<PAGE>
As filed with the Securities and Exchange Commission on April 6, 2000.
Registration No. 333-32518 and 333-32518-01 through 333-32518-14
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
BETTER MINERALS & AGGREGATES COMPANY
AFFILIATE GUARANTORS LISTED ON SCHEDULE ATTACHED HERETO
(Exact name of Registrant as specified in its charter)
DELAWARE 1446-1 55-0749125
(State of Registrant's (Primary Standard (I.R.S. Employer
Incorporation) Industrial Identification Number)
Classification Code
Number)
ROUTE 522 NORTH, P.O. BOX 187 GARY E. BOCKRATH
BERKELEY SPRINGS, WEST VIRGINIA 25411 Vice President and Chief Financial
(304) 258-2500 Officer
(Address, Including Zip Code, and Better Minerals & Aggregates Company
Telephone Number, Including Area Code, Route 522 North, P.O. Box 187
of Registrant's Principal Executive Berkeley Springs, West Virginia 25411
Office) (304) 258-2500
(Name, Address, Including Zip Code,
and Telephone Number, Including Area
Code, of Agent for Service of Process)
With A Copy To:
DAVID P. FALCK, ESQ.
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, NY 10004
(212) 858-1000
---------------
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after this registration statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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<PAGE>
SCHEDULE OF ADDITIONAL REGISTRANT GUARANTORS
<TABLE>
<CAPTION>
Primary
Standard I.R.S.
Exact Name Of Guarantor Registrants Industrial Employer
As Specified State Of Classification Identification
In Their Respective Charters Formation Number Number
----------------------------------- ------------ -------------- --------------
<S> <C> <C> <C>
U.S. Silica Company Delaware 1446 23-0958670
Better Materials Corporation Pennsylvania 1429 23-1542403
BMC Trucking, Inc. Delaware 4212 23-2986246
Bucks County Crushed Stone Company Pennsylvania 1429 23-1468333
Chippewa Farms Corporation Pennsylvania 9999 23-2160463
Shore Stone Company, Inc. New Jersey 1442 23-2243672
Pennsylvania Glass Sand Corporation Delaware 1446 94-3024593
George F. Pettinos, Inc. Delaware 1442 23-0966840
Ottawa Silica Company Delaware 1446 94-3093543
The Fulton Land and Timber Company Pennsylvania 1446 23-1622540
Ellen Jay, Inc. New Jersey 1442 22-2033676
Stone Materials Company, LLC Delaware 1422-1 52-2205266
Commercial Stone Co., Inc. Pennsylvania 1422 25-1225764
Commercial Aggregates
Transportation and Sales, LLC Delaware 4212 25-1846125
</TABLE>
----------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
<PAGE>
EXPLANATORY NOTE
This registration statement covers the registration of $150,000,000
aggregate principal amount of 13% Senior Subordinated Notes due 2009 of Better
Minerals & Aggregates Company, guaranteed by U.S. Silica Company, Better
Materials Corporation, BMC Trucking, Inc., Bucks County Crushed Stone Company,
Chippewa Farms Corporation, Shore Stone Company, Inc., Pennsylvania Glass Sand
Corporation, George F. Pettinos, Inc., Ottawa Silica Company, The Fulton Land
and Timber Company, Ellen Jay, Inc., Stone Materials Company, LLC, Commercial
Stone Co., Inc. and Commercial Aggregates Transportation and Sales, LLC, that
may be exchanged for an equal aggregate principal amount of the issuer's
outstanding 13% Senior Subordinated Notes due 2009, also guaranteed by the
listed note guarantors. This registration statement also covers the
registration of new notes for resale by Chase Securities Inc. in market-making
transactions. The complete prospectus relating to the exchange offer follows
this explanatory note. Following the exchange offer prospectus are certain
pages of the prospectus relating solely to those market-making transactions,
including alternate front and back cover pages and alternate sections entitled
"Risk Factors--You Cannot Be Sure that an Active Trading Market Will Develop
for the New Notes," "Use of Proceeds" and "Plan of Distribution." In addition,
the market-making prospectus will not include the following captions (or the
information set forth under those captions) in the exchange offer prospectus:
"Summary--Summary of the Terms of the Exchange Offer," "Risk Factors--Failure
To Exchange Old Notes," "The Exchange Offer," "Exchange and Registration
Rights Agreement" and "Certain United States Federal Tax Consequences." All
other sections of the exchange offer prospectus will be included in the
market-making prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 6, 2000
Prospectus
Better Minerals & Aggregates Company
Offer To Exchange All Outstanding
13% Senior Subordinated Notes due 2009 for
13% Senior Subordinated Notes due 2009, Which Have Been Registered Under the
Securities Act of 1933
The Exchange Offer
. We will exchange all old notes that are validly tendered and not validly
withdrawn for an equal principal amount of new notes that are freely
tradable.
. You may withdraw tenders of old notes at any time prior to the expiration
of the exchange offer.
. The exchange offer expires at 5:00 p.m., New York City time, on ,
2000, unless we extend the offer.
. The exchange will not be a taxable event for U.S. federal income tax
purposes.
The New Notes
. The terms of the new notes to be issued in the exchange offer are
substantially identical to the old notes issued on October 1, 1999, except
that the new notes will be freely tradeable.
. No public market currently exists for the old notes. We do not intend to
list the new notes on any securities exchange and, therefore, no active
public market is anticipated.
-----------------------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 16 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
-----------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
-----------------------------------------
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information...................................... ii
Forward-Looking Statements............................................... ii
Industry Data............................................................ iii
Measurements............................................................. iii
Summary.................................................................. 1
Risk Factors............................................................. 16
The Exchange Offer....................................................... 25
Use of Proceeds.......................................................... 36
Capitalization........................................................... 36
Unaudited Pro Forma Consolidated Financial Data.......................... 37
Selected Financial Data.................................................. 41
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 42
Industry Overview........................................................ 52
Business................................................................. 54
Management............................................................... 65
Certain Relationships and Related Transactions........................... 69
Security Ownership of Certain Beneficial Owners and Management........... 71
Description of the New Credit Facilities................................. 76
Description of the New Notes............................................. 79
Exchange and Registration Rights Agreement............................... 121
Certain United States Federal Tax Consequences........................... 124
Book-Entry; Delivery and Form............................................ 128
Plan of Distribution..................................................... 131
Legal Matters............................................................ 131
Experts.................................................................. 132
Index to Consolidated Financial Statements............................... F-1
</TABLE>
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Upon effectiveness of the registration statement of which this prospectus is
a part, we will file annual and quarterly reports and other information with
the Securities and Exchange Commission. You may read and copy any reports,
documents and other information we file at the Securities and Exchange
Commission's public reference rooms in Washington, D.C., New York, New York,
and Chicago, Illinois. Please call 1-800-SEC-0330 for further information on
the public reference rooms. Our filings will also be available to the public
from commercial document retrieval services and at the web site maintained by
the Securities and Exchange Commission at http://www.sec.gov.
We have filed a registration statement on Form S-4 to register with the
Securities and Exchange Commission the new notes to be issued in exchange for
the old notes. This prospectus is part of that registration statement. As
allowed by the Securities and Exchange Commission's rules, this prospectus does
not contain all of the information you can find in the registration statement
and the exhibits to the registration statement.
We have not authorized anyone to give you any information or to make any
representations about us or the transactions we discuss in this prospectus
other than those contained in this prospectus. If you are given any information
or representations about these matters that is not discussed in this
prospectus, you must not rely on that information. This prospectus is not an
offer to sell or a solicitation of an offer to buy securities anywhere or to
anyone where or to whom we are not permitted to offer or sell securities under
applicable law. The delivery of this prospectus does not, under any
circumstances, mean that there has not been a change in our affairs since the
date of this prospectus. It also does not mean that the information in this
prospectus is correct after this date.
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" including, in
particular, the statements about our plans, strategies and prospects under the
headings "Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." 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. Important factors that could cause actual results to differ
materially from those expressed or implied by the forward-looking statements we
make in this prospectus are set forth in this prospectus, including factors
disclosed under "Risk Factors." 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 by forward-looking statements made
in this prospectus:
. general and regional economic conditions, including the economy in the
states in which we have production facilities and in which we sell our
products;
. demand for residential and commercial construction;
. demand for automobiles and other vehicles;
. levels of government spending on road and other infrastructure
construction;
. the competitive nature of the industrial minerals and aggregates
industries;
. operating risks typical of the industrial minerals and aggregates
industries;
. difficulties in, and unanticipated expense of, assimilating newly-
acquired businesses;
. fluctuations in prices for, and availability of, transportation and
power;
ii
<PAGE>
. unfavorable weather conditions;
. regulatory compliance, including compliance with environmental and
silica exposure regulations, by us and our customers;
. litigation affecting us and our customers;
. changes in the demand for our products due to the availability of
substitutes for products of our customers; and
. labor unrest.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, our future performance
may differ materially from that expressed or implied by the forward-looking
statements discussed in this prospectus.
INDUSTRY DATA
Information contained in this prospectus concerning the industrial minerals
and aggregates industries, our general expectations concerning these industries
and our market position and market share within these industries and the end
use markets we serve are based on estimates prepared by us using data from
various sources (primarily the U.S. Geological Survey, including its web site
at www.usgs.gov, the Committee on Environment and Public Works of the United
States Senate and data from our internal research) and on assumptions made by
us, based on that data and our knowledge of these industries, which we believe
to be reasonable. We believe data regarding the industrial minerals and
aggregates industries and our market position and market share within those
industries and the end use markets we serve are inherently imprecise, but are
generally indicative of their size and our market position and market share
within those industries and end use markets. While we are not aware of any
misstatements regarding any industry data presented in this prospectus, our
estimates, particularly as they relate to our general expectations concerning
the industrial minerals and aggregates industries, involve risks and
uncertainties and are subject to change based on various factors, including
those discussed under the caption "Risk Factors" in this prospectus.
Information contained in this prospectus relating to the Transportation Equity
Act for the 21st Century comes primarily from the United States Department of
Transportation's web site located at www.fhwa.dot.gov.
MEASUREMENTS
When used in this prospectus:
. data in tons or tonnage is measured in "short" tons (2,000 pounds);
. mesh refers to size measured in sieve openings per square inch and thus
as mesh size increases, particle size decreases; and
. microns refer to size (1 micron is equal to 0.00004 of an inch).
iii
<PAGE>
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This prospectus includes information about the exchange offer, as well as
information regarding our business, certain recent transactions entered into by
us and detailed financial data. You should read this entire prospectus
carefully, including the "Risk Factors" section and the financial statements
and the notes thereto. Unless otherwise indicated or the context otherwise
requires, all references in this prospectus to "we," "us," "our" and similar
terms, as well as references to "Better Minerals & Aggregates," refer to Better
Minerals & Aggregates Company (formerly known as USS Intermediate Holdco, Inc.)
and its direct and indirect subsidiaries, including Commercial Stone Co., Inc.
("Commercial Stone Co.") and Commercial Aggregates Transportation and Sales,
L.P. ("CATS"), which we acquired on October 1, 1999, and all references to the
"issuer" refer to Better Minerals & Aggregates Company only and not to any of
its subsidiaries. In addition, all references in this prospectus to "USS
Holdings" refer to USS Holdings, Inc., our indirect parent, all references to
"BMAC Holdings" refer to BMAC Holdings, Inc., our direct parent, and all
references to "U.S. Silica" refer to U.S. Silica Company, one of our
subsidiaries. Unless otherwise indicated, when we set forth financial or other
information in this prospectus on a pro forma basis for the year ended
December 31, 1999, that information gives effect to the Transactions (as
defined below) and the acquisition of certain operating assets in southern New
Jersey from Unimin Corporation (the "Morie Assets") on April 9, 1999 as if they
had occurred on January 1, 1999. When we refer to our aggregates business in
this prospectus, it includes our hot mixed asphalt business. Any reference to
"notes" in this prospectus refers to both "old notes" and "new notes," unless
the context otherwise requires.
Better Minerals & Aggregates Company
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 hot mixed asphalt in certain geographic areas
in Pennsylvania and New Jersey. We are the second leading producer of silica in
the United States, accounting for approximately 23% of industry volume in 1999.
We believe that we have leading positions in most of our key end use markets
for our silica products, typically occupying the number one or two position by
sales. These end use markets 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
and concrete products. We also use our aggregates to produce hot mixed asphalt.
We operate a network of 25 production facilities in 14 states. Many of our
production facilities are located near major modes of transportation and our
significant customers, which reduces transportation costs and enhances customer
service. Our principal industrial minerals and aggregates properties each have
deposits that we believe will support production in excess of 15 years. On a
pro forma basis, our industrial minerals business (substantially all the net
sales of which consist of silica products) and our aggregates business
accounted for 65.2% and 34.8% of our net sales, respectively, for the year
ended December 31, 1999. On a pro forma basis, we had net sales of $248.1
million for the year ended December 31, 1999.
Industry Overview
In 1998, consumption of silica in the United States was approximately 29.0
million tons, generating sales of approximately $491 million. The distinct
characteristics of silica--size, purity, color, inertness, hardness and
resistance to high temperatures--make it difficult to substitute in a
1
<PAGE>
variety of applications. From 1988 to 1998, sales of silica in the United
States grew at a compound annual growth rate of approximately 2.7%. This growth
resulted from increased demand across a wide variety of end use markets.
In 1998, consumption of aggregates (not including hot mixed asphalt) in the
United States was approximately 2.8 billion tons, generating sales of
approximately $13.5 billion. Aggregates consist of crushed stone, construction
sand and gravel. From 1988 to 1998, sales of aggregates in the United States
grew at a compound annual growth rate of approximately 4.4%. This growth
resulted from increased demand for road construction and maintenance, other
infrastructure projects and residential and commercial construction. We believe
demand for aggregates will increase due to the passage by Congress in 1998 of
the Transportation Equity Act for the 21st Century ("TEA-21"). TEA-21
establishes a $218 billion transportation program that provides for increased
federal funding for highways and related infrastructure improvements through
2003. TEA-21 authorizes average annual federal spending on highways and related
infrastructure improvements of approximately $26 billion, approximately 44%
higher than the average annual federal spending of $18 billion under the
predecessor program. In Pennsylvania and New Jersey, our primary aggregates
markets, average annual federal spending on highways and related infrastructure
improvements under TEA-21 is projected to be approximately 47% and 30% higher,
respectively, than under the predecessor program.
Transportation costs are a significant portion of the total cost of
industrial minerals and aggregates to customers, typically representing up to
50% of that cost. As a result, the industrial minerals and aggregates markets
are typically local, and competition from beyond the local area is limited.
Industrial minerals and aggregates are usually shipped within 200 miles and 75
miles of the plant, respectively, while hot mixed asphalt is usually shipped
within 30 miles. However, certain high margin industrial minerals products,
such as fine ground silica, may be distributed nationally and, in some cases,
internationally due to the high value of these products relative to
transportation costs.
Competitive Strengths
Leading Positions in Attractive End Use Markets and Geographic Areas. We are
the second leading producer of silica in the United States, accounting for
approximately 23% of industry volume in 1999. We believe that we have leading
positions in most of our key end use markets for our silica products, typically
occupying the number one or two position by sales. These end use markets
include container glass, fiberglass, specialty glass, flat glass, fillers and
extenders, chemicals and ceramics. In addition, we believe that our aggregates
business maintains leading positions in the key geographic areas we serve,
including the Pittsburgh and Philadelphia metropolitan areas. Both the
industrial minerals and aggregates industries in the United States have been
characterized by stable historical growth. For the period between 1988 and
1998, sales of silica and aggregates in the United States have increased at a
compound annual growth rate of approximately 2.7% and 4.4%, respectively. We
believe the growth in sales for silica will continue at this stable rate.
Furthermore, we believe demand for aggregates will grow due to the passage of
TEA-21, which will increase average annual federal spending on highways and
related infrastructure improvements through 2003 by approximately 44% over the
predecessor program.
Low Cost Supplier. We believe that we are a low cost supplier of industrial
minerals and aggregates in the end use markets and geographic areas in which we
compete. Our largest industrial minerals facilities are located on major
railroad routes and near our significant customers. In addition, we utilize
multiple modes of transportation such as trucks, rail and rail-truck transfer
facilities to obtain competitive freight rates. Our western Pennsylvania
aggregates business is positioned closer
2
<PAGE>
to the interstate highway system surrounding the Pittsburgh metropolitan area
than the operations of many of our competitors, providing us with a cost
advantage. In addition, our investments in technology have improved
efficiencies and have also contributed to our position as a low cost supplier.
Diverse Revenue Base. We provide a wide range of products to a diverse
customer base, serving numerous end use markets. We believe that this diversity
mitigates the impact of adverse economic conditions in any end use market that
we serve. For example, on a pro forma basis for the year ended December 31,
1999, we exceeded $10 million in net sales in each of 10 distinct end use
markets and no single customer accounted for more than 5% of our net sales.
Strong Customer Relationships. We are a key supplier of silica to leaders in
many of the end use markets that we serve. We have had relationships with many
of our major customers for more than 20 years, including Corning Incorporated,
Owens Corning, Owens-Illinois, Inc., PPG Industries, Inc., PQ Corporation and
The Sherwin-Williams Company. We have also developed strong relationships with
government contractors and others in our aggregates business that provide us
with a diverse base of approximately 5,000 aggregates customers, primarily
consisting of local contractors.
Experienced Management Team. Our senior management team has an average of
approximately 21 years of related industry experience. This experience has
allowed us to improve productivity, reduce costs and enhance customer
relationships in competitive markets. For example, during the period from the
beginning of 1994 to the end of 1999, excluding the effect of acquisitions, we
increased net sales in our industrial minerals business at a compound annual
growth rate of approximately 4.0%. During the same period, excluding the effect
of acquisitions, we reduced total operating costs per ton by 0.5%.
Strong Financial Sponsors. D. George Harris & Associates, LLC ("DGHA") and
Chase Capital Partners ("CCP") provide us with expertise in identifying and
financing industrial minerals and aggregates acquisition opportunities. Since
1987, our chairman, D. George Harris, has overseen 30 acquisitions in the
worldwide chemical and extractive minerals industries. DGHA is an independent
private leveraged buyout group formed in 1987 whose principal business is to
form investor groups to acquire and manage industrial businesses. DGHA has
substantial experience in acquiring, operating and expanding chemical,
industrial minerals and aggregates businesses, including Harris Chemical Group,
Inc. and Harris Specialty Chemicals, Inc. CCP is the private equity group of
The Chase Manhattan Corporation, one of the largest bank holding companies in
the United States, and is one of the nation's largest private equity
organizations, with over $15 billion under management. Through its affiliates,
CCP invests in leveraged buyouts, recapitalizations and venture capital
opportunities by providing equity and mezzanine debt capital. Since its
inception in 1984, CCP has made over 950 direct investments in a variety of
industries, including investments in over 30 industrial minerals and chemicals
companies.
Strategy
Our goals are to build on our leading market positions by continuing to
improve our existing operations and by pursuing acquisition opportunities.
For our current operations, we intend to:
. expand our aggregates and hot mixed asphalt production capacity by
investing in additional plant and equipment;
3
<PAGE>
. continue to focus on cost reductions by investing in technology,
improving production processes and sharing manufacturing best practices
throughout our organization as we integrate our acquisitions; and
. introduce, at select locations, new products such as water filtration
sand, golf course sands and a variety of other specialty products
developed through new processing techniques and market knowledge gained
through our recent acquisitions.
In addition, we have grown through acquisitions and we will continue to
pursue acquisitions that we believe will create value and enhance cash flow. We
target opportunities that provide us with:
. access to new geographic areas in close proximity to our existing
operations;
. an ability to market other industrial minerals in existing end use
markets; and
. additional technological, production and marketing expertise.
The Transactions
Commercial Stone Acquisition. On October 1, 1999 (the "closing date"),
through two of our subsidiaries, we acquired Commercial Stone Co., CATS and
related quarry properties (the "Commercial Stone acquisition"). The acquired
companies and properties are collectively referred to in this prospectus as
"Commercial Stone." The Commercial Stone acquisition substantially increased
our aggregates business and expanded our presence in Pennsylvania to the
Pittsburgh metropolitan area, where Commercial Stone is a leading producer of
crushed stone and hot mixed asphalt. For its fiscal year ended March 31, 1999,
Commercial Stone sold 3.2 million tons of crushed stone and 1.1 million tons of
hot mixed asphalt. For the same period, Commercial Stone had net sales of $42.0
million.
The total consideration for Commercial Stone was $139.0 million in cash,
$8.0 million of which was placed in escrow to satisfy any future indemnity
claims we may have against the sellers. The Commercial Stone acquisition was
consummated simultaneously with the consummation of the other Transactions
described below, including the offering of the old notes.
New Credit Facilities. On the closing date, we entered into new senior
secured credit facilities (the "new credit facilities") with Chase Securities
Inc. ("CSI"), as syndication agent, book manager, lead arranger and
documentation agent, and Banque Nationale de Paris, as administrative agent and
collateral agent, and other lenders. The new credit facilities consisted of a
$50.0 million revolving credit facility, a $45.0 million tranche A term loan
facility, a $95.0 million tranche B term loan facility and a $40.0 million
delayed draw term loan acquisition facility. Borrowings under the delayed draw
term loan acquisition facility are conditioned on, among other things, meeting
a specific leverage ratio. On the closing date, we borrowed the full amount of
the term loans. See "Description of the New Credit Facilities."
Cash Equity Contribution. On the closing date, USS Holdings issued and sold
shares of common and preferred stock and warrants to purchase common stock of
USS Holdings for $35.0 million (the "cash equity contribution"), which proceeds
were contributed to us on the closing date. See "Security Ownership of Certain
Beneficial Owners and Management."
4
<PAGE>
The Commercial Stone acquisition, the repayment of certain debt, the
borrowings under the new credit facilities, the cash equity contribution and
the offering of the old notes are collectively referred to in this prospectus
as the "Transactions." The sources and uses of funds for the Transactions are
presented in the following table:
<TABLE>
<CAPTION>
Amount
---------------------
(Dollars in Millions)
<S> <C>
Sources:
Tranche A term loan facility...................... $ 45.0
Tranche B term loan facility...................... 95.0
Old notes......................................... 150.0
Cash equity contribution.......................... 35.0
------
Total sources................................... $325.0
======
Uses:
Purchase price of Commercial Stone................ $139.0
Repayment of certain debt......................... 167.2
Fees and expenses(1).............................. 18.8
------
Total uses...................................... $325.0
======
</TABLE>
- --------
(1) Fees and expenses include the initial purchasers' discounts and other
expenses in connection with the offering of the old notes, fees and
expenses associated with the Commercial Stone acquisition and the new
credit facilities and $1.3 million in bonuses paid to the management of
Commercial Stone upon the consummation of the Commercial Stone acquisition.
----------------
The issuer is incorporated in Delaware with principal executive offices
located at Route 522 North, P.O. Box 187, Berkeley Springs, West Virginia
25411. Its telephone number is (304) 258-2500.
5
<PAGE>
The Exchange Offer
On October 1, 1999, we completed the private offering of our 13% Senior
Subordinated Notes due 2009. We entered into an exchange and registration
rights agreement with the initial purchasers in the private placement in which
we agreed to deliver to you this prospectus and we agreed to complete the
exchange offer within 240 days after the date of original issuance of the old
notes. You are entitled to exchange in the exchange offer your old notes for
new notes which are identical in all material respects to the old notes except
that:
. the new notes have been registered under the Securities Act of 1933;
. the new notes are not entitled to certain rights which are applicable to
the old notes under the exchange and registration rights agreement; and
. certain liquidated damages provisions are no longer applicable.
The Exchange Offer.......... We are offering to exchange up to $150.0 million
aggregate principal amount of 13% Senior
Subordinated Notes due 2009 which have been
registered under the Securities Act of 1933 for
up to $150.0 million aggregate principal amount
of 13% Senior Subordinated Notes due 2009 which
were issued on October 1, 1999 in the private
offering. Old notes may be exchanged only in
integral multiples of $1,000. We will issue the
new notes promptly after the expiration of the
exchange offer.
Resales..................... Based on an interpretation by the staff of the
Securities and Exchange Commission set forth in
no-action letters issued to third parties, we
believe that the new notes issued pursuant to the
exchange offer in exchange for old notes may be
offered for resale, resold and otherwise
transferred by you (unless you are our
"affiliate" within the meaning of Rule 405 under
the Securities Act of 1933) without compliance
with the registration and prospectus delivery
provisions of the Securities Act of 1933,
provided that you are acquiring the new notes in
the ordinary course of business and that you have
not engaged in, do not intend to engage in, and
have no arrangement or understanding with any
person to participate in, a distribution of the
new notes.
Each participating broker-dealer that receives
new notes for its own account pursuant to the
exchange offer in exchange for old notes that
were acquired as a result of market-making or
other trading activity must acknowledge that it
will deliver a prospectus in connection with any
resale of the new notes. These broker-dealers may
use this prospectus for this purpose. See "Plan
of Distribution."
Any holder of old notes who
. is our affiliate,
. does not acquire new notes in the ordinary
course of its business, or
6
<PAGE>
. tenders in the exchange offer with the
intention to participate, or for the
purpose of participating, in a distribution
of new notes,
cannot rely on the position of the staff of the
Securities and Exchange Commission enunciated in
Exxon Capital Holdings Corporation, Morgan
Stanley & Co. Incorporated or similar no-action
letters and, in the absence of an exemption, must
comply with the registration and prospectus
delivery requirements of the Securities Act of
1933 in connection with the resale of the new
notes.
Expiration Date; Withdrawal
of Tenders.................. The exchange offer will expire at 5:00 p.m., New
York City time, on , 2000, unless we decide to
extend the exchange offer. We do not currently
intend to extend the expiration date, although we
reserve the right to do so. A tender of old notes
pursuant to the exchange offer may be withdrawn
at any time prior to the expiration date, subject
to compliance with the procedures for withdrawal
described in "The Exchange Offer" section of this
prospectus under the heading "Withdrawal of
Tenders." Any old notes not accepted for exchange
for any reason will be returned without expense
to the tendering holder promptly after the
expiration or termination of the exchange offer.
Conditions to the Exchange The exchange offer is subject to customary
Offer....................... conditions, any of which we may waive. The
exchange offer is not conditioned upon any
minimum aggregate principal amount of old notes
being tendered for exchange. See "The Exchange
Offer--Conditions to Exchange Offer."
Procedures for Tendering
Old Notes................... If you wish to accept the exchange offer, you
must complete, sign and date the accompanying
letter of transmittal, or a copy of the letter of
transmittal, according to the instructions
contained in this prospectus and the letter of
transmittal. You must also mail or otherwise
deliver the letter of transmittal, or the copy,
together with the old notes and any other
required documents, to the exchange agent at the
address set forth on the cover of the letter of
transmittal on or prior to the expiration date.
If you hold old notes through The Depository
Trust Company ("DTC") and wish to participate in
the exchange offer, you must comply with the
Automated Tender Offer Program procedures of DTC,
by which you will agree to be bound by the letter
of transmittal. By signing or agreeing to be
bound by the letter of transmittal, you will
represent to us that, among other things:
. any new notes that you receive will be
acquired in the ordinary course of your
business;
7
<PAGE>
. you have no arrangement or understanding
with any person or entity to participate
in the distribution of the new notes;
. if you are a broker-dealer that will
receive new notes for your own account in
exchange for old notes that were acquired
as a result of market-making activities,
that you will deliver a prospectus, as
required by law, in connection with any
resale of the new notes; and
. you are not our "affiliate" as defined in
Rule 405 under the Securities Act of 1933,
or, if you are an affiliate, you will
comply with any applicable registration
and prospectus delivery requirements of
the Securities Act of 1933.
Special Procedures for
Beneficial Owners........... If you are a beneficial owner of old notes that
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender those old notes for
exchange, you should contact the registered
holder promptly and instruct it to tender those
notes on your behalf. If you wish to tender those
notes yourself, you must either make appropriate
arrangements to re-register ownership of those
notes in your own name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership to your own
name may take considerable time and you may not
be able to complete the transfer prior to the
expiration date.
Guaranteed Delivery If you wish to tender your old notes and your old
Procedures.................. notes are not immediately available or you cannot
deliver your old notes, the letter of transmittal
or any other documents required by the letter of
transmittal or comply with the applicable
procedures under DTC's Automated Tender Offer
Program on or prior to the expiration date, you
must tender your old notes according to the
guaranteed delivery procedures described in "The
Exchange Offer" section of this prospectus under
the heading "Guaranteed Delivery Procedures."
Effect on Holders of Old As a result of the making of, and upon acceptance
Notes....................... for exchange of all validly tendered old notes
pursuant to the terms of, the exchange offer, we
will have fulfilled a covenant contained in the
exchange and registration rights agreement and,
accordingly, we will not be obligated to pay
liquidated damages as described in the exchange
and registration rights agreement. If you are a
holder of old notes and do not tender your old
notes in the exchange offer, you will continue to
hold the old notes and you will be entitled to
all the rights and limitations applicable to the
old notes in the indenture,
8
<PAGE>
except for any rights under the exchange and
registration rights agreement that by their terms
terminate upon the consummation of the exchange
offer.
Consequences of Failure to
Exchange.................... All untendered old notes will continue to be
subject to the restrictions on transfer provided
for in the old notes and in the indenture. In
general, the old notes may not be offered or sold
unless registered under the Securities Act of
1933, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act
of 1933 and applicable state securities laws.
Other than in connection with the exchange offer,
we do not currently anticipate that we will
register the old notes under the Securities Act
of 1933.
Certain United States The exchange of old notes for new notes in the
Federal Tax Consequences.... exchange offer will not be a taxable event for
U.S. federal income tax purposes. See "Certain
United States Federal Tax Consequences."
Use of Proceeds............. We will not receive any proceeds from the
issuance of the new notes in the exchange offer.
Exchange Agent.............. The Bank of New York, the trustee under the
indenture governing the notes, is the exchange
agent for the exchange offer. The address and
telephone number of the exchange agent are set
forth in the "The Exchange Offer" section of this
prospectus under the heading "Exchange Agent."
Exchange Offer; Subject to the applicable federal and state
Registration Rights.... securities laws, we agreed to file on or prior to
135 days after the date of original issuance of
the old notes, and to use our reasonable best
efforts to cause to be declared effective within
195 days after the date of original issuance of
the old notes, a registration statement with
respect to an offer to exchange the old notes for
new notes.
We also agreed, under certain circumstances, to
file and to use our reasonable best efforts to
cause to become effective a shelf registration
statement with respect to the resale of the old
notes. As described in the exchange and
registration rights agreement, liquidated damages
with respect to the old notes are payable if we
do not comply with certain of our registration
obligations. The filing of the registration
statement of which this prospectus is a part is
intended to satisfy the requirement to file the
exchange offer registration statement.
The registration statement of which this
prospectus is a part was not filed with the
Securities and Exchange Commission
9
<PAGE>
within 135 days after the date of original
issuance of the old notes and, as a result,
pursuant to the terms of the exchange and
registration rights agreement, we have made a
payment of liquidated damages on the old notes on
March 15, 2000 in the amount of $123,428.
The New Notes
The following summary contains basic information about the new notes. It
does not contain all the information that may be important to you. For a more
complete description of the new notes, please refer to the section of this
prospectus entitled "Description of the New Notes."
Issuer...................... Better Minerals & Aggregates Company.
New Notes Offered........... $150,000,000 aggregate principal amount of 13%
Senior Subordinated Notes due 2009.
Maturity.................... September 15, 2009.
Interest.................... Annual rate: 13%.
Payment frequency: every six months on March 15
and September 15.
Holders of old notes whose old notes are accepted
for exchange in the exchange offer will be deemed
to have waived the right to receive any payment
in respect of interest on the old notes accrued
from March 15, 2000 (the first interest payment
date of the old notes) to the date of issuance of
the new notes. Consequently, holders who exchange
their old notes for new notes will receive the
same interest payment on September 15, 2000 (the
next interest payment date with respect to the
old notes and the new notes following
consummation of the exchange offer) that they
would have received had they not accepted the
exchange offer.
Optional Redemption......... After September 15, 2004, the issuer may redeem
some or all of the new notes at the redemption
prices listed in the "Description of the New
Notes" section of this prospectus under the
heading "Optional Redemption." Prior to that
date, the issuer may not redeem the new notes,
except as described in the following paragraph.
At any time prior to September 15, 2002, the
issuer may redeem up to 35% of the original
aggregate principal amount of the new notes with
the net cash proceeds of certain equity offerings
at a redemption price equal to 113% of the
principal amount thereof plus accrued and unpaid
interest, so long as (a) at least 65% of the
original aggregate amount of the new notes remain
outstanding after each such redemption and (b)
10
<PAGE>
any such redemption by the issuer is made within
90 days of that equity offering. See "Description
of the New Notes--Optional Redemption."
Change of Control........... Upon the occurrence of a transaction meeting the
definition of a change of control, unless the
issuer has exercised its right to redeem all of
the new notes as described above, you will have
the right to require the issuer to purchase all
or a portion of your new notes at a purchase
price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest
to the date of purchase. See "Description of the
New Notes--Change of Control."
Note Guarantees............. The new notes will be fully and unconditionally
guaranteed by an unsecured note guarantee made by
each of the issuer's existing and future Domestic
Subsidiaries (as defined in "Description of the
New Notes--Certain Definitions"). The new notes
will also be fully and unconditionally guaranteed
by an unsecured note guarantee made by each
existing and future Foreign Subsidiary (as
defined in "Description of the New Notes--Certain
Definitions") that guarantees any debt (other
than debt of a Restricted Subsidiary (as defined)
that is not a note guarantor) (collectively, the
"note guarantors"). The new notes will be
guaranteed by all of the issuer's subsidiaries
except its Canadian subsidiary. This Canadian
subsidiary is an inactive company that has an
immaterial amount of assets and liabilities. The
note guarantees will be subordinated to the
guarantees of senior debt of the issuer issued by
the note guarantors under the new credit
facilities. See "Description of the New Notes--
Note Guarantees."
Ranking..................... The new notes will be unsecured and:
. will be subordinated in right of payment
to all of the existing and future senior
debt of the issuer;
. will rank equally in right of payment with
any of the issuer's future senior
subordinated debt;
. will rank senior in right of payment to
any of the issuer's future subordinated
debt;
. will be effectively subordinated to any
secured debt of the issuer and its
subsidiaries to the extent of the value of
the assets securing that debt; and
. will be effectively subordinated to all
liabilities (including trade payables) and
preferred stock of each subsidiary of the
issuer that is not a note guarantor.
The issuer is a holding company that derives all
of its operating income and cash flow from its
subsidiaries.
11
<PAGE>
Similarly, the note guarantees of each note
guarantor will be unsecured and:
. will be subordinated in right of payment
to all of that note guarantor's existing
and future senior debt;
. will rank equally in right of payment with
any of that note guarantor's future senior
subordinated debt;
. will rank senior in right of payment to
any of that note guarantor's future
subordinated debt; and
. will be effectively subordinated to any
secured debt of that note guarantor and
its subsidiaries to the extent of the
value of the assets securing that debt.
See "Description of the New Notes--
Ranking."
As of December 31, 1999:
. the issuer had $135.9 million of senior
debt (excluding unused commitments under
the new credit facilities), all of which
was secured debt;
. the issuer did not have any senior
subordinated debt other than the old notes
or any debt that was subordinate in right
of payment to the old notes;
. the note guarantors had $1.6 million of
senior debt (excluding their guarantees of
the issuer's debt under the new credit
facilities);
. the note guarantors did not have any
senior subordinated debt other than their
note guarantees or any debt that was
subordinate in right of payment to the
note guarantees; and
. the issuer's Canadian subsidiary had an
immaterial amount of liabilities.
The indenture governing the new notes permits us
to incur a significant amount of additional
senior debt.
Certain Covenants........... The indenture will, among other things, restrict
the issuer's ability and the ability of its
Restricted Subsidiaries to:
. incur debt;
. guarantee other debt;
. make distributions, redeem equity
interests or redeem subordinated debt;
. make investments;
. sell assets;
. enter into agreements that restrict
dividends from subsidiaries;
. merge or consolidate;
. enter into transactions with affiliates;
and
. sell capital stock of subsidiaries.
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<PAGE>
These covenants will be subject to a number of
important exceptions and qualifications. See
"Description of the New Notes--Certain
Covenants" and "Description of the New Notes--
Merger and Consolidation."
----------------
Risk Factors
Prospective investors in the new notes should carefully consider all of the
information in this prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" beginning on page 16 for risks involved with an
investment in the new notes.
13
<PAGE>
Summary Condensed Historical and Unaudited Pro Forma Financial Data
The following table sets forth our summary condensed historical and
unaudited pro forma financial data. The summary condensed historical financial
data as of and for the years ended December 31, 1997, 1998 and 1999 have been
derived from our audited consolidated financial statements and the notes
thereto included elsewhere in this prospectus. The summary condensed unaudited
pro forma financial data is derived from the unaudited pro forma statement of
operations contained under "Unaudited Pro Forma Consolidated Financial Data."
The unaudited pro forma statement of operations data for the year ended
December 31, 1999 gives effect to the Transactions and the acquisition of the
Morie Assets as if they had occurred on January 1, 1999.
The pro forma adjustments, as described in the notes to the unaudited pro
forma statement of operations contained under "Unaudited Pro Forma Consolidated
Financial Data," are estimates based on currently available information and
certain adjustments that management believes are reasonable. The unaudited pro
forma financial data is presented for informational purposes only and is not
necessarily indicative of the operating results that would have occurred had
the Transactions or the acquisition of the Morie Assets been consummated on or
as of the date indicated nor is it necessarily indicative of future operating
results. The unaudited pro forma financial data should be read in conjunction
with "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Pro Forma Year
Ended December
Year Ended December 31, 31,
1997 1998(1) 1999(2) 1999
-------- -------- -------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales.................... $128,512 $142,294 $209,075 $248,053
Cost of goods sold........... 88,097 98,478 140,244 166,091
Depreciation, depletion and
amortization................ 17,886 19,888 28,481 34,206
Selling, general and
administrative.............. 14,345 16,930 21,843 23,437
Incentive stock compensation
expense(3).................. -- 14,227 -- --
-------- -------- -------- --------
Operating income (loss)...... 8,184 (7,229) 18,507 24,319
Interest expense............. 10,513 10,269 19,590 34,705
Accretion of preferred stock
warrants(4)................. 1,374 1,254 56 56
Other income net, including
interest income............. (1,742) (1,881) (2,171) (2,665)
-------- -------- -------- --------
(Loss) income before income
taxes....................... (1,961) (16,871) 1,032 (7,777)
Provision (Benefit) for
income taxes................ (2,239) (2,204) (2,714) (6,754)
-------- -------- -------- --------
Net income (loss) before
extraordinary loss.......... 278 (14,667) 3,746 (1,023)
Extraordinary loss(5)........ -- (2,102) (2,747) (2,747)
-------- -------- -------- --------
Net income (loss)............ $ 278 $(16,769) $ 999 $ (3,770)
======== ======== ======== ========
Other Financial Data:
Capital expenditures......... $ 5,537 $ 9,399 $ 14,572 $ 17,879
Cash interest expense........ 8,731 9,269 10,925 32,617
Ratio of earnings to fixed
charges(6).................. -- (7) -- (7) 1.1 -- (7)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
As of
December 31,
1999
------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash.................................... $ 13,573
Working capital......................... 45,715
Total assets............................ 551,603
Total debt.............................. 287,505
Stockholder's equity.................... 64,335
</TABLE>
- --------
(1) Includes (i) the results of the Nicks Silica Assets from January 16, 1998,
the date of acquisition, (ii) with respect to the year ended December 31,
1998, the results of Pettinos from July 25, 1998, the date of acquisition,
and (iii) with respect to the year ended December 31, 1998, the results of
Better Materials from December 14, 1998, the date of acquisition, in each
case, as further described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
(2) Includes the results of the Morie Assets from April 9, 1999, the date of
acquisition, and the results of Commercial Stone from October 1, 1999, the
date of acquisition.
(3) Represents non-cash compensation expense recorded in the second half of the
year ended December 31, 1998 due to the waiver by USS Holdings of its right
to repurchase certain capital stock held by our management.
(4) Represents the non-cash accretion in value of certain warrants granted with
respect to preferred stock of USS Holdings. Better Minerals & Aggregates
recognizes this charge as part of push down accounting because the warrants
were issued in connection with debt issued by U.S. Silica. The obligation
to satisfy any payment due in connection with these warrants was forgiven
by USS Holdings during 1999.
(5) Represents non-cash charges and write-offs recorded in connection with the
1998 early retirement of certain subordinated debt and the 1999 early
retirement of certain senior debt by Better Minerals & Aggregates.
(6) Under Item 503 of Regulation S-K, "earnings" for purposes of this
calculation have been computed by adding to "income before extraordinary
items" all taxes based on income or profits, total interest charges and the
estimated interest element of rentals charged to income. "Fixed charges"
include total interest charges and the estimated interest element of
rentals charged to income.
(7) Earnings were insufficient to cover fixed charges by $2.0 million, $16.9
million and $7.8 million for the years ended December 31, 1997 and 1998 and
on a pro forma basis for the year ended December 31, 1999, respectively.
15
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this prospectus before
participating in the exchange offer.
Our High Level of Debt May Adversely Affect Our Ability To Repay the Notes
As a result of the Transactions, we have a substantial amount of debt. As of
December 31, 1999, we had total debt of $287.5 million (excluding unused
commitments) and total stockholder's equity of $64.4 million, giving us total
debt representing 81.7% of total capitalization. Assuming that the Transactions
and the acquisition of the Morie Assets had taken place on January 1, 1999, our
interest expense for the year ended December 31, 1999 would have been $34.7
million. In addition, subject to restrictions in the new credit facilities and
in the indenture, we may borrow more money for working capital, capital
expenditures, acquisitions or other purposes.
Our high level of debt could have important consequences for you, including
the following:
. we will need to use a large portion of the cash earned by our
subsidiaries to pay principal and interest on the new credit facilities,
the notes and other debt, which will reduce the amount of cash available
to us to finance our operations, to invest in additional plant and
equipment, to make improvements to existing plant and equipment and to
improve our technology capabilities;
. our debt level makes us more vulnerable to economic downturns and
adverse developments in our business;
. we may have a much higher level of debt than certain of our competitors,
which may put us at a competitive disadvantage;
. we may have difficulty borrowing money in the future for working
capital, capital expenditures, acquisitions or other purposes; and
. some of our debt has a variable rate of interest, which exposes us to
the risk of increased interest rates.
To Service Our Indebtedness, We Will Require a Significant Amount of Cash. Our
Ability to Generate Cash Depends on Many Factors Beyond Our Control
We expect to obtain the cash to pay our expenses and to pay the principal
and interest on the notes, the new credit facilities and other debt from the
operations of our subsidiaries. Availability under the revolving credit
facility will be important for us to maintain liquidity to pay obligations as
they become due. Our ability to meet our expenses and debt service obligations
depends on the future performance of our subsidiaries, which will be affected
by financial, business, economic and other factors. We will not be able to
control many of these factors, such as economic conditions and pressure from
competitors. We cannot be certain that the cash earned by our subsidiaries will
be sufficient to allow us to pay principal and interest on our debt (including
the notes) and meet our other obligations. If we do not have enough cash, we
may be required to refinance all or part of our existing debt, including the
notes, sell assets, borrow more money or raise equity. We cannot guarantee that
we will be able to refinance our debt, sell assets, borrow more money or raise
equity on terms acceptable to us, or at all. For example, neither CCP nor DGHA
is obligated to make any additional equity investments in USS Holdings. In
addition, the terms of existing or future debt agreements, including the new
credit facilities and the indenture, may restrict us from adopting any of these
alternatives.
The indenture contains certain limitations on our operating flexibility. See
"Description of the New Notes--Certain Covenants." In addition, the new credit
facilities contain many similar and more
16
<PAGE>
stringent limitations and will prohibit us from prepaying certain of our other
debt (including the notes) while debt under the new credit facilities is
outstanding. In addition, under the new credit facilities, we must also comply
with certain specified financial ratios and tests. If we do not comply with
these or other covenants and restrictions contained in the new credit
facilities, we could default under the new credit facilities. Upon the
occurrence of an event of default under the new credit facilities, the lenders
could declare all amounts outstanding under the new credit facilities, together
with accrued interest, to be immediately due and payable, which could cause all
or a portion of our other debt, including the notes, to become immediately due
and payable. If we were unable to repay those amounts, the lenders could
proceed against the collateral granted to them to secure that debt. If the
lenders under the new credit facilities accelerate the payment of the debt, we
cannot assure you that our assets would be sufficient to repay in full that
debt and our other debt, including the notes. Furthermore, our ability to
comply with the provisions of the new credit facilities may be affected by
events beyond our control. See "Description of the New Credit Facilities."
Demand for Our Products Is Affected by External Factors
Demand in the markets served by the industrial minerals and aggregates
industries is affected by many external factors, including the following:
. general and regional economic conditions, including the economy in the
states in which we have production facilities and in which we sell our
products;
. demand for automobiles and other vehicles;
. the substitution of plastic or other materials for glass, a significant
end use market for the industrial minerals business;
. levels of government spending on road and other infrastructure
construction; and
. demand for residential and commercial construction.
General or localized economic downturns in areas where we sell products, or
other external factors adversely affecting demand in the markets we serve, such
as the factors noted above, could result in a decrease in net sales and
operating income and, therefore, could have a material adverse effect on us.
For example, because our aggregates business is more geographically
concentrated than the businesses of some of our competitors, we may be more
vulnerable to local economic conditions in Pennsylvania and New Jersey.
Demand for Our Aggregates May Be Affected by Weather
Poor weather during the peak season of our aggregates business from April
through November could result in lower sales of aggregates by reducing or
delaying road construction and maintenance, other infrastructure projects and
residential and commercial construction. In the past, significant changes in
weather conditions during this period have caused variations in demand for
aggregates. In addition, because we are not as geographically diverse as some
of our aggregates competitors, we may be more vulnerable than these competitors
to poor weather conditions in the geographic areas in which we operate.
Our Business Is Subject to Operating Risks
All of our revenue is and will be derived from our industrial minerals and
aggregates businesses. The mining, processing and related infrastructure
facilities of these businesses are subject to risks normally encountered in the
industrial minerals and aggregates industries. These risks include
environmental hazards, industrial accidents, technical difficulties or
failures, late delivery of supplies, the price and availability of power, the
price and availability of transportation, unusual or unexpected
17
<PAGE>
geological formations or pressures, cave-ins, pit wall failures, rock falls,
unanticipated ground, grade or water conditions, flooding and periodic or
extended interruptions due to the unavailability of materials and equipment,
inclement or hazardous weather conditions, fires, explosions or other accidents
or acts of force majeure. In addition, the price or availability of oil, a raw
material of hot mixed asphalt, could adversely affect operating costs, which
could in turn adversely affect our operating results if we cannot pass these
increased costs through to our customers. Any of these risks could result in
damage to, or destruction of, our mining properties or production facilities,
personal injury, environmental damage, delays in mining or processing, losses
or possible legal liability. Any prolonged downtime or shutdowns at our mining
properties or production facilities could have a material adverse effect on us.
We Rely Heavily on Third Party Transportation
We rely heavily on railroads and trucking companies to ship our industrial
minerals and aggregates products to our customers. Because freight costs
represent a significant portion of the total cost to the customer, fluctuations
in freight rates can change the relative competitive position of our production
facilities. Rail and trucking operations are subject to various hazards,
including extreme weather conditions, work stoppages, operating hazards and
year 2000 computer problems. If we are unable to ship our products as a result
of the railroads or trucking companies failing to operate or if there are
material changes in the cost or availability of railroad or trucking services,
we may not be able to arrange alternative and timely means to ship our
products, which could lead to interruptions or slowdowns in our businesses and,
therefore, have a material adverse effect on us.
Our Future Performance Will Depend on Our Ability To Succeed in Competitive
Markets
We compete in highly competitive industries. Due to the high cost of
transportation relative to the value of our industrial minerals and aggregates
products, competition tends to be limited to producers in proximity to our
production facilities. The silica industry is a competitive market that is
characterized by a small number of large, national producers and a larger
number of small, regional producers. We are the second leading producer of
silica in the United States, accounting for approximately 23% of industry
volume in 1999. We compete with, among others, Unimin Corporation, Fairmount
Minerals Ltd., Oglebay Norton Industrial Sands Inc. and Badger Mining
Corporation. Competition in the industrial minerals industry is based on price,
consistency and quality of product, site location, distribution capability,
customer service, reliability of supply, breadth of product offering and
technical support. In addition, there is significant unutilized capacity in the
industrial minerals industry that could adversely affect the pricing of our
industrial minerals products.
In recent years, the aggregates industry has seen increasing consolidation,
although competition remains primarily local. Competition in the aggregates
industry is based primarily on price, quality of product, site location,
distribution capability and customer service. In Pennsylvania and New Jersey we
compete primarily with local or regional operations. In addition, slag, a
residue from steel processing, also competes with our aggregates products.
Many of our competitors are large companies that have greater financial
resources than we do, may develop technology superior to ours and have
production facilities that are located closer to key customers. There can be no
assurance that we will be able to compete successfully against our competitors
in the future or that competition will not have a material adverse effect on
us.
Silica Health Issues and Litigation Could Have a Material Adverse Effect on Our
Business
The exposure of persons to silica and the accompanying health risks have
been, and will continue to be, a significant issue confronting the industrial
minerals industry. Concerns over silicosis
18
<PAGE>
and other potential adverse health effects, as well as concerns regarding
potential liability from the use of silica, may have the effect of discouraging
our customers' use of our silica products. The actual or perceived health risks
of mining, processing and handling silica could materially and adversely affect
silica producers, including us, through reduced use of silica products, the
threat of product liability or employee lawsuits, increased levels of scrutiny
by federal and state regulatory authorities of us and our customers (see "--Our
Business Is Subject to Extensive Environmental, Health and Safety Regulations")
or reduced financing sources available to the silica industry.
The inhalation of respirable crystalline silica is associated with
silicosis. There is recent evidence of an association between crystalline
silica exposure or silicosis and lung cancer and a possible association with
other diseases, such as immune system disorders like scleroderma. Since 1975,
U.S. Silica has been named as a defendant in numerous products liability
lawsuits brought by alleged employees or former employees of our customers
alleging damages caused by silica exposure. As of March 1, 2000, there were an
estimated 984 silica-related products liability claims pending in which U.S.
Silica is a defendant. Almost all of the claims pending against U.S. Silica
arise out of the alleged use of U.S. Silica products in foundries or as an
abrasive blast media and have been filed in the states of Texas and
Mississippi.
We currently have certain limited sources of recovery for silica-related
products liability claims, including an indemnity for those claims (including
litigation expenses) from ITT Industries, Inc., successor to the former owner
of U.S. Silica, and insurance coverage. The ITT Industries indemnity expires in
2005, only covers alleged exposure to U.S. Silica products for the period prior
to September 12, 1985 and contains other limitations. Existing and potential
insurance coverage only applies to occurrences of alleged silica exposure prior
to certain dates in 1985 and 1986, respectively. We have no insurance or
indemnity for claims relating to silica exposure after these dates. The silica-
related litigation brought against us to date has not resulted in material
liability to us. However, it is likely that we will continue to have silica-
related products liability claims filed against us, including claims that
allege silica exposure for periods after 1986. Any such claims or inadequacies
of the ITT Industries indemnity or insurance coverage could have a material
adverse effect on us. See "Business--Product Liability."
Our Business Is Subject to Extensive Environmental, Health and Safety
Regulations
Environmental and Silica Exposure Regulations. We are subject to a variety
of governmental regulatory requirements relating to the environment, including
those relating to our handling of hazardous materials and air and wastewater
emissions. Some environmental laws impose substantial penalties for
noncompliance, and others, such as the federal Comprehensive Environmental
Response, Compensation, and Liability Act, impose strict, retroactive and joint
and several liability upon persons responsible for releases of hazardous
substances. If we fail to comply with present and future environmental laws and
regulations, we could be subject to liabilities or our operations could be
interrupted. In addition, future environmental laws and regulations could
restrict our ability to expand our facilities or extract our mineral deposits
or could require us to acquire costly equipment or to incur other significant
expenses in connection with our business. Although we believe we have made
sufficient capital expenditures to achieve substantial compliance with existing
environmental laws and regulations, future events, including changes in
environmental requirements and the costs associated with complying with any
such requirements, could have a material adverse effect on us. See "Business--
Government Regulation--Environmental Matters."
In addition to environmental regulation, we are also subject to laws
relating to human exposure to crystalline silica. We believe that we materially
comply with governmental requirements for crystalline silica exposure and
emissions and other regulations relating to silica and plan to continue to
comply with these regulations. Several federal and state regulatory
authorities, including the Occupational Safety and Health Administration and
the Mining Safety and Health Administration,
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have indicated that they will propose changes in their regulations regarding
workplace exposure to crystalline silica. We cannot assure you that we will be
able to comply with any new standards that are adopted or that these new
standards will not have a material adverse effect on us by requiring us to
modify our operations or equipment or shut down some of our plants.
Additionally, we cannot assure you that our customers will be able to comply
with any new standards or that any of these new standards will not have a
material adverse effect on our customers by requiring them to shut down old
plants or to relocate plants to locations with less stringent regulations that
are further away from us. Accordingly, we cannot at this time reasonably
estimate our costs of compliance or the timing of any costs associated with any
new standards, or any material adverse effects that any new standards will have
on our customers and, consequently, on us. See "Business--Government
Regulation--Regulation of Silica."
Other Regulations Affecting Mining Activity. In addition to the regulatory
matters described above, the industrial minerals and aggregates industries are
subject to extensive governmental regulation on matters such as permitting and
licensing requirements, plant and wildlife protection, wetlands protection,
reclamation and restoration of mining properties after mining is completed, the
discharge of materials into the environment, surface subsidence from
underground mining and the effects that mining has on groundwater quality and
availability. Our future success depends upon the quantity of our industrial
minerals and aggregates deposits and our ability to extract these deposits
profitably. It is difficult for us to estimate quantities of recoverable
deposits, in part due to future permitting and licensing requirements. We
believe we have obtained all material permits and licenses required to conduct
our present mining operations. However, we will need additional permits and
renewals of permits in the future. We may be required to prepare and present to
governmental authorities data pertaining to the impact that any proposed
exploration or production activities may have upon the environment. New site
approval procedures may require the preparation of archaeological surveys,
endangered species studies and other studies to assess the environmental impact
of new sites. Compliance with these regulatory requirements is expensive,
requires an investment of funds well before the potential producer knows if its
operation will be economically successful and significantly lengthens the time
needed to develop a new site. Furthermore, obtaining or renewing required
permits is sometimes delayed or prevented due to community opposition and other
factors beyond our control. New legal requirements, including those related to
the protection of the environment, could be adopted that could materially
adversely affect our mining operations (including the ability to extract
mineral deposits), our cost structure or our customers' ability to use our
industrial minerals or aggregates products. Finally, we could be adversely
affected if our current provisions for mine reclamation and closure costs were
later determined to be insufficient, or if future costs associated with
reclamation are significantly greater than our current estimates. Accordingly,
there can be no assurance that current or future mining regulation will not
have a material adverse effect on our business or that we will be able to
obtain or renew permits in the future.
The Notes and Note Guarantees Are Contractually Subordinated to Senior Debt
The notes are contractually subordinated in right of payment to all senior
debt of the issuer and the note guarantees are contractually subordinated in
right of payment to all senior debt of the applicable note guarantor. As of
December 31, 1999, the issuer had approximately $135.9 million of senior debt
(excluding unused commitments under the new credit facilities), all of which
was secured debt, and the note guarantors had approximately $1.6 million of
senior debt (excluding their guarantees of the issuer's debt under the new
credit facilities). The indenture permits us to borrow certain additional debt,
which may be senior debt, subject to certain restrictions.
The issuer or the applicable note guarantor may not pay principal, premium
(if any), interest or other amounts on account of the notes or a note guarantee
in the event of a payment default or certain other defaults in respect of
certain senior debt (including debt under the new credit facilities)
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unless that senior debt has been paid in full or the default has been cured or
waived. In addition, in the event of certain other defaults with respect to
that senior debt, the issuer or the applicable note guarantor may not be
permitted to pay any amount on account of the notes or the note guarantees for
a designated period of time. If the issuer or a note guarantor is declared
bankrupt or insolvent, or if there is a payment default under, or an
acceleration of, any senior debt, the assets of the issuer or the applicable
note guarantor, as the case may be, will be available to pay obligations on the
notes or that note guarantor's note guarantee, as applicable, only after the
senior debt of the issuer or the note guarantor has been paid in full. In such
a case, there can be no assurance that there will be sufficient assets
remaining to pay amounts due on all or any of the notes or any note guarantee.
Further, the new credit facilities prohibit us, and our future senior debt
may prohibit us, from purchasing any notes prior to maturity, even though the
indenture requires the issuer to offer to purchase notes in certain
circumstances. If the issuer or a note guarantor makes certain asset sales or
if a change of control occurs when we are prohibited from purchasing notes, the
issuer could ask the lenders under the new credit facilities (or such future
senior debt) for permission to purchase the notes or the issuer could attempt
to refinance the borrowings that contain those prohibitions. If the issuer does
not obtain such a consent to repay those borrowings or is unable to refinance
those borrowings, it would be unable to purchase the notes. The failure to
purchase tendered notes at a time when their purchase is required by the
indenture would constitute an event of default under the indenture, which, in
turn, would constitute a default under the new credit facilities and may
constitute an event of default under our future senior debt. In those
circumstances, the subordination provisions in the indenture restrict payments
to you.
Our Holding Company Structure Causes Us To Rely on Funds from Our Subsidiaries
The issuer is a holding company and as such it conducts substantially all
its operations through its subsidiaries. As a holding company, the issuer is
dependent upon dividends or other intercompany transfers of funds from its
subsidiaries to meet its debt service and other obligations. Generally,
creditors of a subsidiary will have a superior claim to the assets and earnings
of that subsidiary than the claims of creditors of its parent company, except
to the extent the claims of the parent's creditors are guaranteed by the
subsidiary.
Although the note guarantees provide the holders of the notes with a direct
claim against the assets of the note guarantors, enforcement of the note
guarantees against any note guarantor may be subject to legal challenge in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
that note guarantor, and would be subject to certain defenses available to
guarantors generally. See "--The Notes and the Note Guarantees Are Subject to
Fraudulent Conveyance and Preferential Transfer Laws." To the extent that a
note guarantee is not enforceable, the notes would be effectively subordinated
to all liabilities (including trade payables) and preferred stock of the
relevant note guarantor. In any event, the notes will be effectively
subordinated to all liabilities (including trade payables) and preferred stock
of the issuer's Canadian subsidiary, which will not be a guarantor of the notes
unless it guarantees any indebtedness (other than indebtedness of a Restricted
Subsidiary that is not a note guarantor) in the future. This Canadian
subsidiary is an inactive company that has an immaterial amount of assets and
liabilities. As of December 31, 1999, the note guarantors had total liabilities
of $483.4 million (excluding the note guarantees and liabilities owed to the
issuer).
In addition, the payment of dividends and other payments to the issuer by
its subsidiaries may be restricted by, among other things, applicable corporate
and other laws and regulations and agreements of the subsidiaries. Although the
indenture will limit the ability of those subsidiaries to enter into consensual
restrictions on their ability to pay dividends and make other payments, those
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limitations are subject to a number of significant qualifications and
exceptions. See "Description of the New Notes--Certain Covenants--Limitations
on Restrictions on Distributions from Restricted Subsidiaries."
The Notes Are Unsecured Obligations, While the New Credit Facilities Are
Secured
In addition to being contractually subordinated to all existing and future
senior debt, our obligations under the notes are unsecured while our
obligations under the new credit facilities are secured by a security interest
in substantially all the tangible and intangible assets of BMAC Holdings, the
issuer and each existing and subsequently acquired or organized domestic
subsidiary of the issuer, including a pledge of (a) all the capital stock of
the issuer, and (b) all the capital stock held by BMAC Holdings, the issuer and
any domestic subsidiary of the issuer in each of the issuer's existing or
subsequently acquired or organized domestic subsidiaries and 65% of the capital
stock held by those entities in each of the issuer's existing or subsequently
acquired or organized foreign subsidiaries. If we are declared bankrupt or
insolvent or if we default under the new credit facilities, the lenders could
declare all of the funds borrowed thereunder, together with accrued interest,
immediately due and payable. If we were unable to repay that debt, the lenders
could foreclose on the pledged stock of our subsidiaries and on the assets in
which they have been granted a security interest, in each case to your
exclusion, even if an event of default exists under the indenture at that time.
Furthermore, under the note guarantees, if all shares of any note guarantor are
sold to persons pursuant to an enforcement of the pledge of shares in that note
guarantor for the benefit of the lenders under the new credit facilities, then
the applicable note guarantor will be released from its note guarantee
automatically and immediately upon such sale. See "Description of the New
Credit Facilities."
Our Aggregates Business Depends Heavily on Government Funding of Highways
Many of our aggregates customers depend substantially on government funding
of highway construction and maintenance and other infrastructure projects.
Although the recently adopted TEA-21 program provides for increased federal
funding for highways and related infrastructure improvements through 2003,
there can be no assurance that any successor program adopted by Congress, if
one is adopted at all, will provide for equivalent or increased government
funding. Furthermore, although TEA-21 provides for federal funding through
2003, state and municipal governmental entities need to provide for matching
funds in order to obtain federal funding under TEA-21, and state and municipal
governmental entities have separate approval processes relating to the matching
of any federal funding for highways that have not been completed. Accordingly,
a decrease in federal funding of highways and related infrastructure
improvements after the expiration of the TEA-21 program, or a failure of states
or municipalities to match the federal funding to be provided by TEA-21, could
adversely affect our revenue and profits in our aggregates business. In
addition, unlike some of our competitors, we currently sell our aggregates
products almost entirely in only two states, Pennsylvania and New Jersey. As a
result, we are more vulnerable than our more geographically diverse competitors
to decreases in state government highway spending in those states.
We Depend on Good Labor Relations
As of March 1, 2000, we had approximately 1,048 employees, of which
approximately 527 were represented by 12 local unions under 12 union contracts.
These union contracts have remaining durations ranging from one to five years.
Over the last 10 years, we have been involved in numerous labor negotiations,
only two of which have resulted in a work disruption at two of our 25
facilities. During these disruptions, the operations of the facilities and the
ability to serve our customers were not materially affected. Although we
consider our current relations with our employees to be good, if
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we do not maintain these good relations, or if a work disruption were to occur,
we could suffer a material adverse effect.
Our Expansion Strategy May Adversely Affect Our Operations
We intend to actively pursue acquisition opportunities, some of which could
be material. We may finance future acquisitions through internally generated
funds, bank borrowings, public offerings or private placements of equity or
debt securities, or a combination of these sources. We might not be able to
make acquisitions on terms that are favorable to us, or at all. If we do
complete any future acquisitions, we will face many risks, including the
possible inability to integrate an acquired business into our operations,
diversion of our management's attention, failure to retain key acquired
personnel and unanticipated problems or liabilities, some or all of which could
have a material adverse effect on us. Acquisitions could place a significant
strain on management, operating, financial and other resources and increased
demands on our systems and controls.
Control of USS Holdings; Stockholders Agreement
The holders of all of the capital stock of USS Holdings are party to a
stockholders agreement. Subject to certain exceptions, the stockholders
agreement provides that the holders of USS Holdings' capital stock will elect a
board of directors comprised of two directors designated by D. George Harris, a
principal of DGHA, one director designated by Anthony J. Petrocelli, a
principal of DGHA, three directors designated by an affiliate of CCP, and the
President of USS Holdings (currently Richard E. Goodell (who is not affiliated
with DGHA or CCP)). In addition, upon the occurrence of certain "trigger
events" described in the stockholders agreement, the CCP affiliate will have
the right to appoint two additional directors to the board of USS Holdings,
thus giving it the right to appoint five of the nine directors of USS Holdings.
The interests of these stockholders may conflict with your interests as a
holder of the notes. See "Security Ownership of Certain Beneficial Owners and
Management--The Stockholders Agreement."
We May Be Unable To Purchase Your Notes upon a Change in Control
Upon a change of control, the issuer will be required to offer to purchase
all of the notes then outstanding at 101% of the principal amount thereof plus
accrued and unpaid interest to the date of purchase. If a change of control
were to occur, the issuer may not have sufficient funds to pay the purchase
price for the outstanding notes tendered, and the issuer expects that it would
require third-party financing; however, the issuer may not be able to obtain
financing on favorable terms, if at all. In addition, the new credit facilities
restrict our ability to purchase the notes, including pursuant to an offer in
connection with a change of control. A change of control under the indenture
may also result in an event of default under the new credit facilities and may
cause the acceleration of other senior debt, if any, in which case the
subordination provisions of the notes would require payment in full of the new
credit facilities and any other senior debt before purchase of the notes. Our
future debt may also contain restrictions on our ability to repay the notes
upon certain events or transactions that could constitute a change of control
under the indenture. The inability to repay senior debt upon a change of
control or to purchase all of the tendered notes would each constitute an event
of default under the indenture. See "--The Notes and the Note Guarantees Are
Contractually Subordinated to Senior Debt," "Description of the New Notes--
Change of Control" and "Description of the New Credit Facilities."
The change of control provisions in the indenture will not necessarily
afford you protection in the event of a highly leveraged transaction, including
a reorganization, restructuring, merger or other similar transaction involving
us, that may adversely affect you. This type of transaction may not involve a
change in voting power or beneficial ownership, or, even if it does, may not
involve a change of the magnitude required under the definition of change of
control in the indenture to trigger
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those provisions. Except as described under "Description of the New Notes--
Change of Control," the indenture does not contain provisions that permit the
holders of the notes to require us to purchase or redeem the notes in the event
of a takeover, recapitalization or similar transaction.
