18
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-5005
SELAS CORPORATION OF AMERICA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1069060
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO)
INCORPORATION OR ORGANIZATION)
DRESHER, PENNSYLVANIA 19025
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(215) 646-6600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
(X) YES ( ) NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
COMMON SHARES, $1.00 PAR VALUE 5,119,214 (exclusive of 515,754
CLASS treasury shares)
OUTSTANDING AT AUGUST 8, 2001
SELAS CORPORATION OF AMERICA
I N D E X
Page
Number
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 2001 and December 31, 2000 3-4
Consolidated Statements of Operations for
the Three Months Ended June 30, 2001 and 2000 5
Consolidated Statements of Operations for
the Six Months Ended June 30, 2001 and 2000 6
Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2001 and 2000 7
Consolidated Statement of Shareholders'Equity
for the Six Months Ended June 30, 2001 8
Notes to Consolidated Financial Statements 9-13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 14-16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Assets
June 30, December 31,
2001 2000
(Unaudited) (Audited)
Current assets
Cash, including cash equivalents of
$1,086,000 in 2001 and $428,000 in 2000 $ 3,323,311 $ 4,055,224
Accounts receivable (including unbilled
receivables of $8,708,000 in 2001
and $13,491,000 in 2000, less allowance
for doubtful accounts of $915,000 in
2001 and $746,000 in 2000) 34,825,372 38,173,397
Inventories 15,708,307 13,808,636
Deferred income taxes 3,321,965 2,811,219
Other current assets 1,264,940 1,465,456
Total current assets 58,443,895 60,313,932
Property, plant and equipment
Land 934,289 975,383
Buildings 10,779,311 11,171,239
Machinery and equipment 33,121,076 31,781,389
44,834,676 43,928,011
Less: Accumulated depreciation 26,505,228 24,819,267
Net property, plant and equipment 18,329,448 19,108,744
Excess of cost over net assets of acquired
subsidiaries, less accumulated amortiza-
tion of $4,267,000 in 2001 and
$3,898,000 in 2000 15,981,094 15,599,884
Deferred income taxes 535,251 451,861
Other assets including patents, less
amortization 1,347,586 856,719
$94,637,274 $96,331,140
(See accompanying notes to the consolidated financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Liabilities and Shareholders' Equity
June 30, December 31,
2001 2000
Current liabilities (Unaudited) (Audited)
Notes payable $10,945,706 $ 9,153,626
Current maturities of long-term debt 1,503,833 1,755,495
Accounts payable 16,978,959 21,447,745
Federal, state and foreign income taxes 1,134,294 1,201,720
Customers' advance payments on contracts 3,812,517 3,783,421
Guarantee obligations and estimated costs
of service 1,099,398 957,740
Other accrued liabilities 6,980,831 6,327,403
Total current liabilities 42,455,538 44,627,150
Long-term debt 4,122,936 3,211,706
Other postretirement benefit obligations 4,293,577 4,058,761
Contingencies and commitments
Shareholders' equity
Common shares, $1 par; 10,000,000 shares
authorized; 5,634,968 shares issued 5,634,968 5,634,968
Additional paid-in capital 12,012,541 12,012,541
Retained earnings 28,578,828 28,606,413
Accumulated other comprehensive (loss) (1,196,036) (555,321)
Less: 515,754 common shares held
in treasury, at cost (1,265,078) (1,265,078)
Total shareholders' equity 43,765,223 44,433,523
$94,637,274 $96,331,140
(See accompanying notes to the consolidated financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
June 30, June 30,
2001 2000
Sales, net $29,017,501 $31,996,300
Operating costs and expenses
Cost of sales 23,761,619 25,764,738
Selling, general and administrative
expenses 4,785,086 4,556,664
Operating income 470,796 1,674,898
Interest (expense) (293,672) (334,159)
Interest income 17,145 15,409
Other income (expense), net (82,656) 180,790
Income before income taxes (benefit) 111,613 1,536,938
Income taxes (benefit) (23,189) 517,879
Net income $ 134,802 $ 1,019,059
Earnings per share
Basic $.03 $.20
Diluted $.03 $.20
Average shares outstanding
Basic 5,119,000 5,121,000
Diluted 5,143,000 5,133,000
Comprehensive income (loss) $ (51,895) $ 993,277
(See accompanying notes to the consolidated financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Statements of Operations
(Unaudited)
Six Months Ended
June 30, June 30,
2001 2000
Sales, net $57,428,374 $62,519,308
Operating costs and expenses
Cost of sales 46,463,384 49,198,359
Selling, general and administrative
expenses 9,746,073 9,339,699
Operating income 1,218,917 3,981,250
Interest (expense) (595,272) (602,083)
Interest income 28,045 31,689
Other income (expense), net 45,010 126,810
Income before income taxes 696,700 3,537,666
Income taxes 263,426 1,318,014
Net income $ 433,274 $ 2,219,652
Earnings per share
Basic $.09 $.43
Diluted $.09 $.43
Average shares outstanding
Basic 5,119,000 5,123,000
Diluted 5,129,000 5,129,000
Comprehensive income (loss) $ (207,441) $ 1,881,982
(See accompanying notes to the consolidated financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30, June 30,
2001 2000
Cash flows from operating activities:
Net income $ 433,274 $ 2,219,652
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Depreciation and amortization 2,139,848 2,001,974
Equity in loss of unconsolidated
affiliate 9,341
(Gain) loss on sale of property and
equipment 5,532 (4,229)
Deferred taxes (720,464) (9,594)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable 653,657 (7,717,642)
(Increase) in inventories (1,782,318) (416,829)
(Increase) in other assets (98,655) (1,096,586)
Increase (decrease) in accounts
payable (2,318,974) 10,379,904
Increase (decrease) in accrued expenses (675,497) 912,134
Increase(decrease) in customer advances 291,351 (803,043)
Increase (decrease) in other
liabilities 423,898 (135,362)
Net cash provided (used) by
operating activities (1,648,348) 5,339,720
Cash flows from investing activities:
Purchases of property, plant and equipment (1,119,094) (1,728,807)
Proceeds from sale of property, plant
and equipment 1,384 13,150
Acquisition of subsidiary companies, net of
cash acquired (68,143) 278,110
Net cash (used) by investing
activities (1,185,853) (1,437,547)
Cash flows from financing activities:
Proceeds from short-term bank borrowings 3,090,998 1,454,699
Proceeds from long-term bank borrowings 2,353,494
Proceeds from borrowings to acquire
subsidiary company 672,137 1,682,292
Repayments of short-term bank borrowings (1,964,133) (3,469,554)
Repayments of long-term debt (1,329,301) (1,281,110)
Payment of dividends (460,859) (461,255)
Purchase of treasury stock (55,108)
Net cash provided (used) by
financing activities 2,362,336 (2,130,036)
Effect of exchange rate changes on cash (260,048) (272,849)
Net increase (decrease) in cash and cash
equivalents (731,913) 1,499,288
Cash and cash equivalents, beginning of
period 4,055,224 1,756,008
Cash and cash equivalents, end of period $ 3,323,311 $ 3,255,296
(See accompanying notes to the consolidated financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Statement of Shareholders' Equity
Six Months Ended June 30, 2001
(Unaudited)
Common Stock
Additional
Number of Paid-in
Shares Amount Capital
Balance January 1,
2001 5,634,968 $5,634,968 $12,012,541
Net income
Cash dividends paid
($.09 per share)
Foreign currency
translation (loss)
Derivative financial
instrument gain
Comprehensive (loss)
Balance June 30,
2001 5,634,968 $5,634,968 $12,012,541
Accumulated
Other
Comprehensive
Retained Income Comprehensive
Earnings (Loss) Income
Balance January 1,
2001 $28,606,413 $(555,321)
Net income 433,274 $433,274
Cash dividends paid
($.09 per share) (460,859)
Foreign currency
translation (loss) (676,412) (676,412)
Derivative financial
instrument gain 35,697 35,697
Comprehensive (loss) $(207,441)
Balance June 30,
2001 $28,578,828 $(1,196,036)
Total
Treasury Shareholders
Stock Equity
Balance January 1,
2001 $(1,265,078) $44,433,523
Net income 433,274
Cash dividends paid
($.09 per share) (460,859)
Foreign currency
translation (loss) (676,412)
Derivative financial
instrument gain 35,697
Comprehensive (loss)
Balance June 30,
2001 $(1,265,078) $43,765,223
(See accompanying notes to the consolidated financial statements)
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)
1. In the opinion of management, the accompanying consolidated condensed
financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly Selas Corporation of
America's consolidated financial position as of June 30, 2001 and
December 31, 2000, and the consolidated results of its operations for
the three and six months ended June 30, 2001 and 2000 and consolidated
statements of shareholders' equity and cash flows for the six months
then ended.
