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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 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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.)
201 3rd St NW, Suite 1750, Albuquerque, NM 87102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (505) 766-9955
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
----------------
(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
---- ----
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 19, 1998, was $31,438,942.
The number of shares of Common Stock outstanding as of March 27, 1998
was 21,905,488.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement to be dated on or about April 28, 1998 (Part III).
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PART I
ITEM 1. BUSINESS
GENERAL
Nord Resources Corporation (the "Company") owns a 50% interest in
Sierra Rutile Limited ("SRL"), a company which was engaged in the mining and
processing of titanium dioxide (rutile and ilmenite - both industrial minerals)
in Sierra Leone, West Africa, and a 28.6% interest in Nord Pacific Limited
("Pacific"), a company 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. As used herein the term "Company", unless
the context indicates otherwise, includes all subsidiaries and investees.
On April 23, 1997, the Company sold for cash substantially all of
the assets (except for cash and accounts receivable) of its 80%-owned kaolin
and Norplex-Registered Trademark- operations (Nord Kaolin Company - "NKC").
The purchaser has assumed certain reclamation and lease obligations of NKC,
while the Company settled NKC's remaining liabilities. The financial
statements of the Company reflect the accounts of NKC as discontinued
operations.
In January 1995, the government of Sierra Leone was attacked by
non-government forces. Due to concern for the safety of SRL's employees, the
minesite was evacuated and mining operations were suspended, as security could
not be assured for personnel in and around the minesite. In 1996 a civilian
president was elected and in November 1996 a peace accord between the government
and the opposing faction was signed. However, on May 25, 1997 the democratically
elected government was overthrown by a military coup. On October 23, 1997 an
accord was reached between the Economic Community of West Africa States
("ECOWAS"), a coalition of 16 West African countries and the Armed Forces
Revolutionary Council ("AFRC") of Sierra Leone. The accord provided, among other
things, for the reinstatement of the democratically elected government of
President Tejan Kabbah; immediate cessation of hostilities; disarmament,
demobilization, and reintegration of combatants; provision of humanitarian
assistance; the return of refugees and displaced persons; and the broadening of
the power base in Sierra Leone. Although this accord was signed, sporadic,
isolated acts of aggression continued to occur. After several abortive attempts
for a peaceful resolution, in February 1998, ECOWAS, provided a military force,
known as ECOMOG, to forcibly remove the AFRC from power and president Kabbah and
his government were reinstated in Sierra Leone on March 10,1998. Because of the
civil unrest in Sierra Leone, since the second quarter of 1996, SRL has
maintained only a small group of employees at the minesite to secure assets,
perform limited maintenance and rehabilitation procedures and assess damage to
assets. These employees have been supported by a private security force and no
incidents have occurred in the areas in which the employees have been present.
Resumption of the Sierra Leone operations is dependent upon a number
of conditions including, (1) Sierra Leone having an acceptable political
environment within which to operate, (2) SRL having adequate levels of security
in and around the minesite area, (3) SRL completing an accurate assessment of
the cost of resuming operations, (4) SRL successfully renegotiating its
operating agreements with the government of Sierra Leone and (5) SRL obtaining
adequate levels
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of financing at acceptable terms. SRL employees at the minesite have reported
that looting and damage to certain assets has occurred, primarily at the mine
warehouse, in foodstores, furniture and fixtures, small vehicles, housing and
office buildings. The reports indicate that SRL's major assets remain
substantially intact, but significant restoration efforts will be required to
repair much of the equipment which has been idle and virtually unattended for
over three years. SRL employees are compiling a detailed estimate of the cost
to resume operations including 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. During 1995 the Company recorded an
impairment of $3 million for its 50% share of the identified loss resulting
from damage to assets. If the above noted conditions for resuming operations
in Sierra Leone are not satisfied, 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 $34.6 million at December 31, 1997.
The Company carried insurance against certain political risks, as is further
discussed under the heading "Political and Other Risks" of this Form 10-K.
In 1997, the Company committed $500,000 (but spent well in excess of
this amount) as its share of funding for the cost of performing certain
rehabilitation procedures, which are critical to the mine reopening plan at SRL.
These include development of a master plan for the rehabilitation of the mine
and repair of the powerhouse and of a dam located in the Lanti mining deposit.
At the time of discontinuance of operations, SRL was in the process of a major
expansion of the facility including construction of a second dredge and new
powerhouse. Preliminary estimates indicate approximately $90 million may be
required through 1999 for asset rehabilitation, completion of the new powerhouse
and dredge, mine development and working capital. SRL's, the Company's and the
50% joint venture partner's efforts have been focused on obtaining a portion of
these funds from lending sources, with each partner likely being required to
fund any shortfall from its financial resources. Because of the civil unrest in
1997, much of this work remains to be done.
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, 1997 was $38 million,
payment of 50% of which is guaranteed by the Company. On March 31, 1998, (i)
SRL made an additional principal payment of approximately $3,750,000, which
reduced the total amount due from SRL to approximately $34,250,000, (ii) SRL
prepaid interest on such balance through May 15, 1998, (iii) and the lenders
have agreed to forbear from requesting payment of amounts due under these
agreements until May 16, 1998. Fifty percent of the funds for the principal
adn interest payments were provided as loans to SRL from the Company. SRL has
initiated discussions with these lenders with a goal to reschedule payment of
amounts outstanding under these loans and to identify the availability of
additional funds from the current lenders and other lending sources which
would be required to fund the rehabilitation program for SRL's operations and
to complete the expansion program. 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 May 15, 1998 nor their or
other lenders' willingness to provide funds for efforts to resume operations.
Financial information with respect to the Company's foreign rutile
segment is presented in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note P - Major Customers and Note C -
SRL of "Notes to Consolidated Financial Statements" of this Form 10-K.
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RUTILE
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.
A discussion of the status of the SRL operations is contained in the
GENERAL section of this Item 1.
PRODUCTION FACILITIES
Amounts below represent 100% of the SRL operations.
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 were
produced. Additional production capacity is available through use of a smaller,
bucket-wheel dredge, with an average 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
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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, five megawatt diesel generators,
which have been delivered to the minesite in Sierra Leone, was initially
expected to be operational in mid-1995. The power generated by this facility
was anticipated to be available to the third dredge, as described above, and
to supplement the existing power generating equipment. Initial reports from
minesite inspections indicate that these assets remain substantially intact;
however, deterioration in their mechanical components has occurred and
numerous components have been stolen or vandalized. The Company is not able
to determine when these two facilities will be operational or the additional
cost required to repair any damage and 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. Significant looting and damage has occurred to
foodstores, furniture and fixtures, small vehicles, housing and office
buildings.
RESERVES
Amounts below represent 100% of the SRL operations.
Based on drill hole testing and geological analysis carried out by SRL
personnel, proven reserves as of December 31, 1994 were 278,244,000 tonnes of
ore, averaging 1.43% recoverable rutile in the size ranges from which
recovery is possible, which computes to 3,991,000 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, 1997 is believed to reasonably approximate
the estimates at December 31, 1994, which are disclosed below. Prior to the
suspension of operations, actual recovery had steadily improved and is now
estimated at 75% of recoverable rutile, or about 3,000,000 tonnes. SRL's
estimate of mineral reserves as of December 31, 1992 were reviewed and
verified by independent consulting geologists in March 1993. The data below
are derived therefrom. Reserves are located in four separate deposits in the
Gbangbama area and five separate deposits in the Sembehun area.
Tonnes of proved recoverable reserves and recoverable rutile grade
and tonnes for each of the Gbangbama deposits and the total for the Sembehun
deposits are as follows (tonnes in 000's):
<TABLE>
<CAPTION>
RECOVERABLE RUTILE
CRUDE ORE ------------------------
DEPOSIT TONNES GRADE TONNES
- ------- ------ ----- ------
<S> <C> <C> <C>
GBANGBAMA:
Lanti North 20,074 1.87% 376
Lanti South 51,582 1.69% 872
Gbeni 31,288 1.56% 488
Gangama 21,311 1.70% 362
Sembehun 153,989 1.23% 1,893
------- ----- -----
278,244 1.43% 3,991
------- ----- -----
------- ----- -----
</TABLE>
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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 26 miles from the present plant
location and the other four deposits. The mining operations in 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
Amounts below represent 100% of the SRL operations. Sales in
1997, 1996 and 1995 were from stockpiled material.
Following is a summary of sales for SRL:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tonnes Sold (in 000's):
Rutile 3 3 8
Ilmenite --- --- ---
Geographical Location of Customers
(% of Revenues):
Rutile:
U.S. --- --- ---
Non-U.S. 100% 100% 100%
Ilmenite - U.S. --- --- ---
</TABLE>
The potential customers for SRL's products consist primarily of
five major companies, four of which were customers of SRL in 1994 (the last
full year of operation). All of SRL's major customers as of the date of the
suspension of mining operations had been long time customers and had
long-term supply agreements with SRL, which were periodically subject to
renewal. The supply agreements generally provided for a fixed rutile tonnage
each customer was expected to purchase under various pricing structures.
Historically, each of the customers had purchased at least the minimum
amounts required under 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
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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. Certain contracts contain purchase commitments through
2002 but for less than SRL's expected production. Although contracts for the
sale of all of SRL's projected production have not been finalized as to price
and volume, SRL is optimistic that prior to commencement of operations it
will be able to negotiate acceptable contracts with the above noted four
customers for the sale of a significant amount of production.
The two principal minerals mined by titanium raw material producers
are natural rutile (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, typically 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 a 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.
SRL's current plan, subject to the successful resumption of
operations, is to increase annual natural rutile production to over 200,000
tonnes. The plan includes adding production from the new, partially built
dredge, under the present mine reopening plan. SRL forecasts that market demand
for rutile at that time should enable SRL to sell the production from the new
dredge. However, the market demand and pricing for natural rutile and the
competing slag and synthetic rutile has been susceptible to historical
fluctuations due to domestic and worldwide economic cycles, which may have an
impact on SRL's ability to sell the additional production at acceptable prices.
SRL is considering negotiating additional contracts with its major customers and
other new customers to sell this tonnage.
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 40
senior expatriates and Sierra Leone nationals. SRL has historically been one of
Sierra Leone's largest private employers. Current SRL projections indicate that
once operations resume in Sierra Leone, after completion of the rehabilitation
program, it expects to employ up to 25 expatriates and over 1,200 Sierra Leone
nationals.
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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.
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 ("NPRC"). In January 1996, Captain Strasser was deposed as Chairman of
the NPRC and was replaced by Brigadier General Julius Maada Bio, Chief of
Defense Staff. In early 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. Mr. Ahmad Tejan Kabbah, an attorney
who worked in East Africa and New York for the United Nations Development
Program, was elected president on March 15, 1996.
During most of 1995 and into mid-1996, 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. Discussions between
representatives of the Government of Sierra Leone and the opposing forces, which
began in early 1996, culminated in the signing of a November 1996 peace
agreement between the parties. Final implementation of the terms of the peace
accord were interrupted in May 1997 when Major Johnny Paul Koroma, who was being
held in prison on coup plotting and treason charges, was broken out of jail by
young sympathetic army officers who then overthrew the Kabbah government in a
coup d' etat. Kabbah's government moved into exile in neighboring Guinea and a
new military government was formed as the Armed Forces Revolutionary Council
("AFRC"). Major Koroma was placed as Chairman of this council. The AFRC
immediately consolidated its position in Sierra Leone by joining forces with the
Revolutionary United Front ("RUF") who have been the cause of the civil unrest
in Sierra Leone.
In response to the overthrow of the democratically elected government
of President Kabbah, the international community universally condemned the
ruling junta and called for the immediate return of democracy in Sierra Leone.
After several abortive attempts for a peaceful resolution in late 1997 and early
1998, the ECOWAS provided a military force, known as ECOMOG, to forcibly remove
the junta from power in February 1998. President Kabbah and his government were
reinstated in Sierra Leone on March 10, 1998 amid unanimous support from the
Sierra Leonean civilian population and the international community. ECOWAS has
pledged to continue to support the democratic government of President Kabbah and
maintain security in the country until the Government can adequately maintain
its own security. Additionally, the United Nations has pledged to provide
military monitors and establish a mission in Sierra Leone to coordinate and
facilitate humanitarian activities in the country. The International Monetary
Fund ("IMF") had a Structural Adjustment Program in place at the time of the May
1997 coup. The Government has pledged to continue working with the IMF to
strengthen its economy. The country is currently receiving considerable pledges
of support from several multi-lateral and bilateral international agencies
including the World Bank, the European Union, the Commonwealth and others.
Under the current Agreement between SRL and the Government of Sierra
Leone, the
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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. Prior to the May coup, SRL had entered into
negotiations with the Government to eliminate the purchase option and change
certain aspects of the fiscal regime. It would be the Company's intention to
allow SRL to complete those negotiations once conditions permit.
Planning is currently underway for developing a strategy for
recommencing operations once the political environment has stabilized. The civil
unrest that occurred during 1997 and into early 1998 has not affected SRL's
maintenance operations in Sierra Leone, which have been protected by a private
security force. SRL anticipates having this private security in place as a
condition to the reopening of the mine. Due to the need for a settling down
period to allow for the political situation to become clearer, security issues
to be addressed, a financial restructuring to be negotiated and the Government
agreement to be renegotiated, it is unlikely that the recommencement of mining
operations at SRL will occur before late 1999.
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 US government
in an amount up to $15.7 million for its 50% share of loss to SRL's property
due to political violence. The policy expired at the end of 1995. Based on
the damage assessments performed in 1995, the Company filed a claim under
this policy for its 50% share of damage to mine assets resulting from events
that began in January 1995. The Company has filed further claims as
information has become available. In September 1996, the insurer made a
provisional payment of $1.5 million to the Company, as it recognized that the
Company's share of damage to SRL's assets is likely to exceed that amount.
Discussions with the insurer in early 1998 lead the Company to believe that
the Company's total claim in the amount of $15.7 million, subject to the
presentation of certain additional documentation that is being compiled
currently will be paid. The Company is optimistic that this payment will be
received in the second quarter of 1998 but there can be no assurance that the
entire amount of such claim will be collected. The $1.5 million provisional
payment is reflected in the Company's financial statements in current
liabilities as unearned revenue. The Company will recognize any insurance
recoveries as reductions to fixed asset impairments when receipt is assured
beyond a reasonable doubt.
NON-SEGMENT BUSINESSES
The Company owns 28.6% of Nord Pacific Limited ("Pacific") (NASDAQ
NNM; NORPF - Toronto Stock Exchange; NPF), a company engaged in the production
of copper and the exploration for gold, copper, nickel, cobalt and other
minerals in Australia, Papua New Guinea, Mexico, and North America. Pacific owns
a 40% interest in the Girilambone Copper mine which has been in production since
May 1993, a 50% interest in the Girilambone North Copper mine which
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has been in production since July 1996, a 50% interest in the Tritton Copper
Project, a 100% interest in the Tabar Islands Gold Project, which is in
pre-development and exploration stage, a 35% interest in the Ramu
Nickel-Cobalt Project, which is in the pre-development stage and various
interests in other exploration properties. At present annual production
rates, it can sustain production from its present reserves through the year
2000.
Pacific owns a 50% interest in a program to explore for additional
copper near its present mining operation. This program has been successful in
locating a massive medium-to-high grade pyrite-chalcopyrite sulfide ore deposit
about 14 miles southwest of the present copper operations. A new treatment plant
would be required to process the ore if the deposit is developed. This copper
resource has been calculated at 10.23 million tonnes at a grade of 3.0% copper,
containing 307,000 tonnes of copper metal, at depths of from 200 meters to 1000
meters below surface. The mineralization is still open at depth. The identified
resource also contains 75,000 ounces of gold and 3.9 million ounces of silver. A
detailed feasibility study on this project commenced in late 1997 and is
scheduled for completion in mid 1998.
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 identifying promising
drilling results in other areas of the project. A feasibility study on the
development of the oxide resources was completed in 1996. However, the economics
of the project are marginal based on the currently identified minable gold
reserves of approximately 220,000 ounces and depressed gold prices. Accordingly,
mine development was deferred and exploration efforts to prove additional
reserves continued in 1997. Revised resource estimates will be completed in
mid-1998. In December 1996 the Company was granted a mining lease over these
deposits. Due to continued price declines throughout the fourth quarter, Pacific
recorded an impairment of this property resulting in a $13,381,000 charge
against Pacific's earnings.
In addition, Pacific owns 35% of a nickel-cobalt-chromium property
also located in Papua New Guinea ("Ramu Project"). Highlands Pacific Limited
("HPL"), holds a 65% interest and is the manager of the project. HPL, as
operator, pursued a program of reserve drilling, metallurgical testwork,
engineering studies and preparation of a pre-feasibility study (the "Study")
which was completed in mid-1996. The Study indicates that the Ramu Project could
become one of the lowest cost nickel producing properties in the world. Unit
total operating costs when full production levels are reached are estimated to
be approximately $1.39 per pound of nickel produced. After cobalt credits, based
on a cobalt price of $8.00 per pound, these operating costs could be reduced to
$0.67 per pound of nickel. Capital costs for development are estimated to be
$763.7 million.
The Study assumes a mine life of 20 years, although it is expected
that this will be significantly extended upon completion of additional resource
drilling. The study projects annual production of 32,670 tonnes (72 million
pounds) of nickel and 2,770 tonnes (6.1 million pounds) of cobalt, generating an
annual, average, after tax cash flow of $150 million (at a nickel price of
$3.50/lb and cobalt price of $8.00/lb) over its assumed 20-year life. Estimated
nickel production costs, before cobalt credits, of $1.39/lb, and $0.67/lb after
cobalt credits (assuming cobalt at $8.00/lb), position Pacific's proposed
operation in the lower cost quartile of the worldwide cost curve for nickel.
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Work on a detailed feasibility study commenced in July 1997 and it is
estimated that this program will take approximately 18 months to complete.
Development of the project will be dependent on the results of this feasibility
study and on the availability of financing.
Pacific also has interests in other properties, which will require
additional exploration in order to determine the existence of commercial mineral
deposits.
The Company has a 42.5% interest in a venture, which owned an
undeveloped parcel of over 200 acres of real property located in Manatee
County, Florida. In 1997, the venture sold this property for $2,769,500. 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 7% purchase money first mortgage
in the amount of $2,269,500. The venture received $500,000 at closing of this
transaction.
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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 segment in which such properties are used. The SRL
facilities in Sierra Leone sustained as yet undetermined damage as a result of
civil disturbances.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the fourth quarter of 1997.
12
<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>
1997 1996
------------------------ --------------------
HIGH LOW HIGH LOW
---------- ------------ --------- --------
<S> <C> <C> <C> <C>
FIRST QUARTER 4 5/8 3 1/2 2 3/4 2
SECOND QUARTER 3 7/8 2 1/2 6 1/8 2 1/8
THIRD QUARTER 3 1/4 1 15/16 5 3/4 3 1/2
FOURTH QUARTER 2 5/16 1 1/4 6 4
</TABLE>
(B) The approximate number of equity security holders at December 31, 1997
of the Company's Common Stock was 2,662.
(C) The Company has never paid cash dividends on its Common Stock and does
not expect to do so in the immediate future.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECMEBER 31
1997 1996 1995 1994 1993
------------- ------------- -------------- -------------- ----------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues $ 46 $ 35 $ 86 $ 30,590 $ 57,570
Operating Costs and Expenses (3,418) (3,477) (4,842) (32,137) (49,448)
Other Income (Expense):
Interest income 1,223 948 656 830 369
Interest expense (118) (117) (125) (1,044) (4,914)
Litigation recoveries (settlement) -- 150 3,225 950 (550)
Impairment of investments (50) (280) (3,175) -- (3,074)
Gain on sale of 50% of
rutile segment -- -- -- 1,527 --
Equity in net (loss) of SRL (8,289) (4,701) (10,027) -- --
Equity in net (loss) earnings
of affiliate (3,960) 356 526 1,613 (1,299)
Income tax (expense) benefit -- -- -- (14,645) 1,562
----------- ------------- ------------ ------- ---------
(Loss) earnings from
continuing operations (14,566) (7,086) (13,676) (12,316) 216
(Loss) earnings from discontinued operations:
Kaolin (271) (27,174) (4,610) (3,295) (8,578)
Perlite -- -- -- -- 106
---------- ------------- ------------ ------- ---------
(271) (27,174) (4,610) (3,295) (8,472)
(Loss) before extraordinary
item (14,837) (34,260) (18,286) (15,611) (8,256)
Extraordinary item - loss on early
extinguishment of debt -- -- -- -- (826)
---------- ----------- ------------ -------- ---------
Net (loss) $ (14,837) $ (34,260) $ (18,286) $(15,611) $ (9,082)
---------- ----------- ------------ -------- ---------
14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
(continued)
Basic earnings (loss) per common share
From continuing operations $ (.67) $ (.38) $ (.86) $ (.80) $ .02
From discontinued operations (.01) (1.43) (.29) (.22) (.56)
------ ------ ------ ------ -------
(Loss) before
extraordinary item (.68) (1.81) (1.15) (1.02) (.54)
Extraordinary item -- -- -- -- (.06)
------ ------ -------- ------ --------
Net (loss) $ (.68) $(1.81) $ (1.15) $(1.02) $ (.60)
------ ------ -------- ------ --------
------ ------ -------- ------ --------
BALANCE SHEET DATA
Working Capital $10,314 $25,951 $ 8,091 $ 13,228 $ 23,170
Total Assets 60,094 76,528 89,100 108,083 150,236
Long-Term Debt -- -- -- -- --
Stockholders' Equity 49,505 64,852 79,383 97,669 109,089
OTHER DATA
Cash (Used In) Provided By
Operating Activities $(4,025) $(6,090) $(1,614) $ 7,360 $ 2,081
Payments of Indebtedness -- -- 82 3,610 13,618
Capital Expenditures 45 -- -- 16,378 10,064
Additional Indebtedness -- 2,099 -- 5,650 5,000
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT
OF 1995. The statements contained in this report which are not historical
fact are "forward looking statements" that involve various important risks,
uncertainties, and other factors which could cause the Company's actual
results for 1998 and beyond to differ materially from those expressed in such
forward looking statements. These important factors include, without
limitation, the risks and factors set forth below in "Economic Outlook" as
well as other risks previously disclosed in the Company's securities filings.
LIQUIDITY AND CAPITAL RESOURCES
In April 1997, the Company sold the assets of Nord Kaolin Company.
Net proceeds from the sale, after payment of liabilities and collection of
receivables, totaled $10,528,000. Also, because of this sale, previously
restricted investments were made available for sale and proceeds from the sale
totaled $2,376,000. During the three year-period ended December 31, 1997, the
Company required funds for capital expenditures, debt payments and other
long-term asset additions totaling $45,000, $82,000 and $3,954,000,
respectively. The Company's operating activities used $11,729,000 of cash
(including $10,500,000 used in discontinued operations). The Company made
$15,470,000 in advances to SRL during the three year-period ended December 31,
1997 and received $17,749,000 million in 1996 from the private placement of
5,160,000 shares of its Common Stock.
During 1997, the Company converted $1,748,000 of its advances to Nord
Pacific Limited ("Pacific") to 349,549 shares of Pacific's common stock and was
also repaid $2,000,000 in advances. In 1995, the Company received a $167,000
dividend from Pacific.
As a result of the discontinuance of the kaolin operations, the
Company's business consists of a 50% ownership in SRL and a 28.6% ownership in
Pacific. The Company anticipates that its cash balances will be sufficient to
fund its administrative activities for the foreseeable future. However, the
Company expects to be required to fund SRL's cash needs as described below.
Due to the lengthy suspension of its operations, SRL has relied and
will continue to rely on funds from the Company and its other 50% owner to
sustain its operations. During 1997, 1996 and 1995, the Company provided SRL
with $15,470,000 as its 50% share of funding required by SRL for debt service,
maintenance of a limited workforce, payment to vendors, costs of security at the
mine and interest on loans outstanding. The Company has sufficient funds to
continue funding SRL, except for debt service, at these levels for the next
year; however, it is the Company's and SRL's intention to continue with plans
for resumption of SRL's operations. Among other key factors in that process is
the availability of adequate levels of funding. SRL's preliminary projections
indicate that it may require approximately $90 million through 1999 for asset
rehabilitation, completion of a new powerhouse and dredge, mine development and
working capital. SRL has held advanced discussions with its current lenders and
other lending sources to determine if funds would be available from these
sources to fund a portion or all of the above requirements. The Company cannot
determine if additional funding will be available at terms which would be
acceptable to SRL and the Company.
16
<PAGE>
To the extent funds are not available from these or other sources, the
Company would be required to contribute its 50% share of SRL's cash
requirements. However, the Company would not be able to provide significant
funding to SRL without obtaining capital from other sources.
As a result of the suspension of the SRL operations, SRL is not in
compliance with certain financial and operational covenants under its bank
financing agreements. At December 31, 1997, the Company's 50% share of SRL's
obligations to the lenders was $19,010,000, payment of which has been
guaranteed by the Company. On March 31, 1998, SRL made an additional
principal payment of approximately $3,750,000, which reduced the Company's
fifty percent share of SRL's Obligations to Lenders to approximately
$17,125,000 and the lenders have agreed to forebear until May 15, 1998 from
accelerating payment of the outstanding indebtedness to enable SRL to assess
its future operating alternatives. The forbearance would terminate if a
material change in conditions occurs, as determined by the lenders, and
requires SRL to expend at least $500,000 each quarter to pay for its
liabilities and purchases. In addition to discussing the availability of
additional financing from these lenders, SRL has discussed revision of the
terms of the present financing agreements, including deferral of a portion of
the payments. SRL and the Company are not able to determine the willingness
of the lenders to approve any modification of the present loan terms beyond
May 15, 1998, at which date payment of the entire amount of the loans
outstanding could be demanded by the lenders.
The Company has filed a claim for damage due to political violence
at SRL under a $15.7 million political risk insurance policy. The Company has
received a $1.5 million provisional payment from the insurer and is
optimistic that a further payment will be received in the second quarter of
1998, but there can be no assurance that the entire amount of such claim
will be collected. The Company is not able to estimate the total amount of
this payment. The Company is obligated to return any or all of this amount if
it does not comply with certain provisions with respect to its efforts to
repair damage at SRL or if the final amount of damage is less than that
amount. The Company has pledged any proceeds in excess of $4.6 million it may
receive under this policy as security under the bank financing agreements.
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. If the lenders require the Company to pay its
50% share of the amounts owed by SRL or if the Company is required to provide a
significant amount of funds to SRL for it to resume operations, the Company
would be required to pursue other financing options. All of the above factors
create uncertainty as to the ability of the Company to continue as a going
concern.
The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts should the
Company be required to liquidate certain of its assets. The Company's ability to
continue operating under its present structure is dependent upon having
sufficient cash to meet its potential obligations, SRL's compliance with the
terms and covenants of its financing agreements, obtaining additional financing
or refinancing as may be required and resumption of successful operations at
SRL. Management of the Company and SRL are continuing their efforts to
reestablish the rutile mining operation and to identify sources of funds so that
SRL can meet its obligations and resume its operations. However, management
cannot provide any assurance that these events will occur.
In December, 1997, in order to further reduce operating costs, the
Company closed its offices
17
<PAGE>
in Dayton, Ohio. The Company now shares offices, personnel and certain
general and administrative expenses with Nord Pacific Limited in Albuquerque,
New Mexico. It is anticipated that the move, and reduction of office staff
and expenses, will substantially reduce general and administrative expenses.
BASIS OF PRESENTATION
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 and through September 30, 1997 the Company
adopted the cost basis of accounting for its investment in SRL on the basis
that the mine was no longer under the control of SRL. Under the cost basis,
the Company's investment included original cost plus undistributed earnings
through December 31, 1994 plus SRL's obligations to lenders, payment of which
is guaranteed by the Company, plus funds advanced since January 1, 1995 to
fund SRL's operations less any related restricted cash and provision for
impairment of assets (see Notes C and G).
Subsequent to September 30, 1997, SRL regained control of the
mine. The Company subsequently changed its method of accounting for its
investment in SRL from cost basis to equity method. In accordance with
Accounting Principals Board Opinion No. 18, "The Equity Method of Accounting
For Investments In Common Stock," the Company's financial statements for 1996
and 1995 have been restated to reflect this change. Under the equity method,
the Company reports its share of SRL's net loss in the statements of
operations as equity in net (loss) of SRL. The result of this change was to
increase the Company's net loss by $4.7 million and $10.0 million for the
years ended December 31, 1996 and 1995, respectively.
The Company intends to resume proportional consolidation for its
50% share in each of the assets, liabilities and operations of SRL once SRL
re-establishes its mining operations.
RESULTS OF OPERATIONS
During 1997, the Company incurred a loss from continuing
operations of $14.6 million compared to a loss of $7.1 million incurred in
1996. Selling, general and administrative expenses decreased slightly in 1997
due primarily to reductions in staff and other administrative expenses. These
reductions were offset by severance costs incurred in the closing the Dayton
office. Interest income increased to $1,223,000 in 1997 as compared to
$948,000 in1996 due to additional funds available for investment. The
Company's equity in net loss of SRL was $8.3 million in 1997 compared to $4.7
million in 1996. Equity in net loss of other affiliates was $4.0 million in
1997 compared to income of $.4 million in 1996. The Company's 28.6% owned
affiliate suffered a loss due primarily to impairment of exploration projects
resulting from the continued decline in fourth quarter gold prices. No such
loss occurred in 1996.
During 1996, the Company incurred a loss from continuing operations
of $7.1 million compared to a loss of $13.7 million incurred in 1995. Selling,
general and administrative expenses declined in 1996 primarily due to lower
legal fees resulting from litigation being completed in 1995 and lower insurance
costs due to the termination of a political risk policy related to the Company's
investment in SRL. Results in 1995 included a $3.2 million litigation recovery
and a $3.2 million provision for impairment, while minor amounts related to
those situations were recorded in 1996. The Company's equity in net loss of
SRL was $4.7 million in 1996 compared to $10.0 million in 1995.
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 1997, 1996 or 1995, 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 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. As a result of the
suspension of mining operations at SRL, the Company determined that a valuation
allowance was required for SRL's deferred tax assets.
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 1998. The Company is not expected to be affected by changes in
interest rates as it is not directly liable for any indebtedness. Also, all of
the indebtedness of SRL, payment of 50% of which is guaranteed by the Company,
is at fixed rates
18
<PAGE>
of interest.
ECONOMIC OUTLOOK
In April 1997 the Company sold the operating assets of the kaolin
mining and Norplex-Registered Trademark- operation of its 80% owned
subsidiary Nord Kaolin Company to Dry Branch Kaolin Company for a purchase
price of $20,000,000, subject to certain adjustments. The Company's remaining
operating segment is SRL. In this regard the economic outlook will focus
primarily on SRL.
SRL's primary market is the paint industry. 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 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.
SRL was poised to take advantage of increased demand for high level
titanium feedstocks and had implemented a program to increase its overall
production of Ti0(2) feedstocks from its prior level of 150,000 tonnes to over
200,000 tonnes annually with a scheduled start-up of 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 was overrun by such forces. SRL suspended all
operations at the minesite on January 20, 1995.
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 damage. It
was also confirmed that foodstores, small vehicles, housing, furniture and
fixtures and office facilities have been damaged or severely looted. SRL is not
yet able to estimate completely the extent of this damage. In mid 1997, after
the election of Sierra Leone's democratic government, SRL began planning to
resume production. These plans included negotiation of new financing
arrangements. In May 1997, after the military coup in Sierra Leone, these plans
were deferred indefinitely.
The Company's financial results were negatively affected in 1997,
1996 and 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 1998 financial results.
The Company also has a 28.6% 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. 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
19
<PAGE>
demand for copper.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB, issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". This statement requires duel
presentation of earnings per share ("EPS"), whereby basic EPS excludes potential
dilution from stock options, warrants, and other securities or contracts to
issue common stock. Diluted EPS takes into account the potential issuance of
these shares in the calculation of EPS. Due to losses from continuing operations
for the years ended December 31, 1997, 1996 and 1995, the Company has concluded
that issuance of any additional shares would be antidilutive and therefore duel
presentation is not required.
YEAR 2000
The Company initiated the process of preparing its computer systems
and applications for the Year 2000 in January 1998. This process involves
modifying or replacing certain hardware and software maintained by the
Corporation as well as communicating with external service providers to ensure
that they are taking the appropriate action to remedy their Year 2000 issues.
Management expects to have substantially all of the system and application
changes completed by the end of 1998 and believes that its level of preparedness
is appropriate.
The Company estimates that the total cumulative cost of the
project will be approximately $50,000, which includes both internal and
external personnel costs related to modifying the systems as well as the cost
of purchasing or leasing certain hardware and software.
The costs of the project and the expected completion dates are based
on management's best estimates.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND 1996
AND EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997:
PAGE
----
<S> <C>
Independent Auditors' Report 23
Consolidated Balance Sheets 25
Consolidated Statements of Operations 27
Consolidated Statements of Stockholders' Equity 28
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30
</TABLE>
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Nord Resources Corporation
Albuquerque, New Mexico
We have audited the accompanying consolidated balance sheets of Nord
Resources Corporation and Subsidiaries ("Company") as of December 31, 1997
and 1996, and the related statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These consolidated 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") as of
December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997, the Company's investment in which is accounted for
by use of the equity method. The Company's investment in the Rutile Segment
constitutes 58% and 41% of consolidated total assets at December 31, 1997 and
1996, respectively, and 56%, 14% and 55% of the consolidated net losses for
the years ended December 31, 1997, 1996 and 1995, 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 December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997, and their reports stated that
they were unable to express an opinion on such financial statements 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 reports of
the other auditors have been furnished to us, and our report, insofar as it
relates to the amounts included for the Rutile Segment, is based solely on
the reports of such other auditors.
Except as discussed in the following paragraph, 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 reports of other auditors provide a
reasonable basis for our report.
As discussed in Note A, during 1997, the Company changed its method of
carrying the investment in SRL from the cost basis to the equity method. The
financial statements of prior years have been restated in accordance with
Accounting Principles Board Opinion No. 18. The Company's equity in net
losses of the Rutile Segment of $8,289,000, $4,701,000 and $10,027,000
included in the accompanying financial statements for 1997, 1996 and 1995,
respectively, and the investment in the Rutile Segment at December 31, 1997
and 1996 of $34,649,000 and $31,204,000, respectively, are based on the
separate financial statements of the Rutile Segment, which other auditors
were engaged to audit. Because of the other auditors disclaimed an opinion on
the Rutile Segment's financial statements as a result of limited audit
evidence available to them with respect to the assets and liabilities of the
mine in Sierra Leone, we are unable to satisfy ourselves as to the Company's
equity
22
<PAGE>
in net losses of the Rutile Segment for each of the three years in the period
ended December 31, 1997, and the Company's investment in the Rutile Segment
as of December 31, 1997 and 1996.
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 (the Company's sole remaining operating activity) have been
suspended since January 1995 because of civil unrest in the area near the
Rutile Segment's mine in Sierra Leone. As discussed in Note A, funds for
repairs to mine assets and to restart operations of the mine 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 various bank financing agreements that are guaranted
by the Company. Ultimately, the Company must attain profitable operations of
the Rutile Segment and have access to sufficient funds from the Rutile
Segment to sustain its operations. These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's
plans concerning these matters are also decribed in Notes A and C. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Because of the possible material effects of the uncertainty 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 described in the
second preceding paragraph, we are unable to express, and we do not express,
an opinion on the accompanying consolidated financial statements of the
Company.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
April 10, 1998
23
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS (Notes A and G) 1997 1996
- ---------------------- --------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 12,581 $ 15,583
Restricted investments - available for sale (Note H) -- 2,376
Accounts receivable 29 179
Prepaid expenses 166 163
Net assets of discontinued operations (Note J) -- 12,339
------------ ---------
TOTAL CURRENT ASSETS 12,776 30,640
INVESTMENT IN AND ADVANCES TO
AFFILIATES (Note D) 6,369 9,840
INVESTMENT IN AND ADVANCES TO SRL
(Note C) 34,649 31,204
PROPERTY, PLANT AND EQUIPMENT, at cost
less accumulated depreciation
(Note E) 150 27
OTHER ASSETS (Note F) 6,150 4,817
------------ ----------
$ 60,094 $ 76,528
------------ ----------
------------ ----------
</TABLE>
See notes to consolidated financial statements
24
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY (Note A) 1997 1996
- ----------------------------- ------------------ --------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 93 $ 77
Accrued expenses 869 539
Unearned revenue (Note C) 1,500 1,500
Capital lease obligations - discontinued operations
(Note J) -- 2,573
---------------- ----------
TOTAL CURRENT LIABILITIES 2,462 4,689
RETIREMENT BENEFITS (Note I) 8,047 6,987
COMMITMENTS AND CONTINGENT LIABILITIES
(Notes C, G, I, K and L)
STOCKHOLDERS' EQUITY (Notes G and M):
Common Stock, par value $.01 per share:
authorized, 50,000,000 shares, issued and
outstanding 21,905,488 - 1997 and
21,838,408 - 1996 219 218
Additional paid-in capital 78,100 77,950
Retained (deficit) earnings, restricted (Notes G and M) (28,291) (13,454)
Cumulative foreign currency translation
adjustment (Note D) 281 281
Minimum pension liability (Note I) (724) (143)
---------------- ----------
49,585 64,852
---------------- ----------
$ 60,094 $ 76,528
---------------- ----------
---------------- ----------
</TABLE>
See notes to consolidated financial statements
25
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES (Note A)
Sales $ -- $ -- $ --
Other 46 35 86
------------ ------------ ------------
Total Revenues 46 35 86
OPERATING COSTS AND EXPENSES
Selling, general, and administrative expenses (Note I) (3,418) (3,477) (4,842)
----------- ------------ -----------
(LOSS) FROM OPERATIONS (3,372) (3,442) (4,756)
OTHER INCOME (EXPENSE)
Interest income 1,223 948 656
Interest expense (118) (117) (125)
Litigation recoveries -- 150 3,225
Provision for impairment of investments (Notes C and D)
SRL -- -- (3,000)
Other (50) (280) (175)
Equity in net (loss) of SRL (Note C) (8,289) (4,701) (10,027)
Equity in net earnings (loss) of affiliates (Note D) (3,960) 356 526
------------ ------------ ----------
Total Other (Expense) Income (11,194) (3,644) (8,920)
------------ ------------ ----------
(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAX
EXPENSE (14,566) (7,086) (13,676)
INCOME TAXES (Note N) -- -- --
------------ ------------ ----------
(LOSS) FROM CONTINUING OPERATIONS (14,566) (7,086) (13,676)
(LOSS) FROM DISCONTINUED
OPERATIONS (Note J) (271) (27,174) (4,610)
------------- ------------ ----------
NET(LOSS) $ (14,837) $ (34,260) $ (18,286)
------------- ------------ ----------
------------- ------------ ----------
BASIC (LOSS) PER SHARE
From continuing operations $ (.67) $ (.38) $ (.86)
From discontinued operations (.01) (1.43) (.29)
------------- ------------ -----------
Net (loss) $ (.68) $ (1.81) $ (1.15)
------------- ------------ -----------
------------- ------------ -----------
Average shares outstanding 21,875 18,971 15,839
------------- ------------ -----------
------------- ------------ -----------
</TABLE>
See notes to consolidated financial statements
26
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31,1997, 1996 AND 1995
(IN THOUSANDS EXCEPT SHARES)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL RETAINED CURRENCY MINIMUM
OUTSTANDING PAID-IN EARNINGS TRANSLATION PENSION
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT LIABILITY
----------- ----------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995 15,838,408 $ 158 $ 58,137 $ 39,092 $ 282 $ --
Net (loss) -- -- -- (18,286) -- --
---------- ----------- --------- ---------- ----------- ---------
Balance - December 31,1995 15,838,408 158 58,137 20,806 282 --
Net (loss) -- -- -- (34,260) -- --
Option activity -- -- 25 -- -- --
Issuance of common stock (Note M) 5,160,000 52 17,697 -- -- --
Conversion of loan into common
stock (Note M) 840,000 8 2,091 -- -- --
Foreign currency translation
adjustment (1)
Minimum pension liability (Note I) -- -- -- -- -- (143)
---------- ----------- --------- ---------- ----------- ---------
Balance - December 31,1996 21,838,408 218 77,950 (13,454) 281 (143)
Net (loss) -- -- -- (14,837) -- --
Option activities 67,080 1 150 -- -- --
Minimum pension liability (Note I) -- -- -- -- -- (581)
----------- ----------- --------- ---------- ----------- ---------
Balance - December 31, 1997 21,905,488 $ 219 $ 78,100 $ (28,291) $ 281 $ (724)
----------- ----------- --------- ---------- ----------- ---------
----------- ----------- --------- ---------- ----------- ---------
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- --------
<S> <C> <C> <C>
CASH USED IN OPERATING ACTIVITIES (Note O): $ (4,025) $ (6,090) $ (1,614)
---------- ---------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Net cash from sale of fixed assets -- 219 65
Net cash proceeds from sale of 50% of SRL
(gross proceeds, $56.8 million) -- -- 2,000
Capital expenditures (45) -- --
Proceeds from sale of discontinued operations 10,528
Additions to other assets (1,333) (1,229) (1,392)
Proceeds from sale of short-term investments 2,376 -- --
Additional investment in SRL (11,734) (2,300) (1,436)
(Increase) decrease in investments in and
advances to affiliates 1,080 (1,147) 155
---------- ----------- ---------
Net cash (used in) investing activities 872 (4,457) (608)
---------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of convertible loan -- 2,099 --
Payments of indebtedness -- (82)
Restricted cash and investments -- 231 190
Issuance of common stock 151 17,774 --
---------- ----------- ---------
Net cash provided by financing activities 151 20,104 108
---------- ----------- ---------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (3,002) 9,557 (2,114)
CASH AND CASH EQUIVALENTS - Beginning of year 15,583 6,026 8,140
---------- ----------- ---------
CASH AND CASH EQUIVALENTS - End of year $ 12,581 $ 15,583 $ 6,026
---------- ----------- ---------
---------- ----------- ---------
CASH PAID FOR
Interest $ 118 $ 123 $ 85
NON-CASH TRANSACTIONS:
Conversion of advances to affiliate into common
stock (Note D) $ 1,748 -- --
Conversion of loan into common stock (Note M) -- 2,099 --
Minimum pension liability (Note I) (581) (143) --
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
A. BASIS OF PRESENTATION
The Company owns a 50% interest in Sierra Rutile Limited ("SRL"), a
producer of rutile. Rutile (titanium dioxide), is sold primarily to the paint
pigment industry in the United States, Europe and the Far East. 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 Company also owns a 28.6% interest in Nord Pacific Limited ("Pacific"), a
public mining and exploration company.
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 losses related to
discontinued operations and rates of return on investments, rates of discounting
and salary escalation and other actuarial assumptions used to evaluate
retirement 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. The amount of impairment will be adjusted if
necessary when additional information becomes available.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Nord
Resources Corporation and its majority-owned subsidiaries (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
rutile mining operation. Financial statement amounts relating to SRL represent
the Company's 50% investment in SRL carried on the equity method of accounting
as described in "Investment in SRL". 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.
29
<PAGE>
INVESTMENT IN AND ADVANCES TO SRL
In January 1995, SRL's mining operation, which had operated
successfully since 1978, was attacked by non-government forces. Due to concern
for the safety of its employees, SRL was forced to suspend mining operations and
subsequently terminated all nonessential personnel. The resumption of operations
is dependent upon many conditions including (1) Sierra Leone having an
acceptable political environment within which to operate, (2) SRL having
adequate levels of security in and around the minesite area, (3) SRL completing
an accurate assessment of the cost of resuming operations, (4) SRL successfully
renegotiating its operating agreements with the government of Sierra Leone and
(5) SRL obtaining adequate levels of financing at acceptable terms. 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 complete a detailed assessment
of the condition of SRL's assets, it is not possible to accurately estimate
these costs. 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. The Company is not yet able to determine when operations will resume at
the Sierra Leone mine. If the above noted conditions for resuming operations in
Sierra Leone are not satisfied, the Company may have to record an impairment
reserve against a significant portion or possibly all of its investment in SRL.
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 and through September 30, 1997, the Company adopted the
cost basis of accounting for its investment in SRL on the basis that the mine
was no longer under the control of SRL. Under the cost basis, Company's
investment included original cost plus undistributed earnings through
December 31, 1994 plus SRL's obligations to lenders, payment of which is
guaranteed by the Company, plus funds advanced since December 31, 1994 to
fund SRL's operations less any related restricted cash and less provisions
for impairment of assets (see Notes C and G).
Subsequent to September 30, 1997, SRL again regained control of the
mine. The Company subsequently changed its accounting for its investment in
SRL from the cost basis to the equity method. In accordance with Accounting
Principles Board Opinion No. 18 "The Equity Method of Accounting for
Investments in Common Stock", the Company's financial statements for 1996 and
1995 have been restated to reflect this change. Under the equity method, the
Company reports its share of SRL's net loss in the statements of operations
as equity in net (loss) of SRL. The result of this change was to increase net
loss by $4.7 million and $10.0 million for the years ended December 31, 1996
and 1995, respectively and basic loss per share from continuing operations
and basic loss per share by $.25 and $.63.
The Company intends to resume proportional consolidation for its 50%
share in each of the assets, liabilities and operations of SRL once SRL
reestablishes its mining operations.
In 1995, the Company recorded an impairment provision of $3 million
for its 50% share of the identified loss at SRL resulting from damage to
assets. When additional information regarding losses is obtained, the Company
will adjust the impairment reserve as necessary. The Company has filed a
claim under an insurance policy which provides for compensation of up to
$15.7 million of damage due to political violence in Sierra Leone. The
Company will recognize any insurance recoveries as a reduction to fixed asset
impairments when received (Note C).
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
30
<PAGE>
course of business. If the political climate in Sierra Leone continues to be
disruptive to business operations, if the cost to re-establish operations is
economically prohibitive or if funding for repairs and start-up costs 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
forbearance until April 1, 1998 (see Note Q) from payment of amounts due the
lenders. All of the above factors raise substantial doubt as to the ability
of the Company to continue as a going concern.
SRL has initiated discussions with its lenders with a goal to
reschedule payment of amounts outstanding under these loans and to identify
the availability of additional funds from the current lenders and other
lending sources which would be required to fund the rehabilitation program
for SRL's operations and to complete a 1993 expansion program. 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 April 1, 1998 (see Note Q) nor their or other lenders' willingness to
provide funds for efforts to resume operations. If the lenders require the
Company to pay its 50% share of the amounts owed by SRL or if the Company is
required to provide a significant amount of funds to SRL for it to resume
operations, the Company would likely have to pursue other options.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
should the Company be required to liquidate certain of its assets. The Company's
ability to continue operating under its present structure is dependent upon
having sufficient cash to meet its potential obligations, recovery of the
proceeds of the political risk insurance policy, SRL's ability to renegotiate
the terms and covenants of its financing agreements, obtaining additional
financing or refinancing as may be required and, ultimately, the resumption of
successful operations at SRL. Management of the Company and SRL are continuing
their efforts to reestablish the rutile mining operations and to identify
sources of funds so that SRL can resume operations and meet its obligations.
However, management cannot provide any assurance that these events will occur.
31
<PAGE>
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.
INVESTMENTS AVAILABLE FOR SALE
Investments classified as available for sale are stated at fair value,
based on quoted market prices, with unrealized holding gains and losses excluded
from operations and reported net of taxes, as a separate component of
stockholders' equity until realized. A decline in the fair value of any
available for sale security below cost that is deemed other than temporary is
charged to operations, resulting in the establishment of a new cost basis for
the security. Interest income is recognized when earned. Realized gains and
losses from the sale of securities are included in operations and are derived
using the specific identification method for determining the cost of securities
sold.
INVENTORIES
Inventories are carried at the lower of cost (first-in, first-out
method) or market.
PROPERTY, PLANT AND EQUIPMENT
Equipment is depreciated using the straight-line method over the
estimated useful lives of the assets ranging from two to five years.
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.
32
<PAGE>
ACCOUNTING FOR STOCK-BASED COMPENSATION
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".
BASIC (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board (the
"FASB") issued SFAS No. 128, "Earnings Per Share". This statement requires
dual presentation of earnings per share ("EPS") whereby basic EPS excludes
potential dilution from stock options, warrants and other securities or
contracts to issue common stock. Diluted EPS takes into account the potential
issuance of these shares in the calculation of EPS. Due to losses from
continuing operations for the years ended December 31, 1997, 1996 and 1995,
the Company has concluded that issuance of any additional shares would be
antidilutive and therefore a dual presentation is not required.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1996 and 1995
consolidated financial statements to conform to the classifications used in
1997.
C. SRL
As described in Note A, as of December 31, 1994 the Company adopted the
cost basis of accounting for its investment in SRL. During 1997, 1996 and 1995,
the Company contributed $11,734,000, $2,300,000 and $1,436,000, respectively, as
its 50% share of funding for SRL's cash needs, primarily to satisfy bank
requirements, vendor payments and the ongoing operational cash requirements of
SRL.
The following summarized financial information of the Company's 50%
share of SRL is derived from SRL's financial statements. Based on an 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 such assets. The impairment
primarily related to the carrying cost of 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. During the latter part of 1996 and into
1997, SRL began developing plans to resume operations, including obtaining a
more accurate determination of the cost of repairing and replacing assets. When
information becomes available from the above process, the Company will adjust
the impairment reserve if necessary. Proceeds received from any related
insurance settlement will be credited to the impairment reserve.
33
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
BALANCE SHEET DATA - SRL 1997 1996
------ ------
(in thousands)
<S> <C> <C>
Current assets $ 3,306 $ 4,946
Property, plant and equipment 56,608 56,334
Other assets 1,594 1,701
---------------- ---------------
Total assets $ 61,508 $ 62,981
---------------- ---------------
---------------- ---------------
Obligations to lenders $ 19,010 $ 22,762
Other current liabilities 3,675 5,841
Other liabilities, including advances from
Nord Resources Corporations 17,797 5,049
---------------- ---------------
Total liabilities 40,482 33,652
Foreign currency translation adjustment 3 4
Company's share of equity 21,023 29,325
---------------- ---------------
Total liabilities and
stockholders' equity $ 61,508 $ 62,981
---------------- ---------------
---------------- ---------------
</TABLE>
The following is a reconciliation of the activity related to the Company's
investment in and advances to SRL (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Investment in SRL at January 1, 1996 $ 30,032
Additional investment 5,873
Equity in net loss of SRL (4,701)
---------------
Investment in SRL at December 31, 1996 31,204
Additional investment 11,734
Equity in net loss of SRL (8,289)
---------------
Investment in SRL at December 31, 1997 $ 34,649
---------------
---------------
</TABLE>
34
<PAGE>
The following is summarized operating data for the Company's share of operations
of SRL. Amounts represent the Company's 50% ownership of SRL.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------
OPERATING DATA - SRL 1997 1996 1995
---------- ------------- --------------
(in thousands)
<S> <C> <C> <C>
Sales $ 882 $ 1,050 $ 1,876
Other revenues 914 818 451
------------------ ---------------- -----------------
Total revenues 1,796 1,868 2,327
Cost of sales (594) (723) (1,821)
Termination and shutdown costs -- -- (5,250)
Selling, general and administrative (6,058) (3,364) (609)
------------------ ----------------- -----------------
Total operating costs and expenses (6,652) (4,087) (7,680)
Interest income 60 68 257
Reserve for impairment -- -- (3,000)
Interest expense (3,469) (2,494) (1,848)
------------------ ----------------- -----------------
Total other (expense) (3,409) (2,426) (4,591)
------------------ ---------------- -----------------
Loss before income
tax expense (8,265) (4,645) (9,944)
Income tax (expense) (24) (56) (83)
------------------ ---------------- -----------------
Net (loss) $ (8,289) $ (4,701) $ (10,027)
------------------ ---------------- -----------------
------------------ ---------------- -----------------
</TABLE>
INCOME TAXES - SRL
A deferred tax asset was generated primarily due to differences
between financial and tax basis 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 Company has determined that a valuation allowance is required for
the entire amount of deferred tax asset.
35
<PAGE>
COMMITMENTS - SRL
In connection with the settlement of certain claims asserted by the
government of Sierra Leone (the "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 of
not less than three years. 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. Since, due to civil unrest in Sierra Leone, SRL
has been unable to commence these projects. SRL anticipates entering into
negotiations with the government of Sierra Leone to receive an extension of the
period within which these projects can be completed.
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 $57.4 million. 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, up to $15.7 million of coverage is provided for the Company's
share of damage to property from political violence. This policy expired on
December 31, 1995 and the insurer has elected not to renew the coverage.
Based on the damage assessments performed to date, the Company filed a claim
under this policy for its 50% share of damage to mine assets resulting from
events which began in January 1995. The insurer has acknowledged that the
policy would likely cover damage to SRL's assets as a result of the January
1995 events. In September 1996, the Company received a $1.5 million
provisional payment from the insurer under this policy, which has been
recorded as unearned revenue in the financial statements. The Company is
obligated to return any or all of this amount if it does not comply with
certain provisions with respect to its efforts to repair damage at SRL or if
the final amount of damage is less than that amount. A further claim for the
full amount covered by the policy was filed subsequent to December 31, 1997.
The Company is not presently able to predict the extent or timing or amount
of recoveries which may ultimately be available under this policy. The
Company has pledged any proceeds it may receive over $2.7 million from this
policy as collateral for a guarantee of SRL debt (see Notes G and Q).
36
<PAGE>
D. INVESTMENTS IN AND ADVANCES TO AFFILIATES
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996
---- ----
(in thousands)
PERCENT PERCENT
OWNED OWNED
------------- -----------
<S> <C> <C> <C> <C>
Nord Pacific Limited:
Investment to date, at cost 28.63% $ 10,726 35.2% $ 10,726
Conversion of debt to equity 1,748 --
Foreign currency
translation adjustment 281 281
Equity in cumulative net (loss) (7,282) (3,323)
Dividends received (167) (167)
----------- ------------
Total investment 5,306 7,517
Advances 98 1,178
----------- ------------
Total Nord Pacific Limited 5,404 8,695
Manatee Gateway:
Investment, at cost 41.8% 965 41.8% 3,539
Less valuation allowance -- (2,394)
----------- ------------
Total Manatee Gateway 965 1,145
----------- ------------
$ 6,369 $ 9,840
----------- ------------
----------- ------------
</TABLE>
37
<PAGE>
NORD PACIFIC LIMITED ("PACIFIC")
In February 1994 in connection with a public offering by Pacific, the
Company converted $2,900,000 of its advances to Pacific into 697,744 shares of
common stock of Pacific. The Company's share of equity in net assets in excess
of its investment is being amortized over ten years.
