SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission file number 1-228
ZEMEX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1031 13-5496920
(State or other (Primary standard (I.R.S. employer
jurisdiction of industrial identification
incorporation or classification code number)
organization) number)
Canada Trust Tower, BCE Place, 161 Bay Street, Suite 3750
Toronto, Ontario, Canada M5J 2S1
(416) 365-8080
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive
offices)
Securities registered pursuant to Section 12(b) of the Act
New York Stock Exchange Common Stock, $1.00 par value
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
twelve 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.
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 the
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.
The aggregate market value of the registrant's voting stock
(Common Stock, $1.00 par value) held by non-affiliates as of
March 7, 1997 (based on the closing sale price of $7.125 on
the New York Stock Exchange) was $27,646,140.
As of March 7, 1997, 9,041,946 shares of the registrant's
Common Stock, $1.00 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the Year Ended December 31,
1996 Part II
Definitive Proxy Statement filed with the Commission pursuant
to Regulation 14A with respect to the Annual Meeting of
Shareholders Part III
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
AND
CROSS-REFERENCE SHEET
PART I
Page
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security
Holders 8
Item 10. Executive and Other Officers of the Registrant(A) 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters(B) 9
Item 6. Selected Financial Data(C) 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation(D) 9
Item 8. Financial Statements and Supplementary Data(E) 10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 10
PART III
Item 10. Directors of the Registrant(F) *
Item 11. Executive Compensation(F) *
Item 12. Security Ownership of Certain Beneficial
Owners and Management(F) *
Item 13. Certain Relationships and Related Transactions(F) *
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 11
_________________________
(A)
Included in Part I pursuant to Instruction 3 of Item
401(b) of Regulation S-K.
(B)
Information responsive to this Item is set forth on
page 16 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1996 (the
"Annual Report to Shareholders") and is incorporated
herein by reference. The Annual Report to
Shareholders is included as Exhibit 13 to this Form 10-
K Annual Report. The Annual Report to Shareholders,
except for those portions thereof which are expressly
incorporated by reference herein, is furnished for the
information of the Commission and is not to be deemed
"filed" as part of this Form 10-K report.
(C)
Information responsive to this Item is set forth
on page 41 of the Annual Report to Shareholders and is
incorporated herein by reference.
(D)
Information responsive to this Item is set forth
on pages 10 through 16 of the Annual Report to
Shareholders and is incorporated herein by reference.
(E)
Financial statements responsive to this Item are
set forth on pages 17 through 40 of the Annual Report
to Shareholders and are incorporated herein by
reference. The Supplementary Schedule required by
this Item is set forth on page S-1 of this Form 10-K
Annual Report.
(F)
Information responsive to this Item is set forth
in the registrant's definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A
and in the Annual Report to Shareholders on Page 39
(Note 15) and is incorporated herein by reference.
<PAGE 1>
PART I
ITEM 1. BUSINESS
General
Zemex Corporation (the "Corporation" or "Zemex"), a Delaware
corporation, was incorporated in 1985 as the successor to
Pacific Tin Corporation. Zemex is a niche producer of
industrial minerals and metal products. Its principal
businesses are industrial minerals, metal powders, and
aluminum waste recycling. Its major products include
feldspar, feldspathic minerals, kaolin, sand, mica, talc,
ferrous and non ferrous powders, and aluminum dross
derivatives.
Industrial Minerals
The Corporation's industrial minerals segment consists of
three wholly-owned subsidiaries: The Feldspar Corporation
("TFC"), Suzorite Mica Products Inc. ("Suzorite") and
Suzorite Mineral Products, Inc. ("SMP"). The group is
collectively referred to as Zemex Industrial Minerals, Inc.,
a company which was incorporated under the laws of the State
of Delaware in December 1996.
TFC has mining and processing facilities in Edgar, Florida;
Monticello, Georgia; and Spruce Pine, North Carolina. Using
classical methods, TFC mines sodium feldspar from two
different ore deposits in the Spruce Pine area; potassium
feldspar is mined from two deposits close to the Monticello
plant. TFC's kaolin and sand products are produced by
dredging and wet separation at the Edgar property.
TFC produces numerous products, including sodium and
potassium feldspar, silica, low iron sand, muscovite mica
and kaolin clay, at its operating plants in TFC supplies its
products primarily to the glass and ceramics industries.
Feldspathic minerals and certain grades of industrial sand
are used to manufacture bottles, jars, and other glass
containers, fiberglass, paints and plastics, and television
picture tubes. Feldspar and kaolin are major raw materials
for the ceramic industry, and are incorporated into the
production of ceramic floor and wall tiles, dinnerware,
plumbing fixtures, glazes and electrical insulators.
Industrial sand is used for filter, filler, beach, blasting
and concrete applications. TFC also produces a low iron sand
product for use in specialized glass applications.
Suzorite mines phlogopite mica in an open pit mining
operation in Suzor Township, Quebec, Canada, approximately
200 miles north of Montreal, Quebec. The ore is mined by
standard, open pit methods and delivered to a siding for
ultimate transportation by rail to the processing plant,
which is located in Boucherville, Quebec, a suburb of
Montreal. Suzorite's phlogopite mica is processed into
products of various particle sizes. Because of its distinct
thermal stability advantage over competitive materials,
phlogopite mica is used in technological plastic and high
temperature plastic applications; Suzorite's phlogopite mica
is used as a partial or complete substitute for asbestos in
fire retardation, friction materials, oil well drilling
needs, caulking and molding compounds, coatings, plasters
and plastics. The principal markets served by Suzorite are
the automobile, construction and oil drilling industries.
These products are marketed under the trade names Suzorite
Mica and Suzorex.
<PAGE 2>
SMP, which was acquired by the Corporation in late 1994, has
talc operations in Natural Bridge, New York; Murphy, North
Carolina; Van Horn, Texas; and Benwood, West Virginia. SMP
purchases raw materials for conversion and processing at its
plant in Natural Bridge; these products are directed
primarily into the cosmetic and pharmaceutical industries.
The production facility in Van Horn processes mined ores for
sale into the coatings, plastics and ceramics industries.
The Benwood operation imports raw materials and processes a
variety of calcium carbonates as well as a wide range of
talc products for ultimate use in the plastics industry.
In late 1996, SMP substantially completed the construction
of a new mill at its facility in West Virginia. This new
fine grind milling capacity is part of SMP's strategy to
develop a niche in the talc marketplace by offering very
finely divided high purity talc products to industrial
markets. SMP believes that it is one of the few talc
producers in North America to produce products of this
purity and fineness. The products, which will see
application in performance plastic parts, high end coatings
and other niche markets, are currently being tested and
appraised by a select group of customers. With the addition
of these new fine grind products, Benwood will have the
ability to produce a broad spectrum of high purity talc
products.
Demand for the Corporation's industrial minerals is related
to the pace of the general economy and, particularly, to the
automotive industry, and residential and commercial
construction industries. The Corporation's industrial
minerals sales were $40.5 million in 1996, compared with
$37.1 million in 1995 and $30.4 million in 1994. This
business segment reported operating income, before
reorganization and/or restructuring charges of $3.1 million
in 1996, $4.6 million in 1995 and $3.9 million in 1994.
During 1996, considerable efforts were put into product
development, marketing, capital expansion projects and
product quality improvement. The Corporation expects these
efforts will bear fruit in the future.
Capital expenditures were $11.9 million in 1996 compared to
$9.7 million in 1995 and $2.1 million in 1994. Major
capital spending in 1996 included construction of a low iron
sand plant in Spruce Pine, North Carolina, completion of an
expansion at TFC's sodium feldspar operation also in Spruce
Pine, and installation of a new fine grind mill at its plant
in Benwood, West Virginia.
Metal Products
The metal products segment consists of Pyron Corporation and
Pyron Metal Powders, Inc. (together, "Pyron") and Alumitech,
Inc., Aluminum Waste Technology, Inc. and Engineered Thermal
Systems, Inc. (collectively, "Alumitech"), all of which are
wholly-owned subsidiaries of Zemex.
Pyron operates plants located in Niagara Falls, New York;
St. Marys, Pennsylvania; and Greenback, Tennessee. In 1994,
Pyron purchased the assets of Greenback Industries, Inc.,
giving it the ability to produce a wide range of high
quality copper and copper alloy powders. These products
complement Pyron's iron and steel powder products and are
sold through Pyron's marketing and sales organization.
Until 1996, Pyron also operated a metal powder facility in
Maryville, Tennessee. However, in order to optimize
production efficiencies and lower operating costs, the
Maryville process was amalgamated with the one at Greenback
in early 1996. In addition, a new water atomized copper
powder process was successfully commissioned at the
Greenback location in late 1996.
<PAGE 3>
Pyron's major products include iron, steel, copper, copper
alloy powders and manganese sulfide. The primary
application of metal powders is in the fabrication of
precision metal parts using powder metallurgy. Powder
metallurgy is an efficient, economical process for the
production of complex components used in the automotive,
farm, garden and lawn equipment, and business machine
industries. Key features of powder metallurgy technology
are low scrap ratios and lower production costs than other
conventional metal working processes such as machining,
casting and forging. In addition, in recent years, metal
powder use in automotive and rail braking systems has grown
rapidly as a replacement for asbestos, achieving better
performance and improved environmental and health
conditions. Metal powders are also used in the production
of welding rods, for cutting and scarfing of steel ingots
and billets, for the inspection of oil field pipe and
tubing, and in food supplements.
In 1995, Pyron completed construction of a blending plant in
St. Marys, Pennsylvania. Through its new blending plant,
Pyron is able to provide warehousing, custom pre-packaged
powders and just-in-time service to its customers.
In 1996, Pyron completed construction of a designated
facility for the production of manganese sulfide at its
Greenback, Tennessee location. Pyron's new product,
Manganese Sulfide Plus (MnS+TM), was developed in Pyron's
laboratory and is used as an additive by the powder
metallurgical industry to enhance tool life and aid in
machinability. Manganese Sulfide Plus is now commercially
available and response from customers has been very
positive. Although not a significant contributor to
earnings, manganese sulfide is a natural complement to
Pyron's core ferrous and non-ferrous businesses. It further
broadens Pyron's product line, serving to enhance customer
relationships
The Corporation acquired its initial interest in Alumitech
in 1994 and increased its ownership to 100 percent in 1995.
Alumitech has two processing plants: an aluminum dross
reprocessing plant in Cleveland, Ohio and a ceramic fiber
production plant in Streetsboro, Ohio. Alumitech is an
aluminum dross reprocessor that has developed, patented and
is in the process of commercializing its proprietary
aluminum dross recycling technology. Using its patented
process, Alumitech has the ability to transform chloride-
based drosses received from secondary aluminum producers
into a number of commercial applications, including
refractory ceramic fiber and other metallurgical products.
Currently, competitive processes landfill anywhere from 40
percent-75 percent of the volume of dross received, whereas
Alumitech's recycling process will virtually eliminate the
need for landfill.
Aluminum dross is a waste by-product produced by primary and
secondary aluminum smelters. Secondary dross, which is high
in chloride content, forms the primary feedstock for
Alumitech's Cleveland plant. Conventional dross processors
extract the contained metallic aluminum and landfill the
balance. Using its proprietary process, Alumitech has the
ability to extract the metallic aluminum and residual fines
as exothermics, crystallize the sodium, potassium, and
magnesium chlorides, and convert the balance into non-
metallic products ("NMP") to be used in the production of
commercial products. The result is the elimination of the
need for landfill. With its ability to convert NMP into
commercially saleable products, Alumitech is considered the
industry leader in the development of alternative uses for
NMP. Alumitech's patents on its technology to process NMP
have a remaining life of about fourteen years.
<PAGE 4>
Alumitech also operates a ceramic fiber plant in
Streetsboro, Ohio. At this facility, NMP can be melted in
an electric arc furnace and converted into refractory
ceramic fiber. The fiber is blown into a blanket and cut to
dimension. The final product is an insulation material with
a temperature degradation of as high as 2000 degrees F.
In November 1996, the Corporation signed a letter of intent
to form a joint venture with IMCO Recycling Inc., the
world's largest aluminum recycler. Assuming that a joint
venture agreement is signed in the first half of 1997,
management expects that construction of a new dross
reprocessing facility will begin in late 1997 or early 1998.
Sales for the metal products group decreased to $46.0
million in 1996 from $48.0 million in 1995. Sales were $24.9
million in 1994. The decrease from 1995 to 1996 was due to
lower volumes of ferrous and non ferrous metal powders and
lower aluminum prices. During the same interval, operating
income before reorganization and/or restructuring charges
decreased from $3.7 million in 1995 to $1.9 million in 1996.
Operating income before reorganization and/or restructuring
charges was $3.9 million in 1994. Management anticipates
improved margins in this segment in 1997 as a result of
higher metal powder production, new products, continuing
cost reductions, efficiency improvement programs, and higher
aluminum prices.
Capital expenditures for the metal products group were $6.0
million in 1996 as compared to $5.8 million in 1995 and $0.9
million in 1994. The expenditures were primarily incurred
to construct a manganese sulfide operation at the plant in
Greenback, Tennessee and to improve the dross processing and
ceramic production facilities at the Cleveland plant. In
1997, capital expenditures are anticipated to be higher due
to the retrofitting of the Cleveland facility from a pilot
plant to a full-scale commercial operation and the
construction of a new dross processing facility with IMCO
Recycling Inc. ("IMCO"). The latter is subject to the
signing of a joint venture agreement with IMCO in the first
half of 1997.
Raw Materials and Other Requirements
In recent years, the Corporation has not experienced any
substantial difficulty in satisfying the raw materials
requirements for its metal products operations, which is the
segment that consumes, rather than supplies, raw materials.
However, no assurance can be given that any shortages of
these or other necessary materials or equipment will not
develop or that increased prices will not adversely affect
the Corporation's business in the future.
Seasonality
The efficiency and productivity of the Corporation's
operations can be affected by unusually severe weather
conditions. During the winter of 1996, there were minor
production outages at the Corporation's operating facilities
in North Carolina and New York States due to inclement
weather, but they were not significant enough to materially
affect 1996 operating results.
Competition
All of the Corporation's products are sold in highly
competitive markets which are influenced by price, product
performance, customer location, service, foreign
competition, material substitution and general economic
conditions. The Corporation competes with other companies
active in industrial minerals and metal products. No
material part of the Corporation's business is dependent
upon any single customer, or upon very few customers, the
loss of any one of which could have a material adverse
impact on the Corporation.
<PAGE 5>
Industrial mineral prices, generally, are not subject to the
price fluctuations typical of commodity metals. Demand for
industrial minerals is primarily related to general economic
conditions, particularly in the automotive, housing and
construction industries. In the United States, there are
three major feldspathic mineral producers, including the
Corporation. The Corporation is the only North American
producer of phlogopite mica and one of many talc producers.
Markets for industrial mineral products are sensitive not
only to service, product performance, and price, but also to
competitive pressures and transportation costs.
The Corporation is one of five North American producers of
metal powders. The market for metal powders is affected
primarily by product performance, consistency of product
quality and price. To some extent, competition in the metal
powders industry is affected by imports of finished metal
powder parts. Product prices over the last several years
have been strongly influenced by costs of powder production
and available capacity. Demand for metal powders is a
function of general economic conditions, particularly in the
automotive market.
There are numerous aluminum dross processors in the United
States, however, only Alumitech has patented technology
which enables it to process aluminum dross without the
necessity for landfill. While the Corporation competes for
the supply of aluminum dross with a number of other
operations, the major factor affecting the supply of dross
is the level of activity of the secondary aluminum smelting
industry. In addition, as aluminum is one of the products
of aluminum dross reprocessing, commodity price fluctuations
of aluminum may have a negative impact on the earnings of
the Corporation.
Research and Development
The Corporation carries on an active program of product
development and improvement. Research and development
expense was $0.6 million in 1996, $0.3 million in 1995 and
$0.3 million in 1994.
Financial information about industry segments is set forth
on pages 39 and 40 of the Annual Report to Shareholders and
is incorporated herein by reference.
Environmental Considerations
Laws and regulations currently in force which do or may
affect the Corporation's domestic operations include the
Federal Clean Air Act of 1970, the National Environmental
Policy Act of 1969, the Solid Waste Disposal Act (including
the Resource Conservation and Recovery Act of 1976), the
Toxic Substances Control Act, CERCLA (superfund) and
regulations under these Acts, the environmental protection
regulations of various governmental agencies (e.g. the
Bureau of Land Management Surface Management Regulations,
Forest Service Regulations, and Department of Transportation
Regulations), laws and regulations with respect to
permitting of land use, various state and local laws and
regulations concerned with zoning, mining techniques,
reclamation of mined lands, air and water pollution and
solid waste disposal. Currently, the Corporation is not
aware of any materially adverse environmental problems or
issues.
<PAGE 6>
Employees
The approximate number of Corporation employees as of
December 31, 1996 is set forth below:
Industrial Minerals 275
Metal Products 235
Corporate 6
----
Total 516
----
Approximately 59 employees at the Corporation's metal powder
operations in Niagara Falls, New York, are covered by a
collective bargaining agreement. The current three-year
agreement expires April 15, 1998. At the ferrous metal
powder facility in Greenback, Tennessee, approximately 39
employees are covered by a three-year agreement which
expires February 28, 1998. Approximately 22 employees at
Suzorite are covered by a three-year collective bargaining
agreement that expires December 12, 1999. The agreement is
for three years and should be signed by the end of March
1997. At Alumitech, approximately 42 employees are covered
by two collective bargaining agreements, one agreement
expiring April 30, 1998 and one agreement expiring December
31, 1998. The Corporation considers its labor relations to
be good.
Foreign Operations
The Corporation's international operations are located in
Canada whose institutions and governmental policies are
similar to those of the United States. Although there can
be no assurance as to future conditions, the Corporation has
experienced no political activities, social upheavals,
currency restrictions or similar factors which have had any
material adverse effect to date on the results of its
operations or financial condition.
Export Sales
The Corporation's industrial minerals and metal products
operations sell their products internationally to a wide
variety of customers including the ceramics, glass and
powder metallurgy industries. Export sales in these two
segments were less than 7 percent of total sales.
Cautionary "Safe Harbor" Statement Under the
United States Private Securities Litigation Reform Act of
1995
With the exception of historical matters, the matters
discussed in this report are forward looking statements that
involve risks and uncertainties that could cause actual
results to differ materially from targeted or projected
results. Factors that could cause actual results to differ
materially include, among others, fluctuations in aluminum
prices, problems regarding unanticipated competition,
processing, access and transportation of supplies,
availability of materials and equipment, force majeure
events, the failure of plant equipment or processes to
operate in accordance with specifications or expectations,
accidents, labor relations, delays in start-up dates,
environmental costs and risks, the outcome of acquisition
negotiations and general domestic and international economic
and political conditions, as well as other factors described
herein or in the Corporation's filings with the Commission.
Many of these factors are beyond the Corporation's ability
to predict or control. Readers are cautioned not to put
undue reliance on forward looking statements.
<PAGE 7>
ITEM 2. PROPERTIES
The industrial minerals segment has operations and mines in
Edgar, Florida; Monticello, Georgia; Boucherville, Quebec;
Suzor Township, Quebec; Natural Bridge, New York; Murphy,
North Carolina; Spruce Pine, North Carolina; Van Horn,
Texas; and Benwood, West Virginia. This segment owns
approximately 391,500 square feet of office and plant floor
space. As well, the processing facility in Benwood, West
Virginia has approximately twelve acres of land. In 1996,
The Feldspar Corporation purchased 655 acres with 20 years
additional ore reserves for its Spruce Pine, North Carolina
facility. The mineral deposits at the mines currently
operated by the industrial minerals segment are estimated by
the Corporation to be at least 25 years, except in the case
of the mica mine in Suzor Township where reserves are
estimated to be in excess of 100 years. All of the
Corporation's mining properties are either owned or leased,
with the leases expiring from 1998 to 2018.
The metal products group has operations in Niagara Falls,
New York; St. Marys, Pennsylvania; Greenback, Tennessee;
Cleveland, Ohio; and Streetsboro, Ohio. At its facility in
Niagara Falls, Pyron Corporation utilizes approximately
79,000 square feet of office and plant floor space which it
leases from the Niagara County Industrial Development
Agency. The lease was established as part of the Industrial
Development Revenue Bond issued in November 1989 to finance
the construction of an atomized steel powder plant. Lease
payments are to be sufficient to pay the debt service on the
Industrial Development Revenue Bond. The atomized plant
utilizes approximately 16,000 square feet of floor space and
is adjacent to the existing facility. The blending plant in
St. Marys, Pennsylvania, which was built in 1995, has 32,000
square feet of plant, office and storage space and is
situated on 3.4 acres of land. The Greenback facility is
situated on 27.5 acres of land of which 6 acres is actively
used in the operations. General office space comprises
approximately 6,300 square feet; there is approximately
87,000 square feet of production, storage and
shipping/receiving space. The aluminum dross processing
plant in Cleveland, Ohio owns 6.1 acres and has buildings
totaling 51,000 square feet. The Streetsboro, Ohio
operation owns 6.0 acres on which there is a 36,000 square
foot building of plant and office space.
All facilities are maintained in good operating condition.
ITEM 3. LEGAL PROCEEDINGS
On February 11, 1993, The Feldspar Corporation and other non-
affiliated companies were named as defendants in a civil
action brought by Dryvit Systems, Inc. ("Dryvit") in the
State of Rhode Island captioned Dryvit Systems, Inc. v. The
Feldspar Corporation, Taggart Sand Products Corp., Surface
Systems, Inc., The Morie Company, Inc., Eriez Magnetics,
Inc., and Law Engineering, Inc., C.A. No. KC 93-108, State
of Rhode Island, Kent. Dryvit alleges that between
approximately 1985 and 1990, sand purchased from TFC and
other suppliers utilized by Dryvit to manufacture exterior
insulation finishes for the exterior of buildings developed
rust stains because the sand contained pyrite and magnetic
materials. Dryvit seeks unspecified monetary damages and
costs, including the costs associated with the repair of the
damaged structures.
