UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-5005
SELAS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1069060
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Dresher, Pennsylvania 19025
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (215) 646-6600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Shares, $1 par American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 periods
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. (X)
The aggregate market value, as of March 3, 1997, of the voting stock held
by non-affiliates of the registrant was approximately $58,176,000.
(Aggregate market value is estimated solely for the purposes of this
report and shall not be construed as an admission for the purposes of
determining affiliate status.)
At March 3, 1997, there were 3,475,050 of the Company's common shares
outstanding (exclusive of 242,376 treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1996 annual report to shareholders are
incorporated by reference into Part II of this report. Portions of the
Company's proxy statement for the 1997 annual meeting of shareholders are
incorporated by reference into Part III of this report. Except for the
parts of such documents that have been specifically incorporated herein
by reference, such documents shall not be deemed "filed" for the
purposes of this report.
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PART I
ITEM 1. Business
Selas Corporation of America (together with its subsidiaries, unless the
context otherwise requires, referred to herein as the ("Company")), was
incorporated in Pennsylvania in 1930. The Company is a diversified firm
with international operations and sales that engages in the design,
development, engineering and manufacturing of a range of products. The
Company, headquartered in Dresher, Pennsylvania with subsidiaries in
Minnesota, Ohio, California, France, Germany and Italy, operates directly
or through subsidiaries in three business segments.
Under the SelasTM name, the Company designs and manufactures specialized
industrial heat processing systems and equipment for steel, glass and
other manufacturers worldwide. The Company's subsidiary, Resistance
Technology, Inc., designs and manufactures microminiature components and
molded plastic parts primarily for the hearing instrument manufacturing
industry worldwide. The Company's subsidiary, RTI Electronics, Inc.,
formed in 1997, has extended Resistance Technology, Inc.'s microminiature
components business through the manufacture of heat sensitive resistors
known as thermistors. The Company's subsidiary, Deuer Manufacturing,
Inc., manufactures spare tire holders and lifts and related products,
primarily based on cable winch designs, for use principally as original
equipment by the pick-up truck and minivan segment of the automotive
industry.
Financial data relating to industry segments, geographical summary of
assets and operations, export sales and major customers are set forth in
Note 3 of the Company's consolidated financial statements.
HEAT PROCESSING
The Company specializes in the controlled application of heat to achieve
precise process and temperature control. The Company's principal heat
processing equipment and systems are large custom-engineered furnaces and
smaller standard-engineered systems, burners and combustion control
equipment.
CUSTOM-ENGINEERED FURNACES
Products and Industries Served. The Company designs specialized furnaces
for use primarily in the steel and glass industries worldwide. The
furnaces are engineered to subject a customer's products to carefully
controlled heating and cooling processes in order to improve the physical
characteristics of those products. Each furnace is custom-engineered by
the Company to meet the customer's specific requirements. The Company
believes that the SelasTM name, its reputation for quality and its
leadership in the design and engineering of direct gas-fired heat
processing furnaces are important factors in its business. The Company
also offers gas-fired radiant tube and electric heating technology for
heat processing furnaces.
The Company's custom-engineered systems for the steel industry include
continuous annealing furnaces and continuous galvanizing furnaces.
Continuous annealing furnaces are used to heat-treat semi-finished steel
sheet and strip to soften it to improve the ductility of the steel,
thereby making it suitable for use in the
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ITEM 1. Business - (Continued)
manufacture of automobiles, appliances and other items. Continuous
galvanizing furnaces consist of continuous annealing furnaces plus the
components used to apply a zinc coating to steel strip to improve its
resistance to corrosion.
The Company's furnaces for the glass industry are used for the tempering
and bending of glass. The glass tempering process toughens glass plate
through a controlled process of heating and cooling. Glass manufacturers
use the Company's glass bending furnaces to heat and bend plate glass for
automotive and architectural uses.
From time to time, the Company also designs various other specialized
furnaces for use by manufacturers in a variety of industries to suit
particular process requirements. For example, over the years the Company
has engineered large barrel line furnaces used for the continuous heat
treatment of steel pipe, tube or bar.
Marketing and Competition. The Company markets its custom-engineered
furnaces on a global basis. Marketing personnel are located at the
Company's offices in Dresher, Paris, Ratingen and Milan and at the
offices of its 50%-owned affiliate, Nippon Selas Co., Ltd., in Tokyo.
Over the years, the Company has installed custom-engineered systems
throughout the world, in Europe, North America, South America, Asia,
Australia and Africa. In a particular period, a single contract may
account for a large percentage of sales, but the Company is not dependent
on any custom-engineered systems customer on an ongoing basis.
Company engineering and marketing personnel maintain contact with
potential major steel and glass customers to determine their needs for
new furnaces, typically for expansion or new technology. The Company's
furnaces have long useful lives, and replacement business is not a major
factor in sales of custom-engineered systems.
The Company also markets its products and services through agents and
licensees located in various parts of the world. Typically, the
Company's license agreements provide that the licensee will act as the
Company's sales agent in a particular territory, is granted a license to
utilize the Company's heat processing technology in that territory, and
is granted the right to utilize technical services provided by the
Company. In exchange, the Company receives certain fees when the
licensee sells the Company's products or services in the territory.
Over the years, Japanese steel producers have aligned themselves in semi-
exclusive relationships with furnace manufacturers. For a number of
years, the Company has licensed direct fired furnace technology to NKK
Corporation, the second largest steel producer in Japan.
Furnaces for continuous galvanizing and annealing lines generally utilize
either direct fired or radiant tube technology. The Company is the
market leader for furnaces based on direct fired technology,
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ITEM 1. Business - (Continued)
and also sells furnaces of the radiant tube design utilized primarily
by its competitors. Some of the Company's competitors are larger and
have greater financial resources. In recent years, the Company has faced
increased competition from competitors supplying smaller, less
sophisticated steel lines. These competitors do not generally offer
custom engineering on a par with the Company, but have been willing to
offer a more standarized and less sophisticated furnace for a lower
price.
Operations. The Company's custom-engineered furnace business is
conducted principally by its wholly-owned subsidiaries, Selas S.A.
(Paris), Selas Waermetechnik GmbH (Ratingen) and Selas Italiana, S.r.L.
(Milan). These subsidiaries currently employ approximately 92 persons,
of whom 16 are administrative personnel and 76 are sales, engineering and
operations personnel. A small number of engineering and marketing
management personnel located at the Company's Dresher, Pennsylvania
headquarters facility are also involved from time to time in the custom-
engineered furnace business.
On large-scale projects, such as a continuous steel strip annealing or
galvanizing line, the customer frequently contracts for the entire line
on a turnkey basis with an engineering and construction firm specializing
in line terminal equipment, and the Company acts as a subcontractor for
the design, engineering, supply of material and installation of the
furnace portion of the line, or, alternatively, as a subcontractor only
for design and engineering. When the Company provides only design and
engineering services, the prime contractor handles the fabrication and
erection of the furnace. With the exception of certain proprietary
parts, the Company does not manufacture the components used in such
systems.
The Company's custom-engineered furnace business is historically cyclical
in nature.
STANDARD-ENGINEERED SYSTEMS, BURNERS AND COMBUSTION CONTROL EQUIPMENT
Standard-Engineered Systems. At its Dresher, Pennsylvania facility, the
Company engineers and fabricates a variety of smaller furnaces and heat
processing equipment. Although these systems are based on standard
designs, the Company often adapts or re-engineers them to meet particular
customer needs. These smaller systems are
generally used by manufacturers in sophisticated applications for the
heat treatment of finished and semi-finished parts.
The Company's standard-engineered systems include atmosphere-
controlled furnaces for heat treating finished metal parts. Its
continuous heat treating systems include not only the hardening and
tempering furnaces central to the system, but also the ancillary loading,
quenching and washing equipment.
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ITEM 1. Business - (Continued)
The Company also manufacturers large non-atmosphere-controlled batch-type
furnaces in a variety of designs. The Company's carbottom furnaces
enable its customers to remove the furnace hearth, running on tracks
similar to a railroad car, from the stationary furnace for loading and
unloading. With its hood furnaces, the furnace itself can be lifted from
the stationary hearth for loading and unloading. Carbottom and hood
furnaces are used to heat treat large, usually semi-finished, metal parts
of a variety of shapes and sizes. Clamshell furnaces designed by the
Company open and close around steel rolls to produce a gradation of metal
characteristics due to the differential heating of the steel roll. The
Company's standard batch furnaces are supplied to customers with a need
for the precise, accurately controlled application of heat to their
products.
The Company's standard systems also include automatic brazing and
soldering systems used in the assembly of radiators, air conditioner
coils and electrical appliances. The precise application of heat in
these systems improves a customer's product quality and uniformity while
reducing production costs. The Company also produces the fuel mixing and
monitoring systems, burners and product handling equipment necessary for
these systems.
The Company also produces custom designed barrel furnaces used primarily
to heat treat long metal parts, and also produces specialized glass lehrs
for heating glass products.
Burners and Combustion Control Equipment. The Company designs,
manufactures and sells an array of original equipment and replacement
gas-fired industrial burners for many applications. The Company is a
producer of burners used in fluid processing furnaces serving the
petrochemical industry. One type of fluid processing burner is capable
of minimizing the emission of oxides of nitrogen as combustion products.
As many jurisdictions reduce the permissable level of emissions of these
compounds, the Company believes that the demand for "low NOx" burners
will increase. The Company also produces burners suitable for creating a
high temperature furnace environment desirable in steel and glass heat
treating furnaces. The Company's burners accommodate a wide variety of
fuel types, environmental constraints and customer production
requirements.
The Company furnishes many industries with gas combustion control
equipment sold both as component parts and as systems that have been
custom-engineered to meet a particular customer's needs. This equipment
is provided with the Company's original custom-engineered and standard
heat treating equipment, as replacement or additional components for
existing furnaces being refurbished or upgraded, and as original
components for heat treating equipment manufactured by
others. The components of the combustion control systems include mixing
valves capable of mixing gas and air and controlling the air/gas ratio,
pressure and total flow of the mixed gases. The Company also produces
its Qual-O-RimeterTM automated monitoring and control device used in
conjunction with its mixing valves to maintain precise, uniform heat
release and flame shape, despite fluctuations in fuel mix and quality,
air temperature and humidity.
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ITEM 1. Business - (Continued)
Additional combustion control products include Flo-ScopeTM flow meters,
which measure the rate of flow of gases, and automatic fire checks and
automatic blowouts, which arrest flame and pressure resulting from
backfire from the burners into the pipe line.
Marketing and Competition. The Company markets its standard-engineered
systems products on a global basis through its sales and marketing
personnel located in Dresher, and also sells these products through
licensees and agents located in various parts of the world. Although the
Company competes for orders for such products with many other
manufacturers, some of which are larger and have greater financial
resources, the Company believes that its reputation and its high standard
for quality allow it to compete effectively with other manufacturers.
Operations. At its Dresher facility, the Company employs approximately
76 persons, of whom 18 are executive and administrative personnel, 20 are
sales and engineering personnel and 38 are personnel engaged in
manufacturing. The hourly personnel are represented by a union, and the
current union contract expires May 1, 1998. The Company considers its
relations with its employees to be satisfactory.
The principal components used in the Company's heat processing equipment
and other products are steel, special castings (including high-alloy
materials), electrical and electronic controls and materials handling
equipment. These items are available from a wide range of independent
suppliers.
Research and Development. The Company conducts research and development
activities at its Dresher facility to support its heat processing
services and products. The Company's research efforts are designed to
develop new products and technology as well as to improve existing
products and technology. The Company also conducts research on behalf of
particular customers in connection with customers' unusual process needs.
Research and development expenditures for heat processing aggregated
$56,000, $188,000 and $194,000 in 1996, 1995 and 1994, respectively.
It is the Company's policy to apply for domestic and foreign patents on
those inventions and improvements which it considers significant and
which are likely to be incorporated in its products. It owns a number of
United States and foreign patents. It is licensed under patents owned by
others and has granted licenses to others on a fee basis. The Company
believes that, although these patents collectively are valuable, no one
patent or group of patents is of material importance to its business as a
whole.
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ITEM 1. Business - (Continued)
MICROMINIATURE COMPONENTS AND MOLDED PLASTICS
Resistance Technology, Inc. ("RTI"), a wholly-owned subsidiary whose
outstanding capital stock the Company acquired on October 20, 1993,
manufactures microminiature components and molded plastic parts primarily
for the hearing instrument manufacturing industry worldwide.
Products and Industries Served. RTI is a leading manufacturer and
supplier of microminiature electromechanical components to hearing
instrument manufacturers. These components consist of volume controls,
trimmer potentiometers and switches. RTI also manufactures hybrid
amplifiers and integrated circuit components ("hybrid amplifiers"), along
with faceplates for in-the-ear and in-the-canal hearing instruments.
Components are offered in a variety of sizes, colors and capacities in
order to accommodate a hearing manufacturer's individualized
specifications. Sales to hearing instrument manufacturers represented
approximately 89% of RTI's 1996 annual net sales.
Hearing instruments, which fit behind or in a person's ear to amplify and
process sound for a hearing impaired person, generally are composed of
four basic parts and several supplemental components for control or
fitting purposes. The four basic parts are microphones, amplifier
circuits, miniature receivers/speakers and batteries. RTI's hybrid
amplifiers are a type of amplifier circuit. Supplemental components
include volume controls, trimmer potentiometers, which shape sound
frequencies to respond to the particular nature of a person's hearing
loss, and switches used to turn the instrument on and off and to go from
telephone to normal speech modes. Faceplates and an ear shell molded to
fit the user's ear often serve as a housing for hearing instruments.
The potential range of applications for RTI's molded plastic parts is
broad. RTI has produced intravenous flow restrictors for a medical
instruments manufacturer and cellular telephone battery sockets for a
telecommunications equipment manufacturer. Sales to industries other
than the hearing instrument industry represented approximately 11% of
RTI's 1996 annual net sales.
RTI manufactures its components on a short lead-time basis in order to
supply "just-in-time" delivery to its customers. Due to the short lead-
time, the Company does not include orders from RTI's customers in its
published backlog figures.
Marketing and Competition. RTI sells its hearing instrument components
directly to domestic hearing instrument manufacturers through an internal
sales force. Sales of molded plastic parts to industries other than
hearing instrument manufacturers are made through a combination of
independent sales representatives and internal sales force. In recent
years, three companies have accounted for a substantial portion of the
U.S.
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ITEM 1. Business - (Continued)
hearing instrument sales. In 1996, these three customers accounted for
approximately 27% of RTI's net sales.
Internationally, sales representatives employed by Resistance Technology,
GmbH ("RT, GmbH"), a German company 80% of whose capital stock is owned
by RTI, solicit sales from European hearing instrument manufacturers and
facilitate sales with Japanese and Australian hearing instrument markets.
RTI believes that it is the largest supplier worldwide of microminiature
electromechanical components to hearing instrument manufacturers and that
its full product line and automated manufacturing process allow it to
compete effectively with other manufacturers with respect to these
products.
In the market of hybrid amplifiers and molded plastic faceplates, RTI's
primary competition is from the hearing instrument manufacturers
themselves. The hearing instrument manufacturers produce a substantial
portion of their internal needs for these components.
Operations. RTI currently employs 267 people, of whom 28 are executive
and administrative personnel and 239 are sales, engineering and
operations personnel at RTI's two facilities near Minneapolis, Minnesota.
A small number of sales personnel employed by RT, GmbH are located in
Munich, Germany.
As a consumer products manufacturer, RTI is subject to claims for
personal injuries allegedly caused by its products. While the Company
maintains what it believes to be adequate insurance coverage, it retains
a self-insured deductible under its liability insurance policies.
Research and Development. RTI conducts research and development
activities primarily to improve its existing products and technology.
RTI's research and development expenditures were $1,083,000, $1,106,000
and $896,000 in 1996, 1995 and 1994, respectively.
RTI owns a number of United States patents which cover a number of
product designs and processes. The Company believes that, although these
patents collectively add some value to the Company, no one patent or
group of patents is of material importance to its business as a whole.
Addition of Thermistor Products. RTI Electronics, Inc. ("RTIE") is a
wholly owned subsidiary of the Company that is under the management
direction of RTI. This subsidiary was established in February, 1997,
when the Company acquired the assets and certain liabilities of the Rodan
Division of Ketema, Inc. RTIE manufactures and sells thermistors and
thermistor assemblies, which are solid
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ITEM 1. Business - (Continued)
state devices that produce precise changes in electrical resistance
as a function of any change in absolute body temperature.RTIE's
Surge-Gardtm product line, an inrush current limiting device use
primarily in computer power supplies, represent 50% of RTIE's sales.
The balance of
sales represent various industrial, commercial and military sales for
thermistor and thermistor assemblies to domestic and international
markets.
RTIE has many competitors, both domestic and foreign, that sell various
thermistor and thermistor assemblies and some of the competitors are
larger and have greater financial resources. In addition, RTIE holds a
relatively small market share in the world-market of thermistor products.
At its facilities in Anaheim, California, RTIE employs 72 full-time
employees, of which 21 are salaried and 51 hourly and are not represented
by a union.
RTIE's principal raw materials are various metal oxide powders and silver
paste, for which there are multiple sources of supply.
Certain information regarding the acquisition of the RTIE business is set
forth in note 17 to the Company's Consolidated Financial Statements.
TIRE HOLDERS, LIFTS AND RELATED PRODUCTS
Deuer Manufacturing, Inc. ("Deuer"), a wholly-owned subsidiary,
manufactures tire holders, lifts, and other related products based
principally on cable winch designs.
Products and Industries Served. Deuer is a leading supplier of spare
tire holders used on light trucks and mini-vans manufactured by the major
domestic automotive manufacturers. Deuer's spare tire holder holds the
spare tire to the underbody of the vehicle by means of a steel cable
running to the underside of the vehicle's frame. One end of the steel
cable is attached to a hub placed through the center of the spare tire's
rim, and the other end is attached to a hand-operated winch mounted at an
accessible location on the vehicle. The spare tire holding system
permits the spare tire to be stored in a remote location and to be easily
removed without the need to crawl under the vehicle. During 1996, sales
of spare tire holders accounted for approximately 86% of Deuer's net
sales.
Deuer also produces a variety of hand-operated hoist-pullers, using
primarily a cable winch design, sold under the Mini-MuleTM brand name.
These products, which retail from $30 to $60, are portable hand winches
designed for a variety of uses, such as pulling objects, rigging loads
and installing fencing. Deuer furnishes these hoist-pullers in a variety
of sizes and capacities. It also manufactures accessories for use with
the products, including slings, clamps, blocks and gantries.
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ITEM 1. Business - (Continued)
Deuer manufactures products on a short lead time basis in order to
furnish "just-in-time" delivery to its automotive customers. Because of
the substantial variances between manufacturers' estimated and actual
requirements, the Company does not include blanket order commitments from
automotive manufacturers in its published backlog figures.
Marketing and Competition. Deuer sells its spare tire holders directly
to domestic automotive manufacturers. Deuer's spare tire holders are
sold to Chrysler Corporation, General Motors, Ford Motor Company, New
United Motor Manufacturing, Inc. and Mobile Home Manufactures. The
design and quality of Deuer's spare tire holders have been recognized by
its major customers. The Company sells its hoist-pullers through a
network of distributors as well as directly to some large retail outlets.
Deuer is one of several suppliers of spare tire holders to domestic mini-
van and light truck manufacturers. Some of Deuer's competitors are
larger and have greater financial resources. The Company believes that
price and Deuer's reputation for quality and reliability of delivery are
important factors in competition for business from the domestic
automotive manufacturers. A number of other domestic and foreign
manufacturers sell hoist-pullers to the retail market, and Deuer's share
of this market is relatively small.
Operations. At its Dayton facility, Deuer employs 18 executive and
administrative personnel and approximately 141 manufacturing employees.
Some of the manufacturing employees are represented by a union, and the
current union contract expires in October 1998. Deuer considers its
relations with its employees to be satisfactory.
Deuer's principal raw material is coil rolled steel and metal cable which
is widely available. Deuer also conducts research and development
activities which consist of the development of new products and
technology and the modification of existing products. Deuer's research
and development expenditures aggregated $265,000, $171,000 and $218,000
in 1996, 1995 and 1994, respectively.
As a consumer products manufacturer, Deuer is subject to claims for
personal injuries allegedly caused by its products. While the Company
maintains what it believes to be adequate insurance coverage, it retains
a self-insured deductible under its liability insurance policies.
ITEM 2. Properties
The Company owns the manufacturing facility in Dresher, Pennsylvania in
which its standard-engineered systems, burners and combustion control
equipment are produced. The Company's headquarters are<PAGE>
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ITEM 2. Properties - (Continued)
located on the same 17 acre site. The 136,000 square foot Dresher
facility has more space than is currently needed for the Company's
operations and headquarters, and the Company is seeking to lease all or a
portion of the excess office and manufacturing space to a suitable
tenant. This property is subject to a mortgage. See note 7 of the
Company's consolidated financial statements.
RTI leases a 47,000 sq. ft. manufacturing facility in Arden Hills,
Minnesota from a partnership consisting of two officers of RTI, one of
whom, Mark S. Gorder, serves on the Company's Board of Directors. At
this facility, RTI manufactures all of its products other than plastic
component parts. The lease expires in October, 2003, with two successive
5-year renewal options. In addition, RTI owns, subject to a mortgage
from a third party lender, a 20,000 sq. ft. building in Vadnais Heights,
Minnesota at which RTI produces plastic component parts. (See notes 7
and 16 of the Company's consolidated financial statements.)
RTIE leases three buildings in an industrial park in Anaheim, California.
These buildings represent the manufacturing and offices of the Company
and consist of a total of 38,400 square feet. The lease on one property,
consisting of 12,000 square feet, is based on a month-to-month lease.
The other two leases expiring April 30, 1997 are covered by an agreement
in principle for two-year extensions.
Deuer owns its 82,000 square foot manufacturing facility located on 6.5
acres in Dayton, Ohio, where it produces its spare tire holders and
hoist-pullers. The facility is furnished with a variety of steel
fabrication equipment, including punch presses, drill presses, screw
machines, grinders, borers, lathes and welders.
Deuer owns and leases an additional 11,000 square feet of excess space to
several tenants, principally for storage and office use. This and the
above designated Deuer property are subject to a mortgage. See note 7 of
the Company's consolidated financial statements.
Selas S.A. owns the land and building which houses its engineering, sales
and administrative operations in Gennevilliers, France (outside of
Paris). The land under the building is owned by Selas S.A. and the
property outside of the building is jointly owned by the building owners
in the office complex. The building has 22,000 square feet. This
property is subject to a mortgage. See note 7 of the Company's
consolidated financial statements.
Selas Italiana S.r.L., the Company's Italian subsidiary, and Selas
Waermetechnik GmbH, the Company's German subsidiary, lease facilities in
Milan, Italy and Ratingen, Germany, respectively. The Milan facilities
are comprised of engineering, sales and administrative offices with the
lease expiring in October 2001. The Ratingen facilities are used for
sales, administrative and engineering activities and assembly of small
furnaces and furnace components,
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ITEM 2. Properties - (Continued)
with the lease expring February, 2000. Resistance Technology, GmbH,
leases office space in Munich, Germany, on a year-to-year basis, for
its sales personnel. Management expects to be able to extend these
leases.
ITEM 3. Legal Proceedings
The Company is a defendant along with a number of other parties in
approximately 155 lawsuits as of December 31, 1996 (112 as of December
31, 1995) alleging that plaintiffs have or may have contracted asbestos-
related diseases as a result of exposure to asbestos products or
equipment containing asbestos sold by one or more named defendants. Due
to the noninformative nature of the complaints, the Company does not know
whether any of the complaints state valid claims against the Company.
The Company is also one of approximately 500 defendants in a class action
on behalf of approximately 2700 present or former employees of a Texas
steel mill alleging that products supplied by the defendants created a
poisonous atmosphere that caused unspecified physical harm. These cases
are being defended by one or more of the Company's insurance carriers
presently known to be "at risk." Through October 1993, the legal costs
of defense of the asbestos and steel mill cases were shared among the
insurance carriers (92%) and the Company (8%). The lead insurance
carrier settled a number of the cases in 1993 and requested that the
Company pay a portion of the settlement amount. The Company declined to
do so because no such payment is required by the express terms of the
policies. The lead carrier then purported in October 1993 to abrogate
the arrangement under which the defense costs had been shared, and the
Company responded by tendering all of the cases to the lead carrier and
demanding that the lead carrier honor its obligations under its policies
to pay 100% of the costs of defense and 100% of all settlements and
judgments up to the policy limits. The lead carrier has settled
approximately 17 and 98 claims in 1996 and 1995, respectively with no
request for the Company to participate in any settlement. The lead
carrier has informed the Company that the primary policy for the period
July 1, 1972 - July 1, 1975 has been exhausted and that the lead carrier
will no longer provide a defense under that policy. The Company has
requested that the lead carrier substantiate this situation. The Company
has contacted representatives of the Company's excess insurance carrier
for some or all of this period. The Company does not believe that the
asserted exhaustion of the primary insurance coverage for this period
will have a material adverse effect on the financial condition or results
of operations of the Company.
In 1995, a dispute which was submitted to arbitration, arose under a
contract between a customer and a subsidiary of the Company. Substantial
claims were asserted against the subsidiary Company under the terms of
the contract. The Company recorded revenue of approximately $1,400,000
in 1994 and has a current billed receivable of $140,000.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
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ITEM 4A. Executive Officers of the Company
The names, ages and offices (as of February 27, 1997) of the Company's
officers were as follows:
Name Age Office
Stephen F. Ryan 61 President and Chief
Executive Officer
Christian Bailliart 48 Vice President and Chairman-
Director Generale of Selas S.A.
Frank J. Boyle 67 Vice President, Sales and
Engineering
James C. Deuer 68 Vice President and President
of Deuer Manufacturing, Inc.
Mark S. Gorder 50 Vice President and President of
Resistance Technology, Inc.
Robert W. Ross 48 Vice President, Chief Financial
Officer, Treasurer and Secretary
Mr. Ryan joined the Company in May 1988, as President and Chief Executive
Officer. Mr. Bailliart joined Selas S.A. in 1974 and in January 1, 1993
was promoted to Vice President of the Company and Chairman-Director
Generale of Selas S.A. In 1989 he was promoted to Chairman-Director
Generale of Selas S.A. from Vice President,
Treasurer. Mr. Boyle joined the Company in 1961 and has held various
management positions in research and development, applications
engineering and sales. He was appointed Vice President-Sales and
Engineering in July 1988. Mr. Deuer joined the Company as President of
Deuer Manufacturing when it was acquired in May, 1986 and was promoted to
Vice President of the Company and President of Deuer Manufacturing in
December, 1990. From 1965 to 1986 he was President of Deuer
Manufacturing. Mr. Gorder joined the Company October 20, 1993 when
Resistance Technology, Inc. (RTI) was acquired. Prior to the
acquisition, Mr. Gorder was President and one of the founders of RTI,
which began operations in 1977. Mr. Gorder was promoted to Vice
President of the Company and elected to the Board of Directors in 1996.
