UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 OFFICES) (ZIP CODE)
(215) 646-6600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
(X) YES ( ) NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT OCTOBER 27, 2000
COMMON SHARES, $1.00 PAR VALUE 5,119,214 (exclusive of 515,754
treasury shares)
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SELAS CORPORATION OF AMERICA
I N D E X
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 . . . . . 3, 4
Consolidated Statements of Operations for the
Three Months Ended September 30, 2000
and 1999 . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Operations for the
Nine Months Ended September 30, 2000 and 1999. . . 6
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
2000 and 1999 . . . . . . . . . . . . . . . . . . 7
Consolidated Statement of Shareholders' Equity
for the Nine Months Ended September 30, 2000 . . . 8
Notes to Consolidated Financial Statements . . . 9, 10, 11,
12,13, 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 15,16,17,18
Item 3. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . 18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . 19
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SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Assets
September 30, December 31,
2000 1999
(Unaudited) (Audited)
Current assets
Cash, including cash equivalents of
$984,000 in 2000 and $151,000
in 1999 . . . . . . . . . . . . . . $ 3,486,064$ 1,756,008
Accounts receivable (including unbilled
receivables of $13,644,000 in 2000
and $6,043,000 in 1999, less allowance
for doubtful accounts of $899,000 in
2000 and $978,000 in 1999) . . . . 38,060,881 28,795,466
Inventories . . . . . . . . . . . . . 13,843,334 12,769,618
Deferred income taxes . . . . . . . . 2,400,147 2,428,243
Other current assets . . . . . . . . . 1,905,192 2,181,281
Total current assets . . . . . . . 59,695,618 47,930,616
Investment in unconsolidated affiliate . -- 588,965
Property, plant and equipment
Land . . . . . . . . . . . . . . . . 948,355 1,005,537
Buildings . . . . . . . . . . . . . . 10,898,551 11,435,428
Machinery and equipment . . . . . . . 31,428,023 28,794,569
43,274,929 41,235,534
Less: Accumulated depreciation . . . 24,316,313 22,441,750
Net property, plant and equipment . 18,958,616 18,793,784
Excess of cost over net assets of acquired
subsidiaries less accumulated amortization
of $3,706,000 and $3,165,000 . . . . . 15,682,422 16,214,999
Deferred income taxes . . . . 513,231 562,243
Other assets including patents, less
amortization . . . . . . . . . . . . . 969,616 959,093
$95,819,503 $85,049,700
======================
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Liabilities and Shareholders' Equity
September 30, December 31,
2000 1999
(Unaudited) (Audited)
Current liabilities
Notes payable . . . . . . . . . . . . . . $ 7,012,432$ 9,417,666
Current maturities of long-term debt . . 1,392,402 1,958,951
Accounts payable . . . . . . . . . . . . 23,353,354 13,191,213
Federal, state and foreign income taxes . 1,759,723 679,997
Customers' advance payments on contracts 1,510,534 1,221,946
Guarantee obligations and estimated
costs of service . . . . . . . . . . . 1,615,127 1,483,624
Other accrued liabilities . . . . . . . 7,119,204 6,247,938
Total current liabilities . . . . 43,762,776 34,201,335
Long-term debt . . . . . . . . . . . . 3,787,129 3,695,181
Other postretirement benefit obligations 4,200,207 4,130,261
Contingencies and commitments
Shareholders' equity
Common shares, $1 par; 10,000,000 shares
authorized; 5,634,968 shares issued . 5,634,968 5,634,968
Additional paid-in capital . . . . . . 12,012,541 12,012,541
Retained earnings . . . . . . . . . . . 28,522,714 26,592,680
Accumulated other comprehensive (loss). (835,754) (14,496)
Less: 515,754 and 504,854 common shares,
respectively, held in treasury,
at cost (1,265,078)(1,202,770)
Total shareholders' equity . . . 44,069,391 43,022,923
$95,819,503 $85,049,700
=========== ===========
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 30, September 30,
2000 1999
Sales, net $28,393,891 $26,165,501
Operating costs and expenses
Cost of sales 23,341,352 20,163,995
Selling, general and
administrative expenses 4,109,046 3,963,309
Operating income 943,493 2,038,197
Interest (expense) (270,834) (254,155)
Interest income 15,129 2,083
Other income (expense), net 18,392 90,701
Income before income taxes 706,180 1,876,826
Income taxes 304,111 734,721
Net income $ 402,069 $ 1,142,105
=========== ===========
Earnings per share
Basic $.08 $.22
Diluted $.08 $.22
Average shares outstanding
Basic 5,121,000 5,175,000
Diluted 5,130,000 5,184,000
Comprehensive income (loss) $ (81,519) $ 1,268,526
=========== ===========
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended
September 30, September 30,
2000 1999
Sales, net $90,913,199 $75,609,713
Operating costs and expenses
Cost of sales 72,539,711 60,124,069
Selling, general and
administrative expenses 13,448,745 12,908,906
Operating income 4,924,743 2,576,738
Interest (expense) (872,917) (749,343)
Interest income 46,818 42,758
Other income (expense), net 145,202 (242,637)
Income before income taxes 4,243,846 1,627,516
Income taxes 1,622,125 807,935
Net income $ 2,621,721 $ 819,581
=========== ===========
Earnings per share
Basic $.51 $.16
Diluted $.51 $.16
Average shares outstanding
Basic 5,122,000 5,215,000
Diluted 5,130,000 5,227,000
Comprehensive income $ 1,800,463 $ 303,771
=========== ===========
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30, September 30,
2000 1999
Cash flows from operating activities:
Net income . . . . . . . . . . . . . $ 2,621,721 $ 819,581
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization . . . 3,024,176 3,033,964
Equity in loss of unconsolidated
affiliate . . . . . . . . . . . 9,341 19,161
(Gain) on sale of property and
equipment . . . . . . . . . . . (4,212) (3,417)
Deferred taxes . . . . . . . . . . (57,397) 741,526
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable . . . . . . . . . . (11,686,258) 1,057,013
(Increase) in inventories . . . . . (1,033,046) (108,097)
(Increase) decrease in other assets 50,170 (1,014,424)
Increase (decrease) in accounts
payable . . . . . . . . . . . . 12,125,723 (1,408,697)
