U.S. Securities and Exchange Commission

-----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, Si14Y2i64/pnKKRmwq6ThQcU0AiKsRb+Fo85QbHYPUss7z8c6JB5qdA39DhwDq+Q LXsfoAjtSkUJTOD6RCKVFQ== 0000842295-01-500020.txt : 20010815 0000842295-01-500020.hdr.sgml : 20010815 ACCESSION NUMBER: 0000842295-01-500020 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOR MINERALS INTERNATIONAL INC CENTRAL INDEX KEY: 0000842295 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 742081929 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-17321 FILM NUMBER: 1708980 BUSINESS ADDRESS: STREET 1: 722 BURLESON CITY: CORPUS CHRISTI STATE: TX ZIP: 78402 BUSINESS PHONE: 3618825175 MAIL ADDRESS: STREET 1: 722 BURLESON CITY: CORPUS CHRISTI STATE: TX ZIP: 78402 FORMER COMPANY: FORMER CONFORMED NAME: HITOX CORPORATION OF AMERICA DATE OF NAME CHANGE: 19920703 10QSB 1 x10qsb22001.htm 10QSB - 2ND QTR 2001 U.S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-QSB

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001

OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT

For the transition period from __________ to __________

Commission file number 0-17321

TOR MINERALS INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)

Delaware
(State or other jurisdiction of Incorporation or organization)

722 Burleson Street, Corpus
(Address of principal executive offices)Christi, Texas 78402
Issuer's telephone number: (361) 883-5591

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [ X ]

No [ ]

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.

Common Stock, $0.25 par value
(Class)

5,580,187
(Outstanding as of August 3, 2001)

Transitional Small Business Disclosure Format (check one):

Yes [ ]

No [ X ]

TOR MINERALS INTERNATIONAL, INC.

INDEX

PART I.	Financial Information
Item 1.	Financial Statements (Unaudited)	Page No.
	Consolidated Condensed Balance Sheets June 30, 2001 and December 31, 2000	3
	Consolidated Condensed Statements of Operations-- three months and six months ended June 30, 2001 and 2000	4
	Consolidated Condensed Statements of Cash Flows-- six months ended June 30, 2001 and 2000	5-6
	Notes to Consolidated Condensed Financial Statements	7-13
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14-17
PART II.	Other Information
Item 6.	Exhibits and Reports on Form 8-K	18
Signatures		18

TOR MINERALS INTERNATIONAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS June 30, 2001 and December 31, 2000 (in thousands)
		June 30, 2001 (Unaudited) - ------------------			December 31, 2000 - ------------------
ASSETS
Current assets:
Cash and cash equivalents	$		403	$		128
Trade accounts receivable, net			2,302			1,936
Other receivables			136			85
Inventories			4,035			5,570
Other current assets			231 - ---------			125 - ---------
Total current assets			7,107			7,844
Property, plant and equipment, net			12,839			10,367
Goodwill, net			1,299			--
Other assets			293 - ----------			12 - ---------
	$		21,538 ======	$		18,223 ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$		664	$		566
Accounts payable - Other			144			177
Accrued expenses			385			609
Notes payable - Line of credit			1,786			608
Export credit refinancing facility			913			1,470
Current maturities of long-term debt			2,616 - ---------			2,245 - ---------
Total current liabilities			6,508			5,675
Long-term debt, excluding current maturities			1,082			1,129
Other long-term debt, convertible debentures			2,709 - ---------			-- - ---------
Total liabilities			10,299			6,804
Commitments and Contingencies			--			--
Shareholders' equity:
Common stock $0.25 par value: authorized, 10,000 shares; 5,580 shares outstanding at 6/30/01; and 5,279 at 12/31/00			1,395			1,320
Additional paid-in capital			15,424			15,198
Accumulated deficit			(5,580) - ---------			(5,099) - ---------
Shareholders' equity			11,239 - ---------			11,419 - ---------
	$		21,538 ======	$		18,223 ======

See Notes to Consolidated Financial Statements

TOR MINERALS INTERNATIONAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts)

		Three Months Ended June 30,					Six Months Ended June 30,
		2001		2000			2001		2000
NET SALES	$	4,028	$	4,018		$	7,572	$	7,458
COSTS AND EXPENSES:
Cost of products sold		3,125 - -------		3,045 - -------			6,194 - -------		5,590 - -------
GROSS PROFIT (LOSS)		903		973			1,378		1,868
Selling, administrative and general		794 - -------		986 - -------			1,678 - -------		1,759 - -------
OPERATING INCOME (LOSS)		109		(13)			(300)		109
OTHER INCOME (EXPENSES):
Interest income		15		15			17		38
Interest expense		(116)		(152)			(200)		(209)
Other, net		1 - -------		(1) - -------			2 - -------		14 - -------
INCOME (LOSS) BEFORE INCOME TAX		9		(151)			(481)		(48)
Provision for income tax		-- - -------		-- - -------			-- - -------		-- - -------
NET INCOME (LOSS)	$	9 ====	$	(151) =====		$	(481) =====	$	(48) =====
Earnings (loss) per common share:
Basic	$	0.00	$	(0.03)		$	(0.09)	$	(0.01)
Diluted	$	0.00	$	(0.03)		$	(0.09)	$	(0.01)
Weighted average common shares and equivalents outstanding:
Basic		5,580		5,279			5,431		5,110
Diluted		5,589		5,279	⁽¹⁾		5,431	⁽¹⁾	5,110 ⁽¹⁾

____________________________________________________

⁽¹⁾	No shares were added to the number of basic shares in the computation of diluted earnings per share because the effect would be antidilutive.

See Notes to Consolidated Financial Statements

TOR MINERALS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands, except per share amounts)
	Six Months Ended June 30,
	2001		2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	(481)	$	(48)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		336		335
Amortization		13		12
Other assets		--		18
Changes in working capital:
Receivables		(417)		584
Inventories		1,535		1,122
Other current assets		(106)		(6)
Accounts payable and accrued expenses		(159) - --------		(1,704) - ---------
Net cash provided by operating activities		721		313
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of TMM, net of cash acquired		--		(3,893)
Acquisition of TP&T's assets from RBG		(2,782)		--
Additions to property, plant and equipment		(784) - ---------		(276) - ---------
Net cash used in investing activities		(3,566)		(4,169)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of convertible debentures		2,709		--
Proceeds from long-term bank debt - Domestic		1,000		3,500
Proceeds from bank line of credit - Domestic		1,550		--
Proceeds from other long-term debt - Domestic		600		--
Proceeds from long-term bank debt - Foreign		1,351		--
Proceeds from bank line of credit - Foreign		977		--
Payments on long-term bank debt - Domestic		(1,300)		--
Payments on long-term bank debt - Foreign		(1,581)		(105)
Payments on bank line of credit - Domestic		(800)		--
Payments on bank line of credit - Foreign		(549)		(1,021)
Payments on other long-term debt - Domestic		(581)		--
Payments on export credit refinancing facility - Foreign		(557)		(72)
Proceeds from the issuance of common stock and exercise of common stock options		301		9
		--------		---------
Net cash provided by financing activities		3,120		2,311
Net increase (decrease) in cash and cash equivalents		275		(1,545)
Cash and cash equivalents at beginning of year		128		2,330
		--------		---------
Cash and cash equivalents at end of period	$	403 ======	$	785 ======

Supplemental cash flow disclosures:
Interest paid	$	193	$	145
Interest income		17		37
Non-cash investing activities:
Fair value of assets acquired	$	2,013	$	9,885
Goodwill acquired		1,304		--
Non-compete agreement acquired		300		--
Debt assumed		--		(4,000)
Debt issued		(835)		(950)
Common stock issued		-- - ---------		(1,000) - ----------
Cash paid for acquisition	$	2,782 ======	$	3,935 ======

See Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.	Accounting Policies

Basis of Presentation and Use of Estimates

The interim financial statements of TOR Minerals International, Inc. (the "Company") are unaudited, but include all adjustments which the Company deems necessary for a fair presentation of its financial position and results of operations. All adjustments are of a normal and recurring nature. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. All significant accounting policies conform to those previously set forth in the Company's fiscal 2000 Annual Report on Form 10-KSB.

The consolidated financial statements include accounts of TOR Minerals International, Inc. and its wholly owned subsidiaries, TOR Minerals Malaysia, Sdn. Bhd. (TMM) and TOR Processing & Trade BV (TP&T). All significant inter-company transactions are eliminated in the consolidation process.

TMM measures and records its transactions in terms of the local Malaysian currency, the ringgit. Malaysia imposed capital controls and fixed its ringgit currency at 3.8 ringgits per 1 U.S. dollar in September 1998. The Malaysian government has not changed the fixed exchange rate since that time; however, there can be no assurance that it will maintain the currency's fixed rate of exchange.

TP&T measures and records its transactions in terms of the Euro and uses the U.S. dollar as its functional currency. As a result of the changes in the exchange rate, gains and losses due to fluctuations in the value of the Euro are recorded on the Company's consolidated condensed statement of operations.

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from these estimates.

Stock Based Compensation

The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company has accounted for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly, recognized no compensation expense for the stock option grants. The Company did not adopt FASB Statement No. 123, Accounting for Stock-Based Compensation, and will continue to account for stock option grants in accordance with APB Opinion No. 25. FASB Statement 123 requires certain disclosures about stock-based compensation plans for all companies regardless of the method used to account for them. Effective in 1996 calendar year-end financial statements, companies that continue to apply APB 25 are required to disclose pro forma information as if the measurement provisions of Statement 123 had been adopted in their entirety. Such pro forma information was included in the Company's 2000 Form 10-KSB.

Reclassifications

Certain reclassifications have been made in prior quarters' financial statements to conform to classifications used in the current quarter.

2.	Acquisition of TOR Minerals Malaysia, Sdn. Bhd.

Effective March 1, 2000 the Company acquired all the outstanding shares of TMM from Megamin Ventures Sdn Bhd ("Megamin") the Company's largest stockholder. Pursuant to the terms of the Agreement, the Company paid $3,775,000 in cash and issued 500,000 shares of its common stock in exchange for 100% of the outstanding shares of TMM. The Company's shares closed at $2.00 on the effective date of the Agreement. The Company also agreed to pay Megamin a total of $1,000,000 in four equal semi-annual payments beginning July 1, 2000. The discounted present value of those payments is approximately $950,000. Transaction costs totaled $160,000. The Company recorded the transaction as a purchase, with a cost of approximately $5,885,000, plus the assumption of TMM's bank debt of approximately $4,000,000.

TMM is the Company's sole supplier of Synthetic Rutile, the raw material for the Company's proprietary titanium pigment HITOX (Registered Trademark). TMM is also producing HITOX pigment in Malaysia under a license from the Company and is selling HITOX pigment in Asia and Europe. To take advantage of lower manufacturing costs in Malaysia, TMM began shipping HITOX to the West Coast of the United States in September 2000 and to the Company's Corpus Christi location in July 2001.

TMM was previously a subsidiary of the Company and was sold to Megamin and other investors in 1994. The acquisition provides the opportunity to control the raw material supply for the Company's primary product, HITOX pigment, and represents both a low cost production site for HITOX pigment and marketing opportunities outside the U.S. market.

3.	Acquisition of Assets from the Royal Begemann Group

On May 16, 2001, the Company finalized an asset purchase agreement (the "Agreement") with the Royal Begemann Group (RBG), a Netherlands holding company, to acquire designated assets of Terminor Processing & Trade BV, Ceramic Design International Holding BV, and Thermal Insulation Manufacturers BV. Pursuant to the terms of the Agreement, the Company paid $2,300,000 and agreed to pay RBG an additional $900,000 in three (3) equal installments beginning January 31, 2002. The discounted present value of the payments is approximately $835,000. The Company recorded the transaction as a purchase with a cost of approximately $3,300,000 of which $1,304,000 was goodwill which will be amortized using straight line over 20 years. In a separate agreement, the Company paid RBG $300,000 for a non-compete agreement which will be amortized over three years. The purchase price allocation is preliminary. The Company raised $3,010,000 for the acquisition through a private placement of common s tock and convertible debentures. (see note 4)

This acquisition of assets, consisting primarily of plant and equipment of Terminor Processing & Trade BV and Ceramic Design International Holding BV, located in Hattem, The Netherlands, enabled the Company to expand operations through its new subsidiary, TOR Processing and Trade BV (TP&T). Using the acquired plant and equipment, TP&T will manufacture very high quality specialty aluminas for the use in chips, cast polymers, bulk molding compounds, as well as, wire and cable applications. The Dutch plant also has the capability of manufacturing Boehmite which is used in the petroleum industry as a carrier for catalysts. Dr. Olaf Karasch, a mineralogist with 20 years experience in alumina processing, is TP&T's Managing Director and is based in Hattem.

