-----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, Rt3b9DrM7mD3gz+6qACE3OFbrGw/lQ6zMH6sEuidqMJNkC/+zflTM+D7ifMKiphg j2LFuWQPNbvK2l0mMebqIA== 0000950144-00-005044.txt : 20000417 0000950144-00-005044.hdr.sgml : 20000417 ACCESSION NUMBER: 0000950144-00-005044 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 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-K405 SEC ACT: SEC FILE NUMBER: 001-00228 FILM NUMBER: 601894 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-K405 1 ZEMEX CORPORATION 1 CONFORMED 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, 1999 Commission file number 1-228 ZEMEX CORPORATION (Exact name of registrant as specified in its charter) CANADA NONE (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification 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 Toronto Stock Exchange and New York Stock Exchange Common Stock, no 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. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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. [X] The aggregate market value of the registrant's voting stock (common shares, no par value) held by non-affiliates as of March 31, 2000 (based on the closing sale price of $8.375 on the New York Stock Exchange) was $40,358,510. As of March 31, 2000, 8,899,224 shares of the registrant's common shares, no par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Definitive Proxy Statement filed with the Commission pursuant to Regulation 14A with respect to the 2000 Annual Meeting of Shareholders Part III 2 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 .................................................. 8 Item 4. Submission of Matters to a Vote of Security Holders ................ 8 Item 10. Executive and Other Officers of the Registrant(A) .................. *
PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ............................................................ 9 Item 6. Selected Financial Data ............................................ 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation ............................................... 11 Item 8. Financial Statements and Supplementary Data ........................ 19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................................... 19
PART III Item 10. Directors and Executive Officers of the Registrant(B) .............. * Item 11. Executive Compensation(B) .......................................... * Item 12. Security Ownership of Certain Beneficial Owners and Management(B) .. * Item 13. Certain Relationships and Related Transactions(B) .................. *
PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ... 20
__________________________ (A) Included in Part I, Item 1, pursuant to Instruction 3 of Item 401(b) of Regulation S-K. (B) Information responsive to these Items 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 F-22 (Note 14) of this report. 3 PART I ITEM 1. BUSINESS GENERAL Zemex Corporation (the "Corporation" or "Zemex"), a company incorporated under the Canada Business Corporations Act, is a niche producer of specialty materials and products for use in a variety of industrial applications. Zemex operates through three major divisions: (i) industrial minerals, (ii) metal powders, and (iii) aluminum recycling. Its major products include feldspar, feldspathic minerals, kaolin, sand, mica, talc, ferrous and non ferrous powders, and aluminum dross derivatives. As at December 31, 1999, Zemex operated eighteen plants throughout Canada and the United States. On December 8, 1999, the Corporation announced that it had retained Banc of America Securities, LLC to review methods and opportunities to maximize value for the Corporation's shareholders. On April 11, 2000, the Corporation announced that it had completed the sale of the two subsidiaries comprising the metal powders division, Pyron Corporation and Pyron Metal Powders, Inc., to a subsidiary of Hoganas AB for gross proceeds of approximately $41 million in cash, subject to certain post-closing adjustments. There can be no assurance that any further transactions will result from these efforts to maximize shareholder value. As a result of the sale of the Pyron companies, the metal powders division has been reflected as discontinued operations in the Corporation's consolidated statements of income. Originally, Zemex was incorporated under the laws of the State of Maine in 1907 and was known as Yukon Gold Corporation. At its annual meeting of shareholders on May 20, 1938, a resolution was passed to change its name to Yukon-Pacific Mining Corporation. On November 8, 1939, Zemex reorganized, incorporated under the laws of the State of Delaware, and changed its name to Pacific Tin Consolidated Corporation. Also in 1939, Zemex listed on the New York Stock Exchange. In 1985, Zemex changed its name to its current form and reincorporated under the laws of the State of Delaware as the successor to Pacific Tin Corporation. Effective January 21, 1999 Zemex completed a reorganization pursuant to which shareholders of the predecessor Delaware corporation became shareholders of a corporation incorporated under the Canada Business Corporations Act. INDUSTRIAL MINERALS The Corporation's industrial minerals division is comprised of The Feldspar Corporation ("TFC"), Suzorite Mica Products Inc. ("Suzorite"), Suzorite Mineral Products, Inc. ("SMP"), Zemex Fabi-Benwood, LLC, Zemex Industrial Minerals, Inc. and Zemex Mica Corporation ("ZMC") (collectively, "Zemex Industrial Minerals" or "ZIM"). Each of these companies is either directly or indirectly a wholly-owned subsidiary of Zemex, except for Zemex Fabi-Benwood, LLC of which Zemex owns 60%. TFC has mining and processing facilities in Edgar, Florida; Monticello, Georgia; and Spruce Pine, North Carolina. Using traditional 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 recovered by dredging and wet separation at the Edgar property. All mined and recovered products are subjected to standard and proprietary milling and drying techniques. TFC produces numerous products at its operating plants, including sodium and potassium feldspar, silica, low iron sand, muscovite mica and kaolin clay. Feldspathic materials are key ingredients for the ceramic industry, and are incorporated into the production of ceramic floor and wall tiles, dinnerware, plumbing fixtures, glazes and electrical insulators. TFC supplies its products primarily to the glass and ceramics industries. Feldspar and certain grades of industrial sand are also used to manufacture bottles, jars, and other glass containers, fibreglass, paints and plastics, and television picture tubes. Industrial sand is used for filter, filler, beach sand, blasting and concrete applications. TFC also produces a low iron sand product for use in highly specialized glass applications. 1 4 Suzorite mines phlogopite mica in an open pit mining operation in Suzor Township, Quebec, Canada, approximately 300 kilometres north of Montreal, Quebec. The ore is mined by standard open pit methods and delivered to a siding for transportation by rail to the processing plant, which is located in Boucherville, Quebec, a suburb of Montreal. Because of its distinct thermal stability advantage over competitive materials, phlogopite mica is used to impart rigidity in technological and high temperature plastic applications. Suzorite's phlogopite mica is used as a partial or complete substitute for asbestos in fire retardation. It is also used in 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 produces talc and other minerals at Natural Bridge, New York; Murphy, North Carolina; Van Horn, Texas; and Benwood, West Virginia. SMP purchases talc for conversion and processing at its plant in Natural Bridge and processes products directed primarily to the cosmetic and pharmaceutical industries. The production facility in Van Horn processes talc mined in proximity to the plant for the coatings, plastics and ceramics industries. The Benwood operation processes a wide range of talc products from imported raw materials for ultimate use in the plastics industry. The Murphy plant purchases raw materials and produces baryte products, primarily for the oil drilling and coatings industries. In January 1998, the Corporation acquired ZMC, a muscovite mica producer in the Spruce Pine, North Carolina area close to TFC's feldspar plant where by-product muscovite mica is produced. A major capital expenditure program to retrofit and expand these facilities was completed at the end of 1999 and it is expected that the plant will be operating at close to full capacity by mid-2000. This acquisition enhances the Corporation's position as a major mica supplier. In February 1998, Industria Mineraria Fabi S.r.l. ("Fabi"), a leading European talc producer, became an investor in the Corporation's talc facility located in Benwood, West Virginia by acquiring a 40% interest in a new limited liability company, Zemex Fabi-Benwood, LLC. As part of the transaction, Fabi paid $3.4 million and is providing access to its technology and to its premium talc deposit in Australia. SMP manages the new entity pursuant to an operating agreement. Demand for Zemex's industrial minerals is related to the pace of the general economy and, particularly, the residential and commercial construction industries. The Corporation's industrial minerals sales were $50.4 million in 1999, compared to $44.8 million in 1998 and $43.4 million in 1997. This business segment reported operating income of $8.0 million in 1999, $5.8 million in 1998, and $6.5 million in 1997. During 1999, considerable efforts were directed to product development, marketing, capital expansion projects and product quality improvement. The Corporation expects these efforts will bear fruit in the future. Capital expenditures were $7.1 million in 1999 compared to $8.3 million in 1998 and $9.9 million in 1997. Major capital spending in 1999 included the retrofitting of the muscovite mica operation that was acquired in 1998. In 2000, capital expenditures are expected to be approximately $3.4 million. 2 5 METAL POWDERS The metal powder division consists of two wholly-owned subsidiaries, Pyron Corporation and Pyron Metal Powders, Inc. (together, "Pyron"). Pyron operates plants located in Niagara Falls, New York; St. Marys, Pennsylvania; and Greenback and Maryville, Tennessee. Pyron's major products include iron, steel, copper, copper alloy powders and manganese sulfide. As noted below in more detail, the metal powders division was sold on April 11, 2000. The primary applications of metal powders are in the fabrication of precision metal parts using powder metallurgy and in the friction industry. 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 when compared to other conventional metal working processes. In recent years, metal powder use in the friction industry and, particularly, 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. Sales for the metal powders group increased to $39.0 million in 1999 from $35.6 million in 1998 as a result of higher sales volumes of ferrous and non ferrous metal powders. Sales were $33.9 million in 1997. During the same period, operating income increased from $4.0 million in 1998 to $6.1 million in 1999. Operating income was $2.4 million in 1997. This division anticipates margins to further improve in the year 2000 as a result of new products, higher metal powder production, continuing cost reductions and efficiency improvement programs. Capital expenditures for the metal powders group were $1.6 million in 1999 as compared to $2.1 million in 1998 and $1.3 million in 1997. During 1999, expenditures were primarily directed towards general sustaining capital requirements. In 2000, capital expenditures are anticipated to be $1.6 million. On April 11, 2000, the Corporation announced the completion of the sale of its metal powder division for gross proceeds of approximately $41 million, subject to certain post-closing adjustments. The sale resulted in a gain of approximately $18 million. These subsidiaries have been reflected as discontinued operations on the Corporation's consolidated statement of income and prior years have been reclassified to reflect this disclosure. ALUMINUM RECYCLING Zemex's aluminum recycling group is composed of Alumitech, Inc., Alumitech of Cleveland, Inc., Alumitech of Wabash, Inc., ETS Schaefer Corporation and AWT Properties, Inc. (collectively, "Alumitech"), all of which are direct or indirect wholly-owned subsidiaries. Alumitech has three facilities: aluminum dross reprocessing plants in Cleveland, Ohio and Wabash, Indiana, and a heat containment fabrication plant in Macedonia, Ohio. Its administrative office is in Streetsboro, Ohio. Alumitech is an aluminum dross processor that has developed and patented proprietary technology to recycle secondary aluminum drosses into industrial feedstock components, eliminating the necessity for landfill. Aluminum dross is the waste by-product produced by primary and secondary aluminum smelters. Secondary dross, which has a high salt content, forms the primary feedstock for Alumitech's process. Conventional dross processors simply recover aluminum metal and some oxides and send the residue to landfill. Using its patented process, Alumitech has the ability to separate the dross into its basic components: aluminum metal, alumina and metal fines, salts and non-metallic product ("NMP") and further refine the NMP for use as a feedstock for the production of calcium aluminate, refractory ceramic fibre and other commercially acceptable products. Currently, competitive processes landfill anywhere from 40%-75% of the volume of dross received, whereas Alumitech's recycling process has the ability to virtually eliminate the need for landfill. 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 approximately 11 years. In February 1997, Alumitech, through its wholly-owned subsidiary, Engineered Thermal Systems, Inc., acquired the assets of Schaefer Brothers, Inc., a small regional manufacturer of ceramic fiber-based heat containment systems located in Medina, Ohio. The Schaefer Brothers business was merged with Engineered Thermal Systems, Inc., also a manufacturer of ceramic fiber-based heat containment systems, to form ETS Schaefer Corporation. 3 6 In June 1998, Alumitech acquired 100% of the issued and outstanding shares of Alumitech of Wabash, Inc. (previously known as S&R Enterprises, Inc.), a Wabash, Indiana based aluminum dross processor. This acquisition provides Alumitech with additional metal melting capacity and the opportunity to expand its NMP processing capability. Sales for the aluminum recycling group increased to $27.2 million in 1999 from $23.5 million in 1998 and $19.9 million in 1997. The increase from 1998 to 1999 was primarily due to increased sales from Alumitech of Wabash, Inc., which was acquired in June 1998. The 1999 numbers include a full year of operation. During the same interval, operating income decreased slightly to $2.8 million in 1999 from $2.9 million in 1998. Operating income was $1.9 million in 1997. Management anticipates improved margins in this segment in 2000 as a result of new products, continuing cost reductions, and efficiency improvement programs. Capital expenditures for the aluminum recycling group were $5.0 million in 1999 as compared to $10.1 million in 1998 and $5.3 million in 1997. The 1999 expenditures were primarily directed to the construction and commercialization of a new NMP processing facility at the Cleveland plant and the expansion of the aluminum dross recycling operation in Wabash, Indiana. In 2000, capital expenditures are anticipated to be $3.7 million. 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 powders and aluminum recycling operations, which are the segments that consume, rather than supply, 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 1999, there were minor production outages at the Corporation's operating facilities in North Carolina, New York, Ohio and Quebec due to inclement weather, but they were not significant enough to materially affect 1999 operating results. COMPETITION All of the Corporation's products are sold in highly competitive markets, which are influenced by price, performance, customer location, service, competition, material substitution and general economic conditions. The Corporation competes with other companies active in industrial minerals, metal powders and aluminum recycling. 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. Markets for industrial mineral products are sensitive not only to service, product performance, and price, but also to competitive pressures and transportation costs. 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. 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 quality and price. To some extent, competition in the metal powder industry is affected by imports of finished metal powder parts. Product prices over the last several years have been strongly influenced by available capacity. Demand for metal powders is a function of general economic conditions, particularly in the automotive market. The Corporation completed the sale of its metal powder division on April 11, 2000. 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 4 7 Corporation competes for the supply of aluminum dross with a number of other dross processors, the major factor affecting the supply of dross is the level of activity of the aluminum smelting industry. In addition, as aluminum is one of the products of aluminum dross reprocessing, commodity price fluctuations of aluminum may have an 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 $1.1 million in 1999, $0.6 million in 1998 and $1.0 million in 1997. Financial information about continuing operations by industry segment is set forth on pages F-22 to F-25 of this report. Financial information for the metal powders division, which has been disclosed as a discontinued operation, is set forth on pages F-20 to F-21. 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. Each of the Corporation's operations strives to be environmentally sensitive. Currently, the Corporation is not aware of any materially adverse environmental problems or issues. EMPLOYEES The approximate number of employees in the Corporation as of December 31, 1999 is set forth below: Industrial Minerals 324 Metal Powders 173 Aluminum Recycling 171 Corporate 7 --- Total 675 ===
Approximately 65 employees at the Corporation's metal powder operations in Niagara Falls, New York, are covered by a three-year collective bargaining agreement, which expires April 15, 2001. At the ferrous metal powder facilities in Tennessee, approximately 38 employees are covered by a four-year agreement, which expires February 28, 2002. Approximately 20 employees at Suzorite are covered by a three-year collective bargaining agreement that expires December 12, 2002. At Alumitech, approximately 28 employees are covered by two collective bargaining agreements, one agreement expiring April 30, 2001 and one agreement expiring December 31, 2001. Approximately 57 hourly employees at TFC's sodium feldspar plant in Spruce Pine, NC are covered by a wage agreement, which expires January 31, 2001. The Corporation considers its labour relations to be good. 5 8 FOREIGN OPERATIONS The Corporation's operations are located in the United States and Canada, countries whose institutions and governmental policies are generally similar. 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, metal powders and aluminum recycling operations sell their products internationally to a wide variety of customers including the ceramics, glass and powder metallurgy industries. Export sales were 8.5% of total sales for the year ended December 31, 1999. EXECUTIVE AND OTHER OFFICERS OF THE REGISTRANT
SERVED IN OFFICER POSITION AGE POSITION SINCE Peter Lawson-Johnston Chairman of the Board of Directors 73 1975 Richard L. Lister President and Chief Executive Officer 61 1993 Allen J. Palmiere Vice President, Chief Financial Officer 47 1993 and Assistant Secretary Peter J. Goodwin President, Industrial Minerals 49 1994 Terrance J. Hogan President, Aluminum Recycling 44 1995 George E. Gillespie President, Metal Powders 57 1997 Patricia K. Moran Corporate Secretary and 34 1997 Assistant Treasurer
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. Goodwin joined the Corporation in August 1994 and became President of the Corporation's talc operations in December 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. 6 9 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. Mr. Gillespie became President of the Metal Powders Group in April 1997. Prior to joining the Corporation, Mr. Gillespie was Chairman of the Operating Committee for three divisions of The Carborundum Company in 1996. Mr. Gillespie was Vice-President Refractories from 1993 to 1996 for The Carborundum Company. Ms. Moran assumed the duties of Corporate Secretary and Assistant Treasurer in May 1997. Prior to that time Ms. Moran served as Assistant Secretary-Treasurer since February 1995. Ms. Moran has been with the Corporation since 1993. 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 60% owned processing facility in Benwood, West Virginia has approximately twelve acres of land. TFC also owns 703 acres which contain, at minimum, 50 years additional ore resources for its Spruce Pine, North Carolina facility. The mineral deposits currently operated by the industrial minerals segment are estimated by the Corporation to range from 4 years to in excess of 100 years. All of the Corporation's mining properties are either owned or leased, with the leases expiring from 2000 to 2018. The metal powders group has operations in Niagara Falls, New York; St. Marys, Pennsylvania; Greenback, and Maryville, Tennessee. At its facility in Niagara Falls, Pyron Corporation utilizes approximately 79,000 square feet of office and plant floor space. 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 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. The Maryville facility is a leased facility, which utilizes approximately 23,000 square feet of office and plant floor space. On April 11, 2000, the Corporation announced the completion of the sale of the metal powders group. 7 10 The aluminum recycling group has operations in Cleveland, Ohio; Macedonia, Ohio; Streetsboro, Ohio and Wabash, Indiana. The aluminum dross processing plant in Cleveland, Ohio owns 6.1 acres and has buildings totaling 51,000 square feet. The Streetsboro, Ohio operation leases approximately 2,300 square feet of a 36,000 square foot building, which it uses primarily for office space. The recently built Macedonia facility includes 72,210 square feet of plant of which 10,000 is designated office space and is situated on 8 acres of land. The aluminum recycling operation in Wabash, Indiana sits on approximately 25 acres of land and has 73,300 square feet of plant and office space. All facilities relating to the Corporation's continuing operations are maintained in good operating condition. ITEM 3. LEGAL PROCEEDINGS In February 1999, the Corporation received notice that it was party to an action captioned Marsha Fisher-Carrington Administratrix to the Estate of Larry Carrington v. Aluminum Waste Technology, Inc. and Alumitech, Inc., et al., Court of Common Pleas, Cuyahoga County, Ohio, Case Number 373502. The action arises from an accidental fatality that occurred at Alumitech of Cleveland, Inc. in January 1997. The plaintiff sought damages on the basis that the Corporation failed to provide a safe working area. The Corporation has tentatively settled this claim and is awaiting court approval of the settlement. The cost to settle will be covered by primary and excess liability insurance. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 8 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Zemex Corporation's common shares are traded on the New York Stock Exchange and, as of February 1, 1999, on the Toronto Stock Exchange, under the symbol ZMX. The price range in which the shares have traded for the past two years is shown below: COMMON SHARES
1999 Q1 Q2 Q3 Q4 YEAR - ----- ------ ------ ------ ------ ------ HIGH $ 6.88 $ 6.50 $ 7.63 $ 9.75 $ 9.75 LOW 5.00 5.19 6.13 6.75 5.00 CLOSE 5.44 6.31 7.06 9.13 9.13 - ----- ------ ------ ------ ------ ------
1998 Q1 Q2 Q3 Q4 YEAR - ----- ------ ------ ------ ------ ------ High $ 9.75 $10.44 $ 9.19 $ 6.94 $10.44 Low 7.81 8.75 6.00 6.00 6.00 Close 9.50 8.75 6.50 6.25 6.25 - ----- ------ ------ ------ ------ ------
In the fourth quarters of 1998 and 1997, the Corporation declared a 2% stock dividend. As of December 31, 1999, there were approximately 1,830 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 shares. 9 12 ITEM 6. SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995 ----- ---- ---- ---- ---- SUMMARY OF OPERATIONS Net sales $ 77,530,000 $ 68,338,000 $ 63,296,000 $ 54,695,000 $50,664,000 Reorganization and restructuring charges - - - 1,216,000 - Operating income 7,015,000 6,202,000 5,994,000 690,000 6,566,000 Other income (expense) (4,696,000) (3,022,000) (132,000) (1,313,000) (195,000) Income from continuing operations 1,847,000 2,652,000 4,118,000 918,000 7,477,000 Income from discontinued operations 3,934,000 2,713,000 1,675,000 1,694,000 941,000 Net income 5,781,000 5,365,000 5,793,000 2,612,000 8,418,000 FINANCIAL POSITION Working capital $ 27,613,000 $ 14,810,000 $ 18,975,000 $ 18,688,000 $19,709,000 Total assets 159,528,000 148,866,000 118,774,000 109,376,000 96,681,000 Long term debt (non-current portion) 50,502,000 39,354,000 20,527,000 17,797,000 7,485,000 COMMON SHARES Average common shares outstanding 8,425,561 8,286,178 8,267,630 8,272,904 8,342,276 Actual common shares issued and outstanding at year end 8,873,453 8,707,796 8,463,491 8,269,099 8,355,722 PER COMMON SHARE Basic-Continuing operations $ 0.22 $ 0.32 $ 0.50 $ 0.11 $ 0.90 Basic-Discontinued operations $ 0.47 $ 0.33 $ 0.20 $ 0.21 $ 0.11 Basic earnings per share $ 0.69 $ 0.65 $ 0.70 $ 0.32 $ 1.01 Fully diluted-Continuing operations $ 0.20 $ 0.30 $ 0.46 $ 0.11 $ 0.82 Fully diluted-Discontinued operations $ 0.43 $ 0.30 $ 0.18 $ 0.20 $ 0.11 Fully diluted earnings per share $ 0.63 $ 0.60 $ 0.64 $ 0.31 $ 0.93 U.S. GAAP Income from continuing operations Income from discontinued $ 462,000 $ 1,595,000 $ 4,112,000 $ 918,000 $ 7,477,000 operations 3,934,000 2,713,000 1,675,000 1,694,000 941,000 Net income 4,396,000 4,308,000 5,787,000 2,612,000 8,418,000 Basic earnings per share Continuing operations $ 0.05 $ 0.19 $ 0.50 $ 0.11 $ 0.90 Discontinued operations $ 0.47 $ 0.33 $ 0.20 $ 0.21 $ 0.11 $ 0.52 $ 0.52 $ 0.70 $ 0.32 $ 1.01 Diluted earnings per share Continuing operations $ 0.05 $ 0.19 $ 0.49 $ 0.11 $ 0.86 Discontinued operations $ 0.46 $ 0.32 $ 0.20 $ 0.20 $ 0.11 $ 0.51 $ 0.51 $ 0.69 $ 0.31 $ 0.97 COMMON STOCK PRICES High $ 9.75 $ 10.44 $ 10.94 $ 10.00 $ 10.88 Low 5.00 6.00 6.75 6.88 8.25 Year end 9.13 6.25 8.75 7.00 10.00
10 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following is a discussion and analysis of the results of operations and financial condition of the Corporation for the years ended December 31, 1999, 1998 and 1997, 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 found on pages F-1 to F-31 of this Annual Report on Form 10-K. OVERVIEW The Corporation is a diversified producer of specialty materials and products for use in a variety of industrial applications. The Corporation has operated in three principal business segments: (i) industrial minerals, which includes The Feldspar Corporation, Suzorite Mica Products Inc., Suzorite Mineral Products, Inc., Zemex Fabi-Benwood, LLC, Zemex Industrial Minerals, Inc. and Zemex Mica Corporation; (ii) metal powders, which includes Pyron Corporation and Pyron Metal Powders, Inc. (see note 1 below); and (iii) aluminum recycling, which includes Alumitech, Inc., Alumitech of Cleveland, Inc., Alumitech of Wabash, Inc., ETS Schaefer Corporation and AWT Properties, Inc. The financial performance of the Corporation from continuing operations was significantly better in 1999 than in 1998. Net sales were up 13.5% but, more importantly, the gross margin improved from 31.5% in 1998 to 34.5% in 1999. 1. On April 11, 2000, the Corporation announced that its wholly-owned subsidiary, Zemex U.S. Corporation, had completed the sale of its 100% stock ownership interest in Pyron Corporation and Pyron Metal Powders, Inc. to North American Hoganas Holdings, Inc., a subsidiary of Hoganas AB, for gross proceeds of approximately $41 million in cash, subject to certain post-closing adjustments. The book value of the metal powder group as at December 31, 1999 was $23 million. Because of the sale, the two companies that make up the metal powders group have been disclosed as discontinued operations and prior years have been reclassified accordingly. 2. In January 1998, the Corporation, through its wholly-owned subsidiary, Zemex Industrial Minerals, Inc., acquired a muscovite mica producer for approximately $2.2 million, which included the assumption of debt. The two facilities acquired in the purchase are located in Bakersville, North Carolina and are operating under the name Zemex Mica Corporation. The acquisition was financed through borrowings on the Corporation's credit facility. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated first to the assets purchased and liabilities assumed, and the excess purchase price was allocated to intangible assets. The net purchase price was allocated as follows: Tangible assets acquired $ 614,000 Liabilities assumed (1,542,000) Intangible assets acquired 2,934,000 ----------- Cash consideration $ 2,006,000 ===========
3. On February 24, 1998, Industria Mineraria Fabi S.r.l. ("Fabi") became a partner in the Corporation's talc facility located in Benwood, West Virginia by acquiring a 40% interest in a new limited liability company, Zemex Fabi-Benwood, LLC. As part of the transaction, Fabi paid $3.4 million and is providing access to its technology. Suzorite Mineral Products, Inc., a wholly-owned subsidiary of the 11 14 Corporation, manages the new entity pursuant to an operating agreement. There was no gain or loss recognized by the Corporation on the transaction. 4. Effective June 1, 1998, Alumitech, Inc. ("Alumitech"), a wholly-owned subsidiary of the Corporation, acquired all of the issued and outstanding shares of S&R Enterprises, Inc. ("S&R"), an aluminum dross processor located in Wabash, Indiana, for approximately $7.7 million, which included the assumption of debt. At the beginning of 1999, this entity was renamed Alumitech of Wabash, Inc. The Corporation used its credit facility to finance the acquisition. The acquisition of S&R was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated first to the assets purchased and liabilities assumed, and the excess purchase price was allocated to intangible assets. The net purchase price was allocated as follows: Tangible assets acquired $ 4,845,000 Liabilities assumed (2,849,000) Intangible assets acquired 3,561,000 ----------- Cash consideration $ 5,557,000 ===========
5. During the second quarter of 1998, the Corporation initiated an attempted acquisition of control of Inmet Mining Corporation ("Inmet"). Approximately 4.1 million shares of Inmet were acquired and financed by the Corporation's credit facilities, as amended (see Liquidity and Capital Resources). Subsequently, the acquisition was abandoned and the Corporation sold approximately 2.6 million common shares of Inmet for proceeds of approximately C$14.9 million. In 1998 the Corporation recorded a foreign exchange loss of $0.7 million in other income (expense) as a result of a decline in the value of its Canadian dollar investment in Inmet. At December 31, 1999, the Corporation marked its investment to market and recorded a loss of $0.5 million. In February 2000 the residual position was sold at book value. 6. In August 1997, the Corporation entered into a purchase and sale agreement with respect to Alumitech's fiber manufacturing operation located in Streetsboro, Ohio. Under the agreement, the fiber line was sold to a new corporation in which Alumitech, Inc. retained a nominal non-voting equity participation. Alumitech and the purchaser entered into a joint research and development agreement in conjunction with the purchase and sale agreement. The one-time gain, when netted against certain other non-recurring items, resulted in other income of $1.8 million. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 NET SALES
1999 1998 Change % Change ----------- ------------ ----------- ------- Industrial minerals $50,373,000 $44,835,000 $5,538,000 12.4% Aluminum recycling 27,157,000 23,503,000 3,654,000 15.6% ----------- ------------ ----------- ------- $77,530,000 $68,338,000 $9,192,000 13.5% =========== ============ =========== =======
12 15 The Corporation's net sales from continuing operations for 1999 were $77.5 million, an increase of $9.2 million, or 13.5%, from 1998. Sales in the industrial minerals segment and the aluminum recycling group increased $5.5 million and $3.7 million, respectively. The industrial minerals segment recorded a 12.4% increase in sales from $44.8 million in 1998 to $50.4 million in 1999. The increase was primarily due to a $3.3 million increase from the mica group generated by an increase in sales volume of 55.6%. Approximately two-thirds of this increase came from the recently retrofitted muscovite mica operations in Bakersville, North Carolina. Talc sales rose by 12.8% during 1999 and this trend is expected to continue as the Corporation pursues greater market share. Sales of feldspar increased by 2.9%. Continued growth in mica and talc sales volume is anticipated in 2000 while new products and the utilization of byproduct material should enhance profitability from the feldspar operations. Net sales of the aluminum recycling group increased 15.6%, or $3.6 million, from $23.5 million in 1998 to $27.2 million in 1999. Of the increase, approximately $3.9 million was due to increased sales from Alumitech of Wabash, Inc. This operation was acquired in June 1998 and the 1999 numbers include a full year of operation. In 2000, sales growth in heat containment systems, calcium aluminate and aluminum recycling is anticipated to increase. COST OF GOODS SOLD Costs of goods sold were $46.8 million in 1998 compared to $50.8 million in 1999. The corresponding gross margins were 31.5% for 1998 and 34.5% for 1999. The largest component of the increase came from the industrial minerals group where the gross margin increased from 32.1% to 36.1% as a result of the utilization of a specific feldspar quarry. It is anticipated that the gross margin in the year 2000 will be closer to that of 1998 as production shifts to another quarry. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("SG&A") expenses increased 24.1% from $9.9 million in 1998 to $12.3 million in 1999. As a percentage of sales, SG&A expense was 15.9% in 1999 as compared to 14.6% in 1998. The increase was partially due to the relocation of the industrial minerals group's administration function from Spruce Pine, North Carolina to Atlanta, Georgia, increased SG&A for the new mica operation, higher staffing levels in the management of the aluminum recycling group and a significant increase in the cost of the defined benefit pension plans. During the year the Corporation recognized pension expense of $0.7 million while the surplus, defined as the excess of the fair value of the plan assets over the benefit obligation, contained within the plans increased by $2.1 million. DEPRECIATION, DEPLETION AND AMORTIZATION Depreciation, depletion and amortization increased by $2.0 million, or 38.3%, from $5.4 million in 1998 to $7.4 million in 1999. This increase was driven by the capital expenditures and acquisitions made by the Corporation over the past several years. Prospectively, depreciation will continue to increase as current capital programs are placed into service but the rate of increase is expected to decline. OPERATING INCOME For the reasons discussed above, operating income increased from $6.2 million for fiscal 1998 to $7.0 million in fiscal 1999, representing a 13.1% increase. 13 16 INTEREST INCOME Interest income for the year ended December 31, 1999 was $0.2 million, a slight decrease from the same period in 1998. INTEREST EXPENSE Interest expense for the year ended December 31, 1999 was $4.3 million, an increase of $1.9 million over 1998. Total indebtedness increased by $25.9 million in 1998 and by a further $5.1 million in 1999. The sale of the metal powders group in April 2000 will result in a significant reduction in the Corporation's debt position and a corresponding reduction in interest expense. OTHER INCOME (EXPENSE) In 1999, the Corporation recognized other expense of $0.5 million compared to $0.8 million in 1998. PROVISION FOR INCOME TAXES The provision for income taxes for each of the 1999 and 1998 fiscal years was $0.6 million. DISCONTINUED OPERATIONS Income from discontinued operations increased from $2.7 million for fiscal 1998 to $3.9 million in fiscal 1999. As previously discussed, in April 2000 the Corporation sold its interest in Pyron Corporation and Pyron Metal Powders, Inc. for approximate gross proceeds of $41 million in cash, subject to certain post-closing adjustments. The book value of the metal powders group as at December 31, 1999 was $23 million. While the metal powders group has been a significant contributor of late to the results of the Corporation, the opportunity to sell it at a gain of approximately $18 million enables the Corporation to crystallize some of the value that it has created for its shareholders as part of an ongoing effort to maximize shareholder value. NET INCOME AND EARNINGS PER SHARE FROM CONTINUING OPERATIONS As a result of the factors discussed above and given that all interest expense is reflected at the corporate level, net income from continuing operations for the year ended December 31, 1999 was $1.8 million, a decrease of $0.8 million from 1998.
