-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NqMOw/I3ygJ0I1TpcVl4nfap4wUTstcaKE5iVrFYHbXlGX2+P1GDBYBtfYTNS7uV AB+4NNPaju2j+I73Oi936A== 0000075644-97-000003.txt : 19970329 0000075644-97-000003.hdr.sgml : 19970329 ACCESSION NUMBER: 0000075644-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZEMEX CORP CENTRAL INDEX KEY: 0000075644 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 135496920 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00228 FILM NUMBER: 97566017 BUSINESS ADDRESS: STREET 1: CT TOWER, BCE PLACE STREET 2: 161 BAY ST, STE 3750 P O BOX 703 CITY: TORONTO ONTARIO M5J STATE: A6 BUSINESS PHONE: 4163658080 MAIL ADDRESS: STREET 1: CANADA TRUST TOWER STREET 2: BCE PLACE 161 BAY ST,# 3750 PO BOX 703 CITY: TORONTO ONTARIO M5J STATE: A6 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC TIN CONSOLIDATED CORP DATE OF NAME CHANGE: 19860720 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 Commission file number 1-228 ZEMEX CORPORATION (Exact name of registrant as specified in its charter) Delaware 1031 13-5496920 (State or other (Primary standard (I.R.S. employer jurisdiction of industrial identification incorporation or classification code number) organization) number) Canada Trust Tower, BCE Place, 161 Bay Street, Suite 3750 Toronto, Ontario, Canada M5J 2S1 (416) 365-8080 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act New York Stock Exchange Common Stock, $1.00 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the registrant's voting stock (Common Stock, $1.00 par value) held by non-affiliates as of March 7, 1997 (based on the closing sale price of $7.125 on the New York Stock Exchange) was $27,646,140. As of March 7, 1997, 9,041,946 shares of the registrant's Common Stock, $1.00 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Shareholders for the Year Ended December 31, 1996 Part II Definitive Proxy Statement filed with the Commission pursuant to Regulation 14A with respect to the Annual Meeting of Shareholders Part III FORM 10-K ANNUAL REPORT TABLE OF CONTENTS AND CROSS-REFERENCE SHEET PART I Page Item 1. Business 1 Item 2. Properties 7 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 8 Item 10. Executive and Other Officers of the Registrant(A) 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters(B) 9 Item 6. Selected Financial Data(C) 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation(D) 9 Item 8. Financial Statements and Supplementary Data(E) 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 10 PART III Item 10. Directors of the Registrant(F) * Item 11. Executive Compensation(F) * Item 12. Security Ownership of Certain Beneficial Owners and Management(F) * Item 13. Certain Relationships and Related Transactions(F) * PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 11 _________________________ (A) Included in Part I pursuant to Instruction 3 of Item 401(b) of Regulation S-K. (B) Information responsive to this Item is set forth on page 16 of the registrant's Annual Report to Shareholders for the year ended December 31, 1996 (the "Annual Report to Shareholders") and is incorporated herein by reference. The Annual Report to Shareholders is included as Exhibit 13 to this Form 10- K Annual Report. The Annual Report to Shareholders, except for those portions thereof which are expressly incorporated by reference herein, is furnished for the information of the Commission and is not to be deemed "filed" as part of this Form 10-K report. (C) Information responsive to this Item is set forth on page 41 of the Annual Report to Shareholders and is incorporated herein by reference. (D) Information responsive to this Item is set forth on pages 10 through 16 of the Annual Report to Shareholders and is incorporated herein by reference. (E) Financial statements responsive to this Item are set forth on pages 17 through 40 of the Annual Report to Shareholders and are incorporated herein by reference. The Supplementary Schedule required by this Item is set forth on page S-1 of this Form 10-K Annual Report. (F) Information responsive to this Item is set forth in the registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A and in the Annual Report to Shareholders on Page 39 (Note 15) and is incorporated herein by reference. PART I ITEM 1. BUSINESS General Zemex Corporation (the "Corporation" or "Zemex"), a Delaware corporation, was incorporated in 1985 as the successor to Pacific Tin Corporation. Zemex is a niche producer of industrial minerals and metal products. Its principal businesses are industrial minerals, metal powders, and aluminum waste recycling. Its major products include feldspar, feldspathic minerals, kaolin, sand, mica, talc, ferrous and non ferrous powders, and aluminum dross derivatives. Industrial Minerals The Corporation's industrial minerals segment consists of three wholly-owned subsidiaries: The Feldspar Corporation ("TFC"), Suzorite Mica Products Inc. ("Suzorite") and Suzorite Mineral Products, Inc. ("SMP"). The group is collectively referred to as Zemex Industrial Minerals, Inc., a company which was incorporated under the laws of the State of Delaware in December 1996. TFC has mining and processing facilities in Edgar, Florida; Monticello, Georgia; and Spruce Pine, North Carolina. Using classical methods, TFC mines sodium feldspar from two different ore deposits in the Spruce Pine area; potassium feldspar is mined from two deposits close to the Monticello plant. TFC's kaolin and sand products are produced by dredging and wet separation at the Edgar property. TFC produces numerous products, including sodium and potassium feldspar, silica, low iron sand, muscovite mica and kaolin clay, at its operating plants in TFC supplies its products primarily to the glass and ceramics industries. Feldspathic minerals and certain grades of industrial sand are used to manufacture bottles, jars, and other glass containers, fiberglass, paints and plastics, and television picture tubes. Feldspar and kaolin are major raw materials for the ceramic industry, and are incorporated into the production of ceramic floor and wall tiles, dinnerware, plumbing fixtures, glazes and electrical insulators. Industrial sand is used for filter, filler, beach, blasting and concrete applications. TFC also produces a low iron sand product for use in specialized glass applications. Suzorite mines phlogopite mica in an open pit mining operation in Suzor Township, Quebec, Canada, approximately 200 miles north of Montreal, Quebec. The ore is mined by standard, open pit methods and delivered to a siding for ultimate transportation by rail to the processing plant, which is located in Boucherville, Quebec, a suburb of Montreal. Suzorite's phlogopite mica is processed into products of various particle sizes. Because of its distinct thermal stability advantage over competitive materials, phlogopite mica is used in technological plastic and high temperature plastic applications; Suzorite's phlogopite mica is used as a partial or complete substitute for asbestos in fire retardation, friction materials, oil well drilling needs, caulking and molding compounds, coatings, plasters and plastics. The principal markets served by Suzorite are the automobile, construction and oil drilling industries. These products are marketed under the trade names Suzorite Mica and Suzorex. SMP, which was acquired by the Corporation in late 1994, has talc operations in Natural Bridge, New York; Murphy, North Carolina; Van Horn, Texas; and Benwood, West Virginia. SMP purchases raw materials for conversion and processing at its plant in Natural Bridge; these products are directed primarily into the cosmetic and pharmaceutical industries. The production facility in Van Horn processes mined ores for sale into the coatings, plastics and ceramics industries. The Benwood operation imports raw materials and processes a variety of calcium carbonates as well as a wide range of talc products for ultimate use in the plastics industry. In late 1996, SMP substantially completed the construction of a new mill at its facility in West Virginia. This new fine grind milling capacity is part of SMP's strategy to develop a niche in the talc marketplace by offering very finely divided high purity talc products to industrial markets. SMP believes that it is one of the few talc producers in North America to produce products of this purity and fineness. The products, which will see application in performance plastic parts, high end coatings and other niche markets, are currently being tested and appraised by a select group of customers. With the addition of these new fine grind products, Benwood will have the ability to produce a broad spectrum of high purity talc products. Demand for the Corporation's industrial minerals is related to the pace of the general economy and, particularly, to the automotive industry, and residential and commercial construction industries. The Corporation's industrial minerals sales were $40.5 million in 1996, compared with $37.1 million in 1995 and $30.4 million in 1994. This business segment reported operating income, before reorganization and/or restructuring charges of $3.1 million in 1996, $4.6 million in 1995 and $3.9 million in 1994. During 1996, considerable efforts were put into product development, marketing, capital expansion projects and product quality improvement. The Corporation expects these efforts will bear fruit in the future. Capital expenditures were $11.9 million in 1996 compared to $9.7 million in 1995 and $2.1 million in 1994. Major capital spending in 1996 included construction of a low iron sand plant in Spruce Pine, North Carolina, completion of an expansion at TFC's sodium feldspar operation also in Spruce Pine, and installation of a new fine grind mill at its plant in Benwood, West Virginia. Metal Products The metal products segment consists of Pyron Corporation and Pyron Metal Powders, Inc. (together, "Pyron") and Alumitech, Inc., Aluminum Waste Technology, Inc. and Engineered Thermal Systems, Inc. (collectively, "Alumitech"), all of which are wholly-owned subsidiaries of Zemex. Pyron operates plants located in Niagara Falls, New York; St. Marys, Pennsylvania; and Greenback, Tennessee. In 1994, Pyron purchased the assets of Greenback Industries, Inc., giving it the ability to produce a wide range of high quality copper and copper alloy powders. These products complement Pyron's iron and steel powder products and are sold through Pyron's marketing and sales organization. Until 1996, Pyron also operated a metal powder facility in Maryville, Tennessee. However, in order to optimize production efficiencies and lower operating costs, the Maryville process was amalgamated with the one at Greenback in early 1996. In addition, a new water atomized copper powder process was successfully commissioned at the Greenback location in late 1996. Pyron's major products include iron, steel, copper, copper alloy powders and manganese sulfide. The primary application of metal powders is in the fabrication of precision metal parts using powder metallurgy. Powder metallurgy is an efficient, economical process for the production of complex components used in the automotive, farm, garden and lawn equipment, and business machine industries. Key features of powder metallurgy technology are low scrap ratios and lower production costs than other conventional metal working processes such as machining, casting and forging. In addition, in recent years, metal powder use in automotive and rail braking systems has grown rapidly as a replacement for asbestos, achieving better performance and improved environmental and health conditions. Metal powders are also used in the production of welding rods, for cutting and scarfing of steel ingots and billets, for the inspection of oil field pipe and tubing, and in food supplements. In 1995, Pyron completed construction of a blending plant in St. Marys, Pennsylvania. Through its new blending plant, Pyron is able to provide warehousing, custom pre-packaged powders and just-in-time service to its customers. In 1996, Pyron completed construction of a designated facility for the production of manganese sulfide at its Greenback, Tennessee location. Pyron's new product, Manganese Sulfide Plus (MnS+TM), was developed in Pyron's laboratory and is used as an additive by the powder metallurgical industry to enhance tool life and aid in machinability. Manganese Sulfide Plus is now commercially available and response from customers has been very positive. Although not a significant contributor to earnings, manganese sulfide is a natural complement to Pyron's core ferrous and non-ferrous businesses. It further broadens Pyron's product line, serving to enhance customer relationships The Corporation acquired its initial interest in Alumitech in 1994 and increased its ownership to 100 percent in 1995. Alumitech has two processing plants: an aluminum dross reprocessing plant in Cleveland, Ohio and a ceramic fiber production plant in Streetsboro, Ohio. Alumitech is an aluminum dross reprocessor that has developed, patented and is in the process of commercializing its proprietary aluminum dross recycling technology. Using its patented process, Alumitech has the ability to transform chloride- based drosses received from secondary aluminum producers into a number of commercial applications, including refractory ceramic fiber and other metallurgical products. Currently, competitive processes landfill anywhere from 40 percent-75 percent of the volume of dross received, whereas Alumitech's recycling process will virtually eliminate the need for landfill. Aluminum dross is a waste by-product produced by primary and secondary aluminum smelters. Secondary dross, which is high in chloride content, forms the primary feedstock for Alumitech's Cleveland plant. Conventional dross processors extract the contained metallic aluminum and landfill the balance. Using its proprietary process, Alumitech has the ability to extract the metallic aluminum and residual fines as exothermics, crystallize the sodium, potassium, and magnesium chlorides, and convert the balance into non- metallic products ("NMP") to be used in the production of commercial products. The result is the elimination of the need for landfill. With its ability to convert NMP into commercially saleable products, Alumitech is considered the industry leader in the development of alternative uses for NMP. Alumitech's patents on its technology to process NMP have a remaining life of about fourteen years. Alumitech also operates a ceramic fiber plant in Streetsboro, Ohio. At this facility, NMP can be melted in an electric arc furnace and converted into refractory ceramic fiber. The fiber is blown into a blanket and cut to dimension. The final product is an insulation material with a temperature degradation of as high as 2000 degrees F. In November 1996, the Corporation signed a letter of intent to form a joint venture with IMCO Recycling Inc., the world's largest aluminum recycler. Assuming that a joint venture agreement is signed in the first half of 1997, management expects that construction of a new dross reprocessing facility will begin in late 1997 or early 1998. Sales for the metal products group decreased to $46.0 million in 1996 from $48.0 million in 1995. Sales were $24.9 million in 1994. The decrease from 1995 to 1996 was due to lower volumes of ferrous and non ferrous metal powders and lower aluminum prices. During the same interval, operating income before reorganization and/or restructuring charges decreased from $3.7 million in 1995 to $1.9 million in 1996. Operating income before reorganization and/or restructuring charges was $3.9 million in 1994. Management anticipates improved margins in this segment in 1997 as a result of higher metal powder production, new products, continuing cost reductions, efficiency improvement programs, and higher aluminum prices. Capital expenditures for the metal products group were $6.0 million in 1996 as compared to $5.8 million in 1995 and $0.9 million in 1994. The expenditures were primarily incurred to construct a manganese sulfide operation at the plant in Greenback, Tennessee and to improve the dross processing and ceramic production facilities at the Cleveland plant. In 1997, capital expenditures are anticipated to be higher due to the retrofitting of the Cleveland facility from a pilot plant to a full-scale commercial operation and the construction of a new dross processing facility with IMCO Recycling Inc. ("IMCO"). The latter is subject to the signing of a joint venture agreement with IMCO in the first half of 1997. Raw Materials and Other Requirements In recent years, the Corporation has not experienced any substantial difficulty in satisfying the raw materials requirements for its metal products operations, which is the segment that consumes, rather than supplies, raw materials. However, no assurance can be given that any shortages of these or other necessary materials or equipment will not develop or that increased prices will not adversely affect the Corporation's business in the future. Seasonality The efficiency and productivity of the Corporation's operations can be affected by unusually severe weather conditions. During the winter of 1996, there were minor production outages at the Corporation's operating facilities in North Carolina and New York States due to inclement weather, but they were not significant enough to materially affect 1996 operating results. Competition All of the Corporation's products are sold in highly competitive markets which are influenced by price, product performance, customer location, service, foreign competition, material substitution and general economic conditions. The Corporation competes with other companies active in industrial minerals and metal products. No material part of the Corporation's business is dependent upon any single customer, or upon very few customers, the loss of any one of which could have a material adverse impact on the Corporation. Industrial mineral prices, generally, are not subject to the price fluctuations typical of commodity metals. Demand for industrial minerals is primarily related to general economic conditions, particularly in the automotive, housing and construction industries. In the United States, there are three major feldspathic mineral producers, including the Corporation. The Corporation is the only North American producer of phlogopite mica and one of many talc producers. Markets for industrial mineral products are sensitive not only to service, product performance, and price, but also to competitive pressures and transportation costs. The Corporation is one of five North American producers of metal powders. The market for metal powders is affected primarily by product performance, consistency of product quality and price. To some extent, competition in the metal powders industry is affected by imports of finished metal powder parts. Product prices over the last several years have been strongly influenced by costs of powder production and available capacity. Demand for metal powders is a function of general economic conditions, particularly in the automotive market. There are numerous aluminum dross processors in the United States, however, only Alumitech has patented technology which enables it to process aluminum dross without the necessity for landfill. While the Corporation competes for the supply of aluminum dross with a number of other operations, the major factor affecting the supply of dross is the level of activity of the secondary aluminum smelting industry. In addition, as aluminum is one of the products of aluminum dross reprocessing, commodity price fluctuations of aluminum may have a negative impact on the earnings of the Corporation. Research and Development The Corporation carries on an active program of product development and improvement. Research and development expense was $0.6 million in 1996, $0.3 million in 1995 and $0.3 million in 1994. Financial information about industry segments is set forth on pages 39 and 40 of the Annual Report to Shareholders and is incorporated herein by reference. Environmental Considerations Laws and regulations currently in force which do or may affect the Corporation's domestic operations include the Federal Clean Air Act of 1970, the National Environmental Policy Act of 1969, the Solid Waste Disposal Act (including the Resource Conservation and Recovery Act of 1976), the Toxic Substances Control Act, CERCLA (superfund) and regulations under these Acts, the environmental protection regulations of various governmental agencies (e.g. the Bureau of Land Management Surface Management Regulations, Forest Service Regulations, and Department of Transportation Regulations), laws and regulations with respect to permitting of land use, various state and local laws and regulations concerned with zoning, mining techniques, reclamation of mined lands, air and water pollution and solid waste disposal. Currently, the Corporation is not aware of any materially adverse environmental problems or issues. Employees The approximate number of Corporation employees as of December 31, 1996 is set forth below: Industrial Minerals 275 Metal Products 235 Corporate 6 ---- Total 516 ---- Approximately 59 employees at the Corporation's metal powder operations in Niagara Falls, New York, are covered by a collective bargaining agreement. The current three-year agreement expires April 15, 1998. At the ferrous metal powder facility in Greenback, Tennessee, approximately 39 employees are covered by a three-year agreement which expires February 28, 1998. Approximately 22 employees at Suzorite are covered by a three-year collective bargaining agreement that expires December 12, 1999. The agreement is for three years and should be signed by the end of March 1997. At Alumitech, approximately 42 employees are covered by two collective bargaining agreements, one agreement expiring April 30, 1998 and one agreement expiring December 31, 1998. The Corporation considers its labor relations to be good. Foreign Operations The Corporation's international operations are located in Canada whose institutions and governmental policies are similar to those of the United States. Although there can be no assurance as to future conditions, the Corporation has experienced no political activities, social upheavals, currency restrictions or similar factors which have had any material adverse effect to date on the results of its operations or financial condition. Export Sales The Corporation's industrial minerals and metal products operations sell their products internationally to a wide variety of customers including the ceramics, glass and powder metallurgy industries. Export sales in these two segments were less than 7 percent of total sales. Cautionary "Safe Harbor" Statement Under the United States Private Securities Litigation Reform Act of 1995 With the exception of historical matters, the matters discussed in this report are forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from targeted or projected results. Factors that could cause actual results to differ materially include, among others, fluctuations in aluminum prices, problems regarding unanticipated competition, processing, access and transportation of supplies, availability of materials and equipment, force majeure events, the failure of plant equipment or processes to operate in accordance with specifications or expectations, accidents, labor relations, delays in start-up dates, environmental costs and risks, the outcome of acquisition negotiations and general domestic and international economic and political conditions, as well as other factors described herein or in the Corporation's filings with the Commission. Many of these factors are beyond the Corporation's ability to predict or control. Readers are cautioned not to put undue reliance on forward looking statements. ITEM 2. PROPERTIES The industrial minerals segment has operations and mines in Edgar, Florida; Monticello, Georgia; Boucherville, Quebec; Suzor Township, Quebec; Natural Bridge, New York; Murphy, North Carolina; Spruce Pine, North Carolina; Van Horn, Texas; and Benwood, West Virginia. This segment owns approximately 391,500 square feet of office and plant floor space. As well, the processing facility in Benwood, West Virginia has approximately twelve acres of land. In 1996, The Feldspar Corporation purchased 655 acres with 20 years additional ore reserves for its Spruce Pine, North Carolina facility. The mineral deposits at the mines currently operated by the industrial minerals segment are estimated by the Corporation to be at least 25 years, except in the case of the mica mine in Suzor Township where reserves are estimated to be in excess of 100 years. All of the Corporation's mining properties are either owned or leased, with the leases expiring from 1998 to 2018. The metal products group has operations in Niagara Falls, New York; St. Marys, Pennsylvania; Greenback, Tennessee; Cleveland, Ohio; and Streetsboro, Ohio. At its facility in Niagara Falls, Pyron Corporation utilizes approximately 79,000 square feet of office and plant floor space which it leases from the Niagara County Industrial Development Agency. The lease was established as part of the Industrial Development Revenue Bond issued in November 1989 to finance the construction of an atomized steel powder plant. Lease payments are to be sufficient to pay the debt service on the Industrial Development Revenue Bond. The atomized plant utilizes approximately 16,000 square feet of floor space and is adjacent to the existing facility. The blending plant in St. Marys, Pennsylvania, which was built in 1995, has 32,000 square feet of plant, office and storage space and is situated on 3.4 acres of land. The Greenback facility is situated on 27.5 acres of land of which 6 acres is actively used in the operations. General office space comprises approximately 6,300 square feet; there is approximately 87,000 square feet of production, storage and shipping/receiving space. The aluminum dross processing plant in Cleveland, Ohio owns 6.1 acres and has buildings totaling 51,000 square feet. The Streetsboro, Ohio operation owns 6.0 acres on which there is a 36,000 square foot building of plant and office space. All facilities are maintained in good operating condition. ITEM 3. LEGAL PROCEEDINGS On February 11, 1993, The Feldspar Corporation and other non- affiliated companies were named as defendants in a civil action brought by Dryvit Systems, Inc. ("Dryvit") in the State of Rhode Island captioned Dryvit Systems, Inc. v. The Feldspar Corporation, Taggart Sand Products Corp., Surface Systems, Inc., The Morie Company, Inc., Eriez Magnetics, Inc., and Law Engineering, Inc., C.A. No. KC 93-108, State of Rhode Island, Kent. Dryvit alleges that between approximately 1985 and 1990, sand purchased from TFC and other suppliers utilized by Dryvit to manufacture exterior insulation finishes for the exterior of buildings developed rust stains because the sand contained pyrite and magnetic materials. Dryvit seeks unspecified monetary damages and costs, including the costs associated with the repair of the damaged structures. TFC denies such allegations and claims and the Corporation believes that it is remote that this litigation will result in any material adverse effect to the Corporation's financial condition or results of operations. The Corporation strongly believes that this action is without merit, however, no assurance can be made as to the outcome of this litigation. Although the Corporation's primary insurer has attempted to limit its coverage, the Corporation believes that its primary and excess liability insurance is sufficient to cover any potentially unfavorable outcome. