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, 1996
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7276
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 exchange on
Title of each class which registered
Common stock $1 par Boston Stock Exchange
value
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 14, 1997 the aggregate market value of the publicly traded
voting stock held by nonaffiliates of the Registrant was $3,300,055
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 14, 1997, the Registrant had outstanding 481,995 shares
of $1 par value Common Stock.
Documents Incorporated by Reference
Portions of the Registrant's Form 8-K dated October 12, 1994, Form 8-K
dated October 24, 1994 and the Proxy Statement dated April 1, 1997,
are incorporated by reference in Parts I, II and III of this report.
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, 1996, the Company had 285
employees.
Major Customers. Sales to no one customer accounted for 10%
or more of consolidated net sales of the Company for the years
ended December 31, 1996 and 1995. In management's opinion, the
loss of any one 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 one
has 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, 1996, the Company had a
consolidated backlog of $3,686,000 as compared to $5,235,000 a year
earlier. The decrease in the Company backlog in 1996 is primarily
a result of the discontinuance of the former December holiday shut
down which resulted in greater shipments. All of this backlog is
expected to be shipped in 1997.
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 Company has been directed by the Illinois Environmental
Protection Agency to control its sulfur emissions at its Hennepin,
Illinois silicon carbide furnace plant. (See information contained
in Note 13(a)(i) of the Notes to Financial Statements beginning on
page 32.)
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. (See information contained in Note 13(a)(ii) of the Notes
to Financial Statements beginning on page 32.)
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.
(d) Financial Information about Foreign and Domestic Operations
and Export Sales
The Company's wholly owned subsidiary, Norsk Exolon AS is a
limited partner in a Norwegian partnership Orkla Exolon KS. See
information contained in Note 1.c. of Notes to Financial Statements
on page 18. The financial statements of Orkla Exolon KS are
included in this Form 10-K on the financial statement schedules on
pages 42-56. 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 furnace in 1996.
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 purchased an additional 20 acre parcel adjacent
its property in 1995 and has commenced construction of a
desulfurization facility as outlined in Note 13(a)(i) on page 32.
The Company has operations in Norway conducted through a joint
venture, as outlined in Note 1(c) on page 18. 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 13(a)(i) on page 32 to the Notes to Consolidated
Financial Statements contained in this Form 10-K Report.
b. Exolon-ESK Company of Canada, Ltd.
Reference is made to the information presented under the
heading "Exolon-ESK Company of Canada, Ltd." appearing under Note
13 (b)(ii) on page 34 to the Notes to Consolidated Financial
Statements contained in this Form 10-K Report, which is hereby
incorporated herein by reference.
c. Federal Proceedings
Reference is made to the information presented under the
heading "Federal Proceedings and Related Matters" appearing under
Note 13(b)(i) on page 32 to the Notes to Consolidated Financial
Statements contained in this Form 10-K Report. The proceedings
described thereunder are hereinafter referred to as the "Antitrust
Proceedings".
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- $22-$17 $25 3/4-$17 7/8 $25 3/4-$20 1/4 $32-$26
Low
1996
High- $17 1/2-$16 $18 1/2-$15 $18 1/2-$18 1/2 $22-$18 5/8
Low
1995
Information concerning limitations on the payment of dividends
on the Company's Common Stock is hereby incorporated by reference
to Notes 7 and 9 to Notes to Consolidated Financial Statements
beginning on pages 23 and 27, respectively.
The number of active stockholder accounts of record of the
Company's Common Stock, $1 par value, was 182 as of February 14,
1997. The Company did not pay any dividends on its Common Stock in
1996 or 1995.
The shares of the Company's Class A Common Stock, all of which
are owned by Wacker Chemical (USA), Inc., are not publicly traded.
Item 6. Selected Financial Data
The "Selected Financial Information" for the five years ended
December 31, 1996 appears on pages 7 and 8.
Exolon-ESK Company and Subsidiaries
(thousands of dollars except share amounts)
Selected Financial Years Ended December 31,
Information
1996 1995 1994 1993 1992
Statement of
Operations:
Net Sales $77,459 $ 68,592 $59,494 $58,225 $58,387
Cost of Goods Sold 59,620 53,212 46,631 45,860 46,009
Depreciation 2,826 2,873 2,992 3,210 3,182
Selling, General and 5,621 4,958 5,039 5,478 4,673
Administrative Expense
Research and 34 22 289 54 64
Development
Environmental - - 1,357 - 210
Compliance Charges
Operating Income 9,358 7,527 3,186 3,623 4,249
Other (Income)
Expenses:
Equity in (Earnings) (673) (793) (431) 32 151
Loss of Norwegian
Joint Venture
Interest Expense 1,136 1,469 1,480 1,441 1,367
Other (330) (6) 195 232 495
Earnings before Income
Taxes and Cumulative
Effect of Accounting 9,225 6,857 1,942 1,918 2,236
Change
Income Tax Expense 3,145 2,893 426 712 923
Earnings before
Cumulative Effective 6,080 3,964 1,516 1,206 1,313
of Accounting Change
Cumulative Effect of
Accounting Change -
Net of Income Tax - (502) - (1,173) -
Benefit
Net Earnings $ 6,080 $ 3,462 $ 1,516 $ 33 $ 1,313
Primary Earnings (Loss) per
share of Common Stock:
Earnings before
Cumulative Effect
of Accounting $ 6.27 $ 4.07 $ 1.53 $ 1.21 $ 1.42
Change
Cumulative Effect
of Accounting Change -
Net of Tax - $ (0.52) - $ (1.22) -
Benefit
Net Earnings (Loss) per $ 6.27 $ 3.55 $ 1.53 $ (0.01) $ 1.42
share
Primary Earnings (Loss) per
share of Class A Common Stock:
Earnings before
Cumulative Effect of
Accounting Change $ 5.90 $ 3.82 $ 1.44 $ 1.14 $ 1.16
Cumulative Effect of
Accounting Change -
Net of Tax Benefit - $ (0.49) - $ (1.15) -
Net Earnings (Loss) per $ 5.90 $ 3.33 $ 1.44 $ (0.01) $ 1.16
share
Exolon-ESK Company and Subsidiaries
(thousands of dollars except share amounts)
Selected Financial Years Ended December 31,
Information - Continued
1996 1995 1994 1993 1992
Fully Diluted Earnings per share
of Common Stock:
Earnings before
Cumulative Effect
of Accounting Change $ 6.05 $ 3.93 $ 1.50 $ 1.20 $ 1.39
Cumulative Effect of
Accounting Change -
Net of Tax
Benefit - $(0.49) - $(1.17) -
Net Earnings per share $ 6.05 $ 3.44 $ 1.50 $ 0.03 $ 1.39
Fully Diluted Earnings per share
of Class A Common Stock:
Earnings before
Cumulative Effect of $ 5.70 $ 3.71 $ 1.42 $ 1.13 $ 1.14
Accounting Change
Cumulative Effect of
Accounting Change -
Net of Tax Benefit - $ (0.47) - $ (1.10) -
Net Earnings per share $ 5.70 $ 3.24 $ 1.42 $ 0.03 $ 1.14
Weighted Average Shares
Outstanding:
Primary: Common 482 482 482 482 482
Stock
Class A 513 513 513 513 513
Common
Stock
Fully Common 504 504 504 504 504
Diluted: Stock
Class A 535 535 535 535 535
Common
Stock
Dividends per share:
Series A Cumulative $0.8437 $1.1250 $0.8437 $1.1250 $1.1250
Preferred Stock
Series B Cumulative $0.8437 $1.1250 $0.8437 $1.0517 $0.8316
Preferred Stock
Common Stock - - - - -
Class A Common Stock - - - - -
Summary Balance Sheet December 31,
Information:
1996 1995 1994 1993 1992
Current Assets $28,301 $ 29,395 $25,441 $25,434 $23,937
Current Liabilities 8,818 7,981 7,387 8,660 8,021
Working Capital 19,483 21,414 18,054 16,774 15,916
Total Assets 61,483 50,215 45,309 45,834 45,925
Long-Term Debt 20,433 15,350 14,900 16,900 18,691
Stockholders' Equity 28,258 22,298 18,628 16,770 16,813
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, 1996.
Results of Operations 1996 Compared to 1995
In 1996, the Company's net sales increased $8,867,000 to
$77,459,000, an increase of 13% compared to net sales of
$68,592,000 in 1995. The 1996 increase was primarily a result of a
22% increase in the Company's shipment volume of its principal
manufactured and purchased products due to a strong demand for
abrasive products during 1996, when compared to 1995. Average
selling prices for the Company's principal manufactured and
purchased products decreased by approximately 8% during 1996, when
compared to 1995.
Consolidated net income was $6,080,000 or $6.27 per common
share for the year ended December 31, 1996. This compares to
consolidated net income of $3,462,000 or $3.55 per share for the
1995 year.
Cost of sales, excluding depreciation, as a percentage of
sales declined to 77% in 1996, when compared to 77.6% in 1995;
therefore gross margins, as a percent of sales increased to 23% in
1996 compared to 22.4% in 1995.
Total operating expenses including depreciation were
$8,481,000 during 1996 versus $7,853,000 during 1995. The 1996
increase in operating expenses of $628,000 is primarily a result of
increases in selling and general and administrative expenses. As a
result operating income increased to $9,358,000 in 1996 compared to
$7,527,000 for the 1995 year.
Depreciation, as a percent of sales, was 3.6% for 1996
compared to 4.2% for 1995.
Selling, general and administrative expenses increased by
$663,000 in 1996, due primarily to increases in advertising of
$71,000; Commissions of $137,000; sales salaries and incentives of
$219,000; and general and administrative salaries and incentives of
$254,000. As a percent of net sales, selling and general and
administrative expense increased to 7.3% in 1996, from 7.2% for the
1995 year.
Interest expense from continuing operations declined to
$1,136,000 in 1996 from $1,469,000 in 1995. The reduction in
interest expense is primarily due to lower debt levels in 1996
versus 1995. The average interest rate on the U.S. revolving and
demand lines of credit was 8.1% during 1996 compared to 8.4% in
1995. The Company recorded lower average borrowing levels in 1996
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 terms loan
was $6.2 million for 1996, when compared to $8.9 million for the
1995 year.
The Company's Norwegian joint venture, Orkla Exolon KS,
reported the Company's 50% share in the pre-tax income of the
venture was $673,000 for the 1996 year versus pre-tax income of
$793,000 for the 1995 year. The Company's share of the venture's
net sales increased 1% in 1996 to $8,195,000 compared to $8,140,000
in 1995. Net sales, in terms of native currency, increased by 3%
in 1996 compared to 1995. The joint venture's gross margins, prior
to depreciation, decreased to 21% for the 1996 year versus 24% for
1995, principally due to increased operational costs.
The 1996 income tax provision was $3,145,000, representing an
effective rate of 34%. The 1995 income tax provision was $2,893,000
which represented an effective rate of 42%.
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 10 of the Notes to Consolidated Financial
Statements and within the operating expense comparisons that
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 KS,
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.
Liquidity and Capital Resources
As of December 31, 1996, working capital (current assets less
current liabilities) has decreased to $19,483,000, when compared to
$21,414,000 as of December 31, 1995. Accounts receivable increased
by $165,000 as of December 31, 1996 versus 1995 year end primarily
as a result of the increase in net sales during 1996 versus 1995.
Inventory decreased by $1,261,000 at December 31, 1996 when
compared to December 31, 1995. Income taxes payable decreased by
$863,000 as of December 31, 1996 versus December 31, 1995. Notes
payable and long-term debt increased by $5,419,000 due to the
$13,000,000 bond issuance related to the Hennepin Facility.
For the year ended December 31, 1996, net cash provided by
operating activities was $8,986,000. Outstanding bank indebtedness
increased by $6,832,000, and cash reserves, including restricted
cash equivalents, increased by $7,831,000 at December 31, 1996
compared to December 31, 1995. Capital expenditures of $6,170,000
were provided both from net cash provided by operating activities
and the $13,000,000 bond issuance in Illinois.
The Company's current ratio decreased to 3.2 to 1.0 at
December 31, 1996 from 3.7 to 1.0 as of December 31, 1995. The
ratio of total liabilities to shareholder's equity was 1.2 to 1.0
as of December 31, 1996 and 1.3 to 1.0 as of December 31, 1995.
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 1997 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 1997. In addition to the Company's
recurring capital expenditures of approximately $3,000,000 during
1997, the Company will incur capital costs within the range of
$8,000,000 to $10,000,000 over the year to comply with its
environmental permit in Illinois. As of December 31, 1996, the
Company has incurred approximately $4,340,000 of capital costs
related to the facility improvements. The Company is financing the
costs of the required capital improvements through a bond offering
of $13,000,000 of which $8,405,000 is 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 13(a) to the Notes
to Consolidated Financial Statements beginning on page 32.
Reference is made to the descriptions of the certain legal
matters, under the caption Legal Proceedings under Item 3
beginning on page 5 of this Form 10-K Report.
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.
Period to
Period
Increase
(Decrease)
in Relationship
Relationship to Net Sales to Net Sales
Years Ended December 31, Years Ended
1996 1995 1994 1995-96 1994-95
Net Sales 100.0 % 100.0 % 100.0 % 0 % 0 %
Cost of Goods
Sold, excluding
Depreciation 77.0 77.6 78.4 (0.6) (0.8)
Depreciation 3.6 4.2 5.0 (0.6) (0.8)
Selling, General
and
Administrative
Expense 7.3 7.2 8.5 0.1 (1.3)
Research and
Development 0.4 (0.4)
Environmental
Compliance
Charges - - 2.3 - (2.3)
87.9 89.0 94.6 (1.1) (5.6)
Operating Income 12.1 11.0 5.4 1.1 5.6
Other (Income)
Expense:
Equity in Loss
(Income) of
Norwegian Joint
Venture (0.9) (1.2) (0.7) 0.3 (0.5)
Interest Expense 1.5 2.2 2.5 (0.7) (0.3)
Other (0.4) 0.3 (0.4) (0.3)
0.2 1.0 2.1 (0.8) (1.1)
Income Before
Income Taxes and
Cumulative
Effect of
Accounting
Change 11.9 10.0 3.3 1.9 6.7
Income Tax Expense 4.1 4.2 0.7 (0.1) 3.5
Income Before
Cumulative
Effect of
Accounting
Change 7.8 5.8 2.6 2.0 3.2
Cumulative Effect
of Accounting
Change - (0.8) - 0.8 (0.8)
Net Income 7.8 % 5.0 % 2.6 % 2.8 % 2.4 %
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements, together with the
report thereon of Ernst & Young LLP dated January 14, 1997, appear
on pages 13 through 36 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, 1996 and
1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. 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.
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,
1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1996 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 10 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 14, 1997
Exolon-ESK Company and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Year Ended December 31
1996 1995 1994
Net Sales $77,459 $ 68,592 $59,494
Cost of Goods Sold 59,620 53,212 46,631
Gross Profit Before Depreciation 17,839 15,380 12,863
Depreciation 2,826 2,873 2,992
Selling, General & Administrative 5,621 4,958 5,039
Expenses
Research and Development 34 22 289
Environmental Compliance Charges - - 1,357
Operating Income 9,358 7,527 3,186
Other (Income) Expenses:
Interest Expense 1,136 1,469 1,480
Equity in Income of Norwegian (673) (793) (431)
Joint Venture
Other (330) (6) 195
Income before Income Taxes and
Cumulative Effect of
Accounting Change 9,225 6,857 1,942
Income Tax Expense 3,145 2,893 426
Income before Cumulative Effect of 6,080 3,964 1,516
Accounting Change
Cumulative Effect of Accounting
Change -
Net of Income Tax Benefit of $282 - (502) -
Net Income $ 6,080 $ 3,462 $ 1,516
Primary Earnings Per Common Share:
Income before Cumulative Effect $ 6.27 $ 4.07 $ 1.53
of Accounting Change
Cumulative Effect of Accounting - (0.52) -
Change
Net Income $ 6.27 $ 3.55 $ 1.53
Primary Earnings Per Class A Common Share:
Income before Cumulative Effect $ 5.90 $ 3.82 $ 1.44
of Accounting Change
Cumulative Effect of Accounting - (0.49) -
Change
Net Income $ 5.90 $ 3.33 $ 1.44
Fully Diluted Earnings Per Common
Share:
Income before Cumulative Effect $ 6.05 $ 3.93 $ 1.50
of Accounting Change
Cumulative Effect of Accounting - (0.49) -
Change
Net Income $ 6.05 $ 3.44 $ 1.50
Fully Diluted Earnings Per Class A
Common Share:
Income before Cumulative Effect $ 5.70 $ 3.71 $ 1.42
of Accounting Change
Cumulative Effect of Accounting - (0.47) -
Change
Net Income $ 5.70 $ 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.
Exolon-ESK Company and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
December 31
1996 1995
Assets
Current assets:
Cash $ 275 $ 440
Accounts receivable (less allowance for
doubtful accounts of $502 in 1996 and
$419 in 1995) 9,061 8,896
Inventories 18,439 19,700
Prepaid expenses 526 359
Total Current Assets 28,301 29,395
Investment in Norwegian joint venture 5,812 5,230
Property, plant and equipment 18,385 15,193
Cash equivalents restricted for capital 7,996 -
additions
Other assets 989 397
Total Assets $61,483 $ 50,215
Liabilities and Stockholders' Equity
Current liabilities:
Cash overdraft $ 1,413 $ -
Notes payable 219 -
Current maturities of long-term debt 1,667 1,550
Accounts payable 3,223 3,229
Accrued expenses 1,780 1,713
Income taxes payable 466 1,329
Deferred income taxes 50 160
Total Current Liabilities 8,818 7,981
Deferred income taxes 1,436 1,300
Long-term debt 20,433 15,350
Accrued postretirement benefit costs 2,429 2,608
Other long-term liabilities 109 678
Commitments and Contingencies
Stockholders' equity:
Preferred stock
Series A (liquidation preference-$484) 276 276
Series B (liquidation preference-$484) 166 166
Common stock, issued 512,897, 513 513
outstanding 481,995 ($1 par value)<PAGE>
Class A common stock, issued 512,897 513 513
($1 par value)
Additional paid-in capital 4,345 4,345
Retained earnings 22,999 16,952
Cumulative translation adjustment (186) (99)
Treasury stock, at cost (368) (368)
Total Stockholders' Equity 28,258 22,298
Total Liabilities and Stockholders' Equity $61,483 $ 50,215
The accompanying notes to consolidated financial statements are an
integral part of these statements.
Exolon-ESK Company and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31
1996 1995 1994
Cash Flow from Operating Activities:
Net income $ 6,080 $3,462 $ 1,516
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 2,826 2,873 2,992
Cumulative effect of change in
accounting for post-retirement - 502 -
benefits
Equity in income of Norwegian (673) (793) (431)
joint venture
(Gain) loss on fixed asset 29 16 (56)
disposals
Deferred income taxes 26 729 176
Foreign currency adjustments 4 (2) (14)
Change in Assets and Liabilities:
Accounts receivable (165) (1,960) 656
Inventories 1,261 (2,596) (347)
Prepaid expenses (167) 40 (26)
Other assets (98) (97) 155
Cash overdraft 1,413 - -
Accounts payable (6) 424 (639)
Accrued expenses 67 91 6
Income taxes payable (863) 1,194 (590)
Other liabilities and accrued (748) (344) 778
postretirement benefit costs
2,906 77 2,660
Net Cash Provided by Operating 8,986 3,539 4,176
Activities
Cash Flow from Investing Activities:
Capital expenditures (6,170) (2,695) (2,068)
Purchases of restricted cash (7,996) - -
equivalents
Proceeds from fixed asset 123 8 328
disposals
Net Cash Used for Investing Activities (14,043) (2,687) (1,740)
Cash Flow from Financing Activities:
Net (payments of) proceeds from (7,800) 1,200 (2,000)
long-term debt
Proceeds from issuance of long-term 13,000 - -
debt
Deferred financing fees (494) - -
Net proceeds from (payments of) notes 219 (2,000) -
payable
Dividends paid (33) (54) (32)
Principal payments under capital lease - (25) (50)
obligations
Net Cash Provided by (Used for) 4,892 (879) (2,082)
Financing Activities
Net (Decrease) Increase in Cash (165) (27) 354
Cash at Beginning of Year 440 467 113
Cash at End of Year $ 275 $ 440 $ 467
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
Interest $ 1,171 $1,493 $ 1,465
Income Taxes $ 3,983 $ 991 $ 852
The accompanying notes to consolidated financial statements are
an integral part of these statements.
Exolon-ESK Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
Year ended December 31
1996 1995 1994
Series A preferred stock $ 276 $ 276 $ 276
Series B preferred stock 166 166 166
Total preferred stock $ 442 $ 442 $ 442
Common stockholders' equity:
Common stock $ 513 $ 513 $ 513
Class A common stock 513 513 513
Additional paid-in capital 4,345 4,345 4,345
Retained earnings:
Balance, beginning of year 16,952 13,545 12,061
Net income 6,080 3,462 1,516
Preferred stock dividends-
1996 - $0.8438 per share;
1995 - $1.4062 per share;
1994 - $0.8437 per share (33) (55) (32)
Balance, end of year 22,999 16,952 13,545
Cumulative translation
adjustment:
Balance, beginning of year (99) (362) (736)
Change in cumulative (87) 263 374
translation adjustment
Balance, end of year (186) (99) (362)
Treasury stock, at cost (368) (368) (368)
Total common stockholders' equity, $ 27,816 $ 21,856 $ 18,186
end of year
The accompanying notes to consolidated financial statements are
an integral part of these statements.
EXOLON-ESK COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
1. Summary of Significant Accounting Policies
a. Revenue recognition
The Company recognizes revenue at the time of shipment to the
customer. Provision is made for anticipated losses at the time the
loss is known.
b. Principles of consolidation
The accompanying consolidated financial statements include the
accounts of the Exolon-ESK Company and its wholly-owned subsidiaries
Exolon-ESK Company of Canada, Ltd., Norsk Exolon AS, and Exolon-ESK
International Sales Corporation (the Company ). All significant
intercompany balances and transactions have been eliminated.
c. Investment in Norwegian joint venture
Norwegian Operations. The Company's wholly-owned subsidiary,
Norsk Exolon AS is a limited partner in a Norwegian partnership, Orkla
Exolon KS (the "Partnership"), which is engaged in the manufacture and
sale of silicon carbide crude and grain products. Norsk Exolon AS has
a 50% interest in the Partnership, with another Norwegian company,
Orkla AS, 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. 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 AS's share of earnings
from the joint venture are included as a component of income taxes
(Note 8).
d. Inventories
Inventories are stated at the lower of cost or market.
Approximately 70 and 75% of the dollar value of inventories is stated
at last-in, first-out (LIFO) cost at December 31, 1996 and 1995, with
the balance being stated at average cost.
e. Property, plant and equipment
Property, plant and equipment is stated at cost. Maintenance and
repairs are charged to expense as incurred and renewals and
betterments are capitalized. Depreciation is computed for financial
reporting purposes using straight-line and declining balance methods
over the estimated useful lives of the assets as follows: buildings,
15-50 years; machinery and equipment, 3-20 years.<PAGE>
f. 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.
Inventories and 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
$42,000, ($30,000), and ($143,000) in 1996, 1995, and 1994,
respectively.
g. Income taxes
Deferred income taxes 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 considered to be 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, 1996, undistributed
earnings of the Canadian and Norwegian foreign subsidiaries combined
were $11,108,000.
Investment tax credits are accounted for using the flow-through
method.
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 9) 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.
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, 1996, the Company did not have any open currency forward
contracts.
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. At December 31, 1996 and 1995, liabilities for
environmental costs of $260,000 and $780,000 were recorded in other
accrued liabilities.
k. 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 adopted Statement No. 121 in 1996. The
effect of this adoption was not material.
l. 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.
2. 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 $2,361,000 and $2,070,000 higher
than reported at December 31, 1996 and 1995, respectively.
The following are the major classes of inventories as of December
31 (in thousands):
1996 1995
Raw Materials $ 3,581 $ 2,119
Semi-Finished and Finished 16,294 18,640
Goods
Supplies and Other 925 1,011
20,800 21,770
Less: LIFO Reserve (2,361) (2,070)
$ 18,439 $ 19,700
3. Property, Plant and Equipment
Property, plant and equipment consists of (in
thousands):
1996 1995
Land $ 283 $ 283
Buildings 7,804 8,233
Machinery & equipment 47,941 45,087
Construction in progress 5,129 2,300
61,157 55,903
Less - accumulated 42,772 40,710
depreciation
$ 18,385 $ 15,193
During 1996, the Company capitalized interest costs totaling
$104,000.
4. Business Segment Information
The Company manufactures 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
conducts operations through its manufacturing facilities in the United
States and Canada, and its equity interest in a Norwegian joint
venture.
The Company had sales to one major customer which accounted for
approximately 12% of consolidated net sales in 1994. No one customer
accounted for 10% or more of net sales in 1996 or 1995. Sales between
Canada and the United States are made at cost plus a margin which
approximates the gross profit generally received for sales of similar
products by the Canadian entity.
5. 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 1996 1995
Current assets $5,081 $4,704
Non-current assets 2,752 2,644
Current liabilities 1,391 1,458
Non-current Liabilities 319 363
Statement of Operations 1996 1995 1994
Net Sales $8,195 $8,140 $6,832
Gross profit 1,709 2,097 1,221
Income before income taxes 673 793 431
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, 1996,
undistributed earnings of the joint venture were $4,791,000.
6. 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 balance of
$219,000 as of December 31, 1996 and a zero balance as of December 31,
1995 and 1994. The approximate average borrowings (Canadian funds)
outstanding during 1996, 1995 and 1994 equaled $46,000, $83,000 and
$204,000, respectively, with approximate weighted average interest
rates of 4.8%, 9.9% and 6.9%, respectively. The maximum amount of
short-term debt (Canadian funds) outstanding as of any month-end
during 1996, 1995 and 1994 was $300,000, $200,000 and $425,000,
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 of funds, by dividend or otherwise, 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.
7. Long-Term Debt
Long-term debt consists of (in
thousands):
1996 1995
Revolving credit and term loan $ 300 $ 7,100
agreement with a U.S. Bank. Interest
at prime rate plus 1/4% or LIBOR (8.5%
at December 31, 1996).
Term loan agreement with a U.S. Bank. 800 1,800
Interest at prime rate plus 1/2% or
LIBOR (8.19% at December 31, 1996).
Industrial revenue bond held by an 8,000 8,000
insurance company. Interest is at a
fixed rate of 8 7/8%. Bond maturity
is January 1, 2018.
Industrial revenue bond. Interest is 13,000 -
variable (4.91% at December 31, 1996).
The bonds are payable annually through
December 1, 2021.
$22,100 $16,900
Less - current maturities 1,667 1,550
$20,433 $15,350
U.S. Credit Agreement
The Company's Credit Agreement dated December 22, 1992 with a
U.S. bank provides for borrowings up to $10,000,000 under the
revolving portion of the agreement, a $4,000,000 term loan and for
borrowing up to $2,000,000 under a demand line of credit.
At December 31, 1996 borrowings of $300,000 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,
1999. 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, 1999 and
continuing to October 1, 2002 and one final payment on January 1, 2003
in an amount equal to the remaining balance of the term note. The
Company must pay a commitment fee equal to 0.15% per annum on the
unused portion of the revolving credit facility.
At December 31, 1996 borrowings of $800,000 were outstanding
under the term loan portion of borrowings under the Credit Agreement.
The term loan is due in equal quarterly principal payments of $200,000
through 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, 1996 no amounts were outstanding under this line of
credit.
Borrowings under 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, including 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 $100,000 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. The bonds
mature on January 1, 2018 and require quarterly interest payments.
The bonds bear interest, payable to a bank as trustee at a fixed rate
of 8-7/8%. Amortization of principal commences in January, 1999 until
maturity in the year 2018. The bond agreement contains certain
restrictive covenants which are consistent with the covenants
contained in the U.S. Credit Agreement.
The Company is also liable for making payments with respect to
$13,000,000 of Industrial Revenue Bonds issued by the Upper Illinois
River Valley Development Authority for the construction of a
desulfurization plant at the Company's Hennepin, Illinois facility.
Bonds totaling $8,405,000 are tax-enhanced and mature December 1,
2021. The remaining bonds mature December 1, 2011. The bonds bear
interest, which is payable periodically, in arrears, to a bank as
trustee, at a variable rate determined by market rates for similar
instruments at the time of adjustment. The bond agreement contains
certain restrictive covenants which are consistent with the covenants
contained in the U.S. Credit Agreement.
In support of the $13,000,000 bond issue, the Company obtained a
$13,000,000 letter of credit from its principal U.S. bank for the
benefit of the trustee of the bonds. A letter of credit fee equal to
0.75% per annum is payable to the bank periodically, in arrears. The
letter of credit expires in December 2001 and is renewable annually
thereafter. The letter of credit agreement requires the Company to
make voluntary redemptions of the bonds quarterly sufficient to redeem
all of the bonds within 15 years. The letter of credit agreement also
requires the Company to deposit with the bank, and to assign and
pledge to the bank as collateral security, an amount equal to the
Company's excess cash flow, as defined, up to a maximum of $4,333,333;
however, such funds held in the deposit account may be used by the
Company for the redemption of the bonds.
Aggregate annual maturities of long-term debt are as follows:
1997 $ 1,667,000
1998 867,000
1999 989,000
2000 997,000
2001 997,000
2002 $ 16,583,000
and
beyond
8. Income Taxes
The components of income tax expense are as follows (in
thousands):
1996 1995 1994
Current provision
(benefit):
United States
Federal $ 1,850 $ 1,226 $ 68
State 271 178 76
Foreign 995 768 112
Total Current 3,116 2,172 256
Deferred provision
(benefit):
United States
Federal (45) 494 152
State 6 (36) 65
Foreign 68 263 (47)
Total Deferred 29 721 170
Total $ 3,145 $ 2,893 $ 426
The actual tax expense differs from the expected tax expense
computed by applying the U.S. Federal corporate tax rate of 34% to
earnings before income taxes as follows (in thousands):
1996 1995 1994
Computed expected tax expense $3,137 $2,332 $ 660
Effect of differing tax rates
applicable to foreign subsidiary
income (407) (267) (109)
Utilization of Norwegian net operating
losses not previously recognized - - (149)
Recognition of investment tax credits - - (214)
Effect of permanent differences 47 9 (16)
State and Provincial taxes, net of 486 465 217
Federal benefit
Non-deductible environmental penalties - - 442
Norwegian tax reserve - - (225)
U.S. reserve for dividend repatriation - 571 -
Other (118) (217) (180)
Total income tax expense $3,145 $2,893 $ 426
Effective tax rate 34.1% 42.2% 21.9%
Deferred income tax liabilities and assets include the following
(in thousands):
1996 1995
Deferred tax liabilities:
Excess tax depreciation $ 2,044 $2,235
Norwegian tax assessment 59 59
reserve
Dividend repatriation reserve 571 571
Pension and payroll accruals 114 52
Gross deferred tax liabilities $ 2,788 $2,917
Deferred tax assets:
Norwegian NOL (53) (180)
Inventory accounting methods (38) (192)
Accounts receivable and other (47) (22)
asset reserves
Post retirement accrual (1,039) (1,044)
Other, net (125) (19)
Gross deferred tax assets $(1,302) $(1,457)
Net deferred tax liability at $ 1,486 $1,460
end of year
During the fourth quarter of 1996, the Company recorded an
adjustment to reduce income tax expense related to quarters one, two
and three of 1996 by approximately $433,000.
9. Capital Stock
The Company has two classes of Common Stock. At December 31,
1996 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, 1996 there were 19,364 shares of
Series A and 19,364 shares of Series B Preferred Stock outstanding.
At December 31, 1996, 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.
10. 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 $176,000 in 1996, $146,000 in 1995, and $147,000 in 1994.
Contributions to the Canadian defined contribution plan were $78,000
in 1996, $66,000 in 1995 and $65,000 in 1994. The Company also
provides a defined benefit plan for hourly employees at the Tonawanda
plant. Benefits are based primarily on years of service. The
Company's policy for this plan is to contribute annually at least the
minimum amount required by the Employee Retirement Income Security Act
of 1974, as amended. Total pension expense for all plans amounted to
$393,000, $361,000, and $391,000 in 1996, 1995 and 1994,
respectively.
The Company also participates in a collectively bargained, union-
sponsored multiemployer pension plan which benefits employees of the
Company's Hennepin, Illinois facility who are union members. Company
contributions to this plan were $139,000, $125,000 and $112,000 for
1996, 1995 and 1994, respectively. This plan is not administered by
the Company. Contributions are determined in accordance with the
provisions of the negotiated labor contract.
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, 1996 and 1995 (in thousands):
December 31
1996 1995
Actuarial present value of accumulated
benefit obligations, including vested
benefit obligations of $1,539 at
December 31, 1996 and $1,475 at ($1,540) ($1,475)
December 31, 1995
Projected benefit obligations ($1,540) ($1,475)
Plan assets at fair value, primarily 2,421 2,036
equity securities
Plan assets in excess of plan obligations 881 561
Unrecognized net loss at transition,
being amortized over approximately 17 120 137
years
Unrecognized prior service cost 150 162
Unrecognized gain arising since (623) (428)
transition
Prepaid pension expense $528 $432
The actuarially computed pension cost for 1996, 1995 and 1994
included the following components (in thousands):
1996 1995 1994
Service costs $ 57 $ 54 $ 59
Interest on projected benefit obligation 118 106 100
Actual return on plan assets (464) (404) (54)
Amortization of transition liability and 332 324 (18)
deferrals
Net periodic pension expense $ 43 $ 80 $ 87
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 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
benefits 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, 1996 and 1995 included 26,000 shares of the
Common Stock of Exolon-ESK Company valued at $926,000 (Canadian) at
December 31, 1996.
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. The Company's policy is to fund these benefits on
a pay-as-you-go basis.
