ZOLTEK COMPANIES INC, S-3, 1996-07-03

ZOLTEK COMPANIES INC
S-3, 1996-07-03
MOTORS & GENERATORS

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996

REGISTRATION NO. 333-
===============================================================================

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ZOLTEK COMPANIES, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MISSOURI 43-1311101
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

3101 MCKELVEY ROAD, ST. LOUIS, MISSOURI 63044
(314) 291-5110

(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

----------------------------------
WILLIAM P. DOWNEY
CHIEF FINANCIAL OFFICER
3101 MCKELVEY ROAD,
ST. LOUIS, MISSOURI 63044
(314) 291-5110

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

THOMAS A. LITZ, ESQ. MICHAEL A. CAMPBELL, ESQ.
THOMPSON COBURN MAYER, BROWN & PLATT
ONE MERCANTILE CENTER 190 SOUTH LASALLE STREET
ST. LOUIS, MISSOURI 63101 CHICAGO, ILLINOIS 60603
(314) 552-6000 (312) 782-0600

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED
PURSUANT TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING
BOX. / /

IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR
INTEREST REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. / /

IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(b) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING
BOX AND LIST THE SECURITIES ACT REGISTRATION NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. / /

IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(c)
UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST THE
SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. / /

IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. / /

<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
====================================================================================================================
PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE<F1> PRICE<F1> REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value................ 2,300,000<F2> $32.50 $74,750,000 $25,776
====================================================================================================================

<FN>

<F1> Estimated solely for the purpose of determining the amount of the
registration fee on the basis of the average of the high and low prices of
the Common Stock, $.01 par value per share, of Zoltek Companies, Inc. on
June 27, 1996, as reported on the Nasdaq National Market, in accordance
with Securities Act Rule 457(c).

<F2> Includes 300,000 shares subject to Underwriters' over-allotment option.
</TABLE>

--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

===============================================================================

<PAGE> 2

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 3, 1996

*******************************************************************************
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH *
* THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES *
* MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
*******************************************************************************

PROSPECTUS

ZOLTEK

2,000,000 SHARES
ZOLTEK COMPANIES, INC.
COMMON STOCK

----------------

All of the shares of common stock, $.01 par value per share (``Common
Stock''), offered hereby are being issued and sold by Zoltek Companies, Inc., a
Missouri corporation (the ``Company'' or ``Zoltek''). The Common Stock is
traded on the Nasdaq National Market under the symbol ``ZOLT.'' On July 2,
1996, the last sale price of the Common Stock as reported on the Nasdaq
National Market was $35 per share. See ``Price Range of Common Stock and
Dividend Policy.''

SEE ``RISK FACTORS'' ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

-------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

<TABLE>
<CAPTION>
=================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT<F1> COMPANY<F2>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------

Total<F3>........................................... $ $ $
=================================================================================================================

<FN>

<F1> The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
``Underwriting.''

<F2> Before deducting expenses payable by the Company estimated at $400,000.

<F3> The Company has granted the several Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an additional 300,000
shares of Common Stock to cover over-allotments, if any. If all such
shares are purchased, the total Price to Public, Underwriting Discount,
and Proceeds to Company will be $ , $ , and $ ,
respectively. See ``Underwriting.''
</TABLE>

---------------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters and to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that the delivery of the shares of Common Stock will be made in New
York, New York on or about , 1996.

---------------------

MERRILL LYNCH & CO. STIFEL, NICOLAUS & COMPANY
Incorporated

---------------------

The date of this Prospectus is , 1996.

<PAGE> 3
[INSERT PHOTOS/DIAGRAMS]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE ``UNDERWRITING.''

<PAGE> 4
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
included elsewhere or incorporated by reference in this Prospectus. Unless
otherwise indicated, the information in this Prospectus assumes the
Underwriters' over-allotment option is not exercised, and has been adjusted to
reflect a two-for one-stock split (in the form of a stock dividend), which
occurred on June 17, 1996. See ``Underwriting.'' References herein to fiscal
years refer to the 12-month period ended September 30 of the year indicated.

THE COMPANY

Zoltek is a leader in the rapidly developing carbon fibers market,
manufacturing products for a diverse range of applications based upon carbon
fibers' distinctive combination of physical and chemical properties,
principally high-strength, low-weight and stiffness. Zoltek believes it
produces carbon fibers at costs substantially lower than those generally
prevailing in the industry and, accordingly, can supply carbon fibers for
applications which are not economically viable for most higher cost
competitors. With the December 1995 acquisition of Magyar Viscosa, Rt.
(``Viscosa''), a Hungarian manufacturer of acrylic fiber and nylon products,
the Company secured access to the technology underlying the production of the
acrylic fiber raw material (known as ``precursor'') utilized in the manufacture
of carbon fibers. The Company's strategy is to grow its business by continually
lowering its cost to manufacture carbon fibers, marketing its carbon fibers at
price points substantially lower than those generally prevailing in the
industry and working with current and prospective customers to develop new
carbon fiber applications. In order to alleviate its current capacity
constraints and to meet indicated and forecasted demand for carbon fiber
products, the Company is expanding its manufacturing capacity.

Until the early 1980s, the high cost of carbon fibers precluded all but the
most demanding applications, limiting carbon fibers use primarily to the
aerospace industry. During the past decade, a number of applications have
developed which are commercially viable only at carbon fiber prices lower than
those prevailing for primary aerospace applications. New developing, commercial
applications identified by the Company include cargo shipping containers,
vehicle drive shafts, civil engineering uses, wood laminates, automotive body
and structural members, mass transit vehicle components, high-strength piping
and tanks, marine uses and alternative energy systems. Currently served
specialty niche markets which the Company believes offer growth prospects
include aircraft brakes, conductive plastics, fire-retardant coatings and
specialty friction products. The Company believes that the substantial
majority of current worldwide carbon fibers capacity remains dedicated to
production of high-cost, high-selling price material for primary aerospace
applications.

Zoltek's goal is to be the premier provider of low-cost carbon fibers. Key
elements of the Company's business strategy are as follows:

Low-Cost Producer--The Company intends to continue to reduce its total
production costs, primarily by utilizing the acrylic fiber precursor
manufactured by its Viscosa operations after a transition period of
approximately 18 months. Acrylic fiber precursor comprises approximately
50% of the Company's total carbon fiber production costs, with energy and
labor costs each accounting for approximately 25%.

New Commercial Market Applications Development--The Company will
continue to identify, evaluate and develop new commercial applications for
carbon fibers. As part of its efforts to expand its current range of market
applications, the Company engages in various strategic partnerships to
study the viability of the use of carbon fibers in new composite materials
and structural enhancement environments. Successful partnerships with
commercial customers include long-term supply contracts with BF Goodrich
Aerospace (aircraft brakes)

<PAGE> 5
and TRW Vehicle Safety Systems, Inc. (automotive airbags). The Company also
recently established relationships with American President Lines, Ltd. and
Stoughton Composites, Inc. (shipping containers), Compounding Technology,
Inc. (computer printer components for Hewlett-Packard Company products) and
Thiokol Corp. (CNG fuel tanks).

The Company currently is producing carbon fibers at its full operational
capacity and needs to expand its capacity to meet indicated and forecasted
demand for carbon fiber products. In order to increase its production capacity,
the Company is constructing a building at its Viscosa facility in Hungary which
initially will house two continuous carbonization lines which the Company
expects to be operational by the second and third quarters of fiscal 1997,
respectively. The Company also is in the process of selecting a site in the
United States at which it intends initially to construct two additional lines
planned to be operational by the end of fiscal 1997. Moreover, the Company
plans to establish up to 12 additional lines at its facilities in Hungary and
the United States by the end of fiscal 1998. In the process of expanding
capacity, the Company is developing a standardized continuous carbonization
line design in order to optimize technical process capabilities, reduce
equipment cost and shorten lead time between the decision to add lines and the
time when the lines become operational.

<TABLE>
THE OFFERING
<S> <C>

Common Stock offered hereby......................... 2,000,000 shares

Common Stock to be outstanding after the offering... 15,910,338 shares<F1>

Use of Proceeds..................................... For capital expenditures
to expand carbon fibers
manufacturing capacity
and for related corporate
purposes. See ``Use of
Proceeds.''

Nasdaq National Market symbol....................... ZOLT

<FN>
- --------

<F1> Does not include: (i) 45,780 shares of Common Stock reserved for future
issuance pursuant to the Company's Long Term Incentive Plan; (ii) 85,500
shares of Common Stock reserved for issuance pursuant to outstanding
options granted under the Company's Directors Stock Option Plan; and (iii)
300,000 shares of Common Stock subject to the Underwriters' over-allotment
option. See ``Underwriting.''
</TABLE>

<PAGE> 6
<TABLE>
SUMMARY FINANCIAL DATA
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------- ------------------
1993 1994 1995 1995 1996<F1>
------ ------ ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>

STATEMENT OF OPERATIONS DATA:

Net sales............................................... $5,141 $7,920 $12,698 $5,704 $28,214

Gross profit............................................ 2,199 3,418 4,982 2,325 7,049

Income from continuing operations....................... 843 1,794 3,137 1,451 3,160

Net income from continuing operations................... 136 799 1,577 674 2,191

Income from discontinued operations, net of income
taxes................................................... 431 208 456 137 22

Minority interest....................................... -- -- -- -- (22)
------ ------ ------- ------ -------

Net income.............................................. $ 567 $1,007 $ 2,033 $ 811 $ 2,191
====== ====== ======= ====== =======

Net income per share from continuing operations......... $ .02 $ .09 $ .16 $ .07 $ .17

Net income per share from discontinued operations....... .04 .02 .05 .02 .00
------ ------ ------- ------ -------

Net income per share.................................... $ .06 $ .11 $ .21 $ .09 $ .17
====== ====== ======= ====== =======

Weighted average common shares outstanding.............. 9,025 9,314 9,583 9,540 12,654

<CAPTION>
MARCH 31, 1996
-----------------------------
AS
ACTUAL AS ADJUSTED<F2>
------ ---------------
(IN THOUSANDS)
<S> <C> <C>

BALANCE SHEET DATA:

Working capital......................................... $14,707 $ 80,107

Total assets............................................ 64,769 130,169

Long-term debt, less current maturities................. 5,609 5,609

Shareholders' equity.................................... 37,919 103,319

<FN>
- ---------

<F1> The Company acquired Viscosa on December 8, 1995. The acquisition was
accounted for under the purchase method and Viscosa's results are included
in the Company's consolidated financial statements from such date. See
``Pro Forma Condensed Combined Financial Information'' and ``Management's
Discussion and Analysis of Financial Condition and Results of
Operations.''

<F2> As adjusted to reflect the sale of 2,000,000 shares of Common Stock
offered hereby at an assumed public offering price of $35.00 per share.
See ``Use of Proceeds.''
</TABLE>

---------------------

Zoltek Companies, Inc. is a holding company carrying out its operations
through operating subsidiaries. Unless the context indicates otherwise,
references herein to the ``Company'' or ``Zoltek'' refer to Zoltek Companies,
Inc. and its subsidiaries. The Company's headquarters are located at 3101
McKelvey Road, St. Louis, Missouri 63044, and its headquarters telephone number
is (314) 291-5110.

<PAGE> 7
RISK FACTORS

Prospective purchasers of the Common Stock offered hereby should consider
carefully the risk factors set forth below, as well as the other information
set forth and incorporated by reference in this Prospectus, in determining
whether to purchase the Company's Common Stock. This Prospectus and the
documents incorporated by reference herein contain forward-looking statements
which are inherently subject to risks and uncertainties. Cautionary statements
made herein should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus or the documents
incorporated by reference herein. The Company's actual results could differ
materially from those currently anticipated due to a number of factors,
including, without limitation, the following: the Company's ability to manage
rapid growth, increase its carbon fibers production capacity on a timely and
profitable basis, manufacture low-cost carbon fibers and profitably market them
at decreasing price points, successfully operate and integrate Viscosa and
penetrate existing, identified and emerging future markets for carbon fibers,
as well as the other factors discussed in this Prospectus and the documents
incorporated by reference herein.

MANAGEMENT OF GROWTH

The growth in the Company's business has placed, and is expected to
continue to place, a significant strain on the Company's management and
operations. The Company's recent growth has been constrained by capacity
limitations in its carbon fibers manufacturing operations. In order to
effectively manage its anticipated growth, the Company must add to its carbon
fibers manufacturing capacity, have access to adequate financial resources to
fund significant capital expenditures, maintain gross profit margins while
pursuing a growth strategy based upon achieving declining selling prices,
continue to strengthen its operations, financial and management information
systems, expand, train and manage its employee workforce and successfully
integrate Viscosa's operations, which are substantially larger than the
Company's. There can be no assurance that the Company will be able to do so
effectively or on a timely basis. Failure to do so effectively and on a timely
basis could have a material adverse effect upon the Company's business,
operating results and financial condition. See ``Management's Discussion and
Analysis of Financial Condition and Results of Operations,'' ``Business'' and
``Management.''

RISKS OF OPERATION AND INTEGRATION OF VISCOSA

Successful execution of the Company's strategy of controlling the quality
and cost of its raw materials for its carbon fiber operations will depend in
large measure upon its ability to successfully manage and integrate Viscosa's
operations, which are located near Budapest, Hungary. The December 1995
acquisition of Viscosa, which represents the largest acquisition by the Company
to date and its first international acquisition, will continue to require
substantial management time and attention. There can be no assurance that the
Company will be able to operate Viscosa's acrylic fiber manufacturing processes
to produce raw material acceptable for the Company's carbon fiber manufacturing
operations within the timeframe estimated by the Company or at all. There also
can be no assurance that the Company otherwise will manage Viscosa's operations
successfully.

Viscosa's operations generate various hazardous wastes and, from time to
time, Viscosa has been cited and fined for environmental violations. In
addition, the legislative and regulatory environment in Hungary continues to
evolve. There can be no assurance that the application of Hungarian laws,
regulations or enforcement policies will not have a material adverse effect on
the Company's business, results of operations or financial condition.

Viscosa, a manufacturer of acrylic and nylon fibers and industrial
materials, operated as a state-owned company until 1992. As a consequence of
the beginning of privatization and the discontinuance of financial support for
industrial companies, the Hungarian government caused the government-owned
company to declare bankruptcy in November 1992, which proceedings were
completed by a composition with creditors in March 1993. During and subsequent
to those proceedings, Viscosa's operations were adversely affected by a lack of
working capital and Viscosa suffered recurring losses from operations prior to
being acquired by the Company. Accordingly, the report of Viscosa's independent
accountants on Viscosa's financial statements for the period immediately prior
to the acquisition of Viscosa by the Company, expressed substantial doubt about
Viscosa's ability to continue as a going concern due to recurring losses from
operations and its inability to meet certain principal and interest
obligations. Although Viscosa has reported modest income from operations in the
period since the acquisition, there can be no assurance that it will continue
to operate profitability or that Viscosa will not require financial support
greatly in excess of that

<PAGE> 8
anticipated by the Company. See ``Pro Forma Condensed Combined Financial
Information,'' ``Management's Discussion and Analysis of Financial Condition
and Results of Operations'' and ``Business.''

RISKS OF INTERNATIONAL OPERATIONS AND MARKETS

The Company's international operations and sales are subject to risks
associated with foreign operations and markets generally, including foreign
currency fluctuations, unexpected changes in regulatory, economic or political
conditions, tariffs and other trade barriers, longer accounts receivable
payment cycles, potentially adverse tax consequences, restrictions on
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. In addition, a substantial portion of Viscosa's sales are to
former Communist countries, the economies of which are experiencing severe
stress. There can be no assurance that such factors will not have a material
adverse effect upon the Company's future revenues and business, results of
operations and financial condition. See ``Business.''

DEPENDENCE UPON SENIOR MANAGEMENT AND TECHNICAL PERSONNEL

The Company's future operating results will depend upon the continued
service of its senior management, including Zsolt Rumy, its Chief Executive
Officer and Chairman of the Board, and its technical personnel, none of whom is
bound by an employment agreement. The Company's future success also will depend
upon its continuing ability to attract and retain highly qualified managerial
and technical personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will retain its key managerial and
technical employees or that it will be successful in attracting, assimilating
or retaining other highly qualified personnel in the future. See
``Management.''

VOLATILITY OF STOCK PRICE

Since the beginning of 1996, the market price of the Company's Common Stock
has increased substantially and, from time to time, has fluctuated
significantly. Future announcements concerning the Company or its competitors
or customers, quarterly variations in operating results, announcements of
technological innovations, the introduction of new products or changes in
product pricing policies by the Company or its competitors, developments
regarding proprietary rights, changes in earnings estimates by analysts or
reports regarding the Company or its industry in the financial press or
investment advisory publications, among other factors, could cause the market
price of the Common Stock to fluctuate substantially. In addition, stock prices
for many technology companies fluctuate widely for reasons which may be
unrelated to operating results. These fluctuations, as well as general
economic, political and market conditions, such as recessions, military
conflicts or market or market-sector declines, may materially and adversely
affect the market price of the Common Stock. See ``Price Range of Common Stock
and Dividend Policy.''

FLUCTUATIONS IN OPERATING RESULTS

The Company's quarterly results of operations may fluctuate as a result of
a number of factors, including the timing of purchase orders for, and shipments
of, the Company's products. Therefore, quarter-to-quarter comparisons of
results of operations have been and will be impacted by the timing of such
orders. In addition, the Company's operating results could be adversely
affected by such factors, among others, as variations in the mix of product
sales, price changes in response to competitive factors, increases in raw
material costs and interruptions in plant operations. The Company's results in
the short-term could be adversely affected by the acquisition of Viscosa,
including the possible need to supply Viscosa with unanticipated levels of
working capital and expenses associated with the integration of Viscosa's
operations. See ``Pro Forma Condensed Combined Financial Information'' and
``Management's Discussion and Analysis of Financial Condition and Results of
Operations.''

DEPENDENCE ON EXPANSION INTO NEW MARKETS

The Company has grown rapidly since its present carbon fibers manufacturing
facility achieved full production capability in fiscal 1992. Its future growth
and profitability will depend, in large measure, upon the Company's ability to
penetrate new markets, which in turn, will be dependent upon development of
applications for products which currently do not use carbon fiber materials.
The Company's future growth and profitability also will depend upon the further
expansion of sales of carbon fibers for existing applications. Substantially
all of the proceeds of the offering made hereby are to be used to expand the
Company's carbon fibers manufacturing capacity in anticipation of such

<PAGE> 9
penetration, development and expansion. There can be no assurance that the
Company will be successful in its efforts to develop new applications and
penetrate new markets, or that existing markets for the Company's carbon fiber
products will continue to expand and develop. See ``Business.''

DEPENDENCE UPON SOLE SUPPLIER

The Company's carbon fiber operations presently obtain their principal raw
material, acrylic fiber precursor, from the sole current merchant supplier in
the world pursuant to a supply agreement, the initial term of which expires in
June 1999. For established aircraft applications, industry approval procedures
make it impractical to qualify additional or substitute suppliers. The
Company's carbon fibers business would be adversely affected if it were unable
to continue to receive precursor at prices and on terms presently made
available to it by its sole supplier. There can be no assurance that the
Company will be able to continue to obtain desired quantities of raw material
on a timely basis at prices and on terms deemed reasonable by the Company. The
Company presently is in the process of diversifying its source of precursor
supply through the conversion of a substantial portion of Viscosa's
manufacturing capacity and the integration of its operations; however, there
can be no assurance it will be successful in such efforts. See
``Business--Sources of Supply.''

DEPENDENCE ON SIGNIFICANT CUSTOMERS

During fiscal 1995, net sales to each of two of the Company's customers
constituted more than 10% of consolidated net sales. The loss of either of such
principal customers would have a material adverse effect on the Company's
business. See ``Business--Current Products and Applications.''

COMPETITION

The Company competes with various other participants in the advanced
materials and textile fibers markets. Many of these entities have substantially
greater research and development, manufacturing, marketing, financial and
managerial resources than the Company. In addition, existing carbon fibers
producers may refocus their activities to compete more directly with the
Company. There can be no assurance that developments by existing or future
competitors will not render the Company's products or technologies
noncompetitive or that the Company will be able to keep pace with new
technological developments. In addition, the Company's customers could decide
to vertically integrate their operations and perform some or all of the
functions performed by the Company. See ``Business--Competition.''

TECHNOLOGICAL CHANGE

The Company is engaged in an industry which will be affected by future
technological developments. The introduction of products or processes utilizing
new technologies could render existing products or processes obsolete or
unmarketable. The Company's continued success will depend upon its ability to
develop and introduce on a timely and cost-effective basis new products,
processes and applications that keep pace with technological developments and
address increasingly sophisticated customer requirements. There can be no
assurance that the Company will be successful in identifying, developing and
marketing new products, applications and processes and product or process
enhancements, that the Company will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of
product or process enhancements or new products, applications or processes, or
that its products, applications or processes will adequately meet the
requirements of the marketplace and achieve market acceptance. The Company's
business, operating results and financial condition could be materially and
adversely affected if the Company were to incur delays in developing new
products, applications or processes or product or process enhancements or if
they were to not gain market acceptance. See ``Business.''

PROPRIETARY RIGHTS

The Company depends upon its proprietary technology. The Company relies
principally upon trade secret and copyright law to protect its proprietary
technology and owns no patents which are material to its business. The Company
regularly enters into confidentiality agreements with its key employees,
customers and potential customers and limits access to and distribution of its
trade secrets and other proprietary information. There can be no assurance

<PAGE> 10
that these measures will be adequate to prevent misappropriation of its
technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as the laws of the United
States. The Company also is subject to the risk of adverse claims and
litigation alleging infringement of intellectual property rights. See
``Business--Intellectual Property.''

OPERATIONAL RISKS

The Company's carbon fibers operation utilize high temperature processes,
substantial electrical current and industrial gases which potentially can be
subject to volatile chemical reactions. The Company believes that its current
plant design and operating procedures minimize operational risks associated
with these factors. However, as a result of mechanical or human failure or
unforeseen conditions or events related to the Company's manufacturing and
engineering processes or otherwise, the Company's manufacturing capacity could
be materially limited or temporarily interrupted. See ``Business.''

CONTROL OF THE COMPANY

Subsequent to this offering, Zsolt Rumy, the founder and principal
shareholder of the Company, will own approximately 35% of the then outstanding
shares of the Company's Common Stock. As a result, he has effective voting
control of the Company, including with respect to election of the Company's
directors, and will be able to prevent an affirmative vote which would be
necessary for a merger, sale of assets or similar transaction involving the
Company, irrespective of whether other shareholders believe such a transaction
to be in their best interests. The Company's Articles of Incorporation and
By-laws do not provide for cumulative voting in the election of directors. See
``Principal Shareholders and Security Ownership of Management'' and
``Description of Capital Stock--BFG Arrangement.''

AUTHORIZATION OF PREFERRED STOCK

The Company's Articles of Incorporation authorize the issuance of ``blank
check'' Preferred Stock with such designations, rights and preferences as may
be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without shareholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Company's Common Stock. Holders of the Company's Common Stock will have no
preemptive rights to subscribe for a pro rata portion of any capital stock
which may be issued by the Company. In the event of issuance, the Preferred
Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. The
possible impact on takeover attempts could adversely affect the price of the
Common Stock. Although the Company has no present intention to issue any shares
of its Preferred Stock, the Company may do so in the future. See ``Description
of Capital Stock.''

CLASSIFIED BOARD OF DIRECTORS

The Company's Articles of Incorporation divide the Board of Directors' into
three classes, with three-year staggered terms. The classified board provision
could increase the likelihood that, in the event an outside party acquired a
controlling block of the Company's stock, incumbent directors nevertheless
would retain their positions for a substantial period, which may have the
effect of discouraging, delaying or preventing a change in control of the
Company. The possible impact on takeover attempts could adversely affect the
price of the Common Stock. See ``Description of Capital Stock.''

SHARES ELIGIBLE FOR FUTURE SALE

No prediction can be made as to the effect, if any, that future sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that such sales might occur, could adversely
affect prevailing market prices of the Common Stock. See ``Description of
Capital Stock--Shares Eligible for Future Sale.''

<PAGE> 11
USE OF PROCEEDS

The net proceeds to the Company (after deducting the estimated underwriting
discount and estimated offering expenses) from the sale of 2,000,000 shares of
Common Stock to be sold in this offering are estimated to be approximately
$65.4 million, assuming a public offering price of $35.00 per share. The
Company will use the net proceeds, together with internally generated funds and
borrowings under available credit facilities, for capital expenditures to
expand its carbon fibers manufacturing capacity and for related corporate
purposes. In order to increase its carbon fibers production capacity, the
Company is constructing a building at its Viscosa facility in Hungary which
initially will house two continuous carbonization lines which the Company
expects to be operational by the second and third quarters of fiscal 1997,
respectively. The Company also is in the process of selecting a site in the
United States at which it intends initially to construct two additional lines
planned to be operational by the end of fiscal 1997. Moreover, the Company
plans to establish up to 12 additional lines at its facilities in Hungary and
the United States by the end of fiscal 1998. See ``Management's Discussion and
Analysis of Financial Condition and Results of Operations'' and
``Business--Carbon Fibers Manufacturing Capacity and Expansion Plans.'' Pending
such uses, the Company may temporarily invest available funds in short-term
securities or bank accounts.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is currently traded in the over-the-counter
market and is quoted on the Nasdaq National Market under the symbol ``ZOLT.''
The following table sets forth, for the periods indicated, the high and low
sale prices of the Common Stock as reported on the Nasdaq National Market.

FISCAL YEAR ENDED SEPTEMBER 30, 1994
First Quarter................................................. $ 2.67 $ 1.92
Second Quarter................................................ 2.75 1.63
Third Quarter................................................. 2.96 2.08
Fourth Quarter................................................ 4.83 2.83

FISCAL YEAR ENDED SEPTEMBER 30, 1995
First Quarter................................................. $ 4.42 $ 3.33
Second Quarter................................................ 5.17 3.42
Third Quarter................................................. 9.21 4.83
Fourth Quarter................................................ 12.92 6.33

FISCAL YEAR ENDED SEPTEMBER 30, 1996
First Quarter................................................. $ 9.00 $ 6.50
Second Quarter................................................ 23.75 7.88
Third Quarter................................................. 47.25 21.13
Fourth Quarter (through July 2, 1996)......................... 36.75 32.50
</TABLE>

On July 2, 1996, the closing price reported for the Company's Common Stock
on the Nasdaq National Market was $35.00 per share.

As of June 30, 1996, the Company had approximately 425 shareholders of
record.

The Company has not previously paid cash dividends on its Common Stock. The
Company intends to retain any earnings for use in its business and, therefore,
does not anticipate paying any cash dividends in the foreseeable future.
Generally, the payment of dividends is within the discretion of the Board of
Directors, who will consider the Company's financing agreements, earnings,
financial condition, capital requirements and other relevant factors in making
determinations regarding future dividends, if any. At present, the Company is
prohibited from paying cash dividends without the consent of certain lenders.

<PAGE> 12
CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company and its subsidiaries at March 31, 1996, and as adjusted to reflect the
sale by the Company of 2,000,000 shares of Common Stock offered hereby at an
assumed public offering price of $35.00 per share. See ``Use of Proceeds.'' The
table set forth below should be read in conjunction with the consolidated
financial statements, related notes and other financial information included
elsewhere or incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
AS
ACTUAL AS ADJUSTED<F1>
------- ---------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Short-term debt:

Short-term notes payable..................................... $ 1,960 $ 1,960

Current maturities of long-term debt......................... 861 861
------- --------

Total short-term debt.................................... $ 2,821 $ 2,821
======= ========

Long-term debt, less current maturities.......................... $ 5,609 $ 5,609

Other long-term liabilities...................................... 2,474 2,474

Minority interest................................................ 592 592

Shareholders' equity:

Preferred Stock, $.01 par value, 1,000,000 shares authorized;
no shares issued or outstanding............................ -- --

Common Stock, $.01 par value, 20,000,000 shares authorized;
13,879,390 shares issued and outstanding actual, 15,879,390
shares issued and outstanding as adjusted<F2>.............. 139 159

Additional paid-in capital................................... 30,396 95,776

Retained earnings............................................ 7,384 7,384
------- --------

Total shareholders' equity............................... 37,919 103,319
------- --------

Total capitalization................................. $46,594 $111,994
======= ========

<FN>
- --------

<F1> As adjusted to reflect the sale by the Company of 2,000,000 shares of
Common Stock in this offering. See ``Use of Proceeds.''