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 10. EXECUTIVE AND OTHER OFFICERS OF THE REGISTRANT Served in Officer Position Age Position Since Peter Lawson-Johnston Chairman of the Board of Directors 70 1975 Richard L. Lister President and Chief Executive Officer 58 1993 Allen J. Palmiere Vice President, Chief Financial Officer 44 1993 and Assistant Secretary Peter J. Goodwin Vice President, Zemex Corporation 46 1994 President, Industrial Minerals Terrance J. Hogan President, Alumitech, Inc. 41 1995 G. Russell Lewis President, Metal Powders 67 1986 Patricia K. Moran Assistant Secretary-Treasurer 31 1995 There are no family relationships between the officers listed above. The term of office of each executive officer is until his/her respective successor is elected and has qualified, or until his/her death, resignation or removal. Officers are elected or appointed by the board of directors annually at its first meeting following the annual meeting of shareholders. The following are the current officers of the Corporation and a description of their business activities if less than five years in their present position. Mr. Lister, who was elected to the board of directors on May 30, 1991, assumed his duties as Vice Chairman of the Board of Directors on July 23, 1991 and as President and Chief Executive Officer on June 1, 1993. Mr. Lister was Vice Chairman of Dundee Bancorp Inc. from October 1991 to May 1993. Mr. Palmiere assumed the duties of Chief Financial Officer in October 1993. From April 1992 to October 1993 he was a self-employed consultant. From October 1990 to April 1991 he was the Chief Financial Officer and Vice President of Breakwater Resources Ltd. and from May 1991 to April 1992 was the Chief Executive Officer of Breakwater Resources Ltd. Mr. Goodwin became a Vice President of the Corporation in August 1994. From May 1993 to August 1994, Mr. Goodwin was a self-employed consultant. Mr. Goodwin was President and Chief Executive Officer of Miller and Co. from August 1990 to May 1993. Mr. Hogan became President of Alumitech, Inc. in May 1995. Prior to becoming President, Mr. Hogan was Chief Operating Officer of Alumitech's subsidiary, Aluminum Waste Technology, Inc., from December 1992 to May 1995. Prior to December 1992, Mr. Hogan was the Vice President and Chief Financial Officer of American Recovery Technology Systems, Inc. Ms. Moran assumed the duties of Assistant Secretary- Treasurer in February 1995 and has served in various capacities with the Corporation since 1993. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information responsive to this Item is set forth on page 16 of registrant's Annual Report to Shareholders for the year ended December 31, 1996 and is incorporated herein by reference. The Annual Report to Shareholders is included as Exhibit 13 to this Form 10-K Annual Report. The Annual Report to Shareholders, except for those portions thereof which are expressly incorporated by reference herein, is furnished for the information of the Commission and is not to be deemed "filed" as part of this Form 10-K report. ITEM 6. SELECTED FINANCIAL DATA Information responsive to this item is set forth on page 41 of the Annual Report to Shareholders and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Information responsive to this Item is set forth on pages 10 through 16 of the Annual Report to Shareholders and is incorporated herein by reference. In addition to the information incorporated herein by reference, on March 12, 1997, the Corporation signed an amendment to its credit agreement with NationsBank and The Chase Manhattan Bank (see Exhibit 4(q)). The amendment provides for an incremental $20 million increase in credit available for acquisitions, capital programs and general corporate purposes. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements responsive to this Item are set forth on pages 17 through 40 of the Annual Report to Shareholders and are incorporated herein by reference. The Supplementary Schedule required by this Item is set forth on page S-1 of this Form 10-K Annual Report. See Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 1. Financial statements and independent auditor's report filed as part of this report: (a) Consolidated Balance Sheets at December 31, 1996 and 1995, which information is incorporated by reference under Item 8 of this report; (b) Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1996, which information is incorporated by reference under Item 8 of this report; (c) Consolidated Statements of Income for the three years ended December 31, 1996, which information is incorporated by reference under Item 8 of this report; (d) Consolidated Statements of Cash Flows for the three years ended December 31, 1996, which information is incorporated by reference under item 8 of this report; (e) Notes to the Consolidated Financial Statements, which information is incorporated by reference under Item 8 of this report; and (f) Independent Auditors' Report, which information is incorporated by reference under Item 8 of this report. 2. Financial statement schedules and independent auditors' report filed as part of this report: Schedule Number Description - Report of Independent Accountants Schedule IX Valuation and Qualifying Accounts and Reserves (page S-1) All other financial statements and schedules not listed have been omitted since the required information is included in the consolidated financial statements or the related notes thereto, or is not applicable or required. 3. EXHIBITS (3)(a) Certificate of Incorporation (Incorporated by reference from Exhibit 4(a) of the Corporation's Registration Statement on Form S-2, Registration No. 33-7774, filed on August 5, 1986) (3)(b) By-Laws (Incorporated by reference from Exhibit 3 of the Corporation's Quarterly Report on Form 10-Q filed on May 13, 1988) (3)(c) Amended and Restated Certificate of Incorporation (Incorporated by reference from Exhibit A of the Corporation's Definitive Proxy Statement, filed on March 29, 1995) (4)(a) Indenture of Trust dated as of November 1, 1989 between Niagara County Industrial Development Agency and The Bank of New York as trustee for Pyron Corporation (Incorporated by reference from Exhibit (4)(a) of the Corporation's Annual Report on Form 10- K filed March 31, 1990) (4)(b) Agency Mortgage and Security Agreement dated as of November 1, 1989 from Pyron Corporation and Niagara County Industrial Development Agency to The Bank of New York (Incorporated by reference from Exhibit (4)(b) of the Corporation's Annual Report on Form 10- K filed March 31, 1990) (4)(c) Letter of Credit Reimbursement Agreement dated as of November 1, 1989 between Pyron Corporation and Chemical Bank (Incorporated by reference from Exhibit (4)(c) of the Corporation's Annual Report on Form 10-K filed March 31, 1990) (4)(d) First Amendment to Letter of Credit Reimbursement Agreement dated as of November 1, 1989 between Pyron Corporation and Chemical Bank (Incorporated by reference from Exhibit (4)(d) of the Corporation's Annual Report on Form 10-K filed March 31, 1990) (4)(e) Second Amendment to Letter of Credit Reimbursement Agreement dated as of March 15, 1995 between Pyron Corporation and Chemical Bank (Incorporated by reference from Exhibit (4)(e) of the Corporation's Annual Report on Form 10-K filed March 30, 1995) (4)(f) Bank Mortgage and Security Agreement dated as of November 1, 1989 from Pyron Corporation and Niagara County Industrial Development Agency to Chemical Bank (Incorporated by reference from Exhibit (4)(e) of the Corporation's Annual Report on Form 10-K filed March 31, 1990) (4)(g) Building Loan Agreement dated as of November 1, 1989 between Chemical Bank and Pyron Corporation (Incorporated by reference from Exhibit (4)(f) of the Corporation's Annual Report on Form 10-K filed March 31, 1990) (4)(h) Security Agreement dated as of November 1, 1989 between Pyron Corporation and Chemical Bank (Incorporated by reference from Exhibit (4)(g) of the Corporation's Annual Report on Form 10-K filed March 31, 1990) (4)(i) Corporate Guaranty dated as of November 1, 1989 from Zemex Corporation to Chemical Bank (Incorporated by reference from Exhibit (4)(h) of the Corporation's Annual Report on Form 10-K filed March 31, 1990) (4)(j) First Amendment to Corporate Guaranty dated as of November 1, 1989 of Zemex Corporation to Chemical Bank (Incorporated by reference from Exhibit (4)(i) of the Corporation's Annual Report on Form 10-K filed March 31, 1990) (4)(k) Second Amendment to Corporate Guaranty dated as of March 14, 1991 of Zemex Corporation to Chemical Bank (Incorporated by reference from Exhibit (4)(j) of the Corporation's Annual Report on Form 10-K filed March 31, 1991) (4)(l) Third Amendment to Corporate Guaranty dated as of February 25, 1992 of Zemex Corporation to Chemical Bank (Incorporated by reference from Exhibit (4)(m) of the Corporation's Annual Report on Form 10-K filed March 31, 1993) (4)(m) Fourth Amendment to Corporate Guaranty dated as of March 8, 1993 of Zemex Corporation to Chemical Bank (Incorporated by reference from Exhibit (4)(o) of the Corporation's Annual Report on Form 10-K filed March 31, 1993) (4)(n) Fifth Amendment to Corporate Guaranty dated as of March 15, 1995 of Zemex Corporation to Chemical Bank (Incorporated by reference from Exhibit (4)(n) of the Corporation's Annual Report on Form 10-K filed March 30, 1995) (4)(o) Irrevocable Standby Letter of Credit between Florida Gas Utility and The Feldspar Corporation dated December 16, 1992 (Incorporated by reference from Exhibit (4)(q) of the Corporation's Annual Report on Form 10-K filed March 31, 1993) (4)(p) Loan and Security Agreement dated as of March 15, 1995 among Zemex Corporation and The Feldspar Corporation and NationsBank of Tennessee, N.A. and Chemical Bank and NationsBank of Tennessee, N.A., as Agent (Incorporated by reference from Exhibit (4)(p) of the Corporation's Annual Report on Form 10-K filed March 30, 1995) (4)(q) Amendment No. 1 dated as of March 12, 1997 to the Loan and Security Agreement dated as of March 15, 1995 among Zemex Corporation and The Feldspar Corporation and NationsBank of Tennessee, N.A. and Chemical Bank and NationsBank of Tennessee, N.A., as Agent *(10)(a) Key Executive Common Stock Purchase Plan (Incorporated by reference from Exhibit (10)(b) of the Corporation's Annual Report on Form 10-K filed March 31, 1991) (10)(b)Consent to Assignment of Lease and to Agreement Sublease, and permission to Make Payments dated November 7, 1978 each from Joberta Enterprises, Inc. to NL Industries, Inc. and The Feldspar Corporation (Incorporated by reference from Exhibit 10(pp) to the Corporation's Registration Statement on Form S- 2, Registration No. 33-7774, filed on August 5, 1986) (10)(c)Additional Lease Agreement dated as of November 1, 1989 between Niagara County Industrial Development Agency and Pyron Corporation (Incorporated by reference from Exhibit (10)(ll) of the Corporation's Annual Report on Form 10-K filed March 31, 1990) *(10)(d) Employment Agreement dated February 5, 1991 between Zemex Corporation and Robert W. Morris (Incorporated by reference from Exhibit (10)(ll) of the Corporation's Annual Report on Form 10-K filed March 31, 1992) *(10)(e) Option Agreement with Paul Carroll dated September 17, 1991 (Incorporated by reference from Exhibit (10)(ll) of the Corporation's Annual Report on Form 10-K filed March 31, 1992) *(10)(f) Option Agreement with Peter Lawson-Johnston dated September 17, 1991 (Incorporated by reference from Exhibit (10)(ll) of the Corporation's Annual Report on Form 10-K filed March 31, 1992) *(10)(g) Option Agreement with John Donovan dated September 17, 1991 (Incorporated by reference from Exhibit (10)(ll) of the Corporation's Annual Report on Form 10-K filed March 31, 1992) *(10)(h) Subscription Agreement with Richard L. Lister dated November 26, 1991 (Incorporated by reference from Exhibit (5)(a) of the Corporation's Annual Report on Form 10-K filed March 31, 1992) (10)(i)Ligonier Purchase Agreement and Second Plan of Reorganization dated March 2, 1992 among Pyron Metal Powders, Inc., a wholly-owned subsidiary of Zemex Corporation, Purchaser, and Ligonier Powders, Inc., Seller (Incorporated by reference from Exhibit (5)(a) of the Corporation's Annual Report on Form 10- K filed March 31, 1993) (10)(j)1995 Stock Option Plan (Incorporated by reference from Exhibit B of the Corporation's 1995 Definitive Proxy Statement, filed on March 29, 1995) (10)(k)Stock Purchase Agreement dated August 10, 1993 between Zemex Corporation, Zemex Canada Inc., an Ontario corporation and a direct wholly-owned subsidiary of Zemex Corporation, Dundee Bancorp Inc., an Ontario corporation, and Dundee Bancorp International Inc., a Delaware corporation, and a direct wholly-owned subsidiary of Dundee Bancorp Inc., with respect to the acquisition of Suzorite Mica Products Inc. (Incorporated by reference from Exhibit 2 of the Corporation's Current Report on Form 8-K filed September 7, 1993) (10)(l)Capital Stock Purchase Warrant dated September 14, 1993 issued to Dundee Bancorp International Inc. pursuant to the Stock Purchase Agreement referred to in 10(m). (Incorporated by reference from Exhibit 4(a) of the Corporation's Current Report on Form 8-K filed September 7, 1993) (10)(m)Registration Rights Agreement dated September 14, 1993 between Zemex Corporation and Dundee Bancorp International Inc. (Incorporated by reference from Exhibit 4(b) of the Corporation's Current Report on Form 8-K filed September 7, 1993) (10)(n)Asset Purchase Agreement dated September 3, 1993 between U.S. Silica Company, The Feldspar Corporation and Zemex Corporation with respect to the sale of the Virginia aplite facility (Incorporated by reference from Exhibit 10(at) of the Corporation's Annual Report on Form 10-K filed March 31, 1994) (10)(o)Stock Purchase Agreement dated November 15, 1993 between Americo Malay Mineral Company and Zemex Corporation with respect to the sale of 2,500,002 common shares of Perangsang Pasifik Senderian Berhad, a corporation organized and existing under the laws of the Federal Republic of Malaysia (Incorporated by reference from Exhibit 10(au) of the Corporation's Annual Report on Form 10-K filed March 31, 1994) (10)(p)Suzorite Mica Product Inc.'s Mining Lease dated August 25, 1975 between the Province of Quebec and Marietta Resources International Ltd. (Incorporated by reference from Exhibit 10(av) of the Corporation's Annual Report on Form 10-K filed March 31, 1994) (10)(q)Employee Stock Purchase Plan (Incorporated by reference as Exhibit A to the Corporation's Proxy Statement filed May 6, 1994) (10)(r)Stockholders Agreement dated June 10, 1994 among Alumitech, Inc., Clarion Capital Corporation, DCC Equities Limited and Moshe Dan Yerushalmi, John Hocevar and Terrance Hogan and Zemex Corporation (Incorporated by reference as Exhibit 10(ax) to the Corporation's Registration Statement on Form S-1, Registration No. 33-82638, filed on August 22, 1994) (10)(s)Asset Purchase Agreement dated December 7, 1994 between Whittaker, Clark & Daniels, Inc., Clark Minerals, Inc., Cherokee Minerals, Inc. and Pioneer Talc Company and Suzorite Mineral Products, Inc. and Zemex Corporation (Incorporated by reference from Exhibit 10(u) of the Corporation's Annual Report on Form 10-K filed March 30, 1995) (13) 1996 Annual Report to Shareholders (22) Subsidiaries of the Registrant (24)(a)Consent of Deloitte & Touche The Corporation will furnish copies of these documents to requesting shareholders upon payment of $10.80 per document. * Management contract or compensatory plan or arrangement. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ZEMEX CORPORATION By:/s/RICHARD L. LISTER --------------------------------- Dated: March 27, 1997 Richard L. Lister President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: Signature Title Date /s/ PETER LAWSON-JOHNSTON Chairman of the Board March 27, 1997 Peter Lawson-Johnston and Director /s/ RICHARD L. LISTER President and Chief Richard L. Lister Executive March 27, 1997 Officer and Director (Principal Executive Officer) /s/ PAUL A. CARROLL Director March 27,1997 Paul A. Carroll /s/ MORTON A. COHEN Director March 27,1997 Morton A. Cohen /s/ JOHN M. DONOVAN Director March 27,1997 John M. Donovan /s/ THOMAS B. EVANS, JR. Director March 27, 1997 Thomas B. Evans, Jr. Title /s/ NED GOODMAN Director March 27, 1997 Ned Goodman /s/ PATRICK H. O'NEILL Director March 27, 1997 Patrick H. O'Neill /s/ WILLIAM J. VANDEN HEUVEL Director March 27, 1997 William J. vanden Heuvel /s/ ALLEN J. PALMIERE Vice President, Allen J. Palmiere Chief Financial March 27, 1997 Officer and Assistant Secretary (Principal Financial and Accounting Officer) LIST OF EXHIBITS Exhibit (4)(q) Amendment No. 1 dated as of March 12, 1997 to the Loan and Security Agreement among Zemex Corporation and The Feldspar Corporation and NationsBank of Tennessee, N.A., and Chemical Bank and NationsBank of Tennessee, N.A., as Agent Exhibit 13 1996 Annual Report to Shareholders Exhibit 22 SUBSIDIARIES OF THE REGISTRANT The subsidiaries listed below are wholly-owned and all are consolidated in the financial statements. State or Country in Which Subsidiary Name Incorporated or Organized Alumitech, Inc. Delaware The Feldspar Corporation North Carolina Pyron Corporation New York Pyron Metal Powders, Inc. Delaware Suzorite Mica Products Inc.Ontario, Canada Suzorite Mineral Products, Inc.Delaware Zemex Industrial Minerals, Inc.Delaware Exhibit 24(a) REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Zemex Corporation We have audited the consolidated financial statements of Zemex Corporation and its Subsidiaries as of December 31, 1996 and for the year then ended, and have issued our report thereon dated January 31, 1997; such consolidated financial statements and report are included in your 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audit also included the consolidated financial statement schedule of Zemex Corporation, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Corporation's management. Our responsibility is to express an opinion based on our audit. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE Toronto, Ontario March 31, 1997 ZEMEX CORPORATION And Subsidiaries SCHEDULE IX - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Year Ended December 31, Column A Column Column Column Column Column B C D E F Additio Balance ns Balance at Charged Other At End Description Beginni to Additio Deducti of ng Costs ns ons Period of and Period Expense s 1996 Reserves Other $605,00 $100,00 _ $106,00 $599,00 0 0 0 0 Allowance for $5,000 Uncollectable 386,000 148,000 87,000 452,000 Accounts 1995 Reserves Other $549,00 $154,00 _ $ $605,00 0 0 98,000 0 Allowance for $2,000 Uncollectable 414,000 77,000 107,000 386,000 Accounts 1994 Reserves Employee _ _ _ $ _ Severance $ $255,00 _ 80,000 $549,00 Other 80,000 0 188,000 0 482,000 Allowance for _ 85,000 42,000 414,000 Uncollectable 371,000 Accounts S-1 EX-1 2 AMENDMENT NO. 1 DATED AS OF MARCH 12, 1997 TO LOAN AND SECURITY AGREEMENT DATED AS OF MARCH 15, 1995 AMONG ZEMEX CORPORATION AND THE FELDSPAR CORPORATION AND NATIONSBANK OF TENNESSEE, N.A., AND THE CHASE MANHATTAN BANK AND NATIONSBANK OF TENNESSEE, N.A., AS AGENT TABLE OF CONTENTS 1. Definitions 2 2. Amendments to Agreement 2 3. Representations and Warranties 13 3.1. Incorporation 13 3.2. Due Authorization, No Conflicts, Etc. 13 3.3. Due Execution, Etc. 14 3.4. Real Property 14 4. Conditions Precedent 14 4.1. Conditions Precedent to Effectiveness of Amendment No. 14 5. Effectiveness of Amendment No. 1 17 6. Closing 17 7. Post Closing Deliveries 17 8. Governing Law, Etc. 18 9. Section Titles and Table of Contents 18 10. Waiver of Jury Trial 18 11. Counterparts 18 12. Agreement to Remain in Effect 18 AMENDMENT NO. 1 dated as of March 12, 1997, under and to that certain Loan and Security Agreement dated as of March 15, 1995 (the "Agreement"), among Zemex Corporation, a Delaware corporation, and The Feldspar Corporation, a North Carolina corporation (individually and collectively, the "Borrower"), the Guarantors, jointly and severally, including the additional Participating Subsidiaries; each of the undersigned Banks (in such capacity the "Banks") and NationsBank of Tennessee, N.A. as agent for the Banks (in such capacity the "Agent"). W I T N E S S E T H: WHEREAS, Borrower, the Banks and the Agent are parties to the Agreement; and WHEREAS, Borrower has formed a new subsidiary, Zemex Industrial Minerals, Inc., a Delaware corporation, and has also acquired all of the stock of Alumitech, Inc., a Delaware corporation, located in Streetsboro, Ohio; and WHEREAS, Alumitech, Inc. has two subsidiaries, being Engineered Thermal Systems, Inc., an Ohio corporation, and Aluminum Waste Technology, Inc., a Delaware corporation; and WHEREAS, Aluminum Waste Technology, Inc. has one subsidiary, being AWT Properties, Inc., an Ohio corporation; and WHEREAS, Borrower desires to have all five (5) corporations become Participating Subsidiaries under the Agreement; and WHEREAS, the Borrower has requested that the Banks increase their Revolving Loan Commitments from $10,000,000 to $30,000,000, and provide for the issuance of standby letters of credit in aggregate amounts up to $18,000,000 as a subfacility under the Revolving Loan Commitments; WHEREAS, the Banks are willing to increase their Revolving Loan Commitments, provide for the issuance of letters of credit, and add Alumitech, Inc., Engineered Thermal Systems, Inc., Aluminum Waste Technology, Inc., AWT Properties, Inc. and Zemex Industrial Minerals, Inc. as Participating Subsidiaries, subject to the terms and conditions hereinafter set forth; NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. All capitalized terms used in this Amendment No. 1 which are not otherwise defined herein shall have the respective meanings ascribed thereto in the Agreement. 