<PAGE> 1
As filed with the Securities and Exchange Commission on January 20, 1994
Registration No. 33-51133
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
SOUTHDOWN, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
LOUISIANA 72-0296500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1200 SMITH STREET, SUITE 2400
HOUSTON, TEXAS 77002
(713) 650-6200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
EDGAR J. MARSTON III
1200 SMITH STREET, SUITE 2400
HOUSTON, TEXAS 77002
(713) 650-6200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
R. DANIEL WITSCHEY, JR. JOSEPH A. CIALONE, II
BRACEWELL & PATTERSON, L.L.P. BAKER & BOTTS, L.L.P.
2900 SOUTH TOWER PENNZOIL PLACE 3000 ONE SHELL PLAZA
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED
PURSUANT TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING
BOX. / /
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST
REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. / /
---------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 20, 1994
PROSPECTUS
- ---------------------
1,500,000 SHARES
SOUTHDOWN, INC.
PREFERRED STOCK, $ CUMULATIVE CONVERTIBLE SERIES D
-------------------------
The Preferred Stock, $ Cumulative Convertible Series D, $.05 par value
per share (the "Series D Preferred Stock"), of Southdown, Inc. (the "Company" or
"Southdown") offered hereby has a liquidation preference of $50.00 per share,
plus accrued and unpaid dividends thereon. Dividends on the Series D Preferred
Stock will be cumulative from the date of original issuance and will be payable
quarterly in arrears commencing April 1, 1994, in an amount per annum equal to
$ per share, until conversion or redemption. See "Description of Series D
Preferred Stock -- Dividends." The Series D Preferred Stock will rank junior to
the Company's outstanding Preferred Stock, $.70 Cumulative Convertible Series A
and pari passu with the Company's outstanding Preferred Stock, $3.75 Convertible
Exchangeable Series B.
Shares of Series D Preferred Stock are convertible at the option of the
holder thereof at any time, unless previously redeemed or converted, into shares
of common stock, $1.25 par value, of the Company, including the associated
rights to purchase preferred stock (the "Common Stock"), at a conversion price,
subject to adjustment in certain circumstances (the "Conversion Price"), of
$ per share of Common Stock (initially equivalent to a conversion rate of
shares of Common Stock for each share of Series D Preferred Stock). See
"Description of Series D Preferred Stock -- Conversion Rights -- Conversion at
the Option of the Holder." On January 19, 1994, the last reported sale price of
the Common Stock on the New York Stock Exchange (the "NYSE") was $26 3/4 per
share. See "Price Range of the Common Stock and Dividends."
The Series D Preferred Stock is not redeemable prior to January , 2001. On
and after January , 1997 and until January , 2001, the Series D Preferred
Stock will be convertible at the option of the Company, in whole but not in
part, into shares of Common Stock at the Conversion Price. The Company may
exercise this option only if for at least 20 trading days within any period of
30 consecutive trading days, including the last trading day of such 30 trading
day period, the closing price of the Common Stock equals or exceeds 130% of the
Conversion Price (initially $ per share) and if all dividends on the Series
D Preferred Stock for all dividend periods ending on or prior to the dividend
payment date next preceding the conversion date have been paid or set aside for
payment. In order to exercise this conversion option, the Company must issue a
press release announcing the conversion and specifying the date on which such
conversion will be effective prior to 9:00 a.m. New York City time, on the
second trading day after any date on which the foregoing conditions have been
met. See "Description of the Series D Preferred Stock -- Conversion
Rights -- Conversion at the Option of the Company." On and after January ,
2001, the Series D Preferred Stock will not be convertible at the option of the
Company, but will be redeemable, in whole or in part, at the option of the
Company at a redemption price of $50.00 per share, plus accrued and unpaid
dividends. The Series D Preferred Stock will not be entitled to the benefit of
any sinking fund. See "Description of Series D Preferred Stock -- Optional
Redemption."
The Series D Preferred Stock has been approved for listing on the NYSE.
The offering of the Series D Preferred Stock (the "Preferred Stock
Offering") is being conducted concurrently with an offering of shares of Common
Stock by a selling shareholder (the "Common Stock Offering"). See "Recent
Developments -- Concurrent Offerings." The closings of the Preferred Stock
Offering and the Common Stock Offering are not conditioned on each other. The
Company will not receive any proceeds from the Common Stock Offering.
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SERIES D PREFERRED
STOCK.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE 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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<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
- -----------------------------------------------------------------------------------------------------------
Per Share................................... $50.00 $ $
- -----------------------------------------------------------------------------------------------------------
Total(4).................................... $75,000,000 $ $
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued dividends, if any, from the date of issuance.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated to be $435,000.
(4) The Company has granted to the several Underwriters an option, exercisable
within 30 days after the date hereof, to purchase up to 225,000 additional
shares solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $86,250,000, $ and $ , respectively. See
"Underwriting."
-------------------------
The shares of Series D Preferred Stock are offered by the several
Underwriters, subject to prior sale, when, as, and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right to
withdraw, cancel, or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares of Series D Preferred Stock will be
made in New York, New York on or about January , 1994.
-------------------------
MERRILL LYNCH & CO.
KIDDER, PEABODY & CO.
INCORPORATED
LEHMAN BROTHERS
-------------------------
The date of this Prospectus is January , 1994.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SERIES D
PREFERRED STOCK OR THE COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company, a Louisiana corporation organized in 1930, has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities to which this Prospectus
relates.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is required to file
reports, proxy statements and other materials with the Commission. Such reports,
proxy statements and other materials filed with the Commission are available for
inspection and copying at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
and are available for inspection and copying at certain of the Commission's
regional offices at the following locations: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60621-2511; and Seven World Trade Center,
13th Floor, New York, New York 10048. Copies of such materials also may be
obtained by mail, upon payment of the Commission's customary charges, by writing
to its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549. Such materials and other information concerning the Company are also
available for inspection at the office of the NYSE, 20 Broad Street, New York,
New York 10005.
This Prospectus does not contain all of the information set forth in the
Registration Statement of which this Prospectus is a part, including the
exhibits to the Registration Statement. Statements contained herein concerning
the provisions of documents are necessarily summaries of such documents, and
each such statement is qualified in its entirety by reference to the applicable
documents filed with the Commission. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement, including the exhibits thereto, which may be inspected at the public
reference facilities of the Commission referred to above, and copies of which
may be obtained therefrom upon payment of the Commission's customary charges.
The Company's principal executive office is located at 1200 Smith Street, Suite
2400, Houston, Texas 77002-4486, and its telephone number at that address is
(713) 650-6200.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following materials previously filed by the Company with the Commission
pursuant to the Exchange Act (File No. 1-6117), are incorporated herein by
reference: the Annual Report on Form 10-K for the fiscal year ended December 31,
1992; the Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1993; the Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1993; the Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1993; the Current Report on Form 8-K dated December 21, 1993, which was
filed with the Commission on January 4, 1994; the Form 8-C dated September 17,
1969 with respect to the Common Stock; and the Form 8-A dated March 4, 1991 with
respect to the Rights to Purchase Preferred Stock. For convenience of reference,
the consolidated financial statements and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" from the September 30, 1993
Quarterly Report on Form 10-Q are reproduced in this Prospectus. All documents
filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and before the
termination of this offering shall be deemed to be incorporated herein by
reference.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference (including such information that is also
reproduced herein for convenience of reference) shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that also is or is
deemed to be incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon request by such person, a copy of any and all
documents that are incorporated herein by reference (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
any such document). Requests for copies of such documents should be addressed to
the Company at its principal executive offices as follows: Mr. James L. Persky,
Senior Vice President -- Finance, Southdown, Inc., 1200 Smith Street, Suite
2400, Houston, Texas 77002-4486 (telephone (713) 650-6200).
2
<PAGE> 4
[INSIDE FRONT COVER]
PHOTOGRAPH OF THE COMPANY'S VICTORVILLE, CALIFORNIA
CEMENT PLANT
PHOTOGRAPH OF CONCRETE POURING AT COMMERCIAL JOB SITE
<PAGE> 5
MAP OF UNITED STATES IDENTIFYING LOCATIONS OF
THE COMPANY'S CEMENT PLANTS, CONCRETE PRODUCTS OPERATIONS
AND HAZARDOUS WASTE PROCESSORS
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements included elsewhere or incorporated by
reference in this Prospectus. As used herein, the terms "Southdown" and the
"Company" refer to Southdown, Inc. together with its subsidiaries. Unless
otherwise noted, all information in this Prospectus assumes the Underwriters'
over-allotment option is not exercised.
THE COMPANY
Southdown is one of the leading producers of cement and ready-mixed
concrete in the United States. The Company operates eight quarrying and
manufacturing facilities and a network of 18 terminals for the production and
distribution of portland and masonry cement, primarily in the Ohio valley and
the southwestern and southeastern regions of the United States. Southdown is
also vertically integrated, with ready-mixed concrete operations serving markets
in southern California, Florida and southeast Georgia. In addition, the Company
is engaged in the environmental services business, which involves the collection
of hazardous waste and processing it into hazardous waste derived fuels that,
together with tires and other waste materials, are utilized in certain of the
Company's cement kilns as a supplement to conventional fuels. The Company is
headquartered in Houston, Texas and employs approximately 2,700 people
nationwide.
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA*
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ -------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988(A)
------ ------ ------ ------ ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS, OPERATING DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................. $406.6 $383.3 $507.4 $506.9 $ 565.9 $ 592.5 $ 543.4
Operating earnings (loss)............ $ 28.9 $ 9.4 $(16.6) $(15.7) $ 47.6 $ 87.9 $ 77.9
Earnings (loss) from continuing
operations......................... $ (0.3) $(14.9) $(41.4)(b) $(43.2)(c) $ 13.4(d) $ 23.0 $ 17.3
Earnings from discontinued
operations, net of income
taxes(e)........................... -- -- -- -- -- 11.6 19.8
Gain on sale of discontinued
operations, net of income
taxes(e)........................... -- 0.8 0.8 -- -- 33.4 --
Cumulative effect of change in
accounting principle............... (48.5)(f) -- -- -- -- -- 19.6(g)
Extraordinary charge, net of related
tax benefit(h)..................... -- -- -- (1.4) -- -- --
------ ------ ------ ------ ------- ------- -------
Net earnings (loss).................. $(48.8) $(14.1) $(40.6) $(44.6) $ 13.4 $ 68.0 $ 56.7
------ ------ ------ ------ ------- ------- -------
------ ------ ------ ------ ------- ------- -------
Earnings (loss) per share --
Continuing operations.............. $(0.24) $(1.10) $(2.74) $(2.86) $ 0.44 $ 1.06 $ 0.99
Discontinued operations(e)......... -- -- -- -- -- 0.57 1.15
Gain on sale of discontinued
operations(e).................... -- 0.05 0.05 -- -- 1.63 --
Cumulative effect of change in
accounting principle............. (2.86)(f) -- -- -- -- -- 1.14(g)
Extraordinary charge, net of
related tax benefit(h)........... -- -- -- (0.08) -- -- --
------ ------ ------ ------ ------- ------- -------
Net earnings (loss)................ $(3.10) $(1.05) $(2.69) $(2.94) $ 0.44 $ 3.26 $ 3.28
------ ------ ------ ------ ------- ------- -------
------ ------ ------ ------ ------- ------- -------
Preferred stock dividends............ $ 3.7 $ 3.7 $ 5.0 $ 5.1 $ 5.8 $ 6.3 $ 4.0
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK
DIVIDENDS(I)......................... (i) (i) (i) (i) 1.2x 1.4x 1.2x
OPERATING DATA:
Tons of cement sold (in thousands)... 4,637 4,369 5,788 5,340 5,876 6,155 5,923
Weighted average per ton data:
Sales price (net of freight)....... $51.43 $50.27 $49.98 $52.26 $ 52.67 $ 52.88 $ 53.01
Manufacturing and other plant
operating costs(j)............... 39.23 39.54(k) 39.70(k) 43.72 40.83 40.28 41.69
------ ------ ------ ------ ------- ------- -------
Margin............................. $12.20 $10.73 $10.28 $ 8.54 $ 11.84 $ 12.60 $ 11.32
------ ------ ------ ------ ------- ------- -------
------ ------ ------ ------ ------- ------- -------
Yards of ready-mixed concrete sold
(in thousands)..................... 2,420 2,319 3,038 3,488 4,179 4,786 4,038
Weighted average per cubic yard data:
Sales price........................ $43.70 $43.17 $43.13 $42.97 $ 45.70 $ 45.44 $ 45.24
Operating costs(l)................. 45.23 46.46 46.66 46.69 46.01 42.78 42.89
------ ------ ------ ------ ------- ------- -------
Margin............................. $(1.53) $(3.29) $(3.53) $(3.72) $ (0.31) $ 2.66 $ 2.35
------ ------ ------ ------ ------- ------- -------
------ ------ ------ ------ ------- ------- -------
</TABLE>
- ---------------
* Alphabetical note references refer to the notes to Selected Historical
Financial and Operating Data that appear on page 15.
3
<PAGE> 7
THE PREFERRED STOCK OFFERING
Securities Offered......... 1,500,000 shares of Series D Preferred Stock.
Dividends.................. Cumulative from the date of original issuance,
payable quarterly in arrears, commencing April 1,
1994, in an amount per annum equal to $ per
share, until conversion or redemption.
Liquidation Preference..... $50.00 per share, plus accrued and unpaid dividends.
Conversion at the Option of
the
Holder................... The Series D Preferred Stock is convertible, in
whole or in part, at the option of the holder at any
time, unless previously redeemed or converted at the
option of the Company, into shares of Common Stock
of the Company, at an initial Conversion Price of
$ per share of Common Stock (equivalent to a
conversion rate of shares of Common Stock
for each share of the Series D Preferred Stock),
subject to adjustment in certain circumstances. See
"Description of Series D Preferred
Stock -- Conversion Rights."
Conversion at the Option of
the Company.............. On and after January , 1997 and until January ,
2001, the Series D Preferred Stock will not be
redeemable for cash, but will be convertible at the
option of the Company, in whole but not in part,
into shares of Common Stock at the Conversion Price.
The Company may exercise this option only if for at
least 20 trading days within any period of 30
consecutive trading days, including the last trading
day of such 30 trading day period, the closing price
of the Common Stock equals or exceeds 130% of the
Conversion Price (initially $ per share) and
if all dividends on the Series D Preferred Stock for
all dividend periods ending on or prior to the
dividend payment date next preceding the conversion
date have been paid or set aside for payment. In
order to exercise this conversion option, the
Company must issue a press release announcing the
conversion and specifying the date on which such
conversion will be effective prior to 9:00 A.M., New
York City time, on the second trading day after any
date on which the foregoing conditions have been
met. See "Description of Series D Preferred
Stock -- Conversion Rights -- Conversion at the
Option of the Company."
Optional Redemption........ The shares of Series D Preferred Stock are not
redeemable prior to January , 2001. Thereafter,
the Series D Preferred Stock will be redeemable, in
whole or in part, at the option of the Company, at a
redemption price of $50.00 per share, plus accrued
and unpaid dividends. The Series D Preferred Stock
will not be entitled to the benefit of any sinking
fund. See "Description of Series D Preferred
Stock -- Optional Redemption."
Voting Rights.............. The Series D Preferred Stock is entitled to one vote
per share, voting as a class with the Common Stock
and any other capital stock of the Company entitled
to vote, on all matters submitted to shareholders.
The Series D Preferred Stock will not otherwise
entitle the holders to vote except (i) if the
equivalent of six full quarterly dividends (whether
or not consecutive) on the Series D Preferred Stock
are accrued and unpaid, the number of directors of
the Company will be increased by two and the holders
of the Series D Preferred Stock, voting together as
a single class with all other series or classes of
preferred stock which are pari passu with the Series
D Preferred Stock as to dividends and which
specifically state that they shall
4
<PAGE> 8
vote with the Series D Preferred Stock in such a
case, will have the right to elect such two
additional directors (such voting rights to continue
until such time as the dividend arrearage on the
Series D Preferred Stock has been paid in full);
(ii) the affirmative vote or consent of the holders
of at least two-thirds of the outstanding shares of
Series D Preferred Stock, voting as a separate
class, will be required for the creation,
authorization or issuance of any class or series of
stock of the Company ranking senior to the Series D
Preferred Stock as to dividends or distribution of
assets on liquidation and for amendments to the
Company's Restated Articles of Incorporation
affecting certain rights of holders of the Series D
Preferred Stock; and (iii) as required by applicable
law. See "Description of Series D Preferred
Stock -- Voting Rights."
Ranking.................... The Series D Preferred Stock will rank (i) senior to
the Common Stock and any shares that are expressly
made junior to the Series D Preferred Stock, (ii)
junior to the Company's outstanding Series A
Preferred Stock with respect to payment of dividends
and amounts upon liquidation, dissolution or winding
up of the Company, and (iii) pari passu with the
Company's outstanding Series B Preferred Stock with
respect to payment of dividends and amounts upon
liquidation, dissolution or winding up of the
Company. So long as any shares of Series D Preferred
Stock are outstanding, the Company may not create
any class or series of stock that ranks senior to
the Series D Preferred Stock without the requisite
consent of the holders of the Series D Preferred
Stock. The Preferred Stock, Cumulative Junior
Participating Series C, none of which is
outstanding, ranks junior to all classes and series
of capital stock, other than the Common Stock. See
"Description of Series D Preferred Stock --
Ranking."
Use of Proceeds............ The net proceeds from the sale of the Series D
Preferred Stock offered hereby will be used to
prepay an $18 million promissory note and reduce
outstanding borrowings under the Company's Restated
Revolving Credit Facility, $47 million of which was
incurred on January 5, 1994 to redeem $45 million
principal amount of the Company's 12% Senior
Subordinated Notes due 1997 (the "12% Notes"). The
Company intends to redeem the remaining $45 million
outstanding principal amount of 12% Notes as
promptly as practicable after May 1, 1994 with
additional borrowings under the Restated Revolving
Credit Facility. See "Use of Proceeds."
Listing.................... The Series D Preferred Stock has been approved for
listing on the NYSE, on which the Common Stock is
traded.
Concurrent Offering........ Concurrently with the Preferred Stock Offering, a
selling shareholder is selling 1,550,000 shares of
Common Stock in the Common Stock Offering. The
selling shareholder has also granted to the
underwriters of the Common Stock Offering the option
to purchase from the selling shareholder up to
232,500 shares of Common Stock solely to cover over-
allotments in the Common Stock Offering. See "Recent
Developments -- Concurrent Offerings."
5
<PAGE> 9
INVESTMENT CONSIDERATIONS
Prospective purchasers of the Series D Preferred Stock offered hereby
should consider the following matters, as well as the other information in this
Prospectus and the documents incorporated herein by reference.
DEPENDENCE ON CONSTRUCTION INDUSTRY; PROFIT SENSITIVITY
Demand for cement is derived from demand for concrete products which, in
turn, is derived from demand for construction. The construction sector is
affected by the general condition of the economy and can exhibit substantial
variations across the country as a result of the differing structures of
regional economies. Regional cement markets are highly cyclical, experiencing
peaks and valleys correlated with regional construction cycles. While the impact
on the Company of construction cycles in individual regions may be mitigated to
some degree by the geographic diversification of the Company, profitability is
very sensitive to small shifts in the balance between supply and demand. New
construction activities stagnated as the U.S. economy entered a recession during
the later half of 1990, declined in 1991 in most areas and, in California,
continued to decline in 1992. As a consequence, the Company's sales and earnings
declined from the previous cyclical peak. Construction activity in some regions
has rebounded slightly in 1993. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."
FIXED CHARGE DEFICIENCY; DIVIDENDS
Since 1991, the Company's earnings have been insufficient to cover its
combined fixed charges and preferred stock dividends. See "Selected Historical
Financial and Operating Data." In addition, the Company's ability to pay
dividends on its capital stock, including the Series D Preferred Stock and
Common Stock, is restricted in certain circumstances by certain provisions of
various of its debt instruments, including the Company's Restated Revolving
Credit Facility and the Indenture relating to its 14% Senior Subordinated Notes
Due 2001. See "Description of Capital Stock -- Limitations on Dividends and
Certain Other Payments." The Company has paid no dividends on its Common Stock
since the first quarter of 1991. See "Price Range of the Common Stock and
Dividends."
STATUS OF CERTAIN TARIFFS
A group of domestic cement producers, including the Company, filed
antidumping petitions which have resulted in the imposition of significant
antidumping duty cash deposits on cement imported from Mexico and Japan. In
addition, the U.S. Department of Commerce has signed an agreement with
Venezuelan cement producers, which is designed to eliminate the dumping of gray
portland cement from Venezuela into Florida and the United States generally. The
antidumping duties are subject to annual review by the Department of Commerce
and appeal to the U.S. Court of International Trade.
Effective July 15, 1995, the Anti-dumping Code of the General Agreement on
Tariffs and Trade will be substantially altered pursuant to the recently
completed Uruguay Round of multilateral trade negotiations. The new Code applies
to investigations initiated after July 1995 and to administrative reviews of
outstanding orders that are initiated after July 1995. If Congress passes
legislation to approve and implement the Uruguay Round agreement, changes will
necessarily be made to U.S. antidumping law. While the antidumping orders
outstanding against cement and clinker from Mexico and Japan and the suspension
agreement on cement and clinker from Venezuela will remain in force, the new
Code will require "sunset" reviews of the antidumping orders against Mexico and
Japan prior to July 2000 to determine whether they should terminate or remain in
effect, unless an earlier date is mandated by Congress. Under the new Code, it
could be more difficult to obtain antidumping orders against other countries. A
substantial reduction or elimination of the existing antidumping duties could
adversely affect the Company's results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Status of Additional Sources of Cement Supply."
The Company does not believe that the North American Free Trade Agreement
will have a material adverse effect on the foregoing antidumping duties.
6
<PAGE> 10
ENVIRONMENTAL MATTERS
Industrial operations have been conducted at some of the Company's cement
manufacturing facilities for almost 100 years. In the past, the Company disposed
of various materials, including used refractory brick and other products
generally used in its cement manufacturing and concrete products operations, in
onsite and offsite facilities. Many of these residuals, when discarded, are now
classified as hazardous wastes and are subject to regulation under federal and
state environmental laws and regulations, which may require the Company to
undertake corrective action to remediate these sites.
Many of the raw materials, products and by-products associated with the
operation of any industrial facility, including those for the production of
cement or concrete products, contain chemical elements or compounds that are
designated as hazardous substances. Some examples of such materials are the
trace metals present in cement kiln dust ("CKD"), chromium present in refractory
brick formerly widely used to line cement kilns and general purpose solvents.
CKD is not classified as a hazardous waste, except CKD which is produced by
kilns burning hazardous waste fuels and which fails to meet certain criteria.
However, CKD that is infused with water may produce a leachate with an
alkalinity high enough to be classified as hazardous and may also leach certain
hazardous trace metals present therein. Several of the Company's inactive CKD
disposal sites around the country are under study to determine if remedial
action is required at any of the sites and, if so, the extent of any such
remedial action. The Company has recorded charges aggregating $9.7 million as
the total estimated cost to remediate one of these sites. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Known Events, Trends and Uncertainties -- Environmental Matters."
Owners and operators of industrial facilities and those who handle, store
or dispose of hazardous substances may be subject to fines and other sanctions
imposed by the U.S. Environmental Protection Agency and corresponding state
regulatory agencies for violations of laws or regulations relating to those
substances. The Company has incurred fines imposed by those agencies in the
past. Recently, as part of an aggressive inspection and enforcement initiative
targeting combustion industry facilities in which it is seeking over $19.8
million in penalties against the owners and operators of 28 boilers and
industrial furnaces, the U.S. EPA alleged certain violations by the Company and
proposed the assessment of a civil penalty in the amount of $1.1 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Known Events, Trends and Uncertainties -- Environmental Matters."
The Company's utilization of hazardous waste derived fuels ("HWDF") in its
cement kilns has necessitated the familiarization of its work force with the
more exacting requirements of applicable environmental laws and regulations with
respect to human health and the environment related to these activities. The
failure to observe the exacting requirements of these laws and regulations could
jeopardize the Company's hazardous waste management permits and, under certain
circumstances, expose the Company to significant liabilities and costs of
cleaning up releases of hazardous substances into the environment or claims by
employees or others alleging exposure to toxic or hazardous substances. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings, certain of which are
described in Item 5. "Other Events" of the Company's Current Report on Form 8-K
dated December 21, 1993, which was filed with the Commission on January 4, 1994,
Item 1. "Legal Proceedings" of the Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1993, and Item 3. "Legal Proceedings"
of the Company's Annual Report on Form 10-K for the year ended December 31,
1992.
ABSENCE OF TRADING MARKET
There has been no public market for the Series D Preferred Stock prior to
the Preferred Stock Offering; consequently, there can be no assurance that the
initial public offering price will correspond to the price at which the Series D
Preferred Stock will trade in the public market subsequent to this offering. The
Series D Preferred Stock has been approved for listing on the NYSE. Prices for
the Series D Preferred Stock will be determined in the marketplace and may be
influenced by many factors, including depth and liquidity of the
7
<PAGE> 11
market for the Series D Preferred Stock, investor perceptions of the Company,
the market price of the Common Stock and general industry and economic
conditions. The Common Stock into which the Series D Preferred Stock is
convertible is listed on the NYSE.
THE COMPANY
Southdown is one of the leading producers of cement and ready-mixed
concrete in the United States. The Company operates eight quarrying and
manufacturing facilities and a network of 18 terminals for the production and
distribution of portland and masonry cement, primarily in the Ohio valley and
the southwestern and southeastern regions of the United States. Southdown is
also vertically integrated, with ready-mixed concrete operations serving markets
in southern California, Florida and southeast Georgia. In addition, the Company
is engaged in the environmental services business, which involves the collection
of hazardous waste and processing it into HWDF that, together with tires and
other waste materials, are utilized in certain of the Company's cement kilns as
a supplement to conventional fuels. The Company is headquartered in Houston,
Texas and employs approximately 2,700 people nationwide.
Cement Operations. The Company is the third-largest cement producer in the
United States and believes that its network of eight cement plants is one of the
most modern and efficient of any large cement manufacturer in this country.
Seven of its eight plants utilize a variation of the more fuel efficient "dry
process" manufacturing technology. The Company's plants are located in
California, Colorado, Florida, Kentucky, Ohio, Pennsylvania, Tennessee and
Texas. Cement markets are generally regional, due to transportation costs which
are high relative to the value of the products. The primary end-users of cement
in each regional market include numerous small and sometimes one or more large
ready-mixed concrete companies. Cement is the binding agent for concrete, a
primary construction material.
During the first nine months of 1993, the cement operations generated
revenues of $277.6 million and operating earnings of $61.1 million compared with
revenues of $256.5 million and operating earnings of $49.2 million during the
comparable period a year ago. The improved performance is primarily a result of
higher sales volumes and prices. The cement operations generated revenues of
$339.5 million and operating earnings of $59.0 million in 1992 compared with
revenues of $328.4 million and operating earnings of $41.8 million in 1991. The
improved performance in 1992 was primarily a result of significant cost
reductions and an 8% increase in sales volume, partially offset by a decline in
the average price of cement.
The demand for cement is highly cyclical and is derived from the demand for
construction. Construction spending and cement consumption have historically
fluctuated widely. Following this pattern, cement demand began to decline in
1990, appears to have reached its cyclical low in 1991 and was flat to slightly
higher in most regions of the country during 1992 and the first nine months of
1993. The Portland Cement Association (the "PCA"), an industry trade group,
estimates that total U.S. cement consumption will increase from a cyclical low
of 79 million tons in 1991 to 98 million tons in 1996. This forecast of peak
U.S. cement consumption compares with consumption of 93 million tons at the last
cyclical peak in 1987. The demand for cement can be divided into three major
market segments: residential construction, commercial and industrial
construction, and infrastructure or public works projects which represented 24%,
22% and 54%, respectively, of cement consumption in 1992.
The supply of cement in the U.S. has declined in recent years primarily
because of a decrease in the volume of imported cement entering the country.
During the 1980's, imported cement flooded U.S. markets, causing prices to fall
despite strong growth in cement consumption. This situation has begun to reverse
as evidenced by the reduction in imported cement to 8% of total U.S. consumption
in 1992 as compared with 17% of total U.S. consumption in 1989. This decline is
largely the result of successful antidumping actions filed against importers
from Mexico, Japan and Venezuela. With respect to the California, Florida and
Texas markets, the antidumping suits have provided an opportunity for domestic
producers to displace large volumes of imported cement during the current
recession. See "Investment Considerations -- Status of Certain Tariffs" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Known Events, Trends and Uncertainties -- Other
Contingencies -- Status of Additional Sources of Cement Supply."
8
<PAGE> 12
The profitability of the cement industry is highly sensitive to changes in
sales and production volumes because of the high fixed cost nature of the
manufacturing process. High levels of capacity utilization are therefore
important to the financial performance of the industry, as incremental sales
volumes generate substantial variable gross profits. If the strong demand for
cement projected by the PCA for the 1990's materializes and imports continue at
present low levels, U.S. producers should be able to operate at or near capacity
as the industry moves toward the next cyclical peak. The pricing environment
should also improve as demand increases and domestic capacity becomes fully
utilized. In addition to an improved supply and demand situation in the 1990's,
Southdown expects to benefit from enhanced cement manufacturing efficiency and
productivity improvement programs. After several years in the formulation and
early implementation stages, these programs have begun to produce results with
approximately $16.0 million of cost savings in 1992. These cost reductions are
expected to continue and to be augmented by some additional cost reductions in
future periods.
Concrete Products. The Company has vertically integrated its operations
into concrete products in the regional vicinity of its two largest cement
plants, which are located in southern California and Florida. The Company
believes that vertical integration into ready-mixed concrete enhances its
competitive position in these markets. Concrete is produced in batch plants by
combining cement, aggregates, add-mixtures and water and is transported to the
customer's jobsite in mixer trucks. Ready-mixed concrete is a versatile, low-
cost building material used in almost all construction applications.
In the third quarter of 1993 the concrete products segment recorded its
first operating earnings in three years. The segment recorded $0.5 million of
operating earnings in the third quarter of 1993 compared with an operating loss
of $2.4 million for the third quarter of 1992. During the first nine months of
1993, the concrete products segment generated revenues of $129.6 million and an
operating loss of $1.1 million compared with revenues of $119.9 million and an
operating loss of $8.0 million in the comparable period a year ago. The improved
earnings are a result of higher ready-mixed concrete volumes and prices in
Florida, and lower unit costs and improved earnings from aggregates in southern
California. In 1992 the concrete products segment generated revenues of $158.1
million and an operating loss of $11.6 million compared with revenues of $181.1
million and an operating loss of $12.7 million in 1991. While operating earnings
from the Florida concrete products operations increased in 1992, this
improvement was offset by the continued deterioration in the southern California
market.
Environmental Services. Southdown collects hazardous waste and processes it
into HWDF through its wholly owned subsidiary, Southdown Environmental Systems,
Inc. ("SES"). The HWDF, as well as tires and other waste materials, are used by
Southdown as a partial replacement for conventional fuels in certain of its
cement kilns. Southdown earns a fee for processing the hazardous waste and then
uses the HWDF, tires and other waste materials in certain of its cement plants
to reduce its outside purchases of conventional fuel, one of its largest
variable costs. After suffering three years of start-up losses, in late 1992
Southdown reorganized this business, narrowing its focus to primarily providing
HWDF for its own cement kilns. Southdown is in the process of consolidating this
business, selling a number of processors and centralizing the bulk of its
operations in its Tennessee processing facility, which is being upgraded and
expanded to provide state-of-the-art capacity for blending HWDF.
During the first nine months of 1993, the environmental services operations
generated revenues of $27.5 million versus $32.4 million in the comparable 1992
period and an operating loss of $1.2 million for the first nine months of 1993,
a $6.8 million improvement over the operating loss of $8.0 million in the first
nine months of 1992. In 1992 the environmental services segment generated
revenues of $43.4 million and an operating loss of $10.6 million, excluding the
$21.4 million writedown related to the sale of processors and the related
reorganization of these operations. In 1991 revenues were $36.8 million and
losses from operations were $4.4 million.
9
<PAGE> 13
RECENT DEVELOPMENTS
ESTIMATED 1993 RESULTS
On January 17, 1994, the Company announced that it expects to report
break-even earnings for the year ended December 31, 1993 before the cumulative
effect of a change in accounting principle under SFAS No. 106 and an
extraordinary charge of $1 million, compared with a loss from continuing
operations of $41.4 million in 1992. The anticipated 1993 results reflect higher
operating earnings in the cement segment attributable to, among other things,
increased sales volumes, higher average prices per ton and a decrease in average
operating costs per ton. The Company expects to report decreased losses in its
other two business segments in 1993 as compared to 1992. The anticipated 1993
results also reflect a fourth quarter charge of approximately $3 million related
to a waste processor that the Company has been attempting to sell.
RESTATED REVOLVING CREDIT FACILITY
On November 19, 1993, the Company and its lending banks entered into a $200
million Restated Revolving Credit Facility. This facility includes the issuance
of standby letters of credit up to a maximum of $95 million and also includes
$20 million of borrowing capacity that is reserved solely for potential funding
obligations under a Keepwell Agreement with the U.S. Maritime Administration.
The Restated Revolving Credit Facility remains the same size as the Revolving
Credit Facility described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," and matures in November 1996. Substantially all of the Company's
assets remain pledged to secure this facility. The Restated Revolving Credit
Facility permitted borrowings to redeem up to $45 million in principal amount of
the Company's 12% Notes (see "Capitalization"), which the Company has redeemed,
and, subject to compliance with the customary conditions to borrowing set forth
therein, also permits the Company to borrow funds sufficient to redeem the
remaining $45 million in principal amount of the 12% Notes after the closing of
the Preferred Stock Offering. The Company believes that this facility provides
the Company with enhanced flexibility under the restrictive covenants contained
therein. Borrowings under the Restated Revolving Credit Facility bear interest
at margins above either a prime rate or LIBOR as selected by the Company from
time to time. On January 19, 1994, the current interest rate under the Restated
Revolving Credit Facility was approximately 6.0%.
CONCURRENT OFFERINGS
The Carpenters Pension Trust for Southern California (the "Trust") and
Richard C. Blum & Associates, Inc. ("RCBA"), as investment manager for the
Trust, beneficially own 2,363,600 shares of Common Stock and 63,200 shares of
Series B Preferred Stock (which are convertible into 158,000 shares of Common
Stock). Pursuant to a Registration Rights and Lock Up Agreement with RCBA and
the Trust dated November 22, 1993 (the "Registration Rights Agreement"), the
Company agreed to file a Registration Statement for the Common Stock Offering,
and the Trust proposes to sell 1,550,000 shares of Common Stock in that offering
(plus 232,500 shares solely to cover over-allotments). RCBA has advised the
Company that the holdings in Southdown have grown to be the Trust's largest
investment position and that RCBA as investment manager and fiduciary has made
the decision to reduce the holdings based on principles of prudent portfolio
management.
In the Registration Rights Agreement, RCBA and the Trust agreed that until
90 days after the effective date of the registration statement relating to the
Preferred Stock Offering (or until the Company abandons the Preferred Stock
Offering), they and their affiliates and associates would not directly or
indirectly sell, contract or agree to sell, offer to sell or otherwise dispose
of any of their shares of Common Stock or Series B Preferred Stock except a sale
to the underwriters of the Common Stock Offering contemporaneously with the
Company's sale of the Series D Preferred Stock to the Underwriters in the
Preferred Stock Offering. If the registration statement relating to the
Preferred Stock Offering has not become effective by March 1, 1994, however, the
Registration Rights Agreement will not prohibit RCBA and the Trust from selling
their shares after that date. The Company has agreed that after the period in
which RCBA and the Trust have agreed not to sell their shares, they may require
the Company to register the sale of their remaining shares under the
10
<PAGE> 14
Securities Act. The Company will not be obligated to keep that registration
statement effective after March 1, 1995.