In October 1996 the Company agreed to make available, at its
discretion, an operating loan to Pacific payable on demand and bearing interest
at the prime rate plus 1 %. As of December 31, 1996, $947,000 had been advanced
under this agreement. During the first three quarters of 1997, the Company
advanced Pacific an additional $2,800,745, net of repayments, bringing the total
indebtedness to $3,747,745. In July and August 1997, Pacific repaid $2,000,000
in cash. On July 3, 1997, Pacific completed the closing of its Offering in
Canada (the "Offering") which consisted of the sale of 2,460,000 Units
consisting of one share of Pacific common stock and one-half of one purchase
warrant (the "Purchase Warrant"). Gross proceeds from the Offering totaled
$12,300,000 with net proceeds totaling $10,684,000 after the payment of
commissions, certain legal and other related fees. Concurrent with the closing
of the Offering on July 3, 1997, the Company which previously owned 35 % of the
outstanding Common Stock of Pacific, converted the $1,747,745 due from
Pacific into 349,549 Units at $5.00 per Unit.
The aggregate market value of the Company's investment in Pacific at
December 31, 1997, based on the average of the bid and asked price (NASDAQ bid
and asked) at December 31, 1997 of $2.875 per share, was $10,630,488.
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 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.
38
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------
BALANCE SHEET DATA - PACIFIC
----------------------------------------------
1997 1996
------------------- ------------------
(in thousands)
<S> <C> <C>
Current assets $ 8,745 $ 4,062
Forward currency exchange contracts -- 18
Premium on copper contracts -- 311
Property, plant and equipment 4,737 5,411
Deferred exploration,
development and other costs 26,915 29,939
---------------- ----------------
Total assets 40,397 39,741
Current liabilities 9,884 7,150
Payable on copper contracts -- 311
Deferred income taxes 4,840 3,740
Long-term debt 313 4,129
Retirement benefits 104 202
---------------- ----------------
Shareholders' equity $ 25,256 $ 24,209
---------------- ----------------
---------------- ----------------
Company's share of equity $ 7,223 $ 8,522
---------------- ----------------
---------------- ----------------
Company's equity percentage 28.6% 35.2%
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
OPERATING DATA - PACIFIC 1997 1996 1995
-------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Sales $ 16,328 $ 16,178 $ 14,074
Less costs and expenses (26,816) (12,775) (11,038)
Forward currency
transaction gain (loss) 502 (114) (378)
Gain (loss) on foreign
currency contracts (2,399) 497 (279)
Copper contracts gain (loss) 372 (304)
Provision for taxes (2,300) (2,620) (1,120)
Other (expense) (14) (245) (156)
---------------- -------------- ---------------
Net earnings (loss) $ (14,327) $ 617 $ 1,103
---------------- -------------- ---------------
---------------- -------------- ---------------
Charges from the Company
included in costs and expenses $ 566 $ 415 $ 361
---------------- -------------- ---------------
---------------- -------------- ---------------
</TABLE>
39
<PAGE>
The consolidated financial statements of Pacific include Pacific's
proportionate interest in the assets, liabilities and costs and expenses of
joint ventures related to copper mining.
MANATEE GATEWAY
The Company, through its wholly-owned subsidiary, Nord Manatee Ltd.,
owned a 42% interest in approximately 200 acres of undeveloped real estate. In
1997, the venture sold this property for $2,769,000. 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 7% purchase money first mortgage in the amount of
$2,269,500. The venture received $500,000 at closing of this transaction.
E. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Land $ 100 $ --
Office equipment 462 429
---------------- ----------------
562 429
Less accumulated depreciation
and depletion (412) (402)
---------------- ----------------
$ 150 $ 27
---------------- ----------------
---------------- ----------------
</TABLE>
In 1993 the Company sold the Timberline property ("Timberline") to an
unaffiliated third property. As part of the sale, the Company accepted a note
totaling $150,000 from the purchaser. Since the Company had not received a
payment from the purchaser in over two years, in 1997 the Company took back the
property. Management believes that the value of Timberline is less than the
$150,000 value and has therefore reduced the carrying value by $50,000 to
$100,000.
F. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Non-qualified trusts for funding of
retirement benefits: (Note I)
Cash surrender value of life
insurance, net of policy loans
of $1,591,000 in 1997 and 1996 $ 2,843 $ 2,342
Investments - available for sale 2,965 1,903
Unamortized pension cost 90 109
Other 252 463
---------------- ----------------
$ 6,150 $ 4,817
---------------- ----------------
---------------- ----------------
</TABLE>
40
<PAGE>
G. INDEBTEDNESS
SRL (100%, WITH THE COMPANY'S SHARE NOTED PARENTHETICALLY)
As of December 31, 1997, SRL owed $27,160,000 ($13,580,000) under
financing agreements with four institutions which initially provided
$48,000,000 ($24,000,000) of financing for a capital expansion program. The
amounts outstanding bear interest at rates ranging from 7.2% to 11% per
annum. The suspension of the rutile mining operation as described in Note A
and violations of various financial covenants constitute events of default
under these financing agreements. The lenders have agreed to forebear from
accelerating payment of the loans or enforcing their rights against any
collateral through May 15, 1998 (see Note Q) to allow SRL time to determine
the damage to the mining operation, assess the political situation in Sierra
Leone and develop a plan for refinancing, rehabilitating and reopening the
mining operation. During this period of forebearance, SRL is prohibited from
making any dividend payment or any other payments to the Company except for
reimbursement of operating or administrative expenses for the benefit of SRL.
SRL's requirement to pay a commitment fee of up to 1% per annum of the unused
amount of the lines has been waived until April 1, 1998. In addition, SRL is
precluded from borrowing additional amounts under these agreements and 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 at SRL. As a condition to receiving the
extension of the forebearance until April 1, 1998, SRL was required to prepay
interest due under the financing agreements through March 31, 1998 in the
amount of $702,000 ($351,000). Under the forebearance, the lenders have
agreed to release SRL from an obligation to maintain certain funds in escrow
for payment of amounts due the lenders.
SRL owes $10,860,000 ($5,430,000) at December 31, 1997 under a bank
financing agreement which has no stated interest rate. This loan is also in
default due to the above noted circumstances and has been classified in the
balance sheet as a current liability. This lender is also a party to the
above mentioned forebearance agreement. Under the forebearance extension
signed in late 1997, SRL prepaid interest of $257,000 ($128,500) for the
period January 1, 1998 through March 31, 1998 on the entire amount owed to
this lender (see Note Q).
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
41
<PAGE>
($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 expansion program of which $58,000,000 has been expended. 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 a condition to 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.
H. INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Investments available for sale, consisting principally of municipal
bonds and money market mutual funds, totaled $4,279,000 at December 31, 1996.
The amortized cost of these investments approximated estimated fair value. These
investments were sold in 1997.
I. RETIREMENT BENEFITS
The Company has an unfunded non-contributory defined benefit plan
for certain of its executive officers and management personnel. The Company
has non-qualified trusts which were established in 1989 related to this plan,
and the trusts hold assets valued at $5,808,000 and $4,245,000 at December
31, 1997 and 1996, respectively (Note F). Effective in 1995, the plan was
amended to permit two officers to elect a discounted lump sum distribution
limited to the amounts held in the trusts. The Company has committed to
contribute $250,000 in 1998 and 1999, respectively, to the trusts designated
for one of these officers.
The following sets forth the funded status and amounts recognized in
the Company's balance sheets:
42
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Present value of accumulated benefit obligation:
Estimated present value
of vested benefits $ 7,896 $ 6,809
Estimated present value
of non-vested benefits -- 21
---------------- ----------------
Present value of accumulated benefit obligation 7,896 6,830
Estimated effect of salary and benefit increases -- 693
---------------- ----------------
Projected benefit obligation 7,896 7,523
Unrecognized prior service cost (90) (109)
Unrecognized net loss including effects of
changes in assumptions (724) (836)
Minimum pension liability 814 252
---------------- ----------------
Accrued pension liability $ 7,896 $ 6,830
---------------- ----------------
---------------- ----------------
</TABLE>
As of December 31, 1997, the Company recorded a minimum pension liability of
$814,000, an equity reduction of $724,000, and an asset of $90,000.
43
<PAGE>
Net pension expense consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
1997 1996 1995
-------- ------------- ------------
(in thousands)
<S> <C> <C> <C>
Service costs - benefits
earned during the period $ 115 $ 133 $ 169
Interest on projected benefit obligation 544 525 452
Net amortization and deferral 25 173 51
---------------- -------------- -------------
Net pension expense $ 684 $ 831 $ 672
---------------- -------------- -------------
---------------- -------------- -------------
</TABLE>
The discount rate was 7.0% in 1997, 7.25% in 1996 and 7.5% in 1995. The assumed
rate of future pay increases was 0% in 1997 and 4% in 1996 and 1995.
In addition, the Company has a nonqualified retirement plan for certain
former members of the Board of Directors. The amounts accrued under this
plan were $151,000 and $157,000 at December 31, 1997 and 1996, respectively.
J. DISCONTINUED OPERATIONS
In February 1997, the Company's Board of Directors approved a formal
plan to sell substantially all the assets of the Company's 80% owned subsidiary,
Nord Kaolin Company ("NKC"). The results of NKC, which comprised the Company's
kaolin segment, are reported as discontinued operations in these financial
statements.
On April 23, 1997, the Company consummated the sale of substantially
all of the assets (except cash and accounts receivable) for $20 million less
$735,000 relating to certain accrued liabilities assumed by the purchaser. The
purchaser also assumed certain lease obligations of NKC. Proceeds received to
December 31, 1997 from this transaction totaled $10.5 million (including
collection of accounts receivable and less payment of NKC's liabilities and
other liabilities incurred as a result of this transaction).
Amounts due under capital leases were included in current liabilities
at December 31, 1996 because the lessors had not released the Company from
liability. The purchaser has assumed all outstanding leases and the Company has
been released from all further liability under the leases.
44
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
1997 1996 1995
-------- ------------- --------
(in thousands)
<S> <C> <C> <C>
Operating loss from discontinued kaolin segment $ 271 $ 5,762 $ 4,610
Loss on disposal of kaolin segment -- 18,912
Estimated operating losses to disposal date -- 2,500
---------------- -------------- -------------
Loss from discontinued operations $ 271 $ 27,174 $ 4,610
---------------- -------------- -------------
---------------- -------------- -------------
</TABLE>
Sales from the discontinued operations of $33,635,000, and $36,755,000
and the respective cost of sales, selling general and administrative costs and
interest expense for the years ended December 31, 1996, and 1995, respectively,
have been reclassified from continuing operations in the statements of
operations and are included in the loss from discontinued operations.
The assets (liabilities) of discontinued operations at December 31, 1996 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 9,071
Plant and equipment and deferred charges
(at net realizable value) 20,237
Other current liabilities (10,902)
Accrued transaction costs (1,611)
Estimated operating losses to disposal date (2,500)
Long-term liabilities (1,956)
------
Net assets of discontinued operations $12,339
-------
-------
</TABLE>
Included in loss from discontinued operations for the year ended
December 31, 1997 is $510,000 relating to severance costs. Included in accrued
transaction costs at December 31, 1996 is $800,000 relating to severance and
$811,000 relating to estimated legal and other termination costs. The NKC
non-contributory defined benefit plan covering hourly employees has been assumed
by the purchaser.
45
<PAGE>
K. CONTINGENCIES
Under the terms of the Company's separation agreement with certain
former NKC employees, they may each be entitled to up to 26 weeks of
severance pay in the event they are terminated by the company which acquired
NKC if the termination occurs within one year of the acquisition. At December
31, 1997, the potential amount of severance payments is approximately
$250,000.
L. LEASES
Minimum annual lease payments under non-cancellable operating leases
due through 2002 are $328,000. Total rent expense for leases during the years
ended December 31, 1997, 1996 and 1995 was $160,000, $216,000 and $223,000,
respectively.
M. STOCKHOLDERS' EQUITY
STOCK OPTIONS
Under the Company's various stock option plans, options have been
granted at market price at date of grant (incentive and nonqualified stock
options). Options are generally exercisable beginning one year from date of
grant and expire ten years from date of grant. At December 31, 1997, 1,260,246
shares are available for future option grants.
46
<PAGE>
A summary of the option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------------------ -----------------------
<S> <C> <C>
Outstanding at January 1, 1995 1,636,379 $6.56
Granted 169,850 5.13
Terminated (183,753) 8.48
Expired (64,575) 5.12
--------
Outstanding at December 31, 1995 1,557,901 6.41
Granted 205,980 2.99
Terminated (72,120) 6.50
Expired (32,400) 6.17
--------
Outstanding at December 31, 1996 1,659,361 5.99
Granted 1,176,204 4.84
Exercised (67,080) 2.25
Terminated (629,814) 5.73
Expired (475,600) 6.57
--------- ----
Outstanding at December 31, 1997 1,663,071 $5.26
--------- -----
--------- -----
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ----------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Options Exercisable
at Year-End 1,102,571 $ 4.70 1,463,481 $ 6.38 1,436,766 $ 6.53
Weighted average fair
value of options
granted during year $ 1.40 $ 1.46 -- $ 2.71
</TABLE>
47
<PAGE>
The following table summarizes information about stock option plans and non-plan
options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------
WEIGHTED AVERAGE OPTIONS
EXERCISE PRICES PER SHARE OUTSTANDING CONTRACT LIFE EXERCISABLE
- ------------------------------ ----------------- ------------------------ ----------------
<S> <C> <C> <C>
$ 2.25 54,500 8.06 54,500
3.25 200,000 9.39 100,000
4.00 250,000 5.41 225,000
4.13 43,400 9.06 43,400
4.63 15,000 8.87 15,000
4.88 33,750 .82 33,750
5.00 232,500 4.79 32,500
5.13 146,100 4.68 146,100
5.50 9,840 4.62 9,840
5.61 35,500 1.08 -0-
6.00 200,000 4.42 -0-
6.13 30,000 8.43 30,000
6.63 11,500 1.92 11,500
6.67 119,250 .05 119,250
6.75 12,700 5.19 12,700
7.00 9,850 2.97 9,850
7.38 129,150 1.83 129,150
7.75 28,600 3.40 28,600
8.00 90,000 1.08 90,000
8.25 11,431 .91 11,431
------------ ------- ----------
$2.25-8.25 1,663,071 4.70 1,102,571
------------ ----------
------------ ----------
</TABLE>
Of the 1,663,071 options outstanding, 658,271 shares fall under the
terms of the Company's stock option plans. An additional 1,004,800 are
non-qualified, non-plan options which have been authorized by the Board of
Directors but are not part of a qualified stock option plan. Under the terms of
the Company's stock option plans, 1,260,246 shares are reserved for future
option grants.
48
<PAGE>
The Company applies APB Opinion No. 25 in accounting for its stock
option plans. Therefore, no compensation expense under SFAS No. 123 has been
recognized for options granted to employees. Had compensation cost for the
Company's option grants been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of SFAS No. 123,
the Company's net loss and net loss per common share would have been adjusted to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Net Loss:
As reported $ (14,837) $ (34,260)
Pro Forma $ (15,110) $ (34,376)
Basic Loss Per Share:
As reported $ (.68) $ (1.81)
Pro Forma $ (.69) $ (1.81)
</TABLE>
The assumptions used in determining the fair value of options granted during
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- -------------
<S> <C> <C> <C>
Expected Volatility 67% 67% 67%
Expected Life of Grant Five Years Five Years Five Years
Risk-Free Interest Rate 6.39% 5.03% 5.03%
Expected Dividend Rate None None None
</TABLE>
OTHER
In April and October 1996, the Company sold 3,160,000 and 2,000,000
shares of common stock for $7.9 million ($2.50 per share) and $10 million ($5
per share) to a private investor. In April 1996, the Company entered into a $2.1
million convertible loan agreement with the same investor which in June 1996 was
converted into 840,000 shares of common stock. As of December 31, 1997, this
investor owned approximately 27.5% of the Company's outstanding shares of common
stock.
49
<PAGE>
N. INCOME TAX
Income tax expense (benefit) includes the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------
1997 1996 1995
-------- ------------- --------
(in thousands)
<S> <C> <C> <C>
Current deferred $ 7,568 $ (7,262) $ (306)
Long-term deferred (9,850) (3,146) (1,634)
Change in valuation allowance 2,282 10,408 1,940
---------------- -------------- -------------
Total domestic $ -- $ -- $ --
---------------- -------------- -------------
---------------- -------------- -------------
</TABLE>
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.
The principal current and long-term deferred tax assets and (liabilities) are as
follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(in thousands)
<S> <C> <C>
CURRENT DEFERRED TAX ASSETS:
Kaolin:
Other $ -- $ 24
Accrued expenses -- 264
Loss on disposal -- 7,280
Valuation allowance -- (7,568)
----------------- -----------------
Total asset $ -- $ --
----------------- -----------------
----------------- -----------------
Long-term deferred tax assets and liabilities:
ASSETS:
Nord:
Affiliate losses - Nord Pacific $ 3,034 $ 1,641
Deferred compensation 2,459 2,100
Impairment of investments and assets -- 814
NOL carryforwards 13,780 12,993
Tax credit carryforwards 1,611 2,840
Unearned revenue 510 510
Other 291 247
----------------- -----------------
Total Nord 21,685 21,145
----------------- -----------------
LIABILITIES:
Kaolin:
Mine development and exploration -- (861)
Depreciation -- (7,923)
Other -- (526)
----------------- -----------------
Total Kaolin -- (9,310)
50
<PAGE>
Nord:
Total Nord (5) (5)
----------------- -----------------
Total liabilities (5) (9,315)
----------------- -----------------
Net asset 21,680 11,830
Valuation allowance (21,680) (11,830)
----------------- -----------------
Total $ -- $ --
----------------- -----------------
----------------- -----------------
</TABLE>
The 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 $20,111,000 at December 31, 1997 which the
Company intends to reinvest in SRL. The estimated unrecognized domestic
deferred tax liability for the temporary differences related to the Company's
investment in SRL was $4,400,000 at December 31, 1997.
51
<PAGE>
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
------------------------------------------------------
1997 1996 1995
-------- ------------- --------------
(in thousands)
<S> <C> <C> <C>
Tax (benefit) at statutory rate $ (5,045) $ (11,648) $ (6,217)
Increase (decrease) in taxes
resulting from:
Change in valuation allowance 2,282 10,408 1,940
Equity in (loss) of SRL 2,818 1,598 3,409
Percentage depletion (47) (226) (272)
Non taxable deductible foreign
expense -- -- 1,020
Other (8) (132) 120
---------------- -------------- -------------
Income tax expense $ -- $ -- $ --
---------------- -------------- -------------
---------------- -------------- -------------
</TABLE>
FEDERAL
At December 31, 1997, the Company had a net operating loss
carryforward for domestic income tax purposes totaling $39,241,000 available
to be carried forward to future periods. This carryforward expires from 2006
to 2012. The Company also had general business credit carryforwards of
$538,000 which expire from 1998 to 2011, 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 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.
52
<PAGE>
O. CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
CASH USED IN OPERATING ACTIVITIES:
Net (loss) $ (14,837) $ (34,260) $ (18,286)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Equity in net loss of SRL 8,289 4,701 10,027
Equity in net loss (earnings) of affiliates 3,960 (356) (526)
Depreciation and amortization 30 33 93
Unearned revenue -- 1,500 --
Gain on sale of property 40 -- --
Provision for impairment of investments 50 280 3,175
Loss from discontinued operations 271 27,174 4,610
Debt forgiveness 50 -- --
Change in assets and liabilities, excluding
effects of dispositions and discontinued
operations:
Accounts receivable 150 (73) 477
Prepaid expenses (3) (1,078) 210
Accounts payable 16 (144) 160
Accrued expenses 329 61 (246)
Retirement benefits 1,060 857 936
Net cash used in discontinued operations (3,430) (4,785) (2,244)
------------- ---------- ---------
Net cash used in operating activities $ (4,025) $ (6,090) $ (1,614)
------------- ---------- ---------
------------- ---------- ---------
</TABLE>
P. MAJOR CUSTOMERS
The Company's decision to dispose of its domestic kaolin operation has
resulted in the Company's only business segment being the rutile segment, which
was not operating in 1997, 1996 or 1995 as described in Note C.
Q. SUBSEQUENT EVENT
On March 31, 1998, SRL made an additional principal payment of
approximately $3,750,000, which reduced the total amount due to the lenders
to approximately $34,250,000 and prepaid interest on such balance through
May 15, 1998. The Company provided 50% of the funds necessary to make these
payments. The lenders have agreed to forbear from requesting payment of
amounts due under their financing agreements until May 16, 1998. The lenders
have further agreed that an additional $1.9 million from the proceeds of the
insurance claim described in Note C will be exempt from the pledge to the
lenders.
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
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 28, 1998.
54
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
<TABLE>
<C> <S> <C>
(a) 1. Financial Statements: The financial statements of Nord Resources
Corporation as of December 31, 1997 and 1996 and for each of the
three years ended in the period ended December 31, 1997 are
included in Part II, Item 8 of this Form 10-K
2. Financial Statement Schedules: PAGE
------
Independent Auditors' Report 56
Schedule II - Valuation and qualifying accounts 57
Nord Pacific Limited:
Independent Auditors' Report 58
Consolidated Balance Sheets 59
Consolidated Statements of Operations 61
Consolidated Statements of Shareholder' Equity 62
Consolidated Statements of Cash Flows 63
Notes to Consolidated Financial Statements 64
(b) Reports on Form 8-K:
There were no Form 8-K's filed in the fourth quarter
of 1997.
(c) Exhibits: See INDEX TO EXHIBITS
</TABLE>
55
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Nord Resources Corporation
Albuquerque, New Mexico
We have audited the consolidated financial statements of Nord Resources
Corporation and Subsidiaries as of December 31, 1997 and 1996, and for each
of the three years in the period ended December 31, 1997, and have issued
our report thereon dated April 10, 1998, which report disclaims an opinion on
the consolidated financial statements as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 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; 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. 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 1997, 1996 and
1995. Accordingly, we are unable to express, and we do not express, an opinion
on the consolidated financial statement schedules for each of the three years
in the period ended December 31, 1997.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
April 10, 1998
56
<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
- ------------------------------------------------------- ------------------ ------------------ ---------------- -----------
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ------------------------------------------------------- ------------------ ------------------ ---------------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Estimated loss on disposal, including
provision for estimated operating losses
to disposal date $ 21,412 $ 271 $ 21,683 $ --
------------------ ------------------ ---------------- ---------
------------------ ------------------ ---------------- ---------
Investment valuation allowance - Manatee Gateway $ 2,394 $ -- $ 2,394 $ --
------------------ ------------------ ---------------- ---------
------------------ ------------------ ---------------- ---------
Income tax valuation allowance $ 19,398 $ 9,850 $ 7,568 $ 21,680
------------------ ------------------ ---------------- ---------
------------------ ------------------ ---------------- ---------
YEAR ENDED DECEMBER 31, 1996
Estimated loss on disposal, including
provision for estimated operating losses
to disposal date $ $ 21,412 $ -- $ 21,412
------------------ ------------------ ---------------- ---------
------------------ ------------------ ---------------- ---------
Investment valuation allowance - Manatee Gateway $ 2,394 $ -- $ -- $ 2,394
------------------ ------------------ ---------------- ---------
------------------ ------------------ ---------------- ---------
Provision for impairment - Ilmenite equipment $ 855 $ 280 $ 1,135(1) $ --
------------------ ------------------ ---------------- ---------
------------------ ------------------ ---------------- ---------
Income tax valuation allowance $ 8,890 $ 10,408 $ -- $ 19,398
------------------ ------------------ ---------------- ---------
------------------ ------------------ ---------------- ---------
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
------------------ ------------------ ---------------- ---------
------------------ ------------------ ---------------- ---------
</TABLE>
(1) Equipment written off against the provision for impairment
57
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Nord Pacific Limited
Hamilton, Bermuda
We have audited the accompanying balance sheets of Nord Pacific Limited and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997 (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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE
Chartered Accountants
Hamilton, Bermuda
March 20, 1998
58
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------- ------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,351 $ 439
Accounts receivable
Trade 1,313 1,868
Affiliates 53 21
Subscribed shares receivable (Note I) 2,700 --
Other 90 43
------- ------
4,156 1,932
Inventories
Copper metal 137 131
Supplies 204 195
------- ------
341 326
Premium on copper contracts (Note F) 760 1,193
Forward currency exchange contracts (Note F) -- 76
Prepaid expenses 137 96
------- ------
TOTAL CURRENT ASSETS 8,745 4,062
FORWARD CURRENCY EXCHANGE CONTRACTS (Note F) -- 18
PREMIUM ON COPPER CONTRACTS (Note F) -- 311
DEFERRED COSTS ASSOCIATED WITH
ORE UNDER LEACH, net of accumulated amortization
of $11,518 in 1997 and $8,569 in 1996 (Note B) 8,970 7,897
PROPERTY, PLANT, AND EQUIPMENT at cost
less accumulated depreciation (Note C) 4,737 5,411
DEFERRED EXPLORATION AND DEVELOPMENT COSTS
Girilambone, net of accumulated amortization
of $1,883 in 1997 and $1,199 in 1996 (Note B) 4,335 4,471
Exploration prospects (Note D) 13,492 17,307
OTHER 118 264
------- ------
$ 40,397 $ 39,741
------- ------
------- ------
</TABLE>
See notes to consolidated financial statements.
59
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
- ------------------------------------ --------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable
Trade $ 975 $ 1,595
Affiliates 168 276
--------- ---------
Total accounts payable 1,143 1,871
Note payable - Nord Resources Corporation (Note G) -- 947
Accrued expenses 1,484 1,067
Deferred gain on copper contracts (Note F) -- 1,565
Payable on copper contracts (Note F) 760 --
Income taxes payable (Note K) 1,200 --
Current maturities of long-term debt (Note E) 2,548 1,700
Forward currency contracts (Note F) 2,099 --
Obligation under purchase agreement (Note D) 650 --
--------- ---------
TOTAL CURRENT LIABILITIES 9,884 7,150
LONG-TERM LIABILITIES
Long-term debt (Note E) 313 3,334
Payable on copper contracts (Note F) -- 311
Deferred income tax liability (Note K) 4,840 3,740
Obligation under purchase agreement (Note D) -- 795
Retirement benefits (Note L) 104 202
--------- ---------
TOTAL LONG-TERM LIABILITIES 5,257 8,382
CONTINGENT LIABILITIES (Note M)
SHAREHOLDERS' EQUITY (Notes G, I and N)
Common stock, par value $.05 per share,
authorized 20,000,000 shares, issued
and outstanding: 1997 - 12,360,803 and
l996 - 9,515,654 618 476
Common stock subscribed (Note I) 2,677 --
Additional paid-in capital 44,022 31,467
Accumulated deficit (22,859) (8,532)
Foreign currency translation adjustment 798 798
--------- ---------
25,256 24,209
--------- ---------
$ 40,397 $ 39,741
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
60
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C>
SALES (Note J) $ 16,328 $ 16,178 $ 14,074
COSTS AND EXPENSES
Cost of sales (Note B) 8,696 8,969 7,664
Abandoned and impaired projects (Note D) 14,293 191 352
General and administrative
Nord Resources Corporation (Note G) 566 415 361
Other 3,261 3,200 2,661
--------- --------- ---------
Total general and administrative 3,827 3,615 3,022
--------- --------- ---------
Total costs and expenses 26,816 12,775 11,038
--------- --------- ---------
OPERATING EARNINGS (LOSS) (10,488) 3,403 3,036
OTHER INCOME (EXPENSE)
Interest and other income 357 161 448
Interest and debt issuance costs (371) (406) (604)
Forward currency exchange contracts
gain (loss) (Note F) (2,399) 497 (279)
Foreign currency transaction gain (loss) 502 (114) (378)
Copper contracts gain (loss) (Note F) 372 (304) --
--------- --------- ---------
TOTAL OTHER (EXPENSE) (1,539) (166) (813)
EARNINGS (LOSS) BEFORE INCOME TAXES (12,027) 3,237 2,223
PROVISION FOR INCOME TAXES (Note K) 2,300 2,620 1,120
--------- --------- ---------
NET EARNINGS (LOSS) $ (14,327) $ 617 $ 1,103
--------- --------- ---------
--------- --------- ---------
NET EARNINGS (LOSS) PER COMMON SHARE (Note P)
BASIC $ (1.31) $ .06 $ .12
--------- --------- ---------
--------- --------- ---------
DILUTED $ (1.31) $ .06 $ .10
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
61
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARES)
<TABLE>
<CAPTION>
Common Stock Additional
Shares Amount Paid-in Accumulated
(Note I) Capital Deficit
----------- -------- --------- ------------
<S> <C> <C> <C> <C>
BALANCE - December 31,1994 9,489,341 $ 474 $ 31,325 $ (9,784)
Net earnings -- -- -- 1,103
Common stock issued relating to
stock bonus plan 2,913 1 11 --
Dividend paid ($.05 per share) -- -- -- (468)
----------- -------- --------- ------------
BALANCE - December 31,1995 9,492,254 475 31,336 (9,149)
Net earnings -- -- -- 617
Compensation relating to options
issued to non-employees -- -- 45 --
Exercise of stock options 23,400 1 86 --
----------- -------- --------- ------------
BALANCE - December 31,1996 9,515,654 476 31,467 (8,532)
Net loss -- -- -- (14,327)
Exercise of stock options 35,600 2 153 --
Common stock issued in
public offering 2,460,000 123 10,561 --
Compensation relating to options
issued to non-employees -- -- 110 --
Conversion of debt to common
stock 349,549 17 1,731 --
----------- -------- --------- ------------
BALANCE - December 31, 1997 12,360,803 $ 618 $ 44,022 $ (22,859)
----------- -------- --------- ------------
----------- -------- --------- ------------
</TABLE>
See notes to consolidated financial statements.
62
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,1997,1996 AND 1995
(IN THOUSANDS OF U.S DOLLARS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (14,327) $ 617 $ 1,103
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 1,148 1,278 1,258
Amortization 3,565 3,259 2,736
Compensation relating to non-qualified options,
bonus shares and restricted stock 111 45 12
Unrealized (gain) loss on forward currency exchange contracts 2,399 988 977
Foreign currency transaction loss (gain) (502) 114 378
Abandoned and impaired projects 14,293 191 352
Deferred costs associated with ore under leach (4,023) (4,992) (3,558)
Deferred income taxes 2,300 2,620 1,120
Derivative financial instruments (372) 304 --
Change in assets and liabilities:
Accounts receivable 146 (764) (36)
Inventories (9) (45) (47)
Prepaid expenses (42) 80 (139)
Accounts payable (319) 158 709
Accrued expenses and other liabilities 477 339 525
---------- ------- --------
Net cash provided by operating activities 4,845 4,192 5,390
INVESTING ACTIVITIES
Capital expenditures (473) (771) (1,569)
Payment of obligation under purchase agreement -- -- (648)
Deferred exploration costs (10,720) (8,154) (4,099)
---------- ------- --------
Net cash (used in) investing activities (11,193) (8,925) (6,316)
FINANCING ACTIVITIES
Repayments of long-term debt (5,153) (1,185) (4,703)
Additions to long-term debt 2,981 789 3,000
Net borrowings - Nord Resources Corporation 669 947
Stock option exercised 155 87
Restricted cash -- 1,080 (56)
Issuance of common stock 12,300 -- --
Costs associated with issuance of common stock (1,735) (265)
Dividends paid -- -- (468)
---------- ------- --------
Net cash provided by (used in) financing activities 9,217 1,453 (2,227)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 43 63 (340)
---------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,912 (3,217) (3,493)
CASH AND CASH EQUIVALENTS - beginning of year 439 3,656 7,149
---------- ------- --------
CASH AND CASH EQUIVALENTS - end of year $ 3,351 $ 439 $ 3,656
---------- ------- --------
---------- ------- --------
CASH PAID FOR INTEREST $ 371 $ 384 $ 449
---------- ------- --------
---------- ------- --------
NON-CASH TRANSACTIONS
Purchase of derivative financial instruments (Note F) $ -- $ 311 $ 1,308
---------- ------- --------
---------- ------- --------
Conversion of long-term debt due to Nord Resources
Corporation into common stock (Note G) $ 1,748 $ -- $ --
---------- ------- --------
---------- ------- --------
Common stock subscribed $ 2,700 $ -- $ --
---------- ------- --------
---------- ------- --------
</TABLE>
See notes to consolidated financial statements.
63
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1997, 1996, AND 1995
(IN U.S. DOLLARS)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY DESCRIPTION
Nord Pacific Limited and subsidiaries under consolidation (collectively, 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 carried on in North America, including Canada and Mexico, is 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 in
Australia and its 50% interest in the Girilambone North Project (collectively
"Girilambone"). Financial statement amounts relating to Girilambone represent
the Company's proportionate interest in the assets, liabilities and operations
of Girilambone. All significant intercompany accounts and 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 investments with an original maturity of three months
or less 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.
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 three-year period, based on
the present proven reserves and estimated 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.
64
<PAGE>
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 which
range from two to five years. 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 recoverable 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 is the U.S.
dollar. 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. Prior to March 31, 1993, the Australian dollar was the functional
currency for the Company's operations conducted in Australia, and 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. Option premiums incurred are deferred until the date of
settlement or expiration.
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.
NET EARNINGS (LOSS) PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, EARNINGS PER SHARE. Earnings (loss) per share data in 1996 and 1995 has
been restated to reflect the adoption of SFAS No. 128. Basic net earnings
(loss) per common share is computed by dividing net earnings (loss) by the
weighted average number of common shares outstanding during the year. Diluted
net earnings per share is determined after giving effect to stock options and
the conversion of preferred shares considered to be dilutive. Because the
Company incurred a loss for the year ended December 31, 1997, the effects of the
potentially dilutive securities are not included in the calculations.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure", which is effective for
financial statements for periods ending after
65
<PAGE>
December 15, 1997 and established standards for disclosing information about
an entity's capital structure. During 1997, SFAS No. 129 was adopted and had
no significant effect on the Company's disclosures about its capital
structure.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for financial statements
for periods beginning after December 15, 1997 and established standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The Company does not believe the adoption of SFAS No. 130 will have
a material impact on its financial statement presentation or related
disclosures.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information", which is
effective for fiscal years beginning after December 15, 1997 and establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company operates in one business segment and does not believe
that the adoption of SFAS No. 131 will have a material impact on its financial
statements or related disclosures.
ACCOUNTING FOR STOCK-BASED COMPENSATION
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."
RECLASSIFICATIONS
Certain reclassifications have been made in the 1996 and 1995 consolidated
financial statements to conform to the classifications used in 1997.
B. GIRILAMBONE
The Company is a 40% joint venturer in the Girilambone Copper Property and a 50%
joint venturer in the Girilambone North Copper Property (collectively,
"Girilambone") in Australia. In 1996 mining commenced in the Girilambone North
Project area and the ore from this property is being processed through the
existing Girilambone plant. All costs incurred during mine development have
been capitalized and are being amortized using the units of production method
over the estimated reserves. Following is a summarized balance sheet data of
Girilambone:
66
<PAGE>
<TABLE>
<CAPTION>
Amounts Included
Total Girilambone In Accompanying
Joint Ventures Financial Statements
---------------------- --------------------
Balance Sheet Data December 31 December 31
(in thousands) 1997 1996 1997 1996
- ------------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
Current assets $ 1,638 $ 2,260 $ 658 $ 913
Deferred costs associated with ore under
leach, net 19,934 18,648 8,970 7,897
Property, plant and equipment, net 10,541 12,494 4,244 5,019
Deferred exploration and development
costs, net 16,602 13,688 4,335 4,471
-------- -------- ------- -------
Total assets 48,715 47,090 18,207 18,300
Current liabilities 2,230 3,412 948 1,436
-------- -------- ------- -------
Partners' equity $ 46,485 $ 43,678 $17,259 $16,864
-------- -------- ------- -------
-------- -------- ------- -------
Company's share of equity $ 18,846 $ 18,535
Less: Eliminations (1,587) (1,671)
-------- --------
Net assets recorded by Company $ 17,259 $ 16,864
-------- --------
</TABLE>
Debt incurred related to Girilambone is the separate responsibility of each
venturer and is not included in the joint ventures' financial statements.
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>
Year Ended December 31,
1997 1996 1995
--------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Cost of Copper Sales:
Total Girilambone Venture $21,048 $21,993 $19,161
Included in Financial Statements 8,696 8,969 7,664
General and Administrative:
Total Girilambone Venture $ 538 $ 569 $ 270
Included in Financial Statements 242 257 108
</TABLE>
67
<PAGE>
C. PROPERTY, PLANT & EQUIPMENT
<TABLE>
<CAPTION>
December 31,
1997 1996
------ -------
(In thousands)
<S> <C> <C>
Land $ 302 $ 292
Plant, mining and milling equipment 9,211 8,914
Furniture and fixtures 712 655
------ -------
10,225 9,861
Less accumulated depreciation 5,488 4,450
------ -------
$ 4,737 $ 5,411
------ -------
------ -------
</TABLE>
D. DEFERRED EXPLORATION AND DEVELOPMENT COSTS
Exploration prospects include the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Ramu $ 4,263 $ 1,712
Tabar Islands 4,275 13,167
Girilambone Exploration Area 3,978 2,207
Other 976 221
--------- ---------
$ 13,492 $ 17,307
--------- ---------
--------- ---------
</TABLE>
RAMU
In 1992, the Company entered into an agreement with its Ramu joint venturer to
dilute its interest in the project. At December 31, 1996, the joint venturer
had spent approximately $7,000,000, reducing the Company's interest to 35%.
Beginning in the fourth quarter of 1996, the Company began funding its share of
expenditures on Ramu and intends to continue to do so in order to maintain its
35% interest. The Company currently does not have sufficient resources to fund
its share of future commercial development costs and will need to obtain
additional funding for such costs.
The Papua New Guinea government has a right to acquire an interest of up to 30%
in Ramu, at a price pro-rata to the accumulated exploration expenditure, at the
time a development decision is made. If it exercises this right, the government
is required to contribute to further exploration and development expenditures in
proportion to its equity in the project.
Another party 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.
68
<PAGE>
TABAR ISLANDS
In 1993 the Company increased its interest in the Tabar Islands project from 29%
to 100%. The remaining purchase price at December 31, 1997, of $650,000 is
payable in December 1998. On December 3, 1996, the Company was granted a mining
lease to develop and operate a gold mine on Simberi Island. While the
government of Papua New Guinea will have no participating interest, once
production has commenced, a royalty of 2% of sales will be payable to the
government.
The former joint venture owners 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 250% of its cumulative expenditures for mine development from July
1994 to the date the option is exercised. Expenditures from July 1994 through
December 31, 1997, totaled approximately $11,900,000.
In accordance with SFAS No. 121, the Company reviewed the carrying costs in and
anticipated cash flows from the project to ascertain the probability of
impairment. Based upon the continued decline in gold prices during the fourth
quarter of 1997, the Company determined that future cash flows, based on
currently calculated resources, were insufficient at projected gold prices to
support the $17,656,000 carrying value of the project. The Company therefore
recorded a $13,381,000 impairment at December 31, 1997, reducing the value to
$4,275,000.
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. Exploration efforts are
continuing in the Girilambone exploration area to identify additional mineable
reserves.
As the Company is still in the exploration and prefeasibility phase on Ramu,
Tabar and other projects, and additional efforts on these exploration 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. LONG TERM DEBT
<TABLE>
<CAPTION>
December 31,
1997 1996
-------- -------
(In thousands)
<S> <C> <C>
Girilambone financing agreement $ 2,861 $ 4,245
Loan payable -- 789
-------- -------
2,861 5,034
Less current maturities 2,548 1,700
-------- -------
Long-term debt $ 313 $ 3,334
-------- -------
-------- -------
</TABLE>
The long-term debt matures as follows: 1998, $2,548,000 and 1999, $313,000.
69
<PAGE>
GIRILAMBONE FINANCING AGREEMENT
In February 1997, the Company restructured its financing agreement with the
Girilambone lender. The restructuring provided additional financing of $980,000,
increasing the amount of financing available to $5,225,000, bearing interest at
Singapore Interbank Offered Rates ("SIBOR") plus 1-1/2%. Principal payments are
payable quarterly and began in March 1997 at the greater of $425,000 or 50% of
available cash flow. Available funds of $980,000 were borrowed in February 1997
and the funds were used to repay the loan payable described below. The
restructured agreement also contains certain debt coverage ratio requirements.
The fair value of the Company's outstanding debt is not considered to be
materially different from its carrying amount.
During the period the loan is outstanding, the Company is required to build
up each quarter a cash deposit of $1,000,000 with the lender. 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 and principal. Any remaining proceeds are then available at the
lender's discretion for use by the Company. At December 31, 1997, essentially
all proceeds from this account were used to pay principal, interest and fees.
As collateral on the loan, the lender owns a security interest in the
Australian assets of the Company including the Company's share of assets of
and production from the Girilambone and Girilambone North mines.
LOAN PAYABLE
At December 31, 1996, the Company had outstanding $789,000 under a loan facility
provided by an Australian lender. This amount was repaid on February 28, 1997
with funds from the restructured Girilambone Financing Agreement.
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
speculative purposes.
COPPER AGREEMENTS
To mitigate the effect of price changes on substantially all of its expected
copper sales through December 31, 1998, the Company entered in both swap and
call option agreements for 1996 and 1997 and put options for 1998.
The Company entered into both swap and call option agreements with a single
counterparty on a total of 13.2 million pounds of copper which settled each
month during 1997. The swap agreements locked 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 were designated as hedges up to the level of anticipated copper
sales, with gains and losses deferred and reflected as a component of sales when
each contract settled. The swap agreements with contract amounts in excess of
the anticipated copper sales and the call options did not qualify as hedges and
were recorded at market.
Under this combination swap and call option arrangement, at the settlement date
for each copper contract during 1997, the Company received $l.02 per pound plus
the excess of market price (as determined by the London Metals Exchange) over
$1.11 per pound.
70
<PAGE>
In November 1996, the Company purchased put options at a cost of $.08 per
pound of copper for 4.0 million pounds of copper. In 1997, the Company
purchased put options for an additional 11.9 million pounds of copper at $.05
per pound of copper. These mature ratably each month from January 1998
through December 1998. This hedging program assures that the Company will
receive a minimum of $.90 per pound of copper, and will benefit from any
copper price above $.90 per pound.
Sales for the years ended December 3l, 1997, 1996 and 1995, include $54,000 of
losses, $1,058,000 of gains and $1,080,000 of losses, respectively, that were
realized in settlement of copper hedging contracts. The following table
summarizes the market value of the copper contracts determined based upon price
quotes received from the counterparty to the agreements.
<TABLE>
<CAPTION>
Number of Contracts Strike Price Fair Value
or Notional Amount Per Tonne Asset
------------------- ------------ -----------
<S> <C> <C> <C>
At December 31, 1997:
Purchased put options 7,200 tonnes $ 1,984 $1,524,600
At December 31, 1996:
Purchased call options 6,000 tonnes 2,450 142,000
Swap agreements 6,000 tonnes 2,250 1,052,000
Purchased put options 1,800 tonnes 1,984 273,000
</TABLE>
FORWARD CURRENCY EXCHANGE CONTRACTS
The Company has entered into forward exchange contracts 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, 1997, the Company recognized a loss of $2,399,000
compared to a gain of $497,000 in 1996 and a loss of $279,000 in 1995 on these
contracts. Outstanding contracts at December 31, 1997, total $12,000,000 and
mature in monthly installments of $800,000 at an average exchange rate of A$1.00
= U.S. $.7935.
COUNTERPARTY RISK
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. 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.
G. NORD RESOURCES CORPORATION
Nord Resources Corporation ("Resources") owns approximately 28.6% of the
outstanding common stock of the Company.
In October 1996, Resources agreed to make available to the Company, at
Resources' discretion, an operating loan payable on demand and bearing interest
at the prime rate plus 1%. At December 31, 1996, the Company owed Resources
advances of $947,000. During 1997, Resources advanced the Company an additional
$2,800,745, net of repayments, bringing the total indebtedness to $3,747,745.
In July and August 1997, the Company repaid $2,000,000 of the amount
outstanding. Concurrent with the
71
<PAGE>
closing of the Company's Canadian offering on July 3, 1997, Resources, which
previously owned 35% of the outstanding common stock of the Company,
converted the remainder of the amount outstanding into 349,549 units
consisting of one share of common stock and one half of one purchase warrant
(the "Purchase Warrant") (the "Units") at $5.00 per Unit.
Interest expense under loans from Resources was $114,000, $7,000 and $0 for
the years ended December 31, 1997, 1996 and 1995 respectively.
In 1997 and 1996, Resources provided certain services to the Company under a
management agreement. Resources was reimbursed for all direct expenses and
its overhead associated with the operations of the Company at approximately
$7,000 per month as per the management agreement. Management believes that the
costs that would have been incurred had the Company obtained such services on
a stand alone basis would have approximated the amounts paid to Resources.
Total amounts paid to Resources were $566,000 and $399,000 for the years
ended December 31, 1997 and 1996, respectively. In December 1997, Resources
closed its office in Dayton, Ohio and moved its administrative functions to
Albuquerque, New Mexico. The Company currently shares office space,
administrative personnel and expenses with Resources on a 50/50 basis.
H. OPERATING LEASES
The Company leases its office space and certain equipment under operating
leases. 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:
<TABLE>
<S> <C>
1998 $ 99,973
1999 66,110
2000 62,187
2001 63,028
--------
$291,298
--------
</TABLE>
Rent expense for operating leases was $125,885, $206,000, and $238,000 for the
years ended December 31, 1997, 1996 and 1995, 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. In addition, during 1997, 1996 and 1995,
non-plan options totaling 150,000, 224,000, and 12,000 shares, respectively,
have also been granted to officers and directors of the Company at or in
excess of market value at date of grant. During 1997, 1996 and 1995,
non-plan options for 53,000, 33,600 and 10,000 shares, respectively, were
issued to certain consultants to the Company.
Options are generally exercisable beginning six months to three years from date
of grant and expire over a five to ten year period from date of grant. At
December 31, 1997, 106,207 shares are available for future grant under the stock
option plans.
A summary of the status of the Company's stock option plans and non-plan options
as of December 31, 1997, 1996, and 1995 and changes during the years ending on
those dates is presented below:
72
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- -------- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of Year 1,664,200 $ 4.05 1,342,400 $ 3.95 4,142,000 $ 4.72
Granted 296,078 5.47 347,200 4.50 401,200 4.00
Exercised (35,600) 4.34 (23,400) 3.75 -- --
Forfeited -- -- (2,000) 4.40 (3,200,800) 4.95
--------- -------- --------- -------- --------- ---------
Outstanding at End of Year 1,924,678 4.26 1,664,200 4.05 1,342,400 3.94
--------- -------- --------- -------- --------- ---------
--------- -------- --------- -------- --------- ---------
Options Exercisable at Year-End 1,574,800 $ 4.10 1,161,600 $ 3.95 910,400 $ 3.91
Weighted average fair value of options $ 2.06 $ 1.87 $ 1.66
granted during year
</TABLE>
The assumptions used in determining the fair value of options granted during
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected Volatility 55% 55% 55%
Expected Life of Grant 2.50 years 3 years 3 years
Risk-Free Interest Rate 6.05% 5.03% 5.03%
Expected Dividend Rate None None None
</TABLE>
The following table summarizes information about stock option plans and non-plan
options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted Average
Options Contract Life
Exercise Prices Per Share Outstanding (Years) Options Exercisable
------------------------- ----------- ----------------- -------------------
<S> <C> <C> <C>
$2.54 216,000 3.00 216,000
3.91 36,000 4.25 36,000
4.00 387,000 2.13 387,000
4.26 272,000 5.17 272,800
4.38 93,600 6.25 93,600
4.45 264,000 1.25 264,000
4.50 347,200 3.08 190,400
4.95 12,000 6.00 12,000
5.25 146,678 9.58 53,000
5.69 150,000 9.58 50,000
--------- ---------
$2.54 - 5.69 1,924,478 4.36 1,574,800
--------- ---------
--------- ---------
</TABLE>
STOCK BONUS PLAN
The 1990 Stock Bonus Plan provides for the issuance of up to 80,000 shares of
common stock as incentive bonuses. At December 31, 1997, 76,193 shares have
been awarded and 3,807 shares are available for future award. During 1995, the
Company awarded 2,913 bonus shares under this plan at a weighted average price
of $4.00 per share.
73
<PAGE>
A total of 1,875,085 shares have been reserved for exercise of stock options and
for award under the Stock Bonus Plan.
CANADIAN OFFERING
On July 3, 1997, the Company closed its public stock offering in Canada (the
"Offering"). The Offering consisted of the sale of 2,460,000 Units,
consisting of one Common Share and one-half of one Purchase Warrant
(the "Purchase Warrant"). Each whole Purchase Warrant entitles the holder to
purchase one share of common stock at C$9.00 (U.S.$6.29 at December 31, 1997
exchange rate) at date of exercise. Further, the Company issued 225,000
Warrants (the "Warrants") to the underwriter. Each Warrant entitles the
underwriter to purchase one share of common stock at C$6.90 (US$4.82 at
December 31, 1997) prior to July 3, 1998. The Company has determined the fair
value of these warrants at July 3, 1997 to be diminimus. These warrants
expire at July 3, 1998. Gross proceeds from the Offering totaled
US$12,300,000 (C$16,974,000). The Company received net proceeds of
US$10,684,000 (C$14,574,000) after payment of commissions, certain legal
fees, and other related costs.
PRIVATE PLACEMENT TO NORD RESOURCES CORPORATION
On July 3, 1997, concurrent with the closing of the Canadian offering, the
Company issued 349,549 Units at $5.00 per Unit to Nord Resources Corporation in
exchange for the extinguishment of $1,747,745 of Company debt.
PRIVATE PLACEMENT TO MINERAL RESOURCES DEVELOPMENT COMPANY PTY, LIMITED ("MRDC")
On December 12, 1997, the Company completed the sale of 600,000 shares of Common
Stock (the "Placement") to MRDC, a corporation wholly owned by the Government of
Papua New Guinea. These shares were sold at a price of US$4.50 (C$6.40) per
share and gross proceeds totaled US$2,700,000 (C$3,840,000). After payment of
certain related costs, net proceeds totaled US$2,647,000. The proceeds from the
Placement were placed in escrow pending issuance of the stock certificate. At
December 31, 1997, the proceeds were accounted for as an account receivable and
common stock subscribed. The shares were issued and the funds were received
by the Company in 1998.
OTHER
The Company applies APB Opinion No. 25 in accounting for its stock option
plans. Accordingly, no compensation cost has been recognized for incentive
and certain non-qualified options granted to employees. For the years ended
December 31, 1997, 1996 and 1995, compensation related to issuance of options
to non-employees and bonus shares totaled $111,000, $45,000 and $12,000,
respectively. Had compensation cost for the Company's option grants been
determined based on the fair value at the grant dates for awards under those
plans consistent with the provision of SFAS No. 123, the Company's net
earnings and net earnings (loss) per share would have been reduced to the pro
forma amounts indicated below:
74
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
---------- ------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net Earnings (Loss) As reported $ (14,327) $ 617 $ 1,103
Pro forma $ (14,793) $ 1 $ 656
Net Earnings (Loss) per
Share - Basic As reported $ (1.31) $ .06 $ .12
Pro forma $ (1.35) $ -- $ .07
Share - Diluted As reported $ (1.31) $ .06 $ .10
Pro forma $ (1.35) $ -- $ .06
</TABLE>
J. SIGNIFICANT CUSTOMERS
Sales in 1997 included copper sales to three customers of $8,277,000, $2,991,000
and $2,507,000. Sales in 1996 included copper sales to two customers of
$11,309,000 and $2,521,000. Sales in 1995 included copper sales to two
customers of $11,255,000 and $2,926,000. Management believes the loss of any 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.
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 $1,894,000 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 $867,000 and development cost carryforwards
of $682,000 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 $22,846,000 are available in Papua New
Guinea, provided sufficient projects are developed in that country.
Carryforwards totaling $20,010,000 may be carried forward indefinitely
against future earnings in Papua New Guinea. Carryforwards totaling
$2,836,000 expire between the years 2000 and 2007.
75
<PAGE>
The principal deferred tax assets and (liabilities) for the United States,
Australia, Papua New Guinea and Mexico are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
----- -----
(in thousands)
<S> <C> <C>
Long-term deferred tax assets
and (liabilities):
United States:
Deferred tax assets:
Deferred compensation $ 35 $ 68
Net operating loss carryforwards 1,466 1,384
------- -------
1,501 1,452
Deferred tax (liabilities)
Depreciation 2 (5)
Valuation allowance (1,503) (1,447)
------- -------
Total United States $ -- $ --
------- -------
------- -------
</TABLE>
<TABLE>
<S> <C> <C>
Australia:
Deferred tax assets:
Exploration cost carryforwards -- 296
Development cost carryforwards 682 827
Other 867 203
------- -------
1,549 1,326
Deferred tax (liabilities):
Unrealized gain on currency contracts -- (34)
Deferred leach costs (3,229) (2,843)
Exploration and development costs (3,004) (1,613)
Depreciation (648) (448)
Other (81) (128)
------- -------
(6,962) (5,066)
------- -------
Total Australia $(5,413) $(3,740)
------- -------
------- -------
Papua New Guinea:
Deferred tax assets:
Exploration cost carryforwards $ 5,995 $ 4,029
Deferred tax liability:
Deferred exploration costs (1,760) (3,891)
Valuation allowance (4,235) (138)
------- -------
Total Papua New Guinea $ -- $ --
------- -------
------- -------
Mexico:
Operating loss carryforwards $ 723 $ 497
Valuation allowance (723) (497)
------- -------
Total Mexico $ -- $ --
------- -------
------- -------
</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.
The Company had taxable income from its operations in Australia during 1996
and 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,
1997 1996 1997
----- -------- -------
(In thousands)
<S> <C> <C> <C>
Currently payable:
Australia $1,960 $ 2,934 $ 2,035
Use of Australian carryforwards (1,210) (2,934) (2,035)
------ -------- -------
750 -- --
Change in deferred income taxes (4,787) 2,424 1,389
Change in valuation allowance 6,337 196 (269)
------ -------- -------
Provision for income taxes $2,300 $ 2,620 $ 1,120
------ -------- -------
------ -------- -------
</TABLE>
76
<PAGE>
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,
1997 1996 1995
------ -------- -------
(In thousands)
<S> <C> <C> <C>
Income taxes at statutory U.S. tax rate $(4,060) $ 1,101 $ 756
Reserve for impairment 4,266 -- --
Difference between Australian and
U.S. tax rates (98) 121 107
Non-deductible losses of subsidiaries 1,832 1,000 1,006
Effect of Australian tax rate increase
on deferred income tax assets -- -- (59)
Decrease in Australian valuation allowance -- -- (651)
Other 360 398 (39)
------ -------- -------
Income tax expense $2,300 $ 2,620 $ 1,120
------ -------- -------
------ -------- -------
</TABLE>
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
$48,000, $47,000 and $41,000 for the years ended December 31, 1997, 1996 and
1995 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, 1997 and 1996, the cash surrender value of
$223,016 and $209,700, respectively, has been offset against the accrued
retirement benefits liability. Pension expense for the years ended December
31, 1996 and 1995 was $68,000, and $59,000 respectively. Pension expense for
1997, 1996 and 1995 included $0, $42,000 and $36,000 respectively of service
cost and $0, $26,000, and $23,000, respective of interest on the accrued
benefit obligation. The projected benefit obligation at December 31, 1997
and 1996 was $350,000 and $501,000, respectively. The assumed discount rate,
the estimated rate at which the plan could settle its liabilities, was 7.25%
in 1997 and 7.00% in 1996. The assumed rate of a future pay increase was
0.00% in 1997 and 5.00% in 1996. Pension expense and liability are
determined on an annual basis.
