The URL can be used to link to this page

Home My WebLink About07-14-06 Glenda Farner Strasbaugh Register of Wills and Clerk of Orphans' Court Marjorie A. Wevodau First Deputy Ki~S. Sohonage, Esq Solicitor Register of Wills and Clerk of the Orphans' Court County of Cumberland One Courthouse Square Carlisle, PA 17013 (717) 240-6345 FAX (717)240-7797 INVOICE Bill To: InvoiceN 0: Invoice Date: Estate of: Estate No: 938 7/14/2006 MCDONELL FREDERICK H 06- 22 PNCBANK PO BOX 308 wz CAMP HILL, PA 17011 Qty 1 Fee Description Additional Probate Fee Total $150.00 150.00 Total: $150.00 Checks should be made payable to the Register of Wills. Terms: Net 30. Please return one copy of this invoice with your payment. Thank you. I o PNCBAN< ESTATE OF FREDERICK H MCDONELL DECEASED (DIED 10/21/05) LATE OF THE TOWNSHIP OF HAMPDEN CUMBERLAND COUNTY PA WILL NO 21-2006-0022 " ) r--:) C::) ~ . ~'-, ,-;:.:.;t'"" .:J::J I'!..' C) ~.} C"J ,,0 '..~J i: n ',~=, ~"..''J .. :-:::3 'c") ,'II :::::) ,-, INVENTORY :';;>C~ COMMONWEALTH OF PENNSYLVANIA SS U1 N COUNTY OF CUMBERLAND LINDA J LUNDBERG, ASSISTANT VICE PRESIDENT OF PNC BANK, NATIONAL ASSOCIATION, EXECUTOR OF THE ESTATE OF FREDERICK H MCDONELL DECEASED HAVING BEEN DULY AFFIRMED ACCORDING TO LAW DID DEPOSE AND SAY THAT THE ITEMS APPEARING IN THE FOLLOWING INVENTORY ARE PERSONAL ASSETS WHEREVER SITUATE AND REAL ESTATE IF ANY IN THE COMMONWEALTH OF PENNSYLVANIA OF SAID DECEDENT THAT THE VALUATION PLACED OPPOSITE EACH ITEM OF SAID INVENTORY REPRESENTS ITS FAIR VALUE AS OF THE DATE OF THE DECEDENT'S DEATH AND THAT THE DECEDENT OWNED NO REAL ESTATE OUTSIDE THE COMMONWEALTH OF PENNSYLVANIA EXCEPT THAT WHICH APPEARS IN A MEMORANDUM AT THE END OF THIS INVENTORY AFFIRMED AND SUBSCRIBED BEFORE ME THIS /-3""' DAY D4 20"""" /~ .-' ~'-cr~ '=~, . Notarial Seal DeO/se ~ullenberge(, Notary Public Hampden.T~p" Cumberland County My Commission Expires Dec. 1, 2008 Mflmb,,'. Pl'rnsyivanl(l Association of Notaries - 1 - TRSNOl (10/02) ~1/ .. PNC ADVISORS o PNCBAN< FREDERICK H MCDONELL 27-27-004-3843897 COMMON STOCKS 39,475 SHS HOUGHTON INTERNATIONAL INC ii) 13.5000 TOTAL INVENTORY 532,912.50 532,912.50 ------------ ------------ TRSN02(10/02) - 2 - .. I- J> Z W C W 0 W C W I- lll::$n U~ Woo :r1li:....I UQ.l!:l Q. <( I- Z W 0 Z 0 lI- rn w II:: II:: 0 U REV-1500EX(6-00) , , " ( OFFICIAL USE ONL V 4 ;' FILE NUMBER ~L COUNTY CODE ~L 0022___ YEAR t-Ur"BER COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF REVENUE DEPT. 280601 HARRISBURG, PA 17128-0601 REV-1500 INHERITANCE TAX RETURN RESIDENT DECEDENT SOCIAL SECURITY NUMBER 023-05-8042 THIS RETURN MUST BE FILED IN DUPLICATE WITH THE REGISTER OF WILLS SOCIAL SECURI1Y NUMBER 023-07-4985 D 2. Supplemental Return 0 3. Remainder Return (date of death prior to 12-13-82) D 4a. Future Interest Compromise (date of death after 12-12-82) 0 5. Federal Estate Tax Return Required D 7. Decedent Maintained a LMng Trust (Attach copy of Trust) L 8. Total Number of Safe Deposn Boxes D 10. Spousal Poverty Cradn (dala of deelh between 12-31-91 end 1-1-95) D 11. Election to tax under See. 9113(A)(AttachSchO) DECEDENTS NAME (LAST, FIRST, AND MIDDLE INITIAL) McDonell Frederick DATE OF DEATH (MM-DD-YEAR) DATE OF BIRTH (MM-DD-YEAR) 10/21/2005 11/22/1912 (IF APPLICABLE) SURVIVING SPOUSES NAME (LAST, FIRST, AND MIDDLE INITIAL) Marie B. McDonell [i] 1. Original Return D 4. Limned Estate [i] 6. Decedent Died Testate (Attach copy of Will) D 9. Lnigation Proceeds Received H THIS SECTION MUST BE COMPLETED. ALL CORRESPONDENCE AND CONFIDENTIAl TAX INFORMATION SHOULD BEDIRECfED TO: NAME COMPLETE MAILING ADDRESS Camp Rill, PA 17001-0308 0.00 0.00 532,912.50 0.00 0.00 0.00 OFFICIAL USE ONLY (6) 0.00 Ul v 3W4645 1.000 (8) 39,668.69 1,242.00 532,912.50 Linda Lundber FIRM NAME (If Applicable) PRC Bank, R.A. TELEPHONE NUMBER 717-730-2265 P.O. Box 308 (11 ) 40,910.69 492,001.81 492,001.81 1. Real Estate (Schedule A) (1) (2) (12) (13) (14) 0.00 2. Stocks and Bonds (Schedule B) 3. Closely Held Corporation, Partnership or Sole-Proprietorship (3) 4. Mortgages & Notes Receivable (Schedule D) 5. Cash, Bank Deposits & Miscellaneous Personal Property (Schedule E) (4) (5) 0.00 0.00 0.00 0.00 0.00 z o t= :5 ;:) l- ii: c( o w Q: 6. J~ Owned Property (Schedule F) LJ Separate Billing Requested 7. Inter-Vivos Transfers & Miscellaneous Non-Probate Property (7) (Schedule G or L) 8. Total Gross Assets (total Lines 1-7) 9. Funeral Expenses & Administrative Costs (Schedule H) (9) CHECK HERE IF YOU ARE REQUESTING A REFUND OF AN OVERPAYMENT > > BE SURE TO ANSWER ALL QUESTIONS ON REVERSE SIDE AND RECHECK MATH < < 10. Debts of Decedent, Mortgage Liabilnies, & Liens (Schedule I) (10) 11. Total Deductions (total Lines 9 & 10) 12. Net Value of Estate (Line 8 minus Line 11) 13. Charitable and Governmental Bequests/See 9113 Trusts for which an election to tax has not been made (Schedule J) 14. Net Value Subject to Tax (Line 12 minus Line 13) SEE INSTRUCTIONS ON REVERSE SIDE FOR APPLICABLE RATES 15. Amount of Line 14 taxable at the spousal tax z rate, or transfers under Sec. 9116 (a)(1.2) o ~ 16. Amount of Line 14 taxable at lineal rate .... ::l ~ 17. Amount of Line 14 taxable at sibling rate o U 18. Amount of Line 14 taxable at collateral rate >< ~ 19. Tax Due 20.0 0.00 x.o L(15) 0.00 x .0 ~(16) 0.00 x.12 (17) 0.00 x .15 (1B) (19) ~ Decedent's Complete Address: S1REET AOOOE:SS . 4905 E. Trindle Road Cumberland CIIY Mec:hanic:sburq ISTAl'E PA w~ Tax Payments and Credits: 1. Tax Due (Page 1 Line 19) 2. Credits/Payments A. Spousal Poverty Credit B. Prior Payments C. Discount (1) 0.00 0.00 0.00 0.00 Total Credits (A + B + C) (2) 0.00 3. Interest/Penalty if applicable D. Interest E. Penalty Total Interest/Penalty (D + E) (3) 0.00 4. If Line 2 is greater than Line 1 + Line 3, enter the difference. This is the OVERPAYMENT. Check box on Page 1 Line 20 to request a refund (4) 0.00 5. If Line 1 + Line 3 is greater than Line 2, enter the difference. This is the TAX DUE. (5) 0.00 A. Enter the interest on the tax due. (SA) 0.00 B. Enter the total of Line 5 + SA. This is the BALANCE DUE. (58) 0.00 Make Check Pa able to: REGISTER OF WILLS, AGENT 0.00 0.00 PLEASE ANSWER THE FOllOWING QUESTIONS BY PLACING AN "X" IN THE APPROPRIATE BLOCKS Yes D D D D without receiving adequate consideration? . . . . . . . . . . . . . . . . . . . . . . . . . . .. D 3. Did decedent own an "in trust for" or payable upon death bank account or security at his or her death? D 4. Did decedent own an Individual Retirement Account, annuity, or other non-probate property which contains a beneficiary designation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. D [ji IF THE ANSWER TO ANY OF THE ABOVE QUESTIONS IS YES, YOU MUST COMPLETE SCHEDULE G AND FILE IT AS PART OF THE RETURN. Under penaWes of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best 01 my knowledge and belief, it is true, correct and complete. Declaration of preparer other than the personal representative is based on all information of which preparer has any knowledge. SIGNA FOR Fill 1. Did decedent make a transfer and: a. retain the use or income of the property transferred;. . . . . . . . . . . . . . . b. retain the right to designate who shall use the property transferred or its income; . c. retain a reversionary interest; or . . . . . . . . . . . . . . . . . . . . . . . . d. receive the promise for life of either payments, benefits or care? . . . . . . . . . 2. If death occurred after December 12, 1982, did decedent transfer property within one year of death No [jj [jj [jj [jj ~ []I PNC Bank, N.A. \~ ~\"E- ~\~ ::.0-.. SIGNAlURE OF PREPARER OTHER THAN REPRESENTATIVE DATE ADDRESS For dates of death on or after July 1, 1994 and before January 1, 1995, the tax rate imposed on the net 'Illlue of transfers to or for the use ofthe surviving spouse is 3% [72 P.S. S 9916 (a) (1.1) (i)]. For dates of death on or after January 1, 1995, the tax rate imposed on the net value of transfers to or for the use of the surviving spouse is 0% [72 P.S. S 9116 (a) (1.1) (iill The statute does not exempt a transfer to a surviving spouse from tax, and the statutory requirements for disclosure of assets and filing a tax retum are still applicable even if the su rviving spouse is the only beneficiary. For dates of death on or after July 1, 2000: The tax rate imposed on the net value of transfers from a deceased child twenty-one years of age or younger at death to or for the use of a natural parent, an adoptive parent, or a stepparent of the child is 0% [72 P.S. 9 9116(a)(1.2)]. The tax rate imposed on the net value of transfers to or for the use of the decedent's lineal beneficiaries is 4.5%, except as noted in 72 P.S. S 9116(1 .2) [72 P.S. S 9116(a)(1)]. The tax rate imposed on the net 'Illlue of transfers to or for the use of the decedent's siblings is 12% (72 P.S. S 9116(a)(1.3)]. A sibling is defined, under Section 9102, as an individual who has at least one parent in common with the decedent, whether by blood or adoption. 3W4646 1.000 . REV-l504 EX + (6-98) CClWONWEALTH OF PENNSYLVANIA INHERITANCE TAX RETURN SCHEDULE C CLOSELY-HELD CORPORATION, PARTNERSHIP OR SOLE-PROPRIETORSHIP ESTATE OF FILE NUMBER Frederick H. McDonell 21060022 Schedule C-1 or C-2 (including all supporting information) must be attached for each closely-held corporation/partnership interest ofthe decedent. other than a sole-proprietorship. See instructions for the supporting information to be submitted for sole-proprietorships. ITEM NUMBER DESCRIPTION VALUE AT DATE OF DEATH 1. 39,475 Shares Houghton International, Inc CUSIP: 441520103 Appraised by Urish Popeck & Co., Inc. (See appraisal attached) 532,912.50 3W4697 1.000 TOTAL (Also enter on line 3, Recapitulation) (If more space is needed, insert additional sheets of the same size) $ 532,912.50 REV-1605 ex + (6-98) SCHEDULE C-1 CLOSELY-HELD CORPORATE STOCK INFORMATION REPORT COMMONWEAL 1H OF PENNSYLVANIA INHERITANCE TAX RE11JRN PESlDENT DECEDENT ESTATE OF FILE NUMBER Frederick B. McDonell 2106 0022 City Valley Forge State PA 2. Federal Employer 1.0. Number 3. Type of Business ManufacturinQ' Zip Code 19482 State of Incorporation PA Date of Incorporation 6/1/1910 Total Number of Shareholders ---.0 Business Reporting Year Product/Service Industrial fluids 1. Name of Corporation BouQ'hton International, Ine Address Madison &: Van Buren Avenues 4. TCrrALNlJMBER()F SHARES Qln'STANOING PAR VALUE NlI~BE~oF'S~~S OWNED BY THE! DECEDENT . . VALU~ ()J"fHe bEC~DENt.S ~tOCK Common Votin 4,213,591 0.50 39,475 $ 532,912.50 Preferred $ Provide all rights and restrictions pertaining to each class of stock. 5. Was the decedent employed by the Corporation~ . . . . . . . . . . . . . . . . . . . . . . .. DYes D No If yes, Position Annual Salary $ 0.00 Time Devoted to Business 6. Was the Corporation indebted to the decedent? . If yes, provide amount of indebtedness $ _., Dyes 00 No 0.00 7. Was there life insurance payable to the corporation upon the death of the decedent? ... 0 Yes 00 No If yes, Cash Surrender Value $ Owner of the policy o . 00 Net proceeds payable $ 0.00 8. Did the decedent sell or transfer any stock in this company within one year prior to death or within two years if the date of death was prior to 12-31-82? [jJ Yes 0 No If yes, D Transfer 00 Sale Number of Shares 525 Transferee or Purchaser Houqhton Int'l Consideration $ 7,875.00 Date 1/14/2005 Attach a separate sheet for additional transfers and/or sales. 9. Was there a written shareholder's agreement in effect at the time of the decedent's death? 0 Yes If yes, provide a copy of the agreement. 00 No 10. Was the decedent's stock sold? . . . . ....................... DYes DNo * SEE BELOW If yes, provide a copy of the agreement of sale, etc. 11. Was the corporation dissolved or liquidated after the decedent's death? . . . . . . . . . . . 0 Yes [!] No If yes, provide a breakdown of distributions received by the estate, including dates and amounts received. 