2. Amendments to Agreement. 2.1. Section I of the Agreement, Definitions, is hereby amended by adding thereto the following new definitions as follows: "Amendment No. 1 Effective Date" has the meaning specified in Section 5 of Amendment No. 1. "Issuing Bank" means NationsBank of Tennessee, N.A. or any successor thereto, as the issuer of Letters of Credit under Paragraph 2.9, together with its successors and assigns; provided that no successor or assign may have a letter of credit risk rating less than that accorded to letters of credit issued by NationsBank or its affiliates. "Letter of Credit" shall have the meaning assigned to such term in Paragraph 2.9, but shall exclude the Existing Pyron Letter of Credit. "Letter of Credit Documents" means, with respect to any Letter of Credit, collectively, any application for any Letter of Credit and any other agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (a) the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit or (b) any collateral security for any of such obligations. "Letter of Credit Interest" means, for each Bank, such Bank's participation interest (or, in the case of the Issuing Bank, the Issuing Bank's retained interest) in the Issuing Bank's liability under Letters of Credit and such Bank's rights and interests in Reimbursement Obligations and fees, interest and other amounts payable in connection with Letters of Credit and Reimbursement Obligations. "Letter of Credit Liability" means, without duplication, at any time and in respect of any Letter of Credit, the sum of (a) the undrawn face amount of such Letter of Credit plus (b) the aggregate unpaid principal amount of all Reimbursement Obligations of Zemex Corporation and/or the Borrower at such time due and payable in respect of all drawings made under such Letter of Credit. For purposes of this Agreement, a Bank (other than the Issuing Bank) shall be deemed to hold a Letter of Credit Liability in an amount equal to its participation interest in the related Letter of Credit under Paragraph 2.9, and the Issuing Bank shall be deemed to hold a Letter of Credit Liability in an amount equal to its retained interest in the related Letter of Credit after giving effect to the acquisition by the Banks (other than the Issuing Bank) of their participation interests under Paragraph 2.9. "Quarterly Dates" means the first day of each January, April, July, or October, commencing with April 1, 1997. "Quarterly Period" means (a) the Period from the Amendment No. 1 Effective Date to the next succeeding Quarterly Date and (b) thereafter, any period from the first day after a Quarterly Date to the next succeeding Quarterly Date. "Reimbursement Obligations" means, at any time, the obligation of Zemex Corporation and/or the Borrower then outstanding, or which may thereafter arise in respect of any or all Letters of Credit then outstanding, to reimburse amounts paid by the Issuing Bank and the other Banks with respect to their Letter of Credit Interests in respect of any drawings under a Letter of Credit. In addition to the foregoing new definitions, the following definitions are hereby amended: (i) "Adjusted Surplus Capital" is hereby amended to replace the date of September 30, 1994 with the date of September 30, 1996 and to replace the date of December 31, 1995 with the date of December 31, 1996; (ii) "Collateral Documents" is hereby amended to add the following documents: the Stock Pledge Agreement from Alumitech, Inc. pledging its stock in both Engineered Thermal Systems, Inc. and Aluminum Waste Technology, Inc., as well as the Stock Pledge Agreement from Aluminum Waste Technology, Inc. pledging its stock in AWT Properties, Inc., all as required by Paragraph 4.1(g) below; the Guaranty and Suretyship Agreements of Alumitech, Inc., Engineered Thermal Systems, Inc., Aluminum Waste Technology, Inc., AWT Properties, Inc., and Zemex Industrial Minerals, Inc. required by Paragraph 4.1(e) below; and, with respect to all Collateral Documents, all documents amending, modifying and/or restating any Collateral Document from time to time; (iii) the terms "Letter of Credit Facility", "Letter of Credit Fees", "Letter of Credit Liability", "Letter of Credit Reimbursement Agreement" and "Letter of Credit Reimbursement Agreement Guaranty" presently appearing in the Agreement prior to this Amendment No. 1 are hereby each amended to place in front of each term the words "Existing Pyron", such that the new terms are retitled and placed in proper alphabetical sequence as follows: "Existing Pyron Letter of Credit Facility", "Existing Pyron Letter of Credit Fees", "Existing Pyron Letter of Credit Liabilities", "Existing Pyron Letter of Credit Reimbursement Agreement", and "Existing Pyron Letter of Credit Reimbursement Agreement Guaranty"; furthermore, the references contained in said definitions to the Letter of Credit Facility and Letter of Credit Reimbursement Agreement are hereby modified to refer instead to the Existing Pyron Letter of Credit Facility and the Existing Pyron Letter of Credit Reimbursement Agreement; (iv) "Obligations" is hereby amended to change subparagraphs (B), (C) and (D) to subparagraphs (C), (D) and (E) and to insert a new subparagraph (B) as follows: "(B) To pay all Letter of Credit Liabilities, including any Reimbursement Obligations and any other amount owed by Zemex Corporation and/or the Borrower under any Letter of Credit Documents;" (v) "Loan Documents" is hereby amended to insert before the clause "and the Collateral Documents," the clause "the Letter of Credit Documents,"; (vi) "Participating Subsidiary" is hereby amended to add the following corporations as subparagraphs (E) through (I), respectively, as follows: Alumitech, Inc., a Delaware corporation; Engineered Thermal Systems, Inc., an Ohio corporation; Aluminum Waste Technology, Inc., a Delaware corporation, AWT Properties, Inc., an Ohio corporation, and Zemex Industrial Minerals, Inc., a Delaware corporation; and each of the foregoing shall also be a Subsidiary for the purposes of the Agreement; (vii) "Surplus Capital" is hereby amended by deleting the definition therein contained and replacing it with the definition of: "means Ten Million Dollars ($10,000,000.00)"; and (viii) "Working Capital Loan Termination Date" is hereby amended to replace "June 30, 1996" with "June 30, 1997." 2.2. Paragraph 2.1(A) is hereby amended by deleting everything after the subtitle in its entirety and replacing it with the following: (A) Subject to the terms and conditions of and relying on the representations, warranties and covenants contained in this Agreement, through the day prior to the Loan Termination Date, each Bank agrees to fund severally but not jointly to the Borrower the amount set out beside their names, which for all of the Banks shall be an aggregate maximum principal amount of up to Thirty Million Dollars ($30,000,000.00), as follows: Banks Revolving Loan Commitments NationsBank of Tennessee, N.A. $15,000,000.00 The Chase Manhattan Bank $15,000,000.00 TOTAL $30,000,000.00 The Revolving Loans shall be evidenced by the (i) Fifteen Million Dollars ($15,000,000.00) Note of Borrower to NationsBank of Tennessee, N.A., and (ii) the Fifteen Million Dollars ($15,000,000.00) Note of Borrower to The Chase Manhattan Bank, which Notes are substantially in the form set forth in Exhibit A- 1 attached hereto, with each Note payable in accordance with its terms. The Borrower may obtain Loans, repay without penalty or premium except as set forth in Paragraph 2.13 below and reborrow hereunder, from the date of this Agreement up to the day prior to the Loan Termination Date, the then available Revolving Loan Commitments or any lesser sum which is in the minimum amount of One Million Dollars ($1,000,000.00) and in an integral multiple of Two Hundred Fifty Thousand Dollars ($250,000.00) in the case of Eurodollar Loans and in the minimum amount of Two Hundred Fifty Thousand Dollars ($250,000.00) and in an integral multiple of One Hundred Thousand Dollars ($100,000.00) in the case of Floating Rate Loans; provided, however, Borrower may not borrow more than two (2) times in any calendar month. Each advance of the Revolving Loans hereunder shall be made by each Bank ratably in accordance with its respective Revolving Loan Commitment Percentage of such advance. 2.3. Paragraph 2.1 is hereby further amended in Subparagraph (B) to delete everything appearing after the semicolon and to insert in its place the following: "provided, no more than an aggregate of Eighteen Million Dollars ($18,000,000.00) may be outstanding at any one time for Letter of Credit Liabilities; and provided further, that the Banks shall have no obligation to fund and/or issue a Letter of Credit if the conditions precedent in Paragraph 3.2 below have not been satisfied nor shall the Banks have any obligation to fund any advances or issue a Letter of Credit for the purpose of constructing any new Alumitech Plants if the conditions precedent in Paragraph 3.3 below have not been satisfied." In addition, Subparagraph (D) is hereby amended to delete the last sentence thereof in its entirety. 2.4. Paragraph 2.5 is hereby amended to provide that a facility fee of $60,000 will be payable in full on the Amendment No. 1 Effective Date to the Banks. 2.5. Paragraph 2.7 is hereby amended to replace the figure of Twenty Thousand Dollars ($20,000.00) with the figure of Thirty Thousand Dollars ($30,000.00), commencing with the Agent's fee due December 31, 1997. In addition, the Borrowers shall pay a fee to the Agent of Forty Thousand Dollars ($40,000.00) on or before the Amendment No. 1 Effective Date. 2.6. Paragraphs 2.9, 2.10, 2.11, 2.12 and 2.13 are hereby renumbered, respectively, as Paragraphs 2.10, 2.11, 2.12, 2.13 and 2.14, and a new Paragraph 2.9 is hereby inserted as follows: 2.9 Letters of Credit. Subject to the terms and conditions of this Agreement, the Revolving Loan Commitments may be utilized, upon the request of Zemex Corporation, in addition to the Loans provided for by Paragraph 2.1, for the issuance by the Issuing Bank of letters of credit (collectively, but excluding the Existing Pyron Letter of Credit, the "Letters of Credit") for the account of Zemex Corporation and/or the Borrower; provided that in no event shall (i) the aggregate amount of all Letter of Credit Liabilities, together with the aggregate principal amount of the Loans exceed the aggregate amount of the Revolving Loan Commitments as in effect from time to time, (ii) the outstanding aggregate amount of all Letter of Credit Liabilities exceed $18,000,000.00 and (iii) the expiration date of any Letter of Credit extend beyond the earlier of the Loan Termination Date and the date twelve months following the issuance of such Letter of Credit. The following additional provisions shall apply to Letters of Credit: (A) Zemex Corporation and/or the Borrower shall give the Agent at least three Business Days' irrevocable prior notice (effective upon receipt) specifying the Business Day (which shall be no later than 90 days preceding the Loan Termination Date) each Letter of Credit is to be issued and describing in reasonable detail the proposed terms of such Letter of Credit (including its beneficiary) and the nature of the transactions or obligations proposed to be supported (including whether such Letter of Credit is to be a commercial letter of credit or a standby letter of credit). Zemex Corporation and/or the Borrower shall be the account party for each Letter of Credit, including Letters of Credit issuable to a beneficiary having a claim or potential claim against a Subsidiary of Zemex Corporation. (B) On each day during the period commencing with the issuance by the Issuing Bank of any Letter of Credit and until such Letter of Credit shall have expired or been terminated or, if drawn upon, until the resulting Reimbursement Obligations have been reimbursed in full by the Borrower and/or Zemex Corporation (whether by a borrowing under this agreement or otherwise), the Revolving Loan Commitment of each Bank shall be deemed to be utilized for all purposes of this Agreement in an amount equal to such Bank's Revolving Loan Commitment Percentage of the then Letter of Credit Liabilities associated with such Letter of Credit. Each Bank (other than the Issuing Bank) agrees that, upon the issuance of any Letter of Credit it shall automatically acquire a participation in the Issuing Bank's liability under such Letter of Credit in an amount equal to such Bank's Revolving Loan Commitment Percentage of such liability, and each Bank (other than the Issuing Bank) thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to the Issuing Bank to pay and discharge when due, its Revolving Loan Commitment Percentage of the Issuing Bank's liability under such Letter of Credit. (C) Upon receipt from the beneficiary of any Letter of Credit or any demand for payment under such Letter of Credit, the Issuing Bank shall promptly notify the Borrower and/or Zemex Corporation (through the Agent) of the amount to be paid by the Issuing Bank as a result of such demand and the date on which payment is to be made by the Issuing Bank to such beneficiary in respect of such demand. The Borrower hereby unconditionally agrees to pay and reimburse the Agent for the account of the Issuing Bank and the other Banks with respect to their Letter of Credit Interest for the amount of each demand for payment under such Letter of Credit at or prior to the date on which payment is to be made by the Issuing Bank to the beneficiary under such Letter of Credit, without presentment, demand, protest or other formalities of any kind. Any amounts not so paid or borrowed as set forth in (D) below shall bear interest at the rate(s) specified in the Letter of Credit Documents or, if higher, at the rate(s) specified on the Revolving Notes (including the Default Rate, if applicable). (D) Forthwith upon its receipt of a notice referred to in clause (C) of this Paragraph 2.9, the Borrower shall advise the Agent whether or not the Borrower intends to borrow under Paragraph 2.1 to finance the obligation to reimburse the Issuing Bank for the amount of the related demand for payment and, if it does, submit a notice of such borrowing as provided in Paragraph 2.4. In the event that the Borrower fails to so advise the Agent, and if the Borrower fails to reimburse the Issuing Bank for a demand for payment under a Letter of Credit by the date of such payment, the Agent shall give each Bank prompt notice of the amount of the demand for payment, specifying such Bank's Revolving Loan Commitment Percentage of the amount of the related demand for payment, and the Borrower shall be deemed in default hereunder for breaching Subparagraph 2.9(C) above. (E) Each Bank (other than the Issuing Bank) shall pay to the Agent for the account of the Issuing Bank in Dollars and in immediately available funds, the amount of such Bank's Revolving Loan Commitment Percentage of any payment under a Letter of Credit (excluding the Existing Pyron Letter of Credit for which separate provision has been made) upon notice by the Agent to such Bank requesting such payment and specifying such amount as provided in clause (D) of this Paragraph 2.9. Each such Bank's obligation to make such payments to the Agent for the account of the Issuing Bank under this clause (E), and the Issuing Bank's right to receive the same, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, including (i) the failure of any other Bank to make its payment under this clause (E), the financial condition of the Borrower (or any other account party), the existence of any Default or (ii) the termination of the Commitments. Each such payment to the Issuing Bank shall be made without any offset, abatement, withholding or reduction whatsoever; provided, nothing contained in the foregoing shall limit the Issuing Bank's liability for its gross negligence or willful misconduct in improperly honoring a draft drawn under a Letter of Credit. (F) Upon the making of each payment by a Bank to the Issuing Bank pursuant to clause (E) above in respect of any Letter of Credit, such Bank shall, automatically and without any further action on the part of the Agent, the Issuing Bank or such Bank, acquire (i) a participation in any amount equal to such payment in the Reimbursement Obligation owing to the Issuing Bank by the Borrower and/or Zemex Corporation under this Agreement and under the Letter of Credit Documents relating to such Letter of Credit and (ii) a participation in a percentage equal to such Bank's Revolving Loan Commitment Percentage in any interest or other amounts payable by the Borrower and/or Zemex Corporation under such Letter of Credit Documents and the other Loan Documents in respect of such Reimbursement Obligation (other than the commissions, charges, costs and expenses payable to the Issuing Bank pursuant to clause (G) of this Paragraph 2.9). Upon receipt by the Issuing Bank from or for the account of the Borrower and/or Zemex Corporation of any payment in respect of any Reimbursement Obligation or any such interest or other amount (including by way of set-off or application of proceeds of any collateral security) the Issuing Bank shall promptly pay to the Agent for the account of each Bank who shall have previously assumed a participation in such payment under clause (ii) above, such Bank's Revolving Loan Commitment Percentage of such payment, each such payment by the Issuing Bank to be made in the same money and funds in which received by the Issuing Bank. In the event any payment received by the Issuing Bank and so paid to the Banks is rescinded or must otherwise be returned by the Issuing Bank, each Bank shall, upon the request of the Issuing Bank (through the Agent), repay to the Issuing Bank (through the Agent) the amount of such payment paid to such Bank, with interest at the rate specified in clause (J) of this Paragraph 2.9. (G) Borrower shall pay to the Agent for the account of each Bank a letter of credit fee in respect of each Letter of Credit on the daily average undrawn face amount of such Letter of Credit for the period from and including the date of issuance of such Letter of Credit to and including the date such Letter of Credit is drawn in full, expires or is terminated (such fee to be non-refundable, to be paid in arrears on each Quarterly Date and on the Loan Termination Date and to be calculated, for any day, after giving effect to any payments made under such Letter of Credit on such day) in an amount equal to two percent (2.0%) per annum or, for any Quarterly Period prior to the first day of which (and in any event no later than 45 days after the end of the fiscal quarter most recently ended) Zemex Corporation has delivered to the Agent a certificate of Zemex Corporation calculating the Funded Debt to Cash Flow Ratio as at the last day of such fiscal quarter (other than such portion of such period during which a Default shall be continuing), the percentage per annum set forth below opposite the Funded Debt to Capital for Zemex Corporation and its Subsidiaries reflected on such certificate: Funded Debt to Capital Percentage Rate Equal to or Greater than 35% 2.00% per annum Equal to or Greater than 25% and Less Than 35% 1.50% per annum Less than 25% 1.00% per annum Provided, following the occurrence and during the continuation of any Event of Default hereunder, the letter of credit fee shall be that letter of credit fee otherwise due hereunder plus an additional three percent (3%) per annum. All calculations of Letter of Credit fees shall be based on a 360 day year counting the actual number of elapsed days. (H) Upon the request of any Bank from time to time, the Issuing Bank shall deliver any information reasonably requested by such Bank with respect to each Letter of Credit then outstanding. (I) The issuance by the Issuing Bank of each Letter of Credit shall be subject, in addition to the conditions precedent set forth in Paragraphs 3.2 and, if applicable, 3.3, to the conditions precedent that (i) such Letter of Credit shall be in such form, contain such terms and support such transactions as shall be satisfactory to the Issuing Bank consistent with its then current practices and procedures with respect to letters of credit of the same type and if the stated amount of the Letter of Credit exceeds $1,000,000, shall also be in such form, contain such terms and support such transactions as shall be satisfactory to the Majority Banks, and (ii) the Borrower and/or Zemex Corporation shall have executed and delivered such applications, agreements and other instruments relating to such Letter of Credit as the Issuing Bank shall have reasonably requested consistent with its then current practices and procedures with respect to letters of credit of the same type; provided that in the event of any conflict between any such application, agreement or other instrument and the provisions of this Agreement, the provisions of this Agreement shall control. (J) To the event that any Bank fails to pay any amount required to be paid pursuant to clause (E) or (F) of this Paragraph 2.9 when due, such Bank shall pay interest to the Issuing Bank (through the Agent) on such amount from and including such due date to but excluding the date such payment is made (i) during the period form and including such due date to but excluding the date three Business Days thereafter, at a rate per annum equal to the Federal Funds Rate (as in effect from time to time) and (ii) thereafter, at a rate per annum equal to the Prime Rate plus 2.0%. (K) The issuance by the Issuing Bank of any modification or supplement to any Letter of Credit shall be subject to the same conditions applicable under this Paragraph 2.9 to the issuance of new Letters of Credit, and no such modification or supplement shall be issued unless either (x) the respective Letter of Credit as affected by such action would have complied with such conditions had it originally been issued in such modified or supplemented form or (y) each Bank shall have consented to such modification or supplement. (L) The obligations of the Borrower and/or Zemex Corporation under this Paragraph 2.9 shall be unconditional and absolute and shall not be affected, modified or impaired, upon the happening at any time or from time to time of any event, including any of the following, whether or not with notice to or the consent of the Borrower and/or Zemex Corporation: 1. the compromise, settlement, release, modification, amendment (whether material or otherwise) or termination of any or all of the obligations, conditions covenants or agreements of any Person in respect of any of the Loan Documents; 2. the occurrence, or the failure by the Agent, any Bank or any other Person to give notice to the Borrower and/or Zemex Corporation of the occurrence, of any Event of Default or any default under any of the other Loan Documents; 3. any failure, omission or delay on the part of the Agent, any Bank, the Borrower, Zemex Corporation or the beneficiary of any Letter of Credit to enforce, assert or exercise any right, remedy, power or privilege conferred by this Agreement or any of the Loan Documents, or any other act or acts on the part of the Agent, any Bank, the Borrower, Zemex Corporation or the beneficiary of any Letter of Credit; 4. the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets of, the marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors or readjustment of, or other similar proceedings