Mr. Ross joined the Company in October 1990 as Vice President -
Treasurer, was elected to Chief Financial Officer January 1, 1994 and
Secretary February 21, 1995. From 1981 to 1990 he was with ALPO Pet
Foods, a division of Grand Metropolitan PLC, as a Controller from 1981
and as Vice President, Controller from 1988.
-14-
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's common shares are listed on the American Stock Exchange.
The high and low sale prices during each quarterly period during the
past two years were as follows:
1996 1995
Market Market
Price Range Price Range
QUARTER HIGH LOW HIGH LOW
First 11-3/4 8-13/16 10 8-5/8
Second 11-1/2 10-3/8 9-3/4 7-7/8
Third 14-3/8 10 8-3/4 7-3/8<PAGE>
Fourth 17-1/4 13-1/2 9-7/8 7-3/16
At March 3, 1997, the Company had 535 shareholders of record.
The payment of any future dividends is subject to the discretion of the
Board of Directors and is dependent on a number of factors, including the
Company's capital requirements, financial condition, financial covenants
and cash availability.
1996 1995 1994
Dividends per share:
First Quarter $.06 $.055 $.05
Second Quarter .06 .055 .05
Third Quarter .06 .06 .05
Fourth Quarter .065 .06 .055
ITEM 6. Selected Financial Data
Certain selected financial data is incorporated by reference to "Selas
Corporation of America Five-Year Summary of Operations", page 4, and
"Other Financial Highlights" (excluding graphs), page 5, of the Company's
1996 annual report to shareholders.
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion and Analysis is incorporated by reference to
pages 6 through 8 of the Company's 1996 annual report to shareholders.
-15-
ITEM 8. Financial Statements and Supplementary Data
The Company's consolidated balance sheets as of December 31, 1996 and
1995, and the related consolidated statements of operations, cash flows
and shareholders' equity for each of the three years in the period ended
December 31, 1996, and the report of independent auditors thereon and the
quarterly results of operations (unaudited) for the two year period ended
December 31, 1996 are incorporated by reference to pages 9 to 31 of the
Company's 1996 annual report to shareholders.
ITEM 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None
-16-
PART III
The information called for by Items 10, 11, 12 and 13 (except the
information concerning executive officers included in Item 4A) is
incorporated by reference to the Company's definitive proxy statement
relating to its 1997 Annual Meeting which the Company filed on March 18,
1997. However, the portions of such proxy statement constituting the
report of the Compensation Committee of the Board of Directors and the
graph showing performance of the Company's common shares and certain
share indices shall not be deemed to be incorporated herein or filed for
purposes of the Securities Exchange Act of 1934.
-17-
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) The following documents are filed as a part of this
report:
1. Financial Statements - The Company's consolidated financial
statements, as described below, are incorporated by reference to
pages 9 through 31 of the Company's 1996 annual report to
shareholders.
Consolidated Balance Sheet at December 31, 1996 and 1995.
Consolidated Statements of Operations for the years ended December
31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
Financial statements for 50% or less owned companies which are
accounted for by the equity method have been omitted because they do
not, considered individually or in the aggregate, constitute
significant subsidiaries.
2. Financial Statement Schedules
Page
Report of Independent Auditors on the
Consolidated Financial Statement Schedules 21
Schedule I - Condensed Financial Information
of Registrant (Parent only) 22,23,24,25
Schedule II - Valuation and Qualifying
Accounts 26, 27
All other schedules are omitted because they are
not applicable, or because the required information
is included in the consolidated financial statements or notes
thereto.
3. Exhibits
-18-
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K - (Continued)
3A. The Company's Articles of Incorporation as amended May 18,
1984 and April 25, 1991. Exhibit 3A to the Company's report on Form
10-K for the year ended December 31, 1984 and Exhibit 3A1 to the
Company's report on Form 10-K for the year ended December 31, 1991
are hereby incorporated herein by reference.
3B. The Company's By-Laws as amended through January 8, 1996. Exhibit
3B to the Company's Report on Form 10-K for the year ended December
31, 1995 is hereby incorporated by reference.
4A. Credit Agreement dated October 20, 1993 by and among First Fidelity
Bank, N.A., Pennsylvania, the Company, RTI and Deuer. Exhibit 4A to
the Company's report on Form 10-K for the year ended December 31,
1995 is hereby incorporated by reference.
4B. Term Note, dated October 20, 1993, of the Company in favor of First
Fidelity Bank, N.A., Pennsylvania. Exhibit 4B to the Company's
report on Form 8-K filed on November 3, 1993 is hereby incorporated
by reference.
4C. Amended Credit Agreement dated July 21, 1995 which amends the Credit
Agreement dated October 20, 1993 by and among First Fidelity Bank,
N.A., Pennsylvania, the Company, RTI and Deuer. Exhibit 4C to the
Company's report on Form 10-K for the year ended December 31, 1995
is hereby incorporated by reference.
4D. Amended and Restated Revolving Credit Note, dated July 21, 1995, of
the Company in favor of First Fidelity Bank, N.A. Pennsylvania.
Exhibit 4D to the Company's report on Form 10-K for the year ended
December 31, 1995 is hereby incorporated by reference.
4E. Amended and Restated Revolving Credit Note, dated July 21, 1995, of
RTI in favor of First Fidelity Bank, N.A., Pennsylvania. Exhibit 4E
to the Company's report on Form 10-K for the year ended December 31,
1995 is hereby incorporated by reference.
4F. Amended and Restated Revolving Credit Note, dated July 21, 1995, of
Deuer in favor of First Fidelity Bank, N.A., Pennsylvania. Exhibit
4F to the Company's report on Form 10-K for the year ended December
31, 1995 is hereby incorporated by reference.
4G. Amended Credit Agreement dated February 21, 1997 which amends the
Credit Agreement dated October 20, 1993 and the July 21, 1995
amendment with First Union/First Fidelity, N.A. Pennsylvania.
10A. Form of termination agreement between the Company and Messrs. Ryan,
Boyle, Deuer, Gorder and Ross.
19-
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K - (Continued)
10B. 1985 Stock Option Plan, as amended. Exhibit 10C to the Company's
Registration Statement on Form S-2 filed on June 15, 1990 (No. 33-
35443) is hereby incorporated herein by reference.
10C. Form of Stock Option Agreements granted under the 1985 Stock Option
Plan. Exhibit 10D to the Company's Registration Statement on Form
S-2 filed on June 15, 1990 (No. 33-35443) is hereby incorporated
herein by reference.
10D. Form of Amendments to Stock Option Agreements granted under the 1985
Stock Option Plan. Exhibit 10D to the Company's Registration
Statement on Form S-2 filed on June 15, 1990 (No. 33-35443) is
hereby incorporated herein by reference.
10E. 1994 Stock Option Plan. Exhibit 10E to the Company's report on Form
10-K for the year ended December 31, 1993 is hereby incorporated by
reference.
10F. Form of Stock Option Agreements granted under the 1994 Stock Option
Plan. Exhibit 10F to the Company's report on Form 10-K for the year
ended December 31, 1995 is hereby incorporated by reference.
10G. Agreement between Selas S.A., a wholly-owned subsidiary, and
Europarc Gennevilliers dated May 16, 1991 relating to the purchase
of land and building to house its operations in France, accompanied
by an English translation. Exhibit 10G to the Company's report on
Form 10-K for the year ended December 31, 1995 is hereby
incorporated by reference.
10H. Supplemental Retirement Plan (amended and restated effective January
1, 1995). Exhibit 10I to the Company's report on Form 10-K for the
year ended December 31, 1995 is hereby incorporated by reference.
10I. Management Employment Agreement dated October 20, 1993 between
Resistance Technology, Inc. and Mark S. Gorder. Exhibit 10J to the
Company's report on Form 10-K for the year ended December 31, 1995
is hereby incorporated by reference.
10J. Amended and Restated Office/Warehouse Lease, between Resistance
Technology, Inc. and Arden Partners I, L.L.P. (of which Mark S.
Gorder is one of the principal owners) dated November 1, 1996.
13. "Selas Corporation of America Five-Year Summary of Operations"
contained on page 4 of the Company's 1996 annual report to
shareholders; "Other Financial Highlights" (excluding graphs)
contained on page 5 of the Company's 1996 annual report to
shareholders; "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained on pages 6-8 of the
Company's 1996 annual report to shareholders; and the Company's
consolidated financial statements, including the "Notes to
Consolidated Financial Statements" and the "Report of Independent
Auditors" contained on pages 9-31 of the Company's 1996 annual
report to shareholders.
-20-
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K - (Continued)
21. List of significant subsidiaries of the Company.
23. Consent of Independent Auditors.
24. Powers of Attorney.
99. Portions of the Company's definitive proxy statement for its 1997
Annual Meeting of shareholders responsive to Items 10, 11, 12 and 13
in Part III hereof, which was filed on March 18, 1997, are hereby
incorporated herein by reference. However, the portions of such
proxy statement constituting the report of the Compensation
Committee of the Board of Directors and the graph showing
performance of the Company's common shares and certain share indices
shall not be deemed to be incorporated herein or filed for purposes
of the Securities Exchange Act of 1934.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the three months ended December 31, 1996.
-21-
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Shareholders
Selas Corporation of America:
Under date of February 17, 1997, we reported on the consolidated balance
sheets of Selas Corporation of America and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the three-
year period ended December 31, 1996, as contained in the 1996 annual
report to shareholders. These consolidated financial statements and our
reports thereon are incorporated by reference in the annual report on
Form 10-K for the year 1996. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the
related financial statement schedules as listed in the accompanying index
(Item 14). These financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects, the information set forth
herein.
Philadelphia, Pennsylvania
February 17, 1997
-22-
SCHEDULE I
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
Condensed Financial Information of Registrant
Balance Sheets
December 31, 1996 and 1995
ASSETS 1996 1995
Current assets:
Cash and cash equivalents $ 2,945,610 $ 1,378,267
Accounts receivable (including
$6,059,682 and $6,428,864 due from
subsidiaries in 1996 and 1995,
respectively, eliminated in con-
solidation), less allowance for doubt-
ful accounts of $10,000 in both years 11,105,398 10,191,115
Inventories, at cost 3,426,726 3,170,396
Prepaid expenses and other current
assets 1,396,967 850,367
Total current assets 18,874,701 15,590,145
Investment in wholly-owned subsidiaries 42,734,949 39,853,600
Property and equipment, at cost 5,806,599 5,594,309
Less: accumulated depreciation (4,485,172) (4,315,616)
1,321,427 1,278,693
Other assets and investment in
unconsolidated affiliate 1,278,987 1,527,661
Total Assets $64,210,064 $58,250,099
=========== ===========
-23-
SCHEDULE I
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
Condensed Financial Information of Registrant
Balance Sheets
December 31, 1996 and 1995
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
Current liabilities:
Notes payable and current maturities
of long-term debt $ 1,938,000 $ 1,900,000
Accounts payable (including $12,251,876
and $8,852,000 due to subsidiaries
in 1996 and 1995, respectively,
eliminated in consolidation) 13,894,157 9,224,558
Accrued expenses 2,816,398 2,667,584
Total current liabilities 18,648,555 13,792,142
Long-term debt 3,953,669 5,851,117
Other postretirement benefit obligations 3,517,429 3,513,715
Deferred income taxes 223,877 116,767
Pension plan obligation 225,060 320,184
Contingencies and commitments
Shareholders' equity
Common stock 3,702,426 3,702,426
Retained earnings and other equity 34,320,985 31,335,685
Less: 242,376 common shares held in
treasury, at cost (381,937) (381,937)
Total shareholders' equity
37,641,474 34,656,174
Total Liabilities and
Shareholders' Equity $64,210,064 $58,250,099
=========== ===========
See accompanying notes to the consolidated financial statements.
-24-
SCHEDULE I
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
Sales, net $20,792,859 $13,729,233 $ 8,889,438
Add back: license fees and
corporate charges paid by
subsidiaries, eliminated in
consolidation 1,512,699 720,192 992,930
22,305,558 14,449,425 9,882,368
Costs and expenses:
Cost of goods sold 16,504,848 8,289,761 5,638,307
Selling, general and adminis-
trative expenses 3,894,184 3,467,857 3,644,655
Rent and depreciation 398,207 337,845 305,321
20,797,239 12,095,463 9,588,283
Income before income taxes and
equity in net income of
subsidiaries 1,508,319 2,353,962 294,085
Provision for income taxes 560,111 927,328 20,614
Income before equity in net
income of subsidiaries 948,208 1,426,634 273,471
Equity in net income of
subsidiaries 3,181,987 873,390 2,830,568
Net income $ 4,130,195 $ 2,300,024 $ 3,104,039
=========== =========== ===========
See accompanying notes to the consolidated financial statements.
-25-
SCHEDULE I
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
OPERATING ACTIVITIES
Net income $ 4,130,195 $ 2,300,024 $ 3,104,039
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 227,377 201,806 186,666
Other adjustments (3,507,200) (814,239) (2,954,973)
Net changes in operating
assets and liabilities 3,665,156 (1,495,030) 2,282,576
Net cash provided by operating
activities 4,515,528 192,561 2,618,308
INVESTING ACTIVITIES
Dividend from unconsolidated
affiliate 16,742 -- 34,538
Acquisition of subsidiary
company -- -- (16,601)
Purchase of property, plant and
equipment (257,767) (217,158) (99,331)
Proceeds of sale from property,
plant and equipment -- 325 75
Net cash (used) by investing
activities (241,025) (216,833) (81,319)
FINANCING ACTIVITIES
Proceeds from borrowings used
to acquire subsidiary -- -- 1,600,000
Proceeds from exercise of
stock options -- 28,281 124,437
Repayments of short term
borrowings -- -- (1,600,000)
Payment of dividends (847,712) (795,812) (708,085)
Repayment of long term debt (1,859,448) (2,148,883) (1,650,000)
Net cash (used) by
financing activities (2,707,160) (2,916,414) 2,233,648
Increase (decrease) in cash
and cash equivalents 1,567,343 (2,940,686) 303,341
Cash and cash equivalents,
beginning of year 1,378,267 4,318,953 4,015,612
Cash and cash equivalents, end
of year $ 2,945,610 $ 1,378,267 $ 4,318,953
=========== =========== ===========
See accompanying notes to the consolidated financial statements.
-26-
SCHEDULE II
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
Column A Column B Column C
Additions
Balance at Charged to
Beginning Costs and
Classification of Period Expenses Other
Year ended December 31, 1996:
Reserve deducted in the balance
sheet from the asset to which
they apply:
Allowance for doubtful
accounts $ 792,249 $ 196,952 $ (35,428) (a)
========== ========== ==========
Deferred tax asset valuation
allowance $2,685,305 $ (285,681) $ (84,187) (a)
========== ========== ==========
Reserve not shown elsewhere:
Reserve for estimated future
costs of service and
guarantees $ 844,787 $1,000,677 $ (19,130) (a)
========== ========== ==========
Year ended December 31, 1995:
Reserve deducted in the balance
sheet from the asset to which
it applies:
Allowance for doubtful
accounts $ 513,045 $ 284,475 $ 36,136 (a)
========== ========== ==========
Deferred tax asset valuation
allowance $2,203,780 $ 412,646 $ 68,879 (a)
========== ========== ==========
Reserve not shown elsewhere:
Reserve for estimated future
costs of service and
guarantees $1,156,296 $ 119,903 $ 58,134 (a)
========== ========== ==========
Year ended December 31, 1994:
Reserves deducted in the balance
sheet from the asset to which
they apply:
Allowance for doubtful
accounts $ 468,308 $ 25,879 $ 38,639 (a)
========== ========== ==========
Deferred tax asset valuation
allowance $2,102,682 $ (2,933) $ 104,031 (a)
========== ========== ==========
Reserve not shown elsewhere:
Reserve for estimated future
costs of service and
guarantees $ 774,652 $ 529,680 $ 44,821 (a)
========== ========== ==========
(Continued)
-27-
SCHEDULE II
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
Column A Column D Column E
Balance at
End of
Classification Deductions Period
Year ended December 31, 1996: Reserve deducted in the balance sheet
from the asset to which they apply:
Allowance for doubtful accounts $ 166,652 (b) $ 787,121
========== ==========
Deferred tax asset valuation allowance -- $2,315,437
========== ==========
Reserve not shown elsewhere:
Reserve for estimated future costs
of service and guarantees $ 100,644 (c) $1,725,690
========== ==========
Year ended December 31, 1995:
Reserve deducted in the balance sheet
from the asset to which it applies:
Allowance for doubtful accounts $ 41,407 (b) $ 792,249
========== ==========
Deferred tax asset valuation allowance $ -- $2,685,305
========== ==========
Reserve not shown elsewhere:
Reserve for estimated future costs
of service and guarantees $ 489,546 (c) $ 844,787
========== ==========
Year ended December 31, 1994:
Reserves deducted in the balance sheet
from the asset to which they apply:
Allowance for doubtful accounts $ 19,781 (b) $ 513,045
========== ==========
Deferred tax asset valuation allowance -- $2,203,780
========== ==========
Reserve not shown elsewhere:
Reserve for estimated future costs of
service and guarantees $ 192,857 (c) $1,156,296
========== ==========
(a) Represents difference between translation rates of foreign currency
at
beginning and end of year and average rate during year.
(b) Uncollectible accounts charged off.
(c) "After job" costs charged to reserve.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SELAS CORPORATION OF AMERICA
(Registrant)
By: /s/Robert W. Ross
Robert W. Ross
Vice President and
Chief Financial Officer
Dated: March 18, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons (including a
majority of members of the Board of Directors) on behalf of the
registrant and in the capacities and on the dates indicated.
*By: /s/ Stephen F. Ryan
Stephen F. Ryan Stephen F. Ryan
Attorney-In-Fact President, Chief Executive
March 18, 1997 Officer and Director
March 18, 1997
* /s/ Robert W. Ross
John H. Austin, Jr. Robert W. Ross
Director Vice President, Principal
March 18, 1997 Financial and Accounting Officer
March 18, 1997
*
Frederick L. Bissinger
Director
March 18, 1997
*
Roy C. Carriker
Director
March 18, 1997
*
Francis J. Dunleavy
Director
March 18, 1997
*
Mark S. Gorder
Director
March 18, 1997
*
Ralph R. Whitney, Jr.
Director
March 18, 1997
EXHIBIT INDEX
EXHIBITS:
4G. Amended Credit Agreement dated February 21, 1997 which amends the
Credit Agreement datd October 20, 1993 and the July 21, 1995
amendment with First Union/First Fidelity, N.A. Pennsylvania.
10J. Amended and Restated Office/Warehouse Lease between Resistance
Technology, Inc. and Arden Partners, Inc., L.L.P. (of which Mark S.
Gorder is one of the principal owners) dated November, 1996.
13. "Selas Corporation of America Five-Year Summary of Operations"
contained on page 4 of the Company's 1995 annual report to
shareholders; "Other Financial Highlights" (excluding graphs)
contained on page 5 of the company's 1995 annual report to
shareholders; "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained on pages 6-8 of the
Company's 1995 annual report to shareholders; and the Company's
consolidated financial statements, including the "Notes to
Consolidated Financial Statements" and the "Report of Independent
Auditors" contained on pages 9-30 of the Company's 1995 annual
report to shareholders.
21. List of significant subsidiaries of the Company.
23. Consent of Independent Auditors.
24. Powers of Attorney.
EXHIBIT 4G
AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT (together with all amendments
and modifications hereto, this "AGREEMENT"), dated as of February 20,
1997, is by and among FIRST UNION NATIONAL BANK, a national banking
association formerly known as First Fidelity Bank, N.A., with an office
at Broad and Walnut Streets, Philadelphia, Pennsylvania 19109 (the
"BANK"), SELAS CORPORATION OF AMERICA, a Pennsylvania business
corporation with offices at 2034 Limekiln Pike, Dresher, Pennsylvania
19025 ("SELAS"), DEUER MANUFACTURING, INC., an Ohio business corporation
with offices located at 2985 Springboro West, Dayton, OH 45439 ("DEUER"),
and RESISTANCE TECHNOLOGY, INC., a Minnesota business corporation with
offices located at 1260 Red Fox Road, Arden Hills, MN 55112 ("RTI," and
together with Selas and Deuer, the "BORROWERS").
BACKGROUND
The Bank and the Borrowers entered into that certain Credit
Agreement, dated as of October 20, 1993 as amended by, inter alia, an
Amendment dated as of July 21, 1995, a letter agreement dated June 28,
1996, and an Amendment dated as of October 22, 1996 (as so amended, the
"CREDIT AGREEMENT"), pursuant to which the Bank agreed to make available:
(1) to Selas, among other things, term loans of up to $12,500,000 and a
revolving credit facility in a maximum principal amount of $2,000,000;
(2) to Deuer, a revolving credit facility in a maximum principal amount
of $500,000; and (3) to RTI, a revolving credit facility in a maximum
principal amount of $1,000,000 (collectively, the "EXISTING LOANS").
In connection with the Credit Agreement and in order to
evidence the Existing Loans:
(1) Selas executed and delivered to the Bank (a) a Term Note A
dated as of October 20, 1993 in the principal amount of $11,550,000, (b)
a Term Note B dated as of October 20, 1993 in the principal amount of
$950,000, and (c) a Revolving Credit Note dated as of October 20, 1993 in
the principal amount of $2,000,000, which was amended and restated by an
Amended and Restated Revolving Credit Note dated as of July 21, 1995 in
like principal amount (collectively, the "SELAS NOTES");
(2) Deuer executed and delivered to the Bank a Revolving
Credit Note dated as of October 20, 1993 in the principal amount of
$500,000, which was amended and restated by an Amended and Restated
Revolving Credit Note dated as of July 21, 1995 in like principal amount
(the "DEUER NOTE"); and (3) RTI executed and delivered to the Bank
a Revolving Credit Note of RTI dated as of October 20, 1993 in
the principal
amount of $1,000,000, which was amended and restated by an Amended and
Restated Revolving Credit Note of RTI dated as of July 21, 1995 in like
principal amount (the "RTI NOTE", and together with the Selas Notes and
the Deuer Note, the "EXISTING NOTES").
The Credit Agreement, the Existing Notes, and all of the
documents, instruments and agreements executed and delivered in
connection therewith, together with all amendments and
modifications thereto, shall be referred to hereinafter as the
"LOAN DOCUMENTS."
The Bank and the Borrowers, pursuant to the terms hereof, wish
to amend certain of the terms of the Loan Documents.
NOW, THEREFORE, incorporating the foregoing Background herein by
reference and for other good and valuable consideration, the receipt and
legal sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties agree as follows:
DEFINED TERMS. Terms used herein which are capitalized but
not defined herein shall have the meanings ascribed to such terms in the
Credit Agreement.
AMENDMENTS.
Section 1.1 of the Credit Agreement is hereby amended by
adding the following defined terms which shall appear in
alphabetical order:
"RTI Electronics" means RTI Electronics, Inc., a Delaware
corporation which is a wholly owned subsidiary of Selas.
"Swap Agreements" shall mean any and all swap agreements
(as defined in 11 U.S.C. section 101) now or hereafter entered
into between the Borrowers (or any of them) and the Bank or
any Affiliate thereof.
"Term Loan C" means the term loan made pursuant to
Section 2.1(e) of this Agreement.
"Term Note C" means the promissory note of Selas dated
February 21, 1997 payable to the order of the Bank in the
principal amount of $3,500,000, in the form of Exhibit A
attached to the Amendment to Credit Agreement dated as of
February 20, 1997, to be delivered to the Bank by Selas
pursuant to Section 4(b) of such Amendment, as such Note may
be amended, modified, extended or restated from time to time.
Section 1.1 of the Credit Agreement is hereby amended by
amending and restating the following defined terms as follows:
"Bank" means First Union National Bank, a national
banking association formerly known as First Fidelity Bank,
N.A.
"Borrower" means individually, (a) Selas, as to the Term
Loan, Term Loan C and the Selas Revolving Credit Facility;
(b) Deuer, as to the Deuer Revolving Credit Facility; and
(c) RTI, as to the RTI Revolving Credit Facility.
"Domestic Group" means Selas, Deuer, RTI, RTIE and other
subsidiaries of RTI, and RTI Electronics.
"Guaranty Agreement" means individually, and "Guaranty
Agreements" means collectively, the Guaranty Agreements to be
delivered to the Bank by Selas, Deuer, RTI and RTIE pursuant
to Section 5.1(e) of this Agreement and by RTI Electronics
pursuant to Section 5(h) of the Amendment to Credit Agreement
dated as of February 20, 1997, as each may be amended,
modified or restated from time to time.
"Guarantor" means (a) each of Deuer, RTI, RTIE and RTI
Electronics, as to the Term Loan and Term Loan C, and (b)
Selas, as to the Deuer Revolving Credit Facility and the RTI
Revolving Credit Facility.
"Loan" means the outstanding principal balance of
Indebtedness advanced under Section 2 of this Agreement
(including Term Loan C and Advances and Reimbursement
Obligations under Section 3 of this Agreement), together with
interest accrued thereon and fees and expenses incurred in
connection therewith.
"Notes" means collectively the Revolving Credit Notes,
the Term Notes and Term Note C.
"Security Agreement" means individually, and "Security
Agreements" means collectively, the security agreements to be
delivered to the Bank by Selas, Deuer, RTI and RTIE pursuant
to Section 5.1(c) of this Agreement and by RTI Electronics
pursuant to Section 5(i) of the Amendment to Credit Agreement
dated as of February 20, 1997, as each may be amended,
modified or restated from time to time.
Section 2.1 of the Credit Agreement is hereby amended by
adding the following new subsection (e) after subsection (d):
(e) Term Loan C. Pursuant to the Amendment to Credit
Agreement dated as of February 20, 1997, the Bank will make a
term loan to Selas in the principal amount of $3,500,000
("Term Loan C"). Any amounts of Term Loan C that are repaid
or prepaid may not be reborrowed hereunder.
Section 2.2 of the Credit Agreement is hereby amended by
adding the following new subsection (c) after subsection (b):
(c) Term Loan C. The indebtedness of Selas under Term
Loan C shall be evidenced by Term Note C.
Section 2.3 of the Credit Agreement is hereby amended by
adding the following new subsection (e) after subsection (d):
(e) Term Loan C. Funds advanced under Term Loan C shall
be used by Selas solely to finance a portion of its
acquisition (through its wholly owned subsidiary RTI
Electronics) of the assets of the Rodan Division of Ketema,
Inc.
