AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1998
REGISTRATION STATEMENT NO. 333-56217
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ISG RESOURCES, INC.
(formerly JTM Industries, Inc.)
(Exact Name of Registrant as Specified in its Charter)
TEXAS 4953 74-2164490
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of classification code number) Identification Number)
incorporation or
organization)
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BRETT A. HICKMAN
136 EAST SOUTH TEMPLE 136 EAST SOUTH TEMPLE
SUITE 1300 SUITE 1300
SALT LAKE CITY, UTAH 84111 SALT LAKE CITY, UTAH 84111
(801) 236-9700 (801) 236-9700
(Address, including ZIP Code, and (Name, address, including ZIP Code,
telephone number, and
including area code, of Registrant's telephone number, including area code,
and co-registrants' principal of agent for service)
executive offices)
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WITH A COPY TO:
DAVID BLEA
MORGAN, LEWIS & BOCKIUS LLP
101 PARK AVENUE
NEW YORK, NEW YORK 10178
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) FEE(1)
10% Senior Subordinated Notes due
2008............................... $100,000,000 100% $100,000,000 $29,500.00
Guaranties of 10% Senior Subordinated
Notes due 2008..................... (2) (2) (2) (2)
(1) Determined solely for the purposes of calculating the registration fee in
accordance with Rule 457 promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
(2) Pursuant to Rule 457(n), no registration fee is required with respect to the
Guaranties of the Senior Subordinated Notes registered hereby.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANTS
JURISDICTION I.R.S. EMPLOYEE PRIMARY STANDARD
EXACT NAME OF GUARANTOR OF IDENTIFICATION INDUSTRIAL
REGISTRANT AS SPECIFIED IN ITS CHARTER INCORPORATION NO. CLASSIFICATION CODE NO.
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Pozzolanic Resources, Inc. Washington 91-1194442 4953
Power Plant Aggregates of Iowa, Inc. Iowa 42-1008282 4953
Michigan Ash Sales Company, Michigan 38-1864427 4953
d.b.a. U.S. Ash Company
U.S. Stabilization, Inc. Michigan 38-2891341 4953
Flo Fil Co., Inc. Michigan 38-2762168 4953
Fly Ash Products, Incorporated Arkansas 71-0650457 4953
KBK Enterprises, Inc. Pennsylvania 23-2254804 4953
PROSPECTUS
OFFER TO EXCHANGE 10% SENIOR SUBORDINATED NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,
FOR 10% SENIOR SUBORDINATED NOTES DUE 2008
ISG RESOURCES, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
, 1998, UNLESS EXTENDED.
ISG Resources, Inc. (formerly, JTM Industries, Inc.), a Texas corporation
("JTM"), hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal"), to issue an aggregate of up to $100.0
million in principal amount of its 10% Senior Subordinated Notes due 2008 (the
"Exchange Notes"), which have been registered under the United States Securities
Act of 1933, as amended (the "Securities Act"), in exchange for an identical
principal amount of its outstanding 10% Senior Subordinated Notes due 2008 (the
"Restricted Notes"; the Restricted Notes and the Exchange Notes are collectively
referred to herein as the "Notes"). The terms of the Exchange Notes are
identical to the terms of the Restricted Notes, except for (i) registration
rights applicable only to the Restricted Notes, (ii) terms relating to
Liquidated Damages (as defined) and (iii) that the restrictions on transfer set
forth on the face of the Restricted Notes will not appear on the Exchange Notes.
For a complete description of the Exchange Notes, see "Description of Notes."
JTM will accept for exchange any and all Restricted Notes that are validly
tendered prior to 5:00 p.m., New York City time, on , 1998 (the
"Expiration Date"). Tenders of the Restricted Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange
Offer is not conditioned upon any minimum principal amount of the Restricted
Notes being tendered for exchange. However, the Exchange Offer is subject to the
terms and provisions of the Registration Rights Agreement dated as of April 22,
1998 (the "Registration Rights Agreement") among NationsBanc Montgomery
Securities LLC and CIBC Oppenheimer Corp. (collectively, the "Initial
Purchasers") and JTM relating to the Restricted Notes. The Restricted Notes may
be tendered only in multiples of $1,000. See "The Exchange Offer."
The Restricted Notes were issued in an offering (the "Offering") pursuant to
which JTM issued an aggregate of $100.0 million in principal amount of the
Restricted Notes. The Restricted Notes were sold by JTM to the Initial
Purchasers on April 22, 1998 (the "Issue Date") pursuant to a Purchase Agreement
dated April 17, 1998 (the "Purchase Agreement") among JTM and the Initial
Purchasers. The Initial Purchasers subsequently resold the Restricted Notes in
reliance on Rule 144A, Regulation S and certain other exemptions under the
Securities Act.
The net proceeds of the Offering were used to finance the acquisitions of
Michigan Ash Sales Company, d.b.a. U.S. Ash Company ("U.S. Ash"), U.S.
Stabilization, Inc. ("U.S. Stabilization"), Flo Fil Co., Inc. ("Flo Fil") and
Fly Ash Products, Inc. ("Fly Ash Products") and to repay certain existing
indebtedness of JTM and its affiliates (collectively, the "Transactions"). The
consummation of the Offering and the Transactions were conditioned upon each
other.
(CONTINUED ON FOLLOWING PAGE)
SEE "RISK FACTORS" COMMENCING ON PAGE 12 HEREIN FOR CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR RESTRICTED NOTES IN THE
EXCHANGE OFFER.
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THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1998.
(CONTINUED FROM FRONT COVER)
The Notes will bear interest from the date of issuance at a rate of 10% per
annum, payable semi-annually on April 15 and October 15 of each year commencing
October 15, 1998. The Notes will be redeemable, in whole or in part, at the
option of JTM, at any time on or after April 15, 2003 at the redemption prices
set forth herein, plus accrued and unpaid interest thereon and Liquidated
Damages, if any, to the redemption date. In addition, at the option of JTM, up
to $35.0 million in aggregate principal amount of Notes may be redeemed prior to
April 15, 2001 at the redemption price set forth herein, plus accrued and unpaid
interest thereon and Liquidated Damages, if any, to the date of redemption with
the proceeds of one or more Public Offerings (as defined); PROVIDED, HOWEVER,
that at least $65.0 million in aggregate principal amount of Notes remains
outstanding following such redemption. In the event of a Change of Control (as
defined), JTM will be required to make an offer to repurchase all outstanding
Notes at 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon and Liquidated Damages, if any, to the date of repurchase.
The Notes will be general unsecured obligations of JTM, will be subordinated
in right of payment to all existing and future Senior Indebtedness (as defined)
of JTM, including indebtedness under the Secured Credit Facility (as defined),
will rank PARI PASSU in right of payment with all existing and future senior
subordinated indebtedness of JTM, and will rank senior in right of payment to
all existing and future subordinated indebtedness of JTM. JTM's payment of
principal, premium, if any, interest and Liquidated Damages, if any, on the
Notes will be fully and unconditionally guaranteed (the "Guarantees"), jointly
and severally, on a senior subordinated basis by all existing and future
domestic Restricted Subsidiaries (as defined) of JTM (the "Guarantors"). The
existing Guarantors are Pozzolanic Resources, Inc. ("Pozzolanic") Power Plant
Aggregates of Iowa, Inc. ("PPA"), U.S. Ash, U.S. Stabilization, Flo Fil, Fly Ash
Products and KBK Enterprises ("KBK"). The Guarantees will be subordinated in
right of payment to all existing and future Senior Indebtedness of the
Guarantors, including all obligations of the Guarantors under the Secured Credit
Facility, will rank PARI PASSU in right of payment with all existing and future
senior subordinated indebtedness of the Guarantors, and will rank senior in
right of payment to all existing and future subordinated indebtedness of the
Guarantors. As of August 3, 1998, JTM and the existing Guarantors had
outstanding senior indebtedness (excluding trade payables and other accrued
liabilities) of approximately $8.0 million, no senior subordinated indebtedness,
other than the Restricted Notes, and no subordinated indebtedness. The
indenture, dated as of April 22, 1998, among the Company, the Guarantors and the
Trustee (as defined), governing the Notes (the "Indenture") limits the ability
of JTM and its subsidiaries to incur additional indebtedness. See "Description
of Notes--Certain Covenants."
For each Restricted Note accepted for exchange, the holder of such
Restricted Note will receive an Exchange Note having a principal amount equal to
that of the surrendered Restricted Note. Restricted Notes accepted for exchange
will cease to accrue interest from and after the date of consummation of the
Exchange Offer. Holders of Restricted Notes whose Restricted Notes are accepted
for exchange will not receive any payment in respect of interest on such
Restricted Notes otherwise payable on any interest payment date the record date
for which occurs on or after consummation of the Exchange Offer.
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of JTM contained in the Registration Rights Agreement based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") as set forth in no-action letters issued to third parties, as to
the transferability of the Exchange Notes upon satisfaction of certain
conditions. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Restricted Notes where
such Restricted Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. JTM has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
JTM will not receive any cash proceeds from the Exchange Offer and will pay
all expenses incident to the Exchange Offer. In the event JTM terminates the
Exchange Offer and does not accept for exchange any Restricted Notes, JTM will
promptly return the Restricted Notes to the holders thereof. See "The Exchange
Offer."
There is no existing trading market for the Exchange Notes, and there can be
no assurance regarding the future development of a market for the Exchange
Notes, or the ability of holders of the Exchange Notes to sell their Exchange
Notes or the price at which such holders may be able to sell their Exchange
Notes. JTM does not intend to apply for listing or quotation of the Exchange
Notes on any securities exchange or stock market.
The principal executive offices of JTM, Pozzolanic, PPA, U.S. Ash, U.S.
Stabilization, Flo Fil, Fly Ash Products and KBK are located at 136 East South
Temple, Suite 1300, Salt Lake City, Utah 84111. Their telephone number is (801)
236-9700. On June 30, 1998, JTM filed Articles of Amendment with the Secretary
of State of Texas changing its name to ISG Resources, Inc.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF JTM'S MANAGEMENT, AS WELL
AS ON ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO JTM, AT THE
TIME SUCH STATEMENTS WERE MADE. WHEN USED IN THIS PROSPECTUS , THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," "INTEND" AND SIMILAR EXPRESSIONS,
AS THEY RELATE TO JTM, ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.
ALTHOUGH JTM BELIEVES THESE STATEMENTS ARE REASONABLE, PROSPECTIVE INVESTORS
SHOULD CONSIDER CAREFULLY THE FACTORS UNDER THE CAPTION "RISK FACTORS," AS WELL
AS THE OTHER INFORMATION AND DATA INCLUDED IN THIS PROSPECTUS, IN EVALUATING AN
INVESTMENT IN THE NOTES. JTM CAUTIONS THE READER, HOWEVER, THAT SUCH LIST OF
FACTORS UNDER THE CAPTION "RISK FACTORS" MAY NOT BE EXHAUSTIVE AND THAT THOSE OR
OTHER FACTORS, MANY OF WHICH ARE OUTSIDE OF JTM'S CONTROL, COULD HAVE A MATERIAL
ADVERSE EFFECT ON JTM AND ITS ABILITY TO SERVICE ITS INDEBTEDNESS, INCLUDING
PRINCIPAL AND INTEREST PAYMENTS ON, AND LIQUIDATED DAMAGES, IF ANY, WITH RESPECT
TO, THE NOTES. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO JTM OR PERSONS
ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS SET FORTH UNDER THE CAPTIONS "RISK FACTORS" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
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No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this Prospectus,
and, if given or made, such other information or representation must not be
relied upon as having been authorized by JTM. The delivery of this Prospectus at
any time shall not, under any circumstances, create any implication that there
has been no change in the information set forth herein or in the affairs of JTM
since the date hereof.
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POWERLITE-REGISTERED TRADEMARK-, FLEXCRETE-REGISTERED TRADEMARK-,
GYPCEM-REGISTERED TRADEMARK-, ALSIL-REGISTERED TRADEMARK-, FLO
FIL-REGISTERED TRADEMARK-, PEANUT MAKER-REGISTERED TRADEMARK-,
ORBALOID-REGISTERED TRADEMARK- AND ENVIRA-CEMENT-REGISTERED TRADEMARK- ARE
REGISTERED TRADEMARKS OF JTM, AND CE-MENT-TM-, SAM-TM-, POZZALIME-TM-,
STABIL-FILL-TM-, FLEXBASE-TM- AND REDI-FILL-TM- ARE TRADEMARKS OF JTM.
AVAILABLE INFORMATION
The Company and the Guarantors have filed with the Commission a Registration
Statement on Form S-4 (the "Exchange Offer Registration Statement," which term
shall encompass all amendments, exhibits, annexes and schedules thereto)
pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the Exchange Notes being offered hereby. This Prospectus
does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to JTM, the
Guarantors and the Exchange Offer, reference is made to the Exchange Offer
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Exchange Offer Registration Statement, reference is made to
the exhibit for a more complete description of the document or matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Exchange Offer Registration Statement, including the exhibits
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such Web site is: http://www.sec.gov.
As a result of the Exchange Offer, the Company will become subject to the
informational requirements of the United States Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and in accordance therewith will be required to
file periodic reports and other information with the Commission. The Company has
agreed that, whether or not it is required to do so by the rules and regulations
of the Commission, for so long as any of the Notes remain outstanding, the
Company will furnish (excluding exhibits and schedules) to U.S. Bank National
Association, as trustee (the "Trustee"), and the holders of the Notes and will
file with the Commission (unless the Commission will not accept such a filing)
as specified in the Commission's rules and regulations: (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission if the Company were required to file such information,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual financial information
only, a report thereon by the Company's independent certified public accountants
and (ii) any other information, documents and other reports which are otherwise
required pursuant to Sections 13 and 15(d) of the Exchange Act.
1
SUMMARY
IN MARCH 1998, JTM ACQUIRED TWO CCP (AS DEFINED) MANAGEMENT COMPANIES:
POZZOLANIC AND PPA. IN APRIL 1998, JTM ACQUIRED ADDITIONAL CCP MANAGEMENT
COMPANIES: U.S. ASH, TOGETHER WITH TWO AFFILIATED COMPANIES, U.S. STABILIZATION
AND FLO FIL (COLLECTIVELY, THE "U.S. ASH GROUP") AND FLY ASH PRODUCTS. SEE "--
THE TRANSACTIONS." EXCEPT AS OTHERWISE REQUIRED BY THE CONTEXT, REFERENCES IN
"--THE COMPANY" AND "BUSINESS" TO "JTM" AND THE "COMPANY" ARE TO JTM INDUSTRIES,
INC. AND ITS CONSOLIDATED SUBSIDIARIES, AFTER GIVING EFFECT TO THE ACQUISITIONS
(AS DEFINED). PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET
FORTH HEREIN UNDER THE CAPTION "RISK FACTORS" AND ARE URGED TO READ THIS
PROSPECTUS IN ITS ENTIRETY.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES THERETO THAT APPEAR ELSEWHERE IN THIS PROSPECTUS. HISTORICAL FINANCIAL
INFORMATION OF JTM FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND THEREAFTER REFLECT
THE ACQUISITIONS, THE OFFERING AND THE TRANSACTIONS IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES. THE UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS INFORMATION APPEARING HEREIN IS PRESENTED AS IF THE JTM
ACQUISITION (AS DEFINED), THE ACQUISITIONS, THE TRANSACTIONS AND THE OFFERING
OCCURRED ON JANUARY 1, 1997. THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION CONTAINED HEREIN IS PRESENTED FOR ILLUSTRATIVE PURPOSES
ONLY, DOES NOT PURPORT TO BE INDICATIVE OF THE COMPANY'S FINANCIAL POSITION OR
RESULTS OF OPERATIONS AS OF THE DATE HEREOF, AS OF THE ISSUE DATE (AS DEFINED),
OR AS OF OR FOR ANY OTHER FUTURE DATE, AND IS NOT NECESSARILY INDICATIVE OF WHAT
THE COMPANY'S ACTUAL FINANCIAL POSITION OR RESULTS OF OPERATIONS WOULD HAVE BEEN
HAD THE JTM ACQUISITION, THE ACQUISITIONS, THE TRANSACTIONS AND THE OFFERING
BEEN CONSUMMATED ON SUCH DATE. "EBITDA" MEANS EARNINGS BEFORE INTEREST EXPENSE,
INCOME TAXES, DEPRECIATION AND AMORTIZATION.
THE COMPANY
Based on management's knowledge of the industry and the Company's
competitors, the Company believes it is the largest manager and marketer of coal
combustion products ("CCPs") in North America. CCPs are the residual materials
created by coal-fired power generation. The Company enters into long-term CCP
management contracts, primarily with coal-fired electric generating utilities.
These utilities are required to manage, or contract to manage, CCPs in
accordance with state and federal environmental regulations. In addition, the
Company provides similar materials management services for other industrial
clients. The Company's revenue is derived from two principal sources: (i)
providing materials management services to CCP producing utilities, such as
American Electric Power Company, Inc., AES Corporation, Duke Power Company,
Entergy, Houston Industries, Ohio Edison Company, PacifiCorp, The Southern
Company and Texas Utilities Company, and other industrial clients, such as CSX
Transportation, Inc., E.I. du Pont de Nemours and Company ("Dupont"), Reynolds
Metals Co. and Union Pacific Resources Company; and (ii) marketing products
derived from CCPs and related industrial materials to consumers of building
materials and construction related products. The Company believes it is the most
geographically diverse corporation dedicated to the management of CCPs, managing
approximately 9.5 million tons annually through 69 contracts in 26 states. On a
pro forma basis, the Company's marketed tonnage represented approximately 15% of
the total industry CCP tonnage marketed during 1996, the year for which the most
recent market data is available. In 1997, on a pro forma basis, the Company
marketed 4.6 million tons, an increase of 18% over 1996. For the year ended
December 31, 1997, the Company had pro forma sales and EBITDA of $110.3 million
and $20.5 million, respectively.
In an effort to maximize the percentage of products marketed to end-users
and minimize the amount of materials landfilled, the Company's focused research
and development efforts have created value-added products such as
ALSIL-Registered Trademark- (a patented processed fly ash filler for the asphalt
shingle and carpet industries), Powerlite-Registered Trademark- (lightweight
aggregate for concrete block), Flexbase-TM- (road base material) and Peanut
Maker-Registered Trademark- (agricultural soil-enhancer). In 1997, products
marketed by the Company represented approximately 68% of its total revenues. The
Company markets CCP tonnage under management to the building materials and
construction related products industry to be used in engineering applications,
such as ready-mix concrete,
2
lightweight aggregate, stabilized road bases, flowable and structural fill, and
roofing shingles. The Company's major customers for its marketed products
include LaFarge Corporation, Consolidated Sugar Refineries ("CSR"), Elk
Corporation of Texas and GS Roofing Products Company, Inc.
INDUSTRY OVERVIEW
According to data compiled by the Energy Information Administration of the
United States Department of Energy (the "EIA"), of the 1,996 electric generating
units operating in the United States in 1996, 1,128 were coal-fired and
represented approximately 55% of the total electricity generated, an increase
from approximately 50% in 1995. Coal is the largest indigenous fossil fuel
resource in the United States, with current U.S. annual coal production in
excess of one billion tons. Approximately 80% of the coal produced is for
electric power generation, and its use has grown by almost 25% over the last
decade. The combustion of coal provides cost-effective electricity generation,
but results in a high percentage of residual material, which serves as the "raw
material" for the CCP industry. The industry manages these CCPs and related
materials by developing end-use markets for certain CCPs and providing storage
and disposal services for the remainder of such materials.
The primary CCPs managed by the Company are fly ash and bottom ash. Fly ash
is the fine residue and bottom ash is the heavier particles that result from the
combustion of coal. Utilities firing boilers with coal first pulverize the coal
and then blow the pulverized coal into a burning chamber where it immediately
ignites to heat the boiler tubes. The heavier bottom ash falls to the bottom of
the burning chamber while the lighter fly ash remains suspended in the exhaust
gases. Before leaving the exhaust stack, the fly ash particles are removed by an
electrostatic precipitator, bag house or other method. The bottom ash is
hydraulically conveyed to a collection area, while the fly ash is pneumatically
conveyed to a storage silo.
Fly ash is a pozzolan that, in the presence of water, will combine with an
activator (lime, portland cement or kiln dust) to produce a cement-like
material. It is this characteristic that allows fly ash to act as a
cost-competitive substitute for other more expensive cementitious building
materials. Concrete manufacturers can typically use fly ash as a substitute for
15% to 40% of their cement requirements, depending on the quality of the fly ash
and the proposed end-use application for the concrete. In addition to its cost
benefit, fly ash provides greater structural strength and durability in certain
construction applications, such as road construction. Bottom ash is utilized as
an aggregate in concrete block construction and road base construction.
According to the American Coal Ash Association (the "ACAA"), of the
approximately 100 million tons of CCPs that were generated in the United States
during 1996, fly ash accounted for approximately 59%, bottom ash accounted for
approximately 16% and flue gas desulphurization waste ("scrubber sludge") and
boiler slag accounted for approximately 25%.
COMPETITIVE STRENGTHS
In order to sustain its position in the CCP management industry, the Company
relies on the following competitive strengths:
LEADING MARKET POSITION. The Company believes it is a party to more CCP
management contracts and manages more CCP tonnage than any of its competitors.
JTM has aggressively penetrated its service areas and has won contracts based on
its "one-stop" approach to CCP and other industrial materials management
services. This approach combines the Company's marketing, materials handling and
technological capabilities to lower the client's cost of managing CCPs and other
industrial materials in accordance with applicable state and federal
regulations. Consummation of the Initial Acquisitions and the Subsequent
Acquisitions has provided a broader platform for the Company to market its
one-stop approach.
GEOGRAPHIC DIVERSIFICATION. The Company believes it is the only firm in the
CCP management industry with a national scope. This national scope provides the
Company with several significant
3
competitive benefits, including mitigation of the effects of regional economic
cyclicality and weather patterns. In addition, the Company's national scope and
storage capabilities will create incremental revenue through the ability to
shift products among regions to meet market demand while minimizing
transportation costs.
VALUE-ADDED PRODUCTS AND SERVICES. The Company's focused new product
development efforts have broadened the end-use market for CCPs and other
recyclable industrial materials. The Company has successfully introduced new
patented or trademarked products made from previously non-marketable materials
through proprietary processes. These product development efforts have reduced
the materials management cost to the Company's clients and improved the
Company's revenue mix and margins.
STRONG CLIENT RELATIONSHIPS. At December 31, 1997, on a pro forma basis,
the Company had contractual relationships with seven of the top 13 electrical
utilities in the United States, based on total electricity revenues. The Company
has maintained long-term contracts with certain utilities since 1968, and, among
contracts with terms of five years or more, the Company's renewal or extension
rate has been in excess of 94% during the last five years. The Company's clients
rely on its marketing, materials handling and technological capabilities to
extend the useful life of their landfill sites by creatively managing and
marketing a broader range of CCPs than competitors.
EXPERIENCED MANAGEMENT TEAM. The Company's senior management team,
including R Steve Creamer, Raul A. Deju, J.I. Everest, II, Clinton W. Pike and
Danny L. Gray, has an average of over 18 years experience in CCP management and
related industries. The management team has a proven record of developing
innovative, value-added operations, maintaining strong client relationships and
integrating strategic, opportunistic acquisitions.
BUSINESS STRATEGY
Capitalizing on its competitive strengths, the Company intends to grow
revenues and cash flow by implementing a business strategy that consists of the
following key elements:
MAINTAIN AND EXPAND LONG-TERM CONTRACTUAL RELATIONSHIPS. The Company's core
business is based on long-term materials management contracts with power
producers and industrial clients. As of March 15, 1998, on a pro forma basis,
the Company had 69 materials management contracts, 30 of which generated more
than $1.0 million of annual revenues each. Typical contract terms are from five
to 15 years and the weighted average contract life remaining on these large
contracts is over seven years. The Company is focused on serving its current
client base and plans to aggressively target additional contract opportunities
to increase both tonnage under management and revenues.
INCREASE PRODUCT SALES AND APPLICATIONS. The Company has a three-fold
approach to increasing its product sales and applications. The Company intends
to: first, apply JTM's proprietary technology to the products of the newly
acquired companies, thus enhancing their existing product offerings with the
benefits of its research and development program; second, cross-market JTM's
patented products in the new geographical markets accessed through its strategic
acquisitions; and third, continue to develop new applications for CCPs and
related industrial materials.
PURSUE STRATEGIC ACQUISITIONS. The Company operates in a highly fragmented
industry that is undergoing a period of consolidation. The Company intends to
pursue selective acquisitions of companies which will complement its planned
geographic expansion or will provide certain operating efficiencies in areas the
Company currently serves.
4
THE TRANSACTIONS
Industrial Services Group, Inc. ("ISG") was formed in September 1997 by
Citicorp Venture Capital, Ltd. ("CVC") and certain members of JTM's management
team (together with CVC, the "Investors") to acquire the stock of JTM (the "JTM
Acquisition") from Laidlaw Transportation, Inc. ("Laidlaw"). Pursuant to the JTM
Acquisition, JTM became a wholly owned subsidiary of ISG. Laidlaw received from
ISG, as consideration for the JTM Acquisition, a $29.0 million senior bridge
note (the "ISG Bridge Note"), a $17.5 million 9% Junior Subordinated Promissory
Note due 2005 (together with any additional notes issued in respect of interest
thereon, the "ISG PIK Notes") and $5.8 million in cash. The equity investment in
ISG in connection with the financing of the JTM Acquisition was made by the
Investors through a purchase of common and preferred stock and warrants of ISG
for an aggregate purchase price of approximately $7.5 million.
On March 4, 1998, JTM acquired the stock of Pozzolanic (the "Pozzolanic
Acquisition") for $40.0 million, at which time Pozzolanic became a wholly owned
subsidiary of JTM. Pozzolanic is a leading provider of CCP marketing services in
the Pacific Northwest and in the Rocky Mountain area, operating nine contracts
representing 850,000 tons of CCPs in 1997. Financing for the Pozzolanic
Acquisition was provided through borrowings under a $42.0 million secured credit
facility provided by NationsBank, N.A., an affiliate of NationsBanc Montgomery
Securities LLC, and Canadian Imperial Bank of Commerce, an affiliate of CIBC
Oppenheimer Corp. (the "Secured Credit Facility"). See "Business," "Business--
Competitive Strengths," "Business--Business Strategy" and "Business--Materials."
On March 20, 1998, JTM acquired the stock of PPA (the "PPA Acquisition") for
$6.4 million (net of $2.1 million of cash acquired, for a total consideration of
$8.5 million), at which time PPA became a wholly owned subsidiary of JTM. PPA
and its subsidiary provide the personnel and equipment to service a large
contract recently awarded to JTM in Iowa. JTM partially financed the PPA
Acquisition through its borrowings under the Secured Credit Facility. See
"Business," "Business--Competitive Strengths," "Business--Business Strategy" and
"Business--Materials."
On April 22, 1998, JTM acquired the stock of the U.S. Ash Group (the "U.S.
Ash Group Acquisition") for a total consideration of $24.6 million, at which
time the U.S. Ash Group became wholly owned subsidiaries of JTM. The U.S. Ash
Group is a leading provider of CCP management services in Michigan, Ohio and
Indiana, areas where JTM's services were limited, operating six contracts
representing 870,000 tons of CCPs in 1997. Financing for the U.S. Ash Group
Acquisition was provided through proceeds from the Offering. See "Business,"
"Business--Competitive Strengths," "Business--Business Strategy" and
"Business--Materials."
On April 22, 1998, JTM acquired the stock of Fly Ash Products (the "Fly Ash
Products Acquisition") for a total consideration of $9.5 million, at which time
Fly Ash Products became a wholly owned subsidiary of JTM. Fly Ash Products is
the leading provider of CCP management services in Arkansas, operating two
contracts representing 330,000 tons of CCPs in 1997. Financing for the Fly Ash
Products Acquisition was provided through proceeds from the Offering. See
"Business," "Business--Competitive Strengths," "Business--Business Strategy" and
"Business--Materials." The Pozzolanic Acquisition, the PPA Acquisition, the U.S.
Ash Group Acquisition and the Fly Ash Products Acquisition are together referred
to as the "Acquisitions."
5
The following table sets forth the sources and uses of funds in connection
with the Transactions and the Offering.
(DOLLARS IN THOUSANDS)
SOURCES OF FUNDS:
Proceeds from sale of Restricted Notes.......................................... $ 100,000
---------
---------
USES OF FUNDS:
Consideration for the U.S. Ash Group Acquisition, less deposit previously
paid.......................................................................... $ 24,300
Consideration for the Fly Ash Products Acquisition, less deposit previously
paid.......................................................................... 9,400
Repayment of existing debt(1)................................................... 62,500
Transaction expenses............................................................ 3,800
---------
Total uses.................................................................... $ 100,000
---------
---------
- ------------------------
(1) Consists of a repayment in full of the ISG Bridge Note and accrued interest
thereon and a repayment of $32.0 million under the Secured Credit Facility.
With the consummation of the Transactions and the Offering, the Company had
approximately $10.0 million of indebtedness outstanding under the Secured
Credit Facility.
THE EXCHANGE OFFER
Issuer.......................... ISG Resources, Inc. (formerly JTM Industries, Inc.)
Securities Offered.............. $100.0 million in aggregate principal amount of 10% Senior
Subordinated Notes due 2008, which have been registered
under the Securities Act. The terms of the Exchange Notes
and the Restricted Notes are identical in all material
respects, except for certain transfer restrictions and
registration rights relating to the Restricted Notes and
except that, if the Exchange Offer is not consummated by
October 19, 1998, JTM will pay Liquidated Damages to the
holders of the Restricted Notes as described herein. See
"Description of Notes--Registration Rights; Liquidated
Damages."
The Exchange Offer.............. The Exchange Notes are being offered in exchange for a
like principal amount of Restricted Notes. The issuance of
the Exchange Notes is intended to satisfy obligations of
the Company contained in the Registration Rights
Agreement. For procedures for tendering, see "The Exchange
Offer."
Certain Conditions to the
Exchange Offer................ The Company's obligation to accept for exchange, or to
issue Exchange Notes in exchange for, any Restricted Notes
is subject to certain customary conditions, including
conditions relating to interpretations by the staff of the
Commission or any order of any governmental agency or
court of law, which may be waived by the Company in its
reasonable discretion. The Company currently expects that
each of the conditions will be satisfied and that no
waivers will be necessary. See "The Exchange
Offer--Certain Conditions to the Exchange Offer."
6
Certain Tax Consequences........ The exchange of Restricted Notes for Exchange Notes
pursuant to the Exchange Offer will not be subject to
United States federal income tax. See "The Exchange
Offer--United States Federal Income Tax Consequences of
the Exchange of Notes."
Use of Proceeds................. There will be no proceeds to the Company from the exchange
pursuant to the Exchange Offer.
Exchange Agent.................. The U.S. Bank National Association is serving as exchange
agent (the "Exchange Agent") in connection with the
Exchange Offer.
CONSEQUENCES OF EXCHANGING RESTRICTED NOTES
Holders of Restricted Notes who do not exchange their Restricted Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
provisions in the Indenture regarding transfer and exchange of the Restricted
Notes and the restrictions on transfer of such Restricted Notes as set forth in
the legend thereon as a consequence of the issuance of the Restricted Notes
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Restricted Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register Restricted
Notes under the Securities Act. See "Description of Notes--Registration Rights;
Liquidated Damages." Based on interpretations by the staff of the Commission as
set forth in no-action letters issued to third parties, the Company believes
that Exchange Notes issued pursuant to the Exchange Offer in exchange for
Restricted Notes may be offered for resale, resold or otherwise transferred by
holders thereof (other than any holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such Exchange Notes. However, the Company
does not intend to request the Commission to consider, and the Commission has
not considered, the Exchange Offer in the context of a no-action letter and
there can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
Each holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of Exchange Notes and has
no arrangement or understanding to participate in a distribution of Exchange
Notes. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Restricted Notes must acknowledge that such Restricted Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "Plan of Distribution." In addition, to
comply with the state securities laws, the Exchange Notes may not be offered or
sold in any state unless they have been registered or qualified for sale in such
state or an exemption from registration or qualification is available and is
complied with. The offer and sale of the Exchange Notes to "qualified
institutional buyers" (as such term is defined under Rule 144A of the Securities
Act) is generally exempt from registration or qualification under the state
securities laws. The Company has agreed, pursuant to the Registration Rights
Agreement, to register or qualify the Exchange Notes for offer or sale under the
blue sky laws of such jurisdictions as are necessary to permit the consummation
of the Exchange Offer. See "The Exchange Offer--Consequences of Exchanging
Restricted Notes" and "Description of Notes--Registration Rights; Liquidated
Damages."
7
THE NOTES
The terms of the Exchange Notes and the Restricted Notes are identical in
all material respects, except for certain transfer restrictions and registration
rights relating to the Restricted Notes and except that, if the Exchange Offer
is not consummated by October 19, 1998, JTM will pay Liquidated Damages to the
holders of the Restricted Notes as described under "Description of
Notes--Registration Rights; Liquidated Damages." Restricted Notes accepted for
exchange will cease to accrue interest from and after the date of consummation
of the Exchange Offer. Holders of Restricted Notes whose Restricted Notes are
accepted for exchange will not receive any payment in respect of interest on
such Restricted Notes otherwise payable on any interest payment date the record
date for which occurs on or after consummation of the Exchange Offer.
Maturity........................ April 15, 2008.
Interest........................ The Notes will bear interest at the rate of 10% per annum
and will be payable semiannually on April 15 and October
15 of each year, commencing October 15, 1998.
Optional Redemption............. The Notes may be redeemed at the option of the Company, in
whole or in part, on or after April 15, 2003, at the
redemption prices set forth herein, plus accrued and
unpaid interest thereon and Liquidated Damages, if any,
through the redemption date.
On or before April 15, 2001, the Company may, at its
option, redeem up to $35.0 million in aggregate principal
amount of Notes with the net proceeds of one or more
Public Offerings at the redemption price set forth herein,
plus accrued and unpaid interest thereon and Liquidated
Damages, if any, to the date of redemption; PROVIDED,
HOWEVER, that at least $65.0 million in aggregate
principal amount of Notes remain outstanding following
such redemption; and PROVIDED, FURTHER, that such
redemption shall occur within 60 days of the date of the
closing of such Public Offering. See "Description of
Notes--Optional Redemption."
Change of Control............... In the event of a Change of Control, the Company will be
required to make an offer to repurchase all outstanding
Notes at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest thereon
and Liquidated Damages, if any, to the date of repurchase.
There can be no assurance that the Company will have
sufficient funds to repurchase the Notes in the event of a
Change of Control. See "Risk Factors-- Purchase of Notes
Upon a Change of Control," "Description of
Notes--Repurchase at the Option of Holders--Change of
Control" and "Description of Secured Credit Facility."
Ranking......................... The Notes will be general unsecured obligations of the
Company, will be subordinated in right of payment to all
existing and future Senior Indebtedness, including
indebtedness under the Secured Credit Facility, will rank
PARI PASSU in right of payment with all existing and
future senior subordinated indebtedness of the Company,
and will rank senior in right of payment to all existing
and future subordinated indebtedness of the Company. As of
June 30, 1998, the aggregate principal amount of Senior
8
Indebtedness (excluding trade payables and other accrued
liabilities) of the Company was approximately $8.0
million.
Guarantees...................... The Company's obligations under the Notes will be fully
and unconditionally guaranteed, jointly and severally, on
a senior subordinated basis by all existing and future
domestic Restricted Subsidiaries of the Company. The
Guarantees will be subordinated in right of payment to all
existing and future Senior Indebtedness of the Guarantors,
including all obligations of the Guarantors under the
Secured Credit Facility, will rank PARI PASSU in right of
payment with all existing and future senior subordinated
indebtedness of the Guarantors, and will rank senior in
right of payment to all existing and future subordinated
indebtedness of the Guarantors. The existing Guarantors
are Pozzolanic, PPA, U.S. Ash, U.S. Stabilization, Flo
Fil, Fly Ash Products and KBK.
Certain Covenants............... The Indenture governing the Notes provides for certain
covenants that, among other things, limit the ability of
the Company and its Restricted Subsidiaries to incur
additional Indebtedness (as defined) and issue preferred
stock, pay dividends or make other distributions, create
certain liens, enter into certain transactions with
affiliates, sell assets of the Company or its Restricted
Subsidiaries, sell Equity Interests (as defined) of the
Company's Restricted Subsidiaries or enter into certain
mergers and consolidations. In addition, under certain
circumstances, the Company will be required to offer to
purchase Notes at a price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest thereon
and Liquidated Damages, if any, to the date of purchase,
with the proceeds of certain Asset Sales (as defined). See
"Description of Notes."
Exchange Offer; Registration
Rights........................ Holders of Exchange Notes are not entitled to any
registration rights with respect to the Exchange Notes.
Pursuant to the Registration Rights Agreement, the Company
agreed to file with the Commission the registration
statement of which this Prospectus is a part with respect
to the Exchange Offer. See "Description of
Notes--Registration Rights; Liquidated Damages."
RISK FACTORS
POTENTIAL INVESTORS IN THE EXCHANGE NOTES SHOULD CONSIDER CAREFULLY THE
INFORMATION SET FORTH UNDER THE CAPTION "RISK FACTORS" PRIOR TO MAKING AN
INVESTMENT DECISION TO TENDER THEIR RESTRICTED NOTES IN THE EXCHANGE OFFER.
9
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma statements of operations data, other data
and selected ratios are presented as if the JTM Acquisition, the Acquisitions,
the Transactions and the Offering occurred on January 1, 1997. The unaudited
summary pro forma condensed combined financial information contained herein is
presented for illustrative purposes only, does not purport to be indicative of
the Company's financial position or results of operations as of the date hereof,
as of the Issue Date, or as of or for any other future date, and is not
necessarily indicative of what the Company's actual financial position or
results of operations would have been had the JTM Acquisition, the Acquisitions,
the Transactions and the Offering been consummated on such date. The unaudited
pro forma condensed combined financial information set forth below is based on
the historical financial statements of JTM, Pozzolanic, PPA, the U.S. Ash Group
and Fly Ash Products and should be read in conjunction with such Financial
Statements and Notes thereto and the other information included elsewhere in
this Prospectus. See "Available Information," "Selected Historical Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Index to Financial Statements."
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------- -----------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales.................................................................... $ 53,846 $ 110,337
Cost of sales, excluding depreciation.................................... 37,634 79,998
Depreciation and amortization............................................ 4,886 10,072
Selling, general and administrative expenses............................. 6,080 10,179
Income from operations................................................... 5,246 10,088
Interest income.......................................................... 177 230
Interest expense......................................................... 5,665 11,329
Other income, net........................................................ 41 140
Loss before income taxes................................................. (201) (872)
Income tax expense....................................................... (452) (467)
Net loss................................................................. (653) (1,339)
OTHER DATA:
Cash flows from operating activities..................................... 3,558 14,797
Cash flows from investing activities..................................... (2,123) (2,659)
Cash flows from financing activities..................................... -- (3,709)
EBITDA (1)............................................................... 10,350 20,530
EBITDA margin............................................................ 19.2% 18.6%
Capital expenditures..................................................... 2,328 2,474
Cash interest expense (2)................................................ 5,384 10,767
SELECTED RATIOS:
Ratio of earnings to fixed charges (3)................................... .97x .94x
Deficiency of earnings to fixed charges.................................. (201) (872)
EBITDA/cash interest expense (2)......................................... 1.92x 1.91x
EBITDA less capital expenditures/cash interest expense (2)............... 1.49x 1.68x
- ------------------------
(1) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. EBITDA should not be considered as an
alternative to net income or any other GAAP measure of performance as an
indicator of the Company's performance or to cash flows provided by
operating, investing and financing activities as an indicator of cash flows
or a measure of liquidity. Management believes that EBITDA is a useful
adjunct to net income and other measurements under GAAP in evaluating the
Company's ability to service its debt and is a conventionally used financial
indicator. However, due to possible inconsistencies in the method of
calculating EBITDA, the EBITDA measures presented may not be comparable to
other similarly titled measures of other companies.
(2) Represents interest expense net of debt issuance costs.
(3) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and that
portion of rental expense which is representative of the interest factor in
these rentals.
10
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following table sets forth summary consolidated financial information of
JTM for each of the five years in the period ended December 31, 1997 and for the
six month periods ended June 30, 1998 and 1997. Such information was derived
from the Consolidated Financial Statements and Notes thereto of JTM and the
Unaudited Condensed Consolidated Financial Statements and Notes thereto of JTM,
respectively, included elsewhere in this Prospectus. The summary consolidated
financial information for the periods prior to October 14, 1997 set forth below
is not comparable to subsequent periods due to the step-up in bases resulting
from the JTM Acquisition. The summary consolidated financial information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and Notes thereto of JTM and the Unaudited Condensed
Consolidated Financial Statements and Notes thereto of JTM included elsewhere in
this Prospectus.
The summary financial information set forth below for the six months ended
June 30, 1998 and 1997 is unaudited and has been derived from the Company's
unaudited financial statements for those periods included elsewhere in this
Prospectus. In the opinion of the Company's management, the information for the
six months ended June 30, 1998 and 1997 includes all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation. Interim results are not necessarily indicative of results to be
expected for any fiscal year.
SIX MONTHS 9 1/2
ENDED 2 1/2 MONTHS MONTHS
JUNE 30, ENDED ENDED YEAR ENDED DECEMBER 31,
-------------------- DECEMBER 31, OCTOBER 13, -------------------------------
1998 1997 1997 1997 1996 1995 1994
--------- --------- ------------- ----------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales.................................... $ 46,079 $ 31,013 $ 12,643 $ 51,295 $ 62,841 $ 64,986 $ 60,784
Cost of sales, excluding depreciation.... 32,256 24,810 9,365 40,701 52,268 51,489 52,356
Depreciation and amortization............ 3,568 1,270 908 5,279 2,285 2,265 1,538
Selling, general and administrative
expenses............................... 4,830 2,665 1,256 3,633 5,667 9,692 --
Income from operations................... 5,425 2,268 1,114 1,682 2,621 1,540 6,890
Interest income.......................... 92 -- 31 -- -- -- --
Interest expense......................... 3,474 2,222 628 4,160 4,853 4,081 17
Income (loss) before income taxes........ 2,045 46 517 (2,478) (2,232) (2,541) 6,873
Income tax (expense) benefit............. (1,196) (174) (252) (612) 362 445 --
Net income (loss)........................ 849 (128) 265 (3,090) (1,870) (2,096) 6,873(1)
OTHER DATA:
Cash flows from operating activities..... 3,930 (1,019) 1,843 521 603 (1,115) -- (1)
Cash flows from investing activities..... (79,742) 390 (19) (681) (3,869) (4,586) -- (1)
Cash flows from financing activities..... 74,308 629 1,189 957 2,844 (4,113) -- (1)
EBITDA (2)............................... 9,087 3,538 2,054 6,961 4,906 3,805 8,428
EBITDA margin............................ 19.7% 11.4% 16.2% 13.6% 7.8% 5.9% 13.9%
Capital expenditures..................... 2,194 103 19 681 4,357 4,589 905
Ratio of earnings to fixed charges (3)... 1.45x 1.01x 1.49x 0.56x 0.68x 0.58x 5.21x
Deficit of earnings to fixed charges..... -- -- -- (2,478) (2,232) (2,541) --
BALANCE SHEET DATA: (AT PERIOD END)
Working capital (deficiency)............. 7,419 (43,809 (4) (21,648)(4) (43,594) (45,804) (42,268) 6,249
Total assets............................. 180,280 61,565 73,270 58,396 62,950 61,779 18,291
Total debt............................... 108,000 -- -- -- -- -- 2,976
Stockholders' equity..................... 26,114 6,622 25,265 3,623 6,713 8,033 17,831
1993
---------
STATEMENT OF OPERATIONS DATA:
Sales.................................... $ 48,521
Cost of sales, excluding depreciation.... 37,359
Depreciation and amortization............ 1,493
Selling, general and administrative
expenses............................... --
Income from operations................... 9,669
Interest income.......................... --
Interest expense......................... (18)
Income (loss) before income taxes........ 9,687
Income tax (expense) benefit............. --
Net income (loss)........................ 9,687(1)
OTHER DATA:
Cash flows from operating activities..... -- (1)
Cash flows from investing activities..... -- (1)
Cash flows from financing activities..... -- (1)
EBITDA (2)............................... 11,162
EBITDA margin............................ 23.0%
Capital expenditures..................... 6,800
Ratio of earnings to fixed charges (3)... 15.00x
Deficit of earnings to fixed charges..... --
BALANCE SHEET DATA: (AT PERIOD END)
Working capital (deficiency)............. 4,134
Total assets............................. 19,756
Total debt............................... 23,365
Stockholders' equity..................... 38,103
- ------------------------
(1) During the year ended December 31, 1994 and 1993, JTM was a component of
Union Pacific Resources Company ("Union Pacific"). JTM was not allocated any
income taxes and a stand alone balance sheet was not maintained from which
to determine cash flow activity.