which affect, the Borrower, Zemex Corporation or any other party to any of the Loan Documents; 5. any lack of validity or enforceability of this Agreement, any Letter of Credit or any other Loan Document, or any allegation of invalidity or unenforceability or any contest of such validity or enforceability; 6. the existence of any claim, set- off, defense or other right which the Borrower and/or Zemex Corporation may have at any time against the Agent, any Bank or any beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom the Bank or any such beneficiary or transferee may be acting), or any other Person, whether in connection with this Agreement or any of the other Loan Documents or any of the transactions contemplated by any Loan Document or any unrelated transaction; 7. any statement in any certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any such statement being untrue or inaccurate in any respect whatsoever; 8. payment by the Issuing Bank under any Letter of Credit against presentation of a demand or certificate which does not comply with the terms of such Letter of Credit; 9. the release or discharge by operation of law of the Borrower and/or Zemex Corporation form the performance or observance of any obligation, covenant or agreement contained in any of the Loan Documents; or 10. any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. (M) Without affecting the Borrower's liability under Paragraph 10.7, the Borrower agrees to indemnify each of the Issuing Bank, the Agent and the Banks and their respective affiliates, directors, officers, employees, attorneys and agents from, and hold each of them harmless against, any and all losses, liabilities, damages or expenses incurred by any of them in connection with or by reason of any actual or threatened investigation, litigation or other proceeding (including, in respect of the Issuing Bank and the Agent, any such investigations, litigation or other proceeding between the Issuing Bank or the Agent and any Bank) relating to (a) the execution and delivery of any Letter of Credit; (b) the use of the proceeds of any drawing under any Letter of Credit; or (c) the transfer or substitution of, or payment or failure to pay under, any Letter of Credit, including the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding, but excluding damages, losses, liabilities or expenses to the extent, but only to the extent, incurred by reason of (x) the willful misconduct or gross negligence of the Issuing Bank in determining whether a document presented under any Letter of Credit complies with the terms of such Letter of Credit or (y) in the case of the Issuing Bank, such Bank's failure to pay under any Letter of Credit after presentation to it of documents strictly complying with the terms and condition of such Letter of Credit. It shall not be a condition to any such indemnification that the Issuing Bank, the Agent or any Bank shall be a party to any such investigations, litigation or other proceeding. Nothing in this Paragraph 2.9 is intended to limit the Borrower's or Zemex Corporation's payment obligations under this Agreement. (N) The Borrower assumes all risks of the acts or omissions of any beneficiary of any Letter of Credit with respect to the use of the Letter of Credit. None of the Agent, any Bank nor any of their respective affiliates, officers, directors, employees, attorneys or agents shall be liable or responsible for: (a) the use which may be made of the Letter of Credit or for any acts or omissions of any beneficiary of any Letter of Credit in connection with such Letter of Credit; (b) the validity, sufficiency or genuineness of documents presented to the Issuing Bank, or of any endorsement on such documents, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank against presentation of documents which do not comply with the terms of any Letter of Credit, including failure of any documents to bear any reference or adequate reference to such Letter of Credit; or (d) any other circumstances whatsoever in making or failure to make payment under any Letter of Credit; provided that the Borrower shall have a claim against the Issuing Bank to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Borrower which the Borrower proves were caused by (i) the Issuing Bank's willful misconduct or gross negligence in determining whether a document presented under any Letter of Credit complies with the terms of such Letter of Credit or (ii) the Issuing Bank's willful failure to pay under the Letter of Credit after presentation to it of documents strictly complying with the terms and conditions of such Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. 2.7. Section III of the Agreement is hereby amended to renumber Paragraph 3.3 as Paragraph 3.4, and to insert a new Paragraph 3.3 as follows: "3.3 Alumitech Plant Advances. As an express condition precedent to the disbursement of any Revolving Loans and/or the issuance of any Letter of Credit in connection with the development and/or construction of any new plant by or for Alumitech, Inc. or any Subsidiary thereof, the Agent and Banks shall be granted either: (A) if the new plant is to be owned one hundred percent (100%) by Zemex Corporation, Alumitech, Inc., or any Subsidiary thereof, a first lien mortgage and security interest in all real property, personal property, and machinery and equipment associated with the new plant and facility, in form and substance satisfactory to the Banks; or (B) if the new plant is to be owned in a joint venture or partnership with a Person who is not an Affiliate of Zemex Corporation, then a first lien security interest in the partnership or joint venture interest owned by Zemex Corporation or one of its Subsidiaries in form and substance satisfactory to the Banks, including such written consents from the other joint venture or partnership party as the Banks may require in their discretion; provided, prior to the issuance of any Letter of Credit to support the financing of such a plant, the Banks must also approve in their discretion the terms and conditions of any underlying financing which the Letter of Credit is intended to enhance; and provided further, prior to the issuance of any Letter of Credit or the advancement of any Revolving Loans, the Banks must also approve the construction budget, the draw request procedure, the contractor and architect, and such other matters as are typically reviewed and/or approved by Banks in initiating and administering a construction loan. 2.8. Each of Alumitech, Inc., a Delaware corporation, Engineered Thermal Systems, Inc., an Ohio corporation, Aluminum Waste Technology, Inc., a Delaware corporation, AWT Properties, Inc., an Ohio corporation, and Zemex Industrial Minerals, Inc., a Delaware corporation, hereby grants and ratifies and confirms the grant of the security interest by it contained in Paragraphs 4.2 and 4.4 of the Agreement as security for the prompt satisfaction of all Obligations and all Guaranties of the Obligations, including without limitation the Guaranties required to be executed by each of them pursuant to Paragraph 4.1(e) below. 2.9. Paragraph 6.17 is hereby amended to replace the figure of 0.40 in Subparagraph (B) with the figure of 0.45, to replace the ratio of 3.0 to 1.0 in Subparagraph (C) with the ratio of 3.50 to 1.0, and to replace the ratio of 1.35 to 1.0 in Subparagraph (D) with the ratio of 1.25 to 1.00. 2.10. Subparagraph 7.2(B) is hereby amended to insert the words "Existing Pyron" before the term "Letter of Credit Facility" where it appears therein. 2.11. Paragraph 7.9 is hereby amended in subparagraph (iii) thereof to insert "Existing Pyron" before the term "Letter of Credit Reimbursement Agreement." 2.12. Paragraph 7.16(F) is hereby amended to delete the clause "and a Participating Subsidiary" and to replace it with the clause "and be considered by the Banks for inclusion as a Participating Subsidiary". 2.13. Paragraph 7.17 is hereby amended to delete everything after "Five Million Dollars ($5,000,000.00)" and to insert instead the clause "in any fiscal year." 2.14. Paragraph 8.1 is hereby amended in subparagraph (M) to insert the words "Existing Pyron" in front of the terms "Letter of Credit Facility" and "Letter of Credit Reimbursement Agreement." In addition, a new subparagraph (P) is hereby added thereto as follows: "(P) A breach or default shall occur under any Letter of Credit Document." 2.15. Paragraph 9.9 is hereby amended to delete the first sentence thereof in its entirety and to replace it with the following: "Except as may be provided in other sections of this Agreement, including Paragraphs 2.14(B) and 7.2, all of the funds received by Banks, or any of them, with the exception of funds received by The Chase Manhattan Bank with respect to the Existing Pyron Letter of Credit Reimbursement Agreement shall be allocated pro rata among all Banks in proportion to their respective outstanding Loan balances and Reimbursement Obligations, if any; provided, following the occurrence of an Event of Default and the acceleration of the Obligations, all funds received by the Banks thereafter shall, unless the Banks otherwise agree, be allocated in proportion to the sum of their respective outstanding Loan balances, Letter of Credit Liabilities, and Existing Pyron Letter of Credit Liabilities." 2.16. Paragraph 9.11 is hereby amended to delete the clause in the first sentence "in proportion to the Letter of Credit Liabilities and the respective outstanding Loan amounts" and to replace it with the clause "in proportion to the Letter of Credit Liabilities, the Existing Pyron Letter of Credit Liabilities and the respective outstanding Loan amounts." 2.17. Exhibit N to the Agreement is hereby supplemented by adding thereto the additional environmental disclosures contained in Exhibit N-1 attached hereto and incorporated herein by reference. The Borrower and its Participating Subsidiaries hereby warrant that, except as may be disclosed on Exhibit N-1, the respective assets and operations of Alumitech, Inc., Engineered Thermal Systems, Inc., Aluminum Waste Technology, Inc., AWT Properties, Inc. and Zemex Industrial Minerals, Inc. are in compliance in all material respects with all Environmental Laws and are in a clean and healthful condition, free of asbestos and of all contamination by Hazardous Materials and other potentially harmful chemical or physical conditions; all storage tanks (whether above or below ground) located in or on such plants, facilities and properties are in sound condition, free of corrosion or leaks that could allow or threaten the release of any stored material; and no Hazardous Materials are or to the best of Borrower's knowledge, have been used, stored, treated or disposed of in violation of applicable Laws and regulations. No Borrower or Participating Subsidiary is a defendant in any administrative or judicial actions alleging liability under CERCLA with respect to such properties and assets, nor has any Borrower or Participating Subsidiary received a notice that it is a potentially responsible party under CERCLA or other similar state Laws. 2.18. The Agreement is hereby modified to replace Chemical Bank wherever such name appears with The Chase Manhattan Bank. 3. Representations and Warranties. To induce the Banks and the Agent to enter into this Amendment No. 1, Borrower and Guarantors jointly and severally represent and warrant to the Banks and the Agent as follows: 3.1. Incorporation. Alumitech, Inc., Aluminum Waste Technology, Inc. and Zemex Industrial Minerals, Inc. are corporations duly organized, validly existing and in good standing under the laws of the State of Delaware, and Engineered Thermal Systems, Inc. and AWT Properties, Inc. are corporations duly organized, validly existing and in good standing under the laws of the State of Ohio; each of said corporations has the lawful power to own its properties and to engage in the business it conducts, and each is duly qualified and in good standing as a foreign corporation in the jurisdictions wherein the nature of the business transacted by it or property owned by it is both material and makes qualification necessary; Zemex Industrial Minerals, Inc. has its chief executive office and principal place of business in Atlanta, Georgia and each of the other corporations has its chief executive office and principal place of business located at Streetsboro, Portage County, Ohio; each of Alumitech, Inc., Aluminum Waste Technology, Inc., Engineered Thermal Systems, Inc., and AWT Properties, Inc. has its equipment and inventory located in the State of Ohio and Zemex Industrial Minerals, Inc. has all of its inventory and equipment located in Atlanta, Georgia. 3.2. Due Authorization, No Conflicts, Etc. The execution, delivery and performance by the Borrower and Guarantors of this Amendment No. 1 and any and all other agreements, instruments and documents to be executed and/or delivered by the Borrower or any Guarantor pursuant hereto or in connection herewith, and the consummation by Borrower and Guarantors of the transactions con templated hereby or thereby: (a) are within the corporate powers of each; (b) have been duly authorized by all necessary corporate action, including without limitation, the consent of stockholders where required; (c) do not and will not (i) contravene the respective certificate of incorporation or by-laws or other comparable governing documents of Borrower or any Guarantor, (ii) violate any Laws, or any order or decree of any court or governmental authority, or (iii) conflict with or result in the breach of, or constitute a default under, or result in the termi nation of, any material contractual obligation of Borrower or any Guarantor, and (d) do not require the consent, authorization by, or approval of, or notice to, or filing or registration with, any governmental authority or any other Person other than those which have been obtained and copies of which have been delivered to the Agent pursuant to Subsection 4.1(a)(ii) hereof, each of which is in full force and effect. 3.3. Due Execution, Etc. This Amendment No. 1 and each of the other agreements, instruments and documents to be executed and/or delivered by Borrower or any Guarantor pursuant hereto or in connection herewith (a) has been duly executed and delivered, and (b) constitutes the legal, valid and binding obligation of each, enforceable against it in accordance with its terms, subject however to state and federal bankruptcy, insolvency, reorganization and other laws and general principles of equity affecting enforcement of the rights of creditors generally. 3.4. Real Property. The Borrower and its Participating Subsidiaries have good and marketable title to the Real Property subject to no encumbrances other than Permitted Liens and those noted in the Deeds of Trust originally executed and delivered on March 15, 1995. 4. Conditions Precedent. The effectiveness of this Amendment No. 1 is subject to the fulfillment of the following conditions precedent on or prior to the Amendment No. 1 Effective Date (as hereinafter defined in Section 5 hereof): 4.1. Conditions Precedent to Effectiveness of Amendment No. 1. The Agent shall have received, on or prior to the Amendment No. 1 Effective Date, the following, each dated on or prior to the Amendment No. 1 Effective Date unless otherwise indicated, in form and substance satisfactory to the Agent and in sufficient copies for each Bank: (a) Certified copies of (i) the resolutions of the Board of Directors of Borrower and each Guarantor approving this Amendment No. 1 and each other agreement, instrument or document to be executed by them pursuant hereto or as contemplated hereby, and (ii) all documents evidencing other necessary corporate action and required governmental and third party approvals, licenses and consents with respect to this Amendment No. 1 and the transactions contemplated hereby. (b) A certificate of the Secretary or an Assistant Secretary of Borrower and each Guarantor certifying the names and true signatures of the officers of Borrower and each Guarantor who have been authorized to execute on behalf of Borrower and such Guarantor this Amendment No. 1 and any other agreement, instrument or document executed or to be executed by Borrower and any Guarantor in connection herewith. (c) A certificate dated the Amendment No. 1 Effective Date signed by the President or any Vice-President of Borrower, to the following effect: (i) The representations and warranties of the Borrower contained in Sections 3.1, 3.2 and 3.3 of this Amendment No. 1 are true and correct on and as of such date as though made on and as of such date; (ii) No Default or Event of Default has occurred and is continuing, and no Default or Event of Default would result from the execution and delivery of this Amendment No. 1 or the other agreements, instruments and documents contemplated hereby; and (iii) The Borrower has paid or agreed to pay all amounts payable by it pursuant to the Agreement as amended hereby (including, without limitation, all legal fees and expenses of Banks' counsel incurred in connection herewith) to the extent then due and payable. (d) Two (2) original Revolving Notes duly executed by Zemex Corporation and The Feldspar Corporation, jointly and severally, in the amount of $15,000,000 each, evidencing the renewal, modification and increase of the existing Revolving Notes, in the form attached hereto as Exhibit A-1. (e) An original Guaranty and Suretyship Agreement duly executed by each of Alumitech, Inc., a Delaware corporation, Engineered Thermal Systems, Inc., an Ohio corporation, Aluminum Waste Technology, Inc., a Delaware corporation, and AWT Properties, Inc., an Ohio corporation, and Zemex Industrial Minerals, Inc., a Delaware corporation, in the form attached hereto as Exhibit B, together with Amended and Restated Guaranty and Suretyship Agreements executed by Pyron Corporation, Pyron Metal Powders, Inc., Suzorite Mineral Products, Inc. and Suzorite Mica Products, Inc. Les Produits Mica Suzorite, Inc. (f) Such UCC financing statements as may be required by the Banks, showing Alumitech, Inc., Engineered Thermal Systems, Inc., Aluminum Waste Technology, Inc., AWT Properties, Inc., and Zemex Industrial Minerals, Inc. as the debtors therein. (g) An original Amendment No. 1 to Stock Pledge Agreement duly executed by Zemex Corporation in the form attached hereto as Exhibit C, and Stock Pledge Agreements in the form attached hereto as Exhibit D, duly executed by each of Alumitech, Inc. and AWT Properties, Inc. (h) A favorable opinion of Messrs. Davis, Graham & Stubbs, L.L.P., counsel to the Borrower, in substantially the form of Exhibit E hereto, and as to such other matters as any Bank, through the Agent, may reasonably request. (i) A favorable opinion of Messrs. Smith Lyons, special Canadian counsel, in substantially the form of Exhibit F hereto. (j) Duly executed Amended and Restated Environmental Indemnity Agreement of the Borrower and the Guarantors with respect to all real property owned or leased by any of them. (k) Duly executed First Amendment to the North Carolina Commercial Deed of Trust and Security Agreement for Securing Revolving Line of Credit and Other Indebtedness and the recordation of same in the Register of Deeds for Mitchell County, North Carolina together with the receipt by the Agent of an endorsement to the Lawyers Title Insurance Corporation Mortgagee Loan Policy #135-00-780-653 reflecting the recordation of said First Amendment and bringing forward the effective date of the Mortgagee Title Insurance Policy without any other change or modification. (l) Duly executed First Amendment to the Jasper County, Georgia Commercial Deed to Secure Debt and Security Agreement and the recordation of same in the Clerk's Office of the Superior Court for Jasper County, Georgia. (m) Duly executed First Amendment to the Greene County, Georgia Commercial Deed to Secure Debt and Security Agreement and the recordation of same in the Clerk's Office for the Superior Court for Greene County, Georgia. 5. Effectiveness of Amendment No. 1. This Amendment No. 1 and the Exhibits attached hereto shall become effective at such time as (a) each of the conditions precedent set forth in Section 4.1 hereof shall have been satisfied, and (b) counterparts of this Amendment No. 1, executed and delivered by the Borrowers, the Banks and the Agent shall have been received by the Agent (or, alternatively, confirmation of the execution hereof by such parties shall have been received by the Agent). The date upon which the conditions described in clauses (a) and (b) of the foregoing sentence shall have been fulfilled is referred to herein as the "Amendment No. 1 Effective Date". 6. Closing. The Closing under this Amendment No. 1 shall occur on the Amendment Effective Date at the offices of Boult, Cummings, Conners & Berry, 1 NationsBank Plaza, Nashville, Tennessee 37219, or such other location as the parties may agree. 7. Post Closing Deliveries. The Borrower covenants to deliver to the Agent on behalf of the Banks: (a) on or before March 27, 1997, terminations of all UCC statements filed by Ohio Savings Bank and ORIX Credit Alliance, Inc. against any of the Subsidiaries of Alumitech, Inc., including without limitation AWT Properties, Inc., together with such other evidence as the Banks may request showing that the outstanding indebtedness to Ohio Savings Bank and ORIX Credit Alliance, Inc. has been paid in full, and (b) on or before May 12, 1997, a fully executed Collateral Mortgage Modification Agreement substantially in the form attached hereto as Exhibit G amending the Collateral Mortgage and Security Agreement from Pyron Corporation and the Niagara County Industrial Development Agency to NationsBank of Tennessee, N.A. as Agent for itself and the Chase Manhattan Bank (formerly Chemical Bank) dated March 15, 1995 and recorded in the Clerk's Office for Niagara County, New York in Liber 3047, page 178, together with evidence of the approval of said Modification by the Niagara County Industrial Development Agency and an endorsement to the Ticor Title Mortgagee Policy of Title Insurance No. 5295-25021 bringing forward its effective date to the date of the recordation of the Collateral Mortgage Modification Agreement without showing any other changes to title. Borrower's failure to comply herewith shall constitute an Event of Default. 8. Governing Law, Etc. This Amendment No. 1 shall be governed by, and construed in accordance with, the laws of the State of Tennessee as provided in Section 10.9 of the Agreement, which Section is incorporated herein by reference and made a part hereof as though set forth in full herein. 9. Section Titles and Table of Contents. The Section Titles and Table of Contents contained in this Amendment No. 1 are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement among the parties hereto. 10. Waiver of Jury Trial. EACH PARTY HERETO, INCLUDING THE BORROWER, EACH SUBSIDIARY, THE BANKS, AND THE AGENT, HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE (TO THE EXTENT PERMITTED BY APPLICABLE LAWS) ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER, RELATING TO, OR CONNECTED WITH THIS AGREEMENT, THE COLLATERAL OR ANY OTHER AGREEMENT, INSTRUMENT OR DOCUMENT CONTEMPLATED HEREBY OR DELIVERED IN CONNECTION HEREWITH AND AGREE THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANKS' AND THE AGENT ENTERING INTO THIS AGREEMENT. 11. Counterparts. This Amendment No. 1 may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. 12. Agreement to Remain in Effect. Except as expressly provided herein, the Agreement and each other Collateral Document shall be and shall continue in full force and effect in accordance with its respective terms. