<PAGE> 1
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
EXX INC
(Name of Registrant as Specified in its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
CLASS A COMMON STOCK, $0.01 PAR VALUE
2) Aggregate number of securities to which transaction applies:
25,000,000
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
EXX IS OFFERING TO EXCHANGE 4,234,787 NEWCOR SHARES FOR A NUMBER
OF SHARES OF EXX CLASS A COMMON STOCK DETERMINED BY DIVIDING $4.00
BY THE CLOSING PRICE OF OUR CLASS A COMMON STOCK ON THE DAY
PRECEDING THE EXPIRATION DATE OF THE OFFER.
4) Proposed maximum aggregate value of transaction: $16,939,148
5) Total fee paid: $3,388
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $4,458.74
2) Form, Schedule or Registration Statement No.: S-4
3) Filing Party: EXX INC
4) Date Filed: APRIL 28, 2000
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EXX INC
SUITE 689
1350 EAST FLAMINGO ROAD
LAS VEGAS, NEVADA 89119
_________________
May 11, 2000
Dear Fellow Stockholders:
You are cordially invited to attend the annual meeting of stockholders to
be held at the offices of Henry Gordy International, Inc. at 900 North
Avenue, Plainfield, New Jersey, 07061 at 3:00 p.m. (local time) on June 5,
2000. At the annual meeting, you will be asked to vote on the following
proposals:
(i) to elect one (1) Class A director and three (3) Class B
directors;
(ii) to amend our Articles of Incorporation, as amended, to increase
the number of authorized shares of our Class A common stock to
100,000,000 shares; and
(iii) to approve the issuance of up to 25,000,000 shares of our Class A
common stock, $0.01 par value, in connection with the acquisition
of up to 100% of the outstanding common stock, $1.00 par value, and
associated preferred stock purchase rights, of Newcor, Inc., a
Delaware corporation and a Michigan-based automotive components
manufacturer, pursuant to an exchange offer.
For the reasons set forth in the attached proxy statement, your board of
directors has unanimously determined that the election of directors, the
amendment to our Articles of Incorporation, as amended, and the issuance of
up to 25,000,000 shares of our Class A common stock, pursuant to an exchange
offer, are in the best interests of EXX Inc and our stockholders and has
approved such proposals.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
ELECTION OF DIRECTORS, "FOR" ADOPTION OF THE AMENDMENT TO OUR ARTICLES AND
"FOR" APPROVAL OF THE ISSUANCE OF UP TO 25,000,000 SHARES OF OUR CLASS A
COMMON STOCK, PURSUANT TO AN EXCHANGE OFFER.
We cordially invite you to attend the annual meeting. Whether you plan
to attend or not, we urge you to date, sign and return the enclosed proxy in
the envelope provided so that your vote counts. If you do attend the annual
meeting, you can still vote in person at the meeting, or allow your proxy to
stand.
Sincerely,
DAVID A. SEGAL
Chairman
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EXX INC
SUITE 689
1350 EAST FLAMINGO ROAD
LAS VEGAS, NEVADA 89119
NOTICE OF ANNUAL MEETING OF CLASS A AND CLASS B STOCKHOLDERS
TO BE HELD JUNE 5, 2000
APPROXIMATE DATE OF MAILING TO SECURITY HOLDERS: MAY 11, 2000
Dear Stockholder:
The annual meeting of stockholders of EXX Inc will be held at the office
of Henry Gordy International, Inc. at 900 North Avenue, Plainfield, New
Jersey, 07061 at 3:00 p.m. (local time) on June 5, 2000 for the following
purposes:
(1) To elect one (1) Class A director and three (3) Class B directors
to serve as provided in our By-Laws until the next annual meeting
and thereafter until their respective successors are elected and
qualified;
(2) To amend our Articles of Incorporation, as amended, to increase
the number of authorized shares of our Class A common stock, $0.01
par value, to 100,000,000 shares;
(3) To approve the issuance of up to 25,000,000 shares of our Class A
common stock, $0.01 par value, in connection with the acquisition
of up to 100% of the outstanding common stock, $1.00 par value,
and associated preferred stock purchase rights, of Newcor, Inc., a
Michigan-based automotive component manufacturer, pursuant to an
exchange offer; and
(4) To transact such other business as may properly come before the
meeting or before any adjournments of the meeting.
Our board of directors has fixed the close of business on May 5, 2000, as
the record of date for the determination of Class A and Class B stockholders
entitled to notice of and to vote at the meeting and at any adjournments or
postponements thereof.
A form of proxy and the proxy statement respecting the meeting are
enclosed and are hereby made a part of this Notice.
You are cordially invited to attend the meeting in person.
By Order of the Board of Directors
DAVID A. SEGAL
Chairman of the Board and Chief Executive Officer
Las Vegas, Nevada
May 11, 2000
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO PROMPTLY MARK, DATE, SIGN
AND RETURN THE ENCLOSED PROXY CARD(S) IN THE ACCOMPANYING ENVELOPE. RETURN
OF YOUR PROXY WILL NOT DEPRIVE YOU OF YOUR RIGHT TO VOTE YOUR SHARES IN
PERSON AT THE MEETING.
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
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<S> <C>
Cautionary Statement Concerning Forward-Looking Information 1
Questions and Answers About The Meeting, The Election of
Directors, The Amendment to our Articles of Incorporation
and the Listing and Issuance of Class A Shares 2
Summary 4
The Companies 4
EXX Inc 4
Newcor, Inc. 4
The Annual Meeting 4
Record Date; Voting Power 4
Vote Required 4
Voting by our Directors and Executive Officers 5
Revocability of Proxies 5
Solicitation of Proxies 5
Proposal One - Election of Directors 5
General 5
BOARD OF DIRECTORS RECOMMENDATION TO STOCKHOLDERS 5
Proposal Two - Amendment to Articles of Incorporation 5
General 5
Board of Directors Recommendation to Stockholders 5
Proposal Three - The Issuance of up to 25,000,000 Shares
of Class A Common Stock Pursuant to an Exchange Offer 5
General 5
Terms of the Exchange Offer 6
Potential Dilution of our Investment in Newcor 6
Conditions to the Exchange Offer 6
Our Reasons for the Exchange Offer 7
Board of Directors Recommendation to Stockholders 8
Accounting Treatment 8
Material Tax Consequences of the Transaction 8
Regulatory Matters 8
Dissenters' Rights 8
The Annual Meeting 9
Date, Time and Place 9
Purpose of the Annual Meeting 9
Record Date; Stock Entitled to Vote; Quorum 9
Vote Required 10
Voting by EXX Directors and Executive Officers 10
i
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Voting of Proxies 11
Revocability of Proxies 11
Solicitation of Proxies 12
Independent Auditors 12
Proposal I - Election of Directors 12
Required Vote 12
Recommendation Of The Board 12
Class A Director 13
Class B Directors 13
Voting Securities and Principal Holders Thereof 14
Board of Directors and Committees 14
Compensation of Directors 15
Executive Employment Contract 15
Report of Compensation Committee on Executive Compensation 15
Compensation of our Executive Officer and Other Information 16
Summary Compensation Table 16
Pension Benefits 16
Pension Plan Table 17
Comparison of Five-Year Cumulative Total Returns Among
EXX Inc, Standard & Poor's Midcap and Standard & Poor's
Toys Indices 18
Proposal II - Amendment to Article 3 of The Articles of
Incorporation, as Amended 19
Required Vote 20
Recommendation of the Board 20
Proposal III - Approval of the Issuance of Shares of Class A
Common Stock in Connection with an Exchange Offer 20
Recommendation of Your Board 27
Accounting Treatment 27
Tax Consequences 27
Regulatory Matters 31
Certain Relationships with Newcor, Inc. 32
Independent Auditors 34
Dissenters' Rights 34
Certain Information Regarding Newcor, Inc. 36
Environmental Compliance 40
Employees 40
ii
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Financial Information About Foreign and Domestic Operations and Sales 41
Section 16(a) Beneficial Ownership Reporting Compliance 52
Independent Public Accountants 52
Proposals of Stockholders 52
Discretionary Voting 52
Annual Report 53
Other Matters 53
Index to Consolidated Financial Statements of Newcor F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Cash Flows F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Shareholders' Equity F-5
Consolidated Financial Statements F-6
</TABLE>
iii
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CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
We make forward-looking statements in this proxy statement, and in the
public documents to which we refer, that are subject to risks and
uncertainties. These forward-looking statements include information about
possible or assumed future results of our operations and the performance of
Newcor after we acquire a controlling interest in Newcor. Also, when we use
any of the words "believes," "expects," "anticipates," "estimates" or similar
expressions we are making forward-looking statements.
These forward-looking statements are intended to qualify for the safe
harbor provided by the Private Securities Litigation Reform Act of 1995.
While we believe that our forward-looking statements are reasonable, you
should not place undue reliance on any forward-looking statements, which
speak only as of the date made. You should understand that the following
important factors, in addition to those discussed elsewhere in this proxy
statement and in the public documents to which we refer could affect the
future results and performance of EXX and the performance of Newcor after we
acquire a controlling interest in Newcor. This could cause those results to
differ materially from those expressed in our forward-looking statements.
Factors that might cause such a difference include the following:
* competition with other businesses may increase;
* inflation and changes in the interest rate environment may reduce our
margins;
* general economic or business conditions may be less favorable than
expected; and
* our ability to enter new markets successfully and capitalize on growth
opportunities may be more difficult than expected.
1
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QUESTIONS AND ANSWERS ABOUT THE MEETING, THE ELECTION OF DIRECTORS,
THE AMENDMENT TO OUR ARTICLES OF INCORPORATION AND THE ISSUANCE OF
CLASS A SHARES
Q. WHY ARE OUR ARTICLES OF INCORPORATION BEING AMENDED?
A. As of May 5, 2000, EXX had only 5,788,393 shares of our Class A common
stock available for issuance. In order to effect the offer for Newcor
stock and for other corporate purposes, the board of directors proposes
to increase the number of authorized shares of Class A common stock to
100,000,000, or, a total of 80,788,393 Class A shares available for
issuance.
Q. WHY ARE WE ASKING YOU TO APPROVE THE ISSUANCE OF CLASS A SHARES?
A. The American Stock Exchange Listing Standards and Requirements require
the approval of our stockholders as a prerequisite to its approval to
list additional shares in circumstances where the shares are to be
issued as consideration for an acquisition of the stock of the company
and where such potential issuance may result in an increase in
outstanding Class A common stock of 20% or more.
We are proposing to acquire control of, and possibly ultimately the
entire equity interest in, Newcor by offering to exchange shares of
Newcor common stock and the associated preferred stock purchase rights
for shares of EXX Class A common stock and/or cash in our sole
discretion. The consideration we are offering to Newcor stockholders
has a value of $4.00 per share, based on the closing price of EXX Class
A common stock on the date we commence the offer. Potentially up to
25,000,000 shares of our Class A stock may be issued or 67.5% of our
currently outstanding shares. Therefore your approval is needed.
Q. WHY IS BOARD RECOMMENDING THAT I VOTE FOR THE ISSUANCE?
A. To review the background and reasons for the issuance in greater
detail, see pages 21 to 27.
Q. WHAT RIGHTS DO I HAVE IF I OPPOSE THE ISSUANCE?
A. Holders of our common stock are not entitled under Nevada law nor under
our Articles of Incorporation, as amended, to any dissenters' rights to
seek appraisal of their shares, or to any preemptive rights in
connection with any of the proposals.
Q: WHAT DO I NEED TO DO NOW?
A: Please vote your shares as soon as possible so that your shares will be
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represented at the annual meeting. You may grant your proxy by signing
---------------------------------
your proxy card and mailing it in the enclosed return envelope, or you
may vote in person at the annual meeting.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Send in a later-dated, signed proxy card to our secretary before the
annual meeting or attend the annual meeting in person, revoke your
proxy and vote your shares.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on
how to vote. Your broker will contact you regarding the procedures
necessary for him or her to vote your shares. Please tell your broker
how you would like him or her to vote your shares. If you do not tell
your broker how to vote, your shares will not be voted by your broker,
WHICH WILL HAVE THE EFFECT OF A VOTE AGAINST
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THE AMENDMENT TO OUR ARTICLES OF INCORPORATION.
Q: WHO CAN VOTE AT THE ANNUAL MEETING?
A: Holders of shares of our Class A and Class B common stock at the close
of business on May 5, 2000 may vote at the annual meeting.
Q: HOW MANY VOTES ARE REQUIRED TO ELECT NEW DIRECTORS?
A: Under our Articles of Incorporation, holders of outstanding shares of
Class B shares have the right to elect two-thirds or the next rounded
number of directors in excess of two-thirds if the number of directors
is not divisible by three and the holders of the outstanding Class A
common stock with the right to elect the remaining directors. Election
of each class of directors will require the affirmative vote of holders
of a plurality of the applicable class of common stock present (in
person or by proxy) at the meeting.
Q. HOW MANY VOTES ARE REQUIRED TO ADOPT THE AMENDMENT TO OUR ARTICLES OF
INCORPORATION?
A. The approval and adoption of the amendment to our Articles requires the
affirmative vote of the holders of a majority of the outstanding shares
of each class of our common stock. Therefore, 6,030,804 shares of our
Class A common stock and 312,477 shares of our Class B common stock
must be voted in favor of the proposal to adopt the amendment.
Q. HOW MANY VOTES ARE REQUIRED TO APPROVE THE ISSUANCE OF THE ADDITIONAL
CLASS A SHARES?
A. Holders of a majority of the outstanding shares of our Class A and
Class B common stock present at the meeting must vote in favor of the
issuance of the additional Class A shares in order to approve the
issuance of the additional Class A shares. David A. Segal has advised
us of his intention to vote his shares in favor of the issuance of the
additional Class A shares. Because Mr. Segal controls 49.49% of the
outstanding shares of our Class A and 50.27% of the outstanding shares
of our Class B common stock, his vote virtually assures approval of the
issuance of the additional shares of Class A common stock.
Q. WHAT ARE MY TAX CONSEQUENCES AS A RESULT OF THE ISSUANCE OF THE
ADDITIONAL SHARES OF CLASS A COMMON STOCK?
A. There are no material tax consequences that will result from the
consummation of this transaction.
Q. WHEN AND WHERE IS THE ANNUAL MEETING?
A. The annual meeting will take place at 3:00 p.m. local time on June 5,
2000, at the offices of Henry Gordy International, Inc., 900 North
Avenue, Plainfield, New Jersey, 07061.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the matters addressed in this proxy
statement or if you need additional copies of this proxy statement, you
should contact:
D.F. King & Co., Inc.
77 Water Street, 20th Floor
New York, New York 10005-4495
(212) 269-5550
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SUMMARY
This summary, together with the preceding Questions and Answers section,
highlights selected information from this proxy statement and does not
contain all of the information that is important to you. See "Where You Can
Find More Information" on page 34. We have included page references
parenthetically to direct you to a more complete description of the topics
presented in this summary.
THE COMPANIES
EXX INC EXX Inc, a Nevada corporation, is a holding company of various
subsidiaries which are engaged in the design, production and sale of consumer
goods in the form of "impulse toys" and other toys, watches and kites. In
addition, our subsidiaries are engaged in the design, production and sale of
electric motors geared toward the original equipment market and the design,
production and sale of cable pressurization equipment sold to the
telecommunications industry. For the year ended December 31, 1999, EXX
reported total sales of $21.2 million, net income of $2.4 million and
earnings per share of $0.19. Our principal executive offices are located at
1350 East Flamingo Road, Suite 689, Las Vegas, Nevada 89119. Our telephone
number is (702) 598-3223.
NEWCOR, INC. Newcor, Inc., a Delaware corporation, is a holding company
of various subsidiaries which operate in the following three segments:
Precision Machined Products; Rubber and Plastic; and Special Machines. The
Precision Machined Products segment produces transmission, powertrain and
engine components and assemblies primarily for the automotive, medium and
heavy-duty truck and agricultural vehicle industries. The Rubber and Plastic
segment produces cosmetic and functional seals and boots and functional
engine compartment products primarily for the automotive industry. The
Special Machines segment designs and manufactures welding, assembly, forming,
heat treating and testing machinery and equipment for the automotive,
appliance and other industries. For the year ended December 31, 1999, Newcor
reported total sales of $258.5 million, a net loss of $11.6 million and a
loss of $2.36 per share. The principal executive offices of Newcor, Inc. are
located at 1825 S. Woodward Avenue, Suite 240, Bloomfield Hills, Michigan
48302. Newcor, Inc.'s telephone number is (248) 253-2400.
THE ANNUAL MEETING (page 9)
Our annual meeting of stockholders will be held at the offices of Henry
Gordy International, Inc., on June 5, 2000 at 3:00 p.m., local time. At
the annual meeting, stockholders will consider and vote upon the election of
directors, the proposed amendment of our Articles of Incorporation and the
issuance of up to 25,000,000 shares of our Class A common stock.
RECORD DATE; VOTING POWER (page 9)
Holders of shares of our Class A and Class B common stock are entitled to
receive notice of, and vote at, the annual meeting if they owned shares as of
the close of business on May 5, 2000, the record date for the meeting.
On the record date, there were 12,061,607 shares of our Class A common
stock and 624,953 shares of our Class B common stock entitled to vote at the
annual meeting. Holders of shares of our common stock will have one vote at
the annual meeting for each share of either class of our common stock they
owned on the record date.
VOTE REQUIRED (page 10)
The affirmative vote of the holders of a plurality of each class of
common stock present in person or by proxy of the annual meeting is necessary
to elect the directors. The affirmative vote of the holders of at least
majority of the outstanding shares of each class of our common stock is
necessary to adopt the amendment to our Articles of Incorporation. The
affirmative vote of the holders of a majority of the outstanding shares of
each class of our common
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stock present in person or by proxy at the annual meeting is necessary to
approve the issuance of our Class A shares.
VOTING BY OUR DIRECTORS AND EXECUTIVE OFFICERS (page 10)
On the record date, David A. Segal beneficially owned 5,969,382 shares of
our Class A common stock, or 49.49% of the outstanding shares of our Class A
common stock and beneficially owned 314,178 shares of our Class B common
stock, or 50.27% of the outstanding shares of our Class B common stock. Mr.
Segal intends to vote his shares in favor of the election of directors, the
amendment to our Articles of Incorporation and the issuance of Class A
shares. Our other directors and executive officers also have indicated that
they intend to vote the shares of each class of our common stock owned by
them in favor of the election of directors, in favor of the amendment to our
Articles of Incorporation and in favor of the issuance of Class A shares.
REVOCABILITY OF PROXIES (page 11)
Our stockholders are being asked to sign and return to us the proxy card
accompanying this proxy statement as soon as possible. If you are unable to
attend the annual meeting, a proxy card is attached for use at the annual
meeting. You are requested to sign and return the enclosed proxy card as
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promptly as possible, whether you plan to attend the meeting in person or
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not. You may revoke your proxy at any time prior to the meeting or, if you
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do attend the meeting, you may revoke your proxy at that time, if you wish.
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SOLICITATION OF PROXIES (page 12)
We will bear the cost of soliciting proxies from our stockholders.
PROPOSAL ONE - ELECTION OF DIRECTORS (page 12)
GENERAL
Norman H. Perlmutter has been nominated as a candidate for Class A
director and Jerry Fishman, Frederic Remington and David A. Segal as
candidates for Class B directors to serve a term ending at the next annual
meeting of stockholders. Each of these nominees is currently a director of
EXX Inc.
BOARD OF DIRECTORS RECOMMENDATION TO STOCKHOLDERS (page 12)
Your board of directors recommends a vote for the election of Norman H.
Perlmutter, Jerry Fishman, Frederic Remington and David A. Segal as
directors.
PROPOSAL TWO - AMENDMENT TO ARTICLES OF INCORPORATION (page 19)
GENERAL
Your board of directors has approved an amendment to our Articles of
Incorporation to increase the number of authorized shares of Class A common
stock to 100,000,000 shares. Your board of directors believes that the
increase in shares to be authorized will more closely reflect the strategic
direction of our business.
BOARD OF DIRECTORS RECOMMENDATION TO STOCKHOLDERS (page 20)
Your board of directors believes that the amendment to our Articles of
Incorporation is in the best interests of EXX Inc and our stockholders and
unanimously recommends that you vote for the amendment to our Articles of
Incorporation.
PROPOSAL THREE - THE ISSUANCE OF UP TO 25,000,000 SHARES OF CLASS A COMMON
STOCK PURSUANT TO AN EXCHANGE OFFER (page 20)
GENERAL
The American Stock Exchange Listing Standards and Requirements require
the approval of our stockholders as a prerequisite to its approval to list
additional shares in circumstances where the shares are to issued as
consideration for an acquisition of the stock of the company and where such
potential issuance may result in an increase in outstanding Class A common
stock of twenty percent (20%) or more.
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TERMS OF THE EXCHANGE OFFER (page 22)
We are offering to exchange shares of our Class A common stock for
outstanding shares of Newcor common stock and associated preferred stock
purchase rights validly tendered and not properly withdrawn, subject to the
terms and conditions described in this proxy and the prospectus and the
related letter of transmittal which have been sent to the Newcor
stockholders. In addition, in our sole discretion, we may elect to pay cash
in lieu of some or all of the shares of our Class A common stock. If we
elect to pay the consideration solely in shares of common stock, the number
of shares of our Class A common stock to be exchanged for the shares of
Newcor common stock will be determined by dividing $4.00 by the closing price
of our Class A common stock as reported on the American Stock Exchange on the
last trading day immediately preceding the expiration date of the offer. We
will not issue certificates representing fractional shares of our common
stock pursuant to the offer. Instead, in our sole discretion, either the
fractional share will be rounded to the nearest whole share or we will
distribute cash in an amount equal to such fraction multiplied by the closing
price of our Class A common stock as reported on the American Stock Exchange
on the last trading day immediately preceding the expiration date of the
offer.
We are making this offer in order to acquire control of and, possibly,
the entire common equity interest in, Newcor. If less than the entire common
equity interest in Newcor is tendered pursuant to the offer, we may, in our
sole discretion, elect to exchange only a portion of the total number of
shares of Newcor common stock tendered pursuant to the offer. If we elect to
exchange only a portion of the total number of shares of Newcor common stock
tendered pursuant to the offer, we will exchange a pro rata portion of the
number of shares of Newcor common stock tendered by each stockholder of
Newcor.
Our obligation to exchange shares of EXX common stock for Newcor shares
pursuant to the offer is subject to several conditions. See "Terms of the
Offer--Conditions of Our Offer."
POTENTIAL DILUTION OF OUR INVESTMENT IN NEWCOR (page 24)
Pursuant to a Shareholder Rights Plan adopted by Newcor in January, our
ownership in Newcor or the commencement of our exchange offer may trigger the
anti-takeover provisions of the plan. Such triggering would permit the other
Newcor stockholders to purchase shares of Newcor common stock at a 50% discount
to the then market price thus diluting our percentage ownership in Newcor due
to our substantial investment in Newcor, such dilution may have an adverse
effect on the value of our Class A common stock. To minimize this risk, we
have made it a condition to our offer that the rights under the plan either be
redeemed or the plan be declared inapplicable to our offer. However, there can
be no guarantee that the condition will be met.
CONDITIONS TO THE EXCHANGE OFFER (page 24)
Our obligation to consummate the transaction depends on a number of
conditions being met (any of which may be waived in whole or in part in our
sole discretion). These include:
* EXX Stockholder Approval. You must vote to approve (a) an increase
in the number of authorized shares of EXX Class A common stock and
(b) the issuance of EXX Class A common stock in connection with our
offer.
