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, 1997
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
Title of each class exchange on which
registered
Common stock $1 par Boston Stock
value Exchange
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ( )
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
At February 4, 1998 the aggregate market value of the publicly traded
voting stock held by nonaffiliates of the Registrant was $2,681,708
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 4, 1998, the Registrant had outstanding 481,995 shares
of $1 par value Common Stock.
Documents Incorporated by Reference
None.
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 which was set to expire
on December 31, 1997. In July 1997, Kempten and the Company
entered into a new two-year distributorship and sales
representation agreement for silicon carbide products for the years
1998 and 1999. 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, 1997, the Company had 277
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, 1997 and 1996. 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, 1997, the Company had a
consolidated backlog of $5,792,000 as compared to $3,686,000 a year
earlier. The increase in the Company backlog in 1997 is primarily
a result of the increase in foreign sales orders and recording
blanket orders for 1998. All of this backlog is expected to be
shipped in 1998.
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.
Reference is made to Note 13 of the Notes to Consolidated
Financial Statements beginning on page 32, which is incorporated
herein by reference.
Management believes all necessary pollution control equipment
at the Company's plants in Tonawanda, New York and Thorold, Ontario
are in place, and all current pollution control requirements are
being met at both plants.
(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 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
Reference is made to the information included in Note 13 to
the Consolidated Financial Statements, which is incorporated herein
by reference.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters
The Company's Common Stock is traded on the Boston Stock
Exchange. The quarterly Common Stock price ranges are as follows:
Price Range of Common Stock Boston Stock
Exchange
Quarter
1 2 3 4
High-Low $29 - $26 $31 - $27 $31 -$29 1/2 $37 - $32
1997
High-Low $22 - $17 $25 3/4-$17 7/8 $25 3/4 -$20 1/4 $32 - $26
1996
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 26, respectively.
The number of active stockholder accounts of record of the
Company's Common Stock, $1 par value, was 168 as of February 4,
1998. The Company did not pay any dividends on its Common Stock in
1997 or 1996.
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, 1997 appears on pages 6 and 7.
Selected Financial Information Years Ended December 31,
1997 1996 1995 1994 1993
(thousands of dollars except share amounts)
Statement of Operations:
Net Sales 78,096 77,459 68,592 59,494 58,225 $
Gross profit before depreciation 17,286 17,839 15,380 12,863 12,365
Operating Income 9,355 9,358 7,527 3,186 3,623
Income before Cumulative Effective of
Accounting Change 5,254 6,080 3,964 1,516 1,206
Cumulative Effect of Accounting Change
- Net of Income Tax Benefit - - (502) - (1,173)
Net Income $5,254 $6,080 $3,462 $1,516 $ 33
Basic Earnings (Loss) per share of
Common Stock:
Income before Cumulative Effect
of Accounting Change $ 5.41 $ 6.27 $ 4.06 $1.53 $1.21
Cumulative Effect of Accounting
Change - Net of Tax Benefit - - $(0.52) - $(1.22)
Net Income (Loss) per share $ 5.41 $ 6.27 $ 3.54 $1.53 $(0.01)
Basic Earnings (Loss) per share of
Class A Common Stock:
Income before Cumulative Effect of
Accounting Change $ 5.08 $ 5.90 $ 3.81 $1.44 $1.14
Cumulative Effect of Accounting
Change - Net of Tax Benefit - - $(0.49) - $(1.15)
Net Income (Loss) per share $ 5.08 $ 5.90 $ 3.32 $1.44 $(0.01)
Selected Financial Information - Years Ended December 31,
Continued
1997 1996 1995 1994 1993
(thousands of dollars except
share amounts)
Diluted Earnings per share of
Common Stock:
Income before Cumulative Effect
of Accounting Change $ 5.21 $ 6.03 $ 3.93 $1.50 $1.20
Cumulative Effect of Accounting
Change - Net of Tax Benefit - - $(0.49) - $(1.17)
Net Income per share $ 5.21 $ 6.03 $ 3.44 $1.50 $0.03
Diluted Earnings per share of Class A
Common Stock:
Income before Cumulative
Effect of Accounting Change $ 4.91 $ 5.69 $ 3.71 $1.42 $ 1.13
Cumulative Effect of Accounting
Change - Net of Tax Benefit - - $(0.47) - $(1.10)
Net Income per share $ 4.91 $ 5.69 $ 3.24 $1.42 $ 0.03
Dividends per share:
Series A Cumulative
Preferred Stock $1.1090 $0.8437 $1.1250 $0.8437 $1.1250
Series B Cumulative
Preferred Stock $1.1090 $0.8437 $1.1250 $0.8437 $1.0517
Common Stock - - - - -
Class A Common Stock - - - - -
Summary Balance Sheet December 31,
Information:
1997 1996 1995 1994 1993
(thousands of dollars)
Current Assets 29,260 28,301 29,395 25,441 25,434
Current Liabilities 6,082 8,818 7,981 7,387 8,660
Working Capital 23,178 19,483 21,414 18,054 16,774
Total Assets 63,277 61,483 50,215 45,309 45,834
Long-Term Debt 20,033 20,433 15,350 14,900 16,900
Stockholders' Equity 32,789 28,258 22,298 18,628 16,770
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking Statements
Statements included in this Management Discussion and Analysis
of Financial Condition and Results of Operations and elsewhere in
this document that do not relate to present or historical
conditions are "forward-looking statements" within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended,
and in Section 21F of the Securities Exchange Act of 1934, as
amended. Additional oral or written statements may be made by the
Company from time to time, and such statements may be included in
documents filed with the Securities and Exchange Commission. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the actual
results, performance or achievements of the Company to be
materially different from those expressed or implied by such
forward-looking statements. Such factors include economic
slowdowns and recessions; the availability and pricing of raw
materials used in the manufacture of the Company's products; the
reliable operation of the Company's manufacturing facilities and
equipment; the Company's ability to effectively compete in the
industries in which it does business; the Company's ability to
successfully negotiate new labor agreements and otherwise maintain
favorable relations with its employees, a majority of whom are
unionized; the Company's ability to comply with existing and future
environmental laws and regulations, the accuracy of its current
estimates of existing environmental liabilities and the possibility
that currently unknown environmental liabilities may be discovered.
The table presented below 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 to Net Relationship
Sales to
Net Sales
Years Ended December Years Ended
31,
1997 1996 1995 1996-97 1995-96
Net Sales 100.0 % 100.0 % 100.0% 0 % 0 %
Cost of Goods Sold,
excluding
Depreciation 77.9 77.0 77.6 0.9 (0.6)
Depreciation 3.5 3.6 4.2 (0.1) (0.6)
Selling, General and
Administrative
Expense 6.6 7.3 7.2 (0.7) 0.1
Research and
Development - - - - -
88.0 87.9 89.0 0.1 (1.1)
Operating Income 12.0 12.1 11.0 (0.1) 1.1
Other (Income)Expense:
Equity in Loss
(Income) of Norwegian
Joint Venture (0.6) (0.9) (1.2) 0.3 0.3
Interest Expense 1.2 1.5 2.2 (0.3) (0.7)
Other 0.3 (0.4) - 0.7 (0.4)
0.9 0.2 1.0 0.7 (0.8)
Income Before
Income Taxes and
Cumulative Effect of
Accounting Change 11.1 11.9 10.0 (0.8) 1.9
Income Tax Expense 4.4 4.1 4.2 (0.3) (0.1)
Income Before
Cumulative Effect of
Accounting Change 6.7 7.8 5.8 (1.1) 2.0
Cumulative Effect
of Accounting Change - - (0.8) - 0.8
Net Income 6.7 % 7.8 % 5.0 % (1.1)% 2.8 %
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, 1997.
Results of Operations 1997 Compared to 1996
In 1997, the Company's net sales increased $637,000 to
$78,096,000, an increase of 1% compared to net sales of $77,459,000
in 1996.
Consolidated net income was $5,254,000 for the year ended
December 31, 1997. This compares to consolidated net income of
$6,080,000 for 1996. The reduction in earnings is primarily due to
a decrease in earnings of $236,000 related to the Norwegian joint
venture, increased expenses related to foreign currency
translations and a one-time insurance settlement recorded in 1996.
Cost of sales, excluding depreciation, as a percentage of
sales increased to 78% in 1997, when compared to 77% in 1996 as a
result of increased costs in raw materials and utilities; therefore
gross margins, as a percent of sales decreased to 22% in 1997
compared to 23% in 1996.
Total operating expenses including depreciation were
$7,931,000 during 1997 versus $8,481,000 during 1996. The 1997
decrease in operating expenses of $550,000 is primarily a result of
decreases in selling and general and administrative expenses.
Depreciation, as a percent of sales, was 3.5% for 1997
compared to 3.6% for 1996.
Selling, general and administrative expenses decreased by
$550,000 in 1997, due primarily to decreases in consulting fees,
legal fees, sales salaries and incentives, and general and
administrative salaries. As a percent of net sales, selling and
general and administrative expense decreased to 6.6% in 1997, from
7.3% for the 1996 year.
Interest expense from continuing operations declined to
$938,000 in 1997 from $1,136,000 in 1996. The reduction in
interest expense is primarily due to lower debt levels in 1997
versus 1996, exclusive of debt used to finance construction of the
desulfurization facility at the Company's Hennepin, Illinois
facility, for which interest totaling $346,000 was capitalized
during 1997 ($114,000 for 1996).
The Company's 50% share of the pre-tax earnings of its
Norwegian joint venture, Orkla Exolon KS, was $437,000 for 1997
versus $673,000 for 1996. The joint venture's gross margins, prior
to depreciation, decreased to 19% for the 1997 year versus 21% for
1996, principally due to increased operational costs.
The 1997 income tax provision was $3,432,000, representing an
effective rate of 39.5%. The 1996 income tax provision was
$3,145,000 which represented an effective rate of 34%.
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 for the year ended
December 31, 1996. This compares to consolidated net income of
$3,462,000 for 1995.
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 of the above, 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,
commissions, sales salaries and incentives, and general and
administrative salaries and incentives. 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 average 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 50% share of the pre-tax earnings of its
Norwegian joint venture, Orkla Exolon KS, was $673,000 for 1996
versus $793,000 for 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%.
Liquidity and Capital Resources
As of December 31, 1997, working capital (current assets less
current liabilities) increased to $23,178,000, when compared to
$19,483,000 as of December 31, 1996. Accounts receivable increased
by $521,000 as of December 31, 1997 versus December 31, 1996.
Inventory decreased by $1,803,000 at December 31, 1997 when
compared to December 31, 1996. Income taxes payable decreased by
$270,000 and accounts payable decreased $562,000 as of December 31,
1997 versus December 31, 1996. Notes payable and current maturities
of long-term debt and sinking fund requirements decreased by
$300,000 versus December 31, 1996.
For the year ended December 31, 1997, net cash provided by
operating activities was $7,007,000. Outstanding bank indebtedness
decreased by $700,000, and restricted cash equivalents decreased by
$7,996,000 at December 31, 1997 compared to December 31, 1996.
Capital expenditures of $10,617,000 were provided both from net
cash provided by operating activities and the use of $7,996,000 of
cash restricted for capital additions.
The Company's current ratio increased to 4.8 to 1.0 at
December 31, 1997 from 3.2 to 1.0 as of December 31, 1996. The
ratio of total liabilities to stockholder's equity was .9 to 1.0 as
of December 31, 1997 and 1.2 to 1.0 as of December 31, 1996.
Current financial resources including the availability of the
revolving line 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 $10,000,000 in the U.S. and $1,000,000
(Canadian funds) 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 1998 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 1998.
Reference is made to the information included in Note 13 to
the Consolidated Financial Statements beginning on page 32 which is
incorporated herein by reference.
Employees
As of December 31, 1997, the Company employed 277 persons. Of
these, approximately 198 (or 71.5%) work under three collective
bargaining agreements. During 1997, the Company and the hourly
workers at its Hennepin, Illinois facility reached agreement on a
new five-year collective bargaining agreement. This agreement
covers 71 production and maintenance workers represented by the
local branch of the International Union of Operating Engineers
Local 399, AFL-CIO and expires on May 14, 2002. Also during 1997,
the Company and the hourly workers at its Thorold, Ontario facility
reached agreement on a new three-year collective bargaining
agreement. This agreement covers 33 production and maintenance
workers represented by the local branch of the Chemical Energy &
Paper Workers Union and expires in April 2000. The labor agreement
with the hourly workers at the Company's Tonawanda, New York
facility, which covers 94 production and maintenance workers
represented by the local branch of the United Steel Workers of
America, expires in October 1998.
Impact of Year 2000
Some of the Company's older computer programs were written
using two digits rather than four to define the applicable year.
As a result, those computer programs have time-sensitive software
that recognize a date using "00" as the year 1900 rather than the
year 2000. This could cause a system failure or miscalculations
causing disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has completed an assessment and will have to
modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year
2000 and thereafter. The total Year 2000 project cost is
estimated at approximately $783,000, which includes $723,000 for
the purchase of new software and computer equipment that will be
capitalized and $60,000 that will be expensed as incurred. To
date, the Company has incurred approximately $279,000 ($264,000
capitalized), primarily for assessment of the Year 2000 issue and
the development of a modification plan and purchase of new
software.
The project is estimated to be completed not later than
December 31, 1998, which is prior to any anticipated impact on its
operating systems. The Company believes that with modifications to
existing software and conversions to new software, the Year 2000
Issue will not pose significant operational problems for its
computer systems. However, if such modifications and conversions
are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the Company.
The costs of the project and the date on which the Company
believes it will complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability
of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results
could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant computer
codes, and similar uncertainties.
Impact of New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued
Statement 130, "Reporting Comprehensive Income." Statement 130
establishes new rules for the reporting and display of
comprehensive income and its components; however, adoption in 1998
will have no impact on the Company's net income or stockholders'
equity. Statement 130 requires the foreign currency translation
adjustments, which currently are reported in stockholders' equity,
to be included in other comprehensive income and the disclosure of
total comprehensive income. If the Company adopted Statement 130
for the year ended December 31, 1997, the total of other
comprehensive income items, reported as a component of
stockholders' equity and comprehensive income (which includes net
income) would be $(865,000) and $4,575,000 respectively, and would
be displayed separately.
