<PAGE>
<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
Registration No. 333-
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EXX INC
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEVADA 3944 88-0325271
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification Number)
</TABLE>
1350 EAST FLAMINGO ROAD, SUITE 689
LAS VEGAS, NEVADA 89119-5263
(702) 598-3223
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
DAVID A. SEGAL
EXX INC
1350 EAST FLAMINGO ROAD, SUITE 689
LAS VEGAS, NEVADA 89119-5263
(702) 598-3223
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
COPY TO:
THOMAS A. LITZ, ESQ.
THOMPSON COBURN LLP
ONE FIRSTAR PLAZA
ST. LOUIS, MISSOURI 63101
TELEPHONE: (314) 552-6000
FACSIMILE: (314) 552-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered
in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box: / /
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering: / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
<TABLE>
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITY TO BE REGISTERED REGISTERED<F1> OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE<F2> REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A common stock, par value
$.01 per share 22,518,864 $0.75 $16,889,148 $4,458.74
=================================================================================================================================
<FN>
<F1> This amount is based upon the maximum number of shares of Class A
common stock of EXX INC issuable upon consummation of the exchange
offer for shares of common stock, $1.00 par value per share, of
Newcor, Inc., and, unless and until redeemed by Newcor, the
associated preferred stock purchase rights, based on $0.75, the
average of the high and low prices for shares of common stock of
EXX INC as reported on the American Stock Exchange on April 24,
2000, and 4,222,287, the number of shares of common stock of
Newcor, Inc. outstanding as of March 9, 2000, as reported in
Newcor's Proxy Statement for the 2000 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission on
March 29, 2000, minus the number of shares of common stock of
Newcor, Inc. owned by EXX INC and EXX INC's principal stockholder.
<F2> The registration fee has been computed pursuant to Rule 457(f)(1)
under the Securities Act of 1933, as amended, based on $0.75, the
average of the high and low prices for shares of common stock of
EXX INC as reported on the American Stock Exchange on April 24,
2000, and the maximum number of such shares that may be exchanged
for the securities being registered.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE
AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
==========================================================================
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 28, 2000
The information in this prospectus may be changed. We may not sell these
securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
[EXX INC logo]
OFFER TO EXCHANGE THE OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF NEWCOR, INC.
FOR SHARES OF COMMON STOCK OF EXX INC
EXX INC, a Nevada corporation ("EXX"), hereby offers, upon the
terms and subject to the conditions set forth herein and in the related
letter of transmittal, to exchange shares of Class A common stock, $0.01
par value, of EXX for the outstanding shares of common stock, $1.00 par
value, and associated preferred stock purchase rights, of Newcor, Inc.,
a Delaware corporation ("Newcor"). In addition, in our sole discretion,
we may elect to pay you cash in lieu of some or all of the shares of EXX
Class A common stock to which you are entitled in exchange for your
shares of Newcor common stock. If we elect to pay you cash in lieu of
EXX Class A common stock, you will receive 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 you are
paid in shares of EXX Class A common stock or cash, the consideration we
are offering you has a value of $4.00 per share of Newcor common stock.
If we elect to pay you solely in shares of common stock, the number of
shares of EXX Class A common stock to which you will be entitled in
exchange for your shares of Newcor common stock will be determined by
dividing $4.00 by the closing price of EXX Class A common stock as
reported on the American Stock Exchange on the last trading day
immediately preceding the expiration date of the offer.
The purpose of this offer is for our company 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.
EXX Class A common stock is listed on the American Stock Exchange
under the symbol "EXX/A" and Newcor common stock is listed on the
American Stock Exchange under the symbol "NER."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN
FACTORS YOU SHOULD CONSIDER IN CONNECTION WITH THE OFFER.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND US A PROXY. ANY SOLICITATION OF PROXIES WILL BE MADE ONLY PURSUANT
TO SEPARATE PROXY SOLICITATION MATERIALS COMPLYING WITH THE REQUIREMENTS
OF SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE
ISSUED UNDER THIS PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------
The date of this prospectus is , 2000.
<PAGE>
<PAGE>
TABLE OF CONTENTS
FINDING IMPORTANT INFORMATION ii
QUESTIONS AND ANSWERS ABOUT
THE OFFER iii
SUMMARY 1
General 1
The Companies 1
Reasons for the Offer 1
Terms of the Offer 2
RISK FACTORS 5
REASONS FOR THE OFFER 7
BACKGROUND OF THE OFFER 7
TERMS OF THE OFFER 9
In General 9
Timing of Our Offer; Extension,
Termination and Amendment 11
Exchange of Newcor Shares;
Delivery of EXX Class A Common
Stock and/or Cash 12
Fractional Shares of EXX Class A Common Stock 12
Withdrawal Rights 13
Procedure for Tendering 13
Guaranteed Delivery 15
Certain Federal Income Tax
Consequences 17
Effect of Offer on Market for Newcor
Shares; Registration Under the
Exchange Act 18
Purpose of Our Offer; Appraisal
Rights 19
Conditions of Our Offer 19
Certain Relationships With Newcor 22
Fees and Expenses 22
Accounting Treatment 22
Stock Exchange Listing 23
Differences in Stockholders' Rights 24
EXX INC 33
Description of Business 33
Recent Developments 35
Management's Discussion and
Analysis of Financial Condition and
Results of Operations 35
Financial Information About
Operating Segments 37
Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 37
Quantitative and Qualitative
Disclosures About Market Risk 37
Management Information 37
NEWCOR, INC. 38
General Development of Business 38
Financial Information About
Operating Segments 39
Narrative Description of Business 39
Financial Information About Foreign and
Domestic Operations and Sales 43
Properties 43
Legal Proceedings 44
Management's Discussion and
Analysis of Financial Condition and
Results of Operations 44
Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 50
Quantitative and Qualitative
Disclosures About Market Risk 50
Security Ownership of Certain
Beneficial Owners 51
Security Ownership of Management 52
SELECTED HISTORICAL FINANCIAL
INFORMATION OF EXX 53
SELECTED HISTORICAL FINANCIAL
INFORMATION OF NEWCOR 53
SELECTED UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED
FINANCIAL INFORMATION 54
SUPPLEMENTARY FINANCIAL
INFORMATION 55
COMPARATIVE AND PRO FORMA PER
SHARE FINANCIAL INFORMATION 55
MARKET PRICE AND DIVIDEND
MATTERS 56
Market Price and Dividend History 56
Dividend Limitations 57
<PAGE>
LEGAL MATTERS 57
EXPERTS 57
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING
INFORMATION 58
WHERE YOU CAN FIND MORE
INFORMATION 58
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 60
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS 65
<PAGE>
<PAGE>
FINDING IMPORTANT INFORMATION
This prospectus contains important information about the exchange
offer that you should read and consider carefully before you decide
whether to participate in the exchange offer. The principal sections of
this document are located at the pages referenced in the Table of
Contents. In addition, we have incorporated by reference certain
documents filed by EXX with the Securities and Exchange Commission that
have not been included in or delivered with this document.
Information that is incorporated by reference in this document is
available to you without charge upon your written or oral request. You
can obtain documents incorporated by reference in this prospectus,
excluding exhibits, by requesting them in writing or by telephone from
D.F. King & Co., Inc., 77 Water Street, 20th Floor, New York, New York
10005-4495, telephone (212) 269-5550.
We will mail to you any incorporated documents you request by
first class mail, or another equally prompt means, within one business
day after we receive your request. IN ORDER TO ENSURE TIMELY DELIVERY
OF THESE DOCUMENTS TO YOU, WE MUST RECEIVE YOUR REQUEST BY
, 2000.
- ----------------
<PAGE>
<PAGE>
- ----------------------------------------------------------------------
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT IS EXX PROPOSING?
A: We are proposing to acquire control of, and, possibly, the entire
common equity interest in, Newcor by offering to exchange all
outstanding shares of Newcor common stock and the associated
preferred stock purchase rights for shares of EXX Class A common
stock and/or cash. 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.
Q: WHAT WILL I RECEIVE IN EXCHANGE FOR MY SHARES?
A: We are offering to exchange shares of EXX Class A common stock for
shares of Newcor common stock validly tendered and not properly
withdrawn. In addition, in our sole discretion, we may elect to
pay you cash in lieu of some or all of the shares of EXX Class A
common stock to which you are entitled in exchange for your shares
of Newcor common stock. If we elect to pay you cash in lieu of
EXX Class A common stock, you will receive 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 you are paid in shares of EXX Class A common stock or
cash, the consideration we are offering you has a value of $4.00
per share of Newcor common stock. If we elect to pay you solely
in shares of common stock, the number of shares of EXX Class A
common stock to which you will be entitled in exchange for your
shares of Newcor common stock will be determined by dividing $4.00
by the closing price of EXX Class A common stock as reported on
the American Stock Exchange on the last trading day immediately
preceding the expiration date of the offer. You will not receive
any fractional shares of EXX Class A common stock. Instead, in
our sole discretion, either the fractional share will be rounded
to the nearest whole share or you will receive cash in an amount
equal to such fraction multiplied by the closing price of EXX
Class A common stock as reported on the American Stock Exchange on
the last trading day immediately preceding the expiration date of
the offer. See "Terms of the Offer" beginning on page 9.
Q: HOW DO I PARTICIPATE IN YOUR OFFER?
A: To tender your shares, you should do the following:
* If you hold shares in your own name, complete and sign the
enclosed letter of transmittal and return it with your share
certificates to First City Transfer Company, the exchange
agent for the offer, at the address indicated on the letter
of transmittal.
* If you hold your shares in "street name" through a broker,
instruct your broker to tender your shares before the
expiration date of the offer.
- ----------------------------------------------------------------------
iii
<PAGE>
<PAGE>
- ----------------------------------------------------------------------
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS?
A: If you are the record owner of your shares and you tender your
shares in the offer, you will not have to pay brokerage fees or
incur similar expenses. If you own your shares through a broker
or other nominee, and your broker tenders the shares on your
behalf, your broker may charge you a fee for doing so. You should
consult your broker or nominee to determine whether any charges
will apply.
Q: HOW LONG WILL IT TAKE TO COMPLETE YOUR PROPOSED OFFER?
A: We hope to complete the offer by , 2000 or soon
----------
thereafter.
Q: WHAT ARE THE CONDITIONS TO YOUR OFFER?
A: Our offer is subject to several conditions, including the
following:
* the registration statement of which this prospectus is a
part having been declared effective by the Securities and
Exchange Commission;
* the expiration of any waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended;
* Newcor's board of directors making its "poison pill" rights
agreement inapplicable to our offer;
* our being satisfied that the existing indebtedness of Newcor
will not be accelerated as a result of the offer;
* our being satisfied that the provisions of Section 203 of
the Delaware General Corporation Law do not apply to our
offer; and
* the approval by our stockholders of the increase in the
number of authorized shares of EXX Class A common stock and
the issuance of EXX Class A common stock in the offer.
Some of the above conditions may be waived by EXX. The above
conditions and other conditions to our offer are discussed in this
prospectus under "The Offer--Conditions of Our Offer."
Q: WILL I BE TAXED ON THE EXX SHARES AND/OR CASH THAT I RECEIVE?
A: You will realize taxable gain or loss to the extent you receive
cash or EXX shares in return for your Newcor shares. That gain or
loss will equal the difference between your adjusted tax basis in
your Newcor shares purchased by EXX and the sum of the amount of
cash and the fair market value of the EXX shares received.
- ----------------------------------------------------------------------
iv
<PAGE>
<PAGE>
- ----------------------------------------------------------------------
Q: DO THE STATEMENTS ON THE COVER PAGE REGARDING THIS PROSPECTUS
BEING INCOMPLETE AND THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION NOT YET BEING EFFECTIVE MEAN
THAT THE OFFER HAS NOT COMMENCED?
A: No. Completion of this prospectus and effectiveness of the
registration statement are not necessary for the offer to
commence. The Securities and Exchange Commission recently changed
its rules to permit exchange offers to begin before the related
registration statement has become effective, and we are taking
advantage of the rule changes with the goal of acquiring a
controlling interest in Newcor faster than similar combinations
could previously have been accomplished. We cannot, however,
accept for exchange any shares tendered in the offer until the
registration statement is declared effective by the Securities and
Exchange Commission and the other conditions to our offer have
been satisfied or, where permissible and in our sole discretion,
waived. The offer will commence when we mail this prospectus and
the related letter of transmittal to Newcor stockholders.
Q: WHERE CAN I FIND OUT MORE INFORMATION ABOUT EXX AND NEWCOR?
A: You can find out information about EXX and Newcor from various
sources described under "Where You Can Find More Information" on
page 58.
Q: WHO CAN I CALL WITH QUESTIONS ABOUT THE OFFER?
A: You can contact D.F. King & Co., Inc. at (212) 269-5550.
- ----------------------------------------------------------------------
v
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
SUMMARY
This summary highlights selected information from this document.
It does not contain all of the information that is important to you. We
urge you to read carefully this entire document and the documents we
have referred you to in order to fully understand the offer. Generally,
each of the headings in this summary is followed by a reference to other
pages of this document where you can read more about that particular
topic.
GENERAL
We are offering to exchange shares of EXX Class A common stock for
shares of Newcor common stock validly tendered and not properly
withdrawn. In addition, in our sole discretion, we may elect to pay you
cash in lieu of some or all of the shares of EXX Class A common stock to
which you are entitled in exchange for your shares of Newcor common
stock. The purpose of the offer is to acquire control of, and, possibly
the entire common equity interest in, Newcor.
THE COMPANIES (SEE PAGES 33 AND 38)
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, EXX's 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.
The principal executive offices of EXX are located at 1350 East Flamingo
Road, Suite 689, Las Vegas, Nevada 89119. EXX's 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 of business: 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, 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.
REASONS FOR THE OFFER (SEE PAGE 7)
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 Newcor
stockholders would obtain from our acquisition of a controlling interest
in Newcor are the following:
- -------------------------------------------------------------------------
1
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
* Significant Premium. Based on April 27, 2000 closing
prices, our offer represents a premium of approximately 1.13%
over the closing market price of Newcor common stock on April 27,
2000 of $1.8750.
* Better Long-Term Growth Prospects. We believe that our
acquisition of a controlling interest in Newcor will result
in better long-term growth prospects for Newcor and EXX,
potentially resulting in increased stockholder value over
the long-term.
TERMS OF THE OFFER (SEE PAGE 9)
GENERAL. We are offering to exchange shares of EXX common stock
for outstanding shares of Newcor common stock validly tendered and not
properly withdrawn, subject to the terms and conditions described in
this prospectus and the related letter of transmittal. In addition, in
our sole discretion, we may elect to pay you cash in lieu of some or all
of the shares of EXX Class A common stock to which you are entitled in
exchange for your shares of Newcor common stock. If we elect to pay you
cash in lieu of EXX Class A common stock, you will receive 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 you are paid in shares of EXX Class A common stock
or cash, the consideration we are offering you has a value of $4.00 per
share of Newcor common stock. If we elect to pay you solely in shares
of common stock, the number of shares of EXX Class A common stock to
which you will be entitled in exchange for your shares of Newcor common
stock will be determined by dividing $4.00 by the closing price of EXX
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 you will receive cash in an amount equal to such fraction multiplied
by the closing price of EXX 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."
TIMING OF OUR OFFER. Our offer is scheduled to expire at 5:00
p.m., eastern time, on , 2000. 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. We are not making
any assurance that we will exercise our right to extend our offer.
During any such extension, all Newcor shares previously tendered and not
withdrawn will remain subject to the offer, subject to your right to
withdraw your Newcor shares. See "Withdrawal Rights."
We may, although we do not currently intend to, elect to provide a
subsequent offering period of three to 20 business days after the
acceptance of Newcor shares in the offer if the requirements under
- -------------------------------------------------------------------------
2
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
Rule 14d-11 of the Securities Exchange Act of 1934, as amended, have
been met. You will not have the right to withdraw Newcor shares that
you tender in the subsequent offering period, if any.
If Newcor agrees upon a negotiated business combination with us,
we may amend or terminate our offer without purchasing any Newcor
shares.
WITHDRAWAL RIGHTS. Newcor shares tendered pursuant to the offer
may be withdrawn at any time prior to the expiration date. However, if
we elect to provide a subsequent offering period under Rule 14d-11 of the
Securities Exchange Act of 1934, as amended, you will not have the right
to withdraw Newcor shares that you tender in the subsequent offering
period.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Cash and EXX shares
received in return for Newcor shares purchased will be taxable for
federal income tax purposes. Thus, you will realize gain or loss
measured by the difference between your adjusted tax basis in your
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 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 your shares of Newcor purchased by EXX have been held by
you for more than 12 months. Your ability to use any capital losses
realized in a purchase of your Newcor shares to offset other income is
subject to certain limitations.
APPRAISAL RIGHTS. Stockholders of Newcor do not have appraisal
rights as a result of the offer.
CONDITIONS OF OUR OFFER. Our offer is subject to the following
conditions:
* EXX Stockholder Approval. The stockholders of EXX must vote
to approve an increase in the number of authorized shares of
EXX Class A common stock and 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
EXX or Newcor.
* 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 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
Delaware General Corporation Law or (b) we acquire 85% or
more of the voting stock of Newcor pursuant to the offer.
- -------------------------------------------------------------------------
3
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
* Listing on American Stock Exchange. The shares of EXX Class
A 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.