* Regulatory Approvals. All regulatory approvals required to
consummate the offer must have been obtained and remain in full force
and effect without the imposition of any condition or restriction
that would be materially adverse to EXX or Newcor.
* Rights Agreement. We must be satisfied, in our reasonable judgment,
that the Newcor rights agreement does not apply to our offer.
* Section 203 of the Delaware General Corporation Law. We must be
satisfied, in our reasonable judgment, that the provisions
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of Section 203 of the Delaware General Corporation Law do not apply
to our offer.
* Listing on American Stock Exchange. The shares of our common stock
to be issued to Newcor stockholders in the offer must have been
authorized for listing on the American Stock Exchange, subject to
official notice of issuance.
* No Acceleration of Indebtedness. We must be satisfied, in our
reasonable judgment, that the indebtedness of Newcor under the $125
million 9.875% Senior Subordinated Notes due 2008 will not become
immediately due and payable upon the consummation of the offer.
* Effectiveness of Registration Statement; Blue Sky Authorizations.
The registration statement shall have become effective under the
Securities Act of 1933, as amended, and no stop order suspending the
effectiveness of the registration statement shall have been issued
nor shall there have been proceedings for that purpose initiated or
threatened by the Securities and Exchange Commission and we shall
have received all necessary state securities law or "blue sky"
authorizations.
OUR REASONS FOR THE EXCHANGE OFFER (page 26)
We are a holding company which seeks out and acquires businesses which we
believe are fundamentally sound, but which are performing poorly due to their
existing management. In the course of our research, we discovered that
Newcor was losing money despite having over a quarter of a billion dollars in
sales per year. We believe that the reason for this loss is poor management.
We specialize in turning around the operations and losses of manufacturing
enterprises. As such, Newcor is a perfect candidate for us to install a new
management team and bring our expertise to the benefit of Newcor. We believe
that our acquisition of a controlling interest in Newcor represents an
opportunity to enhance value for both Newcor and EXX stockholders. Among the
benefits that we believe EXX stockholders would obtain from our acquisition
of a controlling interest in Newcor are the following:
* Better Long-Term Growth Prospects. We believe that a combination of
EXX and Newcor has better long-term growth prospects than the
prospects of EXX as a single entity, potentially resulting in
increased shareholder value over the long-term.
* Low Execution Risk. Based on the similarities between EXX and
Newcor's businesses, EXX believes that it can manage the execution
risk associated with the proposed acquisition of Newcor and maintain
superior operating returns.
The following are among the factors your board of directors considered in
approving the exchange offer:
* our board's knowledge of our business, operations, properties,
assets, financial condition and operating results
* the business, operations, properties, assets, financial condition and
operating results of Newcor
* the opportunity to acquire unique properties
* the consistency of the stock acquisition with our long-term business
strategy
* our view that we are positioned to grow and compete successfully in
our operation of the businesses of Newcor and will be able to achieve
financial performance beyond what we would achieve without the
businesses of Newcor
* our belief that we can streamline and improve the operations and
profitability of Newcor based on our proven history of restoring
unprofitable manufacturing companies to profitable operating health
- -------------------------------------------------------------------------------
7
<PAGE> 14
- -------------------------------------------------------------------------------
BOARD OF DIRECTORS RECOMMENDATION TO STOCKHOLDERS (page 27)
Your board of directors unanimously approved the exchange offer,
including the issuance of the Class A shares, and has determined it be in the
best interests of EXX Inc and our stockholders. The board recommends that you
vote for the approval of the issuance of the Class A shares.
ACCOUNTING TREATMENT (page 27)
If we acquire a majority of the common equity interest in Newcor, the
business combination will be accounted for as a "purchase," as such term is
used under generally acceptable accounting principles, for accounting and
financial reporting purposes. Newcor will be treated as the acquired
corporation for such purposes.
If we acquire less than a majority but at least 20% of the common equity
interest in Newcor, we expect that we will account for such interest using
the equity method of accounting. The use of the equity method of accounting
would result in financial reporting substantially different from that
presented in the Unaudited Pro Forma Condensed Consolidated Financial
Statements contained in this proxy statement.
EXX has prepared the Unaudited Pro Forma Financial Statements contained
in this proxy using the purchase method of accounting.
MATERIAL TAX CONSEQUENCES OF THE TRANSACTION (page 27)
There are no material tax consequences to EXX's stockholders that will
result from the transaction.
REGULATORY MATTERS (page 31)
All regulatory approvals required to consummate the offer must be
obtained and must remain in full force and effect without the imposition of
any condition or restriction that would be materially adverse to us or
Newcor. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules promulgated thereunder by the Federal Trade
Commission, the offer may not be consummated until notifications have been
given and certain information has been furnished to the Federal Trade
Commission and the Antitrust Division of the Department of Justice and
specified waiting period requirements have been satisfied. At any time
before or after the consummation of the offer, and notwithstanding that the
waiting period has been terminated, the Antitrust Division or any state could
take such action under the antitrust laws as they deem necessary or desirable
in the public interest, including seeking to enjoin the consummation of the
offer or seeking divestiture of Newcor or the businesses of EXX or Newcor.
Private parties may also seek to take legal action under the antitrust laws
under certain circumstances.
We are not aware of any other material governmental approvals or actions
that are required for consummation of the offer. It is presently
contemplated that if any such additional governmental approvals or actions
are required, such approvals or actions will be sought. There can be no
assurance, however, that any such additional approvals or actions will be
obtained.
DISSENTERS' RIGHTS (page 34)
Holders of our common stock are not entitled under Nevada law nor under
our Articles of Incorporation, as amended, to any dissenters' rights to seek
appraisal of their shares, or to any preemptive rights in connection with any
of the proposals.
- -------------------------------------------------------------------------------
8
<PAGE> 15
EXX INC
SUITE 689
1350 EAST FLAMINGO ROAD
LAS VEGAS, NEVADA 89119
(702) 598-3223
PROXY STATEMENT
FOR ANNUAL MEETING OF CLASS A AND CLASS B STOCKHOLDERS
HELD ON JUNE 5, 2000
THE ANNUAL MEETING
We are furnishing this proxy statement to our stockholders as part of the
solicitation of proxies from our stockholders by your board of directors for
use at the annual meeting.
DATE, TIME AND PLACE
We will hold the annual meeting at the law offices of Henry Gordy
International, Inc., 900 North Avenue, Plainfield, New Jersey, 07061 at 3:00
p.m., local time on June 5, 2000.
PURPOSE OF THE ANNUAL MEETING
At the annual meeting, we are asking holders of common stock to elect one
(1) Class A director and three (3) Class B directors, to approve and adopt
the amendment to our Articles of Incorporation and the issuance of up to
25,000,000 shares of our Class A common stock pursuant to an exchange offer.
Your board of directors:
* has determined that the amendment to our Articles and the issuance of up
to 25,000,000 shares of our Class A common stock pursuant to an exchange
offer are fair and in the best interests of EXX and our stockholders;
* has unanimously approved the nominees for election as directors, the
amendment to our Articles and the issuance of up to 25,000,000 shares of
our Class A common stock pursuant to an exchange offer; and
* unanimously recommends that holders of shares of EXX common stock vote
for the nominees for directors, approval and adoption of the amendment
to our Articles and the issuance of up to 25,000,000 shares of our Class
A common stock pursuant to an exchange offer.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only stockholders of record at the close of business on May 5, 2000 will
be entitled to notice and to vote at the meeting and at any adjournments of
the meeting. As of May 5, 2000, 12,061,607 shares of our Class A common
stock, par value $0.01, and 624,953 shares of our Class B common stock, par
value $0.01, were outstanding (exclusive of treasury shares). No shares of
our preferred stock, par value $0.01,
9
<PAGE> 16
were outstanding. The holder of each outstanding share of Class A common
stock and of Class B common stock is entitled to one vote on each matter to
be acted upon at the annual meeting. Shares subject to abstentions will be
treated as shares that are present at the annual meeting for purposes of
determining the presence of a quorum and as voted for the purposes of
determining the base number of shares voted on any of the proposals. If a
broker or other nominee holder indicates on the proxy that it does not have
discretionary authority to vote the shares it holds of record on a proposal,
those shares will not be treated as present at the annual meeting for
purposes of determining the presence of a quorum and will not be considered
as voted for purposes of determining the approval of the stockholders on a
particular proposal.
A quorum is present at the annual meeting if holders of a majority of the
outstanding shares of each class of our common stock entitled to vote are
represented in person or by proxy. A quorum is necessary to hold the annual
meeting. In the event that a quorum is not present at the annual meeting, it
is expected that the meeting will be adjourned or postponed to solicit
additional proxies. However, if a new record date is set for the adjourned
meeting, then a new quorum will have to be established.
Once a share of our common stock is represented at the annual meeting, it
will be counted for the purpose of determining a quorum at the annual meeting
and any adjournment of the annual meeting unless the holder is present solely
to object to the annual meeting.
VOTE REQUIRED
Each share of each class of our common stock outstanding on the record
date is entitled to one vote at the annual meeting. Under our Articles of
Incorporation, holders of outstanding shares of Class B shares have the right
to elect two-thirds or the next rounded number of directors in excess of
two-thirds if the number of directors is not divisible by three and the holders
of the outstanding Class A common stock have the right to elect the remaining
directors. Election of each class of directors will require the affirmative
vote of holders of a plurality of the applicable class of common stock
present (in person or by proxy) at the meeting.
The approval and adoption of the amendment to our Articles requires the
affirmative vote of the holders of a majority of the outstanding shares of
each class of our common stock. The approval and adoption of the issuance of
up to 25,000,000 shares of our Class A common stock to be issued pursuant to
an exchange offer requires the affirmative vote of the holders of a majority
of the shares of each class of common stock represented in person or by proxy
at the meeting.
VOTING BY EXX DIRECTORS AND EXECUTIVE OFFICERS
At the close of business on the record date, our directors and executive
officers were entitled to vote 5,976,982 shares of our Class A common stock,
or 49.55% of the shares outstanding on that date and 314,578 shares of our
Class B common stock, or 50.34% of the shares outstanding on that date.
On the record date, David A. Segal was entitled to vote 5,969,382 shares
of our Class A common stock, or 49.49% of the outstanding shares and 314,178
shares of our Class B common stock, or 50.27% of the outstanding shares.
David A. Segal has advised us of his intention to vote his shares in favor of
the election of the nominees for directors, in favor of the adoption of the
amendment to our Articles and in favor of the issuance of up to 25,000,000
shares of our Class A common stock pursuant to an exchange offer. Our other
directors and executive officers also have indicated that they intend to vote
the shares of our common stock owned by them in favor of the election of the
nominees for directors, in favor of the adoption of the amendment to our
Articles of Incorporation and in favor of the issuance of up to 25,000,000
shares of our Class A common stock pursuant to an exchange offer.
10
<PAGE> 17
VOTING OF PROXIES
All shares of our common stock represented by properly submitted proxies
received in time for the annual meeting will be voted at the annual meeting
in the manner specified by the holders. Properly submitted proxies that do
not contain voting instructions will be voted for the nominees for director,
for the approval and adoption of the amendment to our Articles and for the
issuance of up to 25,000,000 shares of our Class A common stock pursuant to
an exchange offer.
If you are a record holder of shares of either class of our common stock,
in order for your shares of common stock to be included in the vote, you must
vote your shares by one of the following means:
* in person; or
* by proxy by completing, signing and dating the enclosed proxy and
returning it in the enclosed postage-paid envelope.
If you hold your shares of common stock in street name, you must follow the
instructions provided by your broker in order to vote your shares.
Shares of common stock represented at the annual meeting but not voting
will be treated as present at the annual meeting for determining whether or
not a quorum exists for the transaction of all business. This includes
shares of our common stock for which proxies have been received but for which
the holders of shares have abstained from voting. If a broker or other
nominee holder indicates on the proxy that it does not have discretionary
authority to vote the shares it holds of record on a proposal, those shares
will not be treated as present at the annual meeting for purposes of
determining the presence of a quorum and will not be considered as voted for
purposes of determining the approval of the stockholders on a particular
proposal.
Only shares of our common stock voted for the election of directors, for
adoption and approval of the amendment to our Articles and for the issuance
of up to 25,000,000 shares of our Class A common stock pursuant to an
exchange offer, including properly submitted proxies that do not contain
voting instructions, will be counted as favorable votes. Since the approval
and adoption of the amendment to our Articles of Incorporation requires the
affirmative vote of the holders of at least a majority of the outstanding of
each class of our common stock, abstentions and broker non-votes will have
the effect of a vote against the amendment.
REVOCABILITY OF PROXIES
Mailing the enclosed proxy card does not preclude you from voting in
person at the annual meeting. You may revoke a proxy at any time prior to
the vote by:
* notifying our Secretary in writing of the revocation of your proxy;
* submitting a duly executed proxy to our Secretary bearing a later
date; or
* appearing at the annual meeting and voting in person.
Simply attending the annual meeting, without voting at the meeting, will
not constitute revocation of a proxy.
11
<PAGE> 18
SOLICITATION OF PROXIES
We will bear the cost of soliciting proxies from our stockholders. In
addition to the solicitation by mail, our directors, officers and employees
may solicit proxies in person, by telephone or by other electronic means.
These persons will not be paid for doing this. We will have brokerage houses
and other custodians, nominees and fiduciaries forward solicitation materials
to the beneficial owners of outstanding shares of our common stock on the
record date. We will reimburse these persons for their reasonable
out-of-pocket expenses in doing so.
INDEPENDENT AUDITORS
We have been advised that representatives of Rothstein, Kass & Company,
P.C., our independent auditors, will be present at the annual meeting, and
will be available to respond to appropriate questions.
PROPOSAL I - ELECTION OF DIRECTORS
One individual will be elected at the annual meeting as a Class A
director and three individuals will be elected as Class B directors. All
directors elected shall serve for a term ending at the next annual meeting,
and thereafter until his successor is elected and qualified.
The person named in the enclosed form of proxy intends to vote for all
duly executed proxies received by our board of directors for the election of
Jerry Fishman, Normal H. Perlmutter, Frederic Remington and David A. Segal,
except as otherwise directed by the stockholder on the proxy. Messrs.
Fishman, Perlmutter, Remington, and Segal were elected directors by the
stockholders at the last annual meeting of stockholders and currently are
directors. Unless a contrary specification is indicated, the proxy to which
this proxy statement relates will be voted for each of said nominees, or, in
the event that any such nominee is not available by reason of any unforeseen
contingency, then for the balance of the nominees and for such other
person(s) as may be designated as a replacement nominee(s) by the remaining
directors.
REQUIRED VOTE
At the meeting, the stockholders will elect a board of four directors,
comprising one Class A director and three Class B directors. Under our
Articles of Incorporation, holders of outstanding shares of Class B shares
have the right to elect two-thirds or the next rounded number of directors in
excess of two-thirds if the number of directors is not divisible by three and
the holders of the outstanding Class A shares with the right to elect the
remaining directors. Election of each class of directors will require the
affirmative vote of holders of a plurality of the applicable class of common
stock present (in person or by proxy) at the meeting, provided a quorum is
present. A quorum will require the presence (in person or by proxy) of the
holders of a majority of each class of the shares entitled to vote at the
meeting. Each share of common stock will be entitled to one vote for each
director to be elected.
RECOMMENDATION OF THE BOARD
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF NORMAN H.
PERLMUTTER, JERRY FISHMAN, FREDERIC REMINGTON AND DAVID A. SEGAL.
12
<PAGE> 19
The name, age, principal occupation, position and directorships of our
directors are set forth below.
CLASS A DIRECTOR
NORMAN H. PERLMUTTER, 59, has served as director since 1984. He has been
a Certified Public Accountant in private practice since January 1, 1999.
Prior to this date, Mr. Perlmutter was executive vice president, Keystone
Recovery Service, a division of Savit Enterprises Inc., a commercial
collection agency, for a period of five years.
CLASS B DIRECTORS
JERRY FISHMAN, 52, has served as a director since 1984. Mr. Fishman has
served as president of Fishman Supply Co., Inc., a supplier of construction
material and building maintenance supplies, for more than the last five
years. Mr. Fishman has been the vice president of The Fishman Organization
Inc., a sales and marketing group representing manufacturers in international
sales of consumer products since 1998.
FREDERIC REMINGTON, 70, has served as a director since 1984 and has
served as chairman of the board and chief executive officer, and previously
as vice president of Peerless Tube Co., a manufacturer of aerosol cans and
collapsible metal tubes, for more than the last five years.
DAVID A. SEGAL, 60, has been a director since 1984. Mr. Segal has been
our chairman of the board and chief executive officer for more than the past
five years and prior thereto was chairman of the board and chief executive
officer of SFM Corp. Mr. Segal has also been president of Walsh Shoe Repair
System, Inc., for more than five years.
13
<PAGE> 20
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth information regarding the amount of each
class of common stock beneficially owned, as of May 5, 2000, by each person
who is a named executive officer, director or known by us to own beneficially
more than 5% of either class of our common stock, and all of our directors
and executive officers as a group:
<TABLE>
<CAPTION>
PERCENT OF OUTSTANDING
SHARES OF COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
NAME AND ADDRESS OF BENEFICIAL OWNER CLASS A CLASS B CLASS A CLASS B
- ------------------------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
WILLIAM HENRY ALLEN -- 46,000<F1> -- 7.4%
P.O. Box 113
Washington, Illinois 61571
JERRY FISHMAN 1,900 100 <F*> <F*>
1350 East Flamingo Rd., Suite 689
Las Vegas, Nevada 89119
NORMAN H. PERLMUTTER 3,800 200 <F*> <F*>
1350 East Flamingo Rd., Suite 689
Las Vegas, Nevada 89119
FREDERIC REMINGTON 1,900 100 <F*> <F*>
1350 East Flamingo Rd., Suite 689
Las Vegas, Nevada 89119
DAVID A. SEGAL 7,869,382<F2><F3> 414,178<F2><F3> 56.4% 57.1%
1350 East Flamingo Rd., Suite 689
Las Vegas, Nevada 89119
All executive officers and 7,876,982<F2><F3> 414,578<F2><F3> 56.4% 57.2%
directors of the Company
as a group (4 persons)
<FN>
_________________________
<F*>Less than 1/10 of 1%
<F1> Based on Amendment No. 2 to Schedule 13D filed by Mr. Allen on June 16,
1999.
<F2> Includes 2,650,500 Class A Shares and 139,500 Class B shares owned by
Mr. Segal as trustee for his children; Mr. Segal disclaims any
beneficial interest in the shares held by him as trustee.
<F3> Includes options to purchase 1,900,000 Class A shares and 100,000 Class
B shares.
</TABLE>
BOARD OF DIRECTORS AND COMMITTEES
During 1999, our board of directors met four times, including regularly
scheduled and annual meetings. During the year all of the directors attended
all of the meetings held by the board of directors and all committees upon
which they served.
Our board has an audit committee and a stock option committee.
Our AUDIT COMMITTEE is currently composed of Messrs. Fishman, Perlmutter
and Remington. Its tasks include meeting with the auditors to review the
scope, accuracy and results of the audit and making
14
<PAGE> 21
inquiries as to the adequacy of our accounting, financial and operating
controls. Our audit committee held one meeting in 1999.
Our STOCK OPTION COMMITTEE, which is composed of Messrs. Fishman and
Remington, grants options under our 1994 Stock Option Plan and handles the
general supervision of the plan. Our stock option committee did not hold
meetings in 1999.
COMPENSATION OF DIRECTORS
Directors who also are our employees (Mr. Segal) receive no fees for
their service as directors or for attendance at board and committee meetings.
Non-employee directors receive $1,000 for each board meeting with a minimum
of $4,000 per year. Audit and stock option committee members receive and
additional $150 per committee meeting.
EXECUTIVE EMPLOYMENT CONTRACT
In 1994, we entered into a 10-year contract with Mr. Segal effective
October 21, 1994 with an option to renew for an additional five years. Under
the agreement, Mr. Segal's base compensation is $300,000 per year with annual
increases based on a Consumer Price Index formula. In addition, there is a
profit bonus under with Mr. Segal will receive 5% of our consolidated pre-tax
earnings.
REPORT OF COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
Our compensation committee has issued the following report for the year
ended December 31, 1999.
The compensation committee is comprised of all members of our board of
directors except our chairman of the board who is our chief executive
officer. The executive employment contract entered into in 1994 described
above governs the chief executive's compensation. See "Executive Employment
Contract."
The foregoing report on executive compensation has been approved by all
members of the compensation committee.
Jerry Fishman Frederic Remington
Norman Perlmutter
May __, 2000
15
<PAGE> 22
COMPENSATION OF OUR EXECUTIVE OFFICER AND OTHER INFORMATION
The executive officer of the Company during 1999 was David A. Segal who
was elected by our board of directors to serve as an officer until the next
election of officers, as provided in our By-Laws. Biographical information
regarding Mr. Segal is presented in the section entitled "Election of
Directors," above.
The following table provides summary information concerning salary and
bonuses paid or accrued by us to or on behalf of our chief executive officer
as of December 31, 1999 for the years ended December 31, 1997, 1998 and 1999
and the former president of our subsidiary, Henry Gordy International, Inc.
for the year ended December 31, 1997. No other executive officer's aggregate
salary and bonus exceeded $100,000 during 1999.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------
TOTAL
SALARY & OTHER<F1> ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) BONUS($) COMPENSATION($)
- --------------------------- ---- --------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
David A. Segal 1999 330,157 193,346 523,503 --
Chairman of the Board 1998 338,961 61,425 400,386 --
and Chief Executive Officer 1997 308,000 0 308,000 --
Michael Pahuta 1997 110,000 0 110,000 104,000<F2>
President of Henry Gordy
International, Inc.
<FN>
____________________
<F1> None of the named individuals received perquisites or other personal
benefits in any amount large enough to require reporting in this
column.
<F2> Mr. Pahuta's employment with Henry Gordy International, Inc. terminated
October 31, 1997. The above amount was attributed to a severance
payment in connection with Mr. Pahuta's employment contract.
</TABLE>
PENSION BENEFITS
One of our subsidiaries has a non-contributory defined benefit pension
plan for salaried employees, which was "frozen" by action of our board of
directors in January 1988. Monthly benefits payable at age 65 are equal to
50% of final average earnings, less 75% of the primary Social Security
benefit. "Final average earnings" is the average of the highest consecutive
five of the last ten years ended December 31, 1987, and monthly benefits are
reduced pro rata for each full year of service less than thirty. Benefits
are paid on a straight-life annuity basis or in an optional form which is
actuarially equivalent to a life annuity.
The following table reflects estimated annual benefits payable at age 65
on a straight-life annuity basis at various compensation levels and years of
service, before being reduced by up to 75% of the retiree's annual primary
Social Security benefit.
16
<PAGE> 23
<TABLE>
<CAPTION>
PENSION PLAN TABLE
YEARS OF CREDITED SERVICE
-------------------------------------------------------
FINAL AVERAGE EARNINGS 10 20 30
- ---------------------- ------- ------- -------
<S> <C> <C> <C>
$ 30,000 $ 5,000 $10,000 $15,000
50,000 8,333 16,667 25,000
70,000 11,667 23,333 35,000
90,000 15,000 30,000 45,000
110,000 18,333 36,667 55,000
130,000 21,667 43,333 65,000
</TABLE>
Our executive officer, Mr. Segal, currently has 15 years of service
credited under the plan. The estimated final average earnings for Mr. Segal
prior to reduction of Social Security Benefits are $98,300.
