3 or other applicable form
for public sale by shareholders of Exolon under the Act, Exolon
will give written notice to Wacker of its intention to do so and,
on the written request of Wacker given within 21 days after
receipt of any such notice (which request shall specify the
number of shares of Class A Common Stock), Exolon will use its
best efforts to cause all such shares specified in the request to
be registered under the Act concurrently with the registration of
such Common Stock.
If the underwriters or brokers advise Exolon that the
sale of shares owned by Wacker would materially interfere with
the public offering of shares pursuant to the proposed
registration statement, then Exolon shall have the right to
reduce the number of Shares of Class A Common Stock that may be
offered for sale in connection with such public offering.
Nevertheless, Wacker shall have the right to have any of its
shares specified in its notice to Exolon but not included in such
public offering included in the registration on a "to be sold"
basis, provided that any sale of such shares shall not occur
earlier than 90 days after the effective date of such public
offering, and Wacker shall bear any additional costs resulting
from keeping such registration statement effective after the
sale.
All expenses, disbursements and fees in connection with
such registration, including extraordinary accountants' fees,
shall be paid by the selling stockholders pro rata based on the
number of shares offered for sale by each.
7. Effectiveness of Registration Statements. Exolon
shall use its best efforts to cause any such registration
statement to become effective as promptly as possible and to keep
effective and maintain any such registration or qualification for
a period of not less than 180 days after the registration
statement becomes effective and from time to time shall amend or
supplement the prospectus used in connection therewith to the
extent necessary in order to comply with applicable law. Exolon
may terminate the effectiveness of any such registration
statement at any time after it has been effective for a period of
180 days. Exolon shall give Wacker five days' notice prior to
any such termination.
8. Exercise of Wacker's Conversion Right. If Wacker
chooses to exercise its right under Exolon's Certificate of
Incorporation to have some or all of its shares of Series B
Preferred Stock converted into shares of Class A Common Stock for
purposes of including such shares in a registration under
paragraphs 2, 3, or 4 hereof, its written notice or request to
Exolon in connection with such registration shall include a
statement of its intention to exercise its conversion right.
Thereafter, Wacker and Exolon shall cooperate to complete such
conversion of shares in time to have the converted shares
included in the proposed registration.
9. Indemnification.
(a) By Underwriters. Whenever Wacker enters into
an underwriting agreement in connection with the disposition of
Exolon Class A Common Stock, such underwriting agreement will
contain an agreement by the underwriter or underwriters in
customary form to indemnify and hold harmless, to the extent
permitted by law, Exolon, each of its directors, each of its
officers who have signed such registration statement and each
other such person, if any, who controls Exolon within the meaning
of the Act, against all losses, claims, damages or liabilities
and expenses (including legal fees), joint or several, to which
Exolon or any such director, officer or controlling person may
become subject under the Act or common law or otherwise, insofar
as such losses, claims, damages or liabilities and expenses (or
actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in such registration statement, or preliminary
prospectuses or final or summary prospectuses contained therein,
or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, but only if, and only to
the extent that, such statement or omission was in reliance upon
and in conformity with written information furnished to Exolon by
such underwriter or underwriters specifically for use in the
preparation thereof.
(b) By Exolon. Exolon will indemnify and hold
harmless, to the extent permitted by law, Wacker against all
losses, claims, damages, liabilities and expenses (including
legal fees), joint or several (under the Act or common law or
otherwise), caused by any untrue statement or alleged untrue
statement of a material fact contained in such registration
statement or preliminary prospectus or final or summary
prospectus contained therein, or in any documents specifically
incorporated therein by reference, or any amendments or
supplements thereto, or caused by any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading except insofar as such losses, claims, damages,
liabilities or expenses are caused by any untrue statement or
omission contained in information furnished in writing to Exolon
by Wacker expressly for use therein.
(c) By Wacker. In connection with any registration
statement in which Wacker is participating, Wacker will furnish
to Exolon in writing such information as shall reasonably be
requested by Exolon for use in any such registration statement or
prospectus and will indemnify and hold harmless, to the extent
permitted by law, Exolon, its directors and officers and each
person, if any, who controls Exolon within the meaning of the
Act, against any losses, claims, damages, liabilities and
expenses (including legal fees) resulting from any untrue
statement or alleged untrue statement of a material fact or any
omission or alleged omission of a material fact required to be
stated in the registration statement or prospectus and necessary
to make the statements therein not misleading, but only to the
extent that such untrue statement or omission is contained in
information so furnished in writing by Wacker expressly for use
therein.
(d) Of Underwriters by Exolon and Wacker. If Exolon
and/or Wacker enter into an underwriting agreement it shall be in
customary form with Exolon and/or Wacker agreeing to indemnify
such underwriters, their officers and directors and each person
who controls such underwriters within the meaning of the Act to
the same extent as herein provided with respect to the
indemnification of each other.
10. Registration Not Required.
Exolon shall not be required to register any shares
pursuant to the provisions of this Agreement if in the opinion of
counsel for Exolon such registration is not necessary and all of
the shares which Wacker proposes to sell or transfer may be sold
or transferred without violating the Act and any applicable blue
sky laws. In any such instance, Exolon shall cause its counsel
to deliver a formal written opinion addressed to Wacker in form
and substance reasonably satisfactory to counsel for Wacker.
11. Stop Orders; Blue Sky Qualifications. In
connection with any registration statement herein described being
effective, if any stop order shall be issued by the Securities
and Exchange Commission, Exolon shall use its best efforts to
obtain the removal of the same. In connection with any public
offering of Exolon stock referred to herein which is required to
be registered under the Securities Act of 1933, Exolon will use
its best efforts simultaneously to qualify, under the securities
or blue sky laws of not more than 20 jurisdictions designated by
Wacker, the securities being offered and maintain such
qualifications in effect for the duration of the corresponding
registration statement.
12. Restriction on Purchase of Exolon Stock. Wacker
agrees that before January 1, 1993, it will not, directly or
indirectly, purchase any shares of Common Stock or Series A
Preferred Stock of Exolon. Wacker further agrees to use its best
efforts to cause its parent corporation, and any corporation or
entity affiliated with its parent corporation, not to purchase or
otherwise acquire any shares of Exolon's Common Stock or Series A
Preferred Stock before January 1, 1993. This restriction shall
not be applicable:
(a) In the event of a publicly announced tender offer
for shares of Exolon's common and/or preferred stock; or
(b) In the event of a filing under the Williams Act of
a public announcement indicating an intention of a person or
group to acquire a controlling interest in the shares of Exolon's
common and/or preferred stock; or
(c) In the event of a determination in good faith by
five members of Exolon's Board of Directors that some person or
group is seeking to acquire such control; or
(d) If more than 50% of the shares of Exolon
beneficially owned by the Management Group is transferred by the
holder(s) thereof, excluding, however, transfers of shares to or
among affiliates of such members. "Affiliates" means spouses,
children, relatives with whom members of the Management Group
share their homes, corporations and trusts with which such
members are associated, and beneficiaries under such trusts with
respect to transfers in distribution of trust assets; or
(e) If any person or group of persons acting in
concert (including existing shareholders of Exolon but not
including members of the Management Group) in any one transaction
or series of transactions beneficially acquires shares of Common
Stock or Series A Preferred equal to 10% of the outstanding
shares of both classes taken together, unless such person or
group indicates support of the Management Group; or
(f) If holders of Common Stock and Series A Preferred
Stock, who, following the merger, exercise such control as to be
able to cause the election of their nominees to one-half of the
directorships of Exolon, in fact lose such control.
13. Miscellaneous. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of
the parties. This Agreement shall be governed by the laws of the
State of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers thereunto duly
authorized this 26th day of April, 1984.
THE EXOLON COMPANY
By_________________________
Chairman of the Board
WACKER CHEMICAL CORPORATION
<PAGE>
EXHIBIT 1OG
RESTATED LICENSE AGREEMENT
This Restated License Agreement ("Agreement"), dated as
of 26th of April 1984, is by and among ELEKTROSCHMELZWERK KEMPTEN
GMBH, a West German limited liability company ("ESK"); ESK
CORPORATION, a Delaware corporation ("ESK Corp."); and the EXOLON
COMPANY, a Delaware corporation ("Exolon").
R E C I T A L S
Pursuant to a license agreement (the "License
Agreement") dated 15 December 1978 and 19 January 1979 ESK
licensed to ESK Corp. a novel, environmentally acceptable
technology for the production of silicon carbide ("SiC") -
hereinafter referred to as the "Process" - which had been applied
since 1973 by its affiliated company, Elektroschmelzwerk Delfzijl
B.V.