M. 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.
77
<PAGE>
The maximum contingent liability under these agreements is approximately
$470,000 at December 31, 1997.
N. DIFFERENCE BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States ("U.S. GAAP"),
which differ in certain respects from accounting principles generally accepted
in Canada ("Canadian GAAP"). The Company noted only one material difference as
it pertains to these consolidated financial statements. U.S. GAAP under SFAS No.
123 requires options issued to non-employees to be valued and a corresponding
expense recorded in the financial statements. Canadian GAAP has no similar
requirement. The net result of this difference is that under Canadian GAAP,
earnings before income taxes for the years ended December 31, 1997, 1996 and
1995 would be increased by $110,000, $45,000 and $11,000 respectively and
general and administrative expense would be reduced by the same amount.
O. ENVIRONMENTAL
At December 31, 1997, the Company had reserves of approximately $120,000 for
remediation of certain Australian and Papua New Guinea sites and other
environmental costs in accordance with its policy to record liabilities for
environmental expenditures when it is probable that obligations have been
incurred and the costs reasonably can be estimated. The Company's estimates
of these costs are based upon currently available facts, existing technology,
and presently enacted laws and regulations. Where the available information
is sufficient to estimate the amount of liability, that estimate has been
used; where the information is only sufficient to establish a range of
probable liability and no point within the range is more likely than any
other, the lower end of the range has been used.
The amounts of these liabilities are very difficult to estimate due to such
factors as the unknown extent of the remedial actions that may be required
and, in the case of sites not owned by the Company, the unknown extent of the
Company's probable liability in proportion to the probable liability of other
parties. Moreover, the Company has other probable environmental liabilities
that in its judgment cannot reasonably be estimated, and losses attributable
to remediation costs are reasonably possible at other sites. The Company
cannot now estimate the total additional loss it may incur for such
environmental liabilities, but such loss could be substantial.
The possibility of recovery of some of the environmental remediation costs
from insurance companies or other parties exists; however, the Company does
not recognize these recoveries in its financial statements until they are
received.
78
<PAGE>
P. NET INCOME PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share", the following presents
the computations of basic and diluted net income per share:
BASIC NET INCOME PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Net (loss) income available to
common shareholders' basic $ (14,327) $ 617 $ 1,103
--------- --------- --------
--------- --------- --------
Weighted average shares of
common stock outstanding - basic 10,935 10,053 9,559
--------- --------- --------
--------- --------- --------
Basic net (loss) income per share $ (1.31) $ .06 $ .12
--------- --------- --------
--------- --------- --------
</TABLE>
DILUTED NET INCOME PER SHARE
(IN THOUSAND EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
----------- ------- --------
<S> <C> <C> <C>
Net (loss) income available to
Common shareholders - diluted $ (14,327) $ 617 $ 1,103
----------- ------- --------
----------- ------- --------
Weighted average shares of
common stock outstanding 10,935 10,053 9,559
Add: Dilutive share related to
stock based compensation 221 931 1,146
Weighted average shares of
Common stock outstanding - diluted 11,156 10,984 10,705
----------- ------- --------
----------- ------- --------
Diluted net income per share $ (1.31) $ .06 $ .10
----------- ------- --------
----------- ------- --------
</TABLE>
Warrants to purchase 1,404,775 shares of common stock at $6.50 per share were
outstanding at December 31, 1997, but were not included in the computation of
diluted net income per share because the exercise price was greater than the
average market price of common shares and, since the Company experienced a loss,
these shares would have been antidilutive.
79
<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
March 27, 1998
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.
<TABLE>
<S> <C>
/s/ W. PIERCE CARSON
- -------------------------- ---------------------------
W. PIERCE CARSON MARC FRANKLIN
CHIEF EXECUTIVE OFFICER, DIRECTOR
PRESIDENT AND DIRECTOR
MARCH 27, 1998
MARCH 27, 1998
/s/ RAY W. JENNER /s/ JAMES ASKEW
- -------------------------- ---------------------------
RAY W. JENNER JAMES ASKEW
VICE PRESIDENT FINANCE DIRECTOR
AND CHIEF ACCOUNTING OFFICER
MARCH 27, 1998
MARCH 27, 1998
/s/ TERENCE H. LANG
- -------------------------
TERENCE H. LANG
DIRECTOR
MARCH 27, 1998
/s/ J. MAX Y. BOULLE
- -------------------------
J. MAX Y. BOULLE
DIRECTOR
MARCH 27, 1998
/s/ LEONARD LICHTER
- ------------------------
LEONARD LICHTER
DIRECTOR
MARCH 27, 1998
</TABLE>
80
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<C> <S> <C>
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"), Registrant, Norplex, Inc.
("Norplex") and Kemira Holdings, Inc. ("Kemira").
Reference is made to Exhibit 2.1 of Registrant's
Current Report on Form 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
Registrant 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 Registrant.
Reference is made to Exhibit 3.1 of Registrant's Report on
Form 10-K for the year ended December 31,1987, which exhibit is
incorporated herein by reference. **
3.2 Certificate of Amendment of Certificate of Incorporation of
Registrant. **
3.3 Certificate of Amendment of Certificate of
Incorporation of Registrant. Reference is made to **
Exhibit 3:3 of Registrants Form 10-K for the year-
Ended December 31, 1997, which exhibit is
Incorporated by reference.
3.4 Amended and Restated Bylaws 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. **
<PAGE>
<CAPTION>
PAGE
NUMBER
------
<C> <S> <C>
3.5 Amendment No. 1 to Amended and Restated
Bylaws of Registrant. **
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. **
10.2 Shareholders Agreement dated March 11, 1993 by and among
Norplex, Kemira, NK Corp. and Registrant. 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 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. **
10.4 Guaranty of Lease dated May 15, 1988 given by Registrant 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.
**
10.5 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. **
10.6 Amendments and Waivers dated November, 1991
<PAGE>
<CAPTION>
PAGE
NUMBER
------
<C> <S> <C>
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. **
10.7 Waiver, Consent and Agreement made March 11,1993 by and
between Nord Kaolin Company and entities under ATEL
Financial Corporation 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. **
10.8 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. **
10.9 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. **
10.10 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. **
10.11 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
<PAGE>
of Registrant's Report on Form 10-K for the year ended
<CAPTION>
PAGE
NUMBER
------
<C> <S> <C>
December 31, 1992, which exhibit is incorporated herein
by reference. **
10.12 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. **
10.13 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. **
10.14 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. **
10.15 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. **
10.16 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. **
10.17 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. **
<PAGE>
10.18 Amendment No. 4 to Nord Resources Corporation 1982
<CAPTION>
PAGE
NUMBER
------
<C> <S> <C>
Nord Incentive Stock Option Plan. Reference is made to
Exhibit 10.19 of Registrant's Report on Form 10-K for the
year ended December 31, 1995, which exhibit is incorporated
herein by reference. **
10.19 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. **
10.20 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 for the year ended
December 31, 1994, which exhibit is incorporated herein by
reference. **
10.21 Amendment No. 2 to Nord Resources Corporation 1987 Nord
Incentive Stock Option Plan. Reference is made to Exhibit
10.22 of Registrant's Report on Form 10-K for the year ended
December 31, 1995, which exhibit is incorporated herein by
reference. **
10.22 Nord Resources Corporation 1989 Stock Option Plan. Reference
is made to Exhibit 10.33 of Registrant's Report on Form 10-K
for the year ended December 31, 1989, which exhibit is
incorporated herein by reference. **
10.23 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. **
10.24 Amendment No. 2 to Nord Resources Corporation
<PAGE>
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. **
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10.25 Amendment No. 3 to Nord Resources Corporation 1989 Stock
Option Plan. Reference is made to
Exhibit 10.26 of Registrant's Report on Form 10-K for the year
ended December 31, 1995, which exhibit is incorporated herein
by reference. **
10.26 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. **
10.27 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. **
10.28 Amendment No. 2 to Nord Resources Corporation 1991 Stock
Option Plan. Reference is made to Exhibit 10.29 of
Registrant's Report on Form 10-K for the year ended December
31, 1995, which exhibit is incorporated herein by reference. **
10.29 Restated Deferred Compensation Agreement dated May 10, 1989
between Registrant and Terence H. Lang. 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. **
10.30 Amendment No. 1 to the Restated Deferred Compensation
Agreement between Registrant and Terence H. Lang, dated
November 3, 1995. Reference is made to Exhibit 10.31 of
Registrant's Report on Form 10-K for the year ended December
31, 1995, which exhibit is incorporated herein by reference. **
<PAGE>
10.31 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
<CAPTION>
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the year ended December 31, 1989, which exhibit
is incorporated herein by reference. **
10.32 Amendment No. 1 to the Restated Deferred Compensation
Agreement between Registrant and Edgar F. Cruft, dated July
7, 1995. Reference is made to Exhibit 10.34 of Registrant's
Report on Form 10-K for the year ended December 31, 1995,
which exhibit is incorporated herein by reference. **
10.33 Nord Resources Corporation Trust Agreement for Key
Executives as Restated, dated July 7, 1995. Reference is
made to Exhibit 10.35 of Registrant's Report on Form 10-K
for the year ended December 31, 1995, which exhibit is
incorporated herein by reference. **
10.34 Amendment No. 1 to Trust Agreement for Key Executives as
Restated, dated December 1, 1995. Reference is made to
Exhibit 10.36 of Registrant's Report on Form 10-K for the
year ended December 31, 1995, which exhibit is incorporated
herein by reference. **
10.35 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. **
10.36 Nord Resources Corporation Split-Dollar Life Insurance and
Supplemental Compensation Plan Trust Agreement, December 5,
1988. Reference is made to Exhibit 10.35 of Registrant's
Report on Form 10-K for the year ended December 31, 1988,
which exhibit is incorporated herein
<PAGE>
by reference. **
10.37 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
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incorporated herein by reference. **
10.38 Amendment No. 2 dated December 1, 1995 to Change of Control
Agreement between Registrant and Edgar F. Cruft. Reference
is made to Exhibit 10.40 of Registrant's Report on Form 10-K
for the year ended December 31, 1995, which exhibit is
incorporated herein by reference. **
10.39 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. **
10.40 Amendment No. 2 dated December 1, 1995 to Change of Control
Agreement between Registrant and Terence H. Lang. Reference
is made to Exhibit 10.42 of Registrant's Report on Form 10-K
for the year ended December 31, 1995, which exhibit is
incorporated herein by reference. **
10.41 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. **
10.42 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. **
10.43 Amendment No. 2 dated December 1, 1995 to Change
<PAGE>
of Control Agreement between Registrant and Karl A.
Frydryk. Reference is made to Exhibit 10.45 of Registrant's
Report on Form 10-K for the year ended December 31, 1995, which
exhibit is incorporated herein by reference. **
10.44 Change of Control Letter Agreement between Registrant and
William W. Wilcox, dated March 9, 1990. Reference
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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. **
10.45 Amendment No. 2 dated December 1, 1995 to Change of Control
Agreement between Registrant and William W. Wilcox.
Reference is made to Exhibit 10.47 of Registrant's Report on
Form 10-K for the year ended December 31, 1995, which
exhibit is incorporated herein by reference. **
10.46 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. **
10.47 Amendment No. 2 dated December 1, 1995 to Change of Control
Agreement between Registrant and James T. Booth. Reference
is made to Exhibit 10.49 of Registrant's Report on Form 10-K
for the year ended December 31, 1995, which exhibit is
incorporated herein by reference. **
10.48 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. **
10.49 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. **
<PAGE>
10.50 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. **
<CAPTION>
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10.51 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. **
10.52 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. **
10.53 Agreement dated November 17, 1992 amending Fifth Amendment
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. **
10.54 Fifth Amendment to and Restatement of the Financing
Agreement 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. **
10.55 Second Amendment and Restatement of Credit Agreement dated as
of December 1, 1982 between
<PAGE>
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. **
10.56 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
<CAPTION>
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herein by reference. **
10.57 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 November 17, 1993, which exhibit is
incorporated herein by reference. **
10.58 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. **
10.59 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. **
10.60 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. **
10.61 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. **
<PAGE>
10.62 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. **
10.63 Amendatory Agreement dated November 17, 1993 between
SRL and IFC. Reference is made to Exhibit 10.9 of
Registrant's Report on Form 8-K dated November 17,
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1993, which exhibit is incorporated herein by reference. **
10.64 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. **
10.65 Amendment dated November 17, 1992 of the Loan Agreement
between SRL and CDC. Reference is made to Exhibit 10.78
of Registrant's Report on Form 10-K for the year ended
December 31, 1992, which exhibit is incorporated herein
by reference. **
10.66 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. **
10.67 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. **
10.68 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. **
<PAGE>
10.69 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
inc-orporated herein by reference. **
10.70 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
Registrant's Report on Form 8-K dated November 17,
1993, which exhibit is incorporated herein by
reference. **
<CAPTION>
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10.71 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. **
10.72 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. **
10.73 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. **
10.74 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. **
10.75 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. **
<PAGE>
10.76 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. **
10.77 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
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10-K for the year ended December 31, 1992, which
exhibit is incorporated herein by reference. **
10.78 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. **
10.79 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. **
10.80 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. **
10.81 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. **
<PAGE>
10.82 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. **
10.83 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. **
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10.84 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. **
10.85 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. **
10.86 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. **
10.87 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. **
<PAGE>
10.88 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. **
10.89 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. **
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10.90 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. **
10.91 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. **
10.92 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. **
10.93 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. **
<PAGE>
10.94 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. **
10.95 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. **
10.96 Letter Agreement signed by Registrant, Consolidated
Rutile Limited and, SRL related to CDC, DEG,
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Eximbank, IFC and OPIC dated December 15, 1995. Reference
is made to Exhibit 10.100 of Registrant's Report on Form 10-K
for the year ended December 31, 1995, which exhibit is
incorporated herein by reference. **
10.97 Guaranty among Registrant and DCD, DEG, Eximbank, IFC
and OPIC dated February 28, 1996. Reference is made to
Exhibit 10.101 of Registrant's Report on Form 10-K for
the year ended December 31, 1995, which exhibit is
incorporated herein by reference. **
10.98 Pledge, Assignment and Security Agreement among
Registrant and CDC, DEG, Eximbank, IFC and OPIC dated
February 28, 1996. Reference is made to Exhibit 10.102
of Registrant's Report on Form 10-K for the year ended
December 31, 1995, which exhibit is incorporated
herein by reference. **
10.99 Letter Agreement dated December 19, 1996 between
Registrant, SRL, Consolidated Rutile Limited and CDC,
DEG, Eximbank, IFC and OPIC. Reference is made to
Exhibit 10.99 of Registrant's Form 10-K for the
year-ended December 31, 1996 which exhibit is
incorporated herein by reference. **
<PAGE>
10.100 Loan and Security Agreement by and between Congress
Financial Corporation (Central) and Nord Kaolin
Company, dated July 10, 1996. Reference is made to
Exhibit 10.100 of Registrant's Form 10-K for the
year-ended December 31, 1996, which exhibit is
incorporated herein by reference. **
10.101 Promissory note between Registrant (payee) and Nord
Pacific Limited (maker) dated October 24, 1996.
Reference is made to Exhibit 10.101 of Registrant's
Form 10-K for the year-ended December 31, 1996, which
exhibit is incorporated herein by reference. **
10.102 Letter Agreement dated December 30, 1997 between
Registrant, SRL, Consolidated Rutile Limited and CDC,
DEG, Eximbank, IFC and OPIC. E-1
10.103 Asset Purchase Agreement between Registrant and
Dry Branch Kaolin dated March 5, 1997. E-7
10.104 Bill of Sale and Assignment between Registrant and
Dry Branch Kaolin dated April 23, 1997 E-69
10.105 Assumption Agreement between Registrant and Dry
Branch Kaolin dated April 23, 1997. E-72
10.106 Employment Agreement dated May 27, 1997,
between the Registrant and W. Pierce Carson. E-74
10.107 Continuation of Employment Agreement dated
May 27, 1997, between the Registrant and Edgar F. Cruft. E-87
10.108 Amendment to Continuation of Employment Agreement
dated May 27, 1997, between the Registrant and Edgar F. Cruft. E-96
10.109 Continuation of Employment Agreement dated
May 27, 1997, between Registrant and Terence H. Lang. E-98
<PAGE>
10.110 Employment Agreement dated May 27, 1997
May 27, 1997, between the Registrant and
MIL (Investment) S.A., Nord Resources, Edgar F. Cruft,
Terence H. Lang and W. Pierce Carson. E-109
10.111 Subscription Agreement between Registrant and
Nord Pacific Limited dated July 3, 1997. E-112
10.112 Contract For Sale and Purchase dated March 29, 1996
Between the Registrant and Severson Enterprises, Inc. E-119
10.113 Letter Agreement dated March 31, 1998 between Registrant,
SRL, Consolidated Rutile Limited and CDC, DEG, Eximbank, IFC
and OPIC E-157
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
21. SUBSIDIARIES OF REGISTRANT
Jurisdiction in
Name of Subsidiary Which Incorporated
------------------ ------------------
Sierra Rutile Limited Sierra Leone,
West Africa
Nord Kaolin Company Georgia
23. CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Deloitte & Touche LLP E-166
23.2 Consent of KPMG E-167
27. FINANCIAL DATA SCHEDULE E-168
99. ADDITIONAL EXHIBITS
99.1 Independent Auditors' Report to the Board of
Directors and Shareholders, Sierra Rutile Limited,
March 27, 1997 E-169
99.2 Independent Auditors' Report to the Board of
Directors and Shareholders, Sierra Rutile America
Inc., March 27, 1997 E-170
99.3 Independent Auditors' Report to the Board of
Directors and Shareholders, Sierra Rutile Services
Limited, March 27, 1997 E-171
99.4 Independent Auditors' Report to the Board of
Directors and Shareholders, Sierra Rutile Holdings
Limited, March 27, 1997 E-172
99.5 Independent Auditors' Report to the Board of
Directors and Shareholders, Titanium Minerals
Marketing International Limited, March 27, 1997 E-173
<PAGE>
99.6 Independent Auditors' Report to the Board of
Directors and Shareholders, Titanium Minerals
Marketing International USA, March 27, 1997 E-174
</TABLE>
** Indicates that the exhibit is incorporated by reference in this Annual
Report on Form 10-K from a previous filing with the Commission.
<PAGE>
December 30, 1997
Mr. Simon Hill
Mr. John Hodder
Commonwealth Development Corporation ("CDC")
One Besborough Gardens
London, SW 1 2JQ
UNITED KINGDOM
Mr. Roger Peltzer
DEG - Deutsch Investitions- und
Entwicklungsgesellschaft mbH ("DEG")
BelvederstrsBe 40
D-50933 Koln 41 (Mungersdorf)
FEDERAL REPUBLIC OF GERMANY
Mr. Clement K. Miller
Export-Import Bank of the United States ("ExIm Bank")
811 Vermont Avenue, N.W.
Washington, D.C. 20571
Mr. Nguyen Dinh Hung
International Finance Corporation ("IFC")
2121 Pennsylvania Avenue, N.W.
Washington, D.C. 20433
Mr. John Aldonas
Overseas Private Investment Corporation ("OPIC")
1100 New York Avenue, N.W.
Washington, D.C. 20527
Re: SIERRA RUTILE LIMITED - EXTENSION OF FORBEARANCE LETTER DATED
DECEMBER 15, 1995 AS AMENDED ON DECEMBER 19, 1996, JUNE 30,
1997 AND SEPTEMBER 30, 1997.
Gentlemen:
1. We refer to the Forbearance Letter dated December 15, 1995, as amended on
December 19, 1996, on June 30, 1997 and on September 30, 1997 (the "Forbearance
Letter") by and among Sierra Rutile Limited ("SRL" or the "Company"),
Consolidated Rutile Limited ("CRL") and Nord Resources Corporation ("Nord")
(CRL and Nord together, the "Guarantors") and each of the above-addressed
institutions (together, the "Banks" and together with the Company and the
Guarantors, the "Parties"). Capitalized terms that are not defined in this
Letter Agreement shall have the meanings ascribed to them in the Forbearance
Letter.
E-1
<PAGE>
December 30, 1997
Page 2
2. The Forbearance Letter expires by its terms on January 1, 1998, but SRL and
the Guarantors have asked each of the Banks for additional time to present to
the Banks, for discussion, a proposal for repayment of the Senior Obligations
(as such term is defined in the letter Agreement dated September 30, 1997 by and
among the Parties). Accordingly, SRL and each Guarantor propose, effective on
the date that the amounts described in Paragraph 3 below have been paid to the
Banks pursuant to that paragraph, that the Forbearance Letter be amended as
follows:
(i) the definition of the term "Extended Forbearance Period" in paragraph
3(I) be amended by changing the period covered by that definition FROM "May
15, 1995 to January 1, 1998" TO "may 15, 1995 to April 1, 1998";
(ii) paragraph 3(iii) be amended by modifying the phrase "and in paragraph
3 of the Letter Agreement dated as of September 30, 1997, in each case"
(which appears after the words "Except as provided in paragraph 3 of the
Letter Agreement dated as of June 30, 1997," and before the words "among the
Banks, the Company and the Guarantors" at the beginning of such paragraph)
to read as follows, "and in paragraph 3 of each of the Letter Agreements
dated as of September 30, 1997 and December 30, 1997, in each case";
(iii) the date "January 1, 1998" in the fourth sentence of paragraph 4(ii)
be changed to "April 1, 1998";
(iv) the schedule payment date for deferred principal payments in paragraph
7 be changed FROM "January 1, 1998" TO "April 1, 1998";
3. In consideration for the Banks' agreement to the proposals set forth in the
above paragraph 2, the Company shall, on or before January 1, 1998, transfer
the following amounts to the Banks with respect to the period from January 1,
1998 to April 1, 1998, in accordance with the payment instructions set forth in
Annex I to this letter:
<TABLE>
<CAPTION>
Interest.
(In US$) Principal Fees, etc. Total
--------- ---------- -----
<S> <C> <C> <C>
CDC $996,666.67 $216,262.99 $1,212,929.66
DEG 312,500.00 100,781.25 413,281.25
ExIm Bank 835,330.65 257,047.63 1,092,378.28
IFC 645,000.00 208,012.50 853,012.50
OPIC 962,121.22 164,886.51 1,127,007.73
</TABLE>
aggregating the amount of US$4,698,609.42, 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
E-2
<PAGE>
December 30, 1997
Page 3
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) of the Forbearance Letter, in
immediately available funds, fifty percent (50%) of the amount(s) so rescinded
or returned. Each Bank will apply the funds received (I) under the "PRINCIPAL"
column of this paragraph 3 against outstanding principal amounts immediately
upon receipt, and (ii) under the "INTEREST, FEES, ETC." column of this paragraph
3 against non-principal amounts payable to it during the last three (3) months
of the Extended Forbearance Period (as defined after giving effect to paragraph
2(I) of this Letter Agreement), as and when those non-principal amounts become
due. If for any reason the Extended Forbearance Period ends before April 1,
1998, 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.
4. The Financing Documents, the Forbearance Letter as modified by this Letter
Agreement, the Pledge, Assignment and Security Agreement dated as of February
28, 1996 made by Nord in favor of the Banks, the Guaranty dated as of February
28, 1996 made by Nord in favor of the Banks, the Guaranty dated as of February
28, 1996 made by CRL in favor of the Banks and each other document executed and
delivered in connection with the Forbearance Letter (collectively, the
"Forbearance Documents"), remain in full force and effect and the Company and
each Guarantor hereby reaffirms its obligations under each thereof without any
claims, set-offs, or defenses, and such documents embody the entire
understanding of the Parties hereto, and supersede all prior negotiations,
understandings and agreements between them with respect to the subject matter
hereof. The Forbearance Letter, as modified hereby, may not be further modified
in any manner, except by written agreement signed by all of the Parties hereto.
This Letter 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 Letter Agreement by signing any such
counterpart. Execution may be evidenced by an originally signed original or by
a telecopied signature.
5. The Company and each Guarantor acknowledge that the Banks have no
obligation to extend the expiration date of the Extended Forbearance
Period beyond April 1, 1998, to enter into any further forbearances or
waivers with respect to the Project, or to make further disbursements,
additional loans to or investments in the Project (and the execution of
this letter shall not be construed to create any such obligations). Each
of the Banks specifically reserves the right to insist on strict compliance
with the terms of the Forbearance Letter (as amended hereby), the other
Forbearance Documents and, subject to the forbearance and releases granted
under the Forbearance Documents, the Financing Documents, and the Company
and each Guarantor expressly acknowledges such reservation of rights.
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<PAGE>
December 30, 1997
Page 4
6. The Company and each Guarantor further acknowledge that (I) CDC, DEG, IFC,
and OPIC, at the request of the Company and the Guarantors, may continue to
discuss one or more proposals for repayment of the Senior Obligations and the
possibility of extending additional financing o the Project; (ii) none of the
CDC, DEG, IFC, or OPIC have any obligation to, nor can there be any assurance
that any of them will, agree to any repayment proposal or to provide additional
financing to the Project; (iii) any discussions and negotiations and
negotiations relating to any repayment proposal or any financing or re-financing
proposal for the Project were, during the Extended Forbearance Period will be,
conducted solely to accommodate the request of the Company and the Guarantors on
the express understanding that such discussions, and any payment by the Company
or the Guarantors of any fees and expenses of outside counsel for any of CDC,
DEG, IFC, or OPIC related thereto, in no way imply, nor do they constitute a
basis for reliance, that any if CDC, DEG, IFC or OPIC will agree to any
repayment proposal, will provide additional funds to the Project, will enter
into any refinancing of its existing Loans, or will extend the Extended
Forbearance Period beyond April 1, 1998.
7. This Letter Agreement shall be governed by the Laws of the District of
Columbia, without regard to the conflict of laws principles thereof.
Please sign and return a copy of this Letter Agreement confirming your
acknowledgment and agreement with the terms hereof.
SIERRA RUTILE LIMITED
By: Date:
----------------------------------- ----------------------
Name:
Title:
NORD RESOURCES CORPORATION
By: Date:
----------------------------------- ----------------------
Name:
Title:
CONSOLIDATED RUTILE LIMITED
By: Date:
----------------------------------- ----------------------
Name:
Title:
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<PAGE>
December 30, 1997
Page 5
DECEMBER 1997 EXTENSION LETTER
ACKNOWLEDGED AND AGREED TO BY:
COMMONWEALTH DEVELOPMENT CORPORATION
By: Date:
----------------------------------- ----------------------
Name:
Title:
DEG- DEUTSCHE INVESTITIONS- UND
ENTWICKLUNGSGESELLSCHAFT MBH
By: Date:
----------------------------------- ----------------------
Name:
Title:
EXPORT-IMPORT BANK OF THE UNITED STATES
By: Date:
----------------------------------- ----------------------
Name:
Title:
INTERNATIONAL FINANCE CORPORATION
By: Date:
----------------------------------- ----------------------
Name:
Title
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: Date:
----------------------------------- ----------------------
Name:
Title:
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<PAGE>
ANNEX I
PAYMENT INSTRUCTIONS
For Commonwealth Development Corporation ("CDC"):
CDC No. 1 Account (#70297631)
Barclays Bank plc
54 Lombard Street
London EC3P 3AH
For DEG- Deutsch Investitions- und Entwicklungsgesellschaft mbH ("DEG"):
Citibank New York
Account No. 3849-2573
Swift Citi US 33
Reference made to P 1891 SRL - Forbearance December 1997
For Export-Import Bank of the United States ("Exim Bank"):
U.S. Treasury Department
0210-3000-4 TREAS
NYC/CTR/NF=/AC-4984
OBI=EXPORT-IMPORT BANK
DUE ON EIB CREDIT NO. 2169 and NO. 5732 Sierra Leone
For International Finance Corporation ("IFC"):
CITIBANK, New York, New York
For Credit to Account Number: 36085579 ABA 021000089
International Finance Corporation / Reference # 2609 SIL
For Overseas Private Investment Corporation ("OPIC"):
U.S. Treasury Department
New York, NY
ABA No. 0210-3000-4
TREAS NYC/CTR/BNF=AC-71000001
OBI=OPIC IG Number 636-95-324-CR
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<PAGE>
ASSET PURCHASE AGREEMENT
between
DRY BRANCH KAOLIN COMPANY
"Purchaser"
and
NORD KAOLIN COMPANY
"Seller"
DATED AS OF MARCH 5, 1997
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 PURCHASE AND SALE OF ASSETS................................... 1
1.1 Purchase and Sale of Assets ................................. 1
1.2 Excluded Assets ............................................. 4
ARTICLE 2 ASSUMPTION OF LIABILITIES..................................... 5
2.1 Assumption ................................................... 5
2.2 Excluded Liabilities ......................................... 5
ARTICLE 3 CALCULATION AND PAYMENT OF PURCHASE PRICE..................... 7
3.1 Purchase Price ............................................... 7
3.2 Transfer Expenses ........................................... 9
3.3 Allocation of Purchase Price ................................. 9
ARTICLE 4 PROCEDURE FOR CLOSING......................................... 9
4.1 Time and Place of Closing..................................... 9
4.2 Transactions at the Closing................................... 9
4.3 Conveyance of Title to Real Property and Assignment of
Real Property Leases ......................................... 12
4.4 Survey and Inspection of Property............................. 13
4.5 Environmental Liabilities..................................... 14
4.6 Certain Consents ............................................. 14
4.7 Eminent Domain ............................................... 15
4.8 Further Assurances............................................ 15
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLER ..................... 15
5.1 Organization and Qualification ............................... 15
5.2 Authority..................................................... 16
5.3 Subsidiaries; Joint Ventures ................................. 17
5.4 Balance Sheets ............................................... 17
5.5 Inventory..................................................... 17
5.6 Personal Property............................................. 18
5.7 Real Property; Leased Real Property........................... 18
5.8 Contracts..................................................... 21
5.9 Intellectual Property......................................... 23
5.10 Insurance..................................................... 24
5.11 Environmental Matters and Employee Safety and Health ......... 24
5.12 Litigation ................................................... 26
5.13 Absence of Changes ........................................... 26
5.14 Brokers and Finders........................................... 28
5.15 Labor Matters................................................. 28
5.16 Governmental Approval and Consents ........................... 29
5.17 Taxes......................................................... 29
5.18 Employee Benefit Plans ....................................... 30
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<CAPTION>
Page
<S> <C>
5.19 Compliance with Laws ......................................... 32
5.20 Transaction Approval and Consents............................. 33
5.21 Adequacy of Acquired Assets................................... 33
5.22 Compliance with the Immigration Reform and Control Act........ 33
5.23 Mineral Reserves ............................................. 33
5.24 Correctness of Representations ............................... 34
5.25 Definition of "knowledge"..................................... 34
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF PURCHASER................... 34
6.1 Organization and Qualification ............................... 34
6.2 Authority..................................................... 34
6.3 Litigation ................................................... 35
6.4 Correctness of Representations ............................... 35
6.5 Brokers and Finders........................................... 35
6.6 Governmental Approval and Consents ........................... 35
6.7 Financing..................................................... 35
ARTICLE 7 COVENANTS OF SELLER........................................... 36
7.1 Conduct of Business Prior to Closing ......................... 36
7.2 Access and Information ....................................... 36
7.3 Notification of Changes....................................... 37
7.4 Certain Acts Prohibited....................................... 37
7.5 Other Transactions ........................................... 37
7.6 Consents ..................................................... 37
7.7 Supplemental Disclosure....................................... 38
7.8 Additional Reports ........................................... 38
7.9 Conditions Precedent ......................................... 38
7.10 Environmental Permits......................................... 38
7.11 Capital Expenditures ......................................... 38
7.12 Discharge of Liens and Encumbrances........................... 39
7.13 Environmental Fines........................................... 39
7.14 Renegotiation of Equipment Leases............................. 39
7.15 Transferred Benefit Plans/Plan Information ................... 39
7.16 Payoff of Debts............................................... 40
7.17 Funding of Plans ............................................. 40
ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER ............. 41
8.1 Certificate Regarding Schedules and Representations and
Warranties ................................................... 41
8.2 Compliance by Seller ......................................... 41
8.3 No Injunction................................................. 41
8.4 Operation in the Ordinary Course ............................. 42
8.5 Consents; Authorizations; Approval of Legal Matters........... 42
8.6 Transfer of Environmental Permits............................. 42
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<PAGE>
<CAPTION>
Page
<S> <C>
8.7 Incumbency ................................................... 42
8.8 Certified Resolutions......................................... 42
8.9 Basic Corporate Documents..................................... 43
8.10 Satisfaction of Title Objections and Release of Certain
Liens......................................................... 43
8.11 Accuracy of Schedules......................................... 43
8.12 No Adverse Change............................................. 43
8.13 Instruments of Transfer....................................... 43
8.14 Acquisition Documents......................................... 43
8.15 Opinion of Seller's Counsel................................... 43
8.16 Proceedings................................................... 43
8.17 Names......................................................... 44
8.18 Condition of Acquired Assets ................................. 44
8.19 Antitrust..................................................... 44
8.20 Guaranty...................................................... 44
8.21 Royalty Agreement ............................................ 44
8.22 Noncompetition Agreement...................................... 44
8.23 Norplex Name.................................................. 45
8.24 License Agreement ............................................ 45
8.25 Sales/Resale Exemption Certificates .......................... 45
8.26 Releases...................................................... 45
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER................. 45
9.1 Certificate Regarding Representations and Warranties.......... 45
9.2 Compliance by Purchaser ...................................... 45
9.3 Certified Resolutions ........................................ 46
9.4 Basic Corporate Documents .................................... 46
9.5 No Injunction; Etc............................................ 46
9.6 Incumbency.................................................... 46
9.7 Certificates.................................................. 46
9.8 Acquisition Documents ........................................ 46
9.9 Opinion of Purchaser's Counsel................................ 46
9.10 Hart-Scott-Rodino ............................................ 46
9.11 Proceedings .................................................. 47
9.12 Release from Guarantees ...................................... 47
9.13 Royalty Agreement ............................................ 47
ARTICLE 10 MUTUAL COVENANTS ............................................. 47
10.1 Governmental Filings.......................................... 47
10.2 Further Mutual Covenants...................................... 47
10.3 Prorations.................................................... 47
ARTICLE 11 POST CLOSING MATTERS ......................................... 49
11.1 Employment of Employees ...................................... 49
11.2 Seller Benefit Plans.......................................... 50
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<PAGE>
<CAPTION>
Page
<S> <C>
11.3 Use of Name .................................................. 51
11.4 Employee Files................................................ 51
11.5 Non-Solicitation.............................................. 51
11.6 Maintenance of Books and Records.............................. 51
11.7 Payments Received ............................................ 52
11.8 UCC Matters .................................................. 52
11.9 Cooperation .................................................. 52
11.10 Titanium Dioxide Supply Agreement ............................ 52
ARTICLE 12 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS......................... 52
12.1 Confidentiality .............................................. 52
12.2 Public Announcements.......................................... 53
ARTICLE 13 TERMINATION................................................... 54
13.1 Termination .................................................. 54
13.2 Effect of Termination ........................................ 54
ARTICLE 14 INDEMNIFICATION............................................... 54
14.1 Agreement of Seller to Indemnify.............................. 54
14.2 Agreement of Purchaser to Indemnify Seller.................... 55
14.3 Procedures for Indemnification................................ 56
14.4 Defense of Third Party Claims ................................ 56
14.5 Settlement of Third Party Claims.............................. 57
14.6 Duration; Limitations ........................................ 58
ARTICLE 15 GENERAL PROVISIONS ........................................... 58
15.1 Fees and Expenses ............................................ 58
15.2 Notices ...................................................... 58
15.3 Assignment; Binding Effect.................................... 60
15.4 No Benefit to Others.......................................... 60
15.5 Headings, Gender, and Person.................................. 60
15.6 Counterparts.................................................. 60
15.7 Integration of Agreement...................................... 60
15.8 Time of Essence .............................................. 60
15.9 Governing Law ................................................ 60
15.10 Partial Invalidity............................................ 61
15.11 Investigation ................................................ 61
15.12 Arbitration .................................................. 61
</TABLE>
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<PAGE>
TABLE OF EXHIBITS
Exhibit A Seller Opinion
Exhibit B Purchaser Opinion
Exhibit C Guaranty
Exhibit D Royalty Agreement
Exhibit E Noncompetition Agreement
Exhibit F Titanium Dioxide Supply Agreement
E 7- v -
<PAGE>
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1.1(a) Noncurrent Assets
Schedule 1.1(b) Timber Harvesting Contracts
Schedule 1.2(k) Capital Credits
Schedule 1.2 Additional Excluded Assets
Schedule 3.3 Allocation of Purchase Price
Schedule 4.3(b) Key Properties
Schedule 4.3(b)(ii) Valuation of Nord Properties
Schedule 4.5 Environmental Liabilities
Schedule 5.1.1 Jurisdictions Where Qualified
Schedule 5.1.2 Locations of the Acquired Assets and Trade Names
Schedule 5.4 Balance Sheets
Schedule 5.5 Inventories
Schedule 5.6.1 Owned Personal Property
Schedule 5.6.2 Encumbrances on Owned Personal Property
Schedule 5.6.3 Leased Personal Property
Schedule 5.6.4 Leased Personal Property Defaults
Schedule 5.7.1 Real Property
Schedule 5.7.2 Leased Real Property
Schedule 5.7.3 Tenants
Schedule 5.8.1 Contracts
Schedule 5.8.2 Excluded Contracts
Schedule 5.8.3 Commitments for Capital Expenditures
Schedule 5.8.4 Customer List
Schedule 5.9 Intellectual Property
Schedule 5.11.1 Environmental Matters
Schedule 5.11.2 Environmental Permits and Licenses
Schedule 5.11.3 Storage Tanks
Schedule 5.11.4 Employee Health and Safety Matters
Schedule 5.12 Litigation Matters
Schedule 5.15 Employees
Schedule 5.16 Governmental Approvals and Consents
Schedule 5.17.1 Tax Bills
Schedule 5.17.2 Federal and State Tax Disputes
Schedule 5.18 Company Benefit Plans
Schedule 5.23 Mineral Reserves
Schedule 7.14 Equipment Leases Subject to Renegotiation
Schedule 11.1 Salaried Employees
</TABLE>
E 7- vi -
<PAGE>
CROSS REFERENCES TO DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION IN WHICH DEFINED
<S> <C>
Acceptance Notice Section 3.1(b)
Accounts Receivable Section 1.1(i)
Acquired Assets Section 1.1(b)
Acquisition Documents Section 5.2
Acquisition Proposal Section 7.5
Aggregate Value Section 3.1(b)(i)
Agreement Preamble
Assumed Liabilities Section 2.1
Balance Sheets Section 5.4
Beneficiary Section 10.3(d)
Bonds Section 2.2(k)
Books and Records Section 1.1(b)(vii)
Business Recital A
Closing Section 4.1
Closing Date Section 4.1
Closing Statement Section 3.1(b)
Code Section 2.2(j)
Contract(s) Section 1.1(b)(iii)
CPA Firm Section 3.1(b)
Deductible Amount Section 14.6
Due Diligence Book Section 4.5(a)
Effective Time Section 4.1
Electric Service Agreement Section 1.2(j)
Employees Section 5.18(a)
Environmental Consultants Section 4.5(a)
Environmental Liabilities Section 4.5(a)
Environmental Permits Section 5.11(a)(v)
Environmental Site Assessment Section 4.5(a)
Equipment Section 1.1(b)(ii)
Equipment Charges Section 10.3(b)(iii)
ERISA Section 5.18(a)(i)
Escrow Amount Section 3.1(a)
Estimated Purchase Price Section 3.1(a)
Excluded Assets Section 1.2
Excluded Contracts Section 5.8(a)(vi)
Excluded Liabilities Section 2.2
Furniture and Fixtures Section 1.1(b)(ix)
GAAP Section 3.1(b)
General Partner Section 5.1
E 7- vii -
<PAGE>
Hired Employee(s) Section 11.1(a)
Immigration Laws Section 5.22
Indemnification Claim Section 14.3(a)
Indemnitee Section 14.3
Indemnitor Section 14.3
Information Section 12.1
Intellectual Property Section 1.1(b)(vi)
Inventory Section 1.1(b)(iv)
IRS Section 5.18(b)(i)
Kemira Section 2.2(k)
Knowledge Section 5.25
Labor Claims Section 5.15
Latest Balance Sheet Section 3.1(b)
Leased Real Property Section 1.1(b)(i)
License Agreement Section 5.9
Losses Article 14
Material Changes Section 3.1(b)(ii)
Negotiation Period Section 14.3(c)
Not Actively Employed Section 11.1(a)
Notice Period Section 14.4(a)
Payor Section 10.3(d)
Payee Section 10.3(d)
Permits Section 1.1(b)(viii)
Permitted Encumbrances Section 1.1
Person Section 15.5
Personal Property Taxes Section 10.3(b)(v)
Proration Items Section 10.3(a)
Purchase Price Section 3.1(a)
Purchaser Preamble
Purchaser Indemnitees Section 14.1
Purchaser Opinion Section 4.2(b)(v)
Real Property Section 1.1(b)(i)
Real Property Leases Section 5.7(b)
Real Property Taxes Section 10.3(b)(iv)
Recipient Section 10.3(d)
Rental Charges Section 10.3(b)(ii)
Resources Section 2.2(k)
Review Period Section 3.1(b)
Royalty Payments Section 10.3(b)(vi)
Seller Preamble
Seller Benefit Plans Section 5.18(a)
Seller Indemnitees Section 14.2
Seller Opinion Section 4.2(a)(iv)
Seller USTs Section 14.1(e)
E 7- viii -
<PAGE>
Settlement Period Section 3.1(b)
Taxes Section 2.2(j)
Third Party Claim Section 14.4
Transferred Benefit Plans Section 5.18(b)
Utility Charges Section 10.3(b)(i)
Valuation Report Section 3.1(b)
Vehicles Section 1.1(b)(v)
</TABLE>
E 7- ix -
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of this 5th day of March, 1997, between DRY BRANCH KAOLIN COMPANY, a Delaware
corporation ("Purchaser"), and NORD KAOLIN COMPANY, a Georgia limited
partnership ("Seller").
A. Seller is engaged in the mining and processing of kaolin in the state
of Georgia and in the production of kaolin-based pigments (the "Business"). The
Business has been conducted under the names "Nord Kaolin Company" and "Norplex".
B. Subject only to the limitations and exclusions contained in this
Agreement and on the terms and conditions hereinafter set forth, Seller desires
to sell and Purchaser desires to purchase substantially all of the assets of
Seller used in the Business.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 PURCHASE AND SALE OF ASSETS.
(a) At the Closing (as hereinafter defined), on and subject to the terms
and conditions of this Agreement, Seller shall sell, assign, transfer, convey,
and deliver to Purchaser, and Purchaser shall purchase, acquire, and accept from
Seller, all of the right, title, and interest of Seller in and to the Acquired
Assets (as hereinafter defined).
(b) Except as provided in Section 1.2, "Acquired Assets" shall mean all of
the right, title and interest of Seller in and to all of the following assets,
properties, contracts and rights of Seller, as the same shall exist on the
Closing Date (as hereinafter defined), which shall be delivered free and clear
of any and all liens, encumbrances, security interests, options and other
adverse claims:
(i) All real property owned by Seller, and all of Seller's
right, title, and interest in the buildings, fixtures, improvements, timber
and mineral rights and reserves (including but not limited to kaolin) located
thereon or thereunder, together with all water lines, rights of way, uses,
licenses, easements, hereditaments, tenements, and appurtenances belonging or
appertaining thereto and any and all assignable warranties of third parties
with respect thereto (the "Real Property") and, by assignment of leases, all
of Seller's rights in, to, and under all real estate leases (including,
without limitation, any assignment of a real estate lease or sublease) to
which Seller is a party, together with all of Seller's right, title, and
E-8
<PAGE>
interest in the buildings, fixtures, improvements and mineral reserves
(including but not limited to kaolin), including construction-in-progress,
and appurtenances thereto, located on or under the real property subject to
such real estate leases, and any and all assignable warranties of third
parties with respect thereto (the "Leased Real Property");
(ii) All machinery, equipment, tools, computers, terminals,
computer equipment, office equipment, business machines, telephones and
telephone systems, parts, accessories, and the like, wherever located, and
any and all assignable warranties of third parties with respect thereto (the
"Equipment");
(iii) To the extent permitted by applicable law and the terms of
such instruments, and except for the Excluded Contracts (as hereinafter
defined), all of the contracts, collective bargaining agreements, leases,
warranties, commitments, agreements, arrangements, and purchase and sales
orders, whether oral or written, together with the right to receive income in
respect of such contracts, leases, warranties, commitments, agreements,
arrangements, and purchase and sales orders on and after the Closing Date
(individually, a "Contract" and collectively, the "Contracts");
(iv) All raw materials, in-process kaolin and finished kaolin
products (including without limitation products in transit or on
consignment), goods held for resale, samples, promotional literature,
supplies, chemicals, in-ground clay, spare parts, bags and pallets, wherever
located (the "Inventory"), together with all rights of Seller against
suppliers of the Inventory including, without limitation, Seller's rights to
receive refunds or rebates in connection with its purchase of such Inventory;
(v) All motor vehicles, trucks, forklifts, rail cars and other
rolling stock and all assignable warranties of third parties related thereto
(the "Vehicles");
(vi) All patents, designs, art work, designs-in progress,
formulations, know-how, prototypes, inventions, trademarks, trade names, trade
styles, service marks, and copyrights; all registrations and applications
therefor, both registered and unregistered, foreign and domestic; all trade
secrets, technology or processes; all computer software (including documentation
and related object and, if applicable, source codes); and all confidential or
proprietary information that are either (A) owned by or negotiated in the name
of Seller or (B) as to which Seller has rights as licensee, constituting all of
the intellectual property of Seller used or contemplated for use in the Business
(the "Intellectual Property");
(vii) All existing data, data bases, books, records,
correspondence, business plans and projections, records of sales, customer
and vendor lists, files, papers, and, to the extent permitted under
applicable law or regulation, copies of historical personnel payroll and
medical records of each of the Hired Employees (as defined in Section 11.1
hereof) in the possession of Seller, including without limitation, employment
applications, corrective action reports, disciplinary reports, notices of
transfer, notices of rate changes, other similar documents, and any summaries
of such documents regularly prepared by Seller; all reported
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<PAGE>
medical claims made for each Hired Employee; and all manuals and printed
instructions of Seller relating to the Acquired Assets and to the business
operations of Seller (the "Books and Records");
(viii) To the extent permitted under applicable law or regulation,
all licenses, permits, certificates, and other governmental or
quasi-governmental authorizations of Seller (the "Permits");
(ix) All furniture, fixtures, and leasehold improvements, wherever
located, and any and all assignable warranties covering such furniture,
fixtures, and leasehold improvements owned by Seller or in which Seller has an
interest ("Furniture and Fixtures");
(x) All credits, utility rebates or rate adjustments, or prepaid
expenses; all causes of action (except for those causes of action which are not
related to the Acquired Assets), claims, and demands of Seller; all security
deposits and utility deposits; and all other assets (other than Excluded Assets
as defined in Section 1.2 hereof) used by Seller and necessary to operate the
Business, wherever located, tangible or intangible, provided, however, that the
Acquired Assets shall not include, and Purchaser shall not acquire, any right,
title, or interest of Seller in or to the Excluded Assets;
(xi) All noncurrent assets identified on SCHEDULE 1.1(a);
(xii) The assets of the Transferred Benefit Plans; and
(xiii) Any rights to any condemnation proceeds and any proceeds
from Seller's insurance coverages relating to the Acquired Assets.
For purposes of this Agreement, "Permitted Encumbrances" shall mean, as to
all or any portion of the Real Property and the Leased Real Property: (A) ad
valorem real property taxes for 1997 and subsequent years which are a lien but
not yet due and payable; (B) such matters as are or would be revealed by a
current and accurate survey and inspection and which are not objected to by
Purchaser; provided, however, that Purchaser shall not have the right to object
to any such matter if the same will not (i) materially adversely affect the
ability of Purchaser to mine or operate the facility or run the Business as
currently operated or otherwise use for its intended use the tract or parcel
encumbered thereby or (ii) otherwise materially adversely affect the
marketability of such tract or parcel; (C) such matters as are ultimately listed
in Schedule B-Section 2 of Purchaser's Title Commitments and which are not
objected to by Purchaser; provided, however, that Purchaser shall not have the
right to object to any such matter if the same will not (i) materially adversely
affect the ability of Purchaser to mine or operate the facility or the Business
as currently operated or otherwise use for its intended use the tract or parcel
encumbered thereby, or (ii) otherwise materially adversely affect the
marketability of such tract or parcel; and (D) the timber harvesting contracts
set forth on SCHEDULE 1.1(b).
1.2 EXCLUDED ASSETS. Seller shall not sell and Purchaser shall not
purchase or
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acquire and the Acquired Assets shall not include:
(a) All cash and cash equivalents;
(b) Subject to Section 11.3 hereof, any right, title, or interest of
Seller in or to any right to use the name "Nord";
(c) The assets of any employee benefit plan other than the
Transferred Benefit Plans maintained by Seller for the benefit of the employees
of the Seller or to which Seller has made any contribution;
(d) The assets and properties used by Seller which have been disposed
of since the date of this Agreement, provided such disposition has been made in
accordance with the terms hereof;
(e) Seller's partnership record books, tax returns and records, books
of account and ledgers, and such other records having to do with Seller's
organization or capitalization;
(f) Any rights which accrue or will accrue to Seller under this
Agreement;
(g) Subject to Section 1.1(b)(xiii), any rights to any of Seller's
insurance policies or premiums (except as provided in Section 8.19 hereof);
(h) Any rights to any of Seller's claims for any federal, state,
local, or foreign tax refund;
(i) The assets, properties, and rights (including rights to insurance
proceeds) specifically listed and described on SCHEDULE 1.2;
(j) All accounts, notes and other receivables of Seller (including
without limitation the excess mileage credits receivable) (the "Accounts
Receivable"); and
(k) All rights to receive payments of capital credits for the years
through 1996, which capital credits are listed on SCHEDULE 1.2(k), pursuant to
the Agreement for Electric Service dated May 24, 1989 between Oconee Electric
Membership Corporation and Seller (the "Electric Service Agreement").
The assets described in this Section 1.2 are hereinafter collectively
referred to as the "Excluded Assets".
ARTICLE 2
ASSUMPTION OF LIABILITIES
2.1 ASSUMPTION. Subject to Section 2.2 hereof, as of the Effective Time,
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Purchaser shall assume responsibility for the performance and satisfaction of
the following, and only the following, liabilities of Seller relating to the
Business (collectively, the "Assumed Liabilities"):
Except as described in Section 2.2(c), all of the executory obligations and
liabilities of Seller arising from and after the Closing Date, pursuant to
(i) the terms of the Real Property Leases (as defined in Section 5.7(b))
identified in SCHEDULE 5.7.2, (ii) the Contracts identified in SCHEDULES 5.6.3,
5.8.1, 5.9 OR 5.15, (iii) the Transferred Benefit Plans (as defined in
Section 5.18(b)), and (iv) all reclamation expenses for the Real Property and
Leased Real Property.
2.2 EXCLUDED LIABILITIES. Purchaser shall not assume or become liable for
any obligations, commitments, or liabilities of Seller, whether known or
unknown, absolute, contingent, or otherwise, and whether or not related to the
Acquired Assets, except for the Assumed Liabilities (the obligations and
liabilities of Seller not assumed by Purchaser are hereinafter referred to as
the "Excluded Liabilities"). Without limiting the generality of the preceding
sentence, the Excluded Liabilities include all obligations and liabilities of
Seller (i) whether or not reflected in, reserved, or accrued against in the
Latest Balance Sheet, and (ii) not specifically described in Section 2.1 hereof,
including without limitation, the following:
(a) Any liability or obligation arising out of any Seller Benefit
Plans (as defined in Section 5.18) which are not Transferred Benefit Plans;
(b) Any losses, costs, expenses, damages, claims, demands and
judgments of every kind and nature (including the defenses thereof and
reasonable attorneys' and other professional fees) related to, arising out of,
or in connection with Seller's failure to comply with the Bulk Transfer Act or
any similar statute as enacted in any jurisdiction, domestic or foreign;
(c) Any liability or obligation arising or accruing under any
Contract, Transferred Benefit Plan or Real Property Lease prior to the Effective
Time (as hereinafter defined), and any liability or obligation arising from or
related to any breach or violation by Seller of or default by Seller under any
provision of any Contract, Transferred Benefit Plan or Real Property Lease and
any facilities abandonment charge which may become due or payable after the
Effective Time relating to any termination of the Electric Service Agreement
under the terms of the Electric Service Agreement; provided, however, that the
parties agree that the capital credits of Seller thereunder shall be used to the
extent permitted under that agreement to pay any such charge;
(d) Any liability of Seller with respect to any claim or cause of
action, regardless of when made or asserted, which arises (i) out of or in
connection with the operation of the Business by Seller prior to the Effective
Time, (ii) with respect to any product purchased, produced or manufactured or
any service provided by Seller on or prior to the Effective Time, including
without limitation, any liability or obligation (A) pursuant
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to any express or implied representation, warranty, agreement, or guarantee made
by Seller or (B) imposed or asserted to be imposed by operation of law, in
connection with any service performed or product produced, manufactured, sold,
or leased by or on behalf of Seller prior to the Effective Time, including
without limitation, any claim related to any product delivered in connection
with the performance of such service or product produced, manufactured, sold or
leased, and any claims seeking to recover for consequential or punitive damages,
lost revenue, or income, including pursuant to any doctrine of product
liability, or (iii) out of or in connection with the operations of the Business
prior to the Effective Time under any federal, state, or local law, rule, or
regulation or under any contractual obligation relating to (A) environmental
protection or clean-up, (B) taxation, or (C) employment or termination of
employment;
(e) Any liability of Seller for any actual or alleged breach of or
noncompliance with any federal, state, or local law, rule, regulation, order or
decree applicable to any Contract, Real Property Lease, Transferred Benefit Plan
or otherwise applicable to the Seller prior to the Effective Time;
(f) Any liabilities or obligations of Seller relating to the Excluded
Assets;
(g) Any liabilities or obligations of Seller relating to sales and
use, transfer, documentary, income or other taxes levied on the transfer of the
Acquired Assets;
(h) Any liability or obligation, arising prior to or as a result of
the Closing, to any employee, agent, or independent contractor of Seller,
whether or not employed by Purchaser after the Closing, or under any benefit
arrangement with respect thereto;
(i) Any Environmental Liabilities (as hereinafter defined);
(j) Any liability or obligation for all taxes, charges, fees, levies
or other assessments, net income, gross income, gross receipts, sales, use, ad
valorem, franchise, profits, license, withholding, payroll, employment, social
security, unemployment, excise, estimated, severance, property or other taxes,
duties, fees, assessments or charges of any kind whatsoever (including without
limitation the Michigan Single Business Tax), including any interest, penalties
or additional amounts attributable thereto imposed by any federal, state, local
or foreign governmental authority ("Taxes") payable by Seller or any member of
any Affiliated group (within the meaning of Section 1504(e) of the Internal
Revenue Code of 1986, as amended (the "Code")) or any combined or consolidated
group for state or other tax purposes of which the Seller is or has been a
member, whenever incurred, for all periods through and including the period
ending immediately prior to the Effective Time, including, without limitation,
income Taxes arising as a result of the transactions contemplated herein; and
(k) Any (i) trade accounts payable of the Business as of the Closing
Date, (ii) the wages, commissions, vacation for the calendar year in which the
Closing Date occurs,
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holiday, and sick pay obligations with respect to the Hired Employees accrued
through the Closing Date, (iii) long-term debt, (iv) the current portion of and
accrued interest on any long-term indebtedness (excluding the Contracts which
constitute capital equipment leases) and loans payable, (v) obligations under
the $1,900,000 Jeffersonville-Twiggs County Georgia Variable Rate Demand
Pollution Control Revenue Refunding Bonds Dated 6/21/94 Due 7/1/2004 (Nord
Kaolin Company Project) (the "Bonds"), (vi) amounts payable by Seller to Nord
Resources Corporation ("Resources"), Kemira Holdings, Inc. ("Kemira") or any of
their respective Affiliates and (vii) all other liabilities reflected on the
Latest Balance Sheet (as hereinafter defined).