In addition, certain equipment acquired from the closed Norwegian plant of Thermal Insulation Manufacturers BV is to be used in the Company's plants in Corpus Christi, Texas and Ipoh, Malaysia, to apply certain process technology to its titanium pigment. The Company paid $500,000 for the equipment acquired from the Norwegian plant.

4.	Related Party Transaction

In April 2001 the Company raised $3,010,000 in a private placement of common stock and convertible debentures. The Company used the proceeds to purchase certain assets from the RBG, a Netherlands holding company.

In the private placement, the Company issued 301,000 shares of its common stock and $2,709,000 principal amount of convertible debentures. Each purchaser in the private placement acquired a combination of common stock and convertible debentures. The terms of the private placement were agreed to in arms length negotiations with two lead investors who had no previous investment in or relationship to the Company but invested approximately 2/3 of the total amount raised. An additional outside investor and five officers and directors of the Company purchased the remaining 1/3 of the stock and convertible debentures on the same terms as those agreed to with the lead investor.

The common stock was priced in the private placement at $1.00 per share (slightly above the previous closing price), and the conversion price for the shares of common stock issuable upon conversion of the debentures is $1.80. The debentures bear no interest for 2 years, and are secured by security interests in substantially all of the Company's assets, and will be automatically converted into 5 year secured term notes bearing interest at the rate of 10% per annum, unless the holders of the debentures exercise the option to convert them into common stock at the $1.80 per share conversion rate.

The lead investors are affiliates of Hartman & Associates, Inc. of Austin, Texas. Under the terms of their investments, Hartman & Associates was permitted to designate two persons as directors of the Company, and David A. Hartman and Douglas M. Hartman were so designated, and joined the Company's Board of Directors at a subsequent board meeting.

The Board of Directors unanimously approved the terms of the private placement after thoroughly considering all of the terms in comparison with other potential methods of financing the asset acquisition. In particular, the Company considered raising all or a substantial portion of the funds required through a secured loan from a commercial bank, but the Board of Directors concluded that the financing costs and risks associated with bank financing were less favorable to the Company than the terms of the private placement.

A portion of the purchase price for the assets was deferred and is payable in installments, each in the amount of $300,000; payable on January 31, March 31, and May 31, 2002. The Company has not yet decided how it will finance the future installments. In that regard, the Company granted a right of first refusal to its largest stockholder, Megamin, to invest up to $900,000 on the same terms as the common stock and debentures that were issued in the private placement (Megamin did not invest in the private placement). However, the Company may elect to fund a portion of the amounts required for the installment payments out of its working capital or through a bank loan, and the Company has not been informed whether Megamin intends to exercise its right of first refusal. The Company expects to consider available financing methods in light of market conditions later this year, and may utilize a combination of internal funds, bank financing and/or an additional private placement in order to fund t he remaining installments.

The Company entered into a loan and security agreement with the Company's Chairman of the Board through Paulson Ranch, Ltd. The loan, with an interest rate of 10.0%, is amortized over 60 months with monthly principal and interest payments of $12,750. On June 8, 2001 the Company reduced the principal balance $100,000. The principal balance outstanding on June 30, 2001 was $490,865.

5.	Long-Term Debt and Notes Payable to Banks

A summary of long-term debt follows:	June 30, 2001		December 31, 2000
LIBOR based rate term note payable to a U.S. bank, with an effective interest rate of 7.91% at March 31, 2001 due October 5, 2001	$	--	$	1,300,000
Variable rate term note payable to a Malaysian bank, with an effective rate of 8.8% at December 31, 2000 due October, 2004		--		1,052,632
Variable rate term note payable to a Malaysian bank, with an effective rate of 8.8% at December 31, 2000 due September, 2004		--		297,856
Variable rate term note payable to a U.S. bank, with an effective interest rate of 7.75% at June 30, 2001 amortized over 60 months with monthly principal payments of $16,667; matures March 31, 2002		1,000,000		--
Convertible subordinated debentures issued in a private placement on April 5, 2001, convert into 5-year term loans at 10% interest if not presented for conversion to Company's common stock by April 5, 2003		2,709,000		--
Variable rate term note payable to a Malaysian offshore bank, with an effective rate of 8.05% at June 30, 2001 due February, 2004		559,971		--
Variable rate term note payable to a Malaysian offshore bank, with an effective rate of 7.33% at June 30, 2001 due February, 2004		559,971		--
Other indebtedness, payable to the Royal Begemann Group with an effective interest rate of 10.0%, due in three equal payments beginning January 1, 2002		835,265		--
Other indebtedness, payable to Paulson Ranch, a related party, with an effective interest rate 10.0%, amortized over 60 months with monthly payments of $12,750		490,865		--
Other indebtedness, payable to Megamin with an effective interest rate of 9.0%, due January 1, 2002		251,890 - ------------		723,678 - ------------
Total		6,406,962		3,374,166
Less current maturities		2,615,827 - ------------		2,245,473 - ------------
Total long-term debt	$	3,791,135 ========	$	1,128,693 ========

On June 30, 2001 the Company entered into the Fifth Amendment (the "Amendment") to its Loan Agreement with the Bank of America (the "Bank"). The Amendment reduced the Company's line of credit (the "Line"), revised the computation of Funded Debt Coverage, extended the maturity date of the term loan and expanded the collateral to include property, plant and equipment.

The Company's Line with Bank of America expires April 30, 2002. The Amendment reduced the Line from $2,000,000 to $1,350,000. The interest rate for the Line is the Bank's prime rate plus 1% per annum. The amount of credit available to the Company under the Line is limited to the lesser of $1,350,000 or 80% of eligible accounts receivable. At June 30, 2001 approximately $534,000 was available to the Company under the Line. During the second quarter, the Company reduced the outstanding borrowings under the Line from $1,350,000 to $750,000. The Company has continued to reduce the outstanding balance under the Line. As of August 8, 2001 the balance outstanding has been reduced to $300,000. The Company does not anticipate having to access addition funds from the Line until the fourth quarter of 2001.

The Company has one term loan with the Bank. The loan proceeds of $3,500,000 were used to finance the purchase of TMM in March 2000. The Amendment extended the maturity date of the loan from October 5, 2001 to March 31, 2002. The interest rate for the loan is the Bank's prime rate plus 1% per annum. The Amendment required the outstanding principal balance to be reduced from $1,200,000 to $1,000,000. Principal and interest payments are scheduled monthly commencing July 3, 2001, and continuing on the third (3^rd) day of each calendar month thereafter until the stated maturity date of March 31, 2002 when remaining principal and unpaid interest thereon shall be paid. The monthly payment, based on a 60-month straight-line amortization, includes principal of $16,666.67, plus unpaid interest as of the date of payment. The Company believes that it will not be able to pay off the term loan in its entirety when it matures March 31, 2002. Therefore, the Company plans to renegotiate the unpa id amount when it matures.

Both the Line and the term loan with the Bank are secured by the Company's property, plant, and equipment, as well as inventory and accounts receivable. The loan agreement contains covenants that, among other things, require maintenance of certain financial ratios. The covenants are calculated at the end of each quarter. For the quarter ended June 30, 2001, the Company was in compliance with all of the covenants. The terms of the Agreement also prohibited the Company from paying dividends without the prior approval of the Bank.

The Company's subsidiary, TMM, has loan agreements with two banks in Malaysia, HSBC Bank Malaysia Berhad and RHB Bank Berhad, which provide a total short term credit facility of $6,447,000. At June 30, 2001 TMM had utilized $1,949,000 of that facility, including $1,036,000 on the line of credit and $913,000 outstanding under an export credit refinancing facility (ECR). ECR, a government supported financing arrangement specifically for exporters, is used by TMM for short-term financing of 120 days against customers' purchase orders. During the first quarter 2001, TMM refinanced its two term loans with offshore banks. The loan agreements are with HSBC Bank Labuan and RHB Bank Labuan. At June 30, 2001 the outstanding principal balance of each term loan was approximately $560,000. Both loans have a variable interest rate. The effective interest rate at June 30, 2001 for the loan with RHB Bank was 8.05% per annum and 7.33% with HSBC Bank. The credit facilities are secured by TMM's inventory, ac counts receivable and property, plant and equipment.

The Company's subsidiary, TP&T, located in the Netherlands is currently negotiating a credit facility with a Bank in the Netherlands.

In the past year, the Company has significantly increased its level of borrowings. Such debt was incurred to finance the acquisition of TMM and the assets used to form TP&T, as well as debt associated with the operations of TMM. As such, the Company is subject to all the risks associated with liabilities for borrowed money, including the risk that the Company will not be able to renew or extend indebtedness of $2,616,000 that matures in 2002. If the Company were unable to renew or extend such debt, the Company's financial position would be adversely affected. Further, the terms of the Company's borrowings contain restrictions and covenants, including covenants based on the performance of the Company, and the failure of the Company to comply with such restrictions and covenants could also adversely affect the Company's financial position.

6.	Calculation of Basic and Diluted Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share:

(in thousands, except per share amounts)	Three Months Ended June 30,					Six Months Ended June 30
		2001		2000		2001	2000

Numerator:
Net Income	$	9	$	(151)	$	(481)	$		(48)
Numerator for basic earnings per share - - income available to common stockholders		9 - ----------		(151) - ----------		(481) - ----------			(48) - ----------
Effect of dilutive securities:		-- - ----------		-- - ----------		-- - ----------			-- - ----------
Numerator for diluted earnings per share - - income available to common stockholders after assumed conversions	$	9	$	(151)	$	(481)	$		(48)

Denominator:
Denominator for basic earnings per share - - weighted-average shares		5,580		5,279		5,431			5,110
Effect of dilutive securities:
Employee stock options		9 - ---------		-- - ----------		-- - ---------			-- - ---------
Dilutive potential common shares		9		--	⁽¹⁾	-- ⁽¹⁾		-- ⁽¹⁾
		---------		----------		---------			---------
Denominator for diluted earnings per share - - weighted-average shares and assumed conversions		5,589		5,279		5,431			5,110
Basic earnings per common share:
Net Income	$	0.00 ======	$	(0.03) ======	$	(0.09) ======	$		(0.01) ======
Diluted earnings per common share:
Net Income	$	0.00 ======	$	(0.03) ======	$	(0.09) ======	$		(0.01) ======

___________________________________________

⁽¹⁾	No shares were added to the number of basic shares in the computation of diluted earnings per share because the effect would be antidilutive.

Excluded from the calculation of diluted earnings per share were a total of 372,900 options at June 30, 2001 and 273,500 options at June 30, 2000. The options were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

7.	Business Segment Information

The Company and its subsidiaries operate in one reportable segment of pigment manufacturing and related products. All United States manufacturing is done at the facility located in Corpus Christi, Texas. Foreign manufacturing is done by the Company's wholly owned subsidiaries located in Malaysia and the Netherlands. A summary of the Company's manufacturing operations by geographic area is presented below:

(In thousands)	United States - ---------------		Malaysia - ---------------			Netherlands - ---------------			Adjustments and Eliminations - ---------------			Consolidated - ----------------
Three months ended June 30, 2001
Sales Revenue:
Customer sales	$	3,420	$	469	$		139	$		--	$		4,028
Intercompany sales		-- - ----------		483 - ---------			-- - ---------			(483) - ----------			-- - ------------
Total Sales Revenue	$	3,420	$	952	$		139	$		(483)	$		4,028
Segment profit (loss)	$	126 ======	$	(22) ======	$		(78) ======	$		(17) ======	$		9 ========
Three months ended June 30, 2000
Sales Revenue:
Customer sales	$	3,629	$	389	$		--	$		--	$		4,018
Intercompany sales		-- - ----------		-- - ----------			-- - ----------			-- - ----------			-- - ------------
Total Sales Revenue	$	3,629	$	389	$		--	$		--	$		4,018
Segment profit (loss)	$	69 ======	$	(230) ======	$		-- ======	$		10 ======	$		(151) ========

Six months ended June 30, 2001
Sales Revenue:
Customer sales	$	6,529	$	904	$		139	$		--	$		7,572
Intercompany sales		-- - ----------		686 - ----------			-- - ----------			(686) - ----------			-- - ------------
Total Sales Revenue	$	6,529	$	1,590	$		139	$		(686)	$		7,572
Segment profit (loss)	$	(304) =======	$	(101) ======	$		(78) ======	$		2 ======	$		(481) ========
Segment assets	$	19,133	$	12,810	$		3,955	$		(14,360)	$		21,538

Six months ended June 30, 2000
Sales Revenue:
Customer sales	$	6,958	$	500	$		--	$		--	$		7,458
Intercompany sales		-- - -----------		811 - ----------			-- - ----------			(811) - ----------			-- - ------------
Total Sales Revenue	$	6,958	$	1,311	$		--	$		(811)	$		7,458
Segment profit (loss)	$	191 ======	$	(7) ======	$		-- ======	$		(232) ======	$		(48) ========
Segment assets	$	17,397	$	13,181	$		--	$		(10,010)	$		20,568

_______________________________________________

Sales from the subsidiary to the parent company are based upon profit margins which represent competitive pricing of similar products or based on contractual arrangements that existed prior to the Company's acquisition of TMM.
8.	Pro Forma Financial Information

The results of operations for the six-month period ended June 30, 2000 includes the operations of TMM from the acquisition date of March 1, 2000 (see Note 2). Assuming the acquisition of TMM had occurred at January 1, 2000, unaudited pro forma consolidated results of operations for the six months ended June 30, 2000 would have been as follows:

Pro Forma (Unaudited) Six Months Ended June 30 In thousands, except per share data
		2000
Net revenue	$	8,975
Net income (loss)	$	434
Net income (loss) per share:
Basic	$	0.08
Diluted	$	0.08

The pro forma information above is presented in response to applicable accounting rules relating to business acquisitions. It is not necessarily indicative of the actual results that would have been achieved had the acquisition of TMM occurred at the beginning of 2000, nor is it indicative of future results of operations.