ESK Corp. and Exolon now intend to merge in the near
future in such a way that ESK Corp. will be merged into Exolon
(the "Merger"), and Exolon, as the surviving corporation will
change its name as of the time the Merger becomes effective to
Exolon-ESK Company (Exolon-ESK Company, as the corporation
resulting after the effective date of the Merger, is hereinafter
referred to as the "Licensee").
The parties hereto desire that on the effective date of
the Merger Licensee shall succeed to the rights, benefits,
duties, and obligations of ESK Corp. pursuant to the License
Agreement effective January 1, 1984.
The parties further desire to amend and restate the
License Agreement, effective as of the effective date of the
Merger, in order to, among other things, modify the terms of the
License Agreement and to expand the scope thereof.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements hereinafter set forth, the
parties hereto hereby covenant and agree as follows:
As of the time and date that the Merger shall become
effective, the License Agreement shall be amended and restated to
provide in its entirety as follows, provided, however, that if
the Merger shall not have occurred on or before 30 April 1984,
then this Agreement shall be null and void ab initio, and the
License Agreement shall remain in full force and effect as if
this Agreement were never executed:
14. Definitions
a. Affiliates. Those companies controlling,
controlled by, or under the common control of Licensee or Wacker
Chemie GmbH, the ultimate parent company of ESK, respectively,
but excluding, in the case of Wacker Chemie GmbH, Hoechst AG and
any entity controlled by it not otherwise an affiliate of ESK,
and excluding, in the case of Licensee, Norsk Exolon A/S.
"Control" of a company shall mean when and for so long as a fifty
percent interest in distribution and dividend rights or voting
interests of such company is owned directly or indirectly by the
relevant party.
b. Hennepin Plant. The current manufacturing
facilities of Licensee at Hennepin, Illinois, which utilizes the
Process in the manufacture of SiC.
c. Improvements. All improvements of the Technology
occurring before, during, or after the Term hereof, whether by
ESK or by Licensee or any of their respective Affiliates except
as provided in Section 1.6.
d. Know-How. All trade secrets, secret processes,
procedures, formulae, data, manuals, test procedures and results
and other information of ESK or Licensee or their respective
Affiliates, whether now existing or hereafter developed, relating
to the Process and considered by ESK or Licensee, as the case may
be, to be confidential and secret, and marked as confidential or
secret if in writing or some other physical state, and such
Know-How shall include the technology, data, drawings and
calculations required for the construction and operation of a
complete SiC manufacturing plant, particulars concerning the
production of green and dark SiC, and specifications relating to
all supplementary procedures and equipment needed or appropriate
in connection with constructing and operating such an SiC
manufacturing plant.
e. Patents. Those letters patent listed on Exhibit A
hereto, and any patents hereafter issued or assigned to ESK or
its Affiliates in the Territory in regard to the Process or the
Improvements, as well as any patent applications hereafter filed
by or assigned to ESK or its Affiliates in regard to the Process
or the Improvements.
f. Technology. Collectively, the Process, the
Patents, the Know-How, and any Improvements thereof, except that,
when used in relation to Improvements of Licensee, Improvements
and technology shall not include any new technology,
improvements, inventions and developments which (I) are not
derivative from the Technology and (ii) are useful otherwise than
solely in connection with the Process.
g. Term. The period commencing with the effective
date of the License Agreement and terminating on 31 December
1992, unless earlier terminated by the provisions hereof.
1.8 Territory. The United States of America and its
territories and possessions and the Dominion of Canada.
15. Grant of License
a. Grant. Subject to the limits of grant described in
Section 2.3 hereof, ESK hereby grants to Licensee in perpetuity
(unless this Agreement is terminated pursuant to Article 8
hereof) the exclusive right and license to use the Technology to
manufacture an unlimited quantity of SiC at the Hennepin Plant
and, with the prior written consent of ESK (which consent shall
not be unreasonably withheld), at any other facility within the
Territory owned by Licensee or any of its Affiliates, and to sell
in the Territory the said SiC so produced at the Hennepin Plant
and such other plants, as well as the non-exclusive right, upon
subsequent separate mutual discussion and agreement between ESK
and Licensee, to sell such SiC so produced at the Hennepin Plant
or at such other plant in the Territory in other parts of the
world.
b. Improvements. Except for certain patentable
Improvements of ESK governed by Section 4.3 hereof, the foregoing
license shall include any Improvements developed or owned by ESK,
to the extent that ESK has the right to license the same to
Licensee and its Affiliates (except for Norsk Exolon A/S).
c. Limit of Grant. The exclusive rights granted
pursuant to Sections 2.1 and 2.2 are subject to the exceptions
that (I) a license has been granted by ESK to General Abrasives,
a division of Dresser Industries, Inc., 2000 College Avenue,
Niagara Falls, New York 14305, pursuant to a license agreement
dated 1 December 1983; (ii) ESK has the right to sell in the
Territory certain products, manufactured using the Process
outside the Territory, pursuant to a Distributorship Agreement
dated 27 April 1984 between ESK and Licensee; (iii) if the said
distributorship agreement is no longer in force, ESK or its
Affiliates shall have the right to sell in the Territory products
manufactured outside the Territory using the Process and the
Technology, but ESK and its Affiliates may not so sell crude SiC
if and for so long as Licensee is manufacturing and selling such
product in the Territory in appreciable quantities on a regular
basis; and (iv) if ESK or any of its Affiliates shall no longer
for any reason have the right to nominate and elect at least
one-half of the members of the Board of Directors of Licensee,
ESK shall have the right to sell (but, until after the Term
hereof has expired, not to manufacture) in the Territory any
products manufactured outside the Territory using the Process and
the Technology; (v) if the Hennepin Plant shall be conveyed to
ESK or any of its Affiliates or any third person, whether by
foreclosure sale or otherwise, as a consequence of Wacker Chemie
GmbH having to pay any sums under a certain Guaranty Agreement by
Wacker Chemie GmbH (or any agreement creating security in regard
to the reimbursement of any amounts paid under such Guaranty
Agreement) in regard to certain Industrial Revenue Bonds issued
by ESK Corp., and the Hennepin Plant having been conveyed as
security for the repayment of such sums by ESK Corp. or its
successor to Wacker Chemie GmbH, ESK shall have the right itself
to operate the Hennepin Plant using the Technology and ESK shall
also have the right to grant a non-exclusive license of the
Technology to any of ESK's Affiliates or any third person who
shall acquire such Hennepin plant as a consequence of such a
guaranty payment and conveyance of the Hennepin Plant as
security, which license shall be on such terms as ESK shall deem
appropriate and shall be assignable by such Affiliates or third
parties to any transferees or successors thereof (and their
respective transferees and successors) who shall thereafter
acquire the title to the Hennepin Plant, but in any event shall
be restricted to a license to operate the Hennepin Plant, as
thereafter operated, renovated, replaced or expanded. Licensee
shall have no right to sublicense, assign, transfer, pledge, or
encumber the said Technology or any of its right, title, and
interest in and to this Agreement to any party other than an
Affiliate of Licensee without the prior written permission of
ESK.
16. Technical Assistance
a. Extent of Assistance by ESK. If and to the extent
that Licensee's own personnel are not familiar with the
Technology, ESK shall make available to Licensee, to such a
degree and at such times as shall be mutually agreed upon by ESK
and Licensee, basic engineering assistance in connection with the
construction of any new SiC manufacturing plant using the
Technology. ESK also shall make available to Licensee, to such a
degree and at such times as shall be mutually agreed upon by ESK
and Licensee, technical and other necessary assistance in regard
to the use of any Improvements developed by ESK or its
Affiliates.
b. Extent of Assistance by Licensee. Licensee shall
make available to ESK, to such a degree and at such times as
shall be mutually agreed upon by ESK and Licensee, technical and
other necessary assistance in regard to the use of any
Improvements developed by Licensee or its Affiliates.
c. Cost of Assistance. The out-of-pocket expenses and
costs incurred in providing such technical assistance as set
forth in Sections 3.1 and 3.2 hereof (but not the salaries or
other compensation of any employees of the party providing such
assistance) shall be borne by the party receiving such
assistance.