Section 2.4 of the Credit Agreement is hereby amended by
adding the following new subsection (c) after subsection
(b): (c) Term Loan C.
(i) Scheduled Payments. The Term Loan shall be
payable in fifty-nine (59) consecutive monthly principal
installments of $58,333.33 each, commencing March 1, 1997 and
continuing on the first day of each month thereafter, with the
final, sixtieth (60th) installment of the remaining principal
balance of Term Loan C, together with all interest accrued
thereon and all fees and costs payable in connection
therewith, due and payable on February 1, 2002.
(ii) Mandatory Prepayments. On or before May 15 of
each fiscal year, Selas shall pay to the Bank an amount equal
to forty percent (40%) of Excess Earnings of the Domestic
Group for the previous fiscal year, first to be applied to the
prepayment of the Term Loan as provided in Section 2.4(a)(ii)
hereof, and then as a mandatory prepayment of Term Loan C, to
be applied to scheduled principal payment installments of Term
Loan C, in the inverse order of their maturities. The Chief
Financial Officer of Selas shall provide to the Bank on or
before March 31 of each year a certification of the
calculation of the amount of Excess Earnings for the previous
fiscal year.
(iii) Optional Prepayments. Selas shall have the
right to prepay Term Loan C in whole at any time or in part
from time to time; provided, however, that (i) any such
prepayment shall be applied to the outstanding principal of
Term Loan C in the inverse order of maturity of the
installments thereof, and (ii) any such prepayment shall be
accompanied by any additional payment required to compensate
the Bank for any loss, cost or expense incurred as a result of
such prepayment as provided in Section 2.13(e) hereof and any
amount due in connection with the termination of any Swap
Agreement entered into for purposes of hedging Term Loan C.
(iv) Swap Agreements. Any prepayment of the Loans
shall not release the obligations of any Borrower under any
Swap Agreement.
Section 2.5 of the Credit Agreement is hereby amended by
adding the following new subsection (c) after subsection (b):
(c) Term Loan C. Prior to an Event of Default, interest
on Term Loan C shall accrue at the Eurodollar Rate plus the
Applicable Margin and shall be payable on the last day of the
applicable Interest Period and on the maturity of Term Loan C
. Interest will be calculated on the basis of a 360-day year
and the actual number of days elapsed. For purposes of this
Agreement (including without limitation Sections 2.13
thereof), Term Loan C shall be treated as a Eurodollar Loan;
provided, however, that (i) the Interest Period for Term Loan
C shall be limited to one, two or three month periods, and
(ii) Selas shall have no right to convert Term Loan C into a
Base Rate Loan (but Term Loan C may be converted by the Bank
to a Base Rate Loan under the circumstances set forth in
Section 2.13 hereof). If Selas shall fail to timely select
the duration of the Interest Period for Term Loan C, Selas
shall be deemed to have selected a one month Interest Period.
and the references in the former subsection (c) (which shall be
redesignated as subsection (d)) to "subsections (a) and (b)" and
"Sections 2.5(a) and (b)" shall be amended to read "subsections (a), (b)
and (c)" and "Sections 2.5(a), (b) and (c)", respectively.
Section 6 of the Credit Agreement is hereby amended by
adding "and RTI Electronics" after "RTIE" in the lead-in
paragraph on page 39 of the Credit Agreement.
Section 7 of the Credit Agreement is hereby amended by
adding "or RTI Electronics" after "RTIE" in the lead-in
paragraph on page 45 of the Credit Agreement.
Section 7.3(a) of the Credit Agreement is hereby amended
by adding "or RTI Electronics" after "RTIE (including without
limitation, to Foreign Subsidiaries)."
Sections 8 and 9 of the Credit Agreement are hereby
amended by adding "or RTI Electronics" after "RTIE" wherever
it appears in such Sections.
CONSENT TO INVESTMENT IN RTI ELECTRONICS. The Bank hereby
consents to Selas' investment in RTI Electronics for the purpose of
funding RTI Electronics' acquisition of the Rodan Division of Ketema,
Inc. on the terms previously disclosed to the Bank.
FACILITY FEE. On the date of execution of this Agreement,
Selas shall pay to the Bank a nonrefundable facility fee (the
"FACILITY FEE") equal to one-half percent (0.5%) of the principal
amount of Term Loan C, which was fully earned upon Selas'
acceptance of the Bank's commitment letter for Term Loan C.
CONDITIONS PRECEDENT. The effectiveness of this Agreement and
the Bank's obligations hereunder are conditioned upon the satisfaction of
the following conditions precedent:
The Borrowers shall have delivered to the Bank this
Agreement, duly executed by each of the Borrowers.
Selas shall have delivered to the Bank Term Note C, dated
as of the date hereof, duly executed by Selas;
Selas shall have delivered to the Bank an Amended and
Restated Pledge Agreement, dated as of the date hereof, duly
executed by Selas, together with the stock certificates for
all of the issued and outstanding capital stock of RTI
Electronics, Inc., a Delaware corporation ("RTI ELECTRONICS"),
and stock powers executed by Selas in blank;
Selas shall have delivered to the Bank a Second Amendment
to First Mortgage and Security Agreement, dated as of the date
hereof, duly executed by Selas;
Selas shall have delivered to the Bank a title report in
form and substance to the Bank with respect to the premises
covered by the First Mortgage and Security Agreement of Selas;
Deuer shall have delivered to the Bank a Second Amendment
to Open-End First Mortgage and Security Agreement, dated as of
the date hereof, duly executed by Deuer;
Deuer shall have delivered to the Bank a title report in
form and substance to the Bank with respect to the premises
covered by the Open-End First Mortgage and Security Agreement
of Deuer;
RTI Electronics shall have delivered to the Bank a
Guaranty Agreement, dated as of the date hereof, duly executed
by RTI Electronics; RTI Electronics shall have delivered to
the Bank a Security Agreement, dated as of the date hereof,
duly executed
by RTI Electronics, together with such financing statements,
landlords waivers and other waivers or documents as may be
required by the Bank to perfect the security interest in favor
of the Bank thereunder;
Selas shall have delivered to the Bank copies of the
purchase agreement and all related documents for its
acquisition of the Rodan Division of Ketema, Inc.;
The Bank shall have received an opinion of counsel from
Drinker Biddle & Reath, counsel for the Borrowers, in form and
substance satisfactory to the Bank and its counsel;
Selas shall have paid the Facility Fee to the Bank;
All proceedings required to be taken by the Borrowers in
connection with the transactions contemplated by this
Agreement shall be satisfactory in form and substance to the
Bank and its counsel, and the Bank shall have received all
such counterpart originals or certified or other copies of
such documents as the Bank may reasonably request;
The Borrowers shall have executed and delivered to the
Bank such other documents, instruments and agreements as the
Bank may reasonably request.
The documents delivered by the Borrowers or any of them pursuant to
Section 4(a), (b), (c), (d), (f), (h) and (i) are referred to herein as
the "AMENDMENT DOCUMENTS".
REPRESENTATIONS, WARRANTIES AND COVENANTS. In order to induce
the Bank to enter into this Agreement, the Borrowers hereby represent,
warrant and covenant to the Bank as follows:
The representations and warranties contained in the Loan
Documents are true and correct on and as of the date of this
Agreement and, after giving effect hereto, no Event of Default
(other than those that have been waived in writing by the
Bank) will be in existence or will occur as a result of giving
effect hereto.
The execution, delivery and performance of this Agreement
will not violate any provision of any law or regulation or of
any writ or decree of any court or governmental
instrumentality, or any of the Borrowers' certificate or
articles of incorporation, by-laws or other similar
organizational documents.
Each of the Borrowers has the power to execute, deliver
and perform this Agreement and each of the documents,
instruments and agreements to be executed and/or delivered in
connection herewith and has taken all necessary action to
authorize the execution, delivery and performance of this
Agreement and each of the documents, instruments and
agreements executed and/or delivered in connection herewith
and the performance of the Credit Agreement as amended hereby.
The execution, delivery and performance of this Agreement
and each of the documents, instruments and agreements to be
executed and/or delivered in connection herewith does not
require the consent of any other party or the consent,
license, approval or authorization of, or registration or
declaration with, any governmental body, authority, bureau or
agency and the Loan Documents, this Agreement and each of the
documents, instruments and agreements executed and/or
delivered in connection herewith constitute legal, valid and
binding obligations of each of the Borrowers, enforceable in
accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and
except as enforcement may be subject to general equitable
principles.
Selas and RTI Electronics will use their best efforts to
obtain a landlord's waiver, in form and substance satisfactory
to the Bank, from the owner of the premises in Anaheim,
California, which are leased by RTI Electronics.
REAFFIRMATION BY BORROWERS. Except as amended hereby, all of
the terms, covenants and conditions of the Credit Agreement and each of
the other Loan Documents (INCLUDING, BUT NOT LIMITED TO, PROVISIONS
RELATING TO ANY AUTHORITY GRANTED TO THE BANK TO CONFESS JUDGMENT AGAINST
THE BORROWERS, OR ANY OF THEM, AND ANY WAIVER OF THE RIGHT TO TRIAL BY
JURY) are ratified, reaffirmed and confirmed and shall continue in full
force and effect as therein written and are not intended to be reenacted
as of the above date, but rather to be effective as of the original date
of such documents. Each of the Borrowers hereby reaffirms and ratifies
all of the terms, covenants, and conditions contained in each of their
respective guarantees and confirms that such guarantees are binding and
enforceable against the parties thereto as if such guarantees had been
executed as of the date hereof.
REAFFIRMATION BY SELAS AS GUARANTOR AND DEBTOR.
Selas hereby acknowledges that the term "Obligations," as
defined in its Security Agreement, includes all of Selas'
obligations under the Loan Documents as amended by the
Amendment Documents (including without limitation Selas'
obligations under Term Note C), and such Obligations are and
shall continue to be secured by the Collateral.
Selas hereby ratifies, affirms, reaffirms and confirms in
all respects its Guaranty and Security Agreement, including
without limitation all terms, covenants, conditions,
representations and warranties in such agreements, and hereby
certifies that there exists no defenses, offsets or
counterclaims thereto as of the date hereof.
Selas hereby acknowledges the continued existence,
validity and enforceability of its Guaranty and Security
Agreement, and agrees that the terms, covenants, conditions,
representations and warranties of such agreements are binding
upon it (including, but not limited to, the right of the Bank
to enter judgment by confession against Selas and the waiver
of the right to trial by jury, if any).
AMENDMENT TO DEUER GUARANTY AND
REAFFIRMATION BY DEUER AS GUARANTOR AND DEBTOR.
Deuer hereby agrees that Section 2(a) of its Guaranty is
hereby amended to add "and Term Loan C" after "the Term Loan"
(in the seventh line) and to add "and Term Note C" after "the
Term Note" (in the eighth line).
Deuer hereby acknowledges that the term "Obligations," as
defined in its Security Agreement, includes all of Deuer's
obligations under the Loan Documents as amended by the
Amendment Documents (including without limitation Deuer's
obligations under the its Guaranty, as amended hereby), and
such Obligations are and shall continue to be secured by the
Collateral.
Deuer hereby ratifies, affirms, reaffirms and confirms in
all respects its Guaranty and Security Agreement, including
without limitation all terms, covenants, conditions,
representations and warranties in such agreements, and hereby
certifies that there exists no defenses, offsets or
counterclaims thereto as of the date hereof.
Deuer hereby acknowledges the continued existence,
validity and enforceability of its Guaranty and Security
Agreement, and agrees that the terms, covenants, conditions,
representations and warranties of such agreements are binding
upon it (including, but not limited to, the right of the Bank
to enter judgment by confession against Deuer and the waiver
of the right to trial by jury, if any).
AMENDMENT TO RTI GUARANTY AND
REAFFIRMATION BY RTI AS GUARANTOR AND DEBTOR.
RTI hereby agrees that Section 2(a) of its Guaranty is
hereby amended to add "and Term Loan C" after "the Term Loan"
(in the seventh line) and to add "and Term Note C" after "the
Term Note" (in the eighth line).
RTI hereby acknowledges that the term "Obligations," as
defined in its Security Agreement and in its Patent and
Trademark Security Agreement, includes all of RTI's
obligations under the Loan Documents as amended by the
Amendment Documents (including without limitation RTI's
obligations under its Guaranty, as amended hereby), and such
Obligations are and shall continue to be secured by the
Collateral.
RTI hereby ratifies, affirms, reaffirms and confirms in
all respects its Guaranty and Security Agreement, including
without limitation all terms, covenants, conditions,
representations and warranties in such agreements, and hereby
certifies that there exists no defenses, offsets or
counterclaims thereto as of the date hereof.
RTI hereby acknowledges the continued existence, validity
and enforceability of its Guaranty and Security Agreement, and
agrees that the terms, covenants, conditions, representations
and warranties of such agreements are binding upon it
(including, but not limited to, the right of the Bank to enter
judgment by confession against RTI and the waiver of the right
to trial by jury, if any).
BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Borrowers and the Bank and their respective
heirs, executors, administrators, successors and assigns; provided,
however, that the Borrowers may not assign any of their rights, nor
delegate any of their obligations, under this Agreement without the prior
written consent of the Bank and any purported assignment or delegation
absent such consent shall be void.
COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed
in any number of counterparts and by the different parties on separate
counterparts. Each such counterpart shall be deemed to be an original,
but all such counterparts shall together constitute one and the same
agreement. This Agreement shall be deemed to have been executed and
delivered when the Bank has received counterparts hereof executed by all
parties listed on the signature page(s) hereto.
AMENDMENT AND WAIVER. No amendment of this Agreement, and no
waiver of any one or more of the provisions hereof shall be effective
unless set forth in a writing and signed by the parties hereto.
GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Pennsylvania
SEVERABILITY. Any provision of this Agreement that is held to
be inoperative, unenforceable, voidable or invalid in any jurisdiction
shall, as to that jurisdiction, be ineffective, unenforceable, void or
invalid without affecting the remaining provisions in that or any other
jurisdiction, and to this end the provisions of this Agreement are
declared to be severable.
JUDICIAL PROCEEDINGS. Each party to this Agreement agrees
that any suit, action or proceeding, whether claim or counterclaim,
brought or instituted by any party hereto or any successor or assign of
any party, on or with respect to this Agreement, the documents,
instruments and agreements executed in connection herewith, the Loan
Documents or the dealings of the parties with respect hereto and thereto,
shall be tried only by a court and not by a jury. EACH PARTY HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. Further, each party
waives any right it may have to claim or recover, in any such suit,
action or proceeding, any special, exemplary, punitive or consequential
damages or damages other than, or in addition to, actual damages. THE
BORROWERS ACKNOWLEDGE AND AGREE THAT THIS SECTION IS A SPECIFIC AND
MATERIAL ASPECT OF THIS AGREEMENT AND THAT THE BANK WOULD NOT ENTER INTO
THIS AGREEMENT IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART
OF THIS AGREEMENT.
EXPENSES. The Borrowers agree to pay all costs and expenses
of the Bank, including without limitation the costs incurred by the Bank
for regulatory compliance audits, environmental investigations,
reasonable fees and costs of its legal counsel, filing and recording
costs, and other expenses incurred in connection with the preparation,
execution and delivery of this Agreement and the transactions
contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first above
written.
SELAS CORPORATION OF AMERICA
Attest:
By: By:
Name:
Name: Title:
Title:
DEUER MANUFACTURING, INC.
Attest:
By: By:
Name:
Name: Title:
Title:
RESISTANCE TECHNOLOGY, INC.
Attest:
By: By:
Name:
Name: Title:
Title:
FIRST UNION NATIONAL BANK
By:
Name:
Title:
TERM NOTE C
$3,500,000.00 February 21, 1997
Philadelphia, Pennsylvania
FOR VALUE RECEIVED, the undersigned, SELAS CORPORATION OF AMERICA,
a Pennsylvania corporation with offices at 2034 Limekiln Pike, Dresher,
Pennsylvania 19025 ("BORROWER"), promises to pay to the order of FIRST
UNION NATIONAL BANK, a national banking association formerly known as
First Fidelity Bank, N.A. ("BANK"), with an office at Broad and Walnut
Streets, Philadelphia, Pennsylvania 19109, the principal sum of Three
Million Five Hundred Thousand Dollars ($3,500,000) ("TERM LOAN C") in
fifty-nine (59) consecutive monthly principal installments of Fifty-Eight
Thousand Three Hundred Thirty-Three Dollars and 33/100 ($58,333.33) each,
commencing March 1, 1997 and continuing on the first day of each month
thereafter with the final, sixtieth (60th) installment of the remaining
principal balance of Term Loan C, together with all interest accrued
thereon and all fees and costs payable in connection therewith, due and
payable on February 1, 2002.
In addition, in accordance with Paragraph 2.4(c)(ii) of the Credit
Agreement referenced below, Term Loan C is subject to mandatory
prepayments in connection with certain events referenced therein, to be
applied in accordance with Paragraph 2.8 of the Credit Agreement.
Until maturity (whether by acceleration or otherwise), the
outstanding principal balance hereunder shall bear interest at the rates
and shall be payable at the times and in the manner set forth in the
Credit Agreement. Subsequent to maturity, including after judgment,
interest on the outstanding principal balance hereunder shall accrue at
an annual rate which shall be two percent (2%) above the rate of interest
otherwise payable hereunder.
All such principal and interest shall be payable in lawful money of
the United States of America in immediately available funds on a Business
Day at the offices set forth above.
This Term Note C (this "NOTE") arises out of a certain Credit
Agreement dated as of October 23, 1993 (together with all amendments and
modifications thereto, the "Credit Agreement"), among Borrower, Deuer
Manufacturing, Inc., an Ohio corporation, Resistance Technology, Inc., a
Minnesota corporation, and Bank, and evidences a term loan in the
aggregate principal amount of Three Million Five Hundred Thousand Dollars
($3,500,000) made pursuant to the Credit Agreement. Capitalized terms
used but not otherwise defined in
this Note shall have the respective meanings given to such terms in the
Credit Agreement. Reference is made to the Credit Agreement for a
statement of the respective rights and obligations of the parties and the
terms and conditions therein provided under which all or a part of the
principal hereof, accrued interest thereon, and other amounts payable
under the Credit Agreement may become immediately due and payable. The
collateral specified in the Collateral Security Documents shall secure
the obligations of Borrower under this Note.
Notwithstanding the face amount of this Note, Borrower's liability
hereunder shall be limited at all times to the actual aggregate
outstanding indebtedness to Bank (principal, interest and fees) under
Term Loan C, as established by Bank's books and records, which books and
records shall be conclusive absent manifest error.
The occurrence of an Event of Default under the Credit Agreement
constitutes an Event of Default under this Note and entitles Bank, in
accordance with the Credit Agreement, to declare this Note, immediately
due and payable in full.
Borrower hereby waives presentment, demand for payment, notice of
dishonor or acceleration, protest and notice of protest, and any and all
other notices or demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, excepting any notice
requirements set forth in the Credit Agreement.
In the event any interest rate applicable hereto is in excess of
the highest rate allowable under applicable law, then the rate of such
interest will be reduced to the highest rate not in excess of such
maximum allowable interest and any excess previously paid by Borrower
shall be deemed to have been applied against principal.
BORROWER HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR ATTORNEYS
OR THE PROTHONOTARY OR CLERK OF ANY COURT OF THE COMMONWEALTH OF
PENNSYLVANIA, OR ELSEWHERE, TO APPEAR FOR THE BORROWER AT ANY TIME
FOLLOWING THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THE CREDIT
AGREEMENT IN ANY SUCH COURT IN AN APPROPRIATE ACTION THERE OR ELSEWHERE
BROUGHT OR TO BE BROUGHT AGAINST BORROWER BY BANK ON THIS NOTE, WITH OR
WITHOUT DECLARATIONS FILED, AS OF ANY TERM OR TIME OF COURT THERE OR
ELSEWHERE TO BE HELD AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST
BORROWER FOR ALL SUMS DUE BY BORROWER TO BANK UNDER THIS NOTE AND THE
CREDIT AGREEMENT, TOGETHER WITH THE COSTS OF SUIT AND REASONABLE
ATTORNEYS' FEES, AND FOR SO DOING THIS NOTE OR COPY HEREOF VERIFIED BY
AFFIDAVIT SHALL BE A SUFFICIENT WARRANT.
BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS NOTE OR THE CREDIT AGREEMENT OR THE MAKING OF THE LOANS OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF BORROWER OR BANK OR EITHER OF THEM.
THIS PROVISIONS IS A MATERIAL INDUCEMENT FOR BANK'S ENTERING INTO THE
CREDIT AGREEMENT.
BORROWER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN
THE REVIEW AND EXECUTION OF THIS NOTE AND FURTHER ACKNOWLEDGES THAT THE
MEANING AND EFFECT OF THE CONFESSION OF JUDGMENT AND WAIVER OF JURY TRIAL
HAVE BEEN FULLY EXPLAINED TO BORROWER BY SUCH COUNSEL.
Borrower's liability under this Note shall include all fees and
expenses provided in the Credit Agreement.
This Note shall be binding upon Borrower and its successors and
assigns and shall inure to the benefit of the Bank and its successors and
assigns and shall be governed as to validity, interpretation and effect
by the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the undersigned, by its duly authorized
officer, has executed this Term Note C the day and year first above
written.
ATTEST: SELAS CORPORATION OF AMERICA
By: By:
Name: Name:
Title: Title:
[Corporate Seal]
EXHIBIT 10A
AGREEMENT RE: TERMINATION FOLLOWING
CHANGE OF CONTROL OR ASSET SALE
AGREEMENT dated as of March 1, 1997 between Mark S. Gorder
("Executive") and Selas Corporation of America ("Selas").
WHEREAS, Executive has been effective in performing his services
to Resistance Technology, Inc. ("RTI"), a wholly-owned subsidiary of
Selas, and Selas recognizes the valuable services that Executive has
rendered and desires to induce Executive to continue his active
participation in the business of RTI by giving Executive certain
assurances in the event of major changes in the structure or control of
Selas.
NOW, THEREFORE, in consideration of the agreements herein
contained, and intending to be legally bound, the parties hereto agree as
follows:
1. Termination Payment. If a Change of Control of Selas occurs
during the term of this Agreement, and if Executive's employment by RTI
is Involuntarily Terminated within two years after such Change of
Control, Selas shall pay or cause to be paid to Executive, simultaneously
with such Involuntary Termination, two year's base salary at the base
salary rate being earned by Executive immediately prior to the
preceding Change of Control. If an Asset Sale occurs during the term
of this Agreement, and if Executive's employment by RTI is Involuntarily
Terminated within two years after such Asset Sale, Selas shall pay or
cause to be paid to Executive, simultaneously with such Involuntary
Termination, two year's base salary at the base salary rate being earned
by Executive immediately prior to such Asset Sale, provided, however that
Selas need not make such payment if the purchaser in such Asset Sale or
an affiliate of such purchaser offers to employ Executive commencing at
the time of the Asset Sale at not less than the same rate of compensation
and level of benefits as Executive was receiving immediately prior to the
Asset Sale and does not Involuntarily Terminate Executive's employment
during the two year period after the consummation of the Asset Sale. Any
payment required under this paragraph shall be accompanied by
compensation to Executive for any accrued but unused vacation time
through the date of Involuntary Termination. Notwithstanding any other
provision hereof, the obligations of Selas hereunder shall arise, if at
all, only in connection with the earlier of the first Change of Control
or first Asset Sale to occur after the date hereof; any second Change of
Control or second Asset Sale which may occur within the two year period
following the first Change of Control or first Asset Sale shall neither
diminish nor trigger again the obligations set forth
obligations set forth herein to the extent that such obligations may be
applicable, it being understood that such obligations shall in no event
extend beyond two years after the first Change of Control or Asset Sale.
The following terms used herein have the meanings set forth
below:
"Asset Sale" means the sale, other than any such sale
approved in advance by a majority of the Continuing Directors of Selas,
(a) by Selas of 90% or more of the outstanding shares
of stock of RTI entitled to vote in the election of Directors of RTI, or
(b) by RTI of a number of shares of stock of RTI
entitled to vote in the election of Directors of RTI that would reduce
the percentage ownership of Selas of such stock to 10% or less, or
(c) by RTI of the assets of RTI to which are
attributable 90% or more of the volume of sales of RTI.
"Cause." Executive's employment shall be deemed to have
been terminated for "Cause" only if termination shall have taken place
(a) following conviction of Executive for an act constituting a felony
under applicable law, (b) because of the willful and continued
substantial failure by Executive to perform his duties continued for at
least 30 days after written demand for performance is delivered to
Executive specifically identifying the manner in which Executive has not
substantially performed his duties, (c) because of the death of
Executive, (d) because of the Disability of Executive or (e) as a result
of voluntary retirement or resignation of Executive. For purposes of
this paragraph, no act or failure to act on Executive's part shall be
deemed "willful" unless done, or omitted to be done, by him not in good
faith or without reasonable belief that his action or omission was in the
best interest of his employer.
"Change of Control" of Selas means the acquisition, other
than any such acquisition approved in advance by a majority of the
Continuing Directors of Selas, by any person, entity or group of
associated persons acting in concert of beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934) of 50% or more
of the then outstanding shares of capital stock of Selas entitled to vote
for the election of Directors of Selas.
"Continuing Directors" means those directors duly elected
prior to the time that any person, entity or group of associated persons
acting in concert has acquired beneficial ownership (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of 50% or more of the
then outstanding shares of capital stock of Selas entitled to vote for
the election of Directors of Selas, and those directors who were
recommended to succeed Continuing Directors by a majority of Continuing
Directors.
"Disability" of Executive means that the Executive shall be
physically or mentally incapacitated and as a result thereof shall be
unable to continue substantially proper performance of his duties
(reasonable absences because of sickness for up to six consecutive months
excepted). If Executive shall not agree with a determination to
terminate him because of Disability, the question of Executive's ability
shall be submitted to an impartial and reputable physician selected
either by a mutual agreement of the parties or by the then president of
the Medical Society of the county in which Executive is employed, and
such physician's determination of disability shall be binding on the
parties.
"Involuntary Termination" (or "Involuntarily Terminated")
means (a) any reduction in the amount of annual base compensation or in
the employee benefits (but not in the amount of bonuses) inuring to
Executive below the level of base compensation or benefits inuring to
Executive immediately prior to the preceding Change of Control or Asset
Sale, (b) the imposition on Executive of a requirement that he change the
location of his principal employment from its location immediately prior
to the Change of Control or Asset Sale in order to maintain his
employment or to maintain his compensation at its level immediately prior
to the preceding Change of Control or Asset Sale if such change of
location would impose a substantial burden on the Executive in commuting
from his then residence to the new place of employment, (c) the
assignment to the Executive of duties that do not constitute managerial
duties or duties for which his training and experience do not qualify him
or (d) any termination of the employment of Executive other than for
Cause.