12. Did the corporation have an interest in other corporations or partnerships? . . . . . . . . . . .D Yes 00 No If yes, report the necessary information on a separate sheet, including a Schedule C-1 or C-2 for each interest. THE FOllOWING INFORMATION MUST BE SUBMITTED WITH THIS SCHEDULE A. Detailed calculations used in the valuation of the decedent's stock. B. Complete copies of financial statements or Federal Corporate Income Tax returns (Form 1120) for the year of death and 4 preceding years. C. If the corporation owned real estate. submit a list showing the complete address/es and estimated fair market value/s. If real estate appraisals have been secured, attach copies. D. List of principal stockholders at the date of death. number of shares heid and their relationship to the decedent. E List of officers. their salaries, bonuses and any other benefits received from the corporation. F. Statement of dividends paid each year. List those declared and unpaid. G. Any other information relating to the valuation of the decedent's stock. (If more space is needed. insert additional sheets of the same size) * 14,012 Shares were sold to company @ 17.00 per share on 4/11/06 after a Company-issued tender offer 4W48981.000 REV-1511 EX + (12-99) SCHEDULE H FUNERAL EXPENSES & ADMINISTRATIVE COSTS COMMONWEALTH OF PENNSYLVANIA INHERITANCE TAX RETURN RESIDENT DECEDENT ESTATE OF Frederick H. McDonell ITEM NUMBER A. 1. B. 1. 2. Debts of decedent must be reported on Schedule I. DESCRIPTION FUNERAL EXPENSES: Myers-Harner Funeral Home, Inc Funeral services ADMINISTRATIVE COSTS: Personal Representative's Commissions Name of Personal Representative(s) PNC Bank, N .A. Social Security Number(s) I EIN Number of Personal Representative(s) Street Address 4242 Carlisle pike City Camp Hill State P A Zip 17011 Year(s) Commission Paid: To be paid Attorney Fees 3. Family Exemption: (If decedent's address is not the same as claimant's, attach explanation) Claimant 3W46AG 1.000 Street Address City State Zip Relationship of Claimant to Decedent 4. Probate Fees 5. Accountant's Fees 6. Tax Return Preparer's Fees 7. 1 Johnson, Duffie Law Reimbursement for Legal Advertising Probate fees Death certificates Offices 204.69 361. 00 45.00 Total from continuation schedules FILE NUMBER 21 06 0022 TOT AL (Also enter on line 9, Recapitulation) $ (If more space is needed, insert additional sheets of the same size) AMOUNT 783.00 21,300.00 14,200.00 610.69 2,775.00 39,668.69 Estate of: Frederick H. McDonell 023-05-8042 Schedule H Part 7 (Page 2) 2 Urish Popeck & Co, Inc. Fee for appraisal of Houghton International stock 2,775.00 Total (Carry forward to main schedule) 2,775.00 ~ , REV-1512 EX + (12'()3) COMMONWEALTH OF PENNSYLVANIA INHERITANCE TAX RETURN RESIDENT DECEDENT ESTATE OF Frederick H. McDonell SCHEDULE I DEBTS OF DECEDENT, MORTGAGE LIABILITIES, & LIENS FILE NUMBER 21 06 0022 Report debts incurred by the decedent prior to death which remained unpaid as of the date of death, Including unrelmbursed medical expenses. ITEM NUMBER 1. DESCRIPTION VALUE AT DATE OF DEATH Internal Revenue Service Balance due 2005 life period u.s. income tax 806.00 2 PA Department of Revenue Balance due 2005 life period PA state income tax 436.00 3W46AH 2.000 TOTAL (Also enter on line 10, Recapitulation) $ (If more space is needed, insert additional sheets of the same size) 1,242.00 REV-1513 EX+ (9~O) COMMONWEALTH OF PENNSYLVANIA INHERITANCE TAX RETURN RESIDENT DECEDENT ESTATE OF Frederick H. McDonell SCHEDULE J BENEFICIARIES FILE NUMBER 2106 0022 NUMBER NAME AND ADDRESS OF PERSON(S) RECEIVING PROPERTY I TAXABLE DISTRIBUTIONS [include outright spousal distributions, and transfers under Sec. 9116 (a) (1.2)] RELATIONSHIP TO DECEDENT Do Not List Trustee(5) AMOUNT OR SHARE OF ESTATE ENTER DOLLAR AMOUNTS FOR DISTRIBUTIONS SHOWN ABOVE ON LINES 15 THROUGH 18, AS APPROPRIATE, ON REV-1500 COVER SHEET II NON-TAXABLE DISTRIBUTIONS: A. SPOUSAL DISTRIBUTIONS UNDER SECTION 9113 FOR WHICH AN ELECTION TO TAX IS NOT BEING MADE 1 Frederick H. McDonell Credit Shelter Trust 492,001. 81 B. CHARITABLE AND GOVERNMENTAL DISTRIBUTIONS 3W46AI 1.000 TOTAL OF PART 11- ENTER TOTAL NON-TAXABLE DISTRIBUTIONS ON LINE 13 OF REV-1500 COVER SHEET (If more space is needed, insert additional sheets of the same size) $ 492,001.81 ., ,...~ ' ~ ] , :1 ',j j .; " J j j I 1 1 "~:~~ ~ ,! :J :J 1 < j ~~ i I I -1 I 1 1 1 ! j j ., j ;1 I ~'~-;f"~'l." . , iEers! Ittill Clnn Qrts!ctttUul C@~,\? OF FREDERICK H. MCDONELL I, FREDERICK H. MCDONELL, Hampden Township, Cumberland County, Pennsylvania, declare this to be my Last Will and revoke any Will previously made by me. ITEM I: DEBTS. 1.1. I direct that all my debts and funeral expenses, including my gravemarker, and all expenses of my last illness that my estate is obligated to pay shall be paid from my residuary estate as a part of the expense of the administration of my estate. ITEM II: TANGmLE PERSONAL PROPERTY. 2.1. I may leave a written list in my safe deposit box or elsewhere disposing of certain items of my tangible personal property. 'The Executor shall dispose of items of my personal property as specified in the written list. If no written list is found in my safe deposit box or elsewhere and properly identified by the Executor within thirty (30) days after the probate of my Will, it shall be presumed that there is no other statement or list. Any subsequent discovered list shall be ignored. I give and bequeath my household furniture and furnishings, books, pictures, jewelry, silverware, automobiles, weanng I!"-,-_...-...-...._-,<-..~-,...."......_...._.....-..-.-....~....-._.".......~--~~~,-.......--~~..........---,.------.,......-.,-.---~--.-.-----~ . . . I I I I I I apparel and all other articles of household or personal use or adornment not mentioned !, : in the written list, and all policies of insurance thereon, to my wife, MARIE B. 1 j MCDONELL. i , ! ITEM ill: MARITAL DEDUCTION TRUST: 3.1. If my wife, MARIE B. MCDONELL, survives me (and I direct that for purposes of this Item of my Will she shall be deemed to have survived me unless it appears unmistakably that she predeceased me), and if the federal estate tax due because of my death will be reduced by making this gift for her benefit, I give, devise and bequeath to my, Trustee hereinafter named, IN TRUST, the least amount (based upon values as finally determined for federal estate tax purposes) as shall be needed for the federal estate tax unlimited marital deduction to reduce the federal estate tax to the lowest possible figure after full use of all other deductions and credits allowable in calculating the federal estate tax. However, the state death tax credit shall only be taken into account to the extent that it does not increase the amount of tax payable to any state. Accordingly, I direct that: 1. If the marital deduction, or any other similar benefit, is allowable with respect to any property, including property held by entireties, which my wife, MARIE B. MCDONELL, has received prior to my death or at my death will receive otherwise than pursuant to this Item III, the value of such property shall be taken into consideration in calculating the size of the gift under this Item III. - 2- ,.~ -.'" 1 .,,..-, .'"" " ....~..~ i .Q... --..-"... . I , . ) , I I I i 2. No property ineligible for the marital deduction, or any similar benefits, shall be distributed to this gift for my wife, MARIE B. MCDONELL, pursuant to this Item III. 3. Either cash or investments or both may be allocated to any gift under this Item III. 4. Any property allocated under this Item ill in kind shall be valued at the value which it is finally included in my gross estate for federal estate tax purposes, provided that the aggregate market value thereof on the date of allocation (plus the value as finally determined for federal estate tax purposes of all other property qualifying for the marital deduction) is at least equal to the dollar value of the marital deduction as finally determined for federal estate tax purposes. 5. My wife, MARIE B. MCDONELL, shall be paid the entire income from the principal in such periodic installments as the Trustees shall find convenient, but at least as often as quarter-annually or else applied directly for her benefit by the Trustee. Income that accrues between the date of the last distribution to MARIE B. MCDONELL and the date of her death shall be distributed to her estate. 6. My wife, MARIE B. MCDONELL, is hereby given a power to appoint by Will to her estate or to others, in such manner and for such estates as she may appoint, exercisable only by specific reference by her alone and in all events over the assets of this Trust. - 3 - ('--T. .~. ~ "--, -- "t-- - 1--- .. .--- - .............=---~-- ..-....-,..-'._-'-:-'-'-..,......_---'-..__.........-._,_.---..__._._~---~---~..."':"-~-.~.........'.....--"'.~~ j j j J 1 i, 7. As much of the principal of this Trust as the Trustee may from time to time think advisable for the support of my wife, MARIE B. MCDONELL, or during illness or emergency shall be either paid to her or else applied directly for her benefit by the Trustee. 8. In addition to the above provisions, my wife, MARIE B. MCDONELL, shall have the power to withdraw such amounts from principal as she shall desire from time to time induding the entire exhaustion of principal. J "j ,'1 j i ! 9. If my wife, MARIE B. MCDONELL, shall fail, either wholly or in part, to exercise effectively the power of appointment created in Paragraph 3.0.F of this ITEM ill, the unappointed principal shall be added to and thereafter treated as part of the principal of my residuary estate passing under ITEM N hereof, provided that unless my wife directs otherwise in her Will, the Trustee shall first deduct and pay to the personal representative of my wife's estate an amount certified by my personal representative to equal the additional death taxes and administration expenses which would not have been payable from her estate if the value of the remaining principal of the Marital Deduction Trust had not been included in her estate. , ~ - "' ,1 l j J i i J ';1 1 -4 I'll ;',- .'-f; r: '~ 'l 1 () 10. If any provision of my Will shall result in depriving my estate of the marital deduction for federal estate tax purposes, such provision is hereby revoked and my Will shall be read as if any portion thereof inconsistent with allowance of the marital deduction for federal estate tax purposes is null and void. . , 'j j - 4 - ~i . i I I . ) I I i I r j I ~, I , i 11. I direct that this Marital Deduction Trust shall be preferred over all I other legacies and devises. I ! I ITEM IV. CREDIT BY -PASS TRUST: I i 4.1. I give, devise and bequeath all the rest, residue and remainder of my estate I to my Trustee hereinafter named, IN TRUST, for the following uses and purposes: I I I I I I i i i I I I I j I ! I i , ; I ! i I i I I ! I I I i I i I ! i j I I J I I I 1. To pay the net income therefrom at least as often as quarter-annually to my wife, MARIE B. MCDONELL, for and during her lifetime. 2. As much of the principal of this Trust as my Trustee, in its sole discretion may from time to time think: advisable for my wife's support in her accustomed manner of living shall be either paid to her or else applied directly for her benefit by my Trustee after taking into account her other available assets and sources of income. Insofar as practical no principal of this Trust shall be paid to my wife, MARIE B. MCDONELL, or applied for her benefit as long as any principal remains in the Marital Deduction Trust created in ITEM III. 3. My Trustee may apply the net income of this Trust for the support of my wife, MARIE B. MCDONELL, should she by reason of age, illness or any other cause in the opinion of my Trustee be incapable of dispersing it. - 5 - " .__.---.-~._,_._~----,---...;....-........:...---_.._:.~---~....-,,-.--~_..:.