17. Exchange of Information and Rights
a. Duty to Exchange. ESK and Licensee each shall be
deemed hereunder automatically to have licensed to the other and
its Affiliates, and shall promptly advise the other of, all
Improvements of the Technology relating to the Process which it
or any of its Affiliates shall have developed at any time during
the Term hereof or any time after the Term hereof until 31
December 1999 and shall forthwith make available to the other
such Improvements (in regard to such nonpatentable Improvements,
such Improvements shall be deemed licensed exclusively to the
extent and only to the extent that patentable Improvements by the
licensing party are exclusively licensed under Section 4.2 or
Section 4.3 hereof to the licensee party), conditional however on
the payment of any royalty due pursuant to either Section 4.2 or
Section 4.3 hereof and except to the extent that such license and
duty of exchange of ESK shall be limited by the provisions of
Section 4.5 hereof.
b. Patentable Improvements by Licensee. To the
extent that Licensee or any of its Affiliates shall develop an
Improvement which is patentable, Licensee shall be deemed to have
granted to ESK and its Affiliates, subject to a royalty to be
mutually agreed upon by Licensee and ESK (or, in the absence of
such agreement, determined by arbitration as provided hereinafter
by this Agreement), payable for the period mutually agreed upon
by Licensee and ESK, an exclusive (except for Licensee and its
Affiliates) and non-transferable license (but with right of
sub-license) to use the same for any purpose and in any
jurisdiction or territory other than Norway not specifically
denied to ESK and its Affiliates under the terms hereof, which
license shall be in perpetuity. In the event that any patent
application in regard to such Improvement shall be finally denied
by the Patent and Trademark Office or any court of competent
jurisdiction or if the patent application is withdrawn by
Licensee, any royalties previously paid in regard to such
Improvement shall be refunded to ESK or its relevant Affiliate,
without interest. In the event any patent application is filed
by any employee or agent of Licensee as inventor, Licensee
covenants and agrees to cause such patent application or such
resulting patent to be assigned to it or one of its Affiliates.
c. Patentable Improvements by ESK. To the extent
that ESK or any of its Affiliates shall develop an Improvement
which is patentable, ESK shall be deemed to have granted to
Licensee and its Affiliates, subject to a royalty to be mutually
agreed upon by ESK and Licensee (or, in the absence of such
agreement, determined by arbitration as provided hereinafter in
this Agreement), payable for the period mutually agreed upon by
ESK and Licensee, a non-transferable license, without right of
sublicense, to use the same for the purposes specified in this
Agreement in regard to the Technology but only in the Territory
as specified in this Agreement and other jurisdictions expressly
consented to by ESK, which license shall be exclusive in the
Territory (but subject to the limits on exclusivity specified in
Section 2.3 hereof) and which license shall be in perpetuity,
except to the extent that Licensee's license under this Agreement
in regard to the Technology generally shall be terminated by some
other provision of this Agreement. In the event that any patent
application in regard to such Improvement shall be finally denied
by the Patent and Trademark Office or any court of competent
jurisdiction or if the patent application is withdrawn by ESK,
any royalties previously paid in regard to such Improvement shall
be refunded to Licensee or its relevant Affiliate, without
interest.
d. Abandonment. If ESK or Licensee or any of their
respective Affiliates shall at any time during the Term hereof
intend to abandon or not pursue a patent right or patent
application in regard to the Technology or any of the
Improvements (including any patentable Improvement of Licensee or
ESK licensed to the other pursuant to Section 4.2 or Section 4.3
hereof), it will notify the other in writing, and the notified
party shall be entitled to assume, without further consideration,
the said patent right or patent application within thirty days
after such notification upon written notice to the abandoning
party. In such event the abandoning party shall make available
to the other all records and documents necessary for such
assumption. If the notified party shall fail to give such notice
of assumption of such patent right or patent application to be
abandoned within the thirty day period herein specified, the
abandoning party shall be free to abandon the same. Any patent
right or patent application assumed by the notified party shall
be deemed licensed to the abandoning party on a royalty-free,
non-exclusive basis in perpetuity.
e. Limitations on License and Duty of Exchange.
Anything in Sections 4.1 through 4.4 hereof to the contrary
notwithstanding, any duty of ESK to license and make available
its Improvements shall be terminated by the occurrence of any of
the following:
(a) this Agreement shall be terminated other
than by the expiration of time;
(b) ESK or any of its Affiliates shall no longer
have the right to nominate and elect at least one half of the
members of the Board of Directors of Licensee;
(c) the current Management Group (as that term is
defined in that certain stockholders agreement between Licensee
and Wacker Chemical Corporation dated as of 18 April 1984) of the
Licensee shall no longer control the election of one half of the
members of the Board of Directors of Licensee.
Upon such termination of the exchange obligation,
unless this Agreement shall otherwise have been terminated
pursuant to Article 8, the right of Licensee to use the
Improvements of ESK previously licensed to Licensee, and the
license of Licensee to use such patentable Improvements
previously licensed to Licensee pursuant to Section 4.3, shall
continue, but ESK shall have no further obligation to make
available and license any additional Improvements, whether or not
patentable, developed subsequent to such termination pursuant to
this Section 4.5. The provisions of this Section 4.5 are not
ESK's exclusive remedy in the event of the breach of this
Agreement by Licensee or any of its Affiliates, and in the event
of such breach ESK shall have all the rights and remedies herein
provided or available at law or in equity.
18. Secrecy
a. Duty of Licensee. At all times during the Term
hereof and thereafter Licensee and its Affiliates shall keep the
Know-How and all Improvements thereof not otherwise patented
confidential, and shall take reasonable precautions that their
employees and agents are also contractually bound to maintain
such confidentiality.
b. Duty of ESK. At all times during the Term hereof
and at all times thereafter while Licensee shall have the right
to require ESK to exchange Improvements with it pursuant to
Article IV hereof, ESK and its Affiliates shall keep secret and
confidential all Improvements developed by Licensee or its
Affiliates and deemed by the same to be confidential and shall
take reasonable precautions to make sure that its employees,
agents and sublicensees are also contractually bound to maintain
such confidentiality.
c. Limitations of Duty. The foregoing duty of
confidentiality shall not apply to any such Know-How or such
Improvements thereof which (I) was previously known to Licensee
or ESK or their respective Affiliates prior to the receipt
thereof by it; (ii) shall become known to Licensee or ESK or
their respective Affiliates hereafter from some other source
other than as a direct or indirect result of a breach of this
covenant of confidentiality by Licensee or ESK or their
respective Affiliates, as the case may be; or (iii) shall become
generally known in the industry.
d. Limitation on Confidentiality Exception. Neither
ESK nor Licensee nor their respective Affiliates shall be
permitted to justify disregard of its obligation of
confidentiality under this Agreement by using the disclosed
Know-How or Improvements to guide a search of publications and
other publicly available material and by selecting a series of
items of knowledge from unconnected sources in the public domain
and fitting them together through use of the relevant Know-How or
Improvements.
19. Warranties
a. Of Non-Infringement. ESK warrants that to the
best of its knowledge the Technology licensed hereunder to
Licensee does not infringe the patents or proprietary rights of
any third party nor does the licensing hereof constitute a breach
of any contractual obligations in regard thereto to which ESK or
any of its Affiliates are a party or by which any of them are
bound. Licensee warrants that to the best of its knowledge any
Improvements made available by it to ESK hereunder will not
infringe the patent or proprietary rights of any third party or
constitute the breach of any contractual obligations in regard
thereto to which Licensee or any of its Affiliates are a party or
by which any of them is bound. In the event any claim is made
that any of the foregoing warranties have in fact been breached,
the party hereto so warranting ("Warrantor") shall promptly
undertake the defense of such claim and may retain appropriate
counsel to defend against the same, provided that such counsel
shall be reasonably acceptable to the other of ESK and Licensee
("Warrantee"), and the control and expenses of such defense,
including any settlement of the said claim or the abandonment of
any allegedly infringing patent rights, shall be the
responsibility of and within the sole discretion of Warrantor.
Warrantee shall have the right to retain its own counsel at its
own cost and expense and, subject to the right of Warrantor so to
control the defense of such claim, to participate in such
defense. Warrantor shall indemnify Warrantee in regard to any
such claim of breach of warranty, but only to the extent of the
out-of-pocket cost and expense (including reasonable attorneys'
fees and court costs until Warrantor has assumed liability for
and defense of the claim) and liability to third parties imposed
upon Warrantee which results from the breach of such warranty by
Warrantor.
b. Of Reliability. ESK and Licensee each warrants to
the other that the Technology or any Improvement which it
provides to the other under this Agreement was properly and duly
prepared by qualified and reliable engineers and technicians and
that the appropriateness of such Technology or Improvement has
been established through technical experimentation and use.
c. Disclaimer. Licensee and ESK each disclaims any
and all other warranties, whether expressed or implied, in regard
to the Technology and the Improvements. Each acknowledges that
the remedies specified in Section 6.1 shall be exclusive in
regard to the breach of the warranties specified therein.
