SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
U.S. AGGREGATES, INC.
-------------------------------------
(Name of Registrant as Specified in Its Charter)
---------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on the table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: $150,000,000
(5) Total fee paid: $30,000.00
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
U.S. AGGREGATES, INC.
400 SOUTH EL CAMINO REAL, SUITE 500
SAN MATEO, CALIFORNIA 94402
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
AUGUST 21, 2001
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders of U.S.
Aggregates, Inc., a Delaware corporation (the "Company"), will be held on
Tuesday, August 21, 2001, at 9:00 a.m. local time, at 333 Bush Street, 17th
Floor, San Francisco, California 94104 for the following purposes:
1. To approve the sale (the "Transaction") of substantially all of the
assets of SRM Aggregates, Inc., Bradley Stone & Sand, Inc., BHY Ready
Mix, Inc., Mulberry Rock Corporation, Grove Materials Corporation and
Bama Crushed Corporation, each of which are wholly-owned subsidiaries
of the Company, and DeKalb Stone, Inc., a majority owned subsidiary of
the Company ("Sellers"), to Florida Rock Industries, Inc. ("Buyer") in
accordance with the Asset Purchase Agreement between the Company, the
Sellers and Florida Rock Industries, Inc., dated as of July 11, 2001.
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on July 26, 2001
are entitled to notice of and to vote at the meeting and at any continuation or
adjournment thereof.
APPROVAL OF THE TRANSACTION AT THE SPECIAL MEETING IS ASSURED. THE
COMPANY'S LARGEST STOCKHOLDER WHICH OWNS A MAJORITY OF THE SHARES OF THE
COMPANY'S OUTSTANDING COMMON STOCK IS OBLIGATED TO VOTE IN FAVOR OF THE
TRANSACTION AT THE SPECIAL MEETING PURSUANT TO A VOTING AGREEMENT DATED AS OF
JULY 11, 2001 BETWEEN SUCH STOCKHOLDER AND THE BUYER.
The Company intends to mail this notice of special meeting, proxy statement
and proxy on or about August 1, 2001.
By Order of the Board of Directors,
Hobart Richey
Secretary
San Mateo, California
August 1, 2001
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. HOWEVER,
TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO VOTE, SIGN, AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PREPAID
ENVELOPE ENCLOSED FOR THAT PURPOSE.
TABLE OF CONTENTS
SUMMARY TERM SHEET............................................................4
FORWARD-LOOKING STATEMENTS-CAUTIONARY STATEMENTS..............................9
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE PROPOSED ASSET SALE..9
SPECIAL MEETING OF STOCKHOLDERS AUGUST 21, 2001..............................12
PURPOSE.............................................................12
GENERAL.............................................................12
VOTING AND REVOCABILITY OF PROXIES..................................12
SOLICITATION........................................................12
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING.......................13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......13
THE ASSET SALE...............................................................14
THE COMPANY.........................................................15
SIGNIFICANT DEVELOPMENTS IN 2000....................................17
GOVERNMENTAL AND ENVIRONMENTAL REGULATION...........................18
PROPERTIES..........................................................19
LEGAL PROCEEDINGS...................................................20
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED MATTERS..........21
THE SELLERS.........................................................21
BUYER...............................................................22
BACKGROUND OF THE SALE..............................................23
NEGOTIATIONS RELATING TO THE SALE...................................23
REASONS FOR THE SALE................................................24
OPINION OF DEUTSCHE BANC ALEX. BROWN INC............................25
EFFECT OF THE ASSET SALE............................................30
DESCRIPTION OF THE COMPANY FOLLOWING THE TRANSACTION................30
PURCHASED ASSETS....................................................31
PURCHASE PRICE......................................................31
ASSUMPTION OF LIABILITIES...........................................31
REPRESENTATIONS AND WARRANTIES......................................32
COVENANTS...........................................................32
CONDITIONS TO CLOSING...............................................32
VOTING AGREEMENT....................................................32
TERMINATION.........................................................33
INDEMNIFICATION.....................................................33
APPRAISAL RIGHTS....................................................33
ACCOUNTING TREATMENT................................................33
FEDERAL TAX CONSEQUENCES............................................34
GOVERNMENTAL AND REGULATORY APPROVALS...............................34
ESTIMATED CLOSING...................................................34
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RECOMMENDATION OF THE BOARD OF DIRECTORS FOR THE TRANSACTION........34
PRO FORMA FINANCIAL INFORMATION.....................................34
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET......................35
FINANCIAL STATEMENTS................................................41
AVAILABILITY OF 10-K REPORT..................................................42
WHERE YOU CAN FIND MORE INFORMATION..........................................42
OTHER BUSINESS...............................................................42
ANNEX A CERTAIN FINANCIAL STATEMENTS OF THE COMPANY AND ITS WHOLLY-OWNED
SUBSIDIARY SRM HOLDINGS
CORP...............................................................F-1
ANNEX B -ASSET PURCHASE AGREEMENT, DATED AS OF JULY 11, 2001, BY AND
AMONG SRM AGGREGATES, INC., BRADLEY STONE & SAND, INC.,
BHY READY MIX, INC., DEKALB STONE, INC., MULBERRY ROCK
CORPORATION, BAMA CRUSHED CORPORATION, GROVE MATERIALS
CORPORATION, U.S. AGGREGATES, INC., AND FLORIDA ROCK
INDUSTRIES, INC....................................................B-1
ANNEX C -OPINION OF DEUTSCHE BANC ALEX. BROWN
INC................................................................C-1
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SUMMARY TERM SHEET
This section summarizes selected information about the proposed sale,
contained in this proxy statement (the "Transaction"), of substantially all of
the assets of SRM Aggregates, Inc., Bradley Stone & Sand, Inc., BHY Ready Mix,
Inc., Mulberry Rock Corporation, Grove Materials Corporation and Bama Crushed
Corporation, each of which are wholly-owned subsidiaries of the Company, and
DeKalb Stone, Inc., a majority owned subsidiary of the Company ("Sellers"). This
section may not contain all of the information that is important to you. To
understand the Transaction fully, we strongly encourage you to read carefully
this entire proxy statement. We have included a copy of the Asset Purchase
Agreement in this proxy statement as Annex B.
Time, Place and Date of the The special meeting will be held at 9:00 a.m.,
Special Meeting (page 12) local time, August 21, 2001 at 333 Bush Street,
17th Floor, San Francisco, California 94104.
Purpose of Meeting (page 12) We are holding this meeting to approve and adopt
the Asset Purchase Agreement and to transact such
other business as may properly come before the
meeting.
Record Date of Stockholders You are entitled to vote at the special meeting if
Entitled to Vote (page 12) you owned shares of our to Vote common stock at
the close of business on July 26, 2001, the record
date for the special meeting. You will have one
vote for each share of our common stock you owned
on the record date. As of July 26, 2001, there
were 14,900,593 shares of Company common stock
entitled to be voted held by approximately 53
stockholders of record.
Vote Required (page 14) Approval of the Transaction requires the
affirmative vote of the holders of a majority of
our outstanding shares of common stock.
The Company (page 15) U.S. Aggregates, Inc.
400 South El Camino Real, Suite 500
San Mateo, California 94402
U.S. Aggregates, Inc. is a Delaware corporation.
The Company owns all of the outstanding shares of
SRM Holdings Corp. SRM Holdings Corp. owns all of
the outstanding shares of SRM Aggregates, Inc.,
which in turn owns all of the outstanding shares
of Bradley Stone & Sand, Inc., BHY Ready Mix,
Inc., Mulberry Rock Corporation, Bama Crushed
Corporation, and Grove Materials Corporation, and
a majority of the outstanding shares of DeKalb
Stone, Inc. The Company is a leading producer of
aggregates. Aggregates consist of crushed stone,
sand and gravel. The Company's products are used
primarily for construction and maintenance of
highways and other infrastructure projects as well
as for commercial and residential construction.
The Company serves local markets in nine states in
two regions of the United States, the Mountain
states and the Southeast.
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Sellers (page 21) SRM Aggregates, Inc., Bradley Stone & Sand, Inc.,
DeKalb Stone, Inc., Mulberry Rock Corporation,
Bama Crushed Corporation, BHY Ready Mix, Inc. and
Grove Materials Corporation have their principal
executive offices located at:
4200 Colonnade Parkway, Suite 100
Birmingham, Alabama 35243
The Sellers with the exception of BHY Ready Mix,
Inc. are producers of aggregates. The Sellers'
products are used primarily for construction and
maintenance of highways and other infrastructure
projects as well as for commercial and residential
construction. The Sellers serve local markets in
the Southeastern United States.
BHY Ready Mix, Inc. is a producer of concrete for
use in the construction and maintenance of
highways and other infrastructure projects as well
as for commercial and residential construction.
BHY Ready Mix, Inc. operates one ready mix plant
located in Chattanooga, Tennessee, which serves
the local Chattanooga market with 25 trucks.
Buyer (page 22) Florida Rock Industries, Inc.
155 East 21st Street
Jacksonville, Florida 32206-2104
Florida Rock Industries, Inc., is a Florida
corporation. Buyer's common stock is publicly
traded on the New York Stock Exchange. The Buyer
is a leading producer of construction aggregates,
ready-mix concrete, cement, concrete block and
prestressed concrete. The Buyer serves local
markets in the States of Florida, Georgia,
Virginia, Maryland, North Carolina and the
District of Columbia.
Reasons for the Sale In arriving at our determination that the sale is
(page 24) fair to, and in the best interests of, our
constituents, the Board of Directors considered a
number of factors, including, without limitation,
the following:
o reduction of the Company's debt through
repayment of a portion of the outstanding
principal owing under its senior secured
credit facilities;
o the businesses, financial condition,
earnings and recent results of operations of
the Company and the Sellers;
o the amount of purchase price; and
o the opinion of the Company's financial
advisor Deutsche Banc Alex. Brown Inc.
("DBAB") as of July 10, 2001, subject to
matters stated in that opinion, regarding
the consideration to be received by the
Company in the Transaction.
Recommendations of the Board Our Board of Directors has unanimously approved
of Directors (page 24) the Asset Purchase Agreement and has determined
that the terms of the Transaction are
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fair to, and in the best interests of, our
stockholders. Our Board of Directors also
unanimously recommends that you approve the Asset
Purchase Agreement and the Transaction.
The Asset Purchase Agreement is attached as Annex
B to this proxy statement. We encourage you to
read the Asset Purchase Agreement, as it is the
legal document that governs the Transaction.
Management Ownership As of July 26, 2001, our directors and executive
(page 14) officers beneficially owned and have the right to
vote, in the aggregate, 8,309,203 shares of our
outstanding common stock, representing an
aggregate of approximately 55.8% of our
outstanding shares.
Assured Approval of As of the close of business on July 26, 2001,
Transaction (page 32) Golder, Thoma, Cressey, Rauner Fund IV L.P.
("GTCR") owned approximately 7,824,997 shares of
the Company's common stock, or 52.5% of the total
currently outstanding shares. UNDER THE TERMS OF A
VOTING AGREEMENT DATED AS OF JULY 11, 2001,
BETWEEN GTCR AND BUYER, GTCR IS OBLIGATED TO VOTE
IN FAVOR OF THE TRANSACTION AT THE SPECIAL
MEETING. BECAUSE GTCR OWNS A MAJORITY OF THE TOTAL
CURRENTLY OUTSTANDING SHARES OF THE COMPANY,
APPROVAL OF THE TRANSACTION AT THE SPECIAL MEETING
IS ASSURED.
Opinion of Financial Advisor In connection with the sale of certain assets of
(page 25) the Sellers to Buyer, the Company's Board of
Directors received an opinion from DBAB, its
financial advisor. THE OPINION OF DBAB IS DIRECTED
TO THE BOARD OF DIRECTORS OF THE COMPANY AND IS
NOT A RECOMMENDATION TO STOCKHOLDERS WITH RESPECT
TO ANY MATTER RELATING TO THE TRANSACTION.
The Company received an oral opinion from DBAB on
July 10, 2001, confirmed subsequently by a written
opinion on July 11, 2001, to the effect that, as
of that date and subject to the matters stated in
that opinion, the consideration to be received by
the Company pursuant to the proposed Transaction
was fair from a financial point of view to the
Company. We have included this opinion in this
proxy statement as Annex C. THE COMPANY URGES ITS
STOCKHOLDERS TO READ THE OPINION OF DBAB IN ITS
ENTIRETY.
Effect of the Sale Upon completion of the sale, the Company intends
(page 30) to apply the net proceeds of the sale after
deducting Transaction expenses as follows:
o partial repayment of the Company's senior
secured credit facilities;
o depending on the result of negotiations with
the lenders of its senior secured credit
facilities, working capital; and
o depending on the result of negotiations with
the lenders of its senior secured credit
facilities, paying taxes that will be owed
as a result of the sale, if any.
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Future Operations The Company's ability to continue as a going
(page 30) concern is dependent upon a number of factors,
none of which are assured. These include, among
others:
o consummation of the Transaction;
o reaching an agreement with the lenders under
its senior secured credit facilities
regarding the allocation of the proceeds to
be received upon consummation of the
Transaciton;
o achieving sufficient profitable operations;
and
o refinancing or restructuring of the
Company's remaining debt.
See "Description of the Company Following the
Transaction" at page 30.
Purchased Assets (page 31) Buyer is purchasing substantially all of the
assets of the Sellers.
Assumption of Liabilities As of the Closing of the Transaction, the Buyer
(page 31) will assume certain liabilities of the Sellers
relating to the assets purchased by Buyer.
Purchase Price (page 31) The aggregate purchase price to be received by the
Sellers on the Closing will be equal to
$150,000,000. The purchase price will be paid in
cash less approximately $42,000,000 to cover
certain liabilities assumed by Buyer or the
payment of such liabilities, and less $15,000,000
to be placed in an escrow account, to be released
upon the receipt of certain third-party waivers.
There is no assurance that such waivers will be
obtained.
Effective Time of the Asset The Transaction will occur promptly following the
Sale (page 32) requisite stockholder approval and the waiver, or
expiration, of any waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
Representations and The Asset Purchase Agreement contains various
Warranties of the Sellers customary representations and warranties made by
(page 32) the Sellers. Such representations and warranties
include, without limitation, the solvency of the
Sellers following the transaction, authorization,
organization and corporate power, absence of
conflicts, financial statements, absence of
certain developments, real property, title to
personal property, equipment leases, taxes,
contracts, intellectual property, litigation,
licenses and permits, employees, affiliated
transactions, compliance with laws, environmental
and the absence of undisclosed liabilities.
Representations and The Asset Purchase Agreement contains various
Warranties of the Buyer customary representations and warranties made by
(page 32) Buyer. Such representations and warranties include
the authority of the Buyer, corporate power and
organization, absence of conflicts and the absence
of litigation.
Conditions to Consummation The completion of the Transaction depends upon the
of the Transaction (page 32) satisfaction of a number Transaction of
conditions, including, among other things:
o approval of the Asset Purchase Agreement by
the stockholders of the Company holding not
less than the majority of the outstanding
shares of common stock, which approval is
assured as a result of the Voting Agreement
dated as of July 11, 2001 between the Buyer
and GTCR;
o accuracy in all material respects of the
representations and warranties contained in
the Asset Purchase Agreement;
o compliance in all material respects with all
agreements and obligations of each of the
Sellers and Buyer that are required to be
complied with before consummation of the
Transaction;
o receipt of all consents and waivers of third
parties that are required
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to be obtained before the consummation of
the Transaction;
o the expiration of any applicable waiting
periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as
amended;
o receipt of legal opinions from counsel to
the Company, Sellers and Buyer as to certain
corporate matters;
o absence of any law or injunction preventing
the Transaction;
o receipt of commitments to issue title
insurance for certain tracts of real
property specified in the Asset Purchase
Agreement; and
o the inspection and testing to Buyer's
satisfaction, in accordance with
specifications set forth in the Asset
Purchase Agreement, of aggregates reserves
at certain quarries being sold to Buyer by
Sellers.
Both the Sellers and Buyer can elect to waive
certain conditions to their own performance.
Appraisal Rights (page 33) The Company is organized under the corporate laws
of the State of Delaware. Delaware law does not
provide for appraisal or other similar rights for
dissenting stockholders in connection with the
Transaction. Accordingly, the Company's
stockholders will have no right to dissent and
obtain payment for their shares.
Federal Tax The Sellers will recognize a taxable gain on the
Consequences (page 34) sale of the assets which will result in corporate
federal tax. However, the Company estimates that
the gain will be largely offset by losses
available to the Company. Consummation of the sale
will not be a taxable event for the stockholders
of the Company.
Termination of the Asset The Sellers and Buyer may mutually agree to
Purchase Agreement (page 33) terminate the Asset Purchase Agreement at any time
before the time the Asset Purchase Sale becomes
effective. The Sellers may terminate the Asset
Purchase Agreement if the Board of Directors of
any Seller determines, based on advice from
counsel, that it is required by law to terminate
the Agreement in order to comply with its
fiduciary duties. In addition, the Buyer or
Sellers may terminate the Asset Purchase Agreement
if specified events occur. These include:
o if the conditions set forth in the Asset
Purchase Agreement have not been satisfied
or waived by October 8, 2001;
o if either party has failed to comply with
any of its obligations or covenants and such
failure has not been waived by the other
party;
o if the Asset Purchase Agreement is deemed to
be unenforceable in any bankruptcy or
similar proceeding in which any of the
Sellers is
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the debtor; or
o if a majority of the Company's stockholders
vote against approval of the Transaction.
Termination Fee; Expense The Asset Purchase Agreement requires the Sellers
Reimbursement (page 33) to pay Buyer a termination fee of 2% of the
Purchase Price plus third-party expenses not to
exceed $500,000, if the Company fails to receive
stockholder approval prior to October 8, 2001, or
if any of the boards of directors of the eight
Sellers terminate the Asset Purchase Agreement
based on advice of its counsel that it is required
by law to do so, and the Company or the Sellers
within 360 days of the termination enter into a
similar transaction to sell to another party the
assets or stock of the Sellers or to sell the
stock or the assets of the Company (as long as the
Sellers remain subsidiaries of the Company).
Regulatory Matters (page 34) The closing of the Transaction by Sellers in
accordance with the terms of the Asset Purchase
Agreement is subject to the filing of a
notification with the Federal Trade Commission and
the Antitrust Division of the U.S. Department of
Justice, the waiver, or expiration, of any waiting
periods in accordance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended,
and the filing of this proxy statement with the
Securities and Exchange Commission.
FORWARD-LOOKING STATEMENTS-CAUTIONARY STATEMENTS
The Company is including the following cautionary statement in this
proxy statement to make applicable and take advantage of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 for any
forward-looking statements made by, or on behalf of, the Company. This proxy
statement contains certain forward-looking statements and information based on
management's belief as well as assumptions made by and information currently
available to management. When used in this proxy statement, the words
"anticipate," "believe," "estimate," "expect," and "intend" and words or phrases
of similar import, as they relate to the Company or Company management, are
intended to identify forward-looking statements. Such statements are subject to
risks, uncertainties and assumptions including, among other matters, future
growth in the construction industry; the ability of U.S. Aggregates to complete
acquisitions and effective integration of acquired companies operations;
successful implementation of strategic business alternatives; and general risks
related to the markets in which U.S. Aggregates operates. Should one or more of
these risks materialize, or should underlying assumptions prove incorrect,
actual results may differ materially from those projected. Additional
information regarding these risk factors and other uncertainties may be found in
the Company's filings with the Securities and Exchange Commission.
QUESTIONS AND ANSWERS ABOUT
THE SPECIAL MEETING AND THE PROPOSED ASSET SALE
The following questions and answers are intended to address briefly
some commonly asked questions regarding the Special Meeting and the Asset
Purchase Agreement between SRM Aggregates, Inc., Bradley Stone & Sand, Inc., BHY
Ready Mix, Inc., Mulberry Rock Corporation, Bama Crushed Corporation, and Grove
Materials Corporation, each wholly owned subsidiaries of the Company, DeKalb
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Stone, Inc., a majority owned subsidiary of the Company ("Sellers"), the Company
and Florida Rock Industries, Inc. ("Buyer"), dated as of July 11, 2001, and the
sale of substantially all of the assets of the Sellers. These questions and
answers may not address all questions that may be important to you as a Company
stockholder. Please refer to the more detailed information contained elsewhere
in this proxy statement and the appendices to this proxy statement.
Q: WHAT PROPOSAL WILL I BE VOTING ON AT THE SPECIAL MEETING?
A: You will be asked to consider and vote upon a proposal to approve
the sale of substantially all of the assets of the Sellers (the
"Transaction"), pursuant to the Asset Purchase Agreement, dated
as of July 11, 2001 between the Company, the Sellers and Florida
Rock Industries, Inc. The Asset Purchase Agreement is attached to
this proxy statement as Annex B.
Q: CAN I STILL SELL MY SHARES?
A: Neither the Transaction nor the Asset Purchase Agreement will
affect your right to sell or otherwise transfer your shares of
the Company's common stock.
Q: IF THE TRANSACTION IS COMPLETED, WHAT WILL THE SELLERS RECEIVE
FOR THE SALE OF SRM AGGREGATES, INC.?
A: If the Transaction is completed, the Sellers will receive
$150,000,000, less approximately $42,000,000 to cover certain
liabilities assumed by Buyer or the payment of such liabilities,
and less $15,000,000 to be placed in an escrow account, to be
released to the Sellers upon the receipt of certain third-party
waivers. There is no assurance that such waivers will be
obtained.
Q: WILL ANY OF THE MONEY RECEIVED FROM THE TRANSACTION BE
DISTRIBUTED TO THE COMPANY'S STOCKHOLDERS?
A: No. The Company intends to use all proceeds received in the
Transaction to repay a portion of its senior secured credit
facilities and depending on the result of negotiations with the
lenders under its senior secured credit facilities, the remainder
will be available for working capital and payment of taxes, if
any.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE TRANSACTION?
A: To approve the Transaction, stockholders holding a majority of
the outstanding shares entitled to vote must affirmatively vote
to approve the Transaction.
Q: WHO IS ENTITLED TO VOTE ON THE TRANSACTION?
A: Only holders of record of the Company's common stock as of the
close of business on July 26, 2001 will be entitled to notice of
and to vote at the special meeting to approve the Transaction.
Beneficial holders as of that date who are not holders of record
will only be allowed to vote in person at the special meeting if
they present a letter signed by the record holder indicating the
number of shares such beneficial holder is entitled to vote.
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Q: IS THE APPROVAL OF THE TRANSACTION BY THE STOCKHOLDERS OF THE
COMPANY AT THE SPECIAL MEETING ASSURED?
A: Yes. As of the close of business on July 26, 2001, Golder, Thoma,
Cressey, Rauner Fund IV L.P. ("GTCR") owned approximately
7,824,997 shares of the Company's common stock, or 52.5% of the
total currently outstanding shares. Under the terms of a Voting
Agreement dated as of July 11, 2001, between GTCR and Buyer, GTCR
is obligated to vote in favor of the Transaction at the Special
Meeting. Because GTCR owns a majority of the total currently
outstanding shares of the Company, approval of the Transaction at
the Special Meeting is assured.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting will be held on August 21, 2001, at 9:00 a.m.
local time, at 333 Bush Street, 17th Floor, San Francisco,
California 94104.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide
instructions on how to vote. You should follow the directions
provided by your broker regarding how to instruct your broker to
vote your shares.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. Just send in a written revocation or a later-dated, signed
proxy card before the special meeting or simply attend the
special meeting and vote in person.
Q: WHAT DO I NEED TO DO NOW?
A: PLEASE VOTE YOUR SHARES AS SOON AS POSSIBLE, SO THAT YOUR SHARES
MAY BE REPRESENTED AT THE SPECIAL MEETING. You may vote by
signing your proxy card and mailing it in the enclosed return
envelope, or you may vote in person at the special meeting.
Because a vote of a majority of the Company's outstanding shares
is required to approve the Transaction, your failure to vote is
the same as your voting against the Transaction.
Q: WHAT ARE CERTAIN U.S. FEDERAL TAX CONSEQUENCES OF THE
TRANSACTION?
A: The sale of substantially all of the assets of Sellers will be a
taxable transaction to the Sellers for United States federal
tax purposes (as well as for state, local and foreign tax
purposes). However, the Company estimates that any federal tax
will be offset by losses available to the Company. The
Transaction will not be a taxable transaction for United States
federal income tax purposes for the Company's stockholders.
Q: WHOM SHOULD I CALL IF I HAVE QUESTIONS?
A: If you have questions about the Transaction or the Asset Purchase
Agreement you may call the Company's Secretary and General
Counsel, Hobart Richey at (724) 772-0065.
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SPECIAL MEETING OF STOCKHOLDERS
AUGUST 21, 2001
PURPOSE
The special meeting will be held at 9:00 a.m. on August 21, 2001 at 333
Bush Street, 17th Floor, San Francisco, California 94104. We are holding the
meeting:
1. To approve the sale of substantially all of the assets of SRM
Aggregates, Inc., Bradley Stone & Sand, Inc., BHY Ready Mix, Inc., Mulberry Rock
Corporation, Grove Materials Corporation and Bama Crushed Corporation, each of
which are wholly-owned subsidiaries of the Company, and DeKalb Stone, Inc., a
majority owned subsidiary of the Company ("Sellers"), to Florida Rock
Industries, Inc. in accordance with the Asset Purchase Agreement between the
Company, the Sellers and Florida Rock Industries, Inc. dated as of July 11,
2001.
2. To transact such other business as may properly come before the
meeting.
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
U.S. Aggregates, Inc., a Delaware corporation (the "Company"), for use at a
special meeting of stockholders (the "Special Meeting") to be held on Tuesday,
August 21, 2001, at 9:00 a.m. local time, at which stockholders of record on
July 26, 2001 will be entitled to vote. On July 26, 2001, the Company had issued
and outstanding 14,900,593 shares of Common Stock, par value $.01 per share. The
special meeting will be held at 333 Bush Street, 17th Floor, San Francisco,
California 94104.
VOTING AND REVOCABILITY OF PROXIES
All properly executed proxies that are not revoked will be voted at the
meeting in accordance with the instructions contained therein. Proxies
containing no instructions regarding the proposals specified in the form of
proxy will be voted FOR approval of all proposals in accordance with the
recommendation of the Company's Board of Directors. Any person giving a proxy in
the form accompanying this statement has the power to revoke such proxy at any
time before its exercise. The proxy may be revoked by filing with the Secretary
of the Company at the Company's principal executive office an instrument of
revocation or a duly executed proxy bearing a later date, or by filing written
notice of revocation with the secretary of the meeting prior to the voting of
the proxy, or by voting the shares subject to the proxy by written ballot.
Broker non-votes and shares held by stockholders present in person or
by proxy at the meeting but abstaining on a vote, will be counted in determining
whether a quorum is present at the Special Meeting. The vote required for the
approval of the sale of assets is described below. For all other proposals,
abstentions by stockholders present in person or by proxy at the meeting are
counted as votes against a proposal for purposes of determining whether or not
the proposal has been approved, whereas broker non-votes are not counted for
purposes of determining whether a proposal has been approved.
Each holder of Common Stock is entitled to one vote for each share of
Common Stock held.
SOLICITATION
The Company will bear the entire cost of solicitation, including
preparation, assembly, printing, and mailing of this proxy statement, the proxy,
and any additional material furnished to stockholders.
-12-
Original solicitation of proxies by mail may be supplemented by telephone,
telegram, or personal solicitation by directors, officers, or employees of the
Company; no additional compensation will be paid for any such services. Except
as described above, the Company does not intend to solicit proxies other than by
mail. Arrangements will also be made with brokerage firms and other custodians,
nominees and fiduciaries to forward proxy material to certain beneficial owners
of the Company's Common Stock, and the Company will reimburse such brokerage
firms, custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred by them in connection therewith.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Proposals of stockholders that are intended to be presented at the
Company's 2002 annual meeting of stockholders must be received by the Company no
later than December 31, 2001 in order to be included in the proxy statement and
proxy relating to that meeting. Stockholders wishing to present a proposal in
person at the Company's 2002 Annual Meeting must give the Company written notice
of their proposal no later than April 6, 2002.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables, based in part upon information supplied by
officers, directors and principal stockholders, set forth certain information
regarding the ownership of the Company's Common Stock as of July 26, 2001 by (i)
all those known by the Company to be beneficial owners of more than 5% of any
class of the Company's voting securities; (ii) each director; (iii) each named
executive officer; and (iv) all executive officers and directors of the Company
as a group. Unless otherwise indicated, each of the stockholders has sole voting
and investment power with respect to the shares beneficially owned, subject to
community property laws where applicable.
Security Ownership Of Certain Beneficial Owners(a).
NAME AND ADDRESS AMOUNT OF DIRECT BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS(b)
------------------- --------- -----
Golder, Thoma, Cressey, Rauner Fund IV, L.P. 7,824,997 52.5%
6100 Sears Tower
Chicago, Illinois 60606
Goldman Sachs Asset Management 1,218,100 8.2%
1 New York Plaza
New York, New York 10004
T. Rowe Price Associates, Inc.(c) 1,070,400 7.2%
100 E. Pratt Street
Baltimore, Maryland 21202
Liberty Wagner Asset Management, L.P. 1,042,700 7.0%
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
- - --------------------
(a) Security ownership information for beneficial owners is taken from
statements filed with the Securities and Exchange Commission pursuant
to Sections 13(d), 13(g) and 16(a) and information made known to the
company.
(b) Calculation based on 14,900,593 shares of Common Stock outstanding as
of July 26, 2001.
(c) These securities are owned by various individuals and institutional
investors which T. Rowe Price Associates, Inc. serves as investment
adviser with power to direct investments and/or sole power to vote the
securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, T. Rowe Price Associates, Inc.
-13-
is deemed to be a beneficial owner of such securities; however, T. Rowe
Price Associates, expressly disclaims that it is, in fact, the
beneficial owners of such securities.
Security Ownership Of Directors And Executive Officers.
NAME OF AMOUNT AND NATURE OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP (a)(b) CLASS(c)
---------------- --------------- ----------
Morris L. Bishop, Jr. 135,560 *
Franz L. Cristiani 3,000(d) *
David A. Donnini 7,827,997(e) 52.5%
Edward A. Dougherty 23,424(d)(f) *
James A. Harris 309,940(g) 2.1%
Bruce V. Rauner 7,827,997(e) 52.5%
Hobart Richey 36,116(h) *
Stanford Springel 0 *
Raymond R. Wingard 3,500(d) *
Daniel W. Yih 7,824,997(i) 52.5%
All Directors and Executive 8,342,537 56.0%
Officers as a Group
- - -----------------
* Does not exceed 1% of the referenced class of securities.
(a) Ownership is direct unless indicated otherwise.
(b) Includes shares beneficially owned and shares which may be acquired
within 60 days from July 26, 2001.
(c) Calculation based on 14,900,593 shares of Common Stock outstanding as
of July 26, 2001.
(d) Includes 3,000 shares issuable upon the exercise of stock options
granted to each Messrs. Cristiani, Dougherty and Wingard.
(e) Includes 3,000 shares issuable upon the exercise of stock options
granted to each Messrs. Donnini and Rauner and 7,824,997 shares held by
Golder, Thoma, Cressey, Rauner Fund IV, L.P. to which Messrs. Donnini
and Rauner disclaim any beneficial interest.
(f) Includes 20,424 shares owned by The Edward A. Dougherty and Linda F.
Dougherty 1998 Family Trust.
(g) Includes 49,737 shares owned by the James A. Harris Charitable
Remainder Unitrust.
(h) Owned by Jeanne T. Richey.
(i) Includes 7,824,997 shares held by Golder, Thoma, Cressey, Rauner Fund
IV, L.P. to which Daniel W. Yih disclaim any beneficial interest.
THE ASSET SALE
The following is a summary of the material aspects of the sale
("Transaction") of substantially all of the assets of SRM Aggregates, Inc.,
Bradley Stone & Sand, Inc., BHY Ready Mix, Inc., Mulberry Rock Corporation, Bama
Crushed Corporation and Grove Materials Corporation, each of which are
wholly-owned subsidiaries of the Company, and DeKalb Stone, Inc., a majority
owned subsidiary of the Company ("Sellers"), to Florida Rock Industries, Inc.
("Buyer"). This summary and all other discussions of the terms and conditions of
the Transaction included elsewhere in this proxy statement are qualified in
their entirety by reference to the Asset Purchase Agreement, a copy of which is
attached as an Annex hereto and incorporated by reference herein.
The affirmative vote of the holders of a majority of the shares of
common stock voting in person or by proxy on this proposal is required to
approve the Transaction.
-14-
THE COMPANY
U.S. Aggregates, Inc.
U.S. Aggregates, Inc. was founded in January 1994 and is a leading
producer of aggregate related products. Aggregates consist of crushed stone,
sand and gravel. In 2000, the Company shipped approximately 19.7 million tons of
aggregates, primarily to customers in nine Southeast and Mountain states,
generating net sales and a loss from operations of $291.7 million and $5.0
million, respectively. In 2000, approximately 88% of the aggregates shipped by
the company were processed materials consisting of crushed stone or sand and
gravel, and approximately 12% were unprocessed material.
The following table shows, for the periods indicated, the Company's
total shipments of aggregates, asphalt and ready-mix concrete.
U.S. AGGREGATES, INC
SHIPMENTS OF AGGREGATES, ASPHALT AND READY-MIX CONCRETE
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Millions)
Tons of aggregates sold:
Sold directly to customers 15.0 13.7 11.9 6.6 5.1
Used internally........... 4.7 5.4 3.9 2.9 2.1
Total tons of
aggregates sold...... 19.7 19.1 15.8 9.5 7.2
Percentage of
aggregates
used internally for
asphalt
and concrete........ 23.9% 28.3% 24.7% 30.5% 29.2%
Tons of asphalt sold......... 1.8 2.2 1.6 1.3 0.9
Yards of ready-mix concrete
sold 1.6 1.8 1.4 0.9 0.9
The Transaction will result in a substantial reduction in the Company's total
sales and aggregate reserves. See the Section below entitled "Description of the
Company Following the Transaction."
The Company markets its aggregates products to customers in a variety
of industries, including public infrastructure, commercial and residential
construction contractors; producers of asphalt, concrete, ready-mix concrete,
concrete blocks, and concrete pipes; and railroads. In 2000, approximately 76%
of the Company's aggregates volume was sold directly to customers, and the
balance was used to produce asphalt (which generally contains 90% aggregates by
volume) and ready-mix concrete (which generally contains 80% aggregates by
volume). As a result of dependence upon the construction industry, the
profitability of aggregates producers is sensitive to national, regional and
local economic conditions, and particularly to downturns in construction
spending and to changes in the level of infrastructure spending funded by the
public sector. In fact, the Company's performance in the second half of 2000 was
affected by the slowing economy and reduced government spending, especially in
its Western operations. Currently, the Company does not have any customer that
accounts for more than 10% of sales.
Also as a result of the Company's dependence on the construction
industry, the Company's business is seasonal with peak revenues and profits
occurring primarily in the months of April through November. Bad weather
conditions during this period can adversely affect operating income and cash
flow and could therefore have a disproportionate impact on the Company's results
for the full year. Quarterly results have varied significantly in the past and
are likely to vary significantly from quarter to quarter in the future. In the
fourth quarter of 2000, poor weather conditions in Utah negatively impacted the
Company's sales and profits.
-15-
Because of the high cost of transporting aggregates, asphalt and
ready-mix concrete, the Company believes that high-quality aggregate reserves
located near customers is central to its long-term success. Accordingly, the
Company has focused on the acquisition and development of aggregate production
sites and companies that are well positioned to serve growing local markets.
Since the Company's inception, the Company completed and integrated 28 business
and asset acquisitions, including both operating companies and aggregate
production facilities. In 2000, the Company continued to expand into new
geographical markets in the Southeast, Utah and Nevada. Distribution of
aggregate products in the Southeast was expanded with the startup of a major
distribution yard in Memphis, Tennessee.
As a result of the Company's ambitious acquisition program, the Company
acquired certain non-core assets over the last few years. In 2000, the Company
outlined a plan to sell certain assets to strengthen its strategic position,
reduce debt and improve liquidity. In 2000, the Company sold its ready-mix
operations in Birmingham and subsequently the remaining ready-mix concrete and
concrete block operations in the Alabama market to Ready-Mix USA, Inc., one of
the largest producers of ready-mix in Alabama. The revenues and total assets
related to the sold properties represented approximately 11% and 4%,
respectively, of the Company's 2000 consolidated totals. Terms of the sale
include the establishment of a long-term contract for the Company to provide
Ready-Mix USA with aggregates for its ready-mix operations.
In 2001, the Company continued its plan to sell certain assets to
improve its strategic position, reduce debt and improve its liquidity. Effective
as of March 30, 2001, the Company sold certain of its operations in northern
Utah to Oldcastle Materials, Inc. The sales proceeds were utilized to pay debt
and certain operating leases and provided the Company with additional liquidity.
In connection with the sale, the Company entered into a long-term, royalty
bearing lease of a quarry to Oldcastle. The revenues and total assets related to
the sold properties represented approximately 14% and 6%, respectively, of the
Company's 2000 consolidated totals.
The localized nature of the business also limits competition to those
producers in proximity to the Company's production facilities. Although the
Company experiences competition in all of its markets, the Company believes that
it is generally a leading producer in the market areas it serves. Competition is
based primarily on aggregate production site location and price, but quality of
aggregates and level of customer service are also important factors. The Company
competes directly with a number of large and small producers in the markets it
serves.
A material rise in the price or a material decrease in the availability
of oil could and did adversely affect operating results. The cost of
transporting the Company's products, the cost of processing material and the
cost of asphalt are all correlated to the price of oil. Any increase in the
price of oil may and did reduce the demand for the Company's products. The
Company estimates that in 2000 the total increase in oil, fuel and energy costs
were in excess of $9 million. As a result of competitive pressures, the Company
was not able to pass through these cost increases, and profits were negatively
impacted.
Environmental and zoning regulations have made it increasingly
difficult for the construction aggregates industry to expand existing quarries
and to develop new quarry operations. Although it cannot be predicted what
policies will be adopted in the future by federal, state and local governmental
bodies regarding these matters, the Company anticipates that future restrictions
will not have a material adverse effect upon its business.
As of year-end, the Company employed approximately 1,476 employees, of
whom approximately 1,259 are hourly, 216 are salaried and 1 is part-time.
Approximately 313 of the Company's employees are represented by labor unions.
The expiration dates of the various labor union contracts are from July 2001
-16-
through April 2003. On July 17, 2001 the Company reached an agreement on a new
labor union contract with certain employees represented by a labor union who
since July 15, 2001 had been working without a contract as a result of the
contract's expiration. The Company considers its relations with employees to be
good.
SIGNIFICANT DEVELOPMENTS IN 2001
As a result of issues raised regarding certain financial and accounting
matters affecting the Company's Western operations and upon the recommendation
of the Company's auditors, the Company's Board of Directors authorized its Audit
Committee to expand the scope of the year-end audit and to increase its
oversight of the audit for the fiscal year ended December 31, 2000. In
connection with the year-end audit, the Company determined that it was necessary
to restate the earnings for the first three quarters of 2000. For the first
quarter, the Company restated its net loss of $2.6 million, or $0.17 per diluted
share, to a net loss of $5.1 million, or $0.34 per diluted share. For the second
quarter, the Company restated its net income of $6.8 million, or $0.45 per
diluted share, to net income of $3.1 million, or $0.20 per diluted share. For
the third quarter, the Company restated its net income of $5.5 million, or $0.36
per diluted share, to net income of $1.7 million, or $0.11 per diluted share.
The restatements relate primarily to the reclassification of certain capitalized
items to operating expenses, the recognition of certain additional operating
expenses, and an increase of the reserve for self-insurance claims. As a result
of the Audit Committee's review, certain members of management resigned, were
put on administrative leave, or were terminated.
As a result of the Company's poor financial results in 2000, the
Company was in default of the covenants in its senior secured credit facilities
as well as its subordinated debt facilities. The Company entered into amendments
(the Fifth and Sixth Amendments) with its senior secured lenders which waived
all existing covenant defaults, adjusted future financial covenants, deferred
certain principal payments until March 31, 2002, provided the Company with
additional liquidity upon the sale of certain assets, established monthly
interest payment schedules, increased interest rates, and provided for certain
fees if the debt is not refinanced by a certain date in the future. The Company
also entered into an amendment with its subordinated note holder to waive
existing covenant defaults and to accept deferral of interest payments through
May 22, 2002 in exchange for increased interest rates, a deferred fee of
$900,000 and warrants for 671,582 shares with a nominal exercise price. In
connection with the amendments of the senior secured credit facility and the
subordinated notes, Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR Fund
IV"), the Company's largest shareholder, loaned the Company $2 million as junior
subordinated debt. GTCR Fund IV received a deferred fee of $450,000 and warrants
for 435,469 shares with a nominal exercise price in exchange for its agreement
to provide the Company with the junior subordinated debt.
On May 30, 2001, the Company entered into an amendment with its senior
secured creditors (the Seventh Amendment) pursuant to which the lenders agreed
to make certain additional term loans to the Company in an aggregate amount of
$6,000,000. In connection with the amendment, the Company agreed to certain
changes to the senior secured credit facilities including an agreement to pay a
$1 million success fee upon consummation of the Transaction which is being acted
upon at this meeting, and other matters. The consent of the lenders to the Asset
Purchase Agreement is required under the amendment and has been obtained.
The Company is currently not in compliance with certain financial
covenants under the senior secured credit facility. While there is no assurance,
based on discussions with the lenders, the Company believes that it will be able
to obtain a waiver of such non-compliance.
-17-
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company's operations are subject to and affected by federal, state
and local laws and regulations relating to the environment, health and safety
and other regulatory matters. Certain of the Company's operations may from time
to time involve the use of substances that are classified as toxic or hazardous
substances within the meaning of these laws and regulations. Environmental
operating permits are, or may be, required for certain of the Company's
operations, and such permits are subject to modification, renewal and
revocation. The Company continually evaluates whether it must take additional
steps at its locations to ensure compliance with these laws and regulations. The
Company believes that its operations are in substantial compliance with
applicable laws and regulations and that any noncompliance is not likely to have
a material adverse effect on its business, financial condition or results of
operations. However, future events, such as changes in or modified
interpretations of existing laws and regulations or enforcement policies, or
further investigation or evaluation of the potential health hazards of its
products or business activities, may give rise to additional compliance and
other costs that could have a material adverse effect on the Company. In
accordance with the Company's accounting policy for environmental costs, amounts
are accrued and included in the Company's financial statements when it is
probable that a liability has been incurred and such amount can be reasonably
estimated. Costs incurred by the Company in connection with environmental
matters in the preceding two fiscal years were not material to the Company's
operations or financial condition.