CKD AT FORMER USX SITE
The Company owns two inactive CKD disposal sites in Ohio that were formerly
owned by a division of USX Corporation ("USX"). In September 1993, the Company
filed a complaint against USX alleging that with respect to the larger of these
two sites (the "Site"), USX is a potentially responsible party and therefore
jointly and severally liable for costs associated with cleanup of the Site. USX
answered the complaint in November 1993 by filing a motion to dismiss the
lawsuit. The Company filed a response to the motion to dismiss in December 1993.
In late December 1993, the Company received a preliminary engineering cost
estimate which reflects that, based on information developed to date, costs of
Site remediation will probably range between $8 million and $32 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Known Trends, Events and Uncertainties -- Environmental Matters."
Counsel to the Company on this matter has advised that it appears there is a
reasonable basis for the apportionment of cleanup costs relating to the Site
between the Company and USX, with USX shouldering substantially all of the
cleanup costs because, based on the facts known at this time, the Company itself
disposed of no CKD at the Site and is potentially liable under CERCLA because of
its current ownership of the Site. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Known Trends, Events and
Uncertainties -- Environmental Matters."
CLAIM FOR INDEMNIFICATION
In late August 1993 the Company was notified by Energy Development
Corporation ("EDC"), the 1989 purchaser of the common stock of the Company's
then oil and gas subsidiary, that EDC was exercising its indemnification rights
under the 1989 stock purchase agreement with respect to a Department of Energy
("DOE") Remedial Order regarding the audit of crude oil produced and sold during
the period September 1973 through January 1981 from an offshore, federal waters
field in which the Company's oil and gas subsidiary owned an interest. The DOE
alleged certain price overcharges and sought to recover a total of $68 million
in principal and interest from Murphy Oil Corporation ("Murphy"), as operator of
the property. Murphy estimated the Company's share of this total to be
approximately $4 million. The Company understands that in January 1994 Murphy
negotiated a tentative settlement with the DOE that would require Murphy to pay
$35.1 million. The Company is unable to determine what liability it may have
with respect to this matter, but any such expenditure would result in a charge
to earnings from discontinued operations. The Company believes it has sufficient
borrowing capacity under its Restated Revolving Credit Facility to fulfill
obligations that may arise as a result of this claim. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Known Events, Trends and Uncertainties -- Other Contingencies."
11
<PAGE> 15
USE OF PROCEEDS
The net proceeds from the sale of the Series D Preferred Stock offered
hereby (estimated to be approximately $72.0 million) will be used to prepay an
$18 million promissory note and reduce outstanding borrowings under the
Company's Restated Revolving Credit Facility, $47 million of which was incurred
on January 5, 1994 to redeem $45 million principal amount of the 12% Notes. The
Company intends to redeem the remaining $45 million outstanding principal amount
of 12% Notes as promptly as practicable after May 1, 1994. See "Capitalization."
The 12% Notes mature on May 1, 1997 and may be redeemed at the option of the
Company at a current redemption price equal to 101.714% of the principal amount
(decreasing to 100% of principal amount on May 1, 1994), plus accrued interest
to the redemption date. See "Recent Developments -- Restated Revolving Credit
Facility" for a description of certain terms of the Restated Revolving Credit
Facility. The $18 million promissory note matures on March 31, 1994 and bears
interest at margins above either a prime rate basis or a Eurodollar basis as
selected by the Company from time to time. On January 19, 1994, the interest
rate on this promissory note was approximately 6.0%.
The Company will not receive any of the proceeds from the Common Stock
Offering. See "Recent Developments -- Concurrent Offerings."
PRICE RANGE OF THE COMMON STOCK AND DIVIDENDS
The Company's Common Stock is traded on the New York Stock Exchange
(Symbol:SDW). The following table sets forth the high and low sales prices of
the Common Stock for the indicated periods as reported by the NYSE and the
dividends paid per share of Common Stock.
<TABLE>
<CAPTION>
DIVIDENDS
PRICE RANGE PAID
---------------- PER
HIGH LOW SHARE
----- ----- -----
<S> <C> <C> <C>
1991
First Quarter......................................... $19 $11 1/8 $.125
Second Quarter........................................ 19 7/8 14 1/2 *
Third Quarter......................................... 18 1/2 13 1/4 *
Fourth Quarter........................................ 15 1/8 11 1/4 *
1992
First Quarter......................................... $16 $12 3/8 *
Second Quarter........................................ 14 7/8 9 3/8 *
Third Quarter......................................... 11 8 1/4 *
Fourth Quarter........................................ 11 1/2 9 3/8 *
1993
First Quarter......................................... $12 1/4 $ 9 5/8 *
Second Quarter........................................ 17 3/8 9 5/8 *
Third Quarter......................................... 24 7/8 15 7/8 *
Fourth Quarter........................................ 25 7/8 20 3/4 *
1994
First Quarter (through January 19, 1994).............. $26 7/8 $22 7/8 *
</TABLE>
- ---------------
* On April 25, 1991, the Board of Directors suspended the dividend on the
Company's Common Stock.
See the cover page of this Prospectus for a recent reported sale price of
the Common Stock on the New York Stock Exchange.
12
<PAGE> 16
CAPITALIZATION
The table below sets forth the Company's capitalization at September 30,
1993, as adjusted to reflect the redemption on January 5, 1994, of $45 million
in principal amount of the 12% Notes (including the payment of premium and
accrued interest thereon) with borrowings of approximately $47.0 million under
the Restated Revolving Credit Facility, and as further adjusted to reflect the
closing of the Preferred Stock Offering (without exercise of the underwriters'
over-allotment option) and the use of proceeds therefrom (assuming net proceeds
to the Company of $72.0 million) as set forth under "Use of Proceeds." The
Company intends to redeem the remaining $45 million outstanding principal amount
of 12% Notes as promptly as practicable after May 1, 1994 with additional
borrowings under the Restated Revolving Credit Facility.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
------------------------------------------
ACTUAL AS ADJUSTED AS FURTHER ADJUSTED
------ ----------- -------------------
(IN MILLIONS)
<S> <C> <C> <C>
Current maturities of long-term debt............. $ 20.4 $ 20.4 $ 2.4
------ ------- -------
------ ------- -------
Long-term debt, less current maturities
Revolving Credit Facility(1)................... $ 16.1 $ 63.1 $ 9.1
12% Senior Subordinated Notes due 1997......... 90.0 45.0 45.0
14% Senior Subordinated Notes Due 2001......... 121.6 121.6 121.6
Other.......................................... 42.5 42.5 42.5
------ ------- -------
Total long-term debt................... 270.2 272.2 218.2
------ ------- -------
Series A Preferred Stock......................... 20.0 20.0 20.0
Series B Preferred Stock......................... 47.9 47.9 47.9
Series D Preferred Stock......................... -- -- 75.0
Common shareholders' equity...................... 195.9 194.9(2) 191.9(2)(3)
------ ------- -------
Total shareholders' equity............. 263.8 262.8 334.8
------ ------- -------
Total capitalization................... $534.0 $ 535.0 $ 553.0
------ ------- -------
Long-term debt as a percentage of total
capitalization................................. 50.6% 50.9% 39.5%
------ ------- -------
------ ------- -------
</TABLE>
- ---------------
(1) The Revolving Credit Facility has been amended and restated. See "Recent
Developments -- Restated Revolving Credit Facility."
(2) Gives effect to the extraordinary charge, net of income tax, relating to the
premium and debt issuance costs associated with the early extinguishment of
$45 million principal amount of 12% Notes.
(3) Gives effect to the estimated $3 million of costs associated with the
issuance of the Series D Preferred Stock.
13
<PAGE> 17
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following table sets forth selected historical financial and operating
data for the Company for the nine-month periods ended September 30, 1993 and
1992 and for each of the five fiscal years in the period ended December 31,
1992. The selected historical financial information for the Company for the
nine-month periods ended September 30, 1993 and 1992 has been derived from the
Company's unaudited condensed consolidated financial statements, which, in the
opinion of the Company's management, reflect all adjustments (all of which are
of a normal and recurring nature) necessary for a fair presentation of the
financial position, results of operations and cash flows of the Company on a
consolidated basis for such periods. The interim information for the period
ended September 30, 1993 is not necessarily indicative of results to be expected
for the full fiscal year. The selected historical financial information for the
Company for each of the three fiscal years in the period ended December 31, 1992
has been derived from the consolidated financial statements of the Company
audited by Deloitte & Touche, independent public accountants, as indicated in
their reports thereon. The selected historical financial information for the
Company for each of the two fiscal years in the period ended December 31, 1989
has been derived from the audited consolidated financial statements of the
Company. This historical data should be read in conjunction with the condensed
consolidated financial statements and the consolidated financial statements and
notes thereto of the Company and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
Prospectus and in the Company's Annual Report on Form 10-K for the year ended
December 31, 1992. See "Incorporation of Certain Documents by Reference."
Certain data for prior years have been reclassified for purposes of comparison.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988(A)
------ ------ ------ ------ ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS, OPERATING DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues..................................... $406.6 $383.3 $507.4 $506.9 $ 565.9 $ 592.5 $ 543.4
Operating earnings (loss).................... $ 28.9 $ 9.4 $(16.6) $(15.7) $ 47.6 $ 87.9 $ 77.9
Interest expense............................. $ 30.3 $ 34.3 $ 45.0 $ 40.7 $ 31.7 $ 53.5 $ 48.5
Earnings (loss) from continuing operations... $ (0.3) $(14.9) $(41.4)(b) $(43.2)(c) $ 13.4(d) $ 23.0 $ 17.3
Earnings from discontinued operations, net of
income taxes(e)............................ -- -- -- -- -- 11.6 19.8
Gain on sale of discontinued operations, net
of income taxes(e)......................... -- 0.8 0.8 -- -- 33.4 --
Cumulative effect of change in accounting
principle.................................. (48.5)(f) -- -- -- -- -- 19.6(g)
Extraordinary charge, net of related tax
benefit(h)................................. -- -- -- (1.4) -- -- --
------ ------ ------ ------ ------- ------- -------
Net earnings (loss).......................... $(48.8) $(14.1) $(40.6) $(44.6) $ 13.4 $ 68.0 $ 56.7
------ ------ ------ ------ ------- ------- -------
------ ------ ------ ------ ------- ------- -------
Primary earnings (loss) per share --
Continuing operations...................... $(0.24) $(1.10) $(2.74) $(2.86) $ 0.44 $ 0.99 $ 0.94
Discontinued operations(e)................. -- -- -- -- -- 0.69 1.39
Gain on sale of discontinued
operations(e)............................ -- 0.05 0.05 -- -- 1.98 --
Cumulative effect of change in accounting
principle................................ (2.86)(f) -- -- -- -- -- 1.39(g)
Extraordinary charge, net of related tax
benefit(h)............................... -- -- -- (0.08) -- -- --
------ ------ ------ ------ ------- ------- -------
Net earnings (loss)........................ $(3.10) $(1.05) $(2.69) $(2.94) $ 0.44 $ 3.66 $ 3.72
------ ------ ------ ------ ------- ------- -------
------ ------ ------ ------ ------- ------- -------
Fully diluted earnings (loss) per share --
Continuing operations...................... $(0.24) $(1.10) $(2.74) $(2.86) $ 0.44 $ 1.06 $ 0.99
Discontinued operations(e)................. -- -- -- -- -- 0.57 1.15
Gain on sale of discontinued
operations(e)............................ -- 0.05 0.05 -- -- 1.63 --
Cumulative effect of change in accounting
principle................................ (2.86)(f) -- -- -- -- -- 1.14(g)
Extraordinary charge, net of related tax
benefit(h)............................... -- -- -- (0.08) -- -- --
------ ------ ------ ------ ------- ------- -------
Net earnings (loss)........................ $(3.10) $(1.05) $(2.69) $(2.94) $ 0.44 $ 3.26 $ 3.28
------ ------ ------ ------ ------- ------- -------
------ ------ ------ ------ ------- ------- -------
Preferred stock dividends.................... $ 3.7 $ 3.7 $ 5.0 $ 5.1 $ 5.8 $ 6.3 $ 4.0
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS(I)................. (i) (i) (i) (i) 1.2x 1.4x 1.2x
OTHER DATA:
Capital expenditures......................... $ 18.5 $ 11.9 $ 17.4 $ 31.0 $ 43.0 $ 37.4 $ 26.9
Depreciation, depletion and amortization..... 33.4 39.0 52.1 50.2 45.2 45.1 35.6
Cash dividends paid per share of common
stock...................................... -- -- -- 0.125 0.50 0.50 0.50
BALANCE SHEET DATA:
Total assets................................. $890.2 $961.2 $910.6 $986.1 $1,039.7 $1,063.5 $1,208.7
Total debt................................... 290.6 329.4 314.8 332.7 317.3 262.0 435.3
Preferred stock subject to mandatory
redemption................................. -- -- -- -- 6.0 12.0 18.0
Shareholders' equity......................... 263.8 344.2 316.4 362.0 410.1 410.5 354.1
</TABLE>
(Table continued on following page)
14
<PAGE> 18
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ---------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988(A)
------ ------ ------ ------ ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS, OPERATING DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Tons of cement sold (in
thousands)........................ 4,637 4,369 5,788 5,340 5,876 6,155 5,923
Weighted average per ton data:
Sales price (net of freight)...... $51.43 $50.27 $49.98 $52.26 $ 52.67 $ 52.88 $ 53.01
Manufacturing and other plant
operating costs(j).............. 39.23 39.54(k) 39.70(k) 43.72 40.83 40.28 41.69
------ ------ ------ ------ ------- ------- -------
Margin............................ $12.20 $10.73 $10.28 $ 8.54 $ 11.84 $ 12.60 $ 11.32
------ ------ ------ ------ ------- ------- -------
------ ------ ------ ------ ------- ------- -------
Yards of ready-mixed concrete sold
(in thousands).................... 2,420 2,319 3,038 3,488 4,179 4,786 4,038
Weighted average per cubic yard
data:
Sales price....................... $43.70 $43.17 $43.13 $42.97 $ 45.70 $ 45.44 $ 45.24
Operating costs(l)................ 45.23 46.46 46.66 46.69 46.01 42.78 42.89
------ ------ ------ ------ ------- ------- -------
Margin............................ $(1.53) $(3.29) $(3.53) $(3.72) $ (0.31) $ 2.66 $ 2.35
------ ------ ------ ------ ------- ------- -------
------ ------ ------ ------ ------- ------- -------
</TABLE>
- ---------------
(a) Includes operations of former Moore McCormack Resources, Inc. facilities
subsequent to their acquisition by the Company on April 6, 1988.
(b) Includes a $21.4 million pretax write-down of certain environmental services
assets.
(c) Includes $16 million equity in pretax loss of unconsolidated joint venture.
(d) Includes a $10 million pretax charge attributable to an unfavorable
arbitration ruling and a $6.6 million pretax credit to pension expense.
(e) The Company's oil and gas operations, which were sold on November 15, 1989,
are reflected as discontinued operations and, accordingly, have been
excluded from continuing operations for all years shown. The final portion
of the Company's gain on the sale was recognized in September 1992. See Note
7 of Notes to Consolidated Financial Statements contained herein.
(f) After-tax effect of initial obligation for estimated postretirement health
care benefits as required by adoption of SFAS No. 106 effective January 1,
1993.
(g) Cumulative effect of change in accounting for income taxes in accordance
with Statement of Financial Accounting Standards No. 96 adopted effective
January 1, 1988.
(h) Premium on early extinguishment of debt.
(i) For the purposes of computing the ratios set forth in the table, "earnings"
consist of earnings from continuing operations before income taxes and
fixed charges excluding capitalized interest. "Fixed charges" consist of
interest on all indebtedness (whether capitalized or expensed), and
one-third of operating lease rental expense deemed to be representative of
interest. For the nine months ended September 30, 1993 and 1992, and for
the years ended December 31, 1992 and 1991 the deficiency in the coverage
of earnings to combined fixed charges and preferred stock dividends was
$7.3 million, $31.2 million, $69.1 million and $81.4 million, respectively.
Assuming the sale of 1,500,000 shares of Series D Preferred Stock in the
Preferred Stock Offering and the application of the proceeds therefrom as
set forth under "Use of Proceeds," the pro forma deficiency in the coverage
of earnings to combined fixed charges and preferred stock dividends for the
nine months ended September 30, 1993 and the year ended December 31, 1992
would have been $9.6 million and $71.6 million, respectively.
(j) Includes fixed and variable manufacturing costs, selling expenses, plant
general and administrative costs, other plant overhead and miscellaneous
costs.
(k) Excludes the effects of an $853,000 charge for unpaid use taxes related to
prior years.
(l) Includes variable and fixed plant costs, delivery, selling, general and
administrative and miscellaneous operating costs.
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*
RESULTS OF OPERATIONS
Consolidated Third Quarter Earnings
Operating earnings for the third quarter of 1993 were $11.4 million
compared with $9.5 million in the prior year quarter. Net earnings for the third
quarter of 1993 were $1.5 million, $0.01 per share fully diluted, compared with
a net loss from continuing operations of $500,000, $0.10 per share fully
diluted, for the comparable quarter in 1992. The Company also recognized an
$800,000 after-tax gain on discontinued operations, $0.05 per share fully
diluted, in the third quarter of 1992 resulting from recognition of the final
portion of the Company's gain realized in conjunction with the 1989 sale of the
Company's oil and gas operations that had been deferred pending the expiration
of certain contingencies.
Third quarter 1993 revenues improved 12% compared with the prior year
quarter primarily because of increased sales volumes from the cement and
concrete products operating segments and improved cement sales prices. Improved
results were reported by all three operating segments in the third quarter of
1993 compared with the prior year quarter as a result of improved margins in the
Cement and Concrete Products operations and improved results related to the late
1992 restructuring of the Environmental Services segment and a prior year
quarter $450,000 charge at one of the Company's hazardous waste processing
facilities to record the estimated cost to decontaminate equipment and dispose
of contaminated waste that was accepted and processed in error. The third
quarter of 1993 included a $3 million charge to increase the estimated liability
for remediation of an inactive cement kiln dust (CKD) disposal site while the
prior year quarter included a $2.7 million gain recognized on the sale of a
cement terminal.
Depreciation, depletion and amortization in the third quarter of 1993 was
lower than the prior year quarter because of the 1992 write-down of certain
goodwill and non-compete contracts and the decision to lease, rather than
purchase, new mobile equipment in the current year. General and administrative
costs declined by $1 million compared with the prior year quarter because of
cost reduction measures imposed during 1993.
Primarily as a result of lower outstanding debt, interest expense for the
third quarter of 1993 was $9.5 million compared with $10.8 million in the prior
year quarter.
Consolidated Year-to-date Earnings
Operating earnings for the nine months ended September 30, 1993 were $28.9
million compared with $9.4 million for the prior year period. Including a $48.5
million, $2.86 per share, first quarter charge related to adoption of SFAS No.
106, the net loss for the nine months ended September 30, 1993 was $48.8
million, $3.10 per share fully diluted. The net loss from continuing operations
for the prior year period was $14.9 million, $1.10 per share fully diluted. The
prior year period also included an $800,000 after-tax gain on discontinued
operations, $0.05 per share fully diluted.
Consolidated revenues in the 1993 period increased slightly over the prior
year period primarily because of improvements in sales volumes and sales prices
from the cement and concrete products operating segments. The $19.5 million
increase in operating earnings resulted primarily from improvements in each of
the operating segments because of: (i) improved sales volumes and operating
margins from the Cement and Concrete Products operations; (ii) the sale or prior
year write-down of four hazardous waste processing facilities that generated
operating losses in the prior year period and (iii) improved operating results
from the remaining waste processors. The current year-to-date period included
(i) a $3 million charge to increase the estimated liability for remediation of
an inactive CKD disposal site; (ii) a $1.7 million charge for proxy contest fees
and expenses and (iii) a $1.2 million gain from the sale of the Company's right
to receive its portion of the settlement of bankruptcy claims against LTV
Corporation. The prior year period included (i) a
- ---------------
* As presented in the Company's Quarterly Report on Form 10-Q for the three
months ended September 30, 1993, and reproduced herein for convenience of
reference. For certain more recent information, see "Recent Developments" and
"Investment Considerations -- Fixed Charge Deficiency; Dividends," "-- Legal
Proceedings" and "-- Status of Certain Tariffs."
16
<PAGE> 20
$3.6 million charge related to remediation of the same inactive CKD disposal
site previously mentioned; (ii) a $1.1 million charge related to the
decontamination of equipment and incineration of PCB materials; (iii) an
$853,000 charge for unpaid use taxes and penalty and interest due thereon; (iv)
a $2.7 million gain recognized on the sale of a cement terminal and (v) a $2.7
million gain representing a fee earned for approval of a non-affiliated debt
refinancing.
Although year-to-date revenues increased 6% over the 1992 period, operating
costs increased only approximately 1% because of the favorable impact of
continued cost savings measures. Operating costs were also favorably impacted by
the elimination of operating costs attributable to the four hazardous waste
processing facilities which were sold or classified as "Held for Sale" by the
end of 1992.
Depreciation, depletion and amortization for the first nine months of 1993
declined compared with the prior year period because of the 1992 write-down of
certain goodwill and non-compete contracts and the decision to lease, rather
than purchase, new mobile equipment in the current year. Primarily because of
cost reduction measures imposed during 1993, general and administrative expenses
for the nine months ended September 30, 1993 decreased by $1.4 million despite
charges through June 30, 1993 totaling $3.5 million to accrue the estimated cost
allocable to the period for providing postretirement health care benefits in
excess of claims incurred as required by the 1993 adoption of SFAS No. 106.
Interest expense for the nine months ended September 30, 1993 was $4
million lower than the prior year period primarily because of lower outstanding
debt.
The $48.5 million charge as a result of the adoption of SFAS No. 106 is
reported as the "Cumulative effect of a change in accounting principle," net of
tax, and represents the initial liability for postretirement benefits, other
than pensions attributable to employee services provided in years prior to 1993.
SEGMENT OPERATING EARNINGS
Cement
Third quarter -- Operating earnings for the three month period ended
September 30, 1993 of $21.8 million improved over the $20.3 million reported in
the prior year quarter. Despite higher per unit costs at several of the cement
manufacturing plants, all of the plants reported improved quarter-to-quarter
results attributable to higher sales volumes and sales prices except for the
Pittsburgh, Pennsylvania plant which had lower sales volumes during the current
year quarter.
Year-to-date -- Operating earnings for the nine months ended September 30,
1993 were $61.1 million compared with $49.2 million (as reclassified for
comparability) in the prior year period. The 1992 period included an $853,000
charge to record unpaid use taxes and penalties. Excluding the unusual 1992
charge, 1993 operating results improved over the prior year primarily as a
result of a 6% increase in sales volumes and a 14% improvement in margins. The
segment's cost containment program has produced additional reductions in 1993
operating costs compared with the prior year period. The average 1993 sales
price is higher because of partial realization of price increases implemented at
several of the Company's cement plants during the year. During the past several
years, the Company has contracted for terms up to 15 months under large volume
sales contracts with several other manufacturers or distributors. These
contracts generally have lower sales prices than the Company's customary sales
arrangements and some of them have take-or-pay provisions. The Company is in
renegotiation of certain of these contracts to provide for, among other things,
multi-year duration terms. Sales under these large volume, lower margin cement
sales contracts during the nine months ended September 30, 1993 represented
approximately the same percentage of the Cement segment's revenues and operating
earnings as in the corresponding period of 1992. Improvements in operating
earnings over the prior year period were realized at six of the Company's cement
plants (all but the Pittsburgh, Pennsylvania and Knoxville, Tennessee plants).
Operating earnings declined at the Pittsburgh and Knoxville plants primarily
because of higher operating costs resulting primarily from greater than expected
maintenance shutdowns and various other operating problems occurring during the
year.
17
<PAGE> 21
Sales volumes, average unit price and cost data and unit operating profit
margins relating to the Company's cement plant operations appear in the
following table:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1993 1992 1993 1992
------ ------ ------ ------
<S> <C> <C> <C> <C>
Tons of cement sold (thousands)......... 1,784 1,635 4,637 4,369
------ ------ ------ ------
------ ------ ------ ------
Weighted average per ton data:
Sales price (net of freight).......... $52.68 $50.32 $51.43 $50.27
Manufacturing and other plant
operating costs(1)................. 38.37 37.69 39.23 39.54(2)
------ ------ ------ ------
Margin.................................. $14.31 $12.63 $12.20 $10.73
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
- ---------------
(1) Includes fixed and variable manufacturing costs, selling expenses, plant
general and administrative costs, other plant overhead and miscellaneous
costs.
(2) Excludes the effects of an $853,000 charge for unpaid use taxes related to
prior years.
The increase in the average sales price per ton for the three and nine
months ended September 30, 1993 reflects a general firming of cement prices
throughout the industry and at least the partial realization of price increases
implemented at several of the Company's cement plants during 1993. The decrease
in operating costs per ton for the nine months ended September 30, 1993 compared
with the prior year period was attributable to the positive impact of cost
savings measures as well as to higher sales volumes which resulted in fixed
costs being spread over more units. Operating costs per ton for the three months
ended September 30, 1993 were higher than the prior year quarter primarily
because of higher maintenance and repair costs at several of the manufacturing
facilities.
Concrete Products
Third quarter -- The operating results for the Concrete Products segment
was a profit of $500,000 in the third quarter of 1993 compared with an operating
loss of $2.4 million in the prior year quarter. Revenues increased 21% from the
prior year quarter because improved sales volumes from the Florida and southern
California concrete products operation and higher sales prices in Florida more
than offset continued declines in sales prices from the southern California
ready-mixed concrete operation.
Despite lower ready-mixed concrete sales prices in southern California, the
segment's operating results from that region improved primarily because of
higher sales volumes of ready-mixed concrete and aggregates and lower costs.
Operating results for the Florida ready-mixed operations also improved,
reflecting higher sales volumes and prices from the ready-mixed concrete
operation as well as continuing improvement from the block, resale and fly ash
operations. The 1993 quarter comparison with the prior year quarter was also
aided by the late 1992 sale of the remaining Florida aggregate operation which
incurred losses of $400,000 in the third quarter of 1992.
Year-to-date -- The Concrete Products segment's operating loss for the nine
months ended September 30, 1993 improved to $1.1 million from the $8.0 million
loss reported in the prior year period. Revenues increased approximately 8% over
the prior year period because of higher sales volumes and prices from the
Florida concrete products operation.
In spite of lower sales volumes and prices and unusual, extremely heavy
rains during the first two months of 1993, the operating loss for the southern
California ready-mixed concrete operation declined significantly because cost
containment measures were successful in reducing unit operating costs. Results
also improved from higher aggregates sales volumes and prices. Operating results
for the Florida ready-mixed operation improved because of a 3% increase in the
average sales price per cubic yard of concrete combined with higher operating
earnings from the concrete block, resale and fly ash operations. The
period-to-period comparison
18
<PAGE> 22
was also aided by the late 1992 sale of the remaining Florida aggregate
operation which lost $1.1 million in the prior year period.
Sales volumes, unit price and cost data and unit operating profit (loss)
margins relating to the Company's ready-mixed concrete operations appear in the
following table:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1993 1992 1993 1992
------ ------ ------ ------
<S> <C> <C> <C> <C>
Yards of ready-mixed concrete sold
(thousands)........................... 920 772 2,420 2,319
------ ------ ------ ------
------ ------ ------ ------
Weighted average per cubic yard data:
Sales price........................... $43.32 $43.35 $43.70 $43.17
Operating costs(1).................... 44.15 46.71 45.23 46.46
------ ------ ------ ------
Margin.................................. $(0.83) $(3.36) $(1.53) $(3.29)
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
- ---------------
(1) Includes variable and fixed plant costs, delivery, selling, general and
administrative and miscellaneous operating costs.
The increase in the weighted average sales price per yard for the nine
months ended September 30, 1993 compared with the 1992 periods reflects higher
sales prices in the Company's Florida market partially offset by lower prices in
the Company's southern California market. The decrease in the weighted average
operating costs per yard for the three and nine months ended September 30, 1993
compared with the 1992 periods is attributable to lower material costs and the
implementation of an automated truck-tracking system which has resulted in
increased productivity for the southern California operation.
Environmental Services
Third quarter -- Despite limited earnings from resource recovery
operations, the operating loss of the Environmental Services segment for the
three months ended September 30, 1993 was approximately $1 million compared with
a loss of $3.1 million in the prior year quarter. The prior year quarter
included a $450,000 charge related to the decontamination of equipment and
incineration of contaminated waste materials that were accepted and processed in
error. Excluding the $450,000 charge, hazardous waste processing operation's
results improved $1.3 million as the operations of the Tennessee, Alabama and
California hazardous waste processing facilities were improved over the prior
year quarter. Four other hazardous waste processing facilities which were sold
or written-down by the end of the 1992 incurred losses of a combined $1.4
million in the third quarter of 1992. Third quarter 1993 operations were also
favorably impacted by the fourth quarter 1992 write-down of certain goodwill and
non-compete contracts which resulted in a $644,000 decline in third quarter 1993
amortization costs.
Year-to-date -- The Environmental Services segment reported an operating
loss of approximately $1.2 million for the nine months ended September 30, 1993
compared with a loss of $8 million in the prior year period. Segment operating
losses improved because: (i) the prior year period included $3.8 million in
operating losses from four hazardous waste processing facilities which were sold
or reclassified as "Held for Sale" by the end of 1992; (ii) the prior year
period included a $1.1 million decontamination and incineration charge mentioned
previously; (iii) improved operating results from the Tennessee, Alabama and
California hazardous waste processing facilities and (iv) a $1.8 million decline
in 1993 amortization costs as a result of the fourth quarter 1992 writedown.
Corporate
Third quarter -- Corporate general and administrative expenses were $6.5
million in the third quarter of 1993. Corporate general and administrative
expenses were $7.3 million in the prior year quarter. General and administrative
expenses in the third quarter of 1993 were lower than the comparable prior year
quarter for various cost categories as a result of cost reduction measures
imposed during early 1993.
19
<PAGE> 23
Miscellaneous expense in the 1993 quarter included a $3 million charge to
increase the estimated liability for remediation of an inactive CKD disposal
site. Miscellaneous income in the third quarter of 1992 included a $2.7 million
gain on the sale of a cement terminal.
Year-to-date -- Excluding the $3.2 million in charges accrued in the first
nine months of 1993 as a result of the adoption of SFAS No. 106, corporate
general and administrative expenses were $20.5 million for the nine months ended
September 30, 1993 compared with $23.7 million in the prior year period. General
and administrative expenses during 1993 were lower than the prior year period
for almost all cost categories as a result of cost reduction measures imposed
during 1993.
Miscellaneous income and expense during 1993 included: (i) a $3 million
charge to increase the estimated liability for remediation of an inactive CKD
disposal site; (ii) a $1.7 million charge for proxy contest fees and expenses
and (iii) a $1.2 million gain on the sale of the Company's right to receive its
portion of the settlement of the bankruptcy claims against LTV Corporation.
Miscellaneous income for the prior year period included: (i) a $2.7 million gain
representing a fee earned for approval of a non-affiliated debt refinancing;
(ii) a $2.7 million gain related to the sale of the cement terminal as discussed
above and (iii) a $3.6 million charge related to remediation of the same
inactive CKD disposal site previously mentioned.
LIQUIDITY AND CAPITAL RESOURCES
The discussion of liquidity and capital resources included on pages 35
through 44 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1992, should be read in conjunction with the discussion of
liquidity and capital resources contained herein.
The Company's operating earnings improved from $9.4 million for the nine
months ended September 30, 1992 to $28.9 million in the current period.
Operating earnings improved by 34% in the Company's Cement segment and the
operating losses generated by the Concrete Products and Environmental Services
segments were reduced significantly compared with the prior year period. Before
a $48.5 million after-tax, noncash charge for the cumulative effect of a change
in accounting principle (see Note 3 of Notes to Consolidated Financial
Statements), the net loss from continuing operations for the nine months ended
September 30, 1993 was $300,000 compared with a $14.9 million net loss from
continuing operations in the prior year period.
Internally generated cash flow from operations, a $15.7 million Federal
income tax refund from the carryback to prior years of the 1992 tax loss and
$6.3 million in cash generated from asset sales, were utilized to meet all of
the Company's cash requirements for the nine months ended September 30, 1993.
Such cash flow was utilized to: (i) invest approximately $18.5 million in
property, plant and equipment; (ii) reduce long-term debt by $24.1 million and
(iii) pay dividends on preferred stock. Although effective January 1, 1993 the
Company adopted an accrual basis of accounting for postretirement health care
benefit costs as required by SFAS No. 106, the Company continues to pay for such
costs as incurred. In the first nine months of 1992, the Company invested
approximately $11.9 million in property, plant and equipment and, in addition,
approximately $4.9 million for the acquisition of a hazardous waste processing
facility. The Company also reduced long-term debt by $9.5 million in scheduled
loan repayments in the prior year period. The Company borrowed approximately
$6.2 million under its Revolving Credit Facility in the first nine months of
1992 and realized approximately $5.4 million in proceeds from miscellaneous
asset sales. In April 1992, the Company received an $18.5 million Federal income
tax refund from the carryback of the 1991 tax loss.
The Company's Revolving Credit Facility totals $200 million and is
comprised of an approximately $36 million borrowing base working capital
facility maturing in 1994 and an approximately $164 million reducing revolving
loan which converts to a term loan in early 1994 and matures in 1997. The
Revolving Credit Facility includes the issuance of standby letters of credit up
to a maximum of $95 million. The Revolving Credit Facility also includes $20
million of borrowing capacity that is reserved solely for potential funding
obligations under a Keepwell Agreement with the U.S. Maritime Administration
(MARAD). There were no amounts outstanding under the Keepwell Agreement as of
September 30, 1993. Except for the amounts reserved under the Keepwell
Agreement, loans under either the working capital facility or revolving loan can
be used for general corporate purposes. All borrowings bear interest, at the
option of the Company, at margins above prime, the reserve adjusted London
InterBank Offering Rate or the certificate of deposit rate.
20
<PAGE> 24
As of September 30, 1993, $16.1 million of borrowings and $67.3 million of
letters of credit were outstanding under the Revolving Credit Facility, leaving
$96.6 million of unused capacity.
Because the revolving loan facility converts into a term loan in early
1994, the Company has begun negotiations to extend the term of the revolver and
to amend certain terms of the Revolving Credit Facility, including the financial
covenants, by the end of 1993. The Company also is actively considering the
issuance of securities convertible into its common stock, the proceeds of which
would probably be used to reduce a portion of its outstanding debt. The
Company's 12% senior subordinated notes are due in 1997, but are redeemable at
the option of the Company, in whole or in part, at redemption prices (plus
accrued interest to the date of redemption) of 101.714% of the principal amount
through April 30, 1994 and 100% of the principal amount thereafter.