Increase (decrease) in accrued
expenses . . . . . . . . . . . . 2,594,868 (1,616,577)
Increase in customer advances . . 236,408 3,095,021
(Decrease) in other liabilities (275,983) (14,287)
Net cash provided by
operating activities . . . . . 7,605,511 4,600,767
Cash flows from investing activities:
Purchases of property, plant and
equipment . . . . . . . . . . . . . (3,082,356) (3,321,098)
Proceeds from sale of property, plant
and equipment . . . . . . . . . . . 13,271 3,417
Acquisition of subsidiary companies,
net of cash acquired . . . . . . . . 312,966 (5,388)
Receipt of dividend from uncon-
solidated affiliate -- 14,476
Net cash (used) by investing
activities . . . . . . . . . (2,756,119) (3,308,593)
Cash flows from financing activities:
Proceeds from short-term bank
borrowings 462,671 3,464,274
Proceeds from long-term borrowings -- 1,015,251
Proceeds from borrowings to acquire
subsidiary company . . . . . . . . . 1,648,466 --
Repayments of short-term bank
borrowings . . . . . . . . . . . . . (2,240,004) (10,774)
Repayments of long-term debt . . . . (1,695,327) (3,548,206)
Proceeds from exercise of stock
options . . . . . . . . . . . . . . -- 83,541
Payment of dividends . . . . . . . . (691,687) (703,163)
Purchase of treasury stock . . . . . (62,308) (706,310)
Net cash (used) by
financing facilities . . . . . (2,578,189) (405,387)
Effect of exchange rate changes on
cash . . . . . . . . . . . . . . . . (541,147) (183,740)
Net increase in cash and cash
equivalents . . . . . . . . . . . . . 1,730,056 703,047
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . 1,756,008 2,784,282
Cash and cash equivalents, end of
period . . . . . . . . . . . . . . . $ 3,486,064$ 3,487,329
=========== ===========
See accompanying notes to the consolidated financial statements.
-8-
SELAS CORPORATION OF AMERICA
Consolidated Statement of Shareholders' Equity
Nine Months Ended September 30, 2000
(Unaudited)
Common Stock Additional
Number of Paid-In
Shares Amount Capital
Balance, January 1, 2000 5,634,968 $5,634,968 $12,012,541
Net income
Cash dividends paid
($.135 per share)
Foreign currency translation
(loss)
Comprehensive income
Purchase of 10,900
treasury shares
Balance, September 30, 2000 5,634,968 $5,634,968 $12,012,541
========= ========== ===========
Accumulated
Other
Retained Comprehensive Comprehensive
Earnings Income Income
Balance, January 1, 2000 $26,592,680 $ (14,496)
Net income 2,621,721 $2,621,721
Cash dividends paid
($.135 per share) (691,687)
Foreign currency translation
(loss) (821,258) (821,258)
Comprehensive income $1,800,463
Purchase of 10,900 ==========
treasury shares
Balance, September 30, 2000 $28,522,714 $ (835,754)
=========== ==========
Total
Treasury Shareholders'
Stock Equity
Balance, January 1, 2000 $(1,202,770) $43,022,923
Net income 2,621,721
Cash dividends paid
($.135 per share) (691,687)
Foreign currency translation
(loss) (821,258)
Comprehensive income
Purchase of 10,900
treasury shares (62,308) (62,308)
Balance, September 30, 2000 $(1,265,078) $44,069,391
=========== ===========
See accompanying notes to the consolidated financial statements
-9-
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)
1. In the opinion of management, the accompanying consolidated condensed
financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly Selas Corporation of
America's consolidated financial position as of September 30, 2000 and
December 31, 1999, and the consolidated results of its operations for
the three and nine months ended September 30, 2000 and 1999 and
consolidated statements of shareholders' equity and cash flows for the
nine months then ended. The interim operating results are not
necessarily indicative of the results to be expected for an entire
year.
2. The accounting policies followed by the Company are set forth in note 1
to the Company's financial statements in the 1999 Selas Corporation of
America Annual Report.
3. Inventories consist of the following:
September 30, December 31,
2000 1999
Raw material $ 3,687,285 $ 2,858,196
Work-in-process 5,088,736 5,520,707
Finished products and
components 5,067,313 4,390,715
Total $13,843,334 $12,769,618
=========== ===========
4. Income Taxes
Consolidated income taxes for the nine month periods ended September
30, 2000 and 1999 are approximately $1,622,000 and $808,000 which
result in effective tax rates of 38.2% and 49.6%, respectively. The
rate of tax in relation to pre-tax income in 1999 is high because tax
benefits from certain foreign net operating losses could not be
utilized for income tax purposes.
-10-
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)
(Continued)
5. Legal Proceedings
The Company is a defendant along with a number of other parties in
approximately 200 lawsuits as of December 31, 1999 (150 as of December
31, 1998) 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 lead insurance 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, liquidity, 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. In June, 1998, the arbitrator found
in favor of the customer. The Company has refused to recognize the
validity of the arbitration proceedings and decision and believes it
is entitled to a new hearing before an international or French
tribunal. 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 with
certainty the outcome of these matters, management is of the opinion
that the disposition of these lawsuits and claims will not materially
affect the Company's consolidated financial position, liquidity, or
results of operations.
-11-
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)
(Continued)
6. Statements of Cash Flows
Supplemental disclosures of cash flow information:
Nine Months Ended
September 30, September 30,
2000 1999
Interest received . . . . . . . $ 45,355 $ 42,897
Interest paid . . . . . . . . . $ 746,276 $ 652,030
Income taxes paid . . . . . . . $ 748,836 $ 942,920
7. Accounts Receivable
At September 30, 2000, the Company had $2,193,045 of trade accounts
receivable due from major U.S. automotive manufacturers and $4,990,051
of trade accounts receivable due from hearing health manufacturers. The
Company also had $12,985,617 in receivables from long-term contracts for
customers in the steel industry in North America, Europe and Asia.