<F2> Does not include: (i) 65,780 shares of Common Stock reserved for future
issuance pursuant to the Company's Long Term Incentive Plan; (ii) 99,000
shares of Common Stock reserved for issuance pursuant to outstanding
options granted under the Company's Directors Stock Option Plan; and (iii)
300,000 shares of Common Stock subject to the Underwriters' over-allotment
option. See ``Underwriting.''
</TABLE>

<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data for the
Company and its subsidiaries for the three fiscal years ended September 30,
1995 and for the six months ended March 31, 1995 and 1996. The data for the
fiscal years ended September 30, 1993, 1994 and 1995 have been derived from the
consolidated financial statements of the Company included herein which have
been audited by Price Waterhouse LLP, independent accountants. The data as of
and for the six months ended March 31, 1995 and 1996 have not been audited by
independent accountants, but in the opinion of management of the Company,
reflect all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial condition and results of operations
as of such dates and for such interim periods. The results of operations for
the six months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the entire fiscal year.

The data set forth below should be read in conjunction with the
consolidated financial statements and related notes, ``Pro Forma Condensed
Combined Financial Information'' and ``Management's Discussion and Analysis of
Financial Condition and Results of Operations'' included elsewhere or
incorporated by reference herein.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996<F1>
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................................................ $ 5,141 $ 7,920 $ 12,698 $ 5,704 $ 28,214
Cost of sales.................................................... 2,942 4,502 7,716 3,379 21,165
Gross profit..................................................... 2,199 3,418 4,982 2,325 7,049
Selling, general and administrative expenses..................... 1,356 1,624 1,845 874 3,889
Income from continuing operations................................ 843 1,794 3,137 1,451 3,160
Interest expense, net............................................ 579 617 708 375 173
Net income from continuing operations............................ 136 799 1,577 674 2,191
Income from discontinued operations, net of income taxes......... 431 208 456 137 22
Minority interest................................................ -- -- -- -- (22)
--------- --------- --------- --------- ---------
Net income....................................................... $ 567 $ 1,007 $ 2,033 $ 811 $ 2,191
========= ========= ========= ========= =========
Net income per share from continuing operations.................. $ .02 $ .09 $ .16 $ .07 $ .17
Net income per share from discontinued operations................ .04 .02 .05 .02 .00
--------- --------- --------- --------- ---------
Net income per share............................................. $ .06 $ .11 $ .21 $ .09 $ .17
========= ========= ========= ========= =========
Weighted average common shares outstanding....................... 9,025 9,314 9,583 9,540 12,654

<CAPTION>
SEPTEMBER 30,
------------------------------- MARCH 31,
1993 1994 1995 1996
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 467 $ 3,866 $ 6,322 $ 14,707
Total assets..................................................... 15,371 17,373 18,390 64,769
Short-term debt.................................................. 3,040 1,662 745 2,821
Long-term debt, less current maturities.......................... 4,394 6,562 6,191 5,609
Shareholders' equity............................................. 5,936 7,100 9,519 37,919

<FN>
- --------

<PAGE> 14
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Set forth below are: (i) the historical consolidated condensed statements
of operations of each of Zoltek and Viscosa for the six months ended March 31,
1996; (ii) the pro forma condensed combined statement of operations of Zoltek
and Viscosa for the six months ended March 31, 1996 as if the acquisition of
Viscosa had been completed as of October 1, 1995; (iii) the historical
consolidated condensed statements of operations of each of Zoltek and Viscosa
for the fiscal year ended September 30, 1995; and (iv) the pro forma condensed
combined statement of operations of Zoltek and Viscosa for the fiscal year
ended September 30, 1995 as if the acquisition of Viscosa had been completed as
of October 1, 1994. The presentation reflects the cash purchase of
approximately 95% of Viscosa's capital stock by Zoltek. Zoltek has entered
into agreements to acquire substantially all of the remaining capital stock,
which is owned by existing Viscosa employees. Due to immateriality, the
minority interest is not separately disclosed in the pro forma condensed
combined statements of operations.

The pro forma condensed combined financial information should be read in
conjunction with the historical consolidated financial statements of Zoltek
included elsewhere herein and the historical financial statements of Viscosa
incorporated by reference herein. The pro forma condensed combined statements
of operations reflect: (i) adjustments to restate depreciation and interest
expense due to revaluation of assets and elimination of debt upon purchase; and
(ii) elimination of foreign exchange losses due to payment of a long-term
capital lease at purchase.

Viscosa's historical consolidated statements of operations were translated
from Hungarian Forints to U.S. Dollars using the average exchange rates in
effect during the periods. Viscosa's historical consolidated statements of
operations include extraordinary items related to the sale of certain assets
and the forgiveness of certain debt in December 1994. These two transactions
are not presented in the pro forma condensed combined statements of operations.

The pro forma condensed combined financial information set forth below is
not necessarily indicative of future results of operations or results of
operations that would have been reported for the periods indicated had the
acquisition of Viscosa been completed as of October 1, 1994 or 1995. Further,
the pro forma condensed combined statements of operations for the six months
ended March 31, 1996 should not necessarily be taken as indicative of earnings
for a full fiscal year.

<PAGE> 15
<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED MARCH 31, 1996

<CAPTION>
VISCOSA PRO FORMA
HISTORICAL HISTORICAL PRO FORMA PRO FORMA ZOLTEK/VISCOSA
ZOLTEK VISCOSA ADJUSTMENTS VISCOSA COMBINED
---------- ---------- ----------- --------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 9,356 $ 30,224 $ 30,224 $ 39,580

Cost of sales........................... 5,672 25,378 $ (190)<F1> 25,188 30,860
--------- -------- ------ -------- --------
Gross profit........................ 3,684 4,846 190 5,036 8,720

Selling, general and administrative
expenses.............................. 1,140 4,315 4,315 5,455
--------- -------- ------ -------- --------
Income from continuing operations... 2,544 531 190 721 3,265

Other income (expense):

Interest income..................... 224 66 66 290

Interest expense.................... (321) (687) 495 <F2> (192) (513)

Other income (expense), net......... (362) 78 <F3> (284) (284)

Foreign exchange gain (loss), net... (581) 732 <F4> 151 151
--------- -------- ------ -------- --------
Income (loss) from continuing operations
before taxes.......................... 2,447 (1,033) 1,495 462 2,909

Provision for income taxes.............. 933 933
--------- -------- ------ -------- --------
Net income (loss) from continuing
operations............................ $ 1,514 $ (1,033) $1,495 $ 462 $ 1,976
========= ======== ====== ======== ========
Net income per share from continuing
operations............................ $ 0.12 $ 0.14

Weighted average common shares
outstanding........................... 12,654 13,629

<FN>
NOTES TO PRO FORMA

CONDENSED COMBINED STATEMENT OF OPERATIONS

<S> <C>
<F1> To adjust cost of sales for reduced depreciation expense due to revaluation of fixed assets
under purchase price allocation and the elimination of the capital lease amortization........... $190

<F2> To adjust interest expense as a result of elimination of all Viscosa's long-term indebtedness... 495

<F3> To adjust for costs which would not have been incurred under a long-term management contract
which was terminated in connection with the acquisition of Viscosa.............................. 78

<F4> To adjust foreign exchange loss related to lease due to the elimination of the lease
liability....................................................................................... 732
</TABLE>

<PAGE> 16

<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995

Cost of sales........................... 7,716 45,022 $(1,134)<F1> 43,888 51,604
--------- -------- ------- -------- --------
Gross profit........................ 4,982 5,763 1,134 6,897 11,879

Selling, general and administrative
expenses.............................. 1,845 7,611 7,611 9,456
--------- -------- ------- -------- --------
Income from continuing operations... 3,137 (1,848) 1,134 (714) 2,423

Other income (expense):

Interest income..................... 32 189 189 221

Interest expense.................... (740) (1,357) 1,357 <F2> (740)

Other income (expense), net......... 3 (587) 419 <F3> (168) (165)

Foreign exchange gain (loss), net... (6,521) 5,444 <F4> (1,077) (1,077)
--------- -------- ------- -------- --------
Income (loss) from continuing operations
before taxes.......................... 2,432 (10,124) 8,354 (1,770) 662

Provision for income taxes.............. 855 348 348 1,203
--------- -------- ------- -------- --------
Net income (loss) from continuing
operations............................ $ 1,577 $(10,472) $ 8,354 $ (2,118) $ (541)
========= ======== ======= ======== ========
Net income (loss) per share from
continuing operations................. $ 0.16 $ (0.04)

Weighted average common shares
outstanding........................... 9,583 13,283

<FN>
NOTES TO PRO FORMA

CONDENSED COMBINED STATEMENT OF OPERATIONS

<F2> To adjust interest expense as a result of elimination of all Viscosa's indebtedness............. 1,357

<F3> To adjust for costs which would not have been incurred under a long-term management contract
which was terminated in connection with the acquisition of Viscosa.............................. 419

<F4> To adjust foreign exchange loss related to lease due to the elimination of the lease
liability....................................................................................... 5,444
</TABLE>

<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Company's historical results of operations
and of its liquidity and capital resources should be read in conjunction with
the consolidated financial statements and notes thereto and the "Pro Forma
Condensed Combined Financial Information" included elsewhere and incorporated
by reference in this Prospectus.

OVERVIEW

The Company is a Missouri corporation founded in 1975. Until it entered the
carbon fibers business in 1987, the Company's business consisted of the
manufacture and fabrication of various industrial products, provision of
in-house and field repair services, and distribution of various industrial
products manufactured by others. The Company entered the carbon fibers business
in 1987 with a line of carbon fiber products for niche and specialty markets.
In fiscal 1991, the Company closed its carbon fibers production facility in
Lowell, Massachusetts and moved to its new production facility in St. Charles,
Missouri. This production facility achieved full production capability in July
1992. In 1994, the Company began producing low-cost, high-strength carbon fiber
products utilizing a proprietary continuous carbonization process to complement
its specialty carbon fibers product line. In order to properly focus its
efforts on emerging opportunities in the carbon fibers market, the Company sold
substantially all of the assets relating to the Company's former equipment and
services business unit in August 1995. The results of the unit's operations
have been reclassified to identify them as discontinued operations.

In November 1992, the Company completed its initial public offering. In
November 1995, the Company completed a secondary public offering of 4,170,000
shares of Common Stock and received net proceeds of $26.3 million. Pursuant to
the Company's strategy to secure access to the technology underlying the
production of the acrylic fiber raw material used in the manufacture of carbon
fibers, the Company used the proceeds of the secondary offering to acquire
Viscosa for $17.8 million in December 1995. In connection with the acquisition
of Viscosa, Zoltek Corporation, a wholly owned subsidiary of the Company,
acquired approximately 95% of the equity ownership and substantially all of the
debt of Viscosa. Subsequently, the Company agreed to acquire sustantially all
the minority interest of Viscosa's other shareholders. The Viscosa acquisition
is reported under the purchase method of accounting and is included in the
Company's consolidated financial statements from the date of acquisition. See
``Pro Forma Condensed Combined Financial Information.''

Zoltek's business recently has grown significantly, resulting in increases
in net sales, income from continuing operations and net income from continuing
operations during each of the last three fiscal years. The increase in net
sales from $5.1 million in fiscal 1993 to $12.7 million in fiscal 1995 was
largely driven by long-term supply agreements with strategic partners and the
development of new applications and markets for selected carbon fiber products.
Income from continuing operations increased from $136,000 in fiscal 1993 to
$1.6 million in fiscal 1995. As a percentage of net sales, income from
continuing operations increased from 16.4% to 24.7% during this period. This
increase was primarily a result of the reduction in selling, general and
administrative expenses as a percentage of net sales, which declined from 26.4%
in fiscal 1993 to 14.5% in fiscal 1995, partially offset by a decrease in gross
margins. Net income increased from $567,000 in fiscal 1993 to $2.0 million in
fiscal 1995, representing a compound annual growth rate of 88%.

During the six months ended March 31, 1996, the Company achieved
significant sales growth in its carbon fibers business by continuing to execute
its strategy to expand the market for its low cost carbon fibers. However, such
growth was constrained by the capacity limitations of its current carbon fibers
manufacturing facilities. The Company is constructing a facility to house
initially two continuous carbonization lines in Hungary, and is seeking a
suitable site for an additional carbon fibers production facility in the United
States.

RESULTS OF OPERATIONS

Six Months Ended March 31, 1996 Compared to Six Months Ended March 31, 1995

Net sales for the Company increased 395% to $28.2 million for the first six
months of fiscal 1996. The higher net sales resulted from the consolidation of
Viscosa's activities since its acquisition on December 8, 1995, and an increase
in Zoltek's carbon fibers business. For the period from December 8, 1995 to
March 31, 1996, Viscosa reported net sales of $18.9 million. Net sales from
Zoltek's carbon fibers business totaled $9.4 million in the first half of
fiscal 1996,

<PAGE> 18
an increase of 64% compared to the first half of fiscal 1995. Higher sales
revenues were recorded across carbon fiber product categories. Growth in sales
was constrained by production capacity. Although actual carbon fibers capacity
varies with production mix, during the quarter ended March 31, 1996, the
Company's sales represented manufacturing levels of substantially full capacity
utilization.

Gross profit increased 203% to $7.0 million for the first half of fiscal
1996. Increased gross profit resulted from the operation of Viscosa after its
acquisition by the Company and a 58% increase in gross profit from Zoltek's
carbon fibers business to $3.7 million compared to $2.3 million in the
corresponding period in the prior year. As a percentage of net sales, the
Company's gross profit decreased to 25% for the six months ended March 31, 1996
from 41% for the six months ended March 31, 1995 due to the consolidation of
Viscosa. Excluding Viscosa, Zoltek's gross margin from the carbon fibers
business was 39% for the first six months of fiscal 1996 compared to 41% for
the corresponding period of 1995. This decrease was attributable to a change in
product mix and reduced selling prices as the Company pursues its low-cost
carbon fibers strategy of broadening applications for carbon composites through
enhanced affordability.

Selling, general and administrative expenses were $3.9 million in the first
six months of the current fiscal year. Excluding the effects of the Viscosa
acquisition, selling, general and administrative expenses increased to $1.1
million from $874,000 in the first half of fiscal 1995. This increase was due
to the addition of engineering, development and administrative staff during the
six months ended March 31, 1996, as well as costs related to the increased
sales level. However, as a percentage of net sales, selling, general and
administrative expenses for the carbon fibers business declined to 12% in the
first six months of fiscal 1996 versus 15% in the corresponding period of the
previous fiscal year. This improvement was due to the rate of growth of the
sales base.

Income from continuing operations totaled $3.2 million for the first six
months of fiscal 1996, an increase of 118% compared to the first six months of
fiscal 1995. Income from continuing operations (after deducting general
corporate expenses) from Zoltek's carbon fibers business increased 75%, to $2.5
million for the first half of fiscal 1996 from the first half of fiscal 1995.
For the period from December 8, 1995 to March 31, 1996, Viscosa reported income
from operations of $616,000. Subsequent to its acquisition, Viscosa's
operations benefited from Zoltek's involvement by improved raw material
procurement (through better costs and more consistent availability),
elimination of debt and lease obligations, and higher production rates. The
impact of Viscosa's results on the Company's results of operations for the
interim period of fiscal 1996 is not necessarily indicative of future financial
performance due to the transition from government to Company ownership.

Interest expense was $435,000 for the six months ended March 31, 1996.
Interest income for the period was $262,000. Net interest expense declined 54%
for the first half of 1996 compared to the first half of 1995 largely due to
increased cash balances and lower outstanding debt balances in the current
year.

During the first six months of fiscal 1996, the Company reported income tax
expense of $933,000 compared to $404,000 for the first half of fiscal 1995. The
effective tax rate remained relatively constant between years, excluding the
effects of the Viscosa acquisition.

In connection with the Company's determination in August 1995, to dispose
of its equipment and services business unit, the Company put the unit's
business and related assets up for sale. The valves, pumps and repair and fluid
sealing product lines were sold in August 1995. The Company has reached an
agreement to sell the unit's remaining product line, flexible graphite
products, which had a book value of $244,946 at March 31, 1996. The unit
reported net sales of $566,000 in the first half of fiscal 1996 and $3.3
million in the corresponding period of fiscal 1995. The unit reported income
from operations, net of income taxes, of $22,400 in the first six months of
1996 versus $137,300 in the first six months of 1995.

As a result of the foregoing, net income increased 170% to $2.2 million in
the first six months of fiscal 1996 from $811,000 reported for the first six
months of fiscal 1995. Similarly, the Company reported net income per share of
$.17 in the first half of fiscal 1996 compared to net income per share of $.09
in last year's corresponding period. Weighted average common shares increased
to 12.7 million from 9.5 million due primarily to the secondary offering in
November 1995.

<PAGE> 19
Fiscal Year Ended September 30, 1995 Compared to Fiscal Year Ended September
30, 1994

Net sales increased 60% to $12.7 million in fiscal 1995 from $7.9 million
in fiscal 1994. The improvement resulted principally from growth in sales of
carbon fibers for aircraft brake, automotive airbag and conductive plastics
applications.

Gross profit increased 46% to $5.0 million in fiscal 1995 from $3.4 million
in fiscal 1994. As a percentage of net sales, gross profit was 39.2% in fiscal
1995, compared to 43.2% in fiscal 1994. The decrease was attributable primarily
to increases in raw material costs, variations in the mix of products sold and
the cost associated with quantities of carbon fibers provided to potential
customers for evaluation purposes, the effect of which was partially offset by
economies realized from the increase in the level of net sales.

Selling, general and administrative expenses were $1.8 million in fiscal
1995 compared to $1.6 million in fiscal 1994. Expenses associated with the
expanded level of net sales and a $106,000 increase in research and development
expenses were offset by a decrease of $275,000 in training and start-up
expenses for manufacturing capacity added in fiscal 1994. As a percentage of
net sales, selling, general and administrative expenses were 14.5% in fiscal
1995 versus 20.5% in fiscal 1994, reflecting improved leveraging of fixed
costs.

Interest expense increased to $740,000 from $617,000 in the prior fiscal
year due primarily to the increase in outstanding long-term debt related to the
refinancing of the Company's primary real estate properties, as well as an
increase in interest rates.

During fiscal 1995, the Company reported income tax expense of $855,000
compared to income tax expense of $382,000 in fiscal 1994, as a result of the
increase in the reported level of income before income taxes. The effective tax
rate increased to 35.1% from 32.3% in the prior fiscal year due to recognition
in fiscal 1994 of refunds from amending prior years returns to claim research
and development tax credits.

In connection with the Company's determination in August 1995 to dispose of
its equipment and services business unit, the Company put the unit's business
and related assets up for sale. The unit reported net sales of $5.8 million in
fiscal 1995 and $6.7 million in fiscal 1994. The unit reported income from
operations, net of income taxes, of $456,000 (including an after-tax gain of
approximately $230,000) in fiscal 1995 versus $208,000 reported in fiscal 1994.

As a result of the foregoing, net income was $2.0 million in fiscal 1995
compared to net income of $1.0 million reported for fiscal 1994. Similarly, the
Company reported net income per share of $.21 in fiscal 1995 and net income per
share of $.11 in fiscal 1994.

Fiscal Year Ended September 30, 1994 Compared to Fiscal Year Ended September
30, 1993

Net sales increased 54% to $7.9 million in fiscal 1994 from $5.1 million in
fiscal 1993. This increase reflected the continued growth of sales into the
Company's existing primary markets for carbon fibers: aircraft brake,
automotive airbag and conductive plastics applications. During fiscal 1994 the
Company also added two new applications to its primary markets, fire-retardant
coatings and low-cost friction applications.

Gross profit increased 56% to $3.4 million in fiscal 1994 from $2.2 million
in fiscal 1993. Gross profit margin increased to 43.2% from 42.8% principally
due to improved process efficiencies in carbon fibers manufacturing.

Selling, general and administrative expenses increased to $1.6 million in
fiscal 1994 from $1.4 million in fiscal 1993 due primarily to $275,000 of
training and start-up expenses related to the new manufacturing capacity added
in fiscal 1994 and an increase of $203,000 from the prior fiscal year in
research and development expenditures. As a percentage of sales, the selling,
general and administrative expenses were 20.5% in fiscal 1994 versus 26.4% in
fiscal 1993. Income from continuing operations increased 112.9% to $1.8 million
in fiscal 1994 compared to the prior year.

Interest expense increased to $617,000 in fiscal 1994 from $579,000 in
fiscal 1993 due primarily to an increase in the outstanding debt related to
permanent financing for a portion of the Company's real estate properties,
offset by a decrease in the outstanding borrowings under the revolving credit
agreement, and an increase in the prime lending rate.

The Company's effective income tax rate on income from continuing
operations decreased to 32.3% in fiscal 1994 from 41.3% in fiscal 1993 due to
recognition of refunds from amending prior years' returns to claim research and
development tax credits. Effective October 1, 1993, the Company adopted
Statement of Financial Accounting

<PAGE> 20
Standards No. 109, ``Accounting for Income Taxes,'' which did not have a
material impact on the Company's consolidated financial statements.

In connection with the Company's determination in August 1995 to dispose of
its equipment and services business unit, the Company put the unit's business
and related assets up for sale. The unit's revenues for fiscal 1994 and fiscal
1993 were $6.7 million and $7.2 million, respectively. The unit reported income
from operations, net of income taxes, of $208,000 and $431,000 in fiscal 1994
and fiscal 1993, respectively.

As a result of the foregoing, the Company reported an increase in net
income to $1.0 million, or $.11 per share, for the year ended September 30,
1994 from $567,000, or $.06 per share, for the year ended September 30, 1993.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity have historically been and
continue to be cash flow from operating activities and available borrowing
capacity under credit facilities. These funding sources have been supplemented
with the net proceeds from two equity offerings, long-term debt financing
utilizing the equity in the Company's real estate properties and the sale of
substantially all of the assets of the Company's equipment and services
business unit.

At March 31, 1996, the Company reported working capital of $14.7 million
compared to working capital of $6.3 million at September 30, 1995. The increase
in working capital was due primarily to receipt of the net proceeds of the
secondary stock offering raised in excess of amounts used to finance the
acquisition of Viscosa, as well as increased inventory levels associated with
the acquisition and the repayment of long-term liabilities. Other receivables
of $2.0 million consisted primarily of VAT and import tax refunds due to
Viscosa from the Hungarian taxing authorities. Other short-term liabilities of
$1.7 million consisted primarily of taxes owed by Viscosa which relate to
payroll taxes, VAT and advances from customers. Other long-term liabilities
were related to various supply agreements between Viscosa and its vendors.

Historically, cash used in investing activities has been expended for
equipment and other capital to support research and development of carbon
fibers applications, the expansion of the Company's carbon fibers production
capacity and the acquisition of Viscosa. In fiscal 1995, the Company's capital
expenditures were $1.0 million, including installation of an enhanced research
and development facility. The Company invested $1.1 million in manufacturing
equipment, primarily for two additional batch carbon fiber furnaces and the
completion of a continuous carbonization line during fiscal 1994. Capital
expenditures of $1.8 million in fiscal 1993 related primarily to the
installment of the Company's new continuous carbonization line. During the
first six months of fiscal 1996, the Company incurred capital expenditures of
$1.2 million for various projects, primarily increasing capacity and improving
infrastructure. These expenditures were financed principally with cash
generated from operations.

The Company currently is producing carbon fibers at its full operational
capacity and needs to expand its capacity to meet indicated and forecasted
demand for carbon fiber products. The Company is adding to its carbon fibers
batch process capacity at its St. Charles, Missouri, plant. The Company expects
to fund the capital expenditures associated with this project with available
cash and borrowings. In order to further increase its carbon fibers production
capacity, the Company is constructing a building at its Viscosa facility in
Hungary which initially will house two continuous carbonization lines which the
Company expects to be operational by the second and third quarters of fiscal
1997, respectively. The Company also is in the process of selecting a site in
the United States at which it intends initially to construct two additional
lines planned to be operational by the end of fiscal 1997. Moreover, the
Company plans to establish up to 12 additional lines at its facilities in
Hungary and the United States by the end of fiscal 1998. The construction of
these continuous carbonization line facilities will be funded with the proceeds
of the offering made hereby, together with internally generated funds and
borrowings under available credit facilities. See ``Use of Proceeds.''

The Company's Revolving Credit Agreement has a maximum borrowing capacity
of $3.5 million. At March 31, 1996, there were no outstanding borrowings under
this line of credit. The Company also has $1.0 million of unused borrowing
ability under a working capital credit facility. The Company has received a
commitment from its bank for a $5 million secured equipment loan to finance
planned U.S. capital expenditures. The Company currently has outstanding a term
loan with a principal balance of $2.0 million which matures in 1999. The
Company is currently reviewing financing options, including funding from the
International Finance Corporation and the European Bank

<PAGE> 21
of Reconstruction and Development for non-recourse financing, for the addition
of carbon fiber manufacturing lines at Viscosa's facilities.

Since the beginning of fiscal 1994, the Company has obtained long-term
financing utilizing its equity in its real estate properties. The applicable
loan agreements prohibit the payment of dividends without the consent of the
lenders.

Pursuant to a secondary stock offering in November 1995, the Company sold
4.2 million shares of Common Stock and realized net proceeds of approximately
$26.3 million. The Company utilized approximately $18 million to fund the
purchase of Viscosa. In the second quarter of fiscal 1996, the Company made
available $3 million to fund Viscosa's working capital requirements. The
remaining proceeds will be used for working capital needs of Viscosa and
general corporate purposes, including capital expenditures. The Company
believes that Viscosa's operations may require an additional $2 million of
working capital during the remainder of fiscal 1996 to supplement Viscosa's
internally generated funds. During the second quarter of fiscal 1996, Viscosa
obtained $5 million of short-term financing consisting of working capital loans
and commercial letters of credit.

In August 1995, the Company sold its valves, pumps and repair and
fluid-sealing product lines for an aggregate sale price of approximately $2.5
million (consisting of $1.7 million cash, $586,000 of debt assumption and a
note receivable for $200,000). Pursuant to the sale agreement, the purchaser
agreed to buy two facilities held subject to mortgages with a principal balance
of the debt to be assumed, once lender approval has been obtained. Until such
sale, the Company continues to hold the properties subject to a lease to the
purchaser, which provides for rent in an amount equal to loan payments due on
the mortgage loans. The Company has reached an agreement to sell the unit's
remaining product line, flexible graphite products, which had an aggregate book
value of $244,946 at March 31, 1996. The Company believes the value of the
buildings significantly exceeds the amount of the mortgages.

The Company believes that identified and forecasted customer demand for
carbon fibers likely will require substantial increases in capacity. The
Company's current plans call for capital expenditures of approximately $70
million through fiscal 1998 for this expansion. The Company will use the
proceeds of this offering, together with internally generated funds and
borrowings under available credit facilities, to fund such capital
expenditures. See ``Use of Proceeds'' and ``Business--Carbon Fibers
Manufacturing Capacity and Expansion Plans.''

NEW ACCOUNTING STANDARDS

The following recently issued accounting standards will be applicable to
the Company for its fiscal year ending September 30, 1997:

SFAS 121, ``Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of,'' effective for the Company for its fiscal
year ending September 30, 1997, establishes standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used and those to be disposed of. SFAS 121 is not
expected to have a material impact on the Company's financial condition or
results of operations.

SFAS 123, ``Accounting for Stock-based Compensation,'' defines the fair
value based method of accounting for stock option, purchase and award plans.
SFAS 123 allows companies to use the fair value method defined therein or to
continue use of the intrinsic value method as outlined in Accounting Principles
Board Opinion No. 25, ``Accounting for Stock Issued to Employees'' (APB 25).
SFAS 123 is not expected to have a material impact on the Company's financial
position or results of operations.

<PAGE> 22
BUSINESS

GENERAL

Zoltek is a leader in the rapidly developing carbon fibers market,
manufacturing products for a diverse range of applications based upon carbon
fibers' distinctive combination of physical and chemical properties,
principally high-strength, low-weight and stiffness. Zoltek believes it
produces carbon fibers at costs substantially lower than those generally
prevailing in the industry and, accordingly, can supply carbon fibers for
applications which are not economically viable for most higher cost
competitors. With the December 1995 acquisition of Viscosa, a manufacturer of
acrylic fiber and nylon products, the Company secured access to the technology
underlying the production of the acrylic fiber raw material utilized in the
manufacture of carbon fibers. The Company's strategy is to grow its business by
continually lowering its cost to manufacture carbon fibers, marketing its
carbon fibers at price points substantially lower than those generally
prevailing in the industry and working with current and prospective customers
to develop new carbon fiber applications. In order to alleviate its current
capacity constraints and to meet indicated and forecasted demand for carbon
fiber products, the Company is expanding its manufacturing capacity.