CHANGES IN FINANCIAL CONDITION
The change in financial condition of the Company between December 31, 1992
and September 30, 1993 reflects the utilization of the federal income tax refund
of $15.7 million combined with cash provided by operating activities to reduce
outstanding balances under the Company's Revolving Credit Facility and other
debt and to fund capital expenditures. The improved demand for cement and
related products in 1993 has resulted in a decrease in inventories. The decline
in prepaid expenses and other current assets reflects the February 1993 sale of
the Ohio hazardous waste processing facility which had been classified as a
current asset held for sale. Current maturities of long-term debt increased
because of the reclassification of the final scheduled payment of $18 million on
a promissory note due on March 31, 1994. Accounts payable and accrued
liabilities increased because of the timing of payments on normal trade and
other obligations including the aforementioned increase in the estimated
liability for remediation of an inactive CKD disposal site. The large decrease
in deferred income taxes and reinvested earnings and the large increase in the
long-term portion of postretirement benefit obligation reflects the recording of
the initial liability for postretirement benefits and the associated charges to
income and deferred income taxes as a result of the Company's adoption of SFAS
No. 106 effective January 1, 1993. (See Note 3 of Notes to Consolidated
Financial Statements.)
KNOWN EVENTS, TRENDS AND UNCERTAINTIES
Environmental Matters
The Company is subject to extensive Federal, state and local air, water and
other environmental laws and regulations. These constantly changing laws
regulate the discharge of materials into the environment and may require the
Company to remove or mitigate the environmental effects of the disposal or
release of certain substances at the Company's various operating facilities.
When it is determinable that a charge is both probable and estimatable at least
within a reasonable range of estimates, an appropriate charge and estimated
liability are accrued. Such estimates are revised periodically as additional
information becomes known. In addition, beginning January 1, 1993 the Company
implemented a systematic accrual of $125,000 a month to provide for certain
routine environmental contingencies, based on the Company's experience with such
matters. Actual cost to be incurred in future periods may vary from these
estimates and there can be no assurances that additional accrual amounts will
not be required in the future.
Industrial operations have been conducted at some of the Company's cement
manufacturing facilities for almost 100 years. Many of the raw materials,
products and by-products associated with the operation of any industrial
facility, including those for the production of cement or concrete products, may
contain chemical elements or compounds that are designated as hazardous
substances. Some examples of such materials are the trace metals present in CKD,
chromium present in refractory brick used to line cement kilns and general
purpose solvents. In the past, the Company disposed of various materials,
including used refractory brick and other products generally used in its cement
manufacturing and concrete products operations, in onsite and offsite
facilities. Some of these residuals, when discarded, are now classified as
hazardous wastes and subject to regulation under federal and state environmental
laws and regulations, which may require the Company to remediate some or all of
the affected disposal sites. During the same period, the Company placed CKD in
abandoned quarries or other locations at its plant sites and elsewhere.
Management believes that the
21
<PAGE> 25
Company's current procedures and practices for handling and management of
materials are consistent with industry standards and legal requirements and that
appropriate precautions are taken to protect employees and others from harmful
exposure to such materials. However, because of the complexity of operations and
legal requirements, there can be no assurance that past or future operations
will not result in operational errors, violations, remediation liabilities or
claims by employees or others alleging exposure to toxic or hazardous materials.
The Company's utilization of hazardous waste derived fuels (HWDF) in some
of its cement kilns has necessitated the familiarization of its work force with
the more exacting requirements of applicable environmental laws and regulations
with respect to human health and the environment. The failure to observe the
exacting requirements of these laws and regulations could jeopardize the
Company's hazardous waste management permits and, under certain circumstances,
expose the Company to significant liabilities and costs of cleaning up releases
of hazardous wastes into the environment.
The Clean Air Act Amendment of 1990 provided comprehensive federal
regulation of all sources of air pollution and established a new federal
operating permit and fee program for virtually all manufacturing operations. The
Clean Air Act Amendment will likely result in increased capital and operational
expenses for the Company in the future, the amounts of which are not presently
determinable. By 1995, the Company's U.S. operations will have to submit
detailed permit applications and pay recurring permit fees. In addition, EPA is
developing air toxics regulations for a broad spectrum of industrial sectors,
including portland cement manufacturing. It is unclear at this time whether the
Company's aggregate operations will also be covered. EPA has indicated that the
new maximum available control technology standards could require significant
reduction of air pollutants below existing levels prevalent in the industry.
Hazardous waste processing facilities and the cement plants that burn HWDF
are highly regulated by federal, state and local environmental regulations. By
definition, the activities of the Environmental Services segment involve
materials that have been designated as hazardous wastes. The Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as
amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA), as
well as analogous laws in certain states, create joint and several liability for
the cost of cleaning up or correcting releases to the environment of designated
hazardous substances. Among those who may be held jointly and severally liable
are those who generated the waste, those who arranged for disposal, those who
owned the disposal site or facility at the time of disposal and current owners.
In general, this liability is imposed in a series of governmental proceedings
initiated by the identification of a site for initial listing as a "Superfund
site" on the National Priorities List or a similar state list and the
identification of potentially responsible parties who may be liable for cleanup
costs. Certain of the Company's disposal sites in Victorville, California and
Fairborn, Ohio are in the preliminary stages of evaluation for inclusion on the
National Priorities List.
CKD is currently exempt from management as a hazardous waste, except CKD
which is produced by kilns burning HWDF and which fails to meet certain
criteria. However, CKD that comes in contact with water may produce a leachate
with an alkalinity high enough to be classified as hazardous and may also leach
the hazardous trace metals present therein. Leaching has led to the
classification of at least three CKD disposal sites of other companies as
federal Superfund sites. Several of the Company's inactive CKD disposal sites
around the country are under study to determine if remedial action is required
and in one case, the nature and extent of the remedial action required. These
studies may take some time to complete. Thereafter, remediation plans, if
required, will have to be devised and implemented, which could take several
additional years.
An inactive CKD disposal site in Ohio is currently under investigation by
both the Company and state environmental agencies to determine appropriate
remedial action required at the site. In late July 1991, the Company submitted
to the Ohio Environmental Protection Agency (Ohio EPA) for evaluation an initial
remediation study indicating the potential extent and nature of a remediation
problem at this site. The initial study revealed that the leachate from the site
was negatively impacting the environment in the vicinity through ground and
surface water pathways. The full extent of the environmental impact, however,
was not determined during the first phase of the investigation and a reliable
estimate of total remedial costs could not be made at
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that time. However, the Company recorded a charge of $3.1 million as its initial
estimate of the minimum remediation cost.
In May 1992, a second phase investigation report related to this site was
finalized by the Company's consultant. The report described the results of a
hydrogeological investigation and provided background data for the assessment of
probable remedial alternatives. In addition, in July 1992 the Ohio EPA issued an
administrative order (Director's Order) with respect to this inactive CKD
disposal site. The Director's Order formalized the Company's own investigation
and remediation plans and required the Company to implement an approved
remediation workplan to be directed and monitored by the Ohio EPA. Because of
the Director's Order and the additional information produced by the ongoing
environmental and preliminary engineering investigations, the Company recorded
an additional $3.6 million pre-tax charge in the second quarter of 1992 to
increase its reserve with respect to this site to $6.7 million. In October 1993,
the Company received a consulting report proposing additional refinements of
earlier remediation estimates which increased the total estimated cost to
remediate this site from $6.7 million to $9.7 million. Accordingly, the Company
recorded an additional $3 million charge in the third quarter of 1993 to
recognize the change in the estimate.
On a voluntary basis, without administrative or legal action being taken,
the Company is also investigating two other inactive Ohio CKD disposal sites.
The two additional sites in question were part of a cement manufacturing
facility that was owned and operated by a now dissolved cement company from 1924
to 1945 and by a division of USX Corporation (USX) from 1945 to 1975. The
facility was acquired by the Company in December 1976. The former owners
disposed of CKD and other plant waste materials at both sites but conditions at
the two sites in question have remained virtually unchanged from when they were
acquired by the Company. In 1991 the Company contracted to have an evaluation
performed of surface and groundwater characteristics in the vicinity of the
larger of the two sites (the Site). In general, the surface and groundwater
samples downstream from the Site showed elevated levels of alkalinity and heavy
metals classified as hazardous substances under CERCLA. The Company notified the
proper authorities and the United States Environmental Protection Agency (U.S.
EPA) has conducted a preliminary assessment to determine if the Site warrants
further governmental action. In July 1993, the Ohio EPA placed the Site on its
Master Sites List of sites that potentially pose a threat to public health or
the environment from the release or potential release of hazardous wastes or
substances into the environment.
On September 24, 1993, the Company filed a complaint (the Complaint) in
U.S. District Court, Southern District of Ohio, Western Division, Case No.
C-3-93-354 (the USX Action), against USX, alleging that USX is a potentially
responsible party under CERCLA and under applicable Ohio law, and therefore
jointly and severally liable for costs associated with cleanup of the Site.
Prior to filing the Complaint, the Company had filed a similar action against
USX (the Prior Action) in U.S. District Court, Southern District of Ohio, in
July, 1993, containing allegations with respect to contribution for cleanup
costs relating to the Site under CERCLA substantially similar to those set forth
in the Complaint. In responding to the complaint in the Prior Action, USX
asserted that no liability for cleanup costs relating to the cement kiln dust in
the Site could be asserted by the Company against USX under CERCLA. Prior to a
determination by the U.S. District Court with respect to USX's motion to dismiss
in the Prior Action, counsel for the Company withdrew because of a perceived
conflict of interest. The Company then referred the matter to another law firm
and, after consultation with this firm, determined to voluntarily dismiss the
Prior Action without prejudice and to then immediately refile the matter in the
form of the Complaint. USX has not yet answered the Complaint, but an answer by
USX (or other preliminary motion by USX) in the USX Action is due on or before
November 12, 1993.
The Company intends to vigorously pursue its right to contribution from USX
for cleanup costs under CERCLA and Ohio law. Based upon the advice of counsel,
the Company believes (i) that USX should not prevail as a matter of law on a
motion to dismiss the Complaint; (ii) it is probable that the court should find
the Site constitutes a facility from which a release or threatened release of a
hazardous substance has occurred; (iii) the release or threatened release has
caused the Company to incur response costs necessary and consistent with CERCLA
and (iv) that USX is a responsible party because it owned and operated the site
at the time of disposal of the hazardous substance, arranged for the disposal of
the hazardous substance and transported the hazardous substance to the Site.
Therefore, counsel to the Company has advised that it
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appears there is a reasonable basis for the apportionment of cleanup costs
relating to the Site between the Company and USX, with USX shouldering
substantially all of the cleanup costs because, based on the facts known at this
time, the Company itself disposed of no cement kiln dust at the Site and is
potentially liable under CERCLA primarily because of its current ownership of
the Site. These determinations, however, are preliminary, and are based only
upon facts available to the Company prior to any discovery and prior to the
filing of an answer to the Complaint by USX.
The Company expects to have determined a reasonable estimate, or at least
identified a range of Site remediation costs, by year-end 1993. Under CERCLA and
applicable Ohio law a court generally applies equitable principles in
determining the amount of contribution which a potentially responsible party
must provide with respect to a cleanup of hazardous substances and such
determination is within the sole discretion of the court. In addition, no
regulatory agency has directly asserted a claim against the Company as the owner
of the Site requiring it to remediate the property, and no cleanup of the Site
has yet been initiated.
In late July 1993 a citizens' environmental group brought suit in U.S.
District Court for the Southern District of Ohio, Western Division (Greene
Environmental Coalition, Inc., an Ohio not-for-profit corporation v. Southdown,
Inc., a Louisiana corporation -- Case No. C-3-93-270) alleging the Company is in
violation of the Clean Water Act by virtue of the discharge of pollutants in
connection with the runoff of stormwater and groundwater from the Site and is
seeking injunctive relief, unspecified civil penalties and attorneys' fees,
including expert witness fees. In August the Company moved to dismiss the
complaint. The environmental group responded on October 22, 1993 and the Company
is preparing a reply. Pursuant to a preliminary pretrial conference order issued
by the court, the environmental group provided the Company with a written
settlement demand in early October 1993 which the Company is still reviewing.
Accordingly, the Company is unable to determine at this time what liability, if
any, it may have with respect to this matter.
No substantial investigative work has been undertaken at other CKD sites in
Ohio. Although data necessary to enable the Company to estimate total
remediation costs is not available, the Company acknowledges that the ultimate
cost to remediate the CKD disposal problem in Ohio could be significantly more
than the amounts reserved.
The Federal Water Pollution Control Act, commonly known as the Clean Water
Act (Clean Water Act) provides comprehensive federal regulation of all sources
of water pollution. In September 1992 the Company filed a number of applications
under the Clean Water Act for National Pollutant Discharge Elimination System
(NPDES) stormwater permits. The Company now believes that some of its existing
NPDES permits or pending applications relating to its cement plants and raw
materials quarries may not cover all process water and stormwater discharges.
Legal counsel has advised the Company, based upon its preliminary review of the
matter, that while the Clean Water Act authorizes, among other remedies, the
imposition of civil penalties of up to $25,000 per day for unpermitted
discharges of pollutants to the waters of the United States, several factors may
mitigate against the impositions of substantial fines. First, the Company is
moving forward as expeditiously as practicable to correct all NPDES permitting
deficiencies. Second, some of the permitting issues arise from mere technical
deficiencies in permit applications or from changes in discharge patterns after
submission of permit applications. In each such case, legal counsel believes
that such deficiencies are neither unusual nor difficult to rectify. Finally,
some of the deficiencies relate to questions of the scope of the Clean Water
Act's jurisdiction that are, at best, unclear.
The Company recorded loss reserves for pre-acquisition contingencies in
conjunction with its acquisition of the hazardous waste processing facilities
and received certain indemnifications for environmental matters from the former
owners. However, there can be no assurance that such reserves and
indemnifications will be adequate to cover all potential environmental losses
that may occur with respect to these acquired entities. To the extent that
reserves were not established, are insufficient, or recovery under
indemnifications are not realizable, remediation amounts are charged to expense.
While the Company's facilities at several locations are presently the
subject of various local, state and federal environmental proceedings and
inquiries, including being named a Potentially Responsible Party (PRP) with
regard to Superfund sites at several locations to which they are alleged to have
shipped materials for disposal, most of these matters are in their preliminary
stages and final results may not be
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determined for years. Management of the Company believes, however, based solely
upon the information the Company has developed to date, that known matters can
be successfully resolved in cooperation with local, state and federal agencies
without having a material adverse effect upon the consolidated financial
condition of the Company, either individually or in the aggregate. This
assessment is reviewed periodically as additional information becomes available.
In forming its belief that the matters described will not have a material
adverse effect on its consolidated financial condition, the Company considers,
among other things, the nature of the matters, the likelihood that a future
event or events will confirm the loss, impairment or the incurrence of a
liability, the response of environmental authorities to date and the experience
of the Company and others with the response of environmental authorities to
similar matters. The Company further evaluates various engineering, operational
and other options which might be available to address these matters. Estimates
of the future cost of environmental issues, however, are necessarily imprecise
as a result of numerous uncertainties including, among others, the impact of new
laws and regulations and the availability of new technologies. With respect to
matters which require fixed or reasonably determinable expenditures by the
Company, the Company also considers the period of time over which those
expenditures might be made. Independently of the evaluation of any liabilities,
the Company also considers whether such matters are within the scope of
contractual indemnities provided by others, the applicability of insurance
coverage or other potential recoveries from third parties, whether such
potential sources of recovery could be considered probable of realization and,
if so, how those indemnities would impact any cost to the Company. Accordingly,
until all environmental studies, investigations, remediation work and
negotiations with potential sources of recovery have been completed, it is
impossible to determine the ultimate cost of resolving these environmental
matters.
EPA's Combustion Industry Strategy -- On May 18, 1993, the U.S. EPA
promulgated the agency's combustion strategy and waste minimization policy.
Under the combustion strategy, the U.S. EPA essentially imposed an 18-month
moratorium on the permitting of new thermal treatment capacity and ordered all
available agency resources be applied to issuing final burning permits to
offsite boilers and industrial furnaces, including cement kilns. In addition,
the U.S. EPA stated that it would use its omnibus permitting authority to reduce
the particulate standard, to establish a dioxin standard and to require risk
assessments of direct and indirect pathways of exposure. Furthermore, the U.S.
EPA indicated that there was substantial excess thermal treatment capacity in
the United States and that the U.S. EPA should reduce such permitted capacity by
25% over the next ten years. The Cement Kiln Recycling Coalition (CKRC), an
organization of cement manufacturers that burn hazardous waste derived fuel as a
fuel substitute and of which the Company is a member, sued to set aside the
combustion strategy largely because it was, in effect, a rule making without
notice and an opportunity for public hearing. The CKRC supports a legislative
program that would result in technology based standards for particulate and
dioxin controls applicable to all thermal treatment devices and risk assessment
standards that have been exhaustively reviewed during public hearing process.
The U.S. EPA has advised its regional administrators that the particulate and
dioxin standards set forth in the combustion strategy were for discussion
purposes, and would be definitively determined pursuant to subsequent
rulemakings. Therefore, the U.S. EPA and the CKRC have agreed to a nine month
stay of the CKRC's suit.
On September 27, 1993, the U.S. EPA issued a Complaint and Compliance Order
(Order) (United States Environmental Protection Agency, Region 5 v. Southdown,
Inc. d/b/a Southwestern Portland Cement -- Docket No. VW 27-93) alleging certain
violations of the Resource Conservation and Recovery Act (RCRA) applicable to
the burning or processing of hazardous waste in an industrial furnace. The
alleged violations included, among others, exceedence of certified feed rates
for total hazardous waste at the Company's Ohio cement manufacturing facility,
failure to demonstrate that CKD generated at the facility is excluded from the
definition of hazardous waste and storage at the facility without a permit of
CKD alleged to be hazardous by virtue of that failure to demonstrate its
exclusion from the definition. The Order proposed the assessment of a civil
penalty in the amount of $1.1 million and closure of certain storage silos
containing the CKD that allegedly is hazardous waste. The Company was among a
group of owners and operators of 28 boilers and industrial furnaces, including
several other major cement manufacturers, from which the U.S. EPA is seeking
over $19.8 million in penalties as part of an aggressive inspection and
enforcement initiative targeting combustion industry facilities.
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The Company has engaged counsel to respond to the U.S. EPA Order and
believes, after reviewing the complaint and the Company's compliance with the
applicable regulations, there are substantial mitigating factors to the
interpretations and allegations contained in the Order. The Company
systematically accrues for routine environmental contingencies and believes,
based on the information currently available, the Order can be resolved without
material adverse financial statement effect on the consolidated financial
condition of the Company.
Other Contingencies
Status of Additional Sources of Cement Supply -- Antidumping petitions
filed by a group of domestic cement producers, including the Company, resulted
in favorable determinations by the U.S. International Trade Commission (ITC)
against cement from Mexico and Japan in August 1990 and April 1991,
respectively. As a result, significant antidumping duty cash deposits have been
imposed on cement imports from these two countries. On February 11, 1992 the
U.S. Department of Commerce (Commerce Department) announced that it had signed
an agreement with Venezuelan cement producers which was designed to eliminate
the dumping of gray portland cement from Venezuela into Florida and the United
States generally.
In response to the Mexican government's challenge of the ITC's injury
determination, a dispute resolution panel of the General Agreement on Tariffs
and Trade (GATT) recommended in July 1992 that the antidumping order be vacated
and that all duties collected under the order be returned. The GATT panel
determined that the antidumping order violates the GATT antidumping code because
the U.S. Commerce Department initiated the investigation without first verifying
that the petition was filed on behalf of the domestic cement producers in the
region. Under GATT rules, the full Antidumping Code Committee, of which the U.S.
is a member, must unanimously adopt the panel's recommendation before it becomes
a binding GATT obligation. The decision whether the U.S., as a member of the
Antidumping Code Committee, would vote to adopt the GATT dispute panel report
would be made by the Office of the U.S. Trade Representative (USTR). Even if the
USTR were to adopt the adverse panel report, the industry petitioners have been
advised that an act of the U.S. Congress would be required to vacate the
antidumping order.
In February 1993, the U.S. Court of Appeals for the Federal Circuit
affirmed the ITC's August 1990 decision that U.S. cement producers were injured
by Mexican cement imports that were dumped at unfair prices in the southern tier
of the United States. In April 1993, the Commerce Department reduced the
antidumping duty cash deposit rate of Mexico's primary cement producer from 58
percent to 30 percent. In late August 1993 the Department of Commerce determined
that Mexico's primary cement producer was selling various types of cement
outside the ordinary course of trade in Mexico. As no information was available
to perform a "difference in merchandise" calculation between the types of cement
sold in the ordinary course of trade in Mexico and sold in the United States,
the Department of Commerce used a constructed value approach to determine a 43
percent dumping margin for cement imported from Mexico's primary exporter
between August 1991 and July 1992. In September 1993 the Department of Commerce
amended its final determination of the dumping margin for cement imported from
Mexico's primary exporter between April 1990 and July 1991, raising the margin
from 30 percent to 41 percent. The Department of Commerce is currently reviewing
imported Mexican cement for the period August 1992 through July 1993. The
antidumping cash deposit rate on imported cement from Mexico is now 43 percent
for the primary exporter and 58 percent for all other exporters.
In April 1993, the U. S. Court of International Trade affirmed in part,
reversed in part, and remanded the ITC's affirmative final injury determination
against cement from Japan. In June 1993, the ITC issued an affirmative final
injury determination on remand. The Japanese respondents have appealed the
remand determination. If the remand determination is reversed on appeal, it
could have an adverse impact on the Company's results of operations. In October
1993 the Commerce Department reduced the antidumping duty cash deposit rate of
Japan's primary cement producer from approximately 45 percent to approximately
18 percent. The antidumping cash deposit rate on Japanese cement is now 18
percent for the primary exporter and between 64 percent and 70 percent for other
exporters. The Department of Commerce is currently reviewing imported Japanese
cement for the period May 1992 through April 1993.
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Discontinued Moore McCormack Operations -- In conjunction with the
acquisition of Moore McCormack Resources, Inc. (Moore McCormack) in 1988, the
Company assumed certain liabilities for operations that Moore McCormack had
previously discontinued. These liabilities, some of which are contingent,
represent guarantees and undertakings related to Moore McCormack's divestiture
of certain businesses in 1986 and 1987. Payments relating to liabilities from
these discontinued operations were $1.6 million for the first nine months of
1993, $2.5 million in 1992 and $2.4 million in 1991. A portion of these
liabilities relate to a bulk cargo shipping company which owns three ocean-going
tankers. The world tanker market is experiencing depressed conditions, and the
three tankers generated operating losses in 1992 and through the first nine
months of 1993. The Company is either a guarantor or directly liable under
certain charter hire debt agreements totaling approximately $13 million at
September 30, 1993, declining by approximately $4.0 million per year thereafter
through February 1997. If such depressed market conditions continue, then the
shipping company may be unable to meet its cash obligations in years subsequent
to 1993 under certain of its charter hire debt agreements, thereby requiring the
Company to fund the amount of its guarantee in cash. Although the estimated
liability under this guaranty has been included in the liability for
discontinued Moore McCormack operations, enforcement of the guaranty, while not
resulting in a charge to earnings, would result in a substantial cash outlay by
the Company. However, the Company believes it currently has sufficient borrowing
capacity under its Revolving Credit Facility to fund the guarantee, if required,
as well as meet its other borrowing needs for the foreseeable future.
The Company's Revolving Credit Facility includes $20 million of borrowing
capacity that is reserved solely for potential funding of obligations under a
Keepwell Agreement between the Company and MARAD related to certain Great Lakes
shipping operations owned previously by Moore McCormack. During the second
quarter of 1993, the Great Lakes shipping operation sold its right to receive
its portion of the settlement of bankruptcy claims against LTV Corporation,
which has been operating under the protection of Chapter 11 of the United States
Bankruptcy Code since July 17, 1986, and received approximately $14 million in
gross proceeds before expenses and taxes. The net proceeds of approximately $10
million are available and required to be used to fund the Great Lakes shipping
operation's cash flow deficiencies before the Keepwell is utilized for such
purposes.
Restructured Accounts Receivable -- For many years, the Company has from
time-to-time offered extended credit terms to certain of its customers,
including converting trade receivables into longer term notes receivable. This
practice became more prevalent during 1992 and has continued during 1993 in the
southern California market area where many of the Company's customers have been
adversely affected by the prolonged recession in the construction industry in
that region. Specifically, a group of six customers were indebted to the Company
at September 30, 1993 in the amount of $24.5 million, of which $2.7 million was
included in current accounts and notes receivable with the balance in long-term
receivables. The six customers have purchased a total of approximately 177,000
tons of cement during the first nine months of 1993. All of the notes and a
portion of the accounts receivable are collateralized. During the first nine
months of 1993, approximately $810,000 in interest income, of which
approximately $575,000 has been collected, was recognized on these notes.
During 1993, four of these customers defaulted on the payment terms of
their notes. The Company restructured its agreement with one of the defaulting
customers late in the second quarter of 1993 and that customer was in compliance
with the terms of the restructured agreement as of September 30, 1993.
Subsequent to September 30, 1993, the Company completed the purchase of the
primary assets of one of the three remaining customers then in default for
forgiveness of a total of approximately $7.3 million owed the Company,
assumption of certain liabilities and other consideration. The Company realized
no gain or loss on this transaction. The Company has also entered into a
nonbinding letter of intent with another of these three customers to acquire the
primary assets of that business as well for forgiveness of amounts owed the
Company, approximately $1.7 million as of September 30, 1993, assumption of
certain liabilities and other consideration. The Company has stopped selling
cement on credit to the other customer in default and is presently evaluating
its options for collection of outstanding balances. The Company is contractually
committed to supply up to 90% of the cement requirements of one of the two
non-defaulting customers on extended credit terms, provided this customer
remains current with respect to both current purchases and payments on its note.
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In the opinion of management, the Company is adequately reserved for credit
risks related to its potentially uncollectible receivables. However, the Company
may have to increase its periodic provision for doubtful accounts as additional
information regarding the collectibility of these and other accounts becomes
available.
Claim for Indemnification -- In late August 1993 the Company was notified
by Energy Development Corporation (EDC), the 1989 purchaser of the common stock
of the Company's then oil and gas subsidiary, that EDC was exercising its
indemnification rights under the 1989 stock purchase agreement with respect to a
Department of Energy (DOE) Remedial Order regarding the audit of crude oil
produced and sold during the period September 1973 through January 1981 from an
offshore, federal waters field known as Ship Shoal Block 113 Unit/South Pelto 20
of which the Company's oil and gas subsidiary was part owner. The DOE has
alleged certain price overcharges and is seeking to recover a total of $68
million dollars in principal and interest. Murphy Oil Corporation, as operator
of the property, has estimated the Company's share of this total to be
approximately $4 million. Murphy Oil Corporation has been coordinating the
defense against the DOE claim and is currently in the process of appealing the
DOE's Remedial Order to the Federal Energy Regulatory Commission (FERC) and is
concurrently attempting to negotiate a settlement with the DOE. Oral arguments
before the FERC were scheduled for late October 1993 with a ruling to follow
shortly thereafter. The Company is unable to determine what liability it may
have, if any, with respect to this matter, but should the Company be required to
forfeit all or any portion of these amounts, such expenditure would result in a
charge to earnings from discontinued operations. The Company believes it has
sufficient borrowing capacity under its Revolving Credit Facility to fulfill
obligations, if any, that arise as a result of this DOE claim.
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DESCRIPTION OF CAPITAL STOCK
The following descriptions do not purport to be complete and are subject
to, and qualified in their entirety by reference to, the following documents:
(i) the Company's Restated Articles of Incorporation, as amended (the "Restated
Articles"); (ii) the Company's Bylaws, as amended; (iii) the Rights Agreement
dated as of March 4, 1991, between the Company and Chemical Shareholder Services
Group, Inc., as Rights Agent; and (iv) the Warrant Agreement dated as of October
31, 1991 between the Company and Chemical Shareholder Services Group, Inc., as
Warrant Agent.
The authorized capital stock of Southdown comprises 40,000,000 shares of
Common Stock, $1.25 par value, and 10,000,000 shares of Preferred Stock, $.05
par value (the "Preferred Stock").
COMMON STOCK
At December 31, 1993, 17,045,809 shares of Common Stock were issued and
outstanding and held of record by approximately 1,956 shareholders, and
approximately 7.6 million shares were reserved for future issuance upon exercise
of options granted under employee benefit plans or warrants or upon conversion
of convertible securities, excluding shares reserved for issuance upon
conversion of the Series D Preferred Stock.
Subject to the preferences of each series of outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation or dissolution of the Company, holders of Common
Stock are entitled to share ratably (except as described below under the caption
"-- Series C Preferred Stock") in all assets remaining after payment of
liabilities and the liquidation preferences of each series of outstanding
Preferred Stock. Each share of Common Stock generally entitles the holder to one
vote on matters submitted to a vote of shareholders of the Company, including
the election of directors. The Board of Directors of the Company is divided into
three classes, as nearly equal in number as possible, having staggered
three-year terms. Holders of Common Stock have no preemptive rights and no
rights to convert their Common Stock into any other securities. By the
affirmative vote of the holders of 80% of the outstanding shares of all classes
of the Company's stock entitled to vote in the election of directors, the
Company's shareholders may remove any of the Company's directors from office. A
similar vote is required to amend certain provisions of the Restated Articles.
See "-- Change in Control Provisions." All of the outstanding shares of Common
Stock are fully paid and nonassessable.
Chemical Shareholder Services Group, Inc., a subsidiary of Chemical Banking
Corporation, serves as the registrar and transfer agent for the Common Stock and
the Series A Preferred Stock and the Series B Preferred Stock described below.
WARRANTS TO PURCHASE COMMON STOCK
In October 1991, the Company issued and sold an aggregate of 1,250,000
Warrants to purchase Common Stock (the "Warrants") pursuant to the terms of a
Warrant Agreement dated as of October 31, 1991 (the "Warrant Agreement"),
between the Company and First City, Texas -- Houston, N.A., as Warrant Agent.
Chemical Shareholder Services Group, Inc. is now the Warrant Agent. Each Warrant
entitles the holder to purchase one share of Common Stock at a price of $16 per
share, subject to adjustment in certain circumstances, until 5:00 p.m. New York
City time on October 31, 1996. The number and kind of securities purchasable
upon exercise of the Warrants are subject to adjustment from time-to-time upon
the occurrence of certain reclassifications, mergers or consolidations, stock
splits, stock dividends, certain other distributions and events and certain
issuances or sales of Common Stock at prices less than market value (as defined
in the Warrant Agreement). In lieu of an adjustment to the number of shares of
Common Stock issuable pursuant to the exercise of the Warrants, the Company may
elect to issue additional Warrants.
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RIGHTS
On March 4, 1991, the Board of Directors of the Company declared a dividend
of one right to purchase preferred stock ("Right") for each outstanding share of
the Company's Common Stock, to shareholders of record at the close of business
on March 14, 1991. Each Right entitles the registered holder to purchase from
the Company a unit consisting of one one-hundredth of a share (a "Unit") of
Preferred Stock, Cumulative Junior Participating Series C, par value $.05 per
share (the "Series C Preferred Stock"), at a purchase price of $60 per Unit,
subject to adjustment (the "Purchase Price"). The description and terms of the
Rights are set forth in a Rights Agreement dated as of March 4, 1991 (the
"Rights Agreement") between the Company and First City, Texas-Houston, N.A., as
Rights Agent. Chemical Shareholder Services Group, Inc. now serves as Rights
Agent.
The Rights are attached to all certificates representing outstanding shares
of Common Stock, and no separate certificates for the Rights ("Rights
Certificates") have been distributed. The Rights will separate from the Common
Stock and a "Distribution Date" will occur upon the earlier of (i) ten days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
Common Stock (the date of the announcement being the "Stock Acquisition Date"),
or (ii) ten business days (or such later date as may be determined by the
Company's Board of Directors before the Distribution Date occurs) following the
commencement of a tender offer or exchange offer that would result in a person's
becoming an Acquiring Person. Until the Distribution Date, (a) the Rights will
be evidenced by the Common Stock certificates (together with a copy of a Summary
of Rights or bearing the notation referred to below) and will be transferred
with and only with such Common Stock certificates, (b) new Common Stock
certificates will contain a notation incorporating the Rights Agreement by
reference and (c) the surrender for transfer of any certificate for Common Stock
outstanding (with or without a copy of the Summary of Rights) will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on March 14, 2001, unless earlier redeemed or exchanged
by the Company as described below. In the Rights Agreement, the Company has
generally agreed to use its best efforts to cause the securities of the Company
issuable pursuant to the exercise of Rights to be registered under the
Securities Act, as soon as practicable after the Rights become exercisable, and
to take such action as may be necessary to ensure compliance with applicable
state securities laws.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, from and after the Distribution Date, the separate
Rights Certificates alone will represent the Rights. All shares of Common Stock
issued prior to the Distribution Date will be issued with Rights. Shares of
Common Stock issued after the Distribution Date in connection with certain
employee benefit plans or upon exercise or conversion of certain securities
(including the Series D Preferred Stock, except in certain limited
circumstances) will be issued with Rights. Except as otherwise determined by the
Board of Directors, no other shares of Common Stock issued after the
Distribution Date will be issued with Rights.
In the event (a "Flip-In Event") that a person becomes an Acquiring Person,
(except pursuant to a tender or exchange offer for all outstanding shares of
Common Stock at a price and on terms that a majority of the independent
directors of the Company determines to be fair to and otherwise in the best
interests of the Company and its shareholders (a "Permitted Offer")) each holder
of a Right will thereafter have the right to receive, upon exercise of such
Right, a number of shares of Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a Current Market Price (as
defined in the Rights Agreement) equal to two times the exercise price of the
Right. Notwithstanding the foregoing, following the occurrence of any Flip-In
Event, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person (or by
certain related parties) will be null and void in the circumstances set forth in
the Rights Agreement. However, Rights are not exercisable following the
occurrence of any Flip-In Event until such time as the Rights are no longer
redeemable by the Company as set forth below.
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For example, at an exercise price of $60 per Right, each Right not owned by
an Acquiring Person (or by certain related parties) following an event set forth
in the preceding paragraph would entitle its holder to purchase $120 worth of
Common Stock (or other consideration, as noted above), based upon its then
Current Market Price, for $60. Assuming that the Common Stock had a Current
Market Price of $15 per share at such time, the holder of each valid Right would
be entitled to purchase 8 shares of Common Stock for $60.
In the event (a "Flip-Over Event") that, at any time on or after the Stock
Acquisition Date, (i) the Company is acquired in a merger or other business
combination transaction (other than a specified type of merger that follows a
Permitted Offer), or (ii) 50% or more of the Company's assets or earning power
is sold or transferred, each holder of a Right (except Rights that previously
have been voided as set forth above) shall thereafter have the right to receive,
upon exercise, a number of shares of common stock of the acquiring company (or
in certain cases its controlling person) having a Current Market Price equal to
two times the exercise price of the Right. Flip-In Events and Flip-Over Events
are collectively referred to as "Triggering Events."
The Purchase Price payable, and the number of Units or other securities or
property issuable, upon exercise of the Rights are subject to adjustment from
time to time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Series C Preferred Stock,
(ii) if holders of the Series C Preferred Stock are granted certain rights or
warrants to subscribe for Series C Preferred Stock or convertible securities at
less than the current market price of the Series C Preferred Stock, or (iii)
upon the distribution to holders of the Series C Preferred Stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
No adjustment in the Purchase Price will be required until cumulative
adjustments amount to at least 1% of the Purchase Price. No fractional Units are
required to be issued and, in lieu thereof, an adjustment in cash may be made
based on the market price of the Series C Preferred Stock on the last trading
date prior to the date of exercise. Pursuant to the Rights Agreement, the
Company reserves the right to require prior to the occurrence of a Triggering
Event that, upon any exercise of Rights, a number of Rights be exercised so that
only whole shares of Series C Preferred Stock will be issued.