ARTICLE 3
CALCULATION AND PAYMENT OF PURCHASE PRICE
3.1 PURCHASE PRICE.
(a) Subject to adjustment pursuant to this Section 3.1 and to the
conditions of this Agreement, the cash consideration to be paid to Seller for
the sale, transfer, and conveyance of the Acquired Assets and the assumption of
the Assumed Liabilities shall be an amount equal to Twenty Million and No/100
Dollars ($20,000,000.00), less $735,000 in consideration for Purchaser's
obligation to assume all reclamation expenses of Seller as described in
Section 2.1(iv) (the "Estimated Purchase Price"). At Closing, Purchaser shall
pay to Seller in immediately available funds an amount equal to $17,338,500 and
shall pay into escrow $1,926,500 (the "Escrow Amount") pursuant to the terms of
an escrow agreement to be agreed upon by the parties. The Estimated Purchase
Price after any adjustments have been made pursuant to this Section 3.1 plus the
aggregate amount of the Assumed Liabilities is referred to herein as the
"Purchase Price."
(b) No later than five (5) days after the Closing Date, the Seller
will prepare and deliver to the Purchaser a statement (the "Closing Statement")
setting forth (i) Seller's best estimation of the aggregate value (the
"Aggregate Value") as of the Closing Date of the Inventory, and (ii) Seller's
quantified best estimation of any material adverse change in the value or
condition of any of the other Acquired Assets from the date of the Latest
Balance Sheet through the Closing Date (collectively, "Material Changes"). The
calculation of the Aggregate Value set forth in the Closing Statement shall be
prepared in accordance with generally accepted accounting principles ("GAAP")
applied in a manner consistent with the preparation of the unaudited balance
sheet of Norplex, Inc. as of October 31, 1996 (the "Latest Balance Sheet") and
shall include the supporting schedules and backup for the calculation of the
Aggregate Value.
Purchaser shall have fifteen (15) days from receipt of the
Closing Statement (the "Review Period") to review the Closing Statement and to
agree or disagree as to the Aggregate Value and Material Changes reflected
thereon. Purchaser may accept Seller's computation of the Aggregate Value and
Material Changes reflected on the Closing Statement by giving Seller written
notice of such acceptance ("Acceptance Notice") at any time during the Review
Period. If Purchaser does not so accept such computation,
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representatives of Seller and Purchaser shall meet as often as necessary during
the ten (10) day period immediately following the Review Period (the "Settlement
Period") in an attempt to agree upon a final computation of the Aggregate Value
and Material Changes. During the Settlement Period, each of Purchaser and
Seller shall give the other reasonable access to their respective premises,
systems, and books and records with respect to the Acquired Assets as is
reasonably necessary to make such computation.
If Purchaser and Seller are unable to agree on such computation
during the Settlement Period, all matters in dispute shall be referred to a
nationally recognized public accounting firm (other than the respective
independent auditors of Purchaser and Seller) upon which Purchaser and Seller
mutually agree in writing (the "CPA Firm"), within five (5) business days after
the expiration of the Settlement Period. The CPA Firm shall, acting as experts
and not as arbitrators, determine all matters in dispute related to the
calculation of the Aggregate Value and Material Changes (to the extent such
changes can be valued by the CPA Firm) and report thereon (the "Valuation
Report") to Purchaser and Seller within ten (10) business days from the date
such matters are referred to it, or such other period of time (not to exceed
twenty (20) calendar days) as the CPA Firm shall determine that it needs to
render such Valuation Report, and such Valuation Report shall be final and
binding on the parties hereto. If the CPA Firm is unable to assess the value of
the Material Changes, the amount of Purchaser's estimated value of the Material
Changes in dispute shall be held back in the escrow, the remainder of the
adjustments and payments will be made as set forth in subsection (c) below, and
the parties shall resolve the dispute related to the held back amount in
accordance with the arbitration provisions of Section 15.12.
Purchaser and Seller each shall permit the CPA Firm and each
other such access to their respective premises and books and records relating to
the Acquired Assets as the CPA Firm or Purchaser or Seller may reasonably
request and shall render to the CPA Firm and each other all such reasonable
assistance as the CPA Firm or Purchaser or Seller may deem necessary or
advisable in connection with making its determinations. The fees and expenses
of the CPA Firm shall be shared equally by Purchaser and Seller.
(c) If (X) the Aggregate Value as of the Closing Date less (Y) the
Material Changes, is greater than the Aggregate Value reflected in the Latest
Balance Sheet, the escrow agent shall pay the Escrow Amount to Seller and the
Purchaser shall pay to Seller an amount equal to the difference between such
amounts. If (X) the Aggregate Value as of the Closing Date less (Y) the
Material Changes, is less than the Aggregate Value reflected in the Latest
Balance Sheet, the escrow agent shall pay to Seller the Escrow Amount minus the
difference between such amounts and the escrow agent shall pay the remaining
Escrow Amount to Purchaser. If the amount of the difference exceeds the Escrow
Amount, Seller shall pay Purchaser such excess. Any payment required by this
subsection shall be made by wire transfer to an account designated in writing by
the recipient on the third day (or the next succeeding business day if such day
is not a business day) following (i) Seller's receipt of the Acceptance Notice,
(ii) agreement by Purchaser and Seller as to the final computation of the
Aggregate Value as of the Closing Date and the Material Changes , (iii) the
delivery of the Valuation Report to Purchaser and Seller; or (iv) the date upon
which the arbitration is
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concluded.
3.2 TRANSFER EXPENSES. Seller shall pay any sales and use, transfer,
documentary, or other taxes levied on the transfer of the Acquired Assets. All
Acquired Assets shall be claimed as exempt from sales or use tax by both parties
and Purchaser shall furnish Seller at Closing with appropriate sales tax
exemption certificates as reasonably requested by Seller for the Inventory.
Seller shall timely report and remit any such taxes to the appropriate revenue
authorities.
3.3 ALLOCATION OF PURCHASE PRICE. The consideration paid for the Acquired
Assets and the assumption of the Assumed Liabilities that are taken into account
in determining the amount realized for tax purposes (which shall equal the
Purchase Price) shall be allocated among the Acquired Assets as set forth on
SCHEDULE 3.3. The parties agree to be bound by such allocation and to report
the transaction contemplated herein for federal income tax purposes in
accordance with such allocation; provided, however, that if adjustments are made
to the Estimated Purchase Price in calculating the Purchase Price, then
corresponding adjustments shall be made to the allocation. In furtherance of
the foregoing, the parties hereto agree to execute and deliver Internal Revenue
Service Form 8594 reflecting such allocation.
ARTICLE 4
PROCEDURE FOR CLOSING
4.1 TIME AND PLACE OF CLOSING. The closing for the purchase and sale
contemplated by this Agreement (the "Closing") shall be held at the offices of
Alston & Bird, One Atlantic Center, 1201 West Peachtree Street, Atlanta, Georgia
30309, within three (3) days after the conditions precedent to the obligations
of the parties set forth in Articles 8 and 9 herein are satisfied, or at such
other time and place as the parties hereto may agree in writing (the date on
which the Closing actually occurs is hereinafter referred to as the "Closing
Date"). Subject to the consummation of the Closing on the Closing Date, the
sale, assignment, transfer, and conveyance to Purchaser of the Acquired Assets
will be effective as of 12:01 AM local time on the Closing Date (the "Effective
Time").
4.2 TRANSACTIONS AT THE CLOSING. At the Closing, each of the following
items shall be delivered:
(a) Seller shall deliver to Purchaser the following:
(i) such bills of sale, motor vehicle titles, warranty deeds,
quitclaim deeds, assignments, endorsements, and other good and sufficient
instruments and documents of conveyance and transfer, in form reasonably
satisfactory to Purchaser and its counsel, as shall be necessary and effective
to sell, transfer and assign to and vest in Purchaser all of Seller's right,
title, and interests in and to the Acquired Assets, including without
limitation, good, marketable (insurable, subject to Permitted Encumbrances, as
to the Real Property), and valid title in and to all of the Acquired Assets
owned by Seller free
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and clear of all liens, and good, insurable (as to the Real Property Leases) and
valid leasehold interests in and to all of the Acquired Assets leased by Seller
as lessee, and all of Seller's rights under all Contracts;
(ii) a certificate of Seller with respect to the matters
described in Sections 8.1, 8.2, 8.5, 8.6, 8.12, and 8.18 hereof;
(iii) a certificate of the Secretary or Assistant Secretary
of the General Partner of Seller with respect to the matters described in
Sections 8.7 and 8.8 hereof;
(iv) the opinion of counsel in substantially the form of
EXHIBIT A hereto (the "Seller Opinion");
(v) copies of the consents and waivers described in
Section 8.5 hereof;
(vi) satisfactory evidence of the approvals described in
Section 8.5 hereof;
(vii) certificates of existence of Seller, as of a date
within twenty (20) days prior to the Closing Date, from the State of Georgia and
each jurisdiction listed in SCHEDULE 5.1.1 hereto;
(viii) affidavit(s) of title stating that (a) there are no
parties in possession of any of the Real Property or Leased Real Property other
than Seller (or otherwise specifically setting forth any such other parties'
rights and the source and extent of such parties' rights), and (b) Seller has
not caused any work to be performed on any of the Real Property or Leased Real
Property within one hundred (100) days of the date of such affidavit(s), or if
Seller has caused any such work to be performed within one hundred (100) days of
such date(s) that all such work has been completed and fully paid for, and such
other indemnities, lien waivers and other documentation as Purchaser's title
insurance company may reasonably request in order to permit Purchaser's title
insurance policy to be issued without exceptions as to matters arising in the
"gap", mechanic's or materialman's liens, third parties in possession (other
than specifically enumerated third parties as set forth above that are
reasonably acceptable to Purchaser pursuant to the terms of this Agreement), and
rights or claims of real estate brokers;
(ix) a 1099 certificate to the extent applicable;
(x) a duly executed certificate stating that Seller is a
Georgia resident, or that Seller is otherwise exempt from withholding under
O.C.G.A. Section 48-7-128, as applicable;
(xi) a duly executed certificate stating that Seller is
not a "foreign person" for United States income tax purposes, in accordance
with Section 1445 and
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Section 897 of the Internal Revenue Code of 1986, as amended;
(xii) recordable originals of any Real Property Leases, or
recordable short forms thereof, which have not previously been recorded in the
appropriate real property records; and
(xiii) such other evidence of the performance of all covenants
and the satisfaction of all conditions required of Seller by this Agreement at
or prior to the Closing Date as Purchaser or its counsel may reasonably require.
The documents and certificates to be delivered hereunder by or on behalf of
Seller on the Closing Date shall be in form and substance reasonably
satisfactory to Purchaser and its counsel.
(b) Purchaser shall deliver to Seller the following:
(i) wire transfer(s) in immediately available funds in
amounts aggregating $17,338,500 to Seller or as directed by Seller, and
$1,926,500 representing the Escrow Amount to the designated escrow agent;
(ii) an instrument or instruments of assumption of the
Assumed Liabilities, duly executed by Purchaser, and reasonably satisfactory
in form and substance to Seller and its counsel;
(iii) a certificate of Purchaser with respect to the matters
described in Sections 9.1 and 9.2 hereof;
(iv) a certificate of the Secretary or Assistant Secretary
of Purchaser with respect to the matters described in Sections 9.3 and 9.6
hereof;
(v) the opinion of counsel in substantially the form of
EXHIBIT B hereto (the "Purchaser Opinion");
(vi) a certificate of existence of Purchaser, as of a date
within twenty (20) days prior to the Closing Date, from the States of Delaware
and Georgia;
(vii) such other evidence of the performance of all covenants
and satisfaction of all of the conditions required of Purchaser by this
Agreement, at or before the Closing Date, as Seller or its counsel may
reasonably require; and
(viii) a 1099 certificate to the extent applicable.
The documents and certificates to be delivered hereunder by or on behalf of
the Purchaser on the Closing Date shall be in form and substance reasonably
satisfactory to the Seller and its counsel.
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4.3 CONVEYANCE OF TITLE TO REAL PROPERTY AND ASSIGNMENT OF REAL PROPERTY
LEASES.
(a) Seller shall convey title to the Real Property to Purchaser by
warranty deed in a form customarily used in the State of Georgia for all Real
Property located in Georgia. Each such deed shall be executed in accordance
with the requirements of the laws of the State of Georgia and shall be in such
form as will permit the deed to be recorded. Seller shall transfer and assign
to Purchaser its rights under the Real Property Leases (and its rights in and to
all deposits thereunder and all buildings, other structures, improvements and
mineral reserves permitted to be retained or removed by the lessee thereunder)
by transfer and assignment in form reasonably acceptable to Purchaser and its
counsel. Regardless of whether Purchaser objects to the same as provided
hereinbelow, the Real Property and the Leased Real Property shall not be subject
to (i) any mortgage, deed of trust, security deed, security agreement, judgment,
lien or claim of lien, or any other title exception or defect created, caused,
suffered or incurred by Seller that is monetary in nature, Seller hereby
agreeing to pay and satisfy of record any such monetary title defects or
encumbrances prior to or at Closing at Seller's expense, or (ii) any leases,
rental agreements or other rights of occupancy of any kind (other than the Real
Property Leases), whether oral or written, except as disclosed to and accepted
by Purchaser as provided elsewhere herein.
(b) Prior to the Closing Date, Purchaser shall have examined the
title and, at Purchaser's option, the survey, to each parcel of Real Property
and Leased Real Property and notified Seller in writing of any objections to,
defects in or encumbrances upon Seller's title to or interest in such Real
Property or Leased Real Property other than Permitted Encumbrances. If Seller
satisfies all such objections to title defects and encumbrances, then the
transaction contemplated hereby shall be closed in accordance with the terms and
conditions set forth herein. If Seller does not satisfy all such objections to
title defects and encumbrances prior to the Closing Date, then Purchaser shall
elect either: (i) if the Real Property or Leased Real Property is a key property
listed on SCHEDULE 4.3(b), not to close the transaction contemplated hereby, in
which event all parties shall be released from any further obligations or
liability, except as expressly set forth in Article 13 or otherwise; (ii) to
close the transaction contemplated hereby without regard to such unsatisfied
defects and encumbrances, in which event the transaction contemplated hereby
shall be closed in accordance with its terms, without a reduction in Purchase
Price, and all such unsatisfied title defects and encumbrances shall be
exceptions to Seller's warranty of title; or (iii) to close the transaction
contemplated hereby, excluding, however, the portion of the Real Property (or
the applicable Real Property Lease to the extent of an unsatisfied objection
with respect to the Leased Real Property) having such title defects and
encumbrances with a corresponding reduction in the Purchase Price applicable to
such Real Property or Real Property Lease so excluded for the value set forth on
SCHEDULE 4.3(b)(ii).
(c) Seller shall not transfer, assign, sublease or encumber the Real
Property or any part thereof, or its interest in the Leased Real Property or any
part thereof from the date hereof until the first to occur of the Closing Date
or the termination of this
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Agreement pursuant to Article 13 hereof. Notwithstanding anything in Section
4.3(b) hereof to the contrary, Purchaser shall have the right to object to any
title matters other than Permitted Encumbrances which come into existence after
the date of Purchaser's title examination but prior to Closing.
4.4 SURVEY AND INSPECTION OF PROPERTY.
(a) Purchaser and Purchaser's agents, employees and independent
contractors shall have the right and privilege on reasonable notice to enter
upon the Real Property and the Leased Real Property prior to the Closing Date to
inspect the Real Property and the Leased Real Property and to conduct soil
borings and other environmental, geological, engineering, percolation,
hydrologic, feasibility, or landscaping tests or studies, all at Purchaser's
sole cost and expense, provided such testing does not unreasonably interfere
with the operation of the Business at that location. Purchaser indemnifies
Seller from and against any liability or obligation arising out of such entry or
testing by Purchaser or Purchaser's agents, employees, or independent
contractors.
(b) Each parcel of Real Property shall be described in the deed
conveying such parcel and other closing documents either by (i) the metes and
bounds description set forth for such parcel (if any) on EXHIBIT A attached to
and incorporated into said SCHEDULE 5.7.1 by reference, or (ii) the metes and
bounds description of such parcel set forth in the deed vesting title to such
parcel in Seller, as said metes and bounds descriptions in item (i) or (ii) may
be modified by mutual agreement of the parties acting in good faith with respect
thereto; provided, however, in the event Purchaser causes a new survey of a
parcel of Real Property to be made by a land surveyor registered or licensed in
Georgia, and the resulting plat of survey accurately depicts the boundaries of
such Real Property and those characteristics of such Real Property that would be
revealed by a careful inspection of such Real Property and is otherwise
reasonably acceptable to Seller, then Seller shall also execute and deliver to
Purchaser at Closing a quitclaim deed for such parcel using the metes and bounds
legal description therefor depicted on such new survey.
4.5 ENVIRONMENTAL LIABILITIES.
(a) Purchaser has furnished Seller with a copy of the Golder
Associates (the "Environmental Consultants") Environmental Site Assessment of
Nord Kaolin, Jeffersonville, Georgia (the "Environmental Site Assessment")
conducted at the Purchaser's expense. Seller has furnished Purchaser with a
notebook containing environmental due diligence documents (the "Due Diligence
Book") received with the December 19, 1996 letter from James T. Booth, which
describes the environmental condition of the Jeffersonville, Georgia plant.
Purchaser has determined that certain Environmental Liabilities described in the
Due Diligence Book must be resolved by Seller pursuant to Section 4.5(b) below.
The environmental liabilities to be resolved are listed on SCHEDULE 4.5 hereto
("Environmental Liabilities").
(b) As soon as practicable following the date hereof, Seller shall,
for each
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Environmental Liability at Seller's sole cost and expense, begin the action
shown on SCHEDULE 4.5 hereto with respect to all Environmental Liabilities
listed on that Schedule utilizing the services of such firm as Seller selects,
subject to Purchaser's consent, which shall not be unreasonably withheld, and
indemnify and hold harmless Purchaser as provided in Section 14.1(f) hereof, for
all costs and expenses incurred by Purchaser in effecting any other action
required by any governmental agency or instrumentality or any court or
arbitration panel having jurisdiction over the parcel. Purchaser hereby grants
Seller, its employees and representatives the non-exclusive and unrestricted
right of access to such parcels requiring action, as necessary to allow Seller
to perform and complete such action, and Purchaser agrees that it shall not, and
shall cause its employees and representatives not to, interfere with such
actions. All such actions shall be completed in a manner so as not to
unreasonably interfere with Purchaser's use of the parcels being remediated.
Seller hereby covenants and agrees to indemnify and hold harmless Purchaser from
any and all loss, liability, costs, claims, demands, damages, actions, causes of
action and suits arising out of or in any manner related to the actions taken
under this subsection.
4.6 CERTAIN CONSENTS. To the extent that Seller's rights under any
agreement, Contract, commitment, lease, Permit, Real Property Lease or other
Acquired Asset to be assigned to Purchaser hereunder may not be assigned without
the consent of another person which has not been obtained prior to the Closing
Date, and which is important to the ownership, use or disposition by Purchaser
of an Acquired Asset, this Agreement shall not constitute an agreement to assign
the same if an attempted assignment would constitute a breach thereof or be
unlawful, and Seller, at its expense, shall use its reasonable best efforts to
obtain any such required consent(s) as promptly as possible. If any such
consent shall not be obtained or if any attempted assignment would be
ineffective or would impair Purchaser's rights under the Acquired Asset in
question so that Purchaser would not in effect acquire the benefit of all such
rights, Seller, to the maximum extent permitted by law and the specific Acquired
Asset and at Seller's expense, shall act after the Closing as Purchaser's agent
in order to obtain for the Purchaser the benefits thereunder, and Seller shall
cooperate, to the maximum extent permitted by law and the specific Acquired
Assets with Purchaser in any other reasonable arrangement designed to provide
such benefits to Purchaser, including any sublease or subcontract or similar
arrangement. Purchaser shall continue to have the right to terminate this
Agreement as provided in Section 13.1(b) hereof if any condition in Article 8
becomes impossible of performance, or has not been satisfied in full or
previously waived by Purchaser in writing at or prior to the Closing Date.
4.7 EMINENT DOMAIN. If, after the date hereof and prior to the Closing,
Seller receives notice of the commencement or threatened commencement of eminent
domain or other like proceedings against the Real Property or the Leased Real
Property or any portion thereof, Seller shall immediately notify Purchaser, and
Purchaser shall elect within fourteen (14) days from and after such notice, by
written notice to Seller, either (a) only with respect to any property listed on
SCHEDULE 4.3(b), not to close the transaction contemplated hereby, in which
event except as expressly set forth in Article 13 or otherwise, this Agreement
shall be void and of no further force and effect; (b) to close the transaction
contemplated hereby
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in accordance with its terms but subject to such proceedings, in which event the
Purchase Price shall not be reduced, and Seller shall assign to Purchaser
Seller's rights in any condemnation award or proceeds or (c) to close the
transaction contemplated hereby, excluding, however, the portion of the Real
Property or Leased Real Property subject to such proceedings with a
corresponding reduction in the Purchase Price applicable to such Real Property
or Leased Real Property so excluded. If Purchaser does not make such election
within the aforesaid fourteen (14) day period, Purchaser shall be deemed to have
elected to close the transaction contemplated hereby in accordance with clause
(b) of this Section 4.7.
4.8 FURTHER ASSURANCES. Seller from time to time after the Closing Date,
at Purchaser's request, will execute, acknowledge, and deliver to Purchaser such
other instruments of conveyance and transfer and will take such other actions
and execute and deliver such other documents, certifications, and further
assurances as Purchaser may reasonably require in order to vest more effectively
in Purchaser, or to put Purchaser more fully in possession of, any of the
Acquired Assets, or to better enable Purchaser to complete, perform, or
discharge any of the Assumed Liabilities. Each of the Parties hereto will
cooperate with the other and execute and deliver to the other parties hereto
such other instruments and documents and take such other actions as may be
reasonably requested from time to time by any other party hereto as necessary to
carry out, evidence, and confirm the intended purposes of this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser that:
5.1 ORGANIZATION AND QUALIFICATION. Seller is a limited partnership duly
organized and validly existing under the laws of the State of Georgia. Norplex,
Inc., a Georgia corporation (the "General Partner") is the sole general partner
of Seller. Seller is duly qualified and is in good standing in each of the
jurisdictions set forth on SCHEDULE 5.1.1, which constitute all of the
jurisdictions where Seller owns or leases property or where Seller conducts
business operations. SCHEDULE 5.1.2 hereto contains the address (including
city, county, state, or other jurisdiction and zip code) of each location where
any of the Acquired Assets are located and each trade name under which Seller
operates at each such address and any additional business and trade names under
which the Seller has conducted business at each such address in the five (5)
years preceding the date of this Agreement.
5.2 AUTHORITY. Seller has full power and authority to enter into this
Agreement and the agreements to which it is a party contemplated hereby, or
executed in connection herewith (collectively, this Agreement and such other
agreements shall be referred to hereinafter as the "Acquisition Documents"), and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by Seller of each of the Acquisition Documents to which
Seller is a party has been duly and validly authorized and approved by any
necessary action on the part of Seller, Resources and the General Partner,
including without limitation the actions required by Section 3 of that certain
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Shareholder Agreement dated March 11, 1993 among the General Partner, Kemira,
Resources and Nord Kaolin Corporation. Each of the Acquisition Documents to
which Seller is a party is the legal, valid, and binding obligation of Seller
enforceable against Seller in accordance with its terms, except as
enforceability may be limited by applicable equitable principles (whether
applied in a proceeding at law or in equity) or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights
generally, to the exercise of judicial discretion in accordance with general
equitable principles, and to equitable defenses that may be applied to the
remedy of specific performance. Neither the execution and delivery by Seller of
any of the Acquisition Documents to which Seller is a party nor, subject to
obtaining the consents and approvals described in SCHEDULES 5.6.3, 5.7.2, and
5.8.1, and the transfer of the Permits described in SCHEDULE 5.16, the
consummation by Seller of the transactions contemplated thereby will (i) violate
Seller's partnership documents or the General Partner's Certificate of
Incorporation or Bylaws, (ii) violate any provisions of law or any order of any
court or any governmental entity to which Seller or the General Partner is
subject, or by which the Acquired Assets may be bound, (iii) conflict with,
result in a breach of, or constitute a default under any indenture, mortgage,
lease, agreement, or other instrument to which either the Seller or the General
Partner is a party or by which it or any of the Acquired Assets may be bound, or
(iv) result in the creation of any lien, charge, or encumbrance upon any of the
Acquired Assets, or result in the acceleration of the maturity of any payment
date of any of the Assumed Liabilities, or increase or adversely affect the
obligations of Purchaser under any of the Assumed Liabilities. Seller has
complied with any and all options, repurchase agreements, and rights of first
refusal relating to the consummation of the transactions contemplated by the
Acquisition Documents such that all applicable rights of third parties
thereunder have either expired, lapsed or been terminated.
5.3 SUBSIDIARIES; JOINT VENTURES. No shares of any corporation or any
ownership or other investment interest, either of record, beneficially or
equitably, in any association, partnership, joint venture or other legal entity
are included in the Acquired Assets.
5.4 BALANCE SHEETS. Attached as SCHEDULE 5.4 are true, correct, and
complete copies of the Latest Balance Sheet with supporting schedules and backup
for the period then ended, and the balance sheet of the Seller as of the end of
December of 1996, together with any monthly balance sheets prepared since the
December balance sheet prior to the date hereof (collectively, the "Balance
Sheets"). The Balance Sheets have been prepared from the books and records of
Seller. The Latest Balance Sheet presents fairly in accordance with GAAP the
financial position of the Seller at the date indicated. The monthly Balance
Sheets of the Seller have been prepared in accordance with Seller's historic
practice, consistently applied throughout the periods involved. Seller has no
material liabilities or obligations (secured or unsecured, whether accrued,
absolute, direct, indirect, contingent or otherwise, and whether due or to
become due) which are not fully accrued or reserved against in the Balance
Sheets in accordance with GAAP. Seller has not received any advice or
notification from its independent certified public accountants that Seller has
used any improper accounting practice that would have the effect of not
reflecting or incorrectly reflecting properties, assets or liabilities in the
Balance Sheets. The books, records, and accounts of
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Seller accurately and fairly reflect, in reasonable detail, the transactions and
the assets and liabilities of Seller. Seller has not engaged in any
transaction, maintained any bank account, or used any of the funds of Seller
except for transactions, bank accounts, and funds which have been and are
reflected in the normally maintained books and records of the Seller.
5.5 INVENTORY. Subject to sales in the ordinary course of business, all
Inventory, whether reflected on the Balance Sheets or subsequently acquired, is
now and at the Closing Date will be located (i) on the Real Property described
on SCHEDULE 5.7.1, (ii) on the Leased Real Property described on SCHEDULE 5.7.2
or (iii) in transit or on consignment as described in SCHEDULE 5.5 consistent
with past practices. The Inventory consists of items of a quality, quantity and
condition usable and salable in the ordinary course of business without discount
or reduction, conforms to GAAP, is valued at a reasonable amount in accordance
with GAAP and based on the ordinary course of business consistent with the
historical valuation policy of the Seller, is not subject to any write-down or
write-off in excess of the reserves stated on the Latest Balance Sheet, and has
been or will be acquired by Seller only in bona fide transactions entered into
in the ordinary course of business. Subject to sales in the ordinary course of
business, except as described in SCHEDULE 5.5 or SCHEDULE 5.6.2, Seller has now
and on the Closing Date will have valid legal title to its Inventory free and
clear of any consignments, liens, claims, charges, and encumbrances. Seller is
not under any liability or obligation with respect to the return of Inventory in
the possession of wholesalers, retailers, or other customers, except for the
Inventory described on SCHEDULE 5.5 as being on consignment.
5.6 PERSONAL PROPERTY.
(a) SCHEDULE 5.6.1 contains a true and correct list and a description
(including serial number, vehicle registration, and tag number) of all Vehicles,
Equipment and all Furniture and Fixtures and all other items of personal
property owned by Seller and valued in excess of Two Thousand Five Hundred
Dollars ($2,500.00). Seller has good and marketable title to all of its owned
Furniture and Fixtures, Equipment, Vehicles, and other items of personal
property included among the Acquired Assets (whether or not disclosed in
SCHEDULE 5.6.1), free and clear of all liens, claims, charges, security
interests, and other encumbrances of any kind and of any nature, except as
disclosed on SCHEDULE 5.6.2.
(b) SCHEDULE 5.6.3 contains a list of all leases for Vehicles,
Equipment, Furniture and Fixtures, or other items of personal property, which
leases are included among the Acquired Assets. True and correct copies of each
lease listed on SCHEDULE 5.6.3 and any amendments, extensions, and renewals
thereof have been delivered to Purchaser. Each of the leases described on
SCHEDULE 5.6.3 is in full force and effect and, except as set forth on
SCHEDULE 5.6.4, there are no existing defaults or events of default, real or
claimed, or events which with notice or lapse of time or both would constitute
defaults, the consequences of which, severally or in the aggregate, would have
an adverse effect on the operations of Seller. No rights of Seller under such
leases have been assigned or otherwise transferred as security for any
obligation of Seller. Except as described on SCHEDULE 5.6.3, all such leases
are fully assignable without the consent of any third party.
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(c) The Equipment currently used by Seller and included among the
Acquired Assets (i) is in working order and is usable in a manner consistent
with past use, reasonable wear and tear excepted, (ii) has been regularly and
properly maintained substantially in accordance with reasonable and customary
industry standards and applicable regulations, and (iii) contain no defects or
malfunctions which alone or in the aggregate are reasonably likely to result in
any disruption or interruption in the business operations of Seller.
5.7 REAL PROPERTY; LEASED REAL PROPERTY.
(a) SCHEDULE 5.7.1 contains a true and correct list of each parcel of
Real Property and a summary description of all plants and structures located
thereon. For ease of reference, metes and bounds descriptions have been
provided in Exhibit A to SCHEDULE 5.7.1, but Seller does not represent the
accuracy of such metes and bounds descriptions herein. Except as reflected in
the original or amended title insurance binders obtained by Purchaser or
otherwise revealed by Seller in SCHEDULE 5.7.1 or SCHEDULE 5.6.2, Seller has
good and marketable fee simple title to the Real Property, free and clear of all
mortgages, liens, charges, encumbrances, and purchase options and other rights
to or against such property. The conveyance of the Real Property to Purchaser
shall not cause a breach, default, or event of default under any of the
protective covenants or any other document or instrument encumbering the Real
Property.
(b) SCHEDULE 5.7.2 contains a true and correct list of each parcel of
Leased Real Property and a summary description of all plants and permanent
structures located on each parcel of Leased Real Property. True and correct
copies of each Lease pursuant to which Seller leases the Leased Real Property
and any amendments, extensions, assignments, and renewals thereof (the "Real
Property Leases"), as reflected on SCHEDULE 5.7.2, have been delivered to
Purchaser. Seller hereby represents that it is the lessee under each of the
Real Property Leases. Each Real Property Lease is in full force and effect and
there is no existing default or event of default, real or claimed, or event
which with notice or lapse of time or both would constitute a default thereunder
by Seller or, to the knowledge of Seller, any other party to such Real Property
Leases. Except as described in SCHEDULE 5.7.2 or SCHEDULE 5.6.2, Seller's
interest in the Real Property Leases is free and clear of any mortgages and
liens, and is not subject to any deeds of trust, assignments, subleases, or
rights of any third parties known to or created or permitted by Seller other
than the lessor thereof or any mortgagees of such lessors. The assignment of
any of the Real Property Leases to Purchaser shall not cause a breach, default,
or event of default under any of the Real Property Leases or any other lease or
mortgage relating to such parcel or Real Property Lease except for those leases
or mortgages identified on SCHEDULE 5.7.2 or SCHEDULE 5.6.2 as requiring
consents. Seller shall use its best efforts to obtain the necessary consents or
estoppels pursuant to Section 7.6.
(c) All improvements on the Real Property and the Leased Real
Property constructed by Seller conform to all applicable state and local laws,
use restrictions, building
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ordinances, and health and safety ordinances the noncompliance of which would
have an adverse effect on Seller's current ownership or use of such property
by Seller, and the property is zoned for the various purposes for which the
Real Property and the Leased Real Property and improvements thereon are
presently being used by Seller.
(d) Seller has received no written notice of any pending or
threatened litigation, condemnations, planned public improvements, annexation,
special assessments, zoning or subdivision changes, or other adverse claims
affecting the Real Property or the Leased Real Property.
(e) There is no private restrictive covenant or governmental use
restriction (including zoning) known to Seller, on all or any portion of the
Real Property or the Leased Real Property which prohibits the current or
intended use of the Real Property and the Leased Real Property.
(f) All licenses, permits and approvals required for the occupancy
and operation of the Real Property and the Leased Real Property (with
appurtenant parking uses) as presently being or intended to be used have been
obtained and are in full force and effect and Seller has received no notices of
violations in connection with such items.
(g) Seller does not have in its possession any studies or reports
which indicate any defects in the design or construction of any of the
improvements on the Real Property or the Leased Real Property.
(h) Seller has not failed to pay any taxes, assessments, or other
charges so as to adversely affect the present or intended use of the Real
Property or Leased Real Property.
(i) There is no pending litigation or dispute, and Seller has
received no notice of any disputes, concerning the location of the lines and
corners of the Real Property, and Seller has not been served with any legal
action concerning the location of the lines and corners of the Real Property.
(j) No person or entity, other than Purchaser, has any right,
agreement, commitment, option, right of first refusal or any other agreement,
whether oral or written, with respect to the purchase, assignment or transfer of
all or any portion of the Real Property.
(k) The Real Property is not subject to or affected by any special
assessment for public improvements or otherwise, whether or not presently a lien
upon the Real Property. Seller has made no commitment to any governmental
authority, utility company, school board, church or other religious body,
homeowner or homeowner's association or any other organization, group or
individual relating to the Real Property which would impose an obligation upon
Seller or its successors or assigns to make any contributions or dedications of
money or land, or to construct, install or maintain any improvements of a public
or private nature as part of the Real Property or upon separate
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lands. No governmental authority has imposed any requirement that Seller pay,
directly or indirectly, any special fees or contributions or incur any expenses
or obligations in connection with the development of the Real Property or any
portion thereof, other than any regular and nondiscriminatory local real estate
or school taxes assessed against the Real Property. The parcels comprising the
Real Property are separately assessed for real property tax assessment purposes
and are not combined with any other real property for tax assessment purposes.
Seller has received no notice of any contemplated or actual reassessment of the
Real Property or any portion thereof for general real estate tax purposes. As
of the date hereof, all due and payable taxes, assessments, water charges and
sewer charges affecting the Real Property and, to Seller's knowledge, the Leased
Real Property, or any portion thereof have been paid.
(l) The parcels comprising the Real Property constitute separately
subdivided, legally distinct parcels of land. Seller has complied with all
applicable laws, ordinances, regulations, statutes, rules and restrictions
pertaining to and affecting the Real Property which relate to such subdivision.
(m) There is no default or breach by Seller nor, to the best of
Seller's knowledge, any other party thereto, under any covenants, conditions,
restrictions or easements which may affect the Real Property or the Leased Real
Property or any portion or portions thereof which are to be performed or
complied with by the owner of the Real Property or the Leased Real Property, and
no condition or circumstance exists which, with the giving of notice or the
passage of time, or both, would constitute a default or breach by Seller nor, to
the best of Seller's knowledge, any other party thereto, under any such
covenants, conditions, restrictions, rights-of-way or easements.
(n) There are no tenants of the Real Property or, except as set forth
on SCHEDULE 5.7.3, the Leased Real Property or any portion or portions thereof
and no person or entity now has, or at the time of Closing will have, any
possessory interest in the Real Property or, except as set forth on
SCHEDULE 5.7.3, the Leased Real Property, under a lease or otherwise, except for
Seller whose total interest in the Real Property and the Leased Real Property
will be transferred to Purchaser at Closing, and except as otherwise disclosed
to Purchaser as provided elsewhere herein.
5.8 CONTRACTS.
(a) SCHEDULE 5.8.1 contains a true and correct list of all Contracts
not otherwise listed on SCHEDULES 5.6.3, 5.7.2, 5.9 or 5.15 that (i) has a
duration of six (6) months or more, (ii) requires any party thereto to pay
$25,000 or more, or (iii) is between Seller and any officer, stockholder,
director, employee, or affiliate and all modifications, amendments, renewals, or
extensions thereof. Each of the Contracts (other than the Requirements Contract
between Seller and Kemira, Inc. dated March 11, 1993) was entered into prior to
the Closing Date in the ordinary course of business on terms substantially
consistent with Seller's practice prior thereto. A true and complete copy of
each contract has been provided to Purchaser. Except as listed on
SCHEDULES 5.6.3, 5.7.2, 5.8.1, 5.9 or 5.15,
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Seller is not a party to any written or legally binding oral:
(i) agreement, contract, or commitment with any present or
former employee or consultant or for the employment of any person, including any
consultant;
(ii) agreement, contract, or commitment for the future
purchase of, or payment for, supplies or products, or for the performance of
services by a third party which supplies, products or services involve in any
one case $25,000 or more;
(iii) agreement, contract or commitment to sell or supply
products or to perform maintenance, services or similar duties involving in any
one case $25,000 or more;
(iv) distribution, dealer, representative, or sales agency
agreement, contract, or commitment;
(v) lease under which Seller is lessor relating to the
Acquired Assets or any property at which the Acquired Assets are located;
(vi) note, debenture, bond, equipment trust agreement,
letter of credit agreement, loan agreement, or other contract or commitment for
the borrowing or lending of money or agreement or arrangement for a line of
credit or guarantee, pledge, or undertaking of the indebtedness of any other
person which will not be terminated at or prior to the Closing Date and is
currently listed on SCHEDULE 5.8.2 as an excluded contract (the "Excluded
Contracts");
(vii) agreement, contract, or commitment for any charitable
or political contribution;
(viii) agreement, contract, or commitment limiting or
restraining the business operations or Purchaser from engaging or competing in
any manner or in any business, nor, to Seller's knowledge, is any employee of
Seller subject to any such agreement, contract, or commitment;
(ix) material agreement, contract, or commitment not made
in the ordinary course of business; or
(x) agreement, contract or transaction with any Affiliate
of the Seller or the General Partner.
(b) SCHEDULE 5.8.3 contains a true and correct list of all
commitments for capital expenditures or repairs that have been approved or made
prior to the date of this Agreement in excess of $25,000 by Seller and that
remain outstanding as of the date hereof.
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(c) Each of the Contracts is in full force and effect and there
exists no material breach or violation of or default under any of such Contracts
by Seller or, to the knowledge of Seller, any other party to such Contracts or
any event which, with notice or the lapse of time, or both, will create a
material breach or violation thereof or default thereunder by Seller or, to the
knowledge of Seller, any other party to such Contracts. Except as set forth on
SCHEDULES 5.6.3, 5.7.2, 5.8.1, 5.9 or 5.15, each such Contract listed therein is
fully assignable without the consent of any third party.
(d) Except as indicated on SCHEDULE 5.13, there exists no actual or,
to the best knowledge of Seller, any threatened termination, cancellation, or
limitation of, or any amendment, modification, or change to any Contract, which
would have a material adverse effect on the business or condition, financial or
otherwise, of Seller, including without limitation, (i) the business
relationship of Seller with any customer, distributor, or related group of
customers or distributors whose purchases individually or in the aggregate are
material to the operations and financial condition of Seller, (ii) the
requirements of any customer or related group of customers of Seller whose
purchases individually or in the aggregate are material to the operations and
financial condition of Seller, or (iii) the business relationship of Seller with
any material supplier.
(e) Seller has not granted any power of attorney affecting or with
respect to the Acquired Assets that will remain outstanding as of the Closing
Date.
(f) SCHEDULE 5.8.4 contains a true and correct list of customers
which collectively accounted for eighty percent (80%) of Seller's revenues
during the fiscal year ended December 31, 1996, and for the period commencing
January 1, 1997 through the last day of the month preceding the date hereof,
together with the dollar amount of sales made to each customer for each such
period.
5.9 INTELLECTUAL PROPERTY. SCHEDULE 5.9 contains a true and correct list
of the Intellectual Property used or contemplated for use by Seller, containing
a brief description of each item of Intellectual Property and the nature of
Seller's interest therein. The Acquired Assets include and, upon the purchase
of those assets, Purchaser will own or have the uncontested right to use all,
patents, designs, art work, designs-in-progress, formulations, know-how,
inventions, trademarks, trade names, trade styles, service marks, copyrights,
manufacturing processes, and confidential or proprietary information necessary
for the conduct of the Business as presently conducted. No claim is pending or,
to the best of Seller's knowledge threatened, and Seller has received no notice
that the conduct of the Business (including without limitation, Seller's use of
any Intellectual Property) infringes upon or conflicts with any rights claimed
therein by any third party, nor is Seller aware of any unasserted claim the
assertion of which is probable. No use by Seller of any Intellectual Property
licensed to it violates the terms of any agreement pursuant to which it is
licensed. No claim is pending, or to the best of Seller's knowledge threatened,
which alleges that any Intellectual Property owned or licensed by Seller or
which Seller otherwise has the right to use is invalid or unenforceable by
Seller, nor is Seller aware of any such claim that is unasserted, but the
assertion of which is probable. Except as set forth on SCHEDULE 5.9,
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Seller does not manufacture products which are the subject of patents, patent
applications, copyrights, copyright applications, trademarks, trademark
applications, trade styles, service marks, or trade secrets owned by or licensed
from third parties. Except as shown on SCHEDULE 5.9, no royalties or fees are
payable by Seller to anyone for use of the Intellectual Property. True,
correct, and complete copies of all agreements (including without limitation the
License for Proprietary Pigment Technologies dated September 1, 1986 between
Seller and Industrial Progress, Inc., including any and all addenda, amendments,
supplements and modifications thereto (the "License Agreement")) pursuant to
which Seller has any license or right to use any Intellectual Property, are
attached to SCHEDULE 5.9. All such agreements are in full force and effect and
there are no existing defaults or events of default, real or claimed, or events
which with or without notice or lapse of time or both would constitute defaults
under such agreements that would give the non-defaulting party a right to
terminate such agreement or a right to receive any payment pursuant to such
agreement. Except for the obligation to pay future royalties on the sale of
licensed products and minimum royalties under the License Agreement, all other
financial obligations or obligations to issue stock options or equity under the
terms of the License Agreement have been satisfied and no other such obligations
of either kind of Seller remain outstanding. Seller has not received any notice
that the manufacture, use, or sale by Seller of its products, or any component
or part thereof, nor any manufacturing operation or machinery employed by
Seller, violates or infringes upon any claims of any United States or foreign
patent or patent application owned or held by any third party, nor is Seller
aware of any unasserted claim the assertion of which is probable. All Seller's
Intellectual Property and registrations, applications, and agreements related
thereto are fully assignable to Purchaser without the consent of any third party
except as shown on SCHEDULE 5.9.
5.10 INSURANCE. The Acquired Assets are insured under various policies of
general liability and other forms of insurance, which policies are in amounts
adequate in the reasonable judgment of Seller. Seller has not been refused any
insurance by any insurance carrier to which it has applied for insurance or with
which it has carried insurance during the past five (5) years. There are no
outstanding requirements or recommendations by any current insurer or
underwriter with respect to the Acquired Assets which require or recommend
changes in the conduct of the Business, or require any repairs or other work to
be done with respect to any of the Acquired Assets or operations of the
Business.
5.11 ENVIRONMENTAL MATTERS AND EMPLOYEE SAFETY AND HEALTH.
(a) Except as set forth in SCHEDULE 5.11.1 hereto, Seller,
(i) is in material compliance with all laws, rules, and
regulations relating to environmental protection. Seller has not (A) been
notified that it is potentially liable under or (B) received any requests for
information or other correspondence concerning any site or facility under, nor
has Seller any reason to believe that it is considered potentially liable under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, or any similar federal or state law;
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(ii) has accurately prepared and timely filed with the
appropriate jurisdictions all reports and filings required pursuant to any
federal, state, or local law, regulation, statute, or order applicable to or
affecting the Seller or the Acquired Assets except where the failure to prepare
and file such reports and filings if not so performed and filed, would cause an
adverse effect on the ownership, operation or disposal of the Acquired Assets,
taken as a whole;
(iii) has not entered into or received any consent decree,
compliance order, or administrative order relating to environmental protection;
(iv) has not entered into or received nor is Seller in
default under any judgment, order, writ, injunction or decree of any federal,
state, or municipal court or other governmental authority relating to
environmental protection;
(v) has obtained all permits, licenses, approvals,
consents, orders, and authorizations relating to environmental protection
("Environmental Permits") which are required under federal, state, or local
laws, rules, and regulations in connection with Seller's business operations
or the ownership, use, or lease of the Acquired Assets, and which, if not so
obtained, would cause an adverse effect on the ownership, operation or
disposal of the Acquired Assets, taken as a whole, and SCHEDULE 5.11.2
contains a complete list and description of each such Environmental Permit.
Except as described in SCHEDULE 5.11.2, Seller is in compliance with each
such Environmental Permit (including any information provided on the
applications therefor) and no Environmental Permit prohibits or materially
restricts Seller from operating any Equipment covered by such Environmental
Permit as currently being conducted; and
(vi) has not been, and currently is not, a "generator" of
"hazardous waste" (as those terms are defined by the Resource Conservation and
Recovery Act of 1976 and the regulations promulgated thereunder), for the
purposes of obtaining an EPA identification number under 40 C.F.R. Section
262.12(a) or complying with the manifest system under Subpart 8 of 40 C.F.R.
Part 262.
(b) With respect to the Real Property or the Leased Real Property,
(i) there are no actions, suits, claims, arbitration
proceedings, or complaints pending or, to the best of Seller's knowledge,
threatened by any governmental authority, municipality, community, citizen, or
other entity, against Seller relating to environmental protection, compliance
with environmental laws, or the condition of the Real Property or Leased Real
Property, nor is Seller aware of any unasserted action, suit, claim, proceeding,
or complaint the assertion of which is probable;
(ii) except as set forth on SCHEDULE 5.11.1, there has
been no disposal, release, burial, or placement of hazardous or toxic
substances, pollutants, contaminants, petroleum, gas products, or
asbestos-containing materials (as any of such terms may be defined under
federal, state, or local law) or other Hazardous Materials by
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Seller or, to the best of Seller's knowledge, by any other party on, in, at, or
about any of the Real Property or Leased Real Property or any facilities used
for or in connection with the business operations of Seller that could subject
Purchaser to damages, costs, penalties or expenses, or recovery or remediation
requirements under any federal, state or local law, rule or regulation;
(iii) all above-ground and, to Seller's knowledge, all
underground storage tanks located on the Real Property and the Leased Real
Property have been identified in SCHEDULE 5.11.3;
(iv) no lien has arisen on any of the Acquired Assets under
or as a result of any federal, state, or local law, rule, or regulation
relating to environmental protection; and
(v) except for the Environmental Assessment Reports, no
assessment or other investigation has been conducted as to environmental matters
at any of Seller's properties by any private party during or, to the best of
Seller's knowledge, prior to the period during which Seller owned, leased or
operated such properties.
(c) Except as set forth in SCHEDULE 5.11.4, Seller is in material
compliance with all applicable laws relating to employee health and safety
including the Mine Safety and Health Act and the Occupational Safety and Health
Act; and Seller has not received any notice that past or present conditions of
the Acquired Assets violate any applicable legal requirements or otherwise can
be made the basis of any claim, citations, proceeding, or investigation, based
on or related to violations of employee health and safety requirements.
5.12 LITIGATION. Except as listed and briefly described on SCHEDULE 5.12,
there are no claims, charges, arbitrations, grievances, actions, suits,
proceedings, or investigations pending or to Seller's knowledge threatened
against, or adversely affecting the Acquired Assets, at law or in equity or
admiralty, or before or by any federal, state, municipal, or other governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign, nor is Seller aware of any unasserted claim, charge, arbitration,
grievance, action, suit, proceeding or investigation, the assertion of which is
probable. Seller is not in default under or in violation of any order, writ,
injunction, or decree of any federal, state, municipal court, or other
governmental department, commission, board, bureau, agency, or instrumentality,
domestic or foreign, affecting the Acquired Assets or the business operations of
Seller as currently conducted.
5.13 ABSENCE OF CHANGES. Since the date of the Latest Balance Sheet, there
has not been any transaction or occurrence in which Seller has:
(a) suffered any material adverse change in the business, operations,
condition (financial or otherwise), liabilities, assets, or earnings of Seller
nor, to Seller's knowledge, has there been any event which has had or may
reasonably be expected to have
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a material adverse effect on any of the foregoing, except for any impairments
recorded as a result of the consummation of the transactions contemplated
hereunder;
(b) incurred any obligations or liabilities of any nature other than
items incurred in the regular and ordinary course of business, consistent with
past practice, or increased (or experienced any change in the assumptions
underlying or the methods of calculating) any bad debt, contingency, or other
reserve, other than in the ordinary course of business consistent with past
practice;
(c) paid, discharged, or satisfied any claim, lien, encumbrance,
obligation, or liability (whether absolute, accrued, contingent, and whether due
or to become due), other than the payment, discharge, or satisfaction in the
ordinary course of business consistent with past practice of claims, liens,
encumbrances, obligations, or liabilities of the type reflected or reserved
against in the Latest Balance Sheet or which were incurred since the date of the
Latest Balance Sheet in the ordinary course of business consistent with past
practice;
(d) permitted, allowed, or suffered any of the Acquired Assets (real,
personal or mixed, tangible, or intangible) to be subjected to any mortgage,
pledge, lien, encumbrance, restriction, or charge of any kind;
(e) written down or written up the value of any Inventory (including
write-downs by reason of shrinkage or markdowns), except for write-downs and
write-ups in the ordinary course of business consistent with past practice, none
of which is material in amount;
(f) canceled any debts or waived any claims or rights in excess of
$5,000.00 individually or $10,000.00 in the aggregate;
(g) disposed of or permitted to lapse any right to the use of any
patent, trademark, assumed name, service mark, trade name, copyright, license,
or application therefor or disposed of or disclosed to any person not authorized
to have such information any trade secret, proprietary information, formula,
process, or know-how not previously a matter of public knowledge or existing in
the public domain;
(h) except for the capital expenditure commitments described on
SCHEDULE 5.8.3, made any significant capital expenditure, repair or commitment
for additions to property, plant, equipment, intangible, or capital assets or
for any other purpose, other than for emergency repairs or replacement;
(i) sold, transferred, or leased any Acquired Assets (real, personal
or mixed, tangible or intangible) to, purchased, leased, licensed, or otherwise
acquired any properties or assets which are included as Acquired Assets from
(i) any partner, officer, employee, or director of Seller or any stockholder of
the General Partner, (ii) any corporation or partnership in which any affiliate
is an officer, director, or holder directly or indirectly of five percent (5%)
or more of the outstanding equity or debt securities, or (iii) any person
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controlling, controlled by, or under common control with any such partner,
stockholder, officer, director, or affiliate;
(j) except as identified on SCHEDULE 5.8.1, entered into any
collective bargaining or labor agreement (oral and legally binding or written),
or experienced any organized slowdown, work interruption, strike, or work
stoppage;
(k) sold, transferred, or otherwise disposed of any of the Acquired
Assets except in the ordinary course of business consistent with past practice;
(l) granted or incurred any obligation for any increase in the
compensation of any officer or employee of Seller (including, without
limitation, any increase pursuant to any bonus, pension, profit-sharing,
retirement, or other plan or commitment) except for raises to employees in the
ordinary course of business consistent with past practice;
(m) made any material change in any method of accounting or
accounting principle, practice, or policy;
(n) suffered any casualty loss or damage to the Acquired Assets in
excess of $25,000 in the aggregate (whether or not insured against);
(o) taken any other action other than in the ordinary course of
business and consistent with past practice except as provided for in this
Agreement; or
(p) agreed, so as to legally bind Seller whether in writing or
otherwise, to take any of the actions set forth in this Section 5.13 and not
otherwise permitted by this Agreement.
5.14 BROKERS AND FINDERS. Neither Seller nor any Affiliate of Seller has
incurred any obligation or liability to any party for any brokerage fees,
agent's commissions, or finder's fees in connection with the transactions
contemplated by the Acquisition Documents.