The amounts recognized in the Company's December 31, 1996 and
1995 balance sheets for its U.S. operations were as follows (in
thousands):
December 31
1996 1995
Accumulated postretirement
benefits obligation:
Retirees $1,045 $ 887
Fully eligible active 435 366
Terminated participants not 40 39
yet receiving benefits
Total accumulated postretirement $1,520 $1,292
benefits obligation
Unrecognized prior service cost 25 -
Unrecognized gain (302) (623)
Accrued postretirement benefit $1,797 $1,915
obligation
Net periodic postretirement benefit costs for 1996, 1995 and
1994 included the following components (in thousands):
1996 1995 1994
Service cost - benefits earned $ 11 $ 12 $ 14
Interest cost 98 92 115
Amortization (33) (42) (4)
Net periodic postretirement $ 76 $ 62 $125
benefit cost
For measuring the postretirement benefit obligation as of
December 31, 1996 an 8% annual rate of increase in health care rates
was assumed for the next 6 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 $53,000 and would
increase the periodic post-retirement cost by $8,000. 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, Employers'
Accounting for Postretirement Benefits Other Than Pensions 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 amounts recognized in the December 31, 1996 and 1995 balance
sheets were as follows (in thousands):
December 31
1996 1995
Accumulated postretirement benefits
obligation:
Retirees $ 885 $ 445
Fully eligible active participants 323 151
Total accumulated postretirement benefits $ 1,208 $ 596
obligation
Unrecognized net loss (gain) 446 (233)
Accrued postretirement benefit obligation $ 762 $ 829
Net periodic postretirement benefit costs for 1996 and 1995
included the following components (in thousands):
1996 1995
Service cost - benefits earned during the $ 10 $ 13
period
Interest cost 45 61
Amortization (17) (42)
Net periodic postretirement benefit cost $ 38 $ 74
The pro forma effect of the change on years prior to 1995 was not
determinable.
For measuring the post-retirement benefits obligation, an 8%
annual rate of increase in the health care rates was assumed for the
next 5 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 $108,000 and would increase the periodic post-retirement
benefits cost by $12,000. 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.
The accrued postretirement benefits obligation has been recorded
in the Company's balance sheet as follows (in thousands):
December 31
1996 1995
Accrued expenses $ 130 $ 136
Accrued postretirement 2,429 2,608
$2,559 $2,744
11. Related Party Transactions
The Company purchased combined totals of $3,740,000, $4,320,000
and $2,626,000 of products from its affiliates, Elektroschmelzwerk
Kempten GmbH, and its Norwegian joint venture during 1996, 1995 and
1994, respectively.
The Company has a royalty agreement with an affiliate of a
shareholder of the Company as described in Note 12(b).
12. Commitments
a. Lease agreements
The Company leases certain machinery and equipment under
operating leases. Amounts charged to expense for the years ended
December 31, 1996, 1995 and 1994 were $428,000, $370,000 and $351,000,
respectively. Total minimum lease payments, at December 31, 1996,
under operating leases are summarized as follows (in thousands):
1997 $363,000
1998 312,000
1999 96,000
$771,000
b. Royalty agreements
The Company was party to a royalty agreement which expired in
1996 and covered 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. The Company is
also party to a separate royalty agreement which covers production of
specialty product for refractory market, and expires April 30, 2001.
This Agreement is currently the subject of litigation as outlined
under Note 13(b)(ii) on page 34 in this Form 10-K Report. Royalty
expense in U.S. dollars amounted to $419,000, $725,000 and $543,000 in
the years ended December 31, 1996, 1995 and 1994, respectively.
13. Contingencies
a. Environmental issues
(i) Hennepin, Illinois Plant
On October 6, 1994, the Company entered into a Consent Order (the
Consent Order ) with the Illinois Attorney General and the Illinois
Environmental Protection Agency ( IEPA ) in complete settlement of a
complaint brought by them which alleged that the Company had violated
certain air quality requirements in the operating permit for its
Hennepin, Illinois plant. The Consent Order provides a schedule for
the Company to install a Continuous Emissions Monitoring System
( CEMS ) and to implement the required Best Available Control
Technology ( BACT ) for air emissions, pursuant to an IEPA approved
construction and operating permit. The Company obtained final
approval for a construction permit to implement the BACT during 1996.
The Company purchased a 20 acre parcel of land adjacent to its
property in 1995 and construction has commenced.
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 $13,000,000 to $14,000,000 over the next two years. As of
December 31, 1996, the Company has incurred approximately $4,340,000
of capital costs related to the facility improvements. The Company
has obtained a modification of its Industrial Revenue Bond Agreement
to allow for the required capital expenditures under the Consent
Order. The cost of these required capital improvements is being
financed with the $13,000,000 of proceeds from long-term bonds, a
portion of which are tax-exempt, issued by the Upper Illinois River
Valley Development Authority.
(ii) Norwegian Joint Venture
The Government of Norway held discussions with certain Norwegian
industries including the abrasive industry concerning the
implementation of reduced gaseous emission standards. The Company's
joint venture is participating in these discussions to help achieve
the Norwegian Government's objectives as well as assuring long term
economic viability for the joint venture.
The Company's joint venture appointed a project group to complete
a study and define a project to minimize sulfur and dust emissions
which was presented to the Norwegian State Pollution Control Authority
on March 1, 1995. The Authority has prepared an internal study of the
report and the Authority's draft for new concessions was presented to
the joint venture in February 1996. Based on a consensus for the
metallurgical industry, the joint venture has initiated discussions
with the Authority to obtain acceptable emissions levels. The costs
associated with the implementation of environmental expenditures are
uncertain as a result of various alternatives presently being
considered by the Norwegian joint venture.
b. Legal matters
(i) Federal Proceedings and Related Matters
In February 1994, the Company, its former President, its former
Executive Vice President and certain other parties were the subject of
an indictment under federal antitrust laws (the "Antitrust
Proceedings") which alleged, among other things, that: (a) prior to
the mid-1980's and from the mid 1980's continuing into 1992, the
defendants and unnamed co-conspirators entered into and engaged in a
combination and conspiracy to fix the prices of artificial abrasive
grain in restraint of interstate trade; (b) during the same period,
the Company and its former President willfully violated the terms of a
Consent Decree dated November 16, 1948 against the Company and its
officers, which permanently enjoined them from entering into
conspiracies or combinations to fix prices of artificial abrasive
grain; and that (c) the Company's former Executive Vice President
destroyed documents and made false declarations in response to a grand
jury subpoena issued in an investigation of price fixing for
artificial abrasive grain. On July 12, 1996 a Plea Agreement was
executed by the United States Department of Justice and the Company in
full settlement of the Criminal Antitrust Proceedings pending against
the Company. The Plea Agreement was approved by the Federal District
Court for the Western District of New York, and sentencing occurred on
December 9, 1996. In accordance with the Plea Agreement, the Company
pled guilty to contempt of court in violation of the 1948 Consent
Decree described in (b) above. All other charges against the Company
were dismissed. The Company paid a fine of $100,000 and a $200
special assessment. There are no conditions of probation or any
further penalties. In addition, all antitrust and consent decree
violation charges against individual former officers of the Company as
set forth in (a) and (b) above were dismissed.
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 KS, the Norwegian partnership in which the Company's
subsidiary, Norsk Exolon AS, 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.
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 it is not otherwise expected to impact the
Company's operations as the Company does not deal with the U.S.
Government as a contractor or subcontractor. As long as there is an
adequate supply of crude abrasive grains and the U.S. Government does
not sell this grain from its stockpiles at below market prices, the
DLA Suspension is not expected to have a material adverse effect on
the Company's operations. Presently, and for at least the next 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. 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. The Company is
actively seeking to have the DLA suspension lifted as it has favorably
resolved all federal criminal litigation resulting in the suspension.
On October 18, 1994, a lawsuit was commenced in the U.S. District
Court for the Eastern District of Pennsylvania (No. 94-CV-6332) under
the title "General Refractories Company v. Washington Mills Electro
Minerals Corporation and Exolon-ESK Company." The suit purports to be
a class action seeking treble damages from the defendants for
allegedly conspiring with unnamed co-conspirators during the period
from January 1, 1985 through the date of the complaint to fix, raise,
maintain and stabilize the price of artificial abrasive grains and to
allocate among themselves their major customers or accounts for
purchases of artificial grains, in violation of Section 1 of the
Sherman Act, 15 U.S.C. S 1. The plaintiffs allegedly paid more for
abrasive grain products than they would have paid in the absence of
such anti-trust violations and were allegedly damaged in an amount
that they are presently unable to determine. On or about July 17,
1995, a lawsuit captioned Arden Architectural Specialties, Inc. v.
Washington Mills Electro Minerals Corporation and Exolon-ESK Company,
(95-CV-05745(m)), was commenced in the United States District Court
for the Western District of New York. The Arden Architectural
Specialties complaint purports to be a class action that is based on
the same matters alleged in the General Refractories complaint. The
Company believes that it has meritorious defenses to the allegations,
and it intends to vigorously defend against the charges.
In addition to the potential liabilities that the Company may
experience in the legal proceedings brought by these 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.
An action for damages was brought against Exolon-ESK Company and
Exolon-ESK Company of Canada, Ltd. by International Oxide Fusion Inc.
of Niagara Falls, Ontario in December, 1996. This action has been
brought on the basis that the Thorold, Ontario facility is in the
possession of technology that was provided in 1990 to Exolon-ESK
Company to produce MagChrome and Fused MgO and has refused to pay
further royalty payments. International Oxide Fusion Inc. claims
damages for loss of royalty payments from the furnaces in Thorold,
Ontario which they allege use this technology. Exolon-ESK Company and
Exolon-ESK Company of Canada, Ltd. have filed a Statement of Defense
and Counterclaim against International Oxide Fusion Inc., Edward J.
Bielawski, Robert Thiel (the principals of International Oxide Fusion
Inc.), Thomas Farr and Fusion Unlimited (Niagara) Inc. which was
issued in January, 1997 in Toronto, Ontario. At this time, the
Company is not in a position to reasonably estimate the range of any
loss or gain. The Plaintiffs seek approximately $182 million as
damages, which management considers to be beyond any reasonable
understanding. The Company's counterclaim is in the amount of
approximately $22 million.
In June 1993, the Company commenced a legal action in Ontario,
Canada Court (General Division) against one of its former officers and
certain former employees of Exolon-ESK Company of Canada, Ltd.
(Exolon-Canada) on various charges related to allegations that they
defrauded the Company and Exolon-Canada of money, property and
services over many years (the Canadian Case ). The Company is
seeking $2,000,000 in damages together with such other damages that
may be determined. While actions against several Defendants have been
dismissed, we have received a $40,000 recovery and expect a minimum
recovery of an additional thirty-five thousand dollars ($35,000.00)
from at least one remaining defendant and $164,000 from another
defendant beyond that. A reasonable estimation of any further
potential recovery, if any, cannot be made at this time.
On February 29, 1996, the Company and Exolon-Canada entered into
a Final Release (the Release ) with their insurance carriers whereby
they agreed to release the carriers from all claims based on the
activities of the defendants in the Canadian Case in consideration of
a payment of $535,000 Canadian (approximately $375,000 U.S.). Under
the terms of the Release, the insurance carriers denied any liability,
and the payment may not be indicative of the amount of any recovery
that may be obtained from the defendants. The insurance carriers have
subrogated all of their third party rights and claims to Exolon-ESK
Company of Canada, Ltd.
14. Fair Value of Financial Instruments
The carrying amounts reported in the Company's balance sheets for
cash and restricted cash equivalents approximate fair value. The
carrying amounts reported in the Company's balance sheets for long-
term debt, including current portion, approximate fair value, as the
underlying long-term debt instruments are comprised of notes that are
repriced on a short-term basis, except for a fixed rate industrial
revenue bond for which the interest rate approximates current interest
rates for similar borrowings.
15. Quarterly Financial Data (unaudited)
Summarized quarterly financial data for 1996, 1995 and 1994 is as
follows:
Quarter
(thousands of dollars except First Second Third Fourth
per share amounts)
Year Ended December 31, 1996
Net Sales $19,846 $19,739 $18,903 $18,971
Gross Profit Before 4,543 4,695 4,274 4,327
Depreciation
Net Income $ 1,410 $ 1,604 $ 1,074 $ 1,992
Primary Earnings Per Common $1.45 $1.65 $1.10 $2.07
Share
Primary Earnings Per Class $1.36 $1.55 $1.04 $1.95
A Common Share
Year Ended December 31, 1995
Net Sales $17,177 $17,131 $17,094 $17,190
Gross Profit Before 3,778 3,922 4,052 3,628
Depreciation
Earnings Before Cumulative 938 1,014 1,175 837
Effect of Accounting Change
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 $0.11 $0.06 $(0.16) $1.43
Class A Common Share
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.
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 "Election of Directors", contained in the
Company's definitive Proxy Statement dated April 1, 1997 relating to
the Annual Meeting of Shareholders to be held on April 30, 1997, 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 dated
April 1, 1997 relating to the Annual Meeting of Shareholders to be
held on April 30, 1997, 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 dated April 1, 1997 relating to the Annual Meeting of
Shareholders to be held on April 30, 1997, 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 Related Party Transactions",
contained in the Company's definitive Proxy Statement dated April 1,
1997 relating to the Annual Meeting of Shareholders to be held on
April 30, 1997, which is hereby incorporated by reference.
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 Auditors: 13
Financial Statements:
Consolidated Statements of
Operations, three years ended 14
December 31, 1996
Consolidated Balance Sheets at 15
December 31, 1996 and 1995
Consolidated Statements of Cash
Flows, three years ended December 31, 16
1996
Consolidated Statements of Changes in
Stockholders' Equity, three years 17
ended December 31, 1996
Notes to Consolidated Financial 18-36
Statements
2) Financial Statement Schedule for
three years ended December 31, 1996:
II. Valuation and qualifying accounts 41
All other required schedules have
been omitted because they do not
apply to the Company.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K (Continued)
(a) (3) Exhibits
Exhibit Description Reference
No.
3A Certificate of Amendment of Exhibit 3A
Restated Certificate of
Incorporation dated April
30, 1997
3A(1) Certificate of Merger Exhibit 3A(1) to the
Report on Form 10-K for
the year ended December
31, 1995*
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*
3I Restated Bylaws containing Exhibit 3I
all previous amendments
adopted
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(23)A Amendment Credit Agreement Exhibit 10D(23)A
dated December 1, 1996
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*
10D(25) Industrial Revenue Bond Loan Exhibit 10D(25)
Agreement dated December 1,
1996
10D(26) Building Loan Agreement Exhibit 10D(26)
dated December 1, 1996
10F Stockholder's Agreement Exhibit 10F to the
dated as of April 26, 1984 Report on Form 10-K for
between the Registrant and the year ended December
Wacker Chemical Corporation 31, 1995*
10G Restated License Agreement Exhibit 10G to the
dated as of April 26, 1984 Report on Form 10-K for
among Elektroschmelzwerk the year ended December
Kempten GmbH, ESK 31, 1995*
Corporation and the
Registrant
10H Distributorship Agreement Exhibit 10H to the
dated April 27, 1984 between Report on Form 10-K for
Elektroschmelzwerk Kempten the year ended December
GmbH, and the Registrant 31, 1995 *
10I Indemnification Agreement Exhibit 10I to the
dated as of December 15, Report on Form 10-K for
1984 between Wacker Chemical the year ended December
Corporation and the 31, 1995*
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
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 KS
financial statements and financial statement schedules
on pages 49-64.
* Incorporated herein by reference.
Exolon-ESK Company and Subsidiaries
Valuation and Qualifying Accounts
Three Years Ended December 31, 1996
(thousands of dollars)
Additions
Balance Charged
at to Costs Balance
Description Beginning and at End
of Year Expenses Deductions of Year
Deducted from assets -
Allowance for
doubtful accounts
Year ended December $419 $70 $13 (a) $502
31, 1996
Year ended December $309 $110 -- $419
31, 1995
Year ended December $307 $20 ($18)(a) $309
31, 1994
Allowance for slow-
moving and obsolete
inventory
Year ended December $136 $161 -- $297
31, 1996
Year ended December $136 -- -- $136
31, 1995
Year ended December $616 -- $480 $136
31, 1994
(a) Uncollectible accounts written off, net of recoveries.
Orkla Exolon KS, Orkanger - Norway
Index to Financial Statements
Page
Report of independent auditors 43
Balance sheets at December 31, 1996 and 1995 44
Statements of income and retained earnings for the three
years ended December 31, 1996, 1995 and 1994 46
Statements of cash flows for the three
years ended December 31, 1996, 1995 and 1994 47
Notes to the financial statements 49
Financial schedules for the three years
ended December 31, 1996, 1995 and 1994:
II Valuation and qualifying accounts and reserves 56
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, January 27, 1997
Report of Independent Auditors.
We have audited the accompanying balance sheets of Orkla Exolon KS as
of December 31, 1996 and 1995, and the related statements of income
and cash flows for each of the three years in the period ended
December 31, 1996. 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, 1996 and 1995, and the results of its
operations and cash flows for the three years in the period ended
December 31, 1996 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)
BALANCE SHEET AT DECEMBER 31st
Assets NOK 1996 NOK 1995
Current
Cash 8,850,868 14,461,939
Trade receivables, less allowance for
doubtful accounts of NOK 343,000 in 1996 22,645,379 16,499,168
and NOK 266,000 in 1995
Other accounts receivable and prepayments 1,996,892 2,776,714
Receivable from related parties (Note 4) 5,008,807 5,570,011
Inventories (Note 3)26,980,000 20,194,000
Total current assets 65,481,946 59,501,832
Long-Term Receivables and Other Assets
(Note 5) 7,475,205 7,025,136
Property, Plant and Equipment
At cost
Land 507,930 507,930
Buildings 18,127,175 18,127,175
Machinery, equipment and installations 47,136,413 43,779,235
65,771,518 62,414,340
Accumulated depreciation (37,779,588) (35,989,310)
Net property, plant and equipment 27,991,930 26,425,030
Total assets 100,949,081 92,951,998
The accompanying notes are an integral part of these financial
statements.
BALANCE SHEET AT DECEMBER 31st
Liabilities and Partners' Interest NOK 1996 NOK 1995
Current Liabilities
Bank indebtedness (Note 6) 3,000,000 3,000,000
Accounts payable and accrued expenses 14,447,518 14,960,958
Portion of long-term debt repayable
within one year (Note 7) 483,334 483,334
Total current liabilities 17,930,852 18,444,292
Long-Term Debt
Mortgage loans (Note 7) 4,591,665 5,074,999
Portion repayable within one year (Note 7) (483,334) (483,334)
Total long-term debt 4,108,331 4,591,665
Partners' Interest
Paid-in capital (Note 8)11,349,100 11,349,100
Retained earnings 67,560,798 58,566,941
Total partners' interest 78,909,898 69,916,041
Total liabilities and partners' interest 100,949,081 92,951,998
Commitments and Contingent Liabilities (Note 9)
The accompanying notes are an integral part of these financial
statements
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31st
Income from Operations NOK 1996 NOK 1995 NOK 1994
Sales 106,157,825 103,426,909 96,220,973
Cost of sales exclusive of
depreciation shown below 84,023,411 78,782,750 79,020,248
Gross income 22,134,414 24,644,159 17,200,725
Depreciation 2,581,303 2,129,670 1,597,094
Selling, general and
administrative expenses 11,189,839 12,742,064 9,129,804
Bad debts, net 77,000 (107,430) 94,260
Income from operations 8,286,272 9,879,855 6,379,567
Other Income / Expense
Interest on mortgage loans
and bank overdraft (502,782) (394,659) (631,827)
Interest income 484,312 489,941 156,774
Foreign exchange gain / loss 726,055 103,165 (245,073)
Income / loss from other
activities 707,585 198,447 (720,126)
Income for the year 8,993,857 10,078,302 5,659,441
Retained earnings at
January 1st 58,566,941 48,488,639 42,829,198
Retained earnings at
December 31st 67,560,798 58,566,941 48,488,639
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 1996 NOK 1995 NOK 1994
Net income 8,993,857 10,078,302 5,659,441
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,581,303 2,129,670 1,597,094
Gain / Loss sale property,
plant & equipment (143,005) (250,000) (452,521)
Change in assets and liabilities:
Increase / Decrease in
receivables and
prepayments (4,805,185) 154,370 1,302,797
Increase / Decrease in
inventories (6,786,000) 766,000 892,000
Increase / Decrease in
pension benefit plan /
prepaid pension premiums (450,069) (559,000) (585,129)
Increase / Decrease in
accounts payable and
accrued expenses (513,440) 1,631,531 1,557,980
(10,116,396) 3,872,571 4,312,221
Cash flow from operating
activities (1,122,539) 13,950,873 9,971,662
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31st
Cash Flow from Investment Activities
NOK 1996 NOK 1995 NOK 1994
Capital expenditures (4,266,203) (8,641,711) (2,575,169)
Sale of property, plant
and equipment 261,005 250,000 715,000
Cash flow from investment
activities (4,005,198) (8,391,711) (1,860,169)
Cash Flow from Financial Activities
Increase in bank indebtedness 0 0 2,282,000
Repayment of long-term debt (483,334) (483,334) (2,230,762)
Cash from financial
activities (483,334) (483,334) 51,238
Net increase (decrease) in
cash and cash equivalents (5,611,071) 5,075,828 8,162,731
Cash and cash equivalents
at the beginning of year 14,461,939 9,386,111 1,223,380
Cash and cash equivalents
at the end of year 8,850,868 14,461,939 9,386,111
Supplemental disclosure of cash flow information
Cash paid during the year
for interest: 443,312 403,178 584,058
The accompanying notes are an integral part of these financial
statements.
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 labor 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.
d. Translation of foreign currencies
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. Revenue recognition
Net sales for goods and services are recorded at the time of
delivery. The amount reported in the statement of income exclude
VAT, discounts and bank fee regarding customers.
g. 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: 1996 1995 1994
Finished Goods 12,735,000 7,385,000 7,895,000
Work in progress 10,345,000 8,937,000 8,469,000
Raw materials 2,365,000 2,836,000 2,800,000
Supplies (net)*) 1,535,000 1,036,000 1,796,000
26,980,000 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:
1996 1995 1994
Receivable from:
The Exolon - ESK Company,
New York, USA 308,668 963,436 522,343
Orkla Exolon AS 4,700,139 4,606,575 4,691,889
Norsk Exolon AS 0 0 0
Total receivable from
related parties 5,008,807 5,570,011 5,214,232
Payable to:
Orkla AS 2,000 106,440 76,600
Sales
Exolon-ESK Company 4,382,908 5,255,893 5,567,746
ESK Germany 0 0 679,386
Total sales to related
parties 4,382,908 5,255,893 6,247,132
The Exolon - ESK Company, New York, USA is the ultimate holding
company of Norsk Exolon AS. Norsk Exolon AS is a limited partner
(50% interest) in Orkla Exolon AS, with another Norwegian company
owning the remaining partnership interest.
Purchases
Purchases of goods and services from related parties during the
year were as follows:
1996 1995 1994
Orkla AS 318,250 341,607 337,633
Borregaard 1,449,534 297,422 0
The Exolon - ESK Company,
New York, USA 0 0 0
Elektroschmelzwerk, Kempten,
Germany 795,965 371,500 215,100
Total purchases from related
parties 2,563,749 1,010,529 552,733
5) Additional Pension Plan Disclosures
1. Description of the plan
The pension plan covers all groups of employees in the company, (92
current employees and 75 pensioners). The benefit is based on
years of service and final salary levels. Plans are administrated
by the independent insurance company Uni Storebrand.
The assumptions used are:
Discount rate 6.0 %
Assumed rate of return - plan assets 7.0 %
Salary increase 3.0 %
Assumed pension increase 2.0 %<PAGE>
Average social security tax 14.1 %
Funded plan assets are primarily invested as follows:
Governmental- or governmental guaranteed bonds app. 45.0 %
Domestic and foreign shares app. 20.0 %
Private marked loans, within 60 % of appraised
loan value on real estate app. 20.0 %
Real estate investments app. 10.0 %
Short term investment app. 5.0 %
2. Net periodic pension cost recognized as expense for the periods
presented.
1996 1995
Service cost component (502,282) (387,000)
Interest cost component (1,147,845) (990,000)
Actual return on plan assets for the
period 1,891,196 1,715,000
Amortization of transitlongitude assets 196,640 197,000
Net total of other components 12,359 12,000
________ ________
The net periodic pension cost (-)
return (+) 450,068 547,000
======== =======
3. Funding status
Fair value of plan assets 28,282,035 26,286,000
Pension benefit obligations
Projected benefit obligation (1,805,588) 0
Accumulated benefit obligation (18,349,040) (17,434,000)
Vested benefit obligation 0 0
Amount of unrecognized prior
service cost 0 0
Amount of unrecognized net gain or loss (348,487) (1,314,149)
Amount of remaining unrecognized net
obligations/ net assets existing at
the date of initial application (201,087) (213,446)
Amount of additional liabilities
recognized pursuant to the minimum
liabilities provisions 0 0
Rest revaluation of pension premium fund (102,628) (299,269)
Amount of net pension asset recognized in
the balance sheet. 7,475,205 7,025,136
========= =========
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 utilized is the banks prime rate + 0.5%. In addition,
the bank is committed to lend the company up to NOK 3,000,000 in
equivalent DEM amount until June 23, 1997. The interest rate is
LIBOR +1.0%. 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, 1996 was NOK
3,000,000 and NOK 3,000,000 at December 31, 1995.
7) Long-Term Debt
Long-term debt consist of:
Interest
Lender Security rate 1996 1995 1994
SND First mortgage 6.80% 4,591,667 5,075,000 5,558,333
(Buildings, machinery
and equipment) _________ _________ _________
Mortgage loans as of December 31st 4,591,667 5,075,000 5,558,333
Repayment terms
1997 483,334
1998 483,334
1999 483,334
2000 483,334
2001 onwards 2,658,331
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
The Norwegian State Pollution Control Authority (SFT) has presented
new environmental standards for the company .
Formally the new standards are to be approved by the Norwegian
government before they are set into force which is expected to be
executed in 1997.
The new standards will demand reductions in dust- and sulfur
emission.
In order to retain future permission for sulfur, SO2 and dust
emission the company has to meet the requirements from the
government within a period of 5 year from formal approval of the
new standards.
There are uncertainties connected to which technological methods to
use to meet environmental requirements. The necessary future
investments are preliminary estimated to NOK 35,000,000.
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(+)/ decrease(-)in:
Statement Retained
of income earnings
1996 512,468 10,182,585
1995 16,579 9,670,117
1994 *) (56,955) 9,653,538
1993 (Change in N GAAP re. Acc.
principles for pensions) (261,450)
1993 *) 766,758 9,971,943
1992 **) (9,667,305) 9,205,185
*) Differences in 1996 and 1995 is due to:
Statement of income: 1996 1995
Effect of different depreciation rates 397,823 (392,421)
Effect of different capital expenditures 0 200,000
Effect on accounting of pension per FASB 87 196,640 209,000
Effect on different loss/gain on disposal
fixed assets (81,995) 0
512,468 16,579
Retained earnings:
Inventory obsolescence (supplies) (1,282,000) (1,282,000)
Benefit plan per FASB 87 (102,629) (299,268)
Fixed assets 11,567,215 11,251,385
10,182,586 9,670,117
**)The decrease in difference between retained earnings per US GAAP and
local books in 1992 is mostly due to change in Norwegian accounting
principles
Valuation and Qualifying Accounts and Reserves
Schedule II
Realized
Addition losses
Balance charged on
at to cost Balance accounts
beginning and at end of receiv-
Classifications of period expenses period ables
Year ended December 31,
1996
Allowance for doubtful 266,000 77,000 343,000 0
accounts
Inventory supplies 1,282,000 - 1,282,000 -
obsolescence
Year ended December 31,
1995
Allowance for doubtful 380,000 (114,000) 266,000 6,570
accounts
Inventory supplies 1,282,000 - 1,282,000 -
obsolescence
Year ended December 31,
1994
Allowance for doubtful 343,000 37,000 380,000 57,260
accounts
Inventory supplies 1,282,000 - 1,282,000 -
obsolescence
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 24, 1997 EXOLON-ESK COMPANY
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.
J. Fred Silver, Michael H. Bieger,
President and Chief Vice President -
Executive Officer Finance and Chief
Financial Officer
Theodore E. Dann, Jr. Chairman of the Board March 24, 1997
Brent D. Baird Director March 24, 1997
Craig A. Rogerson Director March 24, 1997
Dr. Bernhard G. Frank Director March 24, 1997
Dr. Hans Herrmann Director March 24, 1997
Patrick W.E. Hodgson Director March 24, 1997
EXHIBIT INDEX
Exhibit Description Reference
No.
3A Certificate of Amendment of Exhibit 3A
Restated Certificate of
Incorporation dated April
30, 1997
3A(1) Certificate of Merger Exhibit 3A(1) to the
report on Form 10-K for
the year ended December
31, 1995*
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 Amendment of Certificate of Exhibit 3H to the Report
Incorporation dated October on Form 10-Q for the
28, 1992 quarter ended September
30, 1992*
3I Restated Bylaws containing Exhibit 3I
all previous amendments
adopted
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(23)A Amendment Credit Agreement Exhibit 10D(23)A
dated December 1, 1996
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*
10D(25) Industrial Revenue Bond Exhibit 10D(25)
Loan Agreement dated
December 1, 1996
10D(26) Building Loan Agreement Exhibit 10D(26)
dated December 1, 1996
10F Stockholder's Agreement Exhibit 10F to the
dated as of April 26, 1984 report on Form 10-K for
between the Registrant and the year ended December
Wacker Chemical Corporation 31, 1995*
10G Restated License Agreement Exhibit 10G to the
dated as of April 26, 1984 report on Form 10-K for
among Elektroschmelzwerk the year ended December
Kempten GmbH, ESK 31, 1995*
Corporation and the
Registrant
10H Distributorship Agreement Exhibit 10H to the
dated April 27, 1984 report on Form 10-K for
between Elektroschmelzwerk the year ended December
Kempten GmbH and the 31, 1995*
Registrant
10I Indemnification Agreement Exhibit 10I to the
dated as of December 15, report on Form 10-K for
1984 between Wacker the year ended December
Chemical Corporation and 31, 1995*
the Registrant
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
22 Subsidiaries of the Exhibit 22
Registrant
27 Financial Data Schedule Submitted electronically
* Incorporated herein by reference.
Appendix A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
EXOLON-ESK COMPANY
______________________________
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
EXOLON-ESK COMPANY, a corporation organized and existing
under and by virtue of the General Corporation Law of the State
of Delaware (the Corporation ), DOES HEREBY CERTIFY:
FIRST: The Restated Certificate of Incorporation of the
Corporation shall be amended as follows:
A. Article Fifth of the Certificate of Incorporation
is hereby amended to decrease the number of directors from
eight to six so that, as amended, the first sentence of said
Article Fifth shall read in its entirety as follows:
"The number of Directors shall be six."
B. Article Sixth of the Certificate of Incorporation
is hereby amended by deleting subparagraph (1) thereof and
substituting a new subparagraph (1) which shall read in its
entirety as follows:
"(1) 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 of a lesser number of directors, the
affirmative vote of a majority of all of the directors
of the Corporation shall be required for the Board of
Directors to take any action, except when the Board of
Directors shall have designated an executive committee
with authority in the management of the Corporation, in
which case the affirmative vote of a majority of all of
the directors on said executive committee shall be
required for the executive committee to take action.
Without limiting the generality of the foregoing, the
Board of Directors by the affirmative vote of not less
than four directors, is hereby authorized to amend the
By-laws of the Corporation.
SECOND: The Board of Directors of the Corporation duly
adopted a resolution setting forth the amendments set forth
above, declaring their advisability and calling a special meeting
of the stockholders of the Corporation entitled to vote in
respect thereof. Thereafter, the stockholders of the Corporation
duly adopted and approved said amendments at a meeting on April
30, 1997 in accordance with the applicable provisions of Section
242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Exolon-ESK Company has caused this
certificate to be signed by J. Fred Silver, its President, and
Nancy E. Gates, its Secretary, this 30th day of April, 1997.
EXOLON-ESK COMPANY
By: J. Fred Silver, President
ATTEST:
By: Nancy E. Gates, Secretary
RESTATED
BYLAWS
OF
EXOLON-ESK COMPANY
JANUARY 1997
ARTICLE I
Stockholders' Meetings
1. Place of Meetings. All meetings of stockholders shall
be held at such place within or without the State of Delaware as
may be designated from time to time by the Board of Directors,
the Chairman of the Board, or the President or, if not so
designated, at the principal office of the Corporation.
2. Annual Meetings. The annual meeting of stockholders
for the election of directors and for the transaction of such
other business as may properly be brought before the meeting
shall be held in each year on the last Wednesday in April, at ten
o'clock, local time, at the place of the meeting. If this date
shall fall upon a legal holiday at the place of the meeting, then
such meeting shall be held on the next succeeding business day
at the same hour.
3. Special Meetings. Special meetings of stockholders for
any purpose or purposes, unless otherwise prohibited by statute
or by the Certificate of Incorporation, may be called at any time
by the Chairman of the Board, the Vice-Chairman of the Board, the
President or by the Board of Directors and shall be called by the
President or Secretary upon the written request (which shall
state the purpose or purposes therefor) of any five members of
the Board of Directors or of stockholders holding one quarter or
more of the shares of the capital stock of the Corporation issued
and outstanding and entitled to vote at such meeting. Business
transacted at any special meeting of stockholders shall be
limited to matters relating to the purposes stated in the notice.
4. Notice of Meetings. Except as otherwise provided by
statute, written notice of each meeting of stockholders, whether
annual or special, shall be given not less than ten (10) nor more
than sixty (60) days prior thereto to each stockholder entitled
to vote at such meeting. The notices of all meetings shall state
the place, date and hour thereof, and, in addition, the purpose
or purposes for which the meeting is called.