In 1994, our board of directors adopted and the stockholders approved the
EXX Inc 1994 Stock Option Plan which provided for the issuance of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code
and for the issuance of non-qualified stock options (not intended to qualify
under Section 422 of the Code). Pursuant to the plan, 5,000,000 shares of
Class A stock have been reserved for issuance upon the exercise of options to
our officers, directors, employees and consultants as either incentive and/or
non-qualified options.
The plan is administered by a stock option committee consisting of two
members of our board of directors, each of whom is a disinterested person as
defined in Rule 16b-3 of the Securities Exchange Act of 1934, as amended.
The stock option committee has the authority to grant options, determine the
recipients of said options, the exercise price which is not to be less than
fair market value at date of grant, and to make all other determinations
deemed necessary or advisable for its administration. The plan also provides
that the maximum term of each option is ten years (except that with respect
to options granted to persons holding more than 10% of the total combined
voting power of all classes of our stock, the exercise price must be at least
equal to 100% of the fair market value and the term cannot exceed five
years). The plan also provides certain maximum limits of incentive options
that may be granted to an employee within a calendar year.
At December 31, 1999, options to purchase 5,000,000 shares of common
stock were available for grant. Unless previously terminated, the plan shall
terminate in 2004.
17
<PAGE> 24
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
AMONG EXX INC, STANDARD & POOR'S MIDCAP 400
AND LEISURE TIME (PRODUCTS)-500 INDICES
The following graph compares cumulative five-year return to stockholders
from December 31, 1994 through December 31, 1999 (including the monthly
reinvestment of dividends) on an indexed basis with the Standard & Poor's
Midcap 400 Index and the S&P Toys Index Leisure Time (Products)-500, which
includes the following companies: Brunswick Corporation (NYSE symbol, "BC"),
Hasbro, Inc. (NYSE symbol, "HAS") and Mattel Inc. (NYSE symbol, "MAT").
TOTAL RETURN TO STOCKHOLDERS
DECEMBER 31, 1994 TO DECEMBER 31, 1999
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL RETURN PERCENTAGE
YEARS ENDING
COMPANY/INDEX DEC-95 DEC-96 DEC-97 DEC-98 DEC-99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EXX INC - CL A -66.81 -27.02 -19.35 -40.00 236.53
S&P MIDCAP 400 INDEX 30.94 19.20 32.25 19.11 14.72
LEISURE TIME (PRODUCTS)-500 37.07 20.55 31.57 -22.30 -30.99
</TABLE>
<TABLE>
<CAPTION>
BASE INDEXED RETURNS
PERIOD YEARS ENDING
COMPANY/INDEX DEC-94 DEC-95 DEC-96 DEC-97 DEC-98 DEC-99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EXX INC - CL A 100 33.19 24.22 19.53 11.72 39.44
S&P MIDCAP 400 INDEX 100 130.94 156.08 206.43 245.87 282.06
LEISURE TIME (PRODUCTS)-500 100 137.07 185.24 217.40 168.93 116.58
</TABLE>
18
<PAGE> 25
PROPOSAL II - AMENDMENT TO ARTICLE 3 OF
THE ARTICLES OF INCORPORATION, AS AMENDED
Our board of directors has approved a proposal to amend Article 3 of the
Articles of Incorporation to increase the number of authorized shares of our
Class A stock to 100,000,000 shares and has directed that the proposal be
submitted to the vote of the stockholders at the annual meeting.
As of May 5, 2000, we had approximately 12,061,607 shares of Class A
common stock outstanding, approximately 2,150,000 shares of Class A common
stock covered by outstanding options ,and an additional 5,000,000 shares of
Class A common stock reserved for issuance under our employee stock option
plan. Based upon the foregoing number of outstanding shares of common stock,
we have approximately 5,788,393 shares of Class A common stock authorized
under our Articles of Incorporation remaining available for other purposes.
Our board of directors believes that it is in our best interest to
increase the number of shares of Class A common stock that we are authorized
to issue. We believe that the availability of additional authorized but
unissued shares will provide us with the flexibility to issue stock for
proper corporate purposes, specifically, to conduct the exchange offer for
Newcor, Inc. common stock discussed more fully in Proposal III below, or
other corporate purposes which may be identified in the future, such as to
raise equity capital, to make acquisitions through the use of stock, to
establish strategic relationships with other companies, to adopt employee
benefit plans or reserve additional shares for issuance under such plans and
to effect stock dividends and splits, where our board of directors determines
it advisable to do so. Other than with respect to the proposed exchange
offer for Newcor common stock, we do not have any present intention to issue
additional shares of Class A common stock.
Our board of directors believes that the proposed increase in the
authorized Class A common stock will make available sufficient shares to
effect the exchange offer or other of the previously mentioned purposes. No
additional action or authorization by our stockholders would be necessary
prior to the issuance of such additional shares, unless required by
applicable law or the rules of any stock exchange or national securities
association trading system on which the Class A common stock is then listed
or quoted. We reserve the right to seek a further increase in authorized
shares from time to time in the future as considered appropriate by our board
of directors.
Class A and Class B stockholders have no preemptive rights to acquire
shares issued by us under our existing Articles of Incorporation, and
stockholders would not acquire any such rights with respect to any stock
dividends declared nor any additional issuance of shares pursuant to the
proposed amendment to the Articles of Incorporation. In addition, if our
board of directors elects to declare such a stock dividend or to issue
additional shares of Class A common stock, such issuance could have a
dilutive effect on earnings per share, voting power, and share holdings of
current stockholders.
The proposed amendment could, under certain circumstances, have an
anti-takeover effect. For example, in the event of an attempt to take
control of the company, it may be possible for us to endeavor to impede the
attempt by issuing shares of Class A common stock, thereby diluting the voting
power of the other outstanding shares and increasing the potential cost to
acquire control of the company. The amendment therefore may have the effect of
discouraging unsolicited takeover attempts. By potentially discouraging
initiation of any such unsolicited takeover attempt, the proposed amendment
may limit the opportunity for our stockholders to dispose of their shares at
the higher price generally available in takeover attempts or that may be
available under a merger proposal. The proposed amendment may have the
effect of permitting our current management, including the current board of
directors, to retain its position, and place it in a better position to
resist changes that stockholders may wish to make if they are dissatisfied
with the conduct of our business. However, the board of directors is not
currently aware of
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<PAGE> 26
any attempt to take control of the company and the board of directors has not
presented this proposal in response to any such attempt.
Our board of directors believes that it is in the best interests of the
company and our stockholders to increase the number of authorized shares of
our Class A common stock from 25 million shares to 100 million shares.
The complete text of the proposed amendment to our Articles of
Incorporation is set forth in Annex A to this proxy statement.
REQUIRED VOTE
Adoption of the proposed amendment to Article 3 of the Articles of
Incorporation will require the affirmative vote of the holders of a majority
of the outstanding shares of common stock.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSED
AMENDMENT TO ARTICLE 3 OF THE ARTICLES OF INCORPORATION.
PROPOSAL III - APPROVAL OF THE ISSUANCE OF SHARES OF
CLASS A COMMON STOCK IN CONNECTION WITH AN EXCHANGE OFFER
Our board has approved the acquisition of up to 100% of the outstanding
common stock, $1.00 par value, of Newcor, Inc., a Delaware corporation,
pursuant to an exchange offer for shares of our Class A common stock, $0.01
par value, and has approved the issuance of up to 25,000,000 shares of our
Class A common stock and has directed that the proposal be submitted to the
vote of the stockholders at the annual meeting.
Section 712 of the American Stock Exchange Listing Standards and
Requirements requires the approval of stockholders as a prerequisite to its
approval of applications to list additional shares in circumstances where, as
here, such shares are potentially to be issued as consideration for an
acquisition of the stock of another company and where such potential issuance
will result in an increase in the outstanding Class A common stock of 20% or
more. As of the record date, there were 12,061,607 shares of Class A common
stock outstanding and 7,150,000 shares reserved or issued for options. If
EXX were to acquire 100% of the outstanding shares and associated preferred
stock purchase rights of Newcor, Inc., up to 25,000,000 shares of our Class A
common stock potentially would be issued, representing an increase of
approximately 67.5%. The issuance of the shares of our Class A common stock
will allow us to conduct and complete the exchange offer discussed below.
Although no stock vote is required under Nevada General Corporation Law
with respect to the exchange offer, Note A to Schedule 14A of the Exchange
Act of 1934, as amended (which sets out the rules governing the solicitation
of proxies), provides that in these circumstances, our solicitation with
respect to the increase in authorized shares and approval of the application
for listing on the American Stock Exchange of additional shares also
constitutes a solicitation with respect to the exchange offer. Accordingly,
the information regarding the exchange offer is being provided for your
review in connection with this proposal.
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<PAGE> 27
BACKGROUND OF THE EXCHANGE OFFER; HISTORY OF NEGOTIATIONS AND RELATIONSHIP
BETWEEN EXX INC AND NEWCOR, INC.
As part of our overall business strategy, we have historically identified
and acquired or invested in underperforming or distressed businesses with a
view to utilizing our turnaround strategies and expertise to improve
operations and financial performance of the business, resulting in an
increase in value. Consistent with such strategy, we purchased 596,300
shares of Newcor common stock in 16 transactions between October 18, 1999 and
October 27, 1999. We intended to utilize the Newcor common stock reported by
us in a Schedule 13D on October 29, 1999, to participate in a turnaround of
Newcor's financial performance, possibly by consulting with management
regarding appropriate turnaround strategies or by seeking to obtain control
of Newcor. We did not have any definitive plan at that time with respect to
the manner in which we intended to participate in a turnaround in Newcor's
financial performance.
On November 1, 1999, David Segal, our chairman, chief executive officer
and chief financial officer, initiated a telephone conference with several
members of management of Newcor, including Keith Hale, president and chief
executive officer of Newcor, James Connor, chief financial officer of Newcor,
and Thomas Parker, vice president of human resources of Newcor. Mr. Segal
gave management of Newcor some background information about EXX and offered
EXX's assistance in achieving a turnaround of Newcor. Management of Newcor
declined Mr. Segal's offer.
On November 30, 1999, Mr. Segal met with Thomas Parker at Newcor's
headquarters in Bloomfield Hills, Michigan. Mr. Parker made arrangements for
Mr. Segal to meet with William Lawson, chairman of the board of directors of
Newcor, at Newcor's plant in Corunna, Michigan. That same day, Mr. Segal met
with Mr. Lawson, toured the plant in Corunna, Michigan and met various
employees of the plant. On December 1, 1999, Mr. Segal, along with Mr.
Parker, visited Newcor's plant in Royal Oak, Michigan and met various
employees of the plant. Mr. Segal discussed a possible business combination
with Mr. Lawson.
Following Mr. Segal's visit with Newcor, EXX purchased 55,900 shares of
Newcor common stock in 13 separate transactions, bringing our total
percentage ownership (including 24,000 shares owned by Mr. Segal) in Newcor
to 13.74% at such time and reported those purchases on an amendment to
Schedule 13D filed with the Securities and Exchange Commission on December
20, 1999. Since the filing of our first amendment to Schedule 13D, we have
purchased an additional 12,500 shares of Newcor in various transactions,
bringing our total beneficial ownership to 688,700 shares.
On December 28, 1999, the board of directors of Newcor authorized and
declared a distribution of one right for each share of Newcor common stock
outstanding as of January 12, 2000 pursuant to the terms of a Rights
Agreement between Newcor and Chase Mellon Shareholder Services, L.L.C., as
rights agent. The rights become exercisable in the event that (a) a person
acquires 15% or more of Newcor's common stock, (b) a person commences a
tender offer or exchange offer pursuant to which they would own 15% or more
of Newcor's common stock or (c) the Board of Directors of Newcor determines
that a person owning at least 10% of Newcor's common stock is seeking
short-term gain to the detriment of Newcor or is causing or is likely to
cause a material adverse impact on Newcor.
On January 10, 2000, Mr. Segal and Mr. Lawson discussed various issues
relating to a possible business combination between EXX and Newcor, including
Newcor's rights agreement, the management of Newcor and the make-up of its
board of directors and possible per share sale prices for Newcor common
stock. Mr. Segal was advised that Newcor was available for sale at the right
price.
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<PAGE> 28
On January 11, 2000, Mr. Segal called Mr. Lawson and proposed $4.00 per
share of Newcor common stock payable in shares of EXX Class A common stock.
Mr. Lawson told Mr. Segal that he would convey the offer to the other
directors of Newcor.
The board of directors of Newcor met on February 9, 2000. At the
meeting, the board decided not to accept EXX's proposal at that time. Mr.
Lawson indicated to Mr. Segal that the board intends to allow management to
continue to attempt to restore profits during 2000.
On March 4, 2000, Newcor issued a press release announcing that it would
recognize a non-cash charge related to 1999 of approximately $8.5 million for
the write-off of goodwill associated with Newcor's Turn-Matic, Inc.
subsidiary. Because there was no immediate tax benefit from the impairment
charge, the effect of the charge was an additional net loss of $8.5 million,
or $(1.74) per share, for the year ended December 31, 1999, from the
previously announced losses of $(.62) per share, resulting in a net loss for
the year ended December 31, 1999 of $(2.36) per share. Results previously
announced at $(.22) per share for the quarter ended December 31, 1999, were
adjusted to reflect a loss of $(1.96) per share. According to the press
release, the charge was recorded due to significant lost business for the
subsidiary in 1999 and the first part of 2000.
On March 29, 2000, our board of directors approved resolutions authorizing
the acquisition of up to 100% of the outstanding shares of Newcor common
stock by means of an exchange offer by EXX.
According to an April 6, 2000 Newcor press release, Newcor president and
chief executive officer Keith Hale resigned as president, chief executive
officer and director of Newcor due to health problems. Newcor's chief
financial officer, James J. Connor was appointed interim president and chief
executive officer.
TERMS OF THE EXCHANGE OFFER
We are offering to exchange shares of our Class A common stock for shares
of Newcor common stock validly tendered and not properly withdrawn, subject
to the terms and conditions described in this proxy and in a prospectus and
related letter of transmittal which [will be or has been] sent to Newcor
stockholders. In addition, in our sole discretion, we may elect to pay cash
in lieu of some or all of the shares of our Class A common stock in exchange
for shares of Newcor common stock. If we elect to pay cash in lieu of our
Class A common stock, we will pay the same proportion of cash and common
stock that we pay to each other stockholder of Newcor who tenders shares of
Newcor common stock. Regardless of whether we pay the consideration in
shares of our Class A common stock or cash, the consideration we are offering
has a value of $4.00 per share of Newcor common stock. If we elect to pay
solely in shares of common stock, the number of shares of our Class A common
stock to be exchanged for shares of Newcor common stock will be determined by
dividing $4.00 by the closing price of our Class A common stock as reported
on the American Stock Exchange on the last trading day immediately preceding
the commencement of the offer.
The record owner of Newcor shares will not be obligated to pay any
charges or expenses of the exchange agent or any brokerage commissions.
Transfer taxes on the exchange of Newcor common stock tendered pursuant to
our offer generally will be paid by us or on our behalf.
We are making this offer in order to acquire control of and, possibly,
the entire common equity interest in, Newcor. If less than the entire common
equity interest in Newcor is tendered pursuant to the offer, we may, in our
sole discretion, elect to exchange only a portion of the total
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<PAGE> 29
number of shares of Newcor common stock tendered pursuant to the offer. If
we elect to exchange only a portion of the total number of shares of Newcor
common stock tendered pursuant to the offer, we will exchange a pro rata
portion of the number of shares of Newcor common stock tendered by each
stockholder of Newcor.
Our obligation to exchange shares of our Class A common stock for Newcor
shares pursuant to the offer is subject to several conditions referred to
below under "Conditions of Our Offer."
Our offer to acquire Newcor common stock is also an offer to acquire
Newcor preferred stock purchase rights, and, when we refer to the shares of
Newcor common stock, we are also referring to the associated Newcor rights,
unless we indicate otherwise. In addition, all references to the Newcor
rights include the benefits to holders of those rights pursuant to the Rights
Agreement, dated as of January 12, 2000, between Newcor and Chase Mellon
Shareholders Services, L.L.C., as rights agent, including the right to
receive any payment due upon redemption of Newcor rights.
One Newcor right must be tendered for each Newcor share tendered in order
to effect a valid tender of Newcor shares, unless the Newcor rights have been
redeemed. The Newcor rights are currently represented by the certificates
for the Newcor shares and the tender of Newcor shares prior to the Newcor
distribution date will also constitute a tender of the associated Newcor
rights. We will not make a separate payment for the Newcor rights. Upon the
earlier to occur of (a) the close of business on the tenth business day
following a public announcement that a person or group of associated or
affiliated persons other than Newcor has acquired beneficial ownership of 15%
or more of the outstanding Newcor common stock, (b) the close of business on
the tenth business day or such later date as the board of directors of Newcor
shall determine following the commencement of a tender offer or exchange
offer that would result in a person or group beneficially owning 15% or more
of such outstanding Newcor common stock or (c) the close of business on the
tenth business day following a determination by the Newcor board of directors
that a person who has acquired at least 10% of the outstanding Newcor common
stock is an "adverse person" who intends to cause Newcor to repurchase such
stock or to cause Newcor to take action to provide such person short-term
financial gain when not in the best interests of Newcor or such ownership is
causing or is reasonably likely to cause a material adverse impact on Newcor,
its employees, customers, suppliers or the community in which Newcor operates
(we refer to the earliest of these dates as the "Newcor distribution date"),
separate certificates evidencing the Newcor rights will be mailed to holders
of record of Newcor common stock as soon as practicable after the Newcor
distribution date, and those separate Newcor rights certificates alone will
evidence the Newcor rights. The Newcor distribution date will occur on the
tenth business day following the date we commence our offer unless, before
that time, Newcor's board of directors decides to set an earlier or later
date as the Newcor distribution date.
We expressly reserve the right, in our sole discretion, at any time or
from time to time, to extend the period of time during which our offer
remains open, and we can do so by giving oral or written notice of such
extension to the exchange agent.
If Newcor agrees upon a negotiated business combination with us, we may
amend or terminate our offer without purchasing any Newcor shares.
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<PAGE> 30
POTENTIAL DILUTION OF OUR INVESTMENT IN NEWCOR
Newcor adopted a Shareholder Rights Plan in which Newcor declared a
dividend distribution of one right for each share of Newcor common stock to
stockholders of record as of the close of business on January 12, 2000. The
Plan expires in January 2010.
Under Newcor's plan, each right would entitle stockholders to buy one
one-thousandth of a share of Series A Junior Participating Preferred Stock for
$10.50 (subject to adjustment) upon the occurrence of a Newcor distribution
date as discussed in Terms of the Exchange Offer above.
The Plan may be invoked such that the rights become exercisable as a
result of our commencement of the exchange offer, our becoming the beneficial
owner of 15% or more of Newcor's common stock, other than pursuant to a tender
or exchange offer for all outstanding shares of Newcor approved by a majority
of the independent directors not affiliated with us, or the Newcor board of
directors determining that we are an "adverse person." If the rights become
exercisable, then each right not owned by us, or our related parties
will entitle its holder to purchase, at the right's then current exercise
price, shares of Newcor's common stock in lieu of preferred stock (or, in
certain circumstances as determined by the board, cash, other property, or
other securities) having a value of twice the right's then current exercise
price. In addition, if after we have become a 15% or more stockholder,
Newcor is involved in a merger or other business combination transaction with
us or another entity in which Newcor does not survive or in which its common
stock is changed or exchanged, or sells 50% or more of its assets or earning
power to us or another entity, each right will entitle its holder to
purchase, at the right's then current exercise price, shares of common stock
of us or such other person having a value of twice the right's then current
exercise price.
The Plan allows Newcor to redeem the rights at $0.001 per right at any
time prior to 10 days (subject to extension) following a public announcement
of the acquisition of a 15% position. However, Newcor may not redeem the
rights following a determination that any person or group is an "adverse
person."
In the event the Plan is invoked and if the rights are not redeemed, our
investment in Newcor may be reduced or diluted by the exercise of the rights
by the other Newcor stockholders. As discussed below, we seek to minimize
this risk by making it a condition to our offer that Newcor's board either
redeem the rights or amend the Plan so that the rights are not triggered by
our offer. However, there can be no guarantee that the condition will be met.
Furthermore, as long as we continue to own 10% or more of Newcor's stock,
under the current Plan, Newcor's board of directors may declare us to be an
"adverse person" and thus dilute our ownership in Newcor and reduce the value
of our investment therein.
CONDITIONS OF OUR OFFER
Our obligation to consummate the transaction depends on a number of
conditions being met (any of which may be waived in whole or in part). These
include:
* EXX Stockholder Approval. The stockholders of EXX must vote to
approve (a) an increase in the number of authorized shares of EXX
Class A common stock and (b) the issuance of EXX Class A common stock
in connection with the EXX offer.
* Regulatory Approvals. All regulatory approvals required to consummate
the offer must have been obtained and remain in full force and effect
without the imposition of any condition or restriction that would be
materially adverse to us and Newcor on a combined basis.
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<PAGE> 31
* Rights Agreement. We must be satisfied, in our reasonable judgment,
that the Newcor rights agreement does not apply to our offer. This
condition would be satisfied if the board of directors of Newcor
redeems the Newcor rights or amends the Newcor rights agreement so
that the Newcor rights would not be triggered by the offer or a court
of competent jurisdiction invalidates the Newcor rights agreement.
* No Acceleration of Indebtedness. We must be satisfied, in our
reasonable judgment, that the indebtedness of Newcor under the $125
million 9.875% Senior Subordinated Notes due 2008 will not become
immediately due and payable upon the consummation of the offer.
* Section 203 of the Delaware General Corporation Law. We must be
satisfied, in our reasonable judgment, that the provisions of Section
203 of the Delaware General Corporation Law ("DGCL") do not apply to
our offer. This condition would be satisfied if either (a) the board
of directors of Newcor approves the offer for purposes of Section 203
of the DGCL or (b) we acquire 85% or more of the voting stock of
Newcor pursuant to the offer.
* Listing on American Stock Exchange. The shares of our common stock
to be issued to Newcor stockholders in the offer must have been
authorized for listing on the American Stock Exchange, subject to
official notice of issuance.
