<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2000
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period ______ to ______
Commission File Number 333-32518
Better Minerals & Aggregates Company
(Exact Name of Registrant As Specified in its Charter)
Delaware 55-0749125
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Route 522 North, P.O. Box 187
Berkeley Springs, West Virginia 25411
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (304) 258-2500
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [_] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding as of April 30, 2000
--------- --------------------------------
Common Stock 100 shares
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<TABLE>
<CAPTION>
Better Minerals & Aggregates Company
Form 10-Q Index
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999........................................................................ 1
Condensed Consolidated Statements of Operations for the three months ended March
31, 2000 and March 31, 1999 (unaudited).................................................. 3
Condensed Consolidated Statements of Stockholder's Equity for the three months
ended March 31, 2000 and March 31, 1999 (unaudited)...................................... 4
Condensed Consolidated Statements of Cash Flows for the three months ended March
31, 2000 and March 31, 1999 (unaudited).................................................. 5
Notes to Condensed Consolidated Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................ 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................... II-1
Item 5. Other Information.............................................................. II-1
Item 6. Exhibits and Reports on Form 8-K............................................... II-1
</TABLE>
Signatures
Exhibit Index
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Assets
Current:
Cash and cash equivalents $ 752 $ 13,573
Accounts receivable:
Trade, less allowance for doubtful accounts 38,233 41,658
Other 804 1,060
Due from parent 881 834
Inventories 23,348 23,058
Prepaid expenses and other current assets 2,488 2,018
Income tax deposit -- 1,056
Deferred income taxes 8,250 8,148
--------- ---------
Total current assets 74,756 91,405
Property, plant and equipment:
Mining property 263,052 263,083
Land 27,939 28,086
Land improvements 4,933 5,005
Buildings 36,356 37,143
Machinery and equipment 145,837 143,082
Furniture and fixtures 1,310 1,331
Construction-in-progress 5,850 4,387
--------- ---------
485,277 482,117
Accumulated depletion, depreciation and amortization (65,738) (59,248)
--------- ---------
Property, plant and equipment, net 419,539 422,869
Other noncurrent:
Goodwill and non compete agreements, net 17,467 19,907
Debt issuance costs 14,042 14,601
Other noncurrent assets 3,669 2,821
--------- ---------
Total other noncurrent 35,178 37,329
--------- ---------
Total assets $ 529,473 $ 551,603
========= =========
</TABLE>
1
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BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Liabilities
Current:
Book overdraft $ 4,226 $ 5,026
Accounts payable 15,048 16,845
Accrued liabilities 13,106 13,053
Payable to related party 720 898
Accrued interest 3,567 7,829
Income taxes payable 2,257 --
Current portion of long-term debt 3,442 2,039
--------- ---------
Total current liabilities 42,366 45,690
Noncurrent liabilities:
Long-term debt, net of current portion 281,772 285,466
Deferred income taxes 111,454 117,637
Other noncurrent liabilities 38,623 38,475
--------- ---------
Total noncurrent liabilities 431,849 441,578
Commitments and contingencies
Stockholder's Equity
Common stock, par value $.01, authorized 5,000 shares, issued 100 shares -- --
Additional paid-in capital 81,377 81,377
Retained deficit (26,119) (17,012)
Accumulated other comprehensive (loss) -- (30)
--------- ---------
Total stockholder's equity 55,258 64,335
--------- ---------
Total liabilities and stockholder's equity $ 529,473 $ 551,603
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
2
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BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $ 49,831 $ 39,623
Cost of goods sold 37,872 28,265
Depreciation, depletion and amortization 8,456 5,737
Selling, general and administrative 6,056 4,544
-------- --------
Operating (loss) income (2,553) 1,077
Interest expense 8,860 2,958
Accretion of preferred stock warrants -- 14
Other income net, including interest income (507) (327)
-------- --------
Loss before income taxes (10,906) (1,568)
(Benefit) for income taxes (1,799) (235)
-------- --------
Net loss $ (9,107) $ (1,333)
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive loss
----------------------------------
Additional Foreign Minimum Total
Common Paid-In Retained Currency Pension Stockholder's
Stock Capital Deficit Translation Liability Total Equity
----- ------- ------- ----------- --------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 $ -- $ 41,491 $ (18,011) $ (44) $ (40) $ (84) $ 23,396
Comprehensive income, net of income taxes:
Net loss (1,333) (1,333)
Foreign currency translation 27 27 27
--------
Total comprehensive loss (1,306)
--------------------------------------------------------------------------------
Balance March 31, 1999 $ -- $ 41,491 $ (19,344) $ (17) $ (40) $ (57) $ 22,090
================================================================================
Balance December 31, 1999 $ -- $ 81,377 $ (17,012) $ (30) $ -- $ (30) 64,335
Comprehensive income, net of income taxes:
Net loss (9,107) (9,107)
Foreign currency translation 30 30 30
--------
Total comprehensive loss (9,077)
--------------------------------------------------------------------------------
Balance March 31, 2000 $ -- $ 81,377 $ (26,119) $ -- $ -- $ -- $ 55,258
================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (9,107) $ (1,333)
Adjustments to reconcile net (loss) to cash flows from operations:
Depreciation 5,515 3,852
Depletion 1,229 506
Non compete agreements amortization 1,381 1,306
Accretion of preferred stock warrants - 14
Debt issuance amortization 490 208
Deferred income taxes (5,881) (1,159)
Disposal of property, plant and equipment (gain) loss 2 -
Loss on sale of investment 83 -
Other (252) 788
Changes in assets and liabilities, net of the effects from disposed company:
Trade receivables 1,716 2,034
Non-trade receivables 140 (314)
Receivable from parent (46) (1,905)
Payable to related party (179) -
Inventories (988) (607)
Prepaid expenses and other current assets (517) (188)
Accounts payable and accrued liabilities (1,239) (1,232)
Accrued interest (4,261) 925
Income taxes 3,976 407
--------------------
Net cash (used for) provided by operating activities (7,938) 3,302
Cash flows from investing activities:
Capital expenditures (4,947) (2,200)
Proceeds from sale of investment 3,136 -
--------------------
Net cash used for investing activities (1,811) (2,200)
Cash flows from financing activities:
Change in book overdraft (800) (2,284)
Repayment of long-term debt (2,290) (1,270)
Change in Working Capital Facility - 1,450
Principal payments on capital lease obligations (12) (12)
--------------------
Net cash used for financing activities (3,102) (2,116)
Effect of exchange rate on cash 30 27
--------------------
Net decrease in cash (12,821) (987)
Cash and cash equivalents, beginning of period 13,573 2,222
--------------------
Cash and cash equivalents, ending of period $ 752 $ 1,235
====================
</TABLE>
The accompanying notes are an integral part of these statements.
5
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BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Accounting Policies
The unaudited interim condensed consolidated financial statements of Better
Minerals & Aggregates Company (the "Company") have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission. As a
result, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In the opinion of management, the
statements reflect all adjustments necessary for a fair presentation of the
results of the reported interim periods. The statements should be read in
conjunction with the summary of significant accounting policies and notes to the
audited consolidated financial statements of the Company included in the
Company's Form S-4 Registration Statement (the "Registration Statement")
relating to its 13% Senior Subordinated Notes due 2009 (the "Senior Subordinated
Notes") filed with the Securities and Exchange Commission.
Operating results are not necessarily indicative of the results to be expected
for the full year or any other interim period due to the seasonal, weather-
related conditions in certain aspects of the Company's business.