-12-
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)
(Continued)
8. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
For the Three Months
Ended September 30, 2000
Income Shares Per Share
Numerator Denominator Amount
Basic Earnings Per Share
Income available to
common shareholders $ 402,069 5,120,567 $.08
=========
Effect Of Dilutive Securities
Stock options 9,109
Diluted Earnings Per Share $ 402,069 5,129,676 $.08
=====================================
For the Nine Months
Ended September 30, 2000
Income Shares Per Share
Numerator Denominator Amount
Basic Earnings Per Share
Income available to
common shareholders $2,621,721 5,122,285 $.51
=========
Effect Of Dilutive Securities
Stock options 8,091
Diluted Earnings Per Share $2,621,721 5,130,376 $.51
=====================================
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SELAS CORPORATION OF AMERICA
9. Business Segment Information
The company has three operating segments. The Company is engaged in
providing engineered heat technology equipment and services to
industries throughout the world, the manufacture of precision medical
and electronic products and the manufacture of original equipment for
light trucks and vans. The results of operations and assets of these
segments are prepared on the same basis as the condensed consolidated
financial statements for the nine months ended September 30, 2000 and
1999 and the consolidated financial statements included in the 1999
Form 10-K.
The Company's reportable segments reflect separately managed, strategic
business units that provide different products and services, and for
which financial information is separately prepared and monitored.
Segments
Tire Precision
Holders, Miniature
For The Nine Months Lifts and Medical and
Ended September 30, Heat Related Electronic
2000 Technology Products Products Total
Sales, net $47,715,544 $14,145,276 $29,052,379 $90,913,199
==================================================
Net income (loss) $ (27,528) $ 1,228,077 $ 1,421,172 $ 2,621,721
==================================================
Depreciation and
amortization $ 619,329 $ 153,819 $ 2,251,028 $ 3,024,176
==================================================
Property, plant and
equipment additions $ 247,614 $ 160,092 $ 2,674,650 $ 3,082,356
==================================================
Total assets $48,500,179 $ 7,197,460 $40,121,864 $95,819,503
==================================================
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SELAS CORPORATION OF AMERICA
9. Business Segment Information (Continued)
Segments
Tire Precision
Holders, Miniature
For The Nine Months Lifts and Medical and
Ended September 30, Heat Related Electronic
1999 Technology Products Products Total
Sales, net $34,918,251 $14,057,631 $26,633,831 $75,609,713
==================================================
Net income (loss) $(1,101,841) $ 931,241 $ 990,181 $ 819,581
==================================================
Depreciation and
amortization $ 559,012 $ 158,508 $ 2,316,444 $ 3,033,964
==================================================
Property, plant and
equipment additions $ 675,808 $ 86,066 $ 2,559,224 $ 3,321,098
==================================================
Total assets $41,936,567 $ 7,029,533 $37,859,552 $86,825,652
==================================================
-15-
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Consolidated net sales increased to $28.4 million and $90.9 million for the
three and nine months ended September 30, 2000 compared to $26.2 million
and $75.6 million for the same periods ended September 30, 1999. Net sales
for the heat technology segment increased to $13.8 million and $47.7
million for the three and nine month periods ended September 30, 2000
compared to $12.6 million and $34.9 million for the same periods in 1999.
The increase in sales is due to increased revenue recognized on large
engineered contracts in backlog at the beginning of the year, increased
sales of smaller heat treating furnaces and sales from Ermat, the French
furnace manufacturer acquired in January, 2000. Sales and earnings of
engineered contracts are recognized on the percentage-of-completion method
and generally require more than twelve months to complete. Consolidated
backlog for the heat technology segment decreased to $32.9 million at
September 30, 2000 compared to $39.8 million at the same time last year.
Sales for the Company's precision miniature medical and electronic products
segment increased to $10.5 million and $29.1 million for the three and nine
month periods ended September 30, 2000 compared to $8.9 million and $26.6
million for the same periods in 1999. Sales to hearing health customers
increased slightly during the periods, accompanied by higher revenue from
products sold to medical infusion customers. Sales of electronic
components increased by $.7 million and $1.7 million for the three and nine
month periods ended September 30, 2000 compared to the same periods in 1999
due to the improvement in the electronics industry market and the Asian
economic situation. Net sales of the tire holders, lifts and related
products segment decreased to $4.1 million for the three months ended
September 30, 2000 compared to $4.6 million for the same period in 1999,
and increased slightly to $14.1 million for the nine months ended September
30, 2000 compared to $14 million in revenue for 1999. The decrease in tire
lift sales for the quarter is due to the effects of an overproduction
earlier in the year of new vehicles by several of the automakers served by
the Company, while the overall increase for the nine months of 2000 is due
to the effect of the higher sales earlier in the year.
The Company's gross profit margin as a percentage-of-sales decreased to
17.8% and 20.2% for the three and nine months ended September 30, 2000
compared to 23% and 20.5% for the same periods in 1999. Gross profit
margins for the heat technology segment decreased to 8.5% for the three
months ended September 30, 2000 compared to 17.3% in 1999 and increased
slightly to 13.4% for the nine months ended September 30, 2000 from 13.2%
for the same period in 1999. Heat technology gross profit margins vary
markedly from contract to contract, depending on customer specifications
and other conditions related to the project. The gross profit margins for
the third quarter of 2000
-16-
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
were impacted in part by significant charges taken during the execution of
a furnace order and by revenue recognized on several engineered contracts
whose margins were not as profitable as those completed in 1999. Gross
profit margins for the precision miniature medical and electronic products
segment decreased to 28.3% and 30% for the three and nine months ended
September 30, 2000 compared to 31.9% and 30.4% for the same periods in
1999. The lower margins in the current year are partially attributable to
the mix of product sales between the periods as precision miniature
components, precision miniature systems, medical infusion parts and
electronic products have varying profit margins. Partially offsetting the
lower margins due to product mix in 2000 were lower costs resulting from
the consolidation of the production facilities of RTI Electronics into one
location, which was completed during the latter stages of 1999. Gross
profit margins for the tire holders, lifts and related products segment
increased to 22% and 23% for the three and nine months ended September 30,
2000 compared to 21.2% and 20% for the same periods in 1999. The
improvement in the current year is due to efficiencies from higher
production through increased sales of tire lifts.
Selling, general and administrative expenses (SG&A) increased to $4.1
million and $13.4 million for the three and nine months ended September 30,
2000 compared to expenses of $4 million and $12.9 million for the same
periods in 1999. The higher SG&A expenses in the current year are
primarily due to the January, 2000 acquisition of Ermat S.A., a French
furnace manufacturer.