* 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.
* No Injunctions. 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
prospectus 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.
* No Lawsuits. There shall not be pending any suit, action or
proceeding (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 or us or any
of our subsidiaries of any material portion of the business
or assets of Newcor or 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.
* No Other Agreements. 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
acquiring 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 in our sole discretion, 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.
- -------------------------------------------------------------------------
4
<PAGE>
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other
information in this prospectus before deciding whether to exchange your
shares of Newcor common stock for shares of EXX common stock.
THE TRADING PRICE OF EXX COMMON STOCK MAY BE AFFECTED BY FACTORS
DIFFERENT FROM THOSE AFFECTING THE PRICE OF NEWCOR COMMON STOCK
Upon completion of the offer, holders of Newcor common stock will
become holders of EXX common stock. EXX's business differs from that of
Newcor, and EXX's results of operations, as well as the trading price of
EXX's common stock, may be affected by factors different from those
affecting Newcor's results of operations and the price of Newcor common
stock.
WE HAVE NOT DONE A TRANSACTION OF THIS SIZE
Although we have acquired other distressed companies, we have not
done an acquisition of a company the size of Newcor. Improving Newcor's
performance may require additional breadth and depth of resources than
we currently possess. We may not be able to successfully develop and
implement strategies to improve Newcor.
EXX'S OWNERSHIP OF NEWCOR COMMON STOCK MAY BE SUBSTANTIALLY DILUTED IF
NEWCOR'S RIGHTS AGREEMENT IS TRIGGERED
Newcor's board of directors may trigger the anti-takeover
provisions of the Newcor rights agreement as a result of our offer or
otherwise given our current level of ownership of Newcor common stock.
If the Newcor rights agreement is triggered, EXX's percentage ownership
of common stock of Newcor may be substantially diluted. Due to EXX's
substantial investment in Newcor, such dilution may have an adverse
effect on the value of EXX's Class A common stock.
EXX'S REVENUES MAY SUFFER IF OUR SUPPLIERS ARE UNABLE TO FULFILL OUR
REQUIREMENTS
The majority of the supplies used in our Toy Segment are
manufactured in China according to our specifications and shipped to us
as required. Any disruption in the manufacturing or shipment of these
supplies, including a trade embargo between the United States and China,
could have a material adverse effect on EXX's business, financial
condition and results of operations.
EXX'S REVENUES MAY SUFFER IF GENERAL ECONOMIC CONDITIONS WORSEN
EXX's revenues and earnings may be affected by general economic
factors, such as excessive inflation, currency fluctuations and
employment levels, resulting in a temporary or longer-term overall
decline in demand for EXX's products. Therefore, any significant
downturn or recession in the United States could have a material adverse
effect on EXX's business, financial condition and results of operations.
EXX'S STOCK PRICE MAY FLUCTUATE
Future announcements concerning EXX or EXX's competitors or
customers, quarterly variations in operating results, announcements of
technological innovations, the introduction of new products or changes
in product pricing policies by EXX or EXX's competitors, changes in
earnings estimates by
5
<PAGE>
<PAGE>
analysts or reports regarding EXX's industries in the financial press or
investment advisory publications, among other factors, could cause the
market price of EXX common stock to fluctuate substantially. In
addition, stock prices fluctuate widely for reasons which may be
unrelated to operating results. These fluctuations, as well as general
economic, political and market conditions such as recessions, military
conflicts or market or market-sector declines, may materially and
adversely affect the market price of EXX common stock. In addition, any
information concerning EXX, including projections of future operating
results, appearing in investment advisory publications or on-line
bulletin boards or otherwise emanating from a source other than EXX
could in the future contribute to volatility in the market price of EXX
common stock.
EXX'S OPERATING RESULTS MAY FLUCTUATE
EXX's quarterly results of operations may fluctuate as a result of
a number of factors, including the timing of purchase orders for and
shipments of products. Therefore, quarter-to-quarter comparisons of
results of operations have been and will be impacted by the timing of
such orders and shipments. In addition, EXX's operating results could
be adversely affected by such factors, among others, as variations in
the mix of product sales, price changes in response to competitive
factors, increases in raw material costs and interruptions in plant
operations.
FAILURE TO KEEP PACE WITH INDUSTRY DEVELOPMENTS MAY ADVERSELY AFFECT OUR
OPERATIONS
EXX is engaged in industries which will be affected by future
developments. The introduction of products or processes utilizing new
developments could render existing products or processes obsolete or
unmarketable. EXX's continued success will depend upon its ability to
develop and introduce on a timely and cost-effective basis new products,
processes and applications that keep pace with developments and address
increasingly sophisticated customer requirements. There can be no
assurance that EXX will be successful in identifying, developing and
marketing new products, applications and processes and product or
process enhancements, that EXX will not experience difficulties that
could delay or prevent the successful development, introduction and
marketing of product or process enhancements or new products,
applications or processes, or that EXX's products, applications or
processes will adequately meet the requirements of the marketplace and
achieve market acceptance. EXX's business, operating results and
financial condition could be materially and adversely affected if EXX
were to incur delays in developing new products, applications or
processes or product or process enhancements or if they were to not gain
market acceptance.
OUR PRINCIPAL STOCKHOLDER HAS VOTING CONTROL OVER OUR COMPANY
David A. Segal, EXX's Chairman of the Board of Directors, Chief
Executive Officer and Chief Financial Officer, controls approximately
57.1% of the outstanding shares of common stock of EXX. As a result, he
may have effective voting control over the company, including the
election of directors, and is able to effectively prevent an affirmative
vote which would be necessary for a merger, sale of assets or similar
transaction, irrespective of whether other stockholders believe such a
transaction to be in their best interests.
THE SUCCESS OF EXX IS DEPENDENT UPON MANAGEMENT
The success of EXX will depend upon the efforts of David A. Segal.
Any loss of the services of Mr. Segal could have a material adverse
effect on EXX. There can be no assurance that the services of Mr. Segal
will continue to be available in the future.
6
<PAGE>
<PAGE>
EXX MAY ENCOUNTER SUBSTANTIAL COMPETITION
EXX may encounter substantial competition from other companies in
the same market, including established companies with substantial
resources. Some of our competitors may have financial, technical,
marketing or other capabilities more extensive than ours and may be able
to respond more quickly than we can to new or emerging technologies and
other competitive pressures. We may not be able to compete successfully
against our present or future competitors, and competition may adversely
affect our business, financial condition or operating results.
REASONS FOR THE OFFER
EXX is 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 EXX and
Newcor stockholders. Among the benefits that we believe Newcor
stockholders would obtain from our acquisition of a controlling interest
in Newcor are the following:
* Significant Premium. Based on April 27, 2000 closing
prices, our offer represents a premium of approximately 1.13%
over the market price of Newcor common stock on April 27,
2000 of $1.8750.
* Better Long-Term Growth Prospects. We believe that our
acquisition of a controlling interest in Newcor will result
in better long-term growth prospects for Newcor and EXX,
potentially resulting in increased stockholder value over
the long-term.
BACKGROUND OF THE OFFER
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 and reported
those purchases on a Schedule 13D filed with the Securities and Exchange
Commission on October 29, 1999. We intended to utilize the Newcor
common stock to participate in a turnaround of Newcor's recent 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, Chairman, Chief Executive
Officer and Chief Financial Officer of EXX, 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
7
<PAGE>
<PAGE>
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 visits 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 on December 20, 1999, 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 "poison pill" 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.
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, the Board of Directors of EXX 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, 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.
8
<PAGE>
<PAGE>
TERMS OF THE OFFER
IN GENERAL
We are offering to exchange shares of EXX 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
prospectus and the related letter of transmittal. In addition, in our
sole discretion, we may elect to pay you cash in lieu of some or all of
the shares of EXX Class A common stock to which you are entitled in
exchange for your shares of Newcor common stock. If we elect to pay you
cash in lieu of EXX Class A common stock, you will receive 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 you are paid in shares of EXX Class A common stock
or cash, the consideration we are offering you has a value of $4.00 per
share of Newcor common stock. If we elect to pay you solely in shares
of common stock, the number of shares of EXX Class A common stock to
which you will be entitled in exchange for your shares of Newcor common
stock will be determined by dividing $4.00 by the closing price of EXX
Class A common stock as reported on the American Stock Exchange on the
last trading day immediately preceding the expiration date of the offer.
The term "expiration date" means 5:00 p.m., eastern time, on ,
--------
2000, unless we extend the period of time for which this offer is open,
in which case the term "expiration date" means the latest time and date
on which the offer, as so extended, expires.
If you are the record owner of your shares, you will not be
obligated to pay any charges or expenses of the exchange agent or any
brokerage commissions. However, if you own your shares through a broker
or other nominee, and your broker tenders your shares on your behalf,
your broker may charge you a fee for doing so. Except as set forth in
the instructions to the letter of transmittal, transfer taxes on the
exchange of Newcor common stock tendered pursuant to our offer 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 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 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 ("Newcor 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, (the "Newcor rights agreement"), including the
right to receive any payment due upon redemption of Newcor rights.
You must tender one Newcor right 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 your tender of Newcor
shares prior to the
9
<PAGE>
<PAGE>
Newcor distribution date will also constitute a tender of the associated
Newcor rights. We will not make a separate payment to you 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 intends to cause Newcor to repurchase such stock or
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.
If the Newcor distribution date occurs and Newcor or the rights
agent distributes separate certificates representing the Newcor rights
to you prior to the time that you tender your Newcor shares pursuant to
our offer, certificates representing a number of Newcor rights equal to
the number of Newcor shares tendered must be delivered to the exchange
agent, or, if available, a book-entry confirmation received by the
exchange agent with respect thereto, in order for those Newcor shares to
be validly tendered. If the Newcor distribution date occurs and
separate certificates representing the Newcor rights are not distributed
prior to the time Newcor shares are tendered pursuant to our offer,
Newcor rights may be tendered prior to the time that you receive the
certificates for Newcor rights by use of the guaranteed delivery
procedure described under "Guaranteed Delivery" below.
We have asked Newcor for its stockholder list and security
position listings to communicate with you and to distribute our offer to
you. As permitted under applicable law, Newcor may elect either to provide
its stockholder list and security position listings to us or, in lieu of
providing such information to us, to deliver this prospectus, the related
letter of transmittal and other relevant materials to you and to brokers,
dealers, commercial banks, trust companies and similar persons whose names,
or the names of whose nominees, appear on Newcor's stockholder list or, if
applicable, who are listed as participants in a clearing agency's security
position listing, so that they can in turn send these materials to beneficial
owners of Newcor shares.
TIMING OF OUR OFFER; EXTENSION, TERMINATION AND AMENDMENT
Our offer is scheduled to expire at 5:00 p.m., eastern time on
, 2000. 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 we decide to so
extend our offer, we will make an announcement to that effect no later
than 1:00 p.m., eastern time, on the next business day after the
previously scheduled expiration date. We are not making any assurance
that we will exercise our right to extend our offer, although we
currently intend to do so until all conditions have been satisfied or
waived. During any such extension, all Newcor shares previously
tendered and not withdrawn will remain subject to the offer, subject to
your right to withdraw your Newcor shares. You should read the
discussion under the caption "Withdrawal Rights" for more details.
10
<PAGE>
<PAGE>
Subject to the Securities and Exchange Commission's applicable
rules and regulations, we also reserve the right, in our sole
discretion, at any time or from time to time, (a) to delay acceptance
for exchange of or, regardless of whether we previously accepted Newcor
shares for exchange, the exchange of any Newcor shares pursuant to our
offer or to terminate our offer and not accept for exchange or exchange
any Newcor shares not previously accepted for exchange, or exchanged,
upon the failure of any of the conditions of the offer to be satisfied
and (b) to waive any condition (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 for the shares of EXX Class A common stock to be
issued in our offer) or otherwise amend the offer in any respect, by
giving oral or written notice of such delay, termination or amendment to
the exchange agent and by making a public announcement. We will follow
any extension, termination, amendment or delay, as promptly as
practicable, with a public announcement. In the case of an extension,
any such announcement will be issued no later than 1:00 p.m., eastern
time, on the next business day after the previously scheduled expiration
date. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d)
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which require that any material change in the information
published, sent or given to stockholders in connection with the offer be
promptly sent to stockholders in a manner reasonably designed to inform
stockholders of such change) and without limiting the manner in which we
may choose to make any public announcement, we assume no obligation to
publish, advertise or otherwise communicate any such public announcement
other than by making a release to the Dow Jones News Service.
We confirm to you that if we make a material change in the terms
of our offer or the information concerning the offer, we will extend the
offer to the extent required under the Exchange Act. If, prior to the
expiration date, we change the percentage of Newcor shares being sought
or the consideration offered to you, that change will apply to all
holders whose Newcor shares are accepted for exchange pursuant to our
offer. If at the time notice of that change is first published, sent or
given to you, the offer is scheduled to expire at any time earlier than
the tenth business day from and including the date that such notice is
first so published, sent or given, we will extend the offer until the
expiration of the ten business-day period. For purposes of our offer, a
"business day" means any day other than a Saturday, Sunday or federal
holiday and consists of the time period from 12:01 a.m. through 12:00
p.m., eastern time.
We may, although we do not currently intend to, elect to provide a
subsequent offering period of three to 20 business days after the
acceptance of Newcor shares in the offer if the requirements under
Rule 14d-11 of the Exchange Act have been met. If we decide to provide
a subsequent offering period, we will make an announcement to that
effect no later than 9:00 a.m., eastern time, on the next business day
after the expiration date of the initial offering period. You will not
have the right to withdraw Newcor shares that you tender in the
subsequent offering period, if any.
If Newcor agrees upon a negotiated business combination with us,
we may amend or terminate our offer without purchasing any Newcor
shares.
EXCHANGE OF NEWCOR SHARES; DELIVERY OF EXX CLASS A COMMON STOCK AND/OR
CASH
Upon the terms and subject to the conditions of our offer
(including, if the offer is extended or amended, the terms and
conditions of any such extension or amendment), we will accept for
exchange, and will exchange, Newcor shares validly tendered and not
withdrawn as promptly as practicable after the expiration date. In
addition, subject to applicable rules of the Securities and Exchange
Commission, we expressly reserve the right to delay acceptance for
exchange or the exchange of Newcor shares in
11
<PAGE>
<PAGE>
order to comply with any applicable law. In all cases, exchange of
Newcor shares tendered and accepted for exchange pursuant to the offer
will be made only after timely receipt by the exchange agent of
certificates for those Newcor shares (or a confirmation of a book-entry
transfer of those Newcor shares in the exchange agent's account at The
Depository Trust Company (which we refer to as the "DTC")), a properly
completed and duly executed letter of transmittal (or a manually signed
facsimile of that document) and any other required documents.
For purposes of the offer, we will be deemed to have accepted for
exchange Newcor shares validly tendered and not withdrawn as, if and
when we notify the exchange agent of our acceptance of the tender of
those Newcor shares pursuant to the offer. The exchange agent will
deliver shares of EXX Class A common stock and/or cash in exchange for
Newcor shares pursuant to the offer and common stock or cash instead of
fractional shares of EXX Class A common stock as soon as practicable
after receipt of such notice. The exchange agent will act as agent for
tendering stockholders for the purpose of receiving EXX Class A common
stock and/or cash (including common stock or cash to be paid instead of
fractional shares of EXX Class A common stock) from us and transmitting
such common stock and cash to you. You will not receive any interest on
any cash that we pay you, even if there is a delay in making the
exchange.
If we do not accept any tendered Newcor shares for exchange
pursuant to the terms and conditions of the offer for any reason, or if
certificates are submitted for more Newcor shares than are tendered, we
will return certificates for such unexchanged Newcor shares without
expense to the tendering stockholder or, in the case of Newcor shares
tendered by book-entry transfer of such Newcor shares into the exchange
agent's account at DTC pursuant to the procedures set forth below under
the discussion entitled "Procedure for Tendering," those Newcor shares
will be credited to an account maintained within DTC as soon as
practicable following expiration or termination of the offer.
FRACTIONAL SHARES OF EXX CLASS A COMMON STOCK
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 you will receive cash in an amount equal to such fraction
multiplied by the closing price of EXX Class A common stock as reported
on the American Stock Exchange on the last trading day immediately
preceding the expiration date of the offer.
WITHDRAWAL RIGHTS
Your tender of Newcor shares pursuant to the offer is irrevocable,
except that, other than during a subsequent offering period, Newcor
shares tendered pursuant to the offer may be withdrawn at any time prior
to the expiration date. If we elect to provide a subsequent offering
period under Rule 14d-11 of the Exchange Act, you will not have the
right to withdraw Newcor shares that you tender in the subsequent
offering period.
For your withdrawal to be effective, the exchange agent must
receive from you a written telex or facsimile transmission notice of
withdrawal containing your name, address, social security number, the
certificate number(s) and the number of Newcor shares to be withdrawn as
well as the name of the registered holder, if it is different from that
of the person who tendered those Newcor shares.
A financial institution must guarantee all signatures on the
notice of withdrawal. Most banks, savings and loan associations and
brokerage houses are able to effect these signature guarantees for you.