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be executed by their respective officers thereunto duly authorized, as of the date first above written. AGENT BORROWER NATIONSBANK OF TENNESSEE, N.A., ZEMEX CORPORATION as Agent BY: BY: TITLE: TITLE: BY: TITLE: BANKS NATIONSBANK OF TENNESSEE, N.A. THE FELDSPAR CORPORATION BY: BY: TITLE: TITLE: THE CHASE MANHATTAN BANK GUARANTORS AND PARTICIPATING (formerly Chemical Bank) SUBSIDIARIES PYRON CORPORATION BY: TITLE: BY: TITLE: PYRON METAL POWDERS, INC. BY: TITLE: SUZORITE MICA PRODUCTS INC. LES PRODUITS MICA SUZORITE INC. BY: TITLE: SUZORITE MINERAL PRODUCTS, INC. BY: TITLE: ALUMITECH, INC. BY: TITLE: ENGINEERED THERMAL SYSTEMS,INC. BY: TITLE: ALUMINUM WASTE TECHNOLOGY, INC. BY: TITLE: AWT PROPERTIES, INC. BY: TITLE: ZEMEX INDUSTRIAL MINERALS, INC. BY: TITLE: EX-2 3 Zemex Corporation 1996 Annual Report Financial Highlights 1996 1995 1994 SUMMARY OF OPERATIONS Net Sales $86,420,000 $85,056,000 55,306,000 Net Income 2,612,000 8,418,000 6,250,000 Capital Expenditures 16,426,000 15,451,000 3,077,000 - ---------------------------------------------------------------------------- FINANCIAL POSITION Working Capital $18,688,000 $19,709,000 $26,046,000 Shareholders' Equity 70,997,000 70,900,000 54,052,000 - ---------------------------------------------------------------------------- PER COMMON SHARE Net Income $ 0.33 $ 1.03 $ 1.12 Shareholders' Equity 8.59 8.49 7.54 - ---------------------------------------------------------------------------- Average Common Shares and Common Share Equivalents Outstanding 8,000,522 8,208,874 5,588,682 Common Shares Issued and Outstanding at Year End 8,269,099 8,355,722 7,168,153 - ----------------------------------------------------------------------------- TABLE OF CONTENTS To Our Shareholders 2 Industrial Minerals 4 Metal Powders 6 Alumitech 8 Management's Discussion and Analysis 10 Independent Auditors' Report 17 Management's Report 18 Audit Committee Report 18 Financial Statements 19 Notes to Financial Statements 23 Selected Financial Data 41 TO OUR SHAREHOLDERS The year 1996 was one of disappointment tempered by accomplishment. The cost of resolving several operating issues coupled with poor earnings performance in some areas took a significant toll on the bottom line. However, great strides were made towards building a solid future as many of our capital and research programs were successfully completed. The Corporation made real progress in improving the efficiency of resource production and more is to come. Certainly the efforts and accomplishments of 1996 should make a positive contribution to the future earnings of the Corporation. Industrial Minerals During the first quarter of 1996, the Corporation's feldspar, talc and mica divisions were combined into one organization, Zemex Industrial Minerals. Peter Goodwin, Vice President of Zemex and previously President of the talc and mica operations, was appointed President of the new organization and is currently implementing a plan to capitalize on the marketing, management and operating synergies of this group. The year also saw the construction of a low iron sand plant; the low iron sand material, which is used in high-technology glass applications is being sold pursuant to a long term contract. The project was completed on time and on budget. In addition, by year end, work was near completion on the installation of a new fine grind milling facility at Benwood, West Virginia. Increased revenue attributable to these two projects should enhance the profitability of the industrial minerals segment in 1997 and beyond. Unfortunately, the minerals group suffered some major setbacks in 1996 and, consequently, earnings were negatively affected. A $1.8 million charge was taken during the first quarter in connection with the reorganization and the write-down of inventory that had been exported in an attempt to penetrate the Brazilian feldspar market. Furthermore, during the fourth quarter, the Corporation recognized the write-down of parts and supplies that had been rendered obsolete as the result of the Spruce Pine expansion. A reserve of $750,000 was also taken at year end due to the default by the purchaser of a property previously sold by the Corporation in August 1995. Alumitech Nowhere was the dichotomy of the year more evident than at Alumitech. On one hand, Alumitech made great progress in refining its process and developing new alternative commercial applications for its non-metallic product ("NMP"). On the other hand, decreasing aluminum prices over the year overshadowed Alumitech's record throughput levels and prevented it from being profitable. Consistent with its long term objective of commercializing its proprietary technology, Alumitech signed a letter of intent with IMCO Recycling Inc., the world's largest aluminum recycler, to jointly construct the first of the dross reprocessing "super plants". Under the terms of the agreement, IMCO will supply the required feedstock and Alumitech, for its part, will contribute its closed loop technology. Although the joint venture agreement has not yet been signed, both parties are working to this end. Alumitech has also initiated a $3.5 million capital project at its Cleveland location to construct a full-scale facility to commercialize NMP and derivative products. Earlier in the year, Alumitech was awarded the maximum grant allowable under the federal government's NICE3 program, underscoring its contribution and future importance to the environment. Specifically, Alumitech's patented closed loop technology allows it to convert NMP, the waste by-product that results from reprocessing dross and saltcake materials, into usable commercial products. The NICE3 program, sponsored jointly by the Department of Energy and the Environmental Protection Agency, is a national competition awarding grants to assist companies in the commercialization of processes which improve competitiveness, foster energy efficiency, and reduce waste and waste treatment. Alumitech was one of only 17 companies to receive this award. Metal Powders The metal powder group had a less than satisfactory year. Sponge iron product sales exceeded expectations, but atomized sales failed to materialize to the levels forecasted. However, a number of new products were developed during the year, and some were brought to commercialization. One such product was a manganese sulfide material. Toward the end of the year, the Corporation also introduced test materials from its development of high molybdenum containing powders. We believe that 1997 should be a solid year for the metal powders group with the continuation of strong sponge iron sales, the introduction of new products, and a greater focus on the strategic direction of our atomized and non-ferrous materials into niche markets. Share Repurchase The Corporation has been repurchasing its common stock from time to time on the open market since the end of 1994. Since the share repurchase program was first initiated, it has repurchased 773,000 shares in total for the treasury. The board of directors has recently given its approval for the purchase of up to another 5% of the Corporation's issued and outstanding shares. Outlook The year 1996 was meant to be a transition year with all businesses performing better than the 1995 results. This did not happen; however, we anticipate that 1997 will attain and hopefully surpass many of those benchmarks set for 1996. We have introduced new products, improved efficiencies and, generally, are well poised to increase overall sales and improve margins. We are most grateful for the contribution of our board of directors, the continued support of our shareholders and, most particularly, for the outstanding endeavors of our employees in a very difficult year. We believe that 1997, the Corporation's ninetieth year in business, should start to see the benefit of our efforts of the past two years. Richard L. Lister Peter Lawson-Johnston President and Chief Executive Officer Chairman Industrial Minerals In 1996, the Corporation's feldspar, talc and mica operations were combined into one group, Zemex Industrial Minerals ("ZIM"), to take advantage of the synergistic strengths and resources that exist among the various businesses. As a result of the reorganization, ZIM is benefiting from the depth and experience of its restructured sales and marketing team, particularly in the talc area. The market focus of the new organization is divided into three areas: ceramics; plastics, coatings and specialty products; and international sales, with each area assigned a dedicated sales team. The realignment of the sales and marketing force by market should reduce expenses, improve efficiency and, most importantly, increase the amount of time spent with customers. As a result, customer service will be enhanced and sales should increase. The consolidation also brings with it significant operational efficiencies. The implementation of centralized management allows for cross-fertilization of ideas, knowledge and experience across the organization. In addition, ZIM is now able to justify the creation and retention of specialized groups, such as its new engineering team. This team is dedicated to maximizing the efficiency of each of the operating units with a specific focus on unit cost reduction and capital expansion programs. The consolidation also serves to heighten financial controls. Ceramics Despite the work involved with the reorganization in 1996, ZIM remained sharply focused on its strategy of being a major supplier to niche industries. The group posted a record year for shipments of its sodium feldspar due to increased presence and a strong market for ceramic floor tiles and plumbing fixtures. The group also experienced significant volume growth in potassium feldspar, attributable to a shift in marketing strategy. ZIM concentrates on being the major supplier to niche markets and has achieved that goal in the sanitaryware and ceramic tile industries. The company currently enjoys a strong position in the domestic sodium feldspar market and, with the recent capacity expansion at its plant in Spruce Pine, North Carolina, anticipates that as demand continues to grow, its market share will as well. In keeping with its by-product utilization strategy, the industrial minerals group recently completed the construction of a new low iron sand plant at its Spruce Pine location. Using a sophisticated and highly controlled process, a low margin by-product is converted into a high value-added material for use in specialized glass applications. The product is sold pursuant to a long term contract and is expected to make a healthy contribution to future earnings. Plastics, Coatings and Specialty Products In 1996, the focus at the mica operation was twofold: enhance the efficiency and cost effectiveness of the processing plant and develop new products and markets. As a result of its product development effort, ZIM will introduce an improved treated mica in the spring of 1997. This new surface modified product offers plastic compounders a potential substitute for more expensive fiberglass reinforcements. The talc business continues to develop market share with its regular grades; however, this process is slow as it entails winning market share from other producers. As part of the company's strategy to seek out niche business opportunities for value-added products, a fine grind milling system was installed at the Benwood, West Virginia facility to produce ultra fine products. These products have met with ready customer acceptance and commercial shipments are in the initial phase. Expanding the market share for ZIM'S talc business will continue to have a very high priority in 1997. The development of our new feldspar product line, Felex, for the coatings industry was also completed in 1996. The line is getting positive response from the industry and samples are being evaluated by target accounts. While the product line must still be evaluated by customers, the company is optimistic about its potential given the quality of, and established demand for, the Felex product. International ZIM's initial foray into the Brazilian market in late 1995 was an unsuccessful and expensive learning experience. However, in 1996, the international sales and marketing efforts were successful in increasing the sales of the company's clay and talc into Mexico. As well, by entering into an agreement with a toll grinder, ZIM was able to profitably export feldspar to Italy. The Future The reorganization of the industrial minerals group has given birth to a stronger and more cohesive business unit, combining the best aspects of management, products, plants and processes from three established operations. It is with this dynamic framework that Zemex Industrial Minerals will focus on moving forward and growing the business. Metal Powders Pyron Corporation, originally incorporated in 1940, was acquired by Zemex in 1977. During the past five years, Pyron has augmented its sponge iron production with the addition of an atomizing facility in Niagara Falls, New York and the acquisition of two non-ferrous businesses, one in Maryville, Tennessee and another in Greenback, Tennessee. As a result, Pyron has evolved from a single market supplier into a broad spectrum ferrous and non-ferrous metal powder producer serving a diversity of markets. During the 1990s, advanced technology has accelerated market growth for atomized powders as they displaced other traditional methods of production such as machining, casting and forging. These rapid technological developments dictate that continuous improvements be made to both the critical characteristics of materials used in powder metallurgy ("P/M") and Pyron's strategy with respect to the marketplace. Hydrogen Reduced Sponge Iron Ten years ago, trends in the P/M market indicated that hydrogen reduced sponge iron would be replaced by atomized materials. Ten years later, due in part to a healthy friction market and the growth of alternative applications, the demand for sponge iron continues to grow. In order to ensure that Pyron maintains its competitive position in the marketplace, cost improvements have recently been implemented at the sponge iron plant in Niagara Falls, New York. Plans are also underway to optimize sponge production capacity and to expand the company's focus to the global friction market. Atomized Products During the past three years, industry capacity of atomized products has significantly outstripped market demand with industry shipments in 1996 indicating only a marginal improvement. Moreover, a major portion of Pyron's atomized business, and that of the industry, is tied to automotive and related industries. The cost pressures that the automotive manufacturers are undergoing would appear to indicate that there is little likelihood of price relief in the immediate future. In response to these market conditions, Pyron changed its strategic direction in 1996 to one of creating new specialty products and services and identifying alternative sectors where these value-added products can be sold. Research and marketing efforts to support this strategy are underway and it is anticipated that Pyron will introduce a number of new products over the next eighteen months. Non-Ferrous Powders In 1992, Pyron acquired a copper powder producer in Maryville, Tennessee. In 1994, it acquired the assets of another non-ferrous producer in nearby Greenback, Tennessee. In 1996, in order to optimize production efficiencies and lower operating costs, the two Tennessee plants were consolidated. In addition, a new water atomized copper powder process was successfully commissioned at the Greenback location during the third quarter. The start-up of this high capacity system enables Pyron to be more aggressive in pursuing the growing market for water atomized copper. Manganese Sulfide In late 1995, as part of its niche market focus, Pyron announced its intention to become the only U.S. producer of manganese sulfide. Manganese sulfide is an additive used by the P/M industry to enhance tool life and aid in machinability. For Pyron, this product is a natural complement to its core ferrous and non-ferrous businesses. For Pyron's customers, it means a reliable low cost domestic source of this essential material. Machinability and fatigue tests have shown Manganese Sulfide Plus (MnS+ TM) to be superior to any P/M machinability enhancer on the market. Construction of a facility to produce this newly developed product was completed in late 1996 at the Greenback location and the new material is now commercially available. Response from customers has been very positive. Custom Blends In response to changing dynamics in the P/M marketplace, Pyron constructed a specialized blending facility in St. Marys, Pennsylvania in 1995. Through this location Pyron is able to provide warehousing, custom pre-packaged powders, and just-in-time service to its customers. As anticipated, many customers are discovering that it is more cost efficient to purchase pre-blends, such as those offered by the St. Marys plant, than to blend in-house. Strategically, the St. Marys blending facility will play a significant role going forward as the P/M market continues to evolve and customers consolidate vendors, pool purchases and demand more from suppliers. The blending plant plays a dual role as a service center and as an additional channel of distribution for Pyron's products. The Future Pyron's long term focus includes capitalizing on its hydrogen reduced sponge iron and developing new value-added products using its ferrous and non-ferrous atomizing processes. Pyron's business is predicated on the development of products and market segments where it can utilize its unique production methods to enhance customer efficiency. Alumitech Alumitech's strategy has been to create an environmentally friendly, economically competitive process that will convert aluminum waste by-products normally diverted to landfill into commercially saleable products. The process includes the recovery of aluminum metal and salt fluxes, which are sold back to the secondary aluminum industry, and the reclamation of non-metallic products ("NMP"), predominantly metallic oxides. Conventional dross processors simply recover aluminum metal and send any remaining materials to landfill. However, with its patented technology and technical expertise, Alumitech is able to divert NMP from landfill and convert it into raw materials for commercial products. Alumitech is the industry leader in the development of alternative uses for NMP; it has developed the ability to use NMP in the production of refractory ceramic fiber, as well as products for the chemical and metallurgical industries. The Process The secondary aluminum industry is the major source of feedstock for Alumitech's process. The melting process used by the secondary aluminum industry causes the exposed surface of the molten aluminum to oxidize and form a protective barrier. Salts are added to increase metal recovery and facilitate the separation of the metal from the oxides. The molten salts form a barrier layer, containing 8-15% aluminum, which is skimmed off and cooled. The resultant product is known as black dross. Black dross is the primary feedstock for Alumitech's process. Conventional dross processors break down the dross into two parts: aluminum, which is sold back to secondary smelters, and saltcake, which is typically landfilled. This is where Alumitech differentiates itself. Alumitech separates saltcake and black dross into their basic components: aluminum metal, alumina and metal fines, salts, and NMP. In addition, using its proprietary process, Alumitech can also further refine the NMP for use in the production of commercially acceptable industrial products. NMP Applications Alumitech has developed several applications for NMP. The first, a high temperature refractory ceramic fiber, is used as insulation in industrial applications where temperatures range up to 2000 degreesF. During 1996, using NMP as a raw material, ceramic fiber was successfully produced in a large-scale pilot trial, and the quality of the test material positively verified by independent third parties. The test was of importance because it demonstrated that, by applying Alumitech's patented process, NMP could be used in the production of commercial products. Encouraged by these results, Alumitech continues to seek other possible applications for NMP. A number of products have been developed and yielded positive assessments when tested by potential customers. Likely markets for the new products are the steel and cement industries, refractories and the brown alumina markets. As part of Alumitech's focus on developing derivative products from NMP, engineering is currently being completed to retrofit the Cleveland facility for the commercialization of NMP. The expanded facility, which will include full-scale pyrometallurgical and hydrometallurgical operations, will be dedicated to the production of products derived from NMP. It is anticipated that this capital project will cost approximately $3.5 million and be completed by the end of 1997. National Award Recently, Alumitech was the recipient of a $400,000 federal grant, awarded jointly by the Department of Energy and the Environmental Protection Agency. The award is in recognition of Alumitech's technical achievements and is to contribute to the commercialization of NMP-derived products produced using its proprietary process. Alumitech was one of only seventeen companies nationwide to be recognized under this program. The Future The next major step in Alumitech's growth is the construction of a large-scale facility. To this end, in November 1996, Alumitech signed a letter of intent with respect to forming a joint venture with IMCO Recycling Inc. The proposed joint venture is for the construction of a large-scale facility, which would see Alumitech contributing its proprietary technology, IMCO supplying the required feedstock, and both parties contributing equally to the capital requirements. It is anticipated that a joint venture agreement will be signed over the course of the next several months. Environmental protection and liability are very contentious issues these days. Accordingly, as litigation and legislative activity increase, so has the potential liability associated with landfilling. It is with this in mind that Alumitech continues to lay the groundwork for its new "super plant" and to develop alternative applications for NMP. Management's Discussion And Analysis The following is a discussion and analysis of the financial condition and results of operations of the Corporation for the years ended December 31, 1996, 1995 and 1994, and certain factors that may affect the Corporation's prospective financial condition and results of operations. The following should be read in conjunction with the Consolidated Financial Statements and related notes thereto. OVERVIEW The Corporation is a diversified producer of specialty materials and products for use in a variety of industrial applications. The Corporation operates in two principal business segments: (i) industrial minerals, which includes The Feldspar Corporation, Suzorite Mica Products Inc. and Suzorite Mineral Products, Inc.; and (ii) metal products, which includes Pyron Corporation, Pyron Metal Powders, Inc. and Alumitech, Inc. During 1994, the Corporation acquired the assets of Greenback Industries, Inc.; the talc operations of Whittaker, Clark & Daniels, renamed Suzorite Mineral Products, Inc.; and a 42% interest in Alumitech, Inc. In 1995, the Corporation completed its acquisition of 100% of Alumitech, Inc. and acquired a mineral processing facility in Benwood, West Virginia. The Corporation's strategy going forward is to enhance its position as a leading supplier of specialty materials through investments in its core businesses, the introduction of new products, strategic acquisitions, and investments in new technologies. RESULTS OF OPERATIONS Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Net Sales - ------------------------------------------------------------------------ 1996 1995 Change Change - ------------------------------------------------------------------------ Industrial Minerals $40,469,000 $37,089,000 $3,380,000 9.1% Metal Products 45,951,000 47,967,000 (2,016,000) (4.2%) -------------------------------------- $86,420,000 $85,056,000 $1,364,000 1.6% - ------------------------------------------------------------------------ The Corporation's net sales for 1996 were $86.4 million, an increase of $1.4 million, or 1.6%, from 1995. The major components of the increase were: the full year consolidation of Alumitech, Inc. and increased industrial minerals sales of $3.4 million, offset by decreased metal powder sales of $2.7 million. The industrial minerals segment recorded a 9.1% increase in sales from $37.1 million in 1995 to $40.5 million in 1996. The increase was due to a $1.7 million