U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual report pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934
For the fiscal year ended November 30, 1996
Commission file number 0-3492
RESERVE INDUSTRIES CORPORATION
(Name of Small Business Issuer in its charter)
NEW MEXICO 85-0128783
State or other jurisdiction I.R.S. Employer Identification No.)
Incorporation or Organization)
20 First Plaza, Suite 308, Albuquerque, New Mexico 87102
(Address of principal executive offices) (Zip Code)
505-247-2384
Issuer's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $1.00 Par Value Title of each class
Check whether the issuer: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form,
and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10KSB. X
State the issuer's revenues from continuing operations for its
most recent fiscal year. $2.7 million
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60 days. As of
February 14, 1997 $221,350.
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date. As
of February 14, 1997, 3,203,763 $1.00 Par Value
<PAGE)
PART I
Item 1. Description of Business
(a) Business Development. Reserve Industries Corporation, a
New Mexico Corporation incorporated in 1957, (the "Registrant")
is engaged in the mining and sale of silica sand. The
Registrant conducts these operations in the USA. In addition,
the Registrant holds several properties with mineral potential
and has equity interests in operations that supply services and
products to the steel industry and in operations in the Far East
that process waste slag from the smelting of copper into various
abrasive products used by the ship repair industry.
The Registrant, through its wholly owned subsidiary Reserve
Silica Corporation (Reserve Silica), located in Ravensdale,
Washington, southeast of Seattle, mines and processes silica
sand. The mine run sand is extracted from open pit mines
located on leased land and is transported to an adjacent sand
processing plant. The wet plant crushes, washes and separates
the clay from the mine run sand and classifies the sand into
several products, which are marketed to the cement industry and
to golf courses for sand traps. The facility also incorporates
a drying plant, which produces a dried silica sand for the glass
container industry. Reserve Silica is working to develop other
silica sand products to serve other markets. During last year,
Reserve Silica began a plant modernization program to replace
and upgrade both the wet plant and drying plant. All of the
equipment for the wet plant upgrade was purchased and installed
during 1996. The new air handling equipment to upgrade the
drying plant has been purchased and is expected to be installed
in the spring of 1997.
The Registrant, through its wholly owned subsidiaries Reserve
Rossborough Corporation (Reserve Rossborough) and Reserve
Rossborough Ventures Corporation (Reserve Rossborough Ventures),
owns an equity interest in Rossborough Manufacturing Co. L.P.
(Rossborough), of Avon Lake, Ohio. A description of ownership
is described in footnote 5 of the notes to the consolidated
financial statements. Rossborough provides products and
services to the primary steel industry and is a major supplier
of magnesium based reagent compounds used to externally
desulfurize hot iron metal. External desulfurization of hot
metal iron is its primary business segment of the Partnership.
Rossborough has a magnesium grinding facility located near
Walkerton, Indiana that processes both magnesium ingots and
secondary magnesium granules into a size suitable for use in
iron desulfurization. The magnesium granules are blended at
both Avon Lake and Walkerton with other materials to make the
finished desulfurization reagents. Rossborough is one of the
three primary suppliers of desulfurization services in North
America. It has been working to expand its international
operations and is currently operating through joint ventures in
Japan, Slovakia and Belgium.
Rossborough's other business segments include the manufacture
of special refractory lances and slag skimmers used in
desulfurizing operations; the manufacture of custom
desulfurizing reagent injection equipment; the manufacture of
molten metal samplers and thermocouples; the exclusive
distributor for Bimac ladle powders and slag conditioning
agents; and the distribution of selected other purchased
products. During the year, Rossborough became certified under
ISO 9001 and 9002
<PAGE>
The Registrant owns a 20% stock interest in JPL Industries Pte.
Ltd., (JPL) a Singapore company organized in 1990. The other
shareholders are a subsidiary of Jurong Shipyards Ltd., a
Singapore company and two Japanese companies, Nippon Mining &
Metals Company, Ltd. and Mitsui & Company, Ltd. JPL is in the
waste management business. JPL operates as a collection and
treatment center for wastes generated by other industries. It
identifies wastes which have the potential to be recycled,
develops processes to recycle the wastes and coverts the wastes
into value added products.
JPL is also in the business of selling processed and
unprocessed copper slags that are used for abrasive blasting
purposes. A plant has been constructed the help the Singapore
ship repairing industry dispose of its used copper slag
abrasives. The plant mechanically separates contaminates from
used abrasives. The recycled abrasives are segregated into a
coarse size fraction, which is suitable for reuse as a blasting
abrasive, and a fine slag size fraction. The fine slag fraction
has been cycled to other products such as interlocking concrete
pavers and as a partial replacement for sand and aggregates in
ready-mix concrete.
During the fall of 1995, JPL authorized the issuance of S$12.5
million (Singapore dollars) of interest bearing redeemable
convertible unsecured loan stocks. All of these convertible
loan stocks were subscribed by the first quarter of 1996. The
loan has been used to finance the second stage of the copper
slag processing and recycle facility and to expand the concrete
paver plant. If the all of the convertible loans are converted
into common stock, the Registrant's interest will be reduced to
approximately 7%.
The Registrant has a number of mineral interests that it deals
in the normal course of business and below is description of the
properties currently held.
The Registrant, through its wholly-owned subsidiary Reserve
Minerals Corporation (Reserve Minerals), has retained economic
interests in three uranium joint ventures located in northern
Saskatchewan, Canada. The retained interests in the Waterbury
Lake Joint Venture and the Dawn Lake Joint Venture are net
profit interests of approximately 0.75% and 1.5%, respectively.
The Registrant owns a 1% royalty on its former 9.063% interest
on all minerals produced in the McArthur River Joint Venture.
Some or all of the retained net profits and royalty interests
may become earning assets in the future.
The Waterbury Lake Joint Venture includes the Cigar Lake
deposit, which contains approximately 1.0 million tons of
uranium mineralization at a grade of 14% and an additional 1.1
million tons of uranium mineralization at a grade of 4.5%. This
equates to approximately 385 million pounds of uranium
concentrate, U3O8. The deposit covers an area of approximately
40 acres. The Cigar Lake Mining Corporation, formed by the
Waterbury Lake Joint Venture, has the responsibility of
developing the Cigar Lake property. A special underground
remote mining and transport method, which surpasses prevailing
safety standards, has been developed and successfully tested
within the deposit. The venture has made arrangements to have
the ore processed at the McClean Lake mill currently under
construction and located approximately 60 kilometers from the
orebody. In 1995, an environmental impact statement was
submitted for review. Mining is dependent on the successful
completion of the permitting process and the development of
favorable markets, which could occur before the end of the
century.
The McArthur River Joint Venture continued exploration work on
the uranium deposit discovered in 1988. As a result of
underground exploration drilling, the geologic reserves in the
property have been increased to 416 million pounds of U3O8 at
an average grade of 15% U3O8. The operator of the property has
begun the permitting process and an environmental impact
statement was submitted for review in 1995. If the process is
successful, the new mine would begin production before the end
of the century. The mine would replace production from the Key
Lake deposit and the Key Lake processing mill will be used to
process the ore.
The Dawn Lake Joint Venture has a uranium deposit containing
755,900 tons of uranium mineralization at an average grade of
1.97%. This equates to approximately 29.8 million pounds of
uranium.
<PAGE>
The Registrant holds various non-producing mineral properties
in the United States. In New Mexico it owns the mineral rights
in a 57,000 acre tract and an 8-1/3% non-participating royalty
on all the minerals in a 60,000 acre tract. Prior drilling has
located some uranium mineralization on these tracts.
L-Bar Products Incorporated (L-Bar Products), a wholly-owned
subsidiary of the Registrant, operated a magnesium recovery
plant located at Chewelah, Washington, north of Spokane. The
plant was closed in December 1991. In March 1995 L-Bar Products
was placed in Chapter 7 liquidation and a trustee was appointed.
Matters pertaining to the L-Bar Products bankruptcy case are
more fully discussed below (reference Item 3. Legal Proceedings).
(b) Business of Issuer. The business of the issuer is as follows:
1. The Registrant primarily produces and sells silica sand to the
glass, cement and golf course industries. Further descriptions
of the businesses are contained in Item 1. (a) above.
2. In the majority of cases, the Registrant distributes its products
directly to its customers by truck or rail. Some of the golf
course bunker sand is sold to distributors.
3. The Registrant has not publicly announced any new products or services.
4. For the silica sand operation numerous competitors exist, however
competition is limited to regions by the cost of shipping. The
Registrant competes on the basis of keeping prices in line with
the competition and maintaining the quality and consistency of
the products.
5. The Registrant acquires the raw materials for the silica sand operation
from a silica sand deposit leased by the Registrant and the mine is operated
to provide mine run sand as required by operations.
6. The Registrant deals with relatively
few customers. For the silica sand business, approximately
two-thirds of the sales are made to two long term customers.
7. There are no patents or trademarks of material importance to the
Registrant's business. Mining claims, leases and crown grants
are believed to be held under valid contracts or other evidence
of title.
8. The Registrant does not currently require any new
government approval in order to conduct its business.
<PAGE>
9. As with all small and large businesses, the existing and probable
governmental regulations are a significant burden, and the
cumulative effects are potentially detrimental to business
expansion.
10. The Registrant has not spent a material amount of funds on research and
development.
11 Federal, state and local laws and regulations relating to protection of
the environment effect the Registrant in many areas of its operations.
Except for L-Bar Products, the cost and effects of these laws, in the
opinion of management, are currently contained in the Registrant's financial
statements. The State of Washington Department of Ecology (WDOE)
(Reference Item 3. Legal Proceedings) requested that L-Bar Products provide
financial assurance that the residue pile, accumulated at the Chewelah plant
by the previous owners of the plant, can be removed from the site. L-Bar
Products is currently in Chapter 7 bankruptcy liquidation, and this matter
is currently unresolved. It is management's opinion that the Company will
not be liable for this matter, and in any event any liability can not be
estimated, therefore, no amounts have been accrued for this matter in the
accompanying financial statements. The Registrant has also been sued by
Northwest Alloys, the generator of the material at the Chewelah plant, to
provide reimbursement for its costs for the site remediation that Northwest
Alloys has agreed to perform (Reference Item 3. Legal Proceedings).
12 The Registrant has 19 full time employees and 1 part time employee.
<PAGE>
Item 2. Description of Properties
(a) Information as to the location of the principal plants is
forth under Item l. above. The silica sand property is operated under a
mineral lease from the owner. The mineral property interests are described
in the table below.