In June 1997, the Financial Accounting Standards Board issued
Statement 131, "Disclosure About Segments of an Enterprise and
Related Information," which is effective for years beginning after
December 15,1997. Statement 131 establishes standards for the way
that public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas,
and major customers. The Company will adopt the new requirements
retroactively during 1998. Management has not completed its review
of Statement 131, but currently does not anticipate that the
adoption of this statement will result in the Company reporting
additional segments.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements, together with the
report thereon of Ernst & Young LLP dated January 14, 1998, 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, 1997 and
1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. 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,
1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1997 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, 1998
Exolon-ESK Company and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Year Ended
December 31
1997 1996 1995
Net Sales $78,096 $77,459 $ 68,592
Cost of Goods Sold 60,810 59,620 53,212
Gross Profit Before Depreciation 17,286 17,839 15,380
Depreciation 2,734 2,826 2,873
Selling, General & Administrative
Expenses 5,148 5,621 4,958
Research and Development 49 34 22
Operating Income 9,355 9,358 7,527
Other (Income) Expenses:
Interest Expense 938 1,136 1,469
Equity in Income of Norwegian
Joint Venture (437) (673) (793)
Other 168 (330) (6)
Income before Income Taxes and Cumulative
Effect of Accounting Change 8,686 9,225 6,857
Income Tax Expense 3,432 3,145 2,893
Income before Cumulative Effect of
Accounting Change 5,254 6,080 3,964
Cumulative Effect of Accounting Change-
Net of Income Tax Benefit of $282 - - (502)
Net Income $5,254 $ 6,080 $ 3,462
Basic Earnings Per Common Share:
Income before Cumulative Effect
of Accounting Change $ 5.41 $ 6.27 $ 4.06
Cumulative Effect of Accounting
Change - - (0.52)
Net Income $ 5.41 $ 6.27 $ 3.54
Basic Earnings Per Class A Common Share:
Income before Cumulative Effect
of Accounting Change $ 5.08 $ 5.90 $ 3.81
Cumulative Effect of Accounting Change - - (0.49)
Net Income $ 5.08 $ 5.90 $ 3.32
Diluted Earnings Per Common Share:
Income before Cumulative Effect
of Accounting Change $ 5.21 $ 6.03 $ 3.93
Cumulative Effect of Accounting Change - - (0.49)
Net Income $ 5.21 $ 6.03 $ 3.44
Diluted Earnings Per Class A Common Share:
Income before Cumulative Effect
of Accounting Change $ 4.91 $ 5.69 $ 3.71
Cumulative Effect of Accounting Change - - (0.47)
Net Income $ 4.91 $ 5.69 $ 3.24
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
Assets 1997 1996
Current assets:
Cash and cash equivalents $2,503 $275
Accounts receivable (less allowance for
doubtful accounts of $350 in 1997 and
$502 in 1996) 9,582 9,061
Inventories 16,636 18,439
Prepaid expenses 183 526
Deferred income taxes 356 -
Total Current Assets 29,260 28,301
Investment in Norwegian joint venture 5,505 5,812
Property, plant and equipment 26,290 18,385
Bond sinking fund 885 -
Cash equivalents restricted for capital additions - 7,996
Other assets 1,337 989
Total Assets $63,277 $61,483
Liabilities and Stockholders' Equity
Current liabilities:
Cash overdraft $ - $1,413
Notes payable - 219
Current maturities of long-term debt and
sinking fund requirements 1,367 1,667
Accounts payable 2,661 3,223
Accrued expenses 1,858 1,780
Income taxes payable 196 466
Deferred income taxes - 50
Total Current Liabilities 6,082 8,818
Deferred income taxes 1,834 1,436
Long-term debt 20,033 20,433
Other long-term liabilities 2,539 2,538
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,
outstanding 481,995 ($1 par value) 513 513
Class A common stock, issued/outstanding
512,897 ($1 par value) 513 513
Additional paid-in capital 4,345 4,345
Retained earnings 28,209 22,999
Cumulative translation adjustment (865) (186)
Treasury stock, at cost (368) (368)
Total Stockholders' Equity 32,789 28,258
Total Liabilities and Stockholders' Equity $63,277 $61,483
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
1997 1996 1995
Cash Flow from Operating Activities:
Net income $5,254 $6,080 $3,462
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 2,734 2,826 2,873
Cumulative effect of change in
accounting for
post-retirement benefits - - 502
Equity in income of Norwegian joint
venture (437) (673) (793)
(Gain) loss on fixed asset disposals (23) 29 16
Deferred income taxes 47 26 729
Foreign currency adjustments 10 4 (2)
Change in Assets and Liabilities:
Accounts receivable (521) (165) (1,960)
Inventories 1,803 1,261 (2,596)
Prepaid expenses 343 (167) 40
Other assets (37) (98) (97)
Cash overdraft (1,413) 1,413 -
Accounts payable (562) (6) 424
Accrued expenses 78 67 91
Income taxes payable (270) (863) 1,194
Other liabilities and accrued
postretirement benefit costs 1 (748) (344)
Net Cash Provided by Operating
Activities 7,007 8,986 3,539
Cash Flow from Investing Activities:
Capital expenditures (10,617) (6,170) (2,695)
Purchases of restricted cash
equivalents 7,996 (7,996) -
Proceeds from fixed asset disposals 1 123 8
Net Cash Used for Investing Activities (2,620)(14,043) (2,687)
Cash Flow from Financing Activities:
Payments to bond sinking fund (867) - -
Net (repayments of) proceeds from
long-term debt (700) (7,800) 1,200
Proceeds from issuance of long-term debt - 13,000 -
Deferred financing fees (329) (494) -
Net proceeds from (repayments of) notes
payable (219) 219 (2,000)
Dividends paid (44) (33) (54)
Principal payments under capital lease
obligations - - (25)
Net Cash Provided by (Used for)
Financing Activities (2,159) 4,892 (879)
Net (Decrease) Increase in Cash and
Cash Equivalents 2,228 (165) (27)
Cash and Cash Equivalents at Beginning
of Year 275 440 467
Cash and Cash Equivalents at End of Year $2,503 $ 275 $ 440
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
Interest $1,261 $1,171 $1,493
Income Taxes $3,710 $3,983 $ 991
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 and per share amounts)
Year ended December 31
1997 1996 1995
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 22,999 16,952 13,545
Net income 5,254 6,080 3,462
Preferred stock dividends -
1997 - $1.109 per share;
1996 - $0.8438 per share; (44) (33) (55)
1995 - $1.4062 per share
Balance, end of year 28,209 22,999 16,952
Cumulative translation adjustment:
Balance, beginning of year (186) (99) (362)
Change in cumulative translation
adjustment (679) (87) 263
Balance, end of year (865) (186) (99)
Treasury stock, at cost (368) (368) (368)
Total common stockholders' equity,
end of year $32,347 $27,816 $21,856
Total Stockholders' equity, end of year $32,789 $28,258 $22,298
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, 1997, 1996 and 1995
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
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 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 65% and 60% of the dollar value of inventories is stated
at last-in, first-out (LIFO) cost at December 31, 1997 and 1996,
respectively, 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.
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
($317,000), $42,000, and ($30,000) in 1997, 1996, and 1995,
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, 1997, undistributed
earnings of the Canadian and Norwegian foreign subsidiaries combined
were $13,120,000.
Investment tax credits are accounted for using the flow-through
method.
h. 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.
i. 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.
j. 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.
k. Cash equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
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.
m. Earnings per share
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share". Statement No. 128 replaced
primary and fully diluted earnings per share with basic and diluted
earnings per share. Statement No. 128 had no effect on the Company's
reported earnings per share.
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 $3,351,000 and $2,361,000 higher
than reported at December 31, 1997 and 1996, respectively.
The following are the major classes of inventories as of December
31 (in thousands):
1997 1996
Raw Materials $2,839 $3,581
Semi-Finished and Finished
Goods 16,183 16,294
Supplies and Other 965 925
19,987 20,800
Less: LIFO Reserve (3,351) (2,361)
$16,636 $18,439
3. Property, Plant and Equipment
Property, plant and equipment consists of (in
thousands):
1997 1996
Land $ 283 $ 283
Buildings 7,860 7,804
Machinery & equipment 49,614 47,941
Construction in progress 13,605 5,129
71,362 61,157
Less - accumulated
depreciation 45,072 42,772
$26,290 $18,385
During 1997 and 1996, the Company capitalized interest costs
totaling $346,000 and $114,000, respectively.
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.
No one customer accounted for 10% or more of net sales in 1997,
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 1997 1996
Current assets $4,563 $5,081
Non-current assets 2,599 2,752
Current liabilities 1,332 1,391
Non-current Liabilities 246 319
Statement of Operations 1997 1996 1995
Net Sales $8,037 $8,195 $8,140
Gross profit 1,551 1,709 2,097
Income before income taxes 437 673 793
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, 1997 and 1996,
undistributed earnings of the joint venture were $5,044,000 and
$4,791,000, respectively.
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 zero balance as
of December 31, 1997 and 1995 and a balance of $219,000 as of December
31, 1996.
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):
1997 1996
Revolving credit and term loan $400 $300
agreement with a U.S. Bank. Interest
at prime rate plus /% or LIBOR plus 2-1/2%
(8.5% at December 31, 1997 and 1996).
Term loan agreement with a U.S. Bank. - 800
Industrial revenue bond held by an 8,000 8,000
insurance company. Interest is at a
fixed rate of 8 %. Bond maturity is
January 1, 2018.
Industrial revenue bond. Interest is 13,000 13,000
variable (4.9% at December 31, 1997 and
1996 ).
------- -------
$21,400 $22,100
Less - current maturities and sinking 1,367 1,667
fund requirements ------- -------
$20,033 $20,433
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 a revolving
credit facility.
At December 31, 1997 borrowings of $400,000 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.
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 prime rate to the rate based on
LIBOR. Interest is payable monthly.
The U.S. Credit Agreement requires the Company to maintain
certain financial covenants. In addition, the agreement sets forth
limits on capital expenditures and dividends, and 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. At December 31, 1997 the Company was in compliance with such
requirements.
As collateral for the U.S. Credit Agreement, the bank has a
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
bear interest, payable quarterly to a bank as trustee at a fixed rate
of 8 %. Amortization of principal commences in January, 1999. 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 quarterly contributions to a sinking fund in an amount
which would be sufficient to provide for the redemption of all of the
bonds within 15 years. The letter of credit agreement also requires
the Company to contribute to the sinking fund, an amount equal to the
Company's excess cash flow, as defined, up to a maximum of $4,333,333
in the aggregate. At December 31, 1997, the amount required under
this provision was $500,000 and has been included in current
maturities of long-term debt.
At December 31, 1997 the bond sinking fund had a balance of
$885,000. The sinking fund monies are invested in certificates of
deposit with the bond trustee.
Aggregate annual maturities of long-term debt and scheduled
sinking fund requirements are as follows:
1998 1,367,000
1999 997,000
2000 1,006,000
2001 1,006,000
2002 1,006,000
2003 $ 16,018,000
and
beyond
8. Income Taxes
The components of income before income taxes and cumulative
effect of accounting change are as follows (in thousands):
1997 1996 1995
Domestic $5,142 $5,711 $3,815
Foreign 3,544 3,514 3,042
Total $8,686 $ 9,225 $ 6,857
The components of income tax expense are as follows (in
thousands):
1997 1996 1995
Current provision (benefit):
United States
Federal $ 1,540 $ 1,850 $ 1,226
State 339 271 178
Foreign 1,506 995 768
Total Current 3,385 3,116 2,172
Deferred provision (benefit):
United States
Federal 13 (45) 494
State 7 6 (36)
Foreign 27 68 263
Total Deferred 47 29 721
Total $ 3,432 $ 3,145 $ 2,893
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):
1997 1996 1995
Computed expected tax expense $2,954 $3,137 $ 2,332
Effect of differing tax rates
applicable to foreign subsidiary income (317) (407) (267)
Effect of permanent differences 15 47 9
State and Provincial taxes, net of
Federal benefit 797 486 465
U.S. reserve for dividend repatriation - - 571
Other (17) (118) (217)
Total income tax expense $3,432 $3,145 $2,893
Effective tax rate 39.5% 34.1% 42.2%
Deferred income tax liabilities and assets include the following
(in thousands):
1997 1996
Deferred tax liabilities:
Excess tax depreciation $ 1,732 $2,044
Norwegian tax assessment reserve 51 59
Dividend repatriation reserve 571 571
Pension and payroll accruals 210 114
Gross deferred tax liabilities $ 2,564 $2,788
Deferred tax assets:
Norwegian NOL - (53)
Inventory accounting methods (29) (38)
Accounts receivable and other
asset reserves (112) (47)
Post retirement accrual (945) (1,039)
Other, net - (125)
Gross deferred tax assets $(1,086) $(1,302)
Net deferred tax liability at
end of year $ 1,478 $1,486
9. Capital Stock
The Company has two classes of Common Stock, each of which is
entitled to 50% of the Company's earnings, regardless of the actual
shares outstanding. At December 31, 1997 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, 1997 there were 19,364 shares of
Series A and 19,364 shares of Series B Preferred Stock outstanding.
At December 31, 1997, 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 $200,000 in 1997, $176,000 in 1996, and $146,000 in 1995.
Contributions to the Canadian defined contribution plan were $56,000
in 1997, $78,000 in 1996 and $66,000 in 1995. 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.
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 $180,000, $139,000 and $125,000 for
1997, 1996 and 1995, respectively. This plan is not administered by
the Company. Contributions are determined in accordance with the
provisions of the negotiated labor contract.