TFC denies such allegations and claims and the Corporation
believes that it is remote that this litigation will result
in any material adverse effect to the Corporation's
financial condition or results of operations. The
Corporation strongly believes that this action is without
merit, however, no assurance can be made as to the outcome
of this litigation. Although the Corporation's primary
insurer has attempted to limit its coverage, the Corporation
believes that its primary and excess liability insurance is
sufficient to cover any potentially unfavorable outcome.
<PAGE 8>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 10. EXECUTIVE AND OTHER OFFICERS OF THE REGISTRANT
Served in
Officer Position Age Position Since
Peter Lawson-Johnston Chairman of the
Board of Directors 70 1975
Richard L. Lister President and
Chief Executive Officer 58 1993
Allen J. Palmiere Vice President,
Chief Financial Officer 44 1993
and Assistant Secretary
Peter J. Goodwin Vice President,
Zemex Corporation 46 1994
President, Industrial Minerals
Terrance J. Hogan President, Alumitech, Inc. 41 1995
G. Russell Lewis President, Metal Powders 67 1986
Patricia K. Moran Assistant
Secretary-Treasurer 31 1995
There are no family relationships between the officers
listed above. The term of office of each executive officer
is until his/her respective successor is elected and has
qualified, or until his/her death, resignation or removal.
Officers are elected or appointed by the board of directors
annually at its first meeting following the annual meeting
of shareholders. The following are the current officers of
the Corporation and a description of their business
activities if less than five years in their present
position.
Mr. Lister, who was elected to the board of directors on May
30, 1991, assumed his duties as Vice Chairman of the Board
of Directors on July 23, 1991 and as President and Chief
Executive Officer on June 1, 1993. Mr. Lister was Vice
Chairman of Dundee Bancorp Inc. from October 1991 to May
1993.
<PAGE 9>
Mr. Palmiere assumed the duties of Chief Financial Officer
in October 1993. From April 1992 to October 1993 he was a
self-employed consultant. From October 1990 to April 1991
he was the Chief Financial Officer and Vice President of
Breakwater Resources Ltd. and from May 1991 to April 1992
was the Chief Executive Officer of Breakwater Resources Ltd.
Mr. Goodwin became a Vice President of the Corporation in
August 1994. From May 1993 to August 1994, Mr. Goodwin was
a self-employed consultant. Mr. Goodwin was President and
Chief Executive Officer of Miller and Co. from August 1990
to May 1993.
Mr. Hogan became President of Alumitech, Inc. in May 1995.
Prior to becoming President, Mr. Hogan was Chief Operating
Officer of Alumitech's subsidiary, Aluminum Waste
Technology, Inc., from December 1992 to May 1995. Prior to
December 1992, Mr. Hogan was the Vice President and Chief
Financial Officer of American Recovery Technology Systems,
Inc.
Ms. Moran assumed the duties of Assistant Secretary-
Treasurer in February 1995 and has served in various
capacities with the Corporation since 1993.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Information responsive to this Item is set forth on page 16
of registrant's Annual Report to Shareholders for the year
ended December 31, 1996 and is incorporated herein by
reference. The Annual Report to Shareholders is included as
Exhibit 13 to this Form 10-K Annual Report. The Annual
Report to Shareholders, except for those portions thereof
which are expressly incorporated by reference herein, is
furnished for the information of the Commission and is not
to be deemed "filed" as part of this Form 10-K report.
ITEM 6. SELECTED FINANCIAL DATA
Information responsive to this item is set forth on page 41
of the Annual Report to Shareholders and is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Information responsive to this Item is set forth on pages 10
through 16 of the Annual Report to Shareholders and is
incorporated herein by reference.
In addition to the information incorporated herein by
reference, on March 12, 1997, the Corporation signed an
amendment to its credit agreement with NationsBank and The
Chase Manhattan Bank (see Exhibit 4(q)). The amendment
provides for an incremental $20 million increase in credit
available for acquisitions, capital programs and general
corporate purposes.
<PAGE 10>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements responsive to this Item are set forth
on pages 17 through 40 of the Annual Report to Shareholders
and are incorporated herein by reference. The Supplementary
Schedule required by this Item is set forth on page S-1 of
this Form 10-K Annual Report. See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
1. Financial statements and independent auditor's report
filed as part of this report:
(a) Consolidated Balance Sheets at December 31,
1996 and 1995, which information is incorporated
by reference under Item 8 of this report;
(b) Consolidated Statements of Shareholders'
Equity for the three years ended December 31,
1996, which information is incorporated by
reference under Item 8 of this report;
(c) Consolidated Statements of Income for the
three years ended December 31, 1996, which
information is incorporated by reference under
Item 8 of this report;
(d) Consolidated Statements of Cash Flows for the
three years ended December 31, 1996, which
information is incorporated by reference under
item 8 of this report;
(e) Notes to the Consolidated Financial
Statements, which information is incorporated by
reference under Item 8 of this report; and
(f) Independent Auditors' Report, which
information is incorporated by reference under
Item 8 of this report.
<PAGE 11>
2. Financial statement schedules and independent auditors'
report filed as part of this report:
Schedule
Number Description
- Report of Independent
Accountants
Schedule IX Valuation and Qualifying
Accounts
and Reserves (page S-1)
All other financial statements and schedules not listed have
been omitted since the required information is included in
the consolidated financial statements or the related notes
thereto, or is not applicable or required.
3. EXHIBITS
(3)(a) Certificate of Incorporation (Incorporated by
reference from Exhibit 4(a) of the Corporation's
Registration Statement on Form S-2, Registration No.
33-7774, filed on August 5, 1986)
(3)(b) By-Laws (Incorporated by reference from Exhibit 3 of
the Corporation's Quarterly Report on Form 10-Q
filed on May 13, 1988)
(3)(c) Amended and Restated Certificate of Incorporation
(Incorporated by reference from Exhibit A of the
Corporation's Definitive Proxy Statement, filed on
March 29, 1995)
(4)(a) Indenture of Trust dated as of November 1, 1989
between Niagara County Industrial Development Agency
and The Bank of New York as trustee for Pyron
Corporation (Incorporated by reference from Exhibit
(4)(a) of the Corporation's Annual Report on Form 10-
K filed March 31, 1990)
(4)(b) Agency Mortgage and Security Agreement dated as of
November 1, 1989 from Pyron Corporation and Niagara
County Industrial Development Agency to The Bank of
New York (Incorporated by reference from Exhibit
(4)(b) of the Corporation's Annual Report on Form 10-
K filed March 31, 1990)
(4)(c) Letter of Credit Reimbursement Agreement dated as of
November 1, 1989 between Pyron Corporation and
Chemical Bank (Incorporated by reference from
Exhibit (4)(c) of the Corporation's Annual Report on
Form 10-K filed March 31, 1990)
(4)(d) First Amendment to Letter of Credit Reimbursement
Agreement dated as of November 1, 1989 between Pyron
Corporation and Chemical Bank (Incorporated by
reference from Exhibit (4)(d) of the Corporation's
Annual Report on Form 10-K filed March 31, 1990)
(4)(e) Second Amendment to Letter of Credit Reimbursement
Agreement dated as of March 15, 1995 between Pyron
Corporation and Chemical Bank (Incorporated by
reference from Exhibit (4)(e) of the Corporation's
Annual Report on Form 10-K filed March 30, 1995)
<PAGE 12>
(4)(f) Bank Mortgage and Security Agreement dated as of
November 1, 1989 from Pyron Corporation and Niagara
County Industrial Development Agency to Chemical
Bank (Incorporated by reference from Exhibit (4)(e)
of the Corporation's Annual Report on Form 10-K
filed March 31, 1990)
(4)(g) Building Loan Agreement dated as of November 1, 1989
between Chemical Bank and Pyron Corporation
(Incorporated by reference from Exhibit (4)(f) of
the Corporation's Annual Report on Form 10-K filed
March 31, 1990)
(4)(h) Security Agreement dated as of November 1, 1989
between Pyron Corporation and Chemical Bank
(Incorporated by reference from Exhibit (4)(g) of
the Corporation's Annual Report on Form 10-K filed
March 31, 1990)
(4)(i) Corporate Guaranty dated as of November 1, 1989 from
Zemex Corporation to Chemical Bank (Incorporated by
reference from Exhibit (4)(h) of the Corporation's
Annual Report on Form 10-K filed March 31, 1990)
(4)(j) First Amendment to Corporate Guaranty dated as of
November 1, 1989 of Zemex Corporation to Chemical
Bank (Incorporated by reference from Exhibit (4)(i)
of the Corporation's Annual Report on Form 10-K
filed March 31, 1990)
(4)(k) Second Amendment to Corporate Guaranty dated as of
March 14, 1991 of Zemex Corporation to Chemical Bank
(Incorporated by reference from Exhibit (4)(j) of
the Corporation's Annual Report on Form 10-K filed
March 31, 1991)
(4)(l) Third Amendment to Corporate Guaranty dated as of
February 25, 1992 of Zemex Corporation to Chemical
Bank (Incorporated by reference from Exhibit (4)(m)
of the Corporation's Annual Report on Form 10-K
filed March 31, 1993)
(4)(m) Fourth Amendment to Corporate Guaranty dated as of
March 8, 1993 of Zemex Corporation to Chemical Bank
(Incorporated by reference from Exhibit (4)(o) of
the Corporation's Annual Report on Form 10-K filed
March 31, 1993)
(4)(n) Fifth Amendment to Corporate Guaranty dated as of
March 15, 1995 of Zemex Corporation to Chemical Bank
(Incorporated by reference from Exhibit (4)(n) of
the Corporation's Annual Report on Form 10-K filed
March 30, 1995)
(4)(o) Irrevocable Standby Letter of Credit between Florida
Gas Utility and The Feldspar Corporation dated
December 16, 1992 (Incorporated by reference from
Exhibit (4)(q) of the Corporation's Annual Report on
Form 10-K filed March 31, 1993)
(4)(p) Loan and Security Agreement dated as of March 15,
1995 among Zemex Corporation and The Feldspar
Corporation and NationsBank of Tennessee, N.A. and
Chemical Bank and NationsBank of Tennessee, N.A., as
Agent (Incorporated by reference from Exhibit (4)(p)
of the Corporation's Annual Report on Form 10-K
filed March 30, 1995)
<PAGE 13>
(4)(q) Amendment No. 1 dated as of March 12, 1997 to the
Loan and Security Agreement dated as of March 15,
1995 among Zemex Corporation and The Feldspar
Corporation and NationsBank of Tennessee, N.A. and
Chemical Bank and NationsBank of Tennessee, N.A., as
Agent
*(10)(a) Key Executive Common Stock Purchase Plan
(Incorporated by reference from Exhibit (10)(b) of
the Corporation's Annual Report on Form 10-K filed
March 31, 1991)
(10)(b)Consent to Assignment of Lease and to Agreement
Sublease, and permission to Make Payments dated
November 7, 1978 each from Joberta Enterprises, Inc.
to NL Industries, Inc. and The Feldspar Corporation
(Incorporated by reference from Exhibit 10(pp) to
the Corporation's Registration Statement on Form S-
2, Registration No. 33-7774, filed on August 5,
1986)
(10)(c)Additional Lease Agreement dated as of November 1,
1989 between Niagara County Industrial Development
Agency and Pyron Corporation (Incorporated by
reference from Exhibit (10)(ll) of the Corporation's
Annual Report on Form 10-K filed March 31, 1990)
*(10)(d) Employment Agreement dated February 5, 1991
between Zemex Corporation and Robert W. Morris
(Incorporated by reference from Exhibit (10)(ll) of
the Corporation's Annual Report on Form 10-K filed
March 31, 1992)
*(10)(e) Option Agreement with Paul Carroll dated
September 17, 1991 (Incorporated by reference from
Exhibit (10)(ll) of the Corporation's Annual Report
on Form 10-K filed March 31, 1992)
*(10)(f) Option Agreement with Peter Lawson-Johnston
dated September 17, 1991 (Incorporated by reference
from Exhibit (10)(ll) of the Corporation's Annual
Report on Form 10-K filed March 31, 1992)
*(10)(g) Option Agreement with John Donovan dated
September 17, 1991 (Incorporated by reference from
Exhibit (10)(ll) of the Corporation's Annual Report
on Form 10-K filed March 31, 1992)
*(10)(h) Subscription Agreement with Richard L. Lister
dated November 26, 1991 (Incorporated by reference
from Exhibit (5)(a) of the Corporation's Annual
Report on Form 10-K filed March 31, 1992)
(10)(i)Ligonier Purchase Agreement and Second Plan of
Reorganization dated March 2, 1992 among Pyron Metal
Powders, Inc., a wholly-owned subsidiary of Zemex
Corporation, Purchaser, and Ligonier Powders, Inc.,
Seller (Incorporated by reference from Exhibit
(5)(a) of the Corporation's Annual Report on Form 10-
K filed March 31, 1993)
(10)(j)1995 Stock Option Plan (Incorporated by reference
from Exhibit B of the Corporation's 1995 Definitive
Proxy Statement, filed on March 29, 1995)
<PAGE 14>
(10)(k)Stock Purchase Agreement dated August 10, 1993
between Zemex Corporation, Zemex Canada Inc., an
Ontario corporation and a direct wholly-owned
subsidiary of Zemex Corporation, Dundee Bancorp
Inc., an Ontario corporation, and Dundee Bancorp
International Inc., a Delaware corporation, and a
direct wholly-owned subsidiary of Dundee Bancorp
Inc., with respect to the acquisition of Suzorite
Mica Products Inc. (Incorporated by reference from
Exhibit 2 of the Corporation's Current Report on
Form 8-K filed September 7, 1993)
(10)(l)Capital Stock Purchase Warrant dated September 14,
1993 issued to Dundee Bancorp International Inc.
pursuant to the Stock Purchase Agreement referred to
in 10(m). (Incorporated by reference from Exhibit
4(a) of the Corporation's Current Report on Form 8-K
filed September 7, 1993)
(10)(m)Registration Rights Agreement dated September 14,
1993 between Zemex Corporation and Dundee Bancorp
International Inc. (Incorporated by reference from
Exhibit 4(b) of the Corporation's Current Report on
Form 8-K filed September 7, 1993)
(10)(n)Asset Purchase Agreement dated September 3, 1993
between U.S. Silica Company, The Feldspar
Corporation and Zemex Corporation with respect to
the sale of the Virginia aplite facility
(Incorporated by reference from Exhibit 10(at) of
the Corporation's Annual Report on Form 10-K filed
March 31, 1994)
(10)(o)Stock Purchase Agreement dated November 15, 1993
between Americo Malay Mineral Company and Zemex
Corporation with respect to the sale of 2,500,002
common shares of Perangsang Pasifik Senderian
Berhad, a corporation organized and existing under
the laws of the Federal Republic of Malaysia
(Incorporated by reference from Exhibit 10(au) of
the Corporation's Annual Report on Form 10-K filed
March 31, 1994)
(10)(p)Suzorite Mica Product Inc.'s Mining Lease dated
August 25, 1975 between the Province of Quebec and
Marietta Resources International Ltd. (Incorporated
by reference from Exhibit 10(av) of the
Corporation's Annual Report on Form 10-K filed March
31, 1994)
(10)(q)Employee Stock Purchase Plan (Incorporated by
reference as Exhibit A to the Corporation's Proxy
Statement filed May 6, 1994)
(10)(r)Stockholders Agreement dated June 10, 1994 among
Alumitech, Inc., Clarion Capital Corporation, DCC
Equities Limited and Moshe Dan Yerushalmi, John
Hocevar and Terrance Hogan and Zemex Corporation
(Incorporated by reference as Exhibit 10(ax) to the
Corporation's Registration Statement on Form S-1,
Registration No. 33-82638, filed on August 22, 1994)
(10)(s)Asset Purchase Agreement dated December 7, 1994
between Whittaker, Clark & Daniels, Inc., Clark
Minerals, Inc., Cherokee Minerals, Inc. and Pioneer
Talc Company and Suzorite Mineral Products, Inc. and
Zemex Corporation (Incorporated by reference from
Exhibit 10(u) of the Corporation's Annual Report on
Form 10-K filed March 30, 1995)
(13) 1996 Annual Report to Shareholders
(22) Subsidiaries of the Registrant
(24)(a)Consent of Deloitte & Touche
The Corporation will furnish copies of these documents to
requesting shareholders upon payment of $10.80 per document.
* Management contract or compensatory plan or arrangement.
<PAGE 16>
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.
ZEMEX CORPORATION
By:/s/RICHARD L. LISTER
---------------------------------
Dated: March 27, 1997 Richard L. Lister
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report is signed below by the following
persons on behalf of the registrant and in the capacities
and on the date indicated:
Signature Title Date
/s/ PETER LAWSON-JOHNSTON Chairman of the Board March 27, 1997
Peter Lawson-Johnston and Director
/s/ RICHARD L. LISTER President and Chief
Richard L. Lister Executive March 27, 1997
Officer and Director
(Principal Executive
Officer)
/s/ PAUL A. CARROLL Director March 27,1997
Paul A. Carroll
/s/ MORTON A. COHEN Director March 27,1997
Morton A. Cohen
/s/ JOHN M. DONOVAN Director March 27,1997
John M. Donovan
/s/ THOMAS B. EVANS, JR. Director March 27, 1997
Thomas B. Evans, Jr.
<PAGE 17>
Title
/s/ NED GOODMAN Director March 27, 1997
Ned Goodman
/s/ PATRICK H. O'NEILL Director March 27, 1997
Patrick H. O'Neill
/s/ WILLIAM J. VANDEN HEUVEL Director March 27, 1997
William J. vanden Heuvel
/s/ ALLEN J. PALMIERE Vice President,
Allen J. Palmiere Chief Financial March 27, 1997
Officer and
Assistant Secretary
(Principal Financial and
Accounting Officer)
LIST OF EXHIBITS
Exhibit (4)(q) Amendment No. 1 dated as of March 12, 1997 to
the Loan and Security Agreement among Zemex
Corporation and The Feldspar Corporation and
NationsBank of Tennessee, N.A., and Chemical
Bank and NationsBank of Tennessee, N.A., as
Agent
Exhibit 13 1996 Annual Report to Shareholders
Exhibit 22
SUBSIDIARIES OF THE REGISTRANT
The subsidiaries listed below are wholly-owned and all are
consolidated in the financial statements.
State or Country
in Which
Subsidiary Name Incorporated or Organized
Alumitech, Inc. Delaware
The Feldspar Corporation North Carolina
Pyron Corporation New York
Pyron Metal Powders, Inc. Delaware
Suzorite Mica Products Inc.Ontario, Canada
Suzorite Mineral Products, Inc.Delaware
Zemex Industrial Minerals, Inc.Delaware
Exhibit 24(a)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of Zemex Corporation
We have audited the consolidated financial statements of
Zemex Corporation and its Subsidiaries as of December 31,
1996 and for the year then ended, and have issued our report
thereon dated January 31, 1997; such consolidated financial
statements and report are included in your 1996 Annual
Report to Shareholders and are incorporated herein by
reference. Our audit also included the consolidated
financial statement schedule of Zemex Corporation, listed in
Item 14. This consolidated financial statement schedule is
the responsibility of the Corporation's management. Our
responsibility is to express an opinion based on our audit.
In our opinion, such consolidated financial statement
schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE
Toronto, Ontario
March 31, 1997
ZEMEX CORPORATION
And Subsidiaries
SCHEDULE IX - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
For the Year Ended December 31,
Column A Column Column Column Column Column
B C D E F
Additio
Balance ns Balance
at Charged Other At End
Description Beginni to Additio Deducti of
ng Costs ns ons Period
of and
Period Expense
s
1996
Reserves
Other $605,00 $100,00 _ $106,00 $599,00
0 0 0 0
Allowance for
$5,000
Uncollectable 386,000 148,000 87,000 452,000
Accounts
1995
Reserves
Other $549,00 $154,00 _ $ $605,00
0 0 98,000 0
Allowance for
$2,000
Uncollectable 414,000 77,000 107,000 386,000
Accounts
1994
Reserves
Employee _ _ _ $ _
Severance $ $255,00 _ 80,000 $549,00
Other 80,000 0 188,000 0
482,000
Allowance for _
85,000 42,000 414,000
Uncollectable 371,000
Accounts
S-1
AMENDMENT NO. 1
DATED AS OF MARCH 12, 1997
TO
LOAN AND SECURITY AGREEMENT
DATED AS OF MARCH 15, 1995
AMONG
ZEMEX CORPORATION AND
THE FELDSPAR CORPORATION
AND
NATIONSBANK OF TENNESSEE, N.A.,
AND THE CHASE MANHATTAN BANK
AND
NATIONSBANK OF TENNESSEE, N.A., AS AGENT
<PAGE 2>
TABLE OF CONTENTS
1. Definitions 2
2. Amendments to Agreement 2
3. Representations and Warranties 13
3.1. Incorporation 13
3.2. Due Authorization, No Conflicts, Etc. 13
3.3. Due Execution, Etc. 14
3.4. Real Property 14
4. Conditions Precedent 14
4.1. Conditions Precedent to Effectiveness of Amendment No. 14
5. Effectiveness of Amendment No. 1 17
6. Closing 17
7. Post Closing Deliveries 17
8. Governing Law, Etc. 18
9. Section Titles and Table of Contents 18
10. Waiver of Jury Trial 18
11. Counterparts 18
12. Agreement to Remain in Effect 18
<PAGE 1>
AMENDMENT NO. 1 dated as of March 12, 1997, under and
to that certain Loan and Security Agreement dated as of March
15, 1995 (the "Agreement"), among Zemex Corporation, a Delaware
corporation, and The Feldspar Corporation, a North Carolina
corporation (individually and collectively, the "Borrower"), the
Guarantors, jointly and severally, including the additional
Participating Subsidiaries; each of the undersigned Banks (in
such capacity the "Banks") and NationsBank of Tennessee, N.A. as
agent for the Banks (in such capacity the "Agent").