The Notes and the Note Guarantees Are Subject to Fraudulent Conveyance and
Preferential Transfer Laws
The incurrence of debt by the issuer or the note guarantors, such as the
notes or the note guarantees, may be subject to review under federal bankruptcy
law or relevant state fraudulent conveyance laws if a bankruptcy case or
lawsuit is commenced by or on behalf of unpaid creditors. Under these laws, if
in such case or lawsuit a court were to find that, at the time the issuer or
any note guarantor incurred debt (including debt under the notes or the note
guarantees):
. the issuer or any note guarantor, as applicable, incurred that debt with
the intent of hindering, delaying or defrauding current or future
creditors; or
. the issuer or any note guarantor, as applicable, received less than
reasonably equivalent value or fair consideration for incurring that
debt, and
. was insolvent or was rendered insolvent by reason of any of the
transactions,
. was engaged, or about to engage, in a business or transaction for which
the assets remaining with the issuer or that note guarantor constituted
unreasonably small capital to carry on our or its business,
. intended to incur, or believed that the issuer or that note guarantor
would incur, debts beyond its ability to pay as those debts matured (as
all of the foregoing terms are defined in or interpreted under the
relevant fraudulent transfer or conveyance statutes), or
. was a defendant in an action for money damages, or had a judgment for
money damages docketed against the issuer or that note guarantor (in
either case, if, after final judgment, the judgment is unsatisfied),
then that court could avoid or subordinate the amounts owing under the notes or
the note guarantees to the issuer's or that note guarantor's existing and
future debt and take other actions detrimental to you.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, a debtor would be considered insolvent if,
at the time that debtor incurred the debt, either (a) the sum of its debts
(including contingent liabilities) is greater than its assets, at fair
valuation, or (b) the present fair saleable value of its assets is less than
the amount required to pay the probable liability on its total existing debts
and liabilities (including contingent liabilities) as they become absolute and
matured. There can be no assurance as to what standards a court would use to
determine whether the issuer or any note guarantor were solvent at the relevant
time, or whether, whatever standard was used, the notes would not be avoided or
further subordinated on another of the grounds set forth above. In rendering
their opinions in connection with the Transactions, our counsel will not
express any opinion as to the applicability of federal or state fraudulent
transfer and conveyance laws.
If You Do Not Properly Tender Your Old Notes, You Will Continue To Hold
Unregistered Old Notes and Your Ability To Transfer Old Notes Will Be Adversely
Affected
We will only issue new notes in exchange for old notes that are timely
received by the exchange agent together with all required documents, including
a properly completed and signed letter of transmittal, as described in this
prospectus. Therefore, you should allow sufficient time to ensure timely
delivery of the old notes and you should carefully follow the instructions on
how to tender your
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old notes. Neither we nor the exchange agent are required to inform you of any
defects or irregularities with respect to your tender of the old notes. If you
do not tender your old notes or if we do not accept your old notes because you
did not tender your old notes properly, then, after we consummate the exchange
offer, you will continue to hold old notes that are subject to the existing
transfer restrictions and, except in certain limited circumstances, you will no
longer have any registration rights or be entitled to any liquidated damages
with respect to the old notes. In addition:
. if you tender your old notes for the purpose of participating in a
distribution of the new notes, you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act
of 1933 in connection with any secondary resale of the new notes, and
. if you are a broker-dealer that receives new notes for your own account
in exchange for old notes that you acquired as a result of market-making
activities or any other trading activities, you will be required to
acknowledge that you will deliver a prospectus in connection with any
resale of those new notes.
We have agreed that, for a period of up to 180 days after the exchange offer is
consummated, we will make this prospectus available to any broker-dealer for
use in connection with any such resale.
After the exchange offer is consummated, if you continue to hold any old
notes, you may have difficulty selling them because there will be less old
notes outstanding. In addition, if a large amount of old notes are not tendered
or are tendered improperly, the limited amount of new notes that would be
issued and outstanding after we consummate the exchange offer could lower the
market price of those new notes.
You Cannot Be Sure that an Active Trading Market Will Develop for the New Notes
The new notes are a new issue of securities with no established trading
market and will not be listed on any securities exchange. The liquidity of the
trading market in the new notes, and the market price quoted for the new notes,
may be adversely affected by changes in the overall market for high yield
securities and by changes in our financial performance or prospects or in the
prospects for companies in our industry generally. As a result, you cannot be
sure that an active trading market will develop for the new notes.
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
We have entered into an exchange and registration rights agreement with the
initial purchasers of the old notes in which we agreed, under certain
circumstances, to file a registration statement relating to an offer to
exchange the old notes for the new notes. The registration statement of which
this prospectus forms a part was filed in compliance with this obligation. We
also agreed to use our reasonable best efforts to cause the exchange offer to
be consummated within 240 days following the original issuance of the old
notes. The new notes will have terms substantially identical to the old notes
except that the new notes will not contain terms with respect to transfer
restrictions, registration rights and liquidated damages for failure to observe
certain obligations in the exchange and registration rights agreement. The old
notes were issued on October 1, 1999.
Under the circumstances set forth below, we will use our reasonable best
efforts to cause the Securities and Exchange Commission to declare effective a
shelf registration statement with respect
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to the resale of the old notes and keep the shelf registration statement
effective for up to two years after the effective date of the shelf
registration statement. These circumstances include:
. if pursuant to any changes in law, Securities and Exchange Commission
rules or regulations or applicable interpretations thereof by the staff
of the Securities and Exchange Commission do not permit us to effect the
exchange offer as contemplated by the exchange and registration rights
agreement;
. if any old notes validly tendered in the exchange offer are not
exchanged for new notes within 240 days after the original issue of the
old notes;
. if the initial purchaser of the old notes so requests (but only with
respect to any old notes not eligible to be exchanged for new notes in
the exchange offer); or
. if any holder of the old notes notifies us that it is not permitted to
participate in the exchange offer or would not receive fully tradable
new notes pursuant to the exchange offer.
Each holder of old notes that wishes to exchange old notes for transferable
new notes in the exchange offer will be required to make the following
representations:
. any new notes will be acquired in the ordinary course of its business;
. that holder has no arrangement or understanding with any person to
participate in the distribution of the new notes; and
. that holder is not our "affiliate," as defined in Rule 405 of the
Securities Act of 1933, or, if it is an affiliate, that it will comply
with the applicable registration and prospectus delivery requirements of
the Securities Act of 1933.
Resale of New Notes
Based on interpretations of the Securities and Exchange Commission staff set
forth in no-action letters issued to unrelated third parties, we believe that
new notes issued in the exchange offer in exchange for old notes may be offered
for resale, resold and otherwise transferred by any new note holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act of 1933, if:
. that holder is not an "affiliate" of ours within the meaning of Rule 405
under the Securities Act of 1933;
. that new notes are acquired in the ordinary course of the holder's
business; and
. the holder does not intend to participate in the distribution of those
new notes.
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the new notes:
. cannot rely on the position of the staff of the Securities and Exchange
Commission enunciated in Exxon Capital Holdings Corporation, Morgan
Stanley & Co. Incorporated or similar no-action letters; and
. must, in the absence of an exemption, comply with the registration and
prospectus delivery requirements of the Securities Act of 1933 in
connection with a secondary resale transaction of the new notes.
This prospectus may be used for an offer to resell, for the resale or for
other re-transfer of new notes only as specifically set forth in this
prospectus. With regard to broker-dealers, only broker-dealers that acquired
the old notes as a result of market-making activities or other trading
activities
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may participate in the exchange offer. Each broker-dealer that receives new
notes for its own account in exchange for old notes, where those old notes were
acquired by that broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. These broker-dealers may use this
prospectus for this purpose. Please read the "Plan of Distribution" section of
this prospectus for more details regarding the transfer of new notes.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any old notes
properly tendered and not properly withdrawn on or prior to the expiration
date. We will issue $1,000 principal amount of new notes in exchange for each
$1,000 principal amount of old notes surrendered under the exchange offer. Old
notes may be tendered only in integral multiples of $1,000.
The form and terms of the new notes will be substantially identical to the
form and terms of the old notes except the new notes will be registered under
the Securities Act of 1933, will not bear legends restricting their transfer
and will not provide for any liquidated damages upon failure of the issuer to
fulfill its obligations under the exchange and registration rights agreement to
file, and cause to be effective, a registration statement. The new notes will
evidence the same debt as the old notes. The new notes will be issued under and
entitled to the benefits of the same indenture that authorized the issuance of
the old notes. Consequently, both series will be treated as a single class of
debt securities under that indenture.
As of the date of this prospectus, $150.0 million aggregate principal amount
of the old notes are outstanding. This prospectus and the letter of transmittal
are being sent to all registered holders of old notes. There will be no fixed
record date for determining registered holders of old notes entitled to
participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions of
the exchange and registration rights agreement, the applicable requirements of
the Securities Act of 1933 and the Securities Exchange Act of 1934 and the
rules and regulations of the Securities and Exchange Commission. Old notes that
are not tendered for exchange in the exchange offer will remain outstanding and
continue to accrue interest and will be entitled to the rights and benefits
those holders have under the indenture relating to the old notes.
We will be deemed to have accepted for exchange properly tendered old notes
when we have given oral or written notice of the acceptance to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purposes of receiving the new notes from the issuer and delivering exchange
notes to those holders. Subject to the terms of the exchange and registration
rights agreement, we expressly reserve the right to amend or terminate the
exchange offer, and not to accept for exchange any old notes not previously
accepted for exchange, upon the occurrence of any of the conditions specified
below under the caption "--Certain Conditions to the Exchange Offer."
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees, or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of old
notes. We will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the exchange offer. It is important
that you read the section labeled "--Fees and Expenses" below for more details
regarding fees and expenses incurred in the exchange offer.
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Expiration Date; Extensions; Amendments
The exchange offer will expire at 5:00 p.m., New York City time on ,
2000, unless we extend it in our sole discretion.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
old notes of the extension no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
. to delay accepting for exchange any old notes;
. to extend the exchange offer or to terminate the exchange offer and to
refuse to accept old notes not previously accepted if any of the
conditions set forth below under "--Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral or written notice of such
delay, extension or termination to the exchange agent; or
. subject to the terms of the exchange and registration rights agreement,
to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of old notes. If we amend the exchange offer in a manner
that we determine to constitute a material change, we will promptly disclose
that amendment in a manner reasonably calculated to inform the holders of old
notes of the amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the exchange offer, we will have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to a financial news service.
Certain Conditions to the Exchange Offer
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any new notes for, any old notes, and we may
terminate the exchange offer as provided in this prospectus before accepting
any old notes for exchange if in our reasonable judgment:
. the new notes to be received will not be tradable by the holder without
restriction under the Securities Act of 1933 and without material
restrictions under the blue sky or securities laws of substantially all
of the states of the United States;
. the exchange offer, or the making of any exchange by a holder of old
notes, would violate applicable law or any applicable interpretation of
the staff of the SEC; or
. any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer.
In addition, we will not be obligated to accept for exchange the old notes
of any holder that has not made:
. the representations described under "--Purpose and Effect of the
Exchange Offer", "--Procedures for Tendering" and "Plan of
Distribution", and
. such other representations as may be reasonably necessary under
applicable Securities and Exchange Commission rules, regulations or
interpretations to make available to us an appropriate form for
registration of the new notes under the Securities Act of 1933.
28
<PAGE>
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we
may delay acceptance of any old notes by giving oral or written notice of the
extension to the registered holders of the old notes. During any such
extensions, all old notes previously tendered will remain subject to the
exchange offer, and we may accept them for exchange unless they have been
previously withdrawn. We will return any old notes that we do not accept for
exchange for any reason without expense to their tendering holder as promptly
as practicable after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer, and
to reject for exchange any old notes not previously accepted for exchange, upon
the occurrence of any of the conditions of the exchange offer specified above.
We will give oral or written notice of any extension, amendment, non-acceptance
or termination to the registered holders of the old notes as promptly as
practicable. In the case of any extension, notice will be issued no later than
9:00 a.m., New York City time, on the business day after the previously
scheduled expiration date.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the foregoing rights, that failure will not constitute a
waiver of that right. Each such right will be deemed an ongoing right that we
may assert at any time or at various times.
In addition, we will not accept for exchange any old notes tendered, and
will not issue new notes in exchange for any of those old notes, if at that
time any stop order is threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part or the qualification of
the indenture under the Trust Indenture Act of 1939.
Procedures for Tendering
Only a holder of old notes may tender those old notes in the exchange offer.
To tender in the exchange offer, a holder must:
. complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
the letter of transmittal or facsimile to the exchange agent on or prior
to the expiration date;
. comply with DTC's Automated Tender Offer Program procedures described
below; or
. comply with the guaranteed delivery procedures described below.
In addition, unless the holder complies with the guaranteed delivery
procedures described below, either:
. the exchange agent must receive old notes along with the letter of
transmittal; or
. the exchange agent must receive, on or prior to the expiration date, a
timely confirmation of book-entry transfer of those old notes into the
exchange agent's account at DTC according to the procedures for book-
entry transfer described below or a properly transmitted agent's
message.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "--Exchange Agent" on or prior to the expiration
date.
29
<PAGE>
The tender by a holder that is not withdrawn on or prior to the expiration
date will constitute an agreement between that holder and us in accordance with
the terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
The method of delivery of old notes, the letter of transmittal and all other
required documents to the exchange agent is at the holder's election and risk.
Rather than mail these items, we recommend that holders use an overnight or
hand delivery service. In all cases, holders should allow sufficient time to
assure delivery to the exchange agent on or prior to the expiration date.
Holders should not send the letter of transmittal or old notes to us. Holders
may request their respective brokers, dealers, commercial banks, trust
companies or other nominees to effect the above transactions for them.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct it to tender
on the owners' behalf. If that beneficial owner wishes to tender on its own
behalf, it must, prior to completing and executing the letter of transmittal
and delivering its old notes; either:
. make appropriate arrangements to register ownership of the old notes in
that owner's name; or
. obtain a properly completed bond power from the registered holder of old
notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or another "eligible institution" within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended, unless the old
note tendered pursuant thereto are tendered:
. by a registered holder who has not completed the box entitled "Special
Exchange Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
. for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the registered
holder of any old notes listed on the old notes, those old notes must be
endorsed or accompanied by a properly completed bond power. The bond power must
be signed by the registered holder as the registered holder's name appears on
the old notes and an eligible institution must guarantee the signature on the
bond power.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, those
persons should so indicate when signing. Unless waived by us, they should also
submit evidence satisfactory to us of their authority to deliver the letter of
transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the old notes to the exchange agent
in accordance with its procedures for transfer. DTC will then send an agent's
message to the exchange agent. The term "agent's
30
<PAGE>
message" means a message transmitted by DTC, received by the exchange agent and
forming part of the book-entry confirmation, to the effect that:
. DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering old notes that are the
subject of such book-entry confirmation;
. the participant has received and agrees to be bound by the terms of the
letter of transmittal (or, in the case of an agent's message relating to
guaranteed delivery, that the participant has received and agrees to be
bound by the applicable notice of guaranteed delivery); and
. the agreement may be enforced against that participant.
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt), acceptance of tendered old notes
and withdrawal of tendered old notes. Our determination will be final and
binding. We reserve the absolute right to reject any old notes not properly
tendered or any old notes the acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular old notes. Our
interpretation of the terms and conditions of the exchange offer (including the
instructions in the letter of transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of old notes must be cured within such time as we shall determine.
Although we intend to notify holders of defects or irregularities with respect
to tenders of old notes, neither we, the exchange agent nor any other person
will incur any liability for failure to give that notification. Tenders of old
notes will not be deemed made until those defects or irregularities have been
cured or waived. Any old notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned to the exchange agent without cost to the
tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
In all cases, we will issue new notes for old notes that we have accepted
for exchange under the exchange offer only after the exchange agent timely
receives:
. old notes or a timely book-entry confirmation of those old notes into
the exchange agent's account at DTC; and
. a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
By signing the letter of transmittal or transmitting an acceptance of the
exchange offer electronically through DTC, each tendering holder of old notes
will represent to us that, among other things:
. any new notes that the holder receives will be acquired in the ordinary
course of its business;
. the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the new notes;
. if the holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the new notes;
. if the holder is a broker-dealer that will receive new notes for its own
account in exchange for old notes that were acquired as a result of
market-making activities, that it will deliver a prospectus, as required
by law, in connection with any resale of those new notes; and
. the holder is not an "affiliate", as defined in Rule 405 of the
Securities Act of 1933, of the issuer or, if the holder is an affiliate,
it will comply with any applicable registration and prospectus delivery
requirements of the Securities Act of 1933.
31
<PAGE>
Book-Entry Transfer
The exchange agent will establish an account with respect to the old notes
at DTC for purposes of the exchange offer promptly after the date of this
prospectus. Any financial institution participant in DTC's system may make
book-entry delivery of old notes by causing DTC to transfer those old notes
into the exchange agent's account at DTC in accordance with DTC's procedures
for transfer. Holders of old notes who are unable to deliver confirmation of
the book-entry tender of their old notes into the exchange agent's account at
DTC or all other documents of transmittal to the exchange agent on or prior to
the expiration date must tender their old notes according to the guaranteed
delivery procedures described below.
Guaranteed Delivery Procedures
Holders wishing to tender their old notes but whose old notes are not
immediately available or who cannot deliver their old notes, the letter of
transmittal or any other required documents to the exchange agent or comply
with the applicable procedures under DTC's Automated Tender Offer Program on or
prior to the expiration date may tender if:
. the tender is made through an eligible institution;
. on or prior to the expiration date, the exchange agent receives from the
eligible institution either a properly completed and duly executed
notice of guaranteed delivery (by facsimile transmission, mail or hand
delivery) or a properly transmitted agent's message and notice of
guaranteed delivery:
. setting forth the name and address of the holder, the registered
number(s) of those old notes and the principal amount of old notes
tendered;
. stating that the tender is being made thereby; and
. guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the letter of transmittal (or facsimile
thereof), together with the old notes or a book-entry confirmation, and
any other documents required by the letter of transmittal will be
deposited by the eligible institution with the exchange agent;
. the exchange agent receives the properly completed and executed letter
of transmittal (or facsimile thereof), as well as all tendered old notes
in proper form for transfer or a book-entry confirmation, and all other
documents required by the letter of transmittal, within three New York
Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, holders of old notes may
withdraw their tenders at any time on or prior to the expiration date.
For your withdrawal to be effective:
. the exchange agent must receive a written notice (which may be by
telegram, telex, facsimile transmission or letter) of withdrawal at one
of the addresses set forth below under "--Exchange Agent;" or
. holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
32
<PAGE>
Any such notice of withdrawal must:
. specify the name of the person who tendered the old notes to be
withdrawn;
. identify the old notes to be withdrawn (including the principal amount
of those old notes); and
. where certificates for old notes have been transmitted, specify the name
in which those old notes were registered, if different from that of the
withdrawing holder.
If certificates for old notes have been delivered or otherwise identified to
the exchange agent, then, prior to the release of those certificates, the
withdrawing holder must also submit:
. the serial numbers of the particular certificates to be withdrawn; and
. a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless the holder is an eligible institution.
If old notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of DTC. We will determine all questions as
to the validity, form and eligibility (including time of receipt) of those
notices, and our determination shall be final and binding on all parties. We
will deem any old notes so withdrawn not to have been validly tendered for
exchange for purposes of the exchange offer. Any old notes that have been
tendered for exchange but that are not exchanged for any reason will be
returned to their holder without cost to the holder (or, in the case of old
notes tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described above, those old notes will be credited
to an account maintained with DTC for old notes specified by the holder) as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn old notes may be re-tendered by following
one of the procedures described under "--Procedures for Tendering" above at any
time on or prior to the expiration date.
Exchange Agent
The Bank of New York has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent addressed
as follows:
For Overnight Delivery, Delivery by Hand or Delivery by Registered or
Certified Mail:
The Bank of New York
101 Barclay Street
New York, NY 10286
Attn: Kin Lau, Reorg--7 east
By Facsimile Transmission (for eligible institutions only):
(212) 815-6339
Confirm facsimile by telephone only:
(212) 815-3750
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
33
<PAGE>
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitations by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
Our expenses in connection with the exchange offer include:
.Securities and Exchange Commission registration fees;
.fees and expenses of the exchange agent and the trustee;
.accounting and legal fees and printing costs; and
.related fees and expenses.
Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of old
notes under the exchange offer. The tendering holder, however, will be required
to pay any transfer taxes (whether imposed on the registered holder or any
other person) if:
.certificates representing old notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of old notes
tendered;
.tendered old notes are registered in the name of any person other than the
person signing the letter of transmittal; or
.a transfer tax is imposed for any reason other than the exchange of old
notes under the exchange offer.
If satisfactory evidence of payment of those taxes is not submitted with the
letter of transmittal, the amount of those transfer taxes will be billed to
that tendering holder.
Holders who tender their old notes for exchange will not be required to pay
any transfer taxes. However, holders who instruct the issuer to register new
notes in the name of, or request that old notes not tendered or not accepted in
the exchange offer be returned to, a person other than the registered tendering
holder will be required to pay any applicable transfer tax.
Consequences of Failure to Exchange
Holders of old notes who do not exchange their old notes for new notes under
the exchange offer will remain subject to the restrictions on transfer
applicable to the old notes:
.as set forth in the legend printed on the old notes as a consequence of
the issuance of the old notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act of 1933 and applicable state securities laws; and
.otherwise as set forth in the offering memorandum distributed in
connection with the private offering of the old notes.
In general, you may not offer or sell the old notes unless they are
registered under the Securities Act of 1933, or if the offer or sale is exempt
from registration under, or not subject to, the Securities
34
<PAGE>
Act of 1933 and applicable state securities laws. Except as required by the
exchange and registration rights agreement, we do not intend to register
resales of the old notes under the Securities Act of 1933. Based on
interpretations of the Securities and Exchange Commission staff, new notes
issued pursuant to the exchange offer may be offered for resale, resold or
otherwise transferred by their holders (other than any holder that is our
"affiliate" within the meaning of Rule 405 under the Securities Act of 1933)
without compliance with the registration and prospectus delivery provisions of
the Securities Act of 1933, provided that the holders acquired the new notes in
the ordinary course of the holders' business and the holders have no
arrangement or understanding with respect to the distribution of the new notes
to be acquired in the exchange offer. Any holder who tenders in the exchange
offer for the purpose of participating in a distribution of the new notes:
.could not rely on the applicable interpretations of the Securities and
Exchange Commission; and
.in the absence of an exemption, must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933 in
connection with any secondary resale of the new notes.
After the exchange offer is consummated, if you continue to hold any old
notes, you may have difficulty selling them because there will be less old
notes outstanding. In addition, if a large amount of old notes are not tendered
or are tendered improperly, the limited amount of new notes that would be
issued and outstanding after we consummate the exchange offer could lower the
market price of those new notes.
Accounting Treatment
We will record the new notes in our accounting records at the same carrying
value as the old notes, as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes in connection with the exchange offer. We will amortize the expenses
of the exchange offer over the life of the notes.
Other
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered old notes in open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. We have no present plans to acquire any old notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old notes.
35
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the new notes. In
consideration for issuing the new notes as contemplated in this prospectus, we
will receive in exchange old notes in like principal amount, which will be
cancelled and as such will not result in any increase in our indebtedness. The
proceeds from the sale of the old notes were approximately $150.0 million. We
used these proceeds, together with borrowings under the new credit facilities
($140.0 million) and proceeds from the cash equity contribution ($35.0
million), to finance the Commercial Stone acquisition ($139.0 million), repay
certain debt ($167.2 million) and pay related fees and expenses ($18.8
million).
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999.
This information should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
At December 31, 1999
--------------------
(Dollars in
Millions)
<S> <C>
Cash................................................ $ 13.6
======
Debt (including current maturities):
New credit facilities(1):
Tranche A term loan facility.................... $ 41.1
Tranche B term loan facility.................... 94.8
Other debt........................................ 1.6
Notes offered hereby.............................. 150.0
------
Total debt...................................... 287.5
Stockholder's equity:
Common stock...................................... --
Additional paid-in capital........................ 81.4
Retained earnings (deficit)....................... (17.0)
------
Total stockholder's equity...................... 64.4
------
Total capitalization.......................... $351.9
======
</TABLE>
- --------
(1) The tranche A term loan facility provided for a tranche of loans
denominated in Canadian dollars in an amount equal to $2.0 million, which
was borrowed on the closing date by George F. Pettinos (Canada) Limited. In
connection with the sale by us of George F. Pettinos (Canada) Limited on
February 29, 2000, we repaid this portion of the tranche A term loan
facility. In addition, the revolving credit facility provides for
borrowings of up to $50.0 million with a sublimit of $12.0 million for
letters of credit and a sublimit of $3.0 million for swingline loans. We
also have availability under the acquisition term loan facility of up to
$40.0 million, subject to, among other things, meeting a leverage ratio
test. See "Description of the New Credit Facilities."
36
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data has been
prepared by applying pro forma adjustments to our consolidated financial
statements included elsewhere in this prospectus. The unaudited pro forma
consolidated statement of operations for the year ended December 31, 1999 gives
effect to the Transactions and the acquisition of the Morie Assets as if they
had occurred on January 1, 1999.
The Commercial Stone acquisition was accounted for using the purchase method
of accounting. The purchase price was allocated to the assets acquired and
liabilities assumed based on their fair values. The excess of the purchase
price over the adjusted book value of the net assets of Commercial Stone was
allocated to mineral deposits and goodwill.
The historical financial data for the acquisition of the Morie Assets was
derived from unaudited financial statements. The acquisition of the Morie
Assets was accounted for using the purchase method of accounting pursuant to
which the purchase price of the acquisition was allocated to the assets
acquired and liabilities assumed based on their estimated fair values. The
excess of the purchase price over the adjusted book value of the net assets of
the Morie Assets was allocated to goodwill.
The pro forma adjustments, as described in the notes to the unaudited pro
forma consolidated statement of operations, are estimates based on currently
available information and certain adjustments that management believes are
reasonable. The unaudited pro forma consolidated financial data is presented
for informational purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred had the
Transactions or the acquisition of the Morie Assets been consummated on or as
of the date indicated nor is it necessarily indicative of future operating
results or financial position. The unaudited pro forma consolidated financial
data should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the notes thereto
included elsewhere in this prospectus.
37
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY
(formerly USS Intermediate Holdco, Inc.)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Historical
Better Pro Forma
Minerals & Historical Historical Adjustments
Aggregates Morie Commercial for the Pro
Company (1) Assets (1) Stone (1) Transactions Forma
----------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Net sales............... $209,075 $3,548 $35,430 $ -- $248,053
Cost of goods sold...... 140,244 2,820 23,490 (463)(2) 166,091
Depreciation, depletion
and amortization....... 28,481 441 2,444 2,840 (3) 34,206
Selling, general and
administrative......... 21,843 -- 2,741 (1,147)(4) 23,437
-------- ------ ------- ------- --------
Operating income
(loss)............... 18,507 287 6,755 (1,230) 24,319
Interest expense........ 19,590 -- 185 14,930 (5) 34,705
Accretion of preferred
stock warrants......... 56 -- -- -- 56
Other income, net of
interest income........ (2,171) (5) (489) -- (2,665)
-------- ------ ------- ------- --------
(Loss) income before
income taxes......... 1,032 292 7,059 (16,160) (7,777)
Benefit for income
taxes.................. (2,714) 120 2,466 (6,626)(6) (6,754)
-------- ------ ------- ------- --------
Net income (loss)
before extraordinary
loss................. $ 3,746 $ 172 $ 4,593 $(9,534) $ (1,023)
======== ====== ======= ======= ========
</TABLE>
See Notes to the Unaudited Pro Forma Consolidated Statement of Operations.
38
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(1) The historical statement of operations of the Company and the businesses
acquired for the year ended December 31, 1999 and the respective periods
prior to the date of acquisition by the Company were derived from the
consolidated audited financial statements of the Company that are included
elsewhere in this prospectus, the unaudited interim financial statements of
the Morie Assets for the period January 1, 1999 to April 8, 1999 and the
unaudited combined financial statements of Commercial Stone and CATS for
the nine months ended September 30, 1999.
(2) Commercial Stone historically paid a family trust of the shareholders of
Commercial Stone an annual royalty fee equal to 6% of the average selling
price of the total stone mined from the 1,000 acre property owned by the
trust. The annual royalty fee will not continue following the Commercial
Stone acquisition as the Company will own the property.
(3) The adjustment reflects the estimated increase in depreciation, depletion
and amortization expense after giving effect to the purchase accounting
adjustments for the difference between historical cost and estimated fair
value and useful lives of property, plant and equipment and other
intangible assets for the Morie Assets and the Commercial Stone acquisition
as follows:
<TABLE>
<S> <C>
Depreciation and depletion of property, plant and equipment
(a)............................................................ $2,373
Amortization of other intangible assets (b)..................... 467
------
Net adjustment.................................................. $2,840
======
</TABLE>
--------
(a) Depreciation of plant and equipment is computed using the straight-line
method over the estimated useful lives of the assets, ranging from 3 to
15 years. Depletion is computed based on units of production for the
properties. The adjustment is the result of purchase accounting
adjustments made in connection with the acquisition of the Morie Assets
and Commercial Stone.
(b) Represents the amortization of goodwill over 15 years associated with
the Morie Assets and Commercial Stone.
(4) The adjustment represents the reduction of salary expenses paid to former
principal owners of Commercial Stone and CATS, which expenses were reduced
to the level in effect subsequent to the acquisition by the Company. Also,
prior to the consummation of the Transactions, DGHA conducted certain of
its operations as a subsidiary of the Company. As a result, the acquisition
fees payable to DGHA under the Management Services Agreement were expensed.
Upon consummation of the Transactions, DGHA became an unconsolidated
entity. The adjustment eliminates the acquisition fees paid (which would
have been capitalized and not expensed had DGHA not conducted operations as
one of our subsidiaries), net of increased management fees expected to be
paid upon consummation of the Transactions. See "Certain Relationships and
Related Transactions--Management Services Agreement."
<TABLE>
<S> <C>
Commercial Stone salary expense and employee bonuses............ $ (520)
DGHA fees....................................................... (627)
-------
Total adjustment................................................ $(1,147)
=======
</TABLE>
39
<PAGE>
(5) The adjustment reflects (i) interest expense associated with borrowings
under the new credit facilities and the notes, (ii) amortization of the
related deferred financing fees and (iii) the elimination of the Company's
historical interest expense and related deferred financing fees after
giving effect to the $35.0 million equity contribution made on October 1,
1999.
<TABLE>
<CAPTION>
Principal
Amount Adjustment
--------- ----------
<S> <C> <C>
New Credit Facilities:
Term Loan A (a).................................. $ 45,000 $ 3,852
Term Loan B (a).................................. 95,000 8,607
Notes (a)........................................ 150,000 19,500
Other debt....................................... 1,446 140
Amortization of deferred financing fees (b)...... 1,924
Non-cash accretion of liabilities recorded at
fair market value............................... 164
Interest rate protection......................... 210
Other, including commitment fees................. 308
--------
34,705
Elimination of historical interest expense....... (19,775)
--------
Net adjustment (a)............................... $ 14,930
========
</TABLE>
--------
(a) At assumed variable rates of 8.56% and 9.06% for the new credit
facilities and an actual rate of 13.0% for the new notes. The effect of
a 1/8% increase or decrease in interest rates on variable rate debt
would increase or decrease total interest expense by approximately $0.2
million for the year ended December 31, 1999.
(b) Adjustment reflects the amortization of incremental deferred financing
fees associated with the new credit facilities. Deferred financing fees
are amortized using the straight-line method over the term of the
related debt.
(6) The adjustment represents the income tax benefit at an effective rate of
41.0% for the effects of the aforementioned adjustments (2) through (5).
40
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
and other data of U.S. Silica (Predecessor) and the Company (Successor) as of
the end of and for the periods presented. The Company acquired U.S. Silica on
February 9, 1996. U.S. Silica is therefore the Predecessor for financial
reporting purposes.
The selected historical consolidated financial data as of and for the year
December 31, 1995 is derived from the unaudited consolidated financial
statements of the Predecessor that are not included in this prospectus. The
selected historical consolidated financial data as of and for the year ended
December 31, 1996 is presented as two separate periods, January 1, 1996 through
February 9, 1996 (Predecessor) and February 10, 1996 through December 31, 1996
(Successor), and are derived from the audited consolidated financial statements
of the Predecessor and the Successor, respectively, that are not included in
this prospectus. The selected historical consolidated financial data as of and
for the years ended December 31, 1997, 1998 and 1999 have been derived from the
audited consolidated financial statements of the Company and the notes thereto
included elsewhere in this prospectus. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Predecessor Successor
------------------------- --------------------------------------------------
January 1, February 10,
Year Ended 1996 through 1996 through
December 31, February 9, December 31, Year Ended December 31,
------------ ------------ ------------ ------------------------------------
1995 1996 1996 1997 1998(1) 1999(2)
------------ ------------ ------------ ----------- ------------ --------
(unaudited) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $115,446 $ 11,827 $106,782 $ 128,512 $ 142,294 $209,075
Cost of goods sold...... 83,976 9,394 73,625 88,097 98,478 140,244
Depreciation, depletion
and amortization....... 11,659 1,033 15,225 17,886 19,888 28,481
Selling, general and
administrative......... 12,561 1,404 12,077 14,345 16,930 21,843
Incentive stock
compensation
expense(3)............. -- -- -- -- 14,227 --
Operating income
(loss)................. 7,250 (4) 5,855 8,184 (7,229) 18,507
Interest expense........ 162 13 10,074 10,513 10,269 19,590
Accretion of preferred
stock warrants(4)...... -- -- -- 1,374 1,254 56
Other income net,
including interest
income................. (4,327) (534) (598) (1,742) (1,881) (2,171)
(Loss) income before
income taxes........... 11,415 517 (3,621) (1,961) (16,871) 1,032
Provision (Benefit) for
income taxes........... 2,722 963 (2,101) (2,239) (2,204) (2,714)
Net income (loss) before
extraordinary loss..... 8,693 (446) (1,520) 278 (14,667) 3,746
Extraordinary loss(5)... -- -- -- -- (2,102) (2,747)
Net income (loss)....... $ 8,693 $ (446) $ (1,520) $ 278 $ (16,769) $ 999
Balance Sheet Data:
Cash.................... $ 1,361 $ 748 $ 954 $ 402 $ 2,222 $ 13,573
Working capital......... 23,932 16,573 11,724 12,277 19,508 45,715
Total assets............ 105,958 104,112 195,787 183,647 274,678 551,603
Total debt.............. -- -- 89,154 83,163 137,448 287,505
Stockholder's equity.... 60,066 54,984 22,755 26,022 23,396 64,335
Other Financial Data:
Capital expenditures.... $ 6,312 $ 567 $ 7,216 $ 5,537 $ 9,399 $ 14,572
Cash interest expense... -- -- 6,609 8,731 9,269 10,925
Ratio of earnings to
fixed charges(6)....... 46.3 25.6 -- (7) -- (7) -- (7) 1.1
</TABLE>
- -------
(1) Includes (i) the results of the Nicks Silica Assets from January 16, 1998,
the date of acquisition, (ii) with respect to the year ended December 31,
1998, the results of Pettinos from July 25, 1998, the date of acquisition,
and (iii) with respect to the year ended December 31, 1998, the results of
Better Materials from December 14, 1998, the date of acquisition, in each
case, as further described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
(2) Includes the results of the Morie Assets from April 9, 1999, the date of
acquisition, and the results of Commercial Stone from October 1, 1999, the
date of acquisition.
(3) Represents non-cash compensation expense recorded in the second half of the
year ended December 31, 1998 due to the waiver by USS Holdings of its right
to repurchase certain capital stock held by our management.
(4) Represents the non-cash accretion in value of certain warrants granted with
respect to preferred stock of USS Holdings. The Company recognizes this
charge as part of push down accounting because the warrants were issued in
connection with debt issued by U.S. Silica. The obligation to satisfy any
payments due in connection with these warrants was forgiven by USS Holdings
during 1999.
(5) Represents non-cash charges and write-offs recorded in connection with the
Company's early retirement of certain subordinated debt in 1998, and the
early retirement of certain senior debt in 1999.
(6) Under Item 503 of Regulation S-K, "earnings" for purposes of this
calculation have been computed by adding to "income before extraordinary
items" all taxes based on income or profits, total interest charges and the
estimated interest element of rentals charged to income. "Fixed charges"
include total interest charges and the estimated interest element of
rentals charged to income.
(7) Earnings were insufficient to cover fixed charges by $3.6 million, $2.0
million and $16.9 million for the period February 10, 1996 through December
31, 1996 and the years ended December 31, 1997 and 1998, respectively.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
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 hot mixed asphalt in certain geographic areas
in Pennsylvania and New Jersey. We are the second leading producer of silica in
the United States, accounting for approximately 23% of industry volume in 1999.
We believe that we have leading positions in most of our key end use markets
for our silica products, typically occupying the number one or two position by
sales. These end use markets include container glass, fiberglass, specialty
glass, flat glass, fillers and extenders, 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 and concrete products. We also
use our aggregates to produce hot mixed asphalt. We operate a network of 25
production facilities in 14 states. Many of our production facilities are
located near major modes of transportation and our significant customers, which
reduces transportation costs and enhances customer service. Our principal
industrial minerals and aggregates properties each have deposits that we
believe will support production in excess of 15 years. On a pro forma basis,
our industrial minerals business (substantially all the net sales of which
consist of silica products) and our aggregates business accounted for 65.2% and
34.8% of our net sales, respectively, for the year ended December 31, 1999.
We recognize net sales at the time product is shipped to our customers and
title passes (generally when the product leaves our facility). Except for
certain limited instances in our aggregates business where we ship our products
in trucks that we own, net sales do not include the costs of transportation
borne by our customers. Generally, either our customers pay freight costs
directly, or we pay the costs on their behalf and are reimbursed (in which case
we record a liability and an accounts receivable on our balance sheet).
Cost of goods sold includes the ongoing mining and processing costs of our
operations (primarily labor costs, power costs, repair and maintenance costs,
costs of hiring third party subcontractors to drill and blast in our mining
operations, as well as lease royalty payments, where applicable) and non-cash
charges associated with estimated net future costs of restoring and reclaiming
operating mine sites. This provision is made at each operating location based
on units of production and engineering estimates of total deposits. Selling,
general and administrative expenses are the costs of operating our business,
including corporate overhead and associated fees and expenses related to
acquisitions. Management fees to our acquisition advisors and due diligence
costs for any acquisitions that we are unable to complete are also included in
this category.
Acquired property and mineral deposits are recorded at cost. The purchase
price of business acquisitions is allocated based on the fair values of assets
acquired and liabilities assumed at that time. Depreciation is computed using
the straight line method over the estimated useful lives of the assets, which
ranges from 3 to 15 years. Depletion of mineral deposits is accounted for as
the minerals are extracted, based on units of production and engineering
estimates of total deposits. Accordingly, depletion expense will increase or
decrease with changes in the volumes of minerals or aggregates extracted.
Amortization of various non-current assets such as non-competition agreements
are made on a straight line basis over the life of the related agreement.
Goodwill related to purchased acquisitions is amortized over 15 years.
42
<PAGE>
History and Recent Acquisitions
U.S. Silica was organized in 1927 as the Pennsylvania Glass Sand
Corporation. Pennsylvania Glass Sand Corporation was acquired by the
International Telephone and Telegraph Corporation in 1968, which in turn sold
it to U.S. Borax (formerly Pacific Coast Resources) in 1985. In 1986, the U.S.
Silica name was adopted and U.S. Borax acquired Ottawa Silica Company. In 1987,
Ottawa Silica Company was merged into U.S. Silica.
In February 1996, we purchased U.S. Silica from U.S. Borax. We subsequently
completed the following acquisitions:
. In January 1998, we acquired certain silica-producing assets (the "Nicks
Silica Assets") from Nicks Silica Company, a silica producer in Jackson,
Tennessee. These assets generated $4.3 million in revenues during 1996.
. In July 1998, we acquired George F. Pettinos, Inc. ("Pettinos"), a
producer of aggregates with operations in Berlin, New Jersey, and a
processor of silica with operations in Ontario, Canada. Pettinos had
$14.9 million in revenues during 1997.
. In December 1998, we acquired Better Materials Corporation ("Better
Materials"), an aggregates producer in southeastern Pennsylvania. Better
Materials had $24.7 million in revenues during 1997.
. In April 1999, we acquired the Morie Assets from Unimin Corporation,
which are used in the production and sale of silica and aggregates. The
Morie Assets generated $17.8 million in revenues during 1998.
. In October 1999, we acquired Commercial Stone, a crushed stone and hot
mixed asphalt producer in southwestern Pennsylvania. Commercial Stone
had $42.0 million in revenues for its fiscal year ended March 31, 1999.
We paid $233.7 million in total consideration for the acquisition of these
businesses and assets.
43
<PAGE>
Results of Operations
The following table sets forth Better Minerals & Aggregates' (including its
direct and indirect subsidiaries) statement of operations data for the three
years ended December 31, 1997, 1998 and 1999, and the percentage of net sales
of each line item for the periods presented. This statement of operations data
is derived from the consolidated financial statements of Better Minerals &
Aggregates and the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1997 1998 1999
--------------- --------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Industrial minerals....... $128,512 100.0% $138,797 97.5% $159,168 76.1%
Aggregates................ -- -- 3,497 2.5 49,907 23.9
-------- -------- --------
Total net sales........... 128,512 100.0 142,294 100.0 209,075 100.0
Cost of goods sold........ 88,097 68.6 98,478 69.2 140,244 67.1
Depreciation, depletion
and amortization......... 17,886 13.9 19,888 14.0 28,481 13.6
Selling, general and
administrative........... 14,345 11.2 16,930 11.9 21,843 10.4
Incentive stock
compensation expense..... -- -- 14,227 10.0 -- --
-------- -------- --------
Operating income (loss)... 8,184 6.4 (7,229) (5.1) 18,507 8.9
Interest expense.......... 10,513 8.2 10,269 7.2 19,590 9.4
Accretion of preferred
stock warrants........... 1,374 1.1 1,254 0.9 56 --
Other income net,
including interest
income................... (1,742) (1.4) (1,881) (1.3) (2,171) (1.0)
-------- -------- --------
(Loss) income before
income taxes............. (1,961) (1.5) (16,871) (11.9) 1,032 0.5
Provision (Benefit) for
income taxes............. (2,239) (1.7) (2,204) 1.5 (2,714) (1.3)
-------- -------- --------
Net income (loss) before
extraordinary loss....... 278 0.2 (14,667) (10.3) 3,746 1.8
Extraordinary loss........ -- -- (2,102) (1.5) (2,747) (1.3)
-------- -------- --------
Net income (loss)......... $ 278 0.2% $(16,769) (11.8)% $ 999 0.5%
======== ======== ========
</TABLE>
Year Ended December 31, 1999 Compared with Year Ended December 31, 1998
Net Sales. Net sales increased $66.8 million, or 46.9%, to $209.1 million in
the year ended December 31, 1999 from $142.3 million in the year ended December
31, 1998.
Net sales of industrial minerals increased $20.4 million, or 14.7%, to
$159.2 million in the year ended December 31, 1999 from $138.8 million in the
year ended December 31, 1998. The increase was primarily due to the acquisition
of the Morie Assets, which resulted in the inclusion of $8.7 million for the
period of April 8, 1999 through December 31, 1999, and the full year results of
the Pettinos acquisition, which resulted in an increase of $5.3 million in the
year ended December 31, 1999 from the year ended December 31, 1998. Excluding
the acquisitions, net sales of industrial minerals increased $6.3 million, or
4.6%, to $141.6 million in the year ended December 31, 1999 from $135.3 million
in the year ended December 31, 1998, primarily from $4.1 million of increased
silica sales to the glass container, flat glass, specialty glass and filler
extender and use markets.
Net sales of aggregates increased $46.4 million to $49.9 million in the year
ended December 31, 1999 from $3.5 million in the year ended December 31, 1998.
The increase was primarily due to the full year results from the 1998
acquisitions of Better Materials and Pettinos, which resulted in the inclusion
of additional net sales of $27.9 million in the year ended December 31, 1999,
the acquisition of the Morie Assets, which resulted in the inclusion of net
sales of $6.1 million for the period of April 8, 1999 through December 31, 1999
and the acquisition of Commercial Stone, which resulted in the inclusion of net
sales of $12.4 million for the period of October 1, 1999 through December 31,
1999.
44
<PAGE>
Cost of Goods Sold. Cost of goods sold increased $41.7 million, or 42.3%, to
$140.2 million in the year ended December 31, 1999 from $98.5 million in the
year ended December 31, 1998.
Cost of goods sold of industrial minerals increased $12.0 million, or 12.5%,
to $107.7 million in the year ended December 31, 1999 from $95.7 million in the
year ended December 31, 1998. The increase was primarily due to the acquisition
of the Morie Assets and the full year results from the Pettinos acquisition,
which resulted in the inclusion of $9.7 million in cost of goods sold.
Excluding acquisitions, cost of goods sold increased $2.3 million, or 2.5%, on
a volume increase of 4.6% in the year ended December 31, 1999 compared to the
year ended December 31, 1998.
Cost of goods sold of aggregates increased $29.7 million to $32.5 million in
the year ended December 31, 1999 from $2.8 million in the year ended December
31, 1998. The increase was due to the inclusion of the full year results from
the 1998 acquisitions of Better Materials and Pettinos, and the 1999
acquisition of the Morie Assets and Commercial Stone, which resulted in the
inclusion of $29.7 million in additional cost of goods sold in the year ended
December 31, 1999.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased $8.6 million, or 43.2%, to $28.5 million in the year
ended December 31, 1999 from $19.9 million in the year ended December 31, 1998.
The increase was primarily due to the acquisitions of Better Materials, the
Morie Assets and Commercial Stone.
Selling, General and Administrative. Selling, general and administrative
expenses increased $4.9 million, or 29.0%, to $21.8 million in the year ended
December 31, 1999 from $16.9 million in the year ended December 31, 1998. The
increase was primarily due to the acquisitions of Pettinos, Better Materials,
the Morie Assets and Commercial Stone, which resulted in the inclusion of $4.3
million in additional expense in the year ended December 31, 1999. Excluding
these items, selling, general and administrative expenses increased $0.6
million, or 3.6%, to $17.5 million in the year ended December 31, 1999 from
$16.9 million in the year ended December 31, 1998 due to normal annual
increases.
Operating Income. Operating income increased $25.7 million to $18.5 million
in the year ended December 31, 1999 from a $7.2 million operating loss in the
year ended December 31, 1998.
Operating income of industrial minerals increased $19.8 million to $12.5
million in the year ended December 31, 1999 from an operating loss of $7.3
million in the year ended December 31, 1998. The increase is primarily due to
the non-recurring incentive stock compensation expense recognized in 1998, as
well as the results from the acquisitions and other factors noted earlier.
Operating income of aggregates increased $6.9 million to $6.6 million in the
year ended December 31, 1999 from an operating loss of $0.3 million in the year
ended December 31, 1998 as a result of the acquisitions noted earlier.
Corporate expenses not allocated to the business segments increased $0.9
million to $0.6 million in the year ended December 31, 1999.
Interest (Income) Expense. Interest expense increased $9.3 million, or
90.3%, to $19.6 million in the year ended December 31, 1999 from $10.3 million
in the year ended December 31, 1998. The increase was primarily due to
increased borrowings related to acquisitions and increased interest rates.
Net Income (Loss). Net income (loss) increased $17.8 million to $1.0 million
in the year ended December 31, 1999 from a $16.8 million net loss in the year
ended December 31, 1998. The increase in net income is primarily due to the
factors noted above, especially the incentive stock
45
<PAGE>
compensation expense recognized in 1998. This is partially offset by an
increase of $0.6 million in extraordinary losses to $2.7 million in the year
ended December 31, 1999 from $2.1 million in the year ended December 31, 1998.
The 1999 loss reflects the after-tax charge recognized to write off debt
issuance fees that were previously capitalized in connection with our 1998
financing. The 1998 extraordinary loss reflects the after-tax charge to write
off capitalized debt issuance fees for subordinated debt first issued in 1996
and retired in 1998.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Net Sales. Net sales increased $13.8 million, or 10.7%, to $142.3 million in
the year ended December 31, 1998 from $128.5 million in the year ended December
31, 1997.
Net sales of industrial minerals increased $10.3 million, or 8.0%, to $138.8
million in the year ended December 31, 1998 from $128.5 million in the year
ended December 31, 1997. The increase was primarily due to the acquisition of
Pettinos, which resulted in the inclusion of net sales of $3.6 million for the
period of July 25, 1998 to December 31, 1998, and the acquisition of Nicks
Silica Assets, which resulted in the inclusion of net sales of $1.5 million for
the period of January 17, 1998 to December 31, 1998. Excluding these
acquisitions, net sales of industrial minerals increased $5.2 million, or 4.0%,
to $133.7 million in the year ended December 31, 1998 from $128.5 million in
the year ended December 31, 1997. Excluding these acquisitions, net sales of
silica increased $5.2 million. The increase was due primarily to new accounts
obtained in the glass container and flat glass end use markets and demand for
silica in the fiberglass end use market.
Net sales of aggregates in the year ended December 31, 1998 were $3.5
million, due to the acquisition of Pettinos, which resulted in the inclusion of
net sales of $2.7 million for the period of July 25, 1998 to December 31, 1998,
and the acquisition of Better Materials, which resulted in the inclusion of net
sales of $0.8 million for the period of December 15, 1998 to December 31, 1998.
There were no sales of aggregates in the year ended December 31, 1997.
Cost of Goods Sold. Cost of goods sold increased $10.4 million, or 11.8%, to
$98.5 million in the year ended December 31, 1998 from $88.1 million in the
year ended December 31, 1997. The increase was primarily due to the acquisition
of the Nicks Silica Assets, Pettinos and Better Materials, which resulted in
the inclusion of $9.5 million of operating expenses, including expenses of $0.6
million incurred to improve the safety and operating standards of the
operations of the Nicks Silica Assets. Excluding acquisitions, cost of goods
sold increased $0.8 million, or 0.9% on a volume increase of 2.6%, in the year
ended December 31, 1998 compared to the year ended December 31, 1997.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased $2.0 million, or 11.2%, to $19.9 million in the year
ended December 31, 1998 from $17.9 million in the year ended December 31, 1997.
The increase was primarily due to the acquisition of the Nicks Silica Assets,
Pettinos and Better Materials, increased production and an increase in the
amortization of non-competition agreements with the former owner of the Nicks
Silica Assets.
Selling, General and Administrative. Selling, general and administrative
expenses increased $2.6 million, or 18.2%, to $16.9 million in the year ended
December 31, 1998 from $14.3 million in the year ended December 31, 1997. The
increase was primarily due to $1.1 million of costs associated with the
acquisition of the Nicks Silica Assets, Pettinos and Better Materials and non-
recurring professional fees of $1.0 million incurred in connection with the
refinancing of our indebtedness in July 1998. Excluding these items, selling,
general and administrative expenses increased $0.5 million, or 3.6%, to $14.3
million in the year ended December 31, 1998 from $13.8 million in the year
ended December 31, 1997 due to normal annual increases and one-time expenses
associated with a reorganization of our sales and marketing departments.
46
<PAGE>
Incentive Stock Compensation Expense. In 1998, we recognized non-cash
compensation expense due to the fact that USS Holdings waived its right to
repurchase certain outstanding shares of its capital stock held by our
management.
Operating Loss. Operating loss increased $15.4 million to $7.2 million in
the year ended December 31, 1998 from operating income of $8.2 million in the
year ended December 31, 1997. The change was primarily due to the incentive
stock compensation expense recorded in this period.
Interest (Income) Expense. Interest expense decreased $0.2 million, or 1.9%,
to $10.3 million in the year ended December 31, 1998 from $10.5 million in the
year ended December 31, 1997. The decrease was primarily due to reduced
interest rates on borrowings under our existing credit facilities.
Other Income (Expense). Other income increased $0.1 million to $1.9 million
in the year ended December 31, 1998 from $1.8 million in the year ended
December 31, 1997.
Net (Loss) Income. Net income decreased $17.1 million to a net loss of $16.8
million in the year ended December 31, 1998. The decrease in net income was
primarily due to the factors previously noted and an extraordinary after tax
charge of $2.1 million recognized in 1998 to write off debt issuance fees that
were previously capitalized in connection with our 1996 financing. The charge
represents the write-off of the components that were related to the
subordinated debt that was repaid in connection with the refinancing in July
1998.
Liquidity and Capital Resources
Our principal liquidity requirements have historically been to service our
debt and meet our working capital, capital expenditure 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 December 31, 1999 was $287.5 million.
Net cash provided by operating activities was $16.0 million for the year
ended December 31, 1997, $15.4 million for the year ended December 31, 1998 and
$29.5 for the year ended December 31, 1999. Cash provided from operating
activities decreased $0.6 million from 1997 to 1998 due to net changes in
working capital, partially offset by increases in depreciation. For the year
ended December 31, 1999, cash flow from operating activities was $14.1 million
more than in 1998 due to increased operating income, partially offset by
increased interest expense.
Cash used for investing activities was $5.2 million for the year ended
December 31, 1997, $66.6 million for the year ended December 31, 1998 and
$185.6 million for the year ended December 31, 1999. Cash used in investing for
the year ended December 31, 1997 represented investments in capital
expenditures. For the year ended December 31, 1998, $57.5 million was used to
purchase the Nicks Silica Assets, Pettinos and Better Materials as well as $9.4
million in capital expenditures. For the year ended December 31, 1999, cash
used in investing activities increased $119.0 million due primarily to the
acquisitions of the Morie Assets completed in April 1999 and Commercial Stone
completed in October 1999, which aggregated $172.4 million inclusive of
transaction costs, as well as a $5.2 million increase in capital expenditures.
Cash flow from (used for) financing activities was ($11.3) million for the
year ended December 31, 1997, $53.1 million for the year ended December 31,
1998 and $167.5 million for the year ended December 31, 1999. For the year
ended December 31, 1997, there was a $7.0 million reduction in long-term debt
as well as a $5.0 million redemption of preferred stock from the former parent
of U.S. Silica. For the year ended December 31, 1998, long-term debt was
increased in a
47
<PAGE>
refinancing to complete the acquisitions of Pettinos and Better Materials as
well as to retire approximately $15.7 million in subordinated debt and pay fees
and prepayment penalties. For the year ended December 31, 1999, long-term debt
increased due to the issuance of $150.0 million of the subordinated notes,
which was used to complete the acquisition of Commercial Stone. In addition, we
received a $35.0 million equity contribution from USS Holdings. Net cash
provided by financing activities was partially offset by $15.8 million in
financing fees.
Interest payments on the notes, senior debt service under the new credit
facilities, working capital, capital expenditures and mine development
expenditures incurred in the normal course of business as current deposits are
depleted represent the significant liquidity requirements of Better Minerals &
Aggregates (including its direct and indirect subsidiaries). Future, but as yet
unidentified, acquisition opportunities will also represent potentially
significant liquidity requirements.
On October 1, 1999, the new credit facilities provided us with (i) a $50.0
million revolving credit facility, (ii) a fully drawn $45.0 million tranche A
term loan facility (including a tranche of loans denominated in Canadian
dollars in an amount equal to $2.0 million borrowed on the closing date by
George F. Pettinos (Canada) Limited), (iii) a fully drawn $95.0 million tranche
B term loan facility and (iv) an undrawn $40.0 million acquisition term loan
facility. 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. The acquisition term
loan facility is available for three years after the closing date, during which
time we may make no more than three borrowings, each borrowing being subject to
achieving a pro forma leverage ratio as defined not exceeding 5.00 to 1.00. For
a description of the amortization and interest rates with respect to the new
credit facilities, see "Description of the New Credit Facilities."
Simultaneously with the issuance of the new credit facilities on October 1,
1999, we retired in full $167.2 million in senior debt under a credit agreement
that was entered into on July 21, 1998 and later amended on April 8, 1999.
We repaid $3.9 million of the tranche A term loan facility and $200,000 of
the tranche B facility in the fourth quarter of 1999. On February 29, 2000, we
completed the sale of one of our two Canadian subsidiaries, George F. Pettinos
(Canada) Limited, for $3.2 million. We used the proceeds of this sale to repay
$2.0 million of the tranche A term loan facility, which had been borrowed on
the closing date by this former subsidiary, and for general corporate purposes.
The new credit facilities and the indenture impose certain restrictions on
us, including restrictions on our ability to incur indebtedness, pay dividends,
make investments, grant liens, sell our assets and engage in certain other
activities. In addition, the new credit facilities require us to maintain
certain financial ratios. Debt under the new credit facilities is secured by
substantially all of our assets, including our real and personal property,
inventory, accounts receivable and other intangibles. See "Description of the
New Credit Facilities."
We incurred fees and expenses of approximately $18.8 million in connection
with the acquisition of Commercial Stone, the issuance of the notes and the
borrowings under the new credit facilities. Financing fees were approximately
$15.0 million and will be amortized over the life of the debt. Fees totaling
$2.5 million were capitalized as a cost of the Commercial Stone acquisition.
The remaining $1.3 million in fees and expenses were bonuses paid to certain
Commercial Stone employees as a loyalty bonus.
Our expected capital expenditure requirements for 2000 and 2001 are $26.1
million and $21.7 million, excluding possible acquisitions, respectively.
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Our ability to satisfy our debt obligations and to pay principal and
interest on our debt, including the notes, 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, including the notes, 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, including the notes, or to fund
our other liquidity needs.
Inflation
We do not believe that inflation has had a material impact on our financial
position or results of operations during the periods covered by the financial
statements included in this prospectus.
Seasonality
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. Due to this, 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.
Year 2000 Compliance
Background. The year 2000 issue refers to the inability of certain computer
programs to recognize a date ending in "00" as the year 2000 as a result of
being written using two digits, rather than four, to define the applicable
year. Systems that have time-sensitive hardware or software may recognize a
date using "00" as the year 1900 rather than the year 2000. If not corrected,
many computer applications could have failed or produced erroneous data on or
about January 1, 2000. As part of an overall company program that began in 1994
to upgrade all of our hardware and software systems, the issue of year 2000
compliance was reviewed as each of our major systems was evaluated and changed.
Replacement systems were installed, and confirmation letters were received from
software and hardware suppliers attesting to the compliance of the systems
installed. We also made efforts to determine the year 2000 compliance status of
the significant third parties with whom we do business. In 1998, questionnaires
were sent to our most significant service providers and material suppliers. No
unsatisfactory responses regarding year 2000 compliance were received.
Costs. In 1998 and 1999, we spent $252,600 and $286,000, respectively, to
upgrade several major systems to year 2000-compliant system releases.
Additionally, plant automation control software was upgraded at two facilities
at a cost of $62,000 and $239,000, respectively, in 1998 and 1999. There can be
no assurance that we will not incur further costs as a result of the discovery
of unexpected need for additional remediation work.
Results. The results of the year 2000 program are now documented. During the
rollover to 2000, neither we, nor any of our major customers or vendors,
experienced service interruptions due to computer hardware, software or
embedded chips that adversely affected our business.
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Qualitative and Quantitative Disclosures About Market Risk
We do not expect to enter into financial instruments for trading purposes.
We anticipate periodically entering into interest rate swap agreements to
effectively convert all or a portion of our floating-rate debt to fixed-rate
debt in order to reduce our exposure to movements in interest rates. Such
agreements would involve the exchange of fixed and floating interest rate
payments over the life of the agreement without the exchange of the underlying
principal amounts. The impact of fluctuations in interest rates on the interest
rate swap agreements is expected to be offset by the opposite impact on the
related debt. We record the payments or receipts on the agreements as
adjustments to interest expense. Swap agreements will only be entered into with
syndicate banks. In addition, we may enter into interest rate cap agreements,
which limit our variable rate interest to a specified level. In the future, we
may enter into natural gas and other energy related hedge arrangements in order
to reduce our exposure to changes in commodity energy prices. At this time, we
have no energy hedge agreements outstanding.
We are exposed to various market risks, including changes in interest rates.
Market risk related to interest rates is the potential loss arising from
adverse changes in interest rates.
At December 31, 1999, we had outstanding interest rate swap agreements
maturing in 2001 with an aggregate notional principal amount of $30.0 million.
At December 31, 1998, we had outstanding interest rate swap agreements maturing
in 1999 and 2001 with an aggregate notional principal amount of $85.0 million.
These swaps effectively convert the variable interest rates on the notional
principal amounts to a fixed interest rate. In addition, we had interest rate
cap agreements at December 31, 1999 and 1998 with aggregate notional principal
amounts of $51.0 million and $30.0 million, respectively. These agreements
effectively limit the variable portion of the interest rate on the notional
principal amount of variable rate debt to 6.5%.
The fair value of interest rate swap and cap agreements represents the
estimated receipts or payments that we would make to terminate the agreements.
At December 31, 1999, we would have received $0.4 million to terminate the
interest rate swap agreements and $0.3 million to terminate the interest rate
cap agreements.
The fair market value of our long-term fixed interest rate debt is subject
to interest rate risk. Generally, the fair market value of the fixed interest
rate debt will increase as the interest rates fall and decrease as interest
rates rise. At December 31, 1999, the estimated fair value of our fixed
interest rate long-term debt (including current portion) approximated its
carrying value of $150.0 million due to its recent issuance. If the prevailing
interest rates at December 31, 1999 increased by 1.0%, the fair value of our
total long-term debt would decrease by approximately $6.2 million.
Environmental and Related Matters
See "Business--Government Regulation" for a discussion of certain
environmental matters relating to our various production and other facilities,
certain regulatory requirements relating to human exposure to crystalline
silica and our mining activity and how such matters may affect our business in
the future.
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Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("FAS 133"), which is required to be adopted in years
beginning after June 15, 2000. Because of our minimal use of derivatives, we do
not anticipate that the adoption of FAS 133 will have a significant impact on
our results of operations or financial condition.
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INDUSTRY OVERVIEW
Set forth below is information about the key industries in which we operate:
Silica Industry
Silica, often termed "industrial sand," "silica sand" and "quartz sand,"
includes sands with high silicon dioxide content. Silica is a naturally
occurring mineral that has a broad range of distinct characteristics, such as
size, purity, color, inertness, hardness and resistance to high temperatures,
which make it difficult to substitute in a variety of applications. Silica is
used in a wide range of end use markets, including the container glass,
fiberglass, specialty glass, flat glass, chemicals, foundry, fillers and
extenders, and ceramics end use markets.
In 1998, consumption of silica in the United States was approximately 29.0
million tons, generating sales of approximately $491 million. The United States
silica industry has been characterized by stable growth. From 1988 to 1998,
sales of silica in the United States grew at a compound annual growth rate of
approximately 2.7%. This growth resulted from increased demand across a wide
variety of end use markets.
Silica producers are typically either large, national producers that produce
many grades of silica or smaller, regional companies that produce silica for
limited uses. According to the U.S. Geological Survey, the five leading United
States producers of silica in 1998, in descending order, were Unimin
Corporation, U.S. Silica, Fairmount Minerals Ltd., Oglebay Norton Industrial
Sands Co. and Badger Mining Corporation. Competition generally occurs among
participants in geographic proximity to each other because transportation cost
represents a significant portion of the overall cost of silica to customers.
Therefore, competition within any given geographic area is distinct, as
transportation costs generally limit the market to within 200 miles of a
producer's facilities. However, certain high margin industrial minerals
products, such as fine ground silica, may be distributed nationally and, in
some cases, internationally due to the high value of these products relative to
transportation costs.
Aggregates Industry
Aggregates consist of crushed stone, construction sand and gravel and are a
basic raw material used in a wide variety of applications including asphalt,
concrete, road construction and residential and commercial construction. In
1998, consumption of aggregates (not including hot mixed asphalt) in the United
States was approximately 2.8 billion tons, generating sales of approximately
$13.5 billion.
The United States aggregates industry is characterized by stable growth.
From 1988 to 1998, sales of aggregates in the United States grew at a compound
annual growth rate of approximately 4.4%. This growth resulted from increased
demand for road construction and maintenance, other infrastructure projects and
residential and commercial construction. According to the U.S. Geological
Survey, aggregates prices range from approximately $2 per ton for construction
sand and gravel fill to approximately $35 per ton for special whiting crushed
stone.
Due to the high cost of transportation relative to the value of the product,
competition within the aggregates industry favors producers with aggregate
production facilities in close proximity to transportation modes and customers.
As a result, competition is generally limited to a 75 mile area. The United
States aggregates industry is currently experiencing consolidation. According
to the U.S. Geological Survey, in 1997 there were 3,362 active crushed stone
quarries and 7,658 active construction sand and gravel operations in the United
States. The U.S. Geological Survey states that the five leading aggregates
producers in 1998, in descending order, were Vulcan Materials Company, Martin
Marietta Aggregates, a division of Martin Marietta Materials, Inc., Cornerstone
Construction &
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Material, Inc., Lafarge Corporation and Oldcastle, Inc./Materials Group.
According to the U.S. Geological Survey, these producers accounted for
approximately 18.7% of total United States aggregates production in 1998.
We believe demand for aggregates will increase due to the passage by
Congress in 1998 of TEA-21. TEA-21 establishes a $218 billion transportation
program that provides for increased federal funding for highways and related
infrastructure improvements through 2003. TEA-21 authorizes average annual
federal spending on highways and related infrastructure improvements of
approximately $26 billion, approximately 44% higher than the average annual
federal spending of $18 billion under the predecessor program. In Pennsylvania
and New Jersey, our primary aggregates markets, average annual federal spending
on highways and related infrastructure improvements under TEA-21 is projected
to be approximately 47% and 30% higher, respectively, than under the
predecessor program.
Another trend expected to impact the aggregates market is the adoption of
the Superpave system. Superpave is a new approach to asphalt mix design, which
provides designers with standards for customizing roadway mixes for specific
weather and traffic conditions. This new set of standards generally requires
high quality aggregates that conform to a variety of specific characteristics,
including hardness, absorption, size and shape. We believe our aggregates
comply with the high Superpave standards. Many state governments have elected
to require their roadways to conform to the Superpave standards. For example,
the Pennsylvania Department of Transportation has stated that it will require,
as of September 2000, all roadway contracts to include the use of the Superpave
standards.
Hot mixed asphalt is a densely packed combination of approximately 95%
crushed stone, sand or gravel bound together by asphalt oil. A major component
of the road system in the United States, hot mixed asphalt covers approximately
95% of the paved roads in the United States. The United States hot mixed
asphalt industry generates over $10 billion in sales annually. Market growth is
primarily driven by road construction and population growth.