~-~~ ., \ . I I, I , ! i 1 I I I I I , I I I I I I I I I ! I I I , I "'- I i I i , ! I I I I , " 4. Upon the death of my wife, MARIE B. MCDONELL, the Trustee shall distribute all of the principal and income of the Trust to the following: A. Ten Thousand Dollars ($10,000.00) to each of the following: my grandniece, SANDRA MCBETH, my ~niece, DENISE MCBETH, my grandnephew, DONALD ANDREW MCBETH, and my grandnephew, CRAIG MCBETH. ~o ve... B. Five Thousand Dollars ($5,000.00) to the OAK IHLI; CEMETERY ASSOCIATION OF GARDINER, Maine, to be used for improvement and maintenance of said cemetery. C. Ten Thousand Dollars ($10,000.00) to the FOUNDATION FOR GLAUCOMA RESEARCH, 490 Post Street, Suite 1042, San Francisco, California, 94102. D. Balance to my nephew, DONALD F. MCBETH, provided that should he fail to survive my wife, MARIE B. MCDONELL, said balance shall be distributed to Donald's wife, LYNN MCBETH. If neither DONALD F. MCBETH nor LYNN MCBETH survives MARIE B. MCDONELL said balance shall be distributed to their issue, per stirpes. - 6 - I I I .~ ITEM V. WIFE FAILS TO SURVIVE. 5.1. If my wife, MARIE B. MCDONELL, fails to survive me, all the rest, residue and remainder of my estate I give, devise and bequeath as follows: 1. Ten Thousand Dollars ($10,000.00) to each of the following: my grandniece, SANDRA MCBETH, my grandniece, DENISE MCBETH, my grandnephew, DONALD ANDREW MCBETH, and my grandnephew, CRAIG MCBETH. 2. Five Thousand Dollars ($5,000.00) to the OAKIllLL CEMETERY ASSOCIATION OF GARDINER, Maine, to be used for improvement and maintenance of said cemetery. 3. Ten Thousand Dollars ($10,000.00) to the FOUNDATION~OR GLAUCOMA RESEARCH, 490 Post Street, Suite 1042, San Francisco, California, 94102. 4. Balance to my nephew, DONALD F. MCBETH, provided that should he fail to survive me, said balance shall go to Donald's wife, LYNN MCBETH. If neither DONALD F. MCBETH nor LYNN MCBETH survives my wife, MARIE B. MCDONELL, said balance shall go to their issue, per stirpes. - 7 - I I i I I I I _ _________J_ __ ! i '- ~ \ . /' i i ITEM VI: PAYMENT OF DEATH TAXES. 6.1. All federal, state and other taxes payable because of my death, with respect to property forming my gross estate for tax purposes, whether or not passing under this Will, induding any interest or penalty imposed in connection with such tax shall be considered a part of the expense of the administration of my estate and shall be paid from that part of my residuary estate passing pursuant to ITEM IV or ITEM V hereof without apportionment or right of reimbursement. All such taxes on present or future interest shall be paid at such time or times as my personal representative may think proper, regardless of whether such taxes are then due. I further direct that any and all such taxes shall be paid from and deducted from my residuary estate prior to the calculation of the shares of the residuary beneficiaries, so that each residuary beneficiary, charitable or not, shall bear a portion of the burden of such taxes. ITEM VII: ELECTIONS. I I I I I I I , I i I I I I I i J I I I I............. 7.1. My Executor shall have full power to exercise, in Executor's sole and absolute discretion, any elections provided by the Internal Revenue Code, other statutes and regulations, state and federal, relating to the administration of my estate, induding but not limited to the following: 1. To join with my wife or her personal representative in the filing of a joint income tax return for any period for which such a return may be permitted, without requiring her or her estate to indemnify my estate against liability for the- tax attributable to her income, and to consent for federal gift tax purposes to - 8 - . ---------~--------~ ; I \' having gifts made by my wife during my lifetime treated as having been made one- half of my wife and one-half by me. 2. To make the election described in Section 2056(b)(7) of the code in respect to all qualified terminable interest property (or any specific portion thereof) includible in my gross estate to such extent as my Executor shall deem to be in the best interests of my estate and beneficiaries thereof, and any determination made in good faith by my Executor to make or not to make such election shall be i binding and conclusive upon each person having any interest in my estate and shall , I not be subject to question or exception in any manner or proceeding whatsoever i or by any person whomsoever. i I i i I I : 3. To make the allocation of the GST exemption allowed to an individual I I pursuant to Section 2631 (a) of the code in such manner as my Executor shall deem I I to be in the best interests of my estate and beneficiaries thereof, any determination I made in good faith by my Executor with respect to such allocation shall be binding I and conclusive upon each person having an interest in my estate and shall not be i I subject to question or exception in any manner or proceeding whatsoever or by any I I person whomsoever. ! 4. To choose the alternate valuation date for federal estate tax purposes, without regard to whether the size of any marital deduction shall will be increased or decreased thereby, without requiring reimbursement. - 9 - . i I J___ ! I I I i I i I I I .... k!,~~ ,- f' ITEM vm: :MISCELLANEOUS. 8.1. Nonalienation. The inco~e and principal of any Trust or fund as shall or , may become distributable to any person (whether the interest of such person be present or future, vested or contingent, direct or indirect) in accordance with the provisions of this Will shall not, until the actual distribution thereof to the person entitled thereto, be subject to the debts, obligations, liabilities or engagements of such person, or to execution, attachment or other judicial process of whatsoever character and howsoever termed, or be assignable voluntarily, involuntarily or by operation of law or otherwise howsoever and the distribution thereof shall not be anticipated. Nothing in this Section shall be construed or deemed to curtail to any extent any power of appointment provided for in this Will or any power, authority or discretion given to or vested in the Trustee by the provisions of this Will or by law to make distribution and expenditure of income and principal of any Trust or fund in accordance with the provisions of this Will. 8.2. Distributions for Minors. Where under the provisions of this Will the Executor or Trustee is authorized to distribute or expend the income or principal of any Trust or fund to, or for the benefit of, a person who is a minor, they may distribute such income or principal directly to such minor, to the person having custody of him or her, to the guardian of his or her estate, to the guardian of his or her person or to a custodian for such minor under any applicable Uniform Gifts (or Transfers) to Minors Act, whether previously appointed or appointed by them for the purpose of receiving such distribution, all without liability on the part of them to see to the application thereof and without required bond or surety. - 10 -e I I I '- L_ T I ! I I I I I I j 1 I I j j j 1 J i \ ! " I J I ! J i , , 8.3. Corporate Distributions. Corporate distributions received in shares of the distributing corporation shall be allocated to principal, regardless of the number of shares and however described or designated by the distributing corporation. I I I I ; I I I I I I I I I I I J I i I I I I I I I , I I i f I , ; i I I I I I I I 8.4. Disclaimer. If my wife or the personal representative of my wife disclaims in whole or in part any property or interest therein otherwise distributable pursuant to 3.0 such property or interest so disclaimed shall be distributed to the Trust created by 4.0 hereof to become and be a part of the Trust estate thereof. Unless the disclaimer by my wife or the personal representative of my wife, as the case may be, shall specifically provide otherwise, such disclaimer shall not affect any of the provisions of the said Trust relating to my wife. 8.5. Death Taxes. Unless the context shall clearly indicate otherwise, "Death Taxes" shall mean (i) all federal estate taxes and all local, state and foreign estate, inheritance, transfer, legacy, succession and similar taxes which by reason of my death may be properly imposed upon, applicable to or payable with respect to any property or interest in property which may be included as part of my estate for the purposes of such taxes, or anyone or more of them, including any property that may not be a part of my estate for administration purposes, and (ii) all generation-skipping taxes (if any) payable at my death with respect to all transfers of property constituting direct skips (as defined in Section 2612 (c) of the Code) of which I am the transferor other than a direct skip resulting from a disclaimer or to !be extent that a generation-skipping tax exemption is claimed with respect thereto, and any interest and penalties thereon, but "Death Taxes" shall not include (i) any of such taxes attributable to (a) qualified terminable interest property in which I may have a qualifying income interest for life, (b) property over ! , i ; I I I !~ - 11 - .. ________J_ """ riL.- . r i which I may have a power of appointment, which power was given by someone other than me, or (c) property not included in my estate for administration purposes and with respect to which a governing instrument directs the fiduciary or other legal owner thereof to pay from such property a share or portion of such taxes or (ii) any generation-skipping tax except as otherwise specifically provided herein, or any interest or penalties on any of the same. j I ! I I j i i I I I I i ! I I I I i ! j I I ! I I ! i i I I i I ; i ! ! I I I I I I I l~ 8.6. Accumulated Income. In the event any income of any Trust or fund created herein shall be accumulated, such income may (but need not) be separately accounted for in an accumulated income account. At any particular time with respect to each such Trust or fund, the Trustee's power to dispose of income under the provisions of this Will shall for all purposes include the power to dispose of any accumulated income then on hand. ITEM IX: POWERS OF FIDUCIARIES. 9.1. Applicability. The provisions of this ITEM shall be applicable (unless the context clearly requires otherwise) to the administration. and management of my estate and each fiduciary account created under this Will, and the terms "Fiduciary" or "Fiduciaries" shall mean whichever of my Executor, Trustee or other fiduciaries, and the term "trust estate" shall mean whichever of my estate or such other fiduciary accounts the provisions of this Item are being applied to at the particular time. 9.2. Administrative Powers of Fiduciary. In the administration and management of my estate and any fiduciary account created under this Will and in the - 12 - r"'. .~ I 1 1 I management, investment and reinvestment of the Trust estate thereof, my Fiduciaries shall have and may exercise (subject to the provisions of9.3. of this ITEM IX and to any other provision of this Will limiting or qualifying in any way any power, authority or discretion of my Fiduciaries) full power, authority and discretion without the necessity of obtaining the order of any court to do all acts, to execute, acknowledge and deliver all writings and to exercise for the benefit of all persons who may be or become beneficiaries under the provisions of this Will any and all powers, authorities and discretions given to or vested in such Fiduciaries by the provisions of this Will or by law. By way of illustration but not limitation, my Fiduciaries shall have and may exercise the following powers: 1. To retain property in the form and character in which the same shall be received; 2. To sell, convey, mortgage, lease for any term whatever, transfer, exchange and dispose of, either publicly or privately, the whole or any part of the Trust estate; I i I I I I I I I I I I I I I I I I , I L 3. To grant options for such period as my Fiduciaries shall deem advisable for the sale, conveyance, lease, transfer, exchange or other disposition of the whole or any part of the Trust estate and to exercise any option at any time held as part of the Trust estate; 4. To invest and reinvest the whole or any part of the Trust estate in any kind of property, real, personal or mixed, or undivided or part interests therein, - 13 - -----------"----~_.