Interest expense for the three and nine months ended September 30, 2000
increased to $271,000 and $873,000 compared to $254,000 and $749,000 for
the same periods in 1999. The increase is due to higher average borrowings
and higher interest rates during the current year. Interest income for the
three and nine month periods ended September 30, 2000 increased to $15,000
and $47,000 compared to $2,000 and $43,000 for the same periods in 1999
because of more funds available for investment.
Other income (expense) includes gains on foreign exchange of $34,000 and
losses on foreign exchange of $53,000 for the three and nine months ended
September 30, 2000 compared to exchange gains of $114,000 for the third
quarter of 1999 and exchange losses of $182,000 for the nine months ended
September 30, 1999.
Consolidated income taxes for the nine month periods ended September 30,
2000 and 1999 are $1,622,000 and $808,000 which result in effective tax
rates of 38.2% and 49.6%, respectively. The rate of tax in relation to
pre-tax income in 1999 is high because tax benefits from certain foreign
net operating losses could not be utilized for income tax purposes.
-17-
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Consolidated operations for the three and nine months ended September 30,
2000 resulted in net income of $402,000 and $2,622,000 compared to net
income of $1,142,000 and $820,000 for the same periods in 1999. The
decline in net income for the third quarter results mainly from lower
profit margins on several heat technology contracts and the mix of product
sales in the precision miniature medical segment. The increase in net
income for the nine months ended September 30, 2000 is caused by higher
sales and lower foreign exchange losses partially offset by higher SG&A
expenses.
Liquidity and Capital Resources
Consolidated net working capital at September 30, 2000 increased to $15.9
million from $13.7 million at December 31, 1999. The increase is due
primarily to the net income for the nine months and borrowings to acquire a
subsidiary company, offset by purchases of property and equipment, paydown
of long-term debt and payment of dividends. The major changes in the
components of working capital for 2000 were an increase in cash and cash
equivalents of $1.7 million, higher receivables of $9.3 million, higher
accounts payable of $10.2 million and higher income taxes payable of $1.1
million offset by lower notes payable to bank and current maturities of
long-term debt of approximately $3 million combined. The increase in cash
and cash equivalents partly results from the 2000 acquisition of Ermat S.A.
and Nippon Selas. At the time of the acquisitions, Ermat and Nippon Selas
had cash and cash equivalent balances combined of approximately $2.1
million, exceeding the purchase price of nearly $1.8 million. The other
changes in working capital relate to the ongoing operations of the Company
during the first nine months.
In July, 2000, the Company amended its credit agreement with a commercial
bank to increase its revolving credit commitment. The line of credit
carries an interest rate at the Market Index London Interbank Offered Rate
(LIBOR) plus 1.50%. The agreement is subject to the same financial
reporting requirements and maintenance of certain financial ratios as the
Company's other term loan agreements with the commercial bank.
During the first quarter of 1999, the Company implemented a program to
repurchase up to 250,000 shares of its common stock, which at the time
represented approximately 5% of its total shares outstanding. The shares
have been purchased from time to time on the open market during the year.
As of September 30, 2000, the Company has repurchased a total of 152,190
shares of its common stock.
In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 138, "Accounting for
Derivative Instruments and Certain Hedging Activities (an amendment of FASB
Statement No. 133)". Management has evaluated the impact of FASB Statement
No. 138 as it amends Statement 133, and believes that it will not have a
material impact on the net income of the Company.
-18-
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
In December 1999, the Securities and Exchange Commission (the Commission)
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). In October 2000, The Commission released a
Frequently Asked Questions document to provide additional guidance. The
implementation date of SAB 101 will be effective for the Company in the
fourth quarter of 2000. The Company is currently evaluating the impact of
SAB 101 and believes that it will not have a material impact on the net
income financial position and results of operations.
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 for 2000.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding the Company's exposure to certain market risks,
see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in
the Annual Report on Form 10-K for 1999. There have been no significant
changes in the Company's portfolio of financial instruments or market risk
exposures which have occurred since year-end.
Forward-Looking and Cautionary Statements
The Company may from time to time make written or oral forward-looking
statements, including those contained in the foregoing Management's
Discussion and Analysis. In order to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the
Company has identified in its Annual Report on Form 10-K for the year
ending December 31, 1999, certain important factors which could cause the
Company's actual results, performance or achievement to differ materially
from those that may be contained in or implied by any forward-looking
statement made by or on behalf of the Company. All such forward-looking
statements are qualified by reference to the cautionary statements herein
and in such Report on Form 10-K.
-19-
SELAS CORPORATION OF AMERICA
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed with this report:
4C. Second Amendment to Amended and Restated Credit Agreement
dated July 7, 2000.
10. Retirement Agreement, Consulting Agreement and General
Release dated August 30, 2000, between the Company and
Stephen F. Ryan.
(b) Reports on Form 8-K - The Company did not file any reports on
Form 8-K during the quarter for which this report is filed.
SELAS CORPORATION OF AMERICA
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SELAS CORPORATION OF AMERICA
(Registrant)
Date: November 13, 2000
Francis A. Toczylowski
Vice President and Treasurer
EXHIBIT INDEX
EXHIBITS:
4C. Second Amendment to Amended and Restated Credit Agreement
dated July 7, 2000.
10. Retirement Agreement, Consulting Agreement and General Release
dated August 30, 2000, between the Company and Stephen F.
Ryan.
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
("SECOND AMENDMENT" and together with all amendments and modifications
hereto, this "AGREEMENT") dated as of July 7, 2000 is by and among FIRST
UNION NATIONAL BANK, a national banking association, with an office at
Broad and Walnut Streets, Philadelphia, Pennsylvania 19109 (the "BANK"),
SELAS CORPORATION OF AMERICA, a Pennsylvania business corporation with
offices located at 2034 Limekiln Pike, Dresher, Pennsylvania 19025 ("SELAS"
or "BORROWER"), DEUER MANUFACTURING, INC., an Ohio business corporation
with offices located at 2985 Springboro West, Dayton, Ohio 45439 ("DEUER"),
RESISTANCE TECHNOLOGY, INC., a Minnesota business corporation with offices
located at 1260 Red Fox Road, Arden Hills, Minnesota 55112 ("RTI"), RTI
EXPORT, INC., a Barbados corporation with offices located at c/o 2034
Limekiln Pike, Dresher, Pennsylvania 19025 ("RTI EXPORT"), and RTI
ELECTRONICS, INC., a Delaware corporation with offices located at 1800 Via
Burton Street, Anaheim, California 92806 ("RTI ELECTRONICS", and together
with Deuer and RTI Export, the "GUARANTORS").