5. Voting List. The officer who has charge of the stock
ledger of the Corporation shall prepare, at least ten (10) days
before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder
and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is
present.
6. Quorum. Except as otherwise provided by law, by the
Certificate of Incorporation or by these Bylaws, the holders of a
majority of the shares of the capital stock of the Corporation
issued and outstanding and entitled to vote, present in person or
represented by proxy at any meeting, shall be requisite and shall
constitute a quorum for the transaction of business. In the
absence of a quorum, the stockholders present or represented by
proxy and entitled to vote thereat, may adjourn the meeting from
time to time without further notice (except as provided in
Section 7 of this Article I) until a quorum shall be present or
represented.
7. Adjournment. When a meeting is for any reason
adjourned to another time or place, notice need not be given of
the adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the
adjourned meeting, any business may be transacted which might
have been transacted at the original meeting; provided, however,
that if adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder entitled to vote at the adjourned
meeting.
8. Voting. Each stockholder shall at every meeting of
stockholders, or with respect to corporate action which may be
taken without a meeting, be entitled to one vote for each share
of stock having voting power held of record by each stockholder
on the record date designated for the meeting or action pursuant
to these Bylaws or the record date established pursuant to the
statute in the absence of such designation.
9. Proxies. Each stockholder entitled to vote at a
meeting of stockholders, or to express consent or dissent to
corporate action in writing without a meeting, may vote or
express such consent or dissent in person or may authorize
another person or persons to vote or act for him by proxy
pursuant to an instrument in writing subscribed by such
stockholder (or his agent thereunto authorized) and delivered to
the Secretary of the Corporation; provided, that no such proxy
shall be voted or acted upon after three (3) years from the date
of its execution, unless such proxy expressly provides for a
longer period.
10. Action at Meeting. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock
having voting power present in person or represented by proxy
shall decide any question brought before such meeting, unless the
question is one upon which by express provision of any statute,
the Certificate of Incorporation, or these Bylaws, a different
vote is required, in which case such express provision shall
govern and control the decision of such question.
11. Action without Meeting. Any action required to be
taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
Directors
1. General Powers; Election and Tenure. The business and
affairs of the Corporation shall be managed by or under the
direction of a Board of Directors. Each director shall be
elected to serve and shall hold office until the next annual
meeting of the stockholders and until his successor shall be
elected and shall qualify, or until his earlier death,
resignation or removal.
2. Number and Qualifications. The number of directors
shall be eight; on half of whom shall be elected by the shares of
Common Stock and Series A Preferred Stock and one half of whom
shall be elected by the shares of Class A Common Stock and Series
B Preferred Stock. In addition, the Board of Directors may
appoint one or more Consulting Directors to serve in an advisory
capacity to the Board of Directors, and such Consulting Directors
shall have the right to receive notice of all meetings of the
Board of Directors and to attend same, but shall have no right to
vote on any matter. Directors need not be stockholders of the
Corporation or residents of the State of Delaware.
3. Vacancies. A vacancy in the membership of the Board of
Directors shall be filled by a vote of the directors elected by
the shares of Common Stock and Series A Preferred Stock if the
previous director was elected by such shares, and by a vote of
the directors elected by the shares of Class A Common Stock and
Series B Preferred Stock if the previous director was elected by
such shares, or if there be no such director in office to vote to
fill such vacancy then by the holders of such shares. A director
elected to fill a vacancy shall be elected for the unexpired term
of his predecessor in office and until his successor shall be
elected and shall qualify, or until his earlier death,
resignation or removal.
4. First Meeting. The first meeting of the Board of
Directors for the purpose of organization, election of officers
and the transaction of other business shall be held without
notice as soon as practicable after each annual election of
directors.
5. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place,
either within or without the State of Delaware, as shall be
determined from time to time by the Board of Directors.
6. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the
President and shall be called by the President or Secretary on
the written request of any two (2) directors or by one (1)
director in the event that there is only a single director in
office. Notice of any special meeting shall be given to each
director. If such notice is given either (a) by delivering
written or printed notice in the United States mail (airmail if
to an overseas address), postage prepaid, it shall be given at
least ten (10) business days in advance, or if such notice is
given by transmitting a cable or telegram or telex, in all cases
directed to such director at his residence or place of business,
it shall be so given at least five (5) days prior to the meeting.
7. Quorum. A majority of the members of the Board of
Directors shall constitute a quorum at all meetings of the Board
of Directors, and the affirmative vote of a majority of the
directors then in office present at a meeting at which a quorum
is present, shall be the act of the Board of Directors. In the
absence of a quorum at any such meeting a majority of the
directors present may adjourn the meeting from time to time
without further notice other than announcement of the meeting,
until a quorum shall be present.
8. Removal. Any director may be removed, with or without
cause, by the holders of a majority of the shares of the class or
classes of shares which elected such director then entitled to
vote at an election of such director.
9. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more directors of
the Corporation. The Board shall designate an Executive
Committee which shall consist of four (4) directors, one half of
whom shall be directors elected by the shares of Common Stock and
Series A Preferred Stock and one half of whom shall be directors
elected by the shares of Class A Common Stock and Series B
Preferred Stock. The affirmative vote of at least one director
elected by the shares of Common Stock and Series A Common Stock
and Series B Preferred Stock shall be necessary in order for the
Executive Committee to take any action. The Board may designate
one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of
the committee. In the case of the Executive Committee, such
alternate member shall be designated by the members of the Board
of Directors elected the same classes of stock as elected the
member to be replaced. In the absence or disqualification of a
member of a committee, the member or members thereof (in the case
of the Executive Committee elected the same such classes of stock
as the absent or disqualified member) present at any meeting and
not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any
such absent or disqualified member. The Executive Committee, to
the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of
the State of Delaware, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the
business affairs of the Corporation. In regard to all committees
of the Board of Directors other than the Executive Committee, the
directors elected by the shares of Common Stock and Series A
Preferred Stock shall have the right to request that at least one
of their number shall be named a member of each such committee,
and the directors elected by the Class A Common Stock and the
Series B Preferred Stock shall have the same such right in regard
to one of their number. Each committee of the Board of Directors
shall keep such minutes and make such reports as the Board of
Directors may from time to time request.
10. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting, if all
members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
11. Compensation of Directors. Each director may be
allowed such amount per annum or such fixed sum for attendance at
each meeting of the Board of Directors or any meeting of a
committee, or both, as may be from time to time fixed by
resolution of the Board of Directors, together with reimbursement
for the reasonable and necessary expenses incurred by such
director in connection with the performance of his duties.
Nothing herein contained shall be construed to preclude any
director from serving the Corporation or any of its parent or
subsidiary corporations in any other capacity and receiving
proper compensation therefor.
12. Approval of Directors. In addition to any other
actions or transactions which by law, the Certificate of
Incorporation, or these Bylaws require the approval of the Board
of Directors, the following actions and transactions of the
Corporation shall be taken only with the prior approval of the
Board or, to the extent permitted by law, the Executive
Committee:
(a) The creation or termination of divisions or the making
of other substantial changes in the organization of the
Corporation or its methods of operating, including,
without limitation, the creation or dissolution of
subsidiaries, the purchase or sale of plants or
factories, the establishment or dissolution of branch
offices;
(b) The acquisition of stock or other securities (other
than for temporary investment) or a substantial portion
of the assets, of any other corporation, other entity
or person, or the sale of any stock or other securities
of, or a substantial portion of the assets of, any
subsidiary corporation;
(c) Any amendment of the certificate of incorporation or
charter or bylaw or other internal regulations of any
subsidiary of the Corporation, or the election of any
directors or officers of any such subsidiaries.
(d) Approval of any capital expenditures in an amount in
excess of $10,000;
(e) Entering into agreements which are not in the ordinary
course of business and which commit the Corporation for
more than one year or for more than $10,000;
(f) Entering into loan agreements or credit arrangements or
incurring any indebtedness for borrowed money not
previously authorized or pursuant to purchase money
obligations, when such agreement, arrangement or
indebtedness:
(1) is not in the ordinary course of business or
(2) exceeds $10,000;
(g) Granting any loans to directors, officers or employees
of the Corporation or any of its subsidiaries;
(h) The extension of guarantees or endorsements (other than
endorsements for collection in the ordinary course of
business) with respect to third-party obligations,
including those in regard to a subsidiary of the
Corporation in the ordinary course of business;
(i) Purchasing, selling or granting mortgages or any other
rights in real property or real estate (or any
interests therein) or constructing buildings or other
facilities which in any instance involve an amount in
excess of $10,000;
(j) Entering into any rental and lease agreements
respecting any real or personal property involving an
amount in excess of $10,000 for the whole term thereof;
(k) Granting any security interest in, lien on, or pledge
of, any personal property of the Corporation except for
purchase money security interests involving less than
$10,000;
(l) Adoption or amendment of pension, group compensation,
profit sharing or other incentive or employee benefit
plans for the Corporation or any of its subsidiaries;
(m) The commencement, compromise or settlement of lawsuits
or other legal proceedings where the amount in
controversy exceeds $50,000, but excepting proceedings
involving any accounts receivable of the Corporation;
(n) Grant or revocation of powers of attorney;
(o) Entering into employment contracts or other agreements
involving recurring or nonrecurring compensation in
excess of $50,000 per year or a term of more than two
years; and
(p) Purchasing, leasing, granting, licensing, or assigning
any patents, copyrights, trademarks or similar rights.
The Board of Directors has the right to make additional
types of actions or transactions dependent on its prior approval.
ARTICLE III
Officers
1. Election and Tenure. The Board of Directors shall
elect a Chairman of the Board, a Vice-Chairman of the Board, a
President, a Secretary, and a Treasurer at the first meeting of
the Board of Directors held after each annual meeting of the
stockholders. The Board of Directors may also elect or appoint
such other officers, including one or more Vice Presidents,
Assistant Treasurers, or Assistant Secretaries, as may be
determined by resolution of the Board of Directors. Any number
of offices may be held by the same person, unless the Certificate
of Incorporation or these Bylaws otherwise provide. Each officer
so elected or appointed shall continue in office until his
successor shall be elected or appointed and shall qualify, or
until his earlier death, resignation or removal.
2. Removal and Vacancies. Any officer shall be removed,
with or without cause, if such removal is requested in writing by
a majority of directors, including in each case, at least one
director elected by the Common Stockholders and one director
elected by the Class A Common Stockholders. If any office
becomes vacant for any reason, the vacancy may be filled in like
manner by the Board of Directors. An officer appointed to fill a
vacancy shall be appointed for the unexpired portion of the term
of his predecessor in office.
3. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and the Board of
Directors, and shall perform such duties and possess such powers
as may from time to time be assigned to him by the Board of
Directors.
4. Vice-Chairman of the Board. In the absence of the
Chairman of the Board, the Vice-Chairman of the Board shall
preside at all meetings of the Board of Directors, and in the
absence of both the Chairman of the Board and the President,
shall preside at any meeting of the stockholders. The Vice-
Chairman shall permit such other duties and possess such other
powers as shall from time to time be assigned to him by the
Board of Directors.
5. President. The President shall be the Chief Executive
Officer of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect.
The President shall have direct charge of the day-to-day business
and operations of the Corporation, and shall report to the Board
of Directors. Between meetings of the Board of Directors the
President shall advise the Executive Committee of all significant
events, provided that this shall not in any way restrict his
authority as Chief Executive Officer responsible to the Board of
Directors. If not a director, he shall be entitled to notice of
and shall be entitled to attend all meetings of the Board of
Directors and Executive Committee provided that a majority of
directors on the Board or Committee, as the case may be,
including at least one director elected by the stockholders of
the Common Stock and one director elected by Series A Common
Stock may determine that the President's attendance of a meeting
is not reasonable or appropriate given the subject matter. In
addition, in the absence of the Chairman of the Board, he shall
preside at any meeting of the stockholders and, in the absence of
the Chairman of the Board and the Vice Chairman of the Board, he
shall preside at any meeting of the Board of Directors. He shall
perform such further duties and shall have such further powers as
may from time to time be assigned to him by the Board of
Directors.
6. Vice-Presidents. The Vice-Presidents shall perform
such duties and possess such powers as from time to time may be
assigned to them by the Board of Directors, the Chairman of the
Board, or the President. In the absence of the President or in
the event of his inability or refusal to act, the Executive Vice-
President (or in the event there is no Executive Vice-President
or in his absence or inability or refusal to act, the Vice-
President, and if there be more than one Vice-President, the
Vice-Presidents in the order designated, or in the absence of any
designation, then in the order of their election or appointment)
shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the
restrictions upon the President.
7. Secretary. The Secretary shall perform such duties and
shall have such powers as may from time to time be assigned to
him by the Board of Directors, the Chairman of the Board, or the
President. In addition, the Secretary shall perform such duties
and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to
give notices of all meetings of stockholders and special meetings
of the Board of Directors, to attend all meetings of stockholders
and the Board of Directors and keep a record of the proceedings,
and to be custodian of corporate records and the corporate seal
and to affix and attest to the same on documents, the execution
of which on behalf of the Corporation is authorized by these
Bylaws or by the action of the Board of Directors.
8. Treasurer. The Treasurer shall perform such duties and
shall have such powers as may from time to time be assigned to
him by the Board of Directors, the Chairman of the Board, or the
President. In addition, the Treasurer shall perform such duties
and have such powers as are incident to the office of treasurer,
including without limitation the duty and power to keep and be
responsible for all funds and securities of the Corporation, to
deposit funds of the Corporation in depositories selected in
accordance with these Bylaws, disburse such funds as ordered by
the Board of Directors, making proper accounts thereof, and shall
render as required by the Board of Directors statements of all
such transactions as Treasurer and of the financial condition of
the Corporation.
9. Assistant Secretaries. The Assistant Secretaries shall
perform such duties and possess such powers as from time to time
shall be assigned to them by the Board of Directors, the Chairman
of the Board, the President, or the Secretary. In the absence,
inability or refusal to act of the Secretary, the Assistant
Secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their
election) shall perform the duties and exercise the powers of the
Secretary.
10. Assistant Treasurers. The Assistant Treasurers shall
perform such duties and possess such powers as from time to time
shall be assigned to them by the Board of Directors, the Chairman
of the Board, the President, or the Treasurer. In the absence,
inability or refusal to act of the Treasurer, the Assistant
Treasurers in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their
election) shall perform the duties and exercise the powers of the
Treasurer.
11. Bonding Officers. The Board of Directors may require
any officer to give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of
Directors for such terms and conditions as the Board of Directors
may specify, including without limitation for the faithful
performance or his duties and for the restoration to the
Corporation of all property in his possession or under his
control belonging to the Corporation.
12. Salaries. Officers of the Corporation shall be
entitled to such salaries, compensation or reimbursement as shall
be fixed or allowed from time to time by the Board of Directors.
ARTICLE IV
Capital Stock
1. Certificate of Stock. Every holder of stock of the
Corporation shall be entitled to have a certificate certifying
the number of shares owned by him the Corporation and
designations the class of stock to which such shares belong,
which shall otherwise be in such form as is required by law and
as the Board of Directors shall prescribe. Each such certificate
shall be signed by, or in the name of the Corporation by, the
Chairman of the Board of Directors or the President or a Vice-
President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation.
2. Record. A record shall be kept of the name of each
person or other entity holding the stock represented by each
certificate for shares of the Corporation issued, the number of
shares represented by each such certificate, and the date
thereof, and, in the case of cancellation, the date of
cancellation. The person or other entity in whose name shares
of stock stand on the books of the Corporation shall be deemed
the owner thereof, and thus a holder of record of such shares of
stock, for all purposes as regards the Corporation.
3. Transfer of Stock. Transfers of shares of the stock of
the Corporation shall be made only on the books of the
Corporation by the registered holder thereof, or by his attorney
thereunto authorized, and on the surrender to the Corporation or
the transfer agent of the Corporation of the certificate or
certificates for such shares properly endorsed.
4. Lost, Stolen or Destroyed Certificates. The
Corporation may issue a new certificate of stock in the place of
any certificate theretofore issued by it, alleged to have been
lost, stolen, or destroyed in such manner and upon such terms and
conditions as the Board of Directors may prescribe.
5. Fixing Record Date. The Board of Directors may fix in
advance a date as a record date for the determination of the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent
(or dissent) to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution
or allotment of rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action.
Such record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action to which the same
relates.
ARTICLE V
General Provisions
1. Fiscal Year. The fiscal year of the Corporation shall
be the calendar year.
2. Corporate Seal. The corporate seal shall be in such
form as shall be approved by resolution of the Board of
Directors.
3. Execution of Instruments. The Chairman of the Board,
the President or the Treasurer shall have power to execute and
deliver on behalf and in the name of the Corporation any
instrument requiring the signature of an officer of the
Corporation, except as otherwise provided in these Bylaws, or
where the execution and delivery thereof shall be expressly
delegated by the Board of Directors to some other officer or
agent of the Corporation. Unless authorized so to do by these
Bylaws or by the Board of Directors, no officer, agent or
employee shall have any power or authority to bind the
Corporation in any way, to pledge its credit or to render it
liable pecuniarily for any purpose or in any amount.
4. (a) Indemnification. The Corporation shall indemnify
to the full extent authorized or permitted by law any person
made, or threatened to be made a party to any threatened, pending
or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that such
person is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director or
officer of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action,
suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit
if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation
and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to
the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that,
despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a director or officer of the
Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subsections (a) and (b) of this Section 4, or in defense of any
claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of
this Section 4 (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is
proper in the circumstances because he has met the applicable
standard of conduct set forth in subsections (a) and (b) of this
Section 4. In the event of a change of control of the
Corporation (as hereinafter defined), such determination shall be
made by independent legal counsel approved by the Board of
Directors in a written opinion. In all other events, such
determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel
approved by such disinterested directors in a written opinion, or
(3) by the stockholders. For purposes of this Section 4, a
change of control shall be deemed to have occurred in the event
Wacker Chemical Corporation or any other party acquires fifty
percent or more of the Common Stock of the Corporation whether by
a purchase or pursuant to a merger or a new business combination.
(e) Expenses incurred by an officer or director in
defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Section 4.
No security shall be required for such undertaking and such
undertaking shall be accepted without regard for the recipient's
financial ability to make repayment. Such expenses incurred by
other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
(f) Any indemnification under Subsections (a), (b) or (c)
or advance of costs, charges and expenses under Subsection (e) of
this Section 4 shall be made promptly, and in any event within 60
days, upon the written request of the director or officer,
directed to the Secretary of the Corporation. The right to
indemnification or advances as granted by this Section 4 shall be
enforceable by the director or officer in any court of competent
jurisdiction if the Corporation denies such request, in whole or
in part, or if no disposition thereof is made within 60 days.
Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification or
advances, in whole or in part, in any such action shall also be
indemnified by the Corporation. It shall be a defense to any
such action (other than an action brought to enforce a claim for
the advance of costs, charges and expenses under Subsection (e)
of this Section 4 where the required undertaking, if any, has
been received by the Corporation) that the claimant has not met
the standard of conduct set forth in Subsections (a) or (b) of
this Section 4, but the burden of proving that such standard of
conduct has not been met shall be on the Corporation. Neither
the failure of the Corporation (including its Board of Directors,
its independent legal counsel, and its stockholders) to have made
a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth
in Subsections (a) and (b) of this Section 4, nor the fact that
there has been an actual determination by the Corporation
(including its Board of Directors, its independent legal counsel,
and its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the
applicable standard of conduct.
(g) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of
this Section 4 shall not be deemed exclusive of any other right
to which those seeking indemnification or advancement of expenses
may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office.
(h) The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability
under this Section 4.
(i) For purposes of this Section 4, references to the
Corporation shall include, in addition to the resulting
corporation any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers and
employees or agents, so that any person who is or was a director
or officer of such constituent corporation, or is or was
servicing at the request of such constituent corporation as a
director or officer of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or
surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(j) For purposes of this Section 4, references to other
enterprises shall include employee benefit plans; references to
fines shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to serving
at the request of the Corporation shall include any service as a
director or officer of the Corporation which imposes duties on,
or involves services by, such director or officer with respect to
an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner not opposed to the best interests of the
Corporation as referred to in this Section 4.
(k) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 4 shall, unless
otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director or officer and shall inure
to the benefit of the heirs, executors and administrators of such
a person.
(l) All rights to indemnification under this Section 4
shall be deemed to be a contract between the Corporation and each
director or officer of the Corporation who serves or served in
such capacity at any time while this Section 4 is in effect. No
amendment or repeal of this Section 4 or of any relevant
provisions of the Delaware General Corporation Law or any other
applicable laws shall adversely affect or deny to any director or
officer any rights to indemnification which such person may have,
or change or release any obligations of the Corporation, under
this Section 4 with respect to any costs, charges, expenses
(including attorneys' fees), judgments, fines, and amounts paid
in settlement which arise out of an action, suit or proceeding
based in whole or substantial part on any act or failure to act,
actual or alleged, which takes place before or while this Section
4 is in effect. The provisions of this Subsection (l) shall
apply to any such action, suit or proceeding commenced after any
amendment or repeal of this Section 4.
(m) Nothing contained herein shall affect any rights to
indemnification to which employees or agents other than directors
and officers may be entitled by law or contract.
(n) This Section 4 is intended to provide indemnification
rights to the directors and officers of the Corporation to the
fullest extent provided by Section 145 of the Delaware General
Corporation Law, and nothing contained herein shall be deemed to
constitute a limitation thereof.
5. Waiver of Notice. Whenever any notice whatsoever is
required to be given under the provisions of a statute or of the
Certificate of Incorporation, or by these Bylaws, a waiver
thereof either in writing signed by the person entitled to said
notice (or such person's attorney thereunto authorized) or by
telegraph, cable or any other available method, whether before,
at or after the time stated therein, or the appearance of such
person or persons at such meeting in person or by proxy, shall be
deemed equivalent to such notice.
6. Emergency Bylaws. The Board of Directors may adopt
emergency bylaws in accordance with and pursuant to the
provisions therefor from time to time set forth in the General
Corporation Law of the State of Delaware.
AMENDMENT TO CREDIT AGREEMENT
AGREEMENT made by and between The Chase Manhattan Bank,
successor by merger to The Chase Manhattan Bank, N.A., which was
successor by merger to Chase Lincoln First Bank, N.A., a banking
corporation organized under the laws of the State of New York
("Bank") and Exolon-ESK Company, a corporation organized and
existing under the laws of the State of Delaware ("Company").
WITNESSETH
The Company and the Bank are parties to a Credit Agreement
dated December 22, 1992, as amended by amendments dated
December 21, 1995, June 28, 1996 and September 30, 1996
(collectively "Agreement").
The Company and the Bank wish to amend the Agreement further
as set forth herein.
1. Definitions. Section 1.1 of the Agreement shall be
amended as follows:
a. The definition of "Conversion Date" shall be
deleted and replaced with the following:
"Conversion Date" - January 2, 2000, on which date
the Company may convert all or any portion of the Revolving
Credit to Term Loan A.
b. The following definition of "Debt" shall be added
to the agreement:
"Debt" - with respect to any Person:
(a) indebtedness of such Person for borrowed money;
(b) indebtedness for the deferred purchase of property or
services (except trade payables in the ordinary course of
business); (d) guaranties, endorsements (other than for
collection in the ordinary course of business) and other
contingent obligations to purchase, to provide funds for
payment, to supply funds to invest in any Person or
otherwise to insure a creditor against loss; (d) obligations
secured by any lien on property of such Person; and
(e) obligations of such Person under capital leases.
c. The definition of "Measurement Date" shall be
deleted and replaced with the following:
"Measurement Date" - The last day of each fiscal
quarter for the Company.
d. The following definition of "Funded Debt" shall be
added to the agreement:
"Funded Debt" - with respect to any Person, all
Debt of such Person for money borrowed which by its terms
matures more than one year from the date as of which such
Funded Debt is incurred, and any Debt of such Person for
money borrowed maturing within one year from such date which
is renewable or extendable at the option of the obligor to a
date beyond one year from such date (whether or not
theretofore renewed or extended), including, without
limitation, any indebtedness incurred pursuant to this
Credit Agreement and the Company's reimbursement obligations
pursuant to the Letter of Credit Reimbursement Agreement
between the Company and the Bank dated as of December 1,
1996, as the same may be amended or supplemented from time
to time.
2. Revolving Note. Exhibit C to the Agreement shall be
deleted and replaced with the form of Replacement Revolving Note
attached hereto.
3. Term Note. Section 2.1.e. of the Agreement shall be
amended so that the third sentence thereof is deleted and the
following shall be inserted in its place:
"The Term Note evidencing Term Loan A shall be payable
to the order of the Bank at 2300 Main Place Tower,
Buffalo, New York 14202, Attention: Middle Market
Banking Department in sixteen (16) quarterly principal
installments, each equal to the lesser of $250,000 or
2.5% of the principal balance of the Revolving Note
converted on the Conversion Date, commencing
February 1, 2000 and payable on the first day of each
May, August, November and February thereafter to and
including August 1, 2003 and one (1) final principal
installment on November 1, 2003 in an amount equal to
the then unpaid principal balance of the Term Note,
together with interest thereon."
4. Commitment Fee. The following Section 2.1.f. shall be
added to the Agreement:
2.1.f. Commitment Fee. The Company agrees to pay to
the Bank a fee computed at the rate of 15 basis points
(based on a 360 day year) for the period from and including
the date hereof and terminating on the Conversion Date. The
commitment fee payable to the Bank shall be computed on the
average daily unused portion of the total Revolving Credit
made available hereunder and shall be payable on the last
day of each of the Company's fiscal quarters commencing the
first such date subsequent to the date hereof and thereafter
until and including the Conversion Date.
5. Revolving Note Interest. Section 2.5.a of the
Agreement shall be deleted and the following Section 2.5.a shall
be inserted in its place:
2.5.a. Revolving Note. The Revolving Note shall bear
interest from the date hereof until maturity (whether by
acceleration or otherwise) on the balance of the principal
thereof from time to time unpaid at a per annum rate equal
to the Prime Rate plus any adjustment as determined
according to the formula set forth below.
The Company shall have the option, exercisable from
time to time to convert the interest rate on all or portions
of the principal of the Revolving Note in an amount not less
than $500,000 and divisible by $100,000 to LIBOR, plus the
adjustment as determined according to the formula set forth
below, provided that no Event of Default or Default exists.
To exercise the option to convert to LIBOR, the Company
shall comply with the LIBOR Procedure. Any portion of the
Revolving Note converted to LIBOR shall not be permitted to
be repaid or reborrowed during the LIBOR Period without
payment of the premium provided in Section 2.6. At the end
of each LIBOR Period, the interest rate on the Revolving
Note shall automatically convert to the rate based upon the
Prime Rate unless the Company shall exercise its option to
elect a new LIBOR pursuant to the terms of this Section
2.5.a. The option to convert the interest rate to LIBOR
shall not be exercisable during any LIBOR Period with
respect to any portion of the Revolving Credit subject to
the LIBOR for such period.
The interest rates specified above shall be subject to
an increase as of each Measurement Date in the event that
the Company's ratio of Funded Debt to earnings before
interest, taxes, depreciation and amortization ("EBITDA")
computed for the twelve months preceding the Measurement
Date on a rolling basis is as follows:
If Funded Debt to LIBOR margin Prime Rate margin
EBITDA is: shall be: shall be:
Greater than or
equal to 2.10:1 200 basis points 1/2%
Between 2.10:1
and 1.60:1 150 basis points Zero
Less than 1.60:1 100 basis points Zero
Interest on the Revolving Note shall be payable on the
first day of each month.
6. Borrowed Money/Leases. Subsection (iv) of Section 6.1
of the Agreement shall be deleted and the following
subsection (iv) shall be inserted in its place:
(iv) Indebtedness evidenced by capital leases requiring
payments not exceeding the amount set forth in Section 6.6
of this Agreement.
7. Capital Expenditures. Section 6.9 of the Agreement
shall be deleted in its entirety and the following Section 6.9
shall be inserted in its place:
6.9 Capital Expenditures. Make or incur any capital
expenditures for fixed or capital assets in any period which
is coincidental with any of the Company's fiscal years that
are, in the aggregate, in excess of the Company's
depreciation expense in that year.
8. Current Ratio. Section 6.13 of the Agreement shall be
deleted in its entirety and the following Section 6.13 shall be
inserted in its place:
6.13 Current Ratio. Permit the ratio of current
assets to current liabilities, each computed on a
Consolidated basis as of each Measurement Date for the
twelve months preceding the Measurement Date on a rolling
basis, to be less than 2.5 to 1 at any time.
9. Tangible Net Worth. Section 6.14 of the Agreement is
deleted in its entirety.
10. Debt-Equity Ratio. Section 6.15 of the Agreement shall
be deleted and the following Section 6.15 shall be inserted in
its place:
6.15 Debt-Equity Ratio. Permit the ratio of total
liabilities to tangible net worth, each computed on a
Consolidated Basis as of each Measurement Date for the
twelve months preceding the Measurement Date on a rolling
basis to be greater than 1.50 to 1.
11. Earnings Coverage. Section 6.16 of the Agreement shall
be deleted and the following Section 6.16 shall be inserted in
its place:
6.16 Earnings Coverage. Permit the ratio of earnings
before taxes and interest to interest expense for any twelve
month period, computed on a Consolidated Basis as of each
Measurement Date for the twelve months preceding the
Measurement Date on a rolling basis to be less than 3.0
to 1.
12. Working Capital. Section 6.17 of the Agreement is
deleted in its entirety.
13. Cash Flow Coverage. Section 6.18 of the Agreement
shall be deleted and the following Section 6.18 shall be inserted
in its place:
6.18 Cash Flow Coverage. Permit the ratio of cash flow
for the preceding twelve months to the current maturities of
long-term Indebtedness due and payable during such period,
each computed as of each Measurement Date on a Consolidated
Basis and on a rolling basis to be less than 3.5 to 1.
14. Environmental Remediation. The following is added as a
new Section 7.1(j):
(j) Environmental Remediation. Fail to satisfy on or
before September 15, 1997, to the satisfaction of the Bank,
in its sole discretion, all of the recommendations set forth
in Section 9.0 of the Phase I Environmental Site Assessment
performed by Maxim-Empire Soils Investigations, Inc. dated
January 1996.
Except as amended hereby, the Company hereby ratifies
and confirms the Agreement and agrees that the Agreement remains
in full force and effect, subject to no offset, claim,
counterclaim or defense. No further amendment, modification or
waiver of any other provision of the Agreement shall be valid and
enforceable unless set forth in a writing and signed by the
Company and the Bank.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their duly authorized officers as of
the 1st day of December, 1996.
EXOLON-ESK COMPANY
By ____________________________
Michael H. Bieger
Vice President and Chief
Financial Officer
THE CHASE MANHATTAN BANK
BY ____________________________
Alan E. Boyce
Vice President
EXHIBIT C
REPLACEMENT
REVOLVING NOTE
$10,000,000.00 Buffalo, New York
December 26, 1996
FOR VALUE RECEIVED, the undersigned, EXOLON-ESK COMPANY
("Company"), unconditionally promises to pay on or before
January 2, 2000 to the order of The Chase Manhattan Bank
(successor by merger to The Chase Manhattan Bank, N.A. which was
successor by merger to Chase Lincoln First Bank, N.A.) ("Bank")
at its office at 2300 Main Place Tower, Buffalo, New York 14202,
Attention: Middle Market Banking Department, or at the holder's
option, at such other place as may be designated by the holder,
the principal sum equal to the lesser of (a) TEN MILLION DOLLARS
($10,000,000.00) or (b) the aggregate unpaid principal amount of
all Loans made by Bank to Company pursuant to the Credit
Agreement, dated December 22, 1992 between Company and Bank, as
amended, as the same may from time to time be amended,
supplemented or otherwise modified ("Credit Agreement"). All
capitalized terms used in this Revolving Note and not otherwise
defined shall have the meanings set forth in the Credit
Agreement.
This Revolving Note shall bear interest on the balance
of principal from time to time unpaid from the date hereof until
maturity (whether by acceleration or otherwise) at rates and on
the dates determined in accordance with Subsection 2.5.a of the
Credit Agreement. Interest shall be calculated on the basis of
one three hundred sixtieth (1/360th) of interest rate hereof in
effect for each calendar day such balance of principal is unpaid.
After maturity, whether by acceleration or otherwise, this
Revolving Note shall bear interest at a rate per annum equal to
two percent (2%) in excess of Bank's Prime Rate as defined below;
provided, however, in no event shall the rate of interest on this
Revolving Note exceed the maximum rate authorized by applicable
law. Bank's "Prime Rate" means the fluctuating base rate of
interest announced by Bank from time to time to be the prime rate
regardless of whether such prime rate shall be the lowest rate
actually charged by Bank on commercial borrowings of 90-119 day
maturity. Payments of both principal and interest are to be made
in lawful money of the United States of America in immediately
available funds.
Bank may inscribe on the schedule annexed hereto and
any continuation thereof ("Schedule"), the amount and the date of
the making of each Loan or each conversion of a portion of the
Revolving Credit from an interest rate based on Prime Rate to an
interest rate based on LIBOR, whether interest on the Loan or
portion of the Credit converted is to be calculated based on
Prime Rate or LIBOR, the dates on which each LIBOR Period shall
begin and end, all payments on account of principal, the dates
thereof and the outstanding principal balance of this Revolving
Note from time to time unpaid. Each entry set forth on the
Schedule shall be prima facie evidence of the facts so set forth.
No failure by Bank to make, and no error by Bank in making, any
inscription on the Schedule shall affect Company's obligation to
repay the full principal amount advanced by Bank to or for the
account of Company, or Company's obligation to pay interest
thereon at the agreed upon rate.
If any installment of this Revolving Note is not paid
when due, whether because such installment becomes due on a
Saturday, Sunday or a holiday or for any other reason, Company
will pay interest thereon at the aforesaid rate until the date of
actual receipt of such installment by the holder of this
Revolving Note.