W I T N E S S E T H:
WHEREAS, Borrower, the Banks and the Agent are parties
to the Agreement; and
WHEREAS, Borrower has formed a new subsidiary, Zemex
Industrial Minerals, Inc., a Delaware corporation, and has also
acquired all of the stock of Alumitech, Inc., a Delaware
corporation, located in Streetsboro, Ohio; and
WHEREAS, Alumitech, Inc. has two subsidiaries, being
Engineered Thermal Systems, Inc., an Ohio corporation, and
Aluminum Waste Technology, Inc., a Delaware corporation; and
WHEREAS, Aluminum Waste Technology, Inc. has one
subsidiary, being AWT Properties, Inc., an Ohio corporation; and
WHEREAS, Borrower desires to have all five (5)
corporations become Participating Subsidiaries under the
Agreement; and
WHEREAS, the Borrower has requested that the Banks
increase their Revolving Loan Commitments from $10,000,000 to
$30,000,000, and provide for the issuance of standby letters of
credit in aggregate amounts up to $18,000,000 as a subfacility
under the Revolving Loan Commitments;
WHEREAS, the Banks are willing to increase their
Revolving Loan Commitments, provide for the issuance of letters
of credit, and add Alumitech, Inc., Engineered Thermal Systems,
Inc., Aluminum Waste Technology, Inc., AWT Properties, Inc. and
Zemex Industrial Minerals, Inc. as Participating Subsidiaries,
subject to the terms and conditions hereinafter set forth;
<PAGE 2>
NOW THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements set forth herein, and for
other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Definitions. All capitalized terms used in this
Amendment No. 1 which are not otherwise defined herein shall have
the respective meanings ascribed thereto in the Agreement.
2. Amendments to Agreement.
2.1. Section I of the Agreement, Definitions, is hereby
amended by adding thereto the following new definitions as
follows:
"Amendment No. 1 Effective Date" has the meaning
specified in Section 5 of Amendment No. 1.
"Issuing Bank" means NationsBank of Tennessee,
N.A. or any successor thereto, as the issuer of Letters
of Credit under Paragraph 2.9, together with its
successors and assigns; provided that no successor or
assign may have a letter of credit risk rating less
than that accorded to letters of credit issued by
NationsBank or its affiliates.
"Letter of Credit" shall have the meaning assigned
to such term in Paragraph 2.9, but shall exclude the
Existing Pyron Letter of Credit.
"Letter of Credit Documents" means, with respect
to any Letter of Credit, collectively, any application
for any Letter of Credit and any other agreements,
instruments, guarantees or other documents (whether
general in application or applicable only to such
Letter of Credit) governing or providing for (a) the
rights and obligations of the parties concerned or at
risk with respect to such Letter of Credit or (b) any
collateral security for any of such obligations.
"Letter of Credit Interest" means, for each Bank,
such Bank's participation interest (or, in the case of
the Issuing Bank, the Issuing Bank's retained interest)
in the Issuing Bank's liability under Letters of Credit
and such Bank's rights and interests in Reimbursement
Obligations and fees, interest and other amounts
payable in connection with Letters of Credit and
Reimbursement Obligations.
"Letter of Credit Liability" means, without
duplication, at any time and in respect of any Letter
of Credit, the sum of (a) the undrawn face amount of
such Letter of Credit plus (b) the aggregate unpaid
principal amount of all Reimbursement Obligations of
Zemex Corporation and/or the Borrower at such time due
and payable in respect of all drawings made under such
Letter of Credit. For purposes of this Agreement, a
Bank (other than the Issuing Bank) shall be deemed to
hold a Letter of Credit Liability in an amount equal to
its participation interest in the related Letter of
Credit under Paragraph 2.9, and the Issuing Bank shall
be deemed to hold a Letter of Credit Liability in an
amount equal to its retained interest in the related
Letter of Credit after giving effect to the acquisition
by the Banks (other than the Issuing Bank) of their
participation interests under Paragraph 2.9.
"Quarterly Dates" means the first day of each
January, April, July, or October, commencing with
April 1, 1997.
<PAGE 3>
"Quarterly Period" means (a) the Period from the
Amendment No. 1 Effective Date to the next succeeding
Quarterly Date and (b) thereafter, any period from the
first day after a Quarterly Date to the next succeeding
Quarterly Date.
"Reimbursement Obligations" means, at any time,
the obligation of Zemex Corporation and/or the Borrower
then outstanding, or which may thereafter arise in
respect of any or all Letters of Credit then
outstanding, to reimburse amounts paid by the Issuing
Bank and the other Banks with respect to their Letter
of Credit Interests in respect of any drawings under a
Letter of Credit.
In addition to the foregoing new definitions, the following
definitions are hereby amended:
(i) "Adjusted Surplus Capital" is hereby amended to
replace the date of September 30, 1994 with the date of
September 30, 1996 and to replace the date of
December 31, 1995 with the date of December 31, 1996;
(ii) "Collateral Documents" is hereby amended to add
the following documents: the Stock Pledge Agreement
from Alumitech, Inc. pledging its stock in both
Engineered Thermal Systems, Inc. and Aluminum Waste
Technology, Inc., as well as the Stock Pledge Agreement
from Aluminum Waste Technology, Inc. pledging its stock
in AWT Properties, Inc., all as required by
Paragraph 4.1(g) below; the Guaranty and Suretyship
Agreements of Alumitech, Inc., Engineered Thermal
Systems, Inc., Aluminum Waste Technology, Inc., AWT
Properties, Inc., and Zemex Industrial Minerals, Inc.
required by Paragraph 4.1(e) below; and, with respect
to all Collateral Documents, all documents amending,
modifying and/or restating any Collateral Document from
time to time;
(iii) the terms "Letter of Credit Facility", "Letter of
Credit Fees", "Letter of Credit Liability", "Letter of
Credit Reimbursement Agreement" and "Letter of Credit
Reimbursement Agreement Guaranty" presently appearing
in the Agreement prior to this Amendment No. 1 are
hereby each amended to place in front of each term the
words "Existing Pyron", such that the new terms are
retitled and placed in proper alphabetical sequence as
follows: "Existing Pyron Letter of Credit Facility",
"Existing Pyron Letter of Credit Fees", "Existing Pyron
Letter of Credit Liabilities", "Existing Pyron Letter
of Credit Reimbursement Agreement", and "Existing Pyron
Letter of Credit Reimbursement Agreement Guaranty";
furthermore, the references contained in said
definitions to the Letter of Credit Facility and Letter
of Credit Reimbursement Agreement are hereby modified
to refer instead to the Existing Pyron Letter of Credit
Facility and the Existing Pyron Letter of Credit
Reimbursement Agreement;
(iv) "Obligations" is hereby amended to change
subparagraphs (B), (C) and (D) to subparagraphs (C),
(D) and (E) and to insert a new subparagraph (B) as
follows: "(B) To pay all Letter of Credit Liabilities,
including any Reimbursement Obligations and any other
amount owed by Zemex Corporation and/or the Borrower
under any Letter of Credit Documents;"
(v) "Loan Documents" is hereby amended to insert before
the clause "and the Collateral Documents," the clause
"the Letter of Credit Documents,";
(vi) "Participating Subsidiary" is hereby amended to
add the following corporations as subparagraphs (E)
through (I), respectively, as follows: Alumitech,
Inc., a Delaware corporation; Engineered Thermal
Systems, Inc., an Ohio corporation; Aluminum Waste
Technology, Inc., a Delaware corporation, AWT
Properties, Inc., an Ohio corporation, and Zemex
Industrial Minerals, Inc., a Delaware corporation; and
each of the foregoing shall also be a Subsidiary for
the purposes of the Agreement;
<PAGE 4>
(vii) "Surplus Capital" is hereby amended by deleting
the definition therein contained and replacing it with
the definition of: "means Ten Million Dollars
($10,000,000.00)"; and
(viii) "Working Capital Loan Termination Date" is
hereby amended to replace "June 30, 1996" with "June
30, 1997."
2.2. Paragraph 2.1(A) is hereby amended by deleting
everything after the subtitle in its entirety and replacing it
with the following:
(A) Subject to the terms and conditions
of and relying on the representations,
warranties and covenants contained in this
Agreement, through the day prior to the Loan
Termination Date, each Bank agrees to fund
severally but not jointly to the Borrower the
amount set out beside their names, which for
all of the Banks shall be an aggregate
maximum principal amount of up to Thirty
Million Dollars ($30,000,000.00), as follows:
Banks Revolving Loan Commitments
NationsBank of Tennessee, N.A. $15,000,000.00
The Chase Manhattan Bank $15,000,000.00
TOTAL $30,000,000.00
The Revolving Loans shall be evidenced by the (i) Fifteen Million
Dollars ($15,000,000.00) Note of Borrower to NationsBank of
Tennessee, N.A., and (ii) the Fifteen Million Dollars
($15,000,000.00) Note of Borrower to The Chase Manhattan Bank,
which Notes are substantially in the form set forth in Exhibit A-
1 attached hereto, with each Note payable in accordance with its
terms. The Borrower may obtain Loans, repay without penalty or
premium except as set forth in Paragraph 2.13 below and reborrow
hereunder, from the date of this Agreement up to the day prior to
the Loan Termination Date, the then available Revolving Loan
Commitments or any lesser sum which is in the minimum amount of
One Million Dollars ($1,000,000.00) and in an integral multiple
of Two Hundred Fifty Thousand Dollars ($250,000.00) in the case
of Eurodollar Loans and in the minimum amount of Two Hundred
Fifty Thousand Dollars ($250,000.00) and in an integral multiple
of One Hundred Thousand Dollars ($100,000.00) in the case of
Floating Rate Loans; provided, however, Borrower may not borrow
more than two (2) times in any calendar month. Each advance of
the Revolving Loans hereunder shall be made by each Bank ratably
in accordance with its respective Revolving Loan Commitment
Percentage of such advance.
2.3. Paragraph 2.1 is hereby further amended in
Subparagraph (B) to delete everything appearing after the
semicolon and to insert in its place the following: "provided,
no more than an aggregate of Eighteen Million Dollars
($18,000,000.00) may be outstanding at any one time for Letter of
Credit Liabilities; and provided further, that the Banks shall
have no obligation to fund and/or issue a Letter of Credit if the
conditions precedent in Paragraph 3.2 below have not been
satisfied nor shall the Banks have any obligation to fund any
advances or issue a Letter of Credit for the purpose of
constructing any new Alumitech Plants if the conditions precedent
in Paragraph 3.3 below have not been satisfied." In addition,
Subparagraph (D) is hereby amended to delete the last sentence
thereof in its entirety.
2.4. Paragraph 2.5 is hereby amended to provide that a
facility fee of $60,000 will be payable in full on the Amendment
No. 1 Effective Date to the Banks.
<PAGE 5>
2.5. Paragraph 2.7 is hereby amended to replace the figure
of Twenty Thousand Dollars ($20,000.00) with the figure of Thirty
Thousand Dollars ($30,000.00), commencing with the Agent's fee
due December 31, 1997. In addition, the Borrowers shall pay a
fee to the Agent of Forty Thousand Dollars ($40,000.00) on or
before the Amendment No. 1 Effective Date.
2.6. Paragraphs 2.9, 2.10, 2.11, 2.12 and 2.13 are hereby
renumbered, respectively, as Paragraphs 2.10, 2.11, 2.12, 2.13
and 2.14, and a new Paragraph 2.9 is hereby inserted as follows:
2.9 Letters of Credit. Subject to the terms and
conditions of this Agreement, the Revolving Loan
Commitments may be utilized, upon the request of Zemex
Corporation, in addition to the Loans provided for by
Paragraph 2.1, for the issuance by the Issuing Bank of
letters of credit (collectively, but excluding the
Existing Pyron Letter of Credit, the "Letters of
Credit") for the account of Zemex Corporation and/or
the Borrower; provided that in no event shall (i) the
aggregate amount of all Letter of Credit Liabilities,
together with the aggregate principal amount of the
Loans exceed the aggregate amount of the Revolving Loan
Commitments as in effect from time to time, (ii) the
outstanding aggregate amount of all Letter of Credit
Liabilities exceed $18,000,000.00 and (iii) the
expiration date of any Letter of Credit extend beyond
the earlier of the Loan Termination Date and the date
twelve months following the issuance of such Letter of
Credit. The following additional provisions shall
apply to Letters of Credit:
(A) Zemex Corporation and/or the Borrower
shall give the Agent at least three Business Days'
irrevocable prior notice (effective upon receipt)
specifying the Business Day (which shall be no later
than 90 days preceding the Loan Termination Date) each
Letter of Credit is to be issued and describing in
reasonable detail the proposed terms of such Letter of
Credit (including its beneficiary) and the nature of
the transactions or obligations proposed to be
supported (including whether such Letter of Credit is
to be a commercial letter of credit or a standby letter
of credit). Zemex Corporation and/or the Borrower
shall be the account party for each Letter of Credit,
including Letters of Credit issuable to a beneficiary
having a claim or potential claim against a Subsidiary
of Zemex Corporation.
(B) On each day during the period commencing
with the issuance by the Issuing Bank of any Letter of
Credit and until such Letter of Credit shall have
expired or been terminated or, if drawn upon, until the
resulting Reimbursement Obligations have been
reimbursed in full by the Borrower and/or Zemex
Corporation (whether by a borrowing under this
agreement or otherwise), the Revolving Loan Commitment
of each Bank shall be deemed to be utilized for all
purposes of this Agreement in an amount equal to such
Bank's Revolving Loan Commitment Percentage of the then
Letter of Credit Liabilities associated with such
Letter of Credit. Each Bank (other than the Issuing
Bank) agrees that, upon the issuance of any Letter of
Credit it shall automatically acquire a participation
in the Issuing Bank's liability under such Letter of
Credit in an amount equal to such Bank's Revolving Loan
Commitment Percentage of such liability, and each Bank
(other than the Issuing Bank) thereby shall absolutely,
unconditionally and irrevocably assume, as primary
obligor and not as surety, and shall be unconditionally
obligated to the Issuing Bank to pay and discharge when
due, its Revolving Loan Commitment Percentage of the
Issuing Bank's liability under such Letter of Credit.
<PAGE 6>
(C) Upon receipt from the beneficiary of any
Letter of Credit or any demand for payment under such
Letter of Credit, the Issuing Bank shall promptly
notify the Borrower and/or Zemex Corporation (through
the Agent) of the amount to be paid by the Issuing Bank
as a result of such demand and the date on which
payment is to be made by the Issuing Bank to such
beneficiary in respect of such demand. The Borrower
hereby unconditionally agrees to pay and reimburse the
Agent for the account of the Issuing Bank and the other
Banks with respect to their Letter of Credit Interest
for the amount of each demand for payment under such
Letter of Credit at or prior to the date on which
payment is to be made by the Issuing Bank to the
beneficiary under such Letter of Credit, without
presentment, demand, protest or other formalities of
any kind. Any amounts not so paid or borrowed as set
forth in (D) below shall bear interest at the rate(s)
specified in the Letter of Credit Documents or, if
higher, at the rate(s) specified on the Revolving Notes
(including the Default Rate, if applicable).
(D) Forthwith upon its receipt of a notice
referred to in clause (C) of this Paragraph 2.9, the
Borrower shall advise the Agent whether or not the
Borrower intends to borrow under Paragraph 2.1 to
finance the obligation to reimburse the Issuing Bank
for the amount of the related demand for payment and,
if it does, submit a notice of such borrowing as
provided in Paragraph 2.4. In the event that the
Borrower fails to so advise the Agent, and if the
Borrower fails to reimburse the Issuing Bank for a
demand for payment under a Letter of Credit by the date
of such payment, the Agent shall give each Bank prompt
notice of the amount of the demand for payment,
specifying such Bank's Revolving Loan Commitment
Percentage of the amount of the related demand for
payment, and the Borrower shall be deemed in default
hereunder for breaching Subparagraph 2.9(C) above.
(E) Each Bank (other than the Issuing Bank)
shall pay to the Agent for the account of the Issuing
Bank in Dollars and in immediately available funds, the
amount of such Bank's Revolving Loan Commitment
Percentage of any payment under a Letter of Credit
(excluding the Existing Pyron Letter of Credit for
which separate provision has been made) upon notice by
the Agent to such Bank requesting such payment and
specifying such amount as provided in clause (D) of
this Paragraph 2.9. Each such Bank's obligation to
make such payments to the Agent for the account of the
Issuing Bank under this clause (E), and the Issuing
Bank's right to receive the same, shall be absolute and
unconditional and shall not be affected by any
circumstance whatsoever, including (i) the failure of
any other Bank to make its payment under this clause
(E), the financial condition of the Borrower (or any
other account party), the existence of any Default or
(ii) the termination of the Commitments. Each such
payment to the Issuing Bank shall be made without any
offset, abatement, withholding or reduction whatsoever;
provided, nothing contained in the foregoing shall
limit the Issuing Bank's liability for its gross
negligence or willful misconduct in improperly honoring
a draft drawn under a Letter of Credit.
(F) Upon the making of each payment by a
Bank to the Issuing Bank pursuant to clause (E) above
in respect of any Letter of Credit, such Bank shall,
automatically and without any further action on the
part of the Agent, the Issuing Bank or such Bank,
acquire (i) a participation in any amount equal to such
payment in the Reimbursement Obligation owing to the
Issuing Bank by the Borrower and/or Zemex Corporation
under this Agreement and under the Letter of Credit
Documents relating to such Letter of Credit and (ii) a
participation in a percentage equal to such Bank's
Revolving Loan Commitment Percentage in any interest or
other amounts payable by the Borrower and/or Zemex
Corporation under such Letter of Credit Documents and
the other Loan Documents in respect of such
Reimbursement Obligation (other than the commissions,
charges, costs and expenses payable to the Issuing Bank
pursuant to clause (G) of this Paragraph 2.9). Upon
receipt by the Issuing Bank from or for the account of
the Borrower and/or Zemex Corporation of any payment in
respect of any Reimbursement Obligation or any such
interest or other amount (including by way of set-off
or application of proceeds of any collateral security)
the Issuing Bank shall promptly pay to the Agent for
the account of each Bank who shall have previously
assumed a participation in such payment under clause
(ii) above, such Bank's Revolving Loan Commitment
Percentage of such payment, each such payment by the
Issuing Bank to be made in the same money and funds in
which received by the Issuing Bank. In the event any
payment received by the Issuing Bank and so paid to the
Banks is rescinded or must otherwise be returned by the
Issuing Bank, each Bank shall, upon the request of the
Issuing Bank (through the Agent), repay to the Issuing
Bank (through the Agent) the amount of such payment
paid to such Bank, with interest at the rate specified
in clause (J) of this Paragraph 2.9.
<PAGE 7>
(G) Borrower shall pay to the Agent for the
account of each Bank a letter of credit fee in respect
of each Letter of Credit on the daily average undrawn
face amount of such Letter of Credit for the period
from and including the date of issuance of such Letter
of Credit to and including the date such Letter of
Credit is drawn in full, expires or is terminated (such
fee to be non-refundable, to be paid in arrears on each
Quarterly Date and on the Loan Termination Date and to
be calculated, for any day, after giving effect to any
payments made under such Letter of Credit on such day)
in an amount equal to two percent (2.0%) per annum or,
for any Quarterly Period prior to the first day of
which (and in any event no later than 45 days after the
end of the fiscal quarter most recently ended) Zemex
Corporation has delivered to the Agent a certificate of
Zemex Corporation calculating the Funded Debt to Cash
Flow Ratio as at the last day of such fiscal quarter
(other than such portion of such period during which a
Default shall be continuing), the percentage per annum
set forth below opposite the Funded Debt to Capital for
Zemex Corporation and its Subsidiaries reflected on
such certificate:
Funded Debt to Capital Percentage Rate
Equal to or Greater than 35% 2.00% per annum
Equal to or Greater than 25%
and Less Than 35% 1.50% per annum
Less than 25% 1.00% per annum
Provided, following the occurrence and during the
continuation of any Event of Default hereunder, the
letter of credit fee shall be that letter of credit fee
otherwise due hereunder plus an additional three
percent (3%) per annum.
All calculations of Letter of Credit fees shall be
based on a 360 day year counting the actual number of
elapsed days.
(H) Upon the request of any Bank from time
to time, the Issuing Bank shall deliver any information
reasonably requested by such Bank with respect to each
Letter of Credit then outstanding.
(I) The issuance by the Issuing Bank of each
Letter of Credit shall be subject, in addition to the
conditions precedent set forth in Paragraphs 3.2 and,
if applicable, 3.3, to the conditions precedent that
(i) such Letter of Credit shall be in such form,
contain such terms and support such transactions as
shall be satisfactory to the Issuing Bank consistent
with its then current practices and procedures with
respect to letters of credit of the same type and if
the stated amount of the Letter of Credit exceeds
$1,000,000, shall also be in such form, contain such
terms and support such transactions as shall be
satisfactory to the Majority Banks, and (ii) the
Borrower and/or Zemex Corporation shall have executed
and delivered such applications, agreements and other
instruments relating to such Letter of Credit as the
Issuing Bank shall have reasonably requested consistent
with its then current practices and procedures with
respect to letters of credit of the same type; provided
that in the event of any conflict between any such
application, agreement or other instrument and the
provisions of this Agreement, the provisions of this
Agreement shall control.
<PAGE 8>
(J) To the event that any Bank fails to pay
any amount required to be paid pursuant to clause (E)
or (F) of this Paragraph 2.9 when due, such Bank shall
pay interest to the Issuing Bank (through the Agent) on
such amount from and including such due date to but
excluding the date such payment is made (i) during the
period form and including such due date to but
excluding the date three Business Days thereafter, at a
rate per annum equal to the Federal Funds Rate (as in
effect from time to time) and (ii) thereafter, at a
rate per annum equal to the Prime Rate plus 2.0%.