increase from the feldspar group, a $1.2 million increase in the talc group's sales and a $0.5 million increase in sales of phlogopite mica. The increase in talc sales is largely due to the inclusion of a full year's sales from the Benwood facility, which was acquired in May 1995. Talc sales are expected to increase in 1997 as new products are introduced and approved by customers. Feldspar sales continue to grow steadily due to increased demand from ceramic manufacturers and increased availability of the new low iron sand product. Net sales of the metal products group decreased 4.2%, or $2.0 million, from $48.0 million in 1995 to $46.0 million in 1996. Of this decrease, $2.1 million is primarily due to lower copper prices and slightly lower volume of copper sales affecting sales at Pyron Metal Powders, Inc. as well as a $1.3 million decline in atomized steel sales. These decreases were offset in part by increased sales of $0.7 million from Alumitech, Inc. Sponge iron sales increased by 2.3% while atomized steel sales decreased 21.2%. In 1997, modest sales growth in both metal powders and aluminum dross processing is anticipated. Cost of Goods Sold Cost of goods sold were $66.4 million in 1996 compared to $64.4 million in 1995. The corresponding gross margin was 23.1% for 1996 and 24.3% for 1995. The decline in gross margin was primarily due to lower aluminum prices. The decline in aluminum prices realized in 1996 compared to 1995 resulted in margin erosion of 1.8%, offsetting a slight improvement achieved by the other groups. In addition, cost of goods sold was negatively affected by the write-down of parts and supplies that had been rendered obsolete as the result of the expansion of the sodium feldspar plant at Spruce Pine, North Carolina. Selling, General and Administrative Expenses Selling, general and administrative expense ("SG&A") increased 21.0% from $8.7 million in 1995 to $10.5 million in 1996. As a percent of sales, SG&A was 12.1% in 1996 as compared to 10.2% in 1995. The increase was the result of the full year consolidation of Alumitech, Inc. in 1996 and the addition of sales and marketing staff for the industrial minerals segment. It is anticipated that there will be minimal increases in SG&A as future sales increase. Depreciation, Depletion and Amortization Depreciation, depletion and amortization increased by $1.0 million, or 27.2%, from $3.7 million in 1995 to $4.7 million in 1996. This increase results from the 19.4% net increase in property, plant and equipment during 1996 as a result of capital expenditures. Prospectively, depreciation will continue to increase as current capital programs are placed into service. Operating Income Before Reorganization Charges Operating income before reorganization charges was $4.8 million in 1996 compared to $8.3 million in 1995. A $1.8 million reorganization charge was recognized in the first quarter of 1996 in connection with the reorganization of the Corporation's industrial minerals division, a write-down to market of its Brazilian inventory, and the recognition of a provision for storage costs and selling expenses in connection thereto. Operating Income Operating income after reorganization charges decreased to $3.1 million for fiscal 1996 from $8.3 million in fiscal 1995, representing a 63.2% decline. This decline was due to reasons discussed previously. Interest Expense, Net Net interest expense for the year ended December 31, 1996 was $0.9 million, an increase of $0.4 million over 1995. This is attributable to an increase in total indebtedness from $13.1 million in 1995 to $26.6 million in 1996. Other, Net In 1996, the Corporation recognized other net expense of $0.5 million. The largest component of this expense was a $0.7 million provision relating to a property sale that the purchaser had defaulted on. The offset was a number of small income items which reduced the total expense. Recovery of Income Taxes In 1996, the Corporation realized an income tax recovery of $0.9 million as compared to a recovery of $0.5 million in 1995. The recoveries reflect the recognition of the benefit of net operating losses available to the Corporation. In 1997 and beyond, the Corporation will incur an effective tax rate of approximately 35% to calculate its income taxes, reflecting the ongoing permanent difference arising from a percentage depletion allowance. Net Income and Earnings Per Share As a result of the factors discussed above, net income for the year ended December 31, 1996 was $2.6 million, a decrease of $5.8 million from 1995. As the impact of the recognition of the benefits of the loss carryforwards is significant, the Corporation's earnings per share have been restated below on a fully-taxed basis using an effective rate of 35%. - -------------------------------------------------------------------------- 1996 1995 Pre-Tax Income $1,663,000 $7,899,000 Primary EPS(as reported) $0.33 $1.03 EPS(fully taxed at 35%) $0.14 $0.63 - -------------------------------------------------------------------------- Results of Operations Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Net Sales - -------------------------------------------------------------------------- 1995 1994 Change Change Industrial Minerals $37,089,000 $30,378,000 $ 6,711,000 22.1% Metal Products 47,967,000 24,928,000 23,039,000 92.4% ----------------------------------- $85,056,000 $55,306,000 $29,750,000 53.8% - -------------------------------------------------------------------------- The Corporation's net sales for 1995 were $85.1 million, an increase of $29.7 million, or 53.8%, from 1994. The major components of the increase were: the consolidation of Alumitech, Inc., $13.6 million; increased industrial mineral sales, $6.7 million; and increased metal powder sales, $9.4 million. The industrial minerals segment recorded a 22.1% increase in sales from $30.4 million in 1994 to $37.1 million in 1995. The change was due to an incremental $6.0 million in sales from the talc operations which were acquired December 1, 1994 and a $2.0 million increase from the feldspar group, offset in part by lower sales of phlogopite mica. Net sales for the metal products group increased $23.0 million, or 92.4%, from $24.9 million in 1994 to $48.0 million in 1995. Of this increase, $13.6 million was due to the consolidation of Alumitech, Inc., which was previously accounted for as an equity investment. Sales from the metal powder group increased 38.0% in 1995, primarily due to increased non-ferrous sales following the September 1994 acquisition of Greenback Industries, Inc. Sponge iron sales increased by 4.7% while atomized steel sales increased 20.0%, notwithstanding the significant negative impact of the explosion of the atomization furnace at the plant in Niagara Falls, New York in March 1995. Cost of Goods Sold Cost of goods sold were $64.4 million in 1995 compared to $40.6 million in 1994. The corresponding gross margins were 24.3% for 1995 and 26.7% for 1994. The decline in gross margin was due to several factors: a decline in high-end mica product sales; an increase in sales of several lower margin industrial mineral products; and lower margins due to competitive pressures in certain metal powder product lines. Selling, General and Administrative Expenses SG&A increased 31.4% from $6.6 million in 1994 to $8.7 million in 1995. The increase was the result of acquisitions in late 1994 and early 1995. As a percent of sales, SG&A was 10.2% in 1995 as compared to 11.9% in 1994, reflecting the benefit derived from higher volumes. Depreciation, Depletion and Amortization Depreciation, depletion and amortization increased by $1.4 million, or 59.4%, from $2.3 million in 1994 to $3.7 million in 1995. This increase was driven by the 73.2% increase in property, plant and equipment during 1995 as a result of acquisitions and capital expenditures. Operating Income Operating income rose to $8.3 million for fiscal 1995 from $5.8 million in fiscal 1994. While this represents a 42.8% increase, the operating margin declined from 10.6% in 1994 to 9.8% in 1995. This decline was due to reasons discussed previously. Interest Expense, Net Net interest expense for the year ended December 31, 1995 was $0.5 million, an increase of $0.1 million over 1994. This is attributable to an increase in total indebtedness from $6.7 million at December 31, 1994 to $13.1 million at December 31, 1995, offset in part by a decline in interest rates. Recovery of Income Taxes In 1995, the Corporation realized an income tax recovery of $0.5 million as compared to a recovery of $0.7 million in 1994. The 1995 recovery reflects the recognition of the benefit of the balance of the net operating tax loss carryforwards available to the Corporation. Net Income and Earnings Per Share As a result of the factors discussed above, net income for the year ended December 31, 1995 was $8.4 million, an increase of $2.2 million from 1994. As the impact of the recognition of the benefits of the loss carryforwards is significant, the Corporation's earnings per share have been restated below on a fully-taxed basis using an effective rate of 35%. - ------------------------------------------------------------------------- 1995 1994 Pre-Tax Income $7,899,000 $5,579,000 Primary EPS(as reported) $1.03 $1.12 EPS(fully taxed at 35%) $0.63 $0.65 - ------------------------------------------------------------------------- Liquidity and Capital Resources The Corporation has historically funded its extraction and processing activities through cash flow from operations, bank debt and sales of capital stock and warrants. During the most recent three-year period ended December 31, 1996, the Corporation partially funded all capital expenditures, acquisitions and debt reduction from a combination of additional debt and cash flow from operations. In addition, in September 1994 the Corporation completed a public offering, raising net proceeds of approximately $18.5 million. During 1995, outstanding warrants were exercised which resulted in net proceeds of $4.8 million. These funds were utilized in part to repay long term debt, fund acquisitions and purchase treasury stock. Cash Flow from Operations The Corporation had $18.7 million of working capital at December 31, 1996, compared to working capital of $19.7 million at December 31, 1995. Net cash provided by operating activities for the year ended December 31, 1996 was $6.0 million, down $1.2 million, or 16.4%, relative to 1995. Earnings before interest, taxes, and depreciation, depletion and amortization for the year ended December 31, 1996 were $7.3 million, a decrease of 39.7% over the $12.1 million generated in 1995. Financing Agreements In March 1995, the Corporation entered into a $30.2 million credit facility with a syndicate of two banks. The credit facility is further subdivided into four facilities: (i) a $10.0 million revolving credit and term loan facility; (ii) a $10.0 million multiple advance term loan facility; (iii) a $5.2 million standby letter of credit; and (iv) a $5.0 million operating line. These facilities are secured by specific assets and a floating charge over a significant portion of the Corporation's assets. The facilities bear interest at rates varying from bank prime to bank prime plus 0.25% and from LIBOR plus 1.25% to LIBOR plus 2.25%, depending upon the financial position of the Corporation. As at December 31, 1996, there was $5.0 million outstanding under the operating line, $9.2 million outstanding under the multiple advance term loan facility, $5.0 million outstanding under the revolving credit and term loan facility and the standby letter of credit was issued to secure the Corporation's Industrial Revenue Bond. The operating line matures June 30, 1997 and is reviewed annually for renewal. The multiple advance term loan facility requires quarterly payments of $0.3 million which commenced April 1, 1996 with the balance outstanding, if any, due January 1, 2000. Capital Expenditures The Corporation's primary capital activities in the past involved the acquisition and development of industrial mineral properties and facilities and necessary capital investments to maintain operating viability and meet environmental, health and safety standards at its existing operations. During 1996, capital expenditures were $16.4 million compared to $15.5 million and $3.1 million for the years ended December 31, 1995 and 1994, respectively. The capital expenditures were funded by cash on hand, cash flow from operations and an increase in total bank indebtedness of $13.5 million. The Corporation is currently implementing and/or planning several major capital programs. These include the retrofitting of the aluminum dross plant in Cleveland and the construction of a new aluminum dross processing facility in connection with a proposed joint venture. In aggregate, 1997 capital expenditures are anticipated to be approximately $16 million. The Corporation plans on funding these from a combination of cash flow from operations and credit facilities. Although the Corporation's capital budgets provide for certain reclamation and environmental compliance activities, management does not believe that the cost of the Corporation's environmental compliance will have a material adverse effect on the Corporation's results of operations or financial condition in 1997. The Corporation has no definitive acquisition agreements with respect to additional property or other acquisitions. The Corporation will, however, continue to monitor potential strategic acquisitions that would enhance its current activities. Seasonality and Inflation Although the Corporation's results from extraction and processing operations are cyclical due to fluctuations in demand for industrial minerals and metal products, sales of the Corporation's products are generally not seasonal. Inflation in recent years has not adversely affected the Corporation's results of operations or costs, and is not expected to adversely affect the Corporation in the future unless it grows substantially and the markets for industrial minerals suffer from a negative impact on the economy in general. Capital Stock The capital stock of Zemex Corporation is traded on the New York Stock Exchange. The price range in which the stock has traded is shown for the past two years in the following tables. Capital Stock Prices - -------------------------------------------------------------------------- 1996 Q1 Q2 Q3 Q4 Year - -------------------------------------------------------------------------- High 10 9 5/8 8 1/8 8 7/8 10 Low 8 7/8 7 1/2 6 7/8 7 6 7/8 Close 9 1/8 7 5/8 7 3/4 7 7 - -------------------------------------------------------------------------- 1995 Q1 Q2 Q3 Q4 Year High 10 7/8 10 7/8 10 7/8 10 10 7/8 Low 8 3/8 9 9 1/8 8 1/4 8 1/4 Close 10 5/8 9 3/8 9 5/8 10 10 - -------------------------------------------------------------------------- In the fourth quarter of each of 1996, 1995 and 1994, the Corporation declared a two percent stock dividend. As of December 31, 1996, there were approximately 1,618 holders of record of the Corporation's capital stock. This number includes shares held in nominee name and, thus, does not reflect the number of holders of a beneficial interest in the stock. Independent Auditors' Report To the Shareholders and Board of Directors of Zemex Corporation We have audited the accompanying consolidated balance sheets of Zemex Corporation and its Subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Zemex Corporation and its Subsidiaries as of December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles in the United States. Deloitte & Touche Chartered Accountants Toronto, Ontario January 31, 1997 Management's Report The management of Zemex Corporation and its subsidiaries has the responsibility for preparing the consolidated financial statements presented in this Annual Report and for their accuracy and integrity. The statements have been prepared in conformity with generally accepted accounting principles in the United States, and include informed judgments and estimates as required. Other financial information in this Annual Report is consistent with the financial statements. Zemex Corporation's system of internal controls is designed to provide reasonable assurance, at a justifiable cost, as to the reliability of financial records and reporting and the protection of assets. This system includes organizational arrangements with clearly defined lines of responsibility. Deloitte & Touche, independent auditors, have audited the consolidated financial statements of Zemex Corporation and their opinion is included on the preceding page. Zemex Corporation has formal standards of corporate conduct and policies regarding high standards of ethics and financial integrity. These policies have been disseminated to appropriate employees and internal control procedures provide reasonable assurance that violations of these policies, if any, are detected. Allen J. Palmiere Richard L. Lister Vice President and President and Chief Executive Officer Chief Financial Officer Audit Committee Report The Audit Committee of the Board of Directors is composed of three independent directors, Patrick H. O'Neill, Chairman, John M. Donovan, and Thomas B. Evans, Jr. The Committee held three meetings during 1996. The Audit Committee oversees the financial reporting process of the Corporation on behalf of the Board of Directors. In fulfilling its responsibility, the Committee recommended to the Board of Directors, subject to shareholder approval, the selection of the Corporation's independent auditors. The Audit Committee met with management and representatives of the auditors, Deloitte & Touche, to review accounting, auditing and financial reporting matters. The Committee met with Deloitte & Touche representatives without management present. Patrick H. O'Neill Chairman, Audit Committee Consolidated Balance Sheets - -------------------------------------------------------------------------- December 31 1996 1995 - -------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 2,279,000 $ 1,653,000 Accounts receivable (less allowance for doubtful accounts of $452,000 at December 31, 1996 and $386,000 at December 31, 1995)(Note 15) 15,003,000 13,165,000 Inventories (Note 3) 18,171,000 20,176,000 Prepaid expenses 1,388,000 841,000 Deferred income taxes(Note 6) 1,013,000 - - -------------------------------------------------------------------------- 37,854,000 35,835,000 Property, Plant and Equipment(Notes 4 and 8) 62,084,000 50,271,000 Other Assets (Note 5) 9,438,000 10,575,000 - -------------------------------------------------------------------------- $ 109,376,000 $ 96,681,000 - -------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Bank indebtedness(Note 8) $ 6,590,000 $ 3,220,000 Accounts payable 7,091,000 8,037,000 Accrued liabilities 2,983,000 2,222,000 Accrued income taxes 301,000 269,000 Current portion of long term debt (Note 8) 2,201,000 2,378,000 - -------------------------------------------------------------------------- 19,166,000 16,126,000 Long Term Debt (Note 8) 17,797,000 7,485,000 Other Non-Current Liabilities 599,000 605,000 Deferred Income Taxes (Note 6) 817,000 1,565,000 - -------------------------------------------------------------------------- 38,379,000 25,781,000 - -------------------------------------------------------------------------- Shareholders' Equity Common stock (Note 9) 8,950,000 8,695,000 Paid-in capital 51,304,000 49,692,000 Retained earnings 20,040,000 18,683,000 Note receivable from shareholder (Note 9) (1,749,000) (1,749,000) Cumulative translation adjustment (1,175,000) (1,218,000) Treasury stock at cost (Note 9) (6,373,000) (3,203,000) - -------------------------------------------------------------------------- 70,997,000 70,900,000 - -------------------------------------------------------------------------- $ 109,376,000 $ 96,681,000 - -------------------------------------------------------------------------- See Notes to the Consolidated Financial Statements Consolidated Statements of Shareholders' Equity (dollars in thousands) Note Receivable Cumulative Common Paid In Treasury Retained from Translation Stock Capital Stock Earnings Shareholder Adjustment Total Balance at Dec 31/93 $4,535 $17,910 $ - $6,738 $(1,749) $ (904) $26,530 Stock issued for cash (a) 2,348 18,174 - - - - 20,522 Stock dividend (a) 146 1,171 - (1,320) - - (3) Stock options and warrants exercised (a) 56 357 - - - - 413 Stock issued in connection with acquisition (b)136 1,091 - - - - 1,227 Stock purchased for treasury (a) - - (465) - - - (465) Net income for the year - - - 6,250 - - 6,250 Translation adjustment - - - - - (422) (422) - -------------------------------------------------------------------------- Balance at Dec 31/94 7,221 38,703 (465) 11,668 (1,749) (1,326) 54,052 Stock issued under employee stock purchase plan (a) 49 422 - - - - 471 Stock dividend (a) 167 1,233 - (1,403) - - (3) Stock options and warrants exercised (a) 626 4,423 - - - - 5,049 Stock issued in connection with Alumitech purchase (b) 632 5,133 834 - - - 6,599 Warrants repurchased (a) - (222) - - - - (222) Stock purchased for treasury (a) - - (3,572) - - - (3,572) Net income for the year - - - 8,418 - - 8,418 Translation adjustment - - - - - 108 108 - -------------------------------------------------------------------------- Balance at Dec 31/95 8,695 49,692 (3,203) 18,683 (1,749) (1,218) 70,900 Stock issued under employee stock purchase plan (a) 73 535 - - - - 608 Stock dividend (a) 161 1,089 - (1,255) - - (5) Stock options exercised (a) 21 84 - - - - 105 Stock purchased for treasury (a) - - (3,170) - - - (3,170) Stock options repurchased - (96) - - - - (96) Net income for the year - - - 2,612 - - 2,612 Translation adjustment - - - - - 43 43 - ---------------------------------------------------------------------------- Balance at Dec 31/96 $8,950 $51,304 $(6,373) $20,040 $(1,749) $(1,175) $70,997 - ---------------------------------------------------------------------------- See Notes to the Consolidated Financial Statements (a) See Note 9 (b) See Note 2 Consolidated Statements of Income - -------------------------------------------------------------------------- Years ended December 31 1996 1995 1994 - -------------------------------------------------------------------------- Net Sales $86,420,000 $85,056,000 $55,306,000 - -------------------------------------------------------------------------- Costs and Expenses Cost of goods sold 66,416,000 64,356,000 40,552,000 Selling, general and administrative 10,492,000 8,669,000 6,598,000 Depreciation, depletion and amortization 4,694,000 3,689,000 2,315,000 - -------------------------------------------------------------------------- 81,602,000 76,714,000 49,465,000 - -------------------------------------------------------------------------- Operating Income Before Reorganization Charges 4,818,000 8,342,000 5,841,000 Reorganization Charges (Note 10) 1,752,000 - - Operating Income 3,066,000 8,342,000 5,841,000 Other Income (Expenses) Interest expense, net(Note 8) (948,000) (523,000) (425,000) Other, net(Notes 2 and 10) (455,000) 80,000 163,000 - -------------------------------------------------------------------------- (1,403,000) (443,000) (262,000) - -------------------------------------------------------------------------- Income Before Recovery of Income Taxes 1,663,000 7,899,000 5,579,000 Recovery of Income Taxes(Note 6) 949,000 519,000 671,000 - -------------------------------------------------------------------------- Net Income $ 2,612,000 $ 8,418,000 $ 6,250,000 - -------------------------------------------------------------------------- Net Income per Share $0.33 $1.03 $1.12 - -------------------------------------------------------------------------- Average Common Shares and Common Share Equivalents Outstanding 8,000,522 8,208,874 5,588,682 - -------------------------------------------------------------------------- See Notes to the Consolidated Financial Statements Consolidated Statements of Cash Flows - -------------------------------------------------------------------------- Years ended December 31 1996 1995 1994 - -------------------------------------------------------------------------- Cash Flows from Operating Activities Net income $2,612,000 $8,418,000 $6,250,000 Adjustments to reconcile income from operations to net cash flows from operating activities Depreciation, depletion