INDUSTRY OVERVIEW

Worldwide carbon fibers capacity (excluding the former Soviet Union and
China) was estimated to be approximately 27 million pounds per year in calendar
year 1994. Carbon fiber composites are an attractive material for a diverse
range of applications, based on their distinctive characteristics, including
high strength, low weight, stiffness, toughness, resistance to corrosion,
resistance to fatigue, capacity to dissipate heat, and electrical conductivity.
Until the early 1980s, the high cost of carbon fibers precluded all but the
most demanding applications, limiting carbon fibers use primarily to the
aerospace industry. During the past decade, as additional capacity outpaced
demand from aerospace applications, manufacturers sold excess production at
significantly reduced prices. As a result, the distinctive characteristics of
carbon fibers and the techniques for fabricating carbon fiber composites became
more broadly understood and a number of diverse applications developed.

A number of specialty applications are commercially viable only at carbon
fiber prices lower than those prevailing for primary aerospace applications. In
sporting goods manufacturing, the strength to weight ratio, stiffness, rapid
damping and fatigue resistance characteristics of carbon fibers have made them
a desirable material for a wide range of products such as golf club shafts,
tennis racquets and bicycle frames. In current industrial uses, carbon fibers'
non-structural properties are often most important. Chemical inertness is
useful in corrosive applications for heat exchanger tubing and pump cavities
and in gas turbine blades; high temperature resistance is useful in specialty
metallurgical mold applications; and combined rigidity and damping are useful
in audio equipment applications. New developing, commercial applications
identified by the Company include cargo shipping containers, vehicle drive
shafts, civil engineering uses, wood laminates, automotive body and structural
members, mass transit vehicle components, high strength piping and tanks,
marine uses and alternative energy systems. Currently served specialty niche
markets which the Company believes offer growth prospects include aircraft
brakes, conductive plastics, fire-retardant coatings and specialty friction
products.

The Company believes that the substantial majority of current worldwide
carbon fibers capacity remains dedicated to production of high-cost,
high-selling price material for primary aerospace applications. This market
segment differs in important respects from the commercial markets targeted by
Zoltek. Switching between market segments is relatively difficult and capital
intensive.

BUSINESS STRATEGY

Zoltek's goal is to be the premier provider of low-cost carbon fibers. Key
elements of the Company's business strategy are as follows:

Low-Cost Producer--The Company believes it currently manufactures
carbon fibers at costs substantially lower than those generally prevailing
in the industry. The Company intends to continue to reduce its total
production costs primarily by utilizing the acrylic fiber precursor
manufactured by its Viscosa operations after a transition period of
approximately 18 months. Acrylic fiber precursor comprises approximately
50% of the Company's total carbon fiber production costs, with energy and
labor costs each accounting for approximately 25%.

<PAGE> 23
Currently, only one textile-type acrylic fiber manufacturer, Courtaulds
Fibres, Ltd., produces such fiber in a form suitable for precursor use
(i.e., without additives). While this textile-type acrylic fiber is
substantially less costly than internally produced custom-made acrylic
fiber precursor utilized by most of the Company's competitors, Courtaulds
takes advantage of its sole merchant supplier position to charge a premium
price for its fibers sold as precursor. See ``--Sources of Supply.''

Zoltek believes Viscosa's operations afford a strategic advantage by
providing access to the technology underlying the production of precursor.
A conversion of Viscosa's acrylic fiber capacity to produce precursor grade
material provides the opportunity to control a reliable source of precursor
on favorable terms and to optimize the carbon fibers production chain.
After a transition period of approximately 18 months, Viscosa is expected
to be able to supply the Company's carbon fibers operations with quantities
of precursor which would be sufficient to produce more than 30 million
pounds annually of carbon fibers.

Price Leadership--Zoltek has identified various price points lower than
those generally prevailing in the industry, at which it believes customers
will incorporate carbon fibers into their products to achieve enhanced
properties and performance. Targeted commercial market applications include
shipping containers, vehicle drive shafts, wrapping and reinforcement
for concrete structures, pressurized tanks, wood laminates, specialty
piping and a number of non-friction automotive uses. The Company believes
that these applications alone represent potential long-term market demand
requiring substantial increases in current carbon fibers industry
capacity. The ultimate goal of the Company's pricing strategy is to market
carbon fibers at prices per unit of strength which compete favorably with
alternative base construction materials such as steel and aluminum. The
Company believes that achievement of this pricing goal would result in
significant new product applications for carbon fibers.

New Commercial Market Applications Development--The Company will
continue to identify, evaluate and develop new commercial market
applications for carbon fibers. Potential opportunities include: (i)
applications for which carbon fiber composites have been demonstrated to be
well-suited, but which only recently have begun to be commercialized (e.g.,
cargo shipping containers, vehicle drive shafts and CNG fuel tanks); (ii)
applications which have been established in principle or in small scale
projects, but for which additional engineering and fabrication developments
are required (e.g., earthquake-proofing of bridge columns, aircraft seating
and off-shore spoolable piping); and (iii) applications in which carbon
fibers may permit totally new technologies (e.g., flywheel-based
alternative energy systems and light trains).

As part of its efforts to expand its current range of market
applications, the Company engages in various strategic partnerships to
study the viability of the use of carbon fibers in new composite materials
and structural enhancement environments. These relationships are designed
to build on existing expertise and industry knowledge by exploring new
potential uses for carbon fibers. For example, studies performed by a
research consortium, including the Company, sponsored by the U.S. Advanced
Research Project Agency (``ARPA'') demonstrated that columns wrapped with
carbon fiber composite materials made from the Company's carbon fibers
significantly improved the ability of bridges and other structures to
withstand earthquakes. Successful partnerships with commercial customers
include long-term supply contracts with BF Goodrich Aerospace ("BFG") and
TRW Vehicle Safety Systems, Inc. ("TRW"). The Company recently established
relationships with American President Lines, Ltd. and Stoughton
Composites, Inc. (shipping containers), Compounding Technology, Inc.
(computer printer components for Hewlett-Packard Company products) and
Thiokol Corp. (CNG fuel tanks). Zoltek believes that as new techniques are
perfected and new composites are developed, manufacturers will help
develop new commercial applications for such composites, thereby
creating further demand for the Company's products.

The Company also plans to accelerate the development of new commercial
applications by enhancing its application engineering capability. The
Company's applications engineers will assist prospective users of carbon
fibers in properly evaluating the utility of carbon fibers for new
applications and will consult with customers regarding modifications of
their manufacturing processes to facilitate the full use of carbon fibers.

CARBON FIBERS MANUFACTURING CAPACITY AND EXPANSION PLANS

The present rated capacity of the Company's carbon fiber manufacturing
operations is approximately 3.5 million pounds per year. The Company currently
is producing carbon fibers at its full operational capacity and needs to expand
its capacity to meet indicated and forecasted demand for carbon fiber products.
The Company is adding to its carbon fibers batch process capacity at its St.
Charles, Missouri plant. The Company expects to fund the capital

<PAGE> 24
expenditures associated with this project with available cash and borrowings.
In order to further increase its carbon fibers production capacity, the Company
is constructing a building at its Viscosa facility in Hungary which initially
will house two continuous carbonization lines which the Company expects to be
operational by the second and third quarters of fiscal 1997, respectively. The
Company also is in the process of selecting a site in the United States at
which it intends initially to construct two additional lines planned to be
operational by the end of fiscal 1997. Moreover, the Company plans to establish
up to 12 additional lines at its facilities in Hungary and the United States by
the end of fiscal 1998. The Company will use the net proceeds of this offering,
together with internally generated funds and borrowings under available credit
facilities, to fund capital expenditures related to these continuous
carbonization lines. Each continuous carbonization line has a rated capacity
of approximately 1.0 million pounds of carbon fibers per year. See ``Use of
Proceeds'' and ``Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources.''

In the process of expanding capacity, the Company is developing a
standardized continuous carbonization line design in order to optimize
technical process capabilities, reduce equipment cost and shorten lead time
between the decision to add lines and the time when the lines become
operational.

CURRENT PRODUCTS AND APPLICATIONS

The Company's current primary carbon fiber product applications are as
follows:

Aircraft Brakes

Carbon-carbon (carbon fibers fused in a carbon matrix) is used in aircraft
brakes because its utility is enhanced by heat. Where other materials soften
under rising temperatures, carbon-carbon grows stronger. Developed originally
as a lightweight heat shield for spacecraft, carbon-carbon has become a key
material in advanced braking systems used in fighter aircraft, military
aircraft, newer model commercial airliners and newer model business aircraft.

There is a growing replacement market for composite brakes with the
retirement of older aircraft and their replacement by newer model aircraft
which utilize carbon-carbon brakes. Brake pads wear out and must be replaced at
regular intervals, typically at intervals of 750 to 2,000 landings depending
upon aircraft type, size and use. As the relative proportion of newer aircraft
to older aircraft increases, the demand for carbon-carbon brakes increases
proportionately. Zoltek's carbon fibers are approved as the single source, or
one of only two approved fibers, for many high production new models of
commercial aircraft, and for selected civil and military aircraft.

The Company is the exclusive supplier to BFG of carbon fibers for aircraft
brakes pursuant to a ten-year agreement (the ``BFG Supply Agreement'') entered
into in 1994. The Company anticipates aggregate sales of more than $80 million
over the term of this agreement. The BFG Supply Agreement does not restrict the
Company from supplying carbon fibers to other aircraft brake manufacturers. See
``Description of Capital Stock--BFG Arrangement.''

Automotive Airbags

Sales of carbon fibers used in automotive airbags account for a significant
part of Zoltek's total sales of carbon fibers. Carbon fiber material is used as
an additive in the airbag propellant mix in the pyrotechnic type of automotive
airbag produced by TRW. The carbon fiber material is used to improve
performance in the inflation process.

In 1994, Zoltek received an exclusive purchase order from TRW, the leading
U.S. restraint producer, for the supply of carbon fibers for automobile
airbags, initially covering the remainder of model year 1994 and model years
1995 and 1996. The automotive industry continues to conduct research and
product development with respect to airbag technology. Accordingly, the Company
believes that the volume of sales for this application will depend upon the
relative utilization of the pyrotechnic type of airbag in automobiles and
trucks in future years.

Conductive Plastics

Growth in computers and electronics has resulted in rising demand for
carbon fibers used in conductive plastics to dissipate static electricity or to
act as a shield against electromagnetic interference. Used in making plastic
carrying trays for a manufacturing environment that cannot tolerate
contamination, Zoltek's carbon fibers help to safeguard the electrical

<PAGE> 25
integrity of new and more powerful computer chips. In the past three years,
Zoltek has experienced increasing levels of sales of specialty carbon fiber
fillers for conductive plastic trays used in clean room environments. The
Company believes that this application offers significant potential for future
sales growth. Zoltek also supplies products used in carbon fiber-impregnated
injection-molded plastic boxes to offer effective shielding from electromagnetic
interference.

Shipping Containers

Composite shipping containers utilizing carbon fibers, for rail, sea and
road transportation, offer the shipping industry significant weight savings,
reducing operating costs and increasing efficiency. The new Refrigerated
International ISO Container built by Stoughton Composites is one of the first
composite shipping containers being commercialized. Its design is only made
possible through the use of carbon fibers in the corner posts and I-beams,
where the majority of the loads are concentrated. This container weighs only
5,000 pounds, compared to a typical steel container which weighs approximately
8,600 pounds. Zoltek has partnered with Stoughton Composites, Inc. and American
President Lines, Ltd. to develop composite shipping containers using low cost
carbon fibers.

Vehicle Drive Shafts

The use of carbon fibers allows a two-piece vehicle drive shaft to be
replaced with a one-piece design, reducing its average weight by approximately
60%. The inherent damping characteristics of composites also reduce the noise
and vibration to the passenger compartment. New designs with hybrid carbon
fiber composites and alternative processing methods continue to be developed to
increase the cost-competitiveness of the composite design. Zoltek has
established partnerships with the leaders in the composite drive shaft field
and is a current supplier for this application.

Compressed Natural Gas (CNG) Tanks

Due to the superior performance, both in terms of physical characteristics
and chemical/UV resistance, carbon fibers have emerged as a desirable material
for CNG tank reinforcement. Carbon fiber-reinforced CNG tanks are primarily
sold into the bus and other vehicle fleet market, as the reduction of weight
directly translates to increased payload capability. In addition, the Company
believes that governmental pressure to design and manufacture a sedan with
significantly improved fuel efficiency could continue to cause automotive
manufacturers to pursue CNG technologies. Zoltek supplies carbon fibers to
several customers for use in carbon fiber-reinforced CNG tanks.

Fire-Retardant Coatings

Zoltek's carbon fibers are used in fire-retardant coatings to prevent or
control fire-related disasters in chemical plants, nuclear power plants,
refineries and off-shore drilling platforms. Used as an additive or
reinforcement, carbon fiber heightens the ability of the fire-retardant
coatings to withstand exceptionally high temperatures.

Specialty Friction Products

Specialty friction product applications are a natural extension of existing
aircraft brake applications. For instance, following the lead of aircraft
makers, virtually all grand prix racing cars now use carbon-carbon brakes and
clutches because of their superior performance and long life in
high-temperature and high-friction environments. Other friction products
utilizing carbon fibers are emerging as carbon fiber prices are reduced. As the
price of carbon fibers is lowered, the drive for better performance and weight
reduction makes possible their use in a range of automotive applications.
Zoltek is pursuing a number of initiatives in this area, including pursuant to
its joint product development agreement with BFG.

Other Company products include the following:

Textile Fiber Products

Acrylic fibers currently represent Viscosa's primary product line
(approximately two-thirds of Viscosa's sales) and are used in producing a
variety of end products, including clothing and carpet. Viscosa's acrylic
fibers are sold in regional markets, principally to textile mills in Central
and Eastern Europe and, to a limited extent, Taiwan and the United States.
Viscosa's primary markets for acrylic fibers are currently in Hungary and
Poland.

<PAGE> 26

The other principal fiber product line currently manufactured and marketed
by Viscosa consists of nylon-6 fibers and granules. Due to the long-term
decline in the domestic Hungarian market for nylon-6 fibers, Viscosa has
targeted the export market, the largest of which is Italy, and also has sold
significant amounts in the United Kingdom and Central and Eastern Europe.
Granular nylon-6 is used as a thermoplastic molding material and combined in
certain applications with glass or carbon fibers.

Other

Viscosa also currently manufactures carboxyl-methyl cellulose which is used
as a film former, absorber or viscosity modifier for applications in soap
additives, drilling mud additives, paper manufacturing and adhesive
manufacturing; plastic netting and grids which are produced from continuously
extruded polyethylene and polypropylene net or screen with varying
specifications and used for soil stabilization and packaging; and filtration
membrane products for use in filtration media utilized in food and wine
processing and water purification. The Company is in the process of evaluating
the ultimate potential of these products and technologies.

INTERNATIONAL

To date, the Company's carbon fiber operations have focused primarily on
meeting the needs of U.S. customers. The Company has, however, shipped
limited amounts of carbon fiber products to customers in Europe and Asia,
primarily for use in conductive plastics applications. Most of these sales
have been made to foreign operations of domestic corporations, or to
foreign parent companies of domestic operating units.

Zoltek believes that significant opportunities exist to develop
international markets, particularly in Europe and Asia, as commercial market
applications of carbon fiber products develop. The Company expects to pursue
opportunities in Europe through the marketing organization currently in place
at Viscosa. This organization will seek to find customers for the carbon fiber
products currently manufactured at the Company's plant in St. Charles,
Missouri, as well as for those products produced at the carbon fibers
facilities which Zoltek is constructing at Viscosa and planning to construct
in the United States.

The Company has conducted preliminary discussions with prospective
strategic partners in Asia and expects that it will pursue opportunities in
that market either with a strategic partner or through a direct sales office
located in Asia.

COMPETITION

The Company competes with various other producers of carbon fibers, acrylic
fibers, and other textile fiber products, many of which have substantially
greater research and development, marketing, financial and managerial resources
than the Company and represent significant competition for the Company.

The Company believes that no single manufacturer of carbon fiber products
competes across all of its applications. The Company's direct carbon fibers
competitors include Fortafil Fibers, Inc. in the United States and R.K. Carbon
in Europe, inasmuch as they use the same textile-type precursor as the Company.
To varying degrees, dependent on market conditions and supply, the Company also
competes with larger producers, such as Hercules Incorporated and Amoco
Corporation in the United States; and Toray Industries, Inc., Toho Rayon and
Mitsubishi Rayon Co., Ltd. in Japan. Large international carbon fibers
producers tend to market higher cost products than the Company's products, with
a principal focus on primary aerospace structural applications. These large
manufacturers tend to enter into direct competition with the Company chiefly
when they engage in significant discounting due to excess capacity and product
surpluses; however, such competition historically has not had a material
adverse effect on the Company's business.

The Company believes that the principal areas of competition for its carbon
fibers operations are price, quality, skill in developing new applications,
ability to reliably meet the customer's volume requirements and qualifications
for particular programs.

<PAGE> 27
Competitors in the textile fibers market include MonteFibre, S.A., A.G.
Bayer, Courtaulds, DSM N.V. and Imperial Chemical Industries PLC. However,
Viscosa's historic ties with and geographic proximity to customers in the
former socialist countries provide competitive advantages for Viscosa in these
markets compared to the larger manufacturers. Zoltek believes this advantage
will decrease over time and, accordingly, Viscosa is pursuing a strategy of
seeking a product mix with more favorable competitive characteristics, such as
advanced materials (e.g., carbon fibers precursor).

The non-textile market for Viscosa's products is sufficiently fragmented
that no significant single direct competitor exists. As in the textile
products, Viscosa's sales of its industrial products are heavily concentrated
in the Central and Eastern European markets.

SOURCES OF SUPPLY

The Company currently obtains all of its textile-type acrylic fibers to
supply its carbon fiber operations from Courtaulds, Ltd., (``Courtaulds''),
which is currently the sole merchant supplier of such raw materials in the
world. Courtaulds is also the only supplier that currently produces precursor
approved for use in aircraft brake applications such as those supplied under
the BFG Supply Agreement. Pursuant to an agreement with the Company,
Courtaulds has agreed to supply the Company with up to 4.0 million pounds per
year of precursor. This supply agreement may be terminated by either party on
June 30, 1999, or any anniversary thereof, by providing two years' prior
notice. The Company believes Courtaulds is a reliable source of supply at the
Company's current operating levels. However, as part of its growth strategy,
the Company is developing alternative sources of precursor supply, including
Viscosa, and expects that it ultimately will obtain most of its precursor from
Viscosa. In the near term, any interruption of precursor supply from
Courtaulds would have a material adverse effect on the Company's carbon fibers
business.

The major materials used in the Viscosa facility are acrylonitrile and
other basic commodity chemical products which are widely available from a
variety of sources.

ENVIRONMENTAL

The carbon fibers operations at the Company's St. Charles, Missouri plant
utilize incineration and scrubbing of various exhaust streams, designed to
comply with applicable laws and regulations. The plant produces air emissions
which are regulated and permitted by the State of Missouri, Department of
Natural Resources. The plant is required by a condition of its permit to verify
by performance tests that certain emission rates are not exceeded. Management
believes that the plant is currently in compliance with its permit and the
conditions set forth therein. The Company does not believe that compliance by
its carbon fibers operations with applicable environmental regulations will
have a material effect upon the Company's future capital expenditure
requirements, results of operations or competitive position. There can be no
assurance, however, as to the effect of implementation of current laws or
future changes in federal or state environmental laws or regulations on the
Company's results of operations or financial condition.

Viscosa's operations generate various hazardous wastes, including gaseous,
liquid and solid materials. From time to time, Viscosa has been cited and fined
for environmental violations by regulatory authorities. The SPA commissioned an
environmental audit by an independent consulting firm, which in its June 1995
report recommended expenditures aggregating approximately HUF 20.1 million
(which then approximated $160,000) to correct certain identified environmental
deficiencies and Zoltek expects that Viscosa's operations will require
additional funds for enhancement of other environmental compliance systems.
Zoltek expects that compliance with current environmental regulation will not
have a material adverse effect on Viscosa's business, results of operations or
financial condition. There can be no assurance, however, that the application
of future national or local environmental laws, regulations and enforcement
policies will not have a material adverse effect on Viscosa's business, results
of operations or financial condition.

EMPLOYEES

As of June 30, 1996, the Company employed approximately 110 persons in its
U.S. operations and approximately 1,600 in its Hungarian operations. The
Company's U.S. employees are not represented by any collective bargaining
organizations. By law, most employees in Hungary are represented by at least
one labor union and at Viscosa there are two active unions, Union Viscosa with
approximately 1,000 members, and Viscosa 1990 with approximately 600 members.
The Company believes that relations with both unions are good. Management meets
with union representatives on a bi-weekly basis. There have not been any
problems or major disagreements with either union in the past five years. The
Company believes that its employee relations are good.

<PAGE> 28
In June 1993, Viscosa entered into an agreement with the Labor Office (the
``Labor Office'') of the county in which the plant is located, pursuant to
which the Labor Office made a HUF 285 million grant to Viscosa to finance
salary payments to Viscosa's employees during the period April through December
1993. The grant is not repayable by Viscosa if Viscosa and its subsidiaries
maintain their employee level at least 1,850 through 1997, subject to certain
exceptions, such as reductions in force due to normal retirement and
terminations for cause. Presently, Viscosa's active workforce is below the
level specified by the grant and Zoltek intends to effect reductions in
staffing of operational activities as appropriate. Viscosa believes, however,
that if all employees (including non-active employees, such as those on
national service or maternity leave) and employees of non-core operations which
may be spun-off into independent companies are considered, Viscosa would not be
obligated to repay the grant. Viscosa is undertaking to clarify the application
of the calculation and to amend the agreement to confirm Viscosa's
understanding. Although there can be no assurance that a mutually acceptable
arrangement will be achieved, Zoltek believes that the ultimate resolution of
the grant will not have a material adverse effect on its consolidated financial
condition or results of operations.

PROPERTIES

The Company's facilities are listed below and are considered to be suitable
and adequate for its operations. All the Company's properties are owned or
leased subject to various mortgage loans.

<TABLE>
<CAPTION>
APPROXIMATE AREA
LOCATION<F1> USE (IN SQUARE FEET)
------------ --- ----------------
<S> <C> <C>
St. Louis, Missouri.................................... Administrative offices, national marketing
and engineering 40,000
St. Charles, Missouri<F2>.............................. Carbon fibers manufacturing 107,000
Nyergesujfalu, Hungary<F3>............................. Acrylic fiber, nylon, other manufacturing 1,600,000

<FN>
- --------

<F1> The Company also owns facilities in St. Louis, Missouri and Kansas City,
Missouri, which were used in the Company's former equipment and services
business unit. The Company has agreed to sell these facilities in
connection with the disposition of the equipment and services business
unit, and the Company expects those sales to be completed by September 30,
1996.

<F2> Subject to ground lease which expires in 2065, subject to a 24-year
renewal option thereafter.

<F3> Viscosa is located on a 150-acre site in the town of Nyergesujfalu,
approximately 30 miles from Budapest. The facility is located on a main
highway between Budapest and Vienna on the shore of the Danube River and
on a major rail line.
</TABLE>

INTELLECTUAL PROPERTY

The Company believes that it has developed and utilizes valuable technology
and innovations, including various aspects of its manufacturing process, which
are trade secrets in which it has a proprietary interest. The Company seeks to
protect its proprietary information by, among other things, requiring key
employees to execute non-disclosure agreements. The Company holds no material
patents.

LEGAL PROCEEDINGS

In September 1995, Kenny Securities Corp. (``Kenny'') filed a lawsuit in
the Circuit Court of St. Louis County against the Company and Zsolt Rumy
alleging that the Company breached a verbal agreement with Kenny that Kenny
would be selected as a co-manager for the Company's November 1995 secondary
Common Stock offering and that the defendants did not intend to honor the
alleged agreement when made. The Company denies liability, believes it has
defenses to the claims, which defenses are well-grounded in fact and law, and
has counterclaimed against Kenny and John J. Kenny, an officer of Kenny, for
damages and a declaratory judgment. Discovery presently is being undertaken by
the parties. The Company does not believe that the ultimate resolution of the
lawsuit brought by Kenny will have a material adverse effect on its financial
condition or results of operations.

Except for the foregoing, the Company is not a defendant in any material
legal proceedings other than ordinary routine litigation incidental to its
business.

<PAGE> 29
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company and Viscosa, and their
respective ages and positions with the Company and Viscosa, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Zsolt Rumy................ 53 Chairman of the Board, Chief Executive Officer and President

Orel R. Kiphart........... 58 President of Zoltek Corporation (carbon fibers manufacturing operations)

William P. Downey......... 38 Chief Financial Officer and Secretary

Gyorgy Paszty............. 54 Vice President of the Company and Managing Director of Viscosa

James W. Betts............ 58 Director

James Dorr................ 61 Director

Charles A. Dill........... 56 Director

John L. Kardos............ 57 Director

Linn H. Bealke............ 51 Director
</TABLE>

Zsolt Rumy is the founder of the Company and has served as its Chairman,
President and Chief Executive Officer and as a Director since 1975. Prior to
founding the Company, Mr. Rumy served as Industrial Marketing Manager and
Process Engineer for Monsanto Company, Accounts Manager for General Electric
Company and Technical Sales Representative for W.R. Grace Company. Mr. Rumy
received a BS in Chemical Engineering from the University of Minnesota in 1966.
Mr. Rumy speaks fluent Hungarian.

Orel R. Kiphart has served as President of Zoltek Corporation and Vice
President of the Company since June 1996. For more than five years prior to
joining the Company, he served as Director of Carbon Products for BF Goodrich
Aerospace, responsible for all that company's high temperature composite
manufacturing, product development and sales and marketing of carbon products
to industrial markets.

William P. Downey has served as Chief Financial Officer and Secretary of
the Company since March 1996. For more than five years prior to joining the
Company he served in various staff and management positions with MEMC
Electronic Materials, Inc., most recently serving as Vice President, Finance
and Product Development of a joint venture between MEMC and IBM Corporation
which manufactured silicon-on-insulator wafers for the global semiconductor
market.

Gyorgy Paszty has served as Vice President of the Company since February
1996 and as Managing Director of Viscosa since 1990. Prior to that time, he
served in various technical and management positions in the Hungarian chemical
industry. Mr. Paszty received a BS in Chemical Engineering from the Technical
University, Budapest, Hungary, in 1966. Mr. Paszty speaks fluent English.

James W. Betts has served as a Director of the Company since August 1992.
For more than the past five years, he has been Vice President Raw Materials of
Great Lakes Carbon Corp. (a producer of carbon products).

James Dorr has served as a Director of the Company since August 1992. Since
June 1995, he has been engaged in business as a consultant. For more than five
years prior to June 1995 when he retired, he served as Director--Advanced
Materials and Structures of McDonnell Douglas Corporation (an aircraft
manufacturer).

Charles A. Dill has served as a Director of the Company since August 1992.
Since October 1995, he has been a managing general partner of Gateway Venture
Partners, a venture capital firm. He served as President of Bridge Information
Systems, Inc. (a provider of databases and systems to institutional investors)
from 1991 to October 1992 and as Chief Executive Officer from October 1992 to
April 1995. From February 1988 to September 1990, he was President and a
Director of AVX Corporation (a ceramic electronic devices manufacturer). From
May 1982 to February 1988, he was Senior Vice President and a member of the
Office of the Chief Executive and an Advisory

<PAGE> 30
Director of Emerson Electric Company (a diversified manufacturer of electrical
and other products), where he was the corporate officer responsible for that
corporation's power transmission, electrical and electronic divisions. Mr. Dill
serves as a director of Stifel Financial Corp., the parent of Stifel, Nicolaus
& Company, Incorporated, a securities brokerage, investment management and
investment banking firm.

John L. Kardos has served as a Director of the Company since August 1992.
For more than the past five years he has been Professor of Chemical Engineering
of Washington University, St. Louis, Missouri, where he has been Chairman of
the Department of Chemical Engineering since July 1991. From June 1971 to July
1991, he was Chairman of the Graduate Program in Materials Science and
Engineering and Director of the Materials Research Laboratory of Washington
University.

Linn H. Bealke has served as a Director of the Company since August 1992.
For more than the past five years he has been President and Director of
Mississippi Valley Bancshares, Inc. (a bank holding company) and Vice Chairman
of Southwest Bank of St. Louis.

Each director of the Company holds office until his successor has been duly
elected and qualified. Officers of the Company are elected by the Board of
Directors of the Company at each annual meeting of the Board of Directors and
serve at its discretion. The Company's Board of Directors is divided into three
classes, with three-year staggered terms. Messrs. Kardos and Bealke are Class I
directors, Messrs. Betts and Dorr are Class II directors and Messrs. Rumy and
Dill are Class III directors. The terms of the Class I, Class II and Class III
directors expire in 1997, 1998 and 1999, respectively.