(K) The issuance by the Issuing Bank of any
modification or supplement to any Letter of Credit
shall be subject to the same conditions applicable
under this Paragraph 2.9 to the issuance of new Letters
of Credit, and no such modification or supplement shall
be issued unless either (x) the respective Letter of
Credit as affected by such action would have complied
with such conditions had it originally been issued in
such modified or supplemented form or (y) each Bank
shall have consented to such modification or
supplement.
(L) The obligations of the Borrower and/or
Zemex Corporation under this Paragraph 2.9 shall be
unconditional and absolute and shall not be affected,
modified or impaired, upon the happening at any time or
from time to time of any event, including any of the
following, whether or not with notice to or the consent
of the Borrower and/or Zemex Corporation:
1. the compromise, settlement,
release, modification, amendment (whether material or
otherwise) or termination of any or all of the
obligations, conditions covenants or agreements of any
Person in respect of any of the Loan Documents;
2. the occurrence, or the failure by
the Agent, any Bank or any other Person to give notice
to the Borrower and/or Zemex Corporation of the
occurrence, of any Event of Default or any default
under any of the other Loan Documents;
3. any failure, omission or delay on
the part of the Agent, any Bank, the Borrower, Zemex
Corporation or the beneficiary of any Letter of Credit
to enforce, assert or exercise any right, remedy, power
or privilege conferred by this Agreement or any of the
Loan Documents, or any other act or acts on the part of
the Agent, any Bank, the Borrower, Zemex Corporation or
the beneficiary of any Letter of Credit;
4. the voluntary or involuntary
liquidation, dissolution, sale or other disposition of
all or substantially all the assets of, the marshalling
of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition with creditors
or readjustment of, or other similar proceedings which
affect, the Borrower, Zemex Corporation or any other
party to any of the Loan Documents;
<PAGE 9>
5. any lack of validity or
enforceability of this Agreement, any Letter of Credit
or any other Loan Document, or any allegation of
invalidity or unenforceability or any contest of such
validity or enforceability;
6. the existence of any claim, set-
off, defense or other right which the Borrower and/or
Zemex Corporation may have at any time against the
Agent, any Bank or any beneficiary or any transferee of
any Letter of Credit (or any persons or entities for
whom the Bank or any such beneficiary or transferee may
be acting), or any other Person, whether in connection
with this Agreement or any of the other Loan Documents
or any of the transactions contemplated by any Loan
Document or any unrelated transaction;
7. any statement in any certificate or
any other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or
insufficient in any respect or any such statement being
untrue or inaccurate in any respect whatsoever;
8. payment by the Issuing Bank under
any Letter of Credit against presentation of a demand
or certificate which does not comply with the terms of
such Letter of Credit;
9. the release or discharge by
operation of law of the Borrower and/or Zemex
Corporation form the performance or observance of any
obligation, covenant or agreement contained in any of
the Loan Documents; or
10. any other circumstance or happening
whatsoever, whether or not similar to any of the
foregoing.
(M) Without affecting the Borrower's
liability under Paragraph 10.7, the Borrower agrees to
indemnify each of the Issuing Bank, the Agent and the
Banks and their respective affiliates, directors,
officers, employees, attorneys and agents from, and
hold each of them harmless against, any and all losses,
liabilities, damages or expenses incurred by any of
them in connection with or by reason of any actual or
threatened investigation, litigation or other
proceeding (including, in respect of the Issuing Bank
and the Agent, any such investigations, litigation or
other proceeding between the Issuing Bank or the Agent
and any Bank) relating to (a) the execution and
delivery of any Letter of Credit; (b) the use of the
proceeds of any drawing under any Letter of Credit; or
(c) the transfer or substitution of, or payment or
failure to pay under, any Letter of Credit, including
the reasonable fees and disbursements of counsel
incurred in connection with any such investigation,
litigation or other proceeding, but excluding damages,
losses, liabilities or expenses to the extent, but only
to the extent, incurred by reason of (x) the willful
misconduct or gross negligence of the Issuing Bank in
determining whether a document presented under any
Letter of Credit complies with the terms of such Letter
of Credit or (y) in the case of the Issuing Bank, such
Bank's failure to pay under any Letter of Credit after
presentation to it of documents strictly complying with
the terms and condition of such Letter of Credit. It
shall not be a condition to any such indemnification
that the Issuing Bank, the Agent or any Bank shall be a
party to any such investigations, litigation or other
proceeding. Nothing in this Paragraph 2.9 is intended
to limit the Borrower's or Zemex Corporation's payment
obligations under this Agreement.
(N) The Borrower assumes all risks of the
acts or omissions of any beneficiary of any Letter of
Credit with respect to the use of the Letter of Credit.
None of the Agent, any Bank nor any of their respective
affiliates, officers, directors, employees, attorneys
or agents shall be liable or responsible for: (a) the
use which may be made of the Letter of Credit or for
any acts or omissions of any beneficiary of any Letter
of Credit in connection with such Letter of Credit; (b)
the validity, sufficiency or genuineness of documents
presented to the Issuing Bank, or of any endorsement on
such documents, even if such documents should in fact
prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (c) payment by the
Issuing Bank against presentation of documents which do
not comply with the terms of any Letter of Credit,
including failure of any documents to bear any
reference or adequate reference to such Letter of
Credit; or (d) any other circumstances whatsoever in
making or failure to make payment under any Letter of
Credit; provided that the Borrower shall have a claim
against the Issuing Bank to the extent, but only to the
extent, of any direct, as opposed to consequential,
damages suffered by the Borrower which the Borrower
proves were caused by (i) the Issuing Bank's willful
misconduct or gross negligence in determining whether a
document presented under any Letter of Credit complies
with the terms of such Letter of Credit or (ii) the
Issuing Bank's willful failure to pay under the Letter
of Credit after presentation to it of documents
strictly complying with the terms and conditions of
such Letter of Credit. In furtherance and not in
limitation of the foregoing, the Issuing Bank may
accept documents that appear on their face to be in
order, without responsibility for further
investigation, regardless of any notice or information
to the contrary.
<PAGE 10>
2.7. Section III of the Agreement is hereby amended to
renumber Paragraph 3.3 as Paragraph 3.4, and to insert a new
Paragraph 3.3 as follows:
"3.3 Alumitech Plant Advances. As an express
condition precedent to the disbursement of any
Revolving Loans and/or the issuance of any Letter of
Credit in connection with the development and/or
construction of any new plant by or for Alumitech, Inc.
or any Subsidiary thereof, the Agent and Banks shall be
granted either:
(A) if the new plant is to be owned one
hundred percent (100%) by Zemex Corporation, Alumitech,
Inc., or any Subsidiary thereof, a first lien mortgage
and security interest in all real property, personal
property, and machinery and equipment associated with
the new plant and facility, in form and substance
satisfactory to the Banks; or
(B) if the new plant is to be owned in a
joint venture or partnership with a Person who is not
an Affiliate of Zemex Corporation, then a first lien
security interest in the partnership or joint venture
interest owned by Zemex Corporation or one of its
Subsidiaries in form and substance satisfactory to the
Banks, including such written consents from the other
joint venture or partnership party as the Banks may
require in their discretion;
provided, prior to the issuance of any Letter of Credit
to support the financing of such a plant, the Banks
must also approve in their discretion the terms and
conditions of any underlying financing which the Letter
of Credit is intended to enhance; and provided further,
prior to the issuance of any Letter of Credit or the
advancement of any Revolving Loans, the Banks must also
approve the construction budget, the draw request
procedure, the contractor and architect, and such other
matters as are typically reviewed and/or approved by
Banks in initiating and administering a construction
loan.
2.8. Each of Alumitech, Inc., a Delaware corporation,
Engineered Thermal Systems, Inc., an Ohio corporation, Aluminum
Waste Technology, Inc., a Delaware corporation, AWT Properties,
Inc., an Ohio corporation, and Zemex Industrial Minerals, Inc., a
Delaware corporation, hereby grants and ratifies and confirms the
grant of the security interest by it contained in Paragraphs 4.2
and 4.4 of the Agreement as security for the prompt satisfaction
of all Obligations and all Guaranties of the Obligations,
including without limitation the Guaranties required to be
executed by each of them pursuant to Paragraph 4.1(e) below.
<PAGE 11>
2.9. Paragraph 6.17 is hereby amended to replace the figure
of 0.40 in Subparagraph (B) with the figure of 0.45, to replace
the ratio of 3.0 to 1.0 in Subparagraph (C) with the ratio of
3.50 to 1.0, and to replace the ratio of 1.35 to 1.0 in
Subparagraph (D) with the ratio of 1.25 to 1.00.
2.10. Subparagraph 7.2(B) is hereby amended to insert
the words "Existing Pyron" before the term "Letter of Credit
Facility" where it appears therein.
2.11. Paragraph 7.9 is hereby amended in subparagraph
(iii) thereof to insert "Existing Pyron" before the term "Letter
of Credit Reimbursement Agreement."
2.12. Paragraph 7.16(F) is hereby amended to delete the
clause "and a Participating Subsidiary" and to replace it with
the clause "and be considered by the Banks for inclusion as a
Participating Subsidiary".
2.13. Paragraph 7.17 is hereby amended to delete
everything after "Five Million Dollars ($5,000,000.00)" and to
insert instead the clause "in any fiscal year."
2.14. Paragraph 8.1 is hereby amended in subparagraph
(M) to insert the words "Existing Pyron" in front of the terms
"Letter of Credit Facility" and "Letter of Credit Reimbursement
Agreement." In addition, a new subparagraph (P) is hereby added
thereto as follows:
"(P) A breach or default shall occur under
any Letter of Credit Document."
2.15. Paragraph 9.9 is hereby amended to delete the
first sentence thereof in its entirety and to replace it with the
following:
"Except as may be provided in other sections
of this Agreement, including Paragraphs
2.14(B) and 7.2, all of the funds received by
Banks, or any of them, with the exception of
funds received by The Chase Manhattan Bank
with respect to the Existing Pyron Letter of
Credit Reimbursement Agreement shall be
allocated pro rata among all Banks in
proportion to their respective outstanding
Loan balances and Reimbursement Obligations,
if any; provided, following the occurrence of
an Event of Default and the acceleration of
the Obligations, all funds received by the
Banks thereafter shall, unless the Banks
otherwise agree, be allocated in proportion
to the sum of their respective outstanding
Loan balances, Letter of Credit Liabilities,
and Existing Pyron Letter of Credit
Liabilities."
<PAGE 12>
2.16. Paragraph 9.11 is hereby amended to delete the
clause in the first sentence "in proportion to the Letter of
Credit Liabilities and the respective outstanding Loan amounts"
and to replace it with the clause "in proportion to the Letter of
Credit Liabilities, the Existing Pyron Letter of Credit
Liabilities and the respective outstanding Loan amounts."
2.17. Exhibit N to the Agreement is hereby supplemented
by adding thereto the additional environmental disclosures
contained in Exhibit N-1 attached hereto and incorporated herein
by reference. The Borrower and its Participating Subsidiaries
hereby warrant that, except as may be disclosed on Exhibit N-1,
the respective assets and operations of Alumitech, Inc.,
Engineered Thermal Systems, Inc., Aluminum Waste Technology,
Inc., AWT Properties, Inc. and Zemex Industrial Minerals, Inc.
are in compliance in all material respects with all Environmental
Laws and are in a clean and healthful condition, free of asbestos
and of all contamination by Hazardous Materials and other
potentially harmful chemical or physical conditions; all storage
tanks (whether above or below ground) located in or on such
plants, facilities and properties are in sound condition, free of
corrosion or leaks that could allow or threaten the release of
any stored material; and no Hazardous Materials are or to the
best of Borrower's knowledge, have been used, stored, treated or
disposed of in violation of applicable Laws and regulations. No
Borrower or Participating Subsidiary is a defendant in any
administrative or judicial actions alleging liability under
CERCLA with respect to such properties and assets, nor has any
Borrower or Participating Subsidiary received a notice that it is
a potentially responsible party under CERCLA or other similar
state Laws.
2.18. The Agreement is hereby modified to replace
Chemical Bank wherever such name appears with The Chase Manhattan
Bank.
3. Representations and Warranties. To induce the Banks
and the Agent to enter into this Amendment No. 1, Borrower and
Guarantors jointly and severally represent and warrant to the
Banks and the Agent as follows:
3.1. Incorporation. Alumitech, Inc., Aluminum Waste
Technology, Inc. and Zemex Industrial Minerals, Inc. are
corporations duly organized, validly existing and in good
standing under the laws of the State of Delaware, and Engineered
Thermal Systems, Inc. and AWT Properties, Inc. are corporations
duly organized, validly existing and in good standing under the
laws of the State of Ohio; each of said corporations has the
lawful power to own its properties and to engage in the business
it conducts, and each is duly qualified and in good standing as a
foreign corporation in the jurisdictions wherein the nature of
the business transacted by it or property owned by it is both
material and makes qualification necessary; Zemex Industrial
Minerals, Inc. has its chief executive office and principal place
of business in Atlanta, Georgia and each of the other
corporations has its chief executive office and principal place
of business located at Streetsboro, Portage County, Ohio; each of
Alumitech, Inc., Aluminum Waste Technology, Inc., Engineered
Thermal Systems, Inc., and AWT Properties, Inc. has its equipment
and inventory located in the State of Ohio and Zemex Industrial
Minerals, Inc. has all of its inventory and equipment located in
Atlanta, Georgia.
<PAGE 13>
3.2. Due Authorization, No Conflicts, Etc. The execution,
delivery and performance by the Borrower and Guarantors of this
Amendment No. 1 and any and all other agreements, instruments and
documents to be executed and/or delivered by the Borrower or any
Guarantor pursuant hereto or in connection herewith, and the
consummation by Borrower and Guarantors of the transactions con
templated hereby or thereby: (a) are within the corporate powers
of each; (b) have been duly authorized by all necessary corporate
action, including without limitation, the consent of stockholders
where required; (c) do not and will not (i) contravene the
respective certificate of incorporation or by-laws or other
comparable governing documents of Borrower or any Guarantor, (ii)
violate any Laws, or any order or decree of any court or
governmental authority, or (iii) conflict with or result in the
breach of, or constitute a default under, or result in the termi
nation of, any material contractual obligation of Borrower or any
Guarantor, and (d) do not require the consent, authorization by,
or approval of, or notice to, or filing or registration with, any
governmental authority or any other Person other than those which
have been obtained and copies of which have been delivered to the
Agent pursuant to Subsection 4.1(a)(ii) hereof, each of which is
in full force and effect.
3.3. Due Execution, Etc. This Amendment No. 1 and each of
the other agreements, instruments and documents to be executed
and/or delivered by Borrower or any Guarantor pursuant hereto or
in connection herewith (a) has been duly executed and delivered,
and (b) constitutes the legal, valid and binding obligation of
each, enforceable against it in accordance with its terms,
subject however to state and federal bankruptcy, insolvency,
reorganization and other laws and general principles of equity
affecting enforcement of the rights of creditors generally.
<PAGE 14>
3.4. Real Property. The Borrower and its Participating
Subsidiaries have good and marketable title to the Real Property
subject to no encumbrances other than Permitted Liens and those
noted in the Deeds of Trust originally executed and delivered on
March 15, 1995.
4. Conditions Precedent. The effectiveness of this
Amendment No. 1 is subject to the fulfillment of the following
conditions precedent on or prior to the Amendment No. 1 Effective
Date (as hereinafter defined in Section 5 hereof):
4.1. Conditions Precedent to Effectiveness of Amendment No.
1. The Agent shall have received, on or prior to the Amendment
No. 1 Effective Date, the following, each dated on or prior to
the Amendment No. 1 Effective Date unless otherwise indicated, in
form and substance satisfactory to the Agent and in sufficient
copies for each Bank:
(a) Certified copies of (i) the resolutions of the
Board of Directors of Borrower and each Guarantor approving this
Amendment No. 1 and each other agreement, instrument or document
to be executed by them pursuant hereto or as contemplated hereby,
and (ii) all documents evidencing other necessary corporate
action and required governmental and third party approvals,
licenses and consents with respect to this Amendment No. 1 and
the transactions contemplated hereby.
(b) A certificate of the Secretary or an Assistant
Secretary of Borrower and each Guarantor certifying the names and
true signatures of the officers of Borrower and each Guarantor
who have been authorized to execute on behalf of Borrower and
such Guarantor this Amendment No. 1 and any other agreement,
instrument or document executed or to be executed by Borrower and
any Guarantor in connection herewith.
(c) A certificate dated the Amendment No. 1 Effective
Date signed by the President or any Vice-President of Borrower,
to the following effect:
<PAGE 15>
(i) The representations and warranties of
the Borrower contained in Sections 3.1, 3.2 and 3.3 of
this Amendment No. 1 are true and correct on and as of
such date as though made on and as of such date;
(ii) No Default or Event of Default has
occurred and is continuing, and no Default or Event of
Default would result from the execution and delivery of
this Amendment No. 1 or the other agreements,
instruments and documents contemplated hereby; and
(iii) The Borrower has paid or
agreed to pay all amounts payable by it pursuant to the
Agreement as amended hereby (including, without
limitation, all legal fees and expenses of Banks'
counsel incurred in connection herewith) to the extent
then due and payable.
(d) Two (2) original Revolving Notes duly
executed by Zemex Corporation and The Feldspar Corporation,
jointly and severally, in the amount of $15,000,000 each,
evidencing the renewal, modification and increase of the existing
Revolving Notes, in the form attached hereto as Exhibit A-1.
(e) An original Guaranty and Suretyship Agreement
duly executed by each of Alumitech, Inc., a Delaware corporation,
Engineered Thermal Systems, Inc., an Ohio corporation, Aluminum
Waste Technology, Inc., a Delaware corporation, and AWT
Properties, Inc., an Ohio corporation, and Zemex Industrial
Minerals, Inc., a Delaware corporation, in the form attached
hereto as Exhibit B, together with Amended and Restated Guaranty
and Suretyship Agreements executed by Pyron Corporation, Pyron
Metal Powders, Inc., Suzorite Mineral Products, Inc. and Suzorite
Mica Products, Inc. Les Produits Mica Suzorite, Inc.
(f) Such UCC financing statements as may be
required by the Banks, showing Alumitech, Inc., Engineered
Thermal Systems, Inc., Aluminum Waste Technology, Inc., AWT
Properties, Inc., and Zemex Industrial Minerals, Inc. as the
debtors therein.
<PAHE 16>
(g) An original Amendment No. 1 to Stock Pledge
Agreement duly executed by Zemex Corporation in the form attached
hereto as Exhibit C, and Stock Pledge Agreements in the form
attached hereto as Exhibit D, duly executed by each of Alumitech,
Inc. and AWT Properties, Inc.
(h) A favorable opinion of Messrs. Davis, Graham
& Stubbs, L.L.P., counsel to the Borrower, in substantially the
form of Exhibit E hereto, and as to such other matters as any
Bank, through the Agent, may reasonably request.
(i) A favorable opinion of Messrs. Smith Lyons,
special Canadian counsel, in substantially the form of Exhibit F
hereto.
(j) Duly executed Amended and Restated
Environmental Indemnity Agreement of the Borrower and the
Guarantors with respect to all real property owned or leased by
any of them.
(k) Duly executed First Amendment to the North
Carolina Commercial Deed of Trust and Security Agreement for
Securing Revolving Line of Credit and Other Indebtedness and the
recordation of same in the Register of Deeds for Mitchell County,
North Carolina together with the receipt by the Agent of an
endorsement to the Lawyers Title Insurance Corporation Mortgagee
Loan Policy #135-00-780-653 reflecting the recordation of said
First Amendment and bringing forward the effective date of the
Mortgagee Title Insurance Policy without any other change or
modification.
(l) Duly executed First Amendment to the Jasper
County, Georgia Commercial Deed to Secure Debt and Security
Agreement and the recordation of same in the Clerk's Office of
the Superior Court for Jasper County, Georgia.
(m) Duly executed First Amendment to the Greene
County, Georgia Commercial Deed to Secure Debt and Security
Agreement and the recordation of same in the Clerk's Office for
the Superior Court for Greene County, Georgia.
5. Effectiveness of Amendment No. 1. This Amendment
No. 1 and the Exhibits attached hereto shall become effective at
such time as (a) each of the conditions precedent set forth in
Section 4.1 hereof shall have been satisfied, and (b)
counterparts of this Amendment No. 1, executed and delivered by
the Borrowers, the Banks and the Agent shall have been received
by the Agent (or, alternatively, confirmation of the execution
hereof by such parties shall have been received by the Agent).
The date upon which the conditions described in clauses (a) and
(b) of the foregoing sentence shall have been fulfilled is
referred to herein as the "Amendment No. 1 Effective Date".
<PAGE 17>
6. Closing. The Closing under this Amendment No. 1
shall occur on the Amendment Effective Date at the offices of
Boult, Cummings, Conners & Berry, 1 NationsBank Plaza, Nashville,
Tennessee 37219, or such other location as the parties may
agree.
7. Post Closing Deliveries. The Borrower covenants
to deliver to the Agent on behalf of the Banks: (a) on or before
March 27, 1997, terminations of all UCC statements filed by Ohio
Savings Bank and ORIX Credit Alliance, Inc. against any of the
Subsidiaries of Alumitech, Inc., including without limitation AWT
Properties, Inc., together with such other evidence as the Banks
may request showing that the outstanding indebtedness to Ohio
Savings Bank and ORIX Credit Alliance, Inc. has been paid in
full, and (b) on or before May 12, 1997, a fully executed
Collateral Mortgage Modification Agreement substantially in the
form attached hereto as Exhibit G amending the Collateral
Mortgage and Security Agreement from Pyron Corporation and the
Niagara County Industrial Development Agency to NationsBank of
Tennessee, N.A. as Agent for itself and the Chase Manhattan Bank
(formerly Chemical Bank) dated March 15, 1995 and recorded in the
Clerk's Office for Niagara County, New York in Liber 3047, page
178, together with evidence of the approval of said Modification
by the Niagara County Industrial Development Agency and an
endorsement to the Ticor Title Mortgagee Policy of Title
Insurance No. 5295-25021 bringing forward its effective date to
the date of the recordation of the Collateral Mortgage
Modification Agreement without showing any other changes to
title. Borrower's failure to comply herewith shall constitute an
Event of Default.
