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U.S. Securities and Exchange Commission
Washington, D.C. 20549
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Form 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 0-10634
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Mining Services International Corporation
(Exact name of registrant as specified in its charter)
Utah 87-0351702
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8805 South Sandy Parkway
Sandy, Utah 84070-6408
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (801) 233-6000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Common Stock, $0.001 Par Value
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Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No ___
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing sales price of March 10, 2000, the aggregate
market value of the Common Stock held by non-affiliates was $9,208,906
(3,348,693 shares estimated to be held by non-affiliates). Shares of the Common
Stock held by each officer and director and by each person who may be deemed to
be an affiliate of the registrant have been excluded.
The number of shares outstanding of the registrant's par value $0.001
Common Stock as of March 10, 2000 was 7,314,260.
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Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 19, 2000, which Proxy Statement will be
filed no later than 120 days after the close of Registrant's fiscal year ended
December 31, 1999, are incorporated by reference in Part III of this Annual
Report on Form 10-K.
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Mining Services International Corporation
Table of Contents
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Part I Page No.
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Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition 8
and Results of Operation
Item 7A. Quantitative and Qualitative Disclosure about Market Risk 11
Item 8. Financial Statements and Supplementary Data F1
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 11
Part III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners and
Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 12
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PART I
Item 1. Business
General
Mining Services International Corporation ("MSI" or the "Company") is a
Utah corporation organized in 1979. The Company's primary products and services
include the manufacture, licensing and supply of commercial explosives used in
mining and construction throughout the world. In addition, its wholly owned
subsidiary, Nevada Chemicals, Inc., owns a 50% interest in Cyanco, a
noncorporate joint venture with Degussa Huls Corporation, which manufactures and
sells liquid sodium cyanide used in the extraction of gold from gold deposits in
the western United States.
Recent Business Developments
The Company's business development strategy is to grow as a worldwide
supplier of niche chemical products and services to the mining and construction
industries. The Company continues to focus on four product lines: (1) bulk
blasting agents, oxidizers, fuels and related raw materials; (2) packaged
explosives; (3) explosives accessories; and (4) liquid sodium cyanide. The
Company is also expanding its ability to deliver its manufactured products with
key related services that the Company believes allow for better margins. The
Company markets for its own account in the United States and Canada and has
licensed its technology in regions of the world where large-scale surface mining
occurs. The Company has acquired and continues developing equity positions in
U.S. and international market niches that need effective solutions for blasting
and ore treatment. Recent developments in the Company's business are described
below:
Cyanco: Early in 1996 Cyanco announced its intent to construct a backup
production facility at its Winnemucca, Nevada Plant in order to meet growing
market demands for liquid sodium cyanide without the need to purchase backup
supply. With the added facility, completed in 1997, Cyanco has an annual
production capacity of at least 85 million pounds of liquid sodium cyanide.
During 1998 and 1999, worldwide gold prices continued to be depressed,
ranging between $250.00 and $320.00 per ounce. Gold production in the Company's
market area should remain relatively stable for the foreseeable future as long
as gold prices do not deteriorate. Prices for sodium cyanide have been and are
likely to remain depressed in the short-run. During the first quarter of 2000,
Cyanco successfully acquired the right to supply 100% of the cyanide
requirements to a large gold producer in Nevada, increasing its projected annual
production by approximately 10,000,000 pounds. Though the average forecasted
price per pound of cyanide is lower than previous years, Cyanco has positioned
itself to continue increasing market share in the long run.
MSI Explosives Business: During 1999, the Company continued to develop
and secure partnering arrangements for its mining explosives business worldwide,
to develop its accessories and EMGEL(R) packaged explosives products, and to
secure major customers in the United States and Canada. In September 1999, MSI
acquired a 51% interest in Tennessee Blasting Services, L.L.C. (TBS), a joint
venture engaged in drilling and blasting services in the Tennessee tri-city
areas of Nashville, Knoxville and Chattanooga. The joint venture should add
approximately $7,000,000 to the Company's revenue during 2000.
On December 9, 1998, MSI acquired 100% interest in Green Mountain
Explosives, Inc. (GME), an explosives distribution and blasting services company
operating in the New England market. Its 1999 annual sales were approximately
$8.6 million, which the Company believes will continue to grow and represent a
major enhancement to the Company's U.S. market penetration into distribution,
serving as an outlet of its manufactured products and services.
In 1998, MSI also acquired 100% interest in O'Brien Design Associates,
Inc. (ODA), a company located in Charlestown, Rhode Island, which owns
technology and facilities for the production of certain explosive accessories.
During 1999, ODA completed its shock tube production plant and largely completed
its first detonating cord plant. The accessories assembly plant is planned to be
fully operational in 2000. The addition of the accessories products to MSI's
product line should allow MSI to garner better revenue and gross margin from
existing accounts and will provide strategic advantages as it continues to
supply full line explosives, drilling and blasting services to its worldwide
customer base.
During 1998, the Company entered into a joint venture with Norsk Hydro,
the largest fertilizer producer in the world, with whom the Company also has a
joint venture in Colombia, to produce and service bulk explosives operations in
the Kovdor Mining District in Russia. Norsk Hydro purchases fertilizer raw
materials mined at Kovdor, thus providing reasonable assurance that the
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Company's joint venture will be able to achieve repatriation of earnings and
convertibility of local currency to U.S. dollars. The contract is for a period
of seven years and MSI's share of the capital required for the project will be
approximately $750,000. The plant is nearing completion and should be fully
operational during the second quarter of 2000.
The Uzbekistan joint venture, Turon-MSI Ltd., formed in October 1995,
as a 51/49 joint venture between the Company and an Uzbekistan government
controlled entity, "Ammofos," officially opened its explosives plant in October
1997 and began to produce on a regular basis in 1998, producing approximately
10,000 metric tons of explosives for local mines and construction companies.
Because convertibility of local currency to U.S. dollars was unavailable during
1999, production decreased to approximately 4,400 metric tons. Due to the
current inability to repatriate earnings, the Company has determined to
write-off its investment in Uzbekistan of $1,846,000. The joint venture received
US dollar payments in February and expects payments in March 2000 of
approximately $400,000 for raw materials shipped by the Company to Turon-MSI in
1998 and 1999; however, the Company does not expect to be able to gain US dollar
conversion of profits in the near term.
The Company has committed to continue operations in Uzbekistan, without
committing any new capital investment, and the leading Uzbekistan gold mining
enterprise has committed to the joint venture that it will assist Turon-MSI in
acquiring US dollar conversion for raw materials. So far in 2000 it has
substantially lived up to this commitment. This commitment will enable Turon-MSI
to continue its operations and provide an opportunity to begin exporting
explosives which may provide needed US dollar resources to Turon-MSI allowing it
to proceed on a longer term basis independent the shortage of hard currency.
Assuming US dollar conversion continues for raw material imports, Turon-MSI
should be able to complete its contracts to supply 1,000 metric tons per month
in 2000 and begin exporting to neighboring countries which have hard currency
reserves.
The MSI and Norsk Hydro joint venture in Colombia produced explosives
during 1998 to support the mining of approximately four million metric tons of
coal. The Company's production significantly decreased during 1999 due to
curtailed mining (approximately 1 million tons of coal compared to over three
million tons of coal in previous years), reflecting current lower coal prices in
Europe where much of the Colombian coal is marketed. During 1999, however, the
Company's major coal customer achieved better prices and commitments for its
coal which will allow the Colombian customer to continue investing in less
expensive transportation and port facilities via railroad, thus allowing for
increased production in 2000 to three million tons with the possibility of
increasing its long-term output to 7 - 10 million tons by 2003.
During 1999, the Company's operations in Ghana, a 50/50 joint venture
with Bulk Mining Explosives from South Africa, continued to decline consistent
with the decline in gold production in Ghana as a result of low gold prices.
Accordingly, the investment and loans to the joint venture of approximately
$800,000 were written off in 1999. The continuation of operations as they now
exist in Ghana is unlikely without a dramatic turnaround in gold production.
Accordingly, the Company is considering several options to resolve the problem
of continuing operating losses.
Description of Business
Products and Markets: The Company, through its subsidiaries, licensees
and joint ventures, primarily services the surface mining and construction
industries. The Company's products are divided into explosives and related
products and liquid sodium cyanide.
Explosives: The Company's products are used in the blasting operations
of surface mines in base and precious metals, coal and industrial minerals and
construction projects. The explosive products are divided into three major
categories: (1) Bulk explosives including HEF(R), a proprietary oil-in-water
emulsified oxidizer which enhances the quality and control of the explosion or
blast in order to produce more consistent breakage of ore; and ammonium nitrate
prill, acquired from third parties, used with HEF(R) and in ANFO, a common
explosive blasting agent used in surface boreholes which is made from a mixture
of ammonium nitrate prill and diesel fuel; (2) explosives accessories, such as
shock tube initiation systems and detonating cord which will begin being
manufactured from new plant facilities in Rhode Island and Connecticut in 2000;
and (3) packaged explosives (EMGEL(R)) which are currently being manufactured at
the Company's West Virginia Plant. In September 1993, the Company was granted a
patent on the compositions and methods used to formulate this unique explosive
and has introduced EMGEL(R) which is a water-in-oil type emulsion explosive
produced by emulsifying a water solution of oxidizer salts into a blend of oils.
The emulsion is then packaged into small polyethylene cartridges or "chubs" and
larger "shot" bags using special form and fill machines. A variety of cartridge
diameters and lengths can be produced. As the emulsion is being loaded into the
cartridges and bags, a trace quantity of a cross-linking chemical is added to
the composition which reacts and polymerizes or crosslinks the entire mass into
a soft, rubber-like material. The uniquely crosslinked emulsion is stable and
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the package or cartridge and bags can be punctured or split without product
spills. This significantly improves the handling characteristics of the
explosive and provides additional safety in transportation, storage and use.
With the addition of packaged explosives and accessories, the Company
has strengthened its position for worldwide market production. With both HEF(R)
and EMGEL(R), the Company is able to joint venture the technology and
manufacturing plants on a relatively small scale and enter markets where locally
produced explosive products have been unavailable due to cost or inadequate
infrastructure. With the technology and facilities know-how acquired from ODA,
the Company will also be positioned to supply its own explosives accessories to
certain niche markets in the U.S. and around the world.
In the U.S. and Canadian markets, the Company markets and services mine
and construction sites directly for its own account. The U.S. markets are
concentrated in New England, the West Virginia coal belt, the Wyoming, Montana
and Colorado coal belts, western U.S. surface gold operations, principally in
Nevada, industrial minerals in California and now in the Tennessee area.
Aggregates, tar sands and coal mining operations in western and central Canada
are also major markets where the Company markets for its own account.
The Company has traditionally licensed its HEF(R) technology directly
to mines or to explosive manufacturers or supply companies in foreign markets.
Currently, the Company has licensees in South Africa, Namibia, India, Korea and
Thailand. The Company plans to continue its licensing activities in certain
geographic areas, but has shifted its marketing focus toward creating long-term
positions of ownership through strategic alliances with existing customers,
suppliers and government entities. Because of inherent economic and political
risks in developing economies, the Company's strategy there is to join with
local suppliers or government entities where the company believes the alliance
will survive periodic political and economic changes.
Sodium Cyanide: The Company's joint venture with Degussa Huls
Corporation for producing and marketing liquid sodium cyanide from the
Winnemucca, Nevada plant has concentrated on quality and service. There are
principally two types of products marketed to the gold mines for the leaching
process: (1) a solid "briquette" sodium cyanide product which requires handling
and physical dissolution before use and (2) the type provided by Cyanco, a
liquid sodium cyanide which provides for greater personal and environmental
safety and comes ready-to-use for the mining customer. The manufacturing cost
for the product is substantially lower than for solid products when handling and
chemical adjustment costs are taken into account.
Since the liquid product is shipped by truck from the plant to the mine
site in a solution of about 30% sodium cyanide and 70% water, freight costs are
very significant and shipping must be managed carefully both in terms of safety
and environmental protection. Cyanco has contracted this service with an Omaha,
Nebraska company which utilizes dedicated equipment specifically designed for
Cyanco. Cyanco's five-year freight contract, which expired in March 1999, has
been renewed on a month-to-month basis until a long-term contract can be
renegotiated.
There are two competitors in the western liquid market (see discussion
under "Competition"). One of Cyanco's advantages over its competitors is that it
is the only producer of liquid sodium cyanide which is manufactured completely
from raw materials at its plant in the gold district. Other competitors either
ship liquid product by rail to a transfer facility and then on to the mines by
truck or tanker or they ship solid products from distant plants to special tanks
or tankers where the product is dissolved before being discharged into mine site
vessels. The Company believes that its competitors are limited in their ability
to react quickly to changes in the market and to technological changes. Cyanco
is positioned to efficiently take advantage of these changes.
Dependence on Customers: Since most of MSI's explosive and cyanide
customers are large surface mining companies, the number of companies it
services is relatively small compared to those of a wholesale distribution or
retail business. A net loss of such customers, which is not expected to occur,
could adversely affect 2000 sales. In most cases the Company has long-term
contracts with such customers (see Note 11 to the Company's financial
statements). With the addition of accessories and packaged products, MSI's
customer base is increasingly made up of a larger base of smaller customers,
particularly in those areas focusing on building materials and construction.
Patents, Trademarks and Licenses: The Company is the holder of six U.S.
patents, four of which relate to the composition and control of its HEF(R) and
EMGEL(R) emulsion products and two of which relate to methods of delivery of
explosives products at the mine site. These patents, which are not deemed
material to the Company's ability to compete in the explosives business, expire
at various dates beginning in 1999 and ending in 2013. The Company has obtained
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similar patents in several foreign countries and has licensed all or parts of
its technology to manufacture HEF(R) and EMGEL(R) to companies in South Africa,
Namibia, India, Thailand and Korea.
The composition of E-21 and the other emulsifier formulations upon
which the Company's HEF(R) emulsion products are based are proprietary
ingredients and are deemed important trade secrets by the Company. The Company
has also trademarked HEF(R) as a component of its bulk blasting agent and
EMGEL(R) as its crosslinked packaged emulsion explosive. The trademarks are
registered in the United States, Canada, South Africa and several other foreign
countries.
In March 1989, Cyanco obtained from Mitsubishi Gas Chemical Company,
Inc. ("Mitsubishi"), a Japanese corporation, in consideration of payment of a
one-time licensee fee, a perpetual license of a patented process and related
technical information covering the manufacture of hydrogen cyanide for use in
the manufacture of liquid sodium cyanide at the Cyanco Plant. The license is a
nonexclusive, nonsublicensable and nontransferable right to use the technology
at the Cyanco Plant which is deemed materially important to the plant's
operation.
Research and Development: Expenditures for technical research and
development for the fiscal years ended December 31, 1999, 1998 and 1997 were
$805,000, $587,000 and $488,000, respectively. The Company actively conducts
research on product improvement and development. The expenditures in each of the
years ending December 31, 1999, 1998 and 1997 were primarily related to the
Company's explosives business. There has not been any customer-sponsored
research and development.
Raw Materials: The Company has not experienced significant difficulty
in obtaining necessary raw materials used in the manufacture of its explosives
products and does not expect significant difficulty in obtaining raw materials
in the future except temporarily where import restrictions may occur due to lack
of convertibility of local currency to hard currency or other foreign political
or economic factors which may occur in countries experiencing capital shortages
or devaluations. The Company must compete with the agricultural market for a
major portion of its raw materials (ammonium and calcium nitrate). The supplies
of these products have been adequate in past years to meet the needs of
industrial as well as agricultural users. The Company has ensured its supply of
needed materials by entering into several supply agreements with the
manufacturers of these raw materials. The Company does not deem any of the
supply agreements to be a contract upon which its explosives business is
substantially dependent.
Long-term contracts for the raw materials required for the production
of liquid sodium cyanide by Cyanco have been obtained. Cyanco has entered into
long-term transportation agreements with Paiute Pipeline and Northwest Pipeline
for transportation services of natural gas to the Cyanco facility. Cyanco has
not had any difficulty in obtaining other necessary raw materials and does not
believe that its business is materially dependent upon any one of its existing
contracts. Alternative sources of supply are available for raw materials at
competitive prices.
Competition: The manufacture and sale of explosives and related
services and equipment is a highly competitive business. The continuing
cost-cutting measures implemented by owners of mines as the mining industry
consolidates places growing emphasis on lowering explosive prices. This emphasis
continues to adversely affect gross profit margins. The Company, in its efforts
to develop, manufacture and sell its products, is competing with a number of
companies having greater financial resources and well established global
relationships in the industry than it does. The Company believes that ORICA,
formerly ICI Explosives, Austin Powder and Dyno Nobel Group are significant
competitors in the industry. Although the competitive position of the Company is
not relatively significant, the Company believes its bulk explosives and
packaged products have a number of advantages in product performance and safety
over products of its competitors (see "Products and Markets"). As the large
mining companies continue consolidating, the Company's strategy is to focus on
niche markets, providing full service and added value to the end users.
Historically the explosives business has experienced low margins and as
consolidation in the Industry continues, pressure on margins is expected to
increase.
The Cyanco Plant represents one of two sources of delivered liquid
sodium cyanide in the Western United States. The world market for sodium cyanide
briquette or dry form is dominated by E.I. DuPont Nemours ("DuPont"). There
continue to be opportunities in the worldwide market for liquid sodium cyanide,
however, currently supply of dry product, worldwide, exceeds demand.
Domestically, Cyanco's product competes with DuPont and also with FMC which
markets delivered liquid sodium cyanide. The Company believes that the important
competitive factors in the liquid sodium cyanide market are location, service
and quality. However, as gold prices have declined and Cyanco's innovations in
the marketplace have taken effect, liquid sodium cyanide price has become a
significant competitive factor. Cyanco expects that efforts to gain market share
during this period of lower gold prices will continue to keep product prices at
low levels during 2000 in the Nevada market.
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Employees: The Company employs 94 full time employees in its direct
explosives operations. Employment at joint ventures include 32 permanent
employees at the Cyanco Plant in Winnemucca, Nevada, 14 local employees in
Colombia, 7 local employees and 2 expatriate employees in Ghana, 60 local
employees in Uzbekistan and 25 employees at Tennessee Blasting Services, LLC,
and approximately 10 employees in Kovdor Russia. In Canada and Uzbekistan,
employees belong to labor unions. The Company and its joint ventures consider
relations with their employees to be positive.
Environmental Regulation: The Company is subject to federal, state and
local laws regulating the protection of the environment in the handling, storage
and shipment of explosives materials. To date, except as noted below, compliance
with these regulations has not required material expenditures and has not
materially affected earnings or the competitive position of the Company. In
preparation for the manufacture and sale of liquid sodium cyanide at the Cyanco
Plant, Cyanco incurred material capital expenditures relating to compliance with
environmental laws and regulations, including expenditures required for
specialty trucks and tankers and development of an emergency response plan in
the event of a spill of hazardous materials. Cyanco's operations are designed
such that no hazardous waste is created during the manufacture of its product.
The Company and Cyanco will continue to be subject to environmental laws, rules
and regulations in their respective operations. Compliance with such laws, rules
and regulations on an ongoing basis is not expected to require additional
material expenditures.
Item 2: Properties
The corporate offices of the Company, built in 1997, are located at
8805 South Sandy Parkway, Sandy, Utah. The corporate facilities, consisting of
1.8 acres, an office building and adjacent research and laboratory facilities,
were constructed by the Company at a cost of approximately $1.2 million.
The Company manufactures HEF(R) and EMGEL(R) for sale to its mine
customers at facilities located on mine sites or adjacent to mine sites,
typically under leases tied to supply agreements. Joint venture facilities in
Colombia, Uzbekistan and Ghana are located on mine production facilities of a
major customer or leased from third parties. During 1999 construction of the
plant facilities for the Kovdor operation in Russia was begun and will be
completed in 2000. The facility is located on mine property owned by the
project's contract customer. The land owners normally supply water, sewer,
electricity and other infrastructure.
The Company leases a 640 acre site in Tooele County, Utah, which is
equipped with a fully developed test range and explosives magazine facility. The
Company currently leases the property on a year to year basis. The rent on the
property is approximately $16,000 per year. The Company also rents on a month to
month basis approximately 422 acres in Boone County, West Virginia that it uses
for manufacturing commercial explosives and emulsions. Rent on the property is
approximately $1,800 per month.