1999 1998 ---------- ---------- Net income from continuing operations $1,847,000 $2,652,000 Earnings per share - basic $0.22 $0.32 - fully diluted $0.20 $0.30 ---------- ----------
14 17 YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 NET SALES
1998 1997 Change %Change ------------ ------------ ----------- ------- Industrial minerals $44,835,000 $43,396,000 $1,439,000 3.3% Aluminum recycling 23,503,000 19,900,000 3,603,000 18.1% ------------ ------------ ----------- ------ $68,338,000 $63,296,000 $5,042,000 8.0% ============ ============ =========== ======
The Corporation's net sales for 1998 were $68.3 million, an increase of $5.0 million, or 8.0%, from 1997. Sales in the industrial minerals segment and the aluminum recycling group increased $1.4 million and $3.6 million, respectively. The industrial minerals segment recorded a 3.3% increase in sales from $43.4 million in 1997 to $44.8 million in 1998. Of the increase, $0.7 million was primarily due to a favorable feldspar product mix, resulting in slightly higher margins, and $0.7 million was attributable to an increase in talc sales volumes. Net sales from the aluminum recycling group increased 18.1%, or $3.6 million, from $19.9 million in 1997 to $23.5 million in 1998. This increase was due to the acquisition of Alumitech of Wabash, Inc. in June 1998. If the effect of the acquisition is removed, aluminum recycling revenues were static year over year. In the face of a 13.5% decline in aluminum prices realized, the constant revenue was achieved by an offsetting increase in volume sold. COST OF GOODS SOLD Costs of goods sold were $46.8 million in 1998 compared to $43.2 million in 1997. The corresponding gross margins were 31.5% for 1998 and 31.7% for 1997. A 2.1% decrease in the gross margin from the industrial mineral group was off-set by a 3.9% increase from the aluminum recycling group. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("SG&A") expenses increased 6.9% from $9.3 million in 1997 to $9.9 million in 1998. As a percentage of sales, SG&A expense was 14.6% in 1998 as compared to 14.7% in 1997. In dollar terms, the increase was due to increased staffing in the industrial minerals group, expenses associated with investigating potential acquisitions, and bonuses paid pursuant to the Corporation's management incentive program. DEPRECIATION, DEPLETION AND AMORTIZATION Depreciation, depletion and amortization increased by $0.6 million, or 12.4%, from $4.8 million in 1997 to $5.4 million in 1998. This increase was driven by the capital expenditures made by the Corporation over the past several years. Prospectively, depreciation will continue to increase as current capital programs are placed into service. 15 18 OPERATING INCOME Operating income increased from $6.0 million for fiscal 1997 to $6.2 million in fiscal 1998, representing a 3.5% increase. INTEREST INCOME Interest income increased from $0.1 million for fiscal 1997 to $0.2 million in fiscal 1998. INTEREST EXPENSE Interest expense for the year ended December 31, 1998 was $2.4 million, an increase of $0.5 million over 1997. During 1998, the Corporation's debt increased by $25.9 million due to capital programs and the residual investment in Inmet. OTHER, NET In 1998, the Corporation recognized other expense of $0.8 million. In 1997 the Corporation realized a one-time gain of $1.8 million on the disposition of certain assets utilized to manufacture refractory ceramic fiber. This gain was recorded as other income. PROVISION FOR INCOME TAXES The provision for income taxes for the fiscal year 1998 was $0.6 million as compared to $1.7 million in 1997. DISCONTINUED OPERATIONS Income from discontinued operations increased from $1.7 million for fiscal 1997 to $2.7 million for fiscal 1998. NET INCOME AND EARNINGS PER SHARE FROM CONTINUING OPERATIONS As a result of the factors discussed above, net income from continuing operations for the year ended December 31, 1998 was $2.7 million, a decrease of $1.5 million from 1997.
1998 1997 ---------- ---------- Net income from continuing operations $2,652,000 $4,118,000 Earnings per share - basic $0.32 $0.50 - fully diluted $0.30 $0.46 ---------- ----------
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, 1999, the Corporation funded all capital expenditures, acquisitions and debt reduction from a combination of additional debt and cash flow from operations. The net proceeds of the sale of the metal powders group in April 2000 will be applied against the 16 19 Corporation's outstanding debt. Should it be necessary, the Corporation will have increased borrowing ability to fund capital and acquisitions going forward. CASH FLOW FROM OPERATIONS The Corporation had $27.6 million of working capital at December 31, 1999, compared to $14.8 million at December 31, 1998. The issuance of the senior secured notes discussed below resulted in a reclassification of a portion of the debt formerly classed as current to long-term, which resulted in an increase in working capital of $6.0 million. During 1999, the Corporation generated cash flow from operations of $8.5 million as compared to $4.6 million for 1998. In 1999, non-cash working capital items used $5.5 million of the cash otherwise generated from operations consistent with the $5.5 million used in 1998. FINANCING AGREEMENTS In March 1997, the Corporation amended its credit facility to increase the total availability to $50,224,000. The credit facility was further subdivided into four facilities: (i) a $30,000,000 revolving credit 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. Specific assets and a floating charge secured these facilities. The facilities bore 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 certain financial tests. In May 1999, the Corporation replaced its credit facility. It completed a private placement of two series of notes: $35,000,000 in 7.54% Senior Secured Notes, Series A, due May 15, 2009 and $15,000,000 in 7.76% Senior Secured Notes, Series B, due May 15, 2014. The proceeds of the Senior Secured Notes were used to retire the Corporation's existing bank debt and its Industrial Development Revenue Bond. In conjunction with the Secured Notes, the Corporation entered into a credit agreement with a bank that provided for a senior secured revolving credit facility in the amount of $20,000,000 (the "Credit Facility"). The noteholders and the bank were secured pari-passu by a pledge of shares of the Corporation's subsidiaries and a floating charge on the assets of the subsidiaries. The revolving credit facility bears interest at LIBOR plus 1.625% to LIBOR plus 1.875% in the case of LIBOR loans or at base rate plus 0.625% to 0.875% in the case of prime and base rate loans. The actual margin is determined by certain financial ratios. The term of the revolver, which was originally 364 days, was extended to May 18, 2001 subsequent to December 31, 1999. In March 2000, in connection with the sale of the metal powders group, the Corporation redeemed the Senior Secured Notes by drawing down on a $50 million bridge facility (the "Bridge Facility") provided by the bank that provided the Credit Facility. The Bridge Facility bears interest at the same rate as the Credit Facility, is secured by the same security package and matures October 31, 2000. The Bridge Facility is being repaid in part from the net proceeds of the sale of the metal powders group. The make-whole fee associated with the redemption of the Senior Secured Notes amounted to $1.1 million and will be expensed in the first quarter of 2000. 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. On September 1, 1999, the Corporation repaid the outstanding principal amount, purchased the facility and retired the bonds. 17 20 CAPITAL EXPENDITURES The Corporation's primary capital activities in the past involved the acquisition and development of industrial mineral and metal processing properties and facilities, and capital investments to expand its facilities, increase operating efficiencies, and meet environmental, health and safety standards at its existing operations. During 1999, capital expenditures from continuing and discontinued operations were $13.8 million compared to $20.7 million and $16.6 million for the years ended December 31, 1998 and 1997, respectively. The capital expenditures were funded by cash flow from operations and indebtedness. The Corporation has completed several major capital programs, including retrofitting the aluminum dross plant in Cleveland and the muscovite mica operation in Bakersville, North Carolina. In aggregate, 2000 capital expenditures from continuing operations are anticipated to be approximately $7.1 million. The Corporation plans on funding these expenditures from cash flow from operations. 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 2000. SEASONALITY AND INFLATION Although the Corporation's results from continuing extraction and processing operations are cyclical due to fluctuations in industrial minerals and aluminum recycling demands, sales of the Corporation's products are generally not seasonal. Inflation in recent years has not adversely affected the Corporation's results of operations and is not expected to adversely affect the Corporation in the future unless it grows substantially and the markets for industrial minerals and aluminum recycling suffer from a negative impact on the economy in general. YEAR 2000 The Corporation operates in basic industries that do not rely heavily on computerized systems. Although the change in date has occurred and the Corporation has suffered no consequences, it is not possible to conclude that all aspects of the year 2000 issue affecting the Corporation have been fully resolved. MARKET RISK Market risk represents the risk of loss that may impact the consolidated financial statements of the Corporation due to adverse changes in financial market prices and rates. The Corporation's market risk is primarily the result of fluctuations in interest rates and aluminum prices. Management monitors the movements in interest rates and performs sensitivity analysis on aluminum prices and, on that basis, decides on the appropriate measures to take. Prices and interest rates are such that no measures need be taken at this time. The Corporation does not hold or issue financial instruments for trading purposes. A discussion of the Corporation's financial instruments is included in the financial instruments note to the Consolidated Financial Statements. 18 21 CAPITAL STOCK Zemex Corporation's common shares are traded on the New York Stock Exchange and, as of February 1, 1999, on the Toronto Stock Exchange, under the symbol ZMX. The price range in which the shares have traded for the past two years is shown below: COMMON SHARES
1999 Q1 Q2 Q3 Q4 YEAR - ---- ----- ------ ----- ----- ------ HIGH $6.88 $ 6.50 $7.63 $9.75 $ 9.75 LOW 5.00 5.19 6.13 6.75 5.00 CLOSE 5.44 6.31 7.06 9.13 9.13 - ----- ----- ------ ----- ----- ------
1998 Q1 Q2 Q3 Q4 Year - ---- ----- ------ ----- ----- ------ High $9.75 $10.44 $9.19 $6.94 $10.44 Low 7.81 8.75 6.00 6.00 6.00 Close 9.50 8.75 6.50 6.25 6.25 - ----- ----- ------ ----- ----- ------
In the fourth quarters of 1998 and 1997, the Corporation declared a 2% stock dividend. As of December 31, 1999, there were approximately 1,830 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 shares. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements responsive to this Item are set forth on pages F-1 through F-31 of this Annual Report on Form 10-K. The Supplementary Schedule required by this Item is set forth on page S-1 of this Annual Report on Form 10-K. See Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information about the directors of the Corporation required by this item is located in the Corporation's Proxy Statement for the 2000 Annual Meeting to be filed within 120 days after the end of the fiscal year.* _______________________ * References in this Annual Report on Form 10-K to material contained in the Corporation's Proxy Statement for the 2000 Annual Meeting to be filed within 120 days after the fiscal year incorporate such material into this report by reference. 19 22 Information about the Executive Officers of the Corporation required by this item appears in Part I, Item 1, of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this item appears in the Corporation's Proxy Statement for the 2000 Annual Meeting to be filed within 120 days after the end of the fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item appears in the Corporation's Proxy Statement for the 2000 Annual Meeting to be filed within 120 days after the end of the fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item appears in the Corporation's Proxy Statement for the 2000 Annual Meeting to be filed within 120 days after the end of the fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 1. Financial statements and independent auditors' report filed as part of this report: (a) Consolidated Balance Sheets at December 31, 1999 and 1998, which information is found on page F-4 of this report; (b) Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1999, which information is found on page F-5 of this report; (c) Consolidated Statements of Income for the three years ended December 31, 1999, which information is found on page F-3 of this report; (d) Consolidated Statements of Cash Flows for the three years ended December 31, 1999, which information is found on page F-6 of this report; (e) Notes to the Consolidated Financial Statements, which information is found on pages F-7 to F-31 of this report; and 20 23 (f) Independent Auditors' Report, which is found on page F-1 of this report. 2. Financial statement schedules and independent auditors' report filed as part of this report:
SCHEDULE NUMBER DESCRIPTION Schedule II 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) Articles of Continuance (Incorporated by reference from Exhibit 3.1 of the Corporation's Registration Statement on Form S-4, Registration No. 333-65307, which was declared effective on December 10, 1998) (3)(b) Articles of Amendment to the Articles of Continuance (Incorporated by reference from Exhibit 3.2 of the Corporation's Registration Statement on Form S-4, Registration No. 333-65307, which was declared effective on December 10, 1998) (3)(c) By-Law No. 1 (Incorporated by reference from Exhibit 3.3 of the Corporation's Registration Statement on Form S-4, Registration No. 333-65307, which was declared effective on December 10, 1998) (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) 21 24 (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) 22 25 (4)(o) 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)(p) 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 (4)(q) Credit Agreement dated as of May 21, 1999 among Zemex Corporation and Zemex U.S. Corporation, Bank of America Canada, Bank of America National Trust and Savings Association et al. (4)(r) Amendment No. 1 dated September 24, 1999 to the Credit Agreement dated as of May 21, 1999 among Zemex Corporation and Zemex U.S. Corporation, Bank of America Canada, Bank of America National Trust and Savings Association et al. (4)(s) Amendment No. 2 dated March 7, 2000 to the Credit Agreement dated as of May 21, 1999 among Zemex Corporation and Zemex U.S. Corporation, Bank of America Canada, Bank of America National Trust and Savings Association et al. (4)(t) Zemex U.S. Corporation, Note Purchase Agreement Dated as of May 21, 1999 (Incorporated by reference from Exhibit (4)(r) of the Corporations Form 10-Q filed on August 9, 1999) *(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) 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)(e) 1995 Stock Option Plan (Incorporated by reference from Exhibit B of the Corporation's 1995 Definitive Proxy Statement, filed on March 29, 1995) (10)(f) 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) 23 26 (10)(g) Employee Stock Purchase Plan (Incorporated by reference as Exhibit A to the Corporation's Proxy Statement filed May 6, 1994) (10)(h) 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) (10)(i) 1999 Stock Option Plan (Incorporated by reference from Exhibit A of the Corporation's 1999 Definitive Proxy Statement, filed on March 25, 1999) (10)(j) 1999 Employee Stock Purchase Plan (Incorporated by reference as Exhibit B to the Corporation's Proxy Statement filed March 25, 1999) (10)(k) Stock Purchase Agreement by and between North American Hoganas Holdings, Inc. and Zemex U.S. Corporation, Pyron Corporation and Pyron Metal Powders, Inc. dated as of March 6, 2000 (Incorporated by reference from the Corporation's Current Report on Form 8-K dated March 8, 2000 and filed on March 9, 2000) *(10)(1) Agreement between Zemex Corporation and Richard L. Lister dated as of the 1st day of October, 1999. *(10)(m) Agreement between Zemex Corporation and Allen J. Palmiere dated as of the 1st day of October, 1999. *(10)(n) Agreement between Zemex Corporation and George E. Gillespie dated as of the 1st day of October, 1999. *(10)(o) Agreement between Zemex Corporation and Peter J. Goodwin dated as of the 1st day of October, 1999. *(10)(p) Agreement between Zemex Corporation and Terrance J. Hogan dated as of the 1st day of October, 1999. (21) Subsidiaries of the Registrant (27) Financial Data Schedule * Management contract or compensatory plan or arrangement. 24 27 INDEPENDENT AUDITORS' REPORT RE: ZEMEX CORPORATION -- ANNUAL REPORT ON FORM 10-K We have examined the supporting schedule on page S-1 of this Annual Report of Form 10-K for the year ended December 31, 1999. In our opinion, this schedule presents fairly, when read in conjunction with the related consolidated financial statements, the financial data required to be set forth therein. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP Chartered Accountants Toronto, Canada April 12, 2000 25 28 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: April 12, 2000 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 O. LAWSON-JOHNSTON Chairman of the Board April 12, 2000 - ---------------------------- and Director Peter O. Lawson-Johnston /s/ RICHARD L. LISTER President and Chief Executive April 12, 2000 - ---------------------------- Officer and Director Richard L. Lister (Principal Executive Officer) /s/ PAUL A. CARROLL Director April 12, 2000 - ---------------------------- Paul A. Carroll /s/ MORTON A. COHEN Director April 12, 2000 - ---------------------------- Morton A. Cohen /s/ JOHN M. DONOVAN Director April 12, 2000 - ---------------------------- John M. Donovan /s/ R. PETER GILLIN Director April 12, 2000 - ---------------------------- R. Peter Gillin
26 29
SIGNATURE TITLE DATE /s/ GARTH A.C. MACRAE Director April 12, 2000 - ---------------------------- Garth A.C. MacRae /s/ WILLIAM J. VANDEN HEUVEL Director April 12, 2000 - ---------------------------- William J. vanden Heuvel /s/ ALLEN J. PALMIERE Vice President, Chief Financial April 12, 2000 - ---------------------------- Officer and Assistant Secretary Allen J. Palmiere (Principal Financial and Accounting Officer)
27 30 ZEMEX CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEAR ENDED DECEMBER 31,
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F - -------- -------- -------- -------- -------- -------- ADDITIONS BALANCE AT CHARGED TO OTHER BALANCE BEGINNING COSTS AND ADDITIONS AT END DESCRIPTION OF PERIOD EXPENSES (DEDUCTIONS) DEDUCTIONS OF PERIOD - ----------- ------------ ------------ ------------ ---------- --------- 1999 RESERVES - OTHER $1,006,000 $138,000 -- $ 559,000 $ 585,000 ALLOWANCE FOR DOUBTFUL ACCOUNTS 329,000 42,000 $ 3,000 25,000 349,000 ============ ============ =========== ========== ========== 1998 RESERVES - OTHER $1,014,000 $ 64,000 $ (72,000) -- $1,006,000 ALLOWANCE FOR DOUBTFUL ACCOUNTS 328,000 5,000 -- $ 4,000 329,000 ============ ============ =========== ========== ========== 1997 RESERVES - OTHER $ 599,000 $165,000 $ 250,000 -- $1,014,000 ALLOWANCE FOR DOUBTFUL ACCOUNTS 452,000 84,000 (76,000) $ 132,000 328,000 ============ ============ =========== ========== ==========
S-1 31 AUDITORS' REPORT To the Shareholders of Zemex Corporation We have audited the consolidated balance sheets of Zemex Corporation as at December 31, 1999 and 1998 and the consolidated statements of income, shareholders' equity and cash flows for each of the years in the three year period ended December 31, 1999. 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 auditing standards generally accepted in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance 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. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Zemex Corporation as at December 31, 1999 and 1998 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 1999 in accordance with accounting principles generally accepted in Canada. Deloitte & Touche LLP Chartered Accountants Toronto, Ontario March 8, 2000 F-1 32 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 Canada, 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 LLP, 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 Chief Financial Officer Executive Officer AUDIT COMMITTEE REPORT The audit committee of the board of directors is currently composed of three independent directors, John M. Donovan, Garth A.C. MacRae and William J. vanden Heuvel. The Committee held two meetings during 1999. 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 LLP, to review accounting, auditing and financial reporting matters. The committee met with Deloitte & Touche LLP representatives without management present. John M. Donovan Chairman, Audit Committee F-2 33 CONSOLIDATED STATEMENTS OF INCOME (All amounts are in U.S. dollars)