2. Other Benefits. This Agreement shall not prejudice
Executive's or his beneficiary's right to receive any death, disability,
pension, or other benefits otherwise due to Executive upon or following
termination.
3. No Duty to Mitigate. Executive's benefits hereunder
shall be considered severance pay in consideration of his past service to
RTI, and pay in consideration of his continued service from the date
hereof, and his entitlement
thereto shall not be governed by any duty to mitigate his damages by
seeking further employment, nor offset by any compensation which he may
receive from future employment.
4. Withholding. Any payment required under this Agreement
shall be subject to all applicable requirements of law with regard to
withholding, filing, making of reports and the like.
5. Term. This Agreement shall terminate, except to the
extent that any obligation hereunder remains unpaid as of such time, upon
the earliest of (i) December 31, 1997 if a Change of Control or Asset
Sale has not occurred by such date; or (ii) the termination of
Executive's employment with RTI prior to a Change of Control or Asset
Sale; or (iii) the termination of Executive's employment with RTI after a
Change of Control of Selas, other than by Involuntary Termination.
6. Miscellaneous.
a. This Agreement represents the entire agreement of
the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements in connection therewith. Without
limiting the generality of the preceding sentence, Executive hereby
acknowledges that Selas shall have no obligation to him under the
termination program established in 1986.
b. In the event that any provision of this Agreement
shall be determined to be invalid, the remaining provisions shall be
unaffected thereby and shall remain in full force and effect.
c. This Agreement shall not be assignable by Executive,
but Selas' obligation under the second sentence of Section 1 in
connection with an Asset Sale may be assigned by Selas to the purchaser
in connection with such Asset Sale if the Executive becomes an employee
of the purchaser or an affiliate immediately after the Asset Sale, in
which case the assignee shall expressly assume and agree to perform the
obligations set forth in the second sentence of Section 1 in connection
with such Asset Sale in the same manner and to the same extent as if it
were Selas and Selas shall by virtue thereof and without further act be
released from its obligations hereunder.
d. Any notice given hereunder shall be deemed to be
given when personally delivered or mailed by certified or registered
mail, return receipt requested, addressed to Selas at its principal
offices or addressed to Executive at his latest address shown on the
employment records.
e. A waiver of breach of any provision hereof shall not be
construed as a waiver of any subsequent breach hereof.
f. If it is necessary for Executive to sue for payment
hereunder, and such suit results in any payment to Executive, the
employer shall pay Executive's reasonable counsel fees relating to such
litigation.
g. This Agreement may be amended, waived or terminated only
by written instrument signed by both parties hereto.
h. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Pennsylvania.
i. Upon the occurrence of a Change of Control or Asset
Sale, the employer waives, and will not assert, any right to set off the
amount of any claims, liabilities, damages or losses the employer may
have against any amounts payable by it to Executive hereunder, and any
amounts payable to or otherwise accrued for the account of Executive in
respect of any period prior to the termination of this Agreement shall be
paid when due.
j. Nothing herein shall diminish Selas' or RTI's right to
terminate the employment of the Executive prior to a Change of Control or
Asset Sale or impose any obligation to make any payment to the
Executive in connection with any such termina tion. Nothing herein
shall alter in any manner the rights or obligations of RTI or
Executive under the Management Employment Agreement dated October 20,
1993 between RTI and Executive.
IN WITNESS WHEREOF, Selas and Executive have executed this
Agreement as of the date first above written.
SELAS CORPORATION OF AMERICA
By:
Robert W. Ross
Secretary
Mark S. Gorder
EXHIBIT 10A
SECOND EXTENSION AGREEMENT
AGREEMENT dated as of March 1, 1997 between
____________________________ ("Executive") and Selas Corporation of
America ("Selas").
BACKGROUND
Executive and Selas are parties to an Agreement, dated as of
March 9, 1993, the term of which was extended pursuant to an Extension
Agreement dated as of March 1, 1995 (as so extended, the "Agreement"),
which, as an inducement to Executive to continue his active participation
in the business of Selas or an affiliate of Selas, provides for certain
payments to the Executive under the circumstances and pursuant to the
terms therein set forth. Capitalized terms used herein have such
meanings as are ascribed thereto in the Agreement.
Executive and Selas desire to confirm in writing their prior
understandings that the term of the Agreement, insofar as the term
thereof is a function of the period during which a Change of Control or
Asset Sale may occur, is extended from June 1, 1996 until December 31,
1997.
NOW, THEREFORE, in consideration of the agreements herein
contained and contained in the Agreement, and intending to be legally
bound, the parties hereto agree as follows:
1. Clause (i) in paragraph 5 of the Agreement is hereby
further amended by changing the date "June 1, 1996" to
"December 31, 1997."
2. The Agreement, as amended hereby, is hereby ratified and
confirmed in all respects.
IN WITNESS WHEREOF, Selas and Executive have executed this
Agreement as of the date first above written.
SELAS CORPORATION OF AMERICA<PAGE>
By:______________________________
_________________________________
EXHIBIT 10J
AMENDED AND RESTATED
OFFICE/WAREHOUSE LEASE
BY AND BETWEEN
ARDEN PARTNERS I, L.L.P.
AND
RESISTANCE TECHNOLOGY, INC.
EFFECTIVE NOVEMBER 1, 1996
TABLE OF CONTENTS
PAGE
DEFINITIONS 1
TERM 1
BASE RENT 1
ADDITIONAL RENT 2
COVENANT TO PAY RENT 3
UTILITIES 3
CARE AND REPAIR OF BUILDING 3
SIGNS 4
ALTERATIONS, INSTALLATION, FIXTURES 4
POSSESSION 5
SECURITY AND DAMAGE DEPOSIT 5
USE 5
ACCESS TO BUILDING 5
EMINENT DOMAIN 6
DAMAGE OR DESTRUCTION 7
CASUALTY INSURANCE 7
PUBLIC LIABILITY INSURANCE 8
DEFAULT OF LESSEE 8
COVENANTS TO HOLD HARMLESS 9
NON-LIABILITY 10
SUBORDINATION 10
ASSIGNMENT OR SUBLETTING 11
ATTORNMENT 11
NOVATION IN THE EVENT OF SALE 11
SUCCESSORS AND ASSIGNS 11
EXHIBIT 10J
OFFICE/WAREHOUSE LEASE
THIS LEASE effective the 1st day of November, 1996, by and between
ARDEN PARTNERS I, L.L.P., a Minnesota limited liability partnership
("Lessor"), and RESISTANCE TECHNOLOGY, INC., a Minnesota corporation,
("Lessee").
RECITALS
WHEREAS, Lessor and Lessee entered into an Office/Warehouse Lease
dated the 31st day of November, 1991 to terminate on the 1st day of
November, 1996 for the Premises described below;
WHEREAS, Lessor and Lessee entered into the Agreement dated October
20, 1993 to extend said Lease from November 1, 1996 to October 31, 2003
(the "Extension Agreement");
WHEREAS, Lessor and Lessee have agreed to amend and restate said
Office/Warehouse Lease;
NOW, THEREFORE, Lessor and Lessee agree as follows:
DEFINITIONS:
"Premises" That certain real property located in the City of
Arden Hills, County of Ramsey, and State of Minnesota and
legally described on EXHIBIT "A" attached hereto and made a
part hereof, including all buildings and site improvements
located thereon.
"Building" That certain office/warehouse building containing
approximately 47,100 square feet (14,118 square feet of office space,
7,850 square feet of clean room space, 4,000 square feet of warehouse
space and 21,132 square feet of manufacturing space) located upon the
Premises and commonly described as 1260 Red Fox Road, Arden Hills,
Minnesota.
WITNESSETH:
TERM:
1. For and in consideration of the rents, additional rents, terms,
covenants, terms and provisions herein contained, Lessor hereby demises,
leases and lets to Lessee the Premises for the term of eighty-four (84)
months commencing on the first day of November, 1996 ("Commencement
Date") and expiring on October 31, 2003 ("Expiration Date"), unless
sooner terminated as hereinafter provided (which is Extension Term No. 1
in the Extension Agreement).
BASE RENT:
2. Lessee shall pay Base Rent to Lessor during the eighty-four (84)
months of the term of this Lease in the annual amount of Three Hundred
Thirty Thousand and No/100 Dollars ($330,000) payable in equal monthly
installments of Twenty-Seven Thousand Five Hundred and No/100 Dollars
($27,500) on the first day of each month commencing with the first
payment on November 1, 1996. Monthly Base Rent shall be payable in
advance the first day of each month during the term of this Lease in
lawful money of the United States, to Lessor, without any deduction,
offset, counterclaim or reduction whatsoever.
ADDITIONAL RENT:
3. Lessee shall pay to Lessor throughout the term of this Lease the
following:
a. Lessee shall pay a sum equal to one hundred percent (100%) of the
Real Estate Taxes. The term "Real Estate Taxes" shall mean all real
estate taxes, all assessments and any taxes in lieu thereof which may be
levied upon or assessed against the Premises. Lessee, in addition to all
other payments to Lessor by Lessee required hereunder shall pay to
Lessor, in each year during the term of this Lease and any extension or
renewal thereof, such Real Estate Taxes and assessments paid in the first
instance by Lessor.
b. A sum equal to one hundred percent (100%) of the annual aggregate
operating expenses incurred by Lessor in the operation, maintenance and
repair of the Premises. The term "Operating Expenses" shall include, but
not be limited to, maintenance, repair, replacement and care of all
plumbing and roofs, parking and landscaped areas, signs, snow removal,
non-structural repair and maintenance of the exterior of the Building,
public liability and casualty insurance premiums, work, costs of
equipment purchased and used for such purposes, and the cost or portion
thereof properly allocable to the Premises (amortized over such
reasonable period as Lessor shall determine together with the interest at
the rate of twelve percent (12%) per annum on the unamortized balance) of
any capital improvements made to the Building by Lessor after the Base
Year (November 1, 1996 to October 31, 1997) which result in a reduction
of Operating Expenses or made to the Building by Lessor after the date
of this Lease that are required under any governmental law or
regulation that was not applicable to the Building at the time it was
constructed.
c. In no event shall the total adjusted Monthly Base Rent be less
than Twenty-Seven Thousand Five Hundred and No/100 Dollars ($27,500) per
month during the term of this Lease (which term is Extension Term No. 1
of the Extension Agreement).
The payment of the sums set forth in this Article 3 shall be in
addition to the Base Rent payable pursuant to Article 2 herein. All sums
due hereunder shall be due and payable within thirty (30) days of
delivery of written certification by Lessor setting forth the computation
of the amount due from Lessee. In the event this Lease term shall begin
or expire at any time during the calendar year, Lessee shall be
responsible for its pro-rata share of Additional Rent under subdivisions
a. and b. above during this Lease and/or occupancy time.
Prior to commencement of this Lease, and prior to commencement of
each calendar year thereafter commencing during the term of this Lease or
any renewal or extension thereof, Lessor may estimate for each calendar
year (i) the total amount of Real Estate Taxes; (ii) the total amount of
Operating Expenses; and (iii) the computation of the annual and monthly
rental payable during such calendar year as a result of increases or
decreases in Real Estate Taxes and Operating Expenses. Such estimates
shall be in writing and shall be delivered or mailed to Lessee at the
Premises.
The amount of Real Estate Taxes and Operating Expenses for each
calendar year, so estimated, shall be payable as Additional Rent, in
equal monthly installments, in advance, on the first day of each month
during such calendar year at the option of Lessor. In the event that
such estimate is delivered to Lessee before the first day of January of
such calendar year, said amount, so estimated, shall be payable as
Additional Rent in equal monthly installments, in advance, on the first
day of each month during such calendar year. In the event that such
estimate is delivered to Lessee after the first day of January of such
calendar year, said amount, so estimated, shall be payable as Additional
Rent in equal monthly installments, in advance, on the first day of each
month over the balance of such calendar year, with the number of
installments being equal to the number of full calendar months remaining
in such calendar year.
Upon completion of each calendar year during the term of this Lease
or any renewal or extension thereof, Lessor shall cause its accountants
to determine the actual amount of the Real Estate Taxes and Operating
Expenses payable in such calendar year and deliver a written
certification of the amounts thereof to Lessee. If Lessee has underpaid
Real Estate Taxes or Operating Expenses for such calendar year, Lessee
shall pay the balance of the same within ten (10) days after the receipt
of such statement. If Lessee has overpaid Real Estate Taxes or Operating
Expenses for such calendar year, Lessor either shall (i) refund such
excess or (ii) credit such excess against the most current monthly
installment or installments due Lessor for its estimate of Real Estate
Taxes and Operating Expenses for the
next following calendar year. A pro-rata adjustment shall be made for a
fractional calendar year occurring during the term of this Lease or any
renewal or extension thereof based upon the number of days of the term of
this Lease during said calendar year as compared to three hundred
sixty-five (365) days and all additional sums payable by Lessee or
credits due Lessee as a result of the provisions of this Article 3
shall be adjusted accordingly.
COVENANT TO PAY RENT:
4. The covenants of Lessee to pay the Base Rent and the Additional
Rent are each independent of any other agreement, condition, or provision
contained in this Lease. All Rents are payable to Lessor at 1260 Red Fox
Road, Arden Hills, Minnesota 55112.
UTILITIES:
5. Lessor shall provide mains and conduits to supply water, gas,
electricity and sanitary sewage to the Premises. Lessee shall pay, when
due, all charges for sewer usage or rental, garbage, disposal, refuse
removal, water, electricity, gas, fuel oil, L.P gas, telephone and/or
other utility services or energy source furnished to the Building during
the term of this Lease, or any renewal or extension thereof. If Lessor
elects to furnish any of the foregoing utility services or other services
furnished or caused to be furnished to Lessee, then the rate charged by
Lessor shall not exceed the rate Lessee would be required to pay to a
utility company or service company furnishing any of the foregoing
utilities or services. The charges thereof shall be deemed Additional
Rent in accordance with Article 3 herein.
CARE AND REPAIR OF BUILDING:
6. Lessee at all times throughout the term of this Lease, including
renewals and extension, and at its sole expense, shall keep and maintain
the Premises and Building in a clean, safe, sanitary and first class
condition and in compliance with all applicable laws, codes, ordinances,
rules and regulations. Lessee's obligations hereunder shall include, but
not be limited to, the maintenance, repair and replacement, if necessary,
of heating, air conditioning fixtures, equipment, and systems, all
lighting and plumbing fixtures and equipment, fixtures, motors and
machinery, all interior walls, partitions, doors and windows, including
the regular painting thereof, all exterior entrances, windows, doors and
docks and the replacement of all broken glass. When used in this
provision, the term "repairs" shall include replacements or renewals when
necessary, and all such repairs made by Lessee shall be equal in quality
and class to the original work. Lessee shall keep and maintain all
portions of the Premises and Building and the sidewalk and areas
adjoining the same in a clean and orderly condition, free of accumulation
of dirt, rubbish, snow and ice.
If Lessee fails, refuses or neglects to maintain or repair the
Premises and Building as required in this Lease after notice shall have
been given by Lessor to Lessee, in accordance with Article 33 herein,
Lessor may make such repairs without liability to Lessee for any loss or
damage that may accrue to Lessee's merchandise, fixtures or other
property or to Lessee's business by reason thereof. Upon completion
thereof, Lessee shall pay to Lessor all costs plus fifteen percent (15%)
for overhead incurred by Lessor in making such repairs upon presentation
to Lessee of bill thereto.
Lessor shall repair, at its expense, the structural portions of the
Building; provided, however, where structural repairs are required to be
made by reason of the business or operational needs of Lessee or acts of
Lessee, the costs thereof shall be borne by Lessee and payable by Lessee
to Lessor upon demand. Lessee, at its cost and expenses, shall be
responsible for all outside maintenance of the Building, including
grounds and parking areas.
SIGNS:
7. Any advertisement lettering, notice, picture or sign installed on
or in any part of the Premises and visible from the exterior of the
Building shall be approved and installed by Lessee at Lessee's expense.
In the event of a violation of the foregoing by Lessee, Lessor may remove
the same without any liability and may charge the expense incurred by
such removal to Lessee.
ALTERATIONS, INSTALLATION, FIXTURES:
8. Except as hereinafter provided, Lessee shall not make any
additions, alterations, or improvements in or to the Premises or Building
or add, disturb or in any way change any plumbing or wiring therein
without the prior written consent of Lessor if such addition, alteration,
improvement, plumbing or wiring costs Lessee more than Seventy-five
Thousand and No/100 Dollars ($75,000) which consent shall not be
unreasonably conditioned, delayed or withheld. In the event alterations,
additions or improvements are required by any governmental agency by
reason of the use and occupancy of the Premises and Building by Lessee,
Lessee shall make such alterations, additions or improvements at its own
cost and expense after first obtaining Lessor's approval of plans and
specifications therefor and furnishing such indemnification as Lessor may
reasonably require against liens, costs, damages and expenses arising out
of such alterations, additions or improvements. Additions, alterations
or improvements by Lessee must be built in compliance with all laws,
ordinances and governmental regulations affecting the Premises. Lessee
shall warrant to Lessor that all such additions, alterations or
improvements shall be in strict compliance with all relevant laws,
ordinances, governmental regulations and insurance requirements.
Construction of such additions or alterations or improvements shall
commence only upon Lessee obtaining and exhibiting to Lessor the
requisite approvals, licenses and permits and indemnification against
liens. All additions, alterations or improvements to the Building made
by Lessee shall at once become the property of Lessor and shall be
surrendered to Lessor upon the termination of this Lease; provided,
however, this clause shall not apply to movable equipment or furniture
owned by Lessee which may be removed by Lessee at the end of the term of
this Lease if Lessee is not then in default.
POSSESSION:
9. Except as hereinafter provided, Lessor shall deliver possession
of the Premises and Building to Lessee in the condition required by this
Lease on or before the Commencement Date, but delivery of possession
prior to or later than such Commencement Date shall not affect the
Expiration Date. The rentals herein reserved shall commence on the date
when possession of the Premises and Building is delivered by Lessor to
Lessee which Lessor and Lessee agree is November 1, 1996. Any occupancy
by Lessee prior to the beginning of the term shall in all respects be the
same as that of a Lessee under this Lease. Lessor shall have no
responsibility or liability for loss or damage to facilities, fixtures or
equipment installed or left on the Building. If the Premises are not
ready for occupancy by Commencement Date and possession is later than
Commencement Date, rent shall begin on the date of possession.
SECURITY AND DAMAGE DEPOSIT:
10. There is no security or damage deposit under this Lease.
USE: 11. The Premises and Building shall be used and occupied by Lessee
solely for the purposes of office and manufacturing so long as such use
is in compliance with all applicable laws, ordinances and governmental
regulations affecting the Building and Premises. The Premises and
Building shall not be used in such manner that, in accordance with any
requirement of law or of any public authority, Lessor shall be obliged on
account of the purpose or manner of said use to make any addition,
alteration or improvement to or in the Building. The Premises shall not
be used in any manner which will increase the rates.required to be paid
for public liability or for fire and extended coverage insurance covering
the Premises. Lessee shall occupy the Premises and conduct its business
and control its agents, employees, invitees and visitors in such a way as
is lawful, and reputable and will not permit or create any nuisance,
noise, odor, or otherwise interfere with, annoy or disturb Lessor in its
management of the Premises and Building.
ACCESS TO BUILDING:
12. Lessee agrees to permit Lessor and the authorized
representatives of Lessor to enter the Premises and Building at all times
during usual business hours for the purpose of inspecting the same and
making any necessary repairs to the Premises and Building and performing
any work therein that may be necessary to comply with any laws,
ordinances, rules, regulations or requirements of any public authority or
of the Board of Fire Underwriters or any similar body or that Lessor may
deem necessary to prevent waste or deterioration in connection with the
Premises and Building. Nothing herein shall imply any duty upon the part
of Lessor to do any such work which, under any provision of this Lease,
Lessee may be required to perform and the performance thereof by Lessor
shall not constitute a waiver of Lessee's default in failing to perform
the same. Lessor, during the progress of any work in the Premises and
Building, may keep and store upon the Premises and Building all necessary
materials, tools and equipment. Lessor shall not in any event be liable
for inconvenience, annoyance, disturbance, loss of business, or other
damage of Lessee by reason of making repairs or the performance or any
work in the Premises and Building or on account of bringing materials,
supplies and equipment into or through the Premises and Building during
the course thereof and the obligations of Lessee under this Lease shall
not thereby be affected in any manner whatsoever.
Lessor reserves the right to enter upon the Premises and Building at
any time in the event of an emergency and at reasonable hours to exhibit
the Premises and Building to prospective purchasers or others and to
exhibit the Premises and Building to prospective Lessees and to the
display "For Rent" or similar signs on windows or doors in the Premises
and Building during the last ninety (90) days of the term of this Lease,
all without hindrance or molestation by Lessee.
EMINENT DOMAIN:
13. If there is any condemnation or eminent domain proceeding or
private sale in lieu thereof in respect to the Premises and Building
during the term hereof, the following provisions shall apply:
a. If the whole of the Premises shall be acquired or condemned by
eminent domain for any public or quasi-public use or purpose, then the
term of this Lease shall cease and terminate as of the date possession
shall be taken in such proceeding and all rentals shall be paid up to
that date.
b. If any part constituting less than the whole of the Premises
shall be acquired or condemned as aforesaid, and in the event that such
partial taking or condemnation shall materially affect the Building so as
to render the Building unsuitable for the business of Lessee, in
the reasonable opinion of Lessor, then the term of this Lease shall
authority and rent shall be paid to the date of such termination.
In the event of a partial taking or condemnation of the Premises
which shall not materially affect the Building so as to render the
Building unsuitable for the business of Lessee, in the reasonable opinion
of Lessor, this Lease shall continue in full force and effect but with a
proportionate abatement of the Base Rent and Additional Rent based on the
portion, if any, of the Building taken. Lessor reserves the right, at
its option, to restore the Building and the Building to substantially the
same condition as they were prior to such condemnation. In such event,
Lessor shall give written notice to Lessee, within thirty (30) days
following the date possession shall be taken by the condemning authority,
of Lessor's intention to restore. Upon Lessor's notice of election to
restore, Lessor shall commence restoration and shall restore the Building
and the Building with reasonable promptness, subject to delays beyond
Lessor's control and delays in the making of condemnation or sale
proceeds adjustments by Lessor. Lessee shall have no right to terminate
this Lease except as herein provided. Upon completion of such
restoration, the rent shall be adjusted based upon the portion, if any,
of the Building restored.
c. If there is any condemnation or taking as aforesaid, whether
whole or partial, Lessee shall not be entitled to any part of the award
paid for such condemnation. Lessor is to receive the full amount of such
award Lessee hereby expressly waiving any right to claim to any part
thereof.
d. Although all damages in the event of any condemnation shall
belong to Lessor whether such damages are awarded as compensation for
diminution in value of the leasehold or to the fee of the Premises or
Building, Lessee shall have the right to claim and recover from the
condemning authority, but not from Lessor, such compensation as may be
separately awarded or recoverable by Lessee in Lessee's own right on
account of any and all damage to Lessee's business by reason of the
condemnation and for or on account of any cost or loss to which Lessee
might be put in removing Lessee's merchandise, furniture, fixtures,
leasehold improvements and equipment; provided, however, that Lessee
shall have no claim against Lessor or make any claim with the condemning
authority for the loss of its leasehold estate, any unexpired term or
loss of any possible renewal or extension of this Lease or loss of any
possible value of this Lease, any unexpired term, renewal or extension of
this Lease.
DAMAGE OR DESTRUCTION:
14. If there is any damage or destruction to the Premises or
Building by fire or other cause during the term hereof, the following
provisions shall apply:
a. If the Building is damaged by fire or any other cause to such
extent that the cost of restoration, as reasonably estimated by Lessor,
will equal or exceed thirty percent (30%) of the replacement value of the
Building (exclusive of foundations) just prior to the occurrence of the
damage, then Lessor, no later than the sixtieth (60th) day following the
damage, may give Lessee written notice of Lessor's election to terminate
this Lease.
b. If the cost of restoration as estimated by Lessor will equal or
exceed fifty percent (50%) of the replacement value of the Building
(exclusive of foundations) just prior to the occurrence of the damage,
and if the Building are not suitable as a result of said damage for the
purposes for which they are demised hereunder, in the reasonable opinion
of Lessee, then Lessee, no later than the sixtieth (60th) day
following the damage, may give Lessor a written notice of election
to terminate this Lease.
c. If the cost of restoration as estimated by Lessor shall amount to
less than thirty percent (30%) of said replacement value of the Building,
as provided in Section 14.c herein, or if, despite the cost, Lessor does
not elect to terminate this Lease, Lessor shall restore the Building
with reasonable promptness, subject to delays beyond Lessor's control and
delays in the making of insurance adjustments by Lessor. Lessee shall
have no right to terminate this Lease, except as herein provided. Lessor
shall not be responsible for restoring or repairing leasehold
improvements of Lessee.
d. If either of the elections to terminate is exercised, this Lease
shall be deemed to terminate on the date of the receipt of the notice of
election. All rentals shall be paid up to that date. Lessee shall have
no claim against Lessor for the value of any unexpired term of this
Lease.
e. If damage to the Building shall materially affect the Building so
as to render it unsuitable in whole or in part for the purposes for which
they are demised hereunder, then, unless such destruction was wholly or
partially caused by the negligence or breach of the terms of this Lease
by Lessee, its employees, contractors or licensees, a portion of the rent
based upon the amount of the extent to which the Building is rendered
unsuitable shall be abated until repaired or restored. If the
destruction or damage was wholly or partially caused by negligence or
breach of the terms of this Lease by Lessee as aforesaid and if Lessor
shall elect to rebuild, the rent shall not abate and Lessee shall remain
liable for the same.