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BUSINESS
General
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 hot mixed asphalt in certain geographic areas
in Pennsylvania and New Jersey. We are the second leading producer of silica in
the United States, accounting for approximately 23% of industry volume in 1999.
We believe that we have leading positions in most of our key end use markets
for our silica products, typically occupying the number one or two position by
sales. These end use markets include container glass, fiberglass, specialty
glass, flat glass, fillers and extenders, 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 and concrete products. We also
use our aggregates to produce hot mixed asphalt. We operate a network of 25
production facilities in 14 states. Many of our production facilities are
located near major modes of transportation and our significant customers, which
reduces transportation costs and enhances customer service. Our principal
industrial minerals and aggregates properties each have deposits that we
believe will support production in excess of 15 years. On a pro forma basis,
our industrial minerals business (substantially all the net sales of which
consists of silica products) and our aggregates business accounted for 65.2%
and 34.8% of our net sales, respectively, for the year ended December 31, 1999.
On a pro forma basis, we had net sales of $248.1 million for the year ended
December 31, 1999.
Products
We produce a variety of industrial minerals and aggregates that are designed
to meet a broad range of customer needs.
Industrial Minerals. Our industrial minerals products are processed to meet
a broad range of chemical purity, particle shape and sizing specifications. Our
key industrial minerals products are known as unground silica, ground silica,
fine ground silica, kaolin and aplite. Our unground silica products consist of
silica of various size grades ranging from 120 to 20 mesh. For the year ended
December 31, 1999 we sold 5.4 million tons of unground silica. Our ground
silica products consist of unground silica that is further processed into sizes
of 40 to 125 microns and are marketed under the Sil-Co-Sil(R) brand name. For
the year ended December 31, 1999 we sold 610,000 tons of ground silica. The
average selling price for ground silica is approximately $30 per ton more than
for unground silica. Our fine ground silica products consist of ground silica
which we have further processed with highly engineered equipment into size
grades of 5 to 40 microns and are marketed under the Min-U-Sil(R) brand name.
We believe that no other producer in the United States currently produces a 5
micron product with the consistent quality and size of our 5 micron product.
For the year ended December 31, 1999 we sold 59,000 tons of fine ground silica.
The average selling price for fine ground silica is approximately $170 per ton
more than for ground silica. In addition to our silica products we also produce
a limited amount of kaolin and aplite. Kaolin is a mineral co-product in our
production of silica in Kosse, Texas that we sell primarily as a filler and
extender to the paints and coatings industry. Aplite is an alumina source
produced at our Montpelier, Virginia facility that we sell primarily to the
glass industry.
Aggregates. Our aggregates products include high quality crushed stone,
construction sand and gravel, which we provide in various sizes, and hot mixed
asphalt. On a pro forma basis, we sold 7.4 million tons of our aggregates
products (excluding sales of hot mixed asphalt) for the year ended December 31,
1999. On a pro forma basis, we sold 1.8 million tons of our hot mixed asphalt
for the
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year ended December 31, 1999. We produce a high quality, anti-skid asphalt
using the Superpave system. The Pennsylvania Department of Transportation has
stated that it will require, as of September 2000, all roadway contracts to
include the use of the Superpave standards. We are competitively positioned to
benefit from this new requirement due to our ability both to supply our
customers with the quality of aggregates required by the Superpave system as
well as to manufacture Superpave-compliant asphalt from our own aggregates. See
"Industry Overview--Aggregates Industry."
End Use Markets and Customers
We sell our products to a wide variety of customers within numerous end use
markets. The following table sets forth the net sales, products, primary
applications and representative customers by end use market served by our
industrial minerals and aggregates businesses.
<TABLE>
<CAPTION>
Pro Forma Year Ended
December 31, 1999 Primary Representative
End Use Markets Net Sales Products Applications Customers
- --------------- -------------------- ---------------- ---------------- --------------------------------
(Dollars in
Millions)
<S> <C> <C> <C> <C>
Industrial Minerals
Container glass.......... $ 27.2 Unground silica, Food, beverage Ball-Foster, Inc.,
aplite and liquor Owens-Illinois, Inc.
bottles
Fiberglass............... 15.9 Unground silica, Roofing Owens Corning, PPG Industries,
ground silica, products, Inc.
aplite automotive
parts, sports
equipment,
boats,
insulation
Specialty glass.......... 14.5 Unground silica, Television Anchor Hocking, Inc.,
ground silica, tubes, lights, Corning Asahi
aplite tableware, Video,Corning Incorporated,
optical lenses Libbey Inc., General Electric
Flat glass............... 10.6 Unground silica Automobile AFG Industries, Inc.,
glass, windows Guardian Industries
Corp.,Pilkington plc,
PPG Industries, Inc.
Foundry.................. 23.7 Unground silica, Automotive, Caterpillar Inc.,
ground silica heavy equipment Citation Corporation
and machine tool
castings
Fillers and extenders.... 22.7 Unground silica, Industrial and Behr Process Corporation, Delphi
ground silica, traffic paints, Packard Electric, Dow Corning
fine ground epoxy molded Corporation,Sherwin-Williams
silica, kaolin countertops,
silicone rubber
Building materials....... 18.3 Unground silica, Bricks, stucco, CertainTeed Corporation, Owens
ground silica, concrete, Corning
fine ground asphalt shingles
silica, kaolin
Chemicals................ 10.3 Unground silica, Detergents, J.M. Huber Corp.,
ground silica paper textile Occidental Chemical Corporation,
finishing, PQ Corporation
dental products
Ceramics................. 5.1 Unground silica, Ceramic American Marazzi Tile, Cooper
ground silica, whiteware, floor Power Systems, Ideal-Standard,
fine ground tiles, glaze The Pfaltzgraff Co.
silica, kaolin formulations
Other.................... 13.4 Unground silica, Fracturing Toys 'R Us Inc., various country
ground silica, sands, sand clubs
fine ground boxes,
silica, kaolin, playgrounds,
aplite athletic fields,
racetracks, golf
courses
Aggregates
Paving and construction.. 86.4 Crushed stone, Pavement, Various local contractors
construction outside
sand, gravel, recreational
hot mixed facilities,
asphalt sport stadiums,
residential and
commercial
construction
Total.................... $248.1
</TABLE>
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We generate net sales from a diversified base of customers and end use
markets. On a pro forma basis for the year ended December 31, 1999, 65.2% of
our net sales was derived from our industrial minerals business and 34.8% of
our net sales was derived from our aggregates business. During that same
period, we exceeded $10 million in net sales in each of 10 distinct end use
markets and no single customer accounted for more than 5% of our net sales.
Industrial Minerals. Our industrial mineral products are sold into a variety
of end use markets, as described below.
Container Glass. We supply unground silica and aplite to the container glass
end use market for use in the production of food, beverage and liquor bottles.
Fiberglass. We supply unground and ground silica and aplite to the textile
and insulation fiberglass end use markets. Textile fiberglass is used in the
production of roofing products and composites for automotive parts, sports
equipment and boats. Insulation fiberglass is used to maximize energy
efficiency in buildings by insulating heating and cooling ducts, attics,
basements and exterior walls.
Specialty Glass. We supply unground and ground silica and aplite to the
specialty glass end use market for use in the production of television tubes,
lights, tableware and optical lenses. These end use markets have enjoyed steady
growth due to the development of innovative and sophisticated new specialty
glass products. Because of the higher quality standards in this market, certain
of our industrial minerals for specialty glass are shipped nationally as well
as regionally.
Flat Glass. We supply unground silica to the flat glass end use market for
use in the production of automotive glass and windows. Windows are primarily
used in commercial and residential construction and remodeling.
We estimate that in 1999 our shipments of industrial silica to the container
glass, fiberglass, specialty glass and flat glass end use markets accounted for
approximately 30% of the total volume of industrial silica shipped to the glass
end use markets in the United States.
Foundry. We supply unground and ground silica to the foundry end use market
for use in the production of automotive, heavy equipment and machine tool
castings. We estimate that in 1999 we accounted for approximately 20% of the
silica volume shipped to the foundry end use market in the United States.
Fillers and Extenders. We supply unground, ground and fine ground silica and
kaolin to the paints and coatings end use market as fillers and extenders in
the production of architectural, industrial and traffic paints, and to the
rubber and plastic end use market for use in the production of epoxy molded
countertops and silicone rubber. We estimate that in 1999 we accounted for
approximately 60% of the silica volume shipped to the fillers and extenders end
use market in the United States. This is our highest value end use market, as a
premium is placed on the particle size and whiteness of our silica. As a result
of the high margin products we sell in this market, we are able to ship certain
of these products to customers nationally as well as regionally. In addition,
we are also able to compete internationally with some of these products.
Building Materials. We supply unground, ground and fine ground silica and
kaolin to the building materials end use market for use in the production of
bricks, stucco, concrete and asphalt shingles. We estimate that in 1999 we
accounted for approximately 20% of the silica volume shipped to the building
materials end use market in the United States.
Chemicals. We supply unground and ground silica to the chemicals end use
market where it is used in the manufacture of sodium silicate, which is used in
products such as detergents, paper
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textile, finishing and dental products. We estimate that in 1999 we accounted
for approximately 80% of the silica volume shipped to the chemicals end use
market in the United States.
Ceramics. We supply unground, ground and fine ground silica and kaolin to
the ceramics end use market for use in the production of ceramic whiteware,
floor tiles and glaze formulations. We estimate that in 1999 we accounted for
approximately 50% of the silica volume shipped to the ceramics end use market
in the United States.
Other. We also supply our unground, ground and fine ground silica and our
kaolin and aplite to a variety of additional markets. For example, our silica
is used as fracturing sand in the oil and gas end use market and in athletic
fields, race tracks, sand boxes, playgrounds and golf courses.
Aggregates
Paving and Construction. We supply our aggregates products primarily to the
paving and construction end use market in southern New Jersey and southeastern
and western Pennsylvania for use in pavements. Most of our aggregates
production is sold directly to local contractors. We also supply our aggregates
for use in outside recreational facilities, sport stadiums and residential and
commercial construction. We use the remainder of our aggregates to produce hot
mixed asphalt, which we also sell to local contractors.
Sales and Marketing
We market our industrial minerals products primarily on a local basis. Our
local sales and marketing efforts are divided among 10 regions, each managed by
a regional sales person, and are directed to meet our local customers' specific
needs. Our technical and customer service personnel support our local sales and
marketing personnel. Certain of our smaller local customers are primarily
serviced by customer service representatives located at our facilities. We also
sell to distributors for resale outside our 10 sales regions or to customers
who desire to purchase a combination of our industrial minerals and other
products which the distributor supplies.
In the case of our customers that have facilities in multiple states, we
also direct our sales and marketing efforts at the corporate headquarters
level. While competition for these customers generally remains at the local
level, the terms of certain of our agreements are negotiated with the customer
at the corporate level. Our national account managers also coordinate multi-
disciplinary teams that work with these customers and their technical and
engineering departments to jointly develop specifications for industrial
minerals to meet their local product and application needs. In addition, we
provide technical and customer service to these customers' individual facility
locations at the local level.
We market our aggregates products, including our hot mixed asphalt, directly
through our local sales force, which calls on our customers at their
facilities.
Competition
Due to the high cost of transportation relative to the value of our
industrial minerals and aggregates products, competition tends to be limited to
producers in proximity to our production facilities. Although we experience
competition in all of our markets, we believe that we are a leading producer in
the key end use markets and geographic areas that we serve.
The silica industry is a competitive market that is characterized by a small
number of large, national producers and a larger number of small, regional
producers. We are the second leading producer of silica in the United States,
accounting for approximately 23% of industry volume in 1999. We compete with,
among others, Unimin Corporation, Fairmount Minerals Ltd., Oglebay Norton
Industrial Sands Inc. and Badger Mining Corporation. Competition in the
industrial minerals industry is based on price, consistency and quality of
product, site location, distribution capability, customer service, reliability
of supply, breadth of product offering and technical support. In addition,
there is
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significant unutilized capacity in the industrial minerals industry that could
adversely affect the pricing of our industrial minerals products.
In recent years, the aggregates industry has seen increasing consolidation,
although competition remains primarily local. Competition in the aggregates
industry is based primarily on price, quality of product, site location,
distribution capability and customer service. In Pennsylvania and New Jersey we
compete primarily with local or regional operations. In addition, in western
Pennsylvania, slag, a residue from steel processing, also competes with our
aggregates products.
Production and Distribution
Our production process for our industrial minerals generally consists of
mining mineral ore followed by a number of processing steps. All of our
industrial minerals mining operations involve surface mining. As is customary
in our industry, some of our mining operations, particularly drilling and
blasting, are outsourced to third parties. After the mineral ore is mined we
crush it into various sizes, depending on the specific customer application. We
then remove impurities from the materials in a washing process and remove
oversized particles by screening. Moisture is removed through a drying process
and the product is loaded into trucks or rail cars for shipment or is bagged
before shipping.
We ship our industrial mineral products direct to our customers by either
truck or rail. Bagged product is generally distributed by truck. We sometimes
utilize rail-truck transfer stations to deliver our products if we can thereby
achieve lower delivery costs to a given customer or region. Almost all our
truck shipments of industrial minerals are carried out by third parties. Our
rail shipments are generally made by railcar equipment owned by the railroad,
although for some customers and regions we lease our own railcars. Given the
value to weight ratio of most of our industrial mineral products, the cost-
effective distribution range is approximately 200 miles. For some of our high
margin fine ground silica and other specialty products such as kaolin, we can
effectively distribute our products nationally and, in some cases,
internationally.
Our production process for our aggregates consists of mining mineral ore and
then crushing it into various sizes based on customer specifications. All of
our aggregates mining operations involve surface mining, except for one which
involves underground mining. Generally, surface mining is subject to less
operational risk than underground mining. We either ship our aggregates
products product directly to our customers by truck, or store it at our
facility to meet future customer demand. In certain instances we deliver large
orders by rail. Our hot mixed asphalt is produced by mixing our aggregates with
asphalt oil, blending to customer specifications and then delivering by truck.
The Commercial Stone acquisition provided us with CATS, a subsidiary that
runs a cooperative fleet of dump trucks owned by independent contractors. CATS
hires these trucks for hauling of aggregates and other bulk materials. In
return, the independent trucking contractors benefit from a steady source of
work and bulk discounts on fuel, tires and other services. CATS enables us to
secure reliable access to a fleet of approximately 200 dump trucks on a cost-
effective basis.
Technical Support
We operate a laboratory to monitor the quality of our products, plants and
services. The laboratory has four principal functions. The technical service
function provides support to both current and prospective customers and
performs controlled tests for a variety of applications. The lab also assists
foundries in their quality control programs through periodic testing of their
sand and equipment, a service that has enabled us to increase our business by
acquiring several large foundries as customers. The application function
evaluates the chemical, physical and performance characteristics of our
products and those of our competitors. These evaluations assist us in
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developing new products and applications and enable us to provide our customers
with technical support and recommendations. The analytical function both
provides support for plants lacking the ability to provide certain technical
information to customers, and analyzes drill core samples to provide data for
short- and long-term mine planning. The mineral processing function is designed
to simulate all plant processes, primarily preparing and analyzing drill core
samples for mine planning purposes and providing expertise in plant problem
troubleshooting. We are ISO 9002 registered at eight plants.
Employees
As of March 1, 2000, we had approximately 1,048 employees, of which
approximately 527 were represented by 12 local unions under 12 union contracts.
These union contracts have remaining durations ranging from one to five years.
Over the last 10 years, we have been involved in numerous labor negotiations,
only two of which have resulted in a work disruption at two of our 25
facilities. During these disruptions, the operations of the facilities and the
ability to serve our customers were not materially affected. We believe that
our current relations with our employees are good.
Properties and Mineral Deposits
We own or lease a number of properties located in the eastern and midwestern
United States. Our headquarters is in Berkeley Springs, West Virginia. Set
forth below is the location, use, status and number of years of remaining
reserves as of December 31, 1999 for each of our principal properties:
<TABLE>
<CAPTION>
Number of Years
Remaining
Location Use Status Reserves/1/
- -------- --- ------ ---------------
<S> <C> <C> <C>
Berkeley
Springs, WV Corporate offices Owned N/A
Industrial
Minerals
Berkeley
Springs, WV Silica mining and processing Owned 30
Cedar Lake,
NJ Silica mining and processing Owned 4
Columbia, SC Silica mining and processing Leased 28
Dubberly, LA Silica mining and processing Owned/Leased 34
Dundee, OH Silica mining and processing Owned 79
Hurtsboro,
AL Silica mining and processing Owned/Leased 6
Jackson, TN Silica mining and processing Owned 33
Kosse, TX Silica and kaolin mining and processing Owned/Leased 24
Mapleton
Depot, PA Silica mining and processing Owned/Leased 22
Mauricetown,
NJ Silica processing Owned N/A
Mill Creek,
OK Silica mining and processing Owned/Leased 26
Millville,
NJ Silica mining and processing Owned/Leased 24
Montpelier,
VA Aplite mining and processing Owned/Leased 48
Ottawa, IL Silica mining and processing Owned 64
Pacific, MO Silica mining and processing Owned 71
Port
Elizabeth,
NJ Silica mining and processing Owned 38
Rockwood, MI Silica processing Owned N/A
Aggregates
Adamsburg,
PA Hot mixed asphalt plant Owned N/A
Berlin, NJ Construction sand mining and processing Owned 15
Ottsville,
PA Stone quarry; hot mixed asphalt plant Owned 40
Penns Park,
PA Stone quarry; hot mixed asphalt plant Owned 30
Rich Hill,
PA Stone quarry; sand plant Owned/Leased 35
Springfield
Pike, PA Stone quarry; hot mixed asphalt plant; offices Owned 61
Upper
Township,
NJ Construction sand mining and processing Owned/Leased 4
Washington,
PA Hot mixed asphalt plant Owned N/A
</TABLE>
- --------
/1/The number of years of remaining reserves for each of our principal
properties as of December 31, 1999 is based on extraction and production
information collected during 1999.
59
<PAGE>
With respect to each operation at which we mine industrial minerals and
aggregates, we obtain permits from various governmental authorities prior to
the commencement of mining. The current permitted deposits on our properties
are sufficient to support production, based on historical rates of production,
for an average of approximately 10 years, ranging from approximately four years
to approximately 50 years. We obtain permits to mine deposits as needed in the
normal course of business based on our mine plans and state and local
regulatory provisions regarding mine permitting and licensing. Based on our
historical permitting experience, we expect to be able to continue to obtain
necessary mining permits to support historical rates of production. Industrial
minerals and aggregates properties which have deposits (which include both
permitted and unpermitted deposits) that we believe are sufficient to support
production for over 15 years accounted for approximately 95% of our net sales
on a pro forma basis for the year ended December 31, 1999. Additionally, to
further assure sufficient deposits and adequate facilities to meet future
demand, we plan to obtain new deposits through expansion of existing sites,
where feasible, and acquisitions of industrial minerals and aggregates
businesses.
Some of our mining leases can be indefinitely renewed by us on an annual
basis while others have terms ranging from two to 50 years (including
unilateral renewal rights). These leases generally provide for royalty payments
to the lessor based on a specific amount per ton or a percentage of revenue. In
addition, we have a number of non-mining leases that relate to the above
properties that permit us to perform activities that are ancillary to the
mining of industrial minerals or aggregates such as surface use leases that
allow haul trucks to transport material from the mine to the plant site.
Legal Proceedings
We are a defendant in various lawsuits related to our businesses. These
matters include lawsuits relating to the exposure of persons to silica as
discussed in detail under "--Product Liability" below. 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 impact 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.
Product Liability
The inhalation of respirable crystalline silica is associated with several
adverse health effects. First, it has been known since at least the 1930s that
prolonged inhalation of respirable crystalline silica can cause silicosis, an
occupational disease characterized by fibrosis, or scarring, of the lungs.
Second, since the mid-1980s, the carcinogenicity of crystalline silica has been
at issue and the subject of much debate and research. In 1987, the
International Agency for Research on Cancer ("IARC"), an agency of the World
Health Organization, classified crystalline silica as a probable human
carcinogen. In 1996, a working group of IARC voted to reclassify crystalline
silica as a known human carcinogen. The National Toxicology Program ("NTP"),
part of the United States Department of Health and Human Services, has recently
proposed upgrading crystalline silica from its current NTP classification as "a
reasonably anticipated carcinogen" to "a known human carcinogen." Third, the
disease silicosis is associated with an increased risk of tuberculosis.
Finally, there is evidence of a possible association between crystalline silica
exposure or silicosis and other diseases such as immune system disorders, like
scleroderma, and end-stage renal disease.
U.S. Silica has been named as a defendant in an estimated 70 product
liability claims alleging silica exposure filed in the period January 1, 2000
to March 1, 2000. U.S. Silica was named as a defendant in 89 similar claims
filed in 1997, 154 filed in 1998 and 497 filed in 1999. U.S. Silica has been
named as a defendant in similar suits since 1975; in each of the years 1983,
1987, 1995 and 1996, more than 100 claims were filed against U.S. Silica. The
plaintiffs, who allege that they are employees or former employees of our
customers, claim that our silica products were defective or
60
<PAGE>
that we acted negligently in selling our silica products without a warning, or
with an inadequate warning. The plaintiffs further claim that these alleged
defects or negligent actions caused them to suffer injuries and sustain damages
as a result of exposure to our products. In almost all cases, the injuries
alleged by the plaintiffs are silicosis or "mixed dust disease," a claim which
allows the plaintiffs to pursue litigation against the sellers of both
crystalline silica and other minerals. There are no pending claims of this
nature against any of our other subsidiaries.
As of March 1, 2000, there were an estimated 984 silica-related products
liability claims pending in which U.S. Silica is a defendant. Almost all of the
claims pending against U.S. Silica arise out of the alleged use of U.S. Silica
products in foundries or as an abrasive blast media and have been filed in the
states of Texas and Mississippi. Our financial liability to date for all
silica-related claims has not been material.
ITT Industries, successor to a former owner of U.S. Silica, has agreed to
indemnify U.S. Silica for third party silicosis claims (including litigation
expenses) filed against it prior to September 12, 2005 alleging exposure to
U.S. Silica products for the period prior to September 12, 1985, to the extent
of the alleged exposure prior to that date. This indemnity is subject to an
annual deductible of $275,000, which is cumulative and subject to carry-forward
adjustments. Pennsylvania Glass Sand Corporation, as a predecessor to U.S.
Silica, was a named insured on insurance policies issued to ITT Industries for
the period April 1, 1974 to September 12, 1985 and to U.S. Borax (another
former owner) for the period September 12, 1985 to December 31, 1985. We have
not sought coverage under these policies. Although we cannot provide any
assurance, coverage under these policies may be available to us. Ottawa Silica
Company (a predecessor that merged into U.S. Silica in 1987) had insurance
coverage on an occurrence basis prior to July 1, 1985.
Except as set forth above, U.S. Silica currently is not insured or
indemnified for product liability claims related to alleged silica exposure,
including for any exposure after January 1, 1986.
The silica-related litigation brought against us to date has not resulted in
any material liability to us. However, it is likely that we will continue to
have silica-related product liability claims filed against us, including claims
that allege silica exposure for periods after January 1, 1986. We cannot
guarantee or assure you that our current indemnity agreement with ITT
Industries (which currently expires in 2005 and in any event only covers
alleged exposure to U.S. Silica products for the period prior to September 12,
1985), or potential insurance coverage (which, in any event, only covers
periods prior to January 1, 1986) will be adequate to cover any amount for
which we may be found liable in such suits. Any such claims or inadequacies of
the ITT Industries indemnity or insurance coverage could have a material
adverse effect on us.
Government Regulation
Environmental Matters. We are subject to a variety of governmental
regulatory requirements relating to the environment, including those relating
to our handling of hazardous materials and air and wastewater emissions. Some
environmental laws impose substantial penalties for noncompliance, and others,
such as the federal Comprehensive Environmental Response, Compensation, and
Liability Act, impose strict, retroactive and joint and several liability upon
persons responsible for releases of hazardous substances.
We believe that we have all material environmental permits, that our
operations are in substantial compliance with applicable laws and that any
noncompliance is not likely to have a material adverse effect on us. Through
periodic self-audits, we continually evaluate whether we must take additional
steps to ensure compliance with existing environmental laws. However, if we
fail to comply with present and future environmental laws and regulations, we
could be subject to liabilities or our operations could be interrupted. In
addition, future environmental laws and regulations could
61
<PAGE>
restrict our ability to expand our facilities or extract our mineral deposits
or could require us to acquire costly equipment or to incur other significant
expenses in connection with our business. Although we believe we have made
sufficient capital expenditures to achieve substantial compliance with existing
environmental laws and regulations, future events, including changes in
environmental requirements and the costs associated with complying with any
such requirements, could have a material adverse effect on us.
We have taken a number of steps to minimize potential environmental
liabilities and address environmental activities in a pro-active manner,
including:
. performing regular environmental audits;
. performing Phase 1 environmental assessments on all of our properties in
1995, and prior to acquisition on all properties acquired after that
time;
. removing all known underground storage tanks;
. replacing PCB-containing transformers with non-PCB transformers;
. entering into a national waste disposal contract that limits our waste
disposal liability; and
. developing and implementing an "environmental information management
system" to allow us to better track permits and compliance matters.
Some of our facilities have a long history of industrial operations. As
such, we may have liability for cleanup of contamination from historical
discharges of hazardous materials. For example, we may be required to remediate
groundwater contamination at our Rockwood, Michigan facility. Although the
contamination has not moved off of our site and has not affected drinking water
supplies, further action may be required by state authorities. Our Ottawa,
Illinois facility has trace levels of arsenic contamination in the groundwater
beneath the quarries. Studies show that there is no health risk to workers and
that the product is not contaminated. We believe that we have claims against
responsible third parties or have insurance coverage for these matters. We also
believe that, even assuming third-party or insurance recoveries are not
successful, all such remediation matters, individually or in the aggregate,
will not have a material adverse effect on us. We have identified other areas
of historic waste disposal on our properties. Historically, the waste, pallets,
bags, scrap metal and other wastes from the plant sites were dumped on certain
of our lands. The presence of the disposal areas has not materially impacted,
and is not expected to materially impact, our operations or otherwise have a
material adverse effect on us.
Regulation of Silica. The Occupational Safety and Health Administration
regulates work place exposure to crystalline silica at our customer locations
through a "permissible exposure level," commonly referred to as a PEL. OSHA has
designated crystalline silica as a priority for rulemaking and announced that
it will publish a Notice of Proposed Rule Making, or NPRM, on crystalline
silica in 2000. The NPRM is expected to propose a lower PEL for crystalline
silica. Although we are uncertain as to what OSHA will ultimately propose, it
is probable that a significantly lower PEL will be proposed for quartz, the
form of silica mined, processed and sold by us. However, we do not expect any
final OSHA rule on crystalline silica to be adopted until several years after
the NPRM is published.
The Mining Safety and Health Administration regulates occupational health
and safety matters for mining. Accordingly, MSHA regulates our quarries,
underground mines and industrial mineral processing facilities. The MSHA
"threshold limit value," or TLV, for crystalline silica as quartz is the same
as the current OSHA PEL. MSHA is expected to follow OSHA's actions regarding
the permissible limits of exposure to crystalline silica for mining.
The United States Environmental Protection Agency recently announced that it
would begin its review of crystalline silica in 1999 under its Integrated Risk
Information System ("IRIS") program.
62
<PAGE>
Essentially, the EPA will conduct a risk assessment regarding the cancer and
non-cancer health effects of crystalline silica and possibly develop reference
concentrations for non-cancer health effects and unit risk factors for cancer
health effects. These reference concentrations and unit risk factors, if
developed, will be entered into the EPA IRIS database. In addition, several
states have considered, and a few have promulgated, regulations regarding
crystalline silica air emissions. For example, in Oklahoma and Texas,
crystalline silica is considered a toxic air contaminant. As such, these states
have established maximum allowable ambient concentrations, or MAACs, for
crystalline silica (quartz). Generally, these MAACs establish limits for
facility crystalline silica emissions, measured at the facility property line.
The IRIS initiative and state MAAC standards could result in lower permit
limits requiring costly equipment upgrades or operational restrictions.
In 1999, Massachusetts proposed that crystalline silica be defined as a
toxic for purposes of the state's toxic use reduction act program. The toxic
use reduction act program imposes fees on the use of toxic substances and
requires certain users of toxic substances to develop plans to reduce the use
of the toxic substance. California requires that a warning accompany any
chemical that the state has published as being known to cause cancer. "Silica,
crystalline (airborne particles of respirable size)" has been included as a
carcinogen under these criteria since 1988. These state programs may have the
effect of reducing our customers' demand for silica products.
We believe that we materially comply with governmental requirements for
crystalline silica exposure and emissions and other regulations relating to
silica and plan to continue to comply with these regulations. However, we
cannot assure you that we will be able to comply with any new standards that
are adopted or that these new standards will not have a material adverse effect
on us by requiring us to modify our operations or equipment or shut down some
of our plants. Additionally, we cannot assure you that our customers will be
able to comply with any new standards or that any of these new standards will
not have a material adverse effect on our customers by requiring them to shut
down old plants and to relocate plants to locations with less stringent
regulations that are further away from us. Accordingly, we cannot at this time
reasonably estimate our costs of compliance or the timing of any costs
associated with any new standards, or any material adverse effects that any new
standards will have on our customers and, consequently, on us.
Mining and Processing of Minerals. In addition to the regulatory matters
described above, the industrial minerals and aggregates industries are subject
to extensive governmental regulation on matters such as permitting and
licensing requirements, plant and wildlife protection, wetlands protection,
reclamation and restoration of mining properties after mining is completed, the
discharge of materials into the environment, surface subsidence from
underground mining and the effects that mining has on groundwater quality and
availability. Our future success depends upon the quantity of our industrial
minerals and aggregates deposits and our ability to extract these deposits
profitably. It is difficult for us to estimate quantities of recoverable
deposits, in part due to future permitting and licensing requirements. We
believe we have obtained all material permits and licenses required to conduct
our present mining operations. However, we will need additional permits and
renewals of permits in the future. We may be required to prepare and present to
governmental authorities data pertaining to the impact that any proposed
exploration or production activities may have upon the environment. New site
approval procedures may require the preparation of archaeological surveys,
endangered species studies and other studies to assess the environmental impact
of new sites. Compliance with these regulatory requirements is expensive,
requires an investment of funds well before the potential producer knows if its
operation will be economically successful and significantly lengthens the time
needed to develop a new site. Furthermore, obtaining or renewing required
permits is sometimes delayed or prevented due to community opposition and other
factors beyond our control. New legal requirements, including those related to
the protection of the environment, could be adopted that could materially
adversely affect our mining operations (including the ability to
63
<PAGE>
extract mineral deposits), our cost structure or our customers' ability to use
our industrial minerals or aggregates products.
For most of our operations, state statutes and regulations or local
ordinances require that mine property be restored in accordance with specific
standards and an approved reclamation plan. We believe that we are making
adequate provisions for all expected reclamation and other costs relating to
expected mine closures in the reasonably foreseeable future. We believe that
future costs associated with reclamation provisions and mine closures will not
have a material adverse effect on us. Nevertheless, we could be adversely
affected if these provisions were later determined to be insufficient, or if
future costs associated with reclamation are significantly greater than our
current estimates.
64
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table identifies members of the Board of Directors and the
executive officers of the issuer and USS Holdings, the issuer's indirect
parent.
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
D. George Harris.......... 66 Chairman and Director
Anthony J. Petrocelli..... 62 Vice Chairman and Director
Richard E. Goodell........ 55 President, Chief Executive Officer and Director
Gary E. Bockrath.......... 47 Vice President and Chief Financial Officer
Craig S. Cinalli.......... 41 President of Better Materials Corporation
Richard J. Donahue........ 56 Vice President, Assistant Treasurer,
Assistant Secretary and Director
Donald G. Kilpatrick...... 45 Vice President and Secretary
Richard J. Nick........... 56 Vice President, Treasurer and Assistant Secretary
Richard J. Shearer........ 49 President of U.S. Silica Company
John A. Ulizio............ 44 Vice President and General Counsel
Arnold Chavkin............ 48 Director
Ruth Dreessen............. 44 Director
Timothy J. Walsh.......... 36 Director
</TABLE>
D. George Harris has been the Chairman and a director since 1996. Mr. Harris
has also been Chairman and a director of DGHA since 1989 and has served as an
officer or director of various affiliated companies, including Harris Chemical
Group, Inc., Harris Specialty Chemicals, Inc. and Penrice Pty Ltd. Mr. Harris
also serves as Chairman of the Shareholders Committee of Vestolit GmbH & Co.,
KG, a German manufacturer of polyvinylchloride and other chemicals. From 1987
through 1988, Mr. Harris was a Senior Advisor in the Investment Banking
Department of Robert Fleming & Co., Ltd. where he was involved in global
investment banking activities covering Europe, the Far East and the United
States. From 1981 through 1986, Mr. Harris was President of SCM Chemicals
(1981-1985) and SCM Corporation (1985-1986), a major producer of consumer and
industrial products. From 1975 through 1981, Mr. Harris was President of Rhone-
Poulenc Inc., Rhone-Poulenc's United States subsidiary. Mr. Harris is also a
director of McWhorter Technologies, Inc.
Anthony J. Petrocelli has been the Vice Chairman and a director since 1996.
Mr. Petrocelli was a co-founder of DGHA and has served as Vice Chairman of DGHA
since 1989. Mr. Petrocelli has served as an officer of various affiliated
companies, including Harris Chemical Group, Inc., Harris Specialty Chemicals,
Inc. and Penrice Pty Ltd. Mr. Petrocelli also serves as Vice Chairman of the
Shareholders Committee of Vestolit GmbH & Co., KG, a German manufacturer of
polyvinylchloride and other chemicals. From 1984 through 1986, Mr. Petrocelli
was the President of Crystal Greeting, Inc., a manufacturer and distributor of
greeting cards.
Richard E. Goodell has been the President and a director since 1996 and was
named Chief Executive Officer in 1999. He was appointed President of
Pennsylvania Glass Sand Corporation in 1985 and continued as President when
Pennsylvania Glass Sand was re-named U.S. Silica Company in 1986. Before
joining Pennsylvania Glass Sand in 1983 as Senior Vice President of Operations,
he worked in the mineral division of Pfizer (1971-1983) in various operating
and technical management positions and as an engineer at Sikorsky Aircraft
(1966-1971).
Gary E. Bockrath has been Senior Vice President of Finance of U.S. Silica
since 1993 and was named Vice President and Chief Financial Officer in 1999.
Previously, Mr. Bockrath was Vice
65
<PAGE>
President and Assistant Treasurer from 1996 to 1999. Mr. Bockrath was group
controller at Libbey-Owens-Ford Company prior to joining U.S. Silica in 1993.
He served in several finance positions at Guardian Industries, Inc. from 1984
to 1990, Peabody International Corporation from 1976 to 1984 and GTE Service
Corporation from 1974 to 1976.
Craig S. Cinalli has been President and Chief Operating Officer of Better
Materials since 1989. Prior to that, Mr. Cinalli held various positions at
Better Materials since 1980.
Richard J. Donahue has been Vice President, Assistant Treasurer and
Assistant Secretary and a director since 1996. Mr. Donahue was a co-founder of
DGHA and has served as Managing Director since 1989. Mr. Donahue has also
served as an officer of various affiliated companies, including Harris Chemical
Group, Inc. and Harris Specialty Chemicals, Inc. Prior to joining DGHA, Mr.
Donahue was Vice President in the Corporate Finance Department of Robert
Fleming & Co., Ltd. from 1987 through 1988. From 1978 through 1986, he held a
series of financial and corporate development positions at SCM Corporation.
Donald G. Kilpatrick has been Vice President and Secretary since 1996. Since
1992, Mr. Kilpatrick has also been a Managing Director and General Counsel of
DGHA and has served as an officer of various affiliated companies, including
Harris Chemical Group, Inc. and Harris Specialty Chemicals, Inc. From 1981 to
1992, Mr. Kilpatrick was an attorney with Winthrop, Stimson, Putnam & Roberts,
where he was made a member of the firm in 1990. Mr. Kilpatrick is currently on
a leave of absence from Winthrop. Winthrop provides legal services to us on an
ongoing basis.
Richard J. Nick has been Vice President, Treasurer and Assistant Secretary
since 1996. Mr. Nick has also been a Managing Director of DGHA since 1989. From
1989 to 1998 Mr. Nick was an officer of various affiliated companies including
Harris Chemical Group, Inc. and Harris Specialty Chemicals, Inc. From 1987 to
1989, Mr. Nick was Vice President--Finance & Administration of Baltimore Spice,
Inc., a subsidiary of Hanson, plc.
Richard J. Shearer was named President of U.S. Silica in 1999. Previously,
Mr. Shearer was Executive Vice President of U.S. Silica from 1997 to 1999.
Before joining U.S. Silica in 1997, he held the position of Vice President,
General Manager at North American Chemical Company. Mr. Shearer previously held
various positions in sales, market management and operations for 16 years at
Union Carbide Corporation, rising to the position of Vice President--Unison
Division.
John A. Ulizio has been Vice President and General Counsel since 1996. Mr.
Ulizio joined U.S. Silica in 1991 as Associate General Counsel, was named
Secretary in 1994 and assumed the management of environmental, health and
safety matters in 1994. Prior to joining U.S. Silica, Mr. Ulizio was in private
practice in western Pennsylvania, concentrating in litigation, including the
defense of products liability cases asserted against sellers of silica-
containing materials.
Arnold Chavkin has been a director since 1996. He has been a General Partner
of CCP since 1992. Prior to joining CCP in 1992, Mr. Chavkin was a member of
Chemical Bank's merchant banking group and a generalist in its corporate
finance group specializing in mergers and acquisitions and private placements
for the energy industry.
Ruth Dreessen has been a director since 1996. She is also a Managing
Director of CSI. Ms. Dreessen joined The Chase Manhattan Corporation in 1980 in
its international department. Since 1987, Ms. Dreessen has primarily focused on
structuring leveraged chemical industry transactions. In 1994, Ms. Dreessen
opened the Houston office of Chase's Global Chemicals Group.
Timothy J. Walsh has been a director since 1998. He is also a partner with
CCP. Prior to joining CCP in 1996, Mr. Walsh worked for The Chase Manhattan
Corporation where he held positions in various industry-focused client teams in
North America. Mr. Walsh currently also serves on the board of directors of
MetoKote Holdings, Inc.
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<PAGE>
Executive and Director Compensation
Executive Compensation. The following table sets forth information regarding
the annual compensation for services rendered to us during the fiscal years
ended December 31, 1999, 1998 and 1997 by our (i) chief executive officer and
(ii) four other most highly compensated executive officers (collectively, the
"Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
--------------------------------- ----------------
All Other
Other Annual Compensation
Name and Principal Compensation Restricted Stock ($) (3) (4)
Position Year Salary ($) Bonus ($) ($) Award(s) ($) (2) (5)
- ------------------------ ---- ---------- --------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Goodell...... 1999 $238,125 $196,685 -- $61,350 8,569
Chief Executive Officer 1998 215,700 94,512 -- -- 8,929
1997 271,250 149,188 -- -- 8,947
Richard J. Shearer...... 1999 $219,675 $123,018 -- $69,530 $ 19,244(6)
President 1998 196,200 78,480 $ 40,825(1) -- 14,479
(U.S. Silica Company) 1997 77,083 38,542 20,000(1) -- --
Craig S. Cinalli........ 1999 $175,000 $138,600 -- $24,540 $ 10,536(7)
President 1998 8,000 -- -- -- 165,000(8)
(Better Materials
Corporation) 1997 -- -- -- -- --
Lewis McM. Pettinos..... 1999 $186,624 $114,960 -- -- $ 720
Vice President 1998 76,958 55,241 -- -- --
(George F. Pettinos,
Inc.) 1997 -- -- -- -- --
Brian Hessenthaler...... 1999 $175,000 $123,200 -- $24,540 $ 1,051
Senior Vice President 1998 8,000 -- -- -- 165,000(8)
(Better Materials
Corporation) 1997 -- -- -- -- --
</TABLE>
- --------
(1) Reflects payment by Better Minerals & Aggregates of expenses for
relocation.
(2) As of December 31, 1999, outstanding shares of restricted stock held by the
Named Executive Officers were as follows: Mr. Goodell, 15,000 shares; Mr.
Shearer, 17,000 shares; Mr. Cinalli, 6,000 shares; and Mr. Hessenthaler,
6,000 shares.
(3) Includes Life Insurance premiums paid by us on behalf of the Named
Executive Officers for 1999 as follows: Mr. Goodell, $1,770; Mr. Shearer,
$660; Mr. Cinalli, $60; and Mr. Hessenthaler, $57.
(4) Includes matching contributions by Better Minerals & Aggregates to the U.S.
Silica Company Retirement Savings and Investment Plan for Salaried
Employees on behalf of the Named Executive Officers for 1999 as follows:
Mr. Goodell, $6,799; and Mr. Shearer, $9,292.
(5) Includes imputed income from the personal use of a company-owned vehicle in
1999 for each of the Named Executive Officers as follows: Mr. Cinalli,
$876; Mr. Hessenthaler, $994; and Mr. Pettinos, $720.
(6) Includes maximum annual contributions by Better Minerals & Aggregates for
1999 in the amount of $6,400 to the U.S. Silica Company Retirement Savings
and Investment Plan for Salaried Employees on behalf of Mr. Shearer. In
addition, includes a contribution by Better Minerals & Aggregates in the
amount of $2,892 under the U.S. Silica Company Deferred Compensation Plan
for 1999 (which is designed to make up for benefits not payable under the
U.S. Silica Company Retirement Savings and Investment Plan for Salaried
Employees due to Internal Revenue Code limitations) on behalf of Mr.
Shearer.
(7) Includes imputed income from the personal use of a company-owned residence
in 1999 by Mr. Cinalli in the amount of $9,600.
(8) In December 1998, Mr. Cinalli and Mr. Hessenthaler each entered into an
employment agreement with the Company that provided for a one-time signing
bonus of $165,000.
67
<PAGE>
U.S. Silica Company Retirement Plan for Salaried Employees
<TABLE>
<CAPTION>
Years of Service
-------------------------------------------------------------------
Remuneration 15 20 25 30 35
- ------------ ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $29,100 $ 38,800 $ 48,400 $ 58,100 $ 67,800
150,000 35,400 47,200 59,000 70,700 82,500
175,000 41,700 55,600 69,500 83,400 97,200
200,000 48,000 64,000 80,000 96,000 112,000
225,000 54,300 72,400 90,500 108,600 126,700
250,000 60,600 80,800 101,000 121,200 141,400
300,000 73,200 97,600 122,000 146,400 170,800
400,000 98,400 131,300 164,100 196,900 229,700
</TABLE>
At December 31, 1999, credited Years of Service under the U.S. Silica
Company Retirement Plan for Salaried Employees (the "Retirement Plan") for Mr.
Goodell, the only Named Executive Officer who participates, were 18 years. The
compensation covered by the Retirement Plan includes the amount listed in the
salary column of the Summary Compensation Table only. The estimated annual
retirement benefit indicated in the Retirement Plan table includes enhanced
pension provisions under the U.S. Silica Company Pension Restoration Plan,
which is an unfunded plan providing benefits to participants in the Retirement
Plan that are not payable under the Retirement Plan because of the limitations
stipulated by the Internal Revenue Code. Estimated benefits set forth in the
Retirement Plan table were calculated on the basis of a single life annuity.
Annual benefits payable under the Retirement Plan are not offset by any amount.
Better Materials Corporation Pension Plan
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------------------------
Remuneration 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000 $18,710 $24,947 $31,183 $37,420 $43,657
150,000 23,142 30,857 38,571 46,285 53,999
175,000 27,120 36,160 45,199 54,239 63,279
200,000 27,749 36,998 46,248 55,497 64,747
</TABLE>
At December 31, 1999, credited Years of Service under the Better Materials
Corporation Pension Plan ("BMC Plan") for Mr. Cinalli was 19 years and Mr.
Hessenthaler was 15 years. The compensation covered under the BMC Plan includes
total cash remuneration paid to the Named Executive Officer. Estimated benefits
set forth in the BMC Plan table were calculated on the basis of a single life
annuity, and are not offset by any amount.
Employment Agreements. In December 1998, Better Materials Corporation
entered into substantially similar employment agreements with each of Messrs.
Cinalli and Hessenthaler. The employment agreements each provide for a two-year
term at a base salary of $175,000 per year, plus a performance-based bonus, a
signing bonus of $165,000, eligibility for a grant of restricted stock, and the
use of a company-owned vehicle. Under his agreement, Mr. Cinalli is also
entitled to live in a company-owned residence. These agreements provide for
termination of employment upon disability, death or cause, as defined in the
agreements. Better Materials Corporation may terminate the executive's
employment for any reason other than "cause" with thirty days' prior written
notice. If Better Materials Corporation terminates the executive without cause,
the executive is entitled to severance in the amount of two years'
compensation. The executives are subject to confidentiality and non-compete
covenants contained in their agreements.
Director Compensation. Members of our Board of Directors are not compensated
for their services as directors, but may be reimbursed for actual expenses
incurred in attending meetings of the Board of Directors or committees thereof.
68
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans to Stockholders to Purchase Series B Preferred Stock
In 1996, our indirect parent, USS Holdings, made loans to certain of its
management stockholders in order to finance their purchase of USS Holdings'
Series B preferred stock. The loans are evidenced by promissory notes that
accrue interest at 7% per annum payable quarterly, and are collateralized by
the stock. Loans outstanding as of December 31, 1999 were approximately
$449,000.
New Credit Facilities and Old Notes
CSI is syndication agent, book manager, lead arranger and documentation
agent under the new credit facilities, and The Chase Manhattan Bank, an
affiliate of CSI, is a lender under the new credit facilities. CSI was an
initial purchaser of the old notes and both CSI and The Chase Manhattan Bank
are affiliates of CCP. Certain other affiliates of CCP that own a majority of
the outstanding preferred stock of USS Holdings have the right under the
stockholders agreement to appoint three directors of USS Holdings. See
"Security Ownership of Certain Beneficial Owners and Management." Arnold
Chavkin, one of our directors, is also a general partner of CCP. Ruth Dreessen,
one of our directors, is also a managing director of CSI. Timothy J. Walsh, one
of our directors, is also a partner with CCP.
Management Services Agreement
Pursuant to an agreement among the issuer, USS Holdings, BMAC Holdings and
DGHA, DGHA (the principals of which are stockholders of USS Holdings) provides
management advisory services to us from time to time. In consideration of these
management services, we have agreed to pay an annual management fee to DGHA.
The base annual fee is $500,000 but is adjusted based on the amount that our
actual EBITDA (as defined in the agreement) for a fiscal year exceeds or falls
short of a budgeted EBITDA for that fiscal year. Pursuant to the agreement, the
budgeted EBITDA for a fiscal year and the amount of the fee are adjusted for
acquisitions approved by the stockholders as provided in the stockholders
agreement or any disposition of stock or assets. We estimate that we will pay
approximately $955,000 to DGHA as the annual management fee in 2000. The
agreement provides that in the event of a business acquisition by us, we will
pay DGHA an acquisition fee equal to 1% of the total purchase price of the
acquisition, including all third party indebtedness assumed by us in connection
with the acquisition.
The agreement also provides that, at DGHA's request, U.S. Silica is
obligated to provide DGHA with one or more interest-free loans not exceeding an
aggregate of $1.0 million in any calendar year. As of the date of this
prospectus, a loan of $1.0 million is currently outstanding. This loan is
guaranteed by D. George Harris, Anthony J. Petrocelli, Richard J. Donahue,
Donald G. Kilpatrick and Richard J. Nick. Finally, pursuant to the agreement,
the other companies party to the agreement will reimburse DGHA for all
transaction expenses incurred in relation to completed acquisitions; those
companies will also reimburse DGHA for other expenses incurred relating to
company business up to $100,000 in any calendar year. The agreement initially
terminates on December 31, 2000, but shall be automatically extended unless
terminated (i) by USS Holdings or DGHA upon nine months' prior written notice,
(ii) upon certain events of sale, merger, change of stock ownership or
appointment of additional directors or (iii) at the option of USS Holdings if
neither Messrs. Harris or Petrocelli is actively involved in the management of
DGHA.
We paid approximately $877,000 in management fees and $672,000 in
acquisition fees for the year ended December 31, 1999 under this agreement.
Additionally, $1,040,000 in accrued acquisition fees relating to Commercial
Stone were unpaid as of December 31, 1999.
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<PAGE>
Tax Sharing Agreement
Pursuant to a tax sharing agreement, USS Holdings has agreed to file
consolidated federal income tax returns (and in certain circumstances, state
and local income tax returns) with the issuer and its domestic subsidiaries.
Under this agreement, the issuer has agreed to pay USS Holdings amounts
designed to approximate the amount of income tax that the issuer and its
domestic subsidiaries would have paid had the issuer filed consolidated federal
income tax returns (and, if applicable, state and local income tax returns)
separate from USS Holdings.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership
All of our outstanding capital stock is owned by BMAC Holdings, which in
turn is wholly owned by USS Holdings. On the closing date, in connection with
the initial portion of the cash equity contribution, USS Holdings issued 15,000
shares of Series D preferred stock, 135,350 shares of Class A common stock,
365,903 shares of Class B common stock, warrants to purchase 97,480 shares of
Class B common stock and warrants to purchase 14,298 shares of Class C common
stock, for an aggregate purchase price of $35.0 million principally to certain
existing stockholders consisting of an affiliate of CCP, affiliates of
Massachusetts Mutual Life Insurance Company and certain principals of DGHA.
In connection with the initial portion of the cash equity contribution, the
right of first refusal set forth in the stockholders agreement was waived by
the necessary holders of USS Holdings' capital stock under the stockholders
agreement. However, USS Holdings offered to those stockholders who were not
offered the opportunity to purchase additional equity on the closing date the
right to purchase, pro rata based on each such stockholder's equity ownership
immediately prior to the closing date, up to an aggregate of 89,737 shares of
Class A common stock, 2,685 shares of Series D preferred stock, warrants to
purchase up to 17,452 shares of Class B common stock and warrants to purchase
up to 2,551 shares of Class C common stock after the closing date. Depending on
the results of the additional offering, stockholders who purchased Series D
preferred stock on the closing date will receive on a pro rata basis additional
warrants to purchase Class B common stock. Any shares not purchased in the
additional offering will not be issued or reoffered. All purchasers of common
and preferred stock and warrants to purchase common stock pursuant to the cash
equity contribution are subject to the terms of the stockholders agreement.
The following table sets forth, to the best of our knowledge, certain
information regarding the ownership of the capital stock of USS Holdings as of
March 31, 2000 with respect to the following: (i) each person known by us to
own beneficially more than 5% of the outstanding shares of any class of capital
stock of USS Holdings; (ii) each of our directors; (iii) each of the named
executive officers set forth in the table under "Management--Executive and
Director Compensation--Executive Compensation"; and (iv) all of our directors
and executive officers as a group.
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<PAGE>
Except as otherwise indicated, each person listed in the following table has
sole voting and investment power with respect to the shares listed opposite
that person's name.
<TABLE>
<CAPTION>
Percentage of
Beneficial Owners(1) Shares of Common Stock Common Stock(2)*
-------------------- -------------------------------- -----------------------
Class A(3) Class B(4) Class C(5) Class A Class B Class C
---------- ---------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Chase Manhattan Capital,
L.P.(9)(10)............ 0 340,069 8,800 ** 79.8% 2.3%
Massachusetts Mutual
Life Insurance
Company(11)............ 0 104,211 2,697 ** 27.1% **
D. George Harris(12).... 124,653 8,186 42,291 24.9% 2.2% 11.1%
Anthony J.
Petrocelli(13)(15)..... 73,222 5,184 41,850 14.6% 1.4% 11.0%
Richard E. Goodell...... 6,640 0 15,000 1.3% ** 3.9%
Richard J. Donahue...... 65,972 1,950 41,376 13.7% ** 10.8%
Richard J. Shearer...... 1,059 0 17,000 ** ** 4.5%
Craig S. Cinalli........ 2000 0 6,000 0.4% ** 1.6%
Brian Hessenthaler...... 2000 0 6,000 0.4% ** 1.6%
Lewis McM. Pettinos..... 0 0 0 ** ** **
Richard J. Nick(15)..... 34,161 1,744 41,346 6.8% ** 10.8%
Donald G.
Kilpatrick(13)......... 50,962 0 41,090 10.2% ** 10.8%
Arnold Chavkin(10)(14).. 0 0 0 ** ** **
Ruth Dreessen........... 0 0 0 ** ** **
Timothy J.
Walsh(10)(14).......... 0 0 0 ** ** **
All directors and
officers as a group (13
persons) (10)(12)(14).. 386,317 17,064 269,748 77.2% 4.5% 70.3%
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Beneficial Owners(1) Shares of Preferred Stock Preferred Stock(2)*
-------------------- ----------------------------------- --------------------------
Series A(6) Series B(7) Series D(8) Series A Series B Series D
----------- ----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Chase Manhattan Capital,
L.P.(9)(10)............ 678,035 1,356,070 9,232 74.2% 66.9% 61.5%
Massachusetts Mutual
Life Insurance
Company(11)............ 207,778 415,556 2,829 22.4% 20.2% 18.9%
D. George Harris(12).... 15,268 57,495 1,260 1.7% 2.9% 8.4%
Anthony J.
Petrocelli(13)......... 9,035 27,070 780 1.0% 1.4% 5.2%
Richard E. Goodell...... 0 20,000 0 ** 1.0% **
Richard J. Donahue...... 1,104 16,291 300 ** ** 2.0%
Richard J. Shearer...... 596 1,775 0 ** ** **
Craig S. Cinalli........ 0 0 0 ** ** **
Brian Hessenthaler...... 0 0 0 ** ** **
Lewis McM. Pettinos..... 0 0 0 ** ** **
Richard J. Nick......... 3,312 16,874 268 ** ** 1.8%
Donald G.
Kilpatrick(13)......... 1,534 9,422 0 ** ** **
Arnold Chavkin(10)(14).. 0 0 0 ** ** **
Ruth Dreessen........... 0 0 0 ** ** **
Timothy J.
Walsh(10)(14).......... 0 0 0 ** ** **
All directors and
officers as a group (13
persons)
(10)(12)(14)........... 30,849 168,927 2,608 3.4% 8.4% 17.4%
</TABLE>
- --------
* All share percentages assume that each respective beneficial owner, and
only that owner, has exercised its warrants to purchase shares of preferred
stock or common stock, as the case may be, of USS Holdings, if any. The
preferred stock warrants were issued in connection with the issuance of
subordinated debt in February 1996. The common stock warrants were issued
in connection with the cash equity contribution in October 1999.
** Less than 1%.
(1) The address of Chase Manhattan Capital, L.P. and its affiliates referred
to in note (9) below is c/o Chase Capital Partners, 380 Madison Avenue,
12th Floor, New York, New York 10017. The address of Massachusetts Mutual
Life Insurance Company and its affiliates is 1295 State Street,
Springfield, Massachusetts 01111. The address of each other person is c/o
D. George Harris & Associates, Inc., 399 Park Avenue, 32nd Floor, New
York, New York 10022.
(2) Notwithstanding the enumerated percentage shares of beneficial ownership
of common and preferred stock, a stockholders agreement dated as of
February 9, 1996, as amended (the "stockholders agreement"), among all of
the stockholders of USS Holdings (the "Stockholders") governs the
Stockholders' exercise of their voting rights with respect to election of
directors and certain other material events. The parties to the
stockholders agreement have agreed to vote their shares of USS Holdings to
elect the Board of Directors as set forth therein. See "--The Stockholders
Agreement."
72
<PAGE>
(3) Holders of Class A common stock are entitled to one vote with respect to
all matters to be voted on by USS Holdings' Stockholders for each share of
Class A common stock held, subject to the stockholders agreement.
(4) Holders of Class B common stock, except as otherwise required by law, have
no voting rights. The Class B common stock will automatically be converted
into shares of Class A common stock on a one-for-one basis at the time of
a trigger event or an event of conversion. A "trigger event" is defined in
the stockholders agreement as (i) a default under certain debt documents
or a failure to achieve a designated level of EBITDA (as defined in the
stockholders agreement), (ii) after February 9, 2000, the passage of 180
days after CMCLP (as defined in note (9)) has exercised its right to
demand a sale of USS Holdings and the failure of the principals of DGHA to
sell USS Holdings or purchase the shares of the Institutional Stockholders
(as defined below) or (iii) both D. George Harris and Anthony J.
Petrocelli no longer serving on the USS Holdings' Board of Directors due
to death, disability or resignation. An "event of conversion" is defined
in the stockholders agreement as (i) the consummation of an initial public
offering resulting in net proceeds to USS Holdings and/or any selling
stockholders of not less than $30 million or (ii) the conversion of more
than 50% of the Series B preferred stock originally issued. CB Capital (as
defined in note 9) and certain DGHA principals, so long as they hold at
least 50% of the then outstanding shares of the Class B common stock and
Class C common stock issued or issuable upon exercise of the Class B and
Class C common stock purchase warrants and Mass Mutual, so long as it
holds at least 50% of the then outstanding Class B common stock and Class
C common stock issued or issuable upon exercise of the Class B and Class C
common stock purchase warrants held by Mass Mutual, have the right to
require USS Holdings to purchase all (but not less than all) of the Class
B and Class C common stock purchase warrants and shares issued upon
exercise of such warrants held by such holder or holders at any time after
October 1, 2004 and prior to a sale, public offering of common stock or
liquidation of USS Holdings. Upon the exercise of those put rights, if USS
Holdings cannot obtain the consents from third parties necessary to
purchase those shares after using reasonable efforts, USS Holdings will be
released from its obligation to purchase the warrants. At any time after
October 1, 2005, USS Holdings has the right to purchase all (but not less
than all) of the warrants to purchase shares of Class B common stock held
by CB Capital, Mass Mutual and certain DGHA principals.
(5) Holders of Class C common stock are entitled to one vote with respect to
all matters to be voted on by USS Holdings' stockholders for each share of
Class C common stock held, subject to the stockholders agreement. Those
shares are subject to repurchase by USS Holdings in certain circumstances
upon the occurrence of certain liquidity events, including the sale of all
or substantially all of the assets of USS Holdings and its subsidiaries, a
merger of USS Holdings or any subsidiary and a sale of USS Holdings and
upon the occurrence of certain termination events, including death,
disability, retirement or termination of employment. The total number of
shares of Class C common stock issuable under the warrants will be reduced
by the number of shares of Class C common stock which did not vest and/or
which are repurchased in accordance with the terms of the restricted stock
purchase agreements pursuant to which the shares of Class C common stock
are issued. CB Capital (as defined in note 9) and certain DGHA principals,
so long as they hold at least 50% of the then outstanding shares of the
Class B common stock and Class C common stock issued or issuable upon
exercise of the Class B and Class C common stock purchase warrants and
Mass Mutual, so long as it holds at least 50% of the then outstanding
Class B common stock and Class C common stock issued or issuable upon
exercise of the Class B and Class C common stock purchase warrants held by
Mass Mutual, have the right to require USS Holdings to purchase all (but
not less than all) of the Class B and Class C common stock purchase
warrants and shares issued upon exercise of such warrants held by such
holder or holders at any time after October 1, 2004 and prior to a sale,
public offering of common stock or liquidation of USS Holdings. Upon the
exercise of those put rights, if USS Holdings cannot obtain the consents
from third parties necessary to purchase those shares after using
reasonable efforts, USS Holdings will be released from its obligation to
purchase the warrants. At any time after October 1, 2005, USS Holdings has
the right to purchase all (but not less than all) of the warrants to
purchase shares of Class C common stock held by CB Capital, Mass Mutual
and certain DGHA principals.
(6) Holders of Series A preferred stock, except as otherwise required by law,
have no voting rights, except in the event that there is a proposal to
amend the terms of the Series A preferred stock so as to affect it
adversely or a proposal to authorize or issue (i) any equity or
convertible debt securities or (ii) certain rights to purchase equity or
convertible debt securities, in either case ranking equal or superior to
the Series A preferred stock (with certain exceptions), which shall then
require the consent of the holders of two-thirds of the outstanding shares
of Series A preferred stock. Holders of more than 50% of the Series B
preferred stock originally issued have the right to require USS Holdings
to purchase all (but not less than all) of the shares of Series A
preferred stock and warrants to purchase Series A preferred stock held by
CVCA (as defined in note (9)) and Mass Mutual (as defined in note (11)) at
any time after October 1, 2004 and prior to a sale, public offering of
common stock or liquidation of USS Holdings. Upon the exercise of those
put rights, if USS Holdings cannot obtain the consents from third parties
necessary to purchase those shares and warrants after using reasonable
efforts, USS Holdings will be released from its obligation to purchase the
shares and warrants. At any time after October 1, 2005, USS Holdings has
the right to purchase all (but not less than all) of the Series A
preferred stock held by CVCA and Mass Mutual.
(7) Holders of Series B preferred stock shall not, prior to the occurrence of
a "trigger event" (as defined in note (4) above), have any voting rights,
except as otherwise required by law and except in the event of a proposal
to authorize or issue additional shares of Series B preferred stock or
change the preferences, rights or powers of the Series B preferred stock
so as to affect it adversely, which shall then require the consent of the
holders of a majority of the outstanding shares of Series B preferred
stock. After a trigger event, the holders of Series B preferred stock
shall vote, together with the
73
<PAGE>
holders of Class A common stock, as one class, with each share of Series B
preferred stock entitling its holder to that number of votes equal to the
number of shares of common stock issuable upon conversion thereof
(currently one share of Class B common stock for each share of Series B
preferred stock (subject to adjustment)) on the date of any such vote,
subject to the Stockholders Agreement. Holders of more than 50% of the
Series B preferred stock originally issued have the right to require USS
Holdings to purchase all (but not less than all) of the shares of Series B
preferred stock and warrants to purchase Series B preferred stock held by
CVCA (as defined in note (9)) and Mass Mutual (as defined in note (11)) at
any time after October 1, 2004 and prior to a sale, public offering of
common stock or liquidation of USS Holdings. Upon the exercise of those put
rights, if USS Holdings cannot obtain the consents from third parties
necessary to purchase those shares and warrants after using reasonable
efforts, USS Holdings will be released from its obligation to purchase the
shares and warrants. At any time after October 1, 2005, USS Holdings has
the right to purchase all (but not less than all) of the Series B preferred
stock held by CVCA and Mass Mutual. The Series B preferred stock will
automatically be converted into an equal number of shares of Class B common
stock (before a trigger event) or Class A common stock (after a trigger
event) upon an event of conversion (as defined in note (4) above).
Moreover, any holder of the Series B preferred stock can at any time and
from time to time convert all or a portion of his Series B preferred stock
into an equal number of shares of Class B common stock (before a trigger
event) or Class A common stock (after a trigger event).
(8) Holders of Series D preferred stock, except as otherwise required by law,
have no voting rights, except in the event there is a proposal to amend
the terms of the Series D preferred stock so as to affect it adversely or
a proposal to authorize or issue (i) any equity or convertible debt
securities or (ii) certain rights to purchase equity or convertible debt
securities, in either case ranking equal or superior to the Series D
preferred stock, which shall then require the consent of the holders of a
majority of the outstanding shares of Series D preferred stock.
(9) Includes (i) 664,146 shares of Series A preferred stock and 1,328,292
shares of Series B preferred stock owned by Chase Manhattan Capital, L.P.
("CMCLP"), a Delaware limited partnership, the general partner of which
is Chase Manhattan Capital Corporation ("CMCC"), (ii) 13,889 shares of
Series A preferred stock and 27,778 shares of Series B preferred stock
issuable upon exercise of preferred stock warrants owned by Chase Venture
Capital Associates, L.P. ("CVCA"), a California limited partnership, the
general partner of which is CCP and (iii) 9,232 shares of Series D
preferred stock, 280,076 shares of Class B common stock and 59,993 shares
of Class B common stock issuable upon the exercise of common stock
warrants and 8,800 shares of Class C Common Stock issuable upon exercise
of common stock purchase warrants owned by CB Capital Investors, L.P.
("CB Capital"), an affiliate of CMCLP and CVCA. Each of CMCLP, CMCC,
CVCA, CB Capital and CCP may be deemed the beneficial owner of the
foregoing shares. CMCLP, CVCA and CB Capital are licensed small business
investment companies (an "SBIC") and as such are subject to certain
restrictions imposed upon SBICs by the regulations established and
enforced by the United States Small Business Administration. Among these
restrictions are certain limitations on the extent to which an SBIC may
exercise control over companies in which it invests.
(10) Messrs. Chavkin and Walsh may be deemed the beneficial owners of the
shares of common stock and preferred stock and warrants to purchase
preferred and common stock referred to in note (9) above given their
positions as a general partner and partner, respectively, of CCP.
(11) Includes (i) 180,000 shares of Series A preferred stock and warrants to
purchase 27,778 shares of Series A preferred stock, (ii) 360,000 shares
of Series B preferred stock and warrants to purchase 55,556 shares of
Series B preferred stock (iii) 2,829 shares of Series D preferred stock,
(iv) 85,827 shares of Class B common stock, (v) warrants to purchase
18,384 shares of Class B common stock issuable upon exercise of common
stock purchase warrants and (vi) 2,697 shares of Class C common stock
issuable upon exercise of common stock purchase warrants owned by
Massachusetts Mutual Life Insurance Company, MassMutual Participation
Investors, MassMutual Corporate Investors and Gerlach & Co (collectively,
"Mass Mutual").
(12) Does not include 18,092 shares of Class A common stock, 938 shares of
Series A preferred stock, 20,647 shares of Series B preferred stock, 219
shares of Series D preferred stock, 1,421 shares of Class B common stock
issuable upon exercise of common stock purchase warrants and 208 shares
of Class C common stock issuable upon exercise of common stock purchase
warrants held in two trusts over which Mr. Harris, as co-trustee, shares
voting control and investment control.
(13) Does not include 22,025 shares of Class A common stock, 13,500 shares of
Series B preferred stock, 95 shares of Series D preferred stock, 619
shares of Class B common stock issuable upon exercise of common stock
purchase warrants and 91 shares of Class C common stock issuable upon
exercise of common stock purchase warrants held in fourteen trusts over
which Messrs. Petrocelli and Kilpatrick, as co-trustees, share voting
control and investment control.