9.	Foreign Currency Risk

The Company has direct operations in The Netherlands and Malaysia. The Company's foreign operations are measured in their local currencies. As a result, the Company's financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company has operations.

10.

Contingencies

There are claims arising in the normal course of business that are pending against the Company. While it is not feasible to predict or determine the outcome of any case, it is the opinion of management that the ultimate dispositions will have no material effect on the financial statements of the Company.

The Company believes that the plants in Corpus Christi, Texas, Ipoh, Malaysia and Hattem, The Netherlands are in compliance with all applicable federal, state, and local laws and regulations relating to the discharge of substances into the environment. The Company does not expect that any material capital expenditures for environmental control facilities will be necessary in order to continue such compliance.

11.

Impact of Financial Accounting Standards No. 141 and No. 142

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives and will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.

The Company will adopt both statements on January 1, 2002 and is currently evaluating the impact of these statements. The Company has not yet quantified the impact of these pronouncements; however, existing goodwill amortization expense was approximately $5,000 in the second quarter and for the first six months of 2001. During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. Any impairment resulting from the initial application of the statements will be recorded as a cumulative effect of accounting change as of January 1, 2002.

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Sales:

Net sales increased $10,000 or 0.25% to $4,028,000 in the second quarter of 2001 compared with $4,018,000 in the same quarter last year. For the six months ended June 30, 2001, net sales increased $114,000 or 1.5% to $7,572,000 compared with $7,458,000 for the same period last year.

Gross Profit:

Gross profit for the second quarter of 2001 was $903,000 as compared to $973,000 for the same quarter of 2000, a decrease of $70,000. The decrease in gross profit was the result of a change in the product mix that included higher sales of lower margin products and the initial start-up of production at TP&T. Year to date, gross profit decreased $490,000 from $1,868,000 for the first six months of 2000 to $1,378,000 for the same period of 2001. The year to date decrease in gross profit is primarily the result of higher cost for natural gas during the first quarter of 2001 compared to the first quarter of 2000. In an effort to reduce the cost of natural gas at the Corpus Christi Operations, the Company entered into a nine-month supply agreement (effective July 1, 2001 through March 31, 2002) with its natural gas supplier. The Company is hopeful that the agreement will have a positive impact on the gross profit. In addition, the Corpus Christi Operations reduced its middle level of man agement during the second quarter of 2001 which will have an impact on future gross profits.

Expenses:

Total selling, administrative and general expenses ("SG&A expense") decreased from $986,000 during the second quarter of 2000, to $794,000 for the second quarter of 2001, a decrease of $192,000 or 19.5%. Approximately $72,000 or 37.5% of the decrease is the result of the Corpus Christi Operations reduction in force. For the year, SG&A expense decreased $81,000 or 4.6% from $1,759,000 in 2000 to $1,678,000 in 2001.

Interest Income:

During the second quarter, excess funds were deposited in short-term interest bearing investments resulting in interest income of $15,000 for both the second quarter of 2001 and the same quarter last year. For the year, interest income decreased from $38,000 in 2000 to $17,000 in 2001. The year to date decrease is the result of lower cash balances available for investment during the first six months of 2001.

Interest Expense:

Interest expense decreased $36,000 in the second quarter of 2001 from $152,000 in the second quarter of 2000 to $116,000 for the second quarter of 2001. For the six-month period ended June 30, 2001 interest expense was $200,000 compared to $209,000 for the same period in 2000. The decrease in interest expense is due to lower interest rates during the first six months of 2001 as compared to the same period last year.

Provision for Income Tax:

Due to the utilization of operating loss carry-forwards and other tax benefits both in the US and in Malaysia, the Company recorded no income tax expense during the second quarter of 2001.

Liquidity and Capital Resources

During the second quarter 2001, working capital decreased from $2,169,000 at December 31, 2000 to $599,000 at June 30, 2001. For the six-month period ended June 30, 2001 inventories decreased $1,535,000 or 27.6% from $5,570,000 at December 31, 2000 to $4,035,000 at June 30, 2001.

Cash increased from $128,000 at December 31, 2000 to $403,000 at June 30, 2001. During the six-month period, operating activities provided cash totaling $721,000 due to a significant decrease in inventory. Net cash used in investing activities totaled $3,566,000 which consisted primarily of the acquisition of TP&T's assets from RBG and manufacturing equipment purchased from Thermal Insulation Manufacturers BV in Norway. Financing activities provided net cash of $3,120,000. The most significant financing activities during the six-month period included the issuance of convertible subordinate debentures, the issuance of common stock, and loan proceeds from the Company's Chairman of the Board.

The Company's Line with Bank of America expires April 30, 2002. The Amendment reduced the Line from $2,000,000 to $1,350,000. The interest rate for the Line is the Bank's prime rate plus 1% per annum. The amount of credit available to the Company under the Line is limited to the lesser of $1,350,000 or 80% of eligible accounts receivable. At June 30, 2001 approximately $534,000 was available to the Company under the Line. During the second quarter, the Company reduced the outstanding borrowings under the Line from $1,350,000 to $750,000. The Company has continued to reduce the outstanding balance under the Line. As of August 8, 2001 the balance outstanding on the Line has been reduced to $300,000. The Company does not anticipate having to access addition funds from the Line until the fourth quarter of 2001.

The Company's subsidiary, TP&T, located in the Netherlands is currently negotiating a credit facility with a Bank in the Netherlands.

Other Matters

Impact of Financial Accounting Standards No. 141 and No. 142

The Company will adopt both statements on January 1, 2002 and is currently evaluating the impact of these statements. The Company has not yet quantified the impact of these pronouncements; however, existing goodwill amortization expense of approximately $5,000 in the second quarter and for the first six months of 2001. During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. Any impairment resulting from the initial application of the statements will be recorded as a cumulative effect of accounting change as of January 1, 2002.

Forward Looking Information

Certain portions of this report contain forward-looking statements about the business, financial condition and prospects of the Company. The actual results of the Company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including, without limitation, changes in demand for the Company's products, changes in competition, economic conditions, fluctuations in market price for TiO₂ pigments, interest rate fluctuations, changes in the capital markets, changes in tax and other laws and governmental rules and regulations applicable to the Company's business, and other risks indicated in the Company's filing with the Security and Exchange Commission. These risks and uncertainties are beyond the ability of the Company to control, and, in many cases, the Company cannot predict all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking sta tements. When used in this report, the words "believes," "estimates," "plans," "expects," "anticipates" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements.

PART II

Item 6.		Exhibits and Reports on Form 8K
	(a)	Exhibits
		Exhibit No.
		10.1(a)	Fifth Amendment to Loan Agreement with Bank of America dated June 30, 2001
		10.1(b)	UCC Filing with Bank of America dated June 30, 2001
		10.1(c)	Security Agreement with Bank of America dated June 30, 2001

		10.2	Security Agreement with Paulson Ranch, Ltd. (a related party) dated April 5, 2001

	(b)	Reports on Form 8-K	The Company filed a form 8-K/A with a Current Date of May 16, 2001 reporting the acquisition of TP&T (TOR Processing and Trade) BV a wholly owned subsidiary located in The Netherlands.

Signatures Pursuant to the requirements 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.

	TOR Minerals International, Inc.
	_______________ (Registrant)


Date:	August 14, 2001	RICHARD L. BOWERS Richard L. Bowers President and CEO

Date:	August 14, 2001	BARBARA RUSSELL Barbara Russell Controller and Treasurer (Principal Accounting Officer)

EX-10 3 exhibit10a.htm FIFTH AMENDMENT TO LOAN AGREEMENT W/BOA exhibit10a Exhibit 10.1(a)

FIFTH AMENDMENT TO LOAN AGREEMENT

This Fifth Amendment to Loan Agreement by and among TOR MINERALS INTERNATIONAL, INC., formerly known as Hitox Corporation of America, Inc., a Delaware corporation ("Borrower") and BANK OF AMERICA, N.A., a national banking association which is the successor in interest by merger to NationsBank of America, N.A. ("Bank").

Recitals:

I. Borrower has entered into a Loan Agreement with Bank dated August 31, 1995, which has been amended by a First Amendment to Loan Agreement dated July 31, 1996 and a Second Amendment to Loan Agreement dated July 17, 1998 and a Third Amendment to Loan Agreement dated March 3, 2000 and a Fourth Amendment to Loan Agreement dated as of April 30, 2000 (as amended, the "Loan Agreement"). Words which are capitalized herein which are defined in the Loan Agreement shall have the same meanings as in the Loan Agreement.

II. Borrower has requested that Bank (a) waive Borrower's default under Section 4.21 of the Loan Agreement for the period ended March 31, 2001 (the "Existing Default"), and (b) modify said Section 4.21 of the Loan Agreement.

Subject to the terms and conditions hereof, Bank has agreed to such request.

NOW, THEREFORE, for valuable consideration, Borrower and Bank mutually agree that the Loan Agreement shall be, and is hereby, amended as follows:

1. Amendment to Section I. The second sentence of Section I of the Loan Agreement is amended in its entirety to read as follows:

"The total amount of all loans and letters of credit outstanding under the Revolving Note may vary from time to time, but shall not exceed in the aggregate at any one time the lesser of (a) $1,350,000 or (b) 80% of Borrower's Eligible Accounts Receivable."

2. Amendment to Paragraph 4.21. Paragraph 4.21 of the Loan Agreement is amended to read as follows:

4.21 Funded Debt Coverage. Borrower agrees that it will maintain a funded debt coverage ratio, on an unconsolidated basis, of no greater than 3.50 to 1.0 on June 30, 2001 and on each September 30, December 31, March 31 and June 30 thereafter. Compliance with the foregoing shall be calculated for the periods elapsed since April 1, 2001, annualized, until the test date of March 31, 2002 and thereafter, when is shall be for the four immediately preceding quarters. For purposes of this calculation, Borrower's funded debt coverage shall mean that ratio of Borrower's funded debt to Borrower's cash flow. Borrower's funded debt shall include the principal amount of all outstanding promissory notes and capital lease obligations. Borrower's cash flow shall mean Borrower's net income before taxes on a book basis (a) plus (i) interest expense, (ii) depreciation and amortization, and (iii) other non-cash expenses, (b) less gains on the sale of assets and cash dividends.

3. Term Loan Modifications. The following modifications are hereby made to the Term Loan and the Term Note:

(a) On the date of execution hereof, Borrower shall make a principal payment on the Term Note in the amount of $200,000 (the "Term Loan Payment") and the outstanding principal balance of the Term Note, after such payment, shall be $1,000,000.

(b) The first paragraph of Section 1 of the Term Note is hereby amended in its entirety to provide for the following interest rate:

RATE. The interest rate shall be the Bank's Prime Rate plus 1% per annum.

(c) The second paragraph of Section 4 of the Term Note is hereby amended in its entirety to provide for the following payment schedule:

MONTHLY PRINCIPAL AND INTEREST PAYMENTS. Principal and interest shall be paid monthly commencing July 3, 2001, and continuing on the third (3^rd) day of each calendar month thereafter until the stated maturity of this Note, when all principal and any accrued but unpaid interest thereon shall be paid. Such monthly payment shall be in the amount of the sum of (a) $16,666.67 in principal (60 month straight line amortization), plus (b) all accrued but unpaid interest on this Note to the date of payment.

The Maturity Date of the Term Note is hereby extended to March 31, 2002.

