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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 0-6202-2
NORD RESOURCES CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 85-0212139
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8150 Washington Village Dr. Dayton, Ohio 45458
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 433-6307
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par New York Stock Exchange
value $.01 per share
Securities registered pursuant to Section 12 (g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark 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. [ X ]
Aggregate market value of voting stock held by non-affiliates, based on the
closing price of $2.00 as of March 25, 1996, was $31,363,000.
The number of shares of Common Stock outstanding as of March 25, 1996 was
15,838,408.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement to be dated April 16, 1996 (Part III).
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PART I
ITEM 1. BUSINESS
GENERAL
Nord Resources Corporation ("Company") is a company engaged in the mining
and processing of industrial minerals - kaolin and titanium dioxide (rutile and
ilmenite) - and the production of kaolin-based pigments (Norplex-Registered
Trademark-). The Company owns an 80% interest in the kaolin operation and a 50%
interest in the titanium dioxide operation. The Company's investments include
35% ownership of Nord Pacific Limited ("Pacific"), a company engaged in the
exploration of precious metal, base metal and strategic mineral properties and
in the production of copper.
In January 1995, the mining location of the titanium dioxide operation
("SRL") in Sierra Leone, West Africa was attacked by non-government forces. As
a result of concern for the safety of SRL's employees, the minesite was
evacuated. Mining operations continue to be suspended as safety cannot be
assured for personnel in and around the minesite. The Company and its 50%
joint venture partner are evaluating the future of the mining operation,
including political, military and security situations in Sierra Leone and the
potential cost and the amount and availability of funds necessary to resume
operations. SRL employees have made limited inspections of the SRL facilities
and report that significant looting and damage to certain assets has occurred,
primarily foodstores, furniture and fixtures, small vehicles, housing and office
buildings. The reports indicate that SRL's major assets remain substantially
intact, but it is certain that major restoration efforts will be required to
repair much of the equipment which has been idle and virtually unattended for
over a year. During 1995 the Company recorded an impairment reserve of
$3,000,000 for its 50% share of the estimated damage identified to date. Until
security at the mine improves and SRL is able to perform a thorough assessment
of the production facilities, it cannot determine the costs it will ultimately
incur to reestablish operations, including the cost of replacing supplies,
training its work-force and recommissioning the facilities. The Company will
likely record an additional impairment reserve as more information becomes
available. If security in and around the SRL operations is not attainable, the
estimated costs of resuming SRL's operations in Sierra Leone are prohibitive or
SRL is not able to obtain adequate financing, the Company may have to record an
impairment reserve against a significant portion or possibly all of its
investment in SRL, which is carried at $63.5 million at December 31, 1995. As a
result of the suspension of operations, SRL is in violation of certain covenants
contained in its bank financing agreements. The total amount due from SRL to
the lenders at December 31, 1995 is $47 million, payment of 50% of which is
guaranteed by the Company. The lenders have agreed to a forebearance on payment
of amounts due under these agreements through January 1, 1997, at which time
deferred payments of $15,006,000 ($7,503,000 as the Company's 50% share) will be
due from SRL to the lenders. The Company cannot project the willingness of the
lenders to continue to provide modifications to the terms of the financing
agreements which may be necessary beyond January 1, 1997. The Company carried
certain levels of insurance against certain political risks, as is further
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discussed under the heading "Political and Other Risks" of this Form 10-K.
Financial information with respect to each of the Company's industry
segments and foreign and domestic operations is presented in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note T - Industry Segments and Note C - SRL of "Notes to Financial Statements"
of this Form 10-K.
KAOLIN
GENERAL
The Company is engaged in the mining and processing of kaolin and
production of kaolin-based pigments (Norplex-Registered Trademark-) in
Jeffersonville, Ga., through Nord Kaolin Company ("NKC"). Since the acquisition
of the kaolin operation in January 1978, NKC has expanded and modernized the
production facilities to enhance the production capability for products that are
used as coating or filling pigments by the paper industry. NKC's annual
production capacity for these "conventional type" products has increased from
100,000 tons in 1978 to 310,000 tons currently. Through 1990, NKC's sales
consisted almost exclusively of these "conventional type" products which carry
relatively low per ton prices and profit margins.
During 1985, NKC embarked on a research program to evaluate new products
directed toward enhancing profit margins and strengthening its competitive
position in the market. The research efforts resulted in the development of
Norplex-Registered Trademark- products, which are high-bulking composite
pigments made from kaolin and other minerals. These composite pigments can be
custom designed to meet specific needs of the paper industry, such as increased
paper opacity and brightness, often at reduced cost. The ability to custom
design a pigment for a particular application or even for a particular customer
is unique. It is important because, for example, a filler pigment used in
newsprint is different than one used in copy paper or lightweight publication
grades. In another example, a coating pigment for packaging board is different
than that used for magazine paper. Each segment of the paper industry has its
own individual needs. Certain of these needs can be satisfied by supplying
high-bulking composite pigments such as Norplex-Registered Trademark-.
Norplex-Registered Trademark- products are produced using an evolving technology
which can create products to meet specific customer requirements at various
prices and profit margins for NKC.
In 1987, a decision was made to proceed with a capital expansion program to
enhance the cost effectiveness of the current plant facilities and to establish
new facilities for the production of Norplex-Registered Trademark-. A program
began in 1988 to expand production capacity and to enable NKC to produce
Norplex-Registered Trademark- and another kaolin based product (calcined clay -
Norcal-Registered Trademark-). In connection with the expansion, NKC expended
$23.8 million and entered into leasing arrangements for an additional $17.6
million of equipment.
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Production of Norplex-Registered Trademark- commenced during the first
quarter of 1990 and was used primarily in customer trials. Sales of
Norplex-Registered Trademark- products occurred on a limited basis through 1992,
as the rigorous and lengthy evaluation by the paper industry and the severe
negative pressures on the economy due to the recession caused a delay in market
penetration of Norplex-Registered Trademark- products. Sales of
Norplex-Registered Trademark- products began increasing in 1993, with this trend
continuing into 1994 and during the first half of 1995, although at a slower
pace than in 1993 and 1994. However, in the second half of 1995 and especially
during the fourth quarter, fewer tons of Norplex-Registered Trademark- products
were sold compared to 1994. NKC believes this decline was due primarily to
inventory corrections by the paper manufacturers as a result of a temporary
decline in demand for their products. During the early part of 1996, sales
levels of Norplex-Registered Trademark- products improved over second half of
1995 levels and NKC is hopeful that this trend will continue during the
remainder of 1996, although it cannot predict the risk of other changes in
product demand from its customers. A number of paper companies are now
purchasing Norplex-Registered Trademark- products on a regular basis. In
addition, production trialing of various Norplex-Registered Trademark- products
at a number of potential customers' locations indicates continued interest in
market acceptance of Norplex-Registered Trademark-.
NKC has an ongoing program for development of new kaolin-based pigments for
the paper industry and potentially other industries. Recent developments
include the introduction of Norplex-Registered Trademark- products which can be
used as a primary opacifying and brightening pigment in newsprint-type papers.
In addition, a kaolin-based product has been developed for use in the paper
recycling industry to remove certain impurities in recycled paper.
NKC's operations are subject to local and environmental regulations which
require among other things, reclamation of mined areas, purification of
production waste water and maintenance of dust emission control. The Company
believes that NKC's mining and production operations comply with applicable
local and environmental laws.
RESERVES
NKC owns and leases land with crude kaolin reserves and owns mineral rights
to additional reserves, all located within 35 miles of the Jeffersonville
facility. Estimated recoverable crude kaolin reserves as of December 31, 1995
are 31 million tons. Considering the mining and processing recovery rates
associated with current and future product mix, emphasizing Norplex-Registered
Trademark- and Norcal-Registered Trademark- products, total reserves constitute
over a 25 year supply of kaolin feedstock. Substantially all reserves held
under existing leases are anticipated to be mined prior to expiration of lease
terms. NKC continues to seek new reserves in the Jeffersonville area, although
it faces heavy competition for such reserves from other large kaolin producers.
The estimated recoverable reserves have been prepared by employees of NKC and
have not been independently verified since 1989. During 1995, NKC purchased 45%
of its crude ore requirements from one source. This enables NKC to further
extend its owned or leased reserves available for the production of conventional
type products. NKC anticipates that this source of crude ore will continue to
be available for purchase for at least the next 2-4 years.
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LICENSES AND TRADEMARKS
Norplex-Registered Trademark- is registered as a Federal Trademark, which
registration will expire in 2000 but can be renewed with the proper application.
Norcal-Registered Trademark- received registration as a Federal Trademark in
1993.
NKC has entered into a license agreement to produce and sell products
produced using the Norplex -Registered Trademark- technology. The license
extends through June 1998, with NKC having an option to extend the license for
two successive five year periods. The license allows NKC exclusive rights
through 1999, with a five year extension of exclusive rights available to NKC if
certain levels of Norplex-Registered Trademark- product revenues are attained.
The license agreement requires payment of an annual royalty of 1.5% on
Norplex-Registered Trademark- product revenues up to $60 million and 2% on any
Norplex-Registered Trademark- product revenues in excess of $60 million. NKC is
required to pay minimum monthly royalties of approximately $35,100, adjusted
annually by the change in the United States Bureau of Labor Statistics Consumer
Price Index. NKC may terminate the license agreement upon 30 days notice to the
licensor.
SALES AND COMPETITION
Substantially all of NKC's production of conventional kaolin,
Norcal-Registered Trademark- and Norplex-Registered Trademark- products are
sold to the paper manufacturing industry. To the best of NKC's knowledge, there
are no take or pay long-term contracts between a supplier of kaolin and a paper
manufacturer. However, there are signed letters of intent regarding annual
kaolin requirements. Sales are made in response to current orders at
competitive prices. This lack of long-term contracts subjects NKC to reduction
of orders based on general economic conditions. Any material reduction in
orders or the loss of a significant customer would have a material adverse
effect on the results of operations. Following is a summary of tons sold by NKC
(in 000's).
Year Ended December 31
----------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Conventional 150 180 161
Norcal-Registered Trademark- 10 19 18
Norplex-Registered Trademark- 26 29 22
--- --- ---
TOTAL 186 228 201
--- --- ---
--- --- ---
</TABLE>
NKC's revenues in 1995 include sales to three customers in excess of 10% of
the
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Company's Revenues. NKC has had a long-term relationship with these customers
and although there is no indication the current relationships are likely to
change, in the event any of these customers are lost or significantly reduce
their orders, such loss or significant reduction could have a material adverse
effect upon the financial condition and results of operations of the Company.
During 1995, 97% of sales were to domestic customers and 3% were for export,
compared to 96% domestic and 4% export in 1994 and 92% domestic and 8% export in
1993.
Paper used in magazines, annual reports, advertising brochures and similar
publications using glossy paper frequently contains a significant amount of
kaolin, yet kaolin represents only a modest percentage of the cost of the paper.
The Company is not aware of any commercial substitute for kaolin in the coating
applications of paper; however, because a number of paper manufacturers have
converted to the alkaline process, calcium carbonate can be substituted for
kaolin in certain filling applications and potentially substituted in some
coating applications. The Company believes that the paper industry will continue
to use kaolin in the production of paper to the maximum extent possible.
However, consumption of paper products in which kaolin is primarily used is
sensitive to general economic conditions and paper and kaolin production could
decline in periods of recession or economic difficulty.
NKC's competitors, all located in middle Georgia, have production capacity
for conventional type products several times that of NKC. The Company believes
that excess capacity of kaolin producers and conversion by paper manufacturers
to the alkaline process for production of certain grades of paper have had a
negative impact on NKC's conventional type product prices and sales volume in
the last five years.
The Company believes that NKC is presently the only company in its industry
which is selling a significant amount of Norplex-Registered Trademark- type
products to the paper industry. Certain Norplex-Registered Trademark- products
are marketed to customers for use in coating and filling applications that
require high opacity pigments. While there are companies with greater market
maturity with products, such as titanium dioxide pigments, in direct competition
with these Norplex-Registered Trademark- products, the Company believes the
Norplex-Registered Trademark- products have performance and cost advantages that
will result in continued market penetration and sales to the paper industry.
EMPLOYEES
At December 31, 1995, NKC employed a total of 156 persons, including 61
salaried personnel and 95 hourly employees. The mining and manufacturing
employees are represented by the United Paperworkers International Union under a
contract which expires in November 1996. The Jeffersonville facility has not
been the subject of a strike or labor disturbance and NKC considers its labor
relations to be satisfactory.
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RUTILE
GENERAL
On November 17, 1993 the Company sold a 50% interest in its rutile
operations to Consolidated Rutile Limited, an Australian company. The data
contained in the following discussion relate to 100% of these rutile operations.
Sierra Rutile Limited ("SRL") was established to mine and process titanium
dioxide minerals (rutile and ilmenite) in Sierra Leone, West Africa and to
market these products. Both rutile and ilmenite are used in the production of
more highly concentrated titanium dioxide, which is used as a pigment in the
manufacture of paint and many types of paper and plastic products. Titanium
dioxide is also used in the production of fiberglass, enamels and coated
fabrics. Rutile is used to a lesser extent in welding rod electrode coatings
and in the production of titanium metal.
SRL has leased from the government of Sierra Leone a total of 224 square
miles until the year 2009, when the lease is subject to a renewal option of
fifteen years on terms to be established at the time of renewal.
In January 1995, the mining location of the titanium dioxide operation
("SRL") in Sierra Leone, West Africa was attacked by non-government forces. As
a result of concern for the safety of SRL's employees, the minesite was
evacuated. Mining operations continue to be suspended as safety cannot be
assured for personnel in and around the minesite. The Company and its 50%
joint venture partner are evaluating the future of the mining operation,
including political, military and security situations in Sierra Leone and the
potential cost and the amount and availability of funds necessary to resume
operations. SRL employees have made limited inspections of the SRL facilities
and report that significant looting and damage to certain assets has occurred,
primarily foodstores, furniture and fixtures, small vehicles, housing and office
buildings. The reports indicate that SRL's major assets remain substantially
intact, but it is certain that major restoration efforts will be required to
repair much of the equipment which has been idle and virtually unattended for
over a year. During 1995 the Company recorded an impairment reserve of
$3,000,000 for its 50% share of the estimated damage identified to date. Until
security at the mine improves and SRL is able to perform a thorough assessment
of the production facilities, it cannot determine the costs it will ultimately
incur to reestablish operations, including the cost of replacing supplies,
training its work-force and recommissioning the facilities. The Company will
likely record an additional impairment reserve as more information becomes
available. If security in and around the SRL operations is not attainable, the
estimated costs of resuming of SRL's operations in Sierra Leone are prohibitive
or SRL is not able to obtain adequate financing, the Company may have to record
an impairment reserve against a significant portion or possibly all of its
investment in SRL, which is carried at $63.5 million at December 31, 1995. As a
result of the suspension of operations, SRL is in violation of certain covenants
contained in its bank financing agreements. The total amount due from SRL to
the lenders at December 31,
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1995 is $47 million, payment of 50% of which is guaranteed by the Company. The
lenders have agreed to a forebearance on payment of amounts due under these
agreements through January 1, 1997, at which time deferred payments of
$15,006,000 ($7,503,000 as the Company's 50% share) will be due from SRL to the
lenders. The Company cannot project the willingness of the lenders to continue
to provide modifications to the terms of the financing agreements which may be
necessary beyond January 1, 1997. The Company carried certain levels of
insurance against certain political risks, as is further discussed under the
heading "Political and Other Risks" of this Form 10-K.
PRODUCTION FACILITIES
SRL's production facilities include a bucket-ladder dredge equipped with 68
buckets, each with a capacity of 28 cubic feet. The average digging rate of the
bucket-ladder dredge under good conditions is about 1,100 metric tonnes
("tonnes":2,204.6 pounds) per hour. Production from this dredge totaled 8.4
million tonnes of crude ore in 1994 from which 138,000 tonnes of rutile was
produced. Additional production capacity is available through use of a smaller,
bucket-wheel dredge, with an annual digging rate under good conditions of about
500 tonnes per hour. This dredge last operated in 1993. Annual production is
dependent on the ore grade and other recovery factors inherent in the deposits,
as well as down time for maintenance and equipment installation.
The concentrating of the crude ore, which has a titanium dioxide content of
between 1.5% and 2.0%, begins on the bucket-ladder dredge. The first stages of
processing consist of primary and secondary scrubbing and two stages of
screening. The bucket-wheel dredge pumps reclaimed ore to a supplemental wet
processing plant where primary and secondary scrubbing and two stage screening
are also carried out. The screened material, containing 2.7% to 3.0% titanium
dioxide, is then pumped to the floating wet plant where slimes are removed by
cyclones. The cyclone discharge, consisting of screened, deslimed sand
containing about 4% titanium dioxide is then pumped to the concentrating
section, consisting of banks of spiral separators. These increase the titanium
dioxide content of this wet semi-concentrate to about 50%, which is pumped to
shore for dewatering. From there it is transported by truck to the table plant
where shaking tables are used to concentrate the material to a grade of about
60% titanium dioxide. This material is then fed to the dry plant where,
following drying to less than 0.1% moisture, electrostatic and magnetic
separation complete the process, producing a final rutile product containing
about 96% titanium dioxide and an ilmenite by-product containing about 64%
titanium dioxide.
During 1993, SRL began a production expansion and facilities improvement
program, primarily the construction of a third dredge and a new power generating
facility. The dredge was expected to cost $30 million and have expected annual
production capacity of over 100,000 tonnes of finished rutile product while
mining in the Gangama ore body, where it was to initially begin production.
The new power generating facility, consisting of two 5 megawatt diesel
generators which have been delivered to the minesite in Sierra Leone, was
initially expected to be on-line in mid-1995. The power generated by this
facility was anticipated to be available to the third dredge, as described
above, and to
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supplement the existing power generating equipment. Initial reports from
limited minesite inspections indicate that these assets remain substantially
intact; however, it is likely that deterioration in their mechanical components
has occurred. The Company is not able to determine when these two facilities
will be operational or the amount of additional cost which will be required to
complete construction.
Other physical assets of SRL include support plant and equipment including
a power plant, workshops, tugs, barges, concentrate loading facilities,
administrative buildings and a "company town" of furnished homes for senior and
intermediate staff. Reports indicate that significant looting and damage has
occurred to foodstores, furniture and fixtures, small vehicles, housing and
office buildings.
RESERVES
Based on drill hole testing and geological analysis carried out by
SRL personnel in 1993 and revised for amounts extracted in 1994, proven reserves
as of December 31, 1994 were 271,585,000 tonnes of ore, averaging 1.48%
recoverable rutile in the size ranges from which recovery is possible, which
computes to 4,006,000 tonnes of recoverable rutile. Minimal production occurred
during 1995 prior to suspension of operations. An update of the reserve
estimates was not practical and the reserve estimate at December 31, 1995 is
believed to reasonably approximate the estimates at December 31, 1994, which are
disclosed below. Actual recovery has steadily improved and is now estimated at
80% of recoverable rutile, or about 3,200,000 tonnes. SRL's estimate of ore
reserves as of December 31, 1991 were reviewed and verified by independent
consulting geologists in early 1993. The data below are derived directly
therefrom. Reserves are located in five separate deposits. The five areas, the
tonnes of crude ore they contain and recoverable rutile grade and tonnes are as
follows (tonnes in 000's):
<TABLE>
<CAPTION>
CRUDE RECOVERABLE RUTILE
ORE ------------------
DEPOSIT TONNES GRADE TONNES
- ------- ------ ----- ------
<S> <C> <C> <C>
LANTI NORTH 22,147 1.93% 428
LANTI SOUTH 55,644 1.74% 968
GBENI 33,381 1.61% 537
GANGAMA 22,011 1.75% 385
SEMBEHUN 138,402 1.22% 1,688
------- -----
271,585 1.48% 4,006
------- -----
------- -----
</TABLE>
SRL believes that additional exploration in the lease areas, or in
other nearby areas for which exploration concessions may be obtained and in
which there are indications of rutile mineralization, may identify additional
reserves. The reserves at Sembehun are located in the Northern portion of SRL's
mining concession, which is approximately 15 miles from the present plant
location and the other 4 deposits. The mining operations in
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1995 were exclusively in the Lanti North deposit, which is adjacent to the Lanti
South and Gbeni deposits. The dredge presently under construction is expected
to initially operate in the Gangama deposit.
SALES AND COMPETITION
Following is a summary of sales for SRL:
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Tonnes Sold (in 000's):
Rutile 8 152 144
Ilmenite --- 53 65
Geographical Location of Customers
(% of Revenues):
Rutile:
U.S. --- 41% 57%
Non-U.S. 100% 59% 43%
Ilmenite - U.S. --- 100% 100%
The potential customers for SRL's products consist primarily of six major
companies, five of which were customers of SRL in 1994 (the last full year of
operation). All of SRL's major customers in 1994 have been long time customers
and all currently have long-term supply agreements with SRL, which are
periodically subject to renewal. The supply agreements generally provide for a
fixed rutile tonnage that each customer is expected to purchase. Historically,
each of the customers has purchased at least the minimum amounts required in
their respective sales agreements. Although there is no indication that the
current relationships with these customers is likely to change, in the event a
major customer is lost or significantly reduces its orders, such loss or
significant reduction could have a material adverse effect upon the financial
condition and results of operations of the Company. As long as operations at
the mine are suspended for reasons beyond the control of SRL, it will not be
able to deliver the contracted amounts of rutile to its customers. These missed
deliveries have been cancelled by SRL, due to force majeure.
The two principal minerals mined by titanium raw material producers are
natural rutile
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(concentrated to 93% to 96% titanium dioxide) and ilmenite (concentrated to
between 40% and 70% titanium dioxide, with an accompanying high iron content).
SRL had been one of the world's largest producers of natural rutile, accounting
for about 25% of the total. About 60% of the world's total was produced by
companies in Australia, some of whom have greater financial resources than SRL,
and about 15% was produced in South Africa. Minor production comes from the
United States, India and Sri Lanka and nominal amounts from other sources.
The world's known reserves of natural rutile are not sufficient to supply
the world's raw material need for high titanium dioxide raw materials required
for pigment. As a result, processes have been developed to upgrade ilmenite to
provide high-content titanium dioxide substitutes known as "slag" and
"synthetic" rutile, containing 85% - 92% or more titanium dioxide. However,
since natural rutile remains a higher grade raw material source and contains
less waste, it continues to be the preferred feedstock for the production of
paint pigment. Any significant improvement in the economics of upgrading lower
grade titanium minerals to higher grade titanium products other than "slag" and
"synthetic rutile" could adversely affect SRL's competitive position.
Prior to suspension of operations SRL had begun a program to increase
annual production to about 190,000 tonnes of natural rutile concentrate, which
would represent about 30% of the world's annual production. However as
previously noted, the timing and cost of the expansion has been adversely
affected by the suspension of mining operations.
EMPLOYEES
As a result of the suspension of mining operations in Sierra Leone, SRL
terminated all of its personnel in 1995 except for a core staff of about 30
senior expatriates and Sierra Leone nationals. SRL has historically been one of
Sierra Leone's largest private employers.
POLITICAL AND OTHER RISKS
Sierra Leone is an independent republic on the West African coast. A
former British colony, it is pro-western and retains ties to Great Britain
through its membership in the Commonwealth. The economy of Sierra Leone has
been based largely on agriculture, fishing and the mining of rutile, bauxite,
gold and diamonds.
During most of 1995 Sierra Leone was in a general state of civil unrest,
including military actions by non-government forces, which resulted in the
suspension of operations at the SRL mine and at a bauxite mine, located 10 miles
from SRL's mine. The Sierra Leone government has hired military assistance to
provide aide in responding to rebel incursions throughout the country. The
government has succeeded in establishing control over most of the areas in and
around the major cities in Sierra Leone, but travel on many rural roads
continues to be dangerous. Government forces and military assistants have
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established an operations base at the SRL mine and from that base are attempting
to establish security in areas around the mine. During February 1996, the
government and rebels began discussions to resolve disputes and restore peace to
Sierra Leone, although neither the Company nor SRL is able to estimate when
political conditions in Sierra Leone will stabilize.
Sierra Leone's former one-party government was overthrown in late May 1992
by a group of young military officers, headed by Captain Valentine Strasser.
The new ruling body was known as the National Provincial Ruling Council. In
January 1996, Captain Strasser was deposed as president and was replaced by
Brigadier General Julius Maada Bio, Chief of Defense Staff. In late February
and early March 1996, for the first time in almost 20 years, democratic
elections were held in Sierra Leone to elect a civilian government, including a
president and parliamentary representatives. In the first round of balloting,
none of the nominees from the 13 political parties received the required 55%
vote to be elected president. As required by law, a second vote was held with
only the two nominees who received the highest number of votes in the first
round on the ballot. In the second vote, Ahmad Tejan Kabba, an attorney who
worked in East Africa and New York for the United Nations Development Program,
was elected president on March 15, 1996. SRL representatives intend to discuss
various aspects of the process to resume operations at the mine with the newly-
elected governmental officials in the near future. Throughout the civil unrest
in Sierra Leone, the government has worked closely with the International
Monetary Fund ("IMF") and currently has an IMF Structural Adjustment Program in
place, the objective of which is to help strengthen the economy. The government
is receiving considerable economic support from multi-lateral international
agencies including the World Bank, the European Economic Community and the IMF.
Under the current Agreement between SRL and the Government of Sierra Leone,
the Government has an option to purchase a 47% ownership interest in SRL on or
after January 1, 2000 at a purchase price of $57.4 million. Both shareholders
of SRL would sell equal interests in SRL if this purchase option is exercised.
Under the agreement, SRL continues to maintain its currency outside of Sierra
Leone and will not be subject to withholding tax on any shareholder dividend
payments until the year 2000, after which the Government has the right to impose
a 10% withholding tax on dividends. The Agreement also defines the rate at
which income tax, royalty and mining lease payments are to be made by SRL.
As Sierra Leone is a third-world country, the Company's investment in SRL
is subject, at any time, to the potentially volatile effects of political
instability and economic uncertainty often present in such countries, including
civil strife and expropriation, excessive taxation and other forms of government
interference. As a precaution to a change in political climate, the Company was
insured by an agency of the U.S. government (1) for loss of its 50% share of
SRL's property due to political violence in an amount up to $15.7 million and
(2) for loss due to expropriation of its Sierra Leone assets in an amount up to
$23.7 million (with a maximum payment under the policy of $23.7 million). The
Company has filed an initial claim under this policy for its 50% share of damage
from
12
<PAGE>
political violence, based on the limited damage assessments performed to date,
and anticipates that further claims will be filed as additional information
regarding damage to assets becomes available. The Company has advised the
insurer that it may also file a claim under the expropriation portion of the
policy, but has until July 1996 to do so. In addition to this coverage, the
Company has coverage through a private insurer for loss due to expropriation in
an amount up to $8.4 million. The Company has filed a claim for expropriation
under the policy provided by the private insurer; however, the insurer has
disclaimed liability. The Company is not presently able to predict the extent
or timing of any insurance proceeds which may ultimately be realized. Neither
insurer elected to renew its coverage at the policy anniversary dates in 1995.
SRL has filed claims under other policies for certain costs it has incurred as
result of the above described situation in Sierra Leone, but cannot estimate the
amount or timing of any potential recoveries.
NON-SEGMENT BUSINESSES
The Company owns 35% of Nord Pacific Limited ("Pacific") (NASDAQ-NORPY), a
company involved in the exploration of precious metal, base metal and strategic
mineral properties. Pacific's currently producing operation consists of a 40%
interest in a copper mine located in Australia. The mine began production in
mid-1993 and projects that at its present production rate it can sustain
production from its present reserves through the year 2003. Pacific is engaged
in a program to explore for additional copper near its present mining operation,
and this program has been successful in locating two massive medium to high
grade pyrite-chalcopyrite sulphide ore bodies about 14 miles south-west of the
present copper operations. This mineralization could not be economically
treated at those operations and a new treatment plant would be required to treat
the ore if sufficient reserves are located. Pacific also owns 100% of the Tabar
Island gold project in Papua New Guinea, at which current exploration has been
successful in extending known oxide gold mineralization on Simberi Island as
well as promising drilling results in other areas of the project. In addition,
Pacific owns 37.72% of a nickel-cobalt-chromium property also located in Papua
New Guinea. This project requires more stable prices and additional test work
and engineering before undertaking development, due to its substantial capital
costs and fairly lengthy engineering and construction period. Pacific also has
interests in other properties which will require additional exploration to
determine the existence of commercial mineral deposits, primarily gold.
The Company has a 41.5% interest in a venture which owns an undeveloped
parcel of over 200 acres of real property located in Manatee County, Florida.
The venture has signed a letter of intent with a party to sell the undeveloped
real property for $3,000,000. The purchase price will be paid over a four year
period and the buyer has agreed to give and the venture has agreed to take a
purchase money first mortgage in the amount of $2,500,000. The venture will
receive $500,000 at closing of this transaction.
13
<PAGE>
ITEM 2. PROPERTIES
Reference is made to Item 1 of this Form 10-K for information concerning
the nature and location of the properties of the Company and identification of
the major segments in which such properties are used. Management believes that
the Company's facilities are generally adequate for its operations and are
maintained in a good state of repair other than any as yet undetermined damage
which may have occurred to the equipment at SRL.
ITEM 3. LEGAL PROCEEDINGS
Since 1990 the Company, and/or its wholly owned subsidiary (now 50%
affiliate) Sierra Rutile Limited ("SRL") has been involved in litigation in the
United States District Court for the Southern District of New York in
proceedings captioned SIERRA RUTILE LIMITED V. BOMAR RESOURCES, INC., 90 Civ.
0835 (JFK) and SIERRA RUTILE LIMITED V. KATZ, ET AL., 90 Civ. 4913 (JFK) and
arbitration proceedings before the American Arbitration Association arising out
of the breach by Bomar Resources Inc. ("Bomar") of the agency agreement between
SRL and Bomar for the marketing and sale of SRL's rutile. Following a final
arbitration award granting relief under the Racketeer Influence and Corrupt
Organization Act (RICO) in 1992 by an American Arbitration Association panel,
its confirmation by the District Court and the entry of judgment in favor of SRL
in the amount of $56.7 million, settlements were reached with Bomar's principals
and others who were alleged by SRL to have been participants in and/or
benefitted from and/or were responsible for the acts of which SRL complained.
As the result of those settlements totaling $10 million, SRL's claims against
the defendants in SIERRA RUTILE LIMITED V. KATZ, and the claims of certain of
the settling defendants against the Company and SRL have been dismissed. The
final payment from the settling defendants was received by the Company in March
1996. Accordingly, the District Court has been notified that SRL has fully
consummated all of the settlements with the various defendants and has received
all of the settlement sums required to be paid.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(A) The following table sets forth, for the calendar periods indicated, the
high and low closing sale price of the Company's Common Stock on the
New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
1995 1994
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
FIRST QUARTER 7 3 7 5
SECOND QUARTER 4 1/8 2 7/8 5 3/4 4 1/2
THIRD QUARTER 3 5/8 2 3/8 6 7/8 4 1/2
FOURTH QUARTER 2 3/8 1 7/8 6 3/4 5 1/8
</TABLE>
(B) Approximate number of equity security holders at December 31, 1995:
NUMBER OF
TITLE OF CLASS HOLDERS OF RECORD
-------------- -----------------
Common Stock 3,285
(C) The Company has never paid cash dividends on its Common Stock and does
not expect to do so in the immediate future.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following summary of certain financial information relating to the
Company for the five years ended December 31, 1995 has been derived from
the financial statements of the Company. Such information should be read
in conjunction with the financial statements and the report of Deloitte &
Touche LLP, appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
SUMMARY OF OPERATIONS (In thousands except per share amounts)
- ---------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 37,405 $ 71,831 $ 89,603 $101,175 $107,783
Operating Costs and Expenses 47,715 77,447 89,866 100,288 107,919
Other Income (Expense):
Interest income 688 854 383 489 624
Interest expense (647) (1,615) (6,287) (5,135) (4,026)
Litigation recoveries 3,225 950 4,200 1,450
Shareholder litigation settlement (4,750)
Impairment of assets (3,175) (3,074)
Gain on sale of 50% of
rutile segment 1,527
Equity in earnings (loss)
of affiliate 526 1,613 (1,299) (928) (769)
Minority interest 1,434 1,321 1,166
Income tax (expense) benefit (14,645) 1,562 (3,945) (2,655)
---------- --------- -------- ------- --------
(Loss) from
continuing operations (8,259) (15,611) (8,362) (7,182) (6,962)
Earnings (loss) from
discontinued operations 106 (2,900) (6,584)
--------- --------- -------- -------- ---------
(Loss) before extraordinary
item and cumulative effect of
change in accounting principle (8,259) (15,611) (8,256) (10,082) (13,546)
Extraordinary item - loss on early
extinguishment of debt (826)
Cumulative effect of
change in accounting principle 23,480
---------- ---------- --------- --------- ---------
Net earnings (loss) $ (8,259) $ (15,611) $ (9,082) $ 13,398 $ (13,546)
---------- ---------- --------- --------- ---------
---------- ---------- --------- --------- ---------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------
SUMMARY OF OPERATIONS
(continued) 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings (loss) per common
and common equivalent share:
Primary:
From continuing operations $ (.52) $(1.02) $ (.55) $ (.47) $(.46)
From discontinued operations .01 (.19) (.44)
-------- ------- ------- ------- ------
(Loss) before
extraordinary item and
cumulative effect of change
in accounting principle (.52) (1.02) (.54) (.66) (.90)
Extraordinary item (.06)
Cumulative effect of
change in accounting
principle 1.55
-------- ------- ------- ------- ------
Net earnings (loss) $ (.52) $(1.02) $( .60) $ .89 $(.90)
-------- ------- ------- ------- ------
-------- ------- ------- ------- ------
Fully diluted:
From continuing operations $ (.31)
From discontinued operations (.16)
-------
(Loss) before cumulative
effect of change in
accounting principle (.47)
Cumulative effect of change
in accounting principle 1.29
-------
Net earnings $ .82
-------
-------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C>
Working Capital
(Deficiency) (1) $(18,051) $ (6,455) $ 28,547 $ 19,521 $ 14,901
Total Assets 135,910 146,115 162,758 226,307 212,890
Long-Term Debt (1) 1,520 4,701 19,738 70,652 65,976
Stockholders' Equity 88,963 97,534 108,809 115,197 102,012
OTHER DATA
Cash (Deficiency) from
Operating Activities $ (170) $ 9,540 $ 10,544 $ 12,520 $ 9,315
Payments of Indebtedness 644 3,942 25,431 11,986 11,825
Capital Expenditures 634 17,307 10,820 7,728 13,023
Additional Indebtedness 5,650 5,000 21,606 23,544
</TABLE>
(1) At December 31, 1995 and 1994, an additional $17.9 million and $19.7
million, respectively, of liabilities have been classified as current because of
present or possible covenant violations.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During the three year period ended December 31, 1995, the Company required
substantial funds for capital expenditures, debt payments and other long-term
asset additions totaling $28.8 million, $30.0 million and $6.3 million,
respectively. The Company's operating activities provided $21.0 million of cash
while additional debt totaling $10.7 million was incurred during the three year
period, primarily for capital expenditures. The Company made $1.4 million of
advances to SRL in 1995. In 1993, Nord Kaolin Company ("NKC") sold a 20%
minority interest to an investor for $4.95 million in cash and received an
additional $5.05 million of raw materials from the investor. Also in 1993, the
Company sold a 50% interest in its rutile operations to an Australian mining
company and received gross proceeds of $56.8 million, of which $20 million was
used to retire a convertible debenture. Of the remaining proceeds received, the
Company used $13.6 million to repay other indebtedness.
During 1994 and 1993, the Company converted $2.9 million and $2.5 million,
respectively, of its advances to Nord Pacific Limited ("Pacific") to shares of
Pacific's common stock. In 1995, the Company received a $167,000 dividend on
its investment in Pacific.
The Company anticipates that its domestic (non-SRL) operations will require
cash to fund its activities during 1996. Operations at NKC are projected to
improve so that during the second half of 1996 NKC could generate cash to repay
a portion of the advances previously made by the Company. However, repayment of
such advances is limited under the NKC lease agreements. This improvement in
cash flow of the kaolin segment is expected to result from increasing levels of
sales of its Norplex-Registered Trademark- line of products, the amount and
timing of which cannot be projected with any certainty. To conserve cash, NKC
does not anticipate making significant capital expenditures unless warranted by
improving product market conditions. The Company also expects to be required to
fund SRL's operating cash needs as further described below. These situations
are likely to cause the Company to seek additional sources of funds during 1996.
These sources could include proceeds from claims filed under the Company's
political risk insurance policies (currently limited to $2.7 million available
to the Company under the bank financing agreements), external funding at SRL to
reduce demands on the Company's cash balances, sale of an interest in certain of
its assets or equity/debt placements by the Company. However, the Company
cannot determine which, if any, of the above financing alternatives would be
available at terms acceptable to the Company. Unless the Company is successful
in obtaining additional funding, its cash reserves may be inadequate for it to
continue without modification of its present operations. In addition, the
Company would likely be unable to satisfy any demands for payment from the NKC's
lessors or from SRL's lenders as described below.
19
<PAGE>
The Company has filed an initial claim for damage due to political violence
at SRL under one of its political risk insurance policies. Additional claims
are likely to be filed as more information becomes available as to damage at the
SRL mine and the cost to repair equipment. The Company is not able to estimate
the amount or timing of payments which may be received from claims under this
policy. The Company has pledged any proceeds in excess of $2.7 million it may
receive under this policy as security under the bank financing agreements.
Due to civil disturbances in Sierra Leone, operations of the Company's 50%
owned rutile segment were suspended in January 1995. The Company cannot
estimate the amount of funds which will ultimately be required for SRL to resume
operations in Sierra Leone. SRL has instituted steps to minimize its cash
requirements during the suspension of its operations, including termination of
substantially all of its work force and delaying vendor payments. However, due
to the lengthy suspension of its production, SRL has been and will continue to
be relying on funds from the Company and its other 50% owner to sustain its
operations. Unless SRL is able to obtain alternate funding, the amount of cash
required by SRL from the Company in 1996 is likely to exceed the amount the
Company provided in 1995. In addition, SRL is not in compliance with certain
financial and operational covenants under its bank financing agreements at
December 31, 1995. At December 31, 1995, the Company's 50% share of SRL's
liabilities to the lenders is $23.5 million, payment of which has been
guaranteed by the Company. The lenders have agreed to forebear through January
1, 1997 from accelerating payment of the outstanding indebtedness to enable SRL
to assess the situation in Sierra Leone. The forebearance would terminate if a
material change in conditions occurs, as determined by the lenders. In
addition, the forebearance requires SRL to expend at least $500,000 each quarter
to pay for its liabilities and purchases. All principal payments deferred under
the forebearance ($7.5 million as the Company's 50% share) are due on January 1,
1997. It is likely that prior to that date SRL will request other modifications
of the financing agreements including further deferral of payments due the
lenders. In addition to potentially requiring funds to sustain its current
operations, SRL will need to seek funds through additional bank financing or
from other undetermined sources when a decision is made to resume its operations
in Sierra Leone. SRL is unable to determine the amount of funds which will be
required for this purpose or if adequate funds would be available from
undetermined sources on conditions acceptable to SRL and the Company.
Payments under lease agreements at NKC are guaranteed by the Company. The
guarantee requires the Company to maintain minimum levels of tangible net worth
compared to total liabilities and of cash flow relative to current maturities of
long-term debt. The lease agreements also place restrictions on the amount of
cash which NKC may transfer to its owners and limitations on the repayment of
advances previously made by the Company to NKC in the event of a covenant
violation. At December 31, 1995, the Company was in violation of the cash flow
covenant and has requested a waiver of the covenant from the NKC lessors.
Although the lessors have not demanded acceleration of payment of the various
leases, they have not indicated a willingness to grant a waiver of the default
or to modify the covenant. The lessors have the ability to require liquidated
damages ($14.5 million at
20
<PAGE>
December 31, 1995) and could also elect to retain ownership of the leased
equipment. The Company cannot determine the willingness of the lessors to agree
to any modifications on terms which would be acceptable to the Company nor their
willingness to continue to refrain from taking any action to enforce their
rights under the lease agreement.
The financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As a result of the above described situations
relative to SRL's lenders and NKC's lessors, certain long-term liabilities have
been classified as current on the balance sheet and the Company has a working
capital deficiency at December 31, 1995. In addition, SRL will likely continue
to require funds to sustain its operations until it is able to obtain additional
funding from other currently unidentified sources. Furthermore, NKC continues
to operate at a loss and to generate negative cash flows from operations. These
factors raise substantial doubt about the Company's ability to have sufficient
capital resources available to fund its potential cash requirements and continue
as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to have sufficient cash to meet its
obligations on a timely basis, to comply with the terms and covenants of its
financing and lease agreements, to obtain additional financing or refinancing as
may be required and ultimately to attain successful operations. Management of
the Company and SRL are continuing their efforts to obtain control of the rutile
mining operation and to identify sources of funds so that the SRL can meet its
obligations and sustain its operations. Management of the Company believes that
improved markets for its kaolin products will result in increased sales levels
and ultimately operating profits. However, management cannot provide any
assurance that these events will occur.
The Company's principal financial requirements and anticipated sources and
uses of funds for 1996 on a segment basis are described below.
RUTILE (SRL)
Activity reported below includes 100% of the amounts recorded by SRL and
parenthetically the amount recorded in the Company's financial statements
(reflecting the sale of 50% of SRL in November 1993). Amounts included are for
the two years ended December 31, 1994 as the Company adopted the cost basis of
accounting for its investment in SRL at December 31, 1994.
During the above period, SRL utilized $43.3 million ($26.6 million) of its
operational
21
<PAGE>
cash flow for capital expenditures, primarily for completion of the Lanti
deposit development, enhancement and expansion of production and recovery
processes and purchase of earth moving equipment, while $16.4 million ($10.7
million) was borrowed under the financing agreements. During the period, SRL
made debt principal payments of $10.2 million ($6.3 million) and paid $7.5
million in dividends to the Company. At December 31, 1995, SRL had outstanding
liabilities under its financing agreements totaling $47.0 million ($23.5
million). Of this amount $30.5 million ($15.3 million) of long-term debt has
been classified as a current liability due to the default of a covenant at
December 31, 1995.
At December 31, 1995, $10.5 million had not been borrowed by SRL under
financing agreements with four international development banks to fund capital
expenditures. Due to the suspension of mining operations in Sierra Leone, SRL
is currently not able to borrow any funds under these agreements. In addition
to the financial covenants and cash escrow requirements previously noted, the
financing agreements contain restrictions on SRL's ability to declare dividends
and also place limitations on the amount of cash transfers from SRL to its
owners. Under the terms of the financing agreements, SRL is required to
complete a capital improvement program totaling $83.3 million by December 1996,
of which SRL expended $58 million through December 31, 1995. SRL is presently
unable to determine the extent to which this capital expansion program has been
affected by the situation in Sierra Leone, although it is likely that major
modifications will have to be made to the program once mining operations
recommence. Any such modifications would require approval of the current SRL
lenders and no assurance can be given that SRL would be successful if it sought
such modifications.