Cyanco is the owner of approximately six hundred and forty (640) acres
located near Winnemucca, in Humboldt County, Nevada, upon which the Cyanco Plant
is located. The Cyanco plant was expanded in 1997 to include a backup production
facility having a capacity equal to the capacity of the preexisting facility.
The combined capacity of the Cyanco plant is now at least 85 million pounds per
year.
ODA owns the lot, office and facilities located at its principal place
of business at 366 Ross Hill Road, Charlestown, Rhode Island. In addition,
during 1999, ODA leased land for 15 years at $2,000 per month and is building an
8,400 square foot manufacturing facility for its accessories business in Moosup,
Connecticut for a cost of approximately $150,000. It also has adequate access to
magazines and testing facilities for its explosives accessories products.
GME built its corporate offices during 1998 at a cost of approximately
$240,000, consisting of land, office building and other improvements, located at
Gold Lodge Avenue, Auburn, New Hampshire. It also rents and owns various
magazines near market areas for storage of explosives. The Company is currently
negotiating for additional magazine locations to replace current leases which
expire in June of 2000.
TBS leases approximately 1,000 square feet of office space in Jacksboro
and Nashville, Tennessee at an annual rate of $5,400. It also leases magazines
in areas convenient to its markets in eastern and middle Tennessee.
The property and facilities of the Company and its joint ventures,
including Cyanco are deemed adequate and suitable for their respective
operations.
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Item 3: Legal Proceedings
On March 22, 1999, MSI received a complaint filed on March 10, 1999, in
the Riverside Superior Court, Riverside, California, by Mr. Paul Marlett, an
individual doing business as Marlett Technical Services and Sales. The Plaintiff
alleges the company owes him, as a prior independent contractor, commissions of
approximately $200,000 and claims treble damages due to breach of the Unfair
Practices Act of California. The Company has filed an Answer denying all claims
with counterclaims and defenses. Management does not believe this action will
have a material effect on the Company.
In February 2000, the Company filed Form 8-K, which is herein
referenced, to disclose the continuing litigation with respect to the BLA Trust.
The Form 8-K was filed to report the commencement of an action referred to as
the BLA Investment Irrevocable Trust litigation which was brought by Bryan
Bagley and Lisa Higley, Trustees, against the Company and John T. Day, Lex L.
Udy, Nathan L. Wade and Steven Fleischer, who are directors of the Company. The
complaint was filed on January 20, 2000 in the Third Judicial District Court for
Salt Lake County, Utah. A similar action brought by the Trustees in the Federal
District Court for the District of Utah against the Company was dismissed on
November 18, 1999 for lack of federal court jurisdiction.
The Complaint alleges, among other claims, that (i) the Voting
Agreement, dated August 27, 1997, among the Company, Edward Dallin ("Dal")
Bagley, Carolyn C. Bagley and Amanda Bagley, (the "Voting Agreement") is not
enforceable with respect to certain shares of the common stock of the Company
transferred by Dal Bagley and Carolyn Bagley to the Trust (the Company enforced
the Voting Agreement and voted the shares at the last Annual Meeting held on May
19, 1999), (ii) the Rights Agreement, dated as of May 19, 1999, between the
Company and Zions First National Bank, as rights agent, (the "Rights Agreement")
is invalid and unenforceable, (iii) the Directors have interfered with the
plaintiffs' contractual relations, have breached their fiduciary duties and have
engaged in gross negligence or willful misconduct and (iv) the Company has
breached a contract and an implied covenant of good faith and fair dealing by
refusing to permit the Trust to vote the Shares except in accordance with the
Voting Agreement and by entering into the Rights Agreement. The Complaint seeks
(i) declaratory relief as to the enforceability of the Voting Agreement with
respect to the Shares and the validity of the Rights Agreement, (ii) damages
with respect to the alleged breach of contract and implied covenant of good
faith and fair dealing claims and injunctive relief permitting the voting of the
Shares without regard to the Voting Agreement and preventing the implementation
of the Rights Agreement.
The Complaint also purports to bring an action on behalf of the Company
and its shareholders against the Directors for damages in connection with the
alleged claims of breach of fiduciary duties and gross negligence and willful
misconduct. The Company plans to appoint two independent directors, one of which
has been appointed, who will act as a litigation committee to take appropriate
steps to investigate the claims set forth in the Complaint and, with the
Company's legal counsel, recommend such action as is warranted under the
circumstances. The Company's bylaws may obligate the Company to indemnify the
Directors. The Company answered the Complaint on March 17, 2000. As indicated in
its answer, the Company may seek a stay of the litigation pursuant to state laws
pending the results of the Committee's investigations.
The Company believes that this litigation may have a material impact on
the Company's governance issues and may be costly to litigate, but the Company
does not believe the damage claims of the litigation will materially impact the
financial condition of the Company.
Item 4: Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year.
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PART II
Item 5: Market for the Registrant's Common Stock and Related Stockholder
Matters
(a) Price Range of Common Stock. The Company's Common Stock is
traded on NASDAQ and the following table shows the range of high and
low bid prices for the Company's Common Stock for the calendar quarters
indicated. The quotations, obtained from NASDAQ, represent prices in
the over the counter market between dealers in securities, do not
include retail markup, markdown or commissions, and do not necessarily
represent actual transactions.
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_____Bid Prices____
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High Low
1999 First Quarter 7.38 4.63
Second Quarter 5.63 4.13
Third Quarter 4.63 2.13
Fourth Quarter 4.50 2.00
1998 First Quarter 8.38 6.50
Second Quarter 8.44 6.13
Third Quarter 6.50 4.88
Fourth Quarter 5.63 4.38
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(b) Approximate number of equity security holders. The
approximate number of record holders of the Company's Common Stock as
of March 10, 2000 was 579 which does not include shareholders whose
stock is held through securities position listings.
(c) Dividends. The Company paid cash dividends of $180,986 or
$.025 per share on December 15, 1999, $184,590 or $.025 per share on
December 21, 1998, $146,880 or $.02 per share on December 19, 1997.
Payment of dividends is within the discretion of the Company's Board of
Directors and there are no material restrictions that limit the ability
to pay dividends on the Common Stock of the Company. The Company
expects that it will continue to make cash dividends.
7
<PAGE>
Item 6: Selected Financial Data
The following consolidated selected financial data as of and for each
of the fiscal years in the five year period ending December 31, 1999 were
derived from audited financial statements of the Company and its consolidated
subsidiaries. The financial statements as of and for each of the fiscal years in
the five year period were audited by Tanner + Co., independent public
accountants. The data set forth should be read in conjunction with the
"Management Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and related
Notes.
<TABLE>
<CAPTION>
Year Ended December 31,
Operation Results Data: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Revenues 30,608,000 29,865,000 26,969,000 25,172,000 23,278,000
Income from operations 1,413,000 5,819,000 6,400,000 6,084,000 3,332,000
Net Income 725,000 3,872,000 5,008,000 4,545,000 2,763,000
Earnings per common
share diluted .10 .52 .66 .60 .37
Cash dividends declared
per common share .025 .025 .020 .015 .015
Financial Position Data
Total assets 34,461,000 31,919,000 24,701,000 19,846,000 14,560,000
Long-term debt 4,475,000 1,213,000 - 714,000 513,000
Deferred gain on sale
and leaseback - - - - 84,000
Stockholder's equity 24,351,000 24,077,000 20,605,000 15,769,000 11,271,000
</TABLE>
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operation
Results of Operations
Because of the significance of investment by the Company in joint
ventures ("JV" or "JV's") which are not consolidated, but accounted for under
the equity method, the following comparative schedule is prepared to clarify and
demonstrate the impact of JV operations underlying the Consolidated Revenue of
the Company during the periods ending December 31, 1999, 1998 and 1997. As
demonstrated below, the Company manages significantly more sales than is
reported in "Consolidated Revenue."
<TABLE>
<CAPTION>
Amount MSI's
Joint Joint Venture Included in Non-JV Consolidated
Venture Sales Net Income Co's % MSI Revenue Revenue Revenue
<S> <C> <C> <C> <C> <C> <C> <C>
1999 $21,585,000 $ 5,022,000 50% $2,511,000 $28,097,000 $30,608,000
1998 $37,353,000 $ 9,978,000 50% $4,989,000 $24,876,000 $29,865,000
1997 $38,115,000 $ 12,356,000 50% $6,179,000 $20,790,000 $26,969,000
</TABLE>
1999 vs. 1998
Consolidated revenues increased in 1999 by only 2%; however, the slight
change included a $3.3 million or 14% increase in net sales offset by a $2.5
million or 50% decrease in equity earnings of joint ventures. The increase in
net sales consisted primarily of an increase in sales from GME of $7.6 million
and TBS of $1.5 million, largely offset by a decrease in the sales of the
Company's remaining U.S., Canadian and foreign joint venture explosives
operations of $5.4 million. Most of the $2.5 million decrease in equity earnings
of joint ventures was attributable to a decrease in Cyanco's 1999 earnings, with
the remainder of the decrease resulting from the decrease in equity in the
earnings of Turon-MSI and Cayman Mining Services Limited (CMS).
8
<PAGE>
Expectations of increased net sales in 1999 were realized with the
acquisition of GME and subsequently the establishment of TBS. However, the
Company's plans to offset the expected loss of revenues from the completed dam
project in California were delayed until several new projects in the Company's
western division come on line in the first half of 2000. Revenues are also
expected to increase at the Company's packaged emulsion plant resulting from
product improvements and the additional demand for the product by GME and TBS.
ODA should commence commercial production in 2000 resulting in an increase of
revenues from that wholly-owned subsidiary. The consolidation of a full year of
TBS operations will also increase revenues in 2000. Equity in earnings of joint
ventures is also expected to increase in 2000 due to a planned increase in mine
production by one of the primary customers of the Company's Colombian joint
venture. Additionally, the Company's joint venture in Kovdor, Russia is expected
to begin commercial production by the end of the second quarter of 2000.
Cyanco's contribution to equity in earnings of joint ventures has
decreased as volumes and prices for sodium cyanide fell in 1999 in response to
the lowest gold prices in 20 years. Although the Company expects that low gold
prices may cause further erosion of the average sales price for liquid sodium
cyanide, Cyanco's position as the area's low cost producer will allow it to
increase volumes by capturing additional market share. Also, because of current
gold market conditions, the Company was able to negotiate the elimination of
deferred royalty obligations resulting in an extraordinary gain of $1.6 million,
net of taxes.
Consolidated income from operations decreased $4.4 million
from $5.8 million in 1998 to $1.4 million in 1999. The $4.4 million decrease in
consolidated income from operations is attributable to the decrease in equity in
earnings of Cyanco as explained above, combined with a net decrease in
contribution from the Company's explosives operations of $2 million. As a result
of the completion of the dam project in California in the early part of 1999,
combined with decreased coal production by customers in Canada and Colombia,
contribution from the Company's western U.S. and Canadian explosives divisions
and the Company's Colombian joint venture decreased by a total of $1.7 million
when comparing 1999 to 1998. As mentioned above, the inability of the Company's
joint venture in Uzbekistan to purchase raw materials resulted in a decrease in
production. Consequently, contribution from Turon-MSI decreased $400,000 in 1999
as compared to 1998. In analyzing the results of the Company's explosives
operating units above, the general and administrative expenses of GME and TBS
were considered components of the direct contribution from those operating
units. However, for purposes of financial statement disclosure, general and
administrative expenses for the Company include the general and administrative
expenses of GME and TBS, which represent $1.3 million of the $1.6 million
increase in general and administrative expenses in 1999 as compared to 1998.
Although intensified effort toward product improvement contributed to the 1999
increase in research and development costs, the establishment of a more
resilient packaged emulsion product allowed the Company to reduce losses from
its West Virginia plant by approximately $200,000, and strengthened expectations
of realizing long-term benefit from the research through increased revenues from
packaged emulsions. Income from operations is expected to increase in 2000 as
the expected increase in revenues materialize. The Company incurred interest
expense of $190,000 versus $153,000 of interest income that the Company earned
in 1998.
In 1999, other income and expense includes the write-off of $2.6
million of the Company's investments in West Africa Chemicals Limited (WAC) and
Turon-MSI of $800,000 and $1.8 million, respectively, including a $700,000 note
receivable from WAC. Although the Company expects to receive payment for raw
materials and supplies it sells to its joint venture in Uzbekistan, due to
deteriorating conditions observed in the later part of 1999 the Company now
considers the probability of converting profits from Turon-MSI into hard
currency to be remote. Additionally, depressed gold prices and an over supply of
explosives products in Ghana have deterred WAC in obtaining market share
sufficient to sustain profitable operations in the long-term and have combined
to cause continuing losses. Accordingly, the Company determined in the last
quarter of 1999 that it was necessary to write off the respective investments.
Future recognition of income or loss from these equity method joint ventures
will occur as cash is either received or disbursed.
1998 vs. 1997
Consolidated revenues increased $2.9 million from $27 million in 1997
to $29.9 million in 1998. Non-JV revenues increased $4.1 million, largely due to
increased sales in the U.S. and Canada as well as the acquisition of GME, while
equity in earnings from joint ventures decreased by $1.2 million primarily due
to a decrease in equity in earnings from Cyanco.
9
<PAGE>
Income from operations decreased $581,000 in 1998 as compared to 1997.
The decrease resulted primarily from the decrease in the Company's equity in
earnings of Cyanco offset by $1 million in net contribution from the Company's
explosives operations. Because certain tax benefits that had been carried
forward to and utilized in 1997 were not available to offset taxable income in
1998, the effective tax rate for the Company increased from 25% in 1997 to 35%
in 1998, thus further decreasing net income from $5,008,000 in 1997 to
$3,872,000 in 1998.
Liquidity and Financial Resources
The Company retains a strong financial position and was able to
increase stockholders' equity during 1999 in spite of difficult market
conditions experienced in the mining industry. The Company's current ratio
increased from 2.1 to 1 at the end of 1998 to 3.6 to 1 at the end of 1999, due
in part to the consolidation of TBS combined with the conversion of the
Company's primary line of credit to a long-term financial instrument, which is
reflective of the Company's increased use of its line of credit to fund
investments.
Although net income was $3,147,000 lower in 1999 as compared to 1998,
net cash provided by operating activities was only $1,592,000 lower in 1999 than
it was in 1998 due primarily to an increase in distributed earnings of Cyanco to
the Company in the amount of $1,490,000. As stated above, in January and
February of 2000 the Company received U.S. Dollar payments of approximately
$400,000 for raw material shipments previously made to Turon-MSI. However, the
Company has agreed to use approximately $200,000 of the cash received in
granting credit for importing raw materials into Uzbekistan to allow operations
there to continue. While the government has supported Turon-MSI with conversion
commitments for the new credit, such commitments are subject to adverse economic
conditions in Uzbekistan.
Net cash used in investing activities decreased $1,033,000 from
$4,935,000 in 1998 to $3,902,000 in 1999. However, cash used for the purchase of
plant and equipment increased $2,782,000 primarily due to the consolidation of
$1,716,000 of TBS assets and the construction of ODA's accessories manufacturing
facilities of $957,000.
In September of 1999 the Company entered into a credit agreement with a
major U.S. bank for a $4.5 million credit facility with features that allow for
borrowings for equipment of up to $1.25 million and for letters of credit of up
to $1 million. This new line of credit carries an interest rate of prime minus
1%. Because this credit facility matures August 31, 2001, it has been classified
as long-term debt, which is the primary cause of the reduction in the Company's
current portion of long-term debt of $681,000 from 1998 to 1999. TBS also had a
$40,000 line of credit at an interest rate of prime plus 2% which was fully
utilized at December 31, 1999 and was paid off in January 2000. As of December
31, 1999, the Company owed $2,916,000 on its lines of credit. During 1999, the
Company had utilized up to $2,947,000 of its lines of credit.
Net cash provided by financing activities increased by $2,066,000 from
$203,000 in 1998 to $2,269,000 in 1999. The consolidation of TBS accounted for
$764,000 of the increase, while $250,000 of the increase resulted from the
conversion of a facility construction loan to mortgage financing. The remainder
of the increase is largely attributable to the net increase in the Company's
line of credit facilities of $2,213,000. Whereas operating cash flows were
sufficient to fund such needs in prior years, during 1999 the Company relied
more heavily on its lines of credit to finance working capital requirements and
asset purchases, as contemplated in the structure of the credit agreement
entered into by the Company in September 1999.
In management's opinion, the capital resources of the Company are
adequate to finance its business activity in the ordinary course of business
assuming that the political, financial, and economic environment continue
favorable to the mining industry at large. However, the Company anticipates
being oriented toward investment in the current industry consolidation and
therefore may need to obtain additional capital resources to fund such an
investment strategy.
Because of inflation associated with the economies of underdeveloped
countries where the Company invests, there exists a substantial risk that the
value of investments in those jurisdictions may continue to erode. Additionally,
as has been the case with the Company's investment in Uzbekistan, the internal
balance of payment and capital shortages in some of those countries may limit
the ability to convert local currencies into hard currency necessary for
importing raw materials or remitting profits. Management intends to use
appropriate transfer pricing, investments in hedges, loans and other credit
facilities where practical and available to minimize the risks inherent in doing
business in these countries. The Company continues to pursue its policy of
investing with government entities or stable international and U.S. companies as
its partners to help insure its long-term success. To date, the Company has not
utilized any hedging activities to minimize exchange risks.
10
<PAGE>
Inflation and Other Comments
The amounts presented in the financial statements do not provide for
the effect of inflation on the Company's operations or its financial position.
Amounts shown for property, plant and equipment and for costs and expenses
reflect historical cost and do not necessarily represent replacement cost or
charges to operations based on replacement cost. The Company's operations,
together with other sources, are intended to provide funds to replace property,
plant and equipment as necessary. Net income would be lower than reported if the
effects of inflation were reflected either by charging operations with amounts
that represent replacement costs or by using other inflation adjustments.
Within this Annual Report filed on Form 10-K, including this Item 7,
there are forward-looking statements made in an effort to inform the reader of
factors and results which, in management's opinion, are likely to have an
ongoing material effect on the Company. These factors include, but are not
limited to, changes in world supply and demand for commodities, political,
environmental, economic and financial risks, especially those associated with
underdeveloped and developing countries, changes in demand for construction
activities, major changes in technology which could affect the mining industry
as a whole or which could affect explosives and sodium cyanide specifically,
competition, the continued availability of highly qualified technical and other
professional employees of the Company who can successfully manage the ongoing
change and growth. The Company believes it is taking appropriate actions in
order to address these and other factors previously disclosed; however, the
actual results could materially differ from those indicated in the statements
made.
Item 7A: Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to market risk from changes in foreign currency
and interest rates. The Company manufactures and sells some of its products in
Colombia, Ghana, Uzbekistan and Canada. It also purchases products for raw
materials and for resale from additional foreign markets such as Australia and
India. In addition, the Company licenses its technology in other foreign
countries such as South Africa, India, Korea, and Namibia. Approximately 10% of
the Company's consolidated revenue is generated from foreign markets; however,
as explained in the Management's Discussion and Analysis of Operation, the
Company's sales in joint ventures are not reported in consolidated revenues and
the percentage of the Company's business in foreign countries will likely remain
significant. The Company manages its risk of foreign currency rate changes by
maintaining foreign currency bank accounts in currencies in which it regularly
transacts business and by maintaining hard currency accounts to which dollar
denominated contracts are credited. Most of the sales and purchase contracts are
denominated in US dollars except in Ghana and Uzbekistan where the investments
have now been written off. None of the license royalty payment obligations are
denominated in US dollars and are thus subject to the risks of currency rate
changes. All excess cash balances are immediately transferred to US dollar
accounts to the extent possible. Option contracts to hedge foreign currency
transactions are not used by the Company. The Company does not enter into
derivative contracts for trading in speculative purposes. Changes in the
currency rate are not expected to have a material impact on the Company's
results of operations currently. However, once the Company's joint venture in
Kovdor begins operations, sales contracts will be paid in local currency, though
pegged to a dollar denominated price. It is likely that sales receipts and
leasing contract receipts may be subject to significant time delay in converting
them from local currency to US dollars. Accordingly, equity in earnings from
that joint venture may be subjected to more currency exchange risk than is
experienced by the Company in other foreign joint ventures. It is not expected
that currency rate hedging transactions will be used in 2000.
The Company's cash equivalents and short-term investments and its outstanding
debt bear variable interest rates. The rates are adjusted to market conditions.