2. Inventories
At March 31, 2000 and December 31, 1999, inventory consisted of the following:
(In thousands) 2000 1999
---- ----
Supplies (net of $77 and $32 obsolescence reserve) $11,483 $11,171
Raw materials and work in process 4,284 6,165
Finished goods 7,581 5,722
------- -------
$23,348 $23,058
======= =======
3. Comprehensive Income
Comprehensive income, net of tax for the three months ended March 31, 2000 and
1999 was as follows:
(In thousands) 2000 1999
Net (loss) $(9,107) $(1,333)
Foreign currency translation 30 27
------- -------
Total comprehensive income $(9,077) $(1,306)
======= =======
6
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4. Segment Information
The Company operates in the industrial minerals and aggregates business segments
which are more fully described in the Registration Statement. Reportable segment
information for the three months ended March 31, 2000 and March 31, 1999 was as
follows:
(In thousands) 2000 1999
---- ----
Net sales:
Aggregates $ 9,692 $ 3,574
Industrial Minerals 40,139 36,049
-------- --------
Total net sales $ 49,831 $ 39,623
======== ========
Operating company income (loss):
Aggregates $ (5,275) $ (1,017)
Industrial Minerals 2,797 1,683
-------- --------
Total operating company income (loss) $ (2,478) $ 666
General corporate (expense) income (75) 411
-------- --------
Total operating income (loss) $ (2,553) $ 1,077
======== ========
Depreciation, depletion and amortization expense:
Aggregates $ 2,475 $ 700
Industrial Minerals 5,966 5,037
Corporate 15 --
-------- --------
Total depreciation, depletion, and
amortization expense $ 8,456 $ 5,737
======== ========
Capital expenditures:
Aggregates $ 2,643 $ 320
Industrial Minerals 2,269 1,880
Corporate 35 --
-------- --------
Total capital expenditures $ 4,947 $ 2,200
======== ========
Asset segment information at March 31, 2000 and December 31, 1999 was as
follows:
(In thousands) 2000 1999
---- ----
Assets:
Aggregates $324,713 $323,470
Industrial Minerals 211,175 201,390
Corporate 16,355 29,169
Elimination of intersegment receivables (22,770) (2,426)
-------- --------
Total assets $529,473 $551,603
======== ========
7
<PAGE>
5. Impact of Recent Accounting Standards
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued. SFAS No. 133 requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
position and measured at fair value. SFAS No. 133, as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, an amendment of FASB Statement No.
133", is effective for fiscal years beginning after June 15, 2000. The Company
has not yet determined the impact that adoption or subsequent application of
SFAS No. 133 will have on its financial position or results of operations.
6. Sale of Canadian Subsidiary
On February 29, 2000 the Company completed the sale of stock of one of its
Canadian subsidiaries, George F. Pettinos (Canada) Limited, for $3.1 million.
The proceeds were used to retire a portion of the Company's tranche A term loan
facility and for general corporate uses. As a result of the sale, the Company
recognized a pretax loss of $0.1 million, which is included in other income.
7. Income Taxes
In accordance with generally accepted accounting principles, it is the Company's
practice at the end of each interim reporting period to make a best estimate of
the effective tax rate expected to be applicable for the full fiscal year.
Estimates are revised as additional information becomes available. Tax benefits
recorded on a current year-to-date basis are limited to those which are expected
to be realizable during the year or recognizable as a deferred tax asset at the
end of the year. In addition, in the first quarter of 2000, the sale of George
F. Pettinos (Canada) Limited created a one-time $1.2 million charge to the tax
provision.
8. Contingencies
The Company and its subsidiaries are involved in legal proceedings, claims and
litigation arising in the ordinary course of business. Management believes,
through discussions with counsel, that its liability arising from or the
resolution of these legal proceedings, claims and litigation, in the aggregate,
will not have a material adverse effect on the consolidated financial position,
results of operations or cash flows of the Company.
One of the Company's subsidiaries, U.S. Silica Company, is self-insured for
product liability insurance as it relates to occupational disease. In addition,
U.S. Silica Company is self-insured for health care costs and, in some states,
workers' compensation. The Company provides for estimated future losses based on
reported cases and past claim history. Management believes that the provision
for estimated losses is adequate.
8
<PAGE>
Certain product liability claims related to occupational disease are indemnified
by ITT Industries, successor to a former owner of U.S. Silica Company, under an
agreement whereby claims filed against U.S. Silica Company prior to September
12, 2005 alleging exposure prior to September 12, 1985 are shared ratably based
on the claimant's total exposure period. The indemnity is subject to a
cumulative annual deductible and carry-forward adjustments and expires September
12, 2005.
9. Senior Subordinated Notes Subsidiary Guarantees
Except for the Company's Canadian subsidiary, which is an inactive company with
an immaterial amount of assets and liabilities, each of the Company's
subsidiaries has fully and unconditionally guaranteed the Senior Subordinated
Notes on a joint and several basis. The separate financial statements of the
subsidiary guarantors are not included in this report because (a) the Company is
a holding company with no assets or operations other than its investments in its
subsidiaries, (b) the subsidiary guarantors are each wholly owned by the
Company, comprise all of the direct and indirect subsidiaries of the Company
(other than inconsequential subsidiaries) and have jointly and severally
guaranteed the Company's obligations under the Senior Subordinated Notes on a
full and unconditional basis, (c) the aggregate assets, liabilities, earnings
and equity of the subsidiary guarantors are substantially equivalent to the
assets, liabilities, earnings and equity of the Company on a consolidated basis
and (d) management has determined that separate financial statements and other
disclosures concerning the subsidiary guarantors are not material to investors.
10. Subsequent Events
On April 10, 2000, the Company entered into an employment agreement with an
executive to manage its aggregates business segment. In the second quarter of
2000, a one-time charge of approximately $2.2 million to $2.5 million will be
recorded representing the cost to replace certain benefits forfeited by the
executive officer in order to join the Company, of which approximately 50% is
the cost of non-cash stock grants in the Company's ultimate parent company, USS
Holdings, Inc.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with the
accompanying unaudited consolidated financial statements and the notes thereto
included in Item 1 of this quarterly report, and the audited consolidated
financial statements and the notes thereto and management's discussion and
analysis of financial condition and results of operations contained in our
registration statement on Form S-4 relating to our senior subordinated notes
filed with the Securities and Exchange Commission. Unless otherwise indicated or
the context otherwise requires, all references in this quarterly report to "we,"
"us," "our" or similar terms refer to Better Minerals & Aggregates Company and
its direct and indirect subsidiaries.
Overview
We mine, process and market industrial minerals, principally silica, in the
eastern and midwestern United States. We also mine, process and market
aggregates and produce and market asphalt in certain geographic areas in
Pennsylvania and New Jersey. Our end use markets for our silica products include
container glass, fiberglass, specialty glass, flat glass, fillers and extenders
(primarily used in paints and coatings), chemicals and ceramics. We also supply
our silica products to the foundry, building materials and other end use
markets. Our customers use our aggregates, which consist of high quality crushed
stone, construction sand and gravel, for road construction and maintenance,
other infrastructure projects and residential and commercial construction and to
produce hot mixed asphalt. We operate a network of 25 production facilities in
14 states. Our industrial minerals business (substantially all the net sales of
which consist of silica products) and our aggregates business accounted for 81%
and 19% of our net sales, respectively, for the three months ended March 31,
2000.