KAOLIN (NKC)
During the three year period ended December 31, 1995, NKC's capital
expenditures have been primarily for the acquisition of mineral properties and
recurring type items. During this period, NKC repaid $12.7 million of
indebtedness, primarily by borrowing funds from the Company. NKC does not
anticipate that it will expend significant amounts for capital expenditures
during 1996. At December 31, 1995, NKC had outstanding debt totaling $4.7
million. Based on current cash flow projections, NKC does not anticipate that
it will be able to make any distributions to its owners in 1996 but expects to
reimburse the Company for a portion of the expenses paid by the Company on
behalf of NKC.
RESULTS OF OPERATIONS
The Company incurred a loss from continuing operations of $8.3 million in
1995 compared to a loss of $15.6 million in 1994. Operating results from SRL
and NKC are discussed below. Operating results in 1995 do not include the 50%
owned operations of SRL which are not consolidated by the Company beginning in
1995. Operating results in 1995 included $526,000 as the Company's share of
earnings from an affiliate compared
22
<PAGE>
to $1.6 million as the Company's share of earnings in 1994. The Company
recorded a provision for impairment of $3.2 million in 1995 relating primarily
to its investment in SRL. Also affecting operating results was $3.2 million of
income from the settlement of litigation in 1995 compared to $950,000 of income
from the same source in 1994 and a $1.5 million gain on sale of 50% of SRL which
the Company recorded in 1994.
The Company incurred a loss from continuing operations of $15.6 million in
1994 compared to a loss of $8.4 million in 1993. Operating results from SRL and
NKC are discussed below. Operating results included $1.6 million as the
Company's share of earnings from an affiliate compared to a $1.3 million loss
from the affiliate in 1993. In addition, the final settlement of the Company's
sale of 50% of its rutile segment resulted in a $1.5 million gain in 1994.
Interest expense decreased to $1.6 million in 1994 compared to $6.3 million in
1993 as the Company retired a substantial portion of debt in November 1993 and
capitalized $609,000 of interest in 1994. Included in the 1993 loss was $4.75
million for the settlement of litigation against the Company and certain of its
officers and a $3.1 million provision for impairment. The Company recognized
$950,000 of other income in 1994 compared to $4.2 million in 1993 in connection
with settlements received from defendants of litigation instituted by SRL.
Selling, general and administrative expense in 1994 included a $1 million
payment to the government of Sierra Leone to resolve certain claims made against
SRL.
The Company recognizes the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. No amounts were recorded for
domestic taxes in 1995 and a minor refund was recorded in 1994, as the Company
incurred net operating losses during those years and a valuation allowance was
recorded for any deferred tax asset generated. The Company's domestic income
tax expense in 1993 includes the tax effect of certain differences between
financial statement amounts and amounts to be included in the Company's federal
income tax return. These differences consist of a tax deduction related to
previously granted stock options and awards and taxable income on the sale of a
20% interest in Nord Kaolin Company, which is recorded as a component of
additional paid-in capital in 1993. Also included in 1993 domestic tax expense
is a $1.0 million payment of Alternative Minimum Tax.
The Company's foreign income tax expense (benefit) consists primarily of
taxes related to earnings of SRL in Sierra Leone, where SRL's effective income
tax rate is 37.5%, with a minimum amount of income tax paid equal to 3.5% of
sales. Sierra Leone's method of depreciation is different from domestic tax
law in that it allows SRL to elect when to take a depreciation deduction and
there is no time limitation as to when any unused depreciation may be deducted.
SRL enjoyed a tax holiday in Sierra Leone through June 1987 and during that
holiday, it was not required to use any tax depreciation, creating a substantial
difference between financial statement and tax depreciation. In 1993, the
Company determined that SRL would not be required to utilize tax deductions of
$18.8 million for prior periods, for which the tax effect of over $7.1 million
has been included as a reduction of tax expense and an increase in the Company's
deferred tax asset during the fourth quarter of
23
<PAGE>
1993. As a result of the suspension of mining operations at SRL, the Company
determined that a valuation allowance is required for SRL's deferred tax assets.
Accordingly, the Company's tax provision for 1994 includes a charge of $14.1
million for this valuation allowance.
The Company's operating results in the fourth quarter of 1994 include a
$1.5 million gain on sale of 50% of the rutile segment and income tax of $14.1
million related to recording the valuation allowance at the rutile segment.
During the fourth quarter of 1993, operating results include revisions of
estimates made during the year for certain costs and expenses at SRL, the effect
of which was to increase net earnings by $875,000 in the fourth quarter. In
addition, operating results in that quarter include $765,000 of selling, general
and administrative costs and $2.1 million of domestic income tax expense related
to the Company's sale of a 50% interest in SRL. Also the Company recorded a
provision for impairment totaling $3.1 million related to an investment in a
real estate joint venture and certain equipment and recorded a tax benefit of
$7.1 million at SRL due to an increase in allowable tax deduction carry forwards
from years prior to 1993. The impact of the above transactions was to increase
net earnings before extraordinary item by $2 million during the fourth quarter
of 1993.
Discussion of the changes in revenue, cost of sales and operating earnings
on a segment basis follows below.
RUTILE (SRL)
As previously discussed, the mining operations of this segment were
suspended in January 1995 due to civil disturbances in Sierra Leone. The
Company cannot estimate when SRL may be able to recommence its mining operations
or what changes in the operations may occur due to this situation. In March,
SRL terminated all but a small core of its work force, with the remaining
employees available to perform various administrative tasks related to the
operations of this segment.
The amounts disclosed for SRL include 100% of SRL's operations through
November 17, 1993 and 50% from November 17, 1993 through December 31, 1994. At
December 31, 1994, the Company adopted the cost basis of accounting for its
investment in SRL, due to the above described suspension of mining operations in
early 1995. Therefore, no operating results from SRL are included in the
Company's statement of operations for the year ended December 31, 1995.
The Company's share of SRL revenues declined in 1994 compared to 1993 due
to the above noted 1993 change in ownership. For 100% of SRL's operations,
average sales prices declined by 5.6% while tonnes (2,204.6 lbs.) of rutile sold
increased by 6.1% in 1994 compared to 1993. Other income in 1993 includes $3.7
million of proceeds from the partial settlement of legal proceedings brought by
SRL against its former sales agent and others. After the sale of a 50% interest
in SRL in 1993, the Company was responsible for all costs of this litigation and
received all settlement proceeds. Included in revenues are sales to
24
<PAGE>
individual customers which exceeded 10% of the Company's revenues during 1994
and 1993, as disclosed in Note T - Industry Segments to the Financial
Statements.
Cost of sales as a percentage of sales was 78.7% and 75.1% in 1994 and
1993, respectively. Cost of sales as a percentage of sales increased in 1994
compared to 1993 due primarily to the effect of lower average prices received in
1994 and an increase in cost of maintenance.
Operating earnings from this segment, before interest expense and income
taxes, were $3.8 million and $14.6 million in 1994 and 1993, respectively. The
Company's share of operating earnings from this segment decreased in 1994
compared to 1993 due in part to the aforementioned 1993 change in ownership. In
comparing 100% of this segment's operation in 1994 to 1993, lower operating
earnings were realized due to higher cost of sales as noted above. In addition,
selling, general and administrative expense in 1994 includes a payment of $1
million to the government of Sierra Leone to resolve certain claims made by the
government against SRL for late payment of duties.
KAOLIN (NKC)
Although revenues from the sale of the Company's Norplex-Registered
Trademark- products increased to $24 million in 1995 from $23 million in 1994,
total revenues decreased to $37.3 million in 1995 from $41.2 million in 1994.
The increase in Norplex-Registered Trademark- revenues resulted from higher
average selling prices in 1995 compared to 1994, due primarily to the mix of
products sold, although a lower volume of tons were sold in 1995. Sales revenue
for the Company's Norcal-Registered Trademark- and conventional products
decreased to $12.8 million in 1995 compared to $18.2 million in 1994. The
decline in sales volume for Norcal-Registered Trademark- and conventional
products was primarily due to lower demand for these products, particularly in
the fourth quarter of 1995. It is the Company's intention to continue to
emphasize sales of the Norplex-Registered Trademark- and Norcal-Registered
Trademark- products.
Revenues increased in 1994 compared to 1993, as revenues in 1994 include
$28.8 million from sales of the Company's Norplex-Registered Trademark- and
Norcal-Registered Trademark- products compared to $21.3 million in 1993. In
1994 the Company sold 33% more tons of Norplex-Registered Trademark- and 5% more
tons of Norcal-Registered Trademark- compared to 1993. Revenues for
Norplex-Registered Trademark- increased by 44% due to the increased tons sold
plus an increase of 8% in average selling prices. Norcal-Registered Trademark-
revenues increased by 10% as average prices increased by 5%. The Company's
conventional products revenue also increased by 15% due to a 12% increase in
tons sold and a 3% average increase in selling price. The increase in sales
volume and price in 1994 for all products enabled the Company to recover its
cost of sales. Included in revenues are sales which exceeded 10% of the
Company's revenues to three customers in 1995 and to one customer in each of
during 1994 and 1993 as disclosed in Note T - Industry Segments to the Financial
Statements.
Cost of sales as a percentage of sales was 101.6%, 96.5% and 107.5% in
1995, 1994 and 1993, respectively. The increase in the cost of sales percentage
in 1995 was the result of the lower sales volume of Norcal-Registered Trademark-
and conventional products along with increases in certain raw material costs.
The decrease in the cost of sales percentage in 1994 was due to the increased
sales volume and price of all products and a decrease in certain production
costs. The increase in sales volume in 1993 of Norcal-Registered Trademark- and
Norplex-Registered Trademark- was
25
<PAGE>
sufficient to improve the cost of sales percentage in 1993, although the Company
experienced declines in sales volume of conventional products.
NKC's operating loss was $6.1 million, $4.7 million and $9.7 million in
1995, 1994 and 1993, respectively. While revenues from the Company's
Norplex-Registered Trademark- products increased in 1995 compared to 1994, lower
sales volume of the Company's Norcal-Registered Trademark- and conventional
products, lower average selling prices of these products and higher cost of
certain raw materials resulted in an increased operating loss in 1995 compared
to 1994. The decrease in operating loss in 1994 compared to 1993 resulted from
the lower cost of sales and reductions in general and administrative costs.
NKC has incurred annual operating losses beginning in 1989 due primarily
to the costs associated with development and market introduction of its
Norplex-Registered Trademark- products and a longer than anticipated new product
introduction period. In addition, in the early 1990's lower demand and prices
for certain of its products as a result of the recession contributed to NKC's
operating losses. As a result of the above circumstances, NKC had not been able
to generate sufficient sales volume at adequate prices to recover its fixed and
variable costs of production during this period. This situation improved during
1994 as the sales volume and prices of Norplex-Registered Trademark- products
reached levels sufficient to recover the fixed and variable production costs and
to begin to fund the selling, general and administrative costs of NKC. However,
during 1995, lower sales volumes of Norcal-Registered Trademark- and
conventional products and higher cost of production caused increased operating
losses compared to 1994. NKC is attempting to recover lost sales volumes in
those two product-lines until such time as the volume of Norplex-Registered
Trademark- products are at a level to generate adequate operating earnings.
However, until the level of Norplex-Registered Trademark- sales volume and
prices improve, NKC expects to continue to experience operating losses. The
Company cannot precisely estimate when or if adequate sales levels of
Norplex-Registered Trademark- products will be achieved or the level of
operating losses which will be incurred during the future periods. Based upon
recent conversions of customers to the Norplex-Registered Trademark- products
and future testing and conversion at a number of different customer locations,
the Company believes that the above noted improvement in Norplex-Registered
Trademark- sales levels and operating results is likely to occur.
INFLATION
The Company has not been significantly affected by inflation in recent
years and anticipates that it will not be significantly affected by inflation
during 1996. The Company is not expected to be affected by changes in interest
rates as a majority of its indebtedness is at fixed rates of interest.
ECONOMIC OUTLOOK
The Company's two operating segments' (SRL and NKC) primary markets are
the paint and paper industries. Accordingly, operating results are hinged very
closely to the general economic conditions in the United States and most of the
western world.
Historically, demand for titanium based feedstocks, for the titanium
dioxide pigment industry (the market for SRL products) has followed the major
global business and economic cycles and generally has followed or exceeded
regional GDP in their growth and
26
<PAGE>
consumption rates. The foundation for supply and demand and pricing for natural
rutile is based to a significant degree on the world wide consumption of
titanium dioxide pigments. These pigments represent the largest single
application for titanium dioxide raw material feedstock, representing
approximately 95% of the end use of these minerals as feedstock. The global
Ti02 industry began recovering in 1994 after 3 years of declining prices caused
by demand bottoming out in 1991 corresponding with the onset of unfortunately
ill-timed implementation of new pigment plant capacities.
The rutile segment was poised to take advantage of the increased demand
for high level titanium feedstocks in 1995 and had implemented a program to
increase its overall production of Ti02 feedstocks from its current level to
190,000 tonnes annually with a scheduled start-up of this increased production
capability in the fourth quarter of 1995. Unfortunately during January 1995,
the rutile operations in Sierra Leone, West Africa came under military attack
from non-government forces and were overrun by such forces. The Company and its
other 50% owner (Consolidated Rutile Limited) suspended all operations at the
minesite on January 20, 1995 and cannot determine when the SRL operations will
resume.
In February 1996, a small contingent of employees of SRL was able to
visit the minesite and perform a limited assessment of the facilities.
Preliminary inspections confirm that major assets remain substantially intact;
however, it is likely that the lack of regular maintenance has caused some
damage. It was also confirmed that foodstores, small vehicles, housing,
furniture and fixtures and office facilities have been damaged or severely
looted, although SRL is not yet able to estimate the extent of damage which has
occurred. Security in the country and specifically at the minesite, while still
unstable, appears to be improving and SRL expects to continue its inspections of
the minesite with the goal of reopening the mine. However, Company management
is unable to predict at this time when this event will occur. It is important
to note that on February 26 and 27 Sierra Leone held democratic presidential
elections for the first time in almost twenty years. A civilian president was
elected on March 15, 1996 in a second ballot election held because the first
round of balloting held February 26 and 27 did not yield a winner by a 55%
majority vote. Also, talks aimed at resolving the current conflict are being
held between representatives of the current Sierra Leone government and the
rebel group that oppose the government. Both events are seen as positive
developments toward peace and stability in Sierra Leone.
The Company's financial results were negatively effected in 1995 by the
situation at its rutile operation in Sierra Leone, West Africa. The suspension
of these operations will also have a continuing negative impact on 1996
financial results.
NKC, the Company's other operating segment, produces and markets products
to the North American paper industry. After industry growth in 1994, paper
production slowed down in 1995 reflecting an estimated 3.2% 1995 GDP rate
compared to 6.2% GDP in 1994. It is expected that 1996 will exhibit more
conservative GDP growth at 2 to 2.5%. After a short period of inventory
correction resulting from a worldwide 1995 fourth quarter decline in paper
shipments, paper industry analysts expect growth in paper demand will resume to
3 to 3.5% in 1996's second and third quarters, and 2% growth by year end.
The 1995 fourth quarter for most paper companies was poor as inventories
increased as demand fell off and paper prices dropped. This condition,
particularly in white paper production, NKC's main market segment, is expected
to be short-lived as mills took
27
<PAGE>
down time in December 1995 to help correct the inventory build up. Overall,
white papers - coated and uncoated communication papers - are expected to grow
in line with GDP projections in 1996.
Sales of NKC's Norplex product line decreased in 1995 compared to 1994
primarily due to the 1995 fourth quarter slump in paper production. Economic
indicators and industry forecasters still point to a growth year for paper
production in 1996 although at a slower rate than 1995. This market condition,
however, is expected to help Norplex sales as papermakers look more closely
toward cost savings to improve profitability. Paper industry operating rates
are not expected to reach levels to support increases in paper prices. In fact,
a reduction in paper prices, beginning in the fourth quarter of 1995, is
expected to put pressure on margins and an emphasis on cost savings programs.
As a result, NKC anticipates a gain in market share for its Norplex products and
improvement in operating results from this segment in 1996. As discussed above,
the markets served by NKC are directly affected by overall economic activity,
particularly in North America.
The Company also has a 35% ownership interest in Nord Pacific Limited.
Nord Pacific Limited is engaged in the production of copper and in the
exploration for gold, copper, nickel, cobalt and other minerals in Australia,
Papua New Guinea and North America including Mexico. Nord Pacific Limited's
only operation at this time is a copper mining and processing facility in
eastern Australia. The earnings of this operation are directly affected by
world economic growth and the increase or decrease in demand for copper. The
above is qualified to the extent that Nord Pacific Limited's copper financial
instruments guarantee a minimum price of $1.07 per pound through the first
quarter of 1996 and a minimum price of $1.10 per pound for the period March
through December 1996 and a minimum price of $1.02 per pound for the period
January 1997 through December 1997. The price for copper rose steadily from the
end of 1993 and increased dramatically throughout 1994 and 1995. At the end of
1995 it stood at $1.26/lb. compared to a low of $.78 per lb. towards the end of
1993. Nord Pacific Limited is projecting that production of copper in 1996 will
increase over pounds produced in 1995.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS: Page
----
Independent Auditors' Report 30
Consolidated Balance Sheets 32
Consolidated Statements of Operations 33
Consolidated Statements of Stockholders' Equity 34
Consolidated Statements of Cash Flows 35
Notes to Consolidated Financial Statements 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Nord Resources Corporation
Dayton, Ohio
We have audited the accompanying consolidated balance sheets of Nord
Resources Corporation and Subsidiaries ("Company") as of December 31, 1995
and 1994, and the related statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express (or disclaim) an opinion on these statements
based on our audits. We did not audit the financial statements of Sierra
Rutile Limited (a 50% owned subsidiary) and related Rutile Segment entities
(together the "Rutile Segment") for the years ended December 31, 1995 and
1994, the Company's investment in which is accounted for on the cost method as
of and for the year ended December 31, 1995 and as of December 31, 1994, and
by proportionate consolidation for the years ended December 31, 1994 and
1993. The Company's investment in the Rutile Segment constitutes 48% and 47% of
consolidated total assets at December 31, 1995 and 1994, respectively, and 0%
and 42% of consolidated total revenues for the years ended December 31,
1995 and 1994, respectively. Other auditors were engaged to audit the
financial statements of the Rutile Segment prepared in conformity with
accounting principles generally accepted in the United Kingdom as of and for
the years ended December 31, 1995 and 1994, and their report stated that they
were unable to express an opinion on the 1995 and 1994 financial statements
of the Rutile Segment because they were unable to complete substantial
auditing procedures and because of the uncertain impact on the financial
statement carrying amounts following civil unrest near the mine facilities of
the Rutile Segment. The report of the other auditors has been furnished to
us, and our report, insofar as it relates to the amounts included for the
Rutile Segment, is based on the report of such other auditors.
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 and the report
of other auditors provide a reasonable basis for our report.
In our opinion, the consolidated statements of operations and cash flows for
the year ended December 31, 1993 present fairly, in all material respects,
the Company's results of operations and cash flows in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Notes A and C to the consolidated financial statements, operations of the
Rutile Segment have been suspended subsequent to
30
<PAGE>
December 31, 1994 because of civil war activities in the area near the Rutile
Segment's mine in Sierra Leone. As discussed in Note A, funds to satisfy the
Rutile Segment's obligations incurred while mining operations are suspended,
and for repairs to mine assets and restart costs may be required from the
Company; the amount and availability of such funds cannot be presently
determined. As discussed in Notes A and G, the Rutile Segment is not in
compliance with provisions of various bank financing agreements that are
guaranteed by the Company and, although the Rutile Segment has received
forbearance through January 1, 1997, the forbearance could be terminated in
certain circumstances; as a result, these obligations are classified as
current liabilities. As discussed in Note A, the kaolin segment continues to
operate at a loss and to generate negative cash flows from operations; and as
further discussed in Note M, the Company is in default of a financial
covenant in lease agreements related to the kaolin segment which, as a result,
are classified as current liabilities. As a result of the classification
of the Rutile Segment obligations and kaolin leases in default as current
liabilities, the negative cash flows of the kaolin segment, and the funding in
1995 of certain cash requirements of the Rutile Segment, the Company has
negative working capital at December 31, 1995. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans concerning these matters are also described in Note A. The financial
statements do not include any adjustments that might result from the outcome
of these uncertainties.
Because of the possible material effects of the uncertainties referred to in
the preceding paragraph, and the inability of the other auditors to express
an opinion on the financial statements of the Rutile Segment, we are unable
to express, and we do not express, an opinion on the Company's consolidated
financial statements for 1995 and 1994.
As discussed in Note A to the consolidated financial statements, the Company
changed its method of accounting for its investment in the Rutile Segment to
the cost basis of accounting at December 31, 1994.
Deloitte & Touche LLP
Dayton, Ohio
March 25, 1996
31
<PAGE>
<TABLE>
<CAPTION>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1995 AND 1994
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS (Notes A and G) 1995 1994
- ----------------------- -------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,054 $ 8,946
Restricted cash - SRL (Notes C and G) 2,431 2,934
Accounts receivable:
Trade (less allowance of $145 in 1994) 4,576 6,897
Related parties 9 2,094
Other 965 1,302
-------- --------
5,550 10,293
Inventories:
Finished and semi-finished 1,271 1,342
Supplies 1,725 1,736
-------- --------
2,996 3,078
Prepaid expenses 459 615
-------- --------
TOTAL CURRENT ASSETS 17,490 25,866
RESTRICTED CASH AND
INVESTMENTS (Note G) 2,607 2,797
INVESTMENT IN AND ADVANCES TO
AFFILIATES (Note D) 8,338 8,142
INVESTMENT IN SRL, at cost as
described in Note A (Note C) 63,517 64,353
PROPERTY, PLANT AND EQUIPMENT, at cost
less accumulated depreciation and depletion
(Note E) 34,374 36,804
OTHER ASSETS (Note F) 9,584 8,153
-------- --------
$135,910 $146,115
-------- --------
-------- --------
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY (Note A) 1995 1994
- ----------------------------- -------- --------
CURRENT LIABILITIES:
Accounts payable $ 2,705 $ 3,059
Accounts payable - related party 4,065 4,310
Accrued expenses 828 1,193
Accrued reclamation 812 717
Accrued taxes other than income 492 534
Obligations to lenders - SRL (Notes C and G) 23,458 23,234
Obligations in default (Notes G and M) 2,991
Current maturities of long-term debt (Note G) 190 644
-------- --------
TOTAL CURRENT LIABILITIES 35,541 33,691
LONG-TERM DEBT (Note G) 1,520 4,701
LONG-TERM LIABILITIES:
Retirement and postretirement benefits
(Notes H and I) 6,490 5,225
Deferred rent (Note M) 373 507
-------- --------
6,863 5,732
COMMITMENTS AND CONTINGENT LIABILITIES
(Notes C, J, K, L, and M)
MINORITY INTEREST (Note N) 3,023 4,457
STOCKHOLDERS' EQUITY (Notes G and O):
Common Stock, par value $.01 per share:
authorized, 25,000,000 shares, issued and
outstanding 15,838,408 - 1995 and 1994 158 158
Additional paid-in capital 58,137 58,137
Retained earnings, restricted (Notes G and O) 30,833 39,092
Cumulative foreign currency translation
adjustment (Note D) 282 282
Minimum pension liability (Note H) (447) (135)
-------- --------
88,963 97,534
-------- --------
$135,910 $146,115
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Sales $ 36,755 $ 71,494 $ 88,446
Other revenues 650 337 1,157
---------- ---------- ----------
Total Revenues 37,405 71,831 89,603
OPERATING COSTS AND EXPENSES:
Cost of sales 37,429 63,762 77,310
Selling, general, and administrative expenses 10,286 13,685 12,556
---------- ---------- ----------
Total Operating Costs and Expenses 47,715 77,447 89,866
---------- ---------- ----------
(LOSS) FROM OPERATIONS (10,310) (5,616) (263)
OTHER INCOME (EXPENSE):
Interest income 688 854 383
Interest expense (647) (1,615) (6,287)
Litigation recoveries (Note J) 3,225 950 4,200
Stockholder litigation settlement (Note J) (4,750)
Provision for impairment of investments: (Note D)
SRL (3,000)
Other (175) (3,074)
Gain on sale of 50% of rutile segment (Note C) 1,527
Equity in net earnings (loss) of affiliate (Note D) 526 1,613 (1,299)
Minority interest 1,434 1,321 1,166
---------- ---------- ----------
Total Other Income (Expense) 2,051 4,650 (9,661)
---------- ---------- ----------
(LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAX (EXPENSE) BENEFIT (8,259) (966) (9,924)
INCOME TAX (EXPENSE) BENEFIT (Note P) (14,645) 1,562
---------- ---------- ----------
(LOSS) FROM CONTINUING OPERATIONS (8,259) (15,611) (8,362)
EARNINGS FROM DISCONTINUED OPERATIONS (Note Q) 106
---------- ---------- ----------
(LOSS) BEFORE EXTRAORDINARY ITEM (8,259) (15,611) (8,256)
EXTRAORDINARY ITEM - Loss on early extinguishment
of debt (Note C) (826)
---------- ---------- ----------
NET (LOSS) $ (8,259) $ (15,611) $ (9,082)
---------- ---------- ----------
---------- ---------- ----------
EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE (Note B):
From continuing operations $ (.52) $ (1.02) $ (.55)
From discontinued operations .01
---------- ---------- ----------
(Loss) before extraordinary item (.52) (1.02) (.54)
Extraordinary item (.06)
---------- ---------- ----------
Net (loss) $ (.52) $ (1.02) $ (.60)
---------- ---------- ----------
---------- ---------- ----------
Average shares 15,839 15,306 15,134
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements
33
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS EXCEPT SHARES)
<TABLE>
<CAPTION>
Common Stock Cumulative
Outstanding Foreign
--------------------------- Additional Currency Minimum
Paid-in Retained Translation Pension
Shares Amount Capital Earnings Adjustment Liability
------------ ------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1992 15,128,474 $ 151 $ 51,105 $ 63,785 $ 156 $
Net (loss) (9,082)
Exercise of stock options 11,500 30
Compensation related to
non-qualified options 315
Net gain on issuance of stock
by subsidiary (Note N) 793
Tax benefit from common stock
transactions 1,613
Foreign currency translation
adjustment 223
Minimum pension liability (Note H) (280)
---------- ---------- ---------- ---------- ---------- ----------
Balance - December 31, 1993 15,139,974 151 53,856 54,703 379 (280)
Net (loss) (15,611)
Exercise of stock options 8,275 38
Issuance of common stock (Note J) 690,159 7 4,243
Foreign currency translation
adjustment (97)
Minimum pension liability (Note H) 145
---------- ---------- ---------- ---------- ---------- ----------
Balance - December 31, 1994 15,838,408 158 58,137 39,092 282 (135)
Net (loss) (8,259)
Minimum pension liability (Note H) (312)
---------- ---------- ---------- ---------- ---------- ----------
Balance - December 31, 1995 15,838,408 $ 158 $ 58,137 $ 30,833 $ 282 $ (447)
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements
34
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES (Note S):
Rutile $ $ 12,040 $ 17,069
Domestic (170) (2,034) (5,913)
--------- --------- ---------
Net cash provided by (used in) operating activities (170) 10,006 11,156
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures:
Rutile (16,378) (10,214)
Domestic (634) (929) (606)
Net proceeds from sale of minority interest-Domestic 4,950
Net cash proceeds from sale of 50% of SRL
(gross proceeds, $56.8 million) - Domestic 2,000 29,461
Additions to other assets:
Rutile (9) (305)
Domestic (2,353) (1,539) (2,127)
Additional investment in SRL (1,436)
Decrease (increase) in investments in and
advances to affiliates - Domestic 155 (74) (1,750)
--------- --------- ---------
Net cash provided by (used in) investing activities (2,268) (18,929) 19,409
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional indebtedness - Rutile 5,650 5,000
Payments of indebtedness:
Rutile (3,473) (2,796)
Domestic (644) (469) (22,635)
Restricted cash and investments:
Rutile (158) (3,106)
Domestic 190 (194) (2,304)
Stock option activity - Domestic 37 31
--------- --------- ---------
Net cash provided by (used in) financing activities (454) 1,393 (25,810)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,892) (7,530) 4,755
CASH AND CASH EQUIVALENTS - Beginning of year 8,946 20,555 15,800
CASH INCLUDED IN INVESTMENT IN RUTILE SEGMENT
AT DECEMBER 31, 1994 (4,079)
--------- --------- ---------
CASH AND CASH EQUIVALENTS - End of year $ 6,054 $ 8,946 $ 20,555
--------- --------- ---------
--------- --------- ---------
CASH PAID FOR:
Interest, net of $609 capitalized in 1994 $ 613 $ 2,119 $ 6,127
Income taxes $ 865 $ 3,090
NON-CASH TRANSACTIONS:
Conversion of advances to affiliate into common stock (Note D) $ 2,900 $ 2,500
Debenture retired in connection with sale of 50% of SRL $ 20,000
Stock issued to settle long-term liability (Note J) $ 4,250
Refinancing of IDR Bond $ 1,900
Minimum pension liability $ 312 $ (145) $ 280
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
A. BASIS OF PRESENTATION
The Company is engaged in operating natural resource properties for production
of kaolin and rutile (titanium dioxide) and in the production of kaolin-based
pigments. Kaolin products are sold to the paper industry primarily in the United
States and rutile is sold primarily to the paint pigment industry in the United
States, Europe and the Far East. The Company has a normal business cycle which
occurs over an extended period of time. Production facilities and raw material
supplies for the rutile operation are located in Sierra Leone, in west Africa.
As Sierra Leone is a third-world country, the operations are subject, at any
time, to the potentially volatile effects of political instability and economic
uncertainty often present in such countries.
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management of the Company 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. These estimates include rates of return on
investments and rates of discounting and salary escalation and other actuarial
assumptions used to evaluate retirement and postretirement benefits. Estimates
of mineral reserves are used as a basis for amortization of certain of the
Company's long-term assets. Events which have occurred in Sierra Leone since
early 1995 indicate that an impairment of assets has occurred and the Company
has recorded an impairment reserve based on information currently available. It
is likely that the amount of impairment will exceed the present reserve when
additional information related to damage to assets becomes available.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Nord Resources
Corporation, its majority-owned subsidiaries and its 50% interest in a rutile
mining operation ("SRL") (collectively the "Company"). All significant
intercompany transactions and balances are eliminated.
SRL as used in these financial statements includes Sierra Rutile Holdings,
Sierra Rutile Limited (the mining operation) and other subsidiaries of the
Company and Sierra Rutile Holdings that are economically dependent on the mining
operation. Financial statement amounts relating to SRL represent the Company's
proportionate share in each of the assets, liabilities and operations of SRL,
which were 100% owned by the Company
36
<PAGE>
through November 17, 1993 and 50% owned thereafter. As a result of the situation
described below, the Company's 50% investment in SRL is carried at the cost
basis of accounting in the consolidated balance sheets as of December 31, 1994,
as described in "Investment in SRL". Results of operations exclude SRL beginning
January, 1995. See Note C for summarized financial information regarding SRL.
Investments in 20% to 40%-owned affiliates and joint ventures and in affiliates
or joint ventures in which the Company's investment may temporarily be in excess
of 40% are carried using the equity method.
INVESTMENT IN SRL
In January 1995, the Company's 50% owned rutile mining operation in Sierra Leone
was attacked by non-government forces. As a result, SRL was forced to suspend
mining operations and subsequently terminated all nonessential personnel. The
resumption of operations is dependent upon many factors including existence of
adequate security for SRL's employees and the availability of adequate financing
to pay for the cost of resuming operations. Cost of resuming operations includes
repair or replacement of assets which have incurred damage and deterioration
during the period of suspension of operations and costs to reestablish and train
a workforce, replenish supplies and restore and recommission facilities. Until
SRL personnel can perform a detailed assessment of the condition of SRL's
assets, it is not possible to accurately estimate these costs. In addition, SRL
will likely continue to require funds to satisfy its obligations incurred while
mining is suspended. There is no certainty that adequate financing would be
available to fund the above noted costs, although management of the Company, SRL
and the other 50% owner of SRL are engaged in discussions with potential
financing sources. As a result of the above, management of SRL cannot estimate
when operations will resume at the Sierra Leone mine.
Prior to December 31, 1994, the Company proportionately consolidated its share
in each of the assets, liabilities and operations of SRL. As of December 31,
1994, the Company adopted the cost basis of accounting for its investment in SRL
because the mine was no longer controlled by SRL. The Company's investment
includes original cost plus undistributed earnings through December 31, 1994
plus SRL obligations to lenders, payment of which is guaranteed by the Company,
less related restricted cash (see Notes C and G). The consolidated statements of
operations and cash flows include the Company's proportionate share of
operations and cash flows of SRL through December 31, 1994. The Company intends
to resume proportional consolidation when it regains control of the mine.
FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. If the political climate in
Sierra Leone
37
<PAGE>
continues to be disruptive to business operations, if the cost to reestablish
operations is economically prohibitive or if funding for repairs and start-up
cost is not available, the Company may not be able to recover its investment in
SRL. As described in Note G, SRL is not in compliance with several covenants
contained in its bank financing agreements. Although SRL has obtained a
forebearance until January 1, 1997 for the payment of amounts due under the bank
financing agreements, the forebearance would terminate under certain
circumstances (see Note G). As a result, the Company's 50% share of amounts due
under the SRL loans of $23,458,000, payment of which is guaranteed by the
Company, is classified as a current liability.
The Company is in default of a financial covenant as guarantor of certain lease
agreements related to Kaolin operations, as further described in Note M, with
the amounts due under capital leases of $2,991,000 accordingly classified as a
current liability at December 31, 1995. The kaolin segment has incurred losses
and has required cash to fund its operations during the past several years,
primarily due to slower than anticipated market acceptance of a new product
line. Operating losses at this segment will likely continue until such time as
sufficient sales levels of the new products are attained, the timing of which is
not determinable by the Company.
The above factors have resulted in the Company having a working capital
deficiency and raise substantial doubt about the Company's ability to continue
as a going concern for a reasonable period of time.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to comply with the terms and covenants of its
financing and lease agreements, to obtain additional financing or refinancing as
may be required and ultimately to attain successful operations. Management of
the Company and SRL are continuing their efforts to obtain control of the mine
and to identify sources of funds so that SRL can meet its obligations and
sustain its operations. Management of the Company believes that improved markets
for its kaolin products will result in increased sales levels and, ultimately,
operating profits for the kaolin segment. However, management cannot provide any
assurance that these events will occur.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
38
<PAGE>
INVENTORIES
Inventories are carried at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT
Plant and equipment is depreciated using the straight-line method over the
estimated useful lives of the assets ranging from two to thirty years. Minerals
and mineral rights and dams and deposit development are depleted by the units-
of-production method over the estimated reserves.
MINE DEVELOPMENT COSTS
The Company defers costs directly attributable to the development of reserves.
Such costs are amortized by the units-of-production method over the estimated
reserves.
LONG-TERM ASSETS
A significant amount of the Company's assets are of a long-term nature. In the
preparation of its financial statements, the Company evaluates the carrying
amount of these assets through application of a number of techniques including
analysis of future cash flows, review of third party transactions with the
Company, obtaining third party valuations of assets and review of the underlying
operations of its affiliates. Any assets which may be deemed impaired are
written down to their estimated recoverable amount under a going concern
assumption.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Impairment of Long-Term Assets, and for Long-Lived Assets to be Disposed
of" which is effective January 1, 1996. This standard requires that long-term
assets be evaluated for impairment based on future undiscounted cash flows. The
Company has evaluated long-term assets of its kaolin operation and believes,
based on projected undiscounted cash flows, that no impairment reserve will be
required when the statement is adopted. However, if these projected cash flows
do not occur, an impairment reserve may be required.
NET EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings (loss) per common and common equivalent share are computed by dividing
net earnings (loss) by the weighted average number of common shares outstanding
during the year adjusted for the dilutive effect of common stock equivalents
when applicable.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1994 and 1993 consolidated
financial
39
<PAGE>
statements to conform to the classifications used in 1995. These
reclassifications had no effect on results of operations or stockholders' equity
as previously reported.
C. SRL
The Company sold 50% of its equity interest in SRL in November 1993 for initial
proceeds of $54,800,000 of which $33,600,000 was used to repay indebtedness,
with $826,000 of debt issuance costs written off as a loss from early
extinguishment of debt, which is reported as an extraordinary item. The Company
recognized a gain of $1,527,000 in the fourth quarter of 1994 as a result of
receiving an additional $2,000,000 as a final payment from this sale.
As explained in Note A, as of December 31, 1994 the Company adopted the cost
basis of accounting for its investment in SRL. The consolidated statements of
operations and cash flows include the Company's proportionate share of
operations and cash flows of SRL through December 31, 1994. During 1995, the
Company contributed $1,436,000 as its 50% share of funding for SRL's cash needs,
primarily to satisfy vendor payments and the limited ongoing operational cash
needs of SRL.
The following summarized financial information of the Company's 50% share of
SRL, which is derived from financial statements on which other auditors
disclaimed an opinion, has been prepared assuming the Company will continue as a
going concern. SRL employees have made limited visual inspections of the SRL
facilities. Based on this limited assessment of damage to SRL's assets, an
impairment reserve of $3,000,000 was recorded in 1995 as the Company's 50% share
of damage to assets . The impairment primarily consisted of the carrying cost of
small vehicles, foodstores, furniture and fixtures and certain buildings which
have been stolen, looted or destroyed. It does not include any amount for repair
or replacement of other equipment which may be damaged, as such amount cannot be
determined until a more detailed inspection of the assets can be made. The
Company will likely record an additional impairment reserve when a more
extensive damage assessment can be performed. If adequate security in and around
SRL's operations is not attainable or the estimated costs of resuming SRL's
operations in Sierra Leone are prohibitive, the Company may have to record an
impairment reserve against a portion or possibly all of its investment in SRL.
Although SRL will likely incur costs to restart the operations, the amount of an
additional impairment and costs to restart the operations cannot be estimated
currently. In addition, no assurance can be given that the financing for repairs
and restart of operations will be available to the Company or SRL.
40
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
BALANCE SHEET DATA - SRL 1995 1994
- ------------------------ ------ ------
(In thousands)
<S> <C> <C>
Current assets $ 2,687 $ 13,371
Property, plant and
equipment 56,271 58,375
Other assets 1,815 1,935
Restricted cash 2,431 2,934
--------- ---------
Total assets $ 63,204 $ 76,615
---------- ----------
---------- ----------
DECEMBER 31
-------------------
BALANCE SHEET DATA - SRL 1995 1994
------ ------
Obligations to lenders $ 23,458 $ 23,234
Other current liabilities 5,612 6,896
Other liabilities 115 2,435
-------- --------
Total liabilities 29,185 32,565
Foreign currency
translation adjustment (7) (3)
Company's share of equity 34,026 44,053
-------- --------
Total liabilities and
stockholders' equity $ 63,204 $ 76,615
---------- ----------
---------- ----------
The following is a reconciliation of the activity related to the company's cost
basis investment in SRL:
Investment in SRL at December
31, 1994 $ 64,353
Provision for impairment (3,000)
Additional investment 1,436
Changes in restricted cash and
obligations to lenders 728
-------
Investment in SRL at December
31, 1995 $ 63,517
---------
---------
</TABLE>
The following is summarized operating data for the Company's share of operations
of SRL. Amounts in 1995 and 1994 represent 50% of SRL, and amounts in 1993
41
<PAGE>
represent 100% of SRL through November 17, 1993 (date of sale) and 50% from the
date of sale to December 31, 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
OPERATING DATA - SRL 1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Sales $ 1,876 $ 30,263 $ 56,146
Other revenues 451 177 895
--------- --------- --------
Total revenues 2,327 30,440 57,041
Cost of sales 1,821 23,828 42,127
Termination and shutdown costs 5,250
Selling, general and
administrative 609 3,073 4,198
--------- --------- --------
Total operating costs and
expenses 7,680 26,901 46,325
Interest income 257 250 171
Litigation recoveries 3,700
Reserve for impairment (3,000)
Interest expense (1,848) (952) (2,918)
--------- --------- --------
Total other income (expense) (4,591) (702) 953
--------- --------- --------
Earnings (loss) before income
tax (expense) benefit (9,944) 2,837 11,669
Income tax (expense) benefit (83) (14,692) 3,639
--------- --------- --------
Net earnings (loss) $ (10,027) $ (11,855) $ 15,308
--------- --------- --------
--------- --------- --------
</TABLE>
INCOME TAXES - SRL
A deferred tax asset was generated primarily due to differences between
financial and tax bases of plant and equipment in Sierra Leone. Sierra Leone's
method of depreciation of plant and equipment is different from domestic tax law
in that it allows SRL to elect when to take a depreciation deduction and there
is no time limitation as to when the unused depreciation may be deducted. SRL
enjoyed a tax holiday in Sierra Leone through June 1987 and during that holiday,
it was not required to use any tax deduction for depreciation, creating a
substantial difference between financial statement and tax bases of plant and
equipment. As a result of the suspension of mining operations as described in
Note A, the
42
<PAGE>
Company has determined that a valuation allowance is required for the deferred
tax assets. Accordingly, income taxes of $14,645,000 in the Company's statement
of operations for the year ended December 31, 1994 included a charge of
$14,095,000 to increase the valuation allowance pertaining to SRL's deferred tax
assets. The deferred tax asset of SRL at December 31, 1995 was $15,400,000 with
a valuation allowance provided on the entire amount.
COMMITMENTS - SRL
In connection with the settlement of certain claims asserted by the government
of Sierra Leone (government), SRL has agreed to commit $6 million for projects
for the benefit of Sierra Leone. The projects, to be mutually agreed upon by the
government and SRL, will be phased over a period not less than 3 years beginning
in 1996. The Company anticipates that the capital projects, once they are
determined, will benefit Sierra Leone and become an integral part of the mining
operations of SRL.
CONTINGENCIES - SRL
The government of Sierra Leone has an option to acquire 47% of the shares of SRL
beginning January 2000 at a purchase price of $57,352,000. Each of the
shareholders of SRL would sell equal interests in SRL if this purchase option is
exercised.
The Company had certain amounts of insurance to cover risk of loss on its
investment in SRL due to political violence and expropriation of SRL's assets.
Under an insurance policy provided by an agency of the United States government,
certain levels of coverage are provided for the Company's share of damage to
property from political violence. Coverage by the same insurer is provided for
loss due to expropriation (any actions taken by a government which prevents the
Company from exercising rights or control over its investment). Collection under
the above policy is limited to $15.7 million for damages resulting from
political violence with policy limits of $23.7 million for losses which include
expropriation. This policy expired on December 31, 1995 and the insurer has
elected not to renew the coverage. The Company has filed an initial claim under
this policy for its share of damage from political violence based on the limited
damage assessments performed to date and anticipates that further claims will be
filed as additional information regarding damage to mine assets becomes
available. The insurer has acknowledged that the policy would likely cover
damage occurring to SRL's assets as a result of the January 1995 rebel
incursion, but has not yet responded to the Company's initial claim. The Company
has also put the insurer on notice that it may make a claim under the
expropriation portion of this policy. Another insurance policy carried by the
Company provides up to $8.4 million of coverage from a private insurer for loss
due to expropriation but specifically excludes damage to assets resulting from
political violence. This policy expired on March 31, 1995 and the insurer has
elected not to renew the coverage. The Company has filed an initial claim under
this policy and is corresponding with the insurer as to whether expropriatory
events, as defined in the policy, have occurred. The Company cannot estimate the
timing or amount of recoveries which may ultimately be available under either of
these two policies.