2. The accounting policies followed by the Company are set forth in note 1
to the Company's financial statements in the 2000 Selas Corporation of
America Annual Report.
3. Inventories consist of the following:
June 30, December 31,
2001 2000
Raw material $ 3,871,211 $ 3,738,194
Work-in-process 6,869,315 5,214,538
Finished products and components 4,967,781 4,855,904
$15,708,307 $13,808,636
4. Income Taxes
Consolidated income taxes for the six months ended June 30, 2001 and 2000
are $263,000 and $1,318,000 which result in effective tax rates of 37.8%
and 37.3%, respectively. The rate of tax in relation to pre-tax income
in 2001 and 2000 is high because tax benefits from certain foreign net
operating losses could not be utilized for income tax purposes.
5. Legal Proceedings
The Company is a defendant along with a number of other parties in
approximately 100 lawsuits as of December 31, 2000 (approximately 200 as
of December 31, 1999) alleging that plaintiffs have or may have
contracted asbestos-related diseases as a result of exposure to asbestos
products or equipment containing asbestos sold by one or more named
defendants. Due to the noninformative nature of the complaints, the
Company does not know whether any of the complaints state valid claims
against the Company. The lead insurance carrier has informed the Company
that the primary policy for the period July 1, 1972 to July 1, 1975 has
been exhausted and that the lead carrier will no longer provide a defense
under that policy. The Company has requested that the lead carrier
substantiate this situation. The Company has contacted representatives
of the Companys excess insurance carrier for some or all of this
period. The Company does not believe that the asserted exhaustion of the
primary insurance coverage for this period will have a material adverse
effect on the financial condition, liquidity, or results of operations of
the Company. Management is of the opinion that the number of insurance
carriers involved in the defense of the suits and the significant number
of policy years and policy limits to which these insurance carriers are
insuring the Company make the ultimate disposition of these lawsuits not
material to the Companys consolidated financial position or results of
operations.
The Company is also involved in other lawsuits arising in the normal
course of business. While it is not possible to predict with certainty
the outcome of these matters, management is of the opinion that the
disposition of these lawsuits and claims will not materially affect the
Companys consolidated financial position, liquidity, or results of
operations.
6. Statements of Cash Flows
Six Months Ended
June 30, June 30,
2001 2000
Interest received $ 34,273 $ 31,563
Interest paid $ 537,707 $ 538,023
Income taxes paid $1,086,211 $ 321,530
7. Accounts Receivable
At June 30, 2001, the Company had $1,940,347 of trade accounts receivable
due from the major U.S. automotive manufacturers and $5,741,122 of trade
accounts receivable due from hearing health manufacturers. The Company
also had $10,548,788 in receivables from long-term contracts for
customers in the steel industry in North America, Europe and Asia.
8. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
For the Three Months
Ended June 30, 2001
Income Shares Per Share
Numerator Denominator Amount
Basic Earnings Per Share
Income available to
common shareholders $ 134,802 5,119,214 $.03
Effect of Dilutive
Securities
Stock options 23,702
Diluted Earnings Per Share $ 134,802 5,142,916 $.03
For the Six Months
Ended June 30, 2001
Income Shares Per Share
Numerator Denominator Amount
Basic Earnings Per Share
Income available to
common shareholders $ 433,274 5,119,214 $.09
Effect of Dilutive
Securities
Stock options 10,110
Diluted Earnings Per Share $ 433,274 5,129,324 $.09
9. Business Segment Information
The Company has three operating segments. The Company is engaged in
providing engineered heat technology equipment and services to industries
throughout the world, the manufacture of precision miniature medical and
electronic products and the manufacture of original equipment for light
trucks and vans. The results of operations and assets of these segments
are prepared on the same basis as the condensed consolidated financial
statements for the six months ended June 30, 2001 and 2000 and the
consolidated financial statements included in the 2000 Form 10-K.
The Company's reportable segments reflect separately managed, strategic
business units that provide different products and services, and for
which financial information is separately prepared and monitored.
Segments
Tire Precision
For the Holders, Miniature
Six Months Lifts and Medical and General
Ended Heat Related Electronic Corporate
June 30, 2001 Technology Products Products Expenses Total
Sales, net $28,871,256 $7,299,705 $21,257,413 $57,428,374
Net income
(loss) $ 354,977 $ (8,712) $ 456,760 $(369,751) $ 433,274
Depreciation
and amoriza-
tion $ 381,133 $ 100,092 $ 1,658,623 2,139,848
Property, plant
and equipment
additions $ 139,551 $ 3,040 $ 976,503 $ 1,119,094
Total assets $46,081,378 $5,998,938 $42,556,958 $94,637,274
Segments
Tire Precision
For The Holders, Miniature
Six Months Lifts and Medical and General
Ended Heat Related Electronic Corporate
June 30, 2000 Technology Products Products Expenses Total
Sales, net $33,941,685 $10,049,519 $18,528,104 $62,519,308
Net income
(loss) $ 796,843 $ 941,658 $ 822,075 $(340,924)$ 2,219,652
Depreciation
and amoriza-
tion $ 418,631 $ 102,546 $ 1,480,797 $ 2,001,974
Property, plant
and equipment
additions $ 137,262 $ 125,752 $ 1,465,793 $ 1,728,807
otal assets $50,356,691 $ 7,107,117 $38,495,214 $95,959,022
10. Derivative Financial Instruments
The Company is exposed to market risks from changes in interest rates and
fluctuations in foreign exchange rates. The Company has only limited
involvement with derivative financial instruments and does not use them
for trading purposes. They are used to manage well-defined interest rate
and foreign currency risks.
Interest rate swap agreements are used to reduce the potential impact of
increases in interest rates on floating rate long-term debt. At June 30,
2001, the Company's French subsidiary was party to one interest rate
swap agreement. The interest rate swap agreement is with a major
European financial institution and has a total notional amount of $1
million at June 30, 2001. The notional amount will decrease consistent
with the terms of the related long-term debt agreement. The swap
agreement requires fixed interest payments based on an effective rate of
8.55% for the remaining term through May, 2006. The subsidiary
continually monitors its position and the credit ratings of its
counterparties and does not anticipate nonperformance by the
counterparties.