CASUALTY INSURANCE:
15.a. Lessee, at all times during the term of this Lease, at its
expense, shall maintain a policy or policies of insurance with premiums
paid in advance issued by an insurance company licensed to do business in
the State of Minnesota insuring the Building against loss or damage by
fire, explosion or other insurable hazards and contingencies for the full
replacement value with Lessor as an additional named insured as its
interest may appear.
b. Lessee shall not carry any stock of goods or do anything in or
about the Building which will in any way impair or invalidate the
obligation of the insurer under any policy of insurance required by this
Lease.
c. Lessor hereby waives and releases all claims, liabilities and
causes of action against Lessee and its agents, servants and employees
for loss or damage to, or destruction of, the Premises or any portion
thereof, including the buildings and other improvements situated thereon,
resulting from fire, explosion and other perils included in standard
extended coverage insurance, whether caused by the negligence of any of
said persons or otherwise. Lessee hereby waives and releases all claims,
liabilities and causes of action against Lessor and its agents, servants
and employees for loss or damage to, or destruction of, any of the
improvements, fixtures, equipment, supplies, merchandise and other
property, whether that of Lessee or of others in, upon or about the
Premises resulting from fire, explosion or the other perils included in
standard extended coverage insurance, whether caused by the negligence of
any of said persons or otherwise. The waiver shall remain in force
whether or not Lessee's insurer shall consent thereto.
d. If the use of the Building by Lessee increases the premium
rate for insurance carried by Lessor on the Building , Lessee shall pay
Lessor, upon demand, the amount of such premium increase. If
Lessee installs any electrical equipment that overloads the power
lines to the Building or its wiring, Lessee , at its own expense,
shall make whatever changes are necessary to comply with the
requirements of the insurance underwriter, insurance rating bureau and
governmental authorities having jurisdiction.
PUBLIC LIABILITY INSURANCE:
16. Lessee, during the term hereof, shall keep in full force and
effect, at its expense, a policy or policies of public liability
insurance with respect to the Premises and Building and the business of
Lessee, on terms with companies approved in writing by Lessor, in which
both Lessee and Lessor shall be covered by being named as insured parties
under reasonable limits of liability not less than $1,000,000 for
injury/death to any one person; $5,000,000 for injury/death to more than
one person; and $1,000,000 with respect to damage to property. Such
policy or policies shall provide that thirty (30) days written notice
must be given to Lessor prior to cancellation thereof. Lessee shall
furnish evidence satisfactory to Lessor at the time this Lease is
executed that such coverage is in full force and effect.
DEFAULT OF LESSEE:
17.a. If Lessee fails to pay any rent due hereunder within ten (10)
days after the same shall be due, or any failure to perform any other of
the conditions, covenants or terms of this Lease to be observed or
performed by Lessee for more than thirty (30) days after written notice
of such failure shall have been given to Lessee, or if Lessee or an agent
of Lessee shall falsify any report required to be furnished to Lessor
pursuant to the terms of this Lease, or if Lessee or any guarantor of
this Lease shall become bankrupt or insolvent, or file any debtor
proceedings or any person shall take or have against Lessee or any
guarantor of this Lease in any court pursuant to any statute either of
the United States or of any state a petition in bankruptcy or insolvency
or for reorganization or for the appointment of a receiver or trustee of
all or a portion of Lessee's or any such guarantor's property, or if
Lessee or any such guarantor makes an assignment for the benefit of
creditors, or petitions to or enters into an arrangement, or if Lessee
shall abandon the Premises or suffer this Lease to be taken under any
writ of execution, then in any such event Lessee shall be in default
hereunder, and Lessor, in addition to other rights or remedies it may
have, shall have the immediate right of reentry and may remove all
persons and property from the Premises and such property may be removed
and stored in a public warehouse or elsewhere at the cost of, and for the
account of Lessee, all without service of notice or resort to legal
process and without being guilty of trespass, or becoming liable for any
loss or damage which may be occasioned thereby.
b. If Lessor elects to reenter the Premises, as herein provided, or
should it take possession of the Premises pursuant to legal proceedings
or pursuant to any notice provided for by law, it may either terminate
this Lease or it may from time to time, without terminating this Lease,
make such alterations and repairs as may be necessary in order to relet
the Premises, and relet the Building or any part thereof on such term or
terms (which may be for a term extending beyond the term of this Lease)
and at such rental or rentals and upon such other terms and conditions as
Lessor in its sole discretion may deem advisable. Upon each such
subletting all rentals received by Lessor from such reletting shall be
applied first to the payment of any indebtedness other than rent due
hereunder from Lessee to Lessor; second, to the payment of any costs and
expenses of such reletting, including brokerage fees and attorney's fees
and costs of such alterations and repairs; third, to the payment of the
rent due and upon payment of future rent as the same may become due and
payable hereunder. If such rentals received from such reletting during
any month less than that to be paid during that month by Lessee,
upon demand by Lessor, shall pay any such deficiency to Lessor.
No such reentry or taking possession of the Premises by Lessor shall
be construed as an election on its part to terminate this Lease
unless a written notice of such intention be given to Lessee or
unless the termination thereof be decreed by a court of competent
jurisdiction. Notwithstanding any such reletting without termination,
Lessor may at any time after such reentry and reletting elect to
terminate this Lease for any such breach. In addition to any other
remedies Lessor may have, it may recover from Lessee all damages it
may incur by reason of such breach, including the cost of
recovering the Premises, reasonable attorney's fees, and
including the worth at the time of such termination of the excess, if
any, of the amount of rent and charges equivalent to rent reserved in
this Lease for the remainder of the stated term over the then reasonable
rental value of the Premises for the remainder of the stated term, all of
which amounts shall be immediately due and payable from Lessee to Lessor.
c. Lessor, at its option, instead of exercising any other rights or
remedies available to it in this Lease or otherwise by law, statute or
equity, may spend such money as is reasonably necessary to cure any
default of Lessee herein and the amount so spent, and costs incurred,
including attorney's fees in curing such default, shall be paid by
Lessee, as Additional Rent, upon demand.
d. If suit shall be brought for recovery of possession of the
Premises, for the recovery of rent or any other amount due under the
provisions of this Lease, or because of the breach of any other covenant
herein contained on the part of Lessee to be kept or performed, and a
breach shall be established, Lessee shall pay to Lessor all expenses
incurred therefor, including a reasonable attorney's fee, together with
interest on all such expenses at the rate of twelve percent (12%) per
annum from the date of such breach of the covenants of this Lease.
e. Lessee hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event Lessee is
evicted or dispossessed for any cause, or in the event of Lessor
obtaining possession of the Premises, by reason of the violation by
Lessee of any of the conditions or covenants of this Lease, or otherwise.
Lessee waives any demand for possession of the Premises, and any demand
for payment of rent and any notice of intent to reenter the Premises, or
of intent to terminate this Lease, other than the notices above provided
in this Article 17, and waives any and every other notice or demand
prescribed by any applicable statutes or laws.
f. No remedy herein or elsewhere in this Lease or otherwise by law,
statute or equity, conferred upon or reserved to Lessor or Lessee shall
be exclusive of any other remedy, but shall be cumulative, and may be
exercised from time to time and as often as the occasion may arise.
COVENANTS TO HOLD HARMLESS:
18. Unless the liability for damage or loss is caused by the
negligence of Lessor, its agents or employees, Lessee shall hold harmless
Lessor from any liability for damages to any person or property in or
upon the Building and the Premises, including the person and the property
of Lessee and its employees and all persons in the Building at its or
their invitation or sufferance, and from all damages resulting from
Lessee's failure to perform the covenants of this Lease. All property
kept, maintained or stored on the Premises shall be so kept, maintained
or stored at the sole risk of Lessee. Lessee agrees to pay all sums of
money in respect of any labor, service, materials, supplies or equipment
furnished or alleged to have been furnished to Lessee in or about the
Premises, and not furnished on order of Lessor, which may be secured by
any Mechanic's, Materialmen's or other lien to be discharged at the time
performance of any obligation secured thereby matures; provided, however,
that Lessee may contest such lien; however, but if such lien is reduced
to final judgment and if such judgment or process thereon is not stayed,
or if stayed and said stay expires, then and in each such event, Lessee
shall forthwith pay and discharge said judgment. Lessor shall have the
right to post and maintain on the Premises and Building notices of non-
responsibility under the laws of the State of Minnesota.
NON-LIABILITY:
19. Subject to the terms and conditions of Article 14 herein,
Lessor shall not be liable for damage to any property of Lessee or of
others located on the Premises or Building, nor for the loss of or damage
to any property of Lessee or of others by theft or otherwise. Lessor
shall not be liable for any injury or damage to persons or property
resulting from fire, explosion, failing plaster, steam, gas, electricity,
water, rain or snow or leaks from any part of the Premises or Building or
from the pipes. appliances, or plumbing works or from the roof, street or
subsurface or from any other place or by dampness or by any other cause
of whatsoever nature. Lessor shall not be liable for any such damage
caused by other persons in the Premises or Building, occupants of
adjacent property or the public or caused by operations in construction
of any private, public or quasi-public work. Lessor shall not be liable
for any latent defect in the Premises or Building. All property of
Lessee kept or stored on the Premises or in the Building shall be so kept
or stored at the risk of only Lessee. Lessee shall hold Lessor harmless
from any claims arising out of damage to the same, including subrogation
claims by Lessee's insurance carrier.
SUBORDINATION:
20. This Lease shall be subordinated to any mortgages that may now
exist or that may hereafter be placed upon the Premises and to any and
all advances made thereunder, and to the interest upon the indebtedness
evidenced by such mortgages, and to all renewals, replacements and
extensions thereof. In the event of execution by Lessor after the date
of this Lease of any such mortgage, renewal, replacement or extension,
Lessee agrees to execute a subordination agreement with the holder
thereof which agreement shall provide:
a. That such holder shall not disturb the possession and other
rights of Lessee under this Lease so long as Lessee is not in default
hereunder;
b. That in the event of acquisition of title to the Premises by such
holder, such holder shall accept Lessee as Lessee of the Premises under
the terms and conditions of this Lease and shall perform all the
obligations of Lessor hereunder; and
c. That Lessee shall recognize such holder as Lessor hereunder.
Lessee, upon receipt of a request from Lessor therefor, shall execute and
deliver to Lessor or to any proposed holder of a mortgage or trust deed
or to any proposed purchaser of the Premises, a certificate in recordable
form, certifying that this Lease is in full force and effect, and that
there are no offsets against rent nor defenses to Lessee's performance
under this Lease, or setting forth any such offsets or defenses claimed
by Lessee, as the case may be.
ASSIGNMENT OR SUBLETTING:
21. Lessee agrees to use and occupy the Premises throughout the
entire term hereof for the purposes herein specified and for no other
purposes, in the manner and to substantially the extent now intended, and
not to transfer or assign this Lease or sublet said Premises, or any part
thereof, whether by voluntary act, operation of law, or otherwise,
without obtaining the prior consent of Lessor in each instance. Lessee
shall seek such consent of Lessor by a written request therefor, setting
forth such information as Lessor may deem necessary. Lessor agrees not
to withhold consent unreasonably.Consent by Lessor to any assignment of
this Lease or to any subletting of the Premises shall not be a waiver of
Lessor's rights under this Article 21 as to any subsequent assignment or
subletting. Lessor's rights to assign this Lease are and shall remain
unqualified. No such assignment or subleasing shall relieve Lessee from
any of Lessee's obligations in this Lease, nor shall any assignment or
sublease or other transfer of this Lease be effective unless the
assignee, sublessee or transferee shall at the time of such assignment,
sublease or transfer, assume in writing for the benefit of Lessor, its
successors or assigns, all of the conditions, covenants and terms of this
Lease thereafter to be performed by Lessee and shall agree in writing to
be bound thereby. If Lessee subleases in accordance with the terms of
this Lease, fifty percent (50%) of any increase in rental received by
Lessee over the per square foot rental rate which is being paid by Lessee
shall be forwarded to and retained by Lessor, which increase shall be in
addition to the Base Rent and Additional Rent due Lessor under this
Lease.
ATTORNMENT:
22. In the event of a sale or assignment of Lessor's interest in
the Premises is, or this Lease, or if the Premises come into custody or
possession of a mortgagee or any other party whether because of a
mortgage foreclosure, or otherwise, Lessee shall attorn to such assignee
or other party and recognize such party as Lessor hereunder; provided,
however, Lessee's peaceable possession will not be disturbed so long as
Lessee faithfully performs its obligations under this Lease. Lessee
shall execute, on demand, any attornment agreement required by any such
party to be executed, containing such provisions and such other
provisions as such party may require.
NOVATION IN THE EVENT OF SALE:
23. In the event of the sale of the Premises, Lessor shall be and
hereby is relieved of all of the covenants and obligations created hereby
accruing from and after the date of sale, and such sale shall result
automatically in the purchaser assuming and agreeing to carry out all the
covenants and obligations of Lessor. Notwithstanding the foregoing
provisions of this Article 23, Lessor, in the event of a sale of the
Premises, shall cause to be included in the agreement of sale and
purchase a covenant whereby the purchaser of the Premises assumes and
agrees to carry out all of the covenants and obligations of Lessor.
Lessor agrees at any time and from time to time upon not less than
ten (10) days prior written request by Lessor to execute, acknowledge and
deliver to Lessor a statement in writing certifying that this Lease is
unmodified and in full force and effect as modified and stating the
modifications, and the dates to which the Basic Rent and other charges
have been paid in advance, if any, it being intended that any such
statement delivered pursuant to this Article 23 may be relied upon by any
prospective purchaser of the fee or mortgagee or assignee of any mortgage
upon the fee of the Premises.
SUCCESSORS AND ASSIGNS:
24. The conditions, covenants and terms hereof shall be binding
upon and inure to the successors and assigns of the parties hereto.
REMOVAL OF FIXTURES:
25. Notwithstanding anything contained in Article 8 and Article 29
herein or elsewhere in this Lease, if Lessor requests, then Lessee shall
promptly remove at its sole cost and expense all fixtures, equipment and
alterations made by Lessee simultaneously with vacating the Premises and
Building and Lessee will promptly restore the Premises and Building
to the condition that existed immediately prior to said fixtures,
equipment and alterations having been made all at the sole cost and
expense of Lessee.
QUIET ENJOYMENT:
26. Lessor warrants that it has full right to execute and to
perform this Lease and to grant the estate demised, and that Lessee, upon
payment of the rents and other amounts due and the performance of all the
agreements, conditions, covenants and terms on Lessee's part to be
observed and performed under this Lease, may peaceably and quietly enjoy
the Premises and Building for the business uses permitted hereunder,
subject, nevertheless, to the terms and conditions of this Lease.
RECORDING:
27. Lessee shall not record this Lease without the prior written
consent of Lessor; provided, however, upon the request of either party
hereto, the other party shall join in the execution of a Memorandum of
Lease for the purposes of recordation. Said Memorandum shall describe
the parties, the Premises and the term of this Lease and shall
incorporate this Lease by reference. This Article 27 shall not be
construed to limit Lessor's right to file this Lease under Article 22
herein.
OVERDUE PAYMENTS:
28. All monies due under this Lease from Lessee to Lessor shall be
due on demand, unless otherwise specified, and if not paid when due,
shall result in the imposition of a service charge for such late payment
in the amount of twelve percent (12%) of the amount due.
SURRENDER:
29. On the Expiration Date or upon the termination hereof upon a
day other than the Expiration Date, Lessee shall peaceably surrender the
Premises broom-clean in good order, condition and repair, reasonable wear
and tear only excepted. On or before the Expiration Date or upon
termination of this Lease on a day other than the Expiration Date, Lessee
at its expense, shall remove all trade fixtures, personal property and
equipment and signs from the Premises and any property not removed shall
be deemed to have been abandoned. Any damage caused in the removal of
such items shall be repaired by Lessee at its expense. All alterations,
additions, improvements and fixtures (other than trade fixtures) which
shall have been made or installed by Lessor or Lessee upon the Premises
and all floor covering so installed shall remain upon and be surrendered
with the Premises as a part thereof, without disturbance, molestation or
injury and without charge, at the expiration or termination of this
Lease. If the Premises are not surrendered on the Expiration Date or the
date of termination, Lessee shall indemnify Lessor against loss or
liability, claims, without limitation, made by any succeeding Lessee
based upon such delay. Lessee shall promptly surrender all keys for the
Premises to Lessor at the place then fixed for payment of rent and shall
inform Lessor of combinations of any locks and safes on the Premises.
HOLDING OVER:
30. In the event of a holding over by Lessee after expiration or
termination of this Lease without the consent in writing of Lessor,
Lessee shall be deemed a lessee at sufferance and shall pay rent for such
occupancy at the rate of twice the last-current aggregate Monthly Base
Rent and Additional Rent, prorated for the entire holdover period, plus
all attorney's fees and expenses incurred by Lessor in enforcing its
rights hereunder, plus any other damages occasioned by such holding over.
Except as otherwise agreed, any holding over with the written consent
of Lessor shall constitute Lessee a month-to-month lessee.
ABANDONMENT:
31. In the event Lessee shall remove its fixtures, equipment or
machinery or shall vacate the Building or any part thereof prior to the
Expiration Date, or shall discontinue or suspend the operation of its
business conducted in the Building for a period of more than thirty (30)
consecutive days (except during any time when the Building may be
rendered untenantable by reason of fire or other casualty), then in any
such event Lessee shall be deemed to have abandoned the Premises and the
Building and Lessee shall be in default under the terms of this Lease.
CONSENTS BY LESSOR:
32. Whenever provision is made under this Lease for Lessee
securing the approval or consent by Lessor, such consent or approval
shall only be in writing.
NOTICES:
33. Any notice required or permitted under this Lease shall be
deemed sufficiently given or secured if sent by registered or certified
return receipt mail to Lessee at 1260 Red Fox Road, Arden Hills,
Minnesota 55112 and to Lessor at the address then fixed for the payment
of rent as provided in Article 4 herein. Either party may by like
written notice at any time designate a different address to which notices
shall subsequently be sent or rent to be paid.
RULES AND REGULATIONS:
34. None.
INTENT OF PARTIES:
35. Except as otherwise provided herein, Lessee agrees and
covenants that if it shall any time fail to pay any such cost or expense,
or fail to take out, pay for, maintain or deliver any of the insurance
policies above required, or fail to make any other payment or perform any
other act on its part to be made or performed as in this Lease provided,
then Lessor may, but shall not be obligated so to do, and without notice
to or demand upon Lessee and without waiving or releasing Lessee from any
obligations of Lessee in this Lease contained, pay any such cost or
expense, effect any such insurance coverage and pay premiums therefor,
and may make any other payment or perform any other act on the part of
Lessee to be made and performed as in this Lease provided, in such manner
and to such extent as Lessor may deem desirable, and in exercising any
such right, to also pay all necessary and incidental costs and expenses,
employ legal counsel and incur and pay reasonable attorneys' fees. All
sums so paid by Lessor and all necessary and incidental costs and
expenses in connection with the performance of any such act by Lessor,
together with interest thereon at the rate of twelve percent (12%) per
annum from the date of making of such expenditure, by Lessor, shall be
deemed Additional Rent hereunder, and shall be payable to Lessor on
demand. Lessee covenants to pay any such sum or sums with interest as
aforesaid. Lessor shall have the same rights and remedies in the event of
the nonpayment thereof by Lessee as in the case of default by Lessee in
the payment of the Base Rent.
GENERAL:
36. This Lease does not create the relationship of principal and
agent or of partnership or of joint venture or of any association between
Lessor and Lessee, the sole relationship between the parties hereto being
that of Lessor and Lessee.<PAGE>
No waiver of any default of Lessee hereunder shall be implied from
any omission by Lessor to take any action on account of such default if
such default persists or is repeated, and no express waiver shall affect
any default other than the default specified in the express waiver and
that only for the time and to the extent therein stated. One or more
waivers by Lessor shall not be construed as a waiver of a subsequent
breach of the same condition, covenant or term. The approval by or
consent of Lessor of any act by Lessee requiring Lessor's approval or
consent or shall not waive or render unnecessary Lessor's approval or
consent to any subsequent similar act by Lessee shall be construed to be
both a covenant and a condition. No action permitted or required to be
taken by or on behalf of Lessor under the terms or provisions of this
Lease shall be deemed to constitute an eviction or disturbance of
Lessee's possession of the Premises. All preliminary negotiations are
merged into and incorporated in this Lease. The laws of the State of
Minnesota shall govern the enforcement, performance and validity of this
Lease.
a. This Lease and EXHIBIT A attached hereto, constitute the entire
agreement between Lessor and Lessee affecting the Premises and there are
no other agreements, either oral or written, between them other than are
herein set forth. No subsequent addition, alteration, amendment or
change to this Lease shall be binding upon Lessor or Lessee unless
reduced to writing and executed in the same form and manner in which this
Lease is executed.
b. If any agreement, condition or covenant of this Lease or the
application thereof to any person or circumstances shall be, to any
extent, invalid or unenforceable, the remainder of this Lease, or the
application of such agreement, condition or covenant to persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each agreement,
condition or covenant of this Lease shall be valid and be enforced to the
fullest extent permitted by law.
HAZARDOUS MATERIAL:
37.a. The Premises shall be used by and/or at the sufferance of
Lessee for only the purposes set forth in Article 11 herein and for no
other purposes. Lessee shall not use or permit the use of the Premises
in any manner that will tend to create waste or a nuisance.
b. Lessee covenants that throughout the term of this Lease, at
Lessees sole cost and expense, Lessee shall promptly comply with all laws
and ordinances and the orders, rules and regulations and requirements of
all federal, state and municipal governments and appropriate departments,
commissions and boards, and the orders, rules and regulations of the
Board of Fire Underwriters in Minnesota and whether or not the same
require structural repairs or alterations, which may be applicable to the
Premises, or the use or manner of use of the Premises. Lessee will
likewise observe and comply with the requirements of all policies of
public liability, fire and all other policies of insurance at any time in
force with respect to the Building and improvements on the Premises and
the equipment thereof.
c. In the event any Hazardous Material (hereinafter defined) is
brought or caused to be brought into or onto the Premises or the Building
by Lessee, Lessee shall handle any such material in compliance with all
applicable federal, state and/or local regulations. For purposes of this
Article 37, "Hazardous Material" means and includes any hazardous, toxic
or dangerous waste, substance or material defined as such in (or for
purposes of) the Comprehensive Environmental Response, Compensation, and
Liability Act, any so-called "Superfund" or "Superlien" law, or a
ny federal, state or local statute, law, ordinance, code, rule,
regulation, order decree regulating, relating to, or imposing
liability or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or material, as now or at any time
hereafter in effect. Lessee shall submit to Lessor on an annual
basis copies of its approved hazardous
materials communication plan, OSHA monitoring plan and permits required
by the Resource Recovery and Conservation Act of 1976, if Lessee is
required to prepare, file or obtain any such plans or permits. Lessee
will indemnity and hold harmless Lessor from any losses, liabilities,
damages, costs or expenses (including reasonable attorneys' fees) which
Lessor may suffer or incur as a result of Lessee's introduction into or
onto the Premises or Building of any Hazardous Material. This Article
shall survive the expiration or sooner termination of this Lease.
CAPTIONS:
38. The captions are inserted only as a matter of convenience and
for reference, and in no way define, limit or describe the scope of this
Lease nor the intent or any provision thereof.
EXHIBITS:
39. Reference is made to EXHIBIT A, which Exhibit is attached
hereto and made a part hereof.
EXHIBIT DESCRIPTION
EXHIBIT A Legal Description
EXTENSION AGREEMENT:
40. Lessor and Lessee hereby agree that the Extension Agreement
shall remain in full force and effect, shall not be superseded by this
Lease and that the "Lease" referred to in the Extension Agreement shall
be deemed to be a reference to this Lease.
SEE GUARANTY ATTACHED HERETO AND MADE A PART HEREOF.
IN WITNESS WHEREOF, Lessor and Lessee have caused these presents to
be executed in form and manner sufficient to bind them at law, as of the
day and year first above written.
Lessee: Lessor:
RESISTANCE TECHNOLOGY, INC. ARDEN PARTNERS I , L.L.P.
By: By:
Mark S. Gorder Thomas A. Giguere
Its: President and Its: Managing Partner
Chief Executive Officer
STATE OF MINNESOTA )
) ss.
COUNTY OF )
On this _____ day of _______________, 1996, before me, a notary
public, personally appeared Mark S. Gorder, to me known to be the person
described in and who executed the foregoing instrument, who, being by me
duly sworn, did say that he is the President and Chief Executive Officer
of Resistance Technology, Inc., a Minnesota corporation; that said
corporation has no corporate seal; that said instrument was executed on
behalf of said corporation by authority of its Board of Directors; and
that the execution of said instrument is his free act and deed and the
free act and deed of said corporation.
Notary Public
STATE OF MINNESOTA )
) ss.
COUNTY OF )
On the _______ day of _____________, 1996, before me, a notary
public, personally appeared Thomas A. Giguere, to me known to be the
person described in the foregoing instrument, who, being by me duly
sworn, did say that he is the Managing Partner of Arden Partners I, LLP,
a Minnesota limited liability partnership; that said partnership has no
partnership seal; that said instrument was executed on behalf of said
partnership by authority of its partnership agreement; and that the
execution of said instrument is a free act and deed of said partnership.
Notary Public
EXHIBIT "A" OF AMEND AND RESTATED
OFFICE/WAREHOUSE LEASE
EFFECTIVE THE 1ST DAY OF NOVEMBER, 1996
BY AND BETWEEN
ARDEN PARTNERS I, L.L.P.
AND
RESISTANCE TECHNOLOGY, INC.
LEGAL DESCRIPTION
That part of the North 703.50 feet of the Northwest Quarter of the
Southeast Quarter of Section 27, Township 30, Range 23, Ramsey County,
Minnesota described as follows:
Beginning at the Northeast corner of the Northwest Quarter of the
Southeast Quarter; thence Westerly along the North line of said Northwest
Quarter of the Southeast Quarter a distance of 350 feet; thence Southerly
parallel with the East line of said Northwest Quarter of the Southeast
Quarter a distance of 483.68 feet; thence Southeasterly along a non-
tangential curve, concave to the Southwest, having a radius of 483.07
feet for a distance of 349.17 feet, more or less (chord = 341.62 feet,
chord bearing = S50 02'34"E) to its intersection with the South line of
said North 703.50 feet of the Northwest Quarter of the Southeast Quarter
at a point on said South line distant 89.16 feet Westerly from the
Southeast corner of said North 703.50 feet of the Northwest Quarter of
the Southeast Quarter, as measured along said Southline; thence Easterly
along said South line to said Southeast corner; thence Northerly along
the East line of said Northwest Quarter of the Southeast Quarter to the
point of beginning; for the purpose of this description the East line of
said Northwest Quarter of the Southeast Quarter is considered to be a
line bearing SO 16'00"E;
EXCEPT the Northerly 240 feet of the Easterly 150 feet thereof.