4. Waiver; Conditions Precedent. Subject to satisfaction by Borrower of the following terms and conditions, Bank hereby waives the Existing Default:

(a) execution and delivery of this Agreement, a new Security Agreement (covering, among other collateral, Borrower's equipment), and financing statements reflecting such security interest, each of which shall be in form and substance acceptable to Bank;

(b) payment to Bank of the Term Loan Payment (as defined in paragraph 3(a) above); and

(c) payment to Bank of a waiver fee in the amount of $5,875.00 (0.25% of the commitment under the Revolving Note and the balance of the Term Note);

5. Financial Statements; Litigation. Borrower represents to Bank that all financial statements which have been furnished to Bank are correct and complete in all material respects, and fairly represent the financial condition of Borrower on the dates thereof or for the periods specified therein, and that no material adverse change has occurred since the date of the latest of such financial statements. No litigation, arbitration proceedings or governmental or regulatory proceedings are pending or threatened against Borrower which, if adversely determined, would be likely to adversely affect Borrower's financial condition or the legality, validity or enforceability of the Loan Agreement, Notes or Security Documents.

6. Prior Documents. Borrower ratifies and confirms that all of the representations and warranties, covenants, events of default and other provisions of the Loan Agreement are true and correct and remain in full force and effect, as of the date hereof. Borrower further ratifies and confirms that all of the Security Documents shall also remain in full force and effect until the Notes are paid in full.

7. RELEASE. For valuable consideration received to the full satisfaction of Borrower, Borrower waives and releases any and all causes of action against Bank, its agents and employees, for all acts and omissions which have occurred prior to the signing of this Third Amendment to Loan Agreement, including but not limited to all causes of action for claims of usury, fraud, deceit, misrepresentation, conspiracy, unconscionability, duress, economic duress, defamation, control, interference with corporate governance, tortious interference with contractual and business relationships, conflicts of interest, misuse of insider information, concealment, disclosure, secrecy, misuse of collateral, wrongful release of collateral, failure to inspect, environmental due diligence, negligent loan processing and administration, wrongful setoff, violations of statutes and regulations of governmental entities and agencies (both civil and criminal), racketeering activities, security and antitrust violatio ns, tying arrangements, deceptive trade practices (to the maximum extent permitted by law), and breach or abuse of any alleged fiduciary duty, special relationship, course of conduct and/or obligation of good faith and fair dealing. Bank and Borrower further agree that the amount of their damages in all causes of action, including causes of action arising after the date hereof, shall be limited to exclude all (i) punitive and exemplary damages, (ii) damages attributable to lost profits or opportunity, (iii) damages attributable to mental anguish and (iv) damages attributable to pain and suffering, and the parties do hereby waive and release all such damages with respect to any and all causes of action which may arise at any time against any other party, their agents and employees.

8. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.

(1) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M..S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.

(2) RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMED IES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.

9. COMPLETE AGREEMENT. THE WRITTEN LOAN AGREEMENT IS AMENDED, THE NOTES AND ALL CURRENTLY AND PREVIOUSLY EXECUTED SECURITY DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

Dated: June 30, 2001.

BORROWER:

TOR MINERALS INTERNATIONAL, INC.

By:_____________________________________

Richard L. Bowers,
President and Chief Executive Officer

BANK:

BANK OF AMERICA, N.A.

By:_____________________________________

Lynn Johnston, Vice President

EX-10 4 exhibit10b.htm UCC FILING W/BOA exhibit10b Exhibit 10.1(b)

FINANCING STATEMENT FOLLOW INSTRUCTIONS CAREFULLY

This Financing Statement is presented for filing pursuant to the Uniform Commercial Code

and will remain effective, with certain exceptions, for 5 years from date of filing.

A. NAME & TEL. # OF CONTACT AT FILER (optional)	B. FILING OFFICE ACCT. # (optional)
C. RETURN COPY TO: (Name and Mailing Address) BANK OF AMERICA, N.A. Attn: Lynn Johnston 901 Main Street, 11^th Floor Dallas, Texas 75202
D. OPTIONAL DESIGNATION (if applicable): oLESSOR/LESSEE oCONSIGNOR/CONSIGNEE oNON-UCC FILING

1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b)
OR	1a. ENTITY'S NAME TOR MINERALS INTERNATIONAL, INC. (f/k/a Hitox Corporation of America, Inc.)
	1b. INDIVIDUAL'S LAST NAME			FIRST NAME	MIDDLE NAME			SUFFIX
1c. MAILING ADDRESS 722 Burleson Street				CITY Corpus Christi	STATE TX	COUNTRY USA	POSTAL CODE 78403
1d. S.S. OR TAX I.D.#		OPTIONAL ADD'NL INFO RE ENTITY DEBTOR	1e. TYPE OF ENTITY Corp.	1f. ENTITY'S STATE OR COUNTRY OF ORGANIZATION Delaware	1g. ENTITY'S ORGANIZATIONAL I.D.#, if any o NONE
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b)
OR	2a. ENTITY'S NAME
	2b. INDIVIDUAL'S LAST NAME			FIRST NAME	MIDDLE NAME			SUFFIX
2c. MAILING ADDRESS				CITY	STATE	COUNTRY	POSTAL CODE
2d. S.S. OR TAX I.D.#		OPTIONAL ADD'NL INFO RE ENTITY DEBTOR	2e. TYPE OF ENTITY	2f. ENTITY'S STATE OR COUNTRY OF ORGANIZATION	2g. ENTITY'S ORGANIZATIONAL I.D.#, if any o NONE
3. SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT LEGAL NAME - insert only one secured party name (3a or 3b)
OR	3e. ENTITY'S NAME BANK OF AMERICA, N.A.
	3b. INDIVIDUAL'S LAST NAME			FIRST NAME	MIDDLE NAME			SUFFIX
3c. MAILING ADDRESS 901 Main Street, 11^th Floor (Attn: Lynn Johnston)				CITY Dallas	STATE TX	COUNTRY USA	POSTAL CODE 75202
4. This FINANCING STATEMENT covers the following types or items of property: SEE EXHIBIT "A" ATTACHED HERETO AND INCORPORATED HEREIN BY REFERENCE.
5.CHECK o This FINANCING STATEMENT is signed by the Secured Party instead of the BOX Debtor to perfect a security interest (a) in collateral already subject to a (if applicable) security interest in another jurisdiction when it was brought into this state, or when the debtor's location was changed to this state, or (b) in accordance with other statutory provisions [additional data may be required]						7. If filed in Florida (check one) Documentary Documentary stamp o stamp tax paid o tax not applicable
6. REQUIRED SIGNATURE(S): SEE EXHIBIT "B" ATTACHED HERETO AND INCORPORATED HEREIN BY REFERENCE.					8.oThis FINANCING STATEMENT is to be filed [for record] (or recorded) in the REAL ESTATE RECORDS Attach Addendum [if applicable]
					9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s) [ADDITIONAL FEE] (optional) oAll Debtor oDebtor 1 o Debtor 2

(1) FILING OFFICER COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95) 2691511.1/889.8

EXHIBIT "A"

Attached to that certain UCC-1 Financing Statement executed by TOR MINERALS INTERNATIONAL, INC., (f/k/a Hitox Corporation of America, Inc.) ("Debtor").

DESCRIPTION OF COLLATERAL

A. Types of Collateral:

i. Accounts: Any and all accounts and other rights of Debtor to the payment for goods sold or leased or for services rendered whether or not earned by performance, including, without limitation, contract rights, book debts, checks, notes, drafts, instruments, chattel paper, acceptances, and any and all amounts due to Debtor from a factor or other forms of obligations and receivables, now existing or hereafter arising.

ii. Inventory: Any and all of Debtor's goods held as inventory.

iii. Equipment: Any and all of Debtor's goods held as equipment.

iv. Fixtures: Any and all of Debtor's goods held as fixtures.

v. Instruments and/or Investment Documents: Any and all of Debtor's instruments, documents, and other writings of any type.

vi. General Intangibles: Any and all of Debtor's general intangible property.

B. Substitutions, Proceeds and Related Items. Any and all substitutes and replacements for, accessions, attachments and other additions to, tools, parts and equipment now or hereafter added to or used in connection with, and all cash or non-cash proceeds and products of, the Collateral (including, without limitation, all income, benefits and property receivable, received or distributed which results from any of the Collateral, such as dividends payable or distributable in cash, property or stock; insurance distributions of any kind related to the Collateral, including, without limitation, returned premiums, interest, premium and principal payments; redemption proceeds and subscription rights; and shares or other proceeds of conversions or splits of any securities in the Collateral); any and all choses in action and causes of action of Debtor, whether now existing or hereafter arising, relating directly or indirectly to the Collateral (whether arising in contract, tort or otherwise and whether or not cu rrently in litigation); all certificates of title, manufacturer's statements of origin, other documents, accounts and chattel paper, whether now existing or hereafter arising directly or indirectly from or related to the Collateral; all warranties, wrapping, packaging, advertising and shipping materials used or to be used in connection with or related to the Collateral; all of Debtor's books, records, data, plans, manuals, computer software, computer tapes, computer systems, computer disks, computer programs, source codes and object codes containing any information, pertaining directly or indirectly to the Collateral and all rights of Debtor to retrieve data and other information pertaining directly or indirectly to the Collateral from third parties, whether now existing or hereafter arising; and all returned, refused, stopped in transit, or repossessed Collateral, any of which, if received by Debtor, upon request shall be delivered immediately to Secured Party.

C. Balances and Other Property. The balance of every deposit account of Debtor maintained with Secured Party and any other claim of Debtor against Secured Party, now or hereafter existing, liquidated or unliquidated, and all money, instruments, securities, documents, chattel paper, credits, claims, demands, income, and any other property, rights and interests of Debtor which at any time shall come into the possession or custody or under the control of Secured Party or any of its agents or affiliates for any purpose, and the proceeds of any thereof. Secured Party shall be deemed to have possession of any of the Collateral in transit to or set apart for it or any of its agents or affiliates.

D. Proceeds. All additions and accretions to, substitutions and replacements for, and proceeds and products of, any of the foregoing.

EXHIBIT "B"

Attached to that certain UCC-1 Financing Statement executed by TOR MINERALS INTERNATIONAL, INC., (f/k/a Hitox Corporation of America, Inc.) ("Debtor").

SIGNATURE OF DEBTOR:

TOR MINERALS INTERNATIONAL, INC.

By:________________________________

Name: Richard L. Bowers

Title: President and Chief Executive Officer

EX-10 5 exhibit10c.htm SECURITY AGREEMENT W/BOA 3: exhibit10c Exhibit 10.1(c)

SECURITY AGREEMENT

June 30, 2001

Bank/Secured Party:

Bank of America, N.A.
Banking Center: (Dallas, CSA)
901 Main Street, 11^th Floor
Dallas, Dallas County, Texas 75202

(Street address including county)

Debtor(s)/Pledgor(s):

TOR Minerals International, Inc. (f/k/a Hitox Corporation of America, Inc.)
722 Burleson Street
Corpus Christi, Nueces County, Texas 78403

(Name and street address, including county)

Debtor/Pledgor is: a Corporation

Address is Debtor's/Pledgor's: Chief Executive Office

Collateral (hereinafter defined) is located at: Debtor's/Pledgor's address shown above

1. Security Interest. For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Debtor/Pledgor (hereinafter referred to as "Debtor") assigns and grants to Bank (also known as "Secured Party"), a security interest and lien in the Collateral (hereinafter defined) to secure the payment and the performance of the Obligation (hereinafter defined).

2. Collateral. A security interest is granted in the following collateral described in this Item 2 (the "Collateral"):

A. Types of Collateral:

ii. Inventory: Any and all of Debtor's goods held as inventory.

iii. Equipment: Any and all of Debtor's goods held as equipment.

iv. Fixtures: Any and all of Debtor's goods held as fixtures.

v. Instruments and/or Investment Documents: Any and all of Debtor's instruments, documents, and other writings of any type.

vi. General Intangibles: Any and all of Debtor's general intangible property.

B. Substitutions, Proceeds and Related Items. Any and all substitutes and replacements for, accessions, attachments and other additions to, tools, parts and equipment now or hereafter added to or used in connection with, and all cash or non-cash proceeds and products of, the Collateral (including, without limitation, all income, benefits and property receivable, received or distributed which results from any of the Collateral, such as dividends payable or distributable in cash, property or stock; insurance distributions of any kind related to the Collateral, including, without limitation, returned premiums, interest, premium and principal payments; redemption proceeds and subscription rights; and shares or other proceeds of conversions or splits of any securities in the Collateral); any and all choses in action and causes of action of Debtor, whether now existing or hereafter arising, relating directly or indirectly to the Collateral (whether arising in contract, tort or otherwis e and whether or not currently in litigation); all certificates of title, manufacturer's statements of origin, other documents, accounts and chattel paper, whether now existing or hereafter arising directly or indirectly from or related to the Collateral; all warranties, wrapping, packaging, advertising and shipping materials used or to be used in connection with or related to the Collateral; all of Debtor's books, records, data, plans, manuals, computer software, computer tapes, computer systems, computer disks, computer programs, source codes and object codes containing any information, pertaining directly or indirectly to the Collateral and all rights of Debtor to retrieve data and other information pertaining directly or indirectly to the Collateral from third parties, whether now existing or hereafter arising; and all returned, refused, stopped in transit, or repossessed Collateral, any of which, if received by Debtor, upon request shall be delivered immediately to Bank.