43
<PAGE>
D. INVESTMENTS IN AND ADVANCES TO AFFILIATES
<TABLE>
<CAPTION>
December 31
-------------------
1995 1994
---- ----
(In thousands)
Percent
Owned
-------
<S> <C> <C> <C>
Nord Pacific Limited:
Investment, at cost 35.3% $ 10,726 $ 10,726
Foreign currency
translation adjustment 282 282
Equity in cumulative net (loss) (3,679) (4,205)
Dividends received (167)
--------- ---------
Total investment 7,162 6,803
Advances 31 19
--------- ---------
Total Nord Pacific Limited 7,193 6,822
Manatee Gateway:
Investment, at cost 41.5% 3,539 3,539
Less valuation allowance (2,394) (2,219)
--------- ---------
Total Manatee Gateway 1,145 1,320
--------- ---------
$ 8,338 $ 8,142
--------- ---------
--------- ---------
</TABLE>
NORD PACIFIC LIMITED ("PACIFIC")
In February 1994, Pacific declared a stock bonus of seven additional shares for
each share outstanding (in effect an 8 for 1 stock split) prior to completing a
public offering in Australia. In connection with the public offering, the
Company converted $2,900,000 of its advances to Pacific into 3,488,721 shares of
common stock of Pacific, at a price of $.83 per share. As a result of these
transactions the Company's ownership in Pacific decreased from 47% at December
31, 1993 to 35.3% currently. The Company's share of equity in net assets in
excess of its investment is being amortized over ten years.
The aggregate market value of the Company's investment in Pacific at December
31, 1995, based on the average of the bid and asked price (NASDAQ bid and asked)
at December 31, 1995 of $.68 per share, was $11,404,000.
The following is summarized information from the audited financial statements of
Pacific. The deferred exploration, development and other costs appearing on the
balance sheet of Pacific relate primarily to three properties. The Company has
obtained financial analyses of each of these properties from Pacific and based
on review of the information
44
<PAGE>
supplied by Pacific and the position expressed by Pacific as to the expected
recovery of its investment in these key properties, the Company believes that it
will recover its investment in Pacific.
<TABLE>
<CAPTION>
December 31
-------------------
Balance Sheet Data - Pacific 1995 1994
- ---------------------------- ---- ----
(In thousands)
<S> <C> <C>
Current assets $ 6,730 $ 9,957
Restricted cash 1,080 1,024
Forward currency exchange contracts 849
Premium on derivative financial instruments 960
Property, plant and equipment 5,919 5,612
Deferred exploration,
development and other costs 19,977 15,408
------- --------
Total assets 34,666 32,850
Current liabilities 6,790 5,940
Payable on derivative financial instruments 883
Deferred income taxes 1,120
Long-term debt 2,244 3,949
Retirement benefits 169 148
------- --------
Shareholders' equity $ 23,460 $ 22,813
------- -------
------- -------
Company's share of equity (35.3%) $ 8,281 $ 8,049
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
Operating Data - Pacific 1995 1994 1993
- ------------------------ ------ ------ ------
(In thousands)
<S> <C> <C> <C>
Sales $ 14,074 $ 11,293 $ 4,674
Less costs and expenses (11,038) (10,059) (6,787)
Forward currency
transaction gain (loss) (378) 515 (204)
Gain (loss) on foreign
currency contracts (279) 2,535 14
Provision for taxes (1,120)
Other income (expense) (156) (295) (734)
-------- ------- -------
Net earnings (loss) $ 1,103 $ 3,989 $ (3,037)
------- ------- -------
------- ------- -------
Charges from the Company
included in costs and expenses $ 361 $ 342 $ 551
------- ------- -------
------- ------- -------
</TABLE>
45
<PAGE>
The consolidated financial statements of Pacific include Pacific's 40%
proportionate interest in the assets, liabilities and costs and expenses of the
joint venture related to a copper property.
MANATEE GATEWAY
The Company, through its wholly-owned subsidiary, Nord Manatee Ltd., has an
interest in an inactive joint venture which holds approximately 200 acres of
undeveloped real property in Manatee County, Florida. Contributions to the
venture are required in the same ratios as the participants' interests. Based
on a 1993 review of the underlying real estate and potential uses, the Company
believed that its investment in Nord Manatee Ltd. was impaired. Accordingly,
the Company recorded a $2,219,000 provision for impairment during the fourth
quarter of 1993. In 1996, Manatee Gateway executed a letter of intent to sell
the Manatee Gateway property which resulted in an additional $175,000 provision
for impairment being recorded by the Company in the fourth quarter of 1995.
E. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31
----------------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Land $ 583 $ 583
Minerals and mineral rights 5,059 5,076
Buildings 5,573 5,406
Mining, exploration and
milling equipment 52,501 52,285
Office equipment 524 670
Construction-in-process 42 532
------- -------
64,282 64,552
Less accumulated depreciation
and depletion 29,908 27,748
------- -------
$ 34,374 $ 36,804
-------- -------
-------- -------
</TABLE>
Equipment with a net carrying amount of approximately $3,744,000 is temporarily
idle at December 31, 1995 due to market conditions. In the opinion of
management, there has been no impairment of value with respect to this
equipment.
46
<PAGE>
Capital leases included in property and equipment consist of:
<TABLE>
<CAPTION>
December 31
----------------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Mining and milling equipment $ 5,101 $ 5,101
Less accumulated depreciation 2,616 2,239
------- -------
Capital leases - net $ 2,485 $ 2,862
------- -------
------- -------
</TABLE>
F. OTHER ASSETS
<TABLE>
<CAPTION>
December 31
----------------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Mine development costs $ 2,991 $ 3,016
Non-Qualified Trusts for funding of
retirement benefits: (Note H)
Cash surrender value of life
insurance, net of policy loans
of $1,393 in 1995 and $1,194 in 1994 2,055 1,793
Investments 970
Deferred stripping 1,286 1,370
Advance royalties 1,272 1,040
Unamortized pension cost 218 78
Other 792 856
------- -------
$ 9,584 $ 8,153
------- -------
------- -------
</TABLE>
G. INDEBTEDNESS
<TABLE>
<CAPTION>
December 31
----------------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Sierra Rutile Limited (Note A and C):
Financing lines of credit $ 16,497 $ 16,497
Non-interest bearing bank financing 6,265 6,737
Other 696
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C>
Nord Kaolin Company:
Industrial Revenue Bonds, due in
annual payments through 2004 1,710 1,900
Capital leases (Note M) 2,991 3,364
Parent - Other 81
------- -------
28,159 28,579
Less: Current maturities 190 644
Classified as current:
Obligations to lenders - SRL 23,458 23,234
Obligations in default - NKC 2,991
------- -------
$ 1,520 $ 4,701
------- -------
------- -------
</TABLE>
Maturities of the Industrial Revenue Bonds are $190,000 for each of the next
five years.
SRL (100%, WITH THE COMPANY'S SHARE NOTED PARENTHETICALLY)
SRL has bank financing lines of credit provided by four institutions, primarily
to fund capital expenditures. As of December 31, 1995, SRL had $32,994,000
($16,497,000) outstanding at rates ranging from 7.2% to 11% per annum and
$10,480,000 has not been borrowed under these lines of credit. Amounts borrowed
are payable in semi-annual installments over 6-8 year periods, with early
payments subject to prepayment penalties. SRL has agreed to pay commitment fees
of up to 1% per annum on any unused amount of the lines; however, the
requirement to pay a commitment fee was waived until January 1, 1997. The
suspension of the rutile mining operation as described in Note A and violations
of various financial covenants constitute events of default under the financing
agreements. The lenders have agreed to forebear from accelerating the
maturities of the loans or enforcing their rights against any collateral until
January 1, 1997 to allow SRL time to determine the damage to the mining
operation, assess the political situation in Sierra Leone and develop and
present a plan for refinancing, rehabilitating and reopening the mining
operation. During this period of forebearance, the lenders have suspended their
disbursement obligation under the lines of credit and prohibited any dividend
payment or any other payments by SRL to the Company except for reimbursement of
operating or administrative expenses for the benefit of SRL. In addition, SRL
is required to expend at least $500,000 each quarter to pay for its liabilities
and purchases. The forebearance agreement would terminate if there is a
material change in circumstances, including if certain actions are taken by the
Company's lessors as a result of current covenant violations under the leasing
agreements (Note M). As of December 31, 1995, SRL's obligations to the lenders
along with accrued interest of $1,392,000 ($696,000) have been classified in the
balance sheet as a current liability. Principal payments of $15,006,000
($7,503,000) which are being deferred under the forebearance are due on January
1, 1997. Under the forebearance the lenders have agreed to release SRL from an
obligation to maintain
48
<PAGE>
certain funds in escrow for payment of amounts due the lenders. From the amount
in the escrow account at December 31, 1995, the lenders received $4,862,000
($2,431,000) as payment of all amounts (except principal) which would be due the
lenders during the forebearance period.
SRL also owes $12,530,000 ($6,265,000) under a non-interest bearing bank
financing agreement. This loan is also in default similar to the above noted
loans and at December 31, 1995 has been classified in the balance sheet as a
current liability. This lender is also a party to the above mentioned
forebearance agreement. Prior to December 31, 1994, amounts due under this loan
were discounted at 11% and imputed interest on non-interest bearing debt was
recorded on the balance sheets, as there were no fixed and determinable payment
terms for this financing agreement at the time of the Company's acquisition of
SRL. The forebearance agreement requires SRL to pay interest at 10% on the
deferred payments ($1,671,000 at December 31, 1995) otherwise due under this
loan.
The financing agreements contain restrictive covenants relating to SRL including
requirements to maintain minimum current and debt coverage ratios and a limit on
indebtedness compared to net worth. In addition, SRL is restricted as to the
amount of dividends it may declare in any one year to 90% of its cash balance as
of the prior year end, with a maximum annual dividend of $7,500,000 ($3,750,000)
prior to "project completion", as defined. SRL must also be in compliance with
its financial covenants in order to pay a dividend. Additional covenants under
these agreements include restrictions on change of control of SRL and
limitations on additional indebtedness at SRL.
Under these financing arrangements, SRL has committed to complete an $83,300,000
capital expansion program of which $58,000,000 had been expended through
December 31, 1995. Prior to "project completion", the Company has guaranteed
payment of its 50% share of amounts owed to the lenders. The completion of
certain events are required for SRL to attain "project completion" including
construction or procurement of certain capital assets, attainment of certain
production and sales levels, generation of minimum amounts of net earnings and
net worth and maintenance of certain financial ratios.
Separately, as part of the forebearance, and as security for its guarantee, the
Company has pledged proceeds it may receive from claims made under a political
risk insurance policy issued by an agency of the United States government (Note
C). The Company will be able to retain the first $2.7 million of the proceeds.
Any additional proceeds will be held in trust and funds shall be released from
the trust when the Company's 50% share of the deferred principal payments have
been made and no events of default exist under the financing agreements.
49
<PAGE>
NORD KAOLIN COMPANY (NKC)
NKC has $1.7 million in Industrial Development Bonds payable in annual
installments of $190,000 and bearing interest at a variable rate (5.3% at
December 31, 1995). The Company has secured payment of the bonds by obtaining a
letter of credit in an amount equal to 120% of the amount of the bonds
outstanding plus six months of interest. The letter of credit is secured by
funds invested by the Company which are restricted as to withdrawal.
The net assets of NKC, which are restricted under lease agreements as to
transfer to the Company, are $34.7 million at December 31, 1995.
OTHER
The fair value and related carrying value of the Company's debt, excluding
capital leases, at December 31, 1995 and 1994 was $25,168,000 and $25,215,000,
respectively. The fair value of debt is equivalent to the face value because
the SRL debt is classified as current and the Industrial Revenue Bonds have a
variable rate.
H. RETIREMENT BENEFITS
The Company has an unfunded non-contributory defined benefit plan for certain of
its executive officers and management personnel ("Management Plan"). The
Company has non-qualified trusts which were established in 1989 related to this
plan, and the trusts hold assets valued at $3,025,000 (Note F). Effective in
1995, the plan was amended to permit certain officers to elect a discounted lump
sum distribution limited to the amounts held in the trusts. The Company has
committed to contribute $850,000 and $650,000 to the trusts in 1996 and 1997,
respectively. The Company also has a qualified non-contributory defined benefit
plan covering its domestic bargaining hourly employees ("Hourly Plan"). The
Company's funding policy has been to contribute an amount in excess of the
minimum required by Federal regulations.
50
<PAGE>
The following sets forth the funded status and amounts recognized in the
Company's balance sheets at December 31:
<TABLE>
<CAPTION>
Hourly Plan Management Plan
----------- ---------------
1995 1994 1995 1994
------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C>
Present value of accumulated
benefit obligation:
Estimated present value
of vested benefits $ 1,109 $ 634 $ 5,867 $ 4,608
Estimated present value
of non-vested benefits 5 18 31 27
------ ----- ------ ------
Present value of accumulated
benefit obligation 1,114 652 5,898 4,635
Estimated effect of salary
and benefit increases 25 1,072 1,017
------ ------ ------ ------
Projected benefit obligation 1,114 677 6,970 5,652
Less plan assets at fair
market value 737 567
------ ------ ------ ------
Excess of projected benefit
obligation over plan assets 377 110 6,970 5,652
Unrecognized transition
obligation (24) (29) (134) (276)
Unrecognized prior service cost (44) (50) (128) (147)
Unrecognized net loss
including effects of
changes in assumptions (447) (159) (960) (152)
Minimum pension liability 515 213 150
------ ------- ------ ------
Accrued pension cost $ 377 $ 85 $ 5,898 $ 5,077
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Statement of Financial Accounting Standard No. 87, "Employers' Accounting for
Pensions," requires recognition of a minimum pension liability. A corresponding
amount is recognized as either an asset or a reduction of equity. As of
December 31, 1995, the Company recorded a minimum pension liability of $665,000,
an asset of $218,000 and an equity reduction of $447,000.
51
<PAGE>
Net pension expense consists of the following components:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
1995 1994 1993
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Service costs - benefits
earned during the period $ 206 $ 87 $ 137
Interest on projected
benefit obligation 521 476 469
Actual return on plan assets (110) 8 (24)
Net amortization and deferral 143 342 372
----- ----- -----
Net pension expense $ 760 $ 913 $ 954
----- ----- -----
----- ----- -----
</TABLE>
The discount rate, the estimated rate at which the Hourly Plan could settle its
liabilities, and the expected long-term rate of return on plan assets was 7% in
1995, 8% in 1994 and 7% in 1993. The assumed discount rate for the Management
Plan was 7.5% in 1995, 8% in 1994 and 7% in 1993. The assumed rate of future pay
increases for both plans was 5%.
I. POSTRETIREMENT BENEFITS
The Company provides certain supplementary medical insurance to bargaining
hourly employees upon retirement. These benefits are expensed during the years
an employee provides service.
The following table sets forth the supplemental medical insurance plan's funded
status:
<TABLE>
<CAPTION>
December 31
-------------------
1995 1994
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation: (in thousands)
Retirees $ 15 $ 9
Disabled participants 18 13
Other active plan participants 208 124
----- -----
Accumulated postretirement benefit obligation 241 146
Unrecognized transition obligation (177) (204)
Unrecognized gain 22 121
----- -----
Accrued post retirement benefit $ 86 $ 63
----- -----
----- -----
</TABLE>
52
<PAGE>
Net postretirement benefit expense consists of the following components:
<TABLE>
<CAPTION>
Year Ended
December 31
---------------
1995 1994 1993
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Service cost $ 8 $ 12 $ 12
Interest cost 12 13 13
Net amortization 7 9 9
---- ---- ----
Net postretirement benefit expense $ 27 $ 34 $ 34
---- ---- ----
---- ---- ----
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation at December 31, 1995 was 9.7% for 1996
decreasing linearly each successive year until it reaches 6.5% in 2005, then
remains constant until 2017 when it decreases to 5.5%. A one percentage point
increase in the assumed health care cost trend rate for each year would increase
the accumulated postretirement benefit obligation and net postretirement health
care cost by approximately 30% at December 31, 1995. The assumed discount rate
used in determining the accumulated postretirement benefit obligation was 7% in
1995 and 8% in 1994.
J. LITIGATION
STOCKHOLDER
During 1993, the plaintiffs and defendants agreed to the settlement of a class
action complaint, filed initially in 1990, against the Company and certain of
its officers and directors. The final settlement was approved by the United
States District Court in December 1994 and the case was dismissed. The Company
settled the litigation through issuance of 690,159 shares of its common stock at
a value of $4,250,000 and payment of $500,000 in cash, plus the payment of
notice and administration costs of $76,000. The amount of the settlement was
recorded in the financial statements at December 31, 1993. The number of shares
to be issued as part of the settlement was determined and included in shares
outstanding in the fourth quarter of 1994 and distribution of the shares
occurred in January 1995.
RECOVERIES
The Corporation has reached settlement with all defendants in civil actions it
filed after receiving an award in 1992 from an arbitration initiated by SRL
against a former sales agent. As a result, all proceedings related to this
matter have been resolved.
The Company is a party to other claims and lawsuits incidental to its business.
In the
53
<PAGE>
opinion of management, after consultation with legal counsel, the ultimate
outcome of such matters, in the aggregate, will not have a material effect upon
the Company's financial position or results of operations.
K. COMMITMENTS
The Company has agreements with certain employees of the Company or its
affiliates which contain change in control provisions which would entitle two
employees to receive three times their salary in the event of a change in
control of the Company (as defined) and four other employees to receive up to
two times their salary in the event of a change in control and a change in
certain conditions of their employment. The maximum contingent liability under
these agreements is approximately $3,050,000 at December 31, 1995. In addition,
the Company has an agreement with its salaried employees which would entitle a
covered employee to receive up to six months of salary in the event of a change
in their employment status resulting from a change in control of the Company or
its sale of a business unit.
L. ROYALTY AGREEMENT
NKC has entered into a license agreement to produce and sell products using the
Norplex-Registered Trademark- technology. The license extends through June
1998, with NKC having the option to extend the license for two successive five
year periods. The license allows NKC exclusive rights through 1999, with a five
year extension of exclusive rights available to NKC if certain levels of
Norplex-Registered Trademark- product revenues are attained. The license
agreement requires payment of an annual royalty of 1-1/2% on Norplex-Registered
Trademark- product revenues up to $60 million and 2% on Norplex-Registered
Trademark- product revenues in excess of $60 million. NKC is required to pay
minimum monthly royalties of $35,100, adjusted annually by the change in the
United States Bureau of Labor Statistics Consumer Price Index. NKC may
terminate the license agreement upon 30 days notice to the licensor. To date
the Company has paid the minimum monthly royalty required by this agreement.
NKC has paid $560,000 through December 31, 1995, related to obtaining foreign
patents for the licensor and these payments are available to reduce future
payments in excess of the minimum required under the agreement.
M. LEASES
Rail cars used to transport the Company's products are leased for periods up to
ten years and generally contain renewal options. Lease payments are reduced by
credits earned for rail car usage on a mileage basis. The Company had no net
cost in 1995, 1994 and 1993, for these rail car leases, after reduction for
mileage usage credits.
NKC entered into a master lease agreement under which $21,725,000 of equipment
54
<PAGE>
has been provided to NKC. Approximately $16,700,000 of equipment was provided
under operating leases which require payments over a 10-year period, with
payments in the initial five years at a lesser amount than in the final five
years. NKC has recognized the lease expense on a straight-line basis over the
term of the lease, with the resulting difference recorded as a long-term
liability of $373,000 at December 31, 1995. NKC has an option to purchase the
equipment at the end of the initial lease term at the greater of its fair value
or 20% of original cost. An additional $5,025,000 was provided for equipment
under two capital leases which require payments over 7-1/2 and 10-year periods
with options to purchase the equipment at the greater of its fair value or 20%
of original cost and 17.5% of original cost, respectively, at the end of the
lease term. If the options to purchase are not exercised under the leases, the
lessors may elect to extend the leases for an additional eighteen months at the
existing lease rates.
Payments under these lease agreements are guaranteed by the Company. The
guarantee contains restrictive covenants including a minimum cash flow coverage
to current maturities of 1.5 to 1.0 and a liabilities to tangible net worth
ratio not to exceed 1.5 to 1.0. The Company's ability to comply with the above
covenants has been adversely impacted by the suspension of SRL's operations and
the Company is in violation of the cash flow covenant at December 31, 1995. As
a result of the covenant violation, the lessors have certain rights under the
lease including the ability to require payment of liquidated damages of $14.5
million including the $3.4 million noted below, and could elect to terminate the
leases and take possession and retain ownership of the equipment. The lease
agreements also place restrictions on the amount of cash which NKC may transfer
to the Company and limit repayment of advances previously made by the Company to
NKC in the event of a covenant violation. The Company has requested a waiver of
the covenant but has not been able to reach an agreement with the lessors and
cannot determine the willingness of the lessors to agree to any waiver or
modification of lease terms which would be acceptable to the Company.
Certain of the leases have been considered capital leases under generally
accepted accounting principles and, accordingly, an asset has been recognized by
NKC, along with corresponding indebtedness. At December 31, 1995 the net book
value of equipment leased under these capital leases was $2.5 million, while
$3.0 million of indebtedness was outstanding. As a result of the lease covenant
violation at December 31, 1995, the indebtedness outstanding under the capital
leases has been classified as an Obligation in Default and a current liability
in the Consolidated Balance Sheets at December 31, 1995. The liquidated damages
associated with these leases was $3.4 million at December 31, 1995.
If the lessors request payment of liquidated damages, the Company does not
presently have the financial resources available to pay the entire amount of the
liquidated damages. Consequently, the Company would have to seek additional
funds, if available, from as yet undetermined sources, which may or may not be
available to the Company on conditions acceptable to the Company. If the
lessors terminate the leases and take possession of the equipment, such an event
would have a material adverse
55
<PAGE>
effect on NKC's ability to operate its business.
Minimum annual lease payments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Operating Leases
-----------------------
Year Ending Office & Capital
December 31 Railcars Equipment Leases
---------------- -------- --------- -------
(In thousands)
<S> <C> <C> <C>
1996 $ 1,640 $ 3,090 $ 756
1997 1,480 2,910 756
1998 1,400 2,760 756
1999 765 1,440 756
2000 410 20 664
Future 220 430
------ ------ ------
Total $ 5,915 $ 10,220 4,118
------ ------
------ ------
Less amount representing interest 1,127
------
Capital lease commitments $ 2,991
------
------
</TABLE>
Total rent expense for leases other than rail car leases during the years ended
December 31, 1995, 1994 and 1993 was $3,574,000, $3,922,000 and $4,159,000,
respectively.
The Company operates twelve kaolin open pit mines, of which nine are on leased
property, and controls or owns a number of other leasehold interests and
properties containing reserve deposits. The lease terms range from one to
twenty-four years and generally contain renewal options. The Company is
obligated to pay the lessors minimum royalties of $152,000 in 1996 whether the
properties are mined or not. A substantial portion of these leases containing
minimum royalty requirements may be canceled at the Company's option on thirty
days notice.
N. MINORITY INTEREST
In March 1993, the Company and a subsidiary entered into a Stock Purchase
Agreement ("Agreement") under which a 20% interest in Norplex, Inc. ("Norplex"),
which owns NKC, was sold to an investor. The investor also received an option
to purchase an additional 31% interest in Norplex from the Company at a price
which increases from $31,000,000 during 1996 to $36,000,000 through June
30,1997, after which it expires if unexercised. Under this option, the price
received by the Company would be reduced by an amount, determined at exercise
date, equal to the cumulative amount of
56
<PAGE>
temporary tax differences of Norplex plus operating losses used by the Company
multiplied by Norplex's marginal tax rate and the percentage of Norplex owned by
the investor after exercise. This amount is estimated to be $5,900,000 at
December 31, 1995, if the investor had exercised the 31% option at that date.
This agreement also requires NKC to purchase a portion of its raw materials from
this investor at market prices.
The gain of $3,056,000 from the sale of a minority interest and the reduction of
$1,512,000 of deferred royalty payments as a result of this sale along with
$216,000 of legal and organizational costs, net of income tax of $535,000, have
been included in 1993 as a net increase in additional paid-in capital of
$793,000.
Related party transactions with the minority investor in Norplex include the
following (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31
-----------------
1995 1994
------ ------
<S> <C> <C>
Sales - SRL $ 8,120
Raw material purchases - NKC $ 10,525 $ 12,097
</TABLE>
57
<PAGE>
O. STOCKHOLDERS' EQUITY
STOCK OPTIONS
Under the Company's various stock option plans, options have been granted at
market price at date of grant (incentive stock options) and at less than market
price at date of grant (non-qualified stock options). Options are generally
exercisable beginning one year from date of grant and expire ten years from date
of grant.
A summary of the option transactions is as follows:
<TABLE>
<CAPTION>
Purchase Price
SHARES PER SHARE
--------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1992 1,269,964 $2.67 - $10.50
Granted 176,950 4.88 - 6.75
Exercised (11,500) 2.67
Terminated (20,525) 5.50 - 8.25
Cancelled (33,750) 4.00
-----------
Outstanding at December 31, 1993 1,381,139 2.67 - 10.50
Granted 149,000 5.13
Exercised (8,275) 2.67 - 5.50
Terminated (85,485) 4.83 - 8.25
-----------
Outstanding at December 31, 1994 1,436,379 2.67 - 10.50
Granted 169,850 5.00 - 5.61
Terminated (183,753) 5.00 - 10.50
Expired (64,575) 2.67 - 5.61
-----------
Outstanding at December 31, 1995 1,357,901 4.88 - 8.25
-----------
-----------
</TABLE>
All outstanding options are exercisable at December 31, 1995 except 121,135
options at a purchase price of $5.00 per share. In addition, 357,212 shares are
available for future option grants.
The Company also has granted options to a consultant to purchase 150,000 shares
of common stock at a purchase price of $5.63 per share and 50,000 shares of
common stock at a purchase price of $7.00 per share, both of which expire on
July 1, 1997.
A total of 1,915,113 shares are reserved for exercise of the above described
stock options.
58
<PAGE>
OTHER
In connection with the settlement of the stockholder class action litigation
(see Note J), the Company issued 690,159 shares of its Common Stock in January
1995. Because the number of shares in this settlement was determined during the
fourth quarter of 1994, the shares were considered to be outstanding at December
31, 1994.
Retained earnings are not available for dividends since retained earnings of the
Company are comprised of the cumulative amount of undistributed earnings of
foreign subsidiaries, the distribution of which is limited under the terms of
the financing lines of credit.
The Company measures compensation cost for stock options issued to employees
using the intrinsic value based method under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." In October 1995, the
Financial Accounting Standards Board issued Statement No. 123, "Accounting for
Stock-Based Compensation", which encourages but does not require the adoption of
the fair value method of accounting for stock options and similar equity
instruments. This standard requires adoption no later than fiscal years
beginning after December 15, 1995. The Company has elected to continue to
measure compensation cost in accordance with APB No. 25 and in 1996 will adopt
the additional disclosure provisions of SFAS No. 123.
P. INCOME TAX
Income tax expense (benefit) includes the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
---- ---- ----
Domestic: (in thousands)
<S> <C> <C> <C>
Currently payable $ $ (47) $ 16,181
Reduction for use of net
operating loss carryforwards (14,103)
Current deferred (306) 283 277
Long-term deferred (1,634) (2,009) 8,768
Change in valuation allowance 1,940 1,726 (9,045)
--------- --------- ----------
Total domestic $ 0 (47) 2,078
---------
---------
SRL:
Currently payable 1,060 1,979
Current deferred (691)
Long-term deferred 228 (5,391)
Change in valuation allowance 14,095 (228)
--------- ----------
Total SRL 14,692 (3,640)
--------- ----------
Income tax expense (benefit) $ 14,645 $ (1,562)
--------- ----------
--------- ----------
</TABLE>
59
<PAGE>
As a result of the suspension of mining operations as described in Note A, the
Company has determined that a valuation allowance is required for SRL's deferred
tax assets. Accordingly, income tax expense for the year ended December 31,
1994 includes a charge of $14,095,000 to increase the valuation allowance
pertaining to SRL deferred tax assets.
The principal current and long-term deferred tax assets and (liabilities) are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1994
---- ----
(in thousands)
<S> <C> <C> <C>
Current domestic deferred tax assets
and (liability):
Accrued expenses $ 249 $ 296
Gain on sale of 50% of SRL (680)
Net operating loss carryforwards 289
Other 57 95
Valuation allowance (306)
------- -------
Total domestic $ 0 $ 0
------- -------
------- -------
DECEMBER 31
--------------
1995 1994
---- ----
Long-term domestic deferred tax assets (in thousands)
and (liabilities):
Deferred tax assets:
Affiliate losses - Nord Pacific $ 1,716 $ 1,838
Deferred compensation 1,877 1,693
Impairment of investments and assets 1,105 1,045
Net operating loss carryforwards 9,476 7,387
Tax credit carryforwards 3,497 3,528
Other 192 239
-------- --------
17,863 15,730
Deferred tax (liabilities):
Mine development and exploration (823) (804)
Depreciation (6,808) (6,800)
Minority interest (1,333) (846)
Other (215) (230)
-------- --------
(9,179) (8,680)
-------- --------
Net domestic deferred tax asset 8,684 7,050
Valuation allowance (8,684) (7,050)
-------- --------
Total domestic $ 0 $ 0
-------- --------
-------- --------
</TABLE>
60
<PAGE>
The domestic valuation allowance for deferred tax assets represents a 100%
valuation allowance. Based upon the earnings history of the Company's domestic
operations, it is more likely than not that the Company will be unable to
generate enough income to take advantage of the net operating loss carryforwards
and related tax credits.
Domestic income taxes have not been provided on undistributed earnings of SRL
aggregating $33,100,000 at December 31, 1995 which the Company intends to
reinvest in SRL. The unrecognized domestic deferred tax liability for the
temporary differences related to the Company's investment in SRL was $8,100,000
at December 31, 1995.
Income taxes differ from the amount computed by applying the U.S. statutory
federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Tax (benefit) at statutory rate $ (2,808) $ (328) $ (3,374)
Increase (decrease) in taxes
resulting from:
Additional foreign asset recognized (7,066)
Repatriation of foreign earnings 21,048
Change in valuation allowance 1,940 15,821 (9,273)
Rate difference related to
alternative minimum tax (2,825)
Rate difference on foreign earnings 85 342
Percentage depletion (272) (272) (229)
Non (taxable) deductible foreign
(income) expense 1,020 (634)
Other 120 (27) (185)
-------- -------- --------
Income tax expense (benefit) $ 0 $ 14,645 $ (1,562)
-------- -------- --------
-------- -------- --------
</TABLE>
FEDERAL
At December 31, 1995, the Company had a net operating loss carryforward for
domestic income tax purposes totaling $27,870,000 available to be carried
forward to future periods. This carryforward expires from 2006 to 2010. The
Company also had general business credit carryforwards of $547,000, which expire
from 1996 to 2010, and foreign tax credits of $1,910,000, which expire in 1997
and 1998, available to reduce the Company's future tax liability.
The Alternative Minimum Tax (AMT) requires a separate tax computation from
regular tax, based on a 20% rate. For AMT purposes, net operating loss
carryforwards are adjusted by certain tax preference items, including the
percentage depletion deduction previously taken by
61
<PAGE>
the Company. The Company has paid $1,040,000 of AMT and such amount is
available to be used as a credit in future years to the extent that regular tax
exceeds the AMT.
FOREIGN
The Company's principal foreign interest is a 50% subsidiary (SRL) which is
assessed income tax at a 37.5% rate with a minimum tax payment equal to 3.5% of
net sales. SRL has received notification from tax authorities in Sierra Leone
regarding their acceptance of income tax returns filed through 1988. As a
result, $18,842,000 of tax deductions for depreciation which had previously been
utilized became available and the Company increased its deferred tax asset by
$7,066,000 and recognized the corresponding income tax benefit in 1993.
Q. DISCONTINUED OPERATIONS
In August 1993 the Company disposed of the perlite operations for $1,270,000 in
cash, for a gain of $106,000. During 1993 the Company charged $931,000 for
operating losses of the perlite operations to the provision for operating
losses. Sales from the perlite operations of $2,424,000 for the year ended
December 31, 1993 have been excluded from continuing operations.
R. RESEARCH AND DEVELOPMENT
Research and development costs were $1,098,000 for 1995, $1,042,000 for 1994,
and $1,071,000 for 1993. These costs are primarily associated with new product
development at NKC.
62
<PAGE>
S. CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
Increase (Decrease) in cash and cash equivalents 1995 1994 1993
------------ ------------ ------------
RUTILE SEGMENT (none in 1995)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (11,855) $ 15,308
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 6,212 10,999
Deferred income taxes 13,632 (5,619)
Imputed interest expense 28 180
Cumulative effect of change in accounting
principle
Change in assets and liabilities:
Accounts receivable (2,088) 2,987
Inventories 1,142 (3,094)
Prepaid expenses (646) 611
Accounts payable 3,234 (4,272)
Accrued expenses 1,110 970
Long-term liabilities 1,271 (1,001)
--------- ----------
Net cash provided by Rutile operating activities $ 12,040 $ 17,069
--------- ----------
--------- ----------
DOMESTIC
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(8,259) $ (3,756) $ (24,390)
Adjustments to reconcile net (loss) to net
cash provided by (used in) operating activities:
Equity in net (earnings) loss of affiliates (526) (1,613) 1,299
Depreciation, depletion and amortization 3,986 4,309 4,790
Gain on sale of 50% of rutile segment (1,527)
Deferred income taxes 1,078
Extraordinary item - loss on early
extinguishment of debt 826
Compensation related to non-qualified
options 315
Minority interest (1,434) (1,321) (1,166)
Stockholder litigation settlement 4,250
Provision for impairment of investments 3,175 3,074
Raw material contributed by investor 5,050
(Earnings) loss from discontinued operations (106)
Change in assets and liabilities, excluding
effects of dispositions and discontinued
operations:
Accounts receivable 2,743 (1,322) (1,886)
Inventories 82 573 (117)
Prepaid expenses 156 (281) (91)
Accounts payable (599) 3,324 (597)
Accrued expenses (312) (1,171) 1,046
Long-term liabilities 818 751 971
Net cash used in discontinued operations (441)
--------- ----------- -----------
Net cash provided by (used in) Domestic
operating activities $ (170) $ (2,034) $ (5,913)
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
63
<PAGE>
T. INDUSTRY SEGMENTS
The Company's reportable industry segments are its domestic kaolin operation and
its Sierra Leone rutile operation. Because of the situation described in
footnote C relating to the rutile segment, the Company's only operating business
segment in 1995 is the kaolin segment. Financial data by reportable industry
segment for 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Operating Depreciation Identi-
Earnings Depletion and Capital fiable
Sales (1) (Loss) (2) Amortization Expenditures Assets
--------- ---------- -------------- ------------ -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
-----------------------------
Industry segments:
Kaolin (domestic) $ 41,231 $ (4,693) $ 3,703 $ 929 $ 53,776
Rutile (foreign) 30,263 3,789 6,212 16,378
--------- --------- -------- -------- ---------
71,494 (904) 9,915 17,307 53,776
Corporate and other non-
segment items (2,996)(3) 119 0 92,339(4)
--------- --------- -------- -------- ---------
Total $ 71,494 $ (3,900) $ 10,034 $ 17,307 $ 146,115
--------- --------- -------- -------- ---------
--------- --------- -------- -------- ---------
Year Ended December 31, 1993:
-----------------------------
Industry segments:
Kaolin (domestic) $ 32,037 $ (9,709) $ 3,815 $ 810 $ 54,804
Rutile (foreign) 56,146 14,587 10,999 10,364 80,132
--------- --------- -------- -------- ---------
88,183 4,878 14,814 11,174 134,936
Corporate and other non-
segment items 263 (14,669)(3) 460 45 27,822
--------- --------- -------- -------- ---------
Total $ 88,446 $ (9,791) $ 15,274 $ 11,219 $ 162,758
--------- --------- -------- -------- ---------
--------- --------- -------- -------- ---------
</TABLE>
(1) Sales in 1995 totalled $36,755,000 and include kaolin sales to three
customers of $13,200,000, $4,500,000 and $3,800,000. Sales in 1994 include
rutile sales to two customers of $9,920,000 and $8,120,000 and kaolin sales
to one customer of $11,400,000. Sales in 1993 include rutile and ilmenite
sales to a customer of $24,177,000 and kaolin sales to a customer of
$9,422,000.
(2) Operating earnings (loss) of the segments consists of total revenues less
cost of sales, distribution, marketing and service charges and
administrative expenses applicable to the individual segments.
(3) Includes interest expense related to the kaolin and rutile segments.
(4) At December 31, 1994 the Company adopted the cost basis of accounting for
its
64
<PAGE>
investment in SRL (see Note A) and recorded $64,353,000 as its investment in SRL
which is included in Corporate and other non-segment items.
U. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly results of operations are shown below:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands except per share amounts)
Year Ended December 31, 1995:
-----------------------------
<S> <C> <C> <C> <C>
Sales $ 10,277 $ 9,857 $ 8,557 $ 8,064
Gross profit (loss) 260 16 (376) (574)
Net earnings (loss) (5,305) (1,466) 631 (2,119)
Earnings (Loss) per common and common (.33) (.09) .04 (.13)
equivalent share (4)
Year Ended December 31, 1994:
-----------------------------
Sales $ 17,316 $ 15,770 $ 15,971 $ 22,437
Gross profit 1,908 1,499 1,675 2,650
Net (loss) (683) (322) (1,152) (13,454) (1)
(Loss) per common and common
equivalent share (4) (0.05) (0.02) (0.08) (0.85)
Year Ended December 31, 1993:
-----------------------------
Sales $ 21,001 $ 24,875 $ 18,524 $ 24,046
Gross profit 1,951 2,624 1,234 5,326 (2)
Earnings (loss) before
extraordinary item (7,213) (2,929) 89 1,797
Net earnings (loss) (7,213) (2,929) 89 971 (3)
Earnings (loss) per common and common
equivalent share: (4)
Earnings (loss) before
extraordinary item (0.48) (0.19) 0.01 0.12
Net earnings (loss) (0.48) (0.19) 0.01 0.06
</TABLE>
65
<PAGE>
(1) Net loss in the fourth quarter includes a $1,527,000 gain on sale of 50% of
the rutile segment, a $1,000,000 payment made to the government of Sierra
Leone to resolve certain claims and income tax expense of $14,095,000
related to recording a valuation allowance for a deferred tax asset at the
rutile segment.
(2) Gross profit in the fourth quarter of 1993 includes $1,400,000 related to
revisions of estimates made during the year for certain costs and
depreciation in the rutile segment. Since actual costs were lower than
estimated costs, the fourth quarter bore a lower than normal expense for
these items. The effect of these revisions was to increase net earnings by
$875,000 ($.06 per share) during the fourth quarter.
(3) In addition to the items in Note (2) above, net earnings in the fourth
quarter of 1993 include a charge of $3,074,000 for the impairment of an
investment and a writedown of the carrying amount of certain equipment, an
income tax benefit of $7,066,000 related to additional tax deductions at
SRL and, as a result of the sale of 50% of SRL, costs of $765,000, an
extraordinary loss of $826,000 related to the early extinguishment of debt
and a domestic income tax provision of $2,078,000. The effect of these
events was to increase net earnings by $1,198,000 ($.08 per share) during
the fourth quarter.
(4) The number of shares used in the calculation of per share data varies from
period to period since stock options and convertible debentures are
included in the calculations only for the periods in which they are
dilutive; therefore, the sum of the individual quarterly earnings per share
may not equal the annual computation.
66
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by the above Items 10-13 is incorporated by
reference from the Company's Proxy Statement to be dated April 16,
1996.
67
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements: The following financial statements of Nord
Resources Corporation are included in Part II, Item 8 of this
Form 10-K
PAGE
(a) 2. Financial Statement Schedules:
Independent Auditors' Report 69
Schedule I - Condensed financial information of
Registrant, Nord Resources Corporation 70
Schedule II - Valuation and qualifying accounts 73
Nord Pacific Limited:
Independent Auditors' Report 74
Consolidated Balance Sheets 75
Consolidated Statements of Operations 77
Consolidated Statements of Shareholders' Equity 78
Consolidated Statements of Cash Flows 79
Notes to Consolidated Financial Statements 80
(a) 3. Exhibits: See INDEX TO EXHIBITS
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1995.
68
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Nord Resources Corporation
Dayton, Ohio
We have audited the consolidated financial statements of
Nord Resources Corporation and subsidiaries as of
December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995; and have issued our report thereon dated
March 25, 1996, which report disclaims an opinion on the consolidated
financial statements as of December 31, 1995 and 1994 and for each of the two
years in the period ended december 31, 1995 because of uncertainties relating
to the ability of the Company to continue as a going concern and the
inability of other auditors to express an opinion on the financial statements
of the Rutile Segment, and includes an explanatory paragraph as to the
Company changing its method of accounting for its investment in the Rutile
Segment to the cost basis at December 31, 1994; such report is included
elsewhere in this Form 10-K. Our audits also included the consolidated
financial statement schedules of Nord Resources Corporation and subsidiaries,
listed in Item 14. These consolidated financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
(or disclaim) an opinion based on our audits. In our opinion,
the consolidated financial statement schedules as of December 31, 1993 and for
the year then ended, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material
respects, the information set forth therein. As explained in the fifth
paragraph of our report, we are unable to express, and we do not express, an
opinion on the Company's consolidated financial statements for 1995 and 1994.
Accordingly, we are unable to express, and we do not express, an opinion on
the consolidated financial statement schedules as of December 31,
1995 and 1994 and for each of the two years in the period ended December 31,
1995.