Total pension expense for all plans amounted to $454,000,
$393,000, and $361,000 in 1997, 1996 and 1995, respectively
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 sheets as of
December 31, 1997 and 1996 (in thousands):
December 31
1997 1996
Actuarial present value of accumulated
benefit obligations, including vested
benefit obligations of $1,653 at
December 31, 1997 and $1,539 at
December 31, 1996 ($1,658) ($1,540)
Projected benefit obligations ($1,658) ($1,540)
Plan assets at fair value, primarily 3,082 2,421
equity securities
Plan assets in excess of plan obligations 1,424 881
Unrecognized net loss at transition, being
amortized over approximately 17 years 103 120
Unrecognized prior service cost 138 150
Unrecognized gain arising since transition (1,155) (623)
Prepaid pension expense $510 $528
The actuarially computed pension cost for 1997, 1996 and 1995
included the following components (in thousands):
1997 1996 1995
Service costs $ 59 $ 57 $ 54
Interest on projected benefit obligation 123 118 106
Actual return on plan assets (761) (464) (404)
Amortization of transition liability and 597 332 324
deferrals
Net periodic pension expense $ 18 $ 43 $ 80
Unrecognized gains 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, 1997 and 1996 included 26,000 shares of the
Common Stock of Exolon-ESK Company valued at approximately $1.3
million (Canadian) at December 31, 1997.
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, 1997 and
1996 balance sheets for its U.S. operations were as follows (in
thousands):
December 31
1997 1996
Accumulated postretirement
benefits obligation:
Retirees $1,004 $1,044
Fully eligible active
participants 415 435
Terminated participants not
yet receiving benefits 65 40
Total accumulated postretirement
benefits obligation $1,484 $1,520
Unrecognized prior service cost (24) (25)
Unrecognized gain 305 302
Accrued postretirement benefit
obligation $1,765 $1,797
Net periodic postretirement benefit costs for 1997, 1996
and 1995 included the following components (in thousands):
1997 1996 1995
Service cost - benefits earned $ 11 $ 11 $ 12
Interest cost 117 98 92
Amortization (8) (33) (42)
Net periodic postretirement
benefit cost $ 120 $ 76 $ 62
For measuring the postretirement benefit obligation as of
December 31, 1997 an 8% annual rate of increase in health care rates
was assumed for the next 4 years and 6% per year thereafter. 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
$47,000 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
to 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's policy is to fund these benefits on a
pay-as-you-go basis.
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, 1997 and 1996 balance
sheets for Canadian operations were as follows (in thousands):
December 31
1997 1996
Accumulated postretirement benefits
obligation:
Retirees $825 $885
Fully eligible active participants 242 323
Total accumulated postretirement benefits
obligation 1,067 1,208
Unrecognized net loss (282) (446)
Accrued postretirement benefit obligation $785 $762
Net periodic postretirement benefit costs for Canadian operations
for 1997, 1996 and 1995 included the following components (in
thousands):
1997 1996 1995
Service cost - benefits earned during
the period $ 22 $ 10 $ 13
Interest cost 93 45 61
Amortization of gain (loss) 30 (17) -
Net periodic postretirement benefit cost $ 145 $ 38 $ 74
For measuring the post-retirement benefits obligation, an 8%
annual rate of increase in the health care rates was assumed for the
next 3 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 $97,000 and would increase the periodic post-retirement
benefits cost by $22,000. 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 accrued postretirement benefits obligation has been recorded
in the Company's balance sheet as follows (in thousands):
December 31
1997 1996
Accrued expenses $138 $130
Accrued postretirement 2,412 2,429
$2,550 $2,559
11. Related Party Transactions
The Company purchased combined totals of $3,130,000, $3,740,000
and $4,320,000 of products from its affiliates, Elektroschmelzwerk
Kempten GmbH, and its Norwegian joint venture during 1997, 1996 and
1995, 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, 1997, 1996 and 1995 were $366,000, $428,000 and $370,000,
respectively. Total minimum lease payments, at December 31, 1997,
under operating leases are summarized as follows (in thousands):
1998 278,000
1999 90,000
2000 7,500
$375,500
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 the refractory market, and expires April 30,
2001. Royalty expense in U.S. dollars amounted $0, $419,000 and
$725,000 in years ended December 31, 1997, 1996 and 1995,
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.
In order to comply with the Consent Order and complete
facility improvements, the Company expects to incur capital
costs of up to $14,000,000. As of December 31, 1997, the
Company has incurred approximately $13,064,000 of capital
costs related to the facility improvements. The remaining
costs are expected to be incurred in the first quarter of
1998. The cost of these required capital improvements was
financed principally 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 Norwegian State Pollution Control Authority has issued
limits regarding dust emissions and Sulfur Dioxide emissions
that will apply to all Norwegian silicon carbide producers.
Specific target emission limits have been set, and a
compliance timetable ranging from the present until January
1, 2001 has been established. The costs associated with
achieving compliance with these limits are uncertain as a
result of various alternatives presently being considered by
the Norwegian joint venture. Management believes the joint
venture can meet the sulfur requirements with changes in
production techniques and raw material procurement including
low sulfur coke rather than capital expenditures. Based
upon current known information the Company estimates the
costs associated with achieving compliance with these
limits would range from $4 to $5 million.
b. Legal Matters
(i) Federal Proceedings and Related Matters
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.
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. In October 1997, the Norton
Company was named an additional defendant in both cases.
The Company believes that it has meritorious defenses to the
allegations, and it intends to vigorously defend against the
charges.
In 1994, the U.S. Defense Logistics Agency (the "DLA")
temporarily suspended the Company from contracting with the
U.S. Government under procurement or non-procurement
programs. During 1997, the Company and the DLA entered into
a two-year Administrative Agreement which lifted the
suspension.
(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 alleges 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 Magnesium Oxide and has refused to pay further
royalty payments. International Oxide Fusion Inc. claims
damages for loss of royalty payments from the number 4
furnace. Further, International Oxide Fusion alleges that
number 6 furnace, which was designed in 1996, utilizes the
International Oxide Fusion's 1990 furnace design technology
and seeks royalty payment. 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. The Plaintiffs originally sought $182
million as damages, which management considers to be beyond
any reasonable understanding. The Company's counterclaim is
in the amount of approximately $ 10 million. A motion for
summary judgment on royalty payments for furnace number 4
was decided against the Company in December 1997 and the
Company must now pay back royalties of approximately
$220,000 which the Company has accrued at December 31, 1997.
A further expedited trial was ordered on the remaining
claims and counterclaim. It is the opinion of management
that the number 6 furnace does not use the same technology
as the number 4 furnace.
A separate, unrelated lawsuit was commenced by The Exolon-
ESK Company of Canada, Ltd. against Theeb, Ltd. and Edward
J. Bielawski in August, 1997. The action arises out of a
1985 contract in connection with a crane and its runway
system. The Company is seeking $2 million in damages for
negligence and punitive damages. A Statement of Defense has
been filed by the defendants.
In June 1993, the Company commenced a civil 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) ( the "Defendants")
on various charges related to allegations that they
defrauded the Company and Exolon-Canada of money, property
and services over many years (the Perrotto Case ). Summary
Judgment was granted on the issue of liability against Paul
Perrotto and Michael Perrotto on July 16, 1997 with a
Reference (hearing) directed in Toronto on the issue of
damages. The hearing is expected to be held in early 1998.
The action remains ongoing against various other Defendants.
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.
At December 31, 1997 the Company had open currency forward
contracts to purchase Canadian dollars with a stated, or notional,
value of approximately $1,700,000. The fair value of the underlying
currency based upon the December 31, 1997 exchange rate was
approximately $1,650,000.
15. Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share (in thousands except share and per share
information):
1997 1996 1995
Numerator:
Net income $ 5,254 $ 6,080 $3,462
Preferred stock dividends (44) (32) (54)
Net income available to common $ 5,210 $ 6,048 $3,408
stockholders
Numerator for basic earnings per share:
Common stockholders (50%) 2,605 3,024 1,704
Class A common stockholders (50%) 2,605 3,024 1,704
5,210 6,048 3,408
Effect of diluted securities - 44 32 54
preferred stock dividends
Net income available to common
stockholders after assumed $ 5,254 $ 6,080 $3,462
conversion of preferred stock
Numerator for diluted earnings per share:
Common stockholders (50%) $ 2,627 $ 3,040 $1,731
Class A common stockholders (50%) 2,627 3,040 1,731
$ 5,254 $ 6,080 $3,462
Denominator:
Common stock:
Denominator for basic earnings per
share - weighted average shares 481,995 481,995 481,995
Effect of dilutive securities - 21,785 21,785 21,785
convertible preferred stock
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 503,780 503,780 503,780
Class A common stock:
Denominator for basic earnings per
share - weighted average shares 512,897 512,897 512,897
Effect of dilutive securities - 21,785 21,785 21,785
convertible preferred stock
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 534,682 534,682 534,682
Basic earnings per share:
Common stock $5.41 $6.27 $3.54
Class A common stock $5.08 $5.90 $3.32
Diluted earnings per share:
Common stock $5.21 $6.03 $3.44
Class A common stock $4.91 $5.69 $3.24
16. Quarterly Financial Data (unaudited)
Summarized quarterly financial data for 1997 and 1996 is as
follows:
Quarter
(thousands of dollars except per First Second Third Fourth
share amounts)
Year Ended December 31, 1997
Net Sales $20,193 $20,034 $19,166 $18,703
Gross Profit Before Depreciation 4,583 4,889 4,549 3,265
Net Income $1,348 $1,492 $1,378 $1,036
Basic Earnings Per Common Share $1.39 $1.54 $1.42 $1.06
Basic Earnings Per Class A
Common Share $1.30 $1.45 $1.33 $1.00
Year Ended December 31, 1996
Net Sales $19,846 $19,739 $18,903 $18,971
Gross Profit Before Depreciation 4,543 4,695 4,274 4,327
Net Income $ 1,410 $ 1,604 $ 1,074 $1,992
Basic Earnings Per Common Share $1.45 $1.65 $1.10 $2.07
Basic Earnings Per Class A
Common Share $1.36 $1.55 $1.04 $1.95
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Board of Directors consists of six members, three of whom are
elected by the outstanding shares of Common Stock and Series A
Preferred Stock voting as a class, and three of whom are elected by
the outstanding shares of Class A Common Stock and Series B Preferred
Stock voting as a class.
The Directors currently elected by the shares of Common Stock and
of the Series A Preferred Stock are Brent D. Baird, Theodore E. Dann,
Jr. and Patrick W.E. Hodgson (such persons are hereinafter referred to
as Common Directors, and the individuals currently elected by the
shares of Class A Common Stock and Series B Preferred Stock are
hereinafter referred to as Wacker Directors ). The Wacker Directors
are Craig Rogerson, Dr. Bernhard Frank and Dr. Hans Herrmann.
The following table contains information relating to the
Company's Directors. Such information and the information with regard
to beneficial ownership of securities have been furnished to the
Company by the respective directors.
Shares of Shares of
the the
Company's Company's
Common Series A
Name and Principal Stock Owned Preffered
Occupation Benefi- Stock Owned
Year cially Benefi-
First as of cially as
Became March 16, % of of March % of
Age Director 1998 Class 16, 1998 Class
Theodore E. Dann, Jr. 44 1986 90,800(1) 18.8 -- --
Chairman of the
Company's Board of
Directors since June 1,
1992; Corporate Secretary
of the Company from
January 1, 1987 through
June 1, 1992; Chairman
of Buffalo Technologies
Corp., from April 11,
1994 to June 1997;
President of Buffalo
Technologies Corp. since
June 1997;
Secretary/Treasurer,
Director and Corporate
Attorney for Ferro Alloys
Services, Inc., since
1985; Director of First
Carolina Investors, Inc.
Brent D Baird 59 1994 96,900(2) 20.1 -- --
Private investor,
Chairman of First
Carolina Investors, Inc.;
Director of First Empire
State Corporation (bank
holding company),
Merchants Group, Inc.,
Oglebay Norton Company
and Todd Shipyards
Corporation; Prior to
1992 was a limited
partner of Trubee,
Collins & Co., a member
of the New York Stock
Exchange, Inc.
(1) See footnote (3) under table of more than 5%
stockholders, under Item 12.
(2) See footnote (2) under table of more than 5%
stockholders, under Item 12. Includes 1,300
shares owned by Mr. Baird, 14,000 shares owned
by Aries Hill Corp., 18,800 shares owned by
members of Mr. Baird's immediate family who
share his household but as to which he has no
voting or investment power, 5,700 shares owned
by The Cameron Baird Foundation and 57,100
shares owned by First Carolina Investors, Inc.
Patrick W.E. Hodgson 57 1991 77,270(3) 27.9 18,334 94.7
President, Cinnamon
Investments, London,
Ontario, investment firm,
since 1989; Chairman of
Todd Shipyards, Inc.,
since Feb. 1993; Chairman
Scotts Hospitality 1994-
1996; Director, First
Empire State Corp., First
Carolina Investors, Inc.,
Versacold, Inc., and
Scott's Restaurants, Inc.
Craig A. Rogerson 41 1997 -- -- -- --
President, Wacker
Silicones Corporation
since April 1997; Vice
President and General
Manager of Fibers
Division, Hercules
Chemical Specialties
Company, Hercules, Inc.
from 1996-1997; Sales
Director, Americas, for
the Paper Technology
Division of the Hercules
Chemical Specialties Co.
from 1995-1996; Business
Director, Absorbents &
Textile Products Group
from 1992-1995;
Operations Director,
Absorbents & Textile
Products Group from 1991-
1992. Director, Wacker
Silicones Corp., Wacker
Chemical Holding Corp.,
Wacker Chemical U.S.A.,
and Wacker Biochem Co.
(3) Includes 77,270 shares owned by Cinnamon Investments
which Mr. Hodgson is a director. See footnote (2) under
table of more than 5% stockholders, under Item 12.