Since January 1998, we have completed several acquisitions of aggregates
producers and silica-producing assets. Most recently, in April 1999, we acquired
certain operating assets in southern New Jersey from Unimin Corporation (the
"Morie Assets"), which are used in the production and sale of silica and
aggregates, and, in October 1999, we acquired Commercial Stone Co., Inc., a
crushed stone and hot mixed asphalt producer in southwestern Pennsylvania, and
Commercial Aggregates Transportation and Sales, L.P. (collectively, "Commercial
Stone"). In February 2000, we completed the sale of one of our two Canadian
subsidiaries, George F. Pettinos (Canada) Limited ("PECAL"), for $3.1 million.
Our aggregates business is seasonal, due primarily to the effect of weather
conditions in winter months on construction activity in our Pennsylvania and New
Jersey markets. As a result, peak sales of aggregates occur primarily in the
months of April through November. Accordingly, our results of operations in any
individual quarter may not be indicative of our results of operations for the
full year.
10
<PAGE>
Three Months Ended March 31, 2000 Compared with Three Months Ended March 31,
1999
Net Sales. Net sales increased $10.2 million, or 25.8%, to $49.8 million in
the three months ended March 31, 2000 from $39.6 million in the three months
ended March 31, 1999.
Net sales for our industrial minerals business increased $4.1 million, or
11.4%, to $40.1 million in the three months ended March 31, 2000 from $36.0
million in the three months ended March 31, 1999. This increase was primarily
due to the acquisition of the Morie Assets in April 1999, which resulted in the
inclusion of $2.4 million in sales in the first quarter of 2000, partially
offset by a $0.3 million reduction in sales as a result of the PECAL divestiture
in February 2000. Excluding acquisitions and divestitures, net sales for our
industrial minerals business increased $2.1 million, or 6.2%, to $36.0 million
in the three months ended March 31, 2000 from $33.9 million in the three months
ended March 31, 1999, primarily from increased silica sales to the flat glass,
specialty glass, foundry and oil and gas extraction end use markets, partially
offset by decreased silica and aplite sales to the glass container end use
market.
Net sales for our aggregates business increased $6.1 million, or 172%, to
$9.7 million in the three months ended March 31, 2000 from $3.6 million in the
three months ended March 31, 1999. The primary reasons for this increase are the
Commercial Stone and Morie Assets acquisitions, which contributed $5.1 million
to aggregates sales in the first quarter of 2000. Excluding these acquisitions,
net sales for our aggregates business increased $1.0 million, or 28%, to $4.6
million in the three months ended March 31, 2000 from $3.6 million in the three
months ended March 31, 1999, primarily from a $0.4 million increase in stone
sales and a $0.3 million increase in asphalt sales at our eastern Pennsylvania
operations.
Cost of Goods Sold. Cost of goods sold increased $9.6 million, or 34.0%, to
$37.9 million in the three months ended March 31, 2000 from $28.3 million in the
three months ended March 31, 1999.
Cost of goods sold for our industrial minerals business increased $2.3
million, or 9.1%, to $27.5 million in the three months ended March 31, 2000 from
$25.2 million in the three months ended March 31, 1999. This increase was
primarily due to the acquisition of the Morie Assets in April 1999, which
resulted in the inclusion of $2.1 million in cost of goods sold in the first
quarter of 2000, partially offset by a reduction of $0.4 million in cost of
goods sold as a result of the PECAL divestiture in February 2000. Excluding the
acquisitions and divestitures, cost of goods sold increased $0.6, million, or
3%, to $22.8 million in the three months ended March 31, 2000 from $22.2 million
in the three months ended March 31, 1999, primarily due to increased volume, and
the price of fuel, partially offset by a reduction in repairs and maintenance.
Cost of goods sold for our aggregates business increased $7.1 million, or
237%, to $10.1 million in the three months ended March 31, 2000 from $3.0
million in the three
11
<PAGE>
months ended March 31, 1999. This increase was primarily due to the acquisitions
of Commercial Stone and the Morie Assets, which resulted in the inclusion of
$6.1 million in cost of goods sold in the first quarter of 2000. Excluding these
acquisitions, cost of goods sold increased $1.0 million, or 33%, to $4.0 million
in the three months ended March 31, 2000 from $3.0 million in the three months
ended March 31, 1999, primarily due to increased volume, the cost of fuel and
asphalt cement and increased repairs and maintenance.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased $2.8 million, or 49%, to $8.5 million in the three months
ended March 31, 2000 from $5.7 million in the three months ended March 31, 1999.
This increase was primarily due to the acquisitions of Commercial Stone and the
Morie Assets in 1999.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1.6 million, or 36%, to $6.1 million in the three months
ended March 31, 2000 from $4.5 million in the three months ended March 31, 1999.
This increase was primarily due to the acquisition of Commercial Stone in
October 1999, which resulted in the inclusion of $0.8 million in expenses in the
first quarter of 2000, and an increase of $0.3 million in expenses as a result
of the PECAL divestiture in February 2000. Excluding acquisitions and
divestitures, selling, general and administrative expenses increased $0.5
million, or 12%, to $4.7 million in the three months ended March 31, 2000 from
$4.2 million in the three months ended March 31, 1999 due to normal inflationary
increases and certain non-recurring credits associated with our acquisition
program that were realized in 1999 but not in 2000.
Operating Loss. Operating loss was $3.6 million in the three months ended
March 31, 2000 as compared to operating income of $1.1 million in the three
months ended March 31, 1999.
Operating income for our industrial minerals business increased $1.1
million, or 65%, to $2.8 million in the three months ended March 31, 2000 from
$1.7 million in the three months ended March 31, 1999 primarily due to the
factors noted earlier.
Operating loss for our aggregates business increased $4.3 million to $5.3
million in the three months ended March 31, 2000 from an operating loss of $1.0
million in the three months ended March 31, 1999 as a result of the acquisitions
noted earlier. Due to the seasonality of our aggregates business, operating
losses incurred in the first quarter of 2000 may not be indicative of operating
results for the full year.
Corporate expenses not allocated to business segments increased $0.5
million to $0.1 million in the three months ended March 31, 2000.
Interest (Income) Expense. Interest expense increased $5.8 million, or
193%, to $8.8 million in the three months ended March 31, 2000 from $3.0 million
in the three months ended March 31, 1999 due primarily to increased borrowings
related to
12
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acquisitions and increased interest rates.
(Benefit) for Income Taxes. The benefit for income taxes for the three
months ended March 31, 2000 has been limited to the tax benefits expected to be
realizable for the year, which resulted in an effective tax rate of
approximately 27%. This benefit has been reduced by taxes required on the sale
of PECAL that occurred during the first quarter of 2000. The benefit for income
taxes for the three months ended March 31, 1999 was based on an estimated annual
effective tax rate of 15%.
Net Loss. Net loss increased $7.8 million to $9.1 million in the three
months ended March 31, 2000 from $1.3 million in the three months ended March
31, 1999 primarily as a result of the factors noted earlier.
Liquidity and Capital Resources
Our principal liquidity requirements have historically been to service our
debt and meet our working capital, capital expenditures and mine development
expenditure needs and to finance acquisitions. We have historically met our
liquidity and capital investment needs with internally generated funds while
acquisitions have required borrowings and equity investments. Our total long
term debt as of March 31, 2000 was $285.2 million.
Net cash used in operating activities was $7.9 million for the three months
ended March 31, 2000 compared to $3.3 million of net cash provided by operating
activities for the three months ended March 31, 1999. Cash used in operating
activities increased $11.2 million in the first quarter of 2000 due primarily to
reduced earnings as a result of the seasonal nature of our aggregates
acquisitions and increased interest expense. Cash interest paid in the three
months ended March 31, 2000 was $12.5 million, an increase of $10.7 million from
the $1.8 million paid in the three months ended March 31, 1999, primarily as a
result of increased borrowings in 1999.