8. Governing Law, Etc. This Amendment No. 1 shall be
governed by, and construed in accordance with, the laws of the
State of Tennessee as provided in Section 10.9 of the Agreement,
which Section is incorporated herein by reference and made a part
hereof as though set forth in full herein.
9. Section Titles and Table of Contents. The Section
Titles and Table of Contents contained in this Amendment No. 1
are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement among the
parties hereto.
<PAGE 18>
10. Waiver of Jury Trial. EACH PARTY HERETO,
INCLUDING THE BORROWER, EACH SUBSIDIARY, THE BANKS, AND THE
AGENT, HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE (TO
THE EXTENT PERMITTED BY APPLICABLE LAWS) ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER, RELATING TO, OR
CONNECTED WITH THIS AGREEMENT, THE COLLATERAL OR ANY OTHER
AGREEMENT, INSTRUMENT OR DOCUMENT CONTEMPLATED HEREBY OR
DELIVERED IN CONNECTION HEREWITH AND AGREE THAT ANY SUCH DISPUTE
SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE BANKS' AND THE AGENT
ENTERING INTO THIS AGREEMENT.
11. Counterparts. This Amendment No. 1 may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together
shall constitute one and the same instrument.
12. Agreement to Remain in Effect. Except as
expressly provided herein, the Agreement and each other
Collateral Document shall be and shall continue in full force and
effect in accordance with its respective terms.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 1 to be executed by their respective officers
thereunto duly authorized, as of the date first above written.
AGENT BORROWER
NATIONSBANK OF TENNESSEE, N.A., ZEMEX CORPORATION
as Agent
BY: BY:
TITLE: TITLE:
BY:
TITLE:
<PAGE 19>
BANKS
NATIONSBANK OF TENNESSEE, N.A. THE FELDSPAR CORPORATION
BY: BY:
TITLE: TITLE:
THE CHASE MANHATTAN BANK GUARANTORS AND PARTICIPATING
(formerly Chemical Bank) SUBSIDIARIES
PYRON CORPORATION
BY:
TITLE: BY:
TITLE:
PYRON METAL POWDERS, INC.
BY:
TITLE:
SUZORITE MICA PRODUCTS INC. LES
PRODUITS MICA SUZORITE INC.
BY:
TITLE:
SUZORITE MINERAL PRODUCTS, INC.
BY:
TITLE:
<PAGE 20>
ALUMITECH, INC.
BY:
TITLE:
ENGINEERED THERMAL SYSTEMS,INC.
BY:
TITLE:
ALUMINUM WASTE TECHNOLOGY, INC.
BY:
TITLE:
AWT PROPERTIES, INC.
BY:
TITLE:
ZEMEX INDUSTRIAL MINERALS, INC.
BY:
TITLE:
Zemex Corporation
1996
Annual Report
Financial Highlights
1996 1995 1994
SUMMARY OF OPERATIONS
Net Sales $86,420,000 $85,056,000 55,306,000
Net Income 2,612,000 8,418,000 6,250,000
Capital Expenditures 16,426,000 15,451,000 3,077,000
- ----------------------------------------------------------------------------
FINANCIAL POSITION
Working Capital $18,688,000 $19,709,000 $26,046,000
Shareholders' Equity 70,997,000 70,900,000 54,052,000
- ----------------------------------------------------------------------------
PER COMMON SHARE
Net Income $ 0.33 $ 1.03 $ 1.12
Shareholders' Equity 8.59 8.49 7.54
- ----------------------------------------------------------------------------
Average Common Shares and
Common Share Equivalents
Outstanding 8,000,522 8,208,874 5,588,682
Common Shares Issued and
Outstanding at Year End 8,269,099 8,355,722 7,168,153
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
To Our Shareholders 2
Industrial Minerals 4
Metal Powders 6
Alumitech 8
Management's Discussion and Analysis 10
Independent Auditors' Report 17
Management's Report 18
Audit Committee Report 18
Financial Statements 19
Notes to Financial Statements 23
Selected Financial Data 41
<PAGE 2>
TO OUR SHAREHOLDERS
The year 1996 was one of disappointment tempered by accomplishment.
The cost of resolving several operating issues coupled with poor earnings
performance in some areas took a significant toll on the bottom line.
However, great strides were made towards building a solid future as many of
our capital and research programs were successfully completed. The
Corporation made real progress in improving the efficiency of resource
production and more is to come. Certainly the efforts and accomplishments
of 1996 should make a positive contribution to the future earnings of the
Corporation.
Industrial Minerals
During the first quarter of 1996, the Corporation's feldspar, talc and mica
divisions were combined into one organization, Zemex Industrial Minerals.
Peter Goodwin, Vice President of Zemex and previously President of the talc
and mica operations, was appointed President of the new organization and is
currently implementing a plan to capitalize on the marketing, management
and operating synergies of this group. The year also saw the construction
of a low iron sand plant; the low iron sand material, which is used in
high-technology glass applications is being sold pursuant to a long term
contract. The project was completed on time and on budget. In addition,
by year end, work was near completion on the installation of a new fine
grind milling facility at Benwood, West Virginia. Increased revenue
attributable to these two projects should enhance the profitability of
the industrial minerals segment in 1997 and beyond.
Unfortunately, the minerals group suffered some major setbacks in 1996
and, consequently, earnings were negatively affected. A $1.8 million
charge was taken during the first quarter in connection with the
reorganization and the write-down of inventory that had been exported in
an attempt to penetrate the Brazilian feldspar market. Furthermore, during
the fourth quarter, the Corporation recognized the write-down of parts and
supplies that had been rendered obsolete as the result of the Spruce Pine
expansion. A reserve of $750,000 was also taken at year end due to the
default by the purchaser of a property previously sold by the Corporation
in August 1995.
Alumitech
Nowhere was the dichotomy of the year more evident than at Alumitech. On
one hand, Alumitech made great progress in refining its process and
developing new alternative commercial applications for its non-metallic
product ("NMP"). On the other hand, decreasing aluminum prices over the year
overshadowed Alumitech's record throughput levels and prevented it from
being profitable.
Consistent with its long term objective of commercializing its proprietary
technology, Alumitech signed a letter of intent with IMCO Recycling Inc.,
the world's largest aluminum recycler, to jointly construct the first of
the dross reprocessing "super plants". Under the terms of the agreement,
IMCO will supply the required feedstock and Alumitech, for its part, will
contribute its closed loop technology. Although the joint venture agreement
has not yet been signed, both parties are working to this end.
<PAGE 3>
Alumitech has also initiated a $3.5 million capital project at its
Cleveland location to construct a full-scale facility to commercialize
NMP and derivative products.
Earlier in the year, Alumitech was awarded the maximum grant allowable
under the federal government's NICE3 program, underscoring its contribution
and future importance to the environment. Specifically, Alumitech's patented
closed loop technology allows it to convert NMP, the waste by-product that
results from reprocessing dross and saltcake materials, into usable
commercial products. The NICE3 program, sponsored jointly by the Department
of Energy and the Environmental Protection Agency, is a national competition
awarding grants to assist companies in the commercialization of processes
which improve competitiveness, foster energy efficiency, and reduce waste
and waste treatment. Alumitech was one of only 17 companies to receive this
award.
Metal Powders
The metal powder group had a less than satisfactory year. Sponge iron
product sales exceeded expectations, but atomized sales failed to
materialize to the levels forecasted. However, a number of new products were
developed during the year, and some were brought to commercialization. One
such product was a manganese sulfide material. Toward the end of the year,
the Corporation also introduced test materials from its development of high
molybdenum containing powders.
We believe that 1997 should be a solid year for the metal powders group
with the continuation of strong sponge iron sales, the introduction of new
products, and a greater focus on the strategic direction of our atomized
and non-ferrous materials into niche markets.
Share Repurchase
The Corporation has been repurchasing its common stock from time to time
on the open market since the end of 1994. Since the share repurchase program
was first initiated, it has repurchased 773,000 shares in total for the
treasury. The board of directors has recently given its approval for the
purchase of up to another 5% of the Corporation's issued and outstanding
shares.
Outlook
The year 1996 was meant to be a transition year with all businesses
performing better than the 1995 results. This did not happen; however, we
anticipate that 1997 will attain and hopefully surpass many of those
benchmarks set for 1996. We have introduced new products, improved
efficiencies and, generally, are well poised to increase overall sales and
improve margins.
We are most grateful for the contribution of our board of directors,
the continued support of our shareholders and, most particularly, for
the outstanding endeavors of our employees in a very difficult year. We
believe that 1997, the Corporation's ninetieth year in business, should
start to see the benefit of our efforts of the past two years.
Richard L. Lister Peter Lawson-Johnston
President and Chief Executive Officer Chairman
<PAGE 4>
Industrial Minerals
In 1996, the Corporation's feldspar, talc and mica operations were
combined into one group, Zemex Industrial Minerals ("ZIM"), to take
advantage of the synergistic strengths and resources that exist among the
various businesses.
As a result of the reorganization, ZIM is benefiting from the depth and
experience of its restructured sales and marketing team, particularly in
the talc area. The market focus of the new organization is divided into
three areas: ceramics; plastics, coatings and specialty products; and
international sales, with each area assigned a dedicated sales team.
The realignment of the sales and marketing force by market should reduce
expenses, improve efficiency and, most importantly, increase the amount of
time spent with customers. As a result, customer service will be enhanced
and sales should increase.
The consolidation also brings with it significant operational efficiencies.
The implementation of centralized management allows for cross-fertilization
of ideas, knowledge and experience across the organization. In addition,
ZIM is now able to justify the creation and retention of specialized groups,
such as its new engineering team. This team is dedicated to maximizing the
efficiency of each of the operating units with a specific focus on unit cost
reduction and capital expansion programs. The consolidation also serves to
heighten financial controls.
Ceramics
Despite the work involved with the reorganization in 1996, ZIM remained
sharply focused on its strategy of being a major supplier to niche industries.
The group posted a record year for shipments of its sodium feldspar due to
increased presence and a strong market for ceramic floor tiles and plumbing
fixtures. The group also experienced significant volume growth in potassium
feldspar, attributable to a shift in marketing strategy. ZIM concentrates
on being the major supplier to niche markets and has achieved that goal in
the sanitaryware and ceramic tile industries. The company currently enjoys
a strong position in the domestic sodium feldspar market and, with the
recent capacity expansion at its plant in Spruce Pine, North Carolina,
anticipates that as demand continues to grow, its market share will as well.
In keeping with its by-product utilization strategy, the industrial minerals
group recently completed the construction of a new low iron sand plant at
its Spruce Pine location. Using a sophisticated and highly controlled
process, a low margin by-product is converted into a high value-added
material for use in specialized glass applications. The product is sold
pursuant to a long term contract and is expected to make a healthy
contribution to future earnings.
Plastics, Coatings and Specialty Products
In 1996, the focus at the mica operation was twofold: enhance the efficiency
and cost effectiveness of the processing plant and develop new products and
markets. As a result of its product development effort, ZIM will introduce
an improved treated mica in the spring of 1997. This new surface modified
product offers plastic compounders a potential substitute for more expensive
fiberglass reinforcements.
<PAGE5>
The talc business continues to develop market share with its regular grades;
however, this process is slow as it entails winning market share from other
producers. As part of the company's strategy to seek out niche business
opportunities for value-added products, a fine grind milling system was
installed at the Benwood, West Virginia facility to produce ultra fine
products. These products have met with ready customer acceptance and
commercial shipments are in the initial phase. Expanding the market share
for ZIM'S talc business will continue to have a very high priority in 1997.
The development of our new feldspar product line, Felex, for the coatings
industry was also completed in 1996. The line is getting positive response
from the industry and samples are being evaluated by target accounts.
While the product line must still be evaluated by customers, the company
is optimistic about its potential given the quality of, and established
demand for, the Felex product.
International
ZIM's initial foray into the Brazilian market in late 1995 was an
unsuccessful and expensive learning experience. However, in 1996, the
international sales and marketing efforts were successful in increasing the
sales of the company's clay and talc into Mexico. As well, by entering into
an agreement with a toll grinder, ZIM was able to profitably export feldspar
to Italy.
The Future
The reorganization of the industrial minerals group has given birth to a
stronger and more cohesive business unit, combining the best aspects of
management, products, plants and processes from three established
operations. It is with this dynamic framework that Zemex Industrial Minerals
will focus on moving forward and growing the business.
<PAGE 6>
Metal Powders
Pyron Corporation, originally incorporated in 1940, was acquired by Zemex in
1977. During the past five years, Pyron has augmented its sponge iron
production with the addition of an atomizing facility in Niagara Falls,
New York and the acquisition of two non-ferrous businesses, one in Maryville,
Tennessee and another in Greenback, Tennessee. As a result, Pyron has
evolved from a single market supplier into a broad spectrum ferrous and
non-ferrous metal powder producer serving a diversity of markets.
During the 1990s, advanced technology has accelerated market growth for
atomized powders as they displaced other traditional methods of production
such as machining, casting and forging. These rapid technological
developments dictate that continuous improvements be made to both the
critical characteristics of materials used in powder metallurgy ("P/M")
and Pyron's strategy with respect to the marketplace.
Hydrogen Reduced Sponge Iron
Ten years ago, trends in the P/M market indicated that hydrogen reduced
sponge iron would be replaced by atomized materials. Ten years later, due
in part to a healthy friction market and the growth of alternative
applications, the demand for sponge iron continues to grow. In order to
ensure that Pyron maintains its competitive position in the marketplace,
cost improvements have recently been implemented at the sponge iron plant
in Niagara Falls, New York. Plans are also underway to optimize sponge
production capacity and to expand the company's focus to the global friction
market.
Atomized Products
During the past three years, industry capacity of atomized products has
significantly outstripped market demand with industry shipments in 1996
indicating only a marginal improvement. Moreover, a major portion of Pyron's
atomized business, and that of the industry, is tied to automotive and
related industries. The cost pressures that the automotive manufacturers are
undergoing would appear to indicate that there is little likelihood of price
relief in the immediate future. In response to these market conditions, Pyron
changed its strategic direction in 1996 to one of creating new specialty
products and services and identifying alternative sectors where these
value-added products can be sold. Research and marketing efforts to support
this strategy are underway and it is anticipated that Pyron will introduce
a number of new products over the next eighteen months.
Non-Ferrous Powders
In 1992, Pyron acquired a copper powder producer in Maryville, Tennessee.
In 1994, it acquired the assets of another non-ferrous producer in nearby
Greenback, Tennessee. In 1996, in order to optimize production efficiencies
and lower operating costs, the two Tennessee plants were consolidated. In
addition, a new water atomized copper powder process was successfully
commissioned at the Greenback location during the third quarter. The
start-up of this high capacity system enables Pyron to be more aggressive
in pursuing the growing market for water atomized copper.
<PAGE 7>
Manganese Sulfide
In late 1995, as part of its niche market focus, Pyron announced its
intention to become the only U.S. producer of manganese sulfide. Manganese
sulfide is an additive used by the P/M industry to enhance tool life and
aid in machinability. For Pyron, this product is a natural complement to its
core ferrous and non-ferrous businesses. For Pyron's customers, it means a
reliable low cost domestic source of this essential material. Machinability
and fatigue tests have shown Manganese Sulfide Plus (MnS+ TM) to be superior
to any P/M machinability enhancer on the market. Construction of a facility
to produce this newly developed product was completed in late 1996 at the
Greenback location and the new material is now commercially available.
Response from customers has been very positive.
Custom Blends
In response to changing dynamics in the P/M marketplace, Pyron constructed
a specialized blending facility in St. Marys, Pennsylvania in 1995. Through
this location Pyron is able to provide warehousing, custom pre-packaged
powders, and just-in-time service to its customers. As anticipated, many
customers are discovering that it is more cost efficient to purchase
pre-blends, such as those offered by the St. Marys plant, than to blend
in-house. Strategically, the St. Marys blending facility will play a
significant role going forward as the P/M market continues to evolve and
customers consolidate vendors, pool purchases and demand more from suppliers.
The blending plant plays a dual role as a service center and as an additional
channel of distribution for Pyron's products.
The Future
Pyron's long term focus includes capitalizing on its hydrogen reduced
sponge iron and developing new value-added products using its ferrous and
non-ferrous atomizing processes. Pyron's business is predicated on the
development of products and market segments where it can utilize its unique
production methods to enhance customer efficiency.
<PAGE 8>
Alumitech
Alumitech's strategy has been to create an environmentally friendly,
economically competitive process that will convert aluminum waste
by-products normally diverted to landfill into commercially saleable
products. The process includes the recovery of aluminum metal and
salt fluxes, which are sold back to the secondary aluminum industry, and
the reclamation of non-metallic products ("NMP"), predominantly metallic
oxides.
Conventional dross processors simply recover aluminum metal and send any
remaining materials to landfill. However, with its patented technology and
technical expertise, Alumitech is able to divert NMP from landfill and
convert it into raw materials for commercial products. Alumitech is the
industry leader in the development of alternative uses for NMP; it has
developed the ability to use NMP in the production of refractory ceramic
fiber, as well as products for the chemical and metallurgical industries.
The Process
The secondary aluminum industry is the major source of feedstock for
Alumitech's process. The melting process used by the secondary aluminum
industry causes the exposed surface of the molten aluminum to oxidize and
form a protective barrier. Salts are added to increase metal recovery and
facilitate the separation of the metal from the oxides. The molten salts
form a barrier layer, containing 8-15% aluminum, which is skimmed off and
cooled. The resultant product is known as black dross. Black dross is the
primary feedstock for Alumitech's process.
Conventional dross processors break down the dross into two parts: aluminum,
which is sold back to secondary smelters, and saltcake, which is typically
landfilled. This is where Alumitech differentiates itself. Alumitech
separates saltcake and black dross into their basic components: aluminum
metal, alumina and metal fines, salts, and NMP. In addition, using its
proprietary process, Alumitech can also further refine the NMP for use in
the production of commercially acceptable industrial products.
NMP Applications
Alumitech has developed several applications for NMP. The first, a high
temperature refractory ceramic fiber, is used as insulation in industrial
applications where temperatures range up to 2000 degreesF. During 1996,
using NMP as a raw material, ceramic fiber was successfully produced in a
large-scale pilot trial, and the quality of the test material positively
verified by independent third parties. The test was of importance because
it demonstrated that, by applying Alumitech's patented process, NMP could be
used in the production of commercial products.
Encouraged by these results, Alumitech continues to seek other possible
applications for NMP. A number of products have been developed and yielded
positive assessments when tested by potential customers. Likely markets
for the new products are the steel and cement industries, refractories and
the brown alumina markets.
<PAGE 9>
As part of Alumitech's focus on developing derivative products from NMP,
engineering is currently being completed to retrofit the Cleveland facility
for the commercialization of NMP. The expanded facility, which will include
full-scale pyrometallurgical and hydrometallurgical operations, will be
dedicated to the production of products derived from NMP. It is anticipated
that this capital project will cost approximately $3.5 million and be
completed by the end of 1997.
National Award
Recently, Alumitech was the recipient of a $400,000 federal grant,
awarded jointly by the Department of Energy and the Environmental Protection
Agency. The award is in recognition of Alumitech's technical achievements
and is to contribute to the commercialization of NMP-derived products
produced using its proprietary process. Alumitech was one of only seventeen
companies nationwide to be recognized under this program.
The Future
The next major step in Alumitech's growth is the construction of a
large-scale facility. To this end, in November 1996, Alumitech signed a
letter of intent with respect to forming a joint venture with IMCO Recycling
Inc. The proposed joint venture is for the construction of a large-scale
facility, which would see Alumitech contributing its proprietary technology,
IMCO supplying the required feedstock, and both parties contributing equally
to the capital requirements. It is anticipated that a joint venture agreement
will be signed over the course of the next several months.
Environmental protection and liability are very contentious issues these days.
Accordingly, as litigation and legislative activity increase, so has the
potential liability associated with landfilling. It is with this in mind
that Alumitech continues to lay the groundwork for its new "super plant" and
to develop alternative applications for NMP.
<PAGE 10>
Management's Discussion And Analysis
The following is a discussion and analysis of the financial condition
and results of operations of the Corporation for the years ended
December 31, 1996, 1995 and 1994, and certain factors that may affect the
Corporation's prospective financial condition and results of operations.
The following should be read in conjunction with the Consolidated Financial
Statements and related notes thereto.
OVERVIEW
The Corporation is a diversified producer of specialty materials and
products for use in a variety of industrial applications. The Corporation
operates in two principal business segments: (i) industrial minerals, which
includes The Feldspar Corporation, Suzorite Mica Products Inc. and Suzorite
Mineral Products, Inc.; and (ii) metal products, which includes Pyron
Corporation, Pyron Metal Powders, Inc. and Alumitech, Inc.
During 1994, the Corporation acquired the assets of Greenback Industries,
Inc.; the talc operations of Whittaker, Clark & Daniels, renamed Suzorite
Mineral Products, Inc.; and a 42% interest in Alumitech, Inc. In 1995, the
Corporation completed its acquisition of 100% of Alumitech, Inc. and
acquired a mineral processing facility in Benwood, West Virginia.
The Corporation's strategy going forward is to enhance its position as a
leading supplier of specialty materials through investments in its core
businesses, the introduction of new products, strategic acquisitions, and
investments in new technologies.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales
- ------------------------------------------------------------------------
1996 1995 Change Change
- ------------------------------------------------------------------------
Industrial Minerals $40,469,000 $37,089,000 $3,380,000 9.1%
Metal Products 45,951,000 47,967,000 (2,016,000) (4.2%)
--------------------------------------
$86,420,000 $85,056,000 $1,364,000 1.6%
- ------------------------------------------------------------------------
The Corporation's net sales for 1996 were $86.4 million, an increase of
$1.4 million, or 1.6%, from 1995. The major components of the increase were:
the full year consolidation of Alumitech, Inc. and increased industrial
minerals sales of $3.4 million, offset by decreased metal powder sales of
$2.7 million.