The Company, as well as other companies in the aggregates industry,
produce some products containing varying amounts of crystalline silica.
Excessive and prolonged inhalation of very small particles of crystalline silica
has been associated with non-malignant lung disease. The carcinogenic potential
of excessive exposure to crystalline silica has been evaluated for over a decade
by a number of research groups including the International Agency for Research
on Cancer, the National Institute for Occupational Safety and Health and the
National Toxicology Program, a part of the Department of Health and Human
Services. Results of various studies have ranged from classifying crystalline
silica as a probable to a known carcinogen. Other studies concluded higher
incidences of lung cancer in some operations was due to cigarette smoking, not
silica. Governmental agencies, including the Occupational Safety and Health
Administration and Mine Safety Health Administration, coordinate to establish
standards for controlling permissible limits on crystalline silica. In the early
1990s, they considered lowering silica exposure limits but decided to retain
existing limits. The Occupational Safety and Health Administration held
stakeholder meetings in the fall of 2000, relating to the release of new rules
to implement more stringent regulations controlling permissible limits on
crystalline silica. No new regulations have been put in place through March
2001. The Company believes it currently meets government guidelines for
crystalline silica exposure and will employ technologies as they become
available to ensure worker safety and comply with regulations.
An operating subsidiary of the Company has received a notice of
violation regarding the removal and disposal of asbestos-containing insulation
from two above-ground asphalt storage tanks at one of the subsidiary's
facilities and is the subject of several related state and federal civil and
criminal investigations. The agencies involved include the Federal Environmental
Protection Agency, the United States Department of Justice, the Occupational
Safety and Health Administration and the Utah Department of Air Quality (DAQ).
The site has been fully cleaned under the supervision and with the approval of
the Utah DAQ, and costs related to the clean-up have been recorded. In order to
resolve this matter, the Company (1) has entered into an agreement with the Utah
DAQ under which a fine of $50,000 has been paid and certain environmental
remediation actions also worth $50,000 have been carried out; (2) has entered
into an agreement with the U.S. Attorney's office for Utah to plead to a felony
and to pay a fine of $300,000; and (3) is negotiating an environmental
compliance agreement with the Environmental Protection Agency.
-18-
PROPERTIES
In 2000, 27 of the Company's aggregates production sites each had
shipments of greater than 100,000 tons. Of these sites, 10 are located on
property the Company owns, two are on land owned in part and leased in part and
15 are on leased property. In addition to the Company's quarry sites, it owns
other real property. As of the date of this proxy statement, the Company owns 60
pieces of real property and has leasehold or permit or similar rights to 63
other pieces of real property. Most of these properties are subject to a
security interest in favor of the Company's senior secured creditors. The
Company's significant quarry leases expire between the years 2012 to 2039 and in
some cases are renewable for additional periods. The Company believes that no
single aggregate production site is of major significance to its operations.
The Company's estimated aggregate reserve position prior to the
Transaction exceeds 1.3 billion tons. The Company owns approximately 600 million
tons and leases approximately 700 million tons of its aggregate reserves.
Following the consummation of the Transaction, reserves are estimated at 767
million tons. The yield from the extraction of reserves is based on an estimate
of the volume of materials which can be economically extracted to meet current
market and product applications. The aggregate reserves and historical volumes
of sales, giving effect to the Transaction are shown on page 30. The Company's
mining plans are developed by experienced mining and operating personnel based
on internal and outside drilling and geological studies and surveys. In some
cases, zoned properties must be extracted in phases as reserves in a particular
area of the reserve are exhausted.
Leases of aggregate reserve sites usually provide for royalty payments
based on revenues from aggregates sold at a specific location. Leases usually
expire after a specific time period and may be renewable for additional terms.
Most leases have extension options providing for at least 20 years of operation
based on 2000 extraction rates. With minor exceptions, where lease options total
less than 20 years, the Company has developed and zoned additional reserves that
will allow it to serve its markets on a competitive basis and ensure long term
availability. Generally, reserves at the Company's aggregate production sites
are adequate for in excess of 20 years production at 2000 rates of extraction.
At one of the Company's quarries it is required to extract a minimum amount of
100,000 tons of aggregate per year and at another quarry, 500,000 tons of
aggregate per year in order to maintain its rights to mine reserves on these
leased properties. The Company anticipates fulfilling these minimum extraction
requirements during the lease terms.
The following table presents the Company's current estimate of
aggregate reserves (in millions of tons) by market area.
U.S. AGGREGATES, INC.
AGGREGATE RESERVES BY MARKET AREA
ZONED/
PERMITTED UNZONED TOTAL
Alabama* ................................ 566 - 566
Eastern Tennessee*....................... 75 - 75
Northern Utah............................ 362 - 362
Central Utah............................. 110 54 164
So. Utah/SE Nevada/NW Arizona............ 124 83 207
Idaho.................................... 34 - 34
------- -------- --------
SUBTOTAL.............................. 1,271 137 1,408
===== ===== ======
RESERVES SOLD......................... 641 - 641
--- ------ ----
TOTAL AFTER TRANSACTION............... 630 137 767
=== ===== ====
*Quarry sites to be sold in connection with this Transaction.
-19-
The Transaction will result in a substantial reduction in the Company's total
sales and aggregate reserves. See the Section below entitled "Description of the
Company Following the Transaction."
Management believes the raw material reserves are sufficient to permit
production at present operational levels for the foreseeable future. The Company
does not anticipate any material difficulty in obtaining the raw materials that
it uses for production.
The Company is required by the laws of various states to reclaim
aggregate sites after reserves have been depleted. Each site's mining plan
includes a reclamation plan, which has been developed for that site to maximize
the value of the end use of the site.
The Company has two aggregate production sites in Georgia. A major
building materials producer has an option to lease one site under a long-term
lease. The other aggregate production site is not anticipated to open in the
near future.
LEGAL PROCEEDINGS
An operating subsidiary of the Company, which is not a party to the
Transaction, has received a notice of violation regarding the removal and
disposal of asbestos-containing insulation from two above ground asphalt storage
tanks at one of the subsidiary's facilities and is the subject of several
related state and federal civil and criminal investigations. The agencies
involved include the Federal Environmental Protection Agency, the United States
Department of Justice, the Occupational Safety and Health Administration and the
Utah Department of Air Quality (DAQ). The site has been fully cleaned up under
the supervision and with the approval of the Utah DAQ and costs related to the
clean up have been recorded. In order to resolve this matter, the Company (1)
has entered into an agreement with the Utah DAQ under which a fine of $50,000
has been paid and certain environmental remediation actions also worth $50,000
have been carried out; and (2) has entered into an agreement with the U.S.
Attorney's office for Utah to plead to a felony and to pay a fine of $300,000;
and (3) is negotiating an environmental compliance agreement with the
Environmental Protection Agency.
An operating subsidiary of the Company, which is not a party to the
Transaction, was served with a Civil Investigative Demand appending
interrogatories and requests for the production of documents requested in
connection with an antitrust investigation by the Utah Attorney General's Office
related to the sale of asphalt, aggregate, ready-mix concrete, concrete block
and related products and services. The Company has supplied the requested
information to the satisfaction of the Utah Attorney General's Office and will
continue to cooperate fully in the course of the investigation. The Company
believes there is no merit to this investigation.
The Company was served with a Civil Investigative Demand appending
interrogatories and requests for documents in connection with an antitrust
investigation by the Utah Attorney General's Office relating to the sale and
lease of certain assets in Northern Utah. The Company has supplied the requested
information to the satisfaction of the Utah Attorney General's Office and will
continue to cooperate fully in the course of the investigation. The Company
believes there is no merit to this investigation.
The Company and certain of its officers and directors were served with
several complaints in suits purported to be class actions filed on behalf of
plaintiffs and others similarly situated, which allege certain violations of the
federal securities laws. The complaints seek damages and other relief. The
Company has retained counsel and intends to vigorously defend these complaints.
-20-
From time to time, the Company and its subsidiaries have been involved
in various legal proceedings relating to it and its subsidiaries' operations and
properties which, except for the proceedings described in the previous
paragraph, we believe are routine in nature and incidental to the conduct of it
and its subsidiaries' business. The Company and its subsidiaries' ultimate legal
and financial liability with respect to these matters cannot be estimated with
certainty, but we believe, based on its examination of such matters, that none
of these proceedings, if determined adversely, would have a material adverse
effect on its business, financial condition or results of operations.
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED MATTERS
The Company's Common Stock is traded on the New York Stock Exchange
under the symbol "AGA," where it commenced trading on August 13, 1999 following
the Company's initial public offering. As of July 26, 2001, the number of
shareholders of record approximated 53. The closing price of the Common Stock on
the New York Stock Exchange on July 26, 2001, was $_____. The prices in the
following table represent the high and low sales prices for the Company's Common
Stock as reported on the New York Stock Exchange:
QUARTER ENDED HIGH LOW
- - ------------- ---- ---
September 30, 1999 (from August 13, 1999).. $15.46 $11.78
December 31, 1999.......................... $14.96 $9.48
March 31, 2000............................. $16.22 $11.91
June 30, 2000.............................. $20.22 $12.73
September 30, 2000......................... $19.21 $14.81
December 31, 2000.......................... $16.31 $6.38
March 31, 2001............................. $9.06 $5.90
June 30, 2001.............................. $5.00 $0.69
For each of the first three quarters of 2000, the Board of Directors
authorized a dividend of $0.03 per share of common stock payable April 10, 2000,
July 10, 2000, and October 10, 2000 to holders of record on March 27, 2000, June
26, 2000, and September 26, 2000, respectively.
The Company's policy is to pay out a reasonable share of net cash
provided by operating activities as dividends, consistent with the goal of
maintaining debt ratios with prudent and generally acceptable limits. The future
payment of dividends, however, is being restricted by its credit facility
agreements and as such the Company does not anticipate paying dividends in the
foreseeable future.
U.S. Aggregates has its principal executive offices at 400 South El
Camino Real, Suite 500, San Mateo, California 94402 (telephone number:
650-685-4880).
THE SELLERS
SRM Aggregates, Inc.
SRM Aggregates, Inc. is an Alabama corporation, principally engaged in
the mining, processing and sale of aggregates. During 2000, SRM Aggregates, Inc.
completed construction of two new crushing plants in Alabama, substantially
increasing capacity and improving its ability to supply rock to the Mississippi,
south Alabama and west Tennessee markets. On April 24, 2000, SRM Aggregates,
Inc. sold all of its ready-mix operations located in Birmingham, Alabama. On
December 18, 2000, SRM Aggregates, Inc. sold the remainder of its ready-mix
operations located in the State of Alabama. SRM Aggregates, Inc. operates six
aggregate crushing plants, all located within the State of Alabama. SRM
Aggregates, Inc. has its principal executive offices at 4200 Colonnade Parkway,
Suite 100, Birmingham, Alabama 35243 (telephone number: 205-970-2400).
-21-
Bradley Stone & Sand, Inc.
Bradley Stone and Sand, Inc. is a Tennessee corporation, principally
engaged in the mining, processing and sale of aggregates. Bradley Stone and
Sand, Inc. operates one rock crushing plant and two sand plants in the east
Tennessee area near Chattanooga. Bradley Stone & Sand, Inc. has its principal
executive offices at 4200 Colonnade Parkway, Suite 100, Birmingham, Alabama
35243 (telephone number: 205-970-2400).
BHY Ready Mix, Inc.
BHY Ready Mix, Inc. is a Tennessee corporation and a producer of
concrete for use in construction and maintenance of highways and other
infrastructure projects as well as for commercial and residential construction.
BHY Ready Mix, Inc. operates one ready mix plant located in Chattanooga,
Tennessee, which serves the local Chattanooga market. BHY Ready Mix, Inc. has
its principal executive offices at 4200 Colonnade Parkway, Suite 100,
Birmingham, Alabama 35243 (telephone number: 205-970-2400).
DeKalb Stone, Inc.
DeKalb Stone, Inc. is a Georgia corporation. SRM Aggregates, Inc., a
wholly-owned subsidiary of the Company, owns 70.67% of the outstanding capital
stock of Dekalb Stone, Inc. Dekalb Stone, Inc. owns the rights to a developing
quarry site on the east side of Atlanta. This quarry is not currently operating.
DeKalb Stone, Inc. has its principal executive offices at 4200 Colonnade
Parkway, Suite 100, Birmingham, Alabama 35243 (telephone number: 205-970-2400).
Mulberry Rock Corporation
Mulberry Rock Corporation is a Georgia corporation and owns the land
and rights to a developing quarry site on the west side of Atlanta. This quarry
is not currently operating and is subject to an option to lease to Blue Circle,
Inc. Mulberry Rock Corporation has its principal executive offices at 4200
Colonnade Parkway, Suite 100, Birmingham, Alabama 35243 (telephone number:
205-970-2400).
Bama Crushed Corporation
Bama Crushed Corporation is an Alabama corporation and owns the rights
to a developing quarry site on the south side of Birmingham. This quarry is not
currently operating. Bama Crushed Corporation has its principal executive
offices at 4200 Colonnade Parkway, Suite 100, Birmingham, Alabama 35243
(telephone number: 205-970-2400).
Grove Materials Corporation
Grove Materials Corporation is an inactive company with no assets.
Grove Materials Corporation has its principal executive offices at 4200
Colonnade Parkway, Suite 100, Birmingham, Alabama 35243 (telephone number:
205-970-2400).
BUYER
Florida Rock Industries, Inc.
Florida Rock Industries, Inc., is a Florida corporation. The Buyer's
common stock is publicly traded on the New York Stock Exchange. The Buyer is
principally engaged in the production and sale of
-22-
ready mixed concrete and the mining, processing and sale of aggregates. The
Buyer also produces and sells concrete block, prestressed concrete and calcium
products and sells other building materials. During fiscal 2000, the Buyer
completed construction of a portland cement plant which produces and sells
portland and masonry cement. Substantially all of the Buyer's operations are
conducted within the Southeastern United States, primarily in Florida, Georgia,
Virginia, Maryland, Washington, D.C. and North Carolina. The Buyer also has an
investment in a stone quarry and a sand and gravel plant in Charlotte County,
New Brunswick, Canada. Florida Rock Industries, Inc. has its principal executive
offices at 155 East 21st Street, Jacksonville, Florida 32206-2104 (telephone
number: 904-355-0817).
BACKGROUND OF THE SALE
In the Spring of 2000, DBAB was retained by the Company to assist it in
a review of strategic alternatives. During the summer of 2000, preliminary
discussions were held with several parties concerning a potential transaction
for all of the assets of the Company but no agreement was reached with any
potential purchaser. During the course of these discussions, DBAB received
inquiries from a number of parties interested in a potential transaction for the
Southeastern assets of the Company. As directed by the Board of Directors, DBAB
informed inquiring parties that the Southeastern assets of the Company were not
for sale at that time.
Commencing in the fall of 2000, the Company faced significant operating
challenges in its Western operations which had a negative impact on the
Company's overall financial performance. In April 2001, the Company announced
its financial results for the fourth quarter and the full year 2000. During the
fourth quarter of 2000, total Company sales declined 24% from the prior year
while EBITDA was a loss of $14.7 million versus a profit of $11.2 million during
the prior year quarter. In addition, the Company announced that an agreement had
been reached with the Company's senior secured creditors to waive all existing
defaults and defer all principal payments until March 2002.
In the Spring of 2001, the Company received unsolicited inquiries from
two parties regarding interest in the sale of the Company's Southeastern
operations. The Company's management was directed to initiate preliminary
discussions with the parties to determine whether there was a basis for a
transaction on terms acceptable to the Company. On May 2, 2001, DBAB was
contacted and informed that the Company had recently received two unsolicited
proposals for the purchase of some or all of the Southeastern assets of the
Company. In addition, DBAB was told that the Company was facing liquidity issues
and was evaluating alternatives to address its cash requirements including the
sale of assets. As a result, DBAB was asked to approach potentially interested
parties to solicit offers to acquire the Southeastern assets. During the first
week of May 2001, DBAB contacted a number of parties to determine interest in
pursuing a transaction for the Southeastern assets. The parties contacted
indicated varying degrees of willingness to consider a potential transaction and
to work under a rigorous deadline to complete an evaluation of the assets under
consideration. Updated financial information was prepared by the Company and
distributed to each of the interested parties to assist each prospective
purchaser in its evaluation of a potential transaction. Each of the parties was
also given the opportunity to conduct due diligence. In late May, the Company
received detailed proposals regarding a transaction from three interested
parties accompanied with draft purchase and sale agreements.
NEGOTIATIONS RELATING TO THE SALE
In late May 2001, the Buyer submitted a written offer letter to
purchase the Southeastern assets of the Company, including a draft of the Asset
Purchase Agreement. DBAB contacted the Buyer on May 25 to clarify selected terms
of its offer letter and the Asset Purchase Agreement. The Buyer was encouraged
to continue with its due diligence investigation and the Company and Buyer
agreed to work towards a negotiated agreement on selected open contractual
issues. During several subsequent discussions
-23-
between DBAB, the Company and the Buyer and their legal advisors, sufficient
consensus on key terms was reached to warrant a meeting between senior
management of both Buyer and the Company to finalize negotiations on a
definitive purchase agreement. At a meeting held on June 19, 2001 Buyer and the
Company reached an understanding on the remaining outstanding business issues
subject to completion of due diligence and the drafting and execution of a
definitive agreement. Over the following week, Buyer continued with its due
diligence investigation. On June 28, Buyer informed the Company that it was
reducing the aggregate value of its offer from $160 million to $150 million and
would require certain additional modifications to the Asset Purchase Agreement.
The Buyer's stated reason for the purchase price reduction was that the
financial performance of the Sellers had weakened since the time of its initial
proposal. At a meeting of the Company's Board of Directors held on June 28,
2001, the Board evaluated Buyer's revised proposal and directed the Company's
management and DBAB to work towards a definitive agreement with Buyer. During
the next two weeks, Buyer continued its due diligence investigation while final
negotiations on the Asset Purchase Agreement were completed. In the immediate
period leading up to the final agreement between the Company and the Buyer, the
Company and DBAB had further discussions with several parties previously
contacted, and determined that there was no party interested in a transaction on
terms superior to the terms proposed by the Buyer. On July 9, both Buyer and the
Sellers had reached substantial agreement on all principal terms of a definitive
agreement documenting the proposed Transaction. In the afternoon of July 9, the
Company received by facsimile a definitive agreement for the Transaction
executed by the Buyer. On July 10, a telephonic Board of Directors meeting was
held to review the Transaction. The Board of Directors approved the Transaction
during this meeting.
REASONS FOR THE SALE
The Board believes that the Transaction is in the best interests of the
Company and unanimously recommends that the stockholders of the Company vote FOR
approval of the Transaction.
The following are material factors, among others, considered by the
Board in reaching its conclusion to recommend the asset sale:
o the purchase price offered by Buyer, considered in light of
the estimated aggregates reserves in the quarries being
purchased by Buyer and the liabilities of the Sellers being
assumed by Buyer;
o the businesses, financial condition, earnings and recent
results of operations of the Company and the Sellers;
o the reduction of the Company's debt through repayment of a
portion of the outstanding principal owing under its senior
secured credit facilities; and
o the oral opinion and written opinion of DBAB provided to the
Board on July 10, 2001 stated that the purchase price to be
received pursuant to the Asset Purchase Agreement was fair,
from a financial point of view, to the Company. A full text of
the opinion is attached as Annex C to this proxy statement and
is incorporated herein by reference.
In view of the wide variety of factors considered in connection with
its evaluation of the Transaction, the Board did not find it practical to, and
did not, quantify or otherwise assign relative weights to specific factors
considered in reaching its determination.
-24-
OPINION OF DEUTSCHE BANC ALEX. BROWN INC.
Deutsche Banc Alex. Brown Inc. has acted as financial advisor to US
Aggregates, Inc. in connection with the Transaction. At the July 10, 2001
meeting of the Company's Board of Directors, DBAB delivered its oral opinion,
subsequently confirmed in writing on July 11, 2001, to the Company's Board of
Directors to the effect that, as of the date of such opinion, based upon and
subject to the assumptions made, matters considered and limits of the review
undertaken by DBAB, the consideration to be received by the Sellers was fair,
from a financial point of view, to the Company.
The full text of DBAB's written opinion, dated July 11, 2001 (the "DBAB
Opinion"), addressed to, and for the use and benefit of, the Company's Board of
Directors, which sets forth, among other things, the assumptions made, matters
considered and limits on the review undertaken by DBAB in connection with the
opinion, is attached as Annex C to this proxy statement and is incorporated
herein by reference. The Company's stockholders are urged to read the DBAB
Opinion in its entirety. The summary of the DBAB Opinion set forth in this proxy
statement is qualified in its entirety by reference to the full text of the DBAB
Opinion.
In connection with DBAB's role as financial advisor to the Company, and
in arriving at its opinion, DBAB has, among other things, reviewed certain
publicly available financial information and other information concerning the
Company and certain internal analyses and other information furnished to it by
the Company. DBAB also held discussions with the members of the senior
management of the Company regarding the businesses and prospects of the Sellers'
assets that are subject to the Transaction ("Sellers' Assets"). In addition,
DBAB (i) compared certain financial information for the Sellers' Assets with
similar information for selected companies whose securities are publicly traded,
(ii) reviewed the financial terms of selected recent transactions which it
deemed comparable in whole or in part, (iii) reviewed the terms of the Asset
Purchase Agreement and certain related documents, and (iv) performed such other
studies and analyses and considered such other factors as it deemed appropriate.
In preparing its opinion, DBAB did not assume responsibility for the
independent verification of, and did not independently verify, any information,
whether publicly available or furnished to it, concerning the Sellers,
including, without limitation, any financial information, forecasts or
projections, considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, DBAB assumed and relied upon the
accuracy and completeness of all such information. DBAB did not conduct a
physical inspection of any of the properties or assets and did not prepare or
obtain any independent evaluation or appraisal of any of the assets or
liabilities of the Sellers. With respect to the financial forecasts and
projections made available to DBAB and used in its analysis, DBAB has assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Sellers and the
Company as to the matters covered thereby. In rendering its opinion, DBAB
expressed no view as to the reasonableness of such forecasts and projections or
the assumptions on which they were based. The DBAB Opinion was necessarily based
upon economic, market and other conditions as in effect on, and the information
made available to DBAB as of, the date of such opinion.
For purposes of rendering its opinion, DBAB has assumed that, in all
respects material to its analysis, the representations and warranties of each of
the Sellers, the Company and Florida Rock Industries, Inc. contained in the
Asset Purchase Agreement, are true and correct, that the Company and the Buyer
will each perform all of the covenants and agreements to be performed by it
under the Asset Purchase Agreement and all conditions to the obligation of each
of the Company and the Buyer to consummate the Transaction will be satisfied
without any waiver thereof. DBAB has also assumed that all material
governmental, regulatory or other approvals and consents required in connection
with the consummation of the transactions contemplated by the Asset Purchase
Agreement will be obtained and
-25-
that in connection with obtaining any necessary governmental, regulatory or
other approvals and consents, or any amendments, modifications or waivers to any
agreements, instruments or orders to which either the Sellers, the Company or
the Buyer is a party or subject or by which it is bound, no limitations,
restrictions or conditions will be imposed or amendments, modifications or
waivers made that would have a material adverse effect on the Sellers, the
Company or the Buyer or materially reduce the contemplated benefits of the
Transaction to the Company.
Set forth below is a brief summary of certain financial analyses
performed by DBAB in connection with its opinion and reviewed with the Company's
Board of Directors at its meeting on July 10, 2001.
Analysis of Selected Publicly Traded Companies.
DBAB compared certain financial information and commonly used valuation
measurements for the Sellers' Assets with the corresponding information and
measurements for a group of publicly traded companies that included, among
others, Florida Rock Industries, Inc., Martin Marietta Materials, Inc., and
Vulcan Materials Company (the "Selected Companies").
Such financial information and valuation measurements of the Selected
Companies reviewed by DBAB included, among other things:
o operating performance;
o ratios of common equity market value as of July 9, 2001 as
adjusted for debt and cash ("Enterprise Value") to latest
twelve months' ("LTM") earnings before interest expense,
income taxes and depreciation and amortization ("EBITDA"), and
earnings before interest expense and income taxes ("EBIT").
To calculate the trading multiples for the Selected Companies, DBAB
used publicly available information concerning historical financial performance
to determine the LTM EBITDA and LTM EBIT.
The range of EBITDA and EBIT multiples calculated by DBAB for the
Selected Companies was 7.3x to 11.5x, and 12.2x to 20.4x, respectively.
Based on its review of historical and forecast financial data of the
Sellers' Assets provided by management of the Company, DBAB calculated the
Enterprise Value to EBITDA and Enterprise Value to EBIT multiples implied by the
Transaction. DBAB determined that the Enterprise Value to EBITDA multiples for
the LTM period ending March 31, 2001, and forecast fiscal year 2001 to be 8.9x
and 8.6x, respectively, and the Enterprise Value to EBIT multiples for the same
periods to be 12.3x and 13.2x, respectively.
None of the companies utilized, as a comparison is identical to the
Sellers' Assets. Accordingly, DBAB believes the analysis of publicly traded
comparable companies is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments, reflected in DBAB's opinion,
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies.
Analysis of Selected Precedent Transactions.
DBAB reviewed the financial terms, to the extent publicly available, of
selected proposed, pending or completed mergers and acquisition transactions
since January 1997 involving companies in
-26-
the Heavy Building Materials industry (the "Selected Transactions"). The
Selected Transactions reviewed were:
ACQUIROR TARGET DATE ANNOUNCED
- - --------------------------------------- ---------------------------------------------- ----------------------
CRH plc Mount Hope Rock Products 04/30/01
Hanson PLC Davon Inc 01/04/00
Vulcan Materials Company Titan Cement Company 10/04/00
Martin Marietta Materials Meridian Aggregates Company 09/06/00
Titan Cement Company Tarmac America Inc. 08/28/00
CRH plc Northern Ohio Paving Co. and Dolomite Group 06/21/00
CSR Ltd. Florida Crushed Stone Company 06/13/00
CSR Ltd. American Limestone Company 05/29/00
Hanson Pioneer International 11/29/99
Anglo-American Tarmac 11/05/99
CRH plc (Oldcastle Materials) Thompson-McCully Companies 07/08/99
Hanson Building Materials America Tidewater Sand & Gravel, Inc. and Moe Sand Co. 07/07/99
CRH plc (Oldcastle Materials) Millington Quarry and Dell Contractors 07/05/99
Florida Rock Industries, Inc. Harper Brothers, Inc. 05/22/99
Aggregate Industries plc Bill Smith Sand & Gravel Company 12/28/98
Vulcan Materials Company CalMat Company 11/16/98
Martin Marietta Materials Meridian Aggregates Company 11/04/98
Hanson Building Materials America Becker Minerals, Inc. (Alfred McAlpine Inc.) 10/07/98
Martin Marietta Materials Redland Stone 10/05/98
Blue Circle Americas Needler Group 06/16/98
CRH plc (Oldcastle Materials) MA Segale 05/02/98
Lafarge Corporation Redland Assets 03/17/98
Hanson Building Materials America H.G. Fenton Material Company 02/17/98
US Aggregates, Inc. Monroc 01/29/98
Martin Marietta Materials American Aggregate (CSR America) 01/31/97
The following tables set forth the transaction multiples calculated by DBAB:
ENTERPRISE VALUE TO
LTM EBITDA
- - ---------------------------------------------------------------------
Selected Transactions
Adjusted Range 5.6x - 11.2x
Adjusted Median 7.8x
ENTERPRISE VALUE TO
LTM EBIT
- - ---------------------------------------------------------------------
Selected Transactions
Adjusted Range 6.8x - 16.1x
Adjusted Median 12.2x
All multiples for the Selected Transactions were based on public
information available at the time of announcement of such transactions, without
taking into account differing market and other conditions during the four-year
period during which the transactions occurred.
Because the reasons for and circumstances surrounding each of the
Selected Transactions analyzed were so diverse, and due to the inherent
differences between the operations and financial conditions of the Company and
the companies involved in the Selected Transactions, DBAB believes that
-27-
a comparable transaction analysis is not simply mathematical. Rather, it
involves complex considerations and qualitative judgments, reflected in DBAB's
opinion, concerning differences between the characteristics of these Selected
Transactions and the Transaction that could affect the value of the Sellers'
Assets and the Company.
Discounted Cash Flow Analysis.
DBAB performed discounted cash flow analyses for the Sellers' Assets.
DBAB calculated the discounted cash flow values for the Sellers' Assets as the
sum of the net present values of (i) the estimated future cash flow the Sellers'
Assets will generate for the years 2001 through 2005, plus (ii) the value of
Sellers' Assets at the end of such period. The terminal values of the Sellers'
Assets were calculated based on projected EBITDA for 2005 and a range of
multiples of 6x and 8x. DBAB used discount rates ranging from 12% to 16%. The
discount rates are based on DBAB's judgment of the required return expected by
industry participants for operations of the size and character of the Sellers'
Assets, and used such terminal value multiples based on its review of the
trading characteristics of the common stock of the Selected Companies. The
estimated future cash flows were based on the financial projections for the
Sellers' Assets for the years 2001 through 2005. DBAB performed the discounted
cash flow analyses based on the above assumptions utilizing (a) the Company's
management financial projections for the Sellers' Assets for the years 2001
through 2005 (the "Base Case"), and (b) such Base Case projections adjusted by a
constant EBITDA margin assumption for the years 2002 through 2005 (the
"Sensitized Case"). The Base Case analysis indicated a range of discounted cash
flow values of $102.1 million to $156.3 million and the Sensitized Case
indicated a range of discounted cash flow values of $84.4 million to $129.1
million.
Estimated Pro Forma Effects.
DBAB analyzed certain estimated pro forma effects of the Transaction,
including the estimated pro forma effects to pre-tax income and certain credit
statistics for the Company post Transaction assuming the adjusted pre-tax
proceeds from the Transaction will be allocated for debt retirement. Based on
expected pre-tax income from the Sellers' Assets as provided by the Company's
management, and the current interest rates on the Company's outstanding
indebtedness, DBAB estimated that the impact of the Transaction on a pro forma
full fiscal 2001 basis would have a positive pre-tax benefit to the Company's
operating results of $9.4 million, assuming the full collection of escrowed
amounts under the Asset Purchase Agreement. In addition, Company's current net
debt to LTM EBITDA multiple was calculated as 10.0x, compared to 8.4x after
giving effect to the Transaction. LTM EBITDA to Interest was calculated at 0.9x,
and pro forma LTM EBITDA to Interest after giving effect to the Transaction was
calculated at 0.9x, assuming the full collection of escrowed amounts under the
Asset Purchase Agreement.
The foregoing summary describes all analyses and factors that DBAB
deemed material in its presentation to Company's Board of Directors, but is not
a comprehensive description of all analyses performed and factors considered by
DBAB in connection with preparing its opinion. The preparation of a fairness
opinion is a complex process involving the application of subjective business
judgment in determining the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, is not readily susceptible to summary description. DBAB believes
that its analyses must be considered as a whole and that considering any portion
of such analyses and of the factors considered without considering all analyses
and factors could create a misleading view of the process underlying the
opinion. In arriving at its fairness determination, DBAB did not assign specific
weights to any particular analyses.
-28-
In conducting its analyses and arriving at its opinions, DBAB utilized
a variety of generally accepted valuation methods. The analyses were prepared
solely for the purpose of enabling DBAB to provide its opinion to the Company's
Board of Directors as to the fairness to the Company of the consideration and
does not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold, which are inherently subject to
uncertainty. In connection with its analyses, DBAB made, and was provided by
Company's management with, numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the Company's control. Analyses based on estimates or forecasts
of future results are not necessarily indicative of actual past or future values
or results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the Company,
or DBAB, neither the Company nor DBAB nor any other person assumes
responsibility if future results or actual values are materially different from
these forecasts or assumptions. DBAB expresses no opinion on the impact of the
Transaction of the financial position, prospects, or solvency of the Company, or
the price at which the common stock of the Company will trade following the
Transaction.
The terms of the Transaction were determined through negotiations
between the Company and the Buyer and were approved by the Company's Board of
Directors. Although DBAB provided advice to the Company during the course of
these negotiations, the decision to enter into the Transaction was solely that
of the Company's Board of Directors. As described above, the opinion and
presentation of DBAB to the Company's Board of Directors were only one of a
number of factors taken into consideration by the Company's Board of Directors
in making its determination to approve the Transaction. DBAB's opinion was
provided to the Company's Board of Directors to assist it in connection with its
consideration of the Transaction and does not constitute a recommendation to any
holder of the Company's Common Stock as to how to vote with respect to the
Transaction.
The Company selected DBAB as financial advisor in connection with the
Transaction based on DBAB's qualifications, expertise, reputation and experience
in mergers and acquisitions, historical relationship with the Company, and
knowledge of the Sellers' Assets. The Company has retained DBAB pursuant to a
letter agreement dated April 17, 2000, as amended on May 2, 2001 (the
"Engagement Letter"). As compensation for DBAB's services in connection with the
Transaction, the Company will pay DBAB a cash fee of $750,000, of which $100,000
has already has been advanced as a retainer fee. In addition, the Company agreed
to pay an additional cash fee of $750,000 if the Transaction is consummated.
Regardless of whether the Transaction is consummated, the Company has agreed to
reimburse DBAB for reasonable fees and disbursements of DBAB's counsel and all
of DBAB's reasonable travel and other out-of-pocket expenses incurred in
connection with the Transaction or otherwise arising out of the retention of
DBAB under the Engagement Letter. The Company has also agreed to indemnify DBAB
and certain related persons to the full lawful extent against certain
liabilities, including certain liabilities under the federal securities laws
arising out of its engagement or the Transaction.
DBAB is an internationally recognized investment banking firm
experienced in providing advice in connection with mergers and acquisitions and
related transactions. DBAB was the lead manager in connection with Company's
August 1999 initial public offering of common stock. In addition, from time to
time DBAB has advised the Buyer on certain matters, including the implementation
of the Buyer's Shareholder Rights Plan in 1999 for which it received customary
fees. DBAB and its affiliates may actively trade securities of the Company or
the Buyer for their own account or the account of their customers and,
accordingly, may from time to time hold a long or short position in such
securities.
-29-
EFFECT OF THE ASSET SALE
Following the consummation of the Transaction, the only assets retained
by Sellers will be insurance policies and rights thereunder; documents relating
to the organization, maintenance and existence of Sellers' as corporations, all
rights of Sellers' under the Asset Purchase Agreement and other Transaction
documents; any equity interest in the Sellers; any employee benefit plans; and
all claims, deposits, prepayments, refunds, causes of action, choses in action,
rights of set off and similar rights with respect to any of the foregoing
retained assets or any liabilities not assumed by the Buyer. Therefore,
following the consummation of the Transaction, the Sellers will have no
continuing business operations, other than in connection with the winding up of
their affairs, and it is anticipated that each of the subsidiaries of SRM
Aggregates, Inc. will merge into SRM Aggregates, Inc. and that SRM Aggregates,
Inc. will then merge into its parent, SRM Holdings, Inc.
Following consummation of the Transaction, the Company will retain
substantial assets in the Western United States and the stockholders of the
Company will retain their equity interest in the Company. The sale will not
result in any changes in the rights of the Company's stockholders. As indicated
above, the Company will not distribute any of the proceeds derived from the sale
to its stockholders.
DESCRIPTION OF THE COMPANY FOLLOWING THE TRANSACTION
Following consummation of the Transaction the Company will continue to
have a significant amount of debt. The Company estimates, subject to
negotiations with the lenders under its senior secured credit facilities, that
it will be able to repay at Closing from proceeds received in the Transaction
approximately $75.5 million of the principal and interest owing under its senior
secured credit facilities. Assuming repayment of $75.5 million, as of June 30,
2001, the remaining principal and interest owing under the Company's senior
credit facilities will total approximately $78.6 million. In addition, following
the consummation of the Transaction, as of June 30, 2001, the Company will
continue to owe $60.7 million, consisting of principal and interest, under its
subordinated and other debt obligations. The Company's ability to continue to
operate its remaining businesses is dependent upon the consummation of the
transaction and upon reaching a satisfactory agreement with its lenders
regarding the allocation between such lenders and the Company of the proceeds to
be received upon consummation of the Transaction. While there is no assurance,
the Company believes that it will be able to negotiate such an agreement.
While the earlier transactions (the sale of Alabama ready-mix and
concrete block businesses and certain operations in Northern Utah) involved the
sale of only 10% combined of the Company's assets, the sale of the Southeastern
businesses includes a substantial portion of the Company's aggregate sales
tonnage and reserves, as is set forth below on a pro forma basis.
AGGREGATE SALES TONNAGE
MILLION TONS
------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total Sales Tonnage..................... 19.7 19.1 15.8 9.5 7.2
Less SRM Aggregates, Inc. Sales Tonnage. 8.5 7.5 6.8 5.4 4.4
----- ----- ----- ----- ---
Pro Forma Sales Tonnage................. 11.2 11.6 9.0 4.1 2.8
AGGREGATES RESERVES
MILLION TONS
------------
Total Reserves Tonnage.................. 1,408
Less SRM Aggregates, Inc. Reserves Tonnage 641
-----
Remaining Tonnage ...................... 767
-30-
The remaining assets of the Company following consummation of the
Transaction will consist of aggregates production operations, ready-mix
operations, concrete block operations, paving operations and asphalt production
operations in the States of Arizona, California, Idaho, Nevada and Utah. The pro
forma book value as of March 31, 2001 (assuming the Transaction occurred as of
such date) of such remaining assets following consummation of the Transaction is
estimated to be approximately $306.7 million and the pro forma book value of net
assets (assets minus liabilities) is estimated to be $101.9 million.
The Company following consummation of the Transaction intends to
evaluate various strategic options relating to the Company's continuing
operations. Some of the options to be evaluated by the Company include
restructuring the Company's debt by selling off non-strategic assets, complete
sale of the Company's assets, conversion of existing debt to equity and raising
additional equity. However, there can be no assurance that such options will be
available, or if available, on terms acceptable to the Company. The Company's
ability to continue as a going concern following consummation of the Transaction
is dependent upon the refinancing or restructuring of its remaining debt. In
addition, there is no assurance that the Company following consummation of the
Transaction will be able to achieve operations sufficiently profitable to
service its remaining debt.
PURCHASED ASSETS
Pursuant to the Asset Purchase Agreement, the Sellers will sell to
Buyer substantially all of the assets of Sellers. The purchased assets include
those used in the mining and processing of aggregates and the production and
delivery of ready mix concrete, which are located primarily in Alabama and
Tennessee, and which are more generally set forth in the Asset Purchase
Agreement as the cash, cash equivalents and marketable securities, accounts,
notes and other receivables, inventory, machinery, equipment, furniture,
fixtures, leasehold improvements, vehicles, tooling and other tangible personal
property, real property, intellectual property, agreements, contracts, leases,
licenses, commitments, prepayments, deposits and certain prepaid expenses,
claims, refunds, causes of action, choses in action, rights of recovery, rights
of set off and rights of recoupment, franchises, approvals, permits, licenses,
orders, registrations, certificates, variances and similar rights obtained from
governments and documents of the Sellers (to the extent transferable).
PURCHASE PRICE
The aggregate purchase price to be paid to the Sellers will be equal
to $150,000,000. The purchase price will be paid in cash less approximately
$42,000,000 to cover operating and capital leases assumed or paid by the Buyer,
and less $15,000,000 to be placed in an escrow account, to be released to the
Sellers upon the receipt of certain third-party waivers. There is no assurance
that such waivers will be obtained.
ASSUMPTION OF LIABILITIES
As of the closing of the Transaction, the Buyer will assume certain
liabilities of the Sellers. The liabilities being assumed by Buyer are, accounts
payable; current liabilities and expenses; obligations and liabilities under
agreements, contracts, leases, licenses, commitments and purchase orders;
obligations and liabilities for refunds, advertising, coupons, adjustments,
allowances, repairs, exchanges, returns and warranties, merchantability and
other claims; and certain other liabilities arising under debt obligations of
the Sellers. However, Buyer will not assume any other liabilities, including,
without limitation, with respect to income taxes, intercompany advances, claims
brought by security holders of the Company against the Company or the Sellers,
employee benefit plans, worker's compensation laws, welfare benefit plans,
potential environmental claims, promissory notes, certain capital leases,
contingent liabilities, and liabilities relating to assets not purchased by the
Buyer.
-31-
REPRESENTATIONS AND WARRANTIES
The Asset Purchase Agreement contains various customary representations
and warranties of the Sellers and Buyer. Sellers' representations and warranties
include those as to their solvency following the transaction, corporate
authority, organization and power, absence of conflicts, financial statements,
absence of certain developments, real property, title to personal property,
equipment leases, taxes, contracts, intellectual property, litigation, license
and permits, employees, affiliated transactions, compliance with laws,
environmental and absence of undisclosed liabilities. Buyer's representations
and warranties include those as to its corporate authority, power and
organization, absence of conflicts and absence of undisclosed liabilities.
COVENANTS
From the date of the Asset Purchase Agreement through the Closing Date,
the Sellers will not, except as contemplated by the Asset Purchase Agreement,
make any loans or enter into any transactions with insiders of the Sellers,
distribute any cash or pay any dividends (except for payments to creditors and
dividends or distributions between Sellers), establish or make contributions not
in the ordinary course of business to employee benefit plans, enter into
contracts or agreements not in the ordinary course of business. In addition, the
Sellers from the date of the Asset Purchase Agreement through the Closing Date
will operate their respective businesses in the ordinary course of business, use
commercially reasonable efforts to obtain certain title commitments, consents
and estoppels from third parties, cooperate with Buyer to make all filings
required by law or the Asset Purchase Agreement and to use commercially
reasonable efforts to obtain payoff letters for certain debt obligations of the
Sellers.
From the date of the Asset Purchase Agreement through the Closing Date
the Buyer will coordinate with the Sellers all contact or communications with
the employees, customers or suppliers of the Sellers, in connection with the
Transaction, and will make all filings required under the Asset Purchase
Agreement or applicable laws.