No failure by the holder hereof to exercise, and no
delay in exercising, any right or power hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise by
the holder of any right or power hereunder preclude any other or
further exercise thereof or the exercise of any other right or
power. The rights and remedies of the holder as herein specified
are cumulative and not exclusive of any other rights or remedies
which the holder may otherwise have.
No modification, rescission, waiver, release or
amendment of any provision of this Revolving Note shall be made
except by a written agreement subscribed by duly authorized
officers of Company and the holder hereof.
Company hereby waives diligence, presentment, protest
and demand, and also notice of protest, demand, dishonor and
nonpayment of this Revolving Note.
This Revolving Note is the Revolving Note referred to
in the Credit Agreement, to which reference is hereby made with
respect to collateral, interest rate options, and rights of
prepayment and acceleration of the principal hereof on the
occurrence of certain events.
The Company agrees to pay all costs and expenses
incurred by the holder in preserving the holder's rights,
enforcing this Revolving Note or in collecting the indebtedness
evidenced hereby, including, without limitation, if the holder
retains counsel for any such purposes, actual attorneys' fees and
expenses.
This Revolving Note shall be construed under, and
governed by, the internal laws of the State of New York without
regard to principles of conflicts of laws.
This Note is in renewal and substitution of, but not in
payment of, a Replacement Revolving Note of the Company to the
Bank dated September 30, 1996.
EXOLON-ESK COMPANY
By:_________________________
Michael H. Bieger
Vice President and
Chief Financial Officer
SCHEDULE
LOANS AND PAYMENTS OF PRINCIPAL
BASIS OF
DATE LOAN AMOUNT OF INTEREST AMOUNT
MADE, LOAN MADE, RATE OF AGGREGATE NOTATION
CON- CONTINUED (PRIME LIBOR PRINCIPAL UNPAID MADE BY
TINUED OR OR RATE OR PERIOD PAID OR PRINCIPAL AND
CONVERTED CONVERTED LIBOR) DATES PREPAID BALANCE DATE
_____________________________________________________________________________
Upper Illinois River Valley Development Authority
And
Exolon-ESK Company
Loan Agreement
Dated as of December 1, 1996
Loan Agreement
(This Table of Contents is not a part of this Loan Agreement
and is only for convenience of reference)
Table of Contents
SECTION HEADING PAGE
Parties 1
Preambles 1
Article I Definition of Terms 2
Article II Representations 7
Section 2.1. Representations of the Issuer 7
Section 2.2. Representations of the Company 8
Article III Acquisition, Construction and Installation
of the Project; Issuance of the Bonds 11
Section 3.1. Acquisition, Construction and Installation
of the Project; Title 11
Section 3.2. Agreement to Issue Bonds; Application of
Bond Proceeds 11
Section 3.3. Disbursements from the Acquisition
and Construction Fund 12
Section 3.4. Establishment of Completion Date;
Obligation of Company to Complete 13
Section 3.5. Investment of Moneys in the Acquisition
and Construction Fund, the Bond Fund and
the Bond Purchase Fund 15
Section 3.6. Special Arbitrage Certifications and
Covenants 15
Article IV Repayment Provisions 16
Section 4.1. Bond Proceeds 16
Section 4.2. Repayment of the Loan and Payment of
Other Amounts Payable 16
Section 4.3. No Defense or Set-Off - Unconditional
Obligation 18
Section 4.4. Assignment and Pledge of Issuer's Rights 19
Article V Special Covenants and Agreements 19
Section 5.1. Issuer's and Trustee's Right of Access
to the Project and the Premises 19
Section 5.2. Company to Maintain Its Corporate
Existence; Conditions under Which
Exceptions Permitted 19
Section 5.3. Release and Indemnification Covenants 20
Section 5.4. Records and Financial Statements of Company 21
Section 5.5. Tax-Exempt Status 22
Section 5.6. Insurance 23
Section 5.7. Maintenance and Repair 23
Section 5.8. Qualification in State 23
Section 5.9. Letter of Credit 23
Article VI Events of Default and Remedies 27
Section 6.1. Events of Default 27
Section 6.2. Remedies on Default 28
Section 6.3. Agreement to Pay Attorneys' Fees and
Expenses 29
Section 6.4. No Remedy Exclusive 29
Section 6.5. No Additional Waiver Implied by One Waiver 30
Article VII Prepayment of Note 30
Section 7.1. Obligation to Prepay the Note upon
Determination of Taxability 30
Section 7.2. General Option to Prepay the Note 30
Section 7.3. Option to Prepay the Note in Extraordinary
Events 30
Section 7.4. Obligation to Prepay the Note with Moneys
Remaining in the Acquisition and
Construction Fund 31
Section 7.5. Obligation to Prepay the Note for Mandatory
Sinking Fund Redemptions 31
Section 7.6. Redemption of the Bonds 32
Article VIII Financing Statements 32
Article IX Miscellaneous 33
Section 9.1. Notices 33
Section 9.2. Assignments 33
Section 9.3. Severability 33
Section 9.4. Execution of Counterparts 33
Section 9.5. Amounts Remaining in Any Fund or with
Trustee 33
Section 9.6. Amendments, Changes and Modifications 34
Section 9.7. Governing Law 34
Section 9.8. Authorized Company Representative 34
Section 9.9. Term of This Agreement 34
Section 9.10. Binding Effect 35
Section 9.11. References to Bank and Letter of Credit 35
Signature 36
Exhibit A Description of Project
Exhibit B Promissory Note
Exhibit C Description of Real Estate
Exhibit D Form of Requisition Certificate
Loan Agreement
This Loan Agreement (the "Agreement") dated as of December 1,
1996 by and between the Upper Illinois River Valley Development
Authority, a political subdivision, body politic and municipal
corporation duly organized and validly existing under the laws of
the State of Illinois (the "Issuer"), and Exolon-ESK Company, a
corporation duly organized and validly existing under the laws of
the State of Delaware (the "Company");
Witnesseth:
Whereas, pursuant to the Constitution and the laws of the State
of Illinois (the State ), and particularly 70 Illinois Compiled
Statutes 1994, 530/1 et seq., as supplemented and amended
(collectively, the "Act"), the Issuer is authorized to issue its
revenue bonds to finance the cost of "projects," as defined in
the Act; and
Whereas, pursuant to and in accordance with the Act, the Issuer
has agreed to issue and sell its Variable Rate Demand Solid Waste
Disposal Revenue Bonds, Series 1996-A (Upper Illinois River
Valley Development Authority Project) in the aggregate principal
amount of $8,405,000 (the "Series 1996-A Bonds") and its Taxable
Variable Rate Demand Solid Waste Disposal Revenue Bonds, Series
1996-B (Exolon-ESK Company Project) in the aggregate principal
amount of $4,595,000 (the "Series 1996-B Bonds"), which Series
1996-A Bonds and Series 1996-B Bonds (collectively, the "Bonds")
will be issued under the terms of an Indenture of Trust (the
"Indenture") dated as of December 1, 1996, from the Issuer to
American National Bank and Trust Company of Chicago, as trustee
(the "Trustee"), and to lend the proceeds of the Bonds to the
Company to finance a portion of the costs of the acquisition of
land, the construction of a building and related improvements and
the acquisition of machinery, equipment and related property to
be installed therein (the "Project"), all to be used for the
disposal of certain solid wastes, to be owned and operated by the
Company and all to be located in the Village of Hennepin,
Illinois, which Project shall constitute a "project," within the
meaning of the Act; and
Whereas, the Bonds issued under the Indenture will be secured by
(i) an assignment and pledge of all right, title and interest of
the Issuer in and to this Agreement and the promissory note of
the Company issued pursuant to this Agreement (the "Note"),
except as otherwise provided in the Indenture, and (ii) moneys
derived from drawings under the irrevocable, transferable letter
of credit dated the date of issuance and delivery of the Bonds,
issued by The Chase Manhattan Bank (the "Bank") in favor of the
Trustee for the benefit of the owners from time to time of the
Bonds, in the amount of (A) the aggregate principal amount of the
Bonds (1) to enable the Trustee to pay the principal of the Bonds
at maturity, upon call for redemption prior to maturity or
acceleration, and (2) to enable the Trustee to pay the portion of
the purchase price of Bonds to be tendered or deemed to be
tendered to it for purchase, equal to the aggregate principal
amount of such Bonds, plus (B) an amount equal to the interest to
accrue on the Bonds for thirty-five (35) days at the maximum rate
of twelve percent (12%) per annum (1) to enable the Trustee to
pay interest accrued on the Bonds on the dates and in the manner
set forth in the Indenture, and (2) to enable the Trustee to pay
the portion of the purchase price of Bonds tendered or deemed to
be tendered to it for purchase, equal to the accrued interest on
such Bonds (which initial letter of credit, together with any
substitute letter of credit, is hereinafter referred to as the
"Letter of Credit");
Now, Therefore, in consideration of the respective
representations and agreements herein contained, the parties
hereto agree as follows (provided, that in the performance of the
agreements of the Issuer herein contained, any obligation it may
thereby incur for the payment of money shall be a special,
limited obligation of the Issuer, and shall not constitute a
general obligation, debt or liability of the Issuer, the State or
any political subdivision thereof, or a charge against the
general credit, taxing powers or general funds or assets of the
Issuer, the State or any political subdivision thereof, but shall
be payable solely out of the proceeds derived from this
Agreement, the Note, the Letter of Credit and the sale of the
Bonds referred to in Section 3.2 hereof, all as herein provided):
Article I
Definition of Terms
All words and phrases defined in Article I of the Indenture shall
have the same meanings in this Agreement. Certain terms used in
this Agreement are hereinafter defined in this Article I. When
used herein, such terms shall have the meanings given to them by
the language employed in this Article I defining such terms,
unless the context clearly indicates otherwise:
"Acquisition and Construction Fund" means the Upper Illinois
River Valley Development Authority Variable Rate Demand Solid
Waste Disposal Revenue Bond Acquisition and Construction Fund
(Exolon-ESK Company Project), created and established in Section
6.6 of the Indenture.
"Acquisition and Construction Period" means the period between
the beginning of the acquisition, construction and installation
of the Project or the date on which the Bonds are first delivered
to the purchasers thereof, whichever is earlier, and the
Completion Date.
"Act" means 70 Illinois Compiled Statutes 1994, 530/1 et seq., as
from time to time supplemented and amended.
"Agreement" means this Loan Agreement, as from time to time
supplemented and amended.
"Alternate Credit Facility" means an irrevocable letter of
credit, a surety bond, an insurance policy or other credit
facility delivered to the Trustee pursuant to Section 5.9(e) of
this Agreement.
"Authorized Company Representative" means such person at the time
and from time to time designated to act on behalf of the Company
by written certificate furnished to the Issuer, the Trustee and
the Bank, containing the specimen signature of such person,
signed on behalf of the Company by the president, any vice
president, the treasurer or the secretary of the Company. Such
certificate may designate an alternate or alternates.
"Bank" means The Chase Manhattan Bank, in its capacity as the
issuer of the initial Letter of Credit pursuant to Section 5.9(a)
hereof, its successors in such capacity and their assigns, and
the issuer of any substitute Letter of Credit pursuant to Section
5.9(b), Section 5.9(c) or Section 5.9(d) hereof, and its
successors in such capacity and their assigns.
"Bond" or "Bonds" means the Series 1996-A Bonds and the Series
1996-B Bonds.
"Bond Counsel" means the counsel who renders the opinion as to
the tax-exempt status of the interest on the Series 1996-A Bonds
on the date of the issuance, sale and delivery of the Series
1996-A Bonds or such other firm of attorneys of nationally
recognized standing on the subject of bonds of states and their
political subdivisions, as may be mutually satisfactory to the
Issuer, the Company and the Trustee.
"Bond Fund" means the Upper Illinois River Valley Development
Authority Variable Rate Demand Solid Waste Disposal Revenue Bond
Fund (Exolon-ESK Company Project), created and established in
Section 6.2 of the Indenture.
"Bond Purchase Fund" means the Upper Illinois River Valley
Development Authority Variable Rate Demand Solid Waste Disposal
Revenue Bond Purchase Fund (Exolon-ESK Company Project), created
and established in Section 6.10 of the Indenture.
"Building" means the buildings to be constructed and financed
with the proceeds of the Bonds, constituting a portion of the
Project.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Exolon-ESK Company, a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware, and any surviving, resulting or transferee
corporation as permitted under Section 5.2 of this Agreement.
"Completion Date" means the date of completion of the Project as
that date shall be certified as provided in Section 3.4 of this
Agreement.
"Costs of Issuance" means those issuance costs described in
Section 147(g) of the Code and any Regulations.
"Costs of the Project" means the sum of the items authorized to
be paid from the Acquisition and Construction Fund pursuant to
the provisions of subsections (a) through (i) of Section 3.3 of
this Agreement.
"Determination of Taxability" means (i) the receipt by the
Company of a written notice from the Trustee or the receipt by
the Company and the Trustee of a written notice from any owner of
any Series 1996-A Bond of any issuance of a preliminary letter
regarding a proposed deficiency or a statutory notice of
deficiency by the Internal Revenue Service which holds, in
effect, that the interest payable on such Series 1996-A Bond, or
any installment thereof, is includible in the Federal gross
income of the taxpayer named therein (other than a "substantial
user" of the Project or any "related person" thereto, within the
meaning of Section 147(a) of the Code), (ii) the delivery to the
Company and the Trustee of an opinion of Bond Counsel to the effect
that the interest payable on any Series 1996-A Bond, or any
installment thereof, is includible in the Federal gross income of
the taxpayer named therein (other than a "substantial user" of the
Project or any "related person" thereto, within the meaning of
Section 147(a) of the Code), (iii) the filing by the Company with
the Trustee, any owner of any Series 1996-A Bond or the Internal
Revenue Service of any certificate, statement, or other tax
schedule, return or document which discloses that the interest
payable on any Series 1996-A Bond, or any installment thereof, is
includible in the Federal gross income of the taxpayer named
therein (other than a "substantial user" of the Project or any
"related person" thereto within the meaning of Section 147(a) of
the Code), or (iv) any amendment, modification, addition or change
shall be made in Section 142 of the Code or any other provision of
the Code or in any regulation or proposed regulation thereunder;
or any ruling shall be issued or revoked by the Internal Revenue
Service; or any other action shall be taken by the Internal Revenue
Service, the Department of Treasury or any other governmental agency,
authority or instrumentality; or any opinion of any Federal court
or of the United States Tax Court shall be rendered; and the
Trustee, the Bank or the owner of any Series 1996-A Bond shall
have notified the Company in writing that, as a result of any
such event or condition, Bond Counsel is unable to give an
unqualified opinion that the interest payable on any Series
1996-A Bond, or any installment thereof, made on or after a date
specified in said notice is excludible from the Federal gross
income of the taxpayer named therein (other than a "substantial
user" of the Project or any "related person" thereto, within the
meaning of Section 147(a) of the Code).
"Equipment" means the machinery, equipment and related property
to be acquired and installed with a portion of the proceeds of
the Bonds, more particularly described in Exhibit A attached
hereto and made a part hereof, comprising a portion of the
Project.
"Event of Default" means an event of default specified in Section
6.1 of this Agreement.
"Improvements" means the improvements to be constructed with a
portion of the proceeds of the Bonds, more particularly described
in Exhibit A attached hereto and made a part hereof, comprising a
portion of the Project.
"Indenture" means the Indenture of Trust dated as of December 1,
1996, from the Issuer to the Trustee, as from time to time
supplemented and amended.
"Investment Obligations" means: (i) Governmental Obligations;
(ii) interest-bearing savings accounts, interest-bearing
certificates of deposit or interest-bearing time deposits of any
bank, as defined by the Illinois Banking Act, which are insured
by the Federal Deposit Insurance Corporation or any successor
corporation, including without limitation the Trustee; (iii)
short-term obligations of corporations organized in the United
States of America with assets exceeding $500,000,000, if (A) such
obligations are rated on the date of purchase and at any time
held by the Trustee within one of the three (3) highest rating
classifications established by at least two (2) standard rating
services (without regard to any rating refinement or gradation by
numerical or other modifier), including without limitation the
Rating Agency and at least one (1) other rating service, and
mature not later than 180 days from the date of purchase, and (B)
such purchases do not exceed ten percent (10%) of such
corporations' outstanding obligations; (iv) money market mutual
funds registered under the Investment Company Act of 1940, as
from time to time amended, provided that the portfolio of any
such money market fund is limited to Government Obligations or
agreements to repurchase such Government Obligations and such
fund is rated on the date of purchase and at any time held by the
Trustee in the highest rating classification by the Rating
Agency; (v) short-term discount obligations of the Federal
National Mortgage Association; (vi) obligations issued by any
state, unit of local government or school district, which
obligations are rated on the date of purchase and at any time
held by the Trustee by the Rating Agency within one of the two
(2) highest rating classifications (without regard to rating
refinement or gradation by numerical or other modifier); (vii)
investment contracts under which securities are to be purchased
and sold at a predetermined price on a future date, or pursuant
to which moneys are deposited with a bank or other financial
institution and the deposits are to bear interest at an agreed
upon rate; provided that such investment contracts are rated on
the date of purchase and at any time held by the Trustee by the
Rating Agency within one of the two (2) highest rating
classifications (without regard to rating refinement or
graduation by numerical or other modifier); and (viii) any other
investments permitted by law if such investments are rated on the
date of purchase and at any time held by the Trustee within one
of the two (2) highest classifications (without regard to rating
refinement or graduation by numerical or other modifier)
established by the Rating Agency; or (ix) any other investment
permitted by law.
"Issuer" means the Upper Illinois River Valley Development
Authority, a political subdivision, body politic and municipal
corporation duly organized and validly existing under the laws of
the State, and any successor body to the duties or functions of
the Issuer.
"Land" means the land purchased with a portion of the proceeds of
the Bonds, constituting a part of the Project, and more
particularly described in Part of I of Exhibit C attached to and
made a part of this Agreement.
"Letter of Credit" means the initial irrevocable, transferable
Letter of Credit delivered to the Trustee pursuant to Section
5.9(a) hereof, and, unless the context or use indicates another
or different meaning or intent, any substitute Letter of Credit
delivered to the Trustee pursuant to Section 5.9(b), Section
5.9(c) or Section 5.9(d) of this Agreement.
"Letter of Credit Agreement" means the Letter of Credit
Reimbursement Agreement dated as of December 1, 1996, by and
between the Company and the Bank, as from time to time
supplemented and amended, under the terms of which the Bank
agrees to issue and deliver the initial Letter of Credit to the
Trustee; and, unless the context or use indicates another or
different meaning or intent, any letter of credit agreement or
reimbursement agreement by and between the Company and the issuer
of any substitute Letter of Credit delivered to the Trustee
pursuant to Section 5.9(b), Section 5.9(c) or Section 5.9(d)
hereof, as from time to time supplemented and amended, which
provides that it is a Letter of Credit Agreement for purposes of
this Agreement and the Indenture.
"Note" means the promissory note of the Company made payable to
the order of the Issuer and endorsed by the Issuer to the order
of the Trustee, delivered by the Company pursuant to Section
4.2(a) hereof, in order to evidence the obligation of the Company
to repay the loan made hereunder, payments on which Note are
provided to be sufficient to pay the principal of, premium, if
any, and interest on the Bonds when due.
"Premises" means the land on which the existing manufacturing
facilities of the Company are located (more particularly
described in Exhibit C attached hereto and made a part hereof),
the buildings, the machinery, the equipment and the other related
property located thereon and the Project.
"Project" means the Land, the Building, the Improvements, the
Equipment and related property to be acquired, constructed and
installed by the Company and financed with the proceeds of the
Bonds.
"Rebate Fund" means the fund by that name, created and
established under the Tax Exemption Certificate and Agreement.
"Regulations" means those regulations, whether now or hereafter
adopted, proposed or temporary, prepared by the United States
Department of the Treasury with respect to Section 103 or any of
Sections 141 through 150 of the Code.
"Remarketing Agent" means Gates Capital Corporation, and any
successors thereto, appointed in accordance with Section 10.11 of
the Indenture.
"Remarketing Agreement" means the Remarketing Agreement dated as
of December 1, 1996, by and among the Issuer, the Company and the
Remarketing Agent, as from time to time supplemented and amended,
and any remarketing agreement entered into in substitution
therefor.
"Series 1996-A Bonds" means the Variable Rate Demand Solid Waste
Disposal Revenue Bonds, Series 1996-A (Exolon-ESK Company
Project) of the Issuer, in the aggregate principal amount of
$8,405,000, issued pursuant to the Indenture.
"Series 1996-B Bonds" means the Taxable Variable Rate Demand
Solid Waste Disposal Revenue Bonds, Series 1996-B (Exolon-ESK
Company Project) of the Issuer, in the aggregate principal amount
of $4,595,000, issued pursuant to the Indenture.
"State" means the State of Illinois.
"Stated Termination Date" means the date on which the Letter of
Credit, as from time to time extended, is stated to expire.
"Tax Exemption Certificate and Agreement" means the Tax Exemption
Certificate and Agreement of the Company, dated the date of
issuance and delivery of the Series 1996-A Bonds.
"Trustee" means the Trustee as defined under the Indenture.
The words "hereof," "herein," "hereunder" and other words of
similar import refer to this Agreement as a whole.
Unless otherwise specified, references to Articles, Sections and
other subdivisions of this Agreement are to the designated
Articles, Sections and other subdivisions of this Agreement as
originally executed.
The headings of this Agreement are for convenience only and shall
not define or limit the provisions of this Agreement.
Article II
Representations
Section 2.1. Representations of the Issuer. The Issuer makes the
following representations as the basis for the undertakings on
its part herein contained:
(a) The Issuer is duly constituted and validly
existing as a political subdivision, body politic and municipal
corporation under the laws of the State. Under the provisions of
the Act, the Issuer has the power to enter into the transactions
contemplated by this Agreement, the Indenture, the Remarketing
Agreement and the Tax Exemption Certificate and Agreement and to
carry out its obligations hereunder and thereunder. The Project
constitutes and will constitute a "project," within the meaning
of the Act. By proper action of the members of the Issuer, the
Issuer has been duly authorized to execute and deliver this
Agreement, the Indenture, the Remarketing Agreement and the Tax
Exemption Certificate and Agreement.
(b) Neither the execution and delivery of this
Agreement, the Indenture, the Remarketing Agreement, the Tax
Exemption Certificate and Agreement and the Bonds, the
consummation of the transactions contemplated hereby or thereby,
nor the fulfillment of or compliance with the terms and
conditions of this Agreement, the Indenture, the Remarketing
Agreement, the Tax Exemption Certificate and Agreement and the
Bonds, conflicts with or results in a breach of the terms,
conditions or provisions of any restriction or any agreement or
instrument to which the Issuer is now a party or by which it is
bound, or constitutes a default under any of the foregoing.
(c) To finance a portion of the Costs of the Project,
the Issuer proposes to issue its Bonds in the amount and having
the terms and conditions specified in Articles II, III and IV of
the Indenture. The proceeds of the Bonds will be lent to the
Company and used by the Company to finance a portion of the Costs
of the Project as set forth in Section 3.3 of this Agreement.
(d) The Issuer has not assigned or pledged, and will
not assign or pledge, its right, title or interest in or to this
Agreement or the Note, other than to secure the Bonds and as
otherwise provided in the Indenture.
(e) The Issuer is not in default under any of the
provisions of the Constitution and the laws of the State which
would affect its existence or its powers referred to in the
preceding subsection (a).
(f) Under existing statutes and decisions, no taxes on
income or profits are imposed on the Issuer.
(g) The Issuer hereby finds and determines that the
financing of the Project with the proceeds of the Bonds will
further the public purposes stated in the Act, and that all
requirements of the Act incident to the issuance of the Bonds
have been completed.
(h) No member of the Issuer or any officer, employee
or agent of the Issuer has a pecuniary interest in any
employment, financing agreement or other contract made with
respect to the Company, the Project, the Bonds, the Indenture,
this Agreement or the transactions contemplated thereby or by
this Agreement.
(i) The Issuer, pursuant to Section 6(b) of the Act,
submitted notice, including a description of the Project and the
financing therefor, to the corporate authorities of the Village
of Hennepin, Putnam County, Illinois, which has planning and
subdivision control jurisdiction over the Project, and the Issuer
has not been informed by said corporate authorities of any
objection to the Project.
(j) The Governor of the State has provided written
approval for the issuance of the Bonds, as required by Section
7(a) of the Act.
Section 2.2. Representations of the Company. The Company makes
the following representations as the basis for the undertakings
on its part herein contained:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware, and has the power to enter into, and, by proper
corporate action, has been duly authorized to execute and deliver
this Agreement, the Note, the Letter of Credit Agreement, the
Remarketing Agreement and the Tax Exemption Certificate and
Agreement.
(b) Neither the execution and delivery of this
Agreement, the Note, the Letter of Credit Agreement, the
Remarketing Agreement and the Tax Exemption Certificate and
Agreement, the consummation of the transactions contemplated
hereby or thereby, nor the fulfillment of or compliance with the
terms and conditions of this Agreement, the Note, the Letter of
Credit Agreement, the Remarketing Agreement and the Tax Exemption
Certificate and Agreement, conflicts with or results in a breach
of any of the terms, conditions or provisions of any restriction
or any agreement or instrument to which the Company is now a
party or by which it is bound, or constitutes a default under any
of the foregoing, or results in the creation or imposition of any
lien, charge or encumbrance whatsoever upon any of the property
or assets of the Company or any subsidiary of the Company, except
as contemplated by such documents. No condition applicable to
the Company exists which would, upon the execution of this
Agreement, with the lapse of time or the giving of notice, or
both, become an Event of Default under this Agreement.
(c) The Project will be acquired, constructed and
installed through the use of the Bond proceeds, and will be
located on the Land and within the corporate boundaries of the
Village of Hennepin, Illinois.
(d) The Company intends to use the Project in such a
manner so as to maintain the status of the Project as a
"project," within the meaning of the Act, for at least the
duration of this Agreement.
(e) All of the Costs of the Project were determined or
estimated in accordance with sound engineering and accounting
principles.
(f) The information contained in the written documents
relating to the Project provided by the Company to the Issuer and
Bond Counsel with respect to the Bonds is true, correct and
complete in all material respects.
(g) No part of the Project was acquired or
constructed, and no Costs of the Project were incurred or
expended, on or before October 14, 1994.
(h) The Company will comply with the provisions of
Section 148 of the Code, and in that connection, has executed and
delivered the Tax Exemption Certificate and Agreement.
(i) The Company will not make any payments, or
agreements to pay, to a party, other than the United States of
America, an amount that is required to be paid to the United
States of America under the rebate requirements of Section 148(f)
of the Code by entering into any transaction that reduces the
rebatable amount because such transaction results in a smaller
profit or a larger loss than would have resulted if the
transaction had been at arm's length and had the yield on the
Series 1996-A Bonds not been relevant to either party. The
Company will not acquire with the proceeds of the Series 1996-A
Bonds any certificate of deposit, investment contract, or any
other type of investment which does not comply with the
provisions of the Code.
(j) The information furnished by the Company and used
by the Issuer in preparing the Form 8038, Information Return for
Private Activity Bond Issues, which has been filed by or on
behalf of the Issuer with the Internal Revenue Service Center in
Philadelphia, Pennsylvania, pursuant to Section 149(e) of the
Code, was true and complete as of the date of filing of said Form
8038.
(k) The weighted average maturity of the Series 1996-A
Bonds does not exceed 120% of the weighted average estimated
economic life of the components comprising the Project financed
with the proceeds of the Series 1996-A Bonds, as determined
pursuant to Section 147(b) of the Code.
(l) The property comprising the Project constitutes
and will constitute at all times during the term of this
Agreement, as set forth in Section 8.9 hereof, either land or
property of a character subject to the allowance for depreciation
under the Code; at least 95% of the net proceeds of the Series
1996-A Bonds are being used to finance the cost of land and such
property; and all expenditures for and all Costs of the Project
will be charged to a capital account for Federal income tax
purposes, or would be so chargeable either with a proper election
or but for a proper election to deduct. In estimating the Costs
of the Project, no amount has been included which, under the
Federal income tax laws, was or will be deductible by the Company
in the year in which it was paid or incurred other than through
an allowance for depreciation. No portion of the proceeds from
the sale of the Series 1996-A Bonds will be used to provide
working capital or to finance inventory, within the meaning of
Section 144(a) of the Code.
(m) No portion of the proceeds of the Series 1996-A
Bonds is to be used to finance the acquisition of any property
(or an interest therein) other than property the first use of
which is pursuant to such acquisition, and no more than 25% of
the proceeds of the Series 1996-A Bonds will be used to finance
the acquisition of land or any interest therein.
(n) The facilities comprising the Project constitute
and will constitute throughout the terms of this Agreement "solid
waste disposal facilities," within the meaning of Section 142 of
the Code.
(o) The Project will further the public purposes set
forth in the Act, including without limitation increasing
employment opportunities and retaining employment opportunities
in the Village of Hennepin, Illinois.
(p) The operation of the Project and the Premises in
the manner presently contemplated and as described herein does
not and will not conflict in any material respect with any
zoning, water or air pollution or other ordinance, order, law or
regulation applicable to the Project on the Premises, as the case
may be. The Company has caused the Project to be designed in
accordance with all applicable Federal, State and local laws or
ordinances (including rules and regulations) relating to zoning,
planning, building, safety and environmental quality.
(q) The Company possesses, and agrees to maintain and
obtain in the future, all necessary licenses and permits, or
rights thereto, to operate the Project and the Premises as
presently proposed to be operated; all such licenses, permits or
other approvals required in connection with the acquisition,
construction, installation and operation of the Project and the
operation of the Premises have been duly obtained and are in full
force and effect except for any such licenses, permits or other
approvals which are not yet required and which will be duly
obtained not later than the time required or the failure to
obtain which will not materially and adversely affect the
acquisition, construction, installation and operation of the
Project or the operation of the Premises.
Article III
Acquisition, Construction and Installation
of the Project; Issuance of the Bonds
Section 3.1. Acquisition, Construction and Installation of the
Project; Title. The Company agrees that it will acquire,
construct and install, or complete the acquisition, construction
and installation of, the Project, substantially in accordance
with the plans and specifications therefor prepared by engineers
selected by the Company, including any and all supplements,
amendments and additions (or deletions) thereto (or therefrom),
which plans and specifications shall be made available to the
Issuer, the Trustee and the Bank on request; provided, however,
that such other facilities and property contemplated by such
supplements, amendments and additions (or deletions) to (or from)
the plans and specifications shall not materially impair the
effective use of the Project contemplated by this Agreement.
The Company represents and warrants that it has, or prior to the
Completion Date will have, acquired good and marketable title to
all real estate (or an interest therein) constituting the
Premises to enable the Company to acquire, construct, install and
use the Project as contemplated by this Agreement. The Company
represents and warrants that it has acquired, or will acquire,
good and marketable title to all property constituting the
Project and the Premises in order to enable the Company to use
the Project as contemplated by this Agreement.
Section 3.2. Agreement to Issue Bonds; Application of Bond
Proceeds. In order to provide for the financing of the Project,
the Issuer agrees that it will issue, sell and cause to be
delivered to the purchasers thereof, its Series 1996-A Bonds in
the aggregate principal amount of $8,405,000; and its Series
1996-B Bonds in the aggregate principal amount of $4,595,000;
each series of Bonds bearing interest, maturing, subject to prior
redemption and subject to tender for purchase as set forth in the
Indenture. The Issuer will thereupon lend the proceeds of the
Series 1996-A Bonds to the Company to pay a portion of the Costs
of the Project, and will thereupon lend the proceeds of the
Series 1996-B Bonds to the Company to pay a portion of the Costs
of the Project. The proceeds of the Bonds shall be disbursed as
provided in Section 2.10 of the Indenture.
Section 3.3. Disbursements from the Acquisition and
Construction Fund. The Issuer authorizes and directs the
Trustee, upon compliance with the Indenture, to disburse the
moneys in the Acquisition and Construction Fund to or on behalf
of the Company for the following purposes and, subject to the
provisions of Sections 3.5 and 3.6 hereof and the provisions of
the Tax Exemption Certificate and Agreement, for no other
purposes:
(a) Payment to the Company of such amounts, if any, as
shall be necessary to reimburse the Company in full for all
advances and payments made by it at any time prior to or after
the delivery of the Bonds for expenditures in connection with the
preparation of plans and specifications for the Project
(including any preliminary study or planning of the Project or
any aspect thereof), payment to the Company or its named payees
for costs of the acquisition, construction and installation of
the Project, incurred and expended after December 13, 1994.
(b) Payment or reimbursement of any legal, financial
and accounting fees and expenses (including fees relating to the
Letter of Credit), costs of the execution and filing of any
instruments and the preparation of all other documents in
connection therewith, and payment or reimbursement of all fees,
costs and expenses for the preparation of this Agreement, the
Note, the Indenture, the Letter of Credit Agreement, the Letter
of Credit, the Remarketing Agreement, the Tax Exemption
Certificate and Agreement and the Bonds.
(c) Payment or reimbursement for labor, services,
materials and supplies used or furnished in the acquisition,
construction and installation of the Project, all as provided in
the plans, specifications and work orders therefor, payment or
reimbursement for the cost of the construction, acquisition and
installation of utility services or other facilities and the
acquisition and installation of all personal property deemed
necessary in connection with the Project and payment or
reimbursement for the miscellaneous capital expenditures
incidental to any of the foregoing items.
(d) Payment or reimbursement of the fees, if any, for
architectural, engineering, legal, investment banking and
supervisory services with respect to the Project.
(e) To the extent not paid by a contractor for
construction with respect to any part of the Project, payment or
reimbursement of the premiums on all insurance required to be
taken out and maintained during the Acquisition and Construction
Period, if any.
(f) Payment of the taxes, assessments and other
charges, if any, that may become payable during the Acquisition
and Construction Period with respect to the Project, or
reimbursement thereof if paid by the Company.