The fair value of the interest rate swap agreement was $.9 million at
June 30, 2001. The fair value of this financial instrument represents
the aggregate replacement cost based on financial institution quotes.
Effective January 1, 2001, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 133 and No. 138
"Accounting for Derivative Instruments and Hedging Activities." Changes
in the fair value of interest rate swaps designated as hedging
instruments of the variability of cash flows associated with floating
rate, long-term debt obligations are reported in Accumulated Other
Comprehensive (Loss). These amounts are subsequently reclassed into
interest expense as a yield adjustment in the same period in which the
related interest on the floating-rate debt obligations affect earnings.
During the six months ended June 30, 2001, approximately $16,101 of gains
related to the interest rate swap have been reclassified into interest
expense as a yield adjustment of the hedged debt obligation. As of June
30, 2001, $35,697 has been included in Accumulated Other Comprehensive
(Loss), net of taxes of $19,223, which represents the fair market value
of the interest rate swap on the long term debt obligation.
As of June 30, 2001, the Company has no outstanding foreign currency
exchange contracts.
PART I - FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Consolidated net sales decreased to $29 million and $57.4 million for the
three and six months ended June 30, 2001 compared to $32 million and $62.5
million for the same periods ended June 30, 2000. Net sales for the heat
technology segment decreased to $15.1 million and $28.9 million for the three
and six months ended June 30, 2001 compared to $18.1 million and $33.9
million for the same periods in 2000. The decrease in sales is due to lower
revenue recognized on large engineered contracts caused by a reduction in the
booking of these types of orders, partially offset by an increase
in activity for smaller furnaces produced by its CFR and Ermat subsidiaries,
higher sales of spare parts and burners and the inclusion of Nippon Selas
revenue in the current period. The remaining equity investment in Nippon
Selas was acquired in June, 2000. Sales and earnings of engineered contracts
are recognized on the percentage-of-completion method and generally require
more than twelve months to complete. Consolidated backlog for the heat
technology segment decreased to $19.3 million at June 30, 2001 compared to
$32.5 million at the same time last year. Sales for the Company's precision
miniature medical and electronics products segment increased to $10 million
and $21.3 million for the three and six month periods ended June 30, 2001
compared to $9.1 million and $18.5 million for the same periods in 2000. The
increase in revenue is due in part to higher sales of hearing health system
parts and the inclusion in the current year of the sales of Lectret
Precision, a Singapore manufacturer of microphone capsules acquired in
January, 2001. Partially offsetting these increases are lower sales volume
of hearing health component and medical infusion parts. Sales of thermistor
and capacitor parts also decreased in 2001 compared to 2000 due to the
continuing decline in demand for these products by customers in the
electronics industry. Net sales of the tire holders, lifts and related
products segment decreased to $4 million and $7.3 million for the three and
six months ended June 30, 2001 compared to $4.8 million and $10 million for
the same periods in 2000. The decline in revenue is due to lower sales of
tire lift products to the Company's automotive customers, reflecting the
conditions in that market and the loss of a contract at the beginning of the
year to supply tire lifts for one of its customer's new models.
The Company's gross profit margin as a percentage-of-sales decreased to 18.2%
and 19.1% for the three and six month periods ended June 30, 2001 compared to
19.5% and 21.3% for the same periods in 2000. Gross profit margins for the
heat technology segment increased to 15.2% for the three months ended June
30, 2001 compared to 12.6% for the same period in 2000 and decreased slightly
to 15.3% for the six months ended June 30, 2001 compared to 15.4% in 2000.
Heat technology gross profit margins on large engineered contracts vary
markedly from contract to contract, depending on customer specifications and
other conditions related to the project. The gross profit margins for the
first six months of 2001 were impacted by revenue recognized on several large
engineered contracts whose margins were not as profitable as those completed
in 2000 offset by higher sales of burners and replacement parts in the second
quarter of 2001 which typically have better margins than other segment
products. Gross profit margins for the precision miniature medical and
electronic products segment decreased to 24.6% and 26.8% for the three and
six months ended June 30, 2001 compared to 30.5% and 31% for the same periods
in 2000. The lower margins in the current year are attributable to the mix
of product sales between the periods as hearing health component parts, whose
sales have been declining, have higher profit margins compared to some of the
segment's other products, particularly hearing health system parts, whose
revenue has been increasing. Gross profit margins for the tire holders,
lifts and related products segment declined to 13.0% and 12.0% for the three
and six months ended June 30, 2001 compared to 24.9% and 23.5% for the same
period in 2000. The lower margins in the current year are due to a loss of
efficiencies in the tire lift production process resulting from the weakness
of sales to the automotive industry.
Selling, general and administrative expenses (SG&A) increased to $4.8 million
and $9.7 million for the three and six month periods ended June 30, 2001
compared to $4.6 million and $9.3 million for same period in 2000. The
higher SG&A costs in the current year are due primarily to the acquisition in
January 2001 of Lectret, the Singapore microphone capsule manufacturer, and
the inclusion of Nippon Selas results for the current quarter. The remaining
equity investment in Nippon Selas was acquired in June, 2000.
Interest expense for the three and six months ended June 30, 2001 decreased
to $294,000 and $595,000 compared to $334,000 and $602,000 for the same
period in 2000. The decrease is due to lower interest rates partially offset
by higher average borrowings. Interest income for the three months ended
June 30, 2001 increased to $17,000 compared to $15,000 in 2000, while income
for the first six months of 2001 decreased to $28,000 compared to $32,000 for
the same periods in 2000. The decrease for the year to date period is caused
by lower funds available for investment.
Other income (expense) includes losses on foreign exchange of $81,000 and
gains on foreign exchange of $37,000 for the three and six months ended June
30, 2001 compared to gains of $11,000 and losses of $87,000 for the same
periods in 2000.
Consolidated income taxes for the six months ended June 30, 2001 and 2000 are
$263,000 and $1,318,000 which result in effective tax rates of 37.8% and
37.3%, respectively. The rate of tax in relation to pre-tax income in 2001
and 2000 is high because tax benefits from certain foreign net operating
losses could not be utilized for income tax purposes.
Consolidated net income for the three and six month periods ended June 30,
2001 decreased to $135,000 and $433,000 compared to $1,019,000 and $2,220,000
for the same periods in 2000. The decline in profitability is due to lower
sales and gross profit margins on certain contracts and other products in
some of the segments and higher SG&A expenses resulting from the acquisitions
of Lectret and Nippon Selas, partially offset by year to date gains on
foreign exchange in 2001.
Liquidity and Capital Resources
Consolidated net working capital increased to $16 million at June 30, 2001
compared to $15.7 million at December 31, 2000. The increase is primarily
due to the net income for the six months and net assets obtained through
acquisitions, offset by purchases of property and equipment, pay-down of
long-term debt, payment of dividends and borrowings to fund acquisitions.
The major changes in components of working capital for the period were a
decrease in cash and cash equivalents of $.7 million, lower accounts receivable
of $3.3 million, higher inventories of $1.9 million, higher notes payable of
$1.8 million and lower accounts payable of $4.5 million. These changes relate
mainly to the ongoing operations of the Company, and to a lesser extent,
the acquisition of Lectret in January, 2001. As part of the ongoing operations
of the Company, management periodically performs a strategic analysis of all
assets of the Company to ensure that an appropriate rate of return is
achieved from the invested capital.