(2) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. EBITDA should not be considered as an
alternative to net income or any other GAAP measure of performance as an
indicator of the Company's performance or to cash flows provided by
operating, investing and financing activities as an indicator of cash flows
or a measure of liquidity. Management believes that EBITDA is a useful
adjunct to net income and other measurements under GAAP in evaluating the
Company's ability to service its debt and is a conventionally used financial
indicator. However, due to possible inconsistencies in the method of
calculating EBITDA, the EBITDA measures presented may not be comparable to
other similarly titled measures of other companies.
(3) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and that
portion of rental expense which is representative of the interest factor in
these rentals.
(4) JTM is a guarantor of the ISG Bridge Note and as such the December 31, 1997
working capital deficit reflects push-down accounting treatment of the $29.0
million ISG Bridge Note, which was paid in full with a portion of the
proceeds from the Offering.
11
RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY HOLDERS TENDERING
THE RESTRICTED NOTES PURSUANT TO THE EXCHANGE OFFER, ALTHOUGH THE RISK FACTORS
SET FORTH BELOW ARE GENERALLY APPLICABLE TO THE RESTRICTED NOTES AS WELL AS THE
EXCHANGE NOTES.
CONSEQUENCES OF EXCHANGING RESTRICTED NOTES
Holders of Restricted Notes who do not exchange their Restricted Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
provisions in the Indenture regarding transfer and exchange of the Restricted
Notes and the restrictions on transfer of such Restricted Notes as set forth in
the legend thereon as a consequence of the issuance of the Restricted Notes
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Restricted Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that they will register
Restricted Notes under the Securities Act. Based on interpretations by the staff
of the Commission, as set forth in no-action letters issued to third parties,
the Company believes that Exchange Notes issued pursuant to the Exchange Offer
in exchange for Restricted Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such holders have no arrangement
with any person to participate in the distribution of such Exchange Notes.
However, the Company does not intend to request the Commission to consider, and
the Commission has not considered, the Exchange Offer in the context of a
no-action letter and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer as in such
other circumstances. Each holder, other than a broker-dealer, must acknowledge
that it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes and has no arrangement or understanding to participate in a
distribution of Exchange Notes. If any holder is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the Exchange Notes to be acquired pursuant to the
Exchange Offer, such holder (i) could not rely on the applicable interpretations
of the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that, by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Restricted Notes where
such Restricted Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the 180th day after the
Expiration Date, it will make this Prospectus available to any broker-dealer.
See "Plan of Distribution." However, to comply with the state securities laws,
the Exchange Notes may not be offered or sold in any state unless they have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with. The offer and sale of the
Exchange Notes to "qualified institutional buyers" (as such term is defined
under Rule 144A of the Securities Act) is generally exempt from registration or
qualification under the state securities laws. See "The Exchange
Offer--Consequences of Exchanging Restricted Notes."
12
LACK OF PUBLIC MARKET FOR NOTES
The Restricted Notes have not been registered with the Commission or with
the securities commission or regulatory authorities of any state and, therefore,
such securities will not be freely tradable in the United States upon their
acquisition. The Notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to (i) the
liquidity of any such market that may develop, (ii) the ability of holders of
the Notes to sell their Notes or (iii) the price at which the holders of the
Notes would be able to sell their Notes. If such a market were to exist, the
Notes could trade at prices that may be higher or lower than their principal
amount or purchase price, depending on many factors, including prevailing
interest rates, the market for similar notes and the financial performance of
JTM. The Restricted Notes are eligible for trading in the PORTAL market. JTM has
been advised by the Initial Purchasers that each of them intends to make a
market in the Restricted Notes and the Exchange Notes. However, none of the
Initial Purchasers is obligated to do so and any market making activity with
respect to the Restricted Notes, or the Exchange Notes, may be discontinued at
any time without notice. In addition, such market making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act and may
be limited during the Exchange Offer and the pendency of any applicable Shelf
Registration Statement (as defined) covering resales of Notes. There can be no
assurance that even following registration of the Restricted Notes or the
Exchange Notes, as the case may be, an active trading market will exist for the
Restricted Notes or the Exchange Notes, as the case may be, or that any such
trading market will be liquid. See "Description of Notes--Registration Rights;
Liquidated Damages."
SUBSTANTIAL LEVERAGE
The Company is highly leveraged. On June 30, 1998 the Company had total
indebtedness of approximately $108.0 million and stockholders' equity of
approximately $26.1 million. In addition, for the year ended December 31, 1997,
on a pro forma basis assuming that the JTM Acquisition, the Acquisitions, the
Transactions and the Offering had occurred on January 1, 1997, the Company's
deficiency of earnings to fixed charges would have been $872,000. Subject to
restrictions in the Secured Credit Facility and the Indenture, the Company and
its Restricted Subsidiaries are permitted to incur additional indebtedness in
the future. In addition, beginning in 2003 the Indenture will permit JTM to
distribute certain amounts to ISG to service the ISG PIK Notes. See "Description
of Notes" and "Description of Secured Credit Facility."
JTM's ability to make scheduled payments of principal of, or to pay the
interest or Liquidated Damages, if any, on, or to refinance, its indebtedness
(including the Notes), or to fund planned capital expenditures will depend on
its future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond its control. Based upon the current level of operations and
anticipated revenue growth, management believes that cash flow from operations
and available cash, together with available borrowings under the Secured Credit
Facility, will be adequate to meet JTM's future liquidity needs for at least the
next several years. JTM may, however, need to refinance all or a portion of the
principal of the Notes on or prior to maturity. There can be no assurance that
JTM's business will generate sufficient cash flow from operations, that
anticipated revenue growth and operating improvements will be realized or that
future borrowings will be available under the Secured Credit Facility in an
amount sufficient to enable JTM to service its indebtedness, including the
Notes, or to fund its other liquidity needs. In addition, there can be no
assurance that JTM will be able to effect any such refinancing on commercially
reasonable terms, if at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Pro Forma Liquidity and Capital
Resources."
The degree to which JTM is leveraged could have important consequences to
holders of the Notes, including, but not limited to: (i) making it more
difficult for JTM to satisfy its obligations with respect to the Notes, (ii)
increasing JTM's vulnerability to general adverse economic and industry
conditions,
13
(iii) limiting JTM's ability to obtain additional financing to fund future
working capital, capital expenditures, and other general corporate requirements,
(iv) requiring the dedication of a substantial portion of JTM's cash flow from
operations to the payment of principal of, and interest on, its indebtedness
(the Company's current annual debt service requirement approximates $10.7
million), thereby reducing the availability of such cash flow to fund working
capital, capital expenditures, research and development or other general
corporate purposes, (v) limiting JTM's flexibility in planning for, or reacting
to, changes in its business and the industry and (vi) placing JTM at a
competitive disadvantage in relation to less leveraged competitors. In addition,
the Indenture and the Secured Credit Facility contain financial and other
restrictive covenants that, among other things, limit the ability of JTM to
borrow additional funds. Failure by JTM to comply with such covenants could
result in an event of default which, if not cured or waived, could have a
material adverse effect on JTM. In addition, the degree to which JTM is
leveraged could prevent it from repurchasing all of the Notes tendered to it
upon the occurrence of a Change of Control. See "Description of
Notes--Repurchase at the Option of Holders--Change of Control" and "Description
of Secured Credit Facility."
SUBORDINATION OF THE NOTES AND THE GUARANTEES
The Notes and the Guarantees will be unsecured and subordinated to the prior
right of payment of all existing and future Senior Indebtedness of JTM and the
Guarantors, including obligations under the Secured Credit Facility. The
indebtedness under the Secured Credit Facility will also become due prior to the
time the principal obligations under the Notes become due. Subject to the
limitations contained in the covenant described under "Description of
Notes--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," the Indenture permits JTM and the Guarantors to incur additional Senior
Indebtedness. Under certain circumstances, the subordination provisions
contained in the Indenture prohibit JTM and the Guarantors from making
distributions to the holders of the Notes. In addition, in the event of a
liquidation or insolvency, the assets of JTM and the Guarantors will be
available to pay obligations on the Notes only after all Senior Indebtedness of
JTM and the Guarantors has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes then outstanding.
In addition, substantially all of the assets of JTM and the Guarantors are, or
may be in the future, pledged or granted as collateral to secure other
indebtedness of JTM and the Guarantors. Certain affiliates of the Initial
Purchasers are lenders under the Secured Credit Facility and as such received a
substantial portion of the net proceeds of the Offering. See "Description of
Secured Credit Facility" and "Description of Notes--Subordination."
COVENANT RESTRICTIONS
The Secured Credit Facility and the Indenture impose certain operating and
financial restrictions on JTM. Such restrictions will affect, and in many
respects significantly limit or prohibit, among other things, the ability of JTM
to incur additional indebtedness, repay indebtedness (including the Notes) prior
to stated maturity, sell assets, make investments, engage in transactions with
shareholders and affiliates, issue capital stock, create liens or engage in
mergers or acquisitions. These restrictions could also limit the ability of JTM
to effect future financings, make needed capital expenditures, withstand a
future downturn in JTM's business or the economy in general, or otherwise
conduct necessary corporate activities. JTM's ability to comply with the
covenants and restrictions under the Secured Credit Facility and the Indenture
may be affected by events beyond its control, including prevailing economic and
financial conditions. A failure by JTM to comply with these restrictions could
lead to a default under the terms of the Secured Credit Facility and the Notes
notwithstanding the ability of JTM to meet its debt service obligations. In the
event of a default, the lenders under the Secured Credit Facility could elect to
declare all such indebtedness to be due and payable, together with accrued and
unpaid interest thereon, and the commitments of such lenders to make revolving
credit loans thereunder could be terminated. In such event, a significant
portion of JTM's other indebtedness (including the Notes) may become immediately
due and payable and there can be no assurance that JTM would be able to make
such payments from its own resources or to
14
borrow sufficient funds from alternative sources to make any such payment. See
"Description of Notes" and "Description of Secured Credit Facility."
ACQUISITION RISKS
JTM intends to seek additional acquisition opportunities. There can be no
assurance, however, that JTM will be able to successfully identify suitable
acquisition candidates, negotiate appropriate acquisition terms, obtain
financing which may be needed to effect such acquisitions, complete
acquisitions, integrate acquired operations into its existing operations or
expand into new markets. In addition, there can be no assurance that JTM will be
able to successfully integrate Pozzolanic, PPA, the U.S. Ash Group and Fly Ash
Products into its operations. Acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, technologies, services and
products of the acquired companies and the diversion of management's attention
from other business concerns. Future acquisitions by JTM could result in the
incurrence of substantial additional indebtedness, the amortization of expenses
related to goodwill and other intangible assets and other increased expenses,
particularly in the fiscal quarters immediately following the completion of such
acquisitions while the operations of the acquired business are being integrated
into JTM's operations, which could have a material adverse effect on JTM's
business, financial condition and results of operations. Once integrated,
acquired operations may not achieve levels of revenues, profitability or
productivity comparable with those achieved by JTM's existing operations, or
otherwise perform as expected. In addition, JTM competes for acquisition and
expansion opportunities with companies that have substantially greater
resources.
ELECTRIC UTILITY DEREGULATION
The electric utility industry is in the process of deregulation. This
process is presently being pursued more aggressively by states than the Federal
Government, with faster movement by some states such as California and Texas
than in others. The impact that full deregulation of the industry will have on
JTM is something that cannot be accurately projected. The major area of impact
is the individual source of CCPs that JTM uses to supply material and products
to various markets. Deregulation could result in some sources being put out of
service because they are not economically competitive. JTM believes that no
significant changes to the sources of CCPs under contract will occur. However,
since this change to the industry is still evolving, JTM could be materially
adversely impacted if major changes occur to specific sources.
IMPACT OF CLEAN AIR ACT AMENDMENTS ON COAL CONSUMPTION
The federal Clean Air Act of 1970 ("Clean Air Act") and Amendments to the
Clean Air Act ("Clean Air Act Amendments"), and corresponding state laws that
regulate the emissions of materials into the air, affect the coal industry both
directly and indirectly. The coal industry may be directly affected by Clean Air
Act permitting requirements and/or emissions control requirements relating to
particulate matter (e.g., "fugitive dust"). The coal industry may also be
impacted by future regulation of fine particulate matter measuring 2.5
micrometers in diameter or smaller. In July 1997, the United States
Environmental Protection Agency ("EPA") adopted new, more stringent National
Ambient Air Quality Standards ("NAAQS") for particulate matter and ozone. As a
result, states will be required to implement changes to their existing state
implementation plans to attain and maintain compliance with the new NAAQS.
Because electric utilities emit nitrogen oxides, which are precursors to ozone,
JTM's utility customers are likely to be affected when the revisions to the
NAAQS are implemented by the states. State and federal regulations relating to
fugitive dust and coal combustion emissions regulations relating to
implementation of the new NAAQS may reduce JTM's sources for its products. The
extent of the potential impact of the new NAAQS on the coal industry will depend
on the policies and control strategies associated with the state implementation
process under the Clean Air Act, as well as on pending legislative proposals to
delay
15
or eliminate aspects of the standard. Nonetheless, the new NAAQS could have a
material adverse effect on JTM's financial condition and results of operations.
The Clean Air Act indirectly affects JTM's operations by extensively
regulating the air emissions of sulfur dioxides and other compounds emitted by
coal-fired utility power plants. Title IV of the Clean Air Act Amendments places
limits on sulfur dioxide emissions from electric power generation plants. The
limits set baseline emission standards for such facilities. Reductions in such
emissions will occur in two phases; the first began in 1995 ("Phase I") and
applies only to certain identified facilities and the second is currently
scheduled to begin in 2000 ("Phase II") and will apply to most remaining
facilities, including those subject to the 1995 restrictions. The affected
utilities have been and may be able to meet these requirements by, among other
ways, switching to lower sulfur fuels, installing pollution control devices such
as scrubbers, reducing electricity generating levels or purchasing or trading
"pollution credits." Specific emission sources will receive these credits, which
utilities and industrial concerns can trade or sell to allow other units to emit
higher levels of sulfur dioxide. The effect of the Clean Air Act Amendments on
JTM cannot be completely ascertained at this time.
The Clean Air Act Amendments also require that utilities that currently are
major sources of nitrogen oxides in moderate or higher ozone nonattainment areas
install reasonably available control technology for nitrogen oxides, which are
precursors of ozone. In addition, EPA currently plans to implement the recently
issued, stricter ozone standards (discussed above) by 2003. The Ozone Transport
Assessment Group ("OTAG"), formed to make recommendations to the EPA for
addressing ozone problems in the eastern United States, submitted its final
recommendations to the EPA in June 1997. Based on the OTAG's recommendations,
the EPA recently announced a proposal (the "SIP call") that would require 22
eastern states to make substantial reductions in nitrogen oxide emissions. Under
this proposal, the EPA expects that states will achieve these reductions by
requiring power plants to make substantial reductions in their nitrogen oxide
emissions. Installation of reasonably available control technology and
additional control measures required under the SIP call will make it more costly
to operate coal-fired utility power plants and, depending on the requirements of
individual state attainment plans and the development of revised new source
performance standards, could make coal a less attractive fuel alternative in the
planning and building of utility power plants in the future. Any reduction in
coal's share of the capacity for power generation could have a material adverse
effect on JTM's financial condition and results of operations. The effect such
regulation or other requirements that may be imposed in the future could have on
the coal industry in general and on JTM in particular cannot be predicted with
certainty. No assurance can be given that the implementation of the Clean Air
Act Amendments or any future regulatory provisions will not materially adversely
affect JTM.
In addition, the Clean Air Act Amendments require a study of utility power
plant emissions of certain toxic substances, including mercury, and direct the
EPA to regulate these substances, if warranted. In 1997, the EPA issued a report
on mercury emissions which concluded that coal-fired utility boilers accounted
for 32.6% of total United States emissions during 1994-95. Future federal or
state regulatory or legislative activity may seek to reduce mercury emissions
and such requirements, if enacted, could result in reduced use of coal if
utilities switch to other sources of fuel.
IMPACT OF THE FRAMEWORK CONVENTION ON GLOBAL CLIMATE CHANGE ON THE COAL INDUSTRY
The United States and over 160 other nations are signatories to the
Framework Convention on Global Climate Change (the "Convention") which is
intended to limit or capture emissions of greenhouse gases, such as carbon
dioxide. In December 1997, in Kyoto, Japan, the signatories to the Convention
established a binding set of emissions targets for developed nations (the "Kyoto
Agreement"). Although the specific limits vary from country to country, under
the terms of the Kyoto Agreement, the United States would be required to reduce
emissions by 7% below 1990 levels over a five-year budget period from 2008 to
2012. Although the United States has not ratified the Kyoto Agreement and no
comprehensive regulations focusing on greenhouse gas emissions are in place,
such restrictions, whether through ratification of the
16
Kyoto Agreement or other efforts to stabilize or reduce greenhouse gas
emissions, could adversely impact the price and demand for coal. According to
the Energy Information Administration Annual Energy Outlook for 1998, coal
accounts for 34% of greenhouse gas emissions in the United States, and efforts
to control greenhouse gas emissions could result in reduced use of coal because
of switching to lower carbon sources of fuel or other actions. It is unclear
what impact, if any, greenhouse gas restrictions may have on JTM's operations.
There is no guarantee, however, that such restrictions, if established through
regulation or legislation, will not have a material adverse effect on JTM's
financial condition and results of operations.
MATERIAL QUALITY AND QUANTITY
Coal-fired boilers have been impacted by the Clean Air Act and the Clean Air
Act Amendments, which established specific emissions levels concerning sulfur
dioxide (SO(2)) and nitrous oxides (NO) that each utility must meet. These
emissions levels have required utilities to undertake many of the following
changes: change their fuel source(s), add scrubbers to capture SO(2), add new
boiler burner systems to control NO, add or modify fuel pulverizers/air handling
systems to control NO, introduce flue gas conditioning materials to control
particulate emissions in conjunction with meeting SO(2) emissions targets and in
some very isolated cases shut down a plant. Recent amendments to existing
particulate matter standards may require retrofitting of baghouses to control
particulate emissions. All of these changes can impact the quantity and quality
of CCPs produced at a power plant and can add to the costs of operating a power
plant. Further, inappropriate use of a material can result in faulty end
products. Since most of the products marketed by JTM typically consist of a
mixture of client-supplied materials, JTM does not exclusively control the
quality of the final end product, but shares such control with the manufacturer
of the ingredient materials. Therefore, there is a risk of liability regarding
the quality of the materials and end products marketed by JTM. In cases where
JTM is responsible for end-product quality, such as a structural fill (where
material is used to fill a cavity or designated area), JTM depends solely on its
own quality assurance program.
PERSONAL INJURY CLAIMS; UNCERTAINTY OF INSURANCE COVERAGE
Most of the products produced with JTM's materials involve handling and
transportation of material to the end-product plant location. JTM usually
transports the materials by rail carrier or bulk transport company. There is a
risk of inappropriate handling of JTM's materials, spillage of the materials
and, as a result of such a spillage, personal injury--all of which JTM cannot
control. In the handling of the materials, some material is extremely reactive
to water, can cause second or third degree burns, can cause silicosis if inhaled
into the lungs over long periods of time, or can act like lime and cause burns,
if allowed to contact skin. JTM currently carries a combined aggregate of
$2,000,000 in general/product liability insurance to cover potential concerns in
this area. However, the current coverage is in force through December 31, 1998,
and JTM cannot assure that such insurance coverage will remain available after
such date, that JTM's insurer will remain viable or that the insured amounts
will be sufficient to cover all future claims in excess of JTM's uninsured
retention. Furthermore, future rate increases might make such insurance
uneconomical for JTM to maintain. There can be no assurance that one or more
meritorious claims against JTM for serious personal injury would not have an
adverse effect upon JTM's business, financial condition and results of
operation, or on its ability to pay principal and interest on the Notes.
ENVIRONMENTAL LIABILITY
Materials sold by JTM vary in chemical composition. Although the EPA has
excluded CCPs from regulation as hazardous wastes, fluidized bed ash, which is a
material derived from the use of advanced boiler technology (Fluidized Bed
Combustor, or "FBCs") that meets EPA clean air standards, has not been ruled on
as of this date. JTM manages approximately 700,000 tons of FBCs annually. Should
the EPA rule to include this material on its hazardous material list it is
likely to involve a testing protocol similar to
17
the one used for cement kiln dust. JTM has, through the ACAA, maintained an
active role in providing information to aid in determining the final
categorization of FBCs. Based on scientific information compiled by JTM, JTM
believes material now managed by JTM for utility clients will not, as a
consequence of EPA rulings, impact JTM negatively. However, should the EPA rule
not to grandfather material produced and marketed for the past ten years, JTM
could become part of a group of utilities, marketers, manufacturers (petroleum)
and service companies that will have to meet the EPA mandate. The EPA will make
a report to Congress on this issue on September 30, 1998. A final ruling will be
made by the EPA no later than April 1, 1999.
While CCPs are not hazardous wastes, they contain small concentrations of
metals that are included in the list of "hazardous substances" under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA").
Such concentrations are well below applicable cleanup criteria. Land application
of CCPs is regulated by a variety of federal and state statutes, which impose
testing and management requirements to ensure environmental protection. Under
limited circumstances, mismanagement of CCPs can give rise to CERCLA liability.
JTM has been active in a number of landfill operations where the permitting
and liability for such operations is contractually retained by the client. JTM
is active in one landfill that is "managed" as a hazardous waste landfill,
although it is not designated as such. This client processes spent aluminum pot-
liner, a hazardous waste, into a non-hazardous condition by use of their
patented process. JTM provides services to landfill residues of this treatment
process and operates certain in-plant equipment and systems for the client.
Because of recent rulings, JTM's operations are run as if the processed potliner
is a hazardous waste. All environmental liabilities surrounding this project are
assumed by the client, and JTM currently foresees no adverse effect upon its
business, financial condition or results of operation from this project. There
can be no assurance, however, that JTM will not be named in third-party claims
relating to its activities. See "Business--Environmental Liability." Currently,
the Company has no plans for capital expenditures for environmental control
facilities.
DEPENDENCE ON KEY PERSONNEL
JTM's executive officers and certain key employees of JTM have been
primarily responsible for the development and expansion of its business, and the
loss of the services of a number of these individuals could have an adverse
effect on JTM. The consummation of the Initial Acquisitions and the Subsequent
Acquisitions combined management of five separate companies under the ownership
of JTM. JTM's future success will depend in part upon its continued ability to
recruit, motivate and retain qualified personnel, as well as the successful
integration of the five management teams. There can be no assurance that JTM
will be successful in this regard. JTM has employment and non-competition
agreements with certain key personnel and will enter into non-competition
agreements with owners of companies acquired. See "Management--Employment
Agreements."
COMPETITION
JTM competes both with respect to (i) obtaining materials management
contracts with utility and other industrial companies and (ii) the marketing of
CCPs and related industrial materials. The market for the management of CCPs and
related industrial materials is highly fragmented. Although JTM believes it is
the largest manager of CCPs in North America and the only company providing such
management services on a national basis (based on management's knowledge of the
industry and the Company's competitors), much of the competition in the CCP
management industry is regional. JTM has a presence in every region in the
United States. Although JTM typically has long-term contracts with its clients,
some of such contracts provide for the termination of such contract at the
convenience of the utility company upon a minimum 90-day notice. Moreover,
certain of JTM's most significant competitors on a regional basis appear to be
seeking a broader national presence. Certain of these competitors have
substantially greater resources than JTM, and there can be no assurance that if
they were to begin to compete in the
18
national market, or in regions where they currently do not have operations, JTM
would not be adversely affected.
Generally, the markets for JTM's traditional CCPs are highly competitive,
with many local, regional and national companies that market CCPs, as well as
numerous products which are substitutable for CCPs, including cement and other
filler materials, such as limestone. JTM competes on the basis of price,
delivery and product quality. Due to the high cost of transportation relative to
sales price, competition is generally regional. Due to the industry's fragmented
nature and supply of product, within each region JTM and its competitors
typically deliver their traditional products to their customers directly from
the client's site at a regional market price. Many of JTM's competitors
(including manufacturers and marketers of substitutable products) have
substantially greater resources than JTM, and there can be no assurance that
these competitors will not utilize their resources to compete effectively in the
regions where JTM operates. See "Business--Competition."
SEASONALITY; CYCLICALITY
JTM's business consists of managing CCPs and other materials for utilities
and other industrial facilities and marketing CCPs and other materials to end
users. Materials management services often include disposal operations and
landfill services that are directly tied to year-round plant operations,
providing relatively evenly distributed revenue generation. However, CCP sales
are keyed to construction market demands that tend to generally follow national
trends in construction with predictable response to seasonal peaks. JTM's sales
have historically reflected these seasonal trends, with the largest percentage
of total annual revenues being realized in the second and third quarters. Low
seasonal demand normally results in reduced shipments and revenues in the first
quarter.
The CCP industry is cyclical and is affected by changes in general and local
economic conditions, such as new home construction and highway (infrastructure
repair) construction. A downturn in the economy in one or more markets served by
JTM could have a material adverse effect on JTM's sales. Unscheduled outages in
the utility industry can also impact quarterly performance by interrupting the
supply of CCPs. On-site storage of CCPs in silos can alleviate this effect but
is not available at or near all utility plant sites. Major planned outages at
utility plants occur at intervals and must be handled appropriately to keep
product supplied to customers. This cannot always be accomplished and sometimes
backup sources are shipped in at higher costs to JTM to retain the customer. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality of Business."
CONTROL BY PRINCIPAL STOCKHOLDERS
A limited number of stockholders of ISG beneficially and indirectly own or
control, in the aggregate, all of the outstanding shares of capital stock of
JTM. Because of their beneficial stock ownership, these stockholders will be
able to continue to elect the members of the Board of Directors and decide all
matters requiring stockholder approval. See "Security Ownership of Certain
Beneficial Owners and Management."
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
JTM must offer to purchase the Notes upon the occurrence of a Change of
Control at a purchase price equal to 101% of the principal amount thereof, plus
accrued interest thereon and Liquidated Damages, if any, to the date of
purchase. See "Description of Notes--Repurchase at the Option of Holders--Change
of Control."
The Secured Credit Facility prohibits JTM from prepaying the Notes,
including prepayments pursuant to a Change of Control Offer. Prior to commencing
such an offer to purchase the Notes, JTM would be required to (i) repay in full
all indebtedness of JTM that would prohibit the purchase of the Notes, of which
there is none as of August 3, 1998 with the exception of the indebtedness under
the Secured Credit Facility, or (ii) obtain any requisite consent to permit the
purchase. If JTM is unable to repay all of such
19
indebtedness or is unable to obtain the necessary consents, JTM will be unable
to offer to purchase the Notes and such failure will constitute an Event of
Default under the Indenture. There can be no assurance that JTM will have
sufficient funds available at the time of any Change of Control to make any debt
payment (including purchases of Notes) as described above.
The events that constitute a Change of Control under the Indenture may also
be events of default under the Secured Credit Facility. Such events may permit
the lenders under the Secured Credit Facility to accelerate the debt and, if the
debt is not paid, to enforce security interests in the assets of JTM, thereby
limiting JTM's ability to raise cash to purchase the Notes and reducing the
practical benefit of the offer to purchase provisions to the holders of the
Notes.
FRAUDULENT TRANSFER CONSIDERATIONS; UNENFORCEABILITY OF SUBSIDIARY GUARANTEES
The obligations of any Guarantor as a guarantor under the Indenture may be
subject to review under applicable fraudulent transfer or similar laws, in the
event of the bankruptcy or other financial difficulty of any such Guarantor. In
the United States, under such laws, if a court in a lawsuit by an unpaid
creditor or representative of creditors of any such Guarantor, such as a trustee
in bankruptcy or any such person as debtor in possession, were to find that at
the time such Guarantor incurred its obligations under its Guarantee, it (i)
received less than fair consideration or reasonably equivalent value therefor,
and either (ii) (a) was insolvent, (b) was rendered insolvent, (c) was engaged
in a business or transaction for which its remaining unencumbered assets
constituted unreasonably small capital, or (d) intended to incur or believed
that it would incur debts beyond its ability to pay as such debts matured, such
court could void all or a portion of such obligations under its Guarantee and
direct the return of any amounts paid with respect thereof. Moreover, regardless
of the factors identified in the foregoing clauses (i) and (ii), a court could
take such action if it found that the Guarantee was entered into with actual
intent to hinder, delay or defraud creditors. The measure of insolvency for
purposes of the foregoing will vary depending on the law of the jurisdiction
being applied. Generally, however, an entity would be considered insolvent if
the sum of its debts (including contingent or unliquidated debts) is greater
than all of its property at a fair valuation or if the present fair salable
value of its assets is less than the amount that would be required to pay its
probable liability on its existing debts as they become absolute and matured.
20
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer.
CAPITALIZATION
The following table sets forth as of June 30, 1998, the Company's
consolidated capitalization. The following table should be read in conjunction
with the historical financial statements of JTM, Pozzolanic, PPA, the U.S. Ash
Group and Fly Ash Products, and the other information contained elsewhere in
this Prospectus. See "Available Information," "Selected Historical Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Index to Financial Statments."
AS OF JUNE 30, 1998
--------------------
(DOLLARS IN
THOUSANDS)
Short-term debt:
Current portion of long-term debt and note payable........................................ $ 0
Long-term debt, excluding current maturities:
Secured Credit Facility................................................................... 8,000
Restricted Notes.......................................................................... 100,000
--------
Total long-term debt excluding current maturities....................................... 108,000
--------
Total debt.............................................................................. 108,000
Stockholders' equity........................................................................ 26,114
--------
Total capitalization.................................................................... $ 134,114
--------
21
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined statements of operations are
presented as if the JTM Acquisition, the Acquisitions, the Transactions and the
Offering occurred on January 1, 1997.
The unaudited pro forma condensed combined financial information contained
herein is presented for illustrative purposes only, does not purport to be
indicative of the Company's financial position or results of operations as of
the date hereof, as of the Issue Date, or as of or for any other future date,
and is not necessarily indicative of what the Company's actual financial
position or results of operations would have been had the JTM Acquisition, the
Acquisitions, the Transactions and the Offering been consummated on such dates.
The unaudited pro forma condensed combined financial information set forth below
is based on the historical financial statements of JTM, Pozzolanic, PPA, the
U.S. Ash Group and Fly Ash Products and should be read in conjunction with such
Financial Statements and Notes thereto and the other information included
elsewhere in this Prospectus. See "Available Information," "Selected Historical
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Index to Financial Statements."
Prior to ISG's acquistion of JTM, the Company was a component of Laidlaw.
Charges allocated from Laidlaw for treasury, taxation, and insurance may not be
indicative of the expenses the Company would have incurred if Laidlaw had not
provided the services.
The unaudited pro forma condensed combined financial information reflects
all adjustments, consisting of normal recurring accruals, which in the opinion
of management of the applicable company are necessary for a presentation of
results for the respective periods in accordance with the basis of presentation
described in the respective company's financial statements.
The CCP management industry is seasonal in nature, with a higher proportion
of sales and earnings usually being generated in the second and third quarters
of the fiscal year than in other periods. Because of this seasonality and other
factors, results of operations for interim periods are not necessarily
indicative of results of operations for an entire fiscal year. See "Risk
Factors--Seasonality; Cyclicality" and "Management Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality of Business."
22
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
FLY ASH
POZZOLANIC PPA PRODUCTS U.S. ASH
JTM PRE-ACQUISITION PRE-ACQUISITION PRE-ACQUISITION PRE-ACQUISITION
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
---------- --------------- --------------- --------------- ---------------
Sales......................... $46,079 $2,053 $ 751 $1,734 $3,322
Cost of sales, excluding
depreciation................ 32,256 1,449 821 1,092 2,431
Depreciation and
amortization................ 3,568 100 9 172 27
Selling, general and
administrative.............. 4,830 625 296 313 1,081
Income from operations........ 5,425 (121) (375) 157 (217)
Interest income............. 92 42 17 4 22
Interest expense............ (3,474) -- -- (21) --
Other income (expense),
net......................... 2 1 -- 21 17
Income (loss) before income
taxes....................... 2,045 (78) (358) 161 (178)
Income tax (expense) benefit.. (1,196) 30 134 -- (114)
---------- ------ ----- ------ ------
Net income (loss)............. $ 849 $ (48) $(224) $ 161 $ (292)
---------- ------ ----- ------ ------
---------- ------ ----- ------ ------
PRO FORMA
----------------------
COMBINED ADJUSTMENT COMBINED
-------- ----------- ---------
Sales......................... $53,939 $ (93)(f) $53,846
Cost of sales, excluding
depreciation................ 38,049 (103)(f) 37,634
(150)(g)
(487)(h)
325(i)
Depreciation and
amortization................ 3,876 1,010(j) 4,886
Selling, general and
administrative.............. 7,145 (27)(f) 6,080
(24)(g)
8(i)
(476)(k)
(466)(p)
(80)(q)
Income from operations........ 4,869 5,246
Interest income............. 177 177
Interest expense............ (3,495) (2,170)(m) (5,665)
Other income (expense),
net......................... 41 41
Income (loss) before income
taxes....................... 1,592 (201)
Income tax (expense) benefit.. (1,146) 756(n) (452)
(62)(o)
-------- ---------
Net income (loss)............. $ 446 $ (653)
-------- ---------
-------- ---------
23
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
JTM
-------------------------------------------------
JANUARY 1- OCTOBER 14-
OCTOBER 13 DECEMBER 31 AS
HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTED
---------- ----------- ----------- --------
Sales.............................. $51,295 $12,643 $ $63,938
Cost of sales, excluding
depreciation..................... 40,701 9,365 50,066
Depreciation and amortization...... 5,279 908 (4,087)a 4,246
2,146b
Selling, general and administrative
expenses......................... 3,633 1,256 (236)c 4,653
Income from operations............. 1,682 1,114 4,973
Interest income.................. -- 31 31
Interest expense................. (4,160) (628) 1,864d (2,924)
Other income (expense), net...... -- -- --
Income before income taxes......... (2,478) 517 2,080
Income tax (expense) benefit....... (612) (252) (160)e (1,024)
---------- ----------- --------
Net Income (loss).................. $(3,090) $ 265 $ 1,056
---------- ----------- --------
---------- ----------- --------
ACQUISITIONS
-------------------------------------------------
FLY ASH U.S. ASH AS PRO FORMA
POZZOLANIC PPA PRODUCTS GROUP ADJUSTED -----------------------
HISTORICAL HISTORICAL HISTORICAL HISTORICAL COMBINED ADJUSTMENTS COMBINED
---------- ---------- ---------- ---------- -------- ----------- --------
Sales.............................. $21,263 $7,878 $ 6,331 $11,436 $110,846 $ (509)f $110,337
Cost of sales, excluding
depreciation..................... 12,905 5,279 3,823 10,006 82,079 (717)f 79,998
(871)g
(1,485)h
992i
Depreciation and amortization...... 702 277 685 63 5,973 (76)f 10,072
4,175j
Selling, general and administrative
expenses......................... 2,898 2,016 980 1,406 11,953 (174)f 10,179
(93)g
31i
(1,286)k
(252)p
Income from operations............. 4,758 306 843 (39) 10,841 10,088
Interest income.................. 38 69 197 92 427 (197)l 230
Interest expense................. -- -- (94) -- (3,018 ) (8,311)m (11,329 )
Other income (expense), net...... 63 -- -- 77 140 140
Income before income taxes......... 4,859 375 946 130 8,390 (872 )
Income tax (expense) benefit....... (1,778) (143) -- (49) (2,994 ) 2,890n (467 )
(362)o
---------- ---------- ---------- ---------- -------- --------
Net Income (loss).................. $ 3,081 $ 232 $ 946 $ 81 $ 5,396 $(1,339 )
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
24
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. The unaudited pro forma condensed combined statements of operations are
presented as if the JTM Acquisition, the Acquisitions, the Transactions and
the Offering occurred on January 1, 1997. Pozzolanic, PPA, the U.S. Ash
Group and Fly Ash Products became wholly-owned subsidiaries of JTM during
the six months ended June 30, 1998 in transactions accounted for as purchase
business combinations in accordance with generally accepted accounting
principles. Accordingly, their assets and liabilities were adjusted to their
estimated fair values as of their respective acquisition dates and their
results of operations for the period subsequent to the respective dates have
been included in the JTM Historical amounts.
JTM became a wholly owned subsidiary of ISG on October 14, 1997 in a
transaction accounted for as a purchase business combination in accordance
with generally accepted accounting principles and, accordingly, JTM assets
and liabilities were adjusted to their estimated fair values as of that
date. JTM's pre-acquisition operating results have been included in the
unaudited pro forma condensed combined statement of operations for the
twelve months ended December 31, 1997 and certain adjustments have been made
to reflect JTM's operating results as if the acquisition had occurred on
January 1, 1997.
Certain reclassifications of Pozzolanic, PPA, the U.S. Ash Group and Fly Ash
Products balances have been made to conform to the JTM reporting format.
The following adjustments have been made to arrive at the unaudited pro
forma condensed combined financial information.
2. PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS FOR THE SIX
MONTHS ENDED JUNE 30, 1998 AND THE TWELVE MONTHS ENDED DECEMBER 31, 1997.
(a) Reversal of the goodwill amortization for the 9 1/2 month period ended
October 13, 1997 which includes a $3.3 million write down in accordance with
Statement of Financial Accounting Standard No. 121.
(b) Reflects the amortization and additional depreciation based on allocating
the effective purchase price to the fair values of assets purchased in the
acquisition of JTM by ISG on October 14, 1997.
(c) Reflects the reduction in insurance cost resulting from obtaining insurance
coverage directly from a third party carrier. As JTM was previously a
component of Laidlaw, insurance charges were allocated to JTM by Laidlaw on
a basis other than one deemed reasonable by management. The insured risks of
the Company under Laidlaw were materially identical to its current insured
risks. Insurance rates charged by a third party carrier beginning on the
acquisition date were substantially less than amounts allocated by Laidlaw.
(d) Reflects the reduction in interest expense resulting from elimination of
$49.4 million intercompany debt to the former parent of JTM and push down of
a $29.0 million ISG Bridge Note related to the acquisition of JTM by ISG.
(e) Reflects the income tax effects of the pro forma adjustments at an assumed
statutory rate of 35%.
(f) Elimination of revenues and expenses related to a division of PPA not
included in the PPA Acquisition pursuant to the purchase agreement.
(g) Reflects the termination of rental arrangements with related parties for
buildings and equipment pursuant to the purchase agreement for the U.S. Ash
Group. Such buildings and equipment were not purchased by the Company and
was not used in operations prior to the U.S. Ash Group Acquisition.
25
(h) Reflects the termination of a related party employee leasing arrangement at
the U.S. Ash Group pursuant to the purchase agreement for the U.S. Ash
Group. The personnel became employees of JTM at acquisition.
(i) Reflects salaries and benefits of 26 employees of JTM which were formerly
leased through an employee leasing arrangement with a related party of the
U.S. Ash Group and estimated costs to administer payroll in-house.
(j) Reflects the increase in depreciation and amortization based upon allocating
the effective purchase price to the fair values of the assets purchased in
the acquisitions of Pozzolanic, PPA, the U.S. Ash Group and Fly Ash
Products.
(k) Reflects the reduction of expense related to termination of employment of
eight executive personnel pursuant to the purchase agreements for PPA,
Pozzolanic, the U.S. Ash Group and Fly Ash Products. JTM has a regional
management organization established and in place to manage the various
locations and, accordingly, the positions held by the eight personnel have
been eliminated. JTM has organized in this manner considering the long-term
nature of its contract relationships and the dependence of its customers on
location.
(l) Reflects the reduction of interest income related to a loan receivable not
included in the Fly Ash Products Acquisition.
(m) Reflects the increase in interest expense and amortization of debt issue
costs resulting from the issuance of the Notes and borrowings under the
Secured Credit Facility occurring concurrently with the Transactions. The
increase is offset by the elimination of interest expense on the $29.0
million ISG Bridge Note which was paid in full with a portion of the
proceeds of the Offering and certain interest bearing debt not assumed by
JTM in the Fly Ash Products Acquisition.
(n) Reflects the income tax effects of the pro forma adjustments.
(o) Reflects the increase in income tax for Fly Ash Products, an S Corporation.
(p) Reflects the reduction in expense related to renegotiated employment
contracts for two employees pursuant to the purchase agreement for PPA.
(q) To eliminate costs incurred by Pozzolanic prior to the Pozzolanic
Acquisition related to such acquisition consisting of legal, accounting and
related costs.
26
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth summary consolidated financial information of
JTM for each of the five years in the period ended December 31, 1997 and for the
six months ended June 30, 1998 and 1997. Such information was derived from the
Consolidated Financial Statements and Notes thereto of JTM and the Unaudited
Condensed Consolidated Financial Statements and Notes thereto of JTM,
respectively, included elsewhere in this Prospectus. The selected consolidated
financial information for the periods prior to October 14, 1997 set forth below
is not comparable to subsequent periods due to the step-up in basis resulting
from the JTM Acquisition. The selected consolidated financial information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations", the Consolidated
Financial Statements and Notes thereto of JTM and the Unaudited Condensed
Consolidated Financial Statements and Notes thereto of JTM included elsewhere in
this Prospectus.
The selected financial information set forth below for the six months ended
June 30, 1998 and 1997 is unaudited and has been derived from the Company's
unaudited financial statements for those periods included elsewhere in this
Prospectus. In the opinion of the Company's management, the information for the
six months ended June 30, 1998 and 1997 includes all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation. Interim results are not necessarily indicative of results to be
expected for any fiscal year.
9 1/2
SIX MONTHS 2 1/2 MONTHS MONTHS
ENDED ENDED ENDED
JUNE 30, DECEMBER 31, OCTOBER 13,
1998 1997 1997 1997
-------- -------- ------------ -----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales................................... $ 46,079 $ 31,013 $ 12,643 $51,295
Cost of sales, excluding depreciation... 32,256 24,810 9,365 40,701
Depreciation and amortization........... 3,568 1,270 908 5,279
Selling, general and administrative
expenses.............................. 4,830 2,665 1,256 3,633
Income from operations.................. 5,425 2,268 1,114 1,682
Interest income......................... 92 -- 31 --
Interest expense........................ 3,474 2,222 628 4,160
Income (loss) before income taxes....... 2,045 46 517 (2,478)
Income tax (expense) benefit............ (1,196) (174) (252) (612)
Net income (loss)....................... 849 (128) 265 (3,090)
OTHER DATA:
Cash flows from operating activities 3,930 (1,019) 1,843 521
Cash flows from investing activities (79,742) 390 (19) (681)
Cash flows from financing activities 74,303 629 1,189 957
EBITDA (2).............................. 9,087 3,538 2,054 6,961
EBITDA margin........................... 19.7% 11.4% 16.2% 13.6%
Capital expenditures.................... 2,194 103 19 681
Ratio of earnings to fixed
charges (3)........................... 1.45x 1.01x 1.49x 0.56x
Deficit of earnings to fixed charges.... -- -- -- (2,478)
BALANCE SHEET DATA: (AT PERIOD END)
Working capital (deficiency)............ 7,419 (43,809)(4) (21,648)(4) (43,594)
Total assets............................ 180,280 61,565 73,270 58,396
Total debt.............................. 108,000 -- -- --
Stockholders' equity.................... 26,114 6,602 25,265 3,623
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993
--------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Sales................................... $ 62,841 $ 64,986 $ 60,784 $ 48,521
Cost of sales, excluding depreciation... 52,268 51,489 52,356 37,359
Depreciation and amortization........... 2,285 2,265 1,538 1,493
Selling, general and administrative
expenses.............................. 5,667 9,692 -- --
Income from operations.................. 2,621 1,540 6,890 9,669
Interest income......................... -- -- -- --
Interest expense........................ 4,853 4,081 17 (18)
Income (loss) before income taxes....... (2,232) (2,541) 6,873 9,687
Income tax (expense) benefit............ 362 445 -- --
Net income (loss)....................... (1,870) (2,096) 6,873(1) 9,687(1)
OTHER DATA:
Cash flows from operating activities 603 (1,115) --(1) --(1)
Cash flows from investing activities (3,869) (4,586) --(1) --(1)
Cash flows from financing activities 2,844 (4,113) --(1) --(1)
EBITDA (2).............................. 4,906 3,805 8,428 11,162
EBITDA margin........................... 7.8% 5.9% 13.9% 23.0%
Capital expenditures.................... 4,357 4,589 905 6,800
Ratio of earnings to fixed
charges (3)........................... 0.68x 0.58x 5.21x 15.00x
Deficit of earnings to fixed charges.... (2,232) (2,541) -- --
BALANCE SHEET DATA: (AT PERIOD END)
Working capital (deficiency)............ (45,804) (42,268) 6,249 4,134
Total assets............................ 62,950 61,779 18,291 19,756
Total debt.............................. -- -- 2,976 23,365
Stockholders' equity.................... 6,713 8,033 17,831 38,103
- ------------------------
(1) During the year ended December 31, 1994 and 1993, JTM was a subsidiary of
Union Pacific and was not allocated any income taxes.