(14) Does not include the shares of common stock and preferred stock and
warrants to purchase preferred and common stock referred to in note (9)
above.
(15) Does not include 750 shares of Class A Common held in two trusts over
which Messrs. Nick and Petrocelli as co-trustees share voting control and
investment control.
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<PAGE>
The Stockholders Agreement
The stockholders agreement governs the holders' exercise of their voting
rights with respect to election of directors and certain other material events.
The parties to the agreement have agreed to vote their shares of USS Holdings
to elect (i) for as long as Mr. Harris owns 50% or more of the securities of
USS Holdings (subject to certain exceptions set forth in the agreement) held by
him on February 9, 1996 (the date of the U.S. Silica acquisition), two
directors designated by Mr. Harris, including himself; (ii) for as long as Mr.
Petrocelli owns 50% or more of the securities of USS Holdings (subject to
certain exceptions set forth in the agreement) held by him on February 9, 1996,
one director designated by Mr. Petrocelli, and (iii) three directors designated
by a majority of the institutional stockholders party to the stockholders
agreement (the "Institutional Stockholders"). CMCLP currently owns 76.5% of the
stock owned by the Institutional Stockholders. For so long as each shall be a
director, Mr. Harris will always be elected as Chairman of the board, and Mr.
Petrocelli will always be elected as the Vice Chairman of the board. The
President of USS Holdings is also a director. Upon a trigger event, a majority
of the Institutional Stockholders have the right to designate two additional
directors, thus enabling them to choose the majority of directors serving on
the board.
The provisions of the stockholders agreement also govern:
. restrictions on certain actions by USS Holdings and its subsidiaries
without the consent of (i) prior to the occurrence of a trigger event, a
majority of the Institutional Stockholders and the DGHA Stockholders (as
defined in the stockholders agreement), and (ii) after the occurrence of
a trigger event, a majority of the Institutional Stockholders only,
including, among other things: the consummation of a public offering;
the issuance of certain equity securities; the merger or consolidation
with or into another entity; the acquisition of another entity; certain
sales of assets; the liquidation or reorganization of USS Holdings; and
the incurrence of certain debt;
. stockholder rights of first refusal to purchase certain capital stock or
equity securities to be issued by USS Holdings;
. USS Holdings' and stockholder rights of first offer to purchase certain
shares of USS Holdings to be sold by stockholders;
. USS Holdings' and stockholder rights to purchase, and stockholder rights
to sell, certain shares of USS Holdings held by stockholders in certain
instances (including a person's termination of employment);
. rights of certain stockholders to cause all of the other stockholders to
sell stock in connection with the sale of USS Holdings; and
. rights of certain stockholders to participate in certain sales of the
shares of USS Holdings by other stockholders.
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<PAGE>
DESCRIPTION OF THE NEW CREDIT FACILITIES
The following summary of the new credit facilities is qualified in its
entirety by reference to the complete text of the facilities themselves and all
ancillary documents, copies of which will be available upon request.
General
On the closing date we entered into the new credit facilities, consisting of
the $45.0 million tranche A term loan facility, the $95.0 million tranche B
term loan facility, the $50.0 million revolving credit facility and the $40.0
million acquisition term loan facility. CSI, one of the initial purchasers of
the old notes, is syndication agent, book manager, lead arranger and
documentation agent. Banque Nationale de Paris, an affiliate of the other
initial purchaser of the old notes, is administrative agent, collateral agent
and a lender. The Chase Manhattan Bank, an affiliate of CSI, is also a lender.
On the closing date, we borrowed the full amount of the term loans
(including a portion of the tranche A term loan facility denominated in
Canadian dollars in an amount equal to $2.0 million borrowed by George F.
Pettinos (Canada) Limited). Our borrowings under the new credit facilities were
used, together with the proceeds of the offering of the old notes and the cash
equity contribution, to (i) finance the Commercial Stone acquisition, (ii)
repay certain debt and (iii) pay related fees and expenses. The Canadian
tranche of the tranche A term loan facility was repaid in connection with our
sale of George F. Pettinos (Canada) Limited on February 29, 2000.
Availability under the new credit facilities is subject to various
conditions precedent typical of bank loans, and the commitment of the lenders
to provide financing under the new credit facilities is also subject to, among
other things, the absence of any event, condition or circumstance that has had
or is reasonably expected to have a material adverse effect on our business
operations, properties, assets or financial condition, taken as a whole.
Term Loans
Excluding the Canadian tranche, which was retired on February 29, 2000, the
tranche A term loan facility will mature six years after the closing date and
amortize as follows: $1.20 million per quarter for the first two quarters
commencing with the quarter ending June 30, 2000, $1.55 million per quarter for
the following four quarters and $2.15 million per quarter for the last sixteen
quarters.
The tranche B term loan facility will mature eight years after the closing
date and amortize as follows: $0.25 million per quarter for the first four
quarters commencing with the quarter ending December 31, 1999, $0.5 million per
quarter for the following twenty quarters, $9.0 million per quarter for the
following four quarters and $12.0 million per quarter for the last four
quarters.
Amounts repaid or prepaid under the term loans will not be permitted to be
reborrowed.
Revolving Credit Facility
The revolving credit facility will mature six years after the closing date
and include sublimits of $12.0 million and $3.0 million, respectively, for
letters of credit and swingline loans. Amounts repaid under the revolving
credit facility may be reborrowed. We are using the proceeds of the revolving
credit facility for general corporate purposes, including working capital and
capital expenditures, but excluding acquisitions.
Acquisition Term Loan Facility
The acquisition term loan facility will mature six years after the closing
date and amortize in quarterly installments after the third anniversary of the
closing date.
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The acquisition term loan facility is available for three years after the
closing date, during which we may make no more than three borrowings. Each
borrowing is conditioned on, among other things, our leverage ratio (after
giving effect to that borrowing and the relevant acquisition) not exceeding
5.00 to 1.00. Amounts repaid under the acquisition term loan facility will not
be permitted to be reborrowed.
Guarantees and Security
Our obligations under the new credit facilities are unconditionally and
irrevocably guaranteed, jointly and severally, by BMAC Holdings and each of the
issuer's existing and subsequently acquired or organized domestic subsidiaries.
The new credit facilities are secured by liens on substantially all the assets
of BMAC Holdings, the issuer and each of the issuer's existing and subsequently
acquired or organized domestic subsidiaries, including but not limited to, and
subject to customary exceptions, the following:
. a first priority pledge of all the capital stock of the issuer;
. a first priority pledge of all the capital stock held by BMAC Holdings,
the issuer and each existing or subsequently acquired or organized
domestic subsidiary of the issuer in each existing or subsequently
acquired or organized domestic subsidiary of the issuer and 65% of the
capital stock held by those entities in that existing or subsequently
acquired or organized foreign subsidiary of the issuer; and
. perfected first-priority security interests in substantially all of the
tangible and intangible assets (including, but not limited to, accounts
receivable, inventory, trademarks, other intellectual property,
licensing agreements, real property, leasehold mortgages, cash and
proceeds of the foregoing) held by BMAC Holdings, the issuer and each of
the issuer's existing or subsequently acquired or organized domestic
subsidiaries.
Interest Rates
Indebtedness under the tranche A term loan facility, the acquisition term
loan facility and the revolving credit facility bears interest at an adjusted
London inter-bank offered rate ("LIBOR") plus 3.00% or the higher of Banque
Nationale de Paris' prime rate and the Federal Funds effective rate plus 0.50%
("ABR") plus 2.00%, to be selected at our option and subject to increase or
reduction based on our leverage ratio.
Indebtedness under the tranche B term loan facility bears interest at LIBOR
plus 3.50% or ABR plus 2.50%, to be selected at our option.
Amounts outstanding under the new credit facilities not paid when due bear
interest at a default rate equal to 2.00% above the rates otherwise applicable
to the loans under the new credit facilities.
Fees
We have paid or are currently paying (i) commitment fees of 0.75% and 0.50%
per annum on the undrawn portion of the commitments in respect of the
acquisition term loan facility and the revolving credit facility, respectively,
subject to reduction based on our leverage ratio; (ii) letter of credit fees on
the aggregate face amount of outstanding letters of credit equal to the then
applicable borrowing margin for LIBOR loans under the revolving credit facility
and a 0.25% per annum issuing bank fee for the issuing bank; (iii) annual
administration fees; and (iv) agent, arrangement and other similar fees.
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Optional and Mandatory Prepayment
We have the right to prepay borrowings under the new credit facilities,
subject to paying certain costs and expenses in certain circumstances. In
addition, the term loans are subject to mandatory prepayments in an amount
equal to (i) 100% of the net cash proceeds of certain equity issuances by BMAC
Holdings or any of its subsidiaries, (ii) 100% of the net cash proceeds of
certain debt issuances by BMAC Holdings or any of its subsidiaries, (iii) 75%
of the excess cash flow of the issuer and its subsidiaries (subject to decrease
to 50% upon satisfaction of certain financial criteria) and (iv) 100% of the
net cash proceeds of certain asset sales or other dispositions of property by
BMAC Holdings or any of its subsidiaries, in each case subject to certain
exceptions.
Certain Covenants
The new credit facilities contain customary covenants, including:
. restrictions on our ability to pay dividends or other distributions;
. redeem or repurchase capital stock;
. dispose of assets;
. prepay other debt or amend other debt instruments (including the
indenture);
. create liens on assets;
. make investments, loans or advances;
. change the business conducted by us;
. make capital expenditures;
. engage in certain transactions with affiliates;
. incur lease obligations;
. incur other debt and enter into other credit facilities; and
. merge with and acquire other entities.
The new credit facilities also require us to comply with certain maintenance
covenants, including a maximum leverage ratio and a minimum interest coverage
ratio.
Events of Default
The new credit facilities contain customary events of default, including,
but not limited to:
. nonpayment of principal, interest or fees;
. violation of covenants;
. incorrectness of representations or warranties in any material respect;
. cross-default to other debt;
. ERISA events;
. material judgments and liabilities;
. invalidity of security interests;
. bankruptcy; and
. change in control.
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DESCRIPTION OF THE NEW NOTES
Definitions of certain terms used in this description of the new notes may
be found under the heading "--Certain Definitions." For purposes of this
section, the term (i) "Company" refers only to Better Minerals & Aggregates
Company and not any of its subsidiaries, (ii) "Parent" refers only to BMAC
Holdings, Inc. and not any of its subsidiaries and (iii) "Holdings" refers only
to USS Holdings, Inc. and not any of its subsidiaries, in each case until a
successor replaces it, and thereafter, means the successor. All of the
Company's Domestic Subsidiaries guarantee the notes and therefore are subject
to many of the provisions contained in this description of the new notes. Each
company which guarantees the notes is referred to in this section as a "Note
Guarantor." Each such guarantee is termed a "Note Guarantee."
The Company issued the old notes and will issue the new notes under the
indenture, dated as of October 1, 1999, among the Company, the Note Guarantors
and The Bank of New York, as trustee (the "Trustee"), a copy of which has been
filed as an exhibit to the registration statement of which this prospectus is a
part. The indenture contains provisions which define your rights under the
notes. In addition, the indenture governs the obligations of the Company and of
each Note Guarantor under the notes. The terms of the notes include those
stated in the indenture and those made part of the indenture by reference to
the TIA.
On October 1, 1999, the Company issued $150.0 million aggregate principal
amount of old notes under the indenture. The terms of the new notes are
identical in all material respects to the old notes, except the new notes will
not contain transfer restrictions and holders of new notes will no longer have
any registration rights or be entitled to any liquidated damages. The Trustee
will authenticate and deliver new notes for original issue only in exchange for
a like principal amount of old notes. Any old notes that remain outstanding
after the consummation of the exchange offer, together with the new notes, will
be treated as a single class of securities under the indenture. Accordingly,
all references in this section to specified percentages in aggregate principal
amount of the outstanding notes shall be deemed to mean, at any time after the
exchange offer is consummated, such percentage in aggregate principal amount of
the old notes and the new notes then outstanding.
The following description is meant to be only a summary of certain
provisions of the indenture. It does not restate the terms of the indenture in
their entirety. We urge that you carefully read the indenture as it, and not
this description, governs your rights as Holders.
Overview of the New Notes and the Note Guarantees
The New Notes
The new notes:
. are general unsecured obligations of the Company;
. rank equally in right of payment with all existing and future Senior
Subordinated Indebtedness of the Company;
. are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
. are senior in right of payment to all existing and future Subordinated
Obligations of the Company;
. are effectively subordinated to any Secured Indebtedness of the Company
and its Subsidiaries to the extent of the value of the assets securing
such Indebtedness; and
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. are effectively subordinated to all liabilities (including Trade
Payables) and Preferred Stock of each Subsidiary of the Company that is
not a Note Guarantor.
The Note Guarantees
The old notes are, and the new notes will be, initially guaranteed by each
of the Company's Domestic Subsidiaries existing on the Closing Date.
The Note Guarantee of each Note Guarantor, and all Note Guarantees, if any,
made by future subsidiaries of the Company:
. is a general unsecured obligation of such Note Guarantor;
. ranks equally in right of payment with all existing and future Senior
Subordinated Indebtedness of such Note Guarantor;
. is subordinated in right of payment to all existing and future Senior
Indebtedness of such Note Guarantor;
. is senior in right of payment to all existing and future Subordinated
Obligations of such Note Guarantor; and
. is effectively subordinated to any Secured Indebtedness of that Note
Guarantor and its Subsidiaries to the extent of the value of the assets
securing that Indebtedness.
The notes will not be guaranteed by the Company's Canadian Subsidiary unless
such Subsidiary Guarantees any Indebtedness (other than Indebtedness of a
Restricted Subsidiary that is not a Note Guarantor). This Canadian Subsidiary
is an inactive company that has an immaterial amount of assets and liabilities.
Principal, Maturity and Interest
We issued the old notes in an aggregate principal amount of $150.0 million.
The notes are limited to $150,000,000 in aggregate principal amount and will
mature on September 15, 2009. The old notes are, and the new notes will be, in
fully registered form, without coupons, in denominations of $1,000 and any
integral multiple of $1,000.
Each note bears interest at a rate of 13% per annum from the Closing Date,
or from the most recent date to which interest has been paid or provided for.
We will pay interest semiannually on March 15 and September 15 of each year, to
Holders of record at the close of business on the March 1 or September 1
immediately preceding the interest payment date. We will pay interest on
overdue principal and, to the extent lawful, overdue installments of interest
at the rate borne by the notes.
Holders of old notes whose old notes are accepted for exchange in the
exchange offer will be deemed to have waived the right to receive any payment
in respect of interest on the old notes accrued from March 15, 2000 (the first
interest payment date of the old notes) to the date of issuance of the new
notes. Consequently, Holders who exchange their old notes for new notes will
receive the same interest payment on September 15, 2000 (the next interest
payment date with respect to the old notes and the new notes following
consummation of the exchange offer) that they would have received had they not
accepted the exchange offer.
Paying Agent and Registrar
We will pay the principal of, premium, if any, and interest on the notes at
any office of ours or any agency designated by us which is located in the
Borough of Manhattan, The City of New York. We have initially designated the
corporate trust office of the Trustee to act as the agent of the Company in
such matters. The location of the corporate trust office is 101 Barclay Street,
Floor 21
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West, New York, New York 10286. We, however, reserve the right to pay interest
to Holders by check mailed directly to Holders at their registered addresses.
Holders may exchange or transfer their notes at the same location given in
the preceding paragraph. No service charge will be made for any registration of
transfer or exchange of notes. We, however, may require Holders to pay any
transfer tax or other similar governmental charge payable in connection with
any such transfer or exchange.
Optional Redemption
Except as set forth in the following paragraph, we may not redeem the notes
prior to September 15, 2004. After this date, we may redeem the notes, in whole
or in part, on not less than 30 nor more than 60 days' prior notice, at the
following redemption prices (expressed as percentages of principal amount),
plus accrued and unpaid interest and liquidated damages thereon, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on September 15 of the years set
forth below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2004.................................. 106.500%
2005.................................. 104.333%
2006.................................. 102.167%
2007 and thereafter................... 100.000%
</TABLE>
Prior to September 15, 2002, we may, on one or more occasions, also redeem
up to a maximum of 35% of the original aggregate principal amount of the notes
with the Net Cash Proceeds of one or more Public Equity Offerings (1) by the
Company or (2) by Parent or Holdings to the extent the Net Cash Proceeds
thereof are contributed to the Company or used to purchase Capital Stock (other
than Disqualified Stock) of the Company from the Company following which there
is a Public Market, at a redemption price equal to 113% of the principal amount
thereof, plus accrued and unpaid interest and liquidated damages thereon, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that after giving effect to any such redemption:
(1) at least 65% of the original aggregate principal amount of the notes
remains outstanding; and
(2) any such redemption by the Company must be made within 90 days of
such Public Equity Offering and must be made in accordance with certain
procedures set forth in the indenture.
Selection
If we partially redeem notes, the Trustee will select the notes to be
redeemed on a pro rata basis, by lot or by such other method as the Trustee
shall deem to be fair and appropriate, although no note of $1,000 in original
principal amount or less will be redeemed in part. If we redeem any note in
part only, the notice of redemption relating to such note shall state the
portion of the principal amount thereof to be redeemed. A new note in principal
amount equal to the unredeemed portion thereof will be issued in the name of
the Holder thereof upon cancellation of the original note. On and after the
redemption date, interest will cease to accrue on notes or portions thereof
called for redemption so long as we have deposited with the Paying Agent funds
sufficient to pay the principal of, plus accrued and unpaid interest and
liquidated damages, if any, on the notes to be redeemed.
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Ranking
The notes are unsecured Senior Subordinated Indebtedness of the Company, are
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company, rank equally in right of payment with all existing and future
Senior Subordinated Indebtedness of the Company and are senior in right of
payment to all existing and future Subordinated Obligations of the Company. The
notes also are effectively subordinated to any Secured Indebtedness of the
Company and its Subsidiaries to the extent of the value of the assets securing
such Indebtedness. However, payment from the money or the proceeds of U.S.
Government Obligations held in any defeasance trust described below under the
caption "--Defeasance" will not be subordinated to any Senior Indebtedness or
subject to the restrictions described herein.
The Note Guarantees are unsecured Senior Subordinated Indebtedness of the
applicable Note Guarantor, are subordinated in right of payment to all existing
and future Senior Indebtedness of such Note Guarantor, rank equally in right of
payment with all existing and future Senior Subordinated Indebtedness of such
Note Guarantor and are senior in right of payment to all existing and future
Subordinated Obligations of such Note Guarantor. The Note Guarantees also are
effectively subordinated to any Secured Indebtedness of the applicable Note
Guarantor and its Subsidiaries to the extent of the value of the assets
securing such Secured Indebtedness. As of December 31, 1999, our subsidiaries
had total liabilities, including trade payables, of approximately $487.3
million.
The Company currently conducts all of its operations through its
Subsidiaries. To the extent such Subsidiaries are not Guarantors, creditors of
such Subsidiaries, including trade creditors, and preferred stockholders, if
any, of such Subsidiaries generally will have priority with respect to the
assets and earnings of such Subsidiaries over the claims of creditors of the
Company, including Holders. The notes, therefore, are effectively subordinated
to the claims of creditors, including trade creditors, and preferred
stockholders, if any, of Subsidiaries of the Company that are not Note
Guarantors. This Canadian subsidiary is an inactive company that has an
immaterial amount of assets and liabilities.
As of December 31, 1999, there was outstanding:
(1) $135.9 million of Senior Indebtedness of the Company (exclusive of
unused commitments under the Credit Agreement), all which was Secured
Indebtedness;
(2) no Senior Subordinated Indebtedness of the Company (other than the
notes) and no indebtedness of the Company that is subordinate in right of
repayment to the notes;
(3) $1.6 million of Senior Indebtedness of the Note Guarantors
(exclusive of guarantees of Indebtedness under the Credit Agreement); and
(4) no Senior Subordinated Indebtedness of the Note Guarantors (other
than the Note Guarantees) and no Indebtedness of the Note Guarantors that
is subordinate or junior in right of payment to the Note Guarantees.
Although the indenture limits the Incurrence of Indebtedness by the Company
and the Restricted Subsidiaries and the issuance of Preferred Stock by the
Restricted Subsidiaries, such limitation is subject to a number of significant
qualifications. The Company and its Subsidiaries may be able to Incur
substantial amounts of Indebtedness in certain circumstances. Such Indebtedness
may be Senior Indebtedness.
"Senior Indebtedness" of the Company or any Note Guarantor means the
principal of, premium (if any) and accrued and unpaid interest on (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization of the Company or any Note Guarantor, regardless of whether or
not a claim for post-filing interest is allowed in such proceedings), and fees
and other amounts owing in respect of, Bank Indebtedness and all other
Indebtedness of the Company or any
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Note Guarantor, as applicable, whether outstanding on the Closing Date or
thereafter Incurred, unless in the instrument creating or evidencing the same
or pursuant to which the same is outstanding it is provided that such
obligations are not superior in right of payment to the notes or such Note
Guarantor's Note Guarantee, as applicable; provided, however, that Senior
Indebtedness of the Company or any Note Guarantor shall not include:
(1) any obligation of the Company to Parent, Holdings or any Subsidiary
of the Company or of such Note Guarantor to Parent, Holdings, the Company
or any other Subsidiary of the Company;
(2) any liability for federal, state, local or other taxes owed or owing
by the Company or such Note Guarantor, as applicable;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities but excluding liabilities of the
Company or a Note Guarantor, as applicable, with respect to performance or
surety bonds or similar obligations, in each case entered into in the
ordinary course of business);
(4) any Indebtedness or obligation of the Company or such Note
Guarantor, as applicable (and any accrued and unpaid interest in respect
thereof) that by its terms is subordinate or junior in right of payment to
any other Indebtedness or obligation of the Company or such Note Guarantor,
as applicable, including any Senior Subordinated Indebtedness and any
Subordinated Obligations of the Company or such Note Guarantor, as
applicable;
(5) any obligations with respect to any Capital Stock; or
(6) any Indebtedness Incurred in violation of the indenture.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the notes. The notes will rank equally in right of payment with all
other Senior Subordinated Indebtedness of the Company. The Company will not
Incur, directly or indirectly, any Indebtedness which is subordinate or junior
in ranking in any respect to Senior Indebtedness unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not
deemed to be subordinate or junior to Secured Indebtedness merely because it is
unsecured.
The Company may not pay principal of, premium (if any) or interest on the
notes, or make any deposit pursuant to the provisions described under
"Defeasance" below, and may not otherwise repurchase, redeem or otherwise
acquire or retire for value any notes (collectively, "pay the notes") if:
(1) any Designated Senior Indebtedness of the Company is not paid when
due, or
(2) any other default on any Designated Senior Indebtedness of the
Company occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms
unless, in either case,
(x) the default has been cured or waived and any such acceleration
has been rescinded, or
(y) such Designated Senior Indebtedness has been paid in full;
provided, however, that the Company may pay the notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative of the Designated Senior Indebtedness with
respect to which either of the events set forth in clause (1) or (2) above has
occurred and is continuing.
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During the continuance of any default (other than a default described in
clause (1) or (2) of the immediately preceding paragraph) with respect to any
Designated Senior Indebtedness of the Company pursuant to which the maturity
thereof may be accelerated immediately without further notice (except such
notice as may be required to effect such acceleration) or the expiration of any
applicable grace periods, we may not pay the notes for a period (a "Payment
Blockage Period") commencing upon the receipt by a Responsible Officer of the
Trustee (with a copy to us) of written notice (a "Blockage Notice") of such
default from the Representative of such Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter (or earlier if such Payment Blockage Period is terminated:
(1) by written notice to the Trustee and the Company from the person or
persons who gave such Blockage Notice,
(2) by repayment in full of such Designated Senior Indebtedness, or
(3) because the default giving rise to such Blockage Notice is no longer
continuing).
Notwithstanding the provisions described in the immediately preceding
paragraph (but subject to the provisions contained in the second preceding and
in the immediately succeeding paragraph), unless the holders of such Designated
Senior Indebtedness or the Representative of such holders have accelerated the
maturity of such Designated Senior Indebtedness, the Company may resume
payments on the notes after the end of such Payment Blockage Period, including
any missed payments.
Not more than one Blockage Notice may be given in any consecutive 360-day
period, irrespective of the number of defaults with respect to Designated
Senior Indebtedness during such period. However, if any Blockage Notice within
such 360-day period is given by or on behalf of any holders of Designated
Senior Indebtedness other than the Bank Indebtedness, the Representative of the
Bank Indebtedness may give another Blockage Notice within such period. In no
event, however, may the total number of days during which any Payment Blockage
Period or Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period. For purposes of this paragraph, no default or event of
default that existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis of the
commencement of a subsequent Payment Blockage Period by the Representative of
such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such default or event of default shall have been cured
or waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of the assets of the Company to creditors
upon a liquidation or a dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property:
(1) the holders of Senior Indebtedness of the Company will be entitled
to receive payment in full of such Senior Indebtedness before the Holders
are entitled to receive any payment of principal of or interest on the
notes; and
(2) until such Senior Indebtedness is paid in full any payment or
distribution to which Holders would be entitled but for the subordination
provisions of the indenture will be made to holders of such Senior
Indebtedness as their interests may appear, except that Holders may
receive:
(x) shares of stock; and
(y) any debt securities that are subordinated to such Senior
Indebtedness to at least the same extent as the notes.
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If a payment or distribution is made to Holders that due to the note
subordination provisions of the indenture should not have been made to them,
such Holders will be required to hold it in trust for the holders of Senior
Indebtedness of the Company and pay it over to them as their interests may
appear.
If payment of the notes is accelerated because of an Event of Default, the
Company or the Trustee (provided that the Trustee shall have received written
notice from the Company, on which notice the Trustee shall be entitled to
conclusively rely) shall promptly notify the holders of the Designated Senior
Indebtedness of the Company (or their Representative) of the acceleration. If
any Designated Senior Indebtedness of the Company is outstanding, the Company
may not pay the notes until five Business Days after such holders or the
Representative of such Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the notes only if the note subordination
provisions of the indenture otherwise permit payment at that time.
By reason of the subordination provisions of the indenture, in the event of
insolvency, creditors of the Company who are holders of Senior Indebtedness of
the Company may recover more, ratably, than the Holders, and creditors of the
Company who are not holders of Senior Indebtedness of the Company or of Senior
Subordinated Indebtedness of the Company (including the notes) may recover
less, ratably, than holders of Senior Indebtedness of the Company and may
recover more, ratably, than the holders of Senior Subordinated Indebtedness of
the Company.
The indenture contains substantially identical subordination provisions
relating to each Guarantor's obligations under its Note Guarantee.
Note Guarantees
The Note Guarantors, and certain future subsidiaries of the Company (as
described below), as primary obligors and not merely as sureties, jointly and
severally irrevocably and unconditionally Guarantee on an unsecured senior
subordinated basis the performance and full and punctual payment when due,
whether at Stated Maturity, by acceleration or otherwise, of all obligations of
the Company under the indenture (including obligations to the Trustee) and the
notes, whether for payment of principal of or interest on or liquidated damages
in respect of the old notes, expenses, indemnification or otherwise (all such
obligations guaranteed by such Note Guarantors being herein called the
"Guaranteed Obligations"). Such Note Guarantors agree or will agree to pay, in
addition to the amount stated above, any and all costs and expenses (including
reasonable counsel fees and expenses) incurred by the Trustee or the Holders in
enforcing any rights under the Note Guarantees. Each Note Guarantee is or will
be limited in amount to an amount not to exceed the maximum amount that can be
Guaranteed by the applicable Note Guarantor without rendering the Note
Guarantee, as it relates to such Note Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. The Company has agreed to cause
(a) each newly formed or acquired Domestic Subsidiary and (b) each existing,
newly formed or acquired Foreign Subsidiary that Guarantees any Indebtedness
(other than Indebtedness of a Restricted Subsidiary that is not a Note
Guarantor), to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Subsidiary will Guarantee payment of the notes. See
"Certain Covenants--Future Note Guarantors" below.
The obligations of a Note Guarantor under its Note Guarantee are senior
subordinated obligations. As such, the rights of Holders to receive payment by
a Note Guarantor pursuant to its Note Guarantee will be subordinated in right
of payment to the rights of holders of Senior Indebtedness of such Note
Guarantor. The terms of the subordination provisions described above with
respect to the Company's obligations under the notes apply equally to a Note
Guarantor and the obligations of such Note Guarantor under its Note Guarantee.
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Each Note Guarantee is a continuing guarantee and shall
. remain in full force and effect until payment in full of all the
Guaranteed Obligations,
. be binding upon each Note Guarantor and its successors and
. inure to the benefit of, and be enforceable by, the Trustee, the Holders
and their successors, transferees and assigns.
Any Guarantee by a Subsidiary of the Company will be automatically released
upon the sale or other disposition (including through merger or consolidation)
of the Capital Stock, or all or substantially all the assets, of the applicable
Subsidiary if such sale or other disposition is made in compliance with the
covenant described under the caption "Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock".
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's notes at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest (and, in
the case of the old notes, liquidated damages, if any), to the date of
repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date); provided,
however, that notwithstanding the occurrence of a Change of Control, the
Company shall not be obligated to repurchase notes pursuant to this section in
the event that it has exercised its right to redeem all the notes under the
terms of the section titled "Optional Redemption":
(1) prior to the earliest to occur of
(A) the first public offering of common stock of Parent,
(B) the first public offering of common stock of Holdings or
(C) the first public offering of common stock of the Company (each,
a "Public Market Offering"), the Permitted Holders cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of a majority in the aggregate
of the total voting power of the Voting Stock of Parent, Holdings or
the Company, whether as a result of issuance of securities of Parent,
Holdings or the Company, any merger, consolidation, liquidation or
dissolution of Parent, Holdings or the Company, any direct or indirect
transfer of securities by any Permitted Holder or otherwise (for
purposes of this clause (1) and clause (2) below, the Permitted Holders
shall be deemed to beneficially own any Voting Stock of an entity (the
"specified entity") held by any other entity (the "parent entity") so
long as the Permitted Holders beneficially own (as so defined),
directly or indirectly, in the aggregate a majority of the voting power
of the Voting Stock of the parent entity);
(2) after a Public Market Offering has occurred,
(A) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (1) above), whether
by merger, consolidation, other business combination or otherwise,
directly or indirectly, of more than 35% of the total voting power of
the Voting Stock of the Company, Holdings or Parent and
(B) the Permitted Holders "beneficially own" (as defined in clause
(1) above), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the
Company, Holdings or Parent than such other person and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of the
Company, Holdings or Parent, as the case may be (for the
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purposes of this clause (2), such other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a
parent entity, if such other person is the beneficial owner (as defined
in clause (1) above), directly or indirectly, of more than 35% of the
voting power of the Voting Stock of such parent entity and the
Permitted Holders "beneficially own" (as defined in clause (1) above),
directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent entity and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such
parent entity); or
(3) during any period of two consecutive years, individuals who at the
beginning of that period constituted the board of directors of the Company,
Holdings or Parent, as the case may be (together with any new directors
whose election by such board of directors of the Company, Holdings or
Parent, as the case may be, or whose nomination for election by the
shareholders of the Company, Holdings or Parent, as the case may be, was
approved by a vote of 662/3% of the directors of the Company, Holdings or
Parent, as the case may be, then still in office who were either directors
at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the board of directors of the Company, Holdings or Parent, as
the case may be, then in office; or
(4) the adoption of a plan relating to the liquidation or dissolution of
the Company, Holdings or Parent.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in
the immediately following paragraph but in any event within 45 days following
any Change of Control, the Company shall:
(1) repay in full all Bank Indebtedness or, if doing so will allow the
purchase of notes, offer to repay in full all Bank Indebtedness and repay
the Bank Indebtedness of each lender who has accepted such offer, or
(2) obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the notes as provided for in the
immediately following paragraph.
Within 45 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee (the "Change of Control
Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase all or a portion of such Holder's
notes at a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and liquidated damages, if any,
to the date of purchase (subject to the right of Holders of record on the
relevant record date to receive interest on the relevant interest payment
date);
(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
(3) the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
covenant, that a Holder must follow in order to have its notes purchased.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer made by the
Company and purchases all notes validly tendered and not withdrawn under such
Change of Control Offer.
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The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the initial purchasers of the old notes in the private
offering. Management has no present intention to engage in a transaction
involving a Change of Control, although it is possible that the Company would
decide to do so in the future. Subject to the limitations discussed below, the
Company could, in the future, enter into certain transactions, including
acquisitions, refinancings or recapitalizations, that would not constitute a
Change of Control under the indenture, but that could increase the amount of
indebtedness outstanding at such time or otherwise affect the Company's capital
structure or credit ratings. Restrictions on the ability of the Company to
Incur additional Indebtedness are contained in the covenants described under
"Certain Covenants--Limitation on Indebtedness." Such restrictions can only be
waived with the consent of the Holders of a majority in principal amount of the
notes then outstanding. Except for the limitations contained in such covenants,
however, the indenture will not contain any covenants or provisions that may
afford Holders protection in the event of a highly leveraged transaction.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may contain prohibitions of certain events which
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased or repaid upon a Change of Control. Moreover, the exercise by the
Holders of their right to require the Company to purchase the notes could cause
a default under such Senior Indebtedness, even if the Change of Control itself
does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the Holders upon a purchase may
be limited by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required purchases. The provisions under the indenture relative to the
Company's obligation to make an offer to purchase the notes as a result of a
Change of Control may be waived or modified with the written consent of the
Holders of a majority in principal amount of the notes.
Certain Covenants
The indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company and the Note Guarantors may Incur
Indebtedness if on the date of such Incurrence and after giving effect thereto
the Consolidated Coverage Ratio would be greater than 2.00:1 if such
Indebtedness is Incurred on or prior to December 31, 2001 and 2.25:1 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(1) (A) Bank Indebtedness in an aggregate principal amount not to exceed
$190.0 million less the aggregate amount of all prepayments of principal
applied to permanently reduce any such Indebtedness pursuant to the
covenant described under "--Limitation on Sales of Assets and Subsidiary
Stock" and
(B) (i) Indebtedness under the acquisition term loan facility in an
aggregate principal amount not to exceed $40.0 million less the aggregate
amount of all prepayments applied to
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permanently reduce any principal of such Indebtedness pursuant to the
covenant described under "--Limitation on Sales of Assets and Subsidiary
Stock"; provided, however, that at the time the Company or any Restricted
Subsidiary Incurs any Indebtedness under this clause (b)(1)(B), the Company
has a Consolidated Leverage Ratio of 5.00:1 or less; and (ii) any
Refinancing Indebtedness in respect thereof;
(2) Indebtedness of the Company owed to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or any Wholly Owned Subsidiary; provided, however, that
(A) any subsequent issuance or transfer of any Capital Stock or any
other event that results in any such Wholly Owned Subsidiary ceasing to
be a Wholly Owned Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or a Wholly Owned Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof,
(B) if the Company is the obligor on such Indebtedness, such
Indebtedness is made subordinate and junior in right of payment to the
notes and
(C) if a Restricted Subsidiary that is a Note Guarantor is the
obligor on such Indebtedness and such Indebtedness is owed to and held
by a Wholly Owned Subsidiary that is not a Note Guarantor, such
Indebtedness is expressly subordinated to the prior payment in full in
cash of all obligations of such Restricted Subsidiary with respect to
its Note Guarantee;
(3) Indebtedness
(A) represented by the notes and the Note Guarantees,
(B) outstanding on the Closing Date (other than the Indebtedness
described in clauses (1) and (2) above),
(C) consisting of Refinancing Indebtedness Incurred in respect of
any Indebtedness described in this clause (3) (including Indebtedness
that is Refinancing Indebtedness) or the foregoing paragraph (a),
(D) consisting of Guarantees of any Indebtedness permitted under
clauses (1) and (2) of this paragraph (b) and
(E) consisting of (i) Guarantees by the Company of Indebtedness or
other obligations of any of its Restricted Subsidiaries or (ii)
Guarantees by any Note Guarantor of Indebtedness of the Company or a
Restricted Subsidiary, in each case so long as the Incurrence of the
Indebtedness being Guaranteed is permitted under the terms of the
indenture; provided that if such Guaranteed Indebtedness is by its
express terms subordinated in right of payment to the notes or the Note
Guarantee of such Restricted Subsidiary, as applicable, any such
Guarantee of the Company or such Note Guarantor with respect to such
Indebtedness shall be subordinated in right of payment to the notes or
such Note Guarantor's Note Guarantee with respect to the notes
substantially to the same extent as such Indebtedness is subordinated
to the notes or the Note Guarantee of such Restricted Subsidiary, as
applicable;
(4) (A) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Restricted Subsidiary was acquired
(including by way of merger) by the Company or any Restricted Subsidiary
(other than Indebtedness Incurred as consideration in, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Subsidiary of or was otherwise acquired by
the Company); provided, however, that on the date
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that such Restricted Subsidiary is acquired, the Company or such Restricted
Subsidiary would have been able to Incur such Indebtedness under this
covenant and
(B) Refinancing Indebtedness Incurred by a Restricted Subsidiary in
respect of Indebtedness Incurred by such Restricted Subsidiary pursuant to
this clause (4);
(5) Indebtedness
(A) in respect of performance bonds, bankers' acceptances, letters
of credit and surety or appeal bonds provided by the Company or the
Restricted Subsidiaries in the ordinary course of their business, and
(B) under Currency Agreements, Interest Rate Agreements and
Commodity Agreements entered into for bona fide hedging purposes of the
Company or a Restricted Subsidiary in the ordinary course of business;
provided, however, that such agreements do not increase the
Indebtedness of the Company or the Restricted Subsidiaries outstanding
at any time other than as a result of fluctuations in interest rates,
currency exchange rates or commodity prices or by reason of fees,
indemnities and compensation payable thereunder;
(6) Indebtedness (including Capitalized Lease Obligations and
Attributable Debt) incurred by the Company or any of the Restricted
Subsidiaries to finance the purchase, lease or improvements of property
(real or personal) or equipment (whether through the direct purchase of
assets or the Capital Stock of any Person owning such assets) in an
aggregate principal amount which, when aggregated with the principal amount
of all other Indebtedness then outstanding and incurred pursuant to this
clause (6) and all Refinancing Indebtedness incurred to refund, refinance
or replace any Indebtedness incurred pursuant to this clause (6), does not
exceed the greater of $25.0 million or 5.0% of Total Assets;
(7) Indebtedness of Foreign Subsidiaries in an aggregate principal
amount not to exceed $15.0 million outstanding at any one time; or
(8) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to the foregoing paragraph (a) or any other clause of this
paragraph (b)) in an aggregate principal amount on the date of Incurrence
that, when added to all other Indebtedness Incurred pursuant to this clause
(8) and then outstanding, shall not exceed $30.0 million.
(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness pursuant to paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligations unless such Indebtedness will be
subordinated to the notes to at least the same extent as such Subordinated
Obligations. The Company may not Incur any Indebtedness if such Indebtedness is
subordinate or junior in ranking in any respect to any Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. In
addition, the Company may not Incur any Secured Indebtedness which is not
Senior Indebtedness unless contemporaneously therewith effective provision is
made to secure the notes equally and ratably with (or on a senior basis to, in
the case of Indebtedness subordinated in right of payment to the notes) such
Secured Indebtedness for so long as such Secured Indebtedness is secured by a
Lien. A Note Guarantor may not Incur any Indebtedness if such Indebtedness is
by its terms expressly subordinate or junior in ranking in any respect to any
Senior Indebtedness of such Note Guarantor unless such Indebtedness is Senior
Subordinated Indebtedness of such Note Guarantor or is expressly subordinated
in right of payment to Senior Subordinated Indebtedness of such Note Guarantor.
In addition, a Note Guarantor shall not Incur any Secured Indebtedness that is
not Senior Indebtedness of such Note Guarantor unless contemporaneously
therewith effective provision is made to secure the Note Guarantee of such Note
Guarantor equally and ratably with (or on a senior basis to, in the case of
Indebtedness subordinated in right of payment to such Note Guarantee) such
Secured Indebtedness for as long as such Secured Indebtedness is secured by a
Lien.
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(d) Notwithstanding any other provision of this covenant, the maximum amount
of Indebtedness that the Company or any Restricted Subsidiary may Incur
pursuant to this covenant shall not be deemed to be exceeded solely as a result
of fluctuations in the exchange rates of currencies. For purposes of
determining the outstanding principal amount of any particular Indebtedness
Incurred pursuant to this covenant:
(1) Indebtedness Incurred pursuant to the Credit Agreement prior to or
on the Closing Date shall be treated as Incurred pursuant to clause (1) of
paragraph (b) above,
(2) Indebtedness permitted by this covenant need not be permitted solely
by reference to one provision permitting such Indebtedness but may be
permitted in part by one such provision and in part by one or more other
provisions of this covenant permitting such Indebtedness, and
(3) in the event that Indebtedness meets the criteria of more than one
of the types of Indebtedness described in this covenant, the Company, in
its sole discretion, shall classify such Indebtedness and only be required
to include the amount of such Indebtedness in one of such clauses, and may
from time to time reclassify Indebtedness permitted under paragraph (b) of
this covenant among the different clauses thereof.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to:
(1) declare or pay any dividend, make any distribution on or in respect
of its Capital Stock or make any similar payment (including any payment in
connection with any merger or consolidation involving the Company or any
Subsidiary of the Company) to the direct or indirect holders of its Capital
Stock, except (x) dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and (y) dividends or distributions
payable to the Company or a Restricted Subsidiary (and, if such Restricted
Subsidiary has shareholders other than the Company or other Restricted
Subsidiaries, to its other shareholders on a pro rata basis),
(2) purchase, repurchase, redeem, retire or otherwise acquire for value
any Capital Stock of (i) Parent, Holdings or the Company held by Persons
other than the Company or a Restricted Subsidiary or (ii) any Restricted
Subsidiary (other than Preferred Stock that is not Voting Stock) held by
any Affiliate of the Company (other than a Restricted Subsidiary),
(3) purchase, repurchase, redeem, retire, defease or otherwise acquire
for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment any Subordinated Obligations of the Company or any
Note Guarantor (other than the purchase, repurchase redemption, retirement,
defeasance or other acquisition for value of Subordinated Obligations
acquired in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date
of acquisition), or
(4) make any Investment (other than a Permitted Investment) in any
Person (any such dividend, distribution, payment, purchase, redemption,
repurchase, defeasance, retirement, or other acquisition or Investment
being herein referred to as a "Restricted Payment") if at the time the
Company or such Restricted Subsidiary makes such Restricted Payment:
(A) a Default will have occurred and be continuing (or would result
therefrom);
(B) the Company could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "--
Limitation on Indebtedness"; or
(C) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to
be determined in good faith by the Board of Directors, whose
determination will be conclusive and evidenced by a
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resolution of the Board of Directors) declared or made subsequent to
the Closing Date would exceed the sum, without duplication, of:
(i) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the
Closing Date occurs to the end of the most recent fiscal quarter
ending at least 45 days prior to the date of such Restricted Payment
(or, in case such Consolidated Net Income will be a deficit, minus
100% of such deficit);
(ii) the aggregate Net Cash Proceeds received by the Company from
the issue or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Closing Date (other than an issuance or
sale to
(x) a Subsidiary of the Company or
(y) an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries);
(iii) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by or with a Subsidiary
of the Company) subsequent to the Closing Date of any Indebtedness
of the Company or its Restricted Subsidiaries issued after the
Closing Date which is convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company or a Note Guarantor
(less the amount of any cash or the Fair Market Value of other
property distributed by the Company or any Restricted Subsidiary
upon such conversion or exchange);
(iv) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from
(x) payments of dividends, repayments of the principal of
loans or advances or other transfers of assets to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries or
(y) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously
made by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary; and
(v) $5.0 million.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any purchase, repurchase, redemption, retirement or other
acquisition for value of Capital Stock of the Company or Subordinated
Obligations of the Company or any Note Guarantor made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Capital Stock
of the Company (other than Disqualified Stock and other than Capital Stock
issued or sold to a Subsidiary of the Company or an employee stock
ownership plan or other trust established by the Company or any of its
Subsidiaries); provided, however, that:
(A) such purchase, repurchase, redemption, retirement or other
acquisition for value will be excluded in the calculation of the amount
of Restricted Payments, and
(B) the Net Cash Proceeds from such sale applied in the manner set
forth in this clause (1) will be excluded from the calculation of
amounts under clause (4)(C)(ii) of paragraph (a) above;
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(2) any prepayment, repayment, retirement, purchase, repurchase,
redemption, retirement, defeasance or other acquisition for value of
Subordinated Obligations of the Company or a Note Guarantor made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company or a Note Guarantor that is permitted to be
Incurred pursuant to the covenant described under "--Limitation on
Indebtedness"; provided, however, that such prepayment, repayment,
purchase, repurchase, redemption, retirement, defeasance or other
acquisition for value will be excluded in the calculation of the amount of
Restricted Payments;
(3) any prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value of Subordinated
Obligations from Net Available Cash to the extent permitted by the covenant
described under "--Limitation on Sales of Assets and Subsidiary Stock";
provided, however, that such prepayment, repayment, purchase, repurchase,
redemption, retirement, defeasance or other acquisition for value will be
excluded in the calculation of the amount of Restricted Payments;
(4) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividends would have complied with this
covenant; provided, however, that such dividends will be included in the
calculation of the amount of Restricted Payments;
(5) any purchase, repurchase, redemption, retirement or other
acquisition for value of shares of, or options to purchase shares of,
Capital Stock (other than Disqualified Stock) of Holdings, Parent, the
Company or any of its Subsidiaries from employees, former employees,
officers, former officers, directors or former directors of the Company or
any of its Subsidiaries (or permitted transferees of such employees, former
employees, officers, former officers, directors or former directors),
pursuant to the terms of agreements (including employment agreements) or
plans (or amendments thereto) approved by the board of directors of the
Company, Parent or Holdings under which such individuals purchase or sell
or are granted the option to purchase or sell, shares of such Capital
Stock; provided, however, that the aggregate amount of such purchases,
repurchases, redemptions, retirements and other acquisitions for value,
together with the aggregate amount of payments made under clause (6)(C) of
this paragraph (b), shall not exceed in any calendar year the sum of
(x) $2.0 million and
(y) the cash proceeds received in such calendar year by the Company
or any Restricted Subsidiary from the sale of Capital Stock (other than
Disqualified Stock) of Holdings, Parent or the Company to employees,
officers or directors of the Company, provided that such cash proceeds
will not increase the amounts available for Restricted Payments under
clause (4)(C)(ii) of paragraph (a) above; provided further, however,
that such purchases, repurchases, redemptions, retirements and other
acquisitions for value shall be excluded in the calculation of the
amount of Restricted Payments; or
(6) any payment of dividends, other distributions or other amounts
(including in the form of loans or advances) by the Company for the
purposes set forth in clauses (A) through (C) below; provided, however,
that such dividends, distributions or other amounts set forth in clauses
(A) through (C) shall be excluded in the calculation of the amount of
Restricted Payments for the purposes of paragraph (a) above:
(A) to Parent or Holdings in amounts equal to the amounts required
for Parent or Holdings to pay franchise taxes and other fees required
to maintain its corporate existence and provide for other operating
costs in an aggregate amount of up to $350,000 per fiscal year;
(B) to Parent or Holdings in amounts equal to amounts required for
Parent or Holdings to pay federal, state and local income taxes to the
extent such income taxes are attributable to the income of the Company
and its Restricted Subsidiaries (and, to the extent of amounts actually
received from its Unrestricted Subsidiaries, in amounts required to pay
such taxes to the extent attributable to the income of such
Unrestricted Subsidiaries); and
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(C) to Parent or Holdings in amounts equal to amounts expended by
Parent or Holdings for any purchase, repurchase, redemption, retirement
or other acquisition for value of shares of, or options to purchase
shares of, Capital Stock (other than Disqualified Stock) of Parent or
Holdings from employees, former employees, officers, former officers,
directors or former directors of the Company or any of its Subsidiaries
(or permitted transferees of such employees, former employees,
officers, former officers, directors or former directors), pursuant to
the terms of agreements (including employment agreements) or plans (or
amendments thereto) approved by the board of directors of Parent or
Holdings under which such individuals purchase or sell or are granted
the option to purchase or sell, shares of such Capital Stock; provided,
however, that the aggregate amount of such purchases, repurchases,
redemptions, retirements and other acquisitions for value, together
with the aggregate amount of payments made under clause (5) of this
paragraph (b), shall not exceed in any calendar year the sum of
(x) $2.0 million and
(y) the cash proceeds received in such calendar year by the
Company or any Restricted Subsidiary from the sale of Capital Stock
(other than Disqualified Stock) of Holdings, Parent or the Company
to employees, officers or directors of the Company (provided that
such cash proceeds will not increase the amounts available for
Restricted Payments under clause (4)(C)(ii) of paragraph (a) above).
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
or pay any Indebtedness or other obligations owed to the Company;
(2) make any loans or advances to the Company; or
(3) transfer any of its property or assets to the Company, except:
(A) any encumbrance or restriction pursuant to applicable law or an
agreement in effect at or entered into on the Closing Date;
(B) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary prior to the date on which such
Restricted Subsidiary was acquired by the Company or a Restricted
Subsidiary (other than Indebtedness Incurred as consideration in, in
contemplation of, or to provide all or any portion of the funds or
credit support utilized to consummate the transaction or series of
related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was otherwise acquired by the Company
or a Restricted Subsidiary) and outstanding on such date;
(C) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (A) or (B) of this covenant or this
clause (3)(C) or contained in any amendment to an agreement referred to
in clause (A) or (B) of this covenant or this clause (3)(C); provided,
however, that the encumbrances and restrictions contained in any such
Refinancing agreement or amendment are no less favorable to the Holders
in any material respect than the encumbrances and restrictions
contained in such predecessor agreements;
(D) in the case of clause (3), any encumbrance or restriction
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(i) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, or
(ii) contained in security agreements securing Indebtedness of
the Company or a Restricted Subsidiary to the extent such
encumbrance or restriction restricts the transfer of the property
subject to such security agreements;
(E) with respect to a Restricted Subsidiary, any restriction imposed
pursuant to an agreement entered into for the sale or disposition of
all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; and
(F) any encumbrance or restriction existing or created pursuant to
Indebtedness permitted to be Incurred by a Restricted Subsidiary
subsequent to the Closing Date pursuant to the covenant described under
"--Limitations on Indebtedness"; provided, however, that any such
encumbrance or restrictions are reasonable and customary with respect
to the type of Indebtedness being Incurred (under the relevant
circumstances).
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the Fair Market Value of the
shares and assets subject to such Asset Disposition,
(2) except in the case of a Permitted Asset Swap, at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary
is in the form of cash, and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be)
(A) first, to the extent the Company elects (or is required by the
terms of any Indebtedness), to prepay, repay, purchase, repurchase,
redeem, retire, defease or otherwise acquire for value Senior
Indebtedness of the Company or Indebtedness of a Restricted Subsidiary
(in each case other than Indebtedness owed to the Company or an
Affiliate of the Company (other than an Affiliate of CCP which is a
lender in the ordinary course of business) and other than obligations
in respect of Disqualified Stock) within 180 days after the later of
the date of such Asset Disposition or the receipt of such Net Available
Cash;
(B) second, to the extent of the balance of Net Available Cash after
application in accordance with clause (A), to the extent the Company or
such Restricted Subsidiary elects, to reinvest in Additional Assets
(including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the Company
or another Restricted Subsidiary) within 180 days from the later of
such Asset Disposition or the receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to make an
Offer (as defined in paragraph (b) of this covenant below) to purchase
notes pursuant to and subject to the conditions set forth in paragraph
(b) of this covenant; provided, however, that if the Company elects (or
is required by the terms of any other Senior Subordinated
Indebtedness), such Offer may be made ratably to purchase the notes and
other Senior Subordinated Indebtedness of the Company; and
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(D) fourth, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C), for any
general corporate purpose permitted by the terms of the indenture;
provided, however, that in connection with any final prepayment, repayment,
purchase, repurchase, redemption, retirement, defeasance or other
acquisition for value of Indebtedness pursuant to clause (A), (C) or (D)
above, the Company or such Restricted Subsidiary will retire such
Indebtedness and will cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid, purchased, repurchased, redeemed, retired, defeased or otherwise
acquired for value. Pending final application of any Net Available Cash in
accordance with the foregoing, the Company or a Restricted Subsidiary may
use such Net Available Cash to temporarily reduce (and, within such 180-day
period, reborrow) Indebtedness or invest such Net Available Cash in
Temporary Cash Equivalents.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available
Cash in accordance with this covenant except to the extent that the aggregate
Net Available Cash from all Asset Dispositions that is not applied in
accordance with this covenant exceeds $7.5 million.
For the purposes of this covenant, the following are deemed to be cash:
. the assumption of Indebtedness of the Company (other than obligations in
respect of Disqualified Stock of the Company) or any Restricted
Subsidiary (other than obligations in respect of Disqualified Stock and
Preferred Stock of a Restricted Subsidiary that is not a Note Guarantor)
and the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset
Disposition, and
. securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of notes
pursuant to clause (a)(3)(C) of this covenant, the Company will be required (i)
to purchase notes tendered pursuant to an offer by the Company for the notes
(the "Offer") at a purchase price of 100% of their principal amount plus
accrued and unpaid interest and liquidated damages thereon, if any, to the date
of purchase (subject to the right of Holders of record on the relevant date to
receive interest due on the relevant interest payment date) in accordance with
the procedures (including prorating in the event of oversubscription), set
forth in the indenture and (ii) to purchase other Senior Subordinated
Indebtedness of the Company on the terms and to the extent contemplated thereby
(provided that in no event shall the Company offer to purchase such other
Senior Subordinated Indebtedness of the Company at a purchase price in excess
of 100% of its principal amount (without premium), plus accrued and unpaid
interest thereon, unless an equal premium is offered to Holders in the Offer).
If the aggregate purchase price of notes (and other Senior Subordinated
Indebtedness) tendered pursuant to the Offer is less than the Net Available
Cash allotted to the purchase of the notes (and other Senior Subordinated
Indebtedness), the Company will apply the remaining Net Available Cash in
accordance with clause (a)(3)(D) of this covenant. The Company will not be
required to make an Offer for notes (and other Senior Subordinated
Indebtedness) pursuant to this covenant if the Net Available Cash available
therefor (after application of the proceeds as provided in clauses (a)(3)(A)
and (B)) is less than $5.0 million for any particular Asset Disposition (which
lesser amount will be carried forward for purposes of determining whether an
Offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of
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notes pursuant to this covenant. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this covenant, the
Company will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under this covenant by
virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter
into or conduct any transaction or series of related transactions (including
the purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
such Affiliate Transaction is on terms:
(1) that are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the
time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate,
(2) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $1.0 million,
(A) are set forth in writing, and
(B) have been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction and,
(3) that, in the event such Affiliate Transaction involves an amount in
excess of $10.0 million, have been determined by a nationally recognized
appraisal or investment banking firm to be fair, from a financial
standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any Restricted Payment permitted to be paid pursuant to the covenant
described under "Limitation on Restricted Payments,"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors,
(3) the grant of stock options or similar rights to employees and
directors of the Company pursuant to plans approved by the Board of
Directors,
(4) loans or advances to employees in the ordinary course of business in
accordance with past practices of the Company or any Restricted Subsidiary,
but in any event not to exceed $2.0 million in the aggregate outstanding at
any one time,
(5) the payment of reasonable fees to directors of the Company and its
Subsidiaries who are not employees of the Company or its Subsidiaries,
(6) any transaction between the Company and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries, or
(7) the performance of any agreement as in effect as of the Closing Date
(including the Tax Sharing Agreement, dated July 21, 1998, and the Amended
and Restated Management Services Agreement, dated October 1, 1998) or any
amendment or replacement thereto so long as any such amendment or
replacement agreement is not more disadvantageous to the Holders of the
notes in any material respect than the original agreement as in effect as
of the Closing Date.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not sell or otherwise dispose of any shares of
Capital Stock (other than Preferred Stock that is not Voting Stock) of a
Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or
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indirectly, to issue or sell or otherwise dispose of any shares of its Capital
Stock (other than Preferred Stock that is not Voting Stock) except:
(1) to the Company or a Wholly Owned Subsidiary;
(2) if, immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary, or
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any Investment in such Person remaining after giving effect thereto
would have been permitted to be made under the covenant described under
"Limitation on Restricted Payments" if made on the date of such issuance,
sale or other disposition ( and such Investment shall be deemed to be an
Investment made for purposes of such covenant).
The proceeds of any sale of such Capital Stock subject to and permitted
hereby will be treated as Net Available Cash from an Asset Disposition and must
be applied in accordance with the terms of the covenant described under
"Limitation on Sales of Assets and Subsidiary Stock."
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the SEC (if it will accept such filing) and provide the Trustee
and Holders and prospective Holders (upon request) within 15 days after it
files them with the SEC, copies of its annual report and the information,
documents and other reports that are specified in Sections 13 and 15(d) of the
Exchange Act. In addition, following a Public Equity Offering, the Company
shall furnish to the Trustee and the Holders, promptly upon their becoming
available, copies of the annual report to shareholders and any other
information provided by the Company, Holdings or Parent to its public
shareholders generally. The Company also will comply with the other provisions
of Section 314(a) of the TIA.
Future Note Guarantors. The Company will cause (1) each Domestic Subsidiary
and (2) each Foreign Subsidiary that Guarantees any Indebtedness (other than
Indebtedness of a Restricted Subsidiary that is not a Note Guarantor) to become
a Note Guarantor, and if applicable, execute and deliver to the Trustee a
supplemental indenture in the form set forth in the indenture pursuant to which
such Subsidiary will Guarantee payment of the notes. Each Note Guarantee will
be limited to an amount not to exceed the maximum amount that can be Guaranteed
by that Note Guarantor, without rendering the Note Guarantee, as it relates to
such Note Guarantor voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
Limitation on Lines of Business. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any business, other than a Permitted
Business.
Merger and Consolidation
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") will be a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia
and the Successor Company (if not the Company) will expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
notes and the indenture;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or
any Restricted Subsidiary as a result of
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such transaction as having been Incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default shall
have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness under
paragraph (a) of the covenant described under "Limitation on Indebtedness";
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the indenture; and
(5) the Company shall have delivered to the Trustee an Opinion of
Counsel reasonably acceptable to the Trustee to the effect that the Holders
will not recognize income, gain or loss for federal income tax purposes as
a result of such transaction and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such transaction had not occurred.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the indenture, but the
predecessor Company in the case of a conveyance, transfer or lease of all or
substantially all its assets will not be released from the obligation to pay
the principal of and interest on the notes.
In addition, subject to certain exceptions, the Company will not permit any
Note Guarantor to consolidate with or merge with or into, or convey, transfer
or lease all or substantially all of its assets to any Person unless:
(1) the resulting, surviving or transferee Person (the "Successor
Guarantor") will be a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia
(unless the Successor Guarantor is a Foreign Subsidiary), and such Person
(if not a Note Guarantor) will expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to
the Trustee, all the obligations of such Note Guarantor under its Note
Guarantee;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Guarantor or
any Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Guarantor or such Restricted Subsidiary at the
time of such transaction), no Default shall have occurred and be
continuing; and
(3) the Company will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the indenture.
Notwithstanding the foregoing:
(A) any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company and
(B) the Company may merge with an Affiliate incorporated solely for
the purpose of reincorporating the Company in another jurisdiction to
realize tax or other benefits.
Defaults
Each of the following is an Event of Default:
(1) a default in any payment of interest on any note when due and
payable or in any payment of liquidated damages whether or not prohibited
by the provisions described under "Ranking" above, continued for 30 days;
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(2) a default in the payment of principal of any note when due and
payable at its Stated Maturity, upon required redemption or repurchase,
upon declaration or otherwise, whether or not such payment is prohibited by
the provisions described under "Ranking" above;
(3) the failure by the Company or any Subsidiary to comply with its
obligations under the covenant described under "Merger and Consolidation"
above;
(4) the failure by the Company or any Subsidiary to comply for 30 days
after receipt of notice with any of its obligations under the covenants
described under "Change of Control" or "Certain Covenants" above (in each
case, other than a failure to purchase notes);
(5) the failure by the Company or any Subsidiary to comply for 60 days
after receipt of notice with its other agreements contained in the notes or
the indenture;
(6) the failure by the Company or any Restricted Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity (which
has not subsequently been paid) or the acceleration (which has not been
rescinded) of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated
exceeds $10.0 million or its foreign currency equivalent (the "cross
acceleration provision") and such failure continues for 10 days after
receipt of the notice specified in the indenture;
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions");
(8) the rendering of any judgment or decree for the payment of money
(other than judgments or decrees which are covered by enforceable insurance
policies or indemnifications issued by or entered into with solvent
Persons) in excess of $10.0 million or its foreign currency equivalent is
rendered against the Company or a Restricted Subsidiary if:
(A) an enforcement proceeding thereon is commenced by any creditor
and is not stayed or dismissed within 10 days, or
(B) such judgment or decree remains outstanding for a period of 60
days following such judgment and is not discharged, waived or stayed
(the "judgment default provision"); or
(9) any Note Guarantee ceases to be in full force and effect (except as
contemplated by the terms thereof) or any Note Guarantor or Person acting
by or on behalf of such Note Guarantor denies or disaffirms such Note
Guarantor's obligations under the indenture or any Note Guarantee and such
Default continues for 10 days after receipt of the notice specified in the
indenture.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court
or any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (4), (5), (6) or (9) will not constitute an
Event of Default until the Trustee notifies the Company or the Holders of at
least 25% in principal amount of the outstanding notes notify the Company and
the Trustee of the default and the Company or the Note Guarantor, as
applicable, does not cure such default within the time specified in clauses
(4), (5), (6) or (9) hereof after receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and
is continuing, the Trustee by notice to the Company, or the Holders of at least
25% in principal amount of the outstanding notes by notice to the Company and
the Trustee, may declare the principal of and accrued but unpaid interest on
all the
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notes to be due and payable. Upon such a declaration, such principal and
interest will be due and payable immediately. If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization of the Company
occurs, the principal of and interest on all the notes will become immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holders. Under certain circumstances, the Holders of a majority in
principal amount of the outstanding notes may rescind any such acceleration
with respect to the notes and its consequences.
Subject to the provisions of the indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the indenture or the notes unless:
(1) such Holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) Holders of at least 25% in principal amount of the outstanding notes
have requested the Trustee in writing to pursue the remedy;
(3) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after
the receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the outstanding
notes have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding notes will be given the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the indenture or that the Trustee determines is unduly prejudicial to the
rights of any other Holder or that would involve the Trustee in personal
liability. Prior to taking any action under the indenture, the Trustee will be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
If a Default occurs and is continuing and is known to a Responsible Officer
of the Trustee, the Trustee must mail to each Holder notice of the Default
within the earlier of 90 days after it occurs or 30 days after it is known to a
Trust Officer or written notice of it is received by the Trustee. Except in the
case of a Default in the payment of principal of, premium (if any) or interest
on any note (including payments pursuant to the redemption provisions of such
note), the Trustee may withhold notice if and so long as a committee of its
Trust Officers in good faith determines that withholding notice is in the
interests of the Holders. In addition, the Company will be required to deliver
to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. The Company will also be required to deliver
to a Responsible Officer of the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Events of
Default, their status and what action the Company is taking or proposes to take
in respect thereof.
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Amendments and Waivers
Subject to certain exceptions, the indenture or the notes may be amended
with the written consent of the Holders of a majority in principal amount of
the notes then outstanding and any past default or compliance with any
provisions may be waived with the consent of the Holders of a majority in
principal amount of the notes then outstanding. However, without the consent
of each Holder of an outstanding note affected, no amendment may, among other
things:
(1) reduce the amount of notes whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest or any
liquidated damages on any note;
(3) reduce the principal of or extend the Stated Maturity of any note;
(4) reduce the premium payable upon the redemption of any note or
accelerate the time at which any note may be redeemed as described under
"Optional Redemption" above;
(5) make any note payable in money other than that stated in the note;
(6) make any change to the subordination provisions of the indenture
that adversely affects the rights of any Holder;
(7) impair the right of any Holder to receive payment of principal of,
and interest or any liquidated damages on, such Holder's notes on or after
the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such Holder's notes;
(8) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions; or
(9) modify the Note Guarantees in any manner adverse to the Holders in a
material respect.
Without the consent of any Holder, the Company and Trustee may amend the
indenture to:
. cure any ambiguity, omission, defect or inconsistency;
. provide for the assumption by a successor corporation of the obligations
of the Company under the indenture;
. provide for uncertificated notes in addition to or in place of
certificated notes (provided, however, that the uncertificated notes are
issued in registered form for purposes of Section 163(f) of the Code, or
in a manner such that the uncertificated notes are described in Section
163(f)(2)(B) of the Code);
. make any change in the subordination provisions of the indenture that
would limit or terminate the benefits available to any holder of Senior
Indebtedness of the Company (or any representative thereof) under such
subordination provisions;
. add additional Guarantees with respect to the notes;
. secure the notes;
. add to the covenants of the Company for the benefit of the Holders or to
surrender any right or power conferred upon the Company;
. make any change that does not adversely affect the rights of any Holder
in a material respect, subject to the provisions of the indenture;
. provide for the issuance of the new notes; or
. comply with any requirement of the SEC in connection with the
qualification of the indenture under the TIA.
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However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior
Indebtedness of the Company then outstanding unless the holders of such Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
The consent of the Holders will not be necessary to approve the particular
form of any proposed amendment. It will be sufficient if such consent approves
the substance of the proposed amendment.
After an amendment becomes effective, the Company is required to mail to
Holders a notice briefly describing such amendment. However, the failure to
give such notice to all Holders, or any defect therein, will not impair or
affect the validity of the amendment.
Transfer and Exchange
A Holder will be able to transfer or exchange notes. Upon any transfer or
exchange, the registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes required by law or permitted by
the indenture. The Company will not be required to transfer or exchange any
note selected for redemption or to transfer or exchange any note for a period
of 15 days prior to a selection of notes to be redeemed. The notes will be
issued in registered form and the Holder will be treated as the owner of such
note for all purposes.
Defeasance
The Company may at any time terminate all its obligations under the notes
and the indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the notes, to replace mutilated, destroyed, lost or
stolen notes and to maintain a registrar and paying agent in respect of the
notes.