-_._,-_._-----_. -----..----.. --- ..-+-.------.---- .----.-------.. -_...-----.__.~.------_._-_. -. i 1 i , , i I I I ! ! i I ! i I I i I I I I I I I ! i i I I " including stocks, bonds, notes, securities, minerals and other natural resources, limited partnerships, common trust funds, interest bearing accounts and other property of whatsoever character, located in the United States or abroad, all statutory and other limitations as to the investment of funds, now or hereafter enacted or in force, being hereby waived and without obligation to diversify the same and without liability for any decline in the value thereof; 5. To purchase assets from my estate and to make loans to my Executor, all upon such terms and conditions and with or without security as the Trustee shall determine; 6. To hold, manage, develop and operate all residential and other real property held as part of the Trust estate, to release, partition, vacate or a,bandon any such property, to make improvements, thereto or thereon, to construct, demolish, alter, repair, rebuild, maintain and insure buildings and other improvements on any such property and to use other assets of the Trust estate for any of such purposes; 7. To compromise and settle claims; 8. To carry any property in the name of a nominee, including a clearing corporation or depository or in book entry form or unregistered or in such other form as will pass by delivery; - 14 - . i i i i I I I I I I I I j I I I I I i I i i i ! I ..__.._-----~--- ~_.,., . l- I j I I I I I '- 9. To vote shares of stock, in person or by proxy, in favor of or against management and shareholder proposals and to join in or dissent from and oppose the reorganization, recapitalization, consolidation, merger, liquidation, or sale of corporations or properties; 10. To employ accountants, agents, attorneys, brokers, employees, investment counselors and other representatives (any of whom may but need not be a person, association or corporation acting as, or affiliated with a Fiduciary at the particular time) to perform any act of administration (whether or not discretionary), to act without independent investigation upon their recommendations and to determine and pay their compensation and expenses out of the Trust estate; 11. To distribute, without the necessity of filing a judicial accounting or obtaining judicial approval, the whole or any part of the Trust estate upon the receipt and release of the beneficiary entitled to receive such distribution, in which event my Fiduciaries shall be relieved of all further liability with respect to the property so distributed with like effect as if such distribution had been made pursuant to an order of court; 12. To borrow money from any person in such amounts and upon such terms as my Fiduciaries shall determine and to pledge all or any part of the assets of the Trust estate to secure such borrowing; - 15 - --.. --------------...--.--.- ---.-...------. ..------.----.-- ,-.;<:...... \ I I I ! i I I i I 1 I I I I I i ! i ! i I I I , I I I I I I l ( I 13. To permit any beneficiary to occupy any real property forming part of the Trust estate without rent or upon such other terms and conditions as the Trustee or my Executor shall determine; 14. To organize or cause to be organized alone or in conjunction with others, one or more associations, corporations, partnerships or other organizations; 15. To continue any business, incorporated or unincorporated, in which I may have had an interest at the time of my death for such period, or to liquidate the same at such time and upon such terms, as my Fiduciaries may determine, to invest additional sums in any such business even to the extent that the Trust estate may be invested largely or entirely in such business, to act as, or select other persons, including any Fiduciary or any beneficiary hereunder to act as, directors, officers, employees of any such business, to pay compensation for so acting without regard to whether the person so acting is a Fiduciary or a beneficiary hereunder, and to make such other arrangements in respect thereof as my Fiduciaries shall determine; and 16. To make any distribution or division of the Trust estate either in cash or in kind, or partly in cash and partly in kind and to allot different kinds of, or interests in, property to different shares, all as my Executor or Trustee, as the case may be, shall determine to be equitable to effect such distribution or division. - 16 - I I ____ __L_ 9.3. General Limitations. All powers, authorities and discretions given to or vested in my Fiduciaries by the provisions of this Will or by law shall be exercisable by my Fiduciaries only in a fiduciary capacity. ! j I .~ i ;j I ,) 1 "I j 9.4. Exercise of Discretionary Powers. Each and every power, authority and discretion given to or vested in my Fiduciaries or a class of Fiduciaries by the provisions of this Will or by law, whatever may be the nature or extent thereof, shall be freely exercis-able by my Fiduciaries or class at any time and from time to time in their sole and absolute discretion, as they alone shall determine. Each exercise thereof shall not be open to question in any manner whatsoever by, and- shall be binding upon, each person having an interest in the Trust estate. .' .' 9.5. Disclaimer By Executors. I authorize my Executor to disclaim in whole or in part any property or interest therein passing to me or to my estate by reason of a testamentary or inter vivos transfer or an intestate disposition or by any other means. 9.6. Option with Respect to Expenses. In the event any expense of administration of my estate shall, at the option of my Executor, be deductible either in computing any federal income tax payable during the administration of my estate or in computing the federal estate tax payable with respect to my estate, my Executor shall exercise such option as my Executor shall deem to be in the best interests of my estate and the beneficiaries thereof. In the event any such expense is deducted for federal income tax purposes, my Executor may, but shall not be required to, transfer from income to principal an amount equal to the additional federal estate tax which my estate - 17 - -j j 1 ~j ...." .. I ( \. ( I j I i I i \ i I 1 I. may be required to pay by reason of the failure to claim any such expense as a deduction for federal estate tax purposes. I I i ! i I I I I , I j I , i I I j I I I I I I 1 I I I , I ! i I , I ! j ; ITEM X: TRUSTEE. 10.1. I hereby nominate, constitute and appoint PNC BANK, NATIONAL ASSOCIATION, Trustee of all Trusts created by me in this my Last Will. If the Trustee determines that the assets in the Credit By-Pass Trust make it impractical to continue to hold the assets in Trust, the Trustee may at any time distribute the Trust assets to those who would be entitled to receive said assets if my wife had failed to survive me as provided in ITEM V hereof. If my Trustee determines that the assets in the Marital Deduction Trust make it impractical to continue to hold the assets. in Trust, the Trustee may at that time distribute the Trust Assets to those who are then allowed distribution of income by the Trustee. ITEM XI: EXECUTOR. 11.1. I hereby nominate, constitute and appoint my wife, MARIE B. MCDONELL, Executrix of this my Last Will and Testament. In the event my wife, MARIE B. MCDONELL, fails to qualify or ceases to so act, I name, constitute and appoint PNC BANK, NATIONAL ASSOCIATION. - 18 - I ~ 1 1 ;:: i I ,'I i'1 ~; i j J :j '1 l I ,j i j , I . ! j . I 1 . , ITEM Xll: BOND. 12.1. No fiduciary acting hereunder shall be required to post bond or enter security in any jurisdiction, but if a bond is nevertheless required, it shall be without surety . I r I ! I I I ! i I ! i I I I I I i I ! ! ~ WHEREOF, I hereunto s~t my hand and seal this ;J f).. day of , 1997. --l /Le& 1..1. .::?Je ~ (SEAL) FREDERICK H. MCDONELL Signed, sealed, published and declared by the above-named Testator, as and for his Last Will and Testament, in the presence of us, who, at his request, in his presence .. and in the presence of each other have he - 19 - -L____"'_"h __ '" , l, . " - \ I. I (~ I I, I I AFFIDAVIT COMMONWEALTH OF PENNSYLVANIA SSe COUNTY OF CUMBERLAND ~ FREDERlCKH. MCDONELL, ~..... Q.. ~.''-''-1-'--' and . . "'-'"~~ ',~. ~"- ~'- , the Testator and the witI1 sses, respectively, whose names are signed to the aft hed or foregoing instrument, being first duly sworn, to hereby declare to the undersigned authority that the Testator signed and executed the instrument as his Last Will and that he had signed willingly and that he executed it as his free and voluntary act for the purposes therein expressed, and that each of the witnesses, in the presence and hearing of the Testator, signed the Will as witness and that to the best of his/her knowledge the Testator was at that time eighteen years of age or older, of sound mind and under no constraint or :~n: 1;7 r!-~ CK H. MCDONELL Sworn to or affirmed to and subscribed to before me by FREDERICK H. MCDO~LL, . Testator, and ~~~ \~ : ~\"--.~~~ ~. and ~)'~J_\:) ~. {~'-- ~f... '-... . , Wltne s s, thIS ;;>;> N~ayof ~~.:1;:: ,19 . .~\ ^^,~ ~'"f~'tS Notary Public ~) . '\ My Commission Expires: - 20 - --- NOTARIAL SEAL DIANNE LENIG. Notary puniic , Lemoyne Borough Cumberland Co. My Commission Expires Dec. 21.1997 ..---..........,,- . . IBOO SEIDMAN ALLIANCE lP URISH POPECK & CO., LLC Three Gateway Center Pittsburgh, PA 15222-1015 (412) 391-1994 FAX 1412) 391-0724 Accountants and Consultants February 28,2006 RECEIVED ,:.;If\!G ADVISORS ['1\ P ) 0 '7006 I IliJ\ L L, Ms. Linda Lundberg, A VP PNC Bank, N. A. PO Box 308 Camp Hill, P A 17001-0308 Estimate of the Fair Market Value of 39,475 Shares of Houghton International Inc. Held in the Estate of Frederick McDonnel, Deceased Dear Ms. Lundberg: In accordance with our engagement, we have estimated the fair market value of the 39,475 common shares of Houghton International Class A shares (hereafter "the Company") held by the Estate of Frederick McDonnel, Deceased, as of October 21, 2005, the date of his death, for assisting in determining the value of the holding for Pennsylvania Inheritance Tax purposes. Fair market value is defined as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. The objective of an appraisal is to express an unambiguous opinion as to the value of the business, business ownership interest, or security, which is supported by all procedures that the appraiser deems to be relevant to the valuation. An appraisal has the following qualities: 1. It is expressed as a single dollar amount or as a range. 2. It considers all relevant information as of the appraisal date available to the appraiser at the time of performance of the valuation. 3. The appraiser conducts appropriate procedures to collect and analyze all information expected to be relevant to the valuation. 