RESERVE INDUSTRIES CORPORATION
MINERAL INTERESTS
Gross % Net Type of
Location and Mineral Acres Interest Acres Interest
New Mexico - Uranium
L-Bar Ranch
Reserve Tract 57,000 100.00% 57,000 (1) Mineral deed
Exxon Tract 60,000 8.33% 5,000 Royalty
Other 552 50-100% 312 Mineral deed
------- ------
117,552 62,312
Saskatchewan Canada *
Waterbury Lake Project 234,300 (2)
Dawn Lake Project 386,800 (2)
McArthur River Project 211,400 (2)
* Approximate
(1) Subject to a 1/24 royalty interest
(2) The company's interest in these projects is described in Item 1.
(b) Investment Policies. In the normal course of business,
the Registrant currently does not deal in investments in real
estate or real estate mortgages.
(c) Description of Real Estate and Operating Data. The
Registrant does not deal in Real Estate investments and a
description of its operating properties is contained above. The
Registrant believes that its operating properties are adequately
insured.
<PAGE>
Item 3. Legal Proceedings
(a) Pending legal proceedings
Northwest Alloys Inc. vs. Reserve Industries Corporation
On April 28, 1994, a complaint for monetary and declaratory
relief was filed in the United States District Court for the
Eastern District of Washington by Northwest Alloys against the
Registrant.
The complaint alleges causes of action for monetary and
declaratory relief for breach of contract and statutory
contribution under the Washington Model Toxics Control Act
(MTCA). For its breach of contract claim, Northwest Alloys
seeks to rely upon an August 2, 1990 guaranty signed by the
Registrant, which Northwest Alloys claims guarantees payment of
the greater of (i) up to $2,000,000 for environmental cleanup at
the Chewelah, Washington site owned and operated by L-Bar
Products, or (ii) certain loan funds in excess of $2.5 million,
plus interest, related to L-Bar Products' alleged obligation to
repay certain loans from Northwest Alloys (estimated by
Northwest Alloys to be $1,291,481 plus accrued and accruing
interest). For the statutory contribution action under the
MTCA, Northwest Alloys seeks contribution for ongoing remedial
costs for alleged soil and ground water contamination at the
L-Bar Products site in Chewelah, Washington. Contribution is
sought from the Registrant for past and present costs incurred,
and future costs to be incurred, by Northwest Alloys to address
the alleged soil and ground water contamination at the L-Bar
Products site.
The Registrant denies any and all liability alleged in the
complaint and is contesting the claims. On June 17, 1994, the
Registrant filed a counterclaim against Northwest Alloys seeking
damages for breach of contract, breach of fiduciary duty, and
declaratory relief regarding environmental cleanup costs at the
site.
Northwest Alloys filed a motion for summary judgment to enforce
the August 2, 1990 guaranty. The motion was heard before the
Court on October 4, 1994 and Northwest Alloys' motion was
denied. On December 6, 1994 an order was entered staying all
further proceedings pending the completion of adversary
proceedings involving the Registrant in L-Bar Product's
bankruptcy proceedings (see below).
<PAGE>
L-Bar Products Inc. Bankruptcy Proceedings
On December 13, 1991 L-Bar Products was notified that a
petition was filed against it for an order of relief under
Chapter 7 of the United States Bankruptcy Code, in the United
States Bankruptcy Court for the Eastern District of Washington.
This petition was filed on behalf of three creditors that had
performed work on the capital improvements at the L-Bar Products
plant, prior to plant closure. On July 13, 1992 L-Bar Products
filed a reorganization petition under Chapter 11 of the U.S.
Bankruptcy Code. The case was consolidated in the Bankruptcy
Court for the Eastern District of Washington. On March 15,
1995, the bankruptcy was converted to Chapter 7 and a trustee
was appointed.
L-Bar Products is continuing to pursue resolution of certain
claims against Northwest Alloys (see below).
L-Bar Products, Inc. vs. Northwest Alloys Inc.
On August 31, 1994, L-Bar Products filed a complaint for breach
of contract, breach of fiduciary duty, equitable subordination,
declaratory relief and recovery of environmental cleanup costs
against Northwest Alloys. The complaint was filed in the United
States Bankruptcy Court for the Eastern District of Washington.
On October 21, 1994 Northwest Alloys filed a third party claim
against the Registrant seeking the same relief as requested in
the case described above. On December 30, 1994, the Registrant
filed a counterclaim against Northwest Alloys seeking relief
similar to that contained in its counterclaim in the case
described above. Because the District Court has stayed all
proceedings in that action, matters involving claims by and
against the Registrant, L-Bar Products and Northwest Alloys are
proceeding in the Bankruptcy Court. Pre-trial discovery has
been underway since early 1996 and is expected to be completed
in 1997.
(b) Pending governmental legal proceedings
WDOE Proceedings
The Washington Department of Ecology (WDOE) named the
Registrant and L-Bar Products as potentially liable persons
(PLP) for part of the cleanup related to the Chewelah site. The
basis for naming L-Bar Products was its status as site
owner/operator. The basis for naming the Registrant is the
alleged responsibility of the parent corporation. It is
management's opinion that the Registrant was a separate entity
from L-Bar Products and is not responsible as a PLP for site
contamination.
<PAGE>
The WDOE has entered into an administrative order with
Northwest Alloys under which Northwest Alloys has agreed to
undertake testing at the Chewelah site and prepare a proposed
remedial plan for cleanup. L-Bar Products has petitioned the
Bankruptcy Court for approval to agree to the same order in
order to cooperate with WDOE. The WDOE objected to L-Bar's
motion and no further action has been taken. The Registrant has
declined to enter into the order due to its insistence that it
is not a PLP under the MTCA.
Environmental Protection Agency Proceedings
In the Spring of 1992, the Environmental Protection Agency
pursuant to information contained in a sealed affidavit
uncovered approximately 80 barrels that had contained a spent
sulfuric acid. The barrels were mostly empty but some contained
some "sludge" in the bottom.
In the Spring of 1995, the Justice Department indicted a former
foreman and the former plant manager. An indictment was also
presented against L-Bar Products. The foreman plead guilty to
two counts and was sentenced to three years probation and six
months partial home confinement. According to news reports, the
former foreman told the federal judge that an employee he
supervised suggested the barrels be buried, and that "there was
really no agreement to do anything... I did not discuss it with
L-Bar Products ahead of time... I guess it just didn't enter my
mind that it might have been considered hazardous (under federal
law)". The former plant manager denied having any knowledge of
the barrels being buried. He plead guilty to two misdemeanor
charges and was sentenced to six months unsupervised probation.
During the year, L-Bar Products hired an attorney to represent
it and entered a plea of not guilty. The Justice Department did
not pursue the case in a timely manner and in August 1996 the
court dismissed the charges against L-Bar, without prejudice.
To date the Justice Department has not refiled the charges
against L-Bar. The statues of limitations has expired on most
of the indictments.
Item 4. Submission of Matters to a Vote of Security Holders
The was no submission to the shareholders during the fourth
quarter.
<PAGE>
PART II
Item 5. Market For Common Equity and Related Shareholders
Matters.
(a) Market Information. The Registrant's common stock is
currently not publicly traded because the Registrant has elected
to forgo an audit in order to conserve capital for necessary
plant improvements and legal fees. Once the Registrant is in a
position to do so, it plans to file audited financial
statements. Prior to August 1992, the Registrant was listed on
the NASDAQ National Over-the-Counter Market. Since the
Registrant's stock is not quoted, the Registrant can not list
current prices for its stock.
(b) Holders. On February 14, 1997, the Registrant had
approximately 800 shareholders.
(c) Dividends. The Registrant has never paid a dividend. There
are currently no restrictions or covenants to limit the ability
to pay a dividend.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations. For the year ended November 30, 1996,
the Registrant had revenues of $2,688,392 which resulted in net
income of $207,463 or $0.06 per share. For the year ended
November 30, 1995, the Registrant had revenues of $1,778,137
which resulted in a net loss of $754,543 or $0.24 per share.
The revenues in 1996 increased from 1995 as a result of
increased equity earnings which was offset by a nonrecurring
contract settlement of $344,791. The sales at the Registrant's
silica sand operation decreased by $165,979. The renovation of
the sand plant was begun in mid-1995 and the wet plant was
completed in the fall of 1996. The equipment to replace the dry
plant air handling system has been purchased and will be
installed in the Spring of 1997. The wet plant renovation has
improved the efficiency of the wet plant. In 1995,
approximately $520,000 of the loss was attributable to a change
in the method of inventory accounting by an affiliate (see
footnote 5 of the notes to the consolidated financial
statements).
Liquidity and Capital Resources. The Registrant's net cash
(used) provided by operating activities was $(7,875) and
$324,041 in 1996 and 1995, respectively. The net cash used by
investing activities was $300,629 and $722,512 in 1996 and
1995, respectively. Most of the cash used by investing
activities in 1996 and 1995 was for capital improvements to the
sand project. The Registrant increased its debt by $287,453 and
$401,914 in 1996 and 1995, respectively.
The Registrant had working capital deficits of approximately
$2.5 million and $2.1 million in 1996 and 1995, respectively.
As part of the Registrant's program to conserve cash, part of
the salaries due to the officers of the Registrant, all of the
deferred compensation due to the deceased chairman's spouse and
the part of the interest due on certain loans were accrued but
not paid in 1996 and 1995. As of November 30, 1996, these
accruals (salaries, deferred compensation and deferred interest)
exceeded $1.5 million.
<PAGE>
Item 7. Financial Statements.
The following Consolidated Financial Statements of the
Registrant and its subsidiaries are filed as a part of the
report and are attached:
Consolidated Balance Sheets as of November 30, 1996 and 1995
Consolidated Statements of Operations for the Years Ended
November 30, 1996 and 1995
Consolidated Statements of Stockholders' Investment for the
Years Ended November 30, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended
November 30, 1996 and 1996
Notes to Consolidated Financial Statements
Because the financial statements are not audited there is no
report of independent accountants.
All other schedules are omitted, as the required information is
not required, or the information is presented in the financial
statements or related notes.
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
Because of the Registrant's program to conserve cash, it was
not able to retain an independent accountant to audit the
financial statements for the fiscal years of 1996, 1995, 1994,
1993, 1992 and 1991. The Registrant has previously used Arthur
Andersen & Co. and may retain them in the future.
While the Registrant has not used an independent accountant for
the fiscal years listed above, the Registrant is not aware of
any disagreements with accountants as contemplated by item 304
of SEC Regulation S-B.
<PAGE>
PART III
Item 9. Directors, Executives Officers, Promoters and Control
Persons; Compliance With Section 16(c) of the Exchange Act.
(a) Identify Directors and Executive Officers.
The following paragraphs list the names, ages and business
experience of the directors, each of whom is an executive
officer of the Registrant.
James J. Melfi, Jr., age 68, is Chairman of the Board of the
Registrant. Mr. Melfi was elected Chairman of the Board in
April 1985, and he was President from December 1975 to December
1985. He has been a director of the Registrant since 1970.
Frank C. Melfi, age 60, is President of the Registrant, a
position he has held since December 1985. From 1976 through
December 1985, he was Executive Vice President of the
Registrant. He has been a director of the Registrant since
April 1985.