Net cash used for investing activities decreased $0.4 million to $1.8
million for the period ended March 31, 2000 from $2.2 million for the period
ended March 31, 1999. This decrease primarily resulted from the $3.1 million
received from the PECAL sale in February 2000 partially offset by a $2.7 million
increase in capital expenditures.
Cash flow used for financing activities was $3.1 million for the three
months ended March 31, 2000 and $2.1 million for the three months ended March
31, 1999. There was a $2.3 million reduction in long term debt in the three
months ended March 31, 2000 and a $1.3 million reduction in long term debt in
the same period in 1999.
Interest payments on our 13% senior subordinated notes due 2009 ($150
million outstanding as of March 31, 2000), senior debt service under our senior
secured credit facilities, working capital, capital expenditures and mine
development expenditures incurred in the normal course of business as current
deposits are depleted represent our significant liquidity requirements. Future
acquisition opportunities will also represent potentially significant liquidity
requirements.
13
<PAGE>
Under our senior secured credit facilities, as of March 31, 2000, we had
$39.1 million outstanding under the tranche A term loan facility and $94.8
million outstanding under the tranche B term loan facility. In addition, these
credit facilities provide us with a $50 million revolving credit facility and a
$40 million acquisition term loan facility, each of which were undrawn as of
March 31, 2000. The revolving credit facility is available for general corporate
purposes, including working capital and capital expenditures, but excluding
acquisitions, and includes sublimits of $12.0 million and $3.0 million,
respectively, for letters of credit and swingline loans. Debt under the senior
secured credit facilities is secured by substantially all of our assets,
including our real and personal property, inventory, accounts receivable and
other intangibles.
For description of the senior secured credit facilities and the indenture
under which our senior subordinated notes have been issued, including certain
restrictions that these agreements impose upon us, please see our registration
statement on Form S-4 relating to our senior subordinated notes filed with
Securities and Exchange Commission.
Capital expenditures totaled $4.9 million in the three months ended March
31, 2000 compared with $2.2 million in the three months ended March 31, 1999.
Excluding possible acquisitions, our expected capital expenditure requirements
for the remainder of 2000 and 2001 are $23.8 million and $21.7 million,
respectively.
Our ability to satisfy our debt obligations and to pay principal and
interest on our debt, fund working capital, mine development and acquisition
requirements and make anticipated capital expenditures will depend on our future
performance, which is subject to general economic, financial and other factors,
some of which are beyond our control. We believe that based on current levels of
operations and anticipated growth, cash flow from operations, together with
borrowings under the revolving credit facility and, if available, the
acquisition term loan facility, will be adequate for the foreseeable future to
make required payments of principal and interest on our debt, fund working
capital, mine development and capital expenditure requirements and pursue
acquisitions. There can be no assurance, however, that our business will
generate sufficient cash flow from operations or that future borrowings will be
available under the revolving credit facility and the acquisition term loan
facility in an amount sufficient to enable us to service our debt or to fund our
other liquidity needs.
Other Matters
On April 10, 2000, we entered into an employment agreement with Mr. Roy D.
Reeves to manage our aggregates business segment. In the second quarter of 2000,
a one-time charge of approximately $2.2 million to $2.5 million will be recorded
representing the cost to replace certain benefits forfeited by him in order to
join us, of which approximately 50% is the cost of non-cash stock grants in our
ultimate parent company, USS Holdings, Inc.
Forward-Looking Statements
This quarterly report, including this management's discussion and analysis
of financial condition and results of operations section, includes "forward-
looking statements." We have based these forward-looking statements on our
current expectations and projections about future events. Although we believe
that our plans, intentions and expectations reflected in or suggested by those
forward-looking statements are reasonable, we can give no assurance that our
plans, intentions or expectations will be achieved. We believe that the
following factors, among others, could affect our future performance and cause
actual results to differ materially from those expressed or implied
14
<PAGE>
by these forward-looking statements: (1) general and regional economic
conditions, including the economy in the states in which we have production
facilities and in which we sell our products; (2) demand for residential and
commercial construction; (3) demand for automobiles and other vehicles; (4)
levels of government spending on road and other infrastructure construction; (5)
the competitive nature of the industrial minerals and aggregates industries; (6)
operating risks typical of the industrial minerals and aggregates industries,
including the price and availability of oil; (7) difficulties in, and
unanticipated expense of, assimilating newly-acquired businesses; (8)
fluctuations in prices for, and availability of, transportation and power; (9)
unfavorable weather conditions; (10) regulatory compliance, including compliance
with environmental and silica exposure regulations, by us and our customers;
(11) litigation affecting us and our customers; (12) changes in the demand for
our products due to the availability of substitutes for products of our
customers; and (13) labor unrest.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information regarding the Company's financial instruments that are
sensitive to changes in interest rates is contained in our registration
statement on Form S-4 relating to our senior subordinated notes filed with the
Securities and Exchange Commission. This information has not changed materially
in the interim period since December 31, 1999.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are a defendant in various lawsuits related to our businesses. These
matters include lawsuits relating to the exposure of persons to crystalline
silica as discussed in detail in our registration statement on Form S-4 relating
to our senior subordinated notes filed with the Securities and Exchange
Commission. Although we do not believe that these lawsuits are likely to have a
material adverse effect upon our business, we cannot predict what the full
effect of these or other lawsuits will be. We currently believe, however, that
these claims and proceedings in the aggregate are unlikely to have a material
adverse effect on us.
On May 15, 2000, the National Toxicology Program, part of the United
States Department of Health and Human Services, issued its ninth report on
carcinogens, which reclassified crystalline silica (respirable size) from its
previous classification as "a reasonably anticipated carcinogen" to "a known
human carcinogen."
Item 5. Other Information
Effective April 1, 2000 Mr. Roy D. Reeves joined us as President and
Chief Operating Officer of Stone Materials Company, LLC, one of our
subsidiaries. In that capacity Mr. Reeves will be responsible for all of the
operations of our aggregates business segment. At the time of his employment,
Mr. Reeves received 25,000 shares of Class A Common Stock (4.5% of the class as
of April 30, 2000) and 25,000 shares of Class C Common Stock (5.8% of the class
as of April 30, 2000) in our ultimate parent company, USS Holdings, Inc.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
- ----------
10.1 Employment Agreement between Better Materials Corporation and Craig
Cinalli dated December 14, 1998.
10.2 Employment Agreement between Better Materials Corporation and Brian
Hessenthaler dated December 14, 1998.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
II-1
<PAGE>
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.
May 25, 2000 Better Minerals & Aggregates Company
By: /s/ Gary E. Bockrath
-------------------------------
Name: Gary E. Bockrath
Title: Vice President and Chief Financial Officer
II-2
<PAGE>
EXHIBIT INDEX
Exhibit No.
- -----------
10.1 Employment Agreement between Better Materials Corporation and Craig
Cinalli dated December 14, 1998.
10.2 Employment Agreement between Better Materials Corporation and Brian
Hessenthaler dated December 14, 1998.