4. The valuation is based upon consideration of all conceptual approaches deemed to be relevant by the appraiser. Washington University Park Naples Bonita Springs . lP It is our understanding that the subject holding is expected to be sold upon the receipt of a tender to be issued by the Company in the next few months. Therefore our opinion of value will be expressed as a range of value, rather than a single figure, in order to assess the appropriateness of the tender offer. In the determination of fair market value the liquidity of the subject interest and the minority status of the holding are generally recognized as a valid considerations. Despite the temporary availability of a potential market for the subject shares, we have taken into consideration its general illiquidity in determining our estimate of value, as there is no guarantee that a similar tender will be made in future. We are appraisers of business equity interests and not of their underlying assets (securities, plant and equipment, real estate and the like). Furthermore, we are not rendering financial accounting or attest (audit) services in this engagement. It is our opinion, subject to the assumptions, limiting conditions and reliances set forth in this report that the fair market value of the subject interest as of October 21, 2005 was in the range of $13.35 to $13.65 per share or $526,991 to $538,834 for the holding. DISCUSSION Description of the Subject Interest Houghton International was founded in 1865 and is a global supplier of industrial fluids and chemical management services, primarily for the metalworking industry. In 1998, in the face of increased competition and deteriorating margins the Company sold its paper chemical operations. After the sale, the Company was left with significant overcapacity and took on substantial debt to effect a company-wide restructuring, including the issuance of warrants in conjunction with new subordinated debt in 2002. The Company is a world leader in chemicals for metal finishing and its fluids systems engineering division, called Houghton Fluidcare, has had several years of rapid expansion, according to the Company's 2002 and 2004 Annual Reports. One major contributor to this growth is Fluidcare's relationship with the automobile industry, which resulted in a partnership with Toyota in 2005, to design and create a mechanical vapor recompression (MVR) based fluid recycling system for Toyota's Bodine casting plant in Tennessee. Other divisions of the Company have seen increasing sales levels as a result of the 1998- 2002 restructuring. In 2004 The Company's sales revenues were recorded at $398 million and net income was approximately $1.2 million-both record levels for the Company. The principal markets for the Company's products and services are the Americas, Europe, Asia and Australia, and it maintains more than 30 sales and manufacturing facilities world-wide. 2 . ~- ll' There were approximately 4,213,591 shares of the Company outstanding as of December 31, 2004. Warrants and employee stock options had the effect of adding another lOO,449 shares to that total for purposes of calculating dilution. The subject interest of 39,475 shares constituted slightly less than 1 % of the outstanding shares on a fully diluted basis. The Company regularly engages an outside firm to value the Company's shares that were contributed to the 401K plans of selected employees. It also periodically buys back its shares through general tenders to its shareholders. A chart of these values, including book value and fully diluted book value, from 2001 through 2004 may be found in Exhibit 6. In the 2004 Annual Report of Houghton International, the following paragraphs describe the results of the most recent valuation: -, Hempstead & Co. has again analyzed our year-end financial results to determine the value of Houghton International Inc. common stock for transactions involving the Company's 40lK Plan. They have concluded that the value of a share of Houghton International Inc. common stock for these transactions as of December 31, 2004 is $21.00. This valuation takes into account the dilution from the issue of warrants with the placement of our subordinated debt issue early in 2002. Please note and recognize that this valuation is only determined for this specific purpose. As a privately held company, the Company's stock held outside the 401K Plan has a very limited liquidity and is subject to the agreement of buyers and sellers on a mutually satisfactory price for any transaction. We recognize that liquidity continues to be a concern for many shareholders and we will continue to explore opportunities to address shareholder liquidity in the context of the Company's overall long-term business objectives. (Emphasis ours/ Further, it is our understanding that two sales of the Company's stock were facilitated or executed by the Company in 2005. One was the exchange of 80,000 shares of stock on January 14,2005 at $15.00 per share,2 and the second was the repurchase of3,000 shares from a stockholder on June 15,2005 at $17.00 per share. Methodology In general, recent arm's length sales of the Company's stock represent the best measure of fair market value, barring material changes in the market or the in the Company between the sale and the valuation date, and these have been gathered in Exhibit 6. I William F. MacDonald, Chairman of the Board, "To Our Shareholders", Houghton International Inc. Annual Report 2004, p. 4. 2 Note the substantially lower price for the private placement of the larger block. This is not untypicaI, and is frequently referred to as a "blockage discount". In the present instance, depending upon which share price is used as a baseline, the discount for the size of the block traded would have been 15-30% (rounded). 3 IP In the present instance, the range of values at which the stock has been either traded or valued in the year prior to the valuation date is an indication that one or all of these sales may not be the equivalent of an arm's length transaction. A second market approach is to examine the sales of similar guideline companies or the sale price of the stock of guideline companies as of the valuation date. Because of the relatively small size of the Company when compared to publicly traded companies in its industry, no comparable public company was found. There were 212 sales of companies in the appropriate NAICS classification (NAICS: 325998 - All other Miscellaneous Chemical Product and Preparation Manufacturing), but most were manufacturers in the biological, food chemical or pharmaceutical industries. No sales of comparable companies were found. Similarly, absent good information about the market value of the Company's assets an asset approach could not be used. However, we have also included for comparison in Exhibit 6 the book value per share of the Company's stock, both under current number of shares outstanding and fully diluted with the share equivalents of the Company's convertible debt issue. Because book value ordinarily does not capture the intangible assets of a company, it is generally expected that the operating value of the Company will exceed its book value. However, as a cross check against which to measure the appropriateness of the sale values for the Company's stock employed in stock purchases and awards in the year prior to the valuation date, we have capitalized the expected cash flows to equity going forward, after certain adjustments for one time and non-cash expenditures have been made. The analytical method applied, called a Single Period Capitalization, is usually described as an income approach. Income Approach - Single Period Capitalization Methodology The single period capitalization ("SPC") method is a form of the Income Approach. The SPC method capitalizes a single year's cash flow to equity in order to determine the value of the Company's equity. Generally this method is used for a mature company or one that is not currently experiencing rapid growth or is at an unrepresentative point in its growth cycle as of the valuation date. Despite the cyclical nature of its markets, we believe the Company matches these criteria. For this reason we deemed the SPC method to be appropriate in this instance and at the valuation date. However, in recognition of the cyclical nature of the company's revenues and income, we have calculated the next year's income in two ways. In Exhibit 5 we have used 2004 year-end earnings as the starting point. We performed the SPC calculation (Exhibit 5) by adjusting the Company's net income for the most recent year for non-cash charges, required increases in working capital, increases in cash from borrowings (if needed) and provided an allowance for capital expendi tures. Because the Company's growth is assumed to be moderate and steady, a one period projection of cash flows is employed. In projecting the next period's cash flows, it was assumed that the Company would grow only at historical rates, but would still require 4 lP additional capital and working capital investments. In Exhibit 5 these assumptions are quantified as $5 million per year devoted to capital acquisitions and an additional increase in working capital of approximately $2.9 million annually. The investments are assumed to be high into the future because of the capital-intensive nature of the industry in question. Capitalization Rate Once cash flow for the succeeding year is projected, it is divided by a capitalization rate to arrive at the present value of the future cash flows to equity. A capitalization rate is the discount rate applicable to the security minus the growth rate of the company. Step one - Determine the risk-free rate The 20-year U.S. Treasury bond yield, as reported by the St. Louis Federal Reserve in its FRED database, was approximately 4.68% as of the valuation date. Treasury security yields are "risk-free" in that if they are held to maturity their risk of default is assumed to be negligible. Step two - Determine the general equity risk premium Quantification of the general market premium has been the subject of much research by security analysts. Findings stemming from research conducted by Ibbotson & Associates show that over the period from 1926 through 2002, the long-horizon expected equity risk premium provided a 7.2% average annual compound rate of return in excess of the average income return on government bond income returns. This rate has been adjusted, as advised by Ibbotson and Chen in a 2004 article, to adjust for the abnormal inflation in the historical data in the 1970's, as this phenomenon is not expected to repeat itself in the relevant future. The general equity risk premium employed in this calculation is the generally recommended adjusted rate of 5.95%. Step three - Determine the micro- capitalization premium An additional factor has been considered to reflect the impact of companies, capitalized below $269 million. Findings stemming from research conducted by Ibbotson & Associates show that the expected micro-capitalization equity premium rate is 4.02%. Step four - Determination of specific industry risk For several years Ibbotson & Associates have measured the perceived relative risk by industry as well as by size of the shares traded on the New York Stock Exchange. This information is often expressed as an industry beta factor, but Ibbotson has converted these betas into percentages that can be added directly into a built-up discount rate. For the SIC 2899: Chemicals and chemical preparations not elsewhere classified, the most recent industry specific risk premium, as of the valuation date, was 0.69%. Step five - Additional specific company risk factor relative to the industry An incremental or company specific risk factor in addition to the 15.34% cumulative equity risk premium described above may be appropriate in certain situations including, but not limited to, when: 5 lP (1) The business is particularly dependent on a limited number of customers when compared to the guideline companies; (2) Sales are confined to a relatively limited geographical area or product niche; (3) The business is smaller in total capitalization than the businesses comprising the data from which the equity premium is derived; (4) There is heavy reliance on new products, customers or geography. In the present case, as none of the above conditions apply, no additional company specific risk factor has been deemed appropriate. The resultant discount rate used in the analysis of the Company was 15.34% (Exhibit 5). Based upon the Company's history, its recent successful reorganization and its strong growth in revenue over the past two years, we have assumed that the Company will see growth at a rate of 4% for the foreseeable future. Therefore the projected 4% growth rate is subtracted from the discount rate of 15.34% before applying it to the derived cash flows, yielding a capitalization rate of 11.34%. Result Using this approach, the estimated return to equity, based on current revenues and income, is approximately $9,637,000 going forward. Capitalized at a rate of 11.34%, the result is the value of a 