William J. Melfi, age 54, is Vice President of Finance and
Administration of the Registrant, a position he has held since
December 1985. He is also Treasurer of the Registrant, a
position he assumed in July 1995. For more than five years
prior to 1985, he was manager of operations. He has been a
director of the Registrant since January 1993.
All of these directors have been with the Registrant for
several years and are knowledgeable about the Registrant's
operations, problems and opportunities.
The executive officers of the Registrant are elected annually
and serve until such time as their respective successors are
elected and qualified.
(b) Identification of certain significant employees. Not
applicable.
(c) Family Relationships. James J. Melfi, Jr., Frank C. Melfi
and William J. Melfi are brothers.
(d) Involvement in certain legal proceedings. See Legal
Proceedings.
(1) Frank C. Melfi, William J. Melfi and Thomas J. O'Grady
have been executive officers of L-Bar Products, a wholly owned
subsidiary, which in currently in Chapter 7 bankruptcy
liquidation as described in Legal Proceedings.
(2), (3), and (4). Not applicable.
Based solely on a review of applicable forms provided to the
Registrant, the Registrant believes that the officers, directors
and beneficial owners of the Registrant were all in timely
compliance with Section 16(a) of the Exchange Act.
<PAGE>
Item 10. Executive Compensation
(a) General. The following text and tables provide information
on the compensation of the Chief Executive Officer and those
officers whose salary and bonus compensation equaled or exceeded
$100,000 for the fiscal years ended November 30, 1996, 1995 and
1994.
<TABLE>
<CAPTION>
(b) Summary Compensation Table.
Summary Compensation Table
Name and Principal Position Annual Compensation Long-Term Compensation All Other
Awards Payouts Compensation
Year Salary Bonus Other Restricted Options/Sars LTIP
Annual Stock Payouts
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frank C. Melfi CEO 1996 135,000 27,000 635 - - - -
1995 135,000 27,000 674 - - - -
1994 135,000 27,000 752 - - - -
James J. Melfi, Jr. Chairman 1996 135,000 27,000 520 - - - -
1995 135,000 27,000 635 - - - -
1994 135,000 27,000 752 - - - -
William J. Melfi 1996 100,000 20,000 2,165 - - - -
Vice President 1995 100,000 20,000 1,663 - - - -
1994 100,000 20,000 987 - - - -
</TABLE>
The amounts of salary and bonus stated for Mr. Frank C. Melfi,
Mr. James J. Melfi, Jr. and Mr. William J. Melfi represent the
amounts due to them and accrued by the Registrant during the
year. As part of the Registrant's program to conserve cash, all
three individuals accrued part of their annual compensation.
Mr. Frank C. Melfi, Mr. James J. Melfi, Jr. and Mr. William J.
Melfi were paid $54,752, $47,515 and $52,397, respectively of
the annual compensation due them in 1996. (c) Option/SAR
Grants Table. This table is omitted because there was no
activity in the 1996 fiscal year.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End
Option/SAR Value Table.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table.
Name Shares Acquired Value Realized Number of Unexercised Value of Unexercised
on Exercise (#) ( $) Options/SARs at FY-End in-the-money Options/SAR at FY-End ($)
Excercisable/ Unexcercisable Excercisable/Unexcercisable
<?CAPTION>
<S> <C> <C> <C> <C> <C>
Frank C. Melfi CEO - - 7,500 / 0 -
James J. Melfi, Jr.
Chairman - - 7,500 / 0 -
William J. Melfi
Vice President - - 6,500 / 0 -
</TABLE>
<PAGE>
The Registrant has two active stock option plans, which are
described in footnote 7 of the notes to the consolidated
financial statements.
(e) Long-term Incentive Plans. This table is omitted because
the Registrant currently does not have a longterm incentive plan.
(f) Compensation of Directors. The Registrant did not pay any
fees to directors, as such, as it does not have any directors
who are not employees of the Registrant.
(g) Employment Contracts and Termination of Employment, and
Change-in-Control Arrangements. N/A.
(h) Report on Repricing of Options/SARs. During 1996, none of
the outstanding Options were repriced.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a) Security Ownership of Certain Beneficial Owners. The
following tabulation sets forth the number of shares of Common
Stock held by each person who owned of record, or is known by
the Registrant to own beneficially, five percent (5%) or more of
the Registrant's Common Stock. Included in the table for
certain individuals are the maximum number of shares of the
Registrant's Common Stock which might be deemed to be
beneficially owned under the rules of the Securities and
Exchange Commission by those individuals. The number of shares
beneficially owned by those individuals includes shares subject
to option to purchase, and the computation of the percentage
owned assumes exercise of such options The information is as of
February 14, 1997:
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and Address Beneficial Ownership of Class
</CAPTION>
<S> <C> <C>
Northwest Alloys Inc. Direct
P.O. Box 115 500,000 15.6%
Addy, Washington 99101
Melfi Corporation Direct
Suite 308, 20 First Plaza 198,500 6.2%
Albuquerque, New Mexico 87102
James J. Melfi, Jr. (1) DirecT, Indirect and Option
Suite 308, 20 first Plaza 287,049 8.9%
Albuquerque, New Mexico 87102
Frank C. Melfi (2) Direct, Indirect and Option
Suite 308, 20 First Plaza 299,169 9.3%
Albuquerque, New Mexico 87102
William J. Melfi (3) Direct, Indirect and Option
Suite 308 20 First Plaza 168,849 5.2%
Albuquerque, New Mexico 87102
</TABLE>
To the best of the Registrant's knowledge, the principal
shareholders listed have sole voting and investment power with
respect to the shares of the Registrant's Common Stock owned by
such shareholders, except as noted below.
(1) Included in the number of shares opposite Mr. James J.
Melfi, Jr.'s name in the table above are 7,500 shares subject to
purchase under an option held by him and 26,700 shares owned by
his wife, for which beneficial ownership is disclaimed. Mr.
Melfi has sole voting and investment power with respect to the
shares owned by him. James J. Melfi, Jr. and members of his
immediate family own 25 percent of the issued and outstanding
stock of Melfi Corporation, which owns 198,500 shares of Common
Stock of the Registrant, for which he may be deemed to share
voting and investment power. James J. Melfi, Jr. is also an
officer and director of Melfi Corporation.
(2) Included in the number of shares opposite Mr. Frank C.
Melfi's name in the table above are 7,500 shares subject to
purchase under an option held by him. Mr. Melfi has sole voting
and investment power with respect to the shares owned by him.
Frank C. Melfi and members of his immediate family own 25
percent of the issued and outstanding stock of Melfi
Corporation, which owns 198,500 shares of Common Stock of the
Registrant, for which he may be deemed to share voting and
investment power. Frank C. Melfi is also an officer and
director of Melfi Corporation.
(3) Included in the number of shares opposite Mr. William J.
Melfi's name in the table above are 6,500 shares subject to
purchase under an option held by him, 7,790 shares owned by his
wife for which beneficial ownership is disclaimed. Mr. Melfi
has sole voting and investment power with respect to the shares
owned by him. William J. Melfi and members of his immediate
family own 25 percent of the issued and outstanding stock of
Melfi Corporation, which owns 198,500 shares of Common Stock of
the Registrant, for which he may be deemed to share voting and
investment power. William J. Melfi is also an officer and
director of Melfi Corporation.
<PAGE>
(b) Security Ownership of Management. The ownership of Common
Stock by officers and directors is set forth in the table
below. Included in the table are the maximum number of shares
of the Registrant's Common Stock which might be deemed to be
beneficially owned under the rules of the Securities and
Exchange Commission by each nominee and director and by the
officers and the directors of the Registrant as a group. The
number of shares beneficially owned by each individual and each
group includes shares subject to option to purchase and the
computation of the percentage owned assumes exercise of such
options. The text below the table sets forth certain
information as to the extent to which beneficial ownership
consists of the right to acquire the Registrant's Common Stock.
The information is as of February 14, 1997.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and Address Beneficial Ownership of Class
</CAPTION>
<S> <C> <C>
James J. Melfi, Jr. (1) Direct, Indirect and Option
Suite 308, 20 first Plaza 287,049 8.9%
Albuquerque, New Mexico 87102
Frank C. Melfi (2) Direct, Indirect and Option
Suite 308, 20 First Plaza 299,169 9.3%
Albuquerque, New Mexico 87102
William J. Melfi (3) Direct, Indirect and Option
Suite 308 20 First Plaza 168,849 5.2%
Albuquerque, New Mexico 87102
Officers and Directors Direct, Indirect and Option
as a group (4) 756,967 23.2%
</TABLE>
(1) Reference is made to "Security Ownership of Certain
Beneficial Owners" herein for information regarding the shares
of Common Stock of the Registrant beneficially owned by James J.
Melfi, Jr.
(2) Reference is made to "Security Ownership of Certain
Beneficial Owners" herein for information regarding the shares
of Common Stock of the Registrant beneficially owned by Frank C.
Melfi.
(3) Reference is made to "Security Ownership of Certain
Beneficial Owners" herein for information regarding the shares
of Common Stock of the Registrant beneficially owned by William
J. Melfi.
(4) Included in the number of shares owned by officers and
directors as a group in the table above are 22,500 shares
subject to purchase under options.
(c) Changes in control. Not applicable.
<PAGE>
Item 12. Certain Relationships and Related Transactions.
(a) Transactions with management and others. The Melfi Family
Trust, which is part of the estate of Mr. James J. Melfi, Sr.,
loaned the Registrant $695,000 in 1991. These funds were used
by the Registrant to purchase 20% of the stock in JPL Industries
Pte. Ltd., a Singapore company organized in 1991. The terms of
the agreement between the Melfi Family Trust and the Registrant
call for a five year note at 10% interest, which was prime plus
0.5% at the time of the loan, and a warrant to purchase 60,000
shares of the common stock of the Registrant. In addition,
several times during 1991, Ruth Ann Melfi, the wife of the
Registrant's former Chairman James J. Melfi, Sr., lent the
Registrant working capital. In order to conserve cash the
Registrant has not fully repaid this loan. The outstanding
balance of the loan at November 30, 1996 was $145,000, interest
was paid through November 30, 1996. The interest rate on this
loan is 10% per annum. Both of these loans are secured by the
stock in JPL Industries, Reserve Minerals Corporation, Reserve
Rossborough Corporation, Reserve Rossborough Ventures
Corporation and Industrial Mineral Products (Phil), Inc., the
Registrant's wholly owned Philippine subsidiary.
One of the Registrant's subsidiaries, L-Bar Products, Inc.,
which is currently in Chapter 7 bankruptcy liquidation, had a
supply arrangement with Northwest Alloys, Inc., to process and
market certain waste products from Northwest Alloys' magnesium
plant in Addy Washington. Northwest Alloys lent funds to L-Bar
for the rehabilitation of L-Bar's Chewelah Washington facility.