27 Financial Data Schedule
II-3
<PAGE>
Exhibit 10.1
Execution Copy
--------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter "this Agreement") is made this
14th day of December, 1998, between Better Materials Corporation, a Pennsylvania
corporation, (hereinafter "the Company") and Craig Cinalli (hereinafter "the
Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is an indirect wholly owned subsidiary of USS
Holdings, Inc. ("USSH");
WHEREAS, the Company desires to employ the Executive;
WHEREAS, during the course of the Executive's employment, the
Executive may be required to perform certain duties on behalf of a company
controlling, controlled by or under common control with the Company (such
companies hereinafter collectively called "Affiliates") and to accept such
offices in any Affiliates as the Company may require; and
WHEREAS, the Executive desires to be so employed by the Company, on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements herein set forth, the Company and the
Executive hereby agree as follows:
1. Employment. The Company hereby agrees to employ the Executive,
----------
and the Executive hereby agrees to serve as a senior executive of the Company.
The Executive agrees to perform such services customary to such office as shall
from time to time be assigned to him by the Company's Board of Directors or the
President of USSH. The Executive further agrees to use his best efforts to
promote the interests of the Company and to devote his full business time and
energies to the business and affairs of the Company. The Executive may be
<PAGE>
required in pursuance of his duties hereunder to perform services for an
Affiliate and to accept such offices in any Affiliates as the Company may
require. The Executive shall not be required to have his primary place of
employment more than 25 miles from his current place of employment.
2. Term of Employment. The employment hereunder shall be for a term
------------------
of two years commencing on the Closing Date (as such term is defined in the
Agreement and Plan of Merger among the Company, BMC Acquisition Company and U.S.
Silica Company dated October 30, 1998) and ending on the second anniversary
thereof (the "Expiration Date"), unless terminated earlier pursuant to Paragraph
4 of this Agreement (the "Term of Employment").
3. Compensation and Other Related Matters.
--------------------------------------
(a) Salary. As compensation for services rendered hereunder,
------
the Executive shall receive a minimum Annual Salary of One Hundred Seventy Five
Thousand dollars ($175,000), which salary shall be paid in accordance with the
Company's then prevailing payroll practices.
(b) Signing Bonus. As an inducement to the Executive to enter
-------------
into this Agreement, as of the effectiveness hereof the Executive shall receive
One Hundred Sixty Five Thousand dollars ($165,000).
(c) Bonus. During the term of this Agreement, and in the
-----
Company's sole discretion, the Executive shall be eligible to receive an annual
bonus which is approved by the Board of Directors of USSH to be calculated in
accordance with USSH'a bonus program for its senior executives as it is
developed from time to time with performance targets to be established from year
to year.
(d) Other Benefits. The fringe benefits, perquisites and other
--------------
benefits of employment to be provided to the Executive shall be equivalent to
such benefits and
2
<PAGE>
perquisites as are provided to other senior executives of USSH as amended from
time to time. The Company acknowledges and agrees that the Executive shall be
entitled to keep the automobile currently being used by the Executive, and the
Executive shall be entitled to live at the residence at Chippewa Farms owned by
the Company rent free during the term of this Agreement.
(e) Restricted Stock. The Company shall, in its sole discretion,
----------------
make available for purchase by the Executive shares of common stock of USSH on
substantially the same terms as such stock is made available to other senior
executives of USSH. In addition, in the Company's sole discretion, the Company
shall grant the Executive restricted shares of stock in USSH.
4. Termination.
-----------
(a) Disability. If, as a result of the incapacity of the
----------
Executive due to physical or mental illness, the Executive is unable to perform
substantially and continuously the duties assigned to him hereunder, with or
without a reasonable accommodation, for a period of three (3) consecutive months
or for a non-consecutive period of nine (9) months during the Term of
Employment, the Company may terminate his employment for "Disability" upon
thirty (30) days prior written notice to the Executive.
(b) Death. The Executive's employment shall terminate
-----
immediately upon the death of the Executive.
(c) Cause. The Company shall be entitled to terminate the
-----
Executive's employment for "Cause." Termination by the Company of the employment
of the Executive for "Cause" shall mean termination based upon (i) the willful
failure by the Executive to follow directions communicated to him by the
Company's Board of Directors or the President of USSH provided that such
directions are in writing and are neither illegal, immoral or unethical; (ii) a
3
<PAGE>
conviction of, a plea of nolo contendere regarding, a guilty plea or confession
by the Executive to an act of fraud, misappropriation or embezzlement or to a
felony; (iii) the Executive's habitual drunkenness or use of illegal substances;
(iv) a material breach by the Executive of this Agreement with respect to the
misuse or unauthorized disclosure of Confidential Information (as defined
below); or (v) an act of gross neglect or gross misconduct which the Company
deems to be good and sufficient cause. With respect to clauses (i) and (v)
above, the Executive shall be entitled to receive written notice allowing the
Executive 30 days to cure any conduct referred to in said clauses that is
reasonably likely to be able to be cured.
(d) Termination Without Cause by the Company. The Company may
----------------------------------------
terminate the Executive's employment under this Agreement at any time for any
reason other than "Cause" upon thirty (30) days prior written notice to the
Executive.
5. Compensation Upon Termination or During Disability.
--------------------------------------------------
(a) Disability. During any period that the Executive fails to
----------
perform his full-time duties with the Company as a result of incapacity due to
physical or mental illness (the "Disability Period"), the Executive shall
continue to receive his Annual Base Salary at the rate set forth in Paragraph
3(a) of this Agreement, less any compensation payable to the Executive under the
applicable disability insurance plan of the Company during such period, until
this Agreement is terminated pursuant to Paragraph 4(a) hereof. Thereafter, or
in the event the Executive's employment shall be terminated by reason of his
death, the Executive's benefits shall be determined under the Company's
insurance and other compensation programs then in effect in accordance with the
terms of such programs and the Company shall have no further obligation to the
Executive under this Agreement or otherwise.
(b) Death. In the event of the Executive's death, the
-----
Executive's beneficiary shall be entitled to receive the Executive's Annual
Salary at the rate set forth in
4
<PAGE>
Paragraph 3(a) of this Agreement until the date of his death. Thereafter, the
Company shall have no further obligation to the Executive or the Executive's
beneficiary under this Agreement or otherwise.
(c) Cause. If the Executive's employment shall be terminated
-----
by the Company for "Cause" as defined in Paragraph 4(c) of this Agreement, the
Company shall continue to pay the Executive his Annual Base Salary at the rate
set forth in Paragraph 3(a) of this Agreement through the date of termination of
the Executive's employment. Thereafter, the Company shall have no further
obligation to the Executive under this Agreement or otherwise.
(d) Termination Without Cause by the Company. If (i) the Company
----------------------------------------
voluntarily terminates the Executive's employment with the Company pursuant to
Paragraph 4(d) of this Agreement or (ii) the Executive and the Company fail to
enter into a new agreement with respect to the employment of the Executive
within ninety days after the Expiration Date and the Executive's employment with
the Company is terminated either by the Company or by the Executive, the Company
shall pay the Executive an amount equal to two (2) years of his Annual Salary at
the rate in effect at the date of termination of the Executive's employment in
same manner and at the same times as are in accordance with the practice with
respect to payment of the Executive's compensation as of such date of
termination; provided that, the Company may elect to pay any unpaid portion of
-------------
such two (2) years Annual Salary at any time. Thereafter, the Executive
acknowledges that the Company shall have no further obligation to the Executive
under this Agreement or otherwise. There shall be no duty on the part of the
Executive to mitigate damages, nor is the Company or any affiliate of the
Company entitled to a right of set-off.