Changes in the market rate effects interest earned and paid by the Company. The
Company does not use derivative instruments to offset the exposure to changes in
interest rates. Changes in the interest rates are not expected to have a
material impact on the Company's results of operations.
Item 8: Financial Statements
The Financial Statements of the Company called for by this Item are
contained in a separate section of this report. See "Index to Financial
Statements" on Page F-1.
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
11
<PAGE>
PART III
Item 10: Directors andExecutive Officers of the Registrant
The information required hereunder is incorporated by reference from
the Company's definitive Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on May 19, 2000 "Election of Directors," "Executive
Officers" and "Executive Compensation."
Item 11: Executive Compensation
The information required hereunder is incorporated by reference from
the Company's definitive Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on May 19, 2000 "Election of Directors," "Executive
Officers" and "Executive Compensation."
Item 12: Security Ownership of Certain Beneficial Owners and Management
The information required hereunder is incorporated by reference from
the Company's definitive Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on May 19, 2000 "Security Ownership of and Certain
Beneficial Owners and Management."
Item 13: Certain Relationships and Related Transactions
The information required hereunder is incorporated by reference from
the Company's definitive Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on May 19, 2000 "Certain Relationships and Related
Transactions."
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1. a. The consolidated financial statements for the fiscal year
ended 1999 of the Company and the report of independent
certified public accountants required in Part II, Item 8 are
included on pages F-1 to F-26.
b. Also included as financial statement schedules to the
Annual Report on Form 10-K as Exhibit 100 are:
The financial statements for the fiscal year ended 1999
of Cyanco, a significant subsidiary reported on the
equity method, and the report of independent certified
public accountants.
c. No other required financial statement schedules are listed
because they are not applicable or the required information is
shown in the Company's financial statements or notes thereto.
2. Exhibits:
3.2 Amendment to Articles of Incorporation to reflect
the one-for-five reverse stock split which became
effective June 15, 1987 (Incorporated by reference
from the Form 10-KSB Report filed by the Company
for the fiscal year ended December 31, 1987.)
Articles of Incorporation (Incorporated herein by
reference from Form 10-KSB filed by the Company for
the fiscal year ended December 31, 1985.)
3.4 Bylaws of the Corporation as amended March 1, 1988.
(Incorporated by reference from the 10-KSB Report
filed by the Company for the fiscal year ended
December 31, 1987.) Bylaws of the Corporation
(Incorporated herein by reference from Form 10-KSB
Report filed by the Company for the fiscal year
ended December 31, 1985.)
12
<PAGE>
3.5 Bylaws of the Corporation as amended May 19, 1999.
4.1 1988 Nonqualified Stock Option Plan. (Incorporated
by reference from the Form 10-KSB Report filed by
the Company for the fiscal year ended December 31,
1987.)
4.2 Amendments to 1988 Nonqualified Stock Option Plan.
(Incorporated by reference from the Form S-8 Report
filed by the Company on July 7, 1997.)
4.3 Amended 1988 Nonqualified Stock Option Plan,
amended as of May 19, 1999.
10.1 Joint venture (shareholder) agreement between the
Company and Norsk Hydro for joint venture in
Colombia. (Incorporated by reference from the Form
10-KSB Report filed by the Company for the fiscal
year ended December 31, 1996.)
10.2 Joint venture (shareholder) agreement between the
Company and Omnia Group via Chemical Holding
International Limited. (Incorporated by reference
from the Form 10-KSB Report filed by the Company
for the fiscal year ended December 31, 1996.)
10.3 Extension of license agreement with Bulk Mining
Explosives via Dawn Holding Company. (Incorporated
by reference from the Form 10-KSB Report filed by
the Company for the fiscal year ended December 31,
1996.)
21 List of Subsidiaries
27 Financial Data Schedule
99 The financial statements for the fiscal year ended
1999 of Cyanco, a significant subsidiary reported
on the equity method, and the report of independent
certified public accountants.
3. Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
December 31, 1999.
13
<PAGE>
SIGNATURES
Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MINING SERVICES INTERNATIONAL CORPORATION
/s/ John T. Day
-----------------------------
John T. Day, President
Date: March 30, 2000
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signatures Capacity in Which Signed Date
- ---------------------------------------- ---------------------------------------------------- -------------------------
<S> <C> <C>
/s/ Nathan L. Wade Chairman of the Board of Directors March 30, 2000
- -------------------------
Nathan L. Wade
/s/ Lex L. Udy Vice Chairman and Director March 30, 2000
- -------------------------
Lex L. Udy
/s/ John T. Day President, Chief Executive Officer March 30, 2000
- ------------------------- and Director (Principal Executive Officer)
John T. Day
/s/ Stephen Fleischer Director March 30, 2000
- -------------------------
Stephen Fleischer
/s/ James Solomon Director March 30, 2000
- -------------------------
James Solomon
/s/ Duane W. Moss Chief Financial Officer, General Counsel March 30, 2000
- ------------------------- and Secretary
Duane W. Moss
/s/ Wade Newman Controller March 30, 2000
- -------------------------
Wade Newman
14
</TABLE>
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Financial Statements
December 31, 1999 and 1998
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Index to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Page
----
Independent Auditors' Report F-2
Consolidated balance sheet F-3
Consolidated statement of income F-4
Consolidated statement of stockholders' equity F-5
Consolidated statement of cash flows F-7
Notes to consolidated financial statements F-8
- --------------------------------------------------------------------------------
F-1
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Mining Services International Corporation
We have audited the consolidated balance sheet of Mining Services International
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years ended December 31, 1999, 1998, and 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mining Services
International Corporation and Subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the years ended
December 31, 1999, 1998, and 1997 in conformity with generally accepted
accounting principles.
TANNER+CO.
Salt Lake City, Utah
March 3, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Balance Sheet
(In thousands, except share amounts)
December 31,
- ----------------------------------------------------------------------------------------------------------
Assets 1999 1998
------ -----------------------------------
<S> <C> <C>
Current assets:
Cash $ 975 $ 314
Receivables, net 6,605 6,050
Inventories 1,807 1,721
Prepaid expenses 112 126
Current portion of related party notes receivable 250 435
-----------------------------------
Total current assets 9,749 8,646
Investment in and advances to joint ventures 12,736 13,371
Property, plant and equipment, net 9,165 6,248
Goodwill, net 2,018 2,243
Related party notes receivable 633 1,190
Other assets 160 221
-----------------------------------
$ 34,461 $ 31,919
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity Current liabilities:
---------------------------------------------------------
Accounts payable and accrued expenses $ 2,257 $ 2,943
Current portion of long-term debt 473 1,154
-----------------------------------
Total current liabilities 2,730 4,097
Long-term debt 4,475 1,213
Deferred income taxes 2,408 2,532
-----------------------------------
Total liabilities 9,613 7,842
-----------------------------------
Minority interest 497 -
-----------------------------------
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.001 par value, 500,000,000 shares
authorized; 7,314,260 and 7,339,760 shares issued
and outstanding, respectively 7 7
Capital in excess of par value 5,312 5,443
Cumulative foreign currency translation adjustments (381) (242)
Retained earnings 19,413 18,869
-----------------------------------
Total stockholders' equity 24,351 24,077
-----------------------------------
$ 34,461 $ 31,919
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Income
(In thousands, except share amounts)
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Revenue:
Net sales $ 26,752 $ 23,414 $ 19,086
Royalties 1,154 1,345 1,581
Equity in earnings of joint ventures 2,511 4,989 6,179
Other income 191 117 123
-----------------------------------------------------
30,608 29,865 26,969
-----------------------------------------------------
Costs and expenses:
Costs of sales 25,497 22,128 18,817
General and administrative 2,893 1,331 1,264
Research and development 805 587 488
-----------------------------------------------------
29,195 24,046 20,569
-----------------------------------------------------
Income from operations 1,413 5,819 6,400
Other income (expense):
Impairment of assets (2,622) - -
Other, net (190) 153 266
-----------------------------------------------------
Income (loss) before provision for
income taxes minority interest,
and extraordinary item (1,399) 5,972 6,666
-----------------------------------------------------
Benefit (provision) for income taxes:
Current 426 (1,790) (883)
Deferred 124 (310) (775)
-----------------------------------------------------
550 (2,100) (1,658)
-----------------------------------------------------
Income (loss) before minority
interest and extraordinary
item (849) 3,872 5,008
Minority interest in income (25) - -
-----------------------------------------------------
Income before extraordinary item (874) 3,872 5,008
Extraordinary item - extinguishment of
deferred obligation (net of $823 of taxes) 1,599 - -
-----------------------------------------------------
Net income $ 725 $ 3,872 $ 5,008
-----------------------------------------------------
Earnings per common share-basic $ .10 $ .53 $ .68
-----------------------------------------------------
Earnings per common share-diluted $ .10 $ .52 $ .66
-----------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Stockholders' Equity
(In thousands, except share amounts)
Years Ended December 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------
Cumulative
Capital in Notes Foreign
Common Stock Excess Receivable Currency
--------------------- of Par from Stock Translation Retained
Shares Amount Value Sales Adjustments Earnings Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 7,258,944 $ 7 $ 6,230 $ (789) - $ 10,321 $ 15,769
Net income - - - - - 5,008 5,008
Shares issued under
stock option plan 188,841 - 277 - - - 277
Shares retired for:
Exercise of stock
options (16,680) - (163) - - - (163)
Payment of principal
and interest on
notes receivable (69,959) - (837) 789 - - (48)
Payment of advances (7,802) - (91) - - - (91)
Cash dividends paid - - - - - (147) (147)
---------------------------------------------------------------------------------
Balance at
December 31, 1997 7,353,344 7 5,416 - - 15,182 20,605
Comprehensive net
income calculation:
Net income - - - - - 3,872 3,872
Other comprehensive
income-foreign
currency
translation
adjustment, net - - - - (242) - (242)
--------
Comprehensive income 3,630
--------
Shares issued for:
Exercise of
stock options 33,407 - 119 - - - 119
Acquisition of
subsidiary 28,009 - 302 - - - 302
Acquisition and
retirement of
common stock (75,000) - (394) - - - (394)
Cash dividends paid - - - - - (185) (185)
---------------------------------------------------------------------------------
Balance at
December 31, 1998 7,339,760 7 5,443 - (242) 18,869 24,077
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Stockholders' Equity
(In thousands, except share amounts)
Continued
- ---------------------------------------------------------------------------------------------------------
Cumulative
Capital in Notes Foreign
Common Stock Excess Receivable Currency
--------------------- of Par from Stock Translation Retained
Shares Amount Value Sales Adjustments Earnings Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1998 7,339,760 7 5,443 - (242) 18,869 24,077
Comprehensive net
income calculation:
Net income - - - - - 725 725
Other comprehensive
income-foreign
currency translation
adjustment, net - - - - (139) - (139)
--------
Comprehensive income 586
--------
Acquisition and
retirement of common
stock (25,500) - (131) - - - (131)
Cash dividends paid - - - - - (181) (181)
---------------------------------------------------------------------------------
Balance at
December 31, 1999 7,314,260 $ 7 $ 5,312 $ - $ (381) $ 19,413 $ 24,351
---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Cash Flows
(In Thousands)
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 725 $ 3,872 $ 5,008
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,318 797 650
Provision and reserves for losses on assets 66 147 2
Gain on disposal of equipment (11) (14) (33)
Stock compensation expense - 37 22
Interest income on common stock notes receivable - - (48)
Distributed (undistributed) earnings of joint
ventures 1,490 (11) (1,136)
Impairment of assets 2,622 - -
Extraordinary item - extinguishment of deferred
obligation (2,422) - -
Deferred income taxes (124) 305 775
(Increase) decrease in:
Receivables (692) (1,735) (1,645)
Inventories (86) 320 294
Prepaid expenses 8 185 (3)
Other assets 61 157 (291)
Increase (decrease) in:
Accounts payable and accrued expenses (686) (174) (42)
Minority interest 25 - -
---------------------------------------------
Net cash provided by
operating activities 2,294 3,886 3,553
---------------------------------------------
Cash flows from investing activities:
Proceeds from the sale of plant and equipment 62 74 85
Increase in notes receivable (58) (475) (400)
Payments on note receivable 100 250 250
Purchase of plant and equipment (3,971) (1,189) (2,214)
Investment in joint ventures (507) (1,196) (77)
Net cash paid in acquisition - (2,399) -
Capital contribution from minority interest 472 - -
---------------------------------------------
Net cash used in
investing activities (3,902) (4,935) (2,356)
---------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 3,890 700 -
Payments on long-term debt (1,309) - (714)
Retirement of common stock (131) (394) -
Cash dividend paid (181) (185) (147)
Issuance of common stock - 82 92
---------------------------------------------
Net cash provided by (used in)
financing activities 2,269 203 (769)
---------------------------------------------
Net increase (decrease) in cash 661 (846) 428
Cash, beginning of year 314 1,160 732
---------------------------------------------
Cash, end of year $ 975 $ 314 $ 1,160
---------------------------------------------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-7
</TABLE>
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
December 31, 1999, 1998, and 1997
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
Organization
Mining Services International Corporation (the Company) and its wholly owned
subsidiaries, MSI Chemicals Ltd. (MSIC), Central Asia Chemicals LTD (CAC),
O'Brien Design Associates, Inc.(ODA) which the Company acquired effective
October 30, 1998, Green Mountain Explosives, Inc. (GME) which the Company
acquired effective December 9, 1998, MSI Russia, L.L.C. (MSIR) which the Company
organized effective October 16, 1998, and MSI International Holding Company,
Ltd. (MSI IHC), are primarily engaged in the development, manufacture and sale
of bulk explosives and related support and services. In addition, Nevada
Chemicals, Inc., also a wholly-owned subsidiary, has a fifty percent interest in
Cyanco Company (Cyanco), a non-corporate joint venture, which is engaged in the
manufacture and sale of liquid sodium cyanide. The Company also owns 51% of
Tennessee Blasting Services, L.L.C (TBS), which was established September 1,
1999. TBS provides drilling, blasting and explosives resale services and its
accounts are included in the Company's consolidated financial statements,
including accounts which represent the minority interest. The financial
statements reflect the investment in joint ventures of which the Company owns a
50% or less interest under the equity method of accounting. Summarized financial
information for these joint ventures is included in note 15.
The acquisitions of ODA and GME were accounted for as purchase transactions.
- --------------------------------------------------------------------------------
F-8
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies Continued
Organization - Continued
The Company has an agreement with Production Association "Ammofos" of Almalyk,
the Republic of Uzbekistan (PAA), a government owned chemical producer. The
Agreement creates a joint venture with the Company and PAA which operates under
a limited liability enterprise organized under Uzbekistan laws. The enterprise
is called Turon-MSI Ltd., in which MSI holds a 51% interest through MSI IHC and
PAA holds a 49% interest. MSI has committed to supply plant and equipment along
with its technological know-how in return for its interest in the joint venture
and PAA has committed to provide the infrastructure of the plant. Although the
Company owns a 51% interest in the share capital, the joint venture is accounted
for under the equity method due to the facts and circumstances of control
related to mutual consent affecting the joint venture in Uzbekistan. Effective
December 28, 1999, MSI transferred its ownership of Turon - MSI Ltd. to MSI IHC.
Due to difficulty in obtaining conversion of profits to hard currency, the
Company determined in the fourth quarter of 1999 to write-off its investment in
Turon - MSI. The Company will now recognize income or loss only as cash is
either received or disbursed.
MSIR owns a 50% interest in Eastern Mining Services Ltd. (EMS), a Russian
company registered in Moscow, to manufacture and deliver bulk explosives in the
Kovdor mining district in Russia.
The Company owns a 50% interest in a joint venture in Grand Cayman called Cayman
Mining Services Limited (CMS). CMS owns virtually all of Colombia Mining Supply
and Services Limited (SSMC), a Colombia- based company, which has an agreement
to manufacture and supply mining explosives in Colombia. CMS also owns 100% of
Mining Capital Resources Ltd., which leases plant and equipment to EMS for its
Russian operations.
- --------------------------------------------------------------------------------
F-9
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies Continued
Organization - Continued
The Company also has a joint venture to manufacture and supply explosives in
West Africa. The joint venture operates as a Ghanaian company called West Coast
Explosives Limited (WCE). WCE is wholly owned by West Africa Chemicals Limited
(WAC), a Mauritius company owned 50% by the Company through MSI IHC. In the
fourth quarter of 1999, the Company wrote-off its investment in WAC, including a
note receivable, due to the unlikelihood of realizing profits in this market
where explosives supply now exceeds demand. Similar to its investment in Turon -
MSI, Ltd., the Company will only recognize income or loss as cash is either
received or disbursed. Effective December 28, 1999, the Company transferred its
ownership in WAC to MSI IHC.
Principles of consolidation
The consolidated financial statements include the accounts of the Company, and
its consolidated subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Cash Equivalents
For purposes of the statement of cash flows, cash includes all cash and
investments with original maturities to the Company of three months or less.
Inventories
Inventories are recorded at the lower of cost or market, cost being determined
on a first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated
depreciation. Depreciation and amortization on capital leases and property,
plant and equipment are determined using the straight-line method over the
estimated useful lives of the assets or terms of the lease. Expenditures for
maintenance and repairs are expensed when incurred and betterments are
capitalized. Gains and losses on sale of property, plant and equipment are
reflected in net income.
- --------------------------------------------------------------------------------
F-10
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies Continued
Goodwill
Goodwill reflects the excess of the costs of purchasing GME over the fair value
of the related net assets at the date of acquisition, and is being amortized on
the straight-line basis over 10 years. Amortization of goodwill began January 1,
1999. At December 31, 1999, accumulated amortization and amortization expense
was $225,000. The Company did not have Goodwill during the years ended December
31, 1998 and 1997.
Other Assets
Certain items included in other assets are amortized over five years using the
straight-line method. Amortization expense totaled $4, $4, and $4, in 1999,
1998, and 1997, respectively.
Translation of Foreign Currencies
The cumulative effect of currency translation adjustments are included in
stockholders' equity. These items represent the effect of translating assets and
liabilities of the Company's foreign operations.
Generally for joint ventures, unrealized gains and losses resulting from
translating foreign companies' assets and liabilities into U.S. dollars are
accumulated in an equity account on the joint venture's balance sheet, which is
reported using the equity method, until such time as the company is sold or
substantially or completely liquidated. Translation gains and losses relating to
operations of companies where hyperinflation exists are included in equity in
earnings from joint ventures.
Revenue Recognition
Revenue is recognized upon shipment of product or performance of services.
Income Taxes
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting, principally related
to depreciation and undistributed earnings from foreign-based joint ventures,
which qualify under certain tax deferral treatment.
- --------------------------------------------------------------------------------
F-11
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies Continued
Earnings Per Common Share
The computation of earnings per common share is based on the weighted average
number of shares outstanding during the year.
The computation of earnings per common share assuming dilution is based on the
weighted average number of shares outstanding during the year plus the weighted
average common stock equivalents which would arise from the exercise of stock
options outstanding using the treasury stock method and the average market price
per share during the year.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which, when realized, have been within the range
of management's expectations.