At November 30, 1996, L-Bar Products owed Northwest Alloys $3.7
million plus accrued interest (before any adjustments related to
the bankruptcy).
(b) Pursuant to certain promissory notes to the Registrant,
James J. Melfi, Jr., Frank C. Melfi and William J. Melfi have
borrowed $93,145, $188,640 and $115,200, receptively.
(c) Parents of Registrant. Not applicable
(d) Transactions with promoters. Not applicable.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits. See the attached Index to Exhibits.
(b) Reports on Form 8K. There were no reports on Form 8K
filed during the last quarter.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RESERVE INDUSTRIES CORPORATION
(Registrant)
By /s/ William J. Melfi
William J. Melfi, Vice President Finance and Administration
(Principal Financial Officer)
Date February 14, 1997
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
Registrant and the capacities and on the dates indicated.
Date February 14, 1997 By /s/ James J. Melfi, Jr.
James J. Melfi, Jr. Director,
Chairman of the Board
Date February 14, 1997 By /s/ Frank C. Melfi
Frank C. Melfi, Director and
President
(Principal Executive Officer)
Date February 14, 1997 By /s/ William J. Melfi
William J. Melfi, Director and
Vice President Finance and
Administration (Principal Financial
Officer)
<PAGE>
RESERVE INDUSTRIES CORPORATION
EXHIBIT INDEX
Exhibit Number Description
3.l Articles of Incorporation**
August 28, l957
3.2 By-Laws of Reserve Industries Corporation as
amended on June 8, l987**
4.1 Loan Agreement with the Key Bank of Puget Sound
(formerly the Seattle Trust & Savings Bank) dated
February 28, 1986**
4.2 Amendment No. 4 to the Loan Agreement with the Key
Bank of Puget Sound dated June 15, 1987**
4.3 Loan Agreement between Northwest Alloys,Inc. and
L-Bar Products dated August 2, 1990**
4.4 Stock Purchase Agreement with Northwest Alloys,
Inc. dated October 28, 1991**
4.5 Loan Agreement with the Melfi Family Trust dated
October 31, 1991**
4.6 Supplemental Security Agreement with the Melfi
Family Trust dated January 31, 1994*
4.7 Second Supplemental Security Agreement with the
Melfi Family Trust dated May 6, 1996*
9 Not Applicable
10.1 Sohio Agreement (Settlement)
dated September 9, l982**
10.2 Amendment to Employment Agreement,
J. J. Melfi, Sr. dated June 20, l978**
10.3 l977 Stock Option Plan**
10.4 Agreement between Central Electricity Generating
Board Exploration (Canada) Limited and Registrant
dated March 23, 1984**
10.5 Agreement between Cogema and Registrant
dated May 17, 1984**
<PAGE>
10.6 Agreement between 413418 Ontario Limited and
Registrant dated August 31, 1984**
10.7 Agreement to purchase the assets of Industrial
Mineral Products, Incorporated dated March 3,1986**
10.8 Agreement with Northwest Allo dated January 1, 1985**
10.9 Agreement with Meridian Minerals Company date July 1, 1987**
10.10 Agreement and Plan of Acquisition of Interest of
Rossborough Manufacturing Compan dated August 11, 1987**
10.11 Sales agreement between L-Bar Products,Incorporated and
La Porte Metal Processing Venture dated September 1, 1987,
subject to confidential treatment**
10.12 1987 Incentive Stock Option Plan**
10.13 1987 Nonqualified Stock Option Plan**
10.14 Sales agreement between Rossborough Manufacturing Company and
La Porte Metal Processing Venture dated September 1, 1987,
subject to confidential treatment**
10.15 Grinding Joint Venture Agreement between L-Bar Grinding Corporation
and La Porte Metal Processing Company dated September 1, 1987**
10.16 Agreement between L-Bar Canada, Inc. and Norsk Hydro Canada, Inc.
dated March 23, 1989**
10.17 Dispute Resolution Agreement between Reserve Industries Corporation
and Rossborough et al, dated October 11, 1993**
10.18 Settlement and Release Agreement between L-Bar Products, Inc. and
La Porte Metal Processing Venture et al, dated September 1, 1993**
11. Not Applicable
12. Not Applicable
13. Not Applicable
16. Not Applicable
18. Not Applicable
<PAGE>
19. Not Applicable
21. List of Subsidiaries*
22. Not Applicable
23. Not Applicable
24. Not Applicable
25. Not Applicable
28. Not Applicable
29. Not Applicable
* These exhibits are filed electronically with the report.
** These exhibits were filed as indicated below and are
incorporated herein by this reference thereto:
<PAGE>
3.1 1982 10K - Exhibit 3.1
3.2 1987 10K - Exhibit 3.2
4.1 1986 10K - Exhibit 4.1
4.2 1987 10K - Exhibit 4.2
4.3 8K filed August 1990
4.4 1991 10K - Exhibit 4.4
4.5 1992 10K - Exhibit 4.5
10.1 1982 10K - Exhibit 10.1
10.2 1982 10K - Exhibit 10.2
10.3 l976 Proxy Statement
10.4 1984 10K - Exhibit 10.4
10.5 1984 10K - Exhibit 10.5
10.6 1984 10K - Exhibit 10.6
10.7 1986 10k - Exhibit 10.7
10.8 1986 10k - Exhibit 10.8
10.9 1987 10K - Exhibit 10.9
10.10 1987 10K - Exhibit 10.10
10.11 1987 10K - Exhibit 10.11
10.12 1987 10K - Exhibit 10.12
10.12 1986 Proxy Statement
10.13 1986 Proxy Statement
10.14 1987 10K - Exhibit 10.14
10.15 1987 10K - Exhibit 10.15
10.16 1989 10K - Exhibit 10.16
10.17 1993 10KSB -Exhibit 10.17
10.18 1993 10KSB - Exhibit 10.18
<PAGE>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
Consolidated Balance Sheets - November 30, 1996 and 1995 1
Consolidated Statements of Income - For the years ended
November 30, 1996 and 1995 2
Consolidated Statements of Stockholders' Investment - For the
years ended November 30, 1996 and 1995 3
Consolidated Statements of Cash Flows - For the years ended
November 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5-13
All other schedules are omitted as the required information is
not applicable or the information is presented in the
accompanying consolidated financial statements or related notes.
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1996 AND 1995
</CAPTION>
<S> <C> <C>
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $ 15,332 $ 36,383
Receivables, less allowance for doubtful
accounts of $45,582 in 1996 and $45,882
in 1995 202,819 185,757
Receivables from affiliates and
related parties (Note 12) 464,655 396,881
Inventories (Notes 1 and 3) 92,573 112,551
Prepaid expenses and deposits 28,481 30,973
------------ ------------
Total current assets 803,860 762,545
PROPERTY, PLANT AND EQUIPMENT, at
cost (Notes 1 and 4) 3,772,373 3,554,738
Less accumulated depreciation and depletion (1,053,114) (919,317)
------------ ------------
2,719,259 2,635,421
INVESTMENT IN UNCONSOLIDATED AFFILIATES (Note 5) 4,864,179 4,170,727
ORGANIZATION COSTS, less accumulated amortization
of $21,460 in 1996 and $20,750 in 1995 (Note 1) - 710
GOODWILL, less accumulated amortization of
$30,000 in 1996 and $29,750 in 1995 (Note 1) - 250
OTHER ASSETS 55,710 55,710
------------ ------------
Total assets $ 8,443,008 $ 7,625,363
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term debt related party $ 145,000 $ 145,000
Short-term debt 47,581 47,581
Current portion of long-term debt (Note 10) 237,463 145,005
Trade accounts payable 267,863 450,785
Deferred obligations to related parties (Note 12) 2,046,358 1,651,537
Other current liabilities (Note 9) 547,101 436,448
------------ ------------
Total current liabilities 3,291,366 2,876,356
LONG-TERM DEBT, less current portion (Note 10) 1,183,199 1,034,634
DISCONTINUED OPERATIONS - L-Bar Products (Note 6) 973,246 973,069
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value. Authorized
6,000,000 shares, issued and outstanding
3,203,763 shares in 1996 and 3,157,333
shares in 1995 (Note 7) 3,203,763 3,157,333
Additional paid-in capital 7,458,718 7,458,718
Accumulated deficit (7,667,284) (7,874,747)
------------ ------------
Total stockholders' investment 2,995,197 2,741,304
Total liabilities and
stockholders' investment $ 8,443,008 $ 7,625,363
</TABLE>
The accompanying notes are an integral part of these consolidated
statements. The 1996 and 1995 financial information is unaudited.
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 1996 AND 1995
</CAPTION>
<S> <C> <C>
1996 1995
REVENUES:
Sales $ 1,525,934 $ 1,691,913
Contract settlement - 344,791
Investment income 8,800 -
Gains (losses) on sales:
Marketable securities - 16,128
Property and equipment 200 (38,552)
Income (loss) from affiliates:
Interest income 28,320 28,320
Equity in earnings 1,055,106 (328,492)
Consulting fees 60,000 60,000
Other 10,032 4,029
------------ ------------
Total revenues $ 2,688,392 $ 1,778,137
COSTS AND EXPENSES:
Cost of sales $ 1,148,404 $ 1,336,308
General and administration 895,945 889,908
Interest 168,652 131,266
Depreciation and amortization 217,928 166,667
Abandonment 50,000 8,531
------------ ------------
Total costs and expenses $ 2,480,929 $ 2,532,680
Income (loss) from continuing
operations (Note 6) $ 207,463 $ (754,543)
Provision for income taxes (Note 8) - -
------------ ------------
Net income (loss) $ 207,463 $ (754,543)
EARNINGS (LOSS) PER SHARE:
Earnings (loss) from continuing operations $ 0.06 $ (0.24)
Provision for income tax - -
------------ ------------
Net income (loss) per share $ 0.06 $ (0.24)
Weighted Average Number of Shares of Common
Stock Outstanding 3,192,219 3,152,347
</TABLE>
The accompanying notes are an integral part of these consolidated
statements. The 1996 and 1995 financial information is unaudited.