d. Nonwarranty Claims of Infringement. In the event
any claim is made by a third party that the Technology or any
Improvement licensed hereunder by ESK or Licensee to the other
infringes the patents or proprietary rights of a third party, and
such claim does not constitute a breach of the warranties of the
respective parties in Section 6.1 hereof, the licensing party
shall promptly undertake the defense of such claim and may retain
appropriate counsel to defend against the same, provided that
such counsel shall be reasonably acceptable to the other of ESK
and Licensee (the "licensee party"), and the control and expenses
of such defense, including any settlement of the said claim or
the abandonment of any allegedly infringing patent rights, shall
be the responsibility of and within the sole discretion of the
licensing party except that the licensing party may not agree to
any settlement which imposes liability upon the licensee party in
excess of the licensing party's liability limit for
indemnification under this Section 6.4. The licensee party shall
have the right to retain its own counsel at its own cost and
expense and, subject to the right of the licensing party so to
control the defense of such claim, to participate in such
defense. The licensing party shall indemnify the licensee party
in regard to any such claim of infringement, but only to the
extent of out-of-pocket costs and expense (including reasonable
attorneys' fees and court costs until the licensing party has
assumed liability for and defense of the claim) and liability to
third parties imposed upon the licensee party as a result of such
infringement claim, but the maximum amount of the licensing
party's duty of indemnity hereunder in regard to licensee party's
liability to third parties (including any obligation to pay
royalties for past or future use) is limited to the amount of
royalties which the licensing party has received or which has
been accrued by the licensee party (provided, however, that if
any such royalties have accrued but have not yet been paid to the
licensing party, the licensing party may deduct such accrued but
unpaid royalties from any amounts which it may owe to the
licensee party hereunder, thereby cancelling the Licensee party's
obligation to pay such amount of accrued but unpaid royalties)
under this Agreement since the date of the Merger. Nothing in
this Section 6.4 shall be construed to obligate the licensing
party to continue any defense against such claim if the licensing
party reasonably considers such defense to be legally or
economically impractical, but licensee party may continue such
defense if it may still be subject to liability.
e. Other Claims Regarding the Technology or
Improvements. ESK and Licensee will promptly give notice to the
other, in writing, of any infringement or possible infringement
of, or of attack or threatened attack on, any of the Technology.
To the extent that such matter is not within the scope of
Section 6.1 or Section 6.4 hereof, the parties will thereupon
consult with one another as to the course of action to be taken,
but the licensor of such Technology, be it ESK or Licensor, will
remain the final arbiter of whether or not legal proceedings are
to be undertaken with respect to any infringement(s) or such
attack defended against. If affirmative action is decided upon,
the parties agree to cooperate wholeheartedly with one another
and to decide, taking into account all of the relevant
circumstances, whether and how the costs of any action are to be
apportioned between them.
20. Royalties
a. Royalty. As consideration for the grant of the
licenses provided herein, as well as the covenant of ESK to make
Improvements hereafter developed available to Licensee, Licensee
hereby agrees to pay to ESK a royalty of 3.5% of the aggregate
net proceeds (based upon the invoice price of the Products, less
any charges for freight, insurance, or taxes and also less any
rebates, discounts or allowances) in fact received by Licensee or
any of its Affiliates from the sale of any of the Products
manufactured using the Process or any part of the Technology as
licensed hereunder. The royalty due hereunder on any sales
between Licensee and any of its Affiliates shall be based upon
the average net invoice price, weighted as to quantity sold, of
all sales of the same product in the same calendar year subject
to these royalty provisions which were made between Licensee or
any of its Affiliates and any Non-Affiliate.
b. Payment. Licensee agrees to keep a complete
record regarding the sale and delivery of products subject to
such royalty obligation, indicating all particulars that are
necessary for computing such royalties. Within eight weeks after
the close of each calendar year during the Term hereof, Licensee
shall send ESK an accounting of sales made in the aforementioned
calendar year which were subject to such royalty obligation, and
with such accounting Licensee shall submit payment of the royalty
due for such period in regard to the proceeds of such sales. ESK
shall have the right to conduct at any time, through an auditor
obligated to maintain confidentiality, an audit of the accounting
of Licensee in regard to the sale and delivery of such products
subject to the royalty obligation and the proceeds thereof. The
cost of such audit, if made by Licensee's regular accountant,
shall be borne by Licensee, otherwise by ESK.
c. Withholding. Licensee may deduct from the
payments which it is obligated to make to ESK pursuant to this
Article 7 any taxes which Licensee is required to withhold
pursuant to the laws of the United States of America or the
Dominion of Canada, or any of the subdivision of either, but only
insofar as ESK may set off or credit such sums withheld against
its German tax obligations.
d. Abatement. Licensee and ESK hereby stipulate and
agree that the royalty obligations due hereunder constitute,
among other things, consideration for the licensing of the
various aspects of the Technology as a whole, as well as the
competitive advantage gained by Licensee (and Licensee's
predecessor) in having available the Know-How at the commencement
of the Term hereof. Licensee and ESK stipulate and agree that if
any of the Patents shall be held invalid, or if ESK shall for any
reason abandon any Patent, the royalty payments which would be
otherwise payable during the remainder of the Term after such
finding of invalidity or abandonment shall be ratably abated upon
the mutual agreement of ESK and Licensee (or, in the absence of
such agreement, the amount of such abatement shall be determined
by arbitration as provided hereinafter in this Agreement), taking
into account any competitive advantage otherwise obtained by
Licensee and its predecessor and the fact that the claims
protected by U.S. Patents (and their Canadian equivalents)
3,950,602 and 3,976,829 are substantially more significant than
the claims protected by the other two U.S. Patents (and their
Canadian equivalents). If any patent application and/or patents
in regard to any of the patentable Improvements of either ESK or
Licensee shall be ruled invalid or abandoned, the royalty shall
be abated to the extent that a royalty was established and paid
as set forth in Section 4.2 or Section 4.3 in regard to the
patentable Improvement in question developed by ESK or Licensee.
21. Termination
a. Right of ESK to Terminate. Provided ESK is not in
default hereunder, ESK shall have the right to terminate this
Agreement, whether before or after the expiration of the Term
hereof, at once upon written notice to Licensee if any of the
following shall occur:
(a) Licensee shall default in the performance or
observance of any covenant or agreement hereunder (other than the
covenant to pay royalties or other sum due), and Licensee shall
fail to cure such default (or shall not be undertaking bona fide
efforts to cure such default as promptly as possible if such cure
shall require more than thirty days) for at least thirty days
after ESK shall have given Licensee written notice hereof,
specifying with particularity the nature of the default;
(b) Licensee shall fail to pay any royalties due
hereunder and shall fail to cure such default within fifteen days
after it shall have received written notice thereof;
(c) Licensee shall become bankrupt or insolvent
or shall enter into any voluntary bankruptcy or reorganization
proceeding, shall become the purported bankrupt in any
involuntary proceeding or reorganization proceeding which is not
dismissed within sixty days after it has been commenced, shall
make an assignment for the benefit of creditors, or shall
generally be unable to pay its debts when they become due for a
period of sixty days.
b. Termination by Licensee. Provided Licensee is not
in default hereunder, Licensee may terminate this Agreement at
once, whether before or after the expiration of the Term hereof,
upon written notice to ESK if any of the following shall occur:
(a) ESK shall default in the performance or
observance of any covenant or agreement of ESK herein set forth
and ESK shall fail to cure such default (or shall not be
undertaking bona fide efforts to cure such default as promptly as
possible if such cure requires more than thirty days) for at
least thirty days after Licensee has given ESK written notice
thereof, specifying with particularity the nature of the default;
or
(b) Licensee shall irrevocably abandon all use and
exploitation of the Technology.
c. Effect of Termination. Upon the termination of
this Agreement under this Article 8, Licensee shall at once pay
all royalties accrued up to the date of termination, even if not
otherwise at that time due and payable pursuant to the terms
hereof. Such termination shall be without prejudice to any
rights or remedies available to either Licensee or ESK against
the other which may have accrued prior to the date of
termination. Upon such termination Licensee and its Affiliates
shall at once return any and all written material and items in
their possession incorporating any part of the Technology and
Improvements made available by ESK or its Affiliates to Licensee,
as well as all copies thereof. Any covenants or agreements in
this Agreement in regard to secrecy and confidentiality and in
regard to the return of certain items to ESK shall survive such
termination, shall remain in full force and effect, and shall be
fully enforceable.
22. Force Majeure and Special Conditions
a. Force Majeure. In the event that the fulfillment
of any covenant or obligation under this Agreement shall be
interrupted or delayed by acts of God, war, blockades, labor
disputes of any kind, insufficient or delayed provision of
transportation, fuel, raw materials, or otherwise, acts of
officials, or seizure by any governmental authority, or any other
circumstance which delays or interferes with the fulfillment of
the covenants of either Licensee or ESK pursuant to this
Agreement and are beyond the control of the parties so affected,
both parties shall be relieved, during the continued existence of
such cause, from the performance of their respective obligations
hereunder, without the right of either party to any claim for
damages. Immediate notice to the other party must be given in
any case of force majeure, and it is understood that the party
asserting such force majeure shall take all reasonable effort to
reduce to a minimum the consequences of the delay which has
occurred.
b. Special Conditions. Should there occur such a
gross fundamental change in general economic and technical
conditions existing at the time when the Term hereof commenced,
that the carrying out of this Agreement would represent an undue
hardship for either party, the party affected by such change
shall have the right to ask for an appropriate modification of
this Agreement.