BACKGROUND
A. The Bank, the Borrower and the Guarantors entered into that
certain Amended and Restated Credit Agreement dated as of July 31, 1998, as
amended by that certain Amendment to Amended and Restated Credit Agreement
dated as of June 30, 1999 (collectively, the "CREDIT AGREEMENT"), pursuant
to which the Bank agreed to make available to Selas a revolving credit
facility in a maximum principal amount of $4,000,000 in addition to certain
term loans referred to therein (collectively, the "EXISTING LOANS").
B. The Existing Loans are evidenced by the following promissory
notes of the Borrower: (a) a Term Note A dated as of October 20, 1993 in
the original principal amount of $11,550,000, (b) a Term Note C dated as of
February 21, 1997 in the original principal amount of $3,500,000, (c) an
Amended and Restated Revolving Credit Note dated as of July 31, 1998 in the
principal amount of $4,000,000; and (d) a Term Note D dated as of June 30,
1999 in the original principal amount of $900,000 (collectively, the
"EXISTING NOTES").
D. 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 at the "LOAN DOCUMENTS."
E. The Bank, the Borrower and the Guarantors wish to increase the
amount of the Revolving Credit Commitment from $4,000,000 to $6,000,000 and
to amend certain other terms of the Loan Documents as herein provided.
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:
-2-
1. DEFINED TERMS. Terms used herein which are capitalized but
not defined herein shall have the meanings ascribed to such terms in the
Credit Agreement.
2. AMENDMENTS.
(a) Section 1.1 of the Credit Agreement is hereby amended
by amending and restating the following defined terms as follows:
"Revolving Credit Commitment" means the
maximum aggregate principal amount which the Bank has agreed
to advance to the Borrower under the Revolving Credit
Facility, being on the date hereof Six Million Dollars
($6,000,000.00).
"Revolving Credit Note" means the Amended and Restated
Revolving Credit Note of the Borrower payable to the order of
the Bank in a principal amount equal to the amount of the
Revolving Credit Commitment in substantially the form of
Exhibit A to the Second Amendment to this Credit Agreement.
The Revolving Credit Note evidences the same indebtedness that
is evidenced by the Amended and Restated Revolving Credit Note
of the Borrower dated July 31, 1998 payable to the order of
the Bank in the original principal amount of $4,000,000 (the
"Prior Note") and amends and restates the Prior Note in its
entirety and shall be substituted therefor. Notwithstanding
anything herein to the contrary, all interest and other
obligations of the Borrower under the Prior Note accrued prior
to or on the date of the execution and delivery of the
Revolving Credit Note but remaining unpaid shall not be
discharged and shall be due and payable in accordance with the
terms of the Prior Note.
"Revolving Credit Termination Date" means the earlier
of (i) January 31, 2001 (as such date may be extended from
time to time in accordance with Section 2.8 hereof) or (ii)
the date on which the Revolving Credit Commitment is
terminated pursuant to Section 9.2 hereof.
(b) Section 2.1(b) of the Credit Agreement is amended by
adding the following sentence at the end of said Section:
"If Borrower subscribes to Bank's cash management services and
such services are applicable to the Revolving Credit Facility,
the terms of such services shall control the manner in which
funds are transferred between the applicable demand deposit
account and the Revolving Credit Facility for credit or debit
to the line of credit."
-3-
(c) Section 2.5(c)(i) of the Credit Agreement is amended and
restated as follows:
(c) Revolving Credit Facility.
(i) In the absence of an Event of Default or
Default hereunder, the outstanding principal balance of each
Advance shall bear interest at the following interest rates
(in each case calculated on the basis of a three hundred sixty
(360) day year and the actual numbers of days elapsed):
(A) Each Advance which is a Base Rate
Loan shall bear interest at the Base Rate, payable by the
Borrower monthly on the first day of each month and on the
revolving Credit Termination Date.
(B) Each Advance which is a LIBOR
Market Index Loan shall bear interest at the LIBOR Market
Index Rate plus 150 basis points (1.50%), payable by the
Borrower monthly on the first day of each month and on the
Revolving Credit Termination Date.
(C) Each Advance which is a LIBOR Loan
shall bear interest at the LIBOR Adjusted Rate for such LIBOR
Loan plus 150 basis points (1.50%), payable by the Borrower on
the last day of the applicable Interest Period and on the
Revolving Credit Termination Date.
(d) Section 2.10 of the Credit Agreement is amended and
restated as follows:
2.10 Commitment Fee. The Borrower shall pay to the
Bank a non-refundable commitment fee of 25.0 basis
points per annum on the unborrowed portion of the
Revolving Credit Commitment from the date hereof through
the Revolving Credit Termination Date, which fee shall
be payable at the offices of the Bank, quarterly in
arrears on the first day of each January, April, July
and October, as billed by the Bank. The commitment fee
shall be calculated on the basis of the actual number of
days elapsed over a year of three hundred sixty (360)
days. For purposes of calculating the commitment
fee payable pursuant to this Section 2.10, the face
amount of all issued, outstanding and undrawn Letters of
Credit shall be deemed to have been borrowed under
Section 2 hereof.
(e) Schedules I-A, I-B, V, VI and X to the Credit Agreement
are hereby amended and restated by the Schedules attached to this
Second Amendment and are incorporated into the Agreement.
3. CONDITIONS PRECEDENT. The effectiveness of this Agreement and
the Bank's obligations hereunder are conditioned upon the
satisfaction of the following conditions precedent:
-4-
(a) The Borrower and Guarantors shall have delivered to
the Bank this Agreement, duly executed by Borrower and each of the
Guarantors.
(b) The Borrower shall have delivered to the Bank the
Revolving Credit Note, duly executed by Borrower.