The industrial minerals segment recorded a 9.1% increase in sales from
$37.1 million in 1995 to $40.5 million in 1996. The increase was due to a
$1.7 million increase from the feldspar group, a $1.2 million increase in
the talc group's sales and a $0.5 million increase in sales of phlogopite
mica.
<PAGE 11>
The increase in talc sales is largely due to the inclusion of a full year's
sales from the Benwood facility, which was acquired in May 1995. Talc sales
are expected to increase in 1997 as new products are introduced and approved
by customers. Feldspar sales continue to grow steadily due to increased
demand from ceramic manufacturers and increased availability of the new low
iron sand product.
Net sales of the metal products group decreased 4.2%, or $2.0 million, from
$48.0 million in 1995 to $46.0 million in 1996. Of this decrease, $2.1
million is primarily due to lower copper prices and slightly lower volume of
copper sales affecting sales at Pyron Metal Powders, Inc. as well as a $1.3
million decline in atomized steel sales. These decreases were offset in part
by increased sales of $0.7 million from Alumitech, Inc. Sponge iron sales
increased by 2.3% while atomized steel sales decreased 21.2%. In 1997,
modest sales growth in both metal powders and aluminum dross processing is
anticipated.
Cost of Goods Sold
Cost of goods sold were $66.4 million in 1996 compared to $64.4 million in
1995. The corresponding gross margin was 23.1% for 1996 and 24.3% for 1995.
The decline in gross margin was primarily due to lower aluminum prices. The
decline in aluminum prices realized in 1996 compared to 1995 resulted in
margin erosion of 1.8%, offsetting a slight improvement achieved by the other
groups. In addition, cost of goods sold was negatively affected by the
write-down of parts and supplies that had been rendered obsolete as the
result of the expansion of the sodium feldspar plant at Spruce Pine, North
Carolina.
Selling, General and Administrative Expenses
Selling, general and administrative expense ("SG&A") increased 21.0% from
$8.7 million in 1995 to $10.5 million in 1996. As a percent of sales, SG&A
was 12.1% in 1996 as compared to 10.2% in 1995. The increase was the result
of the full year consolidation of Alumitech, Inc. in 1996 and the addition
of sales and marketing staff for the industrial minerals segment. It is
anticipated that there will be minimal increases in SG&A as future sales
increase.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization increased by $1.0 million, or
27.2%, from $3.7 million in 1995 to $4.7 million in 1996. This increase
results from the 19.4% net increase in property, plant and equipment during
1996 as a result of capital expenditures. Prospectively, depreciation will
continue to increase as current capital programs are placed into service.
Operating Income Before Reorganization Charges
Operating income before reorganization charges was $4.8 million in 1996
compared to $8.3 million in 1995. A $1.8 million reorganization charge was
recognized in the first quarter of 1996 in connection with the
reorganization of the Corporation's industrial minerals division, a
write-down to market of its Brazilian inventory, and the recognition of a
provision for storage costs and selling expenses in connection thereto.
<PAGE 12>
Operating Income
Operating income after reorganization charges decreased to $3.1 million for
fiscal 1996 from $8.3 million in fiscal 1995, representing a 63.2% decline.
This decline was due to reasons discussed previously.
Interest Expense, Net
Net interest expense for the year ended December 31, 1996 was $0.9 million,
an increase of $0.4 million over 1995. This is attributable to an increase
in total indebtedness from $13.1 million in 1995 to $26.6 million in 1996.
Other, Net
In 1996, the Corporation recognized other net expense of $0.5 million. The
largest component of this expense was a $0.7 million provision relating to a
property sale that the purchaser had defaulted on. The offset was a number
of small income items which reduced the total expense.
Recovery of Income Taxes
In 1996, the Corporation realized an income tax recovery of $0.9 million as
compared to a recovery of $0.5 million in 1995. The recoveries reflect the
recognition of the benefit of net operating losses available to the
Corporation. In 1997 and beyond, the Corporation will incur an effective tax
rate of approximately 35% to calculate its income taxes, reflecting the
ongoing permanent difference arising from a percentage depletion allowance.
Net Income and Earnings Per Share
As a result of the factors discussed above, net income for the year ended
December 31, 1996 was $2.6 million, a decrease of $5.8 million from 1995. As
the impact of the recognition of the benefits of the loss carryforwards is
significant, the Corporation's earnings per share have been restated below
on a fully-taxed basis using an effective rate of 35%.
- --------------------------------------------------------------------------
1996 1995
Pre-Tax Income $1,663,000 $7,899,000
Primary EPS(as reported) $0.33 $1.03
EPS(fully taxed at 35%) $0.14 $0.63
- --------------------------------------------------------------------------
<PAGE 13>
Results of Operations
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales
- --------------------------------------------------------------------------
1995 1994 Change Change
Industrial Minerals $37,089,000 $30,378,000 $ 6,711,000 22.1%
Metal Products 47,967,000 24,928,000 23,039,000 92.4%
-----------------------------------
$85,056,000 $55,306,000 $29,750,000 53.8%
- --------------------------------------------------------------------------
The Corporation's net sales for 1995 were $85.1 million, an increase of
$29.7 million, or 53.8%, from 1994. The major components of the increase
were: the consolidation of Alumitech, Inc., $13.6 million; increased
industrial mineral sales, $6.7 million; and increased metal powder sales,
$9.4 million.
The industrial minerals segment recorded a 22.1% increase in sales from
$30.4 million in 1994 to $37.1 million in 1995. The change was due to an
incremental $6.0 million in sales from the talc operations which were
acquired December 1, 1994 and a $2.0 million increase from the feldspar
group, offset in part by lower sales of phlogopite mica.
Net sales for the metal products group increased $23.0 million, or 92.4%,
from $24.9 million in 1994 to $48.0 million in 1995. Of this increase,
$13.6 million was due to the consolidation of Alumitech, Inc., which was
previously accounted for as an equity investment. Sales from the metal
powder group increased 38.0% in 1995, primarily due to increased non-ferrous
sales following the September 1994 acquisition of Greenback Industries, Inc.
Sponge iron sales increased by 4.7% while atomized steel sales increased
20.0%, notwithstanding the significant negative impact of the explosion of
the atomization furnace at the plant in Niagara Falls, New York in March
1995.
Cost of Goods Sold
Cost of goods sold were $64.4 million in 1995 compared to $40.6 million in
1994. The corresponding gross margins were 24.3% for 1995 and 26.7% for
1994. The decline in gross margin was due to several factors: a decline in
high-end mica product sales; an increase in sales of several lower margin
industrial mineral products; and lower margins due to competitive pressures in
certain metal powder product lines.
Selling, General and Administrative Expenses
SG&A increased 31.4% from $6.6 million in 1994 to $8.7 million in 1995. The
increase was the result of acquisitions in late 1994 and early 1995. As a
percent of sales, SG&A was 10.2% in 1995 as compared to 11.9% in 1994,
reflecting the benefit derived from higher volumes.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization increased by $1.4 million, or
59.4%, from $2.3 million in 1994 to $3.7 million in 1995. This increase was
driven by the 73.2% increase in property, plant and equipment during 1995 as
a result of acquisitions and capital expenditures.
<PAGE 14>
Operating Income
Operating income rose to $8.3 million for fiscal 1995 from $5.8 million in
fiscal 1994. While this represents a 42.8% increase, the operating margin
declined from 10.6% in 1994 to 9.8% in 1995. This decline was due to reasons
discussed previously.
Interest Expense, Net
Net interest expense for the year ended December 31, 1995 was $0.5 million,
an increase of $0.1 million over 1994. This is attributable to an increase
in total indebtedness from $6.7 million at December 31, 1994 to $13.1
million at December 31, 1995, offset in part by a decline in interest
rates.
Recovery of Income Taxes
In 1995, the Corporation realized an income tax recovery of $0.5 million as
compared to a recovery of $0.7 million in 1994. The 1995 recovery reflects
the recognition of the benefit of the balance of the net operating tax loss
carryforwards available to the Corporation.
Net Income and Earnings Per Share
As a result of the factors discussed above, net income for the year ended
December 31, 1995 was $8.4 million, an increase of $2.2 million from 1994.
As the impact of the recognition of the benefits of the loss carryforwards
is significant, the Corporation's earnings per share have been restated
below on a fully-taxed basis using an effective rate of 35%.
- -------------------------------------------------------------------------
1995 1994
Pre-Tax Income $7,899,000 $5,579,000
Primary EPS(as reported) $1.03 $1.12
EPS(fully taxed at 35%) $0.63 $0.65
- -------------------------------------------------------------------------
Liquidity and Capital Resources
The Corporation has historically funded its extraction and processing
activities through cash flow from operations, bank debt and sales of capital
stock and warrants. During the most recent three-year period ended December
31, 1996, the Corporation partially funded all capital expenditures,
acquisitions and debt reduction from a combination of additional debt and
cash flow from operations. In addition, in September 1994 the Corporation
completed a public offering, raising net proceeds of approximately $18.5
million. During 1995, outstanding warrants were exercised which resulted in
net proceeds of $4.8 million. These funds were utilized in part to repay
long term debt, fund acquisitions and purchase treasury stock.
<PAGE 15>
Cash Flow from Operations
The Corporation had $18.7 million of working capital at December 31, 1996,
compared to working capital of $19.7 million at December 31, 1995. Net cash
provided by operating activities for the year ended December 31, 1996 was
$6.0 million, down $1.2 million, or 16.4%, relative to 1995. Earnings before
interest, taxes, and depreciation, depletion and amortization for the year
ended December 31, 1996 were $7.3 million, a decrease of 39.7% over the
$12.1 million generated in 1995.
Financing Agreements
In March 1995, the Corporation entered into a $30.2 million credit facility
with a syndicate of two banks. The credit facility is further subdivided
into four facilities: (i) a $10.0 million revolving credit and term loan
facility; (ii) a $10.0 million multiple advance term loan facility; (iii)
a $5.2 million standby letter of credit; and (iv) a $5.0 million operating
line. These facilities are secured by specific assets and a floating charge
over a significant portion of the Corporation's assets. The facilities bear
interest at rates varying from bank prime to bank prime plus 0.25% and from
LIBOR plus 1.25% to LIBOR plus 2.25%, depending upon the financial position
of the Corporation. As at December 31, 1996, there was $5.0 million
outstanding under the operating line, $9.2 million outstanding under the
multiple advance term loan facility, $5.0 million outstanding under the
revolving credit and term loan facility and the standby letter of credit was
issued to secure the Corporation's Industrial Revenue Bond. The operating
line matures June 30, 1997 and is reviewed annually for renewal. The multiple
advance term loan facility requires quarterly payments of $0.3 million which
commenced April 1, 1996 with the balance outstanding, if any, due
January 1, 2000.
Capital Expenditures
The Corporation's primary capital activities in the past involved the
acquisition and development of industrial mineral properties and facilities
and necessary capital investments to maintain operating viability and meet
environmental, health and safety standards at its existing operations. During
1996, capital expenditures were $16.4 million compared to $15.5 million and
$3.1 million for the years ended December 31, 1995 and 1994, respectively.
The capital expenditures were funded by cash on hand, cash flow from
operations and an increase in total bank indebtedness of $13.5 million.
The Corporation is currently implementing and/or planning several major
capital programs. These include the retrofitting of the aluminum dross plant
in Cleveland and the construction of a new aluminum dross processing
facility in connection with a proposed joint venture. In aggregate, 1997
capital expenditures are anticipated to be approximately $16 million. The
Corporation plans on funding these from a combination of cash flow from
operations and credit facilities.
Although the Corporation's capital budgets provide for certain reclamation
and environmental compliance activities, management does not believe that
the cost of the Corporation's environmental compliance will have a material
adverse effect on the Corporation's results of operations or financial
condition in 1997. The Corporation has no definitive acquisition agreements
with respect to additional property or other acquisitions. The Corporation
will, however, continue to monitor potential strategic acquisitions that
would enhance its current activities.
<PAGE 16>
Seasonality and Inflation
Although the Corporation's results from extraction and processing operations
are cyclical due to fluctuations in demand for industrial minerals and metal
products, sales of the Corporation's products are generally not seasonal.
Inflation in recent years has not adversely affected the Corporation's
results of operations or costs, and is not expected to adversely affect the
Corporation in the future unless it grows substantially and the markets for
industrial minerals suffer from a negative impact on the economy in general.
Capital Stock
The capital stock of Zemex Corporation is traded on the New York Stock
Exchange. The price range in which the stock has traded is shown for the
past two years in the following tables.
Capital Stock Prices
- --------------------------------------------------------------------------
1996 Q1 Q2 Q3 Q4 Year
- --------------------------------------------------------------------------
High 10 9 5/8 8 1/8 8 7/8 10
Low 8 7/8 7 1/2 6 7/8 7 6 7/8
Close 9 1/8 7 5/8 7 3/4 7 7
- --------------------------------------------------------------------------
1995 Q1 Q2 Q3 Q4 Year
High 10 7/8 10 7/8 10 7/8 10 10 7/8
Low 8 3/8 9 9 1/8 8 1/4 8 1/4
Close 10 5/8 9 3/8 9 5/8 10 10
- --------------------------------------------------------------------------
In the fourth quarter of each of 1996, 1995 and 1994, the Corporation
declared a two percent stock dividend.
As of December 31, 1996, there were approximately 1,618 holders of record
of the Corporation's capital stock. This number includes shares held in
nominee name and, thus, does not reflect the number of holders of a
beneficial interest in the stock.
<PAGE 17>
Independent Auditors' Report
To the Shareholders and
Board of Directors of Zemex Corporation
We have audited the accompanying consolidated balance sheets of Zemex
Corporation and its Subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe 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 Zemex Corporation and its
Subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles in the United States.
Deloitte & Touche
Chartered Accountants
Toronto, Ontario
January 31, 1997
<PAGE 18>
Management's Report
The management of Zemex Corporation and its subsidiaries has the
responsibility for preparing the consolidated financial statements presented
in this Annual Report and for their accuracy and integrity. The statements
have been prepared in conformity with generally accepted accounting
principles in the United States, and include informed judgments and
estimates as required. Other financial information in this Annual Report is
consistent with the financial statements.
Zemex Corporation's system of internal controls is designed to provide
reasonable assurance, at a justifiable cost, as to the reliability of
financial records and reporting and the protection of assets. This system
includes organizational arrangements with clearly defined lines of
responsibility.
Deloitte & Touche, independent auditors, have audited the consolidated
financial statements of Zemex Corporation and their opinion is included on
the preceding page.
Zemex Corporation has formal standards of corporate conduct and policies
regarding high standards of ethics and financial integrity. These policies
have been disseminated to appropriate employees and internal control
procedures provide reasonable assurance that violations of these policies,
if any, are detected.
Allen J. Palmiere Richard L. Lister
Vice President and President and Chief Executive Officer
Chief Financial Officer
Audit Committee Report
The Audit Committee of the Board of Directors is composed of three
independent directors, Patrick H. O'Neill, Chairman, John M. Donovan, and
Thomas B. Evans, Jr. The Committee held three meetings during 1996.
The Audit Committee oversees the financial reporting process of the
Corporation on behalf of the Board of Directors. In fulfilling its
responsibility, the Committee recommended to the Board of Directors,
subject to shareholder approval, the selection of the Corporation's
independent auditors. The Audit Committee met with management and
representatives of the auditors, Deloitte & Touche, to review accounting,
auditing and financial reporting matters. The Committee met with Deloitte
& Touche representatives without management present.
Patrick H. O'Neill
Chairman, Audit Committee
<PAGE 19>
Consolidated Balance Sheets
- --------------------------------------------------------------------------
December 31 1996 1995
- --------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 2,279,000 $ 1,653,000
Accounts receivable (less allowance
for doubtful accounts of $452,000
at December 31, 1996 and $386,000
at December 31, 1995)(Note 15) 15,003,000 13,165,000
Inventories (Note 3) 18,171,000 20,176,000
Prepaid expenses 1,388,000 841,000
Deferred income taxes(Note 6) 1,013,000 -
- --------------------------------------------------------------------------
37,854,000 35,835,000
Property, Plant and Equipment(Notes 4 and 8) 62,084,000 50,271,000
Other Assets (Note 5) 9,438,000 10,575,000
- --------------------------------------------------------------------------
$ 109,376,000 $ 96,681,000
- --------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank indebtedness(Note 8) $ 6,590,000 $ 3,220,000
Accounts payable 7,091,000 8,037,000
Accrued liabilities 2,983,000 2,222,000
Accrued income taxes 301,000 269,000
Current portion of long term debt (Note 8) 2,201,000 2,378,000
- --------------------------------------------------------------------------
19,166,000 16,126,000
Long Term Debt (Note 8) 17,797,000 7,485,000
Other Non-Current Liabilities 599,000 605,000
Deferred Income Taxes (Note 6) 817,000 1,565,000
- --------------------------------------------------------------------------
38,379,000 25,781,000
- --------------------------------------------------------------------------
Shareholders' Equity
Common stock (Note 9) 8,950,000 8,695,000
Paid-in capital 51,304,000 49,692,000
Retained earnings 20,040,000 18,683,000
Note receivable from shareholder (Note 9) (1,749,000) (1,749,000)
Cumulative translation adjustment (1,175,000) (1,218,000)
Treasury stock at cost (Note 9) (6,373,000) (3,203,000)
- --------------------------------------------------------------------------
70,997,000 70,900,000
- --------------------------------------------------------------------------
$ 109,376,000 $ 96,681,000
- --------------------------------------------------------------------------
See Notes to the Consolidated Financial Statements
<PAGE 20>
Consolidated Statements of Shareholders' Equity (dollars in thousands)
Note
Receivable Cumulative
Common Paid In Treasury Retained from Translation
Stock Capital Stock Earnings Shareholder Adjustment Total
Balance at
Dec 31/93 $4,535 $17,910 $ - $6,738 $(1,749) $ (904) $26,530
Stock issued
for cash (a) 2,348 18,174 - - - - 20,522
Stock
dividend (a) 146 1,171 - (1,320) - - (3)
Stock options
and warrants
exercised (a) 56 357 - - - - 413
Stock issued in
connection with
acquisition (b)136 1,091 - - - - 1,227
Stock
purchased for
treasury (a) - - (465) - - - (465)
Net income
for the year - - - 6,250 - - 6,250
Translation
adjustment - - - - - (422) (422)
- --------------------------------------------------------------------------
Balance at
Dec 31/94 7,221 38,703 (465) 11,668 (1,749) (1,326) 54,052
Stock
issued under
employee
stock purchase
plan (a) 49 422 - - - - 471
Stock
dividend (a) 167 1,233 - (1,403) - - (3)
Stock options
and warrants
exercised (a) 626 4,423 - - - - 5,049
Stock issued
in connection
with Alumitech
purchase (b) 632 5,133 834 - - - 6,599
Warrants
repurchased (a) - (222) - - - - (222)
Stock
purchased for
treasury (a) - - (3,572) - - - (3,572)
Net income for
the year - - - 8,418 - - 8,418
Translation
adjustment - - - - - 108 108
- --------------------------------------------------------------------------
Balance at
Dec 31/95 8,695 49,692 (3,203) 18,683 (1,749) (1,218) 70,900
Stock issued
under
employee
stock
purchase
plan (a) 73 535 - - - - 608
Stock
dividend (a) 161 1,089 - (1,255) - - (5)
Stock options
exercised (a) 21 84 - - - - 105
Stock purchased
for treasury (a) - - (3,170) - - - (3,170)
Stock options
repurchased - (96) - - - - (96)
Net income
for the year - - - 2,612 - - 2,612
Translation
adjustment - - - - - 43 43
- ----------------------------------------------------------------------------
Balance at
Dec 31/96 $8,950 $51,304 $(6,373) $20,040 $(1,749) $(1,175) $70,997
- ----------------------------------------------------------------------------
See Notes to the Consolidated Financial Statements
(a) See Note 9
(b) See Note 2
<PAGE 21>
Consolidated Statements of Income
- --------------------------------------------------------------------------
Years ended December 31 1996 1995 1994
- --------------------------------------------------------------------------
Net Sales $86,420,000 $85,056,000 $55,306,000
- --------------------------------------------------------------------------
Costs and Expenses
Cost of goods sold 66,416,000 64,356,000 40,552,000
Selling, general and
administrative 10,492,000 8,669,000 6,598,000
Depreciation, depletion
and amortization 4,694,000 3,689,000 2,315,000
- --------------------------------------------------------------------------
81,602,000 76,714,000 49,465,000
- --------------------------------------------------------------------------
Operating Income Before
Reorganization Charges 4,818,000 8,342,000 5,841,000
Reorganization Charges (Note 10) 1,752,000 - -
Operating Income 3,066,000 8,342,000 5,841,000
Other Income (Expenses)
Interest expense, net(Note 8) (948,000) (523,000) (425,000)
Other, net(Notes 2 and 10) (455,000) 80,000 163,000
- --------------------------------------------------------------------------
(1,403,000) (443,000) (262,000)
- --------------------------------------------------------------------------
Income Before Recovery of
Income Taxes 1,663,000 7,899,000 5,579,000
Recovery of Income Taxes(Note 6) 949,000 519,000 671,000
- --------------------------------------------------------------------------
Net Income $ 2,612,000 $ 8,418,000 $ 6,250,000
- --------------------------------------------------------------------------
Net Income per Share $0.33 $1.03 $1.12
- --------------------------------------------------------------------------
Average Common Shares and
Common Share Equivalents
Outstanding 8,000,522 8,208,874 5,588,682
- --------------------------------------------------------------------------
See Notes to the Consolidated Financial Statements
<PAGE 22>
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------
Years ended December 31 1996 1995 1994
- --------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $2,612,000 $8,418,000 $6,250,000
Adjustments to reconcile
income from operations
to net cash flows from
operating activities
Depreciation, depletion
and amortization 4,694,000 3,754,000 2,315,000
Loss on assets held for resale - 61,000 -
Decrease in deferred
income taxes (1,761,000) (122,000) (1,366,000)
Share of net income of investee - (87,000) (267,000)
Loss on sale of property,
plant and equipment 255,000 22,000 15,000
Decrease (increase) in
other assets 771,000 (227,000) (63,000)
(Decrease) increase in
non-current liabilities (6,000) 56,000 67,000
Changes in non-cash working
capital items(a) (533,000) (4,660,000) (4,311,000)
- --------------------------------------------------------------------------
Net cash provided by
operating activities 6,032,000 7,215,000 2,640,000
- --------------------------------------------------------------------------
Cash Flows from Investing Activities
Additions to property,
plant and equipment (16,426,000) (15,451,000) (3,077,000)
Assets acquired in connection
with acquisitions(b) - (3,658,000) (4,888,000)
Proceeds from sale of assets 86,000 - 78,000
Investment(b) - - (2,019,000)
Promissory notes - - (371,000)
- --------------------------------------------------------------------------
Net cash used in investing
activities (16,340,000) (19,109,000) (10,277,000)
- --------------------------------------------------------------------------
Cash Flows from Financing Activities
Deferred financing costs - (467,000) -
Proceeds from long term debt 12,882,000 6,219,000 266,000
Proceeds(payments) net,
on bank indebtedness 3,370,000 3,040,000 (415,000)
Repayment of long term debt (2,747,000) (5,343,000) (8,094,000)
Cash paid in lieu of
fractional shares (5,000) (3,000) (3,000)
Issuance of common stock(c) 713,000 5,520,000 20,935,000
Purchase of common stock and
warrants for treasury(c) (3,266,000) (3,794,000) (465,000)
- --------------------------------------------------------------------------
Net cash provided by
financing activities 10,947,000 5,172,000 12,224,000
- --------------------------------------------------------------------------
Effect of Exchange Rate
Changes on Cash (13,000) 32,000 (40,000)
- --------------------------------------------------------------------------
Net Increase(Decrease)in Cash 626,000 (6,690,000) 4,547,000
Cash and Cash Equivalents at
Beginning of Year 1,653,000 8,343,000 3,796,000
- --------------------------------------------------------------------------
Cash and Cash Equivalents at
End of Year $ 2,279,000 $ 1,653,000 $ 8,343,000
- --------------------------------------------------------------------------
Supplemental Disclosure
of Cash Flow Information
Income taxes paid $ 393,000 $ 303,000 $ 233,000
Interest paid 937,000 656,000 573,000
- --------------------------------------------------------------------------
Supplemental Disclosure of
Non-Cash Activities
Notes issued in connection
with purchase of assets(b) $ - $ - $ 1,102,000
Stock issued in connection
with acquisition(b) - 6,599,000 1,227,000
Assumption of liabilities
in connection
with asset purchases - - 793,000
Notes received in connection with
sale of assets held for resale(d) - 423,000 -
- --------------------------------------------------------------------------
See Notes to the Consolidated Financial Statements
(a) See Note 14
(b) See Note 2
(c) See Note 9
(d) See Note 10
<PAGE 23>
Notes to the Consolidated Financial Statements
December 31, 1996 and 1995
1. Summary of Significant Accounting Policies
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. The
Corporation's significant accounting policies are as follows:
a. Principles of Consolidation
The consolidated financial statements include the accounts of Zemex
Corporation and its wholly-owned subsidiaries (the "Corporation"). All
material intercompany transactions have been eliminated. As discussed in
Note 2, Alumitech, Inc. ("Alumitech") was acquired in two separate
transactions and, accordingly, was accounted for on an equity basis until it
became a wholly-owned subsidiary in February 1995.