CONDITIONS TO CLOSING
The obligations of the Buyer and the Sellers to consummate the
Transaction are subject to the satisfaction and waiver of the following
conditions: (i) there shall have been no material breach by the Buyer or Sellers
in the performance of their covenants and agreements; (ii) each of the
representations and warranties of the Buyer and Sellers shall be true and
correct as of the Closing Date, except as permitted or otherwise contemplated by
the Asset Purchase Agreement or is consented to by the Buyer or Sellers; (iii)
the transaction shall have been approved by the holders of a majority of the
Company's outstanding shares of Common Stock; (iv) no court or government agency
shall have issued any order enjoining the Transaction; (v) commitments to issue
title insurance for certain tracts of real estate shall have been issued by
First American Title Insurance Company; (vi) all waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have
expired; (vii) certain third-party consents and waivers shall have been
obtained; (viii) the receipt of legal opinions from counsel to the Company,
Sellers and Buyer as to certain corporate matters; (ix) the remediation of
certain environmental matters; and (x) the inspection and testing to Buyer's
reasonable satisfaction, in accordance with specifications set forth in the
Asset Purchase Agreement, of aggregates reserves at quarries being sold to Buyer
by Sellers.
VOTING AGREEMENT
Under the terms of a Voting Agreement dated July 11, 2001, between the
Buyer and Golder, Thoma, Rauner Fund IV L.P. ("GTCR"), GTCR is obligated to vote
in favor of the Transaction at the
-32-
Special Meeting. Because as of the record date GTCR owned a majority of the
outstanding shares of the Company, approval of the Transaction is assured.
TERMINATION
The Asset Purchase Agreement may be terminated prior to closing of the
Transaction under the following circumstances: (i) by mutual consent of the
parties; (ii) by the Buyer, if the Sellers shall have failed to comply in any
material respect with any of their obligations or covenants and such failure has
not been waived by the Buyer; (iii) by the Sellers, if the Buyer shall have
failed to comply in any material respect with its obligations or covenants and
such failure has not been waived by the Sellers; (iv) by the Sellers, if the
board of directors of any of the Sellers determines, based on the advice of
counsel, that it is required by law to terminate the Asset Purchase Agreement in
order to comply with its fiduciary duties; (v) by either the Sellers or the
Buyer, if the Asset Purchase Agreement is deemed to be unenforceable in any
bankruptcy or similar proceeding in which any of the Sellers is the debtor; and
(vi) by either the Sellers or the Buyer, if the closing has not occurred on or
prior to October 8, 2001.
The Asset Purchase Agreement requires the Sellers to pay Buyer a
termination fee of 2% of the Purchase Price plus third-party expenses not to
exceed $500,000 if the Company fails to receive stockholder approval prior to
October 8, 2001 or if any of the Sellers' boards of directors terminates the
Asset Purchase Agreement, based on advice of its counsel that it is required by
law to do so, and the Company or the Sellers within 360 days of the termination
enter into a similar transaction to sell to another party the assets of the
Sellers.
INDEMNIFICATION
The Asset Purchase Agreement provides that, subject to certain minimum
and maximum limits on liability, the Company, Buyer and Sellers will indemnify
each other, and hold each other harmless from any penalties, fines, costs,
amounts paid in settlement, obligations, expenses, fees, liability, deficiency,
damage or claim, including court costs and reasonable attorneys' fees and
expenses, as a result of:
o the breach by the Company, Buyer or Sellers of any
representation or warranty made by the Company, Buyer or
Sellers contained in the Asset Purchase Agreement;
o the breach by the Company, Buyer or Sellers of any covenant or
agreement made by the Company, Buyer or Sellers contained in
this Agreement; and
o in addition, the Company and Sellers have agreed to indemnify
the Buyer for any liabilities not assumed by Buyer, and Buyer
will indemnify the Company and Sellers for liabilities assumed
by Buyer.
APPRAISAL RIGHTS
The Company is organized under the corporate laws of the State of
Delaware. Delaware law does not provide for appraisal or other similar rights
for dissenting stockholders in connection with the sale. Accordingly, the
Company's stockholders will have no right to dissent and obtain payment for
their shares.
ACCOUNTING TREATMENT
The Transaction will be treated as a sale for accounting purposes. A
book loss (net of tax) will be recognized to the extent that the proceeds from
the Transaction are less than the sum of (i) the book value
-33-
of the net assets sold and (ii) transaction expenses. Based upon the Pro Forma
Financial information contained elsewhere herein, as of March 31, 2001 the
Company estimates that, excluding the $15 million of contingent proceeds to be
held in escrow, if the Transaction occurred on such date the Company would incur
a book pre-tax loss and net loss of approximately $15.3 million and $10 million,
respectively. To the extent that the Company satisfies certain conditions as set
forth in the Asset Purchase Agreement related to the escrowed funds and such
funds, or portion thereof are released to the Company in subsequent periods the
pre-tax book loss could be reduced by up to a maximum of $15 million. There can
be no assurance that the Company will be able to satisfy the conditions set
forth in the Asset Purchase Agreement to effect a release of all or a portion of
the escrowed funds.
FEDERAL TAX CONSEQUENCES
As described above, even though the Sellers will recognize a book loss
on the sale of assets (excluding the $15 million of escrowed funds) they will
recognize taxable gain on the sale of the assets which will result in corporate
tax. In general, the Sellers will recognize gains or losses on the sale of the
assets equal to the difference, if any, between the amount realized by the
Sellers from the sale of each asset less the Sellers' adjusted tax basis in each
such asset. The amount realized by the Sellers will be equal to the sum of the
amount of money received by the Sellers plus the amount of any liabilities of
the Sellers that are assumed by the Buyer in consideration for each such asset.
However, the Company estimates that any federal tax will be largely offset by
losses available to the Company. Consummation of the sale will not be a taxable
event for United States federal income tax purposes for the stockholders of the
Company.
GOVERNMENTAL AND REGULATORY APPROVALS
The Company is aware of no government or regulatory approvals required
for the consummation of the asset sale other than filing this proxy statement
with the Securities and Exchange Commission and the filing of a notification
with the Federal Trade Commission and the Antitrust Division of the U.S.
Department of Justice, and the waiver or expiration of any waiting periods in
accordance with the Hart-Scott-Rodino Antitrust Act of 1976, as amended.
ESTIMATED Closing
If the Company's stockholders approve the Transaction, the Company
expects that the closing of the Transaction will take place on or about August
22, 2001, or at such other time as the Company and the Buyer may agree upon.
RECOMMENDATION OF THE BOARD OF DIRECTORS FOR THE TRANSACTION
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
TRANSACTION. THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS APPROVAL OF THE
ASSET SALE PURSUANT TO THE TERMS OF THE ASSET PURCHASE AGREEMENT BY THE
STOCKHOLDERS OF THE COMPANY.
PRO FORMA FINANCIAL INFORMATION
The pro forma financial information set forth below is unaudited and
not necessarily indicative of the results that would actually have occurred if
the transaction had been consummated as of January 1, 2001 or January 1, 2000
for income statement purposes, or March 31, 2001 for balance sheet purposes.
This pro forma financial information is also not necessarily indicative of
results which may be obtained in the future.
-34-
The pro forma adjustments, as described in the notes to the pro forma
condensed consolidated balance sheet and pro forma consolidated statements of
operations, are based on available information and upon certain assumptions that
management believes are reasonable. The unaudited pro forma consolidated
financial information should be read in conjunction with the U.S. Aggregates,
Inc. financial statements, including the related notes thereto.
The Company is in the process of finalizing its results for the second
quarter ended June 30, 2001. In that connection and in the context of continuing
to operate its western businesses, the Company believes it will record in the
quarter ended June 30, 2001 one-time non-cash charges in the range of $20
million to $25 million relating to asset writedowns, inventory revaluations and
other charges (excluding the book loss on the sale of the Southeastern
operations to Buyer). The following pro forma financial statements do not
reflect such charges.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following unaudited pro forma condensed consolidated balance sheet
at March 31, 2001 has been prepared to reflect the proposed sale of the
Company's Southeastern operations based on the assumption that the sale was
consummated at that date. The pro forma condensed consolidated balance sheet
should be read in conjunction with the Company's consolidated financial
statements and notes thereto included in the Company's 2000 Annual Report on
Form 10-K and the condensed consolidated financial statements of the Company for
the three months ended March 31, 2001 and 2000 included in the Company's March
2001 Quarterly Report on Form 10-Q.
-35-
U.S. AGGREGATES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, 2001
----------------------------------------------------------
CONSOLIDATED DISPOSITIONS (a) ADJUSTMENTS (b) PRO FORMA
------------ ------------- ------------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,688 $ (137) $ 10,000(b) $ 11,551
Trade accounts receivable, net 32,085 (8,969) -- 23,116
Inventories, net 27,828 (11,154) -- 16,674
Prepaid expenses and other current assets 6,567 (2,438) -- 4,129
Receivable from asset sale 22,220 -- -- 22,220
---------- --------- --------- --------
Total current assets 90,388 (22,698) 10,000 77,690
---------- --------- --------- --------
PROPERTY, PLANT AND EQUIPMENT 332,034 (83,895) -- 248,139
Less: Accumulated depreciation and depletion (42,717) 11,617 -- (31,100)
---------- --------- --------- --------
Net property, plant and equipment 289,317 (72,278) -- 217,039
---------- --------- --------- --------
INTANGIBLE ASSETS, net 18,377 (10,404) -- 7,973
OTHER ASSETS 15,933 (10,744) (1,142)(e) 4,047
---------- --------- --------- --------
Total assets $ 414,015 $(116,124) $ 8,858 $306,749
========== ========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES $ 76,181 $ (12,514) $ (3,356)(b)(h) $ 60,311
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion 183,952 -- (75,821)(b)(h) 108,131
DEFERRED INCOME TAXES, net 40,481 -- (5,357)(g) 35,124
OTHER 1,527 (258) -- 1,269
---------- --------- --------- --------
Total liabilities 302,141 (12,772) (84,534) 204,835
---------- --------- --------- --------
MINORITY INTEREST, net 11 (11) -- --
---------- --------- --------- --------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized,
14,908,222 shares outstanding, including 7,629 shares of
treasury stock 149 -- -- 149
Additional paid-in capital 123,648 -- -- 123,648
Notes receivable from sale of stock (1,267) -- -- (1,267)
Treasury stock, at cost (2) -- -- (2)
Retained earnings (deficit) (10,665) (103,341) 93,392 (20,614)
---------- --------- --------- --------
Total shareholders' equity 111,863 (103,341) 93,392 101,914
---------- -------- --------- ---------
Total liabilities, minority interest and
shareholders' equity $ 414,015 $(116,124) $ 8,858 $ 306,749
========== ========= ========= =========
Net book value per share $ 7.51 $ 6.84
========== =========
Weighted average common shares outstanding 14,900,593 14,900,593
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET:
- - -------------------------------------------------------
(a) To eliminate the balance sheet of the Southeastern operations from the
consolidated balance sheet as of March 31, 2001.
(b) To give effect to the proposed sale as of March 31, 2001, reflecting
the application, subject to negotiation with the Company's senior
secured lenders, of a portion of the cash proceeds from the sale toward
the reduction of senior company debt with the balance available for
working capital. For purposes of these pro forma statements, the
Company has assumed that $10 million of proceeds will be available for
working capital needs. The pro forma loss applicable to the above
proposed sale is as follows:
CALCULATION OF PRO FORMA LOSS
Gross proceeds from the sale..................................................$150,000
Deferred proceeds............................................................. (15,000) (c)
--------
Net proceeds to the Company.............................................135,000
-36-
Net assets sold..............................................................(103,341)
Pay-off / assumption of off-balance sheet liabilities.........................(41,823) (d)
Estimated expenses related to the sale.........................................(4,000) (e)
Deferred finance charges written off...........................................(1,142) (f)
--------
Pro forma pre-tax loss.......................................................($15,306)
Tax (provision) benefit........................................................$5,357 (g)
--------
Pro forma loss.........................................................($9,949)
=========
CALCULATION OF NET CASH PROCEEDS
Net proceeds to the Company..................................................$135,000
Pay-off / assumption of off-balance sheet liabilities.........................(41,823) (d)
Estimated expenses related to the sale.........................................(4,000) (e)
--------
Net cash proceeds to the Company.......................................$89,177
========
APPLICATION OF NET CASH PROCEEDS
Repayment of parent company long-term debt....................................$75,522
Repayment of the Southeastern debt..............................................3,655 (h)
Estimated cash available for working capital...................................10,000
--------
Net cash proceeds to the Company.......................................$89,177
========
(c) A portion of the proceeds are contingent and will therefore be deferred and
deposited in escrow to be released to the Company only upon the
satisfaction of certain conditions set forth in the Asset Purchase
Agreement.
(d) Off-balance sheet liabilities of $41,823, primarily representing equipment
operating lease obligations, will either be assumed by the Buyer or paid
off at closing, thereby reducing the cash proceeds.
(e) Includes investment banking fees, legal and professional fees, and a $1
million success fee payable to the senior secured lenders upon consummation
of the Transaction pursuant to the Seventh Amendment to the Senior Secured
Credit Agreement.
(f) Deferred finance charges of $1,142 have been written off in connection with
the pro forma pay-down of senior debt.
(g) Income taxes are provided for at a blended federal and state statutory rate
of 35%.
(h) Repayment of capital leases and notes not assumed by the Buyer.
-37-
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma consolidated statements of
operations for the year ended December 31, 2000 and for the three months ended
March 31, 2001 have been prepared to reflect the proposed sale of the
Southeastern operations, assuming that such sale took place on January 1 of each
2000 and 2001, respectively. The statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-K for the period ended December 31, 2000 and the condensed
consolidated financial statements for the three months ended March 31, 2001 and
2000 in the Company's Form 10-Q for the quarter ended March 31, 2001. The pro
forma consolidated statements of operations are not necessarily indicative of
the results of operations of the Company as they may be in the future or as they
might have been had the sale been effective January 1, 2001 or 2000.
U.S. AGGREGATES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001
------------------------------------------------------------
OTHER
PRO FORMA
CONSOLIDATED DISPOSITIONS (a) ADJUSTMENTS PRO FORMA
------------- ------------ ----------- -----------
NET SALES $ 43,732 $ (17,270) $ -- $ 26,462
COST OF PRODUCTS SOLD 40,746 (13,096) -- 27,650
------------- --------- ------- ----------
Gross profit 2,986 (4,174) -- (1,188)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,037 (1,816) -- 6,221
DEPRECIATION, DEPLETION AND AMORTIZATION 4,418 (1,026) -- 3,392
(GAIN) ON DISPOSAL OF ASSETS (49) -- -- (49)
RESTRUCTURING COSTS 1,190 -- -- 1,190
------------- --------- ------- ----------
Loss from operations (10,610) (1,332) -- (11,942)
OTHER INCOME (EXPENSES):
Interest and financing, net (7,870) 157 1,673(b)(c) (6,040)
Other, net (102) -- -- (102)
------------- --------- ------- ----------
Loss before income taxes (18,582) (1,175) 1,673 (18,084)
BENEFIT FROM INCOME TAXES 6,504 411(d) (586)(d) 6,329
------------- --------- ------- ----------
Net loss $ (12,078) $ (764) $ 1,087 $ (11,755)
============= ========= ======= ==========
Loss per common share--basic
Net loss available for common shareholders $ (0.81) $ (0.79)
============= ==========
Weighted average common shares outstanding 14,900,593 14,900,593
Loss per common share--diluted
Net loss available for common shareholders $ (0.81) $ (0.79)
============= ==========
Weighted average common shares outstanding 14,900,593 14,900,593
-38-
U.S. AGGREGATES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
YEAR ENDED DECEMBER 31, 2000
------------------------------------------------------------------
PRO FORMA
CONSOLIDATED DISPOSITIONS (a) ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
NET SALES $ 291,689 $ (92,568) $ -- $ 199,121
COST OF PRODUCTS SOLD 235,374 (66,172) -- 169,202
----------- ---------- ------------ ------------
Gross profit 56,315 (26,396) -- 29,919
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 35,825 (8,362) -- 27,463
DEPRECIATION, DEPLETION AND AMORTIZATION 16,816 (4,298) -- 12,518
GAIN ON DISPOSAL OF ASSETS (2,021) -- -- (2,021)
RESTRUCTURING COSTS 2,199 -- -- 2,199
ASSET IMPAIRMENT CHARGE 8,447 -- -- 8,447
----------- ---------- ------------ ------------
Income (loss) from operations (4,951) (13,736) -- (18,687)
OTHER INCOME (EXPENSES):
Interest, net (19,964) -- 7,868(b)(c) (12,096)
Other, net (984) 311 -- (673)
----------- ---------- ------------ ------------
Income (loss) before income taxes,
minority interest and extraordinary item (25,899) (13,425) 7,868 (31,456)
BENEFIT FROM (PROVISION FOR) INCOME TAXES 9,065 4,699(d) (2,754)(d) 11,010
----------- ---------- ------------ ------------
Income (loss) before minority interest and
extraordinary item (16,834) (8,726) 5,114 (20,446)
MINORITY INTEREST 1 (1) -- --
---------- ---------- ------------ ------------
Income (loss) before extraordinary item (16,833) (8,727) 5,114 (20,446)
EXTRAORDINARY ITEM: Loss on extinguishment of debt,
less applicable income tax benefit of $175 (326) -- -- (326)
----------- ---------- ----------- ------------
Net income (loss) $ (17,159) $ (8,727) $ 5,114 $ (20,772)
=========== ========== =========== ============
Loss per common share before extraordinary item--basic
Loss available for common shareholders $ (1.13) $ (1.37)
=========== ============
Weighted average common shares outstanding 14,900,593 14,900,593
Loss per common share before extraordinary item--diluted
Loss available for common shareholders $ (1.13) $ (1.37)
=========== ============
Weighted average common shares outstanding 14,900,593 14,900,593
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS:
(a) To eliminate the operations of the Southeastern businesses to be sold.
(b) Historical amortization of deferred finance charges has been reduced by
$91 for the three months ended March 31, 2001 and $192 for the year
ended December 31, 2000 in connection with the pro forma write-off of
deferred finance charges resulting from the pay-down of long-term debt.
(c) Includes the interest savings which would have occurred had the
transaction taken place January 1 of each period and pro forma senior
debt repayments of $75.5 million were made at such dates.
(d) Adjustment to provision for income taxes as if the sale had occurred on
January 1 of each period subject to a blended federal and state
statutory tax rate of 35%.
-39-
SELECTED FINANCIAL INFORMATION
U.S. AGGREGATES, INC. AND SUBSIDIARIES
HISTORICAL SELECTED FINANCIAL DATA
QUARTERS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ---------- ----------- ----------- ----------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Net Sales $ 43,732 $ 54,586 $ 291,689 $ 308,592 $ 237,333 $ 166,915 $ 133,378
Income (loss) before income taxes,
minority interest and extraordinary item (18,582) (7,826) (25,899) 23,269 8,965 9,512 10,831
Income (loss) before extraordinary item (12,078) (5,087) (16,833) 14,197 4,832 5,505 6,444
Income (loss) before extraordinary
item available for common shareholders
per share
--basic $ (0.81) $ (0.34) $ (1.13) $ 1.20 $ 0.12 $ 0.29 $ 0.57
--diluted $ (0.81) $ (0.34) $ (1.13) $ 1.16 $ 0.11 $ 0.28 $ 0.57
Weighted average common shares outstanding
--basic 14,900,593 14,900,593 14,900,593 9,522,156 6,136,630 6,116,718 6,074,704
--diluted 14,900,593 14,900,593 14,900,593 9,799,817 6,382,094 6,306,747 6,095,472
Total assets $ 414,015 $ 431,266 $ 427,206 $ 414,928 $ 337,611 $ 172,266 $ 150,139
Long-term obligations & redeemable
preferred stock 183,952 187,798 190,673 160,312 229,353 126,115 110,123
Cash dividends declared per share $ -- $ 0.03 $ 0.09 $ 0.03 $ -- $ -- $ --
SOUTHEASTERN OPERATIONS
HISTORICAL SELECTED FINANCIAL DATA
QUARTERS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- -----------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- --------- -------- -------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Net Sales $ 17,270 $ 23,575 $ 92,568 $ 92,678 $ 84,734 $ 73,485 $ 59,217
Income before income taxes
and minority interest 773 1,669 9,762 11,825 5,248 5,654 6,637
Net income 502 1,085 6,346 7,572 3,434 3,745 4,422
Total assets $116,124 $119,577 $111,977 $110,421 $ 88,685 $ 81,138 $ 69,251
Long-term obligations 2,090 3,380 2,234 1,102 1,102 2,102 3,102
Cash dividends declared per share $ -- $ -- $ -- $ -- $ -- $ -- $ --
-40-
FINANCIAL STATEMENTS
Certain financial statements of the Company and its Southeastern
operations are attached hereto as Annex A.
AVAILABILITY OF 10-K REPORT
THE COMPANY FILED ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2000 WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 2001.
A COPY OF THE REPORT, INCLUDING ANY FINANCIAL STATEMENTS AND SCHEDULES, AND A
LIST DESCRIBING ANY EXHIBITS NOT CONTAINED THEREIN, MAY BE OBTAINED WITHOUT
CHARGE BY ANY STOCKHOLDER. THE EXHIBITS ARE AVAILABLE UPON PAYMENT OF CHARGES
WHICH APPROXIMATE THE COMPANY'S COST OF REPRODUCTION OF THE EXHIBITS. REQUESTS
FOR COPIES OF THE REPORT SHOULD BE SENT TO THE OFFICE OF THE CORPORATE
CONTROLLER AT THE MAILING ADDRESS OF THE COMPANY LISTED ON PAGE ONE OF THIS
PROXY STATEMENT.
WHERE YOU CAN FIND MORE INFORMATION
U.S. Aggregates, Inc. and Florida Rock Industries, Inc. file annual,
quarterly and current reports, proxy statements and other information with the
SEC. You may read and copy any reports, statements or other information U.S.
Aggregates, Inc. or Florida Rock Industries, Inc. files at the SEC's public
reference rooms in Washington D.C., New York, New York, and Chicago Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. U.S. Aggregates, Inc.'s and Florida Rock Industries, Inc.'s
public filings are also available to the public from document retrieval services
and at the website maintained by the SEC at http: //www.sec.gov.
OTHER BUSINESS
The Board of Directors knows of no other business that will be
presented for consideration at the special meeting. If other matters are
properly brought before the meeting, however, it is the intention of the persons
named in the accompanying proxy to vote the shares represented thereby on such
matters in accordance with their best judgment.
By Order of the Board of Directors,
Hobart Richey
Secretary
August 1, 2001
-41-
ANNEX A
INDEX TO FINANCIAL STATEMENTS
-----------------------------
ITEM PAGE
- - ---- ----
FINANCIAL STATEMENTS OF U.S. AGGREGATES, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------
Condensed Consolidated Balance Sheets (unaudited) as of
March 31, 2001 and March 31, 2000 ........................................F-1
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 2001 and March 31, 2000..............F-2
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 2001 and March 31, 2000..............F-3
Notes to Condensed Consolidated Financial Statements for
the three months ended March 31, 2001.....................................F-4
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the quarter ended March 31, 2001............F-9
Report of Independent Public Accountants....................................F-12
Consolidated Balance Sheets as of December 31, 2000
and December 31, 1999....................................................F-13
Consolidated Statements of Operations for the year ended
December 31, 2000, December 31, 1999 and December 31, 1998...............F-14
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, December 31, 1999 and December 31, 1998...............F-15
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2000 and December 31, 1999..............F-16
Notes to Consolidated Financial Statements for the year ended
December 31, 2000........................................................F-17
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the year ended December 31, 2000...........F-35
INDEX TO FINANCIAL STATEMENTS
-----------------------------
ITEM PAGE
- - ---- ----
Unaudited Financial Statements of SRM Holdings Corp.
- - ---------------------------------------------------
Condensed Consolidated Balance Sheets as of March 31, 2001
and March 31, 2000.......................................................F-42
Condensed Consolidated Statements of Operations for the three months
ended March 31, 2001 and March 31, 2000..................................F-43
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and March 31, 2000..................................F-44
Notes to Condensed Consolidated Financial Statements
for the three months ended March 31, 2001.................................F-45
Consolidated Balance Sheets as of December 31, 2000
and December 31, 1999....................................................F-48
Consolidated Statements of Operations for the year ended
December 31, 2000 and December 31, 1999..................................F-49
Consolidated Statements of Cash Flows for the years ended
December 31, 2000 and December 31, 1999..................................F-50
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2000 and December 31, 1999..............F-51
Notes to Consolidated Financial Statements for the year ended
December 31, 2000........................................................F-52
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, MARCH 31, DECEMBER 31,
2001 2000 2000
--------- --------- ---------
(UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,688 $ 4,123 $ 5,021
Trade accounts receivable, net 32,085 41,992 34,860
Inventories, net 27,828 31,739 29,795
Net assets held for sale -- -- 23,880
Prepaid expenses and other current assets 6,567 9,075 7,357
Receivable from asset sale 22,220 -- --
--------- --------- ---------
Total current assets 90,388 86,929 100,913
--------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT 332,034 348,568 333,901
Less: Accumulated depreciation and depletion (42,717) (35,642) (41,835)
--------- --------- ---------
Net property, plant and equipment 289,317 312,926 292,066
--------- --------- ---------
INTANGIBLE ASSETS, net 18,377 22,592 18,823
OTHER ASSETS 15,933 8,819 15,404
--------- --------- ---------
Total assets $ 414,015 $ 431,266 $ 427,206
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES $ 76,181 $ 53,719 $ 64,850
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion 183,952 187,798 190,673
DEFERRED INCOME TAXES, net 40,481 52,664 47,377
OTHER 1,527 117 330
--------- --------- ---------
Total liabilities 302,141 294,298 303,230
--------- --------- ---------
MINORITY INTEREST, net 11 12 11
--------- --------- ---------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value,
100,000,000 shares authorized,
14,908,222 shares outstanding,
including 7,629 shares of treasury stock 149 149 149
Additional paid-in capital 123,648 123,648 123,648
Notes receivable from sale of stock (1,267) (1,218) (1,243)
Treasury stock, at cost (2) (2) (2)
Retained earnings (deficit) (10,665) 14,379 1,413
--------- --------- ---------
Total shareholders' equity 111,863 136,956 123,965
--------- --------- ---------
Total liabilities, minority interest
and shareholders' equity $ 414,015 $ 431,266 $ 427,206
========= ========= =========
The accompanying notes are an integral part of these statements.
F-1
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
----------- -----------
(UNAUDITED)
NET SALES $ 43,732 $ 54,586
COST OF PRODUCTS SOLD 40,746 45,332
----------- -----------
Gross profit 2,986 9,254
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,037 8,995
DEPRECIATION, DEPLETION AND AMORTIZATION 4,418 4,013
(GAIN) ON DISPOSAL OF ASSETS (49) --
RESTRUCTURING COSTS 1,190 --
----------- -----------
Loss from operations (10,610) (3,754)
OTHER INCOME (EXPENSES):
Interest and financing, net (7,870) (4,078)
Other, net (102) 6
----------- -----------
Loss before income taxes (18,582) (7,826)
BENEFIT FROM INCOME TAXES 6,504 2,739
----------- -----------
Net loss $ (12,078) $ (5,087)
=========== ===========
Loss per common share--basic
Net loss available for common shareholders $ (0.81) $ (0.34)
=========== ===========
Weighted average common shares outstanding 14,900,593 14,900,593
Loss per common share--diluted
Net loss available for common shareholders $ (0.81) $ (0.34)
=========== ===========
Weighted average common shares outstanding 14,900,593 14,900,593
The accompanying notes are an integral part of these statements.
F-2
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
----------- -----------
(UNAUDITED)
NET CASH USED IN OPERATING ACTIVITIES $ (12,003) $ (6,731)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,857) (9,480)
Proceeds from sale of assets 2,390 77
----------- -----------
Net cash provided by (used in)
investing activities 533 (9,403)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (10,263) (7,810)
New borrowings 18,400 24,000
Dividends paid -- (447)
Debt issuance cost -- 36
----------- -----------
Net cash provided by financing activities 8,137 15,779
----------- -----------
NET DECREASE IN CASH (3,333) (355)
CASH AND CASH EQUIVALENTS, beginning of period 5,021 4,478
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,688 $ 4,123
=========== ===========
DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6,204 $ 4,677
Income taxes 215 693
NON-CASH TRANSACTIONS:
Dividends declared but not paid -- 447
Addition of capital lease obligations -- 14,224
Termination of capital lease obligation 520 --
Net inventory sold as part of sale of
Northern Utah assets 1,416 --
Net other assets sold as part of sale of
Northern Utah assets 223 --
Debt assumed by buyers as part of sale of
Northern Utah assets 1,849 --
Notes receivable for sale of Northern Utah assets 22,220 --
Transfer of assets held for sale as part of
the sale of Northern Utah Assets 22,381 --
The accompanying notes are an integral part of these statements.
F-3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2001
(Unaudited)
1. Organization and Basis of Presentation
Founded in 1994, U.S. Aggregates, Inc. ("USAI" or the "Company") is a
leading producer of aggregates. Aggregates consist of crushed stone, sand and
gravel. The Company's products are used primarily for construction and
maintenance of highways, other infrastructure projects, and for commercial and
residential construction. USAI serves local markets in nine states in two
regions of the United States, the Mountain states and the Southeast.
The accompanying unaudited condensed consolidated financial statements
of U.S. Aggregates, Inc. and subsidiaries have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to the Quarterly Report on Form
10-Q and to Article 10 of Regulation S-X. In the opinion of management, the
interim financial information provided herein reflects all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the results of operations for the interim periods. The results of operations for
the three months ended March 31, 2001, are not necessarily indicative of the
results to be expected for the full year.
These condensed consolidated financial statements and the notes
thereto should be read in conjunction with the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000.
2. Risk Factors
The Company's business is seasonal with peak revenue and profits
occurring primarily in the months of April through November. Bad weather
conditions during this period could adversely affect operating income and cash
flow and could therefore have a disproportionate impact on the Company's results
for the full year. Quarterly results have varied significantly in the past and
are likely to vary significantly from quarter to quarter in the future.
A majority of the Company's revenues are from customers who are in
industries and businesses that are cyclical in nature and subject to changes in
general economic conditions. In addition, since operations occur in a variety of
geographic markets, the Company's business is subject to the economic conditions
in each such geographic market. General economic downturns or localized
downturns in the regions where the Company has operations, including any
downturns in the construction industry, could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company's operations are subject to and affected by federal, state
and local laws and regulations including such matters as land usage, street and
highway usage, noise level and health, safety and environmental matters. In many
instances, various permits are required. Although management believes that the
Company is in compliance with regulatory requirements, there can be no assurance
that the Company will not incur material costs or liabilities in connection with
regulatory requirements.
Certain of the Company's operations may from time to time involve the
use of substances that are classified as toxic or hazardous substances within
the meaning of these laws and regulations. Risk of environmental liability is
inherent in the operation of the Company's business. As a result, it is possible
that environmental liabilities will have a material adverse effect on the
Company in the future.
The Company markets its aggregates products to customers in a variety
of industries, including public infrastructure, commercial and residential
construction contractors; producers of asphaltic concrete, ready-mix concrete,
concrete blocks, and concrete pipes; and railroads. A substantial amount of the
aggregates is used in publicly funded projects. A decrease or delay in
government funding of highway construction and maintenance and other
infrastructure projects could reduce sales and profits.
F-4
A material rise in the price or a material decrease in the
availability of oil could and did adversely affect operating results. The cost
of asphalt is correlated to the price of oil. Any increase in the price of oil
might result in the Company's customers using less asphalt. A material increase
in the price of oil could also lead to higher gasoline costs, which could
increase the Company's operating costs. These increases may not be accepted by
customers in the form of higher prices.
The Company believes that its internally generated cash flow,
including the net proceeds from sales of assets, and borrowings under existing
credit facilities (including a new facility to be provided by existing lenders
which is subject to final bank approval and completion of definitive
documentation) is sufficient to meet liquidity requirements necessary to fund
operations, capital requirements and debt service. The Company's new facility,
when completed, will provide additional short-term liquidity to the Company
contingent upon achieving progress on certain asset sales. To the extent the
Company is not able to complete its new facility or to achieve certain asset
sales or the net proceeds from these asset sales fall short of expectations, the
Company may need to obtain additional sources of financing. There can be no
assurance that such financing will be available or, if available, on terms
favorable to the Company. If the Company is unable to obtain such additional
financing, there could be a material adverse effect on the Company's business,
financial condition and results of operation.
3. Long-Term Debt
A summary of long-term debt is as follows:
MARCH 31 DECEMBER 31
2001 2000
-------- --------
(DOLLARS IN THOUSANDS)
Prudential Insurance subordinated notes,
net of discount of $553 and $575, respectively $ 44,447 $ 44,425
Bank of America term loan A 29,947 30,900
Bank of America term loan B 41,704 43,004
Bank of America revolving loan 89,000 77,600
Notes payable to former shareholders 1,645 1,890
Capital lease obligations 9,532 11,240
Other 3,120 4,456
-------- --------
Total long-term debt and capital obligations 219,395 213,515
Less: Current portion (35,443) (22,842)
-------- --------
Long-term debt and capital lease obligations,
net of current portion $183,952 $190,673
-------- --------
On April 18, 2001, the Company entered into a Sixth Amendment with its
senior secured lenders which waived all existing covenant defaults, adjusted
future financial covenants, deferred certain principal payments until March 31,
2002, modified the debt repayment schedule, established a borrowing base on the
revolver, provided the Company with additional liquidity from the sale of
certain assets, established monthly interest payment schedules and provided for
increased interest rates to Alternate Base Rate plus 5.00% or Eurodollar Rate
plus 6.00%, of which 2.00% is capitalized and added to principal for the period
through March 31, 2002. The Sixth Amendment also provided for a fee of $1.25
million if the senior credit facility is not paid in full by March 31, 2002.
The Company also entered into an amendment with its subordinated note
holder to waive existing covenant defaults and to accept deferral of interest
payments through May 22, 2002 in exchange for a 2.00% increase in interest
rates, a deferred fee of $0.9 million and warrants for 671,582 shares with a
nominal exercise price.
In connection with the amendments of the senior secured credit
facility and the subordinated notes, an agreement was entered into with GTCR
Fund IV to loan to the Company $2 million as junior subordinated debt at an
interest rate of 18.00%. The junior subordinated debt does not mature until 120
F-5
days after senior secured facilities and subordinated notes are paid in full.
GTCR Fund IV will receive a deferred fee of $0.45 million and warrants for
435,469 shares with a nominal exercise price in exchange for its agreement to
provide the Company with the junior subordinated debt. This loan was funded on
April 30, 2001.
USAI is negotiating a short-term agreement with its existing senior
lenders to provide $5.0 million of additional liquidity to the Company and to
defer interest payments at the end of May and June. The additional cash
availability becomes available in three stages beginning May 21, 2001 through
June 4, 2001. This agreement would provide for an interest rate of Alternate
Base Rate plus 7%, a success fee of $1.0 million and an amendment fee of 25
basis points, or approximately $0.4 million. Availability under the agreement is
conditioned upon the Company's making progress with respect to certain asset
sales. All fees and interest payments are deferred until the earlier of July 31,
2001 (expiration of this short-term agreement) or the consummation of asset
sales.
4. Shareholders' Equity
The following Statement of Changes in Shareholders' Equity summarizes the
Company's equity transactions between December 31, 2000 and March 31, 2001:
TREASURY STOCK
----------------
NOTES SHARES
COMMON STOCK ADDITIONAL RECEIVABLE HELD RETAINED TOTAL
-------------------- PAID-IN FROM SALE IN EARNINGS SHAREHOLDERS'
SHARES AMOUNT AMOUNT OF STOCK TREASURY AMOUNT (DEFICIT) EQUITY
---------- ------- ---------- ---------- -------- ------ --------- -------------
BALANCE AT DECEMBER 31, 2OOO 14,908,222 $ 149 $ 123,648 $ (1,243) 7,629 $ (2) $ 1,413 $ 123,965
Notes receivable, net of payments -- -- -- (24) -- -- -- (24)
Net loss -- -- -- -- -- -- (12,078) (12,078)
---------- ------- --------- --------- ----- ------ -------- ----------
BALANCE
AT MARCH 31, 2001 14,908,222 $ 149 $ 123,648 $ (1,267) 7,629 $ (2) $(10,665) $ 111,863
========== ======= ========= ========= ===== ====== ======== ==========
5. Restructuring Costs
During the fourth quarter of 2000, the Company decided to restructure
its business operations through a plan, which provided for the closure of an
asphalt operation in Nevada, the disposition of certain operations in Idaho and
the consolidation of facilities in Utah (the "Restructuring Plan"). The
Restructuring Plan also includes actions intended to achieve an overall
reduction in corporate overhead.
The Company recorded restructuring charges of $1.2 million, of which,
$0.5 million relates to the loss on sale of operations in Idaho. The cash
charges of $0.7 million relate to severance benefits for terminated employees
and lease obligations relating to the closure of one of its corporate offices.
As of March 31, 2001, $0.1 million have been paid and an accrual in the amount
of $0.6 million related to the restructuring plan is included in the Condensed
Consolidated Balance Sheet.
F-6
6. Inventories
Inventories consist of the following as of:
March 31 December 31,
2001 2000
-------- -----------
(DOLLARS IN THOUSANDS)
Finished products $25,143 $26,835
Raw Materials 1,653 1,892
Supplies and parts 815 768
Fuel 217 324
Less: Allowances -- (24)
------- -------
$27,828 $29,795
======= =======
Inventories are pledged as security under various debt agreements.
7. Income per Share
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------------------
2001 2000
------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- ---------- ------ ------- ---------- ---------
Basic net loss
available for common
shareholders $(12,078) 14,900,593 $(0.81) $(5,087) 14,900,593 $(0.34)
Effect of dilutive securities -- -- -- -- -- --
---------- ----------
Dilutive net loss
available for common
shareholders $(12,078) 14,900,593 $(0.81) $(5,087) 14,900,593 $(0.34)
======== ========== ====== ======= ========== ======
8. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 1999, the FASB issued SFAS No, 137,
Accounting for Derivatives and Hedging Activities - Deferral of the Effective
Date of SFAS No. 133. In June 2000, the FASB issued SFAS No, 138, Accounting for
Certain Derivatives and Certain Hedging Activities, an amendment of FASB
Statement No. 133. Statement 133, as amended, establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative instrument's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative instrument's
gains and losses to offset related results on the hedged item in the income
statement, to the extent effective, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. The Company has adopted Statement 133 effective January 1,
2001. The Company has applied Statement 133 to only those hybrid instruments
that were issued, acquired, or substantively modified after December 31, 1998.
The Company has variable rate borrowings tied to the LIBOR rate. To
reduce its exposure to changes in the LIBOR rate, the Company has entered into a
swap contract. The Company is a party to an interest rate swap under which it
exchanges, at specified intervals, the difference between fixed and floating
interest amounts calculated on an agreed-upon notional amount of $37 million.
The interest rate swap contract has a two-year term that ends on December 29,
2002. The swap contract requires the Company's
F-7
counter party to pay it a floating rate of interest based on USD-LIBOR-BBA due
quarterly beginning March 29, 2001. In return, the Company will pay its counter
party a fixed rate of 6.11% interest due quarterly beginning March 29, 2001. The
Company will report all changes in fair value of its swap contract in earnings.
During the first quarter ended March 31, 2001, the Company recorded a decline in
the value of this swap contract of $0.9 million in interest and financing
expenses. The cumulative effect of adopting this standard effective January 1,
2001 was not significant.
9. Effective Tax Rate
The Company uses an effective tax rate based on its best estimate of
the tax rate expected to be applicable for the full fiscal year. This estimated
rate is applied to the current year-to-date results to determine the interim
provision for income taxes.
10. Sale of Northern Utah Assets
In March 2001, the Company sold certain of its construction materials
operations in Northern Utah to Oldcastle Materials, Inc. The proceeds were
utilized to pay-down debt and certain operating leases and provide the Company
with additional liquidity. In connection with the sale, the Company entered into
a long-term, royalty bearing lease of a quarry to Oldcastle. The revenues and
total assets related to the sold properties represented approximately 14% and
6%, respectively, of the Company's 2000 consolidated totals. The Company
recorded a $22.2 million receivable in the Condensed Consolidated Balance Sheet
at March 31, 2001 related to this sale. On April 2, 2001, the Company received
the $22.2 million cash proceeds and applied $14.2 million to the pay-down of its
senior credit facility.
11. New Litigation
On May 1, 2001 a complaint was filed against the Company and certain
of its officers and directors in United District Court for the Northern District
of California. The suit purports to be a class action filed on behalf of the
plaintiff and others similarly situated and alleges certain violations of the
federal securities laws. The complaint seeks damages and other relief. The
Company has retained counsel and intends to vigorously defend the complaint.
F-8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
We conduct our operations through the quarrying and distribution of
aggregate products in nine states in two regions of the United States, the
Mountain states and the Southeast. Our operations have the same general economic
characteristics including the nature of the products, production processes, type
and class of customers, methods of distribution and governmental regulations.
In March 2001, the Company sold certain of its construction materials
operations in Northern Utah to Oldcastle Materials, Inc. The proceeds were
utilized to pay-down debt and certain operating leases and provide the Company
with additional liquidity. In connection with the sale, the Company entered into
a long-term, royalty bearing lease of a quarry to Oldcastle. The revenues and
total assets related to the sold properties represented approximately 14% and
6%, respectively, of the Company's 2000 consolidated totals. The cash proceeds
from this transaction of approximately $22.2 million were recorded as a
receivable from sale of assets in the Company's Condensed Consolidated Balance
Sheet at March 31, 2001. On April 2, 2001, the Company received the $22.2
million cash proceeds and applied $14.2 million to the pay-down of its senior
credit facility.
The Company's business is seasonal, with peak sales and profits
occurring primarily in the months of April through November. Accordingly,
results of operations for any individual quarter are not necessarily indicative
of results for the full year.
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis should be read in
conjunction with the MD&A included in our Annual Report on Form 10-K for the
year ended December 31, 2000.
First Quarter Ended March 31, 2001 Compared to Restated First Quarter
Ended March 31, 2000
Net sales for the first quarter ended March 31, 2001 decreased 19.9
percent to $43.7 million, compared to $54.6 million for the same period in 2000.
Sales in 2000 included sales from the Company's Alabama concrete operations sold
under two separate transactions in April and December of 2000 and Eastern Idaho
operations sold in December 2000 and sales from the Company's asphalt and
construction operations in Nevada that were closed in November 2000. Excluding
sales from operations that were sold or closed in 2000, the Company's sales were
flat in the first quarter with an increase in sales in the Company's southeast
operations (11%) offsetting a decline in the Company's western operations (7%).
Excluding the effect of these sold or closed operations, aggregate sales
increased $0.9 million. Asphalt, paving and construction sales in the first
quarter of 2001 also increased $0.7 million or 12% over the same period of 2000.
However, these increases were more than offset by a decrease in ready mix
volumes of 9% and the shortfalls in transportation and other sales.