This instrument was drafted by:
William J. Cosgriff
Doherty, Rumble & Butler
Professional Association
2800 Minnesota World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101-4999
Telephone: (612) 291-9294
Fax: (612) 291-9313
REMOVAL OF FIXTURES 12
QUIET ENJOYMENT 12
RECORDING 12
OVERDUE PAYMENTS 12
SURRENDER 12
HOLDING OVER 13
ABANDONMENT 13
CONSENTS BY LESSOR 13
NOTICES 13
RULES AND REGULATIONS 13
INTENT OF PARTIES 13
GENERAL 14
HAZARDOUS MATERIAL 14
CAPTIONS 15
EXHIBITS 15
EXTENSION AGREEMENT 15
LEGAL DESCRIPTION EXHIBIT "A"
EXHIBIT 13
SELAS CORPORATION OF AMERICA
is a diversified firm with international operations and sales that
engages in the design, development, engineering and manufacturing of a
range of products. The Company, headquartered in Dresher, Pennsylvania
with subsidiaries in Minnesota, Ohio, California, France, Germany and
Italy, operates directly or through subsidiaries in three business
segments. TM Under the Selas name, the Company designs and
manufactures specialized industrial heat processing systems and
equipment for steel, glass and other manufacturers worldwide. The
Company's subsidiary, Resistance Technology, Inc., designs and
manufactures microminiature components and molded plastic parts
primarily for the hearing instrument manufacturing
industry worldwide. The Company's subsidiary, RTI Electronics, Inc.,
formed in 1997, manufactures heat sensitive resistors known as
thermistors. The Company's subsidiary, Deuer Manufacturing, Inc.,
manufactures spare tire holders and lifts and related products, primarily
based on cable winch designs, for use principally as original equipment
by the pick-up truck and minivan segment of the automotive industry.
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31 1996 1995
Net sales . . . . . . . . . . . . $103,426,000 $71,215,000
Operating income . . . . . . . . $ 7,522,000 $ 4,758,000
Net income . . . . . . . . . . . $ 4,130,000 $ 2,300,000
Earnings per common and
common equivalent share:
Primary . . . . . . . . . . $1.17 $.66
Fully diluted . . . . . . . . $1.16 $.66
Working capital . . . . . . . . . $ 19,822,000 $15,751,000
Total assets . . . . . . . . . . $ 91,162,000 $67,960,000
Total shareholders' equity . . . $ 37,641,000 $34,656,000
MARKET AND DIVIDEND INFORMATION
1996 1995
Market Market
Price Range Price Range
QUARTER HIGH LOW HIGH LOW
First . . . . . . . . . . . 11-3/4 8-13/16 10 8-5/8
Second . . . . . . . . . . . 11-1/2 10-3/8 9-3/4 7-7/8
Third . . . . . . . . . . . 14-3/8 10 8-3/4 7-3/8
Fourth . . . . . . . . . . . 17-1/4 13-1/2 9-7/8 7-3/16
At February 12, 1997, the Company had 539 shareholders of record.
1996 1995 1994
Dividends per share:
First Quarter $.06 $.055 $.05
Second Quarter .06 .055 .05
Third Quarter .06 .06 .05
Fourth Quarter .065 .06 .055
The payment of any future dividends is subject to the discretion of the
Board of Directors and is dependent on a number of factors, including the
Company's capital requirements, financial condition, financial covenants
and cash availability.
Selas is an equal opportunity employer.
THE COMMON STOCK OF SELAS CORPORATION OF AMERICA IS LISTED ON THE
AMERICAN STOCK EXCHANGE UNDER THE SYMBOL SLS.
SELAS CORPORATION OF AMERICA
FIVE-YEAR SUMMARY OF OPERATIONS
(In thousands, except for share data)
Years Ended December 31 1996 1995 1994
Sales, net $103,426 $ 71,215 $ 73,663
Cost of sales 80,870 52,060 52,813
Selling, general and admin-
istrative expenses 15,034 14,397 14,727
Interest expense 1,212 1,336 1,282
Interest (income) (298) (340) (303)
Other (income) expense, net 83 36 165
Income (loss) before income taxes
(benefits) and cumulative effect
of changes in accounting
principles 6,525 3,726 4,979
Income taxes (benefits) 2,395 1,426 1,875
Income (loss) before cumulative
effect of changes in
accounting principles 4,130 2,300 3,104
Cumulative effect at January
1, 1992 of changes in
accounting principles (b) -- -- --
Net income (loss) $ 4,130 $ 2,300 $ 3,104
========= ========= =========
Earnings (loss) per share:
Primary
Income (loss) before cumula-
tive changes in accounting
principles $1.17 $.66 $ .89
Cumulative effect of changes
in accounting principles -- -- --
Net income (loss) $1.17 $.66 $ .89
======== ======== =========
Fully diluted
Income (loss) before cumula-
tive effect of changes in
accounting principles $1.16 $.66 $ .89
Cumilative effect of changes
in accounting principles -- -- --
Net income (loss) $1.16 $.66 $ .89
======== ========= =========
Weighted average number of
common and common equivalent
shares outstanding during
year
Primary 3,514,996 3,468,012 3,483,381
========= ========= =========
Fully diluted 3,567,701 3,486,244 3,483,381
========= ========= =========
Continued . .
SELAS CORPORATION OF AMERICA
FIVE-YEAR SUMMARY OF OPERATIONS
(In thousands, except for share data)
Years Ended December 31 1993 (a) 1992
Sales, net $ 52,268 $ 27,566
Cost of sales 39,962 20,940
Selling, general and admin-
istrative expenses 9,687 8,618
Interest expense 601 421
Interest (income) (346) (644)
Other (income) expense, net (12) (4)
Income (loss) before income taxes
(benefits) and cumulative effect
of changes in accounting
principles 2,376 (1,765)
Income taxes (benefits) 1,029 (398)
Income (loss) before cumulative
effect of changes in
accounting principles 1,347 (1,367)
Cumulative effect at January
1, 1992 of changes in
accounting principles (b) -- (3,566)
Net income (loss) $ 1,347 $ (4,933)
========= =========
Earnings (loss) per share:
Primary
Income (loss) before cumula-
tive changes in accounting
principles $ .42 $ (.43)
Cumulative effect of changes
in accounting principles -- (1.12)
Net income (loss) $ .42 $ (1.55)
========= =========
Fully diluted
Income (loss) before cumula-
tive effect of changes in
accounting principles $ .41 $ (.43)
Cumilative effect of changes
in accounting principles -- (1.12)
Net income (loss) $ .41 $(1.55)
========= =========
Weighted average number of
common and common equivalent
shares outstanding during
year
Primary 3,246,588 3,186,942
========= =========
Fully diluted 3,258,080 3,187,790
========= =========
(a) On October 20, 1993, the Company acquired all of the outstanding
common shares of Resistance Technology, Inc.
(b) Effective January 1, 1992, the Company adopted Statements of
Financial Accounting Standards No. 106 and 109.
OTHER FINANCIAL HIGHLIGHTS
Years Ended December 31 1996 1995 1994
(In thousands, except for share
data)
Working capital $ 19,822 $ 15,751 $ 17,935
Total assets $ 91,162 $ 67,960 $ 70,120
Long-term debt $ 6,837 $ 9,100 $ 11,136
Long-term benefit obligations $ 4,310 $ 4,409 $ 4,431
Shareholders' equity:
Capital stock and additional
paid-in capital $ 17,214 $ 17,214 $ 17,182
Retained earnings 19,673 16,390 14,886
Foreign currency translation
adjustment 1,136 1,440 1,524
Minimum pension liability
adjustment -- (6) (112)
Treasury stock (382) (382) (382)
Total shareholders' equity $ 37,641 $ 34,656 $ 33,098
Depreciation and amortization $ 2,826 $ 2,771 $ 2,732
Dividends per share $.245 $ .23 $.205
Years Ended December 31 1993 (a) 1992
(In thousands, except for share data)
Working capital $ 14,722 $21,629
Total assets $ 72,864 $41,666
Long-term debt $ 11,579 $ 2,717
Long-term benefit obligations $ 4,553 $ 4,113
Shareholders' equity:
Capital stock and additional
paid-in capital $ 16,980 $14,534
Retained earnings 12,490 11,788
Foreign currency translation
adjustment 587 945
Minimum pension liability
adjustment (248) --
Treasury stock (382) (382)
Total shareholders' equity $ 29,427 $26,885
Depreciation and amortization $ 1,326 $ 906
Dividends per share $.20 $.20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1996 COMPARED WITH 1995
Consolidated sales increased 45.2% to $103.4 million in 1996 from $71.2
million in 1995. Net sales for the heat processing segment increased to
$62.8 million in 1996 from $32.6 million in 1995. The sharp increase in
sales was due to the record level of backlog at the end of 1995, along
with additional bookings of several large engineering contracts in 1996.
Consolidated backlog for the heat processing segment was $55.5 million at
December 31, 1996 compared to $69.3 million at December 31, 1995.
The Company's precision electromechanical and plastics components
business segment had sales of $27.4 million in 1996 compared to sales of
$24.9 million in 1995. The sales increase in this segment is due to
higher unit sales to the hearing aid industry.
Net sales of the tire holders, lifts and related products segment
decreased to $13.2 million in 1996 from $13.8 million in 1995. The
decrease in sales for this segment is due to the previously disclosed
finalization of the Chrysler mini-van contract after the first quarter
of 1995.
The Company's gross profit margin as a percentage-of-sales decreased to
21.8% in 1996 from 26.9% in 1995. Gross profit margins for the heat
processing segment decreased to 16.0% in 1996 from 25.8% in 1995. Heat
processing gross profit margins vary markedly from contract to contract,
depending on customer specifications and other conditions related to the
contract. The lower gross profit margins for 1996 were also impacted by
a large engineered contract that resulted in a loss. Heat processing
reserves for guarantee obligations and estimated future costs of services
increased to $1.7 million in 1996 from $.8 million in 1995 due to a
larger number of projects covered in 1996.
Gross profit margins for the precision electromechanical and plastics
segment increased to 39% for 1996 compared to 36% for 1995. Productivity
improvement in manufacturing, along with higher unit sales, generated the
higher gross profit margins for the segment in 1996.
Gross profit margins for the tire holders, lifts and related products
segment improved to 13.6% in 1996 compared to 12.9% in 1995. The
improvement for this segment in 1996 is due to productivity improvement
and a more favorable product mix.
Selling, general and administrative (SG&A) expenses increased 4.4% in
1996 to $15 million from $14.4 in 1995. SG&A expense, as a percentage-
of-sales, represented 14.5% in 1996, down from 20.2% in 1995 due to the
higher amount of sales in 1996, which is up 45.2%, compared to the 4.4%
increase in SG&A expense in 1996. The majority of the SG&A increase is
in the Company's precision and electromechanical and plastics segment
which increased $.8 million in 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Research and development costs amounted to $1.4 million in 1996 compared
to $1.5 million in 1995.
Interest expense decreased to $1,212,000 in 1996 from $1,336,000 in 1995
due to lower borrowings in 1996. Interest income for 1996 decreased to
$298,000 from $340,000 in 1995 due to fewer funds available for
investment in 1996.
Other (income) expense includes losses on foreign currency transactions
of $8,000 in 1996 and $123,000 in 1995.
The effective tax rate in 1996 and 1995 on income before income taxes was
36.7% and 38.3%, respectively. The higher rate in 1995 is due to foreign
operating losses not subject to tax benefits.
Consolidated net income of $4.1 million in 1996 is up 79.6% from $2.3
million in 1995. The Company's heat processing segment's net income for
1996 increased to $2.0 million in 1996 from $.6 million in 1995 due
primarily to the strong increase in sales. The precision
electromechanical and plastic components segment net income increased to
$2 million in 1996 from $1.5 million in 1995 due to higher sales and
improved gross profit margins.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY
AND CAPITAL RESOURCES
Consolidated net working capital increased to $19.8 million at December
31, 1996 from $15.8 million at December 31, 1995. The increase in
working capital is due primarily to the net income of $4.1 million in
1996 and favorable changes in operating assets and liabilities, partially
offset by the repayment of long-term debt of $2.1 million, repayment of
short-term borrowings of $2 million and dividend payments of $.8 million.
The major changes in the components of working capital are higher
accounts receivable of $21.4 million attributed to higher sales in the
heat processing segment and higher cash balances of $4.4 million,
partially offset by higher current liabilities of $22.6 million due to
increased activity in the heat processing segment.
The Company's long-term debt at December 31, 1996 is $6.8 million. Under
the terms of the Company's credit facility, there are covenants that may
restrict the payment of future dividends. The credit facility requires
the Company to maintain consolidated tangible capital funds of
approximately $18.4 million through December 31, 1996 consisting of
shareholders' equity, plus subordinated debt, less intangible assets
increased annually by 60% of net income and 60% of the aggregate amount
of contributions to capital. At December 31, 1996, the Company exceeded
the amount required to satisfy this covenant in the credit facility by
$7.1 million.
The Company's French subsidiary has an interest rate swap agreement for
the purpose of managing interest rate expense. The total notional amount
of $2.2 million at December 31, 1996 will decrease with the terms of the
long-term debt agreement. The swap agreement requires fixed interest
rate payments of 8.55% through May, 2006. Additional interest incurred
in connection with the swap arrangement amounted to $101,738. See note 8
of the Consolidated Financial Statements for discussion of this
agreement.
See note 15 to the Consolidated Financial Statements regarding
commitments and contingencies.
See note 17 to the Consolidated Financial Statements regarding subsequent
events.
The Company believes that its present working capital position combined
with funds expected to be generated from operations and the available
borrowing capacity through its revolving credit loan facilities will be
sufficient to meet its anticipated cash requirements for operating needs
and capital expenditures.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1995 COMPARED WITH 1994
Consolidated net sales decreased 3.4% to $71.2 million in 1995 from $73.7
million in 1994. Net sales from the heat processing segment decreased to
$32.6 million in 1995 from $34.5 million in 1994. The decline in sales
in this segment is due primarily to the timing of the recognition of
sales arising from several large engineering contracts that were
completed, or near completion in 1995, as reflected in the backlog for
this segment at December 31, 1994. In addition, backlog for this segment
did not substantially increase until several large engineering contracts
were received at the end of 1995, and the timing of their receipt meant
that they only had a minimal impact on 1995 sales. Consolidated backlog
for the heat processing segment increased substantially due to large
custom engineering contracts received at the end of 1995 and at December
31, 1995 this segment's backlog was $69.3 million versus $16.6 million at
December 31, 1994.
The Company's precision electromechanical and plastics components
business segment had sales of $24.9 million in 1995 compared to sales of
$22.5 million in 1994. Sales in this segment increased due to higher
unit sales to the hearing aid industry along with plastic component sales
to the communications industry.
Net sales of the tire holders, lifts and related products segment
decreased to $13.8 million in 1995 from $16.7 million in 1994. The
decrease in sales is due to the previously disclosed loss of the
Chrysler mini-van contract in the first quarter of 1995.
The Company's gross profit margin as a percentage-of-sales decreased to
26.9% in 1995 from 28.3% in 1994. Gross profit margin for the heat
technology segment decreased to 25.8% in 1995 from 26.8% in 1994. Heat
processing gross profit margins vary markedly from contract to contract
depending on customer specifications and other conditions related to the
contract. Heat processing reserves for guarantee obligations and
estimated future costs of services decreased to $.8 million in 1995 from
$1.2 million due to the completion of several contracts in 1995.
Gross profit margin for the precision electromechanical and plastics
segment decreased to 36% in 1995 from 36.7% in 1994. The decline in
gross profit margin is due in part to the mix of product sales and to the
introduction of new products which increased the segments total sales but
at lower gross profit margins.
Gross profit margins for the tire holders, lifts and related products
segment decreased to 12.9% in 1995 from 20.2% in 1994. The lower gross
profit margin is due to the loss of the Chrysler mini-van contract in the
first quarter of 1995, along with labor, direct material and overhead
increases in 1995 which were not passed along as selling price increases
to the segment's automotive customers.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Selling, general and administrative (SG&A) expenses declined by 2% in
1995 to $14.4 million from $14.7 million in 1994. The decrease in SG&A
of $.3 million is due primarily to lower expenses for the heat processing
segment which was down $.8 million in 1995, partially offset by the
growth in the precision electromechanical and plastic components segment
which increased $.6 million in 1995.
Interest expense increased to $1,336,000 in 1995 from $1,282,000 in 1994
due to higher short-term borrowings in Europe for 1995. Interest income
increased to $340,000 in 1995 from $303,000 in 1994 due to an increase in
funds available for investment in 1995.
Other (income) expense includes losses on foreign currency transactions
of $123,000 in 1995 and gains of $41,000 in 1994. Also included in 1995
was a gain of $172,000 on the sale of the investment in Isiglass SPA.
The effective tax rate in 1995 and 1994 on income before income taxes was
38.3% and 37.6%, respectively. Consolidated net income of $2.3 million
in 1995 is down from $3.1 million in 1994. The heat processing segment's
net income declined to $.6 million in 1995 from $1 million in 1994 as
this segment incurred a reorganizational charge and German tax
adjustment in the second quarter of 1995. The precision electro-
mechanical and plastic components segment net income increased to $1.5
million in 1995 from $1.1 million in 1994 due to increased sales.
Net income for the tire holders, lifts and related products segment
decreased to $.1 million in 1995 from $1 million in 1994 due to lower
sales and lower gross profit margins.
SELAS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31 1996 1995 1994
Sales, net . . . . . . . . . . $103,426,075 $71,215,413 $73,663,182
Operating costs and expenses
Cost of sales . . . . . . . 80,870,331 52,060,118 52,813,289
Selling, general and
administrative expenses . 15,033,728 14,397,489 14,726,715
Operating income . . . . . . . 7,522,016 4,757,806 6,123,178
Interest expense . . . . . . . 1,212,194 1,336,386 1,281,811
Interest (income). . . . . . . (297,806) (339,895 (303,239)
Other expense, net . . . . . . 82,475 35,732 165,872
Income before income taxes . . 6,525,153 3,725,583 4,978,734
Income taxes . . . . . . . . 2,394,958 1,425,559 1,874,695
Net income . . . . . . . . . . $ 4,130,195 $ 2,300,024 $ 3,104,039
============= =========== ===========
Earnings per common and
common equivalent share
Primary . . . . . . . . . . $ 1.17 $ .66 $ .89
============= =========== ===========
Fully diluted . . . . . . . $ 1.16 $ .66 $ .89
============= =========== ===========
See accompanying notes to the consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
ASSETS 1996 1995
Current assets
Cash, including cash equivalents
of $7,532,000 in 1996 and
$ 1,865,000 in 1995. . . . . . . . . . . $ 8,343,820 $ 3,912,364
Accounts and notes receivable, less allow-
ance for doubtful accounts of $787,000
and $792,000 . . . . . . . . . . . . . . 41,660,153 20,227,323
Inventories . . . . . . . . . . . . . . . 8,433,522 7,792,134
Deferred income taxes . . . . . . . . . . 2,051,580 1,323,932
Other current assets . . . . . . . . . . . 623,169 1,219,447
Total current assets . . . . . . . . . 61,112,244 34,475,200
Investment in unconsolidated affiliates . . 538,278 673,954
Property, plant and equipment
Land . . . . . . . . . . . . . . . . . . 1,118,802 1,150,956
Buildings . . . . . . . . . . . . . . . . 11,499,609 11,790,131
Machinery and equipment . . . . . . . . . 19,455,946 16,954,756
32,074,357 29,895,843
Less: Accumulated depreciation . . . . . 15,362,577 13,231,646
Net property, plant and equipment. . . 16,711,780 16,664,197
Deferred pension cost . . . . . . . . . . . 225,060 313,675
Excess of cost over net assets of acquired
subsidiaries, less accumulated
amortization of $1,140,000 and $808,000 . 12,126,709 12,458,364
Accounts and note receivable . . . . . . . . -- 2,828,185
Other assets, less amortization . . . . . . 448,201 545,945
$91,162,272 $67,959,520
=========== ===========
See accompanying notes to the consolidated financial statements.
December 31, 1996 and 1995
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
Current liabilities
Notes payable . . . . . . . . . . . . . . . $ 583,767 $ 2,651,188
Current maturities of long-term debt . . . 2,271,830 2,258,894
Accounts payable . . . . . . . . . . . . . 20,169,143 5,490,967
Federal, state and foreign income taxes . . 926,823 250,445
Customers' advance payments on contracts . 4,854,880 2,338,231
Guarantee obligations and estimated future
costs of service . . . . . . . . . . . . 1,725,690 844,787
Other accrued liabilities . . . . . . . . . 10,758,185 4,889,993
Total current liabilities . . . . . . . 41,290,318 18,724,505
Long-term debt . . . . . . . . . . . . . . . 6,836,593 9,100,401
Pension plan obligation . . . . . . . . . . . 225,060 320,184
Other postretirement benefit obligations . . 4,084,768 4,089,234
Deferred income taxes . . . . . . . . . . . . 1,084,057 1,069,022
Contingencies and commitments
Shareholders' equity
Common shares, $1 par; 10,000,000 shares
authorized; 3,702,426 shares issued . . . 3,702,426 3,702,426
Additional paid-in capital . . . . . . . . 13,512,005 13,512,005
Retained earnings . . . . . . . . . . . . . 19,672,730 16,390,247
Foreign currency translation adjustment . . 1,136,252 1,439,943
Minimum pension liability adjustment . . . -- (6,510)
38,023,413 35,038,111
Less: 242,376 common shares held in
treasury, at cost . . . . . . . . . . . . 381,937 381,937
Total shareholders' equity . . . . . . 37,641,476 34,656,174
$91,162,272 $67,959,520
=========== ===========
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31 1996
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 4,130,195
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . . 2,826,038
Equity in (income) losses of unconsolidated affiliate s 115,880
(Gain) on sale of equity in affiliate . . . . . . --
(Gains) losses on sale of property and equipment . (1,163)
Deferred taxes . . . . . . . . . . . . . . . . . . (718,935)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable . . (19,912,666)
(Increase) decrease in inventories . . . . . . (677,400)
(Increase) decrease in other assets . . . . . 788,452
Increase (decrease) in accounts payable . . . 15,103,964
Increase (decrease) in accrued expenses . . . 7,635,111
Increase (decrease) in customer advances . . 2,553,785
Increase (decrease) in other liabilities . . (53,122)
Net cash provided by operating activities . 11,790,139
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . (2,859,166)
Proceeds from sale of equity in affiliate . . . . . . 575,826
Proceeds from sales of property and equipment. . . . . 35,827
Dividend from unconsolidated affiliate . . . . . . . . 16,742
Investment in unconsolidated affiliate . . . . . . . . --
Acquisition of subsidiary company, net of cash acquired --
Net cash (used) by investing activities . . (2,230,771)
Cash flows from financing activities:
Proceeds from short-term borrowings . . . . . . . . . --
Repayments of short-term borrowings . . . . . . . . . (2,012,413)
Proceeds from borrowings used to acquire
subsidiary company . . . . . . . . . . . . . . . . --
Repayments of long-term debt . . . . . . . . . . . . . (2,102,684)
Proceeds from exercise of stock options . . . . . . . --
Payment of dividends . . . . . . . . . . . . . . . . (847,712)
Net cash (used) by financing activities . . (4,962,809)
Effect of exchange rate changes on cash . . . . . . . . (165,103)
Increase (decrease) in cash and cash equivalents . . . . 4,431,456
Cash and cash equivalents beginning of year. . . . . . . 3,912,364
Cash and cash equivalents end of year. . . . . . . . . . $ 8,343,820
============
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31 1995
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 2,300,024
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . . . 2,770,728
Equity in (income) losses of unconsolidated affiliates (14,024)
(Gain) on sale of equity in affiliate . . . . . . . (171,983)
(Gains) losses on sale of property and equipment . . (4,199)
Deferred taxes . . . . . . . . . . . . . . . . . . . (108,437)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable . . . 1,383,444
(Increase) decrease in inventories . . . . . . . 425,641
(Increase) decrease in other assets . . . . . . (82,004)
Increase (decrease) in accounts payable . . . . (6,977,690)
Increase (decrease) in accrued expenses . . . . (610,643)
Increase (decrease) in customer advances . . . 1,516,404
Increase (decrease) in other liabilities . . . 63,638
Net cash provided by operating activities . . 490,899
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . (2,277,075)
Proceeds from sale of equity in affiliate . . . . . . 294,127
Proceeds from sales of property and equipment. . . . . 43,243
Dividend from unconsolidated affiliate . . . . . . . . --
Investment in unconsolidated affiliate . . . . . . . . --
Acquisition of subsidiary company, net of cash acquired --
Net cash (used) by investing activities . . (1,939,705)
Cash flows from financing activities:
Proceeds from short-term borrowings . . . . . . . . . 2,604,370
Repayments of short-term borrowings . . . . . . . . . --
Proceeds from borrowings used to acquire subsidiary
company --
Repayments of long-term debt . . . . . . . . . . . . . (2,397,789)
Proceeds from exercise of stock options . . . . . . . 28,281
Payment of dividends . . . . . . . . . . . . . . . . (795,812)
Net cash (used) by financing activities . . (560,950)
Effect of exchange rate changes on cash . . . . . . . . 109,612
Increase (decrease) in cash and cash equivalents . . . . . (1,900,144)
Cash and cash equivalents beginning of year. . . . . . . . 5,812,508
Cash and cash equivalents end of year. . . . . . . . . . . 3,912,364
===========
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31 1994
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 3,104,039
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . . . 2,732,283
Equity in (income) losses of unconsolidated affiliates 300,730
(Gain) on sale of equity in affiliate . . . . . . . --
(Gains) losses on sale of property and equipment . . 11,070
Deferred taxes . . . . . . . . . . . . . . . . . . . (304,708)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable . . . 2,908,458
(Increase) decrease in inventories . . . . . . . (564,901)
(Increase) decrease in other assets . . . . . . 232,766
Increase (decrease) in accounts payable . . . . (2,884,253)
Increase (decrease) in accrued expenses . . . . 1,350,735
Increase (decrease) in customer advances . . . (537,675)
Increase (decrease) in other liabilities . . . 74,904
Net cash provided by operating activities . . 6,423,448
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . (2,032,890)
Proceeds from sale of equity in affiliate . . . . . . --
Proceeds from sales of property and equipment. . . . . 25,309
Dividend from unconsolidated affiliate . . . . . . . . 34,538
Investment in unconsolidated affiliate . . . . . . . . (247,104)
Acquisition of subsidiary company, net of cash acquired (16,601)
Net cash (used) by investing activities . . (2,236,748)
Cash flows from financing activities:
Proceeds from short-term borrowings . . . . . . . . . --
Repayments of short-term borrowings . . . . . . . . . (4,744,585)
Proceeds from borrowings used to acquire subsidiary
company . . . . . . . . . . . . . . . . . . . . . 1,600,000
Repayments of long-term debt . . . . . . . . . . . . . (1,873,724)
Proceeds from exercise of stock options . . . . . . . 124,437
Payment of dividends . . . . . . . . . . . . . . . . (708,085)
Net cash (used) by financing activities . . (5,601,957)
Effect of exchange rate changes on cash . . . . . . . . 80,407
Increase (decrease) in cash and cash equivalents . . . . (1,334,850)
Cash and cash equivalents beginning of year. . . . . . . 7,147,358
Cash and cash equivalents end of year. . . . . . . . . . $ 5,812,508
===========
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994
Common Stock Additional
Number of Paid-In
Shares Amount Capital
Balance, January 1, 1994 3,675,426 $3,675,426 $13,304,103
Net income
Translation gain
Exercise of 22,000 stock
options 22,000 22,000 180,537
Change in minimum
pension liability
Cash dividends paid
($.205 per share)
Balance, December 31, 1994 3,697,426 3,697,426 13,484,640
Net income
Translation (loss)
Exercise of 5,000 stock
options 5,000 5,000 27,365
Change in minimum
pension liability
Cash dividends paid
($.23 per share)
Balance, December 31, 1995 3,702,426 3,702,426 13,512,005
Net income
Translation (loss)
Change in minimum
pension liability
Cash dividends paid
($.245 per share)
Balance, December 31, 1996
3,702,426 $3,702,426 $13,512,005
========== ========== ===========
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994
Foreign Minimum
Currency Pension
Retained Translation Liability
Earnings Adjustment Adjustment
Balance, January 1, 1994 $12,490,081 $ 587,440 $(247,685)
Net income 3,104,039
Translation gain 936,932
Exercise of 22,000 stock
options
Change in minimum
pension liability 135,062
Cash dividends paid
($.205 per share) (708,085)
Balance, December 31, 1994 14,886,035 1,524,372 (112,623)
Net income 2,300,024
Translation (loss) (84,429)
Exercise of 5,000 stock
options
Change in minimum
pension liability 106,113
Cash dividends paid
($.23 per share)
Balance, December 31, 1995 16,390,247 1,439,943 (6,510)
Net income 4,130,195
Translation (loss) (303,691)
Change in minimum
pension liability 6,510
Cash dividends paid
($.245 per share) (847,712)
Balance, December 31, 1996 $19,672,730 $ 1,136,252 $ --
========== =========== =========
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994
Total
Treasury Shareholders'
Shares Equity
Balance, January 1, 1994 $(381,937) $29,427,428
Net income 3,104,039
Translation gain 936,932
Exercise of 22,000 stock
options 202,537
Change in minimum
pension liability 135,062
Cash dividends paid
($.205 per share) (708,085)
Balance, December 31, 1994 (381,937) 33,097,913
Net income 2,300,024
Translation (loss) (84,429)
Exercise of 5,000 stock
options 32,365
Change in minimum
pension liability 106,113
Cash dividends paid
($.23 per share) (795,812)
Balance, December 31, 1995 (381,937) 34,656,174
Net income 4,130,195
Translation (loss) (303,691)
Change in minimum
pension liability 6,510
Cash dividends paid
($.245 per share) (847,712)
Balance, December 31, 1996 $(381,937) $37,641,476
========== ===========
See accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Selas Corporation of America is a diversified firm with international
operations and sales that engages in the design, development, engineering
and manufacturing of a range of products. The Company, headquartered in
Dresher, Pennsylvania with subsidiaries in Minnesota, Ohio, California,
France, Germany and Italy, operates directly or through subsidiaries in
three business segments.