The officers of the Company are elected at the annual meeting of the Board
of Directors of the Company and serve at its discretion.

COMMITTEES OF THE BOARD

The Board of Directors has a standing Audit Committee and Compensation
Committee.

The members of the Audit Committee are Messrs. Bealke and Dorr. The Audit
Committee reviews the scope of the Company's engagement of its independent
public accountant and their reports. The Audit Committee also meets with the
financial staff of the Company to review accounting procedures and reports.

The Compensation Committee is composed of Messrs. Betts and Dill. The
Compensation Committee is authorized to review and make recommendations to the
Board of Directors regarding the salaries and bonuses to be paid executive
officers and to administer the Company's Long Term Incentive Plan.

<PAGE> 31
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of June 30, 1996 and as
adjusted to reflect the sale of shares of Common Stock offered hereby for each
director and executive officer of the Company, individually, and all directors
and executive officers of the Company as a group. Except as provided under
applicable community property laws or as otherwise indicated, each shareholder
identified in the table possesses sole voting and investment power with respect
to his shares. The Company is issuing and selling all of the Common Stock
offered hereby.

<TABLE>
<CAPTION>
PERCENT<F1>
---------------------------------
NAME OF BENEFICIAL OWNER NUMBER BEFORE OFFERING AFTER OFFERING
------------------------ ------ --------------- --------------
<S> <C> <C> <C>
Zsolt Rumy<F2>.................................... 5,600,000 40.3% 35.2%
William P. Downey................................. -- <F*> <F*>
Orel R. Kiphart................................... -- <F*> <F*>
Gyorgy Paszty..................................... -- <F*> <F*>
James W. Betts.................................... 39,000<F3> <F*> <F*>
Linn Bealke....................................... 7,500<F4> <F*> <F*>
Charles A. Dill................................... 21,400<F3> <F*> <F*>
James Dorr........................................ 21,000<F5> <F*> <F*>
John L. Kardos.................................... 21,000<F3> <F*> <F*>
All directors and executive officers as a group (9
persons)........................................ 5,709,900<F6> 40.8% 35.7%

<FN>
- --------

<F*>Less than one percent.

<F1> Based upon 13,910,338 shares of the Company's Common Stock issued and
outstanding as of June 30, 1996 and for each director or executive officer
or the group, the number of shares subject to options that may be acquired
by such director or executive officer within 60 days upon exercise of the
option.

<F2> Mr. Rumy's address is 3101 McKelvey Road, St. Louis, Missouri 63044. See
``Description of Capital Stock--BFG Arrangement.''

<F3> Includes 21,000 shares subject to presently exercisable stock options.

<F4> Includes 7,500 shares subject to presently exercisable stock options.

<F5> Includes 15,000 shares subject to presently exercisable stock options.

<F6> Includes 85,500 shares subject to presently exercisable stock options.
</TABLE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company is authorized to issue 20,000,000 shares of Common Stock, par
value $.01 per share, and 1,000,000 shares of Preferred Stock, par value $.01
per share, which may be issued in one or more series. As of June 30, 1996,
13,910,338 shares of Common Stock were outstanding and no shares of Preferred
Stock were outstanding.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by shareholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors then standing for election. The Company's Articles
of Incorporation provide for a classified Board of Directors with three classes
serving staggered three-year terms so that a maximum of one-third of the
directors can be elected at any annual meeting. This provision could have the
effect of delaying, deferring or preventing a change in control of the Company.
The holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of legally available funds. In the event
of liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all remaining assets which are
available for distribution to

<PAGE> 32
them after payment of liabilities and after provision has been made for each
class of stock, if any, having preference over the common Stock. Holders of
shares of Common Stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
Common Stock. All of the outstanding shares of Common Stock are and the shares
of Common Stock offered hereby will be, when issued for the consideration set
forth in this Prospectus, fully paid and nonassessable.

PREFERRED STOCK

The Company is authorized to issue Preferred Stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without further
shareholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting
power or other rights of the holders of the Company's Common Stock. In the
event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. The Company has no present intention to issue any
shares of its Preferred Stock.

DIVIDENDS

The Company presently intends to retain future earnings in order to provide
funds for the operation and expansion of its business. Furthermore, the
declaration and payment of cash dividends is prohibited without the consent of
certain of the Company's lenders. Future dividends, if any, also will depend,
in the discretion of the Board of Directors, on the Company's earnings,
financial condition, capital requirements and other relevant factors. See
``Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.''

SHAREHOLDER NOMINATIONS AND PROPOSALS

The Company's By-laws provide for advance notice requirements for
shareholders' nominations and proposals at annual meetings of the Company. At
annual meetings, generally shareholders may submit nominations for directors or
other proposals only upon written notice to the Company not less than 30 nor
more than 60 days prior to the anniversary date of the previous year's annual
meeting. Notwithstanding the foregoing, in the event that less than 40 days'
advance notice of an annual shareholders meeting is given, a shareholder
nomination or proposal (as the case may be) must be made within ten days of the
date of such notice.

TRANSFER AGENT

Boatmen's Trust Company, St. Louis, Missouri, is the Transfer Agent and the
Registrar of the Common Stock.

MISSOURI TAKEOVER STATUTES

Under Missouri law, a person (or persons acting as a group) who acquires
20% or more of the outstanding stock of an ``issuing public corporation'' will
not have voting rights, unless: (i) such acquiring person satisfies certain
statutory disclosure requirements, and (ii) the restoration of voting rights to
such acquiring person is approved by the issuing public corporation's
shareholders. Additional shareholder approval is required to restore voting
rights when an acquiring person has acquired one-third and a majority,
respectively, of the outstanding stock of the issuing public corporation.

Missouri law also regulates a broad range of ``business combinations''
between a ``resident domestic corporation'' and an ``interested shareholder.''
``Business combination'' is defined to include, among other things, mergers,
consolidations, share exchanges, asset sales, issuances of stock or rights to
purchase stock and certain related party transactions. ``Interested
shareholder'' is defined as a person who: (i) beneficially owns, directly or
indirectly, 20% or more of the outstanding voting stock of a resident domestic
corporation or (ii) is an affiliate of a resident domestic corporation and at
any time within the last five years has beneficially owned 20% or more of the
voting stock of such corporation. Missouri law prohibits a resident domestic
corporation from engaging in a business combination with an interested
shareholder for a period of five years following the date on which the person
became an interested shareholder, unless the Board of Directors approved the
business combination before the person became an interested shareholder.
Business combinations after the five-year period following the stock
acquisition date are

<PAGE> 33
permitted only if: (i) the Board of Directors approved the acquisition of the
stock prior to the acquisition date, (ii) the business combination is approved
by the holders of a majority of the outstanding voting stock (other than the
interested shareholder), and (iii) the consideration to be received by
shareholders meets certain statutory requirements with respect to form and
amount.

The Company believes that it is both an ``issuing public corporation'' and
a ``resident domestic corporation'' subject to the Missouri takeover statutes
described above. Missouri law defines each type of entity as including a
Missouri corporation having: (i) one hundred or more shareholders; (ii) its
principal place of business, principal office or substantial assets in
Missouri; and (iii) certain prescribed percentages of stock ownership by
Missouri residents. While the Company believes it would be subject to such
takeover statutes, there can be no assurance that a court of competent
jurisdiction ultimately would so hold.

BFG ARRANGEMENT

The BFG Supply Agreement provides that in the event the Company's Board of
Directors determines to seek a sale of, or significant investment in, the
Company, it first would negotiate such proposed transaction exclusively with
BFG for specified time periods. Mr. Rumy also has agreed, subject to certain
exceptions, to negotiate exclusively with BFG for a specified period if he
determines to sell a significant amount of shares of the Company's Common
Stock. The foregoing obligations are expressly subject to applicable fiduciary
duties of the Company's directors and Mr. Rumy, as principal shareholder.

BFG's rights to exclusive negotiations with the Company or Mr. Rumy, as the
case may be, in the event of a proposed sale or investment terminate on the
first to occur of: (i) a material breach by BFG in performing its obligations
under the BFG Supply Agreement; (ii) such time as sales to BFG account for less
than 15% of carbon fibers sales in any trailing four quarters; or (iii)
termination of the BFG Supply Agreement.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
15,910,338 shares of Common Stock and presently exercisable options to purchase
an additional 85,500 shares. All of such shares of Common Stock held by
nonaffiliates of the Company are freely tradeable and the remainder of such
shares are eligible for sale under Rule 144 under the Securities Act of 1933,
as amended (the ``Securities Act'').

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares for
at least two years, including the holding period of any prior owner except an
affiliate, is entitled to sell, within a three-month period, that number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume of the Common Stock on Nasdaq
during the four calendar weeks immediately preceding such sale. Sales under
Rule 144 are also subject to certain requirements as to the manner of sale,
notice and availability of current public information regarding the Company.
Any person (or persons whose shares are aggregated) who has not been an
affiliate of the Company at any time during the three months preceding a sale,
and who is deemed to have beneficially owned shares for at least three years,
is entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions or notice or current public information
requirements. Affiliates, however, continue to be subject to such volume
limitations and other requirements. As defined in Rule 144, an ``affiliate'' of
an issuer is a person who directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with, the
issuer, and generally includes members of the Board of Directors and senior
management.

The Company has registered all of the shares of Common Stock issued or
reserved for future issuance under its Long Term Incentive Plan and Directors
Stock Option Plan. As of the date hereof, there were a total of 900,000 shares
of Common Stock subject to outstanding options under the Long Term Incentive
Plan, which could be so sold upon the exercise of such options (which vest
ratably over a three-year period). As of the date hereof, there were a total of
85,500 shares of Common Stock subject to outstanding options (which are
presently exercisable) under the Directors Stock Option Plan. Each director and
executive officer of the Company has agreed not to sell or otherwise dispose of
any shares of Common Stock for a period ending 180 days after the date of this
Prospectus, without the consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.

<PAGE> 34
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of such shares for sale to the
public will have on the market price prevailing from time to time. Sales of
substantial amounts of Common Stock following the offering made hereby could
adversely affect the market price of the Common Stock.

UNDERWRITING

Subject to the terms and conditions set forth in a purchase agreement (the
``Purchase Agreement''), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated (``Merrill Lynch'') and Stifel, Nicolaus &
Company, Incorporated are acting as representatives (the ``Representatives''),
has severally agreed to purchase from the Company, the respective number of
shares of Common Stock set forth opposite its name below at the public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. In the Purchase Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock offered hereby if any of such shares are purchased. In
the event of default by an Underwriter, the Purchase Agreement provides that,
in certain circumstances, the purchase commitments of the nondefaulting
Underwriters may be increased or the Purchase Agreement may be terminated.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................................

Stifel, Nicolaus & Company, Incorporated...............................................

---------
Total....................................................................... 2,000,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public at the offering
price set forth on the cover page of this Prospectus, and to certain dealers at
such price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After the offering contemplated hereby, the
offering price and other selling terms may be changed by the Representatives.

The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to an additional 300,000
shares of Common Stock at the public offering price set forth on the cover page
hereof, less the underwriting discount. The Underwriters may exercise such
option only to cover over-allotments, if any, made in connection with the sale
of Common Stock offered hereby. To the extent that the Underwriters exercise
this option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the above table
is of the 2,000,000 shares of Common Stock initially offered hereby. If
purchased, the Underwriters will offer such additional shares on the same terms
as those on which the 2,000,000 shares are being offered.

In connection with this offering, certain Underwriters or their respective
affiliates who are qualified market makers on Nasdaq may engage in ``passive
market making'' in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon the
satisfaction of certain

<PAGE> 35
conditions, underwriters and selling group members participating in a
distribution that are also Nasdaq market makers in the security being
distributed to engage in limited market making transactions during the period
when Rule 10b-6 under the Exchange Act would otherwise prohibit such activity.
Rule 10b-6A prohibits underwriters and selling group members engaged in passive
market making generally from entering a bid or effecting a purchase at a price
that exceeds the highest bid for those securities displayed on Nasdaq by a
market maker that is not participating in the distribution. Under Rule 10b-6A,
each underwriter or selling group member engaged in passive market making is
subject to a daily net purchase limitation equal to 30% of such entity's
average daily trading volume during the two full consecutive calendar months
immediately preceding the date of the filing of the registration statement
under the Securities Act of 1933, as amended (the ``Securities Act''),
pertaining to the security to be distributed.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act.

The Company and each of the directors and executive officers of the Company
have agreed that they will not sell or otherwise dispose of any Common Stock
without the prior written consent of Merrill Lynch for a period of 180 days
from the date of this Prospectus, except that the Company may, without such
consent, issue shares upon the exercise of options granted pursuant to the
Company's stock option plans.

Charles A. Dill, a director of the Company, serves as a director of Stifel
Financial Corp., the parent of Stifel, Nicolaus & Company, Incorporated, one of
the Representatives.

LEGAL MATTERS

The legality of the shares of Common Stock offered hereby is being passed
upon for the Company by Thompson Coburn, St. Louis, Missouri. Mayer, Brown &
Platt, Chicago, Illinois, is acting as counsel for the Underwriters in
connection with certain legal matters relating to the sale of the shares of
Common Stock offered hereby.

EXPERTS

The consolidated financial statements of the Company and its subsidiaries
as of September 30, 1994 and 1995, and for each of the three fiscal years in
the period ended September 30, 1995, have been included herein in reliance upon
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.

The consolidated financial statements of Viscosa for the six months ended
December 31, 1993, the year ended December 31, 1994 and the six months ended
June 30, 1995, have been incorporated by reference herein in reliance upon the
report (which contains an explanatory paragraph relating to Viscosa's ability
to continue as a going concern as described in Note 1 to Viscosa's consolidated
financial statements) of Price Waterhouse (Budapest), independent accountants,
given on the authority of said firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the ``Exchange Act''), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the ``Commission''). Reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549; Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7
World Trade Center, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.

The Company has filed a Registration Statement (the ``Registration
Statement'') with the Commission under the Securities Act, with respect to the
securities covered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement. The Registration
Statement may be inspected without charge at the office of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 or obtained from such office upon
payment of the fees prescribed by the Commission.

<PAGE> 36
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

Upon either written or oral request, any person receiving a copy of this
Prospectus may obtain from the Company, without charge, a copy of any of the
documents incorporated by reference herein, except for the exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates). Written requests should be
directed to: Investor Relations, Zoltek Companies, Inc., 3101 McKelvey Road,
St. Louis, Missouri 63044 (telephone number (314) 291-5110).

The following documents filed with the Commission pursuant to applicable
statutes are incorporated herein by reference:

(1) The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995;

(2) The Company's Current Report on Form 8-K, dated December 8, 1995;

(3) The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995;

(4) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996; and

(5) The description of the Company's Common Stock set forth in the
Company's Registration Statement on Form S-1, dated November 6, 1992 (File
No. 33-51142), which description was incorporated by reference into the
Company's Registration Statement on Form 8-A, dated November 6, 1992 (File
No. 0-20600), including any amendment or report filed for the purpose of
updating such descriptions.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior termination of the offering made hereby shall be deemed incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is or
is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement contained in this Prospectus shall be deemed to be
modified or superseded to the extent that a statement contained in a
subsequently filed document which is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.

<PAGE> 37

<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<CAPTION>
ITEM PAGE
---- ----

<S> <C>

Report of Independent Accountants..................................................... F-2

Consolidated Balance Sheet as of September 30, 1994 and 1995
and March 31, 1996 (unaudited)...................................................... F-3

Consolidated Statement of Income for the years ended
September 30, 1993, 1994 and 1995 and for the six months
ended March 31, 1995 and 1996 (unaudited)........................................... F-4

Consolidated Statement of Changes in Shareholders' Equity for
the years ended September 30, 1993, 1994 and 1995 and for
the six months ended March 31, 1996 (unaudited)..................................... F-5

Consolidated Statement of Cash Flows for the years ended
September 30, 1993, 1994 and 1995 and for the six months
ended March 31, 1995 and 1996 (unaudited)........................................... F-6

Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1

<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of Zoltek Companies, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Zoltek Companies, Inc., and its subsidiaries at September 30, 1995 and 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

As discussed in Note 1, effective October 1, 1993, the Company changed its
method of accounting for income taxes.

Price Waterhouse LLP
St. Louis, Missouri

October 13, 1995, except as to Note 11, which
is as of November 22, 1995, and as to Note 2
which is as of December 8, 1995

F-2

<PAGE> 39

<TABLE>
ZOLTEK COMPANIES, INC.

CONSOLIDATED BALANCE SHEET

<CAPTION>
SEPTEMBER 30,
------------------- MARCH 31,
1994 1995 1996
---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C>

ASSETS
- ------

Current assets:

Cash and cash equivalents.......................................................... $ 156,496 $ 1,677,400 $ 8,837,424

Accounts receivable, less allowance for doubtful accounts of $20,000, $28,038 and
$164,504, respectively........................................................... 2,934,882 3,066,427 7,981,517

Inventories........................................................................ 3,657,924 3,127,339 12,942,561

Prepaid expenses................................................................... 45,810 27,144 315,777

Refundable income taxes............................................................ 200,820 -- --

Other receivables.................................................................. -- -- 2,038,842

Assets held for sale............................................................... -- 581,472 244,946
------------ ------------ ------------

Total current assets........................................................... 6,995,932 8,479,782 32,361,067

Property and equipment, net............................................................ 10,312,366 9,355,773 31,802,903

Notes receivable....................................................................... -- 200,000 374,353

Loan origination and deferred costs.................................................... 63,927 354,175 64,919

Intangible assets, net................................................................. -- -- 151,312

Other assets........................................................................... 500 500 14,925
------------ ------------ ------------

Total assets................................................................... $ 17,372,725 $ 18,390,230 $ 64,769,479
============ ============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------

Current liabilities:

Revolving credit agreement......................................................... $ 1,027,969 $ -- $ --

Short-term notes payable........................................................... -- -- 1,959,844

Current maturities of long-term debt............................................... 633,702 744,542 861,233

Trade accounts payable............................................................. 1,105,659 861,578 9,224,829

Accrued expenses................................................................... 289,027 290,060 --

Other short-term liabilities....................................................... -- -- 1,690,265

Reserve for reorganization of acquired operations.................................. -- -- 3,654,699

Income taxes payable............................................................... 73,461 262,052 263,486
------------ ------------ ------------

Total current liabilities...................................................... 3,129,818 2,158,232 17,654,356

Other long-term liabilities............................................................ -- -- 2,473,623

Minority interest...................................................................... -- -- 591,977

Long-term debt, less current maturities................................................ 6,562,446 6,191,157 5,608,714

Deferred income taxes.................................................................. 580,000 522,000 522,000

Shareholders' equity:

Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued and
outstanding...................................................................... -- -- --

Common stock, $.01 par value, 8,000,000, 8,000,000 and 20,000,000 shares
authorized, respectively, and 3,128,570, 4,813,203 and 6,939,695 shares issued
and outstanding, respectively.................................................... 31,285 48,132 69,397

Additional paid-in capital......................................................... 3,823,342 4,208,336 30,395,745

Retained earnings...................................................................... 3,245,834 5,262,373 7,453,667
------------ ------------ ------------

7,100,461 9,518,841 37,918,809
------------ ------------ ------------

Total liabilities and shareholders' equity..................................... $ 17,372,725 $ 18,390,230 $ 64,769,479
============ ============ ============

The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

F-3

<PAGE> 40

<TABLE>
ZOLTEK COMPANIES, INC.

CONSOLIDATED STATEMENT OF INCOME

<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------- ------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................................ $5,140,684 $7,920,651 $12,697,558 $5,704,371 $28,214,251
Cost of sales............................................ 2,941,983 4,502,263 7,715,879 3,379,414 21,165,470
---------- ---------- ----------- ---------- -----------
Gross profit............................................. 2,198,701 3,418,388 4,981,679 2,324,957 7,048,781
Selling, general and administrative expenses............. 1,356,060 1,624,327 1,844,689 873,697 3,888,687
---------- ---------- ----------- ---------- -----------
Income from continuing operations........................ 842,641 1,794,061 3,136,990 1,451,260 3,160,094
Other income (expense):
Interest expense......................................... (579,292) (616,608) (739,506) (375,174) (434,850)
Interest income.......................................... -- -- 31,647 -- 262,186
Other, net............................................... (31,960) 2,988 2,653 1,324 136,573
---------- ---------- ----------- ---------- -----------
Income from continuing operations before
income taxes........................................... 231,389 1,180,441 2,431,784 1,077,410 3,124,003
Provision for income taxes............................... 95,457 381,839 854,713 403,741 933,289
---------- ---------- ----------- ---------- -----------
Net income from continuing operations................ 135,932 798,602 1,577,071 673,669 2,190,714
Income from discontinued operations, net of income
taxes.................................................. 431,414 208,006 455,512 137,363 22,427
---------- ---------- ----------- ---------- -----------
Net income before minority interest.................. 567,346 1,006,608 2,032,583 811,032 2,213,141
Less: interest of minority shareholders in
income of consolidated subsidiary...................... -- -- -- -- 21,846
---------- ---------- ----------- ---------- -----------
Net income........................................... $ 567,346 $1,006,608 $ 2,032,583 $ 811,032 $ 2,191,295
========== ========== =========== ========== ===========
Net income per share:
Continuing operations................................ $ 0.02 $ 0.09 $ 0.16 $ 0.07 $ 0.17
Discontinued operations.............................. 0.04 0.02 0.05 0.02 0.00
---------- ---------- ----------- ---------- -----------
Net income per share................................. $ 0.06 $ 0.11 $ .21 $ 0.09 $ 0.17
========== ========== =========== ========== ===========
Weighted average common shares
outstanding............................................ 9,025,000 9,313,590 9,582,936 9,539,856 12,654,420

The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

F-4

<PAGE> 41

<TABLE>
ZOLTEK COMPANIES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS
--------- -------- ------------ ----------
<S> <C> <C> <C> <C>
Balance, September 30, 1992.......................................... $ 0 $ 20,000 $ 0 $1,671,880

Common stock offering in November 1992............................... -- 11,000 3,665,348 --

Net income for the year ended September 30, 1993..................... -- -- -- 567,346
--------- -------- ------------ ----------
Balance, September 30, 1993.......................................... -- 31,000 3,665,348 2,239,226

Exercise of stock options............................................ -- 285 113,994 --

Benefit of tax deduction for stock option compensation expense....... -- -- 44,000 --

Net income for the year ended September 30, 1994..................... -- -- -- 1,006,608
--------- -------- ------------ ----------
Balance, September 30, 1994.......................................... 0 31,285 3,823,342 3,245,834

Exercise of stock options............................................ -- 803 278,994 --

Benefit of tax deduction for stock option compensation expense....... -- -- 106,000 --

Common stock split (3-for-2) in September 1995....................... -- 16,044 -- (16,044)

Net income for the year ended September 30, 1995..................... -- -- -- 2,032,583
--------- -------- ------------ ----------
Balance, September 30, 1995.......................................... 0 48,132 4,208,336 5,262,373

Secondary stock offering November 1995 (unaudited)................... -- 20,850 26,270,471 --

Exercise of stock options (unaudited)................................ -- 415 (83,062) --

Net income for the six months ended March 31, 1996 (unaudited)....... -- -- -- 2,191,295
--------- -------- ------------ ----------
Balance March 31, 1996 (unaudited)................................... $ 0 $ 69,397 $ 30,395,745 $7,453,668
========= ======== ============ ==========

The accompanying notes are an integral part of these statements.
</TABLE>

F-5

<PAGE> 42

<TABLE>
ZOLTEK COMPANIES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

<CAPTION> SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------- -------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 567,346 $1,006,608 $2,032,583 $ 811,032 $ 2,191,295
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 837,297 949,978 1,049,103 530,127 1,160,779
Unrealized foreign exchange loss............. -- -- -- -- 11,481
Minority interest............................ -- -- -- -- 21,846
Gain on sale of Equipment and Service
Business Unit (``ESBU'')................... -- -- (387,887) -- --
Changes in assets and liabilities, net of
effects from purchase of Viscosa:
(Increase) decrease in accounts
receivable............................ (490,844) (815,423) (131,545) (140,421) 238,395
Increase in other receivables............ -- -- -- -- (1,243,434)
Increase in inventories.................. (342,063) (701,393) (1,203,239) (1,484,619) (2,952,103)
(Increase) decrease in prepaid
expenses.............................. (40,780) 22,770 (214) (141,513) (288,633)
(Increase) decrease in refundable income
taxes................................. (22,411) (145,509) 200,820 194,918 --
Decrease in inventories held for sale.... -- -- -- -- 284,822
Decrease in notes receivable............. -- -- -- -- 80,093
Increase in intangible assets............ -- -- -- -- (21,925)
Increase (decrease) in trade accounts
payable............................... (472,148) (335,805) (244,081) 646,608 14,310
Increase (decrease) in other short-term
liabilities........................... -- -- -- (80,441) 248,174
Increase (decrease) in accrued
expenses.............................. 71,653 (6,013) (73,967) -- --
Increase in income taxes payable......... 73,461 188,591 81,028 1,434
Decrease in reserve for reorganization... -- -- -- -- (295,301)
Increase (decrease) in deferred income
taxes................................. 44,000 315,038 (58,000) -- --
Decrease in other long-term
liabilities........................... -- -- -- -- (1,380,476)
Decrease in minority interest............ -- -- -- -- (18,148)
---------- ---------- ---------- ---------- -----------
Total adjustments................... (415,296) (642,896) (660,419) (394,313) (4,138,686)
---------- ---------- ---------- ---------- -----------
Net cash provided (used) by operating activities..... 152,050 363,712 1,372,164 416,719 (1,947,391)
---------- ---------- ---------- ---------- -----------
Cash flows from investing activities:
Payments for purchase of Viscosa, net of cash
acquired....................................... -- -- -- -- (17,309,887)
Payments for purchase of property and
equipment...................................... (1,850,521) (1,135,155) (951,081) (290,865) (1,229,891)
Proceeds from sale of ESBU....................... -- -- 1,716,960 -- --
---------- ---------- ---------- ---------- -----------
Net cash provided (used) by investing activities..... (1,850,521) (1,135,155) 765,879 (290,865) (18,539,778)
---------- ---------- ---------- ---------- -----------
Cash flows from financing activities:
Net decrease in line of credit borrowings........ (672,464) (1,359,567) (1,027,969) (1,027,969) --
Net proceeds from sale of common stock........... 3,676,348 -- -- -- 26,291,321
Net proceeds from exercise of stock options and
warrants....................................... -- 158,279 385,797 268,797 (84,684)
Proceeds from issuance of notes payable.......... -- 5,297,500 5,650,000 5,650,000 4,983,772
Repayment of notes payable....................... (1,523,773) (3,147,614) (5,329,172) (4,968,791) (3,829,472)
Increase in loan origination costs............... -- (63,927) (9,539) (6,824) --
(Increase) decrease in deferred costs............ 208,035 (286,256) -- 286,256
---------- ---------- ---------- ---------- -----------
Net cash provided (used) by financing activities..... 1,688,146 884,671 (617,139) (84,787) 27,647,193
---------- ---------- ---------- ---------- -----------
Net increase (decrease) in cash...................... (10,325) 113,228 1,520,904 41,607 7,160,024
Cash and cash equivalents at beginning of period..... 53,593 43,268 156,496 156,496 1,677,400
---------- ---------- ---------- ---------- -----------
Cash and cash equivalents at end of period........... $ 43,268 $ 156,496 $1,677,400 $ 197,563 $ 8,837,424
========== ========== ========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest......................................... $ 596,869 $ 585,021 $ 775,921 $ 405,940 $ 415,683
Income taxes..................................... 343,611 276,010 817,589 213,054 931,855

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
The Company sold the ESBU in August 1995. Portions of
the payment received by the Company were non-cash
in nature, as follows:
Long-term note receivable from buyer of ESBU..... $ 200,000
Debt assumed by buyer of ESBU.................... 581,277
----------
$ 781,277
==========

The accompanying notes are an integral part of these statements.
</TABLE>

F-6

<PAGE> 43
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of consolidation

Zoltek Companies, Inc. (the ``Company'') is a holding company, having no
operations of its own. Zoltek Corporation (``Zoltek'') develops, manufactures
and markets advanced materials and industrial products for selected niche
markets. The Carbon Fibers Business Unit of Zoltek manufactures carbon fibers
used in aircraft brakes and other composite materials. In August 1995, the
Company's Board of Directors authorized the disposition of the Company's former
Equipment and Services Business Unit (``ESBU''), which supplied industrial
process equipment, aftermarket components and repair services. These operations
have been classified as a discontinued operation (Note 12). Zoltek Magyar
Viscosa Rt (``Viscosa'') manufactures and markets acrylic and nylon fibers and
yarns to the textile industry. Other Viscosa products include nylon granules,
plastic grids and nets, and carboxymethyl cellulose. In addition, Viscosa
provides public works services for plant use and to the town of Nyergesujfalu,
Hungary. Viscosa maintains its accounting records in accordance with Hungarian
law. These financial statements have been prepared in accordance with U.S.
generally accepted accounting principles. Viscosa's consolidated balance sheet
was translated from Hungarian Forints to U.S. Dollars at the exchange rate in
effect at the balance sheet date, while its consolidated statements of
operations were translated using the average exchange rates in effect during
the period. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Zoltek. The accounts of Viscosa from
the date of its acquisition have been included in the Company's unaudited
financial statements at March 31, 1996 and for the six months then ended. All
significant intercompany transactions and balances have been eliminated.