The Company's customer base consists primarily of mining companies. Although the
Company is directly affected by the well-being of the mining industry,
management does not believe significant credit risk exists at December 31, 1999.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
- --------------------------------------------------------------------------------
F-12
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
2. Detail of Certain Balance Sheet Accounts
December 31,
-----------------------------
1999 1998
-----------------------------
Receivables:
Trade receivables $ 2,254 $ 2,710
Income tax refund receivable - 121
Related party receivables (see Note 10) 4,337 2,968
Other 117 288
Less allowance for doubtful accounts (103) (37)
-----------------------------
$ 6,605 $ 6,050
-----------------------------
Inventories:
Raw materials $ 737 $ 707
Finished goods 1,070 1,014
-----------------------------
$ 1,807 $ 1,721
-----------------------------
Accounts payable and accrued expenses:
Trade payables $ 1,422 $ 1,805
Accrued expenses 835 1,138
-----------------------------
$ 2,257 $ 2,943
-----------------------------
- --------------------------------------------------------------------------------
F-13
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
3. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
-----------------------------------
1999 1998
-----------------------------------
Plant equipment and fixtures $ 9,501 $ 6,459
Support equipment and fixtures 5,586 5,142
Office equipment and fixtures 537 521
Vehicles 642 634
Land 107 107
-----------------------------------
16,373 12,863
Less accumulated depreciation
and amortization (7,208) (6,615)
-----------------------------------
$ 9,165 $ 6,248
-----------------------------------
4. Related Party Notes Receivable
Notes receivable are comprised of the following:
December 31,
-----------------------------------
1999 1998
-----------------------------------
Unsecured note receivable
from CMS, in annual installments
of $250 and semi-annual interest
payments at the rate of 1.5%
above the six-month LIBOR $ 750 $ 750
Notes receivable from officers
of the Company secured by stock,
interest payments due annually
at 1% above the three-month LIBOR,
principal due in full April 2003
and June 2004 133 175
- --------------------------------------------------------------------------------
F-14
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
4. Related Party Notes Receivable Continued
Unsecured note receivable from
WAC, in annual installments of
$185 and semi-annual interest
payments at the rate of 2% above
the six-month LIBOR - 700
-----------------------------------
883 1,625
Less current portion (250) (435)
-----------------------------------
$ 633 $ 1,190
-----------------------------------
5. Long-Term Debt
Long-term debt is comprised of the following:
December 31,
-------------------------
1999 1998
-------------------------
Line of credit agreements which
allows the Company to borrow a
maximum amount of $4,540 at rates
ranging from the bank's prime rate
minus 1% to the bank's prime rate
plus 2%, due March 23, 2000 and
August 31, 2001 $ 2,916 $ -
Unsecured performance deposit
payable to a company, due in monthly
installments of $16, including
imputed interest at 7%, due on
December 9, 2003 649 785
- --------------------------------------------------------------------------------
F-15
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
5. Long-Term Debt Continued
Notes payable to financial
institutions, due in monthly
installments of $16, including
interest ranging from 7.35% to
9.75%, secured by property 563 -
Notes payable to individuals,
due in monthly installments of
$13, including interest at 12%,
secured by property and equipment,
due December 9, 2003 507 600
Construction loan payable in monthly
installments of $2, including interest
at 8.75%, secured by property, due
April 10, 2004 241 250
Unsecured non-compete agreement
payable to an individual, due
in monthly installments of $1,
including imputed interest at 7%,
due December 9, 2003 47 57
Mortgage note payable to an
individual, due in annual installments
of $2, including interest at 10%,
due October 13, 2003 13 13
Loan payable to a Company, due in
monthly installments of $2, including
interest at 9.5%, secured by property,
due August 1, 2000 12 -
Line-of-credit agreement which
allows the Company to borrow a maximum
amount of $2,250 at an interest rate
.75% below the bank's prime rate - 662
-------------------------
4,948 2,367
Less current portion (473) (1,154)
-------------------------
$ 4,475 $ 1,213
-------------------------
- --------------------------------------------------------------------------------
F-16
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
5. Long-Term Debt Continued
Future maturities of long-term debt are as follows:
Year Ending December 31: Amount
- ------------------------ -----------------
2000 $ 473
2001 3,323
2002 487
2003 468
2004 197
-----------------
$ 4,948
-----------------
6. Operating Leases
During the year ended December 31, 1999, the Company leased certain vehicles,
property, and equipment under various non-cancelable operating leases. Lease
expense relating the operating leases was approximately $160 for the year ended
December 31, 1999. Future minimum lease payments are as follows:
Year Ending December 31: Amount
- ------------------------ ------------------
2000 $ 146
2001 70
2002 24
2003 4
------------------
$ 244
------------------
- --------------------------------------------------------------------------------
F-17
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
7. Income Taxes
The current provision for income taxes represents U.S. federal income taxes,
taxes withheld on royalties and other foreign income taxes.
The benefit (provision) for income taxes is different than amounts which would
be provided by applying the statutory federal income tax rate to (loss) income
before benefit (provision) for income taxes for the following reasons:
Years Ended December 31,
-------------------------------------------
1999 1998 1997
-------------------------------------------
Federal income tax benefit
(provision) at statutory rate $ 476 $ (2,030) $ (2,266)
Stock options - - 525
Life insurance and meals 6 (12) 2
Other 68 (58) 81
-------------------------------------------
$ 550 $ (2,100) $ (1,658)
-------------------------------------------
Deferred tax assets (liabilities) are comprised of the following:
December 31,
-----------------------------------
1999 1998
-----------------------------------
Depreciation $ (2,912) $ (2,547)
Deferred income (216) (327)
Write-off of worthless securities 600 -
Foreign tax credit carryforward 120 342
-----------------------------------
$ (2,408) $ (2,532)
-----------------------------------
- --------------------------------------------------------------------------------
F-18
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
8. Impairment of Assets
During the year ended December 31, 1999, the Company evaluated the carrying
value of its investments in and advances to joint ventures based upon projected
future cash flows. Based on this evaluation the Company recorded an aggregate
non-cash expense for the impairment as follows:
Investment in and advances to foreign
joint ventures $ 1,922
Related party notes receivable from foreign
joint ventures 700
-----------------
$ 2,622
-----------------
At December 31, 1999 and 1998, equity in earnings of joint ventures included
approximately $140 and $43, respectively, of interest income relating to the
impairment.
9. Supplemental Cash Flow Information
During the year ended December 31, 1998, officers and shareholders retired
common stock with a market value of $1,091 in order to exercise stock options,
pay notes receivable, related interest, and advances.
Actual amounts paid for interest and income taxes are as follows:
Years Ended December 31,
-----------------------------------------------------
1999 1998 1997
-----------------------------------------------------
Interest $ 211 $ 16 $ 35
-----------------------------------------------------
Income taxes $ 801 $ 1,965 $ 766
-----------------------------------------------------
10. Related Party Transactions
The Company performs certain functions for Cyanco for which it receives a fee,
the fee is offset against costs of sales. Fees totaled $287, $326, and $474, for
the years ended December 31, 1999, 1998, and 1997, respectively.
At December 31, 1999 and 1998, the Company had receivables of $4,337, and $2,968
respectively, from joint ventures (see Notes 1 and 2).
- --------------------------------------------------------------------------------
F-19
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
10. Related Party Transactions Continued
As of December 31, 1999 and 1998, the Company had notes receivable from joint
ventures of $750, and $1,450 respectively (see Note 4).
As of December 31, 1999, the Company had notes receivable from officers of the
Company for $133, (see Note 4).
At December 31, 1999 and 1998, the Company recognized interest income of $191
and $117 respectively, related to notes receivable from joint ventures.
During the year ended December 31, 1999 and 1998, the Company recognized
revenues of approximately $206 and $686 respectively, from joint ventures,
related to royalties, services provided, and the sale of manufacturing products.
11. Major Customers and Foreign Operations
Sales to major customers which exceeded 10% of net sales are as follows:
Years Ended December 31,
---------------------------------------
1999 1998 1997
---------------------------------------
Company A $ 4,638 $ - $ -
Company B $ - $ 4,844 $ 4,474
Company C $ - $ 3,855 $ 4,271
Company D $ - $ 2,781 $ 1,937
Management believes that the loss of any one customer would not have a material
adverse effect on the Company's consolidated operations.
- --------------------------------------------------------------------------------
F-20
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
11. Major Customers and Foreign Operations Continued
The Company has operations in the United States, Canada, other foreign
locations, and equity in earnings of joint ventures. The following is a summary
of operations by geographic region:
Years Ended December 31,
---------------------------------------
1999 1998 1997
---------------------------------------
Revenue:
United States $ 23,253 $ 18,648 $ 16,300
Canada 2,849 4,134 4,362
Other foreign locations 1,995 2,094 128
Equity in earnings of JV 2,511 4,989 6,179
---------------------------------------
Total revenues $ 30,608 $ 29,865 $ 26,969
---------------------------------------
Years Ended December 31,
---------------------------------------
1999 1998 1997
---------------------------------------
Income from Operations:
United States $ 1,119 $ 1,580 $ 1,009
Canada 381 660 359
Other foreign (326) 204 (21)
Equity in earnings of JV 2,511 4,989 6,179
Corporate Expenses (2,272) (1,614) (1,126)
---------------------------------------
Total income from operations $ 1,413 $ 5,819 $ 6,400
---------------------------------------
December 31,
---------------------------------------
1999 1998 1997
---------------------------------------
Identifiable Assets:
United States $ 17,456 $ 13,864 $ 9,878
Canada 876 733 702
Other foreign 1,188 2,807 1,257
Investments/advances to
JV's 14,941 14,515 12,864
---------------------------------------
Total identifiable assets $ 34,461 $ 31,919 $ 24,701
---------------------------------------
- --------------------------------------------------------------------------------
F-21
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
12. Non-Qualified Stock Option Plan
Under the 1987 Non-Qualified Stock Option Plan (the Option Plan), as amended in
1988, 1990, 1992, 1993, 1998 and 1999, a maximum of 1,315,130 shares were made
available for granting of options to purchase common stock at prices generally
not less than the fair market value of common stock at the date of grant. Under
the Option Plan, grants of non-qualified options may be made to selected
officers and key employees without regard to any performance measures. The
options may be immediately exercisable or may vest over time as determined by
the Board of Directors. However, the maximum term of an option may not exceed
ten years. Options may not be transferred except by reason of death, with
certain exceptions, and termination of employment accelerates the expiration
date of any outstanding options to 30 days from the date of termination.
Information regarding the Option Plan is summarized below:
Number of Option Price
Options Per Share
---------------------------------
Outstanding at January 1, 1997 537,592 $ .82-4.55
Granted 17,657 9.75-11.30
Exercised (188,841) .82-3.80
Expired (5,799) 3.80
---------------------------------
Outstanding at December 31, 1997 360,609 2.96-11.30
Granted 46,950 2.96-11.30
Exercised (33,266) 5.00-7.56
Expired (14,546) 4.12-5.00
---------------------------------
Outstanding at December 31, 1998 359,747 $ 3.93-11.30
Granted 7,500 3.00 - 5.06
Exercised (5,500) 4.72 - 5.06
Expired (9,000) -
---------------------------------
Outstanding at December 31, 1999 352,747 $ 3.00 - 11.30
---------------------------------
- --------------------------------------------------------------------------------
F-22
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
12. Non-Qualified Stock Option Plan Continued
Options exercisable and available for future grant are as follows:
December 31,
-------------------------------------------
1999 1998 1997
-------------------------------------------
Options exercisable 113,815 76,816 41,832
Options available for grant 469,960 230,261 276,051
13. Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized in the financial
statements. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below:
Years Ended December 31,
-----------------------------------------
1999 1998 1997
-----------------------------------------
Net Income - as reported $ 725 $ 3,872 $ 5,008
Net Income - pro forma $ 622 $ 3,961 $ 4,919
Diluted earnings per share -
as reported $ .10 $ .52 $ .66
Diluted earnings per share -
pro forma $ .08 $ .51 $ .65
-----------------------------------------
- --------------------------------------------------------------------------------
F-23
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
13. Stock-Based Compensation Continued
The fair value of each option grant is estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions:
December 31,
------------------------------------------
1999 1998 1997
------------------------------------------
Expected dividend yield $ .02 $ .02 $ .02
Expected stock price volatility 52% 33% 48%
Risk-free interest rate 6% 5% 5.25%
Expected life of options 0 - 3 years 3 years 3 years
------------------------------------------
The weighted average fair value of options granted during 1999, 1998, and 1997
are $.28, $1.20, and $3.41, respectively.
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options Outstanding Options Exercisable
-----------------------------------------------------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise at Life Exercise at Exercise
Prices 12/31/99 (Years) Price 12/31/99 Price
- -------------------------------------------------------------------------------
$ 2.96 - 4.09 307,497 5.33 3.59 13,000 $ 10.37
$ 5.00 - 5.51 37,750 2.09 5.04 31,250 5.05
$ 7.56 - 11.30 7,500 .51 10.36 69,565 3.08
- -------------------------------------------------------------------------------
$ 1.38 - 11.30 352,747 4.79 4.25 113,815 $ 4.45
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-24
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
14. Earnings Per Share
Financial accounting standards require companies to present basic earnings per
share (EPS) and diluted earnings per share along with additional informational
disclosures. Information related to earnings per share is as follows:
Years Ended
December 31,
---------------------------------------
1999 1998 1997
---------------------------------------
Basic EPS:
Net income available to common
stockholders $ 725 $ 3,872 $ 5,008
---------------------------------------
Weighted average common 7,324,000 7,368,000 7,342,000
shares
---------------------------------------
Net income per share $ .10 $ .53 $ .68
---------------------------------------
Diluted EPS:
Net income available to common
stockholders $ 725 $ 3,872 $ 5,008
---------------------------------------
Weighted average common 7,375,000 7,492,000 7,614,000
shares
---------------------------------------
Net income per share $ .10 $ .52 $ .66
---------------------------------------
- --------------------------------------------------------------------------------
F-25
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
15. Significant Unconsolidated Affiliates
Summarized financial information for significant unconsolidated affiliates of
the Company, are as follows:
December 31,
---------------------------------------------
1999 1998 1997
---------------------------------------------
Result for year:
Gross revenues $ 21,585 $ 37,353 $ 38,115
Gross profit $ 7,449 $ 14,365 $ 16,048
Net income $ 5,385 $ 9,978 $ 12,273
Year-end financial
position:
Current assets $ 5,545 $ 10,415 $ 8,567
Non-current assets $ 20,893 $ 24,998 $ 22,945
Current liabilities $ 3,024 $ 4,256 $ 4,106
Non-current liabilities $ 1,500 $ 5,323 $ 4,559
16. Profit Sharing Plan
The Company has a defined contribution profit sharing plan, which is qualified
under Section 401(K) of the Internal Revenue Code. The plan provides retirement
benefits for employees meeting minimum age and service requirements.
Participants may contribute up to 20 percent of their gross wages, subject to
certain limitations. The plan provides for discretionary matching contributions,
as determined by the Board of Directors, to be made by the Company. The
discretionary amount contributed to the plan by the Company for the years ended
December 31, 1999, 1998, and 1997 was $79, $48, and $37, respectively.
17. Fair Value of Financial Instruments
The Company's financial instruments consist of cash, receivables, payables, and
notes payable the carrying amount of cash, receivables, and payables
approximates fair value because of the short-term nature of these items. The
carrying amount of the notes payable approximates fair value as the individual
borrowings bear interest at floating market interest rates.
- --------------------------------------------------------------------------------
F-26
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
18. Commitments and Contingencies
The Company is subject to various claims and legal proceedings arising in the
ordinary course of business activities. In addition, the Company and certain
directors of the Company have been named in complaints related to: alleged
violations of laws and fiduciary duties related to the voting of shares,
decisions regarding certain corporate transactions and the adoption of a Stock
Rights Plan. The Company believes that this litigation may have a material
affect on the Company's governance issues and may be costly to litigate, but the
Company does not believe the damage claims of this litigation or any other
pending matters will materially impact the financial condition of the Company.
19. Extraordinary Item
During the year ended December 1999, Cyanco negotiated the extinguishment of a
deferred royalty obligation. Accordingly, the Company paid $58 in cash to
terminate the indemnification of Cyanco under the deferred royalty agreement.
The result was an extraordinary gain of $1,599 after providing for income taxes
of $823.
- --------------------------------------------------------------------------------
F-27
BYLAWS
OF
MINING SERVICES INTERNATIONAL
a Utah Corporation
1988
<PAGE>
BYLAWS
OF
MINING SERVICES INTERNATIONAL
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I........................................................................................ 1
Identification................................................................................... 1
1.1 Name............................................................................. 1
1.2 Principal Office................................................................. 1
1.3 Registered Office and Registered Agent........................................... 1
1.4 Seal............................................................................. 1
1.5 Fiscal Year...................................................................... 1
ARTICLE II ................................................................................. 1
Capital Stock ................................................................................. 1
2.1 Payment for Shares............................................................... 1
2.2 Certificates Representing Shares................................................. 2
2.3 Transfer Records................................................................. 1
2.4 Transfer of Stock................................................................ 2
2.5 Lost, Stolen or Destroyed Certificates........................................... 2
2.6 Holder........................................................................... 3
2.7 Agents........................................................................... 3
ARTICLE III ................................................................................. 3
Books and Records................................................................................ 3
3.1 Books and Records................................................................ 3
3.2 Financial Statements............................................................. 3
ARTICLE IV ................................................................................. 4
Bylaws ........................................................................................ 4
4.1 Amendments....................................................................... 4
4.2 Bylaw Provisions Additional and Supplemental to Provisions of Law................ 4
4.3 Bylaw Provisions Contrary to or Inconsistent with Provisions of Law.............. 4
ARTICLE V ................................................................................. 4
Meeting of Shareholders.......................................................................... 4
5.1 Place of Meetings................................................................ 4
5.2 Annual Meeting................................................................... 5
5.3 Special Meetings................................................................. 5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
5.4 Notice of Meetings............................................................... 6
5.5 Waiver of Notice................................................................. 9
5.6 Closing of Transfer Books or Fixing of Record Date............................... 9
5.7 Voting List...................................................................... 9
5.8 Quorum of Shareholders, Vote..................................................... 10
5.9 Voting of Shares................................................................. 10
5.10 Proxies.......................................................................... 10
5.11 Adjournments..................................................................... 10
5.12 Action Without a Meeting......................................................... 10
5.13 Rights, Powers and Authority of Chairman of Shareholder
Meeting in Presiding Over Meeting................................................ 11
ARTICLE VI ................................................................................. 11
The Board of Directors........................................................................... 11
6.1 Number and Qualifications........................................................ 11
6.2 Exercise of Corporate Power...................................................... 11
6.3 Term............................................................................. 11
6.4 Elections........................................................................ 12
6.5 Vacancies........................................................................ 12
6.6 Place of Meetings................................................................ 12
6.7 Annual Meetings.................................................................. 12
6.8 Other Meetings................................................................... 12
6.9 Quorum........................................................................... 12
6.10 Action Without a Meeting......................................................... 13
6.11 Chairman......................................................................... 13
6.12 Removal.......................................................................... 13
6.13 Resignation...................................................................... 13
6.14 Loans............................................................................ 13
6.15 Fees and Compensation............................................................ 13
6.16 Presumption of Assent............................................................ 13
6.17 Committees....................................................................... 14
ARTICLE VII ................................................................................. 14
Officers ........................................................................................ 14
7.1 Election and Qualifications...................................................... 14
7.2 Term of Office and Compensation.................................................. 14
7.3 Resignation...................................................................... 14
7.4 Removal and Vacancies............................................................ 14
7.5 The President.................................................................... 14
7.6 The Vice President............................................................... 15
7.7 The Secretary.................................................................... 15
7.8 The Treasurer.................................................................... 15
7.9 General Counsel.................................................................. 16
7.10 General Manager.................................................................. 16
7.11 Other Officers................................................................... 17
7.12 Salaries......................................................................... 17
7.13 Surety Bonds..................................................................... 17
7.14 Transfer of Authority............................................................ 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE VIII ................................................................................. 17
Indemnification ................................................................................. 17
8.1 Indemnity Provided............................................................... 17
8.2 Nonexclusive Rights.............................................................. 18
8.3 Insurance........................................................................ 18
8.4 Settlement by Corporation........................................................ 18
ARTICLE IX ................................................................................. 18
Special Corporate Acts........................................................................... 18
9.1 Contracts........................................................................ 18
9.2 Loans............................................................................ 19
9.3 Deposits......................................................................... 19
9.4 Checks and Drafts................................................................ 19
9.5 Bonds and Debentures............................................................. 19
9.6 Shares Held by the Corporation................................................... 19
ARTICLE X ................................................................................. 19
Miscellaneous ................................................................................. 19
10.1 Waiver of Notice................................................................. 19
10.2 Dividends........................................................................ 20
10.3 Gender........................................................................... 20
Certificate of Secretary......................................................................... 20
</TABLE>
<PAGE>
BYLAWS
OF
MINING SERVICES INTERNATIONAL CORPORATION
(as amended to May 19, 1999)
ARTICLE I
Identification
--------------
Section 1.1 NAME. The name of the Corporation is Mining Services
International Corporation.
Section 1.2 PRINCIPAL OFFICE. The principal office of the Corporation
shall be located at 8805 South Sandy Parkway, Sandy, Utah 84070. The Corporation
may have such other offices, either within or without the State of Utah, as the
Board of Directors may designate or as the business of the Corporation may from
time to time require.
Section 1.3. REGISTERED OFFICE AND REGISTERED AGENT. The address of the
registered office of the Corporation is 8805 South Sandy Parkway, Sandy, Utah
84070; and the name of the registered agent at this address is Duane W. Moss.