TM Under the Selas name, the Company designs and
manufactures specializedindustrial heat processing systems and
equipment for steel, glass and other manufacturers worldwide.
The Company's subsidiary, Resistance Technology, Inc. (RTI), designs
and manufactures microminiature components and molded plastic parts
primarily for the hearing instrument manufacturing industry worldwide.
The Company's subsidiary, RTI Electronics, Inc., formed in 1997,
manufactures heat sensitive resistors
known as thermistors. The Company's subsidiary, Deuer Manufacturing,
Inc., manufactures spare tire holders and lifts and related products,
primarily based on cable winch designs, for use principally as original
equipment by the pick-up truck and minivan segment of the automotive
industry.
CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany transactions have been eliminated in consolidation.
AFFILIATED COMPANIES - The Company accounts for its investment in 50% or
less owned affiliates on the equity method. At December 31, 1996 and
1995 the Company owned a 50% interest in Nippon Selas Co. Ltd., Tokyo,
Japan.
CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less
to be cash equivalents.
INVENTORIES - Inventories, other than inventoried costs relating to long-
term contracts, are stated at the lower of cost or market. The cost of
the inventories was determined by the average cost and first in, first
out method. Inventoried costs relating to long-term contracts are stated
at the production and engineering cost, including overhead as well as
actual costs incurred from sub-contractors, which are not in excess of
estimated realizable value.
REVENUE RECOGNITION - As long-term contracts progress, the Company
records sales and cost of sales based on the percentage-of-completion
method, whereby the sales value is determined by multiplying the total
contract amount by the percent of costs incurred to estimated total
costs. Such contract costs and expenses incurred on a progress basis at
the time the sales value is recorded are charged to cost of sales.
General and administrative costs are expensed as incurred. The Company
provides currently for anticipated and known contract losses. In
addition, it provides for guarantee obligations and estimated future
costs of service based on past experience of similar projects. Revisions
in cost estimates during the progress of the work under the contracts
have the effect of including in the current accounting period adjustments
necessary to reflect the results indicated by the revised estimates of
final cost.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Sales of manufactured products not sold under long-term contracts are
recorded upon shipment to the customer.
License fees under agreements not requiring substantial services are
recognized at time of effectiveness of the license agreement.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried
at cost. Depreciation is computed by straight line and accelerated
methods using estimated useful lives of 5 to 50 years for buildings and
improvements, and 3 to 12 years for machinery and equipment.
Improvements are capitalized and expenditures for
maintenance, repairs and minor renewals are charged to expense when
incurred. At the time assets are retired or sold, the costs and
accumulated depreciation are eliminated and the resulting gain or loss,
if any, is reflected in the consolidated statement of operations.
EXCESS OF COST OVER NET ASSETS OF ACQUIRED SUBSIDIARIES - Goodwill
represents the excess of purchase price over fair value of net assets
acquired and is amortized on a straight-line basis over the expected
periods to be benefited, which currently is forty years.
Patents and other intangible assets are valued at the lower of amortized
cost or fair market value and are amortized on a straight-line basis over
the expected periods to be benefited, which currently is 5 to 20 years.
The Company assesses the recoverability of intangible assets by
determining whether the amortization of the balance over its remaining
life can be recovered through projected undiscounted future cash flows of
the business for which the intangible assets arose. The amount of the
impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's
average cost of funds or fair value of the asset, where appropriate. The
assessment of the recoverability of intangible assets will be impacted if
estimated future operating cash flows are not achieved.
INCOME TAXES - Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
DERIVATIVE FINANCIAL INSTRUMENTS - The Company has only limited
involvement with derivative financial instruments and does not use them
for trading purposes. They are used to manage well-defined interest rate
and foreign currency risks. The differential to be paid or received on
interest rate swap agreements is accrued as interest rates change and
recognized as an adjustment to interest expense. The gains and losses on
foreign currency exchange contracts are deferred and recognized when the
offsetting gains and losses are recognized on the related hedged items.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
EMPLOYEE BENEFIT OBLIGATIONS - The Company provides health care
insurance for certain domestic retirees and employees. The Company also
provides retirement related benefits for certain foreign employees. The
Company measures the costs of its obligation based on its best estimate.
The net periodic costs are recognized as employees render the services
necessary to earn the postretirement benefit.
Deferred pension costs are actuarially determined and are amortized on a
straight-line basis over the expected periods to be benefited, which
currently is 15 years.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs,
including supporting services, amounted to $1,404,000 in 1996, $1,466,000
in 1995 and $1,308,000 in 1994. Such costs are charged to expense when
incurred.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - Primary and fully
diluted earnings per common and common equivalent share are computed
using the treasury stock method based on the weighted average number of
shares outstanding each year, giving effect to the exercise of
outstanding stock options.
USE OF ESTIMATES - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities, the recording of reported amounts of revenues and expenses
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
2. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information:
Years Ended December 31
1996 1995 1994
Interest received $ 283,353 $ 277,888 $ 268,895
Interest paid $1,010,092 $1,306,636 $1,347,193
Income taxes paid $2,179,053 $2,410,060 $1,763,931
During 1994, the Company converted approximately $244,000 of loans to an
unconsolidated affiliate to investment in the affiliate.
During 1995, in connection with the sale of the investment in Isiglass
SPA, which resulted in a gain of $172,000, the Company received notes
receivable amounting to $943,000 of which $315,000 was repaid during 1995
and the remainder in 1996.
At December 31, 1996, the Company had restricted cash of $2,496,000.
These funds are released upon performance relating to long-term
contracts. All of the funds are expected to be released during 1997.
3. BUSINESS SEGMENT INFORMATION
The Company is engaged in providing engineered heat processing equipment
and services to industries throughout the world, the manufacture of
precision electromechanical and plastic component parts predominantly for
the hearing instrument industry and the manufacture of spare tire holders
and lifts for U.S. manufacturers of original equipment for light trucks
and vans. The results of operations and assets of these segments for the
years ended December 31, 1996, 1995 and 1994 included in the consolidated
financial statements are as follows:
For the year ended
December 31, 1996 Segments
Tire Holders, Lifts
Heat and Related
Processing Products
Operations
Sales, net $ 62,801,105 $ 13,208,814
Operating costs and expenses 58,696,391 13,104,340
General corporate expenses, net -- --
Operating income $ 4,104,714 $ 104,474
============ ============
Interest expense
Interest (income)
Other (income) expense, net
Income before income taxes
Depreciation and amortization $ 487,422 $ 318,039
============ ============
Property, plant and equipment
additions $ 504,384 $ 109,940
============ ============
Total assets $ 59,138,027 $ 5,212,886
============ ============
Precision
Electromechanical
& Plastic Component
Parts Total
Operations
Sales, net $ 27,416,156 $103,426,075
Operating costs and expenses 23,563,515 95,364,246
General corporate expenses, net -- 539,813
Operating income $ 3,852,641 $ 7,522,016
============
Interest expense 1,212,194
Interest (income) (297,806)
Other (income) expense, net 82,475
Income before income taxes $ 6,525,153
============
Depreciation and amortization $ 2,020,577 $ 2,826,038
============ ============
Property, plant and equipment
additions $ 2,244,842 $ 2,859,166
============ ============
Total assets $ 26,811,359 $ 91,162,272
============ ============
3. BUSINESS SEGMENT INFORMATION (Continued)
For the year ended
December 31, 1995 Segments
Tire Holders, Lifts
Heat and Related
Processing Products
Operations
Sales, net $32,551,967 $13,789,543
Operating costs and expenses 30,115,903 13,618,682
General corporate expenses, net -- --
Operating income $ 2,436,064 $ 170,861
=========== ===========
Interest expense
Interest (income)
Other (income) expense, net
Income before income taxes
Depreciation and amortization $ 480,362 $ 417,706
=========== ===========
Property, plant and equipment
additions $ 249,215 $ 171,975
=========== ===========
Total assets $36,148,264 $ 5,476,449
=========== ===========
Precision
Electromechanical
& Plastic Component
Parts Total
Operations
Sales, net $24,873,903 $71,215,413
Operating costs and expenses 22,057,423 65,792,008
General corporate expenses, net -- 665,599
Operating income $ 2,816,480 4,757,806
===========
Interest expense 1,336,386
Interest (income) (339,895)
Other (income) expense, net 35,732
Income before income taxes $ 3,725,583
===========
Depreciation and amortization $ 1,872,660 $ 2,770,728
=========== ===========
Property, plant and equipment
additions $ 1,855,885 $ 2,277,075
=========== ===========
Total assets $26,334,807 $67,959,520
=========== ===========
3. BUSINESS SEGMENT INFORMATION (Continued)
For the year ended
December 31, 1994 Segments
Tire Holders, Lifts
Heat and Related
Processing Products
Operations
Sales, net $34,448,006 $16,713,101
Operating costs and expenses 32,203,330 15,099,745
General corporate expenses, net -- --
Operating income $ 2,244,676 $ 1,613,356
=========== ===========
Interest expense
Interest (income)
Other (income) expense, net
Income before income taxes
Depreciation and amortization $ 487,095 $ 404,069
=========== ===========
Property, plant and equipment
additions $ 156,653 $ 226,657
=========== ===========
Total assets $36,753,543 $ 7,236,264
=========== ===========
Precision
Electromechanical
& Plastic Component
Parts Total
Operations
Sales, net $22,502,075 $73,663,182
Operating costs and expenses 19,822,902 67,125,977
General corporate expenses, net -- 414,027
Operating income $ 2,679,173 6,123,178
===========
Interest expense 1,281,811
Interest (income) (303,239)
Other (income) expense, net 165,872
Income before income taxes $ 4,978,734
===========
Depreciation and amortization $ 1,841,119 $ 2,732,283
=========== ===========
Property, plant and equipment
additions $ 1,649,580 $ 2,032,890
=========== ===========
Total assets $26,130,516 $70,120,323
=========== ===========
3. BUSINESS SEGMENT INFORMATION - (Continued)
The geographical distribution of identifiable assets and net assets at
December 31, 1996, 1995 and 1994, and income (loss) before income taxes
(benefits) for the years then ended is set forth below:
Income (loss)
Identifiable Net before taxes
assets assets (benefits)
1996
United States . . 53,007,230 $ 33,751,368 $ 5,509,966
Europe . . 44,315,117 3,890,108 1,015,187
Eliminations . . (6,160,075) -- --
Consolidated . . $ 91,162,272 $ 37,641,476 $ 6,525,153
============ ============ ===========
1995
United States . . $49,813,578 $30,974,151 $ 5,454,734
Europe . . 24,759,046 3,682,023 (1,729,151)
Eliminations . . (6,613,104) -- --
Consolidated . . $67,959,520 $34,656,174 $ 3,725,583
=========== =========== ===========
1994
United States . . $50,344,311 $28,424,454 $ 4,447,941
Europe . . 24,521,791 4,673,459 530,793
Eliminations . . (4,745,779) -- --
Consolidated . . $70,120,323 $33,097,913 $ 4,978,734
=========== =========== ===========
3. BUSINESS SEGMENT INFORMATION - (Continued)
Net sales by geographic area for the years ended December 31, 1996, 1995
and 1994 are as follows:
Transfers
Sales to between
unaffiliated geographic
customers areas
1996
United States . . . . . $ 59,922,640 (a) $ 1,420,690
Europe . . . . . 43,503,435 (b) 314,027
Eliminations . . . . . -- (1,734,717)
Consolidated . . . . . $103,426,075 $ --
============ ===========
1995
United States . . . . . $ 50,387,079 (a) $ 1,767,546
Europe . . . . . 20,828,334 (b) 1,054,656
Eliminations . . . . . -- (2,822,202)
Consolidated . . . . . $ 71,215,413 $ --
============ ===========
1994
United States . . . . . . $ 46,127,967 (a) $ 1,851,414
Europe . . . . . . 27,535,215 (b) 548,277
Eliminations . . . . . . -- (2,399,691)
Consolidated . . . . . . $ 73,663,182 $ --
============ ===========
(a) Includes export sales of approximately $15,026,000 in 1996,
$16,480,000 in 1995 and $14,972,000 in 1994, principally
to Europe, Asia, Canada and South America.
(b) Includes export sales of approximately $40,549,000 in 1996,
$9,034,000 in 1995 and $20,112,000 in 1994, principally to
Austria, the United States, Asia and Turkey.
Transfers between geographic areas are recorded at amounts which
approximate prevailing selling prices.
Consolidated net sales in 1996 include approximately $22,132,000 or 21%
from contracts with one customer executed by the Company's wholly-owned
European subsidiary, Selas S.A. Due to the nature of the Company's
engineered systems products, one contract may account for a large
percentage of sales in a particular period; however, the Company is not
dependent on any one engineered systems customer on an ongoing basis.
Approximately $45,258,000 of consolidated net sales were attributable to
customers in the steel industry.
3. BUSINESS SEGMENT INFORMATION - (Continued)
Consolidated net sales in 1995 do not result from sales to any one
individual customer in excess of 10% of total sales. Consolidated net
sales in 1995 include approximately $13,321,000 attributable to the steel
industry.
Consolidated net sales in 1994 include approximately $15,446,000 or 21%
from contracts with one customer executed by the Company's wholly-owned
European subsidiary , Selas S.A. Approximately $19,983,000 of
consolidated net sales were attributable to the steel industry. In
addition, approximately $11,210,000 or 15% of consolidated revenue in
1994 was derived from sales of tire holders and lifts to a single
customer. 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1996 and
1995. FASB Statement No. 107, Disclosures about Fair Value of Financial
Instruments, defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current
transaction between willing parties.
1996
Carrying Fair
Amount Value
Financial assets
Cash, including cash
equivalents . . . . . . . . . . $ 8,343,820 $ 8,343,820
Accounts and notes
receivables, including
non-current portion . . . . . . 41,660,153 41,609,153
Financial liabilities
Notes payable . . . . . . . . . . 583,767 583,767
Trade accounts
payables. . . . . . . . . . . . 20,169,143 20,169,143
Customer advance
payments on
contracts . . . . . . . . . . . 4,854,880 4,854,880
Other accrued
liabilities . . . . . . . . . . 10,758,185 10,758,185
Long-term debt. . . . . . . . . . 9,108,423 8,923,577
4. FAIR VALUE OF FINANCIAL INSTRUMENTS - (Continued)
1995
Carrying Fair
Amount Value
Financial assets
Cash, including cash
equivalents . . . . . . . . . . $ 3,912,364 $ 3,912,364
Accounts and notes
receivables, including
non-current portion . . . . . . 23,055,508 22,902,508
Financial liabilities
Notes payable . . . . . . . . . . 2,651,188 2,651,188
Trade accounts
payables. . . . . . . . . . . . 5,490,967 5,490,967
Customer advance
payments on
contracts . . . . . . . . . . . 2,338,231 2,338,231
Other accrued
liabilities . . . . . . . . . . 4,889,993 4,889,993
Long-term debt. . . . . . . . . . 11,359,295 11,134,567
4. FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
The carrying amounts shown in the table are included in the statement of
financial position under the indicated captions.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash, including cash equivalents, short-term accounts and notes
receivables, other current assets, notes payable to banks, trade accounts
payables, and other accrued expenses: The carrying amounts approximate
fair value because of the short maturity of those instruments.
Accounts and notes receivable long-term: The fair value of the
receivables is determined as the present value of expected future cash
flows discounted at a rate of 6%.
Long-term debt: The fair value of the Company's long-term debt is
estimated by discounting the future cash flows of each instrument at
rates currently offered to the Company for similar debt instruments of
comparable maturities by the Company's bankers.
See note 8 regarding the fair value of derivative financial instruments.
The estimated fair value of financial instruments has been determined
based on available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company might realize in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value.
5. INVENTORIES
Inventories consist of the following:
Raw Work-in-
December 31 materials process
1996
Domestic . . . . . $2,431,182 $1,731,479
Foreign . . . . . 170,745 17,892
Total . . . . . $2,601,927 $1,749,371
========== ==========
Finished
products and
components Total
1996
Domestic . . . . . $3,849,215 $8,011,876
Foreign . . . . . 233,009 421,646
Total . . . . . $4,082,224 $8,433,522
========== ==========
December 31
1995
Domestic . . . . . $2,252,832 $1,305,895
Foreign . . . . . 150,315 28,636
Total . . . . . $2,403,147 $1,334,531
========== ==========
1995
Domestic . . . . . $3,829,585 $7,388,312
Foreign . . . . . 224,871 403,822
Total . . . . . $4,054,456 $7,792,134
========== ==========
6. LONG-TERM CONTRACTS AND RECEIVABLES
Accounts and notes receivable at December 31, 1996 and 1995 include the
following elements from long-term contracts:
1996 1995
Amounts billed . . . . . . . . . $21,721,085 $ 7,292,320
Retainage, due upon completion . 2,179,825 5,091,650
Unbilled receivables . . . . . . 7,782,606 980,264
Total . . . . . . . . . . . . $31,683,516 $13,364,234
=========== ===========
The balances billed but not paid by customers, pursuant to retainage
provisions included in long-term contracts, will be due upon completion
of the contracts and acceptance by the customer. The retainage balances
at December 31, 1996 are anticipated to be collected in 1997.
The unbilled receivables are comprised principally of amounts of revenue
recognized on contracts (on the percentage-of-completion method) for
which billings had not been presented to the customers because the
amounts were not billable under the contract terms at the balance sheet
date. In accordance with the contract terms the unbilled receivables at
December 31, 1996 will be billed in 1997.
Inventories include costs relating to long-term sales contracts of
$140,611 and $20,084 at December 31, 1996 and 1995, respectively.
At December 31, 1996 and 1995, the Company had $1,283,201 and
$1,257,043, respectively, of trade accounts receivable due from major
U.S. automotive manufacturers. At December 31, 1996 and 1995, the
Company had $2,722,501 and $2,868,988, respectively, of trade accounts
receivable due from hearing aid manufacturers. The Company also had
$28,512,481 and $8,261,904 at December 31, 1996 and 1995, respectively,
in currently billed and unbilled receivables from long-term contracts for
customers in the steel industry in North America, Europe and Asia.
7. NOTES PAYABLE AND LONG-TERM DEBT
NOTES PAYABLE
Notes payable at December 31, 1996 and 1995 are summarized below:
1996 1995
Notes payable:
Short term borrowings,
European banks $ 583,767 $ 2,651,188
=========== ===========
Consolidated European subsidiaries have working capital credit
arrangements with European banks aggregating $20,056,000. Of this
amount, $2,152,000 may be used to borrow funds for working capital or
guarantee customer advance payments on contracts. The remaining
$17,904,000 may be used only for guaranteeing customer advance payments,
of which $14,997,000 was utilized at December 31, 1996 at interest rates
ranging from .65% to 7.2%. At December 31, 1996 the Company's European
subsidiaries had borrowings of $583,767, which bear interest at annual
rates ranging from 12% to 15.25%. These credit arrangements have no
expiration dates and are guaranteed by the Company.
The maximum amounts of short-term borrowings and bank guarantees at any
month end were $21,954,000 in 1996, $6,030,000 in 1995 and $8,137,000 in
1994. The average short-term borrowings and bank guarantees outstanding
during 1996, 1995 and 1994 amounted to $10,636,000, $4,389,000 and
$3,551,000, respectively. The average short-term interest rates in 1996,
1995 and 1994 for outstanding borrowings were 11%, 9% and 9%,
respectively.
LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 is summarized below:
1996 1995
Long-term debt:
Term loan, Domestic banks $ 5,891,669 $ 7,751,117
Term loans, European banks and
government agency 2,289,262 2,671,825
Mortgage note 927,492 936,353
9,108,423 11,359,295
Less: current maturities 2,271,830 2,258,894
$ 6,836,593 $ 9,100,401
=========== ===========
Under the terms of the domestic term loan agreement with a commercial
bank, principal amounts are repayable over the next four years on a
monthly basis with aggregate principal payments of $1,650,000 per year.
Additional payments of principal are required depending upon the annual
earnings of the Company's domestic operations and as a result of this
requirement, the Company will have an additional principal payment of
approximately $288,000 in 1997 and paid $209,448 in 1996 based upon the
Company's 1996 and 1995 domestic earnings. At December 31, 1996, all
borrowings under the credit agreement bore interest, payable monthly, at
a fixed interest rate of 6-3/4%. The credit agreement is subject to a
prepayment penalty of 3%, to the extent the loan is paid off with
additional borrowings.
7. NOTES PAYABLE AND LONG-TERM DEBT - (Continued)
The Company and its domestic subsidiaries entered into revolving credit
loan facilities under which borrowings or letters of credit aggregating
$3,500,000 could be outstanding at any one time. At December 31, 1996,
there were no borrowings under the revolving credit loan facility.
Borrowings under the facility bear interest at a rate of 1.5% above the
London Inter-Bank Offered Rate (LIBOR) and a commitment fee of 1/4% per
annum is payable on the unborrowed portion of the line. The credit
facility expires on June 1, 1997.
The credit agreement and revolving credit loan facilities are secured by
the Company's domestic assets, except RTI's land and building which is
pledged under a separate agreement, and the Company's domestic
subsidiaries' stock. The agreements contain restrictive covenants
regarding the payment of cash dividends, maintenance of working capital,
net worth, and shareholders' equity, along with the maintenance of
certain financial ratios. The Company and its domestic subsidiaries are
required to maintain consolidated tangible capital funds of approximately
$18.4 million through December 31, 1996 consisting of shareholders'
equity, plus subordinated debt, less intangible assets, increased
annually after December 31, 1996 by 60% of net income and contributions
to capital. At December 31, 1996, the Company exceeded the amount
required to satisfy this covenant in the loan agreement by $7.1 million
The Company's French subsidiary, Selas S.A., financed its premises
outside of Paris with bank borrowings maturing August 31, 2006 with
required quarterly installments of principal of $57,803 (FF 300,000).
The loan carries interest payable quarterly at a fixed rate of 8.55%.
The loan balances as of December 31, 1996 and 1995 were $2,196,532 (FF
11,400,000) and $2,566,191 (FF 12,600,000), respectively. This loan can
be prepaid, subject to a premium of 3% of the amount prepaid. The debt
is secured by the land and building of Selas S.A. The subsidiary also
has a term loan with a French government agency which is non-interest
bearing and payable in 1997. The loan balance as of December 31, 1996
was $92,730 (FF 481,268) and $105,634 (FF 518,663) as of December 31,
1995.
The Company assumed a mortgage at the date of acquisition of RTI which is
payable in monthly installments of $9,285, including interest, through
July 1, 2019. The mortgage has an interest rate of 11% and is secured by
the land and building of RTI. Prepayment of the mortgage is permitted;
however, it is subject to a penalty which is tied to the current interest
rates and the length of the loan. The lender has the right to call the
loan at any time after July 1, 1999 on ninety days written notice to the
Company.
7. NOTES PAYABLE AND LONG-TERM DEBT - (Continued)
The aggregate maturities of long-term debt for the five years ending
December 31, 2001 and thereafter are as follows:
Years ending December 31, Aggregate Maturity
1997 . . . . . . . . . . . . . . . . . $ 2,271,830
1998 . . . . . . . . . . . . . . . . . 1,892,244
1999 . . . . . . . . . . . . . . . . . 2,787,790
2000 . . . . . . . . . . . . . . . . . 884,883
2001 . . . . . . . . . . . . . . . . . 231,214
2002 and thereafter . . . . . . . . . 1,040,462
$ 9,108,423
==============
8. DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap agreements are used to reduce the potential impact of
increases in interest rates on floating-rate long-term debt. At December
31, 1996, the Company's French subsidiary was a party to one interest
rate swap agreement. The interest rate swap agreement is with major
European financial institutions having a total notional amount of $2.2
million at December 31, 1996. The notional amount will decrease
consistent with the terms of the related long-term debt agreement. The
swap agreement requires fixed interest payments based on an effective
rate of 8.55% for the remaining term through May, 2006. The subsidiary
continually monitors its position and the credit ratings of its
counterparties and does not anticipate nonperformance by the
counterparties. Additional interest incurred during 1996 in connection
with the swap agreement amounted to $101,738.