(2) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. EBITDA should not be considered as an
alternative to net income or any other GAAP measure of performance as an
indicator of the Company's performance or to cash flows provided by
operating, investing and financing activities as an indicator of cash flows
or a measure of liquidity. Management believes that EBITDA is a useful
adjunct to net income and other measurements under GAAP in evaluating the
Company's ability to service its debt and is a conventionally used financial
indicator. However, due to possible inconsistencies in the method of
calculating EBITDA, the EBITDA measures presented may not be comparable to
other similarly titled measures of other companies.
(3) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and that
portion of rental expense which is representative of the interest factor in
these rentals.
(4) JTM is a guarantor of the ISG Bridge Note and as such the December 31, 1997
working capital deficit reflects push-down accounting treatment of the $29.0
million ISG Bridge Note, which was repaid in full with a portion of the
proceeds from the Offering.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF JTM, THE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF JTM, THE PRO
FORMA CONDENSED COMBINED FINANCIAL INFORMATION AND THE OTHER FINANCIAL
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
GENERAL
The combination of JTM, Pozzolanic, PPA, the U.S. Ash Group and Fly Ash
Products has created the largest company managing CCPs in North America. In
addition, JTM expects to achieve cost savings and incremental profitability
through the integration of administration, purchasing, insurance, marketing and
other operations. JTM will operate the existing businesses on a combined basis
under a new capital structure. See "Capitalization" and "Pro Forma Condensed
Combined Financial Information." Accordingly, the financial condition and
results of operations of JTM after the Acquisitions is not directly comparable
to the historical financial conditions or results of operations of JTM or the
acquired companies, either individually or on a combined basis. See "Notes to
Unaudited Pro Forma Condensed Combined Financial Information."
RESULTS OF OPERATIONS
JTM generates revenues from marketing products to its customers and
providing materials management services to its clients. The services provided by
JTM consist primarily of on-site disposal of CCPs and other related industrial
materials, and include general contracting work utilizing surplus equipment at
nearby sites. JTM records sales upon shipment of products to its customers, in
the case of its marketing activities, and upon performance of services, in the
case of management services.
The following table presents certain statements of historical operations
data as a percentage of sales for the periods indicated and should be read in
conjunction with the other financial information of JTM contained elsewhere in
this Prospectus.
2 1/2MONTHS 9 1/2MONTHS
6 MONTHS ENDED ENDED ENDED 12 MONTHS ENDED
DECEMBER OCTOBER
JUNE 30, 31, 31, DECEMBER 31,
------------------ ----------- ---------- ------------------
1998 1997 1997 1997 1996 1995
------- ------- ----------- ---------- ------- -------
Sales from marketing activities (1)..... 68.5% 47.2% 55.8% 49.9% 40.6% 39.6%
Sales from services..................... 31.5 52.8 44.2 50.1 59.4 60.4
------- ------- ----- ----- ------- -------
------- ------- ----- ----- ------- -------
Sales................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales from marketing activities,
excluding depreciation 45.3 38.5 38.5 40.4 35.6 30.0
Cost of sales from services, excluding
depreciation 24.7 41.5 35.6 39.0 47.5 49.2
Depreciation and amortization........... 7.7 4.1 7.2 10.3 3.6 3.5
Selling, general and administrative
expenses.............................. 10.5 8.6 9.9 7.1 9.0 14.9
------- ------- ----- ----- ------- -------
Income from operations.................. 11.8 7.3 8.8 3.3 4.2 2.4
Interest expense........................ 7.5 7.2 5.0 8.4 7.7 6.3
------- ------- ----- ----- ------- -------
Income (loss) before income taxes....... 4.4 0.1 4.1 (4.8) (3.5) (3.9)
Income tax benefit (expense)............ (2.6) 0.6 (2.0) (1.2) 0.6 0.7
Net income (loss)....................... 1.8% (0.4)% 2.1% (6.0)% (3.0)% (3.2)%
- ------------------------
(1) Includes revenues allocated by JTM to transportation of products to its
customers.
28
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
SALES. Sales were $46.1 million in the first six months of 1998,
representing an increase of $15.1 million or 48.7%, as compared to sales of
$31.0 million in the first six months of 1997. Sales from marketing activities
increased to $31.6 million in the first six months of 1998 from $14.7 million in
the first six months of 1997, representing an increase of $16.9 million or
115.0%, as compared to sales from services which decreased to $14.5 million in
the first six months of 1998 from $16.4 million in the first six months of 1997,
representing a decrease of $1.9 million of 11.6%. The increase in sales from
marketing activities is due primarily to the inclusion of sales of the newly
acquired companies (whose revenues are earned substantially from marketing
activities) since their respective dates of acquisition. The decrease in sales
from services reflects an increase in the percentage of materials managed that
were marketed by JTM instead of being landfilled.
COST OF SALES FROM MARKETING ACTIVITIES, EXCLUDING DEPRECIATION. Cost of
sales from marketing activities, excluding depreciation, was $20.9 million in
the first six months of 1998, representing an increase of $8.9 million or 74.2%,
as compared to cost of sales from marketing activities, excluding depreciation,
of $12.0 million in the first six months of 1997. This increase is due primarily
to the inclusion of cost of sales of the newly acquired companies (whose
revenues are earned substantially from marketing activities) since their
respective dates of acquisition. As a percentage of sales from marketing
activities, cost of sales from marketing activities, excluding depreciation,
decreased to 66.1% in the first six months of 1998 from 81.6% in the first six
months of 1997. This improvement in margins was primarily due to a change in
product mix. During the first six months of 1997, substantial sales of low
margin product were made to JTM's former parent. These sales were replaced with
sales of higher margin product to third parties in the first six months of 1998,
resulting in improved margins.
COST OF SALES FROM SERVICES, EXCLUDING DEPRECIATION. Cost of sales from
services, excluding depreciation, was $11.4 million in the first six months of
1998, representing a decrease of $1.5 million or 11.4%, as compared to cost of
sales from services, excluding depreciation, of $12.9 million in the first six
months of 1997. This decrease is due to the decrease in sales from services
during the same time periods. As a percentage of sales from services, cost of
sales from services, excluding depreciation, remained nearly constant at 78.4%
in the first six months of 1998 and 78.5% in the first six months of 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $3.6
million in the first six months of 1998, representing an increase of $2.3
million or 181.0%, as compared to depreciation and amortization of $1.3 million
in the first six months of 1997. This increase resulted primarily from increased
goodwill due to the JTM Acquisition and the Acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses were $4.8 million in the first six months of
1998, representing an increase of $2.2 million or 81.2%, as compared to SG&A
expenses of $2.7 million in the first six months of 1997. As a percentage of
sales, SG&A expenses increased to 10.5% in the first six months of 1998 from
8.6% in the first six months of 1997. This increase in SG&A expenses reflects
incremental SG&A costs resulting from the Acquisitions and an increase in
management incentive compensation.
INTEREST EXPENSE. Interest expense increased to $3.5 million in the first
six months of 1998 from $2.2 million in the first six months of 1997, primarily
as a result of an increase in JTM's outstanding indebtedness during the first
two quarters of 1998.
INCOME TAX BENEFIT (EXPENSE). Income tax expense was $1.2 million in the
first six months of 1998, representing an increase of $1 million, as compared to
an income tax expense of $0.2 million in the first six months of 1997. This
increase reflects an increase in JTM's taxable income in the first six months of
1998 resulting from increased sales.
29
NET INCOME (LOSS). As a result of the factors discussed above, net income
increased to $849,028 in the first six months of 1998 from a net loss of
$128,075 in the first six months of 1997.
2 1/2 MONTHS ENDED DECEMBER 31, 1997 AND 9 1/2 MONTHS ENDED OCTOBER 13, 1997
COMPARED TO FISCAL YEAR 1996
SALES.
Sales were $12.6 million, $51.3 million and $62.8 million in the 2 1/2
months ended December 31, 1997, 9 1/2 months ended October 13, 1997 and fiscal
year 1996, respectively, resulting in average monthly sales of $5.0 million,
$5.4 million and $5.2 million for the respective periods. The change in the
average monthly sales between the three periods is due primarily to the
seasonality of the industry. Sales peak in the second and third quarters,
trailing off in the fourth and first quarters. See "Seasonality of Business."
Assuming JTM was acquired by ISG on January 1, 1997, pro forma sales would have
been $63.9 million for fiscal year 1997, resulting in relatively constant sales
when compared to $62.8 million for fiscal year 1996. There was an increase of
$7.2 million in sales from marketing activities (from $25.5 million in 1996 to
pro forma $32.7 million in 1997), which was partially offset by a decrease of
$6.1 million in sales from services (from $37.3 million in 1996 to pro forma
$31.2 million in 1997). The increase in sales from marketing activities reflects
an increase in the percentage of materials managed that was marketed by JTM, as
well as an increase in sales of value-added products, such as carpet backing and
roofing shingles. The decrease in sales from services reflects an increase in
the percentage of materials managed that was marketed by JTM instead of being
landfilled.
COST OF SALES FROM MARKETING ACTIVITIES, EXCLUDING DEPRECIATION. Cost of
sales from marketing activities, excluding depreciation, was $4.9 million, $20.7
million, and $22.4 million in the 2 1/2 months ended December 31, 1997, 9 1/2
months ended October 13, 1997 and fiscal year 1996, respectively, resulting in
cost of sales from marketing activities, excluding depreciation, as a percentage
of sales from marketing activities of 68.9%, 80.8%, and 87.8% for the respective
periods. Assuming JTM was acquired by ISG on January 1, 1997, pro forma cost of
sales from marketing activities, excluding depreciation, would have been $25.6
or 78.3% of sales from marketing activities for fiscal year 1997. The
improvement in margins is due to two factors: (1) change in product mix from low
margin product sold to the former parent in the pre-JTM Acquisition period as
opposed to higher margin product sold to third parties in the post-JTM
Acquisition period, and (2) a $1.0 million settlement of a lawsuit charged to
cost of sales in 1996. See Note 6 to the Consolidated Financial Statements of
JTM for 1996.
COST OF SALES FROM SERVICES, EXCLUDING DEPRECIATION. Cost of sales from
services, excluding depreciation, was $4.5 million, $20.0 million, and $29.9
million in the 2 1/2 months ended December 31, 1997, 9 1/2 months ended October
13, 1997 and fiscal year 1996, respectively, resulting in a relatively constant
cost of sales from services, excluding depreciation, as a percentage of sales
from services of 80.6%, 77.9%, and 80.0% for the respective periods. Assuming
JTM was acquired by ISG on January 1, 1997, pro forma cost of sales from
services, excluding depreciation, would have been $24.5 or 78.4% of sales from
services for fiscal year 1997, resulting in a relatively constant cost of sales
from services as a percentage of sales when compared to 80.0% in fiscal year
1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $0.9
million, $5.3 million, and $2.3 million in the 2 1/2 months ended December 31,
1997, 9 1/2 months ended October 13, 1997 and fiscal year 1996, respectively,
resulting in average monthly depreciation and amortization of $0.4 million, $0.6
million, and $0.2 million for the respective periods. Depreciation and
amortization for the 9 1/2 months ended October 13, 1997 includes a $3.3 million
goodwill write-off by JTM's former parent in connection with the sale of JTM to
ISG. Excluding this write-off, average monthly depreciation and amortization for
this period would have been consistent with fiscal year 1996 at $0.2 million.
Assuming JTM was acquired by ISG on January 1, 1997, pro forma depreciation and
amortization would have been $4.2 million for fiscal year 1997, a $1.9 million
or 82.6% increase over fiscal year 1996. This increase, as well as the increase
30
in average monthly depreciation and amortization for the 2 1/2 months ended
December 31, 1997 as compared to the 9 1/2 months ended October 13, 1997, before
the goodwill write-off discussed above, is due primarily to the accelerated
amortization rate of intangible assets by JTM after its acquisition by ISG.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $1.3
million, $3.6 million and $5.7 million in the 2 1/2 months ended December 31,
1997, 9 1/2 months ended October 13, 1997 and fiscal year 1996, respectively,
resulting in SG&A expenses as a percentage of sales of 9.9%, 7.1% and 9.0% for
the respective periods. Assuming JTM was acquired by ISG on January 1, 1997, pro
forma SG&A expenses would have been $4.7 million for fiscal year 1997. The
decrease from fiscal year 1996 to the 9 1/2 months ended October 13, 1997 and
pro forma fiscal year 1997 reflects a decrease in management fees charged by
Laidlaw, JTM's former parent, from $2.7 million in fiscal year 1996 to $0.7
million in the 9 1/2 months ended October 13, 1997. Prior to the JTM
Acquisition, management fees were allocated to JTM by Laidlaw based upon JTM's
share of Laidlaw's consolidated revenue. The allocated charges may not have been
indicative of the expenses JTM would have incurred if Laidlaw had not provided
the services. The increase in SG&A expenses as a percentage of sales in the
2 1/2 months ended December 31, 1997 is due primarily to an increase in
management incentive compensation after the JTM Acquisition.
INTEREST EXPENSE. Interest expense was $0.6 million, $4.2 million and $4.8
million in the 2 1/2 months ended December 31, 1997, 9 1/2 months ended October
13, 1997 and fiscal year 1996, respectively, resulting in average monthly
interest expense of $0.2 million, $0.4 million and $0.4 million for the
respective periods. Assuming JTM was acquired by ISG on January 1, 1997, pro
forma interest expense would have been $2.9 million for fiscal year 1997. The
decrease in interest expense in the 2 1/2 months ended December 31, 1997 and pro
forma fiscal year 1997 as compared to the 9 1/2 months ended October 13, 1997
and fiscal year 1996 is due primarily to a decrease in JTM's outstanding
indebtedness resulting from the elimination of the intercompany indebtedness to
Laidlaw upon acquisition of JTM by ISG.
INCOME TAX BENEFIT (EXPENSE). Income tax expense was $252,000 and $612,000
in the 2 1/2 months ended December 31, 1997, and 9 1/2 months ended October 13,
1997 compared to an income tax benefit of $362,000 in fiscal year 1996,
resulting in effective tax rates of 48.8%, (24.7%) and 16.2%. Assuming JTM was
acquired by ISG on January 1, 1997, pro forma income tax expense would have been
$1,024,000 for fiscal year 1997. The increase in income taxes from fiscal year
1996 to the 9 1/2 months ended October 13, 1997 and pro forma fiscal year 1997
reflects increases in JTM's taxable income, primarily from obtaining higher
margins and SG&A expense reductions. The decrease in the effective tax rate from
fiscal year 1996 to the 9 1/2 months ended October 13, 1997 and the increase in
the effective tax rate from the 9 1/2 months ended October 13, 1997 to the 2 1/2
months ended December 31, 1998 is due primarily to the large goodwill write-off
in the 9 1/2 months ended October 13, 1997 discussed above which was not
deductible for tax purposes.
NET INCOME (LOSS). As a result of the factors discussed above, net income
increased to $265,000 in the 2 1/2 months ended December 31, 1997 as compared to
net losses of $3.0 million and $1.8 million in the 9 1/2 months ended October
13, 1997 and fiscal year 1996, respectively.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
SALES. Sales were $62.8 million in 1996, representing a decrease of $2.2
million or 3.3%, as compared to sales of $65.0 million in 1995. This decrease
was primarily due to the renegotiation of JTM's largest contract from a highly
profitable contract in 1995 to a pricing more consistent with the market in
1996.
COST OF SALES FROM MARKETING ACTIVITIES, EXCLUDING DEPRECIATION. Cost of
sales from marketing activities, excluding depreciation, was $22.4 million in
1996, representing an increase of $2.9 million or 14.9%, as compared to $19.5
million in 1995. As a percentage of sales from marketing activities, cost of
sales from marketing activities, excluding depreciation, increased to 87.8% in
1996 from 75.9% in 1995. This decrease in margins was due primarily to two
factors: (1) a change in product mix resulting in
31
increased sales of low margin product to JTM's former parent, and (2) a $1.0
million settlement of a lawsuit charged to cost of sales in 1996.
COST OF SALES FROM SERVICES, EXCLUDING DEPRECIATION. Cost of sales from
services, excluding depreciation, was $29.9 million in 1996, representing a
decrease of $2.1 million or 6.5%, as compared to $32.0 million in 1995. As a
percentage of sales from services, cost of sales from services, excluding
depreciation, remained relatively constant at 80.0% in 1996 and 81.4% in 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization remained
constant in 1995 and 1996 at $2.3 million.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $5.7
million in 1996, representing a decrease of $4.0 million or 41.2%, as compared
to SG&A expenses of $9.7 million in 1995. As a percentage of sales, SG&A
expenses decreased from 14.9% in 1995 to 9.0% in 1996. This decrease in SG&A
expenses reflects a $3.5 million decrease in management fees charged by Laidlaw,
JTM's former parent, from $5.8 million in 1995 to $2.3 million in 1996, and a
decrease in management incentive compensation. Management fees were allocated to
JTM by Laidlaw based upon JTM's share of Laidlaw's consolidated revenue. The
allocated charges may not have been indicative of the expenses the Company would
have incurred if Laidlaw had not provided the services.
INTEREST EXPENSE. Interest expense increased from $4.1 million in 1995 to
$4.9 million in 1996 due to a $2.8 million increase in intercompany borrowings
from JTM's former parent.
INCOME TAX BENEFIT (EXPENSE). Income tax benefit was $362,000 in 1996,
representing a decrease of $83,000, as compared to a tax benefit of $445,000 in
1995. The effective tax rate was 16.2% in 1996 and 17.5% in 1995.
NET INCOME (LOSS). As a result of the factors discussed above, net loss
decreased to $1.9 million in 1996 from a net loss of $2.1 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
On April 22, 1998, JTM issued $100.0 million principal amount of Restricted
Notes. The funds were used to complete the U.S. Ash Group Acquisition and Fly
Ash Products Acquisition as well as to reduce existing indebtedness. The entire
balance of the Restricted Notes is due in 2008. See "Description of the Notes."
Since June 30, 1998, there are no known trends or any known demands,
commitments, events or uncertainties that will, or that are reasonably likely
to, result in a material increase or decrease of the Company's liquidity.
JTM intends to use cash flow from operations and funds available under the
Secured Credit Facility to meet its working capital requirements, debt service
obligations and capital expenditure requirements. Approximately $27.0 million of
the Secured Credit Facility is currently available.
The Secured Credit Facility will mature on September 4, 2003. Borrowings
under the Secured Credit Facility will bear interest at rates based upon LIBOR
or Base Rate plus an applicable margin. The Secured Credit Facility is
guaranteed by all existing and future subsidiaries of JTM and is secured by
substantially all of the assets of JTM and its subsidiaries. See "Risk
Factors--Substantial Leverage" and "Description of Secured Credit Facility." JTM
does not currently have any outstanding letters of credit.
During the period from January 1, 1997 to October 13, 1997, capital
expenditures amounted to $681,000. From October 14, 1997 to December 31, 1997,
capital expenditures amounted to $19,000 for a pro forma fiscal year 1997 total
of $700,000. This compares to capital expenditures of $4.4 million in 1996 and
$4.6 million in 1995. This substantial decrease in capital expenditures in 1997
was due to the then pending sale of JTM by its former parent. Capital
expenditures during the years 1995 to 1997 was primarily
32
used to replace existing equipment and to install new equipment in some plants.
Prior to October 14, 1997, liquidity and capital resources were provided by cash
flow from operations and by JTM's former parent.
JTM intends to make capital expenditures over the next several years
principally to construct storage, loading, and processing facilities for CCPs
and to replace existing capital equipment. JTM anticipates that approximately
$6.0 million of capital expenditures will be made in fiscal year 1998. For the
six months ended June 30, 1998, capital expenditures amounted to $2.2 million
which consisted primarily of the replacement of equipment and the construction
of additional storage facilities. There are no material commitments for capital
expenditures as of June 30, 1998. Capital expenditures made in the ordinary
course of business will be funded by cash flow from operations and borrowings
under the Secured Credit Facility. See "Business--Business Strategy."
JTM has implemented measures to improve economies of scale and operating
efficiencies, and to achieve cost savings, in the operation of the businesses of
JTM and the acquired companies. JTM has and anticipates that it will continue to
incur certain restructuring charges related to the integration of the operations
of the acquired companies in 1998. These charges are estimated to total
approximately $500,000, of which $300,000 relate to cash items. Such unusual
charges include costs related to integration of management information systems,
employee relocations and severance obligations. Management expects these
nonrecurring costs to be initially funded through cash flow from operations and
borrowings under the Secured Credit Facility.
JTM is a wholly owned subsidiary of ISG. ISG is a holding company and
currently has no other source of cash other than the distributions from JTM.
While the agreements governing JTM's indebtedness restrict the amount of such
distributions, they do not prohibit such payments. The Indenture permits JTM to
make distributions to ISG to pay certain ordinary cash expenses and, beginning
in 2003, to make certain additional distributions to ISG to be utilized by ISG
to service the ISG PIK Notes. The ISG PIK Notes bear interest at 9% per annum
(which may be paid in kind) and mature in 2005. The ISG PIK Notes are not direct
or indirect obligations of JTM or any of its subsidiaries. See "Description of
Notes."
JTM anticipates that its principal use of cash will be for working capital
requirements, debt service requirements, capital expenditures and expenditures
related to the acquisition and integration of acquired businesses. Based upon
current and anticipated levels of operations, JTM believes that its cash flow
from operations, together with amounts available under the Secured Credit
Facility, will be adequate to meet its anticipated requirements for working
capital, capital expenditures and interest payments for the next several years.
There can be no assurance, however, that JTM's business will continue to
generate sufficient cash flow from operations in the future to service its debt,
and JTM may be required to refinance all or a portion of its existing debt or to
obtain additional financing. These increased borrowings may result in higher
interest payments. There can be no assurance that any such refinancing would be
possible or that any additional financing could be obtained. The inability to
obtain additional financing could have a material adverse effect on JTM.
SEASONALITY OF BUSINESS
JTM's business is subject to a pattern of minor seasonal fluctuation. JTM's
need for working capital accelerates moderately during the middle of the year
and, accordingly, total debt levels tend to peak in the second and third
quarters, falling off again in the fourth quarter of the year. The amount of
JTM's sales generated during the middle of the year generally depends upon a
number of factors, including the level of road and other construction using
concrete, weather conditions affecting the level of construction, general
economic conditions, and other factors beyond JTM's control. The businesses of
Pozzolanic, PPA, the U.S. Ash Group and Fly Ash Products are similarly seasonal,
experiencing stronger second and third quarters than first and fourth quarters.
33
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Restricted Notes were issued and sold by the Company to the Initial
Purchasers on April 22, 1998 pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Restricted Notes in reliance on Rule 144A,
Regulation S and other exemptions from registration under the Securities Act.
The Company and the Initial Purchasers also entered into the Registration Rights
Agreement pursuant to which the Company agreed, with respect to the Restricted
Notes, to (i) cause to be filed, by June 6, 1998, the Exchange Offer
Registration Statement with the Commission under the Securities Act concerning
the Exchange Offer, and (ii) (a) to cause such registration statement to be
declared effective by the Commission by September 4, 1998 and (b) to cause the
Exchange Offer to remain open for a period of not less than 30 days (or longer
if required by applicable law). The Exchange Offer is intended to satisfy the
Company's exchange offer obligations under the Registration Rights Agreement.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Restricted Notes, where such Restricted Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING RESTRICTED NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Restricted Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1998; provided, however, that if the Company, in its
sole discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, an aggregate principal amount of $100.0
million in Restricted Notes is outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about June , 1998, to all
holders of Restricted Notes known to the Company. The Company's obligation to
accept Restricted Notes for exchange pursuant to the Exchange Offer is subject
to certain conditions as set forth under "--Certain Conditions to the Exchange
Offer."
Restricted Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Restricted Notes, by giving oral or
written notice of such extension to the holders thereof as described below.
During any such extension, all Restricted Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by the Company.
The Company also expressly reserves the right to maintain an offer to exchange
Restricted Notes not tendered on or prior to the Expiration Date pursuant to the
Exchange Offer and accept for exchange any or all Restricted Notes properly
tendered on or prior to the Expiration Date in accordance with the terms of the
Exchange Offer and the Registration Rights Agreement. Any Restricted Notes not
accepted for exchange for any reason will be returned without expense to the
tendering holder thereof as soon as practicable after the expiration or
termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Restricted Notes not theretofore
accepted for exchange, upon the occurrence of any of the events specified under
"--Certain Conditions to the Exchange Offer." The Company will give oral or
written notice of any extension, amendment, non-acceptance or termination to the
holders of the
34
Restricted Notes as promptly as practicable, such notice in the case of any
extension to be issued by means of a press release or other public announcement
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
PROCEDURES FOR TENDERING RESTRICTED NOTES
The tender to the Company of Restricted Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Restricted Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to the Exchange Agent, at the
address set forth below under "--Exchange Agent" on or prior to the Expiration
Date. In addition, either (i) certificates for such Restricted Notes must be
received by the Exchange Agent along with the Letter of Transmittal, or (ii) a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Restricted Notes, if such procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date. THE METHOD OF
DELIVERY OF RESTRICTED NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR RESTRICTED NOTES SHOULD BE
SENT TO THE COMPANY. FOR INSTRUCTIONS ON TENDERING RESTRICTED NOTES HELD THROUGH
POSITIONS AT CEDEL OR EUROCLEAR, SEE "--RESTRICTED NOTES HELD THROUGH CEDEL OR
EUROCLEAR."
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Restricted Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Restricted Notes
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined herein). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guarantees must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Restricted Notes are registered in the name of a person other
than a signer of the Letter of Transmittal, the Restricted Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Restricted Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Restricted Notes not properly tendered or to not
accept any particular Restricted Notes which acceptance might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Restricted Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Restricted Notes in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer as to any particular
Restricted Notes either before or after the Expiration Date (including the
Letter of Transmittal and the instructions thereto)
35
by the Company shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Restricted Notes for
exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Restricted Notes, for exchange, nor shall any of them
incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Restricted Notes, such Restricted Notes must be
endorsed or accompanied by a bond power, in either case signed exactly as the
name or names of the registered holder or holders that appear on the Restricted
Notes.
If the Letter of Transmittal, any Restricted Notes, bond powers or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, and that neither the
holder nor such other person has any arrangement or understanding with any
person to participate in the distribution of the Exchange Notes. In the case of
a holder that is not a broker-dealer, or is a broker-dealer but will not receive
Exchange Notes for its own account in exchange for Restricted Notes, each such
holder, by tendering, will also represent to the Company that such holder is not
engaged in or intends to engage in, a distribution of the Exchange Notes. If any
holder or any such other person is an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company, or is engaged in or intends to engage in or
has an arrangement or understanding with any person to participate in a
distribution of such Exchange Notes to be acquired pursuant to the Exchange
Offer, such holder or any such other person (i) cannot rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Restricted Notes, where such
Restricted Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution." The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Restricted Notes and whose Restricted Notes
are not immediately available or who cannot deliver their Restricted Notes or
any other documents required by the Letter of Transmittal to the Exchange Agent
prior to 5:00 p.m., New York City time, on the Expiration Date (or complete the
procedure for book-entry transfer on a timely basis), may tender their
Restricted Notes according to the guaranteed delivery procedures set forth in
the Letter of Transmittal. Pursuant to such procedures: (i) such tender must be
made by or through an Eligible Institution and a Notice of Guaranteed Delivery
(as defined in the Letter of Transmittal) must be signed by such holder, (ii) on
or prior to the Expiration Date, the Exchange Agent must have received from the
holder and the Eligible Institution a properly completed and duty executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number or
numbers of the tendered Restricted Notes, and the principal amount of tendered
Restricted Notes, stating that the tender is being made thereby and guaranteeing
that, within five business days after the date of delivery of the Notice of
Guaranteed Delivery, the tendered Restricted Notes, a duly executed Letter of
Transmittal and any other required documents will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) such properly completed and
executed documents required by the Letter of Transmittal and the
36
tendered Restricted Notes in proper form for transfer (or confirmation of a
book-entry transfer of such Restricted Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility) must be received by the Exchange Agent
within five business days after the Expiration Date. Any holder who wishes to
tender Restricted Notes pursuant to the guaranteed delivery procedures described
above must ensure that the Exchange Agent receives the Notice of Guaranteed
Delivery and a Letter of Transmittal relating to such Restricted Notes prior to
5:00 p.m., New York City time, on the Expiration Date.
ACCEPTANCE OF RESTRICTED NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Restricted
Notes properly tendered and will issue the Exchange Notes promptly after
acceptance of the Restricted Notes. See "--Certain Conditions to the Exchange
Offer." For purposes of the Exchange Offer, the Company shall be deemed to have
accepted properly tendered Restricted Notes for exchange when, as and if the
Company has given oral or written notice thereof to the Exchange Agent, with
written confirmation of any oral notice to be given promptly thereafter.
For each Restricted Note accepted for exchange, the holder of such
Restricted Note will receive an Exchange Note having a principal amount equal to
that of the surrendered Restricted Note. Restricted Notes accepted for exchange
will cease to accrue interest from and after the date of consummation of the
Exchange Offer. Holders of Restricted Notes whose Restricted Notes are accepted
for exchange will not receive any payment in respect of accrued interest on such
Restricted Notes otherwise payable on any interest payment date the record date
for which occurs on or after consummation of the Exchange Offer. Interest on the
Exchange Notes will accrue from the last interest payment date on which interest
was paid on the Restricted Notes surrendered in exchange therefor or, if no
interest has been paid on the Restricted Notes, from the date of the original
issue of the Restricted Notes. If the Exchange Offer is not consummated by
October 19, 1998, JTM will pay Liquidated Damages to the holders of the
Restricted Notes as described under "Description of Notes--Registration Rights;
Liquidated Damages."
In all cases, issuance of Exchange Notes for Restricted Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Restricted Notes
or a timely Book-Entry Confirmation of such Restricted Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Restricted Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Restricted Notes are submitted for a
greater principal amount than the holder desired to exchange, such unaccepted or
non-exchanged Restricted Notes will be returned without expense to the tendering
holder thereof (or, in the case of Restricted Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry procedures described below, such non-exchanged
Restricted Notes will be credited to an account maintained with such Book-Entry
Transfer Facility) as soon as practicable after the expiration or termination of
the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Restricted Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Restricted Notes by causing
the Book-Entry Transfer Facility to transfer such Restricted Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Restricted Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any
37
other required documents, must, in any case, be transmitted to and received by
the Exchange Agent at one of the addresses set forth below under "--Exchange
Agent" on or prior to the Expiration Date.
RESTRICTED NOTES HELD THROUGH CEDEL OR EUROCLEAR
In case of Restricted Notes held through Cedel or Euroclear, holders of such
Restricted Notes wishing to tender such Restricted Notes for exchange pursuant
to the Exchange Offer must send instructions to Cedel or Euroclear, as the case
may be, to block the Restricted Notes in such holder's account at Cedel or
Euroclear. In addition, such holder of Restricted Notes must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal to the Exchange Agent.
WITHDRAWAL RIGHTS
Tenders of Restricted Notes may be withdrawn at any time prior to the
Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at the address set forth below
under "--Exchange Agent." Any such notice of withdrawal must specify the name of
the person having tendered the Restricted Notes to be withdrawn, identify the
Restricted Notes to be withdrawn (including the principal amount of such
Restricted Notes), and (where certificates for Restricted Notes have been
transmitted) specify the name in which such Restricted Notes are registered, if
different from that of the withdrawing holder. If certificates for Restricted
Notes have been delivered or otherwise identified to the Exchange Agent, then,
prior to the release of such certificates the withdrawing holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Restricted Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Restricted
Notes and otherwise comply with the procedures of such facility. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Restricted Notes so withdrawn will be deemed not
to have been validly tendered for exchange for purposes of the Exchange Offer.
Any Restricted Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of Restricted Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such Restricted Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility) as soon as practicable after withdrawal, rejection of tender or
expiration or termination of the Exchange Offer. Properly withdrawn Restricted
Notes may be retendered by following one of the procedures described under
"--Procedures for Tendering Restricted Notes" above at any time on or prior to
the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Restricted Notes and may terminate, extend or amend the Exchange Offer,
if at any time before the acceptance of such Restricted Notes for exchange or
the exchange of the Exchange Notes for such Restricted Notes, any of the
following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order of decree shall have been issued
by, any court or governmental agency or other governmental regulatory or
administrative agency or commission: (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as a
result thereof, or (ii) resulting in a material
38
delay in the ability of the Company to accept for exchange or exchange some
or all of the Restricted Notes pursuant to the Exchange Offer; or any
statute, rule, regulation, order or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange Offer
or any of the transactions contemplated by the Exchange Offer by any
government or governmental authority, or any action shall have been taken,
proposed or threatened, by any government, governmental authority, agency or
court, that in the reasonable judgment of the Company might directly or
indirectly result in any of the consequences referred to in clauses (i) or
(ii) above or, in the reasonable judgment of the Company, might result in
the holders of Exchange Notes having obligations with respect to resales and
transfers of Exchange Notes which are greater than those described in the
interpretations of the Commission referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any United States
national securities exchange or in the over-the-counter market, (ii) any
limitation by any governmental agency or authority which may adversely
affect the ability of the Company to complete the transactions contemplated
by the Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving the
United States, or, in the case of any of the foregoing existing at the time
of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company taken as a whole that, in the reasonable judgment
of the Company, is or may be adverse to the Company, or the Company shall
have become aware of facts that, in the reasonable judgment of the Company,
have or may have adverse significance with respect to the value of the
Restricted Notes or the Exchange Notes;
which in the reasonable judgment of the Company, in any case, and regardless of
the circumstances (including any action by the Company) giving rise to any event
described above, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Restricted Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Restricted Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939 (the "Trust Indenture Act").
39
EXCHANGE AGENT
U.S. Bank National Association has been appointed as the Exchange Agent for
the Exchange Offer. All executed Letters of Transmittal should be directed to
the Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
BY FIRST CLASS MAIL:
U.S. Bank National Association
P.O. Box 64485
St. Paul, MN 55164-9549
BY REGISTERED, CERTIFIED OR OVERNIGHT MAIL:
U.S. Bank National Association
Attn: Specialized Finance
180 East Fifth Street
St. Paul, MN 55101
Fax: 612-244-1537
Tel: 612-244-1197
Attn: Kevin Gorman
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer and paid by the Company are estimated in the aggregate to be approximately
$[ ].
TRANSFER TAXES
Holders who tender their Restricted Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that if holders
instruct the Company to deliver to, register or issue Exchange Notes in the name
of, or request that Restricted Notes not tendered or not accepted in the
Exchange Offer be delivered to, registered or issued in the name of, any person
other than the registered holder, or if tendered Restricted Notes are registered
in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
transfer of Restricted Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other person) will be payable by the tendering holder.
CONSEQUENCES OF EXCHANGING RESTRICTED NOTES
Holders of Restricted Notes who do not exchange their Restricted Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
provisions in the Indenture regarding transfer and exchange of the Restricted
Notes and the restrictions on transfer of such Restricted Notes as set forth in
the legend thereon as a consequence of the issuance of the Restricted Notes
pursuant to an exemption from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Restricted Notes may not be offered or sold, unless
registered under
40
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register Restricted Notes
under the Securities Act. See "Description of Notes--Registration Rights;
Liquidated Damages." Based on interpretations by the staff of the Commission, as
set forth in no-action letters issued to third parties, the Company believes
that Exchange Notes issued pursuant to the Exchange Offer in exchange for
Restricted Notes may be offered for resale, resold or otherwise transferred by
holders thereof (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. However, the Company does not intend to request the Commission
to consider, and the Commission has not considered, the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each holder, other than a broker-dealer,
must acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes and has no arrangement or understanding to
participate in a distribution of Exchange Notes. If any holder is an affiliate
of the Company, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, such holder (i) cannot rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Restricted Notes, where such
Restricted Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution." In addition, to comply with state securities laws,
the Exchange Notes may not be offered or sold in any state unless they have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with. The offer and sale of the
Exchange Notes to "qualified institutional buyers" (as such term is defined
under Rule 144A of the Securities Act) is generally exempt from registration or
qualification under the state securities laws. The Company has agreed, pursuant
to the Registration Rights Agreement, to register or qualify the Exchange Notes
for offer or sale under the Blue Sky Laws of such jurisdictions as are necessary
to permit the consummation of the Exchange Offer.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OF NOTES
The exchange of the Restricted Notes for the Exchange Notes pursuant to the
Exchange Offer will not be treated as an exchange or other taxable event to
United States Holders for United States federal income tax purposes.
Consequently, for United States federal income tax purposes, no gain or loss
will be realized by a United States Holder upon receipt of an Exchange Note; the
holding period of the Exchange Note will include the holding period of the
Restricted Note exchanged therefor and the adjusted tax basis of the Exchange
Note will be the same as the adjusted tax basis of the Restricted Note exchanged
therefor immediately before the exchange.
As used in the preceding paragraph, a "United States Holder" means a holder
that is a citizen or resident of the United States, a corporation created or
organized in or under the laws of the United States or any political subdivision
thereof or a person that otherwise is subject to United States federal income
tax on a net income basis in respect of the Notes. Determinations as to the
United States federal income tax consequences of the exchange of Notes were made
by the Company in consultation with its counsel.
41
BUSINESS
Based on management's knowledge of the industry and the Company's
competitors, the Company believes it is the largest manager and marketer of CCPs
in North America. CCPs are the residual materials created by coal-fired power
generation. The Company enters into long-term CCP management contracts,
primarily with coal-fired electric generating utilities. These utilities are
required to manage, or contract to manage, CCPs in accordance with state and
federal environmental regulations. In addition, the Company provides similar
materials management services for other industrial clients. The Company's
revenue is derived from two principal sources: (i) providing materials
management services to CCP producing utilities, such as American Electric Power
Company, Inc., AES Corporation, Duke Power Company, Entergy, Houston Industries,
Ohio Edison Company, PacifiCorp, The Southern Company and Texas Utilities
Company, and other industrial clients, such as CSX Transportation, Inc., Dupont,
Reynolds Metals Co. and Union Pacific Resources Company; and (ii) marketing
products derived from CCPs and related industrial materials to consumers of
building materials and construction related products. The Company believes it is
the most geographically diverse corporation dedicated to the management of CCPs,
managing approximately 9.5 million tons annually through 69 contracts in 26
states. On a pro forma basis, the Company's marketed tonnage represented
approximately 15% of the total industry CCP tonnage and 20% of the total fly ash
tonnage marketed during 1996, the year for which the most recent market data is
available. In 1997, on a pro forma basis, the Company marketed 4.6 million tons,
an increase of 18% over 1996. For the year ended December 31, 1997, the Company
had pro forma sales and EBITDA of $110.3 million and $20.5 million,
respectively.
In an effort to maximize the percentage of products marketed to end-users
and minimize the amount of materials landfilled, the Company's focused research
and development efforts have created value-added products such as
ALSIL-Registered Trademark- (a patented processed fly ash filler for the asphalt
shingle and carpet industries), Powerlite-Registered Trademark- (lightweight
aggregate for concrete block), Flexbase-TM- (road base material) and Peanut
Maker-Registered Trademark- (agricultural soil-enhancer). In 1997, products
marketed by the Company represented approximately 68% of its total revenues. The
Company markets CCP tonnage under management to the building materials and
construction related products industry to be used in engineering applications,
such as ready-mix concrete, lightweight aggregate, stabilized road bases,
flowable and structural fill, and roofing shingles. The Company's major
customers for its marketed products include LaFarge Corporation, CSR, Elk
Corporation of Texas and GS Roofing Products Company, Inc.
COMPETITIVE STRENGTHS
In order to sustain its position in the CCP management industry, the Company
relies on the following competitive strengths:
LEADING MARKET POSITION. The Company believes it is a party to more CCP
management contracts and manages more CCP tonnage than any of its competitors.
JTM has aggressively penetrated its service areas and has won contracts based on
its "one-stop" approach to CCP and other industrial materials management
services. This approach combines the Company's marketing, materials handling and
technological capabilities to lower the client's cost of managing CCPs and other
industrial materials in accordance with applicable state and federal
regulations. Consummation of the Initial Acquisitions and the Subsequent
Acquisitions provides a broader platform for the Company to market its one-stop
approach.
GEOGRAPHIC DIVERSIFICATION. The Company believes it is the only firm in the
CCP management industry with a national scope. This national scope provides the
Company with several significant competitive benefits, including mitigation of
the effects of regional economic cyclicality and weather patterns. In addition,
the Company's national scope and storage capabilities will create incremental
revenue through the ability to shift products among regions to meet market
demand while minimizing transportation costs.
42
VALUE-ADDED PRODUCTS AND SERVICES. The Company's focused new product
development efforts have broadened the end-use market for CCPs and other
recyclable industrial materials. The Company has successfully introduced new
patented or trademarked products made from previously non-marketable materials
through proprietary processes. These product development efforts have reduced
the materials management cost to the Company's clients and improved the
Company's revenue mix and margins.
STRONG CLIENT RELATIONSHIPS. At December 31, 1997, on a pro forma basis,
the Company had contractual relationships with seven of the top 13 electrical
utilities in the United States, based on total electricity revenues. The Company
has maintained long-term contracts with certain utilities since 1968, and, among
contracts with terms of five years or more, the Company's renewal or extension
rate has been in excess of 94% during the last five years. The Company's clients
rely on its marketing, materials handling and technological capabilities to
extend the useful life of their landfill sites by creatively managing and
marketing a broader range of CCPs than competitors.
EXPERIENCED MANAGEMENT TEAM. The Company's senior management team,
including R Steve Creamer, Raul A. Deju, J.I. Everest, II, Clinton W. Pike and
Danny L. Gray, has an average of over 18 years experience in CCP management and
related industries. The management team has a proven record of developing
innovative, value-added operations, maintaining strong client relationships and
integrating strategic, opportunistic acquisitions.
BUSINESS STRATEGY
Capitalizing on its competitive strengths, the Company intends to grow
revenues and cash flow by implementing a business strategy that consists of the
following key elements:
MAINTAIN AND EXPAND LONG-TERM CONTRACTUAL RELATIONSHIPS. The Company's core
business is based on long-term materials management contracts with power
producers and industrial clients. As of March 15, 1998, on a pro forma basis,
the Company had 69 materials management contracts, 30 of which generated more
than $1.0 million of annual revenues each. Typical contract terms are from five
to 15 years and the average weighted contract life remaining on these large
contracts is over seven years. The Company is focused on serving its current
client base and plans to aggressively target additional contract opportunities
to increase both tonnage under management and revenues.
INCREASE PRODUCT SALES AND APPLICATIONS. The Company has a three-fold
approach to increasing its product sales and applications. The Company intends
to: first, apply JTM's proprietary technology to the products of the newly
acquired companies, thus enhancing their existing product offerings with the
benefits of its research and development program; second, cross-market JTM's
patented products in the new geographical markets accessed through its strategic
acquisitions; and third, continue to develop new applications for CCPs and
related industrial materials.
PURSUE STRATEGIC ACQUISITIONS. The Company operates in a highly fragmented
industry that is undergoing a period of consolidation. The Company intends to
pursue selective acquisitions of companies which will complement its planned
geographic expansion or will provide certain operating efficiencies in areas the
Company currently serves.
INDUSTRY OVERVIEW
According to data compiled by the EIA, of the 1,996 electric generating
units operating in the United States in 1996, 1,128 were coal-fired and
represented approximately 55% of the total electricity generated, an increase
from approximately 50% in 1995. Coal is the largest indigenous fossil fuel
resource in the United States, with current U.S. annual coal production in
excess of one billion tons. Approximately 80% of the coal produced is for
electric power generation, and its use has grown by almost 25% over the last
decade. The combustion of coal provides cost-effective electricity generation,
but results in a high percentage of residual material, which serves as the "raw
material" for the CCP industry. The industry
43
manages these CCPs and related materials by developing end-use markets for
certain CCPs and providing storage and disposal services for the remainder of
such materials.
The primary CCPs managed by the Company are fly ash and bottom ash. Fly ash
is the fine residue and bottom ash is the heavier particles that result from the
combustion of coal. Utilities firing boilers with coal first pulverize the coal
and then blow the pulverized coal into a burning chamber where it immediately
ignites to heat the boiler tubes. The heavier bottom ash falls to the bottom of
the burning chamber while the lighter fly ash remains suspended in the exhaust
gases. Before leaving the exhaust stack, the fly ash particles are removed by an
electrostatic precipitator, bag house or other method. The bottom ash is
hydraulically conveyed to a collection area, while the fly ash is pneumatically
conveyed to a storage silo.
Fly ash is a pozzolan that, in the presence of water, will combine with an
activator (lime, portland cement or kiln dust) to produce a cement-like
material. It is this characteristic that allows fly ash to act as a
cost-competitive substitute for other more expensive cementitious building
materials. Concrete manufacturers can typically use fly ash as a substitute for
15% to 40% of their cement requirements, depending on the quality of the fly ash
and the proposed end-use application for the concrete. In addition to its cost
benefit, fly ash provides greater structural strength and durability in certain
construction applications, such as road construction. Bottom ash is utilized as
an aggregate in concrete block construction and road base construction.