23. Miscellaneous
a. Choice of Law. This Agreement shall be governed
by and construed and interpreted in accordance with the law of
the State of New York.
b. Arbitration. Any controversy or claim arising out
of or relating to this Agreement, or the negotiation of breach
thereof, shall be settled by arbitration in accordance with the
rules of the American Arbitration Association, and judgment upon
award rendered by the arbitrator(s) may be entered in any court
having jurisdiction thereof. Arbitration shall be held at a site
mutually agreeable to Licensee and ESK, or if no agreement can be
reached then in New York, New York.
c. Interest. Any sum owing by Licensee to ESK not
paid when due shall accrue interest at a varying interest rate
equal to the varying prime rate of interest announced from time
to time by Citibank N.A., New York, New York.
d. Notice. Any notice required or permitted to be
given hereunder shall be deemed given when mailed, postage
prepaid, by first class mail (air mail if to an address overseas
from the point of mailing), certified or registered, with return
receipt requested, to the address of the party to receive such
notice as set forth below the signatures of the respective
parties below, or to such other address as the party to receive
such notice may give notice of pursuant to the provisions of this
Section 10.4.
e. Binding Effect, Assignability. This Agreement
shall be binding upon and shall inure to the benefit of the
respective successors and assigns of the parties hereto.
Anything in the previous sentence to the contrary
notwithstanding, Licensee and ESK shall not have the right to
assign this Agreement or their respective rights and obligations
hereunder to any person or party other than one of their own
Affiliates without the prior written consent of the other of ESK
and Licensee.
f. Severability. Each and every provision in this
Agreement shall be deemed severable, separable, and independent
from the other provisions hereof, and in the event that any such
provision hereof is later held unenforceable, the validity or
enforceability of any other provision hereof shall not be thereby
affected, and Licensee and ESK hereby covenant that in the event
any such provision is in fact void or unenforceable, they shall
use their best efforts mutually to agree upon a substitution
therefor achieving the same economic result as the void or
unenforceable provision.
g. Entire Agreement. This Agreement, the Exhibits
attached hereto (which for the purposes hereof shall be deemed a
part of and incorporated into this Agreement), and the documents
and instruments referred to herein, constitute the entire
agreement of the parties in regard to the subject matter of this
Agreement and no amendment or modification thereof may be made
except by a written agreement signed by both Licensee and ESK.
h. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original and all of which, upon execution, shall be deemed and
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
ELEKTROSCHMELZWERK KEMPTEN GMBH THE EXOLON COMPANY
By S/ Norman Pfingstl ByS/ Kurt M. Hertzfeld
Name: Norman Pfingstl Name: Kurt M. Hertzfeld
Title: Managing Director Title: Chairman
Herzog-Wilhelm-Str. 16 1000 East Niagara Street
D-8000 Muenchen 2 Tonawanda, New York 14150
Federal Republic of Germany Attention: Chairman of
the Board
ESK CORPORATION
By S/ Ludwig Eberle
Name: Ludwig Eberle
Title: President
P.O. Box 412
Hennepin, Illinois 61327
Attention: President
EXHIBIT A
US-Patent Issue Date CD-Patent Issue Date
3,950,602 4/30/76 1,038,432 9/12/78
3,976,829 8/24/76 1,066,019 11/13/79
3,989,883 11/02/76 1,048,092 2/06/79
4,158,744 6/19/79 1,070,477 1/29/80
<PAGE>
EXHIBIT 10H
DISTRIBUTORSHIP AGREEMENT
Between: EXOLON-ESK COMPANY
1000 East Niagara Street
TONAWANDA, New York 14150
(hereinafter referred to as the "Distributor")
and
ELEKTROSCHMELZWERK KEMPTEN GMBH
Herzog-Wilhelm-Strasse 16
D-8000 MUENCHEN 2
(hereinafter referred to as "ESK")
I. Subject and Definitions
A. Subject to the terms and conditions of this
Agreement, ESK hereby appoints the Distributor its sole and
exclusive Distributor of the products listed in Appendix A
("Products") in the Territory as defined in Section 1.2 hereof.
B. The Territory shall be the United States of
America and its territories (including the Commonwealth of Puerto
Rico) and Canada.
C. This Agreement shall become effective on
January 1, 1984, and the initial term thereof shall expire on
December 31, 1988; provided, however, that the term of this
Agreement shall be automatically extended for additional
successive three year terms, commencing on January 1, 1989, and
each succeeding third anniversary thereafter unless either party
shall give written notice of termination by June 30 of the last
contract year of the original term or the renewal term hereof
then in effect, in which event this Agreement shall terminate on
the following December 31 of the same contract year.
D. As used in this Agreement, "Buyer" shall mean
the original ultimate purchaser or user of any of the Products,
after purchase from Distributor or from any middleman, who has
ultimately acquired the Product in question in any series of
non-final sales originating with Distributor.
II. Promotion and Sale
A. Distributor shall use its best efforts to
develop and exploit the maximum sales potential for the entire
line of the Products in the Territory.
2.2 Distributor shall suitably promote the
Products in the Territory through the appropriate means.
2.3 Distributor shall establish and maintain a
sales organization, which shall be properly trained and which
shall competently and conscientiously promote and sell the
Products and maintain the good will of customers throughout the
Territory.
2.4 The parties shall consult with one another
concerning Distributor's performance of its obligations under
this paragraph 2 and ESK shall render to Distributor such
assistance as it deems appropriate.
2.5 ESK shall provide Distributor such technical
assistance as may reasonably be required by Distributor in the
promotion and sale of the Products, and the cost of such
technical assistance shall be borne by ESK, except however, that
Distributor shall reimburse ESK for all travel, meal, lodging,
and related out of pocket expenses incurred by personnel of ESK
or its affiliates while in the Territory in providing such
technical assistance.
2.6 ESK's personnel shall have the right
periodically to visit Distributor's facilities. Distributor
shall assist where necessary in making arrangements for such
visits. Deficiencies in regard to proper storage of the
inventory, prompt processing of customer orders, inquiries, or
complaints, appropriate limitation of warranties and liability
(as previously agreed upon by the parties), and maintenance of
appropriate inventory of Products noted during such visits to
such centers or otherwise shall be remedied without delay by
Distributor.
III. Reports; Planning
A. Not more than twenty-one (21) days after each
June 30 and January 31, starting with June 30, 1984, while this
Agreement is in force, Distributor shall mail a report in writing
to ESK. In such semi-annual report Distributor shall:
1. advise ESK of the inventories of the
Products held by Distributor, if any, at the end of the
just-completed quarter, by classes and sub-classes, in the form
mutually agreed upon by the parties hereto, showing grade, size,
and product type to the extent differentiated on ESK's invoices
to Distributor, cost thereof and quantity on hand;
2. advise ESK of its anticipated
requirements, if any, of the Products in the coming two calendar
quarters; thereafter the parties shall jointly plan Distributor's
inventory requirements, if any, and determine the quantities of
the Products by classes and sub-classes to be ordered by
Distributor from ESK.
B. In November of each year during the term of
this Agreement, Distributor shall furnish ESK with a report on
Distributor's marketing plans for the coming calendar year and
setting forth the activities of the competition, the market for
the Products, the price structure of the market, and reactions of
Distributor's customers to the Products.
C. Within ninety days (90) after the end of each
fiscal year (or portion thereof) of Distributor falling within
the term hereof, Distributor shall furnish to ESK a report of the
total gross sales in tonnage of the Products by Distributor
during such fiscal year, with the average price per ton for each
such Product during such year. Distributor agrees that ESK shall
have the right to examine and copy (at ESK's expense), from time
to time, Distributor's books and records in regard to
Distributor's inventory of the Products.
IV. Prices, Payment, Sales and Delivery Terms
A. Distributor will purchase the Products for
its own account from ESK at the net list prices set by ESK for
the Territory, CIF at port of entry. Title to the Products and
risk of loss thereof shall pass from ESK to Distributor,
irrespective of any agreement between them as to purchase of
insurance or shipment terms, upon delivery by ESK of the Products
to the carrier loaded on board at the port of shipment. Any port
of entry shall be mutually agreed upon by ESK and Distributor.