Section 1.4. SEAL. The Corporation shall adopt and use a corporate seal
consisting of a circle mounted upon a metal die which sets forth in its
circumference the name of the Corporation and the state and date of
incorporation.
Section 1.5. FISCAL YEAR. The fiscal year of the Corporation shall end
on December 31 of each year, but may be changed by resolution of the Board of
Directors.
ARTICLE II
Capital Stock
-------------
Section 2.1. PAYMENT FOR SHARES. The consideration for the issuance of
shares may be paid, in whole or in part, in money, in other property, tangible
or intangible, or in labor or services actually performed for the Corporation.
When payment of the consideration for which shares are to be issued shall have
been received by the Corporation, such shares shall be deemed to be fully paid
and nonassessable. Neither promissory notes nor future services shall constitute
payment or part payment for the issuance of shares of the Corporation. In the
absence of fraud in the transaction, the judgment of the Board of Directors as
to the value of the consideration received for shares shall be conclusive. No
certificate shall be issued for any share until the share is fully paid.
Section 2.2. CERTIFICATES REPRESENTING SHARES. Certificates
representing shares of the Corporation shall be in such form as shall be
determined by the Directors. Such certificates shall be signed by the President
and by the Secretary or by such other officers authorized by law and by the
Directors and sealed with the Seal of the Corporation. Any such required
signature may be made by facsimile provided proper security over use of such
facsimiles is maintained. All certificates for shares shall be consecutively
numbered.
1
<PAGE>
Section 2.3. TRANSFER RECORDS. The Secretary, or if the Corporation
engages an agent, the registrar or transfer agent, shall maintain records
containing the name, address, taxpayer identification number of each Shareholder
plus the certificate number, date of issue and shares represented by each
certificate held by each Shareholder.
Section 2.4. TRANSFER OF STOCK. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof, by his, her or its legal representative, who shall furnish
proper evidence of authority to transfer, or by his, her or its attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the Corporation, on surrender for cancellation of the certificate
for such shares. The person in whose name shares stand on the books of the
Corporation shall be deemed by the Corporation to be the owner thereof for all
purposes. All certificates surrendered to the Corporation for transfer shall be
marked "Cancelled" with the date of cancellation and no new certificate issued
in connection therewith unless all of the following are satisfied:
(a) Endorsement. The surrendered certificate is properly
endorsed by the registered holder or his, her or its duly authorized
attorney;
(b) Witnessing. The endorsement or endorsements required as
aforesaid shall be guaranteed or notarized unless the Secretary waives
this requirement in writing;
(c) Adverse Claims. The Corporation has no notice of any
adverse claims or has discharged any duty to inquire into any such
claims; and
(d) Collection of Taxes. Any applicable law relating to the
collection of taxes imposed on or in connection with shares has been
satisfied.
Section 2.5. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation
shall issue a new stock certificate in place of any certificate theretofore
issued where the holder of record of the certificate:
(a) Claim. Makes proof in affidavit form that it has been
lost, destroyed or wrongfully taken;
(b) Timely Request. Requests the issuance of a new certificate
before the Corporation has notice that the certificate has been
acquired by a purchaser for value in good faith and without notice of
any adverse claim;
(c) Bond. Gives a bond in such form, and with such surety or
sureties, with fixed or open penalty, as the Corporation may direct, to
indemnify the Corporation against any claims that may be made on
account of the alleged loss, destruction or theft of the certificates;
and
(d) Other Requirements. Satisfies any other reasonable
requirements imposed by the Corporation not inconsistent with
applicable law.
2
<PAGE>
When a certificate has been lost, apparently destroyed, or
wrongfully taken and the holder of record fails to notify the
Corporation within a reasonable time after he, she or it had notice of
it, and the Corporation registers a transfer of the shares represented
by this certificate before receiving such notification, the holder of
record is precluded from making any claim against the Corporation for
the transfer or for a new certificate.
Section 2.6. HOLDER. The Corporation shall be entitled to treat the
holder of record of any share as the holder in fact hereof, and accordingly,
shall not be bound to recognize any claim to or interest in such share on the
part of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of the State of Utah.
Section 2.7. AGENTS. The Corporation at the election of the Board of
Directors, may engage the services of a stock registrar or transfer agent to
assist the Secretary in issuance of shares and maintenance of stock records.
ARTICLE III
Books and Records
-----------------
Section 3.1. BOOKS AND RECORDS. The Corporation shall keep at its
registered office the following books and records, and any Shareholder of
record, upon written demand stating the purpose thereof, shall have the right to
examine, in person, or by agent or attorney, at any reasonable time or times,
for any proper purpose, the same and make extracts therefrom:
(a) Its books and records of account;
(b) Its minutes of meetings of the Board of Directors and any
committees thereof;
(c) Its minutes of meetings of the Shareholders;
(d) Its records of Shareholders which shall give their names
and addresses and the number and class of the shares held by each; and
(e) Copies of its Articles of Incorporation and Bylaws as
originally executed and adopted together with all subsequent amendments
thereto.
Section 3.2. FINANCIAL STATEMENTS. Upon written request of any
Shareholder of the Corporation, the Corporation shall mail to such shareholder
its most recent annual or quarterly financial statements showing in reasonable
detail its assets and liabilities and the results of its operations unless the
Shareholder has already received the same. Neither the Corporation nor any
Director, Officer, employee or agent of the Corporation shall be liable to the
Shareholder or anyone to whom the Shareholder discloses the financial statement
or any information contained therein for any error or omission therein whether
caused with or without fault, by negligence or by gross negligence, unless (1)
the error or omission is material, (2) the error or omission is intended for the
shareholder or other person to rely thereon to his detriment, (3) the
Shareholder or other person did reasonably rely thereon to his detriment, and
(4) such Director, Officer, employee or agent is otherwise liable under
applicable law.
3
<PAGE>
ARTICLE IV
Bylaws
------
Section 4.1. AMENDMENTS. All Bylaws may be altered, amended or repealed
and new Bylaws adopted by the Board of Directors. Any such action shall be
subject to repeal or change by action of the Shareholders, but the alteration,
amendment, repeal, change or new Bylaw (and the repeal of the old Bylaw) shall
be valid and effective when made by the Board of Directors and no Director,
Officer, Shareholder, employee or agent of the Corporation shall incur any
liability by reason of any action taken or omitted in reliance on the same. The
power of the Shareholders to repeal or change any alteration, amendment, repeal
or new Bylaw shall not extend to any original Bylaw of the Corporation so long
as it is not altered, amended or repealed, but only to action by the Board
thereafter. No Bylaw shall be adopted by the Board of Directors which shall
require more than a majority of the voting shares for a quorum at a meeting of
Shareholders, or more than majority of the votes cast to constitute action by
the Shareholders, except where higher percentages are required by law or by the
Articles of Incorporation.
Section 4.2. BYLAW PROVISIONS ADDITIONAL AND SUPPLEMENTAL TO PROVISIONS
OF LAW. All restrictions, limitations, requirements and other provisions of
these Bylaws shall be construed, insofar as possible, as supplemental and
additional to all provisions of law applicable to the subject matter thereof and
shall be fully complied with in addition to the said provisions of law unless
such compliance shall be illegal.
Section 4.3. BYLAW PROVISIONS CONTRARY TO OR INCONSISTENT WITH
PROVISIONS OF LAW. Any article, section, subsection, subdivision, sentence,
clause or phrase of these Bylaws which, upon being construed in the manner
provided in Section 4.2 hereof, shall be contrary to or inconsistent with any
applicable provision of law, shall not apply so long as said provisions of law
shall remain in effect, but such result shall not affect the validity or
applicability of any other portions of these Bylaws, it being hereby declared
that these Bylaws would have been adopted and each article, section, subsection,
subdivision, sentence, clause or phrase thereof, irrespective of the fact that
any one or more articles, sections, subsections, subdivisions, sentences,
clauses or phrase is or are illegal.
ARTIVLE V
Meetings of Shareholders
------------------------
Section 5.1. PLACE OF MEETINGS. All meetings of the shareholders,
annual or special, however called shall be held at the principal office of the
Corporation unless the President or Board of Directors designates another place.
The President or the Board of Directors may designate any place for any meeting,
either within or without the State of Utah.
Section 5.1.1. DETERMINATION OF CHAIR OF SHAREHOLDER MEETINGS.
The Board of Directors shall determine and designate who shall act as
chairperson and preside over each meeting of the shareholders.
4
<PAGE>
Section 5.2. ANNUAL MEETING. The annual meeting of the Shareholders
shall be held on such day and at such time as shall be fixed by the Board of
Directors for the purpose of electing Directors and for the transaction of such
other business as may come before the meeting. If the day fixed for the annual
meeting shall fall on a legal holiday in the State of Utah, such meeting shall
be held on the next succeeding business day. If the election of Directors shall
not be held on the day designated herein for any annual meeting of the
Shareholders, or at any election to be held at a special meeting of the
Shareholders as soon as it may be conveniently held thereafter.
Section 5.3. SPECIAL MEETINGS. Special meetings of the Shareholders may
be called by the President, the Board of Directors, or the holders of not less
than one-tenth of all shares entitled to vote at the meeting.
5.3.1. PROCEDURE FOR CALLING SPECIAL MEETINGS.
(a) Called by Shareholders. Special meetings of the
Shareholders for any purpose or purposes shall be called by
the holders of not less than one-tenth of all shares entitled
to vote at the meeting only upon a request in writing
therefor, stating the precise purpose or purposes thereof
(which purpose or purposes must all be a proper matter for
consideration by the shareholders), and delivered to the
Chairman of the Board, the President or the Secretary. If the
Board of Directors does not pass a resolution endorsing and
calling for the special meeting for the purpose or purposes
requested by the Shareholders requesting the special meeting,
those Shareholders requesting the meeting shall be responsible
(in proportion to the number of shares held by each such
Shareholder with the total number of shares held by all such
Shareholders when the written request was made) for all of the
costs and expenses related to such special meeting, including
the costs of printing and delivering the notice of the meeting
to the Shareholders, the expenses of holding and conducting
the meeting and the costs incurred by the Company in preparing
for such special meeting. No special meeting requested by a
Shareholder shall be held sooner than one hundred twenty (120)
days after the Shareholder(s) provided the written request for
such special meeting to the Chairman of the Board, the
President or the Secretary. All notices of special meetings
called for by the Shareholders shall specify the precise
purpose or purposes thereof. No business other than that
stated in the notice shall be transacted at any special
meeting.
(b) Called by the Board of Directors or the
President. Special meetings of the Shareholders may be called
by the Board of Directors as set forth in the Articles of
Incorporation and the Bylaws of the Company and by the Utah
Revised Business Company Act, as amended (the "Act"). No
business other than that stated in the notice of the special
meeting shall be transacted at any special meeting.
5
<PAGE>
Section 5.4. NOTICE OF MEETINGS. Written notice stating the place, day,
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than fifty (50) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the Officer or persons calling the meeting, to each registered holder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the registered
holder at his address as it appears on the stock transfer books of the
Corporation, with postage on it prepaid.
Section 5.4.1. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS.
(a) Annual Meetings of Shareholders.
(1) Nominations of persons for election to the Board
of Directors of the Company and the proposal of business to be
considered by the Shareholders may be made at an annual
meeting of Shareholders (i) pursuant to the Company's notice
of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any Shareholder of the Company who was a
Shareholder of record at the time of giving of notice of the
meeting as provided for in the Articles of Incorporation and
the Bylaws of the Company, who is entitled to vote at the
meeting and who complies with the notice procedures set forth
in the Articles of Incorporation and Bylaws of the Company and
the Act.
(2) For nominations or other business to be properly
brought before an annual meeting by a Shareholder pursuant to
clause (iii) of paragraph (a)(1) of this Section, the
Shareholder must have given timely notice thereof in writing
to the Secretary of the Company and such other business must
otherwise be a proper matter for shareholder action. To be
timely, a Shareholder's notice shall be delivered to the
Secretary at the principal executive offices of the Company
not later than the close of business on the 60th day nor
earlier than the close of business on the 90th day prior to
the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the
annual meeting is more than 20 days before or more than 60
days after such anniversary date, notice by the shareholder to
be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day
prior to such annual meeting or the 10th day following the day
on which public announcement of the date of such meeting is
6
<PAGE>
first made by the Company. In no event shall the public
announcement of an adjournment of an annual meeting commence a
new time period for the giving of a Shareholder's notice as
described above. Such Shareholder's notice shall set forth (i)
as to each person whom the shareholder proposes to nominate
for election or reelection as a director all information
relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and Rule 14a (11)
thereunder (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a
director if elected); (ii) as to any other business that the
Shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the
meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such
Shareholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (iii) as to the Shareholder giving
the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (A) the name and address of
such Shareholder, as they appear on the Company's books, and
of such beneficial owner and (B) the class and number of
shares of the Company which are owned beneficially and of
record by such Shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence
of paragraph (a)(2) of this Section to the contrary, in the
event that the number of Directors to be elected to the Board
of Directors of the Company is increased and there is no
public announcement by the Company naming all of the nominees
for director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of
the preceding year's annual meeting, a Shareholder's notice
required by this Article shall also be considered timely, but
only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Company not later than
the close of business on the 10th day following the day on
which such public announcement is first made by the Company.
(b) Special Meetings of Shareholders. Only such
business shall be conducted at a special meeting of
Shareholders as shall have been brought before the meeting
pursuant to the Company's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at
a special meeting of Shareholders at which Directors are to be
7
<PAGE>
elected pursuant to the Company's notice of meeting (i) by or
at the direction of the Board of Directors or (ii) provided
that the Board of Directors has determined that Directors
shall be elected at such meeting, by any Shareholder of the
Company who is a Shareholder of record at the time of giving
of notice provided for in this Section, who shall be entitled
to vote at the meeting and who complies with the notice
procedures set forth in the Articles of Incorporation and
Bylaws of the Company. In the event the Company calls a
special meeting of Shareholders for the purpose of electing
one or more Directors to the Board of Directors, any such
Shareholder may nominate a person or persons (as the case may
be), for election to such position(s) as specified in the
Company's notice of meeting, if the Shareholder's notice
required by paragraph (a)(2) of this Section shall be
delivered to the Secretary at the principal executive offices
of the Company not earlier than the close of business on the
90th day prior to such meeting and not later than the close of
business on the later of the 60th day prior to such special
meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a
new time period for the giving of a Shareholder's notice as
described above.
(c) General.
(1) Only such persons who are nominated in accordance
with the procedures set forth in this Section shall be
eligible to serve as Directors and only such business shall be
conducted at a meeting of Shareholders as shall have been
brought before the meeting in accordance with the procedures
set forth in the Articles of Incorporation and the Bylaws of
the Company. Except as otherwise provided by law, the Articles
of Incorporation or the Bylaws of the Company, the Chairman of
the meeting shall have the power and duty to determine whether
a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in the Articles of
Incorporation and the Bylaws of the Company and, if any
proposed nomination or business is not in compliance with the
Articles of Incorporation and the Bylaws of the Company, to
declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Section, "public
announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act.
8
<PAGE>
(3) Notwithstanding the foregoing provisions of this
Section, a Shareholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in the
Articles of Incorporation of Company and the Bylaws of the
Company. Nothing in this Section shall be deemed to affect any
rights of Shareholders to request inclusion of proposals in
the Company's proxy statement pursuant to Rule 14a (8) under
the Exchange Act.
Section 5.5. WAIVER OF NOTICE. Any Shareholder may waive notice of any
meeting of Shareholders, (however called or noticed, whether or not called or
noticed and whether before, during or after such meeting) by signing a written
waiver of notice or consent to the holding of such meeting, or an approval of
the minutes thereof. Attendance at a meeting, in person or by proxy, shall
constitute waiver of all defects of call or notice regardless of whether a
waiver, consent or approval is signed or any objections are made. All such
waivers, consents, or approvals shall be made a part of the minutes of the
meeting.
Section 5.6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For
the purpose of determining Shareholders entitled to notice of or to vote at any
meeting of Shareholders or any adjournment thereof, or Shareholders entitled to
receive payment of any dividend, or in order to make a determination of
Shareholders for any other proper purpose, the Directors of the Corporation may
provide that the stock transfer books shall be closed for a stated period but
not to exceed, in any case, five (5) days. If the stock transfer books shall be
closed for the purpose of determining Shareholders entitled to notice of or to
vote at a meeting of Shareholders, such books shall be closed for at least one
(1) day. In lieu of closing the stock transfer books, the Directors may fix in
advance a date as the record date for any such determination of Shareholders,
such date in any case to be not more than fifty (50) days and not less than ten
(10) days prior to the date on which the particular action requiring such
determination of Shareholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of Shareholders, or
Shareholders entitled to receive payment of a dividend, the date on which notice
of the meeting is mailed or the date on which the resolution of the Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of Shareholders. When a determination of Shareholders
entitled to vote at any meeting of Shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
Section 5.7. VOTING LIST. The Officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least ten (10)
days before each meeting of Shareholders, a complete list of the Shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten (10) days prior to the meeting, shall be kept on
file at the registered office of the Corporation and shall be subject to the
inspection by any Shareholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any Shareholder during the whole time of
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the meeting. The original stock transfer books shall be prima facie evidence as
to who are the Shareholders entitled to examine such list or transfer books or
to vote at any meeting of Shareholders. Failure to comply with the requirements
of this section shall not affect the validity of any action taken at such
meeting.
Section 5.8. QUORUM OF SHAREHOLDERS, VOTE. A majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of Shareholders. If a quorum is present, except for election of
Directors which shall be by plurality, the affirmative vote of the majority of
the shares represented at the meeting and entitled to vote on the subject shall
be the act of the Shareholders, unless the vote of a greater number or voting by
classes is required by the laws of the State of Utah or the Articles of
Incorporation. Shares shall not be counted to make up a quorum for a meeting if
voting of them at the meeting has been enjoined or for any reason they cannot be
lawfully voted at the meeting. The Shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment notwithstanding the withdrawal of enough Shareholders to leave less
than quorum.
Section 5.9. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to vote at a
meeting of Shareholders, except to the extent that the voting rights of the
shares of any class or classes are limited or denied by the Articles of
Incorporation.
The following shares of the Corporation shall not be allowed to vote or
be counted in determining the total number of outstanding shares at any given
time: (a) shares held in treasury, and (b) shares held by a subsidiary of the
corporation in which the Corporation holds a majority of the outstanding shares.
Section 5.10. PROXIES. A Shareholder may vote either in person or in
proxy executed in writing by the Shareholder or by his, her or its duly
authorized attorney in fact. No proxy shall be valid after eleven (11) months
from the date of its execution, unless the proxy specifically provides a longer
length of time for which the proxy is to continue in force, which in no case
shall exceed seven (7) years from the date of execution. Any written consent or
proxy, may be revoked by the Shareholder, a transferee or the Shareholder's
personal representative prior to the time that written consents of the number of
shares required to authorize any proposed action have been filed with the
Secretary of the Corporation, but may not do so thereafter.
Section 5.11. ADJOURNMENTS. Any Shareholders' meeting, whether or not a
quorum is present, may be adjourned from time to time by the vote of a majority
of the shares, the holders of which are either present in person or represented
by proxy thereat, but, except as provided in Section 5.12 hereof, in the absence
of a quorum no other business may be transacted at such meeting. When a meeting
is adjourned for thirty (30) days or more, notice of the adjourned meeting shall
be given as in the case of an original special meeting. Save as aforesaid, it
shall not be necessary to give any notice of the time and place of the adjourned
meeting or of the business to be transacted thereat other than by announcement
at the meeting at which such adjournment is taken.
Section 5.12. ACTION WITHOUT A MEETING. Any action required to be taken
at a meeting of the Shareholders of the Corporation, or any action that may be
taken at a meeting of the Shareholders, may be taken without a meeting if a
consent in writing setting forth the action so taken shall be signed by all of
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<PAGE>
the Shareholders entitled to vote with respect to the subject matter thereof.
This consent shall have the same effect as a unanimous vote of Shareholders and
may be stated as such in any articles or document filed with the Utah Division
of Corporations and Commercial Code.