12
<PAGE>
<PAGE>
The financial institution must be a participant in the Securities
Transfer Agents Medallion Program an "eligible institution," unless
those Newcor shares have been tendered for the account of any eligible
institution. If Newcor shares have been tendered pursuant to the
procedures for book-entry tender discussed under the caption entitled
"Procedure for Tendering," any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn
Newcor shares and must otherwise comply with DTC's procedures. If
certificates have been delivered or otherwise identified to the exchange
agent, the name of the registered holder and the serial numbers of the
particular certificates evidencing the Newcor shares withdrawn must also
be furnished to the exchange agent, as stated above, prior to the
physical release of such certificates. We will decide all questions as
to the form and validity (including time of receipt) of any notice of
withdrawal, in our sole discretion, and our decision shall be final and
binding. Neither we, the exchange agent nor any other person will be
under any duty to give notification of any defects or irregularities in
any notice of withdrawal or will incur any liability for failure to give
any such notification. Any Newcor shares properly withdrawn will be
deemed not to have been validly tendered for purposes of our offer.
However, you may retender withdrawn Newcor shares by following one of
the procedures discussed under the captions entitled "Procedure for
Tendering" or "Guaranteed Delivery" at any time prior to the expiration
date.
If you withdraw any of your Newcor shares, you automatically
withdraw the associated Newcor rights. You may not withdraw Newcor
rights unless you also withdraw the associated Newcor shares.
PROCEDURE FOR TENDERING
For you to validly tender Newcor shares pursuant to the offer,
(a) a properly completed and duly executed letter of transmittal (or
manually executed facsimile of that document), along with any required
signature guarantees, or an agent's message (as defined below) in
connection with a book-entry transfer, and any other required documents,
must be transmitted to and received by the exchange agent, and
certificates for tendered Newcor shares must be received by the exchange
agent or those Newcor shares must be tendered pursuant to the procedures
for book-entry tender set forth below (and a confirmation of receipt of
such tender received (we refer to this confirmation below as a "Book-
entry confirmation")), in each case before the expiration date or
(b) you must comply with the guaranteed delivery procedures set forth
below.
The term "agent's message" means a message, transmitted by DTC to,
and received by, the exchange agent and forming a part of a book-entry
confirmation, which states that DTC has received an express
acknowledgment from the participant in DTC tendering the Newcor shares
and, if applicable, Newcor rights, which are the subject of such book-
entry confirmation, that such participant has received and agrees to be
bound by the terms of the letter of transmittal and that we may enforce
those terms against such participant.
You must tender one Newcor right for each Newcor share tendered to
effect a valid tender of Newcor shares, unless the board of directors of
Newcor has previously redeemed the Newcor rights. Unless the Newcor
distribution date occurs, a tender of Newcor shares will constitute a
tender of the associated Newcor rights. If the Newcor distribution date
occurs and separate certificates representing the Newcor rights are
distributed by Newcor or the rights agent to holders of Newcor shares
prior to the time that you tender Newcor shares pursuant to the offer,
certificates representing a number of Newcor rights equal to the number
of Newcor shares tendered must be delivered to the exchange agent, or,
if available, a book-entry confirmation received by the exchange agent
with respect thereto, in order for such Newcor shares to be validly
tendered. If the Newcor distribution date occurs and separate
certificates representing the Newcor rights are not distributed prior to
the time that you tender Newcor
13
<PAGE>
<PAGE>
shares pursuant to the offer, Newcor rights may be tendered prior to a
stockholder's receipt of the certificates for Newcor rights by use of
the guaranteed delivery procedures described below. If Newcor rights
certificates are distributed but are not available to you before Newcor
shares are tendered pursuant to the offer, a tender of Newcor shares
constitutes an agreement by you to deliver to the exchange agent
pursuant to the guaranteed delivery procedures described below, prior to
the expiration of the period to be specified in the notice of guaranteed
delivery and the related letter of transmittal for delivery of Newcor
rights certificates or a book-entry confirmation for Newcor rights (we
refer to this as the "Newcor rights delivery period"), Newcor rights
certificates representing a number of Newcor rights equal to the number
of Newcor shares tendered. We reserve the right to require receipt of
such Newcor rights certificates (or a book-entry confirmation with
respect to such Newcor rights) prior to accepting Newcor shares for
exchange.
Nevertheless, we will be entitled to accept for exchange Newcor
shares that you tender prior to receipt of the Newcor rights
certificates required to be tendered with such Newcor shares or a book-
entry confirmation with respect to such Newcor rights and either
(a) subject to complying with applicable rules and regulations of the
Securities and Exchange Commission, withhold payment for such Newcor
shares pending receipt of the Newcor rights certificates or a book-entry
confirmation for those Newcor rights or (b) exchange Newcor shares
accepted for exchange pending receipt of the Newcor rights certificates
or a book-entry confirmation for such Newcor rights in reliance upon the
guaranteed delivery procedures described below. In addition, after
expiration of the Newcor rights delivery period, we may instead elect to
reject as invalid a tender of Newcor shares with respect to which Newcor
rights certificates or a book-entry confirmation for an equal number of
Newcor rights have not been received by the exchange agent. Any
determination by us to make payment for Newcor shares in reliance upon
such guaranteed delivery procedures or, after expiration of the Newcor
rights delivery period, to reject a tender as invalid, shall be made,
subject to applicable law, in our sole and absolute discretion.
The exchange agent will establish accounts with respect to the
Newcor shares at DTC for purposes of the offer within two business days
after the date of this prospectus, and any financial institution that is
a participant in DTC may make book-entry delivery of the Newcor shares
by causing DTC to transfer such Newcor shares into the exchange agent's
account in accordance with DTC's procedure for such transfer. However,
although delivery of Newcor shares may be effected through book-entry at
DTC, the letter of transmittal (or a manually signed facsimile thereof),
with any required signature guarantees, or an agent's message in
connection with a book-entry transfer, and any other required documents,
must, in any case, be transmitted to and received by the exchange agent
prior to the expiration date, or the guaranteed delivery procedures
described below must be followed. We cannot assure you, however, that
book-entry delivery of Newcor rights will be available. If book-entry
delivery is not available, you must tender Newcor rights by means of
delivery of Newcor rights certificates or pursuant to the guaranteed
delivery procedures set forth below.
Signatures on all letters of transmittal must be guaranteed by an
eligible institution, except in cases in which Newcor shares are
tendered either by a registered holder of Newcor shares who has not
completed the box entitled "Special Issuance Instructions" on the letter
of transmittal or for the account of an eligible institution.
If the certificates for Newcor shares or Newcor rights, if any,
are registered in the name of a person other than the person who signs
the letter of transmittal, or if certificates for unexchanged Newcor
shares or Newcor rights, if any, are to be issued to a person other than
the registered holder(s), the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly
14
<PAGE>
<PAGE>
as the name or names of the registered owner or owners appear on the
certificates, with the signature(s) on the certificates or stock powers
guaranteed in the manner we have described above.
THE METHOD OF DELIVERY OF NEWCOR SHARE CERTIFICATES AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC, IS AT YOUR OPTION
AND RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, WE RECOMMEND
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED. IN ALL
CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO
CASH RECEIVED PURSUANT TO OUR OFFER, YOU MUST PROVIDE THE EXCHANGE AGENT
WITH YOUR CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY WHETHER YOU
ARE SUBJECT TO BACKUP WITHHOLDING OF FEDERAL INCOME TAX BY COMPLETING
THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. SOME
STOCKHOLDERS (INCLUDING, AMONG OTHERS, ALL CORPORATIONS AND SOME FOREIGN
INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP WITHHOLDING AND REPORTING
REQUIREMENTS. IN ORDER FOR A FOREIGN INDIVIDUAL TO QUALIFY AS AN EXEMPT
RECIPIENT, THE STOCKHOLDER MUST SUBMIT A FORM W-8, SIGNED UNDER
PENALTIES OF PERJURY, ATTESTING TO THAT INDIVIDUAL'S EXEMPT STATUS.
GUARANTEED DELIVERY
If you wish to tender Newcor shares pursuant to our offer and your
certificates are not immediately available or you cannot deliver the
certificates and all other required documents to the exchange agent
prior to the expiration date or cannot complete the procedure for book-
entry transfer on a timely basis, your Newcor shares may nevertheless be
tendered, so long as all of the following conditions are satisfied:
(a) you make your tender by or through an eligible institution;
(b) a properly completed and duly executed notice of guaranteed
delivery, substantially in the form made available by us, is
received by the exchange agent as provided below on or prior
to the expiration date; and
(c) the certificates for all tendered Newcor shares (or a
confirmation of a book-entry transfer of such securities
into the exchange agent's account at DTC as described
above), in proper form for transfer, together with a
properly completed and duly executed letter of transmittal
(or a manually signed facsimile thereof), with any required
signature guarantees (or, in the case of a book-entry
transfer, an agent's message) and all other documents
required by the letter of transmittal are received by the
exchange agent within three American Stock Exchange trading
days after the date of execution of such notice of
guaranteed delivery.
You may deliver the notice of guaranteed delivery by hand or
transmit it by facsimile transmission or mail to the exchange agent and
you must include a guarantee by an eligible institution in the form set
forth in that notice.
15
<PAGE>
<PAGE>
In all cases, we will exchange Newcor shares tendered and accepted
for exchange pursuant to our offer only after timely receipt by the
exchange agent of certificates for Newcor shares (or timely confirmation
of a book-entry transfer of such securities into the exchange agent's
account at DTC as described above), properly completed and duly executed
letter(s) of transmittal (or a manually signed facsimile(s) thereof), or
an agent's message in connection with a book-entry transfer, and any
other required documents.
By executing a letter of transmittal as set forth above, you
irrevocably appoint our designees as your attorneys-in-fact and proxies,
each with full power of substitution, to the full extent of your rights
with respect to your Newcor shares tendered and accepted for exchange by
us and with respect to any and all other Newcor shares and other
securities issued or issuable in respect of the Newcor shares on or
after , 2000. That appointment is effective, and voting
----------
rights will be affected, when and only to the extent that we deposit the
shares of our common stock and the cash consideration for Newcor shares
that you have tendered with the exchange agent. All such proxies shall
be considered coupled with an interest in the tendered Newcor shares and
therefore shall not be revocable. Upon the effectiveness of such
appointment, all prior proxies that you have given will be revoked, and
you may not give any subsequent proxies (and, if given, they will not be
deemed effective). Our designees will, with respect to the Newcor
shares for which the appointment is effective, be empowered, among other
things, to exercise all of your voting and other rights as they, in
their sole discretion, deem proper at any annual, special or adjourned
meeting of Newcor's stockholders or otherwise. We reserve the right to
require that, in order for Newcor shares to be deemed validly tendered,
immediately upon our exchange of those Newcor shares, we must be able to
exercise full voting rights with respect to such Newcor shares.
We will determine questions as to the validity, form, eligibility
(including time of receipt) and acceptance for exchange of any tender of
Newcor shares, in our sole discretion, and our determination shall be
final and binding. We reserve the absolute right to reject any and all
tenders of Newcor shares that we determine are not in proper form or the
acceptance of or exchange for which may, in the opinion of our counsel,
be unlawful. We also reserve the absolute right to waive any of the
conditions of our offer (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 for EXX shares to be issued in our offer), or any
defect or irregularity in the tender of any Newcor shares. No tender of
Newcor shares will be deemed to have been validly made until all defects
and irregularities in tenders of Newcor shares have been cured or
waived. Neither we, the exchange agent, nor any other person will be
under any duty to give notification of any defects or irregularities in
the tender of any Newcor shares or will incur any liability for failure
to give any such notification. Our interpretation of the terms and
conditions of our offer (including the letter of transmittal and
instructions thereto) will be final and binding.
The tender of Newcor shares and Newcor rights, if any, pursuant to
any of the procedures described above will constitute a binding
agreement between us and you upon the terms and subject to the
conditions of the offer.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax
considerations that may be relevant to a stockholder of Newcor who
tenders Newcor shares in return for the right to receive EXX shares or
cash in the offer. The discussion contained herein does not address all
aspects of taxation that may be relevant to particular stockholders of
Newcor in light of their personal investment or tax circumstances, or to
certain types of stockholders (including insurance companies, tax-exempt
16
<PAGE>
<PAGE>
organizations, financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) subject to special treatment under federal income tax laws. The
following discussion assumes that all Newcor shares are held as capital
assets in the hands of Newcor stockholders.
The statements in this discussion are based on current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), existing,
temporary and currently proposed Treasury Regulations promulgated under
the Code, the legislative history of the Code, existing administrative
rulings and practices of the Internal Revenue Service (the "Service")
and judicial decisions. No assurance can be given that future
legislative, judicial or administrative actions or decisions, which may
be retroactive in effect, will not affect the accuracy of any statements
in this prospectus with respect to the transactions contemplated prior
to the effective date of such changes.
EACH STOCKHOLDER OF NEWCOR SHOULD CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE TENDER OF SHARES
OF NEWCOR, INCLUDING THE FEDERAL, STATE, LOCAL FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH TENDER, AND OF POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
It is not anticipated that the purchase by EXX of Newcor shares
will constitute a tax-free transaction to the tendering stockholders of
Newcor under any of the provisions of the Code that might apply to this
transaction. Consequently, each stockholder of Newcor who tenders
shares of Newcor and which shares of Newcor are purchased by EXX
pursuant to this transaction will recognize capital gain or loss equal
to the difference, if any, between (i) the sum of the amount of cash and
the fair market value (on the date of the purchase) of any EXX shares
received for such Newcor shares and (ii) the tax basis of such Newcor
shares in the hands of the tendering Newcor stockholder. Gain or loss
will be calculated separately for each block of Newcor shares purchased
by EXX. Such capital gain or loss will be treated as long-term capital
gain or loss if the tendering Newcor stockholder has held such shares
for more than 12 months at the time of such purchase. Long-term capital
gain realized by a non-corporate taxpayer is taxed at a maximum rate of
20 percent. Capital losses not offset by capital gains may be deducted
against a non-corporate taxpayer's ordinary income only up to a maximum
annual amount of $3,000. Unused capital losses may be carried forward
indefinitely by non-corporate taxpayers. All net capital gain of a
corporate taxpayer is subject to tax at ordinary corporate rates. A
corporate taxpayer can deduct capital losses only to the extent of
capital gains, with unused losses being carried back three years and
forward five years.
To the extent that a Newcor stockholder receives EXX shares, such
stockholder's adjusted tax basis in such shares will equal the fair
market value of such shares received.
No fractional interests in Newcor shares will be accepted and no
fractional shares of EXX stock will be issued in this transaction.
Information Reporting Requirements and Backup Withholding. EXX
will report to tendering Newcor stockholders and to the Service the
amount paid for Newcor shares. Under backup withholding provisions, a
Newcor stockholder may be subject to backup withholding at the rate of
31% with respect to consideration paid unless such holder (i) is a
corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (ii) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of
the backup withholding rules. A Newcor stockholder who does not provide
EXX with
17
<PAGE>
<PAGE>
his correct taxpayer identification number may also be subject to
penalties imposed by the Service. Any amount paid as backup withholding
will be creditable against the stockholder's income tax liability.
EACH NEWCOR STOCKHOLDER SHOULD CONSULT HIS OWN TAX ADVISOR
REGARDING HIS QUALIFICATION FOR EXEMPTION FROM BACKUP WITHHOLDING AND
PROCEDURES FOR OBTAINING ANY APPLICABLE EXEMPTION.
EFFECT OF OFFER ON MARKET FOR NEWCOR SHARES; REGISTRATION UNDER THE
EXCHANGE ACT
Reduced Liquidity; Possible Delisting. The tender of Newcor
shares pursuant to the offer will reduce the number of holders of Newcor
shares and the number of Newcor shares that might otherwise trade
publicly and could adversely affect the liquidity and market value of
the remaining Newcor shares held by the public. Newcor shares are
listed and principally traded on the American Stock Exchange. Depending
on the number of Newcor shares acquired pursuant to the offer, following
consummation of the offer, Newcor shares may no longer meet the
requirements of the American Stock Exchange for continued listing. For
example, guidelines of the American Stock Exchange indicate that the
American Stock Exchange would consider delisting the outstanding Newcor
shares if, among other things, (1) the number of publicly held Newcor
shares should fall below 200,000, (2) the number of record holders of
Newcor shares should fall below 300 or (3) the aggregate market value of
publicly held Newcor shares should fall below $1,000,000.
If the American Stock Exchange were to delist the Newcor shares,
the market for them could be adversely affected. It is possible that
Newcor shares would be traded on other securities exchanges or in the
over-the-counter market, and that price quotations would be reported by
such exchanges, or through the Nasdaq Stock Market (which we refer to as
"NASDAQ") or by other sources. The extent of the public market for the
Newcor shares and the availability of such quotations would, however,
depend upon the number of holders and/or the aggregate market value of
the Newcor shares remaining at such time, the interest in maintaining a
market in the Newcor shares on the part of securities firms, the
possible termination of registration of Newcor shares under the Exchange
Act, as described below, and other factors.
Registration Under the Exchange Act. Newcor shares are currently
registered under the Exchange Act. Newcor can terminate that
registration upon application to the Securities and Exchange Commission
if the outstanding shares are not listed on a national securities
exchange and if there are fewer than 300 holders of record of Newcor
shares. Termination of registration of the Newcor shares under the
Exchange Act would reduce the information that Newcor must furnish to
its stockholders and to the Securities and Exchange Commission and would
make certain provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b) and the requirement of
furnishing a proxy statement in connection with stockholders meetings
pursuant to Section 14(a) and the related requirement of furnishing an
annual report to stockholders, no longer applicable with respect to
Newcor shares. Furthermore, the ability of "affiliates" of Newcor and
persons holding "restricted securities" of Newcor to dispose of such
securities pursuant to Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), may be impaired or eliminated.