5.15 LABOR MATTERS. SCHEDULE 5.15 contains a true and correct and complete
list of all present employees and sales representatives employed or engaged by
Seller, their total remuneration for the year ended December 31, 1996, their
current remuneration, and a description of all perquisites and fringe benefits
they receive or are eligible to receive. Seller, within the last three (3)
years, has not experienced any organized slowdown, work interruption, strike, or
work stoppage by employees of Seller. Except as set forth on SCHEDULE 5.8.1,
Seller is not a party to nor does Seller have any obligation pursuant to any
oral and legally binding or written agreement, collective bargaining or
otherwise, with any party regarding the rates of pay or working conditions of
any of the employees of Seller engaged in the Business, nor is Seller obligated
under any agreement to recognize or bargain with any labor organization or union
on behalf of such employees. Neither Seller nor any of its officers, directors,
or employees has been charged or, to Seller's knowledge, threatened
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with the charge of any unfair labor practice within the last two (2) years.
Seller is in material compliance with all applicable federal, state, local and
foreign laws and regulations concerning the employer-employee relationship and
with all agreements relating to the employment of Seller's employees, including
applicable wage and hour laws, fair employment laws, safety laws, worker
compensation statutes, unemployment laws, and social security laws. Except as
described on SCHEDULE 5.15, there are no pending or, to Seller's knowledge,
threatened claims, investigations, charges, citations, hearings, consent
decrees, or litigation concerning: wages, compensation, bonuses, commissions,
awards, or payroll deductions; equal employment or human rights violations
regarding race, color, religion, sex, national origin, age, disability,
veteran's status, marital status, or any other recognized class, status, or
attribute under any federal, state, local or foreign equal employment law
prohibiting discrimination; representation petitions or unfair labor practices;
grievances or arbitrations pursuant to current or expired collective bargaining
agreements; occupational safety and health; workers' compensation; wrongful
termination, negligent hiring, invasion of privacy or defamation; immigration or
any other claim based on the employment relationship or termination of the
employment relationship (collectively, "Labor Claims"). Seller is not liable
for any unpaid wages, bonuses, or commissions (other than those not yet due) or
any tax, penalty, assessment, or forfeiture for failure to comply with any of
the foregoing. Except as described on SCHEDULE 5.15, there is no outstanding
agreement or arrangement with respect to severance payments with respect to any
Employee.
5.16 GOVERNMENTAL APPROVAL AND CONSENTS. Except as described on
SCHEDULE 5.16, Seller has obtained all governmental approvals, authorizations,
permits, licenses, and orders required for the lawful operation of the Business
as presently conducted, the absence of which would materially adversely affect
Purchaser's use or ownership of the Acquired Assets. SCHEDULE 5.16 contains a
true and correct copy of each such approval, authorization, permit, license, and
order.
5.17 TAXES.
(a) Except as set forth on SCHEDULE 5.17.1, Seller has timely filed,
and as of the Closing Date will have timely filed, all federal and foreign
income tax returns, and all state, county, and local income, franchise,
property, sales, use, unemployment, and other tax returns in the State of
Georgia and in each other state and jurisdiction where such returns are required
to be filed on or prior to the Closing Date, taking into account any extensions
of the filing deadlines which have been validly granted to Seller, and such
returns are and will be true and correct in all material respects. Seller has
paid, or by the Closing Date will have paid, all federal, state, county, and
local income, franchise, property, sales, use, and all other taxes and
assessments (including penalties and interest in respect of such taxes and
assessments, if any) that have become or are due with respect to any period
ended on or prior to the Closing Date whether shown as due on such returns or
not, or is contesting in good faith such taxes and assessments, in which event
Seller has disclosed the details of such contests on SCHEDULE 5.17.2. Attached
to SCHEDULE 5.17.1 are true and correct copies of all real estate, personal
property , ad valorem, and property tax bills of Seller for the years 1996 and
1997 which have been received by the Seller prior to the date hereof, relating
to the
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Acquired Assets, including the Real Property and Vehicles.
(b) SCHEDULE 5.17.2 provides a brief description of any pending
federal and state tax disputes in which Seller is alleged to be liable or in
which Seller is claiming a refund, including the nature and amount of the
controversy, the respective positions of the parties as to any amounts claimed
to be due thereunder, and the current status thereof.
(c) All taxes required to be withheld prior to the Closing Date from
employees of Seller for income taxes and social security taxes will have been
properly withheld and, if required prior to the Closing Date, will have been
deposited with the appropriate governmental agency.
(d) No claim or investigation is pending, or to the best of Seller's
knowledge, threatened, by any state, local, or other jurisdiction alleging that
Seller has a duty to file tax returns and pay taxes or is otherwise subject to
the taxing authority of any jurisdiction not included in SCHEDULES 5.17.1 or
5.17.2 with respect to any taxes covered by Section 10.3, nor has Seller
received any notice or questionnaire from any such jurisdiction which suggests
or asserts that Seller may have a duty to file such returns and pay such taxes,
or otherwise is subject to the taxing authority of such jurisdiction.
5.18 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 5.18 contains a true and complete list of all the
following agreements, plans, policies (written or unwritten) or programs which
are presently in effect or which have previously been in effect and which cover
employees of Seller ("Employees"):
(i) Any "employee benefit plan" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA") or under which
Seller, with respect to Employees, has any outstanding, present, or future
obligation or liability, or under which any Employee has any present or future
right to benefits which are covered by ERISA; or
(ii) Any other pension, profit sharing, retirement, deferred
compensation, stock purchase, stock option, stock appreciation, phantom stock or
other equity-based, incentive, bonus, performance, vacation, termination,
retention, change of control, severance, "golden parachute," disability,
hospitalization, medical, life insurance, or other employee benefit plan,
program, policy, agreement or arrangement, which Seller maintains or to which
Seller has any outstanding, present, or future obligations to contribute or make
payments under, whether voluntary, contingent, or otherwise.
The plans, programs, policies, or arrangements described in subparagraph (i) or
(ii) are hereinafter collectively referred to as the "Seller Benefit Plans."
(b) With respect to all Seller Benefit Plans to be assumed by or spun
off in whole or in part to Purchaser pursuant to Section 7.15 (the "Transferred
Benefit Plans"),
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Seller makes the following representations and warranties:
(i) The Transferred Benefit Plans have been made available to
Purchaser for review, including correct and complete copies of: (A) all trust
agreements or other funding arrangements for such Transferred Benefit Plans
(including insurance contracts), and all amendments thereto, (B) with respect to
any such Transferred Benefit Plans or amendments, all current determination
letters and, if any, rulings, opinion letters, information letters, or advisory
opinions issued by the United States Internal Revenue Service ("IRS"), the
United States Department of Labor, or the Pension Benefit Guaranty Corporation,
(C) annual reports or returns, audited or unaudited financial statements,
actuarial valuations and reports, and summary annual reports prepared for any
Transferred Benefit Plan with respect to the most recent three (3) plan years,
and (d) the most recent summary plan descriptions and any modifications thereto.
(ii) All the Transferred Benefit Plans and the related trusts
subject to ERISA comply with and have been administered in compliance with,
(A) the applicable provisions of ERISA, (B) all applicable provisions of the
Code relating to qualification and tax exemption under Code Sections 401(a) and
501(a) or otherwise applicable to secure intended tax consequences, (C) all
applicable state or federal securities laws, and (D) all other applicable laws
and collective bargaining agreements, and the Seller has not received any notice
from any governmental authority questioning or challenging such compliance. All
available determination letters and required registrations under federal and
state securities laws for the Transferred Benefit Plans have been obtained,
including, but not limited to, timely determination letters on the qualification
of the ERISA Plans and tax exemption of related trusts, as applicable under the
Code, and all such registrations continue in full force and effect. No event
has occurred which will or could give rise to disqualification of any such plan
or loss of intended Tax consequences under the Code or to any Tax under
Section 511 of the Code.
(iii) No oral or written representation or communication with
respect to any aspect of the Transferred Benefit Plans has been made to
Employees prior to the date hereof that is not in accordance with the written or
otherwise preexisting terms and provisions of such plans. Neither the Seller,
Resources nor any administrator or fiduciary of any Transferred Benefit Plan (or
any agent of any of the foregoing) has engaged in any transaction, or acted or
failed to act in any manner that could subject the Purchaser to any direct or
indirect liability (by indemnity or otherwise) for breach of any fiduciary,
co-fiduciary or other duty under ERISA. There are no unresolved claims or
disputes under the terms of, or in connection with, the Transferred Benefit
Plans other than claims for benefits which are payable in the ordinary course
and no litigation has been commenced with respect to any Transferred Benefit
Plans.
(iv) All Transferred Benefit Plan documents and annual reports or
returns, audited or unaudited financial statements, actuarial valuations,
summary annual reports, and summary plan descriptions issued with respect to the
Transferred Benefit Plans are correct and complete, have been timely filed with
the IRS and the United States
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Department of Labor, have been timely distributed to participants in the
Transferred Benefit Plans, and there have been no changes in the information
set forth therein.
(v) No "party in interest" (as defined in Section 3(14) of
ERISA) or "disqualified person" (as defined in Code Section 4975) of any
Transferred Benefit Plan has engaged in any nonexempt "prohibited transaction"
(described in Code Section 4975 or ERISA Section 406). There has been no
(i) "reportable event" (as defined in Section 4043 of ERISA), or event described
in Sections 4041, 4042, 4062 (including ERISA Section 4062(e)), 4064, 4069 or
4063 of ERISA, or (ii) termination or partial termination, withdrawal or partial
withdrawal with respect to any of the Transferred Benefit Plans. Neither Seller
nor Resources has incurred any liability under Title IV of ERISA with respect to
the Transferred Benefit Plans.
(vi) For any Transferred Benefit Plan that is an employee pension
benefit plan as defined in ERISA Section 3(2), the fair market value of such
Plan's assets equals or exceeds the present value of all benefits (whether
vested or not) accrued to date by all present or former participants in such
Transferred Benefit Plan. For this purpose the assumptions utilized to value
the accumulated benefit obligation in the January 1, 1996 actuarial report shall
be applied and the term "benefits" shall include the value of all benefits,
rights and features protected under Code Section 411(d)(6) or its successors and
any ancillary benefits (including disability, shutdown, early retirement and
welfare benefits) provided under any such employee pension benefit plan and all
"benefit liabilities" as defined in ERISA Section 4001(a)(16). Since the date
of the most recent actuarial valuation, there has been (i) no material change in
the financial position of any Transferred Benefit Plan, (ii) no change in the
actuarial assumptions with respect to any Transferred Benefit Plan, and (iii) no
increase in benefits under any Transferred Benefit Plan as a result of
Transferred Benefit Plan amendments or changes in any applicable regulation
which is reasonably likely to have, individually or in the aggregate, a material
adverse effect on the funding status of such Transferred Benefit Plan. All
contributions with respect to an Transferred Benefit Plans of Seller or of an
ERISA Affiliate that is subject to Code Section 412 or ERISA Section 302 have
been, or will be, timely made and there is no lien or expected to be a lien
under Code Section 412(n) or ERISA Section 302(f) or Tax under Code
Section 4971. No Transferred Benefit Plan of the Company or of an ERISA
Affiliate has a "liquidity shortfall" as defined in Code Section 412(m)(5). No
event described in Code Section 401(a)(29) has occurred or can reasonably be
expected to occur with respect to the Transferred Benefit Plans. All premiums
required to be paid under ERISA Section 4006 for the Transferred Benefit Plans
have been paid by the Seller.
(vii) All individuals participating in (or eligible to
participate in) any Transferred Benefit Plans are common law employees.
(c) Seller has complied in all material respects with the
continuation coverage requirements of Section 1001 of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, and ERISA Sections 601 through
608. Seller shall be responsible for complying with the requirements of Code
Section 4980 B and Part 6 of Title 1 of ERISA
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for its employees (including the Hired Employees, as hereinafter defined) and
their "qualified beneficiaries" whose "qualifying event" (as such terms are
defined in Code Section 4980 B) occurs on or prior to the Closing Date.
5.19 COMPLIANCE WITH LAWS. Seller is not engaging in any activity or
omitting to take any action with respect to the Acquired Assets that is or
creates a material violation of any law, statute, ordinance, or regulation
applicable to the Acquired Assets. The Acquired Assets are not subject to any
judgment, order, writ, injunction, or decree issued by any court or any
governmental or administrative body or agency which has a material effect.
Seller possesses all permits and licenses material to the operation of the
Business as presently conducted and is in compliance with all applicable laws,
regulations, and orders issued by any court or governmental or administrative
body or agency where a failure so to comply would have a material adverse effect
on the use or ownership of the Acquired Assets. Seller has not at any time
during the last five (5) years (i) made any unlawful contribution to any
political candidate, or failed to disclose fully any contribution in violation
of law, or (ii) made any payment to any federal, state or local governmental,
regulatory or administrative officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or permitted
by the laws of the United States or any jurisdiction thereof.
5.20 TRANSACTION APPROVAL AND CONSENTS. Except for the filing of the
appropriate documents pertaining to the Hart-Scott-Rodino Act with the United
States Federal Trade Commission and the United States Department of Justice,
and, if applicable, the receipt of an order of termination of the waiting period
therefrom, no consent, approval, or authorization of or declaration, filing, or
registration with any governmental or regulatory authority is required in
connection with the execution, delivery, and performance of this Agreement by
Seller or the consummation by Seller of the transactions contemplated hereby.
5.21 ADEQUACY OF ACQUIRED ASSETS. The Acquired Assets include all rights,
properties, interests in properties, and assets necessary to permit Purchaser to
carry on business operations similar to the Business as presently conducted by
Seller.
5.22 COMPLIANCE WITH THE IMMIGRATION REFORM AND CONTROL ACT. To the best
of Seller's Knowledge, Seller is in full compliance with and has not violated
the terms and provisions of the Immigration Reform and Control Act of 1986, and
all related regulations promulgated thereunder (the "Immigration Laws"). With
respect to each employee (as defined in Section 274a.1(f) of Title 8, Code of
Federal Regulations) of the Seller for whom compliance with the Immigration Laws
by an employer (as defined in Section 274a.1(g) of Title 8, Code of Federal
Regulations) is required, the Seller, upon request of Purchaser, will make
available to Purchaser prior to the Closing Date, such employee's Form I-9
(Employment Eligibility Verification Form) and all other records, documents or
other papers which are retained with the Form I-9 by the employer pursuant to
the Immigration Laws. The Seller has never been the subject of any inspection
or investigation relating to its compliance with or violation of the Immigration
Laws, nor has it been warned, fined or otherwise penalized by reason of any
failure to comply with the Immigration Laws, nor is
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any such proceeding pending or, to the best of Seller's Knowledge, threatened.
5.23 MINERAL RESERVES. Other than as described in SCHEDULE 5.23, no
mineral reserves owned by or leased to Seller and included among the Acquired
Assets are subject to any agreement, contract or arrangement which imposes any
obligation on Seller, and all rentals, royalties, and taxes thereon or other
royalties or payments due with respect to such mineral reserves or under such
agreements and payable by Seller in respect of periods prior to the Closing Date
have been or will be timely, properly and fully paid.
5.24 CORRECTNESS OF REPRESENTATIONS. No representation or warranty of
Seller in this Agreement or in any Exhibit, certificate, or Schedule attached
hereto or furnished pursuant hereto, contains, or on the Closing Date will
contain, any untrue statement of material fact or omits, or on the Closing Date
will omit, to state any fact necessary in order to make the statements contained
therein not misleading in any material respect, and all such statements,
representations, warranties, Exhibits, certificates, and Schedules shall be true
and complete in all material respects on and as of the Closing Date as though
made on that date. True copies of all mortgages, indentures, notes, leases,
agreements, plans (including Seller Benefit Plans), Contracts, and other
instruments listed on the Schedules delivered or furnished to Purchaser pursuant
to this Agreement have been delivered to Purchaser.
5.25 DEFINITION OF "KNOWLEDGE". The phrases "to the knowledge of Seller",
"Seller has not received notice", "to Seller's knowledge", "Seller has not been
notified" and any other similar phrases as used in this Article 5 refer to the
knowledge of executive officers of Seller, General Partner and Resources and, as
to specific areas which are the subject of the representations and warranties,
those employees of Seller, General Partner, or Resources having management or
operational responsibilities related to such specific areas.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
6.1 ORGANIZATION AND QUALIFICATION. Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and has all corporate power and authority to conduct its business, to
own, lease, or operate its properties in the places where such business is
conducted and such properties are owned, leased, or operated.
6.2 AUTHORITY. Purchaser has full power and authority to enter into this
Agreement and each of the other Acquisition Documents to which it is a party and
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by Purchaser of this Agreement and each of the other
Acquisition Documents to which Purchaser is a party have been duly and validly
authorized and approved by all necessary action on the part of Purchaser. This
Agreement and each of the other Acquisition Documents to which Purchaser is a
party are the legal, valid, and binding obligations of
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Purchaser enforceable against Purchaser in accordance with their terms, except
as enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
creditors' rights generally, and by the exercise of judicial discretion in
accordance with equitable principles, and to equitable defenses that may be
applied to the remedy of specific performance. Neither the execution and
delivery by Purchaser of this Agreement or any of the other Acquisition
Documents to which Purchaser is a party nor the consummation by Purchaser of the
transactions contemplated hereby or thereby will (i) violate Purchaser's
Certificate of Incorporation or Bylaws, (ii) violate any provisions of law or
any order of any court or any governmental unit to which Purchaser is subject,
or by which its assets are bound, or (iii) conflict with, result in a breach of,
or constitute a default under any indenture, mortgage, lease, agreement, or
other instrument which would prevent Purchaser from consummating the
transactions contemplated hereunder.
6.3 LITIGATION. There is no suit, action, proceeding, claim or
investigation pending, or, to Purchaser's knowledge, threatened, against
Purchaser which could adversely affect Purchaser's ability to consummate the
transactions contemplated hereunder.
6.4 CORRECTNESS OF REPRESENTATIONS. No representation or warranty of
Purchaser in this Agreement or in any Exhibit, certificate, or Schedule attached
hereto or furnished pursuant hereto contains, or on the Closing Date will
contain, any untrue statement of material fact or omits or, on the Closing Date,
will omit, to state any fact necessary in order to make the statements contained
therein not misleading in any material respect, and all such statements,
representations, Exhibits, and certificates shall be true and complete on and as
of the Closing Date as though made on that date.
6.5 BROKERS AND FINDERS. Neither Purchaser nor any affiliate of Purchaser
has incurred any obligation or liability to any party for any brokerage fees,
agent's commissions, or finder's fees in connection with the transactions
contemplated by the Acquisition Documents.
6.6 GOVERNMENTAL APPROVAL AND CONSENTS. Except for the filing of the
appropriate documents pertaining to the Hart-Scott-Rodino Act with the United
States Federal Trade Commission and the United States Department of Justice,
and, if applicable, the receipt of an order of termination of the waiting period
therefrom, no consent, approval, or authorization of or declaration, filing, or
registration with any governmental or regulatory authority is required in
connection with the execution, delivery, and performance by Purchaser of this
Agreement or the consummation of the transactions contemplated hereby.
6.7 FINANCING. Purchaser represents that on the Closing Date it will have
the funds necessary to pay the Estimated Purchase Price.
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ARTICLE 7
COVENANTS OF SELLER
Seller covenants and agrees with Purchaser as follows:
7.1 CONDUCT OF BUSINESS PRIOR TO CLOSING. From the date hereof to the
Closing Date, and except to the extent that Purchaser shall otherwise consent in
writing, Seller shall:
(a) operate the Business substantially as previously operated and
only in the regular and ordinary course;
(b) not purchase or acquire any assets or properties, whether real or
personal, tangible or intangible, that if acquired would be an Acquired Asset
hereunder, and not sell or otherwise dispose of any real or personal property or
asset that would have been an Acquired Asset hereunder, except in the ordinary
course of business and consistent with past practices;
(c) subject to casualty and normal wear and tear, maintain the
Acquired Assets in current operating condition and state of repair and deliver
the Acquired Assets to Purchaser on the Closing Date in such condition, and
maintain all policies of insurance covering the Acquired Assets in amounts and
on terms substantially equivalent to those in effect on the date hereof;
(d) take all steps reasonably necessary to maintain the Intellectual
Property and other intangible assets of Seller;
(e) pay all accounts payable in accordance with past practice and
collect all accounts receivable in accordance with past practice;
(f) comply with all laws applicable to the conduct of the Business of
Seller where the failure to comply would have a material adverse effect on the
conduct of the Business by Purchaser after Closing;
(g) maintain the Books and Records in the usual, regular, and
ordinary manner, on a basis consistent with past practices and prepare and file
all foreign, federal, state, and local tax returns and amendments thereto
required to be filed by Seller after taking into account any extensions of time
granted by such taxing authorities; and
(h) use reasonable best efforts to preserve the goodwill and
patronage of its customers, Employees, suppliers and others having a business
relationship with Seller.
7.2 ACCESS AND INFORMATION. Subject to the confidentiality restrictions
set forth in Section 12.1 hereof, from the date hereof to the Closing Date and
during normal business hours, Seller shall afford to Purchaser, its lenders,
counsel, accountants, and other representatives, reasonable access to the
offices, properties, books, contracts, commitments,
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records, vendors, and customers of Seller, insofar as the same relate to the
Acquired Assets, and shall furnish such persons with all information (including
financial and operating data) concerning the Acquired Assets as they reasonably
may request. Requests for such information shall be coordinated with Seller's
designated representatives, and Seller shall use its best efforts to assist
Purchaser, its lenders, counsel, accountants, and other representatives in their
examination. Purchaser shall, and shall use its best efforts to cause its
lenders, counsel, accountants, and representatives to, hold in strict confidence
all information so obtained from Seller.
7.3 NOTIFICATION OF CHANGES. Between the date hereof and the Closing
Date, Seller shall immediately notify Purchaser in writing of any material
adverse change in the affairs, condition (financial or otherwise) or prospects
of the Business or in its relationships with any material customer, supplier or
any employee listed on SCHEDULE 11.1, any material damage to or loss of any of
the Acquired Assets, or the institution of or, if known by Seller, the threat of
institution of legal, administrative, or other proceedings against Seller,
related to the Business, or the occurrence or existence of any unasserted
proceedings known to Seller that are probable of assertion.
7.4 CERTAIN ACTS PROHIBITED. Except as may be necessary to discharge or
deal with the Excluded Liabilities (subject to the limitations of Section 15.1
hereof ), from the date hereof to the Closing Date, Seller shall not, without
the prior written consent of Purchaser, take any of the actions described in
Section 5.13 hereof.
7.5 OTHER TRANSACTIONS. Seller shall deal exclusively and in good faith
with Purchaser with regard to the sale of the Acquired Assets to Purchaser and
will not, and will direct its officers, directors, financial advisors,
accountants, agents, and counsel not to (i) solicit submission of proposals or
offers from any person other than Purchaser relating to any acquisition of all
or any material part of the Acquired Assets (an "Acquisition Proposal"),
(ii) participate in any discussions or negotiations regarding, or furnish any
non-public information to any other person regarding the Business other than
Purchaser and its representatives or otherwise cooperate in any way or assist,
facilitate, or encourage any Acquisition Proposal by any person other than the
Purchaser or, (iii) enter into any agreement or understanding, whether in
writing or, if legally binding, oral, that would have the effect of preventing
the consummation of the transactions contemplated by this Agreement. If,
notwithstanding the foregoing, Seller, or its representatives or agents should
receive any Acquisition Proposal or any inquiry regarding such proposal from a
third party, such persons shall promptly inform Purchaser and its counsel
thereof.
7.6 CONSENTS. Seller shall use its best efforts to obtain, at its sole
cost and expense, prior to the Closing all consents which, in the reasonable
judgment of Purchaser, are necessary or appropriate for the transfer or
assignment of each of the Acquired Assets to Purchaser and the consummation of
the transactions contemplated hereby. All such consents shall be in writing and
in form and substance reasonably satisfactory to Purchaser, and executed
counterparts thereof will be delivered to Purchaser promptly after receipt
thereof but in no event later than the Closing. In any case where a necessary
consent or approval has
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not been obtained at or prior to the Closing, Seller shall assist Purchaser, at
Purchaser's request, after Closing in every reasonable effort to obtain such
consent or approval.
7.7 SUPPLEMENTAL DISCLOSURE. Seller shall have the continuing obligation
up to and including the Closing Date to supplement promptly or amend the
Schedules with respect to any matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required to be
set forth or listed in the Schedule; provided, however, that for the purpose of
the rights and obligations of the parties hereunder, any such supplemental
disclosure shall not be deemed to have been disclosed as of the date of this
Agreement unless so agreed to in writing by Purchaser which Purchaser agrees not
to unreasonably withhold.
7.8 ADDITIONAL REPORTS. Subject to the confidentiality restrictions set
forth in Section 12.1 hereof, promptly after they become available, Seller will
make available to Purchaser true and correct copies of all internal management
and control reports (including inventory control reports) and financial
statements related to the Acquired Assets and furnished to management of the
Seller or the General Partner. Each such report shall be in accordance with the
books and records of Seller, and, in the case of financial statements shall be
prepared in accordance with the past practices of the Seller as set forth in
Section 5.4.
7.9 CONDITIONS PRECEDENT. Seller shall use its best efforts to satisfy
the conditions enumerated in Article 8 hereof.
7.10 ENVIRONMENTAL PERMITS. Seller shall, at its cost and expense, use its
reasonable best efforts to cause the Environmental Permits, if any, to be
assigned or transferred and reissued at the Closing to Purchaser to the extent
permitted by law or the terms of such Environmental Permits. Purchaser shall
reasonably cooperate with Seller with respect to Seller's obligations under the
preceding sentence.
7.11 CAPITAL EXPENDITURES. Other than those matters listed on
SCHEDULE 5.8.3, Seller shall cause its management to discuss with Purchaser any
proposed significant capital expenditure or repair in excess of twenty five
thousand dollars ($25,000) or for a period in excess of six (6) months to be
made prior to the Closing Date prior to entering into any contract or commitment
for such capital expenditure or repair, other than emergency capital
expenditures or repairs. No such capital expenditure or repair (other than
emergency capital expenditures for repairs and maintenance of the Acquired
Assets) shall be made by Seller prior to the Closing Date without the prior
written consent of Purchaser, which consent shall not be unreasonably withheld
or delayed. Seller will promptly notify Purchaser of the nature and extent of
emergency capital expenditures made by Seller without the prior written consent
of Purchaser.
7.12 DISCHARGE OF LIENS AND ENCUMBRANCES. All liens, claims, charges,
security interests, pledges, assignments, or encumbrances relating to the
Acquired Assets (including those described in Section 4.3(a)) shall be
satisfied, terminated, and discharged by Seller on or prior to the Closing Date
and evidence reasonably satisfactory to Purchaser and its counsel
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of such satisfaction, termination, and discharge shall be delivered to Purchaser
at or prior to the Closing.
7.13 ENVIRONMENTAL FINES. Seller shall upon demand, promptly pay all fines
and assessments that Seller is not disputing in good faith and by appropriate
proceedings, and that are attributable to (a) Seller's operation of Equipment
which was not in compliance with applicable federal, state, and local laws or
regulations relating to environmental protection or (b) Seller's failure to
possess all required Environmental Permits; such fine or assessment shall be
payable to any agency enforcing compliance with such laws and regulations or
payable to the Purchaser if the Purchaser has previously paid such fines or
assessments.
7.14 RENEGOTIATION OF EQUIPMENT LEASES. Seller shall provide reasonable
assistance to Purchaser as reasonably requested in connection with the
renegotiation of the equipment leases listed on SCHEDULE 7.14. The Purchaser
covenants that, in the event the payment obligations under any of the leases
listed on SCHEDULE 7.14 are successfully renegotiated at any time before Closing
or within six (6) months after Closing such that the Purchaser's total financial
obligations are reduced below an amount calculated as of the date of
renegotiation equal to the net present value of all future lease payments,
purchase options and sales taxes, if any, using a discount rate of eight percent
(8%) per annum (the "Current Value"), then Purchaser shall promptly pay to
Seller one-half (1/2) of the difference between the amount paid by Purchaser to
buy out an equipment lease or an interest therein and the Current Value of such
lease or interest.
7.15 TRANSFERRED BENEFIT PLANS/PLAN INFORMATION.
(a) Seller shall, within ninety (90) days of the Closing, take such
action as is reasonably necessary to transfer sponsorship, together with all
assets and liabilities, including but not limited to insurance contracts, of the
following Seller Benefit Plans to Purchaser:
(i) Nord Kaolin Company Pension Plan
for Hourly Rated and Collective Bargaining Employees
Jeffersonville, Georgia; and
(ii) Nord Kaolin Company Union Employee 401(k) Plan; and
(iii) Nord Kaolin Company Hourly Long Term Disability
Income Plan.
On or before the effective date of such transfer, Seller will provide to
Purchaser all records, data, and information maintained by Seller or its
affiliates relating to the foregoing Transferred Benefit Plans. Thereafter,
Seller will make its personnel available to Purchaser on reasonable terms to
answer questions regarding the administration or operation of the Transferred
Benefit Plans.
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(b) To the extent such actions would not materially adversely affect
such Plan, Seller shall, within one hundred eighty (180) days of the Closing,
cause to be transferred to the Dry Branch Kaolin Company 401(k) Savings and
Investment Plan all assets and liabilities associated with the accounts of
Employees Under the Nord Resources Corporation Nord Salaried Employees' 401(k)
Plan (also referred to herein as a Transferred Benefit Plan) who are employed by
Purchaser ninety (90) days following the date of the Closing.
(c) Prior to the Closing, Seller shall contribute to the Transferred
Benefit Plans identified above an amount equal to the employer contribution
accrued under such Transferred Benefit Plans through the Closing, assuming such
contribution accrued ratably over the Transferred Benefit Plan year and without
regard to requirements relating to minimum hours or employment on the last day
of such Transferred Benefit Plan year.
(d) Seller shall provide, or shall cause its agents to provide, such
information as Purchaser reasonably requests, regarding the Seller Benefit Plans
covering the Hired Employees, including but not limited to the claims experience
of such Hired Employees under the Seller Benefit Plans.
7.16 PAYOFF OF DEBTS. On or prior to Closing, Seller shall pay and
otherwise satisfy in full (a) all obligations under the Bonds or deposit with
the trustee of the Bonds funds sufficient to pay off the Bonds, and (b) all
obligations owed to Kemira as a supplier of products to Seller on bills received
at or before Closing. All other known financial obligations of Seller (both
secured and unsecured, including without limitation all indebtedness owed to
trade creditors) except for intercompany indebtedness owed to Resources shall be
paid or reserved against at Closing by Seller placing the full amount of the
financial obligations owed into a separate escrowed account pursuant to the
terms of an escrow agreement to be agreed upon by the parties and paying all
such obligations first out of such escrowed funds. Seller shall provide at
Closing to Purchaser a list of the payees or creditors to be paid and amounts
estimated to be owed thereunder. Seller shall pay all obligations owed in a
manner to avoid any disruption of the business operated by Purchaser after
Closing.
7.17 FUNDING OF PLANS. At Closing, Seller shall fully fund the Nord Kaolin
Company Pension Plan for Hourly Rated and Collective Bargaining Employees
Jeffersonville, Georgia, for all benefit liabilities as defined in ERISA
Section 4001(a)(16) accrued as of January 1, 1997. Seller covenants that it
will fully fund for all such benefit liabilities from January 1, 1997 through
the Closing Date within five (5) days from receipt of the actuarial valuation
performed as of the Closing Date. In any event, Seller shall fully fund all
such liabilities within thirty (30) days from the Closing Date. The value of
such benefit liabilities shall be determined by utilizing the actuarial
assumptions applied in the January 1, 1996 actuarial report to determine the
present value of accumulated plan benefits under such Plan. If the actuarial
valuation performed by Seller (utilizing the actuarial assumptions described in
the preceding sentence) as of the Closing Date shows that plan assets as of the
Closing Date exceed the benefit liabilities determined as of the Closing Date,
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Purchaser shall remit to Seller the difference within five (5) days of the
determination of such excess amount.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction, on or before the Closing
Date, of each of the following conditions all or any of which may be waived in
writing, in whole or in part, by Purchaser:
8.1 CERTIFICATE REGARDING SCHEDULES AND REPRESENTATIONS AND WARRANTIES.
All information required to be furnished or delivered by Seller pursuant to this
Agreement shall have been furnished or delivered as of the date hereof and as of
the Closing Date, as required hereunder; the representations and warranties made
by Seller in Article 5 shall be true and correct in all material respects on and
as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date
(except that such representations and warranties may be untrue or incorrect as a
result of actions or transactions expressly permitted by this Agreement or
actions or transactions of Seller made with the prior written consent of
Purchaser or based upon updates of the Schedules approved by Purchaser pursuant
to Section 7.7 hereunder); and Purchaser shall have received a certificate dated
as of the Closing Date executed by an authorized officer of Seller to such
effect.
8.2 COMPLIANCE BY SELLER. Seller shall have duly performed in all
material respects all of the covenants, agreements, and conditions contained in
this Agreement to be performed by Seller on or prior to the Closing Date, and
Purchaser shall have received a certificate, dated as of the Closing Date,
executed by an authorized officer of Seller, to such effect.
8.3 NO INJUNCTION; ETC. No action, proceeding, investigation, regulation,
or legislation shall be pending or threatened which seeks to enjoin, restrain,
or prohibit Purchaser, or to obtain substantial damages from Purchaser, in
respect of the consummation of the transactions contemplated hereby, or which
seeks to enjoin the operation of all or a material portion of the Acquired
Assets, which, in the reasonable judgment of Purchaser, would make it
inadvisable to consummate the transactions contemplated by this Agreement.
8.4 OPERATION IN THE ORDINARY COURSE. Since the date of the Latest
Balance Sheet, Seller shall have operated the Business of Seller in the ordinary
course (except as otherwise permitted by this Agreement or as agreed to by
Purchaser as evidenced by Purchaser's prior written consent).
8.5 CONSENTS; AUTHORIZATIONS; APPROVAL OF LEGAL MATTERS. Purchaser shall
have received a true and correct copy of each consent and waiver identified on
any Schedule hereto as being requested by Purchaser that is (a) required for the
assignment of the
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Contracts, the Transferred Benefit Plans, or the Real Property Leases
(including, without limitation, all documents evidencing Seller's interest in
the Leased Real Property, and all sidetrack and industrial track agreements
benefiting the Leased Real Property or the Real Property with respect to tracks
presently being used by Seller), Permits, Intellectual Property, and other
agreements and assets and (b) otherwise required for the execution, delivery,
and performance of this Agreement by Seller. All authorizations, orders, or
approvals of any governmental commission, board, or other regulatory body, shall
have been obtained. Purchaser shall have received a certificate dated as of the
Closing Date, executed by an authorized officer of Seller to the foregoing
effect, and Purchaser shall be satisfied with the terms, conditions, and
restrictions of and obligations under each such authorization, order, or
approval.
8.6 TRANSFER OF ENVIRONMENTAL PERMITS. The Environmental Permits shall
have been assigned to or transferred and reissued to Purchaser to the extent
permitted by law or the terms of the Environmental Permits in accordance with
Section 7.10, and Purchaser shall have received a certificate dated as of the
Closing Date, executed by an authorized officer of Seller to the foregoing
effect.
8.7 INCUMBENCY. Purchaser shall have received a certificate of incumbency
of Seller executed by a Vice President and Secretary or Assistant Secretary of
the General Partner listing the officers of the General Partner authorized to
execute the agreement and the instruments of transfer on behalf of Seller,
certifying the authority of each such officer to execute the agreements,
documents, and instruments on behalf of Seller in connection with the
consummation of the transactions contemplated herein.
8.8 CERTIFIED RESOLUTIONS. Purchaser shall have received a certificate of
the Secretary or Assistant Secretary of the General Partner and Resources,
respectively, containing a true and correct copy of the resolutions duly adopted
by the boards of directors of the General Partner and Resources, and a
certificate of the General Partner individually in its capacity as the general
partner of the Seller, containing a true and correct copy of the resolutions
duly adopted by the Seller, each set of resolutions approving and authorizing
each Acquisition Document and the transactions contemplated hereby and thereby.
The Secretary or Assistant Secretary of the General Partner shall also certify
that such resolutions have not been rescinded, revoked, modified, or otherwise
affected and remain in full force and effect.
8.9 BASIC CORPORATE DOCUMENTS. Seller shall have delivered to Purchaser
on the Closing Date copies of certificates from the Secretaries of State in
Georgia and Connecticut and in each jurisdiction listed on SCHEDULE 5.1.1,
indicating that, as of a date within twenty (20) days prior to the Closing Date,
Seller was in good standing and had paid all taxes required to have been paid as
of such date.
8.10 SATISFACTION OF TITLE OBJECTIONS AND RELEASE OF CERTAIN LIENS. Seller
shall have satisfied Purchaser's title objections to the extent required under
Section 4.3 and, in addition, Purchaser at its discretion shall have received
Uniform Commercial Code searches (which searches shall be made or caused to be
made by and at the expense of Purchaser) of
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filings made pursuant to Article 9 thereof in all jurisdictions where any of
the Acquired Assets are located, in form, scope, and substance reasonably
satisfactory to Purchaser and its counsel, which searches shall reflect the
release or termination of liens, claims, security interests, or encumbrances
against any of the Acquired Assets disclosed thereby, and to the extent any such
release or termination is not reflected of record, Purchaser shall have received
evidence satisfactory to it, that all such liens and encumbrances against the
Acquired Assets have been released or terminated prior to or at the Closing.
8.11 ACCURACY OF SCHEDULES. Examination by Purchaser shall not have
disclosed any material inaccuracy in the representations and warranties of
Seller, set forth in this Agreement or in the Schedules delivered to Purchaser
pursuant hereto.
8.12 NO ADVERSE CHANGE. There shall not have been any material adverse
change in the Acquired Assets or Seller's operation of the Business since the
date of the Latest Balance Sheet, and Purchaser shall have received a
certificate dated as of the Closing Date, executed by an authorized officer of
Seller to such effect.
8.13 INSTRUMENTS OF TRANSFER. Seller shall have delivered to Purchaser
such warranty deeds, quitclaim deeds, bills of sale, motor vehicle titles,
endorsements, assignments, licenses, and other good and sufficient instruments
of conveyance and transfer and any other instruments reasonably deemed
appropriate by counsel to Purchaser all in form and substance reasonably
satisfactory to counsel to Purchaser to vest in Purchaser all of Seller's
rights, title, and interest with respect to the Acquired Assets, free and clear
of all liens, charges, encumbrances, pledges, or claims of any nature.
8.14 ACQUISITION DOCUMENTS. Purchaser shall have received the Acquisition
Documents to which Seller is a party, duly executed by Seller.
8.15 OPINION OF SELLER'S COUNSEL. Purchaser shall have received the Seller
Opinion, executed by Spitzer & Feldman, P.C.
8.16 PROCEEDINGS. The form and substance of all opinions, certificates,
assignments, orders, and other documents and instruments, hereunder shall be
satisfactory in all reasonable respects to Purchaser and its counsel.
8.17 NAMES. Seller and General Partner shall have ceased to use in any
manner whatsoever the trade names included among the Acquired Assets and
described on SCHEDULE 5.9, except in connection with tax returns, filings with
other governmental authorities, and similar purposes.
8.18 CONDITION OF ACQUIRED ASSETS. On the Closing Date, all of the
Acquired Assets shall be in substantially the same condition as at the close of
business on the date hereof, except for ordinary use and wear thereof and
changes occurring in the ordinary course of business or expressly permitted by
this Agreement between the date hereof and the Closing Date, and Purchaser shall
have received a certificate dated as of the Closing Date,
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executed by an authorized officer of Seller to such effect; provided, however,
if on or prior to the Closing Date any of the Acquired Assets shall have
suffered loss or damage on account of fire, flood, accident, act of war, civil
commotion, or any other cause or event beyond the reasonable power and control
of Seller (whether or not similar to the foregoing) to an extent which, in the
reasonable opinion of Purchaser, affects the value of the Acquired Assets in
excess of $100,000, Purchaser shall have the right either (a) to terminate this
Agreement and all of Purchaser's obligations hereunder without incurring any
liability to Seller as a result of such termination or (b) to consummate the
transactions provided for herein and be paid the full amount of all insurance
proceeds, if any, paid or payable to Seller, in respect of such loss plus an
amount equal to any deductible or co-insurance reserve applicable to such loss.
If under the circumstances described in the foregoing sentence, Purchaser shall
elect to consummate the transactions provided for herein, Seller shall, on
demand, pay to Purchaser the full amount of any insurance proceeds received by
Seller in respect of any such loss, together with any deductible or co-insurance
reserve applicable to such loss.
8.19 ANTITRUST. All applicable waiting periods under the Hart-Scott-Rodino
Act shall have expired or been terminated and no action, proceeding or
investigation under any antitrust law shall be pending or threatened which seeks
to enjoin, restrain, or prohibit Purchaser, or to obtain damages from Purchaser,
in respect of the consummation of the transactions contemplated hereby, or which
seeks to enjoin, limit or impose conditions unacceptable to the Purchaser on the
ownership or the operation of all or any portion of the Acquired Assets, which,
in the sole judgment of Purchaser, would make it inadvisable to consummate the
transactions contemplated by this Agreement.
8.20 GUARANTY. Resources shall have executed and delivered the Guaranty
substantially in the form attached hereto as EXHIBIT C.
8.21 ROYALTY AGREEMENT. Seller shall have executed and delivered the
Royalty Agreement substantially in the form attached hereto as EXHIBIT D.
8.22 NONCOMPETITION AGREEMENT. Resources shall have executed and delivered
a Noncompetition Agreement substantially in the form attached hereto as
EXHIBIT E.
8.23 NORPLEX NAME. On or prior to Closing, General Partner shall have
delivered to Purchaser for filing with the Secretary of State of Georgia an
appropriate amendment to General Partner's Articles of Incorporation to change
its corporate name to a name which does not include "Norplex" or any derivation
thereof, and the General Partner shall have conveyed to Purchaser all of its
rights in and to the "Norplex" name.
8.24 LICENSE AGREEMENT. Purchaser shall have received the consent of
Industrial Progress, Inc. to the assignment of the License Agreement on terms
and conditions reasonably satisfactory to Purchaser.
8.25 SALES/RESALE EXEMPTION CERTIFICATES. Purchaser shall have received
copies
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of executed sales or resale exemption certificates executed by Seller's current
customers and former customers representing at least eighty percent (80%) of
Seller's sales since January 1, 1996.
8.26 RELEASES. Resources shall have executed a release which releases
Purchaser from all claims of Resources as a creditor of Seller. Seller shall
have used its reasonable best efforts (the parties agreeing that best efforts
shall not include any consideration) to cause a release to be executed by Kemira
on terms and conditions satisfactory to Purchaser.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligation of Seller to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction, on or before the Closing
Date hereunder, of each of the following conditions, all or any of which may be
waived, in whole or in part, by Seller.
9.1 CERTIFICATE REGARDING REPRESENTATIONS AND WARRANTIES. All information
required to be furnished or delivered by Purchaser pursuant to this Agreement
shall have been furnished or delivered as of the date hereof and the Closing
Date as required hereunder; the representations and warranties made by Purchaser
in Article 6 hereof shall be true and correct in all material respects on and as
of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date; and
Seller shall have received a certificate dated the Closing Date, executed by an
authorized officer of Purchaser to such effect.
9.2 COMPLIANCE BY PURCHASER. Purchaser shall have duly performed in all
material respects all of the covenants, agreements, and conditions contained in
this Agreement to be performed by Purchaser on or before the Closing Date, and
Seller shall have received a certificate dated the Closing Date, executed by an
authorized officer of Purchaser, to such effect.
9.3 CERTIFIED RESOLUTIONS. Seller shall have received from Purchaser a
certificate executed by the Secretary or Assistant Secretary of Purchaser
containing a true and correct copy of resolutions duly adopted by Purchaser's
Board of Directors approving and authorizing this Agreement and each of the
other Acquisition Documents to which Purchaser is a party and each of the
transactions contemplated thereby. The Secretary or Assistant Secretary of
Purchaser shall also certify that such resolutions have not been rescinded,
revoked, modified, or otherwise affected and remain in full force and effect.
9.4 BASIC CORPORATE DOCUMENTS. Purchaser shall have delivered to Seller
on the Closing Date copies of certificates from the Secretary of State in
Georgia and Delaware, indicating that, as of a date within twenty (20) days
prior to the Closing Date, Purchaser was in good standing, and had paid all
taxes required to have been paid as of such date.
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9.5 NO INJUNCTION; ETC. No action, proceeding, investigation, regulation,
or legislation shall be pending or overtly threatened which seeks to enjoin,
restrain, or prohibit Seller, or to obtain substantial damages from Seller, in
respect of the consummation of the transactions contemplated hereby, which, in
the reasonable judgment of Seller, would make it inadvisable to consummate such
transactions.
9.6 INCUMBENCY. Seller shall have received a certificate of incumbency of
Purchaser executed by the Chairman or President and attested by the Secretary or
Assistant Secretary of Purchaser listing the officers of Purchaser authorized to
execute this Agreement and the other Acquisition Documents to which Purchaser is
a party and the instruments of assumption on behalf of Purchaser and certifying
the authority of each such officer to execute the agreements, documents, and
instruments on behalf of Purchaser in connection with the consummation of the
transactions contemplated herein.
9.7 CERTIFICATES. Seller shall have received from Purchaser all such
certificates, dated as of the Closing Date, as Seller shall reasonably request
to evidence the fulfillment by Purchaser, or such other satisfaction as the
Closing Date, of the terms and conditions of this Agreement.
9.8 ACQUISITION DOCUMENTS. Seller shall have received the Acquisition
Documents to which Purchaser is a party, executed by Purchaser.
9.9 OPINION OF PURCHASER'S COUNSEL. Seller shall have received the
Purchaser Opinion, executed by Alston & Bird, counsel for Purchaser, which
opinion may be based upon and incorporate the 1992 edition of the Interpretive
Standards applicable to Legal Opinions to Third Parties in Corporate
Transactions adopted by the Legal Opinion Committee of the Corporate and Banking
Law Section of the State Bar of Georgia, which Interpretive Standards shall be
attached to the Opinion.
9.10 HART-SCOTT-RODINO. All applicable waiting periods under the Hart-
Scott-Rodino Act shall have expired or been terminated.
9.11 PROCEEDINGS. The form and substance of all opinions, certificates,
assignments, orders and other documents and instruments hereunder shall be
satisfactory in all reasonable respects to Seller and its counsel.
9.12 RELEASE FROM GUARANTEES. Purchaser shall have caused Resources and
its affiliates to be released from any guarantees of Seller's obligations under
equipment leases included among the Acquired Assets. Purchaser covenants to use
reasonable efforts (which shall, if requested by an equipment lessor, include
substituting Purchaser as the guarantor in place of Resources) to cause
Resources to be so released. Purchaser shall provide to the equipment lessors
upon request financial and such other information regarding Purchaser as
reasonably requested by the equipment lessors.
9.13 ROYALTY AGREEMENT. Purchaser shall have executed and delivered the
Royalty
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Agreement substantially in the form attached hereto as EXHIBIT D.
ARTICLE 10
MUTUAL COVENANTS
10.1 GOVERNMENTAL FILINGS. Purchaser and Seller, to the extent legally
required, shall promptly prepare, file, and diligently prosecute within five (5)
business days from the date hereof all applications and filings required by
federal or state law in order to effect the transactions contemplated by this
Agreement. The parties agree to request acceleration under Hart-Scott-Rodino.
10.2 FURTHER MUTUAL COVENANTS. Purchaser and Seller shall each take all
actions contemplated by this Agreement, and, subject to Purchaser's and Seller's
right to terminate this Agreement pursuant to Article 13 hereof, do all things
reasonably necessary to effect the consummation of the transactions contemplated
by this Agreement; PROVIDED, HOWEVER, that nothing in this Agreement shall
require the Purchaser in order to consummate the transactions contemplated
hereby to sell or otherwise dispose of, license, hold separate or otherwise
divest itself of any portion of the Acquired Assets. Except as otherwise
provided in this Agreement, Purchaser and Seller shall each refrain from
knowingly taking or failing to take any action which would render any of the
representations or warranties made by such party as contained in Articles 5 or 6
of this Agreement, as applicable, in any material respect inaccurate as of the
Closing Date. Each party shall promptly notify the other party of any action,
suit, or proceeding that shall be instituted or threatened against such party to
restrain, prohibit, or otherwise challenge the legality of any transaction
contemplated by this Agreement.
10.3 PRORATIONS.
(a) Royalty Payments, Utility Charges, Rental Charges, Equipment
Charges, Real Property Taxes, Personal Property Taxes, and Service Contracts
including, without limitation, prepayments thereof (all as individually defined
below and collectively called the "Proration Items"), shall be prorated directly
between the Seller and the Purchaser as provided in this Section 10.3.
(b) For purposes of this Section 10.3, the capitalized terms set
forth below shall have the following meanings:
(i) "Utility Charges" shall mean water, sewer, electricity, gas
and other utility charges, if any, applicable to the Real Property and the
Leased Real Property;
(ii) "Rental Charges" shall mean common area maintenance charges,
merchant association dues, insurance reimbursement and rental charges payable or
receivable and other payments, or receipts (other than Real Property Taxes and
royalties or like payments) applicable to the Real Property and the Leased Real
Property;
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(iii) "Equipment Charges" shall mean rental charges payable
or receivable and other payments or receipts applicable to the Equipment;
(iv) "Real Property Taxes" shall mean ad valorem taxes imposed
upon the Real Property and any portion of the Leased Real Property owned by or
for which Seller, as lessee, is responsible for paying such taxes, general
assessments imposed with respect to the Real Property and any portion of the
Leased Real Property owned by or for which Seller, as lessee, is responsible for
paying such assessments, and special assessments upon the Real Property and any
portion of the Leased Real Property owned by or for which Seller, as lessee, is
responsible for paying such assessments;
(v) "Personal Property Taxes" shall mean ad valorem taxes
imposed upon the Acquired Assets other than the Real Property or the Leased Real
Property; and
(vi) "Royalty Payments" shall mean any charges applicable to the
licensing of any Intellectual Property, including without limitation, any
charges payable under the License Agreement.
(c) As soon as practicable after the Closing Date, all Utility
Charges, Rental Charges, Equipment Charges, Real Property Taxes, Personal
Property Taxes and Royalty Payments (including amounts owed pursuant to
transferable state licenses applicable to the Acquired Assets and transferred to
Purchaser hereunder) which are not included in the Assumed Liabilities shall be
apportioned to the Closing Date, and representatives of the Seller and Purchaser
will examine all relevant books and records as of the Closing Date in order to
make the determination of the apportionments, which determinations shall be
calculated in accordance with past practices. Payments in respect thereof shall
be made to the appropriate party by check within thirty (30) days after such
determination, except that payments for Real Property Taxes and Personal
Property Taxes shall initially be determined based on the previous year's taxes
and shall later be adjusted to reflect the current year's taxes when the tax
bills are finally rendered. The parties shall fully cooperate to avoid, to the
extent legally possible, the payment of duplicate Personal Property Taxes, and
each party shall furnish, at the request of the other, proof of payment of any
Personal Property Taxes or other documentation which is a prerequisite to
avoiding payment of a duplicate tax. No apportionment or payment shall be made
by Purchaser with respect to any amount credited to Seller under the License
Agreement, which amount is identified as a noncurrent asset included among the
Acquired Assets hereunder.
(d) In the event that either party (the "Payor") pays a Proration
Item (other than if and to the extent included in the Assumed Liabilities) for
which the other party (the "Payee") is obligated in whole or in part under this
Section 10.3, the Payor shall present to the Payee evidence of payment and a
statement setting forth the Payee's proportionate share of such Proration item,
and the Payee shall promptly pay such share to the Payor. In the event either
party (the "Recipient") receives payments of a Proration Item to which the other
party (the "Beneficiary") is entitled in whole or in part under this Agreement,
the Recipient
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shall promptly pay such share to the Beneficiary.
(e) In the event there exists as of the Closing Date any pending
appeals of ad valorem tax assessments with regard to any Acquired Assets, the
continued prosecution and/or settlement of such appeals shall be subject to the
direction and control of Purchaser with respect to assessments for the year
within which the Closing occurs.
ARTICLE 11
POST CLOSING MATTERS
11.1 EMPLOYMENT OF EMPLOYEES.
(a) On the Closing Date, Purchaser shall make offers of employment to
all of the hourly Employees and to those certain salaried Employees identified
on SCHEDULE 11.1, other than Employees who are "Not Actively Employed" by Seller
on the Closing Date for any reason whatsoever, including but not limited to a
leave of absence, long term or short term disability, or prior termination of
employment (an Employee shall be considered "Not Actively Employed" if the
Employee did not report to work with Seller for a period of at least six
consecutive business days which includes the Closing Date (excluding vacation
time or absences due to minor illness)). Employees who accept the offer of
employment made by Purchaser shall be referred to as "Hired Employees."
(b) Purchaser has confirmed to Seller that each Hired Employee shall
receive credit for the purposes of determining vesting service under Purchaser's
tax qualified deferred compensation plans applicable to the Hired Employees.
Purchaser has also confirmed to Seller that Hired Employees shall be entitled to
participate in Purchaser's group insurance plans and programs (subject to the
terms of such plans and programs) without regard to applicable waiting,
eligibility, or pre-existing condition limitation periods, except to the extent
that such eligibility, waiting, or pre-existing limitation periods would apply
under Seller's group insurance plans or programs. Purchaser has further
confirmed that Hired Employees shall receive credit under applicable severance
pay plans maintained by Purchaser as of the Closing Date for employment service
with Seller to the extent such Hired Employees are not entitled to payment under
Seller's severance pay (or similar) plans with respect to such service with
Seller. Notwithstanding any possible inferences to the contrary, neither of
Seller nor Purchaser intends for this Article 11 to create any rights or
obligations except as between the parties hereto, and no past, present or future
employees of Seller or Purchaser shall be treated as third-party beneficiaries
of this Article 11.
(c) Seller shall be responsible for the payment of all wages,
commissions, severance pay, accrued vacation, sick pay, and other employee
benefit plan obligations under ERISA Sections 601-609 (i) to Hired Employees to
the extent that such compensation or benefits are earned or accrued but not yet
paid through the Closing Date and (ii) to any Employees of Seller who are not
Hired Employees. Except for obligations specifically assumed by Purchaser
hereunder, Seller, General Partner or Resources shall be responsible for the
payment of any amounts due to its Employees (including the Hired Employees)
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pursuant to the Seller Benefit Plans as a result of the employment or
termination of employment of its Employees or as a result of the consummation of
the transactions contemplated hereunder, including actions taken by Purchaser
post-closing which subsequently cause payment obligations of Seller, General
Partner or Resources. Seller shall be responsible for reporting all
employee-related costs and liabilities of Hired Employees accruing prior to the
Closing Date, whether payable on or after the Closing Date. Seller is
responsible for all incurred but unreported or unpaid medical claims made,
occurring or arising prior to the Closing Date and for the cost associated with
any hospital confinement that commences prior to the Closing Date. Purchaser
shall become responsible for all costs and liabilities attributable to Hired
Employees accruing after the Closing Date; PROVIDED, HOWEVER, that Purchaser
shall not be responsible for (a) liabilities arising under the Seller Benefit
Plans (except as specifically assumed hereunder related to the Transferred
Benefit Plans) or (b) liabilities associated with any short term or long term
disabilities incurred, or leaves taken prior to the Closing Date. Effective on
the Closing Date, Seller shall, and hereby does, release all Hired Employees
from any employment and/or confidentiality agreement previously entered into
between Seller and such Hired Employees to the extent (but only to the extent)
necessary for Purchaser to operate the Business in substantially the same manner
as operated by Seller prior to the Closing Date.