(g) Payment or reimbursement of expenses incurred in
seeking to enforce any remedy against any supplier, conveyor,
grantor, contractor or subcontractor in respect of any default
under a contract relating to the Project.
(h) Payment of the interest on the Bonds during the
Acquisition and Construction Period.
(i) Payment of any other costs permitted by the Act.
(j) All moneys remaining in the Acquisition and
Construction Fund after the Completion Date and after payment or
provision for payment of all other items provided for in the
preceding subsections (a) through (i), inclusive, of this Section
3.3, shall at the direction of the Company be used in accordance
with Section 3.4 of this Agreement.
Notwithstanding the foregoing, in no event shall the Costs of
Issuance financed with the proceeds of the Series 1996-A Bonds
exceed $168,100 (2% of the face amount of the Series 1996-A
Bonds).
Except as otherwise provided in the Tax Exemption Certificate and
Agreement, each of the payments referred to in this Section 3.3,
other than those payments referred to in subsection (j) above,
shall be made upon receipt by the Trustee of a written
requisition signed by the Authorized Company Representative, and
approved in writing by the Bank, stating with respect to each
payment to be made: (i) the requisition number, (ii) the name
and address of the person, firm or corporation to whom payment is
due, (iii) the amount to be paid, (iv) that each obligation
mentioned therein has been properly incurred, is a proper charge
against the Acquisition and Construction Fund and has not been
the basis of any previous withdrawal, (v) if such payment is for
Costs of Issuance, that such payment, together with all other
payments of Costs of Issuance paid for out of Series 1996-A Bond
proceeds, does not exceed $168,100, and (vi) that the amount
remaining in the Acquisition and Construction Fund after the
withdrawal in question is made, the reasonable estimate of
investment income thereon, plus funds of the Company available
for such purpose will, after payment of the amounts then
requested, be sufficient to pay the cost of completing the
Project. Each such requisition shall be in substantially the
same form as Exhibit D attached to and made a part of this
Agreement. The Trustee may further require that disbursements
from the Acquisition and Construction Fund shall be effectuated
through a construction escrow account on terms commonly employed
with respect to construction projects in the State, or through a
system of lien waiver examinations, established with Chicago
Title Insurance Company. The terms of said construction escrow
account or said lien waiver examinations may require that
disbursements will be made therefrom only upon issuance by said
title insurance company of an interim mechanic's lien endorsement
to the title policy referred to in the Letter of Credit
Agreement, covering each disbursement. The Company hereby agrees
to pay any cost involved in effecting such disbursements through
such construction escrow account or said lien waiver
examinations.
Section 3.4. Establishment of Completion Date; Obligation of
Company to Complete. The Completion Date shall be evidenced to
the Trustee and the Bank by a certificate signed by the
Authorized Company Representative, stating the Costs of the
Project and stating that (i) the acquisition, construction and
installation of the Project has been completed substantially in
accordance with the plans, specifications and work orders
therefor and all labor, services, materials and supplies used in
such acquisition, construction and installation have been paid
for, and (ii) all other facilities necessary in connection with
the Project have been acquired, constructed and installed in
accordance with the plans, specifications and work orders
therefor, and all costs and expenses incurred in connection
therewith (other than costs and expenses for which the Company
has withheld payment) have been paid. If the Company withholds
the payment of any such cost or expense of the Project, the
certificate shall state the amount of such withholding and the
reason therefor. Notwithstanding the foregoing, such certificate
may state that it is given without prejudice to any rights
against third parties which exist at the date of such certificate
or which may subsequently come into being. It shall be the duty
of the Company to cause such certificate to be furnished to the
Trustee and the Bank promptly after the Project shall have been
completed.
Within ten (10) days of the delivery by the Authorized Company
Representative of the certificate evidencing the Completion Date,
the Trustee shall retain in the Acquisition and Construction Fund
a sum equal to the amounts necessary for payment of Costs of the
Project not then due and payable or the liability for which the
Company is contesting as set forth in said certificate. Any
amount not to be retained in the Acquisition and Construction
Fund for such costs, and all amounts so retained but not
subsequently used and for which notice of such failure of use has
been given by the Company to the Trustee, shall be segregated by
the Trustee and used by the Trustee, at the direction of the
Authorized Company Representative, (a) to redeem Series 1996-A
Bonds prior to maturity on the earliest redemption date permitted
by the Indenture for which no premium or penalty pertains, or, at
the option of the Company, at an earlier redemption date, (b) to
purchase Series 1996-A Bonds on the open market prior to such
redemption date (provided, that, if Series 1996-A Bonds are
purchased in an amount in excess of the principal amount thereof,
the Company shall pay such excess out of other funds) for the
purpose of cancellation, or (c) for any other purpose, provided,
that the Trustee is furnished with a written approval of the Bank
and an opinion of Bond Counsel to the effect that such use is
lawful under the Act and will not adversely affect the exclusion
of interest on any of the Series 1996-A Bonds from gross income
of the owners thereof for Federal income tax purposes. Until
used for one or more of the foregoing purposes, such segregated
amount may be invested as permitted by Section 3.5 hereof, but
may not be invested, without an opinion of Bond Counsel to the
effect that such investment will not adversely affect the
exclusion of interest on any of the Series 1996-A Bonds from
gross income of the owners thereof for Federal income tax
purposes, to produce a yield on such amount (computed from the
Completion Date and taking into account any investment of such
amount from the Completion Date) greater than the yield on the
Series 1996-A Bonds, computed in accordance with the applicable
provisions of the Code and the Regulations. The Issuer agrees to
cooperate with the Trustee and take all required action necessary
to redeem the Series 1996-A Bonds or to accomplish any other
purpose contemplated by this Section 3.4. Notwithstanding the
foregoing to the contrary, to the extent that Revenue Procedure
79-5, as supplemented by Revenue Procedure 81-22, of the Internal
Revenue Service is applicable to the Series 1996-A Bonds, the
Company agrees to comply with such Revenue Procedures.
In the event the moneys in the Acquisition and Construction Fund
available for payment of the Costs of the Project should not be
sufficient to pay the costs thereof in full, the Company agrees
to pay directly the costs of completing the Project as may be in
excess of the moneys available therefor in the Acquisition and
Construction Fund. The Issuer does not make any warranty, either
express or implied, that the moneys which will be paid into the
Acquisition and Construction Fund and which, under the provisions
of this Agreement, will be available for payment of a portion of
the Costs of the Project, will be sufficient to pay all the costs
which will be incurred in that connection. The Company agrees
that if after exhaustion of the moneys in the Acquisition and
Construction Fund the Company should pay any portion of the Costs
of the Project pursuant to the provisions of this Section 3.4, it
shall not be entitled to any reimbursement therefor from the
Issuer, the Trustee or the Bank, nor shall it be entitled to any
diminution of the amounts payable under Section 4.2 hereof or
under the Note.
Section 3.5. Investment of Moneys in the Acquisition and
Construction Fund, the Bond Fund and the Bond Purchase Fund. Any
moneys held as part of the Acquisition and Construction Fund
shall be invested or reinvested by the Trustee, upon the oral
direction of the Authorized Company Representative, promptly
confirmed in writing, as provided in Article VII of the
Indenture, to the extent permitted by law, in Investment
Obligations, and if no direction is given, the Trustee shall
invest moneys on deposit in the Acquisition and Construction Fund
in obligations described in clause (iv) of the definition of
Investment Obligations. Any moneys held as a part of the Bond
Fund shall be invested or reinvested by the Trustee upon the oral
direction of the Authorized Company Representative, promptly
confirmed in writing, as provided in Article VII of the
Indenture, to the extent permitted by law, in Governmental
Obligations. Any such securities may be purchased at the
offering or market price thereof at the time of such purchase.
The Trustee may make any and all such investments through its own
bond department.
The investments so purchased shall be held by the Trustee and
shall be deemed at all times a part of the Acquisition and
Construction Fund or the Bond Fund, as the case may be, and the
interest accruing thereon and any profit realized therefrom shall
be credited to such fund and any net losses resulting from such
investment shall be charged to such fund and paid by the Company.
Although the Company recognizes that it may obtain a broker
confirmation or written statement containing comparable
information at no additional costs, the Company hereby agrees
that confirmations of investments made by the Trustee pursuant to
Article VII of the Indenture are not required to be issued by the
Trustee for each month in which a monthly statement is rendered.
No such statement need be rendered pursuant to the provisions
hereof or of the Indenture if no activity occurred in the fund
during such preceding month.
Any moneys held as part of the Bond Purchase Fund shall not be
invested.
Section 3.6. Special Arbitrage Certifications and Covenants.
The Issuer and the Company covenant and agree that so long as any
Series 1996-A Bonds shall remain outstanding, moneys on deposit
in any fund or account in connection with the Series 1996-A Bonds
(whether or not such moneys were derived from the proceeds of the
Series 1996-A Bonds or from any other source) will not be used in
any manner which would cause the Series 1996-A Bonds to be
classified as "arbitrage bonds," within the meaning of Section
148 of the Code and the applicable Regulations, and further
jointly and severally covenant and agree to comply with the
requirements of the Tax Exemption Certificate and Agreement and
of said Section 148 and the Regulations and to execute such
certificates as may be necessary to evidence such compliance. To
the extent of any inconsistency between the Tax Exemption
Certificate and Agreement and this Agreement, the Tax Exemption
Certificate and Agreement shall control.
The Issuer hereby authorizes and directs the Company to cause the
Trustee to transfer moneys in the Acquisition and Construction
Fund to the Rebate Fund to the extent required under the Tax
Exemption Certificate and Agreement.
Article IV
Repayment Provisions
Section 4.1. Bond Proceeds. The Issuer covenants and agrees,
upon the terms and conditions of this Agreement, to lend the
proceeds received from the sale of the Bonds to the Company in
order to finance the Costs of the Project. Pursuant to said
covenant and agreement, the Issuer will issue the Bonds upon the
terms and conditions contained in the Indenture and this
Agreement, and will lend the proceeds of the Bonds to the Company
by causing the Bond proceeds to be applied as provided in Section
2.10 of the Indenture and Article III of this Agreement. Such
proceeds shall be disbursed by the Trustee to or on behalf of the
Company as provided in Section 3.3 of this Agreement.
Section 4.2. Repayment of the Loan and Payment of Other Amounts
Payable. (a) As evidence of its obligation to repay the loan
made hereunder by the Issuer, the Company will initially issue
its Note in the principal amount of $13,000,000, payable as to
principal as set forth in the Note. The Note shall be dated the
date of issuance and delivery of the Bonds, shall mature on
December 1, 2021, except as the provisions hereinafter set forth
with respect to prepayment may become applicable to the Note.
The principal of the Note shall bear interest on the unpaid
respective portions of the principal amount thereof corresponding
to the respective principal amounts of the Series 1996-A Bonds
and the Series 1996-B Bonds from time to time outstanding from
the date of the Note at such rates equal to the interest rates
from time to time borne by the respective series of Bonds,
calculated on the same basis and to be paid on the same dates as
interest on the Bonds is calculated and paid from time to time.
The Note shall be subject to prepayment as herein provided.
Payments of principal of, premium, if any, and interest on the
Note shall be made in lawful money of the United States of
America in Federal or other immediately available funds at the
principal corporate trust office of the Trustee. The Note shall
be in substantially the same form as Exhibit B attached to and
made a part of this Agreement. The Issuer and the Company agree
that the Note shall be payable to the Issuer, and shall be
endorsed and pledged by the Issuer to the Trustee. The Company
covenants and agrees that the payments of principal of, premium,
if any, and interest on the Note shall at all times be sufficient
to enable the Issuer to pay when due the principal of, premium,
if any, and interest on the Bonds; provided, that the Excess
Amount (as hereinafter defined) held by the Trustee in the Bond
Fund on a payment date shall be credited against the payment due
on such date; and provided further, that, subject to the
provisions of the immediately following sentence, if at any time
the amount held by the Trustee in the Bond Fund should be
sufficient (and remain sufficient) to pay on the dates required
the principal of, premium, if any, and interest on the Bonds then
remaining unpaid, the Company shall not be obligated to make any
further payments under the provisions of this Section 4.2(a) or
on the Note. Notwithstanding the provisions of the preceding
sentence, if on any date the Excess Amount held by the Trustee in
the Bond Fund is insufficient to make the then required payments
of principal (whether at maturity or upon redemption prior to
maturity or acceleration), premium, if any, and interest on the
Bonds on such date, the Company shall forthwith pay such
deficiency. The term "Excess Amount" as of any interest payment
date shall mean the amount in the Bond Fund on such date in
excess of the amount required for the payment of the principal of
the Bonds which theretofore have matured at maturity or on a date
fixed for redemption and premium, if any, on such Bonds in all
cases where Bonds have not been presented for payment and paid,
or for the payment of interest which has theretofore come due in
all cases where interest checks have not been presented for
payment and paid.
If the Company shall fail to pay any installment of principal of,
premium, if any, or interest on the Note or under this Section
4.2(a), the installment so in default shall continue as an
obligation of the Company until the amount so in default shall
have been fully paid, and the Company agrees to pay the same with
interest thereon until paid (to the extent legally enforceable)
at a rate equal to the rate borne by the Bonds from time to time
from the due date thereof until paid.
(b) The Company also agrees to pay the reasonable expenses
of the Issuer incurred in fulfilling its obligations under this
Agreement, the Indenture, the Remarketing Agreement and the Tax
Exemption Certificate and Agreement.
(c) The Company also agrees to pay to the Trustee (i) the
initial acceptance fee of the Trustee and the costs and expenses,
including reasonable attorneys' fees and expenses incurred by the
Trustee in entering into and executing the Indenture and the Tax
Exemption Certificate and Agreement, and (ii) during the term of
this Agreement (A) an amount equal to the annual fee of the
Trustee for the ordinary services of the Trustee, as trustee,
rendered and its ordinary expenses incurred under the Indenture
and the Tax Exemption Certificate and Agreement, including
attorneys' fees and expenses, as and when the same become due,
(B) the reasonable fees, charges and expenses of the Trustee, as
and when the same become due, and (C) the reasonable fees,
charges and expenses of the Trustee for the necessary
extraordinary services rendered by it and extraordinary expenses
incurred by it under the Indenture and the Tax Exemption
Certificate and Agreement, including attorneys' fees and
expenses, as and when the same become due.
(d) The Company also agrees to pay all reasonable fees,
charges and expenses of the Remarketing Agent as set forth in the
Remarketing Agreement in carrying out its duties and obligations
and performing its services under and pursuant to the Indenture
and the Remarketing Agreement.
(e) In addition to the payments required to be made by the
Company pursuant to the foregoing subsections of this Section 4.2
and the Note, the Company hereby agrees to pay to the Trustee
amounts sufficient to pay the purchase price of any Bonds to be
purchased pursuant to Section 4.1 or Section 4.2 of the
Indenture, on the purchase date of such Bonds as set forth in
said Section 4.1 or said Section 4.2, as the case may be. All
such payments shall be made to the Trustee in lawful money of the
United States of America in Federal or other immediately
available funds at the principal corporate trust office of the
Trustee. Except as required by this Section 4.2(e), so long as a
Letter of Credit is in effect, the Company will not, directly or
indirectly, purchase any Bonds, except Bonds that bear interest
at a Fixed Rate, with any moneys that do not constitute Available
Moneys.
(f) In the event that the Trustee is authorized and
directed to draw moneys under the Letter of Credit in accordance
with the provisions of the Indenture to the extent necessary to
pay the principal of and interest on the Bonds and the purchase
price of Bonds tendered or deemed to be tendered to the Trustee
for purchase if and when due, any moneys derived from a drawing
under the Letter of Credit shall constitute a credit against the
obligation of the Company to make corresponding payments on the
Note and under subsections (a) and (e) of this Section 4.2.
(g) If the date when any of the payments required to be
made by this Section 4.2 is not a Business Day, then such
payments may be made on the next Business Day with the same force
and effect as if made on the nominal due date, and no interest
shall accrue for the current interest payment period after such
date, but shall accrue for the next interest payment period and
shall be payable on the next interest payment date.
(h) The Company shall have, and is hereby granted, the
option to elect to convert the interest rate borne by the Series
1996-A Bonds and the Series 1996-B Bonds from the Weekly Rate,
the Monthly Rate or the Adjustable Rate to the Weekly Rate, the
Monthly Rate, the Adjustable Rate or the Fixed Rate, as the case
may be, pursuant to the provisions of Section 2.2 of the
Indenture, subject to the terms and conditions set forth in
Section 2.2 of the Indenture.
Section 4.3. No Defense or Set-Off - Unconditional Obligation.
The obligations of the Company to make the payments required in
Section 4.2 hereof and pursuant to the Note and to perform and
observe the other agreements on its part contained herein shall
be absolute and unconditional, irrespective of any defense or any
rights of set-off, recoupment or counterclaim it might otherwise
have against the Issuer or the Trustee. The Company shall pay
net during the term of this Agreement the payments to be made on
account of the loan as prescribed in Section 4.2 hereof and all
other payments required hereunder free of any deductions and
without abatement, diminution or set-off, other than those herein
expressly provided. Until such time as the principal of,
premium, if any, and interest on the Note and the Bonds shall
have been fully paid, or provision for the payment thereof shall
have been made in accordance with the Indenture, the Company:
(i) will not suspend or discontinue any payments provided for in
Section 4.2 hereof or the Note; (ii) will perform and observe all
of its covenants and agreements contained in this Agreement; and
(iii) will not terminate this Agreement for any cause, including,
without limiting the generality of the foregoing, the occurrence
of any acts or circumstances that may constitute failure of
consideration, destruction of or damage to the Project or the
Premises, commercial frustration of purpose, any change in the
tax laws of the United States of America or the State or any
political subdivision thereof, or any failure of the Issuer, the
Trustee or the Bank to perform and observe any agreement, whether
express or implied, or any duty, liability or obligation arising
out of or connected with this Agreement, except to the extent
permitted by this Agreement.
Section 4.4. Assignment and Pledge of Issuer's Rights. As
security for the payment of its Bonds, the Issuer will assign and
pledge to the Trustee all right, title and interest of the Issuer
in and to this Agreement and the Note, including the right to
receive payments hereunder and thereunder (except the right to
receive payments, if any, under Sections 4.2(b), 5.3 and 6.3
hereof and the rights to make determinations and receive notices
as herein provided), and hereby directs the Company to make said
payments directly to the Trustee. The Company herewith assents
to such assignment and pledge and will make payments directly to
the Trustee without defense or set-off by reason of any dispute
between the Company and the Issuer, the Trustee or the Bank.
Article V
Special Covenants and Agreements
Section 5.1. Issuer's and Trustee's Right of Access to the
Project and the Premises. The Company agrees that during the
term of this Agreement the Issuer, the Trustee, the Bank and
their duly authorized agents shall have the right during regular
business hours, with reasonable notice, to enter upon and to
examine and inspect the Project and the Premises. The Company
agrees that the Issuer, the Trustee, the Bank and their duly
authorized agents shall have, subject to such limitations,
restrictions and requirements as the Company may reasonably
prescribe, including but not limited to the standard visitor
agreement of the Company, such rights of access to the Project
and the Premises.
Section 5.2. Company to Maintain Its Corporate Existence;
Conditions under Which Exceptions Permitted. The Company agrees
that during the term of this Agreement and so long as any Bond is
Outstanding, it will maintain its corporate existence, will not
dissolve or otherwise dispose of all or substantially all of its
assets, and will not consolidate with or merge into another
corporation or permit one or more corporations to consolidate
with or merge into it; provided, that the Company may, without
violating the agreements contained in this Section 5.2,
consolidate with or merge into another domestic corporation
(i.e., a corporation incorporated and existing under the laws of
the United States of America or any state, district or territory
thereof) or permit one or more other domestic corporations to
consolidate with or merge into it, or sell or otherwise transfer
to another domestic corporation all or substantially all of its
assets as an entirety and thereafter dissolve; provided, that in
the event the Company is not the surviving, resulting or
transferee corporation, as the case may be, that the surviving,
resulting or transferee corporation (i) is a domestic corporation
as aforesaid; (ii) is qualified to do business in the State;
(iii) assumes in writing all of the obligations of the Company
under this Agreement, the Note and the Tax Exemption Certificate
and Agreement; and (iv) has a "Consolidated Tangible Net Worth"
(after giving effect to such merger, consolidation or transfer)
of not less than the Consolidated Tangible Net Worth of the
Company immediately prior to such merger, consolidation or
transfer. The term "Consolidated Tangible Net Worth," as used in
this Section 5.2, shall mean the difference obtained by
subtracting total consolidated liabilities of the Company and its
consolidated subsidiaries, from total consolidated assets of the
Company and its consolidated subsidiaries, less the aggregate
amount of any intangible assets, including, without limitation,
good will, franchises, licenses, patents, trademarks, trade
names, copyrights, service marks and brand names.
Section 5.3. Release and Indemnification Covenants. The
Company hereby releases the Issuer and the Trustee from, and
hereby covenants and agrees that it will pay, and will protect,
indemnify and save the Issuer, the Trustee and their respective
members, officers, employees, agents and persons who "control"
the Issuer or the Trustee, as that term is defined in Section 15
of the Securities Act of 1933, as amended (the "Indemnified
Parties"), harmless from and against, any and all liabilities,
losses, damages, costs and expenses (including reasonable
attorneys' fees and expenses of the Company and the Indemnified
Parties), causes of action, suits, claims, demands and judgments
of whatsoever kind and nature (including those arising or
resulting from any injury to or death of any person or damage to
property) arising from or in any manner directly or indirectly
growing out of or connected with the following:
(1) The use, non-use, condition or occupancy of the
properties of the Company, including without limitation the
Project and the Premises, any repairs, construction, alterations,
renovation, relocation, remodeling and equipping thereof or
thereto or the condition of the properties of the Company,
including without limitation the Project and the Premises,
including adjoining sidewalks, streets or alleys and any
equipment or facilities at any time located on its properties,
including without limitation the Project, or used in connection
therewith which are not the result of the negligence of the
Indemnified Parties;
(2) violation by the Company of any agreement,
warranty, covenant or condition of this Agreement or any other
agreement executed in connection with the Bonds or the Project;
(3) violation of any contract, agreement or
restriction by the Company relating to its properties, including
without limitation the Project and the Premises;
(4) violation of any law, ordinance, regulation or
court order affecting the properties of the Company, including
without limitation the Project and the Premises, or the
ownership, occupancy or use thereof;
(5) any written statement or information (other than
statements or information provided by the Issuer) furnished to
the Issuer or the purchasers of any Bonds, including, but not
limited to, any offering circular relating to any of the Bonds,
that is untrue or incorrect in any material respect, and any
omission from such information of any statement or information
which should be contained therein for the purpose for which the
same is to be used or which is necessary to make the statements
therein not misleading in any material respect; and
(6) the presence on or in, or the escape, seepage,
leakage, spillage, discharge, emission or release from, the
properties of the Company, including without limitation the
Project and the Premises, of any hazardous or toxic waste,
substance or constituent, or other substance.
In the event of the settlement of any litigation commenced or
threatened, such indemnity shall be limited to the aggregate
amount paid under a settlement effected with the written consent
of the Company.
The Indemnified Parties shall promptly notify the Company in
writing of any claim or action covered by this indemnity and
brought against the Indemnified Parties, or in respect of which
indemnity may be sought against the Company, setting forth the
particulars of such claim or action, and the Company will assume
the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Parties and the
payment of all expenses. The Indemnified Parties may employ
separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall
not be payable by the Company unless such employment has been
specifically authorized by the Company.
Section 5.4. Records and Financial Statements of Company. The
Issuer and the Trustee shall be permitted during regular business
hours during the term of this Agreement to examine the books and
records of the Company.
The Company agrees to furnish the Issuer and the Trustee within
one hundred twenty (120) days after the close of each fiscal year
of the Company, with the financial statements of the Company,
showing the financial position of the Company at the close of
each such fiscal year and the results of the operations of the
Company for each such fiscal year, audited by an independent
certified public accountant selected by the Company for such
fiscal year. The Company further agrees to furnish the Issuer
and the Trustee within thirty (30) days of the close of each
quarter of each fiscal year of the Company (other than the fourth
quarter of each such fiscal year), with the financial statements
of the Company, showing the financial position of the Company at
the close of each such quarter (including year to date
information) and the results of operations of the Company for
each such quarter, signed by the President, any Vice President or
the Treasurer of the Company.
The Company further agrees to furnish the Issuer and the Trustee
with such other financial statements and information concerning
the Company as the Issuer or the Trustee may reasonably require.
The Company further agrees to furnish the Trustee within ninety
(90) days after the close of each fiscal year of the Company or
within thirty (30) days after written request from the Trustee
with a certificate of the Company, signed by the President, any
Vice President or the Treasurer of the Company, to the effect
that the signer thereof has re-examined the provisions of this
Agreement, and at the date of said certificate has no knowledge
of any default or Event of Default hereunder (or, if the signer
has knowledge of any such default or Event of Default, he shall
disclose in such certificate the nature thereof). The Company
further agrees to furnish the Trustee promptly after knowledge
thereof shall have come to the attention of any responsible
officer of the Company or of a partner thereof, written notice of
any threatened or pending litigation or governmental proceeding
against the Company which would materially adversely affect the
business and properties of the Company and written notice of the
occurrence of any default or Event of Default under this
Agreement.
Section 5.5. Tax-Exempt Status. The Company covenants with the
Issuer and for and on behalf of the purchasers and owners of the
Series 1996-A Bonds from time to time outstanding that so long as
any of the Series 1996-A Bonds remain outstanding, moneys on
deposit in any fund in connection with the Series 1996-A Bonds,
whether or not such moneys were derived from the proceeds of the
sale of the Series 1996-A Bonds or from any other sources, will
not be used in a manner which will cause the Series 1996-A Bonds
to be "arbitrage bonds," within the meaning of Section 148 of the
Code, and any lawful Regulations promulgated thereunder, as the
same exist on this date, or may from time to time hereafter be
amended, supplemented or revised. The Company also covenants for
the benefit of the owners of the Series 1996-A Bonds to comply
with all of the provisions of the Tax Exemption Certificate and
Agreement. The Company reserves the right, however, to make any
investment of such moneys permitted by State law, if, when and to
the extent that said Section 148 or the Regulations promulgated
thereunder shall be repealed or relaxed or shall be held void by
final judgment of a court of competent jurisdiction, but only
upon receipt of an opinion of Bond Counsel with respect to such
investment that such investment will not affect the exclusion of
the interest on the Series 1996-A Bonds from gross income of the
owners thereof for Federal income tax purposes.
Neither the Issuer nor the Company shall cause any proceeds of
the Series 1996-A Bonds to be expended except pursuant to the
Indenture. The Company shall not (1) requisition or otherwise
allow any payment out of proceeds of the Series 1996-A Bonds (i)
if such payment is to be used for the acquisition of any property
(or an interest therein) unless the first use of such property is
pursuant to such acquisition, provided that this clause (i) shall
not apply to any building (and the equipment purchased as a part
thereof, if any) if the "rehabilitation expenditures", as defined
in Section 147(d) of the Code, with respect to the building equal
or exceed 15% of the portion of the cost of acquiring the
building (including such equipment) financed with the proceeds of
the Series 1996-A Bonds, (ii) if as a result of such payment, 25%
or more of the proceeds of the Series 1996-A Bonds would be
considered as having been used directly or indirectly for the
acquisition of land (or an interest therein), (iii) if, as a
result of such payment, less than 95% of the net proceeds of the
Series 1996-A Bonds, expended at the time of such requisition
would be considered as having been used for costs of the
acquisition, construction, reconstruction or improvement of land
or property of a character subject to the allowance for
depreciation within the meaning of Section 142 of the Code for
use as a "solid waste disposal facility" within the meaning of
Section 142 of the Code, or (iv) if such payment is used to pay
issuance costs (including attorneys' fees and placement fees) in
excess of an amount equal to two percent (2%) of the principal
amount of the Series 1996-A Bonds; (2) take or omit, or permit to
be taken or omitted, any other action with respect to the use of
such proceeds the taking or omission of which would result in the
loss of exclusion of interest on the Series 1996-A Bonds from
gross income for purposes of Federal income taxation; or (3) take
or omit, or permit to be taken or omitted, any other action, the
taking or omission of which would cause the loss of such
exclusion. Without limiting the generality of the foregoing, the
Company shall not permit the proceeds of the Series 1996-A Bonds
to be used directly for the acquisition of land (or an interest
therein).
The Series 1996-A Bonds and any other obligation constituting a
private activity bond under Section 141(a) of the Code will not
be sold (A) within fifteen (15) days prior to the issuance of the
Series 1996-A Bonds or within fifteen (15) days after the
issuance of the Series 1996-A Bonds, and (B) are reasonably
expected to be paid out of substantially the same source of funds
as the Series 1996-A Bonds.
Section 5.6. Insurance. The Company agrees to maintain
insurance with respect to the Project and the Premises with good
and responsible insurance companies against such hazards and
risks as are insured by companies similarly situated and
operating like properties.
Section 5.7. Maintenance and Repair. The Company agrees that it
will maintain the Project and the Premises in good repair,
working order and operating condition, making from time to time
all needful and proper repairs thereto, renewals and replacements
thereof, so that at all times the efficiency thereof shall be
fully preserved and maintained.
Section 5.8. Qualification in State. The Company agrees that
throughout the term of this Agreement, it will be qualified to do
business in the State.
Section 5.9. Letter of Credit. (a) On or prior to the issuance,
sale and delivery of the Bonds to the purchaser or purchasers
thereof pursuant to Section 2.6 of the Indenture, the Company
hereby covenants and agrees to obtain and deliver to the Trustee
the initial, irrevocable, transferable Letter of Credit to be
issued by the Bank in favor of the Trustee for the benefit of the
owners from time to time of the Bonds, in substantially the same
form as Exhibit A attached to the Letter of Credit Agreement.
The initial Letter of Credit shall be dated the date of issuance
and delivery of the Bonds; shall expire on December 15, 2001,
unless otherwise extended in accordance with the terms and
provisions of subsection (b) below and the Letter of Credit
Agreement; shall be in the amount of (i) the aggregate principal
amount of the Bonds (A) to enable the Trustee to pay the
principal of the Bonds at maturity, upon redemption prior to
maturity or acceleration, and (B) to enable the Trustee to pay
the portion of the purchase price of Bonds tendered or deemed to
be tendered to the Trustee for purchase, equal to the aggregate
principal amount of such Bonds, plus (ii) an amount equal to the
interest to accrue on the Bonds for thirty-five (35) days at a
maximum rate of twelve percent (12%) per annum (A) to enable the
Trustee to pay interest accrued on the Bonds on the dates and in
the manner set forth in the Indenture, and (B) to enable the
Trustee to pay the portion of the purchase price of Bonds
tendered or deemed to be tendered to the Trustee for purchase,
equal to the accrued interest on such Bonds.
(b) Except as hereinafter provided, at any time prior to
the fifteenth Business Day prior to the interest payment date on
the Bonds immediately preceding the Stated Termination Date of
the Letter of Credit, the Company may, at its option but is not
required to, provide for the extension of the term of the Letter
of Credit or deliver to the Trustee a substitute Letter of Credit
as hereinafter provided. If the Company chooses to extend the
term of the Letter of Credit, then such extension shall be to the
fifteenth day of any calendar month at least one (1) year after
the Stated Termination Date of the existing Letter of Credit, and
(unless the Letter of Credit by its terms provides for an
extension of its term automatically unless the Trustee is
notified to the contrary) the Company shall furnish proof of such
extension, in the form of an amendment to the Letter of Credit
evidencing such extension, to the Trustee no later than the
fifteenth Business Day prior to the interest payment date on the
Bonds immediately preceding the Stated Termination Date of the
Letter of Credit. In the event that the Letter of Credit by its
terms provides for an extension of its term automatically unless
the Trustee is notified to the contrary, such extensions shall be
consistent with the terms and provisions set forth above, but it
shall not be necessary to furnish such proof or amendment. If
the Company chooses to provide a substitute Letter of Credit,
such substitute Letter of Credit shall be an irrevocable letter
of credit in substantially the same form and tenor as the initial
Letter of Credit, in an amount equal to the outstanding principal
amount of the Bonds plus an amount equal to the maximum interest
to accrue on the Bonds then Outstanding for thirty-five (35) days
at a maximum rate of twelve percent (12%) per annum, with
administrative provisions reasonably satisfactory to the Trustee,
but provided to expire on the fifteenth day of any calendar month
at least one (1) year after the Stated Termination Date of the
existing Letter of Credit, such substitute Letter of Credit to be
issued by a commercial bank and delivered to the Trustee on or
before the fifteenth Business Day prior to the interest payment
date on the Bonds immediately preceding the Stated Termination
Date of the Letter of Credit; provided, that simultaneously with
the delivery of any such substitute Letter of Credit to the
Trustee, the Company shall have provided the Trustee with written
evidence from the Bank which issued the existing Letter of Credit
that the Company shall have paid all of its obligations under the
related Letter of Credit Agreement to such Bank (other than any
obligations with respect to reimbursement for drawings under the
Letter of Credit to purchase Bonds tendered or deemed to be
tendered to the Trustee for purchase pursuant to Section 4.1 or
Section 4.2 of the Indenture, which obligations are not yet due
and owing under the Letter of Credit Agreement) and shall have
paid all other amounts due and owing under the Letter of Credit
Agreement pursuant to which the existing Letter of Credit was
issued (except as aforesaid). Simultaneously with the delivery
of such substitute Letter of Credit to the Trustee, the Company
shall also provide the Trustee with an opinion of Bond Counsel
that such substitute Letter of Credit is authorized under this
Agreement, complies with the terms hereof, and will not have an
adverse effect on the exclusion of the interest on the Series
1996-A Bonds from gross income of the owners thereof for Federal
income tax purposes. If the Company shall fail to furnish to the
Trustee such written evidence from such Bank and such opinion of
Bond Counsel on or before the specified date, the Trustee shall
be deemed not to have received the substitute Letter of Credit,
and the Bonds shall be subject to mandatory tender for purchase
pursuant to Section 4.2 of the Indenture. Upon delivery of a
substitute Letter of Credit and the foregoing evidence and
opinion, the Trustee is authorized and directed to surrender the
existing Letter of Credit and to approve the cancellation of the
existing Letter of Credit and the termination of the related
Letter of Credit Agreement. Any such substitute Letter of Credit
shall be delivered to the Trustee on the first Business Day of a
calendar month. The Company hereby covenants and agrees to give
the Issuer, the Trustee, the Bank and the Remarketing Agent
written notice of its intention to deliver any such substitute
Letter of Credit at least fifteen (15) Business Days prior to the
date on which the Company expects to deliver such substitute
Letter of Credit.