100% marketable ownership interest in the Company of approximately $88,380,000 (Exhibit 5). The resultant pro rata value per share under this approach would be approximately $21.00 (rounded) at current number of shares outstanding or $20.50 fully diluted. Discount for Lack of Control A capitalization of cash flows using Ibbotson cost of capital data to build the capitalization rate, if no adjustments were made to income that could only be made or demanded by a controlling interest, the application of Ibbotson data ordinarily yields a minority marketable interest. Therefore, no discount for lack of control has been applied in the present instance. Discount for Lack of Marketability The concept of marketability primarily relates to liquidity - how quickly and how certainly an investment may be converted to cash. A privately-held equity interest is almost always an illiquid investment in that it lacks an active, steady and readily available market. There is a cost to locating interested and capable buyers for such an investment and these buyers would be concerned themselves about the illiquidity of the interest. A holder of the subject interest runs the risk of loss or of foregoing profit because of the inability to readily sell her or her interest. The general lack of marketability reduces the fair market value of a closely held equity interest and the impairment to value is usually formalized by a lack of marketability discount. In the present instance, the Company generally constitutes the most likely market for its shares, and has, in fact bought back shares on a regular basis. Although some purchases 6 lP have been associated with 401 K repurchase obligations, other purchases have been the result of offers to purchase generally held shares. As can be seen in Exhibit 6, the values at which the Company has repurchased it shares have been, on average, lower than the values suggested by Hempstead & Co. for shares held by employees in the Company's 401 K Plan. Also, in any given year the number of shares purchased has been less than one-half of one percent (0.5%) of the Company's shares outstanding. As noted in the Exhibit, the number of shares held in the Estate is approximately six times the volume repurchased on average in any year for which we have data, and is more than twice the largest repurchase, which occurred in 2001. Since the Company's first repurchase obligation is to the 401K Plan, at a conservative estimate, it could take as long as ten to twelve years for the Company to repurchase the subject block. And, as indicated above, in the 2004 Annual Report it was noted that more than one shareholder is concerned about the illiquidity of the Company's stock and would be willing to sell if offered the opportunity, thereby lengthening the time it would take to liquidate the subject interest. Bearing all of these considerations in mind, along with the evidence of a variety of studies discussed in greater detail in Exhibit 7, we have applied a 35% discount to adjust for the relatively severe lack of marketability of the subject interest. For a full elucidation of the reasons behind this determination, please see the discussion of lack of marketability and the discounts typically applied to compensate for it in Exhibit 7. The resultant fair market value per share under this approach, after the application of the above discount, would be approximately $13.65 at the current number of shares outstanding or $13.35 (rounded) fully diluted. *** It is our opinion, subject to the assumptions, limiting conditions and reliances set forth in this report that the fair market value of the subject interest as of October 21, 2005 was in the range of $13.35 to $13.65 per share or $526,991 to $538,834 for the holding. Our opinion is effective only as of the valuation date, for the specified purpose and on the specified basis. Very truly yours, it ~ (J~ lit &-; Lt.C- Urish Popeck & Co., LLC 7 lP EXHIBIT 1 - HOUGHTON INTERNATIONAL, INC. BALANCE SHEETS FOR THE YEARS ENDED DECEMBER 31,2001 THROUGH 2004 HOUGHTON INTERNATIONAL, INC. , , BUSINESS V ALUA TION VALUATION DATE: OCTOBER 21, 2005 (in thousands) DECEMBER 31, I' 2004 2003 2002 2001 ASSETS Current Assets Cash & cash equivalents $ 12,709 $ 14,192 11,388 8,027 , ' Trade receivables less allowance 90,898 73,748 67,005 65,960 Inventories 43,985 37,234 34,216 30,894 Other current assets 4,802 8,737 10,560 17,937 Total Current Assets 152,394 133,911 123,169 122,818 Investments and Advances: Equity affiliates and other 11,651 9,374 8,154 7,232 Property and Equipment Land and buildings 54,956 52,508 46,935 44,877 Machinery and equipment 99,648 92,247 82,537 78,835 Construction in process & improvements 1,875 933 8\0 1,259 Total Fixed Assets 156,479 145,688 130,282 124,971 Less - Accumulated depreciation 102,118 91,224 80,086 74,335 Total Fixed Assets - Net 54,361 54,464 50,196 50,636 Other Assets Goodwill 35,190 33,794 32,043 30,3 5 1 Prepaid pension costs 2,050 2,994 6,269 Deferred income taxes 4,505 3,096 4,874 2,175 Other assets 7,147 4,244 3,133 2,049 Total Other Assets 46,842 43,184 43,044 40,844 TOTAL ASSETS $ 265,248 $ 240,933 $ 224,563 $ 221,530 LIABILITIES Current Liabilities Short term debt $ 10,203 $ 7,735 $ 6,458 $ 7,735 Current portion - L T debt 5,706 5,741 2,086 9,750 Accounts payable 54,163 41,963 $ 41,491 $ 40,629 Accrued compensation & other 13,879 14,2\7 15,907 \3,812 Income taxes payable/deferred taxes 1,599 1,424 1,187 4,021 Total Current Liabilities $ 85,550 71,080 67,129 75,947 Long Term Debt 82,546 85,553 84,250 77,841 Other Liabilities Deferred compensation 3,669 3,429 4,257 3,854 Accrued pension 7,887 6,607 5,840 Redemption value of warrants 8,039 Defen'ed income taxes 2,175 436 1,386 769 Minority interests and other 1,802 1,697 1,778 1,860 23,572 12,169 13,26] 6,483 TOTAL LIABILITIES 191,668 168,802 164,640 160,271 STOCKHOLDERS' EQUITY Common stock 5,307 5,307 5,307 5,307 Additional paid in capital 18,539 22,870 22,862 18,366 Retained earnings 124,916 123,728 122,055 123,773 Accumulated other comp, loss (3,073) (7,707) (\9,472) (\8,521) Less: Treasury stock at cost (72, I 09) (72,067) (70,829) (67,666) TOTAL STOCKHOLDERS' EQUITY 73,580 72,131 59,923 61,259 TOTAL LIABILITIES & EQUITY $ 265,248 $ 240,933 $ 224,563 $ 221,530 Source: Audited Consolidated Financial Statements of Houghton International, Inc. as of December 31, 200 I through 2004, prepared by PriceWaterhouseCoopers, Philadelphia, PA lP EXHIBIT lA - BALANCE SHEETS FOR THE YEARS ENDED DECEMBER 31, 2001 THROUGH 2004 - COMMON SIZE HOUGHTON INTERNATIONAL, INC. BUSINESS VALUATION VALUATION DATE: OCTOBER 21, 2005 DECEMBER 31, , ' 2004 2003 2002 2001 ASSETS Current Assets Cash & cash equivalents 4.8% 5.9% 5.1% 3.6% Trade receivables less allowance 34.3% 30.6% 29.8% 29.8% Inventories 16.6% 15.5% 15.2% 13.9% Other current assets 1.8% 3.6% 4.7% 8.1% Total Current Assets 57.5% 55.6% 54.8% 55.4% Investments and Advances: Equity affiliates 4.4% 3.9% 3.6% 3.3% Property and Equipment Land and buildings 20.7% 21.8% 20.9% 20.3% Machinery and equipment 37.6% 38.3% 36.8% 35.6% Construction in process 0.7% 0.4% 0.4% 0.6% Total Fixed Assets 59.0% 60.5% 58.0% 56.4% Less - Accumulated depreciation 38.5% 37.9% 35.7% 33.6% Total Fixed Assets - Net 20.5% 22.6% 22.4% 22.9% Other Assets Goodwill 13.3% 14.0% 14.3% 13.7% Prepaid pension costs 0.0% 0.9% 1.3% 2.8% Deferred income taxes 1.7% 1.3% 2.2% 1.0% Other assets 2.7% \.8% 1.4% 0.9% Total Other Assets 17.7% 17.9% 19.2% 18.4% TOTAL ASSETS 100.0% 100.0% 100.0% 100.0% LIABILITIES Current Liabilities Short term debt 3.8% 3.2% 2.9% 3.5% Current portion - L T debt 2.2% 2.4% 0.9% 4.4% Accounts payable 20.4% 17.4% 18.5% 18.3% Accrued compensation & other 5.2% 5.9% 7.1% 6.2% Income taxes payable 0.6% 0.6% 0.5% 1.8% Total Current Liabilities 32.3% 29.5% 29.9% 34.3% Long Term Debt 31.1% 35.5% 37.5% 35.1% Other Liabilities Deferred compensation 1.4% 1.4% 1.9% 1.7% Accrued pension 3.0% 2.7% 2.6% 0.0% Redemption value of warrants 3.0% 0.0% 0.0% 0.0% Deferred income taxes 0.8% 0.2% 0.6% 0.3% Minority interests and other 0.7% 0.7% 0.8% 0.8% 8.9% 5.1% 5.9% 2.9% TOTAL LIABILITIES 72.3% 70.1% 73.3% 72.3% STOCKHOLDERS' EQUITY Common stock 2.0% 2.2% 2.4% 2.4% Additional paid in capital 7.0% 9.5% 10.2% 8.3% Retained earnings 47.1% 51.4% 54.4% 55.9% Accumulated other compo loss -1.2% -3.2% -8.7% -8.4% Less: Treasury stock at cost -27.2% -29.9% -31.5% -30.5% TOTAL STOCKHOLDERS' EQUITY 27.7% 29.9% 26.7% 27.7% TOTAL LIABILITIES & EQUITY 100.0% 100.0% 100.0% 100.0% . lP ! ' EXHIBIT 2 - INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31,2000 THROUGH 2004 HOUGHTON INTERNATIONAL, INC. BUSINESS VALUATION VALUATION DATE: OCTOBER 21, 2005 (in thousands) 2004 2003 2002 2001 2000 Net Sales $ 398,072 $ 343,154 $ 311,567 $ 304,878 $ 315,477 Cost of Goods Sold 282,873 242,535 219,298 215,990 215,749 Cost of Sales Percentage 71.1% 70,7% 70.4% 70.8% 68.4% Gross Profit 115,199 100,619 92,269 88,888 99,728 Gross Profit Percentage 28.9% 29.3% 29.6% 29.2% 31.6% Operating Expenses Selling, Gen & Administrative 97,916 86,074 80,198 80,115 85,337 Restructuring & Other Op/Exp 597 1,783 2,769 3,411 5,157 Total Operating Expenses 98,513 87,857 82,967 83,526 90,494 Operating Expense percentage 25% 26% 27% 27% 29% Operating Margin 4% # 4% 3% 2% 3% Other Income (Expense) Interest expense (net) (8,824) (8,443) (8,376) (7,182) (7,925) Gain (loss) on business sale (454) (1,419) 5,760 Other (net) 511 1626 (593) (419) (296) Warrant appreciation (1,148) Total Other Expense (9,461) (7,271) (10,388) (1,841) (8,221) Income (Loss) before Taxes 7,225 5,491 (1,086) 3,521 1,013 Provision for Income Taxes 3,614 3,818 632 1,408 2,006 Net (loss) income 3,611 1,673 (1,718) 2,113 (993) Net Income Percentage 0.91% 0.49% -0.55% 0.69% -0.31% 2004 Net income (loss) after cumulative change in accounting principle $ 1,188 Net Income Percentage 0.30% Source: Audited Consolidated Financial Statements of Houghton International, Inc. as of December 31, 2001 through 2004, prepared by PriceWaterhouseCoopers, Philadelphia, P A lP EXHffiIT 3 - STATEMENTS OF CASH FLOWS FOR YEARS ENDED DECEMBER 31,2001 THROUGH 2004 1 , HOUGHTON INTERNATIONAL, INC. BUSINESS VALUATION VALUATION DATE: OCTOBER 21, 2005 I" (In Thousands) December 31, 2004 2003 2002 2001 OPERATING ACTIVITIES: r ' Net Income $ 1,188 $ 1,673 $ (1,718) $ 2,113 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Cumulative effect of change in accounting principle 2,423 Change in fair value of warrants 1,148 Depreciation and Amortization 7,950 7,465 7,349 9,768 Debt issuance cost amortization 1,246 734 659 (Gain) Loss on Sale of Property and Equipment 164 (1,582) (335) 704 Loss (gain) on Business Disposal 454 1,419 (5,760) Loss on Impairment of Assets 1,174 Equity in Net Income of Affiliates (741) (1,128) (947) (422) Provision (Benefit) for Post-Retirement and Pension 2,126 2,373 535 796 Non-Cash Interest&Amort. on Senior Sub. Notes 1,123 1,113 1,047 Provision (Benefit) for Deferred Income Taxes (432) 1,055 (528) 1,638 Changes in Current Assets and Liabilities: Accounts Receivable - Trade (15,731) (29) 3,474 3,912 Inventories (9,725) 1,633 (829) (1,432) Prepaid Expense & Other Assets 6,934 5,597 (796) (9,577) Accounts Payable - Trade 11,445 (4,599) (4,462) (1,592) Accrued Expense & Other Liabilities 1,385 (5,162) 3,076 3,243 Net Cash Provided by Operating Activities 10,503 9,597 9,118 3,391 INVESTING ACTIVITIES Purchases of Property & Equipment (5,207) ( 6,469) (4,549) (4,741) Proceeds from Sales of Plant Property & Equipment 1,508 2,674 1,350 144 Proceeds from Business Disposal 7,102 7,950 Net Cash (Used) by Investing Activities (3,699) (3,795) 3,903 3,353 FINANCING ACTIVITIES: Net Proceeds (payments) of Short- T erm Debt 1,781 1,735 (2,148) 370 Issuance (Purchase) of Treasury Shares, net 216 (88) (663) (230) Net Payments of Long-Term Debt (6,891 ) (2,603) (3,018) (5,600) Debt Issuance Costs (3,637) (741 ) (1,674) Net Cash Provided by (Used in) Financing Activities (8,531) (1,697) (7,503) (5,460) EFFECT OF EXCHANGE RATE CHANGES ON CASH 244 (1,301) (2,157) (327) NET INCREASE/(DECREASE) IN CASH AND CASH (1,483) 2,804 3,361 957 CASH AND CASH EQUIVALENTS, BEGINNING 14,192 11,388 8,027 7,070 CASH AND CASH EQUIVALENTS, END OF YEAR $ 12,709 $ 14,192 $ 11,388 $ 8,027 Source: Houghton International Inc. Annual Reports for 2002 through 2004 ~ ~ ~ g ~ z o ~ ~ o u ~ ~ ';J A 'G ~ ~ ~ o u 4. ~ .s~ ~~~ ~~~ ..... ~ ~ t'l 'Oi' .....:~ gg '" o~ U If) ~ U % 'G i ~ ~ 7. ~ g ~ ~~g ~~~ ~>;;1~ 'G~A ZO~ ~ cf)..... ~cf)~ g~3 o rfl4. ~~~ 'Oi' t: ~ ~ ~ ,.