Prices are subject to change from time to time by ESK and ESK
shall give Distributor sixty (60) days written notice prior to
the effective date of any such change; however, ESK shall not be
required to give such sixty day notice if the price increase is
caused by increased customs duties or import surcharges. Price
changes shall apply to orders submitted before the expiration of
the sixty-day period unless delivery is scheduled by Distributor
to take place after such period expires, provided, however, that
Distributor's scheduling of such delivery conforms to the normal
and customary delivery schedules arranged between Distributor and
ESK previously and is for normal and customary quantities of
Products previously ordered by Distributor from ESK.
B. Distributor shall be invoiced in the currency
of the Federal Republic of Germany (DM) and payment of the
invoice prices shall be made in such currency. Payment terms
shall be net sixty (60) days. All bank fees and other charges
and expenses shall be paid by Buyer. Any sum not paid when due
shall accrue interest at a varying rate equal to three points
above the varying discount rate in effect from time to time as
announced by the West German Bundesbank. Any demand or
collection of interest by Seller shall not be deemed in lieu of
any other claim for damages which Seller may have.
C. The latest edition of the "Incoterms" issued
by the International Chamber of Commerce shall be applicable to
any sales or deliveries hereunder, but in the event of any
conflict between the terms hereof and Incoterms, the terms hereof
shall prevail.
D. Unless otherwise provided in this Agreement,
the terms and conditions of sale of ESK attached hereto, which
are based on ESK's standard terms and conditions for export
sales, shall be deemed a part of this Agreement and shall govern
all sales transactions entered into within the framework of this
Agreement. Such terms and conditions may only be modified with
the prior written consent of both parties hereto. In the event
of any conflict between such standard terms and conditions of
sale and the provisions of this Agreement, this Agreement shall
prevail. Any terms and conditions appearing on any quotation,
purchase order, or acknowledgment form of either party made
hereto in connection with any sales transactions within the
framework of this Agreement shall be without force or effect.
E. In the event that Distributor intends to
grant any lien or security interest in its inventory (other than
machinery and parts inventory) to secure obligations of any kind,
Distributor will, prior to such grant of any such lien or
security interest, grant to ESK, as security for its payment to
ESK of any and all amounts due to ESK under any section of this
paragraph 4 or any other provision of this Agreement, including
any and all attorney's fees and legal costs incurred by ESK in
enforcing this Agreement or collecting any monies due to ESK from
Distributor for any reason, a first security interest and lien in
the inventory of Distributor to the extent such inventory is
comprised of any Products sold to Distributor by ESK pursuant to
this Agreement or otherwise, as well as all products derived from
such Products, all rights of Distributor as a seller of such
Products or products derived from such Products under Article 2
of the Uniform Commercial Code, all such Products or products
derived from the Products which are sold or transferred by
Distributor which have been subsequently returned, reclaimed or
repossessed, and all proceeds thereof, including any cash or
accounts receivable resulting from the sale of such inventory or
proceeds of any insurance policy (collectively, the
"Collateral"). Distributor agrees to keep the inventory
identified so that it can be distinguished from any goods not
subject to this security interest, to keep such inventory insured
against the customary casualties and risks for at least its
replacement costs, to protect the inventory from waste, damage by
the elements, theft and vandalism, and to pay all taxes of any
kind which may be imposed upon the inventory or which, if not
paid, could result in a lien upon the inventory. Distributor
agrees that in the event Distributor intends to grant such lien
or security interest to another, it will at any time and from
time to time execute any financing and continuation statements
reasonably requested by ESK to perfect or to continue the
perfection of such security interest and further appoints ESK its
attorney-in-fact to execute and file such financing and
continuation statements if Distributor fails to execute and
deliver the same within 5 days after the same is requested by
ESK. Distributor warrants that such security interest shall be
superior to any and all liens and encumbrances upon such
Collateral. Failure of Distributor to observe the covenants and
warranties of this Section 4.5, or to observe the other
covenants, warranties and agreements of this Agreement, or to pay
any sum when due under this Agreement shall constitute grounds
for ESK, at its option, to declare all sums immediately due and
owing and to exercise its rights under this Section 4.5. Any
rights of ESK under this Section 4.5 are cumulative of any other
rights and remedies which ESK may have at law or in equity.
V. Sales by ESK in the Territory
A. Notwithstanding paragraph 1 hereof and
subject to the following conditions, ESK shall have the right
after consulting with Distributor, to sell and to make delivery
of the Products to those customers who wish to negotiate and deal
directly with ESK. In regard to such customers, ESK hereby
appoints Distributor its exclusive sales representative for the
Territory during the term hereof, and Distributor agrees to
cooperate with ESK to promote and bring about such business
between ESK and such customers who wish to deal directly with
ESK, but the acceptance or refusal of such orders procured by
Distributor from such customers for ESK shall in all instances be
reserved to ESK, and ESK, not Distributor, shall establish the
selling prices as well as the terms and conditions of sale and
delivery to such customers, provided, however, that ESK shall not
make such sales at prices which are less than the prices of
Distributor for sales to its customers of the same product of the
same quality in the same quantity and under the same delivery and
payment terms.
B. In such cases of direct sale by ESK, ESK
shall pay to Distributor, in consideration of the performance of
Distributor's obligations hereunder, a commission equal to two
percent (2%) of the invoice amount charged by ESK to such
customers (less freight, taxes, insurance, customs duties, and
any discounts, rebates, and allowances) and in fact paid by such
customers. If for any reason any orders shall remain unexecuted
or unpaid, Distributor shall have no claim for any compensation
or allowance with respect thereto.
C. Notwithstanding Section 5.2 hereof,
Distributor shall have no claim for commissions on triangle and
switch business into third countries, nor shall any commission be
paid to Distributor in the event that American or Canadian
companies purchase Products, in their own name and on their own
account, for direct or indirect shipment to a location outside
the Territory.
VI. Expenses of Performance
Unless otherwise herein provided, each of the
parties hereto shall bear the entire cost of performing its
obligations hereunder. In particular, Distributor shall not be
compensated or reimbursed for the advertising, servicing and
other expenses incurred by it in performing its obligations under
paragraph 2 hereof.
VII. Limitation of Warranty
A. ESK warrants only that the Products sold to
Distributor under this Agreement will meet ESK's specifications
or the relevant sample or any independent standard accepted
expressly by ESK, under normal use in accord with ESK's
specifications and instructions. If any failure to conform to
this warranty is reported to ESK in writing within thirty (30)
days after the date of the receipt of the Products by Distributor
or any Buyer receiving through Distributor (in the case of any
nonconformity discoverable through reasonable inspection by
Distributor or such Buyer) or within thirty (30) days after the
discovery of the nonconformity (in the case of any nonconformity
not discoverable through such reasonable inspection, but in any
event notice of any nonconformity, whether or not discoverable by
reasonable inspection, must be given to ESK within one hundred
eighty (180) days after delivery of the Products to Buyer), ESK,
upon being satisfied of the existence of such nonconformity, will
correct the same by, at ESK's sole option, delivering replacement
Products or refunding the purchase price (or, where appropriate,
the unit price for such relevant quantity of the Products as have
the nonconformity) paid by Distributor or Buyer. If the Products
are found by ESK to be nonconforming, ESK will pay shipping costs
for return to ESK. No Products shall be returned to ESK,
however, without its express written consent.
THE FOREGOING WARRANTY IS THE SOLE WARRANTY OF
ESK. ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PURPOSE, ARE
EXCLUDED AND DISCLAIMED.
ESK SHALL NOT BE LIABLE TO DISTRIBUTOR, BUYER OR
TO ANY OTHER PERSON, EITHER DIRECTLY OR BY WAY OF
INDEMNIFICATION, CONTRIBUTION OR OTHERWISE, FOR CONSEQUENTIAL,
INCIDENTAL, SPECIAL OR DIRECT DAMAGES, WHETHER THE CLAIM FOR ANY
SUCH DAMAGES IS BASED ON WARRANTY, TORT, CONTRACT, OR OTHERWISE.
B. Distributor agrees to undertake all
reasonable efforts requested by ESK to assure that ESK's product
warranty is distributed to all Buyers, and Distributor agrees not
to give any broader warranty or more restricted limitation of
liability on its own behalf to Buyers that those given by ESK to
such Buyers or to Distributor without the prior written approval
of ESK.
VIII. Product Liability Insurance
Distributor shall carry product liability
insurance, covering the Products which it has modified prior to
resale by it and ESK shall carry product liability insurance
covering the Products which Distributor has not modified prior to
resale by it, each in such amounts as shall be reasonably
satisfactory to both parties from time to time. In the event of
any dispute between ESK and Distributor as to whether the amount
of such insurance is adequate, such dispute shall be resolved by
referral to an insurance broker mutually satisfactory to the
parties.