* Certain Other Conditions of the Offer. Notwithstanding any other
provision of our offer, we shall not be required to accept for
exchange or exchange any Newcor shares, may postpone the acceptance
for exchange of or exchange for tendered Newcor shares, and may, in
our sole discretion, terminate or amend the offer as to any Newcor
shares not then exchanged (a) if, at the expiration date, any of the
rights plan condition, the acceleration of indebtedness condition,
the DGCL 203 condition, the EXX stockholder approval condition or the
regulatory approval condition has not been satisfied or, with respect
to the rights plan condition, the acceleration of indebtedness
condition or the DGCL 203 condition, waived, or (b) if, on or after
the date of this proxy statement and at or prior to the time of
exchange of any such Newcor shares (whether or not any Newcor shares
have theretofore been accepted for exchange or exchanged pursuant to
the offer), any of our other conditions are not satisfied. Those
conditions are as follows:
(a) The shares of our Class A common stock to be issued to
Newcor stockholders in the offer have been authorized for
listing on the American Stock Exchange, subject to official
notice of issuance;
(b) The registration statement shall have become effective under
the Securities Act, and no stop order suspending the
effectiveness of the registration statement shall have been
issued nor shall there have been proceedings for that
purpose initiated or threatened by the Securities and
Exchange Commission and we shall have received all necessary
state securities law or "blue sky" authorizations;
(c) No temporary restraining order, preliminary or permanent
injunction or other order or decree issued by any court or
agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the offer or any
of the other transactions contemplated by this proxy
statement or the prospectus delivered to Newcor stockholders
shall be in effect and no statute, rule, regulation, order,
injunction or decree shall have been enacted, entered,
promulgated or enforced by any court, administrative agency
or commission or other governmental authority or
instrumentality which prohibits, restricts or makes illegal
the consummation of our offer;
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<PAGE> 32
(d) There shall not be pending any suit, action or proceeding by
any governmental entity (1) challenging the offer, seeking
to restrain or prohibit the consummation of the offer or
seeking to obtain from Newcor or us any damages that are
material in relation to Newcor and its subsidiaries taken as
a whole or EXX and its subsidiaries taken as a whole, (2)
seeking to prohibit or limit the ownership or operation by
Newcor, us or any of our subsidiaries of any material
portion of the business or assets of Newcor by us or any of
our subsidiaries or to compel Newcor or us or any of our
subsidiaries to dispose of or hold separate any material
portion of the business or assets of Newcor or us or any of
our subsidiaries as a result of the offer, (3) seeking to
prohibit us from effectively controlling in any material
respect the business or operations of Newcor or (4) which
otherwise is reasonably likely to have a material adverse
effect on us or Newcor; and
(e) Newcor shall not have entered into or effectuated any other
agreement or transaction with any person or entity having
the effect of impairing EXX's ability to acquire a
controlling interest in Newcor or otherwise diminishing the
expected economic value to EXX of the acquisition of a
controlling interest in Newcor.
The foregoing conditions are solely for our benefit and we may assert
them regardless of the circumstances giving rise to any such conditions
(including any action or inaction by us). We may waive these conditions in
whole or in part (other than the EXX stockholder approval condition, the
regulatory approvals condition and the conditions relating to the absence of
an injunction and the effectiveness of the registration statement) without
providing any advance notice prior to the exchange of any tendered shares of
Newcor common stock. The determination as to whether any condition has been
satisfied shall be in our reasonable judgment and will be final and binding
on all parties. The failure by us at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed a continuing right which may be asserted at any time
and from time to time. Notwithstanding the fact that we reserve the right to
assert the failure of a condition following acceptance for exchange but prior
to exchange in order to delay, exchange or cancel our obligation to exchange
properly tendered Newcor shares, we will either promptly exchange such Newcor
shares or promptly return such Newcor shares.
OUR REASONS FOR THE EXCHANGE OFFER
In reaching its determination that the acquisition is advisable and fair
to and in the best interests of EXX and our stockholders, the board
considered a number of factors, which included (but did not consist
exclusively of) the following:
* the board's knowledge of our business, operations, properties,
assets, financial condition and operating results
* the business, operations, properties, assets, financial condition and
operating results of Newcor, Inc.
* the consistency of the acquisition with our long-term business
strategy
* our view that we are positioned to grow and compete successfully in
our operation of the businesses of Newcor, Inc. and will be able to
achieve financial performance beyond what we would achieve without
the businesses of Newcor, Inc.
* our belief that we can streamline and improve the operations and
profitability of Newcor based on our proven history of restoring
unprofitable manufacturing companies to profitable operating health
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<PAGE> 33
The foregoing discussion of the information and factors discussed by the
board is not meant to be exhaustive but includes all material factors
considered by the board. In view of the complexity and wide variety of
information and factors considered, both positive and negative, the board did
not find it practical to quantify, rank or otherwise attach any relative
weight to the various factors. In addition, the board did not reach any
specific conclusion with respect to each of the factors considered, or any
aspect of any particular factor, but conducted an overall analysis of these
factors, including thorough discussions with our management and legal
advisors. As a result of its consideration of the foregoing, the board
determined that the application for listing on the American Stock Exchange of
up to 25,000,000 shares of our Class A common stock to be issued pursuant to
an exchange offer are advisable and fair to and in our best interests and
approved the application for listing on the American Stock Exchange of up to
25,000,000 shares of our Class A common stock to be issued pursuant to an
exchange offer.
RECOMMENDATION OF YOUR BOARD
Your board of directors has unanimously determined that the exchange
offer is advisable and fair to and in the best interests of EXX and our
stockholders and has approved the issuance of the shares pursuant to the
exchange offer. ACCORDINGLY, YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL OF THE ISSUANCE OF THE SHARES PURSUANT TO THE EXCHANGE OFFER.
ACCOUNTING TREATMENT
If we acquire a majority of the common equity interest in Newcor, the
business combination will be accounted for as a "purchase," as such term is
used under generally acceptable accounting principles, for accounting and
financial reporting purposes. Newcor will be treated as the acquired
corporation for such purposes. Newcor's assets, liabilities and other items
will be adjusted to their estimated fair value on the closing date of the
combination and combined with the historical book values of the assets and
liabilities of EXX. Applicable income tax effects of such adjustments will
be included as a component of EXX's deferred tax asset or liability. The
difference between the estimated fair value of the assets, liabilities and
other items (adjusted as discussed above) and the purchase price will be
recorded as an intangible asset and amortized against EXX's earnings over a
twenty year period following completion of the combination. For further
information concerning the amount of goodwill to be recorded in connection
with the combination and the amortization thereof, see Note D of Notes to the
Unaudited Pro Forma Condensed Combined Financial Statements on page 51.
If we acquire less than a majority but at least 20% of the common equity
interest in Newcor, we expect that we will account for such interest using
the equity method of accounting. The use of the equity method of accounting
would result in financial reporting substantially different from that
presented in the Unaudited Pro Forma Condensed Consolidated Financial
Statements contained in this proxy statement.
EXX has prepared the Unaudited Pro Forma Financial Statements contained
in this proxy statement using the purchase method of accounting.
TAX CONSEQUENCES
There are no material tax consequences to you that will result from the
transaction. Cash and EXX shares received in return for Newcor shares
purchased will be taxable to Newcor stockholders for federal income tax
purposes. Thus, Newcor stockholders will realize gain or loss measured by
the difference between their adjusted tax basis in their Newcor shares and
the sum of the cash and the fair market value of the EXX shares received in
return. Generally, that gain or loss will be treated as capital
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<PAGE> 34
gain or loss. In the case of non-corporate taxpayers, capital gains will be
subject to a maximum federal income tax rate of 20% if their shares of Newcor
purchased by us have been held by them for more than 12 months. Newcor
stockholders' ability to use any capital losses realized in a purchase of
their Newcor shares to offset other income is subject to certain limitations.
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<PAGE> 35
SELECTED HISTORICAL FINANCIAL INFORMATION OF EXX
The following table presents selected historical financial information
for EXX for each of the five years in the period ended December 31, 1999.
This information is derived from historical financial statements, including
the respective notes to those financial statements, previously filed by EXX
with the Securities and Exchange Commission. The historical financial
statements for EXX are included in this proxy statement.
<TABLE>
<CAPTION>
Sales and Income 1999 1998 1997 1996 1995
- ---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $21,158,000 $20,935,000 $22,324,000 $19,746,000 $30,522,000
Net income (loss) 2,445,000 761,000 (223,000) (1,624,000) 2,330,000
Per Share Data<F*>
- --------------
Net income (loss)-basic $ .19 $ .06 $ (.02) $ (.12) $ .17
Net income (loss)-diluted .18 .06 (.02) (.12) .17
Book value .90 .72 .66 .68 .80
Financial Position
- ------------------
Current assets $14,075,000 $13,776,000 $13,291,000 $12,066,000 $13,591,000
Total assets 18,395,000 16,440,000 16,181,000 13,419,000 15,418,000
Current liabilities 4,047,000 4,667,000 5,152,000 4,018,000 4,372,000
Current ratio 3.5 to 1 3.0 to 1 2.6 to 1 3.0 to 1 3.1 to 1
Working capital $10,028,000 $ 9,109,000 $ 8,139,000 $ 8,048,000 $ 9,219,000
Property and
equipment, net 2,325,000 2,386,000 2,586,000 830,000 998,000
Long-term debt 1,747,000 1,794,000 1,886,000 -- --
Stockholders' equity 11,438,000 9,281,000 8,918,000 9,141,000 10,793,000
<FN>
____________________
<F*> As adjusted for a 400% stock dividend effective March 8, 2000, Class A and
Class B shares retroactively shown.
</TABLE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF NEWCOR
Selected historical financial information for Newcor for each of the five
years in the period ended December 31, 1999 is contained under the heading
"Five Year Financial Summary" in Note 17 of the Notes to Condensed Financial
Statements of Newcor beginning on page F-21 of this proxy statement.
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<PAGE> 36
SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
We have included this unaudited pro forma condensed consolidated summary
information only for the purposes of illustration. It does not necessarily
indicate what the operating results or financial position of the combined
entity would have been if the transaction had been completed at the dates
indicated. Moreover, this information does not necessarily indicate what the
future operating results or financial position of the combined company will
be. You should read this selected unaudited pro forma condensed consolidated
summary financial information in conjunction with the Unaudited Pro Forma
Condensed Consolidated Financial Statements and the notes thereto included in
this proxy statement. The unaudited pro forma condensed consolidated summary
balance sheet data gives effect to the transaction as if it had occurred on
December 31, 1999. The unaudited pro forma condensed consolidated summary
results of operations data gives effect to the transaction as if it occurred
on January 1, 1999. See Note A of the Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements for a discussion of the accounting method
used for the acquisition.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
------------------
<S> <C>
BALANCE SHEET:
Working capital $ 25,931,000
Total assets 226,298,000
Total liabilities 198,243,000
Total stockholders' equity 28,055,000
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
RESULTS OF OPERATIONS:
Net sales $279,641,000
Cost of sales 231,412,000
Gross profit 48,229,000
Operating expenses 35,009,000
Operating income 13,220,000
Loss before income taxes (1,069,000)
Net loss (864,000)
Net loss per share, basic and diluted (0.04)
</TABLE>
SUPPLEMENTARY FINANCIAL INFORMATION
Supplementary financial information for Newcor for each full quarter
within the two most recent fiscal years is contained in Note 17 of the Notes
to Condensed Financial Statements of Newcor beginning on page F-21 of this
proxy statement.
30
<PAGE> 37
COMPARATIVE AND PRO FORMA PER SHARE DATA
The table below presents historical per share financial information for
EXX Inc and Newcor, Inc. This information should be read in conjunction with
the financial information and historical financial statements and the notes
thereto of EXX Inc and Newcor, Inc. included in this proxy statement. In
addition, it is important that you read the Unaudited Pro Forma Condensed
Consolidated Financial Statements and notes thereto included in this
document. However, pro forma information is not necessarily indicative of
what the actual financial results would have been had the transaction taken
place December 31, 1999 or on January 1, 1999, nor do they purport to
indicate results of future operations. No cash dividends were paid by EXX
Inc or Newcor, Inc. during the periods presented. We derived the pro forma
Newcor equivalent data based on an assumed exchange ratio of 2.667 shares of
EXX Class A common stock for each share of Newcor common stock.
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
NET INCOME (LOSS) PER DILUTED SHARE
Historical:
EXX $ .18
Newcor (2.36)<F1>
Pro Forma Combined (0.04)<F2>
Pro Forma Newcor Equivalent (0.89)
BOOK VALUE PER SHARE
Historical:
EXX $ .90
Newcor 2.66
Pro Forma Combined 1.17
Pro Forma Newcor Equivalent 1.00
<FN>
____________________________
<F1> Includes a non-recurring impairment charge for goodwill of $8,521,000.
<F2> Excludes a non-recurring impairment charge for goodwill of $8,521,000.
</TABLE>
REGULATORY MATTERS
All regulatory approvals required to consummate the offer must be
obtained and must remain in full force and effect without the imposition of
any condition or restriction that would be materially adverse to us or
Newcor. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules promulgated thereunder by the Federal Trade
Commission, the offer may not be consummated until notifications have been
given and certain information has been furnished to the Federal Trade
Commission and the Antitrust Division of the Department of Justice and
specified waiting period requirements have been satisfied. We plan to file
the notification and report forms with the Federal Trade Commission and the
Antitrust Division no later than _________, 2000. At any time before or
after the consummation of the offer, and notwithstanding that the waiting
period has been terminated, the Antitrust Division could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the offer or
seeking divestiture of
31
<PAGE> 38
substantial assets of EXX and Newcor. At any time before or after the
consummation of the offer, and notwithstanding that the waiting period has
been terminated, any state could take such action under the antitrust laws as
it deems necessary or desirable in the public interest. Such action could
include seeking to enjoin the consummation of the offer or seeking
divestiture of Newcor or the businesses of EXX or Newcor. Private parties
may also seek to take legal action under the antitrust laws under certain
circumstances.
We are not aware of any other material governmental approvals or actions
that are required for consummation of the offer. It is presently
contemplated that if any such additional governmental approvals or actions
are required, such approvals or actions will be sought. There can be no
assurance, however, that any such additional approvals or actions will be
obtained.
CERTAIN RELATIONSHIPS WITH NEWCOR, INC.
Except as set forth herein, neither we nor, to the best of our knowledge,
any of our directors, executive officers or other affiliates has any
contract, arrangement, understanding or relationship with any other person
with respect to any securities of Newcor, including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer
or the voting of any such securities, joint ventures, loan or option
arrangements, puts or calls, guaranties of loans, guaranties against loss or
the giving or withholding of proxies. Except as described under "Background
of the Offer" and elsewhere herein, there have been no contacts, negotiations
or transactions since January 1, 1997 between us or, to the best of our
knowledge, any of our directors, executive officers or other affiliates on
the one hand, and Newcor or its affiliates, on the other hand, concerning a
merger, consolidation or acquisition, a tender offer or other acquisition of
securities, an election of directors, or a sale or other transfer of a
material amount of assets. Neither we, nor, to the best of our knowledge,
any of our directors, executive officers or other affiliates has had any
transaction with Newcor or any of its executive officers, directors or
affiliates since January 1, 1997 that would require disclosure under the
rules and regulations of the Securities and Exchange Commission applicable to
the offer.
As of the date of this document, EXX beneficially owns 664,700 shares of
Newcor common stock and David Segal, EXX's controlling shareholder
beneficially owns 24,000 shares of Newcor common stock.
32
<PAGE> 39
MARKET PRICE AND DIVIDEND MATTERS
MARKET PRICE AND DIVIDEND HISTORY
EXX Class A common stock is listed and traded on the American Stock
Exchange and is quoted under the symbol "EXX/A." Newcor common stock,
including the associated preferred stock purchase rights, is listed and
traded on the American Stock Exchange and is quoted under the symbol "NER."
Prior to being admitted to the American Stock Exchange on May 7, 1999, Newcor
common stock was traded on the Nasdaq National Market. The following table
sets forth, for the periods indicated, the high and low sale prices of EXX
Class A common stock as reported on the American Stock Exchange, and the high
and low sale prices of Newcor common stock, as reported on the American Stock
Exchange and the Nasdaq National Market, along with the quarterly cash
dividends per share.
<TABLE>
<CAPTION>
EXX Common Newcor Common
Sales Price<F1> Sales Price
----------------------- ----------------------
High Low Dividends High Low Dividends
---- --- -------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1998
First Quarter $0.8250 $0.5375 $ -- $9.8750 $8.0000 $0.05
Second Quarter 0.7625 0.4500 -- 9.7500 8.7500 --
Third Quarter 0.5500 0.2875 -- 9.3750 3.8750 --
Fourth Quarter 0.9000 0.3000 -- 6.1250 2.6250 --
1999
First Quarter $0.5750 $0.3250 $ -- $5.7500 $3.5000 $ --
Second Quarter 0.7250 0.3875 -- 5.3750 3.0000 --
Third Quarter 1.2250 0.5250 -- 4.8750 1.5625 --
Fourth Quarter 1.2800 0.5900 -- 3.3750 1.3125 --
2000
First Quarter $2.2500 $0.9500 $ -- $3.1250 $2.0000 $ --
Second Quarter
(through April 25, 2000) $1.1900 $0.6250 $ -- $2.5000 $1.6875 $
<FN>
_______________
<F1> All sale prices for EXX Class A common stock have been adjusted to
reflect the 400% stock dividend paid by EXX on March 8, 2000.
</TABLE>
The information set forth in the table below presents the closing sale
prices of EXX Class A common stock and Newcor common stock as reported on the
American Stock Exchange, along with the pro forma Newcor equivalent, on
_______________, 2000, the last full trading day prior to the date of this
proxy statement.
<TABLE>
<CAPTION>
EXX Newcor Pro Forma Newcor Equivalent
--- ------ ---------------------------
<S> <C> <C> <C>
__________, 2000 $ $ $
</TABLE>
On March 17, 2000, there were approximately 1200 holders of record of EXX
Class A common stock. On February 17, 2000, there were approximately 550
holders of record of Newcor common stock.
33
<PAGE> 40
Past dividends paid on EXX Class A common stock and Newcor common stock
are not necessarily indicative of future dividends which may be paid. No
assurance can be given concerning dividends to be declared and paid on EXX
Class A common stock and Newcor common stock. The timing and amount of
future dividends declared on EXX Class A common stock will be set at the
discretion of our board of directors and will depend on various factors,
including, without limitation, the earnings and financial condition of EXX
and its subsidiaries.
DIVIDEND LIMITATIONS
There is no present restriction on EXX's ability to pay cash dividends.
However, we deem the use of corporate funds for day-to-day needs to be in the
best interest of EXX. There is no present intention to make any cash
dividend payments.
Newcor's ability to pay cash dividends has been suspended pursuant to the
terms of the $125 million 9.875% Senior Subordinated Notes due 2008.
INDEPENDENT AUDITORS
We have been advised that representatives of Rothstein, Kass & Company,
P.C., our independent auditors, will be present at the annual meeting, and
will be available to respond to appropriate questions.
DISSENTERS' RIGHTS
Holders of our common stock are not entitled under Nevada law or under
our Articles of Incorporation to any dissenters' rights, to seek appraisal of
their shares or to any preemptive rights in connection with the exchange
offer.
WHERE YOU CAN FIND MORE INFORMATION
EXX and Newcor file reports, proxy statements and other information with
the Securities and Exchange Commission under the Exchange Act. You may read
and copy this information at the following locations of the Securities and
Exchange Commission:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
You may also obtain copies of this information by mail from the Public
Reference Room of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
The Securities and Exchange Commission also maintains an Internet world
wide web site that contains reports, proxy statements and other information
filed electronically by EXX and Newcor with the Securities and Exchange
Commission. The address of that site is http://www.sec.gov.
------------------
You can also inspect reports, proxy statements and other information
about EXX and Newcor at the offices of the American Stock Exchange, 86
Trinity Place, New York, New York 10006-1872.
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<PAGE> 41
The Securities and Exchange Commission allows EXX to "incorporate by
reference" information into this proxy statement. This means that we can
disclose important information to you by referring you to another document
filed separately with the Securities and Exchange Commission. The
information incorporated by reference is considered to be a part of this
proxy statement, except for any information that is superseded by information
that is included directly in this document.
EXX's Annual Report on Form 10-K for the year ended December 31, 1999, as
amended by Form 10-K/A filed April 28, 2000 with the Securities and Exchange
Commission, are sent to you simultaneously with this proxy statement and are
incorporated herein by reference.
You may read and copy and materials we file with the Securities and
Exchange Commission at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling
the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission maintains an Internet site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Securities and Exchange Commission. The address of
the Securities and Exchange Commission's website is http://www.sec.gov. You
------------------
can obtain additional copies of the documents incorporated by reference in
this proxy statement by requesting them in writing or by telephone from the
following address:
D.F. KING & CO., INC.
77 Water Street, 20th Floor
New York, New York 10005-4495
Telephone: (212) 269-5550
35
<PAGE> 42
CERTAIN INFORMATION REGARDING NEWCOR, INC.
While we have included in this proxy statement information concerning
Newcor that is known to us based on publicly available information (primarily
filings by Newcor with the Securities and Exchange Commission), we are not
affiliated with Newcor and Newcor has not permitted us to have access to
their books and records. Therefore, non-public information concerning Newcor
was not available to us for the purpose of preparing this proxy statement.
Although we have no knowledge that would indicate that statements relating to
Newcor contained or incorporated by reference in this proxy statement are
inaccurate or incomplete, we were not involved in the preparation of those
statements and cannot verify them.
Pursuant to Rule 409 under the Securities Act of 1933, as amended (the
"Securities Act") and Rule 12b-21 under the Exchange Act, we are requesting
that Newcor provide us with information required for complete disclosure
regarding the businesses, operations, financial condition and management of
Newcor. We will amend or supplement this proxy statement to provide any and
all information we receive from Newcor, if we receive the information before
our offer expires and we consider it to be material, reliable and
appropriate. In addition, pursuant to Rule 439 under the Securities Act of
1933, as amended, we are requesting that the independent accountants of Newcor
provide us with the consents required for us to incorporate by reference into
this proxy statement the audit report included in Newcor's Annual Report on
Form 10-K for the year ended December 31, 1999.
GENERAL DESCRIPTION OF BUSINESS
Newcor, Inc., a Delaware corporation, was organized in 1969 to succeed a
Michigan corporation organized in 1933. Newcor is organized into three
operating segments: Precision Machined Products; Rubber and Plastic; and
Special Machines. The Precision Machined Products segment produces
transmission, powertrain and engine components and assemblies primarily for
the automotive, medium and heavy-duty truck and agricultural vehicle
industries. The Rubber and Plastic segment produces cosmetic and functional
seals and boots and functional engine compartment products primarily for the
automotive industry. The Special Machines segment designs and manufactures
welding, assembly, forming, heat treating and testing machinery and equipment
for the automotive, appliance and other industries.
Newcor purchased the business and substantially all of the assets of
Machine Tool & Gear, Inc. ("MT&G") in December 1997. MT&G manufactures
differential pinion and side gears, output shafts and rear axle shafts for
the automotive industry. Newcor also purchased the common stock of the three
related companies known as The Deco Group ("Deco") and Turn-Matic, Inc.
("Turn-Matic") in March 1998, subsequent to the issuance of $125 million
9.875% Senior Subordinated Notes due 2008 (the "Notes"). Deco manufactures
high-volume, precision machined engine and powertrain components and
assemblies for the medium and heavy truck and automotive industries, while
Turn-Matic manufactures high-volume, precision machined engine components and
assemblies for the automotive industry.
The MT&G, Deco and Turn-Matic acquisitions and the issuance of the Notes
have substantially increased in the size of Newcor and changed the character
and scope of its business. In addition, these transactions substantially
increased Newcor's leverage, interest expense and cash requirements for debt
service in 1998 and future years as compared to 1997 and prior years.
Newcor's ability to make scheduled payments of principal of, or to pay the
interest on, or to refinance, its indebtedness or to fund planned capital
expenditures will depend on its future performance, which to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control.
36
<PAGE> 43
During 1997, Newcor purchased the common stock of Plastronics Plus, Inc.
("Plastronics"), which primarily manufactures custom plastic injection-molded
components for the automotive industry. Also during 1997, Newcor sold the
business and substantially all assets of its Eonic division, which operated
in the Precision Machined Products segment.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
Financial information about operating segments is presented in Note 16
(Segment Reporting) of the Notes to Consolidated Financial Statements of
Newcor on page F-19. This segment information is supplemented by the
additional financial information included under "Narrative Description of
Business" below.