Section 5.13. RIGHTS, POWERS AND AUTHORITY OF CHAIRMAN OF SHAREHOLDER
MEETING IN PRESIDING OVER MEETING. The person designated by the Board of
Directors pursuant to Section 5.1.1 of the Bylaws to chair and preside over a
meeting of the Shareholders shall have the following rights, powers and
authority:
(a) to determine the rules and procedures for the conduct of
the meeting, which rules shall be set forth in writing and provided to
the Board of Directors prior to the convening of the meeting, and to
rule upon whether any action or inaction is permitted or prohibited by
such rules and procedures;
(b) to determine the appropriate rules and procedures for
actions or inactions that are beyond the scope of the written rules and
procedures;
(c) to exercise discretion in the recognition of Shareholders
during the meeting; and
(d) to convene the meeting and, notwithstanding anything to
the contrary in Section 5.11 of the Bylaws, to adjourn the meeting.
ARTICLE VI
The Board of Directors
----------------------
Section 6.1. NUMBER AND QUALIFICATIONS. The members of the Board of
Directors of the Company need not be residents of the State of Utah or
Shareholders of the Company and need have no other qualifications, other than as
set forth in Section 5.4.1 of the Bylaws. The number of Directors shall be three
(3) but may be increased or decreased to not less than three (3) from time to
time by resolution of the Board of Directors or by amendment of this section;
provided, however, no decrease shall have the effect of shortening the term of
any incumbent Director.
Section 6.2. EXERCISE OF CORPORATE POWER. The business and affairs of
the Corporation shall be managed by the Board of Directors.
Section 6.3. TERM. The term of each Director shall begin immediately on
election and shall continue until the date set under these Bylaws for the next
annual meeting of the Shareholders. Each Director shall hold office for the term
for which he is elected and until his successor shall have been elected and
qualified.
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Section 6.4. ELECTIONS. At each annual meeting of the Shareholders, the
Shareholders shall elect Directors, provided that if for any reason said annual
meeting or an adjournment thereof is not held or the Directors are not elected
thereat, then the Directors may be elected at any special meeting of the
Shareholders called and held for that purpose.
Section 6.5. VACANCIES. A vacancy or vacancies in the Board of
Directors shall exist in case of the death, resignation or removal of any
Director, or if the authorized number of Directors is increased, or if the
Shareholders fail, at any annual or special meeting at which any Director is
elected, to elect the full authorized number of Directors to be voted for at the
meeting. Also, the Board of Directors may declare vacant the office of a
Director if he or she is found to be of unsound mind by an order of a court of
competent jurisdiction or convicted of a felony or misdemeanor involving moral
turpitude or if, within sixty (60) days after notice of his election, he does
not accept the office either in writing or by attending a meeting of the Board
of Directors. Any vacancy occurring may be filled by the affirmative vote of a
majority of the remaining Directors (or a sole remaining Director) although less
than a quorum. A Director elected to fill a vacancy shall be elected for the
expired term of his or her predecessor in office, or if there was no
predecessor, until the date set under these Bylaws for the next annual meeting
and until his or her successor is elected and qualified. Any vacancy created by
reason of the removal of one (1) or more Directors by the Shareholders may be
filled by election of the Shareholders at the meeting at which the Director or
Directors are removed.
Section 6.6. PLACE OF MEETINGS. Meetings of the Board of Directors,
whether annual, regular, or special, may be held either within or without the
State of Utah.
Section 6.7. ANNUAL MEETINGS. The Board of Directors shall meet each
year immediately after the annual meeting of the Shareholders, at the principal
office of the Corporation or other place designated by the Board of Directors,
for the purpose of organization, election of Officer, and consideration of any
other business, election of Officers, and consideration of any other business
that may properly be brought before the meeting. No notice of any kind to either
old or new members of the Board of Directors need be given for such meeting. The
Board of Directors may provide, by resolutions, the time and place for the
holding of additional regular meetings without other notice than such
resolution.
Section 6.8. OTHER MEETINGS. Other meetings of the Board of Directors
may be held upon notice by letter, telegram, cable, delivered for transmission
or mailing not later than three (3) days immediately preceding the day for the
meeting, upon the call of the President or Secretary of the Corporation at any
place within or without this state. Notice of any meeting of the Board of
Directors may be waived in writing signed by the person or persons entitled to
the notice, whether before or after the time of the meeting. Neither the
business to be transacted at, nor the purpose of, any meeting of the Board of
Directors need be specified in the notice or waiver of notice shall constitute a
waiver of notice of such meeting, except where a Director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
Section 6.9. QUORUM. A majority of the number of Directors fixed by the
blaws shall constitute a quorum for the transaction of business. The act of the
majority of the Directors preseN at a meeting at which a quorum is present shall
be the act of the Board of Directors unless the act of a greater number is
required by statute, the Articles of Incorporation, or the Bylaws.
12
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Section 6.10. ACTION WITHOUT A MEETING. Any action that may be taken at
a meeting of the Directors or of a committee, may be taken without a meeting if
consent in writing, setting forth the action so to be taken, shall be signed by
all of the Directors or all the members of the committee, as the case may be.
Section 6.11. CHAIRMAN. The Board of Directors may elect from its own
number a Chairman of the Board, who shall preside at all meetings of the Board
of Directors, and shall perform such other duties as may be prescribed from time
to time by the Board of Directors. In the absence of such an election, the
President shall serve as Chairman of the Board.
Section 6.12. REMOVAL. By proper action without a meeting or at a
meeting expressly called for that purpose, one (1) or more Directors may be
removed (a) with or without cause by a vote of majority of the shares entitled
to vote at an election of the Directors; or (b) only for cause by a vote of
majority of the other Directors.
Section 6.13. RESIGNATION. A Director may resign at any time by
delivering written notification thereof to the President or Secretary of the
Corporation. Resignation shall become effective upon its acceptance by the Board
of Directors; provided, however, that if the Board of Directors has not acted
thereon within (10) days from that date of its delivery, the resignation shall
upon the tenth day be deemed accepted.
Section 6.14. LOANS. The Board of Directors shall have the following
power with respect to the lending of funds:
(a) Loans of Funds, Generally. To lend money in furtherance of
any of the purposes of the Corporation; to invest and reinvest the
funds of the Corporation from time to time; and to take and hold any
property as security for the payment of funds so loaned or invested;
and
(b) Loans to Employees and Directors. To lend money and use
its credit to assist any employees of the Corporation or of a
subsidiary, including any such employee who is a Director of the
Corporation, if the Board of Directors decides that such loan or
assistance may benefit the Corporation; but to make no loans or use of
its credit to assist its Directors without authorization in the
particular case by the Shareholders.
Section 6.15. FEES AND COMPENSATION. Directors and members of the
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board of Directors. Such compensation so fixed shall be reported to the
Shareholders.
Section 6.16. PRESUMPTION OF ASSENT. A Director of the Corporation who
is present at a meeting of the Board of Directors at which the action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the Secretary before the
adjournment thereof or shall forward such dissent by certified or registered
mail to the Secretary of the Corporation immediately after the adjournment of
the meeting. Such right of dissent shall not apply to a Director who voted in
favor of such action.
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Section 6.17. COMMITTEES. The Board of Directors by resolution adopted
by the majority of the number of Directors fixed by the Bylaws may designate a
committee or committees consisting of not less than two (2) Directors which
committee or committees, to the extent provided in such resolution, shall have
and may exercise all the authority provided in such resolution, shall have and
may exercise all the authority provided to the Board of Directors; but the
designation of such committee or committees and delegation thereto of authority
shall not operate to relieve the Board of Directors, or any member thereof, of
any responsibility imposed upon him, her or it by law.
ARTICLE VII
Officers
---------
Section 7.1. ELECTION AND QUALIFICATIONS. The Officers of the
Corporation shall consist of a President, one or more Vice Presidents, a
Secretary and a Treasurer, each of whom shall be elected by the Board of
Directors at the meeting of the Board of Directors next following the annual
meeting of the Shareholders (or at any meeting if an office is vacant) and such
other officers, and assistant officers and agents, as the Board of Directors
shall deem necessary, who shall be elected and shall hold their offices for such
terms as the Board of Directors may prescribe. Any two (2) or more offices may
be held by the same person except those of President and Secretary. Any Vice
President, Assistant Treasurer or Assistant Secretary, respectively, may
exercise any the powers of the President, the Treasurer, or the Secretary,
respectively, as directed by the Board of Directors and shall perform such other
duties as are imposed upon him by the Bylaws or the Board of Directors. Election
or appointment of an Officer or agent shall not of itself create contract
rights.
Section 7.2. TERM OF OFFICE AND COMPENSATION. The term of office and
salary of each of said Officers and the manner and time of the payment of such
salaries shall be fixed and determined by the Board of Directors and may be
altered by said Board from time to time at its pleasure.
Section 7.3. RESIGNATION. Any officer may resign at any time by
delivering a written resignation either to the President or the Secretary.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.
Section 7.4. REMOVAL AND VACANCIES. Any Officer of the Corporation may
be removed by the Board of Directors at any meeting whenever in its judgement
the best interests of the Corporation will be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. If any vacancy occurs in any office of the Corporation, the Board of
Directors may elect a successor to fill such vacancy for the remainder of the
unexpired term and until his successor is duly chosen and qualified.
Section 7.5. THE PRESIDENT. Subject to the control of the Board of
Directors, the President shall:
(a) be the chief executive officer and shall have active
executive management of the operations of the Corporation;
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(b) have power to call and, subject to being designated by the
Board of Directors pursuant to Section 5.1.1 of the Bylaws to preside
over a meeting of Shareholders, to preside at all meetings of
Shareholders, discharge all the duties that devolve upon a presiding
officer, and perform such other duties as the Bylaw provide or the
Board of Directors may prescribe;
(c) have full authority to execute powers of attorney
appointing other corporations, partnerships, or individuals the agent
of the Corporation;
(d) affix the signatures of the Corporation to all deeds,
conveyances, mortgages, leases, obligations, bonds, certificates and
other papers and instruments in writing which have been authorized by
the Board of Directors or which, in the judgment of the President,
should be executed on behalf of the Corporation and do not require such
authorization;
(e) sign certificates for shares of stock of the Corporation;
and
(f) have general charge of the property of the Corporation and
to supervise and control all Officers, agents and employees of the
Corporation.
Section 7.5.1. AUTHORITY OF PRESIDENT. Notwithstanding
anything to the contrary in the Bylaws, in the absence of contrary
written directions from a majority of the Board of Directors, the
President shall have, to the fullest extent available under law, all
rights, powers and authority to do any and all actions to conduct the
business, operations and activities of the Company.
Section 7.6. THE VICE PRESIDENT. The Vice President or one of the Vice
Presidents shall perform all duties incumbent upon the President during the
disability of the President, and shall perform such other duties as the Bylaws
may provide or the Board of Directors may prescribe.
Section 7.7. THE SECRETARY. The Secretary shall:
(a) attend all meetings of the Shareholders and the Board of
Directors;
(b) keep, or cause to be kept in a book provided for this
purpose, a true and complete record of the proceedings of these
meetings, including notice thereof given, the names of those present,
and the number of shares present and Shareholders' meetings and the
proceedings thereof;
(c) be custodian of the records and the Seal of the
Corporation and see that the Seal is affixed to all documents, the
execution of which on behalf of the Corporation under its Seal is duly
authorized;
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(d) give all notices and shall perform such other duties as
the Bylaws may provide or the Board of Directors may prescribe;
(e) keep a supply of certificates for shares of the
Corporation, fill in all certificates issued, and make a proper record
of each such issuance; provided, that so long as the Corporation shall
have one (1) or more duly appointed and acting transfer agents of the
shares, or any class or series of shares, of the Corporation, such
duties with respect to such shares shall be performed by such transfer
agent or transfer agents; and
(f) transfer upon the share books of the Corporation any and
all shares of the Corporation; provided, that so long as the
Corporation shall have one (1) or more duly appointed and acting
transfer agents of the shares, or class or series of shares, of the
Corporation, such duties with respect to such shares shall be performed
by such transfer agent or transfer agents, and the method of transfer
of each certificate shall be subject to the reasonable regulations of
the transfer agent to which the certificate is presented for transfer,
and also, if the Corporation then has one (1) or more duly appointed
and acting registrars, to the reasonable regulations of the registrar
to which the new certificate is presented for registration; and
provided, further, that no certificate for shares of stock shall be
issued or delivered or, if issued or delivered, shall have any validity
whatsoever until and unless it has been signed or authenticated.
Section 7.8. THE TREASURER. The Treasurer shall:
(a) keep correct and complete records of account, showing
accurately at all times the financial condition of the Corporation;
(b) be the legal custodian of all moneys, notes, securities,
and other valuables that may from time to time come into the possession
of the Corporation;
(c) immediately deposit all funds of the Corporation in some
reliable bank or other depository to be designated by the Board of
Directors, and shall keep this bank account in the name of the
Corporation;
(d) furnish at meetings of the Board of Directors, or whenever
requested, a statement of the financial condition of the Corporation;
and
(e) perform such other duties as the Bylaws may provide or the
Board of Directors may prescribe.
Section 7.9. GENERAL COUNSEL. The Board of Directors may appoint a
General Counsel who shall advise and represent the Corporation generally in all
legal matters and proceedings, and shall act as counsel to the Board of
Directors and any Executive Committee. The General Counsel may sign and execute
pleadings, powers of attorney pertaining to legal matters, and any other
contracts and documents in the regular course of his duties.
Section 7.10. GENERAL MANAGER. The Board of Directors may employ and
appoint a General Manager who may or may not be one of the Officers or directors
of the Corporation. The General Manager may be the Chief Operating Officer of
the Corporation and, subject to the directions of the Board of Directors, shall:
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(a) have general charge of the business operations of the
Corporation and general supervision
over its employees and agents;
(b) employ all employees of the Corporation, or delegate such
employment to subordinate officers, or such division chiefs, and shall
have authority to discharge any person so employed;
(c) make a report to the President and Directors quarterly, or
more often if required to do so, setting forth the result of the
operations under his charge, together with suggestions looking to the
improvement and betterment of the condition of the Corporation; and
(d) perform such other duties as the Board of Directors shall
require.
Section 7.11. OTHER OFFICERS. Other officers shall perform such duties
and have such powers as may be assigned to them by the Board of Directors.
Section 7.12. SALARIES. The salaries or other compensation of the
Officers of the Corporation shall be fixed from time to time by the Board of
Directors, except that the Board of Directors may delegate to any person, group
of persons or committee the power to fix the salaries or other compensation of
any subordinate officers or agents. No Officer shall be prevented from receiving
any such salary or compensation by reason of the fact that he is also a Director
of the Corporation.
Section 7.13. SURETY BONDS. In case the Board of Directors shall so
require, any Officer or agent of the Corporation shall execute to the
Corporation a bond in such sums and with such surety or sureties as the Board of
Directors may direct, conditioned upon the faithful performance of his duties to
the Corporation, including responsibility for negligence and for the accounting
for all property, monies or securities of the Corporation which may come into
his hands.
Section 7.14. TRANSFER OF AUTHORITY. In case of the absence of any
Officer of the Corporation or for any reason that the Board of Directors may
deem sufficient, the Board of Directors may transfer the powers or duties of the
Officer to any other Officer or to any Director or employee of the Corporation,
provided a majority of the Board of Directors concurs.
ARTICLE VIII
Indemnification
---------------
Section 8.1. INDEMNITY PROVIDED. No Officer or Director shall be
personally liable for any obligations of the Corporation or for any duties or
obligations arising out of acts or conduct of said Officer or Director duly
performed for or on behalf of the Corporation. The Corporation, to the fullest
extent permitted, and in the manner required by the laws of the State of Utah,
shall (a) indemnify any person (and the heirs and legal representatives of such
person) who was or is made or is threatened to be made a party to any
17
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threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was a Director, Officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any and all applicable claims, judgments, fines, amounts
paid in settlement, liabilities and legal and other costs actually and
reasonably incurred in connection with any such action, suit or proceeding; and
(b) provide to any such person (and the heirs and legal representatives of such
person) advances for expenses incurred in defending any such action, suit or
proceeding, upon receipt of an undertaking by or on behalf of such person (and
the heirs and legal representatives of such person) to repay such advances if it
shall ultimately be determined that he is not entitled to indemnification by the
Corporation. The rights accruing to any person under the foregoing provisions of
this section shall not exclude any other right to which he may lawfully be
entitled, nor shall anything herein contained restrict the right of the
Corporation to indemnify or reimburse such person in any proper case, even
though not specifically herein provided for. The Corporation, its Directors,
Officers, employees and agents shall be fully protected in taking any action or
making any payment, or in refusing so to do in reliance upon the advice of
counsel.
Section 8.2. NONEXCLUSIVE RIGHTS. The indemnification and advancement
of expenses provided by these Bylaws shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any resolution, agreement, vote of Shareholders or disinterested
Directors or otherwise, both as to action in their official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a Director, Officer, employee or agent, and shall
inure to the benefit of the heirs, executors and administrators of such person
Section 8.3. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, Officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of these Bylaws or otherwise.
Section 8.4. SETTLEMENT BY CORPORATION. The right of any person to be
indemnified shall be subject to the right of the Corporation by its Board of
Directors, in lieu of such indemnity, to settle any such claim, action, suit or
proceeding at the expense of the Corporation by the payment of the amount of
such settlement and the costs and expenses incurred in connection therewith.
ARTICLE IX
Special Corporate Acts
----------------------
Section 9.1. CONTRACTS. No Officer, agent, or employee of the
Corporation shall have power to bind the Corporation by contract or otherwise
unless authorized to do so by these Bylaws or by the Board of Directors. The
Board of Directors may authorize any Officer or Officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances.
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Section 9.2. LOANS. No loan nor advance shall be contracted on behalf
of the Corporation, no negotiable paper nor other evidence of its obligation
under any loan or advance shall be issued in its name, and no property of the
Corporation shall be mortgaged, pledged, hypothecated or transferred as security
for the payment of any loan, advance, indebtedness or liability of the
Corporation unless and except as authorized by the Board of Directors. Any such
authorization may be general or confined to specific instances.
Section 9.3. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select, or as may be selected by any Officer or agent authorized to do so by
the Board of Directors.
Section 9.4 . CHECKS AND DRAFTS. All notes, drafts, acceptances,
checks, endorsements and evidences of indebtedness of the Corporation shall be
signed by such Officer and Officers or such agent or agents of the Corporation
and in such manner as the Board of Directors from time to time may determine.
Endorsements for deposit to the credit of the Corporation in any of its duly
authorized depositories shall be made in such manner as the Board of Directors
from time to time may determine.
Section 9.5. BONDS AND DEBENTURES. Every bond or debenture issued by
the Corporation shall be evidenced by an appropriate instrument which shall be
signed by the President or a Vice President and by the Treasurer or by the
Secretary, and sealed with the Seal of the Corporation. The Seal may be
facsimile, engraved or printed. Where such bond or debenture is authenticated
with the manual signature of an authorized Officer of the Corporation or other
trustee designated by the indenture of trust or other agreement under which such
security is issued, the signature of any of the Corporation's Officers named
thereon may be a facsimile. In case any Officer who signed, or whose facsimile
signature has been used on any such bond or debenture, shall cease to be an
Officer of the Corporation for any reason before the same has been delivered by
the Corporation such bond or debenture may nevertheless be adopted by the
Corporation and issued and delivered as though the person who signed it or whose
facsimile signature has been used thereon has not ceased to be such Officer.
Section 9.6. SHARES HELD BY THE CORPORATION. Shares in other
corporations standing in the name of this Corporation may be voted and
represented and all rights incident thereto may be exercised on behalf of this
Corporation by any Officer of this Corporation authorized so to do by resolution
of the Board of Directors.
ARTICLE X
Miscellaneous
-------------
Section 10.1. WAIVER OF NOTICE. Whenever any notice is required to be
given to any Shareholder or Director of the Corporation under the provisions of
these Bylaws, or under the provisions of the Articles of Incorporation, or under
the provisions of the Utah Business Corporation Act, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
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the time stated therein, shall be deemed equivalent to the giving of such
notice. Attendance at any meeting shall constitute a waiver of notice of such
meetings, except where attendance is for the express purpose of objecting to the
legality of that meeting.
Section 10.2. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by the Utah Business
Corporation Act and its Articles of Incorporation.
Section 10.3. GENDER. Unless the context requires otherwise, the male
gender and the pronouns referring thereto in these Bylaws shall refer to the
female gender as well.