According to the ACAA, of the approximately 100 million tons of CCPs that
were generated in the United States during 1996, fly ash accounted for
approximately 59%, bottom ash accounted for approximately 16% and flue gas
desulphurization waste ("scrubber sludge") and boiler slag accounted for
approximately 25%.
MATERIALS
CCPs and other industrial materials are used primarily to replace materials
that are manufactured or mined, such as portland cement, lime, agricultural
gypsum, fired lightweight aggregate, granite aggregate or limestone. The
Company's focus on CCP and related industrial materials development has also
created a variety of applications, such as fillers in asphalt shingles and
related products, that extend beyond the traditional uses of CCPs and related
industrial materials.
TRADITIONAL PRODUCTS AND APPLICATIONS
Traditional products are CCPs and related industrial materials which
generally require minimal processing or additives to fulfill their applications.
The Company typically provides these products to its customers directly from its
clients' sites. Traditional products comprised approximately 90% of materials
marketed in 1997. The Company has been successful in selling significant
portions of the CCPs and other industrial materials it manages to traditional
markets (E.G., the use of fly ash as pozzolan in portland cement concrete and
the use of bottom ash as a lightweight aggregate).
FLY ASH is traditionally used as (i) a pozzolan to partially replace
portland cement in ready-mix concrete and concrete products (E.G., concrete
pipe); (ii) an additive to portland cement to produce I-P cement and blended
cements; (iii) an additive in down-hole cementing of oil wells; and (iv) a
primary constituent in flowable grout used to fill voids under concrete slabs
and underground tank voids.
BOTTOM ASH is traditionally used as (i) raw feed stock for the manufacture
of portland cement clinker; (ii) a lightweight aggregate for concrete and
concrete block; (iii) a filler in the manufacture of clay brick; and (iv) an
aggregate in asphaltic concrete. It can also be mixed with salt as an additive
to go on roads for ice and snow control or used as backfill for pipe bedding and
dry bed material.
FLUIDIZED BED ASH is traditionally used (i) for mud drying for
stabilization; (ii) as a reagent to solidify liquid wastes in petrochemical and
related areas; and (iii) for soil stabilization to create foundation for
vertical construction.
44
SCRUBBER SLUDGE is traditionally used as cement stabilized road base
material and can be processed to be used in wallboard manufacture.
BOILER SLAG is traditionally used for a variety of applications, including
roofing shingles and cement.
CEMENT AND LIME KILN DUST AND RELATED INDUSTRIAL MINERALS are traditionally
used as cementitious binders for chemical fixation/solidification of hazardous
and non-hazardous wastes, soil stabilization and chemical processes.
VALUE-ADDED PRODUCTS AND APPLICATIONS
The Company develops and markets value-added products made from CCPs and
related industrial materials, and it continues to expand the breadth of
appropriate markets for these products. Through its research and development
program, the Company has broadened the end-use market for CCPs and related
industrial materials by introducing several proprietary products made from
previously non-marketable materials. The Company sells and distributes its
products to cement plants, ready-mix concrete plants, road contractors, carpet
manufacturers, roofing shingle producers, soil stabilization firms, utility
companies and other waste management firms. Several of its proprietary products
have been utilized by government agencies such as the Department of
Transportation, the Federal Aviation Administration, the Army Corps of Engineers
and the U.S. Bureau of Mines. The Company believes that its research and
development program will continue to develop profitable opportunities. The
Company's value-added products and applications comprised approximately 10% of
tonnage marketed in 1997.
The Company's research and development program and other dedicated efforts
have resulted in twelve patented products or processes and two U.S. patents and
five foreign patents pending, including the following proprietary value-added
products:
POWERLITE-REGISTERED TRADEMARK- is a client-generated pyrite free bottom ash
which, when processed by the Company, produces a high-quality aggregate for the
concrete block industry. Powerlite-Registered Trademark- has exhibited superior
flow characteristics, often making it more economical to use than other
aggregates. The Company has provided customers in the Atlanta, Georgia area
alone with more than two million tons of Powerlite-Registered Trademark- in the
past 15 years.
SAM-TM- (Stabilized Aggregate Material) is manufactured by the Company by
combining several industrial materials received from clients and transforming
them into a well-graded, highly desirable replacement for natural aggregate.
SAM-TM- can be used in many other applications, such as road base, sub-base,
parking areas, drainage media and rip-rap.
POZZALIME-TM-/ENVIRA-CEMENT-REGISTERED TRADEMARK- are the Company's
lime-based pozzolanic materials that contain significant moisture-reduction
properties. Pozzalime-TM- and Envira-Cement-Registered Trademark- have been
successfully utilized in road-base construction, road-sub-base construction,
chemical fixation, soil stabilization, moisture reduction, mud drying, pH
adjustments, acid neutralization, sewage treatment and mine reclamation.
GYPCEM-REGISTERED TRADEMARK- is the Company's processed gypsum, a highly
marketable product, registered and exclusively sold by the Company, that has
characteristics allowing it to be used in the manufacture of portland cement.
With considerable handling capabilities, the product is often more economical to
use than conventional mined gypsum. Under a long-term contract with Dupont, the
Company designed, constructed and currently operates an on-site processing
facility for the 100,000 tons of synthetic gypsum produced each year by this
client.
PEANUT MAKER-REGISTERED TRADEMARK- is a gypsum landplaster developed by the
Company for use in the agricultural market as a soil enhancer. During 1997,
under a contract with Dupont, the Company managed 47,000 tons of Dupont's
industrial material which Dupont historically paid to dispose. The Company has
transformed this previously unmarketable material into Peanut
Maker-Registered Trademark-, a beneficial-use, value-added product. Peanut
Maker-Registered Trademark- has been used successfully on over 60,000 acres of
peanut crops annually for the past 10 years. It
45
continues to be in demand because of its high calcium content. The
disassociation rate afforded by Peanut Maker-Registered Trademark- makes it more
effective and economical than traditional calcium supplements. It has been a
recommended source of calcium by the Virginia and North Carolina Extension
Services since its invention.
ALSIL-REGISTERED TRADEMARK-/ORBALOID-REGISTERED TRADEMARK- industrial filler
were developed by the Company from processed client-generated materials for use
in filler applications such as roofing shingles, carpet and mat backing, and
ceramic products. The Company has two U.S. patents and one Canadian patent for
the use of ALSIL-Registered Trademark- in roofing shingles. The Company has
secured multiple contracts with various shingle manufacturers, with one
agreement extending for the life of the customer's manufacturing plant.
FLEXBASE-TM- is a mixture of fly ash and scrubber sludge which the Company
processes to form a road-base material.
STABIL-FILL-TM- is a lime-stabilized fly ash that the Company has developed
and sold for use as a fill material in lieu of natural borrow materials. The
resulting mixture is lightweight and compacts with standard construction
equipment. Applications include commercial or industrial property development,
roadway embankment and subgrade for parking lots, airport runways, golf courses
or driving ranges, and athletic fields.
REDI-FILL-TM-/FLO FIL-REGISTERED TRADEMARK- are the Company's processed fly
ash and bottom ash, sold for use as a structural fill and ready-mixed flowable
fill. Their consistent characteristics and inherent stability give these
products superior performance capabilities compared to natural borrow materials.
In addition to these value-added products, the Company uses its traditional
products for non-traditional applications. Non-traditional applications of fly
ash include: as mineral filler to replace fine aggregate in bituminous coatings
for roads (asphalt surface); as a primary constituent in flowable fill to
backfill around in-ground pipes and structures; for stabilization of soils with
high plasticity or low load bearing abilities; to produce a filler grade
material for a variety of products; and as a binder with calcium sulfate to
replace limestone road base materials.
CONTRACTS AND SERVICES
The Company has various types of source client contracts that range in
services provided and materials managed. The Company negotiates each contract
separately and terms and conditions vary substantially depending on the quality
of materials managed, the marketability of such materials and the cost to the
Company of processing such materials into marketable value-added products. The
services offered to the client meet the client's CCP management requirements.
SALES AND MARKETING
As of December 31, 1997, on a pro forma basis, the Company maintained a
sales and marketing staff of 40 employees. The Company has a centralized
marketing program which seeks to develop a customer base for its newly developed
products. Sales personnel are trained in the technical aspects of the proper use
of CCPs and related products as construction materials and offer this expertise
to utility and industrial customers as an integral part of the sales program.
However, consistent product availability and quality are key to customer
retention. The Company utilizes distribution and related terminals for storage
of products to provide more stable supplies to its customers. The Company also
routinely utilizes quality assurance programs to monitor product quality and
assure delivery of materials meeting required specifications.
CCPs and related products are typically sold directly from each source
plant. Available markets are comprised of the end-users located within a
competitive "transportation cost" radius from the source. Therefore, the
Company's CCP and related product sales and marketing programs are centered
regionally and utilize sales personnel located in local market areas. The
Company's strategic growth strategy has, and will continue to, put the Company
in an increasingly strong position to effect these sales.
46
The Company utilizes a variety of marketing techniques to increase its
overall sales and stimulate increases in the sale of specific products. For
example, KBK, the Company's environmental engineering subsidiary, complements
the technical sales group by offering engineering services to clients and
customers tailored to the specific requirements of the CCP being utilized.
Through independent projects KBK serves as a separate marketing tool by
introducing clients to the Company through the construction projects they
complete. The Company focuses it sales and marketing efforts on both increasing
the proportion of CCPs used in various traditional applications, such as the
percentage of fly ash used in concrete, and increasing the usage of CCPs as a
whole. The Company works closely with state and federal departments of
transportation to develop cost-efficient approaches to the high volume of road
construction work. The Company is also an active participant in a variety of
trade associations.
RESEARCH AND DEVELOPMENT
The Company has made research and development a priority in its effort to
better serve clients and grow the business. The Company has invested
approximately $5.0 million in its Research and Development Program (the "R&D
Program") since 1990. With this relatively moderate investment of resources, the
Company has realized substantial benefits from its effort and believes that it
leads the industry in the development of non-traditional CCP and related
industrial material applications. As a part of its R&D Program, the Company
designed and constructed its Materials Testing and Research Facility, which is
fully furnished with certified equipment for both physical and chemical testing.
Using this facility, the Company's researchers and engineers continually explore
potential applications and processing technologies for its products and provide
quality assurance and control practices to ensure product and material
performance. Further, KBK acts to help implement the introduction of new
products by providing engineering support for materials handling systems and
related CCP-specific requirements.
The Company's R&D Program is responsible for the development of numerous
trademarked, registered and/or patented products, derived from managed
industrial materials in conjunction with its proprietary processes. These
products are exclusively marketed by the Company for use in construction,
agricultural and building applications. For example,
Powerlite-Registered Trademark- lightweight aggregate is an ASTM C-331 approved
lightweight aggregate for use in concrete block, and Peanut
Maker-Registered Trademark- landplaster is a soil enhancer for use on peanut
crops. Through the efforts of its R&D Program, the Company has been able to
secure two United States patents and one Canadian patent for the use of
processed fly ash (developed and trademarked by the Company as
ALSIL-Registered Trademark- industrial filler) in roofing shingles.
The Company's R&D Program is currently in the process of testing the design
of thermal (dry) equipment that reduces carbon content in CCPs. Once this
technology becomes operational, the Company anticipates a two-fold benefit. In
addition to profits projected from the sale and installation of this equipment,
the Company expects to gain from the sale of the processed material that
previously would have been inappropriate for distribution into traditional
markets. In the first half of 1998, the Company anticipates completing
full-scale tests of its dry CCP carbon reduction technology under actual
operating conditions.
COMPETITION
The Company competes both with respect to (i) obtaining materials management
contracts with utility and other industrial companies and (ii) the marketing of
CCPs and related industrial materials. The market for the management of CCPs and
related industrial materials is highly fragmented. The Company believes it is
the largest manager of CCPs in North America and the only company providing such
management services on a national basis. However, much of the competition in the
CCP management industry is regional. The Company has a presence in every region
in the United States. Although the Company typically has long-term contracts
with its clients, some of such contracts provide for the termination of such
contract at the convenience of the utility company upon a minimum 90-day notice.
47
Generally, the markets for the Company's traditional CCPs are highly
competitive, with many local, regional and national companies that market CCPs
as well as numerous products which are substitutable for CCPs, including cement
and other filler materials, such as limestone. The Company competes on the basis
of price, delivery and product quality. Due to the high cost of transportation
relative to sales price, competition is generally regional. Due to the
industry's fragmented nature and supply of product, within each region the
Company and its competitors typically deliver their traditional products to
their customers directly from the client's site at a regional market price. The
Company believes that its competitive strengths include its expertise in the
technology of a broad range of non-traditional value added products utilizing
CCPs and related industrial materials. This expertise has enabled the Company to
(i) secure materials management contracts in the regions in which it operates,
increasing the amount of traditional products that it can deliver into a given
market and (ii) improve the Company's revenue mix and margins relative to
companies which market only traditional products. However, many of the Company's
competitors (including manufacturers and marketers of substitutable products)
have substantially greater resources than the Company. See "Risk
Factors--Competition."
GOVERNMENT REGULATION
Industry trends, both in the power and industrial fields, present the
Company with important profit potential. Perhaps the most critical are the
changes confronting U.S. electrical utilities. Anticipated deregulation is
projected to reshape utility practices. The Company believes that in the more
competitive electricity production arena, utilities, in efforts to manage costs,
may downsize and outsource certain services. The Company believes this process
will heighten the appeal of the Company's enhanced service package, providing an
increase in business opportunities. Previously legislated regulations have
already opened up new business areas with the entry of cogenerators and
independent power producers into the market, bringing with them more CCP volume
and the need for Company-provided technologies and services for their unique
materials. Such opportunities are also introduced by the advent of clean coal/
clean air legislation. In the future, any tightening of environmental
regulations could make on-site CCP disposal less feasible, possibly requiring
clients to seek additional services from the Company.
In recent years, the power industry has been impacted by federal
legislation. The Clean Air Act of 1990 requires power producers to meet certain
emission levels on sulfur dioxide and nitrous oxides. This has caused some
utilities to modify fuel, equipment or change burner design parameters that has
usually resulted in a higher carbon-content CCP than acceptable for use in
traditional end-use markets. The Public Utilities Regulatory Policies Act has
opened the door for independent power producers, who typically utilize advanced
boiler technology, to enter the field and generate a higher calcium-content CCP
which exhibits handling characteristics requiring special knowledge and
expertise. Often looked upon by the Company's competition as problem materials,
the Company has recognized the opportunities presented by these new generation
materials. Advances in research and development and a strong engineering group
have prepared the Company for securing substantial, long-term contracts with
these new participants in the power field.
The production of these higher-calcium materials has already presented
opportunities for the Company, which can now design unique material handling
systems capable of processing, storing and disposing of these materials. The
Company anticipates continued efforts in this area and is now well-positioned to
be awarded the design, permitting and construction of landfills and handling
systems for disposal when these materials may not be utilized. As of December
31, 1997, the Company managed approximately 700,000 tons of such material on an
annual basis.
EMPLOYEES
Effective December 31, 1997, on a pro forma basis, the Company had 491
employees. Of all employees, 74% are involved in operations, 18% are in general
administrative functions and 8% are in
48
sales and marketing. The Company considers relations with its employees
satisfactory. The employees of the Company currently are not under union
contract, nor are there any collective bargaining agreements in place, with the
exception of four collective bargaining agreements with PPA and its subsidiary.
Most employees are at will, with some key employees under employment contracts.
See "Management-- Employment Agreements."
PROPERTIES
The Company operates its corporate headquarters in Salt Lake City, Utah in
offices leased under a three year lease expiring in July 2001. The following
table sets forth certain information regarding the Company's other principal
facilities as of December 31, 1997:
LEASE
LOCATION FUNCTION OWNERSHIP TERMINATION DATE
- ----------------------- --------------------- ----------- ----------------------
Kennesaw, GA Offices Leased July 17, 2000
San Bernardino, CA Rail Terminal Leased August 30, 1998
Delle, UT Storage Silos Leased November 1, 2001
Fargo, ND Fly Ash Storage Leased Month to Month
Good Spring, PA Silo Facility Leased August 15, 1999
Valley View, PA Rail Siding Leased December 31, 2015
Chester, VA Office/Rail Spur Leased November 30, 1999
Taylorsville, GA Rail Sidetrack Leased 30 days notice
Taylorsville, GA Lab Facility Owned --
Doraville, GA Terminal Facility Leased August 11, 2005
Leland, NC Transfer Facility Owned --
Franklin, VA Structural Fill Owned --
Clinton, TN Structural Fill Owned --
Mercer Island, WA Corporate Offices Leased June 30, 1999
Centralia, WA Storage Facility Owned --
Ogden, UT Storage Facility Owned --
Oregon City, OR Offices Leased Month to Month
Fresno, CA Terminal Facility Leased March 31, 2002
Management believes its facilities are in good condition and that the
facilities are adequate for its operating needs for the foreseeable future
without significant modifications or capital investment.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on its financial condition or results of operations.
ENVIRONMENTAL LIABILITY
Materials sold by JTM vary in chemical composition. Although the EPA has
excluded CCPs from regulation as hazardous wastes, fluidized bed ash, which is a
material derived from the use of advanced boiler technology (Fluidized Bed
Combustor) that meets EPA clean air standards, has not been ruled on as of this
date. JTM manages approximately 700,000 tons of FBCs annually. Should the EPA
rule to include this material on its hazardous material list it is likely to
involve a testing protocol similar to the one used for cement kiln dust. JTM
has, through the ACAA, maintained an active role in providing information to aid
in determining the final categorization of FBCs. Based on scientific information
compiled by JTM, JTM believes material now managed by JTM for utility clients
will not, as a consequence of EPA rulings, impact JTM negatively. However,
should the EPA rule not to grandfather material produced and marketed
49
for the past ten years, JTM could become part of a group of utilities,
marketers, manufacturers (petroleum) and service companies that will have to
meet the EPA mandate. The EPA will make a report to Congress on this issue on
September 30, 1998. A final ruling will be made by the EPA no later than April
1, 1999.
While CCPs are not hazardous wastes, they contain small concentrations of
metals that are included in the list of "hazardous substances" under CERCLA.
Such concentrations are well below applicable cleanup criteria. Land application
of CCPs is regulated by a variety of federal and state statutes, which impose
testing and management requirements to ensure environmental protection. Under
limited circumstances, mismanagement of CCPs can give rise to CERCLA liability.
JTM has been active in a number of landfill operations where the permitting
and liability for such operations is contractually retained by the client. JTM
is active in one landfill that is "managed" as a hazardous waste landfill,
although it is not designated as such. This client processes spent aluminum pot-
liner, a hazardous waste, into a non-hazardous condition by use of their
patented process. JTM provides services to landfill residues of this treatment
process and operates certain in-plant equipment and systems for the client.
Because of recent rulings, JTM's operations are run as if the processed potliner
is a hazardous waste. All environmental liabilities surrounding this project are
assumed by the client, and JTM currently foresees no adverse effect upon its
business, financial condition or results of operation from this project. There
can be no assurance, however, that JTM will not be named in third-party claims
relating to its activities. See "Risk Factors--Environmental Liability."
50
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of each of the
individuals that currently serve as Directors and Executive Officers of JTM. All
Directors hold office until the next annual meeting of the Stockholders of JTM
and until any successors are duly elected and qualified. All Executive Officers
hold office at the pleasure of the Board of Directors. Ages are stated as of
December 31, 1997.
NAME AGE POSITION WITH COMPANY
- ------------------------------------------ --- ---------------------------------------------------------------
R Steve Creamer........................... 46 Chairman of the Board and Chief Executive Officer
Raul A. Deju.............................. 51 President and Chief Operating Officer, Assistant Secretary and
Director
J.I. Everest, II.......................... 41 Chief Financial Officer and Assistant Secretary
Clinton W. Pike........................... 45 Executive Vice President
Danny L. Gray............................. 42 Senior Vice President, Eastern Operations
Brett A. Hickman.......................... 35 Senior Vice President, General Counsel and Secretary
Grover C. Dobbins, Jr..................... 49 Vice President, Administration and Assistant Secretary
Joseph M. Silvestri....................... 36 Director
Richard M. Cashin, Jr..................... 44 Director
R STEVE CREAMER. Mr. Creamer is the Chairman of the Board and Chief
Executive Officer of JTM and ISG. He is also founder and former CEO (from 1992
to 1997) of ECDC Environmental L.C., the largest rail-served industrial waste
management facility in North America. Prior to that, Mr. Creamer served as CEO
of Creamer & Noble, an engineering firm based in St. George, Utah. Mr. Creamer
received the honor as Ernst & Young's Entrepreneur of the Year in Utah in 1996.
He earned a B.S. degree in Civil and Environmental Engineering from Utah State
University in 1973. Mr. Creamer is a P.E.
RAUL A. DEJU. Dr. Deju is the President and Chief Operating Officer of JTM
and ISG. Dr. Deju served as Director, Rockwell Hanford Operations through 1981,
Senior Vice President of International Technologies, Inc. through 1987 and
Regional President of several subsidiaries of WMX Technologies, Inc. through
1995. Dr. Deju served as Chairman and CEO of DGL International through 1997, and
retains an ownership position in DGL. Dr. Deju has been on the Board of
Directors of various national and international WMX subsidiaries, Advanced
Sciences, Inc. and Isadra, Inc. Dr. Deju is a member of both the JTM and ISG
Boards of Directors. Dr. Deju is an advisor to a committee of the U.S. Secretary
of Commerce and has served on the U.S. Environmental Protection Agency Advisory
Committee. Dr. Deju received a B.S. degree in Mathematics and Physics in 1966
and a Ph.D. degree in Engineering Geology in 1969 from the New Mexico Institute
of Mining and Technology.
J.I. EVEREST, II. Mr. Everest is the Chief Financial Officer and Corporate
Secretary of JTM and ISG. He is responsible for all financial functions of JTM.
From 1993 to 1997, he served as Vice President of Finance for ECDC
Environmental, Inc. From 1988 to 1993, Mr. Everest was Director of Financial
Analysis/Treasury of USPCI, Inc. Mr. Everest serves as Corporate Secretary of
both JTM and ISG. Mr. Everest earned an M.B.A. degree (Finance Concentration) in
1994 from the University of Texas at Austin and a B.B.A. degree from Southern
Methodist University in 1979. Mr. Everest is a C.P.A.
CLINTON W. PIKE. Mr. Pike is the Executive Vice President of JTM. Since he
began his service in 1990, Mr. Pike has served as Vice President of Business
Development for JTM, establishing the Business and Product Development Program,
and spearheading nontraditional business advancement and growth through
acquisitions and the development of new markets. Mr. Pike invented a process for
the utilization of fly ash in roofing shingles, thereby winning for JTM the
award of the United States and Canadian patent for this process. Prior to his
service with JTM, he was Coordinator, Fuel and Ash Quality with Georgia
51
Power Company, where he directed a total CCP management program. Mr. Pike earned
a B.S. degree in Biology (Chemistry minor) from Georgia Southwestern College in
1974.
DANNY L. GRAY. Mr. Gray is a Senior Vice President of JTM. From July 1994
until 1997, he served principally as President of KBK and also as Vice President
of JTM. Prior to joining JTM, Mr. Gray was a Civil Engineer with American
Electric Power in 1978 and was promoted to Senior Environmental Engineer,
Environmental Department of that company in 1980. Mr. Gray earned a B.S. degree
in Civil Engineering from Virginia Tech in 1977, graduating with honors.
BRETT A. HICKMAN. Mr. Hickman is the Senior Vice President, General Counsel
and Secretary of JTM. From December 1993 until February 1998, Mr. Hickman was
General Counsel, Western Division of Laidlaw Environmental Services, Inc. Prior
to that, Mr. Hickman was an attorney with Davis & Lavender in Columbia, South
Carolina. Mr. Hickman earned a B.A. degree in Political Science from The Citadel
in 1983 and a J.D. degree from the University of South Carolina in 1986.
GROVER C. DOBBINS, JR. Mr. Dobbins is the Vice President, Administration of
JTM. He joined JTM in 1989 as Manager of Project Development. He began work as
Vice President, Corporate Services in January, 1991. From 1992 to 1995, Mr.
Dobbins served as Director of Marketing. Effective January 1, 1996, he was
appointed Vice President, Administration. Prior to his service with JTM, he was
a Principal Engineer at Carolina Power and Light Company for 15 years. Mr.
Dobbins earned a Master of Civil Engineering degree in 1972 and a B.S. degree in
Civil Engineering in 1971 from North Carolina State University.
JOSEPH M. SILVESTRI. Mr. Silvestri has been a director of JTM since its
acquisition by ISG. Mr. Silvestri has been employed by CVC since 1990 and has
served as a Vice President there since 1995. Mr. Silvestri is a director of
International Media Group, Polyfibron Technologies, Frozen Specialties, Glenoit
Mills, Euramax and Triumph Group.
RICHARD M. CASHIN, JR. Mr. Cashin was appointed a director of JTM in March
1998. Mr. Cashin has been employed by CVC since 1980, and has been President
since 1994. Mr. Cashin is a director of Levitz Furniture Incorporated, Lifestyle
Furnishings International, Euramax and Titan Wheel International.
EMPLOYMENT AGREEMENTS
On October 14, 1997, JTM entered into employment agreements with the
following three executive officers: R Steve Creamer, Raul A. Deju and J.I.
Everest, II (the "Executives"). The employment agreements provide for an initial
base salary of $150,000, $140,000 and $125,000, respectively. In addition, the
employment agreements provide that each Executive may be entitled to receive a
discretionary annual bonus, which bonus is at the sole discretion of the
Compensation Committee of the Board of Directors. Each Executive is also
entitled to certain other standard employee benefits.
Each employment agreement provides for an initial employment term of three
years, with automatic extensions of one year thereafter. JTM or the Executive
may terminate the agreement, with or without cause, and with or without prior
notice. In the event JTM terminates the agreement or the Executive resigns from
employment, the Executive's rights and JTM's obligations under the employment
agreement cease as of the date of termination. Further, each Executive has
agreed that no severance or other similar damages of any kind will be payable to
the Executive in the event of the Executive's termination or resignation from
employment for any reason.
The employment agreement of each Executive also includes certain
noncompetition, nondisclosure and nonsolicitation provisions.
In addition, JTM entered into employment agreements with Clinton W. Pike and
Danny L. Gray (collectively, the "Employees") on October 23, 1997 and November
5, 1997, respectively. The employment agreements provide for an initial base
salary of $160,000 and $120,000, respectively. The employment
52
agreement of each Employee provides for an annual performance bonus of up to 30%
of the Employee's base salary based on JTM's earnings before interest and taxes
("EBIT") within the Employee's area of responsibility and personal performance
goals set annually by JTM and an additional incremental bonus of 50%, 100% or
200% of the Employee's base salary if actual EBIT exceeds budgeted EBIT by 30%,
50% or 75%, respectively. The Employees are also entitled to a new business
procurement incentive bonus for their efforts in procuring new contracts. Mr.
Pike was granted a $250,000 signing bonus, the last installment of which is due
to him on January 2, 1999. If Mr. Pike terminates his employment agreement or
such agreement is terminated for cause by JTM before October 23, 1998, Mr. Pike
will be obligated to repay to JTM the portion of the signing bonus paid by JTM
prior to such termination. Each Employee is also entitled to certain other
standard employee benefits.
The employment agreement of each Employee also grants to the Employee an
economic interest in one percent of all outstanding shares of JTM's stock as of
the date of such employment agreement, which interest becomes fully vested on
the first anniversary of such employment agreement. Such phantom stock right
represents a right of the Employee to receive payment if (i) all of the
outstanding stock of JTM or its parent company is sold to a third party or
entity that does not own such stock as of the date of the employment agreement,
or (ii) JTM or its parent complete a public offering of stock. Such interest may
be diluted through future issuances of shares of stock by JTM.
Each employment agreement provides for an initial employment term of five
years, with automatic extensions of one year thereafter. JTM or the Employee may
terminate the employment agreement with or without cause; however, if the
Employee is terminated without cause, he is still entitled to receive full
compensation for the balance of his employment term. Should JTM relocate Mr.
Gray to a location more than 50 miles from his current location, Mr. Gray may
terminate his employment and receive a severance package equal in duration to
one-half of the remaining term of his employment agreement, or one year,
whichever period is shorter. After a similar relocation, Mr. Pike will receive a
$100,000 lump sum payment in lieu of reimbursement by JTM of relocation costs
and expenses.
The Employees' employment agreements also contain certain noncompetition
provisions.
COMPENSATION OF DIRECTORS
JTM does not currently pay annual fees to non-employee directors. Directors
who are also employees of JTM do not receive compensation as directors. However,
JTM reimburses each director for ordinary and necessary travel expenses related
to such directors attendance at Board of Directors and committee meetings.
53
EXECUTIVE COMPENSATION
The following table sets forth compensation earned for all services rendered
to JTM during fiscal year 1997 by JTM's chief executive officer and the three
most highly compensated executive officers other than JTM's chief executive
officer (collectively, the "Named Executives"):
SUMMARY COMPENSATION TABLE
OTHER ANNUAL
NAME AND PRINCIPAL POSITION(1) FISCAL YEAR SALARY(2) BONUS COMPENSATION(3)
- ----------------------------------------------------------- ------------- ---------- ---------- -----------------
R Steve Creamer (4)........................................ 1997 $ 24,231 $ 0 $ 0
Chairman, Chief Executive Officer
Clinton W. Pike............................................ 1997 149,255 119,492 4,374
Executive Vice President
Danny L. Gray.............................................. 1997 110,188 6,675 3,026
Senior Vice President
Grover C. Dobbins, Jr...................................... 1997 102,346 6,239 3,009
Vice President, Administration
- ------------------------
(1) Positions indicated were as of December 31, 1997.
(2) Includes amounts, if any, deferred by the named individual for the period in
question pursuant to Section 401(k) of the Internal Revenue Code under the
JTM Industries, Inc. 401(k) Savings Plan (the "401(k) Plan").
(3) Amounts shown under Other Annual Compensation include amounts paid by JTM as
matching and/ or profit sharing contributions to the 401(k) Plan, but do not
include perquisites and other personal benefits provided to each of the
Named Executives, the aggregate value of which did not exceed the lesser of
$50,000 or 10% of any such Named Executive's annual salary and bonus.
(4) Mr. Creamer has been employed with JTM since October 14, 1997, and his
salary reflects the two and a half months he worked for JTM in 1997.
54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
JTM is a wholly owned subsidiary of ISG. The following table sets forth
information regarding the beneficial ownership of the common stock of JTM
through ISG, by each person known to JTM to be the beneficial owner of more than
five percent of the common stock of JTM, each director of JTM, each Named
Executive and all directors and executive officers of JTM as a group. Except as
otherwise indicated, the beneficial owners of the voting stock listed below,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares. The business address for each executive
officer of JTM is in care of JTM.
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP OF
COMMON STOCK PREFERRED STOCK
------------------------ ------------------------
NUMBER OF NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENT SHARES PERCENT
- ----------------------------------------------------------------- ----------- ----------- ----------- -----------
Citicorp Venture Capital, Ltd. (1)............................... 187,425 37.9 26,813 38.3
R Steve Creamer (2)(3)........................................... 197,836 40.0 27,684 39.6
J.I. Everest, II (3)............................................. 49,467 10.0 6,925 9.9
CCT Partners IV, LP (4).......................................... 33,075 6.7 4,732 6.7
Richard M. Cashin, Jr............................................ 7,840 1.6 1,122 1.6
Raul A. Deju (5)................................................. 2,667 0.5 373 0.5
Joseph M. Silvestri.............................................. 980 0.2 140 0.2
Gerald A. Peabody, Jr............................................ -- -- -- --
Clinton W. Pike (6).............................................. -- -- -- --
Danny L. Gray (6)................................................ -- -- -- --
All directors and executive officers as a group
(9 persons) (2)(3)(5)(6)....................................... 258,790 52.3 36,244 51.8
- ------------------------
(1) The address of Citicorp Venture Capital, Ltd. is: 399 Park Avenue, 14th
Floor, New York, NY 10043.
(2) Includes 148,400 shares owned by Mr. Creamer's adult son and three minor
children.
(3) Messrs. Creamer and Everest beneficially own shares in ISG through RACT,
Inc., a Utah corporation ("RACT"), which directly owns shares in ISG. The
business address of RACT is: 127 South 500 East, Suite 675, Salt Lake City,
Utah 84102.
(4) The address of CCT Partners IV, LP is the same as that of Citicorp Venture
Capital, Ltd.
(5) In addition, Dr. Deju has the option to acquire an ownership interest in
RACT which would represent a total of 15% of the common stock and 15% of the
preferred stock of ISG.
(6) Messrs. Pike and Gray, pursuant to their employment contracts, have each
been granted an economic interest in one percent of all outstanding shares
of JTM's stock as of the date of their respective employment agreements. See
"Management--Employment Agreements."
CERTAIN TRANSACTIONS
CORPORATE SERVICES AND RE-AGENT AGREEMENTS
For the period from January 1, 1997 to October 13, 1997, JTM paid management
fees and administrative fees of $491,000 and $249,000, respectively, to Laidlaw
for certain corporate services. JTM has entered into a corporate services
agreement with Laidlaw in effect from October 14, 1997 to June 30, 1998. The
services provided by Laidlaw and its subsidiary, Laidlaw Environmental Services,
Inc ("LESI"), under the agreement include legal, accounting and management
information system support. LESI's management fee is $25,000 per month for the
term of the agreement. Also, as part of its acquisition by ISG from Laidlaw, JTM
agreed to a three-year commitment to sell cement kiln dust, cement, lime kiln
dust, fly ash and lime to LESI at market rates.
55
DESCRIPTION OF NOTES
GENERAL
The form and terms of the Exchange Notes are the same as the form and terms
of the Restricted Notes except that (i) the Exchange Notes will have been
registered under the Securities Act and thus will not bear restrictive legends
restricting their transfer pursuant to the Securities Act and (ii) holders of
Exchange Notes will not be entitled to certain rights of holders of the
Restricted Notes under the Registration Rights Agreement which will terminate
upon the consummation of the Exchange Offer. The Restricted Notes have been, and
the Exchange Notes are to be, issued under the Indenture. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders of Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. The definitions of certain terms used in the following
summary are set forth below under "--Certain Definitions." For purposes of this
summary, the term "Company" refers only to JTM Industries, Inc. and not to any
of its Subsidiaries.
The Notes will be general unsecured obligations of the Company, will be
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company, including Senior Indebtedness under the Secured Credit Facility,
and will rank PARI PASSU in right of payment with all existing and future senior
subordinated Indebtedness of the Company and will rank senior in right of
payment to all existing and future subordinated Indebtedness of the Company. As
of December 31, 1997, on a pro forma basis after giving effect to the
Transactions, the issuance of the Notes and the application of the net proceeds
therefrom, the aggregate principal amount of Senior Indebtedness (excluding
trade payables and other accrued liabilities) of the Company would have been
approximately $8.9 million, all of which would have been Indebtedness secured by
substantially all of the assets of the Company and its subsidiaries pursuant to
the Secured Credit Facility. The terms of the Indenture will limit the ability
of the Company and its subsidiaries to incur additional Indebtedness. As of the
date of the Indenture, all of the Company's Subsidiaries will be Restricted
Subsidiaries. However, under certain circumstances, the Company will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Restricted Notes in an aggregate principal amount $100.0 million were
issued in the Offering. The Notes will mature on April 15, 2008. The Indenture
provides for the issuance of up to $50.0 million aggregate principal amount of
additional Notes having identical terms and conditions to the Notes exchanged
hereby (the "Additional Notes"), subject to compliance with the covenants
contained in the Indenture. Any Additional Notes will be part of the same issue
as the Notes exchanged hereby and will vote on all matters with the Notes
exchanged hereby. For purposes of this "Description of Notes," references to the
Notes do not include Additional Notes. Interest on the Notes will accrue at the
rate of 10% per annum and will be payable semi-annually in arrears on April 15
and October 15 of each year, commencing on October 15, 1998, to Holders of
record on the immediately preceding April 1 and October 1. Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest and Liquidated Damages, if any, on the
Notes will be payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, at the option of the Company,
payment of interest and Liquidated Damages, if any, may be made by check mailed
to the Holders of the Notes at their respective addresses set forth in the
register of Holders of Notes; PROVIDED that all payments of principal, premium,
interest and Liquidated Damages, if any, with respect to Notes the Holders of
which have given wire transfer instructions to the Company will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company, the
56
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
and integral multiples thereof.
SUBORDINATION
The payment of principal of, premium, if any, interest and Liquidated
Damages, if any, on the Notes will be subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full of all Senior Indebtedness,
whether outstanding on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full of all Obligations due in respect of such Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Indebtedness) before the Holders
of Notes will be entitled to receive any payment with respect to the Notes, and
until all Obligations with respect to Senior Indebtedness are paid in full, any
distribution to which the Holders of Notes would be entitled shall be made to
the holders of Senior Indebtedness (except that Holders of Notes may receive and
retain Permitted Junior Securities and payments made from the trust described
under the caption "--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under the
caption "--Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the Company
or the holders of any Designated Senior Indebtedness. Payments on the Notes may
and shall be resumed (a) in the case of a payment default, upon the date on
which such default is cured or waived and (b) in case of a nonpayment default,
the earlier of the date on which such nonpayment default is cured or waived or
179 days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Indebtedness has been
accelerated. No new period of payment blockage may be commenced unless and until
(i) 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice and (ii) all scheduled payments of principal, premium,
if any, interest and Liquidated Damages, if any, on the Notes that have come due
have been paid in full in cash. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice.
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Indebtedness. On a pro forma
basis, after giving effect to the Transactions, the issuance of the Notes and
the application of the net proceeds therefrom, the principal amount of Senior
Indebtedness outstanding at December 31, 1997 would have been approximately $8.9
million. The Indenture will limit, subject to certain financial tests, the
amount of additional Indebtedness, including Senior Indebtedness, that the
Company and its Subsidiaries can incur. See "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be fully and
unconditionally, and jointly and severally, guaranteed on a senior subordinated
basis (the "Subsidiary Guarantees") by the Guarantors.
57
The existing Guarantors are Pozzolanic, PPA, U.S. Ash, U.S. Stabilization, Flo
Fil, Fly Ash Products and KBK. The Subsidiary Guarantees will be subordinated in
right of payment to all existing and future Senior Indebtedness of the
Guarantors, including all obligations of the Guarantors under the Secured Credit
Facility and will rank PARI PASSU in right of payment with all existing and
future senior subordinated indebtedness of the Guarantors and will rank senior
in right of payment to all existing and future subordinated Indebtedness of the
Guarantors. The obligation of each Guarantor under its Subsidiary Guarantee will
be limited so as not to constitute a fraudulent conveyance under applicable law.
See "Risk Factors--Fraudulent Transfer Considerations; Unenforceability of
Subsidiary Guarantees."
The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person) another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor under the Notes and the
Indenture pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee, and (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists.
The Indenture will provide that in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
PROVIDED that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "--Repurchase at
the Option of Holders--Asset Sales."
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to April 15,
2003. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on of the years indicated below:
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
2003.............................................................................. 105.000%
2004.............................................................................. 103.333%
2005.............................................................................. 101.667%
2006 and thereafter............................................................... 100.000%
Notwithstanding the foregoing, at any time on or before, April 15, 2001, the
Company may redeem up to $35.0 million in aggregate principal amount of Notes at
a redemption price of 110% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the redemption date,
with the net cash proceeds to the Company of one or more Public Offerings;
PROVIDED that at least $65.0 million in aggregate principal amount of Notes
remain outstanding immediately after the occurrence of such redemption
(excluding Notes held by the Company or any of its Subsidiaries); and PROVIDED,
FURTHER, that each such redemption shall occur within 60 days of the date of the
closing of each such Public Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if
58
any, on which the Notes are listed, or, if the Notes are not so listed, on a pro
rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; PROVIDED that no Notes of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 and Rule 13e-4 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; PROVIDED that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture provides that,
prior to complying with the provisions of this covenant, but in any event within
90 days following a Change of Control, the Company will either repay all
outstanding Senior Indebtedness or obtain the requisite consents, if any, under
all agreements governing outstanding Senior Indebtedness to permit the
repurchase of Notes required by this covenant. As of August 3, 1998, the Company
and Guarantors had senior indebtedness (excluding trade payables and other
accrued liabilities) of approximately $8.0 million. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Holders of a
majority in principal amount of the Notes may
59
waive compliance by the Company with the Change of Control provisions described
above, in a particular instance, by prior amendment of the Indenture in
accordance with the provisions of the Indenture described under "--Amendment,
Supplement and Waiver." Failure to comply with the Change of Control provisions
described above for 15 days after receipt of written notice from the Trustee or
Holders of at least 25% in aggregate principal amount of the Notes then
outstaning will result in an Event of Default under the Indenture. See "Event of
Defaults and Remedies." Except as described above with respect to a Change of
Control, the Indenture does not contain provisions that permit the Holders of
the Notes to require that the Company repurchase or redeem the Notes in the
event of a takeover, recapitalization or similar transaction.
The Secured Credit Facility provides that certain change of control events
with respect to the Company would constitute a default thereunder. Any future
credit agreements or other agreements relating to Senior Indebtedness to which
the Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is prohibited
from repurchasing Notes, the Company could seek the consent of its lenders to
the repurchase of Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such a consent or repay
such borrowings, the Company will remain prohibited from repurchasing Notes. In
such case, the Company's failure to repurchase tendered Notes would constitute
an Event of Default under the Indenture which would, in turn, constitute a
default under the Secured Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to
Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
(or the Restricted Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash;
PROVIDED that the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability and (y) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
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Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to permanently repay
(and reduce the commitments under) Senior Indebtedness of the Company or a
Guarantor or (b) to the acquisition of a majority of the assets of, or a
majority of the Voting Stock of, another Permitted Business, the making of a
capital expenditure or the acquisition of other long-term assets that are used
or useful in a Permitted Business. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce revolving credit borrowings,
including without limitation, the Secured Credit Facility, or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company
will be required to make an offer to all Holders of Notes and all holders of
other Indebtedness containing provisions similar to those set forth in the
Indenture with respect to offers to purchase or redeem with the proceeds of
sales of assets (an "Asset Sale Offer") to purchase the maximum principal amount
of Notes and such other Indebtedness that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase, in accordance with the procedures set forth in
the Indenture and such other Indebtedness. To the extent that any Excess
Proceeds remain after consummation of an Asset Sale Offer, the Company may use
such Excess Proceeds for any purpose not otherwise prohibited by the Indenture.