Years ended December 31 1999 1998 1997 - ----------------------- ---- ---- ---- NET SALES $77,530,000 $68,338,000 $63,296,000 ----------- ----------- ----------- COSTS AND EXPENSES Cost of goods sold 50,776,000 46,842,000 43,234,000 Selling, general and administrative 12,337,000 9,941,000 9,304,000 Depreciation, depletion and amortization 7,402,000 5,353,000 4,764,000 ----------- ----------- ----------- 70,515,000 62,136,000 57,302,000 ----------- ----------- ----------- OPERATING INCOME 7,015,000 6,202,000 5,994,000 ----------- ----------- ----------- OTHER INCOME (EXPENSE) Interest income 151,000 202,000 100,000 Interest expense (note 4) (4,325,000) (2,384,000) (1,848,000) Other, net (note 2) (522,000) (840,000) 1,616,000 ----------- ----------- ----------- (4,696,000) (3,022,000) (132,000) ----------- ----------- ----------- INCOME BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST 2,319,000 3,180,000 5,862,000 Provision for income taxes (note 6) 577,000 569,000 1,744,000 Non-controlling interest in loss of subsidiary (note 2) (105,000) (41,000) -- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS 1,847,000 2,652,000 4,118,000 INCOME FROM DISCONTINUED OPERATIONS (note 10) 3,934,000 2,713,000 1,675,000 ----------- ----------- ----------- NET INCOME $ 5,781,000 $ 5,365,000 $ 5,793,000 ----------- ----------- ----------- NET INCOME PER SHARE BASIC Continuing operations $0.22 $0.32 $0.50 Discontinued operations $0.47 $0.33 $0.20 ----------- ----------- ----------- $0.69 $0.65 $0.70 ----------- ----------- ----------- FULLY DILUTED Continuing operations $0.20 $0.30 $0.46 Discontinued operations $0.43 $0.30 $0.18 ----------- ----------- ----------- $0.63 $0.60 $0.64 ----------- ----------- ----------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES O/S Basic 8,425,561 8,286,178 8,267,630 Fully diluted 9,827,201 9,757,727 9,503,426
See notes to the consolidated financial statements F-3 34 CONSOLIDATED BALANCE SHEETS (note 10) (All amounts are in U.S. dollars)
December 31 1999 1998 - ----------- ---- ---- ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,592,000 $ 1,062,000 Accounts receivable (less allowance for doubtful accounts of $349,000 at December 31, 1999 and $329,000 at December 31, 1998) (note 14) 19,829,000 17,642,000 Inventories (note 3) 19,482,000 18,036,000 Prepaid expenses and other current assets 2,457,000 946,000 Future income tax benefits (note 6) 677,000 657,000 ------------ ------------ 44,037,000 38,343,000 PROPERTY, PLANT AND EQUIPMENT (notes 4 and 8) 96,779,000 90,058,000 OTHER ASSETS (note 5) 18,228,000 20,374,000 FUTURE INCOME TAX BENEFITS (NON-CURRENT) (note 6) 484,000 91,000 ------------- ------------ $159,528,000 $148,866,000 -------------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank indebtedness (note 8) $ 5,500,000 $ 10,000,000 Accounts payable 5,959,000 6,324,000 Accrued liabilities 3,398,000 4,433,000 Accrued income taxes 950,000 644,000 Current portion of long term debt (note 8) 617,000 2,132,000 16,424,000 23,533,000 LONG TERM DEBT (note 8) 50,502,000 39,354,000 OTHER NON-CURRENT LIABILITIES 585,000 1,006,000 ------------- ------------ 67,511,000 63,893,000 ------------- ------------ NON-CONTROLLING INTEREST IN SUBSIDIARY COMPANY 2,970,000 3,075,000 ------------- ------------ SHAREHOLDERS' EQUITY Common stock (note 9) 58,560,000 8,708,000 Paid-in capital -- 48,876,000 Retained earnings 33,920,000 28,233,000 Note receivable from shareholder (note 9) (1,749,000) (1,749,000) Cumulative translation adjustment (1,684,000) (2,170,000) ------------- ------------ 89,047,000 81,898,000 ------------- ------------ $ 159,528,000 $148,866,000 -------------- ------------
See notes to the consolidated financial statements Approved by the Board of Directors /s/ John M. Donovan /s/ Garth A.C. MacRae ------------------- --------------------- Director Director
F-4 35 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (All amounts are in U.S. dollars)
Common Paid-In Retained Stock Capital Earnings ------ ------- -------- Balance at December 31, 1996 $ 8,950,000 $51,304,000 $20,040,000 Stock issued under ESPP(a) (b) 75,000 528,000 -- Stock dividend(a) 165,000 1,428,000 (1,598,000) Stock options exercised(a) 14,000 205,000 -- Stock purchased for treasury(a) -- -- -- Stock options repurchased -- -- (167,000) Net income for the year -- -- 5,793,000 Translation adjustment -- -- -- ----------- ----------- ----------- Balance at December 31, 1997 9,204,000 53,465,000 24,068,000 Stock issued under ESPP (a) (b) 112,000 776,000 -- Stock dividend(a) 170,000 1,008,000 (1,182,000) Stock options exercised(a) 27,000 186,000 -- Stock purchased for treasury(a) -- -- -- Stock options repurchased -- -- (18,000) Cancellation of treasury stock (805,000) (6,559,000) -- Net income for the year -- -- 5,365,000 Translation adjustment -- -- -- ----------- ----------- ----------- Balance at December 31, 1998 8,708,000 48,876,000 28,233,000 Reclassification of paid-in capital to stated capital on reincorporation (c) 48,876,000 (48,876,000) -- Stock issued under ESPP (a) b) 972,000 -- -- Stock options exercised(a) 77,000 -- -- Stock purchased for treasury(a) -- -- -- Stock options repurchased -- -- (94,000) Cancellation of treasury stock (73,000) -- -- Net income for the year -- -- 5,781,000 Translation adjustment -- -- -- ------------- ------------- ------------- Balance at December 31, 1999 $58,560,000 $ -- $33,920,000 ============= ============= =============
Note Receivable Cumulative From Translation Treasury Shareholder Adjustment Stock Total ----------- ----------- ----------- ----- Balance at December 31, 1996 $(1,749,000) $(1,175,000) $(6,373,000) $70,997,000 Stock issued under ESPP(a) (b) -- -- -- 603,000 Stock dividend(a) -- -- -- (5,000) Stock options exercised(a) -- -- -- 219,000 Stock purchased for treasury(a) -- -- (492,000) (492,000) Stock options repurchased -- -- -- (167,000) Net income for the year -- -- -- 5,793,000 Translation adjustment -- (413,000) -- (413,000) ------------- ------------- ----------- ----------- Balance at December 31, 1997 (1,749,000) (1,588,000) (6,865,000) 76,535,000 Stock issued under ESPP (a) (b) -- -- -- 888,000 Stock dividend(a) -- -- -- (4,000) Stock options exercised(a) -- -- -- 213,000 Stock purchased for treasury(a) -- -- (499,000) (499,000) Stock options repurchased -- -- -- (18,000) Cancellation of treasury stock -- -- 7,364,000 -- Net income for the year -- -- -- 5,365,000 Translation adjustment -- (582,000) -- (582,000) ------------- ------------- ----------- ----------- Balance at December 31, 1998 (1,749,000) (2,170,000) -- 81,898,000 Reclassification of paid-in capital to stated capital on reincorporation (c) -- -- -- -- Stock issued under ESPP (a) b) -- -- -- 972,000 Stock options exercised(a) -- -- -- 77,000 Stock purchased for treasury(a) -- -- (73,000) (73,000) Stock options repurchased -- -- -- (94,000) Cancellation of treasury stock -- -- 73,000 -- Net income for the year -- -- -- 5,781,000 Translation adjustment -- 486,000 -- 486,000 ------------- ------------- ----------- ----------- Balance at December 31, 1999 $(1,749,000) $(1,684,000) $ -- $89,047,000 ============= ============= =========== ===========
See notes to the consolidated financial statements (a) See note 9 (b) Employee stock purchase plan ("ESPP") (c) See basis of preparation F-5 36 CONSOLIDATED STATEMENTS OF CASH FLOWS (note 10) (All amounts are in U.S. dollars)
Years ended December 31 1999 1998 1997 ------------- -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,781,000 $ 5,365,000 $ 5,793,000 Adjustments to reconcile net income to net cash flows from operating activities Depreciation, depletion and amortization 8,860,000 6,561,000 5,871,000 Amortization of deferred financing costs 249,000 168,000 147,000 (Increase) decrease in future income tax benefits (413,000) (909,000) 356,000 Non-controlling interest in loss of subsidiary (105,000) (41,000) - Loss (gain) on sale of property, plant and equipment 358,000 19,000 (1,831,000) Increase in other assets (277,000) (795,000) (957,000) (Decrease) increase in other non-current liabilities (421,000) (191,000) 415,000 Changes in non-cash working capital items(a) (5,517,000) (5,536,000) 3,709,000 ------------- -------------- -------------- Net cash provided by operating activities 8,515,000 4,641,000 13,503,000 ------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (13,803,000) (20,728,000) (16,584,000) Assets acquired in connection with acquisitions, net of cash acquired(b) - (7,468,000) - Acquisitions of securities(b) (837,000) (14,566,000) - Proceeds of sales of securities(b) 554,000 9,696,000 - Proceeds from sale of assets(b) 36,000 3,126,000 3,939,000 ------------- -------------- -------------- Net cash used in investing activities (14,050,000) (29,940,000) (12,645,000) ------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES (Payments) proceeds net, on bank indebtedness (4,500,000) 7,000,000 (3,590,000) Proceeds from long term debt 50,733,000 21,572,000 5,717,000 Repayment of long term debt (41,100,000) (4,921,000) (3,169,000) Cash paid in lieu of fractional shares - (4,000) (5,000) Issuance of common stock(c) 1,049,000 1,101,000 679,000 Purchase of common stock and options(c) (167,000) (516,000) (516,000) ------------- -------------- -------------- Net cash provided by (used in) financing activities 6,015,000 24,232,000 (884,000) ------------- -------------- -------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 50,000 (60,000) (64,000) ------------- -------------- -------------- NET INCREASE (DECREASE) IN CASH 530,000 (1,127,000) (90,000) ------------- -------------- -------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,062,000 2,189,000 2,279,000 ------------- -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,592,000 $ 1,062,000 $ 2,189,000 ------------- -------------- -------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Income taxes paid $ 3,369,000 $ 2,658,000 $ 821,000 Interest paid 3,969,000 2,957,000 2,412,000 ------------- -------------- --------------
See notes to the consolidated financial statements (a) See note 13 (b) See note 2 (c) See note 9 F-6 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PREPARATION On January 21, 1999, a reincorporation merger was completed, the effect of which was to migrate Zemex Corporation from the United States to Canada. The predecessor Zemex Corporation became a wholly-owned subsidiary of Zemex Canada Corporation. Zemex Canada Corporation subsequently changed its name to Zemex Corporation. As the Canadian parent has as its sole asset the shares of the U.S. subsidiary, and this change in structure has no effect on the ultimate ownership of the Corporation, these financial statements have been prepared in accordance with accounting principles generally accepted in Canada and reflect the results of operations, financial position and changes in cash flows of the consolidated entities as though the new structure had been in place for all periods presented. On March 6, 2000, a wholly-owned subsidiary of Zemex Corporation entered into a stock purchase agreement whereby a wholly-owned subsidiary of Hoganas AB has agreed to purchase 100% of the issued and outstanding shares of two subsidiaries, Pyron Corporation and Pyron Metal Powders, Inc. Accordingly, these subsidiaries have been reflected as discontinued operations and prior years have been reclassified to reflect this disclosure (see note 10). 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with Canadian 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 significant accounting policies of Zemex Corporation and its subsidiaries (the "Corporation") are as follows: a. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Zemex Corporation and its subsidiaries. All intercompany transactions have been eliminated. b. INVENTORIES Inventories are stated at the lower of cost or net realizable value and are computed using the average cost method. It is not practical to segregate finished products from ore and concentrates. Materials and 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 F-7 38 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 the straight-line method. Depreciation on newly constructed or purchased assets begins when the asset is placed into production. 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 Canadian 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. The Corporation evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or intangibles may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. d. POSTRETIREMENT BENEFITS Pension Plans Generally, the funding policy of the Corporation 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 and experience gains and losses over the average remaining service lives of the employee group. Healthcare and Other Postretirement Benefits Other Than Pensions The Corporation accounts for healthcare and other postretirement benefits other than pensions by accruing for all such amounts during the years in which employees render the necessary services to be entitled to receive such benefits. The 1999, 1998 and 1997 amounts include the current year expense and the impact of the transition liability, which is being amortized over a twenty year period that began in 1993. e. FOREIGN CURRENCY TRANSLATION The functional currency for the Corporation's operations is the U.S. dollar. 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-8 39 f. REVENUE RECOGNITION Revenue is recognized when goods are shipped to customers. Consignment sales are recognized when a customer draws the goods from inventory. g. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses are charged to earnings in the periods in which they are incurred. Research and development expenses were $1,060,000, $636,000 and $961,000 for the years ended December 31, 1999, 1998 and 1997, respectively. h. PROVISION FOR FUTURE RECLAMATION COSTS Provisions for future reclamation costs have been established based upon estimated future reclamation costs allocated over the expected productive lives of the Corporation's quarries and mines. i. INCOME TAXES The Corporation early adopted CICA Handbook Section 3465, "Income Taxes" in fiscal 1998. Section 3465 substantially mirrors the U.S. pronouncement, SFAS No. 109, "Accounting for Income Taxes". These pronouncements require income taxes to be recognized during the year in which transactions enter into the determination of financial statement income, with future income taxes being provided for temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. j. EARNINGS PER SHARE The Corporation calculates basic earnings per share in accordance with Canadian accounting principles, which are substantially in accordance with the U.S. pronouncement, SFAS No. 128, "Earnings Per Share". Under these standards, earnings per share are calculated based upon the weighted average number of common shares outstanding. For the purpose of calculating earnings per share, stock dividends are considered to be issued at the beginning of all periods presented. k. 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 which approximates the effective interest rate yield method. The unamortized balance is included in other assets. l. OTHER ASSETS Other assets includes 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 F-9 40 are stated at cost and are being amortized over their remaining life of 11 years on a straight-line basis. Intangible assets are evaluated periodically and, if conditions warrant, an impairment charge is provided. m. 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. n. GOODWILL Goodwill represents the excess at the dates of acquisition of the costs over the fair values of the net identifiable assets of subsidiaries, and is amortized on a straight-line basis over its estimated useful life, up to a period of 15 years. The Corporation assesses the recoverability of goodwill at each balance sheet date by determining whether the amortization of the balance over its remaining useful life can be recovered through projected undiscounted future operating cash flows. o. STOCK-BASED COMPENSATION PLANS The Corporation does not recognize compensation expense for its stock-based compensation plans. Any consideration paid by employees on exercise of stock options or purchase of stock is recorded as share capital. If stock is repurchased from employees, the excess of the consideration paid over the stated capital of the stock cancelled is charged to retained earnings. 2. ACQUISITIONS AND DISPOSITIONS ACQUISITIONS ACQUISITION OF ASPECT MINERALS, INC. In January 1998, the Corporation, through its wholly-owned subsidiary, Zemex Industrial Minerals, Inc., acquired all of the issued and outstanding shares of Aspect Minerals, Inc., a muscovite mica processor, for approximately $2.2 million, which included the assumption of debt. The two facilities acquired in the transaction are located in the Spruce Pine, North Carolina area and are operating under the name Zemex Mica Corporation ("ZMC"). The acquisition was financed through borrowings on the Corporation's credit facility. The acquisition of ZMC was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated first to the tangible assets purchased and liabilities assumed and the excess purchase price was allocated to goodwill. The net purchase price was allocated as follows: F-10 41 Tangible assets acquired $ 614,000 Liabilities assumed (1,542,000) Goodwill 2,934,000 ------------ Cash consideration $ 2,006,000 ============
ACQUISITION OF S&R ENTERPRISES, INC. Effective June 1, 1998, Alumitech, Inc., a wholly-owned subsidiary of the Corporation, acquired all of the issued and outstanding shares of S&R Enterprises, Inc. ("S&R") for approximately $7.7 million, which included the assumption of debt. S&R is an aluminum dross processor located in Wabash, Indiana. The Corporation used its credit facility to finance the acquisition. The acquisition of S&R was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated first to the tangible assets purchased and liabilities assumed and the excess purchase price was allocated to goodwill. The net purchase price was allocated as follows: Tangible assets acquired $ 4,845,000 Liabilities assumed (2,849,000) Goodwill 3,561,000 ------------ Cash consideration $ 5,557,000 ============
INVESTMENT IN INMET MINING CORPORATION During the second quarter of 1998, the Corporation initiated an attempted acquisition of control of Inmet Mining Corporation ("Inmet"). Approximately 4.1 million shares of Inmet were acquired. The purchase was financed by the Corporation's credit facilities, as amended. Subsequently, the acquisition was abandoned and the Corporation sold, pursuant to an issuer bid, approximately 2.6 million common shares of Inmet for proceeds of approximately Cdn$14.9 million. No gain or loss was recognized on the transaction. The Corporation recorded a foreign exchange loss in 1988 of $0.7 million in other income (expense) as a result of a decline in the value of the Canadian dollar. At December 31, 1999, the investment was written down by $0.5 million to the amount realized when the investment was sold in February 2000. DISPOSITIONS SALE OF INTEREST IN BENWOOD FACILITY On February 24, 1998, Industria Mineraria Fabi S.r.1. ("Fabi") became an investor in the Corporation's talc facility located in Benwood, West Virginia by acquiring a 40% interest in a new limited liability company, Zemex Fabi-Benwood, LLC. As part of the transaction, Fabi paid $3.4 million and is providing access to its technology. Suzorite Minerals Products, Inc., a wholly-owned subsidiary of the F-11 42 Corporation, manages the new entity pursuant to an operating agreement. There was no gain or loss recognized on the transaction. ASSET SALE During the third quarter of 1997, the Corporation sold certain assets utilized to manufacture refractory ceramic fiber. These assets were vended into a joint venture in which the Corporation retained a nominal interest. The sale resulted in a pre-tax gain of $1.8 million, which was included in other income (expense). Total proceeds were $4.3 million. 3. INVENTORIES
1999 1998 --------------- ------------- ORE, RAW MATERIALS, WORK IN PROCESS AND FINISHED PRODUCTS Industrial minerals $11,080,000 $ 9,221,000 Metal powders 2,483,000 3,306,000 Aluminum recycling 717,000 321,000 -------------- ------------- 14,280,000 12,848,000 -------------- ------------- MATERIALS AND SUPPLIES Industrial minerals 4,093,000 3,703,000 Metal powders 1,109,000 1,032,000 Aluminum recycling - 453,000 -------------- ------------- 5,202,000 5,188,000 -------------- ------------- $19,482,000 $18,036,000 ============== =============
4. PROPERTY, PLANT AND EQUIPMENT
Effective Life 1999 1998 -------------- ------------ ------------ Land $ 7,336,000 $ 6,410,000 Mining properties and deferred costs 11,845,000 9,261,000 Buildings 30-40 years 25,882,000 21,267,000 Machinery and equipment 3-20 years 86,475,000 77,054,000 Construction in progress 13,604,000 17,077,000 ------------- ------------ Total property, plant and equipment, at cost 145,142,000 131,069,000 Less: Accumulated depreciation & amortization (48,363,000) (41,011,000) ------------- ------------ NET PROPERTY, PLANT AND EQUIPMENT $ 96,779,000 $ 90,058,000 ============= ============
F-12 43 As at December 31, 1999, the Corporation estimates that approximately $2,069,000 will be expended to complete its construction in progress (December 31, 1998, $3,015,000). During 1999, the Corporation capitalized $119,000 in interest relating to capital projects (1998, $394,000). 5. OTHER ASSETS
1999 1998 ----------- ----------- Goodwill, net (accumulated amortization of $568,000 at December 31, 1999 and $140,000 at December 31, 1998) $5,582,000 $ 6,238,000 Patents, net 5,162,000 5,688,000 Investments 4,085,000 4,871,000 Deferred financing costs 1,760,000 445,000 Prepaid pension cost (note 17(d)) 890,000 1,318,000 Other 476,000 774,000 Deferred reorganization 273,000 191,000 Long term note receivable -- 549,000 Assets held for resale -- 300,000 ----------- ----------- $18,228,000 $20,374,000 =========== ===========
6. INCOME TAXES The provision for income taxes consists of the following components:
1999 1998 1997 ---------- ---------- ---------- Total pre-tax income from continuing operations $2,319,000 $3,180,000 $5,862,000 ---------- ---------- ---------- Current tax provision Canadian $1,508,000 $ 557,000 $ 350,000 Federal U.S. (376,000) 550,000 1,042,000 State and local U.S. 131,000 179,000 161,000 ---------- ---------- ---------- TOTAL 1,263,000 1,286,000 1,553,000 ---------- ---------- ---------- Future tax provision Canadian (428,000) -- -- Federal U.S. (68,000) (637,000) 77,000 State and local U.S. (190,000) (80,000) 114,000 ---------- ---------- ---------- TOTAL (686,000) (717,000) 191,000 ---------- ---------- ---------- PROVISION FOR INCOME TAXES $ 577,000 $ 569,000 $1,744,000 ========== ========== ==========
F-13 44 The following tabulation reconciles the Canadian income tax rate to the effective income tax rate.