Revenue recognition

The Company recognizes sales on the date the products are shipped. During
1995, approximately $4,658,000 and $3,780,000, respectively, of total Carbon
Fibers Business Unit's sales revenue was earned from two customers. During
1994, approximately $3,756,000 and $1,734,000, respectively, of the Carbon
Fibers Business Unit's sales revenue was earned from the same two customers.
During 1993, approximately $2,583,000 of total Carbon Fibers Business Unit's
sales revenue was earned from a single customer.

Concentration of credit risk

Products of the Carbon Fibers Business Unit are primarily sold to customers
in the aerospace and automotive industries. While the market is geographically
unlimited, most of Zoltek's business is with customers located in North
America. Zoltek performs on-going credit evaluations of its customers and
generally does not require collateral. Zoltek maintains reserves for potential
credit losses and such losses have been within management's expectations. As of
September 30, 1995, Zoltek had no significant concentrations of credit risk.

Inventories

Inventories are valued at the lower of cost, determined on the first-in,
first-out method, or market.

Property and equipment

Property and equipment are stated at cost. Expenditures which improve the
asset or extend the useful life are capitalized, including interest on funds
borrowed to finance the acquisition or construction of major capital additions.
No interest was capitalized for the years ended September 30, 1993, 1994 and
1995. Maintenance and repairs are expensed as incurred. When property is
retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts and any profit or loss on disposition is credited
or charged to income.

F-7

<PAGE> 44
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
The Company provides for depreciation by charging amounts sufficient to
amortize the cost of the properties over their estimated useful lives using
primarily straight line methods. The range of estimated useful lives used in
computing depreciation is as follows:

<TABLE>
<S> <C>
Buildings and improvements...................... 10 to 31.5 years

Automobiles..................................... 3 to 5 years

Machinery and equipment......................... 5 to 10 years

Furniture and fixtures.......................... 7 to 10 years
</TABLE>

The Company uses primarily accelerated depreciation methods for income tax
purposes.

Research and development expenses

Expenditures for research, development and engineering of products and
manufacturing processes are expensed as incurred. Such costs were approximately
$60,000, $263,000 and $370,000 in 1993, 1994 and 1995.

Income taxes

Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), ``Accounting for Income Taxes'' which
did not have a material impact on the Company's financial statements. SFAS 109
is an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
Deferred tax expense (benefit) is the result of changes in the liability for
deferred taxes.

Net income per common share

Net income per common share is calculated based on the weighted average
number of common shares outstanding during the respective periods. All share
and per share date have been adjusted to give retroactive effect to the
recapitalizations and stock split described in Note 9.

2. ACQUISITION

On December 8, 1995, the Company completed the acquisition of Viscosa.
Pursuant to agreements with the Hungarian State Property Agency and other
shareholders and lenders, the Company acquired approximately 95% of the equity
ownership and substantially all the debt of Viscosa for approximately $18
million. Substantially all the remaining equity is owned by Viscosa's
employees. In the second quarter of fiscal 1996, the Company made $3 million
available to fund Viscosa's working capital requirements. The Company believes
that Viscosa's operations may require an additional $2 million during the
remainder of fiscal 1996 to supplement Viscosa's internally generated funds.
The Viscosa acquisition is reported under the purchase method of accounting and
is included in the Company's consolidated financial statements from the date of
acquisition. The preliminary purchase price allocation includes assets and
liabilities acquired at their estimated fair values. The excess of the fair
market value of the assets acquired over the purchase price was allocated to
reduce property and equipment.

The preliminary purchase price allocation reflects the recording at the
acquisition date of a liability of $3,950,000 related to the estimated cost for
reorganization of the acquired operations, including modification of facilities
layout and possible demolition of obsolete buildings, and product
rationalization, including employee severance and exit costs. The liability
also includes reserves for payment of certain liabilities that were incurred
prior to acquisition, and recognition of the liability associated with previous
employment grants.

The Company is currently working on a definitive plan to rationalize and
consolidate production lines and exit certain businesses. In accordance with
generally accepted accounting principles, any adjustment of this liability upon
the finalization of the purchase price allocation within one year of the
acquisition date will be allocated against the carrying value of property and
equipment.

F-8

<PAGE> 45
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
Set forth below are unaudited pro forma combined results of operations of
Zoltek and Viscosa for the six months ended March 31, 1996 as if the Viscosa
acquisition had been completed as of October 1, 1995 and for the six months
ended March 31, 1995 as if the Viscosa acquisition had been completed as of
October 1, 1994:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------
1995 1996
---- ----
(UNAUDITED)
<S> <C> <C>

Net sales........................................................ $32,367,952 $39,580,140

Income (loss) before extraordinary items......................... (2,057,034) 1,998,064

Net income....................................................... 9,019,633<F*> 1,982,823

Net income per share............................................. .65 .15

<FN>
- --------

<F*>The period ended March 31, 1995 includes extraordinary items related to the
sale of certain of Viscosa's assets and the forgiveness of certain of its
debt in December 1994 for a net gain of $11.3 million, relating to the
Viscosa operations.
</TABLE>

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- MARCH 31,
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>

Raw materials.................................................... $ 358,801 $1,091,113 $ 4,641,777

Work-in-process.................................................. 198,626 106,343 1,665,622

Finished goods................................................... 3,100,497 1,929,883 6,635,162
---------- ---------- -----------

$3,657,924 $3,127,339 $12,942,561
========== ========== ===========
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1994 1995 1996
---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C>

Land............................................................. $ 419,009 $ 314,009 $ 1,040,904

Buildings and improvements....................................... 5,883,892 5,290,932 14,725,584

Machinery and equipment.......................................... 7,938,217 7,272,943 19,208,048

Furniture and fixtures........................................... 745,095 718,687 2,047,682

Automobiles...................................................... 103,259 -- --

Construction in progress......................................... -- -- 107,094
----------- ----------- -----------

15,089,472 13,596,571 37,129,312

Less: accumulated depreciation................................... (4,777,106) (4,240,798) (5,326,409)
----------- ----------- -----------

$10,312,366 $ 9,355,773 $31,802,903
=========== =========== ===========
</TABLE>

F-9

<PAGE> 46
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)

5. INCOME TAXES

The components of the provision (benefit) for income taxes for the years
ended September 31, are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----

<S> <C> <C> <C>
From continuing operations:

Current:

Federal...................................................... $ 39,398 $(18,178) $ 776,536

State........................................................ 12,059 40,979 74,177
-------- -------- ----------

51,457 22,801 850,713

Deferred......................................................... 44,000 359,038 4,000
-------- -------- ----------

$ 95,457 $381,839 $ 854,713
-------- -------- ----------

From discontinued operations:

Current:

Federal...................................................... 233,202 125,178 271,416

State........................................................ 36,541 11,983 22,871
-------- -------- ----------

269,743 137,161 294,287
-------- -------- ----------

$365,200 $519,000 $1,149,000
======== ======== ==========
</TABLE>

Refundable income taxes at September 30, 1994 represent refunds resulting
from amended returns filed for prior years to expense research and development
costs and recognize tax credits. The benefit of these amended returns is
reflected as a reduction of the current tax provision. Refundable income taxes
at September 30, 1993 represent estimated tax payments made in excess of the
provision for current taxes.

Deferred income taxes reflect the tax impact of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. Amounts giving rise
to the deferred income tax liability at September 30 are as follows:

<TABLE>
<CAPTION>
1994 1995
---- ----

<S> <C> <C>
Depreciation..................................................... $689,080 $708,205

Inventories...................................................... (25,142) (48,943)

Accrued vacation pay............................................. (28,659) (23,800)

State tax, net of federal tax benefit............................ 35,752 35,994

Accrued health fund.............................................. (9,930) (13,781)

Other............................................................ (37,101) (29,675)
-------- --------

624,000 628,000

Less: tax benefit of stock options........................... (44,000) (106,000)
-------- --------

Total deferred tax liability................................. $580,000 $522,000
======== ========
</TABLE>

F-10

<PAGE> 47
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
The provision for income taxes at September 30 differs from the amount
using the statutory federal income tax rate (34%) as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----

<S> <C> <C> <C>
At statutory rate:

Income taxes on income from continuing operations.............. $ 78,673 $401,350 $ 827,000

Income taxes on income from discontinued operations............ 238,393 117,356 255,000

Increases (decreases):

State taxes, net of federal benefit............................ 30,348 44,617 64,000

R & D tax credits, net of federal benefit...................... (52,441) (15,000)

Other.......................................................... (26,514) 8,118 18,000

Effect of graduated rates...................................... 44,300
-------- -------- ----------

$365,200 $519,000 $1,149,000
======== ======== ==========
</TABLE>

The components of the deferred income tax provision are as follows for the
years ended September 30:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----

<S> <C> <C> <C>
Depreciation/fixed assets........................................ $ 28,491 $386,615 $ 19,125

Inventories...................................................... 2,128 (8,491) (23,801)

Accrued vacation pay............................................. (5,160) (8,817) 4,859

Accrued health fund.............................................. (9,930) (3,851)

State tax, net of federal tax benefit............................ (3,512) 9,663 242

AMT credit carryover............................................. 67,731

Other............................................................ (45,678) (10,002) 7,426
-------- -------- ----------

$ 44,000 $359,038 $ 4,000
======== ======== ==========
</TABLE>

The Tax Reform Act of 1986 expanded the corporate alternative minimum tax
(``AMT''). Under this Act, the Company's tax liability is the greater of its
regular tax or the AMT. To the extent that the Company's AMT liability exceeds
its otherwise determined tax liability, an AMT credit is generated which may be
applied against future tax liabilities. At September 30, 1992, the Company had
AMT credits of approximately $67,731 generated during 1992 which were fully
utilized in 1993.

6. FINANCING

Credit agreements

The Company has a revolving credit agreement which bears interest at .5%
over prime (prime rate at September 30, 1995 was 8.5%) with a maximum available
of the lesser of $2,500,000 or the sum of 85% of qualified accounts receivable
plus 50% of qualified inventory. Interest is due monthly and the outstanding
principal balance is payable on June 1, 1996 if not called on demand. At
September 30, 1995, the unused portion of the line of credit amounted to
$2,500,000.

F-11

<PAGE> 48
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
Long-term debt

Long-term debt consists of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1994 1995
---- ----

<S> <C> <C>
Equipment loans:

Note payable with interest at 5%, payable in monthly installments of $3,333 principal plus
interest on the outstanding balance to maturity in November 1996, at which time the remaining
principal balance is due..................................................................... $ 283,333 $ 243,333

Note payable with interest at 9%, payable in monthly installments of principal and interest of
$62,458 to maturity in November 1999......................................................... -- 2,366,779

Real estate loans:

Note payable with interest at 9.95%, payable in monthly installments of principal and interest
of $19,288 to maturity in September 2009..................................................... 1,800,000 1,744,950

Note payable with interest at 9.5%, payable in monthly installments of principal and interest
of $27,672 to maturity in December 2009...................................................... -- 2,580,637

Note payable with interest at 12.2%, payable in monthly installments of principal and interest
of $5,583 to maturity in March 2005, at which time the remaining principal balance is due
(Note 12).................................................................................... 393,653 --

Note payable with interest at 4%, payable in monthly installments of principal and interest of
$1,016 to maturity in January 2024 (Note 12)................................................. 209,570 --

Working capital note payable, repaid November 1994............................................. 933,333 --

Equipment note payable, refinanced November 1994............................................... 1,303,803 --

Real estate note payable, refinanced December 1994............................................. 2,272,456 --
---------- ----------

7,196,148 6,935,699

Less: amounts payable within one year.......................................................... (633,702) (744,542)
---------- ----------

$6,562,446 $6,191,157
========== ==========
</TABLE>

Following is a schedule of required principal payments of long-term debt:

<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, TOTAL
------------- -----

<S> <C>
1996.............................................. $ 744,542

1997.............................................. 976,711

1998.............................................. 907,218

1999.............................................. 685,243

2000.............................................. 222,556

Thereafter........................................ 3,399,429
-----------

$ 6,935,699
===========
</TABLE>

The revolving credit agreement and notes payable, aggregating $2,610,112 at
September 30, 1995 are secured by accounts receivable, inventories, machinery
and equipment, and general intangibles. The remaining notes payable are secured
by real estate holdings.

Under the terms of the revolving credit agreement and certain long-term
debt, Zoltek is required to maintain a minimum level of tangible net worth and
there are restrictions on capital expenditures. The Company is in compliance
with the debt covenants at September 30, 1995.

F-12

<PAGE> 49
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES

Lease

Land at the carbon fibers manufacturing facility is leased under an
operating lease which provides for 100% real estate tax abatement and expires
in December 2065, with a renewal option for 24 years expiring in December 2089.
The lease required a prepayment of $50,000 for rental through October 1993 and
requires annual rental payments of $57,991 through October 2010. Rental expense
related to this lease was $16,668, $54,552 and $57,991 for the years ended
September 30, 1993, 1994 and 1995, respectively.

Legal

The Company is a party to various claims and legal proceedings arising out
of the normal course of its business. In the opinion of management, the
ultimate outcome of these claims and lawsuits will not have a material adverse
effect upon the financial condition or results of operations of the Company.

8. PROFIT SHARING PLAN

The Company maintains a 401(k) Profit Sharing Plan for the benefit of
employees who have completed one year of service and attained 21 years of age.
The Company's contribution to the plan is determined annually by the Board of
Directors. Contributions of $55,000 and $75,000 were made for the years ended
September 30, 1994 and 1995, respectively. No contribution was made for the
year ended September 30, 1993.

9. RECAPITALIZATIONS AND STOCK SPLIT

In August 1992, the Company's authorized capital structure was changed to
8,000,000 shares of common stock, par value $.01 per share, and 1,000,000
shares of preferred stock, par value $.01 per share. In addition, pursuant to a
stock dividend the Company split its shares of common stock at a rate of 4,000
to 1, thereby increasing issued and outstanding shares from 1,500 to 6,000,000.

On August 31, 1995 the Company announced a three-for-two stock split
(payable in the form of a 50% stock dividend). The dividend was paid on
September 29, 1995 to Shareholders of record on September 15, 1995.

In February 1996, the Company's authorized capital structure was changed to
20,000,000 shares of common stock, par value $.01 per share, and 1,000,000
shares of preferred stock, par value $.01 per share.

All share and per share amounts in the accompanying consolidated financial
statements and notes have been adjusted to give retroactive effect to the
recapitalization and the stock splits for all periods presented.

10. STOCK OPTIONS AND WARRANTS

Initial Public Offering

In November 1992, the Company completed an initial public offering of
3,300,000 shares of common stock and received net proceeds of $3.7 million. The
Company applied $1.4 million of the net proceeds to reduce indebtedness and
$631,000 was used to reduce accounts payable. The remaining $1.7 million was
utilized for capital expenditures. In conjunction with the offering, the
Company sold warrants to purchase 165,000 shares of the Company's common stock
at an exercise price per share equal to the initial public offering price of
$1.33 per share (increasing annually by 7% of the initial public offering
price) to the representatives of the underwriters, for an aggregate price of
$100. These warrants were exercised during fiscal year 1995 at $1.43 per
share.

F-13

<PAGE> 50
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
Long-term Incentive Plan

In August 1992, the Company adopted a Long-term Incentive Plan that
authorizes the Compensation Committee of the Board of Directors (the Committee)
to grant key employees and officers of the Company incentive or nonqualified
stock options, stock appreciation rights, performance shares, restricted shares
and performance units. The Committee determines the prices and terms at which
awards may be granted along with the duration of the restriction periods and
performance targets. Outstanding stock options expire 10 years from the date of
grant or upon termination of employment. Currently, 900,000 shares of common
stock may be issued pursuant to awards under the plan. Options granted in 1993
vest ratably over a three-year period commencing on the date of grant. Options
granted in 1995 vest 100% five years from the date of grant. The options were
issued at an option price equal to the market price on the date of grant.
Information related to stock options during the three years ended September 30,
1995 is as follows:

<TABLE>
<CAPTION>
NUMBER OF OPTION
SHARES PRICE
--------- ------

<S> <C> <C>
Shares under option at
September 30, 1992............................................. -- $ --

Granted...................................................... 445,500 1.33

Exercised.................................................... -- --

Forfeited.................................................... 45,000 1.33
--------

Shares under option
at September 30, 1993.......................................... 400,500 1.33

Granted...................................................... -- --

Exercised.................................................... 85,710 1.33

Forfeited.................................................... 61,290 1.33
--------

Shares under option
at September 30, 1994.......................................... 253,500 1.33

Granted...................................................... 390,000 3.42-6.25

Exercised.................................................... 80,490 1.33

Forfeited.................................................... 69,510 1.33
--------

Shares under option
at September 30, 1995.......................................... 493,500 1.33-6.25
========
</TABLE>

Directors Stock Option Plan

In August 1992, the Company adopted a Directors Stock Option Plan under
which options to purchase 3,000 shares of common stock at the then fair market
value will be issued to each non-employee director annually. In addition, newly
elected non-employee directors receive options to purchase 3,000 shares of
common stock, at the then fair market value. Pursuant to the plan, options to
purchase 12,000 shares at an exercise price of $1.33 per share, 12,000 shares
of common stock at an exercise price of $2.34 per share and 37,500 shares of
common stock at an exercise price of $4.34 per share were outstanding as of
September 30, 1995. The options expire in 2002, 2004 and 2005, respectively.

11. SECONDARY STOCK OFFERING

Pursuant to a secondary public offering in November 1995, the Company sold
4,170,000 shares of common stock and received net proceeds of $26.3 million.
The Company used approximately $18 million to fund the purchase of Viscosa and
plans to utilize the remaining proceeds for Viscosa's working capital needs,
and general corporate purposes, including capital expenditures.

F-14

<PAGE> 51
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
12. DISCONTINUED OPERATIONS

In view of ESBU's operating performance, demands of the unit on the
Company's finite managerial resources and the perceived opportunities in the
carbon fibers operations, the Company's Board of Directors authorized in August
1995 the disposition of the Company's equipment and services business unit.
Revenues from the equipment and services business unit were $7,226,000,
$6,725,000 and $5,848,000 in fiscal 1993, 1994 and 1995, respectively.

On August 31, 1995, the Company sold the valves, pumps and repair and
fluid-sealing product lines for aggregate consideration of approximately $2.5
million (consisting of $1.7 million cash, $586,000 of debt assumption and a
note receivable for $200,000). The sale resulted in an after-tax gain of
approximately $230,000 for financial statement reporting purposes which was
recorded in the fourth quarter of fiscal 1995. The Company is holding for sale
the ESBU's remaining product line, flexible graphite products, which the
Company expects to dispose of by the end of the third quarter of fiscal 1996.

The assets of the flexible graphite products unit are presented as Assets
held for sale in the consolidated balance sheet at September 30, 1995 at their
net book value which is their estimated net realizable value. No loss on the
discontinuance of the business unit is anticipated. The components of Assets
held for sale at September 30, 1995 consist of the following:

<TABLE>
<S> <C>
Inventories....................................... $ 452,529

Property and equipment, net....................... 128,943
---------

$ 581,472
=========
</TABLE>

13. SUBSEQUENT EVENT

On May 20, 1996, the Company announced a two-for-one stock split (payable
in the form of a 100% stock dividend). The stock dividend was paid June 17,
1996 to shareholders of record on June 3, 1996. All share and per share amounts
in the accompanying financial statements and notes have been adjusted to give
retroactive effect to the stock split for all periods presented except for on
the Consolidated Statement of Changes in Shareholder's Equity and Balance
Sheet. In these statements, shares issued and outstanding prior to June 17,
1996 are reported on a pre-split basis.

F-15

<PAGE> 52

<TABLE>
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)

14. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

<CAPTION>
FISCAL YEAR 1994 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
---------------- ------------ ------------ ------------ -----------

<S> <C> <C> <C> <C>
Net sales........................................................ $ 1,433,214 $ 2,147,051 $ 2,245,762 $ 2,094,624

Gross profit..................................................... 633,222 778,781 1,042,180 964,205

Income from continuing operations................................ 85,290 181,424 232,026 299,862

Income from discontinued operations.............................. 88,332 41,107 22,178 56,389

Net income....................................................... $ 173,622 $ 222,531 $ 254,204 $ 356,251

Earnings per share:

Income from continuing operations............................ $ 0.01 $ 0.02 $ 0.03 $ 0.03

Income from discontinued operations.......................... 0.01 0.00 0.00 0.01
------------ ------------ ------------ -----------

Net income................................................... $ 0.02 $ 0.02 $ 0.03 $ 0.04
============ ============ ============ ===========

FISCAL YEAR 1995 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER<F*>
---------------- ------------ ------------ ------------ ---------------

<S> <C> <C> <C> <C>
Net sales........................................................ $ 2,401,970 $ 3,302,401 $ 2,970,171 $ 4,023,016

Gross profit..................................................... 1,079,000 1,245,957 1,231,653 1,425,069

Income from continuing operations................................ 321,635 352,034 375,536 527,866

Income from discontinued operations.............................. 47,785 89,578 72,350 245,799

Net income....................................................... $ 369,420 $ 441,612 $ 447,886 $ 773,665

Earnings per share:

Income from continuing operations............................ $ 0.03 $ 0.04 $ 0.04 $ 0.05

Income from discontinued operations.......................... 0.01 0.01 0.01 0.03
------------ ------------ ------------ -----------

Net income................................................... $ 0.04 $ 0.05 $ 0.05 $ 0.08
============ ============ ============ ===========
<FN>
Note: Quarterly earnings have been adjusted to reflect the two-for-one stock
split (in the form of a stock dividend) which occurred on June 17, 1996
(Note 13).

- --------

<F*>In the fourth quarter of 1995, income from discontinued operations includes
the gain on sale of a portion of the ESBU of $230,000.
</TABLE>

F-16

<PAGE> 53

===============================================================================
- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

--------------------------

<TABLE>
TABLE OF CONTENTS

<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................... 3
Risk Factors............................................... 6
Use of Proceeds............................................ 10
Price Range of Common Stock and Dividend Policy............ 10
Capitalization............................................. 11
Selected Consolidated Financial Data....................... 12
Pro Forma Condensed Combined Financial Information......... 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 16
Business................................................... 21
Management................................................. 28
Principal Shareholders and Security Ownership of
Management............................................... 30
Description of Capital Stock............................... 30
Underwriting............................................... 33
Legal Matters.............................................. 34
Experts.................................................... 34
Available Information...................................... 34
Documents Incorporated by Reference........................ 35
Index to Consolidated Financial Statements................. F-1
</TABLE>

- -------------------------------------------------------------------------------
===============================================================================

===============================================================================
- -------------------------------------------------------------------------------

2,000,000 SHARES

ZOLTEK

ZOLTEK
COMPANIES, INC.

COMMON STOCK

----------------

PROSPECTUS

----------------

MERRILL LYNCH & CO.

STIFEL, NICOLAUS & CO.
INCORPORATED

, 1996

- -------------------------------------------------------------------------------
===============================================================================

<PAGE> 54

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The registrant estimates that expenses in connection with the offering
described in this Registration Statement will be as follows. All of the amounts
except the SEC registration fee, NASD filing fee and the Nasdaq listing fee are
estimates.

<TABLE>
<CAPTION>
ITEM AMOUNT
---- ------

<S> <C>
SEC registration fee.................................................................. $ 25,776

NASD filing fee....................................................................... 7,975

Nasdaq listing fee.................................................................... 17,500

Printing expenses..................................................................... 90,000

Legal fees and expenses............................................................... 105,000

Accounting fees....................................................................... 95,000

Fees and expenses for qualification under state securities laws....................... 10,000

Transfer agent's fees and expenses.................................................... 2,000

Miscellaneous......................................................................... 46,749
---------

Total............................................................................. $ 400,000
=========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Sections 351.355(1) and (2) of The General and Business Corporation Law of
the State of Missouri provides that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful, except that, in the case of an action or suit by or in
the right of the corporation, the corporation may not indemnify such persons
against judgments and fines and no person shall be indemnified as to any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the corporation,
unless and only to the extent that the court in which the action or suit was
brought determines upon application that such person is fairly and reasonably
entitled to indemnity for proper expenses. Section 351.355(3) provides that, to
the extent that a director, officer, employee or agent of the corporation has
been successful in the defense of any such action, suit or proceeding or any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorney's fees, actually and reasonably incurred in connection with
such action, suit or proceeding. Section 351.355(7) provides that a corporation
may provide additional indemnification to any person indemnifiable under
subsection (1) or (2), provided such additional indemnification is authorized
by the corporation's articles of incorporation or an amendment thereto or by a
shareholder-approved bylaw or agreement, and provided further that no person
shall thereby be indemnified against conduct which was finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct.
Article VII of the Articles of Incorporation of the Registrant provides that
the Registrant shall extend to its directors and executive officers the
indemnification specified in subsections (1) and (2) and the additional
indemnification authorized in subsection (7) and that it may extend to other
officers, employees and agents such indemnification and additional
indemnification.

Section 6 of the Purchase Agreement provides for indemnification by the
Underwriters of the Registrant's officers and directors for certain liabilities
under the Securities Act.

II-1

<PAGE> 55

ITEM 16. EXHIBITS

See Exhibit Index at page II-4 which is incorporated herein by reference.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of the Articles of Incorporation of the
Registrant or the laws of the State of Missouri or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by its is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-2

<PAGE> 56

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of St. Louis, State of Missouri, on July 3, 1996.

ZOLTEK COMPANIES, INC.