C. Balances and Other Property. The balance of every deposit account of Debtor maintained with Bank and any other claim of Debtor against Bank, now or hereafter existing, liquidated or unliquidated, and all money, instruments, securities, documents, chattel paper, credits, claims, demands, income, and any other property, rights and interests of Debtor which at any time shall come into the possession or custody or under the control of Bank or any of its agents or affiliates for any purpose, and the proceeds of any thereof. Bank shall be deemed to have possession of any of the Collateral in transit to or set apart for it or any of its agents or affiliates.

3. Description of Obligation(s). The following obligations ("Obligation" or "Obligations") are secured by this Agreement: (a) All debts, obligations, liabilities and agreements of Debtor to Bank, now or hereafter existing, arising directly or indirectly between Debtor and Bank whether absolute or contingent, joint or several, secured or unsecured, due or not due, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, and all renewals, extensions or rearrangement of any of the above; (b) All costs incurred by Bank to obtain, preserve, perfect and enforce this Agreement and maintain, preserve, collect and realize upon the Collateral; (c) All other costs and attorney's fees incurred by Bank, for which Debtor is obligated to reimburse Bank in accordance with the terms of the Loan Documents (hereinafter defined), together with interest at the maximum rate allowed by law, or if none, 25% per annum; and (d) All amounts which may be owed to Bank pursuant to all other Loan Documents executed between Bank and any other Debtor. If Debtor is not the obligor of the Obligation, and in the event any amount paid to Bank on any Obligation is subsequently recovered from Bank in or as a result of any bankruptcy, insolvency or fraudulent conveyance proceeding, Debtor shall be liable to Bank for the amounts so recovered up to the fair market value of the Collateral whether or not the Collateral has been released or the security interest terminated. In the event the Collateral has been released or the security interest terminated, the fair market value of the Collateral shall be determined, at Bank's option, as of the date the Collateral was released, the security interest terminated, or said amounts were recovered.

4. Debtor's Warranties. Debtor hereby represents and warrants to Bank as follows:

A. Financing Statements. Except as may be noted by schedule attached hereto and incorporated herein by reference, no financing statement covering the Collateral is or will be on file in any public office, except the financing statements relating to this security interest, and no security interest, other than the one herein created, has attached or been perfected in the Collateral or any part thereof.

B. Ownership. Debtor owns, or will use the proceeds of any loans by Bank to become the owner of, the Collateral free from any setoff, claim, restriction, lien, security interest or encumbrance except liens for taxes not yet due and the security interest hereunder.

C. Fixtures and Accessions. None of the Collateral is affixed to real estate or is an accession to any goods, or will become a fixture or accession, except as expressly set out herein.

D. Claims of Debtors on the Collateral. All account debtors and other obligors whose debts or obligations are part of the Collateral have no right to setoffs, counterclaims or adjustments, and no defenses in connection therewith.

E. Environmental Compliance. The conduct of Debtor's business operations and the condition of Debtor's property does not and will not violate any federal laws, rules or ordinances for environmental protection, regulations of the Environmental Protection Agency and any applicable local or state law, rule, regulation or rule of common law and any judicial interpretation thereof relating primarily to the environment or any materials defined as hazardous materials or substances under any local, state or federal environmental laws, rules or regulations, and petroleum, petroleum products, oil and asbestos ("Hazardous Materials").

F. Power and Authority. Debtor has full power and authority to make this Agreement, and all necessary consents and approvals of any persons, entities, governmental or regulatory authorities and securities exchanges have been obtained to effectuate the validity of this Agreement.

5. Debtor's Covenants. Until full payment and performance of all of the Obligation and termination or expiration of any obligation or commitment of Bank to make advances or loans to Debtor, unless Bank otherwise consents in writing:

A. Obligation and This Agreement. Debtor shall perform all of its agreements herein and in any other agreements between it and Bank.

B. Ownership and Maintenance of the Collateral. Debtor shall keep all tangible Collateral in good condition. Debtor shall defend the Collateral against all claims and demands of all persons at any time claiming any interest therein adverse to Bank. Debtor shall keep the Collateral free from all liens and security interests except those for taxes not yet due and the security interest hereby created. Debtor shall furnish to Bank on or before February 15th of each year, proof of payment of ad valorem taxes payable on the Collateral.

C. Insurance. Debtor shall insure the Collateral with companies acceptable to Bank. Such insurance shall be in an amount not less than the fair market value of the Collateral and shall be against such casualties, with such deductible amounts as Bank shall approve. All insurance policies shall be written for the benefit of Debtor and Bank as their interests may appear, payable to Bank as loss payee, or in other form satisfactory to Bank, and such policies or certificates evidencing the same shall be furnished to Bank. All policies of insurance shall provide for written notice to Bank at least thirty (30) days prior to cancellation. Risk of loss or damage is Debtor's to the extent of any deficiency in any effective insurance coverage.

D. Bank's Costs. Debtor shall pay all costs necessary to obtain, preserve, perfect, defend and enforce the security interest created by this Agreement, collect the Obligation, and preserve, defend, enforce and collect the Collateral, including but not limited to taxes, assessments, insurance premiums, repairs, rent, storage costs and expenses of sales, legal expenses, reasonable attorney's fees and other fees or expenses for which Debtor is obligated to reimburse Bank in accordance with the terms of the Loan Documents. Whether the Collateral is or is not in Bank's possession, and without any obligation to do so and without waiving Debtor's default for failure to make any such payment, Bank at its option may pay any such costs and expenses, discharge encumbrances on the Collateral, and pay for insurance of the Collateral, and such payments shall be a part of the Obligation and bear interest at the rate set out in the Obligation. Debtor agrees to reimburse Bank on demand for any co sts so incurred.

E. Information and Inspection. Debtor shall (i) promptly furnish Bank any information with respect to the Collateral requested by Bank; (ii) allow Bank or its representatives to inspect the Collateral, at any time and wherever located, and to inspect and copy, or furnish Bank or its representatives with copies of, all records relating to the Collateral and the Obligation; (iii) promptly furnish Bank or its representatives such information as Bank may request to identify the Collateral, at the time and in the form requested by Bank; and (iv) deliver upon request to Bank shipping and delivery receipts evidencing the shipment of goods and invoices evidencing the receipt of, and the payment for, the Collateral.

F. Additional Documents. Debtor shall sign and deliver any papers deemed necessary or desirable in the judgment of Bank to obtain, maintain, and perfect the security interest hereunder and to enable Bank to comply with any federal or state law in order to obtain or perfect Bank's interest in the Collateral or to obtain proceeds of the Collateral.

G. Parties Liable on the Collateral. Debtor shall preserve the liability of all obligors on any Collateral, shall preserve the priority of all security therefor, and shall deliver to Bank the original certificates of title on all motor vehicles or other titled vehicles constituting the Collateral. Bank shall have no duty to preserve such liability or security, but may do so at the expense of Debtor, without waiving Debtor's default.

H. Records of the Collateral. Debtor at all times shall maintain accurate books and records covering the Collateral. Debtor immediately will mark all books and records with an entry showing the absolute assignment of all Collateral to Bank, and Bank is hereby given the right to audit the books and records of Debtor relating to the Collateral at any time and from time to time. The amounts shown as owed to Debtor on Debtor's books and on any assignment schedule will be the undisputed amounts owing and unpaid.

I. Disposition of the Collateral. If disposition of any Collateral gives rise to an account, chattel paper or instrument, Debtor immediately shall notify Bank, and upon request of Bank shall assign or indorse the same to Bank. No Collateral may be sold, leased, manufactured, processed or otherwise disposed of by Debtor in any manner without the prior written consent of Bank, except the Collateral sold, leased, manufactured, processed or consumed in the ordinary course of business.

J. Accounts. Each account held as Collateral will represent the valid and legally enforceable obligation of third parties and shall not be evidenced by any instrument or chattel paper.

K. Notice/Location of the Collateral. Debtor shall give Bank written notice of each office of Debtor in which records of Debtor pertaining to accounts held as Collateral are kept, and each location at which the Collateral is or will be kept, and of any change of any such location. If no such notice is given, all records of Debtor pertaining to the Collateral and all Collateral of Debtor are and shall be kept at the address marked by Debtor above.

L. Change of Name/Status and Notice of Changes. Without the written consent of Bank, Debtor shall not change its name, change its corporate status, use any trade name or engage in any business not reasonably related to its business as presently conducted. Debtor shall notify Bank immediately of (i) any material change in the Collateral, (ii) a change in Debtor's residence or location, (iii) a change in any matter warranted or represented by Debtor in this Agreement, or in any of the Loan Documents or furnished to Bank pursuant to this Agreement, and (iv) the occurrence of an Event of Default (hereinafter defined).

M. Use and Removal of the Collateral. Debtor shall not use the Collateral illegally. Debtor shall not, unless previously indicated as a fixture, permit the Collateral to be affixed to real or personal property without the prior written consent of Bank. Debtor shall not permit any of the Collateral to be removed from the locations specified herein without the prior written consent of Bank, except for the sale of inventory in the ordinary course of business.

N. Possession of the Collateral. Debtor shall deliver all investment securities and other instruments, documents and chattel paper which are part of the Collateral and in Debtor's possession to Bank immediately, or if hereafter acquired, immediately following acquisition, appropriately indorsed to Bank's order, or with appropriate, duly executed powers. Debtor waives presentment, notice of acceleration, demand, notice of dishonor, protest, and all other notices with respect thereto.

O. Consumer Credit. If any Collateral or proceeds includes obligations of third parties to Debtor, the transactions giving rise to the Collateral shall conform in all respects to the applicable state or federal law including but not limited to consumer credit law. Debtor Shall Hold Harmless and Indemnify Bank Against Any Cost, Loss or Expense Arising from Debtor's Breach of this Covenant.

P. Power of Attorney. Debtor appoints Bank and any officer thereof as Debtor's attorney-in-fact with full power in Debtor's name and behalf to do every act which Debtor is obligated to do or may be required to do hereunder; however, nothing in this paragraph shall be construed to obligate Bank to take any action hereunder nor shall Bank be liable to Debtor for failure to take any action hereunder. This appointment shall be deemed a power coupled with an interest and shall not be terminable as long as the Obligation is outstanding and shall not terminate on the disability or incompetence of Debtor.

Q. Waivers by Debtor. Debtor waives notice of the creation, advance, increase, existence, extension or renewal of, and of any indulgence with respect to, the Obligation; waives presentment, demand, notice of dishonor, and protest; waives notice of the amount of the Obligation outstanding at any time, notice of any change in financial condition of any person liable for the Obligation or any part thereof, notice of any Event of Default, and all other notices respecting the Obligation; and agrees that maturity of the Obligation and any part thereof may be accelerated, extended or renewed one or more times by Bank in its discretion, without notice to Debtor. Debtor waives any right to require that any action be brought against any other person or to require that resort be had to any other security or to any balance of any deposit account. Debtor further waives any right of subrogation or to enforce any right of action against any other Debtor until the Obligation is paid in full.

R. Other Parties and Other Collateral. No renewal or extension of or any other indulgence with respect to the Obligation or any part thereof, no release of any security, no release of any person (including any maker, indorser, guarantor or surety) liable on the Obligation, no delay in enforcement of payment, and no delay or omission or lack of diligence or care in exercising any right or power with respect to the Obligation or any security therefor or guaranty thereof or under this Agreement shall in any manner impair or affect the rights of Bank under the law, hereunder, or under any other agreement pertaining to the Collateral. Bank need not file suit or assert a claim for personal judgment against any person for any part of the Obligation or seek to realize upon any other security for the Obligation, before foreclosing or otherwise realizing upon the Collateral. Debtor waives any right to the benefit of or to require or control application of any other security or proceeds the reof, and agrees that Bank shall have no duty or obligation to Debtor to apply to the Obligation any such other security or proceeds thereof.