1999 1998 1997 ----- ----- ----- % % % Statutory federal rate 38.2 38.2 38.2 Mining taxes 23.7 5.3 0.6 Resource allowance (9.0) (5.5) (2.1) Difference in U.S. tax rates (30.5) (23.9) (9.2) Other 2.5 1.7 1.5 ----- ----- ----- EFFECTIVE INCOME TAX RATE 24.9 15.8 29.0 ===== ===== =====
Future 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. As at December 31, 1999 and 1998, the Corporation had unused tax benefits of $10,161,000 and $8,239,000, respectively, related to U.S. federal and state net operating loss and tax credit carryforwards. Significant components of the Corporation's future tax benefits and obligations as of December 31 are as follows (dollars in thousands):
1999 1998 -------------------------- --------------------------- CANADA U.S. TOTAL Canada U.S. Total ------ -------- -------- ------- -------- -------- FUTURE TAX BENEFITS Net operating loss and tax credit carryforwards $ -- $10,161 $10,161 $ -- $ 8,239 $ 8,239 Accrued expenses and reserves -- 895 895 -- 513 513 Bad debt allowances -- 113 113 -- 109 109 Inventories -- 311 311 -- 173 173 Other -- 408 408 -- 173 173 ------ -------- -------- ------- -------- -------- GROSS FUTURE TAX BENEFITS -- 11,888 11,888 -- 9,207 9,207 ------ -------- -------- ------- -------- -------- Valuation allowance -- (1,129) (1,129) -- (1,014) (1,014) ------ -------- -------- ------- -------- -------- NET FUTURE TAX BENEFITS -- 10,759 10,759 -- 8,193 8,193 FUTURE TAX OBLIGATIONS Property, plant and equipment 1,451 5,249 6,700 1,879 3,415 5,294 Patents -- 1,343 1,343 -- 1,456 1,456 Pension contributions -- 235 235 -- 512 512 Development costs -- 1,017 1,017 -- -- -- Other -- 303 303 -- 183 183 ------ -------- -------- ------- -------- -------- TOTAL 1,451 8,147 9,598 1,879 5,566 7,445 ------ -------- -------- ------- -------- -------- NET FUTURE TAX (BENEFITS) OBLIGATIONS $1,451 $(2,612) $(1,161) $1,879 $(2,627) $ (748) ====== ======== ======== ======= ======== ========
F-14 45 At December 31, 1999, the Corporation had approximately $14,212,000 of U.S. net 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 2000 and 2019, and alternative minimum tax credits. The Corporation also has U.S. net operating losses and investment credit carryforwards; however, a valuation allowance of $1,129,000 has been recognized to offset the related future tax benefit due to the uncertainty of realizing the full benefit of the tax attribute carryforward. 7. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS PENSION PLANS The Corporation has two non-contributory defined benefit pension plans covering the majority of all U.S. resident employees. The plans provide pension benefits that are based on the length of service and the compensation of the employee. The following table sets forth the financial position of the pension plans:
At December 31 1999 1998 - -------------- --------------- -------------- Plan assets at market value $18,557,000 $17,591,000 --------------- -------------- Actuarial present value of accrued pension benefits $15,632,000 $14,522,000 =============== ==============
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 $137,000 in 1999, $127,000 in 1998 and $115,000 in 1997. F-15 46 8. LONG TERM DEBT
1999 1998 -------------- ------------------ Senior secured notes (a) $50,000,000 $ -- Credit facility (b) -- 36,945,000 Other term loans (c) -- 128,000 Industrial development revenue bonds (d) -- 3,060,000 Capital leases (e) 1,019,000 857,000 Other 100,000 496,000 -------------- ------------------ TOTAL DEBT 51,119,000 41,486,000 Less: Current portion 617,000 2,132,000 -------------- ------------------ LONG TERM DEBT $50,502,000 $39,354,000 ============== ==================
(a) In May 1999, the Corporation entered into note purchase agreements with private investors whereby the Corporation issued $35,000,000, 7.54% Senior Secured Notes, Series A, due May 15, 2009 and $15,000,000, 7.76% Senior Secured Notes, Series B, due May 15, 2014. In the event of redemption the noteholders are entitled to an interest make-whole payment based on a discounted value of future cash flows arising from the notes. The proceeds from the Senior Secured Notes were used to retire the Corporation's credit facilities existing at the time (see (b), (c) and note 18(b)). Additionally during 1999, the Corporation entered into a 364-day, $20,000,000 revolving credit facility. The Senior Secured Notes and the credit facility rank pari-passu with respect to security. The obligations are secured by a pledge of subsidiary shares and a floating charge on the assets of the subsidiaries. As at December 31, 1999, advances under the revolving credit facility were $5,500,000. Both the Senior Secured Notes and the revolving credit facility contain certain financial covenants which determine interest rate and credit availability. The revolving credit facility bears interest at LIBOR plus 1.625% to LIBOR plus 1.875% in the case of LIBOR loans or at base rate plus 0.625% to 0.875% in the case of prime and base rate loans. The actual margin is determined by certain financial ratios. The term of the revolver, which was originally 364 days, was extended to May 18, 2001 subsequent to December 31, 1999. (b) During 1995, the Corporation entered into a credit facility with a syndicate of two banks, which was amended during 1997 and 1998 to increase the total availability to $50,224,000, and to provide for a short term increase of the operating line to $15,000,000. As at December 31, 1998, the operating line was reduced to $10,000,000 with a further reduction to $5,000,000 occurring February 28, 1999. The amended credit facility was further subdivided into four facilities: (i) a $30,000,000 revolving credit 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 were secured by specific assets and a floating charge over the Corporation's assets. The facilities bore 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 F-16 47 the Corporation. As at December 31, 1998, there was $10,000,000 outstanding under the operating line and $6,945,000 outstanding under the multiple advance term loan facility. Advances under the revolving credit facility as at December 31, 1998, were $30,000,000 and a standby letter of credit was issued to secure Pyron's Industrial Development Revenue Bonds (see (d) below). During 1999, the Corporation revised its borrowing arrangements (see (a) above) and all amounts owing under this facility were repaid in full. (c) The other term loan bore interest at 6.79% and required annual payments of approximately $40,000. During 1999, the Corporation repaid the amount in full. (d) 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 were not the obligation of Pyron, the agreement required 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, 1998 was $3,060,000. Pyron's annual obligation under the agreement was $510,000 until repaid. The bonds bore interest at a variable rate not to exceed 15% per annum. The rate at December 31, 1998 was 4.02%. Pyron had the option to convert the bonds to a fixed interest rate at any time during the term. Under the lease agreement, Pyron could purchase the facility at any time during the term, which would expire November 1, 2004, by paying the outstanding principal amount of the bonds plus $1. The bonds were collateralized by a mortgage on the land, the new facility and the existing facility, which had an aggregate net book value of approximately $10,134,000 at December 31, 1998. On September 1, 1999, the Corporation repaid the outstanding principal amount, purchased the facility and retired the bonds. (e) The Corporation has long term capital lease agreements at various rates and for various terms with maturities ranging from 2000 to 2003 for equipment used in its operations. The carrying value of the leased equipment as of December 31, 1999 and 1998 was $1,298,000 and $875,000, respectively. The current obligation under the long term lease agreements is $569,000 (1998, $359,000). F-17 48 Principal repayments on long term debt are as follows: 2000 $ 617,000 2001 316,000 2002 132,000 2003 32,000 2004 12,000 Thereafter 50,010,000 ------------ $51,119,000 ------------
9. COMMON SHARES AND STOCK OPTIONS SHARES OUTSTANDING As at December 31, 1998, the Corporation's authorized capital stock was 25,000,000, par value one dollar per share, of which 20,000,000 was denominated common shares and 5,000,000 was denominated preferred shares. Pursuant to the reincorporation merger effective January 21, 1999, the authorized capital stock of the Corporation now consists of an unlimited number of first preference shares without par value and an unlimited number of common shares without par value. There were 8,873,453 common shares issued and outstanding as of December 31, 1999 and 8,707,796 common shares issued and outstanding as of December 31, 1998. During 1999, 1998 and 1997, 172,000, 131,000 and 90,000 common shares, respectively, were issued pursuant to the Corporation's employee stock purchase plan for an aggregate cost of $1,145,000, $1,045,000, and $729,000, respectively. As part of a stock repurchase program in 1999, the Corporation purchased 10,000 common shares for an aggregate cost of $73,000, 60,000 common shares in 1998 for an aggregate cost of $499,000, and 60,000 common shares in 1997 for an aggregate cost of $492,000. DIVIDENDS On October 2, 1998, the Corporation declared a 2% stock dividend to shareholders of record on October 19, 1998, which was paid November 2, 1998. Retained earnings was charged $1,182,000 as a result of the issuance of 169,988 of the Corporation's common shares, and cash payments of $4,000 in lieu of fractional shares. On November 21, 1997, the Corporation declared a 2% stock dividend to shareholders of record on December 1, 1997, which was paid December 15, 1997. Retained earnings was charged $1,598,000 as a result of the issuance of 165,537 of the Corporation's common shares, and cash payments of $5,000 in lieu of fractional shares. F-18 49 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 shares. Options for 10% of the Corporation's outstanding common shares are issuable under the plans. The options vest and are exercisable from the beginning of the second year subsequent to the date of issuance. The following is a summary of option transactions under the Corporation's stock option plans:
1999 1998 1997 --------------------------- -------------------------- ------------------------ WEIGHTED- Weighted- Weighted- AVERAGE average average EXERCISE exercise exercise OPTIONS PRICE Options price Options price ------------ --------- ------------ ------------ ------------ ----------- Options outstanding at beginning of year 1,247,650 $ 7.90 942,750 $ 7.32 845,550 $ 7.31 Options granted during year 295,650 6.31 357,000 9.41 228,000 7.28 Options exercised during the year (5,000) 7.00 (26,600) 5.42 (13,800) 5.50 Options cancelled during the year (375,150) 6.14 (25,500) 8.07 (117,000) 5.04 ------------ --------- ------------ ------------ ------------ ----------- Options outstanding at end of year 1,163,150 $ 8.11 1,247,650 $ 7.90 942,750 $ 7.32 Options exercisable at end of year 695,250 746,650 628,250 ------------ --------- ------------ ------------ ------------ ----------- Price range of options granted during the year $ 6.26-7.50 $ 6.50-10.19 $ 7.00-8.63
The options expire from 2000 to 2009. The following table summarizes information about the stock options outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------------------- ------------------------------------- WEIGHTED- WEIGHTED- WEIGHTED- RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE EXERCISE OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT EXERCISE PRICES DECEMBER 31, 1999 CONTRACTUAL LIFE PRICE DECEMBER 31, 1999 PRICE - ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- $ 6.00 TO $ 6.99 318,650 8.63 YEARS $ 6.31 19,500 $ 6.57 $ 7.00 TO $ 7.99 262,500 3.76 YEARS 7.36 216,000 7.28 $ 8.00 TO $ 8.99 27,500 3.33 YEARS 8.63 27,500 8.63 $ 9.00 TO $ 9.99 305,000 1.25 YEARS 9.21 299,000 9.21 $ 10.00 TO $10.99 249,500 4.18 YEARS 10.17 133,250 10.16 - ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- $ 6.00 TO $10.99 1,163,150 695,250 ================= =================
F-19 50 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 note, which was used to acquire shares of common stock of the Corporation, is non-interest bearing and secured by a pledge of most of the shares acquired. The terms were amended in 1999 and the note is now due on the earlier of December 31, 2000 or 30 days after the termination of employment. Since the note arose from the sale of treasury stock, it is classified as a reduction of shareholders' equity. 10. DISCONTINUED OPERATIONS On March 6, 2000, the Corporation announced the sale of its metal powders division for gross proceeds of approximately $41 million. The metal powders division includes the Corporation's wholly-owned subsidiaries, Pyron Corporation and Pyron Metal Powders, Inc. The sale will result in a gain of approximately $18 million, which will be recorded on closing. The sale price is subject to post-closing adjustments based on certain changes in the metal powders division's net asset values up to the effective date. Income from discontinued operations included in the Corporation's consolidated statements of income were as follows:
Year ended December 31 1999 1998 1997 - ---------------------- ----------- ----------- ----------- Net sales $38,980,000 $35,556,000 $33,930,000 Operating income 6,112,000 3,990,000 2,376,000 Income before income taxes 5,974,000 3,857,000 2,200,000 Provision for income taxes 2,040,000 1,144,000 525,000 Income from discontinued operations 3,934,000 2,713,000 1,675,000
Cash (used in) provided by discontinued operations included in the Corporation's consolidated statements of cash flows was as follows:
Year ended December 31 1999 1998 1997 - ---------------------- ------------ ----------- ----------- Operating activities $ 5,778,000 $ 4,065,000 $ 2,980,000 Investing activities (1,626,000) (2,113,000) (1,319,000) Financing activities (4,489,000) (1,747,000) (2,081,000) ------------ ----------- ----------- Cash (used in) provided by discontinued operations $ (337,000) $ 205,000 $ (420,000) =========== =========== ===========
F-20 51 The assets and liabilities of discontinued operations included in the Corporation's consolidated balance sheets were as follows:
December 31 1999 1998 - ----------- ----------- ----------- Current assets $11,161,000 $10,468,000 Property, plant and equipment 14,796,000 14,585,000 Other assets 32,000 349,000 Future income tax benefits (non-current) (1,486,000) (813,000) ----------- ----------- 24,503,000 24,589,000 Current liabilities 4,137,000 4,112,000 Other non-current liabilities 39,000 2,603,000 ----------- ----------- Net assets $20,327,000 $17,874,000 =========== ===========
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 its 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 lease payments required by operating leases that have initial or remaining non-cancellable lease terms in excess of one year as of December 31, 1999 are as follows:
Years Minimum Lease Payments - ----- ---------------------- 2000 $ 993,000 2001 906,000 2002 763,000 2003 533,000 2004 337,000 Thereafter 1,295,000 ---------- Total minimum lease payments $4,827,000 ==========
Rent expense was $1,183,000, $569,000 and $492,000 in 1999, 1998 and 1997, respectively. 12. 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 F-21 52 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 reflecting: (i) the proximity to market rates of the interest obligations on the debt instruments; and (ii) the limited durations of all of the other instruments. 13. CHANGES IN NON-CASH WORKING CAPITAL The changes in non-cash working capital items are as follows:
1999 1998 1997 ----------- ----------- ----------- Increase in accounts receivable $(2,187,000) $ (476,000) $(1,285,000) (Increase) decrease in inventories (1,446,000) (173,000) 576,000 (Increase) decrease in prepaid expenses and other current assets (483,000) (120,000) 602,000 (Decrease) increase in accounts payable and accrued liabilities (1,707,000) (4,177,000) 2,882,000 Increase (decrease) in accrued income taxes 306,000 (590,000) 934,000 ----------- ----------- ----------- $(5,517,000) $(5,536,000) $ 3,709,000 =========== =========== ===========
14. RELATED PARTY TRANSACTIONS As at December 31, 1999 and 1998, accounts receivable included amounts due from directors and one officer of $65,000, and $100,000, respectively. These amounts are non-interest bearing, with no fixed terms of repayment and are secured by common shares of the Corporation. During 1998, a director became indebted to the Corporation in the amount of $124,000. At December 31, 1999, $116,000 remained outstanding and is included in accounts receivable (1998, $116,000). This obligation is secured by common shares of the Corporation and bears interest at the Corporation's cost of borrowing (7.6% at December 31, 1999, 7.4% at December 31, 1998). 15. SEGMENT INFORMATION The Corporation's continuing operations now has two principal lines of business and is organized into two operating units based on its product lines: (i) industrial minerals, and (ii) aluminum recycling. 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 F-22 53 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. Aluminum dross is recycled at plants in Cleveland, Ohio and Wabash, Indiana and ceramic fiber products are fabricated at a plant in Macedonia, Ohio. Corporate assets principally include cash, term deposits, and furniture and fixtures. The accounting policies of the segments are the same as those described in note 1. Information pertaining to sales and earnings from continuing operations and assets by business segment appears below:
INDUSTRIAL ALUMINUM YEAR ENDED DECEMBER 31, 1999 CONSOLIDATED MINERALS RECYCLING CORPORATE - ---------------------------- ------------ -------- --------- --------- NET SALES $ 77,530,000 $ 50,373,000 $ 27,157,000 $ -- DEPRECIATION, DEPLETION AND AMORTIZATION 7,402,000 4,380,000 2,416,000 606,000 OPERATING INCOME (LOSS) 7,015,000 7,988,000 2,833,000 (3,806,000) INTEREST INCOME 151,000 47,000 43,000 61,000 INTEREST EXPENSE (4,325,000) (279,000) (63,000) (3,983,000) INCOME (LOSS) BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST 2,319,000 7,608,000 2,845,000 (8,134,000) PROVISION FOR (RECOVERY OF) INCOME TAXES 577,000 1,079,000 -- (502,000) NON-CONTROLLING INTEREST IN LOSS OF SUBSIDIARY (105,000) (105,000) -- -- INCOME FROM CONTINUING OPERATIONS 1,847,000 6,634,000 2,845,000 (7,632,000) INCOME FROM DISCONTINUED OPERATIONS 3,934,000 -- -- -- NET INCOME (LOSS) 5,781,000 6,634,000 2,845,000 (7,632,000)
INDUSTRIAL ALUMINUM Year Ended December 31, 1998 CONSOLIDATED MINERALS RECYCLING CORPORATE - ---------------------------- ------------ -------- --------- --------- Net sales $ 68,338,000 $ 44,835,000 $ 23,503,000 $ -- Depreciation, depletion and amortization 5,353,000 3,536,000 1,384,000 433,000 Operating income (loss) 6,202,000 5,840,000 2,881,000 (2,519,000) Interest income 202,000 - 49,000 153,000 Interest expense (2,384,000) (60,000) (34,000) (2,290,000) Income (loss) before income taxes and non-controlling interest 3,180,000 5,674,000 2,933,000 (5,427,000) Provision for income taxes 569,000 556,000 -- 13,000 Non-controlling interest in loss of subsidiary (41,000) (41,000) -- -- Income from continuing operations 2,652,000 5,159,000 2,933,000 (5,440,000) Income from discontinued operations 2,713,000 -- -- -- Net income (loss) 5,365,000 5,159,000 2,933,000 (5,440,000)
F-23 54
Industrial Aluminum Year Ended December 31, 1997 Consolidated Minerals Recycling Corporate - ---------------------------- ------------ -------- --------- --------- Net sales $ 63,296,000 $43,396,000 $19,900,000 $ -- Depreciation, depletion and amortization 4,764,000 3,228,000 1,134,000 402,000 Operating income (loss) 5,994,000 6,498,000 1,924,000 (2,428,000) Interest income 100,000 -- 73,000 27,000 Interest expense (1,848,000) (8,000) (84,000) (1,756,000) Income (loss) before income taxes 5,862,000 6,660,000 3,725,000 (4,523,000) Provision for income taxes 1,744,000 350,000 -- 1,394,000 Income from continuing operations 4,118,000 6,310,000 3,725,000 (5,917,000) Income from discontinued operations 1,675,000 -- -- -- Net income (loss) 5,793,000 6,310,000 3,725,000 (5,917,000
INDUSTRIAL ALUMINUM DISCONTINUED DECEMBER 31, 1999 CONSOLIDATED MINERALS RECYCLING CORPORATE OPERATIONS - ----------------- ------------ -------- --------- --------- ---------- TOTAL ASSETS $159,528,000 $ 80,533,000 $ 37,167,000 $17,325,000 $24,503,000 TOTAL CURRENT LIABILITIES 16,424,000 4,943,000 2,794,000 4,550,000 4,137,000 TOTAL LONG TERM LIABILITIES 51,087,000 541,000 243,000 50,264,000 39,000 TOTAL SHAREHOLDERS' EQUITY 89,047,000 -- -- 89,047,000 --
Industrial Aluminum Discontinued December 31, 1998 Consolidated Minerals Recycling Corporate Operations - ----------------- ------------ -------- --------- --------- ---------- Total assets $148,866,000 $74,104,000 $33,464,000 $16,709,000 $24,589,000 Total current liabilities 23,533,000 5,029,000 3,777,000 10,615,000 4,112,000 Total long term liabilities 40,360,000 1,035,000 678,000 36,044,000 2,603,000 Total shareholders' equity 81,898,000 -- -- 81,898,000 --
Industrial Aluminum Discontinued December 31, 1997 Consolidated Minerals Recycling Corporate Operations - ----------------- ------------ -------- --------- --------- ---------- Total assets $118,774,000 $65,750,000 $17,853,000 $ 9,015,000 $26,156,000 Total current liabilities 19,210,000 5,438,000 4,047,000 5,081,000 4,644,000 Total long term liabilities 23,029,000 3,065,000 279,000 14,457,000 5,228,000 Total shareholders' equity 76,535,000 -- -- 76,535,000 --
F-24 55
INDUSTRIAL ALUMINUM DISCONTINUED CONSOLIDATED MINERALS RECYCLING CORPORATE OPERATIONS ------------- ------------- ------------- ------------- ------------- 1999 CAPITAL EXPENDITURES $ 13,803,000 $ 7,104,000 $ 5,014,000 $ 41,000 $ 1,644,000 GOODWILL ACQUIRED -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- 1998 Capital expenditures $ 20,728,000 $ 8,283,000 $ 10,124,000 $ 208,000 $ 2,113,000 Goodwill acquired 6,495,000 2,934,000 3,561,000 -- -- ============= ============= ============= ============= =============
CANADA U.S. ------------------------------------------- ------------------------------------------- 1999 1998 1997 1999 1998 1997 ------------- ------------- ------------- ------------- ------------- ------------- Capital expenditures $ 619,000 $ 605,000 $ 734,000 $ 13,184,000 $ 20,123,000 $ 15,850,000 Goodwill acquired -- -- -- -- 6,495,000 -- ============= ============= ============= ============= ============= =============
The Corporation bases its geographic allocation upon the location of its sales offices which are all domiciled in the United States. 16. CONTINGENCIES The Corporation is involved in various legal actions in the normal course of business. In the opinion of management, the aggregate amount of any potential liability, for which provision has not already been made, is not expected to have a material adverse effect on the Corporation's financial position or its results. Uncertainty Due To The Year 2000 Issue The year 2000 issue arose because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. Although the change in date has occurred, it is not possible to conclude that all aspects of the year 2000 issue affecting the entity, including those related to the efforts of customers, suppliers, or other third parties, have been fully resolved. 17. DIFFERENCES FROM UNITED STATES ACCOUNTING PRINCIPLES These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada. The differences between Canadian and U.S. GAAP do not have a material effect on the Corporation's reported financial position or net income except as follows: F-25 56 a. STATEMENTS OF INCOME The implementation of the American Institute of Certified Public Accountants Statement of Position ("SOP") 98-5 requires that the costs of start-up activities and organization costs be expensed as incurred. Canadian GAAP permits the deferral of such costs. For purposes of reporting in accordance with U.S. GAAP, certain equity securities that are not held principally for the purpose of sale in the near term are classified as available-for-sale securities, are reported at fair value, and are translated at the current exchange rate which can give rise to an exchange gain or loss (see (c) below). For Canadian GAAP purposes, such securities are reported at cost and are translated at the historical exchange rate. For the purposes of calculating diluted earnings per share, U.S. GAAP requires the application of the treasury stock method.
1999 1998 1997 ----------- ----------- ---------- Income from continuing operations, as reported $ 1,847,000 $ 2,652,000 $4,118,000 Less: Start-up activities and organization costs (1,845,000) (1,255,000) (8,000) Tax effect related thereto 460,000 198,000 2,000 ----------- ----------- ---------- Income from continuing operations (U.S. GAAP) $ 462,000 $ 1,595,000 $4,112,000 Income from continuing operations per share (U.S. GAAP) Basic $ 0.05 $ 0.19 $ 0.50 Diluted $ 0.05 $ 0.19 $ 0.49 ----------- ----------- ----------
b. BALANCE SHEETS The following summarizes the balance sheet amounts in accordance with U.S. GAAP where different from the amounts reported under Canadian GAAP. For purposes of reporting in accordance with U.S. GAAP, certain equity securities that are not held principally for the purpose of sale in the near term are classified as available-for-sale securities and are reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate financial statement, a statement of comprehensive income. For Canadian GAAP purposes, such securities are reported at cost, unless there is deemed to have been a permanent impairment in their value. U.S. GAAP, SOP 98-5, requires that the costs of start-up activities and organization costs be expensed as incurred. SOP 98-5 is effective for periods beginning after December 15, 1998. Initial implementation is reported as a cumulative effect of a change in accounting principle without retroactive application. F-26 57
1999 1998 CANADIAN UNITED STATES Canadian United States GAAP GAAP GAAP GAAP ------------ ------------- ------------ ------------- Property, plant and equipment $96,779,000 $94,042,000 $90,058,000 $90,058,000 Other assets 18,228,000 17,907,000 20,374,000 19,440,000 Accrued income taxes 950,000 491,000 644,000 644,000 Retained earnings 33,920,000 31,321,000 28,233,000 28,233,000 Unrealized loss on available- for-sale securities -- -- -- (934,000) ------------ ------------- ------------ -------------
c. STATEMENTS OF COMPREHENSIVE INCOME U.S. GAAP requires a statement of comprehensive income as follows:
1999 1998 1997 ------------ ----------- ---------- Income from continuing operations $ 462,000 $1,595,000 $4,112,000 Change in foreign currency translation adjustment, net of tax (1999, $121,000; 1998, $(92,000); 1997, $(120,000)) 365,000 (490,000) (293,000) Change in unrealized holding (losses) on available-for-sale securities 934,000 (934,000) -- ------------ ----------- ---------- Comprehensive income $1,761,000 $ 171,000 $3,819,000 ============ =========== ==========
d. PENSION PLANS Under U.S. GAAP, the Corporation must adopt SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". The following data is based upon reports from independent consulting actuaries as at December 31:
Change in benefit obligation 1999 1998 - ---------------------------- ----------- ----------- Benefit obligation, beginning of year $16,876,000 $15,126,000 Service cost 725,000 532,000 Interest cost 1,104,000 1,015,000 Plan amendments 139,000 146,000 Actuarial (gain) loss (2,343,000) 778,000 Benefits paid (758,000) (721,000) ----------- ----------- Benefit obligation, end of year $15,743,000 $16,876,000 =========== ===========
F-27 58
Change in fair value of plan assets 1999 1998 ----------- ----------- Fair value, beginning of year $17,591,000 $17,177,000 Actual return on plan assets 1,447,000 916,000 Employer contribution 277,000 219,000 Benefits paid (758,000) (721,000) ----------- ----------- Fair value, end of year $18,557,000 $17,591,000 =========== ===========
Net periodic pension expense (income) included the following components:
1999 1998 1997 ------------ ------------ ------------ Current service cost $ 725,000 $ 532,000 $ 466,000 Interest cost on projected benefit obligation 1,104,000 1,015,000 978,000 Expected return on assets (1,166,000) (1,175,000) (1,236,000) Net amortization 41,000 (93,000) (98,000) ------------ ------------ ------------ Net pension expense $ 704,000 $ 279,000 $ 110,000 ============ ============= ============
Assumptions:
1999 1998 1997 ---- ---- ---- % % % Weighted average discount rate 7.75 6.5 7.0 Expected long term rate of return 8.75 8.75 8.75 Increase in level of compensation 4.0 4.0 4.0 Weighted average health care cost trend rate 8.0 8.5 9.0 Weighted average ultimate health care cost trend rate 5.0 5.0 5.0 ---- ---- ---- Year in which ultimate health care cost trend rate will be achieved 2005 2005 2005
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, 1999 and 1998 are tabulated below:
1999 1998 ------------ ------------ Projected benefit obligation $(15,743,000) $(16,876,000) Plan assets at fair value 18,557,000 17,591,000 ------------ ------------ Plan assets in excess of projected benefit obligation 2,814,000 715,000 Unrecognized net (gain) loss (2,304,000) 331,000 Prior service cost not yet recognized in net periodic pension expense 380,000 297,000 Unrecognized net assets at year end -- (25,000) ------------ ------------ Prepaid pension cost included in consolidated balance sheets $ 890,000 $ 1,318,000 ============ ============
F-28 59 Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects: 1% Increase 1% Decrease ----------- ----------- Effect on accumulated postretirement benefit obligation $38,288 $(33,300) Effect on aggregate of the service and interest cost-components of net postretirement benefit cost 4,324 (3,682) =========== ===========
e. STOCK BASED COMPENSATION 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 $681,000 or $0.08 per share in 1999, $1,267,000 or $0.15 per share in 1998 and $589,000 or $0.07 per share in 1997. The fair value of the options granted during 1999, 1998, and 1997 is estimated to be $681,000, $1,267,000 and $589,000 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 1999, 1998 and 1997: dividend yield of 0%; expected volatility of 29%, 32% and 32%, respectively; risk-free interest rates varying from 4.73% to 6.34%; and an expected life of 5 years. f. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), which established accounting and reporting standards for derivative instruments and hedging activities. It requires an entity to measure all derivatives at fair value and to recognize them in the balance sheet as an asset or liability, depending on the entity's rights or obligations under the applicable derivative contract. Management has not yet evaluated the effects of this statement on its results of operations. As required, the Corporation will adopt SFAS No. 133 in the first quarter of 2001. F-29 60 18. SUBSEQUENT EVENTS a. As the first step in its efforts to maximize shareholder value, on March 6, 2000, the Corporation entered into a stock purchase agreement whereby it agreed to sell the shares of Pyron Corporation and Pyron Metal Powders, Inc. The selling price will be $41 million subject to closing adjustments. The transaction is subject to regulatory approval. b. To effect the disposition of Pyron Corporation and Pyron Metal Powders, Inc., on March 8, 2000, the Corporation redeemed its outstanding Senior Secured Notes (see note 8). The redemption was financed by a bridge facility structured as an amendment to its existing credit facility (see note 8). The bridge facility bears interest at the same rate and is secured by the same security package as its existing credit facility. The bridge facility has a term to October 31, 2000 and is to be partially repaid from the proceeds of the sale of the Pyron Corporation and Pyron Metal Powders, Inc. The redemption necessitated a make-whole payment to the noteholders of $1.1 million, which will be recorded in the first quarter of 2000. 19. COMPARATIVE FIGURES Certain of the comparative figures have been restated to comply with the current year's presentation. F-30 61 FINANCIAL DATA (UNAUDITED) The following is a summary of certain unaudited quarterly financial data.