By /s/ ZSOLT RUMY
--------------------------------
Zsolt Rumy,
Chairman of the Board,
President and Chief Executive
Officer

We, the undersigned officers and directors of Zoltek Companies, Inc.,
hereby severally and individually constitute and appoint Zsolt Rumy and William
P. Downey, and each of them acting singly, the lawful attorneys and agents of
each of us to execute in the name, place and stead of each of us (individually
and in any capacity stated below) any and all amendments to this Registration
Statement on Form S-3 and all instruments necessary or advisable in connection
therewith and to file the same with the Securities and Exchange Commission,
each of said attorneys and agents to have the power to act with or without the
others and to have full power and authority to do and perform in the name and
on behalf of each of the undersigned every act whatsoever necessary or
advisable to be done in the premises as fully and to all intents and purposes
as any of the undersigned might or could do in person, and we hereby ratify and
confirm our signatures as they may be signed by our said attorneys and agents
and each of them to any and all such amendments and instruments.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons and in the
capacities and on the dates indicated:

<TABLE>
<C> <S> <C>
/s/ ZSOLT RUMY Chairman of the Board and July 3, 1996
- -------------------------------------------------- President (Chief Executive
Zsolt Rumy Officer)

/s/ WILLIAM P. DOWNEY Chief Financial Officer July 3, 1996
- -------------------------------------------------- (Principal Accounting Officer)
William P. Downey

/s/ JAMES W. BETTS Director July 3, 1996
- --------------------------------------------------
James W. Betts

/s/ LINN BEALKE Director July 3, 1996
- --------------------------------------------------
Linn Bealke

Director July , 1996
- --------------------------------------------------
Charles A. Dill

/s/ JAMES DORR Director July 3, 1996
- --------------------------------------------------
James Dorr

/s/ JOHN L. KARDOS Director July 3, 1996
- --------------------------------------------------
John L. Kardos
</TABLE>

II-3

<PAGE> 57

<TABLE>
EXHIBIT INDEX

<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------

<C> <S>

1.1 Form of Purchase Agreement is filed herewith

2.1 Form of Share Purchase Agreement, by and among Allami Privatizacios Es Vagyonkezelo Reszvenytarsasag, Magyar
Viscosa Rt. and Zoltek Corporation, filed as Exhibit 2.1 to Registrant's Registration Statement on Form S-1 (Reg.
No. 33-97294) is incorporated herein by this reference

2.2 Agreement on Sale of Lease Receivables, dated September 20, 1995, by and between Zoltek Corporation and Central
European International Bank Ltd., filed as Exhibit 2.2 to Registrant's Registration Statement on Form S-1 (Reg.
No. 33-97274) is incorporated herein by this reference

2.3 Agreement on Sale of Shares, dated September 20, 1995, with respect to 14.132 pcs of preferred shares of Magyar
Viscosa Rt by and between Zoltek Corporation and CIB Hungarian Bank Rt, filed as Exhibit 2.3 to Registrant's
Registration Statement on Form S-1 (Reg. No. 33-97294) is incorporated herein by this reference

2.4 Agreement on Sale of Shares, dated September 20, 1995, with respect to 14.934 pcs of ordinary shares and 29.534 pcs
of preferred shares of Magyar Viscosa Rt by and between Zoltek Corporation and CIB Hungarian Bank Rt, filed as
Exhibit 2.4 to Registrant's Registration Statement on Form S-1 (Reg. No. 33-97294) is incorporated herein by this
reference

2.5 Sales Agreement, dated September 22, 1995, by and between Zoltek Corporation and Bank of Hungarian Savings
Cooperatives, Ltd., filed as Exhibit 2.5 to Registrant's Registration Statement on Form S-1 (Reg. No. 33-97294)
is incorporated herein by this reference

2.6 Agreement on Sale of Shares, dated September 12, 1995, by and between Zoltek Corporation and Allami Fejlesztesi
Intezet, filed as Exhibit 2.6 to Registrant's Registration Statement on Form S-1 (Reg. No. 33-97294) is
incorporated herein by this reference

2.7 Agreement on Sale of Shares Issued By Magyar Viscosa Rt, dated September 21, 1995, by and between Zoltek
Corporation and Inter-Europa Bank Rt, filed as Exhibit 2.7 to Registrant's Registration Statement on Form S-1
(Reg. No. 33-97294) is incorporated herein by this reference

2.8 Agreement on Sale of Loan Receivables by and between Zoltek Corporation and Inter-Europa Bank Rt, filed as Exhibit
2.8 to Registrant's Registration Statement on Form S-1 (Reg. No. 33-97294) is incorporated herein by this
reference

2.9 Agreement on Sale of Loan Receivables and Shares, dated September 12, 1995, by and between Zoltek Corporation and
Creditanstalt Rt, filed as Exhibit 2.9 to Registrant's Registration Statement on Form S-1 (Reg. No. 33-97294) is
incorporated herein by this reference

4.1 Form of certificate for Common Stock, filed as Exhibit 4.1 to Registrant's Registration Statement on Form S-1 (Reg.
No. 33-51142) is incorporated herein by this reference

5.1 Opinion of Thompson Coburn<F*>

23.1 Consent of Price Waterhouse LLP is filed herewith

23.2 Consent of Price Waterhouse (Budapest) is filed herewith

23.3 Consent of Thompson Coburn (included in Exhibit 5.1)

24.1 Power of Attorney (set forth on Page II-3 hereof)

<FN>
- --------

<F*> To be filed by amendment.
II-4
</TABLE>

<PAGE> 1

DRAFT 7/01/96
==============================================================================

ZOLTEK COMPANIES, INC.

(a Missouri corporation)

2,000,000 Shares of Common Stock

PURCHASE AGREEMENT

Dated: ---------- --, 1996

==============================================================================

<PAGE> 2

<TABLE>

TABLE OF CONTENTS

<S> <C>
PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION 1. Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Representations and Warranties by the Company . . . . . . . . . . . . . . . . . . . . . . . 3
(i) Compliance with Registration Requirements . . . . . . . . . . . . . . . . . 3
(ii) Incorporated Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(iii) Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(iv) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(v) No Material Adverse Change in Business . . . . . . . . . . . . . . . . . . 4
(vi) Good Standing of the Company . . . . . . . . . . . . . . . . . . . . . . . 5
(vii) Good Standing of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 5
(viii) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(ix) Authorization of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 5
(x) Authorization and Description of Securities . . . . . . . . . . . . . . . . 5
(xi) Absence of Defaults and Conflicts . . . . . . . . . . . . . . . . . . . . . 6
(xii) Absence of Labor Dispute. . . . . . . . . . . . . . . . . . . . . . . . . . 6
(xiii) Absence of Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(xiv) Accuracy of Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(xv) Possession of Intellectual Property . . . . . . . . . . . . . . . . . . . . 7
(xvi) Absence of Further Requirements . . . . . . . . . . . . . . . . . . . . . . 7
(xvii) Possession of Licenses and Permits. . . . . . . . . . . . . . . . . . . . . 7
(xviii) Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(xix) Compliance with Cuba Act. . . . . . . . . . . . . . . . . . . . . . . . . . 8
(xx) Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(xxi) Environmental Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(xxii) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(xxiii) Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(xxiv) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(xxv) Absence of Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(xxvi) Lock-up Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(xxvii) Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(xxviii) No Prospectus Distribution . . . . . . . . . . . . . . . . . . . . . . . . 10
(xxix) Absence of Relationships. . . . . . . . . . . . . . . . . . . . . . . . . . 10
(xxx) Internal Accounting Controls. . . . . . . . . . . . . . . . . . . . . . . . 10
(xxxi) Absence of Manipulation . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(xxxii) Absence of Unlawful Contributions . . . . . . . . . . . . . . . . . . . . . 10
(xxxiii) Waiver of Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(xxxiv) Consent to Jurisdiction; Appointment of
Agent for Service of Process. . . . . . . . . . . . . . . . . . . . . . . . 11
(xxxv) No Transaction Tax, Stamp Duty or Similar Tax or Duty . . . . . . . . . . . 11
(xxxvi) Enforceability of New York Judgment . . . . . . . . . . . . . . . . . . . . 11
(xxxvii) Remittance of Viscosa Profits . . . . . . . . . . . . . . . . . . . . . . . 12
(xxxviii) Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Officer's Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

i
<PAGE> 3

SECTION 2. Sale and Delivery to Underwriters: Closing . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Initial Securities.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Option Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Denominations; Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

SECTION 3. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) Compliance with Securities Regulations and Commission Requests.. . . . . . . . . . . . . . . 14
(b) Filing of Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Delivery of Registration Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Delivery of Prospectuses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(e) Continued Compliance with Securities Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 15
(f) Blue Sky Qualifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(g) Rule 158.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(h) Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(i) Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(j) Restriction on Sale of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(k) Reporting Requirements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(l) Cuba Act.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

SECTION 4. Payment of Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Termination of Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

SECTION 5. Conditions of Underwriters' Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Effectiveness of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Opinion of Counsel for Company.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Opinion of Special Hungarian Counsel for the Company.. . . . . . . . . . . . . . . . . . . . 17
(d) Opinion of Counsel for Underwriters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(e) Officers' Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(f) Accountants' Comfort Letters.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(g) Bring-down Comfort Letters.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(h) Approval of Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(i) No Objection.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(j) Lock-up Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(k) Conditions to Purchase of Option Securities. . . . . . . . . . . . . . . . . . . . . . . . . 19
(l) Additional Documents.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(m) Termination of Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

SECTION 6. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Indemnification of Underwriters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Indemnification of Company, Directors and Officers.. . . . . . . . . . . . . . . . . . . . . 21
(c) Actions against Parties; Notification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Settlement without Consent if Failure to Reimburse . . . . . . . . . . . . . . . . . . . . . 22

SECTION 7. Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

ii
<PAGE> 4

SECTION 8. Representations, Warranties and Agreements to Survive Delivery. . . . . . . . . . . . . . . 23

SECTION 9. Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Termination; General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

SECTION 10. Default by One or More of the Underwriters. . . . . . . . . . . . . . . . . . . . . . . . . 24

SECTION 11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

SECTION 12. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

SECTION 13. Waiver of Immunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

SECTION 14. Viscosa Consent to Jurisdiction; Appointment of Agent for Service of
Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Viscosa Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Appointment of Agent for Service of Process. . . . . . . . . . . . . . . . . . . . . . . . . 25

SECTION 15. Judgment Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

SECTION 16. GOVERNING LAW AND TIME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

SECTION 17. Effect of Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

iii
<PAGE> 5

ZOLTEK COMPANIES, INC.

(a Missouri corporation)

2,000,000 Shares of Common Stock

(Par Value $.01 Per Share)

PURCHASE AGREEMENT
------------------

------------- --, 1996

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
STIFEL, NICHOLAUS & COMPANY, INCORPORATED
as Representative(s) of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated

North Tower
World Financial Center
New York, New York 10281-1209

Ladies and Gentlemen:

Zoltek Companies, Inc., a Missouri corporation (the
"Company"), Zoltek Corporation, a Missouri corporation ("Zoltek
Corporation"), Zoltek Properties, Inc., a Missouri corporation
("Zoltek Properties"), and Magyar Viscosa Rt., a company limited by
shares registered in Hungary ("Viscosa"), confirm their respective
agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") and each of the other
Underwriters named in Schedule A hereto (collectively, the
"Underwriters", which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom
Merrill Lynch and Stifel, Nicholaus & Company, Incorporated are
acting as representatives (in such capacity, the
"Representatives"), with respect to (i) the sale by the Company and
the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares of Common Stock, par value $.01
per share, of the Company ("Common Stock") set forth in Schedule A
hereto and (ii) the grant by the Company to the Underwriters,
acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of 300,000
additional shares of

1
<PAGE> 6

Common Stock to cover over-allotments, if any. The aforesaid 2,000,000 shares
of Common Stock (the "Initial Securities") to be purchased by the Underwriters
and all or any part of the 300,000 shares of Common Stock subject to the
option described in Section 2(b) hereof (the "Option Securities") are
hereinafter called, collectively, the "Securities."

The Company understands that the Underwriters propose to make
a public offering of the Securities as soon as the Representatives
deem advisable after this Agreement has been executed and
delivered.

The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3
(No. 333--------) covering the registration of the Securities under
the Securities Act of 1933, as amended (the "1933 Act"), including
the related preliminary prospectus or prospectuses. Promptly after
execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions
of Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations") and
paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act
Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a
term sheet (a "Term Sheet") in accordance with the provisions of
Rule 434 and Rule 424(b). The information included in such
prospectus or in such Term Sheet, as the case may be, that was
omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration
statement at the time it became effective (a) pursuant to paragraph
(b) of Rule 430A is referred to as "Rule 430A Information" or (b)
pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434
Information." Each prospectus used before such registration
statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information,
that was used after such effectiveness and prior to the execution
and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits
thereto, schedules thereto, if any, and the documents incorporated
by reference therein pursuant to Item 12 of Form S-3 under the 1933
Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein
called the "Registration Statement." Any registration statement
filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein
referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the
Rule 462(b) Registration Statement. The final prospectus,
including the documents incorporated by reference therein pursuant
to Item 12 of Form S-3 under the 1933 Act, in the form first
furnished to the Underwriters for use in connection with the
offering of the Securities is herein called the "Prospectus." If
Rule 434 is relied on, the term "Prospectus" shall refer to the
preliminary prospectus dated -----------, 1996 together with the
Term Sheet and all references in this Agreement to the date of the
Prospectus shall mean the date of the Term Sheet. For purposes of
this Agreement, all references to the Registration Statement, any
preliminary prospectus, the Prospectus or any Term Sheet or any
amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its
Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").

All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or
"stated" in the Registration Statement, any preliminary prospectus
or the Prospectus (or other references of like import) shall be
deemed to mean and include all such financial statements and
schedules and other information which is incorporated by reference
in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this
Agreement to amendments or supplements to the Registration
Statement, any

2
<PAGE> 7

preliminary prospectus or the Prospectus shall be deemed to mean and include
the filing of any document under the Securities Exchange Act of 1934 (the
"1934 Act") which is incorporated by reference in the Registration Statement,
such preliminary prospectus or the Prospectus, as the case may be.

SECTION 1. Representations and Warranties.
------------------------------

(a) Representations and Warranties by the Company. The
Company represents and warrants to each Underwriter as of the date
hereof, as of the Closing Time referred to in Section 2(c) hereof,
and as of each Date of Delivery (if any) referred to in Section
2(b) hereof, and agrees with each Underwriter, as follows:

(i) Compliance with Registration Requirements. The
-----------------------------------------
Company meets the requirements for use of Form S-3 under the
1933 Act. Each of the Registration Statement and any Rule
462(b) Registration Statement has become effective under the
1933 Act and no stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are
pending or, to the knowledge of the Company, are contemplated
by the Commission, and any request on the part of the
Commission for additional information has been complied with.

At the respective times the Registration Statement, any
Rule 462(b) Registration Statement and any post-effective
amendments thereto became effective and at the Closing Time
(and, if any Option Securities are purchased, at the Date of
Delivery), the Registration Statement, the Rule 462(b)
Registration Statement and any amendments and supplements
thereto complied and will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations
and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading. Neither the Prospectus nor any amendments or
supplements thereto, at the time the Prospectus or any such
amendment or supplement was issued and at the Closing Time
(and, if any Option Securities are purchased, at the Date of
Delivery), included or will include an untrue statement of a
material fact or omitted or will omit to state a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading. If Rule 434 is used, the Company will comply with
the requirements of Rule 434. The representations and
warranties in this subsection shall not apply to statements in
or omissions from the Registration Statement or Prospectus
made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through
Merrill Lynch expressly for use in the Registration Statement
or Prospectus.

Each preliminary prospectus and the prospectus filed as
part of the Registration Statement as originally filed or as
part of any amendment thereto, or filed pursuant to Rule 424
under the 1933 Act, complied when so filed in all material
respects with the 1933 Act Regulations and, if applicable,
each preliminary prospectus and the Prospectus delivered to
the Underwriters for use in connection with this offering was
identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.

(ii) Incorporated Documents. The documents
----------------------
incorporated or deemed to be incorporated by reference in the
Registration Statement and the Prospectus, when they became

3
<PAGE> 8

effective or at the time they were or hereafter are filed with
the Commission, complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933
Act Regulations or the 1934 Act and the rules and regulations
of the Commission thereunder (the "1934 Act Regulations"), as
applicable, and, when read together with the other information
in the Prospectus, at the time the Registration Statement
became effective, at the time the Prospectus was issued and at
the Closing Time (and, if any Option Securities are purchased,
at the Date of Delivery), did not and will not contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading.

(iii) Independent Accountants. The accountants who
-----------------------
certified the financial statements and supporting schedules of
each of the Company and Viscosa included in the Registration
Statement are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.

(iv) Financial Statements. The financial statements of
--------------------
each of the Company and Viscosa included in the Registration
Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries and Viscosa and
its consolidated subsidiaries, respectively, at the dates
indicated and the statement of operations, stockholders'
equity and cash flows of the Company and its consolidated
subsidiaries and Viscosa and its consolidated subsidiaries,
respectively, for the periods specified; said financial
statements have been prepared in conformity with generally
accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The
supporting schedules, if any, included in the Registration
Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected
financial data and the summary financial information included
in the Prospectus present fairly the information shown therein
and have been compiled on a basis consistent with that of the
audited financial statements of the Company included in the
Registration Statement. The pro forma financial statements
and the related notes thereto included in the Registration
Statement and the Prospectus present fairly the information
shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma
financial statements and have been properly compiled on the
bases described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein.

(v) No Material Adverse Change in Business. Since the
--------------------------------------
respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise
stated therein, (A) there has been no material adverse change
in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business (a "Material
Adverse Effect"), (B) there have been no transactions entered
into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material
with respect to the Company and its subsidiaries considered as
one enterprise, and (C) there has been no dividend or
distribution of any kind declared, paid or made by the Company
on any class of its capital stock. Neither the Company nor
any of its subsidiaries has any material contingent
obligations that are not disclosed in the Registration
Statement.

4
<PAGE> 9

(vi) Good Standing of the Company. The Company has
----------------------------
been duly organized and is validly existing as a corporation
in good standing under the laws of the State of Missouri and
has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under
this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in
each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure
so to qualify or to be in good standing would not result in a
Material Adverse Effect.

(vii) Good Standing of Subsidiaries. Each "significant
-----------------------------
subsidiary" of the Company (as such term is defined in Rule 1-02
of Regulation S-X) (each a "Subsidiary" and, collectively,
the "Subsidiaries") has been duly organized and is validly
existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and, with
respect to Zoltek Corporation, Zoltek Properties and Viscosa,
to enter into and perform its obligations under this Agreement
and each Subsidiary is duly qualified as a foreign corporation
to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse
Effect; except as otherwise disclosed in the Registration
Statement, all of the issued and outstanding capital stock of
each such Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the
Company, directly or through subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance,
claim or equity; none of the outstanding shares of capital
stock of any Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such
Subsidiary. The only subsidiaries of the Company are the
subsidiaries listed on Schedule C hereto.

(viii) Capitalization. The authorized, issued and
--------------
outstanding capital stock of the Company is as set forth in
the Prospectus in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if
any, pursuant to this Agreement, pursuant to reservations,
agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible
securities or options referred to in the Prospectus). The
shares of issued and outstanding capital stock have been duly
authorized and validly issued and are fully paid and non-
assessable; none of the outstanding shares of capital stock
was issued in violation of the preemptive or other similar
rights of any securityholder of the Company.

(ix) Authorization of Agreement. This Agreement has
--------------------------
been duly authorized, executed and delivered by the Company,
Zoltek Corporation, Zoltek Properties and Viscosa.

(x) Authorization and Description of Securities. The
-------------------------------------------
Securities to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement against
payment of the consideration set forth herein, will be validly
issued and fully paid and non-assessable; the Common Stock
conforms to all statements relating thereto contained in the
Prospectus and such description conforms to the rights set
forth in the instruments defining the same; no holder of the
Securities will be subject to personal liability by reason of
being such a holder; and the issuance of the Securities is not
subject to the preemptive

5
<PAGE> 10

or other similar rights of any securityholder of the Company. There are
no persons or entities with registration or other similar rights to have
any securities registered pursuant to the Registration Statement
or, except as disclosed in the Prospectus, otherwise registered by the
Company under the 1933 Act. Except as disclosed in the Prospectus, no
person or entity has a right of participation or first refusal with
respect to the issuance and sale of the Securities to the Underwriters
pursuant to this Agreement and any such right of participation or first
refusal has been waived prior to the date of this Agreement.

(xi) Absence of Defaults and Conflicts. Neither the
---------------------------------
Company nor any of its subsidiaries is in violation of its
charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or
instrument to which the Company or any of its subsidiaries is
a party or by which it or any of them may be bound, or to
which any of the property or assets of the Company or any
subsidiary is subject (collectively, "Agreements and
Instruments") except for such defaults that would not result
in a Material Adverse Effect; and the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated herein and in the Registration
Statement (including the issuance and sale of the Securities
and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company, Zoltek Corporation,
Zoltek Properties and Viscosa with their obligations hereunder
have been duly authorized by all necessary corporate action
and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute
a breach of, or default or Repayment Event (as defined below)
under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the
Company or any subsidiary pursuant to the Agreements and
Instruments (except for such conflicts, breaches or defaults
or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the
Company or any subsidiary or any applicable law, statute,
rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any
subsidiary or any of their assets, properties or operations.
As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such
holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such
indebtedness by the Company or any subsidiary.

(xii) Absence of Labor Dispute. No labor dispute with
------------------------
the employees of the Company or any subsidiary exists or, to
the knowledge of the Company, is imminent, and the Company is
not aware of any existing or imminent labor disturbance by the
employees of any of its or any subsidiary's principal
suppliers, manufacturers, customers or contractors, which, in
either case, may reasonably be expected to result in a
Material Adverse Effect.

(xiii) Absence of Proceedings. There is no action, suit,
----------------------
proceeding, inquiry or investigation before or brought by any
court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Company, threatened,
against or affecting the Company or any subsidiary, which is
required to be disclosed in the Registration Statement (other
than as disclosed therein), or which might reasonably be
expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely
affect the properties

6
<PAGE> 11

or assets thereof or the consummation of the transactions contemplated
in this Agreement or the performance by the Company, Zoltek Corporation,
Zoltek Properties and Viscosa of their obligations hereunder; the
aggregate of all pending legal or governmental proceedings to
which the Company or any subsidiary is a party or of which any
of their respective property or assets is the subject which
are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, could
not reasonably be expected to result in a Material Adverse
Effect.

(xiv) Accuracy of Exhibits. There are no contracts or
--------------------
documents which are required to be described in the
Registration Statement, the Prospectus or the documents
incorporated by reference therein or to be filed as exhibits
thereto which have not been so described and filed as
required.

(xv) Possession of Intellectual Property. The Company
-----------------------------------
and its subsidiaries own or possess, or can acquire on
reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks,
service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on
the business now operated by them, and neither the Company nor
any of its subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with
asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render
any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its subsidiaries therein,
and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.

(xvi) Absence of Further Requirements. No filing with,
-------------------------------
or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or
governmental authority or agency is necessary or required for
the performance by the Company, Zoltek Corporation, Zoltek
Properties or Viscosa of their obligations hereunder, in
connection with the offering, issuance or sale of the
Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act or
the 1933 Act Regulations or state securities laws.

(xvii) Possession of Licenses and Permits. The Company
----------------------------------
and its subsidiaries possess such permits, licenses,
approvals, consents and other authorizations (collectively,
"Governmental Licenses") issued by the appropriate federal,
state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms
and conditions of all such Governmental Licenses, except where
the failure so to comply would not, singly or in the
aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect,
except when the invalidity of such Governmental Licenses or
the failure of such Governmental Licenses to be in full force
and effect would not have a Material Adverse Effect; and
neither the Company nor any of its subsidiaries has received
any notice of proceedings relating to the revocation or
modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a Material
Adverse Effect.

7
<PAGE> 12

(xviii) Title to Property. The Company and its
-----------------
subsidiaries have good and marketable title to all real
property owned by the Company and its subsidiaries and good
title to all other properties owned by them, in each case,
free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind
except such as (a) are described in the Prospectus or (b) do
not, singly or in the aggregate, materially affect the value
of such property and do not interfere with the use made and
proposed to be made of such property by the Company or any of
its subsidiaries; and all of the leases and subleases material
to the business of the Company and its subsidiaries,
considered as one enterprise, and under which the Company or
any of its subsidiaries holds properties described in the
Prospectus, are in full force and effect, and neither the
Company nor any subsidiary has any notice of any material
claim of any sort that has been asserted by anyone adverse to
the rights of the Company or any subsidiary under any of the
leases or subleases mentioned above, or affecting or
questioning the rights of the Company or such subsidiary to
the continued possession of the leased or subleased premises
under any such lease or sublease.

(xix) Compliance with Cuba Act. The Company has
------------------------
complied with, and is and will be in compliance with, the
provisions of that certain Florida act relating to disclosure
of doing business with Cuba, codified as Section 517.075 of
the Florida statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act") or is exempt therefrom.

(xx) Investment Company Act. The Company is not, and
----------------------
upon the issuance and sale of the Securities as herein
contemplated and the application of the net proceeds therefrom
as described in the Prospectus will not be, an "investment
company" or an entity "controlled" by an "investment company"
as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").

(xxi) Environmental Laws. Except as described in the
------------------
Registration Statement and except as would not, singly or in
the aggregate, result in a Material Adverse Effect, (A)
neither the Company nor any of its subsidiaries is in
violation of any federal, state, local or foreign statute,
law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation
thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or
protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the
release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B)
the Company and its subsidiaries have all permits,
authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of
noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any
of its subsidiaries, and (D) there are no events or
circumstances that might reasonably be expected to form the
basis of an order for clean-up or remediation, or an action,
suit or proceeding by any private party or governmental body
or agency, against or affecting the Company or any of its
subsidiaries relating to Hazardous Materials or any
Environmental Laws.

8
<PAGE> 13

(xxii) Contracts. Each of the contracts and agreements
---------
described in the Registration Statement to which the Company
or any of its subsidiaries is a party (each, a "Contract" and
collectively, the "Contracts") has been duly authorized,
executed and delivered by the Company or such subsidiary and,
to the knowledge of the Company, by the other parties thereto,
is enforceable in accordance with its terms and is in full
force and effect, without termination or cancellation
provisions having been exercised by any of the parties
thereto; to the knowledge of the Company, no exercise of
termination or cancellation provisions of any of the Contracts
is contemplated or has been threatened by any of the parties
thereto; and the consummation of the transactions contemplated
in each of the Contracts has been duly authorized by all
necessary corporate action. The Company and its subsidiaries
have not received any notice or are otherwise aware of any
material infringement of or material conflict arising out of
the rights or obligations of the Company or any of its
subsidiaries or the other parties to such Contract under the
terms of any of the Contracts.

(xxiii) Tax Returns. The Company and all subsidiaries
-----------
(to the extent not consolidated with the Company) have filed
all federal, state, local and foreign tax returns that are
required to be filed or have duly requested extension thereof
and have paid all taxes required to be paid by them and any
related assessments, fines or penalties except for any such
tax, assessment, fine or penalty that is being contested in
good faith and by appropriate proceedings; and adequate
charges, accruals and reserves have been provided for in the
financial statements of the Company referred to in Section
1(a)(iv) above or in the financial statements of each
unconsolidated subsidiary, as appropriate, in respect of all
federal, state, local and foreign taxes for all periods as to
which the tax liability of the Company or any such subsidiary
has not been finally determined or remains open to examination
by applicable taxing authorities.

(xxiv) Insurance. The Company and its subsidiaries are
---------
entitled to the benefits of insurance in such amounts and
covering such risks as the Company reasonably believes is
adequate to protect them against the occurrence of such
events, (i) against the risk of which insurance is available
and (ii) the occurrence of which would reasonably be likely to
result in a Material Adverse Effect, and all such insurance is
in full force and effect.

(xxv) Absence of Broker. Other than as contemplated by
-----------------
this Agreement or the Registration Statement, there is no
broker, finder or other party that is entitled to receive from
the Company any brokerage or finder's fee or any other fee,
commission or payment as a result of the transactions
contemplated by this Agreement.

(xxvi) Lock-up Agreements. The Company has obtained and
------------------
delivered to the Representatives the agreements of the persons
named in Schedule D annexed hereto to the effect that each
such person will not, for a period of 180 days from the date
hereof and except as otherwise provided therein, without the
prior written consent of Merrill Lynch, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant for the
sale of, or otherwise dispose of or transfer any shares of the
Company's Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock, whether now
owned or hereafter acquired by such person or with respect to
which such person has or hereafter acquires the power of
disposition, or file any registration statement under the 1933
Act with respect to any of the foregoing or (ii) enter into
any swap or any other agreement or any transaction that
transfers, in

9
<PAGE> 14

whole or in part, directly or indirectly, the economic consequence of
ownership of the Common Stock, whether any such swap or transaction is
to be settled by delivery of Common Stock or other securities, in cash
or otherwise.

(xxvii) Compliance with Laws. Except as set forth in
--------------------
the Prospectus, the Company and its subsidiaries are in
compliance in all material respects with all applicable laws,
statutes, ordinances, rules or regulations, the enforcement of
which, individually or in the aggregate, would be reasonably
expected to have a Material Adverse Effect.

(xxviii) No Prospectus Distribution. The Company has
--------------------------
not distributed and, prior to the later to occur of (i) the
Closing Time and (ii) completion of the distribution of the
Securities, will not distribute any prospectus (as such term
is defined in the 1933 Act and the 1933 Act Regulations) in
connection with the offering and sale of the Securities other
than the Registration Statement, any preliminary prospectus
filed with the Commission, the Prospectus or other materials,
if any, permitted by the 1933 Act or by the 1933 Act
Regulations and approved by the Representatives.

(xxix) Absence of Relationships. No relationship, direct
------------------------
or indirect, exists between or among any of the Company or any
affiliate of the Company, on the one hand, and any director,
officer, stockholder, customer or supplier of any of them, on
the other hand, which is required by the 1933 Act or by the
1933 Act Regulations to be described in the Registration
Statement or the Prospectus which is not so described or is
not described as required.

(xxx) Internal Accounting Controls. The Company and its
----------------------------
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's
general and specific authorizations; (ii) transactions are
recorded as necessary to permit preparations of financial
statements in conformity with GAAP and to maintain
accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences. In the past five years neither the Company nor
any subsidiary of the Company has received from any of their
independent accountants any communication that such
accountants have noted any matter involving the Company's or
any such subsidiary's internal control structure and its
operation that such accountants considered to be a material
weakness in the Company's or any such subsidiary's internal
control structure or its operation.

(xxxi) Absence of Manipulation. The Company has not (i)
-----------------------
taken directly or indirectly, any action designed to cause or
result in, or that has constituted or which might reasonably
be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the
sale of the Securities or (ii) since the initial filing of the
Registration Statement (A) sold, bid for, purchased or paid
anyone any compensation for soliciting purchases of, the
Securities, or (B) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other
securities of the Company.