PURPOSE OF OUR OFFER; APPRAISAL RIGHTS
We are making the 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
18
<PAGE>
<PAGE>
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.
Under Section 262 of the Delaware General Corporation Law
("DGCL"), stockholders of Newcor do not have appraisal rights as a
result of the offer.
Except as we have otherwise discussed elsewhere in this
prospectus, we do not have any plans or proposals right now that would
result in an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, or sale of a material amount of assets,
involving Newcor or any of its subsidiaries, or any material changes in
Newcor's corporate structure or business, or any change in its
management. Newcor has not given us any access to its books and
records, however, so we might decide upon such changes once we complete
such a review.
Upon consummation of our offer, we may also elect or seek the
election of nominees of our choice to Newcor's board of directors.
CONDITIONS OF OUR OFFER
Our offer is subject to a number of conditions, which are
described below:
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 offer. The stockholders of EXX will be given the
opportunity to vote to approve each of these items at the 2000 Annual
Meeting of Stockholders to be held June , 2000.
--
Regulatory Approval. 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 EXX 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 "FTC"), the
offer may not be consummated until notifications have been given and
certain information has been furnished to the FTC and the Antitrust
Division of the Department of Justice (the "Antitrust Division") and
specified waiting period requirements have been satisfied. EXX plans to
file the notification and report forms with the FTC 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 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.
19
<PAGE>
<PAGE>
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 DGCL. We must be satisfied, in our reasonable
judgment, that the provisions of Section 203 of the 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.
Section 203 of the DGCL, in general, prohibits a Delaware
corporation such as Newcor from engaging in a "business combination" (as
defined in Section 203) with an "interested stockholder" (generally
defined in Section 203 to include any beneficial owner of 15% or more of
a corporation's voting stock) for a period of three years following the
date that such person became an interested stockholder unless (a) prior
to the date that such person became an interested stockholder, the board
of directors of the corporation approved either the business combination
or the transaction that resulted in the stockholder becoming an
interested stockholder, (b) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding
stock held by directors who are also officers of the corporation and
employee stock plans that do not provide employees with the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer or (c) on or subsequent to the
date such person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders, and not by written consent, by
the affirmative vote of the holders of at least 66 2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
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 minimum tender
condition, 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 minimum tender condition, 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 prospectus
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 EXX 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;
20
<PAGE>
<PAGE>
(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 prospectus
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;
(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 or us or any of our subsidiaries of any material
portion of the business or assets of Newcor or 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). In our sole
discretion, 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 to you 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.
CERTAIN RELATIONSHIPS WITH NEWCOR
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
21
<PAGE>
<PAGE>
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
stockholder beneficially owns 24,000 shares of Newcor common stock.
FEES AND EXPENSES
We will not pay any fees or commissions to any broker, dealer or
other persons for soliciting tenders of Newcor shares pursuant to our
offer. We will, however, pay reasonable fees to D.F. King & Co., Inc.,
the information agent, for its services in connection with our 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 Unaudited Pro Forma Condensed Consolidated Financial
Statements on page 64.
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 prospectus.
EXX has prepared the Unaudited Pro Forma Condensed Consolidated
Financial Statements contained in this prospectus using the purchase
method of accounting.
22
<PAGE>
<PAGE>
STOCK EXCHANGE LISTING
Our common stock is listed on the American Stock Exchange. We
will make an application to list on the American Stock Exchange the
common stock that we will issue pursuant to our offer.
23
<PAGE>
<PAGE>
<TABLE>
DIFFERENCES IN STOCKHOLDERS' RIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
EXX STOCKHOLDER RIGHTS NEWCOR STOCKHOLDER RIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASSIFIED BOARD Number of Members on EXX's Board of Directors Number of Members on Newcor's Board of Directors
AND RELATED --------------------------------------------- ------------------------------------------------
PROVISIONS: EXX's Articles of Incorporation, as amended ("EXX Newcor's Bylaws provide that the board of directors
Articles"), provide that the number of directors shall consist of not less than three nor more than
constituting the initial board of directors is four. eleven persons, as determined by a resolution
Presently, there are four directors. The Articles adopted by the affirmative vote of a majority of
further state that the number of directors may be the board of directors.
increased or decreased in the manner provided in
EXX's Bylaws; provided that the number of directors
shall never be less than one. However, EXX's Bylaws
are silent as to this point.
Classes of Directors Classes of Directors
-------------------- --------------------
Neither EXX's Articles nor its Bylaws provide for Newcor's Certificate of Incorporation and Bylaws
classes of directors. provide for three classes within its board of
directors, with the term of office of one class
expiring each year.
Number of Directors EXX's Stockholders May Elect Number of Directors Newcor's Stockholders May Elect
------------------------------------------------ ---------------------------------------------------
EXX's Bylaws provide that the stockholders shall Newcor's Bylaws provide that the persons receiving
select (either by written consent or at the stock- a plurality of the stockholders votes cast at the
holder's annual meeting) a board of directors, annual meeting of stockholders shall be elected to
consisting of at least one director, annually to serve as director.
serve for a one-year term.
EXX's Articles further provide that Class B is
entitled to elect a number of directors equal to
the number of directors which comprises the entire
board of directors, multiplied by 2/3 and rounded
up to the nearest whole number. Class A is entitled
to elect a number of directors, which may be zero,
equal to the number of directors which comprises the
entire board of directors minus the number of
members Class B may elect.
Term of Office Term of Office
-------------- --------------
EXX's Bylaws state that each director shall serve a Newcor's certificate of incorporation provides that
term of one year, but may be elected to successive each director shall serve a term of three years.
terms.
- -------------------------------------------------------------------------------------------------------------------------------
24
<PAGE>
<PAGE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EXX STOCKHOLDER RIGHTS NEWCOR STOCKHOLDER RIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vacancies on EXX's Board of Directors Vacancies on Newcor's Board of Directors
------------------------------------- ----------------------------------------
EXX's Articles state that between elections Newcor's Bylaws state that any vacancy occurring on
of directors, vacancies may be filled by the the board of directors that results from an
remaining directors, even if the vacancy results increase in the number of directors may be filled
from an increase in the number of directors on by a majority of the board of directors then in
the board and the remaining directors constitute office, provided a quorum is present, and any other
less than a quorum. vacancy occurring on the board of directors may be
filled by the remaining directors, even if less
than a quorum.
Removal Removal
------- -------
Under NRS, if the rights granted to a certain Newcor's Bylaws provide that a Director may be
class or series of stock entitle the stockholders removed for cause by a majority vote of the
of that class or series to elect one or more stockholders.
directors, than removal of a Director requires a
vote of two-thirds of the holders of that class or
series. Otherwise, removal of any Director (or one
or more of the incumbent directors) requires a
stockholder vote of two-thirds of all of the issued
and outstanding stock entitled to vote.
- -------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS Meetings Meetings
MEETINGS, QUORUM -------- --------
VOTING AND EXX's Bylaws require ten days notice to the stock- According to Newcor's Bylaws, written notice of an
CONSENTS: holders prior to any annual meeting of stockholders annual or special meeting must be given to
(and any adjournment thereof). stockholders not less than ten nor more than sixty
days prior to the date of the meeting.
EXX's Bylaws provide that special meetings of
stockholders may be called by the president, at Newcor's Bylaws state that only the Chairman or a
least three directors or by the holders of a majority of the board of directors may call a
majority of shares of capital stock of EXX. special stockholders meeting.
Quorum Quorum
------ ------
EXX's Bylaws provide that a majority of shares Newcor's Bylaws provide that the holders of a
issued and outstanding constitutes a quorum for majority of the capital stock issued and
any stockholders meeting. outstanding, entitled to vote and present in person
(or represented by proxy) shall constitute a quorum
at stockholders meetings for the transaction of
business.
- -------------------------------------------------------------------------------------------------------------------------------
25
<PAGE>
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EXX STOCKHOLDER RIGHTS NEWCOR STOCKHOLDER RIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Voting Voting
------ ------
For all matters except the election of Newcor's Certificate of Incorporation provides for
directors, EXX's Articles entitle holders one vote per share of common stock (in person or by
of Class A or Class B common stock one vote proxy) at any and all meetings of the stockholders
per share, subject to voting power granted and one vote per share of preferred stock.
to preferred stock.
Except as otherwise provided in Newcor's
The Nevada Revised Statutes ("NRS") provide Certificate of Incorporation or its Bylaws, any
that any action by the stockholders on any question brought before a meeting of the
matter, other than the election of directors stockholders requires an affirmative majority vote
(which requires a plurality of the votes cast), of the holders of a majority of the total number of
is approved if a majority of the votes cast votes of the capital stock present (or represented
vote for such approval. by proxy) entitled to vote, voting as a single
class.
Written Consent Written Consent
--------------- ---------------
The NRS allow written consent signed by stock- For stockholder authorization or action by written
holders of a majority of the voting power. consent, Newcor's Bylaws require that a stockholder
However, if a different proportion is required request the board of directors to fix a record date
for a certain action (e.g., merger) then that of stockholders entitled to vote upon or authorize
proportion is also required for stockholder action or consent of the stockholders (which the
action by written consent. board must accomplish within 10 days after the
Secretary of Newcor receives the request for
written consent).
- ----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDER RIGHTS EXX does not maintain a Stockholder Rights Plan. Newcor adopted a Stockholder Rights Plan in which the
PLANS: corporation 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.
Right With Respect to Preferred Stock
-------------------------------------
Under Newcor's plan, each right entitles stockholders
to buy one one-thousandth of a share of Series A
Junior Participating Preferred Stock for $10.50
(subject to adjustment) upon the following events:
- ----------------------------------------------------------------------------------------------------------------------------------
26
<PAGE>
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EXX STOCKHOLDER RIGHTS NEWCOR STOCKHOLDER RIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. a person or group acquires beneficial ownership
of 15% or more of Newcor's common stock;
2. a person or group commences a tender or exchange
offer upon which they would own beneficially 15%
or more of Newcor's common stock; or
3. the board 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").
Right With Respect to Common Stock
----------------------------------
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 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 any person has become a 15% or more
stockholder, Newcor is involved in a merger or
other business combination transaction with another
person in
- ----------------------------------------------------------------------------------------------------------------------------------
27
<PAGE>
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EXX STOCKHOLDER RIGHTS NEWCOR STOCKHOLDER RIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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's Ability to Redeem
--------------------------
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.
- ----------------------------------------------------------------------------------------------------------------------------------
VOTE REQUIRED FOR EXX's Articles Newcor's Certificate of Incorporation
CHARTER AND BYLAW -------------- -------------------------------------
AMENDMENTS: In EXX's Articles, EXX reserves the right to amend, Newcor's Certificate of Incorporation expressly
alter, change, or repeal the Articles in the manner authorizes the board of directors to alter, amend
prescribed by statute. Under the NRS, an amendment or change any provision contained in the
to the Articles requires a majority vote of the Certificate of Incorporation in the manner
outstanding shares entitled to vote. In addition, prescribed by statute. Under the DGCL, any
the NRS state that amendments affecting a class or amendment adopted by the board of directors and
series of shares require a majority vote of each proposed to the stockholders at a special or annual
class or series affected (different series of the meeting of the stockholders requires a majority
same class do not constitute different classes for vote of the outstanding shares entitled to vote
purposes of voting except when a series is thereon. The DGCL further states that any
adversely affected in a different manner than the amendment proposed which would alter or change the
other series of the same class). powers, preferences or special rights of any class
(or series) adversely requires a majority vote of
that class (or series).
EXX's Bylaws Newcor's Bylaws
------------ ---------------
EXX's Bylaws provide that the Bylaws may be amended Newcor's Bylaws may be altered, amended, repealed
by a majority vote of the stockholders at an annual or new Bylaws may be adopted by the board of
or special meeting. In addition, the board of directors or by a majority vote of the
directors may amend or adopt additional Bylaws but stockholders.
may not alter or repeal any Bylaws adopted by the
stockholders.
- ----------------------------------------------------------------------------------------------------------------------------------
28
<PAGE>
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EXX STOCKHOLDER RIGHTS NEWCOR STOCKHOLDER RIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPERMAJORITY VOTE There are no provisions requiring supermajority Merger or Sale of Substantially All of Newcor's Assets
ON CERTAIN vote in the NRS, EXX's Articles or EXX's Bylaws. ------------------------------------------------------
TRANSACTIONS: Certain mergers or sales of substantially all of
Newcor's assets require an affirmative vote or consent
of the holders of not less than 75% of the stock
entitled to vote.
Dissolution
-----------
Under the DGCL, if a majority of the Board recommends
the plan of dissolution, only a majority of the
outstanding stock entitled to vote is required to
approve the dissolution. On the other hand,
authorization of dissolution without board action
requires written consent of all stockholders entitled
to vote.
Amendment of Supermajority Provisions
-------------------------------------
An amendment of the supermajority provisions outlined
above require an affirmative vote of 75% of the
outstanding shares of stock.
- ----------------------------------------------------------------------------------------------------------------------------------
AUTHORIZED SHARES: EXX's Third Article of its Articles of Newcor's Certificate of Incorporation provides:
Incorporation provides:
General Stock Information General Stock Information
------------------------- -------------------------
31,000,000 total authorized shares, $0.01 4,500,000 total authorized shares:
par value: * 3,500,000 shares of common stock, $1.00 par
* 25,000,000 authorized Class A common stock value; and
(12,061,607 issued and outstanding); * 1,000,000 shares of preferred stock, without par
* 1,000,000 authorized Class B common stock value
(624,953 issued and outstanding); and - 100,000 shares of Series A Junior
* 5,000,000 authorized preferred stock (none Participating Preferred Stock (none issued).
issued).
Series A Junior Participating Preferred Stock
The board of directors of EXX has proposed to ---------------------------------------------
increase the number of authorized shares of ("Series A")
Class A common stock to 100,000,000. The ------------
stockholders of EXX will vote on the proposal at Entitled to receive quarterly dividends (when and
the 2000 Annual Meeting of Stockholders. if declared) in the amount equal to the greater of
(1) $1.00 or (2) 1,000 times the aggregate per
Under the NRS, there are no preemptive rights for share amount of all cash dividends, and 1,000 times
the corporation's unissued the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions
(other than a
- ----------------------------------------------------------------------------------------------------------------------------------
29
<PAGE>
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EXX STOCKHOLDER RIGHTS NEWCOR STOCKHOLDER RIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
shares, except to the extent provided for in the dividend payable in shares of common stock or
Articles. Class A and Class B stockholders have subdivision or common stock) declared on common
no preemptive rights to acquire shares issued by stock, par value $1.00 per share since the
EXX under its existing Articles. immediately preceding Quarterly Dividend Payment Date.
In the event that Newcor (1) declares any dividend on
common stock payable in shares of common stock,
(2) subdivides the outstanding common stock, or
(3) combines the outstanding common stock in to a
smaller number of shares, then the amount of dividends
to which the holders of Series A are entitled to
immediately prior to such event shall be adjusted.
Upon any liquidation, dissolution or winding up of
Newcor, no distribution shall be made to the holders
of stock ranking junior to the Series A stock unless,
prior thereto, the holders of Series A stock have
received a distribution equal to $1,000 per share of
Series A stock. If Newcor enters into a
consolidation, merger, combination or other
transaction in which shares of common stock of Newcor
are exchanged for cash and/or other securities of
another corporation, shares of Series A stock shall be
exchanged in an amount equal to 1,000 times the amount
of cash/or other securities for which each share of
common stock is exchanged.
Newcor's Certificate of Incorporation states that
Series A stock is not redeemable.