S. Collection and Segregation of Accounts and Right to Notify. Bank hereby authorizes Debtor to collect the Collateral, subject to the direction and control of Bank, but Bank may, without cause or notice, curtail or terminate said authority at any time. Upon notice by Bank, whether oral or in writing, to Debtor, Debtor shall forthwith upon receipt of all checks, drafts, cash, and other remittances in payment of or on account of the Collateral, deposit the same in one or more special accounts maintained with Bank over which Bank alone shall have the power of withdrawal. The remittance of the proceeds of such Collateral shall not, however, constitute payment or liquidation of such Collateral until Bank shall receive good funds for such proceeds. Funds placed in such special accounts shall be held by Bank as security for all Obligations secured hereunder. These proceeds shall be deposited in precisely the form received, except for the indorsement of Debtor where necessary to permit collection of items, which indorsement Debtor agrees to make, and which indorsement Bank is also hereby authorized, as attorney-in-fact, to make on behalf of Debtor. In the event Bank has notified Debtor to make deposits to a special account, pending such deposit, Debtor agrees that it will not commingle any such checks, drafts, cash or other remittances with any funds or other property of Debtor, but will hold them separate and apart therefrom, and upon an express trust for Bank until deposit thereof is made in the special account. Bank will, from time to time, apply the whole or any part of the Collateral funds on deposit in this special account against such Obligations as are secured hereby as Bank may in its sole discretion elect. At the sole election of Bank, any portion of said funds on deposit in the special account which Bank shall elect not to apply to the Obligations, may be paid over by Bank to Debtor. At any time, whether Debtor is or is not in default hereunder, Bank may notify persons obligated on any Collateral to make payments directly to Bank and Bank may take control of all proceeds of any Collateral. Until Bank elects to exercise such rights, Debtor, as agent of Bank, shall collect and enforce all payments owed on the Collateral.

T. Compliance with State and Federal Laws. Debtor will maintain its existence, good standing and qualification to do business, where required, and comply with all laws, regulations and governmental requirements, including without limitation, environmental laws applicable to it or any of its property, business operations and transactions.

U. Environmental Covenants. Debtor shall immediately advise Bank in writing of (i) any and all enforcement, cleanup, remedial, removal, or other governmental or regulatory actions instituted, completed or threatened pursuant to any applicable federal, state, or local laws, ordinances or regulations relating to any Hazardous Materials affecting Debtor's business operations; and (ii) all claims made or threatened by any third party against Debtor relating to damages, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials. Debtor shall immediately notify Bank of any remedial action taken by Debtor with respect to Debtor's business operations. Debtor will not use or permit any other party to use any Hazardous Materials at any of Debtor's places of business or at any other property owned by Debtor except such materials as are incidental to Debtor's normal course of business, maintenance and repairs and which are handled in compliance with all applicable environmental laws. Debtor agrees to permit Bank, its agents, contractors and employees to enter and inspect any of Debtor's places of business or any other property of Debtor at any reasonable times upon three (3) days prior notice for the purposes of conducting an environmental investigation and audit (including taking physical samples) to insure that Debtor is complying with this covenant and Debtor shall reimburse Bank on demand for the costs of any such environmental investigation and audit. Debtor shall provide Bank, its agents, contractors, employees and representatives with access to and copies of any and all data and documents relating to or dealing with any Hazardous Materials used, generated, manufactured, stored or disposed of by Debtor's business operations within five (5) days of the request therefor.

6. Rights and Powers of Bank.

A. General. Bank, before or after default, without liability to Debtor may: obtain from any person information regarding Debtor or Debtor's business, which information any such person also may furnish without liability to Debtor; require Debtor to give possession or control of any Collateral to Bank; indorse as Debtor's agent any instruments, documents or chattel paper in the Collateral or representing proceeds of the Collateral; contact account debtors directly to verify information furnished by Debtor; take control of proceeds, including stock received as dividends or by reason of stock splits; release the Collateral in its possession to any Debtor, temporarily or otherwise; require additional Collateral; reject as unsatisfactory any property hereafter offered by Debtor as Collateral; set standards from time to time to govern what may be used as after acquired Collateral; designate, from time to time, a certain percent of the Collateral as the loan value and require Debtor to main tain the Obligation at or below such figure; take control of funds generated by the Collateral, such as cash dividends, interest and proceeds or refunds from insurance, and use same to reduce any part of the Obligation and exercise all other rights which an owner of such Collateral may exercise, except the right to vote or dispose of the Collateral before an Event of Default; at any time transfer any of the Collateral or evidence thereof into its own name or that of its nominee; and demand, collect, convert, redeem, receipt for, settle, compromise, adjust, sue for, foreclose or realize upon the Collateral, in its own name or in the name of Debtor, as Bank may determine. Bank shall not be liable for failure to collect any account or instruments, or for any act or omission on the part of Bank, its officers, agents or employees, except for its or their own willful misconduct or gross negligence. The foregoing rights and powers of Bank will be in addition to, and not a limitation upon, any rights and powers of B ank given by law, elsewhere in this Agreement, or otherwise. If Debtor fails to maintain any required insurance, to the extent permitted by applicable law Bank may (but is not obligated to) purchase single interest insurance coverage for the Collateral which insurance may at Bank's option (i) protect only Bank and not provide any remuneration or protection for Debtor directly and (ii) provide coverage only after the Obligation has been declared due as herein provided. The premiums for any such insurance purchased by Bank shall be a part of the Obligation and shall bear interest as provided in 3(d) hereof.

B. Convertible Collateral. Bank may present for conversion any Collateral which is convertible into any other instrument or investment security or a combination thereof with cash, but Bank shall not have any duty to present for conversion any Collateral unless it shall have received from Debtor detailed written instructions to that effect at a time reasonably far in advance of the final conversion date to make such conversion possible.

7. Default.

A. Event of Default. An event of default ("Event of Default") shall occur if: (i) there is a loss, theft, damage or destruction of any material portion of the Collateral for which there is no insurance coverage or for which, in the opinion of Bank, there is insufficient insurance coverage; (ii) Debtor or any other obligor on all or part of the Obligation shall fail to timely and properly pay or observe, keep or perform any term, covenant, agreement or condition in this Agreement or in any other agreement between Debtor and Bank or between Bank and any other obligor on the Obligation, including, but not limited to, any other note or instrument, loan agreement, security agreement, deed of trust, mortgage, promissory note, guaranty, certificate, assignment, instrument, document or other agreement concerning or related to the Obligation (collectively, the "Loan Documents"); (iii) Debtor or such other obligor shall fail to timely and properly pay or observe, keep or perform any term, cov enant, agreement or condition in any agreement between such party and any affiliate or subsidiary of Bank of America Corporation; (iv) Debtor or such other obligor shall fail to timely and properly pay or observe, keep or perform any term, covenant, agreement or condition in any lease agreement between such party and any lessor pertaining to premises at which any Collateral is located or stored; or (v) Debtor or such other obligor abandons any leased premises at which any Collateral is located or stored and the Collateral is either moved without the prior written consent of Bank or the Collateral remains at the abandoned premises.

B. Rights and Remedies. If any Event of Default shall occur, then, in each and every such case, Bank may, without presentment, demand, or protest; notice of default, dishonor, demand, non-payment, or protest; notice of intent to accelerate all or any part of the Obligation; notice of acceleration of all or any part of the Obligation; or notice of any other kind, all of which Debtor hereby expressly waives, (except for any notice required under this Agreement, any other Loan Document or applicable law); at any time thereafter exercise and/or enforce any of the following rights and remedies at Bank's option:

i. Acceleration. The Obligation shall, at Bank's option, become immediately due and payable, and the obligation, if any, of Bank to permit further borrowings under the Obligation shall at Bank's option immediately cease and terminate.

ii. Possession and Collection of the Collateral. At its option: (a) take possession or control of, store, lease, operate, manage, sell, or instruct any Agent or Broker to sell or otherwise dispose of, all or any part of the Collateral; (b) notify all parties under any account or contract right forming all or any part of the Collateral to make any payments otherwise due to Debtor directly to Bank; (c) in Bank's own name, or in the name of Debtor, demand, collect, receive, sue for, and give receipts and releases for, any and all amounts due under such accounts and contract rights; (d) indorse as the agent of Debtor any check, note, chattel paper, documents, or instruments forming all or any part of the Collateral; (e) make formal application for transfer to Bank (or to any assignee of Bank or to any purchaser of any of the Collateral) of all of Debtor's permits, licenses, approvals, agreements, and the like relating to the Collateral or to Debtor's business; (f) take any other acti on which Bank deems necessary or desirable to protect and realize upon its security interest in the Collateral; and (g) in addition to the foregoing, and not in substitution therefor, exercise any one or more of the rights and remedies exercisable by Bank under any other provision of this Agreement, under any of the other Loan Documents, or as provided by applicable law (including, without limitation, the Uniform Commercial Code as in effect in Texas (hereinafter referred to as the "UCC")). In taking possession of the Collateral Bank may enter Debtor's premises and otherwise proceed without legal process, if this can be done without breach of the peace. Debtor shall, upon Bank's demand, promptly make the Collateral or other security available to Bank at a place designated by Bank, which place shall be reasonably convenient to both parties.

Bank shall not be liable for, nor be prejudiced by, any loss, depreciation or other damages to the Collateral, unless caused by Bank's willful and malicious act. Bank shall have no duty to take any action to preserve or collect the Collateral.

iii. Receiver. Obtain the appointment of a receiver for all or any of the Collateral, Debtor hereby consenting to the appointment of such a receiver and agreeing not to oppose any such appointment.

iv. Right of Set Off. Without notice or demand to Debtor, set off and apply against any and all of the Obligation any and all deposits (general or special, time or demand, provisional or final) and any other indebtedness, at any time held or owing by Bank or any of Bank's agents or affiliates to or for the credit of the account of Debtor or any guarantor or indorser of Debtor's Obligation.

Bank shall be entitled to immediate possession of all books and records evidencing any Collateral or pertaining to chattel paper covered by this Agreement and it or its representatives shall have the authority to enter upon any premises upon which any of the same, or any Collateral, may be situated and remove the same therefrom without liability. Bank may surrender any insurance policies in the Collateral and receive the unearned premium thereon. Debtor shall be entitled to any surplus and shall be liable to Bank for any deficiency. The proceeds of any disposition after default available to satisfy the Obligation shall be applied to the Obligation in such order and in such manner as Bank in its discretion shall decide.

Debtor specifically understands and agrees that any sale by Bank of all or part of the Collateral pursuant to the terms of this Agreement may be effected by Bank at times and in manners which could result in the proceeds of such sale as being significantly and materially less than might have been received if such sale had occurred at different times or in different manners, and Debtor hereby releases Bank and its officers and representatives from and against any and all obligations and liabilities arising out of or related to the timing or manner of any such sale.

If, in the opinion of Bank, there is any question that a public sale or distribution of any Collateral will violate any state or federal securities law, Bank may offer and sell such Collateral in a transaction exempt from registration under federal securities law, and any such sale made in good faith by Bank shall be deemed "commercially reasonable".

8. General.

A. Parties Bound. Bank's rights hereunder shall inure to the benefit of its successors and assigns. In the event of any assignment or transfer by Bank of any of the Obligation or the Collateral, Bank thereafter shall be fully discharged from any responsibility with respect to the Collateral so assigned or transferred, but Bank shall retain all rights and powers hereby given with respect to any of the Obligation or the Collateral not so assigned or transferred. All representations, warranties and agreements of Debtor if more than one are joint and several and all shall be binding upon the personal representatives, heirs, successors and assigns of Debtor.

B. Waiver. No delay of Bank in exercising any power or right shall operate as a waiver thereof; nor shall any single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. No waiver by Bank of any right hereunder or of any default by Debtor shall be binding upon Bank unless in writing, and no failure by Bank to exercise any power or right hereunder or waiver of any default by Debtor shall operate as a waiver of any other or further exercise of such right or power or of any further default. Each right, power and remedy of Bank as provided for herein or in any of the Loan Documents, or which shall now or hereafter exist at law or in equity or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by Bank of any one or more of such rights, powers or remedies shall not preclude the simultaneous o r later exercise by Bank of any or all other such rights, powers or remedies.

C. Agreement Continuing. This Agreement shall constitute a continuing agreement, applying to all future as well as existing transactions, whether or not of the character contemplated at the date of this Agreement, and if all transactions between Bank and Debtor shall be closed at any time, shall be equally applicable to any new transactions thereafter. Provisions of this Agreement, unless by their terms exclusive, shall be in addition to other agreements between the parties. Time is of the essence of this Agreement.

D. Definitions. Unless the context indicates otherwise, definitions in the UCC apply to words and phrases in this Agreement; if UCC definitions conflict, Article 9 definitions apply.

E. Notices. Notice shall be deemed reasonable if mailed postage prepaid at least five (5) days before the related action (or if the UCC elsewhere specifies a longer period, such longer period) to the address of Debtor given above, or to such other address as any party may designate by written notice to the other party. Each notice, request and demand shall be deemed given or made, if sent by mail, upon the earlier of the date of receipt or five (5) days after deposit in the U.S. Mail, first class postage prepaid, or if sent by any other means, upon delivery.