1999 1998 NET SALES FROM CONTINUING OPERATIONS First quarter $18,586,000 $16,242,000 Second quarter 19,752,000 17,800,000 Third quarter 20,115,000 16,894,000 Fourth quarter 19,077,000 17,402,000 ------------- ------------- $77,530,000 $68,338,000 ------------- ------------- OPERATING INCOME FROM CONTINUING OPERATIONS First quarter $ 1,804,000 $ 1,148,000 Second quarter 2,056,000 1,566,000 Third quarter 1,899,000 2,064,000 Fourth quarter 1,256,000 1,424,000 ------------- ------------- $ 7,015,000 $ 6,202,000 ------------- ------------- NET INCOME First quarter $ 1,389,000 $ 1,228,000 Second quarter 1,614,000 1,274,000 Third quarter 1,680,000 1,358,000 Fourth quarter 1,098,000 1,505,000 ------------- ------------- $ 5,781,000 $ 5,365,000 ------------- ------------- NET INCOME PER SHARE - BASIC First quarter $ 0.17 $ 0.15 Second quarter 0.19 0.15 Third quarter 0.20 0.16 Fourth quarter 0.13 0.18 - -------------- ------------- -------------
F-31 62 LIST OF EXHIBITS EXHIBIT (4)(s) Amendment No. 2 dated March 7, 2000 to the Credit Agreement dated as of May 21, 1999 among Zemex Corporation and Zemex U.S. Corporation, Bank of America Canada, Bank of America National Trust and Savings Association et al. EXHIBIT (10)(l) Agreement between Zemex Corporation and Richard L. Lister dated as of the 1st day of October, 1999. EXHIBIT (10)(m) Agreement between Zemex Corporation and Allen J. Palmiere dated as of the 1st day of October, 1999. EXHIBIT (10)(n) Agreement between Zemex Corporation and George E. Gillespie dated as of the 1st day of October, 1999. EXHIBIT (10)(o) Agreement between Zemex Corporation and Peter J. Goodwin dated as of the 1st day of October, 1999. EXHIBIT (10)(p) Agreement between Zemex Corporation and Terrance J. Hogan dated as of the 1st day of October, 1999. EXHIBIT 21 Subsidiaries of the Registrant EXHIBIT 27 Financial Data Schedule EX-4.(S) 2 EXHIBIT 4.(S) 1 Exhibit 4(s) AMENDMENT AGREEMENT THIS SECOND AMENDMENT AGREEMENT is entered into as of March 7, 2000 among ZEMEX CORPORATION, a corporation established under the federal laws of Canada (the "Company"), ZEMEX U.S. CORPORATION, a corporation established under the laws of Delaware (the "US Borrower") (the Company and the US Borrower called the "Borrowers"), the several financial institutions from time to time parties to the Credit Agreement (collectively, the "Banks"; individually a "Bank"), Bank of America Canada as Agent for the Canadian Banks, Bank of America, N.A. as agent for the US Banks, and Bank of America Canada as Arranger. WHEREAS, the parties entered into a credit agreement dated as of May 21, 1999 (the "Credit Agreement") whereby the Banks provided certain credit facilities to the Company and the US Borrower for working capital, short term liquidity and general corporate purposes, including permitted Acquisitions; AND WHEREAS, the parties have entered into a First Amendment to the Credit Agreement dated as of September 24, 1999; AND WHEREAS, the parties have agreed to make additional amendments to the Credit Agreement, specifically, as required to incorporate a bridge loan facility in favour of the US Borrower, and the parties are entering into this Second Amendment Agreement to amend the Credit Agreement accordingly; NOW THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: 1. All capitalized terms used herein and not otherwise defined shall have the same meaning as those ascribed thereto in the Credit Agreement (as amended by the First Amendment 2 -2- Agreement). 2. The definition of "APPLICABLE MARGIN" is deleted and substituted with the following:
LIBOR (EXCLUDING BRIDGE LIBOR LOANS LEVERAGE LOANS), B/A RATE PRIME AND FOR BRIDGE RATIO LOANS AND L/CS BASE RATE LOANS LOANS ONLY - -------- ----------------------- --------------- ----------- UNDER 2.75 1.25% .25% 1.625% FROM AND INCLUDING 2.75 TO LESS THAN 3.00 1.375% .375% 1.75% 3.00 OR MORE 1.50% .50% 1.875%
3. The following definitions are added to the Credit Agreement: "BRIDGE LOAN COMMITMENT" HAS THE MEANING SPECIFIED IN SECTION 2.01(D); "BRIDGE LOAN FACILITY" MEANS THE TERM CREDIT FACILITY TO BE MADE AVAILABLE TO THE US BORROWER BY THE BRIDGE LOAN LENDER UNDER SECTION 2.20 HEREOF; "BRIDGE LOAN LENDER" MEANS BOFA; "BRIDGE LOAN" MEANS A US BORROWING MADE PURSUANT TO SECTION 2.20 HEREOF; "BRIDGE LOAN REPAYMENT DATE" HAS THE MEANING SPECIFIED IN SECTION 2.20 HEREOF. "NET PROCEEDS" MEANS, AS TO ANY DISPOSITION, PROCEEDS IN CASH, CHEQUES, OR OTHER CASH EQUIVALENT FINANCIAL INSTRUMENTS AS AND WHEN RECEIVED BY EITHER BORROWER OR A SUBSIDIARY, NET OF: 3 - 3 - (A) THE DIRECT COSTS RELATING TO SUCH DISPOSITION EXCLUDING AMOUNTS PAYABLE TO A BORROWER OR ANY AFFILIATE OF SUCH BORROWER, (B) ANY INCOME, SALE, USE OR OTHER TRANSACTION, TAXES PAID OR PAYABLE BY THE BORROWER OR SUBSIDIARY AS A DIRECT RESULT THEREOF. 4. The definition of "Commitment" is deleted and substituted with the following: "COMMITMENT", AS TO EACH BANK, IS THE AMOUNT SET FORTH IN SCHEDULE 2.01 OPPOSITE EACH BANK'S NAME AND SHALL INCLUDE THE BRIDGE LOAN COMMITMENT. 5. The definition of "Credit" is deleted and substituted with the following: "CREDIT" MEANS THE REVOLVING CREDIT FACILITY OF UP TO $20,000,000 (OR THE CANADIAN DOLLAR EQUIVALENT) ESTABLISHED BY THE BANKS IN FAVOUR OF THE BORROWERS, AND SPECIFICALLY EXCLUDES THE BRIDGE LOAN FACILITY. 6. The definition of "Majority Banks" is deleted and substituted with the following: "MAJORITY BANKS" MEANS AT ANY TIME AT LEAST TWO BANKS THEN HAVING AT LEAST 100% OF THE COMMITMENTS, OR IN THE EVENT ONLY ONE BANK HAS COMMITMENTS, SUCH BANK." 7. The definition of "Loan" is amended by the addition of ", BRIDGE LOAN" following the phrase "Swingline Loan" in lines 2 - 3 thereof. 8. The definition of "Pro Rata Share" is amended by the addition of the following sentence at the end of such definition: 4 - 4 - "IN THE CASE OF THE BRIDGE LOAN FACILITY, THE BRIDGE LOAN LENDER'S PRO RATA SHARE OF THE BRIDGE LOAN COMMITMENT IS 100%." 9. Section 2.01(a) is amended by the addition of ", PREPAY UNDER SECTION 2.21 " following the phrase "prepay under Section 2.07" in the last sentence thereof. 10. Section 2.01(b) is amended by the addition of ", PREPAY UNDER SECTION 2.21 " following the phrase "prepay under Section 2.07 " in the last sentence thereof. 11. Section 2.01(c) is amended by the addition of the following sentence at the end thereof: "ONLY THE BRIDGE LOAN LENDER SHALL MAKE BRIDGE LOANS TO THE US BORROWER." 12. Section 2.01 is further amended by addition of the following: "(D) THE BRIDGE LOAN LENDER AGREES, ON THE TERMS AND CONDITIONS SET FORTH HEREIN, TO MAKE A SINGLE LOAN TO THE US BORROWER (THE "BRIDGE LOAN") IN AN AMOUNT NOT TO EXCEED $50,000,000 (THE "BRIDGE LOAN COMMITMENT"). AMOUNTS BORROWED AS A BRIDGE LOAN MAY NOT BE REBORROWED. 13. Section 2.05(a) is amended by the addition of "OR A BRIDGE LOAN" following the phrase "a Swingline Loan" in line 1 thereof. 14. Section 2.06 is amended by the addition of the following: "(G) THE PROVISIONS OF THIS SECTION 2.06 PERMITTING CONVERSION OF US LOANS 5 - 5 - SHALL NOT APPLY IN THE CASE OF THE BRIDGE LOAN." 15. Section 2.08 is amended by the addition of "(EXCLUDING THE BRIDGE LOAN)" following the phrase "amount of US Loans outstanding" in line 3 thereof. 16. Section 2.10(b) is amended by the deletion of the third sentence thereof and substitution of the following: "INTEREST SHALL ALSO BE PAID ON THE DATE OF ANY PREPAYMENT OF LOANS, INCLUDING ANY PAYMENT UNDER SECTION 2.07 OR 2.21, FOR THE PORTION OF THE LOANS SO PREPAID AND UPON PAYMENT (INCLUDING PREPAYMENT) IN FULL THEREOF AND, DURING THE EXISTENCE OF ANY EVENT OF DEFAULT, INTEREST SHALL BE PAID ON DEMAND OF THE APPLICABLE AGENT AT THE REQUEST OR WITH THE CONSENT OF THE MAJORITY BANKS." 17. Section 2.11(b) is amended by the addition of "(EXCLUDING THE BRIDGE LOAN COMMITMENT)" following the phrase "of the Total Commitments" in the first sentence thereof. 18. Section 2.17(a) is amended by the addition of the following: "(VII) NO REALLOCATION REQUEST MAY BE MADE IN RESPECT OF THE BRIDGE LOAN." 19. The following section is added to the Agreement as a new section 2.20. "2.20 BRIDGE LOAN FACILITY (A) THE BRIDGE LOAN LENDER SHALL MAKE A ONE TIME BRIDGE LOAN TO THE US BORROWER BY WAY OF LIBOR LOANS IN AN AMOUNT NOT TO EXCEED $50,000,000. THE PROCEEDS FROM THE BRIDGE LOAN SHALL BE APPLIED BY THE US BORROWER TO THE REPAYMENT OF 6 -6- THE SENIOR SECURED NOTES. THE BRIDGE LOAN SHALL BE MADE UPON THE US BORROWER'S IRREVOCABLE WRITTEN NOTICE DELIVERED TO THE US AGENT SPECIFYING: (I) THE AMOUNT OF THE BRIDGE LOAN; (II) THE REQUESTED BORROWING DATE, WHICH SHALL BE A BUSINESS DAY; AND (III) THE DURATION OF THE INITIAL LIBOR PERIOD. (B) SUBJECT TO (D) BELOW, THE US BORROWER SHALL REPAY IN FULL THE BRIDGE LOAN AND ALL ACCRUED INTEREST ON OCTOBER 31, 2000 (THE "BRIDGE LOAN REPAYMENT DATE"). (C) REPAYMENT OR PREPAYMENT (INCLUDING PURSUANT TO SECTION 2.21) OF ALL OR ANY PART OF THE BRIDGE LOAN SHALL PERMANENTLY REDUCE THE BRIDGE LOAN FACILITY. (D) IF AT ANY TIME THE OUTSTANDING AMOUNT OF THE LOANS IS LESS THAN $10,000,000, THE US BORROWER SHALL IMMEDIATELY REPAY THE FULL AMOUNT OUTSTANDING OF THE BRIDGE LOAN. SUCH REPAYMENT MAY BE MADE BY WAY OF CANADIAN LOANS OR US LOANS." 20. The following Section is added to the Agreement as a new Section 2.21: "2.21 MANDATORY PREPAYMENT (A) IF THE COMPANY OR THE US BORROWER OR ANY SUBSIDIARY SHALL AT ANY TIME OR FROM TIME TO TIME MAKE A DISPOSITION, THEN (I) THE COMPANY OR THE US BORROWER, AS THE CASE MAY BE, SHALL PROMPTLY NOTIFY THE CANADIAN AGENT OF SUCH PROPOSED DISPOSITION (INCLUDING THE AMOUNT OF ESTIMATED NET PROCEEDS TO BE RECEIVED BY THE COMPANY, US BORROWER OR SUBSIDIARY IN RESPECT THEREOF) AND (II) PROMPTLY UPON RECEIPT BY THE COMPANY, US BORROWER OR SUBSIDIARY OF THE NET PROCEEDS OF SUCH DISPOSITION, THE COMPANY OR THE US BORROWER AS THE CASE MAY BE, SHALL REPAY LOANS (EXCLUDING L/C LOANS) IN AN AGGREGATE AMOUNT EQUAL TO 100% OF THE AMOUNT OF SUCH NET PROCEEDS. IN NO EVENT SHALL THE DATE FOR PAYMENT OF THE NET PROCEEDS BY THE COMPANY OR THE US BORROWER TO THE APPLICABLE 7 - 7 - AGENT (THE "NET PROCEEDS PAYMENT DATE") BE LATER THAN TWO BUSINESS DAYS FOLLOWING RECEIPT BY THE COMPANY, US BORROWER OR SUBSIDIARY, AS THE CASE MAY BE, OF THE NET PROCEEDS OF SUCH DISPOSITION. AT LEAST TWO BUSINESS DAYS PRIOR TO THE NET PROCEEDS PAYMENT DATE, THE COMPANY OR THE US BORROWER, AS THE CASE MAY BE, SHALL PROVIDE THE APPLICABLE AGENT WITH AN IRREVOCABLE NOTICE OF PREPAYMENT, IDENTIFYING THE NET PROCEEDS PAYMENT DATE AND A DETAILED CALCULATION OF NET PROCEEDS FROM THE SUBJECT DISPOSITION. WHEN SUCH NOTICE IS GIVEN BY THE COMPANY OR THE US BORROWER, THE COMPANY OR THE US BORROWER, AS THE CASE MAY BE, SHALL MAKE SUCH PREPAYMENT ON THE NET PROCEEDS PAYMENT DATE, TOGETHER WITH ACCRUED INTEREST TO SUCH DATE ON THE AMOUNT PREPAID. (B) THE COMPANY OR THE US BORROWER, AS THE CASE MAY BE, SHALL ALSO PAY TO BANKS ANY AMOUNTS PAYABLE PURSUANT TO SECTION 4.04 AS A RESULT OF A PREPAYMENT PURSUANT TO THIS SECTION 2.21. (C) UPON RECEIPT BY AN AGENT OR AGENTS OF A NOTICE OF PREPAYMENT PURSUANT TO SECTION 2.21(A) ABOVE, THE AGENTS SHALL CALCULATE THE TOTAL OUTSTANDING AMOUNTS OF EACH CANADIAN LOAN (EXCLUDING L/C LOANS), US LOANS (EXCLUDING L/C LOANS AND BRIDGE LOANS) AND BRIDGE LOANS. THE TOTAL AMOUNT OF SUCH CANADIAN LOANS AND US LOANS ARE CALLED THE "REVOLVING LOANS". THE AGENT(S) SHALL APPLY THE NET PROCEEDS FROM A DISPOSITION RATABLY AGAINST THE REVOLVING LOANS AND THE BRIDGE LOAN. SPECIFICALLY, APPLICATION OF THE NET PROCEEDS SHALL BE DETERMINED OR CALCULATED IN PROPORTION TO WHICH THE REVOLVING LOANS AND THE BRIDGE LOAN EACH BEAR TO THE TOTAL AMOUNT OF ALL LOANS OUTSTANDING (EXCLUDING L/C LOANS). DISBURSEMENT OF PAYMENTS BY THE APPLICABLE AGENT TO EACH APPLICABLE BANK SHALL BE MADE ON THE NET PROCEEDS PAYMENT DATE (OR OTHERWISE IN ACCORDANCE WITH SECTION 2.13) IN AMOUNTS EQUAL TO EACH BANK'S PRO RATA 8 - 8 - SHARE, BUT APPLIED IN THE FOLLOWING PRIORITIES: (I) IN THE CASE OF REVOLVING LOANS FIRST TO PRIME RATE LOANS AND BASE RATE LOANS, AND SECOND TO B/A EQUIVALENT LOANS AND LIBOR LOANS; (II) IN THE CASE OF THE BRIDGE LOAN, FIRST TO THE LIBOR LOANS." 21. Section 4.04 (d) is amended by the addition of "OR SECTION 2.21" following the phrase "Section 2.07" in line 1 thereof. 22. The following Section is added to the Agreement as a new Section 5.03: 5.03 CONDITIONS TO BRIDGE LOAN BORROWINGS. IN ADDITION TO THE PROVISIONS OF SECTION 5.01 AND 5.02, THE OBLIGATION OF THE BRIDGE LOAN LENDER TO MAKE THE BRIDGE LOAN IS SUBJECT TO THE SATISFACTION OF THE FOLLOWING CONDITIONS PRECEDENT ON OR BEFORE THE EFFECTIVE DATE OF THE INITIAL BRIDGE LOAN: (A) PREPAYMENT AMOUNT. EVIDENCE OF THE ARRANGEMENTS FOR PREPAYMENT OF THE SENIOR SECURED NOTES ON TERMS SATISFACTORY TO THE AGENTS. (B) CONFIRMATION OF EXISTING GUARANTEES. EACH GUARANTOR SHALL CONFIRM IN WRITING TO THE BANKS, THE AGENTS AND THE BRIDGE LOAN LENDER THAT THE GUARANTEE GRANTED BY EACH RESPECTIVE GUARANTOR DATED MAY 21, 1999 REMAINS IN FULL FORCE AND EFFECT AND APPLY TO THE CREDIT AGREEMENT AS AMENDED; 9 - 9 - (C) SECURITY CONFIRMATION. WRITTEN CONFIRMATION FROM THE BORROWERS AND EACH GUARANTOR THAT THE EXISTING SECURITY DOCUMENTS GRANTED PURSUANT TO THE CREDIT AGREEMENT REMAIN IN FULL FORCE AND EFFECT AND APPLY TO THE CREDIT AGREEMENT, AS AMENDED. (D) LEGAL OPINIONS. (I) AN OPINION OF STIKEMAN, ELLIOTT, COUNSEL TO THE COMPANY AND ADDRESSED TO THE AGENTS AND THE BANKS, IN FORM SATISFACTORY TO THE AGENTS, THE BANKS AND THEIR COUNSEL; AND (II) AN OPINION OF HOGAN & HARTSON, COUNSEL TO THE US BORROWER AND ADDRESSED TO THE AGENTS AND THE BANKS, IN FORM SATISFACTORY TO THE AGENTS, THE BANKS AND THEIR COUNSEL. 23. Section 8.24 is amended by the deletion of the first sentence thereof and substitution therefor with the following: "NEITHER BORROWER SHALL USE OR PERMIT TO BE USED ANY PART OF THE CREDIT, THE BRIDGE LOAN OR ANY LOAN PROCEEDS FOR THE DIRECT OR INDIRECT ACQUISITION OF AN EXCLUDED SUBSIDIARY." 24. Section 9.01 is amended by the addition of the following paragraph: (N) DISPOSITIONS. THE COMPANY OR THE US BORROWER FAILS TO SUBMIT THE NET PROCEEDS FROM ANY DISPOSITION TO THE BANKS IN REPAYMENT OF THE LOANS. 25. Section 11.08 is amended by additions of the following: (F) IN EACH INSTANCE WHERE A DECISION IS REQUIRED TO BE MADE BY THE MAJORITY BANKS UNDER THIS AGREEMENT, EACH BANK SHALL ACT IN GOOD FAITH AND USE ITS BEST EFFORTS TO REACH 10 - 10 - AGREEMENT WITH THE OTHER BANKS WITHIN FIVE BUSINESS DAYS, OR, IN THE CASE OF ACTION OR DECISION REQUIRED PURSUANT TO SECTION 9.02, WITHIN 48 HOURS. IN THE EVENT THAT THE BANKS ARE UNABLE TO REACH AGREEMENT WITHIN SUCH TIME PERIODS, THE CHASE MANHATTAN BANK ("CHASE") SHALL BE DEEMED TO HAVE ASSIGNED ITS COMMITMENTS AND ALL OTHER RIGHTS AND OBLIGATIONS OF CHASE HEREUNDER TO BofA, AND BofA SHALL BE DEEMED TO HAVE ACCEPTED AND ACQUIRED ALL SUCH COMMITMENTS, RIGHTS AND OBLIGATIONS FROM CHASE. THE COMPANY AND THE AGENTS WILL BE DEEMED TO HAVE CONSENTED TO SUCH ASSIGNMENT. THE PARTIES SHALL EFFECT SUCH ASSIGNMENT IN COMPLIANCE WITH THE PROVISIONS OF THIS SECTION 11, INCLUDING DELIVERY OF AN ASSIGNMENT AND ACCEPTANCE. 26. Schedule 2.01 is replaced with the following: SCHEDULE 2.01 BANK COMMITMENTS AND PRO RATA SHARES
CANADIAN BANKS COMMITMENT PRO RATA SHARE - ------------------------ ----------- -------------- BANK OF AMERICA CANADA $2,000,000 10% US BANKS - ------------------------ BANK OF AMERICA, NA $9,000,000 45% THE CHASE MANHATTAN BANK 9,000,000 45% ----------- TOTAL $20,000,000 BRIDGE LOAN LENDER - ------------------------ BANK OF AMERICA, NA $50,000,000 100%
27. For greater clarification and certainty, the parties agree that any obligation to make the Bridge Loan is only that of the Bridge Loan Lender and the other Banks are under no obligation to participate directly or by way of risk participation in any Bridge Loan. 11 - 11 - 28. The parties confirm the terms and conditions of the Credit Agreement as amended by the terms of the First Amendment Agreement and as amended by this Second Amendment Agreement. 29. This Second Amendment Agreement may be referred to as being dated March 7, 2000, notwithstanding the actual date of execution. 30. This Second Amendment Agreement may be executed in any number of separate counterparts, each of which, when so executed shall be deemed an original and all said counterparts taken together shall be deemed to constitute one and the same instrument. 31. The representations and warranties in Article VI of the Credit Agreement remain true and correct with the same effect as if made on and as of the date of this Second Amendment Agreement. [The remainder of this page is intentionally left blank.] 12 - 12 - IN WITNESS WHEREOF the parties have executed this Agreement on March 7, 2000. ZEMEX CORPORATION, AS COMPANY By:___________________________________ Title:________________________________ ZEMEX U.S. CORPORATION, AS US BORROWER By:___________________________________ Title:________________________________ 13 - 13 - BANK OF AMERICA CANADA, AS CANADIAN AGENT AND AS A BANK By:___________________________________ Title:________________________________ 14 -14- BANK OF AMERICA N.A. AS US AGENT By:____________________________________ Title:_________________________________ 15 - 15 - BANK OF AMERICA N.A. AS A BANK By:___________________________________ Title:________________________________ 16 - 16 - BANK OF AMERICA N.A. AS BRIDGE LOAN LENDER By:___________________________________ Title:________________________________ 17 - 17 - THE CHASE MANHATTAN BANK AS A BANK By:___________________________________ Title:________________________________ EX-10.(1) 3 EXHIBIT 10.(1) 1 Exhibit 10(l) THIS AGREEMENT made as of the 1st day of October, 1999. B E T W E E N: ZEMEX CORPORATION (hereinafter called the "Corporation") - and - RICHARD L. LISTER (hereinafter called the "Executive") WITNESSES THAT: WHEREAS the Executive is presently employed by the Corporation; AND WHEREAS the Corporation and the Executive are desirous of having certain rights and benefits in the event that the Executive is dismissed or the Executive elects to terminate his employment relationship with the Corporation in the manner set out herein; AND WHEREAS the Corporation wishes to retain the benefit of the Executive's employment with the Corporation and to ensure that the Executive is able to carry out his responsibilities with the Corporation free from any distractions associated with any change in the ownership of the Corporation or its assets; NOW THEREFORE in consideration of the premises and the mutual covenants and agreements hereinafter contained, and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by the parties hereto), it is agreed by and between the parties hereto as follows: SECTION 1 DEFINITIONS: Terms used in this Agreement but not otherwise defined herein have the meanings set forth below: (a) "BENEFIT PLANS" means any stock option or stock purchase plan, employee loan, insurance, long-term disability, medical, dental and other executive and employee benefit plans, including any pension or similar plans, perquisites and privileges, such as club dues, automobile expenses and similar items, as may be provided at the time to the Executive by the Corporation; (b) "CHANGE IN CONTROL" means a transaction or series of transactions whereby directly or indirectly: (i) any person or combination of persons (other than any combination of Dundee Bancorp Inc. or any affiliate thereof and Richard L. Lister or a corporation controlled by any one or more of such persons) acting jointly or in concert obtains a sufficient number of securities of the Corporation to affect materially the control of the Corporation; or 2 - 2 - (ii) the Corporation shall consolidate or merge with or into, amalgamate with, or enter into a statutory arrangement with, any other person (other than a subsidiary of the Corporation) or any other person (other than a subsidiary of the Corporation) shall consolidate or merge with or into, or amalgamate with or enter into a statutory arrangement with, the Corporation, and, in connection therewith, all or part of the outstanding voting shares shall be changed in any way, reclassified or converted into, exchanged or otherwise acquired for shares or other securities of the Corporation or any other person or for cash or any other property; or (iii) the Corporation shall be liquidated or dissolved or shall sell or otherwise transfer, including by way of the grant of a leasehold interest (or one or more of its subsidiaries shall sell or otherwise transfer, including by way of the grant of a leasehold interest) property or assets (A) aggregating more than 50% of the consolidated assets (measured by either book value or fair market value) of the Corporation and its subsidiaries as at the end of the most recently completed financial year of the Corporation or (B) which during the most recently completed financial year of the Corporation generated, or during the then current financial year of the Corporation are expected to generate, more than 50% of the consolidated operating income or cash flow of the Corporation and its subsidiaries, to any other person or persons (other than the Corporation or one or more of its subsidiaries); or (iv) the Corporation shall issue shares of common stock from the treasury of the Corporation in a sufficient number to affect materially the control of the Corporation; or (v) the Incumbent Directors cease to represent a majority of the members of the Board of Directors of the Corporation; for the purposes of Sections 1(b)(i) and (iv), a person or combination of persons acting jointly or in concert and beneficially owning shares or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 20% or more of the votes attaching to all shares of the Corporation which may be cast to elect directors of the Corporation, shall be deemed to be in a position to affect materially the control of the Corporation; (c) "EXPIRY DATE" means 24 months after a Change in Control occurs; and (d) "INCUMBENT DIRECTORS" means the members of the Board of Directors holding office at the date of this Agreement and any additional Directors appointed by or with the consent of the Incumbent Directors. SECTION 2 RIGHTS UPON OCCURRENCE OF CHANGE IN CONTROL: If a Change in Control occurs, the Executive shall be entitled to elect to terminate his employment with the Corporation unilaterally and to receive a 3 - 3 - payment from the Corporation in an amount equal to the aggregate of (a) 300% of his current annual base salary applicable at the date of a notice of election to terminate given to the Corporation by such Executive pursuant to Section 3 plus (b) 300% of the average of the annual bonus, if any, payable to him and (c) 300% of the deemed interest benefit ascribed to the Executive for tax purposes on his interest-free share purchase loans with the Corporation, in the case of (b) and (c) being in respect of each of the three fiscal years of the Corporation ended immediately prior to the date of a notice of election to terminate given to the Corporation by such Executive pursuant to Section 3 SECTION 3 TERMINATION RIGHTS CONDITIONAL: All termination rights of the Executive provided for in Section 2 are conditional upon the Executive electing to exercise such rights by notice given to the Corporation on or before the Expiry Date and are exercisable only if the Executive does not resign from his employment with the Corporation (other than at the request of the Corporation) and does not actively seek alternative employment, in each case for at least three months following the date of the Change of Control. SECTION 4 RIGHTS UPON DISMISSAL WITHOUT CAUSE: The Executive shall be entitled to a payment by the Corporation of an amount calculated as provided for in Section 2 (except that his annual base salary as referred to in Section 2(a) shall be that applicable immediately prior to the date of his dismissal) if the Executive is dismissed from his employment with the Corporation without cause after a Change in Control and on or before the Expiry Date. The Corporation shall not dismiss the Executive for any reason unless such dismissal is specifically approved by the Board of Directors of the Corporation. Likewise, the Corporation shall have the right to dismiss the Executive from his employment with the Corporation without cause after a Change in Control and on or before the Expiry Date, subject to paying the Executive the amount calculated as provided for in Section 2. SECTION 5 PAYMENTS UNDER THIS AGREEMENT: Any payment to be made by the Corporation pursuant to the terms of this Agreement shall be made by the Corporation in cash in a lump sum within five business days of the giving of notice by the Executive pursuant to Section 3, or within five business days of the dismissal from the Executive's employment as referred to in Section 4, as the case may be. Any payment to be made under Section 2 or 4 shall be calculated, in the case of Section 2, at the date of giving notice pursuant to Section 3 and, in the case of Section 4, at the date of dismissal. Notwithstanding the foregoing provisions of this Section 5, at the option of the Executive a payment, or any part thereof as shall be specified by the Executive, to be made to the Executive shall be deferred to such date or dates as shall be designated in writing by the Executive. Any payment so deferred shall bear simple interest at the rate of 6% per annum calculated from the date payment of the amount otherwise should have been made until the date of payment in full. The Corporation shall list the items making up a payment calculated as provided for in Section 2 and shall support the calculation of such amount. SECTION 6 PAYMENTS IN LIEU OF ALL OTHER DAMAGE CLAIMS ETC.: All payments provided for herein shall be in lieu of all other notice or damage claims as regards dismissal or termination of the Executive's employment with the Corporation or any subsidiary of the Corporation after a Change in Control and on or before the Expiry Date. The arrangements provided for herein shall not be considered in any judicial determination of appropriate damages at common law for dismissal without cause, other than as provided for in this Agreement. At the request of either party, the parties shall exchange mutual signed releases of liability conforming to the substantive provisions of this Agreement. 