For the first three months of 2001, the Company reported gross profit
of $3.0 million, 6.8 percent of net sales, compared to $9.3 million, 17.0
percent of net sales, for the first three months of 2000. The decline in gross
profit was due to several factors: $1.5 million relating to the sale and closure
of operations in 2000; increases in fuel, liquid asphalt and energy costs of
$1.2 million; increases in repair and maintenance costs; higher production and
delivery costs for aggregates; and write downs of inventory.
Selling, general and administrative expenses in the first quarter of
2001 decreased $1.0 million to $8.0 million compared with $9.0 million for the
same period in 2000. This decrease resulted primarily from the sold or
discontinued operations of $1.4 million offset in part by an increase in
professional fees of $0.7 million.
F-9
As a result of the continued investment in our business in 2000,
depreciation and amortization grew by $0.4 million.
During the first quarter of 2001, the Company recorded restructuring
costs of $1.2 million, representing the loss on the sale of one of the Company's
operations in Idaho of $0.5 million and cash charges of $0.7 million for
severance benefits to terminated employees and lease obligations relating to the
closure of one of its corporate offices.
Net interest and financing expenses increased $3.8 million from $4.1
million in 2000 to $7.9 million in 2001. This increase was primarily due to an
increase in debt levels, as well as an increase in interest rates on outstanding
borrowings. The Company also recorded a reduction in the value of its interest
rate swap contract in the amount of $0.9 million.
Net loss for the first quarter was $12.1 million, or $0.81 per share,
compared with $5.1 million, or $0.34 per share, for the same quarter of 2000.
The effective tax rate for the quarters ended March 31, 2000 and 2001
was 35.0%.
LIQUIDITY AND CAPITAL RESOURCES
On April 18, 2001, the Company entered into a Sixth Amendment with its
senior secured lenders which waived all existing covenant defaults, adjusted
future financial covenants, deferred certain principal payments until March 31,
2002, modified the debt repayment schedule, established a borrowing base on the
revolver, provided the Company with additional liquidity from the sale of
certain assets, established monthly interest payment schedules and provided for
increased interest rates to Alternate Base Rate plus 5.00% or Eurodollar Rate
plus 6.00%, of which 2.00% is capitalized and added to principal for the period
through March 31, 2002. The Sixth Amendment also provided for a fee of $1.25
million if the senior credit facility is not paid in full by March 31, 2002.
The Company also entered into an amendment with its subordinated note
holder to waive existing covenant defaults and to accept deferral of interest
payments through May 22, 2002 in exchange for a 2.00% increase in interest
rates, a deferred fee of $0.9 million and warrants for 671,582 shares with a
nominal exercise price.
In connection with the amendments of the senior secured credit
facility and the subordinated notes, an agreement was entered into with GTCR
Fund IV to loan to the Company $2 million as junior subordinated debt at an
interest rate of 18.00%. The junior subordinated debt does not mature until 120
days after senior secured facilities and subordinated notes are paid in full.
GTCR Fund IV will receive a deferred fee of $0.45 million and warrants for
435,469 shares with a nominal exercise price in exchange for its agreement to
provide the Company with the junior subordinated debt. This loan was funded on
April 30, 2001.
USAI is negotiating a short-term agreement with its existing senior
lenders to provide $5.0 million of additional liquidity to the Company and to
defer interest payments at the end of May and June. The additional cash
availability becomes available in three stages beginning May 21, 2001 through
June 4, 2001. This agreement would provide for an interest rate of Alternate
Base Rate plus 7%, a success fee of $1.0 million and an amendment fee of 25
basis points, or approximately $0.4 million. Availability under the agreement is
conditioned upon the Company's making progress with respect to certain asset
sales. All fees and interest payments are deferred until the earlier of July 31,
2001 (expiration of this short-term agreement) or the consummation of asset
sales.
At March 31, 2001, working capital, exclusive of current maturities of
debt, assets held for sale, note receivable for the proceeds from sale of assets
and cash items, totaled $25.7 million compared to $30.0 million at December 31,
2000.
F-10
Net cash used in operating activities for the three months ended March
31, 2001 was $12.0 million, compared to the $6.7 million generated during the
same period last year. The increase in the use of cash was due to the increase
in operating loss offset by the reduction of working capital needs. Net cash
provided by investing activities for the three months ended March 31, 2001 was
$0.5 million compared to $9.4 million used in the same period in 2000 due to a
reduction in capital expenditures and an increase in proceeds from sale of
assets. Net cash provided by financing activities was $8.1 million for the three
months ended March 31, 2001 compared to $15.8 million during the same period
last year through increase borrowings under the Company's line of credit.
The Company believes that its internally generated cash flow,
including the net proceeds from sales of assets, and borrowings under existing
credit facilities (including a new facility to be provided by existing lenders
which is subject to final bank approval and completion of definitive
documentation) is sufficient to meet liquidity requirements necessary to fund
operations, capital requirements and debt service. The Company's new facility,
when completed, will provide additional short-term liquidity to the Company
contingent upon achieving progress on certain asset sales. To the extent the
Company is not able to complete its new facility or to achieve certain asset
sales or the net proceeds from these asset sales fall short of expectations, the
Company may need to obtain additional sources of financing. There can be no
assurance that such financing will be available or, if available, on terms
favorable to the Company. If the Company is unable to obtain such additional
financing, there could be a material adverse effect on the Company's business,
financial condition and results of operation.
FORWARD LOOKING STATEMENTS
Certain matters discussed in this report contain forward-looking
statements and information based on management's belief as well as assumptions
made by and information currently available to management. Such statements are
subject to risks, uncertainties and assumptions including, among other matters,
future growth in the construction industry; the ability of U.S. Aggregates, Inc.
to complete and effectively integrate its acquired companies operations; to fund
its liquidity needs; and general risks related to the markets in which U.S.
Aggregates, Inc. operates. Should one or more of these risks materialize, or
should underlying assumptions prove incorrect, actual results may differ
materially from those projected. Additional information regarding these risk
factors and other uncertainties may be found in the Company's filings with the
Securities and Exchange Commission.
F-11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF
U.S. AGGREGATES, INC.:
We have audited the accompanying consolidated balance sheets of U.S.
Aggregates, Inc. (a Delaware corporation) and Subsidiaries (the Company) as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity and cash flows for the years then ended. 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 in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of U.S.
Aggregates, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
San Francisco, California
March 21, 2001
(except with respect to the matters discussed in Note 9
as to which the date is April 18, 2001)
F-12
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31,
2000 1999
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,021 $ 4,478
Trade accounts receivable, net of allowance
for doubtful accounts of $2,238 and $1,273,
respectively 34,860 52,294
Notes and other receivables 928 2,022
Inventories, net 29,795 28,041
Net assets held for sale 23,880 --
Prepaid expenses and other current assets 6,429 5,780
----------- -----------
Total current assets 100,913 92,615
PROPERTY, PLANT AND EQUIPMENT, net 292,066 292,910
INTANGIBLE ASSETS, net 18,823 22,308
OTHER ASSETS 15,404 7,095
----------- -----------
Total assets $ 427,206 $ 414,928
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 29,991 $ 35,631
Accrued payroll 2,252 2,743
Other accrued liabilities 9,765 8,033
Income tax payable -- 886
Current portion of long-term debt 22,842 9,298
----------- -----------
Total current liabilities 64,850 56,591
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
net of current portion 190,673 160,312
DEFERRED INCOME TAXES, net 47,377 55,404
OTHER 330 96
----------- -----------
Total liabilities 303,230 272,403
----------- -----------
MINORITY INTEREST, net 11 12
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value,
100,000,000 shares authorized,
14,908,222 shares outstanding,
including 7,629 shares of treasury stock 149 149
Additional paid-in capital 123,648 123,648
Notes receivable from sale of stock (1,243) (1,195)
Treasury stock, at cost (2) (2)
Retained earnings 1,413 19,913
----------- -----------
Total shareholders' equity 123,965 142,513
----------- -----------
Total liabilities, minority interest and
shareholders' equity $ 427,206 $ 414,928
=========== ===========
The accompanying notes are an integral part of these statements.
F-13
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Year Ended December 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
NET SALES $ 291,689 $ 308,592 $ 237,333
COST OF PRODUCTS SOLD 235,374 224,088 176,814
----------- ----------- -----------
Gross profit 56,315 84,504 60,519
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 35,825 32,035 25,001
DEPRECIATION, DEPLETION AND AMORTIZATION 16,816 12,851 11,098
(GAIN) ON DISPOSAL OF ASSETS (2,021) -- --
RESTRUCTURING COSTS 2,199 -- --
ASSET IMPAIRMENT CHARGE 8,447 -- --
----------- ----------- -----------
Income (loss) from operations (4,951) 39,618 24,420
OTHER INCOME (EXPENSES):
Interest, net (19,964) (16,042) (14,351)
Other, net (984) (307) (1,104)
----------- ----------- -----------
Income (loss) before income taxes,
minority interest and extraordinary item (25,899) 23,269 8,965
BENEFIT FROM (PROVISION FOR) INCOME TAXES 9,065 (8,499) (3,748)
----------- ----------- -----------
Income (loss) before minority interest and
extraordinary item (16,834) 14,770 5,217
MINORITY INTEREST 1 (573) (385)
----------- ----------- -----------
Income (loss) before extraordinary item (16,833) 14,197 4,832
EXTRAORDINARY ITEM: Loss on extinguishment of debt,
less applicable income tax benefit of $175
and $161 (326) (264) (338)
----------- ----------- -----------
Net income (loss) $ (17,159) $ 13,933 $ 4,494
=========== =========== ===========
Income (loss) per common share--basic
Income (loss) before extraordinary item
available for common shareholders $ (1.13) $ 1.20 $ 0.12
Extraordinary item, net of tax (0.02) (0.03) (0.06)
----------- ----------- -----------
Net income (loss) available for
common shareholders $ (1.15) $ 1.17 $ 0.06
=========== =========== ===========
Weighted average common shares outstanding 14,900,593 9,522,156 6,136,630
Income (loss) per common share--diluted
Income (loss) before extraordinary item
available for common shareholders $ (1.13) $ 1.16 $ 0.11
Extraordinary item, net of tax (0.02) (0.03) (0.06)
----------- ----------- -----------
Net income (loss) available for
common shareholders $ (1.15) $ 1.13 $ 0.05
=========== =========== ===========
Weighted average common shares outstanding 14,900,593 9,799,817 6,382,094
The accompanying notes are an integral part of these statements.
F-14
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) before extraordinary item $ (16,833) $ 14,197 $ 4,832
Adjustments to reconcile income (loss) before
extraordinary item to net cash provided by
operating activities:
Depreciation, depletion and amortization 16,816 12,851 11,098
Restructuring charges, net of cash paid 1,272 -- --
Asset impairment charges 8,447 -- --
Provision for doubtful accounts, net 965 109 (49)
Deferred income taxes (8,027) 7,117 3,226
Loss (gain) on disposal of fixed assets
and real estate 660 (171) 330
Minority interest (1) 573 775
Extraordinary item (326) (264) (338)
Change in operating assets and liabilities:
Trade accounts, notes and other receivables 17,610 (9,096) (13,018)
Inventories (1,754) (3,665) (8,280)
Prepaid expenses and other (11,412) (5,919) 2,890
Trade accounts payable and accrued liabilities (3,955) 11,341 347
Income taxes payable (886) (4) 916
Other 234 (96) 454
---------- ---------- ----------
Net cash provided by operating activities 2,810 26,973 3,183
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (40,889) (63,097) (27,330)
Acquisition of subsidiaries, net of cash acquired -- (325) (83,884)
Proceeds from sale of property, plant & equipment 14,501 3,455 10,360
---------- ---------- ----------
Net cash used in investing activities (26,388) (59,967) (100,854)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (69,891) (101,281) (85,990)
New borrowings 98,100 70,198 185,731
Proceeds from sale of stock, net -- 65,706 --
Dividends paid (1,788) -- --
Debt issuance cost (2,300) -- 300
---------- ---------- ----------
Net cash provided by financing activities 24,121 34,623 100,041
---------- ---------- ----------
NET INCREASE IN CASH 543 1,629 2,370
CASH AND CASH EQUIVALENTS, beginning of period 4,478 2,849 479
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 5,021 $ 4,478 $ 2,849
========== ========== ==========
DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 20,741 $ 15,684 $ 13,364
Taxes (5) 600 131
NONCASH TRANSACTIONS:
Value assigned to warrants -- -- 300
Accretion of preferred stock dividend -- 2,814 4,097
Conversion of minority interest to equity -- 8,273 --
Conversion of preferred shares and accreted
dividends to common shares -- 46,377 --
Dividends declared but not paid -- 447 --
Addition of capital lease obligations 15,645 -- --
The accompanying notes are an integral part of these statements.
F-15
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
TREASURY STOCK
NOTES --------------
COMMON STOCK ADDITIONAL RECEIVABLE SHARES TOTAL
------------------ PAID-IN FROM SALE HELD IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL OF STOCK TREASURY AMOUNT EARNINGS EQUITY
---------- ------ --------- -------- -------- ------ -------- --------
BALANCE AT
DECEMBER 31, 1998 6,144,250 $ 61 $ 2,887 $ (640) 7,629 $ (2) $ 9,241 $ 11,547
Notes receivable, net of
payments -- -- -- (62) -- -- -- (62)
Conversion of minority
interest to equity 649,363 6 8,760 (493) -- -- -- 8,273
Issuance of common stock 5,000,000 50 65,656 -- -- -- -- 65,706
Exercise of warrants 22,800 1 (1) -- -- -- -- --
Accretion of mandatory
redeemable preferred
stock dividend -- -- -- -- -- -- (2,814) (2,814)
Conversion of preferred shares
and accreted dividends to
common shares 3,091,809 31 46,346 -- -- -- -- 46,377
Net income -- -- -- -- -- -- 13,933 13,933
Cash dividends declared -- -- -- -- -- -- (447) (447)
---------- ---- --------- ------- ------ ----- ------- --------
BALANCE AT
DECEMBER 31, 1999 14,908,222 149 123,648 (1,195) 7,629 (2) 19,913 142,513
Notes receivable, net of
payments -- -- -- (48) -- -- -- (48)
Net loss -- -- -- -- -- -- (17,159) (17,159)
Cash dividends declared -- -- -- -- -- -- (1,341) (1,341)
---------- ---- --------- ------- ------ ----- ------- --------
BALANCE AT
DECEMBER 31, 2000 14,908,222 $149 $ 123,648 $(1,243) 7,629 $ (2) $ 1,413 $123,965
========== ==== ========= ======= ====== ===== ======= ========
The accompanying notes are an integral part of these statements.
F-16
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BUSINESS
U.S. Aggregates, Inc. (a Delaware corporation, hereinafter referred to
as "USAI" or "the Company") was incorporated in 1994. USAI is a leading producer
of aggregates, primarily crushed stone, sand and gravel and associated
aggregate-based materials and services. Its products are used primarily for the
construction and maintenance of highways and other infrastructure projects and
for commercial and residential construction, in nine states. The Company
operates through two wholly owned subsidiaries: SRM Holdings Corp. (SRMHC) and
Western Aggregates Holding Corp. (WAHC). The current capital structure of USAI
includes common stock with voting rights.
The Company conducts its operations through one reportable segment:
the quarrying and distribution of aggregate products. The Company operates in
nine states which have been aggregated for segment reporting purposes.
RISK FACTORS RELATING TO THE COMPANY'S BUSINESS AND INDUSTRY
The Company's business is seasonal, with peak revenue and profits
occurring primarily in the months of April through November. Bad weather
conditions during this period could and did adversely affect operating income
and cash flow and had a disproportionate impact on the Company's results for the
full year. Quarterly results have varied significantly in the past and are
likely to vary significantly from quarter to quarter in the future.
A majority of the Company's revenues are from customers who are in
industries and businesses that are cyclical in nature and subject to changes in
general economic conditions. In addition, since operations occur in a variety of
geographic markets, the Company's business is subject to the economic conditions
in each geographic market. General economic downturns or localized downturns in
the regions where the Company has operations, including any downturns in the
construction industry, could and did have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's operations are subject to and affected by federal, state
and local laws and regulations including such matters as land usage, street and
highway usage, noise levels and health, safety and environmental matters. In
many instances, various permits are required. Although management believes that
the Company is in compliance with regulatory requirements, there can be no
assurance that the Company will not incur material costs or liabilities in
connection with regulatory requirements.
Certain of the Company's operations may from time to time involve the
use of substances that are classified as toxic or hazardous within the meaning
of certain federal, state or local laws and regulations. Risk of environmental
liability is inherent in the operation of the Company's business. As a result,
it is possible that environmental liabilities will have a material adverse
effect on the Company in the future.
The Company markets its aggregates products to customers in a variety
of industries, including public infrastructure, commercial and residential
construction contractors; producers of asphaltic concrete, ready-mix concrete,
concrete blocks, and concrete pipes; and railroads. A substantial amount of the
aggregates is used in publicly funded projects. A decrease or delay in
government funding of highway construction and maintenance and other
infrastructure projects could and did reduce sales and profits.
A material rise in the price or a material decrease in the
availability of oil could and did adversely affect operating results. The cost
of asphalt is correlated to the price of oil. Any increase in the price of oil
might result in the Company's customers using less asphalt. A material increase
in the price of oil could also lead to higher gasoline costs which could
increase the Company's operating costs. These increases may not be accepted by
customers in the form of higher prices.
F-17
The Company believes that its internally generated cash flow
(including the sales of assets) and access to existing credit facilities are
sufficient to meet liquidity requirements necessary to fund operations, capital
requirements and debt service. To the extent these sources of liquidity are not
available or fall short of expectations, the Company may need to obtain
additional sources of financing. There can be no assurance that such financing
will be available or, if available, on terms favorable to the Company. If the
Company is unable to obtain such additional financing, there could be a material
adverse effect on the Company's business, financial condition and results of
operation.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of USAI and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated.
One of the executives has a minority interest in Dekalb Stone, Inc., a
corporation in which the Company is the majority 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent funds on deposit in non-interest
and interest-bearing operating and/or highly liquid investment accounts, with
original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of average manufactured cost
(which approximates the first-in, first-out method of accounting) or market.
Average manufactured cost includes all direct labor and material costs and those
indirect costs specifically related to aggregate production, including indirect
labor, repairs, depreciation and depletion.
INCOME PER SHARE
In accordance with the Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 128, Earning Per Share, the Company
reports two separate income per share amounts, basic and diluted. Both were
calculated by dividing net income by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share includes
the impact of outstanding warrants and stock options, using the treasury stock
method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
provided for using the straight-line method over the estimated useful lives of
the assets, which are as follows:
Buildings 40 years
Plant and equipment 10-30 years
Transportation and delivery equipment 4-15 years
Furniture and fixtures 5-10 years
F-18
Expenditures for development, renewals and betterments of developing
quarries and gravel pits are capitalized and amortized on the units-of-
production method over the estimated remaining recoverable reserves or over the
remaining lives of the leases if the properties are leased. Depletion of
acquired or leased mineral deposits is calculated on the units-of-production
method over the estimated remaining recoverable reserves. Repairs and
maintenance that do not improve or extend the lives of the assets are charged
against operations or included in the inventory overhead pool in the year
benefited. When properties are retired or otherwise disposed of, related costs
and accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in operations.
INTANGIBLES
Goodwill is amortized on a straight-line basis over 40 years.
Covenants not to compete are amortized on a straight-line basis over the life of
the agreement. Deferred finance charges are amortized on a straight-line basis
over the life of the related loan. As of December 31, 2000 and 1999, the
accumulated amortization applicable to the intangible assets was $10,413 and
$8,659, respectively.
ACCRUED SELF-INSURANCE OBLIGATIONS
It is the policy of the Company to self-insure for employee health and
prescription benefits. Provisions are made for estimated settlements, including
incurred but not reported losses. The methods of making such estimates and
establishing the resulting accrued liabilities are reviewed frequently, and any
adjustments resulting there from are reflected in current earnings. Accrued
liabilities for future claims are not discounted.
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform with the
current-year presentation.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for long-lived assets pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company
evaluates its plant and other long-term assets for impairment and assesses their
recoverability based upon anticipated future cash flows. If facts and
circumstances lead the Company's management to believe that the cost of one of
its assets may be impaired, the Company will (a) evaluate the extent to which
that cost is recoverable by comparing the future undiscounted cash flows
estimated to be associated with that asset to the asset's carrying amount and
(b) write-down that carrying amount to market value or discounted cash flow
value to the extent necessary. The Company's management has determined that
certain assets held for sale were impaired at December 31, 2000 and have written
down the carrying amount of such assets to market value as discussed in Note 4.
F-19
VALUATION ACCOUNTS
Below is a summary of the changes in the Company's valuation accounts
for 2000, 1999 and 1998:
Additions
Beginning ------------------ Deduc- Ending
Balance Acquired Provided tions Balance
------- -------- -------- ------ -------
2000
Allowance for doubtful accounts $1,273 $ -- $1,754 $(789) $2,238
Inventory valuation reserve 16 -- 8 -- 24
1999
Allowance for doubtful accounts $1,163 $ -- $ 580 $(470) $1,273
Inventory valuation reserve 500 -- 16 (500) 16
1998
Allowance for doubtful accounts $ 629 $583 $ 409 $(458) $1,163
Inventory valuation reserve 291 -- 500 (291) 500
Deductions include all charges against reserves. These deductions were made in
the normal course of business and only for the specific use for which the
reserve was identified and intended.
RECLAMATION COSTS
Quarry and pit reclamation costs are treated as normal ongoing costs
and are expensed as incurred.
ENVIRONMENTAL MATTERS
Remediation costs are accrued based on estimates of known
environmental remediation exposure. Ongoing environmental compliance costs,
including maintenance and monitoring costs, are expensed as incurred. Any other
environmental costs are recorded in the period which the amount can be
reasonably estimated. Among the variables that management must assess in
evaluating costs associated with environmental issues are the evolving
regulatory standards. It is impossible to quantify the impact of all actions
regarding environmental matters, particularly the extent and cost of future
remediation and other compliance efforts. However, the Company currently has no
known material liabilities in connection with expected remediation or other
environmental-related costs.
INCOME TAXES
USAI accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109). Under SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement and tax bases, as
well as the effect of operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period of change.
REVENUE RECOGNITION
Revenues are recognized at the time the related products are delivered
or when title passes.
Contract revenues and costs are recognized under the percentage-of-
completion method, measured by the percentage of costs incurred to date as a
percentage of estimated total costs for each contract.
F-20
Revisions in cost estimates during the course of a contract are reflected in the
accounting period in which the change of costs becomes known. Provision for
estimated losses on incomplete contracts is made in the period in which such
losses become evident.
OFFERING COSTS
Offering costs of $8,946 were incurred in connection with the
Company's initial public offering. Such costs were treated as a reduction of the
proceeds from the offering.
FINANCIAL INSTRUMENTS
USAI's financial instruments consist of cash, short-term accounts
receivable, accounts payable and debt for which current carrying amounts are
equal to or approximate fair market value.
INTEREST RATE SWAP
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 1999, the FASB issued SFAS No, 137,
Accounting for Derivatives and Hedging Activities - Deferral of the Effective
Date of SFAS No. 133. In June 2000, the FASB issued SFAS No, 138, Accounting for
Certain Derivatives and Certain Hedging Activities, an amendment of FASB
Statement No. 133. Statement 133, as amended, establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative instrument's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative instrument's
gains and losses to offset related results on the hedged item in the income
statement, to the extent effective, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. The Company has adopted Statement 133 effective January 1,
2001. The Company has applied Statement 133 to only those hybrid instruments
that were issued, acquired, or substantively modified after December 31, 1998.
If statement 133 had been applied at December 31, 2000, the change in fair value
would be immaterial.
The Company has variable rate borrowings tied to the LIBOR rate. To
eliminate its exposure to changes in the LIBOR rate, The Company has entered
into a swap contract. The Company is a party to an interest rate swap under
which it exchanges, at specified intervals, the difference between fixed and
floating interest amounts calculated on an agreed-upon notional amount of $37
million. The interest rate swap contract has a two year term that ends on
December 29, 2002. The swap contract requires the Company's counterparty to pay
it a floating rate of interest based on USD-LIBOR-BBA due quarterly beginning
March 29, 2001. In return, the Company will pay its counterparty a fixed rate of
6.11% interest due quarterly beginning March 29, 2001. The periodic payments
under the swap are with the same frequency as payments required under the
borrowing agreements. Under Statement 133 the Company will designate the
contract as a cash flow hedge. The Company will account for changes in the fair
value of its swap contract with all changes in fair value reported in other
comprehensive income. Amounts in other comprehensive income will be reclassified
into earnings for the ineffective portion of the gain or loss on the derivative
instruments. If statement 133 had been applied at December 31, 2000, the change
in fair value would be immaterial.
COSTS OF START-UP ACTIVITIES
In April 1998, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position 98-5, Reporting on the Costs of
Start-Up Activities ("SOP 98-5"). Effective January 1, 1999, SOP 98-5 requires
that all costs related to certain start-up activities, including organizational
costs, be expensed as incurred. The cumulative effect of the adoption of SOP
98-5 reduced net earnings by $84, which has been recorded as an expense in the
period ended December 31, 1999.
F-21
NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation - an interpretation of APB
Opinion No. 25" (FIN 44). FIN 44 clarifies the application of APB Opinion No.
25, and among other issues clarifies the following: the definition of an
employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either December
15, 1998 or January 12, 2000. The adoption of FIN 44 did not have a material
impact on the Company's consolidated financial statements.
The Emerging Issues Task Force issued No. 00-10, Accounting for
Shipping and Handing Fees and Costs ("EITF 00-10), which requires that amounts
billed to customers related to shipping and handling be classified as revenue
and that the related costs should be included in costs of goods sold. The
Company previously reported a portion or its shipping revenue as a reduction of
shipping costs. The Company adopted EITF 00-10 in the fourth quarter of 2000 and
has reflected the impact of this pronouncement in the financial statements for
all periods presented herein. The Company reports freight and delivery charges
as sales and the related cost of freight and delivery is reported as cost of
products sold. Gross profit has not changed from amounts that have been reported
prior to the adoption of EITF 00-10. The adoption of this resulted in addition
sales and costs of products sold of $12,833 in 2000, $10,411 in 1999 and $8,595
in 1998.
3. ACQUISITIONS
On June 5, 1998, USAI, through WAHC, purchased all of the outstanding
common stock of Monroc, Inc. (Monroc). Monroc's purchase price was approximately
$67,800 in cash plus costs and certain assumed liabilities. The acquisition has
been accounted for under the purchase method of accounting. The amount by which
the total cost exceeded the fair value of the tangible net assets acquired of
$1,135 was recognized as goodwill and is being amortized over 40 years.
In addition, at various dates during 1998 and 1999 and 2000, USAI,
through its subsidiaries, acquired assets and businesses of several small
companies. The operating results of the acquired businesses are included in the
accompanying financial statements from their respective dates of acquisition.
The following table reflects supplemental disclosure of noncash
transactions related to these acquisitions for 1998:
Fair value of assets acquired, including goodwill of $4,132 $139,417
Liabilities assumed (55,533)
--------
Cash paid for assets $83,884
========
The following unaudited selected pro forma financial data are
presented as if the acquisitions (excluding Monroc's discontinued operations)
had occurred on January 1, 1998. The pro forma financial information includes
adjustments for amortization of goodwill and accrual of interest expense for the
entire periods presented. The unaudited pro forma information presented below is
not necessarily indicative of what results of operations actually would have
been if the acquisition had occurred on the date indicated. Moreover, they are
not necessarily indicative of future results.
F-22
1988
---------
(UNAUDITED)
Net sales $ 249,224
Income before extraordinary items 4,916
Income before extraordinary items per share $ 0.13
Concurrent with the acquisition of Monroc, the Company decided to
dispose of the Precast Division operations of Monroc. The Precast Division
operations concentrated on the production of pre-fabricated concrete products
using its site casts and molds, made to meet existing industry construction
standards. The Company accounted for the acquisition and disposition of this
division as required by purchase accounting and EITF 87-11, "Allocation of
Purchase Price to Assets to Be Sold". This included recording expected
operational income as well as interest on the cost of carrying this division as
an adjustment to the purchase price of Monroc. On December 31, 1998, the Company
sold the Precast Division for $8,637. No gain or loss was recognized on this
disposition. The results of operations from the Precast Division between the
date of acquisition and sale of $1,409 net of tax, and the interest expense
associated with the purchase of the Precast Division of $247 net of tax was
considered in the purchase price allocation. There were no earnings received or
losses funded by Monroc during the operational period.
Also, concurrent with the acquisition of Monroc, the Company decided
to dispose of a depleted sand and gravel deposit site and an unused ready-mix
plant site. The sites were sold during 1998 for $6,945 and no gain or loss was
recognized on these dispositions.
4. ASSETS HELD FOR SALE AND ASSET IMPAIRMENT CHARGES
During the fourth quarter of 2000, the Company made a decision to sell
certain construction materials operations in Idaho and Utah. As a result, an
evaluation for impairment of long-lived assets was performed. Based upon this
analysis, the Company determined that the fair market value of these long-lived
assets was less than the carrying value. Accordingly, during the fourth quarter
of 2000, the Company adjusted the carrying value of these assets to their
estimated fair value (less estimated costs of sale) resulting in a non-cash
impairment charge of $8,447. These assets totaling $22,785 have been classified
as Assets Held for Sale in the consolidated Balance Sheet at December 31, 2000,
and were sold subsequent to year end. Assets held for sale also include $1,095
of assets described below in Note 5.
5. RESTRUCTURING COSTS
During the fourth quarter of 2000, the Company decided to restructure
its business operations through a plan, which provided for the closure of an
asphalt operation in Nevada, the disposition of certain operations in Idaho and
the consolidation of facilities in Utah (the "Restructuring Plan"). The
Restructuring Plan also includes actions intended to achieve an overall
reduction in corporate overhead.
The Company recorded restructuring charges of $2,199, of which, $1,272
relates to non-cash charges for the closure or sale of facilities or operations.
Assets in the amount of $1,095 have been classified as Assets Held for Sale. The
cash charges of $927 relate to site closure costs and severance benefits for
terminated employees. These amounts have been fully paid as of December 31, 2000
and accordingly, there are no accruals related to the restructuring plan
included in the Consolidated Balance Sheet at December 31, 2000.
In addition to the restructuring charges described above, the Company
has recorded a non-cash charge of $2,250 related to the write-down of a portion
of the inventory value at these sites. This charge has been recorded in costs of
products sold in the Consolidated Statement of Operations.
F-23
The restructuring charges were determined based on formal plans
approved by the Company's management using the information available at the
time. Additional employee headcount reductions and additional restructuring
charges are anticipated to occur in the first quarter of 2001.
6. INVENTORIES
Inventories consist of the following as of December 31:
2000 1999
-------- --------
Finished products $ 26,835 $ 24,624
Raw materials 1,892 2,341
Supplies and parts 768 551
Fuel 324 541
Less: Allowances (24) (16)
-------- --------
$ 29,795 $ 28,041
======== ========
Inventories are pledged as security under various debt agreements (see
Note 9).
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of
December 31:
2000 1999
--------- ---------
Land and improvements $ 65,977 $ 61,400
Mineral deposits 85,267 89,228
Plant and equipment 174,146 160,253
Furniture and fixtures 7,692 5,391
Construction in progress 819 9,056
--------- ---------
333,901 325,328
Less: Accumulated depreciation and depletion (41,835) (32,418)
--------- ---------
$ 292,066 $ 292,910
========= =========
The Company capitalized interest costs of $837 in 2000 and $1,531 in
1999 with respect to qualifying construction projects.
Property, plant and equipment are pledged as security for various debt
agreements (see Note 9).
F-24
8. INTANGIBLES
Intangibles consist of the following as of December 31:
2000 1999
------- -------
Goodwill 12,652 15,920
Non-Compete 162 692
Deferred Finance Charge 6,009 5,696
------- -------
$18,823 $22,308
======= =======
9. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consists of the following
as of December 31:
2000 1999
--------- ---------
Prudential Insurance subordinated notes,
net of discount of $575 and $664, respectively $ 44,425 $ 44,336
Bank of America term loan A 30,900 39,238
Bank of America term loan B 43,004 46,404
Bank of America revolving loan 77,600 30,000
Notes payable to former shareholders 1,890 4,001
Capital lease obligations 11,240
Other 4,456 5,631
--------- ---------
Total long-term debt and capital lease obligations 213,515 169,610
Less: Current portion (22,842) (9,298)
--------- ---------
Long-term debt and capital lease obligations,
net of current portion $ 190,673 $ 160,312
========= =========
PRUDENTIAL INSURANCE COMPANY SUBORDINATED NOTES
In November 1996 and June 1998, USAI issued $30 million and $15
million respectively in subordinated notes (Subordinated Notes) to the
Prudential Insurance Company of America (Prudential Insurance). Interest is due
quarterly at a rate of 12.00 percent per annum. In addition both subordinated
notes accrue interest at a rate of 2.00 percent per annum, which is not paid in
cash until the maturity of these notes. Accrued interest due under this clause
of the agreement, and included in other long-term liabilities on the
Consolidated Balance Sheet, was $44,425 and $44,336 at December 31, 2000 and
1999, respectively.
In connection with the issuance of subordinated notes, USAI issued to
Prudential Insurance, warrants to purchase 286,380 shares of the common stock of
USAI at a nominal cost. The estimated fair value of the warrants was $900 ($600
recorded in 1996 and $300 in 1998) and was recorded as a discount on the
subordinated notes, with the offsetting credit to additional paid-in-capital.
The discount is being amortized on a straight-line basis (which approximates the
interest method) over the life of the notes and is included in interest expense
in the Consolidated Statements of Operation.
The Prudential Insurance notes are subordinated to the bank of America
credit facilities. The Company was in default of certain covenants related to
these notes at December 31, 2000; however, they were amended subsequent to end
of the year as described below.
F-25
BANK OF AMERICA CREDIT FACILITIES
USAI has a syndicated term loan and a revolving credit facility with
Bank of America NT&SA, as agent, and certain other financial institutions (Bank
of America).
The term loan facility is comprised of Term loans A and B in the
principal amounts of $30,900 and $43,004, respectively. Term loan A has interest
payments due quarterly and is currently payable at the Eurodollar rate plus 3.50
percent, or approximately 10.00 percent as of December 31, 2000. Term loan B has
interest payments due quarterly and is currently payable at the Eurodollar rate
plus 4.00 percent, or approximately 10.5625 percent as of December 31, 2000.
The revolving credit facility was increased from $60 million to $90
million on January 13, 2000. Interest on the unpaid principal amount of each
revolving loan is due quarterly and payable at the Eurodollar rate plus a
portion of the alternative reference rate, which were in the range of 10.125
percent to 11.75 percent as of December 31, 2000. Interest and commitment fees
on the unused portion of the revolving loan vary based on certain performance
criteria. However, the rates cannot exceed the Eurodollar rate plus 3.50
percent, the alternative reference rate plus 2.25 percent, or, in relation to
the commitment fees, 0.50 percent of the unused portion of the revolving loan.
Effective September 29, 2000, the revolving credit facility was amended to
include automatic and permanent reductions of the revolving facility to occur on
December 31, 2001 and June 30, 2002 for the amount of $20 million and $10
million, respectively. The revolving loan is to be paid in full by the
termination date in June 2004.
The Bank of America credit facilities are secured by all assets of
USAI. The Company was in default of certain covenants related to these notes at
December 31, 2000; however, they were amended subsequent to end of the year as
described below.
FINANCIAL COVENANTS
In connection with both the Subordinated Notes and the Bank of America
Credit Facility, the Company is required to comply with certain financial
covenants. These include a minimum interest coverage ratio, a minimum fixed
charge coverage ratio, a minimum EBITDA amount, a maximum leverage ratio and
limitations on capital expenditures. As a result of amendments made to both the
Subordinated Notes and the Bank of America Credit Facility effective September
29, 2000 (the Fourth Amendment), covenants also include restrictions on the
Company's use of proceeds from the sale of assets and limitations on the
Company's ability to pay dividends. The Company was in default with certain of
these covenants at December 31, 2000; however, subsequent to year-end, waivers
of default have been obtained through the Fourth Amendment to the Subordinated
Notes and the Fifth and Sixth Amendments to the Bank of America Credit
Facilities as described below.
EXTINGUISHMENT OF DEBT
In connection with the various refinancings of the Company's debt,
previously capitalized fees and costs of $326 and $264, net of a tax benefit of
$175 and $161, were recorded as an Extraordinary Item - Loss on Extinguishment
of Debt in 2000 and 1999, respectively.
NOTES PAYABLE TO FORMER SHAREHOLDERS
In connection with the acquisition of certain companies, USAI
subsidiaries have issued notes payable to the selling shareholders, several of
whom remain employees and shareholders. These notes payable bear interest at
rates from 8.00 percent to 10.00 percent per annum and have varying maturity
dates through 2005.
F-26
CAPITAL LEASE OBLIGATIONS
The Company financed equipment purchases through various capital lease
obligations expiring through 2015. These obligations bear interest at various
rates ranging from 7.00 percent and 10.00 percent per annum. At December 31,
2000 and 1999, $11,240 and $0, respectively, had been borrowed and was
outstanding. Excluded from the scheduled payments below is $1,607, which
represents future interest due under the leases.
OTHER DEBT
Other debt consists of miscellaneous borrowings from banks, generally
secured by equipment. Interest rates range from 6.00 percent to 10.00 percent
per annum and have varying maturity dates through 2018.
SCHEDULED PAYMENTS OF LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Scheduled long-term debt and capital lease obligations maturities are
as follows:
Year Ended December 31
- - ----------------------
2001 $ 22,842
2002 23,252
2003 19,723
2004 69,461
2005 6,398
Thereafter 72,414
---------
214,090
Less: Unamortized discount (575)
---------
$ 213,515
=========
SUBSEQUENT AMENDMENTS TO THE SUBORDINATED NOTES AND THE BANK OF AMERICA CREDIT
FACILITY
Subsequent to year end, the Company entered into amendments (Fifth and
Sixth Amendments) with its senior secured lenders which waive all existing
covenant defaults, adjust future financial covenants, defer certain principal
payments until March 31, 2002, modify the debt repayment schedule, establish a
borrowing base on the revolver, provide the Company with additional liquidity
from the sale of certain assets, establish monthly interest payment schedules,
provide for increased interest rates to Alternate Base Rate plus 5.00% or
Eurodollar Rate plus 6.00%, of which 2.00% is capitalized and added to
principal for the period through March 31, 2002. The Sixth Amendment also
provides for a fee of $1.25 million if the senior credit facility is not paid in
full by March 31, 2002.
The Company also entered into an amendment with its subordinated note
holder to waive existing covenant defaults and to accept deferral of interest
payments through May 22, 2002 in exchange for a 2.00% increase in interest
rates, a deferred fee of $900 and warrants for 671,582 shares with a nominal
exercise price.
In connection with the amendments of the senior secured credit
facility and the subordinated notes, GTCR Fund IV has committed to loan to the
Company $2 million as junior subordinated debt at an interest rate of 18.00%.
The junior subordinated debt does not mature until 120 days after senior secured
facilities and subordinated notes are paid in full. GTCR Fund IV will receive a
deferred fee of $450 and warrants for 435,469 shares with a nominal exercise
price in exchange for its agreement to provide the Company with the junior
subordinated debt.
F-27
10. EMPLOYEE BENEFIT PLANS
U.S. AGGREGATES INC. 401(K) PLAN
All full-time employees other than certain union employees are
eligible to participate in the U.S. Aggregates, Inc. 401(k) Plan. USAI may make
discretionary contributions each year. Participants increase their vested
interest in these discretionary contributions based upon years of employment in
which at least 1,000 hours are worked, and they become fully vested after five
years. Participants are fully vested in their contributions. For the years ended
December 31, 2000, 1999 and 1998, USAI provided contributions of $0, $359 and
$334, respectively.
SRM
SRM maintains a benefit plan partially funded by key-man life
insurance for current and former key employees of SRM. Benefits under the plan
are discretionary and are payable over a ten-year period upon retirement at age
65 or upon death. As of December 31, 2000, 1999 and 1998, the present value of
long-term benefits payable are $46, $42 and $76, respectively.
MULTIEMPLOYER PLANS
The Company participates in various multiemployer union pension plans
through two of its subsidiaries. Contributions to these plans in 2000, 1999 and
1998 were approximately $864, $842 and $586, respectively.
11. INCOME TAXES
USAI files a consolidated federal tax return. Its subsidiaries file
tax returns in the states in which they conduct business.
The provision for income taxes for 2000, 1999 and 1998 is as follows:
2000 1999 1998
------- ------ ------
Current:
Federal $ -- $1,197 $ 884
State -- 24 127
------- ------ ------
-- 1,221 1,011
------- ------ ------
Deferred:
Federal (7,949) 6,187 2,197
State (1,291) 930 328
------- ------ ------
(9,240) 7,117 2,525
------- ------ ------
$(9,240) $8,338 $3,536
======= ====== ======
The provision for income taxes as reflected in the accompanying
statements of operations includes the following components:
2000 1999 1998
------- ------- -------
(Benefit from) provision for income taxes $(9,065) $ 8,499 $ 3,748
Benefit from income taxes on extraordinary item (175) (161) (212)
------- ------- -------
$(9,240) $ 8,338 $ 3,536
======= ======= =======
F-28
Significant components of the Company's deferred tax assets and
liabilities as of December 31 are as follows:
2000 1999
-------- --------
Deferred tax assets: $ 1,000 $ 980
Accruals and reserves 3,151 3,040
Alternative minimum tax credit 19,797 4,778
Net operating loss 90 1,156
Other -------- --------
Total deferred tax assets 24,038 9,954
-------- --------
Deferred tax liabilities:
Depreciation and depletion (37,775) (30,584)
Book basis in fixed assets over tax basis (27,384) (30,846)
Other (6,256) (3,928)
-------- --------
Total deferred tax liabilities (71,415) (65,358)
-------- --------
Net deferred tax liability $(47,377) $(55,404)
======== ========
The reconciliation of the statutory rate to the effective rate is as
follows:
2000 1999 1998
------- ------- -------
Tax at federal statutory rate $(8,428) $ 7,995 $ 3,037
State taxes, net of federal benefit (839) 742 304
Effect of tax rate increase to 35 percent -- -- 546
Depletion (433) (408) (491)
Other 460 9 140
------- ------- -------
$(9,240) $ 8,338 $ 3,536
======= ======= =======
At December 31, 2000 and 1999 the Company had net operating loss
carryforwards of $51,756 and $12,492 available to offset future taxable income.