F. Modifications. No provision hereof shall be modified or limited except by a written agreement expressly referring hereto and to the provisions so modified or limited and signed by Debtor and Bank. The provisions of the Agreement shall not be modified or limited by course of conduct or usage of trade.

G. Applicable Law and Partial Invalidity. This Agreement Has Been Delivered in the State of Texas and Shall Be Construed in Accordance with the Laws of That State. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement. The invalidity or unenforceability of any provision of any Loan Document to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

H. Financing Statement. To the extent permitted by applicable law, a carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral shall be sufficient as a financing statement.

I. ARBITRATION. Any Controversy or Claim Between or Among The Parties Hereto Including But Not Limited to Those Arising Out of or Relating to This Instrument, Agreement or Document or Any Related Instruments, Agreements or Documents, Including Any Claim Based on or Arising From an Alleged Tort, Shall Be Determined by Binding Arbitration in Accordance With The Federal Arbitration Act (Or If Not Applicable, The Applicable State Law), The Rules of Practice And Procedure For The Arbitration of Commercial Disputes of J.A.M.S./Endispute or Any Successor Thereof ("J.A.M.S."), and the "Special Rules" Set Forth below. In the Event of Any Inconsistency, the Special Rules Shall Control. Judgment upon Any Arbitration Award May Be Entered in Any Court Having Jurisdiction. Any Party to this Instrument, Agreement or Document May Bring an Action, Including a Summary or Expedited Proceeding, to Compel Arbitration of Any Controversy or Claim to Which this Agreement Applies in Any Court Having Jurisdic tion over Such Action.

i. Special Rules. The Arbitration Shall Be Conducted in the County of Any Borrower's Domicile at the Time of the Execution of this Instrument, Agreement or Document and Administered by J.A.M.S. Who Will Appoint an Arbitrator; If J.A.M.S. Is Unable or Legally Precluded from Administering the Arbitration, Then the American Arbitration Association Will Serve. All Arbitration Hearings Will Be Commenced Within 90 Days of the Demand for Arbitration; Further, the Arbitrator Shall Only, upon a Showing of Cause, Be Permitted to Extend the Commencement of Such Hearing for up to an Additional 60 Days.

ii. Reservation of Rights. nothing in this Arbitration Provision Shall Be Deemed to (I) Limit the Applicability of Any Otherwise Applicable Statutes of Limitation or Repose and Any Waivers Contained in this Instrument, Agreement or Document; or (II) Be a Waiver by Bank of the Protection Afforded to it by 12 U.S.C. Sec. 91 or Any Substantially Equivalent State Law; or (III) Limit the Right of Bank Hereto (A) to Exercise Self Help Remedies Such as (But Not Limited To) Setoff, or (B) to Foreclose Against Any Real or Personal Property Collateral, or (C) to Obtain from a Court Provisional or Ancillary Remedies Such as (But Not Limited To) Injunctive Relief, Writ of Possession or the Appointment of a Receiver. Bank May Exercise Such Self Help Rights, Foreclose upon Such Property, or Obtain Such Provisional or Ancillary Remedies Before, During or after the Pendency of Any Arbitration Proceeding Brought Pursuant to this Instrument, Agreement or Document. Neither this Exercise of Se lf Help Remedies Nor the Institution or Maintenance of an Action for Foreclosure or Provisional or Ancillary Remedies Shall Constitute a Waiver of the Right of Any Party, Including the Claimant in Any Such Action, to Arbitrate the Merits of the Controversy or Claim Occasioning Resort to Such Remedies.

J. Controlling Document. To the extent that this Security Agreement conflicts with or is in any way incompatible with any other Loan Document concerning the Obligation, any promissory note shall control over any other document, and if such note does not address an issue, then each other document shall control to the extent that it deals most specifically with an issue.

K. NOTICE OF FINAL AGREEMENT. This Written Security Agreement and the Other Loan Documents Represent the Final Agreement Between the Parties and May Not Be Contradicted by Evidence of Prior, Contemporaneous or Subsequent Oral Agreements of the Parties. There Are No Unwritten Oral Agreements Between the Parties.

In Witness Whereof, the parties hereto have caused this Security Agreement to be duly executed by their duly authorized representatives as of the date first above written.

Debtor(s)/Pledgor(s):

TOR Minerals International, Inc.

(a Delaware corporation)

By:____________________________________

Richard L. Bowers
President and Chief Executive Officer

Bank/Secured Party:

Bank of America, N.A.

(a national banking association)

By:_____________________________________

Name:_____________________________________

Title:_____________________________________

EX-10 6 exhibit10-2.htm SECURITY AGREEMENT W/PAULSON RANCH exhibit10-2 Exhibit 10.2

SECURITY AGREEMENT

Part I. Preamble

Section 1.01. Security Agreement. This Security Agreement (the "Agreement"), dated as of the latest execution date inserted below, is by and between TOR MINERALS INTERNATIONAL, INC., a Delaware corporation (the "Debtor") and PAULSON RANCH, LTD. (the "Secured Party").

Part II. Security Interest

Section 2.01. Grant of Security Interest. Debtor hereby grants to Secured Party a security interest in the Collateral described in Part III below to secure performance and payment of all obligations and indebtedness of the Debtor to Secured Party arising under or pursuant to $600,000.00 Promissory Note, whether joint or several, whether absolute or contingent, whether due or to become due, whether arising prior to, contemporaneous with, or after this Agreement, and whether evidenced by or accruing under this Agreement, and all renewals, modifications, extensions, increases and rearrangements thereof or of any part thereof, (herein collectively referred to as the "Indebtedness").

Section 2.02. Continuing Force of Security Interest. The security interests governed by this Agreement shall secure future replacements of the debenture as reflected in the debenture.

Section 2.03. Lien Priority on Collateral. The liens on the assets of Debtor shall be senior to the liens securing approximately $2,450,000 in Debentures issued by Debtor on or about of the date of this agreement.

Part III. Collateral

Section 3.01. Collateral. To secure the payment when due of any and all Indebtedness, Debtor hereby grants to the Secured Party a security interest in and to all assets of Debtor, whether now owned by Debtor or hereafter acquired, whether now existing, or whether arising or created hereafter (herein collectively referred to as the "Collateral") including but not limited to the following:

(1) All goods, equipment, machinery, furnishings, furniture, appliances, accessories, leasehold improvements, chattels, tools, parts, inventory, signs, displays, fixtures and other items of personal property owned by Debtor;

(2) All trade names, trademarks, copyrights, franchises, franchise rights, licenses, general intangibles, and permits owned by, held by or accruing to the benefit of Debtor;

(3) All accessions, accessories, and appurtenances to any of the Collateral;

(4) All improvements, extensions, alterations, substitutions, replacements, renewals, and rights belonging or in any way appertaining to all or any part of the Collateral or acquired for use in connection therewith;

(5) All right, title, and interest of Debtor to and under all leases or agreements now existing or hereafter entered into for the use, occupancy, or sale of the whole or any part of the Collateral;

(6) All proceeds payable or to be payable under each policy of insurance relating to the whole or any part of the Collateral;

(7) All proceeds arising from the taking, conveyance, or sale of all or any part of the Collateral (or any interest therein or right accruing thereto) as a result of (or in lieu or anticipation of) any public or quasi-public use under any law or the exercise of the right of appropriation, confiscation, condemnation, or eminent domain; and

(8) Without limiting any other description of the Collateral, all rights, rents, revenues, income, issues, benefits, leases, contract rights, general intangibles, chattel paper, money, instruments, documents, files, computerized or other records, books, ledger sheets, executory contract rights, rights as an unpaid vendor (including the rights to stop goods in transit, to replevy, and to reclaim), tenements, hereditaments, and appurtenances now or hereafter owned by Debtor and appertaining to, generated from, arising out of, or belonging to any of the Collateral, and all products and proceeds thereof.

Section 3.02. After-Acquired Collateral. All property acquired by Debtor after the date of this Agreement that by the terms hereof is required or intended to be subjected to the security interest granted or renewed by this Agreement will, immediately upon the acquisition thereof and without further mortgage, conveyance, or assignment, become subject to the lien of this Agreement as fully as though now owned by Debtor and specifically described herein. Nevertheless, Debtor will do all such further acts and will execute, acknowledge, and deliver all such further conveyances, mortgages, financing statements, and assurances as Secured Party reasonably requires for accomplishing the purposes of this Agreement, including delivery of Collateral to Secured Party's possession if required below.

Section 3.03. Proceeds of Collateral. The inclusion of proceeds as part of the Collateral does not authorize Debtor to sell any of the Collateral without Secured Party's prior written consent, except for inventory sold in the ordinary course of Debtor's business.

Section 3.04. Disposition or Replacement of Collateral. Debtor shall not sell, lease, rent or otherwise dispose of any item of the Collateral without Secured Party's prior written consent, except for inventory sold in the ordinary course of Debtor's business, unless Debtor replaces such item of Collateral with other Collateral of equal or greater value. Debtor may, without Secured Party's consent, dispose of Collateral which has no value due to obsolescence.

Part IV. Debtor's Payment Obligations

Section 4.01. Promise To Pay. Debtor will pay Secured Party, in accordance with the terms of such Indebtedness and the terms of this Agreement, all sums that may become due pursuant to the Indebtedness and all renewals, rearrangements, increases, decreases, or extensions of any such Indebtedness. Debtor will pay Secured Party on demand the entire unpaid indebtedness, whether created or incurred pursuant to this Agreement or otherwise, on any default under Part VI below.

Section 4.02. Indebtedness. The Indebtedness includes (but is not limited to):

(1) All indebtedness arising pursuant to any loan agreement, debenture (convertible or otherwise), promissory note, financing arrangement, or document between Debtor and Secured Party;

(2) All other obligations of Debtor to Secured Party, whether now existing or later arising, whether joint or several, whether direct or indirect, whether absolute or contingent, and whether due or to become due, and however created (whether by promissory note, endorsement, guaranty, overdraft, letter of credit, reimbursement agreement, financing agreement, financing arrangement, or otherwise);

(3) All renewals, extensions, increases, decreases, or rearrangements of all or any part of the foregoing indebtedness or obligations;

(4) Secured Party's court costs and reasonable attorney's fees if all or any of the Indebtedness is not paid on demand when due or if this Agreement is enforced by suit or through probate, bankruptcy, or other judicial proceedings; and

(5) Any and all advancements made under this Agreement or otherwise by the Secured Party on behalf of Debtor or to protect, secure, insure or otherwise affect the Collateral, or any part thereof.

Section 4.03. Proceeds of Collateral. Debtor will account fully and faithfully to Secured Party for proceeds from disposition of the Collateral in any manner and will pay or turn over promptly (in the form received by Debtor, whether cash, negotiable instruments, drafts, assigned accounts, chattel paper, or otherwise) all proceeds from each sale, to be applied to the Indebtedness, subject to final payment or collection if other than cash. Application of such proceeds to the Indebtedness will be in the sole discretion of Secured Party, provided such application of proceeds is made by Secured Party in a reasonable manner. Nothing herein is intended to nor shall it be construed to require Secured Party to accept any item other than cash in payment of the Indebtedness.

Section 4.04. Secured Party's Expenses. Debtor will be liable for, and will pay Secured Party on demand, all expenses (including reasonable attorney's fees and other legal costs incurred or paid by Secured Party in exercising or protecting its interests, rights, and remedies under this Agreement or the obligations secured hereby), plus interest thereon after demand at the lower of (1) eighteen percent (18%) per year or (2) the highest rate of non-usurious interest then allowed by law.

Part V. Representations, Warranties, and Agreements

Section 5.01. No Prior Lien. Debtor represents and warrants to Secured Party that, except as set forth in paragraph 2.03 hereof, and except as set forth below, no financing statement, collateral transfer or assignment, or any other instrument of encumbrance covering all or any part of the Collateral or its proceeds is on file in any public office and there is no lien, security interest, or encumbrance in or on the Collateral.

Section 5.02. Location of Collateral. At Secured Party's request, Secured Party will retain possession of all instruments and chattel paper wholly or partly owned by Debtor, and Debtor will deliver all such Collateral to Secured Party immediately upon acquiring rights in it. All other types of the Collateral will be kept, at Debtor's risk of loss, at the address shown for the real property. Secured Party may inspect the Collateral at any time. Except as may be required in the ordinary course of Debtor's business, no Collateral will be removed from such locations (except vehicles or inventory sold in the ordinary course of Debtor's business) unless Debtor notifies Secured Party in writing and Secured Party consents in writing in advance of its removal to another location.

Section 5.03. Use of Collateral. Until default, Debtors may use the Collateral in any lawful manner not inconsistent with this Agreement or with the terms or conditions of any policy of insurance thereon. Secured Party's security interest will attach to all proceeds of sales and other dispositions of the Collateral. Debtor will not sell, lend, rent, lease, encumber, or otherwise dispose of the Collateral or any interest therein except as authorized in this Agreement or in writing in advance by Secured Party or as may be required in the ordinary course of Debtor's business.