If the aggregate principal amount of Notes and such other Indebtedness tendered
by holders thereof in response to such Asset Sale Offer exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes and such other Indebtedness
to be purchased on a pro rata basis. Upon completion of such offer to purchase,
the amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
the Company or any of its Restricted Subsidiaries) or to the direct or indirect
holders of the Company's or any of its Restricted Subsidiaries' Equity Interests
in their capacity as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or dividends or
other distributions payable to the Company or a Restricted Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company or other Affiliate of the Company (other than any
such Equity Interests owned by the Company or any Wholly Owned Restricted
Subsidiary of the Company); (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is PARI PASSU with or subordinated to the Notes (other than
Notes), except a payment of interest or principal at Stated Maturity; or (iv)
make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have had a Fixed
Charge Coverage Ratio of at least 2.0 to 1.0; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding
61
Restricted Payments permitted by clauses (ii), (iii), (iv), (viii) and (ix)
of the next succeeding paragraph), is less than the sum, without
duplication, of (i) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Company since the date of the Indenture as a contribution to its common
equity capital or from the issue or sale of Equity Interests of the Company
(other than Disqualified Stock) or from the issue or sale of Disqualified
Stock or debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company), plus
(iii) to the extent that any Restricted Investment that was made after the
date of the Indenture is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any PARI PASSU or subordinated Indebtedness or Equity Interests
of the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of, other Equity Interests of the Company (other than any Disqualified
Stock); PROVIDED that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of PARI PASSU or
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a
Restricted Subsidiary of the Company to the holders of its common Equity
Interests on a pro rata basis; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Restricted Subsidiary of the Company held by any member of the Company's (or
any of its Restricted Subsidiaries') management pursuant to any management
equity subscription agreement or stock option agreement in effect as of the date
of the Indenture; PROVIDED that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$250,000 in any twelve-month period and no Default or Event of Default shall
have occurred and be continuing immediately after such transaction; (vi)
dividends or other payments to ISG sufficient to enable ISG to pay accounting,
legal, corporate reporting and administrative expenses of ISG incurred in the
ordinary course of business in an amount not to exceed $500,000 in any
twelve-month period; (vii) payments to ISG by the Company or any Subsidiary with
respect to taxes (including estimated taxes) that are paid by ISG on a combined,
consolidated, unitary or similar basis, to the extent that such payments do not
exceed the amount that the Company or such Subsidiary would have paid to the
relevant taxing authority if the Company or such Subsidiary filed a separate tax
return for the period in question; (viii) the repayment by the Company on the
Issue Date of the ISG Bridge Note; and (ix) from and after April 15, 2003, the
payment of dividends by the Company to ISG the proceeds of which are utilized by
ISG solely to pay principal of or interest on the ISG PIK Notes, provided that
(x) such dividends shall not exceed $2.5 million in the aggregate in any fiscal
year of the Company or $10.0 million in the aggregate since the Issue Date, (y)
at the time of the making of any such dividend and immediately after giving
effect thereto, the Fixed Charge Coverage Ratio for the Company's most recently
ended four fiscal quarters for which internal financial statements are available
immediately preceding the date of such proposed dividend would have been at
least 2.25 to 1.0 and (z) immediately before and immediately after giving effect
to such proposed dividend no Default or Event of Default shall have occurred and
be continuing.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding
62
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors whose resolution with respect thereto shall be delivered to the
Trustee, such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $1.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
PROVIDED, HOWEVER, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock and the Guarantors may incur
Indebtedness or issue preferred stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 1.8 to 1.0 if such incurrence is on or
prior to April 15, 2000 or 2.0 to 1.0 if such incurrence is after April 15,
2000, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Disqualified Stock or preferred stock had been issued, as the case may be,
at the beginning of such four-quarter period. The foregoing provisions will not
apply to the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Debt"):
(i) the incurrence by the Company of Indebtedness (including letters of
credit, with letters of credit being deemed to have a principal amount equal
to the maximum potential liability of the Company and its Restricted
Subsidiaries thereunder) under the Secured Credit Facility; PROVIDED that
the aggregate principal amount of all Indebtedness (including letters of
credit) outstanding under the Secured Credit Facility after giving effect to
such incurrence does not exceed an amount equal to $35.0 million less the
aggregate amount of all Net Proceeds of Asset Sales applied to permanently
repay any such Indebtedness pursuant to the covenant described above under
the caption "--Repurchase at the Option of Holders--Asset Sales";
(ii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes (other than any Additional Notes) and the Exchange Notes (other than
any Additional Notes) and the incurrence by the Guarantors of Indebtedness
represented by the Subsidiary Guarantees;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each
63
case incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or equipment
used in the business of the Company or such Subsidiary, in an aggregate
principal amount not to exceed $10.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that is either the Existing Indebtedness or was
permitted by the Indenture to be incurred under the first paragraph hereof
or clauses (iii), (iv) or (v) of this paragraph;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Wholly Owned Restricted Subsidiaries; PROVIDED, HOWEVER, that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes and (ii)(A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Restricted Subsidiary thereof and (B) any
sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Wholly Owned Restricted Subsidiary thereof shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (vi);
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of the Indenture to be outstanding;
(viii) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by another provision of this covenant;
(ix) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (ix), not to exceed $10.0
million; and
(x) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, PROVIDED, HOWEVER, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (x).
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (x) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Company shall, in
its sole discretion, classify such item of Indebtedness in any manner that
complies with this covenant. Accrual of interest, accretion or amortization of
original issue discount, the payment of interest on any Indebtedness in the form
of additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Stock for purposes of this covenant; PROVIDED,in each
such case, that the amount thereof is included in Fixed Charges of the Company
as accrued.
LIENS
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien securing Indebtedness or trade payables on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom, except Permitted Liens, unless all payments
due under the
64
Indenture and the Notes are secured on an equal and ratable basis with the
Indebtedness so secured until such time as such is no longer secured by a Lien;
PROVIDED that if such Indebtedness is by its terms expressly subordinated to the
Notes or any Subsidiary Guarantee, the Lien securing such Indebtedness shall be
subordinate and junior to the Lien securing the Notes and the Subsidiary
Guarantees with the same relative priority as such subordinate or junior
Indebtedness shall have with respect to the Notes and the Subsidiary Guarantees.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries. However, the
foregoing restrictions will not apply to encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the Secured Credit Facility, PROVIDED that such restrictions are
no more restrictive than those contained in the Secured Credit Facility as in
effect on the Issue Date, (c) the Indenture and the Notes, (d) applicable law,
(e) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, PROVIDED that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) customary non-
assignment provisions in leases entered into in the ordinary course of business
and consistent with past practices, (g) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (h) any
agreement for the sale of a Restricted Subsidiary that restricts distributions
by that Restricted Subsidiary pending its sale, (i) Permitted Refinancing
Indebtedness, PROVIDED that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive, taken
as a whole, than those contained in the agreements governing the Indebtedness
being refinanced, (j) Liens securing Indebtedness otherwise permitted to be
incurred pursuant to the provisions of the covenant described above under the
caption "--Liens" that limits the right of the debtor to dispose of the assets
securing such Indebtedness, (k) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other similar
agreements entered into in the ordinary course of business and (l) restrictions
on cash or other deposits or net worth imposed by customers under contracts
entered into in the ordinary course of business.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Registration
65
Rights Agreement, the Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except in
the case of a merger of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, have a Fixed
Charge Coverage Ratio of at least 2.0 to 1.0.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing. Notwithstanding the foregoing, the following items shall not be deemed
to be Affiliate Transactions: (i) any employment agreement entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of business
and consistent with the past practice of the Company or such Restricted
Subsidiary, (ii) transactions between or among the Company and/or its Restricted
Subsidiaries, (iii) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company and (iv) Restricted Payments (other than
Restricted Investments) that are permitted by the provisions of the Indenture
described above under the caption "-- Restricted Payments."
LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS IN RESTRICTED
SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not permit
any Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Equity Interests in any Restricted Subsidiary of the
Company to any Person (other than the Company or a Restricted Subsidiary of the
Company), unless (a) such transfer, conveyance, sale, lease or other disposition
is of all the Equity Interests in such Restricted Subsidiary and (b) the cash
Net Proceeds from such transfer, conveyance, sale, lease or other disposition
are applied in accordance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales," and (ii) will not permit
any Restricted Subsidiary of the Company to issue any of its Equity Interests
(other than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company or a Restricted
Subsidiary of the Company.
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BUSINESS ACTIVITIES
The Company will not, and will not permit any Subsidiary to, engage in any
business other than Permitted Businesses, except to such extent as would not be
material to the Company and its Subsidiaries taken as a whole.
NO SENIOR SUBORDINATED DEBT
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Indebtedness of the Company and
senior in any respect in right of payment to the Notes and (ii) no Guarantor
will incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness of such Guarantor that is subordinate or junior in right of payment
to any Indebtedness of such Guarantor and senior in any respect in right of
payment to the Subsidiary Guarantee of such Guarantor.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its consolidated Subsidiaries (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial condition and results of operation of the Unrestricted Subsidiaries of
the Company) and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports, in each case within the time periods
specified in the Commission's rules and regulations. In addition, following the
consummation of this Exchange Offer, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company and the Guarantors have agreed that, for so long as any Restricted Notes
remain outstanding, they will furnish to the Holders and to prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act other than during any period in
which the Company is subject to Section 13 or 15(d) of the Exchange Act and in
compliance with the requirements thereof.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that (i) the Company will not permit any of its
Restricted Subsidiaries that is not a Guarantor to Guarantee or secure through
the granting of Liens the payment of any Indebtedness of
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the Company or any Guarantor and (ii) the Company will not and will not permit
any of its Restricted Subsidiaries to pledge any intercompany notes representing
obligations of any of its Restricted Subsidiaries, to secure the payment of any
Indebtedness of the Company or any Guarantor, in each case unless such
Subsidiary, the Company and the Trustee execute and deliver a supplemental
indenture evidencing such Subsidiary's Subsidiary Guarantee (providing for the
unconditional guarantee by such Restricted Subsidiary, on a senior subordinated
basis, of the Notes).
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by the Company or
any of its Restricted Subsidiaries for 15 days after receipt of written notice
from the Trustee or Holders of at least 25% in aggregate principal amount of the
Notes then outstanding to comply with the provisions described under the
captions "--Repurchase at the Option of Holders--Change of Control,"
"--Repurchase at the Option of Holders--Asset Sales," "--Certain
Covenants--Restricted Payments" or "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock"; (iv) failure by the Company or
any of its Restricted Subsidiaries for 60 days after notice to comply with any
of its other agreements in the Indenture or the Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vi) failure by the Company or
any of its Restricted Subsidiaries to pay judgments aggregating in excess of
$5.0 million, which judgments are not paid, discharged or stayed for a period of
60 days after such judgments become final and non-appealable; (vii) except as
permitted by the Indenture, any Subsidiary Guarantee shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any reason
to be in full force and effect or any Guarantor, or any Person acting on behalf
of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to
the Company or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Significant Restricted Subsidiary
or any group of Restricted Subsidiaries that, taken together, would constitute a
Significant Restricted Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
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In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to April
15, 2003 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to April 15, 2003 then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages, if any, on such Notes when such payments are due from
the trust referred to below, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages,
if any, on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date; (ii) in
the case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the
69
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of the Indenture, there has been a change
in the applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (viii)
the Company must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Notes and the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture, the Notes or
the Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity
70
of any Note or alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders"), (iii) reduce the rate of or
change the time for payment of interest on any Note, (iv) waive a Default or
Event of Default in the payment of principal of or premium, if any, or interest
on the Notes (except a rescission of acceleration of the Notes by the Holders of
at least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any Note
payable in money other than that stated in the Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of Notes to receive payments of principal of or premium, if
any, or interest on the Notes, (vii) waive a redemption payment with respect to
any Note (other than a payment required by one of the covenants described above
under the caption "-- Repurchase at the Option of Holders"), (viii) release any
Guarantor from any of its obligations under its Subsidiary Guarantee or the
Indenture, except in accordance with the terms of the Indenture or (ix) make any
change in the foregoing amendment and waiver provisions. In addition, any
amendment to the provisions of Article 10 of the Indenture (which relate to
subordination) will require the consent of the Holders of at least 75% in
aggregate principal amount of the Notes then outstanding if such amendment would
adversely affect the rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, a Guarantor with respect to a Subsidiary Guarantee or the Indenture
to which it is a party and the Trustee may amend or supplement the Indenture,
the Notes or any Subsidiary Guarantee to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or any
Guarantor's obligations to Holders of Notes in the case of a merger or
consolidation or sale of all or substantially all of the Company's assets, to
provide for the issuance of Additional Notes in accordance with the provisions
set forth in the Indenture on the Issue Date, to make any change that would
provide any additional rights or benefits to the Holders of Notes or that does
not adversely affect the legal rights under the Indenture of any such Holder, or
to comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth under "--Exchange of Book-Entry Notes for Certificated
Notes" the Exchange Notes issued pursuant to the Exchange Offer will be issued
in the form of one or more global securities (collectively, the "Global Notes").
The Global Notes will be deposited upon issuance with the Trustee as custodian
for The Depository Trust Company ("DTC"), in New York, New York, and registered
in the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant in
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DTC as described below. Except as set forth below, the Global Notes may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Notes may
not be exchanged for Notes in certificated form except in the limited
circumstances described below. See "--Exchange of Book-Entry Notes for
Certificated Notes." Except in the limited circumstances described below, owners
of beneficial interests in the Global Notes will not be entitled to receive
physical delivery of Certificated Notes (as defined below).
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITORY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interests
in, and transfers of ownership interests in, each security held by or on behalf
of DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised the Company that, pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants with portions of the principal amount of the Global Notes and (ii)
ownership of such interests in the Global Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of beneficial interest in
the Global Notes). Investors in the Global Notes may hold their interests
therein directly through DTC, if they are Participants in such system, or
indirectly through organizations which are Participants in such system.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such persons will be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants and certain banks, the ability of a
person having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF AN INTEREST IN THE GLOBAL NOTES WILL
NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interest in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Notes or (ii) any
72
other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants. DTC has advised the Company that its
current practice, upon receipt of any payment in respect of securities such as
the Notes (including principal and interest), is to credit the accounts of the
relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in the principal amount of beneficial
interest in the relevant security as shown on the records of DTC unless DTC has
reason to believe it will not receive payment on such payment date. Payments by
the Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the Notes, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Interests in the Global Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its Participants. See "--Same Day
Settlement and Payment." Transfers between Participants in DTC will be effected
in accordance with DTC's procedures, and will be settled in same day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the right
to exchange the Global Notes for legended Notes in certificated form, and to
distribute such Notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among Participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
nor any of their respective agents will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if (i) DTC (x) notifies the Company
that it is unwilling or unable to continue as depositary for the Global Notes
and the Company thereupon fails to appoint a successor depositary or (y) has
ceased to be a clearing agency registered under the Exchange Act, (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of the Certificated Notes or (iii) there shall have occurred and be
continuing a Default or Event of Default with respect to the Notes. In addition,
beneficial interests in a Global Note may be exchanged for Certificated Notes
upon request but only upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the Indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests therein will
be registered in the names, and issued in any approved denominations, requested
by or on behalf of the depositary (in accordance with its customary procedures).
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Certificated
Notes, the Company will make all payments of principal, premium, if any,
interest and
73
Liquidated Damages, if any, by wire transfer of immediately available funds to
the accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered address. The
Notes represented by the Global Notes are expected to trade in the depositary's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Notes will, therefore, be required by the depositary to be
settled in immediately available funds. The Company expects that secondary
trading in any Certificated Notes will also be settled in immediately available
funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on April 22, 1998 (the "Closing Date"). Pursuant
to the Registration Rights Agreement, the Company and the Guarantors agreed to
file with the Commission the Exchange Offer Registration Statement on the
appropriate form under the Securities Act with respect to the Exchange Notes.
Upon the effectiveness of the Exchange Offer Registration Statement, the Company
and the Guarantors will offer to the Holders of Transfer Restricted Securities
pursuant to the Exchange Offer who are able to make certain representations the
opportunity to exchange their Transfer Restricted Securities for Exchange Notes.
If (i) the Company and the Guarantors are not required to file the Exchange
Offer Registration Statement or permitted to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any Holder of Transfer Restricted Securities notifies the Company
prior to the 20th day following consummation of the Exchange Offer that (A) it
is prohibited by law or Commission policy from participating in the Exchange
Offer or (B) that it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales or (C) that it is a broker-dealer and owns Notes
acquired directly from the Company or an affiliate of the Company, the Company
and the Guarantors will file with the Commission a Shelf Registration Statement
to cover resales of the Notes by the Holders thereof who satisfy certain
conditions relating to the provision of information in connection with the Shelf
Registration Statement. The Company and the Guarantors will use their best
efforts to cause the applicable registration statement to be declared effective
as promptly as possible by the Commission. For purposes of the foregoing,
"Transfer Restricted Securities" means each Note until (i) the date on which
such Note has been exchanged by a person other than a broker-dealer for an
Exchange Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date on
which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement or (iv) the date on which
such Note is distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company will file an
Exchange Offer Registration Statement with the Commission on or prior to 45 days
after the Closing Date, (ii) the Company and the Guarantors will use their best
efforts to have the Exchange Offer Registration Statement declared effective by
the Commission on or prior to 135 days after the Closing Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company and the Guarantors will commence the Exchange Offer and use their
best efforts to issue on or prior to 45 business days after the date on which
the Exchange Offer Registration Statement was declared effective by the
Commission, Exchange Notes in exchange for all Notes tendered prior thereto in
the Exchange Offer and (iv) if obligated to file the Shelf Registration
Statement, the Company and the Guarantors will use their best efforts to file
the Shelf Registration Statement with the Commission on or prior to 45 days
after such filing obligation arises and to cause the Shelf Registration to be
declared effective by the Commission on or prior to 135 days after such
obligation arises. If (a) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or (c) the Company fails to
consummate
74
the Exchange Offer within 45 business days of the Effectiveness Target Date with
respect to the Exchange Offer Registration Statement, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of Notes, with respect to the first 90-day
period immediately following the occurrence of the first Registration Default in
an amount equal to $.05 per week per $1,000 principal amount of Notes held by
such Holder. The amount of the Liquidated Damages will increase by an additional
$0.05 per week per $1,000 principal amount of Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages for all Registration Defaults of $0.28
per week per $1,000 principal amount of Notes. All accrued Liquidated Damages
will be paid by the Company on each Damages Payment Date to the Global Note
Holder by wire transfer of immediately available funds or by federal funds check
and to Holders of Certificated Securities by wire transfer to the accounts
specified by them or by mailing checks to their registered addresses if no such
accounts have been specified. Following the cure of all Registration Defaults,
the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Registration Rights Agreement in order to have their Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
(PROVIDED that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole will be governed by the provisions of the Indenture described
above under the caption "--Repurchase at the Option of Holders-- Change of
Control" and/or the provisions described above under the caption "--Certain
Covenants-- Merger, Consolidation, or Sale of Assets" and not by the provisions
of the Asset Sale covenant), and (ii) the issue by any Restricted Subsidiaries
of the Company of any Equity Interests of such Restricted Subsidiary and the
sale by the Company or any of its Restricted Subsidiaries of Equity Interest of
any of
75
the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in
a single transaction or a series of related transactions that have a fair market
value or generate net proceeds in excess of $2.0 million in any twelve month
period. Notwithstanding the foregoing, the following items shall not be deemed
to be Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned
Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company
or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity
Interests by a Wholly Owned Restricted Subsidiary to the Company or to another
Wholly Owned Restricted Subsidiary and (iii) a Restricted Payment that is
permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any lender party to the Secured
Credit Facility or with any domestic commercial bank having capital and surplus
in excess of $500 million and a Thompson Bank Watch Rating of "B" or better,
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having the highest rating obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in
each case maturing within six months after the date of acquisition and (vi)
money market funds the assets of which constitute Cash Equivalents of the kinds
described in clauses (i)-(v) of this definition.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act); (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company; (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as defined above) becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that
a person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of the
Company (measured by voting power rather than number of shares); (iv) the first
day on which a majority of the members of the Board of Directors of the Company
are not Continuing Directors or; (v) the Company consolidates with, or merges
with or into, any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where the
Voting Stock of the Company outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the outstanding
76
shares of such Voting Stock of such surviving or transferee Person (immediately
after giving effect to such issuance).
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing such
Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, minus (v) non-cash items increasing such
Consolidated Net Income for such period, in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash expenses of, a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Restricted
Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) the Net Income (but not loss) of
any Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Subsidiaries.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with
77
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments) and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means (i) any Senior Indebtedness
outstanding under the Secured Credit Facility and (ii) any other Senior
Indebtedness permitted under the Indenture the aggregate principal amount of
which is $25.0 million or more and that has been designated by the Company as
"Designated Senior Indebtedness."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; PROVIDED, HOWEVER, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of a
Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Company may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described above under the caption
"--Certain Covenants-- Restricted Payments."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Secured Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"FIXED CHARGES" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated
interest of such Person and its Restricted Subsidiaries that was capitalized
during such period and (iii) any interest expense on Indebtedness of another
Person that is Guaranteed by such Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries and (iv) the product of (a) all dividend payments, whether or not
in cash, on any series of preferred stock of such Person or any of
78
its Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company (other than Disqualified
Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the referent
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than temporary repayments under revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated on a pro forma basis without giving effect
to clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, and (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"GUARANTORS" means (i) each domestic Subsidiary of the Company on the Issue
Date and (ii) any other domestic Subsidiary that executes a Subsidiary Guarantee
in accordance with the provisions of the Indenture, and their respective
successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or
79
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
(other than letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all Indebtedness of others secured by a Lien on any asset of such
Person (whether or not such Indebtedness is assumed by such Person) and, to the
extent not otherwise included, the Guarantee by such Person of any indebtedness
of any other Person. The amount of any Indebtedness outstanding as of any date
shall be (i) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount, and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "--Certain Covenants--Restricted Payments."
"ISG" means Industrial Services Group, Inc., a Delaware corporation and
parent of the Company.
"ISG PIK NOTES" means the 9% Junior Subordinated Promissory Note due 2005 of
ISG issued on October 14, 1997, together with additional notes issued in respect
of interest thereon.
"ISSUE DATE" means the closing date for the sale and original issuance of
the Notes under the Indenture.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than debt under the
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Secured Credit Facility) secured by a Lien on the asset or assets that were the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED BUSINESS" means the business conducted by the Company and its
Restricted Subsidiaries on the Issue Date and businesses reasonably related
thereto.
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company that is a Guarantor; (b) any Investment in
Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary
of the Company in a Person, if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary of the Company and a Guarantor or (ii) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Restricted Subsidiary of the Company that is a Guarantor; (d) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales"; (e) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company; and (f) other
Investments in any Person having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (f) that are at the time outstanding, not to exceed $5.0 million.
"PERMITTED JUNIOR SECURITIES" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Indebtedness (and any debt
securities issued in exchange for Senior Indebtedness) to substantially the same
extent as, or to a greater extent than, the Notes are subordinated to Senior
Indebtedness pursuant to the Indenture.
"PERMITTED LIENS" means (i) Liens on assets of the Company or any of the
Guarantors securing Senior Indebtedness under the Secured Credit Facility that
was permitted by the terms of the Indenture to be incurred; (ii) Liens in favor
of the Company; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Subsidiary of the
Company; PROVIDED that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with the Company; (iv) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company, PROVIDED that such Liens were in existence prior to
the contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens to secure Indebtedness (including Capital Lease Obligations) permitted by
clause (iv) of the second paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock" covering only the assets acquired
with such Indebtedness; (vii) Liens existing on the date of the Indenture;
(viii) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
81
appropriate proceedings promptly instituted and diligently concluded, PROVIDED
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (ix) Liens incurred in the
ordinary course of business of the Company or any Subsidiary of the Company with
respect to obligations that do not exceed $5.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Subsidiary; (x) Liens on assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries; (xi) Liens on assets of the Company securing Senior Indebtedness
of the Company that was permitted to be incurred by the terms of the Indenture
and Liens on assets of a Guarantor securing Senior Indebtedness of such
Guarantor that was permitted to be incurred by the terms of the Indenture; (xii)
judgment Liens not giving rise to an Event of Default so long as such Lien is
adequately bonded and any appropriate legal proceedings which may have been duly
initiated for the review of such judgment shall not have finally terminated or
other period within which such proceedings may be initiated shall not have
expired; (xiii) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other social
security legislation; and (xix) Liens securing Hedging Obligations otherwise
permitted under the Indenture.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); PROVIDED that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date equal to or later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in
right of payment to the Notes, on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Restricted Subsidiary
who is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"PUBLIC OFFERING" means an underwritten public offering of common stock
(other than Disqualified Stock) of the Company or ISG, pursuant to an effective
registration statement filed with the Commission in accordance with the
Securities Act; PROVIDED, HOWEVER, that, in case of a Public Offering by ISG,
ISG contributes to the capital of the Company the net cash proceeds therefrom.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SECURED CREDIT FACILITY" means that certain Credit Agreement, dated as of
March 4, 1998, by and among the Company, NationsBank, N.A., as administrative
agent, Canadian Imperial Bank of Commerce, as documentation agent, and the other
lenders party thereto, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced (in
whole or in part) from time to time.
"SENIOR INDEBTEDNESS" means (i) all Indebtedness of the Company or any of
its Subsidiaries outstanding under the Secured Credit Facility and all Hedging
Obligations with respect thereto, (ii) any other
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Indebtedness permitted to be incurred by the Company or any of its Subsidiaries
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes or any Guarantor's Subsidiary
Guarantee of the Notes and (iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include (w) any liability for federal, state, local or other taxes owed
or owing by the Company or any of its Subsidiaries, (x) any Indebtedness of the
Company or any of its Subsidiaries to any Subsidiary or other Affiliate, (y) any
trade payables or (z) any Indebtedness that is incurred in violation of the
Indenture.
"SIGNIFICANT RESTRICTED SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date of
the Indenture.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution;
but only to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described above under the caption
"--Certain Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," the Company shall be in default
of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant described under the caption
"--Certain Covenants--
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Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a pro
forma basis as if such designation had occurred at the beginning of the
four-quarter reference period and (ii) no Default or Event of Default would be
in existence following such designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
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DESCRIPTION OF SECURED CREDIT FACILITY
GENERAL
To finance portions of the Pozzolanic Acquisition and the PPA Acquisition,
JTM (the "Borrower") entered into the $42.0 million Secured Credit Facility on
March 4, 1998, with a syndicate of banks, as lenders, NationsBank, N.A., as
administrative agent (the "Agent"), and Canadian Imperial Bank of Commerce, as
documentation agent. The Secured Credit Facility enables the Borrower to obtain
secured revolving loans from time to time to finance certain permitted
acquisitions, to repay existing indebtedness, to pay fees and expenses incurred
in connection with the Pozzolanic Acquisition and the PPA Acquisition and for
working capital and general corporate purposes. On April 22, 1998, JTM applied a
portion of the proceeds from the Offering to repay a portion of the $42.0
million outstanding under the Secured Credit Facility and the borrowings
available under the Secured Credit Facility were permanently reduced to $35.0
million. On May 29, 1998, the Secured Credit Facility was amended to reflect,
among other things, (i) reduction of the borrowings available under the Secured
Credit Facility to $35.0 million, (ii) changes to the interest rates applicable
to such borrowings and (iii) changes to the financial conditions contained
therein. See "--Certain Covenants" below. At the Borrower's option, the
revolving credit loans may be maintained as (a) Eurodollar Loans which bear
interest at the Eurodollar Rate, PLUS a margin ranging from 175 to 250 basis
points or (b) Base Rate Loans which bear interest at a rate equal to the higher
of (i) the Agent's prime rate and (ii) the federal funds rate plus 0.5%, PLUS a
margin ranging from 50 to 125 basis points. The Borrower is also obligated to
pay certain fees with respect to the Secured Credit Facility. The Secured Credit
Facility has a term of five and one-half years from March 4, 1998.
The obligations under the Secured Credit Facility are guaranteed by ISG and
the Guarantors. The obligations under the Secured Credit Facility are secured by
a first priority perfected security interest in 100% of the capital stock of the
Borrower (on a fully diluted basis) and 100% of the capital stock of each of the
Guarantors. Such capital stock is not subject to any other lien or encumbrance.
In addition, the Agent (on behalf of the Lenders) received a perfected security
interest in certain present and future assets and properties of the Borrower and
any domestic subsidiary of the Borrower. The Notes are effectively subordinated
to the obligations under the Secured Credit Facility to the extent of the value
of the assets securing the Secured Credit Facility. Up to 66.7% of JTM's
ownership in foreign subsidiaries may also be pledged.
CERTAIN COVENANTS
The Secured Credit Facility contains various covenants that restrict the
Borrower from taking various actions and that require the Borrower to achieve
and maintain certain financial covenants. The Secured Credit Facility contains
customary covenants and restrictions on the Borrower's ability to engage in
certain activities. The Secured Credit Facility also prohibits the Borrower from
prepaying the Notes, prohibits certain changes in control of JTM and prohibits
the Borrower from granting liens on its assets or those of the Guarantors,
except as provided under the Secured Credit Facility. In addition, the Secured
Credit Facility provides that the Borrower must meet certain financial tests
including (i) a maximum leverage ratio, (ii) a minimum interest coverage ratio
and (iii) minimum consolidated net worth.
In general, the leverage ratio test states that the Borrower will not permit
the leverage ratio to be greater than 6 to 1, until March 31, 2000, and
thereafter, to be greater than 5.5 to 1. In general, leverage ratio is defined
as the ratio of total debt to consolidated EBITDA. In general, the interest
coverage ratio test states that the Borrower will not permit the interest
coverage ratio to be less than 1.75 to 1, until March 31, 2000, and thereafter,
to be less than 1.9 to 1. In general, from May 29, 1998 to April 30, 1999, the
interest coverage ratio is defined as the ratio of consolidated EBITDA to the
product of (A) 365 and (B) a fraction, the numerator of which is the Borrower's
consolidated cash interest expense from May 1, 1998 to the day of determination,
and the denominator of which is the actual number of days from May 1,
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1998 to the day of determination. In general, after April 30, 1999, the interest
coverage ratio is defined as consolidated EBITDA to consolidated cash interest
expense.
In general, the minimum consolidated net worth test states that the Borrower
will not permit its consolidated net worth to be less than the "minimum
compliance level". The minimum compliance level was $24 million on the closing
date of the Secured Credit Facility, and is to be increased as of the last day
of each fiscal quarter of the Borrower ending after such closing date,
commencing with the fiscal quarter ending March 31, 1998, by an amount equal to
the sum of 50% of consolidated net income (if positive) for such fiscal quarter
and 100% of the net cash proceeds (and the fair market value of any noncash
proceeds) of certain equity issuances by ISG or the Company during such fiscal
quarter.
EVENTS OF DEFAULT
The Secured Credit Facility includes customary events of default, including
nonpayment of principal, interest or fees, violation of covenants, inaccuracy of
representations or warranties in any material respect, cross default and cross
acceleration to certain other indebtedness, bankruptcy, environmental matters,
material judgments and change of control.
86
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Notes by an initial beneficial owner of Notes that, for United States federal
income tax purposes, is not a "United States person" (a "Non-United States
Holder"). This discussion is based upon the United States federal tax law now in
effect, which is subject to change, possibly retroactively. For purposes of this
discussion, a "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or of any political
subdivision thereof, an estate whose income is includible in gross income for
United States federal income tax purposes regardless of its source or a trust,
if a U.S. court is able to exercise primary supervision over the administration
of the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust. The tax treatment of the holders of the
Notes may vary depending upon their particular situations. U.S. persons
acquiring the Notes are subject to different rules than those discussed below.
In addition, certain other holders (including insurance companies, tax exempt
organizations, financial institutions and broker-dealers) may be subject to
special rules not discussed below. PROSPECTIVE INVESTORS ARE URGED TO CONSULT
THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL TAX CONSEQUENCES OF
ACQUIRING, HOLDING AND DISPOSING OF NOTES, AS WELL AS ANY TAX CONSEQUENCES THAT
MAY ARISE UNDER THE LAWS OF ANY FOREIGN, STATE, LOCAL OR OTHER TAXING
JURISDICTION.
THE EXCHANGE OFFER
The exchange of Restricted Notes for Exchange Notes pursuant to the Exchange
Offer should be treated as a continuation of the corresponding Restricted Notes
because the terms of the Exchange Notes are not materially different from the
terms of the Restricted Notes. Accordingly, such exchange should not constitute
a taxable event to U.S. Holders and, therefore, (i) no gain or loss should be
realized by U.S. Holder upon receipt of a Exchange Note; (ii) the holding period
of the Exchange Note should include the holding period of the Restricted Note
exchanged therefor and (iii) the adjusted tax basis of the Exchange Note should
be the same as the adjusted tax basis of the Restricted Note exchanged therefor
immediately before the exchange.
INTEREST
Interest paid by JTM to a Non-United States Holder will not be subject to
United States federal income tax or withholding if such interest is not
effectively connected with the conduct of a trade or business in the United
States by such Non-United States Holder and such Non-United States Holder (i)
does not actually or constructively own 10% or more of the total combined voting
power of stock of all classes of stock of JTM; (ii) is not a controlled foreign
corporation with respect to which JTM is a "related person" within the meaning
of the United Sates Internal Revenue Code of 1986, as amended (the "Code"); and
(iii) certifies, under penalties of perjury, that such holder is not a United
States person and provides such holder's name and address.
GAIN ON DISPOSITION
A Non-United States Holder generally will not be subject to United States
federal income tax on gain recognized on a sale, redemption or other disposition
of a Note unless (i) the gain is effectively connected with the conduct of a
trade or business in the United States by the Non-United States Holder or (ii)
in the case of a Non-United States Holder who is a nonresident alien individual
and holds the Note as a capital asset, such holder is present in the United
States for at least 183 days in the taxable year and certain other requirements
are met.
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FEDERAL ESTATES TAXES
If interest on the Notes is exempt from withholding of United States federal
income tax under the rules described above, the Notes will not be included in
the estate of a deceased Non-United States Holder for United States federal
estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
JTM will, where required, report to the holders of Notes and the Internal
Revenue Service the amount of any interest paid on the Notes in each calendar
year and the amounts of tax withheld, if any, with respect to such payments.
In the case of payments of interest to Non-United States Holders, temporary
Treasury regulations provide that 31% backup withholding tax and certain
information reporting requirements will not apply to such payments if either the
requisite certification, as described above, has been received or an exemption
has otherwise been established; provided that neither JTM nor its payment agent
has actual knowledge that the holder is a United States person or that the
conditions of any other exemption are not in fact satisfied. However, the
temporary Treasury regulations further provide that the information reporting
and backup withholding requirements will apply to the gross proceeds paid to a
Non-United States Holder on the disposition of the Notes by or through a United
States office of a United States or foreign broker, unless the holder certifies
to the broker under penalties of perjury as to its name, address and status as a
foreign person or the holder otherwise establishes an exemption. Information
reporting requirements, but not backup withholding, will also apply to a payment
of the proceeds of a disposition of the Notes by or through a foreign office of
a United States broker or foreign brokers with certain types of relationships to
the United States unless such broker has documentary evidence in its file that
the holder of the Notes is not a United States person, and such broker has no
actual knowledge to the contrary, or the holder establishes an exception.
Neither information reporting nor backup withholding generally will apply to a
payment of the proceeds of a disposition of the Notes by or through a foreign
office of a foreign broker not described in the preceding sentence.
Any amounts withheld under the backup withholding rules may be refunded or
credited against the Non-United States Holder's United States federal income tax
liability, provided that the required information is furnished to the Internal
Revenue Service.
The Treasury department has promulgated final regulations regarding the
withholding and information reporting rules discussed above. In general, the
final regulations do not significantly alter the substantive withholding and
information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. The final regulations
generally are effective for payments made after December 31, 1998, subject to
certain transition rules. NON-UNITED STATES HOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT OF THE IMPACT, IF ANY, OF THE NEW FINAL REGULATIONS.
88
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Restricted
Notes where such Restricted Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer or use in connection
with any such resale. In addition, until [ ], all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker-dealer
that participates in a distribution of such Exchange Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by any
such persons may be deemed to be an underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incidental to the Exchange Offer (including the expenses of one counsel for the
holders of the Restricted Notes) other than commissions or concessions of any
brokers-dealers and will indemnify the holders of the Restricted Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the Notes offered by JTM hereby will be
passed upon for JTM by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The consolidated financial statements of JTM Industries, Inc. and Subsidiary
as of December 31, 1997 and for the period from October 14, 1997 to December 31,
1997, the consolidated financial statements of Pozzolanic Resources, Inc. and
Subsidiaries as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997, the consolidated financial statements of
Power Plant Aggregates of Iowa, Inc. and Subsidiary as of December 31, 1997 and
March 31, 1997 and for the period from April 1, 1997 to December 31, 1997 and
for the year ended March 31, 1997, the combined financial statements of Michigan
Ash Sales Company (d.b.a. U.S. Ash Company) and Affiliated Companies as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, the financial statements of Fly Ash Products, Incorporated as
of December 31, 1997 and 1996 and for the years then ended, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of JTM Industries, Inc. as of October
13, 1997 and December 31, 1996 and 1995 and for the period from January 1, 1997
to October 13, 1997 and for each of the two years in the period ended December
31, 1996, included herein have been included herein in reliance upon the report
of PricewaterhouseCoopers LLP (formerly Coopers & Lybrand L.L.P.), independent
accountants, appearing elsewhere herein, given on the authority of that firm as
experts in accounting and auditing.
89
INDEX TO FINANCIAL STATEMENTS
JTM INDUSTRIES, INC. AND SUBSIDIARIES
Audited Consolidated Financial Statements as of December 31, 1997 and for
the Period From October 14, 1997 to December 31, 1997:
Report of Independent Auditors........................................ F-3
Consolidated Balance Sheet............................................ F-4
Consolidated Statement of Income...................................... F-5
Consolidated Statement of Shareholders' Equity........................ F-6
Consolidated Statement of Cash Flows.................................. F-7
Notes to Consolidated Financial Statements............................ F-8
Audited Consolidated Financial Statements as of October 13, 1997
and December 31, 1996 and 1995:
Report of Independent Accountants..................................... F-15
Consolidated Balance Sheets........................................... F-16
Consolidated Statements of Loss and Accumulated Deficit............... F-17
Consolidated Statements of Cash Flows................................. F-18
Notes to Consolidated Financial Statements............................ F-19
Unaudited Condensed Consolidated Financial Statements as of June 30, 1998
and 1997:
Unaudited Condensed Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997................................................ F-24
Unaudited Condensed Consolidated Statements of Operations for the Six
Months Ended June 30, 1998 and 1997.................................. F-25
Unaudited Condensed Consolidated Statement of Shareholders' Equity for
the Six Months Ended June 30, 1998................................... F-26
Unaudited Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997.................................. F-27
Notes to Unaudited Condensed Consolidated Financial Statements........ F-28
POZZOLANIC RESOURCES, INC. AND SUBSIDIARIES
Audited Consolidated Financial Statements:
Report of Independent Auditors........................................ F-32
Consolidated Balance Sheets........................................... F-33
Consolidated Statements of Income and Retained Earnings............... F-35
Consolidated Statements of Cash Flows................................. F-36
Notes to Consolidated Financial Statements............................ F-37
POWER PLANT AGGREGATES OF IOWA, INC. AND SUBSIDIARY
Audited Consolidated Financial Statements:
Report of Independent Auditors........................................ F-40
Consolidated Balance Sheets........................................... F-41
Consolidated Statements of Income..................................... F-42
Consolidated Statements of Shareholders' Equity....................... F-43
Consolidated Statements of Cash Flows................................. F-44
Notes to Consolidated Financial Statements............................ F-45
F-1
MICHIGAN ASH SALES COMPANY (D.B.A. U.S. ASH COMPANY) AND AFFILIATED
COMPANIES
Audited Combined Financial Statements:
Report of Independent Auditors........................................ F-49
Combined Balance Sheets............................................... F-50
Combined Statements of Income and Retained Earnings................... F-51
Combined Statements of Cash Flows..................................... F-52
Notes to Combined Financial Statements................................ F-53
Unaudited Condensed Financial Statements as of March 31, 1998 and 1997:
Unaudited Condensed Combined Balance Sheets........................... F-57
Unaudited Condensed Combined Statements of Income and Retained
Earnings............................................................. F-58
Unaudited Condensed Combined Statements of Cash Flows................. F-59
Notes to Unaudited Condensed Combined Financial Statements............ F-60
FLY ASH PRODUCTS, INCORPORATED
Audited Financial Statements:
Report of Independent Auditors........................................ F-61
Balance Sheets........................................................ F-62
Statements of Income.................................................. F-63
Statements of Shareholders' Equity.................................... F-64
Statements of Cash Flows.............................................. F-65
Notes to Financial Statements......................................... F-66
Unaudited Condensed Financial Statements as of March 31, 1998 and 1997:
Unaudited Condensed Balance Sheets.................................... F-70
Unaudited Condensed Statements of Operations.......................... F-71
Unaudited Condensed Statement of Shareholders' Equity................. F-72
Unaudited Condensed Statements of Cash Flows.......................... F-73
Notes to Unaudited Condensed Financial Statements..................... F-74
F-2
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
JTM Industries, Inc.
We have audited the accompanying consolidated balance sheet of JTM
Industries, Inc. and Subsidiary as of December 31, 1997, and the related
consolidated statements of income, shareholders' equity and cash flows for the
period from October 14, 1997 to December 31, 1997. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of JTM Industries,
Inc. and Subsidiary at December 31, 1997, and the consolidated results of their
operations and their cash flows for the period from October 14, 1997 to December
31, 1997 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Salt Lake City, Utah
February 20, 1998, except for
Note 8, as to which the date is
April 22, 1998
F-3
JTM INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Current assets:
Cash and cash equivalents.................................................... $3,068,980
Accounts receivable:
Trade, net of allowance for doubtful accounts of $206,000.................. 9,167,788
Retainage.................................................................. 517,695
Other...................................................................... 318,271
Deferred tax asset........................................................... 324,608
Other current assets......................................................... 216,225
----------
Total current assets........................................................... 13,613,567
Property, plant and equipment:
Land and improvements........................................................ 1,624,335
Buildings and improvements................................................... 3,145,031
Vehicles and other operating equipment....................................... 9,817,148
Furniture, fixtures and office equipment..................................... 1,115,721
----------
15,702,235
Accumulated depreciation..................................................... (453,516)
----------
15,248,719
Other assets:
Intangible assets, net....................................................... 44,385,492
Other assets................................................................. 22,335
----------
Total assets................................................................... $73,270,113
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $1,806,678
Accrued expenses:
Payroll.................................................................... 1,693,953
Interest................................................................... 627,704
Other...................................................................... 1,604,879
Income taxes payable......................................................... 528,742
Note payable................................................................. 29,000,000
----------
Total current liabilities...................................................... 35,261,956
Accrued closure costs.......................................................... 306,098
Deferred tax liability......................................................... 12,437,297
Commitments and contingencies
Shareholders' equity:
Common stock, par value $1 per share;
100 shares authorized, issued and outstanding.............................. 100
Additional paid-in capital................................................... 24,999,950
Retained earnings............................................................ 264,712
----------
Total shareholders' equity..................................................... 25,264,762
----------
Total liabilities and shareholders' equity..................................... $73,270,113
----------
----------
See accompanying notes.
F-4
JTM INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
PERIOD FROM OCTOBER 14, 1997 TO DECEMBER 31, 1997
Revenues:
Product revenues............................................................. $7,059,063
Service revenues............................................................. 5,583,981
----------
12,643,044
Costs and expenses:
Cost of products sold, excluding depreciation................................ 4,864,226
Cost of services sold, excluding depreciation................................ 4,500,892
Depreciation and amortization................................................ 908,619
Selling, general and administrative expenses................................. 1,255,680
----------
11,529,417
----------
1,113,627
Interest income................................................................ 31,286
Interest expense............................................................... (627,704)
----------
Income before income taxes..................................................... 517,209
Income taxes................................................................... (252,497)
----------
Net income..................................................................... $ 264,712
----------
----------
See accompanying notes.
F-5
JTM INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
----------- ------------- ---------- -------------
Balance at October 14, 1997................................. $ 100 $ 23,811,429 $ -- $ 23,811,529
Cash contribution from ISG................................ -- 1,188,521 -- 1,188,521
Net income................................................ -- -- 264,712 264,712
----- ------------- ---------- -------------
Balance at December 31, 1997................................ $ 100 $ 24,999,950 $ 264,712 $ 25,264,762
----- ------------- ---------- -------------
----- ------------- ---------- -------------
See accompanying notes.
F-6
JTM INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM OCTOBER 14, 1997 TO DECEMBER 31, 1997
OPERATING ACTIVITIES:
Net income...................................................................... $ 264,712
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 908,619
Deferred income taxes....................................................... (276,245)
Changes in operating assets and liabilities:
Receivables............................................................... 691,534
Other current and non-current assets...................................... (22,569)
Accounts payable.......................................................... (1,035,993)
Income taxes payable...................................................... 528,742
Accrued expenses.......................................................... 755,913
Accrued closure costs..................................................... 28,387
----------
Net cash provided by operating activities....................................... 1,843,100
INVESTING ACTIVITIES:
Purchases of property, plant and equipment...................................... (19,491)
FINANCING ACTIVITIES:
Cash contribution from ISG...................................................... 1,188,521
----------
Net increase in cash and cash equivalents....................................... 3,012,130
Cash and cash equivalents at beginning of period................................ 56,850
----------
Cash and cash equivalents at end of period...................................... $3,068,980
----------
----------
Cash paid for interest.......................................................... $ --
----------
----------
Cash paid for income taxes...................................................... $ --
----------
----------
See accompanying notes.
F-7
JTM INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS
JTM Industries, Inc. is a wholly owned subsidiary of Industrial Services
Group ("ISG"). These financial statements reflect the consolidated position and
results of operations of JTM Industries, Inc. and its wholly owned subsidiary,
KBK Enterprises, Inc. (collectively, the "Company").
The Company purchases, removes and sells fly ash and other by-products of
coal combustion primarily in the eastern United States.
ISG was formed in September 1997 to acquire the stock of the Company from
Laidlaw Transportation, Inc. ("Laidlaw") (the "Acquisition"). Pursuant to the
Acquisition, the Company became a wholly owned subsidiary of ISG. Laidlaw
received from ISG, as consideration for the Acquisition, a $29,000,000 senior
bridge note (the "Senior Bridge Note"), a $17,500,000 9% Junior Subordinated
Promissory Note due 2005 (the "Junior Subordinated Note") and $5,817,000 in
cash. The Senior Bridge Note has been pushed down to the Company as the proceeds
of a proposed future debt offering will be used to retire this note. The Junior
Subordinated Note has not been pushed down to the Company as such proceeds will
not be used to retire this note, the Company has not and does not plan to assume
the Junior Subordinated Note, and the Company does not guarantee or pledge its
assets as collateral for this note.