During the first quarter of 1999, the Company implemented a program to
repurchase up to 250,000 shares of its common stock, which at the time
represented approximately 5% of its total shares outstanding. The shares
have been purchased from time to time on the open market. As of June 30,
2001, the Company has repurchased a total of 152,190 shares of its common
stock.
In July, 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No.141, "Business Combinations".
Statement 141 requires all business combinations initiated after June 30, 2001
to be accounted for using the purchase method. The Company will adopt the
provisions of Statement 141 in the third quarter of 2001.
Also in July, 2001, the FASB issued SFAS No.142, "Goodwill and Other Intangible
Assets", which replaces the requirement to amortize intangible assets with
indefinite lives and goodwill with a requirement for a transitional impairment
test. Statement 142 also requires an evaluation of intangible assets and their
useful lives. After transition, the impairment tests will be performed annually
in accordance with SFAS No.121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". Intangible assets with
definite useful lives are required to be amortized over their respective
estimated useful lives and also reviewed for impairment in accordance with
SFAS No.121. The Company will adopt Statement 142 in the first quarter of 2002,
as required.
As of the date of adoption, the Company expects to have unamortized goodwill
in the amount of $15,611,000, which will be subject to the transition
provisions of Statements 141 and 142. Amortization expense related to goodwill
was approximately $369,000 and $733,000 for the six months ended June 30, 2001
and the year ended December 31, 2000, respectively. Because of the extensive
effort needed to comply with adopting Statements 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements on
the Company's financial statements at the date of this report, including
whether any transitional impairment losses will be required to be recognized
as a cumulative effect of a change in accounting principle.
In July, 2001, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 102 ("SAB 102"), "Selected Loan Loss Allowance
Methodology and Documentation Issues". This bulletin summarizes certain of the
SEC's views about applying a systematic methodology for determining
allowances for loan and lease losses in accordance with accounting principles
generally accepted in the United States of America to receivables in the
financial statements. The Company will adopt SAB 102 in the third quarter of
2001 as required. Management is in the process of analyzing the impact of
this bulletin and believes that it will not have a material impact on the
results of operations, financial position and liquidity of the Company.
The Company believes that its present working capital position, combined with
funds expected to be generated from operations and the available borrowing
capacity through its revolving credit loan facilities, will be sufficient to
meet its anticipated cash requirements for operating needs and capital
expenditures for 2001.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding the Company's exposure to certain market risks, see
Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the
Annual Report on Form 10-K for 2000. There have been no significant changes
in the Company's portfolio of financial instruments or market risk exposures
which have occurred since year-end.
Forward-Looking and Cautionary Statements
The Company may from time to time make written or oral forward-looking
statements, including those contained in the foregoing Management's
Discussion and Analysis. In order to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the
Company has identified in its Annual Report on Form 10-K for the year ending
December 31, 2000, certain important factors which could cause the Company's
actual results, performance or achievement to differ materially from those
that may be contained in or implied by any forward-looking statement made by
or on behalf of the Company. All such forward-looking statements are
qualified by reference to the cautionary statements herein and in such Report
on Form 10-K.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
See note 5 to the Consolidated Financial Statements.
ITEM 4. Submission of Matters to a Vote of Security Holders
The 2001 Annual Meeting of Shareholders of the Company was held on April 24,
2001.
At the 2001 Annual Meeting:
(i) Messrs. Mark S. Gorder and Michael J. McKenna were re-elected to the
Board of Directors of the Company for terms expiring at the 2004 Annual
Meeting. In such elections, 3,244,985 votes were cast for Mr. Gorder and
3,922,060 votes were cast for Mr. McKenna. Under Pennsylvania law, votes
cannot be cast against a candidate. Proxies filed at the 2001 Annual Meeting
by the holders of 1,367,626 shares withheld authority to vote for Mr. Gorder
and those filed by the holders of 690,551 shares withheld authority to vote
for Mr. McKenna. No "broker nonvotes" were received at the 2001 Annual
Meeting with respect to the election of directors;
(ii) 2,566,777 shares were voted in favor of the adoption of the 2001
stock option plan and 805,031 shares voted against such adoption. Proxies
filed at the 2001 Annual Meeting by the holders of 263,400 shares instructed
the proxy holders to abstain from voting on such adoption.
(iii) 4,581,386 shares were voted in favor of ratifying the appointment
of KPMG LLP as the Company's auditors for 2001 and 28,875 shares were voted
against such proposal. Proxies filed at the 2001 Annual Meeting by the
holders of 2,350 shares instructed the proxy holders to abstain from voting
on such proposal. No "broker nonvotes" were received at the 2001 Annual
Meeting with respect to this proposal.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits:
10.1 Amended and Restated Agreement on Termination Following
Change of Control or Asset Sale, dated June 19, 2001, between
the Company and Mark S. Gorder.
10.2 Employment Agreement, dated June 19, 2001, among the Company,
Resistance Technology, Inc. and Mark S. Gorder.
SELAS CORPORATION OF AMERICA
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SELAS CORPORATION OF AMERICA
(Registrant)
Date: August 13, 2001
Francis A. Toczylowski
Vice President and Treasurer
EXHIBIT INDEX
10.1 Amended and Restated Agreement on Termination Following
Change of Control or Asset Sale, dated June 19, 2001, between
the Company and Mark S. Gorder.
10.2 Employment Agreement, dated June 19, 2001, among the Company,
Resistance Technology, Inc. and Mark S. Gorder.
EXHIBIT 10.1
AMENDED AND RESTATED
AGREEMENT RE: TERMINATION FOLLOWING
CHANGE OF CONTROL OR ASSET SALE
AGREEMENT executed June 19, 2001, but effective January
1, 2001, between Mark S. Gorder (Executive) and Selas
Corporation of America (Selas).
WHEREAS, Executive has been effective in performing his
services to Resistance Technology, Inc. (RTI), a wholly owned
subsidiary of Selas; and
WHEREAS, Executive has become President and Chief
Operating Officer of Selas effective January 1, 2001, and Chief
Executive Officer of Selas effective April 24, 2001; and
WHEREAS, Selas recognizes the valuable services that
Executive has rendered and desires to induce Executive to
continue his active participation in the business of Selas by
giving Executive certain assurances in the event of major changes
in the structure or control of Selas; and
WHEREAS, Selas and Executive are parties to an
Agreement re Termination Following Change of Control or Asset
Sale dated as of March 1, 1997 (as subsequently extended, the
Original Agreement,and wish to amend and restate the Original
Agreement to reflect Executives new positions with Selas;
NOW, THEREFORE, in consideration of the agreements
herein contained, and intending to be legally bound, the parties
hereto agree that the Original Agreement is amended and restated
in its entirety to provide as follows:
1. Termination Payment. If a Change of Control of
Selas occurs during the term of this Agreement, and if
Executives employment by Selas is Involuntarily Terminated within
two years after such Change of Control, (a) Selas shall pay or
cause to be paid to Executive, simultaneously with such
Involuntary Termination, two years base salary at the base salary
rate being earned by Executive immediately prior to the Change of
Control or immediately prior to such Involuntary Termination,
whichever is greater, together with all unpaid bonus, salary and
benefits due under the Employment Agreement referred to in
Section 6, and (b) all stock options previously granted to
Executive under any Selas stock option plan shall vest
immediately upon such Involuntary Termination. If an Asset Sale
occurs during the term of this Agreement, and if Executives
employment by Selas is Involuntarily Terminated within two years
after such Asset Sale, (i) Selas shall pay or cause to be paid to
Executive, simultaneously with such Involuntary Termination, two
years base salary at the base salary rate being earned by
Executive immediately prior to such Asset Sale or immediately
prior to such Involuntary Termination, whichever is greater,
together with all unpaid bonus, salary and benefits due under the
Employment Agreement referred to in Section 6j, and (ii) all
stock options previously granted to Executive under any Selas
stock option plan shall vest immediately upon such Involuntary
Termination; provided, however, that Selas need not make such
payment, and such stock options shall not immediately vest, if
the purchaser in such Asset Sale or an affiliate of such
purchaser offers to employ Executive commencing at the time of
the Asset Sale at not less than the same rate of compensation and
level of benefits as Executive was receiving immediately prior to
the Asset Sale and does not Involuntarily Terminate Executives
employment during the two year period after the consummation of
the Asset Sale. Any payment required under this paragraph shall
be accompanied by compensation to Executive for any accrued but
unused vacation time through the date of Involuntary
Termination. Notwithstanding any other provision hereof, the
obligations of Selas hereunder shall arise, if at all, only in
connection with the earlier of the first Change of Control or
first Asset Sale to occur after the date hereof; any second
Change of Control or second Asset Sale which may occur within the
two year period following the first Change of Control or first
Asset Sale shall neither diminish nor trigger again the
obligations set forth herein to the extent that such obligations
may be applicable, it being understood that such obligations
shall in no event extend beyond two years after the first Change
of Control or Asset Sale.