and amortization 4,694,000 3,754,000 2,315,000 Loss on assets held for resale - 61,000 - Decrease in deferred income taxes (1,761,000) (122,000) (1,366,000) Share of net income of investee - (87,000) (267,000) Loss on sale of property, plant and equipment 255,000 22,000 15,000 Decrease (increase) in other assets 771,000 (227,000) (63,000) (Decrease) increase in non-current liabilities (6,000) 56,000 67,000 Changes in non-cash working capital items(a) (533,000) (4,660,000) (4,311,000) - -------------------------------------------------------------------------- Net cash provided by operating activities 6,032,000 7,215,000 2,640,000 - -------------------------------------------------------------------------- Cash Flows from Investing Activities Additions to property, plant and equipment (16,426,000) (15,451,000) (3,077,000) Assets acquired in connection with acquisitions(b) - (3,658,000) (4,888,000) Proceeds from sale of assets 86,000 - 78,000 Investment(b) - - (2,019,000) Promissory notes - - (371,000) - -------------------------------------------------------------------------- Net cash used in investing activities (16,340,000) (19,109,000) (10,277,000) - -------------------------------------------------------------------------- Cash Flows from Financing Activities Deferred financing costs - (467,000) - Proceeds from long term debt 12,882,000 6,219,000 266,000 Proceeds(payments) net, on bank indebtedness 3,370,000 3,040,000 (415,000) Repayment of long term debt (2,747,000) (5,343,000) (8,094,000) Cash paid in lieu of fractional shares (5,000) (3,000) (3,000) Issuance of common stock(c) 713,000 5,520,000 20,935,000 Purchase of common stock and warrants for treasury(c) (3,266,000) (3,794,000) (465,000) - -------------------------------------------------------------------------- Net cash provided by financing activities 10,947,000 5,172,000 12,224,000 - -------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash (13,000) 32,000 (40,000) - -------------------------------------------------------------------------- Net Increase(Decrease)in Cash 626,000 (6,690,000) 4,547,000 Cash and Cash Equivalents at Beginning of Year 1,653,000 8,343,000 3,796,000 - -------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 2,279,000 $ 1,653,000 $ 8,343,000 - -------------------------------------------------------------------------- Supplemental Disclosure of Cash Flow Information Income taxes paid $ 393,000 $ 303,000 $ 233,000 Interest paid 937,000 656,000 573,000 - -------------------------------------------------------------------------- Supplemental Disclosure of Non-Cash Activities Notes issued in connection with purchase of assets(b) $ - $ - $ 1,102,000 Stock issued in connection with acquisition(b) - 6,599,000 1,227,000 Assumption of liabilities in connection with asset purchases - - 793,000 Notes received in connection with sale of assets held for resale(d) - 423,000 - - -------------------------------------------------------------------------- See Notes to the Consolidated Financial Statements (a) See Note 14 (b) See Note 2 (c) See Note 9 (d) See Note 10 Notes to the Consolidated Financial Statements December 31, 1996 and 1995 1. Summary of Significant Accounting Policies The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Corporation's significant accounting policies are as follows: a. Principles of Consolidation The consolidated financial statements include the accounts of Zemex Corporation and its wholly-owned subsidiaries (the "Corporation"). All material intercompany transactions have been eliminated. As discussed in Note 2, Alumitech, Inc. ("Alumitech") was acquired in two separate transactions and, accordingly, was accounted for on an equity basis until it became a wholly-owned subsidiary in February 1995. b. Inventories Inventories are stated at the lower of cost or market and are computed using the average cost method. It is not practical to segregate finished products from ore and concentrates. Supplies are stated at cost using the first-in, first-out or average cost method. c. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and improvements are capitalized. When assets are sold or otherwise retired, the cost and accumulated depreciation or depletion are removed from the accounts and any gain or loss is included in results of operations. Provisions for depreciation are based upon estimated useful lives, using principally the straight-line method. Depletion of mining properties and depreciation of other mining assets are computed using the unit-of-production method, except in the case of the Corporation's mica operation where the estimated reserves exceed the expected production during the term of the mining lease. The mica mining lease rights and deferred costs, including all preproduction and set-up costs, are amortized using the straight-line method over the term of the mining lease. d. Postretirement Benefits Pension Plans The funding policy of the Corporation, generally, is to contribute annually at a rate that is intended to provide for the cost of benefits earned during the year and which will amortize prior service costs over periods of 10 to 30 years, subject to Internal Revenue Service limits for deductible contributions. Healthcare and Other Postretirement Benefits Other Than Pensions The Corporation accounts for healthcare and other postretirement benefits other than pensions in accordance with Statement of Financial Accounting Standards ("SFAS") No. 106 - "Employers' Accounting for Postretirement Benefits Other Than Pensions". This Statement requires the accrual of all postretirement benefits other than pensions during the years in which employees render the necessary services to be entitled to receive such benefits. The 1996, 1995 and 1994 amounts include the current year expense and the transition liability which is being amortized over twenty years as allowed by SFAS No. 106 (Note 7). e. Foreign Currency Translation The functional currency for the Corporation's foreign operations is the local currency. Foreign currency assets and liabilities are translated using the exchange rates in effect at the balance sheet date. The effect of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars is accumulated as part of the cumulative translation adjustment component of shareholders' equity. Results of operations and cash flows are translated using the average exchange rates during the year. Gains and losses from foreign currency transactions are included in net income for the year. f. Research and Development Expense Research and development expense was $622,000 in 1996, $320,000 in 1995 and $315,000 in 1994. g. Provision for Future Reclamation Costs Costs for future reclamation have been provided for based upon estimated future reclamation costs allocated over the expected productive lives of the quarries. h. Income Taxes The Corporation accounts for income taxes in accordance with SFAS No. 109 "Accounting for Income Taxes". This Statement requires the liability method of accounting for income taxes. i. Earnings Per Share Earnings per share is based upon the weighted average number of common shares and common share equivalents outstanding. Common share equivalents include stock options issued under the employee stock option plans and stock issued under the Key Executive Common Stock Purchase Plan (Note 9). For the purpose of calculating earnings per share, stock dividends are considered to be issued at the beginning of the period. j. Deferred Financing Costs Costs associated with the issuance of long term debt are deferred, and are being amortized over the term of the debt on a straight-line basis. The unamortized balance is included in other assets. k. Other Assets Other assets include assets held for sale which are stated at the lower of cost or estimated net realizable value. In determining the estimated net realizable value, the Corporation deducts from the estimated selling price the projected costs to bring the assets into a saleable condition, to dispose of the assets and to hold the property to an expected date of sale. Other assets also includes patents which are stated at cost and are being amortized over their remaining life of 14 years on a straight-line basis. Intangible assets are evaluated periodically and, if conditions warrant, an impairment valuation is provided. l. Cash Equivalents For purposes of the consolidated statements of cash flows, highly liquid investments with original maturities of three months or less, when purchased, are considered as cash equivalents. m. Stock-Based Compensation Costs Stock-based compensation costs for pro forma presentation purposes (Note 9) are based on the fair value of each option at the grant date. The option value is calculated using the Black-Scholes option-pricing model. 2. ACQUISITIONS Acquisition of Alumitech, Inc. In June 1994, the Corporation acquired its initial 39.53% investment in Alumitech by investing $2,000,000 to acquire treasury stock. In 1995, the Corporation increased its interest to 100% by issuing 722,352 shares of common stock with an ascribed value of $6,599,000. The shares were issued as to 266,106 to Dundee Bancorp International Inc. ("Dundee"), the Corporation's largest shareholder, and as to 266,106 to Clarion Capital Corporation, a company controlled by a director of the Corporation. Alumitech, an aluminum dross processor, has developed proprietary technology that enables it to have the ability to convert 100% of its dross feed into marketable products. The acquisition of Alumitech has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets purchased and liabilities assumed based upon the fair values at the date of acquisition. The net purchase price was allocated as follows: - -------------------------------------------------------------------------- Working capital $ 73,000 Property, plant and equipment 5,527,000 Patents 7,363,000 Other assets 225,000 Other liabilities (2,192,000) Deferred income taxes (2,025,000) - -------------------------------------------------------------------------- $ 8,971,000 - -------------------------------------------------------------------------- Consideration Carrying value of investment at date of acquisition of remaining interest $ 2,372,000 Capital stock 6,599,000 - -------------------------------------------------------------------------- $ 8,971,000 - -------------------------------------------------------------------------- The operating results of Alumitech have been included in the consolidated statements of income from the date of acquisition. On the basis of a pro forma consolidation of the results of operations as if the acquisition had taken place at the beginning of fiscal 1994, rather than at February 15, 1995, consolidated net sales would have been $64,500,000 for fiscal 1994, and $86,900,000 for fiscal 1995. Consolidated pro forma income and earnings per share would not have been materially different from the reported amounts for fiscal 1994 and 1995. Such pro forma amounts are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisition had been effective at the beginning of fiscal 1994. Acquisition of the assets of Benwood Limestone Company, Inc. On May 15, 1995, the Corporation acquired the assets of Benwood Limestone Company, Inc. ("Benwood"), through its wholly-owned subsidiary, Suzorite Mineral Products, Inc. ("SMP"), for $3,658,000. The acquisition of Benwood augmented the Corporation's talc and mineral processing capability. Benwood will continue to process consumer products for its former owner under a long term contract. Acquisition of the talc operations of Whittaker, Clark & Daniels, Inc. In December 1994, the Corporation, through SMP, acquired from Whittaker, Clark & Daniels, Inc. ("WCD") certain assets including its talc operations. Consideration for the purchase included $4,388,000 in cash, 136,360 common shares of the Corporation with an ascribed value of $1,227,000, and the assumption of certain current liabilities directly relating to the operations acquired aggregating $267,000. Concurrent with the purchase, the Corporation entered into an agreement with WCD whereby WCD agreed to act as the exclusive marketing, distribution and sales agent for the Corporation's premium talc products. Acquisition of the assets of Greenback Industries, Inc. In September 1994, the Corporation, through its wholly-owned subsidiary, Pyron Metal Powders, Inc., acquired the assets and assumed certain liabilities of Greenback Industries, Inc. ("Greenback"). Consideration for the purchase was $500,000 in cash, the issuance of two promissory notes having principal amounts of $650,000 and $451,563, respectively, and the assumption of certain current liabilities aggregating $526,000. The Greenback facilities provide the Corporation with increased capacity to produce powdered copper as well as powdered tin, and powdered copper and tin alloys. 3. INVENTORIES - -------------------------------------------------------------------------- 1996 1995 Ore, concentrates and finished products Industrial minerals $ 8,565,000 $ 10,852,000 Metal products 5,035,000 4,042,000 - -------------------------------------------------------------------------- 13,600,000 14,894,000 - -------------------------------------------------------------------------- Materials and supplies Industrial minerals 3,683,000 3,867,000 Metal products 888,000 1,415,000 - -------------------------------------------------------------------------- 4,571,000 5,282,000 - -------------------------------------------------------------------------- $ 18,171,000 $ 20,176,000 - -------------------------------------------------------------------------- 4. PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------- Land $ 5,246,000 $ 4,952,000 Mining properties and deferred costs 6,605,000 5,535,000 Buildings 16,728,000 15,304,000 Machinery and equipment 50,937,000 45,797,000 Construction in progress 15,065,000 7,609,000 - -------------------------------------------------------------------------- Total property, plant and equipment, at cost 94,581,000 79,197,000 Less: Accumulated depreciation, depletion and amortization 32,497,000 28,926,000 - -------------------------------------------------------------------------- Net property, plant and equipment $ 62,084,000 $ 50,271,000 - -------------------------------------------------------------------------- As of December 31, 1996, the Corporation estimates that approximately $4,592,000 will be expended to complete its construction in progress. 5. OTHER ASSETS - -------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------- Prepaid pension cost(Note 7) $ 1,488,000 $ 1,632,000 Assets held for resale(Note 10) 300,000 250,000 Deferred financing costs 659,000 802,000 Other deferred charges 318,000 443,000 Promissory notes receivable, non-current portion - 369,000 Patents, net 6,673,000 7,079,000 - -------------------------------------------------------------------------- $ 9,438,000 $ 10,575,000 - -------------------------------------------------------------------------- 6. INCOME TAXES The provision for income taxes consists of the following components: - -------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------- Income from operations before provision for income taxes Domestic $ 1,492,000 $ 7,708,000 $ 3,631,000 Foreign 171,000 191,000 1,948,000 - -------------------------------------------------------------------------- Total pre-tax income $ 1,663,000 $ 7,899,000 $ 5,579,000 - -------------------------------------------------------------------------- Current tax provision Federal $ 478,000 $ 1,849,000 $ 880,000 State and local 123,000 293,000 258,000 Foreign 76,000 37,000 425,000 - -------------------------------------------------------------------------- Total 677,000 2,179,000 1,563,000 - -------------------------------------------------------------------------- Deferred tax provision Federal (1,369,000) 283,000 - State and local (257,000) 55,000 - Foreign - 40,000 256,000 - -------------------------------------------------------------------------- Total (1,626,000) 378,000 256,000 - -------------------------------------------------------------------------- Benefit of operating loss and tax credit carryforwards - (3,076,000) (2,490,000) - -------------------------------------------------------------------------- Recovery of income taxes $ (949,000) $ (519,000) $ (671,000) - -------------------------------------------------------------------------- The following tabulation reconciles the U.S. federal statutory income tax rate to the federal, state and foreign overall effective income tax rate. - -------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------- PERCENT PERCENT PERCENT Statutory federal rate 34.0 34.0 34.0 Benefit of operating loss carryforwards (net of foreign income taxes) (43.8) (38.1) (46.0) Percentage depletion (47.9) (4.9) - Other 0.6 2.4 - - -------------------------------------------------------------------------- Effective income tax rate (57.1) (6.6) (12.0) - -------------------------------------------------------------------------- Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 1996, the Corporation had unused tax benefits of $6,172,000 related to U.S. federal and state net operating loss and tax credit carryforwards. Significant components of the Corporation's deferred tax assets and liabilities as of December 31 are as follows (dollars in thousands): - -------------------------------------------------------------------------- 1996 1995 U.S. Foreign Total U.S. Foreign Total - -------------------------------------------------------------------------- Deferred tax assets Net operating loss and tax credit carryforwards $ 6,172 $ - $ 6,172 $4,102 $ - $ 4,102 Accrued expenses and reserves 763 - 763 444 - 444 Bad debt allowances 139 - 139 112 - 112 Inventories 526 - 526 505 - 505 Other 63 - 63 137 - 137 - -------------------------------------------------------------------------- Gross deferred tax assets 7,663 - 7,663 5,300 - 5,300 - -------------------------------------------------------------------------- Deferred tax liabilities Property, plant and equipment 2,656 2,075 4,731 2,159 2,075 4,234 Patent 1,791 - 1,791 1,929 - 1,929 Pension contributions 521 - 521 600 - 600 Other 424 - 424 102 - 102 - -------------------------------------------------------------------------- Total 5,392 2,075 7,467 4,790 2,075 6,865 - -------------------------------------------------------------------------- Net deferred tax (assets) liabilities $(2,271) $2,075 $ (196) $ (510) $ 2,075 $ 1,565 - -------------------------------------------------------------------------- The net change in the valuation allowance for deferred tax assets was a decrease of $1,645,000 in the year ended December 31, 1995 related primarily to benefits arising from recognition of net operating loss carryforwards. In 1995, the benefit of the balance of the net operating losses was recognized and, accordingly, the valuation allowance was reduced to nil. At December 31, 1996, the Corporation had approximately $15,000,000 of federal operating loss carryforwards available to reduce future taxable income which will expire between 2002 and 2011. Additionally, the Corporation has unused general business tax credits, which expire between 1997 and 2011, and alternative minimum tax credits. 7. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS Pension Plans The Corporation has several pension plans covering substantially all domestic employees. The plans covering salaried employees provide pension benefits that are based on the compensation of the employee. In all plans, the plan assets exceed the benefit obligations and hence the plans are overfunded. Net periodic pension cost (income) included the following components: - -------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------- Current service costs $ 528,000 $ 369,000 $ 422,000 Interest cost on projected benefit obligations 1,028,000 940,000 882,000 Actual return on assets (389,000) (2,587,000) 368,000 Net amortization and deferral (1,023,000) 1,164,000 (1,704,000) - -------------------------------------------------------------------------- Net pension expense (income) $ 144,000 $ (114,000) $ (32,000) - -------------------------------------------------------------------------- Net amortization and deferral consists of amortization of net assets at transition and deferral of subsequent net gains and losses. The assumptions used to determine projected benefit obligations were (i) a discount rate of 7 percent in 1996 and 1995 and 7.5 percent in 1994; (ii) an expected long term rate of return on assets of 8.75% in 1996, 1995 and 1994; and (iii) an increase in the level of compensation of 6% for 1996, 1995 and 1994. The status of the plans and the amounts recognized in the consolidated balance sheets of the Corporation for its pension plans as of December 31, 1996 and 1995 are tabulated below: - -------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------- Actuarial present value of benefit obligations Vested benefit obligation $ 11,687,000 $ 11,059,000 - -------------------------------------------------------------------------- Accumulated benefit obligation $ 11,896,000 $ 11,261,000 - -------------------------------------------------------------------------- Projected benefit obligation $ (15,925,000) $(15,042,000) Plan assets at fair value 16,432,000 16,646,000 - -------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation 507,000 1,604,000 Unrecognized net loss 1,071,000 226,000 Prior service cost not yet recognized in net periodic pension cost 239,000 282,000 Unrecognized net asset at year end (329,000) (480,000) - -------------------------------------------------------------------------- Prepaid pension cost included in consolidated balance sheets $ 1,488,000 $ 1,632,000 - -------------------------------------------------------------------------- Other Postretirement Benefits The Corporation provides healthcare and life insurance benefits for certain retired employees which, are accrued as earned (Note 1). The cost of such benefits was $105,000 in 1996, $95,000 in 1995, and $73,000 in 1994. The unrecognized obligation for postretirement benefits is not material. 