Dr. Hans Herrmann 62 1986 -- -- -- --
A Managing Director of
Elektroschmelzwerk
Kempten GmbH of Germany
since 1986; Vice
President of Wacker-
Chemitronic GmbH, a
wholly-owned subsidiary
of Wacker Chemie GmbH,
1982-86; Executive Vice
President and General
Manager of Wacker
Siltronic Corporation, a
wholly-owned subsidiary
of Wacker Chemical
Corporation, 1978-82.
Dr. Bernhard Frank 54 1997 -- -- -- --
Vice President Finance
and Administration Wacker
Silicones Corporation
since 1997; Vice
President Administration
of Wacker-Chemie GmbH,
Cologne Plant, West
Germany Chemicals from
1990-1996.
Item 11. Executive Compensation
The Company's directors, other than the Chairman, receive from
the Company an annual retainer fee of $5,000, and $1,500 for each
meeting of the Board or meeting of a committee of the Board they
attend, but not to exceed $1,500 for any one day. Director fees
payable to Wacker Directors for 1997 were paid to Wacker Chemical
Corporation. The Chairman, Mr. Dann, receives an annual retainer fee
of $50,000, plus the meeting fees received by the other directors.
Compliance with Section 16 of the Securities Exchange Act
Under Section 16 of the Securities Exchange Act of 1934, as
amended, directors, executive officers and persons who own more than
10% of the Company's Common Stock are required to report their
ownership of equity securities of the Company, and any changes in that
ownership to the Securities Exchange Commission and to the Company.
Based solely upon a review of reports furnished to the Company (the
"Section 16(a) Reports") by such persons on Forms 3, 4 or 5 for the
year ended December 31, 1997, there were no omissions from or late
filings of Section 16(a) Reports.
Executive Officers
The executive officers of Exolon-ESK Company for 1998 are as
follows:
J. Fred Silver .... President and Chief Executive
Officer (January 1997-August 1997)
Robert Rieger ..... President and Chief Executive
Officer (September 1997 - present)
Michael H. Bieger ... Chief Finance Officer and Vice
President-Finance
Kersi Dordi ...... Vice President Aluminum Oxide
& Specialty Products
Armand Ladage ..... Vice President Silicon Carbide
John L. Redshaw .... Vice President of Sales & Marketing
Nancy E. Gates, Esq. Secretary
The business backgrounds of the Company's executive officers are
as follows:
Mr. Rieger, age 47, has been the President and Chief Executive
Officer since September, 1997. He served as Managing Director of
Zircon Worldwide, for Cookson Matthey Ceramics plc, London, England,
from 1994 to 1997, and as President of TAM Ceramics, Inc., a
subsidiary of Cookson Group plc, Niagara Falls, New York from 1985 to
1994. From 1979 to 1985 he served TAM Ceramics in various vice
presidential and other managerial positions.
Mr. Silver, age 52, was the President and Chief Executive Officer
from February 15, 1996 through August 15, 1997. From April 26, 1995
to February 15, 1996 he was a member of the Company's Board of
Directors. He served as President of Carborundum Abrasives Co. from
1981 through 1992 and President of Time Release Sciences, Inc., a foam
manufacturer since January, 1993.
Mr. Bieger, age 41, has been the Chief Financial Officer of the
Company since August, 1996. He served as President and Chief
Financial Officer of Perry's Ice Cream in Akron, New York from 1990-
1994 and as a management consultant for SiGMA Consulting from March of
1994 through July 1996. He is a Certified Public Accountant in the
State of New York.
Mr. Dordi, age 49, has served as a Vice President of Aluminum
Oxide & Specialty Products Manufacturing since October 1995 and has
served as the General Manager of the Company's Canadian subsidiary,
Exolon-ESK Company of Canada, Ltd., since September 1992. In January
1995, he became a member of the Company's Operating Committee and in
March 1995 was appointed as an executive officer on the Operating
Committee. From November 1990 to September 1992, he served as the
Plant Manager for the Company's Thorold, Ontario plant, and from 1986
to November of 1990, he served the Company in various technical and
managerial capacities.
Mr. Ladage, age 44, has served as a Vice President Silicon
Carbide since October 1995. In January 1995, he became a member of
the Company's Operating Committee and in March 1995 was appointed as
an executive officer on the Operating Committee. He served as the
Plant Manager of the Company's Hennepin, Illinois operations since
1978.
Mr. Redshaw, age 43, has served as Vice President of Sales and
Marketing since October 1995. In January 1995, he became a member of
the Company's Operating Committee, and in March 1995 was appointed as
an executive officer on the Operating Committee. He has served as
Metallurgical Sales and Marketing Manager for the Company since 1989.
Ms. Gates, age 33, has been the Corporate Secretary since
February 29, 1996. Since February 29, 1996, she has been employed as
the Company's in-house counsel. From 1990 to 1996, Ms. Gates was a
corporate attorney at the law firm of Magavern, Magavern, & Grimm,
LLP, Buffalo, New York.
Compensation of Executive Officers
The following Summary Compensation Table sets forth information
concerning compensation for services in all capacities for the Company
and its subsidiaries for the fiscal years ended December 31, 1997,
1996, and 1995 of those persons who were, at December 31, 1997, (i)
the chief executive officer of the Company and (ii) executive officers
of the Company and its subsidiaries during 1997 whose annual base
salary and bonus compensation exceeded $100,000, (collectively, the
"Named Officers").
Summary Compensation Table
Annual Compensation
Name and
Principal All Other
Position Year Salary Bonus Compensation
(1)
Robert Rieger 1997 $55,576 28,334 $6,053
President and
Chief Executive
Officer
(effective
September 1,
1997)
J. Fred Silver 1997 $103,000 $76,125 $11,543
President and
Chief Executive
Officer
(effective
2/15/96 through
August 15, 1997)
Kersi Dordi 1997 $97,000 $47,530 $15,270
Vice President
Aluminum Oxide & 1996 $91,000 $45,500 $13,166
Specialty
Products 1995 $80,000 $45,000 $8,216
Armand Ladage 1997 $90,000 $45,000 $15,085
Vice President
Silicon Carbide 1996 $85,000 $42,500 $13,738
1995 $80,000 $45,000 $7,545
John L. Redshaw 1997 $97,000 $48,500 $14,531
Vice President of
Sales & Marketing 1996 $91,000 $45,500 $13,858
1995 $85,000 $45,000 $5,077
Michael H. Bieger 1997 $93,000 $46,500 $14,251
Chief Financial
Officer 1996 $36,125 $18,750 $4,383
(1) Includes matching contributions made by the Company under the
Company's Retirement and Savings Plan for U.S. Salaried Employees (the
"401(k) Plan"). Also includes premiums paid by the Company on term
life insurance, amounts accrued under the Company's Retirement Plan
for U.S. Salaried Employees and amounts paid under a car allowance
policy.
Compensation (Executive) Committee Interlocks and Insider
Participation
Elektroschmelzwerk Kempten GmbH ("Kempten") is a subsidiary of
Wacker Chemie GmbH ("Wacker Chemie"), which is the owner of all of the
outstanding stock of Wacker Chemicals (USA), Inc. ("Wacker"), and
Wacker is the owner of all of the Company's outstanding Class A Common
Stock and Series B Preferred Stock. The Company is the successor to a
merger of ESK Corporation (wholly owned subsidiary of Wacker) into The
Exolon Company which was effected on April 27, 1984. Pursuant to an
exclusive distributorship and sales representation agreement which was
entered into with Kempten at the time of the merger, the Company
purchased $1,989,000 and $2,778,000 of certain products from Kempten,
during 1997 and 1996, respectively.
The Company and Kempten maintain a joint patent covering certain
technology developed and implemented at the Company's Hennepin
facility and are joint applicants with respect to another such patent.
The patent and patent application relate to joint ownership rights in
the subject technology.
Dr. Hans Herrmann, who is Managing Director of Kempten, and Craig
Rogerson, who is the President of Wacker Chemicals (USA), Inc.
(another wholly owned subsidiary of Wacker Chemie), serve on the
Executive Committee.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Common Stock and Series A Preferred. The stock ownership of the
only persons known to the Company to be the beneficial owners of more
than 5% of the outstanding shares of the Common Stock and of the
Series A Preferred Stock as of March 16, 1998, and such stock
ownership of all directors and officers of the Company as a group as
of that date are as follows:
Shares Percent
of Shares of of
Name & Address Common Percent Series A Outstand
of Beneficial Stock of Preffered ing
Owner Benefi- Outstand- Stock Series A
cially ing Benefi- Preferr-
Owned Common cially ed
(1) Stock Owned (1) Stock
Patrick W.E. Hodgson, et al. 196,430(2) 40.8 18,334 94.7
60 Bedford Road - 2nd Floor
Toronto, Ont., Canada M5R 2K2
Ferro Alloys Services, Inc. . 90,800(3) 18.8 --- ---
Suite 463
Carborundum Center
Niagara Falls, NY 14303
The Exolon-ESK Company of 25,000 5.2 --- ---
Canada Ltd. .........
Consolidated Pension Plan
Reg. No. C-6808
181 Queen Street
Thorold, Ont., Canada L2V 5A9
Edward J. Bielawski, et al. . 30,600(4) 6.4 --- ---
5150 Dorchester Rd., Unit 15
Niagara Falls, Ont., Canada
L2E 6Z3
William J. Burke, III, et al. 30,370(5) 6.3 --- ---
111 Devonshire Street
Boston, MA 02109
All Directors and Officers as 287,230(6) 59.6 18,334 94.7
a group (12 persons)
(1) The beneficial ownership information presented is based upon
information furnished by each person or contained in filings made
with the Securities and Exchange Commission.
(2) Beneficially owned by a group composed of: Patrick W.E. Hodgson
(77,270); William J. Magavern II and James L. Magavern, as co-
executors of the Estate of Samuel D. Magavern (15,260); Brent D.
Baird (1,300); Aries Hill Corp. (a private holding company whose
controlling shareholders include Brent D. Baird, Bruce C. Baird,
Brian D. Baird and Bridget B. Baird) (14,000); Bridget B. Baird,
as trustee of a family trust (9,800); Jane D. Baird (9,000); The
Cameron Baird Foundation (a charitable foundation whose trustees
include Jane D. Baird, Bridget B. Baird, Brian D. Baird, Bruce C.
Baird and Brenda B. Senturia) (5,700); First Carolina Investors,
Inc. (a Delaware corporation whose directors include Brent D.
Baird, Bruce C. Baird, Patrick W.E. Hodgson, Theodore E. Dann,
Jr. and H. Thomas Webb) (57,100); William J. Magavern II (5,000);
and, James L. Magavern (2,000). Members of the group had sole
voting and investment power with respect to 168,706 shares
and shared voting and investment power with respect to 27,724
shares, and reported that they had agreed to evaluate jointly
any proposal presented to the Company's shareholders pursuant
to which Wacker Chemical Corporation may acquire all or
substantially all of the assets of the Company.
(3) Owned by Ferro Alloys Services, Inc., a corporation of which
Theodore E. Dann, Jr., who is Chairman of the Board of the
Company, is a director, officer and corporate attorney. Includes
2,000 shares held in the name of the Estate of Theodore E. Dann
that are beneficially owned by Ferro Alloys Services, Inc.
(4) Includes 20,600 shares owned by Theeb, Ltd. ("Theeb") 4,000
shares owned by Robert C. Thiel, 3,000 shares owned by Mr.
Bielawski's sister and 3,000 shares owned by his brother all of
which he has the power to vote. Theeb is a company organized
under the laws of Ontario which is controlled by Messrs. Thiel
and Bielawski (each of whom owns, indirectly, 50% of its
outstanding stock).
(5) Includes 25,500 shares owned by May and Gannon, Inc., a
Massachusetts corporation whose directors are William J. Burke,
III (who is the President), Ellen Burke Ryan and Helen D. Burke.
(6) Except as otherwise indicated above, members of the group have
sole voting and investment power with respect to such shares.
Beneficial Owner of Class A Common Stock and Series B Preferred
Stock. The stock ownership of the only beneficial owner of the
Class A Common Stock and Series B Preferred Stock of the Company as of
March 16, 1998 is as follows:
Shares of
Series B
Shares of Preferred
Class A Common Stock
Stock Benefi-
Beneficially cially
Owned Owned
Name and Address (Percent (Percent
of Beneficial of Class of Class
Owner Outstanding) Outstanding)
Wacker Chemicals (USA), Inc........ 512,897 (100%) 19,364 (100%)
c/o Wacker Chemical Holding
Corporation
3301 Sutton Road
Adrian, MI 49221-9397
Item 13. Certain Relationships and Related Transactions
A royalty agreement with International Oxide Fusion, Inc.
("IOF") which covers the production of specialty product for
refractory markets exists until April 30, 2001, but is currently being
litigated in Ontario, Canada for breach of contract. No royalties
were paid by the Company under the agreement in 1997. Royalties
amounted to and $419,000 in the twelve months ended December 31,
1996.
Edward J. Bielawski, who beneficially owns 6.4% of the Company's
Common Stock, is the President of IOF. Theeb is a holding company
formed under the laws of the Province of Ontario, which is controlled
by Mr. Bielawski and Robert C. Thiel (each of whom owns, indirectly,
50% of Theeb's outstanding stock). Theeb and Messrs. Bielawski and
Thiel beneficially own in the aggregate 30,600 shares of the Company's
Common Stock as reported in Item 12.
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: 14
Consolidated Statements of
Operations, three years ended
December 31, 1997
Consolidated Balance Sheets at 15
December 31, 1997 and 1996
Consolidated Statements of Cash 16
Flows, three years ended December
31, 1997
Consolidated Statements of 17
Changes in Stockholders'
Equity, three years ended
December 31, 1997
Notes to Consolidated Financial 18-36
Statements
2) Financial Statement Schedule for
three years ended
December 31, 1997:
II Valuation and qualifying 51
accounts
All other required schedules have
been omitted because they do not
apply to the Company, or the
information is presented in the
consolidated financial statements or
the notes thereto.