NARRATIVE DESCRIPTION OF BUSINESS
Newcor sells and markets its products into five market segments defined
as automotive (51%), heavy-duty truck (30%), capital goods (10%),
agricultural (8%) and industrial (1%). The percentages following the market
definition reflect the portion of 1999 consolidated revenue sold into that
respective market. The markets served by Newcor are highly cyclical and are
impacted by the general strength of the economy, by prevailing interest rates
and by other factors outside the control of Newcor. The markets for
automotive, heavy-duty trucks, agricultural vehicles and capital goods, for
which Newcor supplies goods and services, have all experienced both strength
in recent years as well as significant downturns. Such downturns have
materially adversely affected the revenues, profitability and cash flow of
suppliers to these industries, including Newcor, and there can be no
assurance that one or all such industries will not experience similar
downturns in the future. A cyclical decline in overall demand in any of the
markets served by Newcor would have a material adverse effect on Newcor's
financial condition, results of operations and debt service capability.
Newcor operates in industries that are highly competitive though
fragmented. If any customer becomes dissatisfied with Newcor's prices,
quality or timeliness of delivery, the customer could award future business
or move existing business to a competitor. There can be no assurance that
Newcor's products will continue to compete successfully with the products of
competitors, including original equipment manufacturers ("OEM's") themselves,
many of which are significantly larger and have greater financial and other
resources than Newcor.
Across all segments, sales in 1999 to Detroit Diesel Company, American
Axle & Manufacturing and Ford Motor Company were approximately 28%, 18% and
14%, respectively, of consolidated sales. Although Newcor presently has
ongoing supply relationships with each of these customers, there can be no
assurance that sales to these customers will continue at the same levels or
at all. Each of these customers has, and regularly exercises, substantial
negotiating leverage over its suppliers, including Newcor, and continuation
of these relationships is dependent upon the customers' satisfaction with the
price, quality and delivery of Newcor's products and Newcor's engineering
capabilities and customer services. While management believes its
relationships with its customers are mutually satisfactory, if any of these
customers were to reduce substantially or discontinue its purchases from
Newcor, the financial condition and results of operations of Newcor would be
materially adversely affected. From time to time, suppliers to these large
customers, including Newcor, enter into agreements mandating periodic price
reductions, which thereby effectively require such suppliers to improve their
efficiency and reduce costs in order to maintain profit margins, and Newcor
is presently a party to several such contracts.
37
<PAGE> 44
PRECISION MACHINED PRODUCTS SEGMENT. During 1999, the Precision Machined
Products segment accounted for 71% of consolidated total revenue. This
segment consisted of five operating units at December 31, 1999: Blackhawk
Engineering; MT&G; Deco; Turn-Matic; and Rochester Gear.
Deco produces high-volume precision machined engine and powertrain
components and assemblies for the heavy-duty truck market. Blackhawk's
principal line of business is machining large gray iron, nodular iron and
steel foundry castings for companies with business in the agricultural
market. Rochester Gear produces high-quality shafts, axles, transmission
parts and other machined components. MT&G manufactures differential pinion
and side gears, output shafts and rear axle shafts. Turn-Matic manufactures
high-volume, precision machined engine components and assemblies. Rochester
Gear, MT&G and Turn-Matic participate primarily in the automotive market.
In 1999, approximately 48% of the Precision Machined Products segment
revenue came from sales to the automotive market (OEM's and Tier 1 suppliers)
and 41% from the heavy-duty diesel truck market. The remaining revenue was
from sales to agricultural equipment manufacturers, primarily Deere &
Company. Both divisions and subsidiaries in the Precision Machined Products
segment have several competitors, primarily domestic. Orders are almost
exclusively obtained through competitive bidding, based on quality,
engineering capabilities, delivery and price. Substantially all of the
segment's revenue comes from domestic sales through either Newcor's sales
staff or independent manufacturers' representatives. Engineering design
changes and model year changes mandated for the OEM's in both the automotive
and heavy-duty truck market occur routinely and require Newcor to maintain
competitive pricing with strong business relationships to ensure that future
business is attained.
Most raw materials, supplies and other components are purchased from a
number of suppliers. Occasionally, a division will depend upon a single
supplier for a particular item when instructed by the customer. Newcor has
not experienced any difficulty obtaining necessary purchased materials.
Throughout its product lines, Newcor has various patents and trademarks
that have been obtained over a number of years and expire at various times.
The loss of any patent or trademark would not materially affect the sales and
profitability of Newcor.
The Precision Machined Products segment is considered seasonal, varying
primarily on OEM's semi-annual shutdowns in July and December.
There are no unusual working capital requirements within the Precision
Machined Products segment's divisions. In general, new business opportunities
and capacity enhancements within this segment require substantial capital
expenditures.
Newcor's Precision Machined Products segment primarily operates under
annual blanket purchase orders with its customers. Specific releases against
these blanket purchase orders are made on a daily basis by the customer.
Accordingly, order backlog is not considered meaningful to this group.
None of the segment's revenue is derived from government contracts.
RUBBER AND PLASTIC SEGMENT. During 1999, the Rubber and Plastic segment
accounted for 19% of consolidated total revenue. This segment consisted of
two divisions and one subsidiary at December 31, 1999: Deckerville;
Walkerton; and Plastronics. In 1999, approximately 91% of the Rubber and
Plastic segment revenue came from sales to the automotive market (OEM's and
Tier 1 suppliers). The remaining revenue resulted from a wide variety of
markets, including health care, agricultural, appliance and others.
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<PAGE> 45
The segment utilizes dip, cast and other molding processes to manufacture
both interior components (principally transmission shift boots, steering
column and gearshift lever seals and air conditioning ducts) and engine
compartment and other body components (body and dash panel grommets and fuel
filler seals). The segment's injection molding facilities are used to
manufacture fluid recovery systems, hose and wire brackets, speaker seals and
vacuum control systems. The segment also supplies attachment and restraining
products such as clips and brackets.
Each of the divisions in the Rubber and Plastic segment has several
competitors, primarily all domestic. Orders are almost exclusively obtained
through competitive bidding, based on quality, engineering capabilities,
delivery and price. Almost all of the segment's revenue results from
domestic sales through either Newcor's sales staff or independent
manufacturers' representatives. Engineering design changes and model year
changes mandated for the OEM's in both the automotive and heavy-duty truck
market occur routinely and require Newcor to maintain competitive pricing
with strong business relationships to ensure that future business is
attained.
Most raw materials, supplies and other components are purchased from a
number of suppliers. Occasionally, a division will depend upon a single
supplier for a particular item when instructed by the customer. Newcor has
not experienced any difficulty obtaining necessary purchased materials.
Throughout its product lines, Newcor has various patents and trademarks
that have been obtained over a number of years and expire at various times.
The loss of any patent or trademark would not materially affect the sales and
profitability of Newcor.
The Rubber and Plastic segment is considered seasonal, varying primarily
with the automotive industry's semi-annual shutdowns in July and December.
There are no unusual working capital requirements within the Rubber and
Plastic segment's divisions.
Newcor's Rubber and Plastic segment primarily operates under annual
blanket purchase orders with its customers. Specific releases against these
blanket purchase orders are made on a daily basis by the customer.
Accordingly, order backlog is not considered meaningful to this segment.
None of the segment's revenue is derived from government contracts.
SPECIAL MACHINES SEGMENT. During 1999, the Special Machines segment
accounted for 10% of consolidated total revenue. This segment consists of
one division: Newcor Bay City ("Bay City"). The Bay City division designs
and assembles standard and special custom machines and systems to meet its
customers' welding, assembly, forming, heat treating and testing process
requirements.
Approximately 82% of the Special Machines segment revenue came from sales
to the automotive market (OEM's and Tier 1 suppliers) during 1999. The
remaining revenue resulted from a variety of markets including appliance,
consumer goods, aerospace and others.
Competition for the Special Machines segment is from both domestic and
foreign manufacturers. Most orders are obtained through a competitive
bidding process with decisions based on machine design and performance,
production and engineering capabilities, delivery, service and price. Repeat
orders for a similar machine are sometimes single-sourced. The level of
competition varies widely depending upon the industry in which the potential
customer operates, the size of the order and technical complexity involved in
fulfilling the specific order requirements. Newcor attempts to differentiate
itself by providing timely, innovative solutions to its customers'
requirements.
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<PAGE> 46
The products of this segment are marketed primarily in the major
industrial areas of the United States, Canada and Mexico by direct sales to
its customers. The majority of the segment sales are generated by sales
engineers, with some sales coming from independent manufacturers'
representatives.
Competitive quotes are obtained for most components, raw materials and
supplies from a number of suppliers. Newcor has not experienced any
difficulty obtaining necessary purchased materials.
Newcor has various patents and trademarks in the Special Machines Product
segment that have been obtained over a number of years and expire at various
times. While Newcor considers each of them to be important to its business,
the loss of any patent or trademark would not materially affect the sales and
profitability of Newcor.
The Special Machines segment is not considered seasonal but revenue will
vary significantly as the cyclical capital goods markets fluctuate with
general economic conditions.
The Special Machines segment's working capital requirements can vary
significantly based on the number of and stage of contracts in process.
As of January 31, 2000, the Special Machines segment backlog was $9.1
million. Backlog at December 31, 1998 was $9.6 million. The backlog at
January 31, 2000 is expected to be completed during the year ended December
31, 2000.
None of the segment's revenues resulted from government contracts.
ENVIRONMENTAL COMPLIANCE
Compliance by Newcor with federal, state and local laws and regulations
pertaining to the environment has not and is not anticipated to have any
material effect on the capital expenditures, earnings or operations of
Newcor. However, Newcor's operations are subject to various federal, state
and local environment laws, ordinances and regulations, including those
governing discharges into the air and water, the storage, handling and
disposal of solid and hazardous wastes, the remediation of soil and
groundwater contaminated by petroleum products or hazardous substances or
wastes and the health and safety of employees ("Environmental Laws"). The
nature of Newcor's current and former operations and the history of
industrial uses at some of its facilities expose Newcor to the risk of
liabilities or claims with respect to environmental and related worker health
and safety matters. Compliance with Environmental Laws, stricter
interpretations of or amendments to such laws or more vigorous enforcement
policies by regulatory agencies may require material expenditures by Newcor.
In addition, under certain Environmental Laws a current or previous owner or
operator of property may be liable for the costs of removal or remediation of
certain hazardous substances or petroleum products on, under or in such
property, without regard to whether the owner or operator knew of, or caused,
the presence of the contaminants, and regardless of whether the practices
that resulted in the contamination were legal at the time they occurred.
EMPLOYEES
At January 31, 2000, Newcor had approximately 2,000 employees.
Approximately 25% of Newcor's employees and contract workers at January 31,
2000 were represented by the United Auto Workers and the United Steel Workers
of America. Collective bargaining agreements with these unions will expire
at various times in 2000 and 2002. In addition, most of Newcor's customers
employ workforces represented by the United Auto Workers and other unions,
and many of these customers have
40
<PAGE> 47
experienced work stoppages at various times in the past. A dispute between
Newcor and its employees, or between any of its major customers and such
customers' employees, could have a material adverse effect on Newcor's
financial condition and results of operations. The labor strike of General
Motors Corporation workers represented by the United Auto Workers in June
1998 adversely impacted the profitability of the Precision Machined Products
and Rubber and Plastic segments. In addition, sustained economic growth in
the United States has resulted in lower unemployment and higher demand for
labor in many locations, including certain locations in which Newcor
operates. There can be no assurance that labor market conditions will not
materially adversely affect one or more of Newcor's businesses.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND SALES
Newcor does not have any foreign operations and, therefore, does not
segregate its revenue by geographic area. Export sales, principally to
Mexico and Canada, represented less than 10% of consolidated revenue in 1999,
1998 and 1997.
PROPERTIES
Newcor conducts its business in company-owned facilities totaling
approximately 536,000 square feet and leased facilities totaling
approximately 282,000 square feet of office, engineering, manufacturing and
warehouse space. All of these facilities are fully utilized and are suitable
to meet the current capacity needs of the divisions. Leases expire at
various times through 2008, and Newcor generally has extension options.
Below is a summary of the existing facilities:
<TABLE>
<CAPTION>
Square Type of
Location Footage Interest Description of Use
-------- ------- -------- ------------------
<S> <C> <C> <C>
Corporate Office 7,000 Leased Administrative Office
Bloomfield Hills, MI
Precision Machined Products Group
- ---------------------------------
Rochester Gear 49,000 Owned Transmission and powertrain components
Clifford, MI
Blackhawk Engineering 54,000 Owned Tractor differential cases, transmission
Cedar Falls, IA 17,000 Leased cases, steering arms and brake pedals
Waterloo, IA
MT&G 100,000 Owned Differential pinion and side gears, output
Corunna, MI 10,000 Owned shafts and rear axle shafts
Fenton, MI
Deco 55,000 Leased Rocker arm components and assemblies,
Troy, MI 110,000 Leased transmission shafts, accessory drive
Royal Oak, MI assemblies and thrust and pressure plates
Turn-Matic 93,000 Leased Engine oil filter adapters, main bearing
Clinton Township, MI caps and manifolds
41
<PAGE> 48
<CAPTION>
Square Type of
Location Footage Interest Description of Use
-------- ------- -------- ------------------
<S> <C> <C> <C>
Rubber and Plastic Group
- ------------------------
Deckerville Division 89,000 Owned Gear shift boots, steering column seals,
Deckerville, MI shift lever gap hiders, windshield wiper
covers and coated metal parts
Walkerton Division 33,000 Owned Steering column seals and shift lever boots
Walkerton, IN and gap hiders
Plastronics 39,000 Owned Vacuum reservoirs and assemblies for air
East Troy, WI 39,000 Owned conditioning, power steering and cruise
East Troy, WI control systems, hose and wire brackets
and dash panel grommets
Special Machines Group
- ----------------------
Newcor Bay City 123,000 Owned Automated welding and assembly systems
Bay City, MI
</TABLE>
LEGAL PROCEEDINGS
According to Newcor's Form 10-K for the year ended December 31, 1999,
various legal matters arising during the normal course of business are
pending against Newcor. Management of Newcor does not expect that the
ultimate liability, if any, of these matters will have a material adverse
effect on future results of operations or financial condition of Newcor.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations should be read in conjunction with Newcor's
consolidated financial statements and notes thereto beginning on page F-1 et
seq. On December 21, 1998, Newcor filed a current report on Form 8-K
announcing that the Board of Directors approved changing Newcor's annual
reporting period from a fiscal year ending October 31 to a calendar year
ending December 31. The MD&A that follows compares the twelve-month period
ended December 31, 1999 ("1999") to the twelve-month period ended October 31,
1998 ("fiscal 1998").
OVERVIEW. Newcor is organized into three operating segments: the
Precision Machined Products segment; the Rubber and Plastic segment; and the
Special Machines segment. The Precision Machined Products segment produces
transmission, powertrain and engine components and assemblies for the
automotive, medium and heavy-duty truck and agricultural vehicle industries.
The Rubber and Plastic segment produces cosmetic and functional seals and
boots and functional engine compartment products primarily for the automotive
industry. The Special Machines segment designs and manufactures welding,
assembly, forming, heat treating and testing machinery and equipment for the
automotive, appliance and other industries.
On December 23, 1997, Newcor purchased the assets and business of Machine
Tool & Gear, Inc. ("MT&G") for approximately $27.3 million, and assumed
approximately $5.8 million of debt, which was subsequently retired. MT&G
manufactures differential pinion and side gears, output shafts and rear axle
shafts for the automotive industry. On March 4, 1998, Newcor acquired the
common stock of the three
42
<PAGE> 49
companies comprising The Deco Group ("Deco") for approximately $55.0 million
and the common stock of Turn-Matic, Inc. ("Turn-Matic") for approximately
$17.0 million, concurrent with the issuance of $125.0 million of 9.875%
Senior Subordinated Notes due 2008 (the "Notes"). Deco manufactures
high-volume, precision-machined engine and powertrain components and assemblies
for the medium and heavy truck and automotive industries, while Turn-Matic
manufactures high volume, precision machined engine components for the
automotive industry.
RESULTS OF OPERATIONS. The following table illustrates the factors
causing year-to-year sales trends by segment, including the effect of
acquisitions and net incremental business from operations owned throughout
each year presented.
<TABLE>
<CAPTION>
PRECISION
MACHINED RUBBER AND SPECIAL
(IN MILLIONS) PRODUCTS PLASTIC MACHINES TOTAL
--------- ---------- -------- -----
<S> <C> <C> <C> <C>
Fiscal 1997 sales $ 60.5 $48.5 $21.8 $130.8
Acquisitions 85.1 85.1
Net decrease in business (6.8) 0.7 (3.6) (9.7)
------ ----- ----- ------
Fiscal 1998 sales $138.8 $49.2 $18.2 $206.2
Prior year acquisitions 39.8 39.8
Net increase in business 5.0 0.4 7.1 12.5
------ ----- ----- ------
1999 sales $183.6 $49.6 $25.3 $258.5
====== ===== ===== ======
</TABLE>
1999 COMPARED WITH FISCAL 1998. Newcor recorded sales in 1999 of $258.5
million, an increase of $52.3 million, or 25.4%, from fiscal 1998 sales of
$206.2 million. Sales for the Precision Machined Products segment increased
$44.8 million, or 32.3%, to $183.6 million, sales for the Rubber and Plastic
segment increased $0.4 million, or 0.8%, to $49.6 million, and sales for the
Special Machines segment increased $7.1 million, or 39.0% to $25.3 million.
The increase in sales for the Precision Machined Products segment was
primarily due to the full year impact of the fiscal 1998 acquisitions of
MT&G, Deco and Turn-Matic (referred to collectively as the "Acquisitions"),
which accounted for $39.8 million of the increase. Increased volumes in the
automotive market of $14.9 million and heavy-duty truck market of $7.1
million were partially offset by $16.6 million of decreased product sales in
the agricultural machined components market. The increase in sales for the
Rubber and Plastic segment was primarily due to the increased volumes in the
automotive market. The lower volumes experienced in fiscal 1998 were
primarily caused by the General Motors Corporation strike. The sales
increase in the Special Machines segment was due to increases in new orders
that were obtained during 1999.
Consolidated gross margin increased $5.8 million to $39.8 million in 1999
from $34.0 million in fiscal 1998. The increase in gross margin is
attributable to the increase in sales described above, partially offset by a
decrease in consolidated gross margin percentage. Consolidated gross margin
percentage decreased to 15.4% in 1999 from 16.5% in fiscal 1998. The
decrease in margin percentage was primarily attributable to the following
three factors: (a) the launch of a new product in the Precision Machined
Products segment resulted in poor productivity and high scrap rates as the
operation moved to increase production output negatively impacting margins by
approximately $4.0 million; (b) a second operation in this segment continued
to incur higher operating losses caused by labor inefficiencies and increased
scrap rates, negatively impacting margin by $2.0 million; and (c) lower
agricultural machined component production schedules also adversely impacted
gross margins at a third operation in this product segment, with an estimated
reduction in margin of $1.0 million in 1999 compared to fiscal 1998. These
decreases in margin were partially offset by higher sales in the heavy-duty
truck market as well as the increase in sales and profits in the Special
Machines segment.
43
<PAGE> 50
Selling, general and administrative expenses ("SG&A") increased to $24.7
million from $20.8 million in fiscal 1998. SG&A as a percentage of sales
decreased to 9.6% in 1999 from 10.1% in fiscal 1998. The increase in SG&A
expense was primarily due to the increase in sales described above, as well
as the Acquisitions in the Precision Machined Products segment, which added
approximately $2.5 million of SG&A expense in 1999. The primary reason for
the decrease in SG&A as a percentage of sales was the sales increase
described above and the lower expense associated with the operations in the
acquisitions as compared to the Special Machines segment.
Amortization expense increased to $4.6 million in 1999 from $3.5 million
in fiscal 1998 due to the full year effect of the Acquisitions.
Operating income (loss) by segment was as follows:
<TABLE>
<CAPTION>
PRECISION AMORTIZATION
MACHINED RUBBER AND SPECIAL EXPENSE/
(IN MILLIONS) PRODUCTS PLASTIC MACHINES OTHER OTHER ITEMS TOTAL
--------- ------------ -------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Year ended
October 31, 1997 $ 6.2 $ 3.2 $ 2.0 $(2.5) $ (0.6) $ 8.3
Acquisitions 11.8 (2.6) 9.2
Change from existing business (3.0) (2.0) (1.5) (1.2) (0.7) (8.4)
----- ----- ----- ----- ------ -----
Year ended
October 31, 1998 15.0 1.2 0.5 (3.7) (3.9) 9.1
Acquisitions 4.8 (1.0) 3.8
Impairment charge (8.5) (8.5)
Change from existing business (5.4) 1.6 1.9 (0.9) (0.1) (2.9)
----- ----- ----- ----- ------ -----
Year ended
December 31, 1999 $14.4 $ 2.8 $ 2.4 $(4.6) $(13.5) $ 1.5
===== ===== ===== ===== ====== =====
</TABLE>
Consolidated operating income, including the non-cash impairment charge
of $8.5 million, decreased $7.6 million to $1.5 million in 1999 from $9.1
million in fiscal 1998, and consolidated operating margin decreased to 0.6%
of sales in 1999 from 4.5% of sales in fiscal 1998. Consolidated operating
income, excluding the non-cash impairment charge of $8.5 million, was $10.0
million in 1999 compared to $9.1 million in fiscal 1998, an increase of $0.9
million.
Operating income for the Precision Machined Products segment decreased
$0.6 million to $14.4 million in 1999 from $15.0 million in fiscal 1998.
Operating margin decreased to 7.8% of segment sales in 1999 from 10.8% of
segment sales in fiscal 1998. The decrease in operating income was
attributable to the factors delineated in the gross margin and SG&A
discussion above.
Sales in the OEM automotive and heavy-duty truck market are comprised of
parts and assemblies which are sold to a number of customers and are subject
to design and other engineering changes. One such assembly, sold into the
heavy-duty truck market, accounted for 19% of total company sales in 1999.
The OEM to which this assembly is supplied has made certain design changes
required due to environmental regulations and other factors. The design
changes are planned by the OEM to be effective in model year 2002 production.
As such, this revenue is not expected to continue beyond the third quarter of
2001, as the newly designed assembly will be sourced from a competitor.
Operating income attributable to this assembly was approximately $14.5
million for the year ended December 31, 1999.
Operating income for the Rubber and Plastic segment increased $1.6
million to $2.8 million in 1999 from $1.2 million in fiscal 1998. Operating
margin increased to 5.7% of segment sales in 1999 from 2.5% of segment sales
in fiscal 1998. The increase in operating income was primarily due to
increases in operational efficiencies experienced during the year, mainly as
a result of the closure of two
44
<PAGE> 51
operations in this segment during 1999. Production at these two operations
was moved to other operations within the Rubber and Plastic segment. In
addition, operating income was lower in fiscal 1998 due to the General Motors
Corporation strike during the third quarter of fiscal 1998.
Operating income for the Special Machines segment increased $1.9 million
to $2.4 million in 1999 from $0.5 million in fiscal 1998. Operating margin
increased to 9.5% of segment sales in 1999 from 3.0% of segment sales in
fiscal 1998. The increase in operating income and margin was primarily due
to the increase in sales.
For the year ended December 31, 1999, Newcor recorded an impairment
charge related to its long-lived assets, primarily goodwill, at its
Turn-Matic location in the Precision Machined Products segment. Newcor is
recording the charge after an intense review of the Turn-Matic operation.
The operation incurred lost business in 1999 and the first quarter of 2000.
Assumptions related to certain business retention and business growth were
reviewed and deemed to be unrealistic as compared to previous analyses.