(c) If the Company elects to exercise its option to cause
the interest rate on the Bonds to be converted to the Adjustable
Rate or the Fixed Rate in accordance with the provisions of
Section 4.2(h) hereof, the Company may, at its option but is not
required to, provide for the delivery to the Trustee of a
substitute Letter of Credit with respect to the Bonds. Such
substitute Letter of Credit shall consist of an irrevocable
letter of credit in the amount of (i) the aggregate principal
amount of each series of Bonds then outstanding to enable the
Trustee to pay the principal of such Bonds at maturity, upon
redemption prior to maturity or acceleration, plus (ii) an amount
equal to three percent (3%) of the aggregate principal amount of
the Bonds then Outstanding to pay premium, plus (iii) an amount
equal to the interest to accrue on such Bonds then outstanding
for 215 days to enable the Trustee to pay interest accrued on
such Bonds as it comes due, set to expire or terminate one
hundred twenty-four (124) days after the conclusion of the
Adjustable Rate Period or one hundred twenty-four (124) days
after the final maturity of such Bonds, and having administrative
provisions satisfactory to the Trustee. If the Company has
elected to deliver such a substitute Letter of Credit to the
Trustee, the Company shall deliver to the Trustee at least
forty-five (45) days prior to the Proposed Conversion Date an
irrevocable commitment of a Bank to issue such substitute Letter
of Credit, and shall deliver such substitute Letter of Credit to
the Trustee on or before the Conversion Date. Simultaneously
with the delivery of such substitute Letter of Credit to the
Trustee, the Company shall also provide the Trustee with an
opinion of Bond Counsel to the effect that such substitute Letter
of Credit is authorized under this Agreement, complies with the
terms hereof and will not have an adverse effect on the exclusion
of the interest on the Series 1996-A Bonds from gross income of
the owners thereof for Federal income tax purposes.
(d) At any time while a Letter of Credit is in effect, the
Company from time to time may, at its option, but is not required
to, deliver to the Trustee a substitute Letter of Credit in
substitution for the existing Letter of Credit. The substitute
Letter of Credit shall be an irrevocable, transferable letter of
credit in substantially the same form and tenor as the existing
Letter of Credit with administrative provisions satisfactory to
the Trustee, provided to expire on the same date as the existing
Letter of Credit or on the fifteenth day of any calendar month at
least one (1) year after the Stated Termination Date of the
existing Letter of Credit, such substitute Letter of Credit to be
issued by a commercial bank and delivered to the Trustee;
provided, that simultaneously with the delivery of any such
substitute Letter of Credit to the Trustee, the Company shall
have provided the Trustee with written evidence from the Bank
which issued the existing Letter of Credit that the Company shall
have paid all of its obligations under the Letter of Credit
Agreement to such Bank (other than any obligations with respect
to reimbursement for drawings under the Letter of Credit to
purchase Bonds tendered or deemed to be tendered to the Trustee
for purchase pursuant to Section 4.1 or Section 4.2 of the
Indenture, which obligations are not yet due and owing under the
Letter of Credit Agreement) and shall have paid all other amounts
due and owing under the Letter of Credit Agreement pursuant to
which the existing Letter of Credit was issued (except as
aforesaid). Simultaneously with the delivery of such substitute
Letter of Credit to the Trustee, the Company shall also provide
the Trustee with an opinion of Bond Counsel that such substitute
Letter of Credit is authorized under this Agreement, complies
with the terms hereof and will not have an adverse effect on the
exclusion of the interest on the Series 1996-A Bonds from gross
income of the owners thereof for Federal income tax purposes. If
the Company shall fail to furnish to the Trustee such written
evidence from such Bank and such opinion of Bond Counsel, the
Trustee shall not be deemed to have received the substitute
Letter of Credit, and shall not surrender the existing Letter of
Credit. Upon delivery of a substitute Letter of Credit and the
foregoing evidence and opinion, the Trustee is authorized and
directed to surrender the existing Letter of Credit. Any such
substitute Letter of Credit shall be delivered to the Trustee on
the first Business Day of a calendar month. The Company hereby
covenants and agrees to give the Issuer, the Trustee, the Bank
and the Remarketing Agent written notice of its intention to
deliver any such substitute Letter of Credit at least fifteen
(15) Business Days prior to the date on which the Company expects
to deliver such substitute Letter of Credit.
(e) The Company may at its option, but is not required to,
provide for the delivery to the Trustee of an Alternate Credit
Facility to supplement the Letter of Credit, to replace the
Letter of Credit or to provide credit enhancement if the Letter
of Credit is not then in effect. Any such Alternate Credit
Facility shall be payable to the Trustee for the benefit of the
owners of the Bonds and shall have administrative provisions
satisfactory to the Trustee. Simultaneously with the delivery of
such an Alternate Credit Facility to the Trustee, the Company
shall provide the Trustee with an opinion of Bond Counsel to the
effect that the delivery of such Alternate Credit Facility is
authorized under this Agreement, complies with the terms hereof
and will not have an adverse effect on the exclusion of the
interest on the Series 1996-A Bonds from gross income of the
owners thereof for Federal income tax purposes. Any such
Alternate Credit Facility shall be delivered to the Trustee on
the first Business Day of a calendar month. The Company hereby
covenants and agrees to give the Issuer, the Trustee, the Bank
and the Remarketing Agent written notice of its intention to
deliver any such Alternate Credit Facility at least fifteen (15)
Business Days prior to the date on which the Company expects to
deliver such Alternate Credit Facility.
(f) In the event that the Letter of Credit is set to expire
and the Company does not intend to deliver a substitute Letter of
Credit to the Trustee, the Company shall, on or before the
fifteenth Business Day prior to the interest payment date
immediately preceding the Stated Termination Date, give written
notice to the Issuer, the Trustee, the Remarketing Agent and the
Bank that the Company does not intend to deliver such a
substitute Letter of Credit to the Trustee prior to the Stated
Termination Date.
(g) Notwithstanding any other provision of this Agreement
or the Indenture to the contrary, upon a Conversion of the
interest rate on the Series 1996-A Bonds to an Adjustable Rate or
a Fixed Rate, no Letter of Credit or Alternate Credit Facility
shall be in effect after the Conversion of such interest rate to
the Adjustable Rate or the Fixed Rate unless the Company delivers
to the Trustee an opinion of Bond Counsel to the effect that such
maintenance of such Letter of Credit or Alternate Credit Facility
will not have an adverse effect on the exclusion of the interest
on the Series 1996-A Bonds from gross income of the owners
thereof for Federal income tax purposes.
Article VI
Events of Default and Remedies
Section 6.1. Events of Default. The occurrence and
continuation of any one of the following shall constitute an
Event of Default hereunder:
(a) failure by the Company to pay any amounts required
to be paid as principal, premium, if any, or interest on the Note
or under this Agreement on the dates and in the manner specified
therein or herein; or
(b) failure by the Company to pay any amounts pursuant
to Section 4.2(e) hereof on the dates and in the manner specified
therein; or
(c) failure by the Company to observe and perform any
covenant, condition or agreement on its part to be observed or
performed in this Agreement, other than as referred to in
subsections (a) and (b) above, for a period of thirty (30) days
after written notice, specifying such failure and requesting that
it be remedied, is given to the Company by the Issuer, the
Trustee or the Bank, unless (i) the Issuer, the Trustee and the
Bank shall agree in writing to an extension of such time prior to
its expiration, or (ii) if the failure is such that it can be
corrected, but not within such 30-day period, corrective action
is instituted by the Company within such period and diligently
pursued until such failure is corrected; provided, that such
failure is corrected within one (1) year; or
(d) the dissolution or liquidation of the Company or
the filing by the Company of a voluntary petition in bankruptcy,
or failure by the Company promptly to lift any execution,
garnishment or attachment of such consequence as will impair its
ability to carry on its obligations hereunder, or an order for
relief under the Federal bankruptcy laws, as amended from time to
time, is entered against the Company, or a petition or answer
proposing the entry of an order for relief against the Company
under the Federal bankruptcy laws, as amended from time to time,
or its reorganization, arrangement or debt readjustment under any
present or future Federal bankruptcy act or any similar Federal
or state law shall be filed in any court and such petition or
answer shall not be discharged within ninety (90) days after the
filing thereof, or the Company shall fail generally to pay its
debts as they become due, or a custodian (including without
limitation a receiver, trustee, assignee for the benefit of
creditors or liquidator of the Company) shall be appointed for or
take possession of all or a substantial part of its property and
shall not be discharged within ninety (90) days after such
appointment or taking possession, or the Company shall consent to
or acquiesce in such appointment or taking possession, or
assignment by the Company for the benefit of its creditors, or
the entry by the Company into an agreement of composition with
its creditors; provided, that the term "dissolution or
liquidation of the Company," as used in this subsection (d),
shall not be construed to include the cessation of the corporate
existence of the Company resulting either from a merger or
consolidation of the Company into or with another domestic
corporation or a dissolution or liquidation of the Company
following a transfer of all or substantially all of its assets as
an entirety, under the conditions permitting such actions
contained in Section 5.2 hereof; or
(e) any warranty, representation or other statement
made by or on behalf of the Company contained herein or in any
document or certificate furnished by the Company in compliance
with or in reference hereto, is false or misleading in any
material respect; or
(f) an "event of default" shall occur and be
continuing under the Indenture.
Section 6.2. Remedies on Default. Whenever any Event of
Default shall have occurred and be continuing hereunder, the
Trustee may take any one or more of the following remedial steps:
(a) The Trustee may exercise any right, power or
remedy permitted to it by law as a holder of the Note, and shall
have in particular, without limiting the generality of the
foregoing, the right to declare the entire principal and all
unpaid interest accrued on the Note to the date of such
declaration and any premium the Company shall have become
obligated to pay to be immediately due and payable, if
concurrently with or prior to such notice the unpaid principal of
and all unpaid accrued interest and premium on the Bonds have
been declared to be due and payable under the Indenture, and upon
such declaration the Note and the unpaid accrued interest thereon
and such premium shall thereupon become forthwith due and payable
in an amount sufficient to pay the principal of, premium, if any,
and interest on the Bonds under Section 9.2 of the Indenture,
without presentment, demand or protest, all of which are hereby
expressly waived. The Company shall forthwith pay to the Trustee
the entire principal of, premium, if any, and interest accrued on
the Note.
The Trustee (or any owner of any Bond) shall waive, rescind and
annul such declaration and the consequences thereof, when any
declaration of acceleration on the Bonds has been waived,
rescinded and annulled pursuant to and in accordance with Section
9.2 of the Indenture.
(b) The Issuer or the Trustee may take whatever action
at law or in equity may appear necessary or desirable to collect
the payments and other amounts then due and thereafter to become
due or to enforce the performance and observance of any
obligation, agreement or covenant of the Company under this
Agreement.
In case the Issuer or the Trustee shall have proceeded to enforce
its rights under this Agreement, and such proceedings shall have
been discontinued or abandoned for any reason or shall have been
determined adversely to the Issuer or the Trustee, as the case
may be, then and in every such case the Company, the Issuer and
the Trustee shall be restored respectively to their several
positions and rights hereunder, and all rights, remedies and
powers of the Company, the Issuer and the Trustee shall continue
as though no such proceeding had been taken.
In case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company under the Federal
bankruptcy laws or any other applicable law, or in case a
receiver or trustee shall have been appointed for the property of
the Company, or in the case of any other similar judicial
proceedings relative to the Company, or to the creditors or
property of the Company, the Trustee shall be entitled and
empowered, by intervention in such proceedings or otherwise, to
file and prove a claim or claims for the whole amount owing and
unpaid pursuant to this Agreement and the Note and, in case of
any judicial proceedings, to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to
have the claims of the Trustee allowed in such judicial
proceedings relative to the Company, its creditors or its
property, and to collect and receive any moneys or other property
payable or deliverable on any such claims, and to distribute the
same after the deduction of its charges and expenses; and any
receiver, assignee or trustee in bankruptcy or reorganization is
hereby authorized to make such payments to the Trustee, and to
pay to the Trustee any amount due it for compensation and
expenses, including reasonable counsel fees and expenses incurred
by it up to the date of such distribution.
Section 6.3. Agreement to Pay Attorneys' Fees and Expenses. In
the event the Company should default under any of the provisions
of this Agreement and the Issuer or the Trustee should employ
attorneys or incur other expenses for the collection of the
payments due under this Agreement or the Note or the enforcement
of the performance or observance of any obligation or agreement
on the part of the Company herein contained, the Company agrees
that it will on demand therefor pay to the Issuer or the Trustee
the reasonable fees and expenses of such attorneys and such other
expenses so incurred by the Issuer or the Trustee.
Section 6.4. No Remedy Exclusive. No remedy herein conferred
upon or reserved to the Issuer or the Trustee is intended to be
exclusive of any other available remedy or remedies, but each and
every such remedy shall be cumulative and shall be in addition to
every other remedy given under this Agreement and the Indenture
or now or hereafter existing at law or in equity or by statute.
No delay or omission to exercise any right or power accruing upon
any Event of Default hereunder shall impair any such right or
power or shall be construed to be a waiver thereof, but any such
right and power may be exercised from time to time and as often
as may be deemed expedient. In order to entitle the Issuer to
exercise any remedy reserved to it in this Article VI, it shall
not be necessary to give any notice, other than such notice as
may be herein expressly required. Such rights and remedies as
are given the Issuer hereunder shall also extend to the Trustee,
and the Trustee and the owners from time to time of the Bonds
shall be deemed third party beneficiaries of all covenants and
agreements herein contained.
Section 6.5. No Additional Waiver Implied by One Waiver. In
the event any agreement contained in this Agreement should be
breached by the Company and thereafter waived by the Issuer or
the Trustee, such waiver shall be limited to the particular
breach so waived and shall not be deemed to waive any other
breach under this Agreement.
Article VII
Prepayment of Note
Section 7.1. Obligation to Prepay the Note upon Determination
of Taxability. Upon the occurrence of a Determination of
Taxability, the Company shall have, and hereby accepts, the
obligation to prepay a sufficient portion of the principal of the
Note in part, on any date within thirty (30) days of the
occurrence of a Determination of Taxability, by paying to the
Trustee an amount sufficient to redeem all of the Series 1996-A
Bonds pursuant to Section 3.1(b) of the Indenture. The amount to
be prepaid pursuant to this Section 7.1 in such event shall be
100% (or 103% during the Adjustable Rate Period or the Fixed Rate
Period) of the then Outstanding principal amount of the Series
1996-A Bonds plus accrued interest to the date fixed for
redemption. So long as the Letter of Credit is in effect, and to
the extent that Available Moneys described in clauses (a) and (b)
of Section 6.4 of the Indenture are not on deposit in the Bond
Fund and available to prepay the principal of, premium, if any,
and accrued interest on the Note payable under this Section 7.1,
the Trustee shall, in accordance with Section 6.4 of the
Indenture, draw upon the Letter of Credit to prepay the principal
of, premium, if any, and accrued interest on the Note payable
under this Section 7.1 in accordance with the terms of the Letter
of Credit.
Section 7.2. General Option to Prepay the Note. The Company
shall have, and is hereby granted, the option to prepay the
principal of the Note as a whole, or in part, by paying to the
Trustee an amount sufficient to redeem all or a portion of the
Bonds then outstanding, in the manner, at the redemption prices
(including premium, if any), from the sources and on the dates
specified in Section 3.1(a) of the Indenture. So long as the
Letter of Credit is in effect, and to the extent that Available
Moneys described in clauses (a) and (b) of Section 6.4 of the
Indenture are not on deposit in the Bond Fund and available to
prepay the principal of and accrued interest on the Note under
this Section 7.2, the Trustee shall, in accordance with Section
6.4 of the Indenture, draw upon the Letter of Credit to prepay
the principal of and accrued interest on the Note payable under
this Section 7.2 in accordance with the terms of the Letter of
Credit.
Section 7.3. Option to Prepay the Note in Extraordinary Events.
The Company shall have, and is hereby granted, the option to
prepay the principal of the Note, on any date, as a whole, and
not in part, at a prepayment price of 100% of the principal
amount of the Note then outstanding, plus accrued interest to the
date fixed for prepayment, within one hundred eighty (180) days
of the occurrence of any of the following:
(a) the Project or the Premises shall have been
damaged or destroyed (in whole or in part) by fire or other
casualty to such extent that, in the opinion of the Company
expressed in a certificate filed with the Issuer and the Trustee,
it is not practicable or desirable to rebuild, repair or restore
the Project or the Premises, as the case may be, within a period
of six (6) consecutive months following such damage or
destruction, or
(b) title to, or the temporary use of, all or
substantially all of the Project or the Premises shall have been
taken under the exercise of the power of eminent domain by any
governmental authority or person, firm or corporation acting
under governmental authority (including such a taking or takings
as results or is likely to result, in the opinion of the Company
expressed in a certificate filed with the Issuer and the Trustee,
in the Company being thereby prevented from carrying on its
normal operations at the Project or the Premises, as the case may
be, for a period of six (6) consecutive months or results or is
likely to result in rendering the Project or the Premises, as the
case may be, unsuitable for use by the Company).
So long as the Letter of Credit is in effect, and to the extent
that Available Moneys described in clauses (a) and (b) of Section
6.4 of the Indenture are not on deposit in the Bond Fund and
available to prepay the principal of and accrued interest on the
Note payable under this Section 7.3, the Trustee shall, in
accordance with Section 6.4 of the Indenture, draw upon the
Letter of Credit to prepay the principal of and accrued interest
on the Note payable under this Section 7.3 in accordance with the
terms of the Letter of Credit.
Section 7.4. Obligation to Prepay the Note with Moneys
Remaining in the Acquisition and Construction Fund. The Company
shall have, and hereby accepts, the obligation to prepay the
principal of the Note in part, on any date within thirty (30)
days after the receipt by the Trustee of a completion certificate
pursuant to Section 3.4 hereof with moneys remaining in the
Acquisition and Construction Fund (other than any moneys withheld
and used to pay Costs of the Project, as set forth in Section 3.4
hereof). For redemption of a portion of the principal of the
Bonds pursuant to Section 3.1(d) of the Indenture, the amount to
be prepaid pursuant to this Section 7.4 in any such event shall
be 100% of the principal amount of the Bonds being redeemed plus
accrued interest to the date fixed for redemption.
Section 7.5. Obligation to Prepay the Note for Mandatory
Sinking Fund Redemptions. The Company shall have, and hereby
accepts, the obligation to prepay the principal of the Note in
part by paying to the Trustee an amount sufficient to redeem the
portion of the Bonds then outstanding and subject to mandatory
sinking fund redemption pursuant to Section 3.1(e) of the
Indenture, in the manner, at the redemption prices from the
sources and on the dates specified in Section 3.1(e) of the
Indenture. So long as the Letter of Credit is in effect, and to
the extent that Available Moneys described in clauses (a) and (b)
of Section 6.4 of the Indenture are not on deposit in the Bond
Fund and available to prepay the principal of and accrued
interest on the Note under this Section 7.5, the Trustee shall,
in accordance with Section 6.4 of the Indenture, draw upon the
Letter of Credit to prepay the principal of and accrued interest
on the Note payable under this Section 7.5 in accordance with the
terms of the Letter of Credit.
Section 7.6. Redemption of the Bonds. To exercise an option
granted to the Company by this Article VII, the Company shall
give written notice to the Issuer, the Trustee and the Bank,
which notice shall specify therein the date upon which prepayment
of the Note (or a portion thereof) will be made, which date shall
be not less than forty-five (45) days from the date the notice is
mailed, except in the case of Section 7.1, Section 7.4 or Section
7.5 hereof, and shall specify that all of the principal amount of
the Note or a specified portion thereof is to be so prepaid. The
Issuer has directed the Trustee to take forthwith all steps
(other than the payment of the money required to redeem the
Bonds) necessary under the applicable provisions of the Indenture
to effect the redemption of the Bonds (or a portion thereof) in
amounts equal to the amount of the principal of the Note so
prepaid as provided in this Article VII.
Article VIII
Financing Statements
The Company will, at its expense, take all necessary action to
maintain and preserve the lien and security interest of the
Indenture so long as any Bond remains outstanding.
The Company will, forthwith after the execution and delivery of
the Indenture and thereafter from time to time, cause any
financing statements in respect of the Indenture to be filed,
registered and recorded in such manner and in such places as may
be required by law in order to publish notice of and fully to
perfect and protect the lien and security interest created
thereby; and from time to time will perform or cause to be
performed any other act as provided by law and will file or cause
to be filed any and all continuation statements and further
instruments that may be required by law to maintain and preserve
the lien and security interest of the Indenture. Except to the
extent it is exempt therefrom, the Company will pay or cause to
be paid all filing, registration and recording fees incident to
such filing, registration and recording, and all expenses
incident to the preparation, execution and acknowledgment of such
instruments of further assurance, and all Federal or State fees
and other similar fees, duties, imposts, assessments and charges
arising out of or in connection with the execution and delivery
of the Indenture, said financing statements and such instruments
of further assurance.
Article IX
Miscellaneous
Section 9.1. Notices. All notices, certificates or other
communications shall be sufficiently given and shall be deemed
given when the same are (i) deposited in the United States mail
and sent by first class mail, postage prepaid, or (ii) delivered,
in each case, to the parties at the addresses set forth below or
at such other address as a party may designate by notice to the
other parties: if to the Issuer, at 25 High Street, Morris,
Illinois 60450, Attention: Chairman; if to the Company, at 1000
East Niagra Street, Tonawanda, New York 14156, Attention: Chief
Financial Officer; if to the Trustee, at 33 North LaSalle Street,
Chicago, Illinois 60690, Attention: Corporate Trust Department;
if to the Bank, at 2300 Main Place Tower, Buffalo, New York
14202, Attention: Alan Boyce; and if to the Remarketing Agent,
at 100 Park Avenue, New York, New York 10017, Attention:
Municipal Finance Department. A duplicate copy of each notice,
certificate or other communication given hereunder by either the
Issuer or the Company to the other shall also be given to the
Trustee, the Remarketing Agent and the Bank.
Section 9.2. Assignments. This Agreement may not be assigned
by either party without the consent of the other and the Trustee
and the Bank, except that the Issuer shall assign and pledge to
the Trustee its right, title and interest in and to this
Agreement as provided by Section 4.4 of this Agreement, and the
Company may without any consent assign to any surviving,
resulting or transferee corporation its rights under this
Agreement as provided in Section 5.2 of this Agreement.
Section 9.3. Severability. If any provision of this Agreement
shall be held or deemed to be or shall, in fact, be illegal,
inoperative or unenforceable, the same shall not affect any other
provision or provisions herein contained or render the same
invalid, inoperative or unenforceable to any extent whatsoever.
Section 9.4. Execution of Counterparts. This Agreement may be
simultaneously executed in several counterparts, each of which
shall be an original and all of which shall constitute but one
and the same instrument; provided, however, that for purposes of
perfecting a security interest in this Agreement by the Trustee
under Article 9 of the Uniform Commercial Code of the State, only
the counterpart assigned, pledged and delivered to the Trustee
shall be deemed the original.
Section 9.5. Amounts Remaining in Any Fund or with Trustee. It
is agreed by the parties hereto that after payment in full of (i)
the principal of, premium, if any, and interest on the Bonds,
(ii) the fees, charges, and expenses of the Issuer, the Trustee
and the Remarketing Agent in accordance herewith and with the
Indenture and the Remarketing Agreement (the payment of which
fees, charges and expenses shall be evidenced by a written
certification of the Company that it has fully paid all such
fees, charges and expenses), and (iii) all other amounts required
to be paid under this Agreement, the Note, the Indenture, the
Remarketing Agreement and the Tax Exemption Certificate and
Agreement, any amounts remaining in any fund or account
maintained under this Agreement, the Indenture or the Tax
Exemption Certificate and Agreement and not applied to the
principal of, premium, if any, and interest on the Bonds shall
belong to and be paid to the Company by the Trustee; provided,
that if the Trustee shall have drawn under the Letter of Credit,
the Trustee shall request a written statement from the Bank as to
whether or not the Bank has been reimbursed by the Company for
any and all such drawings, and if the Bank has not been
reimbursed by the Company for any and all such drawings under the
Letter of Credit (other than reimbursement for a drawing under
the Letter of Credit to purchase Bonds tendered or deemed to be
tendered for purchase pursuant to Section 4.1 or Section 4.2 of
the Indenture, which reimbursement is not due and owing under the
Letter of Credit Agreement), such amounts remaining in the Bond
Fund or the Bond Purchase Fund shall, upon written notice from
the Bank that the Company has not reimbursed the Bank under the
Letter of Credit Agreement for any such drawing under the Letter
of Credit (which notice shall state the unreimbursed amount),
belong to and be paid to the Bank by the Trustee to the extent
that the Company has not so reimbursed the Bank.
Section 9.6. Amendments, Changes and Modifications. Except as
otherwise provided in this Agreement or the Indenture, subsequent
to the initial issuance of the Bonds and prior to their payment
in full, this Agreement may not be effectively amended, changed,
modified, altered or terminated without the written consent of
the Trustee, and, while the Letter of Credit is in effect, the
Bank.
Section 9.7. Governing Law. This Agreement shall be governed
exclusively by and construed in accordance with the applicable
laws of the State.
Section 9.8. Authorized Company Representative. Whenever under
the provisions of this Agreement the approval of the Company is
required or the Company is required to take some action at the
request of the Issuer, the Trustee or the Bank, such approval or
such request shall be given for the Company by the Authorized
Company Representative, and the Issuer, the Trustee and the Bank
shall be authorized to act on any such approval or request and
neither party hereto shall have any complaint against the other
or against the Trustee or the Bank as a result of any such action
taken.
Section 9.9. Term of This Agreement. This Agreement shall be
in full force and effect from the date hereof, and shall continue
in effect until the payment in full of all principal of, premium,
if any, and interest on the Bonds, or provision for the payment
thereof shall have been made pursuant to Article VIII of the
Indenture, all fees, charges, indemnities and expenses of the
Issuer, the Trustee and the Remarketing Agent have been fully
paid or provision made for such payment (the payment of which
fees, charges, indemnities and expenses and attorneys' fees and
expenses shall be evidenced by a written certification of the
Company that it has fully paid all such fees, charges,
indemnities and expenses) and all other amounts due hereunder and
under the Note, the Remarketing Agreement and the Tax Exemption
Certificate and Agreement have been duly paid or provision made
for such payment. All representations, certifications and
covenants by the Company as to all matters affecting the
tax-exempt status of the interest on the Series 1996-A Bonds
shall survive the termination of this Agreement.
Section 9.10. Binding Effect. This Agreement shall inure to the
benefit of and shall be binding upon the Issuer, the Company and
their respective successors and assigns; subject, however, to the
limitations contained in Sections 4.4 and 5.2 of this Agreement.
Section 9.11. References to Bank and Letter of Credit. At any
time subsequent to the Stated Termination Date (as defined in the
Letter of Credit), but only upon satisfaction of all
Reimbursement Obligations, all references to the Bank and the
Letter of Credit shall be ineffective.
In Witness Whereof, the Issuer and the Company have caused this
Agreement to be executed in their respective names and attested
by their duly authorized officers and sealed, all as of the date
first above written.
Upper Illinois River Valley
Development Authority
(Seal) By: James Washburn
Chairman
Attest: William Steep
Secretary
Exolon-ESK Company
By: Michael H. Bieger
Chief Financial Officer/
Vice President
(Seal)
Attest: Nancy E. Gates
Secretary
The right, title and interest of the Upper Illinois River Valley
Development Authority, in and to the amounts receivable hereunder
(except for the rights of said Authority under Sections 4.2(b),
5.3 and 6.3 hereof and the rights to make determinations and
receive notices as herein provided) have been assigned and
pledged to American National Bank and Trust Company of Chicago,
as Trustee, pursuant to the Indenture of Trust dated as of
December 1, 1996, from the Upper Illinois River Valley
Development Authority, to said Trustee. For purposes of Article
9 of the Illinois Uniform Commercial Code, the counterpart of
this Agreement assigned, pledged and delivered to said Trustee
shall be deemed the original.
Exhibit A
Description of Project
The Project consists of the acquisition of land, the construction
of an approximately 25,000 square-foot building and related
improvements and the acquisition of machinery, equipment and
related property to be installed therein, all constituting a
facility for the cleansing of sour gas containing hydrogen
sulphide and for the disposal of sulphur and silica sand incident
to the existing silicon carbide manufacturing facilities of the
Company, to be owned and operated by the Company and to be
located within the corporate limits of the Village of Hennepin,
Illinois, on ESK Road, County Road 875E, approximately 3 miles
north of Route 71 in Hennepin, Illinois.
Exhibit B
Exolon-ESK Company
Promissory Note
For Value Received, Exolon-ESK Company, a Delaware corporation
(the "Company"), hereby promises to pay to the order of the Upper
Illinois River Valley Development Authority, or its successors
and assigns (the "Issuer"), in lawful money of the United States
of America in Federal or other immediately available funds at the
principal corporate trust office of American National Bank and
Trust Company of Chicago, as Trustee (the "Trustee"), the
principal amount of Thirteen Million Dollars ($13,000,000),
payable in installments on December 1, 2021, except as the
provisions hereinafter set forth with respect to prepayment may
become applicable hereto, together with interest on the unpaid
principal amount hereof from the date hereof at such rates equal
to the interest rates from time to time borne by the Bonds (as
hereinafter defined), calculated during the Weekly Rate Period or
the Monthly Rate Period (as each term is defined in the Agreement
hereinafter referred to) on the basis of a calendar year
consisting of 365 or 366 days, as the case may be, and calculated
on the actual number of days elapsed, and calculated during the
Adjustable Rate Period or the Fixed Rate Period (as each term is
defined in the Agreement hereinafter referred to) on the basis of
a calendar year consisting of 360 days of twelve (12) thirty-day
months, payable in lawful money of the United States of America
in Federal or other immediately available funds during said
Weekly Rate Period or said Monthly Rate Period on January 2,
1997, and on the first Business Day (as defined in said
Agreement) of each calendar month thereafter, until the earlier
of the date of the commencement of said Adjustable Rate Period or
said Fixed Rate Period or the date on which said principal amount
is paid, and during said Adjustable Rate Period or said Fixed
Rate Period on the first day of the June or December immediately
following the commencement of said Adjustable Rate Period or said
Fixed Rate Period and on the first day of each June and December
thereafter; provided, that the portion of the principal of this
Promissory Note corresponding to the outstanding principal amount
of the Series 1996-A Bonds (as hereinafter defined), shall bear
interest at the interest rate from time to time established for
said Series 1996-A Bonds, and the portion of the principal of
this Promissory Note corresponding to the outstanding principal
amount of the Series 1996-B Bonds (as hereinafter defined) shall
bear interest at the interest rate from time to time established
for said Series 1996-A Bonds.
This Promissory Note is issued pursuant to the Loan Agreement
dated as of December 1, 1996, by and between the Issuer and the
Company (the "Agreement"), and is issued in consideration of the
loan made thereunder and to evidence the obligations of the
Company set forth in Section 4.2(a) of the Agreement. The
Company covenants and agrees that the payments of principal
hereof and premium, if any, and interest hereon will be
sufficient to enable the Issuer to pay when due the principal of,
premium, if any, and interest on its Variable Rate Demand Solid
Waste Disposal Revenue Bonds, Series 1996-A (Exolon-ESK Company
Project) in the aggregate principal amount of $8,405,000 (the
"Series 1996-A Bonds") and its Taxable Variable Rate Demand Solid
Waste Disposal Revenue Bonds, Series 1996-B (Exolon-ESK Company
Project) in the aggregate principal amount of $4,595,000 (the
"Series 1996-B Bonds," and, together with the Series 1996-A
Bonds, the "Bonds").
Each payment of principal of, premium, if any, and interest on
this Promissory Note shall at all times be sufficient to pay the
total amount of principal of (whether at maturity or upon
acceleration or redemption prior to maturity), premium, if any,
and interest on the Bonds on the same date. The total payments
to be made by the Company hereunder shall be sufficient to pay
when due the principal of (whether at maturity or upon
acceleration or redemption prior to maturity) premium, if any,
and interest on the Bonds; provided, that the Excess Amount (as
hereinafter defined) held by the Trustee (as defined in the
Agreement) in the Bond Fund (as defined in the Agreement) on a
payment date shall be credited against the payment due on such
date; and provided further, that, subject to the provisions of
the immediately following sentence, if at any time the amount
held by the Trustee in said Bond Fund should be sufficient (and
remain sufficient) to pay on the dates required the principal of,
premium, if any, and interest on the Bonds then remaining unpaid,
the Company shall not be obligated to make any further payments
under the provisions of this Promissory Note. Notwithstanding
the provisions of the preceding sentence, if on any date the
Excess Amount held by the Trustee in said Bond Fund is
insufficient to make the then required payments of principal
(whether at maturity or upon redemption prior to maturity or
acceleration), premium, if any, and interest on the Bonds on such
date, the Company shall forthwith pay such deficiency. The term
"Excess Amount" as of any interest payment date shall mean the
amount in said Bond Fund on such date in excess of the amount
required for the payment of the principal of the Bonds which
theretofore has matured at maturity or on a date fixed for
redemption and premium, if any, on such Bonds in all cases where
Bonds have not been presented for payment and paid, or for the
payment of interest which has theretofore come due in all cases
where interest checks have not been presented for payment and
paid. Any moneys derived from a drawing under the Letter of
Credit (as defined in the Agreement) shall constitute a credit
against the obligation of the Company to make a corresponding
payment hereunder, as provided in Section 4.2(f) of the
Agreement.