------------------------------------
Duane W. Moss, Secretary
CERTIFICATE OF SECRETARY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby certify that he is the Secretary of
Mining Services International Corporation, a corporation duly organized and
existing under and by virtue of the laws of the State of Utah; that the above
and foregoing Bylaws of said Corporation were duly and regularly adopted a such
by the Board of Directors of the Corporation on ---------- 1999; and that the
above and foregoing Bylaws are now in full force and effect.
DATED this-----------------day of-----------, 1999.
------------------------------------
Duane W. Moss, Secretary
[Corporate Seal]
20
Appendix I
MINING SERVICES INTERNATIONAL CORPORATION
1988 NONQUALIFIED STOCK OPTION PLAN
(As amended through May 19, 1999)
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
1988 NONQUALIFIED STOCK OPTION PLAN
(As amended through May 19, 1999)
ARTICLE I
Purposes
--------
The purposes of this Plan are to encourage stock ownership in the Company by
eligible employees and directors of Mining Services International Corporation, a
Utah corporation (the "Company"), to provide an incentive for eligible
employees, directors and others to expand and improve the growth, profitability
and general prosperity of the Company in attracting and retaining qualified
employees, directors and others through stimulating their efforts by giving
suitable recognition, in the form of compensation, to their abilities and
industry, which contribute materially to the growth and profitability of the
Company.
ARTICLE II
2.01 Board of Directors: Unless otherwise indicated, the term "Board of
Directors" shall mean the Board of Directors of the Company.
2.02 Code shall mean the Internal Revenue Code of 1986, as amended.
2.03 Committee shall mean the Administrative Committee established pursuant to
Article III of this document.
2.04 Common Stock shall mean the common stock of the Company, par value $.001
per share.
2.05 Company shall mean Mining Services International Corporation, a Utah
corporation.
2.06 Director shall mean a duly elected and acting member of the Board of
Directors of the Company.
2.07 Disabled or Disability: For purposes of this Agreement, a Shareholder
shall be deemed to be Disabled if, in the judgment of an impartial
physician selected by the Company, such Shareholder has a physical or
mental condition that, based upon medical report and other evidence
satisfactory to the physician making the determination, presumably
permanently prevents such Shareholder from satisfactorily performing his
usual duties in the service of the Company, and when such condition has
continued substantially uninterrupted for a period of twelve consecutive
months.
<PAGE>
2.08 Effective Date shall mean the date established pursuant to Section 4.01
hereof.
2.09 Exercise Price shall mean the price for which an Option granted hereunder
may be executed, determined pursuant to this Plan.
2.10 Holder or Optionee shall mean a Key Employee, Director or other
individual to whom an Option has been granted under this Plan.
2.11 Key Employees means an employee of the Company who is an officer, or who
is employed in a managerial, professional or other key position.
2.12 Option shall mean the right to purchase one share of the Common Stock of
the Company, granted pursuant to this Plan.
2.13 Option Agreement shall mean the Stock Option Agreement referred to in
Section 6.07 of this document.
2.14 Plan shall mean this Mining Services International Corporation 1988
Nonqualified Stock Option Plan as amended from time to time.
2.15 Stock Appreciation Right shall mean a right to receive cash or Common
Stock of the Company upon the occurrence of the events set forth in
Article VIII of this Plan.
2.16 Value of a share of the Common Stock of the Company shall mean the
reported closing price of a share of the Company's Common Stock on any
national registered securities exchange on which the Company's Common
Stock may be listed. If a reported closing price is not available for the
date on which the Company" Common Stock is sought to be valued, the
reported closing price for the next receding business day shall be used.
If the Company's Common Stock is not listed on a national registered
securities exchange, the Value of a share of the Company's Common Stock
shall be the "bid" price of the Company's Common Stock, as published by
the National Association of Securities Dealers, Inc., as of the date on
which the Company's Common Stock is sought to be valued. If a reported
"bid" price is not available as of the day on which the Company's common
stock is sought to be valued, then the reported "bid" price as of the
next preceding business day shall be used. If the Value cannot be
determined under the preceding rules of this Section 2.16, the Value
shall be the fair market value of the Company's Common Stock, determined
under the method selected by the Committee. Unless modified by the Board
of Directors, the Committee's good faith determination of the Value of a
share of the Company's Common Stock shall be conclusive, and shall be
valid and binding upon all persons having any interest in any Option
granted hereunder.
<PAGE>
ARTICLE III
Administration
--------------
3.01 Administrative Committee: This Plan shall be administered by an
Administrative Committee composed of not fewer than three members of the
Company's Board of Directors. If for any reason the Company's Board of
Directors does not appoint a Committee, or if for any reason a Committee
is not acting hereunder, the Board of Directors shall act as the
Committee. The members of the Committee shall hold office at the pleasure
of the Board of Directors, and shall serve without compensation. All
determinations, decisions, interpretations and other action made or taken
by the Committee shall be final and binding on all persons having any
interest in any Option granted hereunder, unless otherwise determined by
the Board of Directors. The Board of Directors shall have the power by
appropriate actin to reverse or modify any action by the Committee.
3.02 Committee to Construe Plan: The Committee shall administer this Plan, and
shall have all powers necessary for that purpose, including but not
limited to the power to interpret the Plan and the power to determine the
eligibility, status and rights hereunder of all persons. The Committee
shall maintain the records of the Plan and shall have the power to adjust
the Plan's records as necessary to correct errors and rectify omissions,
in the manner that the Committee believes will best result in the
equitable administration of the Plan.
3.03 Organization of the Committee: The Committee may elect a chairman, and
may adopt such rules as it deems desirable for the conduct of its affairs
and for the administration of this Plan. The Committee may appoint
agents, who need not be members of the Committee, to whom it may delegate
such powers as it deems appropriate. The action of a majority of the
members of the Committee shall be the action of the Committee.
3.04 Indemnification of Committee Members: The Company shall defend, indemnify
and hold harmless each member of the Committee against any and all
claims, loss, damages, expense and liability arising from any actual or
alleged actin or failure to act in connection with this Plan, except when
the same is judicially determined to be due to the gross negligence or
willful misconduct of such Committee member.
ARTICLE IV
Effective and Expiration Dates of Plan
--------------------------------------
4.01 Effective Date: This Plan shall become effective upon its adoption by the
Company's Board of Directors, in accordance with the applicable Bylaws of
the Company, and shall continue in effect until December 31, 2007, unless
sooner terminated in accordance with the provisions hereof.
<PAGE>
4.02 Continuation of Plan: Notwithstanding the expiration or termination
hereof, this Plan shall continue in effect after the expiration of its
term or other termination for purposes of the administration of any
Option that may have been granted before the effective date of the
expiration or termination. No Option granted during the term hereof shall
be adversely affected by the expiration or termination of this Plan.
ARTICLE V
Participation; Grant of Options
-------------------------------
5.01 Eligibility: Each Director of the Company and each employee of the
Company who is determined by the Committee to be a Key Employee shall be
eligible to receive Options and to participate in the Plan. The Committee
may also, in its discretion, select other individuals who, in the
discretion of the Committee, have made or are expected to make
significant contributions to the Company, to receive Options and to
participate in this Plan. The Committee shall have sole and absolute
discretion in identifying and selecting Key Employees, Directors and
other individuals for nomination to receive Options hereunder.
5.02 Nomination and Approval: The Committee shall, as often as it determines,
nominate for approval by the Board of Directors one or more eligible Key
Employees, Directors and other individuals to receive Options under this
Plan. The Committee shall present to the Board of Directors a schedule
showing the name of each proposed Optionee, the number of Options the
Committee recommends to be granted to such Optionee, the proposed
effective date of the grant of each Option, the periods of time during
which such Options shall be exercisable, and the Value of the Company's
Common Stock as of the proposed effective date of the grant of each
Option. Subject to the provisions of this Plan and to approval by the
Board of Directors, the terms and conditions of Options issued hereunder
need not be the same. The Board of Directors may make such changes in the
schedule submitted by the Committee as it determines, and may approve, in
its discretion, the grant of all, none, or any part of the Options
recommended by the Committee; provided however, that the terms of all
Options granted hereunder shall comply with all terms and provisions of
this Plan.
5.03 Discretion of Committee: The Committee shall have sole and absolute
discretion in selection of Key Employees, Directors and other individuals
for nomination to receive Options hereunder and in determining questions
of eligibility to participate hereunder. Subject to the provisions and
restrictions contained in this document, the Committee shall have the
sole authority, in its absolute discretion, to determine the terms and
conditions of Options, the number of Options to be issued, and the means
of payment of the exercise price of any Option.
<PAGE>
5.04 Date of Grant: Each Option shall be deemed to be granted on the date on
which is taken the final vote of the Board of Directors to approve the
grant of such Option.
5.05 Maximum Number of Options: The cumulative number of Options that may be
granted hereunder is 1,315,130 of which, at December 31, 1998, 828,207
options remained subject to the Plan, with 359,747 options issued, but
unexercised and 463,460 options remained ungranted. If Options that have
been granted under this Plan terminate or expire without having been
exercised, new Options may be granted hereunder to replace the expired
Options. The shares to be optioned may be either authorized but unissued
shares of Common Stock of the Company, or may be shares held in treasury.
ARTICLE VI
Terms of Options
----------------
6.01 Exercise Price: The Exercise Price of each Option granted pursuant to
this Plan shall be not less than the Value of a share of the Common Stock
of the Company as of the date on which the Option is granted.
6.02 Expiration of Options: Each Option granted pursuant to this Plan will
expire not later than ten years after the date on which such Option was
granted.
6.03 Restrictions on Transfers and Encumbrance: During the lifetime of an
Optionee, Options granted hereunder may not be sold, pledged, assigned,
hypothecated, encumbered, or transferred in any manner, either
voluntarily or involuntarily, by operation of law or otherwise, except by
will or by applicable laws of descent and distribution, and may be
exercised during an Optionee's lifetime only by the Optionee or by his
legal representative. Any Option that is exercisable under the terms of
this document and of the Option Agreement entered into with respect to
such Option pursuant to Section 6.07 hereof after the date of the
Optionee's death may be exercised only by the person or persons to whom
the Optionee's rights under the Option have passed by will or by
applicable laws of descent and distribution.
6.04 Exercise of Options After Death of Optionee: In the event of the death of
an Optionee, Options granted to such Optionee that are, as of the date of
the Optionee's death, otherwise exercisable under the terms of this
document and of the applicable Option Agreement entered into with respect
to such Option pursuant to Section 6.07, shall continue to be exercisable
in accordance with their terms, subject to compliance with all terms and
provisions of this document and of the applicable Stock Option Agreement.
Options that are not exercisable as of the date of the Optionee's death
shall expire and shall not thereafter be exercisable.
<PAGE>
6.05 Exercise During Service: An Optionee may exercise an Option granted
hereunder only if the Optionee has remained continuously in the service
of the Company as a Key Employee, Director, Independent contractor or
otherwise, since the date on which the Option sought to be exercised was
granted to such Optionee, and continuing through a date that is not more
than ninety days prior to the date on which the Option is sought to be
exercised. For purposes of this Section 6.05, an Optionee shall be deemed
to be in the service of the Company during the first twelve months of a
leave of absence approved by the Company and during the first twelve
months of a period of time during which the Optionee is Disabled. The
provisions of this Section 6.05 shall not prevent the exercise of an
Option that is exercisable by a person other than the Optionee (for
example, after the death of an Optionee, as provided in Sections 6.03 and
6.04) under the provisions of this Agreement.
6.06 Sale to Company After Termination of Service: Each Optionee shall, as a
condition of receiving Options, agree with the Company that , if such
Optionee for any reason, other than on account of the death of the
Optionee, leaves the service of the Company (whether as a Key Employee,
Director, Independent contractor or otherwise), within two years after
the date on which such Optionee exercises an Option granted to him
pursuant to this Plan, the Company shall have the right, exercisable
within sixty days after the effective date of the termination of the
Optionee's period of service with the Company, to purchase for the
Exercise Price all of the shares of Common Stock purchased by the
Optionee through exercise of Options within two years before the
effective date of the termination of the Optionee's period of service.
Provided, however, any shares of the Common Stock acquired through the
exercise of an Option and utilized to pay the exercise price in a
"cashless exercise" or to pay any associated income taxes shall not be
subject to the Company's right to repurchase the shares from the Option
pursuant to this paragraph 6.06. The right herein granted to the Company
shall be exercisable by the Company at any time within sixty days after
the effective date of the termination of the Optionee's period of
service. For purposes of this Section 6.06, an Optionee shall be deemed
to be in the service of the Company during the first twelve months of a
leave of absence approved by the Company and during the first twelve
months of a period of time during which the Optionee is Disabled. The
provisions of this paragraph shall not apply to shares which have been
previously exercised or become exercisable when a Change of Control
occurs as defined herein.
6.07 Stock Option Agreement: The terms and conditions of all Options granted
pursuant to this Plan shall be evidenced by a Stock Option Agreement,
executed by the Company and the Key Employee, Director or other
individual to whom the Option has been granted. Each Stock Option
Agreement shall contain the following provisions:
a. A provision fixing the number of Options to be granted.
b. A provision establishing the Exercise Price.
<PAGE>
c. A provision establishing the times and the installments in which
Options may be exercised.
d. A provision incorporating this Plan document by reference.
e. A provision fixing the time period within which Options may be
exercised.
f. A provision referencing the right of the Company to repurchase the
shares of Common Stock purchased by the Optionee through exercise of
Options under the circumstances described in Section 6.06, above.
g. Any other representations, warranties and restrictions deemed
necessary by the Board of Directors or Committee in the exercise of
their reasonable discretion.
ARTICLE VII
Procedure for Exercise
----------------------
7.01 Time for Exercise: Subject to the provisions of this Article VII, Options
shall become exercisable at such time and in such installments as the
Committee may recommend, and as the Board of Directors may approve at the
time an Option is granted; provided, however, that the Board of Directors
may, upon such terms and conditions as it may determine to be
appropriate, and subject to the provisions of this Article VII,
accelerate the time within which an Option must be exercised.
7.02 Exercise Upon Change of Control: Any time a Change of Control occurs, all
options granted prior to the effective date of the Change of Control
("Effective Date") shall become immediately exercisable upon the
Effective Date regardless of the date specified as the exercise date in
the respective Option Agreement. Anything in this Plan to the contrary
notwithstanding, if a Change of Control occurs and if the Optionee's
employment with the Company is terminated prior to the date on which the
Change of Control occurs, and if it is reasonably demonstrated by the
Optionee that such termination of employment (x) was at the request of a
third party who has taken steps reasonably calculated to effect a Change
of Control; or (y) otherwise arose in connection with or anticipation of
a Change of Control, then for all purposes of this Agreement the
Effective Date of the Change of Control shall mean the date immediately
prior to the date of such termination of employment. A Change of Control
for the purpose of the Plan shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
either
(i) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock"); or
(ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
<PAGE>
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following acquisitions
shall not constitute a Change of Control
(1) any acquisition directly from the Company;
(2) any acquisition by the Company;
(3) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or
(4) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section 2; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least sixty
percent (60%) of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least sixty
percent (60%) of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination,
(i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be;
(ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or related trust)
of the Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 25% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination; and
<PAGE>
(iii) at least sixty percent (60%) of the members of
the Board of Directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
In the event the Company's agreement to enter into a Corporate Capital
Transaction is terminated, all unexercised Options shall revert to their status
prior to the Company's agreement to enter into such transaction. Any exercise of
Options made prior to the termination of such agreement shall remain effective
after such termination, notwithstanding that the Option may have become
exercisable solely by reason of the Company entering into such agreement. For
purposes of the Plan a Corporate Capital Transaction includes a sale, merger,
consolidation, reorganization, liquidation or similar transaction other than a
reorganization, merger or consolidation effected solely to change the Company's
state of incorporation.
7.03 Withholding of Taxes: The exercise of an Option by an Optionee shall
constitute the Optionee's agreement that the Company may withhold
federal, state, and other taxes attributable to taxable income realized
under this Plan from any compensation or other payment payable to such
Optionee by the Company.
7.04 Exercise: Subject to all terms and provisions of this Plan document,
Options granted hereunder shall be deemed to have been exercised when
written notice of exercise has been given to the Company by the person
entitled to exercise the Option and when full payment in cash or cash
equivalents (or with Common Stock of the company if approved under
Section 7.07) for the shares of Common Stock with respect to which the
Option is exercised has been received by the Company. Until certificates
have been issued (but not necessarily until expiration of the period of
time set forth in Section6.06) for the number of shares represented by
the exercise of an Option, no right to vote, to receive dividends, or
other right as a stockholder shall exist with respect to shares of Common
Stock purchased through the exercise of an Option. Except as provided in
Section 9.01, no adjustment shall be made for dividends or other rights
declared or paid with respect to stock acquired through the exercise of
Options for which the record date is prior to the date on which a stock
certificate for such shares is issued.
7.05 Exercise in Installments: Options may be exercised in installments, but
only in units of whole shares of the Common Stock of the Company.
7.06 Issuance of Certificates: As soon as practicable after an Option has been
exercised in accordance with the provisions of this document, the company
shall, without transfer or issue tax or other charge to the Optionee,
<PAGE>
cause to be issued in the name of the Optionee certificates representing
the number of shares of Common Stock as to which Options have been
exercised. The Company may, however, postpone the time of delivery of
certificates for such period of time as the Company may determine to be
necessary for it with reasonable diligence to or regional securities
exchange, of the National Association of Securities Dealers, Inc., or
with any law or regulation applicable to the issuance or delivery of
shares of the Company's Common Stock.
7.07 Payment of Exercise Price with Company Stock: The Committee may, if it so
elects, permit an Optionee to pay Exercise Price upon exercise of an
Option with shares of common Stock of the Company previously acquired and
owned at the time of exercise by the Optionee, provided that the Optionee
agrees to make such written representations and warranties concerning
such shares as may be requested by the Committee, including without
limitation representations and warranties that such Optionee has good and
marketable title to such shares, free and clear of all liens,
encumbrances, security interests, claims, options and restrictions, and
that such Optionee has full power to deliver such shares without
obtaining the consent of any individual entity or governmental authority
that has not been obtained. The shares used to pay the Exercise Price
upon exercise of an Option shall be valued by the Committee.
Nothwithstanding anything herein to the contrary. the Committee may also
allow a "cashless" exercise of options which have been properly and
legally registered for immediate sale.
ARTICLE VIII
Stock Appreciation Rights
-------------------------
8.01 Grant of Rights: The Board of Directors may, upon recommendation of the
Committee, grant Stock Appreciation Rights to eligible Key Employees,
Directors or other individuals at the time Options are granted to such
Key Employees, Directors or other individuals. Each Stock Appreciation
Right shall relate to a specific Option granted to a Key Employee or
Director hereunder. The number of Stock Appreciation Rights granted to a
Key employee, Director or other individual shall be less than or equal to
the number of Options granted to such Key Employee, Director or other
individual. Neither the Committee nor the Board of Directors shall be
obligated to grant any Stock Appreciation Rights hereunder.
8.02 Manner of Exercise: A Key Employee, Director or other individual shall
exercise Stock Appreciation Rights by giving written notice of such
exercise to the Company at the same time the Key Employee, Director or
other individual exercises the Options to which the Stock Appreciation
Rights relate. A Stock Appreciation Right may be exercised only at the
time the related Option is exercised. The failure of a Key Employee,
Director or other individual to exercise a Stock Appreciation Right at
the time the related Option is exercised shall cause the Stock
Appreciation Right to laps.
<PAGE>
8.03 Appreciation Available: Each Stock Appreciation Right shall entitle a Key
Employee or Director to receive from the Company, upon exercise of the
Option to which it relates, an amount equal to the excess of the fair
market value of a share of the Company's Common Stock, determined at the
time the Option is exercised, over the Exercise Price of the related
Option.
8.04 Payment of Stock Appreciation: In the discretion of the committee, the
total payment to be made to the Key Employee, Director, or other
individual by reason of the exercise of Stock Appreciation Rights may be
made either in Common Stock or in cash, or partly in each. If paid in
cash, the amount of the payment shall be the excess of the Value of a
share of Common Stock, determined at the time the Option is exercised,
over the Exercise Price of the related Option, multiplied by the number
of Stock Appreciation Rights being exercised. If paid in Common Stock,
the number of shares of Common Stock to be issued shall be determined by
dividing the amount of cash that would have been paid if the payment had
been made in cash by the Value of a share of Common Stock on the date of
exercise, rounded up or down to the nearest whole share.