In addition, the Company may at any time terminate:
(1) its obligations under the covenants described under "Certain
Covenants" and "Change of Control"; and
(2) the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment
default provision described under "Defaults" above and the limitations
contained in clause (3) under the first paragraph of "Merger and
Consolidation" above ("covenant defeasance").
In the event that the Company exercises its legal defeasance option or its
covenant defeasance option, each Note Guarantor will be released from all of
its obligations with respect to its Note Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the notes may not be accelerated because of an
Event of Default specified in clause (4), (6), (7) (with respect only to
Significant Subsidiaries) or (8) under "Defaults" above or because of the
failure of the Company to comply with clause (3) under the first paragraph of
"Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money in an amount
sufficient or U.S. Government Obligations, the principal of and interest on
which will be sufficient, or a combination thereof sufficient, to pay the
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of principal, premium (if any) and interest on, and liquidated damages, if any,
in respect of the notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel reasonably acceptable to the Trustee to the effect that
Holders will not recognize income, gain or loss for federal income tax purposes
as a result of such deposit and defeasance and will be subject to federal
income tax on the same amounts and in the same manner and at the same times as
would have been the case if such deposit and defeasance had not occurred (and,
in the case of legal defeasance only, such Opinion of Counsel must be based on
a ruling of the Internal Revenue Service or other change in applicable federal
income tax law).
Concerning the Trustee
The Bank of New York is the Trustee under the indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
notes.
Governing Law
The indenture and the notes will be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to applicable
principles of conflicts of law to the extent that the application of the law of
another jurisdiction would be required thereby.
Certain Definitions
"Acquisition Term Loan Facility" means the facility referred to as the
Acquisition Facility in the Credit Agreement.
"Additional Assets" means:
(1) any property or assets (other than Indebtedness and Capital Stock)
to be used by the Company or a Restricted Subsidiary in a Permitted
Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary; provided, however, that: any such
Restricted Subsidiary described in clauses (2) or (3) above is primarily
engaged in a Permitted Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants--Limitation on
Transactions with Affiliates" and "--Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial
owner of shares representing 10% or more of the total voting power of the
Voting Stock (on a fully diluted basis) of Parent, Holdings or the Company or
of rights or warrants to purchase such Voting Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of
this definition as a "disposition"), of:
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(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary outside
of the ordinary course of business of the Company or such Restricted
Subsidiary
other than, in the case of (1), (2) and (3) above,
(A) disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly Owned Subsidiary,
(B) for purposes of the provisions described under "Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition subject to the covenant described under "Certain
Covenants--Limitation on Restricted Payments,"
(C) a disposition of assets with a Fair Market Value of less than
$500,000, and
(D) a transfer of real property to a state, county, local or
municipal governmental agency in exchange for the granting of a permit
or the taking of other regulatory action by such governmental agency
that enhances the value of mining properties owned by the Company or a
Restricted Subsidiary, provided that the Board of Directors has
determined in good faith that such exchange is in the best interest of
the Company.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness or scheduled redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of such payment by
(2) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Credit Agreement and any Refinancing Indebtedness with respect thereto, as
amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors of
the Company.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
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"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined
in accordance with GAAP; and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be prepaid by the lessee without payment
of a penalty.
"Closing Date" means October 1, 1999.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Agreement" means any agreement designed to hedge against
fluctuations in commodity prices, including natural gas prices, entered into in
the ordinary course of business.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of
(1) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date
of such determination to
(2) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that:
(A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains
outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an
Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving effect on a pro forma
basis to such Indebtedness as if such Indebtedness had been Incurred on
the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness as if such discharge had occurred
on the first day of such period;
(B) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since
the beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on
the date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense
for such period shall be calculated on a pro forma basis as if such
discharge had occurred on the first day of such period and as if the
Company or such Restricted Subsidiary has not earned the interest
income actually earned during such period in respect of cash or
Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness;
(C) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA
for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets that are the subject of
such Asset Disposition for such period or increased by an amount equal
to the EBITDA (if negative) directly attributable thereto for such
period and Consolidated Interest Expense for such period shall be
reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period
(or, if the Capital Stock of any Restricted Subsidiary is sold, the
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Consolidated Interest Expense for such period directly attributable to
the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable
for such Indebtedness after such sale);
(D) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person that becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the
first day of such period; and
(E) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into
the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant
to clause (C) or (D) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition of
assets occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets or other Investment, the amount of income or earnings
relating thereto and the amount of Consolidated Interest Expense associated
with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of the Company and shall comply with the requirements of
Rule 11-02 of Regulation S-X promulgated by the SEC.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term as at the date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Consolidated Restricted Subsidiaries, plus, to
the extent Incurred by the Company and its Consolidated Restricted Subsidiaries
in such period but not included in such interest expense, without duplication:
(1) interest expense attributable to Capitalized Lease Obligations and
the interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction;
(2) amortization of debt discount (but not debt issuance costs);
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges attributable to
letters of credit and bankers' acceptance financing;
(6) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by the Company or any Restricted
Subsidiary;
(7) net costs associated with Hedging Obligations;
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(8) dividends in respect of all Disqualified Stock of the Company and
all Preferred Stock of any Restricted Subsidiary, to the extent held by
Persons other than the Company or another Restricted Subsidiary;
(9) interest Incurred in connection with investments in discontinued
operations; and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust.
"Consolidated Leverage Ratio" as of any date of determination means the
ratio of
(1) Indebtedness of the Company and its Consolidated Restricted
Subsidiaries as of the end of the most recent fiscal quarter ending at
least 45 days prior to the date of such determination to
(2) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date
of such determination;
provided, however, that:
(A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains
outstanding on such date of determination, Indebtedness and EBITDA for
such period shall be calculated after giving effect on a pro forma
basis to such Indebtedness as if such Indebtedness had been Incurred on
the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness as if such discharge had occurred
on the first day of such period;
(B) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since
the beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on
the date of the transaction giving rise to the need to calculate the
Consolidated Leverage Ratio, Indebtedness and EBITDA for such period
shall be calculated on a pro forma basis as if such discharge had
occurred on the first day of such period and as if the Company or such
Restricted Subsidiary has not earned the interest income actually
earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge
such Indebtedness;
(C) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA
for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets that are the subject of
such Asset Disposition for such period or increased by an amount equal
to the EBITDA (if negative) directly attributable thereto for such
period and Indebtedness shall be reduced by any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition (or,
if the Capital Stock of any Restricted Subsidiary is sold, the
Indebtedness of such Restricted Subsidiary to the extent the Company
and its continuing Restricted Subsidiaries are no longer liable for
such Indebtedness after such sale);
(D) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person that becomes a
Restricted Subsidiary) or an acquisition of assets, including any
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acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, Indebtedness and
EBITDA for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Indebtedness) as if
such Investment or acquisition occurred on the first day of such
period; and
(E) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into
the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant
to clause (C) or (D) above if made by the Company or a Restricted
Subsidiary during such period, Indebtedness and EBITDA for such period
shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition of assets occurred on the
first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets or other Investment, the amount of income or earnings
relating thereto and the amount of any Indebtedness Incurred in connection
therewith, the pro forma calculations shall be determined in good faith by a
responsible financial or accounting Officer of the Company and shall comply
with the requirements of Rule 11-02 of Regulation S-X promulgated by the SEC.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term as at the date of determination in excess of 12 months).
"Consolidated Net Income" means, for any period, the net income of the
Company and its Consolidated Subsidiaries for such period; provided, however,
that there shall not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such Person
is not a Restricted Subsidiary, except that
(A) subject to the limitations contained in clause (4) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period
to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
made to a Restricted Subsidiary, to the limitations contained in clause
(3) below), and
(B) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income (or loss) of any Restricted Subsidiary to the extent
such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by
such Restricted Subsidiary, directly or indirectly, to the Company, except
that the Company's equity in a net loss of any such Restricted Subsidiary
for such period shall be included in determining such Consolidated Net
Income;
(4) any gain or loss realized upon the sale or other disposition of any
asset of the Company or its Consolidated Subsidiaries (including pursuant
to any Sale/Leaseback Transaction) that is not sold or otherwise disposed
of in the ordinary course of business and any gain or loss realized upon
the sale or other disposition of any Capital Stock of any Person;
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(5) any extraordinary gain or loss; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purpose of the covenant described
under "Certain Covenants--Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(4)(C)(iv) thereof.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement dated as of the Closing Date
among the Company, as borrower, Parent, as parent guarantor, George F.
Pettinos (Canada) Limited, as Canadian borrower, Banque Nationale de Paris, as
agent, and the financial institutions and other institutional lenders named
therein, as the same may be amended, restated, supplemented, waived, replaced,
refinanced, restructured or otherwise modified from time to time, in each
case, whether or not upon termination, whether with the original financial
institutions, other institutional lenders or agents, and whether with one or
more credit agreements with the Company or one or more Restricted Subsidiaries
as borrowers.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreements or other similar agreement or arrangement
to which such Person is a party or of which it is a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" of the Company means
(1) the Bank Indebtedness and Indebtedness in respect of Hedging
Obligations, and
(2) any other Senior Indebtedness of the Company that, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to at least $25 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the indenture.
"Designated Senior Indebtedness" of a Note Guarantor has a correlative
meaning.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable) or upon the
happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock (excluding Capital Stock convertible or exchangeable solely at the
option of the Company or a Restricted Subsidiary; provided, however, that
any such conversion or exchange shall be deemed an Incurrence of
Indebtedness or Disqualified Stock, as applicable); or
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(3) is redeemable at the option of the holder thereof, in whole or in
part, in the case of each of clauses (1), (2) and (3), on or prior to the
first anniversary of the Stated Maturity of the notes; provided, however,
that any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person
to repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring prior to the Stated Maturity of the
notes shall not constitute Disqualified Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are not
more favorable in a material respect to the holders of such Capital Stock
than the provisions of the covenants described under "Change of Control"
and "Limitation on Sales of Assets and Subsidiary Stock."
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus, without duplication, the following to the extent deducted in calculating
such Consolidated Net Income:
(1) income tax expense of the Company and its Consolidated Restricted
Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation expense of the Company and its Consolidated Restricted
Subsidiaries;
(4) amortization expense of the Company and its Consolidated Restricted
Subsidiaries (excluding amortization expense attributable to a prepaid cash
item that was paid in a prior period);
(5) depletion expense of the Company and its Consolidated Restricted
Subsidiaries; and
(6) all other non-cash charges of the Company and its Consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the extent
it represents an accrual of or reserve for cash expenditures in any future
period) less all non-cash items of income of the Company and its Restricted
Subsidiary,
in each case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation, amortization and depletion and non-cash
charges of, a Restricted Subsidiary of the Company shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Restricted Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. For purposes of
the indenture, Fair Market Value will be determined in good faith by the Board
of Directors, whose determination will be conclusive and evidenced by a
resolution of the Board of Directors.
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"Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting Standards
Board;
(3) such other statements by such other entities as are approved by a
significant segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
All ratios and computations based on GAAP contained in the indenture shall
be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise,
of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-
pay, or to maintain financial statement conditions or otherwise); or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness or other obligation of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in
part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Currency Agreement or Commodity
Agreement.
"Holder" means the Person in whose name a note is registered on the
Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or redemption, repayment or
repurchase obligation in respect of Preferred Stock or Disqualified Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Person at the time it becomes a Subsidiary. The term "Incurrence" when
used as a noun shall have a correlative meaning. The accretion of principal of
a non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination, without duplication:
(1) the principal of and premium (if any) in respect of indebtedness of
such Person for borrowed money;
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(2) the principal of and premium (if any) in respect of obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments;
(3) all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto);
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables), which
purchase price is due more than twelve months after the date of placing
such property in service or taking delivery and title thereto or the
completion of such services;
(5) all Capitalized Lease Obligations and all Attributable Debt of such
Person;
(6) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends);
(7) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
the lesser of
(A) the Fair Market Value of such asset at such date of
determination, and
(B) the amount of such Indebtedness of such other Persons;
(8) Hedging Obligations of such Person; and
(9) all obligations of the type referred to in clauses (1) through (8)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee.
The amount of Indebtedness (other than Hedging Obligations) of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence
of the contingency giving rise to the obligation, of any contingent obligations
at such date. The amount of Indebtedness in respect of Hedging Obligations
shall be determined in accordance with GAAP.
Notwithstanding the foregoing, for the purposes of the definition of
Consolidated Leverage Ratio, Indebtedness shall not include any obligations in
respect of undrawn letters of credit or any Hedging Obligations.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extension
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For
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purposes of the definition of "Unrestricted Subsidiary" and the covenant
described under "Certain Covenants--Limitation on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
the Company shall be deemed to continue to have a permanent "Investment" in
an Unrestricted Subsidiary in an amount (if positive) equal to:
(A) the Company's "Investment" in such Subsidiary at the time of
such redesignation less
(B) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the Fair Market Value of the net assets of such
Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its Fair Market Value at the time of such transfer.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions are not required by law or regulation to be open in the State of
New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other non-cash form) therefrom, in each case net
of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to
such Asset Disposition, or by applicable law be repaid out of the proceeds
from such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition; and
(4) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property
or other assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
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"Note Guarantee" means each Guarantee of the obligations with respect to
the notes issued by a Person pursuant to the terms of the indenture.
"Note Guarantor" means any Person that has issued a Note Guarantee.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or
the Secretary of the Company. "Officer" of a Note Guarantor has a correlative
meaning.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company, a Note Guarantor or the Trustee.
"Permitted Asset Swap" means any one or more transactions in which the
Company or any Restricted Subsidiary exchanges assets for consideration
consisting of (i) Capital Stock in or assets of a Person engaged in a
Permitted Business and (ii) any cash, provided that such cash will be
considered Net Available Cash from an Asset Disposition.
"Permitted Business" means any business engaged in by the Company or any
Restricted Subsidiary on the Closing Date and any Related Business.
"Permitted Holders" means (i) Chase Capital Partners, its Affiliates and
their respective directors and officers, (ii) D. George Harris & Associates,
LLC and individuals who are equity owners, directors or employees of DGHA, the
Company, Holdings or Parent (or the estate or any beneficiary of any such
individual or any immediate family member of any such individual or any trust
established for the benefit of any such immediate family member) and (iii) any
Person acting in the capacity of an underwriter in connection with a public or
private offering of the Company's, Parent's or Holdings' Capital Stock.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a
Permitted Business;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Permitted
Business;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary and not exceeding $1.0 million in the aggregate outstanding at
any one time;
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(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
(8) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition that was
made pursuant to and in compliance with the covenant described under
"Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock";
(9) Investments the payment for which consists of (i) Capital Stock
(other than Disqualified Stock) or the cash proceeds from the sale of
Capital Stock (other than Disqualified Stock), in each case of the Company
or (ii) the proceeds of cash capital contributions to the Company;
provided, however, that such cash proceeds from sales of Capital Stock or
cash capital contributions will not increase the amount available for
Restricted Payments under clause (4)(C) of the first paragraph of the "--
Limitation on Restricted Payments" covenant;
(10) Loans to DGHA pursuant to the Amended and Restated Management
Services Agreement, dated October 1, 1998, or any amendment or replacement
thereto so long as any such amendment or replacement agreement is not more
disadvantageous to the Holders of the notes in any material respect than
the agreement as in effect as of the Closing Date;
(11) Investments in the ordinary course of business in an insurer
required as a condition to the provision by such insurer of insurance
coverage; and
(12) any Person having an aggregate Fair Market Value, taken together
with all other Investments made pursuant to this clause (12) that are at
the time outstanding, not to exceed the greater of 3.0% of Total Assets or
$15.0 million at the time of such Investment (with the Fair Market Value of
each Investment being measured at the time made and without giving effect
to subsequent changes in value).
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"principal" of a note means the principal of the note plus the premium, if
any, payable on the note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company, Parent or Holdings, as applicable, pursuant to an
effective registration statement under the Securities Act.
"Public Market" means any time after:
(1) a Public Equity Offering has been consummated; and
(2) at least 15% of the total issued and outstanding common stock of the
Company, Parent or Holdings (as applicable) has been distributed by means
of an effective registration statement under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
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"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) any Indebtedness of the Company or any
Restricted Subsidiary existing on the Closing Date or Incurred in compliance
with the indenture (including Indebtedness of the Company or any Restricted
Subsidiary that Refinances Refinancing Indebtedness); provided, however, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced;
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced;
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount (or if
issued with original issue discount, the aggregate accreted value) then
outstanding of the Indebtedness being Refinanced plus any reasonable
premiums required to be paid with respect to the Indebtedness being
Refinanced; and
(4) if the Indebtedness being Refinanced is subordinated in right of
payment to the notes, such Refinancing Indebtedness is subordinated in
right of payment to the notes at least to the same extent as the
Indebtedness being Refinanced;
provided further, however, that (x) Refinancing Indebtedness shall not include:
(A) Indebtedness of a Restricted Subsidiary that is not a Note Guarantor that
Refinances Indebtedness of the Company or (B) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary, and (y) Refinancing Indebtedness referred to in the definition of
"Bank Indebtedness" or in respect of the Acquisition Term Loan Facility shall
not be subject to clauses (1), (2) or (3) of this definition.
"Related Business" means any business related, ancillary or complementary to
the businesses of the Company and the Restricted Subsidiaries on the Closing
Date.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Responsible Officer" shall mean, when used with respect to the Trustee, any
officer within the corporate trust department of the Trustee, including any
vice president, assistant vice president, assistant secretary, assistant
treasurer, trust officer or any other officer of the Trustee who customarily
performs functions similar to those performed by the Persons who at the time
shall be such officers, respectively, or to whom any corporate trust matter is
referred because of such person's knowledge of and familiarity with the
particular subject and who shall have direct responsibility for the
administration of the indenture.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary whereby
the Company or a Restricted Subsidiary transfers such property to a Person and
the Company or such Restricted Subsidiary leases it from such Person, other
than leases between the Company and a Wholly Owned Subsidiary or between Wholly
Owned Subsidiaries.
"SEC" means the Securities and Exchange Commission.
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"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. Secured Indebtedness" of a Note Guarantor has a correlative meaning.
"Senior Subordinated Indebtedness" of the Company means the notes and any
other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank equally with the notes in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness. "Senior
Subordinated Indebtedness" of a Note Guarantor has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Closing Date or thereafter Incurred) that is subordinate or
junior in right of payment to the notes pursuant to a written agreement.
"Subordinated Obligation" of a Note Guarantor has a correlative meaning.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America
or any agency thereof or obligations Guaranteed by the United States of
America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company that is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and
undivided profits aggregating in excess of $250,000,000 (or the foreign
currency equivalent thereof) and whose long-term debt is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act);
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by
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the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc.
("S&P"); and
(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or "A" by Moody's Investors Service, Inc.
"TIA" means the Trust indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb)
as in effect on the Closing Date.
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Trustee" means the party named as such in the indenture until a successor
replaces it and, thereafter, means the successor.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary of the Company) to be
an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any
property of, the Company or any Restricted Subsidiary of the Company that is
not a Subsidiary of the Subsidiary to be so designated; provided, however, that
either:
(A) the Subsidiary to be so designated has total Consolidated assets
of $1,000 or less; or
(B) if such Subsidiary has Consolidated assets greater than $1,000,
then such designation would be permitted under the covenant entitled
"Limitation on Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that
(x) immediately after giving effect to such designation no
Default shall have occurred and be continuing and
(y) at the time of such designation the Company or a Restricted
Subsidiary could have Incurred all of the outstanding Indebtedness
of such Subsidiary and its Subsidiaries under the covenant described
under "--Certain Covenants--Limitation on Indebtedness."
Any such designation of a Subsidiary as a Restricted Subsidiary or
Unrestricted Subsidiary by the Board of Directors shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of
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the resolution of the Board of Directors giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees of the related corporation,
partnership or Person.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Voting Stock of which (other than directors' qualifying shares) is owned by
the Company and/or another Wholly Owned Subsidiary.
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The issuer, the initial purchasers of the old notes and the note guarantors
entered into the exchange and registration rights agreement on October 1, 1999.
Pursuant to the exchange and registration rights agreement, the issuer and the
note guarantors agreed to:
. file with the Securities and Exchange Commission on or prior to 135 days
after the date of issuance of the old notes a registration statement on
Form S-1 or Form S-4, if the use of that form is then available,
relating to a registered exchange offer for the old notes under the
Securities Act of 1933 and
. use their reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities Act
of 1933 within 195 days after the date of issuance of the old notes.
As soon as practicable after the effectiveness of the exchange offer
registration statement, the issuer will offer to the holders of transfer
restricted securities (as defined below) who are not prohibited by any law or
policy of the Securities and Exchange Commission from participating in the
exchange offer the opportunity to exchange their transfer restricted securities
for a second series of notes, the new notes, that are identical in all material
respects to the old notes (except that the new notes will not contain any
transfer restrictions) and that would be registered under the Securities Act of
1933. The issuer and the note guarantors will keep the exchange offer open for
not less than 30 days (or longer, if required by applicable law) after the date
on which notice of the exchange offer is mailed to the holders of the old
notes.
If
. because of any change in law or applicable interpretations thereof by
the staff of the Securities and Exchange Commission, the issuer is not
permitted to effect the exchange offer as contemplated hereby,
. any old notes validly tendered pursuant to the exchange offer are not
exchanged for new notes within 240 days after the date of issuance of
the old notes,
. the initial purchasers so request with respect to old notes not eligible
to be exchanged for new notes in the exchange offer,
. any applicable law or interpretations do not permit any holder of old
notes to participate in the exchange offer,
. any holder of old notes that participates in the exchange offer does not
receive freely transferable exchange notes in exchange for tendered old
notes or
. the issuer so elects,
then the issuer and the note guarantors will file with the Securities and
Exchange Commission a shelf registration statement to cover resales of transfer
restricted securities by those holders who satisfy certain conditions relating
to the provision of information in connection with the shelf registration
statement. For purposes of the foregoing, "transfer restricted securities"
means each old note until
(1) the date on which that old note has been exchanged for a freely
transferable new note in the exchange offer,
(2) the date on which that old note has been effectively registered
under the Securities Act of 1933 and disposed of in accordance with the
shelf registration statement or
(3) the date on which that old note is distributed to the public
pursuant to Rule 144 under the Securities Act of 1933 or is salable
pursuant to Rule 144(k) under the Securities Act of 1933.
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The issuer and the note guarantors will use their reasonable best efforts to
have the exchange offer registration statement or, if applicable, the shelf
registration statement declared effective by the Securities and Exchange
Commission as promptly as practicable after the filing thereof. Unless the
exchange offer would not be permitted by a policy of the Securities and
Exchange Commission, the issuer will commence the exchange offer and will use
its reasonable best efforts to consummate the exchange offer as promptly as
practicable, but in any event prior to 240 days after the date of issuance of
the old notes. If applicable, the issuer and the note guarantors will use their
reasonable best efforts to keep the shelf registration statement effective for
a period ending the earlier of two years after the date of issuance of the old
notes and the date all transfer restricted securities become eligible for
resale without volume restrictions pursuant to Rule 144 under the Securities
Act of 1933.
If
(1) the applicable registration statement is not filed with the
Securities and Exchange Commission on or prior to 135 days after the date
of issuance of the old notes (or in the case of a shelf registration
statement required to be filed in response to
. the request of an initial purchaser made with respect to old notes not
eligible to be exchanged for new notes in the exchange offer and
received later than 120 days after the date of issuance of the old notes
(a "Late IP Request"), on or prior to 165 days after the date of
issuance of the old notes, or
. a change in law or the applicable interpretations of the Securities and
Exchange Commission's staff, if later, within 45 days after publication
of the change in law or interpretations);
(2) the exchange offer registration statement or the shelf registration
statement, as the case may be, is not declared effective within 195 days
after the date of issuance of the old notes (or in the case of a shelf
registration statement required to be filed in response to
. a Late IP Request, within 240 days after the date of issuance of the old
notes, or
. a change in law or the applicable interpretations of the Securities and
Exchange Commission's staff, if later, within 45 days after publication
of the change in law or interpretations);
(3) the exchange offer is not consummated on or prior to 240 days after
the date of issuance of the old notes; or
(4) any required shelf registration statement is filed and declared
effective within 195 days after the date of issuance of the old notes (or
in the case of a shelf registration statement required to be filed in
response to
. a Late IP Request, within 240 days after the date of issuance of the old
notes, or
. a change in law or the applicable interpretations of the Securities and
Exchange Commission's staff, if later, within 45 days after publication
of the change in law or interpretations)
but shall thereafter cease to be effective (at any time that the issuer and
the note guarantors are obligated to maintain the effectiveness thereof)
without being succeeded within 45 days by an additional registration
statement (or post-effective amendment to the shelf registration statement)
filed and declared effective (each such event referred to in clauses (1)
through (4), a "registration default"),
the issuer and the note guarantors will be obligated to pay liquidated damages
to each holder of transfer restricted securities, during the period of one or
more such registration defaults, in an
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amount equal to $0.192 per week per $1,000 principal amount of the old notes
constituting transfer restricted securities held by that holder until the
applicable registration statement is filed, the exchange offer registration
statement is declared effective and the exchange offer is consummated or the
shelf registration statement is declared effective or again becomes effective,
as the case may be. All accrued liquidated damages shall be paid to holders in
the same manner as interest payments on the old notes on semi-annual payment
dates which correspond to interest payment dates for the old notes. Following
the cure of all registration defaults, the accrual of liquidated damages will
cease.
The exchange and registration rights agreement also provides that the issuer
and the note guarantors
. shall make available for a period of up to 180 days after the
consummation of the exchange offer a prospectus meeting the requirements
of the Securities Act of 1933 to any broker-dealer for use in connection
with any resale of any those exchange notes and
. shall pay all expenses incident to the exchange offer and will jointly
and severally indemnify certain holders of the notes (including any
broker-dealer) against certain liabilities, including liabilities under
the Securities Act of 1933.
A broker-dealer which delivers such a prospectus to purchasers in connection
with those resales will be subject to certain of the civil liability provisions
under the Securities Act of 1933 and will be bound by the provisions of the
exchange and registration rights agreement (including certain indemnification
rights and obligations).
The foregoing description of the exchange and registration rights agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the exchange and registration rights
agreement, a copy of which is filed as an exhibit to the registration statement
of which this prospectus is a part.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a discussion of the material United States federal income
and estate tax consequences of participating in the exchange offer and owning
and disposing of new notes and, insofar as it relates to matters of law or
legal conclusions, constitutes the opinion of Winthrop, Stimson, Putnam &
Roberts. Except where noted, this discussion deals only with old notes acquired
upon original issuance, and new notes issued in exchange therefor, in each case
held as capital assets. It does not address all aspects of United States
federal income or estate taxation that may be relevant to particular holders in
light of their circumstances or status, nor does it address any United States
tax consequences to holders that may be subject to special tax rules, such as
financial institutions, insurance companies, dealers in securities or
currencies, tax-exempt organizations, holders of 10% or more of our voting
stock, persons that hold old notes, or that will hold new notes, as part of a
straddle, hedge, conversion or constructive sale transaction, persons who mark
to market their securities, or persons who have a functional currency other
than the United States dollar. In addition, this discussion does not address
any aspect of state, local or foreign taxation. This discussion is based upon
current law. Changes in the law may change the tax treatment of the old notes
or the new notes.
As used in this discussion, the term "United States Holder" means a
beneficial owner of an old note or a new note that is, for United States
federal income tax purposes:
. a citizen or resident of the United States,
. a corporation, or other entity treated as a corporation for United
States federal income tax purposes, created or organized in or under the
laws of the United States or any State of the United States or the
District of Columbia,
. an estate the income of which is subject to United States federal income
tax regardless of its source, or
. a trust the administration of which is subject to the primary
supervision of a court in the United States and for which one or more
United States persons have the authority to control all substantial
decisions.
If a partnership holds old notes or new notes, the tax treatment of a
partner will generally depend upon the status of the partner and the activities
of the partnership. Partners of partnerships holding old notes or new notes
should consult their tax advisors. As used in this discussion, the term "Non-
United States Holder" means a beneficial owner of an old note or a new note
that is not a United States Holder.
You should consult with your own tax advisor concerning the United States
federal, state and local, as well as foreign, tax consequences to you, in light
of your particular situation, of participating in the exchange offer and owning
and disposing of new notes.
The Exchange Offer
An exchange of old notes for new notes pursuant to the exchange offer will
not be a taxable event for United States federal income tax purposes.
Accordingly, a holder will not recognize gain or loss upon receipt of a new
note in exchange for an old note, the new note will have the same issue price
as the old note in exchange for which it was issued, and a holder will have the
same adjusted tax basis and holding period in the new note as it had in the old
note immediately before the exchange.
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Payments of Interest
Stated interest on a new note will be taxable to a United States Holder as
ordinary income at the time it is received or accrued in accordance with the
United States Holder's regular method of accounting for United States federal
income tax purposes.
A Non-United States Holder generally will not be subject to United States
federal income or withholding tax on interest paid on a new note, provided that
the Non-United States Holder:
. is not a controlled foreign corporation related to us through stock
ownership,
. does not conduct a trade or business in the United States with respect
to which the interest is effectively connected, and
. provides the correct certification of Non-United States Holder status,
which may generally be satisfied by providing an IRS Form W-8 or W-8BEN
certifying that the beneficial owner is not a United States person and
providing the name and address of the beneficial owner.
Market Discount
If a United States Holder purchased an old note for less than its stated
redemption price at maturity, the difference will be treated as "market
discount" for United States federal income tax purposes, unless the difference
is less than a specified de minimis amount. Under the market discount rules,
the United States Holder will be required to treat any gain on the sale,
exchange, redemption or other disposition of the new note received in exchange
for the old note as ordinary income to the extent of the market discount that
has not previously been included in income and that is treated as having
accrued on the old note or the new note at the time of the disposition. In
addition, the United States Holder may be required to defer, until the maturity
or earlier disposition of the new note, the deduction of all or a portion of
the interest expense on any indebtedness incurred or continued to purchase or
carry the old note or new note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition of the old note to the maturity date of the new
note unless the United States Holder elects to accrue under a constant yield
method. A United States Holder may elect to include market discount in income
currently as it accrues (either ratably or under a constant yield method), in
which case the rule described above regarding deferral of interest deductions
will not apply. This election to include market discount in income currently,
once made, applies to all market discount obligations held or subsequently
acquired by the United States Holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the Internal Revenue Service ("IRS").
Amortizable Bond Premium
A United States Holder that purchased an old note for an amount greater than
its stated redemption price at maturity will be considered to have purchased
the old note at a "premium." A United States Holder generally may elect to
amortize the premium over the remaining term of the new note received in
exchange for the old note under a constant yield method. The amount amortized
in any year will be treated as a reduction of the United States Holder's
interest income from the new note. Bond premium on a new note held by a United
States Holder that does not make such an election will decrease the gain or
increase the loss otherwise recognized on disposition of the new note. The
election to amortize premium on a constant yield method, once made, applies to
all debt obligations held or subsequently acquired by the United States Holder
on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.
125
<PAGE>
Sale, Exchange or Other Disposition of a New Note
Upon the sale, exchange, retirement or other taxable disposition of a new
note, a United States Holder will recognize gain or loss equal to the
difference between the amount realized on such disposition (less any accrued
but unpaid interest, which will be taxable as ordinary income) and the United
States Holder's adjusted tax basis in the new note. Except as described above
with respect to market discount, such gain or loss will be capital gain or loss
and will be long-term capital gain or loss if the old note and the new note
have, in the aggregate, been held for more than one year. Generally, for
noncorporate United States Holders, long-term capital gains are subject to
United States federal income taxation at reduced rates. The deductibility of
capital losses is subject to limitations. A United States Holders' adjusted tax
basis in a new note received in exchange for an old note will, in general, be
the cost of the old note to the United States Holder, increased by any market
discount previously included in income and reduced by any amortized premium.
A Non-United States Holder generally will not be subject to United States
federal income or withholding tax with respect to gain realized from a sale,
exchange, redemption or other taxable disposition of a new note. Under certain
circumstances, a Non-United States Holder may be subject to United States
federal income tax on gain realized with respect to a new note, even if no
withholding of taxes is required. This may occur, for example, if the Non-
United States Holder is:
. engaged in a trade or business in the United States and the gain on a
new note is effectively connected with the conduct of that trade or
business, or
. an individual present in the United States for 183 or more days in the
taxable year of the disposition and certain other conditions are met.
Estate Taxes
If interest on a new note is exempt from United States federal withholding
tax under the rules described above under "Payments of Interest," the new note
will not be included, for United States federal estate tax purposes, in the
estate of a deceased individual holder of a new note who is not a United States
citizen or resident for United States federal estate tax purposes.
Information Reporting and Backup Withholding
A United States Holder may be subject to backup withholding at a rate of 31%
on, and to information reporting requirements with respect to, payments of
principal of and interest on, and the proceeds of disposition of, a new note.
Backup withholding will apply if (i) the United States Holder fails to furnish
its taxpayer identification number ("TIN"), which, for an individual, is the
individual's social security number, (ii) the United States Holder furnishes an
incorrect TIN, (iii) the Company is notified by the IRS that the United States
Holder has failed properly to report payments of interest or dividends or (iv)
under certain circumstances, the United States Holder fails to certify, under
penalty of perjury, that it has furnished a correct TIN and has not been
notified by the IRS that it is subject to backup withholding for failure to
report interest and dividend payments. Backup withholding and information
reporting will not apply with respect to payments made to certain exempt
recipients, such as corporations and tax-exempt organizations. The amount of
any backup withholding from a payment to a United States Holder will be allowed
as a credit against the holder's United States federal income tax liability and
may entitle the holder to a refund, provided the required information is
furnished to the IRS. United States Holders should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining an exemption, if applicable.
Information reporting and backup withholding generally do not apply to
payments of interest to a Non-United States Holder if the certification
described above under "Payments of Interest" is received, provided the payor
does not have actual knowledge that the holder is a United States person.
Payments of principal and interest made to the beneficial owner of a new note
by or through
126
<PAGE>
the foreign office of a custodian, nominee or other agent acting on behalf of
the beneficial owner, and payment of the proceeds of a sale, exchange or other
disposition of a new note by the foreign office of a broker, generally will not
be subject to backup withholding. However, if the custodian, nominee, other
agent or broker is a United States person, a controlled foreign corporation for
United States federal income tax purposes, or a foreign person 50% or more of
whose gross income is effectively connected with a United States trade or
business for a specified three-year period, information reporting will be
required with respect to these payments unless the custodian, nominee, other
agent or broker has in its records documentary evidence that the beneficial
owner is not a United States person and certain conditions are met or the
beneficial owner otherwise establishes an exemption. Payments by a United
States office of a custodian, nominee, other agent or broker are subject to
both backup withholding and information reporting unless the beneficial owner
certifies as to its Non-United States Holder status under penalties of perjury
or otherwise establishes an exemption.
Income tax regulations that are generally effective for payments made after
December 31, 2000, subject to certain transition rules, modify in some respects
the backup withholding and information reporting rules. In general, these
regulations do not significantly alter the substantive requirements of these
rules, but unify current procedures and forms and clarify reliance standards.
You should consult your own tax advisor regarding these regulations.
127
<PAGE>
BOOK-ENTRY; DELIVERY AND FORM
The new notes will initially be represented by one permanent global note in
definitive, fully registered book-entry form, without interest coupons that
will be deposited with, or on behalf of, DTC and registered in the name of DTC
or its nominee, on behalf of the acquirers of new notes represented thereby for
credit to the respective accounts of the acquirers, or to such other accounts
as they may direct, at DTC, or Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System, or Clearstream Banking,
societe anonyme. See "The Exchange Offer--Book-Entry Transfer."
Except as set forth below, the global notes may be transferred, in whole and
not in part, solely to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for
notes in physical, certificated form except in the limited circumstances
described below.
All interests in the global notes, including those held through Euroclear or
Clearstream, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Clearstream may also be subject to the
procedures and requirements of those systems.
Certain Book-Entry Procedures for the Global Notes
The descriptions of the operations and procedures of DTC, Euroclear and
Clearstream set forth below are provided solely as a matter of convenience.
These operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. We do
not take any responsibility for these operations or procedures, and investors
are urged to contact the relevant system or its participants directly to
discuss these matters.
DTC has advised us that it is
(1) a limited purpose trust company organized under the laws of the
State of New York,
(2) a "banking organization" within the meaning of the New York Banking
Law,
(3) a member of the Federal Reserve System,
(4) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and
(5) a "clearing agency" registered pursuant to Section 17A of the
Exchange Act.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between participants
through electronic book-entry changes to the accounts of its participants,
thereby eliminating the need for physical transfer and delivery of
certificates. DTC's participants include securities brokers and dealers, banks
and trust companies, clearing corporations and certain other organizations.
Indirect access to DTC's system is also available to other entities such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Investors who are not participants may beneficially own securities held by or
on behalf of DTC only through participants or indirect participants.
We expect that pursuant to procedures established by DTC ownership of the
new notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the interests
of participants) and the records of participants and the indirect participants
(with respect to the interests of persons other than participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of those securities in definitive form.
Accordingly, the ability to transfer interests in the new
128
<PAGE>
notes represented by a global note to those persons may be limited. In
addition, because DTC can act only on behalf of its participants, who in turn
act on behalf of persons who hold interests through participants, the ability
of a person having an interest in new notes represented by a global note to
pledge or transfer that interest to persons or entities that do not participate
in DTC's system, or to otherwise take actions in respect of that interest, may
be affected by the lack of a physical definitive security in respect of that
interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or such nominee, as the case may be, will be considered the sole owner or
holder of the new notes represented by the global note for all purposes under
the indenture. Except as provided below, owners of beneficial interests in a
global note:
. will not be entitled to have new notes represented by that global note
registered in their names,
. will not receive or be entitled to receive physical delivery of
certificated new notes, and
. will not be considered the owners or holders thereof under the indenture
for any purpose, including with respect to the giving of any direction,
instruction or approval to the trustee thereunder.
Accordingly, each holder owning a beneficial interest in a global note must
rely on the procedures of DTC and, if that holder is not a participant or an
indirect participant, on the procedures of the participant through which that
holder owns its interest, to exercise any rights of a holder of notes under the
indenture or that global note. We understand that under existing industry
practice, in the event that we request any action of holders of notes, or a
holder that is an owner of a beneficial interest in a global note desires to
take any action that DTC, as the holder of that global note, is entitled to
take, DTC would authorize the participants to take such action and the
participants would authorize holders owning through those participants to take
such action or would otherwise act upon the instruction of those holders.
Neither we nor the trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to
those new notes.
Payments with respect to the principal of, and premium, if any, and interest
on, any new notes represented by a global note registered in the name of DTC or
its nominee on the applicable record date will be payable by the trustee to or
at the direction of DTC or its nominee in its capacity as the registered holder
of the global note representing the new notes under the indenture. Under the
terms of the indenture, we and the trustee may treat the persons in whose names
the new notes, including the global notes, are registered as the owners thereof
for the purpose of receiving payment thereon and for any and all other purposes
whatsoever. Accordingly, neither we nor the trustee has or will have any
responsibility or liability for the payment of those amounts to owners of
beneficial interests in a global note (including principal, premium, if any,
liquidated damages, if any, and interest). Payments by the participants and the
indirect participants to the owners of beneficial interests in a global note
will be governed by standing instructions and customary industry practice and
will be the responsibility of the participants or the indirect participants and
DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Clearstream will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
Cross-market transfers between the participants in DTC, on the one hand, and
Euroclear or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
129
<PAGE>
Clearstream, as the case may be, by the counterpart in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
global notes in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Euroclear
participants and Clearstream participants may not deliver instructions directly
to the depositaries for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a global note from a
participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. Cash received in
Euroclear or Clearstream as a result of sales of interests in a global note by
or through a Euroclear or Clearstream participant to a participant in DTC will
be received with value on the settlement date of DTC but will be available in
the relevant Euroclear or Clearstream cash account only as of the business day
for Euroclear or Clearstream following DTC's settlement date.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the global notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform these procedures, and the procedures may be
discontinued at any time. Neither we nor the trustee will have any
responsibility for the performance by DTC, Euroclear or Clearstream or their
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Notes
If:
. we notify the trustee in writing that DTC is no longer willing or able
to act as a depositary or DTC ceases to be registered as a clearing
agency under the Securities Exchange Act of 1934 and a successor
depositary is not appointed within 90 days of that notice or cessation;
. an Event of Default has occurred and is continuing; or
. we, at our option, notify the trustee in writing that we elect to cause
the issuance of notes in definitive form under the indenture,
then, upon surrender by DTC of the global notes, certificated notes will be
issued to each person that DTC identifies as the beneficial owner of the notes
represented by the global notes. Upon any such issuance, the trustee is
required to register those certificated notes in the name of that person or
those persons (or the nominee of any thereof) and cause the same to be
delivered thereto.
Neither we nor the trustee shall be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the notes to be issued).
130
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act of 1933 in connection with any resale of
those new notes. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of new
notes received in exchange for old notes only where those old notes were
acquired as a result of market-making or other trading activities. The issuer
and the note guarantors have agreed that, for a period of 180 days from the
date on which the exchange offer is consummated, they will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with those resales.
The issuer will not receive any proceeds from any sales of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the new notes or a combination of such
methods of resale, at prices related to such prevailing market prices or at
negotiated prices. Those resales may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of
those new notes. Any broker-dealer that resells new notes that were received by
it for its own account pursuant to the exchange offer and any broker or dealer
that participates in a distribution of those new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933 and any profit
on any such resale of new notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act of 1933. The letter of transmittal states that by acknowledging
that it will deliver and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933.
For a period of up to 180 days from the date on which the exchange offer is
consummated, the issuer and the note guarantors will promptly send additional
copies of this prospectus and any amendment or supplement to this prospectus to
any broker-dealer that requests those documents in the letter of transmittal.
The issuer and the note guarantors have agreed to pay all expenses incident to
the exchange offer (including the expenses of one counsel for holders of the
notes) other than commissions or concessions of any broker-dealers and will
indemnify the holders of the notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The validity of the new notes will be passed upon for us by Winthrop,
Stimson, Putnam & Roberts, New York, New York.
131
<PAGE>
EXPERTS
The consolidated financial statements for the Company at December 31, 1998
and 1999 and for each of the three years in the period ended December 31, 1999
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. The consolidated financial
statements for Better Materials at December 13, 1998 and January 3, 1998 and
for the period ended December 13, 1998 and for the fiscal years ended January
3, 1998 and December 28, 1996 included in this prospectus have been so included
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The combined financial statements for Commercial Stone Company and
CATS as of March 31, 1999 and 1998 and for each of the three years in the
period ended March 31, 1999 included in this prospectus have been so included
in reliance on the report of Schneider Downs & Co., Inc., independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
132
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1999............... F-3
Consolidated Statement of Operations for the years ended December 31,
1997, 1998 and 1999.................................................... F-4
Consolidated Statement of Stockholder's Equity for the years ended
December 31, 1997, 1998 and 1999....................................... F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1997, 1998 and 1999.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
BETTER MATERIALS CORPORATION
Report of Independent Accountants....................................... F-29
Consolidated Balance Sheets at December 13, 1998 and January 3, 1998.... F-30
Consolidated Statements of Income for the period ended December 13, 1998
and
for the fiscal years ended January 3, 1998 and December 28, 1996....... F-31
Consolidated Statements of Shareholders' Equity for the period ended
December 13, 1998 and for the fiscal years ended January 3, 1998 and
December 28, 1996...................................................... F-32
Consolidated Statements of Cash Flows for the period ended December 13,
1998, and
for the fiscal years ended January 3, 1998 and December 28, 1996....... F-33
Notes to Consolidated Financial Statements.............................. F-34
COMMERCIAL STONE CO., INC. AND COMMERCIAL AGGREGATES
TRANSPORTATION & SALES, L.P. (COMBINED)
Independent Auditors' Report............................................ F-42
Combined Statement of Operations for the years ended March 31, 1999,
1998 and 1997.......................................................... F-43
Combined Balance Sheets as of March 31, 1999 and 1998................... F-44
Combined Statement of Changes in Owners' Equity for the years ended
March 31, 1999, 1998 and 1997.......................................... F-45
Combined Statements of Cash Flow for the years ended March 31, 1999,
1998 and 1997.......................................................... F-46
Notes to Combined Financial Statements.................................. F-47
Condensed Combined Balance Sheets as of September 30, 1999 (unaudited).. F-54
Condensed Combined Statements of Operations for the (unaudited) six
months ended September 30, 1999 and 1998............................... F-55
Condensed Combined Statements of Changes in Owners' Equity for the
(unaudited) six months ended September 30, 1999 and 1998............... F-56
Condensed Combined Statements of Cash Flow for the (unaudited) six
months ended September 30, 1999 and 1998............................... F-57
Notes to Condensed Combined Financial Statements for the (unaudited) six
months ended September 30, 1999 and 1998............................... F-58
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholder of
Better Minerals & Aggregates Company:
(formerly USS Intermediate Holdco, Inc.)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholder's equity and cash flows
present fairly, in all material respects, the financial position of Better
Minerals & Aggregates Company (formerly USS Intermediate Holdco, Inc.) (the
"Company") at December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
March 9, 2000
New York, New York
F-2
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents................................ $ 2,222 $ 13,573
Accounts receivable:
Trade, less allowance for doubtful accounts of $1,060
and $1,278............................................ 28,964 41,658
Other.................................................. 1,382 1,060
Due from parent........................................ -- 834
Inventories.............................................. 15,844 23,058
Prepaid expenses and other current assets................ 1,378 2,018
Income tax deposit....................................... 486 1,056
Deferred income taxes.................................... 6,167 8,148
-------- --------
Total current assets................................. 56,443 91,405
Property, plant and equipment:
Mining property.......................................... 81,890 263,083
Land..................................................... 22,475 28,086
Land improvements........................................ 3,501 5,005
Buildings................................................ 33,961 37,143
Machinery and equipment.................................. 88,833 143,082
Furniture and fixtures................................... 645 1,331
Construction-in-progress................................. 3,770 4,387
-------- --------
235,075 482,117
Accumulated depletion, depreciation and amortization...... (37,198) (59,248)
-------- --------
Property, plant and equipment, net................... 197,877 422,869
Other noncurrent: --
Goodwill and non compete agreements, net................. 12,725 19,907
Debt issuance costs...................................... 4,355 14,601
Other noncurrent assets.................................. 3,278 2,821
-------- --------
Total other noncurrent............................... 20,358 37,329
-------- --------
Total assets......................................... $274,678 $551,603
======== ========
LIABILITIES
Current:
Book overdraft........................................... $ 6,254 $ 5,026
Accounts payable......................................... 13,772 16,845
Accrued liabilities...................................... 9,649 13,053
Due to parent............................................ 1,054 --
Payable to related party................................. -- 898
Accrued interest......................................... 676 7,829
Current portion of long-term debt........................ 5,530 2,039
-------- --------
Total current liabilities............................ 36,935 45,690
Noncurrent liabilities:
USS Holdings, Inc. Series A warrants outstanding......... 455 --
USS Holdings, Inc. Series B warrants outstanding......... 3,325 --
Deferred income taxes.................................... 42,792 117,637
Long-term debt, net of current portion................... 131,918 285,466
Other noncurrent liabilities............................. 35,857 38,475
-------- --------
Total noncurrent liabilities......................... 214,347 441,578
Commitments and contingencies
STOCKHOLDER'S EQUITY
Common stock, par value $.01, authorized 5,000 shares,
issued 100 shares........................................ -- --
Additional paid-in capital................................ 41,491 81,377
Retained deficit.......................................... (18,011) (17,012)
Accumulated other comprehensive (loss).................... (84) (30)
-------- --------
Total stockholder's equity........................... 23,396 64,335
-------- --------
Total liabilities and stockholder's equity........... $274,678 $551,603
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1997 1998 1999
-------- --------- --------
<S> <C> <C> <C>
Net sales...................................... $128,512 $ 142,294 $209,075
Cost of goods sold............................. 88,097 98,478 140,244
Depreciation, depletion and amortization....... 17,886 19,888 28,481
Selling, general and administrative............ 14,345 16,930 21,843
Incentive stock compensation expense (Note
15)........................................... -- 14,227 --
-------- --------- --------
Operating income (loss)...................... 8,184 (7,229) 18,507
Interest expense............................... 10,513 10,269 19,590
Accretion of preferred stock warrants.......... 1,374 1,254 56
Other income net, including interest income.... (1,742) (1,881) (2,171)
-------- --------- --------
(Loss) income before income taxes............ (1,961) (16,871) 1,032
Provision (Benefit) for income taxes........... (2,239) (2,204) (2,714)
-------- --------- --------
Net income (loss) before extraordinary loss.. 278 (14,667) 3,746
Extraordinary loss (less applicable income
taxes of $0, $713 and $1,752) (Note 7)........ -- (2,102) (2,747)
-------- --------- --------
Net income (loss)............................ $ 278 $ (16,769) $ 999
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income
---------------------------
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,
1996................... $ $24,275 $ (1,520) $ $ $ $ 22,755
Net income.............. 278 278
Accretion of mandatory
redeemable preferred
stock.................. (847) (847)
Retirement of mandatory
redeemable preferred
stock.................. 3,836 3,836
---- ------- -------- ----- ---- ---- --------
Balance, December 31,
1997................... 27,264 (1,242) 26,022
Comprehensive income,
net of income taxes:
Net (loss)............. (16,769) (16,769)
Foreign currency
translation........... (44) (44) (44)
Minimum pension
liability............. (40) (40) (40)
--------
Total comprehensive
(loss).............. (16,853)
Issuance of incentive
stock.................. 14,227 14,227
---- ------- -------- ----- ---- ---- --------
Balance, December 31,
1998................... 41,491 (18,011) (44) (40) (84) 23,396
Comprehensive income,
net of income taxes:
Net income............. 999 999
Foreign currency
translation........... 14 14 14
Minimum pension
liability............. 40 40 40
--------
Total comprehensive
income.............. 1,053
Capital contributed by
parent................. 39,886 39,886
---- ------- -------- ----- ---- ---- --------
Balance, December 31,
1999................... $ $81,377 $(17,012) $ (30) $-- $(30) $ 64,335
==== ======= ======== ===== ==== ==== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $ 278 $ (16,769) $ 999
Adjustments to reconcile net income (loss) to
cash flows from operations:
Depreciation.................................. 11,688 13,012 17,950
Depletion..................................... 929 1,108 4,111
Non compete agreements amortization........... 5,000 5,593 5,713
Accretion of preferred stock warrants......... 1,374 1,254 56
Debt issuance amortization.................... 1,540 1,237 1,148
Extraordinary loss............................ -- 2,815 4,499
Incentive stock compensation.................. -- 14,227 --
Deferred income taxes......................... (3,363) (3,380) (6,962)
Disposal of property, plant and equipment
loss (gain).................................. 10 (208) (165)
Other......................................... 2,634 1,712 1,806
Changes in current assets and liabilities,
net of the effects from acquired companies:
Trade receivables............................ (3,136) 1,429 (360)
Non-trade receivables........................ 548 (949) 563
Receivable from parent....................... 218 922 (838)
Payable to related party..................... -- -- 898
Inventories.................................. 348 (256) (1,250)
Prepaid expenses and other current assets.... 161 (103) (668)
Accounts payable and accrued liabilities..... (2,075) (3,618) (4,565)
Accrued interest............................. (153) (753) 7,153
Income taxes................................. -- (1,921) (569)
-------- --------- ---------
Net cash provided by operating activities... 16,001 15,352 29,519
Cash flows from investing activities:
Capital expenditures.......................... (5,537) (9,399) (14,572)
Proceeds from sale of property, plant and
equipment.................................... 289 362 1,310
Purchase of non compete agreements............ -- (2,796) --
Purchases of businesses, net of cash ac-
quired....................................... -- (54,752) (172,379)
-------- --------- ---------
Net cash used for investing activities...... (5,248) (66,585) (185,641)
Cash flows from financing activities:
Change in book overdraft...................... 682 3,930 (1,402)
Issuance of long-term debt.................... -- 136,382 325,006
Repayment of long-term debt................... (6,987) (84,370) (169,205)
Change in Working Capital Facility............ -- -- (6,100)
Principal payments on capital lease obliga-
tions........................................ -- (24) (44)
Prepayment penalties.......................... -- (1,255) --
Financing fees................................ -- (1,550) (15,796)
Redemption of mandatory redeemable preferred
stock........................................ (5,000) -- --
Capital contributed by parent................. -- -- 35,000
-------- --------- ---------
Net cash (used for) provided by financing
activities................................. (11,305) 53,113 167,459
Effect of exchange rate on cash................ -- (60) 14
-------- --------- ---------
Net (decrease) increase in cash............. (552) 1,820 11,351
Cash and cash equivalents, beginning of peri-
od............................................ 954 402 2,222
-------- --------- ---------
Cash and cash equivalents, ending of period.... $ 402 $ 2,222 $ 13,573
======== ========= =========
Schedule of noncash investing and financing ac-
tivities:
Redemption of Mandatory Redeemable Series C
Preferred Stock of Holdings.................. $ 3,836 $ -- $ --
======== ========= =========
Assets acquired by assuming notes payable and
capital lease obligations.................... $ 1,111 $ 1,058 $ --
======== ========= =========
Forgiveness of Series A and B Preferred Stock
warrants of Holdings......................... $ -- $ -- $ 3,836
======== ========= =========
Forgiveness of payable to parent.............. $ -- $ -- $ 1,050
======== ========= =========
Cash paid during the year for:
Interest...................................... $ 8,731 $ 9,269 $ 10,925
======== ========= =========
Income taxes.................................. $ 1,175 $ 2,393 $ 3,232
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Better Minerals & Aggregates Company (formerly USS Intermediate Holdco,
Inc.) (the "Company"), an indirect wholly owned subsidiary of USS Holdings,
Inc. ("Holdings") was organized in January 1996. BMAC Holdings, Inc. ("BMAC
Holdings"), a wholly owned subsidiary of Holdings, is the direct parent of the
Company. On February 9, 1996, the Company purchased from U.S. Borax Inc.
("Borax"), an indirect wholly owned subsidiary of the RTZ Corporation PLC, 100%
of the common stock of U.S. Silica Company ("U.S. Silica").
On December 14, 1998 and July 24, 1998, U.S. Silica acquired Better
Materials Corporation and George F. Pettinos, Inc., respectively (Note 3). On
April 8, 1999, U.S. Silica acquired the assets of five New Jersey-based
operations owned by Unimin Corporation (Note 3). On October 1, 1999, the
Company acquired Commercial Stone Co., Inc. and Commercial Aggregates
Transportation and Sales, L.P. and their related quarry properties (Note 3).
Commercial Stone Co., Inc. and Commercial Aggregates Transportation and Sales,
L.P. and their related quarry properties are collectively referred to in the
notes to the financial statements as "Commercial Stone."
The Company and its subsidiaries are collectively referred to as the
"Company" in the accompanying financial statements and footnotes.
2. Summary of Significant Accounting Policies
a. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its direct and indirect wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
b. Reclassifications
Certain prior years' amounts have been reclassified to conform with the
current year's presentation.
c. Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
d. Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less are
considered cash equivalents.
e. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out and average cost methods.
F-7
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
f. Revenue Recognition
Revenue is recorded when legal title passes at the time of shipment to the
customer.
g. Deferred Financing Costs
Deferred financing costs consist of loan origination costs, which are being
amortized over the term of the related debt principal. Amortization included in
interest expense for each of the three years ended December 31, 1997, 1998 and
1999 totaled approximately $1.3 million, $1.0 million and $1.1 million,
respectively.
h. Depreciable Properties
Depreciable properties, mining properties and mineral deposits acquired in
connection with the acquisitions of U.S. Silica, George F. Pettinos, Inc.,
Better Materials Corporation, the Morie Assets and Commercial Stone are
recorded at fair market value as of the date of acquisition. Additions and
improvements occuring through the normal course of business are capitalized at
cost.
Upon retirement or disposal of assets, other than those of U.S. Silica
acquired on February 9, 1996, the cost and accumulated depreciation or
amortization are eliminated from the accounts and any gain or loss is reflected
in the statement of operations. Group asset accounting is utilized for the U.S.
Silica assets acquired on February 9, 1996. Gains and losses on normal
retirements or dispositions of these assets are excluded from net income and
proceeds for dispositions are recorded as a reduction of the acquired cost.
Expenditures for normal repairs and maintenance are expensed as incurred.
Construction-in-progress is primarily comprised of machinery and equipment
which has not yet been placed in service.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, ranging from 3 to 15 years.
Depletion and amortization of mineral deposits are provided as the minerals
are extracted, based on units of production and engineering estimates of total
reserves.
i. Mine Exploration and Development
Costs to develop new mining properties are deferred and amortized based on
units of production.
j. Mine Reclamation Costs
The estimated net future costs of dismantling, restoring and reclaiming
operating mines and related mine sites, in accordance with federal, state and
local regulatory requirements, are accrued during operations. The provision is
made based upon units of production and estimatable minable reserves as of the
balance sheet date. The effect of changes in estimated costs, production, and
minable reserves is recognized on a prospective basis.
k. Intangible Assets
The Company's intangible assets include goodwill and non-compete agreements.
At December 31, 1999, the net book value of goodwill associated with the
acquisitions of Commercial Stone and
F-8
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Morie Assets approximated $12.8 million. Goodwill is amortized on a
straight-line basis over fifteen years. On February 9, 1996, U.S. Silica signed
a five-year non-compete agreement with RTZ America, Inc., an affiliate of
Borax. During 1998, U.S. Silica entered into additional non-compete agreements
with the sellers of Nicks Silica Company and George F. Pettinos, Inc. At
December 31, 1998 and 1999, the aggregate net book value of these non-compete
agreements approximated $12.7 million and $7.1 million, respectively. The costs
of these agreements are being amortized on a straight-line basis over the terms
of the agreements, which range from three to five years.
The Company periodically evaluates the recoverability of its goodwill and
measures any impairment by comparison to estimated undiscounted cash flows from
future operations.
l. Income Taxes
The Company accounts for income taxes pursuant to the provisions under
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes", which requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based upon the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the expenses are expected to
reverse. The Company is included in the consolidated federal tax return of
Holdings. The tax provision (benefit) included in the accompanying financial
statements has been computed on a separate return basis.
m. Concentration of Credit Risk
The five largest customers accounted for approximately 30% of net product
sales and one customer accounted for more than 10% of net product sales of the
Company for each of the two years in the period ended December 31, 1998. The
Company's five largest customers accounted for approximately 20% of net product
sales for the year ended December 31, 1999. Management believes it maintains
adequate reserves for potential credit losses; ongoing credit evaluations are
performed and collateral is generally not required.
n. Financial Instruments
The Company uses interest rate swap and cap agreements to manage interest
costs and the risk associated with changing interest rates. Amounts to be paid
or received under interest rate swap agreements are accrued as interest rates
change and are recognized over the life of the swap agreements as an adjustment
to interest expense. The Company's practice is to not hold or issue derivative
financial instruments for trading or speculative purposes. When entered into,
these financial instruments are designated as hedges of underlying exposures,
associated with the Company's long-term debt, and are monitored to determine if
they remain effective hedges. The fair value of the interest rate agreements
and changes in these fair values as a result of changes in market interest
rates are not recognized in the consolidated financial statements.
o. Environmental Costs
Environmental costs, other than qualifying capital expenditures, are accrued
at the time the exposure becomes known and costs can be reasonably estimated.
Costs are accrued based upon
F-9
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
management's estimates of all direct costs, after taking into account expected
reimbursement by third parties (primarily the sellers of acquired businesses),
and are reviewed by outside consultants. Environmental costs are charged to
expense unless a settlement with an indemnifying party has been reached.
p. Comprehensive Income
The Company adopted SFAS No. 130 "Reporting of Comprehensive Income" in
1998. Comprehensive income is defined as the change in equity from transactions
and other events from nonowner sources and consists of net income and other
comprehensive income. SFAS No. 130 requires foreign currency translation
adjustments and minimum pension liability adjustments to be included in other
comprehensive income. The Company had no items of other comprehensive income in
periods prior to January 1, 1998.
q. 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.
3. Acquisitions
On October 1, 1999, the Company acquired Commercial Stone for total
consideration of $139.0 million in cash, $8.0 million of which was placed in
escrow to satisfy any future indemnity claims the Company may have against the
sellers. The Company financed the acquisition through the issuance of $150.0
million Senior Subordinated Notes and the refinancing of its existing Senior
Debt by entering into new Senior Secured Credit Facilities (Note 6). The
acquisition was accounted for as a purchase and the purchase price was
allocated to the assets acquired and liabilities assumed based on fair values
at the date of acquisition. Approximately $175.9 million, inclusive of deferred
income taxes of $76.0 million, has been allocated to mineral reserves and is
being amortized based on production. The allocation of the purchase price was
as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Working capital, other than cash........................... $ 7,443
Property, plant and equipment.............................. 27,207
Goodwill................................................... 7,403
Mineral reserves........................................... 175,856
Other assets............................................... 1,739
Other liabilities.......................................... (818)
Deferred income taxes...................................... (79,830)
--------
Purchase price, net of cash received..................... $139,000
========
</TABLE>
F-10
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On April 8, 1999, U.S. Silica acquired the assets of five New Jersey-based
operations formerly owned by the Morie Company and owned at the time by Unimin
Corporation (the "Morie Assets") for total consideration of $33.4 million. Also
on April 8, 1999, U.S. Silica amended its $155.0 million Credit Agreement to
add a $35.0 million dollar Senior Term C Facility (Note 6). The purchase price
was financed with proceeds from the addition of the Senior Term C Facility. The
acquisition was accounted for as a purchase and the purchase price was
allocated to the assets acquired and liabilities assumed based on their fair
values at the date of acquisition. Approximately $11.1 million has been
allocated to mineral reserves and is being amortized based on production. The
allocation of the purchase price was as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Working capital, other than cash........................... $ 1,569
Property, plant and equipment.............................. 15,102
Goodwill................................................... 5,844
Mineral reserves........................................... 11,053
Other liabilities.......................................... (308)
Deferred income taxes...................................... 120
-------
Purchase price, net of cash received..................... $33,380
=======
</TABLE>
On December 14, 1998, BMC Acquisition Company, a wholly owned subsidiary of
U.S. Silica, acquired the stock of Better Materials Corporation, for total
consideration of $40.6 million. Immediately upon closing, BMC Acquisition
Corporation merged with and into Better Materials Corporation, with Better
Materials Corporation as the surviving corporation. The purchase price was
financed with cash and available borrowings under U.S. Silica's $155.0 million
Credit Agreement's Acquisition and Working Capital Facilities (Note 6). The
acquisition was accounted for as a purchase and the purchase price was
allocated to the assets acquired and liabilities assumed based on their fair
values at the date of acquisition. The excess of the purchase price over the
fair value of the net assets acquired of approximately $43.3 million, inclusive
of deferred income taxes of $20.1 million, has been allocated to mineral
reserves and is being amortized based on production. The allocation of the
purchase price was as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Working capital, other than cash........................... $ 708
Property, plant and equipment.............................. 17,206
Mineral reserves........................................... 43,266
Other liabilities.......................................... (2,445)
Deferred income taxes...................................... (20,331)
--------
Purchase price, net of cash received..................... $ 38,404
========
</TABLE>
On July 24, 1998, GFP Acquisition Corp., a wholly owned subsidiary of U.S.
Silica, acquired George F. Pettinos, Inc. for total consideration of $14.9
million including a covenant not to compete for $1.1 million. Immediately upon
closing, GFP Acquisition Corp. merged with and into George F. Pettinos, Inc.,
with George F. Pettinos, Inc. as the surviving corporation. The purchase price
was financed with proceeds from U.S. Silica's $155.0 million Credit Agreement
(Note 6). The acquisition was accounted for as a purchase and the purchase
price was allocated to the assets acquired and liabilities assumed based on
their fair values at the date of acquisition. The excess of the purchase
F-11
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
price over the fair value of the net assets acquired of approximately $14.5
million, inclusive of deferred income taxes of $5.3 million, has been allocated
to mineral reserves and is being amortized based on production. The allocation
of the purchase price was as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Working capital, other than cash........................... $ 1,162
Property, plant and equipment.............................. 3,234
Mineral reserves........................................... 14,531
Other assets............................................... 601
Other liabilities.......................................... (1,252)
Deferred income taxes...................................... (5,490)
-------
Purchase price, net of cash received..................... $12,786
=======
</TABLE>
On January 16, 1998, U.S. Silica acquired certain assets of Nicks Silica
Company for total consideration of approximately $5.8 million including a
covenant not to compete for $1.3 million and a consulting agreement for
$417,000. The purchase price was financed with both cash and notes payable to
the sellers. The excess of the purchase price over the fair value of the assets
acquired of $607,000 has been allocated to mineral reserves and is being
amortized based on production.
The following unaudited proforma consolidated results of operations have
been prepared as if the acquisitions of Better Materials Corporation and George
F. Pettinos, Inc. had occurred as of the beginning of 1997, and reflect
proforma adjustments for the excess of the purchase price over the fair value
of the net assets acquired, interest expense and tax expense:
<TABLE>
<CAPTION>
For the Year Ended December
31, 1997
------------------------------
Company Acquisitions Total
-------- ------------ --------
(In thousands)
<S> <C> <C> <C>
Net sales.................................. $128,512 $ 39,602 $168,114
======== ======== ========
Net income (loss) before extraordinary
loss...................................... $ 278 $ (1,388) $ (1,110)
======== ======== ========
Net income (loss).......................... $ 278 $ (1,388) $ (1,110)
======== ======== ========
</TABLE>
The following unaudited proforma consolidated results of operations have
been prepared as if the acquisitions of Commercial Stone, the Morie Assets,
Better Materials Corporation and George F. Pettinos, Inc. had occurred as of
the beginning of the periods presented, and reflect proforma adjustments for
the excess of the purchase price over the fair value of the net assets
acquired, salaries, mining royalties, interest expense and tax expense (the
proforma effects of the acquisition of Nicks Silica Company has been excluded
due to immateriality):
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
------------------------------------------------
Commercial
Company Stone Acquisitions (2) Total
--------- ---------- ---------------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Net sales................... $ 142,294 $ 41,953 $52,240 $ 236,487
========= ======== ======= =========
Net income (loss) before
extraordinary loss......... $ (14,667) $ (6,016) $ 512 $ (20,171)
========= ======== ======= =========
Net income (loss) (1)....... $ (16,769) $ (6,016) $ 512 $ (22,273)
========= ======== ======= =========
</TABLE>
F-12
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1999
------------------------------------
Commercial Morie
Company Stone Assets Total
-------- ---------- ------ --------
(In thousands)
<S> <C> <C> <C> <C>
Net sales............................... $209,075 $ 35,430 $3,548 $248,053
======== ======== ====== ========
Net income (loss) before extraordinary
loss................................... $ 3,746 $ (4,212) $ (557) $ (1,023)
======== ======== ====== ========
Net income (loss) (1)................... $ 999 $ (4,212) $ (557) $ (3,770)
======== ======== ====== ========
</TABLE>
- --------
(1) The Company recorded after-tax charges of $2.1 million and $2.7 million
associated with the early extinguishment of U.S. Silica's Senior and
Subordinated Debt during 1998 and 1999, respectively. These after-tax
charges are reflected within the Company's historical results of
operations.