b. Inventories
Inventories are stated at the lower of cost or market and are computed using
the average cost method. It is not practical to segregate finished products
from ore and concentrates. Supplies are stated at cost using the first-in,
first-out or average cost method.
c. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Repairs and maintenance
are charged to expense as incurred. Expenditures for major renewals and
improvements are capitalized. When assets are sold or otherwise retired,
the cost and accumulated depreciation or depletion are removed from the
accounts and any gain or loss is included in results of operations.
Provisions for depreciation are based upon estimated useful lives, using
principally the straight-line method. Depletion of mining properties and
depreciation of other mining assets are computed using the unit-of-production
method, except in the case of the Corporation's mica operation where the
estimated reserves exceed the expected production during the term of the
mining lease. The mica mining lease rights and deferred costs, including all
preproduction and set-up costs, are amortized using the straight-line method
over the term of the mining lease.
d. Postretirement Benefits
Pension Plans
The funding policy of the Corporation, generally, is to contribute annually
at a rate that is intended to provide for the cost of benefits earned during
the year and which will amortize prior service costs over periods of 10 to
30 years, subject to Internal Revenue Service limits for deductible
contributions.
<PAGE 24>
Healthcare and Other Postretirement Benefits Other Than Pensions
The Corporation accounts for healthcare and other postretirement benefits
other than pensions in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 106 - "Employers' Accounting for Postretirement
Benefits Other Than Pensions". This Statement requires the accrual of all
postretirement benefits other than pensions during the years in which
employees render the necessary services to be entitled to receive such
benefits. The 1996, 1995 and 1994 amounts include the current year expense
and the transition liability which is being amortized over twenty years as
allowed by SFAS No. 106 (Note 7).
e. Foreign Currency Translation
The functional currency for the Corporation's foreign operations is the
local currency. Foreign currency assets and liabilities are translated using
the exchange rates in effect at the balance sheet date. The effect of
exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars is accumulated as part of the cumulative
translation adjustment component of shareholders' equity. Results of operations
and cash flows are translated using the average exchange rates during the
year. Gains and losses from foreign currency transactions are included in
net income for the year.
f. Research and Development Expense
Research and development expense was $622,000 in 1996, $320,000 in 1995 and
$315,000 in 1994.
g. Provision for Future Reclamation Costs
Costs for future reclamation have been provided for based upon estimated
future reclamation costs allocated over the expected productive lives of the
quarries.
h. Income Taxes
The Corporation accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes". This Statement requires the liability method
of accounting for income taxes.
i. Earnings Per Share
Earnings per share is based upon the weighted average number of common
shares and common share equivalents outstanding. Common share equivalents
include stock options issued under the employee stock option plans and stock
issued under the Key Executive Common Stock Purchase Plan (Note 9). For the
purpose of calculating earnings per share, stock dividends are considered to
be issued at the beginning of the period.
<PAGE 25>
j. Deferred Financing Costs
Costs associated with the issuance of long term debt are deferred, and are
being amortized over the term of the debt on a straight-line basis. The
unamortized balance is included in other assets.
k. Other Assets
Other assets include assets held for sale which are stated at the lower of
cost or estimated net realizable value. In determining the estimated net
realizable value, the Corporation deducts from the estimated selling price the
projected costs to bring the assets into a saleable condition, to dispose of
the assets and to hold the property to an expected date of sale. Other
assets also includes patents which are stated at cost and are being
amortized over their remaining life of 14 years on a straight-line basis.
Intangible assets are evaluated periodically and, if conditions warrant,
an impairment valuation is provided.
l. Cash Equivalents
For purposes of the consolidated statements of cash flows, highly liquid
investments with original maturities of three months or less, when
purchased, are considered as cash equivalents.
m. Stock-Based Compensation Costs
Stock-based compensation costs for pro forma presentation purposes (Note 9)
are based on the fair value of each option at the grant date. The option
value is calculated using the Black-Scholes option-pricing model.
2. ACQUISITIONS
Acquisition of Alumitech, Inc.
In June 1994, the Corporation acquired its initial 39.53% investment in
Alumitech by investing $2,000,000 to acquire treasury stock. In 1995, the
Corporation increased its interest to 100% by issuing 722,352 shares of
common stock with an ascribed value of $6,599,000. The shares were issued as
to 266,106 to Dundee Bancorp International Inc. ("Dundee"), the
Corporation's largest shareholder, and as to 266,106 to Clarion Capital
Corporation, a company controlled by a director of the Corporation.
Alumitech, an aluminum dross processor, has developed proprietary technology
that enables it to have the ability to convert 100% of its dross feed into
marketable products.
The acquisition of Alumitech has been accounted for using the purchase
method of accounting and, accordingly, the purchase price has been allocated
to the assets purchased and liabilities assumed based upon the fair values
at the date of acquisition. The net purchase price was allocated as
follows:
<PAGE 26>
- --------------------------------------------------------------------------
Working capital $ 73,000
Property, plant and equipment 5,527,000
Patents 7,363,000
Other assets 225,000
Other liabilities (2,192,000)
Deferred income taxes (2,025,000)
- --------------------------------------------------------------------------
$ 8,971,000
- --------------------------------------------------------------------------
Consideration
Carrying value of investment at date of
acquisition of remaining interest $ 2,372,000
Capital stock 6,599,000
- --------------------------------------------------------------------------
$ 8,971,000
- --------------------------------------------------------------------------
The operating results of Alumitech have been included in the consolidated
statements of income from the date of acquisition. On the basis of a pro
forma consolidation of the results of operations as if the acquisition had
taken place at the beginning of fiscal 1994, rather than at February 15,
1995, consolidated net sales would have been $64,500,000 for fiscal 1994,
and $86,900,000 for fiscal 1995. Consolidated pro forma income and earnings
per share would not have been materially different from the reported amounts
for fiscal 1994 and 1995. Such pro forma amounts are not necessarily
indicative of what the actual consolidated results of operations might have
been if the acquisition had been effective at the beginning of fiscal 1994.
Acquisition of the assets of Benwood Limestone Company, Inc.
On May 15, 1995, the Corporation acquired the assets of Benwood Limestone
Company, Inc. ("Benwood"), through its wholly-owned subsidiary, Suzorite
Mineral Products, Inc. ("SMP"), for $3,658,000. The acquisition of Benwood
augmented the Corporation's talc and mineral processing capability. Benwood
will continue to process consumer products for its former owner under a
long term contract.
Acquisition of the talc operations of Whittaker, Clark & Daniels, Inc.
In December 1994, the Corporation, through SMP, acquired from Whittaker,
Clark & Daniels, Inc. ("WCD") certain assets including its talc operations.
Consideration for the purchase included $4,388,000 in cash, 136,360 common
shares of the Corporation with an ascribed value of $1,227,000, and the
assumption of certain current liabilities directly relating to the
operations acquired aggregating $267,000. Concurrent with the purchase,
the Corporation entered into an agreement with WCD whereby WCD agreed to act
as the exclusive marketing, distribution and sales agent for the
Corporation's premium talc products.
<PAGE 27>
Acquisition of the assets of Greenback Industries, Inc.
In September 1994, the Corporation, through its wholly-owned subsidiary,
Pyron Metal Powders, Inc., acquired the assets and assumed certain
liabilities of Greenback Industries, Inc. ("Greenback"). Consideration for
the purchase was $500,000 in cash, the issuance of two promissory notes
having principal amounts of $650,000 and $451,563, respectively, and the
assumption of certain current liabilities aggregating $526,000. The
Greenback facilities provide the Corporation with increased capacity to
produce powdered copper as well as powdered tin, and powdered copper and tin
alloys.
3. INVENTORIES
- --------------------------------------------------------------------------
1996 1995
Ore, concentrates and finished products
Industrial minerals $ 8,565,000 $ 10,852,000
Metal products 5,035,000 4,042,000
- --------------------------------------------------------------------------
13,600,000 14,894,000
- --------------------------------------------------------------------------
Materials and supplies
Industrial minerals 3,683,000 3,867,000
Metal products 888,000 1,415,000
- --------------------------------------------------------------------------
4,571,000 5,282,000
- --------------------------------------------------------------------------
$ 18,171,000 $ 20,176,000
- --------------------------------------------------------------------------
4. PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------
Land $ 5,246,000 $ 4,952,000
Mining properties and deferred costs 6,605,000 5,535,000
Buildings 16,728,000 15,304,000
Machinery and equipment 50,937,000 45,797,000
Construction in progress 15,065,000 7,609,000
- --------------------------------------------------------------------------
Total property, plant and equipment, at cost 94,581,000 79,197,000
Less: Accumulated depreciation, depletion
and amortization 32,497,000 28,926,000
- --------------------------------------------------------------------------
Net property, plant and equipment $ 62,084,000 $ 50,271,000
- --------------------------------------------------------------------------
As of December 31, 1996, the Corporation estimates that approximately
$4,592,000 will be expended to complete its construction in progress.
<PAGE 28>
5. OTHER ASSETS
- --------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------
Prepaid pension cost(Note 7) $ 1,488,000 $ 1,632,000
Assets held for resale(Note 10) 300,000 250,000
Deferred financing costs 659,000 802,000
Other deferred charges 318,000 443,000
Promissory notes receivable,
non-current portion - 369,000
Patents, net 6,673,000 7,079,000
- --------------------------------------------------------------------------
$ 9,438,000 $ 10,575,000
- --------------------------------------------------------------------------
6. INCOME TAXES
The provision for income taxes consists of the following components:
- --------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
Income from operations before
provision for income taxes
Domestic $ 1,492,000 $ 7,708,000 $ 3,631,000
Foreign 171,000 191,000 1,948,000
- --------------------------------------------------------------------------
Total pre-tax income $ 1,663,000 $ 7,899,000 $ 5,579,000
- --------------------------------------------------------------------------
Current tax provision
Federal $ 478,000 $ 1,849,000 $ 880,000
State and local 123,000 293,000 258,000
Foreign 76,000 37,000 425,000
- --------------------------------------------------------------------------
Total 677,000 2,179,000 1,563,000
- --------------------------------------------------------------------------
Deferred tax provision
Federal (1,369,000) 283,000 -
State and local (257,000) 55,000 -
Foreign - 40,000 256,000
- --------------------------------------------------------------------------
Total (1,626,000) 378,000 256,000
- --------------------------------------------------------------------------
Benefit of operating loss and tax
credit carryforwards - (3,076,000) (2,490,000)
- --------------------------------------------------------------------------
Recovery of income taxes $ (949,000) $ (519,000) $ (671,000)
- --------------------------------------------------------------------------
<PAGE 29>
The following tabulation reconciles the U.S. federal statutory income tax
rate to the federal, state and foreign overall effective income tax rate.
- --------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
PERCENT PERCENT PERCENT
Statutory federal rate 34.0 34.0 34.0
Benefit of operating loss carryforwards
(net of foreign income taxes) (43.8) (38.1) (46.0)
Percentage depletion (47.9) (4.9) -
Other 0.6 2.4 -
- --------------------------------------------------------------------------
Effective income tax rate (57.1) (6.6) (12.0)
- --------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. At
December 31, 1996, the Corporation had unused tax benefits of $6,172,000
related to U.S. federal and state net operating loss and tax credit
carryforwards. Significant components of the Corporation's deferred tax
assets and liabilities as of December 31 are as follows (dollars in
thousands):
- --------------------------------------------------------------------------
1996 1995
U.S. Foreign Total U.S. Foreign Total
- --------------------------------------------------------------------------
Deferred tax assets
Net operating loss
and tax credit
carryforwards $ 6,172 $ - $ 6,172 $4,102 $ - $ 4,102
Accrued expenses and
reserves 763 - 763 444 - 444
Bad debt allowances 139 - 139 112 - 112
Inventories 526 - 526 505 - 505
Other 63 - 63 137 - 137
- --------------------------------------------------------------------------
Gross deferred tax
assets 7,663 - 7,663 5,300 - 5,300
- --------------------------------------------------------------------------
Deferred tax liabilities
Property, plant
and equipment 2,656 2,075 4,731 2,159 2,075 4,234
Patent 1,791 - 1,791 1,929 - 1,929
Pension
contributions 521 - 521 600 - 600
Other 424 - 424 102 - 102
- --------------------------------------------------------------------------
Total 5,392 2,075 7,467 4,790 2,075 6,865
- --------------------------------------------------------------------------
Net deferred tax
(assets)
liabilities $(2,271) $2,075 $ (196) $ (510) $ 2,075 $ 1,565
- --------------------------------------------------------------------------
<PAGE 30>
The net change in the valuation allowance for deferred tax assets was a
decrease of $1,645,000 in the year ended December 31, 1995 related primarily
to benefits arising from recognition of net operating loss carryforwards. In
1995, the benefit of the balance of the net operating losses was recognized
and, accordingly, the valuation allowance was reduced to nil.
At December 31, 1996, the Corporation had approximately $15,000,000 of
federal operating loss carryforwards available to reduce future taxable
income which will expire between 2002 and 2011. Additionally, the
Corporation has unused general business tax credits, which expire between
1997 and 2011, and alternative minimum tax credits.
7. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Pension Plans
The Corporation has several pension plans covering substantially all domestic
employees. The plans covering salaried employees provide pension benefits
that are based on the compensation of the employee. In all plans, the plan
assets exceed the benefit obligations and hence the plans are overfunded.
Net periodic pension cost (income) included the following components:
- --------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
Current service costs $ 528,000 $ 369,000 $ 422,000
Interest cost on projected
benefit obligations 1,028,000 940,000 882,000
Actual return on assets (389,000) (2,587,000) 368,000
Net amortization and deferral (1,023,000) 1,164,000 (1,704,000)
- --------------------------------------------------------------------------
Net pension expense (income) $ 144,000 $ (114,000) $ (32,000)
- --------------------------------------------------------------------------
Net amortization and deferral consists of amortization of net assets at
transition and deferral of subsequent net gains and losses. The assumptions
used to determine projected benefit obligations were (i) a discount rate of
7 percent in 1996 and 1995 and 7.5 percent in 1994; (ii) an expected long
term rate of return on assets of 8.75% in 1996, 1995 and 1994; and (iii) an
increase in the level of compensation of 6% for 1996, 1995 and 1994.
<PAGE 31>
The status of the plans and the amounts recognized in the consolidated balance
sheets of the Corporation for its pension plans as of December 31, 1996 and
1995 are tabulated below:
- --------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------
Actuarial present value of benefit obligations
Vested benefit obligation $ 11,687,000 $ 11,059,000
- --------------------------------------------------------------------------
Accumulated benefit obligation $ 11,896,000 $ 11,261,000
- --------------------------------------------------------------------------
Projected benefit obligation $ (15,925,000) $(15,042,000)
Plan assets at fair value 16,432,000 16,646,000
- --------------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 507,000 1,604,000
Unrecognized net loss 1,071,000 226,000
Prior service cost not yet recognized
in net periodic pension cost 239,000 282,000
Unrecognized net asset at year end (329,000) (480,000)
- --------------------------------------------------------------------------
Prepaid pension cost included in
consolidated balance sheets $ 1,488,000 $ 1,632,000
- --------------------------------------------------------------------------
Other Postretirement Benefits
The Corporation provides healthcare and life insurance benefits for certain
retired employees which, are accrued as earned (Note 1). The cost of such
benefits was $105,000 in 1996, $95,000 in 1995, and $73,000 in 1994. The
unrecognized obligation for postretirement benefits is not material.
8. LONG TERM DEBT
- --------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------
Term loan facility (a) $ 14,167,000 $ 2,700,000
Other term loans (b) 813,000 1,038,000
Industrial Development Revenue Bonds (c) 4,080,000 4,612,000
Promissory notes (d) 113,000 811,000
Capital leases (e) 488,000 330,000
Other 337,000 372,000
- --------------------------------------------------------------------------
Total debt 19,998,000 9,863,000
Less: Current portion 2,201,000 2,378,000
- --------------------------------------------------------------------------
Long term debt $ 17,797,000 $ 7,485,000
- --------------------------------------------------------------------------
<PAGE 32>
(a) During 1995, the Corporation entered into a $30,224,000 credit
facility with a syndicate of two banks. The credit facility is further
subdivided into four facilities: (i) a $10,000,000 revolving credit and term
loan facility; (ii) a $10,000,000 multiple advance term loan facility; (iii)
a $5,224,000 standby letter of credit; and (iv) a $5,000,000 operating line.
These facilities are secured by specific assets and a floating charge over a
significant portion of the Corporation's assets. The facilities bear interest
at rates varying from bank prime to bank prime plus 0.25% and from LIBOR
plus 1.25% to LIBOR plus 2.25%, depending upon the financial position of the
Corporation. As at December 31, 1996 and December 31, 1995, there was
$5,000,000 and $2,000,000, respectively, outstanding under the operating
line and $9,167,000 and $2,700,000, respectively, outstanding under the
multiple advance term loan facility. Advances under the revolving credit and
term loan facility as at December 31, 1996 were $5,000,000, and the standby
letter of credit was issued to secure Pyron's Industrial Development Revenue
Bonds (see (c) below). The operating line matures June 30, 1997 and is
reviewed annually for renewal. The multiple advance term loan facility
requires quarterly payments of $278,000 which commenced April 1, 1996 with
the balance outstanding, if any, due January 1, 2000.
(b) The other term loans bear interest at the prime rate of the lending
institution plus 1.25 percent to 1.50 percent, depending on certain tests.
They are secured by substantially all of the fixed assets of Alumitech and
its wholly-owned subsidiaries and are repayable in monthly principal instalments
of approximately $19,000 until they are repaid with a terminal payment in
1999.
(c) Pyron Corporation ("Pyron") entered into a lease agreement on
November 29, 1989 with the Niagara County Industrial Development Agency
(the "Agency") to partially finance the construction of a manufacturing
facility, acquire and install equipment and machinery, and renovate the
existing Pyron facility for the purpose of manufacturing atomized steel
powders. The agreement authorized the Agency to issue and sell Industrial
Development Revenue Bonds in the aggregate principal amount of $7,650,000
to provide the funds for the project.
While the bonds are not the obligation of Pyron, the agreement requires
Pyron to make quarterly rental payments equal to the debt service under the
sinking fund requirements and interest on the outstanding principal to the
Agency. The amount outstanding at December 31, 1996 and 1995 was $4,080,000
and $4,612,000, respectively. Pyron's annual obligation under the agreement
is $510,000 until paid.