(xxxii) Absence of Unlawful Contributions. Neither the
---------------------------------
Company nor any of its subsidiaries has at any time (i) made
any unlawful contribution to any candidate for foreign

10
<PAGE> 15

office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any federal or state
government officer or official, or other person charged with
similar public or quasi-public duties, other than payments
required or permitted by the federal laws of the United
States, the laws of any state or any other governmental
entity. The Company and its subsidiaries are in compliance in
all material respects with the Foreign Corrupt Practices Act
("FCPA") and none of the Company, its subsidiaries or any of
their respective directors, officers or employees has taken
any action that would violate the FCPA in any material
respects.

(xxxiii) Waiver of Immunities. Viscosa and its
--------------------
obligations under this Agreement are subject to civil and
commercial law and to suit and neither Viscosa nor any of its
properties, assets or revenues has any right of immunity under
Hungarian or New York law, from any legal action, suit or
proceeding, from the giving of any relief in any such legal
action, suit or proceeding, from setoff or counterclaim, from
the jurisdiction of any Hungarian, New York or U.S. Federal
court, from service of process, attachment upon or prior to
judgment, or attachment in aid of execution of judgment, or
from execution of a judgment, or other legal process or
proceeding for the giving of any relief or for the enforcement
of a judgment, in any such court, with respect to its
obligations, liabilities or any other matter under or arising
out of or in connection with this Agreement; and, to the
extent that Viscosa or any of its properties, assets or
revenues may have or may hereafter become entitled to any such
right of immunity in any such court in which proceedings may
at any time be commenced, Viscosa has waived or will waive
such right to the extent permitted by law and has consented to
such relief and enforcement as provided in Section 13 of this
Agreement.

(xxxiv) Consent to Jurisdiction; Appointment of Agent
---------------------------------------------
for Service of Process. Viscosa has the power to submit, and
----------------------
pursuant to this Agreement has legally, validly, effectively
and irrevocably submitted to the personal jurisdiction of any
federal or state court in the State of New York, County of New
York, and has the power to designate, appoint and empower, and
pursuant to this Agreement has legally, validly, effectively
and irrevocably designated, appointed and empowered an agent
for service of process in any suit or proceeding based on or
arising under this Agreement in any federal or state court in
the State of New York, County of New York, as provided in
Section 14 hereof.

(xxxv) No Transaction Tax, Stamp Duty or Similar Tax or Duty.
-----------------------------------------------------
No transaction tax, stamp duty or similar tax or duty or withholding or
other taxes are payable by or on behalf of the Underwriters in
connection with the sale and delivery of the Securities as contemplated
by this Agreement, or in connection with execution, delivery or
enforcement of this Agreement.

(xxxvi) Enforceability of New York Judgment. Any final
-----------------------------------
judgment for a fixed or readily calculable sum of money
rendered by any court of the State of New York or of the
United States located in the State of New York having
jurisdiction under its own domestic laws in respect of any
suit, action or preceding against Viscosa based upon this
Agreement would be declared enforceable against Viscosa by the
courts of Hungary without reexamination, review of the merits
of the cause of action in respect of which the original
judgment was given or relitigation of the matters adjudicated
upon or payment of any stamp, registration or similar tax or
duty, provided that (A) the judgment is consistent with public
policy in Hungary and any relevant political subdivision, (B)
the judgment was not given or obtained by fraud or in a manner
contrary to natural justice, (C) the judgment was not based on
a clear mistake of law or fact, (D) the

11
<PAGE> 16

judgment was not directly or indirectly for the payment of taxes or
other charges of a like nature or of a fine or other penalty, and
(D) the judgment is for a fixed sum. The Company is not aware
of any reason why the enforcement in Hungary of such a
judgment in respect of this Agreement would be contrary to
public policy in Hungary or any political subdivision thereof.

(xxxvii) Remittance of Viscosa Profits. Viscosa is
-----------------------------
permitted under Hungarian law to remit profits to the Company
in U.S. dollars free and clear of any tax, duty, withholding
or deduction in Hungary and Viscosa has access to currency
markets in Hungary for purchasing U.S. dollars to make
remittances of profits to the Company.

(xxxviii) Compliance with ERISA. The Company and its
---------------------
subsidiaries are in compliance in all material respects with
all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder
("ERISA"); no "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company or any of its subsidiaries would
have any liability; the Company and its subsidiaries have not
incurred, and the Company does not expect to incur, liability
under (A) Title IV or ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (B) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" or for which
the Company or any of its subsidiaries would have any
liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects
and nothing has occurred; whether by action or by failure to
act, which would cause the loss of such qualification. Except
as described in the Registration Statement, Viscosa and its
subsidiaries are in compliance in all material respects with
all presently applicable provisions of the rules, regulations,
statutes and codes related to employment, retirement, pension,
severance, employee benefits and related matters.

(b) Officer's Certificates. Any certificate signed by any
officer of the Company or any of its subsidiaries delivered to the
Representatives or to counsel for the Underwriters shall be deemed
a representation and warranty by the Company to each Underwriter as
to the matters covered thereby.

SECTION 2. Sale and Delivery to Underwriters: Closing.
------------------------------------------

(a) Initial Securities. On the basis of the representations
and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to each
Underwriter, severally and not jointly, and each Underwriter,
severally and not jointly, agrees to purchase from the Company, at
the price per share set forth in Schedule B, the number of Initial
Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which
such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof, subject, in each case, to such
adjustments among the Underwriters as the Representatives in their
sole discretion shall make to eliminate any sales or purchases of
fractional securities.

(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the
terms and conditions herein set forth, the Company hereby grants an
option to the Underwriters, severally and not jointly, to purchase
up to an additional 300,000 shares of Common Stock at the price per
share set forth in Schedule B, less an amount per share equal to
any dividends or distributions declared by the Company and payable
on the Initial Securities but not payable on the Option

12
<PAGE> 17

Securities. The option hereby granted will expire 30 days after the date
hereof and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with
the offering and distribution of the Initial Securities upon notice by the
Representatives to the Company setting forth the number of Option Securities
as to which the several Underwriters are then exercising the option and the
time and date of payment and delivery for such Option Securities. Any such
time and date of delivery (a "Date of Delivery") shall be determined by the
Representatives, but shall not be later than seven full business days after
the exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of
the Option Securities, each of the Underwriters, acting severally and not
jointly, will purchase that proportion of the total number of Option
Securities then being purchased which the number of Initial Securities set
forth in Schedule A opposite the name of such Underwriter bears to the total
number of Initial Securities, subject in each case to such adjustments as the
Representatives in their discretion shall make to eliminate any sales or
purchases of fractional shares.

(c) Payment. Payment of the purchase price for, and delivery
of certificates for, the Initial Securities shall be made at the
offices of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago,
Illinois 60603, or at such other place as shall be agreed upon by
the Representatives and the Company, at 10:00 A.M. (Eastern time)
on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof
(unless postponed in accordance with the provisions of Section 10),
or such other time not later than ten business days after such date
as shall be agreed upon by the Representatives and the Company
(such time and date of payment and delivery being herein called
"Closing Time").

In addition, in the event that any or all of the Option
Securities are purchased by the Underwriters, payment of the
purchase price for, and delivery of certificates for, such Option
Securities shall be made at the above-mentioned offices, or at such
other place as shall be agreed upon by the Representatives and the
Company, on each Date of Delivery as specified in the notice from
the Representatives to the Company.

Payment shall be made to the Company by wire transfer of
immediately available funds to a bank account designated by the
Company against delivery to the Representatives for the respective
accounts of the Underwriters of certificates for the Securities to
be purchased by them. It is understood that each Underwriter has
authorized the Representatives, for its account, to accept delivery
of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has
agreed to purchase. Merrill Lynch, individually and not as
representative of the Underwriters, may (but shall not be obligated
to) make payment of the purchase price for the Initial Securities
or the Option Securities, if any, to be purchased by any
Underwriter whose funds have not been received by the Closing Time
or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such Underwriter from its obligations
hereunder.

(d) Denominations; Registration. Certificates for the
Initial Securities and the Option Securities, if any, shall be in
such denominations and registered in such names as the
Representatives may request in writing at least one full business
day before the Closing Time or the relevant Date of Delivery, as
the case may be. The certificates for the Initial Securities and
the Option Securities, if any, will be made available for
examination and packaging by the Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day
prior to the Closing Time or the relevant Date of Delivery, as the
case may be.

13
<PAGE> 18

SECTION 3. Covenants of the Company. The Company covenants
------------------------
with each Underwriter as follows:

(a) Compliance with Securities Regulations and
Commission Requests. The Company, subject to Section 3(b),
will comply with the requirements of Rule 430A or Rule 434, as
applicable, and will notify the Representatives immediately,
and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement, shall become
effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or
any amendment or supplement to the Prospectus or for
additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering
or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes. The
Company will promptly effect the filings necessary pursuant to
Rule 424(b) and will take such steps as it deems necessary to
ascertain promptly whether the form of prospectus transmitted
for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly
file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any
stop order is issued, to obtain the lifting thereof at the
earliest possible moment.

(b) Filing of Amendments. The Company will give the
Representatives notice of its intention to file or prepare any
amendment to the Registration Statement (including any filing
under Rule 462(b)), any Term Sheet or any amendment,
supplement or revision to either the prospectus included in
the Registration Statement at the time it became effective or
to the Prospectus, whether pursuant to the 1933 Act, the 1934
Act or otherwise, will furnish the Representatives with copies
of any such documents a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not
file or use any such document to which the Representatives or
counsel for the Underwriters shall object.

(c) Delivery of Registration Statements. The Company
has furnished or will deliver to the Representatives and
counsel for the Underwriters, without charge, signed copies of
the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated
or deemed to be incorporated by reference therein) and signed
copies of all consents and certificates of experts, and will
also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally
filed and of each amendment thereto (without exhibits) for
each of the Underwriters. The copies of the Registration
Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant
to EDGAR, except to the extent permitted by Regulation S-T.

(d) Delivery of Prospectuses. The Company has
delivered to each Underwriter, without charge, as many copies
of each preliminary prospectus as such Underwriter reasonably
requested, and the Company hereby consents to the use of such
copies for purposes permitted by the 1933 Act. The Company
will furnish to each Underwriter, without charge, during the
period when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, such number of copies of the
Prospectus (as amended or supplemented) as such Underwriter
may reasonably

14
<PAGE> 19

request. The Prospectus and any amendments or supplements thereto
furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.

(e) Continued Compliance with Securities Laws. The
Company will comply with the 1933 Act and the 1933 Act
Regulations and the 1934 Act and the 1934 Act Regulations so
as to permit the completion of the distribution of the
Securities as contemplated in this Agreement and in the
Prospectus. If at any time when a prospectus is required by
the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as
a result of which it is necessary, in the opinion of counsel
for the Underwriters or for the Company, to amend the
Registration Statement or amend or supplement the Prospectus
in order that the Prospectus will not include any untrue
statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the
time it is delivered to a purchaser, or if it shall be
necessary, in the opinion of such counsel, at any such time to
amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the
1933 Act or the 1933 Act Regulations, the Company will
promptly prepare and file with the Commission, subject to
Section 3(b), such amendment or supplement as may be necessary
to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such
requirements, and the Company will furnish to the Underwriters
such number of copies of such amendment or supplement as the
Underwriters may reasonably request.

(f) Blue Sky Qualifications. The Company will use its
best efforts, in cooperation with the Underwriters, to qualify
the Securities for offering and sale under the applicable
securities laws of such states and other jurisdictions
(domestic or foreign) as the Representatives may designate and
to maintain such qualifications in effect for a period of not
less than one year from the later of the effective date of the
Registration Statement and any Rule 462(b) Registration
Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or
to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified
or to subject itself to taxation in respect of doing business
in any jurisdiction in which it is not otherwise so subject.
In each jurisdiction in which the Securities have been so
qualified, the Company will file such statements and reports
as may be required by the laws of such jurisdiction to
continue such qualification in effect for a period of not less
than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement.

(g) Rule 158. The Company will timely file such
reports pursuant to the 1934 Act as are necessary in order to
make generally available to its securityholders as soon as
practicable an earnings statement for the purposes of, and to
provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.

(h) Use of Proceeds. The Company will use the net
proceeds received by it from the sale of the Securities in the
manner specified in the Prospectus under "Use of Proceeds."

(i) Listing. The Company will use its best efforts to
effect and maintain the quotation of the Securities on the
Nasdaq National Market and will file with the Nasdaq National
Market all documents and notices required by the Nasdaq
National Market of companies that have

15
<PAGE> 20

securities that are traded in the over-the-counter market and quotations
for which are reported by the Nasdaq National Market.

(j) Restriction on Sale of Securities. During a
period of 180 days from the date of the Prospectus, the
Company will not, without the prior written consent of Merrill
Lynch, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose
of any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file
any registration statement under the 1933 Act with respect to
any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of
ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities,
in cash or otherwise. The foregoing sentence shall not apply
to (A) the Securities to be sold hereunder, (B) any shares of
Common Stock issued or options to purchase Common Stock
granted pursuant to existing employee benefit plans of the
Company referred to in the Prospectus, or (C) any shares of
Common Stock issued pursuant to any non-employee director
stock plan or dividend reinvestment plan.

(k) Reporting Requirements. The Company, during the
period when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, will file all documents required
to be filed with the Commission pursuant to the 1934 Act
within the time periods required by the 1934 Act and the 1934
Act Regulations.

(l) Cuba Act. In accordance with the Cuba Act and
without limitation to the provisions of Sections 6 and 7
hereof, the Company agrees to indemnify and hold harmless each
Underwriter from and against any and all loss, liability,
claim, damage and expense whatsoever (including fees and
disbursements of counsel), as incurred, arising out of any
violation by the Company of the Cuba Act.

SECTION 4. Payment of Expenses. (a) Expenses. The Company
-------------------
will pay all expenses incident to the performance of its
obligations under this Agreement, including (i) the preparation,
printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to
the Underwriters of this Agreement, any Agreement among
Underwriters and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of
the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties
payable upon the sale, issuance or delivery of the Securities to
the Underwriters, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of
the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters
in connection therewith and in connection with the preparation of
the Blue Sky Survey and any supplement thereto, (vi) the printing
and delivery to the Underwriters of copies of each preliminary
prospectus, any Term Sheets and of the Prospectus and any
amendments or supplements thereto, (vii) the preparation, printing
and delivery to the Underwriters of copies of the Blue Sky Survey
and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities, (ix) the filing
fees incident to, and the reasonable fees and disbursements of
counsel to the

16
<PAGE> 21

Underwriters in connection with, the review by the National Association of
Securities Dealers, Inc. (the "NASD") of the terms of the sale of the
Securities, (x) the fees and expenses incurred in connection with the
inclusion of the Securities in the Nasdaq National Market and (xi) any fees
and expenses of any Underwriter acting in the capacity of a "qualified
independent underwriter" as defined in Section 2 of Schedule E of the bylaws
of the NASD.

(b) Termination of Agreement. If this Agreement is
terminated by the Representatives in accordance with the provisions
of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse
the Underwriters for all of their out-of-pocket expenses, including
the reasonable fees and disbursements of counsel for the
Underwriters.

SECTION 5. Conditions of Underwriters' Obligations. The
---------------------------------------
obligations of the several Underwriters hereunder are subject to
the accuracy of the representations and warranties of the Company
contained in Section 1 hereof or in certificates of any officer of
the Company or any subsidiary of the Company delivered pursuant to
the provisions hereof, to the performance by the Company of its
covenants and other obligations hereunder, and to the following
further conditions:

(a) Effectiveness of Registration Statement. The
Registration Statement, including any Rule 462(b) Registration
Statement, has become effective and at Closing Time no stop
order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the
Commission, and any request on the part of the Commission for
additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters. A
prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b)
(or a post-effective amendment providing such information
shall have been filed and declared effective in accordance
with the requirements of Rule 430A) or, if the Company has
elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).

(b) Opinion of Counsel for Company. At Closing Time,
the Representatives shall have received the favorable opinion,
dated as of Closing Time, of Thompson Coburn, counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, together with signed or reproduced copies of
such letter for each of the other Underwriters to the effect
set forth in Exhibit A hereto and to such further effect as
counsel to the Underwriters may reasonably request.

(c) Opinion of Special Hungarian Counsel for the
Company. At Closing Time, the Representatives shall have
received the favorable opinion, dated as of Closing Time, of
Price Waterhouse (Budapest), special Hungarian counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, together with signed or reproduced copies of
such letter for each of the other Underwriters to the effect
set forth in Exhibit B hereto and to such further effect as
counsel to the Underwriters may reasonably request.

(d) Opinion of Counsel for Underwriters. At Closing
Time, the Representatives shall have received the favorable
opinion, dated as of Closing Time, of Mayer, Brown & Platt,
counsel for the Underwriters, together with signed or
reproduced copies of such letter for each of the other
Underwriters with respect to the matters set forth in clauses
(i) (as to the existence and good standing of the Company),
(ii), (v), (vi) (solely as to preemptive or other similar
rights

17
<PAGE> 22

arising by operation of law or under the charter or by-laws of the
Company), (viii) through (x), inclusive, (xii), (xiv) (solely as to the
information in the Prospectus under "Description of Capital
Stock--Common Stock") and the penultimate paragraph of Exhibit A hereto.
In giving such opinion such counsel may rely, as to all matters governed
by the laws of jurisdictions other than the law of the State of New York
and the federal law of the United States, upon the opinions of counsel
satisfactory to the Representatives. Such counsel may also state that,
insofar as such opinion involves; factual matters, they have relied, to
the extent they deem proper, upon certificates of officers of the
Company and its subsidiaries and certificates of public officials.

(e) Officers' Certificate. At Closing Time, there
shall not have been, since the date hereof or since the
respective dates as of which information is given in the
Prospectus, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the
ordinary course of business, and the Representatives shall
have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of Closing Time,
to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section
1(a) hereof are true and correct with the same force and
effect as though expressly made at and as of Closing Time,
(iii) the Company, Zoltek Corporation, Zoltek Properties and
Viscosa have complied with all agreements and satisfied all
conditions on their parts to be performed or satisfied at or
prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or
are pending or are contemplated by the Commission.

(f) Accountants' Comfort Letters. At the time of the
execution of this Agreement, the Representatives shall have
received from each of Price Waterhouse LLP (with respect to
the Company and its consolidated subsidiaries) and Price
Waterhouse (Budapest) (with respect to Viscosa and its
consolidated subsidiaries) a letter dated such date, each in
form and substance satisfactory to the Representatives,
together with signed or reproduced copies of such letters for
each of the other Underwriters, containing statements and
information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the
financial statements and certain financial information
contained in the Registration Statement and the Prospectus.

(g) Bring-down Comfort Letters. At Closing Time, the
Representatives shall have received from each of Price
Waterhouse LLP and Price Waterhouse (Budapest) a letter, each
dated as of Closing Time, to the effect that they reaffirm the
statements made in their respective letters furnished pursuant
to subsection (f) of this Section, except that the specified
date referred to shall be a date not more than three business
days prior to Closing Time.

(h) Approval of Listing. At the Closing Time the
Securities shall have been approved for inclusion in the
Nasdaq National Market, subject only to official notice of
issuance.

(i) No Objection. The NASD shall not have raised any
objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.

18
<PAGE> 23

(j) Lock-up Agreements. At the date of this
Agreement, the Representatives shall have received an
agreement substantially in the form of Exhibit C hereto signed
by the persons listed on Schedule D hereto.

(k) Conditions to Purchase of Option Securities. In
the event that the Underwriters exercise their option provided
in Section 2(b) hereof to purchase all or any portion of the
Option Securities, the representations and warranties of the
Company contained herein and the statements in any
certificates furnished by the Company and any subsidiary of
the Company hereunder shall be true and correct as of each
Date of Delivery and, at the relevant Date of Delivery, the
Representatives shall have received:

(i) Officers' Certificate. A certificate, dated such
---------------------
Date of Delivery, of the President or a Vice President of
the Company and of the chief financial or chief
accounting officer of the Company confirming that the
certificate delivered at the Closing Time pursuant to
Section 5(e) hereof remains true and correct as of such
Date of Delivery.

(ii) Opinion of Counsel for Company. The favorable
------------------------------
opinion of Thompson Coburn, counsel for the Company, in
form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to
the Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion
required by Section 5(b) hereof.

(iii) Opinion of Special Hungarian Counsel for the Company.
----------------------------------------------------
The favorable opinion of Price Waterhouse (Budapest), special
Hungarian counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of
Delivery, to the same effect as the opinion required by Section
5(c).

(iv) Opinion of Counsel for Underwriters. The
-----------------------------------
favorable opinion of Mayer, Brown & Platt, counsel for
the Underwriters, dated such Date of Delivery, relating
to the Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion
required by Section 5(d) hereof.

(v) Bring-down Comfort Letters. A letter from each of
--------------------------
Price Waterhouse LLP and Price Waterhouse (Budapest),
each in form and substance satisfactory to the
Representatives and dated such Date of Delivery,
substantially in the same form and substance as the
letters furnished to the Representatives pursuant to
Section 5(f) hereof, except that the "specified date" in
the letters furnished pursuant to this paragraph shall be
a date not more than five days prior to such Date of
Delivery.

(l) Additional Documents. At Closing Time and at each
Date of Delivery counsel for the Underwriters shall have been
furnished with such documents and opinions as they may require
for the purpose of enabling them to pass upon the issuance and
sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or
warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Securities as
herein contemplated

19
<PAGE> 24

shall be satisfactory in form and substance to the Representatives and
counsel for the Underwriters.

(m) Termination of Agreement. If any condition
specified in this Section shall not have been fulfilled when
and as required to be fulfilled, this Agreement, or, in the
case of any condition to the purchase of Option Securities on
a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the
relevant Option Securities, may be terminated by the
Representatives by notice to the Company at any time at or
prior to Closing Time or such Date of Delivery, as the case
may be, and such termination shall be without liability of any
party to any other party except as provided in Section 4 and
except that Sections 1, 6, 7 and 8 shall survive any such
termination and remain in full force and effect.

SECTION 6. Indemnification.
---------------

(a) Indemnification of Underwriters. The Company, Zoltek
Corporation, Zoltek Properties and Viscosa, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act as
follows:

(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged
untrue statement of a material fact contained in any
preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading;

(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject
to Section 6(d) below) any such settlement is effected with
the written consent of the Company; and

(iii) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel
chosen by Merrill Lynch), reasonably incurred in
investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any
such expense is not paid under (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to
- -------- -------
any loss, liability, claim, damage or expense to the extent arising
out of any untrue statement or omission or alleged untrue statement
or omission made in reliance upon and in conformity with written
information furnished to the Company

20
<PAGE> 25

by any Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).

Insofar as this indemnity agreement may permit indemnification
for liabilities under the 1933 Act of any person who is a partner
of an Underwriter or who controls an underwriter within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act and
who, at the date of this Agreement, is a director or officer of the
Company or controls the Company within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act, such indemnity
agreement is subject to the undertaking of the Company in the
Registration Statement under Item 17 thereof.

(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act, against any and all loss, liability, claim,
damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to the
Company by such Underwriter through Merrill Lynch expressly for use
in the Registration Statement (or any amendment thereto) or such
preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).

(c) Actions against Parties; Notification. Each indemnified
party shall give notice as promptly as reasonably practicable to
each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying
party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall
not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. In the case of parties
indemnified pursuant to Section 6(a) above, counsel to the
indemnified parties shall be selected by Merrill Lynch, and, in the
case of parties indemnified pursuant to Section 6(b) above, counsel
to the indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the
indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no
event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified
parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any
claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 6 or Section 7
hereof (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.

21
<PAGE> 26

(d) Settlement without Consent if Failure to Reimburse. If
at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and
expenses of counsel, such indemnifying party agrees that it shall
be liable for any settlement of the nature contemplated by Section
6(a)(ii) effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii)
such indemnifying party shall not have reimbursed such indemnified
party in accordance with such request prior to the date of such
settlement.

(e) The provisions of this Section shall not affect any
agreement among the Company, Zoltek Corporation, Zoltek Properties
and Viscosa with respect to indemnification.

SECTION 7. Contribution. If the indemnification provided for
------------
in Section 6 hereof is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of
any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and
expenses incurred by such indemnified party, as incurred, (i) in
such proportion as is appropriate to reflect the relative benefits
received by the Company, Zoltek Corporation, Zoltek Properties and
Viscosa on the one hand and the Underwriters on the other hand from
the offering of the Securities pursuant to this Agreement or (ii)
if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and of the
Underwriters on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable
considerations.

The relative benefits received by the Company, Zoltek
Corporation, Zoltek Properties and Viscosa on the one hand and the
Underwriters on the other hand in connection with the offering of
the Securities pursuant to this Agreement shall be deemed to be in
the same respective proportions as the total net proceeds from the
offering of the Securities pursuant to this Agreement (before
deducting expenses) received by the Company and the total
underwriting discount received by the Underwriters, in each case as
set forth on the cover of the Prospectus, or, if Rule 434 is used,
the corresponding location on the Term Sheet bear to the aggregate
initial public offering price of the Securities as set forth on
such cover.

The relative fault of the Company, Zoltek Corporation, Zoltek
Properties and Viscosa on the one hand and the Underwriters on the
other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact
relates to information supplied by the Company, Zoltek Corporation,
Zoltek Properties or Viscosa or by the Underwriters and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.

The Company, Zoltek Corporation, Zoltek Properties and Viscosa
and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which
does not take account of the equitable considerations referred to
above in this Section 7. The aggregate amount of losses,
liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be
deemed to include any legal or other expenses reasonably incurred
by such indemnified party in investigating, preparing or defending
against

22
<PAGE> 27

any litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.

Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.

For purposes of this Section 7, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act shall have the same rights
to contribution as such Underwriter, and each director of the
Company, each officer of the Company who signed the Registration
Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act shall have the same rights to contribution as the Company. The
Underwriters' respective obligations to contribute pursuant to this
Section 7 are several in proportion to the number of Initial
Securities set forth opposite their respective names in Schedule A
hereto and not joint.

The provisions of this Section shall not affect any agreement
among the Company, Zoltek Corporation, Zoltek Properties and
Viscosa with respect to contribution.

SECTION 8. Representations, Warranties and Agreements to
---------------------------------------------
Survive Delivery. All representations, warranties and agreements
- ----------------
contained in this Agreement or in certificates of officers of the
Company submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any investigation made by or
on behalf of any Underwriter or controlling person, or by or on
behalf of the Company, and shall survive delivery of the Securities
to the Underwriters.

SECTION 9. Termination of Agreement.
------------------------

(a) Termination; General. The Representatives may terminate
this Agreement, by notice to the Company, at any time at or prior
to Closing Time (i) if there has been, since the time of execution
of this Agreement or since the respective dates as of which
information is given in the Prospectus, any material adverse change
in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising
in the ordinary course of business, or (ii) if there has occurred
any material adverse change in the financial markets in the United
States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or
any change or development involving a prospective change in
national or international political, financial or economic
conditions, in each case the effect of which is such as to make it,
in the judgment of the Representatives, impracticable to market the
Securities or to enforce contracts for the sale of the Securities,
or (iii) if trading in any securities of the Company has been
suspended or limited by the Commission or the Nasdaq National
Market, or if trading generally on the American Stock Exchange or
the New York Stock Exchange or in the Nasdaq National Market

23
<PAGE> 28

has been suspended or limited, or minimum or maximum prices for trading
have been fixed, or maximum ranges for prices have been required,
by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (iv) if a banking moratorium
has been declared by either Federal or New York authorities.

(b) Liabilities. If this Agreement is terminated pursuant to
this Section, such termination shall be without liability of any
party to any other party except as provided in Section 4 hereof,
and provided further that Sections 1, 6 and 7 shall survive such
termination and remain in full force and effect.

SECTION 10. Default by One or More of the Underwriters. If
------------------------------------------
one or more of the Underwriters shall fail at Closing Time or a
Date of Delivery to purchase the Securities which it or they are
obligated to purchase under this Agreement (the "Defaulted
Securities"), the Representatives shall have the right, within 24
hours thereafter, to make arrangements for one or more of the non-
defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth;
if, however, the Representatives shall not have completed such
arrangements within such 24-hour period, then:

(a) if the number of Defaulted Securities does not
exceed 10% of the number of Securities to be purchased on such
date, each of the non-defaulting Underwriters shall be
obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or

(b) if the number of Defaulted Securities exceeds 10% of
the number of Securities to be purchased on such date, this
Agreement or, with respect to any Date of Delivery which
occurs after the Closing Time, the obligation of the
Underwriters to purchase and of the Company to sell the Option
Securities to be purchased and sold on such Date of Delivery
shall terminate without liability on the part of any non-
defaulting Underwriter.