Deloitte & Touche LLP
Dayton, Ohio
March 25, 1996
69
<PAGE>
NORD RESOURCES CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT, NORD RESOURCES CORPORATION
BALANCE SHEETS, DECEMBER 31, 1995 AND 1994
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------------------ ------ ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,026 $ 8,140
Restricted cash - SRL 2,431 2,934
Accounts receivable - affiliates 2,189
Accounts receivable - other 106 489
Prepaid expenses 227 438
-------- -------
TOTAL CURRENT ASSETS 8,790 14,053
RESTRICTED CASH AND INVESTMENTS 2,607 2,797
INVESTMENTS IN AND ADVANCES TO
UNCONSOLIDATED AFFILIATE 8,338 8,142
INVESTMENTS IN AND ADVANCES TO
CONSOLIDATED SUBSIDIARIES 32,209 34,855
INVESTMENT IN RUTILE SEGMENT,
at cost as described in Note A 63,517 64,353
PROPERTY, PLANT AND EQUIPMENT, at cost
less accumulated depreciation 45 119
OTHER ASSETS 3,640 2,270
--------- ---------
$ 119,146 $ 126,726
--------- ---------
--------- ---------
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY 1995 1994
- ------------------------- -------- -------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 221 $ 61
Accrued expenses 478 724
Obligations to lenders - SRL 23,458 23,234
Current maturities of
long-term debt 82
------- -------
TOTAL CURRENT LIABILITIES 24,157 24,101
LONG-TERM LIABILITIES:
Retirement benefits 6,026 5,076
Other 15
------- -------
6,026 5,091
STOCKHOLDERS' EQUITY:
Common Stock 158 158
Additional paid-in capital 58,137 58,137
Retained earnings 30,833 39,092
Cumulative foreign currency
translation adjustment 282 282
Minimum pension liability (447) (135)
---------- -----------
88,963 97,534
---------- -----------
$ 119,146 $ 126,726
---------- -----------
---------- -----------
</TABLE>
<PAGE>
NORD RESOURCES CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT, NORD RESOURCES CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
COSTS AND EXPENSES:
Depreciation and amortization $ 93 $ 119 $ 271
Selling, general and administrative 4,085 4,351 1,076
------- -------- -------
Total costs and expenses 4,178 4,470 1,347
OTHER INCOME (EXPENSE):
Interest income 657 580 367
Equity in net earnings (loss) of:
Consolidated subsidiaries (6,937) (15,873) (9,812)
Unconsolidated affiliates 526 1,613 (1,299)
Stockholder litigation settlement (4,750)
Litigation recoveries 3,225 950 500
Interest expense (125) (92) (2,003)
Gain on sale of 50% of SRL 1,527
Other 86 138 242
------- -------- -------
Total other income (expense) (2,568) (11,157) (16,755)
(LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAX (EXPENSE) BENEFIT (6,746) (15,627) (18,102)
INCOME TAX (EXPENSE) BENEFIT (1,513) 16 9,740
------- -------- -------
(LOSS) FROM CONTINUING OPERATIONS (8,259) (15,611) (8,362)
EARNINGS (LOSS) FROM DISCONTINUED
OPERATIONS 106
(LOSS) BEFORE EXTRAORDINARY ITEM (8,259) (15,611) (8,256)
EXTRAORDINARY ITEM - Loss on early
extinguishment of debt (826)
------- -------- -------
NET EARNINGS (LOSS) $(8,259) $(15,611) $(9,082)
------- -------- -------
------- -------- -------
</TABLE>
71
<PAGE>
NORD RESOURCES CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT, NORD RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(IN THOUSANDS)
<TABLE>
Increase (Decrease) in cash and cash equivalents 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) adjusted for non-cash
items except depreciation, depletion,
amortization and dividends received $ (3,639) $ (4,783) $ (500)
Depreciation, depletion and amortization 93 119 271
Dividends received from consolidated
subsidiaries 7,500
--------- -------- --------
Net cash provided by (used in) operating
activities (3,546) (4,664) 7,271
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (44)
Additions to other assets (1,390) (228) (209)
(Increase) decrease in investments in and
advances to subsidiaries and affiliate 2,714 (74) 17,178
--------- -------- --------
Net cash provided by (used in) investing
activities 1,324 (302) 16,925
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional indebtedness 219
Payments of indebtedness (82) (137) (9,318)
Restricted cash and investments 190 (194) (2,304)
Stock option activity 37 31
--------- -------- --------
Net cash provided by (used in)
financing activities 108 (294) (11,372)
--------- -------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,114) (5,260) 12,824
CASH AND CASH EQUIVALENTS - Beginning of Year 8,140 13,400 576
--------- -------- --------
CASH AND CASH EQUIVALENTS - End of Year $ 6,026 $ 8,140 $ 13,400
--------- -------- --------
--------- -------- --------
CASH PAID FOR:
Interest $ 86 $ 12 $ 2,072
--------- -------- --------
--------- -------- --------
Income taxes $ 1,100
--------
--------
NON-CASH TRANSACTIONS:
Conversion of advances to affiliate into
common stock $ 2,900 $ 2,500
-------- --------
-------- --------
Debenture retired in connection with
the sale of 50% of SRL $ 20,000
--------
--------
Stock issued to settle long-term liability $ 4,250
--------
--------
</TABLE>
72
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------------------------------- --------- --------- --------- ---------
Balance at Additions
Beginning Charged to Balance
of Costs and at End
Description Period Expenses Deductions of Period
- ----------------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts $ 145 $ $ 145 $
-------- -------- --------- ---------
-------- -------- --------- ---------
Investment valuation allowance - Manatee Gateway $ 2,219 $ 175 $ $ 2,394
-------- -------- --------- ---------
-------- -------- --------- ---------
Provision for impairment - Ilmenite equipment $ 855 $ $ $ 855
-------- -------- --------- ---------
-------- -------- --------- ---------
Income tax valuation allowance $ 7,050 $ 1,940 $ $ 8,990
-------- -------- --------- ---------
-------- -------- --------- ---------
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts $ 75 $ 70 $ $ 145
-------- -------- --------- ---------
-------- -------- --------- ---------
Investment valuation allowance - Manatee Gateway $ 2,219 $ $ $ 2,219
-------- -------- --------- ---------
-------- -------- --------- ---------
Provision for impairment - Ilmenite equipment $ 855 $ $ $ 855
-------- -------- --------- ---------
-------- -------- --------- ---------
Income tax valuation allowance $ 6,003 $ 15,821 $ 14,774(1) $ 7,050
-------- -------- --------- ---------
-------- -------- --------- ---------
YEAR ENDED DECEMBER 31, 1993
Estimated loss on disposal, including
provision for estimated operating losses
to disposal date. $5,839 $ $ 5,839(2) $
-------- -------- --------- ---------
-------- -------- --------- ---------
Allowance for doubtful accounts $ $ 75 $ $ 75
-------- -------- --------- ---------
-------- -------- --------- ---------
Investment valuation allowance - Manatee Gateway $ $ 2,219 $ $ 2,219
-------- -------- --------- ---------
-------- -------- --------- ---------
Provision for impairment - Ilmenite equipment $ $ 855 $ $ 855
-------- -------- --------- ---------
-------- -------- --------- ---------
Income tax valuation allowance $15,718 $ $ 9,715(3) $ 6,003
-------- -------- --------- ---------
-------- -------- --------- ---------
</TABLE>
(1) Represents the portion of the valuation allowance relating to SRL which was
reclassified to Investment in SRL upon the adoption of the cost basis of
accounting for SRL at December 31, 1994. (See Notes A and C)
(2) Loss on disposal and operating loss charged to reserve.
(3) Reversal of valuation allowance included as a component of income tax
expense.
73
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Nord Pacific Limited
Hamilton, Bermuda
We have audited the accompanying consolidated balance sheets of Nord Pacific
Limited and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995 (all expressed in
U.S. dollars). 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Nord Pacific Limited and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with accounting principles generally accepted in the
United States of America.
/s/DELOITTE & TOUCHE
Chartered Accountants
Hamilton, Bermuda
March 11, 1996
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
ASSETS (Note E) 1995 1994
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,656 $ 7,149
Accounts receivable (no allowance for
doubtful accounts is considered necessary):
Trade 1,172 1,191
Affiliates 40 46
Other 49 50
--------- ---------
1,261 1,287
Inventories:
Copper 88 108
Supplies 183 116
--------- ---------
271 224
Forward currency exchange contracts (Note F) 1,022 1,264
Premium on derivative financial instruments (Note F) 348
Prepaid expenses 172 33
--------- ---------
TOTAL CURRENT ASSETS 6,730 9,957
RESTRICTED CASH (Note E) 1,080 1,024
FORWARD CURRENCY EXCHANGE CONTRACTS (Note F) 849
PREMIUM ON DERIVATIVE FINANCIAL INSTRUMENTS (Note F) 960
DEFERRED COSTS ASSOCIATED WITH
ORE UNDER LEACH, net of accumulated amortization
of $5,867 in 1995 and $3,619 in 1994 (Note B) 5,606 4,295
PROPERTY, PLANT, AND EQUIPMENT, at cost
less accumulated depreciation (Note C) 5,919 5,612
DEFERRED EXPLORATION AND DEVELOPMENT COSTS:
Girilambone, net of accumulated amortization
of $799 in 1995 and $469 in 1994 (Note B) 1,356 1,587
Exploration prospects (Note D) 12,956 9,308
DEBT ISSUANCE COSTS, net of accumulated amortization
of $430 in 1995 and $271 in 1994 59 218
--------- ---------
$ 34,666 $ 32,850
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS,
EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable:
Trade $ 1,613 $ 932
Affiliates 32 47
--------- ---------
1,645 979
Accrued expenses 822 303
Payable on derivative financial instruments (Note F) 393
Obligation under purchase agreement (Note D) 698
Current maturities of long-term debt (Note E) 3,930 3,960
--------- ---------
TOTAL CURRENT LIABILITIES 6,790 5,940
LONG-TERM LIABILITIES:
Long-term debt (Note E) 1,500 3,173
Payable on derivative financial instruments (Note F) 883
Deferred income tax liability (Note K) 1,120
Obligation under purchase agreement (Note D) 744 776
Retirement benefits (Note L) 169 148
--------- ---------
TOTAL LONG-TERM LIABILITIES 4,416 4,097
CONTINGENT LIABILITY (Note M)
SHAREHOLDERS' EQUITY (Notes G and I):
Common stock, par value $.01 per share,
authorized - 100,000,000 shares, issued
and outstanding: 1995 - 47,461,270 and
1994 - 47,446,707 475 474
Additional paid-in capital 31,336 31,325
Deficit (9,149) (9,784)
Foreign currency translation adjustment 798 798
--------- ---------
23,460 22,813
--------- ---------
$ 34,666 $ 32,850
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
SALES $ 14,074 $ 11,293 $ 4,674
COSTS AND EXPENSES:
Cost of sales 7,664 7,289 3,861
Abandoned and impaired projects
(Note M) 352 35 298
General and administrative:
Nord Resources Corporation (Note G) 361 318 308
Other 2,661 2,417 2,320
--------- -------- --------
Total general and administrative 3,022 2,735 2,628
--------- -------- --------
Total costs and expenses 11,038 10,059 6,787
--------- -------- --------
OPERATING EARNINGS (LOSS) 3,036 1,234 (2,113)
OTHER INCOME (EXPENSE):
Interest and other income 448 697 235
Interest and debt issuance costs (604) (992) (969)
Forward currency exchange contracts
gain (loss) (Note F) (279) 2,535 14
Foreign currency transaction gain
(loss) (378) 515 (204)
--------- -------- --------
TOTAL OTHER INCOME (EXPENSE) (813) 2,755 (924)
--------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES 2,223 3,989 (3,037)
PROVISION FOR INCOME TAXES (Note K) 1,120
--------- -------- --------
NET EARNINGS (LOSS) $ 1,103 $ 3,989 $(3,037)
--------- -------- --------
--------- -------- --------
NET EARNINGS (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ 0.02 $ 0.09 $ (0.12)
--------- -------- --------
--------- -------- --------
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES (In thousands) (Note A) 47,796 54,002 25,764
--------- -------- --------
--------- -------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARES)
<TABLE>
<CAPTION>
Common Stock
-------------------------- Additional Currency
Paid-in Translation
Shares Amount Capital Deficit Adjustment
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE - December 31, 1992 24,367,216 $ 244 $ 13,383 $(10,736) $ 370
Net (loss) (3,037)
Unrealized translation gain 428
Compensation relating to
non-qualified options and
restricted shares 69
Common stock issued relating
to stock bonus plan 155,200 1 21
Exercise of stock options 456,000 4 203
Forfeiture of restricted stock (16,000) (9)
Conversion of long-term debt
to common stock (Note G) 2,962,960 30 2,470
----------- ------ ---------- --------- --------
BALANCE - December 31, 1993 27,925,376 279 16,137 (13,773) 798
Net earnings 3,989
Compensation relating to
restricted shares 16
Issuance of common stock 16,000,000 160 12,304
Stock option activity 32,610 3
Conversion of long-term debt
to common stock (Note G) 3,488,721 35 2,865
----------- ------ ---------- --------- --------
BALANCE - December 31, 1994 47,446,707 474 31,325 (9,784) 798
Net earnings 1,103
Common stock issued relating to
stock bonus plan 14,563 1 11
Dividend paid ($0.01 per share) (468)
----------- ------ ---------- --------- --------
BALANCE - December 31, 1995 47,461,270 $ 475 $ 31,336 $ (9,149) $ 798
----------- ------ ---------- --------- --------
----------- ------ ---------- --------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- ----------------------------------------------------
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,103 $ 3,989 $ (3,037)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation 1,258 995 545
Amortization 2,736 3,043 1,548
Compensation relating to non-qualified options,
bonus shares and restricted stock 12 16 83
Unrealized (gain) loss on forward currency exchange
contracts 977 (2,017) (14)
Foreign currency transaction loss (gain) 378 (515) 187
Abandoned and impaired projects 352 35 298
Change in assets and liabilities:
Accounts receivable (36) (226) (804)
Inventories (47) 171 (406)
Prepaid expenses (139) 11 (1)
Accounts payable 709 (378) (43)
Accrued expenses and other liabilities 525 (613) 282
Deferred income taxes 1,120
-------- -------- --------
Net cash provided by (used in) operating activities 8,948 4,511 (1,362)
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred costs associated with ore under leach (3,558) (3,627) (4,157)
Capital expenditures (1,569) (727) (3,893)
Payment of obligation under purchase agreement (648)
Deferred exploration costs (4,099) (1,611) (1,236)
-------- -------- --------
Net cash (used in) investing activities (9,874) (5,965) (9,286)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 14,266
Costs associated with issuance of common stock (1,105) (697)
Dividends paid (468)
Payments of long-term debt (4,703) (5,771)
Additions to long-term debt 3,000 140 10,817
Borrowings - Nord Resources Corporation 221 1,839
Payments - Nord Resources Corporation (166) (170)
Stock option activity 3 207
Restricted cash (56) 115 (1,026)
-------- -------- --------
Net cash (used in) provided by financing activities (2,227) 7,703 10,970
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (340) 596 (36)
-------- -------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,493) 6,845 286
CASH AND CASH EQUIVALENTS- beginning of year 7,149 304 18
-------- -------- --------
CASH AND CASH EQUIVALENTS - end of year $ 3,656 $ 7,149 $ 304
-------- -------- --------
-------- -------- --------
CASH PAID FOR INTEREST, net of capitalized interest of
$97 in 1993 $ 449 $ 950 $ 481
-------- -------- --------
-------- -------- --------
NON-CASH TRANSACTIONS:
Purchase of derivative financial instruments (Note F) $ 1,308
--------
--------
Conversion of long-term debt due to Nord Resources
Corporation into common stock (Note G) $ 2,900 $ 2,500
-------- --------
-------- --------
Obligation incurred for purchase of interest in
exploration project (Note D) $ 1,289
--------
--------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN U.S. DOLLARS)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY DESCRIPTION
Nord Pacific Limited (the "Company") operates in a single industry segment which
includes the exploration for and development and production of precious and base
metals and strategic mineral properties primarily in Australia and Papua New
Guinea. Exploration activity is also carried on in North America, including
Mexico, primarily for gold.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America. The consolidated
financial statements include the accounts of the Company, its wholly-owned
subsidiaries, and its 40% interest in the Girilambone copper property
("Girilambone") in Australia. Financial statement amounts relating to
Girilambone represent the Company's proportionate interest in the assets,
liabilities and operations of Girilambone. All significant intercompany
transactions are eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying amount of
cash and cash equivalents approximates fair value.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
<PAGE>
DEFERRED COSTS ASSOCIATED WITH ORE UNDER LEACH
Costs at Girilambone incurred with respect to ore under leach are deferred and
amortized using the units of production method over the estimated reserves.
Copper is projected to be recovered during the next 4 year period, based on the
present proven reserves and copper within the leach pads. The Company
continually evaluates and refines estimates used to determine the amortization
and carrying amount of deferred costs associated with ore under leach based upon
actual copper recoveries and operating plans.
PROPERTY, PLANT AND EQUIPMENT
Non-mining property, plant and equipment is depreciated using the straight-line
method over the estimated useful lives of the assets. Property, plant and
equipment related to Girilambone is depreciated by the units-of-production
method over the estimated reserves.
DEFERRED EXPLORATION AND DEVELOPMENT COSTS
All costs directly attributable to prospecting, exploration and development are
deferred. Costs related to producing properties are amortized by the units-of-
production method over the estimated reserves. Deferred costs are carried at
cost, not in excess of anticipated future recoverable value, and are expensed
when a project is no longer considered commercially viable.
DEBT ISSUANCE COSTS
Professional fees and expenses relating to the issuance of debt are capitalized
and amortized over the term of the related borrowings.
FOREIGN CURRENCY TRANSLATION
The functional currency for operations conducted in Australia was changed to the
U.S. dollar on April 1, 1993 due to changes in economic facts and circumstances
pertaining to the Company's Australian operations, including obtaining
additional U.S. dollar denominated indebtedness and entering into certain
forward currency exchange contracts. Adjustments to U.S. dollar balances as a
result of changes in the exchange rate between U.S. dollars and Australian
dollars are recognized currently in the statement of operations as foreign
currency transaction gains and losses.
<PAGE>
For the period through March 31, 1993, the Australian dollar was the functional
currency for the Company's operations conducted in Australia. The assets and
liabilities of the Australian operations were translated into United States
dollars at current exchange rates. Revenue and expense accounts were translated
into United States dollars at the average exchange rate for the period. The
resulting translation adjustments were accumulated as a separate component of
shareholders' equity through March 31, 1993.
FINANCIAL INSTRUMENTS
Gains and losses related to qualifying hedges of anticipated copper sales are
deferred and recognized in the statement of operations as a component of sales
at the settlement date.
Realized and unrealized gains and losses on forward currency exchange contracts
and other derivative financial instruments that do not qualify as hedges are
recognized currently in the statement of operations. Net unrealized gains and
losses are included as assets or liabilities in the balance sheet. (See Note F)
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Net earnings per common and common equivalent share for the years ended December
31, 1995, and December 31, 1993, is calculated using the treasury stock method.
Net earnings per common and common equivalent share are computed on a modified
treasury stock method during 1994 as options outstanding exceeded 20% of the
Company's shares outstanding at December 31, 1994. Under this method of
computation, all options outstanding are presumed exercised, and proceeds are
deemed to be applied to reduce borrowings with any excess proceeds applied to
the purchase of U.S. government securities. Net earnings and average common and
common equivalent shares are adjusted to include the effect of the above
calculation in determining the Company's net earnings per common and common
equivalent share.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1994 and 1993 consolidated
financial statements to conform to the classifications used in 1995. These
reclassifications had no effect on net earnings or shareholders' equity as
previously reported.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Acounting Standard Board issued Statement ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires review for impairment of long-lived
assets whenever changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. The Company has not adopted SFAS NO. 121, but
believes that the adoption would not have a material effect on the Company's
financial statements at December 31, 1995.
<PAGE>
B. GIRILAMBONE
The Company is a 40% joint venturer in Girilambone which commenced production in
May 1993. All costs incurred during mine development have been capitalized and
are being amortized using the units of production method over the estimated
reserves. During 1995 the estimated reserves were revised based on improved ore
grades. The effect of this change was to reduce depreciation and amortization
expense at Girilambone by $293,000 ($0.01 per share) in 1995. Following is
summarized balance sheet data of Girilambone:
<TABLE>
<CAPTION>
Amounts
Included in
Total Accompanying
Balance Sheet Data Girilambone Financial
(In thousands) Joint Venture Statements
- -------------------------- ---------------------------- --------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current assets $ 817 $ 861 $ 327 $ 344
Deferred costs
associated with
ore under leach - net 14,015 10,738 5,606 4,295
Property, plant and
equipment - net 13,651 13,638 5,460 5,455
Deferred exploration and
development costs - net 7,386 8,293 1,356 1,587
--------- --------- --------- ---------
Total assets 35,869 33,530 12,749 11,681
Current liabilities 2,437 1,599 975 639
--------- --------- --------- ---------
Partners' equity $ 33,432 $ 31,931 $ 11,774 $ 11,042
--------- --------- --------- ---------
--------- --------- --------- ---------
The Company's share of
equity (40%) $ 13,373 $ 12,772
Less: Eliminations (1,599) (1,730)
--------- ---------
$ 11,774 $ 11,042
--------- ---------
--------- ---------
</TABLE>
Debt incurred for the development and construction of Girilambone is the
separate responsibility of each venturer and is not included in the joint
venture's financial statements. The Company has $5,430,000 of debt outstanding
at December 31, 1995, which was incurred to fund the construction and
development of Girilambone.
<PAGE>
Copper production is distributed to each venturer based on its respective
ownership interest. Sale of copper is the responsibility of each venturer. Cost
and expense data related to the operation of the mine is as follows:
<TABLE>
<CAPTION>
Cost and Expense Data Total
(In thousands) Girilambone Joint Venture
- ---------------------------- ---------------------------------------------
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Cost of copper sales $ 19,161 $ 18,223 $ 9,653
General and administrative 270 235 502
Cost and Expense Data Amounts Included in
(In thousands) Accompanying Financial Statements
- ---------------------------- ---------------------------------------------
1995 1994 1993
--------- ---------- ----------
Cost of copper sales $ 7,664 $ 7,829 $ 3,861
General and administrative 108 94 201
</TABLE>
C. PROPERTY, PLANT & EQUIPMENT
<TABLE>
<CAPTION>
December 31,
1995 1994
--------- ----------
(In thousands)
<S> <C> <C>
Land $ 285 $ 186
Plant, mining and milling equipment 8,216 6,783
Furniture and fixtures 638 700
--------- ----------
9,139 7,669
Less accumulated depreciation 3,220 2,057
--------- ----------
$ 5,919 $ 5,612
--------- ----------
--------- ----------
</TABLE>
Girilambone property, plant and equipment, net of accumulated depreciation, of
$5,460,000 and $5,455,000 at December 31, 1995 and 1994, respectively, is
included above.
<PAGE>
D. DEFERRED EXPLORATION AND DEVELOPMENT COSTS
Exploration prospects include the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
--------- ----------
(In thousands)
<S> <C> <C>
Ramu $ 1,511 $ 1,507
Tabar Islands 8,666 6,553
Girilambone Exploration Area 2,635 1,147
Other 144 101
--------- ----------
$ 12,956 $ 9,308
--------- ----------
--------- ----------
</TABLE>
RAMU
The Company entered into an agreement with its Ramu joint venturer to dilute its
interest to 40%. In return, the joint venturer was required to fund the next
5,000,000 Kina (Papua New Guinea currency) of expenditures on the project. As of
December 31, 1995, the joint venturer has met and exceeded the required
expenditure level, and earned its 60% interest. The Company has elected not to
contribute its share of expenditures during the current budget period, and its
interest has been reduced to 37.72% at December 31, 1995. The Company currently
does not have sufficient capital to fund its share of future commercial
development costs, and would need to obtain additional funding for such costs.
Another party, Eastern Pacific Mines, may elect within 180 days of receiving
details of any proposed commercial development of Ramu to participate in such
development up to 10%. The interest is to be acquired from the Company and the
joint venturer in proportion to their interests.
TABAR ISLANDS
The Company entered into an agreement to increase its interest in the Tabar
Islands project from 29% to 100%. The remaining purchase price of $744,000
(A$1,000,000) is payable two years after the granting of a mining lease by the
government of Papua New Guinea.
The sellers have an option to reacquire 50% of the project if feasibility
studies indicate that the project could produce 150,000 ounces or more of gold
annually. Exercise of the option would require payment to the Company of 2 1/2
times its cumulative expenditures for mine development from July 1994 to the
date the option is exercised. Expenditures from July 1994, through December 31,
1995, totaled approximately $2,600,000.
<PAGE>
GIRILAMBONE EXPLORATION AREA
The Company has a 50% interest in an exploration joint venture related to areas
adjacent to its Girilambone copper mine. Under the venture the Company is
required to fund its 50% share of exploration costs.
During 1994 and 1995, mineable reserves were identified in the Girilambone North
Project area, approximately three miles north of the Girilambone mine.
Feasibility studies on these reserves, estimated to contain 43,062 tonnes of
copper metal, are expected to be finalized in the next several months. The
reserves can be processed through the existing Girilambone plant.
As the Company is still in the exploration and prefeasibility phase of all
projects except Girilambone and the Girilambone Exploration Area, additional
efforts on these properties will be required in order to determine the extent to
which resources will be commercially viable and whether the deferred exploration
and development costs ultimately will be realized.
E. INDEBTEDNESS
<TABLE>
<CAPTION>
December 31,
1995 1994
--------- ----------
(In thousands)
<S> <C> <C>
Girilambone financing agreement,
(payable $3,930,000 in 1996,
$1,500,000 in 1997) $ 5,430 $ 7,133
Less current maturities (3,930) (3,960)
--------- ----------
$ 1,500 $ 3,173
--------- ----------
--------- ----------
</TABLE>
GIRILAMBONE FINANCING AGREEMENT
The Company has outstanding debt of $5,430,000 at December 31, 1995, under a
financing agreement to fund its share of the development and construction costs
of Girilambone, including an additional borrowing of $3,000,000 in December
1995. This additional borrowing is to be used for working capital and to fund
development of the Company's 50% share of the Girilambone North Project. The
lender holds a security interest in the Company's 40% interest in Girilambone.
The loan bears interest at LIBOR plus 1.85% (7.51% at December 31, 1995).
Principal payments during 1995 and 1994 totaled $4,703,000 and $2,867,000,
respectively.
During the period the loan is outstanding, the Company is required to maintain a
reserve account with the lender sufficient to meet the next quarterly principal
repayment. All cash proceeds generated from Girilambone operations are required
to be deposited with the lender and must be used to pay any project costs, bank
fees, interest, principal, and funding required in the reserve account before
any cash is available to the Company.
<PAGE>
F. FINANCIAL INSTRUMENTS
The Company utilizes certain financial instruments, primarily copper hedging
agreements and forward currency exchange contracts. These financial instruments
are utilized to reduce the risk associated with the volatility of commodity
prices and fluctuations in foreign currency exchange rates, particularly the
Australian dollar. The Company does not hold or issue financial instruments for
trading purposes.
COPPER AGREEMENTS
To mitigate the effect of price changes on substantially all of its expected
copper sales through December 31, 1997, the Company has entered into put and
call option agreements for the first quarter of 1996, and both swap and call
option agreements for the remainder of 1996 and all of 1997.
The put and call options utilized for the first quarter of 1996 lock in a fixed
price as a floor and a fixed price as a ceiling. The purchase of put options
guarantees a minimum floor price. The sale of call options causes the Company to
forego any benefit from a price increase above the call strike price. The
Company entered into put and call option agreements with a single counterparty
for a total of 3.3 million pounds of copper. This arrangement provides for the
Company to receive a minimum of $1.07 per pound up to a maximum of $1.27 per
pound. The Company has no participation if the market price (as determined by
the London Metals Exchange) exceeds $1.27 per pound. Unrealized gains and losses
on these options are included in operations currently until expiration of the
contracts in the first quarter of 1996.
Under a separate arrangement, the Company entered into both swap and call option
agreements with a single counterparty on a total of 23.1 million pounds of
copper that generally settle ratably each month from April 1996 through December
1997. The swap agreements lock in a fixed forward price as a floor, with the
purchase of call options above the floor permitting the Company to benefit from
an increase in copper price above the call price. The copper swap agreements are
designated as hedges up to the level of anticipated copper sales, and gains and
losses under these agreements are deferred and reflected as a component of sales
when each contract settles. The swap agreements with contract amounts in excess
of the anticipated copper sales and the call options do not qualify as hedges
and are marked to market with the resulting gain of $12,000 included in
operations currently.
Under this combination swap and call option arrangement, at the settlement date
for each copper contract during the second through fourth quarters of 1996, the
Company will receive $1.10 per pound plus the excess of market price (as
determined by the London Metals Exchange) over $1.19 per pound. At the
settlement date in 1997 for each copper contract, the Company will receive $1.02
per pound plus the excess of market price (as determined by the London Metals
Exchange) over $1.11 per pound.
<PAGE>
Sales for the years ended December 31, 1995, 1994, and 1993, are net of
$1,080,000 and $27,000 of losses and $616,000 of gains, respectively, that were
realized in settlement of copper hedging contracts.
The fair value of financial instruments in the following table was determined
based upon price quotes received from the counterparty to the agreements.
# of Contracts Strike Price Fair Value
or Notional Amount Per Tonne Asset(Liability)
------------------- -------------- -----------------
Purchased put options 3 @ 500 tonnes each $2,350 $ 2,000
Written call options 3 @ 500 tonnes each 2,800 (58,570)
Purchased call options 21 @ 500 tonnes each 2,635-2,450 1,141,520
Swap agreements 21 @ 500 tonnes each 2,435-2,250 (1,217,700)
The unrealized gain of $164,000 on the swap agreements is included in Premium on
Derivative Financial Instruments on the balance sheet at December 31, 1995.
FORWARD CURRENCY EXCHANGE CONTRACTS
The Company has entered into forward exchange contracts, expiring at various
times through July 1996, to protect against Australian currency fluctuations
related to payment of a portion of the expected operating costs of Girilambone.
Realized and unrealized gains and losses on these contracts are included
currently in the results of operations. For the year ended December 31, 1995,
the Company recognized a loss of $279,000, compared to a gain of $2,535,000 in
1994 and a gain of $14,000 in 1993. At December 31, 1995, the total of
outstanding contracts was $8,700,000 (A$13,200,000) compared to outstanding
contracts of $14,600,000 (A$21,900,000) at December 31, 1994. The fair value of
these contracts at December 31, 1995, which represents the amount that would be
received for the contracts if they were sold, was $1,022,000 compared to
$2,113,000 at December 31, 1994 based on a valuation provided by the financial
institution holding the contracts.
The fair value of the Company's outstanding long-term debt
is not considered to be materially different from its carrying amount.
The Company is exposed to copper price fluctuations and currency risks in the
event of nonperformance by the counterparties to the various agreements
described above but has no off balance sheet risk of accounting loss. The
Company anticipates, however, that the counterparties will be able to fully
satisfy their obligations under the agreements. The Company does not obtain
collateral or other security to support financial instruments subject to credit
risk.
<PAGE>
G. NORD RESOURCES CORPORATION ("RESOURCES")
In February 1994, simultaneous with the closing of the Australian Offering, Nord
Resources Corporation ("Resources") converted $2,900,000 owed to it by the
Company into 3,488,721 shares of common stock of the Company at $0.83 per share.
In September 1993, Resources exchanged $2,500,000 of amounts owed to it by the
Company for 2,962,960 shares of the Company's common stock at $0.84 per share,
the closing bid price on NASDAQ on the date of the exchange. Interest expense
under previous loans from Resources was $24,000 and $243,000 for the years ended
December 31, 1994, and 1993, respectively. Resources provides certain services
to the Company under a management agreement. Resources is reimbursed for all
direct expenses and a portion of its overhead associated with the operations of
the Company. At December 31, 1995, Resources owned approximately 35% of the
outstanding common stock of the Company.
H. OPERATING LEASES
The Company leases its office space and certain equipment under operating leases
with terms ranging from one to five years. Certain of the leases contain renewal
options and escalation clauses. Minimum annual lease payments under non-
cancelable lease obligations for the years ended December 31 are as follows:
1996 $263,000
1997 102,000
1998 73,000
1999 4,000
Rent expense for operating leases was $238,000, $239,000, $284,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
I. SHAREHOLDERS' EQUITY
STOCK OPTION PLANS AND OTHER OPTION GRANTS
Under the Company's three stock option plans, options have been granted at
market price at date of grant (incentive stock options) and at or less than fair
market value at date of grant (non-qualified options). In addition, during 1995,
1994 and 1993, non-plan options totaling 60,000, 1,320,000 and 1,040,000 shares,
respectively, have also been granted to officers and directors of the Company at
or in excess of fair market value at date of grant. Options are generally
exercisable beginning one to three years from date of grant and expire over a
five to ten year period from date of grant. During 1995 and 1994, non-plan
options for 50,000 and 120,000 shares, respectively, which expire three years
from date of grant were issued to two consultants to the Company.
<PAGE>
A summary of the option transactions is as follows:
<TABLE>
<CAPTION>
Exercise Price
Shares Per Share
---------- ------------
<S> <C> <C>
Outstanding at December 31, 1992 2,068,000 $.38 - .78
Granted 1,624,000 .85
Exercised (456,000) .38 - .78
Terminated (220,000) .78
----------
Outstanding at December 31, 1993 3,016,000 .38 - .85
Granted 2,094,000 .88 - .93
Granted with Australian offering 16,000,000 .93
Exercised (64,610) .51 - .85
Terminated (335,390) .78 - .88
----------
Outstanding at December 31, 1994 20,710,000 .38 - .93
Granted 2,006,000 .80
Terminated (16,004,000) .80 - .93
----------
Outstanding at December 31, 1995 6,712,000 $.38 - .93
----------
----------
</TABLE>
At December 31, 1995, 4,552,000 options were exercisable at prices ranging from
$.38 to $.93 per share and 1,473,390 shares are available for future grant under
the Stock Option Plans.
STOCK BONUS PLAN
The 1990 Stock Bonus Plan provides for the issuance of up to 400,000 shares of
common stock as incentive bonuses. At December 31, 1995, 380,963 shares have
been awarded and 19,037 shares are available for future award under this plan.
1995 STOCK OPTION PLAN
During 1995, the Company's Board of Directors and shareholders approved the
adoption of the 1995 Stock Option Plan which provides for the issuance of
3,000,000 options of which 1,896,000 were granted during 1995. The plan provides
that 1,520,000 options be reserved for directors; of this amount, 1,400,000
options were granted to directors during 1995.
A total of 8,204,427 shares have been reserved for exercise of stock options and
for award under the Stock Bonus Plan.
<PAGE>
PUBLIC OFFERING
On February 15, 1994, the Company completed an offering of its
common stock in Australia. The offering consisted of 16,000,000 shares of the
Company's common stock at $.89 per share (A$1.25 converted at the February 15,
1994, exchange rate) together with 16,000,000 detachable options to purchase
additional shares of the Company's common stock at $.93 per share (A$1.25
converted at the December 31, 1995, exchange rate). These options expired
unexercised on June 30, 1995.
OTHER
The Company measures compensation cost for stock options issued to employees
using the intrinsic value based method under Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." In October 1995, the
Financial Accounting Standards Board issued Statement ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which encourages but does not require
the adoption of the fair value method of accounting for stock options and
similar equity instruments. This standard requires adoption no later than fiscal
years beginning after December 15, 1995. The Company has elected to continue to
measure compensation cost in accordance with APB No. 25 and in 1996 will adopt
the additional disclosure provisions of SFAS No. 123.
J. SIGNIFICANT CUSTOMERS
Sales in 1995 include copper sales to two customers of $11,255,000 and
$2,926,000. These two customers accounted for 94% of the Company's sales in
1995. Sales in 1994 include copper sales to two customers of $9,622,000 and
$1,543,000. Sales in 1993 include copper sales to one customer of $3,873,000.
The loss of either or both of these customers would not have any material
adverse effect on the Company because of the ongoing demand for the quality
copper produced at Girilambone.
<PAGE>
K. INCOME TAXES
Under Bermuda law, the Company is not required to pay any taxes in Bermuda on
either income or capital gains. The Company has received an undertaking from the
Minister of Finance in Bermuda that in the event any such taxes are imposed, the
Company will be exempted from taxation until the year 2016. Although the Company
is not subject to income taxes, it has subsidiaries which are subject to income
taxes in their respective foreign countries.
Net operating loss carryforwards of $3,700,000 which expire from 2005 through
2009 are available in the United States. These carryforwards are available only
to reduce the separate taxable income of the Company's United States subsidiary.
Exploration cost carryforwards of $5,400,000 and development cost carryforwards
of $2,100,000 are available in Australia. These carryforwards, subject to
certain restrictions, are available indefinitely only to reduce the separate
taxable income of the Company's Australian operations.
Exploration cost carryforwards of $9,200,000 which expire from 1996 through 2005
are available in Papua New Guinea, provided sufficient projects are developed in
that country. These carryforwards, which expire $656,000 in 1996, $831,000 in
1997, $965,000 in 1998, and the remainder, thereafter, are available only to
reduce the separate taxable income of the Company's Papua New Guinean
operations.
The principal deferred tax assets and (liabilities) for the United States,
Australia, Papua New Guinea and Mexico are as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ----------
(In thousands)
<S> <C> <C>
Long-term deferred tax assets
and (liabilities):
United States:
Deferred tax assets:
Deferred compensation $ 57 $ 79
Basis difference of intangible assets 1
Net operating loss carryforwards 1,266 1,137
---------- ----------
1,323 1,217
Deferred tax (liabilities) -
Depreciation (11) (16)
---------- ----------
Net deferred tax assets 1,312 1,201
Valuation allowance (1,312) (1,201)
---------- ----------
Total United States $ 0 $ 0
---------- ----------
---------- ----------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Australia:
Deferred tax assets:
Trading loss carryforwards 927
Exploration cost carryforwards 1,935 1,298
Development cost carryforwards 752 1,453
Other 74 193
---------- ----------
2,761 3,871
Deferred tax (liabilities):
Unrealized gain on currency contracts (368) (697)
Deferred leach costs (2,018) (1,485)
Exploration and development costs (1,040) (457)
Depreciation (397) (532)
Other (58) (49)
---------- ----------
(3,881) (3,220)
---------- ----------
Net Deferred tax asset (liablility) (1,120) 651
Valuation allowance (651)
Total Australia $ (1,120) $ 0
---------- ----------
---------- ----------
Papua New Guinea:
Exploration cost carryforwards $ 3,208 2,193
Exploration costs (2,942) (1,961)
266 232
Valuation allowance (266) (232)
---------- ----------
---------- ----------
Total Papua New Guinea $ 0 $ 0
---------- ----------
---------- ----------
Mexico:
Operating loss carryforwards $ 308 $ 71
Valuation allowance (308) (71)
---------- ----------
Total Mexico $ 0 $ 0
---------- ----------
---------- ----------
</TABLE>
A valuation allowance has been provided for 100% of the Company's net deferred
tax assets in the United States, Papua New Guinea and Mexico based on the
history of operating losses for the Company in these countries and limitations
on use of the carryforwards.
<PAGE>
The Company had taxable income from its operations in Australia during 1995,
which required the utilization of all its trading loss carryforwards and a
portion of its development cost carryforwards.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
---------- ----------
<S> <C> <C>
Currently payable:
Australia $ 2,035 $ 1,150
Use of Australian loss carryforwards (2,035) (1,150)
---------- ----------
0 0
Change in deferred income taxes 1,389 1,731
Change in valuation allowance (269) (1,731)
---------- ----------
Provision for income taxes $ 1,120 $ 0
---------- ----------
---------- ----------
</TABLE>
Principal reasons for the differences between the income taxes at the statutory
U.S. rate and income tax expense as recorded:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
---------- ----------
<S> <C> <C>
Income taxes at statutory U.S. tax rate $ 756 $ 1,356
Permanent differences 9 (6)
Difference between Australian and
U.S. tax rates 107 (53)
Non-deductible losses of subsidiaries 1,006 528
Effect of Australian tax rate increase
on deferred income tax assets (59)
Decrease in Australian valuation allowance (651) (1,975)
Other (48) 150
---------- ----------
Income tax expense $ 1,120 $ 0
---------- ----------
---------- ----------
</TABLE>
The Company incurred operating losses in all of its subsidiaries for the year
ended 1993; therefore, detail of provision for income taxes and the
reconciliation of income tax expense to the U.S. statutory rate is not
presented.
<PAGE>
L. PENSION PLANS
The Company has a defined contribution pension plan covering certain employees
of its Australian operations. Under the terms of the plan, the Company
contributes an amount equal to 10% of the employees wages. Pension costs were
$41,000, $59,000, and $83,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
The Company is obligated to pay a lump sum benefit that matches the difference,
if any, between the present value of an executive's retirement benefit under a
previous plan and the cash value of an insurance policy at retirement. At
December 31, 1995 and 1994, the cash surrender value of $174,100 and $135,400
respectively, has been offset against the accrued retirement benefits liability.
Pension expense for the years ended December 31, 1995, 1994 and 1993 was
$59,000, $76,000, and $50,000, respectively. Pension expense for 1995, 1994 and
1993 included $36,000, $62,000, and $38,000, respectively, of service cost and
$23,000, $14,000, and $12,000, respectively, of interest on the accrued benefit
obligation. The projected benefit obligation at December 31, 1995 and 1994 was
$413,000 and $320,000 respectively. The assumed discount rate, the estimated
rate at which the plan could settle its liabilities, was 7.5% in 1995, 8% in
1994 and 7% in 1993. The assumed rate of future pay increase was 5%.
M. CONTINGENT LIABILITY
EMPLOYMENT AGREEMENTS
The Company has agreements with two of its officers which contain change in
control provisions which would entitle one officer to receive 50% of his salary
and the other officer to receive 200% of his salary in the event of a change in
control of the Company and a change in certain conditions of their employment.
The maximum contingent liability under these agreements is approximately
$500,000 at December 31, 1995.
EXPLORATION PROPERTY
During the second quarter of 1995, the Company reached an agreement whereby it
could earn an equity interest in a gold and silver property in Mexico by
spending $2 million by December 1997. In December 1995, after evaluating the
property and obtaining poor exploration results, the Company decided to abandon
the project, resulting in an abandonment loss of $352,000. No further
expenditure is required in order to comply with provisions of the agreement.
<PAGE>
N. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter(1) Quarter(1) Quarter
-------- ---------- --------- --------
<S> <C> <C> <C> <C>
Earnings (loss) before
income taxes $ (690) $ 1,190 $ 1,654 $ 69
Income tax expense 94 659 367
-------- ---------- --------- --------
Net earnings (loss) $ (690) $ 1,096 $ 995 $ (298)
-------- ---------- --------- --------
-------- ---------- --------- --------
Net earnings (loss) per
common and common
equivalent share $ (0.01) $ 0.02 $ 0.02 $ (0.01)
-------- ---------- --------- --------
-------- ---------- --------- --------
</TABLE>
(1) The second and third quarter income tax expense and net earnings amounts
included above have been restated for the effect of a revised calculation of
income tax expense.
As a result, previously reported income tax expense has been increased, and
previously reported net earnings has been been decreased by $ 94,000 (no per
share effect) and $659,000 ($0.01 per share) in the second and third quarters,
respectively.
O. AMERICAN DEPOSITORY RECEIPTS ("ADRS") (UNAUDITED)
The Company has established a program whereby the Bank of New York has issued
American Depository Receipts ("ADRs") in exchange for the ordinary shares of the
Company's common stock. The exchange ratio is five ordinary shares for each ADR.
The ADRs commenced trading on the NASDAQ National Market System on August 7,
1995. Effective September 25, 1995, the Company's ordinary shares were no longer
traded on NASDAQ. The Company's ordinary shares continue to be listed and traded
on the Australian Stock Exchange. Holders of ordinary shares and holders of ADRs
can freely convert back and forth between both securities upon payment of a fee
to the Bank of New York and presentation of appropriate documentation. Per share
information converted to equivalent ADRs is as follows:
Earnings Per ADR Supplemental Information
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
Net earnings per ADR $ .12 $ .45 $ (.60)
Average equivalent ADR's (000's) 9,559 10,000 5,120
(Assuming full conversion to ADRs)
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of 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.