The fair value of the interest rate swap agreement was $2 million at
December 31, 1996. The fair value of this financial instrument (used for
hedging purposes) represents the aggregate replacement cost based on
financial institution quotes. The Company is exposed to market risks
from changes in interest rates and fluctuations in foreign exchange
rates.<PAGE>
9. OTHER ACCRUED LIABILITIES
Other accrued liabilities at December 31, 1996 and 1995 are as follows:
1996 1995
Salaries, wages and commissions . . . $ 3,591,356 $ 2,589,958
Taxes, including payroll withholdings
and VAT, excluding income taxes . . 5,594,441 849,055
Accrued pension costs . . . . . . . . 532,582 697,314
Accrued professional fees . . . . . . 432,207 402,862
Accrued insurance . . . . . . . . . . 377,478 132,171
Other . . . . . . . . . . . . . . . . 230,121 218,633
$10,758,185 $ 4,889,993
=========== ============
10. DOMESTIC AND FOREIGN INCOME TAXES
Domestic and foreign income taxes (benefits) are comprised as follows:
Years Ended December 31
1996 1995 1994
Current
Federal . . . . . . . $ 2,168,819 $ 1,901,334 $1,706,261
State . . . . . . . 454,367 255,666 258,532
Foreign . . . . . . . 490,707 (623,004) 214,610
3,113,893 1,533,996 2,179,403
Deferred
Federal . . . . . . . (552,526) (251,078) (252,033)
State . . . . . . . (61,116) 36,400 (10,577)
Foreign . . . . . . . (105,293 106,241 (42,098)
(718,935) (108,437) (304,708)
Income taxes . . . . . . $ 2,394,958 $ 1,425,559 $1,874,695
=========== =========== ==========
Income (loss) before income taxes is as follows:
Foreign . . . . . . . $ 1,015,187 $(1,729,151) $ 530,793
Domestic . . . . . . . 5,509,966 5,454,734 4,447,941
$ 6,525,153 $ 3,725,583 $4,978,734
============ =========== ==========
10. DOMESTIC AND FOREIGN INCOME TAXES - (Continued)
The following is a reconciliation of the statutory federal income tax
rate to the effective tax rate based on income (loss):
Years Ended December 31
1996 1995 1994
Tax provision at statutory
rate . . . . . . . . . . . 34.0% 34.0% 34.0%
Foreign operating losses not
subject to tax benefits . . 0.3 4.9 3.1
Effect of foreign tax rates . 1.8 (5.2) (.8)
State taxes net of federal
benefit . . . . . . . . . 4.0 5.5 3.4
Tax benefits related to
export sales . . . . . . . (2.7) (3.4) (1.5)
Other . . . . . . . . . . . . (0.7) 2.5 (0.6)
Domestic and foreign income
tax rate . . . . . . . . . 36.7% 38.3% 37.6%
===== ===== =====
The significant components of deferred income taxes (benefits) for the
years ended December 31, 1996, 1995 and 1994 are as follows:
Years Ended December 31
1996 1995 1994
Deferred income tax (benefit) $(342,743) $(604,443) $(420,784)
Increase (decrease) in
beginning-of-the-year
balance of the valua-
tion allowance for
deferred tax assets (369,868) 481,525 101,098
Other (6,324) 14,481 14,978
$(718,935) $(108,437) $(304,708)
========= ========= =========
10. DOMESTIC AND FOREIGN INCOME TAXES - (Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are presented below:
DEFERRED TAX ASSETS: 1996 1995
Postretirement benefit obligations $1,284,333 $1,272,330
Net operating loss carryforwards 1,372,575 1,449,300
State income taxes 374,689 336,773
Guarantee obligations and estimated future
costs of service accruals 528,586 243,461
Employee pension plan obligations 181,078 193,828
Compensated absences, principally due to
accrual for financial reporting purposes 273,910 247,256
Other 624,765 533,118
Total gross deferred tax assets 4,639,936 4,276,066
Less: valuation allowance 2,315,437 2,685,305
Net deferred tax assets 2,324,499 1,590,761
Deferred tax liabilities:
Plant and equipment, principally due
to differences in depreciation and
capitalized interest 1,152,692 1,257,001
Other 204,284 78,850
Total gross deferred tax liabilities 1,356,976 1,335,851
Net deferred tax assets $ 967,523 $ 254,910
========== ==========
Domestic and foreign deferred taxes are comprised as follows:
December 31, 1996 Federal State
Current deferred asset $1,260,593 $ 311,697
Non-current deferred
(liability) (734,607) (60,001)
Net deferred tax asset $ 525,986 $ 251,696
========== ==========
Foreign Total
Current deferred asset $ 479,290 $2,051,580
Non-current deferred
(liability) (289,449) (1,084,057)
Net deferred tax asset $ 189,841 $ 967,523
=========== ==========
10. DOMESTIC AND FOREIGN INCOME TAXES - (Continued)
December 31, 1995 Federal State
Current deferred asset $ 729,850 $ 273,781
Non-current deferred
(liability) (778,756) (60,835)
Net deferred tax asset
(liability) $ (48,906) $ 212,946
=========== ==========
Foreign Total
Current deferred asset $ 320,301 $1,323,932
Non-current deferred
(liability) (229,431) (1,069,022)
Net deferred tax asset
(liability) $ 90,870 $ 254,910
========== ==========
10. DOMESTIC AND FOREIGN INCOME TAXES - (Continued)
At December 31, 1996, the Company had $732,655 of income tax receivable
included in accounts and notes receivable.
The valuation allowance for deferred tax assets as of January 1, 1996
was $2,685,305. The net change in the total valuation allowance for
the year
ended December 31, 1996 was a decrease of $369,868. Subsequently
recognized tax benefits relating to the valuation allowance for deferred
tax assets will be reported in the consolidated statement of operations.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities and projected future taxable income in making this
assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more likely than not
the Company will realize the benefits of these deductible differences,
net of the existing valuation allowances, at December 31, 1996.
At December 31, 1996 the Company has net operating loss carryforwards for
foreign income tax purposes of $4,189,000 of which $307,000 expire in
1998 and $3,882,000 have no expiration date and are available to offset
future foreign taxable income.
No provision has been made for United States income tax which may be
payable on undistributed income of the Company's foreign subsidiaries
since it is the Company's intention to reinvest the unremitted earnings.
Furthermore, based on current federal income tax laws, the federal income
tax on future dividends will be offset by foreign tax credits in certain
instances. At December 31, 1996, the Company has not recognized a
deferred tax liability of approximately $1,891,000 on undistributed
retained earnings of such subsidiaries of $5,563,000.
11. EMPLOYEE BENEFIT PLANS
The parent Company has two defined benefit pension plans. One covers
salaried employees and is a career average compensation plan. The other
plan covers hourly employees and is based on a fixed benefit and years of
credited service. Pension costs are determined by independent actuaries
and include current service costs and the amortization of past service
costs. The Company makes annual contributions to the plans in conformity
with ERISA funding requirements.
The following table sets forth the plans' funded status and amounts
recognized in the Company's statements of financial position at December
31,
1996 and 1995:
December 31, 1996
Union Salaried
Plan Plan
Actuarial present value of benefit
obligations:
Vested benefit obligation $(2,498,941) $(1,754,530)
=========== ===========
Accumulated benefit obligation $(2,528,777) $(1,797,321)
=========== ===========
Projected benefit obligation for
service rendered to date $(2,528,777) $(2,019,916)
Plan assets at contract or fair value,
including insurance contracts
and various common trust fund
investments 1,714,493 1,932,219
Projected benefit obligation (in ex-
cess of) plan assets (814,284) (87,697)
Unrecognized prior service costs 29,348 7,862
Unrecognized net (gain) or loss (24,775) 136,477
Unrecognized net obligation at
January 1, 1986 being recognized
over 15 years 220,487 --
Accrued pension cost liability included
in current liabilities before
adjustment of additional minimum
liability (589,224) 56,642
Adjustment required to recognize
additional minimum liability (225,060) --
Accrued pension cost after adjust-
ment of additional minimum liability
at December 31, 1996 and 1995 $ (814,284) $ 56,642
=========== ===========
11. EMPLOYEE BENEFIT PLANS (Continued)
December 31, 1995
Union Salaried
Plan Plan
Actuarial present value of benefit
obligations:
Vested benefit obligation $(2,527,313) $(1,524,941)
=========== ===========
Accumulated benefit obligation $(2,553,016) $(1,575,617)
=========== ===========
Projected benefit obligation for
service rendered to date $(2,553,016) $(1,745,370)
Plan assets at contract or fair value,
including insurance contracts
and various common trust fund
investments 1,648,258 1,588,693
Projected benefit obligation (in ex-
cess of) plan assets (904,758) (156,677)
Unrecognized prior service costs 38,067 9,570
Unrecognized net (gain) or loss 6,510 161,598
Unrecognized net obligation at
January 1, 1986 being recognized
over 15 years 275,608 --
Accrued pension cost liability included
in current liabilities before
adjustment of additional minimum
liability (584,573) 14,491
Adjustment required to recognize
additional minimum liability (320,185) --
Accrued pension cost after adjust-
ment of additional minimum liability
at December 31, 1996 and 1995 $ (904,758) $ 14,491
=========== ===========
As of December 31, 1996, the Company has recognized the additional
minimum liability of $225,060 and an intangible asset of $225,060.
11. EMPLOYEE BENEFIT PLANS- (Continued)
Net periodic pension cost for these plans for the years 1996, 1995 and
1994 included the following components:
Years Ended December 31
1996 1995 1994
Service cost - benefits
earned during the period $ 187,955 $ 160,038 $ 209,448
Interest cost on projected
benefit obligation 306,788 304,065 282,295
Actual return on assets (419,872) (638,756) 60,661
Net amortization and deferral 228,214 497,947 (197,978)
Net periodic pension cost $ 303,085 $ 323,294 $ 354,426
========= ========= =========
The discount rate used to determine the projected benefit obligation for
both the salaried and union plans was 7.25% for 1996 and 1995 and 8.5%
for 1994.
The projected benefit obligation was determined by using an assumed rate
of increase in compensation levels of 5% for 1996, 1995 and 1994 for the
salaried plan. The expected long-term rate of return on assets for both
plans was 8%.
The Company's French subsidiary is obligated to contribute to an employee
profit sharing plan under which annual contributions are determined on
the basis of a prescribed formula using capitalization, salaries and
certain revenues. Amounts are paid into a bank trust fund the year
following the contribution calculation. Profit sharing expense for 1996,
1995 and 1994 was $96,970, $0 and $20,000, respectively.
The Company has defined contribution plans for most of its domestic
employees not covered by collective bargaining agreements. Under these
plans, eligible employees may contribute amounts through payroll
deductions supplemented by employer contributions for investment in
various investments specified in the plans. The Company contribution to
these plans for 1996, 1995 and 1994 was $288,556, $273,675 and $277,422,
respectively.
11. EMPLOYEE BENEFIT PLANS- (Continued)
The Company provides postretirement medical benefits to certain domestic
full-time employees who meet minimum age and service requirements. The
Company's policy is to pay the cost of these postretirement benefits when
required on a cash basis. The Company also has provided certain foreign
employees with retirement related benefits.
The following table presents the amounts recognized in the Company's
consolidated balance sheet at December 31, 1996 and 1995 for
postretirement medical benefits:
Accrued postretirement medical benefits:
December 31
Accumulated postretirement medical
benefit obligation 1996 1995
Retirees $ 1,922,719 $ 2,011,389
Fully eligible active plan participants 515,701 481,272
Other active plan participants 345,098 297,682
2,783,518 2,790,343
Unrecognized net gain 533,423 551,594
Accrued postretirement medical
benefit cost $ 3,316,941 $ 3,341,937
=========== ===========
Accrued postretirement medical benefit costs are classified as other
postretirement benefit obligations as of December 31, 1996 and 1995.
Net periodic postretirement medical benefit costs for 1996, 1995 and 1994
include the following components:
Years Ended December 31
1996 1995 1994
Service cost $ 25,834 $ 20,210 $ 32,733
Interest cost 194,081 206,227 230,777
Net gain (18,171) (33,660) --
Net periodic postretirement
medical benefit cost $201,744 $192,777 $ 263,510
======== ======== =========
11. EMPLOYEE BENEFIT PLANS - (Continued)
For measurement purposes, a 11% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed
for 1996; the rate was assumed to decrease gradually to 6% by the year
2006 and remain at that level thereafter. The health care cost trend
rate assumption has a significant effect on the amounts reported. For
example, increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated
postretirement medical benefit obligation as of December 31, 1996 by
$220,000 and the aggregate of the service and interest cost components of
net periodic postretirement medical benefit cost for the year ended
December 31, 1996 by $16,000.
The weighted-average discount rate used in determining the accumulated
postretirement medical benefit obligation at December 31, 1996 and 1995
was 7.25%.
The Company provides retirement related benefits to a former employee,
and to certain foreign subsidiary employees in accordance with industry
wide collective labor agreements. The liabilities established for these
benefits at December 31, 1996 and 1995 were $742,831 and $747,297,
respectively, and are classified as other postretirement benefit
obligations as of December 31, 1996 and 1995.
12. CURRENCY TRANSLATION ADJUSTMENTS
All assets and liabilities of foreign operations are translated into U.S.
dollars at prevailing rates of exchange in effect at the balance sheet
date. Revenues and expenses are translated using average rates of
exchange for the year. The functional currency of the Company's foreign
operations is the currency of the country in which the entity resides;
such currencies are the French franc, German mark, Italian lira and
Japanese yen. Adjustments resulting from the process of translating the
financial statements of foreign subsidiaries into U.S. dollars are
reported as a separate component of shareholders' equity, net of tax
where appropriate. Gains and losses arising from foreign currency
transactions are reflected in the consolidated statements of operations
as incurred. Foreign currency transaction gains (losses) included in the
statement of operations for 1996, 1995 and 1994 were $(8,200), $(123,419)
and $40,722, respectively.
13. COMMON STOCK AND STOCK OPTIONS
Under the Company's 1985 and 1994 Stock Option Plans, options to an
aggregate of 600,000 shares of common stock may be granted to certain
officers and key employees at no less than 100% of the fair market value
at the date of grant. All options are exercisable until the earlier of
termination pursuant to the plans or ten years from date of grant.
13. COMMON STOCK AND STOCK OPTIONS (Continued)
At December 31, 1996, there were 208,000 additional shares available for
grant under the 1994 plan. The per share weighted-average fair value of
stock options granted during 1995 was $3.23 on the date of grant using
the Black Scholes option-pricing model with the following weighted-
average assumptions: 1995 - expected dividend yield 2.1%; risk free
interest rate of 5.58%; expected life of 6 years and expected volatility
of the stock over the life of the options which is based on the past 6
years of the stock's activity.
The Company applies APB Opinion No. 25 in accounting for its Plans, and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date of its stock
options under SFAS No. 123, the Company's net income would have been
reduced to the proforma amount indicated below:
1996 1995
Net income as reported $4,130,195 $2,300,024
Net income proforma $4,092,615 $2,263,394
Primary earnings per share as reported $1.17 $.66
Primary earnings per share proforma $1.16 $.65
No options were granted in 1996. Proforma net income reflects options
granted in 1995. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the
proforma net income amounts presented above because compensation cost is
reflected over the options vesting period of 5 years and compensation
cost for options granted prior to January 1, 1995 is not considered.
Stock option activity during the periods indicated is as follows:
Number of Weighted-average
Shares Exercise Price
Outstanding at January 1, 1994 229,325 $ 11.13
Options exercised (22,000) 5.65
Outstanding at December 31, 1994 207,325 $ 11.71
Options exercised (5,000) 5.65
Options granted 92,000 8.03
Outstanding at December 31, 1995 294,325 $ 10.66
Options forfeited (15,000) 14.00
Outstanding at December 31, 1996 279,325 $ 10.48
=======
At December 31, 1996, the range of exercise prices were $5.65-$17.12 and
weighted-average remaining contractual life of outstanding options was
5.8 years.
At December 31, 1996 and 1995, the number of options exercisable was
179,725 and 126,425, respectively and the weighted average price of these
options were $11.56 and $11.75, respectively.
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of unaudited quarterly results of
operations.
1996 First Second
Quarter Quarter
Net sales . . . . . . $18,571,000 $25,460,000
=========== ===========
Gross profit . . . . $ 4,728,000 $ 5,292,000
=========== ===========
Net income . . . . . $ 574,000 $ 807,000
=========== ===========
Earnings
per common and
common equivalent
share
Primary $ .16 $ .23
=========== ===========
Fully diluted $ .16 $ .23
=========== ===========
1996 Third Fourth
Quarter Quarter
Net sales . . . . . . $29,724,000 $29,671,000
=========== ===========
Gross profit . . . . $ 5,984,000 $ 6,552,000
=========== ===========
Net income . . . . . $ 1,340,000 $ 1,409,000
=========== ===========
Earnings
per common and
common equivalent
share
Primary $ .38 $ .40
=========== ===========
Fully diluted $ .38 $ .39
=========== ===========
1995 First Second
Quarter Quarter(a)
Net sales . . . . . . $21,471,000 $16,974,000
=========== ===========
Gross profit . . . . $ 5,529,000 $ 4,603,000
=========== ===========
Net income (loss) . . $ 1,164,000 $ (63,000)
=========== ===========
Earnings (loss)
per common and
common equivalent
share
Primary $ .34 $(.02)
=========== ===========
Fully diluted $ .34 $(.02)
=========== ===========
1995 Third Fourth
Quarter Quarter
Net sales . . . . . . $15,714,000 $17,056,000
=========== ===========
Gross profit . . . . $ 4,353,000 $ 4,670,000
=========== ===========
Net income (loss) . . $ 374,000 $ 826,000
=========== ===========
Earnings (loss)
per common and
common equivalent
share
Primary $ .11 $ .24
=========== ===========
Fully diluted $ .11 $ .24
=========== ===========
(a) Includes unusual charges of $285,000 resulting from restructuring
of certain European operations and $135,000 for settlement of a
tax issue in Germany.
15. CONTINGENCIES AND COMMITMENTS
The Company is a defendant along with a number of other parties in
approximately 155 lawsuits as of December 31, 1996 (112 as of December
31, 1995) alleging that plaintiffs have or may have contracted asbestos-
related diseases as a result of exposure to asbestos products or
equipment containing asbestos sold by one or more named defendants. Due
to the noninformative nature of the complaints, the Company does not know
whether any of the complaints state valid claims against the Company.
The Company is also one of approximately 500 defendants in a class action
on behalf of approximately 2700 present or former employees of a Texas
steel mill alleging that products supplied by the defendants created a
poisonous atmosphere that caused unspecified physical harm. These cases
are being defended by one or more of the Company's insurance carriers
presently known to be "at risk." Through October 1993, the legal costs
of defense of the asbestos and steel mill cases were shared among the
insurance carriers (92%) and the Company (8%). The lead insurance
carrier settled a number of the cases in 1993 and requested that the
Company pay a portion of the settlement amount. The Company declined to
do so because no such payment is required by the express terms of the
policies. The lead carrier then purported in October 1993 to abrogate
the arrangement under which the defense costs had been shared, and the
Company responded by tendering all of the cases to the lead carrier and
demanding that the lead carrier honor its obligations under its policies
to pay 100% of the costs of defense and 100% of all settlements and
judgments up to the policy limits. The lead carrier has settled
approximately 17 and 98 claims in 1996 and 1995, respectively with no
request for the Company to participate in any settlement. The lead
carrier has informed the Company that the primary policy for the period
July 1, 1972 - July 1, 1975 has been exhausted and that the lead carrier
will no longer provide a defense under that policy. The Company has
requested that the lead carrier substantiate this situation. The Company
has contacted representatives of the Company's excess insurance carrier
for some or all of this period. The Company does not believe that the
asserted exhaustion of the primary insurance coverage for this period
will have a material adverse effect on the financial condition or results
of operations of the Company. Management is of the opinion that the
number of insurance carriers involved in the defense of the suits and the
significant number of policy years and policy limits to which these
insurance carriers are insuring the Company make the ultimate disposition
of these lawsuits not material to the Company's consolidated financial
position or results of operations.
In 1995, a dispute which was submitted to arbitration arose under a
contract between a customer and a subsidiary of the Company. Substantial
claims were asserted against the subsidiary Company. Under the terms of
the contract, the Company recorded revenue of approximately $1,400,000
in 1994 and has a current billed receivable of $140,000. The Company
believes that the disposition of this claim will not materially affect
the Company's consolidated financial position or results of operations.
The Company is also involved in other lawsuits arising in the normal
course of business. While it is not possible to predict
15. CONTINGENCIES AND COMMITMENTS- (Continued)
with certainty the outcome of these matters, management is of the opinion
that the disposition of these lawsuits will not materially affect the
Company's consolidated financial position or results of operations.
Total rent expense for 1996, 1995, and 1994 under leases pertaining
primarily to engineering, manufacturing, sales and administrative
facilities, with an initial term of one year or more, aggregated
$904,000, $846,000 and $763,000, respectively. Remaining rentals payable
under such leases are as follows: 1997 - $817,000; 1998 - $695,000; 1999
- $659,000; 2000 - $605,000; 2001 - $1,342,000.
16. RELATED-PARTY TRANSACTIONS
One of the Company's subsidiaries leases office and factory space from a
partnership consisting of three officers of the subsidiary. The
subsidiary is required to pay all real estate taxes and operating
expenses. In the opinion of management, the terms of the lease agreement
are comparable to those which could be obtained from unaffiliated third
parties. The total rent expense incurred under the lease was
approximately $373,000 for the year ended December 31, 1996, $485,000 for
the year ended December 31, 1995 and $485,000 for the year ended 1994.
Annual lease commitments approximate $330,000 through October, 1997.
17. SUBSEQUENT EVENT
In February, 1997, the Company acquired the assets and certain
liabilities of Rodan Division of Ketema, Inc. a manufacturer of
thermistors and thermistor assemblies used primarily as an electric
current limiting device to protect computer installations. Ketema's
Rodan Division had sales in the year ended February 28, 1996 of $6.4
million (unaudited). The purchase price was $4.75 million in cash and,
additionally, up to a maximum of almost 57,000 shares of the Company's
common stock tied to future earnings performance. This acquisition will
be accounted for as a purchase and the excess of the purchase price over
the fair value of the assets (goodwill) will be amortized on a straight
line basis over 15 years. To finance this acquisition, the Company has
increased its bank borrowings by $3.5 million.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Selas Corporation of America:
We have audited the accompanying consolidated balance sheets of Selas
Corporation of America and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period
ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements 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
consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Selas
Corporation of America and subsidiaries at December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
February 17, 1997
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES OF
SELAS CORPORATION OF AMERICA
SUBSIDIARY PLACE OF INCORPORATION
Deuer Manufacturing, Inc. Ohio
Resistance Technology GmbH Germany
Vertrieb von Elecktronikteilen
Resistance Technology, Inc. Minnesota
RTI Electronics, Inc. Delaware
Selas S.A. France
Selas Italiana, S.A Italy
Selas Waermetechnik, GmbH Germany
EXHIBIT 23
SELAS CORPORATION OF AMERICA
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Selas Corporation of America:
We consent to the incorporation by reference in the Registration
Statement File No. 33-33712, on Form S-3, No. 33-35802, on Form S-8, and
No. 333-16377, on Form S-8 of Selas Corporation of America and
subsidiaries of our report dated February 17, 1997 relating to the
consolidated balance sheets of Selas Corporation of America and
subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, shareholders' equity, and cash
flows and related financial statement schedules for each of the years in
the three-year period ended December 31, 1996, which report appears in
the December 31, 1996 annual report on Form 10-K of Selas Corporation of
America.
Philadelphia, Pennsylvania
March 2, 1997
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby
consent and appoint Stephen F. Ryan and Robert W. Ross, or either of
them, his attorney to do any and all acts, including the execution of
documents, which said attorneys, or either of them, may deem necessary or
advisable to enable Selas Corporation of America (the "Company") to
comply with the Securities Exchange Act of 1934, as amended, and the
rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the filing under said Act of an annual
report of the Company on Form 10-K for the year ended December 31, 1996,
including the power and authority to sign in the name and on behalf of
the undersigned, in any and all capacities in which the signature of the
undersigned would be appropriate, such annual report and any and all
amendments thereto and generally to do and perform all things necessary
to be done in the premises as fully and effectually in all respects as
the undersigned could do if personally present.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
and seal this 18th day of March, 1997.
/s/ John H. Austin, Jr.
John H. Austin, Jr.
/s/ Frederick L. Bissinger
Frederick L. Bissinger
/s/ Roy C. Carriker
Roy C. Carriker
/s/ Francis J. Dunleavy
Francis J. Dunleavy
/s/ Mark S. Gorder
Mark S. Gorder
/s/ Ralph R. Whitney, Jr.
Ralph R. Whitney, Jr.
March 21, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Reference: Commission File #1-5005
Gentlemen:
The Company's 1996 Annual Report on Form 10-K has been filed
electronically, via Edgar.
The financial statements for the year ended December 31, 1996 do not
reflect any changes in accounting principles or practices, or the method
of applying any such principles or practices from the preceding year.
Very truly yours,
Robert W. Ross
Vice President and CFO
RWR:jc
Enclosures
cc: American Stock Exchange
Attention: Mr. Tom Witterchein
86 Trinity Place
New York, NY 10006
(Three copies, one with Exhibits)
Via Certified Mail <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SELAS CORPORATION OF AMERICA FOR THE TWELEVE
MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,343,820
<SECURITIES> 0
<RECEIVABLES> 42,447,274
<ALLOWANCES> 787,121
<INVENTORY> 8,433,522
<CURRENT-ASSETS> 61,112,244
<PP&E> 32,074,357
<DEPRECIATION> 15,362,577
<TOTAL-ASSETS> 91,162,272
<CURRENT-LIABILITIES> 41,290,318
<BONDS> 6,836,593
0
0
<COMMON> 3,702,426
<OTHER-SE> 33,939,050
<TOTAL-LIABILITY-AND-EQUITY> 91,162,272
<SALES> 103,426,075
<TOTAL-REVENUES> 103,426,075
<CGS> 80,870,331
<TOTAL-COSTS> 80,870,331
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 196,952
<INTEREST-EXPENSE> 1,212,194
<INCOME-PRETAX> 6,525,153
<INCOME-TAX> 2,394,958
<INCOME-CONTINUING> 4,130,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,130,195
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.16
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