The following terms used herein have the meanings set
forth below:
Asset Sale means the sale, other than any such sale
approved in advance by a majority of the Continuing Directors of
Selas, of
(a) the domestic assets of Selas to which are
attributable 90% or more of the consolidated domestic sales
volume of Selas,
(b) the assets of Selas located at its Dresher,
Pennsylvania, facility to which are attributable 90% or more of
the volume of sales of such facility,
(c) a number of shares of stock of RTI entitled
to vote in the election of directors that would reduce the
percentage of such stock owned by Selas to less than 50 percent,
or
(d) all or substantially all of the assets of RTI.
'Cause' has the meaning given to that term in
Section 4.3 of the Employment Agreement referred to in Section 6j.
'Change of Control' of Selas means the acquisition,
other than any such acquisition approved in advance by a majority
of the Continuing Directors of Selas, by any person, entity or
group of associated persons acting in concert of beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of 50% or more of the then outstanding shares of
capital stock of Selas entitled to vote for the election of
Directors of Selas.
'Continuing Directors' means those directors duly
elected prior to the time that any person, entity or group of
associated persons acting in concert has acquired beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of 50% or more of the then outstanding shares of
capital stock of Selas entitled to vote for the election of
Directors of Selas, and those directors who were recommended to
succeed Continuing Directors by a majority of Continuing
Directors.
'Disability' of Executive means that the Executive
shall be physically or mentally incapacitated and as a result
thereof shall be unable to continue substantially proper
performance of his duties (reasonable absences because of
sickness for up to six consecutive months excepted). If
Executive shall not agree with a determination to terminate him
because of Disability, the question of Executives ability shall
be submitted to an impartial and reputable physician selected
either by a mutual agreement of the parties or by the then
president of the Medical Society of the county in which Executive
is employed, and such physicians determination of disability
shall be binding on the parties.
'Involuntary Termination' (or 'Involuntarily
Terminated') means (a) any reduction in the amount of annual base
compensation or in the employee benefits (but not in the amount
of bonuses) inuring to Executive below the level of base
compensation or benefits inuring to Executive immediately prior
to the preceding Change of Control or Asset Sale, (b) the
imposition on Executive of a requirement that he change the
location of his principal employment from its location
immediately prior to the Change of Control or Asset Sale in order
to maintain his employment or to maintain his compensation at its
level immediately prior to the preceding Change of Control or
Asset Sale if such change of location would impose a substantial
burden on the Executive in commuting from his then residence to
the new place of employment, (c) the assignment to the Executive
of duties that do not constitute managerial duties or duties for
which his training and experience do not qualify him or (d) any
termination of the employment of Executive other than for Cause,
death or Disability.
2. Other Benefits. This Agreement shall not
prejudice Executives or his beneficiarys right to receive any
death, disability, pension, or other benefits otherwise due to
Executive upon or following termination.
3. No Duty to Mitigate. Executives benefits
hereunder shall be considered severance pay in consideration of
his past service to RTI and Selas, and pay in consideration of
his continued service from the date hereof, and his entitlement
thereto shall not be governed by any duty to mitigate his damages
by seeking further employment, nor offset by any compensation
which he may receive from future employment.
4. Withholding. Any payment required under this
Agreement shall be subject to all applicable requirements of law
with regard to withholding, filing, making of reports and the
like.
5. Term. This Agreement shall terminate, except to
the extent that any obligation hereunder remains unpaid as of
such time, upon the earliest of (i) April 30, 2004, if a Change
of Control or Asset Sale has not occurred by such date; or (ii)
the termination of Executives employment with Selas prior to a
Change of Control or Asset Sale; or (iii) the termination of
Executives employment with Selas after a Change of Control of
Selas, other than by Involuntary Termination.
6. Miscellaneous.
a. This Agreement and the Employment Agreement
referred to in subsection j of this section represent the entire
agreement of the parties hereto with respect to the subject
matter hereof and supersede all prior agreements in connection
therewith. Without limiting the generality of the preceding
sentence, Executive hereby acknowledges that Selas shall have no
obligation to him under the termination program established in
1986.
b. In the event that any provision of this
Agreement shall be determined to be invalid, the remaining
provisions shall be unaffected thereby and shall remain in full
force and effect.
c. This Agreement shall not be assignable by
Executive, but Selas obligation under the second sentence of
Section 1 in connection with an Asset Sale may be assigned by
Selas to the purchaser in connection with such Asset Sale if the
Executive becomes an employee of the purchaser or an affiliate
immediately after the Asset Sale, in which case the assignee
shall expressly assume and agree to perform the obligations set
forth in the second sentence of Section 1 in connection with such
Asset Sale in the same manner and to the same extent as if it
were Selas and Selas shall by virtue thereof and without further
act be released from its obligations hereunder.
d. Any notice given hereunder shall be deemed to
be given when personally delivered or mailed by certified or
registered mail, return receipt requested, addressed to Selas at
its principal offices or addressed to Executive at his latest
address shown on the employment records.
e. A waiver of breach of any provision hereof
shall not be construed as a waiver of any subsequent breach
hereof.
f. If it is necessary for Executive to sue for
payment hereunder, and such suit results in any payment to
Executive, the employer shall pay Executives reasonable counsel
fees relating to such litigation.
g. This Agreement may be amended, waived or
terminated only by written instrument signed by both parties
hereto.
h. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Pennsylvania.
i. Upon the occurrence of a Change of Control or
Asset Sale, the employer waives, and will not assert, any right
to set off the amount of any claims, liabilities, damages or
losses the employer may have against any amounts payable by it to
Executive hereunder, and any amounts payable to or otherwise
accrued for the account of Executive in respect of any period
prior to the termination of this Agreement shall be paid when due.
j. Nothing herein shall diminish Selas right to
terminate the employment of the Executive prior to a Change of
Control or Asset Sale or impose any obligation to make any
payment to the Executive in connection with any such termination,
but nothing herein shall alter in any manner the rights or
obligations of Selas or Executive under the Employment Agreement
dated the date hereof among Selas, RTI and Executive.