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $.01 per
Right, payable, at the option of the Company, in cash, shares of Common Stock or
such other consideration as the Board of Directors may determine. After the
redemption period has expired, the Company's right of redemption may be
reinstated prior to the occurrence of any Triggering Event if (i) an Acquiring
Person reduces its beneficial ownership to 10% or less of the outstanding shares
of Common Stock in a transaction or series of transactions not involving the
Company and (ii) there are no other Acquiring Persons. Immediately upon the
effectiveness of the action of the Board of Directors ordering redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the $.01 redemption price.
At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of Common Stock then
outstanding, the Company may exchange the Rights (other than Rights owned by an
Acquiring Person or an affiliate or an associate of an Acquiring Person, which
will have become void), in whole or in part, at an exchange ratio of one share
of Common Stock, and/or other equity securities deemed to have the same value as
one share of Common Stock, per Right, subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. Shareholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for the
common stock of the acquiring company as set forth above or are exchanged as
provided in the preceding paragraph.
Other than certain provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution
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Date. Thereafter, the provisions of the Rights Agreement may be amended by the
Board of Directors in order to cure any ambiguity, defect or inconsistency, to
make changes that do not materially adversely affect the interests of holders of
Rights (excluding the interests of any Acquiring Person), or to shorten or
lengthen any time period under the Rights Agreement; provided, however, that no
amendment to lengthen the time period governing redemption shall be made at such
time as the Rights are not redeemable.
The provisions of the Rights and the Rights Agreement may in some cases
discourage or make more difficult the acquisition of control of the Company by
means of a tender offer, open market purchase or similar means. These provisions
are intended to discourage, or may have the effect of discouraging, partial
tender offers, front-end loaded two-tier tender offers and certain other types
of coercive takeover tactics and inadequate takeover bids and to encourage
persons seeking to acquire control of the Company first to negotiate with the
Company. The Company believes that these provisions, which are similar to those
of many other publicly held companies, provide benefits by enhancing the
Company's potential ability to negotiate with the proponent of any unfriendly or
unsolicited proposal to take over or restructure the Company that outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement in their terms.
PREFERRED STOCK
The Board of Directors is authorized to designate series of Preferred Stock
and fix the powers, preferences and rights of the shares of such series and the
qualifications, limitations or restrictions thereon.
Series A Preferred Stock. Pursuant to the terms of the Restated Articles,
the Board of Directors has created a series of Preferred Stock consisting of
1,999,998 shares of Preferred Stock, $.70 Cumulative Convertible Series A (the
"Series A Preferred Stock"). The Series A Preferred Stock is senior to the
Series B Preferred Stock with respect to dividends and assets. As of December
31, 1993, 1,999,000 shares of Series A Preferred Stock were issued and
outstanding. All such shares are fully paid and nonassessable.
The Series A Preferred Stock (a) has a stated value and liquidation
preference of $10 per share, plus accrued and unpaid dividends, (b) carries a
cumulative dividend of $.70 per year, payable quarterly, and entitles the
holders of a majority thereof to elect two directors if dividends are in arrears
for at least 540 days, (c) is initially convertible into one-half of a share of
Common Stock for each share of Series A Preferred Stock, subject to adjustment,
(d) is redeemable at the option of the Company at 120% of the stated value
thereof (declining to 100% of the stated value after April 30, 1997) plus
accrued and unpaid dividends, and (e) is entitled to one vote per share, voting
as a class with the Common Stock and any other capital stock of the Company
entitled to vote, on all matters submitted to shareholders. In addition, the
holders of Series A Preferred Stock have certain class voting rights, including
the right to approve certain mergers, consolidations and sales of assets;
however, if a holder of Series A Preferred Stock does not grant a proxy to the
Board of Directors to vote in favor of any such merger, consolidation or sale of
assets, the Company may redeem such holder's shares of Series A Preferred Stock
without the payment of any redemption premium. The Company has reserved 999,500
shares of Common Stock for issuance upon conversion of the Series A Preferred
Stock.
Series B Preferred Stock. Pursuant to the terms of the Restated Articles,
the Board of Directors has created a series of Preferred Stock consisting of
960,000 shares of Preferred Stock, $3.75 Convertible Exchangeable Series B (the
"Series B Preferred Stock"). The Series B Preferred Stock is junior to the
Series A Preferred Stock with respect to dividends and assets. As of December
31, 1993, 959,000 shares of Series B Preferred Stock were issued and
outstanding. All such shares are fully paid and nonassessable.
The Series B Preferred Stock (a) has a stated value and liquidation
preference of $50 per share, plus accrued and unpaid dividends, (b) carries a
cumulative dividend of $3.75 per year, payable semi-annually, and entitles the
holders of a majority thereof to elect two directors if dividends are in arrears
for at least 180 days, (c) is initially convertible into two and one-half shares
of Common Stock for each share of Series B Preferred Stock, subject to
adjustment, (d) is redeemable at the option of the Company at the stated value
thereof plus accrued and unpaid dividends, and (e) is entitled to one vote per
share, voting as a class with the Common Stock and any other capital stock of
the Company entitled to vote, on all matters submitted to shareholders. In
addition, the holders of the Series B Preferred Stock have certain class voting
rights. The Company has
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reserved 2,397,500 shares of Common Stock for issuance upon conversion of the
Series B Preferred Stock. In addition, the Series B Preferred Stock is
exchangeable, in whole but not in part, at the option of the Company at any time
for the Company's 7 1/2% Convertible Subordinated Debentures Due 2013 (the
"Debentures") at a rate of $50 in principal amount of Debentures per share of
Series B Preferred Stock, provided that all dividends on the Series B Preferred
Stock have been paid through the date of such exchange. The Company's Restated
Revolving Credit Facility requires the Company to obtain the consent of the
lenders thereunder as a condition to the exchange of the Series B Preferred
Stock for the Debentures.
Series C Preferred Stock. In connection with the distribution of the Rights
on March 14, 1991, the Board of Directors of the Company authorized 400,000
shares of Series C Preferred Stock, none of which are outstanding. The Series C
Preferred Stock would be issued only upon the exercise of Rights and only if the
Rights were exercised prior to a Flip-In Event or a Flip-Over Event. The Rights
are not exercisable as of the date hereof. See "-- Rights." If issued, the
Series C Preferred Stock would be junior to the Series A Preferred Stock, the
Series B Preferred Stock and the Series D Preferred Stock with respect to
dividends and assets.
The Series C Preferred Stock has a liquidation preference of $100 per
share, plus accrued and unpaid dividends and distributions (the "Series C
Liquidation Preference"). Following the payment of the Series C Liquidation
Preference, no additional distribution shall be made to the holders of shares of
Series C Preferred Stock unless the holders of Common Stock have received an
amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series C Liquidation Preference by (ii) the Adjustment Number.
The Adjustment Number initially is 100, and is subject to adjustment in the
event the Company (i) declares any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivides the outstanding Common Stock or (iii) combines the
Common Stock into a smaller number of shares. Following the payment of the full
amount of the Series C Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series C Preferred Stock and Common Stock,
respectively, holders of Series C Preferred Stock and holders of Common Stock
shall receive their ratable and proportionate share of the remaining assets to
be distributed in the ratio of the Adjustment Number to one with respect to the
Series C Preferred Stock and Common Stock, on a per share basis, respectively.
If issued, the Series C Preferred Stock would carry a cumulative dividend
per share equal to the greater of (i) $2.00 or (ii) subject to certain
adjustments, the Adjustment Number times the aggregate per share amount of all
cash dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than
dividends or distributions payable in shares of Common Stock or a subdivision of
the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding quarterly dividend
payment date for the Series C Preferred Stock. The Series C Preferred Stock is
redeemable, at the option of the Company, at any time at a redemption price
equal to the Adjustment Number times the current per share market price (as
defined) of the Common Stock, together with accrued and unpaid dividends. Each
share of Series C Preferred Stock entitles the holder thereof to the number of
votes equal to the Adjustment Number for each share held and, except as
otherwise provided by law, the Series C Preferred Stock votes together as a
single class with the Common Stock and any other capital stock of the Company
entitled to vote. The Series C Preferred Stock entitles the holders thereof
(together with the holders of all Preferred Stock (other than the Series A
Preferred Stock and the Series B Preferred Stock) upon which similar voting
rights have been conferred) to elect two directors if dividends are in arrears
for at least 540 days.
LIMITATIONS ON DIVIDENDS AND CERTAIN OTHER PAYMENTS
The Company's ability to pay dividends and make certain other payments with
respect to its capital stock is restricted in certain circumstances by certain
provisions of its debt instruments, including the Company's Restated Revolving
Credit Facility and the Indenture relating to its 14% Senior Subordinated Notes
Due 2001. That Indenture provides a limitation on Restricted Payments, which are
defined to include, among other things, cash dividends or distributions and
repurchases or redemptions of capital stock. Subject to limited exceptions, the
Indenture prohibits Restrictive Payments unless, at the time of or after giving
effect to the proposed Restricted Payment, no Default or Event of Default shall
have occurred and be continuing. The aggregate amount of all Restricted Payments
declared or made after October 31, 1991 may not equal or
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exceed an amount calculated from time to time based on, among other things, the
Company's consolidated net income (with certain adjustments) since October 1,
1991, and the proceeds from most sales of capital stock. As of September 30,
1993 (after giving effect to the completion of the Preferred Stock Offering and
the application of the proceeds therefrom as set forth under "Use of Proceeds"),
the amount available under the Indenture for dividends and other Restricted
Payments would have been approximately $45 million.
So long as there is no Event of Default or Unmatured Event of Default under
the Restated Revolving Credit Facility, that facility does not restrict the
Company's payment of regularly scheduled cash dividends on the Series A
Preferred Stock, Series B Preferred Stock or Series D Preferred Stock. So long
as there is no Event of Default or Unmatured Event of Default under the Restated
Revolving Credit Facility, the Company may also pay cash dividends with respect
to the Common Stock so long as the Company's Adjusted Free Cash Flow Ratio (i)
on the first date on which such dividends are commenced, and (ii) on the final
day of each fiscal year in which such Common Stock dividends are paid, exceeds
1.00:1.00 (for 1993 and 1994), 1.30:1.00 (for 1995) and 1.60:1.00 (for 1996). As
of September 30, 1993 (after giving effect to the Preferred Stock Offering and
the use of proceeds thereof as set forth under "Use of Proceeds"), the Company's
Adjusted Free Cash Flow Ratio would have been 1.10:1.00.
The Company believes that, after giving effect to the Preferred Stock
Offering, these limitations will not materially affect its ability to make
dividend payments on the Series D Preferred Stock.
CHANGE IN CONTROL PROVISIONS
Charter Provisions. The Restated Articles require the affirmative vote or
consent of the holders of 80% of all classes of stock of the Company entitled to
vote in the election of directors to approve (a) any merger or consolidation of
the Company with or into any other corporation, (b) any sale or lease of all or
any substantial part of the assets of the Company or (c) any sale or lease to
the Company or any subsidiary thereof of assets with an aggregate fair market
value of $2 million or more in exchange for voting securities of the Company or
any subsidiary thereof (or securities convertible into or exchangeable for such
securities), if as of the record date for the determination of shareholders
entitled to vote or consent with respect to such merger, consolidation, sale or
lease, the other party to such transaction is the beneficial owner (as defined),
directly or indirectly, of 5% or more of the outstanding shares of stock of the
Company entitled to vote in the election of directors ("5% Beneficial Owner").
The foregoing provisions of the Restated Articles are inapplicable to (a) any
merger or similar transaction if the Board of Directors of the Company has
approved a memorandum of understanding with such other corporation prior to the
time such corporation became a 5% Beneficial Owner or (b) transactions with a
majority-owned subsidiary of the Company.
Statutory Provision. Although the constitutionality of the control share
provisions of the Louisiana Business Corporation Law ("LBCL") has not been
judicially determined, the Company believes that it is an "issuing public
corporation," subject to the control share provisions of the LBCL. Under the
control share provisions of the LBCL, the voting rights of the Company's shares
of voting stock are limited under certain circumstances. Subject to certain
exceptions, generally if "control shares" of the Company are acquired in a
"control share acquisition," the LBCL provides that such shares have the voting
rights they had before the control share acquisition only to the extent granted
by resolution of the shareholders of the Company. Such resolution must be
adopted by a majority of all votes entitled to be cast, excluding all
"interested shares."
"Interested shares" are defined as shares of the Company in respect of
which any of the following persons may exercise or direct the exercise of the
voting power of the Company in the election of directors: (a) an acquiring
person or member of a group with respect to a control share acquisition, (b) any
officer of the Company, or (c) any employee of the Company who is also a
director of the Company. "Control shares" are defined generally as shares that,
but for the control share provisions of the LBCL, would have voting power with
respect to shares of the Company that, when added to all other shares of the
Company owned by a person or in respect to which that person may exercise or
direct the exercise of voting power, would entitle that person, immediately
after acquisition of the shares, directly or indirectly, alone or as a part of a
group, to exercise or direct the exercise of the voting power of the Company in
the election of directors within any of the following ranges of voting power:
(a) one-fifth or more but less than one-third of all voting power, (b) one-
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third or more but less than a majority of all voting power, or (c) a majority or
more of all voting power. Subject to certain exceptions, a "control share
acquisition" means the acquisition, directly or indirectly, by any person of
ownership of, or the power to direct the exercise of voting power with respect
to, issued and outstanding control shares.
Under certain circumstances (including, but not limited to, the giving of
an undertaking by the acquiring person to pay the Company's expenses of the
meeting and, under certain circumstances, the obtaining by such person of
commitments for the financing of any cash portion of the consideration to be
paid), an acquiring person may compel the calling of a special meeting of the
Company's shareholders for the purpose of considering the voting rights to be
accorded the shares acquired or to be acquired in the control share acquisition.
Unless the acquiring person agrees in writing to another date, the special
meeting of shareholders shall be held within fifty days after the date on which
definitive proxy materials (within the meaning of the Securities Exchange Act of
1934, as amended, and the regulations thereunder) related to the special meeting
on behalf of the acquiring person and the Board of Directors of the Company have
been filed with the Securities and Exchange Commission.
The Company's Bylaws provide that (i) if no acquiring person statement is
filed by the acquiring person or (ii) if full voting rights are not approved,
the Company may redeem control shares acquired in a control share acquisition
(a) in the case of (i), within 60 days after the last acquisition of control
shares by an acquiring person and (b) in the case of (ii), at any time during
the period ending two years after the shareholder vote with respect to the
voting rights of such control shares. Any such redemption shall be made at the
fair value of the control shares and pursuant to such procedures as may be
adopted by the Board of Directors of the Company. If control shares acquired in
a control share acquisition representing a majority or more of all voting power
are accorded full voting rights, then all shareholders of the Company will have
dissenters' rights to receive the fair cash value of their shares, such amount
not to be less than the highest price per share paid by the acquiring person in
the control share acquisition.
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DESCRIPTION OF SERIES D PREFERRED STOCK
The following summary of certain provisions of the Series D Preferred Stock
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the Company's Restated Articles and the
Articles of Amendment relating to the Series D Preferred Stock, copies of which
are available upon request from the Company.
When issued, the Series D Preferred Stock will be fully paid and
nonassessable. The holders of the Series D Preferred Stock will have no
preemptive rights with respect to any shares of capital stock of the Company or
any other securities of the Company convertible into or carrying rights or
options to purchase any such shares. The Series D Preferred Stock will not be
subject to any sinking fund or other obligation of the Company to redeem or
retire the Series D Preferred Stock. The Series D Preferred Stock has been
approved for listing on the NYSE.
RANKING
The Series D Preferred Stock will rank senior to the Common Stock (and any
shares of the Series C Preferred Stock that may be issued) with respect to the
payment of dividends and amounts upon liquidation, dissolution or winding up of
the Company. The Series D Preferred Stock will rank junior to the Series A
Preferred Stock and pari passu with the Series B Preferred Stock with respect to
the payment of dividends and amounts upon liquidation, dissolution or winding up
of the Company.
So long as any shares of the Series D Preferred Stock are outstanding, the
Company may not authorize or create any series or class of stock that ranks
senior to the Series D Preferred Stock as to dividends or distribution of assets
upon liquidation or winding up of the Company without the consent of the holders
of at least two-thirds of the outstanding shares of Series D Preferred Stock.
However, the Company may, without the consent of any holder of the Series D
Preferred Stock, create additional series or classes or increase the authorized
number of shares of any series or class of capital stock of the Company that
ranks pari passu with or junior to the Series D Preferred Stock. See "-- Voting
Rights" below.
DIVIDEND RIGHTS
The holders of the Series D Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors out of the funds of the Company
legally available therefor, cumulative preferential dividends per share in cash
in an amount per annum equal to $ per share, and no more, until
conversion or redemption. Dividends on the Series D Preferred Stock will be
cumulative, will accrue from the date of original issuance and will be paid
quarterly in arrears on the first day of each April, July, October and January
commencing April 1, 1994.
Dividends in arrears may be declared and paid at any time, without
reference to any regular dividend payment date, to holders of record on such
date, not exceeding 45 days preceding the payment date thereof, as may be fixed
by the Board of Directors of the Company. No dividend may be declared on any
other series or class of stock ranking on a parity with the Series D Preferred
Stock unless there shall also be or have been declared on the Series D Preferred
Stock like dividends for all periods at the dividend rates fixed therefor. If
full cumulative dividends on the Series D Preferred Stock have not been paid or
declared and set apart for payment, the Company may not declare or pay or set
apart for payment any dividends or make any other distributions on or purchase,
redeem or retire any stock of the Company ranking junior to the Series D
Preferred Stock (other than dividends or distributions paid in shares of Common
Stock or such other junior ranking stock), until full cumulative dividends on
the Series D Preferred Stock are paid or declared and set apart for payment.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution, or winding up of the affairs
of the Company, after payment or provision for payment of the debts and other
liabilities of the Company (including any liquidation preferences payable in
respect of capital stock of the Company ranking senior to the Series D Preferred
Stock as to
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assets), the holders of the Series D Preferred Stock shall be entitled to
receive $50.00 in cash per share, plus accrued and unpaid dividends. If upon any
liquidation, dissolution or winding up of the affairs of the Company, the
amounts payable with respect to the Series D Preferred Stock (and the Series B
Preferred Stock and any other capital stock of the Company ranking on a parity
with the Series D Preferred Stock) are not paid in full, the holders of the
Series D Preferred Stock (and the Series B Preferred Stock and any other capital
stock of the Company ranking on a parity with the Series D Preferred Stock) will
share ratably in any such distribution of assets in proportion to the respective
amounts to which they are entitled.
OPTIONAL REDEMPTION
Shares of Series D Preferred Stock will not be redeemable prior to January
, 2001. On or after January , 2001, the shares of Series D Preferred Stock
are redeemable, in whole or in part, at any time at the option of the Company,
at a redemption price of $50.00 per share plus accrued and unpaid dividends to
the redemption date. If the redemption date falls after a dividend payment
record date but prior to the related payment date, the record holders of the
Series D Preferred Stock on that record date will be entitled to receive the
dividend payable on the Series D Preferred Stock notwithstanding the redemption
thereof. Except as provided in this paragraph, no payment or allowance will be
made for accrued dividends on any shares of Series D Preferred Stock called for
redemption.
Notice of redemption on or after January , 2001 will be mailed at least
30 days but not more than 60 days before the redemption date to each holder of
record of shares of Series D Preferred Stock to be redeemed at the address shown
on the books of the Company. Shares of Series D Preferred Stock redeemed by the
Company will be restored to the status of authorized but unissued shares of
preferred stock, without designation as to series, and may thereafter be issued,
but not as shares of Series D Preferred Stock.
If less than all of the outstanding shares of Series D Preferred Stock are
to be redeemed, the Company will select those to be redeemed pro rata or by lot
or in such other manner as the Board may determine. There is no mandatory
redemption or sinking fund obligation with respect to the Series D Preferred
Stock.
Provided that the Company has made available at the office of the transfer
agent a sufficient amount of cash to effect the redemption, on and after the
redemption date, dividends will cease to accrue on the Series D Preferred Stock
called for redemption, such shares shall no longer be deemed to be outstanding,
and all rights of the holders of such shares of Series D Preferred Stock will
cease, other than the right to receive any cash payable upon such redemption,
without interest.
CONVERSION RIGHTS
Conversion at the Option of the Company
On and after January , 1997 and until January , 2001, shares of Series
D Preferred Stock will be convertible at the option of the Company, in whole but
not in part, into fully paid and nonassessable shares of Common Stock at the
Conversion Price. The Company may exercise this option only if, for at least 20
trading days within any period of 30 consecutive trading days, including the
last trading day of such period, the closing price of the Common Stock exceeds
130% of the Conversion Price (initially $ per share) and only if all
dividends on the Series D Preferred Stock for all dividend periods ending on or
prior to the dividend payment date next preceding the conversion date have been
paid or set aside for payment. To exercise this conversion option, the Company
must issue a press release announcing the conversion and specifying the date on
which such conversion will be effective prior to 9:00 A.M., New York City time
on the second trading day after the end of any such 30 trading day period. The
date for the conversion to become effective will be a date selected by the
Company not less than 15 nor more than 60 days after the date on which the
Company mails the required notice of conversion. On and after the conversion
date, the rights of holders of the Series D Preferred Stock, as such, shall
cease, the Series D Preferred Stock shall no longer be deemed to be outstanding,
dividends will cease to accrue and the certificates theretofore representing the
shares of Series D Preferred Stock shall represent the shares of Common Stock
into which the shares of Series D Preferred Stock have been converted, and the
right to receive cash in lieu of any fractional shares.
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Conversion at the Option of the Holder
At the option of the holder thereof, shares of Series D Preferred Stock may
at any time be converted into fully paid and nonassessable shares of Common
Stock at the conversion rate, except that, with respect to shares of Series D
Preferred Stock called for redemption, conversion rights will expire at the
close of business on the redemption date (unless the Company defaults in the
payment of the redemption price), and, with respect to shares of Series D
Preferred Stock called for conversion at the option of the Company, conversion
rights at the option of the holder will expire at the close of business on the
conversion date selected by the Company.
General
The Conversion Price is subject to adjustment upon the occurrence of
certain events, including (a) certain reclassifications of the Common Stock,
combinations and subdivisions of the Common Stock, (b) the issuance of shares of
Common Stock as a stock dividend, (c) the issuance to all holders of Common
Stock of any warrant, option or other right to subscribe for or to purchase
Common Stock at a price per share less than the then-current Market Price (as
defined) of the Common Stock, and (d) dividends to all holders of Common Stock
of evidences of indebtedness of the Company, shares of capital stock of the
Company (other than Common Stock) or assets or rights or warrants to subscribe
for or purchase any of its securities (excluding those dividends, warrants,
options and rights referred to above and dividends and other distributions paid
in cash out of the profits or surplus of the Company legally available therefor
under the laws of the State of Louisiana). No adjustment in the Conversion Price
is required unless it would result in at least a $.05 per share increase or
decrease in the Conversion Price; however, any adjustment not made is carried
forward.
In the event of any reclassification or change of the Common Stock (other
than a change with respect to the par value thereof or as a result of a
subdivision or combination of the outstanding shares thereof); any consolidation
or merger of the Company with another entity, as a result of which the holders
of Common Stock are entitled to receive stock, other securities or other assets
with respect to or in exchange for such Common Stock; any sale or conveyance, in
a single transaction or a series of related transactions with the same person or
its affiliates, of all or substantially all of the property or business of the
Company in its entirety, or a statutory share exchange in which all shares of
Common Stock are exchanged for shares of another corporation or entity, then the
holders of the Series D Preferred Stock then outstanding will have the right to
convert such Series D Preferred Stock only into the kind and amount of shares of
stock and other securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance or share exchange by a holder
of the number of shares of Common Stock issuable upon conversion of such Series
D Preferred Stock immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance or share exchange.
If the conversion date falls after a dividend payment record date but prior
to the related payment date, the record holders of the Series D Preferred Stock
on that record date will be entitled to receive the dividend payable on the
shares of Series D Preferred Stock being converted despite their conversion. No
other payment or adjustment will be made upon any conversion on account of
regular cash dividends declared or accrued on the Common Stock or the Series D
Preferred Stock surrendered for conversion. No fractional share of Common Stock
shall be issued and, in lieu of fractional shares, the Company will pay a cash
adjustment based on the then-current Market Price of the Common Stock.
VOTING RIGHTS
The Series D Preferred Stock is entitled to one vote per share, voting as a
class with the Common Stock and any other capital stock of the Company entitled
to vote, on all matters submitted to the shareholders. In addition, the holders
of the Series D Preferred Stock shall vote as a single class (and the
affirmative vote or consent of the holders of at least two-thirds of the
outstanding shares of Series D Preferred Stock shall be required) with respect
to any proposal to (a) change the dividend rate, liquidation preference,
redemption price, voting rights or conversion rights of the shares of the Series
D Preferred Stock or to increase the number of authorized shares of Series D
Preferred Stock; (b) increase the authorized amount of any series or class of
capital stock of the Company if the same ranks senior to the Series D Preferred
Stock as to dividends or
38
<PAGE> 42
distributions of assets on liquidation; (c) authorize, create, issue or sell any
shares of any series or class of capital stock of the Company that ranks senior
to the Series D Preferred Stock as to dividends or assets upon liquidation; and
(d) change or modify their voting rights.
Whenever dividends on the Series D Preferred Stock are in arrears for the
equivalent of six quarterly dividend periods, the number of directors of the
Company shall be increased by two and the holders of the Series D Preferred
Stock, voting together as a single class with all other series or classes of
preferred stock which rank pari passu with the Series D Preferred Stock as to
dividends and which specifically state that they shall vote with the Series D
Preferred Stock for the election of two directors in such a case, shall be
entitled to elect such two additional directors of the Company, who shall be a
Class I director and a Class II director, respectively, at any meeting of
shareholders of the Company at which directors are to be elected during the
period such dividends remain in arrears. The Series D Preferred Stock will not
vote together with any of the Series A Preferred Stock, the Series B Preferred
Stock or, if any is issued, the Series C Preferred Stock with respect to the
election of two directors in such a case. The right of the holders of the Series
D Preferred Stock to elect directors shall terminate when all such dividends
accumulated have been paid in full. The term of office of all directors so
elected shall terminate immediately upon such payment and the number of
directors shall become the number otherwise provided by the Company's governing
documents irrespective of such increase.
The Series D Preferred Stock shall have no other voting rights, except as
required by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Series D Preferred Stock will be
Chemical Shareholder Services Group, Inc., which also serves as transfer agent
and registrar for the Common Stock, the Series A Preferred Stock and the Series
B Preferred Stock and as Warrant Agent and Rights Agent for the Warrants and
Rights, respectively.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes the principal Federal income tax
consequences expected to apply to the holders of the Series D Preferred Stock
under currently applicable law, which is subject to change, possibly
retroactively. This discussion does not address all aspects of Federal income
taxation that may be relevant to particular investors in light of their personal
investment circumstances or to certain types of investors subject to special
treatment under the Federal income tax laws (for example, financial
institutions, insurance companies, tax-exempt organizations, broker-dealers, and
taxpayers subject to the alternative minimum tax) and does not discuss any
aspects of state, local, or foreign tax laws. This discussion assumes that
investors will hold their Series D Preferred Stock as a "capital asset"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"). Prospective
investors are advised to consult their tax advisors as to the specific tax
consequences of acquiring, holding, converting, redeeming and disposing of the
Series D Preferred Stock and Common Stock issuable upon conversion thereof,
including the application and effect of Federal, state, local, and foreign
income and other tax laws and of possible future changes in the tax laws.
Except as otherwise indicated, statements of legal conclusion regarding tax
treatments, tax effects or tax consequences in this discussion reflect the
opinion of Bracewell & Patterson, L.L.P., counsel to the Company. Such
conclusions are based upon the Code, the existing regulations thereunder, and
the current judicial and administrative interpretations thereof. The Company
will not request any rulings from the Internal Revenue Service ("IRS")
concerning the Federal income tax consequences of the acquisition, ownership or
disposition of the Series D Preferred Stock or the Common Stock received upon
conversion, and the IRS may disagree with the conclusions expressed herein.
DIVIDENDS
Distributions with respect to the Series D Preferred Stock (or the Common
Stock issued upon conversion) will be treated as dividends to the extent of the
current or accumulated earnings and profits of the
39
<PAGE> 43
Company and will be subject to tax as ordinary income. To the extent that the
amount of a distribution exceeds such earnings and profits, it will be treated
as a tax-free return of capital and will be applied against and reduce the
holder's adjusted tax basis in the stock. The remaining amount of any
distribution that exceeds the holder's adjusted tax basis in the stock will be
taxed as capital gain and will be long-term capital gain if the holder's holding
period for such stock is more than one year as of the date of the distribution.
Dividends paid out of current or accumulated earnings and profits will
qualify for the dividends-received deduction allowable to corporations, subject
to certain restrictions and requirements. In particular, a corporate investor in
the Series D Preferred Stock should consider the possible effect of the "debt
financed portfolio stock" rules of Section 246A of the Code and the special
holding period requirements of Section 246(c) of the Code in determining such
investor's eligibility for the dividends-received deduction. In addition, under
certain circumstances, a corporate holder may be subject to the alternative
minimum tax with respect to the amount of its dividends-received deduction.
Generally, regular quarterly dividends on the Series D Preferred Stock will not
be subject to the extraordinary dividend provisions of Section 1059 of the Code.
CONVERSION OF THE SERIES D PREFERRED STOCK INTO COMMON STOCK
Gain or loss will not generally be recognized on the conversion of shares
of the Series D Preferred Stock solely into shares of Common Stock. In general,
the tax basis for the Common Stock received upon the conversion (including
fractional shares deemed received) will be equal to the tax basis of the Series
D Preferred Stock converted, and the holding period of the Common Stock
(including fractional shares deemed received) will include the holding period of
the Series D Preferred Stock converted.
The receipt of cash in lieu of a fractional share of Common Stock upon the
conversion of the Series D Preferred Stock will generally be treated as a sale
of such fractional share of Common Stock on which the holder will recognize
taxable gain or loss equal to the difference between the amount of cash received
and the holder's adjusted tax basis in the fractional share. Such gain or loss
will be capital gain or loss and will be long-term capital gain or loss if the
holder's holding period for the Series D Preferred Stock converted is more than
one year as of the date of the conversion.
REDEMPTION OF THE SERIES D PREFERRED STOCK
A holder who has shares of the Series D Preferred Stock redeemed will be
taxed on such redemption under Section 302 of the Code. If such a holder of the
Series D Preferred Stock owns no stock of the Company either actually or
constructively immediately after the redemption, such holder generally will
recognize capital gain or loss on the redemption equal to the difference between
the amount of cash received and the holder's tax basis in the Series D Preferred
Stock redeemed. Such capital gain or loss will be long-term capital gain or loss
if the holder's holding period for such shares is more than one year as of the
redemption date. If such a holder owns stock of the Company (actually or
constructively) immediately after the redemption, such holder should consult his
own tax advisor as to whether he will recognize capital gain or loss on the
redemption as discussed above or instead whether the entire amount of the
proceeds of the redemption will be treated as a dividend under Section 302 of
the Code (and the consequences of dividend treatment).
CONSTRUCTIVE DIVIDENDS
Section 305 of the Code treats as taxable events certain constructive
distributions with respect to stock (to the extent of the issuing corporation's
current or accumulated earnings and profits), even though the shareholder does
not receive an actual distribution at the time. Under certain circumstances, the
conversion price adjustment provisions of the Series D Preferred Stock may
result in the deemed receipt of a taxable dividend by the holders of the Series
D Preferred Stock if the effect of such adjustment is to increase such holders'
proportionate interest in the Company.
Under Treasury Regulations issued under Section 305(c) of the Code, the
conversion of Series D Preferred Stock into shares of Common Stock may result in
a constructive dividend to the holder. In the event of the conversion of Series
D Preferred Stock pursuant to a holder's conversion right, if there are dividend
40
<PAGE> 44
arrearages on such stock at the time of the conversion and the value of the
Common Stock received exceeds the issue price of the Series D Preferred Stock
converted, the holder may have a constructive dividend equal to the lesser of
the dividend arrearages or such excess. A conversion of Series D Preferred Stock
also may result in a constructive dividend if the conversion is considered to be
pursuant to a plan to periodically increase the holder's proportionate interest
in the Company. Although the issue is not free from doubt, it is unlikely that a
conversion of the Series D Preferred Stock would be considered to be pursuant to
a plan to periodically increase the holder's proportionate interest in the
Company.
Accrued and unpaid dividends on the Series D Preferred Stock may be
required to be included in income of the holders under the constructive dividend
rules if the IRS determines that, at the time of issuance of the Series D
Preferred Stock, the Company did not intend to pay dividends currently thereon.
The Company presently intends, however, to pay dividends currently on the Series
D Preferred Stock.
SALE OR EXCHANGE OF THE SERIES D PREFERRED STOCK OR COMMON STOCK ACQUIRED UPON
CONVERSION
The sale or exchange of the Series D Preferred Stock, or of Common Stock
acquired upon conversion, by a holder of such stock generally will cause such
holder to recognize capital gain or loss equal to the difference between the
amount realized on such sale or exchange and the holder's tax basis for such
stock. Any capital gain or loss recognized will be treated as long-term capital
gain or loss if the holder's holding period for the stock is more than one year
at the time of the sale or exchange.
BACKUP WITHHOLDING
Certain noncorporate holders of Series D Preferred Stock may be subject to
backup withholding at the rate of 31% with respect to dividends and cash
received in certain circumstances upon the conversion, redemption or other
disposition of the Series D Preferred Stock (or the Common Stock received upon
conversion). Generally, backup withholding is applied only when the taxpayer (i)
fails to furnish or certify its correct taxpayer identification number to the
payor in the manner required, (ii) is notified by the IRS that it has failed to
report payments of interest and dividends properly, or (iii) under certain
circumstances, fails to certify that it has not been notified by the IRS that it
is subject to backup withholding for failure to report interest and dividend
payments. Any amounts withheld under the backup withholding rules will be
allowed as a refund or credit against a holder's Federal income tax liability,
provided that such holder furnishes the required information to the IRS.
NON-UNITED STATES HOLDERS
General. This section discusses certain special rules applicable to a
holder of the Series D Preferred Stock that is a Non-United States Holder. For
purposes of this discussion, a "Non-United States Holder" means a holder of
Series D Preferred Stock that is not (i) an individual who is a citizen or
resident of the United States; (ii) a corporation or partnership created or
organized in the United States or under the laws of the United States or of any
political subdivision thereof; or (iii) an estate or trust whose income is
includible in gross income for United States Federal income tax purposes
regardless of its source.
Dividends. Dividends (including constructive dividends) received by a
Non-United States Holder will generally be subject to withholding of United
States Federal income tax at the rate of 30% unless the dividend is effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder, in which case the dividend will be subject to
United States Federal income tax on net income at the rates applicable to United
States persons generally (and, with respect to corporate holders and under
certain circumstances, the 30% branch profits tax). Non-United States Holders
should consult any applicable income tax treaties, which may provide for a lower
rate of withholding, exemption from or reduction of branch profits tax, or other
rules different from those described above.
Under current Treasury Regulations, dividends paid to an address outside
the United States are presumed to be paid to a resident of such country for
purposes of the withholding discussed above and, under the current IRS position,
for purposes of determining the applicability of a tax treaty rate. However,
under proposed Treasury Regulations not currently in effect, a Non-United States
Holder of Series D Preferred Stock who
41
<PAGE> 45
wishes to claim the benefit of an applicable treaty rate would be required to
satisfy certain certification and other requirements. To claim exemption from
withholding under the effectively connected income exemption, a Non-United
States Holder must file an IRS Form 4224 with the Company or its paying agent.