8.05 Limitations Upon Exercise of Stock Appreciation Rights: Key Employees,
Directors, and other individuals may exercise Stock Appreciation Rights
at and during the times and under the conditions under which Options may
be exercised under this Plan and only in conjunction with the exercise of
Options. In the event that adjustments are made to the terms of Options
pursuant to Section 9.01 hereof, comparable adjustments shall be made to
the terms of the Stock Appreciation Rights with which the Options are
associated.
8.06 Termination: Any termination, expiration, amendment or revision of the
terms of Options pursuant to Section 7.02, Article IX, or any other
termination, expiration, amendment or revision of the related Stock
Appreciation Rights.
ARTICLE IX
Restrictions and Additional Requirements
----------------------------------------
9.01 Adjustments Upon Changes in Capitalization: If the number of outstanding
shares of the Common Stock of the Company is increased or decreased, or
if the Common Stock of the Company underlying Options issued pursuant to
the provisions of this document is changed into or exchanged for a
different number or kind of shares or securities of the Company through a
reorganization, merger, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, upon authorization by the
Committee, an appropriate or proportionate adjustment shall be made in
the terms and conditions of all Options issued hereunder, including the
Exercise Price of each Option issued hereunder; provided, however, that
no such adjustment need be made if, upon the advice of counsel to the
Company, the Committee determines that any such adjustment could result
in the recognition of federal taxable income by holders of Options
granted hereunder, or by holders of Common Stock or other securities of
the Company.
<PAGE>
9.02 Reservation of Shares of Common Stock: The Company shall, at all times
during the term of existence of this Plan, reserve and keep available for
issuance to holder of Options a number of shares of its Common Stock
sufficient to satisfy all obligations of the Company hereunder.
9.03 Restrictions on Issuance of Shares: During the term of this Plan, the
Company shall use its best efforts to seek and to obtain from appropriate
regulatory agencies any requisite authorization in order to issue and
sell such number of shares of its Common Stock as shall be sufficient to
satisfy the obligation of the Company under this Plan. The inability of
the Company's legal counsel to the lawful issuance and sale of any shares
of the Company's Common Stock shall relieve the Company of any liability
for the nonissuance or sale of any Common Stock as to which the requisite
approval or authorization shall not have been obtained.
9.04 Representation and Warranties: As a condition to the exercise of any
Option granted under this Plan, the Committee may require the person
exercising such Option to make any representation or warranty to the
Company as legal counsel to the Company may determine to be required or
advisable under any applicable law or regulation, including without
limitation a representation and warranty that the shares of the Company's
Common Stock being acquired are being acquired only for investment and
without any present intention or view to sell or distribute any such
shares.
9.05 Employee Rights: While the Company expects to continue this Plan
throughout its entire term, neither the adoption nor the continuance of
this Plan shall create a contractual obligation of the Company. The
Company may terminate this Plan or discontinue or suspend the grant of
Options hereunder at any time. Adoption and continuation of the Plan is
purely voluntary on the part of the Company, and no provision of this
document shall be deemed to constitute consideration for or a condition
of the employment of any employee or of the service or status of any
Director or other individual. No provision of this document shall be
deemed to give to any employee, Director or other individual any rights
to be retained in the service of the Company, or to interfere in any way
with the right of the Company to discharge any employee or other
individual, or to remove any Director at any time. No employee, Director,
or other individual shall have any right or interest hereunder in any
Option or share of the Company's Common Stock prior to the grant of an
Option to such employee, Director or other individual. Upon the grant of
an Option, the Optionee shall have only such rights and interests as are
expressly provided herein or in an Option Agreement entered into pursuant
to Section 6.07 hereof.
<PAGE>
9.06 Amendment or Termination of Plan: The Board of Directors may amend,
suspend, and/or terminate this Plan at any time. No amendment, suspension
or termination hereof shall adversely affect Options granted on or prior
to the effective date of such amendment, suspension or termination
without the written consent of the Optionee, except as may be necessary,
in the judgement of counsel to the Company, to comply with any applicable
law.
9.07 Legends on Stock Certificates: Unless an appropriate registration
statement is on file and effective with appropriate federal, state and
local governmental authorities, each certificate representing Common
Stock of the Company issued pursuant to the exercise of an Option shall
be endorsed on its face with a legend similar to the following:
Neither the Option pursuant to which the shares represented by this
certificate are issued nor the shares represented hereby have been
registered with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, or with any state securities agency.
The transfer or sale of the shares represented hereby without appropriate
registration, or pursuant to an exemption from registration, is unlawful.
ARTICLE X
Miscellaneous Provisions
------------------------
10.01 Notices:
a. All notices, demands or request provided for or permitted to be given
pursuant hereto must be in writing. All notices, demands and requests
shall be deemed to have properly given or served when deposited in the
United States mail, addressed to the individual or entity to whom notice
is given, postage prepaid and registered or certified with return receipt
requested, at the last known address of such individual or entity.
b. By giving at least fifteen (15) days prior written notice, the Company
or an Optionee shall have the right from time to time and at any time
during the term of this Plan to change their addresses and to specify any
other address within the United States of America.
10.02 Titles and Captions: All Article and Section titles and captions in this
document are for convenience or reference only, and shall not be deemed
part of this document, and in no way define, limit, extend or describe
the scope or intent of any provisions hereof.
10.03 Pronouns and Plurals: Whenever the context may require, any pronoun
herein shall include the corresponding masculine, feminine or neuter
forms and the singular form of nouns, pronouns and verbs shall include
the plural an vice versa.
<PAGE>
10.04 Applicable Law: The Plan Document shall be construed in accordance with
and shall be governed by the laws of the State of Utah.
10.05 Binding Effect: This Plan document shall be binding upon each Optionee
and upon such Optionee's heirs, executors, administrators, successors,
legal representatives and assigns.
10.06 Creditors: None of the provisions of this document shall be for the
benefit of or shall be enforceable by any creditor of any Optionee.
10.07 Severability: In the event that any condition, covenant or other
provision herein contained is held to be invalid or void by any court of
competent jurisdiction, the same shall be deemed severable from the
remainder of this document and shall in no way affect any other covenant
or condition herein contained. If such condition, covenant or other
provision shall be deemed valid to the extent of the scope or breadth
permitted by law.
IN WITNESS WHEREOF, this document having been originally executed the 7th day of
January,1988, is hereby amended and restated effective the 19th of May, 1999.
MINING SERVICES INTERNATIONAL
CORPORATION, A Utah corporation
By__________________________________
Title_________________________________
Attest:
- ----------------------------------
Secretary
Mining Services International
Exhibit 21
List of Subsidiaries
<TABLE>
<CAPTION>
Name of Subsidiary Ownership %
------------------ -----------
<S> <C>
Nevada Chemicals, Inc., a Nevada Corporation 100%
o Cyanco, unincorporated joint venture of Nevada Chemicals, Inc., (50%
owned)
MSI International Holding Company, LTR, a Grand Cayman company 100%
o Turon-MSI Ltd., an Uzbekistan limited liability company (51% owned)
o West Africa Chemicals Limited, a Mauritius company (50% owned)
---- West Coast Explosives Ltd., a Ghanaian company, a wholly owned
subsidiary of West Africa Chemicals Limited
Central Asia Chemicals Limited (previously Turon-MSI Ltd.) a Grand Cayman company 100%
Cayman Mining Services Limited, a Grand Cayman company 50%
o Suministros y Servicios Mineros de Colombia, Ltda., a Colombian limited
liability company, a 99.999% subsidiary of Cayman Mining Services Ltd.
o Mining Capital Resources Ltd., a Grand Cayman company, a wholly owned
subsidiary of Cayman Mining Services Limited
MSI Russia Ltd., a Nevada limited liability company 100%
o Eastern Mining Services Ltd., a Russian limited liability company, a 50%
owned subsidiary of MSI Russia Ltd.,
O'Brien Design Associates, Inc., a Delaware Corporation 100%
Green Mountain Explosives, Inc., a Maine Corporation 100%
Tennessee Blasting Services, L.L.C., A Utah limited liability company 51%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY AS FILED IN ITS 10-K (ITEM 8) FOR THE YEAR
ENDED DECEMBER 31,1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 975,000
<SECURITIES> 0
<RECEIVABLES> 6,708,000
<ALLOWANCES> 103,000
<INVENTORY> 1,807,000
<CURRENT-ASSETS> 9,749,000
<PP&E> 16,373,000
<DEPRECIATION> 7,208,000
<TOTAL-ASSETS> 34,461,000
<CURRENT-LIABILITIES> 2,730,000
<BONDS> 4,475,000
0
0
<COMMON> 7,000
<OTHER-SE> 24,344,000
<TOTAL-LIABILITY-AND-EQUITY> 34,461,000
<SALES> 26,752,000
<TOTAL-REVENUES> 30,608,000
<CGS> 25,497,000
<TOTAL-COSTS> 29,195,000
<OTHER-EXPENSES> 2,622,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 190,000
<INCOME-PRETAX> (1,399,000)
<INCOME-TAX> (550,000)
<INCOME-CONTINUING> (849,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,599,000
<CHANGES> 0
<NET-INCOME> 725,000
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
CYANCO COMPANY
Financial Statements
December 31, 1999, 1998 and 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Joint Venture Participants
of Cyanco Company
We have audited the accompanying balance sheet of Cyanco Company as of December
31, 1999 and 1998, and the related statements of income, joint venture capital,
and cash flows for the years ended December 31, 1999, 1998 and 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cyanco Company as of December
31, 1999 and 1998, and the results of its operations and its cash flows for the
years ended December 31, 1999 and 1998 and 1997, in conformity with generally
accepted accounting principles.
TANNER+CO.
Salt Lake City, Utah
January 25, 2000
<PAGE>
<TABLE>
<CAPTION>
CYANCO COMPANY
Balance Sheet
(In Thousands)
December 31,
- ----------------------------------------------------------------------------------------------------------
1999 1998
-----------------------------------
Assets
------
<S> <C> <C>
Current assets:
Cash $ 1,389 $ 2,183
Accounts receivable 1,317 2,436
Inventories 935 1,014
Prepaid expenses 103 174
-----------------------------------
Total current assets 3,744 5,807
Property, plant and equipment, net 18,288 19,114
Other assets, net 560 601
-----------------------------------
$ 22,592 $ 25,522
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Joint Venture Capital
-------------------------------------
Current liabilities - accounts payable and accrued expenses $ 1,102 $ 1,398
-----------------------------------
Deferred royalty - 2,422
-----------------------------------
Commitments and contingencies - -
Joint venture capital 21,490 21,702
-----------------------------------
$ 22,592 $ 25,522
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CYANCO COMPANY
Statement of Income
(In Thousands)
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $ 19,209 $ 27,141 $ 31,596
Other 137 104 242
-----------------------------------------------------
19,346 27,245 31,838
-----------------------------------------------------
Costs and expenses:
Cost of sales 12,621 16,498 17,791
General and administrative 1,359 1,641 1,765
-----------------------------------------------------
13,980 18,139 19,556
-----------------------------------------------------
Income before
extraordinary income 5,366 9,106 12,282
Extraordinary income - gain on
forgiveness of debt 2,422 - -
-----------------------------------------------------
Net income $ 7,788 $ 9,106 $ 12,282
-----------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CYANCO COMPANY
Statement of Joint Venture Capital
(In Thousands)
Years Ended December 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------
Nevada
Chemicals, Degussa
Inc. Corp. Total
-----------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1997 $ 10,077 $ 10,216 $ 20,293
Distributions (5,000) (5,000) (10,000)
Net income 6,141 6,141 12,282
-----------------------------------------------------
Balance at December 31, 1997 11,218 11,357 22,575
Distributions (5,000) (5,000) (10,000)
Capital contributions 21 - 21
Net income 4,553 4,553 9,106
-----------------------------------------------------
Balance at December 31, 1998 10,792 10,910 21,702
Distributions (4,000) (4,000) (8,000)
Extraordinary income 2,422 - 2,422
Income before extraordinary item 2,683 2,683 5,366
-----------------------------------------------------
Balance at December 31, 1999 $ 11,897 $ 9,593 $ 21,490
-----------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CYANCO COMPANY
Statement of Cash Flows
(In Thousands)
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,788 $ 9,106 $ 12,282
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 941 1,188 1,441
Gain on disposal of equipment (5) - 1
Gain on forgiveness of debt (2,422) - -
(Increase) decrease in:
Accounts receivable 1,119 (15) 906
Inventories 79 (76) (55)
Prepaid expenses 71 66 18
Decrease in accounts payable
and accrued expenses (296) (705) (1,370)
----------------------------------------------
Net cash provided by
operating activities 7,275 9,564 13,223
----------------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (88) (310) (3,106)
Decrease in other assets 19 - 61
----------------------------------------------
Net cash used in
investing activities (69) (310) (3,045)
----------------------------------------------
Cash flows from financing activities-
distributions to joint venture
participants (8,000) (10,000) (10,000)
----------------------------------------------
Net (decrease) increase in cash (794) (746) 178
Cash, beginning of year 2,183 2,929 2,751
----------------------------------------------
Cash, end of year $ 1,389 $ 2,183 $ 2,929
----------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
4
</TABLE>
<PAGE>
CYANCO COMPANY
Notes to Financial Statements
(In Thousands)
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
Organization
Cyanco Company (the Company) is the owner and operator of a liquid sodium
cyanide manufacturing facility located in Humboldt County, Nevada. The Company
operates within the mining industry.
The Company is a non-corporate joint venture. Nevada Chemicals, Inc. (Nevada
Chemicals), a wholly-owned subsidiary of Mining Services International
Corporation (MSI) owns a 50 percent interest in the joint venture, and Degussa
Corporation (Degussa) owns a 50 percent interest in the joint venture.
The joint venture agreement also provides that each party has a first right of
refusal to purchase the other party's interest in the event of withdrawal of one
of the parties.
Cash Equivalents
For purposes of the statement of cash flows, cash includes all cash and
investments with original maturities to the Company of three months or less.
Inventories
Inventories are recorded at the lower of cost or market, cost being determined
on a first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated
depreciation. Depreciation on property, plant and equipment, other than the
sodium cyanide plant, is determined using the straight-line method over the
estimated useful lives of the assets. Depreciation on the sodium cyanide plant
is determined using the units-of-production method. Expenditures for maintenance
and repairs are expensed when incurred and betterments are capitalized. Gains
and losses on sale of property, plant and equipment are reflected in current
operations.
- --------------------------------------------------------------------------------
5
<PAGE>
CYANCO COMPANY
Notes to Financial Statements
(In Thousands)
Continued
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies Continued
Other Assets
Included in other assets are amounts relating to a payment for the license of
certain technology and deferred costs associated with the sodium cyanide
manufacturing facility. Amortization of these costs is determined using the
units-of-production method. Amortization expense of other assets totaled $22,
$29, and $47, in 1999, 1998, and 1997, respectively.
Revenue Recognition
Revenue is recognized upon shipment of the product.
Income Taxes
The joint venture is not subject to federal income taxes since all income tax
effects accrue directly to the joint venture participants.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. The Company has a
distribution agreement with Degussa, which requires Degussa to indemnify the
Company against any credit risk from receivables.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such account and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
The Company's customer base consists primarily of mining companies in the
Western United States. Although the Company is directly affected by the
well-being of the mining industry, management does not believe significant
credit risk exists at December 31, 1999.
- --------------------------------------------------------------------------------
6
<PAGE>
CYANCO COMPANY
Notes to Financial Statements
(In Thousands)
Continued
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies Continued
Use of Estimates in the Preparation of Financial Statements The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassification
Certain amounts in the prior years financial statements have been reclassified
to conform with the current year presentation.
2. Detail of Certain Balance Sheet Accounts
December 31,
------------------------------------
1999 1998
------------------------------------
Inventories:
Raw materials $ 703 $ 822
Finished goods 232 192
------------------------------------
$ 935 $ 1,014
------------------------------------
Accounts payable and accrued expenses:
Trade payables $ 832 $ 1,050
Accrued expenses 270 278
Due to joint venture participants - 70
------------------------------------
$ 1,102 $ 1,398
------------------------------------
- --------------------------------------------------------------------------------
7
<PAGE>
CYANCO COMPANY
Notes to Financial Statements
(In Thousands)
Continued
- --------------------------------------------------------------------------------
3. Property, Plant and Equipment
Property, plant and equipment is comprised of the following:
December 31,
-----------------------------------
1999 1998
-----------------------------------
Plant $ 25,470 $ 25,438
Machinery and equipment 1,679 1,702
Land 463 463
Vehicles 333 286
Office equipment and fixtures 191 186
Construction in progress 17 17
-----------------------------------
28,153 28,092
Less accumulated depreciation
and amortization (9,865) (8,978)
-----------------------------------
$ 18,288 $ 19,114
-----------------------------------
4. Bank Line-of-Credit
The Company had a bank line-of-credit agreement which allowed the Company to
borrow a maximum amount of $7,000,000 at an interest rate equal to the bank's
LIBOR plus .5%. The line-of-credit matured during 1999, was secured by
guarantees from Degussa and MSI and had no outstanding balance at December 31,
1998. The line-of-credit was not renewed during 1999.
- --------------------------------------------------------------------------------
8
<PAGE>
CYANCO COMPANY
Notes to Financial Statements
(In Thousands)
Continued
- --------------------------------------------------------------------------------
5. Deferred Royalty
The Company has a royalty agreement which calls for the Company to pay a royalty
on the first 28,000,000 pounds of sodium cyanide produced in the original plant.
The royalty is computed as one-half cent per pound for each pound of sodium
cyanide sold on annual gross sales above $12,500 and less than $15,000 and one
cent per pound for each pound of sodium cyanide sold on annual gross sales above
$15,000. The Company has the option to buy out the royalty agreement at any time
for $2,500 (the initial amount of the royalty agreement) less royalties
previously paid. The Company's joint venture agreement provides for payments
made under the royalty agreement to be specifically allocated to Nevada
Chemicals as a reduction of their allocable income or distribution of assets
upon dissolution or sale of the Company.
Effective December 31, 1999, the Company settled the deferred royalty and
recognized a gain from forgiveness of debt of approximately $2,422.
- --------------------------------------------------------------------------------
9
<PAGE>
CYANCO COMPANY
Notes to Financial Statements
(In Thousands)
Continued
- --------------------------------------------------------------------------------
6. Related Party Transactions
Related party transactions consist of the following (in thousands):
Years Ended December 31,
----------------------------------------------
1999 1998 1997
----------------------------------------------
Sales to a joint venture
partner (see note 7) $ 19,209 $ 27,141 $ 31,596
Raw materials purchased
from a joint venture partner $ - $ - $ 568
Management fees, cost
reimbursements and other
fees paid to the joint venture
partners included in selling,
general and administrative
expenses $ 574 $ 820 $ 948
Amounts payable to a joint
venture partner included in
payables $ - $ 70 $ 62
Lease payment to a joint
venture partner $ 37 $ 53 $ 62
7. Distribution Agreement
The Company has entered into an agreement with Degussa which provides for
Degussa to act as the exclusive (with certain exceptions) distributor of the
Company's products.
Consequently, substantially all of the Company's revenues and trade receivables
are from Degussa. The agreement expires on May 23, 2000, but may be renewed for
subsequent terms subject to approval of both of the joint venture partners.
- --------------------------------------------------------------------------------
10
<PAGE>
CYANCO COMPANY
Notes to Financial Statements
(In Thousands)
Continued
- --------------------------------------------------------------------------------
8. Profit Sharing Plan
The Company has adopted a defined contribution profit sharing plan which
qualifies under Section 401(K) of the Internal Revenue Code. The plan provides
retirement benefits for employees meeting minimum age and service requirements.
Participants may contribute up to 20 percent of their gross wages, subject to
certain limitations. The Company made contributions of $24, $28, and $33, during
1999, 1998 and 1997, respectively.
9. Supplemental Cash Flow Information
No amounts were paid for interest during the years ended December 31, 1999, 1998
and 1997.
During the year ended December 31, 1998, the Company reduced its deferred
royalty and increased its joint venture capital for royalty payments made by
Nevada Chemicals Inc., of $21.
10. Fair Value of Financial Instruments
The Company's financial instruments consist of cash, receivables and payables.
The carrying amount of cash, receivables and payables approximates fair value
because of the short-term nature of these items.
11. Commitments and Contingencies
The Company provides medical benefits for its employees under a plan which is
partially self-funded by the Company.
- --------------------------------------------------------------------------------
11