6. Confidentiality and Restrictive Covenants.
-----------------------------------------
(a) The Executive acknowledges that:
5
<PAGE>
(i) the business in which the Company is engaged is
intensely competitive and that his employment by the Company will require that
he have access to and knowledge of confidential information of the Company,
including, but not limited to, certain/all of the Company's plans for creation,
acquisition or disposition of products or publications, expansion plans,
financial status and plans, products, improvements, formulas, designs or styles,
method of distribution, customer lists, product development plans, rules and
regulations, personnel information and trade secrets of the Company, all of
which are of vital importance to the success of the Company's business
(collectively, "Confidential Information");
(ii) the direct or indirect disclosure of any
Confidential Information to existing or potential competitors of the Company
would place the Company at a serious competitive disadvantage and would do
serious damage, financial and otherwise, to the Company's business;
(iii) by his training, experience and expertise, the
Executive's services to the Company will be special and unique; and
(iv) if the Executive leaves the Company's employ to
work for a competitive business, in any capacity, it would cause the Company
irreparable harm.
(v) references to Company in this paragraph 6 shall
include the Company and the Affiliates.
(b) Covenant Against Disclosure. The Executive therefore
---------------------------
covenants and agrees that all Confidential Information relating to the business
products and services of the Company, any Affiliate or customer shall be and
remain the sole property and confidential business information of the Company,
free of any rights of the Executive. The Executive further agrees not to make
any use of the confidential information except in the performance of his duties
hereunder and not to disclose the information to third parties, without the
prior written
6
<PAGE>
consent of the Company. The obligations of the Executive under this Paragraph 6
shall survive any termination of this Agreement. The Executive agrees that,
upon any termination of his employment with the Company, all Confidential
Information in his possession, directly or indirectly, that is in written or
other tangible form (together with all duplicates thereof) will forthwith be
returned to the Company and will not be retained by the Executive or furnished
to any third party, either by sample, facsimile, film, audio or video cassette,
electronic data, verbal communication or any other means of communication.
(c) Non-competition. The Executive agrees that, during the
---------------
Term of Employment and for a period of three (3) years following the date of
termination of the Executive's employment with the Company for any reason
(including by reason of the failure of the Company and the Executive to enter
into a new agreement with respect to the employment of the Executive within
ninety days of the Expiration Date), the Executive will not, directly or
indirectly, own, manage, operate, control or participate in the ownership,
management or control of, or be connected as an officer, employee, partner,
director, or otherwise with, or have any financial interest in, or aid or assist
anyone else in the conduct of, any entity or business which competes with any
business conducted by the Company or any of its subsidiaries or affiliates, in
any area where such business is being conducted on the date the Executive's
employment is terminated hereunder and as to which the Executive has material
responsibilities.
(d) Further Covenant. Until the date which is three (3) years
----------------
after the date of the termination of the Executive's employment hereunder for
any reason, the Executive will not, directly or indirectly, take any of the
following actions, and, to the extent the Executive owns, manages, operates,
controls, is employed by or participates in the ownership, management, operation
or control of, or is connected in any manner with, any business of the type and
character engaged in and competitive with that conducted by the Company or any
of the
7
<PAGE>
Affiliates during the period of the Executive's employment, the Executive will
use his best efforts to ensure that such business does not take any of the
following actions:
(i) persuade or attempt to persuade any client of
the Company to cease doing business with the Company or any Affiliate, or to
reduce the amount of business it does with the Company or any Affiliate;
(ii) solicit for himself or any entity the business
of a client of the Company or any Affiliate, or solicit any business which was a
client of the Company or any Affiliate within six months prior to the
termination of the Executive's employment;
(iii) persuade or attempt to persuade any employee of
the Company or any Affiliate or any individual who was its employee of the
Company or any Affiliate during the two (2) years prior to the Executive's
termination of employment, to leave the employ of the Company or any of its
subsidiaries or affiliates.
7. Breach by Employee. Both parties recognize that the services to
------------------
be rendered under this Agreement by the Executive are special, unique and
extraordinary in character, and that in the event of a breach by Employee of the
terms and conditions of the Agreement to be performed by him, then the Company
shall be entitled, if it so elects, to institute and prosecute proceedings in
any court of competent jurisdiction, either in law or in equity, to obtain
damages for any breach of this Agreement, or to enforce the specific performance
thereof by the Executive. Without limiting the generality of the foregoing, the
parties acknowledge that a breach by the Executive of his obligations under
Paragraph 6 would cause the Company irreparable harm, that no adequate remedy at
law would be available in respect thereof and that therefore the Company would
be entitled to injunctive relief with respect thereto.
8. Miscellaneous.
-------------
8
<PAGE>
(a) Successors; Binding Agreement. This Agreement and the
-----------------------------
obligations of the Company hereunder and all rights of the Executive hereunder
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns, provided, however, that the
duties of the Executive hereunder are personal to the Executive and may not be
delegated or assigned by him.
(b) Notice. All notices of termination and other communications
------
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered by hand or mailed by United States registered
mail, return receipt requested, addressed as follows:
If to the Company to:
Better Materials Corporation
c/o U.S. Silica Company
Route 522
P.O. Box 187
Berkeley Springs, WV
Telephone: 304-258-2500
Telecopy: 304-258-3500
Attention: President
and to:
D. George Harris & Associates, Inc.
399 Park Avenue, 32nd Floor
New York, New York 10022
Telephone: 212-750-3510
Telecopy: 212-207-6470
Attention: Donald G. Kilpatrick, Esq.
9
<PAGE>
If to the Executive to:
Craig S. Cinalli
Better Materials Corporation
P.O. Box 196
Penns Park, PA 18943
Telephone: 215-598-8360
Telecopy: 215-598-8368
and to:
Steven Gershman, Esq.
528 Fayette Street
Conshohocken, PN 19428
Telephone: 610-941-4055
Telecopy: 610-941-0959
or to such other address as either party may designate by notice to the other,
which notice shall be deemed to have been given upon receipt.
(c) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Pennsylvania without
regard to the conflict of law rules thereof.
(d) Waivers. The waiver of either party hereto of any right
-------
hereunder or of any failure to perform or breach by the other party hereto shall
not be deemed a waiver of any other right hereunder or of any other failure or
breach by the other party hereto, whether of the same or a similar nature or
otherwise. No waiver shall be deemed to have occurred unless set forth in
writing executed by or on behalf of the waiving party. No such written waiver
shall be deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived and
shall not constitute a waiver of such term or condition for the future or as to
any act other than that specifically waived.
10
<PAGE>
(e) Validity. The invalidity or enforceability of any provision
--------
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall otherwise remain in full force and
effect. Moreover, if any one or more of the provisions contained in this
Agreement is held to be excessively broad as to duration, scope or activity,
such provisions shall be construed by limiting and reducing them so as to be
enforceable to the maximum extent compatible with applicable law.
(f) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
(g) Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties in respect of the subject matter
contained herein, and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of either party in respect
of said subject matter.
(h) Headings Descriptive. The headings of the several
--------------------
paragraphs of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any of this Agreement.
(i) Capacity. The Executive represents and warrants that he is
--------
not a party to any agreement that would prohibit him from entering into this
Agreement or performing fully his obligations hereunder.
11
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first written above.
CRAIG CINALLI BETTER MATERIALS CORPORATION
_______________________________ By:__________________________
Name:
Title:
12
<PAGE>
EXHIBIT 10.2
Execution Copy
--------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter "this Agreement") is made this
14th day of December, 1998, between Better Materials Corporation, a Pennsylvania
corporation, (hereinafter "the Company") and Brian Hessenthaler (hereinafter
"the Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is an indirect wholly-owned subsidiary of USS
Holdings, Inc. ("USSH");
WHEREAS, the Company desires to employ the Executive;
WHEREAS, during the course of the Executive's employment, the
Executive may be required to perform certain duties on behalf of a company
controlling, controlled by or under common control with the Company (such
companies hereinafter collectively called "Affiliates") and to accept such
offices in any Affiliates as the Company may require; and
WHEREAS, the Executive desires to be so employed by the Company, on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements herein set forth, the Company and the
Executive hereby agree as follows:
1. Employment. The Company hereby agrees to employ the Executive,
----------
and the Executive hereby agrees to serve as a senior executive of the Company.