(2) Amounts include the Morie Assets, Better Materials Corporation and George
F. Pettinos, Inc.
The proforma consolidated results do not purport to be indicative of results
that would have occurred had the acquisitions been in effect for the periods
presented, nor do they purport to be indicative of the results that will be
obtained in the future.
4. Inventories
At December 31, 1998 and 1999, inventory consisted of the following:
<TABLE>
<CAPTION>
1998 1999
------- -------
(In thousands)
<S> <C> <C>
Supplies (net of $222 and $38 obsolescence reserve)..... $ 8,112 $11,171
Raw materials and work in process....................... 2,804 6,165
Finished goods.......................................... 4,928 5,722
------- -------
$15,844 $23,058
======= =======
</TABLE>
5. Lease Commitments
The Company is obligated under certain operating leases for railroad cars
(which principally expire during 2000), mining property, mining/processing
equipment, office space and transportation and other equipment. Certain of
these agreements include options to purchase the equipment for fair market
value at the end of the original lease term. Future minimum annual commitments
under such leases at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------ (In thousands)
<S> <C>
2000.................................... $1,913
2001.................................... 1,266
2002.................................... 452
2003.................................... 233
2004.................................... 136
Thereafter.............................. 132
------
$4,132
======
</TABLE>
F-13
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rental expense for operating leases for each of the three years ended December
31, 1997, 1998 and 1999 totaled approximately $461,000, $942,000 and $2.0
million, respectfully.
In general, the above leases include renewal options and provide that the
Company pay for all utilities, insurance, taxes and maintenance.
6. Long-Term Debt
At December 31, 1998 and 1999, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1999
(In thousands) -------- --------
<S> <C> <C>
Senior Secured Credit Facilities
Tranche A Term Loan Facility (final maturity September 30,
2005)..................................................... $ -- $ 39,057
Tranche B Term Loan Facility (final maturity September 30,
2007)..................................................... -- 94,750
Canadian Term Facility (final maturity September 30,
2005)..................................................... -- 2,043
Senior Subordinated Notes (final maturity September 15,
2009)....................................................... -- 150,000
Senior Debt
Senior Term A Facility (final maturity June 30, 2004)...... 30,000 --
Senior Term B Facility (final maturity June 30, 2006)...... 66,800 --
Canadian Facility (final maturity June 30, 2006)........... 3,134 --
Acquisition Facility (final maturity June 30, 2004)........ 30,000 --
Working Capital Facility (final maturity June 30, 2004).... 6,100 --
Secured Note (due December 31, 2001)......................... 203 141
Mortgage Notes
0% Note, imputed at 9.75% (due June 30, 1999).............. 143 --
0% Note, imputed at 10.0% (due January 16, 2008)........... 1,068 1,162
8.5% Note (due July 1, 2003)............................... -- 65
7.0% Note (due July 31, 2004).............................. -- 287
-------- --------
137,448 287,505
Less, current portion...................................... 5,530 2,039
-------- --------
$131,918 $285,466
======== ========
</TABLE>
At December 31, 1999, contractual maturities of long-term debt are as
follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
2000.................................................... $ 2,039
2001.................................................... 9,389
2002.................................................... 11,038
2003.................................................... 11,039
2004.................................................... 11,185
Thereafter.............................................. 242,815
--------
$287,505
========
</TABLE>
F-14
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Debt Agreements
On September 30, 1999, the Company entered into a new $230.0 million Credit
Agreement (the "Agreement"), which consists of a $50.0 million revolving credit
facility (the "Revolving Credit Facility"), a $45.0 million Tranche A Term Loan
Facility ("Term A Loan"), a $95.0 million Tranche B Term Loan Facility ("Term B
Loan") and a $40.0 million term loan acquisition facility (the "Acquisition
Term Loan Facility"). The Term A Loan included a tranche of loans denominated
in Canadian dollars ("Canadian Term Facility") equal to $2.0 million, which was
borrowed by George F. Pettinos (Canada) Limited, an indirect wholly owned
subsidiary of the Company. The Revolving Credit Facility, Term A Loan, Term B
Loan, Acquisition Term Loan Facility and the Canadian Term Facility are
collectively referred to in the notes to the financial statements as the
"Senior Secured Credit Facilities." In addition, on October 1, 1999 the Company
issued $150.0 million of Senior Subordinated Notes. Pursuant to an Exchange and
Registration Rights Agreement, the Company has agreed to file with the
Securities and Exchange Commission a registration statement which would allow
for the exchange of the Company's Senior Subordinated Notes for registered
notes having substantially the same terms. The proceeds from the Senior Secured
Credit Facilities and the Senior Subordinated Notes were primarily used to pay
off the outstanding Senior Debt and to finance the acquisition of Commercial
Stone.
Under the Agreement, the Company has available, until September 30, 2005,
the Revolving Credit Facility, which provides for the borrowings of up to $50.0
million with a sublimit of $12.0 million for letters of credit and a sublimit
of $3.0 million for swingline loans. The borrowing capacity of the Revolving
Credit Facility is reduced by outstanding letters of credit and swingline
loans. At December 31, 1999, outstanding letters of credit totaled $9.2
million. There were no borrowings under the Revolving Credit Facility or the
swingline loans at December 31, 1999. In addition, there were no borrowings
under the Acquisition Term Loan Facility at December 31, 1999.
Except for the Canadian Term Facility, borrowings under the Senior Secured
Credit Facilities bear variable interest at the Company's option at either (1)
the bank's base rate plus a margin percentage, ranging from 1.00% to 2.50% or
(2) the London Interbank Offered Rate ("LIBOR") plus a margin percentage,
ranging from 2.00% to 3.50%. Borrowings under the Canadian Term Facility bear
interest at a bank's base rate plus a margin percentage ranging from 1.50% to
2.50%. Commitment fees, ranging from .375% to .75%, on the average daily unused
Revolving Credit Facility and the unused Acquisition Term Loan Facility are
payable quarterly. Letter of credit fees are also payable quarterly based upon
the average daily balance of all letters of credit outstanding. The Senior
Subordinated Notes bear interest at a rate of 13% per annum, payable semi-
annually.
The obligations of the Company under the Senior Secured Credit Facilities
are unconditionally and irrevocably guaranteed, jointly and severally, by BMAC
Holdings and each of the Company's direct or indirect domestic subsidiaries.
BMAC Holdings has no operations or assets other than its investment in its
subsidiaries. In addition, the Senior Secured Credit Facilities are secured by
a first priority pledge of (i) all the capital stock of BMAC Holdings, the
Company, each of the Company's direct or indirect domestic subsidiaries and 65%
of the capital stock of each direct foreign subsidiary of the Company or any of
its domestic subsidiaries and (ii) substantially all of the tangible and
intangible assets held by BMAC Holdings, the Company and each of the Company's
direct or indirect domestic subsidiaries. The Canadian Term Facility is
collateralized by substantially all of the assets of George F. Pettinos
(Canada) Limited.
F-15
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Agreement described above contains various restrictive covenants that,
among other things, limits the ability of BMAC Holdings to engage in certain
transactions with affiliates, incur additional indebtedness, repay other
indebtedness or amend other debt instruments, create liens on assets, make
investments or acquisitions, engage in mergers or consolidations, dispose of
assets, or pay dividends. In addition, the Agreement requires BMAC Holdings to
maintain certain financial convenants, including a leverage ratio, an interest
coverage ratio and a capital expenditures covenant. Covenants associated with
the Senior Subordinated Notes are generally less restrictive than those of the
Senior Secured Credit Facilities. BMAC Holdings and the Company were in
compliance with all financial covenants at December 31, 1999.
The obligation of the Company under the Senior Subordinated Notes is
unconditionally and irrevocably guaranteed, jointly and severally, on an
unsecured senior subordinated basis to the Company's Senior Secured Credit
Facilities, by each of the Company's domestic subsidiaries. The Senior
Subordinated Notes are not guaranteed by the Company's two Canadian
subsidiaries.
On July 21, 1998, U.S. Silica entered into a $155.0 million Credit
Agreement, which consisted of a $30.0 million Senior Secured Term Loan ("Senior
Term A"), a $66.8 million Senior Secured Term Loan ("Senior Term B"), a $30.0
million Acquisition Facility, a $25.0 million Working Capital Facility and a
$3.2 million Canadian Facility. The proceeds from this agreement were primarily
used to satisfy the existing Senior and Subordinated Debt and to finance the
acquisition of George F. Pettinos, Inc. Outstanding letters of credit and
borrowings under the Working Capital Facility approximated $5.4 million and
$6.1 million, respectively, at December 31, 1998.
On April 8, 1999, U.S. Silica amended the $155.0 million Credit Agreement to
add a $35.0 million Senior Secured Term Loan ("Senior Term C"). The proceeds
from the Senior Term C Facility were primarily used to finance the acquisition
of the Morie Assets during April 1999.
At December 31, 1998 and 1999, the carrying value approximated the fair
value of the Company's long-term debt.
Warrants
Warrants to purchase 41,667 shares of Series A Preferred Stock ("Series A
warrants") and 83,334 shares of Series B Preferred Stock ("Series B warrants")
of the Company's ultimate parent, Holdings, were issued to holders of
Subordinated Debt as part of a Note Purchase Agreement dated February 9, 1996.
The Series A warrants and Series B warrants are exercisable at any time
until December 19, 2005 at an exercise price of $.01 per share or less as
defined by the warrant issuance agreement. The holder of the warrants has the
right to require Holdings to purchase any and all of the warrants and shares
subject to the warrants at fair value in cash after December 19, 2001 and prior
to a "liquidity event" which is defined as the sale or liquidation of Holdings
or the consummation of a public offering. Holdings may call all of the
outstanding warrants and shares subject to warrants after December 19, 2002,
subject to approval of the holders of the senior debt. Fair value is defined as
the liquidation preference value of $7.78 per share (plus all accrued and
unpaid dividends thereon) for the Series A warrants and the common equity value
per share as determined by the Board of Directors for the Series B warrants.
The accretion of the Series A warrants and the Series B warrants to fair value
is accounted for by charges to earnings. The holders of the Series A warrants
and the
F-16
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Series B warrants are entitled to dividends as if they had held underlying
shares from February 9, 1996.
Effective December 31, 1999, Holdings agreed to forgive the Company and its
subsidiaries for the obligation associated with the Series A warrants and the
Series B warrants. The forgiveness of the obligation resulted in a credit to
additional paid-in capital of approximately $3.8 million during the year ended
December 31, 1999.
7. Extraordinary Items
The Company recorded an extraordinary after-tax charge of $2.1 million
during the year ended December 31, 1998 in connection with the early
extinguishment of U.S. Silica's Subordinated Debt. The extraordinary loss of
$2.8 million (before an income tax benefit of $713,000) consisted of the
Subordinated Debt's discount, prepayment penalties and the write-off of related
unamortized debt issuance costs of approximately $983,000, $1.3 million and
$577,000, respectively.
During the year ended December 31, 1999, the Company recorded an
extraordinary after-tax charge of $2.7 million in connection with the early
extinguishment of U.S. Silica's outstanding Senior Debt under its $155.0
million Credit Agreement. The extraordinary loss of $4.5 million (before an
income tax benefit of $1.8 million) consisted of the write-off of related
unamortized debt issuance costs.
8. Financial Instruments
Interest rate swap and cap agreements are utilized in the normal course of
business to manage the Company's interest costs and the risk associated with
changing interest rates. Interest rate swap agreements are used to exchange the
difference between fixed and variable-rate interest amounts calculated by
reference to an agreed-upon notional principal amount. In addition, the Company
utilizes interest rate cap agreements to limit the impact of increases in
interest rates on its floating rate debt. Interest rate cap agreements entitle
the Company to receive from the counterparties the amounts, if any, by which
the selected market interest rates exceed the strike rates stated per the
agreements. The Company does not use derivative financial instruments for
trading or speculative purposes. By their nature, all such instruments involve
risk, including the possibility that a loss may occur from the failure of
another party to perform according to the terms of a contract (credit risk) or
the possibility that future changes in market price may make a financial
instrument less valuable or more onerous (market risk). As is customary for
these types of instruments, the Company does not require collateral or other
security from other parties to these instruments. In management's opinion there
is no significant risk of loss in the event of nonperformance of the
counterparties to these financial instruments.
The fair value of the interest rate agreements represents the estimated
receipts or payments that would be required to settle the agreements at year-
end. Quoted market prices were used to estimate the fair values of the interest
rate swap and cap agreements. The notional amount represents agreed upon
amounts on which calculations of dollars to be exchanged are based. They do not
represent amounts exchanged by the parties and, therefore, are not a measure of
the Company's exposure. The Company's credit exposure is limited to the fair
value of the contracts with a positive fair value plus interest receivable, if
any, at the reporting date.
F-17
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
--------------------------- --------------------------
Contract/ Contract/
Maturity Notional Carrying Fair Notional Carrying Fair
Date Amount Amount Value Amount Amount Value
-------- --------- -------- ------ --------- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Derivatives
Interest rate swap agreements.. 1999 $55,000 $ 11 $ (32)
2001 $30,000(1) $ -- $ (509) $30,000(1) $ -- $389
Interest rate cap agreements... 2001 $30,000(2) $ -- $ (49) $30,000(2) $ -- $ 83
2002 $21,000(2) $ 99 $256
</TABLE>
- --------
(1) Agreement effectively exchanges the LIBOR floating interest rate for a
fixed interest rate of 5.74%.
(2) Agreement limits the LIBOR floating interest rate to 6.50%.
9. Mandatory Redeemable Preferred Stock
At December 31, 1998 and 1999, there were no shares of Preferred Stock
authorized, issued or outstanding.
In connection with the acquisition of U.S. Silica, Mandatory Redeemable
Series C Preferred Stock of Holdings was issued to Borax. The Company issued
Mandatory Redeemable Preferred Stock in exchange for Holdings' Mandatory
Redeemable Preferred Stock, the terms of which were identical. The Preferred
Stock was mandatorily redeemable at $1,000.00 per share on February 9, 2006 and
had an optional redemption value of $500.00 per share at issuance which
accreted at a rate of 7.18% per annum. The Preferred Stock issued by the
Company was accounted for at its fair market value at the time of issuance
which was determined to be $7.3 million. The difference between the fair market
value and the mandatory redemption value of $10.0 million was accreted ratably
over a ten year period by charges to additional paid-in capital for the period
beginning February 9, 1996.
On December 18, 1997, the Company redeemed the Preferred Stock for $5.0
million. As consideration, the Company agreed to release Borax from certain
indemnifications pursuant to the Stock Purchase Agreement between Borax and the
Company by waiving all claims and releasing Borax from all obligations arising
out of certain environmental and product liability matters (each, as defined)
and indemnifying and holding harmless Borax in respect of all claims arising
out of such products liability matters. The excess of the carrying value of the
Preferred Stock over the redemption payment was credited to additional paid-in
capital.
10. Commitments and 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.
U.S. Silica is self-insured for product liability insurance as it relates to
occupational disease. In addition, U.S. Silica 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 future losses is adequate.
F-18
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Certain product liability claims related to occupational disease are
indemnified by ITT Corporation under an agreement whereby claims presented with
an exposure period 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 expires September 12, 2005.
11. Income Taxes
The provision (benefit) for income taxes consisted of the following for each
of the three years in the period ended December 31, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Current:
Federal..................................... $ 1,730 $ 375 $ --
State....................................... 6 39 378
Foreign..................................... -- 23 180
-------- -------- --------
1,736 437 558
Deferred:
Federal..................................... (3,638) (2,819) (4,307)
State....................................... (337) (439) (642)
Foreign..................................... -- (96) (75)
-------- -------- --------
(3,975) (3,354) (5,024)
-------- -------- --------
Tax effect of extraordinary items............. -- 713 1,752
-------- -------- --------
Benefit for income taxes.................... $ (2,239) $ (2,204) $ (2,714)
======== ======== ========
</TABLE>
F-19
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under SFAS No. 109, deferred tax assets and liabilities are recognized for
the estimated future tax effects, based on enacted tax laws, of temporary
differences between the values of assets and liabilities recorded for financial
reporting and for tax purposes and of net operating loss and other
carryforwards. The tax effects of the types of temporary differences and
carryforwards that gave rise to deferred tax assets and liabilities at December
31, 1998 and 1999, consisted of the following:
<TABLE>
<CAPTION>
1998 1999
-------- ---------
(In thousands)
<S> <C> <C>
Gross deferred tax liabilities
Land and mineral property basis difference.............. $(36,927) $(116,743)
Fixed assets and depreciation........................... (26,969) (31,971)
Restricted stock vesting................................ (371) (525)
Debt fee amortization................................... (815) --
Other................................................... (3,280) (7,025)
-------- ---------
Total deferred tax liabilities...................... (68,362) (156,264)
-------- ---------
Gross deferred tax assets
Royalty................................................. -- 2,025
Post retirement benefit costs........................... 8,208 8,100
Reserves for self-insurance............................. 2,729 2,652
Plant closure liability................................. 2,334 2,762
State deferred tax...................................... 2,832 9,369
Covenants not to compete................................ 4,087 5,618
Alternative minimum tax................................. 3,397 5,483
Reserves for vacation................................... 790 910
Pensions................................................ 1,695 2,100
Inventories............................................. 422 535
Net operating loss carryforward......................... 2,695 4,605
Bad debts............................................... 450 496
Reclamation............................................. 851 1,032
Other................................................... 1,247 1,088
-------- ---------
Total deferred tax assets........................... 31,737 46,775
-------- ---------
Net deferred tax liabilities........................ (36,625) (109,489)
Less net current deferred tax assets.................. (6,167) (8,148)
-------- ---------
Net long-term deferred tax liabilities.................. $(42,792) $(117,637)
======== =========
</TABLE>
At December 31, 1998 and 1999, the Company had a federal net operating loss
carryforward ("NOL") of $5.9 million and $11.1 million, respectively, which
begins to expire in 2011.
The Company believes that it is more likely than not that the NOL
carryforward will be utilized prior to its expiration. The NOL carryforward and
existing deductible temporary differences are offset by existing taxable
temporary differences reversing within the carryforward period.
In addition, the Company has an alternative minimum tax credit carryforward
at December 31, 1998 and 1999, of approximately $3.4 million and $5.5 million,
respectively. The credit carryforward may be carried forward indefinitely to
offset any excess of regular tax liability over alternative minimum tax
liability subject to certain limitations. This alternative minimum tax credit
carryforward has been reflected as a reduction of net noncurrent deferred
income tax liabilities for financial reporting purposes.
F-20
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The effective income tax rate on pretax earnings before extraordinary items
differed from the U.S. federal statutory rate for each of the three years in
the period ended December 31, 1999 for the following reasons:
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- ------
<S> <C> <C> <C>
Provision computed at U.S. federal statutory rate.... 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
Percentage depletion............................... 77.7 9.6 (253.7)
Disallowed interest expense........................ (6.5) (.4) --
Restricted stock vesting........................... -- (29.5) --
Accretion of preferred stock warrants.............. (24.5) (2.6) 1.9
Prior year tax return reconciliation............... 27.1 -- (61.2)
State income taxes, net of federal benefit......... 8.3 1.2 5.4
Other, net......................................... (2.9) (.2) 9.6
----- ----- ------
Provision for income taxes....................... 114.2% 13.1% (263.0)%
===== ===== ======
</TABLE>
12. Pension and Postretirement Benefits
The Company maintains a number of single-employer noncontributory defined
benefit pension plans covering substantially all employees. The plans provide
benefits based on each covered employee's years of qualifying service. The
Company's funding policy is to contribute amounts within the range of the
minimum required and maximum deductible contributions for each plan consistent
with a goal of appropriate minimization of the unfunded projected benefit
obligation. The majority of the Company's pension plans use a benefit level per
year of service (hourly) with one plan using final average pay method
(salaried). All Company plans use the projected unit credit cost method to
determine the actuarial valuation.
In addition, the Company provides defined benefit postretirement healthcare
and life insurance benefits to substantially all employees. Covered employees
become eligible for these benefits at retirement after meeting minimum age and
service requirements. The projected future cost of providing postretirement
benefits, such as healthcare and life insurance, is recognized as an expense as
employees render services.
The Company contributes to a Voluntary Employees' Beneficiary Association
trust that will be used to partially fund health care benefits for future
retirees. Benefits are funded to the extent contributions are tax deductible,
which under current legislation is limited. In general, retiree health benefits
are paid as covered expenses are incurred.
F-21
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net pension and postretirement cost consisted of the following for each of
the three years in the period ended December 31, 1999:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------- --------------------------
1997 1998 1999 1997 1998 1999
------- ------- ------- -------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits
earned
during the period...... $ 961 $ 920 $ 1,040 $ 162 $ 128 $ 144
Interest cost........... 3,636 3,791 3,886 1,073 958 946
Expected return on plan
assets................. (3,548) (3,585) (3,739) (15) (18) (19)
Net amortization and
deferral............... 8 109 235 (447) (551) (449)
------- ------- ------- -------- ------- -------
Net pension and
postretirement cost.. $ 1,057 $ 1,235 $ 1,422 $ 773 $ 517 $ 622
======= ======= ======= ======== ======= =======
</TABLE>
The changes in benefit obligations and plan assets, as well as the funded
status of the Company's pension and postretirement plans at December 31, 1998
and 1999 were as follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------ ------------------------
1998 1999 1998 1999
-------- -------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Benefit obligation at January
1.............................. $ 51,857 $ 56,697 $ 15,280 $ 14,683
Service cost.................. 800 1,040 128 144
Interest cost................. 3,654 3,886 958 946
Actuarial..................... 2,877 (5,664) (1,016) (1,716)
Acquisitions.................. 2,231 3,039 -- --
Benefits paid................. (4,722) (3,636) (859) (1,097)
Other......................... -- 278 192 213
-------- -------- ----------- -----------
Benefit obligation at December
31............................. 56,697 55,640 14,683 13,173
-------- -------- ----------- -----------
Fair value of plan assets at
January 1...................... 53,618 56,078 235 236
Actual return on plan assets.. 5,807 8,991 1 (38)
Acquisitions.................. 1,335 4,871 -- --
Employer contributions........ 40 407 667 884
Benefits paid................. (4,722) (3,636) (859) (1,097)
Other......................... -- -- 192 213
-------- -------- ----------- -----------
Fair value of plan assets at
December 31.................... 56,078 66,711 236 198
-------- -------- ----------- -----------
Plan assets in excess (less
than)
benefit obligations at December
31............................. (619) 11,071 (14,447) (12,975)
Unrecognized net loss (gain).. (3,393) (14,486) (5,575) (6,785)
Unrecognized prior service
cost......................... 536 763 -- --
-------- -------- ----------- -----------
Accrued benefit cost recognized
in the
Company's consolidated
balance sheet
before additional pension
liability.................... (3,476) (2,652) (20,022) (19,760)
-------- -------- ----------- -----------
Adjustment to recognize minimum
pension liability.............. (212) -- -- --
-------- -------- ----------- -----------
Net accrued benefit cost
recognized in the Company's
consolidated balance
sheet...................... $ (3,688) $ (2,652) $ (20,022) $ (19,760)
======== ======== =========== ===========
</TABLE>
F-22
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In prior years, certain of the Company's pension plans were underfunded. At
December 31, 1998, the projected benefit obligation of the underfunded plans
was $17.9 million, the total fair value of assets was $14.7 million, and the
accumulated benefit obligation was $17.3 million. At December 31, 1998, the
accrued benefit cost recognized in the Company's consolidated balance sheet for
these plans was $3.4 million. Effective December 31, 1999, the Company merged a
number of these plans which eliminated their underfunded status.
The adjustment to recognize the minimum pension liability on the Company's
consolidated balance sheet of $212,000 at December 31, 1998 provides financial
statement recognition to the unfunded status of the pension plans. The pension
liability adjustment has been recorded as a long-term liability offset by an
intangible asset, reduction to stockholder's equity and deferred taxes of
$146,000, $40,000 and $26,000, respectively, at December 31, 1998.
The following weighted-average assumptions were used to determine the
Company's obligations under the plans:
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
---------- ----------------
1998 1999 1998 1999
---- ---- ------- -------
<S> <C> <C> <C> <C>
Discount rate..................................... 6.75% 7.75% 6.75% 7.75%
Long-term rate of compensation increase........... 3.50% 3.50% -- --
Long-term rate of return on plan assets........... 8.00% 8.00% 8.00% 8.00%
Health care cost trend rate....................... -- -- 6.50% 6.00%
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 6.50% in 1998, 6.00% in 1999 and 6.00% in
2000, gradually declining to 3.00% by the year 2014 and remaining at that level
thereafter.
A one-percentage-point increase in the assumed health care cost trend rates
for each year would increase the accumulated postretirement benefit obligation
at December 31, 1999 and net postretirement health care cost (service cost and
interest cost) for the year then ended by approximately $1.4 million and
$134,000, respectively. A one-percentage-point decrease in the assumed health
care cost trend rates for each year would decrease the accumulated
postretirement benefit obligation at December 31, 1999 and net postretirement
health care cost (service cost and interest cost) for the year then ended by
approximately $1.1 million and $111,000, respectively.
Certain hourly employees are covered under a multi-employer defined benefit
pension plan. The pension cost recognized for these plans for each of the three
years ended December 31, 1997, 1998 and 1999 totaled approximately $142,000,
$147,000, and $176,000, respectively.
The Company also sponsors a defined contribution plan covering certain
employees. The Company contributes to the plan in two ways. For certain
employees not covered by the defined benefit plan, the Company makes a
contribution equal to 4% of their salary. The Company also contributes an
employee match which can range from 25 to 100 cents, based on financial
performance, for each dollar contributed by an employee, up to 8% of their
earnings. Contributions for each of the three years ended December 31, 1997,
1998 and 1999 totaled approximately $470,000, $678,000 and $746,000,
respectively. The Company also sponsors a defined contribution thrift plan for
hourly employees to which employees may contribute up to 15% of their earnings.
There is no contributing match for the thrift plan.
F-23
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Related Party Transactions
Pursuant to an agreement between the Company and principals of D. George
Harris & Associates, LLC ("DGH&A"), who are also stockholders of the Company's
ultimate parent, DGH&A provides certain management advisory services to the
Company. The Company paid approximately $500,000, $583,000 and $877,000 to
DGH&A for each of the three years ended December 31, 1997, 1998 and 1999,
respectively, associated with these management services. The agreement also
provides that the Company will pay DGH&A an acquisition fee in the event of a
business acquisition by the Company. The Company paid approximately $325,000
for services in connection with the acquisition of the Morie Assets during
1999. In addition, approximately $600,000 was paid to DGH&A during 1998
associated with the Better Materials Corporation and George F. Pettinos, Inc.
acquisitions. The management advisory services and acquisition fees have been
charged to selling, general and administrative expense during each of the
respective periods noted above.
Prior to the acquisition of Commercial Stone, certain operations of DGH&A
were conducted as a subsidiary of the Company. Subsequent to the acquisition,
the DGH&A operations have been handled separately from the Company. The Company
does not have an ownership interest in DGH&A. Consequently, the DGH&A
acquisition fee of approximately $1,387,000 associated with the acquisition of
Commercial Stone was capitalized and allocated to mineral reserves as part of
the purchase price.
The agreement also provides that, at DGH&A's request, U.S. Silica provide
DGH&A with an interest-free loan not to exceed $1.0 million annually. At
December 31, 1999, a loan receivable to DGH&A of $1.0 million is currently
outstanding. The loan is guaranteed by certain principals of DGH&A. In
addition, a payable of approximately $898,000 to DGH&A, principally related to
the Company's unpaid portion of the acquisition fee, existed at December 31,
1999.
On occasion, the Company and its parent make non-interest bearing cash
advances to each other. At December 31, 1998, the Company had a payable to its
parent of approximately $1.1 million. At December 31, 1999, the Company had a
receivable from its parent of approximately $834,000.
14. Silica Mining Lease
On July 18, 1997, the Company settled a dispute concerning royalties related
to a silica-mining lease. The terms in the agreement provided that U.S. Silica
pay the lessor approximately $1.1 million in cash and property for retroactive
royalties and legal fees. This amount was charged to cost of goods sold in
1997. The agreement further stipulates that future royalties be determined as a
percentage of gross sales from the leased property. The lease, along with
renewals, covers a period of thirty-six years.
15. Incentive Stock Compensation
Under the terms of a repurchase agreement between Holdings and holders of
Holdings' Class A Common Stock (the "Class A Holders"), the Class A Holders
were required to sell some or all of their Class A Common Stock to Holdings at
par value if the holders of Holdings' Series A and Series B Preferred Stock did
not achieve a specified internal rate of return upon the occurrence of certain
liquidity events as described in the Stockholders Agreement. In 1998, Holdings
agreed to waive the repurchase requirements associated with the Class A Common
Stock, which effectively gave the Class A Holders the right to put the Class A
Common Stock back to Holdings for fair value
F-24
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
consideration subject to certain conditions. This resulted in a $14.2 million
one time, non-cash charge to the Company's operations, which was the difference
between the fair market value of the Class A Common Stock and its par value at
the time the repurchase agreement was waived.
16. Segment Information
The Company operates in the industrial minerals and aggregates business
segments, principally in the United States, and conducts limited operations in
Canada. Industrial minerals includes the mining, processing and marketing of
industrial minerals, principally silica, to a wide variety of end use markets,
including foundry, glass, chemicals, fillers and extenders (primarily used in
paints and coatings), building materials, ceramics, and oil and gas. Aggregates
includes the mining, processing and marketing of high quality crushed stone,
construction sand and gravel. The Company's customers use its aggregates for
road construction and maintenance, other infrastructure projects and
residential and commercial construction and to produce hot mixed asphalt and
concrete products. The Company also uses its aggregate to produce hot mixed
asphalt at production facilities the Company owns or operates. The industrial
minerals and aggregates business segments constitute the reportable segments of
the Company.
The Company's management reviews operating company income to evaluate
segment performance and allocate resources. General corporate expense (income),
interest expense, the accretion of preferred stock warrants, other income (net
of interest income) and the provision (benefit) for income taxes are not
included in segment operating income since they are excluded from the measure
of segment profitability reviewed by the Company's management. The Company's
assets are managed based on segment and accordingly, asset information is
reported for the commercial aggregates and industrial minerals segments.
Corporate assets consist primarily of cash and cash equivalents, debt issuance
costs and equipment. The accounting policies of the segments are the same as
those described in the Summary of Significant Accounting Policies.
F-25
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reportable segment information for each of the two years in the period ended
December 31, 1999 was as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(In thousands)
<S> <C> <C>
Net sales:
Aggregates................ $ 3,497 $ 49,907
Industrial Minerals....... 138,797 159,168
-------- --------
Total net sales......... $142,294 $209,075
======== ========
Operating company income
(loss):
Aggregates................ $ (288) $ 6,610
Industrial Minerals....... (7,287) 12,476
-------- --------
Total operating company
income (loss).......... (7,575) 19,086
General corporate (ex-
pense) income............ 346 (579)
-------- --------
Total operating income
(loss)................. $ (7,229) $ 18,507
======== ========
Depreciation, depletion and
amortization expense:
Aggregates................ $ 309 $ 6,328
Industrial Minerals....... 19,579 22,152
Corporate................. -- 1
-------- --------
Total depreciation, de-
pletion and amortiza-
tion expense........... $ 19,888 $ 28,481
======== ========
Capital expenditures:
Aggregates................ $ 517 $ 3,282
Industrial Minerals....... 8,882 11,120
Corporate................. -- 170
-------- --------
Total capital expendi-
tures.................. $ 9,399 $ 14,572
======== ========
</TABLE>
Reportable segment information at December 31, 1998 and 1999 was as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(In thousands)
<S> <C> <C>
Assets:
Aggregates................................................. $ 86,928 $323,470
Industrial Minerals........................................ 187,574 201,390
Corporate.................................................. 176 29,169
Elimination of intersegment receivables.................... -- (2,426)
-------- --------
Total assets............................................. $274,678 $551,603
======== ========
</TABLE>
In December 1998, U.S. Silica acquired Better Materials Corporation. Prior
to this acquisition, the Company conducted business solely in the "Industrial
Minerals" segment. Accordingly, reportable segment information at December 31,
1997 and for the year then ended has not been presented.
F-26
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. Guarantor Financial Data
Except for the Company's two Canadian subsidiaries, each of the Company's
subsidiaries have fully and unconditionally guaranteed the Company's Senior
Subordinated Notes and Senior Secured Credit Facilities on a joint and several
basis. Presented below is summarized combined financial information of the
Company (on a stand-alone basis), the guarantor subsidiaries and nonguarantor
subsidiaries at December 31, 1998 and 1999 and for the two years then ended.
<TABLE>
<CAPTION>
Company Combined Combined
Stand- Guarantor Nonguarantor Consolidation
alone Subsidiaries Subsidiaries Adjustments Total
-------- ------------ ------------ ------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
At December 31, 1998
Current assets.......... $ 1 $ 50,412 $6,030 $ -- $ 56,443
Non-current assets...... -- 215,542 2,693 -- 218,235
Current liabilities..... 3 35,191 1,741 -- 36,935
Non-current
liabilities............ -- 210,880 3,467 -- 214,347
Investments in
subsidiaries........... 23,398 3,515 -- (26,913) --
<CAPTION>
Company Combined Combined
Stand- Guarantor Nonguarantor Consolidation
alone Subsidiaries Subsidiaries Adjustments Total
-------- ------------ ------------ ------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
At December 31, 1999
Current assets.......... $ 13,773 $ 89,538 $4,992 $ (16,898) $ 91,405
Non-current assets...... 115,116 444,314 2,468 (101,700) 460,198
Current liabilities..... 25,995 34,702 1,891 (16,898) 45,690
Non-current
liabilities............ 282,604 258,656 2,018 (101,700) 441,578
Investments in
subsidiaries........... 248,799 3,551 -- (252,350) --
<CAPTION>
Company Combined Combined
Stand- Guarantor Nonguarantor Consolidation
alone Subsidiaries Subsidiaries Adjustments Total
-------- ------------ ------------ ------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1998
Net sales............... $ -- $138,758 $3,617 $ (81) $142,294
Cost of goods sold...... -- 95,461 3,098 (81) 98,478
Operating (loss)
income................. (1) (7,110) (118) -- (7,229)
Net (loss) income before
extraordinary loss..... (14,667) (14,666) (17) 14,683 (14,667)
Net (loss) income....... (16,769) (16,768) (17) 16,785 (16,769)
<CAPTION>
Company Combined Combined
Stand- Guarantor Nonguarantor Consolidation
alone Subsidiaries Subsidiaries Adjustments Total
-------- ------------ ------------ ------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1999
Net sales............... $ -- $200,460 $8,927 $ (312) $209,075
Cost of goods sold...... -- 133,138 7,418 (312) 140,244
Operating (loss)
income................. (110) 23,277 94 (4,754) 18,507
Net income (loss) before
extraordinary loss..... 5,753 14,315 48 (16,370) 3,746
Net income (loss)....... 5,753 11,568 22 (16,344) 999
</TABLE>
Amounts are not intended to report results as if the subsidiaries were
separate stand-alone entities. Comparative information for the year ended
December 31, 1997 has not been presented because the nonguarantor subsidiary in
that year was nonoperating and the assets and results of operations were
immaterial.
F-27
<PAGE>
BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES
(formerly USS Intermediate Holdco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
18. Subsequent Event
On February 29, 2000, the Company completed the sale of the stock of its
Canadian subsidiary, George F. Pettinos (Canada) Limited for $3.2 million. The
proceeds from the sale were used to retire the Canadian Term Facility (Note 6)
and for general corporate uses.
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Better Materials Corporation
Penns Park, Pennsylvania
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Better
Materials Corporation and Subsidiaries at December 13, 1998 and January 3,
1998, and the results of their operations and their cash flows for the period
ended December 13, 1998 and fiscal years ended January 3, 1998 and December 28,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
August 25, 1999
F-29
<PAGE>
BETTER MATERIALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
at December 13, 1998 and January 3, 1998
<TABLE>
<CAPTION>
December January 3,
13, 1998 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 2,185,967 $ 803,366
Accounts receivable, less allowance for doubtful
accounts of approximately $489,000 and $300,000,
respectively......................................... 5,419,458 3,589,049
Other receivables..................................... 87,807 37,817
Inventories:
Stone............................................... 897,671 979,224
Parts............................................... 408,092 409,512
Refundable income taxes............................... -- 286,157
Prepaid expenses...................................... 243,546 79,639
Deferred income taxes................................. 780,089 135,860
----------- -----------
Total current assets.............................. 10,022,630 6,320,624
Property, plant and equipment, net of accumulated
depreciation, depletion and amortization............. 10,609,154 9,124,424
Assets held for sale.................................. 800,000 800,000
Deferred income taxes................................. 138,439 64,140
Notes receivable...................................... -- 69,338
----------- -----------
Total assets...................................... $21,570,223 $16,378,526
=========== ===========
LIABILITIES
Current installments of long-term debt................ $ 1,073,099 $ 1,149,289
Accounts payable...................................... 1,814,325 1,375,020
Other accrued expenses................................ 1,445,917 1,270,846
Income taxes payable.................................. 658,563 --
Accrued pension cost.................................. 214,330 235,561
----------- -----------
Total current liabilities......................... 5,206,234 4,030,716
Accrued pension cost, net of current portion.......... 807,423 799,943
Long-term debt, net of current portion................ 3,637,231 3,357,809
----------- -----------
Total liabilities................................. 9,650,888 8,188,468
----------- -----------
Contingencies (Note 7)
SHAREHOLDERS' EQUITY
Class A common stock--voting; $.10 par value;
authorized 100,000 shares; issued 44,024 shares...... 4,403 4,403
Class B common stock--nonvoting; $.10 par value;
authorized 300,000 shares; issued 116,308 shares..... 11,631 11,631
Capital in excess of par.............................. 5,986 5,986
Retained earnings..................................... 12,430,733 8,701,456
----------- -----------
12,452,753 8,723,476
----------- -----------
Less treasury stock at cost:
Class A common stock--1,200 shares.................. 45,980 45,980
Class B common stock--13,498 shares................. 487,438 487,438
----------- -----------
533,418 533,418
----------- -----------
Total shareholders' equity........................ 11,919,335 8,190,058
----------- -----------
Total liabilities and shareholders' equity........ $21,570,223 $16,378,526
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-30
<PAGE>
BETTER MATERIALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the period ended December 13, 1998, and for the fiscal years ended
January 3, 1998 and December 28, 1996
<TABLE>
<CAPTION>
December December
13, January 3, 28,
1998 1998 1996
----------- ----------- -----------
<S> <C> <C> <C>
Sales of crushed stone and asphalt...... $26,255,889 $24,692,001 $21,617,034
----------- ----------- -----------
Costs and expenses:
Cost of sales and operating expenses.. 17,326,039 17,499,281 14,712,929
Depreciation, depletion and
amortization......................... 1,148,284 1,046,207 1,056,549
Selling, general and administrative
expenses............................. 3,286,985 4,394,304 4,136,824
----------- ----------- -----------
21,761,308 22,939,792 19,906,302
----------- ----------- -----------
Income before interest expense, other
(income) expense, net and income
taxes.................................. 4,494,581 1,752,209 1,710,732
Interest expense........................ 629,955 514,862 464,984
Other (income) expense, net............. (51,288) 10,963 30,296
----------- ----------- -----------
Income before income taxes.............. 3,915,914 1,226,384 1,215,452
Income tax provision (benefit).......... 186,637 267,971 (343,400)
----------- ----------- -----------
Net income.............................. $ 3,729,277 $ 958,413 $ 1,558,852
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-31
<PAGE>
BETTER MATERIALS CORPORATION AND SUBSCRIBERS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the period ended December 13, 1998 and fiscal years ended
January 3, 1998 and December 28, 1996
<TABLE>
<CAPTION>
Common Stock Treasury Stock
----------------------------- ------------------------------------
Capital in
Excess of Retained Class B
Class A Class B Par Value Earnings Class A -------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------- ------- ---------- ----------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 30,
1995................... 44,024 $4,403 116,308 $11,631 $5,986 $ 6,184,191 (1,200) $(45,980) (13,498) $(487,438)
Net income.............. 1,558,852
-----------
Balances, December 28,
1996................... 44,024 4,403 116,308 11,631 5,986 7,743,043 (1,200) (45,980) (13,498) (487, 438)
Net income.............. 958,413
-----------
Balances, January 3,
1998................... 44,024 4,403 116,308 11,631 5,986 8,701,456 (1,200) (45,980) (13,498) (487, 438)
Net income.............. 3,729,277
-----------
Balances, December 13,
1998................... 44,024 $4,403 116,308 $11,631 $5,986 $12,430,733 (1,200) $(45,980) (13,498) $(487,438)
====== ====== ======= ======= ====== =========== ====== ======== ======= =========
</TABLE>
The accompanying notes are integral part of the consolidated financial
statements.
F-32
<PAGE>
BETTER MATERIALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the period ended December 13, 1998, and for the fiscal years ended
January 3, 1998 and December 28, 1996
<TABLE>
<CAPTION>
December 13, January 3, December 28,
1998 1998 1996
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 3,729,277 $ 958,413 $ 1,558,852
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation, depletion and
amortization......................... 1,148,284 1,046,207 1,085,582
Provision for bad debts on accounts
receivable........................... 90,000 169,160 79,400
Deferred income taxes................. (718,528) 200,000 (400,000)
(Gain) loss on fixed assets........... (98,344) 14,602 (188,563)
Changes in operating assets and
liabilities:
Accounts receivable.................. (1,920,409) 488,517 (1,841,903)
Inventories.......................... 82,973 1,135,726 287,744
Prepaid expenses and refundable
income taxes........................ 122,250 (2,271) 10,273
Accounts payable..................... 439,305 (150,113) (52,550)
Income taxes payable................. 658,563 (884,277) 601,014
Other accrued expenses and accrued
pension costs....................... 161,320 (235,089) 387,554
----------- ----------- -----------
Net cash provided by operating
activities......................... 3,694,691 2,740,875 1,527,403
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and
equipment............................. (2,725,420) (4,393,316) (691,244)
Proceeds from sales of property, plant
and equipment......................... 190,750 56,634 377,300
Payments received on notes and other
receivable............................ 19,348 52,490 152,178
----------- ----------- -----------
Net cash used in investing
activities......................... (2,515,322) (4,284,192) (161,766)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from term loan................ 1,300,000 1,800,000 --
Payments on long-term debt and term
loans................................. (1,096,768) (1,232,763) (960,445)
----------- ----------- -----------
Net cash provided by (used in)
financing activities............... 203,232 567,237 (960,445)
----------- ----------- -----------
Net increase (decrease) in cash......... 1,382,601 (976,080) 405,192
Cash at beginning of year............... 803,366 1,779,446 1,374,254
----------- ----------- -----------
Cash at end of year..................... $ 2,185,967 $ 803,366 $ 1,779,446
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for the year:
Income taxes, net..................... $ 273 $ 410,629 $ 90,641
=========== =========== ===========
Interest.............................. $ 482,298 $ 486,500 $ 464,110
=========== =========== ===========
Nonmonetary transactions:
Exchange of similar assets............ -- -- $ 26,465
=========== =========== ===========
Property, plant and equipment
acquisitions remaining in
accounts payable...................... -- $ 453,373 --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-33
<PAGE>
BETTER MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Operations and Summary of Significant Accounting Policies
Description of Operations
The Company produces crushed stone and bituminous asphalt material, used in
the production of concrete and asphalt products, construction and maintenance
of highways and other infrastructure projects, and for commercial and
residential construction. Sales of the Company's materials are limited up to a
100 mile area due to inherently high transportation costs associated with the
industry.
Principles of Consolidation
The consolidated financial statements include the accounts of Better
Materials Corporation (Company) and its wholly-owned subsidiaries, Bucks County
Crushed Stone Co., Inc. (BCCS), BMC Trucking Company (BMCT), Industrial
Trucking Service Corporation (ITSC), Chippewa Farms Corporation (CFC), Quarry
Food, Inc., Shore Fast Line, Inc. (SFL) and Shore Stone Company, Inc. (SSC). In
addition, Hi-Way Maintenance & Supply Co., Inc. (HMS) is a subsidiary of BCCS.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Fiscal Year and Sale of the Business
The Company's fiscal year ends on the Saturday nearest to December 31.
Fiscal year 1997 ended January 3, 1998 and was comprised of 53 weeks; fiscal
year 1996 ended December 28, 1996 and was comprised of 52 weeks. On December
14, 1998, all of the common stock of the Company and its wholly-owned
subsidiaries, BCCS, BMCT, CFC and SSC was sold to U.S. Silica Company; such
stock comprised principally all of the assets of the Company, accordingly, the
Company's financial position and results of operations for 1998 are presented
for the period January 4, 1998 through December 13, 1998.
The stock of ITSC, Quarry Food, Inc., SFL and HMS was sold to a former
shareholder. Accordingly, all liabilities and any contingent liabilities were
assumed by the former shareholder.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant estimates relate primarily to assets held for sale, allowance for
uncollectable accounts receivable, valuation allowance on net deferred tax
assets and depreciation, depletion and amortization.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an initial maturity of three months or
less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market. Cost of parts is
determined by the first-in, first-out method. Cost of stone inventory is
determined principally by the average-cost method.
F-34
<PAGE>
BETTER MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Maintenance and repairs
are charged to expense as incurred. When assets are sold or otherwise disposed
of, any gain or loss is recognized currently.
Depreciation, Amortization and Depletion
Provisions for depreciation and amortization are being made over the
estimated lives of the respective assets or lease terms, if shorter, using the
straight-line method for financial statement purposes and accelerated methods
for income tax purposes. Depletion of stone deposits is provided based upon the
tonnage of rock quarried in relation to the estimated total tonnage available.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. The Company provides for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109)
which requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between tax bases and
financial reporting bases of assets and liabilities. Under SFAS No. 109,
deferred tax assets and liabilities are based on the tax rates and laws enacted
as of the balance sheet date. The effects of future changes in tax laws or
rates are not anticipated.
Pension Plan
The Company and its wholly-owned subsidiaries sponsor two noncontributory
defined benefit pension plans. The Industrial Trucking Service Corporation Plan
(ITSC Plan) covers union employees, and the Better Materials Corporation
Pension Plan (BMC Plan) covers substantially all employees other than those
covered by the ITSC Plan. Under the BMC Plan pension expense is determined and
funded on the basis of accepted actuarial methods. Under the ITSC Plan,
contributions are based on hours worked by, or gross wages paid to, covered
employees. The Company has no prior service liability under the ITSC Plan.
Concentration of Credit Risk
The Company grants credit to its customers which are primarily construction
companies located in Pennsylvania and New Jersey. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains reserves for potential credit losses, which, when
realized, have been within the range of management's expectations.
The Company primarily invests its excess cash in interest bearing
instruments with a major commercial bank. Cash available in these accounts may
at times exceed FDIC levels. The Company performs periodic evaluations of the
relative credit standing of the financial institution.
F-35
<PAGE>
BETTER MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Property, Plant and Equipment
Property, plant and equipment consisted of the following categories:
<TABLE>
<CAPTION>
December 13, January 3,
1998 1998
------------ ------------
<S> <C> <C>
Buildings................................... $ 2,499,083 $ 2,499,082
Quarry equipment............................ 16,099,322 10,190,701
Construction-in-progress.................... -- 3,593,285
Transportation and garage equipment......... 1,078,586 1,427,376
Furniture, fixtures and other equipment..... 569,879 557,329
Land improvements........................... 1,406,099 1,342,835
------------ ------------
21,652,969 19,610,608
Less accumulated depreciation and
amortization............................... (13,173,979) (12,655,162)
------------ ------------
8,478,990 6,955,446
Land, including stone deposits, net of
depletion.................................. 2,130,164 2,168,978
------------ ------------
$ 10,609,154 $ 9,124,424
============ ============
</TABLE>
3. Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 13, January 3,
1998 1998
------------ ----------
<S> <C> <C>
Term loan(a).................................... $1,481,758 $1,889,242
Bullet term loan(a)............................. 497,620 667,856
Loan payable to former shareholder for non-
compete agreement(b)........................... -- 150,000
Equipment term loan(c).......................... 2,730,952 1,800,000
---------- ----------
4,710,330 4,507,098
Less installments due within one year........... 1,073,099 1,149,289
---------- ----------
$3,637,231 $3,357,809
========== ==========
</TABLE>
- --------
(a) On March 1, 1998, the Company entered into a third amended loan and
security agreement with a bank, which includes a revolving credit facility,
a term loan, a bullet term loan and a line of credit facility.
The revolving credit loan expired on February 28, 1999 and provides for
maximum borrowing of $3,500,000, less any outstanding letter of credit
commitments (at December 13, 1998, the Company was contingently liable, in
the amount of $242,840, under standby letters of credit) with interest at
the prime rate or at prime minus 1/4% to plus 1/2% depending on the
Company's leverage ratio at the end of each quarter. In addition, the
Company may otherwise elect to pay interest at adjusted LIBOR plus 2 1/2%.
The choice of interest rates is determined by whether the Borrower has made
an option to make an election to change to LIBOR. Borrowings are limited to
an amount equal to the sum of 85% of eligible accounts receivable plus the
lesser of $1,000,000 or 50% of finished stone inventory for eligible
months. There were no amounts outstanding under the revolving credit loan
at December 13, 1998 and January 3, 1998.
F-36
<PAGE>
BETTER MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The term loan is repayable in equal monthly installments of $37,044 until
maturity on March 31, 2002. At December 13, 1998, the outstanding principal
balance bears interest at a fixed rate of 8.35%.
The bullet term loan, or second term loan, is repayable from the net
proceeds from asset sales of the Company's discontinued operations. This
loan bears interest at a fixed rate of 8.35%. Pending receipts of net
proceeds from asset sales, the unpaid balance of the bullet term loan is
payable as a term loan with a seven-year amortization period, repayable in
equal monthly installments of $15,476, starting November 1, 1996, with a
balloon payment on November 1, 2001. The principal balance outstanding as
of December 13, 1998 was $497,620.
The line of credit facility allows the Company to borrow up to $500,000 for
capitalized expenditures. Each borrowing is payable in equal monthly
installments not to exceed sixty months from the funding date. Each advance
under the line bears interest at a fixed rate or a floating rate based on
the bank's prime rate plus 0% to 3/4% depending upon the Company's leverage
ratio at the end of each quarter. There were no amounts outstanding under
the line of credit facility at December 13, 1998 and January 3, 1998.
The borrowings under the agreement are collateralized by substantially all
assets of the Company. In addition, the agreement contains, among other
provisions, requirements for maintaining and meeting certain financial
covenants. The two most restrictive covenants require the ratio of total
liabilities to tangible net worth not to exceed 2.00 to 1; secondly, the
ratio of cash flow to the sum of fixed obligations cannot be less than 1.20
to 1 measured quarterly based upon a rolling four-quarter basis.
(b) On April 22, 1991, a payment in respect to a covenant not to compete was
made for $150,000 with the balance of $750,000 payable over the next five
years in equal installments. A revised agreement was entered into in 1994
which called for the remaining payments to be paid annually beginning April
22, 1996.
(c) In May 1997, the Company entered into an equipment loan agreement which
provides for borrowings up to $4,000,000, at an interest rate equal to the
bank's prime rate or at prime plus 0% to 3/4% depending on the Company's
leverage ratio at the end of each calendar quarter (7.75% and 8.5% at
December 13, 1998 and January 3, 1998, respectively). On March 1, 1998, the
Company converted the amount outstanding on the equipment loan to a term
loan with a seven-year amortization period, repayable in equal monthly
installments of $36,905, starting on March 1, 1998, with a balloon payment
on March 1, 2003.
Amounts payable on the long-term debt under renegotiated terms during each
of the five years 1999 through 2003 are $1,073,099, $1,073,098, $1,013,580,
$591,031 and $959,522, respectively.
All bank debt, except the outstanding letter of credit commitments, was paid
off on December 14, 1998 with proceeds from the sale of the Company and
subsidiaries (see Note 10).
4. Leases
The Company leases certain quarry equipment and office equipment under
operating lease arrangements which expire between 1999 and 2002. Certain of the
agreements include options to purchase the equipment for the fair market value
at the end of the original lease terms. Total rent expense under these leases
was $549,831 for the period ended December 13, 1998, and $585,408 and $656,897
for fiscal years ended January 3, 1998 and December 26, 1996, respectively.
F-37
<PAGE>
BETTER MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 13, 1998, annual future minimum lease payments under operating
leases were as follows:
<TABLE>
<CAPTION>
Operating
Minimum lease payments Leases
---------------------- ---------
<S> <C>
December 14, 1998 through December 31, 1998..................... $ 24,460
1999.......................................................... 268,917
2000.......................................................... 60,933
2001.......................................................... 36,420
2002.......................................................... 30,161
--------
Total minimum lease payments.................................... $420,891
========
</TABLE>
5. Income Taxes
The components of the net deferred tax asset at December 13, 1998 and
January 3, 1998 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax asset:
Current:
Allowance for doubtful accounts.................. $ 197,390 $ 170,686
Inventory........................................ 80,804 127,818
Accrued expenses................................. 490,069 590,734
Net operating loss carryforwards................. 11,826 76,957
--------- ---------
780,089 966,195
Valuation allowance.............................. -- (830,335)
--------- ---------
Net current deferred tax assets................ $ 780,089 $ 135,860
========= =========
Long-term:
Pension costs.................................... 326,199 392,506
Alternative minimum tax credits.................. 270,215 134,918
Net operating loss carryforwards, net of current
portion......................................... 14,451 208,257
Depreciable and depletable assets................ (469,426) (279,576)
--------- ---------
141,439 456,105
Valuation allowance.............................. (3,000) (391,965)
--------- ---------
Net long-term deferred tax assets.............. $ 138,439 $ 64,140
========= =========
</TABLE>
Realization of the net deferred tax asset is dependent on generating
sufficient taxable income prior to expiration of net operating loss
carryforwards. Based on estimated future taxable income, management has
estimated the net deferred tax assets that are more likely than not to be
realized. The change in the valuation allowance in 1998 is primarily the result
of the realization of deferred tax assets in 1998 and the change in the
anticipated utilization of net operating loss carryforwards to offset future
estimated taxable income.
F-38
<PAGE>
BETTER MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
January
December 13, 3, December 28,
1998 1998 1996
------------ -------- ------------
<S> <C> <C> <C>
Current provision (benefit):
Federal.............................. $ 698,897 $ 98,314 $ 18,100
State................................ 206,268 (30,343) 38,500
Deferred expense (benefit)............. (718,528) 200,000 (400,000)
--------- -------- ---------
$ 186,637 $267,971 $(343,400)
========= ======== =========
</TABLE>
Reconciliation of the provision (benefit) for income taxes at the U.S.
Federal statutory rate to the effective rate are as follows:
<TABLE>
<CAPTION>
December 13, January 3, December 28,
1998 1998 1996
------------ ---------- ------------
<S> <C> <C> <C>
Federal statutory tax rate.......... 34.0% 34.0% 34.0%
Percentage depletion................ (6.3) (14.7) (13.4)
State income taxes, net of federal
tax benefit........................ 3.5 (1.3) 1.6
Adjustment to valuation allowance... (31.5) 5.5 (42.0)
Nondeductible items and other....... 5.1 (0.3) 2.9
----- ----- -----
Effective tax rate.................. 4.8% 23.2% (16.9)%
===== ===== =====
</TABLE>
At December 13, 1998, the Company has approximately $270,000 of alternative
minimum tax credits. The Company has net operating loss carryforwards for New
Jersey income tax purposes of approximately $437,950 which are available to
offset future taxable income through 2003.
6. Pension Plan Costs
The following items are the components of the net pension cost:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Service cost............................... $ 111,472 $ 85,859 $ 95,119
Interest cost.............................. 117,170 103,890 121,826
Actual return on plan assets............... (134,924) (108,382) (64,861)
Net amortization and deferral.............. 125,683 96,466 29,587
--------- --------- --------
Net pension cost........................... $ 219,401 $ 177,833 $181,671
========= ========= ========
</TABLE>
F-39
<PAGE>
BETTER MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The funded status of the plans at December 13, 1998 and January 3, 1998 is
shown in the table below:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested....................................... $(1,604,047) $(1,400,057)
Nonvested.................................... (9,639) (8,005)
----------- -----------
Accumulated benefit obligation................. (1,613,686) (1,408,062)
Projected future salary increases.............. (617,181) (553,400)
----------- -----------
Projected benefit obligation................... (2,230,867) (1,961,462)
Fair value of plan assets...................... 1,335,212 1,069,178
----------- -----------
Plan assets less than projected benefit
obligation.................................... (895,655) (892,284)
Unrecognized transition amount................. 362,538 434,846
Unrecognized net gain.......................... (488,636) (578,066)
----------- -----------
Accrued pension cost....................... $(1,021,753) $(1,035,504)
=========== ===========
</TABLE>
Assets of the plans are primarily invested in money funds, bonds,
certificates of deposit and stocks. Assumptions used in calculating the
actuarial present value of the projected benefit obligations as of December 13,
1998 and January 3, 1998 and the net periodic pension costs for the period
ended December 13, 1998 and fiscal years ended January 3, 1998 and December 28,
1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---- ----
<S> <C> <C> <C>
Discount rate....................................... 6.50-6.75% 7.0% 7.0%
Rate of increase in future compensation levels...... 3.50 5.0 5.0
Expected long-term rate of return on assets......... 7.50-8.00 8.0 8.0
</TABLE>
In addition to the defined benefit plan described above, the Company also
sponsors a qualified defined contribution 401(k) plan to all full-time nonunion
employees. Participants may make voluntary contributions to the plan up to 15%
of their compensation. The Company's contribution is determined by the
Executive Committee based upon assessment of the Company's fiscal year's
profitability as related to pre-established financial objectives. There were no
Company contributions made to the plan in 1998, 1997 and 1996.
7. Contingencies
On March 4, 1985, the Company and a subsidiary company received two
Directives and Notices of Violation (Directives) from the State of New Jersey
relating to two former waste disposal sites in Woodland Township, New Jersey.
The Directives indicate that the Company and its subsidiary and other
respondents were in violation of the Spill Compensation and Control Act.
In connection with this matter, certain companies filed a complaint against
the Company, its subsidiary and at least 50 unnamed defendants. The complaint
alleges that plaintiffs have incurred substantial costs in connection with the
remediation or cleanup of the sites and seeks damages equal to past response
costs and all future response costs to be incurred by plaintiffs.
This lawsuit has been settled pursuant to a Settlement Agreement dated as of
December 21, 1994. As part of the Settlement Agreement, plaintiffs released the
Company and its subsidiaries, with
F-40
<PAGE>
BETTER MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the sole exception of ITSC, from all claims which were or could have been
asserted by plaintiffs in this lawsuit.
Pursuant to the Settlement Agreement, ITSC entered into a Consent Judgment
on January 11, 1995 in favor of plaintiffs for approximately $20 million plus
40% of any amounts that plaintiffs may incur from and after July 24, 1994 for
response costs or other damages related to or in connection with the Woodland
Sites. However, with respect to such Consent Judgment, plaintiffs agreed not
to seek to recover against any assets, properties or rights of ITSC other than
against amounts, if any, recovered by ITSC as indemnity in litigation filed by
it and the Company against certain of their insurance carriers. ITSC is
required to vigorously prosecute the litigation against the insurance carriers
and ITSC, first, and the Company, secondarily, are required to pay all
attorneys' fees and costs in this litigation up to an aggregate total not to
exceed $1.5 million. The Company and ITSC have spent and charged to expense
$1,275,399 towards the $1.5 million aggregate cap through 1998. In addition,
the Company has estimated additional costs of $224,601 and has accrued that
amount as of December 13, 1998 ($401,268 as of January 3, 1998). The ultimate
cost, however, will depend on how the litigation progresses. The Company and
ITSC are also seeking recovery from the insurance carriers of past and future
legal costs associated with this case. To date, the Company and ITSC have
settled with two insurance carriers for $4,371,000. Of this amount $3,786,900
was remitted to the plaintiffs and $584,100 was retained by the Company and
its subsidiary for past legal costs as well as any potential future costs or
claims. Management believes, based in part on discussions with legal counsel,
that the ultimate outcome will not have a material adverse impact on the
Company's financial condition or future results of operations or cash flows.
8. Receivables From Related Parties
Included in other receivables are receivables from shareholder in the
amount of $57,067 in 1998.
Included in notes receivable are receivables from shareholders in the
amount of $69,338 in 1997. The notes are uncollateralized and are payable on
demand.
9. Subsequent Event
On December 14, 1998 all of the common stock of the Company was sold to
U.S. Silica Company, which included the following wholly-owned subsidiaries:
Bucks County Crushed Stone Company; BMC Trucking Company; Chippewa Farms
Corporation and Shore Stone Company.
Also, on the same date the stock of Industrial Trucking Service
Corporation; Quarry Food, Inc.; Shore Fast Line, Inc.; and Hi-Way Maintenance
& Supply Company, Inc. was sold to a former shareholder. Accordingly, all
liabilities and any contingent liabilities were assumed by the former
shareholder.
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Commercial Stone Co., Inc.
Connellsville, Pennsylvania
We have audited the accompanying combined balance sheets of Commercial Stone
Co., Inc. and Commercial Aggregates Transportation & Sales, L.P. (the
Companies) as of March 31, 1999 and 1998, and the related combined statements
of operations, changes in owners' equity and cash flows for the years ended
March 31, 1999, 1998 and 1997 that appear in this Registration Statement. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Commercial
Stone Co., Inc. and Commercial Aggregates Transportation & Sales, L.P. as of
March 31, 1999 and 1998 and the results of their operations and their cash
flows for the years ended March 31, 1999, 1998 and 1997 in conformity with
generally accepted accounting principles.
/s/ Schneider Downs & Co., Inc.
Pittsburgh, Pennsylvania
September 8, 1999
F-42
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended March 31
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
SALES................................... $41,953,242 $37,753,036 $26,718,926
COSTS AND EXPENSES
Costs of goods sold and operating
expenses............................. 25,500,999 24,909,817 17,965,563
Depreciation, depletion and
amortization......................... 3,220,522 2,817,324 2,598,544
General and administrative expenses... 3,239,303 2,838,887 2,273,349
----------- ----------- -----------
31,960,824 30,566,028 22,837,456
----------- ----------- -----------
Income From Operations................ 9,992,418 7,187,008 3,881,470
OTHER INCOME, NET....................... 474,543 587,247 493,300
INTEREST EXPENSE........................ (247,172) (248,342) (256,147)
----------- ----------- -----------
227,371 338,905 237,153
----------- ----------- -----------
Net Income............................ $10,219,789 $ 7,525,913 $ 4,118,623
=========== =========== ===========
</TABLE>
See notes to the combined financial statements.
F-43
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31
------------------------
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................... $ 9,038,795 $ 5,259,985
Accounts receivable................................. 3,545,356 3,467,325
Inventory........................................... 2,659,150 2,626,731
Prepaid expenses.................................... 202,869 258,041
------------ -----------
Total Current Assets.............................. 15,446,170 11,612,082
OTHER ASSETS.......................................... 3,764,586 1,532,851
PROPERTY, PLANT AND EQUIPMENT, NET.................... 18,353,306 19,072,992
------------ -----------
$ 37,564,062 $32,217,925
============ ===========
LIABILITIES
CURRENT LIABILITIES
Payments due within one year on long-term debt...... $ 15,609 $ 14,341
Accounts payable.................................... 1,840,494 3,352,773
Accrued liabilities:
Federal tax deposit payable....................... 1,216,108 --
Other............................................. 464,348 600,673
------------ -----------
1,680,456 600,673
------------ -----------
Total Current Liabilities......................... 3,536,559 3,967,787
LONG-TERM DEBT........................................ 4,060,902 4,076,510
ACCRUED RECLAMATION COSTS............................. 508,866 485,527
COMMITMENTS AND CONTINGENCIES......................... -- --
OWNERS' EQUITY
COMMON STOCK
Class A Voting--Par value $5 per share, authorized,
issued and outstanding 1,200 shares................ 6,000 6,000
Class B Nonvoting--Par value $5 per share,
authorized, issued and outstanding 22,800 shares... 114,000 114,000
------------ -----------
120,000 120,000
RETAINED EARNINGS AND PARTNERS' CAPITAL............... 29,337,735 23,568,101
------------ -----------
29,457,735 23,688,101
------------ -----------
$37,564,062 $32,217,925
============ ===========
</TABLE>
See notes to the combined financial statements.