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 to the Report
Restated Certificate of on Form 10-K for the
Incorporation dated April year ended December 31,
30, 1997 1996*
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 to the Report
all previous amendments on Form 10-K for the
adopted year ended December 31,
1996*
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) Amendment Credit Agreement Exhibit 10D(23)A to the
A dated December 1, 1996 Report on Form 10-K for
the year ended December
31, 1996*
10D(24) Industrial Revenue Bond Exhibit 10D(24)
Agreement dated January 1,
1993.
10D(25) Industrial Revenue Bond Loan Exhibit 10D(25) to the
Agreement dated December 1, Report on Form 10-K for
1996 the year ended December
31, 1996*
10D(26) Building Loan Agreement Exhibit 10D(26) to the
dated December 1, 1996 Report on Form 10-K for
the year ended December
31, 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*
Exhibit Description Reference
No.
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
dated July 30, 1997 between
Elektroschmelzwerk Kempten
GmbH, and the Registrant
* Incorporated herein by reference.
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
10M Federal Indictments dated Exhibit 10M to the
February 11, 1994 Report on Form 10-K for
the year ended December
31, 1993*
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).
* Incorporated herein by reference.
Exolon-ESK Company and Subsidiaries
Valuation and Qualifying Accounts
Three Years Ended December 31, 1997
(thousands of dollars)
Balance at Additions
Beginning Charged to Balance
of Costs and at End
Description Year Expenses Adjustments of Year
Deducted from assets -
Allowance for
doubtful accounts
Year ended December 31, 1997 $502 $10 ($162)(a) $350
Year ended December 31, 1996 $419 $70 $13 (b) $502
Year ended December 31, 1995 $309 $110 -- $419
Allowance for
slow-moving and
obsolete inventory
Year ended December 31, 1997 $297 $101 -- $196
Year ended December 31, 1996 $136 $161 -- $297
Year ended December 31, 1995 $136 -- -- $136
(a) Uncollectible accounts written off, net of recoveries.
(b) Bad debt recoveries.
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 20, 1998 EXOLON-ESK COMPANY
By s/Robert A. Rieger
Robert A. Rieger, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
s/Robert A. Rieger s/Michael H. Bieger
Robert A. Rieger, Michael H. Bieger,
President and Chief Vice President -
Executive Officer Finance and Chief
Financial Officer
s/Theodore E. Dann, Jr.
Theodore E. Dann, Jr. Chairman of the Board March 20, 1998
s/Brent D. Baird
Brent D. Baird Director March 20, 1998
s/Craig A. Rogerson
Craig A. Rogerson Director March 20, 1998
s/Dr. Bernhard G. Frank
Dr. Bernhard G. Frank Director March 20, 1998
s/Dr. Hans Herrmann
Dr. Hans Herrmann Director March 20, 1998
s/Patrick W.E. Hodgson
Patrick W.E. Hodgson Director March 20, 1998
EXHIBIT INDEX
Exhibit Description Reference
No.
3A Certificate of Amendment of Exhibit 3A to the report
Restated Certificate of on Form 10-K for the
Incorporation dated April year ended December 31,
30, 1997 1996*
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 to the Report
all previous amendments on Form 10-K for the
adopted year ended December 31,
1996*
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) Amendment Credit Agreement Exhibit 10D(23)A to the
A dated December 1, 1996 Report on Form 10-K for
the year ended December
31, 1996*
10D(24) Industrial Revenue Bond Exhibit 10D(24)
Agreement dated January 1,
1993.
10D(25) Industrial Revenue Bond Loan Exhibit 10D(25) to the
Agreement dated December 1, Report on Form 10-K for
1996 the year ended December
31, 1996*
10D(26) Building Loan Agreement Exhibit 10D(26) to the
dated December 1, 1996 Report on Form 10-K for
the year ended December
31, 1996*
Exhibit Description Reference
No.
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
* Incorporated herein by reference.
10H Distributorship Agreement Exhibit 10H
dated July 30, 1997 between
Elektroschmelzwerk Kempten
GmbH and the Registrant
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
10M Federal Indictments dated Exhibit 10M to the
February 11, 1994 Report on Form 10-K for
the year ended December
31, 1993*
22 Subsidiaries of the Exhibit 22
Registrant
27 Financial Data Schedule Submitted electronically
* Incorporated herein by reference.
Loan Agreement
dated as of January 1, 1993
between the
Village of Hennepin, Illinois
and
Exolon-ESK Company
_____________________________________
Industrial Development Revenue Refunding Bonds
(Exolon-ESK Company Project)
Series 1993
_____________________________________
Loan Agreement
Table of Contents
Page
Article I Definitions 1
Article II Representations 1
Section 2.1. Representations of Issuer 1
Section 2.2. Representations of Company 3
Article III Completion of the Project 5
Section 3.1. Project Complete 5
Section 3.2. Project Description 5
Section 3.3. Operation of Project 5
Article IV Issuance of Bonds; Loan to Company 5
Section 4.1. Issuance of Bonds 5
Article V Repayment of Loan 6
Section 5.1. Repayment of Loan 6
Section 5.2. Additional Payments 7
Section 5.3. Prepayments 7
Section 5.4. Payments Upon Determination of Taxability 7
Section 5.5. Obligations of Company Unconditional 7
Article VI Other Company Agreements 8
Section 6.1. Maintenance of Existence 8
Section 6.2. Financial Statements 8
Section 6.3. Payment of Taxes 8
Section 6.4. Arbitrage 9
Section 6.5. Company's Obligation with Respect to
Exclusion of Interest Paid on the Bonds 9
Section 6.6. Maintenance of Insurance 10
Section 6.7. Maintenance of Property 10
Section 6.8. Access to the Project and Inspection 10
Section 6.9. Negative Covenant 10
Article VII No Recourse to Issuer 11
Section 7.1. No Recourse to Issuer 11
Section 7.2. Indemnification 11
Article VIII Assignment 11
Section 8.1. Assignment by Company 11
Section 8.2. Assignment by Issuer 11
Article IX Defaults and Remedies 12
Section 9.1. Remedies on Default 12
Section 9.2. Delay Not Waiver 12
Section 9.3. Attorneys' Fees and Expenses 12
Article X Miscellaneous 12
Section 10.1. Notices 12
Section 10.2. Binding Effect 12
Section 10.3. Severability 13
Section 10.4. Amendments 13
Section 10.5. Right of Company To Perform Issuer's Agreements 13
Section 10.6. Applicable Law 13
Section 10.7. Captions 13
Section 10.8. Complete Agreement 13
Section 10.9. Termination 13
Section 10.10. Counterparts 14
Exhibit A Description of the Project
Schedule 2.2(d) Litigation
Schedule 2.2(h) Legal Requirements
Schedule 2.2(i) Properties and Assets
Loan Agreement dated as of January 1, 1993, between the
Village of Hennepin, Putnam County, Illinois, a political
subdivision of the State of Illinois (the Issuer ), and
Exolon-ESK Company, a Delaware corporation (the Company ).
The Industrial Project Revenue Bond Act, Ill. Rev. Stat.,
ch. 29, paragraph 11-74-1 through 11-74-14, inclusive, as
amended, empowers the Issuer to issue its revenue bonds for the
purpose of financing an industrial project, including the
refunding of revenue bonds previously issued by it. On December
28, 1984, the Issuer issued its Industrial Revenue Bonds, Series
1984 (Exolon-ESK Company Project) (the Prior Bonds ) for the
purpose of refinancing costs of the Project (as described in
Exhibit A hereto).
The Issuer proposes to issue $8,000,000 Industrial
Development Revenue Refunding Bonds (Exolon-ESK Company Project)
Series 1993 pursuant to the Indenture in order to provide funds
for the refunding of the Prior Bonds and to loan the proceeds of
the Bonds to the Company, and the Company desires to use the
proceeds to pay a portion of the cost of the refunding of the
Prior Bonds, all on the terms and conditions set forth in this
Loan Agreement.
Accordingly, the Issuer and the Company hereby agree as
follows:
Article I
Definitions
For all purposes of this Loan Agreement, unless the context
clearly requires otherwise, all terms defined in Article I of the
Indenture or Article I of the Covenant Agreement have the same
meanings in this Loan Agreement.
Indenture means the Indenture of Trust relating to the
Bonds, dated as of the date of this Loan Agreement, between the
Issuer and American National Bank and Trust Company of Chicago,
as Trustee, as such Indenture of Trust may be amended or
supplemented from time to time in accordance with its terms.
Article II
Representations
Section 2.1. Representations of Issuer. The Issuer
represents as follows:
(a) The Issuer (1) is a political subdivision duly
organized and existing under the laws of the State, (2) has full
power and authority to enter into the transactions contemplated
by this Loan Agreement and by the Indenture and to carry out its
obligations under this Loan Agreement and the Indenture,
including the issuance of the Bonds, (3) is not in default under
any provisions of the laws of the State and (4) by proper
corporate action has duly authorized the execution and delivery
of this Loan Agreement, the Bonds and the Indenture.
(b) Under existing statutes and decisions, no taxes on
income or profits are imposed on the Issuer. The Issuer will not
knowingly take or omit to take any action reasonably within its
control which action or omission would impair the exclusion of
interest paid on the Bonds from the federal gross income of the
owners of the Bonds.
(c) Neither the execution and delivery by the Issuer of
this Loan Agreement nor the consummation by the Issuer of the
transactions contemplated by this Loan Agreement conflicts with,
will result in a breach of or default under or will (except with
respect to the lien of the Indenture) result in the imposition of
any lien on any property of the Issuer pursuant to the terms,
conditions or provisions of any statute, order, rule, regulation,
agreement or instrument to which the Issuer is a party or by
which it is bound.
(d) Each of this Loan Agreement and the Indenture has been
duly authorized, executed and delivered by the Issuer and each
constitutes the legal, valid and binding obligation of the Issuer
enforceable against the Issuer in accordance with its terms.
(e) There is no litigation or proceeding pending, or to the
knowledge of the Issuer threatened, against the Issuer, or to the
knowledge of the Issuer affecting it, which would adversely
affect the validity of this Loan Agreement, the Indenture or the
Bonds or the ability of the Issuer to comply with its obligations
under this Loan Agreement, the Indenture or the Bonds.
(f) The Issuer is not in default under any of the
provisions of the laws of the State which would affect its
existence or its powers referred to in the preceding subsection
(a).
(g) The Issuer hereby finds and determines that, based on
representations of the Company, all requirements of the Act have
been complied with and that the refinancing of the Project
through the issuance of the Bonds will further the public
purposes of the Act.
(h) No member, director, officer or official of the Issuer
has any pecuniary interest in any employment, financing,
agreement or other contract with the Company or in the
transactions contemplated by this Loan Agreement.
(i) The Issuer will apply the proceeds from the sale of the
Bonds as specified in the Indenture and this Loan Agreement. So
long as any of the Bonds remain outstanding and except as may be
authorized by the Indenture, the Issuer will not issue or sell
any bonds or obligations, other than the Bonds, the principal of
or interest on which will be payable from the property described
in the granting clause of the Indenture.
Section 2.2. Representations of Company. The Company
represents as follows:
(a) The Company (1) is a corporation duly incorporated and
in good standing in the state of Delaware, (2) is duly qualified
to transact business and in good standing in the State and each
other jurisdiction where its ownership or lease of property or
the conduct of its business require such qualification, (3) is
not in violation of any provision of its certificate of
incorporation or its by-laws, (4) has full corporate power to own
its properties and conduct its business, (5) has full legal
right, power and authority to enter into this Loan Agreement and
the Covenant Agreement and consummate all transactions
contemplated by this Loan Agreement and the Covenant Agreement
and (6) by proper corporate action has duly authorized the
execution and delivery of this Loan Agreement and the Covenant
Agreement.
(b) Neither the execution and delivery by the Company of
this Loan Agreement or the Covenant Agreement nor the
consummation by the Company of the transactions contemplated by
this Loan Agreement and the Covenant Agreement conflicts with,
will result in a breach of or default under or will result in the
imposition of any lien on any property of the Company pursuant to
the certificate of incorporation or by-laws of the Company or the
terms, conditions or provisions of any statute, order, rule,
regulation, indenture, agreement or instrument to which the
Company is a party or by which it is bound.
(c) Each of this Loan Agreement and the Covenant Agreement
has been duly authorized, executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the
Company enforceable in accordance with its terms.
(d) There is no litigation or proceeding pending, or to the
knowledge of the Company threatened, against the Company or any
Subsidiary which could adversely affect the validity of this Loan
Agreement or the Covenant Agreement or the ability of the Company
to comply with its obligations under this Loan Agreement or,
except as identified on Schedule 2.2(d) attached hereto, which
could have a material adverse effect on the financial position,
results of operations, business, properties or prospects of the
Company and its Subsidiaries taken as a whole.
(e) The information contained in the Tax Exemption
Certificate and Agreement, the Project Certificate and all other
written information relating to the Project provided by the
Company to the Issuer and bond counsel for the Bonds is true and
correct in all material respects.
(f) (i) The Financial Statements as of December 31, 1991,
1990 and 1989 and for each of the three years then ended,
reported on by Arthur Andersen & Co., copies of which have been
delivered to the Initial Purchaser, fairly present, in all
material respects, the financial position of the Company and its
Subsidiaries as of such dates and the results of their operation
and their cash flows for each of the three years then ended in
conformity with GAAP; and (ii) the unaudited Financial Statements
as of September 30, 1992 and September 30, 1991 and for the nine
months then ended, copies of which have been delivered to the
Initial Purchaser fairly present, in all material respects, the
consolidated financial position of the Company and its
Subsidiaries as of such dates and the results of their operations
and their cash flows for the periods then ended in conformity
with GAAP (subject to normal year-end adjustments).
(g) Since December 31, 1991, there has been no material
adverse change in the financial position, results of operations,
business, properties or prospects of the Company and its
Subsidiaries taken as a whole.
(h) Except as otherwise disclosed in the Placement
Memorandum or in Schedule 2.2(h) attached hereto, the Company and
each Subsidiary is in compliance in all material respects with
all Legal Requirements affecting the Company or such Subsidiary,
and all material Governmental Approvals necessary for the use or
occupancy of their respective properties or the conduct of their
business have been obtained by the Company and its Subsidiaries
and are in full force and effect.