(c) The Bank shall have received an opinion of counsel
from Drinker Biddle & Reath LLP, counsel for the Borrower and
Guarantors, in form and substance satisfactory to the Bank and its
<PAGE>
counsel;
(d) All proceedings required to be taken by the
Borrower and Guarantors 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;
(e) The Borrower and Guarantors shall have executed and
delivered to the Bank such other documents, instruments and
agreements as the Bank may reasonably request.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. In order to
induce the Bank to enter into this Agreement, the Borrower and
Guarantors each hereby represent, warrant and covenant to the Bank as
follows:
(a) After giving effect to the amendments to Schedules
I-A, I-B, V, VI and X to the Credit Agreement as described in
Paragraph 2(e) above, 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.
(b) 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, of
the Borrower's or of any of the Guarantors' certificate or articles
of incorporation, by-laws or other similar organizational documents.
(c) The Borrower and each of the Guarantors have 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 have 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.
(d) 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
-5-
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 the Borrower and
each of the Guarantors, 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.
5. REAFFIRMATION BY BORROWERS AND GUARANTORS. 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, the Selas Mortgage, the Deuer Mortgage and the RTI
Mortgage (INCLUDING, BUT NOT LIMITED TO, PROVISIONS RELATING TO ANY
AUTHORITY GRANTED TO THE BANK TO CONFESS JUDGMENT AGAINST THE
BORROWER, GUARANTORS, 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. The Borrower
and each of the Guarantors hereby reaffirm and ratify 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. The Borrowers and each
Guarantor hereby acknowledge and agree that the term "Obligations,"
as defined in their respective Security Agreements and Guaranty and
Suretyship Agreements (and, as to RTI, its Patent and Trademark
Security Agreement), includes all of the obligations of Borrower
under the Revolving Credit Note and all of their respective
obligations under the Loan Documents as amended by this Second
Amendment.
6. BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the Borrower, the Guarantors and the Bank
and their respective heirs, executors, administrators, successors and
assigns; provided, however, that the Borrower and/or the Guarantors
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.
7. 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.
8. 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.
9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Pennsylvania.
-6-
10. 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.
11. 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 BORROWER AND THE
GUARANTORS 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.
12. EXPENSES. The Borrower agrees to pay all reasonable
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: /s/ Judith L. Gatens By: /s/ Francis A. Toczylowski
Name: Judith L. Gatens Name: Francis A. Toczylowski
Title: Asst. Secretary Title: Vice President & Treasurer
DEUER MANUFACTURING, INC.
Attest:
By: /s/ Judith L. Gatens By: /s/ Robert W. Ross
Name: Judith L. Gatens Name: Robert W. Ross
Title: Asst. Secretary Title: Vice President & Treasurer
-7-
RESISTANCE TECHNOLOGY, INC.
Attest:
By: /s/ Judith L. Gatens By: /s/ Robert W. Ross
Name: Judith L. Gatens Name: Robert W. Ross
Title: Asst. Secretary Title: Secretary
RTI EXPORT, INC.
Attest:
By: /s/ Judith L. Gatens By: /s/ Francis A. Toczylowski
Name: Judith L. Gatens Name: Francis A. Toczylowski
Title: Treasurer Title: Vice President
RTI ELECTRONICS, INC.
Attest:
By: /s/ Robert W. Ross By: /s/ Stephen F. Ryan
Name: Robert W. Ross Name: Stephen F. Ryan
Title: Secretary Title: Chairman
FIRST UNION NATIONAL BANK
By: /s/ Amy Heller
Name: Amy Heller
Title: Vice President
EXHIBIT "A"
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$6,000,000.00 , 2000
Philadelphia, Pennsylvania
FOR VALUE RECEIVED, the undersigned SELAS CORPORATION OF
AMERICA, a Pennsylvania corporation, with principal offices at 2034
Limekiln Pike, Dresher, Pennsylvania 19025 (the "Borrower"), promises
to pay to the order of FIRST UNION NATIONAL BANK, a national banking
association (the "Bank"), with an office at Broad and Walnut Streets,
Philadelphia, Pennsylvania 19109, on the Revolving Credit Termination
Date (as defined in the Credit Agreement defined below), the
principal sum of Six Million Dollars ($6,000,000.00) or such lesser
principal amount as is actually outstanding under the Revolving
Credit Facility (as defined in the Credit Agreement) on such date,
and with interest on the unpaid principal balance hereof payable as
set forth below. 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 of the Bank set forth above.
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.
This Amended and Restated Revolving Credit Note (herein, the
"Note") arises out of a certain Amended and Restated Credit Agreement
dated as of July 31, 1998, as amended, by and among Borrower, Deuer
Manufacturing, Inc., Resistance Technology, Inc., RTI Electronics,
Inc., RTI Export, Inc. and the Bank, (as amended from time to time,
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
the principal hereof and accrued interest thereon, if any, may become
immediately due and payable. The collateral specified in the
applicable 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 (including, without
limitation, principal, interest and fees) under the Revolving Credit
Facility, 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 shall constitute an Event of Default under this Note and
shall entitle 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, except
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.
If Borrower subscribes to Bank's cash management services and
such services are applicable to the Revolving Credit Facility, the
terms of such services shall control the manner in which funds are
transferred between the applicable demand deposit account and the
Revolving Credit Facility for Credit or debit to the line of credit.
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
BORROWER AT ANY TIME FOLLOWING THE OCCURRENCE OF ANY 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 THE 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 HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY
WAIVES 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 LOAN OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
OR WRITTEN) OR ACTIONS OF BORROWER OR BANK. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR BANK'S ENTERING INTO THE CREDIT AGREEMENT AND
EXTENDING CREDIT THEREUNDER.
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 SUCH 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.
This Note amends and restates in its entirety the terms of
that certain Amended and Restated Revolving Credit Note, dated July
31, 1998 (together with all amendments and modifications thereto, the
"Prior Note"), by the Borrower in favor of the Bank. This Note
evidences the indebtedness of the Borrower under the Prior Note and
is not intended to extinguish the Borrower's obligations under the
Prior Note or to constitute a novation thereof.
IN WITNESS WHEREOF, the undersigned, by its duly authorized
officer, has caused this Amended and Restated Revolving Credit Note
to be executed, under seal, on the day and year first above written.