Gain on Disposition of the Series D Preferred Stock. A Non-United States
Holder will generally not be subject to United States Federal income tax with
respect to gain recognized on a disposition (including a redemption) of the
Series D Preferred Stock (or Common Stock issued upon conversion) unless (i) the
gain is effectively connected with a trade or business of the Non-United States
Holder in the United States; (ii) in the case of a Non-United States Holder that
is not a corporation, such holder is present in the United States for 183 or
more days in the taxable year of the disposition and certain other requirements
are met; or (iii) the Company is at the time of the disposition, or was at any
time during the testing period, a United States real property holding
corporation as defined under section 897(c)(2) of the Code ("USRPHC") and, in
the event the Series D Preferred Stock or Common Stock is regularly traded on an
established securities market, the Non-United States Holder actually or
constructively owned, at any time during the testing period, more than five
percent of the regularly traded class of stock (or, if only the Common Stock is
regularly traded on an established securities market, the Non-United States
Holder actually or constructively owned Series D Preferred Stock having a value
greater than the value of five percent of the Common Stock). In addition, upon
the conversion of Series D Preferred Stock into shares of Common Stock, any gain
realized by the Non-United States Holder will be subject to United States
Federal income tax if clause (iii) of the preceding sentence applies and the
Company is not a USRPHC immediately after the conversion but was a USRPHC at
some time during the testing period. For purposes of this paragraph, the
"testing period" means the shorter of (a) the five-year period ending on the
date of the disposition or (b) the period during which the Non-United States
Holder held the Series D Preferred Stock or the Common Stock issued upon the
conversion. The Company believes that it currently is not, nor has it been at
any time within the past five years, a USRPHC and does not currently anticipate
that it will be a USRPHC in the future.
Information Reporting and Backup Withholding. Under Treasury Regulations,
the Company must report annually to the IRS the amount of dividends paid to each
Non-United States Holder and the United States Federal income taxes, if any,
withheld with respect to such dividends. Such information may be made available
by the IRS to the tax authorities in a foreign country under the provisions of
an applicable tax treaty or information exchange agreement.
Backup withholding tax will generally not apply to dividends paid on the
Series D Preferred Stock (or Common Stock issued upon conversion) to a
Non-United States Holder at an address outside the United States. Payments by a
United States office of a broker of the cash proceeds of a disposition of the
Series D Preferred Stock (or Common Stock issued upon conversion thereof) is
subject to both backup withholding at a rate of 31% and information reporting
unless the holder certifies its Non-United States Holder status under penalties
of perjury or otherwise establishes an exemption. Information reporting
requirements (but not backup withholding) will also apply to payments of the
cash proceeds of dispositions of the Series D Preferred Stock (and Common Stock
issued upon conversion) by foreign offices of United States brokers, or foreign
brokers with certain types of relationships to the United States, unless the
broker has documentary evidence in its records that the holder is a Non-United
States Holder and certain other conditions are met, or the holder otherwise
establishes an exemption.
These backup withholding and information reporting rules are under review
by the United States Treasury Department and their application to the Series D
Preferred Stock (and Common Stock issued upon conversion) could be changed
prospectively by future regulations. In particular, proposed Treasury
Regulations not currently in effect provide, among other things, that payments
of dividends to a Non-United States Holder would generally be subject to backup
withholding unless such Non-United States Holder satisfies certain certification
requirements or otherwise establishes an exemption.
Federal Estate Taxes. The Series D Preferred Stock (or Common Stock issued
upon conversion thereof) owned or treated as owned by an individual who is not a
citizen or resident of the United States at the date of death will be included
in such individual's estate for United States Federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
42
<PAGE> 46
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") between the Company and each of the underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters acting through Merrill Lynch, Pierce,
Fenner & Smith Incorporated has severally agreed to purchase, the number of
shares of Series D Preferred Stock set forth below opposite their respective
names. The Underwriters are committed to purchase all of such shares if any are
purchased. Under certain circumstances, the commitments of non-defaulting
Underwriters may be increased as set forth in the Purchase Agreement.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
--------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................
Kidder, Peabody & Co. Incorporated................................
Lehman Brothers Inc. .............................................
--------
Total................................................ 1,500,000
--------
--------
</TABLE>
The Underwriters have advised the Company that they propose to offer the
shares of Series D Preferred Stock to the public initially at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may re-allow, a discount not in excess
of $ per share on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
The Company has granted to the Underwriters an option, exercisable by the
Underwriters, to purchase up to 225,000 additional shares of Series D Preferred
Stock at the initial public offering price, less the underwriting discount. Such
option, which expires 30 days after the date of this Prospectus, may be
exercised solely to cover over-allotments. To the extent that the Underwriters
exercise such option, each of the Underwriters will be obligated, subject to
certain conditions, to purchase approximately the same percentage of the option
shares that the number of shares to be purchased initially by that Underwriter
bears to the total number of shares to be purchased initially by the
Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments the Underwriters may be required to make in respect thereof.
The Company and certain of its directors and executive officers have agreed
that they will not, without the prior written consent of Merrill Lynch & Co.,
directly or indirectly, offer, sell or otherwise dispose of any shares of
preferred stock or Common Stock or securities convertible into preferred stock
or Common Stock, (other than the shares offered hereby) except pursuant to (i)
the exercise of options granted pursuant to existing employee plans, (ii) the
exercise of the outstanding Rights and Warrants, and (iii) conversion of the
Series A Preferred Stock, Series B Preferred Stock or Series D Preferred Stock,
for a period of 90 days after the date of this Prospectus. Pursuant to the
Registration Rights Agreement and the purchase agreement relating to the Common
Stock Offering, RCBA and the Trust have also agreed not to sell any of their
Common Stock or Series B Preferred Stock for certain periods, other than in the
Common Stock Offering. See "Recent Developments -- Concurrent Offerings."
Steven B. Wolitzer, a director of the Company, is also a managing director
of Lehman Brothers Inc., one of the Underwriters. Each of the Underwriters has
provided from time to time, and expects in the future to provide, investment
banking services to the Company, for which it has received and will receive
customary fees and commissions.
43
<PAGE> 47
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas and for the
Underwriters by Baker & Botts, L.L.P., Houston, Texas. Edgar J. Marston III,
Executive Vice President and General Counsel and a Director of the Company, is
of counsel to the firm of Bracewell & Patterson, L.L.P. From time to time, Baker
& Botts, L.L.P. performs certain services for the Company. Both Bracewell &
Patterson, L.L.P. and Baker & Botts, L.L.P. will rely on the opinion of Stone,
Pigman, Walther, Wittmann & Hutchinson, New Orleans, Louisiana, as to matters of
Louisiana law.
EXPERTS
The consolidated financial statements and consolidated financial statement
schedules of the Company listed in the Index to Financial Statements and Index
to Other Required Schedules appearing in the Company's Annual Report on Form
10-K for the year ending December 31, 1992, have been audited by Deloitte &
Touche, independent public accountants, as set forth in their report included
therein, and such report is incorporated herein by reference. See "Incorporation
of Certain Documents by Reference." The consolidated financial statements and
consolidated financial statement schedules referred to above have been
incorporated herein by reference in reliance upon such report and upon the
authority of such firm as experts in accounting and auditing.
With respect to the unaudited interim financial information appearing in
the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1993, June 30, 1993 and September 30, 1993, as set forth herein or incorporated
by reference in this Prospectus, Deloitte & Touche, independent public
accountants, have reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate reports included in the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1993, June 30, 1993 and September 30,
1993, and set forth herein or incorporated by reference, state that they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their reports on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche are not subject to the liability provisions of Section 11 of
the Securities Act of 1933 for their reports on the unaudited interim financial
information because those reports are not "reports" or a "part" of the
registration statement prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Securities Act of 1933.
44
<PAGE> 48
INDEX TO FINANCIAL STATEMENTS, AS PRESENTED IN THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1993
AND REPRODUCED HEREIN FOR CONVENIENCE OF REFERENCE
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
Independent Accountants' Review Report............................... F-2
Consolidated Balance Sheet
September 30, 1993 and December 31, 1992........................... F-3
Statement of Consolidated Earnings
Three months and nine months ended September 30, 1993 and 1992..... F-4
Statement of Consolidated Cash Flows
Nine months ended September 30, 1993 and 1992...................... F-5
Statement of Consolidated Revenues and Operating Earnings by Business
Segment
Three months and nine months ended September 30, 1993 and 1992..... F-6
Statement of Shareholders' Equity
Nine months ended September 30, 1993............................... F-6
Notes to Consolidated Financial Statements........................... F-7
</TABLE>
F-1
<PAGE> 49
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Shareholders and
Board of Directors of
Southdown, Inc.
Houston, Texas
We have reviewed the accompanying consolidated balance sheet of Southdown,
Inc. and subsidiary companies as of September 30, 1993, and the related
statements of consolidated earnings for the three and nine month periods ended
September 30, 1993 and 1992, the consolidated statement of cash flows for the
nine month periods ended September 30, 1993 and 1992 and the statement of
shareholders' equity for the nine months ended September 30, 1993. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of the interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Southdown, Inc. and subsidiary
companies as of December 31, 1992 and the related consolidated statements of
earnings, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated January 28, 1993 (February 16, 1993
as to paragraph 5 of Note 2 of Notes to Consolidated Financial Statements), we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1992 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
As discussed in Note 3 of Notes to the Consolidated Financial Statements,
the Company changed its methods of accounting for income taxes and
postretirement benefits other than pensions effective January 1, 1993 to conform
with Statements of Financial Accounting Standards No. 109 and No. 106.
DELOITTE & TOUCHE
Houston, Texas
November 1, 1993
F-2
<PAGE> 50
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1993 1992
------------- ------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 11.9 $ 12.5
Accounts and notes receivable, less allowance for doubtful
accounts of $6.8 and $6.2.................................. 88.8 85.2
Inventories (Note 2).......................................... 51.5 58.6
Prepaid expenses and other.................................... 9.2 14.6
------- ------
Total current assets.................................. 161.4 170.9
Property, plant and equipment, less accumulated depreciation,
depletion and amortization of $267.2 and $241.1............... 582.3 592.9
Goodwill........................................................ 72.9 74.6
Other assets:
Long-term receivables......................................... 28.8 23.1
Other......................................................... 44.8 49.1
------- ------
$ 890.2 $910.6
------- ------
------- ------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.......................... $ 20.4 $ 8.3
Accounts payable and accrued liabilities...................... 98.3 89.7
------- ------
Total current liabilities............................. 118.7 98.0
Long-term debt.................................................. 270.2 306.5
Deferred income taxes........................................... 101.3 130.7
Minority interest in consolidated joint venture................. 30.1 31.0
Long-term portion of postretirement benefit obligations......... 84.5 5.3
Other liabilities and deferred credits.......................... 21.6 22.7
------- ------
626.4 594.2
------- ------
Shareholders' equity:
Preferred stock redeemable at issuer's option (Note 6)........ 67.9 67.9
Common stock, $1.25 par value................................. 21.2 21.2
Capital in excess of par value................................ 126.6 126.6
Reinvested earnings........................................... 48.1 100.7
------- ------
263.8 316.4
------- ------
$ 890.2 $910.6
------- ------
------- ------
</TABLE> F-3
<PAGE> 51
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1993 1992 1993 1992
------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Trade.......................................................... $155.6 $138.6 $405.1 $382.0
Interest income................................................ 0.5 0.6 1.5 1.3
------ ------ ------ ------
156.1 139.2 406.6 383.3
------ ------ ------ ------
Costs and expenses:
Operating...................................................... 114.4 104.6 292.5 292.4
Depreciation, depletion and amortization....................... 9.8 12.1 31.3 36.5
Selling and marketing.......................................... 4.8 4.5 13.9 13.6
General and administrative..................................... 9.9 10.9 33.1 34.5
Other (income) expense, net.................................... 4.4 (3.5) 4.7 (4.8)
------ ------ ------ ------
143.3 128.6 375.5 372.2
Minority interest in earnings of consolidated joint venture...... 1.4 1.1 2.2 1.7
------ ------ ------ ------
144.7 129.7 377.7 373.9
------ ------ ------ ------
Operating earnings............................................... 11.4 9.5 28.9 9.4
Interest expense................................................. (9.5) (10.8) (30.3) (34.3)
------ ------ ------ ------
Earnings (loss) from continuing operations before income taxes
and cumulative effect of a change in accounting principle...... 1.9 (1.3) (1.4) (24.9)
Federal and state income tax (expense) benefit................... (0.4) 0.8 1.1 10.0
------ ------ ------ ------
Earnings (loss) from continuing operations before cumulative
effect of a change in accounting principle..................... 1.5 (0.5) (0.3) (14.9)
Gain on discontinued operations, net of income taxes (Note 7).... -- 0.8 -- 0.8
Cumulative effect of a change in accounting principle (Note 3)... -- -- (48.5) --
------ ------ ------ ------
Net earnings (loss).............................................. $ 1.5 $ 0.3 $(48.8) $(14.1)
------ ------ ------ ------
------ ------ ------ ------
Dividends on preferred stock (Note 6)............................ $ (1.2) $ (1.2) $ (3.7) $ (3.7)
------ ------ ------ ------
------ ------ ------ ------
Earnings (loss) available for common stock....................... $ 0.3 $ (0.9) $(52.5) $(17.8)
------ ------ ------ ------
------ ------ ------ ------
Earnings (loss) per common share (Note 6 and Exhibit 11):
Primary --
Earnings (loss) from continuing operations before cumulative
effect of a change in accounting principle................ $ 0.01 $(0.10) $(0.24) $(1.10)
Gain on discontinued operations, net of income taxes (Note
7)........................................................ -- 0.05 -- 0.05
Cumulative effect of a change in accounting principle (Note
3)........................................................ -- -- (2.86) --
------ ------ ------ ------
$ 0.01 $(0.05) $(3.10) $(1.05)
------ ------ ------ ------
------ ------ ------ ------
Fully diluted --
Earnings (loss) from continuing operations before cumulative
effect of a change in accounting principle................ $ 0.01 $(0.10) $(0.24) $(1.10)
Gain on discontinued operations, net of income taxes (Note
7)........................................................ -- 0.05 -- 0.05
Cumulative effect of a change in accounting principle (Note
3)........................................................ -- -- (2.86) --
------ ------ ------ ------
$ 0.01 $(0.05) $(3.10) $(1.05)
------ ------ ------ ------
------ ------ ------ ------
Average shares outstanding:
Primary........................................................ 17.2 16.9 17.0 16.9
------ ------ ------ ------
------ ------ ------ ------
Fully diluted.................................................. 21.2 20.3 21.2 20.3
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
F-4
<PAGE> 52
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Operating activities:
Net loss................................................................ $(48.8) $(14.1)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Cumulative effect of a change in accounting principle................ 48.5 --
Depreciation, depletion and amortization............................. 31.3 36.5
Deferred income tax provision........................................ (2.5) 0.8
Amortization of debt issuance costs.................................. 2.1 2.5
Changes in operating assets and liabilities.......................... 5.6 (3.0)
Other adjustments.................................................... 2.2 (1.4)
------ ------
Net cash provided by (used in) operating activities....................... 38.4 21.3
------ ------
Investing activities:
Additions to property, plant and equipment.............................. (18.5) (11.9)
Proceeds from asset sales............................................... 6.3 5.4
Acquisition of hazardous waste processor, net of cash acquired.......... -- (4.9)
Other................................................................... 2.4 1.3
------ ------
Net cash used in investing activities..................................... (9.8) (10.1)
------ ------
Financing activities:
Additions to long-term debt............................................. -- 6.2
Reductions in long-term debt............................................ (24.1) (9.5)
Dividends............................................................... (2.8) (2.8)
Changes in minority interest............................................ (2.3) (1.0)
Debt issuance costs..................................................... -- (0.9)
------ ------
Net cash provided by (used in) financing activities....................... (29.2) (8.0)
------ ------
Net (decrease) increase in cash and cash equivalents...................... (0.6) 3.2
Cash and cash equivalents at beginning of period.......................... 12.5 14.6
------ ------
Cash and cash equivalents at end of period................................ $ 11.9 $ 17.8
------ ------
------ ------
</TABLE>
Cash payments for income taxes totaled $1.9 million in 1993 and $200,000 in
1992. The Company received a $15.7 and an $18.5 million Federal income tax
refund in 1993 and 1992, respectively, from the carryback to prior years of the
1992 and 1991 tax losses. Interest paid, net of amounts capitalized, was $21.8
million and $24.0 million in 1993 and 1992, respectively. The $48.5 million
noncash operating charge for the cumulative effect of a change in accounting
principle also resulted in a noncash charge to deferred income taxes of $25.9
million and a noncash credit to postretirement benefit obligations of $74.4
million. Noncash investing activities in 1993 included the sale of a hazardous
waste processing facility for preferred stock which the Company valued at $4.8
million (see Note 5 of Notes to Consolidated Financial Statements). Noncash
investing activities in 1992 included a $1.9 million note receivable as partial
consideration for all of the common stock of a hazardous waste processor sold
effective June 30, 1992 and the assumption of $1.1 million of noncash
liabilities in the January 1992 acquisition of a hazardous waste processor.
F-5
<PAGE> 53
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED REVENUES AND OPERATING EARNINGS
BY BUSINESS SEGMENT
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1993 1992 1993 1992
------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Contributions to revenues:
Cement............................................. $109.6 $ 96.7 $277.6 $256.5
Concrete products.................................. 49.0 40.6 129.6 119.9
Environmental services............................. 8.3 10.4 27.5 32.4
Corporate and other................................ 0.1 0.3 0.4 0.6
Intersegment sales................................. (10.9) (8.8) (28.5) (26.1)
------ ------ ------ ------
$156.1 $139.2 $406.6 $383.3
------ ------ ------ ------
------ ------ ------ ------
Contributions to operating earnings (loss) before
interest expense and income taxes:
Cement............................................. $ 21.8 $ 20.3 $ 61.1 $ 49.2
Concrete products.................................. 0.5 (2.4) (1.1) (8.0)
Environmental services............................. (1.0) (3.1) (1.2) (8.0)
Corporate
General and administrative...................... (6.5) (7.3) (23.7) (23.7)
Depreciation, depletion and amortization........ (1.1) (1.1) (3.3) (3.3)
Miscellaneous income (expense).................. (2.3) 3.1 (2.9) 3.2
------ ------ ------ ------
$ 11.4 $ 9.5 $ 28.9 $ 9.4
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL
IN
EXCESS
PREFERRED STOCK COMMON STOCK OF
----------------- ---------------- PAR REINVESTED
SHARES AMOUNT SHARES AMOUNT VALUE EARNINGS
------ ------- ------ ------ ------ ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992.......... 3.0 $67.9 16.9 $21.2 $126.6 $100.7
Net loss.............................. -- -- -- -- -- (48.8)
Dividends on preferred stock
(Note 6)............................ -- -- -- -- -- (3.7)
Other................................. -- -- -- -- -- (0.1)
---- ----- ---- ----- ------ ------
Balance at September 30, 1993......... 3.0 $67.9 16.9 $21.2 $126.6 $ 48.1
---- ----- ---- ----- ------ ------
---- ----- ---- ----- ------ ------
</TABLE>
F-6
<PAGE> 54
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
The Consolidated Balance Sheet of Southdown, Inc. and subsidiary companies
(the Company) at September 30, 1993 and the Statements of Consolidated Earnings,
Consolidated Cash Flows, Consolidated Revenues and Operating Earnings by
Business Segment and Shareholders' Equity for the periods indicated herein have
been prepared by the Company without audit. The Consolidated Balance Sheet at
December 31, 1992 is derived from the December 31, 1992 audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. It is assumed that these financial statements will be
read in conjunction with the audited financial statements and notes thereto
included in the Company's 1992 Annual Report on Form 10-K. Certain data for
prior years have been reclassified for purposes of comparison.
In the opinion of management, the statements reflect all adjustments
necessary for a fair presentation of the financial position, results of
operations and cash flows of the Company on a consolidated basis and all such
adjustments are of a normal recurring nature. The interim statements for the
period ended September 30, 1993 are not necessarily indicative of results to be
expected for the full year.
NOTE 2 -- INVENTORIES:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1993 1992
------------ -----------
(UNAUDITED, IN
MILLIONS)
<S> <C> <C>
Finished goods................................... $10.3 $14.7
Work in progress................................. 9.6 9.4
Raw materials.................................... 5.3 7.3
Supplies......................................... 26.3 27.2
----- -----
$51.5 $58.6
----- -----
----- -----
</TABLE>
Inventories stated on the LIFO method were $14.2 million at September 30,
1993 and $22.8 million at December 31, 1992 compared with current costs of $23.6
million and $32.2 million, respectively.
NOTE 3 -- CHANGES IN ACCOUNTING PRINCIPLES:
Postretirement Benefits
Postretirement benefits other than pensions (postretirement benefits)
currently provided by the Company to its eligible retirees consist primarily of
health care and life insurance benefits. In certain instances, retirees under
the age of sixty-five and their dependents are offered health care benefits
which are essentially the same as benefits available to active employees.
However, benefit payments for covered retirees over the age of sixty-five are
reduced to the extent that such benefits are paid by Medicare. Most of the
Company's health care benefits are self-insured and administered on cost plus
fee arrangements with a major insurance company or provided through health
maintenance organizations. Generally life insurance benefits for retired
employees are reduced over a number of years from the date of retirement to a
specified minimum level.
Effective January 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" (SFAS No. 106) and recorded a $48.5 million after-tax,
non-cash charge which represented the initial liability for postretirement
benefits attributable to employee services provided prior to 1993. SFAS No. 106
requires the Company to accrue the estimated cost of retiree benefit payments as
the employee provides services to the Company. The Company previously expensed
the cost of these benefits as claims were incurred and continues to pay for
postretirement benefit costs as incurred.
F-7
<PAGE> 55
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
General and administrative expenses for the nine months ended September 30,
1993 include a charge of approximately $1.8 million in each of the first two
quarters of the year ($3.5 million in the aggregate) representing the estimated
cost of postretirement health care benefits in excess of claims incurred. The
Company amended its plan for postretirement health care benefits in the latter
part of the second quarter. Effective with the third quarter of 1993, the
Company's accrual for estimated future postretirement benefit costs was reduced
under the revised plan and the Company will also amortize an estimated $47
million pretax reduction in its recorded postretirement benefits obligation over
the 16 years remaining average service life of its active employees as required
by SFAS No. 106. These changes have effectively eliminated the requirement for
the Company to continue to record a quarterly charge of approximately $1.8
million as incurred in each of the first and second quarters of 1993.
Income Taxes
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109) effective January 1, 1993. SFAS No.
109 supersedes SFAS No. 96, "Accounting for Income Taxes" which was adopted by
the Company in 1988. There was no cumulative effect on the Company's financial
statements resulting from the adoption of SFAS No. 109. In early August 1993,
the President signed into law a bill that includes, among other provisions, a
one percent increase in the maximum Federal income tax rate for corporations
retroactive to January 1, 1993. Under the requirements of SFAS No. 109 the
Company recorded a charge of approximately $2.2 million in the third quarter of
1993 to recognize the increase in the deferred tax liability as a result of the
change in the corporate income tax rate.
NOTE 4 -- CKD REMEDIATION IN OHIO:
As discussed in more detail under Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" under the caption
"Liquidity and Capital Resources -- Known Events, Trends and
Uncertainties -- Environmental Matters", three of a number of inactive cement
kiln dust (CKD) disposal sites near the Company's Fairborn, Ohio cement plant
have been under investigation by the Company, as well as in some cases by
Federal and state environmental agencies, to determine if remedial action is
required at any or all of these sites.
The Company as well as state environmental agencies have conducted
investigations to determine appropriate remedial action required at an inactive
CKD disposal site in Ohio. Based on various remediation investigations,
hydrogeological analyses and feasibility studies performed in prior years, the
Company had recorded charges totaling $6.7 million through the end of 1992 as
the estimated remediation cost for the site, increasing the initial estimates as
additional information became known. In October 1993, the Company received a
consulting report proposing additional refinements of earlier estimates which
increased the total estimated cost to remediate this site from $6.7 million to
$9.7 million. Accordingly, the Company recorded an additional $3 million charge
in the third quarter of 1993 to recognize the change in the estimate.
On a voluntary basis, without administrative or legal action being taken,
the Company is also investigating two other inactive Ohio CKD disposal sites.
The two additional sites in question were part of a cement manufacturing
facility that was owned and operated by a now dissolved cement company from 1924
to 1945 and by a division of USX Corporation (USX) from 1945 to 1975. On
September 24, 1993, the Company filed a complaint (the Complaint) against USX,
alleging that USX is a potentially responsible party under CERCLA and under
applicable Ohio law, and therefore jointly and severally liable for costs
associated with cleanup of the larger of the two sites (the Site).
The Company intends to vigorously pursue its right to contribution from USX
for cleanup costs under CERCLA and Ohio law. Based upon the advice of counsel,
the Company believes that USX is a responsible party because it owned and
operated the Site at the time of disposal of the hazardous substance, arranged
for the disposal of the hazardous substance and transported the hazardous
substance to the Site. Therefore,
F-8
<PAGE> 56
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
counsel to the Company has advised that it appears there is a reasonable basis
for the apportionment of cleanup costs relating to the Site between the Company
and USX, with USX shouldering substantially all of the cleanup costs because,
based on the facts known at this time, the Company itself disposed of no cement
kiln dust at the Site and is potentially liable under CERCLA primarily because
of its current ownership of the Site. These determinations, however, are
preliminary, and are based only upon facts available to the Company prior to any
discovery and prior to the filing of an answer to the Complaint by USX.
The Company expects to have determined a reasonable estimate, or at least
identified a range of Site remediation costs, by year-end 1993. Under CERCLA and
applicable Ohio law a court generally applies equitable principles in
determining the amount of contribution which a potentially responsible party
must provide with respect to a cleanup of hazardous substances and such
determination is within the sole discretion of the court. In addition, no
regulatory agency has directly asserted a claim against the Company as the owner
of the Site requiring it to remediate the property, and no cleanup of the Site
has yet been initiated.
NOTE 5 -- SALE OF HAZARDOUS WASTE PROCESSING FACILITIES:
In January 1993, the Company's Board of Directors approved a strategic
realignment of the Company's environmental services operations and authorized
the disposition of four of its six hazardous waste processing facilities. On
February 16, 1993 the Company sold its Cincinnati, Ohio hazardous waste
processing facility, which was classified at December 31, 1992 as a current
asset held for sale. The facility was sold to Clean Harbors, Inc. for $1.4
million in cash and the balance in the form of a new issue of Clean Harbors,
Inc. convertible preferred stock which the Company sold during the second
quarter of 1993 for $4.9 million.
The assets associated with two of the remaining hazardous waste processing
facilities were classified on the Company's balance sheet as of December 31,
1992 and September 30, 1993 as current assets held for sale. Operating losses
expected to occur prior to disposition of these two hazardous waste processing
facilities were previously accrued in conjunction with a fourth quarter 1992
write-down of certain environmental services assets and, accordingly, are not
reflected in the results of operations for the three and nine month periods
ended September 30, 1993. Such losses were $336,000 and $1.2 million for the
three and nine month periods, respectively.
The Company has a non-binding Letter of Intent to sell its hazardous waste
processing facility in Avalon, Texas which was classified as a current asset
held for sale at December 31, 1992 and September 30, 1993. The sale is expected
to close before the end of 1993. No material gain or loss is expected to be
recognized in conjunction with the sale.
NOTE 6 -- CAPITAL STOCK:
Common Stock
The Company's Board of Directors suspended the dividend on the Company's
common stock on April 25, 1991.
Preferred Stock Redeemable at Issuer's Option
Series A Preferred Stock -- The Company had 1,999,000 shares of Preferred
Stock, $0.70 Cumulative Convertible Series A (Series A Preferred Stock) issued
and outstanding at September 30, 1993, December 31, 1992 and September 30, 1992.
Each share of Series A Preferred Stock is initially convertible into one-half
share of the Company's common stock, subject to adjustment to protect against
dilution, and is redeemable at the Company's option at 140% of the $10.00 stated
value thereof declining to par after April 30, 1997, plus accrued and unpaid
dividends. Dividends paid on the Series A Preferred Stock were approximately
$350,000 and $1,050,000, respectively, during each of the three and nine month
periods ended September 30, 1993 and 1992.
F-9
<PAGE> 57
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Series B Preferred Stock -- The Company had 959,000 shares of Preferred
Stock, $3.75 Convertible Exchangeable Series B (Series B Preferred Stock) issued
and outstanding at September 30, 1993, December 31, 1992 and September 30, 1992.
Each share of Series B Preferred Stock is convertible into 2.5 shares of the
Company's common stock subject to adjustment to protect against dilution, and is
currently redeemable at the Company's option at 100% of the $50.00 stated value
thereof, plus accrued and unpaid dividends to the date of redemption. Dividends
accrued on the Series B Preferred Stock were approximately $900,000 and $2.7
million, respectively, during each of the three and nine months ended September
30, 1993 and 1992.
NOTE 7 -- DISCONTINUED OPERATIONS
In late August 1993 the Company was notified by Energy Development
Corporation (EDC), the 1989 purchaser of the common stock of the Company's then
oil and gas subsidiary, that EDC was exercising its indemnification rights under
the 1989 stock purchase agreement with respect to a Department of Energy (DOE)
Remedial Order regarding the audit of crude oil produced and sold during the
period September 1973 through January 1981 from an offshore, federal waters
field known as Ship Shoal Block 113 Unit/South Pelto 20 of which the Company's
oil and gas subsidiary was part owner. The DOE has alleged certain price
overcharges and is seeking to recover a total of $68 million dollars in
principal and interest. Murphy Oil Corporation, as operator of the property, has
estimated the Company's share of this total to be approximately $4 million.
Murphy Oil Corporation has been coordinating the defense against the DOE claim
and is currently in the process of appealing the DOE's Remedial Order to the
Federal Energy Regulatory Commission (FERC) and is concurrently attempting to
negotiate a settlement with the DOE. Oral arguments before the FERC were
scheduled for late October 1993 with a ruling to follow shortly thereafter. The
Company is unable to determine what liability it may have, if any, with respect
to this matter, but should the Company be required to forfeit all or any portion
of these amounts, such expenditure would result in a charge to earnings from
discontinued operations.
NOTE 8 -- REVIEW BY INDEPENDENT ACCOUNTANTS:
The unaudited financial information presented in this report has been
reviewed by the Company's independent public accountants to the extent indicated
in their report. The review was limited in scope and did not constitute an audit
of the financial information in accordance with generally accepted auditing
standards such as is performed in the year-end audit of the consolidated
financial statements. The report of Deloitte & Touche on its limited review of
the financial information as of September 30, 1993 and for the three and nine
month periods ended September 30, 1993 and 1992 is set forth on page F-2.*
- ---------------
* Italicized language indicates variance from Form 10-Q.
F-10
<PAGE> 58
PHOTOGRAPH OF COAL BEING FIRED INTO CEMENT KILN
PHOTOGRAPH OF LIMESTONE QUARRY
<PAGE> 59
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN, OR INCORPORATED BY
REFERENCE IN, THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE SERIES D PREFERRED STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH
IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 2
Prospectus Summary..................... 3
Investment Considerations.............. 6
The Company............................ 8
Recent Developments.................... 10
Use of Proceeds........................ 12
Price Range of the Common Stock and
Dividends............................ 12
Capitalization......................... 13
Selected Historical Financial and
Operating Data....................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 16
Description of Capital Stock........... 29
Description of Series D Preferred
Stock................................ 36
Certain Federal Income Tax
Considerations....................... 39
Underwriting........................... 43
Legal Matters.......................... 44
Experts................................ 44
Index to Financial Statements.......... F-1
</TABLE>
1,500,000 SHARES
SOUTHDOWN, INC.
PREFERRED STOCK,
$ CUMULATIVE CONVERTIBLE
SERIES D
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
KIDDER, PEABODY & CO.
INCORPORATED
LEHMAN BROTHERS
JANUARY , 1994
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
<PAGE> 60
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated fees and expenses incurred in connection with the offering of
the Series D Preferred Stock are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 29,742
National Association of Securities Dealers, Inc. filing fee....... $ 9,125
Printing and engraving expenses................................... $240,000
Legal fees and expenses of counsel................................ $120,000
Accounting fees and expenses...................................... $ 24,500
Blue sky filing fees and expenses (including legal fees and
expenses)....................................................... $ 7,100
Transfer Agent fees............................................... $ 2,000
Miscellaneous..................................................... $ 2,533
--------
Total................................................... $435,000
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Louisiana Business Corporation Law
The Louisiana Business Corporation Law ("LBCL") generally gives a
corporation the power to indemnify any of its directors or officers against
certain expenses, judgments, fines and amounts paid in settlement in connection
with certain actions, suits or proceedings, provided generally that such person
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In the case of any action by, or in the right of, the
corporation, the corporation may indemnify such person against expenses,
including attorneys' fees and amounts paid in settlement not exceeding, in the
judgment of the board of directors, the estimated expense of litigating the
action to conclusion, actually and reasonably incurred in connection with the
defense or settlement of such action, and no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged by a court of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable for willful or intentional misconduct in the performance
of his or her duty to the corporation, unless, and only to the extent that the
court shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, he or she is fairly
and reasonably entitled to indemnification for such expenses which the court
shall deem proper.
Indemnification provided pursuant to the foregoing provisions is not, under
the LBCL, deemed exclusive of any other rights to which the person indemnified
is entitled under any bylaw, agreement, authorization of shareholders or
directors; however, no such other indemnification measure shall permit
indemnification of any person for the results of such person's willful or
intentional misconduct. In addition, the LBCL contains provisions to the general
effect that any director shall in the performance of his or her duties be fully
protected in relying in good faith upon the records of the corporation and upon
such information, opinions, reports or statements presented to the corporation,
the board of directors, or any committee thereof by any of the corporation's
officers or employees or by any committee of the board of directors, or by any
counsel, appraiser, engineer (including a petroleum reservoir engineer), or
independent or certified public accountant selected by the board of directors or
any committee thereof with reasonable care, or by any other person as to matters
the director reasonably believes are within such other person's professional or
expert competence and which person is selected by the board of directors or any
committee thereof with reasonable care. A director shall not be liable for the
commission of a prohibited act if his or her dissent was either noted in the
minutes of the meetings or filed promptly thereafter in the registered office of
the Registrant.
II-1
<PAGE> 61
Articles of Incorporation
As permitted under Section 24(C)(4) of the LBCL, Article XIII of the
Restated Articles of Incorporation of the Registrant eliminates the personal
liability of any director or officer to the Registrant or its shareholders for
monetary damages for breach of fiduciary duty in such capacity, except for (i)
any breach of the duty of loyalty to the Registrant or its shareholders; (ii)
acts or omissions not in good faith or involving intentional misconduct or a
knowing violation of law; (iii) unlawful payment of dividends or unlawful stock
purchases or redemptions; or (iv) any transaction from which the director or
officer derived an improper personal benefit.
Bylaws of the Company
Article VI, Section 6 of the Registrant's Bylaws contemplate that the
Registrant shall indemnify its directors and officers to the maximum extent
permitted by Louisiana law.
Directors' and Officers' Insurance
In addition, the Registrant has purchased a liability insurance policy
under which its directors and officers are indemnified against certain losses
arising from certain claims that may be made against them by reason of their
serving in such capacity.
Underwriting Agreement; Registration Rights and Lock Up Agreement
Section 6 of the Purchase Agreement, a copy of the form of which is filed
as Exhibit 1.1 to this Registration Statement, and the Registration Rights and
Lock Up Agreement, a copy of which is filed as Exhibit 99.1 to this Registration
Statement, provide for the indemnification of the directors and officers of the
Registrant in certain circumstances.