The bonds bear interest at a variable rate not to exceed 15 percent per
annum. The rate at December 31, 1996 was 4.15% and at December 31, 1995 was
5.25 percent. Pyron has the option to convert the bonds to a fixed interest
rate at any time during the term. Under the lease agreement, Pyron may
purchase the facility at any time during the term, which expires November
1, 2004, by paying the outstanding principal amount of the bonds plus $1.
<PAGE 33>
The bonds are collateralized by a mortgage on the land, the new facility and
the existing facility, which have an aggregate net book value of
approximately $9,480,000 at December 31, 1996.
A bank has provided Pyron with a letter of credit which is available to
support Pyron's obligations under the lease agreement. If the bondholders
tender their bonds for repayment, the letter of credit will be utilized to
pay the bondholders. The letter of credit is collateralized under the credit
facility in (a) above. The letter of credit expires on October 1, 1999.
(d) In 1994, Pyron Metal Powders, Inc. issued two promissory notes to
former owners in connection with the acquisition of its two operations. One
promissory note with an aggregate principal amount outstanding as of
December 31, 1995 of $325,000, bearing interest at 7 percent in both 1996
and 1995, was paid in full September 15, 1996. A second note with an
aggregate principal amount of $113,000 outstanding as at December 31, 1996
and $263,000 at December 31, 1995 is non-interest bearing with monthly
principal payments of $12,550 commencing October 15, 1994 until the final
payment of $12,313 due September 15, 1997.
(e) The Corporation has long term capital lease agreements at various
rates and for various terms with maturities ranging from 1997 to 2001 for
equipment used in its operations. The carrying value of the leased equipment
as of December 31, 1996 was $573,000.
Principal repayments on long term debt are as follows:
- --------------------------------------------------------------------------
1997 $ 2,201,000
1998 2,068,000
1999 2,661,000
2000 10,883,000
2001 545,000
Thereafter 1,640,000
- --------------------------------------------------------------------------
$ 19,998,000
- --------------------------------------------------------------------------
Interest
Interest earned and expensed in each of the past three years is summarized
below:
- --------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
Interest income $ 93,000 $ 268,000 $ 246,000
Interest expense (1,041,000) (791,000) (671,000)
- --------------------------------------------------------------------------
Net interest expense $ (948,000) $ (523,000) $ (425,000)
- --------------------------------------------------------------------------
<PAGE 34>
9. COMMON STOCK, STOCK OPTIONS AND WARRANTS
Shares Outstanding
During 1995, the Corporation increased its authorized common stock from
10,000,000 to 25,000,000, par value one dollar per share, of which
20,000,000 shares will be denominated common stock and 5,000,000 shares will
be denominated preferred stock. There were 8,269,099 shares of common stock
issued and outstanding as of December 31, 1996 and 8,355,722 shares as of
December 31, 1995.
In May 1994, the Corporation issued 347,826 shares of common stock in a
private placement transaction for aggregate proceeds of $2,000,000.
In September 1994, the Corporation issued 2,000,000 shares of its common
stock pursuant to a public offering of shares for net proceeds, after
underwriting fees and expenses of issue, of $18,522,000.
In 1995, the Corporation completed its purchase of 100 percent of Alumitech
by issuing 722,352 shares of common stock with an ascribed value of
$6,599,000.
During 1996, 80,000 shares of common stock were purchased pursuant to the
Corporation's employee stock purchase plan for an aggregate cost of
$672,000.
During 1995, 49,000 shares of common stock were purchased pursuant to the
Corporation's employee stock purchase plan for an aggregate cost of
$471,000. The plan was approved by the shareholders and provides that
250,000 shares may be purchased under the plan. The shares have been
registered for listing on the New York Stock Exchange.
As part of a stock repurchase program initiated in 1994, the Corporation
has purchased 773,000 of shares of common stock on the open market:
344,000 common shares in 1996 for an aggregate cost of $3,170,000, 376,000
common shares in 1995 for an aggregate cost of $3,572,000 and 53,000 common
shares in 1994 for an aggregate cost of $465,000.
Dividends
On October 18, 1996, the Corporation declared a 2 percent stock dividend to
shareholders of record on November 4, 1996, which was paid November 18, 1996.
Retained earnings were charged $1,255,192 as a result of the issuance of
161,398 shares of the Corporation's common stock, and cash payments of
$4,357 in lieu of fractional shares.
On November 10, 1995, the Corporation declared a 2 percent stock dividend to
shareholders of record on November 24, 1995, which was paid December 8, 1995.
Retained earnings were charged $1,403,248 as the result of the issuance of
167,149 shares of the Corporation's common stock, and cash payments of
$3,375 in lieu of fractional shares.
<PAGE 35>
On November 14, 1994, the Corporation declared a 2 percent stock dividend to
shareholders of record on November 28, 1994, which was paid December 19, 1994.
Retained earnings were charged $1,320,307 as the result of the issuance of
145,708 shares of the Corporation's common stock, and cash payments of
$3,218 in lieu of fractional shares.
Stock Options
The Corporation provides stock option incentive plans and has, with
shareholder approval, issued options to certain directors outside of the
plans. The plans are intended to provide long term incentives and rewards to
executive officers, directors and other key employees contingent upon an
increase in the market value of the Corporation's common stock. Options for
10 percent of the Corporation's outstanding common shares are issuable under
the plans.
The following is a summary of option transactions under the Corporation's
stock option plans:
- --------------------------------------------------------------------------
For the years ended December 31 1996 1995 1994
- --------------------------------------------------------------------------
Options outstanding at beginning of year 852,550 556,550 572,500
Options granted during the year 61,000 341,000 25,000
Options exercised during the year (45,000) (38,250) (23,200)
Options cancelled during the year (23,000) (6,750) (17,750)
- --------------------------------------------------------------------------
Options outstanding at end of year 845,550 852,550 556,550
Options exercisable at end of year 631,550 511,550 333,550
Price range of options granted
during the year $7 3/4-$9 3/4 $9 1/8-$10 1/8$11 1/2
- --------------------------------------------------------------------------
The options expire from 1997 to 2002. During 1996 options for 45,000 shares
of common stock were exercised for proceeds of $235,500. At December 31, 1996
there were 631,550 options exercisable.
The Corporation does not recognize compensation expense for its stock-based
compensation plans. Had compensation cost for the stock option plans been
determined based upon fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS No. 123,
"Accounting for Stock-Based Compensation", the Corporation's net income and
earnings per share would have been reduced by approximately $341,000 or
$0.04 per share in 1996 and $2,177,000 or $0.27 per share in 1995. The fair
value of the options granted during 1996 and 1995 is estimated to be
$341,000 and $2,177,000, respectively. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in
1996 and 1995: dividend yield of 0%; expected volatility of 84% and 88%,
respectively; risk-free interest rate of 5.5%; and an expected life of 5
years.
<PAGE 36>
Warrants
During 1993, in connection with the acquisition of Suzorite Mica Products
Inc., the Corporation issued a transferable warrant to Dundee to purchase at
any time prior to July 15, 1995 up to 100,000 shares (104,040 shares after
adjustments for stock dividends) of common stock at $7.00 per share. The
warrant was exercised by Dundee on July 14, 1995 for proceeds of $700,000.
As a result of a stock rights offering in 1990, 725,769 warrants were issued.
Each warrant entitled the holder to purchase, prior to July 15, 1995, 1.08
shares of common stock at an exercise price of $8.56 per share, which was
repriced from $9.25 per share as a result of dilution due to the issuance of
stock dividends. Of the 725,769 warrants originally issued, the Corporation
repurchased 218,046 warrants at an aggregate cost of $222,000. During 1995,
448,000 warrants were exercised for 484,027 shares of common stock for net
proceeds of $4,143,000. During 1994, 31,514 warrants were exercised resulting
in the issuance of 32,771 shares of common stock at an exercise price of
$8.88 per share for aggregate proceeds of $291,000. There were no remaining
warrants outstanding as at December 31, 1995.
Note Receivable from Shareholder
The note receivable from shareholder of $1,749,000 represents amounts due
from the Corporation's President and Chief Executive Officer pursuant to the
Key Executive Common Stock Purchase Plan. The loan, which was used to acquire
357,000 shares of common stock of the Corporation, is non-interest bearing,
secured by a pledge of the shares acquired and due on the earlier of August
12, 1998 or 30 days after the termination of employment. Since the loan arose
from the sale of stock, it is classified as a reduction of shareholders'
equity.
10. REORGANIZATION CHARGES AND UNUSUAL ITEMS
Reorganization Charges
During the first quarter of 1996, the Corporation recognized reorganization
costs of $1,752,000 in connection with the reorganization of its minerals
division, a write-down to market of inventory held in Brazil and the
recognition of a provision for anticipated costs associated with storing and
selling the material. The Brazilian enterprise was unsuccessful primarily
due to rapidly deteriorating market prices which made market penetration
extremely difficult.
Unusual Items
In December 1991, the Corporation closed its industrial minerals plant
located in Connecticut. The assets of this operation were reclassified to
assets held for resale and written down in 1991 by $430,000 to their estimated
net realizable value. These assets were written down by a further $300,000 in
1993. In 1995, a portion of the property was sold for approximately net book
value. In 1996, the purchaser defaulted on the payment obligations.
Accordingly, the Corporation instituted legal action to repossess the property.
A provision of $723,000 has been recorded to provide for reclamation costs,
legal costs and to write-down the property to current market value.
<PAGE 37>
11. OPERATING LEASES AND OTHER COMMITMENTS
Operating Leases
The Corporation has a number of operating lease agreements primarily
involving equipment, office space, warehouse facilities and rail sidings. The
operating lease for equipment provides that the Corporation may, after the
initial lease term, renew the lease for successive yearly periods or may
purchase the equipment at the fair market value. An operating lease for office
facilities contains escalation clauses for increases in operating costs and
property taxes. The majority of the leases are cancellable and are renewable
on a yearly basis.
Future minimum rental payments required by operating leases that have initial
or remaining non-cancellable lease terms in excess of one year as of
December 31, 1996 are as follows:
- --------------------------------------------------------------------------
Minimum
Years Lease Payments
- --------------------------------------------------------------------------
1997 $ 520,000
1998 393,000
1999 271,000
2000 195,000
2001 332,000
Thereafter 538,000
- --------------------------------------------------------------------------
Total minimum lease payments $ 2,249,000
- --------------------------------------------------------------------------
Rent expense was $668,000, $442,000, and $281,000 in 1996, 1995 and 1994,
respectively.
Other Commitments
The Corporation has a mining contract with an independent contractor expiring
on September 30, 1998 to extract minerals from its open pit mine in Suzor
Township, Quebec. This contract specifies the mining and delivery of
approximately 50,000 tons of ore per year to the mine site rail siding at a
fixed rate.
<PAGE 38>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of certain unaudited quarterly financial data
from continuing operations:
- --------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------
Net Sales
First quarter $ 22,405,000 $ 21,105,000
Second quarter 21,356,000 21,439,000
Third quarter 21,601,000 21,748,000
Fourth quarter 21,058,000 20,764,000
- --------------------------------------------------------------------------
$ 86,420,000 $ 85,056,000
- --------------------------------------------------------------------------
Operating Income
First quarter $ 170,000 $ 2,123,000
Second quarter 1,512,000 2,465,000
Third quarter 1,444,000 1,822,000
Fourth quarter (60,000) 1,932,000
- --------------------------------------------------------------------------
$ 3,066,000 $ 8,342,000
- --------------------------------------------------------------------------
Net Income
First quarter $ 6,000 $ 1,459,000
Second quarter 819,000 2,183,000
Third quarter 779,000 1,562,000
Fourth quarter 1,008,000 3,214,000
- --------------------------------------------------------------------------
$ 2,612,000 $ 8,418,000
- --------------------------------------------------------------------------
Net Income Per Share
First quarter $ .00 $ .19
Second quarter .10 .28
Third quarter .10 .18
Fourth quarter .13 .37
- --------------------------------------------------------------------------
13. FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Corporation to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Corporation's customer
base and their dispersion across a number of different industries,
principally construction, glass, electrical and automotive.
Financial instruments comprise cash and cash equivalents, accounts receivable,
short term bank borrowings, accounts payable, accrued liabilities, and long
term debt. The fair value of these financial instruments approximates their
carrying value.
<PAGE 39>
14. CHANGES IN NON-CASH WORKING CAPITAL ITEMS
The changes in non-cash working capital items are as follows:
- --------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
Increase in accounts receivable $ (1,838,000) $ (783,000) $ (2,384,000)
Decrease (increase) in inventories 2,005,000 (2,742,000) (4,471,000)
Increase in prepaid expenses (547,000) (16,000) (31,000)
(Decrease) increase in accounts
payable and accrued liabilities (185,000) (1,495,000) 2,248,000
Increase in accrued income taxes 32,000 376,000 327,000
- --------------------------------------------------------------------------
$ (533,000) $(4,660,000) $ (4,311,000)
- --------------------------------------------------------------------------
15. RELATED PARTY TRANSACTIONS
As at December 31, 1996 and 1995, accounts receivable included amounts due
from directors of $350,000. These amounts are non-interest bearing, with no
fixed terms of repayment, and have not otherwise been disclosed in the
consolidated financial statements.
16. SEGMENT INFORMATION
The Corporation has two principal lines of business and is organized into
two operating units based on its product lines: (i) industrial minerals, and
(ii) metal products. Industrial mineral products include feldspar, kaolin,
mica, talc, baryte, feldspathic sand and industrial sand. These products are
marketed principally to the automotive, housing, and ceramics industries in
North America. They are produced from mines and processing plants located
near Edgar, Florida; Monticello, Georgia; Murphy, North Carolina; Spruce Pine,
North Carolina; Natural Bridge, New York; Van Horn, Texas; Benwood, West
Virginia; Boucherville, Quebec; and Suzor Township, Quebec. Metal products
are processed in Niagara Falls, New York; St. Marys, Pennsylvania; and
Greenback, Tennessee. The Corporation's ferrous and non-ferrous metal powders
are marketed primarily in North America to manufacturers of powder metallurgy
parts used in the automotive and transportation industries. Aluminum dross
is recycled at a plant in Cleveland, Ohio and ceramic products are produced
at a plant in Streetsboro, Ohio. Corporate assets principally include cash,
term deposits, and furniture and fixtures.
<PAGE 40>
Information pertaining to sales and earnings from continuing operations and
assets by business segment appears below:
- --------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
Net sales (a)
Industrial minerals $ 40,469,000 $ 37,089,000 $ 30,378,000
Metal products 45,951,000 47,967,000 24,928,000
- --------------------------------------------------------------------------
Total $ 86,420,000 $ 85,056,000 $ 55,306,000
- --------------------------------------------------------------------------
Operating income (a)
Industrial minerals $ 3,118,000 $ 4,622,000 $ 3,865,000
Metal products 1,868,000 3,677,000 2,202,000
Reorganization charges(b) (1,752,000) - -
General unallocated
corporate (168,000) 43,000 (226,000)
- --------------------------------------------------------------------------
Total 3,066,000 8,342,000 5,841,000
Interest expense net (948,000) (523,000) (425,000)
Other (expense) income,
net(b) (455,000) 80,000 163,000
- --------------------------------------------------------------------------
Income before recovery
of income taxes $ 1,663,000 $ 7,899,000 $ 5,579,000
- --------------------------------------------------------------------------
Capital expenditures (a)(c)
Industrial minerals $ 11,855,000 $ 9,653,000 $ 2,050,000
Metal products 4,528,000 5,784,000 878,000
Corporate 43,000 14,000 149,000
- --------------------------------------------------------------------------
Total $ 16,426,000 $ 15,451,000 $ 3,077,000
- --------------------------------------------------------------------------
Depreciation, depletion
and amortization (a)
Industrial minerals $ 2,352,000 $ 1,932,000 $ 1,456,000
Metal products 1,948,000 1,451,000 828,000
Corporate 394,000 306,000 31,000
- --------------------------------------------------------------------------
Total $ 4,694,000 $ 3,689,000 $ 2,315,000
- --------------------------------------------------------------------------
Identifiable assets
at year end (a)
Industrial minerals $ 60,915,000 $ 52,348,000 $ 36,853,000
Metal products 37,145,000 34,133,000 22,665,000
Corporate (d) 11,316,000 10,200,000 11,346,000
- --------------------------------------------------------------------------
Total $ 109,376,000 $ 96,681,000 $ 70,864,000
- --------------------------------------------------------------------------
(a) The Corporation's businesses are located in the United States and
Canada, which the Corporation considers one geographic segment.
(b) See Note 10.
(c) Capital expenditures for 1995 and 1994 exclude property, plant and
equipment of $9,027,000 and $3,264,000, respectively, acquired in
connection with the Corporation's 1995 and 1994 acquisitions (Note 2).
(d) Includes cash and cash equivalents for all years presented.
<PAGE 41>
Selected Financial Data
- --------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net Sales $86,420,000 $85,056,000 $55,306,000 $47,958,000 $42,020,000
Restructuring
Charges - - - 1,250,000 -
Reorganization
Charges 1,752,000 - - - -
Operating
Income 3,066,000 8,342,000 5,841,000 1,237,000 1,737,000
Other Income
(Expenses) (1,403,000) (443,000) (262,000) 2,421,000 (475,000)
Net Income
from Continuing
Operations 2,612,000 8,418,000 6,250,000 3,188,000 838,000
Net Income 2,612,000 8,418,000 6,250,000 1,852,000 949,000
- -----------------------------------------------------------------------------
FINANCIAL POSITION
Working Capital $ 18,688,000 $19,709,000 $26,046,000 $ 9,288,000 $ 9,431,000
Total Assets 109,376,000 96,681,000 70,864,000 48,414,000 50,773,000
Long Term Debt
(non-current
portion) 17,797,000 7,485,000 5,461,000 8,735,000 9,593,000
- -----------------------------------------------------------------------------
COMMON STOCK
Average Common
Shares Outstanding 8,000,522 8,208,874 5,588,682 4,605,440 4,440,551
Actual Common
Shares Issued
and Outstanding
at Year End 8,269,099 8,355,722 7,168,153 4,535,283 4,491,834
- -----------------------------------------------------------------------------
PER COMMON SHARE
Net Income $ 0.33 $ 1.03 $ 1.12 $ 0.40 $ 0.21
Net Income,
excluding the
benefit of tax loss
carryforwards 0.14 0.63 0.65 0.20 0.21
- -----------------------------------------------------------------------------
COMMON STOCK PRICES
High $ 10 $ 10 7/8 $ 12 1/4 $ 8 $ 6 3/8
Low 6 7/8 8 1/4 6 1/8 4 1/2 2 7/8
Year End 7 10 8 5/8 6 3/4 5 3/8
- -----------------------------------------------------------------------------
<PAGE 43>
Corporate Directory
BOARD OF DIRECTORS
Paul A. Carroll
Chairman and
Chief Executive Officer,
World Wide Minerals Ltd. (1)
Morton A. Cohen
Chairman, President and
Chief Executive Officer,
Clarion Capital Corporation
John M. Donovan
Corporate Consultant (1) (2)
Thomas B. Evans, Jr.
Vice Chairman,
The Jefferson Group Inc. (2)
Ned Goodman
Chairman, President and Chief Executive Officer, Dundee Bancorp Inc.
Peter Lawson-Johnston
Chairman and Trustee,
Solomon R. Guggenheim Foundation; Chairman,
The Harry Frank Guggenheim Foundation (1) (3)
Richard L. Lister
President and Chief Executive Officer of the Corporation (3)
Patrick H. O'Neill
Corporate Consultant (2)
William J. vanden Heuvel
Counsel, Strook, Strook &
Lavan (3)
(1) Member of the Executive Compensation/Pension Committee
(2) Member of the Audit Committee
(3) Member of the Executive Committee
OFFICERS
Peter Lawson-Johnston
Chairman of the Board
Richard L. Lister
President and Chief Executive Officer
Allen J. Palmiere
Vice President, Chief Financial Officer and Assistant Secretary
Peter J. Goodwin
Vice President;
President, Industrial Minerals
Terrance J. Hogan
President, Alumitech, Inc.
G. Russell Lewis
President, Metal Powers
Patricia K. Moran
Assistant Secretary-Treasurer
EXECUTIVE OFFICE
Zemex Corporation
Canada Trust Tower
BCE Place, 161 Bay Street
Suite 3750, P.O. Box 703
Toronto, Ontario
Canada M5J 2S1
Telephone: (416) 365-8080
Fax: (416) 365-8094
Independent Public Accountants
Deloitte & Touche
Toronto, Ontario, Canada
Transfer Agent
and Registrar
Capital Stock
First Union National Bank
of North Carolina
Shareholder Services Group
230 South Tryon Street
Charlotte, N.C. 28288
Telephone: (800) 829-8432
Fax: (704) 374-6114
Form 10-K
Copies of Form 10-K filed with the Securities and Exchange Commission for
the year ended December 31, 1996 will be available after April 1, 1997 by
writing to Shareholder Relations at the Executive Office
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,279,000
<SECURITIES> 0
<RECEIVABLES> 15,455,000
<ALLOWANCES> 452,000
<INVENTORY> 18,171,000
<CURRENT-ASSETS> 37,854,000
<PP&E> 94,581,000
<DEPRECIATION> 32,497,000
<TOTAL-ASSETS> 109,376,000
<CURRENT-LIABILITIES> 19,166,000
<BONDS> 0
0
0
<COMMON> 8,950,000
<OTHER-SE> 62,047,000
<TOTAL-LIABILITY-AND-EQUITY> 109,376,000
<SALES> 86,420,000
<TOTAL-REVENUES> 86,420,000
<CGS> 66,416,000
<TOTAL-COSTS> 81,602,000
<OTHER-EXPENSES> 455,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 948,000
<INCOME-PRETAX> 1,663,000
<INCOME-TAX> (949,000)
<INCOME-CONTINUING> 2,612,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,612,000
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
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