No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.

In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery
which is after the Closing Time, which does not result in a
termination of the obligation of the Underwriters to purchase and
the Company to sell the relevant Option Securities, as the case may
be, either the Representatives or the Company shall have the right
to postpone Closing Time or the relevant Date of Delivery, as the
case may be, for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. As used
herein, the term "Underwriter" includes any person substituted for
an Underwriter under this Section 10.

SECTION 11. Notices. All notices and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly
given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed
to the Representatives at Merrill Lynch & Co., North Tower, World
Financial Center, New York, New York 10281-1201, attention of

24
<PAGE> 29

- ----------------; notices to the Company, Zoltek Corporation,
Zoltek Properties and Viscosa shall be directed to each of them at
3101 McKelvey Road, St. Louis, Missouri 63044, attention of Zsolt
Rumy.

SECTION 12. Parties. This Agreement shall each inure to the
-------
benefit of and be binding upon the Underwriters, the Company,
Zoltek Corporation, Zoltek Properties and Viscosa and their
respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person,
firm or corporation, other than the Underwriters, the Company,
Zoltek Corporation, Zoltek Properties and Viscosa and their
respective successors and the controlling persons and officers and
directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof
are intended to be for the sole and exclusive benefit of the
Underwriters, the Company, Zoltek Corporation, Zoltek Properties
and Viscosa and their respective successors, and said controlling
persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any Underwriter shall
be deemed to be a successor by reason merely of such purchase.

SECTION 13. Waiver of Immunities. To the extent that Viscosa
--------------------
or any of its properties, assets or revenues may have or may
hereafter become entitled to, or have attributed to Viscosa, any
right of immunity, on the grounds of sovereignty or otherwise, from
any legal action, suit or proceeding, from the giving of any relief
in any such legal action, suit or proceeding, from setoff or
counterclaim, from the jurisdiction of any Hungarian, New York or
U.S. federal court, from service of process, from attachment upon
or prior to judgment, from attachment in aid of execution of
judgment, or from execution of judgment, or other legal process or
proceeding for the giving of any relief or for the enforcement of
any judgment, in any such court in which proceedings may at any
time be commenced, with respect to the obligations and liabilities
of the Company, or any other matter under or arising out of or in
connection with this Agreement, Viscosa hereby irrevocably and
unconditionally waives or will waive such right to the extent
permitted by law, and agrees not to plead or claim, any such
immunity and consents to such relief and enforcement.

SECTION 14. Viscosa Consent to Jurisdiction; Appointment of
-----------------------------------------------
Agent for Service of Process.
- ----------------------------

(a) Viscosa Consent to Jurisdiction. Viscosa, by the
execution and delivery of this Agreement, agrees that service of
process may be made upon CT Corporation System, 1633 Broadway, New
York, New York 10019 (or its successors as agent for service of
process), in the County, City and State of New York, United States
of America in any suit or proceeding against Viscosa instituted by
any Underwriter or by any person controlling any Underwriter based
on or arising under this Agreement in any federal or state court in
the State of New York, County of New York, and hereby irrevocably
consents and submits to the nonexclusive jurisdiction of any such
court in personam generally and unconditionally in respect of any
such suit or proceeding.

(b) Appointment of Agent for Service of Process. Viscosa
further, by the execution and delivery of this Agreement,
irrevocably designates, appoints and empowers CT Corporation
System, 1633 Broadway, New York, New York 10019 as its designee,
appointee and authorized agent to receive for and on its behalf
service of any and all legal process, summons, notices and
documents that may be served in any action, suit or proceeding
brought against Viscosa, with respect to its obligations,
liabilities or any other matter arising out of or in connection
with this Agreement and that may be made on such designee,
appointee and authorized agent in accordance with legal procedures
prescribed for such courts,

25
<PAGE> 30

and it being understood that the designation and appointment of CT Corporation
System as such authorized agent shall become effective immediately without any
further action on the part of Viscosa. Viscosa represents to each
Underwriter that it has notified CT Corporation System of such
designation and appointment and that CT Corporation System has
accepted the same. Viscosa further agrees that, to the extent
permitted by law, proper service of process upon CT Corporation
System (or its successors as agent for service of process) and
written notice of said service to Viscosa pursuant to Section 11,
shall be deemed in every respect effective service of process upon
Viscosa in any such suit or proceeding. If for any reason such
designee, appointee and agent hereunder shall cease to be available
to act as such, Viscosa agrees to designate a new designee,
appointee and agent in The City of New York, New York on the terms
and for the purposes of this Section 14 reasonably satisfactory to
the Representatives. Viscosa further hereby irrevocably consents
and agrees to the service of any and all legal process, summons,
notices and documents in any such action, suit or proceeding
against Viscosa by serving a copy thereof upon the relevant agent
for service of process referred to in this Section 14 (whether or
not the appointment of such agent shall for any reason prove to be
ineffective or such agent shall accept or acknowledge such service)
and by mailing copies thereof by registered or certified air mail,
postage prepaid, to Viscosa at its address specified in or
designated pursuant to this Agreement. Viscosa agrees that the
failure of any such designee, appointee and agent to give any
notice of such service to it shall not impair or affect in any way
the validity of such service or any judgment rendered in any action
or proceeding based thereon. Nothing herein shall in any way be
deemed to limit the ability of the Underwriters and the other
persons referred to in Sections 6 and 7 to serve any such legal
process, summons, notices and documents in any other manner
permitted by applicable law or to obtain jurisdiction over Viscosa
or bring actions, suits or proceedings against Viscosa in such
other jurisdictions, and in such manner, as may be permitted by
applicable law. Viscosa hereby irrevocably and unconditionally
waives, to the fullest extent permitted by law, any objection that
it may now or hereafter have to the laying of venue of any of the
aforesaid actions, suits or proceedings arising out of or in
connection with this Agreement brought in the federal courts
located in The City of New York, New York or the courts of the
State of New York located in The City of New York, New York and
hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit
or proceeding brought in any such court has been brought in an
inconvenient forum.

SECTION 15. Judgment Currency. The Company agrees to
-----------------
indemnify each Underwriter and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, and each Underwriter severally agrees
to indemnify the Company, its directors, each of its officers who
signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act, against any loss incurred, as
incurred, as a result of any judgment being given in connection
with this Agreement, the Prospectus or the Registration Statement
for which indemnification is provided by such person pursuant to
Section 6 of this Agreement and any such judgment or order being
paid in a currency (the "Judgment Currency") other than U.S.
dollars as a result of any variation as between (i) the spot rate
of exchange in New York at which the Judgment Currency would have
been convertible into U.S. dollars as of the date such judgment or
order is entered, and (ii) the spot rate of exchange at which the
indemnified party is first able to purchase U.S. dollars with the
amount of the Judgment Currency actually received by the
indemnified party. If, alternatively, the indemnified party
receives a profit as a result of such currency conversion, it will
return any such profits to the indemnifying party (after taking

26
<PAGE> 31

into account any taxes or other costs arising in connection with
such conversion and repayment). The foregoing indemnity shall
constitute a separate and independent, several and not joint,
obligation of the Company and the Underwriters and shall continue
in full force and effect notwithstanding any such judgment or other
as aforesaid. The term "spot rate of exchange" shall include any
premiums and costs of exchange payable in connection with the
purchase of, or conversion into, the relevant currency.

SECTION 16. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
----------------------
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

SECTION 17. Effect of Headings. The Article and Section
------------------
headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.

27
<PAGE> 32

If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart
hereof, whereupon this instrument, along with all counterparts,
will become a binding agreement among the Underwriters, the
Company, Zoltek Corporation, Zoltek Properties and Viscosa in
accordance with its terms.

Very truly yours,

ZOLTEK COMPANIES, INC.

By ----------------------------------
Title:

ZOLTEK CORPORATION

By ----------------------------------
Title:

ZOLTEK PROPERTIES, INC.

By ----------------------------------
Title:

MAGYAR VISCOSA RT.

By ----------------------------------
Title:

28
<PAGE> 33

CONFIRMED AND ACCEPTED,
as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
STIFEL, NICHOLAUS & COMPANY, INCORPORATED

By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

By ---------------------------------------------------
Authorized Signatory

For themselves and as Representatives of the other Underwriters
named in Schedule A hereto.

29
<PAGE> 34

</TABLE>
<TABLE>
<CAPTION>
SCHEDULE A

Number of
Initial
Name of Underwriter Securities
- ------------------- -----------

<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . .
Stifel, Nicholaus & Company, Incorporated. . . . . . . .

-----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
===========
</TABLE>

Sch A - 1
<PAGE> 35

SCHEDULE B

ZOLTEK COMPANIES, INC.
2,000,000 Shares of Common Stock
(Par Value $.01 Per Share)

1. The initial public offering price per share for the
Securities, determined as provided in said Section 2, shall be
$------------.

2. The purchase price per share for the Securities to be
paid by the several Underwriters shall be $-------------, being an
amount equal to the initial public offering price set forth above
less $---------- per share; provided that the purchase price per
share for any Option Securities purchased upon the exercise of the
over-allotment option described in Section 2(b) shall be reduced by
an amount per share equal to any dividends or distributions
declared by the Company and payable on the Initial Securities but
not payable on the Option Securities.

Sch B - 1
<PAGE> 36

SCHEDULE C
List of subsidiaries
Zoltek Corporation
Zoltek Properties, Inc.
Magyar Viscosa Rt.
Noviplast Kozos Vallalat
Viscotrade Kulkereskedelmi Kft.
Mavipol Kulkereskedelmi Kft.
Mavitex Kft.

Sch C - 1
<PAGE> 37

SCHEDULE D
List of persons and entities
subject to lock-up

Zsolt Rumy
Orel R. Kiphart
William P. Downey
Gyorgy Paszry
James W. Betts
James Dorr
Charles A. Dill
John L. Kardos
Linn H. Bealke

Sch D - 1
<PAGE> 38

Exhibit A

FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)

(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the State of Missouri.

(ii) The Company has corporate power and authority to
own, lease and operate its properties and to conduct its business
as described in the Prospectus and to enter into and perform its
obligations under the Purchase Agreement.

(iii) The Company is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.

(iv) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except
for subsequent issuances, if any, pursuant to the Purchase
Agreement or pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectus or pursuant to the
exercise of convertible securities or options referred to in the
Prospectus); the shares of issued and outstanding capital stock of
the Company have been duly authorized and validly issued and are
fully paid and non-assessable; and none of the outstanding shares
of capital stock of the Company was issued in violation of the
preemptive or other similar rights (including rights of first
refusal) of any securityholder of the Company.

(v) The Securities to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale to
the Underwriters pursuant to the Purchase Agreement and, when
issued and delivered by the Company pursuant to the Purchase
Agreement against payment of the consideration set forth in the
Purchase Agreement, will be validly issued and fully paid and non-
assessable and no holder of the Securities is or will be subject to
personal liability by reason of being such a holder.

(vi) The issuance and sale of the Securities by the
Company is not subject to the preemptive rights, rights of first
refusal or other similar rights of any securityholder of the
Company, except such as are described in the Prospectus and which
have been satisfied or waived.

(vii) Each Subsidiary incorporated in a State in the
United States of America (individually, a "U.S. Subsidiary" and
collectively, the "U.S. Subsidiaries") has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has corporate power
and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and, with
respect to Zoltek Corporation and Zoltek Properties, to enter into
and perform its obligations under the Purchase Agreement, and each
U.S. Subsidiary is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in
which such

A-1
<PAGE> 39

qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect; except
as otherwise disclosed in the Registration Statement, all of the issued and
outstanding capital stock of each U.S. Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and, to the best
of our knowledge, is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of any U.S. Subsidiary was issued in
violation of the preemptive or similar rights of any securityholder
of such U.S. Subsidiary. To the best of our knowledge, except as
described in the Registration Statement and Prospectus, there are
no options, warrants, agreements, contracts or other rights in
existence to purchase or acquire from the Company or any U.S.
Subsidiary any shares of the capital stock of the Company or any
U.S. Subsidiary.

(viii) The Purchase Agreement has been duly authorized,
executed and delivered by the Company, Zoltek Corporation and
Zoltek Properties.

(ix) The Registration Statement, including any Rule
462(b) Registration Statement, has been declared effective under
the 1933 Act; any required filing of the Prospectus pursuant to
Rule 424(b) has been made in the manner and within the time period
required by Rule 424(b); and, to the best of our knowledge, no stop
order suspending the effectiveness of the Registration Statement or
any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted
or are pending or threatened by the Commission.

(x) The Registration Statement, including any Rule
462(b) Registration Statement, the Rule 430A Information and the
Rule 434 Information, as applicable, the Prospectus, excluding the
documents incorporated by reference therein, and each amendment or
supplement to the Registration Statement and Prospectus, excluding
the documents incorporated by reference therein, as of their
respective effective or issue dates (other than the financial
statements and supporting schedules included therein or omitted
therefrom, as to which we need express no opinion) complied as to
form in all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations.

(xi) The documents incorporated by reference in the
Prospectus (other than the financial statements and supporting
schedules included therein or omitted therefrom, as to which we
need express no opinion) when they became effective or were filed
with the Commission, as the case may be, complied as to form in all
material respects with the requirements of the 1933 Act or the 1934
Act, as applicable and the rules and regulations of the Commission
thereunder.

(xii) The form of certificate used to evidence the
Common Stock complies in all material respects with all applicable
statutory requirements, with any applicable requirements of the
charter and by-laws of the Company and the requirements of the
Nasdaq National Market.

(xiii) To the best of our knowledge, there is not pending
or threatened any action, suit, proceeding, inquiry or
investigation, to which the Company or any subsidiary is a party,
or to which the property of the Company or any subsidiary is
subject, before or brought by any court or governmental agency or
body, domestic or foreign, which might reasonably be expected to
result in a Material Adverse Effect, or which might reasonably be
expected to materially and adversely affect the properties or
assets thereof or the consummation of the transactions contemplated
in the Purchase Agreement or the performance by the Company, Zoltek
Corporation or Zoltek Properties of their obligations thereunder.

A-2
<PAGE> 40

(xiv) The information in the Prospectus under
"Description of Capital Stock", "Business--Properties", and
"Business--Legal Proceedings", and in the Registration Statement
under item 15, to the extent that it constitutes matters of law,
summaries of legal matters, the Company's charter and bylaws or
legal proceedings, or legal conclusions, has been reviewed by us
and is correct in all material respects.

(xv) To the best of our knowledge, there are no
statutes or regulations that are required to be described in the
Prospectus that are not described as required.

(xvi) All descriptions in the Registration Statement of
contracts and other documents to which the Company or its
subsidiaries are a party are accurate in all material respects; to
the best of our knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other
than those described or referred to therein or filed or
incorporated by reference as exhibits thereto, and the descriptions
thereof or references thereto are correct in all material respects.

(xvii) To the best of our knowledge, neither the Company
nor any subsidiary is in violation of its charter or by-laws and no
default by the Company or any subsidiary exists in the due
performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration
Statement or the Prospectus or filed or incorporated by reference
as an exhibit to the Registration Statement.

(xviii) No filing with, or authorization, approval,
consent, license, order, registration, qualification or decree of,
any court or governmental authority or agency, domestic or foreign
(other than under the 1933 Act and the 1933 Act Regulations, which
have been obtained, or as may be required under the securities or
blue sky laws of the various states, as to which we need express no
opinion) is necessary or required in connection with the due
authorization, execution and delivery of the Purchase Agreement or
for the offering, issuance, sale or delivery of the Securities.

(xix) The execution, delivery and performance of the
Purchase Agreement and the consummation of the transactions
contemplated in the Purchase Agreement and in the Registration
Statement (including the issuance and sale of the Securities and
the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use Of Proceeds")
and compliance by the Company, Zoltek Corporation and Zoltek
Properties with their obligations under the Purchase Agreement do
not and will not, whether with or without the giving of notice or
lapse of time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined in Section 1(a)(xi) of the
Purchase Agreement) under or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of
the Company or any U.S. subsidiary pursuant to any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or any other agreement or instrument known to us, to which
the Company or any U.S. subsidiary is a party or by which it or any
of them may be bound, or to which any of the property or assets of
the Company or any U.S. subsidiary is subject (except for such
conflicts, breaches or defaults or liens, charges or encumbrances
that would not have a Material Adverse Effect), nor will such
action result in any violation of the provisions of the charter or
by-laws of the Company or any U.S. subsidiary, or any applicable
law, statute, rule, regulation, judgment, order, writ or decree,
known to us, of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or
any U.S. subsidiary or any of their respective properties, assets
or operations.

A-3
<PAGE> 41

(xx) The Company is not an "investment company" or an
entity "controlled" by an "investment company," as such terms are
defined in the 1940 Act.

(xxi) To our knowledge, there are no persons with
registration or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.

Nothing has come to our attention that has lead us to believe
that the Registration Statement or any amendment thereto, including
the Rule 430A Information and Rule 434 Information (if applicable),
(except for financial statements and schedules and other financial
data included or incorporated by reference therein or omitted
therefrom, as to which we need make no statement), at the time such
Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus
or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included or
incorporated by reference therein or omitted therefrom, as to which
we need make no statement), at the time the Prospectus was issued,
at the time any such amended or supplemented prospectus was issued
or at the Closing Time, included or includes an untrue statement of
a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.

In rendering such opinion, such counsel may rely, as to
matters of fact (but not as to legal conclusions), to the extent
they deem proper, on certificates of responsible officers of the
Company and public officials. Such opinion shall not state that it
is to be governed or qualified by, or that it is otherwise subject
to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).

A-4
<PAGE> 42

Exhibit B

FORM OF OPINION OF SPECIAL HUNGARIAN COUNSEL FOR THE COMPANY
TO BE DELIVERED PURSUANT TO SECTION 5(c)

(i) Each of Viscosa and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation. Each of
Viscosa and its subsidiaries has corporate power and authority to
own, lease and operate its properties and to conduct its business
as described in the Prospectus and, with respect to Viscosa, to
enter into and perform its obligations under the Purchase
Agreement.

(ii) The issued and outstanding shares of Viscosa's
capital stock have been duly authorized and validly issued and are
fully paid and nonassessable; and no preemptive rights of, or
rights of first refusal in favor of, shareholders exist with
respect to any of Viscosa's shares of capital stock or the issue
and sale thereof pursuant to applicable law or the charter or by-
laws of Viscosa and, to the knowledge of such counsel, there are no
contractual preemptive rights or rights of first refusal or other
similar rights which exist with respect to any of Viscosa's shares
of capital stock or the issue and sale thereof, except such rights
which have been satisfied or waived.

(iii) All the issued and outstanding shares of capital
stock of Viscosa's subsidiaries have been duly and validly
authorized and issued and are fully paid and nonassessable, and, to
the best of such counsel's knowledge, Viscosa owns of record and
beneficially, free and clear of any security interests, claims,
liens, proxies, equities or other encumbrances, all the issued and
outstanding shares of such stock. To the best of such counsel's
knowledge, there are no options, warrants, agreements, contracts or
other rights in existence to purchase or acquire from Viscosa or
any of its subsidiaries any shares of their capital stock.

(iv) No filing with, or consent, approval,
authorization, order, registration, qualification or decree of, any
court or governmental authority or agency, domestic or foreign
(other than the issuance of the order of the Commission declaring
the Registration Statement effective and such authorizations,
approvals or consents as may be necessary under state securities
laws, as to which we need express no opinion) is necessary or
required to be obtained by Viscosa for the performance by it of its
obligations under the Purchase Agreement, or in connection with the
offer, sale or delivery of the Securities.

(v) The Purchase Agreement has been duly authorized,
executed and delivered by Viscosa.

(vi) The execution, delivery and performance of the
Purchase Agreement and the consummation of the transactions
contemplated in the Purchase Agreement and in the Registration
Statement and compliance by Viscosa with its obligations under the
Purchase Agreement do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined
in Section 1(a)(xi) of the Purchase Agreement) under or result in
the creation or imposition of any lien, charge or encumbrance upon
any property or assets of Viscosa or any subsidiary pursuant to,
any contract, indenture, mortgage, deed of trust, loan

B-1
<PAGE> 43

or credit agreement, note, lease or other instrument or agreement to which
Viscosa or any subsidiary is a party or by which it or any of them may be
bound, or to which any of the property or assets of Viscosa or any subsidiary
is subject, nor will such action result in any violation of the provisions of
the charter or by-laws of Viscosa or any subsidiary, or any applicable law,
statute, rule, regulation, judgment, order, writ or decree, known to us, or
any government, government instrumentality or court, domestic or foreign,
having jurisdiction over Viscosa or any subsidiary or any of their
respective properties, assets or operations.

(vii) The statements under the captions "Risk Factors--
Risks of Operation and Integration of Magyar Viscosa Rt.",
"Business--Environmental" (second paragraph), "Business--Employees"
(second paragraph) and "Business--Intellectual Property" (second
paragraph) in the Prospectus, insofar as such statements constitute
a summary of documents referred to therein or of matters of law,
are accurate summaries and fairly and correctly present in all
material respects the information called for with respect to such
documents and matters.

(viii) Except as disclosed in the Prospectus, we know of
no pending or threatened action, suit, claim, proceeding or
investigation before any court or governmental agency or body that,
if determined adversely to Viscosa or any of its subsidiaries,
would have a material adverse effect on Viscosa or any of
subsidiaries, taken as a whole, or which would limit, revoke,
cancel, suspend, or cause not to be renewed any existing license,
certificate, registration, approval or permit from any state,
federal, or regulatory authority that is material to the conduct of
the business of Viscosa and its subsidiaries, taken as a whole.

(ix) To our knowledge, Viscosa and its subsidiaries
hold and are operating in compliance in all material respects with,
all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates and orders of any governmental or
self-regulatory body required for the conduct of its business and
all such franchises, grants, authorizations, licenses, permits,
easements, consents, certifications and orders are valid and in
full force and effect, except where the failure to hold or to be so
in compliance would not have a material adverse effect on the
business, condition (financial or otherwise), prospects, net worth
or results of operations of Viscosa and its subsidiaries, taken as
a whole.

(x) To our knowledge and except as disclosed in the
Registration Statement, neither Viscosa nor any of its subsidiaries
is in violation of their respective charter or by-laws, and neither
Viscosa nor any of its subsidiaries is in breach of or otherwise in
default in the performance of any material obligation, agreement or
condition contained in any bond, debenture, note, contract, lease
or other instrument to which any of them is subject or by which any
of them may be bound, or to which any of the material property or
assets of Viscosa or any of its subsidiaries is subject.

(xi) Viscosa is permitted under Hungarian law to remit
profits to the Company in U.S. dollars free and clear of any tax,
duty, withholding or deduction in Hungary and Viscosa has access to
currency markets in Hungary for purchasing U.S. dollars to make
remittances of profits to the Company.

(xii) Viscosa and its obligations under the Purchase
Agreement are subject to civil and commercial law and to suit and
neither Viscosa nor any of its properties, assets or revenues has
any right of immunity under Hungarian or New York law, from any
legal action, suit or proceeding, from the giving of any relief in
any such legal action, suit or proceeding, from setoff or
counterclaim, from the jurisdiction of any Hungarian, New York or
U.S. Federal court, from service of process, attachment

B-2
<PAGE> 44

upon or prior to judgment, or attachment in aid of execution of judgment,
or from execution of a judgment, or other legal process or proceeding for the
giving of any relief or for the enforcement of a judgment, in any such court,
with respect to its obligations, liabilities or any other matter under or
arising out of or in connection with the Purchase Agreement; and, to the
extent that Viscosa or any of its properties, assets or revenues may have or
may hereafter become entitled to any such right of immunity in any such court
in which proceedings may at any time be commenced, Viscosa has waived such
right to the extent permitted by law and has consented to such relief and
enforcement as provided in Section 13 of the Purchase Agreement.

(xiii) Viscosa has the power to submit, and pursuant to
the Purchase Agreement has legally, validly, effectively and
irrevocably submitted to the personal jurisdiction of any federal
or state court in the State of New York, County of New York, and
has the power to designate, appoint and empower, and pursuant to
the Purchase Agreement has legally, validly, effectively and
irrevocably designated, appointed and empowered an agent for
service of process in any suit or proceeding based on or arising
under this the Purchase in any federal or state court in the State
of New York, County of New York, as provided in Section 14 of the
Purchase Agreement.

(xiv) Any final judgment for a fixed or readily
calculable sum of money rendered by any court of the State of New
York or of the United States located in the State of New York
having jurisdiction under its own domestic laws in respect of any
suit, action or preceding against Viscosa based upon the Purchase
Agreement would be declared enforceable against Viscosa by the
courts of Hungary without reexamination, review of the merits of
the cause of action in respect of which the original judgment was
given or relitigation of the matters adjudicated upon or payment of
any stamp, registration or similar tax or duty, provided that (A)
the judgment is consistent with public policy in Hungary and any
relevant political subdivision, (B) the judgment was not given or
obtained by fraud or in a manner contrary to natural justice, (C)
the judgment was not based on a clear mistake of law or fact, (D)
the judgment was not directly or indirectly for the payment of
taxes or other charges of a like nature or of a fine or other
penalty, and (D) the judgment is for a fixed sum.

Nothing has come to our attention that would lead us to
believe that the Registration Statement or any amendment thereto,
including the Rule 430A Information and Rule 434 Information (if
applicable) (except for financial statements and schedules and
other financial data included or incorporated by reference therein
or omitted therefrom, as to which we need make no statement), at
the time such Registration Statement or any such amendment became
effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (except for
financial statements and schedules and other financial data
included or incorporated by reference therein or omitted therefrom,
as to which we need make no statement), at the time the Prospectus
was issued, at the time any such amended or supplemented prospectus
was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.

B-3
<PAGE> 45

[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS
PURSUANT TO SECTION 5(J)]

Exhibit C

----------- --, 1996

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
STIFEL, NICHOLAUS & COMPANY, INCORPORATED
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209

Re: Proposed Public Offering by Zoltek Companies, Inc.
--------------------------------------------------

Dear Sirs:

The undersigned, a stockholder [and an officer and/or
director] of Zoltek Companies, Inc., a Missouri corporation (the
"Company"), understands that Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Stifel,
Nicholaus & Company, Incorporated propose to enter into a Purchase
Agreement (the "Purchase Agreement') with the Company, Zoltek
Corporation, Zoltek Properties, Inc. and Magyar Viscosa Rt.
providing for the public offering of shares (the "Securities") of
the Company's common stock, par value $.01 per share (the "Common
Stock"). In recognition of the benefit that such an offering will
confer upon the undersigned as a stockholder [and an officer and/or
director] of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agrees with each underwriter to be
named in the Purchase Agreement that, during a period of 180 days
from the date of the Purchase Agreement, the undersigned will not,
without the prior written consent of Merrill Lynch, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any shares of the Company's Common
Stock or any securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or hereafter
acquired by the undersigned or with respect to which the
undersigned has or hereafter acquires the power of disposition, or
file any registration statement under the Securities Act of 1933,
as amended, with respect to any of the foregoing or (ii) enter into
any swap or any other agreement or any transaction that transfers,
in whole or in part,

C-1
<PAGE> 46

directly or indirectly, the economic consequence of ownership of the Common
Stock, whether any such swap or transaction is to be settled by delivery of
Common Stock or other securities, in cash or otherwise.

Very truly yours,

Signature: --------------------------------

Print Name: ------------------------------

C-2

<PAGE> 1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated October 13, 1995,
except as to Note 11, which is as of November 22, 1995, and Note 2 which
is as of December 8, 1995, relating to the consolidated financial
statements of Zoltek Companies, Inc., which appears in such Prospectus.
We also consent to the application of such report to the Financial
Statement Schedule for the three years ended September 30, 1995 listed
under Item 16(b) of this Registration Statement when such schedule is
read in conjunction with the consolidated financial statements referred
to in our report. The audits referred to in such report also included this
schedule. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared
or certified such "Selected Consolidated Financial Data."

/s/ Price Waterhouse LLP

PRICE WATERHOUSE LLP

St. Louis, Missouri
July 3, 1996

<PAGE> 1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated August 29, 1995, except as to Note 17, which is as of September 20, 1995,
relating to the consolidated financial statements of Magyar Viscosa, Rt.,
which is incorporated by reference in Zoltek Companies, Inc. Current Report
on Form 8-K dated December 8, 1995. We also consent to the reference to us
under the heading "Experts" in such Prospectus.

/s/ Price Waterhouse

Price Waterhouse
Budapest, Hungary
July 3, 1996