ATTEST: SELAS CORPORATION OF AMERICA
By: By:
Title: Title:
RETIREMENT AGREEMENT, CONSULTING
AGREEMENT AND GENERAL RELEASE
THIS RETIREMENT AGREEMENT, CONSULTING AGREEMENT AND GENERAL RELEASE
("Agreement") is made and entered into by and between SELAS CORPORATION OF
AMERICA, for itself and its successors and assigns (collectively, the "Company")
and STEPHEN F. RYAN ("Ryan").
WHEREAS, Ryan is employed as the Chairman, President, and Chief Executive
Officer of the Company and has been employed as the Company's President and
Chief Executive officer since May, 1988.
WHEREAS, Ryan has announced he intends to retire from the Company effective
April 24, 2001;
WHEREAS, Ryan and the Company desire to enter into a five-year consulting
agreement effective with his retirement;
WHEREAS, Ryan and the Company wish to end their employment relationship
amicably and on mutually-satisfactory terms, to set forth the terms of the five-
year consulting agreement and to settle fully and finally all differences,
claims, and potential claims between them;
NOW THEREFORE, in consideration of the mutual promises contained herein,
and intending to be legally bound, the Company and Ryan AGREE as follows:
1. Effective April 24, 2001 (the "Retirement Date"), Ryan hereby resigns from
employment with, and retires from, the Company, including all offices he
holds. Ryan will not stand for election as a director at the annual
meeting of the Company's shareholders scheduled to be held on the
Retirement Date. Ryan agrees that his employment relationship with the
Company will end permanently and irrevocably on the Retirement Date, after
which he will be retired and eligible for all benefits as a Company
retiree.
2. Ryan shall continue to receive his current salary and benefits (including
eligibility for the Company's 2000 Incentive Bonus Program, and including
medical coverage) and shall continue to be Chairman, President and Chief
Executive Officer until the Retirement Date. The Company will continue to
pay for the lease of Ryan's present Company car until the expiration of the
current lease on April 8, 2002.
3. Ryan's participation in the Company's Retirement Plan, Supplemental
Retirement Plan, 1996 Stock Option Plan, any bonus plan, medical plan and
any other benefit or program shall terminate on the Retirement Date,
except as specifically provided in this Agreement, and except that nothing
herein shall alter any benefits which may be vested as of the Retirement
Date, and to which Ryan may be entitled in accordance with the terms of any
applicable plan.
4. After the Retirement Date, Ryan and his wife shall receive the retiree
medical benefits that the Company provides from time to time to similarly
situated retirees and their dependents. However, Ryan's wife shall have
the right instead to elect (not later than the time required by the
applicable plan or by law) to continue to be covered by the Company's
medical insurance plan for active employees as in effect from time to
time for the period for which she is entitled to continuation coverage
under section 4980B of the Internal Revenue Code of 1986 (which is a
maximum of three years after the date of Ryan's enrollment in the Medicare
program). Coverage under the preceding sentence is conditioned on the
payment by Ryan or his wife of the required premium for such coverage.
5. For a five year period beginning on his Retirement Date and terminating
five years thereafter the Company will retain Ryan as an independent
consultant
at a fee of $75,000 per year, payable in equal monthly installments. The
Company will also reimburse Ryan in accordance with its normal procedures
for travel and other expenses incurred in connection with such services.
Ryan's duties as consultant shall be assigned by the board of directors of
the Company but such duties shall not require more than two (2) days per
month. Payments under this paragraph will continue to be made by the
Company to Ryan notwithstanding any disability that he may hereafter
suffer. If Ryan dies before the end of the five-year consulting period,
the Company will continue to make payments under this paragraph as follows:
a. to Ryan's wife if she survives him;
b. to Ryan's estate if his wife does not survive him; and
c. if his wife, having survived him, dies before the end of the
five-year consulting period, to Ryan's estate if its
administration remains open, and otherwise to his wife's estate.
Ryan shall be entitled to indemnification under section 2.09 of the
Company's by-laws with respect to his services as a consultant under this
Agreement on the same terms as if he continued to be an officer of the
Company during the five-year consulting period.
6. In consideration of this Agreement, the Company will extend the period
during which each stock option held by Ryan on the Retirement Date may be
exercised to the earlier of (1) the fifth anniversary of the Retirement
Date or (2) the stated expiration of such stock option. Ryan acknowledges
that the income tax consequences of this extension will or may be
unfavorable to him in the case of any option granted as an incentive stock
option, and that the Company has not provided him with any tax advice on
this point (or on the tax effect of this Agreement generally).
7. This Agreement shall become effective and enforceable eight days after
it has been executed by all parties hereto, unless it has been revoked by
Ryan as provided for in paragraph 19.
8. Ryan shall not publicly make any negative or disparaging comments about the
Company or its current, former or future officers, directors, managers,
supervisors, employees, or representatives (except that he may respond to
any negative or disparaging comment made publicly about him by the Company
or any of its officers, directors, managers, supervisors, employees or
representatives), or otherwise take any action contrary to the best
interests of the Company. The Company shall not permit any of its
directors or officers to make publicly any negative or disparaging comments
about Ryan (except that the Company or any such person may respond to any
negative or disparaging comment made publicly by Ryan about any such
person).
9. In consideration of the promises contained herein and intending to be
legally bound, Ryan hereby irrevocably and unconditionally releases and
forever discharges the Company and its stockholders, directors, officers,
employees, agents, representatives, attorneys, and their predecessors,
successors, heirs, executors, administrators and assigns, and all persons
acting by, through, under or in concert with any of them (collectively
referred to herein as the "Company Released Parties"), of and from any and
all actions, causes of action, suits, debts, charges and expenses
(including attorneys' fees and costs), of any nature whatsoever, asserted
or unasserted, known or unknown, which he ever had, now has, or hereafter
may have against the Company Released Parties, arising from any event
occurring at any time before he executed this Agreement, including without
limitation of the foregoing general terms, any and all claims for salary,
bonus, commissions, vacation, compensatory damages, back pay or front pay,
punitive or liquidated damages or attorneys' fees against the Company
Released Parties arising from or relating to Ryan's employment relationship
with the Company or his retirement from such employment, and including
any and all claims arising from any alleged violation by the Company
Released Parties of any contract or of any federal, state, or local
statutes, ordinances or common law principles, including but not limited
to Title VII of the Civil Rights Act of 1964, 42 U.S.C. section 2000e, et
e seq., the Age Discrimination in Employment Act, 29 U.S.C. section
section 621, et seq.,the Americans with Disabilities Act, 42 U.S.C.
sectionsection 12101, et seq., the Employee Retirement Income Security
Act of 1974, 29 U.S.C.section 1001, et seq., and the Pennsylvania Human
Relations Act. The release set forth herein shall not release any claims
Ryan may have to
benefits under the plans and arrangements described in Paragraphs 3, 4, 5
and 6 above or any claims he might have arising under this Agreement.