Accordingly, the impairment charge was determined based upon Turn-Matic's
discounted future cash flows. A charge to earnings of $8.5 million was
recorded, as management determined that the carrying value of the assets
would not be realized. Newcor acquired Turn-Matic in 1998 for approximately
$17.0 million. Management is currently reviewing the purchase agreement with
respect to the Turn-Matic acquisition, relating to potential claims against
the sellers.
Operating income in 1999 included plant consolidation costs of $0.4
million from a plant consolidation program in the Rubber and Plastic segment.
Fiscal 1998 plant consolidation costs of $0.4 million were for another
location in the Rubber and Plastic segment. Other gains and losses in fiscal
1998 were $0.4 million for separation costs for the former Chief Executive
Officer of Newcor, partially offset by a gain of $0.4 million related to the
sale of the land and building where the Newcor Machine Tool ("NMT") division
was located prior to its being sold in October 1996.
Interest expense was $14.0 million and $10.8 million in 1999 and 1998,
respectively. The increase in interest expense was primarily due to the full
year impact of the Notes. The effective tax rate was 11.0% in 1999 and 33.9%
in fiscal 1998. The decrease in the effective tax rate is due to the
impairment charge not being immediately deductible for federal and state
income tax purposes.
FISCAL 1998 COMPARED WITH FISCAL 1997. Newcor had sales in 1998 of
$206.2 million, an increase of $75.4 million, or 57.6%, from 1997 sales of
$130.8 million. Sales for the Precision Machined Products segment increased
$78.3 million, or 129.4%, to $138.8 million, sales for the Rubber and Plastic
segment increased $0.7 million, or 1.4%, to $49.2 million, while sales for
the Special Machines segment decreased $3.6 million, or 16.5% to $18.2
million. The increase in sales for the Precision Machined Products segment
was primarily due to the Acquisitions, which had aggregate sales of
approximately $85.1 million during 1998, partially offset by approximately
$6.8 million of decreased product sales within existing divisions mainly
caused by the downturn in the agricultural machined components market that
began during July 1998. The increase in sales for the Rubber and Plastic
segment was primarily due to the acquisition of Plastronics in January 1997,
partially offset by the effects of the General Motors Corporation strike
during the third quarter of 1998. Sales decreases within the Special
Machines segment were due to insufficient new orders to sustain the business
that was achieved during 1997.
Consolidated gross profit increased $10.2 million to $34.0 million in
1998 from $23.8 million in 1997. The increase in gross profit is
attributable to the increase in sales described above, partially offset by a
decrease in consolidated gross margin. Consolidated gross margin decreased
to 16.5% in 1998 from 18.2% in 1997. The decrease in margin was primarily
attributable to several factors. High hourly labor turnover, particularly in
the Rubber and Plastic segment, reduced production efficiency significantly
in the first quarter of 1998. Although turnover remained relatively high due
to full employment, actions
45
<PAGE> 52
taken to mitigate turnover have resulted in lower labor turnover since the
first quarter of 1998. In addition, a vehicle assembly line changeover at a
customer of the Precision Machined Products segment and pricing issues on
certain coated metal parts produced by the Rubber and Plastic segment
resulted in temporary losses of gross margin during the year. The customer
assembly line changeover was completed and the pricing issues were resolved
with the customer in the first half of 1998. Underabsorbed overhead in the
third quarter that resulted from low General Motors Corporation strike
related production schedules and in the fourth quarter due to much lower
agricultural machined components production schedules also adversely impacted
gross margins. Finally, the Special Machines segment's low level of sales
and slow rate of new orders in the first half of 1998 caused further
reductions in gross margin during 1998. Although the Special Machines
segment's rate of new orders did improve during the second half of 1998, the
segment's sales and gross margin will not benefit from this new business
until fiscal 1999 due to the relatively long lead time required to complete
the orders.
SG&A increased to $20.8 million in 1998 from $14.9 million in 1997. SG&A
as a percentage of sales decreased to 10.1% in 1998 from 11.4% in 1997. The
increase in SG&A expense was primarily due to the Acquisitions in the
Precision Machined Products segment, which added approximately $6.0 million
of SG&A expense in 1998. This increase was partially offset by lower
employee related costs. The primary reason for the decrease in SG&A as a
percentage of sales was the sales increase described above. Amortization
expense increased to $3.5 million in 1998 from $0.9 million in 1997 due to
the Acquisitions.
Consolidated operating income increased $0.9 million to $9.2 million in
1998 from $8.3 million in 1997, and consolidated operating margin decreased
to 4.5% of sales in 1998 from 6.3% of sales in 1997.
Operating income for the Precision Machined Products segment increased
$8.9 million to $15.0 million in 1998 from $6.2 million in 1997. Operating
margin increased to 10.8% of segment sales in 1998 from 10.2% in 1997. The
increase in operating income was primarily due to the Acquisitions.
Operating income and operating margins at existing divisions within this
segment were down when compared with 1997 primarily due to the effect of
lower sales caused by customer schedule reductions, mainly for Newcor's
agricultural industry machined components.
Operating income for the Rubber and Plastic segment decreased $2.0
million to $1.2 million in 1998 from $3.2 million in 1997. Operating margin
decreased to 2.5% of sales in 1998 from 6.5% of segment sales in 1997. The
decrease in operating income was primarily due to the loss of gross margin
associated with the General Motors Corporation strike during the third
quarter of 1998, operational inefficiencies during the first half of 1998
from high labor turnover caused by full employment in local economies and
increased costs related to the start of new parts production during the first
half of 1998. The high labor turnover did improve during the second half of
1998.
Operating income for the Special Machines segment decreased $1.5 million
to $0.5 million in 1998 from $2.0 million in 1997. Operating margin
decreased to 3.0% of segment sales in 1998 from 9.2% of segment sales in
1997. The decrease in operating income and margin was primarily due to the
decline in sales.
Consolidated operating income was impacted by plant consolidation costs
of $0.4 million in the Rubber and Plastic segment. In addition, other gains
and losses were separation costs for the former chief executive officer of
$0.4 million, partially offset by a gain of $0.4 million related to the sale
of the land and building where the NMT division was located prior to its
being sold in October 1996. Other gains and losses in 1997 were a net gain
on the sale of a building of $1.0 million, which was partially offset by a
$0.7 million loss on the sale of the Eonic division.
46
<PAGE> 53
Interest expense was $10.8 million and $2.1 million in 1998 and 1997,
respectively. The increase in interest expense was primarily due to the
issuance of the Notes to finance the Acquisitions. The effective tax rate
was 33.9% in 1998 and 35.3% in 1997.
LIQUIDITY AND CAPITAL RESOURCES. Newcor's cash provided by operations
for the year ended December 31, 1999 was approximately $16.3 million. Cash
outflows for capital expenditures of $13.9 million and for debt repayments of
$4.6 million left Newcor with $1.7 million in cash at December 31, 1999.
Effective January 15, 1998, Newcor's revolving credit facility with a
major U.S. bank was amended and restated to become the Senior Credit
Facility (the "Facility") and was increased to provide total revolving credit
availability of $50.0 million concurrent with completion of the issuance of
the Notes on March 4, 1998. The Facility was further amended on October 14,
1999 and December 31, 1999, primarily to ease certain restrictive covenants
and limit revolving credit borrowings to an asset based calculation.
Availability of funds under the Facility is subject to satisfaction of
certain financial ratios and other conditions. At December 31, 1999, Newcor
had no borrowings outstanding under the Facility and current borrowing
availability of $23.2 million using the criteria established in the Facility,
as amended. The Facility is collateralized by substantially all of Newcor's
non-real estate assets and by Rochester Gear, Inc.'s real estate. The
current expiration of the Facility is February 28, 2001.
Newcor is highly leveraged as a result of the Notes. Newcor's ability to
make scheduled principal payments of, or to pay the interest on, or to
refinance, its indebtedness (including the Notes) or to fund planned capital
expenditures will depend on its future performance, which, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control.
Newcor believes that, through a combination of cash flow from operations
and available credit under the Facility, it will have adequate cash available
to service debt obligations, fund capital improvements and maintain adequate
working capital. However, there can be no assurance that Newcor's business
will generate sufficient cash flow from operations, that anticipated growth
opportunities, after considering lost business, and operating improvements
will be realized or that future borrowings will be available under the
Facility in an amount sufficient to enable Newcor to service its
indebtedness.
No dividends were declared or paid during 1999. During fiscal 1997 and
the first quarter of 1998, Newcor paid a quarterly cash dividend of $0.05 per
share of common stock. Total dividends paid were $1.0 million in 1997 and
$0.2 million in the first quarter of 1998. The terms of the Notes required
suspension of the cash dividend.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
According to Newcor's Form 10-K for the year ended December 31, 1999,
management of Newcor believes that Newcor is not subject to market risk
exposures arising from derivative financial instruments, as well as all other
financial instruments, and derivative commodity instruments as defined by
Item 305 of Regulation S-K.
FINANCIAL STATEMENTS.
Newcor's financial statements may be found beginning with the index page
on F-1 immediately following Annex A.
47
<PAGE> 54
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements are based on the historical financial statements of EXX Inc and
Newcor, Inc. included elsewhere in this proxy statement and give effect to
the following:
* the acquisition of all of the remaining outstanding common stock of
Newcor, Inc. not currently owned by EXX Inc.
* the purchase accounting adjustments relating to the acquisition of 100%
of the outstanding stock of Newcor, Inc. by EXX Inc.
The transaction will be accounted for under the purchase method of
accounting. The allocation of the purchase accounting adjustments are
preliminary and based on limited information currently available to the
management of EXX Inc. Due to the lack of information available with respect
to Newcor's assets and liabilities, it is possible that there could be
material changes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements. The Unaudited Pro Forma Condensed Consolidated Statement of
operations gives effect to the events described above as if they occurred as
of January 1, 1999 and the unaudited consolidated balance sheet gives effect
to the events described above as if they occurred as of December 31, 1999.
The pro forma adjustments are based upon available information and
certain assumptions that management believes are reasonable. The pro forma
financial statements do not purport to represent what EXX Inc's results of
operations or financial condition would actually have been had the events
described above in fact occurred on such dates or project EXX Inc's results
of operations or financial condition for any future period or date. The pro
forma financial statements should be read in conjunction with the historical
financial statements of EXX Inc and Newcor, Inc. included elsewhere in this
proxy statement.
48
<PAGE> 55
<TABLE>
EXX INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<CAPTION>
EXX INC NEWCOR, INC.
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,315,000 $ 1,731,000 <FC>$ $ 4,046,000
Short-term investments 3,999,000 -- 3,999,000
Accounts receivable, net 3,357,000 37,171,000 40,528,000
Inventories 2,991,000 19,714,000 22,705,000
Other current assets 460,000 3,583,000 4,043,000
Deferred tax asset 953,000 1,825,000 2,778,000
------------
Total current assets 14,075,000 64,024,000 -- 78,099,000
PROPERTY AND EQUIPMENT, NET 2,325,000 58,777,000 61,102,000
LONG TERM INVESTMENTS 1,620,000 <FC> (1,620,000) --
OTHER ASSETS 375,000 81,730,000 <FC> 4,992,000 87,097,000
----------- ------------ ----------- ------------
$18,395,000 $204,531,000 $ 3,372,000 $226,298,000
=========== ============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable current portion $ 59,000 $ 2,000,000 $ $ 2,059,000
Accounts payable and other current liabilities 3,988,000 46,121,000 50,109,000
Total current liabilities 4,047,000 48,121,000 -- 52,168,000
LONG-TERM LIABILITIES
Notes payable, less current portion 1,688,000 133,933,000 135,621,000
Pension liability and other postretirement
benefits 576,000 9,421,000 9,997,000
Deferred tax liability 646,000 <FC> (189,000) 457,000
----------- ------------ ----------- ------------
Total liabilities 6,957,000 191,475,000 (189,000) 198,243,000
STOCKHOLDERS' EQUITY
Preferred stock --
Common stock 186,000 4,980,000 <FB> 113,000 299,000
<FC> (4,980,000)
Capital in excess of par value 3,844,000 2,340,000 <FB> 16,872,000 20,716,000
<FC> (2,340,000)
Accumulated comprehensive income (378,000) (443,000) <FC> (368,000) (746,000)
<FC> 443,000
Retained earnings 9,019,000 6,668,000 <FC> (6,668,000) 9,019,000
Treasury stock (1,233,000) (489,000) <FC> 489,000 (1,233,000)
----------- ------------ ----------- ------------
Total stockholders' equity 11,438,000 13,056,000 3,561,000 28,055,000
----------- ------------ ----------- ------------
$18,395,000 $204,531,000 $ 3,372,000 $226,298,000
=========== ============ =========== ============
</TABLE>
49
<PAGE> 56
<TABLE>
EXX INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<CAPTION>
EXX INC NEWCOR, INC.
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $21,158,000 $258,483,000 <FD>$ -- $279,641,000
COST OF SALES 12,703,000 218,709,000 231,412,000
----------- ------------ ----------- ------------
GROSS PROFIT 8,455,000 39,774,000 -- 48,229,000
----------- ------------ ----------- ------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,047,000 24,736,000 29,783,000
AMORTIZATION OF GOODWILL 4,626,000 <FD> 250,000 4,876,000
IMPAIRMENT CHARGE 8,521,000 <FD> (8,521,000) --
PLANT CONSOLIDATION COSTS --
AND OTHER 350,000 350,000
----------- ------------ ----------- ------------
5,047,000 38,233,000 (8,271,000) 35,009,000
----------- ------------ ----------- ------------
OPERATING INCOME (LOSS) 3,408,000 1,541,000 8,271,000 13,220,000
OTHER INCOME (EXPENSE) 265,000 (14,554,000) (14,289,000)
----------- ------------ ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 3,673,000 (13,013,000) 8,271,000 (1,069,000)
INCOME TAXES (BENEFIT) 1,228,000 (1,433,000) (205,000)
----------- ------------ ----------- ------------
NET INCOME (LOSS) $ 2,445,000 $(11,580,000) $ 8,271,000 $ (864,000)
=========== ============ =========== ============
NET INCOME (LOSS) PER COMMON SHARE
Basic $ 0.19 $ (2.36) $ (0.04)
=========== ============ =========== ============
Diluted $ 0.18 $ (2.36) $ (0.04)
=========== ============ =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic $12,749,000 $ 4,897,000 $ 24,072,000
=========== ============ =========== ============
Diluted $13,221,000 $ 4,897,000 $ 24,072,000
=========== ============ =========== ============
</TABLE>
50
<PAGE> 57
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
A) The Unaudited Pro Forma Condensed Consolidated Financial Statements
give effect to the acquisition of the remaining 4,246,000 shares of Newcor,
Inc. not presently owned by EXX Inc through the exchange offer contemplated
in this proxy statement. The unaudited pro forma condensed consolidated
balance sheet gives effect to the proposed acquisition by EXX Inc using the
purchase method of accounting by combining the historical balance sheet of
EXX Inc and the historical balance sheet of Newcor, Inc. and the purchase
adjustments below to reflect the fair market value of the net assets acquired
at December 31, 1999. The purchase price for Newcor, Inc. paid by EXX
including the 664,700 shares previously purchased is as follows:
<TABLE>
<S> <C>
Cash and Class A common stock
of EXX Inc issued $ 18,048,000
Liabilities of Newcor, Inc. 191,475,000
------------
$209,523,000
============
Allocated to assets as follows:
Current assets $ 64,024,000
Property and equipment 58,777,000
Other assets 9,783,000
Cost in excess of assets acquired 76,939,000
------------
$209,523,000
============
</TABLE>
The above allocation resulted in the reversal of $71,947,000 of cost in
excess of assets acquired previously recorded and the recording of the
$76,939,000 cost in excess above, a net increase of $4,992,000 which is
reflected in the pro forma condensed consolidated balance sheet in the
adjustment column.
B) The unaudited pro forma condensed consolidated balance sheet was
adjusted to reflect the issuance of 11,323,000 shares of Class A common stock
of EXX Inc at an assumed market value of $1.50 per share to complete the
exchange offer contemplated in this proxy statement for the remaining
4,246,000 shares of Newcor, Inc. $1.00 par value common stock outstanding but
not presently owned by EXX, Inc at the proposed offer price of $4.00 per
share. The pro forma financial statements assume that EXX Inc will acquire
100% of the outstanding shares of Newcor, Inc. although the exchange offer
provides for the acquisition of less than 100%. Should EXX Inc not acquire
more than 50% of Newcor and its ownership percentage increase to 20% EXX Inc
would be required under generally accepted accounting principles to record
the acquisition using the equity method of accounting . The use of the
equity method would result in financial reporting substantially different
from those presented in the unaudited pro forma condensed consolidated
financial statements included in the proxy statement.
C) The unaudited pro forma condensed consolidated balance sheet was
adjusted to eliminate EXX Inc's investment in Newcor, Inc. and record the
excess cost over the fair market value of the assets acquired described in A
above.
D) The unaudited pro forma condensed consolidated statement of
operations assumes that the acquisition occurred as of January 1, 1999. The
purchase accounting for the acquisition of Newcor, Inc. resulted in the
recording of $76,939,000 of cost in excess of the fair market value of assets
acquired (goodwill) as described in a above. The goodwill is being amortized
over a twenty-year period which resulted in additional amortization of
$250,000 for the year ended December 31, 1999 and is reflected in the
adjustments column of the unaudited pro forma condensed consolidated
statement of operations. Additionally, since the excess of the purchase
price over the fair value of the net assets acquired of
51
<PAGE> 58
$76,939,000 has been allocated to different operations of Newcor, Inc. than
the goodwill previously recorded, the impairment charge recorded by Newcor,
Inc. in 1999 has been eliminated from the condensed consolidated statement of
operations for the year ended December 31, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors, executive officers, and person who own more than ten
percent of our outstanding stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. To our knowledge,
based solely on our review of such reports furnished to us and written
representations that no other reports were required all Section 16(a) filing
requirements applicable to our directors, executive officers and
greater-than-ten percent shareholder were complied with during the year ended
December 31, 1999.
INDEPENDENT PUBLIC ACCOUNTANTS
Rothstein, Kass & Company, P.C., our independent public accountants for
1999, have also been selected as such for our current fiscal year. A
representative from that firm is expected to be present at the meeting and
will have an opportunity to make a statement and to respond to appropriate
questions from you.
PROPOSALS OF STOCKHOLDERS
Under applicable regulations of the Securities and Exchange Commission,
all proposals of stockholders to be considered for inclusion in the proxy
statement for the 2001 Annual Meeting of Stockholders must be received at our
office, c/o corporate secretary, EXX Inc, Suite 689, 1350 East Flamingo Road,
Las Vegas, Nevada 89119 by not later than January 11, 2001.
Any written notice of a shareholder proposal must include the following
information: (a) as to each person whom the shareholder proposes to nominate
for election or reelection as a director, all information relating to such
person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (b) as to
any other business that the shareholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such shareholder and the beneficial owner, if
any, on whose behalf the proposal is made; and (c) as to the shareholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made, (1) the name and address of such shareholder,
as they appear on our books, and of such beneficial owner, and (2) the class
number of shares of our common stock which are owned beneficially and of
record by such shareholder and such beneficial owners.
DISCRETIONARY VOTING
At the 2001 annual meeting, the individuals named in the proxy relating
to such meeting will exercise discretionary authority to vote on any matter
brought before the meeting with respect to which we were provided with notice
after January 11, 2001 and before March 27, 2001. In addition, we will include
the proxy statement advice on the nature of the matter and how the
52
<PAGE> 59
individuals named in the proxy relating to such meeting intend to exercise
their discretion to vote on each matter. Notwithstanding the above, the
individuals named in the proxy relating to such meeting shall not exercise
discretionary authority over a matter if: (1) we receive notice of such matter
by January 11, 2001; (2) by March 27, 2001, the proponent of such matter
provides us with a written statement that the proponent intends to deliver a
proxy statement and form of proxy to holders of at least the percentage of our
voting shares required under Nevada law to carry the proposal; (3) the
proponent includes the same statement in our proxy materials filed under Rule
14a-6 of the Securities Exchange Act of 1934, as amended; and (4) immediately
after soliciting the percentage of stockholders required to carry the proposal,
the proponent provides us with a statement from any solicitor or other person
with knowledge that the necessary steps have been taken to deliver a proxy
statement and form of proxy to holders of at least the percentage of our voting
shares requirement under Nevada law to carry the proposal.
ANNUAL REPORT
Our annual report for the year ended December 31, 1999 has been mailed
simultaneously to our stockholders.
A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (EXCLUDING
EXHIBITS) MAY BE OBTAINED BY ANY STOCKHOLDERS, WITHOUT CHARGE, UPON WRITTEN
REQUEST TO D.F. KING & CO., INC., 77 WATER STREET, 20TH FLOOR NEW YORK,
NEW YORK 10005-4495.
OTHER MATTERS
As of the date of this proxy statement, our board of directors does not
intend to present, nor has it been informed that other persons intend to
present, any matters for action at the annual meeting, other than those
specifically referred to herein. If, however, any other matters should
properly come before the annual meeting, it is the intention of the person
named on the proxy to vote the shares represented thereby in accordance with
their judgment as to our best interest on such matters.
53
<PAGE> 60
ANNEX A
RESOLUTION TO AMEND ARTICLES OF INCORPORATION
OF
EXX INC
RESOLVED, that, subject to the approval of the stockholders of the
Company, the following amendment<F*> (the "Amendment") to the first sentence
of Article 3 of the Articles of Incorporation, as amended, of the Company is
hereby approved, ratified and confirmed in all respects:
ARTICLE THIRD
The total number of shares the corporation is authorized to issue
is 106 million shares, par value $0.01 per share, 100 million
shares of which are classified as Class A Common Stock, one
million shares of which are classified as Class B Common Stock and
5 million shares of which are classified as Preferred Stock.
and be it
FURTHER RESOLVED, that the Board of Directors hereby directs that the
Amendment be submitted for approval by the stockholders of the Company at the
next Meeting of Stockholders, be it annual or special; and be it
FURTHER RESOLVED, that upon the approval of such proposed amendment by
an affirmative vote of both a majority of the EXX A Shares and of the
outstanding shares of Class B common stock of the Company, the Chairman of
the Company hereby is authorized and directed to execute and file a
Certificate of Amendment to the Company's Articles of Incorporation with the
Secretary of State of the State of Nevada and to take all actions, execute
and deliver all documents and instruments for and in the name and on behalf
of the Company, to pay such expenses and to do such other things as he may
deem necessary, appropriate or desirable in order to carry out the intent and
accomplish the purposes of the foregoing resolutions.
[FN]
- ---------------------------
<F*> The amended language appears in bold type.