8. LONG TERM DEBT - -------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------- Term loan facility (a) $ 14,167,000 $ 2,700,000 Other term loans (b) 813,000 1,038,000 Industrial Development Revenue Bonds (c) 4,080,000 4,612,000 Promissory notes (d) 113,000 811,000 Capital leases (e) 488,000 330,000 Other 337,000 372,000 - -------------------------------------------------------------------------- Total debt 19,998,000 9,863,000 Less: Current portion 2,201,000 2,378,000 - -------------------------------------------------------------------------- Long term debt $ 17,797,000 $ 7,485,000 - -------------------------------------------------------------------------- (a) During 1995, the Corporation entered into a $30,224,000 credit facility with a syndicate of two banks. The credit facility is further subdivided into four facilities: (i) a $10,000,000 revolving credit and term loan facility; (ii) a $10,000,000 multiple advance term loan facility; (iii) a $5,224,000 standby letter of credit; and (iv) a $5,000,000 operating line. These facilities are secured by specific assets and a floating charge over a significant portion of the Corporation's assets. The facilities bear interest at rates varying from bank prime to bank prime plus 0.25% and from LIBOR plus 1.25% to LIBOR plus 2.25%, depending upon the financial position of the Corporation. As at December 31, 1996 and December 31, 1995, there was $5,000,000 and $2,000,000, respectively, outstanding under the operating line and $9,167,000 and $2,700,000, respectively, outstanding under the multiple advance term loan facility. Advances under the revolving credit and term loan facility as at December 31, 1996 were $5,000,000, and the standby letter of credit was issued to secure Pyron's Industrial Development Revenue Bonds (see (c) below). The operating line matures June 30, 1997 and is reviewed annually for renewal. The multiple advance term loan facility requires quarterly payments of $278,000 which commenced April 1, 1996 with the balance outstanding, if any, due January 1, 2000. (b) The other term loans bear interest at the prime rate of the lending institution plus 1.25 percent to 1.50 percent, depending on certain tests. They are secured by substantially all of the fixed assets of Alumitech and its wholly-owned subsidiaries and are repayable in monthly principal instalments of approximately $19,000 until they are repaid with a terminal payment in 1999. (c) Pyron Corporation ("Pyron") entered into a lease agreement on November 29, 1989 with the Niagara County Industrial Development Agency (the "Agency") to partially finance the construction of a manufacturing facility, acquire and install equipment and machinery, and renovate the existing Pyron facility for the purpose of manufacturing atomized steel powders. The agreement authorized the Agency to issue and sell Industrial Development Revenue Bonds in the aggregate principal amount of $7,650,000 to provide the funds for the project. While the bonds are not the obligation of Pyron, the agreement requires Pyron to make quarterly rental payments equal to the debt service under the sinking fund requirements and interest on the outstanding principal to the Agency. The amount outstanding at December 31, 1996 and 1995 was $4,080,000 and $4,612,000, respectively. Pyron's annual obligation under the agreement is $510,000 until paid. The bonds bear interest at a variable rate not to exceed 15 percent per annum. The rate at December 31, 1996 was 4.15% and at December 31, 1995 was 5.25 percent. Pyron has the option to convert the bonds to a fixed interest rate at any time during the term. Under the lease agreement, Pyron may purchase the facility at any time during the term, which expires November 1, 2004, by paying the outstanding principal amount of the bonds plus $1. The bonds are collateralized by a mortgage on the land, the new facility and the existing facility, which have an aggregate net book value of approximately $9,480,000 at December 31, 1996. A bank has provided Pyron with a letter of credit which is available to support Pyron's obligations under the lease agreement. If the bondholders tender their bonds for repayment, the letter of credit will be utilized to pay the bondholders. The letter of credit is collateralized under the credit facility in (a) above. The letter of credit expires on October 1, 1999. (d) In 1994, Pyron Metal Powders, Inc. issued two promissory notes to former owners in connection with the acquisition of its two operations. One promissory note with an aggregate principal amount outstanding as of December 31, 1995 of $325,000, bearing interest at 7 percent in both 1996 and 1995, was paid in full September 15, 1996. A second note with an aggregate principal amount of $113,000 outstanding as at December 31, 1996 and $263,000 at December 31, 1995 is non-interest bearing with monthly principal payments of $12,550 commencing October 15, 1994 until the final payment of $12,313 due September 15, 1997. (e) The Corporation has long term capital lease agreements at various rates and for various terms with maturities ranging from 1997 to 2001 for equipment used in its operations. The carrying value of the leased equipment as of December 31, 1996 was $573,000. Principal repayments on long term debt are as follows: - -------------------------------------------------------------------------- 1997 $ 2,201,000 1998 2,068,000 1999 2,661,000 2000 10,883,000 2001 545,000 Thereafter 1,640,000 - -------------------------------------------------------------------------- $ 19,998,000 - -------------------------------------------------------------------------- Interest Interest earned and expensed in each of the past three years is summarized below: - -------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------- Interest income $ 93,000 $ 268,000 $ 246,000 Interest expense (1,041,000) (791,000) (671,000) - -------------------------------------------------------------------------- Net interest expense $ (948,000) $ (523,000) $ (425,000) - -------------------------------------------------------------------------- 9. COMMON STOCK, STOCK OPTIONS AND WARRANTS Shares Outstanding During 1995, the Corporation increased its authorized common stock from 10,000,000 to 25,000,000, par value one dollar per share, of which 20,000,000 shares will be denominated common stock and 5,000,000 shares will be denominated preferred stock. There were 8,269,099 shares of common stock issued and outstanding as of December 31, 1996 and 8,355,722 shares as of December 31, 1995. In May 1994, the Corporation issued 347,826 shares of common stock in a private placement transaction for aggregate proceeds of $2,000,000. In September 1994, the Corporation issued 2,000,000 shares of its common stock pursuant to a public offering of shares for net proceeds, after underwriting fees and expenses of issue, of $18,522,000. In 1995, the Corporation completed its purchase of 100 percent of Alumitech by issuing 722,352 shares of common stock with an ascribed value of $6,599,000. During 1996, 80,000 shares of common stock were purchased pursuant to the Corporation's employee stock purchase plan for an aggregate cost of $672,000. During 1995, 49,000 shares of common stock were purchased pursuant to the Corporation's employee stock purchase plan for an aggregate cost of $471,000. The plan was approved by the shareholders and provides that 250,000 shares may be purchased under the plan. The shares have been registered for listing on the New York Stock Exchange. As part of a stock repurchase program initiated in 1994, the Corporation has purchased 773,000 of shares of common stock on the open market: 344,000 common shares in 1996 for an aggregate cost of $3,170,000, 376,000 common shares in 1995 for an aggregate cost of $3,572,000 and 53,000 common shares in 1994 for an aggregate cost of $465,000. Dividends On October 18, 1996, the Corporation declared a 2 percent stock dividend to shareholders of record on November 4, 1996, which was paid November 18, 1996. Retained earnings were charged $1,255,192 as a result of the issuance of 161,398 shares of the Corporation's common stock, and cash payments of $4,357 in lieu of fractional shares. On November 10, 1995, the Corporation declared a 2 percent stock dividend to shareholders of record on November 24, 1995, which was paid December 8, 1995. Retained earnings were charged $1,403,248 as the result of the issuance of 167,149 shares of the Corporation's common stock, and cash payments of $3,375 in lieu of fractional shares. On November 14, 1994, the Corporation declared a 2 percent stock dividend to shareholders of record on November 28, 1994, which was paid December 19, 1994. Retained earnings were charged $1,320,307 as the result of the issuance of 145,708 shares of the Corporation's common stock, and cash payments of $3,218 in lieu of fractional shares. Stock Options The Corporation provides stock option incentive plans and has, with shareholder approval, issued options to certain directors outside of the plans. The plans are intended to provide long term incentives and rewards to executive officers, directors and other key employees contingent upon an increase in the market value of the Corporation's common stock. Options for 10 percent of the Corporation's outstanding common shares are issuable under the plans. The following is a summary of option transactions under the Corporation's stock option plans: - -------------------------------------------------------------------------- For the years ended December 31 1996 1995 1994 - -------------------------------------------------------------------------- Options outstanding at beginning of year 852,550 556,550 572,500 Options granted during the year 61,000 341,000 25,000 Options exercised during the year (45,000) (38,250) (23,200) Options cancelled during the year (23,000) (6,750) (17,750) - -------------------------------------------------------------------------- Options outstanding at end of year 845,550 852,550 556,550 Options exercisable at end of year 631,550 511,550 333,550 Price range of options granted during the year $7 3/4-$9 3/4 $9 1/8-$10 1/8$11 1/2 - -------------------------------------------------------------------------- The options expire from 1997 to 2002. During 1996 options for 45,000 shares of common stock were exercised for proceeds of $235,500. At December 31, 1996 there were 631,550 options exercisable. The Corporation does not recognize compensation expense for its stock-based compensation plans. Had compensation cost for the stock option plans been determined based upon fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation", the Corporation's net income and earnings per share would have been reduced by approximately $341,000 or $0.04 per share in 1996 and $2,177,000 or $0.27 per share in 1995. The fair value of the options granted during 1996 and 1995 is estimated to be $341,000 and $2,177,000, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995: dividend yield of 0%; expected volatility of 84% and 88%, respectively; risk-free interest rate of 5.5%; and an expected life of 5 years. Warrants During 1993, in connection with the acquisition of Suzorite Mica Products Inc., the Corporation issued a transferable warrant to Dundee to purchase at any time prior to July 15, 1995 up to 100,000 shares (104,040 shares after adjustments for stock dividends) of common stock at $7.00 per share. The warrant was exercised by Dundee on July 14, 1995 for proceeds of $700,000. As a result of a stock rights offering in 1990, 725,769 warrants were issued. Each warrant entitled the holder to purchase, prior to July 15, 1995, 1.08 shares of common stock at an exercise price of $8.56 per share, which was repriced from $9.25 per share as a result of dilution due to the issuance of stock dividends. Of the 725,769 warrants originally issued, the Corporation repurchased 218,046 warrants at an aggregate cost of $222,000. During 1995, 448,000 warrants were exercised for 484,027 shares of common stock for net proceeds of $4,143,000. During 1994, 31,514 warrants were exercised resulting in the issuance of 32,771 shares of common stock at an exercise price of $8.88 per share for aggregate proceeds of $291,000. There were no remaining warrants outstanding as at December 31, 1995. Note Receivable from Shareholder The note receivable from shareholder of $1,749,000 represents amounts due from the Corporation's President and Chief Executive Officer pursuant to the Key Executive Common Stock Purchase Plan. The loan, which was used to acquire 357,000 shares of common stock of the Corporation, is non-interest bearing, secured by a pledge of the shares acquired and due on the earlier of August 12, 1998 or 30 days after the termination of employment. Since the loan arose from the sale of stock, it is classified as a reduction of shareholders' equity. 10. REORGANIZATION CHARGES AND UNUSUAL ITEMS Reorganization Charges During the first quarter of 1996, the Corporation recognized reorganization costs of $1,752,000 in connection with the reorganization of its minerals division, a write-down to market of inventory held in Brazil and the recognition of a provision for anticipated costs associated with storing and selling the material. The Brazilian enterprise was unsuccessful primarily due to rapidly deteriorating market prices which made market penetration extremely difficult. Unusual Items In December 1991, the Corporation closed its industrial minerals plant located in Connecticut. The assets of this operation were reclassified to assets held for resale and written down in 1991 by $430,000 to their estimated net realizable value. These assets were written down by a further $300,000 in 1993. In 1995, a portion of the property was sold for approximately net book value. In 1996, the purchaser defaulted on the payment obligations. Accordingly, the Corporation instituted legal action to repossess the property. A provision of $723,000 has been recorded to provide for reclamation costs, legal costs and to write-down the property to current market value. 11. OPERATING LEASES AND OTHER COMMITMENTS Operating Leases The Corporation has a number of operating lease agreements primarily involving equipment, office space, warehouse facilities and rail sidings. The operating lease for equipment provides that the Corporation may, after the initial lease term, renew the lease for successive yearly periods or may purchase the equipment at the fair market value. An operating lease for office facilities contains escalation clauses for increases in operating costs and property taxes. The majority of the leases are cancellable and are renewable on a yearly basis. Future minimum rental payments required by operating leases that have initial or remaining non-cancellable lease terms in excess of one year as of December 31, 1996 are as follows: - -------------------------------------------------------------------------- Minimum Years Lease Payments - -------------------------------------------------------------------------- 1997 $ 520,000 1998 393,000 1999 271,000 2000 195,000 2001 332,000 Thereafter 538,000 - -------------------------------------------------------------------------- Total minimum lease payments $ 2,249,000 - -------------------------------------------------------------------------- Rent expense was $668,000, $442,000, and $281,000 in 1996, 1995 and 1994, respectively. Other Commitments The Corporation has a mining contract with an independent contractor expiring on September 30, 1998 to extract minerals from its open pit mine in Suzor Township, Quebec. This contract specifies the mining and delivery of approximately 50,000 tons of ore per year to the mine site rail siding at a fixed rate. 12. QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of certain unaudited quarterly financial data from continuing operations: - -------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------- Net Sales First quarter $ 22,405,000 $ 21,105,000 Second quarter 21,356,000 21,439,000 Third quarter 21,601,000 21,748,000 Fourth quarter 21,058,000 20,764,000 - -------------------------------------------------------------------------- $ 86,420,000 $ 85,056,000 - -------------------------------------------------------------------------- Operating Income First quarter $ 170,000 $ 2,123,000 Second quarter 1,512,000 2,465,000 Third quarter 1,444,000 1,822,000 Fourth quarter (60,000) 1,932,000 - -------------------------------------------------------------------------- $ 3,066,000 $ 8,342,000 - -------------------------------------------------------------------------- Net Income First quarter $ 6,000 $ 1,459,000 Second quarter 819,000 2,183,000 Third quarter 779,000 1,562,000 Fourth quarter 1,008,000 3,214,000 - -------------------------------------------------------------------------- $ 2,612,000 $ 8,418,000 - -------------------------------------------------------------------------- Net Income Per Share First quarter $ .00 $ .19 Second quarter .10 .28 Third quarter .10 .18 Fourth quarter .13 .37 - -------------------------------------------------------------------------- 13. FINANCIAL INSTRUMENTS Financial instruments which potentially subject the Corporation to concentrations of credit risk consist principally of trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Corporation's customer base and their dispersion across a number of different industries, principally construction, glass, electrical and automotive. Financial instruments comprise cash and cash equivalents, accounts receivable, short term bank borrowings, accounts payable, accrued liabilities, and long term debt. The fair value of these financial instruments approximates their carrying value. 14. CHANGES IN NON-CASH WORKING CAPITAL ITEMS The changes in non-cash working capital items are as follows: - -------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------- Increase in accounts receivable $ (1,838,000) $ (783,000) $ (2,384,000) Decrease (increase) in inventories 2,005,000 (2,742,000) (4,471,000) Increase in prepaid expenses (547,000) (16,000) (31,000) (Decrease) increase in accounts payable and accrued liabilities (185,000) (1,495,000) 2,248,000 Increase in accrued income taxes 32,000 376,000 327,000 - -------------------------------------------------------------------------- $ (533,000) $(4,660,000) $ (4,311,000) - -------------------------------------------------------------------------- 15. RELATED PARTY TRANSACTIONS As at December 31, 1996 and 1995, accounts receivable included amounts due from directors of $350,000. These amounts are non-interest bearing, with no fixed terms of repayment, and have not otherwise been disclosed in the consolidated financial statements. 16. SEGMENT INFORMATION The Corporation has two principal lines of business and is organized into two operating units based on its product lines: (i) industrial minerals, and (ii) metal products. Industrial mineral products include feldspar, kaolin, mica, talc, baryte, feldspathic sand and industrial sand. These products are marketed principally to the automotive, housing, and ceramics industries in North America. They are produced from mines and processing plants located near Edgar, Florida; Monticello, Georgia; Murphy, North Carolina; Spruce Pine, North Carolina; Natural Bridge, New York; Van Horn, Texas; Benwood, West Virginia; Boucherville, Quebec; and Suzor Township, Quebec. Metal products are processed in Niagara Falls, New York; St. Marys, Pennsylvania; and Greenback, Tennessee. The Corporation's ferrous and non-ferrous metal powders are marketed primarily in North America to manufacturers of powder metallurgy parts used in the automotive and transportation industries. Aluminum dross is recycled at a plant in Cleveland, Ohio and ceramic products are produced at a plant in Streetsboro, Ohio. Corporate assets principally include cash, term deposits, and furniture and fixtures. Information pertaining to sales and earnings from continuing operations and assets by business segment appears below: - -------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------- Net sales (a) Industrial minerals $ 40,469,000 $ 37,089,000 $ 30,378,000 Metal products 45,951,000 47,967,000 24,928,000 - -------------------------------------------------------------------------- Total $ 86,420,000 $ 85,056,000 $ 55,306,000 - -------------------------------------------------------------------------- Operating income (a) Industrial minerals $ 3,118,000 $ 4,622,000 $ 3,865,000 Metal products 1,868,000 3,677,000 2,202,000 Reorganization charges(b) (1,752,000) - - General unallocated corporate (168,000) 43,000 (226,000) - -------------------------------------------------------------------------- Total 3,066,000 8,342,000 5,841,000 Interest expense net (948,000) (523,000) (425,000) Other (expense) income, net(b) (455,000) 80,000 163,000 - -------------------------------------------------------------------------- Income before recovery of income taxes $ 1,663,000 $ 7,899,000 $ 5,579,000 - -------------------------------------------------------------------------- Capital expenditures (a)(c) Industrial minerals $ 11,855,000 $ 9,653,000 $ 2,050,000 Metal products 4,528,000 5,784,000 878,000 Corporate 43,000 14,000 149,000 - -------------------------------------------------------------------------- Total $ 16,426,000 $ 15,451,000 $ 3,077,000 - -------------------------------------------------------------------------- Depreciation, depletion and amortization (a) Industrial minerals $ 2,352,000 $ 1,932,000 $ 1,456,000 Metal products 1,948,000 1,451,000 828,000 Corporate 394,000 306,000 31,000 - -------------------------------------------------------------------------- Total $ 4,694,000 $ 3,689,000 $ 2,315,000 - -------------------------------------------------------------------------- Identifiable assets at year end (a) Industrial minerals $ 60,915,000 $ 52,348,000 $ 36,853,000 Metal products 37,145,000 34,133,000 22,665,000 Corporate (d) 11,316,000 10,200,000 11,346,000 - -------------------------------------------------------------------------- Total $ 109,376,000 $ 96,681,000 $ 70,864,000 - -------------------------------------------------------------------------- (a) The Corporation's businesses are located in the United States and Canada, which the Corporation considers one geographic segment. (b) See Note 10. (c) Capital expenditures for 1995 and 1994 exclude property, plant and equipment of $9,027,000 and $3,264,000, respectively, acquired in connection with the Corporation's 1995 and 1994 acquisitions (Note 2). (d) Includes cash and cash equivalents for all years presented. Selected Financial Data - -------------------------------------------------------------------------- 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------- SUMMARY OF OPERATIONS Net Sales $86,420,000 $85,056,000 $55,306,000 $47,958,000 $42,020,000 Restructuring Charges - - - 1,250,000 - Reorganization Charges 1,752,000 - - - - Operating Income 3,066,000 8,342,000 5,841,000 1,237,000 1,737,000 Other Income (Expenses) (1,403,000) (443,000) (262,000) 2,421,000 (475,000) Net Income from Continuing Operations 2,612,000 8,418,000 6,250,000 3,188,000 838,000 Net Income 2,612,000 8,418,000 6,250,000 1,852,000 949,000 - ----------------------------------------------------------------------------- FINANCIAL POSITION Working Capital $ 18,688,000 $19,709,000 $26,046,000 $ 9,288,000 $ 9,431,000 Total Assets 109,376,000 96,681,000 70,864,000 48,414,000 50,773,000 Long Term Debt (non-current portion) 17,797,000 7,485,000 5,461,000 8,735,000 9,593,000 - ----------------------------------------------------------------------------- COMMON STOCK Average Common Shares Outstanding 8,000,522 8,208,874 5,588,682 4,605,440 4,440,551 Actual Common Shares Issued and Outstanding at Year End 8,269,099 8,355,722 7,168,153 4,535,283 4,491,834 - ----------------------------------------------------------------------------- PER COMMON SHARE Net Income $ 0.33 $ 1.03 $ 1.12 $ 0.40 $ 0.21 Net Income, excluding the benefit of tax loss carryforwards 0.14 0.63 0.65 0.20 0.21 - ----------------------------------------------------------------------------- COMMON STOCK PRICES High $ 10 $ 10 7/8 $ 12 1/4 $ 8 $ 6 3/8 Low 6 7/8 8 1/4 6 1/8 4 1/2 2 7/8 Year End 7 10 8 5/8 6 3/4 5 3/8 - ----------------------------------------------------------------------------- Corporate Directory BOARD OF DIRECTORS Paul A. Carroll Chairman and Chief Executive Officer, World Wide Minerals Ltd. (1) Morton A. Cohen Chairman, President and Chief Executive Officer, Clarion Capital Corporation John M. Donovan Corporate Consultant (1) (2) Thomas B. Evans, Jr. Vice Chairman, The Jefferson Group Inc. (2) Ned Goodman Chairman, President and Chief Executive Officer, Dundee Bancorp Inc. Peter Lawson-Johnston Chairman and Trustee, Solomon R. Guggenheim Foundation; Chairman, The Harry Frank Guggenheim Foundation (1) (3) Richard L. Lister President and Chief Executive Officer of the Corporation (3) Patrick H. O'Neill Corporate Consultant (2) William J. vanden Heuvel Counsel, Strook, Strook & Lavan (3) (1) Member of the Executive Compensation/Pension Committee (2) Member of the Audit Committee (3) Member of the Executive Committee OFFICERS Peter Lawson-Johnston Chairman of the Board Richard L. Lister President and Chief Executive Officer Allen J. Palmiere Vice President, Chief Financial Officer and Assistant Secretary Peter J. Goodwin Vice President; President, Industrial Minerals Terrance J. Hogan President, Alumitech, Inc. G. Russell Lewis President, Metal Powers Patricia K. Moran Assistant Secretary-Treasurer EXECUTIVE OFFICE Zemex Corporation Canada Trust Tower BCE Place, 161 Bay Street Suite 3750, P.O. Box 703 Toronto, Ontario Canada M5J 2S1 Telephone: (416) 365-8080 Fax: (416) 365-8094 Independent Public Accountants Deloitte & Touche Toronto, Ontario, Canada Transfer Agent and Registrar Capital Stock First Union National Bank of North Carolina Shareholder Services Group 230 South Tryon Street Charlotte, N.C. 28288 Telephone: (800) 829-8432 Fax: (704) 374-6114 Form 10-K Copies of Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1996 will be available after April 1, 1997 by writing to Shareholder Relations at the Executive Office EX-27 4
5 12-MOS DEC-31-1996 DEC-31-1996 2,279,000 0 15,455,000 452,000 18,171,000 37,854,000 94,581,000 32,497,000 109,376,000 19,166,000 0 0 0 8,950,000 62,047,000 109,376,000 86,420,000 86,420,000 66,416,000 81,602,000 455,000 0 948,000 1,663,000 (949,000) 2,612,000 0 0 0 2,612,000 0.33 0.33
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