10. In consideration of the promises contained herein and intending to be
legally bound, the Company hereby irrevocably and unconditionally releases
and forever discharges Ryan and his heirs, executors, administrators and
assigns, and all persons acting by, through, under or in concert with any
of them (collectively referred to herein as the "Ryan Released Parties"),
of and from any and all actions, causes of action, suits, debts, charges
and expenses (including attorneys' fees and costs), of any nature
whatsoever, asserted or unasserted, known or unknown, which the Company
ever had, now has, or hereafter may have against the Ryan Released Parties,
arising from any event occurring at any time before the Company executed
this Agreement, including without limitation of the foregoing general
terms, any and all claims for punitive or liquidated damages or attorneys'
fees against the Ryan Released Parties arising from or relating to Ryan's
employment relationship with the Company or his retirement from such
employment, and including any and all claims arising from any alleged
violation by the Ryan Released Parties of any contract or of any federal,
state, or local statutes, ordinances or common law principles. The release
set forth herein shall not release any claims the Company might have
arising under this Agreement.
11. This Agreement constitutes the good faith settlement of any and all claims
and potential claims between the parties and is not and shall not in any
way be construed as an admission by any of the Ryan Released Parties or the
Company Released Parties of any wrongful, unlawful or discriminatory act
against the other; that any of the Ryan Released Parties or the Company
Released Parties has violated any written or oral contract with the other;
or that the termination of the parties' relationship was unwarranted or
unjustified. The Ryan Released parties and the Company Released Parties
specifically deny any wrongdoing and disclaim any liability to each other.
12. Ryan agrees that neither he nor any person or entity on his behalf shall
commence, maintain or prosecute any lawsuit, complaint, action or
proceeding of any kind against any of the Company Released Parties with
respect to any act, omission or other matter that is covered by the
provisions of Paragraph 9 above. This Paragraph 12 shall not operate to
waive any rights that may not legally be waived. Ryan affirms that, as of
this date, he has not taken or initiated any action encompassed by this
paragraph.
13. The Company agrees that neither it nor any person or entity on its behalf
shall commence, maintain or prosecute any lawsuit, complaint, action or
proceeding of any kind against any of the Ryan Released Parties with
respect to any act, omission or other matter that is covered by the
provisions of Paragraph 10 above. This Paragraph 13 shall not operate to
waive any rights that may not legally be waived. The Company affirms that,
as of this date, it has not taken or initiated any action encompassed by
this paragraph.
14. Ryan shall keep confidential all information or knowledge pertaining to the
Company, including but not limited to trade secrets, customer information,
information about products, and other proprietary information that he
obtained in the course of employment with the Company or in the course of
his consulting services under paragraph 5.
15. Ryan acknowledges that he has carefully read and fully understands all of
the provisions and effects of this Agreement; that the Company has advised
Ryan in writing to consult with an attorney before signing this Agreement;
that the Company has provided him with no less than 21 days to consider
this Agreement before executing it and that he has used as much of that
time as he has desired; that Ryan is voluntarily entering into this
Agreement after consulting with his own legal counsel to the extent he
wishes to do so; and that neither the Company nor any of its agents or
attorneys have made any representations or promises concerning the terms or
effects of this Agreement.
16. This Agreement will be binding upon any corporation or other legal entity
that succeeds to the business of the Company, whether by purchase, merger,
consolidation or otherwise. The Company agrees that as a condition to the
completion of any such transaction the Company will require the successor
corporation or other entity to assume in writing all obligations of the
Company under this Agreement, including without limitation the Company's
obligation in respect of Ryan's vested benefits under the Company's
Retirement Plan, Supplemental Retirement Plan, 1996 Stock Option Plan and
other benefits preserved by this Agreement.
17. This Agreement is made and entered into in the Commonwealth of Pennsylvania
and shall in all respects be interpreted, enforced and governed under the
laws of the Commonwealth of Pennsylvania. The language of all parts of
this Agreement shall in all cases be construed as a whole, according to its
fair meaning, and not strictly for or against any of the parties.
18. This Agreement sets forth the entire agreement between the parties hereto
and fully supersedes any and all prior agreements or understandings,
written or oral, between the parties hereto pertaining to the subject
matter hereof. The terms of this Agreement may not be altered except by
written agreement signed by Ryan and an authorized representative of the
Company.
19. Ryan may revoke this Agreement by giving written notice of his intent to do
so to the Company at any time during the seven days following execution of
the Agreement. Such notice shall not be effective unless, before 5:00 p.m.
on the seventh day following Ryan's execution of the Agreement, the notice
is received by Michael J. McKenna, 21 Gilbert Lane, Ocean City, New Jersey
08225, phone and fax 609-398-7214.
PLEASE READ CAREFULLY. THIS SEVERANCE AGREEMENT AND RELEASE INCLUDES A RELEASE
OF CLAIMS, KNOWN AND UNKNOWN, AND RESTRICTS FUTURE LEGAL ACTION AGAINST SELAS
CORPORATION OF AMERICA AND THE OTHER COMPANY RELEASED PARTIES BY STEPHEN F.
RYAN.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
have agreed to and executed the foregoing Retirement Agreement, Consulting
Agreement and General Release.
SELAS CORPORATION OF AMERICA
By /s/ Michael J. Mc Kenna By /s/ Stephen F. Ryan
Michael J. McKenna, Stephen F. Ryan
pursuant to authority
delegated by board of directors Dated: August 30, 2000
Dated: August 29, 2000