[Signatures begin on the next page]
IN WITNESS WHEREOF, Selas and Executive have executed
this Agreement as of the date first above written.
SELAS CORPORATION OF AMERICA
By: /s/ Michael J.
McKenna
Name: Michael J. Mc Kenna
Title: Chairman of the
Board
/s/ Mark S. Gorder
Mark S. Gorder
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT executed June 19, 2001, but
effective January 1, 2001, among SELAS CORPORATION OF AMERICA, a
Pennsylvania corporation (the 'Company'), RESISTANCE TECHNOLOGY,
INC., Minnesota corporation ('RTI'), and MARK S. GORDER
('Executive').
BACKGROUND
Executive has served as a Vice President of the
Company, the President of certain of its subsidiaries, and a
member of the Companys Board of Directors. The Company elected
Executive as its President and Chief Operating Officer effective
January 1, 2001, and as its Chief Executive Officer effective
April 24, 2001, and Executive wishes to remain in the employ of
the Company in those new capacities, on the terms and conditions
contained in this Agreement. Executive has been and will
continue to be substantially involved with the Companys
operations and management and has and will continue to have trade
secrets and other confidential information relating to the
Company and its customers; accordingly, the noncompetition
agreement and other restrictive covenants contained in Section 5
of this Agreement constitute essential elements hereof.
NOW, THEREFORE, in consideration of the premises and
the mutual agreements contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
SECTION 1. CAPACITY AND DUTIES
1.1 Employment; Acceptance of Employment. The Company hereby
employs Executive and Executive hereby agrees to continue
employment by the Company for the period and upon the terms and
conditions hereinafter set forth.
1.2 Capacity and Duties.
(a) Effective January 1, 2001, Executive shall serve as
President and Chief Operating Officer of the Company. Effective
April 24, 2001, Executive shall additionally serve as Chief
Executive Officer of the Company. Executive shall continue to
serve in all other offices and directorships he now holds with
the Company and its subsidiaries (other than as Vice President of
the Company), subject to the pleasure of the Boards of Directors
of the Company and its subsidiaries. Executive shall perform such
other duties and shall have such authority consistent with his
position as may from time to time be specified by the Board of
Directors of the Company.
(b) Executive shall devote his full working time, energy, skill
and best efforts to the performance of his duties hereunder, in a
manner that will comply with the Companys rules and policies and
will faithfully and diligently further the business and interests
of the Company. Executive shall not be employed by or
participate or engage in or in any manner be a part of the
management or operation of any business enterprise other than the
Company and its subsidiaries without the prior written consent,
which consent may be granted or withheld in the sole discretion,
of the Board of Directors of the Company.
SECTION 2. TERM OF EMPLOYMENT
2.1 Term. The term of Executives employment hereunder shall
continue until April 30, 2004, as further extended by agreement
between Executive and the Board of Directors of the Company,
unless sooner terminated in accordance with the other provisions
hereof (the Term).
SECTION 3. COMPENSATION
3.1 Basic Compensation. As compensation for Executives
services, the Company shall pay to Executive a salary at the
annual rate of $250,000 for the period January 1, 2001, through
April 30, 2001, and at the annual rate of $275,000 for the period
May 1, 2001 through December 31, 2001. Thereafter, the rate of
Executives salary shall be as established from time to time by
the Board of Directors of the Company or the Compensation
Committee of the Board of Directors of the Company. In no event
shall Executives salary be less than $275,000. Executives
annual salary, as determined in accordance with this Section 3.1,
is hereinafter referred to as his 'Base Salary,' and shall be
payable in periodic installments in accordance with the Companys
regular payroll practices in effect from time to time.
3.2 Performance Bonuses. Executive shall be entitled to receive
performance bonuses in accordance with the policies and plans of
the Company in place from time to time with respect to the
payment of bonuses to executive officers.
3.3 Employee Benefits. During the Term, Executive shall be
entitled to participate in such of the Companys employee benefit
plans and benefit programs, including medical benefit programs,
stock options under the Companys Amended and Restated 1994 Stock
Option Plan ('Stock Option Plan') or any additional plans or
programs, as may from time to time be provided by the Company for
its executive officers. Additionally, the Company agrees to
maintain disability insurance policies for Executives benefit
(the 'Disability Policies') with coverage amounts and terms at
least equivalent to the Unum Disability Policy Number 743820 paid
for by the Company for Executives benefit while he was Chief
Executive Officer of Resistance Technology, Inc.
3.4 Vacation. During the Term, Executive shall be entitled to a
paid vacation of 30 business days per year.
3.5 Expense Reimbursement. The Company shall reimburse
Executive for all reasonable expenses incurred by him in
connection with the performance of his duties hereunder in
accordance with its regular reimbursement policies as in effect
from time to time.
3.6 Country Club Membership. The Company shall reimburse
Executive for Executives Country Club Membership fees at North
Oaks Country Club in North Oaks, Minnesota.
3.7 Automobile. During the Term, the Company shall provide
Executive with an automobile for use in connection with the
performance of his duties hereunder and shall reimburse him for
all expenses reasonably incurred by him for the maintenance and
operation, including fuel, of such automobile in connection with
the performance of his duties hereunder in accordance with the
Companys regular reimbursement policies as in effect from time
to time.
SECTION 4. TERMINATION OF EMPLOYMENT
4.1 Death of Executive. If Executive dies during the Term, the
Company shall not thereafter be obligated to make any further
payments hereunder to Executives estate, personal representative
or beneficiary who acquired the right to such payments by bequest
or inheritance, other than amounts (including salary, bonuses,
(based on not less than the previous years bonus and prorated to
the date of death), expense reimbursement, etc.) accrued as of
the date of Executives death. Executives spouse (if any) shall
be entitled to continue to receive medical benefits coverage in
accordance with the Companys policies in effect from time to
time. Additionally, if Executive dies during the Term, any stock
options granted to Executive by the Company which have not been
exercised by Executive prior to Executives death, may be
exercised by Executives estate, personal representative or
beneficiary who acquired the right to exercise such options by
bequest or inheritance, to the extent provided by the terms of
the Companys Stock Option Plan.
4.2 Disability of Executive. If Executive is or has been
materially unable for any reason to perform his duties hereunder
for a period of 180 consecutive days, then the Board of Directors
of the Company shall have the right to terminate Executives
employment upon 30 days prior written notice to Executive at any
time during the continuation of such inability, in which event
the Company shall not thereafter be obligated to make any further
payments hereunder other than amounts (including salary, bonuses
(based on not less than the previous years bonus and prorated to
the date of termination), expense reimbursement, etc.) accrued
under this Agreement as of the date of such termination. Upon
such termination, Executive shall be entitled to continue to
receive medical benefits coverage for Executive and Executives
spouse (if any) in accordance with the Companys policies in
effect from time to time, and shall be entitled to benefits under
the Disability Policies to the extent provided therein.
Executives disability shall be determined by the reasonable
judgment of the Board of Directors of the Company. Additionally,
if Executives employment is terminated by reason of disability
in accordance with this Section 4.2, any stock options granted to
Executive by the Company which have not been exercised by
Executive prior to Executives disability may be exercised by
Executive or his legal representative, to the extent provided by
the terms of the Companys Stock Option Plan.