A-1
<PAGE> 61
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF NEWCOR
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets F-2
Consolidated Statements of Cash Flows F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Shareholders' Equity F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
F-1
<PAGE> 62
<TABLE>
NEWCOR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<CAPTION>
DECEMBER 31, OCTOBER 31,
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,731 $ 3,539
Accounts receivable 37,171 35,175
Inventories 19,714 14,014
Prepaid expenses and other 3,583 5,823
Deferred income taxes 1,825 1,423
-------- --------
Total current assets 64,024 59,974
Property, plant and equipment, net of
accumulated depreciation 58,777 53,837
Prepaid pension expense 2,893 2,472
Cost in excess of assigned value of
acquired companies, net of amortization 71,947 85,861
Debt issuance costs and other non-current assets 6,890 8,185
-------- --------
Total assets $204,531 $210,329
======== ========
LIABILITIES
Current Liabilities:
Current portion of long-term debt $ 2,000 $ 2,000
Accounts payable 31,927 21,072
Accrued payroll and related expenses 6,860 5,315
Other accrued liabilities 7,334 4,753
-------- --------
Total current liabilities 48,121 33,140
Long-term debt 133,933 139,467
Postretirement benefits other than pensions 6,517 6,420
Pension liability and other 2,904 5,981
-------- --------
Total liabilities 191,475 185,008
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, no par value
Authorized: 1,000 shares
Issued: None
Common stock, par value $1 per share
Authorized: 10,000 shares
Issued: 4,980 shares in 1999 and 4,942 shares in 1998 4,980 4,942
Capital in excess of par 2,340 2,258
Accumulated other comprehensive income (443) (580)
Retained earnings 6,668 18,909
Treasury stock at cost (489) (208)
-------- --------
Total shareholders' equity 13,056 25,321
-------- --------
Total liabilities and shareholders' equity $204,531 $210,329
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
F-2
<PAGE> 63
<TABLE>
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
For the
For the two month
year ended period ended For the years
December 31, December 31, ended October 31,
1999 1998 1998 1997
------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(11,580) $ (661) $ (1,159) $ 3,890
Adjustments to reconcile net income (loss)
to cash provided by continuing operating
activities:
Loss on sale of businesses 711
Depreciation 8,051 1,114 5,708 3,401
Amortization 4,626 763 3,477 879
Impairment charge 8,521
Deferred income taxes (2,395) 1,340 692
Pensions (348) (321) (125)
Loss (gain) on sale of capital assets 427 (7) (331) (1,025)
Other, net 458 236 (154) 888
Changes in operating assets and liabilities:
Accounts receivable (7,807) 5,811 751 (3,258)
Inventories (3,475) (2,225) (225) 1,498
Other current assets 2,069 794 1,241 732
Accounts payable 15,337 (4,482) (3,360) 1,741
Accrued liabilities 2,438 1,331 2,032 (1,170)
-------- ------- --------- --------
Cash provided by continuing operating activities 16,322 2,674 8,999 8,854
-------- ------- --------- --------
Cash used in discontinued operations (29) (40) (370) (1,117)
-------- ------- --------- --------
INVESTING ACTIVITIES
Capital expenditures (13,934) (2,429) (8,123) (3,539)
Proceeds from sale of businesses 1,500
Acquisitions, net of cash acquired (101,981) (14,581)
Proceeds from sale of capital assets 434 677 1,628 2,467
-------- ------- --------- --------
Net cash used in investing activities (13,500) (1,752) (108,476) (14,153)
-------- ------- --------- --------
FINANCING ACTIVITIES
Net borrowings (repayments) on revolving credit line (2,600) (600) (13,800) 7,700
Repayment of term note (2,000) (334) (833)
Issuance of senior subordinated notes 125,000
Repurchase of senior subordinated notes (1,881)
Subordinated notes issuance costs (4,849)
Shares issued under employee stock plans 120 82
Repurchase of common stock (69) (39) (412)
Cash dividends paid (246) (954)
-------- ------- --------- --------
Net cash provided by (used in) financing activities (4,549) (934) 103,352 6,416
-------- ------- --------- --------
Increase (decrease) in cash (1,756) (52) 3,505 --
Cash and cash equivalents, beginning of year 3,487 3,539 34 34
-------- ------- --------- --------
Cash and cash equivalents, end of year $ 1,731 $ 3,487 $ 3,539 $ 34
======== ======= ========= ========
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
F-3
<PAGE> 64
<TABLE>
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
FOR THE
FOR THE TWO MONTH
YEAR ENDED PERIOD ENDED FOR THE YEARS
DECEMBER 31, DECEMBER 31, ENDED OCTOBER 31,
1999 1998 1998 1997
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Sales $258,483 $36,895 $206,220 $130,848
Cost of sales 218,709 30,685 172,255 107,083
-------- ------- -------- --------
Gross margin 39,774 6,210 33,965 23,765
Selling, general and administrative expense 24,736 4,143 20,845 14,880
Amortization expense 4,626 763 3,477 879
Impairment charge 8,521
Plant consolidation costs and other 350 403 (297)
-------- ------- -------- --------
Operating income 1,541 1,304 9,240 8,303
Other income (expense):
Interest expense (14,006) (2,342) (10,821) (2,070)
Other (548) 37 (172) (224)
-------- ------- -------- --------
Income (loss) before income taxes (13,013) (1,001) (1,753) 6,009
Provision (benefit) for income taxes (1,433) (340) (594) 2,119
-------- ------- -------- --------
Net income (loss) $(11,580) $ (661) $ (1,159) $ 3,890
======== ======= ======== ========
Net income (loss) per share of common stock
stock - basic and diluted $ (2.36) $ (0.13) $ (0.23) $ 0.79
======== ======= ======== ========
Weighted average common shares outstanding 4,897 4,916 4,927 4,932
===== ===== ===== =====
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
F-4
<PAGE> 65
<TABLE>
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
<CAPTION>
Accumulated
Capital in Other Total
Common Excess Comprehensive Retained Treasury Shareholders'
Stock of Par Income Earnings Stock Equity
------ ---------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 1, 1996 $4,697 $ 511 $ (55) $ 19,288 $ $ 24,441
Increase in unfunded
pension liability (44) (44)
Net income 3,890 3,890
--------
Comprehensive income, net of tax 3,846
--------
Cash dividends, $.20 per share (954) (954)
Repurchase of common stock (412) (412)
Shares issued under
employee stock plans 10 72 277 359
Stock dividend, 5% 235 1,675 (1,910)
------ ------ ----- -------- ----- --------
Balance, October 31, 1997 4,942 2,258 (99) 20,314 (135) 27,280
Increase in unfunded
pension liability, net of tax (481) (481)
Net loss (1,159) (1,159)
--------
Comprehensive loss, net of tax (1,640)
--------
Cash dividends, $.05 per share (246) (246)
Repurchase of common stock (39) (39)
Shares forfeited under
employee stock plans (34) (34)
------ ------ ----- -------- ----- --------
Balance, October 31, 1998 4,942 2,258 (580) 18,909 (208) 25,321
Net loss (661) (661)
--------
Comprehensive loss, net of tax (661)
------ ------ ----- -------- ----- --------
Balance, December 31, 1998 4,942 2,258 (580) 18,248 (208) 24,660
Decrease in unfunded
pension liability, net of tax 137 137
Net loss (11,580) (11,580)
--------
Comprehensive loss, net of tax (11,443)
--------
Repurchase of common stock (69) (69)
Shares forfeited under
employee stock plans (212) (212)
Shares issued 38 82 120
------ ------ ----- -------- ----- --------
Balance, December 31, 1999 $4,980 $2,340 $(443) $ 6,668 $(489) $ 13,056
====== ====== ===== ======== ===== ========
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
F-5
<PAGE> 66
NEWCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. ACCOUNTING POLICIES
Description of the Business - Newcor, Inc. and its subsidiaries design
and manufacture precision machined components and assemblies and custom
rubber and plastic products primarily for the automotive and agricultural
vehicle markets. Newcor is also a supplier of standard and specialty
machines and equipment systems mainly for the automotive and appliance
industries.
Change in Fiscal Year - On December 21, 1998, Newcor filed a current
report on Form 8-K announcing that the Board of Directors approved changing
Newcor's annual reporting period from a fiscal year ending October 31 to a
calendar year ending December 31, resulting in a two month reporting period
ended December 31, 1998.
Principles of Consolidation - The consolidated financial statements
include the accounts of Newcor, Inc. and its subsidiaries. All significant
intercompany accounts and transactions are eliminated.
Cash Equivalents - Newcor considers all highly liquid investments with an
initial maturity of three months or less to be cash equivalents.
Inventory Valuation - Inventories are stated at the lower of cost or net
realizable value. Costs, other than those specifically identified to
contracts, are determined primarily on the first-in, first-out ("FIFO")
basis.
Contract Accounting - The percentage of completion method of accounting
is used by Newcor's Special Machines segment. Sales and gross profit are
recognized as work is performed based on the relationship between actual
costs incurred and total estimated costs at completion. Sales and gross
profit are adjusted prospectively for revisions in estimated total contract
costs and contract values. Estimated losses are recognized when known.
Property, Plant and Equipment - Property, plant and equipment is stated
at cost and is depreciated using the straight-line method. The general range
of lives is fifteen to thirty years for building and land improvements and
four to ten years for machinery, office equipment and vehicles.
Cost in Excess of Assigned Value of Acquired Companies - The costs of
acquired companies that exceed the assigned value at dates of acquisition
(goodwill) are generally being amortized over a twenty-year period using the
straight-line method. Several factors are used to evaluate the
recoverability of goodwill, including management's plans for future
operations, recent operating results and each division's projected
undiscounted cash flows. Accumulated amortization was $10,787 and $6,265 at
December 31, 1999 and October 31, 1998, respectively.
Asset Impairment - Newcor recognizes impairment losses for assets or
groups of assets where the sum of the estimated future cash flows
(undiscounted and without interest charges) is less than the carrying amount
of the related asset or group of assets. The amount of the impairment loss
is the excess of the carrying amount over the fair value of the asset or
group of assets being measured.
Debt Issuance Costs - Costs incurred to issue new debt are being
amortized over the life of the related debt issuance, ranging from 3 to 10
years. Accumulated amortization was $965 and $593 at December 31, 1999 and
October 31, 1998, respectively.
F-6
<PAGE> 67
Income Taxes - Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of
Newcor's assets and liabilities.
Treasury Stock - Treasury stock is carried at cost and included 69 and 26
shares at December 31, 1999 and October 31, 1998, respectively.
Use of Estimates - The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires Newcor
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, and disclosures of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Financial Instruments - The carrying amount of Newcor's financial
instruments, which includes cash and cash equivalents, accounts receivable,
accounts payable and notes payable approximates their fair value at December
31, 1999 and October 31, 1998. The fair value of Newcor's long-term debt was
approximately $72,000 and $124,000 at December 31, 1999 and October 31, 1998,
respectively. Fair values have been determined through information obtained
from market sources and management estimates.
Stock Dividend - On June 11, 1997, Newcor declared a 5% stock dividend
that was paid on September 12, 1997 to shareholders of record on August 14,
1997. The dividend was charged to retained earnings in the amount of $1,910.
Per share amounts and shares outstanding included in the accompanying
consolidated financial statements and notes are based on the increased number
of shares giving retroactive effect to the stock dividend.
Earnings Per Share - Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("FAS 128") established an updated standard for
computing and presenting earnings per share. FAS 128 was adopted in fiscal
1998 and did not result in a different reported earnings per share for
Newcor.
Segment Reporting - Newcor adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131") in 1998. The adoption of FAS 131 did not affect
Newcor's results of operations or financial position.
Pensions and Other Postretirement Benefits - Newcor adopted Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("FAS 132") in 1999. FAS 132
only changed the disclosures required for pension and other postretirement
benefits. Measurement and recognition of these liabilities did not change as
a result of the issuance of FAS 132. The adoption of FAS 132 did not affect
Newcor's results of operations or financial position.
Reclassifications - Certain items in prior years' financial statements
have been reclassified to conform with the presentation used in the year
ended December 31, 1999.
2. FISCAL 1998 ACQUISITIONS
On March 4, 1998, Newcor purchased the common stock of Grand Machining
Company, Deco Technologies, Inc. and Deco International, Inc. (collectively,
"Deco") for approximately $55,000 in cash. Newcor made a $5,000 deposit to
the Deco shareholders in December 1997. The balance of the purchase price
was paid in March 1998 using the proceeds from Newcor's issuance of $125,000
of 9.875% Senior Subordinated Notes due 2008 (the "Notes") as described in
Note 10. The acquisition was recorded using
F-7
<PAGE> 68
the purchase method of accounting. The cost in excess of net assets acquired
of approximately $40,000 is being amortized on a straight-line basis over
twenty years.
On March 4, 1998, Newcor purchased the stock of Turn-Matic, Inc.
("Turn-Matic") for approximately $17,000 in cash. Contingent consideration
of up to $3,500 may be paid if profitability achieves certain levels through
2003. The purchase was financed with the proceeds of the Notes as described
in Note 10. The acquisition was recorded using the purchase method of
accounting. The cost in excess of net assets acquired of approximately
$9,000 is being amortized on a straight-line basis over its estimated
economic useful life. Any contingent purchase price payments, if required,
will be recognized as additional cost in excess of the net assets acquired
and amortized over the remaining useful life.
On December 23, 1997, Newcor purchased the assets and business of Machine
Tool & Gear, Inc. ("MT&G") for approximately $27,250 plus the assumption of
approximately $5,800 of debt, which was subsequently retired. For this
acquisition, Newcor paid cash of $2,500 in October 1997 and $3,100 in
December 1997 and issued a promissory note for $21,650, paying interest at
8%, for the balance of the purchase price which was subsequently paid off on
March 11, 1998 using the proceeds from the Notes as described in Note 10.
The acquisition was recorded using the purchase method of accounting. The
cost in excess of net assets acquired of approximately $24,000 is being
amortized on a straight-line basis over twenty years.
The unaudited pro forma results of operations as if Deco, Turn-Matic and
MT&G had been acquired at the beginning of fiscal 1997 would have been as
follows.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales $241,700 $242,600
======== ========
Net income (loss) $ (1,100) $ 4,600
======== ========
Net income (loss) per share - basic and diluted $ (0.22) $ 0.93
======== ========
</TABLE>
These pro forma results do not purport to be indicative of the results
that would actually have occurred had the acquisitions been made at the
beginning of fiscal 1997 or which may occur in the future.
3. FISCAL 1997 ACQUISITIONS
On January 10, 1997, Newcor purchased for cash the common stock of
Plastronics Plus, Inc. ("Plastronics"), a Wisconsin corporation. The
purchase price was approximately $8,000 in cash plus the assumption of $4,100
of debt, which was subsequently retired. The purchase was financed through
Newcor's existing line of credit facility. The acquisition was accounted for
using the purchase method of accounting. The cost in excess of net assets
acquired of approximately $4,000 is being amortized on a straight-line basis
over twenty years.
4. IMPAIRMENT CHARGE
Management determined that the cost in excess of assigned value of
acquired companies (goodwill) at one of its operations in the Precision
Machined Products segment was impaired, and has recognized an impairment
charge of $8,521 in the consolidated statement of operations for the year
ended December 31, 1999. This charge is not immediately deductible for
federal or state income tax purposes, and therefore results in an earnings
per share charge of $1.74 per share.
F-8
<PAGE> 69
5. DISCONTINUED OPERATIONS
Newcor sold the business and certain assets of its Wilson Automation
("Wilson") division in 1996. All receivables, the land and building, and
certain liabilities were retained by Newcor. The building was leased to the
buyer through April 30, 2001. Although assets were sold at approximately net
book value, accruals were established for curtailment of the pension plan,
employee separation costs, costs associated with the collection of accounts
receivable and additional liabilities related to contracts for which Newcor
retained responsibility. These accruals coupled with the operating loss from
the measurement date (March 31, 1996) to the sale date resulted in a net loss
of $3,500 on the disposition of Wilson. The remaining accruals at December
31, 1999 and October 31, 1998 are not material.
Newcor sold the Wilson land and building during 1997 for approximately
$2,300, net of selling expenses. The pre-tax net gain on this disposition
was $1,008 and has been recognized with other gains and losses in the
consolidated statements of operations.
6. BUSINESS DISPOSITIONS
In 1997, Newcor sold the business and substantially all assets of its
Eonic operation. Although assets were sold at approximately net book value,
accruals were established for employee separation costs, costs associated
with the collection of accounts receivable and pension plan costs, resulting
in an additional $711 loss on disposition being recognized with other gains
and losses in the consolidated statements of operations. Newcor received
cash of $1,500, which was used to reduce long-term debt and a $816 note due
over six years and paying interest at the prime rate.
In 1996, Newcor sold the business and substantially all assets of its
Newcor Machine Tool ("NMT") operation. Newcor sold the NMT land and building
during 1998 for approximately $1.4 million. The pre-tax gain on this
disposition was $362 and has been recognized with other gains and losses in
the consolidated statements of operations.
7. INVENTORIES
Inventories at December 31, 1999 and October 31, 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Costs and estimated earnings of uncompleted
contracts in excess of related billings
of $305 in 1999 and $1,679 in 1998 $ 7,432 $ 3,244
Raw materials 6,966 4,903
Work in process and finished goods 5,316 5,867
------- -------
$19,714 $14,014
======= =======
</TABLE>
Costs and estimated earnings of uncompleted contracts in excess of
related billings represents revenue recognized under the percentage of
completion method in excess of amounts billed.
F-9
<PAGE> 70
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and October 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land and improvements $ 1,856 $ 1,958
Buildings 14,000 14,194
Machinery 57,633 49,212
Office and transportation equipment 7,185 5,703
Construction in progress 5,009 2,058
------- -------
85,683 73,125
Less accumulated depreciation 26,906 19,288
------- -------
$58,777 $53,837
======= =======
</TABLE>
9. OPERATING LEASES
Newcor leases certain manufacturing equipment and facilities, office
space and other equipment under lease agreements accounted for as operating
leases. Rent expense related to these leases aggregated approximately
$6,387, $997, $4,583 and $1,342 in 1999, the two month period ended December
31, 1998, and the years ended October 31, 1998 and 1997, respectively.
Future minimum rental payments for leases extending beyond one year from
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C>
2000 $ 6,710
2001 6,586
2002 5,943
2003 6,136
2004 5,409
Thereafter 4,741
-------
$35,525
=======
</TABLE>
F-10
<PAGE> 71
10. CREDIT ARRANGEMENTS AND LONG-TERM DEBT
A summary of long-term debt at December 31, 1999 and October 31, 1998 is
as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revolving credit line $ -- $ 3,200
Term note 6,833 9,167
Limited obligation revenue bonds, variable
interest rate (average 3.4% in 1999 and
3.7% in 1998), payable January 1, 2008 6,100 6,100
Senior subordinated notes due 2008 125,000 125,000
-------- --------
Less: face value of senior subordinated notes
held in treasury (2,000) (2,000)
-------- --------
$135,933 $141,467
======== ========
</TABLE>
On March 4, 1998, Newcor completed the issuance of $125,000 of 9.875%
Senior Subordinated Notes due 2008 (the "Notes"). Interest on the Notes is
payable semi-annually on March 1 and September 1 of each year. The Notes
will mature on March 1, 2008. The Notes are unsecured and will be
redeemable, in whole or in part, at the option of Newcor, on or after March
1, 2003. Proceeds from the Notes were used to finance the Deco and Turn-Matic
acquisitions, pay off the promissory note issued in connection with the MT&G
acquisition and pay down Newcor's line of credit facility. During the year
ended October 31, 1998, Newcor repurchased in the open market $2,000 face
value of the Notes and is currently holding these notes in treasury.
Effective January 15, 1998, Newcor's revolving credit facility with a
major U.S. bank was amended and restated to become the Senior Credit
Facility (the "Facility") and was increased to provide total revolving credit
availability of $50,000 concurrent with completion of the issuance of the
Notes. The Facility was further amended on October 14, 1999 and December 31,
1999 primarily to ease certain restrictive covenants and limit revolving
credit borrowings to an asset based calculation. Availability of funds under
the Facility is subject to satisfaction of certain financial ratios and other
conditions. The rate of interest on outstanding borrowings is principally at
the prime rate (8.5% at December 31, 1999). Borrowings under the credit
agreement are primarily supported by prime-based borrowings principally with
maturities of three months or less. At December 31, 1999, Newcor had no
borrowings outstanding under the Facility. Availability of borrowings under
the Facility is limited to 80% of eligible accounts receivable and borrowing
availability was $23,200 at December 31, 1999. The Facility is
collateralized by substantially all of Newcor's non-real estate assets and by
Rochester Gear, Inc.'s real estate. The current expiration of the Facility
is February 28, 2001. The term note has a fixed rate of 7.85% and requires
monthly principal payments through May 2003.
The Facility, the term note and the Notes require Newcor to comply with
certain financial covenants including earnings before interest, taxes,
depreciation and amortization ("EBITDA"), total debt and tangible net worth.
In addition, the terms of the Notes required Newcor to suspend its cash
dividend.
In November 1999, Newcor became aware that certain transactions involving
market purchases of its common shares by Newcor of approximately $108 might
have violated certain provisions of the indenture related to the Notes.
Newcor notified the Trustee for the Noteholders regarding these transactions
and sold common shares to certain of its directors and management in a
private placement for cash proceeds equivalent to the original cost plus
imputed interest and other expenses. The shares were sold from Newcor's
treasury stock at the then-prevailing market price, for an aggregate sum of
$120. Newcor believes that any non-compliance with the indenture resulting
from its prior stock purchases now
F-11
<PAGE> 72
has been fully remedied and no longer is continuing. In addition, cross
default provisions under Newcor's Facility have also been waived for the
period prior to remedying the matter related to the indenture. Accordingly,
the Notes are reflected in the consolidated financial statements consistent
with maturity terms specified at issuance. Newcor's operating subsidiaries;
Rochester Gear, Inc., Plastronics, Deco and Turn-Matic, are full and
unconditional guarantors of obligations issued under the Notes. The
following summarized financial information is derived from the consolidating
financial statements of Newcor as of December 31, 1999 and October 31, 1998,
and for the year ended December 31, 1999, for the two month period ended
December 31, 1998 and for the years ended October 31, 1998 and 1997. No
intercompany balances or transactions occurred among the subsidiaries during
the periods presented.
<TABLE>
<CAPTION>
December 31, December 31, October 31, October 31,
1999 1998 1998 1997
---------- --------- --------- --------
<S> <C> <C> <C> <C>
Sales $140,100 $21,200 $ 93,900 $29,200
======== ======= ======== =======
Operating income $ 17,000 $ 3,500 $ 13,100 $ 2,300
======== ======= ======== =======
Current assets $ 26,200 $ 24,700
======== ========
Total assets $101,400 $107,500
======== ========
Current liabilities $ 21,300 $ 15,300
======== ========
Long-term debt $ 6,100 $ 6,100
======== ========
</TABLE>
In September 1995, Rochester Gear, Inc., a wholly owned subsidiary of
Newcor (the "Subsidiary"), entered into a loan agreement whereby $6,100 of
limited obligation refunding revenue bonds were issued. These bonds mature
on January 1, 2008 and are collateralized by the Subsidiary's land, building
and equipment and guaranteed by Newcor.
Total interest payments aggregated $13,402, $205, $8,420 and $2,114 in
the year ended December 31, 1999, the two month period ended December 31,
1998, and the years ended October 31, 1998 and 1997, respectively. Annual
maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C>
2000 $ 2,000
2001 2,000
2002 2,000
2003 833
2004
Thereafter 129,100
--------
$135,933
========
</TABLE>
F-12
<PAGE> 73
11. INCOME TAXES
Provision (benefit) for federal income taxes is as follows:
<TABLE>
<CAPTION>
December 31, December 31, October 31, October 31,
1999 1998 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Currently payable (refundable) $ 37 $ (53) $(1,934) $1,430
Deferred, net (1,470) (287) 1,340 689
------- ----- ------- ------
$(1,433) $(340) $ (594) $2,119
======= ===== ======= ======
</TABLE>
Significant components of the deferred tax assets and liabilities as of
December 31, 1999 and October 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $2,501 $ 685
Accrued postretirement benefits 2,216 2,183
AMT and other credits 1,720 1,063
Accrued vacation and employee benefits 822 459
Percentage of completion revenue 460 35
Costs related to sale of businesses 379
Other 843 449
------ ------
Total deferred tax assets 8,562 5,253
------ ------
Deferred tax liabilities
Depreciation 4,608 3,664
Goodwill 1,123 982
Pensions 670 821
Other 98 117
------ ------
Total deferred tax liabilities 6,499 5,585
------ ------
Net deferred tax asset (liability) $2,063 $ (332)
------ ------
</TABLE>
F-13
<PAGE> 74
Reconciliation of income (loss) multiplied by the statutory federal tax
rate to reported income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
December 31, December 31, October 31, October 31,
1999 1998 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Income (loss) multiplied by
statutory rate (34%) $(4,424) $(340) $(596) $2,043
Nondeductible impairment charge 2,897
Nondeductible expenses 317 55 273 127
Foreign sales corporation (47) (99) (33)
Other items, net (176) (55) (172) (18)
------- ----- ----- ------
Income tax (benefit) expense $(1,433) $(340) $(594) $2,119
======= ===== ===== ======
Income taxes paid (refunded), net $ (460) $ -- $ (15) $1,615
======= ===== ===== ======
</TABLE>
At December 31, 1999, Newcor has net operating loss carryforwards for
federal income tax purposes of approximately $7,350 that expire in 2018. In
addition, Newcor has Alternative Minimum Tax and other credits of
approximately $1,720 at December 31, 1999 that do not expire.