The accompanying consolidated financial statements account for the
Acquisition under the purchase method of accounting. At the date of the
Acquisition, asset and liability values were recorded at fair value with respect
to the purchase price. The price of the Acquisition includes $494,529 in
acquisition costs and was allocated as follows:
Working capital, excluding deferred taxes......... $ 4,913,146
Property and equipment............................ 15,682,754
Identifiable intangible assets.................... 30,200,000
Deferred tax assets............................... 305,977
Deferred tax liabilities.......................... (12,694,911)
Other non-current assets and liabilities, net..... (236,021)
Goodwill.......................................... 14,640,584
-------------
$ 52,811,529
-------------
-------------
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of JTM Industries, Inc. and
KBK Enterprises, Inc. All significant intercompany accounts and transactions
have been eliminated in consolidation.
REVENUE RECOGNITION
Material revenues are earned by marketing products created by coal-fired
power generation and related industrial materials to consumers of building
materials and construction related products. Generally, material is obtained
from coal-fired electric utilities and is immediately delivered to the customer,
eliminating the need to inventory products. Therefore, no inventory exists at
Decemeber 31, 1997. Material revenues are recognized when the material is
delivered to the customer.
Service revenues are earned under long-term contracts to dispose of residual
materials created by coal-fired power generation. Typical contract terms are
from five to fifteen years. Service revenues are recognized concurrent with the
removal of the material and are typically based on the number of tons of
material removed at an established price per ton.
F-8
JTM INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
(CONTINUED)
CASH EQUIVALENTS
Cash equivalents are highly liquid investments with maturities of three
months or less when purchased.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment acquired in the Acquisition were recorded at
estimated fair value at the date of acquisition. Property, plant and equipment
acquired subsequent thereto, renewals and betterments are recorded at cost.
Maintenance and repairs are expensed as incurred. Depreciation is provided over
the estimated useful lives or lease terms, if less, using the straight line
method as follows:
Land improvements................................. 1 to 15 years
Buildings......................................... 13 to 49 years
Vehicles and other operating equipment............ 3 to 10 years
Furniture, fixtures and office equipment.......... 1 to 5 years
Leasehold improvements............................ 5 to 10 years
INTANGIBLE ASSETS
Intangible assets consist of goodwill, contracts, patents and assembled work
force. Amortization is provided over the estimated period of benefit, using the
straight-line method, ranging from 8 to 25 years.
Contracts consist of long-term materials management contracts with power
producers and industrial clients, which, in general, require the Company to
dispose of or market to end-users materials created by coal combustion. Typical
contract terms are from five to fifteen years and provide for revenue based on
an established price per ton in the case of disposal and costs based on either
an established price per ton or a revenue sharing arrangement in the case of
marketing.
INCOME TAXES
Deferred tax assets and liabilities are provided for the future tax
consequences attributable to temporary differences between the carrying amounts
of assets and liabilities for financial statement and income tax purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments" requires all entities to disclose the fair value
of financial instruments, both assets and liabilities recognized and not
recognized on the balance sheet, for which it is practicable to estimate fair
value. SFAS 107 defines fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between willing
parties. At December 31, 1997, the carrying value of all financial instruments
(accounts receivable, accounts payable, accrued expenses and notes payable)
approximates fair value due to the short term nature of the instruments.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk in accounts receivable are limited due to the
large number of customers comprising the Company's customer base throughout the
eastern United States. The Company performs ongoing credit evaluations of its
customers, but does not require collateral to support customer accounts
receivable. Historically, the Company has not had significant uncollectable
accounts.
F-9
JTM INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
(CONTINUED)
LONG-LIVED ASSETS
As required by Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," management evaluates the carrying value of all long-lived
assets to determine recoverability when indicators of impairment are present
based generally on an analysis of undiscounted cash flows. Management believes
no material impairment in the value of long-lived assets exists at December 31,
1997.
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.
2. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1997:
Goodwill.......................................... $ 14,640,584
Contracts......................................... 26,700,000
Patents........................................... 2,400,000
Assembled work force.............................. 1,100,000
-------------
44,840,584
Less accumulated amortization..................... (455,092)
-------------
$ 44,385,492
-------------
-------------
3. NOTE PAYABLE
The Senior Bridge Note had an original maturity of March 30, 1998, which has
been extended to April 30, 1998. The Senior Bridge Note bears interest at 1.5%
plus the prime rate (as determined by The Chase Manhattan Bank, N.A) through
March 30, 1998 and 2% plus the prime rate thereafter. Management intends to
refinance this obligation on a long-term basis.
4. ACCRUED CLOSURE COSTS
The Company, in the normal course of business, expends funds for site
restoration of certain property owned. The method by which these costs are
accrued involves estimating the total site restoration costs, determining the
total volume of materials the site will hold, and accruing the site restoration
costs concurrently with the filling of the site. The total anticipated site
restoration costs currently are approximately $1,883,000. As of December 31,
1997, $306,000 of anticipated site restoration costs have been accrued.
F-10
JTM INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
Income tax expense (benefit) consists of the following for the period from
October 14, 1997 to December 31, 1997:
CURRENT DEFERRED TOTAL
---------- ----------- ----------
U.S. Federal............................................ $ 459,626 $ (240,135) $ 219,491
State................................................... 69,116 (36,110) 33,006
---------- ----------- ----------
$ 528,742 $ (276,245) $ 252,497
---------- ----------- ----------
---------- ----------- ----------
Reconciliation of income tax expense at the U.S. statutory rate to the
Company's tax expense for the period from October 14, 1997 to December 31, 1997
is as follows:
35% of income before income tax................................... $ 181,023
Add (deduct):
Goodwill amortization........................................... 42,702
Other permanent differences..................................... 7,318
State income taxes, net of federal benefit...................... 21,454
---------
$ 252,497
---------
---------
The major components of the deferred tax assets and liabilities as of
December 31, 1997 are as follows:
Deferred Tax Assets:
Bad debt reserves............................................ $ 78,658
Accruals not currently deductible for tax purposes........... 387,053
-----------
Total gross deferred tax assets................................ 465,711
Less: Valuation allowance...................................... --
-----------
465,711
Deferred Tax Liabilities:
Fixed asset basis differences................................ 1,130,285
Intangible asset basis differences........................... 11,424,094
Other........................................................ 24,021
-----------
12,578,400
-----------
Net deferred tax liabilities................................... $(12,112,689)
-----------
-----------
There was no change in the valuation allowance for the period from October
14, 1997 to December 31, 1997.
6. EMPLOYEE BENEFIT PLAN
Eligible employees of the Company may participate in a 401(k) savings plan
(the "Plan") sponsored by Laidlaw Environmental Services, Inc. ("LESI"), an
affiliate of Laidlaw. The Plan allows for participation by affiliates, as
defined, who adopt the Plan with the approval of LESI's board of directors. The
Plan requires the Company to match employee contributions, as defined, up to 3%
of the employees compensation. Expenses related to the Plan were $43,581 for the
period from October 14, 1997 to December 31, 1997.
F-11
JTM INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
Certain facilities and equipment are leased under noncancelable operating
leases expiring in various years through 2006.
Future minimum payments under leases with initial terms of one year or more
consisted of the following at December 31, 1997:
1998........................................................... $4,008,675
1999........................................................... 2,578,542
2000........................................................... 1,542,705
2001........................................................... 1,308,292
2002........................................................... 1,054,452
Thereafter..................................................... 1,790,547
----------
Total minimum lease payments................................... $12,283,213
----------
----------
Total rental expense was approximately $1,259,019 in the period from October
14, 1997 to December 31, 1997.
SENIOR SECURED REVOLVING CREDIT AGREEMENT
On October 14, 1997, the Company entered into the Senior Secured Revolving
Credit Agreement with Citicorp Venture Capital, Ltd., a major shareholder of
ISG. Under the terms of the Senior Secured Revolving Credit Agreement, the
Company may borrow up to an aggregate outstanding principal amount not to exceed
$5,000,000. Outstanding borrowings under the Senior Secured Revolving Credit
Agreement bear interest at 1.5% plus the prime rate (as determined by The Chase
Manhattan Bank, N.A.), are due March 30, 1998, and are secured by all accounts
receivable of the Company. At December 31, 1997, the Company had no borrowings
outstanding and had incurred no interest under the Senior Secured Revolving
Credit Agreement.
SALE AND PURCHASE COMMITMENTS
The Company's contracts with its customers and suppliers require the Company
to make minimum sales and purchases over ensuing years, as follows:
MINIMUM MINIMUM
SALES PURCHASES
------------ -------------
1998............................................................. $ 1,192,300 $ 4,759,500
1999............................................................. 1,192,300 5,011,800
2000............................................................. 1,192,600 5,119,600
2001............................................................. 1,193,000 5,438,300
2002............................................................. 1,193,500 4,504,800
Thereafter....................................................... 1,213,700 914,000
------------ -------------
$ 7,177,400 $ 25,748,000
------------ -------------
------------ -------------
Minimum sales and purchases under contracts with minimum requirements
approximated $248,600 and $318,000, respectively, for the period from October
14, 1997 to December 31, 1997.
F-12
JTM INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL PROCEEDINGS
There are various legal proceedings against the Company arising in the
normal course of business. While it is not currently possible to predict or
determine the outcome of these proceedings, it is the opinion of management that
the outcome will not have a material adverse effect on the Company's results of
operations, financial position or liquidity.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain of its officers. The
employment agreements provide for total annual base compensation of $695,000 and
expire from 2000 to 2002.
8. SUBSEQUENT EVENTS
On March 4, 1998, the Company entered into a $42,000,000 Secured Credit
Facility provided by a syndicate of banks which replaced the Senior Secured
Revolving Credit Agreement discussed in Note 7. The Secured Credit Facility
enables the Company to obtain revolving secured loans from time to time to
finance certain permitted acquisitions, to repay existing indebtedness, to pay
fees and expenses incurred in connection with certain acquisitions and for
working capital and general corporate purposes. At the Company's option, the
revolving secured loans may be maintained as (a) Eurodollar Loans (as defined)
which will bear interest at a rate equal to the quotient obtained by dividing
LIBOR (as defined) by one minus the reserve requirement for such Eurodollar
Loan, plus a margin of 250 basis points or (b) Base Rate Loans (as defined)
which will have an interest rate equal to the higher of (i) the Nations Bank
N.A. prime rate and (ii) the federal funds rate plus 0.5%, plus a margin of 125
basis points. The Company will also pay certain fees with respect to the Secured
Credit Facility. The Secured Credit Facility has a term of five and one-half
years from the date of initial funding, is guaranteed by ISG and existing and
future subsidiaries of the Company (the Guarantors), and is secured by a first
priority perfected security interest in all of the capital stock of the Company
and all of the capital stock of each of the Guarantors, as well as certain
present and future assets and properties of the Company and any domestic
subsidiaries.
On March 4, 1998, the Company acquired all of the outstanding stock of
Pozzolanic Resources, Inc. ("Pozzolanic") for $40,000,000. Pozzolanic is a
distributor of fly ash in the western United States and British Columbia. The
purchase price was substantially funded by the Secured Credit Facility.
On March 20, 1998, the Company purchased all of the outstanding stock of
Power Plant Aggregates of Iowa, Inc. ("PPA") for $8,541,000. PPA is a provider
of coal combustion product management services in Iowa. The purchase price was
funded by the Secured Credit Facility and cash on hand.
On April 22, 1998, the Company aquired all of the outstanding stock of
Michigan Ash Sales Company, d.b.a. U.S. Ash Company, together with two
affiliated companies, U.S. Stabilization, Inc. and Flo Fil Co., Inc.
(collectively, "U.S. Ash"). U.S. Ash is a provider of coal combustion product
management services in Michigan, Ohio and Indiana. The consideration paid
consisted of approximately $24,600,000 in cash, which was funded by the private
placement of debt discussed below.
On April 22, 1998, the Company aquired all of the outstanding stock of Fly
Ash Products, Inc. ("Fly Ash Products"). Fly Ash Products is a provider of coal
combustion product management services in Arkansas. The consideration paid
consisted of approximately $9,500,000 in cash, which was funded by the private
placement of debt discussed below.
On April 22, 1998, the Company completed a private placement of $100,000,000
aggregate principal amount of its 10% Senior Subordinated Notes due 2008 (the
"Senior Subordinated Notes"). The proceeds
F-13
JTM INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENTS (CONTINUED)
were used to pay the Senior Bridge Note, a portion of the Secured Credit
Facility, consideration and expenses related to the U.S. Ash and Fly Ash
Products acquisitions and transaction fees. Interest on the Senior Subordinated
Notes is payable semi-annually on April 15 and October 15 of each year,
commencing October 15, 1998. The Senior Subordinated Notes will mature on April
15, 2008 and are guaranteed fully and unconditionally and on a joint and several
basis by all of the Company's existing and future restricted subsidiaries, as
defined in the indenture. Management believes that separate financial statements
of the guarantor subsidiaries would not be material to an investor as the
Company has no assets or operations separate from its investments in the
guarantor subsidiaries. As such, no separate financial statements of the
guarantor subsidiaries have been provided.
9. IMPACT OF YEAR 2000 (UNAUDITED)
Substantially all of the Company's computer processing is performed by LESI
under the Corporate Services Agreement, which requires LESI to provide certain
services to the Company for a monthly fee of $25,000. The Company is currently
selecting hardware and software to enable the performance of all computer
processing in-house. The Company will consider the Year 2000 issue when
selecting new software. This project is expected to be completed by June 1998,
which is prior to any anticipated Year 2000 related impact on its operating
systems. The Company believes that with the purchase of new software, the Year
2000 issue will not pose significant operational problems for its computer
systems.
F-14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder
JTM Industries, Inc.:
We have audited the accompanying consolidated balance sheets of JTM
Industries, Inc. (a wholly owned subsidiary of Laidlaw, Inc. until October 13,
1997) and Subsidiary as of October 13, 1997; December 31, 1996 and 1995, and the
related consolidated statements of loss and accumulated deficit and cash flows
for the period from January 1, 1997 to October 13, 1997 and the years ended
December 31, 1996 and 1995. These financial statements are the responsibility of
the Company's management and the management of Laidlaw, Inc. and its majority
owned subsidiary, Laidlaw Environmental Services, Inc. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of JTM Industries,
Inc. as of October 13, 1997; December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for the period from January 1,
1997 to October 13, 1997 and the years ended December 31, 1996 and 1995.
As discussed in Note 10, Laidlaw, Inc. sold the outstanding shares of JTM
Industries, Inc. on October 14, 1997.
COOPERS & LYBRAND L.L.P.
Charlotte, North Carolina
February 16, 1998
F-15
JTM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
($000'S OMITTED)
OCTOBER 13 DECEMBER 31,
----------- --------------------
1997 1996 1995
----------- --------- ---------
ASSETS
Current assets
Trade and other accounts receivable (net of allowance for doubtful accounts
October 13, 1997--$406; December 31, 1996--$392; Deember 31, 1995--$426)...... $ 9,726 $ 7,503 $ 8,014
Retainage receivable............................................................ 770 1,095 1,269
Deferred income taxes........................................................... 329 1,394 1,660
Other current assets............................................................ 354 441 535
----------- --------- ---------
Total current assets...................................................... 11,179 10,433 11,478
Fixed assets
Land and improvements........................................................... 1,798 1,443 2,030
Buildings....................................................................... 3,533 2,055 1,411
Vehicles and other equipment.................................................... 11,038 8,939 6,270
Construction in progress........................................................ 886 5,083 3,158
----------- --------- ---------
17,255 17,520 12,869
Less: Accumulated depreciation.................................................. (4,090) (3,142) (1,711)
----------- --------- ---------
13,165 14,378 11,158
Goodwill (net of accumulated amortization October 13, 1997--$6,095;
December 31, 1996--$2,008; December 31, 1995--$1,004.......................... 34,052 38,139 39,143
----------- --------- ---------
Total assets.............................................................. $ 58,396 $ 62,950 $ 61,779
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable................................................................ $ 2,808 $ 2,071 $ 1,955
Accrued liabilities............................................................. 2,558 5,716 6,185
Intercompany notes payable...................................................... 49,407 48,450 45,606
----------- --------- ---------
Total current liabilities................................................. 54,773 56,237 53,746
----------- --------- ---------
Commitments and contingencies
Stockholder's equity
Common stock--authorized, issued and outstanding 100 shares..................... 1 1 1
Paid in capital................................................................. 10,678 10,678 10,128
Accumulated deficit............................................................. (7,056) (3,966) (2,096)
----------- --------- ---------
Total stockholder's equity................................................ 3,623 6,713 8,033
----------- --------- ---------
Total liabilities and stockholder's equity................................ $ 58,396 $ 62,950 $ 61,779
----------- --------- ---------
----------- --------- ---------
The accompanying notes are an integral part of these financial statements.
F-16
JTM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
($000'S OMITTED)
YEAR TO
DATE YEAR ENDED DECEMBER
OCTOBER 13, 31,
----------- --------------------
1997 1996 1995
----------- --------- ---------
Revenues:
Product revenues............................................................... $ 25,613 $ 25,513 $ 25,734
Service revenues............................................................... 25,682 37,328 39,252
----------- --------- ---------
----------- --------- ---------
51,295 62,841 64,986
Cost of product revenues, excluding depreciation............................... 20,702 22,397 19,525
Cost of service revenues, excluding depreciation............................... 19,999 29,871 31,964
Depreciation and amortization.................................................. 5,279 2,285 2,265
Selling, general and administrative expenses................................... 3,633 5,667 9,692
----------- --------- ---------
Income from operations......................................................... 1,682 2,621 1,540
Intercompany interest expense.................................................. 4,160 4,845 4,030
Interest expense............................................................... -- 8 51
----------- --------- ---------
(2,478) (2,232) (2,541)
Income tax benefit (expense)................................................... (612) 362 445
----------- --------- ---------
Net loss....................................................................... (3,090) (1,870) (2,096)
Accumulated deficit--beginning of year......................................... (3,966) (2,096) --
----------- --------- ---------
Accumulated deficit--end of year............................................... ($ 7,056) ($ 3,966) ($ 2,096)
----------- --------- ---------
----------- --------- ---------
The accompanying notes are an integral part of these financial statements.
F-17
JTM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000'S OMITTED)
YEAR TO
DATE YEAR ENDED DECEMBER 31,
OCTOBER 13, --------------------------
1997 1996 1995
----------- ------------ ------------
NET CASH PROVIDED BY (USED IN):
Operating activities.................................................... $ 521 $ 603 ($ 1,115)
Investing activities.................................................... (681) (3,869) (4,586)
----------- ------------ ------------
Net cash used by operating and investing activities..................... (160) (3,266) (5,701)
Non-cash activities..................................................... (797) 422 9,814
----------- ------------ ------------
(957) (2,844) 4,113
Intercompany notes payable--beginning of year........................... (48,450) (45,606) (49,719)
----------- ------------ ------------
Intercompany notes payable--end of year................................. ($ 49,407) ($ 48,450) ($ 45,606)
----------- ------------ ------------
----------- ------------ ------------
OPERATING ACTIVITIES:
Net loss................................................................ ($ 3,090) ($ 1,870) ($ 2,096)
Items not affecting cash:
Loss on disposal of fixed assets...................................... 305 -- --
Depreciation and amortization......................................... 5,279 2,285 2,265
Deferred income taxes................................................. 150 266 53
Cash provided by (used in) financing working capital:
Trade and other accounts receivable................................... (1,898) 685 557
Other current assets.................................................. 87 94 (535)
Accounts payable and accrued liabilities.............................. (312) (857) (1,359)
----------- ------------ ------------
Net cash provided by (used in) operating activities..................... $ 521 $ 603 ($ 1,115)
----------- ------------ ------------
----------- ------------ ------------
INVESTING ACTIVITIES:
Purchase of fixed assets................................................ ($ 681) ($ 4,357) ($ 4,589)
Proceeds from sale of fixed and other assets............................ -- 488 3
----------- ------------ ------------
Net cash used in investing activities................................... ($ 681) ($ 3,869) ($ 4,586)
----------- ------------ ------------
----------- ------------ ------------
Supplemental cash flow information:
Noncash transaction:
Transfers of fixed assets from parent............................... $ 107 $ 128 $ 315
Accounts payable related to fixed assets............................ $ -- $ 504 $ --
Cash paid (received) for:.............................................
Interest............................................................ $ 4,160 $ 4,845 $ 4,030
Income taxes to (from) parent....................................... $ 462 ($ 629) ($ 499)
The accompanying notes are an integral part of these financial statements.
F-18
JTM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000'S OMITTED)
1. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
These financial statements reflect the consolidated financial position and
results of operations of JTM Industries, Inc. and its subsidiary, KBK
Enterprises, Inc. ("the Company") which until October 13, 1997 was an indirect
wholly owned subsidiary of Laidlaw Inc. The Company is involved in materials
management services to coal combustion by-products (CCPs) producing utilities
and marketing products derived from CCPs, principally in the United States.
Interest expense associated with intercompany financing by the Company's
former parent, Laidlaw, Inc. ("Laidlaw"), has been charged to the Company based
on prime rate plus 2% on the average outstanding balance.
The Company is included in the consolidated tax return of Laidlaw. Income
taxes have been calculated using applicable income tax rates on a separate
return basis.
The surplus funds of the Company are regularly transferred to Laidlaw, and
any financing requirements are provided by Laidlaw. Accordingly, no cash or bank
indebtedness balances are reported in these financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States
and all figures are represented in U.S. dollars, as the Company's operating
assets are located in the United States.
The preparation of financial statements in accordance with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect reported amounts of assets, liabilities, income and
expenses, and disclosure of contingencies. Future events could alter such
estimates in the near term.
B) CONSOLIDATION
The consolidated financial statements include the accounts of JTM
Industries, Inc. and KBK Enterprises, Inc., its subsidiary company. All
significant intercompany transactions are eliminated.
C) FIXED ASSETS
Fixed assets are recorded at cost. Depreciation and amortization of other
property and equipment is provided substantially on a straight-line basis over
their estimated useful lives which are as follows:
Buildings............................... 20 to 40 years
Vehicles and other...................... 3 to 15 years
The company periodically reviews the carrying values of its fixed assets to
determine whether such values are recoverable. Any resulting write downs are
charged against income. Depreciation expense amounts to $1,191, $1,281, and
$1,261 for the period ended October 13, 1997, and the years ended December 31,
1996 and 1995, respectively.
F-19
JTM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($000'S OMITTED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D) OTHER ASSETS
Goodwill is amortized on a straight-line basis over forty years. The amount
of any impairment is charged against income. In 1997, in connection with the
planned sale of the Company, Laidlaw wrote down the assets of the Company to
fair value which resulted in a charge against goodwill of $3,300.
E) INCOME TAXES
Deferred income taxes are provided for all significant temporary differences
arising from recognizing certain expenses and certain closure accruals in
different periods for income tax and financial reporting purposes.
F) REVENUE
Material revenues are earned by marketing products created by coal-fired
power generation and related industrial materials to consumers of building
materials and construction related products. Generally, material is obtained
from coal-fired electric utilities and is immediately delivered to the customer,
eliminating the need to inventory products. Therefore, no inventory exists at
October 14, 1997 or December 31, 1996 or 1995. Material revenues are recognized
when the material is delivered to the customer.
Service revenues are earned under long-term contracts to dispose of residual
materials created by coal-fired power generation. Typical contract terms are
from five to fifteen years. Service revenues are recognized concurrent with the
removal of the material and are typically based on the number of tons of
material removed at an established price per ton.
G) CONCENTRATION OF CREDIT RISK
Concentrations of credit risk in accounts receivable are limited, due to the
large number of customers comprising the Company's customer base throughout the
United Sates. The Company performs ongoing credit evaluations of its customers,
but does not require collateral to support customer accounts receivable. The
Company establishes an allowance for doubtful accounts based on the credit risk
applicable to particular customers, historical trends, and other relevant
information.
3. ACQUISITION
On January 1, 1995, Laidlaw Environmental Service, Inc. ("LESI"), a
subsidiary of Laidlaw acquired 100% of the outstanding shares of USPCI, Inc. and
its wholly owned subsidiary JTM Industries, Inc. The acquisition was accounted
for using purchase method accounting. LESI elected to "push down" the purchase
price allocated to the Company's assets acquired and liabilities assumed, which
resulted in a new basis of accounting for the Company as of the acquisition
date. Goodwill was allocated by LESI to the USPCI, Inc. operating entities
acquired based upon each operating units estimated discounted future cash flows.
Goodwill is amortized using the straight-line method over forty years.
F-20
JTM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($000'S OMITTED)
3. ACQUISITION (CONTINUED)
A summarized balance sheet as of January 1, 1995, adjusted for excess of
consideration over net assets acquired is as follows:
Current assets..................................................... $ 11,553
Fixed assets....................................................... 7,518
Goodwill........................................................... 40,147
Current liabilities................................................ (9,499)
---------
Allocated purchase price........................................... $ 49,719
---------
---------
In 1995 and 1996, Laidlaw contributed additional capital of $10,129 and
$550, respectively, through a reduction in the intercompany note payable in a
non-cash transaction. On May 9, 1997, all of the outstanding shares of the
Company were transferred from LESI to Laidlaw Transportation, Inc., a direct,
wholly owned subsidiary of Laidlaw.
4. BENEFIT PLANS
Eligible employees of the Company may participate in a 401(k) savings plan
sponsored by Laidlaw. The 401(k) plan requires the Company to match employee
contributions as defined, up to 3% of the employees compensation. Expenses
related to the 401(k) plan were approximately $294, $266, and $198, for the
period ended October 13, 1997, the years ended December 31, 1996 and 1995,
respectively.
5. LEASE COMMITMENTS
Rental expense incurred under operating leases amounted to $4,334, $6,136,
and $6,048 for the period ended October 13, 1997; and the years ended December
31, 1996 and 1995, respectively.
Rentals payable under operating leases for premises and equipment are as
follows:
YEAR ENDING OCTOBER 13, 1997:
- ------------------------------
1998.......................... $4,518
1999.......................... 3,264
2000.......................... 1,553
2001.......................... 1,440
2002.......................... 753
Thereafter.................... 1,600
-------
$13,128
-------
-------
6. LEGAL PROCEEDINGS
The Company has various outstanding legal matters arising from the normal
course of business. Although the final outcome cannot be predicted with
certainty, the Company believes the ultimate disposition of the matters will not
have a material impact on the Company's financial position.
F-21
JTM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($000'S OMITTED)
6. LEGAL PROCEEDINGS (CONTINUED)
In January 1997, a third party filed suit against the Company for breach of
contract. The Company settled this claim for $1,000 in February 1997. The
Company accrued the loss as of December 31, 1996 as a component of cost of
sales.
7. RELATED PARTY TRANSACTIONS
Included in the financial statements are related party transactions between
the Company and Laidlaw. These related party transactions are as follows:
YEAR TO DATE YEAR ENDED YEAR ENDED
OCTOBER 13, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------- -------------
Management fees.................................... $ 491 $ 2,320 $ 5,779
Administrative fees................................ $ 249 $ 423 $ 337
Intercompany sales................................. $ 2,814 $ 4,953 $ 1,406
Allocated insurance expense........................ $ 515 $ 772 $ 709
Interest expense................................... $ 4,160 $ 4,845 $ 4,030
Management and administrative fees have been allocated to the Company based
upon the Company's share of Laidlaw's consolidated revenue. Management and
administrative fees are charged by Laidlaw to each of its operating groups in
order to recover its general and administrative costs. The services provided by
Laidlaw include treasury, taxation and insurance. The allocated charges may not
be indicative of the expenses the Company would have incurred if Laidlaw had not
provided the services.
In preparation for the disposal of the Company, certain closure liabilities
amounting to $1,650 were transferred to Laidlaw, net of the related deferred tax
asset of $578. Additionally, a long term receivable in the amount of $1,008, net
of an allowance of $963, was transferred to Laidlaw. A deferred tax asset of
$337 related to the allowance was also transferred to Laidlaw.
8. INCOME TAXES
The components of income tax expense for the period from January 1, 1997 to
October 13, 1997 and for the years ended December 31, 1996 and 1995 are as
follows:
YEAR TO DATE YEAR ENDED YEAR ENDED
OCTOBER 13, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------- -------------
Current federal provision (benefit)................ $ 421 ($ 676) ($ 579)
Current state provision............................ 41 48 81
Deferred federal provision......................... 150 266 53
----- ----- -----
Total income tax provision (benefit)............... $ 612 ($ 362) ($ 445)
----- ----- -----
----- ----- -----
F-22
JTM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($000'S OMITTED)
8. INCOME TAXES (CONTINUED)
Deferred income taxes arise from temporary differences between the tax basis
of assets and liabilities and their reported amounts in the financial
statements. Components of deferred tax liabilities and assets at October 13,
1997 and December 31, 1996 and 1995 are as follows:
OCTOBER 13, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------- -------------
Deferred tax assets:
Allowance for bad debts............................................... $ 142 $ 138 $ 149
Closure reserve....................................................... 97 640 918
Other accrued liabilities............................................. 91 654 688
Deferred tax liabilities:
Fixed assets.......................................................... (1) (38) (95)
----- ------ ------
Net deferred tax assets................................................. $ 329 $ 1,394 $ 1,660
----- ------ ------
----- ------ ------
The difference between the federal statutory tax rate and the effective tax
rate on continuing operations for the period from January 1, 1997 to October 13,
1997 and for the years ended December 31, 1996 and 1995 are as follows:
YEAR TO
DATE YEAR ENDED YEAR ENDED
OCTOBER 13, DECEMBER 31, DECEMBER 31,
1997 1996 1995
----------- ------------- -------------
Federal statutory tax rate............................................. 35.0% 35.0% 35.0%
Goodwill amortization not deductible for tax purposes.................. (57.7%) (15.7%) (13.8%)
State income taxes..................................................... (1.1%) (1.4%) (2.0%)
Other items--net....................................................... (0.9%) (1.7%) (1.6%)
----------- ------------- -------------
Effective tax rate..................................................... (24.7%) 16.2% 17.6%
----------- ------------- -------------
----------- ------------- -------------
9. ACCRUED CLOSURE COSTS
The Company, in the normal course of its business, expends funds for
remediation of certain property. The Company does not expect these expenditures
to have a materially adverse effect on its financial condition or results of
operations, since its business is based upon compliance with environmental laws
and regulations and its services are priced accordingly. The method by which
these costs are accrued involves estimating the total site restoration costs,
determining the total volume of materials the site will hold, and accruing the
site restoration costs concurrently with the filling of the site. The total
anticipated site restoration costs are approximately $1,900.
F-23
JTM INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1998 1997
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 1,560,156 $ 3,068,980
Accounts receivable, net........................................................ 19,901,227 10,003,754
Inventory....................................................................... -- --
Deferred tax asset.............................................................. 705,844 324,608
Other current assets............................................................ 641,222 216,225
-------------- -------------
Total current assets.............................................................. 22,808,449 13,613,567
Property, plant and equipment, net................................................ 22,399,790 15,248,719
Intangible assets, net............................................................ 130,220,268 44,385,492
Debt issuance costs, net.......................................................... 4,543,285 --
Other assets...................................................................... 308,191 22,335
-------------- -------------
Total assets...................................................................... $ 180,279,983 $ 73,270,113
-------------- -------------
-------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 6,044,749 $ 1,806,678
Accrued expenses................................................................ 6,143,127 3,926,536
Current portion of long-term debt and note payable.............................. -- 29,000,000
Other current liabilities....................................................... 3,201,904 528,742
-------------- -------------
Total current liabilities......................................................... 15,389,780 35,261,956
Long-term Debt.................................................................... 108,000,000 --
Deferred tax liability............................................................ 28,435,493 12,437,297
Other liabilities................................................................. 2,340,920 306,098
Commitments and contingencies
Shareholders' equity:
Common stock, par value $1 per share; 100 shares authorized, issued and
outstanding................................................................... 100 100
Additional paid-in capital...................................................... 24,999,950 24,999,950
Retained earnings............................................................... 1,113,740 264,712
-------------- -------------
Total shareholders' equity........................................................ 26,113,790 25,264,762
-------------- -------------
Total liabilities and shareholders' equity........................................ $ 180,279,983 $ 73,270,113
-------------- -------------
-------------- -------------
See accompanying notes.
F-24
JTM INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED
JUNE 30,
----------------------------
1998 1997
------------- -------------
Revenues:
Product revenues................................................................. $ 31,554,414 $ 14,650,234
Service revenues................................................................. 14,524,849 16,362,755
------------- -------------
46,079,263 31,012,989
Costs and expenses:
Cost of product revenues, excluding depreciation................................. 20,865,917 11,951,687
Cost of service revenues, excluding depreciation................................. 11,390,401 12,858,076
Depreciation and amortization.................................................... 3,568,126 1,270,290
Selling, general and administrative expenses..................................... 4,829,920 2,665,240
------------- -------------
40,654,364 28,745,293
------------- -------------
Operating income................................................................... 5,424,899 2,.267,696
Interest income.................................................................... 92,210 --
Interest expense................................................................... (3,474,431) (2,221,967)
Other income....................................................................... 2,720 --
Income (loss) before income taxes.................................................. (2,045,398) 45,729
Income taxes benefit (expense)..................................................... (1,196,370) (173,804)
------------- -------------
Net income (loss).................................................................. $ 849,028 $ (128,075)
------------- -------------
------------- -------------
See accompanying notes.
F-25
JTM INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
----------- ------------- ------------ -------------
Balance at December 31, 1997.............................. $ 100 $ 24,999,950 $ 264,712 $ 25,264,762
Net income.............................................. -- -- 849,028 849,028
----- ------------- ------------ -------------
Balance at June 30, 1998.................................. $ 100 $ 24,999,950 $ 1,113,740 $ 26,113,790
----- ------------- ------------ -------------
----- ------------- ------------ -------------
See accompanying notes.
F-26
JTM INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1998 1997
-------------- -------------
OPERATING ACTIVITIES
Net income (loss).................................................................. $ 849,028 $ (128,075)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 3,568,126 1,270,289
Amortization of debt issuance costs.............................................. 128,364
Loss on sale of fixed assets..................................................... -- 222,645
Deferred income taxes............................................................ (881,662) 257,082
Changes in operating assets and liabilities:
Receivables.................................................................... (5,372,583) (1,869,271)
Other current and non-current assets........................................... 388,733 190,747
Accounts payable............................................................... 1,767,483 1,780,588
Accrued expenses............................................................... 1,822,854 (2,743,375)
Other current and non-current liabilities...................................... 1,659,809 --
-------------- -------------
Net cash provided by (used in) operating activities................................ 3,930,152 (1,019,370)
INVESTING ACTIVITIES
Purchases of property, plant and equipment......................................... (2,193,929) (102,875)
Proceeds on sale of property, plant and equipment.................................. 118,896 493,211
Acquisitions of businesses, net of cash acquired................................... (77,666,940) --
-------------- -------------
Net cash used in investing activities.............................................. (79,741,973) 390,336
FINANCING ACTIVITIES
Proceeds of long-term debt......................................................... 142,500,000 --
Debt issuance costs incurred....................................................... (4,697,003) --
Change in intercompany notes payable............................................... -- 629,034
Payments on notes payable and long term debt....................................... (63,500,000)
-------------- -------------
Net cash provided by financing activities.......................................... 74,302,997 629,034
Net decrease in cash and cash equivalents.......................................... (1,508,824) --
Cash and cash equivalents at beginning of period................................... 3,068,980 --
-------------- -------------
Cash and cash equivalents at end of period......................................... $ 1,560,156 $ --
-------------- -------------
-------------- -------------
Cash paid for interest............................................................. $ 609,798 $ --
-------------- -------------
-------------- -------------
Cash paid for income taxes......................................................... $ 880,707 $ --
-------------- -------------
-------------- -------------
See accompanying notes.
F-27
JTM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the financial
position, results of operations and cash flows of JTM Industries, Inc. for
the respective periods presented. The results of operations for an interim
period are not necessarily indicative of the results which may be expected
for any other interim period or for the year as a whole.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying unaudited
interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes in the
Registration Statement on Form S-4. All intercompany accounts and
transactions have been eliminated in consolidation.
The consolidated balance sheet at December 31, 1997 was derived from audited
consolidated financial statements, but does not include all disclosures
required under generally accepted accounting principles.
On October 14, 1997, the Company became a wholly owned subsidiary of
Industrial Services Group ("ISG"). The consideration paid to the former
owner consisted of a $29,000,000 senior bridge note (the "Senior Bridge
Note"), a $17,500,000 junior subordinated promissory note (the "Junior
Subordinated Note") and $5,817,000 in cash. The Senior Bridge Note has been
pushed down to the Company as the proceeds of a subsequent debt offering
were used to retire this note. The Junior Subordinated Note has not been
pushed down to the Company as such proceeds will not be used to retire this
note, the Company has not and does not plan to assume the Junior
Subordinated Note, and the Company does not guarantee or pledge its assets
as collateral for this note. The acquisition has been accounted for as a
purchase and, accordingly, the purchase price was allocated based on
estimated fair values at the date of the acquisition. Goodwill resulting
from this acquisition is being amortized on a straight-line basis over 25
years.
On March 4, 1998, the Company completed the acquisition of all the
outstanding shares of Pozzolanic Resources, Inc. ("Pozzolanic"). The
consideration paid consisted of approximately $40,000,000 in cash. The
acquisition has been accounted for as a purchase and, accordingly, the
results of operations of Pozzolanic have been included in the consolidated
financial statements since March 4, 1998.
On March 20, 1998, the Company completed the acquisition of all the
outstanding shares of Power Plant Aggregates of Iowa, Inc. ("PPA"). The
consideration paid consisted of approximately $8,500,000 in cash. The
acquisition has been accounted for as a purchase and, accordingly, the
results of operations of PPA have been included in the consolidated
financial statements since March 20, 1998.
On April 22, 1998, the Company acquired all of the outstanding stock of
Michigan Ash Sales Company, d.b.a. U.S. Ash Company, together with two
affiliated companies, U.S. Stabilization, Inc. and Flo Fil Co., Inc.
(collectively, "U.S. Ash"). The consideration paid consisted of
approximately $24,600,000 in cash. The acquisition has been accounted for as
a purchase and, accordingly, the results of operations of U.S. Ash have been
included in the consolidated financial statements since April 22, 1998.
F-28
JTM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION (CONTINUED)
On April 22, 1998, the Company acquired all of the outstanding stock of Fly
Ash Products, Inc. ("Fly Ash Products"). The consideration paid consisted of
approximately $9,500,000 in cash. The acquisition has been accounted for as
a purchase and, accordingly, the results of operations of Fly Ash Products
have been included in the consolidated financial statements since April 22,
1998.
The purchase prices of the above acquisitions were allocated based on
estimated fair values at the respective dates of acquisition. During the one
year period following the respective acquisitions, the Company will make
adjustments to the estimated fair values assigned to the assets acquired and
liabilities assumed based on appraisals and other information received,
which will result in changes to goodwill. Management expects that the
preliminary purchase price allocations may vary materially from the final
purchase price allocations based on appraisals to be obtained on the
contracts and fixed assets purchased. Goodwill resulting from these
acquisitions is being amortized on a straight-line basis over 25 years.
2. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31,
JUNE 30, 1998 1997
-------------- -------------
Goodwill...................................... $ 62,653,436 $ 14,640,584
Contracts..................................... 65,900,000 26,700,000
Patents....................................... 2,400,000 2,400,000
Assembled work force.......................... 1,910,000 1,100,000
-------------- -------------
132,863,436 44,840,584
Less accumulated amortization................. (2,643,168) (455,092)
-------------- -------------
$ 130,230,268 $ 44,385,492
-------------- -------------
-------------- -------------
Amortization is provided over the estimated period of benefit, using the
straight-line method, ranging from 8 to 25 years.
Contracts consist of long-term materials management contracts with power
producers and industrial clients, which, in general, require the Company to
dispose of or market to end-users materials created by coal combustion.
Typical contract terms are from five to fifteen years and provide for
revenue based on an established price per ton in the case of disposal and
costs based on either an established price per ton or a revenue sharing
arrangement in the case of marketing.
3. SECURED CREDIT FACILITY
On March 4, 1998, the Company entered into a $42,000,000 Secured Credit
Facility provided by a syndicate of banks which replaced the $5,000,000
Senior Secured Revolving Credit Agreement. The Secured Credit Facility
enables the Company to obtain revolving secured loans from time to time to
finance certain permitted acquisitions, to repay existing indebtedness, to
pay fees and expenses incurred in connection with certain acquisitions and
for working capital and general corporate purposes. At the Company's option,
the revolving secured loans may be maintained as (a) Eurodollar Loans (as
defined) which will bear interest at a rate equal to the quotient obtained
by dividing LIBOR (as defined) by one minus the reserve requirement for such
Eurodollar Loan, plus a margin of 250
F-29
JTM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
basis points or (b) Base Rate Loans (as defined) which will have an interest
rate equal to the higher of (i) the Nations Bank N.A. prime rate and (ii)
the federal funds rate plus 0.5%, plus a margin of 125 basis points. The
Company will also pay certain fees with respect to the Secured Credit
Facility. The Security Credit Facility has a term of five and one-half years
from the date of initial funding, is guaranteed by ISG and existing and
future subsidiaries of the Company (the "Guarantors"), and is secured by a
first priority perfected security interest in all of the capital stock of
the Company and all of the capital stock of each of the Guarantors, as well
as certain present and future assets and properties of the Company and any
domestic subsidiaries.
Upon completion of the private placement of the Senior Subordinated Notes
discussed below, the Secured Credit Facility was permanently reduced to
$35,000,000. At June 30, 1998, $8,000,000 was outstanding under the Secured
Credit Facility.
4. PRIVATE PLACEMENT OF SENIOR SUBORDINATED NOTES
On April 22, 1998, the Company completed a private placement of $100,000,000
aggregate principal amount of its 10% Senior Subordinated Notes due 2008
(the "Senior Subordinated Notes"). The proceeds were used to pay the Senior
Bridge Note, a portion of the Secured Credit Facility, consideration and
expenses related to the U.S. Ash and Fly Ash Products acquisitions and
transaction fees. Interest on the Senior Subordinated Notes is payable
semi-annually on April 15 and October 15 of each year, commencing October
15, 1998. The Senior Subordinated Notes will mature on April 15, 2008 and
are guaranteed fully and unconditionally and on a joint and several basis by
all of the Compay's existing and future restricted subsidiaries, as defined
in the indenture. Management believes that separate financial statements of
the guarantor subsidiaries would not be material to an investor as the
Company has no assets or operations separate from its investments in the
guarantor subsidiaries. As such, no separate financial statements of the
guarantor subsidiaries have been provided.
The Senior Subordinated Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after April 15, 2003 at
redemption prices of 105% in 2003, 103.333% in 2004, 101.667% in 2005 and
100% thereafter plus accrued and unpaid interest and liquidated damages as
defined in the indenture, if any, to the date of redemption. Notwithstanding
the foregoing, at any time on or before April 15, 2001, the Company may
redeem up to $35,000,000 in aggregate principal amount of Senior
Subordinated Notes at a redemption price of 110% of the principal amount
thereof, plus accrued and unpaid interest and liquidated damages as defined
in the indenture, if any, to the date of redemption, with the net cash
proceeds to the Company of one or more Public Offerings; provided that at
least $65,000,000 in aggregate principal amount of Senior Subordinated Notes
remain outstanding immediately after the occurrence of such redemption; and
provided, further, that each such redemption shall occur within 60 days of
the date of the closing of each such Public Offering.
Upon the occurrence of a change of control as defined in the indenture, the
Company is required to make an offer to repurchase all or part of the Senior
Subordinated Notes at a price equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and liquidated damages as
defined in the indenture, if any, to the date of repurchase. Upon the
occurrence of an asset sale as defined in the indenture, the Company is
required to make an offer to repurchase the maximum principal amount of
Senior Subordinated Notes as may be purchased out of the excess proceeds as
defined in the indenture, at a price equal to 100% of the principal amount
thereof plus accrued and unpaid interest and liquidated damages as defined
in the indenture, if any, to the date of repurchase.
F-30
JTM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The payment of principal, interest, and liquidated damages as defined in the
indenture, if any, on the Senior Subordinated Notes is subordinated in right
of payment to the prior payment of all senior indebtedness as defined in the
indenture, whether outstanding on the date of the indenture or thereafter
incurred. The Company's payment obligations under the Senior Subordinated
Notes are jointly and severally guaranteed on a senior subordinated basis by
each present domestic subsidiary and each future domestic subsidiary that
executes a subsidiary guarantee as defined in the indenture. The indenture
for the Company's Senior Subordinated Notes contains various limitations on
the incurrence of additional indebtedness, the issuance of preferred stock,
consolidations or mergers, sales of assets, and restricted payments,
including dividends, for the Company and restricted subsidiaries as defined
in the indenture.
In connection with the private placement of the Senior Subordinated Notes,
the Company entered into the Registration Rights Agreement pursuant to which
the Company was required to file an exchange offer registration statement
with the Securities and Exchange Commission on or prior to 45 days from the
closing of the private placement which it did on June 5, 1998. The Company
must use its best efforts to have the exchange offer registration statement
declared effective by the Securities and Exchange Commission on or prior to
135 days from the closing of the private placement.