ITEM 16. EXHIBITS
The following documents are filed as exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------------------- ------------------------------------------------------------------------
<S> <C>
1.1* Form of Purchase Agreement relating to the Preferred Stock Offering by
and among the Representatives on behalf of the Underwriters and the
Company.
4.1 Restated Articles of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K dated December 21, 1993).
4.2* Form of Articles of Amendment to the Restated Articles of Incorporation
of the Company, designating the Series D Preferred Stock.
4.3 Form of Certificate representing shares of Series D Preferred Stock.
4.4 Form of Certificate representing shares of Common Stock (incorporated by
reference to Exhibit 4.3 to Registration Statement on Form S-3;
Registration Statement No. 33-24021).
5* Opinions of Bracewell & Patterson, L.L.P. and Stone, Pigman, Walther,
Wittmann & Hutchison as to the validity of the securities being
registered.
8* Opinion of Bracewell & Patterson, L.L.P. with respect to certain federal
income tax matters.
12* Statement regarding computation of ratios.
15* Letter in lieu of consent from Deloitte & Touche regarding interim
financial information.
</TABLE>
II-2
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------------------- ------------------------------------------------------------------------
<S> <C>
23.1* Consent of Deloitte & Touche, independent auditors for the Registrant
(See page II-6).
23.2* Consents of Bracewell & Patterson, L.L.P. (included in their opinions to
be filed as Exhibit 5 and 8 to this Registration Statement) and Stone,
Pigman, Walther, Wittmann & Hutchinson (included in their opinion filed
as Exhibit 5 to this Registration Statement).
24 Powers of Attorney.
99.1 Registration Rights and Lock Up Agreement dated November 22, 1993, among
the Company, RCBA and the Trust (incorporated by reference to Exhibit
4.2 to the Current Report on Form 8-K dated December 21, 1993).
</TABLE>
- ---------------
* Filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liability arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the 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, the
Registrant 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 of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered herein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Southdown, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and had duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston and State of Texas on January 20, 1994.
SOUTHDOWN, INC.
By: CLARENCE C. COMER
------------------------------------
Clarence C. Comer
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the indicated capacities on January
20, 1994.
<TABLE>
<CAPTION>
SIGNATURE POSITIONS
- ------------------------------------------ --------------------------------
<S> <C>
G. WALTER LOEWENBAUM II* Chairman of the Board
- ------------------------------------------ of Directors
G. Walter Loewenbaum II
CLARENCE C. COMER President, Chief Executive
- ------------------------------------------ Officer and Director
Clarence C. Comer
JAMES L. PERSKY Senior Vice President
- ------------------------------------------ (Principal Financial Officer)
James L. Persky
ALLAN B. KORSAKOV Corporate Controller
- ------------------------------------------ (Principal Accounting Officer)
Allan B. Korsakov
FENTRESS BRACEWELL* Director
- ------------------------------------------
Fentress Bracewell
W. J. CONWAY* Director
- ------------------------------------------
W. J. Conway
KILLIAN L. HUGER, JR.* Director
- ------------------------------------------
Killian L. Huger, Jr.
EDGAR J. MARSTON III Director
- ------------------------------------------
Edgar J. Marston III
MICHAEL A. NICOLAIS* Director
- ------------------------------------------
Michael A. Nicolais
FRANK J. RYAN* Director
- ------------------------------------------
Frank J. Ryan
ROBERT J. SLATER* Director
- ------------------------------------------
Robert J. Slater
RONALD N. TUTOR* Director
- ------------------------------------------
Ronald N. Tutor
</TABLE>
II-4
<PAGE> 64
<TABLE>
<CAPTION>
SIGNATURE POSITIONS
- ------------------------------------------ ------------------------------------------
<S> <C>
V. H. VAN HORN III* Director
- ------------------------------------------
V. H. Van Horn III
STEVEN B. WOLITZER* Director
- ------------------------------------------
Steven B. Wolitzer
* By: EDGAR J. MARSTON III
- ------------------------------------------
Edgar J. Marston III
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 65
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 33-51133 of Southdown, Inc. of our report dated
January 28, 1993 (February 16, 1993 as to paragraph 5 of Note 2 of Notes to
Consolidated Financial Statements) appearing in the Annual Report on Form 10-K
of Southdown, Inc. for the year ended December 31, 1992 and to the references to
us appearing under the captions "Experts" and "Selected Historical Financial and
Operating Data" in the Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE
Houston, Texas
January 19, 1994
II-6
<PAGE> 66
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------------------- ------------------------------------------------------------------------
<S> <C>
1.1* Form of Purchase Agreement relating to the Preferred Stock Offering by
and among the Representatives on behalf of the Underwriters and the
Company.
4.1 Restated Articles of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K dated December 21, 1993).
4.2* Form of Articles of Amendment to the Restated Articles of Incorporation
of the Company, designating the Series D Preferred Stock.
4.3 Form of Certificate representing shares of Series D Preferred Stock.
4.4 Form of Certificate representing shares of Common Stock (incorporated by
reference to Exhibit 4.3 to Registration Statement on Form S-3;
Registration Statement No. 33-24021).
5* Opinions of Bracewell & Patterson, L.L.P. and Stone, Pigman, Walther,
Wittmann & Hutchison as to the validity of the securities being
registered.
8* Opinion of Bracewell & Patterson, L.L.P. with respect to certain federal
income tax matters.
12* Statement regarding computation of ratios.
15* Letter in lieu of consent from Deloitte & Touche regarding interim
financial information.
23.1* Consent of Deloitte & Touche, independent auditors for the Registrant
(See page II-6).
23.2* Consents of Bracewell & Patterson, L.L.P. (included in their opinions to
be filed as Exhibit 5 and 8 to this Registration Statement) and Stone,
Pigman, Walther, Wittmann & Hutchinson (included in their opinion filed
as Exhibit 5 to this Registration Statement).
24 Powers of Attorney.
99.1 Registration Rights and Lock Up Agreement dated November 22, 1993, among
the Company, RCBA and the Trust (incorporated by reference to Exhibit
4.2 to the Current Report on Form 8-K dated December 21, 1993).
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
Exhibit 1.1
DRAFT 1/19/94
________________________________________________________________________________
SOUTHDOWN, INC.
PREFERRED STOCK, $__ CUMULATIVE CONVERTIBLE SERIES D
PURCHASE AGREEMENT
MERRILL LYNCH & CO.
KIDDER, PEABODY & CO. INCORPORATED
LEHMAN BROTHERS INC.
________________________________________________________________________________
<PAGE> 2
SOUTHDOWN, INC.
(A LOUISIANA CORPORATION)
PREFERRED STOCK, $___ CUMULATIVE CONVERTIBLE SERIES D
PURCHASE AGREEMENT
January __, 1994
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
KIDDER, PEABODY & CO. INCORPORATED
LEHMAN BROTHERS INC.
c/o MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
Dear Sirs:
Southdown, Inc., a Louisiana corporation (the "Company"),
confirms its agreement with each of Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Lehman Brothers Inc. and Kidder,
Peabody & Co. Incorporated (collectively, the "Underwriters") with respect to
the sale by the Company of 1,500,000 shares of Preferred Stock, $___ Cumulative
Convertible Series D, par value $.05 per share, of the Company (the "Preferred
Stock") and the purchase by the Underwriters, acting severally and not jointly,
of the respective number of shares of Preferred Stock, set forth in Schedule A
hereto and with respect to the grant by the Company to the Underwriters of the
option described in Section 2 hereof to purchase all or any part of up to an
additional 225,000 shares of Preferred Stock to cover over-allotments, in each
case except as may otherwise be provided in the Pricing Agreement, as
hereinafter defined. The 1,500,000 shares of Preferred Stock ("Initial
Securities"), together with all or any part of the 225,000 shares of Preferred
Stock subject to the option described in Section 2 hereof (the "Option
Securities"), are collectively hereinafter called the "Securities." Each share
of the Preferred Stock will be initially convertible into shares of the
Company's common stock, par value $1.25 per share (the "Common Stock") and an
equal number of associated rights to purchase preferred stock (the "Rights").
The shares of Common Stock issuable upon conversion of the Securities are
collectively herein called the "Common Shares". The terms of the Securities
will be governed by and set forth in certain Articles of
<PAGE> 3
Amendment to the Restated Articles of Incorporation of the Company (the
"Articles of Amendment"), a form of which has been previously provided to you.
The Securities are more fully described in the Prospectus referred to below.
Prior to the purchase and public offering of the Securities by
the several Underwriters, the Company and the Underwriters shall enter into an
agreement substantially in the form of Exhibit A hereto (the "Pricing
Agreement"). The Pricing Agreement may take the form of an exchange of any
standard form of written telecommunication between the Company and the
Underwriters and shall specify such applicable information as is indicated in
Exhibit A hereto. The offering of the Securities will be governed by this
Agreement, as supplemented by the Pricing Agreement. From and after the date
of the execution and delivery of the Pricing Agreement, this Agreement shall be
deemed to incorporate, and all references to "this Agreement" shall be deemed
to include, the Pricing Agreement.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (No.
33-51133) and a related preliminary prospectus for the registration of the
Securities under the Securities Act of 1933, as amended (the "1933 Act"), and
has filed such amendments thereto, if any, and such amended preliminary
prospectuses as may have been required to the date hereof, and will file such
additional amendments thereto and such amended prospectuses as may hereafter be
required. Such registration statement (as amended, if applicable) and the
prospectus constituting a part thereof at the time such registration statement
becomes effective (including in each case all documents incorporated by
reference therein and the information, if any, deemed to be part thereof
pursuant to Rule 430A(b) of the rules and regulations of the Commission under
the 1933 Act (the "1933 Act Regulations")), as from time to time amended or
supplemented pursuant to the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), or otherwise, are hereinafter referred to as the
"Registration Statement" and the "Prospectus," respectively, except that if any
revised prospectus shall be provided to the Underwriters by the Company for use
in connection with the offering of the Securities which differs from the
Prospectus on file at the Commission at the time the Registration Statement
becomes effective (whether or not such revised prospectus is required to be
filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the
terms "Prospectus" shall refer to each such revised prospectus from and after
the time it is first provided to the Underwriters for such use. All references
in this Agreement to financial statements and schedules and other information
which is "contained," "included," "described" or "stated" in the Registration
Statement or the Prospectus (and all other references of like import) shall be
deemed to mean and include all such financial statements and schedules and
other information which is or is deemed to be incorporated by reference in the
Registration Statement or the Prospectus, as the case may be; and all
references in this Agreement to amendments or supplements to the Registration
Statement or the Prospectus shall be deemed to mean and include the filing of
any document under the 1934 Act which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be.
-2-
<PAGE> 4
The Company understands that the Underwriters propose to make
a public offering of the Securities as soon as the Underwriters deem advisable
after the Registration Statement becomes effective and the Pricing Agreement
has been executed and delivered.
SECTION 1. Representations and Warranties.
(a) The Company represents and warrants to each of the
Underwriters as of the date hereof and as of the date of the Pricing Agreement
(such latter date being hereinafter referred to as the "Representation Date")
as follows:
(i) At the time the Registration Statement
becomes effective and at the Representation Date, the Registration
Statement will comply in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus, at the Representation Date
(unless the term "Prospectus" refers to a prospectus which has been
provided to the Underwriters by the Company for use in connection with
the offering of the Securities which differs from the Prospectus on
file at the Commission at the time the Registration Statement becomes
effective, in which case at the time it is first provided to the
Underwriters for such use) and at Closing Time and each Date of
Delivery referred to in Section 2 hereof, will not include an untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration
Statement or Prospectus made in reliance upon and in conformity with
information furnished to the Company in writing by the Underwriters
expressly for use in the Registration Statement or Prospectus. The
Company meets all conditions required for the use of Form S-3 to
effect the registration of the Securities under the Securities Act.
(ii) The accountants who audited the financial
statements and supporting schedules included in the Registration
Statement or incorporated by reference therein are independent public
accountants with respect to the Company and its subsidiaries as
required by the 1933 Act and the 1933 Act Regulations.
(iii) The consolidated financial statements,
including the notes thereto, and supporting schedules included in the
Registration Statement or incorporated by reference therein present
fairly the consolidated financial position of the Company and its
subsidiaries as at the dates indicated and the consolidated results of
their operations and cash flows for the periods specified; except as
otherwise stated in the Registration Statement, said financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the
periods involved; and the supporting schedules included in the
Registration Statement or incorporated by reference therein present
fairly the information required to be stated
-3-
<PAGE> 5
therein. The selected financial data included in the Registration
Statement present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited consolidated
financial statements from which it was derived.
(iv) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
except as otherwise stated therein, (A) there has been no material
adverse change in the condition, financial or otherwise, or in the
earnings, affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business, and (B) there have been no
transactions entered into by the Company or any of its subsidiaries
other than those in the ordinary course of business, which are
material to the Company and its subsidiaries considered as one
enterprise.
(v) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Louisiana with corporate power and authority to own,
lease and operate its properties and conduct its business as described
in the Prospectus; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in all
jurisdictions in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify would not have a
material adverse effect on the condition, financial or otherwise, or
the earnings, business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise.
(vi) No corporation in which the Company has an
interest constitutes a "significant subsidiary" of the Company as
defined by the 1933 Act Regulations.
(vii) Each partnership in which the Company has an
interest that constitutes a "significant subsidiary" of the Company as
defined in the 1933 Act Regulatations is specified in Schedule B
hereto (the subsidiaries so specified being hereinafter collectively
referred to as the "Partnership Subsidiaries"). Each Partnership
Subsidiary has been duly formed and is validly existing as a
partnership in good standing under the laws of the jurisdiction of its
formation and is duly qualified as a foreign partnership to transact
business and is in good standing in all jurisdictions in which such
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify would not have a material adverse effect on the
condition, financial or otherwise, or the earnings or business affairs
of the Company and its subsidiaries considered as one enterprise; all
the outstanding partnership interests in each Partnership Subsidiary
have been duly authorized and validly issued; and 75% of the general
partnership interests in Kosmos Cement Company are owned by the
Company, directly or indirectly, free and clear of any pledge, lien,
encumbrance, claim or equity (except as described in the Prospectus
and except for liens granted to the lending banks under the Company's
Second Amended and Restated Credit Facility dated as of November 19,
1993.
-4-
<PAGE> 6
(viii) The Company had, at the date indicated, the
authorized, issued and outstanding capital stock as set forth in the
Prospectus under "Capitalization"; the shares of issued and
outstanding Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable; the Rights associated with such
shares of Common Stock have been duly and validly issued by the
Company in accordance with the Rights Agreement dated as of March 4,
1991 (the "Rights Agreement") between the Company and Chemical
Shareholder Services Group, Inc., successor to First City, Texas-
Houston, N.A., as Rights Agent; the Securities and the Common Stock
and associated Rights conform to the descriptions thereof contained in
the Prospectus; the Securities have been duly authorized for issuance
and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement against payment of the
consideration set forth in the Pricing Agreement, will be validly
issued and fully paid and nonassessable; such Securities will not be
subject to any preemptive or other similar rights; all corporate
action required to be taken for the authorization and issuance of the
Securities and the Common Shares and the associated Rights upon
conversion of the Securities has been validly and sufficiently taken
except that the Articles of Amendment, which must be filed in
accordance with the laws of the State of Louisiana, will be so filed
on or prior to the Closing Time; the Common Shares and the associated
Rights have been duly authorized and, in the case of the Common
Shares, reserved for issuance upon conversion of the Securities and,
when issued and delivered in accordance with the provisions of the
Articles of Amendment, the Common Shares will be duly authorized and
validly issued, fully paid and nonassessable and the Rights associated
with such Common Shares will be duly authorized and validly issued by
the Company in accordance with the Rights Agreement, and the issuance
of the Common Shares and associated Rights will not be subject to any
preemptive or other similar rights.
(ix) This Agreement has been duly and validly
authorized, executed and delivered by the Company. At the
Representation Date, the Pricing Agreement will be duly and validly
authorized, executed and delivered by the Company.
(x) Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or in default
in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other agreement or instrument to which
it is a party or by which it may be bound or to which any of its
properties may be subject, except for such defaults that would not
have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs or business prospects of the
Company and its subsidiaries, considered as one enterprise. The
execution and delivery by the Company of this Agreement and the
Pricing Agreement, the issuance and delivery of the Securities to be
sold by the Company hereunder, the consummation by the Company of the
transactions contemplated herein and the transactions contemplated in
the Registration Statement relating to the sale of the Securities and
compliance by the Company with the terms of this Agreement have been
duly authorized by all necessary corporate action on the part of the
Company and do not and will not result in any violation of the charter
or
-5-
<PAGE> 7
by-laws of the Company or any of its subsidiaries, and do not and will
not conflict with, or result in a breach of any of the terms or
provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries under (A)
any indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it may be bound or to which any of
its properties may be subject (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not have a
material adverse effect on the condition (financial or otherwise),
earnings, business affairs or business prospects of the Company and
its subsidiaries, considered as one enterprise) or (B) any existing
applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any of its
subsidiaries or any of its properties (except for such violations,
defaults, breaches or liens that would not have a material adverse
effect on the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and its subsidiaries,
considered as one enterprise).
(xi) No labor dispute exists or to the knowledge
of the Company is imminent with the Company's employees or with
employees of any of its subsidiaries that reasonably could be expected
to materially and adversely affect the condition (financial or
otherwise), earnings, business affairs or business prospects of the
Company and its subsidiaries, considered as one enterprise.
(xii) Except as described in the Prospectus, there
is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened against the Company or any of
its subsidiaries that is required to be disclosed in the Registration
Statement, or that might reasonably be expected to (A) result in any
material adverse change in the condition, financial or otherwise, or
the earnings or business affairs of the Company and its subsidiaries,
considered as one enterprise, (B) materially and adversely affect the
properties or assets thereof or (C) materially and adversely affect
the consummation by the Company of its obligations pursuant to this
Agreement; and there are no contracts or documents of the Company or
any of its subsidiaries that are required to be filed as exhibits to
the Registration Statement by the 1933 Act or the 1933 Act Regulations
that have not been so filed.
(xiii) The documents incorporated by reference into
the Registration Statement (in whole or in part) or deemed to be
incorporated therein, when they were or hereafter are filed with the
Commission, complied with or will comply with the requirements of the
1934 Act, and the rules and regulations of the Commission under the
1934 Act (the "1934 Act Regulations"); such documents incorporated by
reference into the Registration Statement or deemed to be incorporated
therein, at the time such documents were filed with the Commission did
not contain an untrue statement of material fact or omitted or omit to
state a material fact required to be stated therein or
-6-
<PAGE> 8
necessary to make the statements therein in the light of the
circumstances in which they were made not misleading, and no further
documents hereafter incorporated by reference into the Registration
Statement or deemed to be incorporated therein will contain an untrue
statement of material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
(xiv) No authorization, approval, consent or
license of any domestic government, governmental instrumentality or
court is necessary in connection with the offering or the sale of the
Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as may be required under
the 1933 Act, the 1933 Act Regulations, the 1934 Act, the 1934 Act
Regulations or state securities or blue sky laws.
(xv) Except as described in the Prospectus, the
Company and its subsidiaries possess such licenses, permits, consents,
orders, certificates or authorizations issued by the appropriate
federal, state, local or foreign regulatory agencies or bodies
currently necessary to conduct their respective businesses as now
operated by them, except where the lack thereof would not have a
material adverse effect on the Company and its subsidiaries considered
as one enterprise, and neither the Company nor its subsidiaries have
received any notice of proceedings relating to the revocation or
modification of any such licenses, permits, consents, orders,
certificates or authorizations in which the Company reasonably expects
decisions, rulings or findings that, individually or in the aggregate,
would have a material and adverse effect on the condition, financial
or otherwise, or the earnings, business affairs or business prospects
of the Company and its subsidiaries considered as one enterprise.
(xvi) The Company, has not taken, directly or
indirectly, any action designed to cause or result in, or which has
constituted, stabilization or manipulation of the price of any
security of the Company in order to facilitate the sale or resale of
the Securities.
(xvii) Except as described in the Registration
Statement, no holder of securities of the Company has any rights to
require the registration of such securities under the 1933 Act as a
result of the filing of the Registration Statement or in connection
with the offering of the Securities.
(xviii) Except as described in the Prospectus, there
has been no storage, disposal, generation, manufacture, spill,
discharge, refinement, transportation, handling or treatment of toxic
wastes, medical wastes, hazardous wastes or hazardous substances by
the Company or any of its subsidiaries at, upon or from any of the
property now or previously owned or leased or under contract for
purchase by the Company or any of its subsidiaries in violation of any
applicable law, ordinance, rule, regulation, order, judgment, decree
or permit or which would require remedial action under any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit,
except for any
-7-
<PAGE> 9
violation or remedial action which the Company believes would not be
reasonably likely to result in, individually or in the aggregate with
all such violations and remedial actions, a material and adverse
effect on the condition, financial or otherwise, or the earnings or
business affairs of the Company and its subsidiaries considered as one
enterprise; and the terms "hazardous wastes," "toxic wastes,"
"hazardous substances" and "medical wastes" shall have the meanings
specified in any applicable local, state, federal and foreign laws or
regulations with respect to environmental protection.
(b) Any certificate signed by any officer of the Company
or any of its subsidiaries, as the case may be, and delivered to the
Underwriters or to counsel for the Underwriters in connection with the closing
of the sale of the Securities to the Underwriters hereunder shall be deemed a
representation and warranty by the Company or any such subsidiary, as the case
may be, to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company, at
the price per share set forth in the Pricing Agreement, the number of Initial
Securities set forth in Schedule A opposite the name of such Underwriter
(except as otherwise provided in the Pricing Agreement) plus any additional
number of Initial Securities that such Underwriter may become obligated to
purchase pursuant to the provisions of Section 10 hereof, subject, in each
case, to such adjustments as the Underwriters in their discretion shall make to
eliminate any sales or purchases of fractional securities.
In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Underwriters, severally and
not jointly, to purchase from it up to an additional 225,000 shares of
Preferred Stock, at the purchase price per share set forth in the Pricing
Agreement. The option hereby granted will expire on the 30th day after the
date the Registration Statement becomes effective or, if the Company has
elected to rely on Rule 430A of the 1933 Act Regulations, the 30th day after
the Representation Date, and may be exercised in whole or in part from time to
time only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Initial Securities, upon
notice by the Underwriters to the Company setting forth the number of Option
Securities as to which the Underwriters are then exercising the option and the
time, date, and place of payment and delivery for such Option Securities. Any
such time and date of delivery for the Option Securities (a "Date of Delivery")
shall be determined by the Underwriters but shall be not later than seven full
business days after the exercise of said option, nor in any event prior to
Closing Time (as hereinafter defined) unless otherwise agreed upon by the
Underwriters and the Company. If the option is exercised as to all or any
portion of the Option Securities, each of the Underwriters, acting severally
and not jointly, will purchase from the Company that proportion of the number
of Option Securities that the number of Initial Securities set forth in
Schedule A opposite the
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<PAGE> 10
name of such Underwriter (plus any additional number of Initial Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof) bears to the total number of Initial
Securities (except as otherwise provided in the Pricing Agreement), subject, in
each case, to such adjustments as the Underwriters in their discretion shall
make to eliminate any sales or purchases of fractional securities.
(i) If the Company has elected not to rely upon
Rule 430A of the 1933 Act Regulations, the initial public offering
price of the Securities, the purchase price per share to be paid by
the several Underwriters for the Securities, the dividend rate on the
Securities and the conversion price per share of the Securities shall
have each been determined and set forth in the Pricing Agreement,
dated the date hereof, and an amendment to the Registration Statement
and the Prospectus will be filed before the Registration Statement
becomes effective.
(ii) If the Company has elected to rely upon Rule
430A of the 1933 Act Regulations, the purchase price per share to be
paid by the several Underwriters for the Securities shall be an amount
equal to the initial public offering price, less an amount per share
to be determined by agreement between the Underwriters and the
Company. The initial public offering price per share of the
Securities shall be a fixed price to be determined by agreement
between the Underwriters and the Company. The initial public offering
price per share, the purchase price, the dividend rate and the
conversion price, when so determined, shall be set forth in the
Pricing Agreement. In the event that such prices and dividend rate
have not been agreed upon and the Pricing Agreement has not been
executed and delivered by the parties thereto by the close of business
on the fourth business day following the date of this Agreement, this
Agreement shall terminate forthwith, without liability of any party to
any other party, unless otherwise agreed to by the Company and the
Underwriters.
(b) Payment of the purchase price for, and delivery of
certificates for, the Initial Securities to be purchased by the Underwriters,
shall be made at the office of Baker & Botts, L.L.P., 910 Louisiana, Houston,
Texas or at such other place as shall be agreed upon by the Underwriters and
the Company, at 10:00 A.M., New York City time, on the fifth business day
(unless postponed in accordance with the provisions of Section 10 hereof)
following the date of the execution of the Pricing Agreement or such other time
not later than ten business days after such date as shall be agreed upon by the
Underwriters and the Company (such time and date of payment and delivery being
herein called "Closing Time"). In addition, in the event that any or all of
the Option Securities are purchased by the Underwriters, payment of the
purchase price for, and delivery of certificates for, such Option Securities
shall be made at the above-mentioned office of Baker & Botts, L.L.P., or at
such other place as shall be mutually agreed upon by the Underwriters and the
Company, on each Date of Delivery as specified in the notice from the
Underwriters to the Company. Payment shall be made to the Company by certified
or official bank check or checks drawn in New York Clearing House funds or
similar next-day funds payable to the order of the Company against delivery to
the Underwriters of certificates for the Securities to be purchased by them.
Certificates for the Initial Securities and
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<PAGE> 11
the Option Securities shall be in such denominations and registered in such
names as the Underwriters may request in writing at least two business days
before Closing Time or the Date of Delivery, as the case may be. Merrill
Lynch, individually and not as representative of the Underwriters, may (but
shall not be obligated to) make payment of the purchase price for the
Securities to be purchased by any Underwriter whose check has not been received
by Closing Time or the Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder. The
certificates for the Initial Securities and the Option Securities to be
purchased by the Underwriters will be made available in New York City for
examination and packaging by the Underwriters not later than 10:00 A.M. on the
last business day prior to Closing Time or the Date of Delivery, as the case
may be.
SECTION 3. Covenants of the Company. The Company covenants
with each of the Underwriters as follows:
(a) The Company will notify the Underwriters immediately,
and confirm the notice in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-effective amendment),
(ii) of the receipt of any comments from the Commission, (iii) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose. The Company will make every reasonable effort to
prevent the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible moment.
(b) The Company will give the Underwriters notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act
Regulations) whether pursuant to the 1933 Act, the 1934 Act or otherwise, will
furnish the Underwriters with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement or use any such
prospectus to which the Underwriters shall reasonably object.
(c) The Company will deliver to the Underwriters as many
signed copies of the Registration Statement as originally filed and each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein and documents incorporated or deemed to be incorporated by
reference therein) as the Underwriters may reasonably request and will also
deliver to the Underwriters a conformed copy of the Registration Statement as
originally filed and of each amendment thereto (without exhibits) for each of
the Underwriters.
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<PAGE> 12
(d) The Company will furnish to each Underwriter, from
time to time during the period when the Prospectus is required to be delivered
under the 1933 Act or 1934 Act, such number of copies of the Prospectus (as
amended or supplemented) as such Underwriter may reasonably request for the
purposes contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act
or the 1934 Act Regulations.
(e) If at any time any event shall occur as a result of
which it is necessary, in the opinion of the Underwriters, to amend or
supplement the Prospectus in order that the Prospectus not include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, the Company will forthwith
notify you of the same, amend or supplement the Prospectus (in form and
substance satisfactory to the Underwriters) and furnish to the Underwriters a
reasonable number of copies of any amendment or amendments of or supplement or
supplements to, the Prospectus, so that, as so amended or supplemented, the
Prospectus will not contain such untrue statement or omission.
(f) The Company, during the period when the Prospectus is
required to be delivered under the 1933 Act, will file promptly all documents
required to be filed with the Commission pursuant to Section 13, 14 or 15 of
the 1934 Act subsequent to the time the Registration Statement becomes
effective.
(g) The Company will use its best efforts to qualify the
Securities, the Common Shares and the associated Rights for offering and sale
under the applicable securities laws of such states and other jurisdictions as
the Underwriters may designate; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to qualify as
a foreign corporation in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject. The Company will file such statements
and reports as may be required by the laws of each jurisdiction in which the
Securities, the Common Shares and the associated Rights have been qualified as
above provided.
(h) The Company will make generally available to its
security holders as soon as practicable, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 of the 1933 Act Regulations) covering a
12-month period beginning not later than the first day of the Company's fiscal
quarter next following the "effective date" (as defined in said Rule 158) of
the Registration Statement.
(i) The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Prospectus under
"Use of Proceeds."
(j) If, at the time that the Registration Statement
becomes effective, any information shall have been omitted therefrom in
reliance upon Rule 430A of the 1933 Act Regulations, then immediately following
the execution of the Pricing Agreement, the Company
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<PAGE> 13
will prepare, and file or transmit for filing with the Commission in accordance
with such Rule 430A and Rule 424(b) of the 1933 Act Regulations, copies of an
amended Prospectus, or, if required by such Rule 430A, a post-effective
amendment to the Registration Statement (including an amended Prospectus),
containing all information so omitted.
(k) The Company will use its best efforts to effect the
listing of the Securities, the Common Shares and the associated Rights on the
New York Stock Exchange.
(l) During a period of 90 days from the date of the
Pricing Agreement, the Company will not, without the prior written consent of
Merrill Lynch, directly or indirectly, sell, offer to sell, grant any option
for the sale of, or otherwise dispose of, any shares of preferred stock of the
Company, Common Stock and associated Rights or any security convertible into,
exchangeable into or exercisable for such preferred stock or Common Stock
(except for the Securities, the Common Shares and associated Rights issuable
upon conversion of the Securities, shares of Common Stock and the associated
Rights issuable upon conversion of other convertible securities or exercise of
currently outstanding warrants to purchase Common Stock, securities issuable
upon the exercise of Rights, any shares of Common Stock and the associated
Rights issuable pursuant to exercise of options or similar rights granted to
directors, officers or employees and any other interests in shares of Common
Stock and the associated Rights granted in connection with any other employee
benefit plans of the Company).
SECTION 4. Payment of Expenses. The Company will pay and
bear all costs and expenses incident to the performance of its obligations
under this Agreement, including (i) the printing and filing of the Registration
Statement as originally filed and of each amendment thereto and the cost of
furnishing copies thereof to the Underwriters, (ii) the preparation, issuance
and delivery of the Securities to the Underwriters, (iii) the fees and
disbursements of the Company's counsel and accountants, (iv) the expenses in
connection with the qualification of the Securities, the Common Shares and the
associated Rights under state securities laws in accordance with the provisions
of Section 3(g) hereof, including filing fees and the fees and disbursements of
counsel for the Underwriters in connection therewith and in connection with the
preparation of the Blue Sky Memorandum, (v) the printing and delivery to the
Underwriters of copies of each of the preliminary prospectuses, and of the
Prospectus and any amendments or supplements thereto, (vi) the delivery to the
Underwriters of copies of Blue Sky Memorandum, (vii) the fees and expenses
incurred in connection with any filings required to be made by the Underwriters
with the National Association of Securities Dealers, Inc., and (viii) the fees
and expenses incurred in connection with the listing of the Securities, the
Common Shares and the associated Rights on the New York Stock Exchange.
If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the
Company shall reimburse the Underwriters for all of their out-of-pocket
expenses, including the reasonable fees and disbursements of counsel for the
Underwriters.
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<PAGE> 14
SECTION 5. Conditions of Obligations of the Underwriters.
The obligations of the Underwriters hereunder are subject to the accuracy of
the representations and warranties of the Company herein contained at the date
hereof and at Closing Time, to the performance by the Company of its
obligations hereunder required to be performed prior to Closing Time, and to
the following further conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 P.M. on the date hereof or at such later time and
date as may be approved by the Underwriters; and at Closing Time and any Date
of Delivery, as the case may be, no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission. If the Company
has elected to rely upon Rule 430A of the 1933 Act Regulations, the initial
public offering price per share of the Securities, the purchase price per share
to be paid by the Underwriters, the dividend rate on the Securities and the
conversion price per share of the Securities and any other price-related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the 1933 Act Regulations within the
prescribed time period, and prior to Closing Time the Company shall have
provided evidence satisfactory to the Underwriters of such timely filing, or a
post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A
of the 1933 Act Regulations.
(b) At Closing Time the Underwriters shall have received:
(1) The favorable opinion, dated as of Closing Time, of
Bracewell & Patterson, L.L.P, counsel for the Company, in form and
substance reasonably satisfactory to the Underwriters, to the effect
that:
(i) The Company is a corporation duly
incorporated, validly existing and in good standing under the
laws of the State of Louisiana.
(ii) The Partnership Subsidiary identified on
Schedule B hereto (the "Designated Partnership Subsidiary") is
a general partnership duly formed and validly existing under
the laws of the Commonwealth of Kentucky.
(iii) Each of the Company and the Designated
Partnership Subsidiary has all requisite corporate or
partnership power, as the case may be, to own and lease its
properties and to conduct its business as described in the
Prospectus and, to the best of their knowledge after due
inquiry is duly qualified as a foreign corporation or
partnership, as the case may be, to transact business and is
in good standing in each jurisdiction in which such
qualification is required, except where the failure so to
qualify would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and its
subsidiaries considered as one enterprise; to the best of
their knowledge after due inquiry, the Company owns 75% of
the general partnership interests in the Designated
Partnership Subsidiary.
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<PAGE> 15
(iv) All of the issued and outstanding shares of
capital stock of the Company have been duly and
validly authorized and issued and are fully paid,
nonassessable and free of preemptive rights. The Company's
authorized capital stock is as set forth in the Prospectus. At
the close of business on , 1994, shares of Common Stock
were outstanding, shares of Series A Preferred Stock were
outstanding, shares of Series B Preferred Stock were
outstanding, no shares of Series C Preferred Stock or
Preferred Stock were outstanding, and there were outstanding
options or warrants to acquire shares of Common Stock. The
shares of Common Stock issuable on conversion of the Series A
Preferred Stock, the Series B Preferred Stock, the Preferred
Stock and such options or warrants have been duly reserved
for issuance upon exercise or conversion thereof. Except for
the Series A Preferred Stock, the Rights, the Series B
Preferred Stock, the 7 1/2% Convertible Subordinated
Debentures Due 2013 issuable in exchange for the Series B
Preferred Stock, the Series C Preferred Stock, this Agreement,
the Preferred Stock, the warrants to purchase Common Stock
and options to purchase Common Stock pursuant to various
stock option plans of the Company described in the Prospectus
or described in or attached as an exhibit to a document that
is incorporated by reference in the Prospectus, to the best
of their knowledge after due inquiry there are no (i)
outstanding securities convertible into or exchangeable for
shares of capital stock of the Company or (ii) contracts,
commitments, agreements, understandings or arrangements of
any kind to which the Company is a party obligating the
Company to issue any capital stock, any securities convertible
into or exchangeable for, or rights to purchase or subscribe
for capital stock of the Company.