-< 00 o ~ ,.-< ~ ,.-< ~ ~ e o (j (j ~ t' .e '" t'l ~ o ~ t'l ell ~ o .... ~ ... ~ (j - (j S o - ~ :::1 ~ - o ~ a t'l ~ rfl g ~ ~ I;: e ~ ~ .~ .-0 .% ,.-< ] ~ "'~ .~ ~ ~ ~ .~ ~ .. '6b ...... ~.5 v ~ .~ ue ~.5 '" '" .... <~ ~.~ v.J::: ~~ uto-< .~ ",.-0 G) ... ... ~ .~ 0- ~~ ~4-' ... 0 ...;.1 S ~~ to ... ~ ';j, u v _ G) '" ? G) ... :gt .~ v G) 'a rJ 0 ~ rJ -\- G) '0 ~ e 8< o ... ~ ~ ~ 0) 8 00. r:- 'Oi' <i ~ ~ t' l ~ ~ ~ ~ '" '" t'l J:;; ~ .~ - (j ~ ~ ~ ~ '" ~ ~ '" t'l ~ b rfl g ~ ~ ~ ~ t: ~ I;: ~ ~ ~ o ... ~ ~ ~ .& 0' N o .... ~ .... ~ :g :~ 0) 'as ... 9. '" ~ cO '" ... ~ 0) u '-D '-D N ~ ~ 'd ~ u .... .... ... ~ '" o - '" '<i) '" ~ 0) ~ S 9. ~ 'G ~ .-0 ~ B ~ ~ :::1 ~ - o ~ ~ '" t'l ~ b cf) g ~ tS a ~ ~ ~ ~ o u '" J!. ~ .~ 0) rJ ~ '" ~ cO if) N 00, ,.-< ~ .-0 ... '" G) '0 a .... ~ Po 9. .~ ~ ~ o .~ .... 0) I:lIl ~ G) ? ~ c 'g. IJ.-' ~ G) '.~ ~ ~ ',:3 5 o c ... {S (::I ~ o 00 ,.0 N ~ o if) r:- ~ o ~ 0' ~ o r:- N ~ , ~ ~ e -- o ~ ... ~ E. t'l .... ~ ~ - .$ ~ '" ... '" ~ -" cf) S ~ ~ 'G ~ f Q ?'" t: ~ I;: \;'< ~ ~ .S ~ .... ~ '0 ? 8 .~ s- <l) '" .... ~ '0 ~ 9. '" g ~ <l) .... ~ <l) .... p... -';j, <l) B -2 ~ ~ o 0' ,....; o >f) ,.-< :1 <l) '" ~ :::: o ~ .... ~ e ~ rJ '0 p... .~ 6- ~ lP o .... p... ~ , G) .... p... ~ <l) .... p... <l) '" ~ ... G) '" '" <<l 4-' o ~ .B rJ >a ~ G) ~ ~ 0) <J '0 p... ~ if) < 5 o to-< ";;> ~ o .... p... ~ 0) .... p... \\' 'll "<a '" .S .~ ::;;: '8 + ..r. M V' ~ .~ ~ ~ ':2. ~ p.. Q6 -' ~ l? p.. "<a u 's 6 ..; '" ~ 00 0' 0' ..r. M ,.. if) S:!. <:( z. :tJ 0) '" < % to-< "7ii <I) c; r:fJ -.i c c ~ '" <::> <::> N ~ ::;; ;:i v; i:O '" ;:: '" ~ v; <; ~ ~ "" i 0; % r/l lP EXHIBIT 5 - INCOME METHOD: CAPITALIZATION OF CASH FLOW HOUGHTON INTERNATIONAL, INC. BUSINESS VALUATION VALUATION DATE: OCTOBER 21,2005 Capitalization rate (see calculation below) (in thousands) $ 3,611 \a} 9,196 (a> 1,148 (a) 3,637 (a) (5,000) (0) (2,955) (e) $ 9,637 104% $ 10,022 11.34% $ 88,377 $88,380,000 Net income - 2004 Plus: Depreciation and amortization Change in fair value of warrants Debt issuance: one-time cost Less: Estimated annual (increase) in capital expenditures Estimated annual (increase) in required working capital Normalized cash flow for the current year 1 plus the estimated annual growth rate (3%) Normalized cash flow at the end of the next full year Indicated value of 100% marketable interest Say a. Please refer to Exhibits 1 and 2 for 2004 figures b. Based on average capital expenditures, expenditure growth 2001-2004. c. Based on operating expenses, growth expectations and expected long term inflation goingforward. Built up Rate.' (Please refer to the report for details) Risk -Free Rate (20- Year Treasuries) Large Stock Equity Risk Premium (NYSE) Micro-Cap Equity Risk Premium (NYSE) Industry risk Premium Company-Specific Risk Premium Equity Discount Rate 4.68% 5.95% 4.02% 0.69% 0.00% 15.34% Less: Estimated long-term growth rate Capitalization rate 4.00% 11.34% lP [ ' EXHIBIT 6 - HOUGHTON INTERNATIONAL, INC. PURCHASES AND SALES OF STOCK 2001 TO 2004 HOUGHTON INTERNATIONAL, INC. BUSINESS VALUATION VALUATION DATE: OCTOBER 21, 200S ; , 2004 2003 2002 2001 HEMPSTEAD & CO. 401K Plan Valuation $ 21.00 $ 18.00 $ 15.00 - PURCHASES Number of Shares 4,488 6,291 9,499 18,565 Average Price $ 18.72 $ 15.26 $ 17.16 $ 17.78 BOOK VALUE $ 17.46 $ 17.29 $ 14.21 $ 14.10 Book value - fully diluted $ 17.06 $ 16.63 $ 13.82 $ 14.10 SHARES OUTSTANDING 4,213,591 4,172,512 4,217,674 4,345,763 Shares - fully diluted 4,314,090 4,337,803 4,336,894 4,345,763 Average shares purchased 2002-2004 6,759 Shares held in McDonnel Estate 39,475 Years to liquidate holding (1/2 of average annually) 11.68 Source: Houghton lnternational lnc. Annual Reports/or 2002 through 2004 ~ I(' EXHIBIT 7 - LACK OF MARKETABILITY DISCOUNT lP HOUGHTON INTERNATIONAL, INC. BUSINESS VALUATION VALUATION DATE: OCTOBER 21,2005 MARKETABILITY DISCOUNT The concept of marketability relates to liquidity - how quickly and how certainly an investment may be converted to cash. The minority ownership interest in the Company is an illiquid investment that lacks an active, steady, and readily available market. There is a cost to locating interested and capable buyers for such an investment and these buyers would themselves be concerned about the illiquidity of the interest. A shareholder runs the risk of loss or of foregoing profit because of the inability to readily sell his or her interest. This general lack of marketability reduces the fair market value of an ownership interest and this impairment to value can be expressed by a lack of marketability discount. "Investors prefer an asset which is easy to sell, that is, liquid."[ "The market for securities in the United States is the most liquid market for any kind of property anywhere in the world. This is one ofthe major reasons companies are able to raise investment capital from both institutional and individual investors: the ability to liquidate the investment immediately, at little cost, and with virtual certainty as to realization of the widely publicized market price. Empirical evidence demonstrates that investors are willing to pay a high premium for this level of liquidity, or, conversely, extract a high discount relative to actively traded securities for stocks or other investment interests that lack this high degree of liquidity.,,2 A lack of marketability discount is an amount or percentage deducted from an equity interest to reflect lack ofmarketability.3 The distinction between a minority discount and a discount for lack of marketability has not always been made clear by the courts. Many court decisions, especially those involving valuations for gift and estate tax purposes, have taken a single lump-sum discount to reflect lack of marketability, minority interest, and sometimes other factors. The minority and lack of marketability discounts are interrelated concepts, but are clearly separate and distinct. In recent years, the courts have been giving separate recognition to the impact of minority interest and lack of marketability factors. "Minority discounts and discounts for lack of marketability are often discussed together, but are distinguishable.,,4 In a 1993 tax court case involving gifts of partial interests in real property, the judge deviated from the traditional allowance of a single fractional interest discount in favor of determining separate discounts for minority interest and lack of marketability. 5 Support for the lack of marketability discount concept and guidance on the appropriate size of the lack of marketability discount can be found in empirical data from studies of both restricted securities and initial public offerings. Williamette Restricted Stock Studies Dr. Shannon P. Pratt, a Fellow of the American Society of Appraisers in Business Valuation (the highest designation awarded by the Society for outstanding contribution to his field) and a Managing Director of Willamette Management Associates, Inc. in Portland, Oregon, reports that his firm conducted a series of twelve studies on the lack of marketability discount.6 The studies covered the prices of private stock transactions relative to those of subsequent public offerings of stock of the same companies from 1975 through 1993. The price-earnings multiple of each private transaction 1 EXHIBIT 7 - LACK OF MARKET ABILITY DISCOUNT lP HOUGHTON INTERNATIONAL, INC. BUSINESS VALUATION V ALUATION DATE: OCTOBER 21,2005 was compared with the subsequent public offering price-earnings multiple. No pattern or trend could be discerned in the results over time, with the median discount ranging from 54.7% in 1975-78 to 31.8% in 1991 and back to 52.4% in 1993, the final year of the study. Emory-Baird lPO Studies A more recent study on discounts for lack of marketability was reported by John D. Emory, ASA in the December, 1999 Business Valuation Review. At his firm, Robert W. Baird & Co., Inc., he has performed a series of studies comparing the stock prices at which private transactions take place before an initial public offering to the prices at which the stocks were subsequently offered to the public. These studies cover seven different periods from January 1980 through June 1997, and involve private stock transactions that occur within five months of a public offering of stock of the same companies. The mean discount for the 310 transactions in the eight studies was 44% and the median was 43%, although the overall trend was toward lower discounts in more recent years. A number of restricted ("letter") stock studies have been done in an attempt to determine average levels of discounts for lack of marketability. Letter stocks are identical in all respects to the freely traded stocks of public companies except that they are restricted from trading on the open market for a certain time period, typically two years. Marketability is the only difference between a letter stock and its freely traded counterpart. The studies have attempted to find differences in the price at which letter stock transactions take place compared with open market transactions in the same stock on the same date. A brief review ofthese studies follows: SEe lnstitutionallnvestor Study As part of a larger analysis of market transactions, the SEC studied the price discounts at which restricted shares were purchased between January 1, 1966 and June 30, 1969. The study focused on the securities of public companies in four market categories: (1) those traded on the NYSE, (2) those traded on the ASE, (3) those traded aTC and required to file SEC Forms 10-K and 10-Q, and (4) those traded aTC but not required to report to the SEC. The study found a median price discount for the restricted stocks of 15% for the NYSE firms, 25% for the ASE firms, 25% for the aTC - reporting firms and 35% for the aTC non-reporting firms. Study of Milton Gelman Studying the price paid for 89 restricted securities by four closed-end investment companies, Gelman found an average price discount and a median price discount of 33%. Robert Trout Study In a review of 60 sets of letter stock purchased by mutual funds between 1968 and 1972, Trout observed an average discount of 33.45% for restricted stock. Like the SEC Institutional Investors Study, Trout found that aTC companies had higher discounts than those traded on the major exchanges. 2 EXHIBIT 7 - LACK OF MARKETABILITY DISCOUNT lP HOUGHTON INTERNATIONAL, INC. BUSINESS VALUATION V ALUATION DATE: OCTOBER 21,2005 Robert Moroney Study In a study involving the price paid by ten registered investment companies in 146 transactions involving restricted securities in the late 1960s and early 1970s, Moroney found an average price discount of35.6% and a median price discount of33.0%. ~MichaelMaherStudy In a similar study involving prices paid by mutual funds for restricted securities between 1969 and 1973, Maher found transaction prices that reflected an average discount of 35.43% and a median discount of33.00%. Standard Research Consultants (SRC) Study SRC measured discounts on 28 private placements between 1978 and 1982 and found a median price discount of 45%. Willamette Management Associates Study Studying 33 private placements between January 1,1981 and May 31,1984, Willamette found a mean discount of 31.2% and a median discount of 33.0%. William Silber Study Reviewing private placements of common stock by 69 companies between 1981 and 1988, Silber found an average marketability discount of 33.75% and a median discount of 35.00%. Referring to the Willamette and Baird IPO studies, Dr. Shannon P. Pratt stated: "The evidence from the Baird and Willamette studies taken together seems compelling. The studies covered hundreds of transactions over 19 years. Average differentials between private transaction prices and public market prices varied under different market conditions, ranging from about 40 to 63 percent, after eliminating the outliers. This is very strong support for the hypothesis that the fair market values of minority ownership interests in privately held companies are greatly discounted from their publicly traded counterparts."