This Promissory Note is entitled to the benefits and is subject
to the conditions of the Agreement. The obligations of the
Company to make the payments required hereunder shall be absolute
and unconditional without any defense or right of set-off,
counterclaim or recoupment by reason of any default by the Issuer
under the Agreement or under any other agreement between the
Company and the Issuer or the Trustee, or out of any indebtedness
or liability at any time owing to the Company by the Issuer or
said Trustee, or for any other reason.
This Promissory Note is subject to mandatory prepayment and
optional prepayment as a whole or in part, as provided in Article
VII of the Agreement.
In certain events, on the conditions, in the manner and with the
effect set out in the Agreement, the principal installments of
this Promissory Note may be declared due and payable before the
stated maturity thereof, together with accrued interest thereon.
Reference is hereby made to the Agreement for a complete
statement of the terms and conditions under which the maturity of
the principal installments of this Promissory Note may be
accelerated.
In Witness Whereof, the Company has caused this Promissory Note
to be duly executed, attested, sealed and delivered as of
December 19, 1996.
Exolon-ESK Company
By: Michael H. Bieger
Chief Financial Officer/
Vice President
(Seal)
Attest: Nancy E. Gates
Secretary
Endorsement
Pay, without recourse or warranty, to the order of American
National Bank and Trust Company of Chicago, as Trustee under the
Indenture of Trust dated as of December 1, 1996, from the
undersigned to said trustee.
Upper Illinois River Valley
Development Authority
By: James Washburn
Chairman
(Seal)
Attest: William Steep
Secretary
Exhibit C
Legal Description
Exhibit D
Requisition No. ___________
American National Bank and Trust Company of Chicago, as Trustee
Chicago, Illinois 60690
Re: Upper Illinois River Valley Development Authority
$8,405,000 Variable Rate Demand Solid Waste Disposal
Revenue Bonds, Series 1996-A (Exolon-ESK Company
Project) (the "Series 1996-A Bonds")and $4,595,000
Variable Rate Demand Solid Waste Disposal Revenue
Bonds, Series 1996-B (Exolon-ESK Company Project) (the
"Series 1996-B Bonds")
Ladies and Gentlemen:
This Requisition is submitted pursuant to the provisions of
Section 3.3 of a Loan Agreement dated as of December 1, 1996 (the
"Agreement") by and between the Upper Illinois River Valley
Development Authority (the "Issuer") and Exolon-ESK Company (the
"Company"). The terms used herein have the same meanings as when
used in the Agreement, except where the context otherwise
requires.
The Company hereby requests that on ______________, the Trustee
pay to the payee named in paragraph (b) below from funds held in
the Acquisition and Construction Fund the amount specified in
paragraph (c) below. In support of this request, the Company
states as follows:
(a) The cost of the facilities to which the payment relates
has been properly incurred and is a proper charge against the
Acquisition and Construction Fund.
(b) The Payee is __________________ whose address is
_________________ attention: ____________________.
(c) The amount requested to be paid is $__________________.
(d) None of the items for which the payment is proposed to
be made has formed the basis for any payment heretofore made from
the Acquisition and Construction Fund.
(e) Each of the items for which the payment is proposed to
be made is or was necessary or appropriate in connection with the
Project.
(f) After giving effect to this Requisition, the amount
remaining in the Acquisition and Construction Fund, the
reasonable estimate of investment income thereon, and funds of
the Company available for such purpose will be sufficient to pay
the cost of completing the Project.
(g) After giving effect to this Requisition, all payments
of Costs of Issuance paid for out of Series 1996-A Bond proceeds
does not exceed $________.
(h) After giving effect to this Requisition, at least 95%
of the proceeds of the Series 1996-A Bonds to be disbursed from
Account A of the Acquisition and Construction Fund, including the
amounts requested herein to be disbursed, will be used to provide
(i) land or depreciable property of a character subject to the
allowance for depreciation under the Internal Revenue Code of
1986, as amended (the "Code"), and (ii) qualified "solid waste
disposal facilities," within the meaning of Section 142(a)(6) of
the Code.
In accordance with the provisions of the Agreement, the Company
has caused this Requisition to be signed and verified on its
behalf by its duly authorized representative this ______ day of
________________, 19___.
Exolon-ESK Company
By
Authorized Company Representative
Approved:
The Chase Manhattan Bank, N.A.
By
Its
EXOLON-ESK COMPANY
AND
THE CHASE MANHATTAN BANK
BUILDING LOAN AGREEMENT
Dated: As of December 1, 1996
Location: RR No. 1
ESK Road 875E
Hennepin, Illinois
RECORD AND RETURN TO:
Phillips, Lytle, Hitchcock, Blaine & Huber
3400 Marine Midland Center
Buffalo, New York 14203
Attention: Deborah A. Doxey, Esq.
BUILDING LOAN AGREEMENT
TABLE OF CONTENTS
Page
1. Definition ....................... 2
2. Bond Proceeds ..................... 2
3. The Improvements .................... 2
4. Change Orders ..................... 4
5. Commencement of Construction .............. 4
6. Completion of Improvements ............... 4
7. Force Majeure ..................... 5
8. Title Insurance and Survey ............... 5
9. Hazard Insurance .................... 7
10. Advances ........................ 7
11. Advances for Stored Materials ............. 9
12. Additional Conditions to Advances ........... 9
13. Contingency Reserve .................. 13
14. Deficiency ....................... 13
15. Specific Additional Covenants of Borrower ....... 14
16. Events of Default ................... 16
17. Other Remedies ..................... 17
18. Incorporation of Provisions .............. 18
19. Further Assurances ................... 18
20. Representations and Warranties ............. 18
21. Construction of Agreement ............... 19
22. Trust Fund ....................... 19
23. Parties Bound, etc. .................. 19
24. Waivers ........................ 19
25. Governing Law ..................... 19
26. Severability ...................... 19
27. Notices ........................ 19
28. Fees and Expenses ................... 20
29. Sign .......................... 20
30. Modification ...................... 21
31. Termination of Advances ................ 21
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
EXHIBIT E
SCHEDULE A
SCHEDULE B
BUILDING LOAN AGREEMENT
THIS BUILDING LOAN AGREEMENT made as of the 1st day of
December, 1996, between THE CHASE MANHATTAN BANK, a New York
banking corporation having an office at 2300 Main Place Tower,
Buffalo, New York 14202-3723 (hereinafter referred to as the
"Bank"), and Exolon-ESK Company, a Delaware corporation having an
office at 1000 East Niagara Street, Tonawanda, New York 14150
(hereinafter referred to as the "Borrower");
W I T N E S S E T H:
WHEREAS the Borrower is the owner of a fee estate in certain
premises, as more particularly described in Exhibit A
(hereinafter referred to as the "Premises");
WHEREAS, pursuant to the Constitution and the laws of the
State of Illinois (the "State"), and particularly 70 Illinois
Compiled Statutes 1994, 530/1 et seq., as supplemented and
amended (collectively, the "Act"), the Upper Illinois River
Valley Development Authority (the "Issuer") is authorized to
issue its revenue bonds to finance the cost of "projects," as
defined in the Act; and
WHEREAS, pursuant to and in accordance with the Act, the
Issuer has agreed to issue and sell its Variable Rate Demand
Solid Waste Disposal Revenue Bonds, Series 1996-A (Exolon-ESK
Company Project) in the aggregate principal amount of $8,405,000
(the "Series 1996-A Bonds") and its Taxable Variable Rate Demand
Solid Waste Disposal Revenue Bonds, Series 1996-B (Exolon-ESK
Company Project) in the aggregate principal amount of $4,595,000
(the "Series 1996-B Bonds"), which Series 1996-A Bonds and Series
1996-B Bonds (collectively, the "Bonds") will be issued under the
terms of an Indenture of Trust (the "Indenture") dated as of
December 1, 1996, from the Issuer to American National Bank and
Trust Company of Chicago, as trustee (the "Trustee"), and to lend
the proceeds of the Bonds to the Borrower to finance a portion of
the costs of the acquisition of certain real estate, the
construction of a building and related improvements and the
acquisition of machinery, equipment and related property to be
installed therein (the "Project"), all to be used for the
disposal of certain solid wastes, to be owned and operated by the
Borrower and all to be located in the Village of Hennepin,
Illinois, which Project shall constitute a "project," within the
meaning of the Act; and
WHEREAS, the Bonds issued under the Indenture will be
secured by (i) an assignment and pledge of all right, title and
interest of the Issuer in and to a Loan Agreement between the
Borrower and the Issuer dated as of December 1, 1996 (the "Loan
Agreement") and the promissory note of the Borrower issued
pursuant to the Loan Agreement (the "Note"), except as otherwise
provided in the Indenture, and (ii) moneys derived from drawings
under the irrevocable, transferable letter of credit dated the
date of issuance and delivery of the Bonds, issued by the Bank in
favor of the Trustee for the benefit of the owners from time to
time of the Bonds, in the amount of (A) the aggregate principal
amount of the Bonds (1) to enable the Trustee to pay the
principal of the Bonds at maturity, upon call for redemption
prior to maturity or acceleration, and (2) to enable the Trustee
to pay the portion of the purchase price of Bonds to be tendered
or deemed to be tendered to it for purchase, equal to the
aggregate principal amount of such Bonds, plus (B) an amount
equal to the interest to accrue on the Bonds for thirty-five (35)
days at the maximum rate of twelve percent (12%) per annum (1) to
enable the Trustee to pay interest accrued on the Bonds on the
dates and in the manner set forth in the Indenture, and (2) to
enable the Trustee to pay the portion of the purchase price of
Bonds tendered or deemed to be tendered to it for purchase equal
to the accrued interest on such Bonds (which initial letter of
credit, together with any substitute letter of credit, is
hereinafter referred to as the "Letter of Credit").
WHEREAS, the Borrower is obligated to reimburse the Bank for
all amounts drawn on the Letter of Credit pursuant to the terms
of a Letter of Credit Reimbursement Agreement between the
Borrower and the Bank dated as of December 1, 1996 (the
"Reimbursement Agreement").
The Bank requires, as a condition and as an inducement for
it to issue the Letter of Credit, that the Borrower execute and
deliver this Agreement to the Bank.
1. Definition. All terms as used in this Agreement shall,
unless otherwise defined in the main body of this Agreement, have
the meaning given to such terms in Exhibit B or in the Loan
Agreement.
2. Bond Proceeds. Subject to the terms and conditions
hereof, and in consideration of the premises herein, including
expressly, but not limited to the promise of the Borrower to
construct the Improvements, the Borrower agrees that all proceeds
of the Bonds shall be disbursed in accordance herewith.
3. The Improvements. The Borrower has submitted to the
Bank and the Construction Consultant a set of final plans and
specifications for the Improvements prepared by the Construction
Manager, as more particularly described in Exhibit C attached
hereto, which shall include the construction of an additional
well and septic system, (hereinafter referred to as the "Plans
and Specifications"), which Plans and Specifications have been
reviewed and accepted by the Bank and the Construction
Consultant. The Borrower acknowledges that (i) the Construction
Consultant has been retained by the Bank to act as a consultant
and only as a consultant to the Bank in connection with the
construction of the Improvements, (ii) the Construction
Consultant shall in no event or under any circumstance have any
power or authority to make any decision or to give any approval
or consent or to do any other act or thing which is binding upon
the Bank and any such purported decision, approval, consent, act
or thing by the Construction Consultant on behalf of the Bank
shall be void and of no force or effect, (iii) the Bank reserves
the right to make any and all decisions required to be made by
the Bank under this Agreement and to give or refrain from giving
any and all consents or approvals required to be given by the
Bank under this Agreement and to accept or not accept any matter
or thing required to be accepted by the Bank under this
Agreement, in each instance in its sole and absolute discretion,
and without in any instance being bound or limited in any manner
or under any circumstance whatsoever by any opinion expressed or
not expressed, or advice given or not given, or information,
certificate or report provided or not provided, by the
Construction Consultant to the Bank or any other person or party
with respect thereto, (iv) the Bank reserves the right in its
sole and absolute discretion to disregard or disagree, in whole
or in part, with any opinion expressed, advice given or
information, certificate or report furnished or provided by the
Construction Consultant to the Bank or any other person or party,
(v) the Bank reserves the right in its sole and absolute
discretion to replace the Construction Consultant with another
construction consultant selected by the Bank and approved by the
Borrower at any time and (vi) Borrower shall not in any event
rely upon any purported decision, approval, consent, act or thing
by the Construction Consultant. The Borrower represents and
warrants to the Bank that the Plans and Specifications are
complete in all material respects and have been submitted to the
Construction Manager, and the Construction Manager has agreed to
perform its obligations under the General Construction Contract
in a manner consistent with the requirements of the Plans and
Specifications. The Borrower represents and warrants to the Bank
that (i) to the extent required by law on the basis of the
present stage of development and construction of the
Improvements, the Borrower has obtained from the appropriate
Governmental Authorities all required approvals (including,
without limitation, all environmental approvals) with respect to
the Plans and Specifications and the Improvements, and (ii) all
necessary permits, certificates, licenses and other approvals
required for the construction of the Improvements have to the
extent required by applicable law been issued or obtained from
the appropriate Governmental Authorities and (iii) all necessary
permits, certificates, licenses, and other approvals required for
construction of the Improvements shall be unconditional, valid,
final, and shall fully authorize Borrower to commence and
complete the Project as set forth in the Plans and
Specifications. Subject to the provisions of paragraph 4 of this
Agreement, each addition or modification to the Plans and
Specifications or to the Construction Contract must be acceptable
to the Bank, the Construction Consultant and, to the extent
required by law, shall be approved and permitted by the
appropriate Governmental Authorities. The Borrower shall not
commence any work on any stage or phase of the Improvements
unless all required permits, certificates, licenses and approvals
therefor have been issued or obtained from appropriate
Governmental Authorities. The Borrower shall construct and equip
the Improvements in accordance with the Plans and Specifications
free and clear of all mechanics' liens, notices of intention to
file mechanic's lien, notices of pendency, stop orders or
comparable liens or filings and all other liens, encumbrances and
security instruments of any nature whatsoever (other than the
Mortgage and other exceptions to title specifically set forth in
the policy of title insurance insuring the lien of the Mortgage
or as may otherwise be specifically approved by the Bank). The
Bank shall without additional cost or expense have the use of the
Plans and Specifications as accepted by the Bank and the
Construction Consultant upon the occurrence beyond any applicable
grace and cure period of a default under the Documents. The
Improvements shall be constructed and equipped in compliance with
the requirements of the Governmental Authorities and the
appropriate Board of Fire Underwriters, if any, or other similar
body, if any, acting in and for the locality in which the
Premises are situated. Compliance with the provisions of this
paragraph and any other provisions of this Agreement relating to
the construction and equipping of the Improvements shall be
determined by the Bank in its sole and absolute discretion. At
all times and without notice, the Bank, the Construction
Consultant and their respective agents and employees, shall have
the right of entry and free access to the Premises to inspect the
Improvements, and to any off-site location to inspect any off-
site stored materials for which Bank is permitting money to be
advanced hereunder.
4. Change Orders. Notwithstanding anything to the
contrary contained in this Agreement, the Borrower shall have the
right to enter into or to authorize the entering into of change
orders with respect to the Improvements without obtaining the
Bank's or the Construction Consultant's prior acceptance,
provided that (i) no such change order will materially change the
gross square feet or the net usable square feet space to be
contained in the Improvements, or the basic layout of the
Improvements, or the number of parking spaces to be located on
the Premises after completion of construction of the
Improvements, or involve the use of materials, furniture,
fixtures or equipment which will not be at least equal in quality
to the materials, furniture, fixtures and equipment originally
specified in or required by the Plans and Specifications, as
accepted by the Bank and the Construction Consultant, (ii) no
such change order shall, in a single instance, result in an
increase or decrease in the cost of constructing the Improvements
of more than $100,000, and (iii) the aggregate cost of all such
change orders which have not been accepted by the Bank and the
Construction Consultant shall not, at any given time, result in
an increase or decrease in the cost of constructing the
Improvements of more than $250,000, it being agreed that such
aggregate $250,000 maximum increase or decrease in the cost of
constructing the Improvements as a result of such change orders
shall not include the cost of any change order entered into
without the prior acceptance of the Bank and the Construction
Consultant pursuant to this paragraph with respect to which the
acceptance of the Bank and the Construction Consultant shall have
been subsequently obtained. The Borrower shall also have the
right, without obtaining the Bank's or the Construction
Consultant's prior acceptance, to enter into change orders or
field changes which do not increase or decrease the cost of
constructing the Improvements, provided that the requirements of
clause (i) of the preceding sentence are satisfied with respect
thereto. The Borrower shall submit to the Bank and the
Construction Consultant copies of all change orders entered into
with respect to the Improvements within ten (10) days after the
same are entered into and irrespective of whether the same
require the prior acceptance of the Bank and the Construction
Consultant pursuant to this Agreement.
5. Commencement of Construction. The Borrower shall have
commenced construction of the Improvements on or before the
Commencement Date and shall continue with such construction until
the Improvements are completed in accordance with the Plans and
Specifications and the provisions of this Agreement.
6. Completion of Improvements. Subject to the provisions
of paragraph 7 of this Agreement, construction of the
Improvements shall be completed substantially in accordance with
the Plans and Specifications and the provisions of this Agreement
on or before the Completion Date. For the purposes of this
Agreement, the Improvements shall not be deemed to have been
completed until (i) the Improvements have, in the opinion of the
Bank and the Construction Consultant, been completed
substantially in accordance with the Plans and Specifications,
(ii) the Improvements shall contain all furniture, fixtures and
equipment required for the use and operation of the Improvements
or which may be required by any Governmental Authority or by any
law, regulation or rule of any Governmental Authority, (iii) all
permanent certificates of occupancy (or their local equivalent)
and all other certificates, licenses, consents and approvals
required for the use and operation of the Improvements shall have
been issued by or obtained from the appropriate Governmental
Authorities, (iv) all Direct Construction Costs, Other Project
Costs, and other costs and expenses incurred in connection with
the construction and equipping of the Improvements, shall have
been paid in full.
7. Force Majeure. The Completion Date shall be extended
for a period of time equal to the number of days during which the
Borrower is prevented from proceeding with the construction of
the Improvements by reason of force majeure, provided that (i) no
default shall have occurred and shall be continuing under the
Loan Documents, (ii) the aggregate of any such respective
extensions of the Completion Date pursuant to the provisions of
this paragraph shall in no event be for a period of time in
excess of sixty (60) days, and (iii) the Borrower notifies the
Bank of the events constituting such force majeure within 15 days
after the Borrower has knowledge of their occurrence. No
extension of the Completion Date pursuant to this paragraph shall
be construed as extending the maturity date of the Note. If the
Completion Date is extended by reason of force majeure pursuant
to the provisions of this paragraph and if subsequent to such
extension the Borrower makes up all or any portion of such force
majeure delay, such extension of the Completion Date shall be
reduced by the number of days the Borrower is able to make up
after the occurrence of such force majeure delay. The term
"force majeure" as used in this paragraph shall include acts of
God, flooding, strikes, lockouts or other labor trouble,
materially adverse weather conditions, fire or other casualty,
governmental preemption in connection with a national emergency,
any rule, order or regulation of any governmental agency or any
department or subdivision thereof, or inability to secure
materials or labor because of any such emergency, rule, order,
regulation, war, civil disturbance or other emergency, cause or
event beyond the reasonable control of the Borrower.
8. Title Insurance and Survey. The Bank's obligation to
make the initial advance or any subsequent advance of Bond
Proceeds is conditioned on the Bank's receipt of the following,
all in form and substance satisfactory to Lender:
(a) a commitment for a title insurance policy in the
amount of the Debt covering all of the real property and
fixtures that are part of the Premises and Improvements.
The commitment shall be issued by Chicago Title Insurance
Company and shall be for an ALTA form of mortgage loan
policy to be issued without standard exceptions or
reservation for creditor's rights and assuring that, upon
satisfaction of the requirements listed herein, the Bank
will hold a valid first priority mortgage lien on real
property and fixtures conforming to the requirements of the
commitment. The commitment shall include a pending
disbursements clause satisfactory to the Bank and indicating
that coverage under the policy will cover the initial
disbursement of the Bank, and will be increased in amount
and updated by appropriate endorsement prior to each
construction advance. The title commitment must be
accompanied by complete copies of all documents referred to
therein as exceptions to or encumbrances on title. The Bank
reserves the right to require such additional endorsements
to the commitment as it may deem appropriate, including, but
not limited to, a zoning 3.1 endorsement, including parking
(or a zoning 3.0 endorsement with a commitment to issue a
zoning 3.1 endorsement, including parking), tax parcel,
comprehensive endorsement, endorsement over encroachments
(if any that are otherwise acceptable to the Bank),
mechanics' lien endorsement, access endorsement, interim
endorsement, usury endorsement, variable rate endorsement
and survey/location endorsement. A mortgage loan title
insurance policy pursuant to the approved loan commitment
shall be issued concurrently with the initial advance of
Bond Proceeds. No actual physical improvement to the
Development shall be permitted to occur until such time as
the Mortgage has been recorded with the Recorder of Deeds
for the County where the Premises is located;
(b) a current certified Class "A" ALTA Land Title
Survey by a registered engineer acceptable to the Bank with
such certification being addressed to the Bank and to the
Title Company. The survey shall show the Premises and any
matters affecting the same, including the location and area
covered by all building set-back lines, the location and
area of all easements encumbering and/or benefitting the
Premises, the relation of the Premises to public
thoroughfares and access thereto, the location of all
physical conditions (including existing structures or
foundations, utility lines, walks, drives, right-of-ways and
parking areas) on the Premises, the proposed location of the
Improvements (or the foundation thereof) and any
encroachments of the Improvements (or the foundation
thereof) or other physical conditions upon any easements,
building lines or property boundary lines. The survey shall
also state whether the Premises or any portion thereof is
located on a federally designated flood plain area or
wetland and shall also indicate the zoning classification of
the Premises. The survey must conform to and be prepared in
accordance with the Commitment and meet the "Minimum
Standard Detail Requirements for ALTA Land Title Surveys"
established and adopted by ALTA and the requirements of a
Class A Survey as defined therein. The legal description
set forth on the face of the approved survey will be used in
the Loan Documents.
The state of facts shown in the Preliminary Survey shall be
satisfactory in all respects to the Bank and its counsel, the
Construction Consultant and the Title Company. The Borrower
shall deliver to the Bank (i) a foundation survey of the
Improvements within thirty (30) days after the completion of the
foundation of the Improvements, (ii) an as-built survey of the
Improvements within thirty (30) days after the completion of
Improvements, and (iii) any additional surveys requested or
required by the Bank, the Construction Consultant or the Title
Company within thirty (30) days after request, it being agreed
that any change in the state of facts shown in any such updated
survey shall be satisfactory in all respects to the Bank, its
counsel, the Construction Consultant and the Title Company. The
Borrower shall also deliver to the Bank contemporaneously with
the delivery of each survey an affidavit from the surveyor that
set-backs are in conformity with current zoning restrictions.
9. Hazard Insurance. The Borrower shall furnish to the
Bank (with evidence of the payment of premiums therefor), or if
the Borrower shall fail to do so after the expiration of any
applicable notice and grace period, the Bank may obtain at the
Borrower's expense, insurance as required by the Mortgage. So
long as this Agreement shall be in force the policies of fire
insurance shall be in the so-called "All Risk Builders' Risk
Completed Value Non-Reporting Form," including collapse coverage
and, if warranted, evidence of flood, and earthquake coverage,
all as may be required by the Bank, and in amounts to be
determined by the Bank and construction Consultant, which amounts
shall in no event be less than 100% of the completed insurable
value of the Improvements and shall be sufficient to satisfy all
co-insurance requirements. Upon completion of construction of
the Improvements the insurance shall be converted to a standard
hazard insurance policy with extended coverage and otherwise
complying with the provisions of the Mortgage. If the Premises,
or any portion thereof, are located in a Federally designated
"special flood hazard area," a flood insurance policy shall be
delivered to the Bank. If no portion of the Premises is located
in a Federally designated "special flood hazard area" such fact
shall be substantiated by a certificate in form satisfactory to
the Bank from a licensed surveyor, appraiser or professional
engineer or other qualified person, party or entity.
10. Advances. Subject to compliance by the Borrower with
the terms, provisions and conditions of this Agreement and the
Loan Agreement, the Bank shall provide its written consent for
the Trustee to make advances of the Bond proceeds to the Borrower
subject to the Retainage, (i) for direct construction costs
incurred by the Borrower in connection with the construction of
the Improvements (hereinafter referred to as "Direct Construction
Costs"), as itemized in a trade breakdown schedule reviewed and
accepted by the Bank and the Construction Consultant (hereinafter
referred to as the "Trade Breakdown Schedule"), as the same may
be revised from time to time after the date hereof with the prior
review and acceptance of the Bank and the Construction
Consultant, and (ii) for costs, other than Direct Construction
Costs, incurred by the Borrower in connection with the Bonds or
the construction of the Improvements and permitted pursuant to
the Loan Agreement (hereinafter referred to as "Other Project
Costs"), as itemized in a schedule reviewed and accepted by the
Bank (hereinafter referred to as the "Schedule of Other Project
Costs"), as the same may be revised from time to time after the
date hereof with the prior review and acceptance of the Bank. If
there is a savings in a particular line item set forth in the
Trade Breakdown Schedule or in the Schedule of Other Project
Costs, and if such savings is substantiated by evidence
satisfactory to the Bank, the Borrower shall have the right, upon
prior approval of the Bank, to reallocate such savings to other
line items in the Trade Breakdown Schedule and the Schedule of
Other Project Costs with respect to which additional costs have
been incurred or to the Contingency Reserve (as hereinafter
defined), provided, however, that the Borrower shall in no event
or under any circumstance have the right to reallocate any
portion of the Contingency Reserve (as hereinafter defined)
without in each instance obtaining the prior approval of the
Bank, which approval may be withheld in the sole and absolute
discretion of the Bank, or to cause a reallocation to occur which
in the opinion of the Bank, its counsel or the Title Company will
adversely affect or impair in any manner whatsoever the lien or
priority of lien of the Mortgage. Except as hereinafter
specifically provided to the contrary in paragraph 11 of this
Agreement, the Bank shall not be required to consent to any
advances of the Bond proceeds for costs incurred by the Borrower
with respect to materials stored on or off the Premises unless
the Bank shall, in its sole discretion, deem it advisable to do
so. The Bank shall not be obligated to consent to advances of
Bond proceeds more frequently than once every thirty (30) days.
Each request by the Borrower to the Bank to consent to the
advance of Bond proceeds shall be in the form attached as
Exhibit D to the Loan Agreement, or in such other form as may be
satisfactory in all respects to the Bank and shall in each case
be signed by a duly authorized representative of the Borrower
(any such request being hereinafter referred to as a "Request for
Advance"). Each Request for Advance shall be delivered to the
Bank not less than ten (10) business days prior to the date upon
which an advance of Bond proceeds is requested. Each Request for
Advance shall be based upon the Trade Breakdown Schedule and the
Schedule of Other Project Costs and shall be accompanied by (i) a
currently dated sworn statement and request for partial payment
from the Construction Manager in the form specified in Exhibit D
or in such other form as may be acceptable to the Bank and the
Title Company, as approved by the Construction Manager, and
accompanied by a waiver of lien from the Construction Manager in
form satisfactory to the Bank and the Title Company, (ii) such
waivers of lien and other documents and instruments as may be
requested or required by the Bank with respect to subcontractors
and materialmen engaged in the construction of the Improvements
or as may be requested or required by the Title Company (to
induce the Title Company to insure each advance of the Bond
proceeds pursuant to this Agreement and the Loan Agreement
against all mechanics' and materialmen's liens for labor
furnished and materials supplied in connection with the
construction of the Improvements), (iii) at the request of the
Bank, the requisitions for payment from subcontractors and
materialmen engaged in the construction of the Improvements, and
(iv) such other information and documents as may be requested or
required by the Bank or the Construction Consultant. All
requests and requisitions for payment shall be approved by the
Borrower and the Construction Manager and recommended for payment
by the Construction Consultant. Each advance of the Bond
proceeds may be made through the Title Company acting as escrowee
pursuant to a Construction Escrow Agreement. The Bank shall not
be obligated to consent to any request for an advance of Bond
proceeds by the Trustee in excess of the amount, from time to
time, of Verified Project Costs, unless the Bank, in its sole and
absolute discretion, deems it advisable to do so. The Bank shall
not be obligated to authorize the Trustee to make an advance of
the Bond proceeds unless the Bank is satisfied, in its sole and
absolute discretion, that the conditions precedent to the making
of such advance as set forth in this Agreement and the Loan
Agreement, have been satisfied by the Borrower. Anything in this
Agreement or any other agreement made with respect to the Bonds
to the contrary notwithstanding, any advance of the Bond proceeds
or approval or acceptance given by the Bank or the Construction
Consultant, herein or therein, whether or not before or after a
site observation of the Improvements by the Construction
Consultant or otherwise, shall not be deemed to be an approval or
acceptance by the Bank or the Construction Consultant of any work
performed thereon or approval or acceptance by the Bank or the
Construction Consultant of any work or materials done or
furnished with respect thereto or a representation by the Bank or
the Construction Consultant as to fitness of such work and
materials.
11. Advances for Stored Materials. Notwithstanding
anything to the contrary contained in this Agreement and subject
to the terms of the Loan Agreement, the Bank may consent to
disbursements of the Bond proceeds to pay for Direct Construction
Costs actually incurred by the Borrower for stored materials
which are required in connection with the construction of the
Improvements, provided that (i) such materials are in accordance
with the Plans and Specifications approved by the Bank and the
Construction Consultant, (ii) such materials are securely stored,
properly inventoried, and clearly stenciled or otherwise marked
to indicate that they are the property of the Borrower,
(iii) such materials if they are stored off-site, are stored in a
bonded warehouse or with a contractor, materialman or fabricator
who bears the risk of loss until delivery and installation of
such materials in the construction of the Improvements as part of
the work in place, and who has supplied a bond securing such
contractor's, materialman's or fabricator's obligation to so
deliver and install such materials, which bond shall be issued by
a company, shall be in an amount and shall be in form and
substance satisfactory to the Bank and shall name the Bank as a
dual obligee, (iv) the bills of sale and contracts under which
such materials are being provided shall be in form and substance
satisfactory to the Bank and the Construction Consultant,
(v) such materials are insured against casualty, loss and theft
in a manner satisfactory to the Bank, (vi) the Borrower owns such
materials free and clear of all liens and encumbrances of any
nature whatsoever and establishes such ownership by evidence
satisfactory to the Bank, (vii) the Borrower executes and
delivers to the Bank such additional security documents as the
Bank shall deem necessary to create and perfect a first lien in
such materials as additional security for the payment of the
Debt, (viii) the aggregate amount of such disbursements for such
materials shall in no event at any time exceed the actual Direct
Construction Costs incurred by the Borrower for such materials as
verified by the Construction Consultant pursuant to the
provisions of this Agreement, (ix) the materials which are stored
off-site shall be limited to the materials listed on Exhibit E
hereto. The Bank shall in no event or under any circumstance
have any obligation to authorize the Trustee to make any advance
of the Bond proceeds for materials which are stored off-site
unless the Bank shall agree to the contrary in its sole and
absolute discretion.
12. Additional Conditions to Advances. The obligation of
the Bank to consent to advances of the Bond proceeds pursuant to
this Agreement is subject to the following additional conditions
precedent:
(a) The Borrower shall invest an amount equal to $0
(hereinafter referred to as the "Initial Equity
Requirement") in the Property in a manner satisfactory to
the Bank prior to any advance of Bond proceeds for Direct
Construction Costs, Other Project Costs or for any other
reason whatsoever. The investment of the Initial Equity
Requirement by the Borrower in the Property shall be
substantiated by evidence satisfactory to the Bank. The
entire Initial Equity Requirement shall remain invested in
the Property until such time as the Bonds, together with all
interest thereon and other sums due with respect thereto,
have been paid in full.
(b) Each Request for Advance shall be accompanied by a
certificate or report of the Construction Consultant to the
Bank in which the Construction Consultant shall in substance
(i) verify that the portion of the Improvements completed as
of the date of such site observation has been completed
substantially in accordance with the Plans and
Specifications, and (ii) state its estimate of (aa) the
percentage of construction of the Improvements completed as
of the date of such site observation on the basis of work in
place as part of the Improvements and the Trade Breakdown
Schedule, (bb) Direct Construction Costs actually incurred
for work in place as part of the Improvements as of the date
of such site observation, (cc) the sum necessary to complete
construction of the Improvements in accordance with the
Plans and Specifications, and (dd) the amount of time from
the date of such inspection which will be required to
complete construction of the Improvements in accordance with
the Plans and Specifications.
(c) Prior to each advance of the Bond proceeds, the
Title Company shall have issued (i) a written continuation
of title showing title to the Property to be vested in the
Borrower and no exceptions to the title of the Property
other than those exceptions previously approved by the Bank
in writing, and (ii) a written commitment to insure the
priority of the lien of the Mortgage, subject only to
exceptions previously approved by the Bank in writing, for
an amount equal to the full amount of each advance of the
Bonds. The title policy insuring the lien of mortgage shall
contain all endorsements required by the Bank. If required
by the Bank, such continuations of title shall contain
affirmative insurance that covenants and restrictions, if
any, reported against the Property have not been violated by
the Improvements.