The Executive agrees to perform such services customary to such office as shall
from time to time be assigned to him by the President of the Company or the
Chief Financial Officer of USSH. The Executive further agrees to use his best
efforts to promote the interests of the Company and to devote his full business
time and energies to the business and affairs of the Company. The Executive may
<PAGE>
be required in pursuance of his duties hereunder to perform services for an
Affiliate and to accept such offices in any Affiliates as the Company may
require. The Executive shall not be required to have his primary place of
employment more than 25 miles from his current place of employment.
2. Term of Employment. The employment hereunder shall be for a term
------------------
of two years commencing on the Closing Date (as such term is defined in the
Agreement and Plan of Merger among the Company, BMC Acquisition Company and U.S.
Silica Company dated October 30, 1998) and ending on the second anniversary
thereof (the "Expiration Date"), unless terminated earlier pursuant to Paragraph
4 of this Agreement (the "Term of Employment").
3. Compensation and Other Related Matters.
--------------------------------------
(a) Salary. As compensation for services rendered hereunder, the
------
Executive shall receive a minimum Annual Salary of One Hundred Seventy Five
Thousand dollars ($175,000), which salary shall be paid in accordance with the
Company's then prevailing payroll practices.
(b) Signing Bonus. As an inducement to the Executive to enter
-------------
into this Agreement, as of the effectiveness hereof the Executive shall receive
One Hundred Sixty Five Thousand dollars ($165,000).
(c) Bonus. During the term of this Agreement, and in the
-----
Company's sole discretion, the Executive shall be eligible to receive an annual
bonus which is approved by the Board of Directors of USSH to be calculated in
accordance with USSH'a bonus program for its senior executives as it is
developed from time to time with performance targets to be established from year
to year.
(d) Other Benefits. The fringe benefits, perquisites and other
--------------
benefits of employment to be provided to the Executive shall be equivalent to
such benefits and
2
<PAGE>
perquisites as are provided to other senior executives of USSH as amended from
time to time. The Company acknowledges and agrees that the Executive shall be
entitled to keep the automobile currently being used by the Executive.
(e) Restricted Stock. The Company shall, in its sole discretion,
----------------
make available for purchase by the Executive shares of common stock of USSH on
substantially the same terms as such stock is made available to other senior
executives of USSH. In addition, in the Company's sole discretion, the Company
shall grant the Executive restricted shares of stock in USSH.
4. Termination.
-----------
(a) Disability. If, as a result of the incapacity of the
----------
Executive due to physical or mental illness, the Executive is unable to perform
substantially and continuously the duties assigned to him hereunder, with or
without a reasonable accommodation, for a period of three (3) consecutive months
or for a non-consecutive period of nine (9) months during the Term of
Employment, the Company may terminate his employment for "Disability" upon
thirty (30) days prior written notice to the Executive.
(b) Death. The Executive's employment shall terminate
-----
immediately upon the death of the Executive.
(c) Cause. The Company shall be entitled to terminate the
-----
Executive's employment for "Cause." Termination by the Company of the employment
of the Executive for "Cause" shall mean termination based upon (i) the willful
failure by the Executive to follow directions communicated to him by the
President of the Company or the Chief Financial Officer of USSH provided that
such directions are in writing and are neither illegal, immoral or unethical;
(ii) a conviction of, a plea of nolo contendere regarding, a guilty plea or
confession by the Executive to an act of fraud, misappropriation or embezzlement
or to a felony; (iii) the
3
<PAGE>
Executive's habitual drunkenness or use of illegal substances; (iv) a material
breach by the Executive of this Agreement with respect to the misuse or
unauthorized disclosure of Confidential Information (as defined below); or (v)
an act of gross neglect or gross misconduct which the Company deems to be good
and sufficient cause. With respect to clauses (i) and (v) above, the Executive
shall be entitled to receive written notice allowing the Executive 30 days to
cure any conduct referred to in said clauses that is reasonably likely to be
able to be cured.
(d) Termination Without Cause by the Company. The Company may
----------------------------------------
terminate the Executive's employment under this Agreement at any time for any
reason other than "Cause" upon thirty (30) days prior written notice to the
Executive.
5. Compensation Upon Termination or During Disability.
--------------------------------------------------
(a) Disability. During any period that the Executive fails to
----------
perform his full-time duties with the Company as a result of incapacity due to
physical or mental illness (the "Disability Period"), the Executive shall
continue to receive his Annual Base Salary at the rate set forth in Paragraph
3(a) of this Agreement, less any compensation payable to the Executive under the
applicable disability insurance plan of the Company during such period, until
this Agreement is terminated pursuant to Paragraph 4(a) hereof. Thereafter, or
in the event the Executive's employment shall be terminated by reason of his
death, the Executive's benefits shall be determined under the Company's
insurance and other compensation programs then in effect in accordance with the
terms of such programs and the Company shall have no further obligation to the
Executive under this Agreement or otherwise.
(b) Death. In the event of the Executive's death, the
-----
Executive's beneficiary shall be entitled to receive the Executive's Annual
Salary at the rate set forth in Paragraph 3(a) of this Agreement until the date
of his death. Thereafter, the Company shall have
4
<PAGE>
no further obligation to the Executive or the Executive's beneficiary under this
Agreement or otherwise.
(c) Cause. If the Executive's employment shall be terminated by
-----
the Company for "Cause" as defined in Paragraph 4(c) of this Agreement, the
Company shall continue to pay the Executive his Annual Base Salary at the rate
set forth in Paragraph 3(a) of this Agreement through the date of termination of
the Executive's employment. Thereafter, the Company shall have no further
obligation to the Executive under this Agreement or otherwise.
(d) Termination Without Cause by the Company; Expiration of
-------------------------------------------------------
Agreement. If (i) the Company voluntarily terminates the Executive's employment
- ---------
with the Company pursuant to Paragraph 4(d) of this Agreement or (ii) the
Executive and the Company fail to enter into a new agreement with respect to the
employment of the Executive within ninety days after the Expiration Date and the
Executive's employment with the Company is terminated either by the Company or
by the Executive, then the Company shall pay the Executive an amount equal to
two (2) years of his Annual Salary at the rate in effect at the date of
termination of the Executive's employment in same manner and at the same times
as are in accordance with the practice with respect to payment of the
Executive's compensation as of such date of termination; provided that, the
-------------
Company may elect to pay any unpaid portion of such two (2) years Annual Salary
at any time. Thereafter, the Executive acknowledges that the Company shall have
no further obligation to the Executive under this Agreement or otherwise. There
shall be no duty on the part of the Executive to mitigate damages, nor is the
Company or any affiliate of the Company entitled to a right of set-off.