- ----------------------------------------------------------------------------------------------------------------------------------
INDEMNIFICATION; Indemnification Indemnification
LIMITATION OF --------------- ---------------
LIABILITY: EXX's Articles provide that EXX shall indemnify Newcor's Certificate of Incorporation provides for
its directors and officers to the fullest extent indemnification for expenses actually and
permitted under the NRS. EXX's Articles allow reasonably incurred where the person seeking
any such indemnification to inure to the benefit indemnification acted in good faith and in a manner
of the heirs, executors and administrators of the he reasonably believed to be in or not opposed to
indemnitee. the best interests of the corporation,
- ----------------------------------------------------------------------------------------------------------------------------------
30
<PAGE>
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EXX STOCKHOLDER RIGHTS NEWCOR STOCKHOLDER RIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EXX's Bylaws provide indemnification for any and, with respect to criminal action or proceeding,
director or officer, former director or officer, had no reasonable cause to believe his conduct was
or any person who may have served at EXX's request unlawful. No indemnification shall be made if the
as a director or officer of another corporation person is adjudged to be liable to the corporation
in which it owns shares of capital stock or of unless the court determines that he is fairly and
which it is a creditor ("Indemnitee"), who is reasonably entitled to indemnity for such expenses
adjudged in an action, suit or proceeding to be which such court shall deem proper.
liable for negligence or misconduct in the
performance of duty. Newcor's Certificate of Incorporation requires that
a determination for qualification of
The NRS allow indemnification for expenses indemnification shall be made:
actually and reasonably incurred. However, the 1. By the board of directors by a majority vote
NRS require that the Indemnitee acted in good of a quorum of directors not party to the
faith and in a manner which he reasonably believed action; or
to be in or not opposed to the best interests of 2. If such quorum is not available, or if
the corporation, and, with respect to any criminal obtainable and a quorum of disinterested
action or proceeding, had no reasonable cause to directors so directs, by independent legal
believe his conduct was unlawful. The NRS further counsel in a written opinion; or
state that a corporation may indemnify such person 3. By the stockholders.
even if he is adjudged liable to the corporation
if the court determines, in view of the Newcor's Bylaws state that a person seeking
circumstances of the case, that he is fairly and indemnification in connection with a proceeding he
reasonably entitled to indemnity for such expenses initiated against Newcor (or any of its directors,
as the court deems proper. The NRS provide that officers, employees or agents) shall not be
the determination for discretionary indemnification entitled to indemnification unless the corporation
shall come from the stockholders, a majority vote has joined in or consented to such proceeding.
of a quorum of directors not party to the action
or from an independent legal counsel in written Newcor's Bylaws further state that following a
opinion. change in control of Newcor, the Corporation shall
pay indemnification unless within 60 days of such
The NRS require that the corporation indemnify a request for indemnification special independent
director or officer who is successful on the merits. counsel (selected by the person requesting
However, the corporation may not indemnify a indemnification and approved by the corporation)
director or officer in the event that it is makes the determination that the person does not
determined that his acts or omissions involved meet the necessary standard of conduct under the
intentional misconduct, fraud or a knowing DGCL.
violation of law which was material to the cause
of action. Newcor's Bylaws grant the board the
The NRS further state that indemnification under
the statute is not
- ----------------------------------------------------------------------------------------------------------------------------------
31
<PAGE>
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EXX STOCKHOLDER RIGHTS NEWCOR STOCKHOLDER RIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
exclusive of any other rights under any Bylaw, authority (by resolution) to provide for such other
agreement, vote of stockholders or disinterested indemnification as it may deem appropriate.
directors or otherwise both as to action in his
official capacity and as to action in another The DGCL requires the Corporation to indemnify a
capacity while holding such office. person who succeeds on the merits of his case.
Insurance Insurance
--------- ---------
The NRS permit corporations to maintain insurance Newcor's Certificate of Incorporation permits
for its directors, officers, employees and agents Newcor to maintain insurance for its directors.
of the corporation.
- ----------------------------------------------------------------------------------------------------------------------------------
DISSENTERS RIGHTS The NRS, EXX's Articles and Bylaws do not provide The DGCL provides for appraisal rights in the event
RELATING TO for dissenter's rights. of a merger or consolidation of the company unless
DISPOSITION OF the shares of the company are (i) listed on a
ASSETS: national securities exchange or (ii) held of record
by more than 2,000 holders; provided that appraisal
rights will be available, even if the shares are
listed on a national securities exchange or held of
record by more than 2000 holders, if the stockholders
are required to exchange their stock for other than
stock and cash in lieu of fractional shares.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<PAGE>
EXX INC
DESCRIPTION OF BUSINESS
EXX, through its subsidiaries, is engaged in the design,
production and sale of consumer goods in the form of impulse toys and
other toys, watches and kites. In addition, it is 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. EXX
formerly manufactured machine tools and machine tool replacement parts.
EXX has a continuing right to royalty income from machine tools and
replacement parts as part payment for its sale of a subsidiary's assets.
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.
EXX, a Nevada corporation, was formed as a holding company on
October 21, 1994 as a result of a reorganization of SFM Corporation
("SFM"). The purpose of adopting a holding company structure was to
enhance EXX's ability to obtain new financing by enabling potential
investors to clearly focus on the strengths and diversity of EXX's
businesses and to protect each of EXX's businesses to the extent
possible from the business risks which arise out of its other
businesses. As part of the reorganization, each outstanding share of
SFM common stock was converted into three shares of EXX Class A common
stock and one share of EXX Class B common stock. The new stock is
substantially identical to the stock of SFM in rights and privileges
except that holders of outstanding shares of Class B common stock 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 outstanding shares of the Class A common stock
have the right to elect the remaining directors of EXX. Under the
reorganization, SFM became a wholly-owned subsidiary of EXX and each of
SFM's wholly-owned subsidiaries became wholly-owned subsidiaries of EXX
with each subsidiary retaining its assets and liabilities and continuing
its business. In order to effect the transactions, SFM distributed as a
dividend to EXX all the outstanding stock of each of its subsidiaries as
well as SFM's cash, cash equivalents and certain promissory notes.
On March 8, 2000, EXX paid a 400% stock dividend which provided
for a dividend of four shares of Class A common stock for each
outstanding share of Class A common stock and Class B common stock.
In February 1997, EXX, through a newly-formed subsidiary, acquired
all the outstanding capital stock of Handi Pac, Inc., d/b/a Steven
Manufacturing Co. ("Handi Pac"). Handi Pac manufactures and sells
several types of toys, including pre-school, ride-on, classic and
educational toys. In addition, during the third quarter 1997, a wholly-
owned subsidiary of EXX acquired the assets of Confectionery and Novelty
Design International, LLC ("CANDI"), a Northbrook, Illinois maker of
candy-filled toy products. While this acquisition was not a material
purchase, it adds a complimentary product to the business mix.
Henry Gordy International, Inc. ("Gordy") was formed during the
third quarter of 1987 to conduct the business associated with certain
assets purchased from Henry Gordy, Inc. and Gordy International, Inc.
Gordy markets a line of impulse toys through a national network of
commissioned sales representatives, together with its own sales staff.
Its products are distributed directly or through wholesalers to a wide
range of retail outlets including, but not limited to, toy stores,
department stores, discount chains, drug stores and supermarkets.
Gordy's sales are derived from both proprietary and licensed products.
In prior years, some of the products covered by the Power Ranger license
caused sales to materially increase due to strong consumer demand.
During the past year, there were no licenses that individually had a
material effect on sales. Trademarks and related molds are developed in
line with
33
<PAGE>
<PAGE>
specific licenses. There are currently no significant licenses that are
material to the toy line. The majority of the merchandise is
manufactured in the Far East to Gordy's specifications and shipped as
required. No difficulties have been encountered in obtaining sources
for the products, nor are any expected for the current year.
Inventories are maintained for anticipated orders. Gordy believes that
its practices relating to all working capital items, including its
inventory practices, do not materially differ from those used by other
companies in similar endeavors and comparable in size to Gordy. Gordy
operates in a highly competitive market. It competes with many other
companies, some of which have substantially greater resources and assets
than Gordy.
In February, 1994, Hi-Flier Inc., a newly formed subsidiary of
EXX, purchased the assets of Hi-Flier Manufacturing Co., a leader in the
kite business for more than 70 years. This acquisition strengthened
EXX's toy segment by providing product lines that complement those of
Gordy.
Our Howell Electric Motors Division ("Howell") is engaged in the
assembly and sale of alternating current, fractional and small integral
motors ranging from 1/4 to 10 horsepower. Howell's product line
consists of such specialty items as blower motors designed for use in
air conditioning systems, flat-type motors used in floor scrubbing and
polishing machines and motor pump assemblies used in food machinery
products and a variety of other applications. In recent years, a
substantial portion of Howell's sales have been to the floor care
service industry and the food machinery industry, and have been effected
through Howell's own marketing personnel and several independent sales
representatives working on a commission basis. The principal raw
materials used by Howell are steel, copper, aluminum and grey-iron or
aluminum casting, all of which are purchased from various suppliers on a
competitive basis. During the period covered by this report, Howell
experienced no significant difficulty in obtaining these raw materials,
and, barring some presently unforeseen event, Howell does not expect to
encounter any difficulties in obtaining such supplies during the current
year. Raw material inventories for Howell are maintained largely for
known requirements, i.e., they are held for firm orders, or, in the case
of certain items with a variety of applications to Howell's products,
are held for anticipated orders. Inventories of finished goods consist
predominately of products ready for shipment. Howell believes that its
practices relating to all working capital items, including its inventory
practices, do not materially differ from those used by other companies
in similar endeavors and comparable in size to Howell. Howell is in a
highly competitive business and believes that it is not a very
significant factor in the industry. It competes with many other
companies which have significantly greater assets and resources.
In April, 1994, TX Systems Inc., a newly formed subsidiary of EXX,
acquired the operating assets and businesses of TX Technologies, Inc.
and TX Software, Inc. These companies were engaged in the cable
pressurization and monitoring systems business. The TX Systems Inc.
acquisition, together with the activities of another newly formed
subsidiary, TX Technology Corp., broadened our activities in the capital
goods segment, allowing us entry to the dynamic and rapidly growing
telecommunications industry. These companies operate the cable
pressurization and monitoring system business. The business provides
means to prevent telecommunications signal reductions through use of
cable pressurization equipment and equipment to monitor cable pressure,
as well as equipment to report the results of the monitoring over
telephone lines.
Net sales to one customer were approximately 20% and 20% for the
years ended December 31, 1999 and 1998, respectively.
EXX employs approximately 120 full-time employees, of whom
approximately 93 are employed by the Mechanical Equipment Segment, 26 by
the Toy Segment and 1 for all other activities combined.
34
<PAGE>
<PAGE>
The principal executive offices of EXX are located at 1350 East
Flamingo Road, Suite 689, Las Vegas, Nevada 89119. EXX's telephone
number is (702) 598-3223.
RECENT DEVELOPMENTS
None.
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
EXX's consolidated financial statements and notes thereto beginning on
page F-1. The discussion that follows compares the twelve-month period
ended December 31, 1999 ("1999") to the twelve-month period ended
December 31, 1998 ("1998").
1999 COMPARED TO 1998. Net sales in 1999 were $21,158,000
compared to $20,935,000 in 1998, which was an increase of $223,000.
1999 net sales represented a 1% increase from 1998 net sales. The Toy
Segment's sales were $7,292,000 in 1999 compared to $9,639,000 in 1998,
a decrease of $2,347,000. 1999 sales in the Toy Segment represented a
24% decrease from 1998 sales in the Toy Segment. The Mechanical
Equipment Segment had total sales of $13,866,000 in 1999 compared to
$11,296,000 in 1998, an increase of $2,570,000. 1999 sales in the
Mechanical Equipment Segment represented a 23% increase from 1998 sales
in the Mechanical Equipment Segment.
Gross profit in 1999 was $8,455,000 compared to $6,851,000 in
1998, an increase of $1,604,000. The Toy Segment accounted for a
$1,292,000 decrease in gross profit while the Mechanical Equipment
Segment accounted for the remaining difference. Gross profit as a
percentage of sales increased to 40% in 1999 compared to 33% in 1998,
primarily due to the higher gross profit percentage earned by the
Mechanical Equipment Segment.
Selling, general and administrative expenses were $5,047,000 in
1999, a decrease of $1,029,000 from $6,076,000 in 1998. The decrease in
expenses was directly related to the continued implementation of tighter
management controls.
The operating income of $3,408,000 in 1999 represented an increase
in income of $2,633,000 from the operating income of $775,000 in 1998.
The Toy Segment's operating profit of $587,000 in 1999 represented an
increase of $366,000 from an operating profit of $221,000 in 1998. The
Mechanical Equipment Segment generated operating income of $3,462,000 in
1999, an increase of $2,138,000 from 1998. Corporate and other
operating expenses decreased to $641,000 in 1999 from $770,000 in 1998.
Interest expense decreased to $112,000 in 1999 from $127,000 in
1998, which mostly related to a reduction in interest-bearing debt of
the Handi Pac subsidiary.
EXX generated net income of $2,455,000, or $.19 per share of Class
A and Class B common stock, in 1999 compared to a net income of
$761,000, or $.06 per share of Class A and Class B common stock, in
1998.
EXX reported a net deferred tax asset of $307,000 at December 31,
1999. Management believes this asset will be realized by taxable
earnings in the future.
The Toy Segment is still confronted with its basic problems,
namely flat demand, no new licenses, constant challenges from
competition to maintain market share and increasing product and
35
<PAGE>
<PAGE>
related costs. The industry continues to search for a solution with the
large players in the same predicament. Management of EXX has continued
its policies of making personnel changes and reviewing customer demands
and product mix in its quest to increase sales and reduce and control
costs while seeking new items within the parameters of remaining
competitive within the business environment.
The Mechanical Equipment Segment operations reflect enhanced
results in the telecommunications area, due to noticeably increased
sales, as well as continued market share in the motor area. The goal of
maintaining market share and new product acceptance remains primary in
EXX's attempt to meet the continuing heavy competition in a somewhat
limited market area.
1998 COMPARED TO 1997. Net sales in 1998 were $20,935,000
compared to $22,324,000 in 1997, a decrease of $1,389,000. 1998 net
sales represented a 6% decrease from 1997 net sales. The Toy Segment's
sales were $9,639,000 in 1998 compared to $12,162,000 in 1997, a
decrease of $2,523,000. 1998 sales in the Toy Segment represented a 21%
decrease from 1997 sales in the Toy Segment. The Mechanical Equipment
Segment had total sales of $11,296,000 in 1998 compared to $10,162,000
in 1997, an increase of $1,134,000. 1998 sales in the Mechanical
Equipment Segment represented an 11% increase from 1997 sales in the
Mechanical Equipment Segment.
Gross profit was $6,851,000 in 1998 compared to $5,767,000 in
1997, an increase of $1,084,000. The Toy Segment accounted for a
$524,000 increase in gross profit while the Mechanical Equipment Segment
accounted for the remaining difference. Gross profit as a percentage of
sales increased to 33% in 1998 compared to 26% in 1997, primarily due to
the higher gross profit percentage earned by the Toy Segment.
Selling, general and administrative expenses were $6,076,000 in
1998, a decrease of $455,000 from $6,531,000 in 1997. The decrease in
expenses directly related to the implementation of tighter management
controls.
The operating income of $775,000 in 1998 represented an increase
in income of $1,539,000 from the operating loss of $764,000 in 1997.
The Toy Segment's operating profit of $221,000 in 1998 represented an
increase in income of $1,373,000 from a loss of $1,152,000 in 1997. The
Mechanical Equipment Segment generated operating income of $1,324,000 in
1998, an increase of $505,000 from 1997. Corporate and other operating
expenses increased to $770,000 in 1998 from $431,000 in 1997.
Interest expense decreased to $127,000 in 1998 from $145,000 in
1997, which mostly related to a reduction in interest-bearing debt of
the Handi Pac subsidiary.
EXX generated net income of $761,000, or $.06 per share of Class A
and Class B common stock, in 1998 compared to a net loss of $223,000, or
$.02 per share of Class A and Class B common stock, in 1997.
EXX reported a net deferred tax asset of $417,000 at December 31,
1998. Management believes this asset will be realized by taxable
earnings in the future.
The toy industry as a whole reflected little change from the past
several years, namely no new licenses, flat demand, challenges to
maintain market share and increasing product costs. Management has
continued to make personnel changes and review product mix in an attempt
to reduce costs to stay competitive while continuing to seek new items
consistent with its core business. Management remained vigilant in
reviewing costs and reviewing opportunities to increase sales.
36
<PAGE>
<PAGE>
The Mechanical Equipment Segment operations reflected enhanced
results in the telecommunications area as well as continued market share
in the motor area. The challenges in both areas as to market share and
new product acceptance continued due to the heavy competition in
somewhat limited markets.
LIQUIDITY AND SOURCES OF CAPITAL. During 1999, EXX generated
$1,510,000 of cash flows from operating activities compared to
$1,625,000 in 1998.
In 1999 and 1998, EXX's investing activities used cash of
$2,415,000 and $1,612,000, respectively. The primary use of cash in
1999 was the purchase of $1,125,000 of short term investments and
$1,063,000 of long term investments.
During 1999 and 1998, EXX's financing activities used cash of
$163,000 and $284,000, respectively. In 1999, EXX purchased $116,000 of
treasury stock and made payments on notes totaling $47,000. In 1998,
EXX purchased $192,000 of treasury stock and made payments on notes
totaling $92,000.
At the end of 1999, EXX had working capital of approximately
$10,028,000 and a current ratio of 3.5 to 1. During 1999, EXX
maintained a limited credit facility with a bank for two subsidiaries
which included a $300,000 sub-limit for direct borrowings and a $150,000
sub-limit for documentary letters of credit, all secured by certain of
EXX's money market funds. EXX considers this line and its cash and
short term investments of $6,314,000 to be adequate for its current
operating needs.
EXX has no present plans that will require material capital
expenditures for any of EXX's businesses. Capital expenditures are
expected to be in the ordinary course of business and financed by cash
generated from operations.
EXX believes the effects of inflation will not have a material
effect on its future operations.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
Financial information about operating segments is presented in
Note 12 of the Notes to Consolidated Financial Statements of EXX on page
F-14.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management of EXX believes that EXX 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.
MANAGEMENT INFORMATION
EXX's Annual Report on Form 10-K for the year ended December 31,
1999 incorporates by reference or sets forth information about the
directors and executive officers of EXX, executive compensation, voting
securities and their principal holders, various relationships and
related transactions and other related information pertaining to EXX.
We incorporate the Annual Report on Form 10-K in this prospectus by
reference.
37
<PAGE>
<PAGE>
NEWCOR, INC.