These carryforwards expire through 2020. Alternative minimum tax credit
carryforwards of $3,151 and $3,040 at December 31, 2000 and 1999 have no
expiration date. Prior to 1998, the Company provided federal income taxes using
a rate of 34%. In the year ended December 31, 1998 this rate was increased to
35% and deferred taxes were adjusted accordingly.
12. CAPITAL ACCOUNTS
COMMON STOCK
In August 1999, the company completed its initial public offering of
common stock. The Company sold 5 million shares of common stock.
At December 31, 2000 and 1999, the Company's $.01 par value common
stock authorized was 100 million, with 14,908,222 shares outstanding, including
7,629 shares of treasury stock.
The Company had a stock purchase plan periodically made available to
select members of management. Under this formula plan, individuals are allowed
to purchase stock in the Company or its subsidiaries. The Company sold 43,190
shares of its common stock under this program in 1997. Also 50 shares (12,120
equivalent USAI shares) of SRMHC and 2,500 shares (46,757 equivalent USAI
shares) of
F-29
WAHC common stock were sold under this program in 1998. Shares issued under this
program were generally sold for a combination of cash and notes and were subject
to vesting over a 6-year period. The vested and unvested shares were subject to
various call or put options upon termination. The repurchase price was at fair
market value for vested shares or original cost for unvested shares. The total
number of shares outstanding under this program were 43,190 and 17,276 unvested
and vested for the Company, 3,857 (72,136 equivalent USAI shares) and 952
(17,805 equivalent USAI shares) unvested and vested for WAHC and 170 (41,208
equivalent USAI shares) and 67 (16,241 equivalent USAI shares) unvested and
vested for SRM. Immediately prior to the consummation of the initial public
offering, the employees' shares in subsidiary stock were exchanged for stock of
the Company, and the Company's and employees' rights with regard to vested
shares ceased. The plan was terminated.
PREFERRED STOCK
At December 31, 2000 and 1999, the Company's $.01 par value non-voting
preferred stock authorized was 10 million shares with 0 shares issued and
outstanding. Aggregate and per share cumulative preferred dividends in arrears
as of December 31 are as follows:
2000 1999 1998
-------- -------- --------
Aggregate cumulative preferred dividends $ -- $ -- $13,479
Per preferred share cumulative preferred dividends -- -- $44.80
The preferred stock prior to redemption was reflected as Mandatory
Redeemable Preferred Stock on the balance sheet and was not considered a
component of Shareholders' Equity. Dividends were accreted at a compound rate of
10% per annum.
Accumulated accreted dividends of $16,293 have been charged against
retained earnings through August 18, 1999, the completion of the Company's
initial public offering, at which time all preferred stock with accumulated
dividends were converted into common shares.
WARRANTS
In connection with the issuance of the subordinated notes, USAI issued
to Prudential Insurance warrants to purchase 286,380 shares of the Company's
common stock at a nominal cost. These warrants were issued in 1998 and 1996. In
September 1999, 22,800 shares were exercised.
At December 31, 2000 and 1999, there were 263,580 warrants
outstanding.
13. INCOME / (LOSS) PER SHARE
Statement of Financial Accounting Standards No. 128, Earnings Per
Share, requires dual presentation of basic and diluted earnings / (loss) per
share on the face of the income statement. The reconciliation between the
computations is as follows:
F-30
Year Ended December 31,
---------------------------------------------------------------------------------
2000 1999 1998
---------------------------- ------------------------- ------------------------
Per Per Per
Share Share Share
Loss Shares Amount Income Shares Amount Income Shares Amount
-------- ---------- ------ ------- --------- ----- ------ --------- -----
Income (loss) before extraordinary item $(16,833) $14,197 $4,832
Less: Accretion of preferred stock dividend -- 2,814 4,097
-------- ------- ------
Basic income (loss) before extraordinary item
available for common shareholders (16,833) 14,900,593 $(1.13) 11,383 9,522,156 $1.20 735 6,136,630 $0.12
Effect of dilutive securities -- 277,661 245,464
---------- --------- ---------
Dilutive income (loss) before extraordinary
item available for common shareholders $(16,833) 14,900,593 $(1.13) $11,383 9,799,817 $1.16 $ 735 6,382,094 $0.11
======== ========== ====== ======= ========= ===== ====== ========= =====
All common stock equivalents are reflected in the Company's income per
share calculations; the Company had no anti-dilutive common stock equivalent
shares in 1999 and 1998. However in 2000, the Company had 287,418 of
anti-dilutive common stock equivalent shares.
Net income per share for all periods presented and all share data
reflect the Company's 30.0347 for 1 stock split effective at the time of the
Company's initial public offering of common stock.
14. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject USAI to concentrations
of credit risk consist primarily of cash and trade receivables.
USAI places its cash on deposit with credit-worthy financial
institutions, in accounts or instruments with maturities of three months or
less. Concentration of credit risk with respect to trade receivables is limited
due to the large number of customers who service a large base of clients
dispersed across many different industries throughout the southeastern and
southwestern sections of the United States.
15. COMMITMENTS AND CONTINGENCIES
USAI and its subsidiaries lease office facilities, trucks, equipment
and certain quarry sites under operating lease arrangements. Lease expense
(other than royalties) was $10,323, $11,154 and $8,951 for the years ended
December 31, 2000, 1999 and 1998, respectively. Total future minimum rentals
under noncancelable operating leases as of December 31, 2000 are:
2001 $ 14,653
2002 14,509
2003 14,708
2004 13,200
2005 9,763
Thereafter 57,643
--------
$124,476
========
F-31
The Company operates several quarries on land owned entirely or in
part by unrelated third parties. Pursuant to related agreements, the Company
pays monthly royalties to the owner based on the quantity of aggregates sold.
The initial terms of these agreements range from 5 to 40 years and generally
include renewal options. The minimum royalty payments are included in the above
table. Royalty expenses recorded pursuant to these arrangements in 2000, 1999
and 1998 totaled $7,448, $5,740 and $4,748, respectively.
USAI and its subsidiaries are subject to various laws and regulations
relating to the protection of the environment. It is not possible to quantify
with certainty the potential impact of actions regarding environmental matters,
particularly any future remediation and other compliance efforts. In the opinion
of management, future compliance with existing environmental protection laws
will not have a material adverse effect on the financial condition or results of
operations of USAI.
The Company has a quarry under development in DeKalb County, Georgia
which is inactive but currently permitted as a dimensional stone quarry site.
The Company intends to file a lawsuit against the county regarding a dispute
over the issuance of a blasting permit to start a crushed stone operation. The
DeKalb site development-stage activities to date have consisted primarily of
site preparation work such as road construction, the placement of scales and
legal fees. DeKalb has also made advance minimum royalty payments under a
sublease agreement to be applied against payments due upon the commencement of
operations at this site. Capitalized costs as of December 31, 2000 and 1999 in
connection with this site were $1,794 and $1,636, respectively. Management feels
that they will eventually open the quarry; however, in the event that DeKalb is
not permitted to conduct operations at this quarry, the quarry will likely be
leased to a dimensional stone producer.
USAI is subject to various legal proceedings and claims that have
arisen in the ordinary course of its business and have not been finally
adjudicated. In the opinion of management, the ultimate resolution of these
issues would not have a material adverse effect on USAI's financial condition or
results of operations.
16. RELATED-PARTY TRANSACTIONS
In August 1999, immediately prior to the Company's initial public
offering, all notes receivable pertaining to the purchase of SRMHC's and WAHC's
common stock were transferred to USAI.
Included in long-term debt is $0 and $2,033 as of December 31, 2000
and 1999 that is due to employees or shareholders who were former owners of
acquired companies.
An executive officer and director of the Company has a minority
interest in Dekalb Stone, Inc., a company in which U.S. Aggregates is the
majority shareholder.
All related-party transactions are considered to be conducted at arm's
length.
USAI pays an advisory fee to one of its major shareholders. Such fee
amounted to $0 for the year ended December 31, 2000 and $150 for each of the
years ended December 31, 1999 and 1998. Also, USAI paid advisory and other fees
of approximately $101, $416 and $404 to a common and preferred shareholder of
USAI for each of the years ended December 31, 2000, 1999 and 1998, respectively.
These fees were paid in connection with various financing transactions
undertaken by USAI during these years. The wife of one executive acts as a
financial advisor to the Company. This advisor was paid a total of $125, $144
and $151 in 2000, 1999 and 1998, respectively, for financial advisory services
provided.
17. U.S. AGGREGATES, INC. LONG-TERM INCENTIVE PLAN
The Board of Directors and the Company adopted the U.S. Aggregates,
Inc. 1999 Long Term Incentive Plan, whereby the Company is authorized to issue
up to 700,840 shares of the Company at a price equal to the fair market value of
the stock on the date of grant. This plan terminates at the close of business
F-32
on August 10, 2009. The vesting period for options granted under this plan is
three years for employees of the Company and immediately upon the grant date for
outside directors. Options granted under this plan are accounted for in
accordance with APB. No. 25 wherein no compensation expense would be recognized
for options issued to employees.
In 1999, the compensation committee of the Board of Directors granted
287,836 options under the plan to certain employees of the company and 15,000
options to certain directors. In 2000, 3,000 options were granted to a director.
Pro forma information regarding net earnings and earnings per share is required
by SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that statement. The fair value for options was
estimated at the date of the grant using a Black-Scholes option pricing model
with the following weighted-average assumptions: risk-free interest rate of
5.15%; dividend yield of 0%; volatility factors of the expected market price of
the Company's common stock of 57.1%; and a weighted-average expected life of the
options of three years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects of
applying SFAS 123 on a pro forma basis would have decreased net earnings by
approximately $422 and $229 in 2000 and 1999, respectively. The impact on basic
and diluted earnings per share would have been a $.03 and $.03 decrease,
respectively in 2000, and a $.02 and $.01 decrease, respectively in 1999.
A summary of the Company's stock option activity, related information
as of December 31, 2000 and 1999 and changes during the years is presented
below:
2000 1999
----------------- -----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- ------ -------- ------
Outstanding at beginning of year 292,336 $14.73 -- $ --
Granted at fair value 3,000 $15.75 302,836 $14.74
Exercised -- $ -- -- $ --
Forfeited 22,000 $15.00 10,500 $15.00
-------- --------
Outstanding at year end 273,336 $14.72 292,336 $14.73
======== ========
Options exercisable at year end 100,612 $14.50 -- $ --
Weighted-average grant date fair value of
each option granted during the year $ 6.73 $ 6.66
F-33
The following table summarizes information about stock options
outstanding and exercisable at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
of Contractual Exercise of Exercise
Exercise Price Shares Life (Years) Price Shares Price
- - -------------- ------ ----------- -------- ------- ---------
$11.47 22,500 8.61 $ 11.47 15,000 $ 11.47
$15.00 247,836 8.61 $ 15.00 82,612 $ 15.00
$15.75 3,000 8.61 $ 15.75 3,000 $ 15.75
------- -------
Total 273,336 8.61 100,612 $ 14.50
======= =======
18. QUARTERLY INFORMATION (UNAUDITED)
These amounts have been restated from those previously reported.
Quarter Ended
--------------------------------------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
2000
Net sales $ 54,586 $ 83,423 $ 92,966 $ 60,714
Gross profit 9,254 21,356 20,153 5,552
Income (loss) before
extraordinary item (5,087) 3,105 1,682 (16,533)
Net income (loss) (5,087) 3,105 1,682 (16,859)
Income (loss) before
extraordinary item
available for common
shareholders per share
--basic $ (0.34) $ 0.21 $ 0.11 $ (1.11)
--diluted $ (0.34) $ 0.20 $ 0.11 $ (1.11)
1999
Net sales $ 51,311 $ 80,366 $ 96,952 $ 79,963
Gross profit 11,461 23,512 28,986 20,545
Income (loss) before
extraordinary item (1,675) 4,799 8,071 3,002
Net income (loss) (1,675) 4,799 7,807 3,002
Income (loss) before
extraordinary item
available for common
shareholders per share
--basic $ (0.45) $ 0.60 $ 0.69 $ 0.20
--diluted $ (0.45) $ 0.57 $ 0.67 $ 0.20
F-34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
U.S. Aggregates conducts its operations through the quarrying and
distribution of aggregate products in nine states in the two regions of the
Mountain states and the Southeast. The Company's operations have the same
general economic characteristics including the nature of the products,
production processes, type and class of customers, methods of distribution and
governmental regulations. In 2000, the Company shipped approximately 19.7
million tons of aggregates, primarily to customers in nine Southeast and
Mountain states, generating net sales and loss from operations of $291.7 million
and ($5.0) million, respectively.
Since U.S. Aggregates' inception, the Company completed and integrated
28 business and asset acquisitions, including both operating companies and
aggregate production facilities. In 2000, U.S. Aggregates, Inc. continued to
expand into new geographical markets in the Southeast, Utah and Nevada.
Distribution of aggregate products in the Southeast was expanded with the
startup of a major distribution yard in Memphis, Tennessee.
As a result of the Company's ambitious acquisition program, the
Company acquired certain non-core assets over the last few years. In 2000, the
Company outlined a plan to sell certain assets to strengthen its strategic
position, reduce debt and improve liquidity. This year, the Company sold its
ready-mix operations in Birmingham and subsequently the remaining ready-mix
concrete and concrete block operations in the Alabama market to Ready-Mix USA,
Inc. one of the largest producers of ready-mix in Alabama. The revenues and
total assets related to the sold properties represented approximately 11% and
4%, respectively, of the Company's 2000 consolidated totals. Terms of the sale
include the establishment of a long-term contract for U.S. Aggregates to provide
Ready-Mix USA with aggregates for its ready-mix operations.
In 2001, the Company continued its plan to sell certain assets and
completed the sale of certain of its operations in northern Utah to Oldcastle
Materials, Inc. The proceeds were utilized to pay-down debt and certain
operating leases and provided the Company with additional liquidity. In
connection with the sale, the Company entered into a long-term, royalty bearing
lease of a quarry to Oldcastle. The revenues and total assets related to the
sold properties represented approximate 14% and 6% respectively, of the
Company's 2000 consolidated totals. In order to provide sufficient liquidity to
fund operations, capital requirements and debt service, the Company will need to
continue its plan to sell certain assets (See Liquidity and Capital Resources).
U.S. Aggregates markets its aggregates products to customers in a
variety of industries, including public infrastructure, commercial and
residential construction contractors; producers of asphalt, concrete, ready-mix
concrete, concrete blocks, and concrete pipes; and railroads. In 2000,
approximately 76% of the Company's aggregates volume was sold directly to
customers, and the balance was used to produce asphalt (which generally contains
90% aggregates by volume) and ready-mix concrete (which generally contains 80%
aggregates by volume). As a result of dependence upon the construction industry,
the profitability of aggregates producers is sensitive to national, regional and
local economic conditions, and particularly to downturns in construction
spending and to changes in the level of infrastructure spending funded by the
public sector. In fact, the Company's performance in the second half of 2000 was
affected by the slowing economy and reduced government spending, especially in
the Western operations. Currently, the Company does not have any customer that
accounts for more than 10% of sales.
Also as a result of the Company's dependence on the construction
industry, the Company's business is seasonal with peak revenue and profits
occurring primarily in the months of April through November. Bad weather
conditions during this period can adversely affect operating income and cash
flow and could therefore have a disproportionate impact on the Company's results
for the full year. Quarterly results have varied significantly in the past and
are likely to vary significantly from quarter to quarter in the future. In the
fourth quarter of 2000, poor weather conditions in Utah negatively impacted the
Company's sales and profits.
A material rise in the price or a material decrease in the
availability of oil could and did adversely affect operating results. The cost
of transporting the Company's products, the cost of processing material and the
cost of asphalt are all correlated to the price of oil. Any increase in the
price of oil may and did reduce the demand for the Company's products. In 2000,
the Company estimates that the total increase in oil, fuel and energy costs were
in
F-35
excess of $9 million. As a result of competitive pressures, the Company was not
able to pass through these cost increases and profits were negatively impacted.
RESULTS OF OPERATIONS
The following table presents net sales, gross profit, selling, general
and administrative expenses, depreciation, depletion and amortization, gain on
disposal of assets, restructuring charges, asset impairment charges
income/(loss) from operations, and net interest expense for U.S. Aggregates:
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
Net sales $291,689 100.0% $308,592 100.0% $237,333 100.0%
Gross profit 56,315 19.3 84,504 27.4 60,519 25.5
Selling, general and
administrative expenses 35,825 12.3 32,035 10.4 25,001 10.5
Depreciation, depletion
and amortization 16,816 5.8 12,851 4.2 11,098 4.7
(Gain) on disposal
of assets (2,021) 0.7 -- -- -- --
Restructuring costs 2,199 0.8 -- -- -- --
Asset impairment charge 8,447 2.9 -- -- -- --
Income (loss) from
operations (4,951) 1.7 39,618 12.8 24,420 10.3
Interest expense, net 19,964 6.8 16,042 5.2 14,351 6.0
2000 COMPARED TO 1999
NET SALES. Net sales decreased by $16.9 million, or 5.5% from $308.6
million in 1999 to $291.7 million in 2000. This decline was primarily isolated
to the fourth quarter of the year. Through the first nine months of the 2000,
the Company's net sales total of $230.1 million was slightly higher than the
total of $228.6 through the same period of the prior year. However, during the
fourth quarter of 2000 the Company's net sales declined by approximately $19.2
million, as processed aggregates, asphalt, and ready mix shipments declined by
16.0%, 45.5%, and 18.2%, respectively. This decrease in sales was partially
caused by adverse weather conditions affecting the Western operations, as
extremely wet weather, combined with early snow falls in Utah, contributed to
the significant decline in activity during the quarter. Increased competition,
particularly in Las Vegas, and unexpected delays in the ramp-up of TEA-21
spending further contributed to the decrease in asphalt, paving and construction
sales in 2000. In the fourth quarter of 2000, the Company also felt the effects
of the general slowing of the economy. For the full year, processed aggregates
shipments and pricing increased by 3.2% and 3.1%, respectively, resulting in an
increase of processed aggregates sales of $10.9 million for the year. However,
this increase was more than offset by the declines in the asphalt, paving and
construction business in 2000, which experienced an $18.2 million, or 17.5%
decline in sales during the year. Ready-mix volume decreased by 8.4%, resulting
in a $9.6 million decline in sales of this product in 2000. However, this
decline was primarily related to the sale of the Company's ready-mix operations
in Birmingham, Alabama in the first quarter of 2000. Excluding the impact of the
sold businesses, ready-mix volumes decreased by 0.7%.
GROSS PROFIT. Gross profit decreased by $28.2 million, or 33.4% from
$84.5 million in 1999 to $56.3 million in 2000. This represented a decline in
gross margin from 27.4% in 1999 to 19.3% in 2000. Gross profit from the
Company's asphalt, paving and construction business declined $12.5 million,
caused primarily by the increased competition in the marketplace and increased
fuel, energy and liquid asphalt costs. In total, the Company experienced an
increase in the cost of fuel, energy, and liquid asphalt in 2000 of $9.6 million
($4.5 million of which related to the aforementioned asphalt, paving and
construction business). Heightened production costs in the Company's quarries
also contributed to the decline in gross profit during the year. The Company
also recorded a charge of $2.3 million within cost of sales which related to the
write-off of inventory related to the restructuring plan
F-36
implemented during the year. These inventories were abandoned as a result of the
closure of several facilities. These factors, combined with the decline in sales
for 2000, were the primary causes of the decline in gross profit for the year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $3.8 million, or 5.5% from $32.0 million in
1999 to $35.8 million in 2000. This increase was primarily attributable to (i) a
$1.2 million increase in bad debt expense relating to collection issues
identified in 2000, (ii) $0.9 million in expense for asbestos-related clean-up
costs and litigation settlement, (iii) $0.4 million in data conversion costs in
connection with system integration, (iv) an increase of $0.6 million in
corporate overhead primarily related to additional public company expenses as
the Company was public for a full year in 2000 and an increase of $0.4 million
in professional fees related to the restatement of the 2000 quarterly results
and (v) an increase in expenses in the regional operating units where the
Company added personnel in 1999 and 2000 to meet the increased demand for
materials and services.
GAIN ON DISPOSAL OF ASSETS. The Company recorded a $2.0 million gain
on the two sales of the Company's ready-mix operations in Alabama in 2000.
RESTRUCTURING CHARGES. During the fourth quarter of 2000, the Company
began execution of its restructuring plan, which was comprised of four
components: (i) closing an asphalt operation in Nevada; (ii) disposing of
certain operations in Idaho; (iii) consolidating certain operations in Utah; and
(iv) reducing corporate overhead. In conjunction with this plan, the Company
recorded an asset write-down of $1.1 million related to the decision to close
certain facilities. In addition, the Company recorded $1.0 million of facility
closure costs and $0.1 million of severance costs associated with the
restructuring plan, resulting in a total charge of approximately $2.2 million in
the fourth quarter of 2000. All of these costs have been paid as of year end.
ASSET IMPAIRMENT CHARGES. During the fourth quarter of 2000, the
Company made its decision to sell certain construction materials operations in
Utah and Idaho. In conjunction with this decision, the Company performed an
analysis of the carrying value of its related long-lived assets, and determined
that the carrying value exceeded the fair market value of the assets by
approximately $8.4 million. The Company therefore recorded an impairment charge
to write-down these assets to their estimated fair market value during the
fourth quarter of 2000. These assets were sold subsequent to year-end.
DEPRECIATION, DEPLETION and AMORTIZATION. Depreciation, depletion and
amortization increased $3.9 million from $12.9 million in 1999 to $16.8 million
in 2000. This increase was primarily due to the additional capital investments
made by the Company in 1999 and 2000.
INCOME/(LOSS) FROM OPERATIONS. The Company reported a net loss from
operations of $5.0 for the year ended December 31, 2000 compared with operating
income of $39.6 million reported for 1999. However, this loss from operations
included several unusual charges incurred in 2000, primarily the restructuring
charge of $2.2 million, the asset write-down of $8.4 million, and the
restructuring-related inventory write-off of $2.3 million described above.
INTEREST EXPENSE, NET. Net interest expense increased $3.9 million
from $16.0 million in 1999 to $19.9 million in 2000. This increase was primarily
due to an increase in debt levels, as well as an increase in interest rates on
outstanding borrowings during the year.
1999 COMPARED TO 1998
NET SALES. Net sales for 1999 increased by $71.3 million, or 30.0%
from $237.3 million in 1998 to $308.6 million in 1999. This increase consisted
of $39.5 million in additional net sales generated from the 1998 acquired
businesses, and an increase in net sales from existing businesses of $31.8
million. The increase in sales from existing businesses was due to strong demand
for the Company's aggregates and related products. Total shipments of aggregates
increased to 19.1 million tons for 1999, from 15.8 million tons in 1998, an
increase of 20.9%. Revenues were further enhanced by 32.8% and 24.7% increases
in asphalt and ready-mix volumes,
F-37
respectively. The Company also experienced an increase in selling prices of
approximately 4% for its aggregates and related products.
GROSS PROFIT. Gross profit for 1999 increased 39.6% to $84.5 million
from $60.5 million for 1998. The increase consisted of $6.6 million additional
gross profit from its 1998 acquired businesses and an increase in gross profit
from its existing business of $17.4 million, a 34.6% increase. The increase in
gross profit at its existing business was attributable to higher volumes and
improved production efficiencies. Overall gross margins increased to 28.3% in
1999 from 26.5% in 1998. Gross margins from its existing business were 30.6% in
1999, compared to 26.5% in 1998. Margins from existing businesses increased due
to higher selling prices and the leverage gained on fixed costs due to higher
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $32.0 million for 1999 from $25.0 million
for 1998, due to the inclusion of the 1998 acquired businesses and increased
selling and administrative costs at existing businesses. As a percentage of net
sales, selling, general and administrative expenses decreased to 10.7% for 1999
from 10.9% for 1998, due to the leveraging of these costs over a larger sales
base.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization increased to $12.9 million for 1999 from $11.1 million for 1998,
primarily as a result of the inclusion of the 1998 acquired businesses and
additional capital expenditures made in 1999. As a percentage of net sales, its
depreciation, depletion and amortization expenses decreased to 4.3% from 4.9%
for the same periods primarily due to the leveraging of these costs over a
larger sales base.
INCOME FROM OPERATIONS. Income from operations in 1999 increased 62.2%
to $39.6 million compared to $24.4 million for 1998 because of the factors
discussed above.
INTEREST EXPENSE, NET. Net interest expense increased to $16.0 million
for 1999 from $14.4 million for 1998 as a result of the inclusion of a full year
of interest expense on the purchase of the 1998 acquired businesses in mid year
of 1998 and other expansion and capital needs, offset by the debt reduction as a
result of the 1999 initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
From its inception in 1994, the Company has financed its operations
and growth from the issuance of preferred and common stock, sales of assets,
debt and operating cash flow. It has also used operating leases to finance the
acquisition of equipment used in the business. In 2000, the Company began a
strategy of evaluating and selling certain assets in order to improve the
Company's liquidity.
At December 31, 2000, the Company has $213.5 million of long-term debt
outstanding. This debt level increased from $169.6 million outstanding as of
December 31, 1999. The debt is primarily used to finance working capital and
capital expansion. The terms of the Company's debt agreements are discussed
further below and in Note 9 to the consolidated financial statements included
herein. The Company leases aggregate production sites, facilities, and equipment
under operating leases with terms generally ranging from 5 to 40 years. The
future minimum commitment under these leases was $124.5 million in 2000, $104.7
million in 1999 and $67.9 million in 1998.
During 2000, the Company generated $2.8 million of cash from
operations, a $24.2 million reduction from the $27.0 million generated in 1999.
This decrease was primarily due to the decrease in operating income and the
increase in interest expense incurred in 2000. In 1998, the Company generated
$3.2 million of cash flow from operations, $23.8 million less than the total
generated in 1999. The improvement in 1999 over 1998 was primarily due to
improvements in earnings and a decrease in working capital requirements during
the period. As of December 31, 2000 and 1999, working capital, exclusive of
current maturities of debt, assets held for sale and cash items, totaled $30.0
million and $40.8 million, respectively.
Net cash used in investing activities for 2000 was $26.4 million. The
Company expended $40.9 million for the additions to property, plant and
equipment, offset by proceeds of $14.5 million on the two sales of the
F-38
Company's ready-mix operations in Alabama. A substantial portion of the capital
expenditures related to the completion of the new facility at O'Neal, and
expanded capacity and material handling capability at Pride. In addition, the
Company made extensive improvements related to the expansion of the Mountain
state quarries, including Point of the Mountain, Beck Street, Ekins, and Lehi.
Net cash used in investing activities was $60.0 million in 1999. Of this amount,
$63.1 million was for the additions to property, plant and equipment and $0.3
million was used for acquisitions, offset by proceeds of $3.4 million from the
sale of assets. Net cash used in investing activities in 1998 totaled $100.9
million. Of this amount, $83.9 million was used for acquisitions, $67.8 million
of which was for the purchase of Monroc. Additionally, $27.3 million of the 1998
investing expenditures were for the purchase of property, plant and equipment
offset by proceeds of $10.4 million from the sale of certain properties,
including a depleted sand and gravel deposit and an unused ready-mix plant site
at Monroc.
Cash provided by financing activities was $24.1 million in 2000, $34.6
million in 1999 and $100.0 million in 1998. During 2000, $28.2 million of cash
was generated from additional borrowings offset by $2.3 million of additional
debt issuance costs and $1.8 million for dividends paid. During 1999, $65.7
million of cash was generated from the sale of stock through the initial public
offering, which was used to reduce the Company's total debt. All of the cash
provided by financing in 2000 and 1998 was from increased borrowings under
existing or restructured debt agreements.
In January 2000, the Company entered into a Third Amendment to its
senior secured credit facility, which increased the revolving loan facility from
$60 million to $90 million.
In November 2000, the Company entered into a Fourth Amendment with the
existing lenders pursuant to its senior secured credit facility effective
September 29, 2000. The agreement amended, amongst other things, (i) the
automatic and permanent reduction of the revolving facility to occur on December
31, 2001 and June 30, 2002 for the amount of $20 million and $10 million,
respectively, (ii) all existing financial covenants, (iii) limitations on
capital expenditures and acquisitions, (iv) the use of proceeds from the sale of
assets, and (v) limitations on the Company's ability to pay dividends.
The Company also similarly amended its agreements with the holders of
its existing senior subordinated notes to parallel the covenants in the Fourth
Amendment to the Bank of America credit facilities.
The Company was in compliance with all existing debt covenants at
December 31, 1998 and 1999. At December 31, 2000, the Company was in default of
the covenants in its Fourth Amendment to the senior credit facility as well as
its subordinated debt facility. However, the Company entered into amendments
(Fifth and Sixth Amendments) with its senior secured lenders which waive all
existing covenant defaults, adjust future financial covenants, defer certain
principal payments until March 31, 2002, modify the debt repayment schedule,
establish a borrowing base on the revolver, provide the Company with additional
liquidity from the sale of certain assets, establish monthly interest payment
schedules, provide for increased interest rates to Alternate Base Rate plus
5.00% or Eurodollar Rate plus 6.00%, of which 2.00% is capitalized and added to
principal for the period through March 31, 2002. The Sixth Amendment also
provides for a fee of $1.25 million if the senior credit facility is not paid in
full by March 31, 2002.
The Company also entered into an amendment with its subordinated note
holder to waive existing covenant defaults and to accept deferral of interest
payments through May 22, 2002 in exchange for a 2.00% increase in interest
rates, a deferred fee of $900,000 and warrants for 671,582 shares with a nominal
exercise price.
In connection with the amendments of the senior secured credit
facility and the subordinated notes, GTCR Fund IV has committed to loan to the
Company $2 million as junior subordinated debt at an interest rate of 18.00%.
The junior subordinated debt does not mature until 120 days after senior secured
facilities and subordinated notes are paid in full. GTCR Fund IV will receive a
deferred fee of $450,000 and warrants for 435,469 shares with a nominal exercise
price in exchange for its agreement to provide the Company with the junior
subordinated debt.
On December 22, 2000, the Company entered into a derivative in order
to fix interest rate risks on $37 million of its senior credit facility
borrowings. An interest rate swap contract, which will expire in two years,
F-39
hedges the exposure related to interest rate risk. As of December 31, 2000, the
difference between the contract amounts and fair value was immaterial.
The Company believes that its internally generated cash flow
(including the sales of assets) and access to existing credit facilities are
sufficient to meet liquidity requirements necessary to fund operations, capital
requirements and debt service. To the extent these sources of liquidity are not
available or fall short of expectations, the Company may need to obtain
additional sources of financing. There can be no assurance that such financing
will be available or, if available, on terms favorable to the Company. If the
Company is unable to obtain such additional financing, there could be a material
adverse effect on the Company's business, financial condition and results of
operation.
EFFECT OF INFLATION
Management believes that inflation has not had a material effect on
U.S. Aggregates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up Activities
("SOP 98-5"). Effective January 1, 1999, SOP 98-5 requires that all costs
related to start-up activities, including organizational costs, be expensed as
incurred. The cumulative effect of the adoption of SOP 98-5 impacted its net
earnings by $84, which has been recorded as a nonoperating expense in the first
quarter of 1999.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 1999, the FASB issued SFAS No, 137,
Accounting for Derivatives and Hedging Activities - Deferral of the Effective
Date of SFAS No. 133. In June 2000, the FASB issued SFAS No, 138, Accounting for
Certain Derivatives and Certain Hedging Activities, an amendment of FASB
Statement No. 133. Statement 133, as amended, establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative instrument's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative instrument's
gains and losses to offset related results on the hedged item in the income
statement, to the extent effective, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. The Company has adopted Statement 133 effective January 1,
2001. The Company has applied Statement 133 to only those hybrid instruments
that were issued, acquired, or substantively modified after December 31, 1998.
On December 22, 2000, the Company entered into a derivative in order to fix
interest rate risks on $37 million of its senior credit facility borrowings. An
interest rate swap contract, which will expire in two years, hedges the exposure
related to interest rate risk. This instrument will be accounted for under the
provisions of this statement in 2001. If statement 133 had been applied at
December 31, 2000, the change in fair value would be immaterial.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation - an interpretation of APB
Opinion No. 25" (FIN 44). FIN 44 clarifies the application of APB Opinion No.
25, and among other issues clarifies the following: the definition of an
employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either December
15, 1998 or January 12, 2000. The adoption of FIN 44 did not have a material
impact on the Company's consolidated financial statements.
The Emerging Issues Task Force issued No. 00-10, Accounting for
Shipping and Handing Fees and Costs ("EITF 00-10), which requires that amounts
billed to customers related to shipping and handling be classified as revenue
and that the related costs should be included in costs of goods sold. The
Company previously reported a portion or its shipping revenue as a reduction of
shipping costs. The Company adopted EITF 00-10 in the fourth
F-40
quarter of 2000 and has reflected the impact of this pronouncement in the
financial statements for all periods presented herein. The Company reports
freight and delivery charges as sales and the related cost of freight and
delivery is reported as cost of products sold. Gross profit has not changed from
amounts that have been reported prior to the adoption of EITF 00-10. The
adoption of this resulted in addition sales and costs of products sold of
$12,833 in 2000, $10,411 in 1999, $8,595 in 1998, $3,672 in 1997, and $1,668 in
1996.
FORWARD LOOKING STATEMENTS
Certain matters discussed in this report contain forward-looking
statements and information based on management's belief as well as assumptions
made by and information currently available to management. Such statements are
subject to risks, uncertainties and assumptions including, among other matters,
future growth in the construction industry; the ability of U.S. Aggregates, Inc.
to complete and effectively integrate its acquired companies operations; to fund
its liquidity needs; and general risks related to the markets in which U.S.
Aggregates, Inc. operates. Should one or more of these risks materialize, or
should underlying assumptions prove incorrect, actual results may differ
materially from those projected. Additional information regarding these risk
factors and other uncertainties may be found in the Company's filings with the
Securities and Exchange Commission.
F-41
SRM HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, MARCH 31, DECEMBER 31,
2001 2000 2000
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 137 $ 468 $ 549
Trade accounts receivable, net 8,969 11,712 6,169
Inventories, net 11,154 8,197 10,357
Prepaid expenses and other
current assets 2,438 2,262 2,235
----------- ----------- -----------
Total current assets 22,698 22,639 19,310
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT 83,895 91,693 82,897
Less: Accumulated depreciation
and depletion (11,617) (12,905) (10,750)
----------- ----------- -----------
Net property, plant and equipment 72,278 78,788 72,147
----------- ----------- -----------
INTANGIBLE ASSETS, net 10,404 11,778 10,542
OTHER ASSETS 10,744 6,372 9,978
----------- ----------- -----------
Total assets $ 116,124 $ 119,577 $ 111,977
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES $ 14,786 $ 11,776 $ 15,680
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion 2,090 3,380 2,234
DEFERRED INCOME TAXES, net 12,024 10,397 11,773
OTHER 258 117 213
----------- ----------- -----------
Total liabilities 29,158 25,670 29,900
----------- ----------- -----------
DUE TO USAI 41,816 54,519 37,429
----------- ----------- -----------
MINORITY INTEREST, net 11 12 11
----------- ----------- -----------
SHAREHOLDERS' EQUITY:
Common stock -- -- --
Additional paid-in capital 13,597 13,597 13,597
Preferred Stock 1 1 1
Retained earnings 31,541 25,778 31,039
----------- ----------- -----------
Total shareholders' equity 45,139 39,376 44,637
----------- ----------- -----------
Total liabilities, intercompany
accounts, minority interest
and shareholders' equity $ 116,124 $ 119,577 $ 111,977
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-42
SRM HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
----------------------
2001 2000
--------- ---------
(UNAUDITED)
NET SALES $ 17,270 $ 23,575
COST OF PRODUCTS SOLD 13,096 16,359
--------- ---------
Gross profit 4,174 7,216
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,816 2,852
DEPRECIATION, DEPLETION AND AMORTIZATION 1,026 1,077
--------- ---------
Income from operations 1,332 3,287
OTHER EXPENSES:
Interest and financing, net (472) (1,205)
Management fee (87) (413)
Other, net -- --
--------- ---------
Income before income taxes 773 1,669
PROVISION FOR INCOME TAXES (271) (584)
--------- ---------
Net income $ 502 $ 1,085
========= =========
The accompanying notes are an integral part of these statements.
F-43
SRM HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
----------- -----------
(UNAUDITED)
NET CASH USED IN OPERATING ACTIVITIES $ (3,637) $ (1,189)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,018) (2,580)
----------- -----------
Net cash used in investing activities (1,018) (2,580)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (144) (207)
Intercompany activities 4,387 3,768
----------- -----------
Net cash provided by financing activities 4,243 3,561
----------- -----------
NET DECREASE IN CASH (412) (208)
CASH AND CASH EQUIVALENTS, beginning of period 549 676
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 137 $ 468
=========== ===========
DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 157 $ 106
Income taxes -- 71
The accompanying notes are an integral part of these statements.
F-44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(Unaudited)
1. Organization and Basis of Presentation
SRM Holdings Corp. ("SRM Holdings" or "the Company") is a wholly owned
subsidiary of U.S. Aggregates, Inc. (a Delaware corporation, hereinafter
referred to as "USAI"). SRM Holdings owns all of the outstanding shares of SRM
Aggregates, Inc., which in turn owns all of the outstanding shares of Bradley
Stone & Sand, Inc., BHY Ready Mix, Inc., Mulberry Rock Corporation, Bama Crushed
Corporation, and Grove Materials Corporation, and a majority of the outstanding
shares of DeKalb Stone, Inc. The Company's primary business is producing and
selling aggregates, primarily crushed stone, sand and gravel and associated
aggregate-based materials.
The accompanying unaudited condensed consolidated financial statements
of SRM Holdings and subsidiaries have been prepared in accordance with the
requirements for interim financial information. In the opinion of management,
the interim financial information provided herein reflects all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the results of operations for the interim periods. The results of operations for
the three months ended March 31, 2001, are not necessarily indicative of the
results to be expected for the full year.
These condensed consolidated financial statements and the notes
thereto should be read in conjunction with the consolidated financial statements
for the year ended December 31, 2000.
2. Risk Factors
A majority of the Company's revenues are from customers who are in
industries and businesses that are cyclical in nature and subject to changes in
general economic conditions. In addition, since operations occur in a variety of
geographic markets, the Company's business is subject to the economic conditions
in each such geographic market. General economic downturns or localized
downturns in the regions where the Company has operations, including any
downturns in the construction industry, could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company's operations are subject to and affected by federal, state
and local laws and regulations including such matters as land usage, street and
highway usage, noise level and health, safety and environmental matters. In many
instances, various permits are required. Although management believes that the
Company is in compliance with regulatory requirements, there can be no assurance
that the Company will not incur material costs or liabilities in connection with
regulatory requirements.
Certain of the Company's operations may from time to time involve the
use of substances that are classified as toxic or hazardous substances within
the meaning of these laws and regulations. Risk of environmental liability is
inherent in the operation of the Company's business. As a result, it is possible
that environmental liabilities will have a material adverse effect on the
Company in the future.
The Company markets its aggregates products to customers in a variety
of industries, including public infrastructure, commercial and residential
construction contractors; producers of asphaltic concrete, ready-mix concrete,
concrete blocks, and concrete pipes; and railroads. A substantial amount of the
aggregates is used in publicly funded projects. A decrease or delay in
government funding of highway construction and maintenance and other
infrastructure projects could reduce sales and profits.
F-45
A material rise in the price or a material decrease in the
availability of oil could and did adversely affect operating results. The cost
of asphalt is correlated to the price of oil. Any increase in the price of oil
might result in the Company's customers using less asphalt. A material increase
in the price of oil could also lead to higher gasoline costs, which could
increase the Company's operating costs. These increases may not be accepted by
customers in the form of higher prices.
The Company believes that its internally generated cash flow,
including the net proceeds from sales of assets, and borrowings under existing
credit facilities (including a new facility to be provided by existing lenders
which is subject to final bank approval and completion of definitive
documentation) is sufficient to meet liquidity requirements necessary to fund
operations, capital requirements and debt service. The Company's new facility,
when completed, will provide additional short-term liquidity to the Company
contingent upon achieving progress on certain asset sales. To the extent the
Company is not able to complete its new facility or to achieve certain asset
sales or the net proceeds from these asset sales fall short of expectations, the
Company may need to obtain additional sources of financing. There can be no
assurance that such financing will be available or, if available, on terms
favorable to the Company. If the Company is unable to obtain such additional
financing, there could be a material adverse effect on the Company's business,
financial condition and results of operation.
3. Long-Term Debt
A summary of long-term debt is as follows:
MARCH 31 DECEMBER 31
2001 2000
----------------------
(DOLLARS IN THOUSANDS)
Notes payable to former shareholders 833 1,000
Capital lease obligations 2,720 2,876
Other 102 102
------- -------
Total long-term debt and capital obligations 3,655 3,978
Less: Current portion (1,565) (1,744)
------- -------
Long-term debt and capital lease obligations,
net of current portion $ 2,090 $ 2,234
======= =======
4. Shareholders' Equity
The following Statement of Changes in Shareholders' Equity summarizes the
Company's equity transactions between December 31, 2000 and March 31, 2001:
Preferred Stock Common Stock Additional Total
----------------- ----------------- Paid-in Retained Shareholders'
Shares Amount Shares Amount Capital Earnings Equity
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
BALANCE AT
DECEMBER 31, 2000 105,000 $ 1 10,259 -- 13,597 31,039 44,637
Net income -- -- -- -- -- 502 502
------- ------- ------- ------- ------- ------- -------
BALANCE AT
MARCH 31, 2001 105,000 $ 1 10,259 $ -- $13,597 $31,541 $45,139
======= ======= ======= ======= ======= ======= =======
F-46
5. Inventories
Inventories consist of the following as of:
March 31 December 31,
2001 2000
------- -------
(DOLLARS IN THOUSANDS)
Finished products $10,629 $ 9,830
Raw Materials 94 93
Supplies and parts 405 395
Fuel 26 39
------- -------
$11,154 $10,357
======= =======
Inventories are pledged as security under various USAI debt
agreements.
6. Effective Tax Rate
The Company uses an effective tax rate based on its best estimate of
the tax rate expected to be applicable for the full fiscal year. This estimated
rate is applied to the current year-to-date results to determine the interim
provision for income taxes.