5. INCOME TAXES
Deferred income taxes arise from temporary differences between the tax basis
of assets and liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities at June 30, 1998 and
December 31, 1997 arose primarily from temporary differences in fixed
assets, identifiable intangible assets, allowance for doubtful accounts and
accrued expenses.
The Company's effective tax rate for the three month periods ended March 31,
1998 and 1997 differs from the statutory rate of 35% due primarily to
non-deductible goodwill amortization and state income taxes.
F-31
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Pozzolanic Resources, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Pozzolanic
Resources, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income and retained earnings and cash flows
for each of the three years in the period ended December 31, 1997. 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 generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pozzolanic
Resources, Inc. and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Seattle, Washington
February 10, 1998, except for
Note 8, as to which
the date is March 4, 1998
F-32
POZZOLANIC RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
----------------------
1997 1996
---------- ----------
ASSETS
Current assets:
Cash............................................................. $ 40,399 $ 818
Short-term investments at cost................................... 2,850,330 3,568,020
Accounts receivable, less allowances for doubtful accounts of
$47,000 and $26,000 in 1997 and 1996, respectively............. 1,925,269 1,468,527
Deferred freight................................................. 402,958 294,814
Other receivables................................................ 140,065 66,079
Amounts due from related parties................................. 3,760 --
Income taxes receivable.......................................... -- 425,469
Prepaid expenses................................................. 61,023 67,775
Current deferred income taxes.................................... 41,250 27,650
---------- ----------
Total current assets............................................... 5,465,054 5,919,152
Property, plant, and equipment:
Land............................................................. 107,777 107,777
Buildings........................................................ 66,362 66,362
Plant equipment.................................................. 5,724,253 5,503,526
Automotive equipment............................................. 630,700 590,217
Office furniture and equipment................................... 357,848 400,561
Leasehold improvements........................................... 247,406 247,406
---------- ----------
7,134,346 6,915,849
Accumulated depreciation and amortization........................ (5,412,615) (4,902,359)
---------- ----------
1,721,731 2,013,490
Construction in progress......................................... -- 2,567
---------- ----------
1,721,731 2,016,057
Other assets:
Fly ash contracts, less accumulated amortization of $789,568 and
$763,096 in 1997 and 1996, respectively........................ 143,358 169,830
Deposits and other............................................... 12,069 11,771
Notes receivable................................................. 9,604 --
Deferred income taxes............................................ 58,406 19,766
---------- ----------
223,437 201,367
---------- ----------
Total assets....................................................... $7,410,222 $8,136,576
---------- ----------
---------- ----------
See accompanying notes.
F-33
POZZOLANIC RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
DECEMBER 31
--------------------------
1997 1996
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.............................................................. $ 536,228 $ 429,101
Accrued expenses.................................................................... 298,025 184,566
Advances from suppliers............................................................. 410,509 306,923
Income taxes payable................................................................ 4,771 --
------------ ------------
Total current liabilities............................................................. 1,249,533 920,590
Deferred gains........................................................................ 700,000 700,000
Shareholders' equity:
Common stock, Class A, voting, $1 par value:
Authorized shares--1,000
Issued and outstanding shares--200................................................ 200 200
Preferred stock, Class C, nonvoting, $1 par value:
Authorized shares--15,000
Issued and outstanding shares--2,900.............................................. 2,900 2,900
Preferred stock, Class D, nonvoting, $1 par value:
Authorized shares--15,000
Issued and outstanding shares--5,800.............................................. 5,800 5,800
Retained earnings................................................................... 5,451,789 6,507,086
------------ ------------
Total shareholders' equity............................................................ 5,460,689 6,515,986
------------ ------------
Total liabilities and shareholders' equity............................................ $ 7,410,222 $ 8,136,576
------------ ------------
------------ ------------
See accompanying notes.
F-34
POZZOLANIC RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
Sales............................................................... $ 21,263,494 $ 17,993,543 $ 17,030,565
Cost of goods sold.................................................. 13,607,238 11,684,111 12,210,359
------------- ------------- -------------
Gross profit........................................................ 7,656,256 6,309,432 4,820,206
Selling, administrative, and general expenses....................... 2,897,974 2,451,703 2,342,541
------------- ------------- -------------
Operating income.................................................... 4,758,282 3,857,729 2,477,665
Interest income..................................................... 37,637 86,578 36,743
Other income........................................................ 63,542 356,183 45,769
------------- ------------- -------------
Income before income taxes.......................................... 4,859,461 4,300,490 2,560,177
Provision for federal and state income taxes:
Current........................................................... 1,830,499 1,544,462 928,453
Deferred.......................................................... (52,241) (1,333) (54,981)
------------- ------------- -------------
1,778,258 1,543,129 873,472
------------- ------------- -------------
Net income.......................................................... 3,081,203 2,757,361 1,686,705
Retained earnings at beginning of year.............................. 6,507,086 3,749,725 3,063,020
Less dividends paid................................................. 4,136,500 -- 1,000,000
------------- ------------- -------------
Retained earnings at end of year.................................... $ 5,451,789 $ 6,507,086 $ 3,749,725
------------- ------------- -------------
------------- ------------- -------------
See accompanying notes.
F-35
POZZOLANIC RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
----------------------------------------------
1997 1996 1995
-------------- -------------- --------------
OPERATING ACTIVITIES
Collection of trade receivables.................................. $ 20,925,826 $ 18,063,627 $ 16,662,817
Payments to suppliers and employees.............................. (15,638,348) (13,719,586) (13,809,343)
Income taxes paid................................................ (1,400,259) (1,576,602) (1,100,347)
Interest received................................................ 34,429 87,324 35,135
Dividends received............................................... 17,885 17,115 --
Interest paid.................................................... (8,185) -- (1,188)
Other, net....................................................... (73,322) 266,561 39,440
-------------- -------------- --------------
Net cash provided by operating activities........................ 3,858,026 3,138,439 1,826,514
INVESTING ACTIVITIES
Purchases of property, plant, and equipment...................... (401,144) (980,942) (395,850)
Proceeds from sale of equipment.................................. 1,509 4,450 6,550
-------------- -------------- --------------
Net cash used in investing activities............................ (399,635) (976,492) (389,300)
FINANCING ACTIVITIES
Dividends paid................................................... (4,136,500) -- (1,000,000)
Line of credit advance........................................... 755,000 -- 200,000
Line of credit reduction......................................... (755,000) -- (200,000)
-------------- -------------- --------------
Net cash used in financing activities............................ (4,136,500) -- (1,000,000)
-------------- -------------- --------------
Increase (decrease) in cash and short-term investments........... (678,109) 2,161,947 437,214
Cash and short-term investments at beginning of year............. 3,568,838 1,406,891 969,677
-------------- -------------- --------------
Cash and short-term investments at end of year................... $ 2,890,729 $ 3,568,838 $ 1,406,891
-------------- -------------- --------------
-------------- -------------- --------------
Reconciliation of net income to net cash provided by operating
activities:
Net income..................................................... $ 3,081,203 $ 2,757,361 $ 1,686,705
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 701,572 647,059 480,187
Loss on disposal of fixed assets............................. -- (3,424) (1,053)
Other assets................................................. (298) (3) 17,242
Note receivable.............................................. (9,604) -- 51,667
Deferred income taxes........................................ 52,240 (1,333) (54,981)
Net operating working capital items.......................... 32,913 (261,221) (353,253)
-------------- -------------- --------------
Net cash provided by operating activities........................ $ 3,858,026 $ 3,138,439 $ 1,826,514
-------------- -------------- --------------
-------------- -------------- --------------
See accompanying notes.
F-36
POZZOLANIC RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION
Pozzolanic Resources, Inc. ("Resources" or the "Company") is a holding
company for Pozzolanic Northwest, Inc. ("Northwest") and St. Helens Investments,
Inc. ("St. Helens"), d.b.a. Pozzolanic International, whose purpose is the
distribution of fly ash, which is used in the production of concrete. The
companies have been selling fly ash in the western United States and British
Columbia since 1976. Resources also owns all the outstanding stock of Pozzolanic
Northwest Bulk Carriers, Inc. ("Bulk Carriers"). Bulk Carriers operates as a
common carrier, primarily in the Pacific Northwest.
2. ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION
In addition to the accounts of Resources, the consolidated financial
statements include the accounts of Northwest and its wholly owned subsidiary,
Pozzolanic N.W. FSC, Inc. (a Foreign Sales Corporation-- "FSC"); St. Helens; and
Bulk Carriers. Significant intercompany transactions and accounts are eliminated
in consolidation.
REVENUE RECOGNITION
Revenue is recognized upon delivery of products to the customer.
DEFERRED FREIGHT
Freight costs incurred moving fly ash to Resources' storage facilities are
deferred until the fly ash is sold. Such deferred freight is allocated to fly
ash sales on an average cost per ton basis.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated on the basis of cost. The
provision for depreciation is determined by straight-line and accelerated
methods over the estimated useful lives of the assets.
STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, short-term, interest-bearing
investments with maturities on the date of purchase of less than three months
are considered cash equivalents. The fair values of cash and short-term
investments approximate their carrying values.
INCOME TAXES
The Company applies the liability method of accounting for income taxes as
prescribed by SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets and liabilities are recognized for the expected
future tax consequences of existing differences between the financial reporting
and tax reporting bases of assets and liabilities using enacted tax laws and
rates.
Deferred income taxes relate principally to differences in the treatment
between tax and book of depreciation and freight costs.
F-37
POZZOLANIC RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The only
significant estimate made by management is the determination of the allowance
for doubtful accounts.
3. RELATED PARTIES
On October 1, 1980, Northwest transferred two of its fly ash contracts to
St. Helens. In return, St. Helens issued to Northwest nonvoting common stock
with a par value of $700,000. The related fly ash contracts have an unamortized
carrying value at December 31, 1997 and 1996 of approximately $143,000 and
$170,000, respectively. Since Northwest had no cost basis in the contracts and
is not assured of realization of the gain on this transaction, no gain on the
transfer has been recognized.
The above fly ash contracts are being amortized on a straight-line basis
over the lives of the contracts.
4. COMMITMENTS AND CONTINGENCIES
The Company has entered into operating leases for office space, storage
facilities, and rail cars through 2002. Aggregate minimum lease payments
required over the lives of the leases are as follows:
1998............................................................ $ 720,000
1999............................................................ 660,000
2000............................................................ 290,000
2001............................................................ 180,000
2002............................................................ 60,000
---------
$1,910,000
---------
---------
Rental expense under operating leases was approximately $560,000, $210,00
and $300,000, in 1997, 1996 and 1995, respectively.
The Company's contracts with its suppliers require the Company to make
minimum purchases of fly ash over ensuing years as follows:
1998............................................................ $ 730,000
1999............................................................ 730,000
2000............................................................ 730,000
2001............................................................ 730,000
2002............................................................ 730,000
2003 and thereafter............................................. 15,000
---------
$3,665,000
---------
---------
Fly ash purchases under supplier contracts with minimum purchase
requirements amounted to $1,010,000, $1,915,000 and $1,250,000 in 1997, 1996 and
1995, respectively.
F-38
POZZOLANIC RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The supplier contracts provide for adjustment of the minimum purchase prices
based on changes in the specific price of Portland cement.
5. CREDIT AGREEMENT
Resources has entered into a credit agreement with a bank that expires June
30, 1998. The agreement provides for borrowings of up to $2,500,000. Borrowings
under the agreement are secured by accounts receivable and inventories and
require monthly payments of interest at the lending bank's prime rate. There
were no borrowings outstanding under this agreement at December 31, 1997 or
1996.
6. CAPITAL STOCK
Holders of Class A voting common stock are not entitled to receive
dividends. The holders of Class C nonvoting preferred stock and Class D
nonvoting preferred stock shall be entitled to dividends only when declared by
the Board of Directors with the unanimous approval of voting stockholders.
7. IMPACT OF THE YEAR 2000 (UNAUDITED)
The Company has completed an assessment of its computer programs and will
have to modify or replace portions of its software so that its computer systems
will function properly with respect to dates in the year 2000 and thereafter.
The total Year 2000 project cost is not expected to be significant. The project
is estimated to be completed no later than December 31, 1998, which is prior to
any anticipated impact on its operating systems. The Company believes that with
modifications to existing software, the Year 2000 Issue will not pose
significant operational problems for its computer systems.
8. SUBSEQUENT EVENT
On March 4, 1998, all of the Company's outstanding stock was purchased by an
unrelated third party.
F-39
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Power Plant Aggregates of Iowa, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Power Plant
Aggregates of Iowa, Inc. and Subsidiary as of December 31, 1997 and March 31,
1997, and the related consolidated statements of income, shareholders' equity
and cash flows for the nine months ended December 31, 1997 and the year ended
March 31, 1997. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Power Plant
Aggregates of Iowa, Inc. and Subsidiary at December 31, 1997 and March 31, 1997,
and the results of their operations and their cash flows for the nine months and
year then ended, respectively, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Salt Lake City, Utah
March 13, 1998, except for
Note 10, as to which the
date is March 20, 1998
F-40
POWER PLANT AGGREGATES OF IOWA, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31 MARCH 31
1997 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents........................................................... $1,884,267 $ 1,473,777
Accounts receivable................................................................. 793,779 473,330
Prepaid expenses, deposits and other................................................ 14,633 1,325
Income tax receivable............................................................... -- 138,439
------------ ------------
Total current assets.................................................................. 2,692,679 2,086,871
Property, plant and equipment:
Land................................................................................ 18,000 18,000
Building and improvements........................................................... 97,191 97,191
Equipment........................................................................... 2,689,724 2,494,871
Office equipment.................................................................... 104,231 104,231
------------ ------------
2,909,146 2,714,293
Accumulated depreciation............................................................ 1,820,425 1,655,489
------------ ------------
1,088,721 1,058,804
Other assets:
Deferred income taxes............................................................... 35,062 29,375
Cash value of life insurance........................................................ 228,850 197,240
Goodwill............................................................................ 33,735 53,975
Noncompete agreement, net........................................................... 32,500 40,000
Other............................................................................... 33,640 17,100
------------ ------------
363,787 337,690
------------ ------------
$4,145,187 $ 3,483,365
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 222,474 $ 89,362
Accrued expenses.................................................................... 178,652 80,286
Income taxes payable................................................................ 53,818 --
Current portion of noncompete agreement............................................. 10,000 10,000
------------ ------------
Total current liabilities............................................................. 464,944 179,648
Deferred compensation................................................................. 87,656 73,439
Noncompete agreement, less current portion............................................ 20,000 30,000
Shareholders' equity:
Common stock, par value $100; 2,500 shares authorized, 242 issued and outstanding... 24,200 24,200
Additional paid-in capital.......................................................... 11,000 11,000
Retained earnings................................................................... 3,537,387 3,165,078
------------ ------------
3,572,587 3,200,278
------------ ------------
$4,145,187 $ 3,483,365
------------ ------------
------------ ------------
See accompanying notes.
F-41
POWER PLANT AGGREGATES OF IOWA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS
ENDED YEAR ENDED
DECEMBER 31 MARCH 31
1997 1997
------------ ------------
Sales................................................................................ $7,069,817 $ 7,007,347
Costs and expenses:
Cost of sales, excluding depreciation.............................................. 4,537,239 4,815,935
Selling, administrative and general................................................ 1,472,461 1,572,564
Depreciation and amortization expense.............................................. 228,959 241,874
------------ ------------
6,238,659 6,630,373
------------ ------------
831,158 376,974
Interest income...................................................................... 55,146 113,127
------------ ------------
Income from continuing operations before taxes....................................... 886,304 490,101
Income taxes......................................................................... 362,745 201,944
------------ ------------
Net income from continuing operations................................................ 523,559 288,157
Loss from discontinued operations, net of income tax benefit of $5,100............... -- (7,711)
------------ ------------
Net income........................................................................... $ 523,559 $ 280,446
------------ ------------
------------ ------------
See accompanying notes.
F-42
POWER PLANT AGGREGATES OF IOWA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
--------- ----------- ------------ -------------
Balance at April 1, 1996...................................... $ 29,000 $ 11,000 $ 3,870,062 $ 3,910,062
Net income.................................................. -- -- 280,446 280,446
Dividends................................................... -- -- (181,250) (181,250)
Redemption of 48 shares of common stock..................... (4,800) -- (804,180) (808,980)
--------- ----------- ------------ -------------
BALANCE AT MARCH 31, 1997..................................... 24,200 11,000 3,165,078 3,200,278
NET INCOME.................................................. -- -- 523,559 523,559
DIVIDENDS................................................... -- -- (151,250) (151,250)
--------- ----------- ------------ -------------
BALANCE AT DECEMBER 31, 1997.................................. $ 24,200 $ 11,000 $ 3,537,387 $ 3,572,587
--------- ----------- ------------ -------------
--------- ----------- ------------ -------------
See accompanying notes.
F-43
POWER PLANT AGGREGATES OF IOWA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS
ENDED YEAR ENDED
DECEMBER 31 MARCH 31
1997 1997
------------ -----------
OPERATING ACTIVITIES
Net income............................................................................ $ 523,559 $ 280,446
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization....................................................... 228,959 241,874
Loss on sale of equipment........................................................... 2,935 12,264
Changes in operating assets and liabilities:
Accounts receivable............................................................... (320,449) (79,081)
Prepaid expenses.................................................................. (13,308) 22,281
Income tax receivable............................................................. 138,439 (128,886)
Other assets...................................................................... (26,097) (40,306)
Accounts payable.................................................................. 133,112 60,863
Accrued expenses.................................................................. 98,366 (1,566)
Income taxes payable.............................................................. 53,818 (29,467)
Deferred compensation............................................................. 14,217 13,563
------------ -----------
Net cash provided by operating activities............................................. 833,551 351,985
INVESTING ACTIVITIES
Noncompete agreement payment.......................................................... (10,000) (10,000)
Purchase of property, plant, and equipment............................................ (271,111) (673,598)
Proceeds from sale of equipment....................................................... 9,300 17,450
------------ -----------
Net cash used in investing activities................................................. (271,811) (666,148)
FINANCING ACTIVITIES
Dividends............................................................................. (151,250) (181,250)
Redemption of stock................................................................... -- (808,980)
------------ -----------
Net cash used in financing activities................................................. (151,250) (990,230)
------------ -----------
Net increase (decrease) in cash and cash equivalents.................................. 410,490 (1,304,393)
Cash and cash equivalents at beginning of year........................................ 1,473,777 2,778,170
------------ -----------
Cash and cash equivalents at end of year.............................................. $1,884,267 $ 1,473,777
------------ -----------
------------ -----------
Cash paid during the year for income taxes............................................ $ 314,614 $ 368,407
See accompanying notes.
F-44
POWER PLANT AGGREGATES OF IOWA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Power Plant Aggregates and its wholly owned subsidiary, Midwest Fly Ash and
Materials, Inc. (the "Company") purchase, remove, and sell ash from the
combustion of coal at electric generating plants. Sales of ash are primarily to
concrete construction companies in the midwest region. The Company also
purchases, crushes, and sells a by-product of cement processing plants. N-Viro
Minnesota, Inc. was liquidated in June 1996.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Power Plant Aggregates and
its wholly owned subsidiary, Midwest Fly Ash and Materials, Inc. All significant
intercompany transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenues are earned by marketing products created by coal-fired power
generation and related industrial materials to consumers of building materials
and construction related products. Generally, material is obtained from
coal-fired electric utilities and is immediately delivered to the customer,
eliminating the need to inventory products. Therefore, no inventory exists at
December 31, 1997 or March 31, 1997. Revenues are recognized when the material
is delivered to the customer.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments with maturities of three
months or less when purchased.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation is
provided using the straight-line method over estimated lives ranging from 3 to
32 years.
GOODWILL
Goodwill recognized on the purchase of the former co-venturer's interest in
the subsidiary, Midwest Fly Ash and Materials, Inc., is being amortized over ten
years.
DEFERRED COMPENSATION
The Company has an agreement with an employee which provides for deferred
compensation benefits to be paid in the event of the employee's death,
disability, termination or retirement. The benefits are accrued annually over
the term of the agreement as the liability is incurred. The provision for
deferred compensation was $14,217 for the nine months ended December 31, 1997
and $13,563 for the year ended March 31, 1997.
F-45
POWER PLANT AGGREGATES OF IOWA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred tax assets and liabilities are provided for the future tax
consequences attributable to temporary differences between the carrying amounts
of assets and liabilities for financial statement and income tax purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosure
About Fair Value of Financial Instruments" requires all entities to disclose the
fair value of financial instruments, both assets and liabilities recognized and
not recognized on the balance sheet, for which it is practicable to estimate
fair value. SFAS 107 defines fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties. At December 31, 1997 and March 31, 1997, the carrying value of
all financial instruments (accounts receivable, accounts payable, accrued
expenses) approximates fair value.
LONG-LIVED ASSETS
As required by Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," management evaluates the carrying value of all long-lived
assets to determine recoverability when indicators of impairment are present
based generally on an analysis of undiscounted cash flows. Management believes
no material impairment in the value of long-lived assets exists at December 31,
1997 and March 31, 1997.
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
2. RELATED PARTY TRANSACTIONS
The Company and its subsidiary maintain their corporate headquarters at
office facilities of an affiliated company. Payments for office services,
overhead and management services were $97,000 and $147,000 during the nine
months ended December 31, 1997 and the year ended March 31, 1997, respectively.
The Company has an agreement with an affiliated company to provide
management services. Management services income was $45,000 and $60,000 during
the nine months ended December 31, 1997 and the year ended March 31, 1997,
respectively.
3. MAJOR SUPPLIERS
During the nine months ended December 31, 1997 and the year ended March 31,
1997, the Company acquired approximately 98% of its material for sale to
customers from two electric utilities. Effective May
F-46
POWER PLANT AGGREGATES OF IOWA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. MAJOR SUPPLIERS (CONTINUED)
1998, the Company will lose one of its utility contracts which represents
approximately 60% of its material for sale. The remaining utility contract
expires December 31, 1998.
4. LEASES
The Company leases certain equipment under leases classified as operating.
The agreements require the Company to pay all taxes, insurance and maintenance
costs related to the equipment. Minimum future rents are as follows at December
31, 1997:
1998...................................................... $ 176,996
1999...................................................... 86,996
2000...................................................... 26,332
5. NONCOMPETE AGREEMENT
The noncompete agreement calls for annual payments of $10,000 for a period
of five years beginning in 1996. The noncompete agreement is being amortized
over 60 months on a straight-line basis.
6. INCOME TAXES
Income tax expense (benefit) consists of the following:
NINE MONTHS
ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ -----------
Income tax provision (benefit):
Current:
Federal.......................................................... $ 299,134 $ 164,654
State............................................................ 69,298 37,327
------------ -----------
368,432 201,981
Deferred:
Federal.......................................................... (4,621) 5,388
State............................................................ (1,066) (5,425)
------------ -----------
(5,687) (37)
------------ -----------
$ 362,745 $ 201,944
------------ -----------
------------ -----------
F-47
POWER PLANT AGGREGATES OF IOWA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Reconciliation of income tax expense at the U.S. statutory rate to the
Company's tax expense is as follows:
NINE MONTHS
ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ -----------
35% of income before income tax.................................... $ 310,206 $ 171,535
State taxes, net of federal income tax benefit..................... 52,539 30,409
------------ -----------
$ 362,745 $ 201,944
------------ -----------
------------ -----------
7. COMMITMENTS
The Company has combined unsecured lines of credit with a bank in the amount
of $3,000,000. There were no borrowings on these lines as of December 31, 1997
and March 31, 1997.
The Company has entered into a three-year agreement to pay a locator fee for
the supply of raw material for its concrete crushing business. The maximum
obligation is $200,000 based on a per-ton rate. The agreement may be extended
one year if the supplier has not delivered sufficient material to reach the
maximum obligation.
8. PROFIT SHARING PLAN
The Company has adopted a 401(k) profit sharing plan covering all its
employees. Employees may elect to make salary deferral contributions limited to
15% of their wages. The plan permits the employer to make matching contributions
at its discretion. The Company made discretionary contributions to the plan of
$5,512 and $8,027 during the nine month period ended December 31, 1997 and the
year ended March 31, 1997, respectively.
9. IMPACT OF THE YEAR 2000 (UNAUDITED)
Substantially all of the Company's computer processing is performed using
programs provided by third party vendors. The Company is currently evaluating
the programs for Year 2000 compliance. The Company intends to utilize only Year
2000 compliant vendor programs and believes that the Year 2000 issue will not
pose significant operational problems for its computer systems.
10. SUBSEQUENT EVENTS
The Company purchased 12 shares of its outstanding stock on January 2, 1998
for $202,245.
On March 20, 1998, all the Company's outstanding stock was purchased by an
unrelated third party.
F-48
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Michigan Ash Sales Company (d.b.a. U.S. Ash Company), U.S. Stabilization, Inc.
and Flo Fil Company, Inc.
We have audited the accompanying combined balance sheets of Michigan Ash
Sales Company (d.b.a. U.S. Ash Company), U.S. Stabilization, Inc., and Flo Fil
Company, Inc. (the "Companies") as of December 31, 1997 and 1996, and the
related combined statements of income and retained earnings and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly,
in all material respects, the combined financial position of Michigan Ash Sales
Company (d.b.a. U.S. Ash Company), U.S. Stabilization, Inc., and Flo Fil
Company, Inc. at December 31, 1997 and 1996, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Salt Lake City, Utah
August 12, 1998
F-49
MICHIGAN ASH SALES COMPANY (D.B.A. U.S. ASH COMPANY) AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31
--------------------
1997 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents.......................................... $3,136,041 $2,736,002
Accounts receivable (net of allowance for doubtful accounts of
$34,458 in 1997 and $40,343 in 1996)............................. 1,713,409 1,113,962
Other receivables.................................................. 51,901 53,423
Inventories........................................................ 21,875 24,640
Deferred income tax................................................ 42,116 49,129
--------- ---------
Total current assets................................................. 4,965,342 3,977,156
Property, plant, and equipment
Buildings.......................................................... 578,788 578,788
Plant equipment.................................................... 207,334 217,415
Vehicles........................................................... 138,124 120,142
--------- ---------
924,246 916,345
Accumulated depreciation........................................... (567,369) (583,756)
--------- ---------
356,877 332,589
--------- ---------
Total assets......................................................... $5,322,219 $4,309,745
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Trade accounts payable............................................. $ 347,177 $ 230,701
Accrued expenses................................................... 592,309 324,353
Payables to affiliates............................................. 1,942,590 1,357,754
Current income tax................................................. 217,005 252,626
--------- ---------
Total current liabilities............................................ 3,099,081 2,165,434
Deferred tax liability............................................... 55,512 57,692
Commitments and contingencies
Shareholder's equity:
Common stock
Michigan Ash Sales Company, $1 par value;
50,000 shares authorized;
1,000 shares issued and outstanding............................ 1,000 1,000
U.S. Stabilization, Inc., $1 par value;
50,000 shares authorized;
1,000 shares issued and outstanding............................ 1,000 1,000
Flo Fil Company, Inc., $1 par value; 50,000 shares authorized;
1,000 shares issued and outstanding............................ 1,000 1,000
Retained earnings.................................................. 2,164,626 2,083,619
--------- ---------
Total shareholder's equity........................................... 2,167,626 2,086,619
--------- ---------
Total liabilities and shareholder's equity........................... $5,322,219 $4,309,745
--------- ---------
--------- ---------
See accompanying notes.
F-50
MICHIGAN ASH SALES COMPANY (D.B.A. U.S. ASH COMPANY) AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31
-----------------------------------
1997 1996 1995
----------- ---------- ----------
Revenues:
Sales........................................... $11,216,477 $7,535,232 $6,885,063
Commissions..................................... 219,827 495,691 829,457
----------- ---------- ----------
Total revenues.................................... 11,436,304 8,030,923 7,714,520
Costs and expenses:
Cost of sales................................... 10,006,618 6,298,862 5,996,690
Selling, general and administrative............. 1,469,009 1,039,363 1,200,584
----------- ---------- ----------
11,475,627 7,338,225 7,197,274
----------- ---------- ----------
(39,323) 692,698 517,246
Interest income................................... 92,403 45,403 47,684
Other income...................................... 77,330 4,068 6,831
----------- ---------- ----------
Income before income taxes........................ 130,410 742,169 571,761
Income taxes
Current......................................... 44,570 299,712 188,867
Deferred........................................ 4,833 (34,268) (6,859)
----------- ---------- ----------
49,403 265,444 182,008
----------- ---------- ----------
Net income........................................ 81,007 476,725 389,753
Shareholder distribution.......................... -- (108,367) (10,400)
Retained earnings at beginning of year............ 2,083,619 1,715,261 1,335,908
----------- ---------- ----------
Retained earnings at end of year.................. $ 2,164,626 $2,083,619 $1,715,261
----------- ---------- ----------
----------- ---------- ----------
See accompanying notes.
F-51
MICHIGAN ASH SALES COMPANY (D.B.A. U.S. ASH COMPANY) AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
OPERATING ACTIVITIES
Net income........................................ $ 81,007 $ 476,725 $ 389,753
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 63,073 46,025 58,942
Deferred income taxes......................... 4,833 (34,268) (17,092)
Changes in operating assets and liabilities:
Accounts receivable......................... (597,925) (173,391) (6,859)
Inventories................................. 2,765 (2,778) (2,212)
Trade accounts payable and payables to
affiliates.................................. 701,312 (184,845) 195,572
Income taxes payable........................ (35,621) 243,060 162,871
Accrued expenses............................ 267,956 37,018 22,399
---------- ---------- ----------
Net cash provided by operating activities......... 487,400 407,546 616,597
INVESTING ACTIVITIES
Purchases of property, plant and equipment........ (116,818) -- (44,148)
Proceeds from disposal of property, plant and
equipment....................................... 29,457 -- --
---------- ---------- ----------
Net cash used in investing activities............. (87,361) -- (44,148)
FINANCING ACTIVITIES
Shareholder distribution.......................... -- (75,000) (10,400)
---------- ---------- ----------
Net increase in cash and cash equivalents......... 400,039 332,546 562,049
Cash and cash equivalents at beginning of year.... 2,736,002 2,403,456 1,841,407
---------- ---------- ----------
Cash and cash equivalents at end of year.......... $3,136,041 $2,736,002 $2,403,456
---------- ---------- ----------
---------- ---------- ----------
Cash paid during the year for income taxes........ $ 80,191 $ 56,652 $ 53,264
See accompanying notes.
F-52
MICHIGAN ASH SALES COMPANY (D.B.A. U.S. ASH COMPANY) AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying combined financial statements include the accounts of
Michigan Ash Sales Company, U.S. Stabilization, Inc. and Flo Fil Company, Inc.
(the Companies). All three companies are wholly-owned by an individual
shareholder and have common management. Significant intercompany accounts and
transactions have been eliminated in combination. The operations of the
Companies are summarized below:
MICHIGAN ASH SALES COMPANY (DBA U.S. ASH COMPANY)--A Michigan corporation
involved primarily in the business of marketing, transporting and
disposing of fly ash and other coal byproducts generated by utilities,
primarily in the states of Michigan, Indiana and Ohio. Customers of the
company consist of concrete manufacturers, cement manufacturers,
construction contractors, and other affiliated companies.
U.S. STABILIZATION, INC.--A Michigan corporation in the business of
mixing fly ash with steel company waste byproducts to comply with
landfill disposal regulations for a steel company in Indiana.
FLO FIL COMPANY, INC.--A Michigan corporation involved primarily in the
business of mixing and selling a low-cost fly ash based concrete product
for use in applications with lower-grade product requirements.
REVENUE RECOGNITION
Revenues are recognized when materials are provided to customers.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments with maturities of
three-months or less when purchased.
INVENTORIES
Inventories consist of spare parts for equipment and are stated at cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed when
incurred. Depreciation is computed using the straight-line method over the
estimated useful lives of 5 to 10 years for vehicles, machinery and equipment
and 40 years for buildings and improvements.
As required by Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," management evaluates the carrying value of all long-lived
assets to determine recoverability when indicators of impairment are present
based generally on an analysis of undiscounted cash flows. Management believes
no material impairment in the value of long-lived assets exists at December 31,
1997 and 1996.
F-53
MICHIGAN ASH SALES COMPANY (D.B.A. U.S. ASH COMPANY) AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Companies account for income taxes, using the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Deferred income taxes result primarily from temporary differences between the
financial statement bases and the tax bases of assets and liabilities using
enacted tax rates.
Prior to January 1, 1997, U.S. Stabilization, Inc. was taxed under the
provisions of subchapter S of the Internal Revenue Code. Under such provisions,
U.S. Stabilization, Inc. did not pay income taxes on its taxable income or
receive any benefit for losses. Instead, the sole shareholder of U.S.
Stabilization was liable for (benefited from) the full amount of its taxable
income (loss) on his individual income tax return.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments" (SFAS 107) requires the disclosure of the fair
value of financial instruments, both assets and liabilities recognized and not
recognized on the balance sheet, for which it is practicable to estimate fair
value. SFAS 107 defines fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between willing
parties. At December 31, 1997 and 1996, the carrying value of all the Companies'
financial instruments (accounts receivable, accounts payable and accrued
expenses) approximates fair value.
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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. INCOME TAXES
Reconciliation of income tax expense at the U.S. statutory rate to the
Companies' tax expense follows for the years ended December 31, 1997, 1996 and
1995:
1997 1996 1995
---------- ---------- ----------
34% of income before income tax $ 44,339 $ 252,337 $ 194,399
Add (deduct):
Non-deductible expenses................................ 2,954 2,391 4,040
Earnings of combined affiliate not subject to taxation
because of S-Corporation status...................... -- (629) (29,457)
State income taxes, net of federal benefit............. 2,110 11,345 13,026
---------- ---------- ----------
$ 49,403 $ 265,444 $ 182,008
---------- ---------- ----------
---------- ---------- ----------
F-54
MICHIGAN ASH SALES COMPANY (D.B.A. U.S. ASH COMPANY) AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. INCOME TAXES (CONTINUED)
The major components of the deferred tax assets and liabilities as of
December 31, 1997 and 1996 are as follows:
1997 1996
---------- ---------
Deferred Tax Assets:
Bad debt reserves.................................................... $ 12,251 $ 14,321
Accruals not currently deductible for tax purposes................... 17,750 17,444
Net operating loss carryforwards..................................... 12,115 17,364
---------- ---------
Total gross deferred tax assets........................................ 42,116 49,129
Deferred Tax Liabilities:
Fixed asset basis differences........................................ 55,512 57,692
---------- ---------
Net deferred tax liabilities........................................... $ (13,396) $ (8,563)
---------- ---------
---------- ---------
3. RELATED PARTY TRANSACTIONS
The following table summarizes revenues and expenses reported in the
accompanying combined statements of income that were either received or accrued
from, or paid or accrued to, the sole shareholder, individuals affiliated with
the sole shareholder, or companies owned by or affiliated with the sole
shareholder:
YEAR ENDED DECEMBER 31
----------------------------------------
RELATED PARTY NATURE OF TRANSACTION 1997 1996 1995
- ----------------------------------- ----------------------------------- ------------ ------------ ------------
COMMISSION REVENUES:
Wirt Transportation, Inc. Commissions on loads hauled by Wirt
Transportation, Inc. $ 219,827 $ 495,691 $ 476,974
COST OF MATERIALS AND SERVICES
SOLD:
Wirt Transportation, Inc. Trucking fees 2,489,134 1,868,055 1,098,530
Wirt Payroll Services and JAD
Payroll Services Fees for leased employees 1,485,181 1,080,769 972,368
JD Ash Equipment Co. Equipment rental and maintenance
contract fees 1,045,545 430,415 431,304
Sand and Stone Co. Purchases of materials 253,116 148,199 146,250
Wirt Trucking Co. Equipment rental 79,479 79,479 46,363
SELLING, GENERAL AND
ADMINISTRATIVE:
Sand and Stone Co. Building rental 93,000 93,000 15,750
Bay Dock Company, Inc. Building rental 67,200 -- --
Due to the related nature of these parties, the amounts received and paid
may not have been the same if similar activities had been undertaken with
unrelated parties. All leasing arrangements with related parties are cancelable.
Prior to January 2, 1997, U.S. Stabilization, Inc. was wholly-owned by the
president of Michigan Ash Sales Company and U.S. Stabilization, Inc. In April of
1996, the president received two distributions from
F-55
MICHIGAN ASH SALES COMPANY (D.B.A. U.S. ASH COMPANY) AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
the U.S. Stabilization totaling $75,000. The remaining undistributed retained
earnings of U.S. Stabilization, Inc. as of December 31, 1996 totaled $33,367 and
was accrued as an additional distribution to the president on that date and is
included in payables to affiliates in the accompanying combined balance sheet as
of December 31, 1996. The accrued distribution, plus accrued interest, is
included in payables to affiliates as of December 31, 1997. On January 2, 1997,
the president transferred all the outstanding shares of U.S. Stabilization, Inc.
to the sole shareholder of Michigan Ash Sales Company and Flo Fil Company, Inc.
4. COMMITMENTS AND CONTINGENCIES
Michigan Ash Sales Company has a commitment to purchase equipment related to
a contract with a supplier. Under this commitment, the company will purchase
approximately $250,000 of equipment and the utility will provide a certain
amount of ash at no cost. The equipment is necessary to fulfill the utility
contract.
5. CONCENTRATIONS OF CREDIT RISK
The Companies maintain their cash balances at two separate financial
institutions located in Michigan. Accounts at each institution are insured by
the Federal Deposit Insurance Corporation up to $100,000. At December 31, 1997
and 1996, the Companies uninsured cash balances totaled $2,287,000 and
$2,117,000, respectively.
Generally, the Companies do not require collateral or other security to
support customer trade accounts receivable. The Companies' five largest
customers accounted for approximately 25% of the revenues in 1997, 1996 and
1995. Customers of the Companies are primarily concentrated in the public
utility industry. Customers are also concentrated in the states of Michigan,
Illinois, Indiana, and Ohio. Historically, the Companies have not had
significant uncollectable accounts.
6. SUBSEQUENT EVENT
On April 22, 1998, all the outstanding stock of the Companies was sold to an
unrelated third party.
7. IMPACT OF THE YEAR 2000 (UNAUDITED)
The Companies have not completed an assessment of their computer programs to
determine if such programs will have to be modified or replaced so that the
computer systems will function properly with respect to dates in the year 2000
and thereafter. However, because of the limited use of computers and software in
the day to day operations of the Companies business, management does not believe
that the Year 2000 Issue will pose significant operational problems.
F-56
MICHIGAN ASH SALES COMPANY (D.B.A U.S. ASH COMPANY) AND AFFILIATED COMPANIES
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents.......................................................... 1,122,539 3,136,041
Accounts receivable, net........................................................... 1,874,496 1,713,409
Other current assets............................................................... 86,226 115,892
------------ ------------
Total current assets................................................................. 3,083,261 4,965,342
Property, plant and equipment, net................................................... 361,028 356,877
------------ ------------
Total assets......................................................................... 3,444,289 5,322,219
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... 744,457 2,289,767
Accrued expenses................................................................... 9,232 592,309
Other current liabilities.......................................................... 324,560 217,005
------------ ------------
Total current liabilities............................................................ 1,078,249 3,099,081
Deferred tax liability............................................................... 55,294 55,512
Commitments and contingencies
Shareholders' equity:
Common stock
Michigan Ash Sales Company, $1 par value; 50,000 shares authorized; 1,000 shares
issued and outstanding......................................................... 1,000 1,000
U.S. stabilization, Inc. $1 par value; 50,000 shares authorized; 1,000 shares
issued and outstanding......................................................... 1,000 1,000
Flo Fil Company, Inc., $1 par value; 50,000 shares authorized; 1,000 shares
issued and outstanding......................................................... 1,000 1,000
Retained earnings.................................................................. 2,307,746 2,164,626
------------ ------------
Total shareholders' equity........................................................... 2,310,746 2,167,626
------------ ------------
Total liabilities and shareholders' equity........................................... $ 3,444,289 $5,322,219
------------ ------------
------------ ------------
See accompanying notes.
F-57
MICHIGAN ASH SALES COMPANY (D.B.A. U.S. ASH COMPANY) AND AFFILIATED COMPANIES
UNAUDITED CONDENSED COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
------------ ------------
Sales................................................................................. $ 2,560,285 $ 1,892,330
Costs and expenses:
Costs of sales...................................................................... 1,981,423 2,204,696
Selling, general and administrative expenses........................................ 353,177 304,217
------------ ------------
2,334,600 2,508,913
Operating income...................................................................... 225,685 (616,583)
Interest income....................................................................... 21,170 31,138
Other income (expense)................................................................ 16,534 (3,827)
------------ ------------
Income before income taxes............................................................ 263,389 (589,272)
Income tax expense.................................................................... 120,269 93,884
------------ ------------
Net income (loss)..................................................................... 143,120 (683,156)
Retained earnings at beginning of period.............................................. 2,164,626 2,083,619
------------ ------------
Retained earnings at end of period.................................................... $ 2,307,746 $ 1,400,463
------------ ------------
------------ ------------
See accompanying notes.
F-58
MICHIGAN ASH SALES COMPANY (D.B.A. U.S. ASH COMPANY) AND AFFILIATED COMPANIES
UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
----------- -----------
OPERATING ACTIVITIES:
Net income (loss)................................. $ 143,120 $ (683,156)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 16,200 10,500
Deferred taxes................................ (218) 18,732
Changes in operating assets and liabilities:
Receivables................................. (161,087) (50,027)
Other current and non-current assets........ 29,666 (5,872)
Accounts payable............................ (1,545,310) (886,489)
Accrued expenses............................ (583,077) (306,448)
Other current and non-current liabilities... 107,555 57,552
----------- -----------
Net cash used in operating activities............. (1,993,151) (1,845,208)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment........ (20,351) (26,450)
Net decrease in cash and cash equivalents......... (2,013,502) (1,871,658)
Cash and cash equivalents at beginning of
period.......................................... 3,136,041 2,736,002
----------- -----------
Cash and cash equivalents at end of period........ $ 1,122,539 $ 864,344
----------- -----------
Cash paid for interest............................ $ -- $ --
----------- -----------
----------- -----------
Cash paid for income taxes........................ $ 18,432 $ 17,600
----------- -----------
----------- -----------
See accompanying notes.
F-59
MICHIGAN ASH SALES COMPANY (D.B.A U.S. ASH COMPANY) AND AFFILIATED COMPANIES
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim condensed
combined financial statements reflect all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial position,
results of operations and cash flows of Michigan Ash Sales Company (d.b.a U.S.
Ash Company), U.S. Stabilization, Inc. and Flo Fil Company, Inc. (collectively,
the "Companies") for the respective periods presented. The results of operations
for an interim period are not necessarily indicative of the results which may be
expected for any other interim period or for the year as a whole.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying unaudited interim condensed
combined financial statements should be read in conjunction with the combined
financial statements and notes for the years ended December 31, 1997, 1996 and
1995 included in the Registration Statement on Form S-4 filed with the U.S.
Securities and Exchange Commission by ISG Resources, Inc. (formerly JTM
Industries, Inc.). All intercompany accounts and transactions have been
eliminated in combination.
The combined balance sheet at December 31, 1997 was derived from audited
combined financial statements, but does not include all disclosures required
under generally accepted accounting principles.
2. SUBSEQUENT EVENT
On April 22, 1998, ISG Resources, Inc., an unrelated third party, acquired
all of the outstanding stock of the Companies for approximately $24,600,000.
F-60
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Fly Ash Products, Incorporated
We have audited the accompanying balance sheets of Fly Ash Products,
Incorporated as of December 31, 1997 and 1996, and the related statements of
income, 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 generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Fly Ash Products, Incorporated
at December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Salt Lake City, Utah
March 6, 1998, except for Note 7, as to
which the date is March 27, 1998
F-61
FLY ASH PRODUCTS, INCORPORATED
(AN S CORPORATION)
BALANCE SHEETS
DECEMBER 31
------------------------
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents....................... $ 248,352 $ 724,305
Accounts receivable (net of allowance for 844,368 705,017
doubtful accounts
of $53,393 and $46,737 in 1997 and 1996,
respectively)
Prepaid expenses................................ 60,247 73,071
----------- -----------
Total current assets.............................. 1,152,967 1,502,393
Property, plant and equipment:
Buildings....................................... 73,955 73,955
Machinery and equipment......................... 4,881,476 4,257,013
----------- -----------
4,955,431 4,330,968
Accumulated depreciation........................ 3,555,604 3,097,368
----------- -----------
1,399,827 1,233,600
Other assets:
Land held for resale............................ 100,000 100,000
Other........................................... 12,875 4,805
----------- -----------
112,875 104,805
----------- -----------
$ 2,665,669 $ 2,840,798
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 92,177 $ 79,091
Accrued expenses................................ 76,543 74,536
Current maturities of long-term debt............ 549,481 463,744
----------- -----------
Total current liabilities......................... 718,201 617,371
Long-term debt, less current portion.............. 390,882 476,884
Shareholders' equity:
Common stock, par value $.10; 1,000 shares 90 90
authorized, 900 issued and outstanding........