F-44
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Retained
Earnings
Common CATS and Combined
Stock Common Retained Partners' Partners' Owners'
Shares(1) Stock(1) Earnings(1) Capital(2) Capital Equity
--------- -------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE--March 31,
1996................... 24,000 $120,000 $24,608,152 $ 369,614 $24,977,766 $25,097,766
Shareholder and partner
distributions......... -- -- (4,793,364) (777,153) (5,570,517) (5,570,517)
Net income............. -- -- 3,567,830 550,793 4,118,623 4,118,623
------ -------- ----------- --------- ----------- -----------
BALANCE--March 31,
1997................... 24,000 120,000 23,382,618 143,254 23,525,872 23,645,872
Shareholder and partner
distributions......... -- -- (7,047,592) (436,092) (7,483,684) (7,483,684)
Net income............. -- -- 6,870,744 655,169 7,525,913 7,525,913
------ -------- ----------- --------- ----------- -----------
BALANCE--March 31,
1998................... 24,000 120,000 23,205,770 362,331 23,568,101 23,688,101
Shareholder and partner
distributions......... -- -- (3,788,192) (661,963) (4,450,155) (4,450,155)
Net income............. -- -- 9,480,076 739,713 10,219,789 10,219,789
------ -------- ----------- --------- ----------- -----------
BALANCE--March 31,
1999................... 24,000 $120,000 $28,897,654 $ 440,081 $29,337,735 $29,457,735
====== ======== =========== ========= =========== ===========
</TABLE>
- --------
(1) Commercial Stone Co., Inc.
(2) Commercial Aggregates Transportation & Sales, L.P.
See notes to the combined financial statements.
F-45
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended March 31
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................ $10,219,789 $ 7,525,913 $ 4,118,623
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation, depletion and
amortization....................... 3,220,522 2,817,324 2,598,544
Changes in assets and liabilities:
Accounts receivable................. 181,613 1,054,624 1,174,456
Inventory........................... (32,419) 7,822 381,343
Prepaid expenses and other assets... (1,475,829) (141,832) (235,362)
Accounts payable.................... (305,279) 201,682 (11,969)
Accrued liabilities................. 829,184 133,840 (130,113)
Other............................... 9,000 1,000 --
----------- ----------- -----------
Net Cash Provided By Operating
Activities....................... 12,646,581 11,600,373 7,895,522
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and
equipment, net....................... (3,703,276) (4,341,631) (3,315,802)
Issuance of notes receivable.......... (700,000) (925,000) --
----------- ----------- -----------
Net Cash Used In Investing
Activities....................... (4,403,276) (5,266,631) (3,315,802)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholders and
partners............................. (4,450,155) (7,483,684) (5,570,517)
Payments on long-term debt............ (14,340) (13,176) (12,104)
----------- ----------- -----------
Net Cash Used In Financing
Activities....................... (4,464,495) (7,496,860) (5,582,621)
----------- ----------- -----------
Net Increase (Decrease) In Cash
and Cash Equivalents............. 3,778,810 (1,163,118) (1,002,901)
CASH AND CASH EQUIVALENTS
Beginning of year..................... 5,259,985 6,423,103 7,426,004
----------- ----------- -----------
End of year........................... $ 9,038,795 $ 5,259,985 $ 6,423,103
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for
interest............................. $ 247,172 $ 248,342 $ 256,147
=========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION
Included in accounts payable at March 31, 1999, 1998 and 1997 are amounts for
the purchase of property, plant and equipment paid in the subsequent period.
These balances are $642,000, $1,849,000 and $886,000, respectively.
See notes to the combined financial statements.
F-46
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1999, 1998 AND 1997
1. Organization
The combined financial statements consist of Commercial Stone Co., Inc.
(CSC) and Commercial Aggregates Transportation & Sales, L.P. (CATS)
(collectively referred to as "the Companies"). These two companies are
affiliated through ownership. The combined financial statements are being
prepared pursuant to a purchase agreement dated August 26, 1999 by and among
U.S. Silica Company as buyer and the owners of the Companies as sellers.
CSC operates two stone quarries (mines) and three asphalt plants in
Southwestern Pennsylvania. The asphalt plants operate under the trade name of
Commercial Asphalt Products.
CATS is a transportation and sales company whose revenues are generated
through contracts with independent haulers of aggregates. CATS contracts for a
portion of CSC's hauling services between CSC's quarries and asphalt plants as
well as for certain CSC customer shipments.
2. Summary of Significant Accounting Policies
A summary of significant accounting policies applied by management in the
preparation of the accompanying financial statements follows.
Principles of Combination--The combined financial statements include the
results of operations and financial position of CSC and CATS. The CATS results
of operations and financial position are presented on a calendar year basis and
include the twelve months ended December 31, 1998, 1997 and 1996. No
significant transactions have occurred with CATS during the three-month period
ended March 31, 1999 that would require disclosure within these combined
financial statements. All intercompany transactions have been eliminated.
Management Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents--The Companies consider all highly liquid debt
instruments with purchased maturities of three months or less to be cash
equivalents. The Companies maintain, at several financial institutions, cash
and cash equivalents that exceed federally insured amounts at times.
Inventory--Inventory is stated at the lower of cost, determined on the
first-in, first-out (FIFO) method, or market.
Property, Plant and Equipment--Property, plant and equipment are stated at
cost. Depreciation is provided on the straight-line method over the estimated
useful lives of the assets. Depletion is provided for mineral deposits on the
units-of-production method. Repairs and maintenance, which do not extend the
lives of the applicable assets, are charged to expense as incurred. Profit or
loss resulting from the retirement or other disposition of assets is included
in income.
Accrued Reclamation Costs--Reclamation costs are expensed over the
productive life of the mines on the units-of-production method.
F-47
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999, 1998 AND 1997
Revenue Recognition--The Companies generally recognize revenue upon shipment
of aggregates to customers or performance of services.
Income Taxes--CSC has elected to be taxed as an S Corporation for federal
and state tax purposes under the provisions of the Internal Revenue Code and
the Commonwealth of Pennsylvania, respectively. CATS is taxed as a limited
partnership. Under both of these provisions, the Companies do not pay corporate
net income taxes on their taxable income. Instead, the stockholders and
partners of each company reflect their proportionate share of the taxable
income on their personal income tax returns. It is the Companies' policy to
make stockholder and partnership distributions necessary to satisfy the
stockholders' and partners' income tax obligations in relation to their
proportionate share of the Companies' taxable income. In order to retain the
CSC's fiscal year-end of March 31, CSC makes federal tax deposits as required
by Section 444 of the Internal Revenue Code. At March 31, 1999 and 1998, other
assets included approximately $1,792,000 and $576,000 in connection with these
deposits. The Companies combined book basis of assets and liabilities exceeds
the tax basis by approximately $5,460,000 and $5,146,000 at March 31, 1999 and
1998, respectively.
3. Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
March 31
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Mining division stone............................. $1,715,432 $1,957,177
Asphalt division stone............................ 763,936 634,979
Materials brokerage............................... 108,181 --
Cold patch asphalt................................ 71,601 34,575
---------- ----------
$2,659,150 $2,626,731
========== ==========
</TABLE>
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
March 31
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Machinery and equipment......................... $36,046,837 $34,566,360
Office equipment................................ 611,081 568,084
Light trucks and automobiles.................... 626,390 602,662
Buildings and improvements...................... 2,771,627 2,451,368
Land and mineral deposits....................... 1,713,365 1,638,782
----------- -----------
41,769,300 39,827,256
Less--Accumulated depreciation, amortization and
depletion...................................... 23,568,722 21,367,396
----------- -----------
18,200,578 18,459,860
Construction in progress........................ 152,728 613,132
----------- -----------
$18,353,306 $19,072,992
=========== ===========
</TABLE>
F-48
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999, 1998 AND 1997
5. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Note payable to Dell H. Shearer Marital Trust, due
August 15, 2001 (see Note 6)...................... $4,000,000 $4,000,000
Mortgage payable to an individual, payable in
monthly installments of $1,793, including interest
at 8.5%, collateralized by real property in
Washington County, Pennsylvania................... 76,511 90,851
---------- ----------
4,076,511 4,090,851
Less--Payments due within one year................. 15,609 14,341
---------- ----------
$4,060,902 $4,076,510
========== ==========
</TABLE>
6. Related Party Transactions
All of the parties mentioned below are related through common ownership.
Related party transactions arise between the various entities in the ordinary
course of business and are summarized as follows:
CSC has a note receivable from Three Rivers Marine & Rail Terminals, L.P.
(TRM & RT). The balance outstanding is $1,625,000 and $925,000 at March 31,
1999 and 1998, respectively. There are no fixed repayment terms until maturity
in June 2000. Interest at 6% is payable monthly and aggregated $81,000 and
$14,000 for the years ended March 31, 1999 and 1998, respectively. There was no
balance outstanding during the year ended March 31, 1997.
CSC has a note payable to Dell H. Shearer Marital Trust, which has no fixed
repayment terms until maturity in August 2001. Interest at 6% is payable
monthly and aggregated $240,000 for the three years ended March 31, 1999, 1998
and 1997, respectively.
CSC leases the right to mine certain mineral deposits from a related Trust
and pays royalties based on units of production. CSC paid royalties of
approximately $462,000, $484,000 and $316,000 to the Trust for the three years
ended March 31, 1999, 1998 and 1997, respectively.
7. Employee Benefit Plans
CSC provides retirement benefits to its union employees under a multi-
employer pension plan. Contributions are based on an amount for each hour
worked. During the three years ended March 31, 1999, 1998 and 1997, CSC
contributed approximately $304,000, $244,000 and $185,000, respectively.
CSC also maintains a noncontributory, defined benefit pension plan covering
all eligible nonunion employees. Benefits under the Plan are actuarially
computed and include a provision for past service costs. CSC makes
contributions to the Plan equal to the amounts accrued for pension expense when
F-49
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999, 1998 AND 1997
required. Plan assets consist of corporate equity securities and various
corporate and government debt obligations. The Plan was overfunded for the
three years ended March 31, 1999, 1998 and 1997; thus, CSC did not make any
contribution to the Plan.
The following sets forth the change in benefit obligation, change in plan
assets, funded status, combined Balance Sheets presentation, net periodic
pension benefit cost and the relevant assumptions for the Company's defined
benefit pension plan at March 31:
<TABLE>
<CAPTION>
March 31
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year...... $ 1,784,449 $ 1,600,900
Service cost................................. 200,515 147,095
Interest cost................................ 144,941 114,708
Liability loss (gain)........................ 307,100 (50,887)
Benefits paid................................ (25,491) (27,367)
----------- -----------
Benefit Obligation at End of Year............ $ 2,411,514 $ 1,784,449
=========== ===========
Change in Plan Assets:
Fair value of plan assets at beginning of
year........................................ $ 3,661,318 $ 2,910,207
Benefits paid................................ (25,491) (27,367)
Investment return............................ 524,822 778,478
----------- -----------
Fair Value of Plan Assets at End of Year..... $ 4,160,649 $ 3,661,318
=========== ===========
Funded Status:
Funded status................................ $ 1,749,135 $ 1,876,868
Unrecognized gain............................ (1,067,535) (1,135,035)
Prior service costs not yet recognized....... (275,279) (293,631)
Unrecognized net transition obligation....... (301,525) (322,509)
----------- -----------
Prepaid Pension Cost......................... $ 104,796 $ 125,693
=========== ===========
Amounts Recognized in Combined Balance Sheets:
Prepaid Benefit Cost......................... $ 104,796 $ 125,693
=========== ===========
</TABLE>
F-50
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
March 31
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net periodic pension benefit cost:
Service cost............................ $ 200,515 $ 147,095 $ 142,730
Interest cost........................... 144,941 114,708 102,400
Expected return on assets............... (255,602) (217,155) (195,825)
Transition asset recognition............ (20,983) (20,983) (20,983)
Prior service cost amortization......... (18,352) (18,352) (18,352)
Net gain recognition.................... (29,622) (16,822) (8,483)
--------- --------- ---------
Net periodic pension cost (income)........ $ 20,897 $ (11,509) $ 1,487
========= ========= =========
Weighted-average assumptions:
Discount rate........................... 7.0% 7.5% 7.5%
Expected return on plan assets.......... 7.0% 7.5% 7.5%
Rate of compensation increase........... 5.0% 5.0% 5.0%
</TABLE>
F-51
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999, 1998 AND 1997
8. Segment Information
The Companies have defined their segments into two main areas: quarries and
asphalt. These segments are organized under the supervision of the Companies'
executive management team and are evaluated based on the following information
presented: customer sales, inter-segment sales, depreciation, depletion and
amortization expense and gross profit. All inter-segment transactions are
eliminated to arrive at the combined Companies' total.
The quarries segment operates two stone quarries that mine stone used in the
asphalt and construction businesses. The asphalt segment operates three asphalt
plants in Southwestern Pennsylvania under the trade name of Commercial Asphalt
Products. The asphalt segment purchases the majority of its stone from the
quarries segment. The Companies grant credit to their customers, the majority
of whom are in the construction industry in Southwestern Pennsylvania. Credit
is generally granted on open account. As permitted by Statement of Financial
Accounting Standards No. 131 "Disclosure About Segments of an Enterprise and
Related Information," certain information not routinely used in the management
of these segments by executive management has been excluded.
<TABLE>
<CAPTION>
Quarries Asphalt Other Eliminations Total
----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1999 Segment Information
By Group Customer
sales.................. $22,254,871 $23,338,127 $1,771,174 $(5,410,930) $41,953,242
Inter-segment sales..... 5,068,815 -- 342,115 (5,410,930) --
Depreciation, depletion
and amortization
expense................ 2,188,858 1,009,745 21,919 -- 3,220,522
Gross profit............ 6,948,878 5,197,318 1,129,688 (39,603) 13,236,281
1998 Segment Information
by Group Customer
sales.................. $19,966,871 $22,149,911 $ 973,305 $(5,337,051) $37,753,036
Inter-segment sales..... 4,957,859 -- 379,192 (5,337,051) --
Depreciation, depletion
and amortization
expense................ 2,389,335 423,429 4,560 -- 2,817,324
Gross profit............ 5,522,104 3,728,662 783,563 (3,874) 10,030,455
1997 Segment Information
by Group Customer
sales.................. $16,767,307 $13,265,181 $ 783,057 $(4,096,619) $26,718,926
Inter-segment sales..... 3,784,403 -- 312,216 (4,096,619) --
Depreciation, depletion
and amortization
expense................ 1,966,319 627,665 4,560 -- 2,598,544
Gross profit............ 4,636,516 844,879 663,427 14,557 6,159,379
</TABLE>
9. Commitments
Subsequent to March 31, 1999, CSC purchased approximately 228 acres of land
and related mineral deposits for approximately $1,645,000.
In September 1998, CSC entered into a 25-year lease for the right to mine
certain mineral deposits. The guaranteed minimum annual rent is $20,000 and is
payable on July 1 of each year. The lease requires CSC to pay a royalty on the
average selling price of all extracted minerals from the leased property. The
guaranteed minimum rent shall be credited and applied to any royalties due
under this agreement. CSC incurred expenses of $10,000 relating to this lease
for the year ended March 31, 1999.
F-52
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999, 1998 AND 1997
In November 1998, CSC entered into a contract totaling $509,000 for
expansion of an asphalt plant. CSC has paid a $100,000 deposit on the contract,
which was classified as construction in progress. Management anticipates
completion of the contract during the fiscal year ending March 31, 2000.
10. Contingency
In November 1998, CSC filed petitions with the Pennsylvania Commonwealth
Court seeking review of a Board of Finance and Revenue decision denying CSC's
refund of capital stock tax paid for the years ended March 31, 1993, 1994 and
1995. It is CSC's position that it was entitled to claim a manufacturing
exemption from Pennsylvania capital stock tax for each of these years. In
addition, the Commonwealth of Pennsylvania has issued a settlement notice for
the years ended March 31, 1996 and 1997, claiming that CSC is not entitled to
the manufacturing exemption claimed for these tax years. CSC is contesting
these settlement notices. The capital stock tax issue for the years ended March
31, 1998 and 1999 remains unsettled. In connection with the petitions filed in
November 1998, CSC is claiming refunds of previously paid taxes approximating
$536,000. CSC intends to vigorously pursue its position with the Commonwealth
of Pennsylvania. However, were CSC's position not to be upheld, CSC would not
receive any refund and would be required to pay to the Commonwealth of
Pennsylvania an additional $623,000 of capital stock tax for the years ended
March 31, 1996, 1997, 1998 and 1999 plus any accrued interest. None of these
amounts have been recorded in the financial statements, as it is management's
position that CSC's claim for a manufacturing exemption will be upheld.
F-53
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents...................................... $ 598,459
Accounts receivable............................................ 12,396,068
Inventory...................................................... 1,836,231
Prepaid expenses............................................... 161,481
-----------
Total Current Assets......................................... 14,992,239
OTHER ASSETS..................................................... 1,808,275
PROPERTY, PLANT AND EQUIPMENT, NET............................... 19,835,798
-----------
$36,636,312
===========
LIABILITIES
CURRENT LIABILITIES
Payments due within one year on long-term debt................. $ 66,154
Accounts payable............................................... 3,233,418
Accrued liabilities............................................ 1,823,735
-----------
Total Current Liabilities.................................... 5,123,307
LONG-TERM DEBT................................................... 289,717
ACCRUED RECLAMATION COSTS........................................ 528,666
COMMITMENTS AND CONTINGENCIES.................................... --
OWNERS' EQUITY
COMMON STOCK
Class A Voting--Par value $5 per share, authorized, issued
and outstanding 1,200 shares.................................. 6,000
Class B Nonvoting--Par value $5 per share, authorized, issued
and outstanding 22,800 shares................................. 114,000
-----------
RETAINED EARNINGS AND PARTNERS' CAPITAL.......................... 30,574,622
-----------
30,694,622
-----------
$36,636,312
===========
</TABLE>
See notes to the condensed combined financial statements.
F-54
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
September 30
------------------------
1999 1998
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
SALES................................................. $32,326,503 $27,161,450
COSTS AND EXPENSES
Costs of goods sold and operating expenses.......... 19,204,294 14,352,208
Depreciation, depletion and amortization............ 1,563,574 1,575,748
General and administrative expenses................. 2,141,127 1,604,589
----------- -----------
22,908,995 17,532,545
----------- -----------
Income From Operations................................ 9,417,508 9,628,905
OTHER INCOME, NET..................................... 332,060 194,097
INTEREST EXPENSE...................................... (123,118) (123,738)
----------- -----------
208,942 70,359
----------- -----------
Net Income............................................ $ 9,626,450 $ 9,699,264
=========== ===========
</TABLE>
See notes to the condensed combined financial statements.
F-55
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
CONDENSED COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Retained
Common Earnings and Combined
Stock Common Retained Partners' Partners' Owners'
Shares(1) Stock(1) Earnings(1) Capital(2) Capital Equity
--------- -------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE--March 31,
1999................... 24,000 $120,000 $28,897,654 $ 440,081 $29,337,735 $29,457,735
Shareholder and partner
distributions.......... -- -- (8,131,439) (258,124) (8,389,563) (8,389,563)
Net income.............. -- -- 9,322,712 303,738 9,626,450 9,626,450
------ -------- ----------- --------- ----------- -----------
BALANCE--September 30,
1999................... 24,000 $120,000 $30,088,927 $ 485,695 $30,574,622 $30,694,622
====== ======== =========== ========= =========== ===========
BALANCE--March 31,
1998................... 24,000 $120,000 $23,205,770 $ 362,331 $23,568,101 $23,688,101
Shareholder and partner
distributions.......... -- -- (1,559,196) (218,675) (1,777,871) (1,777,871)
Net income.............. -- -- 9,391,828 307,436 9,699,264 9,699,264
------ -------- ----------- --------- ----------- -----------
BALANCE--September 30,
1998................... 24,000 $120,000 $31,038,402 $ 451,092 $31,489,494 $31,609,494
====== ======== =========== ========= =========== ===========
</TABLE>
- --------
(1) Commercial Stone Co., Inc.
(2) Commercial Aggregates Transportation & Sales, L.P.
See notes to the condensed combined financial statements.
F-56
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
September 30
-------------------------
1999 1998
------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................ $ 9,626,450 $ 9,699,264
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation, amortization and depletion.......... 1,563,574 1,575,748
Changes in assets and liabilities:
Receivables..................................... (8,850,712) (7,108,996)
Inventory....................................... 822,919 31,090
Prepaid expenses and other assets............... 1,997,699 (298,900)
Accounts payable................................ 1,392,924 (365,605)
Accrued expenses................................ (344,921) 420,412
------------ -----------
Net Cash Provided By Operating Activities..... 6,207,933 3,953,013
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment, net.... (2,766,066) (1,634,482)
------------ -----------
Net Cash Used In Investing Activities......... (2,766,066) (1,634,482)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholders..................... (7,881,563) (1,777,871)
Payments on long-term debt........................ (4,000,640) (7,019)
------------ -----------
Net Cash Used In Financing Activities......... (11,882,203) (1,784,890)
------------ -----------
Net (Decrease) Increase In Cash and Cash
Equivalents.................................. (8,440,336) 533,641
CASH AND CASH EQUIVALENTS
Beginning of period............................... 9,038,795 5,259,985
------------ -----------
End of period..................................... $ 598,459 $ 5,793,626
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest............ $ 123,000 $ 124,000
============ ===========
</TABLE>
Supplemental disclosures of noncash information included in accrued liabilities
at September 30, 1999 are shareholder distributions of $508,000.
The Company purchased land and incurred debt of approximately $280,000 during
the six months ended September 30, 1999.
See notes to the condensed combined financial statements.
F-57
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
1. Summary of Significant Accounting Policies
A summary of significant accounting policies applied by management in the
preparation of the accompanying condensed combined financial statements
follows.
Interim Accounting--Commercial Stone Co., Inc. (CSC) and Commercial
Aggregates Transportation & Sales, L.P. (the Companies) combined financial
statements for the fiscal year ended March 31, 1999 includes additional
information about the Companies, their operations and their combined financial
statements, and contains a summary of significant accounting polices followed
by the Companies in preparation of their combined financial statements and
should be read in conjunction with these condensed combined financial
statements. These policies were also followed in preparing these condensed
combined financial statements.
In the opinion of management, all adjustments which are of a normal and
recurring nature necessary for a fair statement of the results of operations of
these interim periods have been included. Net income for the six months ended
September 30, 1999 is not necessarily indicative of the results to be expected
for the full fiscal year.
2. Related Party Transactions
During the six months ended September 30, 1999, CSC repaid a $4.0 million
note payable to Dell H. Shearer Marital Trust.
Additionally, during the six months ended September 30, 1999, Three Rivers
Marine & Rail Terminals, L.P. paid a note receivable of $1,625,000 in full to
CSC.
3. Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
Mining division stone.................................... $1,207,332
Asphalt division stone................................... 494,446
Materials brokerage...................................... 72,494
Cild patch asphalt....................................... 61,959
----------
$1,836,231
==========
</TABLE>
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
September
30, 1999
-----------
<S> <C>
Machinery and equipment..................................... $36,534,528
Office equipment............................................ 585,288
Light trucks and automobiles................................ 455,796
Buildings and improvements.................................. 2,796,505
Land and mineral deposits................................... 3,458,741
Construction in progress.................................... 60,000
</TABLE>
F-58
<PAGE>
COMMERCIAL STONE CO., INC. AND
COMMERCIAL AGGREGATES TRANSPORTATION & SALES, L.P.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
September
30, 1999
-----------
<S> <C>
43,890,858
Less--Accumulated depreciation, amortization and
deletion................................................ 24,055,060
-----------
$19,835,798
===========
</TABLE>
5. Contingency
In November 1998, CSC filed petitions with the Pennsylvania Commonwealth
Court seeking review of a Board of Finance and Revenue decision denying CSC's
refund of capital stock tax paid for the years ended March 31, 1993, 1994 and
1995. It is CSC's position that it was entitled to claim a manufacturing
exemption from Pennsylvania capital stock tax for each of these years. In
addition, the Commonwealth of Pennsylvania has issued a settlement notice for
the years ended March 31, 1996 and 1997, claiming that CSC is not entitled to
the manufacturing exemption claimed for these tax years. CSC is contesting
these settlement notices. The capital stock tax issue for the years ended March
31, 1998 and 1999 remains unsettled. In connection with the petitions filed in
November 1998, CSC is claiming refunds of previously paid taxes approximating
$536,000. CSC intends to vigorously pursue its position with the Commonwealth
of Pennsylvania. However, were CSC's position not to be upheld, CSC would not
receive any refund and would be required to pay to the Commonwealth of
Pennsylvania an additional $623,000 of capital stock tax for the years ended
March 31, 1996, 1997, 1998 and 1999 plus any accrued interest. None of these
amounts have been recorded in the financial statements, as it is management's
position that CSC's claim for a manufacturing exemption will be upheld.
6. Subsequent Events
On October 1, 1999, the Companies were purchased, along with a related party
that owned the mineral rights, by Better Minerals & Aggregates Company.
Pursuant to the acquisition, the mineral rights were recorded as assets by
Better Minerals & Aggregates Company and property, plant and equipment were
adjusted to their fair value. Additionally, the Companies' tax statuses of
S Corporation and limited partnership, respectively, were changed to a C
Corporation.
F-59
<PAGE>
$150,000,000
Better Minerals & Aggregates Company
Offer To Exchange All Outstanding
13% Senior Subordinated Notes due 2009
for 13% Senior Subordinated Notes due 2009,
Which Have Been Registered Under
the Securities Act of 1933
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATIVE FRONT COVER FOR MARKET-MAKING PROSPECTUS]
SUBJECT TO COMPLETION, DATED APRIL 6, 2000
Prospectus
Better Minerals & Aggregates Company
13% Senior Subordinated Notes due 2009
We issued the 13% Senior Subordinated Notes due 2009, which have been
registered under the Securities Act of 1933, in exchange for our 13% Senior
Subordinated Notes due 2009 in our exchange offer.
Maturity
Change of Control
. The new notes will mature
on September 15, 2009. . If we experience a change
of control, we must offer
to purchase the new notes
at 101% of the principal
amount, plus accrued and
unpaid interest.
Interest
. Interest on the new notes
will be payable on March
15 and September 15 of
each year.
Security and Ranking
Redemption . The new notes will not be
secured by any
collateral.
. We may redeem some or all
of the new notes at any . The new notes will be
time after September 15, subordinated to all of
2004. our senior debt, will
. We may also redeem up to rank equally with all of
35% of the new notes our other senior
prior to September 15, subordinated debt and
2002 with the net will rank senior to all
proceeds of certain of our subordinated debt.
equity issuances.
Guarantees
. The redemption prices are
described on page 81.
. If we fail to make
payments on the new
notes, our guarantor
subsidiaries must make
them instead. These
guarantees will be senior
subordinated obligations
of our guarantor
subsidiaries. Not all of
our subsidiaries will be
guaranteeing the new
notes.
-----------------------------------------
We prepared this prospectus for use by Chase Securities Inc. ("CSI") in
connection with offers and sales related to market-making transactions in the
new notes. CSI may act as principal or agent in these transactions. These sales
will be made at prices related to prevailing market prices at the time of sale
at prices related thereto or at negotiated prices. We will not receive any of
the proceeds of these sales.
-----------------------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 16 OF THIS
PROSPECTUS IN EVALUATING AN INVESTMENT IN THE NEW NOTES.
-----------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
-----------------------------------------
Chase Securities Inc.
-----------------------------------------
The date of this prospectus is , 2000.
<PAGE>
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
You Cannot Be Sure that an Active Trading Market Will Develop for the New Notes
We do not intend to apply for a listing of the new notes on a securities
exchange of any automated dealer quotation system. We have been advised by CSI
that as of the date of this prospectus CSI intends to make a market in the new
notes. CSI is not obligated to do so, however, and any market-making activities
with respect to the new notes may be discontinued at any time without notice.
In addition, such market-making activity will be subject to limits imposed by
the Securities Act and the Exchange Act. Because CSI is our affiliate, CSI is
required to deliver a current "market-making" prospectus and otherwise comply
with the registration requirements of the Securities Act in any secondary
market sale of the new notes. Accordingly, the ability of CSI to make a market
in the new notes may, in part, depend on our ability to maintain a current
market-making prospectus.
The liquidity of the trading market in the new notes, and the market price
quoted for the new notes, may be adversely affected by changes in the overall
market for high yield securities and by changes in our financial performance or
prospects or in the prospects for companies in our industry generally. As a
result, you cannot be sure that an active trading market will develop for the
new notes.
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the new notes by
CSI in market-making transactions. We will not receive any of the proceeds from
these transactions.
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This prospectus has been prepared for use by CSI in connection with offers
and sales of the new notes in market-making transactions effected from time to
time. CSI may act as a principal or agent in these transactions, including as
agent for the counterparty when acting as principal or as agent for both
parties, and may receive compensation in the form of discounts and commissions,
including from both counterparties when it acts as agent for both. These sales
will be made at prevailing market prices at the time of sale, at prices related
thereto or at negotiated prices. The issuer will not receive any of the
proceeds of these sales. The issuer has agreed to indemnify CSI against certain
liabilities, including liabilities under the Securities Act, and to contribute
payments which CSI might be required to make in respect thereof.
See "Security Ownership of Certain Beneficial Owners and Management" for the
ownership percentages of certain classes of securities of USS Holdings, of
affiliates of CSI and for a summary of the stockholders agreement governing the
exercise of voting rights with respect to election of directors and certain
other material events. CSI has informed the issuer that it does not intend to
confirm sales of the new notes to any accounts over which it exercises
discretionary authority without the prior specific written approval of these
transactions by the customer
The issuer has been advised by CSI that, subject to applicable laws and
regulations, CSI currently intends to make a market in the new notes following
completion of the exchange offer. However, CSI is not obligated to do so and
any such market-making may be interrupted or discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act. There can be no assurance
that an active trading market will develop or be sustained. See "Risk Factors--
Trading Market for the New Notes."
A-2
<PAGE>
[ALTERNATIVE BACK COVER FOR MARKET-MAKING PROSPECTUS]
$150,000,000
Better Minerals & Aggregates Company
13% Senior Subordinated Notes due 2009
Chase Securities Inc.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Amended and Restated Certificate of Incorporation provides for
indemnification of our directors, officers, employees and agents to the full
extent authorized or permitted by law.
Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
Delaware corporation to indemnify any person who was or is, or is threatened to
be made, a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation) by reason of the fact
that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe his conduct was
unlawful. A Delaware corporation may indemnify such persons against expenses
(including attorneys' fees) in actions brought by or in the right of the
corporation to procure a judgment in its favor under the same conditions,
except that no indemnification is permitted in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, in view of all circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the Court of
Chancery or other such court shall deem proper. To the extent such person has
been successful on the merits or otherwise in defense of any action referred to
above, or in defense of any claim, issue or matter therein, the corporation
must indemnify such person against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith. The
indemnification and advancement of expenses provided for in, or granted
pursuant to, Section 145 is not exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office.
Section 145 also provides that a corporation may maintain insurance against
liabilities for which indemnification is not expressly provided by the statute.
In addition, Article Sixth of our Amended and Restated Certificate of
Incorporation, as permitted by Section 102(b)(7) of the DGCL, states:
"The Corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation,
by reason of the fact that he, or the person whose legal representative he
is, (1) is or was a stockholder, director, officer, employee or agent of
the Corporation (including the incorporator thereof), or (2) is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, or (3) is or was a director, officer or employee of the
Corporation serving at the request of the Corporation as a fiduciary of an
employee benefit plan or trust maintained for the benefit of employees of
the
II-1
<PAGE>
Corporation or employees of any such other enterprise, partnership, joint
venture, trust, or other enterprise, against judgments, fines, penalties,
amounts paid in settlement, and expenses, including attorneys' fees,
actually and reasonably incurred by him and the person whose legal
representative he is, in connection with such action, suit or proceeding,
or any appeal therein, to the fullest extent permitted by law.
Expenses which may be indemnifiable under this Article SIXTH in
defending an action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors upon agreement by or on behalf of the
stockholder, director, officer, employee or agent, or his legal
representative, to repay such amount if he is later found not entitled to
be indemnified by the Corporation as authorized in this Article SIXTH.
The Corporation shall not indemnify any stockholder, director, officer,
employee or agent against judgments, fines, amounts paid in settlement and
expenses, including attorneys' fees, to an extent greater than that
authorized by this Article SIXTH, but the Corporation may procure insurance
providing greater indemnification and may share the premium cost with any
stockholder, director, officer, employee or agent on such basis as may be
agreed upon."
As limited by Section 102(b)(7) of the DGCL, this provision cannot, however,
have the effect of indemnifying any of our directors in the case of liability
(i) for a breach of the director's duty of loyalty, (ii) for acts of omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
purchases or redemptions as provided in Section 174 of the DGCL or (iv) for any
transactions for which the director derived an improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<C> <S>
2.1 Purchase Agreement dated as of August 26, 1999 by and among U.S.
Silica Company and Joseph H. Shearer, R. Scott Shearer, CATS, Inc.,
JHS Partnership, RSS Partnership and The Dell H. Shearer
Grandchildren's Trust.
2.1.1 Amendment No. 1 to Purchase Agreement dated as of October 1, 1999
among U.S. Silica Company and Joseph H. Shearer, R. Scott Shearer,
CATS, Inc., JHS Partnership, RSS Partnership and The Dell H. Shearer
Grandchildren's Trust.
3.1 Amended and Restated Certificate of Incorporation of Better Minerals
and Aggregates Company (formerly USS Intermediate Holdco, Inc.) dated
as of February 9, 1996.
3.1.1 Certificate of Amendment of The Restated Certificate of Incorporation
of Better Minerals and Aggregates Company (formerly USS Intermediate
Holdco, Inc.) dated September 30, 1999.
3.2 By-laws of Better Minerals and Aggregates Company (formerly USS
Intermediate Holdco, Inc.).
3.3 Certificate of Incorporation of U.S. Silica Company (formerly ITT-
PGS, Inc.) dated June 3, 1968.
3.3.1 Certificate of Amendment of Certificate of Incorporation of U.S.
Silica Company (formerly ITT-PGS, Inc.) dated June 20, 1968.
3.3.2 Certificate of Amendment of Certificate of Incorporation of U.S.
Silica Company (formerly ITT-PGS, Inc.) dated December 15, 1986.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<C> <S>
3.3.3 Certificate of Ownership and Merger Merging U.S. Silica Company (OSC)
into U.S. Silica Company dated December 17, 1987.
3.3.4 Certificate of Ownership and Merger Merging Each of Louisiana
Industrial Sand Transportation Company, Texas Industrial Minerals
Transportation Company, U.S. Silica Co. of California, U.S. Silica
Co. of Connecticut, U.S. Silica Co. of Illinois, U.S. Silica Co. of
Louisiana, U.S. Silica Co. of Michigan and U.S. Silica Co. of Texas
into U.S. Silica Company dated December 17, 1987.
3.3.5 Certificate of Ownership and Merger Merging Warrior Sand and Gravel
Company, Inc. into U.S. Silica Company dated December 9, 1988.
3.3.6 Certificate of Ownership and Merger Merging USS Acquisitions, Inc.
into U.S. Silica Company dated February 9, 1996.
3.4 By-laws of U.S. Silica Company (formerly ITT-PGS, Inc.).
3.5 Restated Articles of Incorporation and Articles of Amendment of
Better Materials Corporation dated December 3, 1990.
3.5.1 Articles of Merger of Better Materials Corporation dated December 14,
1998.
3.6 Amended and Restated By-laws of Better Materials Corporation.
3.7 Certificate of Incorporation of BMC Trucking, Inc. dated November 30,
1998.
3.8 By-laws of BMC Trucking, Inc.
3.9 Restated Articles of Incorporation and Articles of Amendment of Bucks
County Crushed Stone Company dated December 21, 1990.
3.10 Amended and Restated By-laws of Bucks County Crushed Stone Company.
3.11 Certificate of Incorporation of Chippewa Farms Corporation dated
January 16, 1981.
3.12 Amended and Restated By-laws of Chippewa Farms Corporation.
3.13 Certificate of Incorporation of Shore Stone Company, Inc. dated May
6, 1983.
3.13.1 Certificate of Amendment to the Certificate of Incorporation of Shore
Stone Company, Inc. dated November 28, 1990.
3.14 Amended and Restated By-laws of Shore Stone Company, Inc.
3.15 Certificate of Incorporation of Pennsylvania Glass Sand Corporation
(formerly Morgan National Silica Co.) dated October 24, 1986.
3.15.1 Certificate of Amendment of Certificate of Incorporation of
Pennsylvania Glass Sand Corporation (formerly Morgan National Silica
Co.) dated December 15, 1986.
3.16 By-laws of Pennsylvania Glass Sand Corporation (formerly Morgan
National Silica Co.).
3.17 Amended and Restated Certificate of Incorporation of George F.
Pettinos, Inc. dated July 31, 1998.
3.18 By-laws of George F. Pettinos, Inc.
3.19 Certificate of Incorporation of Ottawa Silica Company (formerly
LaSalle National Silica Co.) dated October 24, 1986.
3.19.1 Certificate of Amendment of Certificate of Incorporation of Ottawa
Silica Company (formerly LaSalle National Silica Co.) dated December
15, 1986.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<C> <S>
3.20 By-laws of Ottawa Silica Company (formerly LaSalle National Silica
Co.).
3.21 Articles of Incorporation of The Fulton Land and Timber Company dated
April 13, 1942.
3.22 Amended and Restated By-laws of Fulton Land and Timber Company.
3.23 Certificate of Incorporation of Ellen Jay, Inc. dated March 1, 1974.
3.24 Amended and Restated By-laws of Ellen Jay, Inc.
3.25 Certificate of Formation of Stone Materials Company, LLC dated
September 24, 1999.
3.26 Limited Liability Company Operating Agreement of Stone Materials
Company, LLC dated as of September 30, 1999.
3.27 Articles of Incorporation of Commercial Stone Co., Inc. dated January
27, 1972.
3.27.1 Certificate of Amendment of Commercial Stone Co., Inc. dated December
29, 1983.
3.27.2 Statement of Change of Registered Office of Commercial Stone Co.,
Inc. dated February 9, 1984.
3.27.3 Certificate of Amendment of Commercial Stone Co., Inc. dated December
24, 1986.
3.28 By-laws of Commercial Stone Co., Inc.
3.29 Certificate of Formation of Commercial Aggregates Transportation and
Sales, LLC dated September 27, 1999.
3.29.1 Contribution Agreement dated as of October 1, 1999 between Stone
Materials Company, LLC and Commercial Stone Co., Inc.
3.30 Limited Liability Company Operating Agreement of Commercial
Aggregates Transportation and Sales, LLC dated as of September 30,
1999.
4.1 Indenture, dated as of October 1, 1999, among Better Minerals and
Aggregates Company, the subsidiary guarantors named therein and The
Bank of New York, as trustee (including the forms of Better Minerals
and Aggregates Company's 13% Senior Subordinated Notes due 2009
attached thereto as exhibits).
4.2 Exchange and Registration Rights Agreement, dated October 1, 1999,
among Better Minerals and Aggregates Company, the subsidiary
guarantors named therein, Chase Securities Inc. and BNP Capital
Markets, LLC.
5.1 Opinion of Winthrop, Stimson, Putnam & Roberts regarding the legality
of the securities.
8.1 Opinion of Winthrop, Stimson, Putnam & Roberts regarding tax matters.
10.1 The Stockholders Agreement, dated as of February 9, 1996, among USS
Holdings, Inc. and the stockholders of the USS Holdings, Inc.
10.1.1 Amendment No. 1 to Stockholders Agreement dated as of October 15,
1996.
10.1.2 Amendment No. 2 to Stockholders Agreement dated as of October 6,
1998.
10.2 Amended and Restated Management Services Agreement, dated October 1,
1998, among USS Intermediate Holdco, Inc. (now Better Minerals and
Aggregates Company), USS Holdings, Inc., BMAC Holdings and DGHA.
10.2.1 Assignment and Assumption Agreement dated as of September 30, 1999.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<C> <S>
10.3 Amended and Restated Tax Sharing Agreement, dated as of October 1,
1999, among USS Intermediate Holdco, Inc. (now Better Minerals and
Aggregates Company), its domestic subsidiaries, and USS Holdings,
Inc.
10.4 Credit Agreement, dated as of September 30, 1999, among Better
Minerals and Aggregates Company, BMAC Holdings, Inc., George F.
Pettinos (Canada) Limited, Banque Nationale de Paris, and the
financial institutions and other institutional lenders named therein.
10.5 Security Agreement, dated September 30, 1999, among Better Minerals
and Aggregates Company, the subsidiary guarantors named therein and
Banque Nationale de Paris.
10.6 Intellectual Property Security Agreement, dated September 30, 1999,
among Better Minerals and Aggregates Company, the subsidiary
guarantors named therein and Banque Nationale de Paris.
10.7 Parent Guarantor Security Agreement, dated September 30, 1999,
between BMAC Holdings, Inc. and Banque Nationale de Paris.
10.8 Canadian Security Agreement, dated September 30, 1999, between George
F. Pettinos (Canada) Limited and Banque Nationale de Paris.
10.9 Parent Guaranty, dated September 30, 1999, between BMAC Holdings,
Inc. and Banque Nationale de Paris.
10.10 Subsidiary Guaranty, dated September 30, 1999, between each of the
subsidiary guarantors named therein and Banque Nationale de Paris.
10.11* Equity Rights Agreement, dated as of October 1, 1999, between USS
Holdings, Inc., and the purchasers listed on Schedule I thereto.
10.12* Equity Rights Agreement, dated as of December 19, 1996, between USS
Holdings, Inc., and the investors listed on Schedule I thereto.
12.1* Amended statement regarding ratio of earnings to fixed charges.
21.1 Subsidiaries of Better Minerals and Aggregates Company.
23.1 Consent of Winthrop, Stimson, Putnam & Roberts (included in Exhibits
5.1 and 8.1 to this Registration Statement).
23.2* Consent of PricewaterhouseCoopers LLP.
23.3* Consent of Schneider Downs & Co., Inc.
Powers-of-Attorney (contained on the signature pages of this
24.1 Registration Statement).
25.1 Statement of Eligibility and Qualification on Form T-1 of The Bank of
New York, as Trustee under the Indenture.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Letter to Clients.
99.3 Form of Letter to Registered Holders and DTC Participants.
99.4 Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
* Filed herewith; all other exhibits were previously filed.
(b)Financial Statement Schedules
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Better Minerals & Aggregates Company (formerly
USS Intermediate Holdco, Inc.):
Our audits of the consolidated financial statements referred to in our
report dated March 9, 2000 appearing in the Registration Statement on Form S-4
also included an audit of the financial
II-5
<PAGE>
statement schedule listed in Item 21(b) of this Registration Statement on Form
S-4. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
March 9, 2000
Schedule II--Valuation and Qualifying Accounts
BETTER MINERALS & AGGREGATES COMPANY (formerly USS Intermediate Holdco, Inc.)
VALUATION AND QUALIFYING ACCOUNTS
For The Years December 31, 1997, 1998 and 1999
(In Thousands)
<TABLE>
<CAPTION>
Additions
--------------------
Balance at Charged to Charge to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
- ----------- ---------- ---------- --------- ---------- ----------
Allowance for Doubtful Accounts
<S> <C> <C> <C> <C> <C>
1997...................... $ 629 $170 -- $(377) $ 422
1998...................... $ 422 $151 $515 $ (28) $1,060
1999...................... $1,060 $224 $100 $(106) $1,278
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the Corporation Law, the Certificate of
Incorporation and By-laws, or otherwise, the Registrants have been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the
Registrants in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrants will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of that issue.
(b) The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
Better Minerals & Aggregates
Company
/s/ John A. Ulizio
By: ________________________________
Name: John A. Ulizio
Title: Vice President, General
Counsel and Assistant
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer April 6, 2000
___________________________________________ (Principal Executive
Richard E. Goodell Officer) and Director
* Chief Financial Officer April 6, 2000
___________________________________________ (Principal Financial
Gary E. Bockrath Officer and Principal
Accounting Officer)
Director
___________________________________________
D. George Harris
* Director April 6, 2000
___________________________________________
Anthony J. Petrocelli
* Director April 6, 2000
___________________________________________
Richard J. Donahue
* Director April 6, 2000
___________________________________________
Arnold Chavkin
Director
___________________________________________
Ruth Dreessen
* Director April 6, 2000
___________________________________________
Timothy J. Walsh
</TABLE>
/s/ John A. Ulizio
* By: _________________________
John A. Ulizio
Attorney-in-fact
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
U.S. SILICA COMPANY
By: /s/ John A. Ulizio
----------------------------------
Name: John A. Ulizio
Title: Senior Vice President,
General
Counsel and Assistant
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Senior Vice President April 6, 2000
___________________________________________ (Principal Financial
Gary E. Bockrath Officer and Principal
Accounting Officer) and
Director
* Director April 6, 2000
___________________________________________
Richard J. Donahue
* Director April 6, 2000
___________________________________________
Richard E. Goodell
* Director April 6, 2000
___________________________________________
John A. Ulizio
</TABLE>
/s/ John A. Ulizio
* By: __________________________
John A. Ulizio
Attorney-in-fact
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
Better Materials Corporation
By: /s/ John A. Ulizio
----------------------------------
Name:John A. Ulizio
Title:Vice President and
Assistant
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Senior Vice President and Chief April 6, 2000
___________________________________________ Financial Officer (Principal
Brian Hessenthaler Accounting Officer)
* Vice President and Assistant April 6, 2000
___________________________________________ Treasurer (Principal Financial
Gary E. Bockrath Officer)
* Director April 6, 2000
___________________________________________
Richard E. Goodell
* Director April 6, 2000
___________________________________________
Richard J. Donahue
* Director April 6, 2000
___________________________________________
John A. Ulizio
* Director April 6, 2000
___________________________________________
</TABLE> Craig S. Cinalli
/s/ John A. Ulizio
* By: __________________________
John A. Ulizio
Attorney-in-fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
BMC Trucking, Inc.
By: /s/ John A. Ulizio
----------------------------------
Name:John A. Ulizio
Title:Vice President and
Assistant
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Senior Vice President and Chief April 6, 2000
___________________________________________ Financial Officer (Principal
Brian Hessenthaler Accounting Officer)
* Vice President and Assistant April 6, 2000
___________________________________________ Treasurer (Principal Financial
Gary E. Bockrath Officer)
* Director April 6, 2000
___________________________________________
Richard E. Goodell
* Director April 6, 2000
___________________________________________
Richard J. Donahue
* Director April 6, 2000
___________________________________________
John A. Ulizio
* Director April 6, 2000
___________________________________________
</TABLE> Craig S. Cinalli
/s/ John A. Ulizio
* By: __________________________
John A. Ulizio
Attorney-in-fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
Bucks County Crushed Stone Company
By: /s/ John A. Ulizio
----------------------------------
Name:John A. Ulizio
Title:Vice President and
Assistant
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Vice President of Finance April 6, 2000
___________________________________________ and Treasurer (Principal
Brian Hessenthaler Accounting Officer)
* Vice President and April 6, 2000
___________________________________________ Assistant Treasurer
Gary E. Bockrath (Principal Financial
Officer)
* Director April 6, 2000
___________________________________________
Richard E. Goodell
* Director April 6, 2000
___________________________________________
Richard J. Donahue
* Director April 6, 2000
___________________________________________
Craig S. Cinalli
* Director April 6, 2000
___________________________________________
</TABLE> John A. Ulizio
/s/ John A. Ulizio
* By: __________________________
John A. Ulizio
Attorney-in-fact
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
Chippewa Farms Corporation
By: /s/ John A. Ulizio
----------------------------------
Name:John A. Ulizio
Title:Vice President and
Assistant
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Vice President of Finance April 6, 2000
___________________________________________ and Treasurer (Principal
Brian Hessenthaler Accounting Officer)
* Vice President and April 6, 2000
___________________________________________ Assistant Treasurer
Gary E. Bockrath (Principal Financial
Officer)
* Director April 6, 2000
___________________________________________
Richard E. Goodell
* Director April 6, 2000
___________________________________________
Richard J. Donahue
* Director April 6, 2000
___________________________________________
John A. Ulizio
* Director April 6, 2000
___________________________________________
</TABLE> Craig S. Cinalli
/s/ John A. Ulizio
*By:
---------------------------------
John A. Ulizio
Attorney-in-fact
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
Commercial Aggregates Transportation
and Sales, LLC
By: Commercial Stone Co., Inc., as
Sole
Member and Sole Manager
/s/ John A. Ulizio
By: ____________________________
Name:John A. Ulizio
Title: Vice President and
Assistant
Secretary
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
Commercial Stone Co., Inc.
/s/ John A. Ulizio
By: ____________________________
Name: John A. Ulizio
Title:Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer April 6, 2000
___________________________________________ (Principal Executive
Richard E. Goodell Officer) and Director
* Executive Vice President, April 6, 2000
___________________________________________ Treasurer (Principal
Gary E. Bockrath Financial Officer and
Principal Accounting
Officer) and Director
* Director April 6, 2000
___________________________________________
Richard J. Donahue
* Director April 6, 2000
___________________________________________
</TABLE> John A. Ulizio
/s/ John A. Ulizio
* By: __________________________
John A. Ulizio
Attorney-in-fact
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
Ellen Jay, Inc.
/s/ John A. Ulizio
By: _________________________________
Name: John A. Ulizio
Title: Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President (Principal April 6, 2000
___________________________________________ Executive Officer)
Richard J. Donahue
* Treasurer (Principal April 6, 2000
___________________________________________ Financial Officer and
Richard J. Nick Principal Accounting
Officer)
* Director April 6, 2000
___________________________________________
Gary E. Bockrath
* Director April 6, 2000
___________________________________________
Richard E. Goodell
* Director April 6, 2000
___________________________________________
</TABLE> John A. Ulizio
/s/ John A. Ulizio
* By: __________________________
John A. Ulizio
Attorney-in-fact
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
The Fulton Land and Timber Company
/s/ John A. Ulizio
By: _________________________________
Name: John A. Ulizio
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President (Principal April 6, 2000
___________________________________________ Executive Officer) and
Richard E. Goodell Director
* Treasurer (Principal April 6, 2000
___________________________________________ Financial Officer and
Gary E. Bockrath Principal Accounting
Officer) and Director
* Director April 6, 2000
___________________________________________
John A. Ulizio
</TABLE>
/s/ John A. Ulizio
* By: __________________________
John A. Ulizio
Attorney-in-fact
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
George F. Pettinos, Inc.
/s/ John A. Ulizio
By:__________________________________
Name: John A. Ulizio
Title: Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President (Principal April 6, 2000
___________________________________________ Executive Officer) and
Richard E. Goodell Director
* Vice President and April 6, 2000
___________________________________________ Treasurer (Principal
Gary E. Bockrath Financial Officer and
Principal Accounting
Officer)
* Director April 6, 2000
___________________________________________
Richard J. Nick
* Director April 6, 2000
___________________________________________
John A. Ulizio
</TABLE>
/s/ John A. Ulizio
* By: __________________________
John A. Ulizio
Attorney-in-fact
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
Ottawa Silica Company
By: /s/ John A. Ulizio
----------------------------------
Name: John A. Ulizio
Title:Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President (Principal Executive April 6, 2000
___________________________________________ Officer) and Director
Richard E. Goodell
* Treasurer (Principal Financial April 6, 2000
___________________________________________ Officer and Principal Accounting
Gary E. Bockrath Officer) and Director
* Director April 6, 2000
___________________________________________
</TABLE> John A. Ulizio
/s/ John A. Ulizio
* By: __________________________
John A. Ulizio
Attorney-in-fact
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
Pennsylvania Glass Sand Corporation
By: /s/ John A. Ulizio
----------------------------------
Name: John A. Ulizio
Title:Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ D. George Harris President (Principal Executive April 6, 2000
___________________________________________ Officer)
D. George Harris
* Treasurer (Principal Financial April 6, 2000
___________________________________________ Officer and Principal Accounting
Richard J. Nick Officer)
* Director April 6, 2000
___________________________________________
Richard E. Goodell
* Director April 6, 2000
___________________________________________
Gary E. Bockrath
* Director April 6, 2000
___________________________________________
</TABLE> John A. Ulizio
/s/ John A. Ulizio
* By: __________________________
John A. Ulizio
Attorney-in-fact
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
Shore Stone Company, Inc.
By: /s/ John A. Ulizio
----------------------------------
Name: John A. Ulizio
Title:Vice President and
Assistant
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Vice President of Finance April 6, 2000
___________________________________________ and Treasurer (Principal
Brian Hessenthaler Accounting Officer)
* Vice President and April 6, 2000
___________________________________________ Assistant Treasurer
Gary E. Bockrath (Principal Financial
Officer)
* Director April 6, 2000
___________________________________________
Craig S. Cinalli
* Director April 6, 2000
___________________________________________
Richard E. Goodell
* Director April 6, 2000
___________________________________________
Richard J. Donahue
* Director April 6, 2000
___________________________________________
</TABLE> John A. Ulizio
/s/ John A. Ulizio
* By: __________________________
John A. Ulizio
Attorney-in-fact
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 6th
day of April, 2000.
Stone Materials Company, LLC
By: Better Minerals & Aggregates
Company,
as Sole Member and Sole Manager
By: /s/ John A. Ulizio
----------------------------------
Name: John A. Ulizio
Title: Vice President, General
Counsel and Assistant
Secretary
II-21
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<C> <S>
2.1 Purchase Agreement dated as of August 26, 1999 by and among U.S.
Silica Company and Joseph H. Shearer, R. Scott Shearer, CATS, Inc.,
JHS Partnership, RSS Partnership and The Dell H. Shearer
Grandchildren's Trust.
2.1.1 Amendment No. 1 to Purchase Agreement dated as of October 1, 1999
among U.S. Silica Company and Joseph H. Shearer, R. Scott Shearer,
CATS, Inc., JHS Partnership, RSS Partnership and The Dell H. Shearer
Grandchildren's Trust.
3.1 Amended and Restated Certificate of Incorporation of Better Minerals
and Aggregates Company (formerly USS Intermediate Holdco, Inc.) dated
as of February 9, 1996.
3.1.1 Certificate of Amendment of The Restated Certificate of Incorporation
of Better Minerals and Aggregates Company (formerly USS Intermediate
Holdco, Inc.) dated September 30, 1999.
3.2 By-laws of Better Minerals and Aggregates Company (formerly USS
Intermediate Holdco, Inc.).
3.3 Certificate of Incorporation of U.S. Silica Company (formerly ITT-
PGS, Inc.) dated June 3, 1968.
3.3.1 Certificate of Amendment of Certificate of Incorporation of U.S.
Silica Company (formerly ITT-PGS, Inc.) dated June 20, 1968.
3.3.2 Certificate of Amendment of Certificate of Incorporation of U.S.
Silica Company (formerly ITT-PGS, Inc.) dated December 15, 1986.
3.3.3 Certificate of Ownership and Merger Merging U.S. Silica Company (OSC)
into U.S. Silica Company dated December 17, 1987.
3.3.4 Certificate of Ownership and Merger Merging Each of Louisiana
Industrial Sand Transportation Company, Texas Industrial Minerals
Transportation Company, U.S. Silica Co. of California, U.S. Silica
Co. of Connecticut, U.S. Silica Co. of Illinois, U.S. Silica Co. of
Louisiana, U.S. Silica Co. of Michigan and U.S. Silica Co. of Texas
into U.S. Silica Company dated December 17, 1987.
3.3.5 Certificate of Ownership and Merger Merging Warrior Sand and Gravel
Company, Inc. into U.S. Silica Company dated December 9, 1988.
3.3.6 Certificate of Ownership and Merger Merging USS Acquisitions, Inc.
into U.S. Silica Company dated February 9, 1996.
3.4 By-laws of U.S. Silica Company (formerly ITT-PGS, Inc.).
3.5 Restated Articles of Incorporation and Articles of Amendment of
Better Materials Corporation dated December 3, 1990.
3.5.1 Articles of Merger of Better Materials Corporation dated December 14,
1998.
3.6 Amended and Restated By-laws of Better Materials Corporation.
3.7 Certificate of Incorporation of BMC Trucking, Inc. dated November 30,
1998.
3.8 By-laws of BMC Trucking, Inc.
3.9 Restated Articles of Incorporation and Articles of Amendment of Bucks
County Crushed Stone Company dated December 21, 1990.
3.10 Amended and Restated By-laws of Bucks County Crushed Stone Company.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<C> <S>
3.11 Certificate of Incorporation of Chippewa Farms Corporation dated
January 16, 1981.
3.12 Amended and Restated By-laws of Chippewa Farms Corporation.
3.13 Certificate of Incorporation of Shore Stone Company, Inc. dated May
6, 1983.
3.13.1 Certificate of Amendment to the Certificate of Incorporation of Shore
Stone Company, Inc. dated November 28, 1990.
3.14 Amended and Restated By-laws of Shore Stone Company, Inc.
3.15 Certificate of Incorporation of Pennsylvania Glass Sand Corporation
(formerly Morgan National Silica Co.) dated October 24, 1986.
3.15.1 Certificate of Amendment of Certificate of Incorporation of
Pennsylvania Glass Sand Corporation (formerly Morgan National Silica
Co.) dated December 15, 1986.
3.16 By-laws of Pennsylvania Glass Sand Corporation (formerly Morgan
National Silica Co.).
3.17 Amended and Restated Certificate of Incorporation of George F.
Pettinos, Inc. dated July 31, 1998.
3.18 By-laws of George F. Pettinos, Inc.
3.19 Certificate of Incorporation of Ottawa Silica Company (formerly
LaSalle National Silica Co.) dated October 24, 1986.
3.19.1 Certificate of Amendment of Certificate of Incorporation of Ottawa
Silica Company (formerly LaSalle National Silica Co.) dated December
15, 1986.
3.20 By-laws of Ottawa Silica Company (formerly LaSalle National Silica
Co.).
3.21 Articles of Incorporation of The Fulton Land and Timber Company dated
April 13, 1942.
3.22 Amended and Restated By-laws of Fulton Land and Timber Company.
3.23 Certificate of Incorporation of Ellen Jay, Inc. dated March 1, 1974.
3.24 Amended and Restated By-laws of Ellen Jay, Inc.
3.25 Certificate of Formation of Stone Materials Company, LLC dated
September 24, 1999.
3.26 Limited Liability Company Operating Agreement of Stone Materials
Company, LLC dated as of September 30, 1999.
3.27 Articles of Incorporation of Commercial Stone Co., Inc. dated January
27, 1972.
3.27.1 Certificate of Amendment of Commercial Stone Co., Inc. dated December
29, 1983.
3.27.2 Statement of Change of Registered Office of Commercial Stone Co.,
Inc. dated February 9, 1984.
3.27.3 Certificate of Amendment of Commercial Stone Co., Inc. dated December
24, 1986.
3.28 By-laws of Commercial Stone Co., Inc.
3.29 Certificate of Formation of Commercial Aggregates Transportation and
Sales, LLC dated September 27, 1999.
3.29.1 Contribution Agreement dated as of October 1, 1999 between Stone
Materials Company, LLC and Commercial Stone Co., Inc.
3.30 Limited Liability Company Operating Agreement of Commercial
Aggregates Transportation and Sales, LLC dated as of September 30,
1999.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<C> <S>
4.1 Indenture, dated as of October 1, 1999, among Better Minerals and
Aggregates Company, the subsidiary guarantors named therein and The
Bank of New York, as trustee (including the forms of Better Minerals
and Aggregates Company's 13% Senior Subordinated Notes due 2009
attached thereto as exhibits).
4.2 Exchange and Registration Rights Agreement, dated October 1, 1999,
among Better Minerals and Aggregates Company, the subsidiary
guarantors named therein, Chase Securities Inc. and BNP Capital
Markets, LLC.
5.1 Opinion of Winthrop, Stimson, Putnam & Roberts regarding the legality
of the securities.
8.1 Opinion of Winthrop, Stimson, Putnam & Roberts regarding tax matters.
10.1 The Stockholders Agreement, dated as of February 9, 1996, among USS
Holdings, Inc. and the stockholders of the USS Holdings, Inc.
10.1.1 Amendment No. 1 to Stockholders Agreement dated as of October 15,
1996.
10.1.2 Amendment No. 2 to Stockholders Agreement dated as of October 6,
1998.
10.2 Amended and Restated Management Services Agreement, dated October 1,
1998, among USS Intermediate Holdco, Inc. (now Better Minerals and
Aggregates Company), USS Holdings, Inc., BMAC Holdings and DGHA.
10.2.1 Assignment and Assumption Agreement dated as of September 30, 1999.
10.3 Amended and Restated Tax Sharing Agreement, dated as of October 1,
1999, among USS Intermediate Holdco, Inc. (now Better Minerals and
Aggregates Company), its domestic subsidiaries, and USS Holdings,
Inc.
10.4 Credit Agreement, dated as of September 30, 1999, among Better
Minerals and Aggregates Company, BMAC Holdings, Inc., George F.
Pettinos (Canada) Limited, Banque Nationale de Paris, and the
financial institutions and other institutional lenders named therein.
10.5 Security Agreement, dated September 30, 1999, among Better Minerals
and Aggregates Company, the subsidiary guarantors named therein and
Banque Nationale de Paris.
10.6 Intellectual Property Security Agreement, dated September 30, 1999,
among Better Minerals and Aggregates Company, the subsidiary
guarantors named therein and Banque Nationale de Paris.
10.7 Parent Guarantor Security Agreement, dated September 30, 1999,
between BMAC Holdings, Inc. and Banque Nationale de Paris.
10.8 Canadian Security Agreement, dated September 30, 1999, between George
F. Pettinos (Canada) Limited and Banque Nationale de Paris.
10.9 Parent Guaranty, dated September 30, 1999, between BMAC Holdings,
Inc. and Banque Nationale de Paris.
10.10 Subsidiary Guaranty, dated September 30, 1999, between each of the
subsidiary guarantors named therein and Banque Nationale de Paris.
10.11* Equity Rights Agreement, dated as of October 1, 1999, between USS
Holdings, Inc., and the purchasers listed on the Schedule I thereto.
10.12* Equity Rights Agreement, dated as of December 19, 1996, between USS
Holdings, Inc. and the investors listed on the Schedule I thereto.
12.1* Amended statement regarding ratio of earnings to fixed charges.
21.1 Subsidiaries of Better Minerals and Aggregates Company.
23.1 Consent of Winthrop, Stimson, Putnam & Roberts (included in Exhibits
5.1 and 8.1 to this Registration Statement).
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<C> <S>
23.2* Consent of PricewaterhouseCoopers LLP.
23.3* Consent of Schneider Downs & Co., Inc.
24.1 Powers-of-Attorney (contained on the signature page of this
Registration Statement).
25.1 Statement of Eligibility and Qualification on Form T-1 of The Bank of
New York, as Trustee under the Indenture.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Letter to Clients.
99.3 Form of Letter to Registered Holders and DTC Participants.
99.4 Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
* Filed herewith; all other exhibits were previously filed.
4
<PAGE>
EXHIBIT 10.11
EQUITY RIGHTS AGREEMENT dated as of
October 1, 1999, between USS HOLDINGS, INC., a
Delaware corporation (the "Company"), and THE
-------
PURCHASERS LISTED ON SCHEDULE I HERETO (the
"Purchasers").
-----------
Simultaneously with the execution and delivery of this Agreement, the
Company and the Purchasers are entering into a Securities Purchase Agreement
(the "Purchase Agreement"), pursuant to which, among other things, the
------------------
Purchasers are purchasing from the Company (i) shares of Series D Redeemable
Preferred Stock, $.01 par value (the "Series D Preferred Stock"), and (ii)
------------------------
warrants (the "Class I Warrants") to purchase shares of Class B Common Stock of
----------------
the Company (the "Class B Common Stock" and warrants (the "Class II Warrants"
-------------------- -----------------
and together with the Class I Warrants the "Warrants") to purchase shares of
--------
Class C Common Stock, $.01 par value of the Company (the "Class C Common Stock"
--------------------
and together with the Class B Common Stock the "Warrant Shares"). The parties
--------------
are entering into this Agreement in connection with the Purchase Agreement.
ACCORDINGLY, in consideration of the foregoing and the
representations, warranties, covenants and agreements of the parties contained
in this Agreement and in the Purchase Agreement, the parties agree as follows:
1. Definitions; Rules of Construction.
----------------------------------
(a) Definitions.
-----------
Capitalized terms used in this Agreement have the meanings ascribed to
them below:
"Affiliate" means, as to any Person, any other Person that, directly
---------
or indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person; provided, however, that for
-------- -------
purposes of this definition, the term "control" (including the terms
"controlling," "controlled by" and "under common control with") of a Person
means the possession, direct or indirect, of the power to vote 5% or more of the
Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of Voting
Stock, by contract or otherwise.
"Applicable Law" means all provisions of laws, statutes, ordinances,
--------------
rules, regulations, permits, certificates, writs, decrees or orders of any
Governmental Authority applicable to (a) the Person in question or any of its
assets or property or (b) the transaction or event in question.
"Board" and "Board of Directors," unless otherwise specified, means
----- ------------------
the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or a day
------------
for which banks are authorized or required to be closed in New York, New York.
<PAGE>
"Common Stock" means, collectively, all of the Common Stock, $.01 par
------------
value, of the Company of any class, including the Company's Class A Common
Stock, Class B Common Stock and Class C Common Stock and any other class of
capital stock of the Company hereafter authorized that is not limited to a fixed
sum or percentage of par or stated value with respect to the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon any liquidation, dissolution or winding up of the Company.
"Common Stock Equivalent" means one share of Common Stock or the right
-----------------------
to acquire, whether or not such right is immediately exercisable, one share of
Common Stock, whether evidenced by an option, warrant, convertible security or
other instrument or agreement.
"Company" has the meaning ascribed to it in the caption of this
-------
Agreement.
"Common Equity Value" means, as of the date of determination, the most
-------------------
probable value that would be paid for all of the Common Stock Equivalents of the
Corporation on a going concern basis in a single arm's-length transaction
between a willing buyer and a willing seller, without regard to lack of
liquidity of the Company's Securities and without any discount for the lack of
control of the Company exercisable by any Purchaser, using valuation techniques
then prevailing in the securities industry and assuming full disclosure of all
relevant information and reasonably sufficient time for effectuating such sale
in a competitive and open market under all conditions requisite to a fair sale,
the buyer and the seller each acting prudently and knowledgeably, and assuming
the price is not affected by undue stimulus. Implicit in this definition is the
consummation of a sale and the passing of title from the seller to the buyer
under conditions whereby (1) the buyer and the seller are typically motivated,
(2) both parties are well informed or well advised and acting in what they
consider their own best interests, (3) a reasonable amount of time is allowed
for exposure in the open market, (4) payment is made in terms of cash in U.S.
dollars or in terms of financial arrangements comparable thereto, and (5) the
price represents the normal consideration for the Common Stock Equivalents
unaffected by special or creative financing or sales concessions granted by
anyone associated with the sale.