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1996 AND 1995
</CAPTION>
<S> <C> <C>
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations $ 207,463 $ (754,543)
Adjustments to reconcile net income from
continuing operations to net cash provided by
operating activities:
Abandonment Canadian assets - 5,780
Partial abandonment Philippine assets 50,000 -
Depreciation and amortization 217,928 166,667
Equity in (earnings) loss of affiliates (1,055,106) 328,629
(Increase) in interest receivable from
affiliate (28,320 ) (28,320)
Cash distribution from affiliates 389,974 59,357
Changes in assets and liabilities:
(Increase) in receivables (84,836) (172,130)
(Increase) in inventories (30,022) (6,857)
Decrease in other current assets 2,492 35,446
(Decrease) increase in trade accounts payable (182,922) 81,573
Increase in accrued officer salaries 394,821 499,075
Increase in other current liabilities 110,653 109,364
------------ ------------
Total adjustments (215,338) 1,078,584
Net cash (used) provided by
operating activities $ (7,875) $ 324,041
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Net $ (300,806) $ (703,160)
Discontinued operations - L-Bar Products 177 (19,352)
------------ ------------
Net cash (used) by investing activities $ (300,629) $ (722,512)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in common stock issued $ 46,430 $ 10,000
Increase in short-term debt - 47,581
Increase long-term debt 241,023 354,333
------------ ------------
Net cash provided by financing activities $ 287,453 $ 411,914
Net (decrease) increase in cash and cash
equivalents $ (21,051) $ 13,443
Cash and cash equivalents at the beginning
of the year 36,383 22,940
Cash and cash equivalents at the end of the
year $ 15,332 $ 36,383
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 70,426 $ 38,302
Common stock issued during the year for interest$ 46,430 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated
statements. The 1996 and 1995 financial information is unaudited.
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'INVESTMENT
FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
Common Stock Additional
$1 Par Value Paid-In Accumulated
Shares Amount Capital Deficit Total
</CAPTION>
<S> <C> <C> <C> <C> <C>
BALANCES, November 30, 1994 3,147,333 $ 3,147,333 $ 7,458,718 $ (7,120,204) $ 3,485,847
Common stock issued during 1995:
(Note 12) For deferred compensation 10,000 10,000 - - 10,000
--------- ----------- ----------- ------------ -----------
Net loss - - - (754,543) (754,543)
BALANCES, November 30, 1995 3,157,333 $ 3,157,333 $ 7,458,718 $ (7,874,747) $ 2,741,304
Common stock issued during 1996:
(Note 12) For interest 46,430 46,430 - - 46,430
Net income - - - 207,463 207,463
--------- ----------- ----------- ------------ -----------
BALANCES, November 30, 1996 3,203,763 $ 3,203,763 $ 7,458,718 $ (7,667,284) $ 2,995,197
</TABLE>
The accompanying notes are an integral part of these consolidated
statements. The 1996, 1995 and 1994 financial information is unaudited.
<PAGE>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED NOVEMBER 30, 1996 AND 1995
(l) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Reserve Industries Corporation, a New Mexico
corporation, and its wholly owned subsidiaries, Reserve Silica
Corporation, Reserve Abrasives Limited, Incorporated, Industrial
Mineral Products (Phil.), Inc., Reserve Rossborough Corporation,
Reserve Rossborough Ventures Corporation, Reserve Minerals
Corporation , Reserve Trisal, Inc., L-Bar Canada Inc., and L-Bar
Products Incorporated, (collectively "the Company").
All significant intercompany accounts and transactions have been
eliminated in the accompanying consolidated financial
statements. Investments in unconsolidated affiliates are
accounted for by the equity method (see Note 5) and are stated
at cost plus equity in undistributed earnings.
Marketable Securities
Marketable securities are stated at the lower of aggregate cost
or market value. The cost of securities sold is determined
using the specific identification method.
Inventories
Inventories, consisting principally of raw materials, finished
products and supplies, are valued using the average cost method
at the lower of cost or market value. Production costs included
in inventories represent actual operating labor, raw materials
and supply costs.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost.
Betterment's, renewals and extraordinary repairs that extend the
life of the asset are capitalized; other repair and maintenance
costs are expensed. The cost and accumulated depreciation
applicable to assets sold or retired are removed from the
accounts, and the related gain or loss on disposition is
recognized in operations.
Mineral Properties
Mineral properties, acquisition costs and all subsequent direct
costs incurred in retaining, exploring and developing the
properties are capitalized in property, plant and equipment
until production is attained. If management determines that
development and production are not economically feasible, or
that capitalized costs exceed net realizable values, such costs
are charged to operations in the period such determination is
made.
<PAGE>
Depreciation, Depletion, and Amortization
The cost of machinery, equipment and buildings is depreciated
over the estimated useful lives of the assets using the
straight-line method. Organization costs and goodwill are
amortized using the straight-line method over 60 months and 120
months, respectively. As reflected in note 6, operations at
L-Bar Products, Inc. (L-Bar Products) were suspended in December
1991 and L-Bar Products was determined in November 1992 to be a
discontinued operation.
Income Taxes
The Company and its domestic subsidiaries file a consolidated
income tax return. Separate tax returns are filed for the
Company's foreign subsidiaries and the corporate entities in
which the Company has equity interests.
Deferred taxes, which result from the effect of temporary
differences in reporting transactions for financial and tax
reporting purposes, will be provided when the Company exhausts
its net operating loss carryforwards.
Earnings (loss) per share
Earnings (loss) per share were computed using the weighted
average number of shares outstanding during each fiscal year.
Shares issuable upon the exercise of options have not been
included in the computation because they would not have a
material impact on earnings (loss) per share.
Business Segments
The Company operates in two different industry segments; the
corporate operations segment and the industrial products segment
which contains silica sand operations. The silica sand
industrial products operation produces various sand products for
use by the glass, concrete and golf course industries. The
corporate segment includes partnership and equity income.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Reclassifications
Certain reclassifications have been made to prior year balances
to conform to current year financial statement presentation.
(2) CASH AND CASH EQUIVALENTS:
At November 30, 1996 and 1995, the Company had on deposit in a
foreign country $10,177, which is restricted from transfer out
of the country to the extent of the foreign subsidiary's
retained earnings. Cash transfers out of the foreign country
are subject to a withholding tax.
<PAGE>
(3) INVENTORIES:
Inventories consist of the following at November 30:
1996 1995
Raw materials $ 101 $ 101
Finished products 50,255 19,949
Supplies and packaging 42,217 92,501
------------ ------------
$ 92,573 $ 112,551
(4) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following at
November 30:
1996 1995
Machinery and equipment $ 2,055,530 $ 1,837,895
Mineral properties 1,716,843 1,716,843
------------ ------------
$ 3,772,373 $ 3,554,738
(5) INVESTMENT IN UNCONSOLIDATED AFFILIATES:
Rossborough Manufacturing Company and Rossborough Manufacturing Co. L. P.
The Company owns a 50% stock interest in Rossborough
Manufacturing Company (Rossborough Co.), through its wholly
owned subsidiary, Reserve Rossborough Corporation and a 20%
limited partnership interest in Rossborough Manufacturing Co.
L.P. (Rossborough L.P.) , through its wholly owned subsidiary,
Reserve Rossborough Ventures Corporation. Rossborough Co. is
the general partner of and owns 60% of Rossborough L.P. A stock
warrant is held by representatives of the former owner to
purchase up to 20% of the Rossborough Co. for $2. The warrant
expires in October 1998. Rossborough L.P. is in the business of
providing products and services to the steel and foundry
industries.
Investment in unconsolidated affiliates includes equity in
undistributed earnings and long-term interest bearing notes
receivable from Rossborough L.P. Such notes receivable amounted
to $186,000 and $189,000 and at November 30, 1996 and 1995 the
accrued interest receivable on these notes amounted to $212,125
and $183,805, respectively. Included in the Company's earnings
are equity in earnings of affiliates and consulting income and
the Company plans to reinvest its undistributed equity earnings
in those affiliates. At November 30, 1996 and 1995 the Company
had $2,838,692 and $2,181,065 of undistributed earnings of
Rossborough Co. and Rossborough L.P. included in retained
earnings, respectively. The equity in undistributed earnings of
Rossborough Co. and Rossborough L.P. recorded by the Company are
based on financial statements audited by independent public
accountants.
<PAGE>
For the year ended November 30, 1994, Rossborough L.P. changed
its method of determining the cost of certain raw material
inventory from the first-in, first-out (FIFO) to the last-in,
first-out (LIFO) method to more appropriately reflect the
inflationary cost increases of certain products. The effect of
the change in 1996 and 1995 was to reduce the carrying value of
inventory and net income by approximately $19,000 and
$1,182,000, respectively. At November 30, 1996 and 1995, 77%
and 71%, respectively, of the inventory is valued using the LIFO
method of accounting.
The financial information of Rossborough L.P. is summarized
below for the periods ended November 30:
1996 1995
Net sales $ 63,216,650 $ 49,985,951
Gross profit $ 9,735,322 $ 5,882,364
Net partnership Income $ 3,210,377 $ (807,506)
Total current assets $ 17,686,945 $ 14,088,484
Fixed and other assets 6,601,460 7,012,146
------------ ------------
Total assets $ 24,288,405 $ 21,100,630
Current liabilities $ 11,445,292 $ 9,638,019
Total long-term liabilities 5,776,156 6,593,728
Minority Interest 615,385 -
Total partnership capital 6,451,572 4,868,883
------------ ------------
Total liabilities and partnership capital $ 24,288,405 $ 21,100,630
JPL Industries Pte. Ltd.
The Company owns a 20% stock interest in JPL Industries Pte.
Ltd. (JPL), a Singapore company organized in 1991. The
Company's investment is $692,239 and is included in investment
in unconsolidated affiliates.
(6) DISCONTINUED OPERATIONS:
Plant Closure
On December 6, 1991 L-Bar Products suspended operations at its
Chewelah, Washington facility because L-Bar lacked the necessary
funds to continue operation. In November 1992, it was
determined to discontinue the operations of L-Bar Products.
<PAGE>
Litigation
On December 13, 1991, L-Bar Products was notified that a
petition was filed against it for an order of relief under
Chapter 7 of the United States Bankruptcy Code, in the United
States Bankruptcy Court for the Eastern District of Washington.
This petition was filed on behalf of three creditors that had
performed work on the capital improvements at the L-Bar Products
plant, prior to plant closure. On July 13, 1992 L-Bar Products
filed a reorganization petition under Chapter 11 of the U.S.
Bankruptcy Code. The case was consolidated in the Bankruptcy
Court for the Eastern District of Washington. On March 15,
1995, the bankruptcy was converted to Chapter 7 and a trustee
was appointed.
On August 31, 1994, L-Bar Products filed a complaint for breach
of contract, breach of fiduciary duty, equitable subordination,
declaratory relief and recovery of environmental cleanup costs
against Northwest Alloys. The complaint was filed in the United
States Bankruptcy Court for the Eastern District of Washington.
Pre-trial discovery commenced in early 1996 and is expected to
be completed in 1997.
Long-term debt
A term loan with an outstanding amount of $3.77 million plus
interest is owed to Northwest Alloys by L-Bar Products. The
loan is secured by the assets of L-Bar Products and bears
interest at the prime rate. The purpose of the loan was to fund
certain plant improvements in process at the time of the closure
of the plant, as discussed in Note 12. As security for the
loan, Northwest Alloys has a mortgage on all of the assets of
L-Bar Products. In addition, the Company, subject to the Loan
Agreement, signed a guaranty as discussed in Note 12. The loan
is subject to certain covenants and restrictions which relate to
maintenance of working capital, net worth, and accounts payable
of L-Bar Products. L-Bar Products has not made any principal or
interest payments on the loan and is not in compliance with the
loan covenants.