Additional paid-in capital........................ 810 810
Retained earnings................................. 4,301,377 3,965,136
Receivables from shareholders..................... (2,745,691) (2,219,493)
----------- -----------
1,556,586 1,746,543
----------- -----------
$ 2,665,669 $ 2,840,798
----------- -----------
----------- -----------
See accompanying notes.
F-62
FLY ASH PRODUCTS, INCORPORATED
(AN S CORPORATION)
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
----------------------
1997 1996
---------- ----------
Sales............................................. $6,330,595 $7,945,990
Costs and expenses:
Cost of sales, excluding depreciation........... 2,584,181 3,033,134
Other operating costs........................... 1,238,598 1,478,761
Selling, administrative and general............. 979,618 1,188,661
Depreciation and amortization................... 684,943 729,817
---------- ----------
5,487,340 6,430,373
---------- ----------
843,255 1,515,617
Interest income................................... 196,883 145,290
Interest expense.................................. (93,697) (92,425)
---------- ----------
Net income........................................ $ 946,441 $1,568,482
---------- ----------
---------- ----------
See accompanying notes.
F-63
FLY ASH PRODUCTS, INCORPORATED
(AN S CORPORATION)
STATEMENTS OF SHAREHOLDERS' EQUITY
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL RETAINED EARNINGS
------------- ------------- -----------------
Balance at January 1, 1996.............................................. $ 90 $ 810 $ 2,817,404
Net income............................................................ 1,568,482
Dividends............................................................. (420,750)
--- ----- -----------------
BALANCE AT DECEMBER 31, 1996............................................ 90 810 3,965,136
NET INCOME............................................................ 946,441
DIVIDENDS............................................................. (610,200)
--- ----- -----------------
BALANCE AT DECEMBER 31, 1997............................................ $ 90 $ 810 $ 4,301,377
--- ----- -----------------
--- ----- -----------------
See accompanying notes.
F-64
FLY ASH PRODUCTS, INCORPORATED
(AN S CORPORATION)
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
------------------------
1997 1996
----------- -----------
OPERATING ACTIVITIES
Net income........................................ $ 946,441 $ 1,568,482
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 684,943 729,817
Gain on sale of equipment..................... (9,324) (102,162)
Changes in operating assets and liabilities:
Accounts receivable....................... (139,351) 206,457
Interest receivable from shareholders..... (176,198) (124,843)
Prepaid expenses.......................... 12,824 7,256
Accounts payable.......................... 13,086 46,942
Accrued expenses.......................... 2,007 (37,826)
----------- -----------
Net cash provided by operating activities......... 1,334,428 2,294,123
INVESTING ACTIVITIES
Purchases of property, plant and equipment........ (889,904) (404,610)
Proceeds from disposal of property, plant and
equipment....................................... 48,058 227,652
Receivable from shareholders...................... (350,000) (825,000)
Other............................................. (8,070)
----------- -----------
Net cash used in investing activities............. (1,199,916) (1,001,958)
FINANCING ACTIVITIES
Proceeds from long-term debt...................... 556,700 959,309
Principal payments on long-term debt.............. (556,965) (1,131,250)
Dividends......................................... (610,200) (420,750)
----------- -----------
Net cash used in financing activities............. (610,465) (592,691)
----------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... (475,953) 699,474
Cash and cash equivalents at beginning of year.... 724,305 24,831
----------- -----------
Cash and cash equivalents at end of year.......... $ 248,352 $ 724,305
----------- -----------
----------- -----------
Cash paid during the year for interest............ $ 87,394 $ 93,577
See accompanying notes.
F-65
FLY ASH PRODUCTS, INCORPORATED
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Fly Ash Products, Incorporated (the "Company") began operations in May 1987.
The Company purchases, removes, and sells ash from the combustion of coal at
electric generating plants in Arkansas. Sales of ash are primarily to concrete
companies in Arkansas and surrounding states.
REVENUE RECOGNITION
Revenues are earned by marketing products created by coal-fired power
generation and related industrial materials to consumers of building materials
and construction related products. Generally, material is obtained from
coal-fired electric utilities and is immediately delivered to the customer,
eliminating the need to inventory products. Therefore, no inventory exists at
December 31, 1997 or 1996. Revenues are recognized when the material is
delivered to the customer.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments with maturities of three
months or less when purchased.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation is
provided using an accelerated method over estimated lives ranging from 3 to 7
years.
ADVERTISING
The Company charges the costs of advertising to expense as incurred.
Advertising expense for the years ended December 31, 1997 and 1996 was $7,408
and $3,522 respectively.
INCOME TAXES
The Company has elected to be taxed under the provisions of subchapter S of
the Internal Revenue Code. Accordingly, no provision or liability for federal
income taxes is reflected in the accompanying statements as the shareholders are
liable for individual federal income taxes on their respective share of the
Company's taxable income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosure
About Fair Value of Financial Instruments" requires all entities to disclose the
fair value of financial instruments, both assets and liabilities recognized and
not recognized on the balance sheet, for which it is practicable to estimate
fair value. SFAS 107 defines fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties. At December 31, 1997 and 1996, the carrying value of all
financial instruments (accounts receivable, accounts payable, accrued expenses
and notes payable) approximates fair value.
F-66
FLY ASH PRODUCTS, INCORPORATED
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
As required by Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," management evaluates the carrying value of all long-lived
assets to determine recoverability when indicators of impairment are present
based generally on an analysis of undiscounted cash flows. Management believes
no material impairment in the value of long-lived assets exists at December 31,
1997 and 1996.
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.
2. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consists of the following:
1997 1996
---------- ----------
10.00% note to NationsBank, payable in monthly installments of $999,
collateralized by a vehicle......................................... $ 8,634 $ 19,187
10.00% note to GMAC, payable in monthly installments of $220,
collateralized by a vehicle......................................... 6,352 9,856
8.50% note to Ford Motor Credit, payable in monthly installments of
$468, collateralized by a truck..................................... 3,185 8,293
8.75% note to NationsBank, payable in monthly installments of $350,
collateralized by a vehicle......................................... 11,582 14,617
9.25% note to NationsBank, payable in monthly installments of $15,961,
collateralized by equipment......................................... 234,265 408,198
8.50% note to NationsBank, payable in monthly installments of $6,313,
collateralized by equipment......................................... -- 66,659
9.50% note to NationsBank, payable in monthly installments of $714,
collateralized by a vehicle......................................... 22,301 28,436
8.87% note to Compass Bank, payable in monthly installments of $1,274,
collateralized by a vehicle......................................... -- 11,061
11.00% note to Navistar, payable in monthly installments of $4,992,
collateralized by 5 trucks.......................................... 33,698 86,687
9.80% note to Navistar, payable in monthly installments of $1,984,
collateralized by 2 trucks.......................................... 22,591 43,081
10.45% note to Ford Motor Credit, payable in monthly installments of
$561, collateralized by a vehicle................................... -- 15,625
F-67
FLY ASH PRODUCTS, INCORPORATED
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT (CONTINUED)
1997 1996
---------- ----------
10.25% note to GMAC, payable in monthly installments of $485,
collateralized by a vehicle............................................. $ 3,742 $ 8,897
6.00% note to KDC Financial, payable in monthly installments of $3,766,
collateralized by equipment............................................. 104,700 --
8.50% note to Simmons First National Bank, payable in monthly installments
of $14,327, collateralized by equipment................................. 383,828 --
9.70% note to Clement Finance, payable in monthly installments of $8,923,
collateralized by trailers.............................................. 85,603 180,103
8.25% note to KDC Financial, payable in monthly installments of $1,882,
collateralized by equipment............................................. 19,882 39,928
---------- ----------
940,363 940,628
Less current portion...................................................... 549,481 463,744
---------- ----------
$ 390,882 $ 476,884
---------- ----------
---------- ----------
The approximate aggregate maturities of long-term debt for the five years
subsequent to December 31, 1997 are as follows:
1998.............................................................. $549,481
1999.............................................................. 269,153
2000.............................................................. 121,035
2001.............................................................. 694
---------
$940,363
---------
---------
The Company has two lines of credit for $500,000 each at an interest rate of
5% over the federal discount rate and at a current rate of 8.5%. The lines are
secured by the Company's accounts receivable. One of the lines of credit expired
on January 25, 1998. The remaining line of credit expires on June 15, 1998.
There were no balances outstanding at December 31, 1997 on these lines of
credit.
F-68
FLY ASH PRODUCTS, INCORPORATED
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS
The following entities are related to Fly Ash Products, Incorporated by
common ownership and/or management. For the years ended December 31, 1997 and
1996, the following amounts were paid by and/ or received by the Company to or
from these related entities.
1997 1996
--------- ---------
Amounts paid by Fly Ash to:
Delmar Investors--for rent and office cleaning........................ $ 10,800 $ 10,800
Key Company--for the following:
Equipment Lease..................................................... 40,679 --
Construction Expense................................................ -- 54,105
D.A. Thomas Enterprises, Inc.......................................... 1,183 7,161
--------- ---------
Total amount paid to related parties.................................... $ 52,662 $ 72,066
--------- ---------
--------- ---------
Amounts received by Fly Ash from:
Smithwick, Inc.--for miscellaneous reimbursements..................... $ 3,432 $ --
D.A. Thomas Enterprises, Inc.--expense reimbursements................. 6,027 --
--------- ---------
Total amount received from related parties.............................. $ 9,459 $ --
--------- ---------
--------- ---------
At December 31, 1997 and 1996, the Company had loans receivable from
shareholders totaling $2,350,000 and $2,000,000, respectively. These unsecured
loans bear interest at 8.5% per annum, mature annually and have been renewed
without reduction. Interest accrued but unpaid at December 31, 1997 and December
31, 1996 was $395,691 and $219,493, respectively. Interest income related to
these loans totaled $176,198 and $124,843 in 1997 and 1996 respectively. The
Company is the guarantor of debt of D.A. Thomas Enterprises, Inc. totaling
$1,088,111 and $1,185,810 at December 31, 1997 and 1996, respectively.
4. MAJOR CUSTOMERS AND SUPPLIERS
During 1997 and 1996, the Company had sales to one customer which comprised
19% and 17%, respectively, of total sales for those years. Also during 1997 and
1996, the Company acquired 100% of its material for sale to customers from one
electric utility.
5. LEASES
The Company leases certain buildings and equipment under leases classified
as operating. Rental expense was $91,800 and $59,834 for 1997 and 1996
respectively.
6. IMPACT OF THE YEAR 2000 (UNAUDITED)
Substantially all of the Company's computer processing is performed using
programs provided by third party vendors. The Company is currently evaluating
the programs for Year 2000 compliance. The Company intends to utilize only Year
2000 compliant vendor programs and believes that the year 2000 issue will not
pose significant operational problems for its computer systems.
7. SUBSEQUENT EVENT
On March 27, 1998, an agreement was signed for purchase of all the Company's
outstanding stock by an unrelated third party.
F-69
FLY ASH PRODUCTS, INCORPORATED
(AN S CORPORATION)
UNAUDITED CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1998 1997
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 355,456 $ 248,352
Accounts receivable, net.......................................................... 693,531 844,368
Prepaid expenses and other current assets......................................... 189,214 60,247
------------- -------------
Total current assets................................................................ 1,238,201 1,152,967
Property, plant and equipment, net.................................................. 1,473,441 1,399,827
Other Assets, net................................................................... 100,000 112,875
------------- -------------
Total assets........................................................................ $ 2,811,642 $ 2,665,669
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 372,078 $ 92,177
Accrued expenses.................................................................. 51,053 76,543
Current portion of notes payable.................................................. 549,481 549,481
Other current liabilities......................................................... 105,850 --
------------- -------------
Total current liabilities........................................................... 1,078,462 718,201
Notes payable....................................................................... 525,953 390,882
Commitments and contingencies
Shareholders' equity:
Common stock, par value $.10 per share; 1,000 shares authorized; 900 shares issued
and outstanding................................................................. 90 90
Additional paid-in capital........................................................ 810 810
Retained earnings................................................................. 4,382,393 4,301,377
Receivables from shareholders..................................................... (3,176,066) (2,745,691)
------------- -------------
Total shareholders' equity.......................................................... 1,207,227 1,556,586
------------- -------------
Total liabilities and shareholders' equity.......................................... $ 2,811,642 $ 2,665,669
------------- -------------
------------- -------------
See accompanying notes.
F-70
FLY ASH PODUCTS, INCORPORATED
(AN S CORPORATION)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
------------ -----------
Revenues:.............................................................................. $ 1,132,653 $ 672,938
Costs and expenses:
Cost of sales, excluding depreciation................................................ 718,823 556,133
Depreciation and amortization........................................................ 128,655 134,972
Selling, general and administrative expenses......................................... 198,485 186,471
------------ -----------
1,045,963 877,576
------------ -----------
Operating income (loss)................................................................ 86,690 (204,638)
Interest income........................................................................ 3,243 9,504
Interest expense....................................................................... (17,823) (22,683)
Other income........................................................................... 8,906 2,686
------------ -----------
Net income (loss)...................................................................... $ 81,016 $ (215,131)
------------ -----------
------------ -----------
See accompanying notes.
F-71
FLY ASH PRODUCTS, INCORPORATED
(AN S CORPORATION)
UNAUDITED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
ADDITIONAL
PAID-IN RETAINED
COMMON STOCK CAPITAL EARNINGS
------------- ------------- ------------
Balance at December 31, 1997................................................. $ 90 $ 810 $ 4,301,377
Net income................................................................. -- 81,016
--- ----- ------------
Balance at March 31, 1998.................................................... $ 90 $ 810 $ 4,382,393
--- ----- ------------
--- ----- ------------
See accompanying notes.
F-72
FLY ASH PRODUCTS, INCORPORATED
(AN S CORPORATION)
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH
31,
------------------------
1998 1997
----------- -----------
OPERATING ACTIVITIES:
Net income (loss)....................................................................... $ 81,016 $ (215,131)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization....................................................... 128,655 134,972
Changes in operating assets and liabilities:
Receivables....................................................................... 150,837 392,187
Other current and non-current assets.............................................. (122,967) (144,477)
Accounts payable.................................................................. 279,901 313,827
Accrued expenses.................................................................. (25,490) (41,131)
Other current and non-current liabilities......................................... 105,850 21,208
----------- -----------
Net cash provided by operating activities............................................... 597,802 461,455
INVESTING ACTIVITIES:
Purchases of property, plant and equipment.............................................. (202,269) (349,481)
Increase in receivable from shareholders................................................ (423,500) --
----------- -----------
Net cash used in investing activities................................................... (625,769) (349,481)
FINANCING ACTIVITIES:
Proceeds from notes payable............................................................. 326,540 --
Principal payments on notes payable..................................................... (191,469) (129,693)
Dividends............................................................................... -- (100,800)
----------- -----------
Net cash provided by (used in) financing activities..................................... 135,071 (230,493)
Net increase/(decrease) in cash and cash equivalents.................................... 107,104 (118,519)
Cash and cash equivalents at beginning of period........................................ 248,352 724,305
----------- -----------
Cash and cash equivalents at end of period.............................................. $ 355,456 $ 605,786
----------- -----------
----------- -----------
Cash paid for interest.................................................................. $ 17,823 $ 22,683
----------- -----------
----------- -----------
Cash paid for income taxes.............................................................. $ -- $ --
----------- -----------
----------- -----------
See accompanying notes.
F-73
FLY ASH PRODUCTS, INCORPORATED
(AN S CORPORATION)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim condensed
financial statements reflect all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position, results of
operations and cash flows of Fly Ash Products, Incorporated ("Fly Ash Products"
or the "Company") for the respective periods presented. The results of
operations for an interim period are not necessarily indicative of the results
which may be expected for any other interim period or for the year as a whole.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying unaudited interim condensed
financial statements should be read in conjunction with the financial statements
and notes for the years ended December 31, 1997 and 1996 included in the
Registration Statement on Form S-4 filed with the U.S. Securities and Exchange
Commission by ISG Resources, Inc. (formerly JTM Industries, Inc.)
The consolidated balance sheet at December 31, 1997 was derived from audited
financial statements, but does not include all disclosures required under
generally accepted accounting principles.
2. SUBSEQUENT EVENT
On April 22, 1998, ISG Resources, Inc., an unrelated third party, acquired
all of the outstanding stock of Fly Ash Products for approximately $9,500,000.
F-74
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER CONTAINED HEREIN, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NOTES
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS EXCHANGE OFFER NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
---------
Available Information........................... 1
Summary......................................... 2
Risk Factors.................................... 12
Use of Proceeds................................. 21
Capitalization.................................. 21
Pro Forma Condensed Combined Financial
Information................................... 22
Selected Historical Financial Information....... 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 28
The Exchange Offer.............................. 34
Business........................................ 42
Management...................................... 51
Security Ownership of Certain Beneficial Owners
and Management................................ 55
Certain Transactions............................ 55
Description of Notes............................ 56
Description of Secured Credit Facility.......... 85
Certain United States Federal Tax Considerations
For Non-United States Holders................. 87
Plan of Distribution............................ 89
Legal Matters................................... 89
Experts......................................... 89
Index to Financial Statements................... F-1
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS ON
SUBSCRIPTIONS.
EXCHANGE OFFER
ISG RESOURCES, INC.
OFFER TO EXCHANGE
10% SENIOR SUBORDINATED NOTES DUE 2008
FOR 10% SENIOR SUBORDINATED NOTES DUE 2008
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. IDENTIFICATION OF OFFICERS AND DIRECTORS.
(A) JTM INDUSTRIES, INC.
JTM is a Texas corporation. Article 2.02-1.B of the Texas Business
Corporation Act, as amended (the "TBCA"), grants to a corporation the power to
indemnify a person who was, is or is threatened to be made a named defendant or
respondent in a proceeding because the person is or was a director of the
corporation against judgments, penalties (including excise and similar taxes),
fines, settlements and reasonable expenses actually incurred in connection
therewith, only if it is determined that the person (1) conducted himself in
good faith; (2) reasonably believed that (a) in the case of conduct in his
official capacity as a director of the corporation, his conduct was in the
corporation's best interests, and (b) in all other cases, his conduct was at
least not opposed to the corporation's best interests; and (3) in the case of
any criminal proceeding, he had no reasonable cause to believe that his conduct
was unlawful. Article 2.02-1.C limits the allowable indemnification by providing
that, except to the extent permitted by Article 2.02-1.E, a director may not be
indemnified in respect of a proceeding in which the person was found liable (1)
on the basis that he improperly received a personal benefit, whether or not the
benefit resulted from an action taken in his official capacity, or (2) to the
corporation. Article 2.02-1.E provides that if a director is found liable to the
corporation or is found liable on the basis that he received a personal benefit,
the permissible indemnification (1) is limited to reasonable expenses actually
incurred by the person in connection with the proceeding, and (2) shall not be
made in respect of any proceeding in which the person shall have been found
liable for willful or intentional misconduct in the performance of his duty to
the corporation. Finally, Article 2.02-1.H provides that a corporation shall
indemnify a director against reasonable expenses incurred by him in connection
with a proceeding in which he is a named defendant or respondent because he is
or was a director if he has been wholly successful, on the merits or otherwise,
in defense of the proceeding.
With respect to the officers of a corporation, Article 2.02-1.O of the TBCA
provides that a corporation may indemnify and advance expenses to an officer of
the corporation to the same extent that it may indemnify and advance expenses to
directors under Article 2.02-I. Further, Article 2.02-1.O provides that an
officer of a corporation shall be indemnified as, and to the same extent,
provided by Article 2.02-1.H for a director.
The Bylaws of JTM provide for indemnification of officers and directors as
and to the fullest extent permitted by the TBCA. In addition, JTM maintains
officers' and directors' insurance covering certain liabilities that may be
incurred by officers and directors in the performance of their duties.
(B) POZZOLANIC RESOURCES, INC.
Pozzolanic is a Washington corporation. Sections 23B.08.500 through
23B.08.600 of the Washington Business Corporation Act (the "WBCA") authorize a
court to award, or a corporation's board of directors to grant, indemnification
to directors and officers on terms sufficiently broad to permit indemnification
under certain circumstances for liabilities arising under the Securities Act.
Pozzolanic's Bylaws provide for indemnification of its directors, officers,
employees and agents to the extent permitted by Washington law.
Section 23B.08.320 of the WBCA authorizes a corporation to eliminate or
limit a director's personal liability to the corporation or its shareholders for
monetary damages for conduct as a director, except in certain circumstances
involving acts or omissions, intentional misconduct by a director or knowing
violations of law by a director or distributions illegal under Washington law,
or any transaction from which the director will personally receive a benefit in
money, property or services to which the director is not legally entitled.
II-1
Officers and directors of Pozzolanic are covered by insurance (with certain
exceptions and certain limitations) that indemnifies them against losses and
liabilities arising from certain alleged "wrongful acts," including alleged
errors or misstatements, or certain other alleged wrongful acts or omissions
constituting neglect or breach of duty.
(C) POWER PLANT AGGREGATES OF IOWA, INC.
PPA is an Iowa corporation. PPA's Bylaws, as amended, and Restated Articles
of Incorporation provide that PPA shall indemnify its directors, officers,
employees and agents to the fullest extent permitted by the Iowa Business
Corporation Act (the "IBCA"). The IBCA provides that a company may indemnify its
officers and directors if (i) the person acted in good faith, and (ii) the
person reasonably believed, in the case of conduct in the person's official
capacity with the company, that the conduct was in the company's best interests,
and in all other cases, that the person's conduct was at least not opposed to
the company's best interests, and (iii) in the case of any criminal proceeding,
the person had no reasonable cause to believe the person's conduct was unlawful.
The company is required to indemnify officers and directors against reasonable
expenses incurred in connection with any proceeding in which they are wholly
successful, on the merits or otherwise, to which the person may be a party
because of the person's position with the company. If the proceeding is by or in
the right of the company, indemnification may be made only for reasonable
expenses and may not be made in respect of any proceeding in which the person
shall have been adjudged liable to the company. Further, any such person may not
be indemnified in respect of any proceeding that charges improper personal
benefit to the person, in which the person shall have been adjudged to be
liable.
PPA maintains directors' and officers' liability insurance, which
indemnifies directors and officers of PPA against certain damages and expenses
relating to claims against them caused by negligent acts, errors or omissions.
(D) KBK ENTERPRISES, INC.
KBK is a Pennsylvania corporation. Sections 1741 and 1742 of the
Pennsylvania Business Corporation Law of 1988, as amended (the "BCL") provide
that a business corporation may indemnify directors and officers against
liability they may incur as such provided that the particular person acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. In the case of actions against a director or officer by or in the
right of the corporation, the power to indemnify extends only to expenses (not
judgments and amounts paid in the settlement) and such power generally does not
exist if the person otherwise entitled to indemnification shall have been
adjudged to be liable to the corporation unless it is judicially determined
that, despite the adjudication of liability but in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnification for
specified expenses. Under Section 1743 of the BCL, the corporation is required
to indemnify directors and officers against expenses they may incur in defending
actions against them in such capacities if they are successful on the merits or
otherwise in the defense of such actions. Under Section 1745 of the BCL, a
corporation may, subject to certain requirements, pay the expenses of a director
or officer incurred in defending an action or proceeding in advance of the final
disposition of the action or proceeding unless it is ultimately determined that
such person is not entitled to indemnification from the corporation.
KBK's Articles of Incorporation and Bylaws do not address indemnification of
officers and directors.
(E) FLY ASH PRODUCTS, INC.
Fly Ash Products is an Arkansas corporation. Section 4-27-850 of the
Arkansas Business Corporation Act contains detailed provisions for
indemnification of directors and officers of Arkansas corporations against
expenses, judgments, fines and settlements in connection with litigation.
Article VIII of Fly Ash's
II-2
Articles of Incorporation, as amended, provides for indemnification of the
directors and executive officers of Fly Ash to the fullest extent legally
permissible under the relevant provisions of the Arkansas Business Corporation
Act. Additionally, the Company has in place directors' and officers' liability
insurance coverage.
(F) MICHIGAN ASH SALES COMPANY, D.B.A. U.S. ASH COMPANY
U.S. Ash is a Michigan corporation. Section 561 of the Michigan Business
Corporation Act (the "MBCA") provides generally and in pertinent part that a
Michigan corporation may indemnify its directors and officers against expenses,
including judgments, penalties, fines, attorney's fees and amounts paid in
settlement actually and reasonably incurred by them in connection with any civil
or criminal suit or action, other than actions by or in the right of the
corporation, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders, and with respect to any criminal suit or
proceeding, if the person had no reasonable cause to believe his/her conduct was
unlawful. Section 562 provides that, in connection with the defense or
settlement of any action by or in the right of the corporation, a Michigan
corporation may indemnify its directors and officers against expenses actually
and reasonably incurred by them in connection with the matters in issue, if they
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation or its shareholders. The right
to indemnification is mandatory in the case of a director or officer who is
successful on the merits or otherwise and if the expenses are reasonable and
actually incurred. Permissive indemnification is to be made by a court of
competent jurisdiction, the majority vote of a quorum of disinterested
directors, the written opinion of independent legal counsel, by all independent
directors who are not parties to or threatened to be made parties to the action
or suit, or by the disinterested shareholders or a committee designated by the
Board of Directors and consisting of directors who are not parties to, or
threatened to be made parties to, the proceedings.
U.S. Ash's Articles of Incorporation contains provisions implementing, to
the fullest extent permitted by the MBCA, limitations on the personal liability
of its directors. U.S. Ash's Bylaws, as well as specific indemnification
agreements with U.S. Ash's directors and officers, provide that U.S. Ash shall
indemnify such persons to the maximum extent permitted by the MBCA.
(G) U.S. STABILIZATION, INC.
U.S. Stabilization is a Michigan corporation. Section 561 of the MBCA
provides generally and in pertinent part that a Michigan corporation may
indemnify its directors and officers against expenses, including judgments,
penalties, fines, attorney's fees and amounts paid in settlement actually and
reasonably incurred by them in connection with any civil or criminal suit or
action, other than actions by or in the right of the corporation, if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation or its shareholders, and
with respect to any criminal suit or proceeding, if the person had no reasonable
cause to believe his/her conduct was unlawful. Section 562 provides that, in
connection with the defense or settlement of any action by or in the right of
the corporation, a Michigan corporation may indemnify its directors and officers
against expenses actually and reasonably incurred by them in connection with the
matters in issue, if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation or its
shareholders. The right to indemnification is mandatory in the case of a
director or officer who is successful on the merits or otherwise and if the
expenses are reasonable and actually incurred. Permissive indemnification is to
be made by a court of competent jurisdiction, the majority vote of a quorum of
disinterested directors, the written opinion of independent legal counsel, by
all independent directors who are not parties to or threatened to be made
parties to the action or suit, or by the disinterested shareholders or a
committee designated by the Board of Directors and consisting of directors who
are not parties to, or threatened to be made parties to, the proceedings.
II-3
U.S. Stabilization's Articles of Incorporation do not address
indemnification of directors. U.S. Stabilization's Bylaws, as well as specific
indemnification agreements with U.S. Stabilization's directors and officers,
provide that U.S. Stabilization shall indemnify such persons to the maximum
extent permitted by the MBCA.
(H) FLO FIL CO., INC.
Flo Fil is a Michigan corporation. Section 561 of the MBCA provides
generally and in pertinent part that a Michigan corporation may indemnify its
directors and officers against expenses, including judgments, penalties, fines,
attorney's fees and amounts paid in settlement actually and reasonably incurred
by them in connection with any civil or criminal suit or action, other than
actions by or in the right of the corporation, if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation or its shareholders, and with respect to any
criminal suit or proceeding, if the person had no reasonable cause to believe
his/her conduct was unlawful. Section 562 provides that, in connection with the
defense or settlement of any action by or in the right of the corporation, a
Michigan corporation may indemnify its directors and officers against expenses
actually and reasonably incurred by them in connection with the matters in
issue, if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation or its
shareholders. The right to indemnification is mandatory in the case of a
director or officer who is successful on the merits or otherwise and if the
expenses are reasonable and actually incurred. Permissive indemnification is to
be made by a court of competent jurisdiction, the majority vote of a quorum of
disinterested directors, the written opinion of independent legal counsel, by
all independent directors who are not parties to or threatened to be made
parties to the action or suit, or by the disinterested shareholders or a
committee designated by the Board of Directors and consisting of directors who
are not parties to, or threatened to be made parties to, the proceedings.
Flo Fil's Articles of Incorporation contains provisions implementing, to the
fullest extent permitted by the MBCA, limitations on the personal liability of
its directors. Flo Fil's Bylaws, as well as specific indemnification agreements
with Flo Fil's directors and officers, provide that Flo Fil shall indemnify such
persons to the maximum extent disclosed to the Board of Directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
*3.1 Articles of Incorporation of JTM Industries, Inc.
**3.1(a) Articles of Amendment of Articles of Incorporation JTM Industries, Inc.
*3.2 By Laws of JTM Industries, Inc.
*3.3 Articles of Incorporation of KBK Enterprises, Inc.
*3.4 By Laws of KBK Enterprises, Inc.
*3.5 Articles of Incorporation of Pozzolanic Resources, Inc.
*3.6 By Laws of Pozzolanic Resources, Inc.
*3.7 Articles of Incorporation of Power Plant Aggregates of Iowa, Inc.
*3.8 By Laws of Power Plant Aggregates of Iowa, Inc.
*3.9 Articles of Incorporation of Michigan Ash Sales Company, d.b.a. U.S. Ash Company.
*3.10 By Laws of Michigan Ash Sales Company, d.b.a. U.S. Ash Company.
*3.11 Articles of Incorporation of Flo Fil Co., Inc.
*3.12 By Laws of Flo Fil Co., Inc.
*3.13 Articles of Incorporation of U.S. Stabilization, Inc.
II-4
*3.14 By Laws of U.S. Stabilization, Inc.
*3.15 Articles of Incorporation of Fly Ash Products, Inc.
*3.16 By Laws of Fly Ash Products, Inc.
*4.1 Indenture, dated as of April 22, 1998, by and among JTM Industries, Inc., the
Subsidiary Guarantors and U.S. Bank National Association, as Trustee.
***5.1 Opinion and consent of Morgan, Lewis & Bockius LLP as to the legality of the
securities being registered.
*10.1 Purchase Agreement dated as of April 17, 1998 by and among JTM Industries, Inc.,
the Subsidiary Guarantors and NationsBanc Montgomery Securities LLC and CIBC
Oppenheimer Corp.
*10.2 Registration Rights Agreement dated as of April 22, 1998, by and among JTM
Industries, Inc., the Subsidiary Guarantors and NationsBanc Montgomery Securities
LLC and CIBC Oppenheimer Corp.
*10.3 Purchase Agreement dated as of February 27, 1998 by and among JTM Industries, Inc.,
Pozzolanic Resources, Inc. and Gerald Peabody, Penelope Peabody and Kokan Company
Limited.
*10.4 Stock Purchase Agreement from Power Plant Aggregates of Iowa, Inc.
*10.5 Purchase Agreement dated as of March 1998 between JTM Industries, Inc. and Jack
Wirt
*10.6 Purchase Agreement dated as of March 27, 1998 between JTM Industries, Inc., Donald
A. Thomas, Phyllis S. Thomas and Donald W. Birge.
**10.7 Secured Credit Facility dated March 4, 1998 among JTM Industries, Inc. and a
syndicate of banks with NationsBank, N.A., as administrative agent, and Canadian
Imperial Bank of Commerce, as documentation agent.
**10.8 First Amendment dated as of May 29, 1998 to the Credit Agreement dated March 4,
1998 among JTM Industries, Inc. and a syndicate of banks with NationsBank, N.A. as
administrative agent, and Canadian Imperial Bank of Commerce, as documentation
agent.
**12.1 Statement re Computation of Ratio of Earnings to Fixed Charges.
*21.1 Subsidiaries of JTM Industries, Inc.
***23.1 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1).
**23.2 Consent of Ernst & Young LLP.
**23.3 Consent of PricewaterhouseCoopers LLP.
**24 Powers of Attorney (included on the signature pages hereof).
*25.1 Statement of Eligibility of U.S. Bank National Association, as Trustee, on Form
T-1.
**99.1 Form of Letter of Transmittal respecting the exchange of the 10% Senior
Subordinated Notes due 2008 which have been registered under the United States
Securities Act of 1933 for 10% Senior Subordinated Notes due 2008.
**99.2 Form of Notice of Guaranteed Delivery.
- ------------------------
* Previously filed.
** Filed herewith.
*** To be filed by amendment.
II-5
ITEM 22. UNDERTAKINGS.
(a) Each of the undersigned registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) (1) Each of the undersigned registrants hereby undertakes as follows:
that prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) Each of the registrants undertakes that every prospectus: (i) that
is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is used
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(c) Each of the undersigned registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
II-6
(d) Each of the undersigned registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of a
registrant pursuant to the foregoing provisions, or otherwise, each of the
undersigned registrants has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by a
registrant of expenses incurred or paid by a director, officer or controlling
person of a registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, each of the undersigned
registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salt Lake City, State of Utah, on
August 20, 1998.
ISG RESOURCES, INC.
(Registrant)
By: /s/ R STEVE CREAMER
-----------------------------------------
R Steve Creamer
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute
and appoint R Steve Creamer and J.I. Everest, II, or either of them acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation for him and in his name, place and stead, in any and
all capacities, to sign this Registration Statement on Form S-4 of JTM
Industries, Inc. and the additional registrants listed therein, relating to the
exchange offer of 10% Senior Subordinated Notes due 2008 and any and all
amendments (including post-effective amendments) to the Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board,
/s/ R STEVE CREAMER Chief Executive Officer
- ------------------------------ and Director (Principal August 20, 1998
R Steve Creamer Executive Officer)
Chief Financial Officer and
/s/ J.I. EVEREST, II Assistant Secretary
- ------------------------------ (Principal Financial August 20, 1998
J.I. Everest, II Officer)
/s/ RAUL A. DEJU President, Chief Operating
- ------------------------------ Officer, and Director August 20, 1998
Raul A. Deju
/s/ JOSEPH M. SILVESTRI Director
- ------------------------------ August 20, 1998
Joseph M. Silvestri
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salt Lake City, State of Utah, on
August 20, 1998.
POZZOLANIC RESOURCES, INC.
(Registrant)
By: /s/ R STEVE CREAMER
-----------------------------------------
R Steve Creamer
CHIEF EXECUTIVE OFFICER AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute
and appoint R Steve Creamer and J.I. Everest, II, or either of them acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation for him and in his name, place and stead, in any and
all capacities, to sign this Registration Statement on Form S-4 of JTM
Industries, Inc. and the additional registrants listed therein, relating to the
exchange offer of 10% Senior Subordinated Notes due 2008 and any and all
amendments (including post-effective amendments) to the Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ R STEVE CREAMER Director and Chief
- ------------------------------ Executive Officer August 20, 1998
R Steve Creamer
/s/ JOSEPH M. SILVESTRI Director
- ------------------------------ August 20, 1998
Joseph M. Silvestri
/s/ J.I. EVEREST, II Chief Financial Officer
- ------------------------------ August 20, 1998
J.I. Everest, II
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salt Lake City, State of Utah, on
August 20, 1998.
POWER PLANT AGGREGATES OF IOWA, INC.
(Registrant)
By: /s/ R STEVE CREAMER
-----------------------------------------
R Steve Creamer
CHIEF EXECUTIVE OFFICER AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute
and appoint R Steve Creamer and J.I. Everest, II, or either of them acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation for him and in his name, place and stead, in any and
all capacities, to sign this Registration Statement on Form S-4 of JTM
Industries, Inc. and the additional registrants listed therein, relating to the
exchange offer of 10% Senior Subordinated Notes due 2008 and any and all
amendments (including post-effective amendments) to the Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ R STEVE CREAMER Director and Chief
- ------------------------------ Executive Officer August 20, 1998
R Steve Creamer
/s/ JOSEPH M. SILVESTRI Director
- ------------------------------ August 20, 1998
Joseph M. Silvestri
/s/ J.I. EVEREST, II Chief Financial Officer
- ------------------------------ August 20, 1998
J.I. Everest, II
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salt Lake City, State of Utah, on
August 20, 1998.
MICHIGAN ASH SALES COMPANY,
D/B/A U.S. ASH COMPANY
(Registrant)
By: /s/ R STEVE CREAMER
-----------------------------------------
R Steve Creamer
CHIEF EXECUTIVE OFFICER AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute
and appoint R Steve Creamer and J.I. Everest, II, or either of them acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation for him and in his name, place and stead, in any and
all capacities, to sign this Registration Statement on Form S-4 of JTM
Industries, Inc. and the additional registrants listed therein, relating to the
exchange offer of 10% Senior Subordinated Notes due 2008 and any and all
amendments (including post-effective amendments) to the Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ R STEVE CREAMER Director and Chief
- ------------------------------ Executive Officer August 20, 1998
R Steve Creamer
/s/ JOSEPH M. SILVESTRI Director
- ------------------------------ August 20, 1998
Joseph M. Silvestri
/s/ J.I. EVEREST, II Chief Financial Officer
- ------------------------------ August 20, 1998
J.I. Everest, II
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salt Lake City, State of Utah, on
August 20, 1998.
U.S. STABILIZATION, INC.
(Registrant)
By: /s/ R STEVE CREAMER
-----------------------------------------
R Steve Creamer
CHIEF EXECUTIVE OFFICER AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute
and appoint R Steve Creamer and J.I. Everest, II, or either of them acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation for him and in his name, place and stead, in any and
all capacities, to sign this Registration Statement on Form S-4 of JTM
Industries, Inc. and the additional registrants listed therein, relating to the
exchange offer of 10% Senior Subordinated Notes due 2008 and any and all
amendments (including post-effective amendments) to the Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ R STEVE CREAMER Director and Chief
- ------------------------------ Executive Officer August 20, 1998
R Steve Creamer
/s/ JOSEPH M. SILVESTRI Director
- ------------------------------ August 20, 1998
Joseph M. Silvestri
/s/ J.I. EVEREST, II Chief Financial Officer
- ------------------------------ August 20, 1998
J.I. Everest, II
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salt Lake City, State of Utah, on
August 20, 1998.
FLO FIL CO., INC.
(Registrant)
By: /s/ R STEVE CREAMER
-----------------------------------------
R Steve Creamer
CHIEF EXECUTIVE OFFICER AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute
and appoint R Steve Creamer and J. I. Everest, II, or either of them acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation for him and in his name, place and stead, in any and
all capacities, to sign this Registration Statement on Form S-4 of JTM
Industries, Inc. and the additional registrants listed therein, relating to the
exchange offer of 10% Senior Subordinated Notes due 2008 and any and all
amendments (including post-effective amendments) to the Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ R STEVE CREAMER Director and Chief
- ------------------------------ Executive Officer August 20, 1998
R Steve Creamer
/s/ JOSEPH M. SILVESTRI Director
- ------------------------------ August 20, 1998
Joseph M. Silvestri
/s/ J.I. EVEREST, II Chief Financial Officer
- ------------------------------ August 20, 1998
J.I. Everest, II
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salt Lake City, State of Utah, on
August 20, 1998.
FLY ASH PRODUCTS, INC.
(Registrant)
By: /s/ R STEVE CREAMER
-----------------------------------------
R Steve Creamer
CHIEF EXECUTIVE OFFICER AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute
and appoint R Steve Creamer and J.I. Everest, II, or either of them acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation for him and in his name, place and stead, in any and
all capacities, to sign this Registration Statement on Form S-4 of JTM
Industries, Inc. and the additional registrants listed therein, relating to the
exchange offer of 10% Senior Subordinated Notes due 2008 and any and all
amendments (including post-effective amendments) to the Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ R STEVE CREAMER Director and Chief
- ------------------------------ Executive Officer August 20, 1998
R Steve Creamer
/s/ JOSEPH M. SILVESTRI Director
- ------------------------------ August 20, 1998
Joseph M. Silvestri
/s/ J.I. EVEREST, II Chief Financial Officer
- ------------------------------ August 20, 1998
J.I. Everest, II
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salt Lake City, State of Utah, on
August 20, 1998.
KBK ENTERPRISES, INC.
(Registrant)
By: /s/ R STEVE CREAMER
-----------------------------------------
R Steve Creamer
CHIEF EXECUTIVE OFFICER AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute
and appoint R Steve Creamer and J. I. Everest, II, or either of them acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation for him and in his name, place and stead, in any and
all capacities, to sign this Registration Statement on Form S-4 of JTM
Industries, Inc. and the additional registrants listed therein, relating to the
exchange offer of 10% Senior Subordinated Notes due 2008 and any and all
amendments (including post-effective amendments) to the Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ R STEVE CREAMER Director and Chief
- ------------------------------ Executive Officer August 20, 1998
R Steve Creamer
/s/ JOSEPH M. SILVESTRI Director
- ------------------------------ August 20, 1998
Joseph M. Silvestri
/s/ J.I. EVEREST, II Chief Financial Officer
- ------------------------------ August 20, 1998
J.I. Everest, II
II-15
INDEX TO EXHIBITS
EXHIBITS PAGE
- ---------- ---------
*3.1 Articles of Incorporation of JTM Industries, Inc.
**3.1a Articles of Amendment of Articles of Incorporation of JTM Industries, Inc.
*3.2 By Laws of JTM Industries, Inc.
*3.3 Articles of Incorporation of KBK Enterprises, Inc.
*3.4 By Laws of KBK Enterprises, Inc.
*3.5 Articles of Incorporation of Pozzolanic Resources, Inc.
*3.6 By Laws of Pozzolanic Resources, Inc.
*3.7 Articles of Incorporation of Power Plant Aggregates of Iowa, Inc.
*3.8 By Laws of Power Plant Aggregates of Iowa, Inc.
*3.9 Articles of Incorporation of Michigan Ash Sales Company, d.b.a. U.S. Ash Company.
*3.10 By Laws of Michigan Ash Sales Company, d.b.a. U.S. Ash Company.
*3.11 Articles of Incorporation of Flo Fil Co., Inc.
*3.12 By Laws of Flo Fil Co., Inc.
*3.13 Articles of Incorporation of U.S. Stabilization, Inc.
*3.14 By Laws of U.S. Stabilization, Inc.
*3.15 Articles of Incorporation of Fly Ash Products, Inc.
*3.16 By Laws of Fly Ash Products, Inc.
*4.1 Indenture, dated as of April 22, 1998, by and among JTM Industries, Inc., the Subsidiary
Guarantors and U.S. Bank National Association, as Trustee.
***5.1 Opinion and consent of Morgan, Lewis & Bockius LLP as to the legality of the securities being
registered.
*10.1 Purchase Agreement dated as of April 17, 1998 by and among JTM Industries, Inc., the
Subsidiary Guarantors and NationsBanc Montgomery Securities LLC and CIBC Oppenheimer Corp.
*10.2 Registration Rights Agreement dated as of April 22, 1998, by and among JTM Industries, Inc.,
the Subsidiary Guarantors and NationsBanc Montgomery Securities LLC and CIBC Oppenheimer
Corp.
*10.3 Purchase Agreement dated as of February 27, 1998 by and among JTM Industries, Inc.,
Pozzolanic Resources, Inc. and Gerald Peabody, Penelope Peabody and Kokan Company Limited.
*10.4 Stock Purchase Agreement from Power Plant Aggregates of Iowa, Inc.
*10.5 Purchase Agreement dated as of March 1998 between JTM Industries, Inc. and Jack Wirt
*10.6 Purchase Agreement dated as of March 27, 1998, between JTM Industries, Inc., Donald A.
Thomas, Phyllis S. Thomas and Donald W. Birge.
**10.7 Secured Credit Facility dated March 4, 1998 among JTM Industries, Inc. and a syndicate of
banks with NationsBank, N.A., as administrative agent, and Canadian Imperial Bank of
Commerce, as documentation agent.
EXHIBITS PAGE
- ---------- ---------
**10.8 First Amendment dated as of May 29, 1998 to the Credit Agreement dated March 4, 1998 among
JTM Industries, Inc. and a syndicate of banks with NationsBank, N.A. as administrative
agent, and Canadian Imperial Bank of Commerce, as documentation agent.
**12.1 Statement re Computation of Ratio of Earnings to Fixed Charges.
*21.1 Subsidiaries of JTM Industries, Inc.
***23.1 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1).
**23.2 Consent of Ernst & Young LLP
**23.3 Consent of PricewaterhouseCoopers LLP.
**24 Powers of Attorney (included on the signature pages hereof).
*25.1 Statement of Eligibility of U.S. Bank National Association, as Trustee, on Form T-1.
**99.1 Form of Letter of Transmittal respecting the exchange of the 10% Senior Subordinated Notes
due 2008 which have been registered under the United States Securities Act of 1933 for 10%
Senior Subordinated Notes due 2008.
**99.2 Form of Notice of Guaranteed Delivery.
- ------------------------
* Previously Filed.
** Filed herewith.
*** To be filed by amendment.