(i) All properties and assets of the Company and each
Subsidiary are owned by the Company or such Subsidiary free and
clear of all liens, encumbrances, security interest and pledges
except (i) liens for taxes not yet due or being contested in good
faith and by appropriate proceedings for which adequate reserves
with respect thereto are maintained on the books of the Company
in accordance with GAAP; (ii) carriers', warehousemen's,
mechanics', materialmen's, repairmen's or other liens arising in
the ordinary course of business which are not overdue for a
period of more than 30 days or which are being contested in good
faith by appropriate proceedings; (iii) easements, rights-of-way,
restrictions and other similar encumbrances that do not
materially impair the use or value of the properties or assets of
the Company or such Subsidiary; (iv) liens in favor of the United
States of America for amounts paid to the Company or any
Subsidiary as progress payments under government contracts
entered into by it; (v) liens described in the Financial
Statements referred to in paragraph (f) above or otherwise
disclosed to the Initial Purchaser in writing; and (vi) liens
encumbrances, securities interest and pledges identified in
Schedule 2.2(1) attached hereto.
(j) No condemnation or eminent domain proceeding has been
commenced or, to the knowledge of the Company, is threatened
against any material property of the Company or any Subsidiary.
(k) The information contained in the Placement Memorandum
and any other written information furnished to the Initial
Purchaser is true, correct and complete in all material respects
and does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements
contained therein not misleading. There is no fact that the
Company has not disclosed to the Issuer, bond counsel for the
Bonds and the Initial Purchaser in writing that materially and
adversely affects or in the future may (so far as the Company can
now reasonably foresee) materially and adversely affect the
financial position, results of operations, business, properties
or prospects of the Company and its Subsidiaries taken as a whole
or the ability of the Company to perform its obligations under
this Loan Agreement and the Covenant Agreement or any documents
contemplated hereby or thereby.
(1) All representations of the Company contained herein or
in any certificate or other instrument delivered by the Company
in connection herewith shall survive the execution and delivery
thereof and issuance, sale and delivery of the Bonds.
Article III
Completion of the Project
Section 3.1. Project Complete. The acquisition,
construction and installation of the Project has been completed
as contemplated in accordance with the documents executed in
connection with the issuance by the Issuer of the Industrial
Project Revenue Bonds, Series A (ESK Corporation Project) dated
February 1, 1979 (the Series 1979 Bonds ) which were refunded by
the Issuer's Industrial Development Revenue Bonds, Series 1984
ESK Corporation Project dated February 15, 1984 which were
refunded by the Prior Bonds.
Section 3.2. Project Description. The Company will
not make any material change in the Project description contained
in Exhibit A unless the Trustee and the Issuer receive an Opinion
of Tax Counsel to the effect that such change will not impair the
exclusion of interest on the Bonds from the gross income of
holders of the Bonds for Federal income tax purposes. The cost
of the Project for federal tax purposes, including the portion
paid for from proceeds of the Series 1979 Bonds, including
investment income, is set forth in Exhibit A. The provisions of
this Section will not prohibit the Company from disposing of
depreciated or worn out equipment.
Section 3.3. Operation of Project. So long as the Company
operates the Project, it will operate it as an industrial
project as contemplated by the Act and will operate the Project
in such a manner such that it will not impair the exclusion of
interest on the Bonds from gross income of the holders of the
Bonds for Federal income tax purposes under the Code and the
regulations promulgated and proposed thereunder
Article IV
Issuance of Bonds; Loan to Company
Section 4.1. Issuance of Bonds; Loan to Company. In order
to refund the Prior Bonds, the Issuer will issue, sell and
deliver the Bonds to the initial purchasers thereof and deposit
the proceeds of the Bonds with the Trustee as provided in Article
IV of the Indenture. Such deposit shall constitute a loan to the
Company under this Loan Agreement. The Issuer authorizes the
Trustee to disburse the proceeds of the Bonds in accordance with
Section 4.01 of the Indenture. If the funds held pursuant to the
Prior Indenture are not sufficient to accomplish the refunding of
the Prior Bonds within 10 Business Days of Closing, the Company
shall at its own expense and without any right of reimbursement
in respect thereof immediately pay all amounts necessary to
accomplish such refunding. The Company hereby approves the
Indenture and the issuance by the Issuer of the Bonds.
Article V
Repayment of Loan
Section 5.1. Repayment of Loan. The Company will repay
the loan made to it under Section 4.1 as follows:
(i) On the 1st day of March, 1993 and on the 1st day of
each month thereafter to and including the 1st day of July, 1993
the Company shall pay to the Trustee an amount which is not less
than one-fifth of the interest on the Bonds which will become due
on July 1, 1993; provided if the Bonds are initially delivered
after March 1, 1993 such payments due on or before March 1, 1993
shall be proportionally increased to reach the same result. On
the 1st day of August, 1993 and on the 1st day of each month
thereafter the Company shall pay to the Trustee an amount which
is not less than the sum of one-sixth (1/6) of the interest which
will become due on the next or current interest payment date on
the outstanding Bonds and one-twelfth (1/12) of the principal of
the outstanding Bonds which will become due on the next
succeeding or current principal payment date by maturity,
mandatory sinking fund redemption or extraordinary mandatory
redemption. No such payment need be made however to the extent
that there is a sufficient amount already on deposit with the
Trustee and available for such purpose to be applied to such next
interest payment or maturity, mandatory sinking fund redemption
or extraordinary mandatory redemption payment. If the 1st day of
any month is not a Business Day, the payment herein required to
be made shall be made on the next succeeding Business Day.
(ii) On or before 11:00 a.m. (local time at the principal
corporate trust office of the Trustee) on each day on which any
payment of either principal of, premium, if any and interest on
the Bonds, or both, shall become due (whether at maturity, or
upon redemption or acceleration or otherwise), the Company will
pay an amount which, together with other moneys held by the
Trustee under the Indenture and available therefor, will enable
the Trustee to make such payment in full in a timely manner.
If the Company defaults in any payment required by this
Section, the Company will pay interest (to the extent allowed by
law) on such amount until paid at the rate provided for in the
Bonds.
In furtherance of the foregoing, so long as any Bonds are
outstanding the Company will pay all amounts required to prevent
any deficiency or default in any payment of the Bonds, including
any deficiency caused by an act or failure to act by the Trustee,
the Company, the Issuer or any other person.
All amounts payable under this Section by the Company are
assigned by the Issuer to the Trustee pursuant to the Indenture
for the benefit of the Bondholders. The Company consents to such
assignment. Accordingly, the Company will pay directly to the
Trustee at its principal corporate trust office all payments
payable by the Company pursuant to this Section.
Section 5.2. Additional Payments. The Company will also
pay the following within 30 days after receipt of a bill
therefor:
(a) The reasonable fees and expenses of the Issuer in
connection with this Loan Agreement and the Bonds, such fees and
expenses to be paid directly to the Issuer; provided that the
Company Representative shall have approved such expenses in
writing prior to their incurrence.
(b) (i) The fees and expenses of the Trustee and all other
fiduciaries and agents serving under the Indenture (including any
expenses in connection with any redemption of the Bonds), and
(ii) all fees and expenses, including attorneys' fees, of the
Trustee for any extraordinary services rendered by it under the
Indenture. All such fees and expenses are to be paid directly to
the Trustee or other fiduciary or agent for its own account as
and when such fees and expenses become due and payable.
Section 5.3. Prepayments. The Company may prepay to the
Trustee all or any part of the amounts payable under Section 5.1
at the times and subject to the conditions that Bonds are subject
to redemption as described in the Bonds. A prepayment shall not
relieve the Company of its obligations under this Loan Agreement
until all the Bonds have been paid or provision for the payment
of all the Bonds has been made in accordance with the Indenture.
In the event of a mandatory redemption of the Bonds, the Company
will prepay all amounts necessary for such redemption.
Section 5.4. Payments Upon Determination of Taxability.
The Company shall pay on demand to any former holder of the Bonds
all amounts required to be paid by the Issuer pursuant to
Section 5.02 of the Indenture.
Section 5.5. Obligations of Company Unconditional. The
obligations of the Company to make the payments required by
Sections 5.1, 5.3 and 5.4 and to perform its other agreements
contained in this Loan Agreement shall be absolute and
unconditional. Until the principal of and interest on the Bonds
shall have been fully paid or provision for the payment of the
Bonds made in accordance with the Indenture, the Company (a) will
not suspend or discontinue any payments provided for in Section
5.1 hereof, (b) will perform all its other agreements in this
Loan Agreement and (c) will not terminate this Loan Agreement for
any cause including any acts or circumstances that may constitute
failure of consideration, destruction of or damage to the
Project, commercial frustration of purpose, any change in the
laws of the United States or of the State or any political
subdivision of either or any failure of the Issuer to perform any
of its agreements, whether express or implied, or any duty,
liability or obligation arising from or connected with this Loan
Agreement.
Article VI
Other Company Agreements
Section 6.1. Maintenance of Existence. The Company agrees
that during the term of this Loan Agreement and so long as any
Bond is outstanding, it will maintain its corporate existence,
will continue to be a corporation in good standing under the laws
of the State of Delaware and qualified to do business in the
States of New York and Illinois, will not dissolve or otherwise
dispose of all or substantially all of its assets and will not
consolidate with or merge into another legal entity or permit one
or more other legal entities (other than one or more subsidiaries
of the Company) to consolidate with or merge into it, except
pursuant to the settlement agreement dated as of May 29, 1992
between the Company and Wacker Chemical Corporation, or sell or
otherwise transfer to another legal entity all or substantially
all its assets as an entirety and dissolve, unless (a) in the
case of any merger or consolidation, the Company is the surviving
corporation, or (b)(i) the surviving, resulting or transferee
legal entity is organized and existing under the laws of the
United States, a state thereof or the District of Columbia, and
(if not the Company) assumes in writing all the obligations of
the Company under this Loan Agreement, (ii) no event which
constitutes, or which with the giving of notice or the lapse of
time or both would constitute an Event of Default shall have
occurred and be continuing immediately after such merger,
consolidation or transfer and (iii) no such merger, consolidation
or transfer shall result in a reduction in any rating then in
effect on the Bonds. As long as the Covenant Agreement shall
remain in effect, no such dissolution, disposal of assets,
consolidation or merger shall occur except in compliance with the
Covenant Agreement.
Section 6.2. Financial Statements. The Company shall
deliver to the Trustee and any Major Bondholder and, upon
request, shall deliver to the Issuer (a) as soon as practicable
and in any event within forty-five (45) days after the end of
each of the first three quarterly periods of each fiscal year of
the Company, the unaudited financial report of the Company for
such quarter and (b) as soon as practicable and in any event
within ninety (90) days after the end of each fiscal year of the
Company, the financial report of the Company for such fiscal year
audited by a firm of independent certified public accountants
regularly retained by the Company. Each such report to the
Trustee and such Bondholders will be accompanied by a no default
certificate evidencing compliance with the Company Covenants.
Section 6.3. Payment of Taxes. The Company will, and will
cause each Subsidiary to, pay and discharge promptly all lawful
taxes, assessments and other governmental charges or levies
imposed upon the Project, or upon any part thereof, as well as
all claims of any kind (including claims for labor, materials and
supplies) which, if unpaid, might by law become a lien or charge
upon the Project or any other property of the Company or such
Subsidiary; provided that the Company shall not be required to
pay any such tax, assessment, charge, levy or claim (i) if the
amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings promptly
initiated and diligently conducted; (ii) if the Company shall
have set aside on its books reserves (segregated to the extent
required by GAAP) with respect thereto deemed adequate by the
Company; and (iii) if failure to make such payment will not
impair the use of the Project by the Company or such Subsidiary.
Section 6.4. Arbitrage. The Company covenants with the
Issuer and for and on behalf of the purchasers and owners of the
Bonds from time to time outstanding that so long as any of the
Bonds remain outstanding, moneys on deposit in any fund in
connection with the Bonds, whether or not such moneys were
derived from the proceeds of the sale of the Bonds or from any
other sources, will not be used in a manner which will cause the
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 Bondholders to comply with all
of the provisions of the Tax Exemption Certificate and Agreement
and the Project Certificate. 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
regulations promulgated thereunder shall be repealed or relaxed
or shall be held void by final judgment of a court of competent
jurisdiction, but only if any investment made by virtue of such
repeal, relaxation or decision would not, in the written Opinion
of Tax Counsel, result in making the interest on the Bonds
includible in the federal gross income of the owners of the
Bonds.
Section 6.5. Company's Obligation with Respect to
Exclusion of Interest Paid on the Bonds;. Notwithstanding any
other provision hereof, the Company covenants and agrees that it
will not take or authorize or permit, to the extent such action
is within the control of the Company, any action to be taken with
respect to the Project, or the proceeds of the Bonds (including
investment earnings thereon), or any other proceeds derived
directly or indirectly in connection with the Project, which will
result in the loss of the exclusion of interest on the Bonds from
the federal gross income of the owners of the Bonds under Section
103 of the Code (except for any Bond during any period while any
such Bond is held by a person referred to in Section 103(b)(13)
of the 1954 Code); and the Company also will not omit to take any
action in its power which, if omitted, would cause the above
result. The inclusion of interest on any Bond in the computation
of the adjustment used in determining the alternative minimum tax
for certain corporations, the environmental tax imposed by
Section 59A of the Code or the branch profits tax on foreign
corporations imposed by Section 884 of the Code does not
constitute a loss of the exclusion from federal gross income of
interest on the Bonds under Section 103 of the Code within the
meaning of this Section. This provision shall control in case of
conflict or ambiguity with any other provision of this Loan
Agreement.
The Company covenants and agrees to notify the Trustee, each
Major Bondholder and the Issuer of the occurrence of any event of
which the Company has notice and which event would require the
Company to prepay the amounts due hereunder because of a
redemption upon a Determination of Taxability (as defined in the
Form of Bond attached to the Indenture as Exhibit A).