F-47
SRM HOLDINGS CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, December 31,
2000 1999
----------- -----------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 549 $ 676
Trade accounts receivable, net of allowance
for doubtful accounts of $219 and $240,
respectively 6,169 11,095
Notes and other receivables 399 343
Inventories, net 10,357 6,782
Prepaid expenses and other current assets 1,836 1,688
----------- -----------
Total current assets 19,310 20,584
PROPERTY, PLANT AND EQUIPMENT, net 72,147 72,567
INTANGIBLE ASSETS, net 10,542 11,920
OTHER ASSETS 9,978 5,350
----------- -----------
Total assets $ 111,977 $ 110,421
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 12,538 $ 9,216
Accrued payroll 261 650
Other accrued liabilities 975 170
Income tax payable 162 64
Current portion of long-term debt 1,744 --
----------- -----------
Total current liabilities 15,680 10,100
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
net of current portion 2,234 1,102
DEFERRED INCOME TAXES, net 11,773 10,068
OTHER 213 97
----------- -----------
Total liabilities 29,900 21,367
----------- -----------
Due to USAI 37,429 50,751
----------- -----------
MINORITY INTEREST, net 11 12
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock -- --
Additional paid-in capital 13,597 13,597
Preferred Stock 1 1
Retained earnings 31,039 24,693
----------- -----------
Total shareholders' equity 44,637 38,291
----------- -----------
Total liabilities, intercompany accounts,
minority interest and shareholders' equity $ 111,977 $ 110,421
=========== ===========
The accompanying notes are an integral part of these statements.
F-48
SRM HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999
----------- -----------
(Unaudited)
NET SALES $ 92,568 $ 92,678
COST OF PRODUCTS SOLD 66,172 60,717
----------- -----------
Gross profit 26,396 31,961
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,362 10,432
DEPRECIATION, DEPLETION AND AMORTIZATION 4,298 3,588
----------- -----------
Income from operations 13,736 17,941
OTHER INCOME (EXPENSES):
Interest, net (2,068) (4,477)
Management fee (1,595) (1,645)
Other, net (311) 6
----------- -----------
Income before income taxes and
minority interest 9,762 11,825
PROVISION FOR INCOME TAXES (3,417) (4,252)
----------- -----------
Income before minority interest 6,345 7,573
MINORITY INTEREST 1 (1)
----------- -----------
Net income $ 6,346 $ 7,572
=========== ===========
The accompanying notes are an integral part of these statements.
F-49
SRM HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
------------------------
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Net income $ 6,346 $ 7,572
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, depletion and amortization 4,298 3,588
Provision for doubtful accounts, net (21) 77
Deferred income taxes 1,705 3,228
Gain on disposal of fixed assets and real estate (2,022) (54)
Minority interest (1) 1
Change in operating assets and liabilities:
Trade accounts, notes and other receivables 4,891 (690)
Inventories (3,575) (2,452)
Prepaid expenses and other (4,881) (4,537)
Trade accounts payable and accrued liabilities 3,638 1,107
Income taxes payable 97 244
Other 416 (96)
---------- ----------
Net cash provided by operating activities 10,891 7,988
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (10,121) (16,448)
Acquisition of subsidiaries, net of cash acquired -- (1,076)
Proceeds from sale of property, plant & equipment 14,078 592
---------- ----------
Net cash provided by (used in)
investing activities 3,957 (16,932)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (1,654) (1,000)
Proceeds from sale of stock, net -- 1,076
Intercompany activities (13,321) 9,010
---------- ----------
Net cash (used in) provided by
financing activities (14,975) 9,086
---------- ----------
NET (DECREASE) INCREASE IN CASH (127) 142
CASH AND CASH EQUIVALENTS, beginning of period 676 534
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 549 $ 676
========== ==========
DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 579 $ 744
Taxes 87 96
The accompanying notes are an integral part of these statements.
F-50
SRM HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(Unaudited)
Preferred Stock Common Stock Additional Total
------------------- ----------------- Paid-in Notes Retained Shareholders'
Shares Amount Shares Amount Capital Receivable Earnings Equity
------- ------- ------- ------ ---------- ---------- -------- -------------
BALANCE AT
DECEMBER 31, 1998 105,000 $ 1 10,259 $-- $12,521 $ (100) $17,121 $29,543
Additional investment -- -- -- -- 1,076 100 -- 1,176
Net income -- -- -- -- -- -- 7,572 7,572
------- ------- ------- ---- ------- ------- ------- -------
BALANCE AT
DECEMBER 31, 1999 105,000 1 10,259 -- 13,597 -- 24,693 38,291
Net income -- -- -- -- -- -- 6,346 6,346
------- ------- ------- ---- ------- ------- ------- -------
BALANCE AT
DECEMBER 31, 2000 105,000 $ 1 10,259 $-- $13,597 $ -- $31,039 $44,637
======= ======= ======= ==== ======= ======= ======= =======
The accompanying notes are an integral part of these statements.
F-51
SRM HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(Unaudited)
1. BUSINESS
SRM Holdings Corp. ("SRM Holdings" or "the Company") is a wholly owned
subsidiary of U.S. Aggregates, Inc. (a Delaware corporation, hereinafter
referred to as "USAI"). SRM Holdings owns all of the outstanding shares of SRM
Aggregates, Inc., which in turn owns all of the outstanding shares of Bradley
Stone & Sand, Inc., BHY Ready Mix, Inc., Mulberry Rock Corporation, Bama Crushed
Corporation, and Grove Materials Corporation, and a majority of the outstanding
shares of DeKalb Stone, Inc. The Company's primary business is producing and
selling aggregates, primarily crushed stone, sand and gravel and associated
aggregate-based materials.
RISK FACTORS RELATING TO THE COMPANY'S BUSINESS AND INDUSTRY
A majority of the Company's revenues are from customers who are in
industries and businesses that are cyclical in nature and subject to changes in
general economic conditions. In addition, since operations occur in a variety of
geographic markets, the Company's business is subject to the economic conditions
in each geographic market. General economic downturns or localized downturns in
the regions where the Company has operations, including any downturns in the
construction industry, could and did have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's operations are subject to and affected by federal, state
and local laws and regulations including such matters as land usage, street and
highway usage, noise levels and health, safety and environmental matters. In
many instances, various permits are required. Although management believes that
the Company is in compliance with regulatory requirements, there can be no
assurance that the Company will not incur material costs or liabilities in
connection with regulatory requirements.
Certain of the Company's operations may from time to time involve the
use of substances that are classified as toxic or hazardous within the meaning
of certain federal, state or local laws and regulations. Risk of environmental
liability is inherent in the operation of the Company's business. As a result,
it is possible that environmental liabilities will have a material adverse
effect on the Company in the future.
The Company markets its aggregates products to customers in a variety
of industries, including public infrastructure, commercial and residential
construction contractors; producers of asphaltic concrete, ready-mix concrete,
concrete blocks, and concrete pipes; and railroads. A substantial amount of the
aggregates is used in publicly funded projects. A decrease or delay in
government funding of highway construction and maintenance and other
infrastructure projects could and did reduce sales and profits.
A material rise in the price or a material decrease in the
availability of oil could and did adversely affect operating results. The cost
of asphalt is correlated to the price of oil. Any increase in the price of oil
might result in the Company's customers using less asphalt. A material increase
in the price of oil could also lead to higher gasoline costs which could
increase the Company's operating costs. These increases may not be accepted by
customers in the form of higher prices.
The Company believes that its internally generated cash flow
(including the sales of assets) and access to existing credit facilities are
sufficient to meet liquidity requirements necessary to fund operations, capital
requirements and debt service. To the extent these sources of liquidity are not
available or fall short of expectations, the Company may need to obtain
additional sources of financing. There can be no assurance that such financing
F-52
will be available or, if available, on terms favorable to the Company. If the
Company is unable to obtain such additional financing, there could be a material
adverse effect on the Company's business, financial condition and results of
operation.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of SRM
Holdings and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
One of the executives has a minority interest in Dekalb Stone, Inc., a
corporation in which the Company is the majority 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent funds on deposit in non-interest
and interest-bearing operating and/or highly liquid investment accounts, with
original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of average manufactured cost
(which approximates the first-in, first-out method of accounting) or market.
Average manufactured cost includes all direct labor and material costs and those
indirect costs specifically related to aggregate production, including indirect
labor, repairs, depreciation and depletion.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
provided for using the straight-line method over the estimated useful lives of
the assets, which are as follows:
Buildings 40 years
Plant and equipment 10-30 years
Transportation and delivery equipment 4-15 years
Furniture and fixtures 5-10 years
Expenditures for development, renewals and betterments of developing
quarries and gravel pits are capitalized and amortized on the
units-of-production method over the estimated remaining recoverable reserves or
over the remaining lives of the leases if the properties are leased. Depletion
of acquired or leased mineral deposits is calculated on the units-of-production
method over the estimated remaining recoverable reserves. Repairs and
maintenance that do not improve or extend the lives of the assets are charged
against operations or included in the inventory overhead pool in the year
benefited. When properties are retired or otherwise disposed of, related costs
and accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in operations.
F-53
INTANGIBLES
Goodwill is amortized on a straight-line basis over 40 years.
Covenants not to compete are amortized on a straight-line basis over the life of
the agreement. Deferred finance charges are amortized on a straight-line basis
over the life of the related loan. As of December 31, 2000 and 1999, the
accumulated amortization applicable to the intangible assets was $3,061 and
$2,391, respectively.
ACCRUED SELF-INSURANCE OBLIGATIONS
It is the policy of the Company to self-insure for employee health and
prescription benefits. Provisions are made for estimated settlements, including
incurred but not reported losses. The methods of making such estimates and
establishing the resulting accrued liabilities are reviewed frequently, and any
adjustments resulting there from are reflected in current earnings. Accrued
liabilities for future claims are not discounted.
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform with the
current-year presentation.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for long-lived assets pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company
evaluates its plant and other long-term assets for impairment and assesses their
recoverability based upon anticipated future cash flows. If facts and
circumstances lead the Company's management to believe that the cost of one of
its assets may be impaired, the Company will (a) evaluate the extent to which
that cost is recoverable by comparing the future undiscounted cash flows
estimated to be associated with that asset to the asset's carrying amount and
(b) write-down that carrying amount to market value or discounted cash flow
value to the extent necessary.
VALUATION ACCOUNTS
Below is a summary of the changes in the Company's valuation accounts
for 2000 and 1999:
Additions
Beginning ------------------ Ending
Balance Acquired Provided Deductions Balance
------- -------- -------- ---------- -------
2000
Allowance for
doubtful accounts $240 $ -- $ 1 $ (22) $219
1999
Allowance for
doubtful accounts $163 $ -- $186 $(109) $240
Deductions include all charges against reserves. These deductions were made in
the normal course of business and only for the specific use for which the
reserve was identified and intended.
RECLAMATION COSTS
Quarry and pit reclamation costs are treated as normal ongoing costs
and are expensed as incurred.
ENVIRONMENTAL MATTERS
Remediation costs are accrued based on estimates of known
environmental remediation exposure. Ongoing environmental compliance costs,
including maintenance and monitoring costs, are expensed as incurred. Any other
environmental costs are recorded in the period which the amount can be
reasonably estimated. Among the variables
F-54
that management must assess in evaluating costs associated with environmental
issues are the evolving regulatory standards. It is impossible to quantify the
impact of all actions regarding environmental matters, particularly the extent
and cost of future remediation and other compliance efforts. However, the
Company currently has no known material liabilities in connection with expected
remediation or other environmental-related costs.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109). Under SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement and tax bases, as
well as the effect of operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period of change.
REVENUE RECOGNITION
Revenues are recognized at the time the related products are delivered
or when title passes.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, short-term
accounts receivable, accounts payable and debt for which current carrying
amounts are equal to or approximate fair market value.
COSTS OF START-UP ACTIVITIES
In April 1998, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position 98-5, Reporting on the Costs of
Start-Up Activities ("SOP 98-5"). Effective January 1, 1999, SOP 98-5 requires
that all costs related to certain start-up activities, including organizational
costs, be expensed as incurred.
NEW ACCOUNTING PRONOUNCEMENTS
The Emerging Issues Task Force issued No. 00-10, Accounting for
Shipping and Handing Fees and Costs ("EITF 00-10), which requires that amounts
billed to customers related to shipping and handling be classified as revenue
and that the related costs should be included in costs of goods sold. The
Company previously reported a portion or its shipping revenue as a reduction of
shipping costs. The Company adopted EITF 00-10 in the fourth quarter of 2000 and
has reflected the impact of this pronouncement in the financial statements for
all periods presented herein. The Company reports freight and delivery charges
as sales and the related cost of freight and delivery is reported as cost of
products sold. Gross profit has not changed from amounts that have been reported
prior to the adoption of EITF 00-10. The adoption of this resulted in addition
sales and costs of products sold of $12,833 in 2000 and $10,411 in 1999.
3. INVENTORIES
Inventories consist of the following as of December 31:
2000 1999
------- ------
Finished Products $ 9,830 $5,747
Raw Materials 93 694
Supplies and parts 395 253
Fuel 39 88
------- ------
$10,357 $6,782
------- ------
F-55
Inventories are pledged as security under various USAI debt
agreements.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of
December 31:
2000 1999
-------- --------
Land and improvements $ 11,076 $ 10,569
Mineral deposits 7,467 6,197
Plant and equipment 59,459 56,323
Furniture and fixtures 4,095 2,495
Construction in progress 800 9,040
-------- --------
82,897 84,624
Less: Accumulated depreciation and depletion (10,750) (12,057)
-------- --------
$ 72,147 $ 72,567
======== ========
The Company capitalized interest costs of $817 in 2000 and $987 in
1999 with respect to qualifying construction projects.
Property, plant and equipment are pledged as security under various
USAI debt agreements.
5. INTANGIBLES
Intangibles consist of the following as of December 31:
2000 1999
-------- --------
Goodwill $ 8,761 $ 9,493
Non-Compete 89 249
Deferred Finance Charge 1,692 2,178
-------- --------
$ 10,542 $ 11,920
======== ========
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consists of the following
as of December 31:
2000 1999
-------- --------
Notes payable to former shareholders $ 1,000 $ 1,000
Capital lease obligations 2,876 --
Other 102 102
-------- --------
Total long-term debt and capital lease obligations 3,978 1,102
Less: Current portion (1,744) --
-------- --------
Long-term debt and capital lease obligations,
net of current portion $ 2,234 $ 1,102
NOTES PAYABLE TO FORMER SHAREHOLDERS
In connection with the acquisition of certain companies, the Company
has issued notes payable to the selling shareholders. These notes payable bear
interest at the rate of 8.00 percent per annum and mature in 2001.
F-56
CAPITAL LEASE OBLIGATIONS
The Company financed equipment purchases through various capital lease
obligations expiring through 2003. These obligations bear interest at various
rates ranging from 6.4 percent and 8.2 percent per annum.
OTHER DEBT
Other debt consists of a subordinated promissory note in the amount of
$102 payable by Dekalb to one of its former minority investors. Interest at a
rate of 10 percent per annum is payable at maturity.
SCHEDULED PAYMENTS OF LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Scheduled long-term debt and capital lease obligations maturities are
as follows:
Year Ended December 31
- - ----------------------
2001 $ 1,744
2002 955
2003 1,177
2004 --
2005 --
Thereafter 102
-------
$ 3,978
=======
7. EMPLOYEE BENEFIT PLANS
U.S. AGGREGATES INC. 401(K) PLAN
All full-time employees other than certain union employees are
eligible to participate in the U.S. Aggregates, Inc. 401(k) Plan. USAI may make
discretionary contributions each year. Participants increase their vested
interest in these discretionary contributions based upon years of employment in
which at least 1,000 hours are worked, and they become fully vested after five
years. Participants are fully vested in their contributions. For the years ended
December 31, 2000 and 1999, USAI provided contributions of $0 and $359,
respectively.
SRM
SRM maintains a benefit plan partially funded by key-man life
insurance for current and former key employees of SRM. Benefits under the plan
are discretionary and are payable over a ten-year period upon retirement at age
65 or upon death. As of December 31, 2000 and 1999, the present value of
long-term benefits payable are $46 and $42, respectively.
8. INCOME TAXES
The Company files a consolidated return with its parent company. The
tax provision is recorded at the consolidated entities effective rates.
Significant components of the Company's deferred tax assets and
liabilities include accruals and reserves, alternative minimum tax credit, net
operating loss, depreciation ad depletion, and book basis in fixed assets over
tax basis.
F-57
9. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities, trucks, equipment and certain
quarry sites under operating lease arrangements. Lease expense (other than
royalties) was $3,857 and $2,864 for the years ended December 31, 2000 and 1999,
respectively. Total future minimum rentals under noncancelable operating leases
as of December 31, 2000 are:
2001 $ 6,895
2002 7,005
2003 6,929
2004 6,648
2005 5,287
Thereafter 46,365
---------
$ 79,129
=========
The Company operates several quarries on land owned entirely or in
part by unrelated third parties. Pursuant to related agreements, the Company
pays monthly royalties to the owner based on the quantity of aggregates sold.
The initial terms of these agreements range from 5 to 40 years and generally
include renewal options. The minimum royalty payments are included in the above
table. Royalty expenses recorded pursuant to these arrangements in 2000 and 1999
totaled $5,423 and $4,393, respectively.
The Company is subject to various laws and regulations relating to the
protection of the environment. It is not possible to quantify with certainty the
potential impact of actions regarding environmental matters, particularly any
future remediation and other compliance efforts. In the opinion of management,
future compliance with existing environmental protection laws will not have a
material adverse effect on the financial condition or results of operations of
the Company.
The Company has a quarry under development in DeKalb County, Georgia
which is inactive but currently permitted as a dimensional stone quarry site.
The Company intends to file a lawsuit against the county regarding a dispute
over the issuance of a blasting permit to start a crushed stone operation. The
DeKalb site development-stage activities to date have consisted primarily of
site preparation work such as road construction, the placement of scales and
legal fees. DeKalb has also made advance minimum royalty payments under a
sublease agreement to be applied against payments due upon the commencement of
operations at this site. Capitalized costs as of December 31, 2000 and 1999 in
connection with this site were $1,794 and $1,636, respectively. Management feels
that they will eventually open the quarry; however, in the event that DeKalb is
not permitted to conduct operations at this quarry, the quarry will likely be
leased to a dimensional stone producer.
The Company is subject to various legal proceedings and claims that
have arisen in the ordinary course of its business and have not been finally
adjudicated. In the opinion of management, the ultimate resolution of these
issues would not have a material adverse effect on the Company's financial
condition or results of operations.
10. RELATED-PARTY TRANSACTIONS
An executive officer and director of the Company has a minority
interest in Dekalb Stone, Inc., a company in which U.S. Aggregates is the
majority shareholder.
All related-party transactions are considered to be conducted at arm's
length.
F-58
ANNEX B
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ASSET PURCHASE AGREEMENT
BY AND AMONG
SRM AGGREGATES, INC.,
BRADLEY STONE & SAND, INC.,
BHY READY MIX, INC.,
DEKALB STONE, INC.,
MULBERRY ROCK CORPORATION,
BAMA CRUSHED CORPORATION,
GROVE MATERIALS CORPORATION
and
U.S. AGGREGATES, INC.
AND
FLORIDA ROCK INDUSTRIES, INC.
DATED AS OF JULY 11, 2001
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I BASIC TRANSACTION.................................................. 1
1.1 Purchase and Sale of Assets. ................................... 1
1.2 Excluded Assets. ............................................... 2
1.3 Assumption of Liabilities........................................ 3
1.4 Excluded Liabilities............................................. 4
1.5 Nonassignable Contracts; Minority Stock Interests................ 5
1.6 Purchase Price for Acquired Assets............................... 6
1.7 Closing Transactions............................................. 8
ARTICLE II CONDITIONS TO CLOSING............................................. 9
2.1 Conditions to Buyer's Obligations................................ 9
2.2 Conditions to Sellers' Obligations. ............................ 11
ARTICLE III COVENANTS PRIOR TO CLOSING....................................... 13
3.1 Affirmative Covenants of Sellers. .............................. 13
3.2 Negative Covenants of Sellers. ................................. 14
3.3 Shareholders' Meeting; Proxy Material. .......................... 14
ARTICLE IV COVENANTS OF BUYER................................................ 15
4.1 Access to Books and Records. ................................... 15
4.2 Notification. .................................................. 15
4.3 [Intentionally Omitted.]......................................... 15
4.4 Regulatory Filings. ............................................ 15
4.5 Conditions. .................................................... 15
4.6 Contact with Customers and Suppliers. .......................... 15
ARTICLE V REPRESENTATIONS AND WARRANTIES..................................... 16
5.1 Organization and Corporate Power. .............................. 16
5.2 Authorization of Transactions. ................................. 16
5.3 [Intentionally Omitted.]......................................... 16
5.4 [Intentionally Omitted.]......................................... 17
5.5 Subsidiaries. .................................................. 17
5.6 Absence of Conflicts. .......................................... 17
5.7 Financial Statements. .......................................... 17
5.7A Books and Records. .............................................. 18
i
TABLE OF CONTENTS
-----------------
(continued)
PAGE
----
5.8 Absence of Certain Developments. ............................... 18
5.9 Real Property.................................................... 19
5.9A Equipment Leases. .............................................. 20
5.10 Title to Personal Property. .................................... 21
5.11 Taxes............................................................ 21
5.12 Contracts and Commitments........................................ 22
5.13 Intellectual Property. ......................................... 23
5.14 Litigation; Proceedings. ....................................... 23
5.15 Brokerage. ..................................................... 23
5.16 Governmental Licenses and Permits................................ 23
5.17 Employee Matters................................................. 24
5.18 Affiliate Transactions. ........................................ 24
5.19 Compliance with Laws. .......................................... 24
5.20 Environmental Matters............................................ 25
5.21 Disclosure....................................................... 25
5.22 Undisclosed Liabilities. ....................................... 26
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER........................... 26
6.1 Corporate Organization and Power. .............................. 26
6.2 Authorization. ................................................. 26
6.3 Absence of Conflicts. .......................................... 27
6.4 Litigation. ................................................... 27
6.5 [Intentionally Omitted.]......................................... 27
6.6 Brokers' Fees. ................................................. 27
6.7 Financing. ..................................................... 27
ARTICLE VII TERMINATION...................................................... 27
7.1 Termination. ................................................... 27
7.2 Effect of Termination. ......................................... 28
7.3 Termination Fee. ............................................... 28
ARTICLE VIII INDEMNIFICATION AND RELATED MATTERS............................. 29
8.1 Survival. ...................................................... 29
8.2 Indemnification.................................................. 29
8.3 Exclusive Remedy................................................. 31
8.4 Disclosure Generally. .......................................... 32
8.5 Acknowledgment by Buyer. ....................................... 32
8.6 Arbitration Procedures........................................... 32
ii
TABLE OF CONTENTS
-----------------
(continued)
PAGE
----
ARTICLE IX ADDITIONAL AGREEMENTS............................................. 34
9.1 Tax Matters. ................................................... 34
9.2 Employee and Employee Benefit Matters. ......................... 35
9.3 Press Releases and Announcements. .............................. 35
9.4 Further Transfers. ............................................. 35
9.5 Investigation and Confidentiality................................ 35
9.6 Expenses. ...................................................... 36
9.7 Exclusivity. ................................................... 37
9.8 Books and Records. ............................................. 37
9.9 Accounts Receivable. ........................................... 37
ARTICLE X MISCELLANEOUS...................................................... 37
10.1 Amendment and Waiver. .......................................... 37
10.2 Notices. ....................................................... 38
10.3 Binding Agreement; Assignment. ................................. 39
10.4 Severability. .................................................. 39
10.5 No Strict Construction. ........................................ 39
10.6 Captions. ...................................................... 39
10.7 Entire Agreement. .............................................. 39
10.8 Counterparts. .................................................. 39
10.9 Governing Law. ................................................. 39
10.10 Parties in Interest. .......................................... 39
10.11 Knowledge. ..................................................... 40
iii
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made as of July 11,
2001 by and among SRM AGGREGATES, INC., an Alabama corporation, BRADLEY STONE &
SAND, INC., a Tennessee corporation, BHY READY MIX, INC., a Tennessee
corporation, DEKALB STONE, INC., a Georgia corporation, MULBERRY ROCK
CORPORATION, a Georgia corporation, BAMA CRUSHED CORPORATION, an Alabama
corporation, GROVE MATERIALS CORPORATION, a Georgia corporation (each
individually a "Seller" and collectively "Sellers"), and U.S. AGGREGATES, INC.,
a Delaware corporation ("Parent"), and FLORIDA ROCK INDUSTRIES, INC., a Florida
corporation ("Buyer").
Sellers are engaged in the business of producing ready mix concrete and
aggregates consisting of crushed stone, sand and gravel at the below-described
Facilities (the "Business").
Subject to the terms and conditions set forth in this Agreement, Sellers
desire to sell to Buyer, and Buyer desires to acquire from Sellers, all of the
assets of the Business (other than the Excluded Assets (as that term is defined
in SECTION 1.2 below)), and Sellers desire to assign to Buyer, and Buyer desires
to assume from Sellers, certain of the liabilities of the Business.
NOW, THEREFORE, in consideration of the premises and mutual promises
herein made and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows
ARTICLE I
BASIC TRANSACTION
1.1 PURCHASE AND SALE OF ASSETS. On and subject to the terms and
conditions of this Agreement, at the Closing (as hereinafter defined), Buyer
shall purchase from Sellers, and Sellers shall sell, transfer, convey and
deliver to Buyer, all right, title and interest of Sellers in and to all of
their assets and property (other than the Excluded Assets) to the extent related
to the Business (the "Acquired Assets"), including, without limitation:
(a) all cash, cash equivalents and marketable securities;
(b) all accounts, notes and other receivables to the extent
relating to the Business;
(c) all raw materials and supplies, manufactured and
purchased parts, work-in-process, finished goods and other items of inventory
relating to the Business;
(d) all machinery, equipment, furniture, fixtures, leasehold
improvements, vehicles, tooling, molds, dies and other tangible personal
property located at the
1
below-described Facilities and owned by any of the Sellers, including without
limitation the tangible personal property listed on SCHEDULE 1.1(c) attached
hereto;
(e) all fee, leasehold and other interests in real property
set forth on the Owned Real Property Schedule (as defined in SECTION 5.9) and
the Leased Real Property Schedule (as defined in SECTION 5.9) (collectively, the
"Facilities") attached hereto;
(f) all Intellectual Property (as hereinafter defined),
trade secrets, know-how, technology, designs, formulae and other similar
intangible assets, goodwill associated therewith, licenses and sublicenses
granted and obtained with respect thereto and rights thereunder, remedies
against infringements thereof and rights to protection of interests therein
under the laws of all jurisdictions, in each case, relating solely to the
Business;
(g) all agreements, contracts, leases, licenses,
commitments, purchase orders and other similar arrangements (x) referenced on
the Contracts Schedule (as defined in SECTION 5.12) and (y) not referenced on
the Contracts Schedule due solely to the specific dollar threshold contained in
SECTION 5.12 below;
(h) all prepayments, deposits and prepaid expenses relating
to the Business to the extent any benefit therefrom inures to Buyer after the
Closing;
(i) all claims, refunds, causes of action, choses in action,
rights of recovery, rights of set off and rights of recoupment of any kind to
the extent relating to the Business (other than those related to the Excluded
Assets or Excluded Liabilities), including all claims of Sellers with respect to
prospective sites to be acquired for the Business;
(j) all franchises, approvals, permits, licenses, orders,
registrations, certificates, variances and similar rights obtained from
governments and governmental agencies relating solely to the Business to the
extent transferable; and
(k) all books, records, ledgers, files, documents,
correspondence, lists, drawings, and specifications, advertising and promotional
materials, studies, reports, and other printed or written materials to the
extent relating to the Business.
1.2 EXCLUDED ASSETS. Notwithstanding the foregoing provisions of
SECTION 1.1 above, the Acquired Assets shall not include any of the following
assets and property of Sellers (the "Excluded Assets"), which shall not be
conveyed to Buyer:
(a) [Intentionally omitted.]
(b) Sellers' insurance policies and rights thereunder;
(c) Sellers' corporate charters and bylaws, qualifications
to conduct business as a foreign corporation, arrangements with registered
agents relating to foreign qualifications, taxpayer and other identification
numbers, seals, minute books, stock transfer books, blank stock certificates and
other documents relating to the organization, maintenance, and existence of
Sellers as corporations;
2
(d) all claims, deposits, prepayments, refunds, causes of
action, choses in action, rights of recovery, rights of set off, and rights of
recoupment with respect to any Excluded Asset or a Excluded Liability
(including, without limitation, with respect to insurance policies and Income
Taxes);
(e) all rights of Sellers arising under this Agreement and
under any other agreement between Buyer and Sellers entered into in connection
with this Agreement;
(f) any equity interest in Sellers;
(g) any asset of the Business that is consumed, sold or
disposed of in the ordinary course of business prior to the Closing Date; and
(h) any "employee benefit plan," any "employee welfare
benefit plan" and any "employee pension benefit plan" of the Sellers (as that
term is defined in Sections 3(1), 3(2) and 3(3) of ERISA).
1.3 ASSUMPTION OF LIABILITIES. On and subject to the terms and
conditions of this Agreement, at the Closing, Buyer (or such wholly-owned
subsidiaries of Buyer as the Buyer may identify prior to the Closing Date) shall
expressly assume each of the following liabilities and obligations, whether or
not accrued, whether arising before, on or after the Closing Date, regardless of
when asserted (the "Assumed Liabilities"), but not including Excluded
Liabilities, in each case, to the extent relating to the Business:
(a) all accounts payable to the extent set forth on the
Closing Balance Sheet (as that term is defined in SECTION 1.6(c)(II) below) (the
"Accounts Payable");
(b) all current liabilities and expenses to the extent set
forth on the Closing Balance Sheet;
(c) all obligations and liabilities of the Sellers under the
agreements, contracts, leases, licenses, commitments, purchase orders and other
similar arrangements (x) referenced on the Contracts Schedule, or (y) not
referenced on the Contract Schedule due to the specific dollar thresholds
contained in SECTION 5.12 below (including, without limitation, the obligation
to perform under such agreements, contracts, leases, licenses, commitments and
other similar arrangements), to the extent such obligations and liabilities are
attributable to periods from and after the Closing Date or are reflected on the
Closing Balance Sheet;
(d) all obligations and liabilities of the Sellers under the
Leases (as that term is defined in SECTION 5.9(b)) (including, without
limitation, the obligation to perform under such Leases) to the extent such
obligations and liabilities are attributable to periods from and after the
Closing Date or are reflected on the Closing Balance Sheet;
(e) all obligations and liabilities for refunds,
advertising, coupons, adjustments, allowances, repairs, exchanges, returns and
warranty, merchantability and other claims to the extent reflected on the
Closing Balance Sheet;
3
(f) all liabilities arising under the debt obligations and
leases set forth on SCHEDULE 1.3(f) attached hereto to the extent not paid or
prepaid at Closing (all liabilities described in this SECTION 1.3(f) that are
not paid or prepaid at the Closing hereinafter collectively called the "Assumed
Indebtedness"); and
(g) all other liabilities and obligations of the Sellers
relating to the Business set forth on the Schedules attached hereto (as such
schedules may be amended, with the consent of the Buyer, prior to the Closing
Date) to the extent such obligations and liabilities are attributable to periods
from and after the Closing Date or are reflected on the Closing Balance Sheet.
1.4 EXCLUDED LIABILITIES. Notwithstanding anything to the contrary
contained in this Agreement or any of the schedules attached hereto, Buyer shall
not assume or be liable for any obligations or liabilities of Sellers or Parent
other than the Assumed Liabilities (the "Excluded Liabilities"), including
without limitation the following obligations and liabilities:
(a) any liabilities for Income Taxes (as defined below) of
Parent or Sellers arising from the operation of the Business on or prior to the
Closing Date;
(b) any liability for intercompany advances from Sellers to
the Business;
(c) all liabilities to the extent relating to any Excluded
Asset;
(d) any obligation or liability of Parent or Sellers arising
under this Agreement and under any other agreement between Buyer and Sellers
entered into in connection with this Agreement;
(e) all liabilities arising from or related to any claims or
actions asserted against Parent and/or its Subsidiaries (as that term is defined
in SECTION 5.5 below) by or on behalf of holders of securities of Parent in
connection with the ownership of such securities;
(f) all liabilities of Parent or the Sellers (i) arising
from the offsite disposal of Hazardous Substances generated or used on or prior
to the Closing Date by Sellers or any of their predecessors or (ii) arising in
connection with any violation of any Environmental Requirement (as that term is
defined in SECTION 5.20) arising from or relating to any former facility or
former property of the Sellers or any of their predecessors;
(g) except for the indebtedness and liabilities set forth in
SCHEDULE 1.3(f), all indebtedness or other obligations of Parent or the Sellers
for borrowed money and all obligations of the Sellers arising under any
promissory notes or capital leases (other than the Leases);
(h) all liabilities of Parent or the Sellers arising from or
related to the following lawsuit: CHARLES SMITH, ET AL. V. U.S. AGGREGATES,
INC., ET AL., No. CV-2000-291, in the Circuit Court of Colbert County, Alabama;
4
(i) all liabilities of Parent or the Sellers arising from or
related to any "employee benefit plan" as that term is defined in Section 3(3)
of ERISA;
(j) all liabilities of the Sellers for all claims, costs and
assessments under worker's compensation laws that are made or incurred by any of
the Employees (as that term is defined in SECTION 5.17(a)) after the Closing
Date but made with respect to injuries incurred by the Employees prior to the
Closing Date; and
(k) all liabilities of the Sellers for all "welfare benefit
claims," costs and assessments under any welfare benefit plan (as defined in
Section 3(1) of ERISA) which provides medical, health, disability, accident,
life insurance, death, dental or other welfare benefits, including any
post-employment benefits or retiree medical, health, disability, accident, life
insurance or other such benefits and claims under a "cafeteria plan" as defined
in Section 125(d) of the Internal Revenue Code of 1986, as amended, that are
made or incurred by any of the Employees prior to the Closing Date but that are
payable to any of the Employees on or after the Closing Date.
For purposes of this SECTION 1.4, "Income Tax" shall mean any federal, state,
county, local or foreign income, franchise, alternative minimum, add-on minimum
or other Tax measured by net income, together with all interest, penalties or
additions to Tax or other assessments imposed with respect thereto (including
any transferee or secondary liability for any Income Tax and any liability with
respect thereto arising as a result of being (or ceasing to be) a member of any
affiliated, consolidated, combined or unitary group (or being included, or
required to be included, in any Tax Return relating thereto), as well as any
liability under any tax sharing agreement with respect thereto)
1.5 NONASSIGNABLE CONTRACTS; MINORITY STOCK INTERESTS.
(a) Notwithstanding anything set forth herein to the
contrary, no contracts, properties, rights or other assets of Sellers shall be
deemed to be sold, transferred or assigned to Buyer pursuant to this Agreement
if the attempted sale, transfer or assignment thereof to Buyer without the
consent or approval of another party or governmental entity would be ineffective
or would constitute a breach of contract or a violation of any law or regulation
or would in any other way materially and adversely affect the rights of Sellers
(or Buyer as transferee or assignee) and such consent or approval is not
obtained on or prior to the Closing Date (the "Unobtained Consents"). In such
case, to the extent reasonably possible: (a) the beneficial interest in or to
such contracts, properties or other assets (collectively, the "Beneficial
Rights") shall in any event pass as of the Closing Date to Buyer under this
Agreement, and (b) pending such consent or approval, Buyer shall assume or
discharge the liabilities of Sellers under such Beneficial Rights as agent for
Sellers, and Sellers shall act as Buyer's agent in receipt of any benefits,
rights or interests received from the Beneficial Rights. Buyer and Sellers shall
use reasonable best efforts (and bear their respective costs) without payment of
any material fees, penalties or other amounts to any third party to obtain or
secure any and all consents or approvals that may be necessary to effect the
legal and valid sale, transfer or assignment of contracts, properties, rights or
other assets underlying the Beneficial Rights. Buyer and Sellers shall make or
complete such transfers as soon as reasonably practicable and cooperate with
each other in any other reasonable arrangement to which the Buyer has consented
and which is designed to provide for Buyer the Beneficial Rights including
5
enforcement at the cost and for the account of Buyer of any and all rights of
Sellers against the other party thereto, and to provide for the discharge by
Buyer of any liability under such contracts, properties or other assets.
(b) In the event that it appears likely that on or after the
Closing Date there will be any material Unobtained Consent, at the election of
Buyer and upon notification by the Buyer to the Sellers, the Sellers and Parent
will cause the shareholders of the Sellers (the "Contract Sellers") that are the
owners or holders of the interests in or to the contracts, properties or other
assets to which the Unobtained Consent relates to transfer the stock of such
Contract Sellers to the Buyer for no additional consideration.
(c) At the request of the Buyer, the portion of the stock of
DeKalb Stone, Inc. owned by any of the Sellers shall be transferred to the Buyer
in lieu of the Acquired Assets that are owned by DeKalb Stone, Inc.
1.6 PURCHASE PRICE FOR ACQUIRED ASSETS.
(a) PURCHASE PRICE. The aggregate purchase price to be paid
to Sellers for the Acquired Assets will be equal to $150,000,000.00, less (a)
$15,000,000.00 to be deposited in escrow pursuant to the terms of SECTION 1.6(b)
below (the "Escrow Deposit"), and (b) the amount of the Assumed Indebtedness
based on the payoff values set forth on SCHEDULE 1.3(f) (the "Purchase Price").
The Purchase Price shall be adjusted pursuant to SUBSECTION (c) below.
(b) ESCROW ARRANGEMENT. At the Closing, the Escrow Deposit
shall be deposited with an escrow agent that is mutually agreeable to the Buyer
and the Sellers (the "Escrow Agent"), under an Escrow Agreement in substantially
the form attached hereto as EXHIBIT A (the "Escrow Agreement"). The Buyer and
the Sellers agree that the Escrow Deposit shall be disbursed in accordance with
the Escrow Agreement and in accordance with the provisions set forth in SCHEDULE
1.6(b) attached hereto.
(c) DETERMINATION OF CERTAIN PURCHASE PRICE ADJUSTMENTS.
(i) Within five (5) business days prior to the Closing
Date, Sellers and Buyer shall jointly and in good faith prepare an estimate of
the Closing Balance Sheet (as defined in SUBSECTION (ii) below) (the "Estimated
Closing Balance Sheet") based on the Sellers' books and records and other
information then available, to determine Estimated Closing Working Capital and
Buyer shall be given access to such books and records and other information and
the opportunity to consult with the Sellers for purposes of preparing the
Estimated Closing Balance Sheet. For purposes hereof, (a) "Estimated Closing
Working Capital" means the GAAP book value of the Sellers' total cash, accounts
receivable, notes receivable and inventory less the Sellers' total accounts
payable and accrued expenses (other than the current portion of any intercompany
accounts) (any of which amounts may be a negative number), in each case to the
extent that any of such liabilities constitute Assumed Liabilities, determined
from the Estimated Closing Balance Sheet as of the Closing Date; provided,
however, that if Buyer and the Sellers are unable to agree on any of the
Estimated Closing Working Capital, such disputed amounts shall be determined
based on the amounts set forth on the Sellers' balance sheet as of the
month-ending immediately
6
prior to the Closing Date. At the Closing, the Purchase Price will be either (a)
reduced by the amount $8,275,000.00 exceeds the Estimated Closing Working
Capital or (b) increased by the amount Estimated Closing Working Capital exceeds
$8,275,000.00.
(ii) As promptly as practicable but in no event later
than sixty (60) days after the Closing Date, Buyer in good faith shall prepare
and will cause its auditors to audit a balance sheet of the Sellers as of the
close of business on the Closing Date (the "Closing Balance Sheet") for the
purpose of establishing the Actual Closing Working Capital. The Closing Balance
Sheet shall be delivered by Buyer to Sellers no later than sixty (60) days after
the Closing Date. For purposes hereof, "Actual Closing Working Capital" means
the GAAP book value of the Sellers' total cash, accounts receivable, notes
receivable and inventory less the Sellers' total accounts payable and accrued
expenses (other than the current portion of any intercompany accounts) (any of
which amounts may be a negative number), in each case to the extent that any of
such liabilities constitute Assumed Liabilities, determined from the Closing
Balance Sheet. The Closing Balance Sheet and the Estimated Closing Balance Sheet
shall be prepared using the same principles and methodologies used by Sellers
immediately prior to the Closing Date to the extent such principles and
methodologies are in accordance with GAAP.
(iii) If Actual Closing Working Capital exceeds
Estimated Closing Working Capital, Buyer shall, within thirty (30) days pay to
Sellers the amount of such excess. If Actual Closing Working Capital is less
than Estimated Closing Working Capital, Sellers shall within thirty (30) days
pay to Buyer in immediately available funds the amount of such shortfall. All
amounts owed pursuant to this subsection (iii) shall include interest, from the
Closing Date to the date of payment, at the Prime Rate (as defined in SECTION
8.6(g) below) calculated on the basis of a 365-day year.
(iv) If Sellers disagree with any item on the Closing
Balance Sheet, Sellers shall notify Buyer in writing of such disagreement within
thirty (30) days after Sellers' receipt thereof (such notice setting forth in
reasonable detail the basis for such disagreement). Buyer shall permit Sellers
access to such work papers relating to the preparation of the Closing Balance
Sheet as may be reasonably necessary to permit Sellers to review in detail the
manner in which the Closing Balance Sheet was prepared. Buyer and Sellers shall
thereafter negotiate in good faith to resolve any such disagreements; provided,
however, that Sellers or Buyer, as the case may be, shall within thirty (30)
days pay to Buyer or Sellers, as the case may be, the amount determined pursuant
to subsection (iii) above which is not subject to dispute, if any. If Buyer and
Sellers are unable to resolve any such disagreements within thirty (30) days,
Buyer and Sellers shall jointly retain KPMG Peat Marwick (the "Auditor").
(v) Buyer and Sellers shall direct the Auditor to
render a determination within thirty (30) days of its retention and Buyer and
Sellers shall use their best efforts to cause the Auditor to resolve all
disagreements over individual line items as soon as possible. The Auditor shall
consider only those items and amounts in the Closing Balance Sheet which Buyer
and Sellers are unable to resolve. The determination of the Auditor shall be
conclusive and binding upon Buyer and Sellers. The fees and expenses of the
Auditor shall be borne one-half by Buyer and one-half by Sellers.
7
1.7 CLOSING TRANSACTIONS.
(a) CLOSING. Subject to the satisfaction or waiver of the
conditions contained herein, the closing of Buyer's purchase of the Acquired
Assets contemplated by this Agreement (the "Closing") will take place at the
offices of McGuireWoods, LLP, 50 North Laura Street, Jacksonville, Florida 32202
on August 22, 2001 or on such other date as is mutually agreeable to Buyer and
Sellers. The date and time of the Closing are herein referred to as the "Closing
Date."