4 - 4 - SECTION 7 AGREEMENT SUPPLEMENTAL: This Agreement shall be supplemental to any other contract of employment or otherwise, whether written or oral, that exists between the Corporation or any subsidiary of the Corporation and the Executive, except insofar as any such contract relates to the termination of the employment relationship between the Corporation or any subsidiary of the Corporation and the Executive, in which case this Agreement shall supersede the termination provisions of any such other contract of employment or otherwise including, without limitation, the termination agreement between the Executive and a predecessor of the Corporation dated October 1, 1998. SECTION 8 BENEFIT PLANS: In the event that the Executive is entitled to a payment pursuant to Section 2 or 4, the Executive shall be entitled to have all Benefit Plans as constituted at the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment, as the case may be, continued for a period of 36 months after the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment, as the case may be, or for any longer period available under any Benefit Plans when coverage is provided from a source other than the Corporation. Notwithstanding the foregoing provisions of this Section 8, at the option of the Executive the cost to the Corporation of such Benefit Plans, or any part of the benefits under any such Benefit Plans as shall be specified by the Executive, shall be converted to a lump sum amount and shall be paid to the Executive immediately or shall be deferred to such date or dates as shall be designated in writing by the Executive. Any payment so deferred shall bear simple interest at the rate of 6% per annum calculated from the date payment of the amount otherwise should have been made until the date of payment in full. SECTION 9 STOCK OPTION AND STOCK PURCHASE PLANS: If the Executive is entitled to a payment pursuant to Section 2 or 4, the term during which any stock option granted to the Executive by the Corporation or any subsidiary of the Corporation may be exercised shall be extended to the later of the expiry date of the option or 12 months after the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment as referred to in Section 4, as the case may be; provided that the maximum term of any such option shall not exceed six years from the date of grant of the option or such longer period as shall be permitted under the terms of the Corporation's stock option plan. In addition, in such event any provisions of the stock option or the stock purchase plan restricting the number of shares which may be purchased before a particular date shall be waived and the options shall be fully vested immediately. If the Executive is entitled to a payment pursuant to Section 2 or 4, all shares owned by the Executive and held in any stock purchase plan shall immediately be released to the Executive, subject to the Executive making any payments required under the plan. The terms of any stock option plan, stock purchase plan or agreement therefor shall be deemed amended to reflect the provisions of this Section 9. SECTION 10 DESIGNATION OF BENEFICIARY: If the Executive dies prior to satisfaction of all of the Corporation's obligations under this Agreement, any remaining amounts payable to the Executive by the Corporation shall be paid to the person or persons (a "Beneficiary") previously designated by the Executive to the Corporation for such purposes. Any such designation of a Beneficiary shall be made in writing, signed by the Executive and dated and filed with the Secretary of the Corporation. In the event that no such designation is made, all such remaining amounts shall be paid by the Corporation to the Estate of the Executive. If the Executive has exercised the option pursuant to Section 5 or 8 to defer a payment, or any part thereof, to be made to or for the benefit of the Executive, the Beneficiary or the Executor of the Estate, 5 - 5 - as the case may be, shall have the further option to require payment in full of any such remaining amounts to the Beneficiary or the Executor, as the case may be, by giving notice to that effect to the Corporation. SECTION 11 ASSIGNMENT AND ASSUMPTION: This Agreement automatically shall be assigned by the Corporation to any successor corporation of the Corporation and shall be binding upon such successor corporation. For the purposes of this Section 11, "successor corporation" shall include any person referred to in Subsection 1(b)(ii) or (iii). The Corporation shall ensure that the successor corporation shall continue the provisions of this Agreement as if it were the original party in place of the Corporation; provided however that the Corporation shall not thereby be relieved of any obligation to the Executive pursuant to this Agreement. In the event of a transaction or series of transactions as described in Subsection 1(b)(ii) or (iii), appropriate arrangements shall be made by the Corporation for the successor corporation to honour this Agreement as if the Executive had exercised his maximum rights hereunder as of the effective date of such transaction. SECTION 12 FURTHER ASSURANCES: Each of the parties hereto agrees to do and execute or cause to be made, done or executed all such further and other things, acts, deeds, documents, assignments and assurances as may be necessary or reasonably required to carry out the intent and purpose of this Agreement fully and effectually. Without limiting the generality of the foregoing, the Corporation shall take all reasonable steps in order to structure the payment or payments provided for in this Agreement in the manner most advantageous to the Executive with respect to the provisions of the Income Tax Act (Canada), the Internal Revenue Code (United States of America) or any similar legislation in place in any other jurisdiction of the Executive's residence. SECTION 13 REVIEW OF AGREEMENT: In the event of a threatened or pending Change in Control of the Corporation, and following an actual Change in Control of the Corporation, the Corporation in either case shall enter into a review of the terms of this Agreement and shall implement any amendments hereto which are agreed to by both parties. SECTION 14 OUTPLACEMENT SERVICES: If the Executive is entitled to receive a payment pursuant to Section 2 or 4, the Corporation shall pay the reasonable costs (to a maximum of 10% of the annual base salary of the Executive as used for the calculation of such payment) of the services for the Executive of a suitable outplacement counselling service selected by the Corporation. Notwithstanding the foregoing provisions of this Section 15, at the option of the Executive the cost to the Corporation of such outplacement services shall be converted to a lump sum amount and shall be paid to the Executive immediately. SECTION 15 GENDER: Whenever the context of this Agreement so requires or permits, the masculine gender includes the feminine gender. SECTION 16 NOTICE: Any notice, election or designation to be made by the Executive pursuant to this Agreement shall be in writing and shall be hand delivered to the Corporation at the following address: 6 - 6 - Zemex Corporation Canada Trust Tower, BCE Place 161 Bay Street, Suite 3750 Toronto, Ontario M5J 2S1 Telephone: (416) 365-8080 Fax: (416) 365-8094 Attention: Chairman of the Board SECTION 17 TERM: This Agreement shall commence as of the date first above written and shall terminate on December 31, 2004 unless extended with the mutual agreement of the parties hereto and approved by the Board of Directors of the Corporation; provided that if a Change of Control occurs on or before December 31, 2004 the term of this Agreement automatically shall be extended to the Expiry Date. SECTION 18 GOVERNING LAW: This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario. The parties agree to attorn to the jurisdiction of, and to submit any dispute arising out of this Agreement to the Courts of the Province of Ontario. IN WITNESS WHEREOF the parties hereto have caused this agreement to be executed as of the date first above written. ZEMEX CORPORATION per: c/s ------------------ Paul A. Carroll Director SIGNED, SEALED & DELIVERED ) in the presence of ) ) ) ) ) ) l/s - -------------------------- ------------------ Witness ) Richard L. Lister ) EX-10.(M) 4 EXHIBIT 10.(M) 1 Exhibit 10(m) THIS AGREEMENT made as of the 1st day of October, 1999. B E T W E E N: ZEMEX CORPORATION (hereinafter called the "Corporation") - and - ALLEN J. PALMIERE (hereinafter called the "Executive") WITNESSES THAT: WHEREAS the Executive is presently employed by the Corporation or a Subsidiary; AND WHEREAS the Corporation and the Executive are desirous of having certain rights and benefits in the event that the Executive is dismissed or the Executive's employment relationship with the Corporation or the Subsidiary is terminated in the manner set out herein; AND WHEREAS the Corporation wishes to retain the benefit of the Executive's employment with the Corporation or the Subsidiary and to ensure that the Executive is able to carry out his responsibilities with the Corporation or the Subsidiary free from any distractions associated with any change in the ownership of the Corporation or its assets; NOW THEREFORE in consideration of the premises and the mutual covenants and agreements hereinafter contained, and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by the parties hereto), it is agreed by and between the parties hereto as follows: SECTION 1 DEFINITIONS: Terms used in this Agreement but not otherwise defined herein have the meanings set forth below: (a) "BENEFIT PLANS" means any stock option or stock purchase plan, employee loan, insurance, long-term disability, medical, dental and other executive and employee benefit plans, including any pension or similar plans, perquisites and privileges, such as club dues, automobile expenses and similar items, as may be provided at the time to the Executive by the Corporation or the Subsidiary; 2 - 2 - (b) "CHANGE IN CONTROL" means a transaction or series of transactions whereby directly or indirectly: (i) any person or combination of persons (other than any combination of Dundee Bancorp Inc. or any affiliate thereof and Richard L. Lister or a corporation controlled by any one or more of such persons) acting jointly or in concert obtains a sufficient number of securities of the Corporation to affect materially the control of the Corporation; or (ii) if the Executive is primarily employed by the Corporation, the Corporation shall consolidate or merge with or into, amalgamate with, or enter into a statutory arrangement with, any other person (other than a subsidiary of the Corporation) or any other person (other than a subsidiary of the Corporation) shall consolidate or merge with or into, or amalgamate with or enter into a statutory arrangement with, the Corporation, and, in connection therewith, all or part of the outstanding voting shares shall be changed in any way, reclassified or converted into, exchanged or otherwise acquired for shares or other securities of the Corporation or any other person or for cash or any other property (other than a transaction which has been approved by the Incumbent Directors); or (iii) if the Executive is primarily employed by the Corporation, the Corporation shall be liquidated or dissolved or shall sell or otherwise transfer, including by way of the grant of a leasehold interest (or one or more of its subsidiaries shall sell or otherwise transfer, including by way of the grant of a leasehold interest) property or assets (A) aggregating more than 50% of the consolidated assets (measured by either book value or fair market value) of the Corporation and its subsidiaries as at the end of the most recently completed financial year of the Corporation or (B) which during the most recently completed financial year of the Corporation generated, or during the then current financial year of the Corporation are expected to generate, more than 50% of the consolidated operating income or cash flow of the Corporation and its subsidiaries, to any other person or persons (other than the Corporation or one or more of its subsidiaries); or (iv) if the Executive is primarily employed by a Subsidiary, the Subsidiary shall be liquidated or dissolved or shall sell or otherwise transfer, including by way of the grant of a leasehold interest (or one or more of its subsidiaries shall sell or otherwise transfer, including by way of the grant of a leasehold interest) property or assets (A) aggregating more than 50% of the consolidated assets (measured by either book value or fair market value) of the Subsidiary and its subsidiaries as at the end of the most recently completed financial year of the Subsidiary or (B) which during the most recently completed financial year of the Subsidiary generated, or during the then current financial year of the Subsidiary are expected to generate, more than 50% of the consolidated operating income or cash flow of the Subsidiary 3 - 3 - and its subsidiaries, to any other person or persons (other than the Corporation, the Subsidiary or one or more of its subsidiaries); or (v) if the Executive is primarily employed by the Corporation, the Corporation shall issue shares of common stock from the treasury of the Corporation in a sufficient number to affect materially the control of the Corporation; or (vi) if the Executive is primarily employed by a Subsidiary, (A) a transfer of shares of the Subsidiary or (B) the issue of treasury shares of the Subsidiary, in either case having the result that any person or combination of persons (other than any combination of Dundee Bancorp Inc. or any affiliate thereof and Richard L. Lister or a corporation controlled by any one or more of such persons) acting jointly or in concert beneficially owns shares or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 49.9% or more of the votes attaching to all shares of the Subsidiary which may be cast to elect directors of the Subsidiary; or (vii)the Incumbent Directors cease to represent a majority of the members of the Board of Directors of the Corporation; for the purposes of Sections 1(b)(i) and (v), a person or combination of persons acting jointly or in concert and beneficially owning shares or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 20% or more of the votes attaching to all shares of the Corporation which may be cast to elect directors of the Corporation shall be deemed to be in a position to affect materially the control of the Corporation; (c) "EXPIRY DATE" means 24 months after a Change in Control occurs; (d) "INCUMBENT DIRECTORS" means the members of the Board of Directors holding office at the date of this Agreement and any additional Directors appointed by or with the consent of the Incumbent Directors; (e) "SUBSIDIARIES" means the following: (i) Alumitech, Inc. and its subsidiaries; (ii) Pyron Corporation and its subsidiaries; and (iii) Zemex Industrial Minerals, Inc. and its subsidiaries; and "SUBSIDIARY" means any one of them with which the Executive has employment; 4 - 4 - (f) "TRIGGERING EVENT" means any one of the following events which occurs without the express or implied agreement of the Executive: (i) an adverse change in any of the duties, powers, rights, discretion, salary or benefits of the Executive as they exist at the date of this Agreement; or (ii) a diminution of the title of the Executive as it exists at the date of this Agreement; or (iii)a change in the person or body to whom the Executive reports at the date of this Agreement, except if such person or body is of equivalent rank or stature or such change is as a result of the resignation or removal of such person or the persons comprising such body, as the case may be, provided that this shall not include a change resulting from a promotion in the normal course of business; or (iv) a change in the municipality at which the Executive is regularly required to carry out the terms of his employment with the Corporation at the date of this Agreement unless the Executive's terms of employment include the obligation to receive geographic transfers from time to time in the normal course of business. SECTION 2 RIGHTS UPON OCCURRENCE OF CHANGE IN CONTROL FOLLOWED BY A TRIGGERING EVENT: If, in respect of the Executive, a Change in Control occurs and if, in respect of the Executive, a Triggering Event occurs after the Change of Control and on or before the Expiry Date, the Executive shall be entitled to elect to terminate his employment with the Corporation and to receive a payment from the Corporation in an amount equal to the aggregate of (a) 200% of his annual base salary that was applicable immediately prior to the date of the Triggering Event and (b) 200% of the average of the annual bonus, if any, payable to him in respect of each of the two fiscal years of the Corporation ended immediately prior to the date of a notice of election to terminate given to the Corporation by such Executive pursuant to Section 3. SECTION 3 RIGHTS CONDITIONAL: All termination rights of the Executive provided for in Section 2 are (a) conditional upon the Executive electing to exercise such rights by notice given to the Corporation on or before the Expiry Date and (b) exercisable only if the Executive does not resign from his employment with the Corporation or the Subsidiary (other than at the request of the Corporation or the Subsidiary) and does not actively seek alternative employment, in each case for at least three months following the date of the Change in Control. SECTION 4 RIGHTS UPON DISMISSAL WITHOUT CAUSE: The Executive shall be entitled to a payment by the Corporation of an amount calculated as provided for in Section 2 (except that his annual base salary as referred to in Section 2(a) shall be that applicable immediately prior to the date of his dismissal) if a Triggering Event does not occur but the Executive is dismissed from his employment with the Corporation without cause after a Change in Control and on or before the Expiry Date. The Corporation shall not dismiss the Executive for any reason unless such dismissal is specifically approved by the Board of Directors of the Corporation. Likewise, the Corporation shall have the right to dismiss the Executive from his employment 5 - 5 - with the Corporation without cause after a Change in Control and on or before the Expiry Date, subject to paying the Executive the amount calculated as provided for in Section 2. SECTION 5 PAYMENTS UNDER THIS AGREEMENT: Any payment to be made by the Corporation pursuant to the terms of this Agreement shall be made by the Corporation in cash in a lump sum within five business days of the giving of notice by the Executive pursuant to Section 3, or within five business days of the dismissal from the Executive's employment as referred to in Section 4, as the case may be. Any payment to be made under Section 2 or 4 shall be calculated, in the case of Section 2, at the date of giving notice pursuant to Section 3 and, in the case of Section 4, at the date of dismissal. Notwithstanding the foregoing provisions of this Section 5, at the option of the Executive a payment, or any part thereof as shall be specified by the Executive, to be made to the Executive shall be deferred to such date or dates as shall be designated in writing by the Executive. Any payment so deferred shall bear simple interest at the rate of 6% per annum calculated from the date payment of the amount otherwise should have been made until the date of payment in full. The Corporation shall list the items making up a payment calculated as provided for in Section 2 and shall support the calculation of such amount. SECTION 6 PAYMENTS IN LIEU OF ALL OTHER DAMAGE CLAIMS ETC.: All payments provided for herein shall be in lieu of all other notice or damage claims as regards dismissal or termination of the Executive's employment with the Corporation or any subsidiary of the Corporation after a Change in Control and on or before the Expiry Date. The arrangements provided for herein shall not be considered in any judicial determination of appropriate damages at common law for dismissal without cause, other than as provided for in this Agreement. At the request of either party, the parties shall exchange mutual signed releases of liability conforming to the substantive provisions of this Agreement. SECTION 7 AGREEMENT SUPPLEMENTAL: This Agreement shall be supplemental to any other contract of employment or otherwise, whether written or oral, that exists between the Corporation or any subsidiary of the Corporation and the Executive, except insofar as any such contract relates to the termination of the employment relationship between the Corporation or any Subsidiary of the Corporation and the Executive, in which case this Agreement shall supersede the termination provisions of any such other contract of employment or otherwise including, without limitation, the termination agreement between the Executive and a predecessor of the Corporation dated October 1, 1998. SECTION 8 BENEFIT PLANS: In the event that the Executive is entitled to a payment pursuant to Section 2 or 4, the Executive shall be entitled to have all Benefit Plans as constituted at the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment, as the case may be, continued for a period of 24 months after the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment, as the case may be, or for any longer period available under any Benefit Plans when coverage is provided from a source other than the Corporation. Notwithstanding the foregoing provisions of this Section 8, at the option of the Executive the cost to the Corporation of such Benefit Plans, or any part of the benefits under any such Benefit Plans as shall be specified by the Executive, shall be converted to a lump sum amount and shall be paid to the Executive immediately or shall be deferred to such date or dates as shall be designated in writing by the Executive. Any payment so deferred shall bear simple interest at the rate of 6% per annum calculated from the date payment of the amount otherwise should have been made until the date of payment in full. 6 - 6 - SECTION 9 STOCK OPTION AND STOCK PURCHASE PLANS: If the Executive is entitled to a payment pursuant to Section 2 or 4, the term during which any stock option granted to the Executive by the Corporation or any subsidiary of the Corporation may be exercised shall be extended to the later of the expiry date of the option or 12 months after the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment as referred to in Section 4, as the case may be; provided that the maximum term of any such option shall not exceed six years from the date of grant of the option or such longer period as shall be permitted under the terms of the Corporation's stock option plan. In addition, in such event any provisions of the stock option or the stock purchase plan restricting the number of shares which may be purchased before a particular date shall be waived and the options shall be fully vested immediately. If the Executive is entitled to a payment pursuant to Section 2 or 4, all shares owned by the Executive and held in any stock purchase plan shall immediately be released to the Executive, subject to the Executive making any payments required under the plan. The terms of any stock option plan, stock purchase plan or agreement therefor shall be deemed amended to reflect the provisions of this Section 9. SECTION 10 DESIGNATION OF BENEFICIARY: If the Executive dies prior to satisfaction of all of the Corporation's obligations under this Agreement, any remaining amounts payable to the Executive by the Corporation shall be paid to the person or persons (a "Beneficiary") previously designated by the Executive to the Corporation for such purposes. Any such designation of a Beneficiary shall be made in writing, signed by the Executive and dated and filed with the Secretary of the Corporation. In the event that no such designation is made, all such remaining amounts shall be paid by the Corporation to the Estate of the Executive. If the Executive has exercised the option pursuant to Section 5 or 8 to defer a payment, or any part thereof, to be made to or for the benefit of the Executive, the Beneficiary or the Executor of the Estate, as the case may be, shall have the further option to require payment in full of any such remaining amounts to the Beneficiary or the Executor, as the case may be, by giving notice to that effect to the Corporation. SECTION 11 ASSIGNMENT AND ASSUMPTION: This Agreement automatically shall be assigned by the Corporation to any successor corporation of the Corporation and shall be binding upon such successor corporation. For the purposes of this Section 11, "successor corporation" shall include any person referred to in Subsection 1(b)(ii), (iii) or (iv). The Corporation shall ensure that the successor corporation shall continue the provisions of this Agreement as if it were the original party in place of the Corporation; provided however that the Corporation shall not thereby be relieved of any obligation to the Executive pursuant to this Agreement. In the event of a transaction or series of transactions as described in Subsection 1(b)(ii), (iii) or (iv), appropriate arrangements shall be made by the Corporation for the successor corporation to honour this Agreement as if the Executive had exercised his maximum rights hereunder as of the effective date of such transaction. SECTION 12 FURTHER ASSURANCES: Each of the parties hereto agrees to do and execute or cause to be made, done or executed all such further and other things, acts, deeds, documents, assignments and assurances as may be necessary or reasonably required to carry out the intent and purpose of this Agreement fully and effectually. Without limiting the generality of the foregoing, the Corporation shall take all reasonable steps in order to structure the payment or payments provided for in this Agreement in the manner most advantageous to the Executive with respect to the provisions of the Income Tax Act (Canada), the Internal Revenue Code (United States of America) or any similar legislation in place in any other jurisdiction of the Executive's residence. 7 - 7 - SECTION 13 REVIEW OF AGREEMENT: In the event of a threatened or pending Change in Control of the Corporation, and following an actual Change in Control of the Corporation, the Corporation in either case shall enter into a review of the terms of this Agreement and shall implement any amendments hereto which are agreed to by both parties. SECTION 14 RE-TRANSFER: If, within 12 months prior to the date of the Triggering Event, or the date of dismissal without cause, as the case may be, the Executive was transferred by the Corporation or the Subsidiary to his then place of residence and if the Executive has been resident in such location for less than 24 months at the time that he becomes entitled to a payment pursuant to Section 2 or 4, if the Executive exercises his rights under this Section 14 at the time of the giving of notice by the Executive pursuant to Section 3, or upon giving notice to the Corporation within 30 days of dismissal from the Executive's employment as referred to in Section 4, as the case may be, the Corporation shall pay the direct moving expenses of moving the Executive and his immediate family and their household effects to his immediately preceding place of residence offset by any such costs paid by any new employer. SECTION 15 OUTPLACEMENT SERVICES: If the Executive is entitled to receive a payment pursuant to Section 2 or 4, the Corporation shall pay the reasonable costs (to a maximum of 10% of the annual base salary of the Executive as used for the calculation of such payment) of the services for the Executive of a suitable outplacement counselling service selected by the Corporation. Notwithstanding the foregoing provisions of this Section 15, at the option of the Executive the cost to the Corporation of such outplacement services shall be converted to a lump sum amount and shall be paid to the Executive immediately. SECTION 16 GENDER: Whenever the context of this Agreement so requires or permits, the masculine gender includes the feminine gender. SECTION 17 NOTICE: Any notice, election or designation to be made by the Executive pursuant to this Agreement shall be in writing and shall be hand delivered to the Corporation at the following address: Zemex Corporation Canada Trust Tower, BCE Place 161 Bay Street, Suite 3750 Toronto, Ontario M5J 2S1 Telephone: (416) 365-8080 Fax: (416) 365-8094 Attention: President and Chief Executive Officer SECTION 18 TERM: This Agreement shall commence as of the date first above written and shall terminate on December 31, 2004 unless extended with the mutual agreement of the parties hereto and approved by the Board of Directors of the Corporation; provided that if a Change of Control occurs on or before December 31, 2004 the term of this Agreement automatically shall be extended to the Expiry Date. 8 - 8 - SECTION 19 GOVERNING LAW: This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario. The parties agree to attorn to the jurisdiction of, and to submit any dispute arising out of this Agreement to the Courts of the Province of Ontario. IN WITNESS WHEREOF the parties hereto have caused this agreement to be executed as of the date first above written. ZEMEX CORPORATION per: c/s ------------------------ Richard L. Lister President and Chief Executive Officer SIGNED, SEALED & DELIVERED ) in the presence of ) ) ) ) ) ) l/s - -------------------------- ) ----------------------- Witness ) Allen J. Palmiere ) EX-10.(N) 5 EXHIBIT 10.