NORD RESOURCES CORPORATION
BY:s/EDGAR F. CRUFT
-------------------------------
EDGAR F. CRUFT
CHAIRMAN OF THE BOARD (CHIEF EXECUTIVE
OFFICER), PRESIDENT AND DIRECTOR
MARCH 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
s/TERENCE H. LANG
-------------------------------
TERENCE H. LANG
SENIOR VICE PRESIDENT - FINANCE
(CHIEF FINANCIAL OFFICER),
TREASURER AND DIRECTOR
MARCH 27, 1996
s/KARL A. FRYDRYK
-------------------------------
KARL A. FRYDRYK
SECRETARY, VICE PRESIDENT-
CONTROLLER (CHIEF
ACCOUNTING OFFICER) AND
DIRECTOR
MARCH 27, 1996
s/LEONARD LICHTER
-------------------------------
LEONARD LICHTER
DIRECTOR
MARCH 27, 1996
s/W. PIERCE CARSON
-------------------------------
W. PIERCE CARSON
DIRECTOR
MARCH 27, 1996
<PAGE>
INDEX TO EXHIBITS
PAGE
NUMBER
2. PLAN OF ACQUISITION, REORGANIZATION,
ARRANGEMENT, LIQUIDATION OR SUCCESSION
2.1 Stock Purchase Agreement dated March 11,
1993 by and among Nord Kaolin Corporation
("NK Corp"), Nord Resources Corporation
("NRC"), Norplex, Inc. ("Norplex") and Kemira
Holdings, Inc. ("Kemira"). Reference is made
to Exhibit 2.1 of Registrant's Current Report on
For 8-K dated March 11, 1993, which exhibit is
incorporated herein by reference. **
2.2 Stock Purchase Agreement dated June 28, 1993
by and between Nord Resources Corporation and
Consolidated Rutile Limited. Reference is made
to Exhibit 2.2 of Registrant's Report on Form 8-K
dated June 28, 1993, which exhibit is incorporated
herein by reference. **
3. ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Certificate of Incorporation (as amended) of Regis-
trant. Reference is made to Exhibit 3.1 of Regis-
trant's Report on Form 10-K for the year ended
December 31,1987, which exhibit is incorporated
herein by reference. **
3.2 Amended and Restated By-Laws of Registrant.
Reference is made to Exhibit 3.2 of Registrant's
Report on Form 10-K for the year ended December
31, 1994, which exhibit is incorporated herein by
reference. **
10. MATERIAL CONTRACTS
10.1 Loan Agreement between Development Authority
of the City of Jeffersonville and of Twiggs County
and Nord Kaolin Company, dated as of June 1, 1994.
Reference is made to Exhibit 10.1 of Registrant's
Report on Form 10-K for the year ended December
31, 1994, which exhibit is incorporated herein by
reference. **
98
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PAGE
NUMBER
10.2 Shareholders Agreement dated March 11, 1993
by and among Norplex, Kemira, NK Corp. and NRC.
Reference is made to Exhibit 10.1 of Registrant's
Report on Form 8-K dated March 11, 1993, which
exhibit is incorporated herein by reference. **
10.3 Agreement By and Between Nord Kaolin Company
and United Paperworkers International Union, AFL-CIO
(effective November 16, 1993 to November 15, 1996).
Reference is made to Exhibit 10.7 of Registrant's Report
on Form 10-K for the year ended December 31, 1993,
which exhibit is incorporated herein by reference. **
10.4 Lease Agreement dated May 15, 1988 between
ATEL Financial Corporation and Nord Kaolin Company.
Reference is made to Exhibit 10.31 of Registrant's
Report on Form 10-K for the year ended December 31,
1988, which exhibit is incorporated herein by reference. **
10.5 Guaranty of Lease dated May 15, 1988 given by Regis-
trant to ATEL Financial Corporation. Reference is made to
Exhibit 10.32 of Registrant's Report on Form 10-K for the
year ended December 31, 1988, which exhibit is
incorporated herein by reference. **
10.6 Amendment and Waivers dated August, 1991 of Guaranty
of Lease dated May 15, 1988 given by Registrant to ATEL
Financial Corporation. Reference is made to Exhibit 19.6
of Registrant's Report on form 10-Q for the period ended
September 30, 1991, which exhibit is incorporated herein
by reference. **
10.7 Amendments and Waivers dated November, 1991
of Guaranty of Lease dated May 15, 1988 given by
Registrant to ATEL Financial Corporation. Reference
is made to Exhibit 10.75 of Registrant's Report on
Form 10-K for the year ended December 31, 1991,
which exhibit is incorporated herein by reference. **
10.8 Waiver, Consent and Agreement made March
11,1993 by and between Nord Kaolin Company
and entities under ATEL Financial Corporation
99
<PAGE>
PAGE
NUMBER
Lease Agreement. Reference is made to Exhibit
10.12 of Registrant's Report on Form 10-K for the
year ended December 31, 1993, which exhibit is
incorporated herein by reference. **
10.9 License for Proprietary Pigment Technologies
dated September 1, 1986 between Nord Kaolin
Company and Industrial Progress, Inc. Reference
is made to Exhibit 10.33 of Registrant's Report on
Form 10-K for the year ended December 31, 1988,
which exhibit is incorporated herein by reference. **
10.10 Addendum to License for Proprietary Pigment
Technologies dated December, 1987. Reference
is made to Exhibit 10.34 of Registrant's Report on
Form 10-K for the year ended December 31, 1988,
which exhibit is incorporated herein by reference. **
10.11 Stock Option Agreement and Second Addendum to
License for Proprietary Pigment Technologies between
Nord Kaolin Company and Industrial Progress, Inc., dated
February 1, 1990. Reference is made to Exhibit 10.53
of Registrant's Report on Form 10-K for the year ended
December 31, 1990, which exhibit is incorporated
herein by reference. **
10.12 Second Stock Option Agreement and Third Addendum
to License for Proprietary Pigment Technology dated as
of July 9, 1992 by and between Nord Kaolin Company and
Industrial Progress, Inc. Reference is made to Exhibit
10.94 of Registrant's Report on Form 10-K for the year
ended December 31, 1992, which exhibit is incorporated
herein by reference. **
10.13 Joint Venture Agreement between Nord Southern
Dolomite Company and Istria, N. V. forming Manatee
Gateway No. I. Reference is made to Exhibit (10)(d)
(i) of Registrant's Registration Statement on Form S-2
(No. 33-00961), which exhibit is incorporated herein
by reference. **
100
<PAGE>
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NUMBER
10.14 Nord Resources Corporation Non-Qualified Stock Option
Plan. Reference is made to Exhibit 10.16 to
Registrant's Registration Statement on Forms S-3/S-8
(No. 2-92415), which exhibit is incorporated herein by
reference. **
10.15 Nord Resources Corporation 1982 Nord Incentive Stock
Option Plan. Reference is made to Exhibit 10.17 to
Registrant's Registration Statement on Forms S-3/S-8
(No. 2-92415), which exhibit is incorporated herein by
reference. **
10.16 Amendment No. 1 to Nord Resources Corporation 1982
Nord Incentive Stock Option Plan. Reference is made to
Exhibit 10.32 of Registrant's Report on Form 10-K for
the year ended December 31, 1987, which exhibit is
incorporated herein by reference. **
10.17 Amendment No. 2 to Nord Resources Corporation 1982
Nord Incentive Stock Option Plan. Reference is made to
Exhibit 10.17 of Registrant's Report on Form 10-K for
the year ended December 31, 1994, which exhibit is
incorporated herein by reference. **
10.18 Amendment No. 3 to Nord Resources Corporation 1982
Nord Incentive Stock Option Plan. Reference is made to
Exhibit 10.18 of Registrant's Report on Form 10-K for
the year ended December 31, 1994, which exhibit is
incorporated herein by reference. **
10.19 Amendment No. 4 to Nord Resources Corporation 1982
Nord Incentive Stock Option Plan.
10.20 Nord Resources Corporation 1987 Nord Incentive Stock
Option Plan. Reference is made to Exhibit 10.33 of
Registrant's Report on Form 10-K for the year ended
December 31, 1987, which exhibit is incorporated herein
by reference. **
10.21 Amendment No. 1 to Nord Resources Corporation
1987 Nord Incentive Stock Option Plan. Reference is
made to Exhibit 10.20 of Registrant's Report on Form
10-K
101
<PAGE>
PAGE
NUMBER
for the year ended December 31, 1994, which exhibit is
incorporated herein by reference. **
10.22 Amendment No. 2 to Nord Resources Corporation
1987 Nord Incentive Stock Option Plan.
10.23 Nord Resources Corporation 1989 Stock Option
Plan. Reference is made to Exhibit 10.33 of Regis-
trant's Report on Form 10-K for the year ended
December 31, 1989, which exhibit is incorporated
herein by reference. **
10.24 Amendment No. 1 to Nord Resources Corporation
1989 Stock Option Plan. Reference is made to
Exhibit 10.55 of Registrant's Report on Form 10-K
for the year ended December 31, 1990, which exhibit
is incorporated herein by reference. **
10.25 Amendment No. 2 to Nord Resources Corporation
1989 Stock Option Plan. Reference is made to
Exhibit 10.23 of Registrant's Report on Form 10-K for
the year ended December 31, 1994, which exhibit
is incorporated herein by reference. **
10.26 Amendment No. 3 to Nord Resources Corporation
1989 Stock Option Plan.
10.27 Nord Resources Corporation 1991 Stock Option Plan.
Reference is made to Exhibit 10.24 of Registrant's
Report on Form 10-K for the year ended December 31,
1993, which exhibit is incorporated herein by reference. **
10.28 Amendment No. 1 to Nord Resources Corporation
1991 Stock Option Plan. Reference is made to Exhibit
10.25 of Registrant's Report on Form 10-K for the year
ended December 31, 1994, which exhibit is incorporated
herein by reference. **
10.29 Amendment No. 2 to Nord Resources Corporation 1991
Stock Option Plan. E-4
10.30 Restated Deferred Compensation Agreement dated
May 10, 1989 between Registrant and Terence H. Lang.
102
<PAGE>
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NUMBER
Reference is made to Exhibit 10.9 of Registrant's
Report on Form 10-K for the year ended December 31,
1989, which exhibit is incorporated by reference. **
10.31 Amendment No. 1 to the Restated Deferred Comp-
ensation Agreement between Registrant and
Terence H. Lang, dated November 3, 1995.
10.32 Restated Deferred Compensation Agreement dated
May 10, 1989 between Registrant and Richard L.
Steinberger. Reference is made to Exhibit 10.10
of Registrant's Report on Form 10-K for the year
ended December 31, 1989, which exhibit is incor-
porated herein by reference. **
10.33 Restated Deferred Compensation Agreement
dated May 10, 1989 between Registrant and
Edgar F. Cruft. Reference is made to Exhibit
10.11 of Registrant's Report on Form 10-K for
the year ended December 31, 1989, which exhibit
is incorporated herein by reference. **
10.34 Amendment No. 1 to the Restated Deferred
Compensation Agreement between Registrant
and Edgar F. Cruft, dated July 7, 1995. E-8
10.35 Nord Resources Corporation Trust Agreement for
Key Executives as Restated, dated July 7, 1995.
10.36 Amendment No. 1 to Trust Agreement for Key
Executives as Restated, dated December 1, 1995.
10.37 Split-Dollar Life Insurance and Supplemental
Compensation agreement between Karl A. Frydryk and
Registrant dated July 22, 1988. Reference is made
to Exhibit 10.29 of Registrant's Report on Form 10-K
for the year ended December 31, 1988, which exhibit
is incorporated herein by reference. **
10.38 Nord Resources Corporation Split-Dollar Life Insurance
and Supplemental Compensation Plan Trust Agreement,
December 5, 1988. Reference is made to Exhibit 10.35
103
<PAGE>
PAGE
NUMBER
of Registrant's Report on Form 10-K for the year ended
December 31, 1988, which exhibit is incorporated herein
by reference. **
10.39 Change of Control Letter Agreement between Registrant
and Edgar F. Cruft, dated May 10, 1989. Reference is
made to Exhibit 10.27 of Registrant's Report on
Form 10-K for the year ended December 31, 1989,
which exhibit is incorporated herein by reference **
10.40 Amendment No. 2 dated December 1, 1995 to Change
of Control Agreement between Registrant and Edgar F.
Cruft.
10.41 Change of Control Letter Agreement between Registrant
and Terence H. Lang, dated May 10, 1989. Reference is
made to Exhibit 10.29 of Registrant's Report on
Form 10-K for the year ended December 31, 1989, which
exhibit is incorporated herein by reference. **
10.42 Amendment No. 2 dated December 1, 1995 to Change
of Control Agreement between Registrant and Terence
H. Lang.
10.43 Nord Resources Corporation Trust Agreement for
Executive Severance Agreements, dated May 10,
1989. Reference is made to Exhibit 10.30 of
Registrant's Report on Form 10-K for the year ended
December 31, 1989, which exhibit is incorporated
herein by reference. **
10.44 Change of Control Letter Agreement between Registrant
and Karl A. Frydryk, dated May 10, 1989. Reference
is made to Exhibit 10.32 of Registrant's Report on Form
10-K for the year ended December 31, 1989, which exhibit
is incorporated herein by reference. **
10.45 Amendment No. 2 dated December 1, 1995 to Change
of Control Agreement between Registrant and Karl A.
Frydryk.
10.46 Change of Control Letter Agreement between Registrant and
104
<PAGE>
PAGE
NUMBER
William W. Wilcox, dated March 9, 1990. Reference is
made to Exhibit 10.57 of Registrant's Report on Form
10-K for the year ended December 31, 1990, which
exhibit is incorporated herein by reference. **
10.47 Amendment No. 2 dated December 1, 1995 to Change
of Control Agreement between Registrant and William W.
Wilcox.
10.48 Change of Control Letter Agreement between Registrant and
James T. Booth, dated June 8, 1994. Reference is made
to Exhibit 10.38 of Registrant's Report on Form 10-K for
the year ended December 31, 1994, which exhibit is
incorporated herein by reference. **
10.49 Amendment No. 2 dated December 1, 1995 to Change
of Control Agreement between Registrant and James T.
Booth.
10.50 Executive Loan Agreement dated September 10, 1987
between Terence H. Lang and Registrant. Reference is
made to Exhibit 10.40 of Registrant's Report on
Form 10-K for the year ended December 31, 1987,
which exhibit is incorporated herein by reference. **
10.51 Executive Loan Agreement dated August 8, 1988 between
Edgar F. Cruft and Registrant. Reference is made to
Exhibit 10.26 of Registrant's Report on Form 10-K for
the year ended December 31, 1988, which exhibit is
incorporated herein by reference. **
10.52 Executive Loan Agreement dated December 31,
1988 between Terence H. Lang and Registrant.
Reference is made to Exhibit 10.27 of Registrant's
Report on Form 10-K for the year ended December
31, 1988, which exhibit is incorporated herein by
reference. **
10.53 Executive Loan Agreement dated September 19, 1989
between Edgar F. Cruft and Registrant. Reference is
made to Exhibit 10.17 of Registrant's Report on Form
10-K for the year ended December 31, 1989, which
exhibit is incorporated herein by reference. **
105
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PAGE
NUMBER
10.54 Agreement between The Government of the Republic
of Sierra Leone and Sierra Rutile Limited ("SRL"),
dated November 3, 1989. Reference is made to Exhibit
10.4 of Registrant's Report on Form 10-K for the year
ended December 31, 1989, which exhibit is incorporated
herein by reference. **
10.55 Agreement dated November 17, 1992 amending Fifth Amend-
ment to and Restatement of the Financing Agreement and
Second Amendment and Restatement of Credit between SRL
and Export-Import Bank of the United States ("Eximbank").
Reference is made to Exhibit 10.5 of Registrant's
Report on Form 10-K for the year ended December 31,
1992, which exhibit is incorporated herein by reference. **
10.56 Fifth Amendment to and Restatement of the Financing
Agree-ment dated as of November 24, 1986 between
SRL and Eximbank. Reference is made to Exhibit 4.14 of
Registrant's Report on Form 10-K for the year ended
December 31, 1988, which exhibit is incorporated
herein by reference. **
10.57 Second Amendment and Restatement of Credit
Agreement dated as of December 1, 1982 between
SRL and Eximbank. Reference is made to Exhibit
10(e)B(v) of Registrant's Registration Statement on
Form S-2 (33-00961), which exhibit is incorporated
herein by reference. **
10.58 Letter Agreement dated October 12, 1993 between
SRL and Eximbank. Reference is made to Exhibit
10.10 of Registrant's Report on Form 8-K dated
November 17, 1993, which exhibit is incorporated
herein by reference. **
10.59 Letter Agreement dated November 17, 1993 between
SRL and Eximbank. Reference is made to Exhibit
10.11 of Registrant's Report on Form 8-K dated Nov-
ember 17, 1993, which exhibit is incorporated herein
by reference. **
106
<PAGE>
PAGE
NUMBER
10.60 Loan Agreement dated August 6, 1992 between DEG
- Deutsche Investitions - Und Entwicklungsgesell Schaft
MBH ("DEG") and SRL. Reference is made to Exhibit
10.73 of Registrant's Report on Form 10-K for the year
ended December 31, 1992, which exhibit is incorporated
herein by reference. **
10.61 First Amendment dated November 20, 1992 to the Loan
Agreement between DEG and SRL. Reference in made to
Exhibit 10.74 of Registrant's Report on Form 10-K
for the year ended December 31, 1992, which exhibit is
incorporated herein by reference. **
10.62 Amendatory Agreement dated November 17, 1993 between
SRL and DEG. Reference is made to Exhibit 10.12 of
Registrant's Report on Form 8-K dated November 17,
1993, which exhibit is incorporated herein by reference. **
10.63 Investment Agreement dated June 30, 1992 between
SRL and International Finance Corporation ("IFC").
Reference is made to Exhibit 10.75 of Registrant's
Report on Form 10-K for the year ended December 31,
1992, which exhibit is incorporated herein by reference. **
10.64 Amendment No. 1 dated November 18, 1992 to Invest-
ment Agreement between SRL and IFC. Reference is
made to Exhibit 10.76 of Registrant's Report on Form
10-K for the year ended December 31, 1992, which
exhibit is incorporated herein by reference. **
10.65 Amendatory Agreement dated November 17, 1993 bet-
ween SRL and IFC. Reference is made to Exhibit 10.9
of Registrant's Report on Form 8-K dated November 17,
1993, which exhibit is incorporated herein by reference. **
10.66 Loan Agreement dated January 24, 1992 between SRL
and Commonwealth Development Corporation ("CDC").
Reference is made to Exhibit 10.77 of Registrant's
Report on Form 10-K for the year ended December 31,
1992, which exhibit is incorporated herein by reference. **
10.67 Amendment dated November 17, 1992 of the Loan Agree-
ment between SRL and CDC. Reference is made to Exhibit
10.78 of Registrant's Report on Form 10-K for the year
ended
107
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NUMBER
December 31, 1992, which exhibit is incorporated
herein by reference. **
10.68 Amendatory Agreement dated November 5, 1993 between
SRL and CDC. Reference is made to Exhibit 10.13 of
Registrant's Report on Form 8-K dated
November 17, 1993, which exhibit is incorporated
herein by reference. **
10.69 Waiver Letter dated October 22, 1993 from CDC to SRL.
Reference is made to Exhibit 10.14 of Registrant's
Report on Form 8-K dated November 17, 1993, which
exhibit is incorporated herein by reference. **
10.70 Finance Agreement dated August 11, 1992 between SRL
and Overseas Private Investment Corporation ("OPIC").
Reference is made to Exhibit 10.79 of Registrant's
Report on Form 10-K for the year ended December 31,
1992, which exhibit is incorporated herein by reference. **
10.71 First Amendment dated November 24, 1992 to Finance
Agreement between SRL and OPIC. Reference is made
to Exhibit 10.80 of Registrant's Report on Form 10-K
for the year ended December 31, 1992, which exhibit is
incorporated herein by reference. **
10.72 Agreement of Wavier and Second Amendment to Finance
Agreement dated as of September 21, 1993 between SRL
and OPIC. Reference is made to Exhibit 10.6 of Regis-
trant's Report on Form 8-K dated November 17, 1993,
which exhibit is incorporated herein by reference. **
10.73 Third Amendment to Finance Agreement dated as of
November 17, 1993 between SRL and OPIC. Reference
is made to Exhibit 10.7 of Registrant's Report on
Form 8-K dated November 17, 1993, which exhibit is
incorporated herein by reference. **
10.74 Funding Agreement dated February 16, 1993 among SRL,
OPIC and PNC Bank, National Association ("PNC").
Reference is made to Exhibit 10.70 of Registrant's
Report on Form 10-K for the year ended
December 31, 1993, which exhibit is incorporated
herein by reference. **
108
<PAGE>
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NUMBER
10.75 First Amendment to Funding Agreement dated November
12, 1993 among SRL, OPIC and PNC. Reference is made
to Exhibit 10.8 of Registrant's Report on Form 8-K
dated November 17, 1993, which exhibit is incorporated
herein by reference. **
10.76 Debenture dated November 17, 1992 made by SRL in favor
of CDC, DEG, Eximbank, IFC and OPIC. Reference is
made to Exhibit 10.81 of Registrant's Report on Form
10-K for the year ended December 31, 1992, which
exhibit is incorporated herein by reference. **
10.77 Debenture dated November 17, 1992 made by SRL
in favor of DEG, Eximbank, IFC, OPIC and CDC.
Reference is made to Exhibit 10.85 of Registrant's
Report on Form 10-K for the year ended December
31, 1992, which exhibit is incorporated herein
by reference. **
10.78 First Amendment and Restatement of Project Funds
Agreement dated as of November 17, 1993 among
Registrant, CRL, Holdings, SRL, CDC, DEG, Eximbank,
IFC and OPIC. Reference is made to Exhibit 10.17
of Registrant's Report on Form 8-K dated November
17, 1993, which exhibit is incorporated
herein by reference. **
10.79 Share Retention Agreement dated November 17, 1992
among CDC, DEG, Eximbank, IFC and OPIC and
Registrant, Nord Rutile Company and SRL. Reference
is made to Exhibit 10.83 of Registrant's Report on
Form 10-K for the year ended December 31, 1992, which
exhibit is incorporated herein by reference. **
10.80 First Amendment to Share Retention Agreement dated
as of November 17, 1993 among Registrant, NR Company,
CRL, Holdings, CDC, DEG, IFC, OPIC and Eximbank.
Reference is made to Exhibit 10.18 of Registrant's
Report on Form 8-K dated November 17, 1993,
which exhibit is incorporated herein by reference. **
10.81 Pledge Agreement dated November 17, 1992 between
SRL and DEG, Eximbank, IFC, OPIC and CDC. Reference
is made to Exhibit 10.84 of Registrant's Report on
Form 10-K for the year ended December 31, 1992, which
exhibit is incorporated herein by reference. **
109
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NUMBER
10.82 Cash Collateral Charge dated November 17, 1992 made
by SRL in favor of DEG, Eximbank, IFC, OPIC and CDC.
Reference is made to Exhibit 10.86 of Registrant's
Report on Form 10-K for the year ended December 31,
1992, which exhibit is incorporated herein by reference. **
10.83 Trust Deed between Standard Chartered Bank Sierra
Leone Limited, Financing Institutions and SRL.
Reference is made to Exhibit 10.87 of Registrant's
Report on Form 10-K for the year ended December 31,
1992, which exhibit is incorporated herein by reference. **
10.84 Security Sharing and Intercreditor Agreement dated
November 17, 1992 among DEG, Eximbank, IFC, OPIC
and CDC. Reference is made to Exhibit 10.88 of
Registrant's Report on Form 10-K for the year
ended December 31, 1992, which exhibit is
incorporated herein by reference. **
10.85 Security Agreement dated November 17, 1992 among SRL
and DEG, Eximbank, IFC, OPIC and CDC. Reference is
made to Exhibit 10.90 of Registrant's Report on Form
10-K for the year ended December 31, 1992, which exhibit
is incorporated herein by reference. **
10.86 Subordination Agreement dated November 17, 1992 among
DEG, Eximbank, IFC, OPIC and CDC and Registrant, Nord
Rutile Corporation, Nord Rutile Company and SRL.
Reference is made to Exhibit 10.89 of Registrant's
Report on Form 10-K for the year ended December 31,
1992, which exhibit is incorporated herein by reference. **
10.87 First Amendment to Subordination Agreement dated as of
November 17, 1993 among Registrant, NR Company, CRL,
Holdings, CDC, DEG, IFC, OPIC and Eximbank. Reference
is made to Exhibit 10.19 of Registrant's Report on
Form 8-K dated November 17, 1993, which exhibit is
incorporated herein by reference. **
10.88 Arm's Length Agreement dated as of November 17, 1993
between CRL and SRL. Reference is made to Exhibit 10.15
of Registrant's Report on Form 8-K dated November 17,
1993, which exhibit is incorporated herein by reference. **
110
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NUMBER
10.89 First Amendment to Arm's Length Agreement dated
as of November 17, 1993 between Registrant and
SRL. Reference is made to Exhibit 10.16 of Registrant's
Report on Form 8-K dated November 17, 1993, which
exhibit is incorporated herein by reference. **
10.90 Joint Venture Agreement dated as of November 17,
1993 among CRL, Registrant, NR Company and
Holdings. Reference is made to Exhibit 10.1 of
Registrant's Report on Form 8-K dated November 17,
1993, which exhibit is incorporated herein by reference. **
10.91 Marketing Agreement dated as of November 17, 1993
among CRL, Registrant, NR Company, SRL, Holdings and
TMMI. Reference is made to Exhibit 10.2 of Registrant's
Report on Form 8-K dated November 17, 1993, which
exhibit is incorporated herein by reference. **
10.92 U.S. Marketing Agreement dated as of November 17,
1993 among CRL, Registrant, NR Company, SRL,
Holdings and U.S. Partnership. Reference is made to
Exhibit 10.3 of Registrant's Report on Form 8-K dated
November 17, 1993, which exhibit is incorporated herein
by reference. **
10.93 General Partnership Agreement dated as of November
17, 1993 among CRL, CRL Delaware and Registrant.
Reference is made to Exhibit 10.4 of Registrant's
Report on Form 8-K dated November 17, 1993, which
exhibit is incorporated herein by reference. **
10.94 Employment Agreement dated as of November 17, 1993
between U.S. Partnership and Richard L. Steinberger.
Reference is made to Exhibit 10.5 of Registrant's
Report on Form 8-K dated November 17, 1993, which
exhibit is incorporated herein by reference. **
10.95 Amendment to Mining Lease dated September 17, 1991
from the Ministry of Mines of the Government
of Sierra Leone. Reference is made to Exhibit 10.12
of Amendment No. 2 to Registrant's Report on Form S-3
dated July 20, 1993, which exhibit is incorporated
herein by reference. **
111
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NUMBER
10.96 Agreement between Sierra Rutile Limited and the
Government of Sierra Leone dated 3 January, 1995.
Reference is made to Exhibit 10.86 of Registrant's
Report on Form 10-K for the year ended December
31, 1994, which exhibit is incorporated herein by
reference. **
10.97 Girilambone Facility Agreement among Nord Pacific
Limited, Nord Gold Company Limited, Nord Resources
(Pacific) Pty Ltd., Nord Australex Nominees Pty Ltd.
and R & I Bank of Western Australia Ltd. dated
January 12,1993. Reference is made to Exhibit 10.41 of
Nord Pacific Limited's Form 10-K for the year ended
December 31, 1992, which exhibit is incorporated herein
by reference. **
10.98 Letter dated February 22, 1995 regarding Sierra Rutile
Limited Development Bank Financing. Reference is made
to Exhibit 10.92 of Registrant's Report on Form 10-K
for the year ended December 31, 1994, which exhibit
is incorporated herein by reference. **
10.99 Agreement and Fourth Amending Agreement dated March
24, 1995 between Consolidated Rutile Limited and
Registrant. Reference is made to Exhibit 10.93 of
Registrant's Report on Form 10-K for the year ended
December 31, 1994,which exhibit is incorporated
herein by reference. **
10.100 Letter Agreement signed by Registrant,
Consolidated Rutile Limited and, SRL
related to CDC, DEG, Eximbank, IFC and OPIC dated
December 15, 1995.
10.101 Guaranty among Registrant and DCD, DEG, Eximbank,
IFC and OPIC dated February 28, 1996.
10.102 Pledge, Assignment and Security Agreement among
Registrant and CDC, DEG, Eximbank, IFC and OPIC
dated February 28, 1996.
112
<PAGE>
21. SUBSIDIARIES OF REGISTRANT
JURISDICTION IN
NAME OF SUBSIDIARY WHICH INCORPORATED
Sierra Rutile Limited Sierra Leone,
West Africa
Nord Kaolin Company Georgia
PAGE
NUMBER
23. CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG
27. FINANCIAL DATA SCHEDULE
99. ADDITIONAL EXHIBITS
99.1 Independent Auditors' Report to the Board of
Directors and Shareholders, Sierra Rutile Limited,
February 26, 1996
99.2 Independent Auditors' Report to the Board of
Directors and Shareholders, Sierra Rutile America
Inc., February 26, 1996
99.3 Independent Auditors' Report to the Board of
Directors and Shareholders, Sierra Rutile Services
Limited, February 26, 1996
99.4 Independent Auditors' Report to the Board of
Directors and Shareholders, Sierra Rutile Holdings
Limited, February 26, 1996
99.5 Independent Auditors' Report to the Board of
Directors and Shareholders, Titanium Minerals
Marketing International Limited, February 26, 1996
113
<PAGE>
99.6 Independent Auditors' Report to the Board of
Directors and Shareholders, Titanium Minerals
Marketing International USA, February 26, 1996
** Indicates that the exhibit is incorporated by reference
in this Annual Report on Form 10-K from a previous
filing with the Commission.
114
`
<PAGE>
NORD RESOURCES CORPORATION
1982 NORD INCENTIVE STOCK OPTION PLAN
AMENDMENT NO. 4
JUNE 8, 1994
Section 6.6 of the 1932 Nord Incentive Stock Option Plan is hereby amended
by adding a new subparagraph "(e)" as follows:
(e) Notwithstanding anything to the contrary contained herein, the Board
or the Committee, as the case may be, shall have the right, in its
sole discretion, to permit employees of the Corporation, other than
employees who are directors or executive officers of the Corporation,
to exercise outstanding options for a period of up to two years
following the date of termination of employment, to the extent that
such options are exercisable on the date of termination of employment.
<PAGE>
NORD RESOURCES CORPORATION
1987 NORD INCENTIVE STOCK OPTION PLAN
AMENDMENT NO. 2
JUNE 8, 1994
Section 6.6 of the 1987 Nord Incentive Stock Option Plan is hereby amended
by adding a new subparagraph "d." as follows:
(d) Notwithstanding anything to the contrary contained herein, the
Board or the Committee, as the case may be, shall have the right,
in its sole discretion, to permit employees of the Corporation,
other than employees who are directors or executive officers of
the Corporation, to exercise outstanding options for a period of
up to two years following the date of termination of employment,
to the extent that such options are exercisable on the date of
termination of employment.
<PAGE>
NORD RESOURCES CORPORATION
1989 STOCK OPTION PLAN
AMENDMENT NO. 3
JUNE 8, 1994
Section 6(f) of the 1989 Stock Option Plan is hereby amended by adding the
following sentence after the first sentence:
Notwithstanding the foregoing, the Board of Directors or Committee, as
the case may be, shall have the right, in its sole discretion, to
extend such three months to up to two years after the date of such
termination with respect to outstanding options which are held by
persons who are not directors or executive officers at the time of
termination, to the extent that such options are exercisable on the
date of termination of employment.
<PAGE>
NORD RESOURCES CORPORATION
1991 STOCK OPTION PLAN
AMENDMENT NO. 2
JUNE 8, 1994
Section 7(d) of the 1991 Stock Option Plan is hereby amended by adding the
following sentence at the end of the first sentence:
Notwithstanding the foregoing, the Board of Directors or Committee, as
the case may be, shall have the right, in its sole discretion, to
extend such three months to up to two years after the date of such
termination with respect to outstanding options which are held by
persons who are not directors or executive officers at the time of
termination, to the extent that such options are exercisable on the
date of termination of employment.
<PAGE>
AMENDMENT NO. 1
TO
RESTATED DEFERRED COMPENSATION AGREEMENT
This AMENDMENT NO. 1 TO THE RESTATED DEFERRED COMPENSATION AGREEMENT
is entered into this 3rd day of November 1995 between NORD RESOURCES
CORPORATION, a Delaware corporation ("Nord"), and TERENCE H. LANG ("Executive")
under the following circumstances:
A. Nord and Executive entered into a Restated Deferred Compensation
Agreement dated May 10, 1989 (the"Retirement Agreement"); and
B. To induce Executive to remain in the employment of Nord, the
Board of Directors of Nord adopted a resolution providing for the amendment
of the Retirement Agreement as set forth hereinafter;
NOW, THEREFORE, TO INDUCE EXECUTIVE TO CONTINUE IN THE EMPLOYMENT OF NORD AND
FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. The Retirement Agreement is hereby amended to include a
new "Section 20." Such Section 20 shall read in its entirety as follows:
20. ALTERNATIVE LUMP SUM PAYMENT PROVISION.
(a) Subject to the limitations at Section 20(c), Executive or
Executive's Present Spouse, if Executive is deceased, may at anytime give
written notice to Nord stating that the notifying party desires that
payment of all or a portion of the amounts that Nord is required to pay
under this Agreement be paid in a lump sum to the party giving such notice
(the "Notifying Party") in accordance with this Section 20. If Nord
receives such notice, then Nord shall pay to the Notifying Party in a lump
sum, within 30 days after receiving such written notice from the Notifying
Party, an amount equal to the Portion of the Net Present Value Amount (as
defined at Section 20(b)) less 12% of such amount (the "Lump Sum Payment").
After payment of the Lump Sum Payment to the Notifying Party, each
remaining payment Nord is required to make under this Agreement to
Executive, Executive's Present Spouse, or to any person designated as a
beneficiary of either of them under this Agreement shall be adjusted to
reflect payment of a Lump Sum Payment as follows:
(i) the payments that Nord would be required to make
under this Agreement if no Lump Sum Payment was
<PAGE>
paid shall be multiplied by a fraction, the numerator of which is the
Portion of the Net Present Value Amount that has not been paid out as
a Lump Sum Payment and the denominator of which is the Net Present
Value Amount;
(ii) the product obtained in subparagraph (i) of this Section
20(a) shall be Nord's remaining payment obligation under this
Agreement after giving effect to any Lump Sum Payment; and
(iii) if more than one Lump Sum Payment calculation and payment
is made under this Agreement, then in making the adjustment to reflect
an additional Lump Sum Payment, the adjustment formula shall be
applied to Nord's payment obligation under this Agreement as last
adjusted.
(b) For purposes of this Section 20, Net Present Value Amount
means the present value of all remaining payments that Nord is required to
make to Executive or Executive's Present Spouse under this Agreement,
calculated in accordance with the following assumptions and provisions:
(i) the date as of which such Net Present Value Amount shall be
determined shall be the date that Nord receives the written notice
from the Notifying Party that the Notifying Party is electing Lump Sum
Payment (the "Determination Date");
(ii) if on the Determination Date neither Executive nor
Executive's Present Spouse has commenced receiving payment of the
Normal Retirement Benefit or the early retirement benefit described at
Section 3, then the Lump Sum Amount shall be determined on the
assumption that payments under this Agreement would commence on the
Determination Date based on the benefit that could be payable if
Executive terminates employment on such date;
(iii) Table V or VI, as appropriate, at Treasury Regulation
Section 1.72-9 shall be the actuarial table used to establish the life
expectancy of Executive, Executive's Present Spouse, or their combined
life expectancy, as the case may be, as of the Determination Date for
purposes of establishing the period over which the payments under this
Agreement shall assumed to be made;
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<PAGE>
(iv) an annual discount rate equal to the Pension Benefit
Guaranty Corporation ("PBGC") Discount Rate shall be used to discount
future payments to the Determination Date; "PBGC Discount Rate" shall
mean (1) for a Determination Date occurring prior to the year 2000,
the discount rate that can be used pursuant to Section 417(e)(3)(B) of
the Internal Revenue Code of 1986 ("Code"), as amended, on the
Determination Date based on the assumption that benefits are in pay
status and (II) for a Determination Date occurring in the year 2000
and thereafter, the applicable interest rate, as defined in Section
417(e)(3)(A)(ii)(II) of the Code; and
(v) the Net Present Value Amount and the Lump Sum Payment amount
shall be calculated by the firm of Deloitte & Touche, and Nord shall
deliver to the Notifying Party at the time the Lump Sum Payment is a
made a letter from such firm showing in reasonable detail the
calculation of the Net Present Value Amount and the Lump Sum Payment.
In addition, "Portion of Net Present Value Amount" shall be the amount of
the Net Present Value Amount which is used to calculate a Lump Sum Payment.
(c) Notwithstanding anything contained in this Section 20, a Lump Sum
Payment elected under this Section 20 shall be paid only to the extent that
funds are credited to Executive's separate account under the Trust
Agreement at the time the Lump Sum Payment is required to be paid. "Trust
Agreement" means the Nord Resources Trust Agreement for Key Executives,
dated May 10, 1989 and as the same may be amended from time to time.
SECTION 2. The Retirement Agreement, as amended by
Section 1 hereof, shall continue in full force and effect.
IN WITNESS WHEREOF, Nord and Executive have executed this Amendment
No. 1 as of the day and year first above written.
/s/ Terence H. Lang NORD RESOURCES CORPORATION
--------------------
Terence H. Lang
By /s/ Edgar F. Cruft
-----------------
Attest: /s/ Karl Frydryk Edgar F. Cruft
-------------------- Chairman and President
Karl A. Frydryk
Secretary
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<PAGE>
AMENDMENT NO. 1
TO
RESTATED DEFERRED COMPENSATION AGREEMENT
This AMENDMENT NO. 1 TO THE RESTATED DEFERRED COMPENSATION AGREEMENT is
entered into as of the 7th day of July 1995 between NORD RESOURCES CORPORATION,
a Delaware corporation ("Nord"), and EDGAR F. CRUFT ("Executive") under the
following circumstances:
A. Nord and Executive entered into a Restated
Deferred Compensation Agreement dated May 10, 1989 (the
"Retirement Agreement"); and
B. To induce Executive to remain in the employment of
Nord, the Board of Directors of Nord adopted a resolution
providing for the amendment of the Retirement Agreement as
set forth hereinafter;
NOW, THEREFORE, TO INDUCE EXECUTIVE TO CONTINUE IN THE EMPLOYMENT OF NORD AND
FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. The Retirement Agreement is hereby amended to include a
new "Section 20." Such Section 20 shall read in its entirety as follows:
20. ALTERNATIVE LUMP SUM PAYMENT PROVISION.
(a) Subject to the limitations at Section 20(c), Executive or
Executive's Present Spouse, if Executive is deceased, may at anytime give
written notice to Nord stating that the notifying party desires that
payment of all or a portion of the amounts that Nord is required to pay
under this Agreement be paid in a lump sum to the party giving such notice
(the "Notifying Party") in accordance with this Section 20. If Nord
receives such notice, then Nord shall pay to the Notifying Party in a lump
sum, within 30 days after receiving such written notice from the Notifying
Party, an amount equal to the Portion of the Net Present Value Amount (as
defined at Section 20(b)) less 12% of such amount (the "Lump Sum
Payment"). After payment of the Lump Sum Payment to the Notifying Party,
each remaining payment Nord is required to make under this Agreement to
Executive, Executive's Present Spouse, or to any person designated as a
beneficiary of either of them under this Agreement shall be adjusted to
reflect payment of a Lump Sum Payment as follows:
(i) the payments that Nord would be required to make under this
Agreement if no Lump Sum Payment was paid shall be multiplied by a
fraction, the numerator of which is the Portion of the Net Present
Value Amount
<PAGE>
that has not been paid out as a Lump Sum Payment and the denominator
of which is the Net Present Value Amount;
(ii) the product obtained in subparagraph (i) of this Section
20(a) shall be Nord's remaining payment obligation under this
Agreement after giving effect to any Lump Sum Payment; and
(iii) if more than one Lump Sum Payment calculation and payment
is made under this Agreement, then in making the adjustment to reflect
an additional Lump Sum Payment, the adjustment formula shall be
applied to Nord's payment obligation under this Agreement as last
adjusted.
(b) For purposes of this Section 20, Net Present Value Amount
means the present value of all remaining payments that Nord is required to
make to Executive or Executive's Present Spouse under this Agreement,
calculated in accordance with the following assumptions and provisions:
(i) the date as of which such Net Present Value Amount shall be
determined shall be the date that Nord receives the written notice
from the Notifying Party that the Notifying Party electing Lump Sum
Payment (the "Determination Date");
(ii) if on the Determination date neither Executive nor
Executive's Present Spouse has commenced receiving payment of the
Normal Retirement Benefit or the early retirement benefit described
at Section 3, then the Lump Sum Amount shall be determined on the
assumption that payments under this Agreement would commence on the
Determination Date based on the benefit that could be payable if
Executive terminates employment on such date;
(iii) Table V or VI, as appropriate, at Treasury Regulation
Section 1.72-9 shall be the actuarial table used to establish the life
expectancy of Executive, Executive's Present Spouse, or their combined
life expectancy, as the case may be, as of the Determination Date for
purposes of establishing the period over which the payments under this
Agreement shall assumed to be made;
(iv) an annual discount rate equal to the
Pension Benefit Guaranty Corporation ("PBGC")
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<PAGE>
Discount Rate shall be used to discount future payments to the
Determination Date; "PBGC Discount Rate" shall mean (I) for a
Determination Date occurring prior to the year 2000, the discount rate
that can be used pursuant to Section 417(e)(3)(B) of the Internal
Revenue Code of 1986 ("Code"), as amended, on the Determination Date
based on the assumption that benefits are in pay status and (II) for a
Determination Date occurring in the year 2000 and thereafter, the
applicable interest rate, as defined in Section 417(e)(3)(A)(ii)(II)
of the Code; and
(v) the Net Present Value Amount and the Lump Sum Payment amount
shall be calculated by the firm of Deloitte & Touche, and Nord shall
deliver to the Notifying Party at the time the Lump Sum Payment is a
made a letter from such firm showing in reasonable detail the
calculation of the Net Present Value Amount and the Lump Sum Payment.
In addition, "Portion of Net Present Value Amount" shall be the amount of
the Net Present Value Amount which is used to calculate a Lump Sum Payment.
(c) Notwithstanding anything contained in this Section 20, a Lump Sum
Payment elected under this Section 20 shall be paid only to the extent that
funds are credited to Executive's separate account under the Trust Agreement
at the time the Lump Sum Payment is required to be paid. "Trust Agreement"
means the Nord Resources Trust Agreement for Key Executives, dated
May 10, 1989 and as the same may be amended from time to time.
SECTION 2. The Retirement Agreement, as amended by Section 1 hereof,
shall continue in full force and effect.
IN WITNESS WHEREOF, Nord and Executive have executed this Amendment
No. 1 as of the day and year first above written.