"Common Equity Value Per Share" means the quotient of (a) the sum of
-----------------------------
(i) the Common Equity Value plus (ii) the aggregate consideration that would be
----
received by the Corporation if all outstanding Common Stock Equivalents (without
regard to any restrictions on the conversion, exercise or exchange thereof) that
are "in the money" (i.e., those having a conversion, exercise or exchange price
----
per share of Common Stock equal to or less than the quotient of (1) the Common
Equity Value divided by (2) the total number of shares of Common Stock
----------
outstanding) were converted, exercised and exchanged for Common Stock, divided
-------
by (b) the total number of shares of Common Stock outstanding after giving pro
- -- ---
forma effect to all such conversions, exercises and exchanges of the outstanding
- -----
Common Stock Equivalents described in clause (a)(ii) above. When calculated
with respect to a Security that is directly or indirectly convertible into, or
exercisable or exchangeable for, Common Stock, the "Common Equity Value Per
Share" of such Security shall be an amount equal to the Common Equity Value Per
Share calculated pursuant to the immediately preceding sentence times the number
of Common Stock Equivalents represented by such Security.
"Fair Value Per Share" means, with respect to a share of Class B
--------------------
Common Stock, an amount equal to the Common Equity Value Per Share for such
share as determined in good
2
<PAGE>
faith by the Board (including a majority of the disinterested members of the
Board), which determination shall be delivered to the Purchasers in writing;
provided, however, that if the Requisite Purchasers object to such determination
- -------- -------
by the Board within 15 Business Days after delivery of such written
determination to the Purchasers, then the Company and the Requisite Purchasers
shall in good faith attempt to resolve their differences with respect to, and to
agree on, the Fair Value Per Share. If the Company and the Requisite Purchasers
are unable to reach agreement on the Fair Value Per Share within 15 Business
Days after the Requisite Purchasers' delivery to the Company of the Requisite
Purchasers' written objection to the Board's initial determination of the Fair
Value Per Share, then the Fair Value Per Share shall be determined by an
investment banking firm of national recognition, which firm shall be reasonably
acceptable to the Company and the Requisite Purchasers. If the Company and the
Requisite Purchasers are unable to agree upon an acceptable investment banking
firm within 10 Business Days after the date either party proposed that one be
selected, the investment banking firm will be selected by an arbitrator located
in the City of New York, New York, selected by the American Arbitration
Association (or if such organization ceases to exist, the arbitrator shall be
chosen by a court of competent jurisdiction). The arbitrator shall select the
investment banking firm (within ten (10) days of his appointment) from a list,
jointly prepared by the Company and the Requisite Purchasers, of not more than
six investment banking firms of national standing in the United States, of which
no more than three may be named by the Company and no more than three may be
named by the Requisite Purchasers. The arbitrator may consider, within the
ten-day period allotted, arguments from the parties regarding which investment
banking firm to choose, but the selection by the arbitrator shall be made in its
sole discretion from the list of six. The Company and the Requisite Purchasers
shall submit to the investment banking firm their respective calculations of the
Fair Value Per Share, and any supporting arguments and other data as they may
desire, within 10 Business Days of the appointment of the investment banking
firm, and the investment banking firm shall as soon as practicable thereafter
make its own calculation of the Fair Value Per Share. The determination of the
Fair Value Per Share by such investment banking firm shall be final and binding
upon the parties. The Company shall pay the fees and expenses of the investment
banking firm and arbitrator (if any) used to determine the Fair Value Per Share.
"GAAP" means generally accepted accounting principles in the United
----
States, consistently applied
"Governmental Authority" means any domestic or foreign government or
----------------------
political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"Initial Public Offering" means the initial Public Offering of equity
-----------------------
securities of the Company.
"Liquidation" means any voluntary or involuntary dissolution,
-----------
liquidation and winding up of the business and affairs of the Company.
"Liquidity Event" means any Sale of the Company, Public Offering or
---------------
Liquidation.
3
<PAGE>
"MassMutual Holders" means, collectively, Massachusetts Mutual Life
------------------
Insurance Company, MassMutual Corporate Investors, MassMutual Participation
Investors, MassMutual Corporate Value Partners Limited and their respective
successors and permitted assigns.
"Material Adverse Effect" means a material adverse effect on the
-----------------------
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or
any of its Subsidiaries.
"Person" shall be construed as broadly as possible and shall include
------
an individual or natural person, a partnership (including a limited liability
partnership), a corporation, an association, a joint stock company, a limited
liability company, a trust, a joint venture, an unincorporated organization and
a Governmental Authority.
"Public Offering" means the closing of a public offering of Common
---------------
Stock pursuant to a registration statement declared effective under the
Securities Act, except that a Public Offering shall not include an offering made
in connection with a business acquisition or an employee benefit plan.
"Purchase Agreement" has the meaning ascribed to it in the Preamble.
------------------
"Purchasers" has the meaning given to it in the caption of this
----------
Agreement.
"Qualified Public Offering" has the meaning ascribed to it in the
-------------------------
Stockholders Agreement.
"Requisite MassMutual Purchasers" means, as of any date of
-------------------------------
determination, MassMutual Holders holding as of such date of determination
Warrants or Warrant Shares representing at least a majority of the Warrant
Shares previously issued and Warrant Shares issuable upon exercise of the
Warrants then outstanding held by all MassMutual Holders.
"Requisite Purchasers" means, as of any date of determination,
--------------------
Purchasers holding Warrants or Warrants Shares representing at least a majority
of the Warrant Shares previously issued and Warrant Shares issuable upon
exercise of the Warrants then outstanding; provided however, that for purposes
-------- -------
of Section 3(a), the MassMutual Holders shall not be included in any
determination of Requisite Purchasers.
"Sale of the Company" means the sale to a third party who is not an
-------------------
Affiliate of the Company of outstanding equity Securities of the Company
(whether directly or by way of merger, consolidation or other reorganization) in
a transaction in which the Purchasers have the right to sell all the Shares.
"Sale Shares" has the meaning given to it in the first paragraph of
-----------
this Agreement and includes any and all shares of capital stock of the Company
issued on or with respect to such Sale Shares by way of a stock dividend or
stock split, or by way of a conversion or exchange of such Sale Shares in
accordance with their respective terms.
"Securities" means, with respect to any Person, such Person's
----------
"securities" as defined in Section 2(1) of the Securities Act of 1933, as
amended, and includes such Person's
4
<PAGE>
capital stock or other equity interests or any options, warrants or other
securities that are directly or indirectly convertible into, or exercisable or
exchangeable for, such Person's capital stock or other equity or equity-linked
interests, including phantom stock and stock appreciation rights.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Securities and
Exchange Commission thereunder, all as the same shall be in effect from time to
time.
"Securities and Exchange Commission" means the Securities and Exchange
----------------------------------
Commission or any Governmental Authority succeeding to the functions thereof.
"Stockholders Agreement" means the Stockholders Agreement dated as of
----------------------
February 9, 1996, as amended, between the Company and its stockholders named
therein.
"Subsidiary" of any Person, means any corporation, partnership, joint
----------
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such limited
liability company, partnership or joint venture or (c) the beneficial interest
in such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Voting Stock" means capital stock issued by a corporation, or
------------
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or Persons performing similar functions) of such Person, even if such right to
vote has been suspended by the happening of such contingency.
"Warrants" has the meaning ascribed to it in the preamble of this
--------
Agreement.
"Warrant Shares" has the meaning given to it in the preamble of this
--------------
Agreement and includes any and all shares of capital stock of the Company issued
upon the exercise, conversion or exchange of the Warrants in accordance with its
terms and any and all other shares of capital stock of the Company issued on or
with respect to such Warrant Shares by way of a stock dividend or stock split, a
reorganization or by way of the conversion or exchange of such Warrant Shares in
accordance with their respective terms.
(b) Rules of Construction.
---------------------
The use in this Agreement of the term "including" means "including,
without limitation." The words "herein," "hereof," "hereunder" and other words
of similar import refer to this Agreement as a whole, including the schedules
and exhibits, as the same may from time to time be amended, modified,
supplemented or restated, and not to any particular section, subsection,
paragraph, subparagraph or clause contained in this Agreement. All references
to sections, schedules and exhibits mean the sections of this Agreement and the
schedules and exhibits attached to this Agreement, except where otherwise
stated. The title of and the section and paragraph headings in this Agreement
are for convenience of reference only and shall not
5
<PAGE>
govern or affect the interpretation of any of the terms or provisions of this
Agreement. The use herein of the masculine, feminine or neuter form shall also
denote the other forms, as in each case the context may require. The language
used in this Agreement has been chosen by the parties to express their mutual
intent, and no rule of strict construction shall be applied against any party.
2. Covenants.
---------
(a) Transactions With Affiliates.
----------------------------
The Company shall not, and the Company shall cause its Subsidiaries
not to, without the prior written consent of the Requisite Purchasers, enter
into any transaction with any Affiliate of the Company on terms less favorable
to the Company or such Subsidiary than would have been obtainable in a
comparable arms-length transaction with an unrelated third party; provided,
---------
however, that the Company or any of its wholly owned Subsidiaries may, without
- -------
the prior written consent of the Requisite Purchasers hereunder, enter into
transactions with the Company and any of its wholly owned Subsidiaries.
(b) Financial Statements and Other Information, Inspections.
-------------------------------------------------------
(i) Prior to the consummation of an Initial Public Offering, the
Company will deliver to each Purchaser holding at least 5% of the shares of
Series D Preferred Stock then outstanding the financial statements and
other information specified in Section 3(a) of the Stockholders Agreement.
(ii) Except as consented to in writing by the Company or as otherwise
required by law or judicial order or decree or by any governmental agency
or authority, each Person which obtains information regarding the
Corporation and its Subsidiaries under this Section 2(b) will use its best
efforts to maintain the confidentiality of all nonpublic information
obtained by it hereunder which the Corporation has reasonably designated as
proprietary or confidential in nature; provided that each such Person may
disclose such information to a Permitted Transferee (as defined in the
Stockholders Agreement) in connection with the sale or transfer of any
Shares if such Permitted Transferee agrees in writing to be bound by the
provisions hereof.
(iii) Prior to the consummation of an Initial Public Offering, the
Company will permit each representative designated by any Purchaser holding
at least 5% of the shares of Series D Preferred Stock then outstanding,
upon reasonable notice to the Chief Executive Officer of the Company,
during normal business hours or such other times as any such Purchaser may
reasonably request and in such manner so as not to unreasonably interfere
with the business and operations of the Company or any Subsidiary, to, at
such Purchaser's expense, (i) visit and inspect any of the properties of
the Company and its Subsidiaries, (ii) examine the corporate and financial
records of the Company and its Subsidiaries and make copies thereof or
extracts therefrom and (iii) discuss the affairs, finances and accounts of
any such corporations with the directors, officers, key employees and
independent accountants of the Company and its Subsidiaries.
6
<PAGE>
3. Purchaser Put Rights.
--------------------
(a) Put Notice.
----------
Subject to the terms and conditions of this Section 3, at any time
after the fifth anniversary of the date hereof and prior to a Liquidity Event,
either the Requisite Purchasers or the Requisite MassMutual Holders may elect to
require the Company to purchase all (but not less than all) unexercised Warrants
and Warrant Shares held by such Purchaser or Purchasers at a price per share
equal to the Fair Value Per Share (determined as of the date the Put Notice is
delivered) of such Warrants (determined based upon the Fair Value Per Share of
the shares issuable upon exercise of such Warrants less the price payable upon
exercise thereof) or Warrant Shares.
Such Purchaser or Purchasers may exercise the Put Right by delivering
written notice of such election (the "Put Notice") to the Company Within 15
days after the first date of receipt of a Put Notice by the Company (the "Put
---
Notice Date"), the Company shall give a notice to all other Purchasers advising
- -----------
them of the receipt by the Company of such Put Notice, together with a copy of
such Put Notice. The date upon which the Company shall so advise such other
Holders is herein called the "Company Notice Date". Within 15 days after the
-------------------
Company Notice Date, each such other Purchaser also may give a Put Notice to the
Company and each such Put Notice shall be deemed given as of the date of the Put
Notice given by the Purchaser or Purchasers initially exercising the Put Right.
After receipt of the original Put Notice, the Company shall be obligated to
purchase, and the Purchasers who have elected to participate shall be obligated
to sell, Warrants and Warrant Shares for which Put Notices have been given,
subject to the following conditions:
(i) the Company shall use its best efforts to obtain all consents,
approvals and waivers from third parties (including the stockholders of the
Company) that may be necessary in order to permit the Company to purchase
such Warrants and Warrant Shares, and in the event that the Company cannot,
after using such best efforts, obtain any such consent, approval or waiver
that is required for the Company to purchase any Warrants or Warrant
Shares, the Company shall be relieved from its obligation hereunder to
purchase such Warrants and Warrant Shares;
(ii) in the event the Company shall not have sufficient funds on hand
to purchase all of such Warrants and Warrant Shares, the Company shall use
its best efforts to obtain such funds from third party financing sources on
reasonable and customary terms to pay in full in cash the aggregate
purchase price required to be paid for such Warrants and Warrant Shares
pursuant to this Section 3, and if, after using such best efforts, the
Company cannot obtain such funds to purchase all of such Warrants and
Warrant Shares, the Company shall be obligated hereunder to purchase, on a
pro rata basis from all such Purchasers in proportion to their holdings of
Warrants and Warrant Shares, only those Warrants and Warrant Shares that
the Company is able to purchase out of funds on hand and obtained from
third party financing sources, if any;
(iii) in the event that the Company is prohibited or restricted by
Applicable Law from purchasing any Warrants or Warrant Shares, the
Company's obligation to
7
<PAGE>
purchase such shares hereunder shall be suspended until such time as the
Company is no longer subject to any such prohibition or restriction and any
such purchase permitted to be made shall be made such Warrants and Warrant
Shares on a pro rata basis;
(iv) in the event that the Board determines in good faith that the
Company's performance of its obligations under this Section 3 could
reasonably be expected to have a Material Adverse Effect, the Company may
postpone the Put Closing for such period as the Board may in good faith
determine in order to avoid such Material Adverse Effect; and
(v) in the event that the Requisite Purchasers or the Requisite
MassMutual Holders, as the case may be, have delivered a Put Notice to the
Company and the Company has given the Purchasers written notice prior to 30
days following final determination of the Fair Value Per Share of the Class
B Common Stock that the Company has fixed plans to engage in, or is
otherwise attempting to engage in, a Liquidity Event, then the Company
shall not be obligated to purchase such Warrants and Warrant Shares
pursuant to this Section 3 unless and until such Liquidity Event is
abandoned.
(b) Put Closing.
-----------
Subject to conditions set forth in Section 3(a), the closing (the "Put
---
Closing") of the Company's purchase of Warrants and Warrant Shares from the
- -------
Purchasers pursuant to Section 3(a) shall take place on such date (the "Put
---
Closing Date") as shall be determined by the Company, but in any event not
- ------------
earlier than 10 days and not later than 90 days after the later of (x) the date
on which the final determination of the Fair Value Per Share of the Warrants and
Warrant Shares being repurchased is made and (y) the date on which all of the
conditions set forth in Section 3(a) have been satisfied. The Put Closing shall
take place at the Company's principal executive office or place of business or
the office in New York City of the Company's attorneys. The Company shall send
written notice of the Put Closing (the "Put Closing Notice") to the Purchasers.
------------------
The Put Closing Notice shall specify the Put Closing Date and the location of
the Put Closing. At the Put Closing, the Company shall pay to each Purchaser,
against the Company's receipt from such Purchaser of the certificate or
certificates representing the Warrants and Warrant Shares being repurchased from
such Purchaser duly endorsed or accompanied by duly executed stock powers and
other instruments of transfer necessary to transfer said Warrants and Warrant
Shares to the Company free and clear of all liens, pledges, encumbrances and
other adverse claims, an amount equal to the aggregate purchase price for all
such Warrants and Warrant Shares, by wire transfer of immediately available
funds, or if such Purchaser shall not have specified wire transfer instructions
to the Company prior to the Put Closing Date, by certified or official bank
check made payable to the order of such Purchaser.
4. Company Call Rights.
-------------------
(a) Call Notice.
-----------
Subject to the terms and conditions of this Section 4, at any time and
from time to time after the sixth anniversary of the date hereof, the Company
may elect to purchase all (but
8
<PAGE>
not less than all) of the unexercised Warrants and the Warrant Shares held by
the Purchasers at a price per share equal to the applicable Fair Value Per Share
(determined as of the date the Call Notice is given) of such Warrants
(determined based upon the Fair Value Per Share of the shares issuable upon
exercise of such Warrants less the price payable upon exercise thereof) or
Warrant Shares by giving written notice to the Purchasers of such election (the
"Call Notice"), whereupon the Company shall be obligated to purchase, and the
Purchasers shall be obligated to sell, such Warrants and Warrant Shares;
provided, however, that the Company may at any time prior to 10 days prior to
the Call Closing Date (as defined below) terminate or abandon its purchase of
such Warrants and Warrant Shares hereunder by delivering written notice thereof
to the Purchasers and paying, or reimbursing the Purchasers for, the reasonable
out-of-pocket fees and expenses incurred by the Purchasers in connection with
the determination of Fair Value Per Share as a result of the Company's exercise
of such call rights hereunder (and in the event of any such termination or
abandonment, the provisions of this Section 4 shall thereafter remain and
continue in effect in accordance with their respective terms).
(b) Call Closing.
------------
Subject to conditions set forth in Section 4(a), the closing (the
"Call Closing") of the Company's purchase of Warrants and Warrant Shares from
- -------------
the Purchasers pursuant to Section 4(a) shall take place on such date (the "Call
----
Closing Date") as shall be determined by the Company, but in any event not
- ------------
earlier than 10 days and not later than 90 days after the date on which the
final determination of the Fair Value Per Share of the Warrants and Warrant
Shares being repurchased is made. The Call Closing shall take place at the
Company's principal executive office or place of business or the office in New
York City of the Company's attorneys. The Company shall send written notice of
the Call Closing (the "Call Closing Notice") to the Purchasers. The Call
-------------------
Closing Notice shall specify the Call Closing Date and the location of the Call
Closing. At the Call Closing, the Company shall pay to each Purchaser, against
the Company's receipt from such Purchaser of the certificate or certificates
representing the Warrants and Warrant Shares being purchased from such Purchaser
duly endorsed or accompanied by duly executed stock powers and other instruments
of transfer necessary to transfer such Warrants and Warrant Shares to the
Company free and clear of all liens, pledges, encumbrances and other adverse
claims, an amount equal to the aggregate purchase price for all such Warrants
and Warrant Shares, by wire transfer of immediately available funds, or if such
Purchaser shall not have specified wire transfer instructions to the Company
prior to the Call Closing Date, by certified or official bank check made payable
to the order of such Purchaser.
(c) Adjustment of Fair Value Per Share.
----------------------------------
(i) If a Liquidity Event occurs at any time during the first six
months following the Call Closing and the price of a share of Class B
Common Stock or Class C Common Stock, as the case may be, resulting from
such Liquidity Event exceeds the per share purchase price paid by the
Company for shares of Class B Common Stock or Class C Common Stock, as the
case may be, at the Call Closing, then the Company shall pay each Purchaser
an amount equal to the product of (A) the amount by which the price of a
share of Class B Common Stock or Class C Common Stock, as the case may be,
resulting from such Liquidity Event exceeds the per share purchase price
paid by the Company for shares of Class B Common Stock or Class C Common
Stock, as the case may be, at the
9
<PAGE>
Call Closing multiplied by (B) the number of shares of Class B Common Stock
or Class C Common Stock, as the case may be, purchased by the Company from
such Purchaser at the Call Closing (including shares of Class B Common
Stock or Class C Common Stock, as the case may be, issuable upon exercise
of unexercised Warrants so purchased). Such payment shall be made to such
Purchaser within 15 Business Days after the consummation of such Liquidity
Event in the same manner as the payment of the purchase price at the Call
Closing.
(ii) If a Liquidity Event occurs at any time during the second six
months following the Call Closing and the price of a share of Class B
Common Stock or Class C Common Stock, as the case may be, resulting from
such Liquidity Event exceeds the per share purchase price paid by the
Company at the Call Closing, then the Company shall pay each Purchaser an
amount equal to 50% of the product of (A) the amount by which the price of
a share of Class B Common Stock or Class C Common Stock, as the case may
be, resulting from such Liquidity Event exceeds the per share purchase
price paid by the Company for shares of Class B Common Stock or Class C
Common Stock, as the case may be, at the Call Closing multiplied by (B) the
number of shares of Class B Common Stock or Class C Common Stock, as the
case may be, purchased by the Company from such Purchaser at the Call
Closing (including shares of Class B Common Stock or Class C Common Stock,
as the case may be, issuable upon exercise of unexercised Warrants so
purchased). Such payment shall be made to such Purchaser within 15 Business
Days after the consummation of such Liquidity Event in the same manner as
the payment of the purchase price at the Call Closing.
5. Miscellaneous.
-------------
(a) Amendment and Waiver.
--------------------
The provisions of this Agreement may only be amended in writing signed
by the Company and the Purchasers, and may only be waived in writing by the
party to be charged with such waiver.
(b) Duration; Termination.
---------------------
The provisions of this Agreement shall terminate upon the first to
occur of (A) a Liquidation, (B) a Sale of the Company, (C) the written approval
of such termination by the Company and the Purchasers, and (D) the consummation
of a Qualified Public Offering.
(c) Severability.
------------
It is the desire and intent of the parties hereto that the provisions
of this Agreement be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be
10
<PAGE>
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
(d) Entire Agreement.
----------------
This Agreement embodies the entire agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any and all prior and contemporaneous understandings, agreements,
arrangements or representations by or among the parties, written or oral, which
may relate to the subject matter hereof in any way.
(e) Successors and Assigns.
----------------------
(i) Except as otherwise provided herein, this Agreement will bind and
inure to the benefit of and be enforceable by the Company and its
successors and assigns and the Purchasers and their respective successors
and permitted assigns, so long as each such Person holds Warrants or
Warrant Shares. Any Purchaser may assign and delegate any of its rights and
obligations hereunder to any Permitted Transferees of Warrants or Warrant
Shares as defined in, and pursuant to the provisions of the Stockholders
Agreement without the prior written consent of any other party hereto. None
of the provisions hereof shall create, or be construed or deemed to create,
any third party beneficiaries.
(ii) References in this Agreement to a "Purchaser" shall mean,
collectively, (A) a Purchaser named herein, (B) each Additional Purchaser
(as such term is defined in the Purchase Agreement) who has executed and
delivered to the Company a joinder agreement in accordance with the terms
of Section 2.5 of the Purchase Agreement and (C) the permitted transferees
of Warrants or Warrant Shares held by such Purchaser who have executed and
delivered to the Company a joinder agreement in form and substance
reasonably acceptable to such permitted transferee and the Company pursuant
to which such permitted transferee shall have agreed to be bound and to
comply with the provisions of this Agreement as if such permitted
transferee were an Purchaser named herein. Whenever any agreement, consent,
approval or waiver of the Purchasers is required or requested hereunder,
then, unless otherwise expressly provided, such agreement, consent,
approval or waiver shall be deemed to have been duly given if in a writing
signed by the Requisite Purchasers.
(f) Counterparts.
------------
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
(g) Notices.
-------
All notices and other communications which are required or otherwise
delivered hereunder shall be deemed to be sufficient and duly given if contained
in a written instrument (a)
11
<PAGE>
personally delivered or sent by telecopier, (b) sent by nationally-recognized
overnight courier guaranteeing next Business Day delivery or (c) sent by first
class registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
(i) if to the Issuer or any Subsidiary to:
USS Holdings, Inc.
c/o D. George Harris & Associates, Inc.
399 Park Avenue
32nd Floor
New York, New York 10022
Telephone: (212) 207-6400
Telecopy: (212) 207-6470
Attention: Donald G. Kilpatrick, Esq.;
(ii) with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Telephone: 212-858-1000
Telecopy: 212-858-1500
Attention: Kenneth E. Adelsberg, Esq.; and
(iii) if to any Purchaser to the address of such Purchaser set forth
on Schedule I:
(iv) with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Telephone: 212-408-2400
Telecopy: 212-408-2420
Attention: John J. Suydam, Esq.
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
notice or communication shall be deemed to have been received (i) when
delivered, if personally delivered or sent by telecopier, (ii) on the first
Business Day after dispatch, if sent by nationally recognized, overnight courier
guaranteeing next Business Day delivery and (iii) on the third Business Day
following the date on which the piece of mail containing such communication is
posted, if sent by mail.
12
<PAGE>
6. Governing Law; Consent to Jurisdiction.
--------------------------------------
(i) All questions concerning the construction, interpretation and
validity of this Agreement shall be governed by and construed and enforced
in accordance with the domestic laws of the State of New York, without
giving effect to any choice of law or conflict of laws provision or rule
(whether in the State of New York or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State
of New York. In furtherance of the foregoing, the internal law of the State
of New York will control the interpretation and construction of this
Agreement, even if under such jurisdiction's choice of law or conflict of
laws analysis, the substantive law of some other jurisdiction would
ordinarily apply.
(ii) The jurisdiction and venue in any action brought by any party
hereto pursuant to this Agreement shall exclusively lie in any federal or
state court located in the City of New York, New York. The parties further
agree that such exclusive jurisdiction and venue shall lie exclusively with
such federal courts if federal rules of jurisdiction permit such federal
court to hear such action. By execution and delivery of this Agreement,
each party hereto irrevocably submits to the jurisdiction of such courts
for himself or itself and in respect of his or its property with respect to
such action. The parties irrevocably agree that venue would be proper in
any such court, and hereby waive any objection that any such court is an
improper or inconvenient forum for the resolution of such action. The
parties further agree that the mailing by certified or registered mail,
return receipt requested, of any process required by any such court shall
constitute valid and lawful service of process against them, without
necessity for service by any other means provided by statute or rule of
court. The parties agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdiction by
suit on the judgment or in any other manner provided by Applicable Law.
7. Mutual Waiver of Jury Trial.
---------------------------
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN
ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS RELATED HERETO.
* * * * *
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Equity
Rights Agreement as of the date first above written.
USS HOLDINGS, INC.
By: ______________________________
Name:
Title:
PURCHASERS
CB CAPITAL INVESTORS, L.P.
By: CB Capital Investors, Inc.
its General Partner
By: ______________________________
Name:
Title:
[Equity Rights Agreement Signature Page]
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By:__________________________
Name:
Title:
MASSMUTUAL CORPORATE INVESTORS
By:____________________________
Name:
Title:
MASSMUTUAL PARTICIPATION INVESTORS
By:____________________________
Name:
Title:
MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED
By: Massachusetts Mutual Life
Insurance Company, as
Investment Manager
By:____________________________
Name:
Title:
[Equity Rights Agreement Signature Page]
<PAGE>
_______________________________
D. George Harris
_______________________________
Anthony J. Petrocelli
_______________________________
Richard J. Donahue
_______________________________
Donald J. Kilpatrick
_______________________________
Richard J. Nick
_______________________________
Anne Cortazzi
TRUST UNDER AGREEMENT OF D. GEORGE HARRIS
DATED NOVEMBER 18, 1994 F/B/O ROBERT HARRIS
By:____________________________
Anthony J. Petrocelli, Trustee
By:____________________________
Donald G. Kilpatrick, Trustee
[Equity Rights Agreement Signature Page]
<PAGE>
TRUST UNDER AGREEMENT OF D. GEORGE HARRIS
DATED NOVEMBER 18, 1994 F/B/O MARGARET HARRIS
By:____________________________
Anthony J. Petrocelli, Trustee
By:____________________________
Donald G. Kilpatrick, Trustee
TRUST UNDER AGREEMENT OF D. GEORGE HARRIS
DATED NOVEMBER 18, 1994 F/B/O PAIGE COLEMAN
By:____________________________
Anthony J. Petrocelli, Trustee
By:____________________________
Donald G. Kilpatrick, Trustee
TRUST UNDER AGREEMENT OF D. GEORGE HARRIS
DATED NOVEMBER 18, 1994 F/B/O KEITH COLEMAN
By:____________________________
Anthony J. Petrocelli, Trustee
By:____________________________
Donald G. Kilpatrick, Trustee
[Equity Rights Agreement Signature Page]
<PAGE>
TRUST UNDER AGREEMENT OF D. GEORGE HARRIS
DATED NOVEMBER 18, 1994 F/B/O AUGUSTUS
NORTHRIDGE
By:____________________________
Anthony J. Petrocelli, Trustee
By:____________________________
Donald G. Kilpatrick, Trustee
TRUST UNDER AGREEMENT OF D. GEORGE HARRIS
DATED JANUARY 31, 1995 F/B/O P.G.F. SCURR
By:____________________________
Anthony J. Petrocelli, Trustee
By:____________________________
Donald G. Kilpatrick, Trustee
TRUST UNDER AGREEMENT OF ANTHONY J. PETROCELLI
DATED OCTOBER 29, 1990
By:____________________________
D. George Harris, Trustee
By:____________________________
Donald G. Kilpatrick, Trustee
[Equity Rights Agreement Signature Page]
<PAGE>
[OGK DRAFT 3/15/00]
- --------------------------------------------------------------------------------
USS HOLDINGS, INC.
- --------------------------------------------------------------------------------
EQUITY RIGHTS AGREEMENT
BETWEEN
USS HOLDINGS, INC.
AND
THE PURCHASERS LISTED ON SCHEDULE I HERETO
- --------------------------------------------------------------------------------
Dated as of October 1, 1999
- --------------------------------------------------------------------------------
<PAGE>
Schedule I
----------
Purchasers
----------
CB Capital Investors, L.P.
380 Madison Avenue
12th Floor
New York, New York 10017-2070
Attention: Richard D. Waters, Jr.
Telephone: (212) 622-3096
Telecopier: (212) 622-3950
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY - 1
1295 State Street
Springfield, MA 01111
Attn.: Securities Investment Division
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY - 2
1295 State Street
Springfield, MA 01111
Attn.: Securities Investment Division
MASSMUTUAL PARTICIPATION INVESTORS
c/o MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
1295 State Street
Springfield, MA 01111
Attn.: Securities Investment Division
MASSMUTUAL CORPORATE INVESTORS
c/o MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
1295 State Street
Springfield, MA 01111
Attn.: Securities Investment Division
<PAGE>
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
c/o BANK OF AMERICA TRUST AND BANKING
CORPORATION (CAYMAN) LIMITED
P.O. Box 1092
George Town
Grand Cayman
Cayman islands, B.W.I.
Attention: Michael Carney
D. George Harris*
* c/o D. George Harris & Associates
399 Park Avenue, 32nd Floor
New York, NY 10022
Anthony J. Petrocelli*
Richard J. Donahue*
Donald G. Kilpatrick*
Richard J. Nick*
Trust under Agreement of D. George Harris dated
November 18, 1994 F/B/O Robert Harris*
Trust under Agreement of D. George Harris dated
November 18, 1994 F/B/O Margaret Harris*
Trust under Agreement of D. George Harris dated
November 18, 1994 F/B/O Paige Coleman*
Trust under Agreement of D. George Harris dated
November 18, 1994 F/B/O Keith Coleman*
Trust under Agreement of D. George Harris dated
November 18, 1994 F/B/O Augustus Northridge*
___________________
* c/o D. George Harris & Associates
399 Park Avenue, 32nd Floor
New York, NY 10022
<PAGE>
Trust under Agreement of D. George Harris dated
January 31, 1995 F/B/O P.G.F. Scurr*
Trust under Agreement of Anthony J. Petrocelli dated
October 29, 1990*
Trust under Agreement of Anthony J. Petrocelli dated
__________________ F/B/O Serena Petrocelli*
Anne Cortazzi
[Address]
__________________
* c/o D. George Harris & Associates
399 Park Avenue, 32nd Floor
New York, NY 10022
<PAGE>
Exhibit 10.12
EXECUTION COPY
- -------------------------------------------------------------------------------
USS HOLDINGS, INC.
--------------------------------------------
EQUITY RIGHTS AGREEMENT
BETWEEN
USS HOLDINGS, INC.
AND
THE INVESTORS LISTED ON SCHEDULE I HERETO
--------------------------------------------
Dated as of December 19, 1996
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
1. Definitions; Rules of Construction......................................................................2
(a) Definitions........................................................................................2
(b) Rules of Construction..............................................................................6
2. Covenants; Observation Rights...........................................................................7
(a) Transactions with Affiliates.......................................................................7
(b) Observer Rights....................................................................................7
3. Investor Put Rights.....................................................................................7
(a) Put Notice.........................................................................................7
(b) Put Closing........................................................................................9
4. Company Call Rights.....................................................................................9
(a) Call Notice........................................................................................9
(b) Call Closing......................................................................................10
(c) Adjustment of Fair Value Per Share................................................................10
5. Miscellaneous..........................................................................................11
(a) Amendment and Waiver..............................................................................11
(b) Duration; Termination.............................................................................11
(c) Severability......................................................................................11
(d) Entire Agreement..................................................................................11
(e) Successors and Assigns............................................................................11
(f) Counterparts......................................................................................12
(g) Notices...........................................................................................12
(h) Governing Law; Consent to Jurisdiction............................................................13
(i) Mutual Waiver of Jury Trial.......................................................................13
</TABLE>
i
<PAGE>
EQUITY RIGHTS AGREEMENT
dated as of December 19, 1996,
between USS HOLDINGS, INC.,
a Delaware corporation (the
"Company"), and THE
INVESTORS LISTED ON SCHEDULE
I HERETO (the "Investors").
Simultaneously with the execution and delivery of this Agreement, (a)
the Investors and Chase Manhattan Capital Corporation, a New York corporation
("CMCC"), are entering into a Stock and Note Purchase Agreement (the "Purchase
Agreement"), pursuant to which, among other things, the Investors are purchasing
from CMCC (i) $15,231,177 in aggregate principal amount of 15% Senior
Subordinated Notes due February 9, 2005 (the "Notes"), of U.S. Silica Company, a
Delaware corporation and successor by merger to USS Acquisition, Inc. ("U.S.
Silica"), and (ii) 180,000 shares of Series A Redeemable Preferred Stock, $.0l
par value (the "Series A Preferred Stock"), and 360,000 shares of Series B
Convertible Preferred Stock, $.0l par value (the "Series B Preferred Stock"), of
the Company (all such shares collectively, the "Sale Shares"), and (b) the
Company and the Investors are entering into a Warrant Issuance Agreement (the
"Warrant Agreement") pursuant to which the Company is issuing to the Investors
warrants (the "Warrants") to purchase up to 41,667 shares of Series A Preferred
Stock and 83,334 shares of Series B Preferred Stock (all such shares
collectively, the "Warrant Shares"). The parties are entering into this
Agreement in connection with the Purchase Agreement and the warrant Agreement.
ACCORDINGLY, in consideration of the foregoing and the representations,
warranties, covenants and agreements of the parties contained in this Agreement
and in the Purchase Agreement, the parties agree as follows:
1. Definitions; Rules of Construction. (a) Definitions.
---------------------------------- -----------
Capitalized terms used in this Agreement have the meanings ascribed to them
below:
"Affiliate" means, as to any Person, any other Person that, directly or
---------
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person; provided, however, that for
-------- -------
purposes of this definition, the term "control" (including the terms
"controlling," "controlled by" and "under common control with") of a Person
means the possession, direct or indirect, of the power to vote 5% or more of the
Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of Voting
Stock, by contract or otherwise.
"Applicable Law" means all provisions of laws, statutes, ordinances,
--------------
rules, regulations, permits, certificates, writs, decrees or orders of any
Governmental Authority applicable to (a) the Person in question or any of its
assets or property or (b) the transaction or event in question.
"Board" and "Board of Directors," unless otherwise specified, means the
-----
Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or a day for
------------
which banks are authorized or required to he closed in New York, New York.
<PAGE>
"Common Stock" means, collectively, all of the Common Stock, $.0l par
------------
value, of the Company of any class, including the Company's Class A Common Stock
and Class B Common Stock and any other class of capital stock of the Company
hereafter authorized that is not limited to a fixed sum or percentage of par or
stated value with respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"Common Stock Equivalent" means one share of Common Stock or the right
-----------------------
to acquire, whether or not such right is immediately exercisable, one share of
Common Stock, whether evidenced by an option, warrant, convertible security or
other instrument or agreement.
"Company" has the meaning ascribed to it in the caption of this
-------
Agreement.
"Common Equity Value" means, as of the date of determination, the most
-------------------
probable value that would be paid for all of the Common Stock Equivalents of the
Corporation on a going concern basis in a single arm's-length transaction
between a willing buyer and a willing seller, without regard to lack of
liquidity of the Company's Securities and without any discount for the lack of
control of the Company exercisable by any Investor, using valuation techniques
then prevailing in the securities industry and assuming full disclosure of all
relevant information and reasonably sufficient time for effectuating such sale
in a competitive and open market under all conditions requisite to a fair sale,
the buyer and the seller each acting prudently and knowledgeably, and assuming
the price is not affected by undue stimulus. Implicit in this definition is the
consummation of a sale and the passing of title from the seller to the buyer
under conditions whereby (1) the buyer and the seller are typically motivated,
(2) both parties are well informed or well advised and acting in what they
consider their own best interests, (3) a reasonable amount of time is allowed
for exposure in the open market, (4) payment is made in terms of cash in U.S.
dollars or in terms of financial arrangements comparable thereto, and (5) the
price represents the normal consideration for the Common Stock Equivalents
unaffected by special or creative financing or sales concessions granted by
anyone associated with the sale.
"Common Equity Value Per Share" means the quotient of (a) the sum of
-----------------------------
(i) the Common Equity Value plus (ii) the aggregate consideration that would be
received by the Corporation if all outstanding Common Stock Equivalents (without
regard to any restrictions on the conversion, exercise or exchange thereof) that
are "in the money" (i.e., those having a conversion, exercise or exchange price
per share of Common Stock equal to or lesser than the quotient of (1) the Common
Equity value divided by (2) the total number of shares of Common Stock
outstanding) were converted, exercised and exchanged for Common Stock, divided
by (b) the total number of shares of Common Stock outstanding after giving pro
forma effect to all such conversions, exercises and exchanges of the outstanding
Common Stock Equivalents described in clause (a)(ii) above. When calculated with
respect to a Security that is directly or indirectly convertible into, or
exercisable or exchangeable for, Common Stock, the "Common Equity Value Per
Share" of such Security shall be an amount equal to the Common Equity Value Per
Share calculated pursuant to the immediately preceding sentence times the number
of Common Stock Equivalents represented by such Security.
"Fair Value Per Share" means, with respect to a share of Series B
--------------------
Preferred Stock, an amount equal to the Common Equity Value Per Share for such
share as determined in good faith
<PAGE>
by the Board (including a majority of the disinterested members of the Board),
which determination shall be delivered to the Investors in writing; provided,
however, that if the Requisite Investors object to such determination by the
Board within 15 Business Days after delivery of such written determination to
the investors, then the Company and the Requisite Investors shall in good faith
attempt to resolve their differences with respect to, and to agree on, the Fair
Value Per Share. If the Company and the Requisite Investors are unable to reach
agreement on the Fair Value Per Share within 15 Business Days after the
Requisite Investors' delivery to the Company of the Requisite Investors' written
objection to the Board's initial determination of the Fair Value Per Share, then
the Fair Value Per Share shall be determined by an investment banking firm of
national recognition, which firm shall be reasonably acceptable to the Company
and the Requisite Investors. If the Company and the Requisite Investors are
unable to agree upon an acceptable investment banking firm within 10 Business
Days after the date either party proposed that one be selected, the investment
banking firm will be selected by an arbitrator located in the City of New York,
New York, selected by the American Arbitration Association (or if such
organization ceases to exist, the arbitrator shall be chosen by a court of
competent jurisdiction). The arbitrator shall select the investment banking firm
(within ten (10) days of his appointment) from a list, jointly prepared by the
Company and the Requisite Investors, of not more than six investment banking
firms of national standing in the United States, of which no more than three may
be named by the Company and no more than three may be named by the Requisite
Investors. The arbitrator may consider, within the ten-day period allotted,
arguments from the parties regarding which investment banking firm to choose,
but the selection by the arbitrator shall be made in its sole discretion from
the list of six. The Company and the Requisite Investors shall submit to the
investment banking firm their respective calculations of the Fair Value Per
Share, and any supporting arguments and other data as they may desire, within 10
Business Days of the appointment of the investment banking firm, and the
investment banking firm shall as soon as practicable thereafter make its own
calculation of the Fair Value Per Share. The determination of the Fair Value Per
Share by such investment banking firm shall be final and binding upon the
parties. The Company shall pay the fees and expenses of the investment banking
firm and arbitrator (if any) used to determine the Fair Value Per Share. "Fair
Value Per Share" means, with respect to a share of Series A Preferred Stock, an
amount equal to the Series A Liquidation Preference (as defined in the Amended
and Restated Certificate of Incorporation of the Company); provided, however,
-------- -------
that Fair Value Per Share of a share of Series A Preferred Stock shall not
exceed the amount that would be distributed in respect thereof upon a
Liquidation.
"GAAP" means generally accepted accounting principles in the United
----
States, consistently applied.
"Governmental Authority" means any domestic or foreign government or
----------------------
political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"Investors" has the meaning given to it in the caption of this
---------
Agreement.
"Liquidation" mean any voluntary or involuntary dissolution,
-----------
liquidation and winding up of the business and affairs of the Company.
<PAGE>
"Liquidity Event" means any Sale of the Company, Public Offering or
---------------
Liquidation.
"Material Adverse Effect" means a material adverse effect on the
-----------------------
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or
any of its Subsidiaries.
"Note Purchase Agreement" means the Note Purchase Agreement dated as of
-----------------------
February 9, 1996, among USS Acquisition, Inc., and the investors named therein
relating to the original issuance and sale of the Notes.
"Notes" has the meaning ascribed to it in the Preamble.
-----
"Person" shall be construed as broadly as possible and shall include an
------
individual or natural person, a partnership (including a limited liability
partnership), a corporation, an association, a joint stock, company, a limited
liability company, a trust, a joint venture, an unincorporated organization and
a Governmental Authority.
"Public Offering" means the closing of a public offering of Common
---------------
Stock pursuant to a registration statement declared effective under the
Securities Act, except, that a Public Offering shall not include an offering
made in connection with a business acquisition or an employee benefit plan.
"Purchase Agreement" has the meaning ascribed to it in the Preamble.
------------------
"Qualified Public Offering" has the meaning ascribed to it in the
-------------------------
Stockholders Agreement.
"Requisite Investors" means Investors that hold more than 50% of the
-------------------
outstanding shares of Series B Preferred Stock included in the Shares, with any
shares of Series B Preferred Stock constituting unissued Warrant Shares being
deemed to be outstanding and held by the holders of the Warrants.
"Sale of the Company" means the sale to a third party who is not an
-------------------
Affiliate of the Company of outstanding equity securities of the Company
(whether directly or by way of merger, consolidation or other reorganization) in
a transaction in which the Investors have the right to sell all the Shares.
"Sale Shares" has the meaning given to it in the first paragraph of
-----------
this Agreement and includes any and all shares of capital stock of the Company
issued on or with respect to such Sale Shares by way of a stock dividend or
stock split, or by way of a conversion or exchange of such Sale Shares in
accordance with their respective terms.
"Securities" means, with respect to any Person, such Person's
----------
"securities" as defined in Section 2(l) of the Securities Act of 1933, as
amended, and includes such Person's capital stock or other equity interests or
any options, warrants or other securities that are directly or indirectly
convertible into, or exercisable or exchangeable for, such Person's capital
stock or other equity or equity-linked interests, including phantom stock and
stock appreciation rights.
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Securities and
Exchange Commission thereunder, all as the same shall be in effect from time to
time.
"Securities and Exchange Commission" means the Securities and Exchange
----------------------------------
Commission or any Governmental Authority succeeding to the functions thereof.
"Shares" means, collectively, the Sale Shares and the Warrant Shares.
------
"Stockholders Agreement" means the Stockholders Agreement dated as of
----------------------
February 9, 1996, as amended, between the Company and its stockholders named
therein.
"Subsidiary" of any Person, means any corporation, partnership, joint
----------
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such limited
liability company, partnership or joint venture or (c) the beneficial interest
in such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Voting Stock" means capital stock issued by a corporation, or
------------
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or Persons performing similar functions) of such Person, even if such right to
vote has been suspended by the happening of such contingency.
"Warrant Agreement" has the meaning ascribed to it in the preamble to
-----------------
this Agreement.
"Warrants" has the meaning ascribed to it in the preamble of this
--------
Agreement.
"Warrant Shares" has the meaning given to it in the preamble of this
--------------
Agreement and includes any and all shares of capital stock of the Company issued
upon the exercise, conversion or exchange of the Warrants in accordance with its
terms and any and all other shares of capital stock of the Company issued on or
with respect to such Warrant Shares by way of a stock dividend or stock split, a
reorganization or by way of the conversion or exchange of such Warrant Shares in
accordance with their respective terms.
(b) Rules of Construction. The use in this Agreement of the
---------------
term "including" means "including, without limitation." The words "herein,"
"hereof," "hereunder" and other words of similar import refer to this Agreement
as a whole, including the schedules and exhibits, as the same may from time to
time be amended, modified, supplemented or restated, and not to any particular
section, subsection, paragraph, subparagraph or clause contained in this
Agreement. All references to sections, schedules and exhibits mean the sections
of this Agreement and the schedules and exhibits attached to this Agreement,
except where otherwise stated. The title of and the section and paragraph
headings in this Agreement are for convenience of reference only and shall not
govern or affect the interpretation of any of the terms or provisions of this
Agreement. The use herein of the masculine, feminine or neuter form shall
<PAGE>
also denote the other forms, as in each case the context may require. The
language used in this Agreement has been chosen by the parties to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
2. Covenants; Observation Rights.
-----------------------------
(a) Transactions with Affiliates. The Company shall not, and
----------------------------
the Company shall cause its Subsidiaries not to, without the prior written
consent of the Requisite Investors, enter into any transaction with any
Affiliate of the Company on terms less favorable to the Company or such
Subsidiary than would have been obtainable in a comparable arm's-length
transaction with an unrelated third party; provided, however, that the Company
-------- -------
or any of its wholly-owned Subsidiaries may, without the prior written consent
of the Requisite Investors hereunder, enter into transactions with the Company
and any of its wholly-owned Subsidiaries.
(b) Observer Rights. (i) The Investors (together with their
---------------
permitted transferees) shall have the right to have one individual (the
"Observer"), who shall be designated from time to time by the Requisite
Investors in a writing delivered to the Company, present at all
meetings of the Board of Directors. The Company will give the Observer
reasonable prior notice (it being agreed that the same prior notice
given to the Board of Directors shall be deemed reasonable prior
notice) in any manner permitted in the Company's By-laws for notices to
directors of the time and place of any proposed meeting of the Board of
Directors, such notice in all cases to include true and complete copies
of all documents furnished to the Board of Directors in connection with
such meeting. The Observer will be entitled to be present in person as
an observer at any such meeting or, if a meeting is held by telephone
conference, to participate therein by telephone for the purpose of
listening thereto. The Company will promptly deliver to the Observer
from time to time copies of all written consents executed by the Board
of Directors.
(ii) The Investors acknowledge and agree that all
material, non-public information delivered or made available to the
Investors (including its directors, officers, employees, agents and
representatives) and the Observer under, pursuant to or in connection
with this Agreement shall be subject to the provisions of Section 14.11
of the Note Purchase Agreement as if such information were disclosed
thereunder, and the Investors shall, and shall cause the Observer to,
comply with the provisions of said section with respect to such
information; provided, however, that if the Observer is an officer,
employee or other agent of any Investor, such Investor shall be solely
responsible for any breach thereof by the Observer.
3. Investor Put Rights. (a) Put Notice. Subject to the terms
------------------- ----------
and conditions of this Section 3, at any time after the fifth anniversary of the
date hereof and prior to a Liquidity Event, the Requisite Investors may elect to
require the Company to purchase all (but not less than all) of the outstanding
Shares held by the Investors at a price per Share equal to the applicable Fair
Value Per Share (determined as of the date the Put Notice is delivered) by
giving written notice to the Company of such election (the "Put Notice"),
----------
whereupon Company shall be obligated to purchase, and the Investors
shall be obligated to sell, the Shares, subject to the following conditions:
<PAGE>
(i) the Company shall use its best efforts to obtain
all consents, approvals and waivers from third parties (including the
stockholders of the Company) that may be necessary in order to permit
the Company to purchase the Warrant Shares, and in the event that the
Company cannot, after using such best efforts, obtain any such consent,
approval or waiver that is required for the Company to purchase any
Warrant Shares, the Company shall be relieved from its obligation
hereunder to purchase such warrant Shares;
(ii) the Company shall use its commercially
reasonable efforts to obtain all consents, approval, and waivers from
third parties (including the stockholders of the Company) that may be
necessary in order to permit the Company to purchase the Sale Shares,
and in the event that the Company cannot after using such commercially
reasonable efforts obtain any such consent, approval or waiver that is
required for the Company to purchase any Sale Shares, the Company shall
be relieved from its obligation hereunder to purchase such Sale Shares;
(iii) in the event the Company shall not have
sufficient funds on hand to purchase all of the warrant Shares, the
Company shall use its best efforts to obtain such funds from third
party financing sources on reasonable and customary terms to pay in
full in cash the aggregate purchase price required to be paid for the
Warrant Shares pursuant to this Section 3, and if, after using such
best efforts, the Company cannot obtain such funds to purchase all of
the Warrant Shares, the Company shall be obligated hereunder to
purchase, on a pro rata basis from all Investors in proportion to their
holdings of Warrant Shares, only those Warrant Shares that the Company
is able to purchase out of funds on hand and obtained from third party
financing sources, if any;
(iv) in the event the Company shall not have
sufficient funds on hand to purchase all of the Sale Shares, the
Company shall use its commercially reasonable efforts to obtain such
funds from third party financing sources on reasonable and customary
terms to pay in full in cash the aggregate purchase price required to
be paid for the Sale Shares pursuant to this Section 3, and if, after
using such commercially reasonable efforts, the Company cannot obtain
such funds to purchase all of the Sale Shares, the Company shall be
obligated hereunder to purchase, on a pro rata basis from all Investors
in proportion to their holdings of Sale Shares, only those Sale Shares
that the Company is able to purchase out of funds on hand and obtained
from third party financing sources, if any;
(v) in the event that the Company is prohibited or
restricted by Applicable Law from purchasing any Warrant Shares or Sale
Shares, the Company's obligation to purchase such shares hereunder
shall be suspended until such time as the Company is no longer subject
to any such prohibition or restriction and any such purchase permitted
to be made shall first be made of Warrant Shares on a pro rata basis;
(vi) in the event that the Board determines in good
faith that the Company's performance of its obligations under this
Section 3 could reasonably be expected to have a Material Adverse
Effect, the Company may postpone the Put Closing
<PAGE>
for such period as the Board may in good faith determine in order to
avoid such Material Adverse Effect; and
(vii) in the event that the Requisite Investors have
delivered a Put Notice to the Company and the Company has given the
Investors written notice prior to 30 days following final determination
of the Fair Value Per Share of the Series B Preferred Stock that the
Company has fixed plans to engage in, or is otherwise attempting to
engage in, a Liquidity Event, then the Company shall not be obligated
to purchase such Shares pursuant to this Section 3 unless and until
such Liquidity Event is abandoned.
(b) Put Closing. Subject to conditions set forth in Section
-----------
3(a), the closing (the "Put Closing") of the Company's purchase of Shares from
-----------
the Investors pursuant to Section 3(a) shall take place on such date (the "Put
---
Closing Date") as shall be determined by the Company, but in any event not
- ------------
earlier than 10 days and not later than 90 days after the later of (x) the date
on which the final determination of the Fair Value Per Share of the Shares being
repurchased is made and (y) the date on which all of the conditions set forth in
Section 3(a) have been satisfied. The Put Closing shall take place at the
Company's principal executive office or place of business or the office in New
York City of the Company's attorneys. The Company shall send written notice of
the Put Closing (the "Put Closing Notice") to the Investors. The Put Closing
------------------
Notice shall specify the Put Closing Date and the location of the Put Closing.
At the Put Closing, the Company shall pay to each Investor, against the
Company's receipt from such Investor of the certificate or certificates
representing the Shares being repurchased from such Investor duly endorsed or
accompanied by duly executed stock powers and other instruments of transfer
necessary to transfer said Shares to the Company free and clear of all liens,
pledges, encumbrances and other adverse claims, an amount equal to the aggregate
purchase price for all such Shares, by wire transfer of immediately available
funds, or if such investor shall not have specified wire transfer instructions
to the Company prior to the Put Closing Date, by certified or official bank
check made payable to the order of such Investor.
4. Company Call Rights. (a) Call Notice. Subject to the terms
------------------- -----------
and conditions of this Section 4, at any time and from time to time after the
sixth anniversary of the date hereof, the Company may elect to purchase all (but
not less than all) of the unexercised Warrants and the Shares held by the
Investors at a price per share equal to the applicable Fair Value Per Share
(determined as of the date the Call Notice is given) of such Warrants
(determined based upon the Fair Value Per Share of the shares issuable upon
exercise of such Warrants less the price payable upon exercise thereof) or
Shares by giving written notice to the Investors of such election (the "Call
----
Notice"), whereupon the Company shall be obligated to purchase, and the
- ------
Investors shall be obligated to sell, such Warrants and Shares; provided,
--------
however, that the Company may at any time prior to 10 days prior to the Call
- -------
Closing Date (as defined below) terminate or abandon its purchase of such
Warrants and Shares hereunder by delivering written notice thereof to the
Investors and paying, or reimbursing the Investors for, the reasonable out-of-
pocket fees and expenses incurred by the Investors in connection with the
determination of Fair Value Per Share as a result of the Company's exercise of
such call rights hereunder (and in the event of any such termination or
abandonment, the provisions of this Section 4 shall thereafter remain and
continue in effect in accordance with their respective terms).
<PAGE>
(b) Call Closing. Subject to conditions set forth in Section
------------
4(a), the closing (the "Call Closing") of the Company's purchase of Warrants and
------------
Shares from the Investors pursuant to Section 4(a) shall take place on such date
(the "Call Closing Date") as shall be determined by the Company, but in any
-----------------
event not earlier than 10 days and not later than 90 days after the date on
which the final determination of the Fair Value Per Share of the Warrants and
Shares being repurchased is made. The Call Closing shall take place at the
Company's principal executive office or place of business or the office in New
York City of the Company's attorneys. The Company shall send written notice of
the Call Closing (the "Call Closing Notice") to the Investors. The Call Closing
-------------------
Notice shall specify the Call Closing Date and the location of the Call Closing.
At the Call Closing, the Company shall pay to each Investor, against the
Company's receipt from such Investor of the certificate or certificates
representing the Warrants and Shares being purchased from such Investor duly
endorsed or accompanied by duly executed stock powers and other instruments of
transfer necessary to transfer such Warrants and Shares to the Company free and
clear of all liens, pledges, encumbrances and other adverse claims, an amount
equal to the aggregate purchase price for all such Warrants and Shares, by wire
transfer of immediately available funds, or if such Investor shall not have
specified wire transfer instructions to the Company prior to the Call Closing
Date, by certified or official bank check made payable to the order of such
Investor.
(c) Adjustment of Fair Value Per Share. (i) If a Liquidity
----------------------------------
Event occurs at any time during the first six months following the Call
Closing and the price of a share of Series B Preferred Stock resulting
from such Liquidity Event exceeds the per share purchase price paid by
the Company for shares of Series B Preferred Stock at the Call Closing,
then the Company shall pay each Investor an amount equal to the product
of (A) the amount by which the price of a share of Series B Preferred
Stock resulting from such Liquidity Event exceeds the per share
purchase price paid by the Company for shares of Series B Preferred
Stock at the Call Closing multiplied by (B) the number of Shares of
Series B Preferred Stock purchased by the Company from such Investor at
the Call Closing (including shares of Series B Preferred Stock issuable
upon exercise of unexercised Warrants so purchased). Such payment shall
be made to such Investor within 15 Business Days after the consummation
of such Liquidity Event in the same manner as the payment of the
purchase price at the Call Closing.
(ii) If a Liquidity Event occurs at any time during
the second six months following the Call Closing and the price of a
share of Series B Preferred Stock resulting from such Liquidity Event
exceeds the per share purchase price paid by the Company at the Call
Closing, then the Company shall pay each Investor an amount equal to
50% of the product of (A) the amount by which the price of a share of
Series B Preferred Stock resulting from such Liquidity Event exceeds
the per share purchase price paid by the Company for shares of Series B
Preferred Stock at the Call Closing multiplied by (B) the number of
Shares of Series B Preferred Stock purchased by the Company from such
Investor at the Call Closing (including shares of Series B Preferred
Stock issuable upon exercise of unexercised Warrants so purchased).
Such payment shall be made to such Investor within 15 Business Days
after the consummation of such Liquidity Event in the same manner as
the payment of the purchase price at the Call Closing.
<PAGE>
5. Miscellaneous. (a) Amendment and Waiver. The provisions of
------------- --------------------
this Agreement may only be amended in writing signed by the Company and the
Investors, and may only be waived in writing by the party to be charged with
such waiver.
(b) Duration; Termination. The provisions of this Agreement
---------------------
shall terminate upon the first to occur of (A) a Liquidation, (B) a Sale of the
Company, (C) the written approval of such termination by the Company and the
Investors, and (D) the consummation of a Qualified Public Offering.
(c) Severability. It is the desire and intent of the parties
------------
hereto that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
(d) Entire Agreement. This Agreement embodies the entire
-------------
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersedes and preempts any and all prior and contemporaneous
understandings, agreements, arrangements or representations by or among the
parties, written or oral, which may relate to the subject matter hereof in any
way.
(e) Successors and Assigns. (i) Except as otherwise provided
----------------------
herein, this Agreement will bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns and the
Investors and their respective successors and permitted assigns, so
long as each such Person holds Warrants or Shares. Any Investor may
assign and delegate any of its rights and obligations hereunder to any
Permitted Transferees of Warrants or Shares as defined in, and pursuant
to the provisions of the Stockholders Agreement dated as of February 9,
1996, as amended, without the prior written consent of any other party
hereto. None of the provisions hereof shall create, or be construed or
deemed to create, any third party beneficiaries.
(ii) References in this Agreement to an "Investor"
shall mean, collectively, an Investor named herein and the permitted
transferees of Warrants or Shares held by the Investor who have
executed and delivered to the Company a joinder agreement in form and
substance reasonably acceptable to such permitted transferee and the
Company pursuant to which such permitted transferee shall have agreed
to be bound and to comply with the provisions of this Agreement as if
such permitted transferee were an Investor named herein. Whenever any
agreement, consent, approval or waiver of the Investors is required or
requested hereunder, then, unless otherwise expressly provided,
<PAGE>
such agreement, consent, approval or waiver shall be deemed to have
been duly given if in a writing signed by the Requisite Investors.
(f) Counterparts. This Agreement may be executed in any number
------------
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
(g) Notices. All notices and other communications which are
-------
required or otherwise delivered hereunder shall be deemed to be sufficient and
duly given if contained in a written instrument (a) personally delivered or sent
by telecopier, (b) sent by nationally recognized overnight courier guaranteeing
next Business Day delivery or (c) sent by first class registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
(i) if to the Issuer or any Subsidiary to:
USS Holdings, Inc.
c/o D. George Harris & Associates, Inc.
399 Park Avenue
32nd Floor
New York, New York 10022
Telephone: (212) 207-6400
Telecopy: (212) 207-6470
Attention: Donald C. Kilpatrick, Esq.;
(ii) with a copy to;
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Telephone: 212-858-1000
Telecopy: 212-858-1500
Attention: Kenneth E. Adelsberg, Esq.; and
(iii) if to any Investor to the address of such
Investor set forth on Schedule I:
(iv) with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Telephone: 212-408-2400
Telecopy: 212-408-2420
Attention: Frederick M. Bachman, Esq.
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (i) when delivered, if
personally delivered or sent by telecopier,
<PAGE>
(ii) on the first Business Day after dispatch, if sent by nationally recognized,
overnight courier guaranteeing next Business Day delivery and (iii) on the third
Business Day following the date on which the piece of mail containing such
communication is posted, if sent by mail.
(h) Governing Law; Consent to Jurisdiction. (i) All questions
--------------------------------------
concerning the construction, interpretation and validity of this
Agreement shall be governed by and construed and enforced in accordance
with the domestic laws of the State of New York, without giving effect
to any choice of law or conflict of laws provision or rule (whether in
the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New
York. in furtherance of the foregoing, the internal law of the State of
New York will control the interpretation and construction of this
Agreement, even if under such jurisdiction's choice of law or conflict
of laws analysis, the substantive law of some other jurisdiction would
ordinarily apply.
(ii) The jurisdiction and venue in any action brought
by any party hereto pursuant to this Agreement shall exclusively lie in
any federal or state court located in the City of New York, New York.
The parties further agree that such exclusive jurisdiction and venue
shall lie exclusively with such federal courts if federal rules of
jurisdiction permit such federal court to hear such action. By
execution and delivery of this Agreement, each party hereto irrevocably
submits to the jurisdiction of such courts for himself or itself and in
respect of his or its property with respect to such action. The parties
irrevocably agree that venue would be proper in any such court, and
hereby waive any objection that any such court is an improper or
inconvenient forum for the resolution of such action. The parties
further agree that the mailing by certified or registered mail, return
receipt requested, of any process required by any such court shall
constitute valid and lawful service of process against them, without
necessity for service by any other means provided by statute or rule of
court. The parties agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other
jurisdiction by suit on the judgment or in any other manner provided by
Applicable Law.
(i) Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN
---------------------------
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM, THE PARTIES
HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING
BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY
DOCUMENTS RELATED HERETO.
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Equity
Rights Agreement as of the date first written above.
USS HOLDINGS, INC.
By: /s/ Donald G. Kilpatrick
---------------------------------
Name: Donald G. Kilpatrick
Title: Vice President
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Mark A. Ahmed
---------------------------------
Name: Mark A. Ahmed
Title: Managing Director
MASSMUTUAL PARTICIPATION INVESTORS
By: /s/
---------------------------------
Name:
Title: Investment Officer
MASSMUTUAL CORPORATE INVESTORS
By: /s/
----------------------------------
Name:
Title: Investment Officer
MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED
By: Massachusetts Mutual Life Insurance Company,
investment manager
By: /s/ Mark A. Ahmed
---------------------------------
Name: Mark A. Ahmed
Title: Managing Director
CHASE VENTURE CAPITAL
ASSOCIATES, L.P.
By: Chase Capital Partners,
its general partner
By: /s/ Jeffrey C. Walker
----------------------------------
Name: Jeffrey C. Walker
Title: General Partner
<PAGE>
Schedule I
----------
Investors
---------
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY - 1
1295 State Street
Springfield, MA 01111
Attn.: Securities Investment Division
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY - 2
129S State Street
Springfield, MA 01111
Attn.: Securities Investment Division
MASSMUTUAL PARTICIPATION INVESTORS
c/o MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
1295 State Street
Springfield, MA 01111
Attn.: Securities Investment Division
MASSMUTUAL CORPORATE INVESTORS
c/o MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
1295 State Street
Springfield, MA 01111
Attn.: Securities Investment Division
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
c/o BANK OF AMERICA TRUST AND BANKING
CORPORATION (CAYMAN) LIMITED
P.O. Box 1092
George Town
Grand Cayman
Cayman Islands, B.W.I.
Attention: Michael Carney
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
380 Madison Avenue
12th Floor
New York, New York 10017-2070
Attention: Richard D. Waters
<PAGE>
EXHIBIT 12.1
BETTER MINERALS & AGGREGATES COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Predecessor(a) Successor
----------------------------------- ----------------------------------------------------------------
January 1 February 10
through through
February 9 December 31
1995 1996 1996 1997 1998 1999
-------------------- ------------- --------------- ----------------- ---------------- ----------
Earnings
- --------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes.......... $11,415 $517 $(3,621) $(1,961) $(16,871) $ 1,032
Fixed charges.......... 252 21 10,143 10,578 10,401 19,870
-----------------------------------------------------------------------------------------------------
Total earnings......... $11,667 $538 $ 6,522 $ 8,617 $ (6,470) $20,902
=====================================================================================================
Fixed Charges
- -------------
Interest expense....... $ 162 $13 $10,074 $10,513 $ 10,269 $19,590
Estimated interest in 90 8 69 65 132 280
rental expense........
-----------------------------------------------------------------------------------------------------
Total fixed charges.... $ 252 $21 $10,143 $10,578 $10,401 $19,870
=====================================================================================================
Ratio of Earnings to
Fixed Charges......... 46.3 25.6 (b) (b) (b) 1.1
</TABLE>
(a) Amounts are not comparable to subsequent periods.
(b) Earnings used in computing the ratio of earnings to fixed charges consist of
income (loss) before income taxes plus fixed charges. Fixed charges consist
of interest expense, including amortization of debt issuance costs and
original issue discounts, and a portion of operating lease rental expense
deemed to be representative of the interest factor. Earnings were
insufficient to cover fixed charges by $3.6 million, $2.0 million and $16.9
million for the period from February 10, 1996 to December 31, 1996 and the
years ended December 31, 1997 and 1998, respectively.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to the Registration
Statement on Form S-4 (File Nos. 333-32518 and 333-32518-01 through 333-32518-
14) of Better Minerals & Aggregates Company (formerly USS Intermediate Holdco,
Inc.) of our reports dated March 9, 2000 relating to the financial statements
and financial statement schedule of Better Mineral & Aggregates Company, which
appear in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
April 5, 2000
----------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to the Registration
Statement on Form S-4 (File Nos. 333-32518 and 333-32518-01 through 333-32518-
14) of Better Materials Corporation of our report dated August 25, 1999
relating to the financial statements of Better Materials Corporation, which
appears in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
April 5, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 (File
Nos. 333-32518 and 333-32518-01 through 333-32518-14) of our report dated
September 8, 1999, on our audits of the financial statements and financial
statement schedules of Commercial Stone Co., Inc. and Commercial Aggregates
Transportation & Sales, L.P. We also consent to the references to our firm
under the caption "Experts."
Schneider Downs & Co., Inc.
Pittsburgh, Pennsylvania
April 5, 2000