The Company covenants and agrees that upon the enactment of
appropriate changes to the Code it will, at its own expense, use
all reasonable efforts to cause to be delivered to the Trustee
the Opinion of Tax Counsel referred to in Section 3.02(b) of the
Indenture.
Section 6.6. Maintenance of Insurance. The Company
agrees, as long as any Bonds are outstanding, to maintain and to
cause each Subsidiary to maintain, insurance with respect to the
Project and all of its other property, including business
interruption insurance and liability insurance, with responsible
and reputable insurance companies or associations in such amounts
and covering such risks as are usually carried by companies
engaged in similar businesses and owning similar properties in
the same general area. Evidence of insurance shall be provided
to the Trustee and each Major Bondholder.
Section 6.7. Maintenance of Property. The Company will,
and will cause each Subsidiary to, as long as any Bonds are
outstanding, maintain and preserve the Project and their other
properties, real or personal, in good working order and
condition, ordinary wear and tear excepted, it being understood
that this agreement relates only to the good working order and
condition of such property and shall not be construed as an
agreement of the Company not to dispose of such property by sale,
lease, transfer or otherwise in the ordinary course of business.
Section 6.8. Access to the Project and Inspection. The
Trustee, the Issuer, and the owners of 25% or more of outstanding
principal amount of the Bonds shall have the right, at all
reasonable times upon the furnishing of reasonable notice under
the circumstances to the Company, to enter upon and to examine
and inspect the Project. The Trustee, the Issuer, such
Bondholders and their duly authorized agents shall also have such
right of access to the Project as may be reasonably necessary for
the proper maintenance of the Project, in the event of failure by
the Company to perform its obligations relating to maintenance
under this Loan Agreement. The Company hereby covenants to
execute, acknowledge and deliver all such further documents, and
do all such other acts and things as may be necessary to grant to
the Trustee, the Issuer and such Bondholders such right of entry.
The Trustee, The Issuer and such Bondholders shall also be
permitted, at all reasonable times, to examine the books and
records of the Company with respect to the obligations of the
Company hereunder, but neither shall be entitled to access to
trade secrets or other proprietary information (other than
financial information) of the Company.
Section 6.9. Negative Covenant;. So long as any of the
Bonds remain outstanding, the Company will not, without the
written consent of the holders of at least a majority in
aggregate principal amount of the outstanding Bonds, sell,
transfer, convey, encumber, mortgage or otherwise dispose of the
Project or substantially all thereof except as permitted by
Section 6.1 and except as permitted in the Covenant Agreement.
Article VII
No Recourse to Issuer; indemnification
Section 7.1. No Recourse to Issuer. The Issuer will not
be obligated to pay the Bonds except from revenues provided by
the Company. The issuance of the Bonds will not directly or
indirectly or contingently obligate the Issuer or the State to
levy or pledge any form of taxation whatever or to make any
appropriation for their payment. Neither the Issuer nor any
member or officer of the Issuer nor any person executing the
Bonds shall be liable personally for the Bonds or be subject to
any personal liability or accountability by reason of the
issuance of the Bonds.
Section 7.2. Indemnification;. The Company during the
term of this Loan Agreement releases the Issuer, the Trustee and
their officers from and covenants and agrees that the Issuer, the
Trustee and their officers shall not be liable for, and agrees to
indemnify and hold the Issuer and the Trustee harmless against,
any loss or damage to property or any injury to or death of any
person occurring on or about or resulting from any defect in the
Project, provided that the indemnity provided in this sentence
shall be effective only to the extent of any loss that may be
sustained by the Issuer, the Trustee or their officers or agents
in excess of the net proceeds received by the Issuer or the
Trustee from any insurance carried with respect to the loss
sustained, and provided further, that the indemnity shall not be
effective for damages that result from the negligence or wilful
misconduct on the part of the Issuer, the Trustee or their
officers or agents. The Company will also indemnify and save
harmless the Issuer, the Trustee and their officers or agents
from and against any and all losses, costs, charges, expenses,
judgments and liabilities imposed upon or asserted against them
with respect to the Project on account of any failure on the part
of the Company to perform or comply with any of the provisions of
this Loan Agreement.
Article VIII
Assignment
Section 8.1. Assignment by Company. The Company may
assign its rights and obligations under this Loan Agreement
without the consent of either the Issuer or the Trustee, but no
assignment will relieve the Company from primary liability for
any obligations under this Loan Agreement.
Section 8.2. Assignment by Issuer. The Issuer will assign
its rights under and interest in this Loan Agreement (except for
the Unassigned Rights) to the Trustee pursuant to the Indenture
as security for the payment of the Bonds. Otherwise, the Issuer
will not sell, assign or otherwise dispose of its rights under or
interest in this Loan Agreement nor create or permit to exist any
lien, encumbrance or other security interest in or on such rights
or interest.
Article IX
Defaults and Remedies
Section 9.1. Remedies on Default. Whenever any Event of
Default under the Indenture has occurred and is continuing, the
Trustee may take whatever action may appear necessary or
desirable to collect the payments then due and to become due or
to enforce performance of any agreement of the Company in this
Loan Agreement.
In addition, if an Event of Default is continuing with
respect to any of the Unassigned Rights, the Issuer may take
whatever action may appear necessary or desirable to it to
enforce performance by the Company of such Unassigned Rights.
Any amounts collected pursuant to action taken under this
Section (except for amounts payable directly to the Issuer or the
Trustee pursuant to Section 5.2, 7.2 and 9.3) shall be applied in
accordance with the Indenture.
Nothing in this Loan Agreement shall be construed to permit
the Issuer, the Trustee, any Bondholder or any receiver in any
proceeding brought under the Indenture to take possession of or
exclude the Company from possession of the Project by reason of
the occurrence of an Event of Default.
Section 9.2. Delay Not Waiver; Remedies. A delay or
omission by the Issuer or the Trustee in exercising any right or
remedy accruing upon an Event of Default shall not impair the
right or remedy or constitute a waiver of or acquiescence in the
Event of Default. No remedy is exclusive of any other remedy.
All available remedies are cumulative.
Section 9.3. Attorneys' Fees and Expenses. If the Company
should default under any provision of this Loan Agreement and the
Issuer should employ attorneys or incur other expenses for the
collection of the payments due under this Loan Agreement, the
Company will on demand pay to the Issuer the reasonable fees of
such attorneys and such other reasonable expenses so incurred by
the Issuer.
Article X
Miscellaneous
Section 10.1. Notices. All notices or other communications
hereunder shall be sufficiently given and shall be deemed given
when delivered or mailed as provided in the Indenture.
Section 10.2. Binding Effect. This Loan 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 Section 6.1.
Section 10.3. Severability. If any provision of this Loan
Agreement shall be determined to be unenforceable at any time,
that shall not affect any other provision of this Loan Agreement
or the enforceability of that provision at any other time.
Section 10.4. Amendments. After the issuance of the Bonds,
this Loan Agreement may not be effectively amended or terminated
without the written consent of the Trustee and in accordance with
the provisions of the Indenture.
Section 10.5. Right of Company To Perform Issuer's
Agreements;. The Issuer irrevocably authorizes and empowers the
Company to perform in the name and on behalf of the Issuer any
agreement made by the Issuer in this Loan Agreement or in the
Indenture which the Issuer fails to perform in a timely fashion
if the continuance of such failure could result in an Event of
Default. This Section will not require the Company to perform
any agreement of the Issuer.
Section 10.6. Applicable Law. This Loan Agreement shall be
governed by and construed in accordance with the laws of the
State.
Section 10.7. Captions; References to Sections. The
captions in this Loan Agreement are for convenience only and do
not define or limit the scope or intent of any provisions or
Sections of this Loan Agreement. References to Articles and
Sections are to the Articles and Sections of this Loan Agreement,
unless the context otherwise requires.
Section 10.8. Complete Agreement. This Loan Agreement
represents the entire agreement between the Issuer and the
Company with respect to its subject matter.
Section 10.9. Termination. When no Bonds are Outstanding
under the Indenture, the Company and the Issuer shall not have
any further obligations under this Loan Agreement; provided that
the Company's covenants in Sections 6.4 and 6.5 and the
provisions of Section 5.3 with respect to mandatory redemption of
the Bonds shall survive so long as any Bond remains unpaid, and
the provisions of Sections 5.4 and 7.2 shall survive the
termination of this Loan Agreement.
Section 10.10. Counterparts. This Loan Agreement may be
signed in several counterparts. Each will be an original, but
all of them together constitute the same instrument.
Village of Hennepin, Putnam County,
Illinois
By Jack Grant
Village President
[Seal]
Attest:
By Kathleen Spratt
Village Clerk
Exolon-ESK Company
By William H. Nehill
Its Executive Vice President
DISTRIBUTORSHIP AGREEMENT
Between EXOLON-ESK COMPANY
1000 East Niagara Street
Tonawanda, New York 14150
(hereinafter referred to as the
"Distributor")
and
ELEKTROSCHMELZWERK KEMPTEN GMBH
Hanns-Seidel-Platz 4
D-81737 Munchen
(hereinafter referred to as "ESK")
1. Subject and Definitions
1.1 Subject to the terms and conditions of this Agreement, ESK
hereby appoints the Distributor its sole and exclusive
Distributor of the products listed as follows: SIC MICRO
GRITS F 280 and finer ("Products") in the Territory as
defined in Section 1.2 hereof.
1.2 The Territory shall be the United States of America and its
territories (including the Commonwealth of Puerto Rico),
Canada and Central America. Central America shall be part
of the territory only under the provision that companies who
had been customers of Distributor under this Agreement in
the territory of the US and/or Canada transfer their
activities to a Central American Country and provided that
the Products for those former activities in the US and
Canada have been supplied by Distributor.
1.3 This Agreement shall become effective on January 1, 1998,
and the initial term thereof shall expire on December 31,
1999; provided, however, that the term of this Agreement
shall be automatically extended for an additional successive
two years term, commencing on January 1, 1999, and each
succeeding anniversary thereafter unless either party shall
give written notice of termination by June 30 of the
contract year of the original term or the renewal term
hereof then in effect, in which event this Agreement shall
terminate on the following December 31 of the same contract
year.
1.4 As used in this Agreement, "Buyer" shall mean the original
ultimate purchaser or user of any of the Products, after
purchase from Distributor or from any middleman, who has
ultimately acquired the Product in question in any series of
non-final sales originating with Distributor.
2. Promotion and Sale
2.1 Distributor shall use its best efforts to develop and
exploit the maximum sales potential for the entire line of
the Products in the Territory.
2.2 Distributor shall suitably promote the Products in the
Territory through the appropriate means.
2.3 Distributor shall maintain a sales force, which shall (a) be
properly trained, (b) competently promote and sell the
Products and (c) maintain the good will of customers
throughout the Territory.
2.4 ESK shall provide Distributor such technical assistance as
may reasonably be required by Distributor in the promotion
and sale of the Products, and the cost of such technical
assistance shall be borne by ESK, except however that
Distributor shall reimburse ESK for all travel, meal,
lodging, and related out-of-pocket expenses incurred by
personnel of ESK or its affiliates while in the Territory in
providing such technical assistance when such assistance is
requested by Distributor.
2.5 ESK's and Distributor's personnel shall have the right
periodically to visit each other. Both parties shall assist
where necessary in making arrangements for such visits.
Deficiencies in regard to proper storage of the inventory,
prompt processing of customer orders, inquiries or
complaints, appropriate limitation of warranties and
liability (as previously agreed upon by the parties), and
maintenance of appropriate inventory of Products noted
during such visits to such centers or otherwise shall be
remedied without delay by the responsible party.
2.6 The parties shall consult with one another concerning each
other's performance of its obligations under this section 2
and they shall render to each other such assistance as it
deems appropriate.
3. Reports; Planning
3.1 Not more than twenty-one (21) days after each June 30 and
January 31, while this Agreement is in force, DISTRIBUTOR
shall mail a report in writing to ESK. In such semi-annual
report DISTRIBUTOR shall:
(a) advise ESK of the inventories of the Products held, if
any, at the end of the just-completed quarter, by
classes and subclasses, in a form mutually agreed upon
by the parties hereto, showing grade, size, and product
type to the extent differentiated on each parties
records, cost thereof and quantity on hand;
(b) advise ESK of its anticipated requirements, if any, of
the Products in the coming two calendar quarters;
thereafter the parties shall jointly plan each other's
inventory requirements, if any, and determine the
quantities of the Products by classes and subclasses to
be ordered by Distributor from ESK.
3.2 In November of each year during the term of this Agreement,
Distributor shall furnish ESK with a report on its marketing
plans for the coming calendar year and setting forth the
activities of the competition, the market for the Products,
the price structure of the market, and reactions of its
customers to the Products.
3.3 Within ninety days (90) after the end of each fiscal year
(or portion thereof) of Distributor falling within the term
hereof, Distributor shall furnish to ESK a report of the
total gross sales in tonnage with the average price per ton
for each such Product during such year. ESK shall furnish
to Distributor a report with their direct sales value in the
Territory of such Products provided Distributor will furnish
a similar report regarding sales of said Products purchased
from other parties.
4. Prices, Payment, Sales and Delivery Terms
4.1 Distributor will purchase the Products for its own account
from ESK at the net list prices set by ESK for the
Territory, CIF Tonawanda or CIF at other ports of entry of
the Territory (based on the latest edition of INCO-terms).
Title to the Products and risk of loss thereof shall pass
from ESK to Distributor, irrespective of any agreement
between them as to purchase of insurance or shipment terms,
upon delivery by ESK of the Products to the carrier loaded
on board at the port of shipment. The port of entry shall
be mutually agreed upon by ESK and Distributor. Prices are
subject to change from time to time by ESK upon sixty (60)
days written notice to Distributor prior to the effective
date of any such change. Price changes shall not apply to
orders submitted before the expiration of the sixty-day
period unless delivery is scheduled by Distributor to take
place after such period expires, provided, however, that
Distributor's scheduling of such delivery conforms to the
normal and customary delivery schedules arranged between
Distributor and ESK previously and is for normal and
customary quantities of Products previously ordered by
Distributor from ESK.