(v) The Securities have been duly authorized for
issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company
pursuant to this Agreement against payment of the
consideration set forth in the Pricing Agreement, the
Securities will be validly issued and fully paid and
non-assessable. The issuance of the Securities is not subject
to preemptive rights arising by operation of law, under the
articles of incorporation or bylaws of the Company, or to the
best of their knowledge after due inquiry, otherwise. The
shares of Preferred Stock have been duly constituted as shares
of a new series of preferred stock of the Company designated
"Preferred Stock, $___Cumulative Convertible Series D," as
provided in the articles of incorporation of the Company and
in the Articles of Amendment which have been duly filed in
accordance with the laws of the State of Louisiana. The
Common Shares and the associated Rights have been duly
authorized and, in the case of the Common Shares, reserved for
issuance upon conversion of the Securities and, when issued
and delivered in accordance with the provisions of the
Articles of Amendment, the Common Shares will be duly
authorized and validly issued, fully paid and nonassessable
and, when issued in accordance with the terms of the Rights
Agreement, the Rights associated with such Common Shares will
be duly
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<PAGE> 16
authorized and validly issued by the Company. The issuance of
the Common Shares and the associated Rights upon conversion of
the Securities is not subject to preemptive rights arising by
operation of law, under the articles of incorporation or
bylaws of the Company, or to the best of their knowledge after
due inquiry, otherwise.
(vi) This Agreement and the Pricing Agreement have
each been duly authorized, executed and delivered by the
Company.
(vii) The Registration Statement has become
effective under the 1933 Act and, to the best of their
knowledge after due inquiry, no stop order suspending the
effectiveness of the Registration Statement has been issued
under the 1933 Act and no proceeding for that purpose has been
initiated or threatened by the Commission.
(viii) The Registration Statement, as of its
effective date, and the Prospectus, as of its date, and any
supplements or amendments thereto, as of their respective
dates, (other than the financial statements and schedules and
other financial and statistical data included or incorporated
by reference therein, as to which no opinion need be rendered)
appeared on their face to comply as to form in all material
respects with the requirements of the 1933 Act and the 1933
Act Regulations.
(ix) The Securities, the Common Stock and the
associated Rights conform as to legal matters in all material
respects to the respective descriptions thereof contained
under the captions "Description of Series D Preferred Stock"
and "Description of Capital Stock" in the Prospectus, and the
form of temporary certificate used to evidence the Securities
is in due and proper form and complies with all applicable
statutory requirements of the Louisiana Business Corporation
Law.
(x) To the best of their knowledge after due
inquiry, there are no material legal or governmental
proceedings pending or threatened that are required to be
disclosed in the Registration Statement other than those
disclosed therein (or in a document incorporated by reference
or deemed to be incorporated by reference therein).
(xi) Such counsel is not aware of any
authorization, approval, consent or order of any court or
governmental authority or agency that is required to be
obtained by the Company in connection with the offering,
issuance or sale of the Securities by the Company to the
Underwriters, except such as may be required under the 1933
Act or the 1933 Act Regulations or the 1934 Act or the 1934
Act Regulations or state securities law (or as expressly
contemplated in this Agreement); and, to the best of their
knowledge after due inquiry, the execution,
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<PAGE> 17
delivery and performance by the Company of its obligations
under this Agreement and the Pricing Agreement and the
consummation of the transactions contemplated herein and
therein and compliance by the Company with its obligations
hereunder and thereunder will not conflict with or constitute
a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries
pursuant to, any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the
Company or any of its subsidiaries is a party or by which it
or any of them may be bound, or to which any of the property
or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the
provisions of the charter or by-laws of the Company, or any
applicable law, administrative regulation or administrative
or court decree which breach, default, imposition or
violation would have a material adverse effect on the
financial condition, business affairs or business prospects
of the Company and its subsidiaries considered as one
enterprise.
(xii) To the best of their knowledge after due
inquiry, there are no contacts, indentures, mortgages, loan
agreements, notes, leases or other instruments required to be
described or referred to in the Registration Statement or to
be filed or incorporated by reference as exhibits thereto
other than those described or referred to in the Registration
Statement or filed as exhibits thereto; and the descriptions
thereof or references thereto are correct in all material
respects.
(xiii) To the best their knowledge after due
inquiry, except as described in the Registration Statement, no
holder of securities of the Company has rights to the
registration under the 1933 Act of securities of the Company
because of the filing of the Registration Statement that have
not been waived.
In rendering the foregoing opinion or opinions, Bracewell &
Patterson, L.L.P. may state that such opinion or opinions are limited
to the federal laws of the United States, the laws of the State of
Texas and the Louisiana Business Corporation Law, and that they are
relying (i) as to matters governed by the laws of the State of
Louisiana, upon the favorable opinion, dated as of Closing Time, of
Stone, Pigman, Walther, Wittmann & Hutchinson, Louisiana counsel to
the Company, in form and substance satisfactory to the Underwriters,
and (ii) as to matters governed by the laws of any other jurisdiction
upon the favorable opinion, dated as of Closing Time, of other counsel
acceptable to the Underwriters, in form and substance satisfactory to
the Underwriters; provided in each case that the Underwriters shall
have been delivered original signed copies of each such opinion.
(2) The favorable opinion, dated as of Closing Time, of
Baker & Botts, L.L.P., counsel for the Underwriters, with respect to
the matters set forth in (i), (v) (with respect to preemptive and
similar rights, solely as to preemptive rights arising
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<PAGE> 18
by operation of law or under the articles of incorporation or bylaws
of the Company), (vi), (vii), (viii) and (ix) of subsection (b)(1) of
this Section. In rendering such opinion or opinions, Baker & Botts,
L.L.P. may state that such opinion or opinions are limited to the
federal laws of the United States, the laws of the State of Texas and
the Louisiana Business Corporation Law, and may state that they are
relying as to matters governed by the laws of any other jurisdiction
upon the favorable opinion of other counsel in substantially the same
manner as described in subsection (b)(1) of this Section.
(3) The written advice of Bracewell & Patterson, L.L.P.
to the effect that nothing has come to their attention that causes
them to believe that the Registration Statement, at the time it became
effective, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus, at
the Representation Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the Company
for use in connection with the offering of the Securities which
differs from the Prospectus on file at the Commission at the time the
Registration Statement becomes effective, in which case at the time it
is first provided to the Underwriters for such use) or at Closing
Time, contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which
they were made, not misleading; it being understood that such counsel
need give no such advice as to the financial statements and schedules
or other financial or statistical data contained or incorporated by
reference in the Registration Statement or the Prospectus.
(c) At Closing Time, except as described in or
contemplated by the Prospectus, there shall not have been, since the date
hereof or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in the
condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company or its subsidiaries considered as one
enterprise, whether or not in the ordinary course of business, and the
Underwriters shall have received a certificate of the President or any Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations and warranties
contained in Section 1 of this Agreement are true and correct with the same
force and effect as though expressly made at and as of Closing Time, (iii) the
Company has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to Closing Time, and (iv) no stop
order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been initiated or threatened by
the Commission.
(d) At the time of the execution of this Agreement, the
Underwriters shall have received from Deloitte & Touche a letter dated such
date, in form and substance satisfactory to the Underwriters, to the effect
that (i) they are independent public accountants with respect to the Company
and its subsidiaries within the meaning of the 1933 Act and the 1933 Act
Regulations; (ii) it is their opinion that the consolidated financial
statements and supporting
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<PAGE> 19
schedules included in the Registration Statement and covered by their opinions
therein comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1933 Act Regulations; (iii)
based upon limited procedures set forth in detail in such letter, nothing has
come to their attention that causes them to believe that (A) the unaudited and
other financial information of the Company and its subsidiaries included in the
Registration Statement or incorporated by reference therein does not comply as
to form in all material respects with the applicable accounting requirements of
the 1933 Act and the 1933 Act Regulations or is not presented in conformity
with generally accepted accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial statements included
in the Registration Statement or incorporated by reference therein, or (B) at a
specified date not more than five days prior to the date of the Pricing
Agreement, there has been any change in the capital stock of the Company or any
increase in the consolidated long term debt of the Company and its subsidiaries
or any decrease in consolidated net current assets or net assets as compared
with the amounts shown in the September 30, 1993 balance sheet included in the
Registration Statement or incorporated by reference therein or, during the
period from September 30, 1993 to a specified date not more than five days
prior to the date of the Pricing Agreement, there were any decreases, as
compared with the corresponding period in the preceding year, in consolidated
revenues, net income or net income per share of the Company and its
subsidiaries, except in all instances for changes, increases or decreases which
the Registration Statement and the Prospectus disclose have occurred or may
occur and for changes, increases or decreases set forth in such letter, in
which case the letter shall be accompanied by an explanation by the Company as
to the significance thereof unless said explanation is not deemed necessary by
the Underwriters; and (iv) in addition to the examination referred to in their
opinions and the limited procedures referred to in clause (iii) above, they
have carried out certain specified procedures, not constituting an audit, with
respect to certain amounts, percentages and financial information which are
included in the Registration Statement and Prospectus and which are specified
by the Underwriters, and have found such amounts, percentages and financial
information to be in agreement with the relevant accounting, financial and
other records of the Company and its subsidiaries identified in such letter.
(e) At Closing Time the Underwriters shall have received
from Deloitte & Touche a letter, dated as of Closing Time to the effect that
they confirm the statements made in the letter furnished pursuant to subsection
(d) of this Section, except that the specified date referred to in such letter
shall be a date not more than five days prior to Closing Time.
(f) At Closing Time counsel for the Underwriters shall
have been furnished with such documents and opinions as they may require for
the purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated and related proceedings, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be reasonably satisfactory in form and substance
to the Underwriters.
-18-
<PAGE> 20
(g) At Closing Time all actions, proceedings,
instruments, opinions and documents required in connection with the
consummation of the transactions contemplated by this Agreement shall be
reasonably satisfactory to the Underwriters, and the Company shall have
delivered to the Underwriters such other certificates and documents as the
Underwriters shall reasonably request.
(h) The New York Stock Exchange shall have approved the
Securities, the Common Shares and the associated Rights for listing, subject to
notice of issuance.
(i) At Closing Time, the Company shall have furnished to
the Underwriters "lock-up" letters, in form and substance reasonably
satisfactory to the Underwriters, signed by each of the directors and officers
of the Company whose names are set forth in Schedule C hereto, pursuant to
which each such person shall agree not to offer for sale, sell, grant an option
for the sale of, or otherwise dispose of, directly or indirectly, without the
prior written consent of Merrill Lynch, any shares of Common Stock or any
securities convertible into or exchangeable into or exercisable for Common
Stock owned by such person or with respect to which such person has the power
of disposition, for a period of 90 days from the date of the Pricing Agreement
(except for shares of Common Stock and the associated Rights issuable upon the
exercise of options or similar rights granted by the Company to such person as
a director, officer or employee and any other interests in shares of Common
Stock and the associated Rights granted to such person in connection with any
other employee benefit plans of the Company).
(j) In the event the Underwriters exercise their option
provided in Section 2 hereof to purchase all or any part of the Option
Securities, and the Date of Delivery specified by the Underwriters for any such
purchase is a date other than Closing Time, the obligation of the Underwriters
to purchase all or any such portion of the Option Securities shall be subject,
in addition to the foregoing conditions, to the accuracy of the representations
and warranties of the Company at each Date of Delivery, to the performance by
the Company of its obligations hereunder required to be performed prior to each
Date of Delivery, and to the receipt by the Underwriters of the following:
(1) A certificate, dated such Date of Delivery, of the
President or any Vice President of the Company and of the chief
financial or chief accounting officer of the Company confirming that
the certificate delivered at Closing Time pursuant to subsection (c)
of this Section remains true as of such Date of Delivery.
(2) The favorable opinion of Bracewell & Patterson,
L.L.P., counsel for the Company, in form and substance reasonably
satisfactory to the Underwriters, dated such Date of Delivery,
relating to the Option Securities and otherwise to the same effect as
the opinion required by Section 5(b)(1) hereof and the written advice
required by Section 5(b)(3) hereof, together with original signed
copies of any opinion of other counsel whose opinion has been relied
upon by Bracewell & Patterson, L.L.P.
-19-
<PAGE> 21
(3) The favorable opinion of Baker & Botts, L.L.P.,
counsel for the Underwriters, dated such Date of Delivery, relating to
the Option Securities and otherwise to the same effect as the opinion
required by Section 5(b)(2) hereof.
(4) A letter, dated as of such Date of Delivery, from
Deloitte & Touche, in form and substance satisfactory to the
Underwriters, substantially the same in scope and substance as the
letter furnished pursuant to Section 5(d) hereof, except that the
"specified date" in such letter shall be a date not more than five
days prior to such Date of Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Underwriters by notice to the Company at any time at or prior
to Closing Time and such termination shall be without liability of any party to
any other party except as provided in Section 4 hereof.
SECTION 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including
information deemed to be part of the Registration Statement pursuant
to Rule 430A(b) of the 1933 Act Regulations, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, unless in
each case such untrue statement or omission or such alleged untrue
statement or omission was made in reliance upon and in conformity with
written information furnished to the Company in writing by a
Underwriter expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus
(or any amendment or supplement thereto); provided, however, that with
respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus or the
Prospectus the indemnity agreement contained in this subsection (a)
shall not inure to the benefit of any Underwriter from whom the person
asserting any such loss, liability, claim, damage or expense purchased
the Securities concerned, to the extent that any such loss, liability,
claim, damage or expense of such Underwriter results from the fact
that there was not sent or given to such person, at or prior to the
written confirmation of the sale of such Securities to such person, a
copy of the Prospectus
-20-
<PAGE> 22
(exclusive of material incorporated by reference) if the Company had
previously furnished copies thereof to such Underwriter;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue
statement or omission, if such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as
incurred (including the fees and expenses of counsel chosen by the
Underwriters), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that (x)
the Company is required to do so under subsection (c) of this Section
below and (y) any such expense is not paid under (i) or (ii) above.
Insofar as this indemnity may permit indemnification for
liabilities under the 1933 Act of any person who is a partner of an Underwriter
or who controls an Underwriter within the meaning of Section 15 of the 1933 Act
and who, at the date of this Agreement, is a director, officer or controlling
person of the Company, such indemnity is subject to the undertaking of the
Company in the Registration Statement.
(b) Each Underwriter severally agrees to indemnify and
hold harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter expressly for use in the Registration Statement (or any amendment
thereto) or such preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(c) Each indemnified party shall give notice as promptly
as reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder but failure to
so notify any indemnifying party shall not relieve it from any liability which
it may have otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of such
action. If it so elects within a reasonable time after receipt of such notice,
an indemnifying party, jointly with any other indemnifying parties receiving
such notice, may assume the defense
-21-
<PAGE> 23
of such action with counsel chosen by it and approved by the indemnified
parties defendant in such action, except to the extent such indemnified parties
retain separate counsel (the "Separate Counsel") with respect to legal defenses
available to them that are different from or in addition to those available to
such indemnifying party and such defenses are in conflict with the interests of
the indemnifying parties. If an indemnifying party assumes the defense of such
action, the indemnifying parties shall not be liable for any fees and expenses
of counsel for the indemnified parties incurred thereafter in connection with
such action. In no event shall the indemnifying parties be liable for the
reasonable fees and expenses of more than the Separate Counsel (in addition to
any local counsel) separate from their own counsel for all indemnified parties
in connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances.
SECTION 7. Contribution. In order to provide for just
and equitable contribution in circumstances in which the indemnity agreement
provided for in Section 6 hereof is for any reason held to be unenforceable by
the indemnified parties although applicable in accordance with its terms, the
Company and the Underwriters shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by said
indemnity agreement incurred by the Company and one or more of the Underwriters
in such proportions that the Underwriters are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the Prospectus bears to the initial public offering price
appearing thereon and the Company is responsible for the balance; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each
officer of the Company who signed the Registration Statement, and each person,
if any, who controls the Company within the meaning of Section 15 of the 1933
Act shall have the same rights to contribution as the Company.
SECTION 8. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties and agreements contained in
this Agreement and the Pricing Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall remain operative and
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or controlling person, or by or on behalf of the Company,
and shall survive delivery of the Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) The Underwriters may terminate this Agreement, by
notice to the Company, at any time at or prior to Closing Time (i) if there has
been, since the date of this Agreement or since the respective dates as of
which information is given in the Prospectus any material adverse change in the
condition, financial or otherwise, or the earnings, business affairs
-22-
<PAGE> 24
or business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets of
the United States or elsewhere or any outbreak or escalation of hostilities or
other calamity or crisis the effect of which is such as to make it, in the
judgment of the Underwriters, impracticable to market the Securities or enforce
contracts for the sale of the Securities, or (iii) if trading in the Common
Stock has been suspended by the Commission, or if trading generally on either
the New York Stock Exchange or the American Stock Exchange has been suspended,
or minimum or maximum prices for trading have been fixed, or maximum ranges for
prices for securities have been required, by either of said exchanges or by
order of the Commission or any other governmental authority, or if a banking
moratorium has been declared by either federal or New York authorities.
(b) If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party except as
provided in Section 4 hereof and except that the provisions of Sections 6 and 7
shall remain in effect. As used in Section 9(a), the term "Prospectus" means
the Prospectus in the form first used to confirm sales of the Securities.
SECTION 10. Default by One or More of the Underwriters. If
one or more of the Underwriters shall fail at the Closing Time to purchase the
Initial Securities which it or they are obligated to purchase under this
Agreement and the Pricing Agreement (the "Defaulted Securities"), the remaining
Underwriter or Underwriters shall have the right, but not the obligation,
within 24 hours thereafter, to make arrangements to purchase all, but not less
than all, of the Defaulted Securities upon the terms herein set forth; if,
however, the non-defaulting Underwriter or Underwriters, as the case may be,
shall not have completed such arrangements within said 24-hour period, then
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter.
No action pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default that does not result in a termination
of this Agreement, either the non-defaulting Underwriter or Underwriters, as
the case may be, or the Company shall have the right to postpone Closing Time
for a period not exceeding seven days in order to effect any required changes
in the Registration Statement and the Prospectus or in any other documents or
arrangements.
SECTION 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to
the Underwriters shall be directed to the Underwriters c/o Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated at World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281, to the attention of
Lee R. Cole; notices to the Company shall be directed to it at 1200 Smith
Street, Suite 2400, Houston, Texas 77002 to the attention of James L. Persky.
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<PAGE> 25
SECTION 12. Parties. This Agreement and the Pricing Agreement
shall each inure to the benefit of and be binding upon the Underwriters and the
Company and their respective successors. Nothing expressed or mentioned in
this Agreement or the Pricing Agreement is intended or shall be construed to
give any person, firm or corporation, other than the Underwriters and the
Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 hereof and their heirs
and legal representatives, any legal or equitable right, remedy or claim under
or in respect of this Agreement or the Pricing Agreement or any provision
herein or therein contained. This Agreement and the Pricing Agreement and all
conditions and provisions hereof and thereof are intended to be for the sole
and exclusive benefit of the Underwriters and the Company and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm
or corporation. No purchaser of Securities from any Underwriter shall be deemed
to be a successor by reason merely of such purchase.
SECTION 13. Governing Law and Time. This Agreement and the
Pricing Agreement shall be governed by the laws of the State of New York
applicable to agreements made and to be performed in said state. Except where
otherwise provided, specified times of day refer to New York City time.
-24-
<PAGE> 26
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us a counterpart hereof, whereupon
this instrument along with all counterparts will become a binding agreement
between the Company and each of the Underwriters in accordance with its terms.
Very truly yours,
SOUTHDOWN, INC.
By: _____________________________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
KIDDER, PEABODY & CO. INCORPORATED
LEHMAN BROTHERS INC.
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: _____________________________________
Name:
Title:
-25-
<PAGE> 27
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Name of Initial Securities
Underwriters to be Purchased
- ------------ ---------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . . . . .
Kidder, Peabody & Co. Incorporated . . . . . . . . . . . . . . .
Lehman Brothers Inc.
---------
Total . . . . . . . . . . . . . . . . . . . . 1,500,000
---------
</TABLE>
<PAGE> 28
SCHEDULE B
Kosmos Cement Company, a Kentucky general partnership
<PAGE> 29
SCHEDULE C
G. Walter Loewenbaum II
Clarence C. Comer
Fentress Bracewell
W.J. Conway
Killian L. Huger, Jr.
Edgar J. Marston III
Michael A. Nicolais
Frank J. Ryan
Robert J. Slater
Ronald N. Tutor
V.H. Van Horn III
Steven B. Wolitzer
J. Bruce Tompkins
James L. Persky
Dennis M. Thies
<PAGE> 30
EXHIBIT A
SOUTHDOWN, INC.
(a Louisiana corporation)
Preferred Stock, $__ Cumulative Convertible Series D
PRICING AGREEMENT
January __, 1994
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
KIDDER, PEABODY & CO. INCORPORATED
LEHMAN BROTHERS INC.
c/o MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
Dear Sirs:
Reference is made to the Purchase Agreement, dated January __,
1994 (the "Purchase Agreement"), relating to the purchase by Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Kidder, Peabody & Co.
Incorporated and Lehman Brothers Inc. (collectively, the "Underwriters") from
Southdown, Inc., a Louisiana corporation (the "Company") of 1,500,000 shares of
the Company's Preferred Stock, $__ Cumulative Convertible Series D, par value
$.05 per share (the "Initial Securities"), and the grant by the Company to the
Underwriters of options to purchase up to an additional 225,000 shares of
Preferred Stock to cover over- allotments. Capitalized terms used herein and
not otherwise defined shall have the respective meanings assigned thereto in
the Purchase Agreement.
Pursuant to Section 2 of the Purchase Agreement, the Company
agrees with each Underwriter as follows:
<PAGE> 31
1. The initial public offering price per share of the
Securities shall be $__________, plus accrued dividends, if any, from the date
of issuance.
2. The purchase price per share for the Securities to be
paid by the several Underwriters shall be $________, being an amount equal to
the initial public offering price set forth above less $______ per share.
3. The dividend per share on the Securities shall be
$_____ per annum.
4. Each share of the Securities shall be initially
convertible into shares of the Company's common stock, par value $1.25 per
share (the "Common Stock"), at a conversion price of $_____ per share of Common
Stock.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument along with all counterparts will become a binding
agreement between the Company and each of the Underwriters in accordance with
its terms.
Very truly yours,
SOUTHDOWN, INC.
By: ________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
KIDDER, PEABODY & CO. INCORPORATED
LEHMAN BROTHERS INC.
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: ______________________________________
Name:
Title:
-2-
<PAGE> 1
Exhibit 4.2
Draft 1/19/94
ARTICLES OF AMENDMENT STATE OF TEXAS
TO
RESTATED ARTICLES OF COUNTY OF HARRIS
INCORPORATION
OF CITY OF HOUSTON
SOUTHDOWN, INC.
BE IT KNOWN, That on this _____ day of January, 1994
BEFORE ME, _____________________, a Notary Public, duly commissioned
and qualified in and for the County of Harris, State of Texas, and in the
presence of the witnesses hereinafter named and undersigned:
PERSONALLY CAME AND APPEARED:
CLARENCE C. COMER and WENDELL E. PHILLIPS, II, appearing herein and
acting for Southdown, Inc. (of which Corporation they are, respectively,
President and Secretary), a corporation organized and existing under the laws
of the State of Louisiana, domiciled in the Parish of Orleans, State of
Louisiana, organized by Articles of Incorporation effective April 4, 1930,
which Articles, as amended, were restated pursuant to Restated Articles of
Incorporation effective September 15, 1983, and further amended as of April 10,
1987, December 2, 1987, April 23, 1988, May 23, 1988 and March 4, 1991 ("the
Corporation"), who declared that pursuant to Sections 24B(6) and 33A of the
Louisiana Business Corporation Law, Article IIIB of the Restated Articles of
Incorporation of the Corporation, resolutions of the Board of Directors of the
Corporation adopted at special meetings of the Board of Directors of the
Corporation held on November 22, 1993 and January 20, 1994, and resolutions of
its duly authorized Special Committee unanimously adopted at a special meeting
of such committee held on January __, 1994, they now appear for the purpose of
executing this act of amendment and putting into authentic form the amendment
so adopted by the Special Committee of the Board of Directors of the
Corporation.
AND THE SAID APPEARERS further declare that by unanimous vote of the
duly authorized Special Committee of the Board of Directors of the Corporation,
it was resolved that Article III of the Restated Articles of Incorporation of
the Corporation be further amended as follows:
<PAGE> 2
1. There is added as a new paragraph F of Article III the
following:
F. Of the aforesaid 10,000,000 shares of Preferred Stock, 1,725,000
shares shall constitute a separate series of preferred shares designated
"Preferred Stock, $____ Cumulative Convertible Series D" (hereinafter called
the "Series D Preferred Stock"), which shall have a stated value of $50.00 per
share. The preferences, limitations and relative rights of the Series D
Preferred Stock are as follows:
PREFERRED STOCK, $___ CUMULATIVE CONVERTIBLE SERIES D
(1) Dividends. The holders of the Series D Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, out of the
funds of the Corporation legally available therefor, subject to the prior and
superior rights of the holders of the Corporation's Preferred Stock, $.70
Cumulative Convertible Series A (the "Series A Preferred Stock") and any other
shares of any series or class of stock of the Corporation ranking senior to the
Series D Preferred Stock as to dividends, but pari passu with the Corporation's
Preferred Stock, $3.75 Convertible Exchangeable Series B (the "Series B
Preferred Stock") and any other shares of any series or class of stock of the
Corporation ranking pari passu with the Series D Preferred Stock as to
dividends, and in preference to the holders of the Corporation's Preferred
Stock, Cumulative Junior Participating Series C (the "Series C Preferred
Stock") that may be issued and the holders of the Common Stock of the
Corporation and any other stock of the Corporation ranking junior to the Series
D Preferred Stock as to dividends, cumulative preferential dividends per share
of Series D Preferred Stock in cash at the rate per annum of $______, and no
more, until conversion or redemption. Dividends on the Series D Preferred
Stock will be cumulative, will accrue from the date of original issuance and
will be paid (when and as declared by the Board of Directors of the
Corporation) in cash quarterly, in arrears, on the first day of each April,
July, October and January, commencing on April 1, 1994. Each such regular
dividend on the Series D Preferred Stock shall be paid to the holders of record
of shares of the Series D Preferred Stock as they appear on the stock register
of the Corporation on such record date, not exceeding 30 days preceding the
payment date thereof, as shall be fixed by the Board of Directors of the
Corporation. Dividends on account of arrears for any past dividend periods may
be declared and paid at any time, without reference to any regular dividend
payment date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of Directors
of the Corporation. No dividend may be
-2-
<PAGE> 3
declared on any other series or class of stock ranking on a parity with the
Series D Preferred Stock as to dividends in respect of any dividend period,
unless there shall also be or have been declared on the Series D Preferred
Stock like dividends for all periods at the dividend rates fixed therefor. In
the event that full cumulative dividends on the Series D Preferred Stock have
not been paid or declared and set apart for payment, the Corporation may not
declare or pay or set apart for payment any dividends or make any other
distributions on, or make any payment on account of the purchase, redemption or
retirement of, the Common Stock or any other stock of the Corporation ranking
as to dividends or distributions of assets on liquidation, dissolution or
winding up of the Corporation junior to the Series D Preferred Stock (other
than, in the case of dividends or distributions, dividends or distributions
paid in shares of Common Stock or such other junior ranking stock), until full
cumulative dividends on the Series D Preferred Stock are paid or declared and
set apart for payment.
(2) Redemption. (a) Shares of Series D Preferred Stock shall be
redeemable for cash, at the option of the Corporation, in whole or in part at
any time or from time to time on or after January _____, 2001, at a redemption
price of $50 per share of Series D Preferred Stock, plus an amount equal to
accrued and unpaid dividends (whether or not declared) to the date fixed for
redemption. If the date of redemption falls after a dividend payment record
date but before the related payment date, the record holders of the Series D
Preferred Stock on that record date shall be entitled to receive the dividend
payable on the Series D Preferred Stock notwithstanding the redemption thereof.
Except as provided in this subparagraph (2)(a), no payment or allowance shall
be made for accrued dividends on any shares of Series D Preferred Stock called
for redemption.
(b) In case of the redemption of only part of the Series D Preferred
Stock at the time outstanding, such redemption shall be made pro rata or by lot
or in such other manner as the Board of Directors of the Corporation may
determine; provided, however, that the Corporation shall not be required to
effect the redemption in any manner that results in additional fractional
shares being outstanding. If full cumulative dividends on the outstanding
shares of Series D Preferred Stock shall not have been paid or declared and set
apart for payment for all regular dividend payment dates to and including the
last dividend payment date prior to the date fixed for redemption, the
Corporation shall not call for redemption any shares of Series D Preferred
Stock unless all
-3-
<PAGE> 4
such shares then outstanding are called for simultaneous redemption.
(c) Notice of any proposed redemption of Series D Preferred Stock
shall be given by the Corporation not less than 30 days nor more than 60 days
prior to the date fixed for such redemption to each holder of record of the
shares to be redeemed at the address appearing on the books of the Corporation.
Notice of redemption shall be deemed to have been given when deposited in the
United States mails, first class mail, postage prepaid, whether or not such
notice is actually received. If on or before the redemption date specified in
such notice all funds necessary for such redemption shall have been made
available at the office of the transfer agent, in trust for the pro rata
benefit of the holders of the shares so called for redemption, so as to be and
continue to be available therefor, then from and after the date of redemption
so designated, notwithstanding that any certificate representing shares of
Series D Preferred Stock so called for redemption shall not have been
surrendered for cancellation, the shares represented thereby shall no longer be
deemed outstanding, the right to receive dividends thereon shall cease to
accrue and all rights with respect to such shares of Series D Preferred Stock
so called for redemption shall forthwith at the close of business on such
redemption date cease and terminate, except only the right of the holders
thereof to receive the redemption price of such shares so to be redeemed plus
an amount equal to accrued and unpaid dividends (whether or not declared) to
the date fixed for redemption, but without interest thereon.
(d) Any monies so set aside by the Corporation and unclaimed at the
end of three years from the date fixed for redemption shall revert to the
general funds of the Corporation.
(e) The Corporation may, however, prior to the redemption date
specified in the notice of redemption, deposit in trust for the account of the
holders of the shares of Series D Preferred Stock to be redeemed, with a bank
or trust company in good standing organized under the laws of the United States
of America or of any state thereof, having its principal office located in the
continental United States, and having a capital, surplus and undivided profits
aggregating at least $50 million, designated in such notice of redemption, all
funds necessary for such redemption (including accrued and unpaid dividends up
to the date fixed for redemption), together with irrevocable written
instructions authorizing such bank or trust company, on behalf and at the
expense of the Corporation, to cause the notice of redemption to be
-4-
<PAGE> 5
mailed as herein provided at least 30 days but not more than 60 days prior to
the redemption date and to include in said notice of redemption a statement
that all funds necessary for such redemption have been so deposited in trust
and are immediately available, and from and after the redemption date,
notwithstanding that any certificate representing shares of Series D Preferred
Stock so called for redemption shall not have been surrendered for
cancellation, the shares represented thereby shall no longer be deemed
outstanding and all rights with respect to such shares of Series D Preferred
Stock shall forthwith at the close of business on such redemption date cease
and terminate, except only the right of the holders thereof to receive from
such bank or trust company, at any time after the redemption date, the
redemption price of such shares so to be redeemed plus accrued and unpaid
dividends (whether or not declared) to the date fixed for redemption, but
without interest thereon. In the event the holder of any such shares of Series
D Preferred Stock shall not, within three years after the redemption date,
claim the amount deposited for the redemption thereof, the depositary shall,
upon the request of the Corporation expressed in a resolution of its Board of
Directors, pay over to the Corporation such unclaimed amount after which time
the holders of the shares so called for redemption shall look only to the
Corporation for the payment thereof.
(f) If any shares of Series D Preferred Stock called for redemption
are not issued and outstanding as of the date fixed for redemption, the amount
set aside or deposited for the redemption thereof shall revert to or be paid
over to the Corporation.
(g) Any shares of Series D Preferred Stock which are redeemed or
otherwise purchased or acquired by the Corporation or any subsidiary thereof
shall be cancelled. The number of shares of Series D Preferred Stock shall be
reduced by the number of shares so cancelled and such cancelled shares shall be
restored to the status of authorized but unissued shares of Preferred Stock,
without designation as to series, and may thereafter be issued but not as
shares of Series D Preferred Stock. For the purposes of this paragraph, a
subsidiary means a corporation of which a majority of the capital stock having
voting power under ordinary circumstances to elect a majority of the board of
directors is owned by (a) the Corporation, (b) the Corporation and one or more
of its subsidiaries or (c) one or more of the Corporation's subsidiaries.
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<PAGE> 6
(3) Regarding Voting Rights. (a) Each share of Series D Preferred
Stock shall entitle the holder thereof to one vote and, except as provided
herein or as required by law, the Series D Preferred Stock and the Common Stock
(and any other capital stock of the Corporation at any time entitled to vote)
shall vote together as a single class.
(b) In addition to any provisions herein and any requirement of law,
the Series D Preferred Stock shall vote as a single class with respect to any
proposal (i) to change the dividend rate, liquidation preference, redemption
price, voting rights or conversion rights of the shares of Series D Preferred
Stock or to increase the number of authorized shares of Series D Preferred
Stock; (ii) to increase the authorized amount of any series or class of capital
stock of the Corporation that ranks senior to the Series D Preferred Stock as
to dividends or distribution of assets on liquidation; (iii) to authorize,
create, issue or sell any shares of any series or any class of capital stock of
the Corporation that ranks senior to the Series D Preferred Stock as to
dividends or assets upon liquidation; (iv) to change or modify the voting
rights of the Series D Preferred Stock and (v) for the alteration, change or
modification of the rights set forth in this subparagraph (3)(b). The
affirmative vote of the holders of at least two-thirds of the outstanding
shares of Series D Preferred Stock shall be required to take any action on the
matters specified in clauses (i) through (v) of this subparagraph (3)(b).
(c) Unless the vote of a larger percentage is required by law or the
Articles of Incorporation, the affirmative vote of the holders of a majority of
the outstanding shares of Series D Preferred Stock entitled to vote on the
matter shall be sufficient to take any action as to which a class vote of the
holders of the Series D Preferred Stock is required by law or the Articles of
Incorporation.
(d) Whenever, at any time, dividends payable on the Series D Preferred
Stock shall be in arrears for six quarterly dividend periods, the holders of
all classes or series of preferred stock which rank pari passu with the Series
D Preferred Stock as to dividends and which shall specifically state that they
shall vote with the Series D Preferred Stock for the election of two directors
in such a case (specifically excluding the Series A Preferred Stock, the Series
B Preferred Stock and the Series C Preferred Stock) (the "Voting Preferred
Stock"), shall have the exclusive right, voting separately as a class,
irrespective of class or series, to elect by a plurality of the votes cast two
directors of the Corporation, who shall be a Class I director and a Class II
director,
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<PAGE> 7
respectively, (i) at the Corporation's next annual meeting of shareholders,
(ii) at a special meeting held in place thereof, (iii) at a special meeting of
the holders of shares of the Voting Preferred Stock called by the Secretary of
the Corporation upon the written request of the holders of record of 25% or
more of the total number of shares of Voting Preferred Stock then outstanding,
to be held within 30 days after delivery of such request, or (iv) by written
consent of the holders of a majority of the issued and outstanding shares of
Voting Preferred Stock in lieu thereof, and at each succeeding meeting of
shareholders thereafter at which directors shall be elected until such rights
shall terminate as hereinafter provided. The Board of Directors of the
Corporation hereby unanimously directs the Secretary of the Corporation to give
notice of any special meeting of the shareholders of the Corporation required
from time to time by the provisions of this paragraph (3), in the manner
prescribed by the Bylaws of the Corporation. At elections for such directors,
each holder of the Voting Preferred Stock shall be entitled to one vote for
each share held. Upon the vesting of such voting right in the holders of the
Voting Preferred Stock, the maximum authorized number of members of the Board
of Directors shall automatically be increased by two and the two vacancies so
created shall be filled by vote of the holders of the Voting Preferred Stock as
hereinabove set forth. The right of the holders of the Voting Preferred
Stock, voting separately as a class, to elect members of the Board of Directors
of the Corporation as aforesaid shall continue until such time as all dividends
accumulated on the Voting Preferred Stock shall have been paid in full, at
which time such right shall terminate, except as by law expressly provided,
subject to revesting in the event of each and every subsequent default of the
character above mentioned. Upon any termination of the right of the holders of
the Voting Preferred Stock to vote for directors as herein provided, the term
of office of all directors then in office elected by such Voting Preferred
Stock voting as a class shall terminate immediately. If the office of any
director elected by the holders of the Voting Preferred Stock becomes vacant by
reason of death, resignation, retirement, disqualification, removal from office
or otherwise, the remaining director elected by the holders of Voting Preferred
Stock voting as a class may choose a successor who shall hold office for the
unexpired term in respect of which such vacancy occurred. Whenever the special
voting powers vested in the holders of the Voting Preferred Stock shall have
expired, the number of directors shall become such number as may be provided
for in the By-Laws, or resolution of the Board of Directors thereunder,
irrespective of any increase made pursuant to the provisions of this
subparagraph (3)(d).