? Bradley A. Fowler, JD, ASA, Associate Editor ofthe Business Valuation Review, has commented on the lack of marketability studies: "Twenty-five years of market evidence has accumulated in this area, commencing when the SEC disclosure mandates of 1969 and 1970 first made substantial evidence available about investment company transactions in restricted securities. The grouping of these studies around 30% to 45% LOM discounts is impressive. As should be expected, the lower end of these ranges is found in the restricted stock studies where a public market existed for some shares of the companies. The higher discounts by and large were found where no public market had been established."g On the issue of marketability one other study is worthy of note. Partnership Profiles, Inc. has been tracking the discounts from net asset value on investments in real estate holding entities for close to a 3 EXHIBIT 7 - LACK OF MARKETABILITY DISCOUNT lP HOUGHTON INTERNATIONAL, INC. BUSINESS VALUATION V ALUATION DATE: OCTOBER 21, 2005 decade. According to the 1999 study "...speculators in the limited partnership secondary market (were) buying units.. .at an average price-to-value discount of27%." The study showed an average price-to-value discount of29% for all equity-based partnerships that pay cash distributions. In contrast, non-distributing equity-based partnerships had an average discount of 46%. The presence or absence of dividend payments, then, also affects an investor's willingness to pay full marketable value for a security. Recent Developments A number of recent studies have been published in the finance and business valuation literature on the question of the impact oflack ofliquidity on share price, using publicly traded stocks. Most of these studies have been based on large-block transactions and assumed instant liquidity to determine the influence of block size on price. However, a recent study by Ashok Abbott9 indicated that the holding periods for lightly-traded stocks, which most resemble closely held companies, can be quite long, and are influenced by such factors as holding period returns, size of company and the systematic liquidity of the market. Owners of smaller stocks deficient on all variables may find themselves looking at holding periods in excess of five years at a maximum, with average holding periods of 5-9 months for publicly traded, but lightly traded stocks. In the present instance, the Company has paid no dividends in recent years and the interest under consideration does not represent a controlling interest. Without the expectation of distributions, the holder of this block of shares is buying whatever growth expectations there may be for the Company and/or the possibility of its future sale. For this reason the prospective buyer could expect that these conditions would limit the number ofbuyers that would be interested in purchasing such an interest, thereby lengthening the time to find a buyer, should he or she wish to dispose of the interest at some future date. In addition, the Company itself acknowledges that its shareholders have concerns about the liquidity of its shares, since the amounts bought and sold in recent years have been very small in comparison to the subject holding. Thus there is the further concern in the present instance of the time it would take to liquidate the block, even if a buyer could be found. Based upon the specific facts and circumstances in this case, and relying upon the empirical data and analyses presented above and in the text ofthe report, we have included a marketability discount of 35% to adjust for the illiquidity of the subject interest. FOOTNOTES TO EXHIBIT 1. IRS Valuation Guide for Income, Estate and Gift Taxes, Valuation Trainingfor Appeals Officers. Chicago Commerce Clearing House, Inc., 1994. 2. Shannon P. Pratt, Robert F. Reilly, Robert P. Schweihs, Valuing A Business. Burr Ridge, Illinois: Irwin Professional Publishing, 2000. 3. Business Valuation Standard - BVS-I. American Society of Appraisers, 1992. 4 EXHIBIT 7 - LACK OF MARKETABILITY DISCOUNT lP HOUGHTON INTERNATIONAL, INC. BUSINESS VALUATION V ALUATION DATE: OCTOBER 21, 2005 4. Estate of Murphy v. Commissioner, T.C. Memo. 1990-472. 5. Samuel J LeFrak and Ethel LeFrak v. Commissioner, T.C. Memo. 1993-526. 6. Ibid. 7. Shannon P. Pratt, Robert F. Reilly, Robert P. Schweihs, Valuing A Business. Burr Ridge, Illinois: Irwin Professional Publishing, 2000. 8. Fowler, Bradley A., "How Do You Handle It?" Business Valuation Review. September, 1995, p. 131. 9. Abbott, Ashok. "Estimating the Holding Period for Listed Securities". Valuation Strategies. September/October 2004. Pp.4-9. 5 lP Certification We hereby certify that, to the best of our knowledge and belief: 1. We have no present or prospective future interest in the assets, properties, or business interests that are the subj ect of this report. 2. We have no personal interest or bias with respect to the assets, properties, or business interests that are the subject ofthis appraisal report or the parties involved. 3. Our compensation for making the appraisal is in no way contingent upon the value reported or upon any predetermined value. 4. Our compensation is not contingent upon an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. 5. The statements of fact contained in this report are true and correct. 6. Our analyses, opinions, and conclusions were developed, and the report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice and the Business Valuation Standards of the American Society of Appraisers. 7. No persons other than the individuals whose qualifications are included herein have provided significant professional assistance regarding the analyses, opinions, and conclusions set forth in this report. 8. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and contingent and limiting conditions, and they represent our unbiased professional analyses, opinions, and conclusions. 9. Disclosure of the contents of this report is subject to the requirements of The Appraisal Institute, the American Society of Appraisers and the other professional organizations of which we are members, related to review by their duly authorized representatives. 10. The American Society of Appraisers has a mandatory recertification program for all of its accredited members. Noreen Domenburg is an accredited member and she is in compliance with the requirements of this program. "A-. 7) ~ Noreen Domenburg, ASA 2.2g.tfJ, Date 8 lP Statement of Contingent and Limiting Conditions This appraisal is made subject to the following general contingent and limiting conditions: 1. We have not personally inspected the assets, properties, or business interests encompassed by this report. We assume no hidden or unapparent conditions regarding the subject assets, properties, or business interests. 2. We assume no responsibility for the legal description or matters including legal or title considerations. Title to the subject assets, properties, or business interests is assumed to be good and marketable unless otherwise stated. 3. The subject assets, properties, or business interests are valued free and clear of any or all liens or encumbrances unless otherwise stated. 4. We assume responsible ownership and competent management with respect to the subject assets, properties, or business interests. 5. The information furnished by others is believed to be reliable. However, we issue no warranty or other form of assurance regarding its accuracy. 6. We assume that there is full compliance with all applicable federal, state, and local regulations and laws unless the lack of compliance is stated, defined, and considered in the appraisal report. 7. We assume that all required licenses, certificates of occupancy, consents, or legislative or administrative authority from any local, state, or national government, or private entity or organization have been or can be obtained or reviewed for any use on which the opinion contained in this report is based. 8. Unless otherwise stated in this report, we did not observe, and we have no knowledge of, the existence of hazardous materials with regard to the subject assets, properties, or business interests. However, we are not qualified to detect such substances. We assume no responsibility for such conditions or for any expertise required to discover them. 9. Possession of this report does not carry with it the right of publication. It may not be used for any purpose by any person other than the client to whom it is addressed without our written consent and, in any event, only with proper written qualifications and only in its entirety. 10. We are not required to give testimony or be in attendance at any court or administrative proceeding with reference to the assets, properties, or business interests in question unless additional compensation has been agreed to and arrangements have been previously made. 11. Neither all nor any part of the contents of this report shall be disseminated to the public through advertising, public relations, news, sales, or other media without our prior written consent ~U1d approval. 12. The analyses, opinions, and conclusions presented in this report apply to this engagement only and may not be used out of the context presented herein. This report is valid only for the effective date specified herein and only for the purpose specified herein. 13. Analyses of the local, regional, national and industry economic conditions were not considered in this report. 9 . . lP , - Principal Appraiser Professional Qualifications if r Noreen Dornenburg, ASA Present Director - Valuation and Litigation Support Group Urish Popeck & Co., LLC/BDO Seidman Alliance I ' Experience Dr. Domenburg's professional career is notable for her accomplishments and contributions in both business and academe. Her business experience includes valuation of closely held business enterprises and of lightly traded shares of publicly held corporations, business and financial damage assessment, management consulting, and litigation support services. I. A recipient of a Ph.D. in Philosophy along with an MBA, Dr. Domenburg's experience includes 15 years of graduate-level business teaching. She is a frequent lecturer and has contributed to publications on management and business ethics as well as on valuation issues. Dr. Domenburg has addressed numerous influential organizations at the state and national level, including the Pennsylvania Institute of Certified Public Accountants, the Allegheny County Bar Association, the Society for Business Ethics, and the National Conferences of the Equipment Appraisers Association of North America and the American Society of Appraisers. Prior to joining Urish Popeck, Dr. Domenburg was Co-owner of a valuation consulting firm, having previously been Director of Business Valuation and Litigation Support for its predecessor organization. Education Ph.D., Yale University M. Phil., Yale University M.B.A., University of Colorado - Boulder B.A., Seton Hill College Professional Memberships, Certifications, and Attainments Accredited Senior Appraiser (ASA), American Society of Appraisers Past President and Board Member: Pittsburgh Chapter Instructor for ASA Business Valuation Accreditation Courses $' Society for Business Ethics - Charter Member Equipment Appraisers Association of North America - Honorary Member Knight Visiting Professor of Business Ethics (1994) Colorado Distinguished Educator Award (1987) Regis College Faculty Lecturer of the Year (1986) 10