While we have included in this prospectus 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 prospectus. Although we have no knowledge
that would indicate that statements relating to Newcor contained in this
prospectus 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 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 prospectus to provide any and all additional
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, we are requesting that the independent accountants of Newcor provide
us with the consents required for us to include in this prospectus the
audit report included in Newcor's Annual Report on Form 10-K for the year
ended December 31, 1999.
GENERAL DEVELOPMENT 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. For the year ended December 31, 1999,
Newcor reported total sales of $258.5 million, net loss of $11.6 million
and a loss of $2.36 per share.
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 the common stock of 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 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
38
<PAGE>
<PAGE>
to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond its control.
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 of the Notes to Consolidated Financial Statements of Newcor on
page F-34. 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 segment 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.
39
<PAGE>
<PAGE>
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 ("Blackhawk"); MT&G; Deco; Turn-Matic; and
Rochester Gear, Inc. ("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 all 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
40
<PAGE>
<PAGE>
suppliers). The remaining revenue resulted from a wide variety of
markets, including health care, agricultural, appliance and others.
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
41
<PAGE>
<PAGE>
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.
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
42
<PAGE>
<PAGE>
workforces represented by the United Auto Workers and other unions, and
many of these customers have 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 aggregate 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>
LOCATION SQUARE FOOTAGE TYPE OF INTEREST DESCRIPTION OF USE
-------- -------------- ---------------- ------------------
<S> <C> <C> <C>
Corporate Office
Bloomfield Hills, MI 7,000 Leased Administrative Office
<CAPTION>
Precision Machined Products Group
- ---------------------------------
<S> <C> <C> <C>
Rochester Gear Transmission and
Clifford, MI 49,000 Owned powertrain components
Blackhawk Tractor differential
Cedar Falls, IA 54,000 Owned cases, transmission
Waterloo, IA 17,000 Leased cases, steering arms
and brake pedals
MT&G Differential pinion
Corunna, MI 100,000 Owned and side gears,
Fenton, MI 10,000 Owned output shafts and
rear axle shafts
Deco Rocker arm components
Troy, MI 55,000 Leased and assemblies,
Royal Oak, MI 110,000 Leased transmission shafts,
accessory drive
assemblies and thrust
and pressure plates
</TABLE>
43
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE TYPE OF INTEREST DESCRIPTION OF USE
-------- ------- ---------------- ------------------
<S> <C> <C> <C>
Turn-Matic Engine oil filter
Clinton Township, MI 93,000 Leased adapters, main
bearing caps and
manifolds
Rubber and Plastic Group
- ------------------------
Deckerville Division Gear shift boots,
Deckerville, MI 89,000 Owned steering column
seals, shift lever
gap hiders,
windshield wiper
covers and coated
metal parts
Walkerton Division Steering column seals
Walkerton, IN 33,000 Owned and shift lever boots
and gap hiders
Plastronics Vacuum reservoirs and
East Troy, WI 39,000 Owned assemblies for air
East Troy, WI 39,000 Owned conditioning, power
steering and cruise
control systems, hose
and wire brackets and
dash panel grommets
Special Machines Group
- ----------------------
Bay City Automated welding and
Bay City, MI 123,000 Owned assembly systems
</TABLE>
LEGAL PROCEEDINGS
Various legal matters arising during the normal course of business
are pending against Newcor. According to Newcor's Form 10-K for the
year ended December 31, 1999, 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-17. On December 21, 1998, Newcor filed a current report on
Form 8-K announcing that the board of directors of Newcor approved
changing Newcor's annual reporting period from a fiscal year ending
October 31 to a calendar year ending December 31. The discussion 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
44
<PAGE>
<PAGE>
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. 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 companies comprising The Deco
Group for approximately $55.0 million and the common stock of Turn-
Matic, Inc. for approximately $17.0 million, concurrent with the
issuance of $125.0 million of 9.875% Senior Subordinated Notes due 2008.
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 increase (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
45
<PAGE>
<PAGE>
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.
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
46
<PAGE>
<PAGE>
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 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
47
<PAGE>
<PAGE>
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 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.
48
<PAGE>
<PAGE>
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.
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'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.
49
<PAGE>
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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.
50
<PAGE>
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information, as of March 9, 2000,
with respect to the beneficial ownership (as defined in Rule 13d-3 of
the Exchange Act) of the outstanding Newcor common stock by each person
or group of persons known by Newcor to be the beneficial owner of more
than 5% of Newcor common stock.
<TABLE>
<CAPTION>
NAME NO. OF SHARES PERCENTAGE
- ---- ------------- ----------
<S> <C> <C>
EXX INC
1350 East Flamingo Road, Suite 689
Las Vegas, Nevada 89119 688,700<F1> 14.02%
Dimensional Fund Advisors Inc.
1299 Ocean Avenue
Santa Monica, California 90401 431,817<F2> 8.79
Shirley E. Gofrank
3001 W. Big Beaver
Troy, Michigan 48084 284,042<F3> 5.78
Catherine A. Gofrank
26555 Evergreen Road
Southfield, Michigan 48076-4285 283,375<F4> 5.77
<FN>
- --------------------
<F1> EXX owns 664,700 shares and that the controlling stockholder of
EXX owns 24,000 shares in his own name. EXX and the controlling
stockholder have shared voting and dispositive power with respect
to 664,700 shares and the controlling stockholder has sole voting
and dispositive power with respect to 24,000 shares.
<F2> The information shown is based on a Schedule 13D, as amended,
dated February 3, 2000 of Dimensional Fund Advisors Inc. The
information in the Schedule 13D indicates that Dimensional Fund
Advisors Inc. has the sole power to vote and dispose of such
shares.
<F3> The information shown is based on a Schedule 13D dated July 10,
1996 of Shirley Gofrank and updating information she recently
provided to Newcor in her capacity as a Newcor director. The
shares reported for her include 46,409 shares over which she has
sole voting and dispositive power, 2,587 shares subject to options
currently exercisable or that will become exercisable within 60
days, and 235,046 shares over which she shares voting and
dispositive power with her sister, Catherine A. Gofrank, in their
capacities as successor co-trustees of a trust established by
their father during his lifetime. The shares reported for Shirley
Gofrank do not include 381 shares owned by her husband, over which
she has no voting or dispositive power.
<F4> The information shown is based on a Schedule 13D dated July 8,
1996 and the supplementary information provided by her sister,
Shirley Gofrank, concerning her holdings as a co-trustee of the
trust referred to above. Based on this information and her
Schedule 13D, Catherine Gofrank has sole voting and dispositive
power over 48,329 of the shares reported for her, and she and her
sister share voting and dispositive power over the rest of the
reported shares.
</TABLE>
51
<PAGE>
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information, as of March 9, 2000,
with respect to the beneficial ownership of the outstanding Newcor
common stock by each director of Newcor, each executive officer of
Newcor who earned over $100,000 in fiscal 1999 and all directors and
executive officers of Newcor as a group.
<TABLE>
<CAPTION>
NAME NO. OF SHARES<F1><F2> PERCENTAGE
- ---- ----------------------- ------------
<S> <C> <C>
Shirley E. Gofrank 284,042 5.78%
Jerry D. Campbell 198,994 4.05
William A. Lawson 145,659 2.95
Richard A. Smith 74,497 1.52
Keith F. Hale 53,332 1.08
James D. Cirar 3,827 <F3>
Jack R. Lousma 18,269 <F3>
W. John Weinhardt 17,989 <F3>
James J. Connor 5,212 <F3>
Thomas D. Parker 13,894 <F3>
Robert E. Dallaire 12,331 <F3>
Shaun W. Hill 6,921 <F3>
All directors and executive officers as a group (12 persons) 834,967 16.79%
<FN>
- --------------------
<F1> Except as otherwise indicated, each individual has sole voting and
investment power over the shares listed beside his or her name.
<F2> The shares reported in the table above include shares that may be
acquired under stock options currently or within 60 days, as
follows: Jack Lousma, 2,587; Richard Smith, 2,587; Shirley
Gofrank, 2,587; Keith Hale, 12,500; John Weinhardt, 250; Jerry
Campbell, 2,587; William Lawson, 20,955; Thomas Parker, 10,324;
Robert Dallaire, 3,000; Shaun Hill, 3,537; and all directors and
current executive officers as a group, 60,914. For purposes of
calculating the group percentage, all optioned shares are treated
as outstanding. For purposes of calculating individual
percentages, only the shares optioned to the named individual are
treated as outstanding. The shares reported also include shares
held in accounts under the Newcor Savings Plan (a 401(k) plan), as
follows: Keith Hale, 2,932; John Weinhardt, 7,389; James Connor,
412; Thomas Parker, 1,680; and Shaun Hill, 1,284. These
individuals have sole dispositive power but no voting power over
those shares. In addition, the shares reported for Shirley
Gofrank also include the 235,046 shares held as co-trustee of the
trust discussed in note 3 of the preceding table. The reported
shares do not include shares held by a person's spouse over which
the person has no voting or dispositive power, as follows:
Richard Smith, 395 shares; and Shirley Gofrank, 381 shares.
<F3> Shares beneficially owned do not exceed one percent of the
outstanding shares of Newcor common stock.
</TABLE>
52
<PAGE>
<PAGE>
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 prospectus.
<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-36 of this
prospectus.
53
<PAGE>
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
We have included this selected unaudited pro forma condensed
consolidated financial 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
financial information in conjunction with the Unaudited Pro Forma
Condensed Consolidated Financial Statements and the notes thereto
included in this prospectus. 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.
FOR THE YEAR ENDED
DECEMBER 31, 1999
------------------
BALANCE SHEET:
Working capital $ 25,931,000
Total assets 226,298,000
Total liabilities 198,243,000
Total stockholders' equity 28,055,000
DECEMBER 31, 1999
-----------------
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)
54
<PAGE>
<PAGE>
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-36 of this prospectus.
COMPARATIVE AND PRO FORMA PER SHARE FINANCIAL INFORMATION
The table below presents historical per share financial
information for EXX and Newcor. This information should be read in
conjunction with the financial information and historical financial
statements and the notes thereto of EXX and Newcor included in this
prospectus. In addition, it is important that you read the Unaudited
Pro Forma Condensed Consolidated Financial Statements and the notes
thereto included in this prospectus. 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 or Newcor during the
period presented. We derived the pro forma Newcor equivalent data based
on an assumed exchange ratio of 2.667 shares of EXX common stock for
each share of Newcor common stock.
Year Ended
December 31, 1999
-----------------
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 non-recurring impairment charge for goodwill of
$8,521,000.
55
<PAGE>
<PAGE>
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>
EXX Common Newcor Common
Sales Price<F1> Sales Price
--------------- -------------
<CAPTION>
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>
56
<PAGE>
<PAGE>
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 prospectus.
<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.
On the date you receive a stock certificate of EXX in exchange for
your Newcor certificate(s), the price of a share of EXX Class A common
stock may differ from those set forth above. Newcor stockholders should
obtain current price quotations. In addition, 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 EXX's 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, EXX deems 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.
LEGAL MATTERS
The legality of the EXX Class A common stock offered by this
prospectus will be passed upon for EXX by Gordon & Silver Ltd.
EXPERTS
The consolidated financial statements of EXX and subsidiaries as
of December 31, 1999 and 1998 and for each of the years in the three-
year period ended December 31, 1999 included in this prospectus have
been included herein and in the registration statement in reliance upon
the report of Rothstein, Kass & Company, P.C., independent certified
public accountants, included herein, and upon the authority of
Rothstein, Kass & Company, P.C. as experts in accounting and auditing.
Pursuant to Rule 439 under the Securities Act, we are requesting
that the independent accountants of Newcor provide us with the consents
required for us to include in this prospectus the audit report included in
Newcor's Annual Report on Form 10-K for the year ended December 31, 1999.
57
<PAGE>
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
We make forward-looking statements in this prospectus, 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 factors discussed under "Risk Factors," in addition to those
discussed elsewhere in this prospectus 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.
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement on Form S-4 to register with the
Securities and Exchange Commission the EXX Class A common stock to be
issued pursuant to our offer. This prospectus is a part of that
registration statement. As allowed by Securities and Exchange
Commission rules, this prospectus does not contain all the information
you can find in the registration statement or the exhibits to the
registration statement. In addition, on the day that we commence the
offer we will file with the Securities and Exchange Commission a
statement on Schedule TO pursuant to Rule 14d-3 under the Exchange Act
to furnish certain information about our offer. You may obtain copies
of the Form S-4 or, once filed, the Schedule TO (and any amendments to
those documents) in the manner described below.
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:
<TABLE>
<S> <C> <C>
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
Chicago, Illinois 60661-2511
</TABLE>
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.
58
<PAGE>
<PAGE>
The Securities and Exchange Commission allows EXX to "incorporate by
reference" information into this prospectus. 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 prospectus, except for any information that is superseded by
information that is included directly in this document.
The following documents filed with the Securities and Exchange
Commission by EXX are incorporated herein by reference:
* 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.
You may read and copy any 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
prospectus 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
If you would like to request additional copies of the documents,
please do so by , 2000 to receive them before the expiration
----------
of the offer. If you request any documents from us, we will mail them
to you by first class mail, or another equally prompt means, within one
business day after we receive your request.
We have not authorized anyone to give any information or make any
representation about the offer or our companies that is different from,
or in addition to, that contained in this prospectus or in any of the
materials that we have incorporated into this document. Therefore, if
anyone does give you information of this sort, you should not rely on
it. The information contained in this document speaks only as of the
date of this document unless the information specifically indicates that
another date applies. If you are in a jurisdiction where offers to
exchange or sell, or solicitations of offers to exchange or purchase,
the securities offered by this document or the solicitation of proxies
is unlawful, or if you are a person to whom it is unlawful to direct
these types of activities, then the offer presented in this document
does not extend to you.
59
<PAGE>
<PAGE>
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 and
Newcor included elsewhere in this prospectus. The Unaudited Pro Forma
Condensed Consolidated Financial Statements give effect to the
following:
* the acquisition of all of the remaining outstanding common
stock of Newcor not currently owned by EXX; and
* the purchase accounting adjustments relating to the acquisition
of 100% of the outstanding stock of Newcor by EXX.
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. 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'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'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 and Newcor
included elsewhere in this prospectus.
60
<PAGE>
<PAGE>
EXX INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<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 $ $ 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>
61
<PAGE>
<PAGE>
EXX INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
EXX INC NEWCOR, INC.
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $21,158,000 $258,483,000 $ -- $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 24,736,00 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>
62
<PAGE>
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO 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 not presently owned by EXX through the exchange offer
contemplated in this prospectus. The unaudited pro forma condensed
consolidated balance sheet gives effect to the proposed acquisition by
EXX using the purchase method of accounting by combining the historical
balance sheet of EXX and the historical balance sheet of Newcor 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
paid by EXX, including the 664,700 shares already owned by EXX, is as
follows:
EXX Class A common stock $ 18,048,000
Liabilities of Newcor 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
============
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 at an assumed market value of $1.50 per share to
complete the exchange offer contemplated in this prospectus for the
remaining 4,246,000 shares of Newcor common stock outstanding but not
presently owned by EXX at an assumed offer price of $4.00 per share.
The pro forma financial statements assume that EXX will acquire 100% of
the outstanding shares of Newcor, although the exchange offer provides
for the acquisition of less than 100%. If EXX does not acquire more
than 50% of the outstanding shares of Newcor, but EXX's ownership
percentage increases to 20%, EXX 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 that presented in
the unaudited pro forma condensed consolidated financial statements
included in the prospectus.
(C) The unaudited pro forma condensed consolidated balance sheet
was adjusted to eliminate EXX's investment in Newcor and record the
excess cost over the fair market value of the assets acquired described
in Note A above.
63
<PAGE>
<PAGE>
(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 resulted in the
recording of $76,939,000 of cost in excess of the fair market value of
assets acquired (goodwill) as described in Note 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 $76,939,000 has been allocated to different operations of
Newcor than the goodwill previously recorded, the impairment charge
recorded by Newcor in 1999 has been eliminated from the condensed
consolidated statement of operations for the year ended December 31,
1999.
64
<PAGE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
EXX INC. PAGE
- -------- ----
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Cash Flows F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Notes to Consolidated Financial Statements F-6 - F-16
NEWCOR, INC. PAGE
- ------------ ----
Consolidated Balance Sheets F-17
Consolidated Statements of Cash Flows F-18
Consolidated Statements of Operations F-19
Consolidated Statements of Shareholders' Equity F-20
Notes to Consolidated Financial Statements F-21 - F-38
65
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
EXX INC
We have audited the accompanying consolidated balance sheets of EXX INC
and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity,
cash flows and financial statement schedule for each of the three years
in the period ended December 31, 1999. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of EXX INC and Subsidiaries as of December 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles. Also in our
opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects,
the information required to be included therein.