- ------------------------------ NORD RESOURCES CORPORATION
Edgar F. Cruft
Attest: /s/Karl Frydryk By/s/Terence H. Lang
---------------------- -----------------------
Karl A. Frydryk Terence H. Lang
Secretary Senior Vice President
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<PAGE>
NORD RESOURCES CORPORATION
TRUST AGREEMENT FOR KEY EXECUTIVES AS RESTATED
July 7, 1995
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I Name of Trust.................................. 2
1.l Name...................................... 2
1.2 Purpose................................... 2
ARTICLE II Definitions.................................... 2
ARTICLE III Payments to Executives Pursuant to
the Executive Agreements..................... 4
3.1 Payments.................................. 4
3.2 Order of Payments.......................... 4
ARTICLE IV Payment Schedules under Executive
Agreements................................... 5
4.1 Payment Schedules......................... 5
4.2 Modified Payment Schedules................ 5
4.3 Resolution of Disputes as to
Payment Schedules........................ 5
4.4 Records................................... 6
4.5 Withholdings.............................. 6
4.6 Further Assurances........................ 6
4.7 Distributions in the Event
of Taxability............................ 6
ARTICLE V The Trust Fund; Separate Accounts; And
Funding...................................... 7
5.1 Receipt and Holding of the Trust
Fund..................................... 7
5.2 Funding of Trust.......................... 7
5.3 Allocation of Contributions............... 8
5.4 Maintenance of Separate
Accounts................................. 8
5.5 Trust Gains and Losses.................... 8
5.6 Reallocation of Separate
Account Balances......................... 9
5.7 Additional Funding; Excess Assets......... 9
5.8 Release of Trust Funds Unless
Change of Control Occurs................. 10
5.9 Transfer to Another Trustee............... 10
ARTICLE VI Status of Trust and Trustee Responsibility
When Company is Insolvent.................... 11
6.1 Grantor Trust............................. 11
6.2 Cessation of Payments and Insolvency.. 11
6.3 Subject to Claims of Creditors
of the Company........................... 11
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<PAGE>
ARTICLE VII The Trustee's Accounting....................... 12
7.1 Books and Records......................... 12
7.2 Trustee's Report.......................... 12
7.3 Additional Reports........................ 13
7.4 Availability of Reports
to the Executives........................ 13
ARTICLE VIII Administration of the Trust Fund............... 13
8.1 Ownership and Investment
of the Trust Fund........................ 13
8.2 Powers of the Trustee..................... 13
8.3 Situs of Assets........................... 15
8.4 Entire Agreement.......................... 15
ARTICLE IX Relating to the Trustee........................ 15
9.1 Liability of the Trustee.................. 15
9.2 Obligations under Law..................... 16
9.3 Bond...................................... 16
9.4 Compensation.............................. 16
9.5 Indemnification........................... 16
9.6 Acceptance................................ 16
ARTICLE X Missing Persons; Incapacitated Executives;
Directions; and Notices...................... 16
10.1 Missing Persons........................... 16
10.2 Incapacitated Executives.................. 17
10.3 Form...................................... 17
10.4 Proof of any Matter....................... 17
10.5 Absence of Directions..................... 17
ARTICLE XI Resignation or Removal of Trustee.............. 17
11.1 Successor Trustee......................... 17
11.2 Final Account............................. 17
11.3 Transfer and Discharge.................... 18
11.4 Effective Date of Appointment
of Successor Trustee..................... 18
11.5 Merger or Consolidation................... 18
ARTICLE XII Protection for Third Persons................... 18
12.1 Protection for Third Persons.............. 18
ARTICLE XIII Termination; Amendment; and Waiver............. 18
13.1 Termination............................... 18
13.2 Amendment and Waiver...................... 18
ARTICLE XIV General Provisions............................. 19
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<PAGE>
14.1 Ohio Trust............................... 19
14.6 Nonalienation of Benefits................ 19
14.3 Severability............................. 19
14.4 Arbitration.............................. 19
14.5 Notices.................................. 19
14.6 Trust Beneficiaries...................... 20
14.7 Headings................................. 20
14.8 Counterparts............................. 20
Schedule A Payment Schedule
Schedule B-1 Restated Deferred Compensation Agreement between
the Company and Edgar F. Cruft dated May 10, 1989.
Schedule B-2 Restated Deferred Compensation Agreement between
the Company and Terence H. Lang dated May 10, 1989.
Schedule B-3 Restated Deferred Compensation Agreement between
the Company and Richard L. Steinberger dated May 10, 1989.
Schedule C List of Life Insurance Policies
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<PAGE>
NORD RESOURCES CORPORATION
TRUST AGREEMENT FOR KEY EXECUTIVES AS RESTATED
THIS TRUST AGREEMENT FOR KEY EXECUTIVES (the "Trust") is entered into
this 7th day of July 1995 by NORD RESOURCES CORPORATION, a Delaware corporation,
as grantor (the "Company"), and National City Bank, Dayton, as trustee (the
"Trustee"), and is a complete restatement, including all amendments, of the
Trust Agreement for Key Executives established by the Company on May 10, 1989.
(A) As of May 10, 1989, the Company entered into separate Restated
Deferred Compensation Agreements (the "Executive Agreements") with
Edgar F. Cruft, Terence H. Lang, and Richard L. Steinberger (the
"Executives") pursuant to which the Company is obligated to make deferred
payments to the Executives;
(B) The Executive Agreements are not funded or otherwise secured,
and the Company by this Trust desires to provide further assurance to
the Executives that such deferred payments will be timely made when due by
depositing with the Trustee, subject only to the claims of the Company's
existing or future general creditors in the event of the Companv's
Insolvency as defined at Section 6.2, assets for use in making such
deferred payments;
(C) The Company desires to establish a separate account (the
"Separate Accounts") for each of the Executives under this Trust in
order to provide a source of funds for the payments to be made on behalf of
the Company to each Executive in accordance with his Executive Agreement;
(D) The Company desires that the Trustee commingle the Trust assets
for investment purposes;
(E) The Company desires that upon satisfaction of all liabilities of
the Company to all Executives under the Executive Agreements, any assets
remaining in the Trust shall be transferred to the Company; and
(F) It is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Executive Agreements as unfunded plans maintained for the purpose of
providing deferred compensation for former executives of the Company for
purposes of Title I of the Employee Retirement Income Security Act of 1974.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the parties hereto agree
as follows:
<PAGE>
ARTICLE I
NAME OF TRUST
1.1 NAME. This Trust may be referred to as the "Nord
Resources Corporation Trust Agreement As Restated for Key
Executives."
1.2 PURPOSE. This Trust is established for the purposes set forth in
Preambles A through E to this Trust.
ARTICLE II
DEFINITIONS
The following terms used in this Trust shall have the following
meanings:
A. "Board" means the Board of Directors of the Company.
B. "Change of Control" shall mean and be deemed to have occurred if
(i) any "person" (as such term is defined in Sections 13(d) of the Exchange Act)
other than the Company or an entity then controlled by the Company is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities except, however, in determining whether the 20% threshold
has been attained by a particular person, any voting securities of the Company
which such person acquires directly from the Company (other than pursuant to a
stock dividend or split) shall not be taken into consideration in calculating
such person's percentage of ownership of the voting power of the Company; (ii)
any "person" (as such term is defined at Section 13(d) of the Securities
Exchange Act of 1934) other than the Company or an entity then controlled by the
Company is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 35% or more of the combined voting power
of the Company's then outstanding securities, including securities such person
may have acquired directly from the Company; (iii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof unless
the election, or the nomination for the election by the Company's shareholders,
of each new Director was approved by a vote of at least two-thirds of the
Directors then still in office who were Directors at the beginning of the
period; (iv) the company merges or consolidates with another corporation and an
entity controlled by the Company immediately prior to the merger or
consolidation is not the surviving entity or if the Company is the surviving
entity, holders of 80% or more of the voting power of the Company immediately
prior to the merger or consolidation do not own, immediately after the merger or
consolidation, 65% or more of the voting power of the surviving entity; or (v) a
sale, lease,
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<PAGE>
exchange, or other disposition of all or substantially all of the assets of the
Company takes place.
C. "Company" means Nord Resources Corporation, a Delaware
corporation, and any successor to such entity.
D. "Executive Agreements" means the separate Restated Deferred
Compensation- Agreements the Company entered into as of May 10, 1989 with Edgar
F. Cruft, Terence H. Lang, and Richard L. Steinberger, as each of the same may
be amended from time to time, or when separately referred to, the "Executive
Agreement."
E. "Executive" means, in addition to Edgar F. Cruft, Terence H.
Lang, and Richard L. Steinberger, a beneficiary who succeeded to the interest of
an Executive in accordance with an Executive Agreement.
F. "Fiscal Year" means the fiscal year of the Company.
G. "Insolvency" shall have the meaning ascribed to it at Section
6.2.
H. "Life Insurance Policies" shall have the meaning ascribed to it
at Section 5.2.
I. "Payment Schedule" shall have the meaning ascribed
to it at Section 4.1.
J. "Potential Change of Control, means and shall be deemed to have
occurred if (i) the Company enters into an agreement, the consummation of which
would result in the occurrence of a Change of Control of the Company, (ii) any
person (including the Company) publicly announces an intention to take or to
consider taking actions which, if consummated, would constitute a Change of
Control of the Company, (iii) any person increases his beneficial ownership of
the combined voting power of the Company's then outstanding securities by 5% or
more over the percentage so owned by such person on the date hereof, and after
such increase, is the beneficial owner, directly or indirectly, of securities of
the Company representing 15% or more of such securities; or (iv) the Board
adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change of Control of the Company has occurred.
K. "Separate Account" shall have the meaning ascribed to it at
Section 5.3.
L. "Trust" means the trust created by this agreement.
M. "Trust Fund" shall have the meaning ascribed to it at
Section 5.1.
N. "Trustee" means any trustee from time to time serving as the
trustee of the Trust.
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<PAGE>
ARTICLE III
PAYMENTS TO EXECUTIVES
PURSUANT T0 THE EXECUTIVE AGREEMENTS
3.1 PAYMENTS. Except as otherwise provided at Section
3.2 or 6.2, the Trustee shall, on behalf of the Company and out of the Trust
Fund, make payments to the Executives required under the Executive Agreements in
accordance with Payment Schedules delivered to the Trustee pursuant to Article
IV. Payments are to be made from, and charged to the Separate Account of the
Executive, to whom payment is made as more fully set forth at Article V. The
Company shall continue to be liable to make such payments to the Executives
required under the terms of the Executive Agreements to the extent such payments
have not been made out of the Trust Fund or otherwise by the Company. Payments
made from Trust assets to the Executives in respect of the Executive Agreements
pursuant to Article IV shall, to the extent of such payments, satisfy the
Company's obligation to pay benefits to such Executives under the Executive
Agreements.
3.2 ORDER OF PAYMENTS. If, at the time a payment is due and payable
to an Executive, the Separate Account of the Executive to whom payment is due is
not credited with an amount at least equal to the amount last determined under
accepted actuarial principles to be necessary to fund fully the amount payable
to such Executive under his Executive Agreement, then the particular payments
(and any subsequent payments when such a condition exists) shall be made by the
Company directly to the Executive rather than by the Trust. It is the intention
of the parties hereto that the Trust Fund shall be utilized for payments only
when the Separate Account of the Executive to whom payment is due shall contain
sufficient assets to cover the Company's anticipated payment obligations (as
described in the preceding sentence) to the particular Executive. Should the
Company, in the circumstances described in the first sentence of this Section
3.2, fail to make required payment or payments directly to the Executive, then
(i) the Company shall be deemed to be in breach of the Executive Agreement and
the Trust; (ii) the Trustee shall make the payments the Company failed to make
from the Separate Account of the affected Executive; and (iii) the Trustee, if
instructed by the affected Executive, shall bring an action against the Company
seeking a Court order directing the Company to make the payments required to be
made by it under this Section 3.2 and directing the Company to contribute to the
Trust in a lump sum an amount equal to the amount of Trust Funds that were
withdrawn from the Separate Account of the affected Executive to make the
payments which the Company should have made directly to the Executive as
provided in this Section 3.2.
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<PAGE>
ARTICLE IV
PAYMENT SCHEDULES UNDER EXECTIVE AGREEMENTS
4.1 PAYMENT SCHEDULES. The Company has listed on Schedule A hereto
certain information concerning each of the Executives and the payment
obligations of the Company to each Executive under his respective Executive
Agreement or such data and other information as is sufficient to calculate the
payment obligation of the Company to the Executive (the "Payment Schedule").
The Company has attached to this Agreement, a true and accurate copy of each of
the Executive Agreements as Schedules B-1, B-2 and B-3.
4.2 MODIFIED PAYMENT SCHEDULES. Modified Payment Schedules shall be
delivered by the Company to the Trustee and to each Executive (as it pertains to
such Executive) upon the occurrence of any event, such as early retirement of an
Executive, requiring a modification of the Payment Schedule. The Trustee shall
make payments from the Trust assets to an Executive in accordance with the
provisions of the Payment Schedule applicable to such Executive. In the event
that an Executive reasonably believes that the Payment Schedule, as modified,
does not properly reflect the amount payable to such Executive or the formula
for determining such amount or the time of payment from the Trust in respect of
his Executive Agreement, such Executive shall be entitled to deliver to the
Trustee written notice (the "Executive's Notice") setting forth payment
instructions for the amount the Executive believes is payable under the relevant
terms of his Executive Agreement. The Executive shall also deliver a copy of
the Executive's Notice to the Company within three (3) business days of the
delivery to the Trustee. The Trustee shall promptly confirm with the Company
that the Company has received a copy of the Executive's Notice and unless the
Trustee receives written objection from the Company within thirty (30) business
days after the Trustee has confirmed the Company's receipt of the Executive's
Notice, the Trustee shall make payment in accordance with the payment
instructions set forth in the Executive's Notice unless the Trustee in its
reasonable judgment believes the payment instructions provided in the
Executive's Notice are incorrect. If a dispute arises between or among the
Company, the Executive or the Trustee as to the accuracy of a Payment Schedule,
the dispute shall be resolved by the Trustee in accordance with the provisions
of Section 4.3.
4.3 RESOLUTION OF DISPUTES AS TO PAYMENT SCHEDULES. Upon being
notified by the Company or an Executive that a dispute exists with respect to
the Payment Schedule pertaining to an Executive or upon the Trustee determining
that a Payment Schedule is incorrect, the Trustee shall, as soon as practicable,
reach its own independent determination as to the Executive's entitlement to
payments under his Executive Agreement. With respect to payment of benefits
under the Executive Agreement, the Trustee shall, in its sole discretion, make
such additional
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inquires and take such additional measures as it deems necessary in order to
enable it to establish a true and accurate Payment Schedule setting forth the
specific payment obligations of the Company to the Executive under his Executive
Agreement. Such additional inquiries and measures to determine a true and
accurate Payment Schedule may include interviewing appropriate persons,
requesting affidavits, and reviewing Company records. The Trustee may also
engage its own counsel or other experts to assist in establishing a true and
accurate Payment Schedule.
4.4 RECORDS. The Company shall keep true and accurate books and
records with respect to its obligations to the Executives under the Executive
Agreements and shall provide such information and access to such books and
records to the Trustee at such time or times as the Trustee shall reasonably
request. If at any time the Company fails or refuses to give the Trustee data
or information it requests or to provide the Trustee access to such books and
records, the Trustee shall be entitled to make such estimates or assumptions as
it deems reasonable in order to establish a true and accurate Payment Schedule.
4.5 WITHHOLDINGS. The Trustee shall make provision for the reporting
and withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payment of benefits pursuant to the terms of the
Executive Agreements and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported, withheld and paid
by the Company.
4.6 FURTHER ASSURANCES. The Trustee shall, at any time and from time
to time, administer this Trust as may be necessary or proper to effectuate the
purposes of this Trust. If the Trustee receives an unqualified opinion of tax
counsel selected by the Trustee, which opinion states that the Executives are
subject to Federal income tax on amounts held in Trust prior to the distribution
to the Executives of such amounts, the Trustee shall, to the extent practicable,
take such action and administer the Trust Fund in such a manner so as to prevent
the Trust Fund from being immediately taxable income to the Executives before
making any distributions pursuant to Section 4.7, provided that the Trustee
shall not return any portion of the Trust Fund to the Company.
4.7 DISTRIBUTIONS IN THE EVENT OF TAXABILITY. In the event of any
final determination by the Internal Revenue Service or a court of competent
jurisdiction, which determination is not appealable or the time for appeal or
protest of which has expired, or the receipt by the Trustee of a substantially
unqualified opinion of tax counsel selected by the Trustee, which determination
determines, or which opinion opines, that the Executives or any particular
Executive, is subject to Federal income taxation on amounts held in the Trust
prior to the distribution to the Executives or Executive of such amounts and no
curative action is available under Section 4.6, the Trustee
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shall, on receipt by the Trustee of such opinion or notice of such
determination, pay to each Executive the portion of the Trust assets includable
in such Executive's Federal gross income, provided as a condition of receiving
such payment the Executive receiving such payment delivers to the Trustee a
written agreement stating that the payment being made is in satisfaction of the
obligations of the Company due to him in respect of which the payment is made,
after taking into consideration that such payment is being made prior to the
required distribution date, and the Company concurs in such agreement which
concurrence shall not be unreasonably withheld.
ARTICLE V
THE TRUST FUND; SEPARATE ACCOUNTS; AND FUNDING
5.1 RECEIPT AND HOLDING OF THE TRUST FUND. The Trustee will accept
and hold all contributions and all insurance contracts, insurance policies and
other property transferred and delivered to the Trustee by the Company or at the
Company's direction. All contributions and property received by the Trustee,
plus income and appreciation, constitute the trust fund (the "Trust Fund") .
5.2 FUNDING OF TRUST. The Trust shall be funded with respect to the
Company's obligations under the Executive Agreements as follows: (i) on the date
this Trust is established, the Company shall transfer and assign to the Trustee
ownership of six life insurance policies issued by Provident Life & Accident
Insurance Company, specifically, Policy Nos. 1275185 and 1275192, insuring the
life of Edgar F. Cruft (the "Cruft Policies"); Policy Nos. 1275174 and 1275176
insuring the life of Terence H. Lang (the "Lang Policies"); Policy Nos. 1275177
and 1275180 insuring the life of Richard L. Steinberger (the "Steinberger
Policies") (collectively, the "Life Insurance Policies"); (ii) the Company shall
contribute to the Cruft Separate Account (as defined at Section 5.3(a))$5900,000
in cash on July 7, 1995, an additional $650,000 in cash on or before July 31,
1996, and an additional $650,000 in cash on or before July 31, 1997, provided,
however, no such contribution shall be required if at the time of any such
contribution the amount held in the Cruft Separate Account exceeds the amount
determined under accepted actuarial principles to be necessary to fund fully the
present value of the amount payable to Edgar F. Cruft under the Cruft Executive
Agreement; (iii) thereafter and prior to a Potential Change of Control, the
Company may deliver to the Trustee additional contributions of cash and property
as the Company shall from time to time determine, and (iv) upon the occurrence
of a Potential Change of Control, such additional cash or property determined
under accepted actuarial principles to be necessary to fund fully the present
value of the amounts payable to the Executives under the Executive Agreements in
accordance with the Payment Schedules.
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5.3 ALLOCATION OF CONTRIBUTIONS. Cash, property, and Life Insurance
Policies, and proceeds of Life Insurance Policies shall be allocated by the
Trustee to separate accounts established under this Trust in the name of each
Executive as set forth in this Section 5.3 (the "Separate Accounts"):
(a) The original contribution of Life Insurance
Policies to the Trust pursuant to Section 5.2(i) shall be
allocated to the Separate Accounts, as follows: (i) the
Cruft Policies shall be allocated to the Separate Account of
Edgar F. Cruft (the "Cruft Separate Account") ; (ii) the Lang
Policies shall be allocated to the Separate Account of
Terence H. Lang (the "Lang Separate Account"); and (iii) the
Steinberger Policies shall be allocated to the Separate
Account of Richard L. Steinberger (the "Steinberger Separate
Account");
(b) Cash contributions to the Cruft Separate Account
pursuant to Section 5.2(ii) shall be credited to the Cruft
separate Account;
(c) Contributions to the Trust pursuant to Sections
5.2(iii) or 5.2(iv) shall be allocated to the Separate
Accounts as follows:
(i) First, to the Separate Accounts of those Executives for
whom the estimated present value of unpaid payment obligations of the
Company to the Executives under their Executive Agreements exceeds the
account balance of the Separate Accounts of such Executives in an
amount equal to the total of such excesses (or the amount of such
subsequent contribution if less), with such allocations made in the
ratio that such excesses in respect of each such Separate Account
bears to the total of such excesses of all such Separate Accounts; and
(ii) Next, there shall be allocated that amount necessary to
equalize the Separate Accounts of all Executives so that the ratio of
the estimated present value of unpaid payment obligations of the
Company to a particular Executive to the account balance of the
Separate Account for such Executive is, to the extent practicable, the
same for all Separate Accounts of the Executives.
5.4 MAINTENANCE OF SEPARATE ACCOUNTS. The Separate Accounts of the
Executives shall be credited with the following items as indicated below:
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(a) the full amount of the proceeds of Life insurance
Policies payable to the Trust upon the death of a particular
Executive shall be credited to Separate Account of such
Executive;
(b) the cash contributions to the Cruft Separate Account pursuant to
Section 5.2(ii) shall be credited to the Cruft Separate Account;
(c) the allocable share of contributions as provided in Section
5.2(iii) or 5.2(iv);
(d) the allocable share of Trust Fund income and gains as provided in
Section 5.5; and
(e) the allocable share of Separate Account reallocations as provided
in Section 5.6.
The Separate Accounts of the Executives shall be charged with the
following items:
(a) any payments to the Executive from the Trust;
(b) the allocable share of expenses and losses of the
Trust as provided in Section 5.5; and
(c) the allocable share of excess asset transfers to the Company as
provided in Section 5.7.
All payments to an Executive in respect of his Executive Agreement
shall be charged solely to the Separate Account of the Executive.
5.5 TRUST GAINS AND LOSSES. Income, gains, expenses and losses of
the Trust shall be allocated among the Separate Accounts annually. Such
amounts shall be allocated ratably to the Separate Accounts in the ratio that
the prior fiscal year-end account balance of a particular Separate Account bears
to the account balances of all Separate Accounts.
5.6 REALLOCATION OF SEPARATE ACCOUNT BALANCES. When all of the
Company's payment obligations to an Executive under his Executive Agreement have
been satisfied, any balance remaining in the Separate Account of such an
Executive shall be reallocated among the Separate Accounts of the other
Executives who are still entitled to payments under their Executive
Agreements.
5.7 ADDITIONAL FUNDING; EXCESS ASSETS. If Trust Funds have been
delivered to the Trustee pursuant to Section 5.2(iv) and the Trust Funds
delivered to the Trustee pursuant to Section 5.2(iv) have not been
released to the Company pursuant to Section 5.8, then the Company shall, as
soon as practicable after the end of each Fiscal Year, recalculate the amount
determined under
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accepted actuarial principles to be necessary to fund fully the present value of
the amounts payable to the Executives under the Executive Agreements and in
accordance with the Payment Schedules for the Executives delivered to the
Trustee pursuant to Sections 4.1 and 4.2 (herein referred to as the "Aggregate
Payment Obligation"). If the Aggregate Payment Obligation exceeds the fair
market value of the Trust assets at the end of the most recently completed
Fiscal Year, then there exists a funding deficiency to the extent of such
excess; and the Company shall by no later than 90 days after the end of such
Fiscal Year contribute to the Trustee additional cash, property, or any
combination of the foregoing having a fair market value equal to the amount of
the funding deficiency. If the fair market value of Trust assets at the end of
the most recently completed Fiscal Year is more than 125% of the Aggregate
Payment Obligation, then there is an overfunding to the extent of such excess;
and the Trustee shall as soon as practicable after the determination that an
overfunding exists distribute cash or other property, as the Trustee shall
determine, having a fair market value equal to the amount by which the fair
market value of Trust Assets exceeds 125% of the Aggregate Payment obligation
(herein the "Excess Funds") to the Company. In such event, the distribution of
the Excess Funds shall be charged ratably to each Separate Account in which the
account balance exceeds 125% of the estimated present value of the Company's
payment obligation to the Executive, in the ratio that the excess so determined
for each Separate Account bears to the Excess Funds.
5.8 RELEASE OF TRUST FUNDS UNLESS CHANGE OF CONTROL OCCURS. Any
funds delivered to the Trustee pursuant to Section 5.2(iv) because of the
occurrence of a Potential Change of Control shall be returned to the Company
six-months after the date of such delivery, unless a Change of Control shall
have occurred. Such initial six-month period shall be renewed for an additional
six-month period, if any Potential Change of Control occurs during such initial
six-month period. The Company shall notify the Trustee of the occurrence of a
change of Control or Potential Change of Control, and the Trustee may rely on
such notice or on any other actual notice satisfactory to the Trustee, of such a
change or potential change which Trustee may receive. Notwithstanding the
foregoing, the Trustee shall have no duty or obligation to make any independent
determination that such a change or potential change has occurred.
5.9 TRANSFER TO ANOTHER TRUSTEE. The Company may direct the Trustee
to transfer the Trust Fund to a successor trustee as set forth in Section 11.1.
The Trustee immediately will comply with that direction. When that transfer is
completed, the Trustee will be relieved from all further obligations in
connection with the Trust Fund.
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ARTICLE VI
STATUS OF TRUST AND TRUSTEE
RESPONSIBILITY WHEN COMPANY IS INSOLVENT
6.1 GRANTOR TRUST. The Trust is intended to be exempt from the
participation, vesting, funding and fiduciary requirements of the Employee
Retirement Income Security Act of 1974, as amended. The Company intends the
Trust to be treated as a grantor trust within the meaning of Section 671 of the
Internal Revenue Code and all income attributable to the Trust Fund shall be
reported by the Company. The Trust Fund shall at all times be subject to the
claims of the creditors of the Company as set forth in Section 6.3.
6.2 CESSATION OF PAYMENTS AND INSOLVENCY. The Trustee shall cease
payment of benefits to Executives if the Company is insolvent. The Company
shall be considered "Insolvent" for purposes of this Trust if (i) the Company is
unable to pay its debts as they become due, or (ii) the Company is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
6.3 SUBJECT TO CLAIMS OF CREDITORS OF THE COMPANY. At all times
during the continuance of this Trust, the principal and income of the Trust
shall be subject to claims of general creditors of the Company under federal and
state law as set forth below.
(a) The Board of Directors and the Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing of the
Company's Insolvency. If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company has become Insolvent,
the Trustee shall determine whether the Company is Insolvent and, pending
such determination, the Trustee shall discontinue payment of benefits to
Executives.
(b) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to
be a creditor alleging that the Company is Insolvent, the Trustee shall
have no duty to inquire whether the Company is Insolvent. The Trustee may
in all events rely on such evidence concerning the Company's solvency as
may be furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning the Company's
solvency.
(c) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Executives and shall
hold the assets of the Trust for the benefit of Company's general
creditors. Nothing in this Trust shall in any way diminish any rights of
Executives to pursue their rights as general creditors of the Company with
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respect to benefits due under the Executive Agreements or otherwise.
(d) The Trustee shall resume the payment of benefits to Executives in
accordance with this Trust only after the Trustee has determined that the
Company is not Insolvent (or is no longer Insolvent).
(e) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 6.3
and subsequently resumes such payments, the first payments following such
discontinuance shall include the aggregate amount of all payments due to
Executives under the terms of the Executive Agreements for the period of
such discontinuance, less the aggregate amount of any payments made to
Executives by the Company in lieu of the payments provided for hereunder
during any such period of discontinuance.
ARTICLE VII
THE TRUSTEE'S ACCOUNTING
7.1 BOOKS AND RECORDS. The Trustee shall keep accurate and detailed
accounts of all investments, receipts, disbursements and other transactions in
respect of the Trust Fund. Those accounts and related records may be inspected
by any person designated by the Company. The Trustee shall retain those records
and supporting data for the period required by law. All Trust assets may be
commingled for purposes of investment.
7.2 TRUSTEE'S REPORT. Within 60 days after the end of each Fiscal
Year, the Trustee shall file a written report with the Company containing:
(a) A description of investments, receipts, disbursements and other
transactions effected by the Trustee during the most recently completed
Fiscal Year;
(b) An exact description of any asset transferred to the Trustee or
transferred by the Trustee to any other person during such Fiscal Year;
(c) An exact description of assets sold or purchased by the Trustee
during such Fiscal Year, the cost of each item purchased and the net
proceeds of each item sold;
(d) An exact description of all assets held by the Trustee as of the
close of business on the last day of such Fiscal Year, and the cost and
fair market value of each item (other than Life Insurance Policies)
determined as of the same date;
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(e) The account balance of each Separate Account; and
(f) Any other information required by law to be filed
on behalf of the Trust.
The information described in subsections (a), (b) and (c), above, may
be given in the form of monthly or quarterly reports, if those reports, taken
together, contain the required information.
7.3 ADDITIONAL REPORTS. In addition to the report required under
Section 7.2 above, the Trustee shall make any interim reports reasonably
requested by the Company.
7.4 AVAILABILITY OF REPORTS TO THE EXECUTIVES. Any reports delivered
to the Company pursuant to this Article VII shall be delivered to the Executive
upon his written request to the Trustee, with a copy of such request being
furnished to the Company by the Trustee.
ARTICLE VIII
ADMINISTRATION OF THE TRUST FUND
8.1 OWNERSHIP AND INVESTMENT OF THE TRUST FUND. The Trustee is the
legal owner of all Trust Fund assets and, subject to this Article, shall invest
and reinvest the Trust Fund. Any amounts reasonably necessary to meet
contemplated payments or to be transferred from the Trust Fund may be deposited
temporarily in the commercial department of any bank or trust company. The
Trustee will not be liable for any interest on those deposits except for
interest actually paid by the bank or trust company or, if the deposit is with
the Trustee's own commercial department, interest at the legally permitted rate
agreed to by the Trustee and the Company. Alternatively, the Trustee may make
temporary deposits in governmental obligations, certificates of deposit,
commercial paper, commercial paper master notes or a common trust fund
maintained by the Trustee for temporary cash investments.
8.2 POWERS OF THE TRUSTEE. Subject to this Article, Article 5 and
Sections 9.1 and 9.2 and in addition to the powers generally given to trustees
by law, the Trustee:
(a) May own the Life Insurance Policies as Trust investments and
take such action with respect to such policies as necessary to carry out
the terms of the Trust, including but not limited to the payment of
insurance premiums and the repayment of policy loans, but at any time that
the Trustee determines that it is necessary to either borrow from the cash
values of Life Insurance Policies or surrender the Life Insurance Policies,
including without limitation partial surrenders of policy values, in order
to raise funds to pay current or future benefits under the
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Executive Agreements, the Trustee shall give written notification to the
Company stating its intention to borrow or surrender and the amount of such
borrowing or surrender. Thereupon, the Company shall have thirty (30) days
in which to contribute additional assets to the Trust in the amount stated
in the Trustee's written notification, and the Trustee shall then refrain
from making such loans or surrenders until such subsequent time(s), if any,
that the Trustee determines that it is necessary to either borrow from the
cash values of Life Insurance Policies or surrender Life Insurance
Policies, whereupon the Trustee shall again give written notification of
intention to borrow or surrender and the Company shall again have the right
to make additional contributions of assets in the manner set forth above.
(b) May invest and reinvest the Trust Fund (except as provided in
subsection (a), above, with respect to Life Insurance Policies) in (i)
obligations issued or guaranteed by the United States or by any person
controlled or supervised by and acting as an instrumentality of the
United States pursuant to authority granted by Congress; (ii) obligations
issued or guaranteed by any state or political subdivision thereof having a
rating equal to or higher than the current A rating classification of
Moody's Investors Service, Inc. or the current A rating classification of
Standard & Poor's Corporation, both of New York, New York, or their
successors; (iii) commercial or finance paper of any corporation having a
net worth of $50,000,000 and having a rating classification equal to or
higher than the current P-1 rating classification of Moody's Investors
Service, Inc. or the current A-1 rating classification of Standard & Poor's
Corporation, both of New York, New York or their successors; (iv) bankers'
acceptance drawn on and accepted by banks or trust companies organized
under the laws of the United States of America or any state thereof, having
a reported capital and surplus of at least $50,000,000 in dollars of the
United States of America or bankers, acceptance drawn on and accepted by
the Trustee; (v) certificates of deposit maturing within twelve months of
the Trustee or of banks or trust companies, organized under the laws of the
United States of America or any state thereof, having a reported capital
and surplus of at least $50,000,000 in dollars of the United States of
America and which has a rating at least equal to the rating required in
(iii) above; and (vi) repurchase agreements collateralized with obligations
described in (i) above; and (vii) money market funds the assets of which
are of the types specified above; provided that any such investment or
deposit is not prohibited by law.
(c) May abandon, adjust, arbitrate, compromise, or otherwise settle
any obligation or liability due to or from it as Trustee, including any tax
claim, and/or enforce or contest any claim in legal or administrative
proceedings. The Trustee shall not be required to contest any claim unless
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it has been indemnified against the costs and expenses of that action or
unless available Trust Fund assets are sufficient to pay those expenses.
(d) May compensate from the Trust Fund, agents, accountants, brokers
and counsel (who may be counsel for the Company) and other assistants and
advisors which it believes are necessary or desirable for the proper
administration of the Trust Fund.
(e) May temporarily deposit uninvested funds in a commingled
temporary deposit medium maintained by the Trustee, which is composed of
certificates of deposit or other obligations issued by the Trustee.
(f) May do all other acts, not specifically mentioned above which are
necessary to administer the Trust Fund and to carry out the purposes of the
Trust.
8.3 SITUS OF ASSETS. Except as permitted by law, the Trustee may not
maintain in the Trust Fund any assets located outside the jurisdiction of the
district courts of the United States.
8.4 ENTIRE AGREEMENT. The Trustee will have only those powers,
duties, or responsibilities set forth in this Agreement.
ARTICLE IX
RELATING TO THE TRUSTEE
9.1 LIABILITY OF THE TRUSTEE. The Trustee will exercise its powers
and perform its duties with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with those matters would use in the conduct of an enterprise of a like
character and with like aim. Except as provided with respect to Life Insurance
Policies at Section 8.2(a), the Trustee also will diversify Trust Fund
investments to minimize the risk of large loss unless under the circumstances
the Trustee believes it clearly would be prudent not to diversify. Wherever
this Trust Agreement provides that the Trustee must follow directions of the
Company or that the Trustee has no duty or power concerning a matter, the
Trustee will not be liable for any harm caused by a direction or lack of a
direction or by any exercise or non-exercise of power by another unless:
(a) the Trustee knowingly participates in or knowingly undertakes to
conceal an act or omission of another fiduciary with respect to the
Executive Agreements or the Trust; or
(b) by the Trustee's failure to act in accordance with this Section,
the Trustee has enabled another fiduciary to breach a fiduciary duty; or
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(c) the Trustee has knowledge of a breach of fiduciary duty which
resulted in harm or injury and does not make reasonable efforts under the
circumstances to remedy the breach.
9.2 OBLIGATIONS UNDER LAW. Regardless of any general or specific
power or authority granted to it, the Trustee may not engage in any transaction,
exercise any power or perform any duty under this Trust in violation of the
Internal Revenue Code, Employee Retirement Income Security Act, as amended, or
any regulations or rulings issued under those laws.
9.3 BOND. Unless required by law, the Trustee is not required to
furnish bond for the faithful performance of its duties.
9.4 COMPENSATION. The Trustee will be compensated reasonably as
agreed to by the Company and the Trustee. That compensation and all reasonable
expenses of administration will be paid directly by the Company. Upon
failure of the Company to pay such compensation and expenses, the Trustee may
satisfy such obligations out of the Trust Fund; in such event, the Company
shall immediately upon demand by the Trustee deposit into the Trust Fund a
sum equal to the amount paid from the Trust Fund for such compensation and
expenses.
9.5 INDEMNIFICATION. The Company agrees to indemnify and hold
harmless the Trustee from and against any and all damages, losses, claims or
expenses as incurred, including expenses of investigation and fees and
disbursements of counsel to the Trustee and any taxes imposed on the Trust Fund
or income of the Trust (the "Indemnified Amounts"), arising out of or in
connection with the performance by the Trustee of its duties hereunder provided
the Indemnified Amounts do not arise out of, and are not connected with, a harm
as to which the Trustee may be liable under Section 9.1. Any amount payable to
the Trustee under this Section 9.5 and not previously paid by the Company shall
be paid by the Company promptly upon demand therefor by the Trustee.
9.6 ACCEPTANCE. The Trustee accepts the Trust established under this
agreement on the terms and subject to the provisions set forth herein, and
agrees to discharge and perform fully and faithfully all of the duties and
obligations imposed upon it under this Trust.
ARTICLE X
MISSING PERSONS; INCAPACITATED EXECUTIVES;
DIRECTIONS; AND NOTICES
10.1 MISSING PERSONS. If any payment to be made by the Trustee to an
Executive is not claimed or accepted by the Executive, the Trustee shall notify
the Company. The Trustee
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shall not have any obligation to search for or ascertain the whereabouts of any
Executive.
10.2 INCAPACITATED EXECUTIVES. While a Executive who is entitled to
a payment or distribution hereunder is under a legal disability or, in the
Trustee's opinion, in any way is incapacitated so as to be unable to manage his
financial affairs, the Trustee may make any required distribution to an
Executive by making it (i) directly to the Executive, (ii) a legal guardian of
the Executive, or (iii) in such other manner as the Trustee deems in the best
interest of the Executive.
10.3 FORM. All directions, notices, certifications and amendments to
the Trust to be given by the Company will be in writing; if given by the
Company, they will be signed on behalf of the Company.
10.4 PROOF OF ANY MATTER. If required by the Trustee, any matter
may be proved conclusively by certification by the Company. The Trustee also
may accept or require any other or further evidence it believes to be
sufficient or necessary.
10.5 ABSENCE OF DIRECTIONS. If the Trustee believes that it must
take action under this Trust, it may act in its sole discretion unless direction
is provided under this Trust.
ARTICLE XI
RESIGNATION OR REMOVAL OF TRUSTEE
11.1 SUCCESSOR TRUSTEE. The Trustee may resign and be discharged
from its duties hereunder at any time by giving notice in writing of such
resignation to the Company and each Executive specifying a date (not less than
thirty (30) days after the giving of such notice) when such resignation shall
take effect. Promptly after such notice, the Company shall appoint a successor
trustee, such trustee to become Trustee hereunder upon the resignation date
specified in such notice. The Trustee shall continue to serve until its
successor accepts the trust and receives delivery of the Trust Fund. The
Company may at any time substitute a new trustee by giving thirty (30) days
notice thereof to the Trustee then acting. The Trustee and any successor
thereto appointed hereunder shall be a commercial bank or trust company which is
not an affiliate of the Company, and which has equity in excess of $50,000,000.
11.2 FINAL ACCOUNT. If the Trustee resigns or is removed, and
unless the Company accepts without exception the Trustee's final account, the
Trustee (or his representative) may settle its account either (a) by beginning
an action to procure a judicial settlement or (b) by agreeing on a settlement
with the Company.
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11.3 TRANSFER AND DISCHARGE. If a successor trustee is appointed,
the Trustee will transfer the Trust Fund to the successor along with true copies
of all relevant records reasonably requested by the successor. The Trustee also
will execute all documents necessary to the transfer of the Trust Fund. When it
has completed those actions, the Trustee will not be further accountable for any
matters covered in its accounting.
11.4 EFFECTIVE DATE OF APPOINTMENT OF SUCCESSOR TRUSTEE. Appointment
of a successor trustee will be effective when it delivers to the Company and to
the former trustee written acceptance of the appointment. When delivered, this
Trust will be interpreted as if the successor trustee had been originally named
Trustee. However, the successor trustee will not be liable or responsible for
anything done or omitted in the administration of the Trust before its
appointment.
11.5 MERGER OR CONSOLIDATION. If the Trustee engages in a corporate
reorganization, the resulting corporation automatically will be the Trustee's
successor.
ARTICLE XII
PROTECTION FOR THIRD PERSONS
12.1 PROTECTION FOR THIRD PERSONS. In dealing with the Trustee, no
one other than the Company is required to inquire into the Trustee's authority
to take any action authorized by this Trust. Those persons may assume that the
Trustee is authorized to take any action which it undertakes and will not be
liable for any act done under written direction of the Trustee. Also, those
persons may assume that the Trustee is authorized to receive any money or
property paid to the Trustee, or paid under the Trustee's written direction.
Written certification by the Company of the Trustee's name will be conclusive
evidence that the Trustee is qualified to act as Trustee at the date of that
certification.
ARTICLE XIII
TERMINATION; AMENDMENT; AND WAIVER
13.1 TERMINATION. This Trust shall be terminated upon the earliest
of any of the following events: (i) the exhaustion of the Trust Fund; or (ii)
the final payment of all amounts payable to all of the Executives pursuant to
all of the Executive Agreements. Promptly upon termination of this Trust, any
remaining portion of the Trust Fund shall be paid to the Company.
13.2 AMENDMENT AND WAIVER. This Trust is irrevocable and may not be
amended except by an instrument in writing signed on behalf of the parties
hereto together with the written consent of the Executives whose Separate
Accounts represent at least sixty-five percent (65%) of all amounts then held in
the Trust
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except that in the event a proposed amendment relates to only one of the
Executives, then the written consent of Executives required to adopt such an
amendment shall mean the written consent of such Executive. The parties hereto,
together with the consent of Executives having at least sixty-five percent (65%)
of all amounts then held in the Trust credited to their Separate Accounts, may
at any time waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto or an Executive to any such
waiver shall be valid if set forth in an instrument in writing signed by or on
behalf of such party or Executive. Notwithstanding the foregoing, any such
amendment or waiver may be made by written agreement of the parties hereto
without obtaining the consent of the Executives if such amendment or waiver does
not, in the written opinion of qualified counsel addressed to the Company and
the Trustee, adversely affect the rights of the Executives hereunder. No
amendment or waiver relating to this Trust may be made which only affects a
particular Executive unless such Executive has agreed in writing to such
amendment or waiver.
ARTICLE XIV
GENERAL PROVISIONS
14.1 OHIO TRUST. The Trust will be construed and enforced according
to the laws of the State of Ohio and the United States.
14.2 NONALIENATION OF BENEFITS. Benefits payable to Executives and
their beneficiaries under this Trust may not be anticipated, assigned (either at
law or in equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
14.3 SEVERABILITY. In the event that any provision of this Trust or
the application thereof to any person or circumstances shall be determined by a
court of proper jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Trust, or the application of such provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each provision of this Trust shall be valid
and enforced to the fullest extent permitted by law.
14.4 ARBITRATION. Any dispute between the Executives and the Company
or the Trustee as to the interpretation or application of the provisions of this
Trust and amounts payable hereunder shall be determined exclusively by binding
arbitration in Dayton, Ohio, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court of competent jurisdiction.
14.5 NOTICES. Any notice, report, demand or waiver required or
permitted hereunder shall be in writing and shall be
-19-
<PAGE>
given personally or by prepaid registered or certified mail, return receipt
requested, addressed as follows:
If to the Company: Nord Resources Corporation
8150 Washington Village Drive
Dayton, Ohio 45458
Attn: Senior Vice President of
Finance
If to the Trustee: National City Bank, Dayton
Trust Department
6 North Main Street
Dayton, Ohio 45412-2380
Attn: Jack W. Sommer
Vice President and Trust
Officer
If to an Executive, to the address of such Executive as listed next to his name
on Schedule A hereto.
A notice shall he deemed received upon the date of delivery if given
personally or, if given by mail, upon the receipt thereof.
14.6 TRUST BENEFICIARIES. Each Executive is an intended beneficiary under
this Trust, and shall be entitled to enforce all terms and provisions hereof
with the same force and effect as if such person had been a party hereto.
14.7 HEADINGS. The headings and subheadings in this Agreement are inserted
for convenience of reference only and are not to be considered in the
construction of its provisions.
14.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which is an original; all counterparts constitute the same
instrument, sufficiently evidenced by any one counterpart.
IN WITNESS WHEREOF, the Company and the Trustee have caused this instrument
to be executed this 7th day of July 1995.