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<PAGE> 8
(4) Priority in Event of Dissolution. In the event of any
liquidation, dissolution, or winding up of the affairs of the Corporation,
after payment or provision for payment of the debts and other liabilities of
the Corporation (including any liquidation preferences payable in respect of
the Series A Preferred Stock and any other capital stock of the Corporation
ranking senior to the Series D Preferred Stock as to assets), the holders of
the Series D Preferred Stock shall be entitled to receive, out of the remaining
net assets of the Corporation, $50.00 in cash for each share of Series D
Preferred Stock, plus an amount equal to all dividends accrued and unpaid on
each such share (whether or not declared) up to the date fixed for
distribution, before any distribution shall be made to the holders of the
Common Stock of the Corporation, the Series C Preferred Stock or any other
stock of the Corporation ranking junior to the Series D Preferred Stock as to
assets. If upon any liquidation, dissolution or winding up of the affairs of
the Corporation, the assets distributable among the holders of the Series D
Preferred Stock, the Series B Preferred Stock and any other capital stock of
the Corporation ranking on a parity with the Series D Preferred Stock as to
assets shall be insufficient to permit the payment in full to the holders of
all shares of such Series D Preferred Stock, the Series B Preferred Stock and
any other capital stock of the Corporation ranking on a parity with the Series
D Preferred Stock as to assets of all preferential amounts payable to all such
holders, then the entire assets of the Corporation thus distributable shall be
distributed ratably among the holders of the Series D Preferred Stock, the
Series B Preferred Stock and any other capital stock of the Corporation ranking
on a parity with the Series D Preferred Stock as to assets in proportion to the
respective amounts that would be payable per share if such assets were
sufficient to permit payment in full.
(5) Conversion at Option of Holder. (a) Subject to and upon
compliance with the provisions herein, at the option of the holder, shares of
Series D Preferred Stock may at any time be converted into fully paid and
nonassessable shares of Common Stock at the rate of ______ shares of Common
Stock for each share of Series D Preferred Stock to be converted (subject to
adjustment as hereinafter provided) (the "Conversion Rate"); provided, however,
that if the Corporation shall have given notice of redemption of any shares of
Series D Preferred Stock pursuant to paragraph (2) above or notice of
conversion at the option of the Corporation pursuant to paragraph (6) below,
such right to convert such shares shall terminate at 5:00 p.m., New York City
time, on the date fixed for redemption or such conversion, respectively (unless
the Corporation shall default in the payment due upon
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<PAGE> 9
redemption in which case such conversion rights shall not expire). The result
obtained by dividing $50.00 by the Conversion Rate in effect from time to time
is herein referred to as the "Conversion Price." Whenever the Conversion Price
is adjusted pursuant to the provisions of subparagraph (7)(c) below, the
Conversion Rate shall be redetermined by dividing $50.00 by the then adjusted
Conversion Price. The Conversion Rate and the Conversion Price in effect from
time to time shall be calculated to four decimal places and rounded to the
nearer thousandths.
(b) In order to exercise the right to convert, the holder of any
shares of Series D Preferred Stock to be converted shall surrender the
certificate representing such shares of Series D Preferred Stock, accompanied
(if so required by the Corporation) by the proper instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder thereof or by his attorney duly authorized in writing, to the
transfer agent of the Series D Preferred Stock and at such other office or
offices, if any, as the Board of Directors shall designate and shall give
written notice to the Corporation at such office that the holder elects to
convert such Series D Preferred Stock. Such shares of Series D Preferred Stock
surrendered for conversion shall be deemed to have been converted immediately
prior to the close of business on the date of the giving of such notice and of
the surrender of such certificates for conversion in accordance with the
foregoing provisions, and at such time the rights of the holder of such Series
D Preferred Stock as such holder shall cease, and the holder thereof shall be
treated for all purposes as the record holder of Common Stock from and after
such time. As promptly as practicable after receipt of such notice and the
surrender of such certificates as aforesaid, the Corporation shall issue and
deliver at such office a certificate or certificates for the number of full
shares of Common Stock issuable upon conversion.
(6) Conversion at Option of Corporation. (a) On and after January
__, 1997 and until January __, 2001, shares of Series D Preferred Stock
outstanding are convertible, at the option of the Corporation, in whole but not
in part, at any time, into fully paid and non-assessable shares of Common
Stock. The Corporation may exercise this option only if for at least 20
trading days within any period of 30 consecutive trading days, including the
last trading day of such period, the Market Price (as defined) of the Common
Stock exceeds 130 percent of the Conversion Price (as defined above) on such
respective dates and only if all dividends on the Series D Preferred Stock for
all dividend periods ending on or prior to
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<PAGE> 10
the dividend payment date next preceding the Conversion Date (as defined
herein) have been paid or set aside for payment.
(b) In order to exercise its option to convert shares of the Series D
Preferred Stock, the Corporation must, not fewer than 15 nor more than 60 days
before the date of such conversion (the "Conversion Date"), issue a press
release announcing the conversion and specifying the Conversion Date, which
announcement shall be made prior to 9:00 A.M., New York City time, of the
second trading day after the end of such 30- day trading period. The
Corporation shall also give notice of such conversion to the holders of record
of shares of Series D Preferred Stock to be converted at the holders' addresses
shown on the books of the Corporation. Notice of such conversion must be given
by first class mail, postage pre-paid, not fewer than 15 or more than 60 days
before the Conversion Date and must state: (i) the Conversion Date; (ii) the
Conversion Rate and the Conversion Price as of the date immediately preceding
the date of the notice; (iii) the place or places where certificates for the
shares of Series D Preferred Stock may be surrendered in exchange for
certificates for shares of the Common Stock; and (iv) that dividends on the
shares of the Series D Preferred Stock to be converted will cease to accrue on
the Conversion Date. Notice is given when deposited in the United States mail,
by first class mail, postage prepaid, whether or not actually received. The
Corporation's failure to mail such notice to a shareholder shall not affect the
validity or effectiveness of the conversion of the shares of Series D Preferred
Stock into shares of Common Stock.
(c) On the date fixed by the Corporation as of the Conversion Date,
the rights of the holders of the shares of Series D Preferred Stock as such
shall cease, the shares of Series D Preferred Stock to be converted shall no
longer be deemed outstanding, dividends thereon shall cease to accrue and
certificates for such shares shall represent (i) the shares of Common Stock
issuable on conversion of the Series D Preferred Stock evidenced thereby and
(ii) the right to receive the amounts payable under Section 7(b) in lieu of the
issuance of any fractional share.
(d) The number of shares of Common Stock issuable for each share of
Series D Preferred Stock so converted shall be equal to the product of the
number of shares of Series D Preferred Stock being converted and the Conversion
Rate in effect as of the Conversion Date.
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<PAGE> 11
(7) General Provisions Regarding Conversion. The following provisions
shall be applicable to all conversions of Series D Preferred Stock pursuant to
paragraphs (5) and (6):
(a) If the Conversion Date falls after a dividend payment record
date but before the related payment date, the record holder of the Series D
Preferred Stock on that record date shall be entitled to receive the dividend
payable on the Series D Preferred Stock notwithstanding the conversion thereof.
Except as provided in this subparagraph (a), no payment or allowance shall be
made for accrued dividends on any shares of Series D Preferred Stock converted
or surrendered for conversion.
(b) No fractional share of Common Stock shall be issued upon
conversion of Series D Preferred Stock. Instead of any fractional share of
Common Stock which would otherwise be issuable upon conversion of any Series D
Preferred Stock, the Corporation shall pay a cash adjustment equal to such
fraction multiplied by the Market Price per share of the Common Stock (as
defined below) on the trading day next preceding the date of conversion. In
determining the number of shares of Common Stock and the payment, if any, in
lieu of fractional shares that a holder of Series D Preferred Stock shall
receive, the total number of shares of Series D Preferred Stock surrendered for
conversion by such holder shall be aggregated.
(c) The number and kind of securities issuable upon the conversion
of the Series D Preferred Stock shall be subject to adjustment from time to
time upon the happening of certain events occurring on or after the date of
original issue of the shares of the Series D Preferred Stock as follows:
(i) In case of any reclassification or change of Common
Stock issuable upon exercise of these conversion rights (other than a
change in par value from par value to no par value, or from no par value
to par value or as a result of a subdivision or combination), or in case
of any consolidation or merger of the Corporation with or into another
corporation (other than a merger with another corporation in which
the Corporation is the surviving Corporation and which does not result
in any reclassification or change -- other than a change in par value,
or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination -- of Common Stock issuable
upon exercise of these conversion rights), or in the case of a sale or
conveyance in a
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<PAGE> 12
single transaction or in a series of related transactions with the same
purchaser or affiliates thereof of all or substantially all the assets
of the Corporation as an entirety, or a statutory share exchange in
which all shares of Common Stock are exchanged for shares of another
corporation or entity, the holders of the Series D Preferred Stock shall
have, and the Corporation, or such successor entity or purchaser, shall
covenant in the constituent documents effecting any of the foregoing
transactions that the holders of the Series D Preferred Stock do have,
the right to obtain upon the exercise of these conversion rights, in
lieu of each share of Common Stock theretofore issuable upon exercise of
these conversion rights, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification,
change, consolidation or merger, conveyance or sale of assets or share
exchange by a holder of one share of Common Stock issuable upon
exercise of these conversion rights as if they had been exercised
immediately prior to such reclassification, change, consolidation or
merger, conveyance or sale of assets or share exchange. The constituent
documents effecting any reclassification, change, consolidation or
merger, conveyance or sale of assets or share exchange shall provide for
adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided in this subparagraph (c). The provisions of
this subparagraph (c)(i) shall similarly apply to successive
reclassifications, changes, consolidations or mergers, conveyances or
sales of assets or share exchanges.
(ii) If the Corporation at any time while any of the Series D
Preferred Stock is outstanding shall subdivide or combine its Common
Stock, the Conversion Price shall be proportionately reduced, in case of
subdivision of shares, as at the effective date of such subdivision, or
if the Corporation shall take a record of holders of its Common Stock
for the purpose of so subdividing, as at such record date, whichever is
earlier, or shall be proportionately increased, in the case of
combination of shares, as at the effective date of such combination or,
if the Corporation shall take a record of holders of its Common Stock
for the purpose of so combining, as at such record date, whichever is
earlier.
(iii) If the Corporation at any time while any of the Series D
Preferred Stock is outstanding shall pay to any holders of stock of the
Corporation a dividend payable in, or make any other distribution of,
Common Stock, the
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<PAGE> 13
Conversion Price shall be adjusted, as of the date the
Corporation shall take a record of the holders of such
stock for the purpose of determining the holders entitled
to receive such dividend or other distribution (or if no
such record is taken, as at the date of such payment or
other distribution), to that price determined by
multiplying the Conversion Price in effect immediately
prior to such record date (or if no such record is taken,
then immediately prior to such payment or other
distribution) by a fraction (1) the numerator of which
shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or
distribution, and (2) the denominator of which shall be
the total number of shares of Common Stock outstanding
immediately after such dividend or distribution (plus in
the event that the Corporation paid cash for fractional
shares, the number of additional shares which would have
been outstanding had the Corporation issued fractional
shares in connection with said dividend, except to the
extent such payment of cash is treated as a dividend
payable out of earnings or surplus legally available for
the payment of dividends under the laws of the State of
Louisiana);
(iv) If the Corporation shall issue to all
holders of its Common Stock any warrant, option or other
right to subscribe for or purchase shares of Common Stock
at a price per share less than the Market Price of the
Common Stock, the Conversion Price shall be adjusted, as
of the date the Corporation shall take a record of the
holders of its Common Stock for the purpose of receiving
such issuance or distribution, to that price determined
by multiplying the Conversion Price by a fraction, the
numerator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such
warrants, options or rights plus the number of shares
which the aggregate offering price of the total number of
shares so offered would purchase at such Market Price per
share, and the denominator of which shall be the number
of shares of Common Stock outstanding on the date of
issuance of such warrants, options or rights plus the
number of additional shares of Common Stock offered for
subscription or purchase.
(v) If the Corporation shall distribute to all
holders of its Common Stock evidences of indebtedness of
the Company, shares of capital stock of the Corporation
(other than Common Stock) or assets or rights or warrants
to subscribe for or purchase any of its securities
(excluding those dividends, warrants, options and rights
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<PAGE> 14
referred to in subparagraph (iv) above and dividends and
other distributions paid in cash out of the profits or
surplus of the Corporation legally available therefor
under the laws of the State of Louisiana) then in each
case the Conversion Price shall be adjusted, as of the
date the Corporation shall take a record of the holders
of its Common Stock for the purpose of determining the
holders entitled to receive such issuance or
distribution, to that price determined by multiplying the
Conversion Price by a fraction the numerator of which
shall be Market Price per share of the Common Stock less
the fair market value (as determined by the Board of
Directors of the Corporation, whose determination shall
be conclusive) of the portion of the assets, evidences of
indebtedness for subscription rights so distributed in
respect of one share of Common Stock and the denominator
of which is the Market Price per share of Common Stock on
the record date for such distribution.
(vi) No adjustment of the Conversion Price
shall be made in an amount less than $.05 per share, but
any such lesser adjustment shall be carried forward and
shall be made at the time together with the next
subsequent adjustment which, together with any
adjustments so carried forward, shall amount to $.05 per
share or more.
(vii) The Market Price per share of Common
Stock on any day means the closing price for such shares
as reported in The Wall Street Journal's NYSE-Composite
Transactions listing for such day (corrected for obvious
typographical errors), or if such shares are not reported
in such listing, then the average of the reported "high"
and "low" sales prices on the largest national securities
exchange (based on the aggregate dollar value of
securities listed) on which such shares are listed or
traded, or if such shares are not listed or traded on any
national securities exchange, then the average of the
reported "high" and "low" sales prices for such shares in
the over-the-counter market, as reported on the National
Association of Securities Dealers Automated Quotations
System, or, if such prices shall not be reported thereon,
the average between the closing bid and asked prices so
reported, or, if such prices shall not be reported, then
the average closing bid and asked prices reported by the
National Quotation Bureau Incorporated, or, in all other
cases, the value established by the Board of Directors of
the Corporation in good faith.
(d) Whenever the Conversion Price and the Conversion Rate are required
to be adjusted as provided herein, the
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<PAGE> 15
Corporation shall forthwith compute the adjusted Conversion Price and the
adjusted Conversion Rate and shall prepare a certificate setting forth such
adjusted Conversion Price and adjusted Conversion Rate showing in detail the
facts upon which such adjustment is based. A copy of such certificate shall
forthwith be filed with the transfer agent or agents for the Series D Preferred
Stock (if any) and for the Common Stock; and thereafter, until further
adjusted, the adjusted Conversion Price and the adjusted Conversion Rate shall
be as set forth in such certificate, provided that the computation of such
adjusted Conversion Price and such adjusted Conversion Rate shall be reviewed
at least annually by the independent public accountants regularly employed by
the Corporation and said accountants shall file a corrected certificate, if
required, with such transfer agent or agents. The Corporation shall mail or
cause to be mailed to the holders of Series D Preferred Stock at the time of
each quarterly dividend payment, a statement setting forth the adjustments, if
any, made in the applicable Conversion Price and Conversion Rate and not
theretofore reported to such holders, and the reasons for such adjustment.
(e) The Corporation will at all times reserve and keep available, out
of its authorized and unissued Common Stock solely for the purpose of issuance
upon the conversion of the Series D Preferred Stock as herein provided, free
from preemptive and other subscription rights, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding Series D
Preferred Stock. The Corporation shall ensure that all shares of Common Stock
which shall be so issuable shall upon issue be duly and validly issued and
fully paid and nonassessable.
(f) If any shares of Common Stock required to be reserved for the
purposes of conversion of Series D Preferred Stock hereunder require
registration with or approval of any governmental authority under any federal
or state law, or listing upon any national securities exchange, before such
shares may be issued upon conversion, the Corporation will in good faith and as
expeditiously as possible endeavor to cause such shares to be duly registered,
approved or listed, as the case may be.
(g) The issuance of certificates for shares of Common Stock upon the
conversion of Series D Preferred Stock shall be made without charge to the
holders thereof for any transfer or similar taxes that may be payable in
respect of the issue, delivery or acquisition of such certificates. Such
certificates shall be issued in the respective names of the holders of the
Series D Preferred Stock converted.
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<PAGE> 16
(8) Sinking Fund. The Series D Preferred Stock shall not be entitled
to any mandatory redemption or prepayment (except on liquidation, dissolution
or winding up of the affairs of the Corporation) or to the benefit of any
sinking fund.
(9) Definition. If the day upon which any payment is to be made
or any other action is to be taken or any event is scheduled to occur pursuant
to the terms of Articles of Amendment is not a business day, the payment shall
be made or the other action shall be taken on the next succeeding business day.
A "business day" is defined as a day in the City of Houston, County of Harris,
Texas, that is not a legal holiday or a day on which banking institutions are
authorized or obligated by law to close.
2. Existing Paragraph F of Article III is relettered as paragraph G.
APPEARERS further stated that all of the shares of the Corporation have
par value; that the Corporation is authorized to issue 50,000,000 shares, of
which 40,000,000 are common shares of the par value of $1.25 per share and
10,000,000 are preferred shares of the par value of $0.05 per share; and that
the Board of Directors of the Corporation and the Special Committee thereof
each has the authority to amend the articles to fix the preferences,
limitations and relative rights of the preferred shares, and to establish, and
fix variations and relative rights and preferences as between series of
preferred shares, all as more fully set out in Article III of the Restated
Articles of Incorporation.
AND SAID APPEARERS having requested me, Notary, to note said amendment
in authentic form, I do by these presents receive said amendments in the form
of this public act to the end that said amendment may be promulgated and
recorded and thus be read into the Restated Articles of Incorporation of
Southdown, Inc., as hereinabove set forth.
THUS DONE AND PASSED, in my office at Houston, Harris County, State of
Texas, on the day, month and year first above written, in the presence of the
undersigned competent
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<PAGE> 17
witnesses, who hereunto sign their names with the said appearers and me,
Notary, after a due reading of the whole.
SOUTHDOWN, INC.
By: __________________________
Clarence C. Comer
President
By: __________________________
Wendell E. Phillips, II
Secretary
WITNESSES:
_____________________________
_____________________________
____________________________
NOTARY PUBLIC
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<PAGE> 1
Exhibit 5 (Preferred)
[Letterhead of Bracewell & Patterson, L.L.P.]
January 20, 1994
Southdown, Inc.
1200 Smith Street
Suite 2400
Houston, Texas 77002
Gentlemen:
We have acted as counsel to Southdown, Inc., a Louisiana corporation (the
"Company"), in connection with the preparation of its Registration Statement on
Form S-3 (Registration No. 33-51133), as amended, filed by the Company under
the Securities Act of 1933, as amended (the "Registration Statement"), with
respect to the public offering of up to 1,725,000 shares of its Preferred
Stock, $___ Cumulative Convertible Series D, par value $.05 per share (the
"Series D Preferred Stock").
We have examined originals or copies of (i) the Registration Statement; (ii)
the Restated Articles of Incorporation of the Company, as amended; (iii) the
Bylaws of the Company, as amended; (iv) the form of Articles of Amendment to
the Restated Articles of Incorporation concerning the Series D Preferred Stock
in the form filed as an exhibit to the Registration Statement (the "Articles of
Amendment"); (v) certain resolutions of the Board of Directors of the Company
and the Special Committee thereof; and (vi) such other documents and records as
we have deemed necessary and relevant for purposes hereof. In addition, we
have relied upon certificates of officers of the Company and certificates and
telegrams of public officials as to certain matters of fact relating to this
opinion and have made such investigations of law as we have deemed necessary
and relevant as a basis hereof.
We have assumed the genuineness of all signatures, the authenticity of all
documents, certificates and records submitted to us as originals, the
conformity to original
<PAGE> 2
Southdown, Inc.
January 20, 1994
Page 2
documents, certificates and records of all documents, certificates and records
submitted to us as copies, and the truthfulness of all statements of fact
contained therein.
Based upon the foregoing, and subject to the limitations and assumptions set
forth herein, and having due regard for such legal considerations as we deem
relevant, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Louisiana.
2. When (a) the Articles of Amendment have been appropriately
completed, duly approved by the Board of Directors or the Special Committee
thereof, and duly executed and filed in accordance with the Louisiana Business
Corporation Law, and (b) the shares of Series D Preferred Stock are issued by
the Company against payment of the consideration therefor, the shares of Series
D Preferred Stock will be validly issued, fully paid and non-assessable.
3. The shares of the Company's common stock, $1.25 par value per
share (including the Rights attached thereto issued pursuant to the Rights
Agreement dated as of March 4, 1991 between the Company and First City, Texas -
Houston, N.A., (the "Conversion Shares"), initially issuable upon conversion of
the Series D Preferred Stock have been duly authorized and reserved for
issuance and, following the actions set forth in paragraph 2(a) above, upon
conversion of Series D Preferred Stock in accordance with the Articles of
Amendment and in accordance with the Rights Agreement, the Conversion Shares
will be validly issued, fully paid and non-assessable.
The foregoing opinion is based on and is limited to the laws of the State of
Texas and the State of Louisiana and the relevant law of the United States of
America, and we render no opinion with respect to the law of any other
jurisdiction. Insofar as the law of the State of Louisiana is applicable to
the matters discussed herein, we have relied upon the opinion of Messrs. Stone,
Pigman, Walther, Wittmann & Hutchinson, a copy of which is attached hereto and
our opinion is subject to the limitations, qualifications and assumptions set
forth therein.
<PAGE> 3
Southdown, Inc.
January 20, 1994
Page 3
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as Exhibit 5 to the Registration Statement and to all
references to our firm therein. You are advised that Edgar J. Marston III, who
serves in an "of counsel" capacity to this firm, is an executive officer and a
member of the Board of Directors of the Company.
Very truly yours,
Bracewell & Patterson, L.L.P.
<PAGE> 4
[Stone, Pigman, Walther, Wittmann & Hutchinson Letterhead]
January 20, 1994
47,919
Bracewell & Patterson
2900 South Tower, Pennzoil Place
Houston, Texas 77002-2781
Re: Southdown, Inc.
Registration Statement No. 33-51133
Series D Preferred Stock
Ladies and Gentlemen:
We have acted as special Louisiana counsel to Southdown, Inc., a
Louisiana corporation (the "Company"), in connection with the preparation of
its Registration Statement on Form S-3 (Registration No. 33-51133), as amended,
filed by the Company under the Securities Act of 1933, as amended (the
"Registration Statement"), with respect to the public offering of up to
1,725,500 shares of the Company's Preferred Stock, $_______ Cumulative
Convertible Series D, par value $.05 per share (the "Series D Preferred
Stock").
With your concurrence, in connection with your request, we have
limited our review of documents to an examination of copies of (i) the
Registration Statement; (ii) the Restated Articles of Incorporation of the
Company, as amended; (iii) the Bylaws of the Company, as amended; (iv) the form
of Articles of Amendment to the Restated Articles of Incorporation concerning
the Series D Preferred Stock in the form filed as an exhibit to the
Registration Statement (the "Articles of Amendment"); (v) certain resolutions
of the Board of Directors of the Company, including resolutions of the Special
Committee thereof; and (vi) certificates of officers of the
<PAGE> 5
2
January 20, 1994
Company and certificates or letters of public officials as to certain matters
of fact relating to this opinion.
In addition, for purposes of the opinions expressed in this letter, we
have assumed: (a) the genuineness of all signatures; (b) the authenticity of
all records, instruments and documents submitted to us as originals and the
conformity to originals of all records, instruments and documents submitted to
us as copies; (c) the truthfulness of all statements of fact and
representations and warranties contained in the records, agreements,
instruments and documents submitted to us; and (d) that all records,
instruments and documents referred to in this letter comply with all applicable
laws other than the laws of the State of Louisiana. In addition, in rendering
the opinions expressed in this letter, we have assumed the accuracy and
completeness of, and have relied upon, certificates and facsimile transmissions
by public officials and officers of the Company.
With your concurrence, the opinions rendered in this letter are based
upon the assumptions and are subject to the qualifications and limitations set
forth herein. Based upon and in reliance on the foregoing, we are of the
opinion that:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Louisiana.
2. When (a) the Articles of Amendment have been appropriately
completed, duly approved by the Board of Directors or the Special Committee
thereof, and duly executed and filed in accordance with the Louisiana Business
Corporation Law, and (b) the shares of Series D Preferred Stock are issued by
the Company against payment of the consideration therefor, the shares of Series
D Preferred Stock will be validly issued, fully paid and non-assessable.
3. The shares of the Company's common stock, $1.25 par value per
share (including the Rights attached thereto issued pursuant to the Rights
Agreement dated as of March 4, 1991 between the Company and First City, Texas -
Houston, N.A.), initially issuable upon conversion of the Series D Preferred
Stock (the "Conversion Shares"), have been duly authorized and reserved for
issuance and, following the actions set forth in paragraph 2(a) above, upon
conversion of Series D Preferred Stock in accordance with the Articles of
Amendment and in accordance with the terms of the Rights Agreement, the
Conversion Shares will be validly issued, fully paid and non-assessable.
<PAGE> 6
3
January 20, 1994
The foregoing opinion is based on and is limited to the laws of the
State of Louisiana and we render no opinion with respect to the law of the
United States of America, or any other jurisdiction.
The opinions expressed in this letter are limited to the matters
stated herein, and no opinion may be inferred beyond the matters expressly
stated, are given only as of this date, and are based on the law in effect as
of this date. We have no obligation, and will not undertake, to report to you
or any third parties changes in facts or laws, statutes or jurisprudence.
This letter is furnished at your request and may be relied upon only
by Bracewell & Patterson for purposes of the opinion to be delivered by you in
connection with the Registration Statement. We hereby consent to filing this
opinion with the Securities and Exchange Commission as Exhibit 5 to the
Registration Statement and the use of our name thereon. It may not be used,
circulated or quoted, in whole or part, or relied upon for any other purpose or
by any other person without our prior written consent.
We are members of the Louisiana Bar, and the opinions in this letter
are based on and limited to the laws of the State of Louisiana. The opinions
contained in this letter are limited in that we express no opinion with respect
to federal laws, state blue sky or other securities laws, tax or environmental
laws or matters, the laws of any municipality, parish or other political
subdivision of the State of Louisiana or any agency thereof, or the laws of any
jurisdiction other than Louisiana.
This letter expresses our professional legal opinion as to the matters
addressed in this letter and is based upon our professional knowledge and
judgment; it is not, however, to be construed as a guaranty.
Very truly yours,
Stone, Pigman, Walther,
Wittmann & Hutchinson
<PAGE> 1
Exhibit 8
[Bracewell & Patterson Letterhead, L.L.P]
January 20, 1994
Southdown, Inc.
1200 Smith Street
Suite 2400
Houston, Texas 77002
Gentlemen:
We have acted as counsel to Southdown, Inc., a Louisiana corporation (the
"Company"), in connection with the preparation of its Registration Statement on
Form S-3 (Registration No. 33-51133), as amended, filed by the Company under
the Securities Act of 1933, as amended (the "Registration Statement"), with
respect to the public offering of up to 1,725,000 shares of its Preferred
Stock, $___ Cumulative Convertible Series D, par value $.05 per share (the
"Series D Preferred Stock").
We have examined originals or copies of (i) the Registration Statement; (ii)
the Restated Articles of Incorporation of the Company, as amended; (iii) the
Bylaws of the Company, as amended; (iv) the form of the Articles of Amendment
to the Restated Articles of Incorporation concerning the Series D Preferred
Stock in the form filed as an exhibit to the Registration Statement (the
"Articles of Amendment"); (v) certain resolutions of the Board of Directors of
the Company, including resolutions of a Special Committee thereof; and (vi)
such other documents and records as we have deemed necessary and relevant for
purposes hereof. We have assumed that the Articles of Amendment will be
appropriately completed, duly approved by the Board of Directors of the Special
Committee thereof, and duly executed and filed in accordance with the Business
Corporation Law of the State of Louisiana. In addition, we have relied upon
certificates of officers of the Company and certificates and telegrams of
public officials as to certain matters of fact relating to this opinion and
have
<PAGE> 2
Southdown, Inc.
January 20, 1994
Page 2
made such investigations of law as we have deemed necessary and relevant
as a basis hereof.
We have assumed the genuineness of all signatures, the authenticity of all
documents, certificates and records submitted to us as originals, the
conformity to original documents, certificates and records of all documents,
certificates and records submitted to us as copies, and the truthfulness of all
statements of fact contained therein.
Based on the foregoing, we are of the opinion that the discussion under the
caption "Certain Federal Income Tax Considerations" in the Registration
Statement accurately describes the material anticipated federal income tax
consequences of the purchase, ownership and disposition of the Series D
Preferred Stock.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as Exhibit 8 to the Registration Statement and to all
references to our firm therein. You are advised that Edgar J. Marston III, who
serves in an "of counsel" capacity to this firm, is an executive officer and a
member of the Board of Directors of the Company.
Very truly yours,
Bracewell & Patterson, L.L.P.
<PAGE> 1
EXHIBIT 12
SOUTHDOWN, INC.
COMPUTATION OF FIXED CHARGE RATIOS FOR S-3
<TABLE>
<CAPTION>
PRO FORMA
----------------
NINE NINE
YEAR MONTHS YEAR MONTHS
ENDED ENDED ENDED ENDED
DEC. 31, SEPT. 30, DEC. SEPT.
------------------------------------------- --------------- 31, 30,
1988 1989 1990 1991 1992 1992 1993 1992 1993
----- ----- ----- ------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) from continuing
operations before income taxes and
cumulative effect of a change in
accounting principle................... $29.4 $34.5 $15.9 $(72.4) $(61.6) $(24.9) $(1.4) $(57.3) $ 1.8
Add:
Interest on indebtedness, excluding
capitalized interest................. 48.8 53.7 31.7 41.4 45.0 34.3 30.3 40.7 27.1
Portion of rents representative of the
interest factor...................... 2.5 2.6 2.1 2.7 3.1 2.2 2.4 3.1 2.4
----- ----- ----- ------ ------ ------ ----- ------ -----
Earnings as adjusted(a).................. $80.7 $90.8 $49.7 $(28.3) $(13.5) $ 11.6 $31.3 $(13.5) $31.3
----- ----- ----- ------ ------ ------ ----- ------ -----
----- ----- ----- ------ ------ ------ ----- ------ -----
Fixed charges
Interest on indebtedness:
Southdown and consolidated
subsidiaries....................... $55.3 $53.4 $31.9 $ 41.0 $ 45.0 $ 34.3 $30.3 $ 40.7 $27.1
Unconsolidated subsidiaries.......... 0.3 0.3 -- 0.7 -- -- -- -- --
----- ----- ----- ------ ------ ------ ----- ------ -----
55.6 53.7 31.9 41.7 45.0 34.3 30.3 40.7 27.1
----- ----- ----- ------ ------ ------ ----- ------ -----
Rents:
Southdown and consolidated
subsidiaries....................... 7.5 7.7 6.4 7.9 9.2 6.6 7.2 9.2 7.2
Unconsolidated subsidiaries.......... 0.1 0.1 -- 0.3 -- -- -- -- --
----- ----- ----- ------ ------ ------ ----- ------ -----
7.6 7.8 6.4 8.2 9.2 6.6 7.2 9.2 7.2
----- ----- ----- ------ ------ ------ ----- ------ -----
Assumed 1/3 portion of rents
representative of the interest
factor............................... 2.5 2.6 2.1 2.7 3.1 2.2 2.4 3.1 2.4
----- ----- ----- ------ ------ ------ ----- ------ -----
Preferred dividends
Preferred stock dividend requirement... 4.0 6.3 5.8 5.1 5.0 3.7 3.7 9.5 7.1
x Ratio of earnings before income taxes
to net income........................ 1.7 1.5 1.2 1.7 1.5 1.7 1.6 1.5 1.6
----- ----- ----- ------ ------ ------ ----- ------ -----
6.8 9.5 7.0 8.7 7.5 6.3 5.9 14.3 11.4
----- ----- ----- ------ ------ ------ ----- ------ -----
Fixed charges and preferred
dividends(a)......................... $64.9 $65.8 $41.0 $ 53.1 $ 55.6 $ 42.8 $38.6 $ 58.1 $40.9
----- ----- ----- ------ ------ ------ ----- ------ -----
----- ----- ----- ------ ------ ------ ----- ------ -----
Ratio of earnings to fixed charges(b).... 1.2 1.4 1.2 N/A N/A N/A N/A N/A N/A
----- ----- ----- ------ ------ ------ ----- ------ -----
----- ----- ----- ------ ------ ------ ----- ------ -----
</TABLE>
- ---------------
(a) For the purposes of computing the ratios set forth in the table, "earnings"
consist of earnings from continuing operations before income taxes and fixed
charges excluding capitalized interest. "Fixed charges and preferred
dividends" consist of (i) interest on all indebtedness (whether capitalized
or expensed), (ii) one-third of operating lease rental expense deemed to be
representative of interest and (iii) pre-tax preferred stock dividend
requirements.
(b) For the years ended December 31, 1991 and 1992, the deficiency in the
coverage of earnings to fixed charges was $81.4 million and $69.1 million,
respectively, and $31.2 million and $7.3 million for the nine months ended
September 30, 1992 and 1993, respectively. Assuming the sale of $75 million
of Preferred Stock and the application of the proceeds to prepay an $18
million promissory note and reduce outstanding borrowings under the
Company's Restated Revolving Credit Facility, the pro forma deficiency in
the coverage of earnings to fixed charges was $71.6 million and $9.6 million
for 1992 and the nine months ended September 30, 1993, respectively.
<PAGE> 1
EXHIBIT 15
January 19, 1994
Southdown, Inc.
1200 Smith Street
Houston, Texas
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Southdown, Inc. and subsidiary companies for the periods ended
March 31, 1993 and 1992, June 30, 1993 and 1992 and September 30, 1993 and
1992, as indicated in our reports dated April 21, 1993, August 9, 1993 and
November 1, 1993, respectively; because we did not perform an audit, we
expressed no opinion on that information.
We are aware that our reports referred to above, which were included in your
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993, June 30,
1993 and September 30, 1993, are being used in Amendment No. 2 to Registration
Statement No. 33-51133.
We also are aware that the aforementioned reports, pursuant to Rule 436(c)
under the Securities Act of 1933 (the "Act"), are not considered a part of
Amendment No. 2 to Registration Statement No. 33-51133 prepared or certified by
an accountant or a report prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Act.
DELOITTE & TOUCHE