6. Confidentiality and Restrictive Covenants.
-----------------------------------------
(a) The Executive acknowledges that:
5
<PAGE>
(i) the business in which the Company is engaged is
intensely competitive and that his employment by the Company will require that
he have access to and knowledge of confidential information of the Company,
including, but not limited to, certain/all of the Company's plans for creation,
acquisition or disposition of products or publications, expansion plans,
financial status and plans, products, improvements, formulas, designs or styles,
method of distribution, customer lists, product development plans, rules and
regulations, personnel information and trade secrets of the Company, all of
which are of vital importance to the success of the Company's business
(collectively, "Confidential Information");
(ii) the direct or indirect disclosure of any Confidential
Information to existing or potential competitors of the Company would place the
Company at a serious competitive disadvantage and would do serious damage,
financial and otherwise, to the Company's business;
(iii) by his training, experience and expertise, the
Executive's services to the Company will be special and unique; and
(iv) if the Executive leaves the Company's employ to work
for a competitive business, in any capacity, it would cause the Company
irreparable harm.
(v) references to Company in this paragraph 6 shall
include the Company and the Affiliates.
(b) Covenant Against Disclosure. The Executive therefore
---------------------------
covenants and agrees that all Confidential Information relating to the business
products and services of the Company, any Affiliate or customer shall be and
remain the sole property and confidential business information of the Company,
free of any rights of the Executive. The Executive further agrees not to make
any use of the confidential information except in the performance of his duties
hereunder and not to disclose the information to third parties, without the
prior written
6
<PAGE>
consent of the Company. The obligations of the Executive under this Paragraph 6
shall survive any termination of this Agreement. The Executive agrees that, upon
any termination of his employment with the Company, all Confidential Information
in his possession, directly or indirectly, that is in written or other tangible
form (together with all duplicates thereof) will forthwith be returned to the
Company and will not be retained by the Executive or furnished to any third
party, either by sample, facsimile, film, audio or video cassette, electronic
data, verbal communication or any other means of communication.
(c) Non-competition. The Executive agrees that, during the Term
---------------
of Employment and for a period of three (3) years following the date of
termination of the Executive's employment with the Company for any reason
(including by reason of the failure of the Company and the Executive to enter
into a new agreement with respect to the employment of the Executive within
ninety days of the Expiration Date), the Executive will not, directly or
indirectly, own, manage, operate, control or participate in the ownership,
management or control of, or be connected as an officer, employee, partner,
director, or otherwise with, or have any financial interest in, or aid or assist
anyone else in the conduct of, any entity or business which competes with any
business conducted by the Company or any of its subsidiaries or affiliates, in
any area where such business is being conducted on the date the Executive's
employment is terminated hereunder and as to which the Executive has material
responsibilities.
(d) Further Covenant. Until the date which is three (3) years
----------------
after the date of the termination of the Executive's employment hereunder for
any reason, the Executive will not, directly or indirectly, take any of the
following actions, and, to the extent the Executive owns, manages, operates,
controls, is employed by or participates in the ownership, management, operation
or control of, or is connected in any manner with, any business of the type and
character engaged in and competitive with that conducted by the Company or any
of the
7
<PAGE>
Affiliates during the period of the Executive's employment, the Executive will
use his best efforts to ensure that such business does not take any of the
following actions:
(i) persuade or attempt to persuade any client of the Company
to cease doing business with the Company or any Affiliate, or to reduce the
amount of business it does with the Company or any Affiliate;
(ii) solicit for himself or any entity the business of a client
of the Company or any Affiliate, or solicit any business which was a client of
the Company or any Affiliate within six months prior to the termination of the
Executive's employment;
(iii) persuade or attempt to persuade any employee of the
Company or any Affiliate or any individual who was its employee of the Company
or any Affiliate during the two (2) years prior to the Executive's termination
of employment, to leave the employ of the Company or any of its subsidiaries or
affiliates.
7. Breach by Employee. Both parties recognize that the services to
------------------
be rendered under this Agreement by the Executive are special, unique and
extraordinary in character, and that in the event of a breach by Employee of the
terms and conditions of the Agreement to be performed by him, then the Company
shall be entitled, if it so elects, to institute and prosecute proceedings in
any court of competent jurisdiction, either in law or in equity, to obtain
damages for any breach of this Agreement, or to enforce the specific performance
thereof by the Executive. Without limiting the generality of the foregoing, the
parties acknowledge that a breach by the Executive of his obligations under
Paragraph 6 would cause the Company irreparable harm, that no adequate remedy at
law would be available in respect thereof and that therefore the Company would
be entitled to injunctive relief with respect thereto.
8. Miscellaneous.
-------------
8
<PAGE>
(a) Successors; Binding Agreement. This Agreement and the
-----------------------------
obligations of the Company hereunder and all rights of the Executive hereunder
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns, provided, however, that the
duties of the Executive hereunder are personal to the Executive and may not be
delegated or assigned by him.
(b) Notice. All notices of termination and other communications
------
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered by hand or mailed by United States registered
mail, return receipt requested, addressed as follows:
If to the Company to:
Better Materials Corporation
c/o U.S. Silica Company
Route 522
P.O. Box 187
Berkeley Springs, WV
Telephone: 304-258-2500
Telecopy: 304-258-3500
Attention: President
and to:
D. George Harris & Associates, Inc.
399 Park Avenue, 32nd Floor
New York, New York 10022
Telephone: 212-750-3510
Telecopy: 212-207-6470
Attention: Donald G. Kilpatrick, Esq.
9
<PAGE>
If to the Executive to:
Brian Hessenthaler
Better Materials Corporation
P.O. Box 196
Penns Park, PA 18943
Telephone: 215-598-8361
Telecopy: 215-598-8368
and to:
Steven Gershman, Esq.
528 Fayette Street
Conshohocken, PN 19428
Telephone: 610-941-4055
Telecopy: 610-941-0959
or to such other address as either party may designate by notice to the other,
which notice shall be deemed to have been given upon receipt.
(c) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Pennsylvania without
regard to the conflict of law rules thereof.
(d) Waivers. The waiver of either party hereto of any right
-------
hereunder or of any failure to perform or breach by the other party hereto shall
not be deemed a waiver of any other right hereunder or of any other failure or
breach by the other party hereto, whether of the same or a similar nature or
otherwise. No waiver shall be deemed to have occurred unless set forth in
writing executed by or on behalf of the waiving party. No such written waiver
shall be deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived and
shall not constitute a waiver of such term or condition for the future or as to
any act other than that specifically waived.
10
<PAGE>
(e) Validity. The invalidity or enforceability of any provision
--------
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall otherwise remain in full force and
effect. Moreover, if any one or more of the provisions contained in this
Agreement is held to be excessively broad as to duration, scope or activity,
such provisions shall be construed by limiting and reducing them so as to be
enforceable to the maximum extent compatible with applicable law.
(f) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
(g) Entire Agreement. This Agreement sets forth the entire
----------------
agreement and understanding of the parties in respect of the subject matter
contained herein, and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of either party in respect
of said subject matter.
(h) Headings Descriptive. The headings of the several paragraphs
--------------------
of this Agreement are inserted for convenience only and shall not in any way
affect the meaning or construction of any of this Agreement.
(i) Capacity. The Executive represents and warrants that he is
--------
not a party to any agreement that would prohibit him from entering into this
Agreement or performing fully his obligations hereunder.
11
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first written above.
BRIAN HESSENTHALER BETTER MATERIALS CORPORATION
_______________________________ By:__________________________
Name:
Title:
12
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
<PERIOD-START> JAN-01-1999 JAN-01-2000
<PERIOD-END> MAR-31-1999 MAR-31-2000
<CASH> 0 752
<SECURITIES> 0 0
<RECEIVABLES> 0 39,918
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<INTEREST-EXPENSE> 2,958 8,860
<INCOME-PRETAX> (1,568) (10,906)
<INCOME-TAX> (235) (1,799)
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