4.3 Termination for Cause. Executives employment hereunder
shall terminate immediately upon notice that the Board of
Directors of the Company is terminating Executive for Cause (as
defined herein), in which event the Company shall not thereafter
be obligated to make any further payments hereunder other than
amounts (including salary, expense reimbursement, etc., but
excluding bonuses) accrued under this Agreement as of the date of
such termination. 'Cause' means the following, provided that, in
the case of circumstances described in clauses (iv) through (vi)
below, the Company shall have given written notice thereof to
Executive, and Executive shall have failed to remedy the
circumstances as determined in the sole discretion of the Board
of Directors of the Company within 30 days thereafter:
(i) fraud or dishonesty in connection with Executives
employment or theft, misappropriation or embezzlement of the
Companys funds;
(ii) conviction of any felony, crime involving fraud or knowing
misrepresentation, or of any other crime (whether or not such
felony or crime is connected with his employment) the effect of
which in the judgment of the Board of Directors of the Company is
likely to adversely affect the Company or its affiliates;
(iii) material breach of Executives obligations under this
Agreement;
(iv) repeated and consistent failure of Executive to be present
at work during normal business hours unless the absence is
because of a disability as described in Section 4.2 herein;
(v) willful violation of any express direction or requirement
established by the Board of Directors of the Company, as
determined by a majority of Board of Directors of the Company;
(vi) insubordination, gross incompetence or misconduct in the
performance of, or gross neglect of, Executives duties
hereunder, as determined by a majority of Board of Directors of
the Company; or
(vii) use of alcohol or other drugs which interfere with the
performance by Executive of his duties, or use of any illegal
drugs or narcotics.
4.4 Termination without Cause.
(a) If Executives employment is terminated by the Company for
any reason other than Cause or the death or disability of
Executive:
(i) the Company shall either (A) continue to pay Executive all
of the compensation provided for in Sections 3.1 and 3.2 herein
(based on not less than the previous years bonus and prorated to
the end of the Term) during the remainder of the then-current
Term, or (B) if Executive so requests in writing, pay Executive
in a lump sum upon such termination the present value of the
payments that would have been made under clause (B), using a
discount rate of 6 percent per year;
(ii) Executive shall be entitled continue to receive medical
benefits coverage in accordance with the Companys policies in
effect from time to time;
(iii) Executive shall be entitled to have transferred to him the
Companys disability policy on the Executive for Executives
benefit (if the policy so permits), and Executive shall assume
responsibility for payment of premiums on such disability
policies; and
(iv) Executive shall be entitled to have transferred to him any
Company paid life insurance policies on the Executive for
Executives benefit (if the policies so permit), and Executive
shall assume responsibility for payment of premiums on such life
insurance policies.
(b) Except for the provisions of this Section 4.4, the Company
shall have no further obligation to Executive hereunder.
(c) Notwithstanding the foregoing, the Company shall not be
obligated to make any payments under this Section 4.4 unless
Executive shall have executed and delivered to the Company a
further agreement, to be prepared at the time of Executives
termination of employment, that shall provide (i) an
unconditional release of all claims (other than claims under
Section 4.4(a)), charges, complaints and grievances, whether
known or unknown to Executive, against the Company or any of its
affiliates, through date of Executives termination of
employment; (ii) an undertaking to maintain the confidentiality
of such agreement; and (iii) an undertaking to indemnify the
Company if Executive breaches such agreement.
4.5 Voluntary Termination. In the event Executives employment
is voluntarily terminated by Executive, the Company shall not be
obligated to make any further payments to Executive under this
Agreement other than amounts (including salary, expense
reimbursement, etc., but excluding bonuses) accrued as of the
date of Executives termination. Additionally, the following
provisions shall apply in the event of a voluntary termination by
Executive:
(i) Executive shall be entitled to have transferred to him the
Companys disability policy on the Executive for Executives
benefit (if the policy so permits), and Executive shall assume
responsibility for payment of premiums on such disability policy.
(ii) Executive shall be entitled to have transferred to him any
Company paid life insurance policies on the Executive for
Executives benefit (if the policies so permit), and Executive
shall assume responsibility for payment of premiums on such life
insurance policies.
4.6 Change-of-Control Agreement.
The Company and the Executive have entered into an
Amended and Restated Agreement re Termination Following Change of
Control or Asset Sale, dated the date hereof (the
'Change-of-Control Agreement'). If Executive becomes entitled to
any payment by the terms of the Change-of-Control Agreement, he
shall not be entitled to any additional payment under this
Agreement (other than accrued and unpaid bonus, salary and
benefits), but the provisions of Section 4.4(a)(ii) through (iv)
or Section 4.5(i) and (ii), as the case may be, will apply.
SECTION 5. RESTRICTIVE COVENANTS
5.1 Confidentiality. Executive acknowledges a duty of
confidentiality owed to the Company and shall not, at any time
during or after his employment by the Company, retain in writing,
use, divulge, furnish, or make accessible to any person or
entity, without the express authorization of the Board of
Directors of the Company, any trade secret, private or
confidential information or knowledge of the Company obtained or
acquired by him while so employed. All computer software,
address books, rolodexes, business cards, telephone lists,
customer lists, price lists, contract forms, catalogs, books,
records, files and know-how acquired while an employee of the
Company are acknowledged to be the property of the Company and
shall not be duplicated, removed from the Companys possession or
premises or made use of other than in pursuit of the Companys
business and, upon termination of employment for any reason,
Executive shall deliver to the Company, without further demand,
all copies thereof which are then in his possession or under his
control.
5.2 Inventions and Improvements. Executive shall promptly
communicate to the Company all ideas, discoveries, inventions and
business opportunities which are or may be useful to the Company
or its business. Executive acknowledges that all such ideas,
discoveries, inventions, and improvements which heretofore have
been or are hereafter made, conceived, or reduced to practice by
him at any time during his employment with the Company and every
item of knowledge relating to the Companys business interests
(including business opportunities) heretofore or hereafter gained
by him at any time during his employment with the Company are the
property of the Company, and Executive hereby irrevocably assigns
all such ideas, discoveries, inventions, improvements, and
knowledge to the Company for its sole use and benefit, without
additional compensation. The provisions of this Section 5.2
shall apply whether such ideas, discoveries, inventions,
improvements or knowledge were or are conceived, made or gained
by him alone or with others, whether during or after usual
working hours, whether on or off the job, whether applicable to
matters directly or indirectly related to the Companys business
interests (including potential business interests), and whether
or not within the specific realm of his duties. It shall be
conclusively presumed that ideas, discoveries, inventions, and
improvements relating to the Companys business interests or
potential business interests conceived by Executive during the
six month period following termination of his employment are, for
the purposes of this Agreement, conceived prior to termination of
his employment hereunder. Executive shall, upon request of the
Company, but at no expense to Executive, at any time during or
after his employment with the Company, sign all instruments and
documents reasonably requested by the Company and otherwise
cooperate with the Company to protect its right to such ideas,
discoveries, inventions, improvements, and knowledge, including
applying for, obtaining, and enforcing patents and copyrights
thereon in such countries as the Company shall determine.