/s/ ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
February 16, 2000, except for
Note 13, which is as of
March 2, 2000
F-1
<PAGE>
<PAGE>
<TABLE>
EXX INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,315,000 $ 3,383,000
Short-term investments 3,999,000 3,510,000
Accounts receivable, less allowances of $84,000 and $208,000
in 1999 and 1998 3,357,000 2,315,000
Inventories 2,991,000 3,552,000
Other current assets 349,000 276,000
Refundable income taxes 111,000
Deferred tax assets 953,000 854,000
----------- -----------
Total current assets 14,075,000 13,890,000
Property and equipment, net 2,325,000 2,386,000
Long-term investments 1,620,000
Other assets 375,000 278,000
----------- -----------
$18,395,000 $16,554,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable, current portion $ 59,000 $ 49,000
Accounts payable and other current liabilities 3,988,000 4,333,000
Income taxes payable 285,000
----------- -----------
Total current liabilities 4,047,000 4,667,000
----------- -----------
Long-term liabilities
Notes payable, less current portion 1,688,000 1,745,000
Pension liability 576,000 424,000
Deferred tax liability 646,000 437,000
----------- -----------
2,910,000 2,606,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 5,000,000 shares,
none issued
Common stock, Class A, $.01 par value
authorized 25,000,000 shares, issued 17,653,014 shares 177,000 177,000
Common stock, Class B, $.01 par value authorized 1,000,000
shares, issued 929,106 shares 9,000 9,000
Capital in excess of par value 3,844,000 3,844,000
Accumulated other comprehensive loss (378,000) (206,000)
Retained earnings 9,019,000 6,574,000
Less treasury stock, 5,591,407 and 5,326,507 shares of Class A
common stock and 304,153 and 285,553 shares of Class B
common stock, at cost, in 1999 and 1998, respectively (1,233,000) (1,117,000)
----------- -----------
Total stockholders' equity 11,438,000 9,281,000
----------- -----------
$18,395,000 $16,554,000
=========== ===========
See accompanying notes to consolidated financial statements
</TABLE>
F-2
<PAGE>
<PAGE>
<TABLE>
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,445,000 $ 761,000 $ (223,000)
Adjustments to reconcile net income (loss) to net
Cash provided by operating activities:
Depreciation and amortization 288,000 338,000 956,000
Deferred income taxes (benefit) 199,000 (84,000) 200,000
Write down of notes receivable 110,000
Accrued interest income (30,000) (128,000)
Loss on sale of property and equipment 3,000
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (1,042,000) 635,000 43,000
Inventories 561,000 (280,000) 1,121,000
Other current assets (73,000) 355,000 54,000
Refundable income taxes (111,000) 330,000 269,000
Other assets (97,000) 26,000 270,000
Accounts payable and other current liabilities (345,000) (726,000) (1,002,000)
Income taxes payable (285,000) 285,000
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,510,000 1,625,000 1,688,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business net of cash acquired -- -- (324,000)
Purchases of property and equipment (227,000) (144,000) (132,000)
Proceeds from sale of property and equipment 3,000
Proceeds from maturities of short-term investments 1,800,000
Purchase of short-term investments (1,125,000) (3,271,000)
Purchase of long-term investment (1,063,000)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,415,000) (1,612,000) (456,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (47,000) (92,000) (670,000)
Purchase of treasury stock (116,000) (192,000)
----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (163,000) (284,000) (670,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,068,000) (271,000) 562,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,383,000 3,654,000 3,092,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,315,000 $ 3,383,000 $ 3,654,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
information, cash paid during the years for:
Interest $ 97,000 $ 126,000 $ 148,000
=========== =========== ===========
Income taxes $ 1,425,000 $ 343,000 $ --
=========== =========== ===========
See accompanying notes to consolidated financial statements
</TABLE>
F-3
<PAGE>
<PAGE>
<TABLE>
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $21,158,000 $20,935,000 $22,324,000
COST OF SALES 12,703,000 14,084,000 16,557,000
----------- ----------- -----------
GROSS PROFIT 8,455,000 6,851,000 5,767,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,047,000 6,076,000 6,531,000
----------- ----------- -----------
OPERATING INCOME (LOSS) 3,408,000 775,000 (764,000)
INTEREST EXPENSE (112,000) (127,000) (145,000)
INTEREST INCOME 283,000 353,000 347,000
OTHER INCOME 94,000 166,000 209,000
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) 3,673,000 1,167,000 (353,000)
INCOME TAXES (BENEFIT) 1,228,000 406,000 (130,000)
----------- ----------- -----------
NET INCOME (LOSS) $ 2,445,000 $ 761,000 $ (223,000)
=========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE
Basic $ 0.19 $ 0.06 $ (0.02)
=========== =========== ===========
Diluted $ 0.18 $ 0.06 $ (0.02)
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 12,749,000 13,340,000 13,475,000
=========== =========== ===========
Diluted 13,221,000 13,340,000 13,475,000
=========== =========== ===========
See accompanying notes to consolidated financial statements
</TABLE>
F-4
<PAGE>
<PAGE>
<TABLE>
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<CAPTION>
ACCUMULATED
OTHER
COMPRE- COMPRE-
COMMON STOCK CAPITAL IN HENSIVE HENSIVE
CLASS CLASS EXCESS OF INCOME INCOME RETAINED TREASURY
A B PAR VALUE (LOSS) (LOSS) EARNINGS STOCK TOTAL
-------- ------ ---------- --------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES,
January 1, 1997 $177,000 $9,000 $3,844,000 $ $6,036,000 $ (925,000) $ 9,141,000
NET LOSS $ (223,000) (223,000) (223,000)
-------- ------ ---------- ========== --------- ---------- ----------- -----------
BALANCES,
December 31, 1997 177,000 9,000 3,844,000 5,813,000 (925,000) 8,918,000
PURCHASE OF TREASURY STOCK (192,000) (192,000)
NET INCOME 761,000 761,000 761,000
OTHER COMPREHENSIVE INCOME,
NET OF TAX EFFECT
Minimum pension
liability adjustment (280,000) (280,000) (280,000)
Net unrealized gains on
marketable securities 74,000 74,000 74,000
----------
Total comprehensive income 555,000
-------- ------ ---------- ========== --------- ---------- ----------- -----------
BALANCES,
December 31, 1998 177,000 9,000 3,844,000 (206,000) 6,574,000 (1,117,000) 9,281,000
PURCHASE OF TREASURY STOCK (116,000) (116,000)
NET INCOME 2,445,000 2,445,000 2,445,000
Minimum pension
liability adjustment (100,000) (100,000) (100,000)
Net unrealized loss
on marketable securities (72,000) (72,000) (72,000)
----------
$2,273,000
-------- ------ ---------- ========== --------- ---------- ----------- -----------
BALANCES,
December 31, 1999 $177,000 $9,000 $3,844,000 $(378,000) $9,019,000 $(1,233,000) $11,438,000
======== ====== ========== ========= ========== =========== ===========
</TABLE>
Minimum pension liability adjustment and unrealized gains on debt
securities have been recorded net of tax effects of $144,000 and
$37,000, respectively, in 1998
Minimum pension liability adjustment and net unrealized loss on
marketable securities have been recorded net of tax effects of $52,000
and $38,000, respectively, in 1999
See accompanying notes to consolidated financial statements
F-5
<PAGE>
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
EXX INC and its subsidiaries (collectively "EXX") operate
primarily in the toy and mechanical equipment industries. Operations in
the toy industry involve the design, assembly and distribution of
consumer goods in the form of toys, watches and kites, which are
primarily imported from the Far East. Operations in the mechanical
equipment industry primarily involve the design, assembly and sale of
capital goods, such as electric motors and cable pressurization
equipment, for the telecommunications industry. EXX's mechanical
equipment products are incorporated into customers' products or are used
to maintain customers' equipment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial
statements include the accounts of EXX INC and its wholly owned
subsidiaries. All material intercompany accounts and transactions have
been eliminated in consolidation.
Revenue Recognition - EXX recognizes revenues when goods are
shipped and title passes to customers. Provisions are established, as
appropriate, for uncollectible accounts, returns and allowances and
warranties in connection with sales.
Cash, Cash Equivalents and Short-Term Investments - EXX considers
all highly-liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. As of December 31, 1999, and at
various times during the year, balances of cash at financial
institutions exceeded the federally insured limit. EXX has not
experienced any losses in such accounts and believes it is not subject
to any significant credit risk on cash and cash equivalents.
EXX's short-term investments are comprised principally of readily
marketable government debt securities with remaining maturities of more
than 90 days at the time of purchase. These investments are classified
as available for sale and are reported at their fair market value as
provided for under Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
("SFAS No. 115"). At December 31, 1999, a gross unrealized loss of
$549,000 has been recorded on the short-term investments.
Fair Value of Financial Instruments - The fair value of EXX's
assets and liabilities which qualify as financial instruments under
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," approximate the carrying amounts
presented in the accompanying consolidated balance sheets.
Inventories - Certain inventories are valued at the lower of cost,
on the last-in, first-out ("LIFO") method, or market. The remainder of
the inventories are valued at the lower of cost, on the first-in, first
out ("FIFO") method, or market.
Impairment of Long-Lived Assets - EXX periodically assesses the
recoverability of the carrying amounts of long-lived assets, including
intangible assets. A loss is recognized when expected undiscounted
future cash flows are less than the carrying amount of the asset. The
impairment loss is the difference by which the carrying amount of the
asset exceeds its fair value.
F-6
<PAGE>
<PAGE>
Property and Equipment - Property and equipment are stated at cost
and are depreciated or amortized on the straight-line method over the
estimated useful lives of the assets as follows:
Buildings and improvements 10 - 25 years
Machinery and equipment 3 - 20 years
Maintenance and repairs are charged to operations, while
betterments and improvements are capitalized.
Long-Term Investment - EXX's long-term investment is comprised of
665,000 shares, approximately 13.5% of the outstanding common stock of a
publicly traded company. This investment is classified as available for
sale and is reported at the fair market value as provided for under SFAS
No. 115. At December 31, 1999, a gross unrealized gain of $557,000 has
been recorded on this investment.
Advertising - Advertising costs are charged to operations as
incurred and were $86,000, $181,000, and $245,000 for 1999, 1998 and
1997, respectively.
Research and Development Costs - Expenditures for research and
development are charged to operations as incurred and were $251,000,
$147,000 and $244,000 for 1999, 1998 and 1997, respectively.
Income Taxes - EXX complies with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires an
asset and liability approach to financial reporting for income taxes.
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities
that will result in future taxable or deductible amounts, based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred income tax assets to
the amount expected to be realized.
Income (Loss) Per Common Share - Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," requires dual presentation of
basic and diluted income per share for all periods presented. Basic
income per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted income per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in
the income of EXX.
In 1999, the outstanding options had a dilutive effect of 472,000
shares. The options had no dilutive effect in 1998 and were
antidilutive in 1997.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassification - Certain 1998 and 1997 amounts have been
reclassified to conform to the 1999 presentation.
F-7
<PAGE>
<PAGE>
3. INVENTORIES
Inventories consist of the following at December 31, 1999 and
1998:
1999 1998
---- ----
Raw materials $ 890,000 $1,089,000
Work-in-progress 180,000 219,000
Finished goods 1,921,000 2,244,000
---------- ----------
$2,991,000 $3,552,000
========== ==========
Inventories stated on the LIFO method amounted to $342,000 and
$480,000 at December 31, 1999 and 1998, respectively, which amounts are
below replacement cost by approximately $381,000 and $341,000,
respectively.
During 1999, 1998, and 1997, net income (loss) was not materially
affected as a result of using the LIFO method.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31,
1999 and 1998:
1999 1998
---- ----
Land $ 41,000 $ 41,000
Buildings and improvements,
including $1,617,000 under
a capital lease 2,987,000 2,961,000
Machinery and equipment 6,484,000 6,298,000
---------- ----------
9,512,000 9,300,000
Less accumulated depreciation
and amortization, including
$350,000 and $261,000 under a
capital lease in 1999 and 1998,
respectively 7,187,000 6,914,000
---------- ----------
$2,325,000 $2,386,000
========== ==========
5. OTHER ASSETS
Other assets consist of the following at December 31, 1999 and
1998:
1999 1998
---- ----
Notes receivable, less
current portion $ 83,000 $ 82,000
Prepaid pension 292,000 196,000
-------- --------
$375,000 $278,000
======== ========
During 1998, EXX recorded a $110,000 write-down on the notes
receivable to their estimated realizable value.
F-8
<PAGE>
<PAGE>
6. NOTES PAYABLE
Notes payable at December 31, 1999 and 1998 are comprised of the
following:
1999 1998
---- ----
Note payable with monthly
payments of approximately
$4,000, including interest
at 4%, through September
2015, collateralized by
substantially all of the
assets of a subsidiary $ 494,000 $ 523,000
Note payable with monthly
payments of approximately
$2,000, including interest
at 4%, through December
2023, collateralized by
substantially all of the
assets of a subsidiary 403,000 413,000
Capital lease obligation 850,000 858,000
---------- ----------
1,747,000 1,794,000
Less current portion 59,000 49,000
---------- ----------
$1,688,000 $1,745,000
========== ==========
Future aggregate required principal payments by year are as
follows:
Year Ending
December 31,
2000 $59,000
2001 63,000
2002 66,000
2003 69,000
2004 76,000
Aggregate minimum lease payments for the obligation under the
capital lease in the years subsequent to December 31, 1999 are as
follows:
Year Ending
December 31,
2000 $ 78,000
2001 78,000
2002 78,000
2003 78,000
2004 82,000
Thereafter 1,023,000
----------
Total minimum lease payments 1,417,000
Less amount representing interest 567,000
----------
Present value of future minimum
lease payments $ 850,000
==========
F-9
<PAGE>
<PAGE>
7. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Accounts payable and other current liabilities consist of the
following at December 31, 1999 and 1998:
1999 1998
---- ----
Trade accounts payable $ 897,000 $1,000,000
Warranty 587,000 580,000
Payroll and related costs 594,000 344,000
Royalties payable 366,000 605,000
Commissions payable 448,000 436,000
Product liability claim 350,000 350,000
Other 746,000 1,018,000
---------- ----------
$3,988,000 $4,333,000
========== ===========
8. INCOME TAXES
The provision for income taxes (benefit) consists of the
following:
1999 1998 1997
---- ---- ----
CURRENT
Federal $1,029,000 $490,000 $(330,000)
DEFERRED
Federal 199,000 (84,000) 200,000
---------- -------- ---------
$1,228,000 $406,000 $(130,000)
========== ======== =========
Substantially all of EXX's taxable income was generated in states
with no state or local income taxes.
The following reconciles the Federal statutory tax rate to the
effective income tax rate:
1999 1998 1997
---- ---- ----
% % %
Federal statutory rate 34.0 34.0 (34.0)
Other (0.6) 0.8 (2.7)
---- ---- -----
Effective income tax rate 33.4 34.8 (36.7)
==== ==== =====
F-10
<PAGE>
<PAGE>
The net deferred tax assets and liabilities as of December 31,
1999 and 1998 are as follows:
1999 1998
---- ----
DEFERRED TAX ASSETS
Allowances for doubtful
accounts, warranty
and notes receivable $ 400,000 $ 510,000
Asset basis difference,
for inventories 124,000 125,000
Unrealized loss on marketable
debt securities 189,000
Pension obligations 97,000 77,000
Other 143,000 142,000
--------- ---------
953,000 854,000
--------- ---------
DEFERRED TAX LIABILITIES
Accumulated DISC earnings (339,000) (263,000)
Asset basis difference, for
property and equipment (50,000) (69,000)
Unrealized gain on marketable
securities (189,000) (37,000)
Other (68,000) (68,000)
--------- ---------
(646,000) (437,000)
--------- ---------
DEFERRED TAX ASSET, net $ 307,000 $ 417,000
========= =========
9. PENSION PLANS
EXX participates in two pension plans. One plan covers hourly
employees under union contracts and provides for defined contributions
based on annual hours worked. Pension expense for this plan was $52,000
in 1999, $81,000 in 1998 and $58,000 in 1997.
EXX's company-sponsored plan is a noncontributory defined benefit
pension plan. Benefits are based on years of service and the employees'
highest five year average earnings. EXX's funding policy is to
contribute annually at least the minimum amount required by the Employee
Retirement Income Security Act of 1974. Effective January 1, 1988, the
plan was curtailed through an amendment to freeze benefits and future
participation.
Net periodic pension cost (benefit) for EXX's company-sponsored
plan is as follows:
1999 1998 1997
---- ---- ----
Interest cost on projected
benefit obligation $ 71,000 $ 70,000 $ 72,000
Expected return on
plan assets (70,000) (60,000) (53,000)
Amortization of net gain
(loss) on transition assets 22,000 23,000 (2,000)
-------- -------- --------
Net periodic pension
cost $ 23,000 $ 33,000 $ 17,000
======== ======== ========
F-11
<PAGE>
<PAGE>
The following table presents significant assumptions used:
1999 1998 1997
---- ---- ----
Discount rate 7% 7% 8%
Expected long-term rate
of return on plan assets 8% 8% 10%
No adjustments for a rate of compensation increase have been
factored into the plan due to the effective curtailment on benefits and
participation.