12. EMPLOYEE RETIREMENT BENEFITS
PENSION PLANS:
Newcor provides retirement benefits for certain employees under several
defined benefit pension plans. Benefits from these plans are based on
compensation, years of service and either fixed dollar amounts per year of
service or employee compensation during the later years of employment. The
assets of the plans consist principally of cash equivalents, corporate and
government bonds, and common and preferred stocks. Newcor's policy is to
fund only amounts required to satisfy minimum legal requirements.
F-14
<PAGE> 75
The following tables summarize the funded status, net periodic pension
(benefit) expense and actuarial assumptions for the pension benefits based on
the measurement date of September 30 for each period presented:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at prior measurement date $34,606 $34,095
Benefit obligation from acquired companies 2,488
Service cost 769 628
Interest cost 2,217 2,158
Actuarial gain (3,510) (2,569)
Benefits paid (2,262) (2,194)
------- -------
Benefit obligation at current measurement date 31,820 34,606
------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at prior measurement date 31,318 31,372
Fair value of plan assets from acquired companies 1,562
Actual return on plan assets 2,355 350
Employer contributions 490 228
Benefits paid (2,262) (2,194)
------- -------
Fair value of plan assets at current measurement date 31,901 31,318
------- -------
Funded status 81 (3,288)
Unamortized net asset at transition (772) (1,058)
Unrecognized prior service cost 1,636 1,881
Unrecognized net loss and other 940 4,090
------- -------
Net amount recognized $ 1,885 $ 1,625
======= =======
Amounts recognized in the consolidated balance sheets
Prepaid benefit cost $ 2,893 $ 2,472
Accrued benefit liability (3,132) (3,388)
Intangible asset 1,453 1,662
Accumulated other comprehensive income 671 879
------- -------
Net amount recognized $ 1,885 $ 1,625
======= =======
WEIGHTED AVERAGE ASSUMPTIONS
AS OF END OF YEAR
Discount rate 7.50% 6.75%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 5.00% 5.00%
</TABLE>
F-15
<PAGE> 76
<TABLE>
<CAPTION>
For the two
For the month period
year ended ended For the years
December 31, December 31, ended October 31,
1999 1998 1998 1997
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 769 $ 117 $ 627 $ 460
Interest cost 2,217 364 2,158 1,968
Actual return on plan assets (2,729) (394) (350) (5,337)
Amortization of net gain and deferral (6) (2,569) 2,828
------- ----- ------- -------
Net periodic benefit cost $ 251 $ 87 $ (134) $ (81)
======= ===== ======= =======
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with accumulated benefit obligations
in excess of plan assets were $10,055, $9,707 and $7,140, respectively, as of
December 31, 1999, and $10,384, $9,947 and $6,933, respectively, as of
October 31, 1998.
Retiree Health Care and Life Insurance Benefits: Newcor is obligated to
provide health care and life insurance benefits to certain eligible retired
employees; however, all postretirement benefits other than pensions were
discontinued for all employees who retired after January 1, 1993. The plan
obligation is unfunded but the accumulated postretirement benefit obligation,
as originally actuarially determined, has been fully accrued for in the
accompanying consolidated balance sheet. The medical plan pays a stated
percentage of most medical expenses, reduced for any deductible and payments
made by government programs or other group coverage. The cost of providing
these benefits is shared with the retirees. The cost sharing arrangements
limit Newcor's future retiree medical cost increases to the rate of
inflation, as measured by the Consumer Price Index.
13. STOCK OPTION PLANS
Newcor has four stock option plans: a 1982 plan and a 1993 plan which are
expired except as to options still outstanding and two 1996 plans (the
"Non-Employee Directors Stock Option Plan" and the "Employee Incentive Stock
Plan"). Under the Non-Employee Directors Stock Option Plan, options covering
105,000 shares of common stock may be granted to non-employee directors. The
Employee Incentive Stock Plan provides for the use of several long-term
incentive compensation tools for key employees, including incentive stock
options which are limited to a maximum of 315,000 shares over the life of the
Employee Incentive Stock Plan. The total number of options that may be
granted in any given fiscal year under the Employee Incentive Stock Plan is
determined as five percent of the outstanding shares of Newcor at the
beginning of the fiscal year. Option prices for both plans must not be less
than the fair market value of Newcor's stock on the date granted. Options
are exercisable over 10 years and vest at a rate of 25% each year, commencing
in the second year. All options granted to date under these plans have a
grant/exercise price the same as the fair market value at the date of grant.
Options expire upon termination of employment or one year following death or
retirement.
Newcor applies the intrinsic value based method to account for stock
options granted to employees. This method is set forth in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Under this method, no compensation expense is recognized on the grant date
since on that date the option price equals the market price of the underlying
common stock. Net income
F-16
<PAGE> 77
(loss) and net income (loss) per share for the year ended December 31, 1999,
the two month period ended December 31, 1998 and the years ended October 31,
1998 and 1997 would not have been materially different from reported amounts
if compensation expense had been determined based on the fair value method as
set forth in Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation."
F-17
<PAGE> 78
Option activity for the year ended December 31, 1999, the two month
period ended December 31, 1998 and the years ended October 31, 1998 and 1997
is summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 October 31, 1998 October 31, 1997
----------------------- ----------------------- ----------------------- ------------------------
Weighted- Weighted- Weighted- Weighted-
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
--------- --------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning
of period 265,984 $7.11 393,551 $ 8.50 232,002 $ 7.83 164,487 $7.86
Granted 7,000 3.84 74,000 3.94 176,000 9.39 73,815 8.00
Forfeited (90,992) 6.17 (201,567) 8.65 (7,494) 8.94
Expired (650) 4.62 (6,957) 10.61 (6,300) 9.14
------- ----- -------- ------- ------- ------- ------- -----
Outstanding, end
of period 181,342 $7.27 265,984 $ 7.11 393,551 $ 8.50 232,002 $7.83
======= ===== ======== ======= ======= ======= ======= =====
Exercisable at end
of period 70,302 50,802 133,649 91,062
======= ======== ======= =======
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- ------------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
------------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$3.84 - 5.76 68,531 8.8 $3.96 16,531 $4.06
$5.77 - 8.64 21,106 6.9 $7.87 12,391 $7.79
$8.65 - 11.37 91,705 7.1 $9.60 41,380 $9.85
------- ------
$3.84 - 11.37 181,342 7.7 $7.27 70,302 $8.13
======= ======
</TABLE>
F-18
<PAGE> 79
14. STOCKHOLDER RIGHTS PLAN
On December 28, 1999, Newcor adopted a Stockholder Rights Plan (the "Rights
Plan") in which rights were distributed as a dividend at the rate of one
Right for each share of common stock of Newcor held by stockholders of record
as of the close of business on January 12, 2000. Pursuant to the terms of
the Rights Plan, each Right will entitle stockholders to buy one unit of a
share of preferred stock for $10.50. The Rights will be exercisable only if
a person or group acquires beneficial ownership of 15% or more of Newcor's
common stock or if the Board of Directors determines that a person or group,
having obtained beneficial ownership of at least 10% of Newcor's common
stock, is seeking short term financial gain which would not serve the
long-term interests of Newcor or whose ownership is causing or is likely to
cause a material adverse impact on Newcor (an "Adverse Person").
If any person becomes the beneficial owner of 15% or more of Newcor's
common stock, other than pursuant to a tender or exchange offer for all
outstanding shares of Newcor approved by a majority of the independent
directors not affiliated with a 15%-or-more stockholder, or the Board of
Directors determines that any person or group is an Adverse Person, then each
Right not owned by a 15%-or-more stockholder or Adverse Person, as the case
may be, or related parties will entitle its holder to purchase, at the
Right's then current exercise price, shares of Newcor's common stock (or, in
certain circumstances as determined by the Board, cash, other property, or
other securities) having a value of twice the Right's then current exercise
price. In addition, if after any person has become a 15%-or-more
stockholder, Newcor is involved in a merger or other business combination
transaction with another person in which Newcor does not survive or in which
its common stock is changed or exchanged, or sells 50% or more of its assets
or earning power to another person, each Right will entitle its holder to
purchase, at the Right's then current exercise price, shares of common stock
of such other person having a value of twice the Right's then current
exercise price.
Newcor will generally be entitled to redeem the Rights at $0.001 per
Right at any time prior to 10 days (subject to extension) following a public
announcement that a 15% position has been acquired. Newcor will not be
entitled, however, to redeem the Rights following a determination by the
Board of Directors that any person or group is an Adverse Person. The Rights
Plan expires in January 2010.
15. CONTINGENT LIABILITIES
Various legal matters arising during the normal course of business are
pending against Newcor. Management does not expect that the ultimate
liability, if any, of these matters will have a material adverse effect on
future results of operations or financial condition of Newcor.
16. SEGMENT REPORTING
Newcor manages and reports its operating activities under three operating
segments: Precision Machined Products, Rubber and Plastic, and Special
Machines. The Precision Machined Products segment consists of automotive
components and agricultural equipment parts machined in dedicated
manufacturing cells. The Rubber and Plastic segment consists of molded
rubber and plastic parts primarily for the automotive industry. The Special
Machines segment consists of standard individual machines, as well as custom
designed machines, all manufactured on a made-to-order basis. Other is
primarily composed of corporate activities. Comparability of the information
for the Precision Machined Products segment is affected by the fiscal 1998
acquisitions described in Note 2.
The accounting policies of the segments are the same as those presented
in Note 1. There are no intersegment sales and management does not allocate
all corporate expenses to the segments. Newcor
F-19
<PAGE> 80
evaluates the performance of its segments and allocates resources to them
based on operating income from continuing operations. Information by
operating segment is summarized below:
<TABLE>
<CAPTION>
Precision
Machined Rubber and Special
Products Plastic Machines Other Total
-------- ---------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS
Year ended December 31, 1999 $183,653 $49,553 $ 25,277 $258,483
Two month period ended
December 31, 1998 27,434 7,854 1,607 36,895
Year ended October 31, 1998 138,784 49,238 18,198 206,220
Year ended October 31, 1997 60,471 48,517 21,860 130,848
OPERATING INCOME (LOSS)
Year ended December 31, 1999 $ 14,350 $ 2,845 $ 2,404 $(4,561) $ 15,038
Two month period ended
December 31, 1998 3,276 18 (532) (695) 2,067
Year ended October 31, 1998 15,042 1,213 549 (3,684) 13,120
Year ended October 31, 1997 6,157 3,172 2,005 (2,449) 8,885
DEPRECIATION AND AMORTIZATION
Year ended December 31, 1999 $9,839 $ 1,982 $ 354 $ 502 $ 12,677
Two month period ended
December 31, 1998 1,456 334 64 23 1,877
Year ended October 31, 1998 6,769 1,962 367 87 9,185
Year ended October 31, 1997 2,113 1,677 376 114 4,280
IDENTIFIABLE ASSETS
December 31, 1999 $144,868 $30,942 $17,107 $20,527 $213,444
October 31, 1998 143,977 34,313 10,492 23,755 212,537
CAPITAL EXPENDITURES
Year ended December 31, 1999 $ 11,110 $ 1,823 $ 65 $ 936 $ 13,934
Two month period ended
December 31, 1998 2,104 180 6 139 2,429
Year ended October 31, 1998 5,306 1,416 60 1,341 8,123
Year ended October 31, 1997 1,332 1,057 332 818 3,539
</TABLE>
A reconciliation of operating income for reportable segments to
consolidated operating income is as follows:
<TABLE>
<CAPTION>
December 31, December 31, October 31, October 31,
1999 1998 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Operating income for reportable segments $19,599 $2,762 $16,804 $11,334
Other operating loss, mainly unallocated corporate
and other expenses (4,561) (695) (3,684) (2,449)
Amortization expense (4,626) (763) (3,477) (879)
Impairment charge (8,521)
Plant consolidation costs and other (350) (403) 297
------- ------ ------- -------
Consolidated operating income $ 1,541 $1,304 $ 9,240 $ 8,303
</TABLE>
Sales to manufacturers in the automotive and heavy-duty truck industries,
each representing over 10% of consolidated sales in each year, aggregated
approximately $154,000, $20,000, $87,000 and $58,000 in the year ended
December 31, 1999, the two month period ended December 31, 1998 and the years
ended October 31, 1998 and 1997, respectively. Sales to agricultural
equipment manufacturers, principally one customer, were $17,000, $2,800,
$35,000 and $40,000 in the year ended December 31, 1999, the two month period
ended December 31, 1998 and the years ended October 31, 1998 and 1997,
respectively.
F-20
<PAGE> 81
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The principal market for trading Newcor shares is The American Stock
Exchange ("AMEX"). Prior to May 7, 1999, the principal market for trading
Newcor shares was The NASDAQ Stock Market. The closing price on December 31,
1999 was $2.4375. In connection with the issuance of the Notes described in
Note 2, cash dividends, which have historically been paid on a quarterly
basis, were suspended. Quarterly operating results, dividends paid and the
quarterly price ranges on the AMEX and NASDAQ during the last two years and
for the two month period ended December 31, 1998 are as follows.
<TABLE>
<CAPTION>
For the year ended December 31, 1999
------------------------------------------------------------
Quarter
-----------------------------------------------
First Second Third Fourth Total
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Sales $64,700 $64,916 $61,230 $67,637 $258,483
Gross margin 12,554 11,660 6,714 8,846 39,774
Net income (loss) 505 623 (3,116) (9,592) (11,580)
Net income (loss) per share $ 0.10 $ 0.13 $ (0.63) $ (1.96) $ (2.36)
Share prices:
High $ 5.75 $ 5.25 $ 4.88 $ 3.75
Low 3.50 3.00 1.56 1.31
</TABLE>
<TABLE>
<CAPTION>
For the year ended October 31, 1999
-------------------------------------------------------------
Quarter Two month
----------------------------------------------- period ended
First Second Third Fourth Total Dec. 31, 1998
----- ------ ----- ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Sales $30,134 $55,369 $57,963 $62,754 $206,220 $36,895
Gross margin 3,711 10,312 9,945 9,997 33,965 6,210
Net income (loss) (1,032) 753 (233) (647) (1,159) (661)
Net income (loss) per share $ (0.21) $ 0.15 $ (0.05) $ (0.13) $ (0.23) $ (0.13)
Share prices:
High $ 9.88 $ 9.75 $ 9.75 $ 8.13 $ 6.13
Low 8.00 8.00 7.25 2.63 3.25
Dividends 0.05
</TABLE>
Gross margin for the fourth quarter of fiscal 1998 was negatively
impacted by approximately $1,300 (pre-tax) resulting from certain unfavorable
year-end adjustments to previously estimated inventory reserves. The
aggregate effect of these adjustments on the fourth quarter amounted to $0.17
per share after-tax.
F-21
<PAGE> 82
FIVE YEAR FINANCIAL SUMMARY
The following financial summary for the periods indicated has been
derived from the consolidated financial statements of Newcor, Inc.
Information for 1996 and 1995, excluding balance sheet information, has been
restated for the discontinued operations of Wilson Automation.
<TABLE>
<CAPTION>
Two month
(In thousands, except Year ended period ended
per share amounts) December 31, December 31, Years ended October 31,
------------ ------------ -------------------------------------------------
1999 1998 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Precision Machined Products:
Sales $183,653 $ 27,434 $138,784 $ 60,471 $ 48,439 $42,382
Operating income 14,350 3,276 15,042 6,157 4,525 4,865
Rubber and Plastic:
Sales 49,553 7,854 49,238 48,517 32,447 17,165
Operating income (loss) 2,845 18 1,213 3,172 2,647 1,532
Special Machines:
Sales 25,277 1,607 18,198 21,860 30,858 30,626
Operating income (loss)
from continuing operations 2,404 (532) 549 2,005 3,972 3,396
Consolidated:
Sales 258,483 36,895 206,220 130,848 111,744 90,173
Gross margin 39,774 6,210 33,965 23,765 22,657 16,618
Interest expense 14,006 2,342 10,821 2,070 1,787 1,504
Income (loss) from
continuing operations (11,580) (661) (1,159) 3,890 3,558 2,391
Per share income (loss)
from continuing operations
- basic and diluted <F1> (2.36) (0.13) (0.23) 0.79 0.72 0.49
Net income (loss) (11,580) (661) (1,159) 3,890 (1,145) 881
Net income (loss) per share
- basic and diluted <F1> (2.36) (0.13) (0.23) 0.79 (0.24) 0.18
Dividends per share <F1> 0.05 0.19 0.19 0.19
F-22
<PAGE> 83
<CAPTION>
Two month
(In thousands, except Year ended period ended
per share amounts) December 31, December 31, Years ended October 31,
------------ ------------ -------------------------------------------------
1999 1998 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Working capital $15,903 $26,288 $26,834 $17,803 $14,951 $26,575
Current ratio 1.33 1.88 1.81 1.83 1.87 2.63
Net property, plant and equipment 58,777 53,866 53,837 28,119 23,131 24,518
Total assets 204,531 205,649 210,329 90,748 77,499 77,553
Total debt 135,933 140,533 141,467 33,100 25,400 26,200
Shareholders' equity 13,056 24,660 25,321 27,280 24,441 25,909
Debt as percent of total
capitalization 91.2% 85.0% 84.8% 54.8% 51.0% 50.3%
OTHER FINANCIAL DATA
Shareholders' equity per share <F1> $ 2.67 $ 5.02 $ 5.14 $ 5.53 $ 4.96 $ 5.27
Depreciation and amortization
from continuing operations 12,677 1,877 9,185 4,280 3,622 2,850
Earnings before interest, taxes,
depreciation and amortization
from continuing operations 14,218 3,181 18,425 12,583 10,403 8,204
Capital expenditures from
continuing operations 13,934 2,429 8,123 3,539 2,946 4,580
Weighted average shares
outstanding <F1> 4,897 4,916 4,927 4,932 4,923 4,913
<FN>
<F1> Share and per share data have been restated to reflect a 5% stock
dividend declared on June 11, 1997.
</TABLE>
F-23
<PAGE> 84
EXX INC
CLASS A STOCKHOLDER PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING JUNE 5, 2000
The undersigned hereby constitutes and appoints David A. Segal his true
and lawful agent and proxy, with full power of substitution, to represent the
undersigned at the annual meeting of Stockholders of EXX INC to be held at
the office of Henry Gordy International, Inc. at 900 North Avenue,
Plainfield, New Jersey, at 3:00 p.m. on June 5, 2000, and at any
adjournments thereof, on all matters coming before said meeting.
This Proxy will be voted in accordance with the Instructions given herein.
IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION
OF THE NOMINEE FOR DIRECTOR FOR ADOPTION OF THE AMENDMENT TO THE ARTICLES OF
INCORPORATION; FOR APPROVAL OF THE ELECTION AND ISSUANCE OF THE ADDITIONAL
CLASS A SHARES; AND WILL BE VOTED UPON WITH RESPECT TO ANY OTHER BUSINESS
WHICH MAY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF IN THE JUDGMENT
OF THE PERSON NAMED PROXY HEREIN.
1. ELECTION OF DIRECTOR (Mark only one)
Nominee, Norman H. Perlmutter
[ ] VOTE FOR the nominee listed above.
-----------------------------------
[ ] VOTE WITHHELD from the nominee listed above.
2. ADOPTION OF AMENDMENT TO EXX INC ARTICLES OF INCORPORATION, AS AMENDED,
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF CLASS A COMMON STOCK,
$0.01 PAR VALUE.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. APPROVAL OF THE ISSUANCE OF UP TO 25 MILLION SHARES OF OUR CLASS A
COMMON STOCK, $0.01 PAR VALUE, TO BE ISSUED IN CONNECTION WITH THE
ACQUISITION OF UP TO 100% OF THE OUTSTANDING COMMON STOCK, $1.00 PAR
VALUE, AND ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS OF NEWCOR, INC.,
PURSUANT TO AN EXCHANGE OFFER.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In his discretion, upon other matters as may properly come before the
meeting.
Dated: ____________________, 2000
----------------------------------------
----------------------------------------
Signature of Stockholder
This proxy must be signed exactly as
name appears hereon. Executors,
administrators, trustees, etc., should
give title as such. If the signer is a
corporation, please sign full corporate
name by duly authorized officer.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
<PAGE> 85
PROXY
EXX INC
CLASS B STOCKHOLDER PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING JUNE 5, 2000
The undersigned hereby constitutes and appoints David A. Segal his true
and lawful agent and proxy, with full power of substitution, to represent the
undersigned at the annual meeting of Stockholders of EXX INC to be held at
the office of Henry Gordy International, Inc. at 900 North Avenue,
Plainfield, New Jersey, at 3:00 p.m. on June 5, 2000, and at any
adjournments thereof, on all matters coming before said meeting.
This Proxy will be voted in accordance with the Instructions given herein.
IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION
OF THE NOMINEE FOR DIRECTOR FOR ADOPTION OF THE AMENDMENT TO THE ARTICLES OF
INCORPORATION; AND WILL BE VOTED UPON WITH RESPECT TO ANY OTHER BUSINESS
WHICH MAY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF IN THE JUDGMENT
OF THE PERSON NAMED PROXY HEREIN.
1. ELECTION OF DIRECTORS (Mark only one)
Nominees, Jerry Fishman, Frederic Remington, David A. Segal
[ ] VOTE FOR all nominees listed above; except vote withheld from
following nominees (if any):
-----------------------------------
[ ] VOTE WITHHELD from all nominees
2. ADOPTION OF AMENDMENT TO EXX INC ARTICLES OF INCORPORATION, AS AMENDED,
TO INCREASE NUMBER OF AUTHORIZED SHARES OF CLASS A COMMON STOCK, $0.01
PAR VALUE.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. APPROVAL OF THE ISSUANCE OF UP TO 25 MILLION SHARES OF OUR CLASS A
COMMON STOCK, $0.01 PAR VALUE, TO BE ISSUED IN CONNECTION WITH THE
ACQUISITION OF UP TO 100% OF THE OUTSTANDING COMMON STOCK, $1.00 PAR
VALUE AND ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS OF, OF NEWCOR,
INC., PURSUANT TO AN EXCHANGE OFFER.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In his discretion, upon other matters as may properly come before the
meeting.
Dated: ___________________, 2000
------------------------------------------
------------------------------------------
Signature of Stockholder
This proxy must be signed exactly as name
appears hereon. Executors, administrators,
trustees, etc., should give title as such.
If the signer is a corporation, please
sign full corporate name by duly
authorized officer.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