(b) TRANSFERS. Subject to the terms and conditions set forth
in this Agreement, the parties agree to consummate the following "Closing
Transactions" on the Closing Date:
(i) Buyer and Sellers shall execute and deliver the
Escrow Agreement in substantially the form set forth on EXHIBIT A;
(ii) Sellers shall execute and deliver to Buyer bills
of sale in substantially the form attached hereto as EXHIBIT B, conveying the
items of personal property included in the Acquired Assets;
(iii) Sellers shall execute and deliver to Buyer special
warranty deeds in substantially the form attached hereto as EXHIBIT C, conveying
all of the Owned Real Property (as that term is defined in SECTION 5.12(a));
(iv) Sellers and Buyer shall execute and deliver
assignment and assumption agreements in substantially the form set forth in
EXHIBIT D, pursuant to which the Sellers shall assign to the Buyer all of the
Sellers' right, title and interest under the Leases of the Leased Real Property
(as those terms are defined in SECTION 5.12(b)) and the Buyer shall assume all
of the Sellers' obligations and liabilities accruing under such Leases on or
after the Closing Date;
(v) Sellers and Buyer shall execute and deliver
assignment and assumption agreements in substantially the form set forth in
EXHIBIT E, pursuant to which the Sellers shall assign to the Buyer all of the
Sellers' right, title and interest under the contracts listed on the Contracts
Schedule (as that term is defined in SECTION 5.12(b)) and the Buyer shall assume
all of the Sellers' obligations and liabilities accruing under such contracts on
or after the Closing Date;
(vi) Sellers and Buyer shall execute and deliver
assignment and assumption agreements in a form reasonably satisfactory to
Sellers and Buyer, pursuant to which the Sellers shall assign to Buyer all of
the Sellers' right, title and interest under the Equipment Leases (as that term
is defined in SECTION 5.9A) and the Buyer shall assume all of Sellers'
obligations accruing under such Equipment Leases on or after the Closing Date;
(vii) Buyer shall deliver to Sellers by wire transfer of
immediately available funds an amount equal to the Purchase Price and any
portion of the Escrow Deposit
8
required to paid at Closing pursuant to SECTION 1.6(b) to one or more accounts
designated by Sellers;
(viii) Buyer shall deliver to the Escrow Agent by wire
transfer of immediately available funds the Escrow Deposit pursuant to SECTION
1.6(b);
(ix) there shall be delivered to Buyer and Sellers, as
applicable, certificates and other documents and instruments required to be
delivered to such party under ARTICLE II hereof; and
(x) Sellers shall deliver to Buyer possession of the
Acquired Assets.
ARTICLE II
CONDITIONS TO CLOSING
2.1 CONDITIONS TO BUYER'S OBLIGATIONS. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) Each of the representations and warranties set forth in
ARTICLE V hereof shall be true and correct in all material respects at and as of
the Closing Date as though then made and as though the Closing Date were
substituted for the date of this Agreement throughout such representations and
warranties, without giving effect to any supplements or updates to the Schedule
attached hereto to which the Buyer shall not have consented;
(b) Each of the representations and warranties in SECTIONS
5.2 and 5.8(a) and each of the representations and warranties set forth in
ARTICLE V that are qualified by the word "material" shall be true and correct in
all respects, at and as of the Closing Date as if made on the Closing Date,
without giving effect to any supplements or updates to the Schedules attached
hereto to which the Buyer shall not have consented;
(c) Sellers shall have performed and complied in all
material respects with all of the covenants and agreements required to be
performed by it under this Agreement prior to the Closing;
(d) All consents by third parties denoted on SCHEDULE 5.6
with an asterisk shall have been obtained;
(e) All applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") shall have expired or otherwise been terminated ("HSR
Approval");
(f) There shall not be (i) any injunction, judgment, order,
decree, ruling or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement, or (ii) any proceeding that would
be likely to have the effect of preventing, materially
9
delaying, making illegal or otherwise prohibiting any of the transactions
contemplated by this Agreement;
(g) All persons holding any rights of first refusal,
repurchase rights or similar rights with respect to the Acquired Assets that are
marked on SCHEDULE 5.6 with an asterisk shall have irrevocably waived all such
rights and Blue Circle, Inc. shall not have asserted any right of first refusal
under Section 14 of the Roberta, Alabama Limestone Sale Agreement dated June 30,
1998, as amended, by and between Blue Circle, Inc. and SRM Aggregates, Inc.;
(h) On or prior to the Closing Date, Sellers shall have
delivered to Buyer all of the following:
(i) a certificate from Sellers, dated as of the
Closing Date, stating that each of the conditions specified in SECTIONS 2.1(a)
through (g), inclusive, has been satisfied;
(ii) copies of all governmental and shareholder
consents, approvals, filings, releases and terminations required in connection
with the consummation of the transactions contemplated hereby (including
required governmental consents described in SCHEDULE 5.6);
(iii) certified copies of the resolutions of the
Sellers' boards of directors and shareholders approving the transactions
contemplated by this Agreement;
(iv) an opinion of Kirkland & Ellis and/or Baker,
Donelson, Bearman & Caldwell, addressed to the Buyer and dated the Closing Date,
regarding the due authorization, execution and delivery of this Agreement by the
Sellers and the Parent and all other documents required by this Agreement to be
delivered by any of the Sellers or the Parent, such opinion to be in a form
reasonably acceptable to the Buyer;
(v) commitments to issue title insurance for all of
the tracts of Real Property (as that term is defined in SECTION 5.9(c)) except
those tracts specified on SCHEDULE 2.1(i)(v) attached hereto issued by First
American Title Insurance Company (together with any lease amendments, or
memoranda of lease executed and in recordable form, required to evidence the
legal descriptions of such tracts (or make the existence of the leases a matter
of public record) as may be required in order for title policies to be issued),
such insurance to contain exceptions only for Permitted Encumbrances (as that
term is defined in SECTION 5.9(a)(ii)), any matters disclosed in SCHEDULES
5.9(a) and 5.9(b) and such other exceptions as shall be reasonably acceptable to
Buyer;
(vi) such other documents or instruments as Buyer
reasonably requests to (a) effect the transactions contemplated hereby, (b)
evidence the accuracy of Sellers' representations and warranties, (c) evidence
the performance by Sellers of, or the compliance by Sellers with, any covenant
or obligation required to be performed or complied with by Sellers, (d) evidence
the satisfaction of any condition referred to in this SECTION 2.1, or (e)
otherwise facilitate consummation or performance of any of the transactions
contemplated by this Agreement; and
10
(i) All proceedings to be taken by Sellers in connection
with the consummation of the Closing Transactions and the other transactions
contemplated hereby and all certificates, opinions, instruments and other
documents required to be delivered by Sellers to effect the transactions
contemplated hereby reasonably requested by Buyer will be reasonably
satisfactory in form and substance to Buyer.
(j) Buyer shall have confirmed to Buyer's reasonable
satisfaction by analysis of core drilling tests performed at the direction of
Buyer in a manner that is customary in the aggregates industry (such tests to be
performed at locations at each quarry that are mutually agreeable to the Sellers
and Buyer, and Buyer to give Sellers prompt access to all cores and test results
and analyses) that the amount of the contractually available, legally permitted
and economically mineable aggregates reserves that meet DOT specifications in
the applicable markets for sized stone and base for each quarry calculated on
the basis of such core drilling tests is at least eighty-five percent (85%) of
the amount of such aggregates reserves for each quarry set forth in SCHEDULE
2.1(k) attached hereto.
(k) Seller (i) shall have remediated to Buyer's reasonable
satisfaction the environmental matters disclosed in Schedule 5.20 with respect
to the BHY property and the S. Pittsburg, Calera, O'Neal and Tarrant quarries or
(ii) shall have demonstrated to Buyer's reasonable satisfaction that such
matters do not constitute a violation of any Environmental Requirements (as that
term is defined in SECTION 5.20); provided, however, that if such conditions
have not been met prior to the Closing, the cost of such remediation, as
determined by an independent expert selected by Buyer and Sellers, shall be
deducted from the Purchase Price and this closing condition shall be deemed to
have been satisfied.
Any condition specified in this SECTION 2.1 may be waived by Buyer,
provided that no such waiver will be effective unless it is set forth in a
writing executed by Buyer or unless Buyer agrees to consummate the transactions
contemplated by this Agreement without satisfaction of such condition.
2.2 CONDITIONS TO SELLERS' OBLIGATIONS. The obligation of Sellers
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) The representations and warranties set forth in ARTICLE
VI hereof shall be true and correct in all material respects at and as of the
Closing Date as though then made and as though the Closing Date were substituted
for the date of this Agreement throughout such representations and warranties;
(b) Buyer shall have performed and complied in all material
respects with all of the covenants and agreements required to be performed by it
under this Agreement prior to the Closing;
(c) There shall not be (i) any injunction, judgment, order,
decree, ruling or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement, or (ii) any proceeding that would
be likely to have the effect of preventing, materially
11
delaying, making illegal or otherwise prohibiting any of the transactions
contemplated by this Agreement;
(d) The transaction contemplated by this Agreement shall
have been approved by the requisite vote of the Sellers' and Parent's
shareholders (the "Shareholder Approvals");
(e) On or prior to the Closing Date, Buyer shall have
delivered to Sellers all of the following:
(i) a certificate from Buyer, dated as of the Closing
Date, stating that each of the conditions specified in SECTIONS 2.2(a) through
2.2(d) has been satisfied;
(ii) certified copies of the resolutions of Buyer's
board of directors or the executive committee thereof approving the transactions
contemplated by this Agreement;
(iii) an opinion of McGuireWoods LLP, addressed to the
Sellers and dated the Closing Date, regarding the due authorization, execution
and delivery of this Agreement by the Buyer and all other documents required by
this Agreement to be delivered by the Buyer, such opinion to be in a form
reasonably acceptable to Sellers; and
(iv) such other documents or instruments as Sellers
reasonably request to (a) effect the transactions contemplated hereby, (b)
evidence the accuracy of Buyer's representations and warranties, (c) evidence
the performance by Buyer of, or the compliance by Buyer with, any covenant or
obligation required to be performed or complied with by Buyer, (d) evidence the
satisfaction of any condition referred to in this SECTION 2.2, or (e) otherwise
facilitate consummation or performance of any of the transactions contemplated
by this Agreement.
(f) All proceedings to be taken by Buyer in connection with
the consummation of the Closing Transactions and the other transactions
contemplated hereby and all certificates, instruments and other documents
required to be delivered by Buyer to effect the transactions contemplated hereby
reasonably requested by Sellers will be reasonably satisfactory in form and
substance to Sellers.
Any condition specified in this SECTION 2.2 may be waived by Sellers,
provided that no such waiver will be effective unless it is set forth in a
writing executed by Sellers or unless Sellers agree to consummate the
transactions contemplated by this Agreement without the satisfaction of such
condition.
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ARTICLE III
COVENANTS PRIOR TO CLOSING
3.1 AFFIRMATIVE COVENANTS OF SELLERS. Prior to the Closing, unless
Buyer agrees otherwise in writing, Sellers will:
(a) use commercially reasonable efforts to conduct the
Sellers' business and operations only in the usual and ordinary course of
business in accordance with past custom and practice;
(b) use their commercially reasonable efforts to cause the
Sellers' current insurance (or reinsurance) policies not to be cancelled or
terminated or any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies providing
coverage equal to or greater than the coverage under the cancelled, terminated
or lapsed policies for substantially similar premiums are in full force and
effect;
(c) keep in full force and effect their respective corporate
existences and all rights, franchises and intellectual property relating or
pertaining to their businesses;
(d) use their commercially reasonable efforts to carry on
the business of the Sellers in the same manner as presently conducted and to
keep the Sellers' business organizations and properties intact, including their
present business operations, physical facilities, working conditions and
employees and their present relationships with lessors, licensors, suppliers and
customers and others having business relations with the Sellers;
(e) maintain the assets of the Sellers in good repair, order
and condition consistent with current needs;
(f) maintain the books, accounts and records of the Sellers
in accordance with generally accepted accounting principles and, to the extent
not inconsistent therewith, with past custom and practice as used in the
preparation of the Financial Statements (as such term is defined in SECTION
5.7);
(g) promptly (once the Sellers have knowledge thereof)
inform Buyer in writing of any material variances from the representations and
warranties contained in ARTICLE V hereof and, if the Closing occurs, such
disclosure shall amend and supplement the appropriate schedules attached hereto
in the form of Updated Schedules delivered to Buyer;
(h) confer with Buyer concerning operational matters of a
material nature;
(i) otherwise report periodically to Buyer concerning the
status of the business, operations and finances of the Sellers;
13
(j) promptly make all filings required to be made by them in
order to consummate the transactions contemplated by this Agreement (including
filings and submissions under the HSR Act);
(k) cooperate with Buyer with respect to all filings that
Buyer elects to make or is required by legal requirements or this Agreement to
make in connection with the transactions contemplated by this Agreement and in
obtaining any consents identified in SCHEDULE 5.6;
(l) use commercially reasonable efforts to obtain payoff
letters for each of the debt obligations on SCHEDULE 1.3(h) that Buyer has
notified Sellers that Buyer desires to have paid or prepaid at Closing;
(m) use commercially reasonable efforts to obtain title
commitments for the any tracts of the Real Property that are not specified on
SCHEDULE 2.1(c)(v);
(n) use commercially reasonable efforts to obtain any
consents by and estoppel certificates from any third parties that are not
denoted on SCHEDULE 5.6 with an asterisk;
(o) use their commercially reasonable efforts to cause the
conditions in ARTICLE II to be satisfied and to consummate the transactions
contemplated herein as soon as reasonably possible after satisfaction of the
conditions set forth in ARTICLE II (other than those to be satisfied at the
Closing); And
(p) from and after the date which is fifteen (15) days prior
to the scheduled Closing Date, will not distribute any cash or pay any cash
dividends except for payments to creditors and dividends or distributions to
another Seller.
3.2 NEGATIVE COVENANTS OF SELLERS. From the date hereof, prior to
the Closing, without Buyer's prior written consent, Sellers will not:
(a) take any action that would require disclosure under
SECTION 5.8 of this Agreement;
(b) make any loans or enter into any transactions with any
Insider (as defined in SECTION 5.18), other than in the ordinary course of
business;
(c) establish or, except in accordance with past practice,
contribute to any pension, retirement, profit sharing or stock bonus plan or
multiemployer plan covering the employees of the Sellers; and
(d) except as specifically contemplated by this Agreement,
enter into any material contract, agreement or transaction, other than in the
ordinary course of the Sellers' business in accordance with past custom and
practice.
3.3 SHAREHOLDERS' MEETING; PROXY MATERIAL. Promptly after the date
hereof, Parent shall prepare and file with the SEC a proxy statement to solicit
the approval of this
14
transaction by its shareholders and to cause a special meeting of its
shareholders to be duly called and held as soon as reasonably practicable for
the purpose of acting upon proposals to approve this Agreement and all actions
contemplated hereby that require the approval of Parent's shareholders. Parent
shall use all reasonable efforts to have the proxy statement reviewed by the SEC
as promptly as practicable after such filing and to obtain and respond to any
comments by the SEC or its staff resulting from such review. Parent will use all
reasonable efforts to cause the proxy statement to be mailed to Parent's
shareholders as promptly as practicable after approval by the SEC.
ARTICLE IV
COVENANTS OF BUYER
4.1 ACCESS TO BOOKS AND RECORDS. From and after the Closing, Buyer
shall provide Sellers and their agents with reasonable access (for the purpose
of examining and copying), during normal business hours, to the books and
records transferred to the Buyer as part of the Acquired Assets with respect to
periods or occurrences prior to the Closing Date in connection with any matter
whether or not relating to or arising out of this Agreement or the transactions
contemplated hereby. Unless otherwise consented to in writing by Sellers, the
Buyer shall not, for a period of seven years following the Closing Date,
destroy, alter or otherwise dispose of any of such books and records for the
period prior to the Closing Date without first offering to surrender to Sellers
such books and records or any portion thereof which Buyer may intend to destroy,
alter or dispose of.
4.2 NOTIFICATION. Prior to the Closing, upon discovery Buyer shall
promptly inform the Sellers in writing of any material variances from Buyer's
representations and warranties contained in ARTICLE VI.
4.3 [Intentionally Omitted.]
4.4 REGULATORY FILINGS. Buyer shall make or cause to be made all
filings and submissions under the HSR Act and any other laws or regulations
applicable to Buyer as may be required of Buyer for the consummation of the
transactions contemplated herein, and Buyer shall be responsible for all filing
fees under the HSR Act. Buyer shall coordinate and cooperate with the Sellers in
exchanging such information and assistance as the Sellers may reasonably request
in connection with all of the foregoing.
4.5 CONDITIONS. Buyer shall use all commercially reasonable
efforts to cause the conditions set forth in SECTION 2.2 to be satisfied and to
consummate the transactions contemplated herein as soon reasonably possible
after the satisfaction of the conditions set forth in ARTICLE II (other than
those to be satisfied at the Closing).
4.6 CONTACT WITH CUSTOMERS AND SUPPLIERS. Prior to the Closing,
Buyer shall coordinate with the Sellers all contact and communications with the
employees, customers and suppliers of the Sellers (other than existing customers
and suppliers of the Buyer) in connection with the transactions contemplated
hereby.
15
ARTICLE V
REPRESENTATIONS AND WARRANTIES
CONCERNING THE SELLERS AND THE ACQUIRED ASSETS
As a material inducement to Buyer to enter into this Agreement, Sellers
jointly and severally represent and warrant that:
5.1 ORGANIZATION AND CORPORATE POWER. Each of the Sellers is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has all requisite corporate power and
authority and all licenses, permits and authorizations necessary to own and
operate its properties and to carry on its business as now conducted and to
perform all of its obligations under all contracts to which it is a party,
except where the failure the failure to hold such authorizations, licenses and
permits would not have a material adverse effect upon the business, financial
condition or operating results of the Sellers (a "Material Adverse Effect").
Each of the Sellers is qualified to do business in every jurisdiction in which
the nature of its business or its ownership of property requires it to be so
qualified, except where the failure to be so qualified would not have a Material
Adverse Effect. All such jurisdictions in which the Sellers are so qualified are
set forth on SCHEDULE 5.1 attached hereto (the "Qualifications Schedule").
Sellers have delivered to Buyer true, correct and complete copies of their
charter documents and by-laws, as currently in effect.
5.2 AUTHORIZATION OF TRANSACTIONS. Each of the Sellers has full
corporate power and authority to execute and deliver this Agreement and all
other agreements contemplated hereby to which such Sellers are parties and, upon
obtaining the Shareholder Approvals, to consummate the transactions contemplated
hereby and thereby. This Agreement and all other agreements contemplated hereby
to which any of the Sellers is a party and the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly approved and authorized by the board of directors of such
Sellers and, upon obtaining the Shareholder Approvals, by all other necessary
corporate action. This Agreement and all other agreements contemplated hereby to
which any of the Sellers is a party have been duly executed and delivered by
such Sellers and constitute the valid and binding agreements of such Sellers,
enforceable against Sellers in accordance with their terms, except as
enforceability hereof or thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and limitations on the availability of equitable remedies. Upon the execution
and delivery by the Sellers at the Closing of all documents to be executed by
Sellers at Closing pursuant to this Agreement (the "Seller Closing Documents"),
the Seller Closing Documents will constitute the legal, valid and binding
obligation of Sellers, enforceable against Sellers in accordance with their
respective terms except as enforceability hereof or thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and limitations on the availability of equitable
remedies. Sellers have the absolute and unrestricted right, power, authority and
capacity to execute and deliver this Agreement and the Seller Closing Documents
and, except as set forth on SCHEDULE 5.6, to perform their obligations under
this Agreement and the Seller Closing Documents.
5.3 [INTENTIONALLY OMITTED.]
16
5.4 [INTENTIONALLY OMITTED.]
5.5 SUBSIDIARIES. No Seller has any Subsidiary that is not also a
Seller. For purposes of this Agreement, the term "Subsidiary" shall mean any
corporation of which the securities having a majority of the voting power in
electing the board of directors are, at the time of such determination, owned by
any of the Sellers or another Subsidiary.
5.6 ABSENCE OF CONFLICTS. Except as set forth on SCHEDULE 5.6
attached hereto (the "Restrictions Schedule"), the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (a) conflict with or result in any
breach of any of the provisions of, (b) constitute a default under, (c) result
in a violation of, (d) give any third party the right to exercise any right of
first refusal (including any right of first refusal in favor of Blue Circle,
Inc.), repurchase right or similar rights with respect to any of the Acquired
Assets, (e) give any third party the right to terminate or to accelerate any
obligation under, (f) result in the creation of any lien, security interest,
charge or encumbrance upon the Acquired Assets under, or (g) require any
authorization, consent, approval, exemption or other action by or notice to any
court or other governmental body under, (i) the certificates of incorporation or
by-laws of Sellers, (ii) any resolutions adopted by the board of directors or
shareholders of Sellers, (iii) any license, permit or other governmental
authorization issued to any of the Sellers or that relates to the business of
the Sellers or any of the Acquired Assets, (iv) any indenture, mortgage, lease,
loan agreement or other agreement or instrument by which any of the Sellers or
any of the Acquired Assets is bound or affected, or (v) any law, statute, rule
or regulation or any judgment, order or decree to which any of the Sellers or
any of the Acquired Assets is subject.
5.7 FINANCIAL STATEMENTS. The Sellers have furnished Buyer with
copies of their (i) unaudited consolidated balance sheet as of May 31, 2001 (the
"Latest Balance Sheet") and the related statements of income and cash flow for
the five-month period then ended and (ii) unaudited consolidated balance sheets
and statements of income and cash flow for the fiscal years ended December 31,
2000 and 1999, all of which are attached hereto as SCHEDULE 5.7. Each of the
foregoing financial statements (including in all cases the notes thereto, if
any) (the "Financial Statements") is accurate and complete, is consistent with
the Sellers' books and records (which, in turn, are accurate and complete ),
presents fairly in all material respects the Sellers' financial condition and
results of operations as of the times and for the periods referred to therein,
and has been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, subject to the absence of footnote
disclosure (that if presented, would not describe exceptions to GAAP applied on
a consistent basis or any change in accounting principles) and, in the case of
the Latest Balance Sheet and related statements of income and cash flow, subject
to changes resulting from normal year-end adjustments (the effect of which will
not, individually or in the aggregate, be materially adverse) and to the absence
of footnote disclosure (that if present, would not describe exceptions to GAAP
applied on a consistent basis or any change in accounting principles). The
Financial Statements accurately reflect the gross revenues of the Sellers on a
consolidated basis for the periods indicated. The Financial Statements reflect
the consistent application of such accounting principles throughout the periods
involved. No financial statements of any person other than the Subsidiaries are
required to be included in the consolidated financial
17
statements of the Sellers. All inventory is valued at the lower of cost or
market, with appropriate reduction for any royalty payments due at the time of
sale.
5.7A BOOKS AND RECORDS. The books of account, minute books, stock
record books and other records of the Sellers, all of which have been made
available in the offices of the Sellers for Buyer to inspect, are accurate,
complete and correct and have been maintained in accordance with sound business
practices
5.8 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on
SCHEDULE 5.8 attached hereto (the "Developments Schedule") and except as
expressly contemplated by this Agreement, since the date of the Latest Balance
Sheet, the Sellers have not:
(a) suffered a Material Adverse Effect;
(b) redeemed or repurchased, directly or indirectly, or paid
or declared any dividends or other distributions in respect of, any shares of
its capital stock;
(c) issued, sold or transferred any notes, bonds or other
debt securities or any equity securities, securities convertible, exchangeable
or exercisable into equity securities, or warrants, options or other rights to
acquire equity securities, of any of the Sellers;
(d) borrowed any amount or incurred or become subject to any
material liabilities, except current liabilities incurred in the ordinary course
of business;
(e) mortgaged, pledged or subjected to any material lien,
charge or any other encumbrance, any portion of its properties or assets;
(f) sold, leased, assigned or transferred (including without
limitation transfers to Sellers or its affiliates) any portion of its tangible
assets, except in the ordinary course of business, or cancelled without fair
consideration any debts or claims owing to or held by it;
(g) sold, assigned, licensed or transferred (including
without limitation transfers to Sellers or its affiliates) any material
Intellectual Property or disclosed any confidential information other than
pursuant to agreements preserving all rights of the Sellers in such confidential
information or received any confidential information of any third party in
violation of any obligation of confidentiality;
(h) suffered any theft, damage, destruction or loss in
excess of $100,000, to its tangible assets not covered by insurance or suffered
any substantial destruction of its books and records;
(i) made or entered into any arrangement to make an
acquisition (whether by merger, acquisition of stock or assets, or otherwise) of
any business or product line or made any capital investment in any entity;
(j) entered into, amended or terminated any lease, contract,
agreement, commitment, or any other transaction in excess of $150,000 other than
in the ordinary course of
18
business and in accordance with past custom and practice, or entered into any
transaction with any Insider;
(k) made or granted any bonus or any wage, salary or
compensation increase in excess of $50,000 per year or outside the ordinary
course of business and in accordance with past custom and practice to any
employee or sales representative, group of employees or consultants or made or
granted any increase in any employee benefit plan or arrangement, or amended or
terminated any existing employee benefit plan or arrangement or adopted any new
employee benefit plan or arrangement or made any other change in employment
terms for any of its directors, officers and employees outside the ordinary
course of business and in accordance with past custom and practice or entered
into any employment contract or collective bargaining agreement, written or
oral, or modified the terms of any such existing agreement; or
(l) made any loans or advances to, or guarantees for the
benefit of, any persons.
5.9 REAL PROPERTY.
(a) OWNED REAL PROPERTY.
(i) SCHEDULE 5.9(a) attached hereto (the "Owned Real
Property Schedule") sets forth the address and description of each parcel of
real property owned by any of the Sellers (collectively, the "Owned Real
Property"). Except as set forth on the Owned Real Property Schedule with respect
to each parcel of Owned Real Property: (a) one or more of the Sellers has or
will have as of the Closing Date good and marketable fee simple title to such
parcel, free and clear of all liens, encumbrances, easements and restrictive
covenants, except Permitted Encumbrances, (b) other than the right of Buyer
pursuant to this Agreement, there are no outstanding options, rights of first
offer or rights of first refusal to purchase such parcel or any portion thereof
or interest therein, (c) there are no pending or, to Sellers' knowledge,
threatened condemnation proceedings, lawsuits or administrative actions relating
to the Owned Real Property, (d) there are no leases, subleases, licenses,
concessions, or other agreements, written or oral,to which any of the Sellers
are parties, granting to any party or parties the right of use or occupancy of
or the right to extract minerals from any portion of the Owned Real Property;
and (e) there are no parties (other than the Sellers) in possession of any
portion of the Owned Real Property. Except as set forth on the Owned Real
Property Schedule or the Leased Real Property Schedule, none of the Sellers is a
party to any agreement or option to purchase any real property or interest
therein. At Closing one or more of the Sellers will own or will have a valid
leasehold interest in all real property used in the Business.
(ii) The term "Permitted Encumbrances" shall mean with
respect to each parcel of Owned Real Property: (A) real estate taxes,
assessments and other governmental levies, fees or charges imposed with respect
to such parcel which are not due and payable as of the Closing Date or which are
being contested by appropriate proceedings; (B) mechanics and similar statutory
liens for labor, materials or supplies provided with respect to such parcel
incurred in the ordinary course of business for amounts which are not delinquent
and which would not, individually or in the aggregate, have a Material Adverse
Effect or which are being contested by
19
appropriate proceedings; (C) zoning, building and other land use laws imposed by
any governmental authority having jurisdiction over such parcel which are not
violated by the Sellers' current use (or Sellers' proposed use except with
respect to the DeKalb quarry) or occupancy of such parcel or the operation of
the business of the Sellers thereon or any violation of which would not have a
Material Adverse Effect; and (D) easements, covenants, conditions, restrictions
and other similar matters of record affecting title to such parcel which do not
or would not materially impair the value of such property or the use or
occupancy of such parcel in the operation of the business of the Sellers.
(b) LEASED REAL PROPERTY. SCHEDULE 5.9(b) attached hereto
(the "Leased Real Property Schedule") sets forth the address and description of
each leased and subleased parcel of real property in which any of the Sellers
have a leasehold or subleasehold interest (the "Leased Real Property") and a
list of all leases and subleases (which shall include all agreements, licenses
or permits which grant any of the Sellers the right to purchase, mine, extract
or remove aggregates, limestone, limerock, granite, gravel, sand or minerals
from real estate) (collectively, the "Leases") for each Leased Real Property.
The Sellers have made available to Buyer a true and complete copy of each such
Lease document set forth on the Leased Real Property Schedule and all amendments
thereto, and in the case of any oral Lease, a written summary of the material
terms of such Lease. Except as set forth on the Leased Real Property Schedule,
with respect to each of the Leases: (A) one or more of the Sellers has good and
marketable leasehold title to the properties specified on the Leased Real
Property Schedule, free and clear of all liens, encumbrances, easements and
Restrictive Covenants as of the Closing Date, other than Permitted Encumbrances;
(B) such Lease is legal, valid, binding, enforceable and in full force and
effect; (C) neither the Sellers nor any other party to the Lease is in breach or
default under such Lease, and no event has occurred or circumstance exists
which, with the delivery of notice, the passage of time or both, would
constitute such a breach or default or permit the termination, modification or
acceleration of rent under such Lease, (D) no party to the Lease has repudiated
any provision thereof; (E) there are no disputes, oral agreements or forbearance
programs in effect as to the Lease, (F) none of the Sellers has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold that will not be released on or before the Closing
Date, other than Permitted Encumbrances; (G) to Sellers' knowledge, there are no
pending or threatened condemnation proceedings, lawsuits, or administrative
actions relating to the Leased Real Property, and (H) there are no parties
(other than the Sellers) in possession of the parcel of Leased Real Property.
(c) REAL PROPERTY USED IN THE BUSINESS. The Owned Real
Property identified on the Owned Real Property Schedule and the Leased Real
Property identified on the Leased Real Property Schedule (collectively, the
"Real Property") comprise all of the real property currently used by the Sellers
in the operation of their business
5.9A EQUIPMENT LEASES. SCHEDULE 5.9A (the "Equipment Lease
Schedule") describes all agreements pursuant to which any of the Sellers leases
any equipment or vehicles (the "Equipment Leases"). A true, correct and complete
copy of each of the Equipment Leases has been made available to Buyer. Except as
set forth on SCHEDULE 5.9A, (i) each of the Equipment Leases is legal, valid,
binding and enforceable and in full force and effect and will continue to be
legal, valid,
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binding and enforceable and in full force and effect on identical terms
following the consummation of the transactions contemplated by this Agreement,
(ii) no party has repudiated any provision of any Equipment Lease, (iii) none of
the Sellers or, to the Sellers' knowledge, any other party thereto, is in breach
of or default under any Equipment Lease, and (iv) no event has occurred which,
with notice or lapse of time would constitute a breach of or default under or
permit termination, modification or acceleration under any Equipment Lease.
SCHEDULE 5.9A accurately sets forth the pay off amounts (including any
prepayment penalties) due under each of the Equipment Leases as of the date set
forth on such Schedule.
5.10 TITLE TO PERSONAL PROPERTY. Except as set forth on SCHEDULE
5.10, one or more of the Sellers own good and marketable title to all of the
personal property shown on the Latest Balance Sheet, free and clear of all
liens, security interests and other encumbrances, except for liens relating to
current taxes not yet due and payable and liens and encumbrances set forth on
the attached SCHEDULE 5.10 (the "Liens Schedule").
5.11 TAXES.
(a) Each of the Sellers has filed all Tax Returns that it is
required to file under applicable laws and regulations and all such Tax Returns
are complete and correct in all respects. Each of the Sellers has paid all Taxes
due and owing by it (whether or not shown on any Tax Return) and has withheld
and paid over to the appropriate taxing authority all Taxes which it is required
to withhold from amounts paid or owing to any employee, independent contractor,
equityholder, creditor or other third party.
(b) None of the Sellers has waived any statute of
limitations with respect to any Taxes or agreed to any extension of time with
respect to any Tax assessment or deficiency. None of the Sellers currently is
the beneficiary of any extension of time within which to file any Tax Return. No
foreign, federal, state or local Tax audits or administrative or judicial
proceedings are pending or being conducted with respect to the Sellers, and no
written notice indicating an intent to open an audit or other review has been
received by the Sellers from any foreign, federal, state or local taxing
authority. There are no unresolved questions or claims concerning the Sellers'
Tax liability which individually or in the aggregate exceed $100,000.00. No
claim has ever been made by an authority in a jurisdiction where any of the
Sellers does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction.
(c) Except as set forth on SCHEDULE 5.11, there are no liens
for Taxes (other than for current Taxes not yet due and payable) upon the assets
of the Sellers.
(d) There is no dispute or claim concerning any Tax
Liability of any of the Sellers either (a) claimed or raised by any authority in
writing or (b) as to which any of Sellers and the directors and officers (and
employees responsible for Tax matters) of the Sellers has knowledge based upon
personal contact with any agent of such authority. SCHEDULE 5.11 attached hereto
lists all federal, state, local, and foreign income Tax Returns filed with
respect to any of the Sellers for taxable periods ended on or after December 31,
1997, indicates those Tax Returns that have been audited, and indicates those
Tax Returns that currently are the subject of audit. Sellers have delivered to
the Buyer correct and complete copies of all federal income Tax Returns,
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examination reports, and statements of deficiencies assessed against or agreed
to by any of the Sellers since December 31, 1997.
(e) As used in this Agreement, the following terms shall
have the following respective meanings:
(f) "Code" means the Internal Revenue Code of 1986, as
amended.
(g) "Tax" or "Taxes" means any federal, state, local or
foreign income, gross receipts, franchise, estimated, alternative minimum,
add-on minimum, sales, use, transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital stock,
social security, unemployment, disability, payroll, license, employee or other
withholding, or other tax, of any kind whatsoever, including any interest,
penalties or additions to tax or additional amounts in respect of the foregoing,
whether disputed or not.
(h) "Tax Returns" means returns, declarations, reports,
claims for refund, information returns or other documents (including any related
or supporting schedules, statement or information and any amendment thereof)
filed or required to be filed in connection with the determination, assessment
or collection of Taxes of any party or the administration of any laws,
regulations or administrative requirements related to Taxes.
5.12 CONTRACTS AND COMMITMENTS.
(a) Except as specifically contemplated by this Agreement
and except as set forth on SCHEDULE 5.12 attached hereto (the "Contracts
Schedule"), none of the Sellers is a party to any: (i) collective bargaining
agreement or contract with any labor union or any bonus, pension, profit
sharing, retirement or any other form of deferred compensation plan other than
as described in SECTION 5.17(b) or the Schedules relating thereto; (ii) or any
stock purchase, stock option, or similar plan; (iii) contract for the employment
of any officer, individual employee or other Person on a full-time or consulting
basis or any severance agreements; (iv) agreement or indenture relating to the
borrowing of money, the guarantee of any indebtedness, any capitalized lease
obligation or to mortgaging, pledging or otherwise placing a lien on any portion
of the Acquired Assets; (v) agreements with respect to the lending or investing
of funds; (vi) license, sublicense or royalty agreements; (vii) lease or
agreement under which it is lessee of, or holds or operates, any personal
property owned by any other party calling for payments in excess of $25,000
annually, except for the Equipment Leases; (viii) lease or agreement under which
it is lessor of or permits any third party to hold or operate any property, real
or personal, owned or controlled by it; or (ix) contract or group of related
contracts with the same party for the purchase or sale of raw materials,
supplies, products or other personal property or for the furnishing or receipt
of services (a) the performance of which will extend over a period of more than
six months, or (b) involves consideration in excess of $25,000.
(b) Buyer either has been supplied with, or has been given
access to, a true and correct copy of all written contracts which are referred
to on the Contracts Schedule, together with all amendments, waivers or other
changes thereto.
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(c) With respect to each contract so listed: (i) the
contract is legal, valid, and binding obligation of the Sellers; and (ii) to the
Sellers' knowledge, no party has repudiated any provision of such contract and
the Sellers are not in breach of or default under such contract, and no event
has occurred which, with notice or lapse of time would constitute a breach of or
default under or permit termination, modification, or acceleration under such
contract, except where such breach, default, termination, modification or
acceleration would not result in an aggregate loss in excess of $100,000.00.
5.13 INTELLECTUAL PROPERTY. All of the patents, registered
trademarks, registered service marks, registered copyrights, application for any
of the foregoing and material unregistered trademarks, service marks,
copyrights, trade names and corporate names used in the conduct of the Sellers'
respective businesses (collectively, "Intellectual Property") are set forth on
the attached Schedule 5.13 (the "Intellectual Property Schedule"). Except as set
forth on the Intellectual Property Schedule: (i) one or more of the Sellers own
and possess all right, title and interest in and to, or possesses the valid
right to use, the Intellectual Property; (ii) the Sellers have not received any
written notices of material infringement or misappropriation from any third
party with respect to the Intellectual Property; and (iii) to the Sellers'
knowledge, none of the Sellers is currently infringing on the intellectual
property of any other Person, except for any nonconformance with clauses (i),
(ii) and (iii) above which would not have a Material Adverse Effect. To the
Sellers' knowledge, each item of Intellectual Property owned or used by any of
the Sellers immediately prior to the Closing hereunder will be owned or
available for use by the Buyer on identical terms and conditions immediately
subsequent to the Closing hereunder. Except as set forth on the Intellectual
Property Schedule, to the knowledge of the Sellers, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of any of any of the Sellers.
5.14 LITIGATION; PROCEEDINGS. Except as set forth on SCHEDULE 5.14
attached hereto (the "Litigation Schedule"), there are no actions, suits, or
proceedings, pending or, to the knowledge of the Sellers, threatened against or
affecting the Sellers or any of their assets at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign. SCHEDULE 5.14
sets forth each instance in which any of the Sellers is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge.
5.15 BROKERAGE. Except for the fees of Deutsche Banc Alex. Brown
(which fees shall be paid by Sellers), there are no claims for brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of any of the Sellers.
5.16 GOVERNMENTAL LICENSES AND PERMITS.
(a) SCHEDULE 5.16(a) attached hereto (the "Licenses
Schedule") contains a complete listing and summary description of all permits,
certificates of occupancy, licenses, franchises, certificates, approvals and
other authorizations of foreign, federal, state and local governments or other
similar rights relating to the Acquired Assets owned or possessed by the Sellers
(collectively, the "Licenses"). Except as indicated on the Licenses Schedule,
one or more of
23
the Sellers owns or possesses all right, title and interest in and to all of the
Licenses which are necessary to conduct their business as presently conducted
and will use its commercially reasonable efforts to maintain all such Licenses.
Each of the Licenses is in full force and effect. No loss or expiration of any
License is, to the knowledge of the Sellers, threatened, pending or reasonably
foreseeable (including, without limitation, as a result of the transactions
contemplated hereby) other than expiration in accordance with the terms thereof.
No License is due to expire in accordance with its terms within 180 days after
the Closing Date, except as set forth on SCHEDULE 5.16(a).
(b) Except for HSR Approval, and except as set forth on
SCHEDULE 5.16(b) attached hereto (the "Governmental Consent Schedule"), no
permit, approval or authorization of, or declaration to or filing with, any
governmental or regulatory authority is required to be obtained by any of the
Sellers in connection with its execution, delivery and performance of this
Agreement or the consummation of any other transaction contemplated hereby.
5.17 EMPLOYEE MATTERS.
(a) SCHEDULE 5.17(a) attached hereto sets forth an accurate
and complete list of all employees ("Employees") of the Sellers, together with
such Employee's position and present salary or compensation arrangement and
amount of the last increase thereof and all contracts between any Employee and
any of the Sellers. No general work stoppage or other significant labor dispute
with respect to the Sellers is pending or, to the Knowledge of Sellers,
threatened, and no application for certification of a collective bargaining
agent is pending or, to the Knowledge of Sellers, threatened with respect to the
business of the Sellers. No employees of any of the Sellers are covered by a
collective bargaining agreement, except for the collective bargaining agreement
identified in SCHEDULE 5.17(a). The Sellers have complied in all material
respects with all Applicable Laws relating to the employment and safety of
labor, including provisions relating to wages, hours, benefits, collective
bargaining, the payment of social security and similar Taxes, and all Applicable
Laws regarding occupational safety and health with respect to employees employed
by it.
(b) There are no liabilities of Sellers related to any
"employee benefit plan" (as that term is defined in Section 3(3) of ERISA) of
the Sellers (collectively, the "Plans") or any liabilities of such Plans,
including without limitation any withdrawal liability related to any
"multiemployer plan" (as that term is defined in Section 3(37) of ERISA), which
encumber, attach to, or impair the value of, any of the Acquired Assets.
5.18 AFFILIATE TRANSACTIONS. Except as disclosed on SCHEDULE 5.18
attached hereto (the "Affiliate Transactions Schedule"), to the Sellers'
knowledge, no officer, director, or Affiliate of the Sellers or any individual
in such officer's or director's immediate family (collectively, the "Insiders")
is a party to any agreement, contract, commitment or transaction with any of the
Sellers or has any interest in any property used by any of the Sellers.
5.19 COMPLIANCE WITH LAWS. The Sellers are in compliance in all
respects with all applicable laws and regulations of foreign, federal, state and
local governments and all agencies thereof.
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5.20 ENVIRONMENTAL MATTERS.
(a) Except as set forth on SCHEDULE 5.20, each of the
Sellers is in compliance with all Environmental Requirements and has no
liability for the violation of any Environmental Requirements.
(b) Each of the Sellers has obtained and is in compliance
with all permits, licenses, and other authorizations required by Environmental
Requirements for the occupation of its Facilities and the operation of its
business.
(c) None of the Sellers has received any written notice or
report regarding any actual or alleged violation of any Environmental
Requirements, or any liabilities or potential liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to any of them, or any of their
Facilities arising under Environmental Requirements, except for any such notice
the subject matter of which has been substantially resolved.
(d) The Sellers have made available to Buyer true and
correct copies of all environmental assessment reports relating to any of the
Sellers or any of their Facilities that are in the possession, custody or
control of Sellers.
(e) This SECTION 5.20 contains the sole and exclusive
representations and warranties of the Sellers with respect to any environmental
matters including, without limitation, any matters arising under any
Environmental Requirements.
(f) For the purposes of this SECTION 5.20, "Environmental
Requirements" shall mean all federal, state, local and foreign statutes, common
law, regulations, ordinances and court orders concerning pollution or protection
of the environment, including all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control or cleanup of any hazardous materials, substances or wastes,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls or radiation, as such
requirements are enacted and in effect on or prior to the Closing Date.