IX. Termination
A. This Agreement may be terminated:
1. At once by either party if the other
party hereto commits a material breach or default under this
Agreement, which breach or default shall not be remedied within
30 days after the giving of notice thereof to the party in breach
or default; or
2. At once by either party if the other
party hereto is unable to pay its debts as they fall due for a
period of sixty (60) days or enters into liquidation or
dissolution or becomes insolvent, or if a trustee or receiver is
appointed for such party, whether by voluntary act or otherwise,
or if any proceeding is instituted by or against such party under
the provisions of any bankruptcy act or amendment thereto and is
not dismissed within sixty (60) days, or if it enters into a
voluntary arrangement with its creditors; or
3. At once by ESK if (I) either direct or
indirect control of the Common Stock and Series A Preferred Stock
of Distributor is transferred, either voluntarily or
involuntarily, to any person or entity other than the current
control group; or (ii) if all or a substantial part of the assets
of Distributor shall be sold in other than the ordinary course of
business; or (iii) if Distributor attempts to assign this
Agreement without ESK's prior written consent.
B. It is expressly understood and agreed that
neither party hereto is under any obligation to continue this
Agreement in effect, nor to continue the distributorship
arrangement established hereunder, after termination of this
Agreement in accordance with this paragraph 9. Both parties
recognize the necessity of making expenditures in preparing to
perform and in performing this Agreement, and they recognize the
possibility and the likelihood of losses or damages resulting
from its termination. The parties nevertheless agree that
neither party shall be liable to the other for termination of
this Agreement in accordance with this paragraph 9, and each
party specifically agrees not to hold the other liable for any
losses or damages resulting from such termination, including, but
not limited to, loss of or damage to investments, leases and
sales, advertising and promotional activities, whether incurred
in connection with the preparation to perform or the performance
of this Agreement or in the expectation of its renewal or
extension.
C. After notice of termination is given by
either party under this paragraph 9, ESK is entitled to restrict
or even stop entirely deliveries of the Products to Distributor,
including deliveries on orders already received at the time of
notice of termination. However, ESK is required to make the
Products available to Distributor in order to enable Distributor
to maintain its own legally binding delivery commitments existing
before termination becomes effective, subject to proof thereof
being given by Distributor to ESK.
D. Upon termination of this Agreement, whether
pursuant to this paragraph 9 or by expiration of the term hereof,
Distributor shall deliver to ESK at once a complete list of all
customers of Distributor (including the name and address thereof
only) who have bought any Products from Distributor at any time
in the three (3) years preceding such termination, and Distribu-
tor acknowledges that ESK shall have the right directly or
through another distributor or agent to approach such customers
and to solicit purchases by them of the Products, and ESK shall
have the option, exercisable within a period of sixty (60) days
following the effective date of termination, to repurchase from
Distributor such of the inventory of the Products as it shall
determine, at Distributor's cost therefor, without interest.
"Distributor's cost" shall mean the price paid by Distributor to
ESK for such Products plus all costs incurred by Distributor to
lay down the Products in its facilities, less an appropriate
allowance for depreciation, obsolescence or damage.
E. Upon termination of this Agreement, ESK shall
have the option to reclaim all advertising and printed matter, if
any, made available by it to Distributor.
X. Special and Consequential Damages
The parties agree that the remedies provided in
this Agreement are adequate, and that therefore neither party
shall be liable to the other for special or consequential damages
arising from the breach of any obligation hereunder or for any
other reason whatsoever other than as specifically provided for
herein.
XI. Miscellaneous Provisions
A. The relationship between Distributor and ESK
is that of independent contractor and not of employer-employee or
principal-agent. Distributor is not the legal representative of
ESK nor is ESK the legal representative of Distributor, and
neither shall hold itself out as such. Neither Distributor nor
ESK has the right or authority to assume or undertake any
obligation or make any representation on behalf of the other.
B. Both parties acknowledge and agree that any
internal and confidential knowledge or information or trade
secrets about the activities, processes or products of either
party hereto which the other shall receive or learn in the
performance of its obligations hereunder shall be kept strictly
confidential and secret, even after termination of this
Agreement, and shall not be used by such other party hereto in
its own business without the prior written consent of the owner
of the same or unless pursuant to a separate license agreement
between the parties or unless the same shall have become known in
the industry through no fault of the party seeking to use the
other's information or unless the same shall have become known to
such party from other sources not involving a breach of any
contractual obligation. Each party shall be responsible for
seeing that its own employees and agents observe the agreements
of this Section 11.2.
C. ESK agrees to inform Distributor of all
inquiries and orders received by it directly from the Territory
for delivery in the Territory of the Products. In return,
Distributor shall send to ESK all inquiries and orders received
by it either for delivery outside the Territory or in regard to
customers who wish to deal directly with ESK.
D. This Agreement, including any claims arising
out of or connected with this Agreement, may not be assigned by
Distributor except with the prior written consent of ESK.
E. The failure of any party hereto to require
the performance of any term of this Agreement or waiver by any
party of any breach under this Agreement shall not prevent a
subsequent enforcement of such term nor be deemed waiver of any
subsequent breach. Subject to the provisions of paragraph 9
hereof in regard to notice of default and right to cure, time is
of the essence in the performance of each party's obligations
hereunder.
F. The captions set forth herein are for
convenience of reference only and shall not be considered as part
hereof or in any way to limit or amplify the terms and provisions
hereof.
G. Neither of the parties hereto shall be
responsible for or liable to the other party for any damage or
loss of any kind, directly or indirectly, resulting from fire,
flood, explosion, riot, rebellion, revolution, war, labor trouble
(whether or not due to the fault of any party hereto),
requirements or acts of any government or subdivisions thereof,
mechanical breakdown or any other causes beyond the reasonable
control of the party. The occurrence and the termination of such
force majeure shall be promptly communicated to the other
parties.
XII. Notices
Any notice required or permitted to be given
hereunder shall be in writing and shall be deemed to have been
given after the same has been mailed by registered or certified
mail (air mail if overseas), return receipt requested, to the
respective addresses appearing on the first page of this
instrument, or to such other addresses as the parties may from
time to time designate in writing.
XIII. Controversies
Any controversy or claim arising out of or
relating to this Agreement, or the negotiation or breach thereof,
shall be settled by arbitration in accordance with the Rules of
the American Arbitration Association, and the judgment upon the
award rendered by the Arbitrator(s) may be entered in any court
having jurisdiction thereof. The arbitration shall be held in
such location as shall be mutually agreeable to the parties, but
in the absence of such agreement in New York, New York.
XIV. Alterations of the Contract
Alterations of and amendments to this Agreement
must be confirmed by both parties in writing in order to be
binding.
XV. Severability of the Contract
Should any provision of this contract lack
validity or become void, the remaining provisions hereof will
remain in force.
XVI. Applicable Law
This contract is subject to and shall be construed
in accordance with the law of the State of New York.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement this 27th day of April, 1984.
ELEKTROSCHMELZWERK KEMPTEN GMBH EXOLON-ESK COMPANY
S/ Norman Pfingstl S/ Kurt M. Hertzfeld
APPENDIX A
Silicon carbide
except submicrofine powder
and sintered shapes
ELEKTROSCHMELZWERK KEMPTEN GMBH EXOLON-ESK COMPANY
S/ Norman Pfingstl S/ Kurt M. Hertzfeld
TERMS AND CONDITIONS OF SALE AND DELIVERY
I. Any delivery dates given to Distributor
by ESK are estimates only, and shall not bind ESK to ship or
deliver the Products on the dates indicated, although ESK will
use its best efforts to meet such delivery dates, and ESK shall
not be liable for any direct, indirect, consequential or special
damages as a result of delay. In the event that ESK fails to
make delivery within the time agreed upon by ESK and Distributor,
and within a reasonable period thereafter, Distributor's sole
remedy shall be to cancel its order. ESK reserves the right to
make partial shipments of the Products ordered and to submit
separate invoices to Distributor for such partial shipments.
II. If Distributor shall default in the timely
performance of its obligations in regard to any order or invoice,
or any partial shipment under a larger order, ESK may suspend its
performance under any subsequent order or in regard to any
further partial shipments under such larger order unless and
until Distributor shall have cured such default.
III. Distributor shall have no right to set off any
amount or claim against any amount due and owing to ESK from
Distributor unless such amount or claim is fully liquidated and
is uncontested or is the subject of a final nonappealable
judgment.
IV. The term "force majeure" means any cause not
within the reasonable control of the party affected thereby,
including without limitation acts of God, strikes or labor
disturbances, war, embargoes, shortages of raw materials or
transportation or fuel or electric power, failure or destruction
of production facilities, and any governmental decree. The
occurrence of force majeure shall not excuse either party from
the performance of its obligations to the other party, but shall
only suspend the same during the continuance of the force
majeure. If any force majeure shall prevail for 45 consecutive
days, either party shall have the right to terminate at once by
written notice to the other party that portion of any order
between Distributor and ESK which is still fully executory on the
part of both parties. Neither party shall be liable to the other
party for any direct, indirect, consequential, incidental or
special damages arising out of or relating to the suspension or
termination of any contractual relationship between the parties
as a result of force majeure.