Section 5.04. Taxes, Liens, Etcetera. Debtor will pay prior to delinquency all taxes, charges, liens, and assessments against all or any of the Collateral (provided, priority and equal liens described in paragraph 2.03 above are allowed and permitted). Should Debtor fail to do so, Secured Party at its option may pay any of them and will be the sole judge of the legality or validity thereof and the amount necessary to discharge the same. Such payment will become part of the Indebtedness and will be paid to Secured Party by Debtor immediately and without demand, with interest thereon, at the rate stated above, from the date incurred by Secured Party until the date reimbursed. Debtor will defend the Collateral and its proceeds against the claims and demands of all persons.

Section 5.05. Insurance. Debtor will maintain insurance at all times with respect to all tangible Collateral against risk of fire, risk of theft, and such other risks as Secured Party may require, including extended coverage. Such insurance policies as they relate to assets of the Company located in the United States will contain a standard mortgagee's endorsement providing for payment to Secured Party of any loss of or damage to the Collateral in accordance with Secured Party's lien priority. All policies of insurance on United States based assets will provide that the insurer will give Secured Party written notice of cancellation at least thirty days before canceling such insurance or before such insurance expires. Debtor will furnish Secured Party evidence of compliance with the foregoing insurance provisions at any time Secured Party may request it. Secured Party may act as attorney-in-fact f or Debtor or either of them in obtaining, adjusting, settling, and canceling such insurance and in endorsing any draft drawn by insurers of the Collateral. Secured Party may apply any proceeds of such insurance that it may receive in payment on account of the Indebtedness, whether due or not.

Section 5.06. Protection of Security Interest. At its own expense, Debtor will do, make, procure, execute, and deliver all acts, things, writings, and assurances as Secured Party may at any time request to protect, assure, or enforce Secured Party's interests, rights, and remedies created by, provided in, or emanating from this Agreement; provided, Secured Party will pay its own legal fees incurred in connection with negotiating and documenting this transaction. Debtor will sign and execute any financing statement or other writing, will procure any document, and will pay all connected costs necessary to protect the security interest under this Agreement against the rights or interests of third persons.

Section 5.07. Proceeds of Collateral. Debtor will at all times keep the proceeds of the Collateral separate and distinct from other property of Debtor and will keep accurate and complete records of the Collateral and its proceeds.

Section 5.08. Title to Collateral. Debtor represents and warrants to Secured Party (1) that Debtor has good and marketable title to the Collateral as its respective interest may appear and (2) that Debtor has the right to transfer all interest therein.

Section 5.09. Security Agreement As Financing Statement. Secured Party may file this Agreement with the Texas Secretary of State or any other public official or in any public record. A carbon, photographic, or other reproduction of this Agreement or of any financing statement covering all or any part of the Collateral will be sufficient as a financing statement.

Section 5.10. Waiver of Notice. Except as otherwise provided in this Agreement or by law, Debtor hereby waives demand, protest, notice of intent to accelerate, notice of acceleration, notice of any action taken by Secured Party in connection with the Indebtedness, and all other notices.

Section 5.11. Action Affecting Indebtedness or Collateral. No renewal, extension (whether an extension of the time of payment or otherwise), increase, decrease, rearrangement, or modification of all or any of the Indebtedness, no release of Debtor as to all or any of the indebtedness, and no delay or omission in exercising any right or power with respect to all or any of the Indebtedness or with respect hereto will in any manner impair or affect Secured Party's rights hereunder. Debtor hereby consents to (1) any indulgence of Secured Party, (2) any substitution for, exchange of, or release of the Collateral, in whole or in part, and (3) the addition or release of any person liable on the Indebtedness or the Collateral.

Part VI. Events of Default

Section 6.01. Events of Default. Debtor will be in default under this Agreement upon the happening of any condition or event stated below (herein called an "Event of Default"):

(1) Debtor fails to pay any of the Indebtedness when due;

(2) Debtor defaults in the punctual performance of any obligation, covenant, term, or provision contained or referred to in this Agreement or in any note secured hereby or in any other note, obligation, undertaking, agreement or instrument between Debtor and Secured Party;

(3) Any warranty, representation, or statement contained in this Agreement or made or furnished to Secured Party by or on behalf of Debtor in connection with this Agreement or to induce Secured Party to make a loan to Debtors proves to have been false in any material respect when made or furnished;

(4) There occurs any loss, theft, substantial damage, destruction, sale (except as authorized in this Agreement), or encumbrance (except as authorized in this Agreement) to or of any material portion of the Collateral or the making of any levy, seizure, or attachment thereof or thereon;

(5) An "Event of Default" occurs as defined in any debenture, loan agreement, note, security agreement, deed of trust, assignment or other agreement or document affecting Debtor.

Part VII. Secured Party's

Rights and Remedies Regardless of Default

Section 7.01. Assignment of Secured Party's Rights. Secured Party may from time to time assign this Agreement, Secured Party's rights hereunder, or all or any part of the Indebtedness. In any such case, the assignee will be entitled to all rights, privileges, and remedies granted to Secured Party by this Agreement, and Debtor will not assert against the assignee any claim or defense it may have against Secured Party, except those granted in this Agreement.

Section 7.02. Inspection of Collateral. Secured Party may enter upon Debtor's premises at any reasonable time to inspect the Collateral and Debtor's books and records pertaining to the Collateral, and Debtor will assist Secured Party in making any such inspection.

Section 7.03. Protection and Preservation of Collateral. At its option, Secured Party (1) may discharge taxes, liens, security interests, or other encumbrances at any time levied or placed on the Collateral; (2) may pay for the insurance on the Collateral; and (3) may pay for the maintenance and preservation of the Collateral. Debtor will be jointly and severally liable, and will reimburse Secured Party on demand, for any payment made or expense incurred by Secured Party pursuant to the foregoing authorization, plus interest thereon at the rate stated in Section 4.04 above.

Part VIII. Secured Party's

Rights and Remedies In Event of Default

Section 8.01. Acceleration, Repossession, and Sale. On the occurrence of an Event of Default or at any time thereafter, Secured Party may, at its option, declare all or any part of the Indebtedness to be immediately due and payable and will have the rights and remedies of a secured party under the Texas Business and Commerce Code, including (but not necessarily limited to) the right to take possession of and sell, lease, or otherwise dispose of any or all of the Collateral in a commercially reasonable manner. For that purpose Secured Party may enter upon any premises where the Collateral or any part thereof may be situated and may remove the Collateral therefrom.

Section 8.02. Accounts. On the occurrence of an Event of Default or at any time thereafter, Secured Party may take possession of all books, records, and accounts relating to or constituting the Collateral and, without interference from Debtor, may exercise any and all rights that Debtor has with respect to the management, possession, protection, or preservation of the accounts, including the right to collect such accounts and apply the proceeds thereof to the Indebtedness. Such rights include (but are not necessarily limited to) the right to notify the account debtors to make payment directly to Secured Party, the right to take control of all proceeds of any such accounts, and the right to compromise such accounts. Until such time as Secured Party elects to exercise such rights, Debtor is authorized, as Secured Party's agents, to collect and enforce such accounts. At any time that Secured Party may request, whether before default or afterw ard, Debtor will promptly provide Secured Party with a complete list of all accounts receivable, including as to each account the full name and address of the account debtor, the amount of the account, the date it was incurred and its due date, and the numbers of all invoices substantiating the account. Debtor and its representatives and agents will continue to have the right (at all reasonable times, as many times as Debtor desires, and at any location designated by Secured Party) to inspect and copy any and all books, records, and accounts of which Secured Party takes possession and any and all books, records, and accounts created by or coming into the possession, custody, or control of Secured Party.

Section 8.03. Assembly of Collateral. Secured Party may require Debtor to assemble all or any of the Collateral and make it available to Secured Party at a place to be designated by Secured Party that is reasonably convenient to the parties.

Section 8.04. Notice of Sale. On the occurrence of an Event of Default or at any time thereafter, Secured Party may, in its discretion, sell for cash and assign and deliver all or any of the Collateral then covered by this Agreement in a commercially reasonable manner at public or private sale without notice or advertisement other than as required by the Texas Business and Commerce Code or may cause all or a part of the Collateral to be sold at judicial sale after judgment in any court of competent jurisdiction. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Secured Party will send Debtor reasonable notice of (1) the time and place of any public sale thereof or (2) the time after which any private sale or other disposition thereof is to be made. The requirement of sending reasonable notice will be met if such notice is mailed, postage prepaid, to Debtor at the mailing address stated herein at lea st ten calendar days before the time of the sale or disposition.

Section 8.05. Expenses of Repossession or Sale. Expenses of retaking, holding, preparing for sale, selling, or the like will include Secured Party's reasonable attorney's fees and legal expenses. Debtor will be liable for, and on demand will pay, such expenses plus interest thereon at the rate stated in Section 4.04 above. Debtor will remain liable for any deficiency remaining on the Indebtedness after disposition of the Collateral.

Section 8.06. Power of Attorney. Secured Party is hereby authorized to, and may execute, sign, endorse, transfer, or deliver, in the name of Debtor, all notes, checks, drafts, or other instruments for the payment of money and all receipts, certificates of origin, applications for certificates of title, or any other documents necessary to evidence, perfect, or realize upon the security interest and obligations created by this Agreement. Debtor does further hereby grant and give to Secured Party the right and authority to and does hereby appoint Secured Party as its attorney in fact to execute, sign, deliver or otherwise note any and all liens arising hereunder on any and certificates of title or other certificates or documents of title notating liens of lender thereon all in the name of Debtor. All of the powers, rights and authorities granted hereunder are coupled with an interest and are irrevocable.

Section 8.07. Compromise and Settlement. On the occurrence of an Event of Default or at any time thereafter, Secured Party may demand, sue for, collect, or make any compromise or settlement with reference to the Collateral as Secured Party chooses in its sole discretion.

Section 8.08. Notice and Cure. Debtor's failure to pay any installment of interest on or principal of, any of the Indebtedness or any fee, expense or other payment required hereunder or under the Indebtedness, shall only be deemed a default if not paid within ten days of the date such sums are due. All remedies due to any other default shall be postponed, and Debtor shall have thirty (30) days after written notice thereof is provided to the Debtor to cure any such default.

Part IX. Additional Agreements

Section 9.01. Gender and Number. In this Agreement any gender will be construed as any other gender, and any number (singular or plural) as any other number, as the context may require.

Section 9.02. Parties Bound. "Secured Party" and "Debtor," as used in this Agreement, include any heir, personal representative, successor, representative, receiver, trustee, custodian, or assign of any of such parties.

Section 9.03. Captions. The part and section captions appearing in this Agreement are for convenience only and will not be given any substantive meaning or significance whatever in construing the terms and provisions of this Agreement.

Section 9.04. Other Defined Terms. Any term that is used in this Agreement that is defined in Chapters 1-9 of the Texas Business and Commerce Code (the Texas enactment of the Uniform Commercial Code) is used with the meaning as defined in such chapters.

Section 9.05 Governing Law Venue. This Agreement will be governed by the law of the State of Texas in force as of the effective date of this Agreement. The obligations of Debtor to pay the Indebtedness and otherwise performance obligations are made and performable in Corpus Christi, Nueces County, Texas and venue is laid in Corpus Christi, Nueces County, Texas for all purposes.

Section 9.06. Cumulation of Remedies. Secured Party's remedies under this Agreement are cumulative. The exercise of any one or more of the remedies provided in this Agreement will not be construed as waiving any other remedy of Secured Party. Secured Party may exercise any two or more remedies (whether existing under this Agreement, by law, or otherwise) simultaneously or sequentially.

Section 9.07. Severability. If any one or more of the provisions contained in this Agreement is for any reason held invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability will not affect any other provision of this Agreement.

Section 9.08. Additional Benefits. The liens, rights, remedies and interests hereunder made are given and the obligation and indebtedness hereby secured are in addition to and in furtherance of and not in lieu of extinguishment of all rights, remedies, interests, liens and obligations of or given by Debtor to or for the benefit of Secured Party; however, the same may have arisen or been created. This agreement is not intended to and shall not be construed to waive or release any lien claim or obligation presently existing against Debtor or any other party.

EXECUTED by Debtor on April 5, 2001.

EXECUTED by Debtor on April 5, 2001.
	TOR MINERALS INTERNATIONAL, INC.
	BY:______________________
	RICHARD L. BOWERS
	PRESIDENT AND COO
EXECUTED by Secured Party on April 5, 2001.
	PAULSON RANCH, LTD.
	By: PAULSON RANCH MANAGEMENT, LLC
	BY:______________________
	BERNARD A. PAULSON
	MEMBER

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