The following table sets forth the changes in benefit obligations
for the years ended December 31, 1999 and 1998 for EXX's company-
sponsored defined benefit pension plan:
1999 1998
---- ----
Benefit obligation -
beginning of year $1,052,000 $ 949,000
Interest cost 71,000 70,000
Actuarial loss 26,000 112,000
Total benefits paid (81,000) (79,000)
---------- ----------
Benefit obligation - end of year $1,068,000 $1,052,000
========== ==========
The following table sets forth the change in plan assets for the
years ended December 31, 1999 and 1998 for EXX's company-sponsored
defined benefit pension plan:
1999 1998
---- ----
Fair value of plan assets -
beginning of year $ 824,000 $ 778,000
Actual return (loss) on plan
assets (79,000) 65,000
Company contributions 120,000 60,000
Benefits paid (81,000) (79,000)
--------- ---------
Fair value of plan assets -
end of year $ 784,000 $ 824,000
========= =========
1999 1998
---- ----
Plan assets less projected
benefit obligation $(284,000) $(228,000)
Unrecognized actuarial net loss 575,000 424,000
Adjustment required to recognize
minimum pension liability (575,000) (424,000)
--------- ---------
Net amount recognized $(284,000) $(228,000)
========= =========
Funded Status - Amounts recognized in EXX's balance sheet consist
of the following:
1999 1998
---- ----
Prepaid benefit cost $ 292,000 $ 196,000
Accrued benefit liability (576,000) (424,000)
--------- ---------
Net amount recognized $(284,000) $(228,000)
========= =========
F-12
<PAGE>
<PAGE>
10. STOCK OPTIONS
During 1994, EXX's Board of Directors adopted, and the
stockholders approved, the 1994 stock option plan (the "Plan") pursuant
to which 5,000,000 shares of Class A common stock were reserved for
issuance upon the exercise of options granted to officers, directors,
employees and consultants of EXX. Options under the Plan may be
incentive stock options, nonqualified stock options or any combination
thereof, and the Board of Directors (the "Committee") may grant options
at an exercise price which is not less than the fair market value on the
date such options are granted. The Plan further provides that the
maximum period in which stock options may be exercised will be
determined by the Committee, except that they may not be exercisable
after ten years from the date of grant. Unless previously terminated,
the Plan shall terminate in October 2004. At December 31, 1999 and
1998, options to purchase 5,000,000 shares of Class A common stock were
available for grant under the plan.
The status of EXX's stock options are summarized below:
<TABLE>
<CAPTION>
Per Share Average
Plan Other Exercise Exercise
Options Options Price Price
------- ------- ----- -----
<S> <C> <C> <C> <C>
Outstanding at
January 1, 1998 100,000 250,000 $.80 - $1.00 $.94
Granted - 1998 2,000,000<Fa> $.65 - $ .71 $.71
Expired - l998 (100,000) $ .80 $.80
Outstanding at
December 31, 1998
and 1999 -- 2,250,000 $.65 - $1.00 $.74
Exercisable at
December 31, 1998
and 1999 -- 2,250,000 $.65 - $1.00 $.74
<FN>
- ------------
<Fa> Includes options to purchase 1,900,000 shares of Class A
common stock and 100,000 shares of Class B common stock.
</TABLE>
EXX has adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). EXX continues to apply the provisions
of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its
Plan. Had compensation cost for the Plan been determined based on the
fair value at the grant dates, consistent with SFAS No. 123, EXX's net
income applicable to common shareholders and net income per share
applicable to common shareholders would have been adjusted to the pro
forma amounts indicated below:
1998
----
Net income - as reported $761,000
Net income - pro forma 119,000
Basic and diluted income
per share, as reported 0.06
Basic and diluted income
per share, pro forma 0.01
F-13
<PAGE>
<PAGE>
EXX did not issue options or have any options vested during 1997
and 1999 and, therefore, no pro forma adjustments were required.
The fair value of issued stock options is estimated on the date of
grant using the Black-Scholes option pricing model including the
following assumptions for both classes of stock: expected volatility of
82%, expected 0% dividend yield rate, expected life 5 years and a 5%
risk-free interest rate in 1998.
In connection with the acquisition of a subsidiary in 1997, EXX
granted a five-year option for 100,000 shares of Class A common stock
exercisable at $1.00 per share.
11. COMMITMENTS AND CONTINGENCIES
LEASES
EXX leases showroom and office facilities under noncancellable
operating leases running through February 2001. The following are the
aggregate future minimum rental payments, as of December 31, 1999, under
these noncancellable operating leases:
YEAR ENDING DECEMBER 31
2000 $77,000
2001 10,000
-------
$87,000
=======
Rent expense for 1999, 1998 and 1997 amounted to $113,000,
$149,000 and $177,000, respectively.
ROYALTY AGREEMENTS
EXX has licensing agreements relating to the sale of certain
products. Under the terms of the agreements, EXX is required to pay
royalties of 6% to 12% on the net sales of the related products. In
addition, certain agreements require advance payments or payments over
the lives of the agreements.
EMPLOYMENT AGREEMENT
EXX has an employment agreement with an officer, who is a
principal stockholder, requiring the payment of a minimum annual salary
of approximately $300,000, adjusted annually for increases in the
Consumer Price Index, plus a bonus based on EXX's earnings. The
agreement expires in 2004 and is renewable for an additional five years
unless written notice of non-renewal is given by either party within 90
days prior to its expiration.
LITIGATION
EXX is a party to various legal matters, the outcome of which, in
the opinion of management, will not have a material adverse effect on
the financial position, results of operations or cash flows of EXX.
12. SEGMENT INFORMATION
EXX adopted Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), effective January 1, 1998. SFAS No. 131 requires
disclosures of segment information on the basis that is used internally
for evaluating segment performance and deciding how to allocate
resources to segments.
F-14
<PAGE>
<PAGE>
Segment information listed below reflects the two principal
business units of EXX (as described in Note 1). Each segment is managed
according to the products which are provided to the respective customers
and information is reported on the basis of reporting to EXX's Chief
Operating Decision Maker.
Operating segment information for 1999, 1998 and 1997 is
summarized as follows:
<TABLE>
<CAPTION>
MECHANICAL
TOY EQUIPMENT CORPORATE CONSOLIDATED
--- --------- --------- ------------
<S> <C> <C> <C> <C>
1999
Net sales $7,292,000 $13,866,000 $ - $21,158,000
========== =========== ========== ===========
Operating income (loss) $ 587,000 $ 3,462,000 $ (641,000) $ 3,408,000
Interest expense (96,000) (16,000) (112,000)
Interest income 19,000 49,000 215,000 283,000
Other income 24,000 70,000 94,000
---------- ----------- ---------- -----------
Income (loss) before
Income taxes (benefit) $ 534,000 $ 3,581,000 $ (442,000) $ 3,673,000
========== =========== ========== ===========
Assets $2,697,000 $ 6,433,000 $9,265,000<Fa> $18,395,000
========== =========== ========== ===========
Depreciation and
Amortization $ 194,000 $ 94,000 $ - $ 288,000
========== =========== ========== ===========
Capital expenditures $ 33,000 $ 194,000 $ - $ 227,000
========== =========== ========== ===========
<CAPTION>
MECHANICAL
TOY EQUIPMENT CORPORATE CONSOLIDATED
--- --------- --------- ------------
<S> <C> <C> <C> <C>
1998
Net sales $9,639,000 $11,296,000 $ - $20,935,000
========== =========== ========== ===========
Operating income (loss) $ 221,000 $ 1,324,000 $ (770,000) $ 775,000
Interest expense (101,000) (11,000) (15,000) (127,000)
Interest income 14,000 11,000 328,000 353,000
Other income 45,000 50,000 1,000 166,000
---------- ----------- ---------- -----------
Income (loss) before
Income taxes (benefit) $ 179,000 $ 1,374,000 $ (386,000) $ 1,167,000
========== =========== ========== ===========
Assets $6,117,000 $ 4,742,000 $5,695,000<Fa> $16,554,000
========== =========== ========== ===========
Depreciation and
Amortization $ 243,000 $ 95,000 $ - $ 338,000
========== =========== ========== ===========
Capital expenditures $ 75,000 $ 69,000 $ - $ 144,000
========== =========== ========== ===========
F-15
<PAGE>
<PAGE>
<CAPTION>
MECHANICAL
TOY EQUIPMENT CORPORATE CONSOLIDATED
--- --------- --------- ------------
<S> <C> <C> <C> <C>
1997
Net sales $12,162,000 $10,162,000 $ - $22,324,000
=========== =========== ========== ===========
Operating income (loss) $(1,152,000) $ 819,000 $ (431,000) $ (764,000)
Interest expense (124,000) - (21,000) (145,000)
Interest income 13,000 90,000 244,000 347,000
Other income 77,000 132,000 - 209,000
----------- ----------- ---------- -----------
Income (loss) before
Income taxes (benefit) $(1,186,000) $ 1,041,000 $ (208,000) $ (353,000)
=========== =========== ========== ===========
Assets $ 7,401,000 $ 2,809,000 $5,971,000<Fa> $16,181,000
=========== =========== ========== ===========
Depreciation and
Amortization $ 871,000 $ 85,000 $ - $ 956,000
=========== =========== ========== ===========
Capital expenditures $ 4,000 $ 128,000 $ - $ 132,000
=========== =========== ========== ===========
<FN>
- -----------
<Fa> Corporate assets consist primarily of cash, short-term
investments and long-term investments, as described in Note 2.
</TABLE>
Net sales to countries outside of the United States for the years
ended December 31, 1999, 1998 and 1997 were approximately $1,608,000,
$1,631,000 and $1,374,000, respectively, and were attributable
primarily to sales from EXX's mechanical equipment segment. There were
no significant sales to any country or region outside of the United
States.
Net sales to one customer were approximately 20%, 20% and 18% for
the years ended December 31, 1999, 1998 and 1997, respectively.
13. SUBSEQUENT EVENTS
In March 2000, EXX paid a 400% stock dividend to all shareholders
of EXX's Class A and B common stock of record as of December 16, 1999.
The dividend provides for four shares of EXX's Class A common stock for
each share of Class A and/or Class B common stock owned by a
shareholder. All transactions and disclosures in the consolidated
financial statements related to EXX's Class A and Class B common stock
have been restated to reflect the effects of the stock dividend.
F-16
<PAGE>
<PAGE>
<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-17
<PAGE>
<PAGE>
<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-18
<PAGE>
<PAGE>
<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-19
<PAGE>
<PAGE>
<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-20
<PAGE>
<PAGE>
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.
F-21
<PAGE>
<PAGE>
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.
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.
F-22
<PAGE>
<PAGE>
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 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.
1998 1997
---- ----
Sales $241,700 $242,600
======== ========
Net income (loss) $ (1,100) $ 4,600
======== ========
Net income (loss) per share - basic and diluted $ (0.22) $ 0.93
======== ========
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.
F-23
<PAGE>
<PAGE>
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.
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.
F-24
<PAGE>
<PAGE>
7. INVENTORIES
Inventories at December 31, 1999 and October 31, 1998 are
summarized as follows:
1999 1998
---- ----
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
======= =======
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.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and October 31,
1998 are summarized as follows:
1999 1998
---- ----
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
======= =======
F-25
<PAGE>
<PAGE>
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:
Year Ending
December 31,
2000 $ 6,710
2001 6,586
2002 5,943
2003 6,136
2004 5,409
Thereafter 4,741
-------
$35,525
=======
10. CREDIT ARRANGEMENTS AND LONG-TERM DEBT
A summary of long-term debt at December 31, 1999 and October 31,
1998 is as follows:
1999 1998
---- ----
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
======== ========
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
F-26
<PAGE>
<PAGE>
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 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.
F-27
<PAGE>
<PAGE>
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:
Year Ending
December 31,
2000 $ 2,000
2001 2,000
2002 2,000
2003 833
2004
Thereafter 129,100
--------
$135,933
========
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>
F-28
<PAGE>
<PAGE>
Significant components of the deferred tax assets and liabilities as
of December 31, 1999 and October 31, 1998 are as follows:
1999 1998
---- ----
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)
------ ------
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.
F-29
<PAGE>
<PAGE>
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.
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
======= =======
F-30
<PAGE>
<PAGE>
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>
<TABLE>
<CAPTION>
For the two
For the month period
year ended ended
December 31, December 31, For the years 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.
F-31
<PAGE>
<PAGE>
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 (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-32
<PAGE>
<PAGE>
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-33
<PAGE>
<PAGE>
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.
F-34
<PAGE>
<PAGE>
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
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
F-35
<PAGE>
<PAGE>
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.
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
<CAPTION>
For the year ended October 31, 1998
----------------------------------------------------
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.
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.
F-36
<PAGE>
<PAGE>
<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
</TABLE>
F-37
<PAGE>
<PAGE>
<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>
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-38
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Eighth Article in EXX's Articles of Incorporation provides
that the corporation shall indemnify its directors and officers to the
fullest extent permitted by the General Corporation Law of the State of
Nevada. EXX's Articles further provide that any indemnification shall
continue even after the Indemnitee (as defined below) ceases to be a
director, officer, employee or agent of the corporation and shall inure
to the benefit of the heirs, executors and administrators of the
Indemnitee.
EXX INC's Bylaws provide indemnification for any and all of its
directors and officers, and its former directors and officers, or any
person who may have served at the corporation's request as a director or
officer of another corporation in which it owns shares of capital stock
or of which it is a creditor ("Indemnitee"), who is adjudged in an
action, suit or proceeding to be liable for negligence or misconduct in
the performance of duty.
Nevada's general corporation law allows a corporation to indemnify
any of its officers, directors, employees or agents who are party to any
threatened, pending or completed action, suit or proceeding brought
against that person by reason of the fact he was an officer or director
(or serving at the request of the corporation for another corporation in
such capacity) against expenses actually and reasonably incurred in
connection with such action. However, Nevada's law requires that the
Indemnitee acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. Nevada's
general corporation law further states that the corporation may
indemnify such person even if he is adjudged liable to the corporation
if that court determines in view of the circumstances of the case, that
he is "fairly and reasonably entitled to indemnity for such expenses as
the court deems proper." Nevada's law provides that the determination
for discretionary indemnification shall come from:
(1) the stockholders;
(2) a majority vote of a quorum of directors not party to the
action;
(3) if a majority vote of a quorum of directors not party to the
action so orders, from an independent legal counsel in
written opinion; or
(4) if a quorum consisting of directors not party to the action
cannot be obtained, from an independent legal counsel in
written opinion.
Nevada's general corporation law requires that the corporation
indemnify a director or officer if that director or officer is
successful on the merits. However, the statute does not allow a
corporation to indemnify a director or officer in the event that it is
determined that his "acts or omissions involved intentional misconduct,
fraud or a knowing violation of law and which was material to the cause
of action."
Nevada's general corporation law further states that
indemnification under the statute is not deemed exclusive of any other
rights under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office.
II-1
<PAGE>
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
This registration statement includes the following exhibits:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
5.1 Opinion of Gordon & Silver Ltd. regarding legality of
securities being issued.<F*>
10.1 Amendment, dated March 27, 1998, to Employment Agreement
with David A. Segal, incorporated by reference to
Amendment No. 1 to the Registration Statement on Form S-4
dated August 16, 1994.
23.1 Consent of Gordon & Silver, Ltd. to be included in its
opinion filed as Exhibit 5.1 to this registration
statement.<F*>
23.2 Consent of Rothstein, Kass & Company, P.C. with regard to
the use of its report on EXX's financial statements.
24 Power of Attorney - included on the signature page of
this registration statement.
[FN]
- ---------------
<F*> to be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules either are not required or are
included in the notes to the financial statements incorporated by
reference herein.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
II-2
<PAGE>
<PAGE>
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(1)(1) and (a)(1)(2) of this
section do not apply if the registration statement is on Form S-3,
Form S-8 or Form F-3, and the information required to be included
in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions set
forth in response to Item 20 hereof, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(e) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that was
not the subject of and included in the registration statement when it
became effective.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 26th
day of April, 2000.
EXX INC
By: /s/ David A. Segal
-----------------------------------
David A. Segal
Chairman of the Board of Directors,
Chief Executive Officer and Chief
Financial Officer (Principal
Executive Officer, Principal
Financial Officer and Principal
Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David A. Segal, the undersigned's
true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for the undersigned and in the
undersigned's name, place and stead, in any and all capacities, to sign
any or all amendments (including post-effective amendments) to this
registration statement, and to file the same with all exhibits thereto
and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in ratifying and confirming all that
said attorney-in-fact and agent, or substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on the 26th day of April,
2000 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES
- ---------- ------
<S> <C>
/s/ David A. Segal Chairman of the Board of Directors, Chief
- ----------------------------------- Executive Officer and Chief Financial Officer
David A. Segal (Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer)
/s/ Jerry Fishman Director
- -----------------------------------
Jerry Fishman
/s/ Norman H. Perlmutter Director
- -----------------------------------
Norman H. Perlmutter
/s/ Frederic Remington Director
- -----------------------------------
Frederic Remington
</TABLE>
II-4
<PAGE>
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
5.1 Opinion of Gordon & Silver, Ltd. regarding legality of
securities being issued.<F*>
10.1 Amendment, dated March 27, 1998, to Employment
Agreement with David A. Segal, incorporated by
reference to Amendment No. 1 to the Registration
Statement on Form S-4 dated August 16, 1994.
23.1 Consent of Gordon & Silver, Ltd. to be included in its
opinion filed as Exhibit 5 to this registration
statement.<F*>
23.2 Consent of Rothstein, Kass & Company, P.C. with regard
to the use of its report on EXX's financial
statements.
24 Power of Attorney - included on the signature page of
this registration statement.
[FN]
- ---------------
<F*> to be filed by amendment.
<PAGE>
CONSENT
We consent to the incorporation by reference in the registration statement of
EXX Inc on Form S-4 of our report dated March 2, 2000, on our audits of the
consolidated financial statements of EXX INC as of December 31, 1999 and 1998
and for each of the three years ended December 31, 1999 which report is
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. We also consent to the reference to our Firm under the
caption "Experts".
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
April 27, 2000