A term loan by L-Bar Products in the amount of $312,192 plus
interest at prime was due November 30, 1991. The loan is
secured by certain mineral rights of the Company with a book
value of $1,417,000. L-Bar Products has numerous other
unsecured creditors.
<PAGE>
Summary financial information
The balance sheet of L-Bar Products is summarized below for the
periods ended November 30:
1996 1995
Current assets $ 412,235 $ 412,449
Plant, Property & Equip, net of depreciation 6,593,313 6,593,313
Contractual rights and other assets 810,956 810,956
------------ ------------
$ 7,816,504 $ 7,816,718
Current liabilities $ 3,741,972 $ 3,742,009
Long-term debt, less current portion 3,547,778 3,547,778
Deferred gain on issuance of stock for debt 1,500,000 1,500,000
------------ ------------
$ 8,789,750 $ 8,789,787
Net liability $ 973,246 $ 973,069
The operating statement of L-Bar Products is summarized below
for the periods ended November 30:
1996 1995
Revenue $ - $ -
Cost of sales - 32,620
------------ ------------
Operating loss - (32,620)
General and administrative expense 37 66,861
Interest expense (income) - (2,731)
Noncash expense - -
------------ -------------
$ 37 $ (96,750)
(7) STOCK OPTIONS:
The Company has two active stock option plans; the 1987
Incentive Stock Option Plan (1987 ISO Plan) and the 1987 Non
qualified Stock Option Plan (1987 Non qualified Plan). The 1987
ISO Plan provides for the issuance of options to key employees
to purchase up to 90,000 shares in aggregate of the Company's
common stock. Under the 1987 ISO Plan, at November 30, 1996,
33,500 shares were available for granting further options, and
options for 56,500 shares were outstanding at $1.00 to $3.25 per
share, all of which are exercisable. The 1987 Non qualified
Plan provides for the issuance of options to officers and
directors, who can not participate in the 1987 ISO Plan, to
purchase up to 25,000 shares in aggregate of the Company's
common stock. Under the 1987 Non qualified Plan, at November
30, 1996, 3,500 shares were available for granting further
options and options for 21,500 shares were outstanding at $1.625
to $3.00 per share, all of which are exercisable. All option
plans provide that the option price must be equal to or greater
than the market price at the date of grant. No options were
exercised under the plans during 1996 and 1995.
<PAGE>
(8) INCOME TAXES:
At November 30, 1996 the Company had net operating loss
carryforwards of approximately $6.9 million (net of 5.6 million
related to L-Bar Products) which will expire between 1996 and
2006. Certain differences exist between the net operating loss
carryforwards available for financial statement purposes and for
Federal income tax return purposes due to differing treatments
of dividend income, depreciation, exploration and development
costs, goodwill and deferred compensation. At November 30, 1996
the Company had investment tax and new jobs tax credit
carryforwards of approximately $8,125 which will expire between
1996 and 2001.
Due to losses from continuing operations in 1996 and 1995,
there is no tax expense computed for those years. Because of
the Company's net operating loss carryforward, the Company did
not present the net tax effect of the losses from discontinued
operations. For 1996 the taxable book loss is $136,000. The
table below shows the composition of the income tax expense
(benefit):
1996 1995
Current federal income tax $ (46.0) $ (256.6)
Accrual for wages not yet paid 147.0 186.6
Partnership income in excess of equity income - 55.0
Accrual for State Income tax - -
(Reduction) addition to federal
income tax loss carryforward (101.0) 15.0
----------- -------------
$ 0.0 $ 6.0
(9) OTHER CURRENT LIABILITIES:
Other current liabilities consist of the following at November
30:
1996 1995
Accrued interest $ 314,528 $ 238,014
Other current liabilities 232,573 198,434
------------ ------------
$ 547,101 $ 436,448
<PAGE>
(10) DEBT:
Long-term debt consists of the following at November 30:
1996 1995
Term loan, due December 31, 1997, with annual
interest payments at 10% secured by the
stock in JPL Industries, Reserve Minerals
Corporation, Reserve Rossborough Corporation,
Reserve Rossborough Ventures Corporation and
Industrial Mineral Products (Phil) see Notes 5
and 12. $ 695,000 $ 695,000
Other notes 68,399 15,592
Capital leases $ 657,263 $ 469,047
------------ ------------
1,420,662 1,179,639
Less current portion 237,463 145,005
------------ ------------
$ 1,183,199 $ 1,034,634
The long-term debt payment schedule consists of the following at
November 30, 1996:
1997 $ 237,463
1998 917,269
1999 or later 265,930
------------
$ 1,420,662
The net book value of the assets leased pursuant to capital
lease arrangements was $676,132 as of November 30, 1996.
<PAGE>
(11) BUSINESS SEGMENTS:
The Company operates in the industrial products and corporate
business segments. These business segments are described in
Note 1 under Business Segments. In fiscal year 1996, the
Company had three customers in the industrial products segment
that accounted for net sales of 53.5% ($833,145) 17.1%
($265,338), and 11.2% ($173,789), respectively. In fiscal year
1995, the Company had two customers in the industrial products
segment that accounted for net sales of 56.7% ($959,243) and
18.2% ($307,474), respectively.
Identifiable assets by segment are those assets involved in the
operation of the segment. Corporate assets are cash and cash
equivalents, security investments, mineral properties, equity
investments and other assets.
The following tables summarize the operations, identifiable
assets and capital expenditures by industry segment as of
November 30:
1996 1995
Net sales and revenues:
Industrial Products - Silica sand $ 1,525,934 $ 1,640,097
Industrial Products - Abrasives/Other 8,800 396,608
Corporate 10,232 69,924
Equity in earnings from affiliates 1,143,426 (328,492)
------------ ------------
$ 2,688,392 $ 1,778,137
Segment operating income:
Industrial Products - Silica sand $ 377,530 $ 234,068
Industrial Products - Abrasives/Other 8,800 430,594
Corporate 10,232 105,659
Equity in earnings from affiliates 1,143,426 (328,492)
------------ ------------
1,539,988 441,829
Corporate and other expenses:
General and administration 895,945 889,908
Depreciation and amortization - Industrial products 210,394 158,099
Depreciation and amortization - Corporate 7,534 8,568
Interest expense 168,652 131,266
Abandonment-Foreign assets 50,000 -
Other expense - 8,531
------------ ------------
1,332,526 1,196,372
Income from continuing operations $ 207,463 $ (754,543)
Identifiable assets - Industrial Products $ 2,897,529 $ 3,013,871
Identifiable assets - Corporate 5,545,479 4,611,492
------------ ------------
$ 8,443,008 $ 7,625,363
<PAGE>
Capital expenditures - Industrial Products $ 300,806 $ 703,160
Capital expenditures - Corporate - -
$ 300,806 $ 703,160
The following table summarizes financial data by geographic area
as of November 30:
Sales:
United States $ 1,525,934 $ 1,640,097
Far East 8,800 51,816
------------ ------------
$ 1,534,734 $ 1,691,913
Operating profit (loss):
United States $ 1,531,188 $ 11,233
Far East 8,800 397,779
Canada - 32,817
------------ ------------
$ 1,539,988 $ 441,829
Identifiable Assets:
United States $ 7,196,658 $ 5,869,318
Far East 1,495,297 1,756,045
Canada 54 -
------------- ------------
$ 8,692,009 $ 7,625,363
(12) COMMITMENTS AND CONTINGENCIES:
Environmental Matters
The WDOE named the Company and L-Bar Products as potentially
liable persons (PLP) for part of the cleanup related to the
Chewelah site. The basis for naming L-Bar Products was its
status as site owner/operator. The basis for naming the Company
is the alleged responsibility of the parent corporation. It is
management's opinion that the Company was a separate entity from
L-Bar Products and is not responsible as a PLP for site
contamination.
The WDOE has entered into an administrative order with Northwest
Alloys under which Northwest Alloys has agreed to undertake
testing at the Chewelah site and prepare a proposed remedial
plan for cleanup. L-Bar Products has petitioned the Bankruptcy
Court for approval to agree to the same order in order to
cooperate with WDOE. This request is pending. The Company has
declined to enter into the order due to its insistence that it
is not a PLP under the Washington Model Toxics Control Act MTCA.
It is management's opinion that the Company will not be liable
for the matter discussed above, and in any event, any liability
can not be estimated. Therefore no amounts have been accrued
for this matter in the accompanying financial statements.
Northwest Alloys Inc. vs. Reserve Industries Corporation
On April 28, 1994, a complaint for monetary and declaratory
relief was filed in the United States District Court for the
Eastern District of Washington by Northwest Alloys against the
Company.
The complaint alleges causes of action for monetary and
declaratory relief for breach of contract and statutory
contribution under the Washington Model Toxics Control Act
(MTCA). For its breach of contract claim, Northwest Alloys
seeks to rely upon an August 2, 1990 guaranty signed by the
Company which Northwest Alloys claims guarantees payment of the
greater of (i) up to $2,000,000 for environmental cleanup at the
Chewelah, Washington site owned and operated by L-Bar Products,
or (ii) certain loan funds in excess of $2.5 million, plus
interest, related to L-Bar Products' alleged obligation to repay
certain loans from Northwest Alloys (estimated by Northwest
Alloys to be $1,291,481 plus accrued and accruing interest).
For the statutory contribution action under the MTCA, Northwest
Alloys seeks contribution for ongoing remedial costs for alleged
soil and ground water contamination at the L-Bar Products site
in Chewelah, Washington. Contribution is sought from the
Company for past and present costs incurred, and future costs to
be incurred, by Northwest Alloys to address the alleged soil and
ground water contamination at the L-Bar Products site.
Northwest Alloys filed a motion for summary judgment to enforce
the August 2, 1990 guaranty. The motion was heard before the
Court on October 4, 1994 and Northwest Alloys' motion was
denied. On December 6, 1994 an order was entered staying all
further proceedings pending the completion of adversary
proceedings involving the Company in L-Bar Product's bankruptcy
proceedings.
<PAGE>
Deferred Compensation
The Company has a deferred compensation plan for its deceased
chairman's spouse. The payment of this benefit is pursuant to a
management contract which provides for monthly disbursements.
adjusted annually for inflation. The obligation, originally
recorded based on applicable mortality rates, was exhausted
during the fiscal year ended November 30, 1991. Payments made
in excess of the obligation recorded have been expensed when
either paid or accrued.
Amounts due under the plan were accrued, but no payments were
made in 1996, 1995, 1993 and 1992 because the Company has been
conserving its cash. In 1996 and 1995, the accrued deferred
compensation amounted to $199,865 and $114,209, respectively.