(N) 1 Exhibit (10)n THIS AGREEMENT made as of the 1st day of October, 1999. B E T W E E N: ZEMEX CORPORATION (hereinafter called the "Corporation") - and - GEORGE E. GILLESPIE (hereinafter called the "Executive") WITNESSES THAT: WHEREAS the Executive is presently employed by the Corporation or a Subsidiary; AND WHEREAS the Corporation and the Executive are desirous of having certain rights and benefits in the event that the Executive is dismissed or the Executive's employment relationship with the Corporation or the Subsidiary is terminated in the manner set out herein; AND WHEREAS the Corporation wishes to retain the benefit of the Executive's employment with the Corporation or the Subsidiary and to ensure that the Executive is able to carry out his responsibilities with the Corporation or the Subsidiary free from any distractions associated with any change in the ownership of the Corporation or its assets; NOW THEREFORE in consideration of the premises and the mutual covenants and agreements hereinafter contained, and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by the parties hereto), it is agreed by and between the parties hereto as follows: SECTION 1 DEFINITIONS: Terms used in this Agreement but not otherwise defined herein have the meanings set forth below: (a) "BENEFIT PLANS" means any stock option or stock purchase plan, employee loan, insurance, long-term disability, medical, dental and other executive and employee benefit plans, including any pension or similar plans, perquisites and privileges, such as club dues, automobile expenses and similar items, as may be provided at the time to the Executive by the Corporation or the Subsidiary; 2 - 2 - (b) "CHANGE IN CONTROL" means a transaction or series of transactions whereby directly or indirectly: (i) any person or combination of persons (other than any combination of Dundee Bancorp Inc. or any affiliate thereof and Richard L. Lister or a corporation controlled by any one or more of such persons) acting jointly or in concert obtains a sufficient number of securities of the Corporation to affect materially the control of the Corporation; or (ii) if the Executive is primarily employed by the Corporation, the Corporation shall consolidate or merge with or into, amalgamate with, or enter into a statutory arrangement with, any other person (other than a subsidiary of the Corporation) or any other person (other than a subsidiary of the Corporation) shall consolidate or merge with or into, or amalgamate with or enter into a statutory arrangement with, the Corporation, and, in connection therewith, all or part of the outstanding voting shares shall be changed in any way, reclassified or converted into, exchanged or otherwise acquired for shares or other securities of the Corporation or any other person or for cash or any other property (other than a transaction which has been approved by the Incumbent Directors); or (iii) if the Executive is primarily employed by the Corporation, the Corporation shall be liquidated or dissolved or shall sell or otherwise transfer, including by way of the grant of a leasehold interest (or one or more of its subsidiaries shall sell or otherwise transfer, including by way of the grant of a leasehold interest) property or assets (A) aggregating more than 50% of the consolidated assets (measured by either book value or fair market value) of the Corporation and its subsidiaries as at the end of the most recently completed financial year of the Corporation or (B) which during the most recently completed financial year of the Corporation generated, or during the then current financial year of the Corporation are expected to generate, more than 50% of the consolidated operating income or cash flow of the Corporation and its subsidiaries, to any other person or persons (other than the Corporation or one or more of its subsidiaries); or (iv) if the Executive is primarily employed by a Subsidiary, the Subsidiary shall be liquidated or dissolved or shall sell or otherwise transfer, including by way of the grant of a leasehold interest (or one or more of its subsidiaries shall sell or otherwise transfer, including by way of the grant of a leasehold interest) property or assets (A) aggregating more than 50% of the consolidated assets (measured by either book value or fair market value) of the Subsidiary and its subsidiaries as at the end of the most recently completed financial year of the Subsidiary or (B) which during the most recently completed financial year of the Subsidiary generated, or during the then current financial year of the Subsidiary are expected to generate, more than 50% of the consolidated operating income or cash flow of the Subsidiary 3 - 3 - and its subsidiaries, to any other person or persons (other than the Corporation, the Subsidiary or one or more of its subsidiaries); or (v) if the Executive is primarily employed by the Corporation, the Corporation shall issue shares of common stock from the treasury of the Corporation in a sufficient number to affect materially the control of the Corporation; or (vi) if the Executive is primarily employed by a Subsidiary, (A) a transfer of shares of the Subsidiary or (B) the issue of treasury shares of the Subsidiary, in either case having the result that any person or combination of persons (other than any combination of Dundee Bancorp Inc. or any affiliate thereof and Richard L. Lister or a corporation controlled by any one or more of such persons) acting jointly or in concert beneficially owns shares or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 49.9% or more of the votes attaching to all shares of the Subsidiary which may be cast to elect directors of the Subsidiary; or (vii) the Incumbent Directors cease to represent a majority of the members of the Board of Directors of the Corporation; for the purposes of Sections 1(b)(i) and (v), a person or combination of persons acting jointly or in concert and beneficially owning shares or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 20% or more of the votes attaching to all shares of the Corporation which may be cast to elect directors of the Corporation shall be deemed to be in a position to affect materially the control of the Corporation; (c) "EXPIRY DATE" means 24 months after a Change in Control occurs; (d) "INCUMBENT DIRECTORS" means the members of the Board of Directors holding office at the date of this Agreement and any additional Directors appointed by or with the consent of the Incumbent Directors; (e) "SUBSIDIARIES" means the following: (i) Alumitech, Inc. and its subsidiaries; (ii) Pyron Corporation and its subsidiaries; and (iii) Zemex Industrial Minerals, Inc. and its subsidiaries; and "SUBSIDIARY" means any one of them with which the Executive has employment; 4 - 4 - (f) "TRIGGERING EVENT" means any one of the following events which occurs without the express or implied agreement of the Executive: (i) an adverse change in any of the duties, powers, rights, discretion, salary or benefits of the Executive as they exist at the date of this Agreement; or (ii) a diminution of the title of the Executive as it exists at the date of this Agreement; or (iii)a change in the person or body to whom the Executive reports at the date of this Agreement, except if such person or body is of equivalent rank or stature or such change is as a result of the resignation or removal of such person or the persons comprising such body, as the case may be, provided that this shall not include a change resulting from a promotion in the normal course of business; or (iv) a change in the municipality at which the Executive is regularly required to carry out the terms of his employment with the Corporation at the date of this Agreement unless the Executive's terms of employment include the obligation to receive geographic transfers from time to time in the normal course of business. SECTION 2 RIGHTS UPON OCCURRENCE OF CHANGE IN CONTROL FOLLOWED BY A TRIGGERING EVENT: If, in respect of the Executive, a Change in Control occurs and if, in respect of the Executive, a Triggering Event occurs after the Change of Control and on or before the Expiry Date, the Executive shall be entitled to elect to terminate his employment with the Corporation and to receive a payment from the Corporation in an amount equal to the aggregate of (a) 200% of his annual base salary that was applicable immediately prior to the date of the Triggering Event and (b) 200% of the average of the annual bonus, if any, payable to him in respect of each of the two fiscal years of the Corporation ended immediately prior to the date of a notice of election to terminate given to the Corporation by such Executive pursuant to Section 3. SECTION 3 RIGHTS CONDITIONAL: All termination rights of the Executive provided for in Section 2 are (a) conditional upon the Executive electing to exercise such rights by notice given to the Corporation on or before the Expiry Date and (b) exercisable only if the Executive does not resign from his employment with the Corporation or the Subsidiary (other than at the request of the Corporation or the Subsidiary) and does not actively seek alternative employment, in each case for at least three months following the date of the Change in Control. SECTION 4 RIGHTS UPON DISMISSAL WITHOUT CAUSE: The Executive shall be entitled to a payment by the Corporation of an amount calculated as provided for in Section 2 (except that his annual base salary as referred to in Section 2(a) shall be that applicable immediately prior to the date of his dismissal) if a Triggering Event does not occur but the Executive is dismissed from his employment with the Corporation without cause after a Change in Control and on or before the Expiry Date. The Corporation shall not dismiss the Executive for any reason unless such dismissal is specifically approved by the Board of Directors of the Corporation. Likewise, the Corporation shall have the right to dismiss the Executive from his employment 5 - 5 - with the Corporation without cause after a Change in Control and on or before the Expiry Date, subject to paying the Executive the amount calculated as provided for in Section 2. SECTION 5 PAYMENTS UNDER THIS AGREEMENT: Any payment to be made by the Corporation pursuant to the terms of this Agreement shall be made by the Corporation in cash in a lump sum within five business days of the giving of notice by the Executive pursuant to Section 3, or within five business days of the dismissal from the Executive's employment as referred to in Section 4, as the case may be. Any payment to be made under Section 2 or 4 shall be calculated, in the case of Section 2, at the date of giving notice pursuant to Section 3 and, in the case of Section 4, at the date of dismissal. Notwithstanding the foregoing provisions of this Section 5, at the option of the Executive a payment, or any part thereof as shall be specified by the Executive, to be made to the Executive shall be deferred to such date or dates as shall be designated in writing by the Executive. Any payment so deferred shall bear simple interest at the rate of 6% per annum calculated from the date payment of the amount otherwise should have been made until the date of payment in full. The Corporation shall list the items making up a payment calculated as provided for in Section 2 and shall support the calculation of such amount. SECTION 6 PAYMENTS IN LIEU OF ALL OTHER DAMAGE CLAIMS ETC.: All payments provided for herein shall be in lieu of all other notice or damage claims as regards dismissal or termination of the Executive's employment with the Corporation or any subsidiary of the Corporation after a Change in Control and on or before the Expiry Date. The arrangements provided for herein shall not be considered in any judicial determination of appropriate damages at common law for dismissal without cause, other than as provided for in this Agreement. At the request of either party, the parties shall exchange mutual signed releases of liability conforming to the substantive provisions of this Agreement. SECTION 7 AGREEMENT SUPPLEMENTAL: This Agreement shall be supplemental to any other contract of employment or otherwise, whether written or oral, that exists between the Corporation or any subsidiary of the Corporation and the Executive, except insofar as any such contract relates to the termination of the employment relationship between the Corporation or any Subsidiary of the Corporation and the Executive, in which case this Agreement shall supersede the termination provisions of any such other contract of employment or otherwise. SECTION 8 BENEFIT PLANS: In the event that the Executive is entitled to a payment pursuant to Section 2 or 4, the Executive shall be entitled to have all Benefit Plans as constituted at the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment, as the case may be, continued for a period of 24 months after the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment, as the case may be, or for any longer period available under any Benefit Plans when coverage is provided from a source other than the Corporation. Notwithstanding the foregoing provisions of this Section 8, at the option of the Executive the cost to the Corporation of such Benefit Plans, or any part of the benefits under any such Benefit Plans as shall be specified by the Executive, shall be converted to a lump sum amount and shall be paid to the Executive immediately or shall be deferred to such date or dates as shall be designated in writing by the Executive. Any payment so deferred shall bear simple interest at the rate of 6% per annum calculated from the date payment of the amount otherwise should have been made until the date of payment in full. 6 - 6 - SECTION 9 STOCK OPTION AND STOCK PURCHASE PLANS: If the Executive is entitled to a payment pursuant to Section 2 or 4, the term during which any stock option granted to the Executive by the Corporation or any subsidiary of the Corporation may be exercised shall be extended to the later of the expiry date of the option or 12 months after the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment as referred to in Section 4, as the case may be; provided that the maximum term of any such option shall not exceed six years from the date of grant of the option or such longer period as shall be permitted under the terms of the Corporation's stock option plan. In addition, in such event any provisions of the stock option or the stock purchase plan restricting the number of shares which may be purchased before a particular date shall be waived and the options shall be fully vested immediately. If the Executive is entitled to a payment pursuant to Section 2 or 4, all shares owned by the Executive and held in any stock purchase plan shall immediately be released to the Executive, subject to the Executive making any payments required under the plan. The terms of any stock option plan, stock purchase plan or agreement therefor shall be deemed amended to reflect the provisions of this Section 9. SECTION 10 DESIGNATION OF BENEFICIARY: If the Executive dies prior to satisfaction of all of the Corporation's obligations under this Agreement, any remaining amounts payable to the Executive by the Corporation shall be paid to the person or persons (a "Beneficiary") previously designated by the Executive to the Corporation for such purposes. Any such designation of a Beneficiary shall be made in writing, signed by the Executive and dated and filed with the Secretary of the Corporation. In the event that no such designation is made, all such remaining amounts shall be paid by the Corporation to the Estate of the Executive. If the Executive has exercised the option pursuant to Section 5 or 8 to defer a payment, or any part thereof, to be made to or for the benefit of the Executive, the Beneficiary or the Executor of the Estate, as the case may be, shall have the further option to require payment in full of any such remaining amounts to the Beneficiary or the Executor, as the case may be, by giving notice to that effect to the Corporation. SECTION 11 ASSIGNMENT AND ASSUMPTION: This Agreement automatically shall be assigned by the Corporation to any successor corporation of the Corporation and shall be binding upon such successor corporation. For the purposes of this Section 11, "successor corporation" shall include any person referred to in Subsection 1(b)(ii), (iii) or (iv). The Corporation shall ensure that the successor corporation shall continue the provisions of this Agreement as if it were the original party in place of the Corporation; provided however that the Corporation shall not thereby be relieved of any obligation to the Executive pursuant to this Agreement. In the event of a transaction or series of transactions as described in Subsection 1(b)(ii), (iii) or (iv), appropriate arrangements shall be made by the Corporation for the successor corporation to honour this Agreement as if the Executive had exercised his maximum rights hereunder as of the effective date of such transaction. SECTION 12 FURTHER ASSURANCES: Each of the parties hereto agrees to do and execute or cause to be made, done or executed all such further and other things, acts, deeds, documents, assignments and assurances as may be necessary or reasonably required to carry out the intent and purpose of this Agreement fully and effectually. Without limiting the generality of the foregoing, the Corporation shall take all reasonable steps in order to structure the payment or payments provided for in this Agreement in the manner most advantageous to the Executive with respect to the provisions of the Income Tax Act (Canada), the Internal Revenue Code (United States of America) or any similar legislation in place in any other jurisdiction of the Executive's residence. 7 - 7 - SECTION 13 REVIEW OF AGREEMENT: In the event of a threatened or pending Change in Control of the Corporation, and following an actual Change in Control of the Corporation, the Corporation in either case shall enter into a review of the terms of this Agreement and shall implement any amendments hereto which are agreed to by both parties. SECTION 14 RE-TRANSFER: If, within 12 months prior to the date of the Triggering Event, or the date of dismissal without cause, as the case may be, the Executive was transferred by the Corporation or the Subsidiary to his then place of residence and if the Executive has been resident in such location for less than 24 months at the time that he becomes entitled to a payment pursuant to Section 2 or 4, if the Executive exercises his rights under this Section 14 at the time of the giving of notice by the Executive pursuant to Section 3, or upon giving notice to the Corporation within 30 days of dismissal from the Executive's employment as referred to in Section 4, as the case may be, the Corporation shall pay the direct moving expenses of moving the Executive and his immediate family and their household effects to his immediately preceding place of residence offset by any such costs paid by any new employer. SECTION 15 OUTPLACEMENT SERVICES: If the Executive is entitled to receive a payment pursuant to Section 2 or 4, the Corporation shall pay the reasonable costs (to a maximum of 10% of the annual base salary of the Executive as used for the calculation of such payment) of the services for the Executive of a suitable outplacement counselling service selected by the Corporation. Notwithstanding the foregoing provisions of this Section 15, at the option of the Executive the cost to the Corporation of such outplacement services shall be converted to a lump sum amount and shall be paid to the Executive immediately. SECTION 16 GENDER: Whenever the context of this Agreement so requires or permits, the masculine gender includes the feminine gender. SECTION 17 NOTICE: Any notice, election or designation to be made by the Executive pursuant to this Agreement shall be in writing and shall be hand delivered to the Corporation at the following address: Zemex Corporation Canada Trust Tower, BCE Place 161 Bay Street, Suite 3750 Toronto, Ontario M5J 2S1 Telephone: (416) 365-8080 Fax: (416) 365-8094 Attention: President and Chief Executive Officer SECTION 18 TERM: This Agreement shall commence as of the date first above written and shall terminate on December 31, 2004 unless extended with the mutual agreement of the parties hereto and approved by the Board of Directors of the Corporation; provided that if a Change of Control occurs on or before December 31, 2004 the term of this Agreement automatically shall be extended to the Expiry Date. 8 - 8 - SECTION 19 GOVERNING LAW: This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario. The parties agree to attorn to the jurisdiction of, and to submit any dispute arising out of this Agreement to the Courts of the Province of Ontario. IN WITNESS WHEREOF the parties hereto have caused this agreement to be executed as of the date first above written. ZEMEX CORPORATION per: c/s ------------------------ Richard L. Lister President and Chief Executive Officer SIGNED, SEALED & DELIVERED ) in the presence of ) ) ) ) ) ) l/s -------------------------- ) ---------------------- Witness ) George E. Gillespie ) EX-10.(O) 6 EXHIBIT 10.(O) 1 Exhibit 10(o) THIS AGREEMENT made as of the 1st day of October, 1999. B E T W E E N: ZEMEX CORPORATION (hereinafter called the "Corporation") - and - PETER J. GOODWIN (hereinafter called the "Executive") WITNESSES THAT: WHEREAS the Executive is presently employed by the Corporation or a Subsidiary; AND WHEREAS the Corporation and the Executive are desirous of having certain rights and benefits in the event that the Executive is dismissed or the Executive's employment relationship with the Corporation or the Subsidiary is terminated in the manner set out herein; AND WHEREAS the Corporation wishes to retain the benefit of the Executive's employment with the Corporation or the Subsidiary and to ensure that the Executive is able to carry out his responsibilities with the Corporation or the Subsidiary free from any distractions associated with any change in the ownership of the Corporation or its assets; NOW THEREFORE in consideration of the premises and the mutual covenants and agreements hereinafter contained, and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by the parties hereto), it is agreed by and between the parties hereto as follows: SECTION 1 DEFINITIONS: Terms used in this Agreement but not otherwise defined herein have the meanings set forth below: (a) "BENEFIT PLANS" means any stock option or stock purchase plan, employee loan, insurance, long-term disability, medical, dental and other executive and employee benefit plans, including any pension or similar plans, perquisites and privileges, such as club dues, automobile expenses and similar items, as may be provided at the time to the Executive by the Corporation or the Subsidiary; 2 - 2 - (b) "CHANGE IN CONTROL" means a transaction or series of transactions whereby directly or indirectly: (i) any person or combination of persons (other than any combination of Dundee Bancorp Inc. or any affiliate thereof and Richard L. Lister or a corporation controlled by any one or more of such persons) acting jointly or in concert obtains a sufficient number of securities of the Corporation to affect materially the control of the Corporation; or (ii) if the Executive is primarily employed by the Corporation, the Corporation shall consolidate or merge with or into, amalgamate with, or enter into a statutory arrangement with, any other person (other than a subsidiary of the Corporation) or any other person (other than a subsidiary of the Corporation) shall consolidate or merge with or into, or amalgamate with or enter into a statutory arrangement with, the Corporation, and, in connection therewith, all or part of the outstanding voting shares shall be changed in any way, reclassified or converted into, exchanged or otherwise acquired for shares or other securities of the Corporation or any other person or for cash or any other property (other than a transaction which has been approved by the Incumbent Directors); or (iii) if the Executive is primarily employed by the Corporation, the Corporation shall be liquidated or dissolved or shall sell or otherwise transfer, including by way of the grant of a leasehold interest (or one or more of its subsidiaries shall sell or otherwise transfer, including by way of the grant of a leasehold interest) property or assets (A) aggregating more than 50% of the consolidated assets (measured by either book value or fair market value) of the Corporation and its subsidiaries as at the end of the most recently completed financial year of the Corporation or (B) which during the most recently completed financial year of the Corporation generated, or during the then current financial year of the Corporation are expected to generate, more than 50% of the consolidated operating income or cash flow of the Corporation and its subsidiaries, to any other person or persons (other than the Corporation or one or more of its subsidiaries); or (iv) if the Executive is primarily employed by a Subsidiary, the Subsidiary shall be liquidated or dissolved or shall sell or otherwise transfer, including by way of the grant of a leasehold interest (or one or more of its subsidiaries shall sell or otherwise transfer, including by way of the grant of a leasehold interest) property or assets (A) aggregating more than 50% of the consolidated assets (measured by either book value or fair market value) of the Subsidiary and its subsidiaries as at the end of the most recently completed financial year of the Subsidiary or (B) which during the most recently completed financial year of the Subsidiary generated, or during the then current financial year of the Subsidiary are expected to generate, more than 50% of the consolidated operating income or cash flow of the Subsidiary 3 - 3 - and its subsidiaries, to any other person or persons (other than the Corporation, the Subsidiary or one or more of its subsidiaries); or (v) if the Executive is primarily employed by the Corporation, the Corporation shall issue shares of common stock from the treasury of the Corporation in a sufficient number to affect materially the control of the Corporation; or (vi) if the Executive is primarily employed by a Subsidiary, (A) a transfer of shares of the Subsidiary or (B) the issue of treasury shares of the Subsidiary, in either case having the result that any person or combination of persons (other than any combination of Dundee Bancorp Inc. or any affiliate thereof and Richard L. Lister or a corporation controlled by any one or more of such persons) acting jointly or in concert beneficially owns shares or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 49.9% or more of the votes attaching to all shares of the Subsidiary which may be cast to elect directors of the Subsidiary; or (vii) the Incumbent Directors cease to represent a majority of the members of the Board of Directors of the Corporation; for the purposes of Sections 1(b)(i) and (v), a person or combination of persons acting jointly or in concert and beneficially owning shares or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 20% or more of the votes attaching to all shares of the Corporation which may be cast to elect directors of the Corporation shall be deemed to be in a position to affect materially the control of the Corporation; (c) "EXPIRY DATE" means 24 months after a Change in Control occurs; (d) "INCUMBENT DIRECTORS" means the members of the Board of Directors holding office at the date of this Agreement and any additional Directors appointed by or with the consent of the Incumbent Directors; (e) "SUBSIDIARIES" means the following: (i) Alumitech, Inc. and its subsidiaries; (ii) Pyron Corporation and its subsidiaries; and (iii) Zemex Industrial Minerals, Inc. and its subsidiaries; and "SUBSIDIARY" means any one of them with which the Executive has employment; 4 - 4 - (f) "TRIGGERING EVENT" means any one of the following events which occurs without the express or implied agreement of the Executive: (i) an adverse change in any of the duties, powers, rights, discretion, salary or benefits of the Executive as they exist at the date of this Agreement; or (ii) a diminution of the title of the Executive as it exists at the date of this Agreement; or (iii) a change in the person or body to whom the Executive reports at the date of this Agreement, except if such person or body is of equivalent rank or stature or such change is as a result of the resignation or removal of such person or the persons comprising such body, as the case may be, provided that this shall not include a change resulting from a promotion in the normal course of business; or (iv) a change in the municipality at which the Executive is regularly required to carry out the terms of his employment with the Corporation at the date of this Agreement unless the Executive's terms of employment include the obligation to receive geographic transfers from time to time in the normal course of business. SECTION 2 RIGHTS UPON OCCURRENCE OF CHANGE IN CONTROL FOLLOWED BY A TRIGGERING EVENT: If, in respect of the Executive, a Change in Control occurs and if, in respect of the Executive, a Triggering Event occurs after the Change of Control and on or before the Expiry Date, the Executive shall be entitled to elect to terminate his employment with the Corporation and to receive a payment from the Corporation in an amount equal to the aggregate of (a) 200% of his annual base salary that was applicable immediately prior to the date of the Triggering Event and (b) 200% of the average of the annual bonus, if any, payable to him in respect of each of the two fiscal years of the Corporation ended immediately prior to the date of a notice of election to terminate given to the Corporation by such Executive pursuant to Section 3. SECTION 3 RIGHTS CONDITIONAL: All termination rights of the Executive provided for in Section 2 are (a) conditional upon the Executive electing to exercise such rights by notice given to the Corporation on or before the Expiry Date and (b) exercisable only if the Executive does not resign from his employment with the Corporation or the Subsidiary (other than at the request of the Corporation or the Subsidiary) and does not actively seek alternative employment, in each case for at least three months following the date of the Change in Control. SECTION 4 RIGHTS UPON DISMISSAL WITHOUT CAUSE: The Executive shall be entitled to a payment by the Corporation of an amount calculated as provided for in Section 2 (except that his annual base salary as referred to in Section 2(a) shall be that applicable immediately prior to the date of his dismissal) if a Triggering Event does not occur but the Executive is dismissed from his employment with the Corporation without cause after a Change in Control and on or before the Expiry Date. The Corporation shall not dismiss the Executive for any reason unless such dismissal is specifically approved by the Board of Directors of the Corporation. Likewise, the Corporation shall have the right to dismiss the Executive from his employment 5 - 5 - with the Corporation without cause after a Change in Control and on or before the Expiry Date, subject to paying the Executive the amount calculated as provided for in Section 2. SECTION 5 PAYMENTS UNDER THIS AGREEMENT: Any payment to be made by the Corporation pursuant to the terms of this Agreement shall be made by the Corporation in cash in a lump sum within five business days of the giving of notice by the Executive pursuant to Section 3, or within five business days of the dismissal from the Executive's employment as referred to in Section 4, as the case may be. Any payment to be made under Section 2 or 4 shall be calculated, in the case of Section 2, at the date of giving notice pursuant to Section 3 and, in the case of Section 4, at the date of dismissal. Notwithstanding the foregoing provisions of this Section 5, at the option of the Executive a payment, or any part thereof as shall be specified by the Executive, to be made to the Executive shall be deferred to such date or dates as shall be designated in writing by the Executive. Any payment so deferred shall bear simple interest at the rate of 6% per annum calculated from the date payment of the amount otherwise should have been made until the date of payment in full. The Corporation shall list the items making up a payment calculated as provided for in Section 2 and shall support the calculation of such amount. SECTION 6 PAYMENTS IN LIEU OF ALL OTHER DAMAGE CLAIMS ETC.: All payments provided for herein shall be in lieu of all other notice or damage claims as regards dismissal or termination of the Executive's employment with the Corporation or any subsidiary of the Corporation after a Change in Control and on or before the Expiry Date. The arrangements provided for herein shall not be considered in any judicial determination of appropriate damages at common law for dismissal without cause, other than as provided for in this Agreement. At the request of either party, the parties shall exchange mutual signed releases of liability conforming to the substantive provisions of this Agreement. SECTION 7 AGREEMENT SUPPLEMENTAL: This Agreement shall be supplemental to any other contract of employment or otherwise, whether written or oral, that exists between the Corporation or any subsidiary of the Corporation and the Executive, except insofar as any such contract relates to the termination of the employment relationship between the Corporation or any Subsidiary of the Corporation and the Executive, in which case this Agreement shall supersede the termination provisions of any such other contract of employment or otherwise. SECTION 8 BENEFIT PLANS: In the event that the Executive is entitled to a payment pursuant to Section 2 or 4, the Executive shall be entitled to have all Benefit Plans as constituted at the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment, as the case may be, continued for a period of 24 months after the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment, as the case may be, or for any longer period available under any Benefit Plans when coverage is provided from a source other than the Corporation. Notwithstanding the foregoing provisions of this Section 8, at the option of the Executive the cost to the Corporation of such Benefit Plans, or any part of the benefits under any such Benefit Plans as shall be specified by the Executive, shall be converted to a lump sum amount and shall be paid to the Executive immediately or shall be deferred to such date or dates as shall be designated in writing by the Executive. Any payment so deferred shall bear simple interest at the rate of 6% per annum calculated from the date payment of the amount otherwise should have been made until the date of payment in full. 6 - 6 - SECTION 9 STOCK OPTION AND STOCK PURCHASE PLANS: If the Executive is entitled to a payment pursuant to Section 2 or 4, the term during which any stock option granted to the Executive by the Corporation or any subsidiary of the Corporation may be exercised shall be extended to the later of the expiry date of the option or 12 months after the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment as referred to in Section 4, as the case may be; provided that the maximum term of any such option shall not exceed six years from the date of grant of the option or such longer period as shall be permitted under the terms of the Corporation's stock option plan. In addition, in such event any provisions of the stock option or the stock purchase plan restricting the number of shares which may be purchased before a particular date shall be waived and the options shall be fully vested immediately. If the Executive is entitled to a payment pursuant to Section 2 or 4, all shares owned by the Executive and held in any stock purchase plan shall immediately be released to the Executive, subject to the Executive making any payments required under the plan. The terms of any stock option plan, stock purchase plan or agreement therefor shall be deemed amended to reflect the provisions of this Section 9. SECTION 10 DESIGNATION OF BENEFICIARY: If the Executive dies prior to satisfaction of all of the Corporation's obligations under this Agreement, any remaining amounts payable to the Executive by the Corporation shall be paid to the person or persons (a "Beneficiary") previously designated by the Executive to the Corporation for such purposes. Any such designation of a Beneficiary shall be made in writing, signed by the Executive and dated and filed with the Secretary of the Corporation. In the event that no such designation is made, all such remaining amounts shall be paid by the Corporation to the Estate of the Executive. If the Executive has exercised the option pursuant to Section 5 or 8 to defer a payment, or any part thereof, to be made to or for the benefit of the Executive, the Beneficiary or the Executor of the Estate, as the case may be, shall have the further option to require payment in full of any such remaining amounts to the Beneficiary or the Executor, as the case may be, by giving notice to that effect to the Corporation. SECTION 11 ASSIGNMENT AND ASSUMPTION: This Agreement automatically shall be assigned by the Corporation to any successor corporation of the Corporation and shall be binding upon such successor corporation. For the purposes of this Section 11, "successor corporation" shall include any person referred to in Subsection 1(b)(ii), (iii) or (iv). The Corporation shall ensure that the successor corporation shall continue the provisions of this Agreement as if it were the original party in place of the Corporation; provided however that the Corporation shall not thereby be relieved of any obligation to the Executive pursuant to this Agreement. In the event of a transaction or series of transactions as described in Subsection 1(b)(ii), (iii) or (iv), appropriate arrangements shall be made by the Corporation for the successor corporation to honour this Agreement as if the Executive had exercised his maximum rights hereunder as of the effective date of such transaction. SECTION 12 FURTHER ASSURANCES: Each of the parties hereto agrees to do and execute or cause to be made, done or executed all such further and other things, acts, deeds, documents, assignments and assurances as may be necessary or reasonably required to carry out the intent and purpose of this Agreement fully and effectually. Without limiting the generality of the foregoing, the Corporation shall take all reasonable steps in order to structure the payment or payments provided for in this Agreement in the manner most advantageous to the Executive with respect to the provisions of the Income Tax Act (Canada), the Internal Revenue Code (United States of America) or any similar legislation in place in any other jurisdiction of the Executive's residence. 