5.3 Noncompetition. During the term of Executives employment
and for one year after any termination of employment, or, if
longer, for so long as Executive is entitled to the payment of
amounts pursuant to Section 4.4(a) herein following a termination
by the Company without Cause, Executive shall not directly or
indirectly: (i) engage, anywhere in any geographic market served
by the Company or any of its subsidiaries in any activity which
competes in whole or in part with the products or activities of
the Company at the time of such termination; (ii) be or become a
stockholder, partner, owner, officer, director or employee or
agent of, or a consultant to or give financial or other
assistance to, any person or entity engaged in any such
activities; (iii) seek in competition with the business of the
Company to procure orders from or do business with any customer
of the Company; (iv) solicit, or contact with a view to the
engagement or employment by any person or entity of any person
who is an employee of the Company; (v) seek to contract with or
engage (in such a way as to adversely affect or interfere with
the business of the Company) any person or entity which has been
contracted with or engaged to manufacture, assemble, supply or
deliver products, goods, materials or services to the Company; or
(vi) engage in or participate in any effort or act to induce any
of the customers, associates, consultants, or employees of the
Company to take any action which might be disadvantageous to the
Company; provided, however, that nothing herein shall prohibit
Executive and his affiliates from owning, as passive investors,
in the aggregate not more than 5% of the outstanding publicly
traded stock of any corporation so engaged. The duration of
Executives covenants set forth in this Section shall be extended
by a period of time equal to the number of days, if any, during
which Executive is in violation of the provisions hereof.
5.4 Injunctive and Other Relief.
(a) Executive acknowledges and agrees that the covenants
contained herein are fair and reasonable in light of the
consideration paid hereunder, and that damages alone shall not be
an adequate remedy for any breach by Executive of his covenants
contained herein and accordingly expressly agrees that, in
addition to any other remedies which the Company may have, the
Company shall be entitled to injunctive or other equitable relief
in any court of competent jurisdiction for any breach or
threatened breach of any such covenants by Executive. Nothing
contained herein shall prevent or delay the Company from seeking,
in any court of competent jurisdiction, specific performance or
other equitable remedies in the event of any breach or intended
breach by Executive of any of his obligations hereunder.
(b) Notwithstanding the equitable relief available to the
Company, Executive, in the event of a breach of his covenants
contained in Section 5 herein, understands and agrees that the
uncertainties and delay inherent in the legal process would
result in a continuing breach for some period of time, and
therefore, continuing injury to the Company until and unless the
Company can obtain such equitable relief. Therefore, in addition
to such equitable relief, the Company shall be entitled to
monetary damages for any such period of breach until the
termination of such breach, in an amount deemed reasonable to
cover all actual and consequential losses, plus all monies
received by Executive as a result of said breach and all costs
and attorneys fees incurred by the Company in enforcing this
Agreement. If Executive should use or reveal to any other person
or entity any confidential information, such use or revelation
would be considered a continuing violation on a daily basis for
as long as such confidential information is made use of by
Executive or any such other person or entity.
(c) If any provision of Section 5 herein is determined to be
invalid or unenforceable by reason of its duration or scope, such
duration or scope, or both, shall be deemed to be reduced to a
duration or scope to the extent necessary to render such
provision valid and enforceable. In such event, Executive shall
negotiate in good faith to provide the Company with lawful and
enforceable protection that is most nearly equivalent to that
found to be invalid or unenforceable.
5.5 Definition of the 'Company.' The 'Company' as used in this
Section 5 includes all affiliates of the Company.
SECTION 6. MISCELLANEOUS
6.1 Litigation. At the request of the Company, Executive shall
during and after the Term render reasonable assistance to the
Company in connection with any litigation or other proceeding
involving the Company or any of its affiliates. The Company will
pay Executive reasonable compensation as mutually agreed for any
such services performed after the Term. The Company agrees that
during the Term that at all times it shall carry appropriate
amounts of officers and directors liability insurance naming the
Executive as an insured party.
6.2 Arbitration. All claims and disputes relating to this
Agreement or concerning Executives employment or termination
shall be conclusively resolved by arbitration in Philadelphia,
Pennsylvania, under the then existing rules of the American
Arbitration Association. Judgment upon any award rendered may be
entered by either party in any court of competent jurisdiction.
The cost of such arbitration shall be borne equally by the
parties or as otherwise directed by the arbitrators. This
Section 6.2 shall not limit the right of the Company to seek
judicial relief pursuant to Section 5.4 herein without prior
arbitration.
6.3 Assignment; Benefit. This Agreement shall not be assignable
by Executive, and shall be assignable by the Company only to any
affiliate or to any person or entity which may become a successor
in interest (by purchase of assets or stock, or by merger, or
otherwise) to the Company in the business or substantially all of
the business presently operated by it. Subject to the foregoing,
this Agreement and the rights and obligations set forth herein
shall inure to the benefit of, and be binding upon, the parties
hereto and each of their respective permitted successors,
assigns, heirs, executors and administrators.
6.4 Notices. All notices hereunder shall be in writing and
shall be sufficiently given if hand-delivered, sent by documented
overnight delivery service or registered or certified mail,
postage prepaid, return receipt requested or by telegram or
telefax (confirmed by U.S. mail), receipt acknowledged, addressed
as set forth below or to such other person and/or at such other
address as may be furnished in writing by any party hereto to the
other. Any such notice shall be deemed to have been given as of
the date received, in the case of personal delivery, or on the
date shown on the receipt or confirmation therefor, in all other
cases. Any and all service of process and any other notice in
any action, suit or proceeding shall be effective against any
party if given as provided in this Agreement; provided that
nothing herein shall be deemed to affect the right of any party
to serve process in any other manner permitted by law.
(a) If to the Company:
Selas Corporation of America
2034 Limekiln Pike
Dresher, Pennsylvania 19025
Attention: Secretary
Telecopy No.: 215-283-8294
(b) If to Executive:
Mark S. Gorder
24 North Deep Lake Road
North Oaks, Minnesota 55127
6.5 Entire Agreement; Modification; Advice of Counsel.
(a) This Agreement and the Change-of-Control Agreement
constitute the entire agreement between the parties hereto with
respect to the matters contemplated herein and therein and
supersede all prior agreements and understandings with respect
thereto. Without limiting the generality of the foregoing, this
Agreement supersedes the Management Employment Agreement dated
October 20, 1993, between Executive and Resistance Technology,
Inc., a subsidiary of the Company. No amendment, modification,
or waiver of this Agreement shall be effective unless in
writing. Neither the failure nor any delay on the part of any
party to exercise any right or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any
right or remedy preclude any other or further exercise of the
same or of any other right or remedy with respect to such
occurrence or with respect to any other occurrence.
(b) Executive acknowledges that he has been afforded
an opportunity to consult with his counsel with respect to this
Agreement. The Company agrees to reimburse Executive for the
cost of consulting with counsel in an amount not to exceed
$6,000.
6.6 Governing Law. This Agreement is made pursuant to, and
shall be construed and enforced in accordance with, the laws of
the Commonwealth of Pennsylvania and the federal laws of the
United States of America, to the extent applicable, without
giving effect to otherwise applicable principles of conflicts of
law.
6.7 Headings; Counterparts. The headings of paragraphs in this
Agreement are for convenience only and shall not affect its
interpretation. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and
all of which, when taken together, shall be deemed to constitute
the same Agreement.
6.8 Further Assurances. Each of the parties hereto shall
execute such further instruments and take such additional actions
as the other party shall reasonably request in order to
effectuate the purposes of this Agreement.
[Signatures begin on the next page.]
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
SELAS CORPORATION OF AMERICA
By /s/ Michael J. McKenna
Its Chairman of the Board
RESISTANCE TECHNOLOGY, INC.
By /s/ Robert W. Ross
Its Secretary
/s/ Mark S. Gorder
MARK S. GORDER