Cash Flow Requirements
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company is generating revenues from its continuing operations
and the current level of cash flow is sufficient to sustain
operations and a portion of its general and administrative
expenses. The Company is conserving its cash and has not paid
all of the compensation due to the officers and directors and,
as described above, has accrued part of the deferred
compensation. In 1996 and 1995, the accrued compensation due to
the officers and directors amounted to $1,794,781 and
$1,490,897, respectively.
During 1991, the Company borrowed $695,000 from the Melfi Family
Trust, which is part of the estate of Mr. James J. Melfi, Sr.,
in order to purchase the equity interest in JPL Industries Pte.
Ltd. In order to conserve cash. the Company has not paid all of
the interest due on this loan. In 1996 and 1995, the accrued
interest on the loan amounted to $305,307 and $233,527,
respectively.
The other Melfi family members have loaned working capital to
the Company. The Company currently owes $145,000 plus accrued
interest on these working capital loans. In 1996 and 1995, the
accrued interest on these working capital loans amounted to
$14,500 and $46,430, respectively.
Pursuant to promissory notes to the Company, officers have loans
amounting to $396,985 and $328,735 in 1996 and 1995, receptively.
Other
During the normal course of business, the Company has other
commitments, lawsuits, claims and contingent liabilities.
However, Company management does not expect that any sum it may
have to pay in connection with any of these matters would have a
materially adverse effect on the consolidated financial position.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> NOV-30-1996 NOV-30-1995
<PERIOD-END> NOV-30-1996 NOV-30-1995
<CASH> 15332 36383
<SECURITIES> 0 0
<RECEIVABLES> 713051 628520
<ALLOWANCES> 45582 45882
<INVENTORY> 92573 112551
<CURRENT-ASSETS> 803860 762545
<PP&E> 3772373 3554738
<DEPRECIATION> 1053114 919317
<TOTAL-ASSETS> 8443008 7625363
<CURRENT-LIABILITIES> 3291366 2876356
<BONDS> 0 0
0 0
0 0
<COMMON> 3203763 3157333
<OTHER-SE> (208566) (416029)
<TOTAL-LIABILITY-AND-EQUITY> 8443008 7625363
<SALES> 1525934 1691913
<TOTAL-REVENUES> 2688392 1778137
<CGS> 1148404 1336308
<TOTAL-COSTS> 2312277 2401414
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 168652 131266
<INCOME-PRETAX> 207463 (754543)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 207463 (754543)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 207463 (754543)
<EPS-PRIMARY> 0.06 (0.24)
<EPS-DILUTED> 0.06 (0.24)
</TABLE>
EXHIBIT 4.6
SUPPLEMENTAL SECURITY AGREEMENT
THIS AGREEMENT is entered into this 31st day of January, 1994
by and between MELFI FAMILY TRUST (hereafter called "Lender"),
and RESERVE INDUSTRIES CORPORATION, a New Mexico corporation
hereafter ("Borrower").
WHEREAS, Borrower has an existing loan of Six Hundred Ninety
Five Thousand Dollars ($695,000); and
WHEREAS, Borrower, to date, has not paid any interest on the
loan and the collateral value of the stock in Industrial Mineral
Products (Phil.), a Philippine company, which was part of the
collateral provided under the Loan Agreement and Security
Agreement dated as of the 31st day of October 1991, has
diminished due to the expiration that Company's contract with
PASAR; and
WHEREAS, because of the diminished value of the collateral and
in order to provide the Lender with additional security for the
loan, Borrower has agreed to grant to Lender a first and prior
lien on and security interest in certain additional assets of
Borrower; and
WHEREAS, this Supplemental Security Agreement is not intended
to replace the original Security Agreement dated as of October
31, 1991 but instead is intended to be additional security under
the Loan and Security Agreements dated as of October 31, 1991,
all as defined herein.
NOW, THEREFORE, in consideration of the undertakings of each to
the other contained in this Agreement, the parties agree as
follows:
1. Additional Collateral. The Additional Collateral of this
Security Agreement - Supplement shall consist of the stock of
Reserve Minerals Corporation, a Delaware corporation.
2. Grant of Security Interest. As Additional Collateral
security for the repayment of the Loan pursuant to the terms of
the Loan Agreement, Borrower hereby pledges, grants, and assigns
to Lender a first security interest in and lien on the
Additional Collateral.
3. Representations and Warranties. Borrower represents and
warrants to Lender that:
<PAGE>
(a) Organization of Borrower. Borrower is a corporation duly
organized, validly existing and in good standing under the laws
of the State of New Mexico.
(b) Corporate Authorization. Borrower has the corporate power
and authority to enter into this Agreement and to carry out its
obligations hereunder. This Agreement is a legal, valid and
binding obligation of Borrower, enforceable in accordance with
its terms. No other corporate proceedings on the part of
Borrower are necessary to authorize this Agreement.
(c) Conflicts. Neither the execution or delivery of this
Agreement, the consummation of the transactions contemplated
hereby, nor compliance with the terms and provisions hereof will
conflict with or result in a breach of any of the terms,
conditions or provisions of any law, regulation, order, writ,
injunction or decree of any court or governmental
instrumentality or of any agreement of or by which Borrower is
bound or to which it is subject, or constitute a default
thereunder or result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon the
collateral pursuant to the terms of any such agreement.
4. Rights of Lender Upon Default. Upon default by Borrower
under the Loan Agreement, Lender may exercise and shall have any
and all of the following rights and remedies (subject to any
priority of Senior Lenders under applicable law):
(a) To the extent permitted by applicable law, to take
possession of the Additional Collateral with or without the aid
of judicial process;
(b) To require Borrower to assemble the Additional Collateral
and make it available to Lender at a place designated by Lender
which is reasonably convenient to both parties;
(c) To foreclose the lien and security interest created herein
by any available and proper judicial process;
(d) To enter Borrower's premises for the purpose of taking
possession, removing or there causing to be sold any Additional
Collateral;
(e) To sell, lease or otherwise dispose of Additional
Collateral, either at public or private sale in its then
condition, or following any commercially reasonable preparation
or processing and upon such terms as it, in its sole discretion,
may deem advisable. The requirement of reasonable notice shall
be met, if notice is mailed, postage prepaid to Borrower, at
least ten (10) days before the time of sale or disposition of
the Additional Collateral;
<PAGE>
(f) To apply according to law the proceeds of any sale, lease or
other disposition of the Additional Collateral;
(g) To exercise any and all rights and remedies accorded to
Lender by the Uniform Commercial Code; and
(h) To the extent permitted by applicable law, Borrower shall
remain liable for any deficiency resulting from the sale or
other disposition of the Additional Collateral and shall pay
such deficiency forthwith upon demand.
5. Fees, Costs and Expenses. Any and all fees, costs and
expenses, of whatever kind of nature, including the reasonable
attorneys' fees and legal expenses incurred by Lender
inconnection with the filing or recording of any documents
(including all taxes in connection therewith) in public offices,
the payment or discharge of any taxes, counsel fees, maintenance
fees or encumbrances, or otherwise protecting, maintaining or
preserving the Additional Collateral, or in defending or
prosecuting any actions or proceedings arising out of or related
to the Additional Collateral, shall be borne and paid by
Borrower on demand by Lender and until so paid shall be added to
the Loan and shall bear interest at two percent (2%) in excess
of the interest rate charged to Borrower under the Loan
Agreement.
6. Lender's Rights are Cumulative. All of Lender's rights and
remedies with respect to the Additional Collateral, whether
established hereby or by the Initial Loan Agreement, by any
other agreements or by law shall be cumulative and may be
exercised singularly or concurrently.
7. Integration. This Agreement, together with the Loan
Agreement and the Security Agreement between the parties hereto
and dated as of October 31, 1991 herewith, constitutes the
entire understanding between the parties with respect to the
subject matter hereof and supersedes all prior agreements,
negotiations, understandings and discussions with respect hereto.
8. Severability. The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid
and unenforceable in whole or in part in any jurisdiction, then
such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and
shall not in any manner affect such clause or provision in any
other jurisdiction, or any other clause or provision of this
Agreement in any jurisdiction.
<PAGE>
9. Further Assurances. Borrower shall execute recordable
financing statements covering its interests in the Additional
Collateral to be filed where ever reasonably required by Lender,
and shall further do, make, procure, execute and deliver all
acts, things, writings, and assurances as Lender may at any time
reasonably require to protect, assure, or enforce its interests,
rights and remedies under this Agreement.
10. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of New Mexico,
not including, however, rules relating to choice or conflicts of
law.
11. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be
hand delivered or sent by certified mail (return receipt
requested) or by reputable overnight courier, or sent by telex,
telegram, facsimile or cable, delivered to the respective
addresses set forth below or, as to each party, at such other
address as shall be designated by such party in a notice to the
party entitled to receive such notice. All such notices and
communications shall be effective when received addressed as set
forth below:
If to Borrower:
Reserve Industries Corporation
Suite 308, 20 First Plaza
Albuquerque, New Mexico 87102
Attention: President
If to Lender:
Melfi Family Trust
600 Alcalde Place N.E.
Albuquerque, New Mexico 87104
Attention: Ruth Ann Melfi
12. Waiver. The failure of either party hereto to enforce at
any time any provision of this Agreement or to exercise any
right which is herein provided shall in no way be construed to
be a waiver of such provision and not in any way to affect the
validity of this Agreement or any part hereof of the right of
such party to enforce thereafter such provisions and to exercise
such right. No waiver of any breach of this Agreement shall be
held to be a waiver of any other or subsequent breach. Nothing
shall constitute, or have the effect of, a waiver except an
instrument in writing signed by a duly authorized officer or
representative of the party against whom such waiver is sought
to be enforced which expressly, and not impliedly, waives a
right or rights under this Agreement.
<PAGE>
13. Assignment. Borrower may not assign this Agreement or any
right or obligation hereunder without the prior written consent
of Lender. Lender may assign this Agreement or any right or
obligation hereunder to any affiliate of Lender.
14. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original but all of which together shall constitute
one and the same instrument.
15. Headings. The headings appearing in this Agreement are for
convenience of reference only and shall in no way affect the
interpretation of this Agreement or any part thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed, in counterparts, as of the date first
above written.
WITNESS RESERVE INDUSTRIES CORPORATION
/s/ Jeanne Buetel By /s/ William J. Melfi
WITNESS MELFI FAMILY TRUST
/s/ Jeanne Buetel By /s/ Ruth Ann Melfi
CERTIFICATE OF ACKNOWLEDGMENT
State of New Mexico )
) ss
County of Bernalillo )
Before me, the undersigned, a Notary Public in and for the
county aforesaid, personally appeared William J. Melfi the
Vice President for RESERVE INDUSTRIES CORPORATION and being
duly sworn says that he executed the foregoing instrument for
and in behalf of RESERVE INDUSTRIES CORPORATION and that he
acknowledged the due execution of the foregoing instrument for
the purposes therein expressed as the free act and deed of said
corporation.