11.2 SELLER BENEFIT PLANS. Except for obligations specifically assumed by
Purchaser hereunder related to the Transferred Benefit Plans, Purchaser shall
assume no responsibility with regard to any Seller Benefit Plans. To the extent
necessary, Seller may continue to communicate with the Hired Employees regarding
their rights and entitlement to any benefits under the Seller Benefit Plans,
subject to Purchaser's prior approval, which shall not be unreasonably withheld,
and the parties shall cooperate with each other in the administration of all
applicable employee benefit plans and programs.
11.3 USE OF NAME. Seller hereby grants to Purchaser a nonexclusive
royalty-free license to continue to use the "Nord" name for a one (1) year
period on any fixed Acquired Asset which at Closing bears the "Nord" name or
logo.
11.4 EMPLOYEE FILES. To the extent permitted by law, on the Closing Date,
or as soon as practicable thereafter, Seller shall deliver to a designee of
Purchaser a copy of all historical personnel and medical records of each of the
Hired Employees, including, but not limited to, employment agreements,
confidentiality and noncompete agreements, employment applications, corrective
action reports, disciplinary reports, notices of transfer, notices of rate
changes, other similar documents and all medical records.
11.5 NON-SOLICITATION. Seller shall terminate effective as of the Closing
Date all employment agreements it has with any of the Hired Employees. Until
the expiration of thirty-six (36) months after the month in which the Closing
Date occurs, Seller shall not directly or indirectly solicit or offer employment
to any Hired Employee who is then an employee of Purchaser, or who has
terminated such employment without the consent of Purchaser within 180 days of
such solicitation or offer, and Purchaser shall not directly or indirectly
solicit or offer employment to any person who, after the Closing Date is then an
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employee of Seller or who has terminated such employment without the consent of
Seller within 180 days of such solicitation or offer.
11.6 MAINTENANCE OF BOOKS AND RECORDS.
(a) Each of Seller and Purchaser shall preserve until the seventh
anniversary of the Closing Date all Books and Records possessed or to be
possessed by such party relating to any of the assets, liabilities or business
of the Business prior to the Closing Date. Seller shall give Purchaser written
notice of any Books and Records discovered by Seller that were not transferred
to Purchaser because such Books and Records were not located on the Real
Property or the Leased Property. After the Closing Date, where there is a
legitimate purpose, such party shall provide the other parties and their
representatives with access, upon prior reasonable written request specifying
the need therefor, during regular business hours, to (i) the officers and
employees of such party and (ii) the books of account and records of such party,
but, in each case, only to the extent relating to the assets, liabilities or
business of the Business prior to the Closing Date, and the other parties and
their representatives shall have the right to make copies of such books and
records; provided, however, that the foregoing right of access shall not be
exercisable in such a manner as to interfere unreasonably with the normal
operations and business of such party; and further, provided, that, as to so
much of such information as constitutes trade secrets or confidential business
information of such party, the requesting party, its affiliates, officers,
directors and representatives will use due care to not disclose such information
except (i) as required by law, (ii) with the prior written consent of such
party, which consent shall not be unreasonably withheld, or (iii) where such
information becomes available to the public generally, or becomes generally
known to competitors of such party, through sources other than the requesting
party, its affiliates or its officers, directors or representatives. Such
records may nevertheless be destroyed by a party if such party sends to the
other parties written notice of its intent to destroy records, specifying with
particularity the contents of the records to be destroyed. Such records may
then be destroyed after the 30th day after such notice is given unless another
party objects to the destruction in which case the party seeking to destroy the
records shall deliver such records to the objecting party.
(b) Purchaser shall cooperate with Seller in Seller's preparation and
filing of all tax filings relating to the period ending prior to the Closing
Date. Purchaser also shall make such other information available as may be
reasonably required by Seller in connection with audits or otherwise for the
proper payment of taxes for which Seller is responsible under the terms of this
Agreement.
11.7 PAYMENTS RECEIVED. Seller and Purchaser each agree that after the
Closing they will hold and will promptly transfer and deliver to the other, from
time to time as and when received by them, any cash, checks with appropriate
endorsements (using their best efforts not to convert such checks into cash), or
other property that they may receive on or after the Closing which properly
belongs to the other party, including without limitation, any insurance
proceeds, and will account to the other for all such receipts.
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11.8 UCC MATTERS. From and after the Closing Date, Seller will promptly
refer all inquiries with respect to ownership of the Acquired Assets to
Purchaser. In addition, Seller will execute such documents and financing
statements as Purchaser may reasonably request from time to time to evidence
transfer of the Acquired Assets to Purchaser, including any necessary
assignments of financing statements.
11.9 COOPERATION. Seller and Purchaser shall cooperate with each other in
all reasonable respects in connection with the defense of any claim included
within any Assumed Liability or Excluded Liability, as the case may be,
including making available records relating to such claim and furnishing,
management employees of the party as may be reasonably necessary for the
preparation of the defense of any such claim or for testimony as a witness in
any proceeding relating to such claim; provided, however, that the foregoing
right to cooperation shall not be exercisable by one party in such a manner as
to interfere unreasonably with the normal operations and business of the other
party.
11.10 TITANIUM DIOXIDE SUPPLY AGREEMENT. Purchaser shall enter into a
five (5) year Titanium Dioxide supply agreement substantially in the form of
Exhibit F attached hereto.
ARTICLE 12
CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS
12.1 CONFIDENTIALITY. Consummation of the transactions contemplated by
this Agreement has involved, and will continue to involve, the written or verbal
disclosure and communication of information or documentation owned by Seller or
Purchaser, which information may include, but is not necessarily limited to,
financial data, business plans, personnel information, drawings, samples,
devices, trade secrets, technical information, computer systems and software,
results of research and other data in either oral or written form (collectively
and individually referred to as the "Information"). Purchaser and Seller agree
that the following terms and conditions will apply:
(a) The Information is disclosed solely for use in completing
corporate investigation procedures incidental to this Agreement, and each party
agrees not to use the Information prior to the Closing Date for any other
purpose, nor to disclose or communicate the Information to any third party,
except to those employees, agents, attorneys, accountants, lenders, or
consultants who shall have a need to know the Information for the purpose
described above and for whom the appropriate party shall be responsible unless
(i) such Information is already known to such party or to others not bound by a
duty of confidentiality or such Information is or becomes publicly available
through no fault of such party, (ii) the use of such Information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated hereby, or (iii) the
furnishing or use of such Information is required by or necessary or appropriate
in connection with a legal proceeding.
(b) Except to the extent contemplated by this Agreement, the
Information
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and all rights to the Information which have been or will be provided by each
party shall remain the exclusive world-wide property of such party prior to the
Closing Date and shall be held by such party in trust for the benefit of the
other. Neither party will directly or indirectly, deal with, use, exploit, or
disclose such Information to any person or entity for any purpose prior to the
Closing Date, except as described herein or unless and until expressly
authorized in writing to do so by the other. If the transactions contemplated
hereby are not consummated, each party will return or destroy as much of such
written Information as the party furnishing such Information shall reasonably
request.
(c) The restrictions of this Section 12.1 shall terminate on the
Closing Date solely with respect to the Information conveyed to Purchaser, and
thereafter, such Information conveyed to Purchaser may be used free of any
restriction imposed by this Agreement.
12.2 PUBLIC ANNOUNCEMENTS. Seller and Purchaser will consult with each
other before issuing any press releases or otherwise making any public
statements or filings with governmental entities with respect to this Agreement
or the transactions contemplated hereby and shall not issue any press releases
or make any public statements or filings with governmental entities prior to
such consultation and shall modify any portion thereof if the other party
reasonably objects thereto, unless the same may be required by applicable law or
based upon advice of counsel.
ARTICLE 13
TERMINATION
13.1 TERMINATION. This Agreement may be terminated:
(a) by the mutual consent of Purchaser and Seller;
(b) by Purchaser: (i) if any condition in Article 8 becomes
impossible of performance or has not been satisfied in full or previously waived
by Purchaser in writing at or prior to the Closing Date, and (ii) as provided in
Sections 4.3(b), 4.7, or 8.19 hereof;
(c) by Seller if any condition in Article 9 becomes impossible of
performance or has not been satisfied in full or previously waived by Seller in
writing at or prior to the Closing Date; or
(d) by either party (other than a party that is in material breach of
its obligations under this Agreement) if the Closing shall not have occurred on
or before July 1, 1997.
13.2 EFFECT OF TERMINATION. As to any damages of either party arising from
the effect of termination or abandonment of this Agreement by the other party,
such party is only entitled to pursue its rights or remedies against the other
party to the extent the termination or abandonment by a party is due to the
other party's willful action or refusal to act as
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required pursuant to the terms hereof.
ARTICLE 14
INDEMNIFICATION
For the purposes of this Article 14, "Losses" shall mean any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs, removal and remediation requirements and expenses, including
without limitation, interest, penalties, and reasonable attorneys' and other
professional fees and expenses.
14.1 AGREEMENT OF SELLER TO INDEMNIFY. Subject to the terms and conditions
of this Article 14, Seller agrees to indemnify, defend, and hold harmless
Purchaser and its officers, directors, shareholders, employees and agents
(collectively, the "Purchaser Indemnitees") from, against, for, and in respect
of any and all Losses asserted against, relating to, imposed upon, or incurred
by the Purchaser Indemnitees by reason of, resulting from, based upon, or
arising out of:
(a) the breach of any representation or warranty of Seller contained
in or made pursuant to this Agreement or any other Acquisition Document or in
any certificate, Schedule, or Exhibit furnished by Seller in connection herewith
or therewith;
(b) the breach of any covenant or agreement of Seller contained in or
made pursuant to this Agreement or any other Acquisition Document;
(c) any Excluded Liability;
(d) the failure to deliver good, valid and marketable title to any of
the Acquired Assets and the encroachment of any building, structures or other
improvements, including pavement, currently located on the Real Property onto
the property of others including public rights-of-way and the location of any
buildings or other structures currently located on the Real Property in
violation of any set back lines or requirements imposed pursuant to zoning or
other ordinances now existing or existing at the time of the construction of
buildings or structures;
(e) any act or omission of Seller (as to the Real Property and Leased
Real Property), or any previous owner or operator (as to the Real Property) of
the underground storage tanks that are now or previously have been located on
the Real Property or Leased Real Property (the "Seller USTs") that would prevent
Seller from qualifying for reimbursement by the [Georgia Petroleum Storage Tank
Remediation Fund] or any other state having similar remediation funds for costs
associated with contamination caused by the Seller USTs; and
(f) any Environmental Liabilities. Seller also indemnifies Purchaser
to the same extent Seller has indemnified the landlords under the Real Property
Leases being assumed by Purchaser hereunder relating to actions taken or
omissions occurring prior to
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Closing.
14.2 AGREEMENT OF PURCHASER TO INDEMNIFY SELLER. Subject to the terms and
conditions of this Article 14, Purchaser agrees to indemnify, defend, and hold
harmless Seller and its officers, directors, shareholders, employees and agents
(collectively, the "Seller Indemnitees") from, against, for, and in respect of
any and all Losses asserted against, relating to, imposed upon, or incurred by
the Seller Indemnities arising out of:
(a) the breach of any representation or warranty of Purchaser
contained in or made pursuant to this Agreement or any other Acquisition
Document or in any certificate, Schedule, or Exhibit furnished by Purchaser in
connection herewith or therewith;
(b) the breach of any covenant or agreement of Purchaser contained in
or made pursuant to this Agreement or any other Acquisition Document; and
(c) any (i) Assumed Liability and (ii) liability arising out of the
operation of the Business by Purchaser or ownership of the Acquired Assets by
Purchaser after the Closing Date, except for any liability against which
Purchaser is entitled to indemnification pursuant to Section 14.1.
14.3 PROCEDURES FOR INDEMNIFICATION. As used herein, the term "Indemnitor"
means the party against whom indemnification hereunder is sought, and the term
"Indemnitee" means the party seeking indemnification hereunder.
(a) A claim for indemnification hereunder ("Indemnification Claim")
shall be made by the Indemnitee by delivery of a written declaration to the
Indemnitor requesting indemnification and specifying the basis on which
indemnification is sought and the amount of asserted Losses and, in the case of
a Third Party Claim (as hereinafter defined), containing (by attachment or
otherwise) such other information as the Indemnitee shall have concerning such
Third Party Claim.
(b) If the Indemnification Claim involves a Third Party Claim, the
procedures set forth in Section 14.4 hereof shall be observed by the Indemnitee
and the Indemnitor.
(c) If the Indemnification Claim involves a matter other than a Third
Party Claim, the Indemnitor shall have thirty (30) business days to object to
such Indemnification Claim by delivery of a written notice of such objection to
the Indemnitee specifying in reasonable detail the basis for such objection.
Failure to timely so object shall constitute a final and binding acceptance of
the Indemnification Claim by the Indemnitor and the Indemnification Claim shall
be paid in accordance with Section 14.3(d) hereof. If an objection is timely
interposed by the Indemnitor, then the Indemnitee and the Indemnitor shall
negotiate in good faith for a period of sixty (60) business days from the date
(such period is hereinafter referred to as the "Negotiation Period") the
Indemnitee receives such objection prior to commencing any formal legal action,
suit or proceeding with respect to
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such Indemnification Claim.
(d) Upon determination of the amount of an Indemnification Claim that
is binding on both the Indemnitor and the Indemnitee, the Indemnitor shall pay
the amount of such Indemnification Claim by check within ten (10) days of the
date such amount is determined.
14.4 DEFENSE OF THIRD PARTY CLAIMS. Should any claim be made, or suit or
proceeding (including, without limitation, a binding arbitration or an audit by
any taxing authority) be instituted against the Indemnitee which, if prosecuted
successfully, would be a matter for which the Indemnitee is entitled to
indemnification under this Agreement (a "Third Party Claim"), Indemnitee shall
promptly notify the Indemnitor of such Third Party Claim, and the obligations
and liabilities of the parties hereunder with respect to such Third Party Claim
shall be subject to the following terms and conditions:
(a) The Indemnitor shall have thirty (30) days (or such lesser time
as may be necessary to comply with statutory response requirements for
litigation claims) from receipt of the Indemnification Claim (the "Notice
Period") to notify the Indemnitee, (i) whether or not the Indemnitor disputes
its liability to the Indemnitee with respect to such claim, and
(ii) notwithstanding any such dispute, whether or not the Indemnitor desires, at
its sole cost and expense, to defend the Indemnity against such claim.
(i) In the event that the Indemnitor notifies the Indemnitee
within the Notice Period that it desires to defend the Indemnitee against such
claim then, except as hereinafter provided, the Indemnitor shall have the right
to defend the Indemnitee by appropriate proceedings, which proceedings shall be
promptly settled or prosecuted by the Indemnitor to a final conclusion in such a
manner as to minimize the risk of the Indemnitee becoming subject to liability
for any other significant matter. If the Indemnitee desires to participate in,
but not control, any such defense or settlement, it may do so at its sole cost
and expense. If, in the reasonable opinion of the Indemnitee, any such claim or
the litigation or resolution of any such claim involves an issue or matter which
could have a material and adverse effect on the business, operations, material
assets, material properties or material prospects of the Indemnitee, including
without limitation the administration of the tax returns and responsibilities
under the tax laws of the Indemnitee, then the Indemnitee shall have the right
to control the defense or settlement of any such claim or demand and its
reasonable costs and expenses shall be included as part of the indemnification
obligation of the Indemnitor. If the Indemnitee should elect to exercise such
right, the Indemnitor shall have the right to participate in, but not control,
the defense or settlement of such claim at its sole cost and expense.
(ii) Except where the Indemnitor (A) timely elects to defend the
Indemnitee against such claim or demand (in which case Section 14.4(a)(i) shall
govern), or (B) Indemnitor disputes its liability in a timely manner under this
Section 14.4, the Indemnitor shall be conclusively liable for the amount of any
such claim or defense which is unsuccessful.
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(b) The Indemnitee and the Indemnitor shall cooperate with each other
in all reasonable respects in connection with the defense of any Third Party
Claim, including making available records relating to such claim and furnishing,
without expense to the Indemnitor, management employees of the Indemnitee as may
be reasonably necessary for the preparation of the defense of any such claim or
for testimony as witness in any proceeding relating to such claim.
14.5 SETTLEMENT OF THIRD PARTY CLAIMS. No settlement of a Third Party
Claim involving the asserted liability of the Indemnitee under this Article 14
shall be made without the prior written consent by or on behalf of the
Indemnitee, which consent shall not be unreasonably withheld or delayed.
Consent shall be presumed in the case of settlements of $20,000 or less where
the Indemnitee has not responded within twenty (20) business days of written
notice of a proposed settlement. In the event of any dispute regarding the
reasonableness of a proposed settlement, the party that will bear the larger
financial loss resulting from such settlement shall make the final determination
in respect thereto, which determination shall be final and binding on all
involved parties.
14.6 DURATION; LIMITATIONS. The indemnification rights of the parties
hereto for Losses resulting from a breach of representations and warranties or
for breaches of covenants contained in this Agreement or any other Acquisition
Document (other than for tax, employee benefit, and environmental matters) is
subject to the condition that the Indemnitor shall have received written notice
of the Losses for which indemnity is sought within two (2) years after the
Closing Date. The Indemnitor shall be obligated to indemnify the Indemnitee
only when, and only with respect to amounts by which the aggregate of all Losses
actually paid or suffered by the Indemnitee as to which a right of
indemnification is provided under this Article 14 exceeds Two Hundred Thousand
Dollars ($200,000.00) in the aggregate (the "Deductible Amount"). The
indemnification rights of the parties hereto for Losses resulting from a breach
of representations and warranties or for breaches of covenants that are related
to environmental matters is subject to the condition that the Indemnitor shall
have received written notice of the Losses for which indemnity is sought within
ten (10) years of the Closing Date. The indemnification rights of the parties
hereto for Losses resulting from a breach of representations and warranties or
for breaches of covenants that are related to tax or employee benefit matters is
subject to the condition that the Indemnitor shall have received written notice
of the Losses for which indemnity is sought prior to the expiration of the
applicable statute of limitations therefor. The indemnification rights of the
parties hereto for Losses resulting from a breach of any representation and
warranty with respect to title to any of the Acquired Assets, or with respect to
the breach of any agreement or undertaking with respect to payment of the
Excluded Liabilities or Assumed Liabilities shall be effective for all purposes
hereunder without limitation as to the time within which such notice may be
given and without deduction for the Deductible Amount. Indemnitee shall seek
indemnification for individual claims related to losses resulting from a breach
of representations and warranties or for breaches of covenants only where each
such claim is in excess of $4,000.
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ARTICLE 15
GENERAL PROVISIONS
15.1 FEES AND EXPENSES. Except as specifically provided in this Agreement,
Seller and Purchaser each shall pay their respective fees and expenses in
connection with the transactions contemplated by this Agreement.
Notwithstanding anything to the contrary set forth herein, Seller shall not pay
any Excluded Liabilities or any fees or expenses incurred by Seller in
connection with the transactions contemplated by this Agreement, using the
Acquired Assets or any portion thereof, and if prior to the Effective Time a
portion of the Acquired Assets is used to pay any Excluded Liabilities, or any
of such fees and expenses, Seller shall reimburse Purchaser by the amount of
Acquired Assets so used.
15.2 NOTICES. All notices, request, demands, and other communications
hereunder shall be in writing (which shall include communications by telex and
telecopy) and shall be delivered (a) in person or by courier or overnight
service, (b) mailed by first class registered or certified mail, postage
prepaid, return receipt requested, or (c) by facsimile transmission followed by
first class mail, as follows:
(a) If to Seller:
Nord Kaolin Company
c/o Nord Resources Corporation
8150 Washington Village Drive
Dayton, Ohio 45458-1848
Attention: Mr. Terence H. Lang
Facsimile (513) 435-7285
with a copy (which shall not constitute notice) to:
Spitzer & Feldman, P.C.
405 Park Avenue
New York, New York 10022
Attention: Kenneth Gliedman, Esq.
Facsimile (212) 838-7472
(b) If to Purchaser:
Dry Branch Kaolin Company
Route 1, Box 468-D
Dry Branch, Georgia 31020-9799
Telephone (912) 750-3632
Attention: Mr. Bradley J. Hughes
Facsimile (912) 750-3630
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<PAGE>
with a copy (which shall not constitute notice) to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Teri L. McMahon, Esq.
Facsimile (404) 881-7777
or to such other address as the parties hereto may designate in writing to the
other in accordance with this Section 15.2. Any party may change the address to
which notices are to be sent by giving written notice of such change of address
to the other parties in the manner above provided for giving notice. If
delivered personally or by courier, the date on which the notice, request,
instruction or document is delivered shall be the date on which such delivery is
made and if delivered by facsimile transmission or mail as aforesaid, the date
on which such notice, request, instruction or document is received shall be the
date of delivery.
15.3 ASSIGNMENT; BINDING EFFECT. Except as provided in this Section 15.3,
prior to the Closing, this Agreement shall not be assignable by any of the
parties hereto without the written consent of the other; provided, however, that
(a) at the Closing and upon notice to Seller, Purchaser may assign all of its
rights to be indemnified as provided in Article 14 to any lender or lenders
providing financing to Purchaser subject to all of the provisions hereof, and
(b) after the Closing, Purchaser may assign its interest in this Agreement to
any person or entity without the consent of Seller. From and after any such
assignment, the word "Purchaser" shall mean such assignee; provided, however,
that notwithstanding such assignment Dry Branch Kaolin Company shall not be
relieved of any of its obligations hereunder.
15.4 NO BENEFIT TO OTHERS. The representations, warranties, covenants, and
agreements contained in this Agreement are for the sole benefit of the parties
hereto and, in the case of Article 14 hereof, the Purchaser Indemnitees and the
Seller Indemnitees and their heirs, executors, administrators, legal
representatives, successors and assigns, and they shall not be construed as
conferring any rights on any other persons.
15.5 HEADINGS, GENDER, AND "PERSON". All section headings contained in
this Agreement are for convenience of reference only, do not form a part of this
Agreement and shall not affect in any way the meaning or interpretation of this
Agreement. Words used herein, regardless of the number and gender specifically
used, shall be deemed and construed to include any other number, singular or
plural, and any other gender, masculine, feminine, or neuter, as the context
requires. Any reference to a "person" herein shall include an individual, firm,
corporation, partnership, trust, governmental authority or body, association,
unincorporated organization or any other entity.
15.6 COUNTERPARTS. This Agreement may be executed in two (2) or more
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counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one counterpart has been signed by each party and
delivered to the other party hereto.
15.7 INTEGRATION OF AGREEMENT. This Agreement supersedes all prior
agreements, oral and written, between the parties hereto with respect to the
subject matter hereof. Neither this Agreement, nor any provision hereof, may be
changed, waived, discharged, supplemented, or terminated orally, but only by an
agreement in writing signed by the party against which the enforcement of such
change, waiver, discharge, or termination is sought.
15.8 TIME OF ESSENCE. Time is of the essence in this Agreement.
15.9 GOVERNING LAW. This Agreement shall be construed under the laws of
the State of Georgia.
15.10 PARTIAL INVALIDITY. Whenever possible, each provision hereof
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal, or unenforceable provision or provisions had never been
contained herein unless the deletion of such provision or provisions would
result in such a material change as to cause completion of the transactions
contemplated hereby to be unreasonable.
15.11 INVESTIGATION. Any inspection, preparation, or compilation of
information or Schedules, or assessment of the inventories, properties,
financial condition, or other matters relating to Seller conducted by or on
behalf of Purchaser pursuant to this Agreement shall in no way limit, affect, or
impair the ability of Purchaser to rely upon the representations, warranties,
covenants, and agreements of Seller set forth herein. Any disclosure made on
one Schedule shall not be deemed made on any other Schedule, unless appropriate
cross-referencing is made. The covenants and representations and warranties of
Seller and Purchaser shall survive the Closing and the execution and delivery of
all instruments of conveyance for the periods set forth in Section 14.6.
15.12 ARBITRATION. The parties agree that any dispute between or among
them arising out of or based upon this Agreement, the remaining Acquisition
Documents or the consummation of the transactions provided for herein shall be
submitted to and resolved by arbitration in Washington, D.C. in accordance with
the rules and procedures of the American Arbitration Association, and the
decision of the arbiter(s) in such dispute shall be final and binding on the
parties to such arbitration proceeding. Except as the arbiter(s) may otherwise
award or assess the expenses of any such proceeding, each party shall bear its
own costs and expenses, including the expense of its counsel, in any such
arbitration proceeding. If the matter in dispute is under $100,000, the parties
shall agree upon one (1) arbiter. If the matter in dispute exceeds $100,000,
the parties shall agree upon three (3) arbiters. Notwithstanding the foregoing,
either party shall be entitled to seek and obtain specific performance and/or
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injunctive relief from a court of competent jurisdiction.
(signatures appear on the following page)
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<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed and sealed on its behalf by its duly authorized officer, all as of the
day and year first above written.
PURCHASER:
DRY BRANCH KAOLIN COMPANY
[CORPORATE SEAL] By:
---------------------------
---------------------------
---------------------------
SELLER:
NORD KAOLIN COMPANY
[CORPORATE SEAL] By: Norplex, Inc., its General Partner
By: ---------------------------
---------------------------
---------------------------
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<PAGE>
BILL OF SALE AND ASSIGNMENT
THIS BILL OF SALE AND ASSIGNMENT is made and delivered this 23rd day of
April, 1997 by Nord Kaolin Company, a Georgia limited partnership ("Seller"),
and Dry Branch Kaolin Company, a Delaware corporation ("Purchaser").
WHEREAS, pursuant to that certain Asset Purchase Agreement dated as of
March 5, 1997 (the "Purchase Agreement") by and among Purchaser and Seller,
Seller has agreed to sell to Purchaser and Purchaser has agreed to purchase from
Seller, for the consideration and upon the terms and conditions set forth in the
Purchase Agreement, all of Seller's right, title and interest in and to the
Acquired Assets as the same are described in the Purchase Agreement; and
WHEREAS, capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to such terms in the Purchase Agreement;
NOW THEREFORE, pursuant to the Purchase Agreement and in consideration of
the premises, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed that:
1. CONVEYANCE. Seller hereby sells, assigns, transfers, conveys, and
delivers to Purchaser all of the right, title and interest of Seller in and to
each of the Acquired Assets owned by it as the same are defined and described in
the Purchase Agreement, which Purchase Agreement is incorporated herein by this
reference.
2. REPRESENTATION AND WARRANTY. Seller represents and warrants to
Purchaser that, at the date hereof, Seller has good and marketable title to the
Acquired Assets being conveyed by it hereunder and under the Purchase Agreement
and has transferred to and vested in Purchaser good and marketable title to each
of the Acquired Assets herein conveyed, free and clear of all liens, claims,
charges, encumbrances and security interests of any kind or nature other than
the Permitted Encumbrances as defined in Section 1.1 of the Purchase Agreement,
and Seller shall warrant and defend such title unto Purchaser forever.
3. POWER OF ATTORNEY. Seller hereby irrevocably designates, makes,
constitutes and appoints Purchaser, its successors or assigns, the true and
lawful attorney (and agent-in-fact) of Seller with full power of substitution,
for the benefit and at the expense of Purchaser, and except as may be limited by
or otherwise provided for in the Purchase Agreement: (a) where such proceedings
cannot be in the name of Purchaser, its successors and assigns, to institute and
prosecute all proceedings which Purchaser may deem proper in order to collect,
assert or enforce any claim, right or title of any kind in or to any of the
Acquired Assets, to defend or compromise any and all actions, suits or
proceedings in respect of any of the Acquired Assets, and to do all such acts
and things in relation thereto as Purchaser
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shall deem advisable, provided that Purchaser provides Seller with
contemporaneous notice of each instance when it invokes this power of attorney;
(b) to endorse Seller's name on any payment, instrument, notice, or other
similar document or agreement relating to the Acquired Assets for the period
commencing with the date hereof that may come in to the possession of Purchaser
or under Purchaser's control with respect to the Acquired Assets; and (c) to
receive and open all mail addressed to Seller and reasonably believed by
Purchaser to relate to the Acquired Assets (provided that items not relating to
the Acquired Assets for the period commencing with the date hereof shall be
returned to Seller). Seller acknowledges that the foregoing powers are coupled
with an interest and shall be irrevocable by Seller in any manner or for any
reason. Purchaser shall be entitled to retain for its own account any amounts
collected pursuant to the foregoing powers which constitute Acquired Assets,
including any amounts payable as interest in respect thereto.
4. UNDERTAKINGS. If, subsequent to the date hereof, any property that is
part of the Acquired Assets for the period commencing with the date hereof
herein conveyed comes into the possession of Seller, Seller shall promptly
deliver the same to Purchaser and, if such property is in the form of checks,
drafts or other negotiable instruments, Seller shall promptly endorse the same
to Purchaser. If, subsequent to the date hereof, any property that is part of
the Excluded Assets comes into the possession of Purchaser, Purchaser shall
promptly deliver the same to Seller and, if such property is in the form of
checks, drafts or other negotiable instruments, Purchaser shall promptly endorse
the same to Seller.
5. THE PURCHASE AGREEMENT. Nothing contained in this Bill of Sale and
Assignment shall be deemed to supersede, enlarge on, limit or modify any of the
obligations, agreements, covenants or warranties of Seller or Purchaser
contained in the Purchase Agreement, all of which survive the execution and
delivery of this Bill of Sale and Assignment as provided in the Purchase
Agreement. If any conflict exists between the terms of this Bill of Sale and
Assignment and the Purchase Agreement, then the terms of the Purchase Agreement
shall govern and control.
6. GOVERNING LAW. This Bill of Sale and Assignment shall be governed by
and construed in accordance with the laws of the State of Georgia without regard
to conflicts of laws principles.
(signatures appear on the following page)
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<PAGE>
IN WITNESS WHEREOF, Seller has caused this Bill of Sale and Assignment to
be executed and delivered as of the date first above written.
DRY BRANCH KAOLIN COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NORD KAOLIN COMPANY
By: Norplex, Inc.
Its General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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<PAGE>
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT is entered into this 23rd day of April, 1997 by
and between DRY BRANCH KAOLIN COMPANY, a Delaware corporation (the "Purchaser")
and NORD KAOLIN COMPANY, a Georgia limited partnership (the "Seller").
WHEREAS, pursuant to that certain Asset Purchase Agreement dated as of
March 5, 1997 (the "Purchase Agreement") by and between Purchaser and Seller,
Seller agreed to sell to Purchaser and Purchaser agreed to purchase from Seller,
for the consideration and upon the terms and conditions set forth in the
Purchase Agreement, all of Seller's rights, title and interest in and to the
Acquired Assets as the same are described in the Purchase Agreement; and
WHEREAS, pursuant to the Purchase Agreement, Purchaser has agreed to assume
certain obligations of Seller as partial consideration for the purchase of the
Acquired Assets; and
WHEREAS, capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to such terms in the Purchase Agreement.
NOW, THEREFORE, pursuant to the Purchase Agreement and in consideration of
the premises, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed that:
1. PURCHASER UNDERTAKING. Purchaser hereby assumes and agrees timely to
pay and perform all of the Assumed Liabilities to the extent the same exist on
the date hereof. Other than as specifically stated herein or in the Purchase
Agreement, Purchaser assumes no debt, liability or obligation of Seller other
than such Assumed Liabilities.
2. THE PURCHASE AGREEMENT. Nothing contained in this Assumption
Agreement supersedes any of the obligations, agreements, covenants or warranties
of Seller or Purchaser under the Purchase Agreement (all of which survive the
execution and delivery of this Assumption Agreement as provided and subject to
the limitations set forth in the Purchase Agreement). If any conflict exists
between the terms of this Assumption Agreement and the Purchase Agreement, then
the terms of the Purchase Agreement shall govern and control.
3. GOVERNING LAW. This Assumption Agreement shall be governed and
construed in accordance with the laws of the State of Georgia without regard to
conflicts of laws principles.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assumption
Agreement to be executed in their names as of the date first above written.
SELLER:
NORD KAOLIN COMPANY
By: Norplex, Inc., its General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
PURCHASER:
DRY BRANCH KAOLIN COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 27th day of May, 1997 by and between NORD
RESOURCES CORPORATION, a Delaware corporation (the "Company"), with an address
at 8150 Washington Village Drive, Dayton, Ohio 45458 and W. PIERCE CARSON
("Carson"), an individual residing at 33 Encantado, Tijeras, New Mexico.
W I T N E S S E T H :
In consideration of the mutual covenants and agreements herein contained,
the parties hereby agree as follows:
1. EMPLOYMENT. The Company agrees to employ, and does hereby employ
Carson and Carson hereby accepts such employment, for the Term (as defined
below), with the duties and compensation and upon the terms and conditions
hereinafter set forth in this Agreement.
2. TERM. The term of Carson's employment shall commence on June 1, 1997
("Effective Date") and shall continue through and including May 31, 1999 ,
unless earlier terminated as hereinafter provided for in this Agreement. The
Term shall thereafter be automatically extended from year to year, unless
termination notice is given by either party not less than ninety (90) days prior
to expiration of the then Term.
<PAGE>
3. DUTIES AND OFFICES.
(a) Carson shall be the President and Chief Executive Officer ("CEO") of
the Company during the Term and shall perform the services as set forth in the
Company's bylaws and as the Company's Board of Directors ("Board") shall direct,
which services shall be commensurate with Carson's status as CEO of the Company.
Carson shall perform his services subject only to the direction and control of
the Board and will report only to the Board.
(b) During the Term, Carson shall devote his full working time and
energies to the business and affairs of the Company, provided however that
the Company acknowledges that Carson will also be CEO of Nord Pacific Limited
("NPL") and he shall be entitled to devote such time and attention as he deems
necessary to NPL and its affairs. Carson agrees to use his best efforts, skills
and abilities to promote the Company's interest.
(c) The office for the performance of his services and the head office of
the Company shall be located in Albuquerque, New Mexico, Phoenix, Arizona or
Santa Barbara, California, the final determination thereof to be in the
discretion of the Board of Directors.
4. COMPENSATION. During the Term, the Company shall pay Carson an annual
salary ("Salary") of $150,000 in equal semi-monthly installments, less required
withholding and other applicable taxes, provided, however, that when the
Company's 50%-owned affiliate, Sierra Rutile Limited achieves positive cash flow
from operations, as determined by the accountants of
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<PAGE>
Sierra Rutile Limited, for three (3) consecutive months, Carson's Salary shall
increase to $225,000 per year effective at the end of such third month.
5. EXPENSES, BENEFITS AND PERQUISITES.
(a) The Company will pay or reimburse Carson for all travel and other
expenses reasonably incurred by Carson during the Term in connection with the
performance of his duties hereunder upon presentment of written expense receipts
reflecting such expenses.
(b) The Company and Carson recognize that Carson and his spouse are
entitled to retirement benefits from NPL and that he will continue to accrue
benefits thereunder. The Company shall adopt a plan pursuant to which Carson
will receive comparable benefits from the Company. For purposes thereof, Carson
shall be credited with his prior years of service with NPL and the Company.
(c) Carson will receive benefits substantially the same as those benefits
as he has previously been receiving from NPL.
(d) Carson shall be entitled to four weeks paid vacation each calendar
year, to be taken contemporaneously with his vacation from NPL.
The cost of the above may be shared by the Company with NPL and it is not
intended that the cost of items hereunder be duplicative of items provided by
NPL.
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<PAGE>
6. DISABILITY. If Carson is unable to perform his services by reason of
illness or incapacity for a period of 180 consecutive days, the Company shall
have the right to terminate this Agreement and all benefits hereunder at any
time after the 180th day, provided that on the effective date of termination,
Carson is still disabled. Such termination shall not effect any rights which
Carson may have at the time of termination pursuant to any insurance,
retirement, pension, stock or option award or other benefit plan or arrangement
with the Company. During the period of disability prior to termination, the
Company shall pay Carson the Salary provided for in this Agreement and shall
comply with all other terms and conditions of this Agreement.
7. DEATH OF CARSON. In the event that Carson should die during the Term,
this Agreement and all benefits hereunder shall terminate. Such termination
shall not affect any rights which Carson, his spouse or estate may have at the
time of his death pursuant to any insurance or other death benefit, retirement,
pension, stock or option award or any other benefit plan or arrangement with the
Company.
8. DISCHARGE FOR CAUSE. The Board of Directors of the Company may
discharge Carson For Cause at any time. Such discharge shall be effected by
written notice to Carson which shall specify the reasons for Carson's discharge
and the effective date thereof. As used herein, the term "For Cause" shall mean
only chronic alcoholism, drug addiction, criminal dishonesty or willful
violation of direct written instructions from the Board of Directors of the
Company relating to a material matter which directions are consistent with all
applicable laws, rules and regulations and orders to which Carson or the Company
are subject and the provisions of this Agreement unless
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<PAGE>
cured within ten (10) days after notice. Upon termination pursuant to this
Section 8, this Agreement and all benefits hereunder shall terminate, except
that such termination shall not effect any right that Carson may have at the
time of termination pursuant to any insurance, retirement, pension, stock or
option award or any other benefit plan or arrangement with the Company.
9. INDEMNIFICATION. The Company shall indemnify Carson to the fullest
extent permitted by law and the certificate of incorporation and bylaws of the
Company from and against any loss, claim, liability and/or expense incurred for,
or by reason of, or arising out of, acts of Carson as an officer and/or director
of the Company or any subsidiary.
10. ADDITIONAL COMPENSATION. In recognition of the value of Carson's
services to the Company and as a further inducement for Carson to enter into
this Agreement, the Company has agreed, contemporaneously herewith (subject to
shareholder approval, which approval will be sought by the Company at the next
meeting of its shareholders subsequent to the scheduled June annual general
meeting) to issue to Carson non-plan, non-qualified options to purchase 600,000
shares of the Company's common stock, which options shall expire on May 31, 2002
and be exercisable on or after the dates and at the exercise prices set forth
hereinbelow:
<TABLE>
<CAPTION>
EXERCISABLE ON OR AFTER NUMBER OF OPTIONS PER SHARE EXERCISE PRICE
- ----------------------- ----------------- ------------------------
<S> <C> <C>
Upon issuance 200,000 $4.00
1 year from issuance 200,000 $5.00
2 years from issuance 200,000 $6.00
</TABLE>
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<PAGE>
11. NONCOMPETITION AND CONFIDENTIALITY AGREEMENT.
(a) During the Term and for a period of one year after such expiration,
Carson will not, without the prior written consent of the Company, directly or
indirectly own, manage, operate, control or participate in the ownership,
management, operation or control of, or be connected as a stockholder, partner,
joint venturer or otherwise with, or accept employment of any kind with, any
business which, or any business or organization any part of which, competes with
the businesses of the Company or any of its subsidiaries or affiliates as such
businesses are now conducted or may be conducted at any time during the Term, in
any geographical area in which such businesses are conducted during the term of
this Agreement, provided, however, that nothing contained herein will prohibit
or restrict Carson from fully performing his duties as CEO of NPL or owning
shares or being a director in NPL. Notwithstanding the terms hereof, if this
Agreement is terminated prior to the expiration of its then current term by the
Company other than For Cause, the provisions of this Section 11 shall not be
applicable to any period after such termination.
(b) (i) Carson acknowledges that during his employment with the Company
or any of its subsidiaries, he may have access to secret and confidential
information, including but not limited to some or all of the following:
(A) product and business plans, budgets, sales forecasts, design
plans, research and engineering data, inventions, methods, systems and
processes,
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<PAGE>
(B) exploration activities, including, but not limited to,
prospects, joint ventures, mining and acquisition opportunities and similar
matters,
(C) customers, and
(D) trade secrets
(all such information is hereinafter referred to as "Confidential Information").
(ii) Carson agrees that (except as authorized in writing by the
Company or required pursuant to legal or administrative process) he will not
reveal, divulge or make known to any person, firm or corporation any
Confidential Information.
(iii) Carson agrees that at any time during the Term upon the request
of the Board of Directors and upon the termination of this Agreement, Carson
will deliver all Confidential Information together with copies thereof in his
possession to the Company. In addition, if after the Term he shall discover any
Confidential Information in his possession, he shall forthwith deliver the same
together with all copies thereof to the Company.
(c) In the event of the breach or threatened breach of the terms and
conditions of this Section 11 by Carson, the Company shall be entitled to a
temporary or preliminary restraining order and an injunction or other equitable
relief restraining and enjoining Carson from
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<PAGE>
violating this Section 11. In addition to the equitable relief provided above,
the Company shall have the right to pursue all other remedies available at law
to the Company for such breach or threatened breach, including recovery of
damages from Carson.
(d) In the event that any of the provisions of this Section 11 shall be
deemed unenforceable, invalid, or overbroad, in whole or in part for any reason,
then any court of competent jurisdiction is hereby authorized, requested and
instructed to reform such provision or provisions to provide for the maximum
confidentiality restraints upon the activities of Carson, which may then be
legal and valid.
12. DISPUTE RESOLUTION. Any controversy or claim arising out of or
relating to this Agreement and the obligations and responsibilities of the
parties hereto or the breach or alleged breach by any of the parties of their
respective obligations hereunder shall be settled by arbitration in the City of
New York, New York by one arbitrator in accordance with the then governing Rules
of the American Arbitration Association. The written decision of the arbitrator
shall be final and binding upon the Company and Carson. Judgment upon the award
rendered may be entered and enforced in any court of competent jurisdiction.
Notwithstanding the above, either party shall be entitled to seek and obtain
injunctive or similar relief from a court of competent jurisdiction where
appropriate pending arbitration. Both parties hereby submit to the exclusive
jurisdiction of the courts of the State of New York or Federal courts situated
in New York County, New York for such purpose and for purposes of enforcing any
arbitration award. All legal fees and expenses reasonably
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<PAGE>
incurred by Carson in good faith as a result of any claim or arbitration arising
from this Agreement shall be paid by the Company.
13. MISCELLANEOUS.
(a) This Agreement contains the entire understanding between the parties
hereto concerning the subject matter hereof. This Agreement may only be amended
by an instrument in writing executed by the parties hereto.
(b) This Agreement shall be construed and enforced in accordance with the
laws of the State of New York.
(c) This Agreement and the rights and obligations of the parties hereto
shall bind and inure to the benefit of the successor or successors of the
Company, whether by merger, consolidation or otherwise.
(d) Any notice to be given pursuant to the terms of this Agreement shall
be in writing and delivered by hand or sent by registered or certified mail to
such party at such party's address set forth above or to such other address or
to the attention of such other person as either party has specified by prior
written notice to the other party.
(e) The Company's waiver of a breach of any provision of this Agreement
by Carson shall not operate or be construed as a waiver of any subsequent
breach of this Agreement
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<PAGE>
by the employee. No waiver shall be valid unless in writing and signed by an
authorized officer of the Company.
(f) Carson acknowledges that his services are unique and personal.
Accordingly, Carson shall not assign his rights or delegate his duties or
obligations under this Agreement.
(g) Headings in this Agreement are for convenience only and shall not be
used to interpret or construe its provisions.
(h) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its officers thereunto duly authorized, and Carson has executed this
Agreement all as of the date first above set forth.
NORD RESOURCES CORPORATION
By:
---------------------------------------
/s/ W. PIERCE CARSON
---------------------------------------
W. PIERCE CARSON
71206.8
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<PAGE>
CONTINUATION OF EMPLOYMENT AGREEMENT
AGREEMENT made as of this 27th day of May, 1997 by and between NORD
RESOURCES CORPORATION, a Delaware corporation (the "Company"), with an
address of 8150 Washington Village Drive, Dayton, Ohio 45458, and EDGAR F.
CRUFT, ("Cruft"), an individual residing at 4101 Roblar Avenue, Santa Ynez,
California 93460.
WHEREAS, Cruft has been the President, Chief Executive Officer and
Chairman of the Board of the Company on a full-time basis for many years;
WHEREAS, Cruft desires to reduce his responsibilities to, and compensation
from, the Company and the Company desires to retain the services of Cruft
pursuant hereto.
In consideration of the mutual covenants and agreements herein contained,
the parties hereby agree as follows:
1. EMPLOYMENT. The Company agrees to continue to employ Cruft, and Cruft
hereby agrees to continue such employment for the Term (as defined below),
with the reduced duties and compensation and upon the terms and conditions
hereinafter set forth in this Agreement.
2. TERM. The term ("Term") of Cruft's employment hereunder shall
commence on June 1, 1997 ("Effective Date") and shall continue through and
including May 31, 1998 ("Initial Termination Date"), unless earlier
terminated by Cruft on not less than ninety (90) days' advance written notice
to the Company or as hereinafter provided for in this Agreement. The Term
hereof
<PAGE>
shall thereafter be automatically extended from year to year unless and until
terminated by either party on written notice given to the other party not
less than ninety (90) days' prior to the Initial Termination Date or, if
previously extended, the then extended termination date hereof.
3. DUTIES AND OFFICES.
(a) Cruft shall be the Chairman of the Board of the Company during
the Term and shall perform the services as set forth in the Company's bylaws,
which services shall be commensurate with Cruft's status as Chairman. Cruft
shall perform his services subject only to the direction and control of the
Board and will report only to the Board.
(b) During the Term, Cruft shall be obligated to devote no more than
12.5% of his full working time and energies to the business and affairs of
the Company. The Company understands that Cruft may contemporaneously serve
in a similar capacity with Nord Pacific Limited ("NPL").
(c) Unless Cruft otherwise agrees in writing, the office for the
performance of his services shall be located in or around Santa Ynez,
California or at such other location to which Cruft determines to relocate.
The Company shall pay for Cruft's office and such secretarial assistance as
is reasonably necessary, which shall be reduced to part-time as soon as
reasonably possible.
-2-
<PAGE>
4. COMPENSATION. During the Term, the Company shall pay Cruft an annual
salary ("Salary") of $50,000 in equal semi-monthly installments, less
required withholding and other applicable taxes. In the event the Company and
Cruft mutually agree in advance for Cruft to devote additional time to the
Company, Cruft will be compensated for such additional time on a pro rata
basis determined on an annual basis.
5. EXPENSES, BENEFITS AND PERQUISITES.
(a) The Company will pay or reimburse Cruft for all travel and other
expenses reasonably incurred by Cruft during the Term hereof in connection
with the performance of his duties hereunder upon presentment of written
expense receipts reflecting such expenses.
(b) The Company shall reimburse Cruft for his costs of participation
in the Company's health insurance plan so long as he is covered under the
Company's plan or, if the Company's plan is no longer available to Cruft, the
cost of a comparable plan separately maintained by Cruft.
(c) The Company shall provide to Cruft at no cost to Cruft
professional services related to tax, retirement and estate planning.
(d) Title to the 1989 BMW which Cruft is currently using shall be
transferred to him at no cost.
-3-
<PAGE>
The cost of Cruft's office, insurance and certain expenses and other items
may be shared by the Company with NPL under separate agreement, and it is not
intended that the cost of items hereunder be duplicative of items provided by
NPL.
6. DISABILITY. If Cruft is unable to perform his services by reason of
illness or incapacity for a period of 180 consecutive days, the Company shall
have the right to terminate this Agreement and all benefits hereunder at any
time after the 180th day, provided that on the effective date of
termination, Cruft is still disabled. Such termination shall not effect any
rights which Cruft may have at the time of termination pursuant to any
insurance, retirement, pension, stock or option award or other benefit plan
or arrangement with the Company or under Sections 10 and 12 of this
Agreement. During the period of disability prior to termination, the Company
shall pay Cruft his Salary provided for in this Agreement and shall comply
with all other terms and conditions of this Agreement.
7. DEATH OF CRUFT. In the event that Cruft should die during the Term,
this Agreement and all benefits hereunder shall terminate. Such termination
shall not affect any rights which Cruft, his spouse or estate may have at the
time of his death pursuant to any insurance or other death benefit,
retirement, pension, stock or option award or any other benefit plan or
arrangement with the Company or under Sections 10 and 12 of this Agreement.
8. DISCHARGE FOR CAUSE. The Board of Directors of the Company may
discharge Cruft "For Cause" at any time. Such discharge shall be effected by
written notice to Cruft which shall
-4-
<PAGE>
specify the reasons for Cruft's discharge and the effective date thereof. As
used herein, the term "For Cause" shall mean only chronic alcoholism, drug
addiction, criminal dishonesty or willful violation of direct written
instructions from the Board of Directors of the Company relating to material
matters, which directions are consistent with all applicable laws, rules and
regulations and orders to which Cruft or the Company are subject and the
provisions of this Agreement, unless cured within 10 days after notice. Upon
termination pursuant to this Section 8, this Agreement and all benefits
hereunder shall terminate, except that such termination shall not affect any
right that Cruft may have at the time of termination pursuant to any
insurance, retirement, pension, stock or option award or any other benefit
plan or arrangement with the Company or under Section 10 or 12 of this
Agreement.
9. INDEMNIFICATION. The Company shall indemnify Cruft to the fullest
extent permitted by law and the certificate of incorporation and bylaws of
the Company from and against any loss, claim, liability and/or expense
incurred for, or by reason of, or arising out of, acts of Cruft as an officer
and/or director of the Company or any subsidiary at any time prior to the
date hereof or during the Term hereof.
10. DEFERRED COMPENSATION. The Company recognizes that Cruft and his
spouse are currently entitled to benefits under the Restated Deferred
Compensation Agreement date May 10, 1989 between the Company and Cruft, as
amended by Amendment No. 1 thereto dated July 7, 1995 ("Retirement
Agreement"). As of the Effective Date, the Company will commence to make
payment to Cruft of the $226,653 per year which, it is agreed, is payable
under the Retirement
-5-
<PAGE>
Agreement and will continue to make such payments to him or his spouse as
required thereunder. Such payment will be in addition to the Salary and all
benefits and other compensation payable to Cruft pursuant to this Agreement
or otherwise by the Company. The Company agrees to fund the trust (the
"Trust") created under that certain Trust Agreement dated May 10, 1989, as
restated July 7, 1995 and as amended by Amendment No. 1 thereto dated
December 1, 1995 to fund the payments due Cruft thereunder, by depositing
therein (i) on or before July 31, 1997 an additional $650,000, and (ii) on or
before July 31, 1998, sufficient cash to fully fund such trust. The
provisions of this Section will survive termination of the provisions of this
Agreement.
11. OPTIONS. Cruft currently owns those options listed on Exhibit A
hereto ("Existing Options"). Contemporaneously herewith, the Company is
issuing to Cruft non-qualified options ("New Options", New Options and
Existing Options being referred to herein collectively as "Cruft Options") to
purchase an additional 50,000 shares of common stock of the Company for $4.00
per share expiring June 1, 2000, which New Options shall be exercisable by
Cruft in whole or in part at any time or times prior to such expiration date.
The New Options will contain the same provisions as the Existing Options as
previously issued, except for the exercise price and the expiration date
thereof and except that they will be non-qualified options. All Existing
Options (qualified and non-qualified) which expire at a time when the "Market
Price" is either (x) below or (y) less than $1.00 above the price at which
such Existing Options are exercisable will be reissued to Cruft by the
Company as non-plan, non-qualified options at the same exercise price, but
not less than the then "Market Price", with an expiration date of two years
after such reissuance, provided that Cruft is then or within ninety (90) days
prior thereto had been an employee or director of or
-6-
<PAGE>
consultant to the Company and/or its affiliates. For purposes hereof, "Market
Price" shall mean the closing sale price of the shares for which the options
are exercisable on the New York Stock Exchange or such other exchange on
which such shares are then traded on such date.
12. EXISTING LOANS. Cruft acknowledges that he is currently indebted to
the Company in the principal amount of $150,000, in the aggregate, pursuant
to the terms of those certain Executive Loan Agreements dated August 8, 1988
and October 2, 1989 (collectively "Cruft Loans"). The Company agrees to
forgive the principal of the Cruft Loans in accordance with the following
schedule, provided Cruft has not theretofore voluntarily completely
terminated his involvement with the Company as director and/or consultant.
<TABLE>
<CAPTION>
FORGIVENESS DATE PRINCIPAL OF LOAN FORGIVEN
---------------- --------------------------
<S> <C>
June 1, 1997 $ 50,000
June 1, 1998 $ 50,000
June 1, 1999 $ 50,000
--------
Total $150,000
--------
--------
</TABLE>
13. CONFIDENTIALITY AGREEMENT.
(a) (i) Cruft acknowledges that during his employment with the
Company or any of its subsidiaries, he may have access to secret and
confidential information, including but not limited to some or all of the
following:
-7-
<PAGE>
(A) product and business plans, budgets, sales
forecasts, design plans, research and engineering data,
inventions, methods, systems and processes,
(B) exploration activities, including, but not limited
to, prospects, joint ventures, mining and acquisition
opportunities and similar matters.
(C) customers, and
(D) trade secrets
(all such information is hereafter referred to as "Confidential Information").
(ii) Cruft agrees that (except as authorized in writing by the
Company or required pursuant to legal or administrative process) he will not
reveal, divulge or make known to any person, firm or corporation any
Confidential Information.
(iii) Cruft agrees that at any time during the Term upon the
request of the Board of Directors and upon the termination of this Agreement,
Cruft will deliver all Confidential Information together with copies thereof
in his possession to the Company. In addition, if after the Term he shall
discover any Confidential Information in his possession, he shall forthwith
deliver the same together with all copies thereof to the Company.
-8-
<PAGE>
(b) In the event of the breach or threatened breach of the terms and
conditions of this Section 13 by Cruft, the Company shall be entitled to a
temporary or preliminary restraining order and an injunction or other
equitable relief restraining and enjoining Cruft from violating this Section
13. In addition to the equitable relief provided above, the Company shall
have the right to pursue all other remedies available at law to the Company
for such breach or threatened breach, including recovery of damages from
Cruft.
(c) In the event that any of the provisions of this Section 13 shall
be deemed unenforceable, invalid, or overbroad, in whole or in part for any
reason, then any court of competent jurisdiction is hereby authorized,
requested and instructed to reform such provision or provisions to provide
for the maximum confidentiality restraints upon the activities of Cruft,
which may then be legal and valid.