NORD RESOURCES CORPORATION
By /s/ Terence H. Lang
-------------------------------
Terence H. Lang
Senior Vice President Of
Finance
Attest /s/ Karl A. Frydry
---------------------------
Karl A. Frydry
Secretary
-20-
<PAGE>
"Company"
NATIONAL CITY BANK, DAYTON
By /s/Jack W. Sommer
---------------------------
Title VICE PRESIDENT
------------------------
"Trustee"
-21-
<PAGE>
SCHEDULE A - PAYMENT SCHEDULE
NORD RESOURCES CORPORATION
TRUST AGREEMENT FOR KEY EXECUTIVES
JULY 7, 1995
__________________________________
1. EXECUTIVES WHO ARE PARTIES TO RESTATED DEFERRED
COMPENSATION AGREEMENTS ("EXECUTIVE AGREEMENTS"):
<TABLE>
<CAPTION>
NAME AND ADDRESS FOR
DATE OF BIRTH NOTICES AND PAYMENTS SOCIAL SECURITY NO.
------------- -------------------- -------------------
<S> <C> <C>
Edgar F. Cruft 2963 Grand Avenue ###-##-####
P.O. Box 509
Los Olivos, CA 93441
Terence H. Lang 921 W. Spring Valley- ###-##-####
Paintersville Road
Spring Valley, OH 45370
Richard L. Steinberger 2414 Lakeview Drive ###-##-####
Santa Rosa, CA 95405
</TABLE>
2. PAYMENT OBLIGATION OF COMPANY TO EACH EXECUTIVE WHO IS
A PARTY TO A DEFERRED COMPENSATION AGREEMENT:
The Company has furnished to the Trustee true and
accurate copies of the Executive Agreements with
Messrs. Cruft, Lang, and Steinberger. Under the
Executive Agreements, a monthly retirement benefit is
payable in the event the Executive becomes disabled,
retires or dies. The amount of the benefit is
determined based on formulas contained in the Executive
Agreements. Prior to the date upon which payment of
benefits to an Executive commences, the Company shall
furnish to the Trustee a Modified Payment Schedule
setting forth the specific amount of the required
payments and the period over which payments are to be
made. In the event the Company fails to furnish such
Modified Payment Schedule, the Trustee may act pursuant
to Sections 4.3, 4.4
A-1
<PAGE>
and 10.5. The Company represents and warrants that it
will maintain accurate books and records with respect
to the Company's payment obligations to Executives
under the Executive Agreements and provide the Trustee
with access to such books and records as may be
necessary for the Trustee to carry out its
responsibilities under the Trust, including the
calculation of benefits payable to an Executive in the
event that the Company fails to furnish a Modified
Payment Schedule to the Trustee on a timely basis.
3. SET FORTH BELOW IS CERTAIN DATA RELEVANT TO DETERMINING
THE PAYMENT OBLIGATION TO EACH EXECUTIVE UNDER THE
EXECUTIVE AGREEMENTS:
The "Compensation" of each of the Executives as defined
at Section 1.2 of the Executive Agreements (that is,
"the cash amounts paid or accrued to the Executive by
Nord for each year, including base salary and bonuses,
but excluding deferred compensation") is set forth
below for the year indicated:
<TABLE>
<CAPTION>
CALENDAR
YEAR CRUFT LANG STEINBERGER
- -------- --------- --------- -----------
<S> <C> <C> <C>
1980........... $114,500 $62,000 $101,500
1981........... 142,625 77,000 101,500
1982........... 142,625 77,000 101,500
1983........... 142,625 84,500 126,375
1984........... 199,300 117,750 176,500
1985........... 252,000 152,000 227,000
1986........... 307,000 185,000 277,000
1987........... 307,000 185,000 277,000
1988........... 342,000 207,000 277,000
1989........... 375,000 235,000 298,000
1990........... 375,000 235,000 298,000
1991........... 375,000 235,000 298,000
1992........... 375,000 235,000 298,000
1993........... 375,000 235,000 322,000
1994........... 397,500 249,100 350,000
</TABLE>
Mr. Cruft's spouse on May 10, 1989 was Geraldine Cruft whose social
security number is ###-##-####.
Mr. Lang's spouse on May 10, 1989 was Evelyn Lang whose social security
number is ###-##-####.
A-2
<PAGE>
Mr. Steinberger's spouse on May 10, 1989 was Nancy
Steinberger whose social security number is ###-##-####.
The undersigned Company hereby certifies the accuracy of the foregoing
Schedule A this 7th day of July 1995.
NORD RESOURCES CORPORATION
By /s/Terence H. Lang
---------------------------
Title SENIOR VICE PRESIDENT - FINANCE
--------------------------------
A-3
<PAGE>
NORD RESOURCES CORPORATION
AMENDMENT NO. 1 TO TRUST AGREEMENT
FOR
KEY EXECUTIVES AS RESTATED
THIS AMENDMENT NO. 1 is entered into this lst day of December, 1995 by
NORD RESOURCES CORPORATION, a Delaware corporation, as grantor (the "Company"),
and National City Bank, Dayton, as trustee (the "Trustee",), under the following
circumstances:
A. The Company, as grantor, and the Trustee are parties to the Nord
Resources Corporation Trust Agreement for Key Executives As Restated, dated
July 7, 1995 (the "Trust"), established for the benefit of Edgar F. Cruft,
Terence H. Lang, and Richard L. Steinberger (the "Beneficiaries"); and
B. The Company and the Trustee desire by this Amendment No. I to
amend Section 5.2 of the Trust captioned "Funding of Trust";
NOW, THEREFORE, the Company and the Trustee agree as follows:
1. Section 5.2 of the Trust shall be amended to read as set forth
below:
"5.2 Funding of Trust. The Trust shall be funded with respect to the
Company's obligations under the Executive Agreements as follows: (i) on the date
this Trust is established, the Company shall transfer and assign to the Trustee
ownership of six life insurance policies issued by Provident Life & Accident
Insurance Company, specifically, Policy Nos. 1275185 and 1275192, insuring the
life of Edgar F. Cruft (the "Cruft Policies"); Policy Nos. 1275174 and 1275176
insuring the life of Terence H. Lang (the "Lang Policies"); Policy Nos. 1275177
and 1275180 insuring the life of Richard L. Steinberger (the "Steinberger
Policies") (collectively, the "Life Insurance Policies"); (ii) the Company
shall contribute to the Cruft Separate Account (as defined at Section 5.3(a))
$900,000 in cash on July 7, 1995, an additional $650,000 in cash on or before
July 31, 1996, and an additional $650,000 in cash on or before July 31, 1997,
provided, however, no such contribution shall be required if at the time of any
such contribution the amount held in the Cruft Separate Account exceeds the
amount determined under accepted actuarial principles to be necessary to fund
fully the present value of the amount payable to Edgar F. Cruft under the Cruft
Executive Agreement; (iii) the Company shall contribute to the Lang Separate
Account (as defined at Section 5.3(a)) $200,000 in cash on or before December
31, 1995; (iv) thereafter and prior
<PAGE>
to a Potential Change of Control, the Company may deliver to the Trustee
additional contributions of cash and property as the Company shall from time to
time determine, and (v) upon the occurrence of a Potential Change of Control,
such additional cash or property determined under accepted actuarial principles
to be necessary to fund fully the present value of the amounts payable to the
Executives under the Executive Agreements in accordance with the Payment
Schedules.,,
2. No other changes in the Trust are being made by this Amendment
No. 1.
IN WITNESS WHEREOF, the Company and the Trustee have caused this
Amendment No. 1 to be executed as of the date first set forth above.
NORD RESOURCES CORPORATION
By /s/Edgar F. Cruft
--------------
Edgar F. Cruft
Chairman and President
Attest /s/Karl A. Frydryk
---------------
Karl A. Frydry/k
Secretary
"Company"
NATIONAL CITY BANK, DAYTON
By
--------------------------
Title
------------------------
"Trustee"
<PAGE>
[LOGO]
NORD KAOLIN COMPANY
8150 WASHINGTON VILLAGE DRIVE, DAYTON,OHIO 45458
513-433-6307
December 1, 1995 Telex 288-345
Edgar F. Cruft
P.O. Box 509
Los Olivos, California 93441
Re: Amendment No. 2 to Change of Control Letter Agreement
Dear Mr. Cruft:
This letter relates to the letter agreement, dated May 10, 1989 entered
into between Nord Resources Corporation, a Delaware corporation (the "Company"),
and you, as amended by Amendment No. 1 thereto, dated January 6, 1994 (the
"Agreement"). A copy of the Agreement is attached hereto as Annex A.
As you know, the Agreement expires on December 31, 1995. At a meeting of
the Board of Directors of the Company held on November 3, 1995, the Board
adopted a resolution extending the term of the Agreement to December 31, 1997.
In order to give effect to such resolution, the Company and you agree to amend
the Agreement as follows:
1. Paragraph 1. of the Agreement is amended to read
as follows:
"1. OPERATION AND TERM OF AGREEMENT. This agreement, although
effective immediately, shall not become operative unless and until there
has been a change in control of the Company. None of the provisions of
this agreement shall be applicable to any termination of your employment,
however occurring, which is effective prior to a change in control of the
Company. This agreement shall continue until the later of December 31,
1997 or two years after the occurrence of a change in control of the
Company, provided such change in control occurs on or before December 31,
1997, subject to extension beyond that date by mutual consent. The Company
will review this agreement with you between January 1, 1997 and July 31,
1997, for the purpose of determining whether or not an extension beyond
December 31, 1997 is mutually agreeable and, if so, on what basis and for
how long."
2. The Agreement, as modified herein, shall continue in full force
and effect.
If you are in agreement with the foregoing amendment to the Agreement,
please confirm your agreement by signing below where
<PAGE>
Edgar F. Cruft
December 1, 1995
Page 2
indicated and returning the enclosed additional copy of this letter to the
Company.
Very truly yours,
NORD RESOURCES CORPORATION
Attest: \s\Karl Frydryk By \s\Terrence H. Lang
----------------------- -----------------------
Karl A. Frydryk Terrence H. Lang
Vice President and Senior Vice President and
Controller Treasurer
CONFIRMED AND AGREED TO:
\s\Edgar F. Cruft
- ------------------------
Edgar F. Cruft
Dated: December 12, 1995
<PAGE>
[LOGO]
[NORD KAOLIN COMPANY LETTERHEAD]
December 1, 1995
Terence H. Lang
921 Spring Valley-Paintersville Road
Spring Valley, Ohio 45370
Re: Amendment No. 2 to Change of Control Letter Agreement
Dear Mr. Lang:
This letter relates to the letter agreement, dated May 10, 1989 entered
into between Nord Resources Corporation, a Delaware corporation (the "Company"),
and you, as amended by Amendment No. 1 thereto, dated January 6, 1994 (the
"Agreement"). A copy of the Agreement is attached hereto as Annex A.
As you know, the Agreement expires on December 31, 1995. At a meeting of
the Board of Directors of the Company held on November 3, 1995, the Board
adopted a resolution extending the term of the Agreement to December 31, 1997.
In order to give effect to such resolution, the Company and you agree to amend
the Agreement as follows:
1. Paragraph 1. of the Agreement is amended to read as follows:
"1. OPERATION AND TERM OF AGREEMENT. This agreement, although
effective immediately, shall not become operative unless and until there
has been a change in control of the Company. None of the provisions of
this agreement shall be applicable to any termination of your employment,
however occurring, which is effective prior to a change in control of the
Company. This agreement shall continue until the later of December 31,
1997 or two years after the occurrence of a change in control of the
Company, provided such change in control occurs on or before December 31,
1997, subject to extension beyond that date by mutual consent. The Company
will review this agreement with you between January 1, 1997 and July 31,
1997, for the purpose of determining whether or not an extension beyond
December 31, 1997 is mutually agreeable and, if so, on what basis and for
how long."
2. The Agreement, as modified herein, shall continue in full force
and effect.
If you are in agreement with the foregoing amendment to the Agreement,
please confirm your agreement by signing below where
<PAGE>
Terence H. Lang
December 1, 1995
Page 2
indicated and returning the enclosed additional copy of this letter to the
Company.
Very truly yours,
NORD RESOURCES CORPORATION
Attest:/s/Karl A. Frydryk By /s/Edgar F. Cruft
---------------------- ---------------------
Karl A. Frydryk Edgar F. Cruft
Vice President and Chairman and President
Controller
CONFIRMED AND AGREED TO:
/s/Terence H. Lang
- -----------------------------
Terence H. Lang
Dated: JAN 2, 1996
<PAGE>
[LOGO]
NORD KAOLIN COMPANY
8150 Washington Village Drive, Dayton, Ohio 45458
TERENCE H. LANG 513-433-6307
PRESIDENT December 1, 1995 Telex 288-345
Karl A. Frydryk
9506 Lindner Lane
Spring Valley, Ohio 45370
Re: Amendment No. 2 to Change of Control Letter Agreement
Dear Mr. Frydryk:
This letter relates to the letter agreement, dated December 13, 1989
entered into between Nord Resources Corporation, a Delaware corporation (the
"Company"), and you, as amended by Amendment No. 1 thereto, dated January 6,
1994 (the "Agreement"). A copy of the Agreement is attached hereto as Annex A.
As you know, the Agreement expires on December 31, 1995. At a meeting of
the Board of Directors of the Company held on November 3, 1995, the Board
adopted a resolution extending the term of the Agreement to December 31, 1997.
In order to give effect to such resolution, the Company and you agree to amend
the Agreement as follows:
1. Paragraph 1. of the Agreement is amended to read as follows:
"1. OPERATION AND TERM OF AGREEMENT. This agreement, although
effective immediately, shall not become operative unless and until there
has been a change in control of the Company. None of the provisions of
this agreement shall be applicable to any termination of your employment,
however occurring, which is effective prior to a change in control of the
Company. This agreement shall continue until the later of December 31,
1997 or two years after the occurrence of a change in control of the
Company, provided such change in control occurs on or before December 31,
1997, subject to extension beyond that date by mutual consent. The Company
will review this agreement with you between January 1, 1997 and July 31,
1997, for the purpose of determining whether or not an extension beyond
December 31, 1997 is mutually agreeable and, if so, on what basis and for
how long."
2. The Agreement, as modified herein, shall continue in full force
and effect.
<PAGE>
Karl A. Frydryk
December 1, 1995
Page 2
If you are in agreement with the foregoing amendment to the Agreement,
please confirm your agreement by signing below where indicated and returning the
enclosed additional copy of this letter to the Company.
Very truly yours,
NORD RESOURCES CORPORATION
Attest /s/Terence H. Lang By /s/Edgar F. Cruft
-------------------------- ------------------------
Terence H. Lang Edgar F. Cruft
Senior Vice President and Chairman and President
Treasurer
CONFIRMED AND AGREED TO:
/s/Karl A. Frydryk
- -------------------------------
Karl A. Frydryk
Dated: December 1, 1995
----
<PAGE>
[LOGO]
NORD KAOLIN COMPANY LETTERHEAD
December 1, 1995
William W. Wilcox
146 Chittenden Field Land
Madison, COnnecticut 06443
Re: Amendment No. 2 to Change of Control Letter Agreement
Dear Mr. Wilcox:
This letter relates to the letter agreement, dated March 9, 1990 entered
into between Nord Resources Corporation, a Delaware corporation (the "Company"),
and you, as amended by Amendment No. 1 thereto, dated January 6, 1994 (the
"Agreement"). A copy of the Agreement is attached hereto as Annex A.
As you know, the Agreement expires on December 31, 1995. At a meeting of
the Board of Directors of the Company held on November 3, 1995, the Board
adopted a resolution extending the term of the Agreement to December 31, 1997.
In order to give effect to such resolution, the Company and you agree to amend
the Agreement as follows:
1. Paragraph 1. of the Agreement is amended to read as follows:
"1. OPERATION AND TERM OF AGREEMENT. This agreement, although
effective immediately, shall not become operative unless and until there
has been a change in control of the Company. None of the provisions of
this agreement shall be applicable to any termination of your employment,
however occurring, which is effective prior to a change in control of the
Company. This agreement shall continue until the later of December 31,
1997 or two years after the occurrence of a change in control of the
Company, provided such change in control occurs on or before December 31,
1997, subject to extension beyond that date by mutual consent. The
Company will review this agreement with you between January 1, 1997 and
July 31, 1997, for the purpose of determining whether or not an extension
beyond December 31, 1997 is mutually agreeable and, if so, on what basis
and for how long.
2. The Agreement, as modified herein, shall continue in full force
and effect.
<PAGE>
William W. Wilcox
December 1, 1995
Page 2
If you are in agreement with the foregoing amendment to the Agreement,
please confirm your agreement by signing below where indicated and returning the
enclosed additional copy of this letter to the Company.
Very truly yours,
NORD RESOURCES CORPORATION
Attest: /s/ Terence H. Lang By /s/ Edgar F. Cruft
----------------------- -------------------------
Terence H. Lang Edgar F. Cruft
Senior Vice President and Chairman and President
Treasurer
CONFIRMED AND AGREED TO:
/s/ William W. Wilcox
- ------------------------------
William W. Wilcox
Dated: December 28, 1995
<PAGE>
[LOGO]
NORD KAOLIN COMPANY
[LETTERHEAD]
December 1, 1995
James T. Booth
176 Jackson Road
Lake Sinclair
Milledgville, Georgia 31061
Re: Amendment No. 1 to Change of Control Letter Agreement
Dear Mr. Booth:
This letter relates to the letter agreement (the "Agreement"), dated June
8, 1994 entered into between Nord Resources Corporation, a Delaware corporation
(the "Company"), and you. A copy of the Agreement is attached hereto as Annex
A.
As you know, the Agreement expires on December 31, 1995. At a meeting of
the Board of Directors of the Company held on November 3, 1995, the Board
adopted a resolution extending the term of the Agreement to December 31, 1997.
In order to give effect to such resolution, the Company and you agree to amend
the Agreement as follows:
1. Paragraph 1. of the Agreement is amended to read as follows:
"1. OPERATION AND TERM OF AGREEMENT. This agreement, although
effective immediately, shall not become operative unless and until there
has been a change in control of the Company. None of the provisions of
this agreement shall be applicable to any termination of your employment,
however occurring, which is effective prior to a change in control of the
Company. This agreement shall continue until the later of December 31,
1997 or two years after the occurrence of a change in control of the
Company, provided such change in control occurs on or before December 31,
1997, subject to extension beyond that date by mutual consent. The Company
will review this agreement with you between January 1, 1997 and July 31,
1997, for the purpose of determining whether or not an extension beyond
December 31, 1997 is mutually agreeable and, if so, on what basis and for
how long."
2. The Agreement, as modified herein, shall continue in full force
and effect.
If you are in agreement with the foregoing amendment to the Agreement,
please confirm your agreement by signing below where
<PAGE>
James T. Booth
December 1, 1995
Page 2
indicated and returning the enclosed additional copy of this letter to the
Company.
Very truly yours,
NORD RESOURCES CORPORATION
Attest:/s/Terence H. Lang By:/s/Edgar F. Cruft
------------------------------ ---------------------------
Terence H. Lang Edgar F. Cruft
Senior Vice President and Chairman and President
Treasurer
CONFIRMED AND AGREED TO:
/s/James T. Booth
- -------------------------
James T. Booth
Dated: December 31, 1995
JMR3359.LMB
<PAGE>
December 15. 1995
Mr. Ralph Gilchrist
Commonwealth Development Corporation ("CDC")
One Bessborough Gardens
London, SWI 2JQ
UNITED KINGDOM
Ms. Hildegard Kraus
DEG - Deutsche Investitions und
Entwicklungsgeselischaft mbH ("DEG")
Belvederstrasse 40
D-50933 Koln 41 (Mungersdorf)
FEDERAL REPUBLIC OF GERMANY
Mr. Vasilios Giannopoulos
Export-Import Bank of the United States ("ExIm Bank")
811 Vermont Avenue, N.W.
Washington, D.C. 20571
Mr. Navaid Burney
International Finance Corporation ("IFC")
1801 K Street, N.W.
Washington, D.C. 20433
Mr. Ralph Matheus
Overseas Private Investment Corporation ("OPIC")
1100 New York Avenue, N.W.
Washington, D.C. 20527
Re: Sierra Rutile Limited
DEVELOPMENT BANK FINANCING
Ladies and Gentlemen:
1. We refer to the various loan agreements and related documents executed
among Sierra Rutile Limited ("SRL" or "Company"), Consolidated Rutile
Limited ("CRL") and Nord Resources Corporation ("Nord," and together with CRL,
the "Sponsors") and each of the above-addressed institutions (together, the
"Banks") with respect to SRL's mining operations in Sierra Leone (the
"Project"). All such loan agreements and related documents, including all
funding, security and project agreements shall be referred to together as the
"Financing Documents."
<PAGE>
2
2. On behalf of SRL and the Sponsors, we very much appreciate your
support in coordinating the meetings held on Friday, May 12, 1995, at IFC's
offices and on Thursday, October 19, 1995, at OPIC's offices to review the
status of the Project following the rebel incursion and occupation of the SRL
minesite and the subsequent discontinuance of operations there (,the
"Occupation Events") and to discuss a possible extension of the May 15, 1995
expiration of the Forbearance Period (as such term is defined in our letter
agreement dated February 22, 1995). Each of SRL and the Sponsors
acknowledges that the Occupation Events are Events of Default as defined
under the Financing Documents and that the Banks have the right to issue a
Deficiency Notice to each of the Sponsors under the terms of the First
Amendment and Restatement of Project Funds Agreement, dated November 17,1993,
(the "PFA"), but ask each of the Banks for additional time to undertake the
following measures (the "Remedial Measures"):
A. determine damage to the Project:
B. assess the political and military situation in Sierra Leone,
C. develop financial models for the reopening of the mine; and
D. present to the Banks, for discussion, plans for the financing,
rehabilitation and reopening of the Project.
3. SRL and each Sponsor proposes that,
(i) from May 15, 1995, until January 1, 1997 (the "Extended Forbearance
Period"), each of the above Banks agrees to forbear from accelerating
their loans or seeking to enforce their rights against the collateral
under the Financing Documents due to (a) breaches of the financial
covenants and financial reporting requirements and other defaults
thereunder arising from the Occupation Events, and (b) failure by the
Company to make payments of principal to the Banks on June 15, 1995,
and to pay penalty interest thereon, as required under the terms of
the Financing Documents;
(ii) the funds pledged to the Banks as additional security (the "Escrowed
Funds") and held by the Escrow Agent (as defined in the Escrow
Agreement, dated as of February 16, 1993) and The Bank of Bermuda
Limited (pursuant to the Cash Collateral Charge dated as of November
17, 1992) (a) first, be applied to prepayment of all amounts (other
than principal) that are scheduled for payment to each Bank,
respectively, under its Financing Documents during the Extended
Forbearance Period, and (b) second, the Banks release their rights to
any remaining Escrowed Funds;
<PAGE>
3
(iii)principal payments which have become or would otherwise become due
during the Extended Forbearance Period under the terms of the
Financing Documents be deferred until expiration of the Extended
Forbearance Period; and
(iv) pursuant to the guaranties referenced in paragraph 4(iii) below,
Nord's guaranty obligations be reduced from 100% to 50% and the
Sponsors' obligations under the PFA be replaced by the obligations
under such guaranties.
4. The Banks' agreement to the proposals set forth in subparagraphs 3(ii)(b)
and 3(iv) above is subject to satisfaction of the following conditions
precedent:
(i) The Company shall have directed the Escrow Agent and The Bank of
Bermuda Limited to transfer the following amounts of the Escrowed
Funds to the Banks in accordance with the pavement instructions set
forth in Annex I to this letter:
CDC US$1,651,272.80
DEG US$ 587,890.65
ExIm Bank US$ 270,554.32
IFC US$1,232,247.92
OPIC US$1,119,720.04
aggregating the amount of US$4,861,685.73, and the Banks shall have
so received from the Escrow Agent and/or The Bank of Bermuda such
amounts of the Escrowed Funds in immediately available funds. If and
to the extent that at any time all or any part of any of the
foregoing amounts received by any Bank is rescinded or must be
returned, in whole or in part, for any reason, whether in case of the
bankruptcy, insolvency or reorganization of the Company or otherwise,
each Guarantor shall pay to such Bank on demand under the terms of
its guaranty referred to in subparagraph 4(iii) below, in immediately
available funds, fifty percent (50%) of the amount(s) so rescinded or
returned. Each Bank will apply the funds received under this
subparagraph 4(i) against non-principal amounts payable to it during
the Extended Forbearance Period as and when those amounts become due.
If for any reason the Extended Forbearance Period ends before January
1, 1997, each Bank will apply any unapplied amount of such funds to
SRL's loan obligations to such Bank in such manner as such Bank in
its sole discretion may determine.
<PAGE>
4
In addition, SRL shall have executed an amendment to the ExIm Bank
loan agreement, in form and substance acceptable to ExIm Bank,
requiring interest to be paid to ExIm Bank at a rate of 10% per annum
on the balance of principal whose payment is postponed by the terms
of this letter;
(ii) Nord shall have executed an assignment in form and substance
acceptable to the Banks, assigning all but the first US$2,689,563 of
the proceeds of its OPIC insurance policies to the Banks as security
for its guaranty referred to in subparagraph 4(iii) below. Nord will
irrevocably instruct the Overseas Private Investment Corporation
("OPIC"), as issuer of the insurance policies, to make any payments
under the insurance policies in excess of the first US$2,698,215 to
an account designated by the Banks, to be invested and the principal
thereof (together with interest thereon) to be held in trust as
security for Nord's obligations under its guaranty pursuant to the
assignment letter. During the Extended Forbearance Period, the Banks
may in their sole discretion, if Nord so requests. release some or
all of such amounts held in trust for the purpose of repairing,
improving, or replacing assets which form a part of the security for
SRL's loan obligations under the Finance Documents. Thereafter, if,
on or before January 1, 1997, either (i) the Company pays to the
Banks all principal payments deferred during the Extended Forbearance
Period or (ii) Nord fulfills its obligations under its guaranty and
pays 50% of such payments to the Banks, then the Banks will release
their rights to the proceeds of the OPIC insurance policies and
deliver any amounts held in trust to Nord; PROVIDED, that no Event
of Default shall have occurred and be continuing. Nothing in this
subparagraph (ii) or elsewhere contained in this letter shall
indicate or imply that a valid claim exists under any such OPIC
insurance policies, or that any amounts will be payable thereunder,
notwithstanding OPIC's execution of this letter agreement in its
capacity as lender, and OPIC, in its capacity as issuer of such
insurance policies, shall not be deemed to have waived, nor shall it
be estopped from asserting, any defenses to any claim made under any
such insurance policies;
(iii)Each of the Sponsors shall have executed and delivered an
unconditional, direct guaranty limited to 50% of SRL's obligations to
the Banks (aggregating a 100% guaranty of such obligations), which
guaranties shall be in the form attached to this letter as Annex II;
(iv) SRL and/or the Sponsors shall have reimbursed OPIC in full for all
legal fees and expenses incurred by OPIC in connection with the
<PAGE>
5
complaint filed in the Eastern District of Pennsylvania (C.A.
No.95-CV-2958) by Wartsila Diesel, Inc. against SRL and PNC
Bank, N.A.;
(v) SRL and each Sponsor shall have delivered legal opinions from law
firms acceptable to the Banks and in form and substance acceptable
to the Banks as to the validity and enforceability of this letter
and the documents delivered pursuant to this letter and such other
related matters as the Banks may reasonably request;
(vi) SRL shall have delivered to the Banks for their review and approval
(not to be unreasonably withheld) a proposed budget for payment of
project expenses during the Extended Forbearance Period, which
budget may be amended from time to time by SRL in accordance with
paragraph 5 below; and
(vii)SRL and each Sponsor shall have delivered to the Banks the
most recent audited annual financial statements and unaudited semi-
annual financial statements (certified as true and complete by the
chief financial officer of SRL or such Sponsor, as the case may be)
of SRL or such Sponsor, as the case may be.
Upon satisfaction of all of the above conditions, the Banks will (a) release
their rights with respect to any remaining Escrowed Funds held by the Escrow
Agent or by The Bank of Bermuda Limited, as the case may be, as contemplated in
subparagraph 3(ii) above, and (b) effect the reduction and replacement of the
Sponsors' obligations under the PFA as contemplated in subparagraph 3(iv) above.
As provided in subparagraph 12(v) below, if all of the above conditions are not
met within 30 days after the date of execution of this Agreement by the last
signatory hereto, the Extended Forbearance Period will immediately terminate
without notice and the Banks will have no obligation to provide the release and
effect the reduction and replacement referred to above.
5. During the Extended Forbearance Period, SRL will provide to the Banks
(i) at least every two weeks detailed status reports on the Occupation Events
and the Remedial Measures, (ii) monthly reports (a) demonstrating compliance
with, and justifying variances from, the budget for the preceding month, (b)
amending or updating, as appropriate, the budget for the next succeeding month,
and (c) demonstrating compliance with the requirements set forth in paragraphs 8
and 9 below, (iii) such information as is required under the terms of the
Financing Documents; and (iv) such other information as the Banks may reasonably
request from time to time.
6. For the duration of the Extended Forbearance Period, Events of Default (as
defined in the Financing Documents) arising from the Occupation Events will be
<PAGE>
6
treated as potential or actionable Events of Default under the Financing
Documents, with all the associated results and restrictions thereunder,
including, without limitation, (i) a suspension of the Banks' disbursement
obligations, and (ii) a complete restriction on any dividends or other payments
from SRL to the Sponsors or their affiliates, other than reimbursement of
expenses incurred for payroll, operating and administrative purposes for the
benefit of SRL.
7. All principal payments deferred during the Extended Forbearance Period
shall be due and payable in full on January 1, 1997, or, if earlier, upon
termination of the Extended Forbearance Period.
8. During the Extended Forbearance Period, Project expenses of not less than
US$500,000 per quarter (determined on the last day of each calendar month for
the three month period ending on the date of determination) shall be paid by SRL
or by the Sponsors.
9. All Escrowed Funds released to SRL pursuant to paragraphs 3(ii) and 4
above, and any proceeds from the sale of rutile during the Extended Forbearance
Period (net of amounts used to pay outstanding taxes and other actual expenses
related to such sale), shall be retained by SRL or used by SRL for the purpose
of paying project expenses, as determined by the Sponsors (subject to compliance
with the requirements of paragraph 8 above).
10. Except for the forbearance and releases granted hereunder, no waiver of any
default under any of the Financing Documents has been granted by any of the
Banks, nor shall anything contained in this letter constitute or be construed as
a waiver of any existing or future default or a modification or limitation of
any existing rights or remedies available to the Banks against SRL or the
Sponsors. The Banks have no obligation to extend the expiration date of the
Extended Forbearance Period (and the execution of this letter shall not be
construed to require any such extension), to enter into any further forbearances
or waivers with respect to the Project, or to make further disbursements,
additional loans or investments in the Project. Subject to the forbearance and
releases granted hereunder, each of the Banks specifically reserves the right to
insist on strict compliance with the terms of the Financing Documents, this
letter and each document executed in connection herewith (including, without
limitation, the assignment and the guaranties) and SRL and each Sponsor
expressly acknowledges such reservation of rights.
11. The Company and each Sponsor hereby reaffirms its obligations under the
Financing Documents with each of the undersigned and confirms that such
obligations remain in full force and effect, without any claims, set-offs or
defenses.
<PAGE>
7
12. Notwithstanding anything to the contrary in this letter, and in addition to
any other remedies otherwise available to the Banks arising under the Financing
Documents, this letter, the documents executed and delivered in connection
herewith, at law or in equity, the Extended Forbearance Period shall terminate:
(i) if any of the information, data, representations, warranties,
exhibits or other material submitted to the Banks by or on behalf
of SRL or either of the Sponsors shall prove to contain any
material inaccuracy or misrepresentation known to SRL or such
Sponsor, as the case may be, at the time of its submission;
(ii) upon the filing by SRL or either of the Sponsors of any type of
proceeding seeking bankruptcy, receivership or similar relief or
upon the entry of a bankruptcy, winding up, liquidation or
similar type of order against SRL or either of the Sponsors;
(iii) if any event (other than the Occupation Events) shall have
occurred which, in the reasonable judgment of any of the Banks, is
likely to affect materially and adversely the ability of any
party to observe or perform any of its respective material
obligations or undertakings hereunder or under any of the
Financing Documents or the documents signed pursuant to this
letter, the effect of which would be to materially
adversely affect the financial condition of SRL or either of the
Sponsors or the ability of SRL or either of the Sponsors to carry
on their respective operations;
(iv) if any of the Financing Documents, this letter, or the documents
signed pursuant to this letter ceases to be in full force and
effect (except the PFA as released under the terms of this
letter) or is declared to be void or is at any time contested by
SRL or by either of the Sponsors, or, in the case of any security
document, ceases to give or provide the respective liens,
security interests, rights, titles, remedies, powers or
privileges intended to be created thereby;
(v) if SRL or the Sponsors (or either of them) fail to comply with
any of the requirements of paragraphs 5, 8 or 9 above, or if,
within 30 days after the date of execution of this agreement by
the last signatory hereto, the conditions in set forth in
paragraph 4 above have not been fulfilled; or
(vi) if either of the Sponsors fails to pay or perform, or a default
occurs with respect to, any other debt obligations, whether
contingent or otherwise, of such Sponsor (including, without
limitation, any obligations relating to capital leases) and such
failure or default continues beyond the grace period, if any,
applicable thereto;
<PAGE>
8
PROVIDED, that those certain events of default under financial
covenants contained in Nord's capital lease agreements that have
occurred and are continuing on the date of this letter, as more
particularly described in Annex III to this letter, shall be
excluded from the operation of this subparagraph (vi) unless (a)
one or more of such capital lessors gives notice of acceleration
or takes any other action in the exercise of its rights and
remedies in connection with any such default (other than delivery
of a notice of default), or (b) Nord offers or agrees to any
voluntary accommodation with one or more of such capital lessors
which involves payment (other than scheduled payments currently
contemplated under the existing terms of the related capital
lease) or the provision of additional collateral; or
(vii) if either of the Sponsors transfers, sells, assigns, conveys,
leases, pledges, encumbers or otherwise disposes of all or a
substantial part of its assets, of whatever nature and whether
now owned or hereafter acquired (any such action a "Transfer"),
except:
(a) in an arms length transaction in which the asset so
Transferred is replaced with an asset of substantially
equivalent or greater value (determined by the Banks in
their reasonable judgment); and
(b) such replacement asset is not Transferred (in the form of
dividends, share redemptions or otherwise) to the
shareholders of such Sponsor.
Upon the termination of the Extended Forbearance Period, regardless of any
Remedial Measures, all principal amounts deferred hereunder shall be
immediately due and payable, and the Banks, or any of them, may pursue all
available rights and remedies pursuant to the Financing Documents or the
documents signed pursuant to this letter, at law or in equity.
13. No other person and no creditor of SRL or the Sponsors other than the
undersigned may rely on this letter.
14. This Agreement embodies the entire understanding of the parties hereto, and
supersedes all prior negotiations, understandings and agreements between them
with respect to the subject matter hereof. This letter may not be modified in
any manner, except by written agreement signed by all parties hereto. This
letter may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument and any of the parties
hereto may execute this letter by signing any such counterpart.
<PAGE>
15. This letter shall be governed by the laws of the District of Columbia
without regard to the conflict of laws principles thereof.
16. Time is of the essence with respect to each provision of this letter.
Please sign and return a copy of this letter confirming your acknowledgment
and agreement with the terms hereof, whereupon this letter shall constitute a
legally binding agreement.
SIERRA RUTILE LIMITED
By: Date:
------------------------------- ---------------------------
Benny L Bray
Assistant Secretary
NORD RESOURCES CORPORATION
By:/s/ Karl A. Frydryk Date: December 14, 1995
------------------------------- ---------------------------
Name: Karl A. Frydryk
Title:Secretary
CONSOLIDATED RUTILE LIMITED
By: Date:
------------------------------- ---------------------------
Name:
Title:
<PAGE>
GUARANTY
among
NORD RESOURCES CORPORATION
and
COMMONWEALTH DEVELOPMENT CORPORATION
and
DEG - DEUTSCHE INVESTITIONS-UND
ENTWICKLUNGSGESELLSCHAFT mbH
and
EXPORT-IMPORT BANK OF THE UNITED STATES
and
INTERNATIONAL FINANCE CORPORATION
and
OVERSEAS PRIVATE INVESTMENT CORPORATION
Dated as of February 28, 1996
----------------------------------------------------------------------
<PAGE>
GUARANTY
THIS GUARANTY, dated as of February 28, 1996, made by NORD RESOURCES
CORPORATION, a corporation organized and existing under the laws of the State of
Delaware (the "Sponsor"), in favor of COMMONWEALTH DEVELOPMENT CORPORATION, a
statutory corporation organized and existing under the laws of the United
Kingdom ("CDC"), DEG-DEUTSCHE INVESTITIONS UND ENTWICKLUNGSGESELLSCHAFT mbH,
a development finance institution organized and existing under the laws of the
Federal Republic of Germany ("DEG"), EXPORT-IMPORT BANK OF THE UNITED STATES,
an agency of the United States of America ("Ex-Im"), INTERNATIONAL FINANCE
CORPORATION, an international organization established by Articles of Agreement
among its member countries ("IFC"), and OVERSEAS PRIVATE INVESTMENT
CORPORATION, an agency of the United States of America ("OPIC") , (CDC, DEG,
Ex-Im, IFC and OPIC are hereinafter collectively called the "Senior Lenders",
and the term "Senior Lender" shall refer to any one of them).
WITNESSETH:
WHEREAS, under the terms of a Loan Agreement, dated January 24, 1992, as
amended November 17, 1992, and as of November 17, 1993, between CDC and Sierra
Rutile Limited (the "Company") (the "CDC Loan Agreement"), CDC has made loans
to the Company which have an aggregate outstanding principal amount of
US$9,966,666.66 as of the date hereof;
WHEREAS, under the terms of a Loan Agreement, dated August 6, 1992, as
amended November 20, 1992, and as of November 17, 1993, between DEG and the
Company (the "DEG Loan Agreement") , DEG made loans to the Company which have an
aggregate outstanding principal amount of US$4,375,000 as of the date hereof;
WHEREAS, under the terms of a Finance Agreement between Ex-Im and the
Company, dated February 16, 1972, as amended on September 27, 1973, January 1,
1976, December 1, 1979, December 1, 1982 and November 24, 1986, and a Credit
Agreement, dated January 1, 1976, between Ex-Im and the Company, as amended on
December 1, 1979 and restated on December 1, 1982, all as amended as of November
17, 1992, and as of November 17, 1993 (the "Ex-Im Loan Agreement"), Ex-Im made
loans collectively to the Company which have an outstanding aggregate principal
amount of US$12,529,959.79 as of the date hereof;
WHEREAS, under the terms of an Investment Agreement, dated June 30, 1992,
as amended November 18, 1992, and as of November 17, 1993, between IFC and
the Company (the "IFC Investment Agreement"), IFC made loans to the Company
which have an aggregate outstanding principal amount of US$9,030,000 as of
the date hereof;
WHEREAS, under the terms of a Finance Agreement, dated as of August 11,
1992, as amended as of November 24, 1992, as of September 21, 1993, and as of
November 17, 1993, between OPIC and the Company (the "OPIC Finance Agreement",
and together with the CDC Loan Agreement, the DEG Loan Agreement, the Ex-Im Loan
Agreement and the IFC Investment Agreement, the "Senior Loan Agreements"),
<PAGE>
- 2 -
OPIC has guarantied a loan to the company which has an aggregate outstanding
principal amount of US$9,621,212.11, as of the date hereof;
WHEREAS, the Sponsor beneficially owns 50% (fifty per cent) of all of the
outstanding capital stock of the Company either directly or through the
Sponsor's subsidiaries;
WHEREAS, an event of default has occurred and is continuing under the
terms of the Senior Loan Agreements, and the Sponsor and Consolidated Rutile
Limited have acknowledged their obligations to the Senior Lenders in connection
therewith under the terms of an Amended and Restated Project Funds Agreement
dated as of November 17, 1993 (the "Project Funds Agreement") among the Sponsor,
Consolidated Rutile Limited, the Company, Sierra Rutile Holdings Limited, and
the Senior Lenders;
WHEREAS, the Company, Consolidated Rutile Limited and the Sponsor have
asked the Senior Lenders to agree, and the Senior Lenders have agreed, to the
terms of their letter of December 15, 1995 addressed to the Senior Lenders (the
"Forbearance Letter");
WHEREAS, under the terms of the Forbearance Letter the Senior Lenders have
agreed (i) to forbear, subject to the terms of the Forbearance Letter, from
exercising their rights with respect to such event of default for the duration
of the Extended Forbearance Period (as such term is defined in the Forbearance
Letter), and (ii) to refrain from issuing a Deficiency Notice (as defined in
the Project Funds Agreement) or otherwise seeking payment under the Project
Funds Agreement, in each case in consideration of the Sponsor's entering into
this Guaranty (which Guaranty substantially reduces the payment obligations that
the Sponsor otherwise would have under the Project Funds Agreement) and a
Pledge, Assignment and Security Agreement of even date herewith; and
WHEREAS, it is one of the conditions precedent to the final effectiveness
of the Forbearance Letter that the principal, interest, expenses, costs, fees
and all other amounts payable by the Company in connection with the Senior Loan
Agreements (the "Guarantied Amounts") be directly guarantied pursuant to this
Guaranty;
NOW, THEREFORE, in consideration of the premises and of the agreements
contained herein, it is hereby agreed as follows:
1. DEFINITIONS; REFERENCES
(a) Terms of this Guaranty beginning with capital letters shall have the
definitions given in the OPIC Finance Agreement, unless the context otherwise
requires or specifies.
(b) References to and the definition of any document (including this
Agreement) shall be deemed a reference to such document as it may be amended or
modified from time to time.
(c) All Section references are to this Agreement unless otherwise
indicated.