(d) Prior to each advance of the Bond proceeds to the
Borrower pursuant to this Agreement, the Borrower shall,
upon request of the Bank, furnish the Bank with evidence
satisfactory to the Bank, showing payment of all bills and
charges for which advances of the Bond proceeds have been
previously made pursuant to this Agreement. The Borrower
shall also deliver to the Bank, upon request, such bills,
receipts, invoices and other evidence as may reasonably be
required by the Bank to substantiate the actual incurrence
by the Borrower of Direct Construction Costs and Other
Project Costs.
(e) The Borrower shall, if required by the Bank,
deliver to the Bank a written statement executed by the
Construction Manager certifying that the Construction
Manager has received payment in full of all monies owed to
the Construction Manager.
(f) The Borrower shall, if required by the Bank,
deliver to the Bank a written statement executed by each
subcontractor and materialman engaged in the construction of
the Improvements on behalf of the Construction Manager or
the Borrower certifying that each such subcontractor and
materialman has received payment in full of all monies owed
to each such subcontractor and materialman by the
Construction Manager or by the Borrower.
(g) Construction of the Improvements shall comply with
all applicable laws, rules, restrictions, orders and
regulations of the Governmental Authorities.
(h) The Borrower shall have delivered to the Bank all
necessary certificates, authorizations, permits and licenses
which are required to permit the construction and completion
of the Improvements, as issued by the appropriate
Governmental Authorities. The Borrower, to the full extent
permitted by applicable law, hereby assigns to the Bank as
additional security for the payment of the Debt and the
observance and performance by the Borrower of the terms,
covenants and provisions of the Bond Documents all right,
title and interest which the Borrower may now have or may
hereafter acquire in and to such certificates,
authorization, permits and licenses.
(i) The Borrower shall make available to the
Construction Consultant, upon request, all shop and related
drawings used in connection with the Plans and
Specifications and the construction of the Improvements at
the office and location where the same are kept.
(j) The Bank and the Construction Consultant shall be
of the opinion that the Improvements can be completed by the
Completion Date, as the same may be extended pursuant to
paragraph 7 of this Agreement.
(k) If the Advance includes funds for the purchase of
equipment, the Borrower shall have delivered UCC financing
statements or assignment statements in form satisfactory to
the Bank, perfecting the Bank's security interest in such
equipment, wherever located.
(l) The Borrower shall have delivered to the Bank and
the Construction Consultant a copy of the General
Construction Contract, which General Construction Contract
shall be either a guaranteed maximum price contract or a
fixed price contract and shall otherwise be in form and
substance satisfactory in all respects to the Bank, together
with evidence satisfactory to the Bank that the Construction
Manager maintains professional liability insurance in an
amount not less than $500,000. The Borrower hereby assigns
to the Bank as additional security for the payment of the
Debt and the observance and performance by the Borrower of
the terms, covenants and provisions of the Bond Documents to
which the Borrower is a party all right, title and interest
which the Borrower may now have or may hereafter acquire in
and to the General Construction Contract. Except as may
otherwise be permitted by paragraph 4 of this Agreement, the
Borrower shall not agree to any modification or to any
termination of the General Construction Contract without the
prior approval of the Bank. The Borrower shall furnish the
Bank with such information regarding the Construction
Manager as the Bank may request and the identity of the
Construction Manager shall be subject to approval by the
Bank.
(m) The Borrower shall (to the extent required by the
Bank) have delivered to the Bank and the Construction
Consultant copies of all the Major Subcontracts now or
hereafter entered into, each of which Major Subcontracts
shall be in form and substance satisfactory in all respects
to the Bank. The Borrower hereby assigns to the Bank as
additional security for the payment of the Debt and the
observance and performance by the Borrower of the terms,
covenants and provisions of the Loan Documents all right,
title and interest which the Borrower may now have or may
hereafter acquire in and to the Major Subcontracts. Except
as may otherwise be permitted by paragraph 4 of this
Agreement, the Borrower shall not agree to any modification
or to any termination of any Major Subcontract without the
prior approval of the Bank.
(n) The Borrower shall (to the extent required by the
Bank) make available for inspection at all times by the
Construction Consultant and the Bank copies of all Other
Subcontracts, and shall furnish to the Construction
Consultant and the Bank, upon request, copies of the same.
The Borrower hereby assigns to the Bank as additional
security for the payment of the Debt and the observance and
performance by the Borrower of the terms, covenants and
provisions of the Bond Documents to which the Borrower is a
party all right, title and interest which the Borrower may
now have or may hereafter acquire in and to the Other
Subcontracts. Except as may otherwise be permitted by
paragraph 4 of this Agreement, the Borrower shall not agree
to any modification or to any termination of the Other
Subcontracts without the prior approval of the Bank.
(o) The Major Subcontracts and the Other Subcontracts,
to the extent not already awarded as of the date hereof,
shall be awarded in accordance with a time table acceptable
to the Bank and the Construction Consultant. The Borrower
shall cause the Construction Manager and, to the extent
required by the Bank, any architect hired by the
Construction Manager, the subcontractors and materialmen
under the Major Subcontracts to respectively execute and
deliver to the Bank, contemporaneously with the execution
and delivery of their respective contracts, letter
agreements pursuant to the provisions of which the
Construction Manager, any such architect and such
subcontractors and materialmen shall agree to perform their
respective contracts at no additional cost or expense for
the benefit of the Bank, its nominee, or wholly-owned
subsidiary, in the event of a default under the
Reimbursement Agreement or any of the other Bond Documents
or a foreclosure of the Mortgage, which letter agreements
shall be in form and substance satisfactory to the Bank.
(p) The Borrower shall cause the Construction Manager
and those subcontractors and materialmen under the Major
Subcontracts designated by the Bank to provide 100% payment
and performance bonds, which payment and performance bonds
shall be in amount, form and substance and issued by
companies satisfactory to the Bank, and shall name the Bank,
as a dual obligee.
(q) The Borrower shall observe and perform all of the
terms, covenants and conditions of the General Construction
Contract, the Major Subcontracts and the Other Subcontracts
on the Borrower's part to be observed or performed.
(r) The Bank shall not be obligated to authorize the
Trustee to make an advance of the Bond proceeds with respect
to any contractor, subcontractor or materialman providing
work or materials with respect to the Improvements unless
such subcontractor or materialman is providing such work or
materials under a signed contract or purchase order.
(s) All of the terms, conditions and provisions of the
Bond Documents insofar as they pertain to the obligation of
the Bank to authorize the Trustee to make any advance of the
Bond proceeds shall have been complied with to the
satisfaction of the Bank and its counsel.
All conditions and requirements of this Agreement relating to the
obligation of the Bank to authorize the Trustee to make advances
of the Bond proceeds are for the sole benefit of the Bank and no
other person or party (including, without limitation, the
Construction Manager and subcontractors and materialmen engaged
in the construction of the Improvements) shall have the right to
rely on the satisfaction of such conditions and requirements by
the Borrower as a condition precedent to the Bank authorize the
Trustee making an advance of the Bond proceeds. The Bank shall
have the right, in its sole and absolute discretion, to waive any
such condition or requirement as a condition precedent to
authorize the Trustee making an advance of the Bond proceeds.
13. Contingency Reserve. A portion of the Bond proceeds in
the amount of $750,000 (hereinafter referred to as the
"Contingency Reserve") shall be reserved to cover the payment of
contingencies incurred in connection with the construction of the
Improvements (including, without limitation, the payment of
additional unanticipated costs incurred with respect to
particular line items set forth in the Trade Breakdown Schedule
and the Schedule of Other Project Costs and additional costs
incurred in connection with change orders entered into in
conformity with the provisions of this Agreement), and shall not
be advanced for any other purpose prior to the completion of
construction of the Improvements pursuant to this Agreement
unless agreed to the contrary by the Bank in its sole and
absolute discretion. All advances from the Contingency Reserve
shall be subject to specific prior review and approval in all
respects by the Bank.
14. Deficiency. The Bank shall not be obligated to
authorize the Trustee to make any advance of the Bond proceeds
if, in the sole opinion of the Bank, the balance of the Bond
proceeds yet to be advanced pursuant to this Agreement and the
Loan Agreement is at any time less (the amount by which it is
less being hereinafter referred to as the "Deficiency") than the
actual sum, as estimated by the Bank, which will be required
(x) to complete the construction of the Improvements in
accordance with the Plans and Specifications and this Agreement
and to pay all Direct Construction Costs, Other Project Costs and
all other costs and expenses of any nature whatsoever which will
be incurred in connection with the completion of construction of
the Improvements, and (y) to cover the payment of all operating
deficits of the Property (inclusive of debt service in connection
with the Bonds) through the date upon which the Bank reasonably
anticipates that the actual gross cash flow of the Property will
be sufficient to cover all operating expenses of the Property,
inclusive of debt service in connection with the Bonds. The
Borrower shall invest the Deficiency in the Property in the
following manner:
The Borrower shall, within fifteen (15) days after being
notified by the Bank that there is or will be a Deficiency,
either (i) invest in the Improvements in a manner satisfactory to
the Bank an amount equal to the Deficiency and deliver to the
Bank evidence satisfactory to the Bank of such investment, which
investment shall remain invested in the Improvements until the
Debt has been paid in full, or (ii) deposit with the Trustee an
amount sufficient to eliminate the Deficiency. Any amounts
deposited by the Borrower with the Trustee pursuant to
clause (ii) of the preceding sentence of this paragraph to cover
a Deficiency shall be disbursed by the Trustee to the Borrower in
accordance with the terms of the Indenture and this Agreement and
shall be applied by the Borrower to cover the payment of Direct
Construction Costs and Other Project Costs incurred in connection
with the construction of the Improvements, and until so disbursed
shall be held by the Trustee in the Acquisition and Construction
Fund. If an Event of Default (as hereinafter defined) shall
occur and be continuing, the Bank, in addition to all other
rights which it may have, (i) shall have the absolute and
unconditional right in its discretion to direct the Trustee to
apply the undisbursed balance of any Deficiency deposit, together
with interest earned thereon, in whole or in part to the payment
of the Debt in such order, priority and proportion as the Bank in
its sole and absolute discretion deems to be appropriate.
15. Specific Additional Covenants of Borrower. The
Borrower shall comply with each of the following terms and
conditions:
(a) The Borrower shall obtain and furnish to the Bank
within thirty (30) days after the completion of the
Improvements the originals or copies of all temporary
permanent certificates of occupancy (or their local
equivalent) and all other certificates, licenses, consents
and other approvals of the Governmental Authorities which
are required for the use and occupancy of the Improvements.
In no event shall the last advance of the Bond proceeds be
made pursuant to this Agreement and the Loan Agreement until
all such certificates, licenses, consents and approvals have
been obtained and delivered to the Bank. If temporary
certificates of occupancy are issued, the Borrower will
diligently take all steps necessary to obtain permanent
certificates of occupancy within a period not exceeding six
(6) months after the date of issuance of the temporary
certificates of occupancy, and shall upon receipt thereof
deliver to the Bank the originals or copies thereof.
(b) The Borrower shall furnish to the Bank from time
to time upon request (i) current financial statements of the
Borrower, (ii) information as to the Borrower's financial
condition, (iii) the names of all persons with whom the
Borrower or the Construction Manager has contracted or
intends to contract for the construction of the Improvements
or the furnishing of labor or materials in connection
therewith, (iv) a list of all unpaid bills for labor and
materials with respect to construction of the Improvements,
(v) budgets of the Borrower and revisions thereof showing
estimated Direct Construction Costs and Other Project Costs
and other costs and expenses to be incurred in connection
with the completion of construction of the Improvements,
(vi) lien waivers, receipted bills or other evidences of
payment of all Direct Construction Costs, Other Project
Costs and other costs and expenses incurred in connection
with the construction of the Improvements and any other
costs and expenses relating to the Property, and (vii) such
other information relating to the Borrower, the Property,
any guarantor or indemnitor or other person or party
connected with the Borrower, the Bonds, the construction of
the Improvements or any collateral for the Loan or other
source of repayment of the Bonds, as the Bank may reasonably
request.
(c) The Borrower shall proceed immediately if the
Improvements are partially or totally damaged or destroyed
by fire or other casualty with the repair and restoration
thereof and shall diligently prosecute the work of repair
and restoration to completion, it being agreed that (i) if
such casualty is covered by fire or other casualty
insurance, the Borrower's obligation to proceed with such
repair and restoration shall be contingent upon the Bank
authorizing the Trustee to disburse to the Borrower the
proceeds of such insurance to pay the cost of such repair
and restoration, and (ii) the cost of such repair and
restoration shall in no event or under any circumstance be
made the basis of any advance of the Bond proceeds.
(d) The Borrower shall pay when due all Direct
Construction Costs, Other Project Costs and other costs and
expenses incurred by the Borrower in connection with the
construction of the Improvements or any repair and
restoration of the Improvements pursuant to the provisions
of this paragraph hereinabove set forth.
(e) The Borrower shall pay all fees and charges
incurred in connection with this Agreement, including,
without limitation, reasonable attorneys' fees incurred by
the Bank, fees of the Construction Consultant, appraisal and
environmental fees, and fees and expenses relating to
examination of title, title insurance premiums, surveys, and
mortgage recording, documentary, transfer or other similar
taxes and revenue stamps.
(f) The Bank shall not be required to pay any
brokerage fees or commissions arising in connection with
this Agreement and the Borrower agrees to defend, indemnify
and hold the Bank harmless from and against any and all such
claims in connection therewith.
(g) The Borrower shall not assign this Agreement or
the moneys to be advanced and disbursed hereunder or convey,
assign, pledge, encumber or mortgage (except for the
Mortgage) any part of the Property without the prior consent
of the Bank.
16. Events of Default. The term "Event of Default" as used
in this Agreement shall mean the occurrence of any one or more of
the following events:
(a) If the Borrower shall continue to be in default
under any of the provisions of this Agreement for five (5)
days after notice from the Bank in the case of any default
which can be cured by the payment of a sum of money, or for
twenty (20) days after notice from the Bank in the case of
any other default, provided that if such default cannot
reasonably be cured within such twenty (20) day period and
the Borrower shall have commenced to cure such default
within such twenty (20) day period and thereafter diligently
and expeditiously proceeds to cure the same, such twenty
(20) day period shall be extended for so long as it shall
require the Borrower in the exercise of due diligence to
cure such default, it being agreed that no such extension
shall be for a period in excess of sixty (60) days, or shall
be construed as having the effect of extending the
Completion Date;
(b) If a default shall occur and be continuing beyond
any applicable grace and cure period under the Mortgage, the
Reimbursement Agreement or any of the other Bond Documents;
(c) If any survey required or requested by the Bank
pursuant to the provisions of this Agreement shows any
condition not approved by the Bank, and such condition is
not removed within thirty (30) days after notice thereof by
the Bank to the Borrower;
(d) If the Improvements are not completed in
accordance with the provisions of this Agreement on or
before the Completion Date, as the same may be extended
pursuant to paragraph 7 of this Agreement;
(e) If construction of the Improvements is suspended
for a period of three (3) consecutive business days other
than by reason of the occurrence of an event of force
majeure, or if construction of the Improvements in the
judgment of the Bank or the Construction Consultant is not
carried on with reasonable diligence, or if the Bank or the
Construction Consultant is of the opinion that the
Improvements cannot be completed by the Completion Date, as
the same may be extended pursuant to paragraph 7 of this
Agreement;
(f) If the Borrower shall fail to cover any Deficiency
in the manner and within the time period specified in
paragraph 14 of this Agreement;
(g) If the Borrower executes any chattel mortgage or
other security agreement with respect to any materials,
equipment, furniture or fixtures used in the construction of
the Improvements or the operation of the Improvements or
with respect to any articles of personal property
constituting part of the Property, or if any such materials,
equipment, furniture, fixtures or articles of personal
property are not substantially in accordance with the Plans
and Specifications or are leased or purchased pursuant to
any conditional sales contract or other security agreement
or otherwise so that the ownership thereof will not vest
unconditionally in the Borrower free from encumbrances upon
being made a part of the Property, or if the Borrower does
not furnish to the Bank on request the contracts, bills of
sale, statements, receipted vouchers or other agreements,
under which the Borrower claims title to such materials,
equipment, furniture, fixtures or articles of personal
property; or
(h) If the Borrower shall be in default under the
Revolving Credit Agreement between the Borrower and the Bank
dated December 22, 1992, as amended from time to time.
Upon the occurrence of an Event of Default, the Bank (i) may, at
its option and in its sole and absolute discretion, declare the
Debt immediately due and payable, and (ii) may, at its option and
in its sole and absolute discretion, cease to authorize the
Trustee to make advances of the Bond proceeds, and (iii) may
pursue any and all remedies provided for in the Bond Documents,
or otherwise available.
17. Other Remedies. Upon the occurrence of an Event of
Default, whether or not the Debt shall be or shall have been
declared due and payable or the Bank shall have instituted any
foreclosure or other action for the enforcement of the Mortgage,
the Bank may, in addition to any other remedies which the Bank
may have under the Loan Documents and in the Bank's sole and
absolute discretion, (a) enter upon the Premises and complete the
Improvements in accordance with the Plans and Specification with
such changes therein as the Bank may deem appropriate and employ
watchmen to protect the Improvements, all at the risk, cost and
expense of the Borrower, (b) at any time discontinue any work
commenced in respect of the Improvements or change any course of
action undertaken by it and not bound by any limitations or
requirements of time whether set forth herein or otherwise,
(c) assume any construction contract made by the Borrower in any
way relating to the Improvements and take over and use all or any
part of the labor, materials, equipment, furniture, fixtures and
articles of personal property contracted for by the Borrower,
whether or not previously incorporated into the Improvements, and
(d) in connection with any construction of the Improvements
undertaken by the Bank pursuant to the provisions of this
paragraph (w) engage builders, contractors, architects, engineers
and others for the purpose of furnishing labor, materials,
equipment, furniture, fixtures and articles of personal property
in connection with the construction of the Improvements, (x) pay,
settle or compromise all bills or claims which may become liens
against the Property, or any portion thereof, or which have been
or may be incurred in any manner in connection with completing
construction of the Improvements, and irrespective of whether any
of the same have been incurred by the Borrower, the Bank or any
other person or party, (y) pay all sums and take all action
necessary to effect the discharge of liens or encumbrances on, or
to effect the cure of defects in, the title of the Property, or
any portion thereof, and irrespective of whether any of the same
have been caused by any act or omission of the Borrower, the Bank
or any other person or party, and (z) take or refrain from taking
such action hereunder as the Bank may from time to time determine
in its sole discretion. The Borrower shall be liable to the Bank
for all sums paid or incurred by the Bank to construct and equip
the Improvements whether the same shall be paid or incurred
pursuant to the provisions of this paragraph or otherwise, and
all payments made or liabilities incurred by the Bank hereunder
of any kind whatsoever shall be paid by the Borrower to the Bank
upon demand, with interest thereon (calculated for the actual
number of days elapsed on the basis of a 360 day year) at a rate
per annum equal to the greater on a daily basis of (i) 20%, or
(ii) 5% plus the Prime Rate, provided that such interest rate
shall in no event exceed the maximum interest rate which the
Borrower may by law pay, from the date of payment by the Bank to
the date of payment to the Bank, which sums and interest shall be
secured by the Mortgage. For the purpose of exercising the
rights granted by this paragraph, the Borrower hereby irrevocably
constitutes and appoints the Bank its true and lawful
attorney-in-fact to execute, acknowledge and deliver any
instruments and to do and perform any acts in the name and on
behalf of the Borrower.
18. Incorporation of Provisions. The Mortgage is subject
to the conditions, stipulations, agreements and covenants
contained in this Agreement to the same extent and effect as if
fully set forth therein until this Agreement is terminated by the
completion of the Improvements and the payment in full of the
Debt.
19. Further Assurances. The Borrower shall on demand of
the Bank do any act or execute any additional documents required
by the Bank to confirm the lien of the Mortgage.
20. Representations and Warranties. The Borrower
represents and warrants to the Bank as follows:
(a) The Improvements and their contemplated use will
upon completion in accordance with the Plans and
Specifications comply with all applicable zoning
resolutions, building codes, environmental and other
applicable laws, rules and regulations.
(b) The Improvements are not now damaged or injured as
a result of any fire, explosion, accident, flood or other
casualty.
(c) No condemnation or eminent domain proceeding has
been commenced or to the knowledge of the Borrower is about
to be commenced against the Property, or any portion
thereof.
(d) The Borrower has no knowledge of any notes or
notices of violation of Federal law or municipal ordinances
or orders or requirements of the state in which the Property
is located or any municipal department or other Governmental
Authority.
(e) The Borrower is duly qualified to do business in
the State in which the Property is located.
(f) The Borrower (and the undersigned representatives
of the Borrower) have the full power and authority to
execute and deliver this Agreement and the other Bond
Documents, and the same constitute the binding and
enforceable obligations of the Borrower in accordance with
their terms.
21. Construction of Agreement. The titles and headings of
the paragraphs of this Agreement have been inserted for
convenience of reference only and are not intended to summarize
or otherwise describe the subject matter of such paragraphs and
shall not be given any consideration in the construction of this
Agreement.
22. Trust Fund. The Borrower shall receive the advances of
the Bond proceeds and shall hold the right to receive such
advances of the Bond proceeds as a trust fund to be applied first
for the purpose of paying the cost of the Improvements, and the
Borrower shall apply the same first to the payment of the cost of
the Improvements before using any part of the total of the same
for any other purpose.
23. Parties Bound, etc. The provisions of this Agreement
shall be binding upon and inure to the benefit of the Borrower,
the Bank and their respective successors and assigns (except as
otherwise prohibited by this Agreement).
24. Waivers. The Bank may at any time and from time to
time waive any one or more of the conditions contained herein,
but any such waiver shall be deemed to be made in pursuance
hereof and not in modification thereof, and any such waiver in
any instance or under any particular circumstance shall not be
effective unless in writing and shall not be considered a waiver
of such condition in any other instance or any other
circumstance.
25. Governing Law. This Agreement is and shall be deemed
to be a contract entered into pursuant to the laws of the State
of New York and shall in all respects be governed, construed,
applied and enforced in accordance with the laws of the State of
New York.
26. Severability. If any term, covenant or provision of
this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, this Agreement shall be construed
without such term, covenant or provision.
27. Notices. Any notice, request, demand, statement,
authorization, approval, consent or acceptance made hereunder
shall be in writing and shall be hand delivered or sent by
Federal Express or other reputable courier service, or by
registered or certified mail, return receipt requested, and shall
be deemed given (i) when received at the following addresses if
hand delivered or sent by Federal Express, or other reputable
courier service, and (ii) three (3) business days after being
postmarked and addressed as follows if sent by registered or
certified mail, return receipt requested:
If to the Bank:
The Chase Manhattan Bank
2300 Main Place Tower
Buffalo, New York 14202-3723
Attn: Alan E. Boyce
Vice President
With a copy to:
The Chase Manhattan Bank
Legal Department
270 Park Avenue - 40th Floor
New York, New York 10017
Attn: Robert B. Lynch, Vice President
and Assistant General Counsel
If to the Borrower:
Exolon-ESK Company
1000 East Niagara Street
Tonawanda, New York 14150
Attn: Michael H. Bieger
Vice President and
Chief Financial Officer
Each party may designate a change of address by notice to the
other party, given at least fifteen (15) days before such change
of address is to become effective.
28. Fees and Expenses. The Borrower shall pay to the Bank,
upon demand, all expenses incurred by the Bank in connection with
the collection of the Debt after an Event of Default, the
enforcement of the Bond Documents, and in curing any defaults
under the Bond Documents (including, without limitation,
reasonable attorneys' fees), with interest thereon (calculated
for the actual number of days elapsed on the basis of a 360-day
year) at a rate per annum equal to the Bank's Prime Rate plus 5%,
provided that such interest rate shall in no event exceed the
maximum interest rate which the Borrower may by law pay, from the
date incurred by the Bank to the date of repayment to the Bank,
which sums and interest shall be secured by the Mortgage.
29. Sign. At the request of the Bank, the Borrower shall,
subject to applicable ordinances pertaining to the Property,
place a sign on the Premises reciting, among other things, the
source of construction financing for the Improvements, which sign
shall be provided at the expense of the Borrower and shall remain
in place until the completion of construction of the
Improvements.
30. Modification. This Agreement may not be modified,
amended or terminated, except by an agreement in writing executed
by the parties hereto. The Borrower acknowledges that this
Agreement and the other Bond Documents set forth the entire
agreement and understanding of the Bank and the Borrower with
respect to the Bonds and that no oral or other agreements,
understandings, representations or warranties exist with respect
to the Loan other than those set forth in this Agreement and the
other Bond Documents.
31. Termination of Advances. Notwithstanding anything to
the contrary contained in this Agreement, the Bank shall have no
further obligation to authorize the Trustee to make any
additional advances of the Bond proceeds as of the date upon
which the Improvements have been completed in accordance with the
provisions of this Agreement and all Direct Construction Costs,
Other Project Costs and other costs and expenses incurred in
connection therewith have been paid in full and the actual net
cash operating income of the Property after the payment of all
operating expenses of the Property (exclusive of debt service in
connection with the Bonds) for a period of three (3) consecutive
calendar months and as determined on the basis of sound cash
accounting practices consistently applied is equal to or in
excess of the debt service in connection with the Bonds for such
period of three (3) consecutive calendar months.
IN WITNESS WHEREOF, the Bank and the Borrower have duly
executed this Agreement the day and year first above written.
EXOLON-ESK COMPANY
By: Michael H. Bieger,
Vice President and
Chief Financial Officer
THE CHASE MANHATTAN BANK
By: Alan E. Boyce
Vice President
STATE OF ILLINOIS )
) ss.:
COUNTY OF COOK )
On the 1st day of December, 1996, before me personally came
Michael H. Bieger, to me known, who, being by me duly sworn, did
depose and say that he resides at Clarence, New York;
that he is Vice President and Chief Financial Officer of
EXOLON-ESK COMPANY, the corporation described in and which
executed the above instrument; and that he signed his name
thereto by authority of the Board of Directors of said
corporation.
Nancy E. Gates
Notary Public
STATE OF ILLINOIS )
) ss.:
COUNTY OF COOK )
On the 1st day of December, 1996, before me personally came
Alan E. Boyce, to me known, who, being by me duly sworn, did
depose and say that he resides at Hamburg, New York;
that he is Vice President of THE CHASE MANHATTAN BANK, the
corporation described in and which executed the above instrument;
and that he signed his name thereto by authority of the Board of
Directors of said corporation.
Deborah Doxey
Notary Public
EXHIBIT A
(Description of the Premises)
-A1-
EXHIBIT B
(Definition of Certain Terms)
Commencement Date: The term "Commencement Date" as used in this
Agreement shall mean December 1, 1996.
Completion Date: The term "Completion Date" as used in this
Agreement shall mean June 30, 1998.
Construction Consultant: The term "Construction Consultant" as
used in this Agreement shall mean Sachs Electric.
Construction Escrow Agreement: The term "Construction Escrow
Agreement" as used in this Agreement shall mean the agreement
established among the Title Company, the Bank, the Construction
Manager, and Borrower for the disbursement of advances of Bond
proceeds and administration of the Bonds. The establishment of
the Construction Escrow Agreement may be a condition precedent to
the initial advance of Bond proceeds.
Construction Manager: The term "Construction Manager" as used in
this Agreement shall mean Sachs Electrical Company, having an
office at 16300 Justus Post Road, Chesterfield Village, Missouri.
Debt: The term "Debt" as used in this Agreement shall mean all
principal, interest, additional interest and other sums of any
nature whatsoever which shall or may become due and payable to
the Bank pursuant to the provisions of the Reimbursement
Agreement.
Construction Contract: The term "Construction Contract" or
"General Construction Contract" as used in this Agreement shall
mean a certain Contract dated December 9, 1996, entered into
between the Borrower and the Construction Manager.
Governmental Authorities: The term "Governmental Authorities" as
used in this Agreement shall mean all governmental authorities
having jurisdiction over the Property.
Improvements: The term "Improvements" as used in this Agreement
shall mean the improvements to be constructed with a portion of
the Bond proceeds, more particularly described in the Loan
Agreement.
Documents: The term "Bond Documents" as used in this Agreement
shall collectively mean the "Bond Documents" as defined in the
Reimbursement Agreement.
Major Subcontracts: The term "Major Subcontracts" as used in
this Agreement shall mean any contract or contracts entered into
with any architect, single subcontractor or materialman employed
by the Construction Manager or the Borrower in connection with
-B1-
the construction of the Improvements and providing for aggregate
payments to such architect, subcontractor or materialman equal to
or in excess of $100,000.00.
Mortgage: The term "Mortgage" as used in this Agreement shall
mean a certain Mortgage dated the date hereof in the principal
sum of $13,000,000 executed and delivered by the Borrower
constituting a first lien on the fee estate of the Borrower in
Property and intended to be duly recorded in Putnam County,
Illinois.
Other Subcontracts: The term "Other Subcontracts" as used in
this Agreement shall mean any contracts other than Major
Subcontracts entered into by the Construction Manager or the
Borrower with architects, subcontractors or materialmen in
connection with the construction of the Improvements.
Preliminary Survey: The term "Preliminary Survey" as used in
this Agreement shall mean, collectively, December 3, 1996
prepared by J. William Shafer of Shafer Engineering.
Prime Rate: The term "Prime Rate" as used in this Agreement
shall mean such rate of interest as is publicly announced by the
Bank at its principal office from time to time as its prime rate.
Any change in the Prime Rate shall be effective on the date such
change is announced by the Bank.
Reimbursement Agreement: The term "Reimbursement Agreement" as
used in this Agreement shall mean the Letter of Credit
Reimbursement Agreement between the Borrower and the Bank dated
as of December 1, 1996, as the same may be amended or
supplemented from time to time.
Retainage: The term "Retainage" as used in this Agreement shall
mean an amount equal to 10% of the aggregate Direct Construction
Costs actually incurred by the Borrower for work in place as part
of the construction of the Improvements, as verified from time to
time by the Construction Consultant pursuant to the provisions of
this Agreement. The Retainage shall in no event be less than the
amount actually held back by the Borrower from the Construction
Manager and all subcontractors and materialmen engaged in the
construction of the Improvements. The Retainage shall not be
released until the construction of the Improvements has been
completed in accordance with the Plans and Specifications
accepted by the Bank and the Construction Consultant and the
provisions of this Agreement.
Title Company: The term "Title Company" as used in this
Agreement shall mean Chicago Title Insurance Company.
Verified Project Costs: The term "Verified Project Costs" as
used in this Agreement shall mean the aggregate, from time to
time, of (a) Other Project Costs actually incurred by the
Borrower in connection with the construction of the Improvements
and as substantiated by evidence reasonably satisfactory to the
-B2-
Bank, and (b) Direct Construction Costs actually incurred by the
Borrower for work in place as part of the construction of the
Improvements, as verified by the Construction Consultant, from
time to time, pursuant to the provisions of this Agreement, minus
a sum equal to the aggregate of (i) the Initial Equity
Requirement which is required to have been invested in the
Property pursuant to this Agreement, (ii) the aggregate portion
of the Deficiency, if any, which is required to have been
invested in the Property from time to time pursuant to this
Agreement, and (iii) the aggregate Retainage from time to time.
-B3-
EXHIBIT C
(Description of Plans and Specifications)
The term "Plans and Specifications" shall
include any and all blueprints, designs and
drawings done by Sachs Electric Company,
Westfield Engineering & Services, Inc. and
Dow Chemical in connection with the
construction and installation of a Dow
Sulferox Desulpherization System to control
the Particulate and SO2 emissions at the
Exolon-ESK Company facility in Hennepin,
Illinois.
-C1-
EXHIBIT D
(Direct Construction Cost Breakdown
and Request for Partial Payment)
The term "Direct Construction Cost Breakdown and Request for
Partial Payment" as used in this Agreement shall mean the
Application and Certificate for Payment (AIA Document G 6702 and
AIA Document G 6703 or their equivalent), with such changes
therein as the Bank or the Construction Consultant may reasonably
request, or such other form of Direct Construction Cost Breakdown
and Request for Partial Payment as may be reasonably acceptable
to the Bank and the Construction Consultant.
-D1-
Exhibit 11
Exolon-ESK Company and Subsidiaries
Computation of Earnings Per Share
(In Thousands, Except Per Share Data)
Years Ended
December 31,
1996 1995 1994
Net Income $6,080 $3,462 $1,516
Less Preferred Stock Dividends:
Series A (16) (22) (22)
Series B (16) (22) (22)
Undistributed income $6,048 $3,418 $1,472
Net income attributable to:
Common Stock (50.0%) $3,024 $1,709 $736
Class A Common Stock (50.0%) $3,024 $1,709 $736
$6,048 $3,418 $1,472
Net earnings per share of Common
Stock: $6.27 $3.55 $1.53
Primary
Fully Diluted $6.05 $3.44 $1.50
Net earnings per share of Class A
Common Stock:
Primary $5.90 $3.33 $1.44
Fully Diluted $5.70 $3.24 $1.42
Weighted Average Shares Outstanding:
Primary:
Common Stock 482,000 482,000 482,000
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
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 AS Kingdom of 100%
Norway
Exolon-ESK International Sales U.S. Virgin 100%
Corp. Islands
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 275
<SECURITIES> 0
<RECEIVABLES> 9061
<ALLOWANCES> 502
<INVENTORY> 18439
<CURRENT-ASSETS> 28301
<PP&E> 61157
<DEPRECIATION> 42772
<TOTAL-ASSETS> 61483
<CURRENT-LIABILITIES> 8818
<BONDS> 21000
0
442
<COMMON> 1026
<OTHER-SE> 26790
<TOTAL-LIABILITY-AND-EQUITY> 61483
<SALES> 77459
<TOTAL-REVENUES> 77459
<CGS> 59620
<TOTAL-COSTS> 2826
<OTHER-EXPENSES> 4652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1136
<INCOME-PRETAX> 9225
<INCOME-TAX> 3145
<INCOME-CONTINUING> 6080
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6080
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