14. DISPUTE RESOLUTION. Any controversy or claim arising out of or
relating to this Agreement and the obligations and responsibilities of the
parties hereto or the breach or alleged breach by any of the parties of their
respective obligations hereunder shall be settled by arbitration in the City
of New York, by one arbitrator in accordance with the then governing Rules of
the American Arbitration Association. The written decision of the arbitrator
shall be final and binding upon the Company and Cruft. Judgment upon the
award rendered may be entered and enforced in any court of competent
jurisdiction. Notwithstanding the above, either party shall be entitled to
seek and obtain injunctive or similar relief from a court of competent
jurisdiction where appropriate pending arbitration. Both parties hereby
submit to the exclusive jurisdiction of the courts of the
-9-
<PAGE>
State of New York or Federal courts situated in New York County, New York for
such purpose and for purposes of enforcing any arbitration award. All legal
fees and expenses reasonably incurred by Cruft in good faith as a result of
any claim or arbitration arising from this Agreement shall be paid by the
Company.
15. MISCELLANEOUS.
(a) Cruft's Change of Control Agreement dated May 10, 1989 as
amended by Amendment No. 1 dated December 1, 1994, Amendment No. 2 dated
December 1, 1995 and Amendment No. 3 of even date herewith shall remain in
full force and effect through its termination date of December 31, 1997.
(b) This Agreement contains the entire understanding between the
parties hereto concerning the subject matter hereof. This Agreement may only
be amended by an instrument in writing executed by the parties hereto.
(c) This Agreement shall be construed and enforced in accordance
with the laws of the State of New York.
(d) This Agreement and the rights and obligations of the parties
hereto shall bind and inure to the benefit of the successor or successors of
the Company, whether by merger, consolidation or otherwise.
-10-
<PAGE>
(e) Any notice to be given pursuant to the terms of this Agreement
shall be in writing and delivered by hand or sent by registered or certified
mail, to such party's address set forth above or to such other address or to
the attention of such other person as either party has specified by prior
written notice to the other party.
(f) The Company's waiver of a breach of any provision of this
Agreement by Cruft shall not operate or be construed as a waiver of any
subsequent breach of this Agreement by Cruft. No waiver shall be valid unless
in writing and signed by an authorized officer of the Company.
(g) Cruft acknowledges that his services are unique and personal.
Accordingly, Cruft shall not assign his rights or delegate his duties or
obligations under this Agreement.
(h) Headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.
(i) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its officers thereunto duly authorized, and Cruft has executed this
Agreement all as of the date first above set forth.
NORD RESOURCES CORPORATION
By: /s/ W. Pierce Carson
---------------------------------
-------------------------------------
EDGAR F. CRUFT
-12-
<PAGE>
AMENDMENT
Amendment ("Amendment") dated May 27, 1997 to letter agreement
("Original Letter Agreement") dated May 10, 1989, between NORD RESOURCES
CORPORATION, a Delaware Corporation (the "Company"), and EDGAR F. CRUFT
("Cruft").
WHEREAS, pursuant to the Original Letter Agreement, the Company and Cruft
agreed that in the event of a Change of Control (as defined in the Letter
Agreement), Cruft would be entitled to certain rights and benefits were his
employment by the Company terminated within two years thereafter, which
agreement had a term through December 31, 1993;
WHEREAS, by agreements dated January 4, 1994 and December 6, 1995, the term
of the Original Letter Agreement was extended to December 31, 1997 (as so
extended, "Letter Agreement");
WHEREAS, contemporaneously herewith, the Company and Cruft have agreed that
Cruft will no longer be President of the Company and its affiliate, NORD PACIFIC
LIMITED ("NPL"), and will continue to serve as Chairman of the Board of the
Company and NPL, in a non-executive officer capacity; and
WHEREAS, the Company desires to retain the benefits of Cruft's
continuing his relationship with the Company as Chairman of both the Company
and NPL on a part-time basis:
<PAGE>
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, it is agreed as follows:
1. If a Change of Control occurs at or prior to December 31, 1997,
Cruft's part-time employment by the Company shall be deemed to be
"employment" by the Company for purposes of the Letter Agreement and
termination of his part-time employment (voluntarily or involuntarily)
shall be deemed to be "termination of employment" for such purposes
(hereinafter referred to as "Termination").
2. In the event of a Termination, the compensation payable to Cruft upon
Termination pursuant to Section 5(b) of the Letter Agreement shall be
calculated as if the Termination occurred on the date hereof and
shall, therefore, be based upon Cruft's compensation for the periods
ended on the date hereof.
3. The provisions of Section 8 of the Letter Agreement are hereby
terminated.
4. Except as otherwise amended hereby, the provisions of the Letter
Agreement shall remain in full force and effect.
NORD RESOURCES CORPORATION
By: /s/ W. PIERCE CARSON
-----------------------------
--------------------------------
EDGAR F. CRUFT
-2-
<PAGE>
CONTINUATION OF EMPLOYMENT AGREEMENT
AGREEMENT made as of this 27th day of May, 1997 by and between NORD
RESOURCES CORPORATION, a Delaware corporation (the "Company"), with an address
at 8150 Washington Village Drive, Dayton, Ohio 45458, and TERENCE H. LANG,
("Lang"), an individual residing at 921 West Spring Valley-Painterville Road,
Spring Valley, OH 45370.
WHEREAS, Lang has been the Senior Vice President-Finance of the Company
for many years;
WHEREAS, the Company desires to retain the services of Lang pursuant
hereto.
In consideration of the mutual covenants and agreements herein contained,
the parties hereby agree as follows:
1. EMPLOYMENT. The Company agrees to continue to employ Lang, and Lang
hereby agrees to continue such employment for the Term (as defined below), with
the duties and compensation and upon the terms and conditions hereinafter set
forth in this Agreement.
2. TERM. The term ("Term") of Lang's employment hereunder shall
commence on June 1, 1997 ("Effective Date") and shall continue through and
including December 31, 1997 ("Termination Date").
<PAGE>
3. DUTIES AND OFFICES.
(a) During the Term, Lang shall continue to be the Senior Vice President-
Finance of the Company until a new Chief Financial Officer is hired.
Thereafter, his title will become "Senior Vice-President." He shall perform the
services as set forth in the Company's bylaws, which services shall be
commensurate with Lang's status. Lang shall perform his services subject only
to the direction and control of the Chief Executive Officer and the Board.
(b) During the Term, Lang shall devote his full working time and energies
to the business and affairs of the Company.
(c) Unless Lang otherwise agrees in writing, Lang's base for the
performance of his services shall be located in or around Dayton, Ohio (whether
or not the Company then maintains an office in Dayton), subject to reasonable
travel requirements.
4. COMPENSATION. During the Term, the Company shall pay Lang an
annual salary ("Salary") of $261,555 in equal semi-monthly installments, less
required withholding and other applicable taxes.
5. EXPENSES, BENEFITS AND PERQUISITES.
(a) The Company will pay or reimburse Lang for all travel and other
expenses reasonably incurred by Lang during the Term hereof in connection with
the performance of his duties hereunder upon presentment of written expense
receipts reflecting such expenses.
-2-
<PAGE>
(b) Lang will continue to receive substantially the same benefits as he
has previously been receiving from the Company.
(c) Lang shall be entitled to two weeks paid vacation during the Term.
6. DISABILITY. If Lang is unable to perform his services by reason of
illness or incapacity for a period of 90 consecutive days, the Company shall
have the right to terminate this Agreement and all benefits hereunder at any
time after the 90th day, provided that on the effective date of termination,
Lang is still disabled. Such termination shall not effect any rights which Lang
may have at the time of termination pursuant to any insurance, retirement,
pension, stock or option award or other benefit plan or arrangement with the
Company or under Sections 10 and 12 of this Agreement. During the period of
disability prior to termination, the Company shall pay Lang his Salary provided
for in this Agreement and shall comply with all other terms and conditions of
this Agreement.
7. DEATH OF LANG. In the event that Lang should die during the Term,
this Agreement and all benefits hereunder shall terminate. Such termination
shall not affect any rights which Lang, his spouse or estate may have at the
time of his death pursuant to any insurance or other death benefit, retirement,
pension, stock or option award or any other benefit plan or arrangement with the
Company or under Sections 10 and 12 of this Agreement.
8. DISCHARGE FOR CAUSE. The Board of Directors of the Company may
discharge Lang "For Cause" at any time. Such discharge shall be effected by
written notice to Lang which shall specify the reasons for Lang's discharge and
the effective date thereof. As used herein, the term
-3-
<PAGE>
"For Cause" shall mean only chronic alcoholism, drug addiction, criminal
dishonesty or willful violation of direct written instructions from the Board of
Directors of the Company relating to material matters, which directions are
consistent with all applicable laws, rules and regulations and orders to which
Lang or the Company are subject and the provisions of this Agreement, unless
cured within 10 days after notice. Upon termination pursuant to this Section 8,
this Agreement and all benefits hereunder shall terminate, except that such
termination shall not effect any right that Lang may have at the time of
termination pursuant to any insurance, retirement, pension, stock or option
award or any other benefit plan or arrangement with the Company or under Section
10 or 12 of this Agreement.
9. INDEMNIFICATION. The Company shall indemnify Lang to the fullest
extent permitted by law and the certificate of incorporation and bylaws of the
Company from and against any loss, claim, liability and/or expense incurred for,
or by reason of, or arising out of, acts of Lang as an officer and/or director
of the Company or any subsidiary at any time prior to the date hereof or during
the Term hereof.
10. DEFERRED COMPENSATION. The Company recognizes that Lang and his
spouse are currently entitled to benefits under the Restated Deferred
Compensation Agreement dated May 10, 1989 between the Company and Lang, as
amended by Amendment No. 1 thereto dated November 3, 1995 ("Retirement
Agreement"). As of the end of the Term, the Company will commence to make
payment to Lang of the $143,855 per year which, it is agreed, is the amount to
be paid to Lang under the Retirement Agreement and will continue to make such
payments to him or his spouse as required thereunder. The Company agrees to
fund the trust (the "Trust") created under that certain Trust Agreement dated
May 10, 1989, as restated July 7, l995 and as amended by Amendment No. 1
-4-
<PAGE>
thereto dated December 1, 1995 to fund the payments due Lang thereunder, by
depositing therein (i) on or before January 1, 1998 an additional $250,000, and
(ii) on or before January 1, 1999 an additional $250,000. The provisions of
this Section will survive termination of the provisions of this Agreement.
11. OPTIONS. Lang currently owns those options listed on Exhibit A hereto
("Lang Options"). All Lang Options (qualified and non-qualified) which expire
at a time when the "Market Price" is (x) below or (y) less than $1.00 above the
price at which such Lang Options are exercisable will be reissued to Lang by the
Company as non-plan, non-qualified options at the same exercise price, but not
less than the then "Market Price" with an expiration date of two (2) years after
such reissuance, provided that Lang is then or within ninety (90) days prior
thereto had been an employee or director of or consultant to the Company and/or
its affiliates. For purposes hereof, "Market Price" shall mean the closing
sale price of the shares for which the options are exercisable on the New York
Stock Exchange or such other exhange on which such shares are then traded on
such date.
EXISTING LOANS. Lang acknowledges that he is currently indebted to the
Company in the principal amount of $150,000, in the aggregate, pursuant to the
terms of those certain Executive Loan Agreements dated September 10, 1987 and
December 1, 1988 (collectively "Lang Loans"). The Company agrees to forgive the
principal of the Lang Loans in accordance with the following schedule, provided
Lang has not theretofore voluntarily completely terminated his involvement with
the Company as officer, director and/or consultant:
-5-
<PAGE>
<TABLE>
<CAPTION>
FORGIVENESS DATE PRINCIPAL OF LOAN FORGIVEN
---------------- --------------------------
<S> <C>
January 1, 1998 $ 50,000
January 1, 1999 $ 50,000
January 1, 2000 $ 50,000
--------
Total $150,000
--------
--------
</TABLE>
13. BOARD NOMINATIONS. Lang agrees, during the Term and thereafter, if
requested to do so, to continue to be a nominee for and serve on the Boards of
Directors of the Company and its affiliate, Nord Pacific Limited.
14. CONFIDENTIALITY AGREEMENT.
(a) (i) Lang acknowledges that during his employment with the Company or
any of its subsidiaries, he may have access to secret and confidential
information, including but not limited to some or all of the following:
(A) product and business plans, budgets, sales forecasts, design
plans, research and engineering data, inventions, methods, systems and
processes,
(B) exploration activities, including, but not limited to,
prospects, joint ventures, mining and acquisition opportunities and similar
matters,
(C) customers, and
(D) trade secrets
-6-
<PAGE>
(all such information is hereinafter referred to as "Confidential Information").
(ii) Lang agrees that (except as authorized in writing by the Company
or required pursuant to legal or administrative process) he will not reveal,
divulge or make known to any person, firm or corporation any Confidential
Information.
(iii) Lang agrees that at any time during the Term upon the request
of the Board of Directors and upon the termination of this Agreement, Lang will
deliver all Confidential Information together with copies thereof in his
possession to the Company. In addition, if after the Term he shall discover any
Confidential Information in his possession, he shall forthwith deliver the same
together with all copies thereof to the Company.
(b) In the event of the breach or threatened breach of the terms and
conditions of this Section 14 by Lang, the Company shall be entitled to a
temporary or preliminary restraining order and an injunction or other equitable
relief restraining and enjoining Lang from violating this Section 14. In
addition to the equitable relief provided above, the Company shall have the
right to pursue all other remedies available at law to the Company for such
breach or threatened breach, including recovery of damages from Lang.
(c) In the event that any of the provisions of this Section 14 shall be
deemed unenforceable, invalid, or overbroad, in whole or in part for any reason,
then any court of competent jurisdiction is hereby authorized, requested and
instructed to reform such provision or provisions to provide for the maximum
confidentiality restraints upon the activities of Lang, which may then be legal
and valid.
-7-
<PAGE>
15. DISPUTE RESOLUTION. Any controversy or claim arising out of or
relating to this Agreement and the obligations and responsibilities of the
parties hereto or the breach or alleged breach by any of the parties of their
respective obligations hereunder shall be settled by arbitration in the City of
New York, by one arbitrator in accordance with the then governing Rules of the
American Arbitration Association. The written decision of the arbitrator shall
be final and binding upon the Company and Lang. Judgment upon the award
rendered may be entered and enforced in any court of competent jurisdiction.
Notwithstanding the above, either party shall be entitled to seek and obtain
injunctive or similar relief from a court of competent jurisdiction where
appropriate pending arbitration. Both parties hereby submit to the exclusive
jurisdiction of the courts of the State of New York or Federal courts situated
in New York County, New York for such purpose and for purposes of enforcing any
arbitration award. All legal fees and expenses reasonably incurred by Lang in
good faith as a result of any claim or arbitration arising from this Agreement
shall be paid by the Company.
16. MISCELLANEOUS.
(a) This Agreement contains the entire understanding between the parties
hereto concerning the subject matter hereof. This Agreement may only be amended
by an instrument in writing executed by the parties hereto.
(b) This Agreement shall be construed and enforced in accordance with the
laws of the State of New York.
-8-
<PAGE>
(c) This Agreement and the rights and obligations of the parties hereto
shall bind and inure to the benefit of the successor or successors of the
Company, whether by merger, consolidation or otherwise.
(d) Any notice to be given pursuant to the terms of this Agreement shall
be in writing and delivered by hand or sent by registered or certified mail, to
such party's address set forth above or to such other address or to the
attention of such other person as either party has specified by prior written
notice to the other party.
(e) The Company's waiver of a breach of any provision of this Agreement by
Lang shall not operate or be construed as a waiver of any subsequent breach of
this Agreement by the employee. No waiver shall be valid unless in writing and
signed by an authorized officer of the Company.
(f) Lang acknowledges that his services are unique and personal.
Accordingly Lang shall not assign his rights or delegate his duties or
obligations under this Agreement.
(g) Headings in this Agreement are for convenience only and shall not be
used to interpret or construe its provisions.
(h) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its officers thereunto duly authorized, and Lang has executed this Agreement all
as of the date first above set forth.
NORD RESOURCES CORPORATION
By: /s/ W. Pierce Carson
------------------------
-----------------------------
TERENCE H. LANG
72521.7
-10-
<PAGE>
AGREEMENT
AGREEMENT dated this 27th day of May, 1997 among MIL (Investments) S.A.
("MIL"), Nord Resources Corporation (the "Company"), Edgar F. Cruft ("Cruft),
Terence H. Lang ("Lang") and W. Pierce Carson ("Carson").
WHEREAS, Cruft has agreed to withdraw as full-time Chairman and Chief
Executive Officer ("CEO") of the Company and its affiliate, Nord Pacific Ltd.
("NPL") and, nstead, become part-time Chairman of each and that Lang agree to
restructure his position with the Company; and
WHEREAS, Carson has agreed to become President and CEO of the Company and
NPL; and
WHEREAS, MIL, Cruft, Lang and Carson have all agreed that it is in the best
interests of the Company that they cooperate in the restructuring of the
management of the Company for the benefit of the Company;
WHEREAS, MIL has agreed, as an inducement to (x) Cruft to reduce his
position with the Company and become part-time Chairman, (y) Lang to restructure
his position with the Company and (z) Carson to become President and CEO, to be
bound to vote its shares in the Company to effectuate the terms of the Cruft
Agreement, Lang Agreement and Carson Agreement
<PAGE>
should shareholder approval of any portion thereof be required by any relevant
statute, stock exchange or regulatory body;
WHEREAS, Cruft, Lang and Carson, as a result thereof, respectively have
agreed to the terms of a Continuation of Employment Agreement between Cruft and
the Company ("Cruft Agreement"), a copy of which is attached hereto as Exhibit
A, and a Continuation of Employment Agreement between Lang and the Company
("Lang Agreement"), a copy of which is attached hereto as Exhibit B, and an
Employment Agreement between Carson and the Company ("Carson Agreement"), a copy
of which is attached hereto as Exhibit C, each of even date herewith; and
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, it is agreed as follows:
1) Cruft, Lang and Carson each agrees to enter into their respective
agreements with the Company.
2) MIL agrees to vote its shares at all meetings and in all certificates
of action of the shareholders of the Company to effectuate each and every term
of the Cruft Agreement, Lang Agreement and Carson Agreement, in each case in the
form attached hereto without modification
-2-
<PAGE>
or amendment, should shareholder approval of any portion thereto be required by
any relevant statute, stock exchange or regulatory body.
MIL (INVESTMENTS) S.A.
BY:
-------------------------------
BY:
-------------------------------
NORD RESOURCES CORPORATION
BY:
-------------------------------
-----------------------------------
EDGAR F. CRUFT
-----------------------------------
TERENCE H. LANG
/S/ W. Pierce Carson
-----------------------------------
W. PIERCE CARSON
73067.2
-3-
<PAGE>
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT ("Agreement") dated this 3rd day of July, 1997
between NORD PACIFIC LIMITED, a Bermuda corporation (the "Company"), with an
address at 22 Church Street, Hamilton HM11, Bermuda and NORD RESOURCES
CORPORATION, a Delaware corporation (the "Purchaser"), with an address at 8150
Washington Village Drive, Dayton, Ohio 45458.
W I T N E S S E T H :
WHEREAS, the Purchaser currently owns 3,348,012 shares of the common
stock, $.05 par value per share ("Common Stock"), of the Company representing
approximately thirty-five and two one-hundredths (35.2%) percent of the issued
and outstanding shares of the Common Stock of the Company; and
WHEREAS, concurrently herewith, the Company is closing on a public
offering in Canada (the "Canadian Offering") of units ("Units"), each Unit
consisting of one (1) share of Common Stock and one-half (1/2) of one (1) common
stock purchase warrant ("Purchase Warrant"); and
WHEREAS, the Purchase Warrants are governed by a Warrant Indenture
dated the date hereof, between the Company and Montreal Trust Company of Canada
as Trustee (the "Warrant Trustee"); and
WHEREAS, subject to the terms and conditions that are set forth
herein, the Purchaser desires to purchase and the Company desires to sell, in a
private placement ("Private Placement") pursuant to Section 4(2) of the
Securities Act of 1933, as amended ("1933 Act"), Units comprised of shares of
Common Stock (the "NRC Shares") and Purchase Warrants (the "Warrants"), for an
aggregate price of $2,411,888.10 Cdn ("Purchase Price"); and
WHEREAS, the purpose of the Private Placement is to enable the
Purchaser to maintain, after the closing of the Canadian Offering and the
Private Placement, an approximate thirty (30%) percent ownership interest in the
Common Stock of the Company, before the exercise of any Purchase Warrants.
NOW THEREFORE, in consideration of the premises and the covenants and
agreements set forth below and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. PURCHASE AND SALE OF COMMON STOCK AND WARRANTS.
Concurrently herewith and pursuant to Section 4(2) under the 1933
Act, the Company shall sell in a private placement and the Purchaser shall
purchase the Shares and Warrants for the Purchase Price.
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2. PAYMENT OF PURCHASE PRICE.
The Purchase Price shall be paid by the Purchaser to the Company by
certified or bank check payable to the direct order of the Company, or by
wire transfer, in the amount of the Purchase Price.
3. ISSUANCE OF SHARES.
The Shares purchased hereunder shall be issued by the Company's
transfer agent, American Stock Transfer & Trust Company ("Transfer Agent"),
pursuant to a letter of instruction, delivered concurrently herewith by the
Company to the Transfer Agent. The certificate for the Shares will contain a
legend indicating that the Shares have not been registered under the 1933 Act.
4. ISSUANCE OF WARRANTS.
The Warrants purchased hereunder shall be issued by the Warrant
Trustee pursuant to a letter of instruction delivered concurrently herewith
by the Company to the Warrant Trustee.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
The Purchaser hereby represents and warrants to the Company as
follows:
(i) the Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware;
(ii) the purchase of the Shares and Warrants and the execution,
delivery and performance of this Agreement has been duly authorized by all
necessary action on the part of the Purchaser and this Agreement
constitutes a valid and binding obligation of the Purchaser enforceable in
accordance with its terms;
(iii) the Purchaser is acquiring the Shares and Warrants for
investment purposes only and not with a view to sale or distribution
thereof and that the Shares and Warrants are being acquired for Purchaser's
own account and not on behalf of others;
(iv) Purchaser acknowledges that the Shares and Warrants constitute
restricted securities within the meaning of Rule 144 promulgated by the
Securities and Exchange Commission under the 1933 Act and that neither the
Shares, Warrants nor shares of Common Stock issuable upon exercise of the
Warrants may be sold, except pursuant to an effective registration
statement under the 1933 Act or in a transaction exempt from registration
under the 1933 Act.
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6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as
follows:
(i) the Company is a corporation duly organized, validly existing and
in good standing under the laws of Bermuda;
(ii) the Company has full corporate power and authority to execute
and deliver this Agreement and to issue the Shares and Warrants and to
consummate the transactions contemplated on its part hereby;
(iii) the execution and delivery of the Shares, Warrants and this
Agreement and the performance by the Company of the Warrants and this
Agreement have been duly authorized by all necessary actions on the part of
the Company and the Warrants and this Agreement constitute valid and
binding obligations of the Company enforceable in accordance with their
terms; and
(iv) upon payment of the Purchase Price, the Shares will be duly
and validly authorized and issued, fully paid and nonassessable and free
from preemptive rights and the shares of Common Stock issuable upon
exercise of the Warrants have been duly and validly authorized for issue
and, upon payment of the applicable exercise price, will be fully paid and
nonassessable and free from preemptive rights.
7. LISTING.
The Company shall take such steps as are necessary to make
application to list the Shares and the shares of Common Stock underlying the
Warrants on the National Association of Securities Dealers Automated
Quotation System, National Market and the Toronto Stock Exchange.
9. PUBLIC ANNOUNCEMENTS.
The parties hereto agree to coordinate the release of public
information relating to this Agreement and, except as otherwise required by
applicable law, rule or regulation, will not release any information without
the prior written consent of the other party hereto.
10. BROKERS AND FINDERS.
The Company and Purchaser each represent to the other that it has
dealt with no broker or finder in connection with this transaction. This
representation shall survive the closing hereunder.
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11. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement between the
parties relating to the subject matter hereof, superseding any and all prior or
contemporaneous oral and prior written agreements and understandings. This
Agreement may not be modified or amended nor may any right be waived except by a
writing which expressly refers to this Agreement, states that it is a
modification, amendment or waiver and is signed by all parties with respect to a
modification or amendment or the party granting the waiver with respect to a
waiver. No course of conduct or dealing and no trade custom or usage shall
modify any provisions of this Agreement.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within such State.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
Neither this Agreement nor any rights or obligations hereunder may be sold,
transferred or assigned without the prior written consent of the other party.
(d) In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
(e) Each party shall, without payment of any additional consideration
by any other party, at any time on or after the date hereof take such further
action and execute such other and further documents and instruments as the other
party may request in order to provide the other party with the benefits of this
Agreement.
(f) The captions and headings contained herein are solely for
convenience and reference and do not constitute a part of this Agreement.
(g) All references to any gender shall be deemed to include the
masculine, feminine or neuter gender, the singular shall include the plural and
the plural shall include the singular.
(h) This Agreement may be executed in two or more counterparts, each
of which shall be deemed on original but all of which together shall constitute
one and the same document.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first aforesaid.
NORD PACIFIC LIMITED
By: /s/ W. Pierce Carson
--------------------------------
Name: W. Pierce Carson
Title: President
NORD RESOURCES CORPORATION
By: /s/ Terence H. Lang
--------------------------------
Name: Terence H. Lang
Title: Senior Vice President-Finance
74299.2
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NORD PACIFIC LIMITED
22 CHURCH STREET
HAMILTON HM11
BERMUDA
July 3, 1997
Nord Resources Corporation
8150 Washington Village Drive
Dayton, Ohio 45458
RE: PRIVATE PLACEMENT OF SHARES OF COMMON STOCK,
$.05 PAR VALUE PER SHARE, AND WARRANTS
PURSUANT TO SECTION 4(2) OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED
Ladies and Gentleman:
Reference is made to the Subscription Agreement dated the date hereof
between us (the "Agreement"). This shall serve to confirm the following: (i) as
of June 30, 1997, Nord Pacific was indebted to Nord Resources in the aggregate
amount of $3,661,387.82 (the "Debt"); and (ii) the Purchase Price (as defined in
the Agreement) shall be paid by Nord Pacific to Nord Resources by reduction of
the Debt by an amount equal to the Purchase Price.
Please acknowledge your agreement to the above by signing the enclose copy
of this letter and returning it to the undersigned.
Very truly yours,
NORD PACIFIC LIMITED
WPC/ri By: /s/ W. Pierce Carson
Enc. -------------------------------
75085.1 W. Pierce Carson, President
AGREED TO:
NORD RESOURCES CORPORATION
By: /s/ Terence H. Lang
--------------------------------
Terence H. Lang, Senior Vice
President-Finance
<PAGE>
EXHIBIT 10.112
CONTRACT FOR SALE AND PURCHASE
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Manatee Gateway No. 1, a Joint Venture, (herein
"Seller") agrees to sell and Svenson Enterprises, Inc., and/or assigns
(herein collectively "Purchaser"), agrees to purchase Land and Improvements
subject to and in accordance with the terms and conditions set forth in this
Contract for Sale and Purchase (herein "Contract").
1. PROPERTY
Seller shall convey to Purchaser certain real property (herein "Land")
together with all improvements, buildings, structures, fixtures, walls,
fences, gates, entry ways, roads, underground utilities, aboveground
utilities, sewage lift stations and equipment, irrigation and drainage
facilities, situated thereon or thereunder and other property affixed thereto
to the extent that the same shall exist upon the Land (herein collectively
"Improvements") including but not limited to: (i) all easements, licenses,
interests, rights, tenements, hereditaments, privileges, and appurtenances
now or hereafter held by Seller which in any way benefit the Land or the
Improvements or relate to the ownership, maintenance, and/or operation of the
Land or the Improvements; (ii) all rights, titles and interests of Seller in
or to any road, street or alley on or adjoining the Land; (iii) all easements
and rights-of-way appurtenant to the Land; and (iv) all mineral, water and
irrigation rights running with or pertaining to the Land; provided, however,
that the Purchaser acknowledges that the Land's prior use consisted of the
mining of dolomite which use has been long abandoned and therefore the
Purchaser further acknowledges that the Seller has made no representations as
to the existence or condition of the Improvements.
The Land and the Improvements (herein collectively "Property") are more
particularly and specifically described in Exhibit A.
2. PURCHASE PRICE AND ESCROW DEPOSITS
2.1 PURCHASE PRICE. The Purchase Price for the Property is Three Million
Dollars ($3,000,000.00). The Purchase Price shall be payable at Closing as
follows:
Purchaser shall pay Five Hundred Thousand Dollars ($500,000.00) with the
balance of the Purchase Price being paid with the proceeds from a Purchase
Money Mortgage (as defined in Section 3) in the amount of Two Million Five
Hundred Thousand Dollars ($2,500,000.00), or such greater or lesser amount
as may be necessary to complete payment of the Purchase Price after
credits, adjustments and prorations and after application of Escrow
Deposits.
2.2 ESCROW DEPOSITS AND CONTRACT DATE. Purchaser shall have five (5) days
from the contract date to deposit Ten Thousand Dollars ($10,000.00) in escrow
(herein "First Escrow Deposit"), with the Escrow Agent. The "Contract Date"
shall be defined as the last date upon which the Contract for Sale and Purchase
is executed by either party.
Purchaser shall have five (5) days from the end of the inspection period as
described in Paragraph 6.2 to deposit an additional Forty Thousand Dollars
($40,000.00) in escrow (herein "Second Escrow Deposit") with the Escrow
Agent. As used in this Contract, Inspection Completion Date shall mean the
date which is seventy five (75) days after the Contract Date.
Purchaser Initial LJS Seller Initial TAL
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The First Escrow Deposit and the Second Escrow Deposit, if any, (herein
collectively "Escrow Deposits") shall be held by the Escrow Agent in an
interest bearing account designated by Purchaser. The Escrow Deposits plus
accrued interest thereon shall be applied to the Purchase Price or disbursed
in accordance with the terms of this Contract.
2.3 ESCROW AGENT. The Escrow Agent is Horizon Real Estate Investment
Corporation, or its assigns.
3. PURCHASE MONEY MORTGAGE
Purchaser agrees to give and Seller agrees to take a purchase money first
mortgage ("Purchase Money Mortgage") in the amount of Two Million Five Hundred
Thousand Dollars ($2,500,000.00) bearing interest at a rate of seven percent
(7%) per annum. Purchaser shall make monthly payments of interest only beginning
one month after closing and annual principal reductions in the amount of Six
Hundred Twenty Five Thousand Dollars ($625,000.00) beginning one year from date
of closing. Said Note shall contain no prepayment penalty.
4. EVIDENCE OF TITLE
4.1 TITLE COMMITMENT. Twenty-one (21) days after the Escrow Agent's
receipt of the Second Escrow Deposit, Seller shall have Chicago Title Insurance
Company (herein "Title Agent") provide Purchaser with a commitment for an
American Land Title Association Extended Coverage Owner's Policy of Title
Insurance (herein "Owner's Title Policy") in an amount equal to the purchase
Price (herein "Title Commitment"). The Title Commitment shall reflect that the
Owner's Title Policy to be issued pursuant thereto shall have deleted by
endorsement: (i) the standard printed exceptions with respect to mechanic's
liens; (ii) rights of parties in possession; (iii) easements not shown by public
record; and (iv) discrepancies, conflicts in boundary lines, shortage in area,
encroachments, and any other material facts which the Survey shall disclose.
4.2 INSPECTION OF TITLE COMMITMENT. Purchaser shall have fifteen (15)
days from actual receipt of the Title Commitment to give Notice to Seller of
Purchaser's objection to any exceptions identified in the Title Commitment
(herein "Title Objection Notice").
In the event Purchaser objects to any of the objections set forth in the
Title Commitment, Seller shall have ninety (90) days from receipt of the
Title Objection Notice for each such exceptions the right to: (i) remove such
exception from the Title Commitment; or (ii) obtain an endorsement to the
Title Commitment reflecting title insurance protection for such exception; or
(iii) agree to remove and demonstrate to Purchaser's satisfaction its ability
to remove on or before the Closing Date such exception.
Seller shall use reasonable effort and due diligence to remove any remaining
exceptions objected to by purchaser in the Title Objection Notice and shall,
if such exceptions can be removed by exercise of such reasonable effort and
due diligence, remove such remaining objections on or before the Closing
Date. If Seller cannot remove any such remaining exceptions by the exercise
of its reasonable effort and due diligence, Seller shall so notify Purchaser.
Purchaser shall have the option of accepting the then existing Title
Commitment in lieu of requiring Seller to remove such remaining exceptions.
This Contract may be cancelled by Purchaser if Seller for any exception
objected to in the Title Objection Notice fails to: (i) remove such exception
from the Title Commitment; or (ii) obtain an endorsement to
Purchaser Initial LJS Seller Initial TAL
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the Title Commitment reflecting title insurance protection for such exception;
or (iii) agree to remove and demonstrate to Purchaser's satisfaction its ability
to remove on or before the Closing Date such exception. Unless Purchaser then
elects to waive its prior objections, this Contract shall be cancelled as set
forth in Section 14 herein.
Failure of Purchaser to give Notice to Seller of Purchaser's objection to any
exceptions identified in the Title Commitment within the aforementioned forty
five (45) day period shall be deemed approval and acceptance of such exceptions.
Those exceptions deemed approved or with respect to which Purchaser has waived
its prior objections are defined herein as "Permitted Exceptions".
5. SURVEY
5.1 GENERAL. Purchaser shall within twenty-one (21) days after the Escrow
Agent's receipt of the Second Escrow Deposit, obtain a current land survey
(herein "Survey") of the Property, at the Purchaser's expense, to be prepared on
the ground by a licensed land surveyor authorized to do business in the State of
Florida, approved by Seller and satisfactory to the Title Agent for the purpose
of deleting any survey exceptions to its Title Commitment. The cost of the
Survey, including the cost of copies, revisions, updates, or certifications
reasonably required by Purchaser or the Title Agent shall be paid by Purchaser.
5.2 DEFINITION. The Survey shall conform to the American Land Title
Association standards and shall reflect the following: (i) an accurate and
certified legal description of the Land; (ii) a metes and bounds description of
the Property and any encroachments, conflicts, protrusions, reservations, and
restrictions thereon; (iii) the locations and dimensions of all Improvements;
(iv) recorded and apparent easements, rights-of-way, streets, and highways on or
adjacent to the Property, building setback lines and encroachments thereon, each
of which items shall be identified on the Survey by reference to the book, page,
reception number, date and public trustee recording the instrument creating the
same; (v) the gross number of acres and decimal fraction thereof comprising the
Property; and (vi) the Usable Acres comprising the Property (as used herein,
"Usable Acres" shall be the number of acres and decimal fraction thereof
comprising the Property, exclusive of any land lying within easements, streets,
rights-of-way, encroachments, protrusions, creeks, lakes, or other waterways,
the Flood Plain and land subject to encumbrances or structures preventing its
useful development).
In addition, the Survey shall expressly state: (i) the survey was made on the
ground of the Property; (ii) there are no visible discrepancies, conflicts,
encroachments, overlapping of improvements, easements, rights-of-way, or
other matters pertaining to the Property except as shown on the survey; (iii)
the survey is a true, correct, and accurate representation of the Property;
(iv) whether or not any portion of the Property is located within the one
hundred (100) year flood plain, as designated by the Federal Insurance Agency
of the Department of Housing and Urban Development (herein, the "Flood
Plain"), and, if applicable, shall show the locations of any portion of the
Property within such Flood Plain as per the most recent available published
maps prepared by the Federal Emergency Management Agency. The Survey shall
contain: (i) the registered number, the date, signature and seal of the land
surveyor, and (ii) the usual and customer certificate in favor of Purchaser
and the Title Agent. The Land shall be staked as per the Survey.
5.3 INSPECTION OF SURVEY. Purchaser shall have thirty (30) days from actual
receipt of the Survey to give Seller Notice of any portion of the Survey which
is not acceptable to Purchaser (herein "Survey Objection Notice").
Purchaser Initial LJS Seller Initial TAL
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If any portion of the Survey is not acceptable to Purchaser, Purchaser may, at
its sole option: (i) cancel this Contract as set forth in Section 14 herein; or
(ii) allow Seller the opportunity to eliminate or modify all such unacceptable
matters to Purchaser's satisfaction during the same period of time allowed for
the cure of the title exceptions under Section 4.2 hereof or such later date as
Purchaser may specify in its Survey Objection Notice. The option chosen by
Purchaser shall be specified in the Survey Objection Notice. If Seller is able
to eliminate or modify all such unacceptable matters to the satisfaction of
Purchaser, this Contract shall proceed to Closing (unless otherwise cancelled).
If Seller does not eliminate or modify all such unacceptable matters to
Purchaser's satisfaction within the time period referenced in this Section,
Purchaser may, at its sole option: (i) cancel this Contract as set forth in
Section 14 herein; or (ii) elect to waive any remaining objections set forth in
the Survey Objection Notice.
6. PERMITTING AND ZONING CONTINGENCY
6.1. GENERAL. Purchaser intends to: (i) develop the Property as a mixed
use development including commercial, residential and recreational areas.
Seller acknowledges Purchaser's obligations under this Contract are expressly
contingent ("Permitting Contingency") upon all permitting and zoning
approvals for a mixed use development to contain not less than ten (10) acres
of commercial zoning, fifty (50) acres designated for 225 homesites as well
as 46.9 acres for recreational or other uses, herein the "Project".
6.2 INSPECTION PERIOD. Purchaser shall have a period of seventy five
(75) days subsequent to the Contract Date to perform its Due Diligence
functions. During said Due Diligence period, Seller shall cooperate fully
with Purchaser in providing Purchaser with all documents in Seller's
possession in any way relating to the development status of the Property. If
at any time during the Due Diligence period the Purchaser determines that it
is unwilling to complete the Contract for Sale and Purchase, Purchaser shall
be entitled to a full refund of all Escrowed Funds, with interest accrued
thereon, by simply providing notice to Seller as required under the terms of
this Contract for Sale and Purchase; provided, however, that if Purchaser is
unwilling to complete the Contract for Sale and Purchase, any studies,
reports, surveys, environmental audits, tests and permits shall be fully paid
for by Purchaser and the possession thereof and all rights thereto shall be
transferred from Purchaser to Seller.
6.3 PERMITTING PERIOD. Purchaser shall have a period of twelve (12) months
subsequent to the Contract Date to obtain all permits and governmental or
administrative approvals required to construct the improvements described in
Paragraph 6.1 above. Provided Purchaser provides Seller with evidence that
Purchaser has diligently pursued all permits and approvals necessary for the
construction of the Project, and continues to diligently pursue same, Seller
shall grant one three (3) month extension at the end of the contemplated twelve
(12) month permitting period.
6.4 CLOSING DATE AND PLACE. The closing on the sale of the property to
Purchaser shall take place no later than fifteen (15) days subsequent to
Purchaser obtaining all necessary zoning and permitting approvals for the
Project, provided said approvals and permits are all received within twelve (12)
months of the Contract Date, not including any possible extension period
contemplated in Paragraph 6.3 above, the "Extended Closing Date". Purchaser
shall at the expiration of the twelve (12) month Permitting Period or prior to
the Extended Closing Date, have the option of closing upon the purchase of the
Property at that time without having the requisite zoning and permitting
approvals in place. If the Purchaser is unable to obtain requisite zoning and
permitting approvals within the twelve (12) month permitting period or the
subsequent (3) month extension period, Purchaser shall have the unilateral right
to cancel this Contract for Sale and Purchase as set for in Section 14, by
giving notice of
Purchaser Initial LJS Seller Initial TAL
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cancellation no later than ten (10) days subsequent to the twelve (12) month
permitting period or the three (3) month extension period and, upon giving
such notice, the Contract shall be cancelled and Purchaser shall receive a
full refund of all escrow deposits together with accrued interest thereon. If
Purchaser fails to give timely notice of cancellation, it shall be required
to close in accordance with the terms hereof.
This Contract shall be closed at a place in Manatee County, Florida, on a date,
and at a time designated by Purchaser and the Title Agent but no later than the
date established for closing in the preceding paragraph.
6.5 SELLER DOCUMENTS. Seller shall have five (5) business days
subsequent to the Contract Date to deliver to Purchaser: (i) any original, or
true copies of, all environmental reports, aerial photographs, engineering
studies and plans, site analysis, reports, zoning files, permits,
inspections, and any other similar data in Seller's possession, or under
Seller's control, or reasonably obtainable by Seller which relate to the
Property or the planned use of the Property; and (ii) true copies of current
tax statements, any existing written contracts, accurate summaries of any
existing oral contracts, easements, rights-of-way, bonds, guarantees,
performance agreements, indemnity agreements, utilities agreements,
annexation agreements, master plan agreements, development or subdivision
agreements, home owner agreements, building permits, and inspections and
approvals pertaining to the Property (herein collectively "Seller
Documents"). Said Seller Documents shall include, but not be limited to,
DEP/DNR or SWIFTMUD preliminary approvals or permits for alteration or
modification of any of the surface water characteristics of the Land or
alteration or relocation of any wetlands or low lying areas located upon the
Land. It is contemplated herein that Seller will provide Purchaser any and
all information relating to the previously described preliminary approvals or
building permits including correspondence from any governmental agency or
administrative body in Sellers' possession which in any way relates to the
Land, or any existing or contemplated improvements thereon.
6.6 COOPERATION. Seller shall cooperate in all respects with Purchaser
and with counsel for Purchaser ("Zoning Counsel"). Seller agrees to promptly
join in and sign any application, agreement or other document deemed
reasonably necessary or advisable in the opinion of Purchaser or in the
opinion of Zoning Counsel as being necessary for Purchaser's plans for the
Project. Purchase shall not allow any proceeding to change the existing
zoning classifications or approved land uses of the Property to become final
without the contemporaneous written consent of the Seller which shall not be
unreasonably withheld. Purchaser shall keep Seller reasonably informed of the
progress of all applications or petitions for zoning change, development
approval, or land use modification, including but not limited to, plan unit
development approval or plat approval and to provide Seller written notice at
least thirty (30) days in advance of any zoning change, land use amendment,
development approval, plan unit development, or plat, becoming final. Seller
shall not be required to join in, upon or authorize any final action with
respect to zoning change, land use designation, development approval, plat
unit development approval, or plan which would continue to affect the
Property in the event the Purchaser does not complete its purchase unless the
Seller has previously provided its specific contemporaneous approval or
joinder within the final thirty day period.
7. RELEASE PROVISION
Subsequent to the closing, and provided the Purchaser is not in default under
any of the terms of the Note or Mortgage, Purchaser shall be entitled to have
portions of the Property released from the lien of said Mortgage upon payment by
Purchaser to Seller 125% of the security value of the lands requested to be
released. The order of the parcels or phases to be released shall be agreed on
between the Seller
Purchaser Initial LJS Seller Initial TAL
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and Purchaser during the Due Diligence period after a development plan has
been developed. It is specifically agreed that Seller shall not release any
parcel of land which would render a remaining parcel without a means of
ingress and egress. During Purchaser's seventy five (75) day Due Diligence
period, Seller and Purchaser agree to use their best efforts to reach an
agreement defining the security value of the land to be released. Any
principal reductions brought about through the lien releases contemplated by
this Section 7 shall be applied one-half to the next maturing principal
reduction due under the Note and the remaining one-half to the last maturing
principal reduction due under the Note.
8. CLOSING
8.1 CLOSING DOCUMENTS. Prior to the Closing Date, Seller, Purchaser and
the Title Agent shall agree upon the form of all closing documents to be
executed at Closing. Seller shall execute and/or deliver at Closing in a form
satisfactory to Purchaser and the Title Agent: (i) a Title Commitment bringing
the effective date thereof current to the Closing Date (herein "Current Title
Commitment"); (ii) a general warranty deed conveying good and marketable fee
simple title free and clear of all recorded and unrecorded liens, rights,
interests, agreement, leases, encumbrances, reservations, easements, adverse
possession rights, or other matters other than those set forth in the Current
Title Commitment less Permitted Exceptions (herein "Warranty Deed"); (iii)
assignments of all insurance and condemnation proceeds to which Purchaser is
entitled under Section 10 herein, if any; (iv) assignments of all leases,
deposits and pre-payments which Purchaser elects to assume, if any; (v)
assignments of all other matters associated with or benefiting the Property, if
any; (vi) an affidavit concerning Seller's non-foreign status within the meaning
of the United States tax laws and to which reference is made an Internal Revenue
Code Section 1445; (vii) an affidavit certifying the accuracy of all warranties
and representations contained in this Contract; (viii) a no-lien affidavit in
recordable form which shall attest to the absence of any claims of lien or
potential lienor known to Seller and further attesting there have been no
improvements to the Property for ninety (90) days immediately preceding the
Closing Date; and (ix) any and all other instruments reasonably necessary and
required by Purchaser and/or Title Agent to close the transaction contemplated
by this Contract.
8.2 NOTE AND MORTGAGE. Purchaser shall execute and deliver at Closing in a
form satisfactory to Purchaser, Seller and the Title Agency: (i) a promissory
note for the Purchase Money Mortgage; and (ii) a mortgage securing the Note and
creating a first lien encumbering the Property (herein "Mortgage") in the form
agreed upon by Seller and Purchaser during the Due Diligence Period.
8.3 PRIOR LIENS. Any indebtedness secured by liens currently encumbering
the Property or existing prior to Closing shall be paid by Seller in full on or
before Closing and all such liens shall be released by the Title Agent from the
Exceptions to Title.
8.4 DELIVERY OF POSSESSION. Seller shall deliver exclusive possession of
the Property to Purchaser at Closing.
8.5 TITLE INSURANCE POLICIES. The Title Agent shall have thirty (30)
days from the Closing Date to deliver to Purchaser an American Land Title
Association Extended Coverage Owner's Policy of Title Insurance issued by the
Title Agent and as contemplated by the Title Commitment insuring fee simple
title is vested in Purchaser subject only to the Permitted Exceptions. Seller
shall pay the premium for this Owner's Title Policy.
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8.6 ADDITIONAL CLOSING COSTS. Purchaser shall pay, in addition to other
sums to be paid under the terms of this Contract, the following closing Costs:
(i) intangible stamps, document stamps and recording fees for the Purchase Money
Mortgage contemplated hereby; recording of the Warranty Dead and (ii)
Purchaser's attorneys' fees.
Seller shall pay, in addition to other sums to be paid under the terms of this
Contract, the following closing costs: (i) document stamps for the Warranty
Deed; (ii) recording fees for those documents, if any, necessary to enable
Seller to convey good and marketable title to the Property subject only to the
Permitted Exceptions; (iii) recording fees for corrective instruments, if any;
(iv) special assessment liens which have been authorized, if any; (v) title
charges; (vi) Seller's attorneys' fee; and (vii) any other closing costs.
8.7 PRORATION. At closing the following items will be prorated as of the
Closing Date: (i) real-estate taxes for the current year; (ii) personal property
taxes for the current year; (iii) solid waste collection fees; (iv) all other
utility fees; (v) assessments which Purchaser elects to assume, if any; (vi)
prepaid rents under leases which Purchaser elects to assume, if any; and (vii)
any other customarily proratable items.
If the Closing shall occur prior to the time the actual real property tax bills
for the year of the Closing Date are available, then an estimate of taxes shall
be prorated as of the Closing Date. After closing and upon receipt by Seller or
Purchaser, as the case may be, of the actual tax bills for the year of the
Closing Date, taxes shall be re-prorated and adjusted promptly in cash between
Seller and Purchaser.
8.8 ESCROW CLOSING. Unless the Title Agent is willing at closing to
delete all exceptions in its current Title Commitment relating to the matters
affecting title to the Property between the effective date of the current
Title Commitment to and through the actual recordation and certification of
the Warranty Deed, there shall be an escrow closing pursuant to which all
monies and other documents shall be held in escrow by the Title Agent under
an escrow agreement satisfactory to Purchaser pending: (i) prompt recordation
of the Warranty Deed; and (ii) written certification by the Title Agent there
has been no change in the status of title between the effective date of the
Current Title Commitment to and through the actual recordation and
certification.
9. WARRANTIES OF SELLER
As an inducement to enter into this Contract and to pay the Purchase Price,
Seller represents and warrants to Purchaser:
9.1. PROPERTY OWNERSHIP. Seller is the owner of fee simple title to the
Property more particularly and specifically described in Exhibit A and at
Closing Seller shall satisfy all requirements set forth in the Title Commitment
and shall convey to Purchaser by Warranty Deed good, marketable and merchantable
fee simple title to the Property free and clear of all recorded and unrecorded
liens, rights, interests, agreements, leases, encumbrances, reservations,
easements, adverse possession rights, or other matters other than those set
forth in a Title Commitment brought current to the Closing Date less Permitted
Exceptions.
9.2 IMPROVEMENTS CONSTRUCTED TO PLAN. The Seller did not construct any of
the improvements which may exist upon the Property and therefore is without
knowledge as to whether the improvements, if any, were constructed according to
plan with valid permits and with fees paid (herein collectively "Improvement
Plans"). The Seller is without knowledge as to whether the appropriate
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governmental or public service authorities: (i) approved the Improvement
Plans prior to construction; (ii) inspected the Improvements during
construction; (iii) accepted the Improvements, if applicable; and (iv) issued
certificates of completion or certificates of acceptance, as the case may be,
without exceptions or reservations. Seller does warrant however, that the
only changes to the surface characteristics of the Property during Seller's
ownership of the Property consist of the use of the Property for the deposit
of spoil from a nearby dredging project and that said spoil was legally
deposited upon the Property with all of the requisite permits and approvals
pursuant to Permit Number 411783719 issued by Department of Environmental
Regulation.
9.3 HAZARDOUS SUBSTANCES. Seller has advised Purchaser that: (i) the
Property has previously been used for the extraction of dolomite which use has
been abandoned for more than twenty (20) years; and, that (ii) the Seaboard Cost
Line Railroad previously maintained an active railroad track through the
Property which use has also been abandoned and the track removed. Any easements
or rights of way in favor of the use or maintenance of the track have been
vacated and no longer have any legal existence, are not an encumbrance upon the
Land, and will not appear as a Schedule B II exception on the Purchaser's
Owners' Title Insurance Policy. Other than such disclosures, upon Seller's
knowledge, information and belief, the Property has not previously been used, is
not now being used, and will not be used for the generation, transportation,
treatment, storage, or disposal of any hazardous, regulated or toxic waste or
substance, to include but not limited to oil or any petroleum based product,
subject to regulation under federal, state, or local laws or regulations (herein
"Hazardous Waste Laws"). To the best of Seller's knowledge, information and
belief, there have been no past, and there are no current or anticipated
releases or substantial threats of a release of hazardous, regulated or toxic
wastes or substances from or onto the Property that are or may be subject to
regulation under the hazardous waste laws.
Purchaser shall conduct a Phase One environmental audit during the Due Diligence
period. If said environmental audit reveals the need for a Phase Two
environmental audit, said Phase Two environmental audit shall be conducted
within three (3) months of the expiration of the Due Diligence period (the
"Audit Period"). If during the Audit Period Purchaser receives a Phase Two
environmental audit showing the presence of, or a high probability of, the
presence of hazardous, regulated or toxic waste upon the Property, the Purchaser
shall have the right to either, (i) cancel this contract and receive a full
refund of all escrowed funds with interest thereon by providing notice to Seller
during the Audit Period of the unacceptability of the Phase Two environmental
audit, or, (is) accept the Property and be fully responsible for any required
cleanup activity or any other remedial action. If Purchaser elects to close on
the Property following a negative Phase Two environmental audit or if the
hazardous, regulated or toxic waste problem is discovered subsequent to closing,
the Seller agrees to be responsible for fifty percent (50%) of the cost of any
remedial costs associated with said contamination, however, Seller's liability
for said contaminations cleanup shall not exceed $100,000.00. Said liability
shall be offset against any amounts due Seller from Purchaser under the Note and
purchase money Mortgage from Purchaser to Seller (the "Offset Amount"). Said
offset shall entitle Purchaser to, at Purchasers option, apply said Offset
Amount to any principal and interest amounts as they come due or to any
principal reductions as they come due. Seller will not be responsible for any
contribution toward hazardous waste cleanup after the repayment of all sums due
under the purchase money Mortgage.
9.4 NO VIOLATIONS. There is no actual or, to the best of Seller's actual
knowledge, pending notice with regard to the violation of any applicable
regulation, ordinance, requirement, covenant, condition, or restriction to the
present use or occupancy or to Purchaser's Planned Use of the Property by any
person, authority, or agency having jurisdiction. If any such notice of
violation is determined to exist subsequent to the Contract Date and prior to
Closing, Seller at its sole cost and expense shall
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correct any claimed violations. In the event Seller fails to correct any claimed
violations at its sole cost and expense, Purchaser may cancel this Contract as
set forth in Section 14 herein.
9.5 ASSESSMENTS. There is no intended, or, to the best of Seller's actual
knowledge, planned public improvement which will or could result in any charge
being assessed against the Property which could result in a lien or encumbrance
upon the Property.
9.6 CONDEMNATION. There is no pending or, to the best of Seller's actual
knowledge, contemplated condemnation of the Property, or any portion thereof, by
any governmental authority.
9.7 NO SUITS OR CLAIMS PENDING. There is not suit or claim pending or, to
the best of Seller's actual knowledge, threatened with respect to or in any
manner affecting the Property, nor does Seller know of any circumstance which
should or could reasonably form the basis for any such suit or claim which
should or could reasonable form the basis for any such suit or claim which have
not been disclosed in writing to Purchaser by Seller.
9.8 EXPENSE OR REPAYMENT AGREEMENT. There is not shared expense or
repayment agreement which affect all or any portion of the Property.
9.9 AGREEMENT WITH THIRD PARTY. Seller has not entered into and there is
not existing any other written or oral agreement under which Seller is or could
become obligated to sell the Property, or any portion thereof, to a third party.
The entering into and completion of this Contract will not in any way violate
any other agreement to which Seller is a party.
9.10 PENDING PROCEEDINGS. Seller does not know of any pending proceedings
which would or could change the present zoning or permitted use of the Property
or any portion thereof except the required reconfirmation by the Board of
Trustees of the Internal Improvement Trust Fund of Sovereign Submerged lands
Easement No. 00272(4130-4) as a result of marina construction not being
completed by September 12, 1996. Seller will not, without the prior written
consent of Purchaser, take any action before any governmental authority which
would: (i) change the present zoning or permitted use of the Property, or any
portion of the Property, or any other property located in the neighborhood of
the Property; or (ii) change the potential use of the Property or its land use
limitations.
9.11 CONCEALED FACTS. Seller has not and will not purposefully conceal or
fail to disclose to Purchaser any facts which Seller, in its reasonable opinion,
would deem relevant and material to its purchase of the Property if it were the
purchaser.