5.20A SOLVENCY. The Sellers and Parent are, and immediately
following the Closing Date will be, Solvent. "Solvent" means that, as of any
date of determination, (a) the amount of the present fair saleable value of the
assets of the Sellers and/or Parent, as applicable, will as of such date exceed
the amount of all liabilities of the Sellers and/or Parent, as applicable, (b)
the Sellers and/or Parent, as applicable, will not have, as of such date, an
unreasonably small amount of capital with which to conduct their business, and
(c) the Sellers and Parent will be able to pay their debts as they mature.
5.21 DISCLOSURE.
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(a) No representation or warranty of Sellers in this
Agreement and no statement in the schedules attached hereto omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
(b) No notice given pursuant to SECTION 3.1(h) will contain
any untrue statement or omit to state a material fact necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
5.22 UNDISCLOSED LIABILITIES. The Sellers have no liabilities or
obligations of the type required to be reflected on the face of a balance sheet
prepared in accordance with GAAP that were not fully reserved against in the
Latest Balance Sheet or the Closing Balance Sheet, except (x) matters
specifically identified and described in the Schedules attached hereto, (y)
obligations arising under contracts or commitments described on the Contracts
Schedule and (z) liabilities and obligations reflected on the Latest Balance
Sheet, the Closing Balance Sheet or incurred in the ordinary course of business
since the date of the Latest Balance Sheet which are usual and normal in amount
in relation to the Sellers' past experience. Notwithstanding the foregoing, the
preceding sentence shall not apply with respect to any liability or obligation
to the extent the subject matter giving rise to such liability or obligation is
addressed in another representation or warranty set forth in this ARTICLE V.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to Sellers to enter into this Agreement, Buyer
hereby represents and warrants to Sellers that:
6.1 CORPORATE ORGANIZATION AND POWER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida, with full corporate power and authority to enter into this Agreement
and the other agreements contemplated hereby to which Buyer is a party and
perform its obligations hereunder and thereunder.
6.2 AUTHORIZATION. The Buyer has full corporate power and
authority to execute and deliver this Agreement and all other agreements
contemplated hereby to which Buyer is a party and to consummate the transactions
contemplated hereby and thereby. This Agreement and all other agreements
contemplated hereby to which Buyer is a party and the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly approved and authorized by the board of directors of
Buyer and by all other necessary corporate action. This Agreement and all other
agreements contemplated hereby to which Buyer is a party have been duly executed
and delivered by Buyer and constitute the valid and binding agreements of Buyer,
enforceable against Buyer in accordance with their terms, except as
enforceability hereof or thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and limitations on the availability of equitable remedies. Upon the execution
and delivery by Buyer at the Closing of all documents to be executed by Buyer at
Closing pursuant to this Agreement (the "Buyer Closing Documents"), the Buyer
Closing Documents will constitute the legal, valid and binding obligation of
Buyer,
26
enforceable against Buyer in accordance with their respective terms except as
enforceability hereof or thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and limitations on the availability of equitable remedies. Buyer has the
absolute and unrestricted right, power, authority and capacity to execute and
deliver this Agreement and the Buyer Closing Documents and to perform its
obligations under this Agreement and the Buyer Closing Documents.
6.3 ABSENCE OF CONFLICTS. Neither the execution, delivery or
performance of this Agreement and the other documents contemplated hereby to
which Buyer is a party, nor the consummation of the transactions contemplated
hereby and thereby, will (a) conflict with, (b) result in a breach of any of the
provisions of, (c) constitute a default under, (d) result in the violation of,
(e) give any third party the right to terminate or to accelerate any obligation
under, or (f) require any authorization, consent, approval, execution or other
action by or notice to any court or other governmental body under, the
provisions of the certificate of incorporation or by-laws of Buyer, any
resolutions adopted by the board of directors or shareholders of Buyer, any
indenture, mortgage, lease, loan agreement or other agreement or instrument to
which Buyer is bound or affected, or any statute, regulation, rule, judgment,
order, decree or other restriction of any government, governmental agency or
court to which Buyer is subject. Except for HSR Approval, no notice to, filing
with or authorization, consent or approval of any government or governmental
agency by Buyer is necessary for the consummation of the transactions
contemplated by this Agreement and the other documents contemplated hereby to
which Buyer is a party.
6.4 LITIGATION. There are no actions, suits, proceedings, orders
or investigations pending or, to the best of Buyer's knowledge, threatened
against or affecting Buyer at law or in equity, or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which would adversely affect
Buyer's performance under this Agreement and the other agreements contemplated
hereby to which Buyer is a party or the consummation of the transactions
contemplated hereby or thereby.
6.5 [INTENTIONALLY OMITTED.]
6.6 BROKERS' FEES. Buyer has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
6.7 FINANCING. Buyer has and shall have at the Closing sufficient
cash and available credit facilities (and has provided evidence thereof
satisfactory to Sellers) to pay the full consideration payable to Sellers
hereunder, to make all other necessary payments by it in connection with the
purchase of the Acquired Assets and to pay all of its related fees and expenses.
ARTICLE VII
TERMINATION
7.1 TERMINATION. This Agreement may be terminated at any time
prior to the
27
Closing:
(a) by mutual written consent of Buyer and Sellers;
(b) by either Buyer or Sellers if there has been a material
misrepresentation or breach on the part of the other party of the
representations, warranties or covenants set forth in this Agreement, or if
events have occurred which have made it impossible to satisfy a condition
precedent to the terminating party's obligations to consummate the transactions
contemplated hereby, unless such terminating party's willful breach of this
Agreement has caused the condition to be unsatisfied; or
(c) by either Buyer or Sellers if the Closing has not
occurred on or prior to October 8, 2001; provided that neither Buyer nor Sellers
will be entitled to terminate this Agreement pursuant to this subsection (c) if
such person's willful breach of this Agreement has prevented the consummation of
the transactions contemplated hereby at or prior to such time; or
(d) by Sellers if the board of directors of any of the
Sellers determines, based on the advice of its counsel, that it is required by
law to terminate the Agreement in order to comply with its fiduciary duties; or
(e) by either Buyer or Sellers if this Agreement is deemed
to be unenforceable in any bankruptcy or similar insolvency proceeding in which
any of the Sellers is the debtor.
7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Buyer or Sellers as provided in SECTION 7.1, this Agreement
shall forthwith become void and there will be no liability on the part of any
party hereto to any other party hereto or its stockholders or directors or
officers in respect thereof, except for the obligations of the parties hereto in
SECTIONS 9.3, 9.5(b) and 9.6 and except that nothing herein will relieve any
party from liability for any breach of this Agreement prior to such termination.
7.3 TERMINATION FEE. Sellers agree to pay Buyer a fee in
immediately available funds equal to 2% of the Purchase Price plus all
reasonable documented, third party expenses incurred in connection with the
transactions contemplated by this Agreement not to exceed $500,000.00 (the
"Termination Fee") if this Agreement is terminated by Sellers pursuant to (i)
SECTION 7.1(c) but solely because of the failure of the closing condition
regarding the approval by Sellers' shareholders of the transactions contemplated
by this Agreement, or (ii) SECTION 7.1(d) and, within 360 days of such
termination, Sellers consummate or enter into an agreement to consummate
(including without limitation any agreement in principle or any oral agreement)
a sale of the Sellers or Parent (as long as the Sellers remain subsidiaries of
Parent) to a third party pursuant to a tender or exchange offer, a merger, a
stock purchase, or a sale of substantially all or any significant portion of the
assets of the Sellers or the Parent (which includes without limitation the
equity interests in Sellers) (a "Transaction"). The Termination Fee shall be
paid immediately prior to the earlier of the consummation of a Transaction or
the entry into an agreement with respect to a Transaction. Any amounts due under
this SECTION 7.3 that are not paid when due shall
28
bear interest at the lower of fourteen percent (14%) per annum or the highest
rate permitted by law from the date due through and including the date paid.
ARTICLE VIII
INDEMNIFICATION AND RELATED MATTERS
8.1 SURVIVAL. All representations, warranties, covenants and
agreements set forth in this Agreement or in any writing delivered in connection
with this Agreement shall survive the Closing Date and the consummation of the
transactions contemplated hereby.
8.2 INDEMNIFICATION.
(a) Parent and Sellers, jointly and severally, agree to
indemnify Buyer, its officers, directors and stockholders (the "Buyer Group")
and hold them harmless from and against any penalties, fines, costs, amounts
paid in settlement, obligations, expenses, fees, loss, liability, deficiency,
damage or claim, including court costs and reasonable attorneys' fees and
expenses (a "Loss") which the Buyer Group may suffer, sustain or become subject
to, as a result of (i) the breach by Parent or Sellers of any representation or
warranty made by Parent or Sellers contained in ARTICLE V of this Agreement,
(ii) the breach by Parent or Sellers of any covenant or agreement made by Parent
or Sellers contained in this Agreement, any exhibit hereto or any certificate
delivered by the Parent or Sellers to Buyer in connection with the Closing,
(iii) any claims of any brokers or finders claiming by, through or under Parent
or Sellers or by, through or under the Parent or Sellers in respect of the
transactions contemplated herein and (iv) any Excluded Liabilities.
(b) With respect to claims for breaches of representations
and warranties referred to in SECTION (a)(i) above and taking into account any
disclosures made in the Updated Schedules pursuant to SECTION 3.1(g) hereof, (i)
Parent and Sellers will not be liable to the Buyer Group with respect to any
individual Loss unless (x) such Loss exceeds $50,000.00 (the "Threshold Amount")
and (y) together with all other Losses (which are above the Threshold Amount)
exceeds $1,600,000.00 in the aggregate, in which case Parent and Sellers will be
liable only for such excess, and (ii) Parent and Sellers' liability to the Buyer
Group for such Losses shall not exceed 10% of the Purchase Price; provided,
that, the foregoing shall not apply in respect of any Loss with respect to the
breach by Parent or Sellers of any representation or warranty made by Sellers in
SECTION 5.2.
(c) Parent and Sellers will be liable to the Buyer Group
with respect to claims referred to in SECTION 8.2(a) above only if Buyer gives
Parent or Sellers written notice thereof within 1 year after the Closing Date,
except for claims arising from breaches of the representations and warranties
set forth in SECTION 5.2 as to which claims may be made at any time.
(d) Buyer agrees to indemnify Parent and Sellers and hold
Parent and Sellers harmless from and against any Loss which Parent or Sellers
may suffer, sustain or become subject to, (i) as the result of a breach of any
(a) representation or warranty, or (b) covenant or agreement by Buyer contained
in this Agreement, (ii) for Assumed Liabilities (whether or not accrued, whether
arising before, on or after the Closing Date, regardless of when asserted), or
(iii)
29
as a result of Buyer's conduct of the Business or use of the Acquired Assets and
or the sale of any product on or after the Closing Date; provided that Buyer
will be liable to Parent or Sellers with respect to claims referred to in clause
(i)(a) in the preceding sentence only if (x) Sellers give Buyer written notice
thereof within 1 year after the Closing Date and (y) only to the extent that the
aggregate amount of all such claims exceeds $1,600,000 and does not exceed 10%
of the Purchase Price.
(e) If a party hereto seeks indemnification under this
SECTION 8.2, such party (the "Indemnified Party") shall give written notice to
the other party (the "Indemnifying Party") of the facts and circumstances giving
rise to the claim. In that regard, if any suit, action, claim, liability or
obligation shall be brought or asserted by any third party which, if adversely
determined, would entitle the Indemnified Party to indemnity pursuant to this
SECTION 8.2, the Indemnified Party shall promptly notify the Indemnifying Party
of the same in writing, specifying in reasonable detail the basis of such claim
and the facts pertaining thereto and the Indemnifying Party, if it so elects
(except that the Indemnifying Party may not so elect without the Indemnified
Party's consent unless (i) the Indemnifying Party provides reasonable evidence
to the Indemnified Party of its financial ability to satisfy its indemnification
obligations, (ii) the suit, action, claim, liability or obligation does not seek
to impose any liability or obligation upon the Indemnified Party other than for
money damages, and (iii) such suit, action, claim, liability or obligation does
not relate to the Indemnified Party's relationship with its customers or
employees), shall assume and control the defense thereof (and shall consult with
the Indemnified Party with respect thereto), including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of expenses. If
the Indemnifying Party elects to assume and control the defense, the Indemnified
Party shall have the right to employ counsel separate from counsel employed by
the Indemnifying Party in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel employed by the Indemnified
Party shall be at the expense of the Indemnified Party unless (y) the employment
thereof has been specifically authorized by the Indemnifying Party in writing or
(z) the Indemnifying Party has failed to assume the defense and employ counsel.
The Indemnifying Party shall not be liable for any settlement of any action or
proceeding, the defense of which it has elected to assume, which settlement is
effected without the written consent of the Indemnifying Party. If there shall
be a settlement to which the Indemnifying Party consents or a final judgment for
the plaintiff in any action or proceeding, the Indemnifying Party shall
indemnify and hold harmless the Indemnified Party from and against any loss or
liability by reason of such settlement or judgment.
(f) The amount of any Loss subject to indemnification
hereunder or of any claim therefor shall be calculated net of (i) any Tax
Benefit inuring to Buyer, the Sellers or any of their Affiliates on account of
such Loss and (ii) any insurance proceeds (net of direct collection expenses)
received or receivable by Buyer, the Sellers and, its Subsidiaries on account of
such Loss. If Buyer, the Sellers or any of their Affiliates receives a Tax
Benefit after an indemnification payment is made, Buyer shall promptly pay to
the Sellers the amount of such Tax Benefit at such time or times as and to the
extent that such Tax Benefit is realized. For purposes hereof, "Tax Benefit"
shall mean any refund of Taxes paid or reduction in the amount of Taxes which
otherwise would have been paid, in each case computed at the highest marginal
tax rates. Buyer and the Sellers shall seek full recovery under all insurance
policies covering any Loss to the same extent as
30
they would if such Loss were not subject to indemnification hereunder. In the
event that an insurance recovery is made by Buyer, the Sellers or any of their
Affiliates with respect to any Loss for which any such Person has been
indemnified hereunder, then a refund equal to the aggregate amount of the
recovery (net of all direct collection expenses) shall be made promptly to the
Sellers.
(g) All indemnification payments made hereunder shall be
treated by all parties as an adjustment to the Purchase Price.
(h) Notwithstanding anything to the contrary contained in
this SECTION 8.2, there shall be no recovery for any Loss by Buyer under this
SECTION 8.2, and the Loss shall not be included in meeting the stated thresholds
hereunder, to the extent such item has been included in the calculation of
Actual Closing Working Capital as determined pursuant to SECTION 1.2 hereof.
8.3 EXCLUSIVE REMEDY.
(a) Following the Closing, except with respect to claims
based upon intentional misrepresentation, the indemnification provided by
SECTION 8.2 shall be the sole and exclusive remedy to the exclusion of all other
remedies and recourse at law or otherwise under or in connection with this
Agreement and the transactions contemplated herein, including without
limitation, for any Losses of the Buyer Group or the Sellers Group with respect
to any alleged misrepresentation or inaccuracy in, or breach of, any
representations or warranties or any breach or failure in performance of any
covenants or agreements made by Buyer or Sellers in this Agreement or in any
Exhibit, Schedule or Updated Schedule attached hereto or any certificate
delivered hereunder. Except as provided in SECTION 8.2, no claim shall be
brought or maintained by Buyer or Sellers or their respective successors or
permitted assigns against any officer, director or employee (present or former)
of Sellers, and no recourse shall be brought or granted against any of them, by
virtue of or based upon any alleged misrepresentation or inaccuracy in or breach
of any of the representations, warranties or covenants of Sellers set forth or
contained in this Agreement or any certificate delivered hereunder, except to
the extent that the same shall have been the result of fraud by any such person
(and in the event of such fraud, such recourse shall be brought or granted
solely against the person or persons committing such fraud), and provided that
without limiting the foregoing, in no event shall Buyer, its successors or
permitted assigns be entitled to claim or seek consequential damages or any
rescission of the transactions consummated under this Agreement or other remedy
at law or in equity. In no event shall any officer, director or employee of any
of the Sellers have any shared or vicarious liability for the actions or
omissions of any other person.
(b) Buyer, the Sellers and their respective successors and
permitted assigns, hereby waive any right to seek contribution or other recovery
from any officer, director or employee (present or former) of any of the
Sellers, that any of them may now or in the future have under any Environmental
Requirements, including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act, the Resource Conservation and
Recovery Act, the Clean Water Act, the Clean Air Act, any analogous state law,
and any common law providing for any remedy or right of recovery with respect to
environmental matters. Buyer, the Sellers and their respective successors and
permitted assigns, hereby release all officers, directors or employees (present
or former) of any of the Sellers from any and all such claims,
31
demands, and causes of action, that any of them may now or in the future have
under such Environmental Requirements.
8.4 DISCLOSURE GENERALLY. If and to the extent any information
required to be furnished in any schedule is contained in this Agreement or in
any Schedule (or Updated Schedule) attached hereto, such information shall be
deemed to be included in all Schedules (or Updated Schedules) in which the
information is required to be included (but only to the extent such information
can reasonably be determined to relate to the other Schedules). The inclusion of
any information in any Schedule (or Updated Schedule) attached hereto shall not
be deemed to be an admission or acknowledgment by the Sellers that such
information is material to or outside the ordinary course of the business of the
Sellers.
8.5 ACKNOWLEDGMENT BY BUYER. THE REPRESENTATIONS AND WARRANTIES BY
SELLERS EXPRESSLY AND SPECIFICALLY SET FORTH IN THIS AGREEMENT, INCLUDING THE
SCHEDULES (AND UPDATED SCHEDULES) ATTACHED HERETO, CONSTITUTE THE SOLE AND
EXCLUSIVE REPRESENTATIONS AND WARRANTIES OF THE SELLERS TO BUYER IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED HEREBY, AND BUYER UNDERSTANDS, ACKNOWLEDGES
AND AGREES THAT ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE
EXPRESSED OR IMPLIED (INCLUDING, BUT NOT LIMITED TO, ANY RELATING TO THE FUTURE
OR HISTORICAL FINANCIAL CONDITION, RESULTS OF OPERATIONS, ASSETS OR LIABILITIES
OF THE SELLERS, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SPECIFICALLY SET
FORTH HEREIN) ARE SPECIFICALLY DISCLAIMED BY SELLERS.
8.6 ARBITRATION PROCEDURES.
(a) The parties hereto agree that the arbitration procedure
set forth below shall be the sole and exclusive method for resolving and
remedying claims for money damages arising out of this Agreement (the
"Disputes"), except as otherwise provided by SECTION 1.2 above. Nothing in this
SECTION 8.6 shall prohibit a party hereto from instituting litigation to enforce
any Final Determination (as defined in subsection (e) below) or availing itself
of the other remedies set forth in SECTIONS 9.5(c) and 9.9(d) below. The parties
hereto hereby agree and acknowledge that, except as otherwise provided in this
SECTION 8.6 or in the Commercial Arbitration Rules of the American Arbitration
Association, as in effect from time to time, the arbitration procedures and any
Final Determination hereunder shall be governed by, and shall be enforced
pursuant to the Uniform Arbitration Act of the State of Florida.
(b) In the event that any party hereto asserts that there
exists a Dispute, such party shall deliver a written notice to each other party
involved therein specifying the nature of the asserted Dispute and requesting a
meeting to attempt to resolve the same. If no such resolution is reached within
ten (10) business days after such delivery of such notice, the party delivering
such notice of Dispute (the "Disputing Person") may, within forty-five (45)
business days after delivery of such notice, commence arbitration hereunder by
delivering to each other party involved therein a notice of arbitration (a
"Notice of Arbitration"). Such Notice of
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Arbitration shall specify the matters as to which arbitration is sought, the
nature of any Dispute, the claims of each party to the arbitration and shall
specify the amount and nature of any damages, if any, sought to be recovered as
a result of any alleged claim, and any other matters required by the Commercial
Arbitration Rules of the American Arbitration Association, as in effect from
time to time, to be included therein, if any.
(c) Buyer and Sellers shall each select one independent
arbitrator expert in the subject matter of the Dispute (the arbitrators so
selected shall be referred to herein as "Buyer's Arbitrator" and "Sellers'
Arbitrator," respectively). In the event that either party fails to select an
independent arbitrator as set forth herein within twenty (20) days from delivery
of a Notice of Arbitration, then the matter shall be resolved by the arbitrator
selected by the other party. Sellers' Arbitrator and Buyer's Arbitrator shall
select a third independent arbitrator expert in the subject matter of the
dispute, and the three arbitrators so selected shall resolve the matter
according to the procedures set forth in this SECTION 8.6. If Sellers'
Arbitrator and Buyer's Arbitrator are unable to agree on a third arbitrator
within twenty (20) days after their selection, Sellers' Arbitrator and Buyer's
Arbitrator shall each prepare a list of three independent arbitrators. Sellers'
Arbitrator and Buyer's Arbitrator shall each have the opportunity to designate
as objectionable and eliminate one arbitrator from the other arbitrator's list
within seven days after submission thereof, and the third arbitrator shall then
be selected by lot from the arbitrators remaining on the lists submitted by
Sellers' Arbitrator and Buyer's Arbitrator.
(d) The arbitrator(s) selected pursuant to subsection (c)
above will determine the allocation of the costs and expenses of arbitration
based upon the percentage which the portion of the contested amount not awarded
to each party bears to the amount actually contested by such party. For example,
if Buyer submits a claim for $1,000, and if Sellers contest only $500 of the
amount claimed by Buyer, and if the arbitrator(s) ultimately resolves the
dispute by awarding Buyer $300 of the $500 contested, then the costs and
expenses of arbitration will be allocated 60% (i.e. 300 / 500) to Sellers and
40% (i.e. 200 / 500) to Buyer.
(e) The arbitration shall be conducted under the Commercial
Arbitration Rules of the American Arbitration Association as in effect from time
to time, except as modified by the agreement of all parties. The arbitrator(s)
shall so conduct the arbitration that a final result, determination, finding,
judgment and/or award (the "Final Determination") is made or rendered as soon as
practicable, but in no event later than the later of ninety (90) business days
after the delivery of the Notice of Arbitration and ten (10) days following
completion of the arbitration. The Final Determination must be agreed upon and
signed by the sole arbitrator or by at least two of the three arbitrators (as
the case may be). The Final Determination shall be final and binding on all
parties and there shall be no appeal from or reexamination of the Final
Determination, except for fraud, perjury, evident partiality or misconduct by an
arbitrator prejudicing the rights of any party and except to correct manifest
clerical errors.
(f) Buyer and Sellers may enforce any Final Determination in
any state or federal court having jurisdiction over the Dispute. For the purpose
of any action or proceeding instituted with respect to any Final Determination,
each party hereto hereby irrevocably submits to the jurisdiction of such courts,
irrevocably consents to the service of process by registered mail or personal
service and hereby irrevocably waives, to the fullest extent permitted by law,
any
33
objection which it may have or hereafter have as to personal jurisdiction, the
laying of the venue of any such action or proceeding brought in any such court
and any claim that any such action or proceeding brought in such court has been
brought in any inconvenient forum.
(g) If any party shall fail to pay the amount of any
damages, if any, assessed against it within ten (10) days of the delivery to
such party of such Final Determination, the unpaid amount shall bear interest
from the date of such delivery at the lesser of (i) the prime rate, as declared
by Citibank, N.A. from time to time (which rate shall be adjusted on the
effective date of each change in such rate) (the "Prime Rate") plus 300 basis
points and (ii) the maximum rate permitted by applicable usury laws. Interest on
any such unpaid amount shall be compounded semiannually, computed on the basis
of a 365-day year and shall be payable on demand. In addition, such party shall
promptly reimburse the other party for all reasonable costs or expenses of any
nature or kind whatsoever (including but not limited to reasonable attorneys'
fees) incurred in seeking to collect such damages or to enforce any Final
Determination.
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1 TAX MATTERS. The following provisions shall govern the
allocation of responsibility as between Buyer and Sellers for certain tax
matters following the Closing Date:
(a) ALLOCATION OF PURCHASE PRICE. The Parties agree that the
Purchase Price and the liabilities of the Sellers (plus other relevant items)
will be allocated to the assets of the Sellers for all purposes (including Tax
and financial accounting purposes) in a manner consistent with the fair market
values of such assets as determined by mutual agreement of the parties hereto
and set forth in SCHEDULE 9.1(a) attached hereto. Buyer and Sellers will file
all Tax Returns (including amended returns and claims for refund) and
information reports in a manner consistent with such values.
(b) COOPERATION ON TAX MATTERS.
(i) Buyer and Sellers shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns of, or which include, the Sellers and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation shall
include the retention and (upon the other party's request) the provision of
records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Sellers agree (A) to retain all books and
records with respect to Tax matters and pertinent to the Sellers relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Buyer, any extensions
thereof) of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (B) to give the other
party reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other party so requests, the Sellers
shall allow the other party to take possession of such books and records.
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(ii) Buyer and Sellers further agree, upon request, to
use their best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
(c) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by Buyer
when due, and Buyer will, at its own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration and other Taxes and fees, and, if required by applicable
law, Sellers will, and will cause their affiliates to, join in the execution of
any such Tax Returns and other documentation.
9.2 EMPLOYEE AND EMPLOYEE BENEFIT MATTERS. Effective as of the
Closing Date, the employees of the Sellers (the "Continued Employees") shall
cease to be covered under the employee benefit plans of Sellers and shall
participate under the employee benefit plans, programs and policies established
by the Buyer. To the extent permitted under the Buyer's' employee benefit plans,
the Continued Employees shall be covered under the employee benefit plans
without any exclusion for pre-existing conditions and shall recognize the
employees' service with Sellers for purposes of vesting and eligibility under
such plans.
9.3 PRESS RELEASES AND ANNOUNCEMENTS. Prior to the Closing Date,
no press releases related to this Agreement and the transactions contemplated
hereby, or other announcements to the employees, customers or suppliers of the
Sellers will be issued without the mutual approval of all parties hereto, except
for any public disclosure which any party in good faith believes is required by
law or regulation (in which case the disclosure shall be prepared jointly by the
Sellers and Buyer). After the Closing Date, no press releases related to this
Agreement and the transactions contemplated herein, or other announcements to
the employees, customers or suppliers of the Sellers will be issued without
Buyer's consent (which shall not be unreasonably withheld).
9.4 FURTHER TRANSFERS. Sellers will execute and deliver such
further instruments of conveyance and transfer and take such additional action
as Buyer may reasonably request to effect, consummate, confirm or evidence the
transfer to Buyer of the Acquired Assets and any other transactions contemplated
hereby.
9.5 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Closing Date, Buyer may make or cause to be
made such investigation of the business and properties of the Sellers as it
deems necessary or advisable to familiarize itself therewith; provided that such
investigation shall be (i) reasonably related to the transactions contemplated
thereby and (ii) conducted in a manner as not to interfere unreasonably with the
normal business operations of the Sellers. Prior to the Closing Date, Sellers
will cause their officers, directors and employees to permit Buyer, its
employees and authorized representatives and representatives of the financial
institutions which are considering participation in the financing of this
transaction to (i) have full access to the premises, books and records of the
Sellers at reasonable hours, (ii) visit and inspect any of the properties of the
Sellers, and (iii)
35
discuss the affairs, finances and accounts of the Sellers with the directors,
officers, key employees of the Sellers.
(b) If the transactions contemplated by this Agreement are
not consummated, Buyer will not disclose or use at any time any information and
materials reasonably designated by Sellers as confidential (except that
confidential information shall not include (i) information which is publicly
available through no fault of Buyer, or (ii) information already known to Buyer
or obtained by Buyer from a third party not bound by any duty of confidentiality
to Sellers), and Buyer and its representatives will return to Sellers originals
of and destroy copies of all memoranda, notes, plans, records, documentation and
other materials obtained from Sellers in connection with the transactions
contemplated by this Agreement which Buyer may then possess or have under its
control. Whether or not the transactions contemplated hereby are consummated,
Sellers will maintain the confidentiality of all information and materials
regarding Buyer and its affiliates reasonably designated by Buyer as
confidential. If the transactions contemplated by this Agreement are
consummated, Sellers will maintain the confidentiality of, and will not use for
any purpose, all proprietary and other non-public information regarding the
Sellers (including, without limitation, any of same included in the Intellectual
Property), except as necessary to file tax returns and other reports to
governmental agencies, and to turn over to Buyer at the Closing copies of all
such materials it has in its possession. In the event that Sellers are requested
or required (by oral question or request for information or documents in any
legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any such information, Sellers will notify Buyer
promptly of the request or requirement so that Buyer may seek an appropriate
protective order or waive compliance with the provisions of this SECTION 9.5.
If, in the absence of a protective order or the receipt of a waiver hereunder,
Sellers are, on the advice of counsel, compelled to disclose any information to
any tribunal or else stand liable for contempt, Sellers may disclose the
information to the tribunal; provided, however, that Sellers shall use their
commercially reasonable efforts to obtain, at the request of Buyer, an order or
other assurance that confidential treatment will be accorded to such portion of
the information required to be disclosed as Buyer shall designate. This SECTION
9.5 shall survive any expiration or termination of this Agreement.
(c) The parties hereto acknowledge and agree that in the
event of a breach by any party of any of the provisions of this SECTION 9.5,
monetary damages will not constitute a sufficient remedy. Consequently, in the
event of any such breach, any non-breaching party and/or their respective
successors or assigns may, in addition to other rights and remedies existing in
their favor, apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce or
prevent any violations of the provisions hereof, in each case without the
requirement of posting a bond or proving actual damages.
9.6 EXPENSES. Sellers will pay the cost of the title commitments
required to be delivered to Buyer pursuant to SECTION 2.1(i), and Buyer shall
pay the premiums for any title insurance policies that Buyer elects to obtain.
Sellers and Buyer will each pay one-half of the costs of any surveys obtained by
Sellers in order to obtain the title commitments required to be delivered to
Buyer pursuant to SECTION 2.1(i). Except as set forth in the preceding sentences
of this SECTION 9.6 and as otherwise provided in this Agreement, Buyer and
Sellers will pay all of their
36
own fees, costs and expenses (including, without limitation, fees, costs and
expenses of legal counsel, investment bankers, brokers or other representatives
and consultants and appraisal fees, costs and expenses) incurred in connection
with the negotiation of this Agreement, the performance of its obligations
hereunder, and the consummation of the transactions contemplated hereby.
9.7 EXCLUSIVITY. Except as provided in this SECTION 9.7 and
subject to the fiduciary duties of the boards of directors of Sellers, until
this Agreement is terminated by its terms, Sellers will not (and Sellers will
not cause or permit any affiliate, director, officer, employee or agent of the
Sellers or their affiliates to), (a) solicit, initiate or encourage the
submission of any proposal or offer from any person or entity (including any of
them) relating to any (i) liquidation, dissolution or recapitalization of, (ii)
merger or consolidation, (iii) acquisition or purchase of assets of or any
equity interest in or (iv) similar transaction or business combination
involving, the Sellers or (b) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any other Person to do
or seek any of the foregoing. Until this Agreement is terminated by its terms,
Sellers shall notify Buyer immediately if any Person makes any proposal, offer,
inquiry or contact with respect to any of the foregoing.
9.8 BOOKS AND RECORDS. Unless otherwise consented to in writing by
Sellers or Buyer (as the case may be), Buyer and Sellers will not, for a period
of seven (7) years following the date hereof, destroy, alter or otherwise
dispose of any of the books and records of the Sellers acquired by Buyer
hereunder or retained by Sellers without first offering to surrender to Sellers
or Buyer such books and records or any portion thereof of which Sellers or Buyer
may intend to destroy, alter or dispose of. Buyer and Sellers will allow the
other party's representatives, attorneys and accountants access to such books
and records, upon reasonable request and during such party's normal business
hours, for the purpose of examining and copying the same in connection with any
matter whether or not relating to or arising out of this Agreement or the
transactions contemplated hereby.
9.9 ACCOUNTS RECEIVABLE. In the event that any of the accounts
receivable on the Closing Balance Sheet remain uncollected for more than 120
days following the Closing Date, Buyer at its option may re-assign those
accounts receivable to Sellers, and Sellers shall pay to Buyer the face amount
of such accounts receivable less the amount of any reserves as set forth on the
Closing Balance Sheet.
ARTICLE X
MISCELLANEOUS
10.1 AMENDMENT AND WAIVER. This Agreement may be amended and any
provision of this Agreement may be waived, provided that any such amendment or
waiver will be binding upon a party only if such amendment or waiver is set
forth in a writing executed by Buyer and Sellers. No course of dealing between
or among any Persons having any interest in this Agreement will be deemed
effective to modify, amend or discharge any part of this Agreement or any rights
or obligations of any party under or by reason of this Agreement.
37
10.2 NOTICES. All notices, demands and other communications given
or delivered under this Agreement will be in writing and will be deemed to have
been given when personally delivered, mailed by first class mail, return receipt
requested, delivered by express courier service or telecopied. Notices, demands
and communications to the Sellers and Buyer will, unless another address is
specified in writing, be sent to the address or telecopy number indicated below:
Notices to Sellers:
SRM Aggregates, Inc.
U.S. Aggregates, Inc.
147 West Election Road, Suite 110
Draper, Utah 84020
Attention: Chief Executive Officer
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: John A. Schoenfeld
Telecopy: (312) 861-2200
and
Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
Chattanooga, Tennessee 37450
Attention: Louann Prater Smith
Telecopy: (423) 752-9570
Notices to Buyer:
Florida Rock Industries, Inc.
155 East 21st Street
Jacksonville, Florida 32206-2104
Attention: John D. Baker II
Telecopy: (904) 355-0817
with a copy to:
McGuireWoods LLP
50 North Laura Street
Suite 3300
Jacksonville, FL 32202
38
Attention: Lewis S. Lee
Telecopy: (904) 798-3207
10.3 BINDING AGREEMENT; ASSIGNMENT. This Agreement and all of the
provisions hereof will be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns; provided that
neither this Agreement nor any of the rights, interests or obligations hereunder
may be assigned by Sellers without the prior written consent of Buyer or by
Buyer without the prior written consent of Sellers, except that Buyer may assign
all or a portion of its rights (but not its obligations) hereunder to one or
more wholly-owned subsidiaries of Buyer.
10.4 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Agreement.
10.5 NO STRICT CONSTRUCTION. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
Person.
10.6 CAPTIONS. The captions used in this Agreement are for
convenience of reference only and do not constitute a part of this Agreement and
will not be deemed to limit, characterize or in any way affect any provision of
this Agreement, and all provisions of this Agreement will be enforced and
construed as if no caption had been used in this Agreement.
10.7 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein contain the entire agreement between the parties and supersede any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.
10.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which taken
together will constitute one and the same instrument.
10.9 GOVERNING LAW. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Florida, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Florida or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Florida.
10.10 PARTIES IN INTEREST. Nothing in this Agreement, express or
implied, is intended to confer on any Person other than the parties and their
respective successors and assigns any rights or remedies under or by virtue of
this Agreement.
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10.11 KNOWLEDGE. As applied to the Sellers in this Agreement, the
terms "knowledge" or "aware" shall mean and include the actual knowledge or
awareness of Morris Bishop, Sam Reed, Rowan Smith and Ted Reynolds.
10.12 TIME FOR ACCEPTANCE. If this Agreement is not executed by and
delivered to all parties by facsimile transmission on or before 5:00 p.m.
Eastern Time on July 11, 2001, this offer will be null and void. The date of
this Agreement will be the date when the last one of Buyer and Sellers have
executed this Agreement.
* * * *
40
IN WITNESS WHERE OF, the parties hereto have executed this Agreement as of
the date first written above.
SELLERS:
SRM AGGREGATES, INC.
By: /s/ C.S. REED, JR.
----------------------------
Its: President
BRADLEY STONE & SAND, INC.
By: /s/ C.S. REED, JR.
----------------------------
Its: President
BHY READY MIX, INC.
By: /s/ C.S. REED, JR.
----------------------------
Its: President
DEKALB STONE, INC.
By: /s/ C.S. REED, JR.
----------------------------
Its: President
MULBERRY ROCK CORPORATION
By: /s/ C.S. REED, JR.
----------------------------
Its: President
41
BAMA CRUSHED CORPORATION
By: /s/ C.S. REED, JR.
----------------------------
Its: President
GROVE MATERIALS CORPORATION
By: /s/ C.S. REED, JR.
----------------------------
Its: President
PARENT:
U.S. AGGREGATES, INC.
By: /s/ S. SPRINGEL
----------------------------
Its: Chief Executive Officer
42
BUYER:
FLORIDA ROCK INDUSTRIES, INC.
By: /s/ JOHN D. BAKER, II
----------------------------
Its: Chief Executive Officer
43
LIST OF SCHEDULES*
Schedule 1.3(f) Assumed Indebtedness Schedule
Schedule 2.1(i)(v) Title Commitments Schedule
Schedule 2.1(k) Ore Reserves Schedule
Schedule 5.1 Qualifications Schedule
Schedule 5.5 Subsidiary Schedule
Schedule 5.6 Restrictions Schedule
Schedule 5.8 Developments Schedule
Schedule 5.9(a) Real Property Schedule
Schedule 5.9(b) Leases Schedule
Schedule 5.9A Equipment Lease Schedule
Schedule 5.10 Personal Property Liens Schedule
Schedule 5.11 Tax Returns Schedule
Schedule 5.12 Contracts Schedule
Schedule 5.13 Intellectual Property Schedule
Schedule 5.14 Litigation Schedule
Schedule 5.16(a) Licenses Schedule
Schedule 5.16(b) Governmental Consent Schedule
Schedule 5.17(a) Employee Schedule
Schedule 5.18 Affiliate Transactions Schedule
Schedule 5.20 Environmental Matters Schedule
Schedule 9.1(a) Allocation of Purchase Price
* Schedules omitted.
ANNEX C
DEUTSCHE BANK
Deutsche Banc Alex, Brown Inc.
Mergers, Acquisitions and
Corporate Advisory Group
130 Liberty Street, NYC02-3301
DEUTSCHE BANC ALEX, BROWN New York, NY 10006
Tel 212 250 6000
July 11, 2001 Fax 212 250 6440
Board of Directors
U.S. Aggregates, Inc.
400 South El Camino Real, Suite 500
San Mateo, CA 94402
Members of the Board:
Deutsche Banc Alex. Brown Inc. ("DBAB") has acted as financial advisor to U.S.
Aggregates, Inc. ("U.S. Aggregates") in connection with the sale (the
"Transaction") of the assets of SRM Aggregates, Inc., Bradley Stone & Sand,
Inc., BHY Ready Mix, Inc., Dekalb Stone, Inc., Mulberry Rock Corporation, Bama
Crushed Corporation and Grove Materials Corporation ("the Sellers") to Florida
Rock Industries, Inc. (the "Buyer") for $150 million in cash, less the amount at
closing of certain operating and financial leases, plus the assumption of
certain liabilities (the "Consideration"), pursuant to the Asset Purchase
Agreement, dated July 11, 2001, among the Buyer, U.S. Aggregates and the Sellers
(the "Asset Purchase Agreement"). The terms and conditions of the Transaction
are more fully set forth in the Asset Purchase Agreement.
You have requested DBAB's opinion, as investment bankers, as to the fairness,
from a financial point of view, to U.S. Aggregates of the Consideration to be
received in connection with the Transaction.
In connection with DBAB's role as financial advisor to U.S. Aggregates, and in
arriving at its opinion, DBAB has reviewed certain publicly available financial
and other information concerning the Sellers and certain internal analyses and
other information furnished to it by U.S. Aggregates. DBAB has also held
discussions with members of the senior management of the Sellers and U.S.
Aggregates regarding the business and prospects of the Sellers. In addition,
DBAB has (i) compared certain financial information for the Sellers with certain
financial and stock market information for certain companies whose securities
are publicly traded, (ii) reviewed the financial terms of certain recent
business combinations which it deemed comparable in whole or in part, (iii)
reviewed the terms of the Asset Purchase Agreement and certain related
documents, and (iv) performed such other studies and analyses and considered
such other factors as it deemed appropriate.
Board of Directors
U.S. Aggregates, Inc.
July 11, 2001
Page 2
DBAB has not assumed responsibility for independent verification of, and has not
independently verified, any information, whether publicly available or furnished
to it, concerning the Sellers, including, without limitation, any financial
information, forecasts or projections considered in connection with the
rendering of its opinion. Accordingly, for purposes of its opinion, DBAB has
assumed and relied upon the accuracy and completeness of all such information
and DBAB has not conducted a physical inspection of any of the properties or
assets, and has not prepared or obtained any independent evaluation or appraisal
of any of the assets or liabilities, of the Sellers. With respect to the
financial forecasts and projections made available to DBAB and used in its
analyses, DBAB has assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of the Sellers and U.S. Aggregates, as the case may be, as to the
matters covered thereby. In rendering its opinion, DBAB expresses no view as to
the reasonableness of such forecasts and projections or the assumptions on which
they are based. DBAB's opinion is necessarily based upon economic, market and
other conditions as in effect on, and the information made available to it as
of, the date hereof.
For purposes of rendering its opinion, DBAB has assumed that, in all respects
material to its analysis, the representations and warranties of the Sellers,
U.S. Aggregates, and the Buyer contained in the Asset Purchase Agreement are
true and correct.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of U.S. Aggregates. This opinion is limited to the fairness, from a
financial point of view, to U.S. Aggregates of the Consideration in connection
with the Transaction to be received, and DBAB expresses no opinion as to the
merits of the underlying decision by U.S. Aggregates to engage in the
Transaction. DBAB expresses no opinion on the impact of the Transaction on the
financial position, prospects, or solvency of U.S. Aggregates, or the price at
which the common stock of U.S. Aggregates will trade following the Transaction.
DBAB will be paid a fee for its services as financial advisor to U.S. Aggregates
in connection with the Transaction, a substantial portion of which is contingent
upon consummation of the Transaction. DBAB is an affiliate of Deutsche Bank AG
(together with its affiliates, the "DB Group"). One or more members of the DB
Group have, from time to time, provided investment banking and other financial
services to U.S. Aggregates for which it has received compensation, including
acting as lead manager and underwriter in connection with U.S. Aggregates'
August 1999 initial public offering of common stock. In the ordinary course of
business, members of the DB Group may actively trade in the securities and other
instruments and obligations of U.S. Aggregates for their own accounts and for
the accounts of their customers. Accordingly, the DB Group may at any time hold
a long or short position in such securities, instruments and obligations.
Board of Directors
U.S. Aggregates, Inc.
July 11, 2001
Page 3
Based upon and subject to the foregoing, it is DBAB's opinion as investment
bankers that the Consideration to be received in connection with the Transaction
is fair, from a financial point of view, to U.S. Aggregates.
Very truly yours,
/s/ Deutsche Banc Alex, Brown
DEUTSCHE BANC ALEX. BROWN INC.