Witness my hand and official seal the 28 day of March, 1994.
/s/ Betty Slawson
Notary Public
My commission expires: 12/16/96
CERTIFICATE OF ACKNOWLEDGMENT
State of New Mexico )
) ss
County of Bernalillo )
Before me, the undersigned, a Notary Public in and for the
county aforesaid, personally appeared Ruth Ann Melfi the
Representative for MELFI FAMILY TRUST and being duly sworn says
that he executed the foregoing instrument for and in behalf of
MELFI FAMILY TRUST and that she acknowledged the due execution
of the foregoing instrument for the purposes therein expressed
as the free act and deed of said Trust.
Witness my hand and official seal the 28 day of March, 1994.
/s/ Betty Slawson
Notary Public
My commission expires: 12/16/96
<PAGE>
EXHIBIT 4.7
SECOND SUPPLEMENTAL SECURITY AGREEMENT
THIS AGREEMENT is entered into this 6th day of May, 1996 by
and between MELFI FAMILY TRUST (hereafter called "Lender"), and
RESERVE INDUSTRIES CORPORATION, a New Mexico corporation
hereafter ("Borrower").
WHEREAS, Borrower has an existing loan of Six Hundred Ninety
Five Thousand Dollars ($695,000); and
WHEREAS, the loan was to be fully paid by January 25, 1996; and
WHEREAS, Borrower, to date, has not paid interest on the loan
since January 1, 1993 and also has not paid the principal
amounts due on the note; and
WHEREAS, because of the lack of performance on the note and its
obligations and in order to provide the Lender with additional
security for the loan, Borrower has agreed to grant to Lender a
first and prior lien on and security interest in certain
additional assets of Borrower; and
WHEREAS, this Second Supplemental Security Agreement is not
intended to replace the original Security Agreement dated as of
October 31, 1991 and the Supplemental Security Agreement dated
as of January 31, 1994 but instead is intended to be additional
security under the Loan and Security Agreements dated as of
October 31, 1991, and the Supplemental Security Agreement dated
as of January 31, 1994 all as defined herein.
NOW, THEREFORE, in consideration of the undertakings of each to
the other contained in this Agreement, the parties agree as
follows:
1. Additional Collateral. The Additional Collateral of this
Security Agreement - Supplement shall consist of the stock of
Reserve Rossborough Corporation, a New Mexico corporation and
Reserve Rossborough Ventures Corporation, a New Mexico
corporation.
2. Grant of Security Interest. As Additional Collateral
security for the repayment of the Loan pursuant to the terms of
the Loan Agreement, Borrower hereby pledges, grants, and assigns
to Lender a first security interest in and lien on the
Additional Collateral.
<PAGE>
3. Representations and Warranties. Borrower represents and
warrants to Lender that:
(a) Organization of Borrower. Borrower is a corporation duly
organized, validly existing and in good standing under the laws
of the State of New Mexico.
(b) Corporate Authorization. Borrower has the corporate power
and authority to enter into this Agreement and to carry out its
obligations hereunder. This Agreement is a legal, valid and
binding obligation of Borrower, enforceable in accordance with
its terms. No other corporate proceedings on the part of
Borrower are necessary to authorize this Agreement.
(c) Conflicts. Neither the execution or delivery of this
Agreement, the consummation of the transactions contemplated
hereby, nor compliance with the terms and provisions hereof will
conflict with or result in a breach of any of the terms,
conditions or provisions of any law, regulation, order, writ,
injunction or decree of any court or governmental
instrumentality or of any agreement of or by which Borrower is
bound or to which it is subject, or constitute a default
thereunder or result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon the
collateral pursuant to the terms of any such agreement.
4. Rights of Lender Upon Default. Upon default by Borrower
under the Loan Agreement, Lender may exercise and shall have any
and all of the following rights and remedies (subject to any
priority of Senior Lenders under applicable law):
(a) To the extent permitted by applicable law, to take
possession of the Additional Collateral with or without the aid
of judicial process;
(b) To require Borrower to assemble the Additional Collateral
and make it available to Lender at a place designated by Lender
which is reasonably convenient to both parties;
(c) To foreclose the lien and security interest created herein
by any available and proper judicial process;
(d) To enter Borrower's premises for the purpose of taking
possession, removing or there causing to be sold any Additional
Collateral;
(e) To sell, lease or otherwise dispose of Additional
Collateral, either at public or private sale in its then
condition, or following any commercially reasonable preparation
or processing and upon such terms as it, in its sole discretion,
may deem advisable. The requirement of reasonable notice shall
be met, if notice is mailed, postage prepaid to Borrower, at
least ten (10) days before the time of sale or disposition of
the Additional Collateral;
(f) To apply according to law the proceeds of any sale, lease or
other disposition of the Additional Collateral;
(g) To exercise any and all rights and remedies accorded to
Lender by the Uniform Commercial Code; and
<PAGE>
(h) To the extent permitted by applicable law, Borrower shall
remain liable for any deficiency resulting from the sale or
other disposition of the Additional Collateral and shall pay
such deficiency forthwith upon demand.
5. Fees, Costs and Expenses. Any and all fees, costs and
expenses, of whatever kind of nature, including the reasonable
attorneys' fees and legal expenses incurred by Lender
inconnection with the filing or recording of any documents
(including all taxes in connection therewith) in public offices,
the payment or discharge of any taxes, counsel fees, maintenance
fees or encumbrances, or otherwise protecting, maintaining or
preserving the Additional Collateral, or in defending or
prosecuting any actions or proceedings arising out of or related
to the Additional Collateral, shall be borne and paid by
Borrower on demand by Lender and until so paid shall be added to
the Loan and shall bear interest at two percent (2%) in excess
of the interest rate charged to Borrower under the Loan
Agreement.
6. Lender's Rights are Cumulative. All of Lender's rights and
remedies with respect to the Additional Collateral, whether
established hereby or by the Initial Loan Agreement, by any
other agreements or by law shall be cumulative and may be
exercised singularly or concurrently.
7. Integration. This Agreement, together with the Loan
Agreement and the Security Agreement between the parties hereto
and dated as of October 31, 1991and the Supplemental Security
Agreement dated as of January 31, 1994 herewith, constitutes the
entire understanding between the parties with respect to the
subject matter hereof and supersedes all prior agreements,
negotiations, understandings and discussions with respect hereto.
8. Severability. The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid
and unenforceable in whole or in part in any jurisdiction, then
such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and
shall not in any manner affect such clause or provision in any
other jurisdiction, or any other clause or provision of this
Agreement in any jurisdiction.
9. Further Assurances. Borrower shall execute recordable
financing statements covering its interests in the Additional
Collateral to be filed where ever reasonably required by Lender,
and shall further do, make, procure, execute and deliver all
acts, things, writings, and assurances as Lender may at any time
reasonably require to protect, assure, or enforce its interests,
rights and remedies under this Agreement.
<PAGE>
10. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of New Mexico,
not including, however, rules relating to choice or conflicts of
law.
11. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be
hand delivered or sent by certified mail (return receipt
requested) or by reputable overnight courier, or sent by telex,
telegram, facsimile or cable, delivered to the respective
addresses set forth below or, as to each party, at such other
address as shall be designated by such party in a notice to the
party entitled to receive such notice. All such notices and
communications shall be effective when received addressed as set
forth below:
If to Borrower:
Reserve Industries Corporation
Suite 308, 20 First Plaza
Albuquerque, New Mexico 87102
Attention: President
If to Lender:
Melfi Family Trust
600 Alcalde Place N.E.
Albuquerque, New Mexico 87104
Attention: Ruth Ann Melfi
12. Waiver. The failure of either party hereto to enforce at
any time any provision of this Agreement or to exercise any
right which is herein provided shall in no way be construed to
be a waiver of such provision and not in any way to affect the
validity of this Agreement or any part hereof of the right of
such party to enforce thereafter such provisions and to exercise
such right. No waiver of any breach of this Agreement shall be
held to be a waiver of any other or subsequent breach. Nothing
shall constitute, or have the effect of, a waiver except an
instrument in writing signed by a duly authorized officer or
representative of the party against whom such waiver is sought
to be enforced which expressly, and not impliedly, waives a
right or rights under this Agreement.
13. Assignment. Borrower may not assign this Agreement or any
right or obligation hereunder without the prior written consent
of Lender. Lender may assign this Agreement or any right or
obligation hereunder to any affiliate of Lender.
<PAGE>
14. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original but all of which together shall constitute
one and the same instrument.
15. Headings. The headings appearing in this Agreement are for
convenience of reference only and shall in no way affect the
interpretation of this Agreement or any part thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed, in counterparts, as of the date first
above written.
WITNESS RESERVE INDUSTRIES CORPORATION
/s/ Jeanne Buetel By /s/ William J. Melfi
WITNESS MELFI FAMILY TRUST
/s/ Jeanne Buetel By /s/ Ruth Ann Melfi
<PAGE>
CERTIFICATE OF ACKNOWLEDGMENT
State of New Mexico )
) ss
County of Bernalillo )
Before me, the undersigned, a Notary Public in and for the
county aforesaid, personally appeared William J. Melfi the
Vice President for RESERVE INDUSTRIES CORPORATION and being
duly sworn says that he executed the foregoing instrument for
and in behalf of RESERVE INDUSTRIES CORPORATION and that he
acknowledged the due execution of the foregoing instrument for
the purposes therein expressed as the free act and deed of said
corporation.
Witness my hand and official seal the 30 day of May, 1996.
/s/ Betty Slawson
Notary Public
My commission expires: 12/16/96
CERTIFICATE OF ACKNOWLEDGMENT
State of New Mexico )
) ss
County of Bernalillo )
Before me, the undersigned, a Notary Public in and for the
county aforesaid, personally appeared Ruth Ann Melfi the
Representative for MELFI FAMILY TRUST and being duly sworn says
that he executed the foregoing instrument for and in behalf of
MELFI FAMILY TRUST and that she acknowledged the due execution
of the foregoing instrument for the purposes therein expressed
as the free act and deed of said Trust.
Witness my hand and official seal the 30 day of May, 1996.
/s/ Betty Slawson
Notary Public
My commission expires: 12/16/96
Exhibit No. 21
Subsidiaries of Reserve Industries Corporation as of November 30, 1996
Name State of Incorporation
Reserve Silica Corporation Washington
Reserve Minerals Corporation Delaware
Reserve Abrasives Ltd., Inc. New Mexico
Reserve Rossborough Ventures Corporation New Mexico
Reserve Rossborough Corporation New Mexico
Reserve Trisal, Inc. New Mexico
L-Bar Products, Inc. Washington
Country of Incorporation
Industrial Mineral Products (Phil.) Inc. Philippines
L-Bar Canada Inc. Canada