9.12 RESTRICTIONS. Seller has no knowledge of any land use restrictions,
regulation, conditions, covenants, agreements or stipulations which may be
imposed by: (i) federal, state, county, town, or public utility growth
management regulations; (ii) development master plans; or (iii) any oral or
written agreements of Seller with any neighboring property owners, homeowners
associations, or community coalitions which would prevent or impair
Purchaser's planned use of the Property. Seller has no knowledge of any
zoning stipulations, ordinances, permanent or temporary construction
moratorium, environmental or other existing facts or circumstances which
would preclude, prohibit, or impair Purchaser's planned use of the Property.
The Seller has no knowledge of any wetlands, grading, slope, or drainage
restrictions which would obligate or require any owner of the Property to
accept, supply, deliver, or collect drainage water, surface water, or
irrigation water to or from any real property located within the vicinity of
the Property. The
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Seller has no knowledge of any land use regulations, restrictions, stipulations,
or conditions which would require the construction, maintenance, or operation of
any canals, laterals, ditches, conduits, gates, pipes, pumps, and/or the like
for drainage, irrigation, or water supply across the Property.
9.13 ATTACHMENTS. There are no attachments, executions, assignments for the
benefit of creditors, receiverships, survivorships or voluntary or involuntary
proceedings in bankruptcy or pursuant to any other debtor relief laws
contemplated or filed by the Seller or pending against the Seller of any of the
Property.
9.14 UNPAID BILLS. As of the Closing Date, Seller will have no unpaid bills
for labor performed or material supplied incident to the Property.
9.15 GENERAL. Any representations and warranties made by either the
Seller or Purchaser shall be deemed effective and made as of the Contract
Date and once again as of the Closing Date. Seller and Purchaser shall each
indemnify and hold the other harmless, on demand, for, from and against any
loss, damage, liability, cost, or expense to include court cost and
attorney's fees which either may incur as a result of a breach of Seller's or
Purchaser's warranties and representations, or for breach of any other
provisions of this Contract.
Seller understands Purchaser's review of documents, tests or any and all other
matters relating to the Property in connection with Purchaser's contemplated
development and operation of the Property shall not be deemed a waiver or
diminution of any of Seller's obligations or representations contained in this
Contract.
9.16. SURVIVAL AFTER CLOSING. Any representations and or warranties of
Seller shall survive the Closing and shall not be merged with the delivery of
the warranty deed.
10. BROKERS
10.1 COMMISSIONS. Seller shall pay Wall and Associates, Inc., Licensed Real
Estate Brokers, with offices at Suite 870, 1111 Lincoln Road, Miami Beach,
Florida 33139 (herein "Wall and Associates") as fee for its services in finding
Purchaser a real-estate Broker Commission equal to four percent (4%) of the
Purchaser Price at Closing (herein "Commission Due Wall and Associates").
In addition to the Commission Due Wall and Associates, Seller shall pay Horizon
Real Estate and Investment Corporation, with offices at 1937 Golf Street,
Sarasota, Florida 34236 (herein "Horizon") as fee for its services in finding
Purchaser a real-estate Broker Commission equal to Four percent (4%) of the
Purchase Price at Closing (herein "Commission Due Horizon"), Real estate
commissions to be paid to both Wall and Associates and to Horizon shall be paid
one half at Closing with the balance being paid by Seller in the appropriate
percentage as Seller receives the additional amounts due it under this
Agreement. Commissions not paid at Closing shall bear interest at the annual
rate of seven percent (7%). Said interest shall be paid to Wall and Horizon in
conjunction with other commission payments contemplated herein.
10.2 HOLD HARMLESS. Except for Wall and Associates and Horizon, the
Seller and the Purchaser represent and warrant to each other they have not
engaged or dealt with any other real-estate Broker, any other person, or any
other entity entitled to any Commission concerning this Contract. The Seller
and the Purchaser hereby agree to indemnify and hold the other entirely free
and harmless for, from and against any liability or expense including without
limitation attorneys' fees arising form any claim
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by any other real-estate Broker, any other person, or any other entity for
Commission because of any act of such party or its representative. Seller and
Purchaser further agree to defend the other at its sole cost and expense from
any such claims.
As used in this Contract: (i) the term "Broker" shall mean a real-estate broker,
salesperson, agent, listing agent, finder, or any other person or entity
entitled to a commission; (ii) the term "Commission" shall mean any real-estate
brokerage, advisory, or finder's fees or commission; and (iii) the term
"Commission Due Broker" shall mean the sum of the Commission Due Wall and
Associates plus the Commission Due Horizon.
11. RISK OF LOSS, DAMAGE OR TAKING OF PROPERTY
11.1 HOLD HARMLESS. Seller agrees to indemnify and hold Purchaser
harmless on demand for, from, and against any and all losses, damages, costs,
expenses, liabilities, and claims for personal injury which arose out of acts
or omissions, negligent or, which took place prior to Closing and transfer of
possession to Purchaser. Purchaser agrees to indemnify and hold Seller
harmless on demand from and against any and all losses, damages, costs,
expenses, liabilities, and claims for personal injury which arose out of acts
or omissions, negligent or, which took place as a result of Purchaser's or
Purchaser's agents or employers present on the Property during the Due
Diligence Period or at anytime prior to the Closing Date.
12. DISPUTES
12.1 SELLER DEFAULT. It Seller breaches this Contract, and there is no
pre-existing default by Purchaser, Purchaser may elect to: (i) cancel this
Contract as set forth in Section 14 herein; or seek and have specific
performance of this Contract; provided, however, that Purchaser has given Seller
notice of the alleged default and Seller has failed to cure such default within
fourteen (14) days subsequent to notice. The foregoing remedies may be exercised
cumulatively and concurrently.
12.2 PURCHASER DEFAULT. If Purchaser breaches this Contract, Seller's
sole remedy shall be to retain all of the Escrow Deposits (herein "Retained
Escrow Deposits") less one-half (1/2) thereof to be divided between and paid
to Wall and Associates and to Horizon as Commission Due Brokers as Seller's
agreed and total liquidated damages and not as a penalty, provided, however:
(i) there exists no pre-existing default of Seller; (ii) Seller has given
Purchaser and the Escrow Agent notice specifying the alleged default; and
(iii) Seller has given the Purchaser fourteen (14) days to cure the alleged
default. Seller and Purchaser have agreed upon such liquidated damages in the
event of Purchaser's default because Seller and Purchaser agree actual
damages suffered by Seller would be difficult or impossible to determine and
prove, and Seller and Purchaser agree such liquidated damages are a
reasonable estimate of the anticipated or actual damages Seller may suffer.
Seller hereby waives any right to seek specific performance or other damages
against Purchaser except as otherwise specifically provided or in this
Contract for Sale and Purchase.
12.3 ATTORNEY'S FEES. If there is any litigation between Seller and
Purchaser to enforce or interpret any term or condition of this Contract, the
unsuccessful party in such litigation, as determined by the court, hereby
agrees to pay the successful party, as determined by the court, all costs,
legal fees, and expenses through trial and appeal, including, but not limited
to, reasonable attorney's fees incurred by the successful party as determined
by the court.
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12.4 ESCROW DEPOSITS CONTROVERSY. Purchaser and Seller agree in the
event of any controversy regarding the Escrow Deposits held by the Escrow
Agent, unless mutual written instruction is received by the Escrow Agent, the
Escrow Agent shall not be required to take any action but may await any
proceeding or, at the Escrow Agent's option and discretion, may interplead
any moneys or things of value into court and may recover court costs and
reasonable attorney's fee.
12.5 FLORIDA Law. This Contract is made under and shall be governed by
the laws of the State of Florida in force as of the Contract Date. Should any
part of this Contract violate a provision of law, the law will control. In
such case, however, the rest of the Contract not in violation will remain in
full force and effect.
13. NOTICE
Notice required or permitted under this Contract shall be in writing and signed
by an authorized representative of the party sending notice. Notice shall be
given by: (i) personal delivery with proof of receipt; or (ii) a reliable
private delivery service, delivery prepaid, properly addressed and with proof of
receipt; or (iii) United States mail, certified or registered, postage prepaid,
properly addressed and with proof or receipt. Notice shall be deemed to be
received: (i) on the day of delivery if personally delivered; or (ii) on the
first business day after deposit with a reliable private delivery service; or
(iii) on the fourth business day after deposit with the United States mail.
Notice to Purchaser shall be addressed to:
Ms. Linda Svenson, Svenson Enterprises, Inc.
1409 First Avenue East
Bradenton, Florida 34208.
With Copy To:
Jeffrey W. Hamilton, Esquire
Carrillo & Hamilton
702 Manatee Avenue West
Bradenton, Florida 34205
Notice to Seller shall be addressed to:
Manatee Gateway No. 1
Attn: Terence H. Lang
8150 Washington Village Drive
Dayton, Ohio 45458.
With Copy to:
Gregory J. Porges, Esquire
Harllee, Porges, Hamlin & Hamrick, P. A.
1205 Manatee Avenue West
Bradenton, FL 34205
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Notice to Escrow Agent shall be addressed to:
Horizon Real Estate and Investment Corporation
Attn: Ian Black
1937 Golf Street
Sarasota, FL 34236
No notices shall be deemed effective unless sent and addressed as set forth
above.
Seller, Purchaser, and/or the Escrow Agent may change its address for the
purpose of receiving Notices by giving Notice to the other parties of the change
in address.
14. MISCELLANEOUS PROVISIONS
14.1 CANCELLATION. Purchaser may cancel this Contract under conditions set
forth herein. In such event, Purchaser shall give Notice to Seller and Escrow
Agent whereupon: (i) this Contract shall be null and void and neither Seller not
Purchaser shall have any further obligation or responsibility to the other to
perform under this Contract; and (ii) the Escrow Agent shall return promptly to
Purchaser all Escrow Deposits and accrued interest thereon.
14.2 CONSTRUCTION. The terms and conditions of this Contract represent the
results of negotiations between Seller and Purchaser, neither of which have
acted under any duress or compulsion, whether legal, economic, or otherwise.
Consequently, the terms and conditions of this Contact shall be interpreted and
construed in accordance with their usual and customary meanings, and Seller and
Purchaser each hereby waive the application of any rule of law which states
ambiguous or conflicting terms or conditions are to be interpreted or construed
against the party whose attorney prepared this Contract or any earlier draft of
this Contract.
14.3 TIME IS OF THE ESSENCE. Time is of the essence as to all rights and
duties of Seller and Purchaser under this Contract. The time for the performance
of any obligation or the taking of any action under this Contract shall be
deemed to expire at five o'clock in the afternoon (5:00 P.M.) local time on the
last day of the applicable time period established in this Contract. In
calculating any time period in this Contract which commences upon the receipt of
any Notice, request, demand, or document, or upon the happening of an event, the
date, upon which the Notice, request, demand, or document is deemed received
pursuant to Section 14 or the date the event occurs, or is deemed to have
occurred shall not be included with the applicable time period, but the
applicable time period shall commence on the first business day immediately
following. If the time for the performance of any obligation or taking any
action under this Contract expires on a Saturday, Sunday, or legal holiday in
the State of Florida, the time for performance or taking such action shall be
extended to the next succeeding day which is not a Saturday, Sunday, or legal
holiday in the State of Florida and during which day Title Agent is open for
business.
14.4 RIGHT OF PURCHASER TO ASSIGN. At any time prior to Closing, Purchaser,
by Notice to Seller and Escrow Agent may assign its rights and obligations under
this Contract to a successor, nominee or assignee acceptable to Seller. Upon
such Notice, the successor, nominee or assignee shall be deemed the Purchaser
for all purposes of this Contract and the original or previous, Purchaser shall
be released and discharged of all further obligations under this Contract.
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14.5 INTERPRETATION. If there is any specific and direct conflict between,
or any ambiguity resulting from the terms and condition of this Contract and the
terms and conditions of any document, instrument, or other agreement executed in
connection with or in furtherance of this Contract, the terms and conditions of
such other documents, instrument, or other agreements shall be consistently
interpreted in such manner as to give effect to the general purposes and
intention as expressed in this Contract.
14.6 CAPTIONS. The captions in this Contract are for convenience and
reference only and shall in no way define, limit or describe the scope or the
intent of any terms mid conditions of this Contract.
14.7 COUNTERPARTS. This Contract may be executed in any number of
counterparts, each of which, when executed and delivered shall be deemed an
original, but all of which shall together constitute one binding contract and
instrument.
14.8 SEVERABILITY. If any one or more of the terms and conditions of this
Contract or the applicability of any terms and conditions to a specific
situation shall be held invalid or unenforceable, such terms and conditions
shall be modified to the minimum extent necessary to make it or its application
valid and enforceable, and the validity and enforceability of all other terms
and conditions of this Contract and all other applications of such terms and
conditions shall not be affected by any such invalidity or unenforceability.
14.9 MORATORIUM. In the event that, prior to the Closing Date, any
applicable governmental authority, or public service or utility company, or
private service or utility company has imposed any building moratorium or other
restrictions on purchaser's planned use of the Property or other restrictions on
Purchaser's planned use of the Property or other restrictions on the
availability of essential services, utilities, or facilities, which would
materially affect the Purchaser's proposed development of the Property as
described in Section 6.1 hereof, then in such event the Purchaser may cancel
this Contract as set forth in Section 14 herein.
14.10 CONTRACT DATE. The Contract Date is the date this Contract is signed,
executed and delivered by the Seller or the date this Contract is signed,
executed and delivered by the Purchaser, whichever event shall occur last.
14.11 GENDER. Whenever used the singular number shall include the plural
and the plural number shall include the singular and use of any gender shall
include all genders.
14.12 COMPLETE AGREEMENT. There are not verbal or other agreements which
form a part of this Contract. This Contract may be modified only by written
instrument signed by both Seller and Purchaser or its then current nominee or
assignee.
14.13. NO PERSONAL LIABILITY. Anything in this Contract to the contrary
notwithstanding, Seller and Purchaser mutually acknowledge and agree that no
officer of Seller or Purchaser assumes nor shall be held to any personal
liability arising under or relating to this Contract.
14.14 MISCELLANEOUS. The parties agree to execute promptly such other
documents and to perform promptly such other acts as may be reasonably necessary
to carry out the purpose and intent of this Contract.
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14.15 ACCEPTANCE. Until execution by Seller, this instrument constitutes an
offer of Purchaser to purchaser the Property in its current condition on the
terms and conditions as set forth herein. Purchaser's offer is made subject to
acceptance by Seller and delivery by Seller of two (2) fully executed originals
of this Contract to the Escrow Agent on or before five o'clock in the afternoon
(5:00 P.M.) local time on April 9, 1996.
15. EXHIBITS
The following documents are incorporated herein and made part hereof by
reference:
15.1 DESCRIPTION OF PROPERTY. The Property is defined in Section 1 herein
is more particularly and specifically described as shown in Exhibit A.
IN WITNESS WHEREOF, the Seller and the Purchaser have executed this Contract as
of the date and year set forth below.
AS TO PURCHASER: WITNESS
SVENSON ENTERPRISE INC.
By /s/ Linda J. Svenson /s/ Cecelia M. Chapman
------------------------- ---------------------------
Linda J. Svenson
As its President
Date 3-28-96
-----------------------
AS TO SELLER: WITNESS
MANATEE GATEWAY NO. 1,
a Joint Venture
By: NORD MANATEE LTD. CORP
BY [ILLEGIBLE]
------------------------- ---------------------
-------------------------
As its President
Date 3-29-96
-----------------------
and by: ISTRIA, INC.
BY
-------------------------- ----------------------
--------------------------
As its President
Date
----------------------
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AS TO ESCROW AGENT: WITNESS
HORIZON REAL ESTATE AND
INVESTMENT CORPORATION
BY /s/ Ian Black /s/ Virginia Creel
----------------------------- ---------------------
Ian Black
As its President
Date 4-15-96
---------------------------
AS TO BROKER: WITNESS
WALL AND ASSOCIATES. INC
BY [ILLEGIBLE] [ILLEGIBLE]
----------------------------- ----------------------
-----------------------------
As its President
Date 4-12-96
---------------------------
HORIZON REAL ESTATE AND INVESTMENT
CORPORATION WITNESS
BY [ILLEGIBLE] /s/ Virginia Creel
------------------------------ -----------------------
------------------------------
As its
-----------------------
Date 4-15-96
----------------------------
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EXHIBIT "A"
CONTRACT FOR SALE AND PURCHASE
Seller: Manatee Gateway No. I, a Joint Venture
Purchaser: Svenson Enterprises, Inc,
All lands as are presently owned by the Seller located in Sections 13 and
24, Township 34 South, Range 17 East, Manatee County, Florida, more particularly
described as follows:
PARCEL ONE:
Begin at the NW corner of Section 24, Township 34 South, Range
17 East, Manatee County, Florida; thence South 0 DEGREES
33'40" West along the West line of said Section 24, a distance
of 574.82 feet; thence South 40 DEGREES 29'15" East 1063.58
feet; thence South 64 DEGREES 43' West 910.62 feet; thence
South 15 DEGREES 09'23" East 225 feet; thence North 76 DEGREES
20'28" East 2500.03 feet to a point on the East line of U.S.
Government Lot 3 of said Section 24; thence North O DEGREES
38'10" East along the said East line of U.S. Government Lot 3,
a distance of 1354.95 feet to the SW corner of the SW 1/4 of
the SE 1/4 of the SE 1/4 of Section 13, Township 34 South,
Range 17 East; thence South 89 DEGREES 21'48" East along the
South line of said SW 1/4 of SE 1/4 of SE 1/4, a distance of
599.46 feet to a point 66 feet West of the SE corner of said
SW 1/4 of SE 1/4 of SE 1/4; thence North 00 DEGREES 2O'20"
East 731.61 feet; thence North 89 DEGREES 23'05" West 154
feet; thence North 0 DEGREES 20'40" East 234 feet, thence
North 89 DEGREES 23'20" West 1775.79 feet; thence North 0
DEGREES 25'28" East, 364.46 feet; thence North 89 DEGREES
23'50" West 1329.23 feet; thence South 0 DEGREES 28'54" West
along the East line of the SW 1/4 of the SW 1/4 of said
Section 13, Township 34 South, Range 17 East, a distance of
664.15 feet; thence North 89 DEGREES 22'50" West along the
North line of the 5 1/2 of the said SW 1/4 of SW 1/4 of
Section 13, a distance of 1328.29 feet; thence South 0 DEGREES
32'20" West along the West line of said Section 13, a distance
or 663.63 feet to the common corner of Sections 13 and 24,
said common corner being the point of beginning. Less
right-of-way for U.S. Highway No. 301.
TOGETHER WITH
<PAGE>
An easement 60 feet in width for ingress and egress, running North
and South to the above lands from U.S. Highway No. 301. the
Northeasternmost corner of said easement being located 1330
feet East of the center of Section 13, Township 34 South,
Range 17 East, and which easement is described in Deed Book
395, Page 251 of the Public Records of Manatee County, Florida.
ALSO
PARCEL TWO:
That certain parcel of land as described and recorded in Official
Record Book 919, Page 1351. Public Records of Manatee County,
Florida, to-wit:
Land lying in the County of Manatee, State of Florida, and lying
South of 7th Street and West of U.S. Highway 301, and being
5.35 acres, more or less, and described more particularly as
follows:
That part or the N-1/2 of the SW-1/4 of the SW-1/4 of Section 13,
Township 34 South, Range 17 East Manatee County, Florida,
lying West of U.S. Highway 301 and South of 7th Street
described as follows:
Commence at the SW corner of Section 13, Township 34 South,
Range 17 East, Manatee County, Florida, thence N 00 DEGREES
16'43" E along the West line of said Section 13, a distance of
663.68 feet to the SW corner of said N-1/2 of SW-1/4 for the
POB; thence continue N 00 DEGREES 16'43" E along said West
line 557.26 feet; thence S 89 DEGREES 06'34" W along the South
R/W line of 7th Street 299.99 feet; thence S 60 DEGREES 15'05"
E along the West R/W line, 131.41 feet; thence S 00 DEGREES
13'04" E along the West R/W line of U.S. Highway 301, a
distance of 300.0 feet; thence S 10 DEGREES 58'33" E along
said R/W line 195.89 feet to its intersection with the South
line of said N-1/2 of SW-1/4 of SW-1/4; thence N 89 DEGREES
22'50" West along said South line 453.27 feet to the POB, the
above lying and being in Section 13, Township 34 South, Range
17 East, Manatee County, Florida.
LESS AND EXCEPT
Lands conveyed to the Manatee County Civic Center Authority under
Trustee's Deed dated May 24, 1983 by and between Barnett Bank
of Manatee County, N.A., as Trustee, successor to the Westside
National Bank of Manatee
2
<PAGE>
County, as Trustee, under separate Collateral Declarations or
Agreements designated in its records as Land Trust Agreement
No. 152 (said Declarations and Agreements being unrecorded)
party of the first part, and Manatee County Civic Center
Authority, party of the second part recorded in O.R. Book
1054, Pages 1788, Public Records of Manatee County, Florida.
AND ALSO LESS AND EXCEPT
Lands dedicated for right of way for Haben Boulevard Extension as
described in Trustee's Deed of Dedication dated April 21, 1986
by and between the Island Bank, a Florida State Bank, as
Trustee under the provisions of that certain unrecorded Land
Trust Agreement dated July 10, 1978, as amended by unrecorded
First Amendment to Land Trust Agreement dated May 16, 1984 and
designated in its records as Land Trust No. 152, party of the
first part and the City of Palmetto, Florida, party of the
second part, recorded in O.R. Book 1144, Page 1425 of the
Public Records Manatee County, Florida.
AND ALSO SUBJECT TO
Deed of Conservation Easement dated December 20, 1991 executed by
Manatee Gateway No. 1, a joint venture, in favor of the State
of Florida, Board of Trustees of the Internal Improvement Trust
Fund recorded in O.R. Book 1368, Page 1392, Public Records of
Manatee County, Florida.
Seller and Purchaser mutually acknowledge and agree that the foregoing
legal description is intended to describe all of the lands currently owned by
the Seller located in Manatee County, Florida as such lands are also
described upon the records of the Manatee County Property Appraiser under
Parcel Nos. 25816.0000/0, 26036.2000/2, 26044.0000/8, 26046.0000/3,
26101.0000/6, 26047.0000/1 and 31337.0000/9. The Seller and the Purchaser
further mutually acknowledge and agree that the term "Land" which is the
subject matter of the Contract for Sale and Purchase to which this Exhibit A
is attached is intended to include all of the lands of the Seller located in
Manatee County, Florida as described herein or as may be otherwise described
upon completion of the survey provided for in Paragraph 5 of the Contract for
Sale and Purchase.
3
<PAGE>
ADDENDUM TO CONTRACT OF SALE AND PURCHASE
Seller: Manatee Gateway No. 1, a Florida joint venture ("Seller")
Purchaser: Svenson Enterprises, Inc., a Florida corporation ("Purchaser")
Transaction: Sale and purchase of lands governed by the terms of that certain
Contract of Sale and Purchase executed by the Purchaser on
March 28, 1996 and by the joint venture partners of the Seller
on March 29, 1996 and April 8, 1996 providing for the conveyance
by the Seller to the Purchaser of lands described in Exhibit "A"
attached to said Contract ("Contract").
This Addendum modifies and amends the Contract by and between Seller and
Purchaser described above. Where the terms of this Addendum modify, amend or
conflict with the terms of the Contract, this Addendum shall control.
1. Purchaser has represented to Seller that Purchaser intends to assign
said Contract to RIVIERA DUNES RESORTS, INC., a Florida corporation, and the
Seller agrees, effective as of the date of closing of this transaction, to
accept such assignment to Riviera Dunes Resorts, Inc. upon receipt from
Purchaser of proper evidence of incorporation of Riviera Dunes Resorts, Inc.,
assignment from Seller to Riviera Dunes Resorts, Inc. and appropriate corporate
documentation evidencing proper authority for such assignment.
2. Subject to the Purchaser's performance hereunder, the Closing Date of
the transaction contemplated by the Contract is hereby extended from April 23,
1997 to May 8, 1997.
3. Purchaser hereby agrees that the existing Escrow Deposits, plus
accrued interest thereon, presently held by the Escrow Agent under the
Contract, shall be transferred to Harllee, Porges, Hamlin, Knowles, Bald &
Prouty, P.A. Trust Account to be held in such firm's Trust Account for
disbursement in accordance with the terms of the Contract, as amended hereby,
and, by execution hereof, Seller and Purchaser hereby direct Horizon Real
Estate Investment Corporation, the Escrow Agent under the Contract, to
disburse the Escrow Deposits plus accrued interest thereon to Harllee,
Porges, Hamlin, Knowles, Bald & Prouty, P.A. Trust Account.
<PAGE>
4. In the event that the Purchaser delivers written notice to the Seller no
later than 5:00 p.m. on May 7, 1997 of the Purchaser's inability to close this
transaction on May 8, 1997 which notice shall be accompanied by an additional
deposit in the amount of $50,000.00 in the form of a cashier's check or
evidence of wire transfer payable to Harllee, Porges, Hamlin, Knowles, Bald &
Prouty, P.A. Trust Account ("Additional Escrow Deposit"), the timely receipt of
such notice and deposit shall result in the closing date being further extended
to May 23, 1997.
5. The Additional Escrow Deposit provided for in Paragraph 4 shall be added
to the Escrow Deposits and accrued interest thereon transferred to Harllee,
Porges, Hamlin, Knowles, Bald & Prouty, P.A. Trust Account thereby resulting in
the total deposit of $100,000.00, plus accrued interest thereon, which Escrow
Deposits, accrued interest thereon and Additional Escrow Deposit shall be
applied to the Purchase Price at closing or disbursed in accordance with the
terms of the Contract, as amended hereby. Seller and Purchaser hereby agree
that, subsequent to the transfer of the Escrow Deposits plus accrued interest
thereon and, if applicable, the Additional Escrow Deposit, to Harllee, Porges,
Hamlin, Knowles, Bald & Prouty, P.A. Trust Account, such deposits shall not be
required to be maintained in an interest-bearing account.
6. Notwithstanding any extension of the Closing Date provided for herein,
all prorations provided for under the term of the Contract shall be calculated
as of April 23, 1997.
7. Purchaser hereby acknowledges that the closing documents attached hereto
as Exhibit "A" have been reviewed by Purchaser and Purchaser's counsel and that
the form and substance of each and every transfer document and the form of the
remaining documents attached hereto as Exhibit "A" is found by Purchaser to be
acceptable and sufficient to complete the transaction contemplated by the
Contract.
8. Purchaser acknowledges that all of the Seller's pre-closing obligations
under the terms of the Contract have been duly performed by the Seller; that
all rights of cancellation and recision accruing to the Purchaser under the
terms of the Contract have now expired and are without further force and effect;
that all defenses to full performance by Purchaser under the terms of the
Contract, as modified hereby, are hereby waived; and, that the Escrow Deposits
and accrued interest thereon, as well as the Additional Escrow Deposit, if
applicable, are fully at risk and, in the event that the Purchaser shall fail
to close in accordance with the terms of the Contract, as modified hereby,
Purchaser shall be in breach
2
<PAGE>
of this Contract without defenses in which event such Escrow Deposits, plus
accrued interest thereon, including the Additional Escrow Deposit, if
applicable, shall be disbursed in accordance with the terms of the Contract, as
modified hereby.
9. If Purchaser breaches the Contract as modified hereby, the Purchaser
shall be in Default in which event the Escrow Deposits, together with accrued
interest thereon and the Additional Escrow Deposits, if applicable, shall be
disbursed as follows:
A. One-half of the Escrow Deposits consisting of $50,000.00, plus
accrued interest thereon, shall be divided between Wall & Associates, Inc.
and Horizon Real Estate and Investment Corporation as commission due
brokers with the remaining one-half thereof to be paid to the Seller.
B. In the event that the Purchaser shall have made the Additional
Escrow Deposit in the amount of $50,000.00, such Additional Escrow Deposit
shall be paid to the Seller.
10. This Addendum shall only be affective and binding upon the Seller if
executed by Purchaser, Wall and Associates, Inc. and Horizon Real Estate
Investment Corporation no later than 5:00 p.m., April 23, 1997.
11. To the extent not inconsistent with the intent of this Addendum,
capitalized terms or words used herein shall have the same meaning as the use
of such words or terms in the Contract.
12. This Addendum may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed an original, but all of
which shall, together, constitute one binding Contract and instrument. Evidence
OF execution of counterparts may be accomplished by facsimile delivery provided
that the original executed counterpart shall be delivered subsequently by
overnight courier service.
13. Except as modified hereby, the contract is hereby reaffirmed and
remains unchanged.
SIGNATURE PAGE OF SVENSON ENTERPRISES, INC. IS ON FOLLOWING PAGE
3
<PAGE>
PURCHASER:
---------
Signed, sealed and delivered this
23 day of April, 1997 in the
presence of the following witnesses:
SVENSON ENTERPRISES INC., a Florida
corporation
By: /s/ Linda J. Svenson
[ILLEGIBLE] ----------------------------
- ------------------------------------- Linda J. Svenson as its President
[ILLEGIBLE]
- -------------------------------------
Witnesses as to Purchaser
4
<PAGE>
SIGNATURE PAGE FOR NORD MANATEE LTD. CORP. TO
ADDENDUM TO CONTRACT OF SALE AND PURCHASE
SELLER:
Signed, sealed and delivered
this 23rd day of April, 1997 in the
presence of the following witnesses:
MANATEE GATEWAY NO. I, a Florida
joint venture
By: NORD MANATEE LTD., CORP., a
Delaware corporation, as its
general partner
/s/ Susan A. Baker
- -----------------------------------
[ILLEGIBLE]
- ----------------------------------- By: /s/ Karl A. Frydryk
Witnesses as to Seller ------------------------------
Karl A. Frydryk, as its
Secretary
SIGNATURE PAGE OF ISTRIA, INC. IS ON FOLLOWING PAGE
5
<PAGE>
SIGNATURE PAGE FOR ISTRIA, INC. TO
ADDENDUM TO CONTRACT OF SALE AND PURCHASE
Signed, sealed and delivered this
23 day of April, 1997 in the
presence of the following witnesses MANATEE GATEWAY NO. I, a Florida joint
venture
By: ISTRIA, INC., a Florida corporation,
as its general partner
/s/ Victoria Neil
- -----------------------------------
/s/ Simone Tullier By: /s/ J. Bob Humphries
- ----------------------------------- ------------------------------------
Witnesses as to Seller J. Bob Humphries, as its President
6
<PAGE>
BROKER'S ACKNOWLEDGMENT
The undersigned Brokers, Wall and Associates, Inc., and Horizon Real
Estate and Investment Corporation, acknowledge that the Purchaser, Svenson
Enterprises, Inc., and Seller, Manatee Gateway No. I, have entered into an
Addendum to the Contract of Sale and Purchase concerning the sale of that
certain real property located in Manatee County, Florida. Brokers hereby
accept and agree to the terms of the Contract as modified by the Addendum.
Dated this 23rd day of April 1997.
WALL AND ASSOCIATES, INC.
By: /s/ [ILLEGIBLE]
--------------------------
--------------------------
as its President
HORIZON REAL ESTATE AND INVESTMENT
CORPORATION
By: /s/ [ILLEGIBLE]
----------------------------
----------------------------
as its President
7
<PAGE>
March 31, 1998
Mr. Graham D. G. Poole
Commonwealth Development Corporation ("CDC")
One Besborough Gardens
London, SW 1 2JQ
UNITED KINGDOM
Mr. Roger Peltzer
DEG - Deutsch Investitions- und
Entwicklungsgesellschaft mbH ("DEG")
BelvederstrsBe 40
D-50933 Koln 41 (Mungersdorf)
FEDERAL REPUBLIC OF GERMANY
Mr. Clement K. Miller
Export-Import Bank of the United States ("ExIm Bank")
811 Vermont Avenue, N.W.
Washington, D.C. 20571
Mr. Nguyen Dinh Hung
International Finance Corporation ("IFC")
2121 Pennsylvania Avenue, N.W.
Washington, D.C. 20433
Mr. John Aldonas
Overseas Private Investment Corporation ("OPIC")
1100 New York Avenue, N.W.
Washington, D.C. 20527
Re: SIERRA RUTILE LIMITED - EXTENSION OF FORBEARANCE LETTER DATED
DECEMBER 15, 1995 AS PREVIOUSLY AMENDED ON DECEMBER 19, 1996,
JUNE 30,1997 AND SEPTEMBER 30, 1997, AND DECEMBER 30, 1997.
Gentlemen:
1. We refer to the Forbearance Letter dated December 15, 1995, as previously
amended on December 19, 1996, on June 30, 1997 on September 30, 1997 and on
December 30, 1997 (the "Forbearance Letter") by and among Sierra Rutile Limited
("SRL" or the "Company"), Consolidated Rutile Limited ("CRL") and Nord Resources
Corporation ("Nord") (CRL and Nord together, the "Guarantors") and each of the
above-addressed institutions (together, the "Banks" and together with the
Company and the Guarantors, the "Parties"). Capitalized terms that are not
defined in this Letter Agreement shall have the meanings ascribed to them in the
Forbearance Letter.
E-1
<PAGE>
March 31, 1998
Page 2
2. (a) The Forbearance Letter expires by its terms on April 1, 1998, but SRL
and the Guarantors have asked each of the Banks for additional time to endeavor
to reach an agreement among all of the parties regarding repayment of the Senior
Obligations (as such term is defined in the letter Agreement dated September 30,
1997 by and among the Parties). Accordingly, SRL and each Guarantor propose,
effective on the date that the amounts described in Paragraph 3 below have been
paid to the Banks pursuant to that paragraph, that the Forbearance Letter be
amended as follows:
(i) the definition of the term "Extended Forbearance Period" in
paragraph 3(i) be amended by changing the period covered by that definition
FROM "May 15, 1995 to April 1, 1998" TO "May 15, 1995 to May 15, 1998";
(ii) paragraph 3 (iii) be amended by modifying the phrase "and in
paragraph 3 of each of the Letter Agreements dated as of September 30, 1997
and December 30, 1997, in each case" (which appears after the words "Except
as provided in paragraph 3 of the Letter Agreement dated as of June 30,
1997," and before the words "among the Banks, the Company and the
Guarantors" at the beginning of such paragraph) to read as follows, "and in
paragraph 3 of each of the Letter Agreements dated as of September 30,
1997, December 30, 1997 and March 31, 1998, in each case";
(iii) (A) the amount "US$2,689,536" in the first sentence and the
amount "US$2,688,215" in the second sentence of paragraph 4 (ii) each be
changed to the following: "US$4,564,024.27 (of which, as of March 31,
1998, US$1,500,000 has already been paid to Nord)"; and
(B) the date "April 1, 1998" in the fourth sentence of paragraph
4(ii) be changed to "May 15, 1998"; and
(iv) the scheduled payment date for deferred principal payments in
paragraph 7 be changed FROM "April 1, 1998" TO "May 15, 1998".
(b) In addition, the Banks and Nord shall enter into a First Amendment
to Pledge, Assignment and Security Agreement in the form attached as
Exhibit A hereto (the "First Amendment"), which shall be effective on the
date that the amounts described in Paragraph 3 below have been paid to the
Banks pursuant to that paragraph, and shall change all references to the
amount "US$2,688,215" contained in the Pledge, Assignment and Security
Agreement dated as of February 28, 1996 among Nord, as assignor, and the
Banks, as assignees, to "US$4,564,024.27 (of which, as of March 31, 1998,
US$1,500,000 has already been paid to Nord)." The Banks and Nord shall
also, as of such effective date, issue revised instructions to OPIC, as
insurer, in the form of Exhibit B hereto reflecting such changed amount.
E-2
<PAGE>
March 31, 1998
Page 3
3. In consideration for the Banks' agreement to the proposals set forth in the
above paragraph 2, the Company shall, on or before March 31, 1998, transfer the
following amounts to the Banks with respect to the period from April 1, 1998 to
May 15, 1998, in accordance with the payment instructions set forth in Annex I
to this letter:
<TABLE>
<CAPTION>
Interest,
(In US$) Principal Fees, etc. Total
--------- ---------- -----
<S> <C> <C> <C>
CDC $996,666.68 $ 94,615.05 $1,091,281.73
DEG 312,500.00 46,191.41 358,691.41
ExIm Bank 835,330.65 118,637.37 953,968.02
IFC 645,000.00 95,339.06 740,339.06
OPIC 962,121.22 72,137.85 1,034,259.07
</TABLE>
aggregating the amount of US$4,178,539.29, 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) of the Forbearance Letter, in immediately available funds, fifty percent
(50%) of the amount(s) so rescinded or returned. Each Bank will apply the funds
received (i) under the "Principal" column of this paragraph 3 against
outstanding principal amounts immediately upon receipt, and (ii) under the
"INTEREST, FEES, ETC." column of this paragraph 3 against non-principal amounts
payable to it during the last forty-five days of the Extended Forbearance Period
(as defined after giving effect to paragraph 2 (i) of this Letter Agreement), as
and when those non-principal amounts become due. If for any reason the Extended
Forbearance Period ends before May 15, 1998, 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.
4. The Financing Documents, the Forbearance Letter as modified by this Letter
Agreement, the Pledge, Assignment and Security Agreement dated as of February
28, 1996 made by Nord in favor of the Banks (as amended and modified by the
First Amendment)), the Guaranty dated as of February 28, 1996 made by Nord in
favor of the Banks, the Guaranty dated as of February 28, 1996 made by CRL in
favor of the Banks and each other document executed and delivered in connection
with the Forbearance Letter (collectively, the "Forbearance Documents"), remain
in full force and effect and the Company and each Guarantor hereby reaffirms its
obligations under each thereof without any claims, set-offs, or defenses, and
such documents embody the entire understanding of the Parties hereto, and
supersede all prior negotiations, understandings and agreements between them
with respect to the subject matter hereof. The Forbearance Letter, as modified
hereby, may not be further modified in any manner, except by written agreement
signed by all of the Parties hereto. This Letter Agreement may be executed in
any number of counterparts, all of which, taken
E-3
<PAGE>
March 31, 1998
Page 4
together, shall constitute one and the same instrument and any of the Parties
hereto may execute this Letter Agreement by signing any such counterpart.
Execution may be evidenced by an originally signed original or by a telecopied
signature.
5. The Company and each Guarantor acknowledge that the Banks have no
obligation to extend the expiration date of the Extended Forbearance Period
beyond May 15, 1998, to enter into any further forbearances or waivers with
respect to the Project, or to make further disbursements, additional loans to or
investments in the Project (and the execution of this letter shall not be
construed to create any such obligations). Each of the Banks specifically
reserves the right to insist on strict compliance with the terms of the
Forbearance Letter (as amended hereby), the other Forbearance Documents and,
subject to the forbearance and releases granted under the Forbearance Documents,
the Financing Documents, and the Company and each Guarantor expressly
acknowledges such reservation of rights.
6. The Company and each Guarantor further acknowledge that (i) CDC, DEG, IFC,
and OPIC, at the request of the Company and the Guarantors, may continue to
discuss one or more proposals for repayment of the Senior Obligations and the
possibility of extending additional financing o the Project; (ii) none of the
CDC, DEG, IFC or OPIC have any obligation to, nor can there be any assurance
that any of them will, agree to any repayment proposal or to provide additional
financing to the Project; (iii) any discussions and negotiations relating to any
repayment proposal or any financing or re-financing proposal for the Project
were and to the extent such discussions or negotiations for any person continue
or resume, during the Extended Forbearance Period will be, conducted solely to
accommodate the request of the Company and the Guarantors on the express
understanding that such discussions, and any payment by the Company or the
Guarantors of any fees and expenses of outside counsel for any of CDC, DEG, IFC,
or OPIC related thereto, in no way imply, nor do they constitute a basis for
reliance, that any of CDC, DEG, IFC or OPIC will agree to any repayment
proposal, will provide additional funds to the Project, will enter into any
refinancing of its existing Loans, or will extend the Extended Forbearance
Period beyond May 15, 1998.
7. This Letter Agreement shall be governed by the Laws of the District of
Columbia, without regard to the conflict of laws principles thereof.
Please sign and return a copy of this Letter Agreement confirming your
acknowledgment and agreement with the terms hereof.
SIERRA RUTILE LIMITED
By: /s/ BENNY BRAY Date: March 30, 1998
------------------------- ---------------------
Name: Benny Bray
Title: President
E-4
<PAGE>
March 31, 1998
Page 5
NORD RESOURCES CORPORATION
By: /s/ W. PIERCE CARSON Date: March 31, 1998
------------------------- ---------------------
Name: W. Pierce Carson
Title: Chief Executive Officer
CONSOLIDATED RUTILE LIMITED
By: /s/ P.J. HOUSDEN Date: March 31, 1998
------------------------- ---------------------
Name: P.J. Housden
Title: Director
March 31, 1998 Extension Letter
- -------------------------------
Acknowledged and Agreed to By:
- ------------------------------
COMMONWEALTH DEVELOPMENT CORPORATION
By: /s/ GRAHAM D.G. POOLE Date: March 31, 1998
------------------------- ---------------------
Name: Graham D.G. Poole
Title: Investment Manager
DEG- DEUTSCHE INVESTITIONS- UND
ENTWICKLUNGSGESELLSCHAFT MBH
By: /s/ Date:
------------------------- ---------------------
Name:
Title:
EXPORT-IMPORT BANK OF THE UNITED STATES
By: /s/ CLEMENT K. MILLER Date: March 30, 1998
------------------------- ---------------------
Name: Clement K. Miller
Title: Acting VP, Asset Management
E-5
<PAGE>
March 31, 1998
Page 6
INTERNATIONAL FINANCE CORPORATION
By: /s/ PHILIPPE LIETARD Date: March 31, 1998
------------------------- ---------------------
Name: Philippe Lietard
Title: Director, Oil, Gas and Mining Department
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: /s/ RALPH A. MATHEWS Date: March 31, 1998
------------------------- ---------------------
Name: Ralph A. Mathews
Title: Director, PMG/SA
E-6
<PAGE>
ANNEX I
PAYMENT INSTRUCTIONS
For Commonwealth Development Corporation ("CDC"):
CDC No. 1 Account (#70297631)
Barclays Bank plc
54 Lombard Street
London EC3P 3AH
For DEG- Deutsch Investitions- und Entwicklungsgesellschaft mbH ("DEG"):
Citibank New York
Account No. 3849-2573
Swift Citi US 33
Reference made to P 1891 SRL - Forbearance December 1997
For Export-Import Bank of the United States ("ExIm Bank"):
U.S. Treasury Department
0210-3000-4 TREAS
NYC/CTR/NF=/AC-4984
OBI=EXPORT-IMPORT BANK
DUE ON EIB CREDIT NO. 2169 and NO. 5732 Sierra Leone
For International Finance Corporation ("IFC"):
CITIBANK, New York, New York
For Credit to Account Number: 36085579 ABA 021000089
International Finance Corporation / Reference # 2609 SIL
For Overseas Private Investment Corporation ("OPIC"):
U.S. Treasury Department
New York, NY
ABA No. 0210-3000-4
TREAS NYC/CTR/BNF=AC-71000001
OBI=OPIC IG Number 636-95-324-CR
E-7
<PAGE>
FIRST AMENDMENT TO PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
FIRST AMENDMENT ("First Amendment") dated as March 31, 1998 to Pledge
Assignment and Security Agreement dated February 28, 1996 by and among NORD
RESOURCES CORPORATION (the "Assignor") and 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 ("OPIC";
collectively with CDC, DEG, Ex-Im and IFC, the "Assignees"). Capitalized terms
that are not defined in this First Amendment shall have the meanings ascribed to
them in the Pledge Agreement.
WHEREAS, the parties entered into the Pledge Agreement in connection
with a forbearance letter dated December 15, 1995, as amended (the "Forbearance
Agreement") among the Assignor, the Assignees, SRL (as hereinafter defined), and
Consolidated Rutile, Inc. ("CRL"); and
WHEREAS, Assignor, SRL and CRL have requested, and the Assignees have
agreed, to further amend the Forbearance Agreement pursuant to an extension
letter dated as of March 31, 1998 (the "Extension Letter"); and
WHEREAS, in accordance with the Extension Letter, Assignor is
advancing the sum of $1,875,809.28 to its fifty (50%) percent owned subsidiary,
Sierra Rutile Limited ("SRL") to provide to SRL fifty (50%) percent of the funds
required to make the payment of principal required under the Extension Letter in
the aggregate amount of $3,751,618.55; and
WHEREAS, Assignor has requested and Assignees have agreed that the
amount being so advanced to SRL by Assignor may be added to the amount of Excess
Proceeds under the terms of the Pledge Agreement.
NOW THEREFORE, it is hereby agreed as follows:
1. The amount "US$2,688,215" on the ninth line of the Pledge
Agreement is hereby amended to read "US$4,564,024.27 (of which, as of March 31,
1998, US $1,500,000 has already been paid to Assignor)."
2. This First Amendment shall become effective as of the date the
Extension Letter becomes, by its terms, effective.
3. Immediately upon effectiveness of this First Amendment, Assignees
shall deliver a notice to OPIC, as insurer, in the form of Exhibit 1 hereto.
4. Except as expressly provided in this First Amendment, all
terms, provisions, conditions and agreements of the Pledge Agreement are and
shall remain in full force and effect and are hereby ratified and confirmed
by Assignor in all respects.
5. This First Amendment 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 First Amendment by
signing any such counterpart.
6. This First Amendment shall be governed by the laws of the
District of Columbia without regard to the conflict of laws principles
thereof.
[SIGNATURES ON NEXT PAGE]
E-8
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
First Amendment to be executed and delivered on its behalf by its duly
authorized representative.
NORD RESOURCES CORPORATION
By:
--------------------------------
Name: W. Pierce Carson
Title: President
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:
---------------------------------
Authorized Representative
Name:
Title:
INTERNATIONAL FINANCE CORPORATION
By:
---------------------------------
Authorized Representative
Name:
Title:
OVERSEAS PRIVATE INVESTMENT CORPORATION,
as lender
By:
---------------------------------
Authorized Representative
Name:
Title:
E-9
<PAGE>
FIRST AMENDMENT TO NOTICE OF ASSIGNMENT EXHIBIT 1
March 31, 1998
Overseas Private Investment Corporation ("OPIC"), as insurer
1100 New York Avenue, N.W.
Washington, D.C. 20527
Attention: Julie A. Martin, Vice President
Re: OPIC CONTRACT OF INSURANCE NO. A628
Ladies and Gentlemen:
By letter dated February 28, 1996 (the "February 28, 1996 letter"), Nord
Resources Corporation (the "Insured") notified you that it had irrevocably
pledged and assigned to Commonwealth Development Corporation, DEG - Deutsche
Investitions Und Entwicklungsgesellschaft mbH, Export-Import Bank of the
United States, International Finance Corporation and Overseas Private
Investment Corporation, as lender (collectively, the "Assignees"), and
granted to the Assignees a first priority security interest in all of the
insured's right 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"), together with all proceeds thereof (collectively, the "Excess
Proceeds"). You are hereby notified that the amount of "Excess Proceeds" (as
such term is defined in the February 28, 1996 letter) has been changed from
US$2,688,215 to US$4,564,024.27 (of which, as of March 31, 1998, $1,500,000
has already been paid to Insured). Except as amended hereby, the February
28, 1996 letter shall remain in full force and effect and unmodified.
This First Amendment to Notice of Assignment 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 First
Amendment to Notice of Assignment by signing any such countepart.
Sincerely yours,
COMMONWEALTH DEVELOPMENT
CORPORATION
By: Date:
---------------------
Name:
Title:
E-10
<PAGE>
DEG-DEUTSCHE INVESTITIONS UND
ENTWICKLUNGSGESELLSCHAFT MBH
By: Date:
---------------------
Name:
Title:
EXPORT-IMPORT BANK OF THE UNITED
STATES
By: Date:
---------------------
Name:
Title:
INTERNATIONAL FINANCE CORPORATION
By: Date:
---------------------
Name:
Title:
OVERSEAS PRIVATE INVESTMENT
CORPORATION
By: Date:
---------------------
Name:
Title:
ACCEPTED AND AGREED TO:
NORD RESOURCES CORPORATION
By: Date:
---------------------
Name: W. Pierce Carson
Title: Chief Executive Officer
E-11
<PAGE>
ACKNOWLEDGMENT AND CONSENT
OPIC, as insurer, hereby acknowledges receipt of the First Amendment to
Notice of Assignment dated March 31, 1998 and agrees that the amount of
Excess Proceeds, as such term is used in the Acknowledgment and Consent
executed and delivered by OPIC in connection with the Notice of Assignment
dated February 28, 1996 from Nord Resources Corporation, as Insured ("Nord"),
to OPIC, as Insurer, shall be changed from US$2,688,215 to US$4,564,024.27
(of which, as of March 31, 1998, US$1,500,000 has already been paid to Nord).
Notwithstanding the foregoing consent, 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, 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.
OVERSEAS PRIVATE INVESTMENT
CORPORATION, as insurer
By:
---------------------------------
Authorized Representative
Name:
Title:
E-12
<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 report on the consolidated
financial statements of Nord Resources Corporation and Subsidiaries dated
April 10, 1998, (which disclaims an opinion on the Company's consolidated
financial statements for 1997, 1996 and 1995 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) appearing in the Annual Report on Form 10-K of Nord
Resources Corporation for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
April 14, 1998
<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
Sierra Rutile America Inc, Sierra Rutile Limited, Titanium Minerals Marketing
International USA, and Titanium Minerals Marketing International Limited (each
of which contains a qualified opinion because of uncertainties relating to the
recoverability of amounts due from certain affiliates), each dated 23 March 1998
appearing in the Annual Report on Form 10-K of Nord Resources Corporation for
the year ended December 31, 1997.
KPMG 23 MARCH 1998
CHARTERED ACCOUNTANTS Reading, UK
<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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,581
<SECURITIES> 0
<RECEIVABLES> 29
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,776
<PP&E> 562
<DEPRECIATION> 412
<TOTAL-ASSETS> 60,094
<CURRENT-LIABILITIES> 2,462
<BONDS> 0
0
0
<COMMON> 219
<OTHER-SE> 49,366
<TOTAL-LIABILITY-AND-EQUITY> 60,094
<SALES> 0
<TOTAL-REVENUES> 46
<CGS> 0
<TOTAL-COSTS> 3,418
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118
<INCOME-PRETAX> (14,566)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,566)
<DISCONTINUED> (271)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,837)
<EPS-PRIMARY> (.68)
<EPS-DILUTED> (.68)
</TABLE>
<PAGE>
EXHIBIT 99.1
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, 1997 and 1996, and the related profit and loss accounts for each of
the years in the three-year period ended December 31, 1997. 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 became necessary to evacuate all employees. The situation has been
further complicated by a military coup in May 1997 when the government in Sierra
Leone was overthrown. While limited access to the facilities has been restored
and major properties appear to be essentially intact, management continues to be
unable to make an assessment of the impairment of the asset carrying values.
Further, the Company has not yet been able to arrange the financing needed to
make further progress in assessing and addressing the conditions of the mining
properties or the requirements to resume operations. These circumstances create
substantial doubt about the recoverability of asset carrying amounts, including
prepaid royalties; the adequacy of the recorded liabilities, including accrued
reclamation costs; and the ability of the Company to continue as a going
concern. The recoverability issues grows more serious in light of the Company's
discontinuance in 1995 of depreciation and amortization.
Since we were unable to complete substantial auditing procedures due to the
unavailability of sufficient evidential matter on asset impairments 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.
KPMG 23 MARCH 1998
CHARTERED ACCOUNTANTS Reading, UK
<PAGE>
EXHIBIT 99.2
INDEPENDENT AUDITORS' 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, 1997 and 1996, and the related profit and loss accounts for each
of the years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
Except as discussed in the following paragraph, we conducted our audits in
accordance with generally accepted auditing standards in the United States of
America. 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. While limited
access to the facilities has been restored, Sierra Rutile Limited continues to
be unable to make an assessment of the impairment of the asset carrying values.
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,
1997 and 1996, and the results of its operations for each of the years in the
three-year period ended December 31, 1997 in conformity with generally accepted
accounting principles in the United Kingdom.
KPMG 23 MARCH 1998
CHARTERED ACCOUNTANTS Reading, UK
<PAGE>
EXHIBIT 99.3
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, 1997 and 1996, and the related profit and loss
accounts for each of the years in the three-year period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
Except as discussed in the following paragraph, we conducted our audits in
accordance with generally accepted auditing standards in the United States of
America. 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. While limited
access to the facilities has been restored, Sierra Rutile Limited continues to
be unable to make an assessment of the impairment of the asset carrying values.
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 Limited as of December 31,
1997 and 1996, and the results of its operations for each of the years in the
three-year period ended December 31, 1997 in conformity with generally accepted
accounting principles in the United Kingdom.
KPMG 23 MARCH 1998
Chartered Accountants Reading, UK
<PAGE>
EXHIBIT 99.4
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, 1997 and 1996, and the related profit and loss accounts for each
of the years in the three-year period ended December 31, 1997. 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 became necessary to evacuate all employees. The situation has been
further complicated by a military coup in May 1997 when the government in Sierra
Leone was overthrown. While limited access to the facilities has been restored
and major properties appear to be essentially intact, management continues to be
unable to make an assessment of the impairment of the asset carrying values.
Further, the Company has not yet been able to arrange the financing needed to
make further progress in assessing and addressing the conditions of the mining
properties or the requirements to resume operations. These circumstances create
substantial doubt about the recoverability of asset carrying amounts, including
prepaid royalties; the adequacy of the recorded liabilities, including accrued
reclamation costs; and the ability of the Company to continue as a going
concern. The recoverability issues grows more serious in light of the Company's
discontinuance in 1995 of depreciation and amortization.
Since we were unable to complete substantial auditing procedures due to the
unavailability of sufficient evidential matter on asset impairments 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.
KPMG 23 MARCH 1998
CHARTERED ACCOUNTANTS Reading, UK
<PAGE>
EXHIBIT 99.5
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, 1997 and 1996, and the related profit
and loss accounts for each of the years in the three-year period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
Except as discussed in the following paragraph, we conducted our audits in
accordance with generally accepted auditing standards in the United States of
America. 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. While limited
access to the facilities has been restored, Sierra Rutile Limited continues to
be unable to make an assessment of the impairment of the asset carrying values.
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 Titanium Minerals Marketing Limited as of
December 31, 1997 and 1996, and the results of its operations for each of the
years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles in the United Kingdom.
KPMG 23 MARCH 1998
CHARTERED ACCOUNTANTS Reading, UK
<PAGE>
EXHIBIT 99.6
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, 1997 and 1996, and the related profit and
loss accounts for each of the years in the three-year period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
Except as discussed in the following paragraph, we conducted our audits in
accordance with generally accepted auditing standards in the United States of
America. 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. While limited
access to the facilities has been restored, Sierra Rutile Limited continues to
be unable to make an assessment of the impairment of the asset carrying values.
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 Titanium Minerals Marketing USA as of
December 31, 1997 and 1996, and the results of its operations for each of the
years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles in the United Kingdom.
KPMG 23 MARCH 1998
CHARTERED ACCOUNTANTS Reading, UK