4.2 Distributor shall be invoiced in American currency and
payment of the invoice prices shall be made in such
currency. Payment terms shall be net sixty (60) days from
B/L. All bank fees and other charges and expenses shall be
paid by buyer. Any sum not paid when due shall accrue
interest at a varying rate equal to three points above the
varying discount rate in effect from time to time as
announced by the Federal Reserve. Any demand or collection
of interest by seller shall not be deemed in lieu of any
other claim for damages which seller may have.
4.3 Terms and conditions of sale set forth in Section 6 shall be
governed by the actual ESK General Conditions of Sale
(Export), as by attached document A.
Such terms and conditions may only be modified upon the
parties' prior mutual written consent. Any terms and
conditions appearing on any quotation, purchase order, or
acknowledgment form of either party made hereto in
connection with any sales transactions within the framework
of this Agreement shall be without force or effect.
4.4 In the event that either party intends to grant any lien or
security interest in its inventory (other than machinery and
parts inventory) to secure obligations of any kind, that
party will, prior to such grant of any such lien or security
interest, grant to the other party, as security for its
payment to the other party of any and all amounts due under
any section of this paragraph 4 or any other provision of
this Agreement, including any and all attorney's fees and
legal costs incurred in enforcing this Agreement or
collecting any monies due for any reason, a first security
interest and lien in their inventory to the extent such
inventory is comprised of any Products sold or purchased
pursuant to this Agreement, as well as all products derived
from such Products, all rights of either party as a seller
or a buyer of such Products or products derived from such
Products under Article 2 of the Uniform Commercial Code, all
such Products or products derived from the Products which
are sold or transferred which have been subsequently
returned, reclaimed or repossessed, and all proceeds
thereof, including any cash or accounts receivable resulting
from the sale or purchase of such inventory or proceeds of
any insurance policy (collectively, the "Collateral"). Both
parties agree to keep the inventory identified so that it
can be distinguished from any goods not subject to this
security interest, to keep such inventory insured against
the customary casualties and risks for at least its
replacement costs, to protect the inventory from waste,
damage by the elements, theft and vandalism, and to pay all
taxes of any kind which may be imposed upon the inventory or
which, if not paid, could result in a lien upon the
inventory. Both parties agree that in the event they intend
to grant such lien or security interest to another, it will
at any time and from time to time execute any financing and
continuation statements reasonably requested by the other
party to perfect or to continue the perfection of such
security interest and further appoints the other party its
attorney-in-fact to execute and file such financing and
continuation statements if it fails to execute and deliver
the same within 5 days after the same is requested. The
parties warrant that such security interest shall be
superior to any and all liens and encumbrances upon such
Collateral. Failure of either party to observe the
covenants and warranties of this Section 4.4, or to observe
the other covenants, warranties and agreements of this
Agreement, or to pay any sum when due under this Agreement
shall constitute grounds, at its option, to declare all sums
immediately due and owing and to exercise its rights under
this Section 4.4. Any rights of the parties under this
Section 4.4 are cumulative of any other rights and remedies
which it may have at law or in equity.
5. Sales by ESK in the Territory
5.1 Notwithstanding section 1 hereof and subject to the
following conditions, ESK shall have the right after
consulting with Distributor, to sell and to make delivery of
the Products to those customers who ask to deal directly
with ESK. In regard to such customers, ESK hereby appoints
Distributor its exclusive sales representative for the
Territory during the term hereof, and Distributor agrees to
cooperate with ESK to promote and bring about such business
between ESK and such customers who wish to deal directly
with ESK, but the acceptance or refusal of such orders
procured by Distributor from such customers for ESK shall in
all instances be reserved to ESK, and ESK, not Distributor,
shall establish the selling prices as well as the terms and
conditions of sale and delivery to such customers, provided,
however, that ESK shall not make such sales at prices which
are less than the prices for Distributor for sales to its
customers of the same product of the same quality in the
same quantity and under the same delivery and payment terms.
5.2 In such cases of direct sale by ESK, ESK shall pay to
Distributor, in consideration of the performance of
Distributor's obligations hereunder, a commission equal to
3% of the invoice amount during 2 (two) years and 2% for the
subsequent years of the invoice amount charged by ESK to
such customers (less freight, taxes, insurance, customs
duties, and any discounts, rebates, and allowances) and in
fact paid by such customers. If for any reason any orders
shall remain unexecuted or unpaid after reasonable attempts
at collection have been made by ESK, Distributor shall have
no claim for any compensation or allowance with respect
thereto.
5.3 Notwithstanding Section 5.2 hereof, Distributor shall have
no claim for commissions on triangle and switch business
into third countries, nor shall any commission be paid to
Distributor in the event that American, Central American
(following section 1.2) or Canadian companies purchase
Products, in their own name and on their own account, for
direct or indirect shipment to a location outside the
Territory.
6. Terms and Conditions of Sale and Delivery
6.1 Any delivery dates given to Distributor by ESK are estimates
only, and shall not bind ESK to ship or deliver the Products
on the dates indicated, although ESK will use its best
efforts to meet such delivery dates, and ESK shall not be
liable for any direct, indirect, consequential or special
damages as a result of delay. In the event that ESK fails
to make delivery within the time agreed upon by ESK and
Distributor, and within a reasonable period thereafter,
Distributor's sole remedy shall be to cancel its order. ESK
reserves the right to make partial shipments of the Products
ordered and to submit separate invoices to Distributor for
such partial shipments.
6.2 If Distributor shall default in the timely performance of
its obligations in regard to any order or invoice, or any
partial shipment under a larger order, ESK may suspend its
performance under any subsequent order or in regard to any
further partial shipments under such larger order unless and
until Distributor shall have cured such default.
6.3 The term "force majeure" means any cause not within the
reasonable control of the party affected thereby, including
without limitation acts of God, fire, flood, explosion,
riot, rebellion, revolution, strikes or labor disturbances,
war, embargoes, shortages or raw materials or transportation
or fuel or electric power, failure or destruction of
production facilities, and any governmental decree. The
occurrence of force majeure shall not excuse either party
from the performance of its obligations to the other party,
but shall only suspend the same during the continuance of
the force majeure. If any force majeure shall prevail for
45 consecutive days, either party shall have the right to
terminate at once by written notice to the other party that
portion of any order between Distributor and ESK which is
still fully executory on the part of both parties. Neither
party shall be liable to the other party for any direct,
indirect, consequential, incidental or special damages
arising out of or relating to the suspension or termination
of any contractual relationship between the parties as a
result of force majeure; the occurrence and the termination
of such force majeure shall be promptly communicated to the
other party.
6.4 The provisions hereof may be changed by specific written
agreement as regards any individual case.
7. Expenses of Performance
Unless otherwise herein provided, each of the parties hereto
shall bear the entire cost of performing its obligations
hereunder.
8. Limitation of Warranty
8.1 ESK warrants only that the Products sold to Distributor
under this Agreement will meet ESK's specifications or the
relevant sample or any independent standard expressly
accepted by ESK, under normal use in accord with ESK's
specifications and instructions. If any failure to conform
to this warranty is reported to ESK in writing within thirty
(30) days after the date of the receipt of the Products by
Distributor or any Buyer receiving Products through
Distributor (in the case of any nonconformity discoverable
through reasonable inspection by Distributor or such Buyer)
or within thirty (30) days after the discovery of the
nonconformity (in the case of any nonconformity not
discoverable through such reasonable inspection, but in any
event notice of any nonconformity, whether or not
discoverable by reasonable inspection, must be given to ESK
within one hundred eighty (180) days after delivery of the
Products to Buyer), ESK, upon being satisfied of the
existence of such nonconformity, will correct the same by,
at the Distributor's option, delivering replacement Products
or refunding the purchase price (or, where appropriate, the
unit price for such relevant quantity of the Products as
have the nonconformity) paid by Distributor or Buyer. If
the Products are found by ESK to be nonconforming, ESK will
pay shipping costs for return. No Products shall be
returned to ESK, however, without its express written
consent.
The foregoing warranty is the sole warranty of ESK. All
other warranties, express or implied, including warranties
of merchantability and fitness for purpose, are excluded and
disclaimed.
9. Product Liability Insurance
The parties shall each carry product liability insurance,
covering the Products which are subject to this Agreement
and shall provide proof thereof upon request of the other
party.
10. Termination
10.1 This Agreement may be terminated:
(a) as set forth in section 1.3
(b) at once by either party if the other party hereto
commits a material breach or default under this
Agreement, which breach or default shall not be
remedied within 30 days after the giving of notice
thereof to the party in breach or default; or
(c) at once by either party if the other party hereto is
unable to pay its debts as they fall due for a period
of sixty (60) days or enters into liquidation or
dissolution or becomes insolvent, or if a trustee or
receiver is appointed for such party, whether by
voluntary act or otherwise, or if any proceeding is
instituted by or against such party under the
provisions of any bankruptcy act or amendment thereto
and is not dismissed within sixty (60) days; or
(d) at once by either party if (i) either direct or
indirect control of the Common Stock, Class A Common
Stock, Series A Preferred Stock or Series B Preferred
Stock, of Distributor is transferred, either
voluntarily or involuntarily, to any person or entity
other than the current control groups; or (ii) if all
or a substantial part of the assets of either party
shall be sold in other than the ordinary course of
business; or (iii) if either party attempts to assign
this Agreement without the other party's prior written
consent.
10.2 It is expressly understood and agreed that neither party
hereto is under any obligation to continue this Agreement in
effect, nor to continue the arrangement established
hereunder, after termination of this Agreement in accordance
with this section 10. Both parties recognize the necessity
of making expenditures in preparing to perform and in
performing this Agreement, and they recognize the
possibility and the likelihood of losses or damages
resulting from its termination. The parties nevertheless
agree that no party shall be liable to the other for
termination of this Agreement in accordance with this
section 10, and each party specifically agrees not to hold
the other liable for any losses or damages resulting from
such termination, including, but not limited to, loss of or
damage to investments, leases and sales, advertising and
promotional activities, whether incurred in connection with
the preparation to perform or the performance of this
Agreement or in the expectation of its renewal or extension.
10.3 After notice of termination is given by either party under
this section 10, the parties are entitled to restrict or
even stop entirely deliveries or acceptance of deliveries of
the Products, including deliveries on orders already
received at the time of notice of termination. However, ESK
is required to make the Products available to Distributor in
order to enable Distributor to maintain its own legally
binding delivery commitments existing before termination
becomes effective for delivery contracts signed by
Distributor for up to one year commitments.
11. Special and Consequential Damages
The parties agree that the remedies provided in this
Agreement are adequate, and that therefore no party shall be
liable to the other for special or consequential damages
arising from the breach of any obligation hereunder or for
any other reason whatsoever other than as specifically
provided for herein.
12. Miscellaneous Provisions
12.1 The relationship between Distributor and ESK is that of
independent contractor and not of employer-employee or
principal-agent. Distributor is not the legal
representative of ESK, and ESK is not the legal
representative of Distributor, and no party shall hold
itself out as such. Neither Distributor nor ESK has the
right or authority to assume or undertake any obligation or
make any representation on behalf of the other.
12.2 Both parties acknowledge and agree that any internal and
confidential knowledge or information or trade secrets about
the activities, processes or products of either party
hereto, which the other shall receive or learn in the
performance of its obligations hereunder, shall be kept
strictly confidential and secret, even after termination of
this Agreement, and shall not be used by such other party
hereto in its own business without the prior written consent
of the owner of the same or unless pursuant to a separate
license agreement between the parties or unless the same
shall have become known in the industry through no fault of
the party seeking to use the other's information or unless
the same shall have become known to such party from other
sources not involving a breach of any contractual
obligation. Each party shall be responsible for seeing that
its own employees and agents observe the terms of this
Agreement.
12.3 ESK agrees to inform Distributor of all inquiries and orders
received by it directly from the Territory for delivery in
the Territory of the Products. In return, Distributor shall
send to ESK all inquiries and orders received by it either
for delivery outside the Territory or in regard to customers
who wish to deal directly with ESK.
12.4 This Agreement, including any claims arising out of or
connected with this Agreement, may not be assigned by either
party except with the prior written consent of the other
party.
12.5 The failure of any party hereto to require the performance
of any term of this Agreement or waiver by any party of any
breach under this Agreement shall not prevent a subsequent
enforcement of such term nor be deemed waiver of any
subsequent breach. Subject to the provisions of section 10
hereof in regard to notice of default and right to cure,
time is of the essence in the performance of each party's
obligations hereunder.
12.6 The captions set forth herein are for convenience of
reference only and shall not be considered as part hereof or
in any way to limit or amplify the terms and provisions
hereof.
13. Notices
Any notice required or permitted to be given hereunder shall
be in writing and shall be deemed to have been given after
the same has been mailed by registered or certified mail
(air mail if overseas), return receipt requested, to the
respective addresses appearing on the first page of this
instrument, or to such other addresses as the parties may
from time to time designate in writing.
14. Controversies
Any controversy or claim arising out of or relating to this
Agreement, or the negotiation or breach thereof, shall be
settled by arbitration in accordance with the Rules of the
American Arbitration Association, and the judgment upon the
award rendered by the Arbitrator(s) may be entered in any
court having jurisdiction thereof. The arbitration shall be
held in such location as shall be mutually agreeable to the
parties, but in the absence of such agreement in New York,
New York.
15. Modifications
Modifications to this Agreement must be confirmed by both
parties in writing prior to the effective date.
16. Severability of the Contract
Should any provision of this contract lack validity or
become void, the remaining provisions hereof will remain in
force.
17. Applicable Law
This contract is subject to and shall be construed in
accordance with the law of the State of New York.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement this ___ day of July, 1997.
ELEKTROSCHMELZWERK KEMPTEN GMBH EXOLON-ESK COMPANY
By: By: J. Fred Silver,
President
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
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