7 - 7 - SECTION 13 REVIEW OF AGREEMENT: In the event of a threatened or pending Change in Control of the Corporation, and following an actual Change in Control of the Corporation, the Corporation in either case shall enter into a review of the terms of this Agreement and shall implement any amendments hereto which are agreed to by both parties. SECTION 14 RE-TRANSFER: If, within 12 months prior to the date of the Triggering Event, or the date of dismissal without cause, as the case may be, the Executive was transferred by the Corporation or the Subsidiary to his then place of residence and if the Executive has been resident in such location for less than 24 months at the time that he becomes entitled to a payment pursuant to Section 2 or 4, if the Executive exercises his rights under this Section 14 at the time of the giving of notice by the Executive pursuant to Section 3, or upon giving notice to the Corporation within 30 days of dismissal from the Executive's employment as referred to in Section 4, as the case may be, the Corporation shall pay the direct moving expenses of moving the Executive and his immediate family and their household effects to his immediately preceding place of residence offset by any such costs paid by any new employer. SECTION 15 OUTPLACEMENT SERVICES: If the Executive is entitled to receive a payment pursuant to Section 2 or 4, the Corporation shall pay the reasonable costs (to a maximum of 10% of the annual base salary of the Executive as used for the calculation of such payment) of the services for the Executive of a suitable outplacement counselling service selected by the Corporation. Notwithstanding the foregoing provisions of this Section 15, at the option of the Executive the cost to the Corporation of such outplacement services shall be converted to a lump sum amount and shall be paid to the Executive immediately. SECTION 16 GENDER: Whenever the context of this Agreement so requires or permits, the masculine gender includes the feminine gender. SECTION 17 NOTICE: Any notice, election or designation to be made by the Executive pursuant to this Agreement shall be in writing and shall be hand delivered to the Corporation at the following address: Zemex Corporation Canada Trust Tower, BCE Place 161 Bay Street, Suite 3750 Toronto, Ontario M5J 2S1 Telephone: (416) 365-8080 Fax: (416) 365-8094 Attention: President and Chief Executive Officer SECTION 18 TERM: This Agreement shall commence as of the date first above written and shall terminate on December 31, 2004 unless extended with the mutual agreement of the parties hereto and approved by the Board of Directors of the Corporation; provided that if a Change of Control occurs on or before December 31, 2004 the term of this Agreement automatically shall be extended to the Expiry Date. 8 - 8 - SECTION 19 GOVERNING LAW: This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario. The parties agree to attorn to the jurisdiction of, and to submit any dispute arising out of this Agreement to the Courts of the Province of Ontario. IN WITNESS WHEREOF the parties hereto have caused this agreement to be executed as of the date first above written. ZEMEX CORPORATION per: ------------------------ c/s Richard L. Lister President and Chief Executive Officer SIGNED, SEALED & DELIVERED ) in the presence of ) ) ) ) ) ) - ------------------------- ) ------------------------ l/s Witness ) Peter J. Goodwin ) EX-10.(P) 7 EXHIBIT 10.(P) 1 Exhibit 10(p) THIS AGREEMENT made as of the 1st day of October, 1999. B E T W E E N: ZEMEX CORPORATION (hereinafter called the "Corporation") - and - TERRANCE J. HOGAN (hereinafter called the "Executive") WITNESSES THAT: WHEREAS the Executive is presently employed by the Corporation or a Subsidiary; AND WHEREAS the Corporation and the Executive are desirous of having certain rights and benefits in the event that the Executive is dismissed or the Executive's employment relationship with the Corporation or the Subsidiary is terminated in the manner set out herein; AND WHEREAS the Corporation wishes to retain the benefit of the Executive's employment with the Corporation or the Subsidiary and to ensure that the Executive is able to carry out his responsibilities with the Corporation or the Subsidiary free from any distractions associated with any change in the ownership of the Corporation or its assets; NOW THEREFORE in consideration of the premises and the mutual covenants and agreements hereinafter contained, and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by the parties hereto), it is agreed by and between the parties hereto as follows: SECTION 1 DEFINITIONS: Terms used in this Agreement but not otherwise defined herein have the meanings set forth below: (a) "BENEFIT PLANS" means any stock option or stock purchase plan, employee loan, insurance, long-term disability, medical, dental and other executive and employee benefit plans, including any pension or similar plans, perquisites and privileges, such as club dues, automobile expenses and similar items, as may be provided at the time to the Executive by the Corporation or the Subsidiary; 2 - 2 - (b) "CHANGE IN CONTROL" means a transaction or series of transactions whereby directly or indirectly: (i) any person or combination of persons (other than any combination of Dundee Bancorp Inc. or any affiliate thereof and Richard L. Lister or a corporation controlled by any one or more of such persons) acting jointly or in concert obtains a sufficient number of securities of the Corporation to affect materially the control of the Corporation; or (ii) if the Executive is primarily employed by the Corporation, the Corporation shall consolidate or merge with or into, amalgamate with, or enter into a statutory arrangement with, any other person (other than a subsidiary of the Corporation) or any other person (other than a subsidiary of the Corporation) shall consolidate or merge with or into, or amalgamate with or enter into a statutory arrangement with, the Corporation, and, in connection therewith, all or part of the outstanding voting shares shall be changed in any way, reclassified or converted into, exchanged or otherwise acquired for shares or other securities of the Corporation or any other person or for cash or any other property (other than a transaction which has been approved by the Incumbent Directors); or (iii) if the Executive is primarily employed by the Corporation, the Corporation shall be liquidated or dissolved or shall sell or otherwise transfer, including by way of the grant of a leasehold interest (or one or more of its subsidiaries shall sell or otherwise transfer, including by way of the grant of a leasehold interest) property or assets (A) aggregating more than 50% of the consolidated assets (measured by either book value or fair market value) of the Corporation and its subsidiaries as at the end of the most recently completed financial year of the Corporation or (B) which during the most recently completed financial year of the Corporation generated, or during the then current financial year of the Corporation are expected to generate, more than 50% of the consolidated operating income or cash flow of the Corporation and its subsidiaries, to any other person or persons (other than the Corporation or one or more of its subsidiaries); or (iv) if the Executive is primarily employed by a Subsidiary, the Subsidiary shall be liquidated or dissolved or shall sell or otherwise transfer, including by way of the grant of a leasehold interest (or one or more of its subsidiaries shall sell or otherwise transfer, including by way of the grant of a leasehold interest) property or assets (A) aggregating more than 50% of the consolidated assets (measured by either book value or fair market value) of the Subsidiary and its subsidiaries as at the end of the most recently completed financial year of the Subsidiary or (B) which during the most recently completed financial year of the Subsidiary generated, or during the then current financial year of the Subsidiary are expected to generate, more than 50% of the consolidated operating income or cash flow of the Subsidiary 3 - 3 - and its subsidiaries, to any other person or persons (other than the Corporation, the Subsidiary or one or more of its subsidiaries); or (v) if the Executive is primarily employed by the Corporation, the Corporation shall issue shares of common stock from the treasury of the Corporation in a sufficient number to affect materially the control of the Corporation; or (vi) if the Executive is primarily employed by a Subsidiary, (A) a transfer of shares of the Subsidiary or (B) the issue of treasury shares of the Subsidiary, in either case having the result that any person or combination of persons (other than any combination of Dundee Bancorp Inc. or any affiliate thereof and Richard L. Lister or a corporation controlled by any one or more of such persons) acting jointly or in concert beneficially owns shares or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 49.9% or more of the votes attaching to all shares of the Subsidiary which may be cast to elect directors of the Subsidiary; or (vii)the Incumbent Directors cease to represent a majority of the members of the Board of Directors of the Corporation; for the purposes of Sections 1(b)(i) and (v), a person or combination of persons acting jointly or in concert and beneficially owning shares or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 20% or more of the votes attaching to all shares of the Corporation which may be cast to elect directors of the Corporation shall be deemed to be in a position to affect materially the control of the Corporation; (c) "EXPIRY DATE" means 24 months after a Change in Control occurs; (d) "INCUMBENT DIRECTORS" means the members of the Board of Directors holding office at the date of this Agreement and any additional Directors appointed by or with the consent of the Incumbent Directors; (e) "SUBSIDIARIES" means the following: (i) Alumitech, Inc. and its subsidiaries; (ii) Pyron Corporation and its subsidiaries; and (iii) Zemex Industrial Minerals, Inc. and its subsidiaries; and "SUBSIDIARY" means any one of them with which the Executive has employment; 4 - 4 - (f) "TRIGGERING EVENT" means any one of the following events which occurs without the express or implied agreement of the Executive: (i) an adverse change in any of the duties, powers, rights, discretion, salary or benefits of the Executive as they exist at the date of this Agreement; or (ii) a diminution of the title of the Executive as it exists at the date of this Agreement; or (iii) a change in the person or body to whom the Executive reports at the date of this Agreement, except if such person or body is of equivalent rank or stature or such change is as a result of the resignation or removal of such person or the persons comprising such body, as the case may be, provided that this shall not include a change resulting from a promotion in the normal course of business; or (iv) a change in the municipality at which the Executive is regularly required to carry out the terms of his employment with the Corporation at the date of this Agreement unless the Executive's terms of employment include the obligation to receive geographic transfers from time to time in the normal course of business. SECTION 2 RIGHTS UPON OCCURRENCE OF CHANGE IN CONTROL FOLLOWED BY A TRIGGERING EVENT: If, in respect of the Executive, a Change in Control occurs and if, in respect of the Executive, a Triggering Event occurs after the Change of Control and on or before the Expiry Date, the Executive shall be entitled to elect to terminate his employment with the Corporation and to receive a payment from the Corporation in an amount equal to the aggregate of (a) 200% of his annual base salary that was applicable immediately prior to the date of the Triggering Event and (b) 200% of the average of the annual bonus, if any, payable to him in respect of each of the two fiscal years of the Corporation ended immediately prior to the date of a notice of election to terminate given to the Corporation by such Executive pursuant to Section 3. SECTION 3 RIGHTS CONDITIONAL: All termination rights of the Executive provided for in Section 2 are (a) conditional upon the Executive electing to exercise such rights by notice given to the Corporation on or before the Expiry Date and (b) exercisable only if the Executive does not resign from his employment with the Corporation or the Subsidiary (other than at the request of the Corporation or the Subsidiary) and does not actively seek alternative employment, in each case for at least three months following the date of the Change in Control. SECTION 4 RIGHTS UPON DISMISSAL WITHOUT CAUSE: The Executive shall be entitled to a payment by the Corporation of an amount calculated as provided for in Section 2 (except that his annual base salary as referred to in Section 2(a) shall be that applicable immediately prior to the date of his dismissal) if a Triggering Event does not occur but the Executive is dismissed from his employment with the Corporation without cause after a Change in Control and on or before the Expiry Date. The Corporation shall not dismiss the Executive for any reason unless such dismissal is specifically approved by the Board of Directors of the Corporation. Likewise, the Corporation shall have the right to dismiss the Executive from his employment 5 - 5 - with the Corporation without cause after a Change in Control and on or before the Expiry Date, subject to paying the Executive the amount calculated as provided for in Section 2. SECTION 5 PAYMENTS UNDER THIS AGREEMENT: Any payment to be made by the Corporation pursuant to the terms of this Agreement shall be made by the Corporation in cash in a lump sum within five business days of the giving of notice by the Executive pursuant to Section 3, or within five business days of the dismissal from the Executive's employment as referred to in Section 4, as the case may be. Any payment to be made under Section 2 or 4 shall be calculated, in the case of Section 2, at the date of giving notice pursuant to Section 3 and, in the case of Section 4, at the date of dismissal. Notwithstanding the foregoing provisions of this Section 5, at the option of the Executive a payment, or any part thereof as shall be specified by the Executive, to be made to the Executive shall be deferred to such date or dates as shall be designated in writing by the Executive. Any payment so deferred shall bear simple interest at the rate of 6% per annum calculated from the date payment of the amount otherwise should have been made until the date of payment in full. The Corporation shall list the items making up a payment calculated as provided for in Section 2 and shall support the calculation of such amount. SECTION 6 PAYMENTS IN LIEU OF ALL OTHER DAMAGE CLAIMS ETC.: All payments provided for herein shall be in lieu of all other notice or damage claims as regards dismissal or termination of the Executive's employment with the Corporation or any subsidiary of the Corporation after a Change in Control and on or before the Expiry Date. The arrangements provided for herein shall not be considered in any judicial determination of appropriate damages at common law for dismissal without cause, other than as provided for in this Agreement. At the request of either party, the parties shall exchange mutual signed releases of liability conforming to the substantive provisions of this Agreement. SECTION 7 AGREEMENT SUPPLEMENTAL: This Agreement shall be supplemental to any other contract of employment or otherwise, whether written or oral, that exists between the Corporation or any subsidiary of the Corporation and the Executive, except insofar as any such contract relates to the termination of the employment relationship between the Corporation or any Subsidiary of the Corporation and the Executive, in which case this Agreement shall supersede the termination provisions of any such other contract of employment or otherwise. SECTION 8 BENEFIT PLANS: In the event that the Executive is entitled to a payment pursuant to Section 2 or 4, the Executive shall be entitled to have all Benefit Plans as constituted at the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment, as the case may be, continued for a period of 24 months after the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment, as the case may be, or for any longer period available under any Benefit Plans when coverage is provided from a source other than the Corporation. Notwithstanding the foregoing provisions of this Section 8, at the option of the Executive the cost to the Corporation of such Benefit Plans, or any part of the benefits under any such Benefit Plans as shall be specified by the Executive, shall be converted to a lump sum amount and shall be paid to the Executive immediately or shall be deferred to such date or dates as shall be designated in writing by the Executive. Any payment so deferred shall bear simple interest at the rate of 6% per annum calculated from the date payment of the amount otherwise should have been made until the date of payment in full. 6 - 6 - SECTION 9 STOCK OPTION AND STOCK PURCHASE PLANS: If the Executive is entitled to a payment pursuant to Section 2 or 4, the term during which any stock option granted to the Executive by the Corporation or any subsidiary of the Corporation may be exercised shall be extended to the later of the expiry date of the option or 12 months after the date of the giving of notice by the Executive pursuant to Section 3, or the dismissal from the Executive's employment as referred to in Section 4, as the case may be; provided that the maximum term of any such option shall not exceed six years from the date of grant of the option or such longer period as shall be permitted under the terms of the Corporation's stock option plan. In addition, in such event any provisions of the stock option or the stock purchase plan restricting the number of shares which may be purchased before a particular date shall be waived and the options shall be fully vested immediately. If the Executive is entitled to a payment pursuant to Section 2 or 4, all shares owned by the Executive and held in any stock purchase plan shall immediately be released to the Executive, subject to the Executive making any payments required under the plan. The terms of any stock option plan, stock purchase plan or agreement therefor shall be deemed amended to reflect the provisions of this Section 9. SECTION 10 DESIGNATION OF BENEFICIARY: If the Executive dies prior to satisfaction of all of the Corporation's obligations under this Agreement, any remaining amounts payable to the Executive by the Corporation shall be paid to the person or persons (a "Beneficiary") previously designated by the Executive to the Corporation for such purposes. Any such designation of a Beneficiary shall be made in writing, signed by the Executive and dated and filed with the Secretary of the Corporation. In the event that no such designation is made, all such remaining amounts shall be paid by the Corporation to the Estate of the Executive. If the Executive has exercised the option pursuant to Section 5 or 8 to defer a payment, or any part thereof, to be made to or for the benefit of the Executive, the Beneficiary or the Executor of the Estate, as the case may be, shall have the further option to require payment in full of any such remaining amounts to the Beneficiary or the Executor, as the case may be, by giving notice to that effect to the Corporation. SECTION 11 ASSIGNMENT AND ASSUMPTION: This Agreement automatically shall be assigned by the Corporation to any successor corporation of the Corporation and shall be binding upon such successor corporation. For the purposes of this Section 11, "successor corporation" shall include any person referred to in Subsection 1(b)(ii), (iii) or (iv). The Corporation shall ensure that the successor corporation shall continue the provisions of this Agreement as if it were the original party in place of the Corporation; provided however that the Corporation shall not thereby be relieved of any obligation to the Executive pursuant to this Agreement. In the event of a transaction or series of transactions as described in Subsection 1(b)(ii), (iii) or (iv), appropriate arrangements shall be made by the Corporation for the successor corporation to honour this Agreement as if the Executive had exercised his maximum rights hereunder as of the effective date of such transaction. SECTION 12 FURTHER ASSURANCES: Each of the parties hereto agrees to do and execute or cause to be made, done or executed all such further and other things, acts, deeds, documents, assignments and assurances as may be necessary or reasonably required to carry out the intent and purpose of this Agreement fully and effectually. Without limiting the generality of the foregoing, the Corporation shall take all reasonable steps in order to structure the payment or payments provided for in this Agreement in the manner most advantageous to the Executive with respect to the provisions of the Income Tax Act (Canada), the Internal Revenue Code (United States of America) or any similar legislation in place in any other jurisdiction of the Executive's residence. 7 - 7 - SECTION 13 REVIEW OF AGREEMENT: In the event of a threatened or pending Change in Control of the Corporation, and following an actual Change in Control of the Corporation, the Corporation in either case shall enter into a review of the terms of this Agreement and shall implement any amendments hereto which are agreed to by both parties. SECTION 14 RE-TRANSFER: If, within 12 months prior to the date of the Triggering Event, or the date of dismissal without cause, as the case may be, the Executive was transferred by the Corporation or the Subsidiary to his then place of residence and if the Executive has been resident in such location for less than 24 months at the time that he becomes entitled to a payment pursuant to Section 2 or 4, if the Executive exercises his rights under this Section 14 at the time of the giving of notice by the Executive pursuant to Section 3, or upon giving notice to the Corporation within 30 days of dismissal from the Executive's employment as referred to in Section 4, as the case may be, the Corporation shall pay the direct moving expenses of moving the Executive and his immediate family and their household effects to his immediately preceding place of residence offset by any such costs paid by any new employer. SECTION 15 OUTPLACEMENT SERVICES: If the Executive is entitled to receive a payment pursuant to Section 2 or 4, the Corporation shall pay the reasonable costs (to a maximum of 10% of the annual base salary of the Executive as used for the calculation of such payment) of the services for the Executive of a suitable outplacement counselling service selected by the Corporation. Notwithstanding the foregoing provisions of this Section 15, at the option of the Executive the cost to the Corporation of such outplacement services shall be converted to a lump sum amount and shall be paid to the Executive immediately. SECTION 16 GENDER: Whenever the context of this Agreement so requires or permits, the masculine gender includes the feminine gender. SECTION 17 NOTICE: Any notice, election or designation to be made by the Executive pursuant to this Agreement shall be in writing and shall be hand delivered to the Corporation at the following address: Zemex Corporation Canada Trust Tower, BCE Place 161 Bay Street, Suite 3750 Toronto, Ontario M5J 2S1 Telephone: (416) 365-8080 Fax: (416) 365-8094 Attention: President and Chief Executive Officer SECTION 18 TERM: This Agreement shall commence as of the date first above written and shall terminate on December 31, 2004 unless extended with the mutual agreement of the parties hereto and approved by the Board of Directors of the Corporation; provided that if a Change of Control occurs on or before December 31, 2004 the term of this Agreement automatically shall be extended to the Expiry Date. 8 - 8 - SECTION 19 GOVERNING LAW: This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario. The parties agree to attorn to the jurisdiction of, and to submit any dispute arising out of this Agreement to the Courts of the Province of Ontario. IN WITNESS WHEREOF the parties hereto have caused this agreement to be executed as of the date first above written. ZEMEX CORPORATION per: ------------------------ c/s Richard L. Lister President and Chief Executive Officer SIGNED, SEALED & DELIVERED ) in the presence of ) ) ) ) ) ) - -------------------------- ) ------------------------ l/s Witness ) Terrance J. Hogan ) EX-21 8 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The subsidiaries listed below are, directly or indirectly, wholly-owned (except for Zemex Fabi-Benwood, LLC, of which 60% is owned by Zemex) and all are consolidated in the financial statements.
SUBSIDIARY NAME STATE OR COUNTRY IN WHICH INCORPORATED OR ORGANIZED Alumitech, Inc. Delaware Alumitech of Cleveland, Inc. Delaware Alumitech of Wabash, Inc. Indiana AWT Properties, Inc. Ohio ETS Schaefer Corporation Ohio The Feldspar Corporation North Carolina Suzorite Mica Products Inc. Ontario, Canada Suzorite Mineral Products, Inc. Delaware Zemex Fabi-Benwood, LLC North Carolina Zemex Industrial Minerals, Inc. Delaware Zemex Mica Corporation Delaware Zemex U.S. Corporation Delaware
EX-27 9 EXHIBIT 27
5 1 US DOLLARS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 1,592,000 0 20,178,000 (349,000) 19,482,000 44,037,000 145,142,000 (48,363,000) 159,528,000 16,424,000 50,000,000 0 0 58,560,000 30,487,000 159,528,000 77,530,000 77,530,000 50,776,000 70,515,000 522,000 0 4,174,000 2,319,000 577,000 1,847,000 3,934,000 0 0 5,781,000 0.69 0.63
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