V. The provisions hereof may be changed by specific
agreement as regards any individual case.
<PAGE>
27 April 1984
Exolon-ESK Company
1000 East Niagara Street
Tonawanda, New York 14150
Gentlemen:
This letter is being delivered to you in conjunction
with the execution and delivery of that certain Restated License
Agreement dated 26 April 1984 among Elektroschmelzwerk Kempten
("ESK"), ESK Corporation ("ESK Corp."), and The Exolon Company
("Exolon"), and also that certain Distributorship Agreement of
even date herewith between ESK and Exolon-ESK Company
("Exolon-ESK"), the surviving corporation after the merger today
of ESK Corp. and Exolon.
We wish to assure you that ESK has no current intention
upon the termination of the Distributorship Agreement to sell or
offer to sell in the Territory (as defined in the Restated
License Agreement), either directly or indirectly, any silicon
carbide crude or grain products covered by the Distributorship
Agreement and currently manufactured and offered for sale by
Exolon-ESK in the Territory other than through Exolon-ESK as
distributor or sales representative so long as our parent
company, Wacker-Chemie GmbH, is directly or indirectly a 50%
shareholder of Exolon-ESK and Wacker Chemie has the right
directly or indirectly to nominate and elect one-half of the
members of the board of directors of Exolon-ESK. In addition, we
wish to advise you that we do not believe that ESK will have any
intention in the future to sell such products in the Territory
other than through Exolon-ESK as distributor or sales
representative so long as Wacker-Chemie GmbH directly or
indirectly is a 50% shareholder of Exolon-ESK and has the right
directly or indirectly to nominate and elect one-half of the
members of the board of directors of Exolon-ESK, unless
extraordinary conditions shall arise, extraordinary conditions
which do not currently exist and which we do not currently
foresee, which would make such sales after the termination of the
Distributorship Agreement by ESK in the Territory compelling.
In acting under this letter agreement, we would expect
to base our conduct on concepts of fair dealing ("Treu und
Glauben"),
Accepted: Very truly yours,
Exolon-ESK Company Elektroschmelzwerk Kempten GmbH
By S/ Kurt M. Hertzfeld By S/ Norman Pfingstl
<PAGE>
EXHIBIT 10I
INDEMNIFICATION AGREEMENT
AGREEMENT, made as of the 15th day of December, 1984,
by and between EXOLON-ESK COMPANY (the "Company"), with its
principal office at 1000 East Niagara Street, Tonawanda, New York
14150; and WACKER CHEMICAL CORPORATION ("WCC"), with its
principal office at 964 Third Avenue, New York, New York 10022.
W I T N E S S E T H:
WHEREAS, WCC has heretofore entered into an
indemnification agreement with respect to the tax exempt status
of interest on the $8,000,000 Industrial Development Revenue
Bonds, Series 1984 (ESK Corporation Project), dated February 15,
1984, (the "ESK Bonds"); and
WHEREAS, the ESK Bonds are being refunded through the
issuance of $8,000,000 Industrial Revenue Bonds, Series 1984
(Exolon-ESK Company Project) (the "Bonds") and it is agreed that
such indemnification shall be continued with respect to the
Bonds;
NOW, THEREFORE, the parties hereby agree as follows:
1. WCC will pay to the Company any Additional
Payments, as hereinafter defined, due to the holders of the Bonds
or to an indenture trustee of the Bonds with respect to the
period ending January 15, 1999, inclusive, provided that the
amounts payable to the Company with respect to the period
beginning January 16, 1994, and ending January 15, 1999, shall in
no event exceed three percent (3%) of the average principal
amount of the Bonds outstanding during such period. For this
purpose, the term "Additional Payments" shall mean any amounts
which may from time to time be due as a result of the interest on
the Bonds becoming taxable for Federal income tax purposes
because the $10,000,000 capital expenditure limitation of Section
103(b)(6)(D) of the Internal Revenue Code of 1954, as amended,
was exceeded with respect to the $8,000,000 Industrial Project
Revenue Bonds, Series A (ESK Corporation Project), heretofore
refunded by the ESK Bonds, but only to the extent such amounts do
not constitute principal of the Bonds and are in excess of the
amounts which would be due under the Bonds if said $10,000,000
capital expenditure limitation had not been exceeded.
2. WCC shall have all of the rights of the Company
with respect to contesting any claim that interest on the Bonds
is taxable during the period ending January 15, 1994, and shall
be entitled to participate in contesting any such claim for the
period January 16, 1994, to January 15, 1999.
3. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to
have been given upon mailing by registered or certified mail (air
mail if overseas), return receipt requested, to the respective
addresses appearing on the first page of this Agreement, or to
such other addresses as the parties may from time to time
designate in writing.
4. This Agreement may be executed in one or more
counterparts and together shall constitute but one and the same
agreement. This Agreement may be amended only by a writing
executed by the parties hereto. This Agreement shall be governed
by and construed in accordance with the laws of the State of
New York.
5. Nothing in this Agreement shall affect any of the
obligations of WCC under the Indemnification Agreement dated
April 26, 1984, between it and The Exolon Company (now Exolon-ESK
Company), which obligations shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed as of the day and year first
hereinabove written.
WACKER CHEMICAL CORPORATION
By:S/ Harold Seeberg
Harald Seeberg, President
EXOLON-ESK COMPANY
By:S/ L. Harrison Thayer II
<PAGE>
Exhibit 11
Exolon-ESK Company and Subsidiaries
Computation of Earnings Per Share
(In Thousands, Except Per Share Data)
Years Ended
December 31,
1995 1994 1993
______ ______ ______
Net earnings $3,462 $1,516 $33
Less Preferred Stock Dividends:
Series A (22) (22) (22)
Series B (22) (22) (21)
______ ______ ______
Undistributed earnings (loss) $3,418 $1,472 ($10)
Net earnings (loss) attributable
to:
Common Stock (50.0% in 1993, $1,709 $736 ($5)
1994 and 1995)
Class A Common Stock (50.0% $1,709 $736 ($5)
in 1993, 1994 and 1995) ______ ______ ______
$3,418 $1,472 ($10)
====== ====== ======
Net earnings (loss) per share of
Common Stock: $3.55 $1.53 ($0.01)
Primary
Fully Diluted $3.44 $1.50 $0.03(a)
Net earnings (loss) per share of
Class A Common Stock:
Primary $3.33 $1.44 ($0.01)
Fully Diluted $3.24 $1.42 $0.03(a)
Weighted Average Shares
Outstanding:
Primary:
482,000 482,000 482,000
Common Stock
Class A Common Stock 513,000 513,000 513,000
Fully Diluted:
Common Stock 504,000 504,000 504,000
Class A Common Stock 535,000 535,000 535,000
(a) Assumed conversion of Preferred Stock would have anti
dilutive effect in computations and therefore fully diluted
earnings per share is not presented on the face of the
income statement for the year ended December 31, 1993.
<PAGE> Exhibit 22
SUBSIDIARIES OF THE REGISTRANT
The subsidiaries listed below have been included in the
Consolidated Financial Statements of the Registrant. See Note
1 of Notes to Consolidated Financial Statements.
Subsidiaries of the Registrant Place of Percentage
Incorporation Owned
Exolon-ESK Company of Canada, Dominion of 100%
Ltd. Canada
Norsk-Exolon A/S Kingdom of 100%
Norway
Exolon-ESK International Sales U.S. Virgin 100%
Corp. Islands
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000034046
<NAME> EXOLON-ESK COMPANY
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 440,000
<SECURITIES> 0
<RECEIVABLES> 9,315,000
<ALLOWANCES> 419,000
<INVENTORY> 19,700,000
<CURRENT-ASSETS> 29,395,000
<PP&E> 55,903,000
<DEPRECIATION> 40,710,000
<TOTAL-ASSETS> 50,215,000
<CURRENT-LIABILITIES> 7,981,000
<BONDS> 0
0
442,000
<COMMON> 1,026,000
<OTHER-SE> 20,830,000
<TOTAL-LIABILITY-AND-EQUITY> 50,215,000
<SALES> 68,592,000
<TOTAL-REVENUES> 68,592,000
<CGS> 53,212,000
<TOTAL-COSTS> 7,054,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,469,000
<INCOME-PRETAX> 6,857,000
<INCOME-TAX> 2,893,000
<INCOME-CONTINUING> 3,964,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (502,000)
<NET-INCOME> 3,462,000
<EPS-PRIMARY> 3.55
<EPS-DILUTED> 3.44
</TABLE>