<PAGE>
- 3 -
(d) The "Completion Date" shall be deemed to mean and to occur on the
date on which all of the following requirements have been satisfied:
(1) all buildings, equipment and facilities for the Project,
including the electric power generating system and the new dredge for the
Gangama deposit, shall have been procured, constructed and installed utilizing
first-class standards of workmanship and materials and in accordance with the
project plans and specifications as set forth in the Letter of Information (as
defined in the IFC Investment Agreement and as modified by a letter from the
Company to the Senior Lenders dated July 1, 1993, two letters from the Company
to IFC dated August 23, 1993 and a letter from Consolidated Rutile Limited to
the Senior Lenders dated September 9, 1993) shall be in good working condition,
and shall meet manufacturers, specifications and the terms of applicable
construction agreements; and
(2) the Company shall have good title or valid leasehold interests,
satisfactory to the Senior Lenders, free and clear of all Liens and encumbrances
(except for security interests permitted by the Senior Loan Agreements) to all
of the land and all buildings, equipment and facilities referred to above, and
to all other facilities now or then known to be required for the Project; and
(3) the Company shall have granted to the Senior Lenders satisfactory
Liens with respect to its assets, and each Security Document creating such Lien
in favor of the Senior Lenders, and each other security Document in favor of the
Senior Lenders, shall be in full force and effect and shall have been duly filed
and registered in every jurisdiction in which such filing and recording is
necessary to make valid and effective the Liens intended to be created thereby,
and the rights of the Senior Lenders thereunder, and the Senior Lenders shall
have received a duly executed original or certified copy of each such Security
Document and such other documents, including opinions of counsel, in form and
substance satisfactory to the Senior Lenders as the Senior Lenders may
reasonably request; and
(4) the Company shall have (i) produced, processed and transported at
least 56,500 metric tonnes of saleable rutile products from the Lanti deposit to
the Company's storage facilities at Nitti during a period of six consecutive
months, and (ii) transferred at least 56,500 metric tonnes of such saleable
rutile products from the Company's storage facilities at Nitti to ocean-going
freighters at the Point of Title Transfer (defined as that moment in the
shipment of the rutile when title to the rutile is transferred to the
purchaser from the Company) during a period of six consecutive months at any
time prior to the date of the Completion Certificate (defined below); and
(5) the Company shall have (i) produced, processed and transported at
least 45,000 metric tonnes of saleable rutile products from the Gangama deposit
to the Company's storage facilities at Nitti during a period of six consecutive
months, and (ii) transferred at least 45,000 metric tonnes of such saleable
rutile products from the Company's storage facilities at Nitti to ocean-going
freighters at the Point of Title Transfer (defined as that moment in the
shipment of the rutile when title to the rutile is transferred to the purchaser
from the Company) during a period of six consecutive months at any time prior to
the date of the Completion Certificate (defined below); and
<PAGE>
- 4 -
(6) the Company shall have provided the senior Lenders with the
original or a satisfactory copy of the purchase contract for the electric power
generating facilities and the Senior Lenders shall have advised the Company that
such contract is on terms and conditions satisfactory to each senior Lender, the
Company shall have accepted the power plant pursuant to its purchase contract,
and the Company shall have provided the Senior Lenders satisfactory evidence
that the electric power generation system has the demonstrated capacity and
functional ability to operate the plant and other facilities and has a remaining
useful life of at least twenty years according to norms acceptable in the
industry; and
(7) the Company shall have generated at least $9 million in Net
Income in the preceding twelve-month period and the Company shall have Net Worth
of no less than $123 million as of the date of the Completion Certificate
(defined below); and
(8) the ratio of the Company's Current Assets to its Current
Liabilities shall then be no less than 1.2 to 1; and
(9) the ratio of the Company's Cashflow for Debt Service to the
aggregate of the Company's fees, interest and principal on all of its
Indebtedness and Subordinated Debt payments scheduled to be due in the
twelvemonth period following the date of the Completion Certificate (defined
below) shall then be greater than 1.5 to 1; and
(10) the Company shall have met all of its obligations of any
kind through the time of accomplishment of the foregoing, including, without
limitation, payment of all amounts at any time to become due under contracts for
construction, procurement, installation and improvement of land, buildings,
equipment and facilities for the Project; and
(11) as of the date of the Completion Certificate (defined below)
no event of default or condition or event that, with the giving of notice or
lapse of time, or both, would become an event of default, has occurred and is
continuing under any of the Senior Loan Agreements; and
(12) the Company shall have furnished each Senior Lender with a
certificate in form and substance satisfactory to each Senior Lender certifying
that each of the requirements set forth in clauses (1) through (11) above has
been satisfied, including the dates on which each of the completion tests set
forth in clauses (1), (4), (5), and (6) has been satisfied (the "Completion
Certificate"); and
(13) following receipt of the Completion Certificate, each of the
Senior Lenders shall have determined that the requirements set forth in clauses
(1) through (12) above have been satisfied and shall have so notified the
Company and the Sponsors in writing (with a copy to each other Senior Lender);
PROVIDED, HOWEVER, that:
(i) determination of the Company's compliance with the
completion tests set forth in clauses (7), (8), and (9)
above must be based on Financial Statements of the
Company acceptable to the Senior Lenders (x) as of a
<PAGE>
- 5 -
date following the date represented by the Company as
the date on which it has satisfied the last to occur of
the completion tests set forth in clauses (1) ,
(4), (5), and (6) above, and (y) for a twelve-month
fiscal period ending no more than three (3) months
prior to the date of the Senior Lenders, receipt of the
Completion Certificate;
(ii) any of the Senior Lenders may require confirmation, at
the Company's expense, of any provision of such
Completion Certificate by an independent consultant
satisfactory to such Senior Lender; and
(iii) the Senior Lenders shall have the right to make
reasonable requests for additional information or
documents from the Company or the Sponsors to
substantiate the accuracy or completeness of the
Completion Certificate.
The Completion Certificate shall be deemed to have been sent by
the Company when delivered by hand or sent by telex (answer back received) or
telecopy (confirmed by airmail letter) or seven Business Days after being mailed
in the United States, in each case in accordance with Section 11. Unless within
ninety (90) days following such delivery by the Company of the Completion
Certificate, any one of the Senior Lenders notifies the Sponsor and the Company
(with a copy to each other Senior Lender) that either such Senior Lender objects
to the Completion Certificate or that such Certificate is inaccurate or
incomplete and sets forth the basis for such objection or determination, as the
case may be, the Completion Date shall be deemed to have occurred on the last
day of such ninety (90)-day period.
2. GUARANTY
(a) Until the Completion Date, the Sponsor hereby unconditionally and
irrevocably guaranties, as primary obligor and not merely as surety, to each
Senior Lender the punctual payment when due of one-half of the Guarantied
Amounts payable to such Senior Lender, whether at stated maturity or upon
acceleration or otherwise, all in accordance with that Senior Lender's Senior
Loan Agreement.
(b) After the Sponsor pays in full one-half of the Guarantied Amounts due
on any date, the Sponsor will not be liable for the remaining one-half of the
Guarantied Amounts due on such date.
(c) This Guaranty is a continuing guaranty of payment (and not of
collection) and remains in full force and effect until all Guarantied Amounts
have been indefeasibly paid in full in accordance with the respective Senior
Loan Agreements or, if earlier, the Completion Date.
(d) A certificate from an officer of any of the Senior Lenders showing the
Guarantied Amounts payable to such Senior Lender shall be admissible in any
action or proceeding as PRIMA FACIE evidence of such amounts.
<PAGE>
- 6 -
(e) The Sponsor's obligations under this Guaranty are not subject to any
prior notice to, demand upon or action against the Company or to any prior
notice to the Sponsor regarding any default by the Company.
(f) The Sponsor may not set-off, counterclaim or otherwise reduce its
obligations under this Guaranty, or claim any defense against Senior Lenders
(including mitigation or limitation of damages) other than complete performance
of those obligations.
(g) Senior Lenders have no obligation to inform the Sponsor of any matter
relating to the Guaranty, the Company or the Senior Loan Agreements, including
the financial condition of the company or any circumstances affecting the risk
of nonpayment under the Senior Loan Agreements.
3. NATURE OF OBLIGATIONS.
(a) The obligations of the Sponsor hereunder are direct, absolute and
unconditional and may be enforced by the Senior Lenders or any one or more of
them without first having to (i) enforce such Senior Lender's claims against the
Company or any other guarantor, firm, corporation, Governmental Body or any
other Person; or (ii) resort to any security or other guaranty for the sums
guarantied hereby; or (iii) take any action prior to receiving payment
hereunder.
(b) The liability and obligations of the Sponsor under this Guaranty shall
be direct, absolute and unconditional irrespective of:
(i) the Company's failure to pay a fee or provide other consideration
to the Sponsor in consideration of the Sponsor's execution,
delivery and performance of this Guaranty; or
(ii) the occurrence or continuance of any event of default under any
of the Senior Loan Agreements, or any acceleration or required
prepayment of the indebtedness of the Company under or in respect
of any of the Senior Loan Agreements as a result thereof or
otherwise; or
(iii) any lack of validity or enforceability of the Company's
obligations under this Guaranty or any lack of validity or
enforceability of, or any misrepresentation, irregularity or
other defect in, any of the Senior Loan Agreements or any other
agreement entered into in connection therewith; or
(iv) any right, claim or defense, waiver, surrender or compromise that
the Sponsor may have under or in respect of this Guaranty or
otherwise; or
(v) any f ailure to pay Taxes that may have been payable in respect
of the issuance or transf er of the notes evidencing the Senior
Debt or to register the same with any Governmental Body or
instrumentality or to obtain any Governmental
<PAGE>
- 7 -
Approval, order, license or permit in connection with such
issuance or transfer; or
(vi) any modification or amendment (whether material or otherwise) of,
or waiver or consent or other action taken with respect to, any
of the Senior Loan Agreements, the Forbearance Letter or any
other agreement or document delivered pursuant to the terms of
any of them, including, without limitation, any forbearance,
indulgence in or extension of time for the payment of any amounts
payable under or in connection with any of the Senior Loan
Agreements or the extension or renewal thereof or for the
performance or observance of any of the other obligations of the
Company thereunder (any of which modifications, amendments,
waivers or consents may be agreed to or granted without the
approval or consent of the Sponsor); or
(vii) any law, regulation, decree or judgment now or hereafter in
effect that may in any manner affect any of the obligations of
the Company under any of the Senior Loan Agreements or any of the
Senior Lender's rights thereunder, whether or not the Company has
a defense valid against such Senior Lender and whether or not
other guarantors of such obligations, if any, contribute to such
payments; or
(viii) the voluntary or involuntary liquidation, sale or other
disposition of all or any portion of the assets of the Company,
or the receivership, insolvency, bankruptcy, reorganization or
similar proceedings affecting the Company or any of its
obligations under any of the Senior Loan Agreements or the
consolidated or merger of the Company; or
(xi) any change of circumstances, whether or not foreseeable, and
whether or not any such change does or might vary the risk of the
Sponsor hereunder; or
(x) any other circumstances, whether similar or dissimilar to the
foregoing, that might otherwise constitute a defense available
to, or a discharge of, the Company or the Sponsor or a guarantor.
(c) The Sponsor hereby unconditionally waives presentment, demand,
diligence, protest, and notice of any kind to which the Sponsor mights otherwise
be entitled under applicable law with respect to the sums due pursuant to this
Guaranty.
(d) The payment obligations of the Sponsor pursuant to this Guaranty
shall remain in full force and effect or shall be reinstated, as the case may
be, if and to the extent that at any time any payment by the company of any
amount due hereunder is rescinded or must be returned, in whole or in part, in
case of the bankruptcy, insolvency or reorganization of the Company or
otherwise, as if such payment had never been made by the Company.
<PAGE>
-8-
4. REPRESENTATIONS AND WARRANTIES.
The Sponsor represents and warrants to each Senior Lender that:
(a) As of the date hereof, the Sponsor beneficially owns 50% of the
issued and outstanding shares of capital stock of the Company and shares
Management Control of the Company with Consolidated Rutile Limited.
(b) It is a corporation or partnership, as the case may be, duly
organized, validly existing and in good standing under the laws of the state of
its incorporation or formation, as the case may be, and has all requisite power
and authority, corporate, partnership or otherwise, to execute and deliver and
perform all of its obligations under this Guaranty.
(c) It has taken all necessary action to authorize the execution, delivery
and performance by it of this Guaranty.
(d) This Guaranty has been duly executed and delivered by it and
constitutes its legal, valid, and binding obligations enforceable against it in
accordance with its terms, subject, as to enforceability, to applicable
bankruptcy, insolvency, moratorium and similar laws of general applicability
affecting creditors, rights.
(e) No Governmental Approval or action of any kind is or will be necessary
for the valid execution, delivery or performance by it of this Guaranty.
(f) All approvals or consents of any of its creditors or any other Person
necessary for its execution, delivery and performance of this Guaranty have been
given and such execution, delivery and performance by it will not conflict with
or constitute a breach or default under or violate any provision of its charter,
by-laws or partnership agreement, as the case may be, of or any agreement, law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award applicable to it.
(g) The Financial Statements of the Sponsor as at December 31, 1994,
certified by independent public accountants, and unaudited quarterly Financial
Statements for each subsequent fiscal quarter of the Sponsor ending prior to the
date hereof, each certified by an Authorized Officer of the Sponsor and copies
of which have been furnished to the Senior Lenders, fairly present the financial
condition of the Sponsor as at such date and the results of its operations for
the period ended on such date, all in accordance with GAAP, and since such date,
except for the adverse effect on the Sponsor's cash flow experienced as a direct
result of the Occupation Events (defined in the Forbearance Letter), there has
been no material adverse change in the financial condition or operations of the
Sponsor or in its ability to perform its obligations under this Guaranty.
(h) Except for the adverse effect on the sponsor's cash flow experienced
as a direct result of the Occupation Events (defined in the Forbearance Letter),
since the date of the sponsor's most recent Financial Statements delivered to
the Senior Lenders hereunder, there has been no material adverse change, or any
development involving a prospective material adverse change, in or affecting the
general affairs, management financial
<PAGE>
-9-
condition or results of operations of the Sponsor and its subsidiaries, if any,
considered on a consolidated basis, or in the Sponsor's ability to perform its
obligations under this Guaranty.
(i) Except for the existence of the Occupation Events described in the
Forbearance Letter, each representation and warranty made by the Company to each
of the Senior Lenders in the Senior Loan Agreements is true and correct and
accurately and completely describes the business and financial prospects of the
Company, and does not contain any material misstatement of fact or omit to state
a material fact or any fact necessary to make the statements contained therein
not misleading.
(j) Except for:
(i) the Occupation Events; and
(ii) failure by the Company to make principal payments to the Senior
Lenders on June 15, 1995, as required under the terms of the
Senior Loan Agreements (which failure has been addressed under
the Forbearance Letter);
no event has occurred and is continuing that constitutes, or with the lapse of
time or the giving of notice or both would constitute, a default under the
Senior Loan Agreements, or under any agreement or instrument evidencing any
indebtedness of the Sponsor (with the exception of currently existing defaults
by the Sponsor under certain financial covenants contained in the Sponsor's
capital lease agreements) as more particularly described in Annex II to the
Forbearance Letter which gives the holder thereof the right to accelerate
payment of such indebtedness prior to its scheduled maturity, and no such event
will occur upon the execution and delivery or performance of this Guaranty.
(k) Except as previously disclosed to the Senior Lenders in writing, there
are no actions, proceedings or claims pending or, to the best knowledge of the
Sponsor threatened, the adverse determination of which might have a material
adverse effect upon its ability to perform its obligations hereunder, or affect
the validity or enforceability hereof.
(l) The Sponsor is, as of the date hereof, and following the execution and
delivery of this Guaranty will continue to be, solvent (defined herein as (i)
the fair saleable value of all its assets exceeds the amount that will be
required to pay the probable liability on its debts, including contingent
liabilities, (ii) it does not have unreasonably small capital to carry out its
business as now conducted and as proposed to be conducted, including its capital
needs, (iii) it will not have incurred liabilities beyond its ability to pay
such liabilities as they become due, and (iv) it is not "insolvent" as such term
is defined in the U.S. Bankruptcy Code of 1978, as amended).
5. COVENANTS OF THE SPONSOR.
Unless the Senior Lenders otherwise agree in writing, the Sponsor covenants and
agrees as follows:
<PAGE>
-10-
(a) The Sponsor shall promptly notify each Senior Lender of each event
that constitutes, or which with the lapse of time or the giving of notice or
both would constitute, a default under the Senior Loan Agreements, and of each
other event that has or might have a material adverse effect upon the sponsor's
ability to perform its obligations hereunder.
(b) The Sponsor shall permit representatives of the Senior Lenders to
inspect its property and examine, copy and make extracts from its records at any
reasonable time.
(c) The Sponsor shall furnish to each of the Senior Lenders on or before
the sixtieth (60th) day after the close of each quarter of each of its fiscal
years, its consolidated balance sheet(s) as at the close of such quarter and its
income statement and statement of changes in financial position for such
quarter, prepared in accordance with GAAP, certified by its chief financial
officer as being complete and correct and fairly presenting the financial
condition of the Sponsor as at the close of such quarter and the results of its
operations for such quarter.
(d) The Sponsor shall furnish to each of the Senior Lenders on or before
the ninetieth (90th) day after the end of each of its fiscal years, its
consolidated balance sheets as at the close of such fiscal year and its income
statement and statement of changes in financial position for such fiscal year,
prepared in accordance with GAAP, certified by Deloitte & Touche, or other
certified public accountants of international standing reasonably acceptable to
the Senior Lenders, as fairly presenting the financial condition of the Sponsor
as at the close of such fiscal year and the results of its operations for such
fiscal year and the results of its operations for such fiscal year.
(e) The Sponsor shall furnish to each Senior Lender from time to time such
other statements and information as any of the Senior Lenders may reasonably
request.
6. REMEDIES; NO WAIVER.
(a) Each Senior Lender may proceed to protect and enforce its respective
rights hereunder in any court or other tribunal by an action at law, suit in
equity or other appropriate proceedings, whether for damages, for the specific
performance of any term hereof, or otherwise or in aid of the exercise of any
power granted hereby or by law. The Sponsor hereby agrees to pay to each of the
Senior Lenders on demand such amount in Dollars as shall be sufficient to cover
each of the Senior Lenders' costs and expenses of taking any action or seeking
any such remedies, including without limitation, reasonable attorney's fees,
expenses and disbursements.
(b) The Senior Lenders or any of them may, at any time, proceed to
negotiate and grant releases, waivers or settlements of the obligations of
Consolidated Rutile Limited or any other guarantor under its guaranty, without
notice to or the consent of the Sponsor.
(c) No failure or delay by any of the Senior Lenders in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise impair any
of the rights, powers or remedies of any such or any other Senior Lender.
<PAGE>
-11-
No single or partial exercise of any such right shall preclude any other or
further exercise thereof or the exercise of any other legal right. No waiver of
any such right shall be effective unless given in writing.
(d) The rights or remedies provided for herein are cumulative and are not
exclusive of any other rights, powers or remedies provided by law. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion of any other appropriate right or remedy.
7. ALLOCATION; NO SUBROGATION.
(a) Each Senior Lender may allocate and apply payments made under this
Guaranty to the Guarantied Amounts payable to it in any way or manner that such
Senior Lender in its sole discretion determines.
(b) The Sponsor shall, to the extent permitted by applicable law, be
subrogated to the Senior Lenders' rights against the Company, but:
(x) shall not exercise any such subrogation rights or any right of
reimbursement, contribution, indemnity or other recourse against
the Company by reason of payment or other performance of its
obligations hereunder; and
(y) shall not seek to enforce repayment or to exercise any other
rights or legal remedies of any kind which might accrue to the
Sponsor against the Company or its assets, whether by way of
subrogation, agreement or set-off;
until the Guarantied Amounts are fully and finally paid in accordance with the
Senior Loan Agreements.
(c) If the Company is liquidated or wound up, and if any of the Senior
Lenders (at its or their discretion) choose to file claims in any such
proceeding, the Sponsor shall not in such proceeding prove in competition for
any amounts the Company might owe to the Sponsor, but instead shall give each
Senior Lender the benefit of any such proof and of all such amounts until all
Guarantied Amounts have been indefeasibly paid in full accordance with the
respective Senior Loan Agreements.
8. JURISDICTION AND CONSENT TO SUIT
Without prejudice to the rights of the Senior Lenders to bring suit in the
courts of any other jurisdiction, any proceeding to enforce this Guaranty may be
brought by any of the Senior Lenders in the courts of the United States of
America in the District of Columbia; provided, however, that any such proceeding
against OPIC may be brought only in the District of Columbia in the United
States District Court or in the Claims Court of the United States of America.
The Sponsor hereby irrevocably waives any present or future objection to such
venue, and irrevocably consents and submits unconditionally to the nonexclusive
jurisdiction for itself and in respect of any of its property of any such court.
The Sponsor further irrevocably waives any claim that any such court is not a
convenient forum for any such proceeding. The Sponsor agrees
<PAGE>
- 12 -
that any service of process, writ, judgment or other notice of legal process
shall be deemed and held in every respect to be effectively served upon it in
connection with proceedings in the District of Columbia if delivered to the
Prentice-Hall Corporation System, Inc., the offices of which are presently
located at 1090 Vermont Avenue, N.W., Washington, D.C. 20005, which the Sponsor
irrevocably designates and appoints as its authorized agent for the service of
process in the courts in the District of Columbia. Nothing herein shall affect
the right of any of the Senior Lenders to serve process in any other manner
permitted by applicable law. The Sponsor further agrees that final judgment
against it in any action or proceeding arising out of or relating to this
Guaranty shall be conclusive and may be enforced in any other jurisdiction
within or outside the United States of America by suit on the judgment, a
certified or exemplified copy of which shall be conclusive evidence of the fact
and of the amount of its indebtedness.
9. SUCCESSORS AND ASSIGNS.
This Guaranty shall bind the successors and assigns of the Sponsor and
shall inure to the benefit of each of the Senior Lenders, its successors and
assigns. The Sponsor may not assign any of its obligations hereunder without
the prior written consent of the Senior Lenders or their respective successors
or assigns.
10. NOTICES.
Each notice, demand or other communication relating to this Guaranty shall
be in writing in the English language, shall be hand-delivered or sent:
(i) in the case of notices to addresses in the United States, by first
class or express mail, postage prepaid, telegram or facsimile (with
confirmation by mail); or
(ii) in the case of notices to addresses outside of the United States, by
prepaid express courier;
and in each case, shall be duly given when delivered to the following addresses,
or to such other address or number as each party shall have last specified by
notice to the other parties:
To the Sponsor (Attn: Terrence H. Lang):
Nord Resources Corporation
8150 Washington Village Drive
Dayton, Ohio 45458
United States of America
Facsimile: (513) 435-7285
With a copy (which shall not constitute notice) to:
Spitzer & Feldman P.C.
<PAGE>
- 13 -
(Attn: Kenneth Gliedman, Esq.)
405 Park Avenue
New York, New York 10022
United States of America
Facsimile: (212) 838-7472
To CDC:
Commonwealth Development Corporation
One Bessborough Gardens
London SWI V2JQ
England
Telex: 21431/25849
Facsimile: (44-171) 828-6505
To DEG (Attn: F4):
DEG-Deutsche Investitions-und Entwicklungsgesellschaft mbH
Belvederestrasse 40
D-50933 Cologne 41 (Mungersdorf) Germany
Telex: 8 881 949 DEG D
Facsimile: (221) 498-6290
To Ex-Im:
Export-Import Bank of the United States
811 Vermont Avenue, N.W.
Washington, D.C. 20571
United States of America
Telex: 197681 EXIM UT
Facsimile: (202) 565-3462
To IFC (Attn: Director, Department of Investment,
Oil, Gas & Mining):
International Finance Corporation
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Facsimile: (202) 477-6391
(202) 477-8451
(202) 477-8164
To OPIC (Attn: Vice President, Finance):
Overseas Private Investment Corporation
1100 New York Avenue, N.W.
<PAGE>
- 14 -
Washington, D.C. 20527
United States of America
Facsimile: (202) 408-9866
11. GOVERNING LAW; HEADINGS.
This Guaranty shall be governed by and construed in accordance with the
laws of Washington, D.C. without regard to its conflicts of law provisions. The
headings in this agreement are for convenience only and do not limit or affect
its meaning.
12. AMENDMENTS.
The provisions hereof may be waived, supplemented or amended only by an
instrument in writing signed by a duly authorized representative of each of the
parties hereto.
13. COUNTERPARTS.
This Guaranty may be executed in separate counterparts, each of which shall
be an original and all of which taken together shall constitute one and the same
instrument.
14. BENEFITS OF AGREEMENT.
Nothing in this Agreement, express or implied, shall give to any Person,
other than the parties hereto and their successors and permitted assigns
hereunder, any benefit or any legal or equitable right or remedy under this
Agreement.
15. JURY TRIAL WAIVERS.
The Sponsor and each Senior Lender hereby waives any right to have a jury
participate in resolving any dispute, whether in contract, tort or otherwise,
between the Sponsor and any Senior Lender arising out of, in connection with,
related to, or incidental to the relationship established between them in
connection with this Guaranty or any document or agreement executed or delivered
in connection herewith.
16. SEVERABILITY.
If any provision of this Guaranty shall be invalid, illegal or
unenforceable in any jurisdiction, the parties hereto agree to the fullest
extent they may effectively do so that the validity, legality and enforceability
of such provision in other jurisdictions, and the validity, legality and
enforceability of the other provisions in such jurisdiction, shall not in any
way be affected or impaired thereby.
<PAGE>
- 15 -
IN WITNESS WHEREOF, each of the parties hereto has caused this Guaranty
to be executed and delivered as of the day and year first above written.
NORD RESOURCES CORPORATION
BY: \s\Terrence A. Lang
----------------------------
Authorized Representative
Name: Terrence A. Lang
Title: SR. V.P. Finance
ACCEPTED AND AGREED TO BY:
COMMONWEALTH DEVELOPMENT CORPORATION
By:
---------------------------------
Authorized Representative
Name:
Title:
DEG-DEUTSCHE INVESTITIONS-UND
ENTWICKLUNGSGESELLSCHAFT mbH
By:
---------------------------------
Authorized Representative
Name:
Title:
EXPORT-IMPORT BANK OF THE UNITED STATES
By: /s/ Jeffrey L. Miller
---------------------------------
Authorized Representative
Name: Jeffrey L. Miller
Title: V.P., Claims & Recoveries
<PAGE>
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
FOR VALUE RECEIVED, NORD RESOURCES CORPORATION, a Delaware corporation (the
"Assignor") hereby irrevocably pledges and assigns to COMMONWEALTH DEVELOPMENT
CORPORATION ("CDC"), DEG-DEUTSCHE INVESTITIONS UND ENTWICKLUNGSGESELLSCHAFT MBH
("DEG"), EXPORT-IMPORT BANK OF THE UNITED STATES ("Ex-Im"), INTERNATIONAL
FINANCE CORPORATION ("IFC") and OVERSEAS PRIVATE INVESTMENT CORPORATION, as
lender ("OPIC", and collectively with CDC, DEG, Ex-Im and IFC, the "Assignees"),
and hereby grants to the Assignees a first priority security interest in, all of
its rights to receive any and all but US$2,688,215 of amounts payable under or
in connection with OPIC Contract of Insurance No. A628 and any extensions or
renewals thereof or substitutions therefor (the "OPIC Contract"), entered into
by and between OPIC, as insurer, and the Assignor, together with all proceeds
thereof (collectively, the "Excess Proceeds"), as security for Assignor's
obligations, whether contingent or otherwise, (the "Liabilities") under (i) its
Guaranty dated as of the date hereof (as the same may be amended, modified,
supplemented or restated from time to time, the "Guaranty") made for the benefit
of the Assignees, and (ii) to the extent Assignor may have any obligations
thereunder, the First Amendment and Restatement of Project Funds Agreement dated
as of November 17, 1992, (the "PFA") among, INTER ALIA, the Assignor and the
Assignees.
(1) Without limiting the generality of the foregoing or any other rights
available to the Assignees, or any of them, the Assignees shall have, by virtue
of this Pledge, Assignment and Security Agreement (this "Agreement"), the
following rights: (a) the right to receive all Excess Proceeds, if any, which
Excess Proceeds shall be paid to the Assignees without notice, demand or any
other action by or on behalf of the Assignees, in accordance with the
percentages and the payment instructions set forth in Exhibit A hereto, (b) so
long as no default shall have occurred and be continuing under any of the
Guaranty, the Forbearance Letter (hereinafter defined), the PFA, or any other
instrument evidencing the Liabilities (hereafter, a "Default"), the right to
hold, or to have their agent(s) hold, all Excess Proceeds, if any, as security
for the Liabilities, and (c) if at any time a Default shall occur and be
continuing, the right to apply all Excess Proceeds, if any, to payment of the
Liabilities in such manner as the Assignees, or any of them, shall determine.
(2) Notwithstanding the foregoing or any other provision of this
Agreement, the Assignees shall have no obligation or right to perform or
discharge any duty or obligation of the Assignor under the OPIC Contract by
reason of this Agreement or otherwise.
(3) As among the Assignees, the Excess Proceeds shall constitute
"Distribution Moneys" as such term is defined in the Security Sharing and
Intercreditor
<PAGE>
Agreement dated as of November 17, 1993, among the Assignees and Sierra Rutile
Limited. a corporation organized and existing under the laws of Sierra Leone.
(4) The Assignor and each of the Assignees hereby covenants and agrees
that, upon receipt by Assignor of notice from OPIC, as insurer, of a favorable
determination with respect to any claim submitted under the OPIC Contract, and
so long as no Default shall have occurred and be continuing, the parties hereto
shall use best efforts to enter into one or more agreements, in form and
substance reasonably acceptable to the Assignor and the Assignees, appointing
one or more collateral agent(s) reasonably acceptable to the Assignor and the
Assignees to hold the Excess Proceeds on behalf of the Assignees as security for
the Liabilities, and to invest the Excess Proceeds in United States government
obligations or such other instruments as the Assignor and the Assignees shall
reasonably agree. All interest earned on such invested Excess Proceeds shall
constitute additional Excess Proceeds for purposes of this Agreement.
Notwithstanding any of the foregoing provisions of this paragraph 4, if a
Default shall have occurred and be continuing at any time before such agreement
shall have been executed and delivered by such collateral agent(s) and the
parties hereto, all Excess Proceeds shall, without notice, demand or any other
action by or on behalf of the Assignees, be paid to the Assignees in accordance
with paragraph (1)(a) hereof, and may be applied by the Assignees to payment of
the Liabilities in accordance with paragraph (1)(c) hereof.
(5) Assignor represents and warrants that this Agreement has been duly and
validly authorized by Assignor, is binding and enforceable against Assignor in
accordance with its terms, and does not violate any provision of any law, rule,
regulation, order, judgment or decree applicable to Assignor. Assignor further
represents and warrants, and covenants and agrees, that (i) Assignor is now, and
after execution and delivery of this Agreement will continue to be, solvent and
no bankruptcy or insolvency proceedings are pending or contemplated by or
against Assignor, (ii) Assignor is the legal and beneficial owner of the Excess
Proceeds, if any, (iii) no consent of any other party is necessary to accomplish
the pledge, assignment and grant of security interest contemplated hereby, (iv)
no other pledge, assignment or grant of security interest with respect to the
Excess Proceeds or any other rights under the OPIC Contract have been made or,
until indefeasible payment in full of the Liabilities, will be made, (v) the
OPIC Contract expired on December 31, 1995, and Assignor made a claim for
compensation under the OPIC Contract prior to its expiration based on an event
occurring during the OPIC Contract coverage period, and (vi) the OPIC Contract
was unmodified and in full force and effect as of the date such event occurred,
and the copy attached hereto as EXHIBIT A is a true, correct and complete copy
of the OPIC Contract as in effect on such date.
(6) Assignor covenants and agrees that: (a) it shall notify the Assignees
of each claim submitted under the OPIC Contract and of any determination by
OPIC, as insurer, with respect thereto; and (b) if, notwithstanding the
provisions of this Agreement it receives any Excess Proceeds and any Liabilities
remain outstanding, it shall hold such
-2-
<PAGE>
Excess Proceeds (together with any interest thereon) in trust for the benefit of
the Assignees and forthwith pay over such Excess Proceeds to or to the order of
the Assignees immediately upon its receipt thereof.
(7) Assignor shall, at any time and from time to time, at its own expense,
promptly execute and deliver all further instruments and documents, and take all
further action that may be necessary or desirable, or that the Assignees may
reasonably request, in order to protect and perfect the pledge, assignment and
security interest granted or purported to be granted hereby or to enable the
Assignees to exercise and enforce their rights and remedies hereunder with
respect to the Excess Proceeds, including but not limited to the filing of
financing statements in appropriate jurisdictions, and the delivery of notice to
OPIC, as insurer, substantially in the form attached hereto as Exhibit A.
Assignor authorizes the Assignees (or any collateral agent or agents acting on
behalf of the Assignees) to file one or more financing or continuation
statements, and amendments thereto, relative to all or any part of the Excess
Proceeds without the signature of the Assignor where permitted by law. A
photocopy or other reproduction of this Agreement or any financing statement
covering the Excess Proceeds or any part thereof shall be sufficient as a
financing statement where permitted by law.
(8) This Agreement shall be binding upon and inure to the benefit of the
parties to this Agreement and their respective successors and, with respect to
the Assignees, their respective assigns.
(9) The rights and remedies provided herein, in the Guaranty, in the
Financing Documents, and in each other agreement or instrument entered into in
connection herewith or therewith, are cumulative and are in addition to and not
exclusive of any rights or remedies provided by law including without
limitation, the rights and remedies of a secured lender under the Uniform
Commercial Code as in effect from time to time in the District of Columbia.
(10) This Agreement embodies the entire understanding of the parties
hereto, and supersedes all prior negotiations, understandings and agreements
between them, with respect to the subject matter hereof. This Agreement may not
be modified in any manner, except by written agreement signed by all parties
hereto. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any such counterpart.
(11) This Agreement shall be governed by the laws of the District of
Columbia without regard to the conflict of laws principles thereof.
(12) Time is of the essence with respect to each provision of this
Agreement.
(13) Upon indefeasible satisfaction in full of all Liabilities of Assignor,
this Agreement shall terminate and, to the extent any Excess Proceeds are being
held by the
-3-
<PAGE>
Assignees or by a collateral agent for the benefit of the Assignees as security
for the Liabilities, the Assignees shall deliver, or direct to be delivered, to
Assignor, at Assignor's expense, such the Excess Proceeds.
(14) All capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Forbearance Letter dated as of December
15, 1995, from Assignor, Sierra Rutile Limited, and Consolidated Rutile Limited
addressed to and accepted by the Assignees.
(15) Assignor and each Assignee understand and agree that, notwithstanding
OPIC's acceptance and execution of this Agreement as lender, nothing contained
herein shall in any way indicate or imply that a valid claim now or hereafter
exists under the OPIC Contract, or that any amount will at any time be payable
thereunder, and OPIC, in its capacity as insurer, shall not be deemed to have
waived, nor shall it be estopped from asserting, any defenses to any claim made
at any time (including without limitation, any pending claim) under the OPIC
Contract.
WITNESS the due execution hereof as of the 28th day of February, 1996.
NORD RESOURCES CORPORATION
By: /s/Terrence H. Lang
-------------------------
Name: Terrence H. Lang
Title: Senior Vice President - Finance
ACCEPTED AND AGREED TO BY:
COMMONWEALTH DEVELOPMENT CORPORATION
By:
------------------------------
Authorized Representative
Name:
Title:
-4-
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in (i) Registration Statement
No. 33-34196 of Nord Resources Corporation on Form S-8, (ii) Post-Effective
Amendment No. 1 to Registration Statement No. 33-25569 of Nord Resources
Corporation on Form S-8/S-3, and (iii) Registration Statement No. 33-54600 of
Nord Resources Corporation on Form S-8 of our report on the consolidated
financial statements of Nord Resources Corporation and Subsidiaries dated
March 25, 1996 (which disclaims an opinion on the Company's consolidated
financial statements for 1995 and 1994 because of an uncertainty relating to
the ability of the Company to continue as a going concern and the inability
of other auditors to express an opinion on the financial statements of the
Rutile Segment, and includes an explanatory paragraph as to the Company
changing its method of accounting for its investment in the Rutile Segment
to the cost basis of accounting at December 31, 1994) appearing in the Annual
Report on Form 10-K of Nord Resources Corporation for the year ended
December 31, 1995.
Deloitte & Touche, LLP
Dayton, Ohio
March 25, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in (i) Registration Statement
No. 33-34196 of Nord Resources Corporation on Form S-8, (ii) Post-Effective
Amendment No. 1 to Registration Statement No. 33-25569 of Nord Resources
Corporation on Form S-8/S-3, and (iii) Registration Statement No. 33-54600 of
Nord Resources Corporation on Form S-8 of our reports on the financial
statements of Sierra Rutile Limited and Sierra Rutile Holdings Limited (each
of which disclaims an opinion because of a scope limitation and uncertainties
relating to the ability of the Company to continue as a going concern), and
Titanium Minerals Marketing International USA and Titanium Minerals Marketing
International Limited (each of which disclaims an opinion because of the
significant uncertainties relating to the recoverability of amounts due from
certain affiliates), and Sierra Rutile America Inc. (which contains a
qualified opinion because of uncertainties relating to the recoverability of
amounts due from certain affiliates), and Sierra Rutile Services Limited each
dated February 26, 1996 appearing in the Annual Report on Form 10-K of Nord
Resources Corporation for the year ended December 31, 1995.
KPMG
CHARTERED ACCOUNTANTS
REGISTERED AUDITORS
Reading, England
March 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Nord
Resources Corporation Form 10-K for the year ended December 31, 1995 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6054
<SECURITIES> 0
<RECEIVABLES> 5550
<ALLOWANCES> 0
<INVENTORY> 2996
<CURRENT-ASSETS> 17490
<PP&E> 64282
<DEPRECIATION> 29908
<TOTAL-ASSETS> 135910
<CURRENT-LIABILITIES> 35541
<BONDS> 1520
0
0
<COMMON> 158
<OTHER-SE> 88,805
<TOTAL-LIABILITY-AND-EQUITY> 135,910
<SALES> 36,755
<TOTAL-REVENUES> 37,405
<CGS> 37,429
<TOTAL-COSTS> 47,715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (145)
<INTEREST-EXPENSE> 647
<INCOME-PRETAX> (8259)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8259)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8259)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sierra Rutile Limited:
We were engaged to audit the balance sheets of Sierra Rutile Limited as of
December 31, 1995 and 1994, and the related profit and loss accounts and cash
flow statements for the years then ended. These financial statements are the
responsibility of the Company's management.
As described in note 1 to the financial statements, production at the Company's
mine was suspended following militant attacks on the mine and Company personnel
in January 1995 and, due to subsequent occupation of the facilities by rebel
forces, it become necessary to evacuate all employees. These circumstances
adversely affected the conduct of our planned audit procedures since they
depended on continued access to and examination of various on-site
properties and conditions. Further, circumstances create substantial
doubt about the recoverability of asset carrying amounts, including
prepaid royalties and deferred tax assets as to which additional evidential
matter could not be obtained during our audits; the adequacy of recorded
liabilities, including accrued reclamation costs as to which additional
evidential matter could not be obtained; and the availability of
funding to continue as a going concern even if access to the mine is regained.
The recoverability matters grow more serious with the passage of time in light
of the Company's discontinuation of depreciation and amortisation and of the
recognition of additional deferred tax benefits since the suspension of
production.
Since we were unable to complete substantial auditing procedures and because of
the uncertain impact on financial statement carrying amounts of the current
circumstances, we are unable to express, and we do not express, an opinion on
these financial statements.
/s/KPMG
- ---------------------
KPMG 26 February 1996
CHARTERED ACCOUNTANTS Reading, UK
REGISTERED AUDITORS
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Sierra Rutile America Inc.:
We have audited the accompanying balance sheets of Sierra Rutile America Inc. as
of December 31, 1995 and 1994, and the related profit and loss accounts for the
years then ended. 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.
Except as discussed in the following paragraph, we conducted our audits in
accordance with generally accepted auditing standards in the United States.
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.
Financial statements for two affiliated entities are accompanied by disclaimers
of audit opinions related to suspension of mining operations of Sierra Rutile
Limited and the occupation of the facilities by rebel forces. These
circumstances in turn create the possibility that amounts due from certain
affiliates in the accounts of the Company may not be fully recoverable and we
are unable to satisfy ourselves as to that matter.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to examine evidence of
recoverability of amounts due from certain affiliates, the financial statements
referred to in the first paragraph above present fairly, in all material
respects, the financial position of Sierra Rutile America Inc. as of December
31, 1995 and 1994, and the results of its operations for the years then ended in
conformity with generally accepted accounting principles in the United Kingdom.
/s/KPMG
- ---------------------
KPMG
CHARTERED ACCOUNTANTS 26 February 1996
REGISTERED AUDITORS Reading, UK
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sierra Rutile Services Limited:
We have audited the accompanying balance sheets of Sierra Rutile Services
Limited as of December 31, 1995 and 1994, and the related profit and loss
accounts for the years then ended. 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
in the United States. 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 Sierra Rutile Services Limited
as of December 31, 1995 and 1994, and the results of its operations for the
years then ended in conformity with generally accepted accounting principles in
the United Kingdom.
/s/KPMG
- ---------------------
KPMG
CHARTERED ACCOUNTANTS 26 February 1996
REGISTERED AUDITORS Reading, UK
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sierra Rutile Holdings Limited:
We were engaged to audit the balance sheets of Sierra Rutile Holdings Limited as
of December 31, 1995 and 1994, and the related profit and loss accounts for the
years then ended. These financial statements are the responsibility of the
Company's management.
As described in note 1 to the financial statements of Sierra Rutile Limited, the
principal wholly-owned subsidiary of the Company, production at the subsidiary's
mine was suspended following militant attacks on the mine and subsidiary
personnel in January 1995 and, due to subsequent occupation of the facilities by
rebel forces, it became necessary to evacuate all employees. These
circumstances adversely affected the conduct of our planned audit procedures at
the subsidiary since they depended on continued access to and examination of
various on-site properties and conditions. Further, the circumstances create
substantial doubt about the recoverability of asset carrying amounts, including
prepaid royalties and deferred tax assets as to which additional evidential
matter could not be obtained during our audits; the adequacy of recorded
liabilities, including accrued reclamation costs as to which additional
evidential matter could not be obtained; and the availability of funding for the
subsidiary to continue as a going concern even if access to the mine is
regained. The recoverability matters grow more serious with the passage of time
in light of the Company's discontinuation of depreciation and amortisation and
of the recognition of additional deferred tax benefits since the suspension of
production.
Since we were unable to complete substantial auditing procedures at the
subsidiary and because of the uncertain impact on financial statement carrying
amounts of both the subsidiary and the Company of the current circumstances, we
are unable to express, and we do not express, an opinion on these financial
statements.
/s/KPMG
- --------------------
KPMG 26 February 1996
CHARTERED ACCOUNTANTS Reading, UK
REGISTERED AUDITORS
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Titanium Minerals Marketing International Limited:
We have audited the accompanying balance sheets of Titanium Minerals Marketing
International Limited as of December 31, 1995 and 1994, and the related profit
and loss accounts for the years then ended. 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.
Except as discussed in the following paragraph, we conducted our audits in
accordance with generally accepted auditing standards in the United States.
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.
Financial statements for two affiliated entities are accompanied by disclaimers
of audit opinions related to suspension of mining operations of Sierra Rutile
Limited and the occupation of the facilities by rebel forces. These
circumstances in turn create the possibility that amounts due from certain
affiliates in the accounts of the Company may not be fully recoverable and we
are unable to satisfy ourselves as to that matter.
Because of the significance of the uncertainty discussed in the preceding
paragraph, we are unable to express, and we do not express, an opinion on these
financial statements.
/s/KPMG
- ---------------------
KPMG 26 February 1996
CHARTERED ACCOUNTANTS Reading, UK
REGISTERED AUDITORS
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Titanium Minerals Marketing International USA
We have audited the accompanying balance sheets of Titanium Minerals Marketing
International USA as of December 31, 1995 and 1994, and the related profit and
loss accounts for the years then ended. 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.
Except as discussed in the following paragraph, we conducted our audits in
accordance with generally accepted auditing standards in the United States.
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.
Financial statements for two affiliated entities are accompanied by disclaimers
of audit opinions related to suspension of mining operations of Sierra Rutile
Limited and the occupation of the facilities by rebel forces. These
circumstances in turn create the possibility that amounts due from certain
affiliates in the accounts of the Company may not be fully recoverable and we
are unable to satisfy ourselves as to that matter.
Because of the significance of the uncertainty discussed in the preceding
paragraph, we are unable to express, and we do not express, an opinion on these
financial statements.
/s/KPMG
- ---------------------
KPMG 26 February 1996
CHARTERED ACCOUNTANTS Reading, UK
REGISTERED AUDITORS
