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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________________ TO __________________
COMMISSION FILE NUMBER 1-6117
SOUTHDOWN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 72-0296500
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 SMITH STREET
SUITE 2400
HOUSTON, TEXAS 77002-4486
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 650-6200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, par value $1.25 per share New York Stock Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
Preferred Stock, $2.875 Cumulative Convertible
Series D New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
As of February 28, 1997 the number of shares of common stock outstanding
was 21.4 million. As of such date, the aggregate market value of voting stock
held by nonaffiliates, based upon the closing price of these shares on the New
York Stock Exchange, Inc. was approximately $862.3 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive annual proxy statement to be
filed within 120 days of the Registrant's fiscal year ended December 31, 1996
are incorporated by reference into Part III.
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business...................................................... 1
General.................................................... 1
Industry .................................................. 1
Business Strategy.......................................... 1
Cement Operations.......................................... 2
Concrete Products Operations............................... 8
Environmental Matters...................................... 9
Employees.................................................. 12
Segment Information........................................ 13
Item 2. Properties.................................................... 13
Item 3. Legal Proceedings............................................. 13
Item 4. Submission of Matters to a Vote of Security Holders........... 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Security Holder Matters.................................... 16
Item 6. Selected Financial Data....................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................... 18
Item 8. Financial Statements and Supplementary Data................... 31
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure....................................... 64
PART III
Item 10. Directors and Executive Officers of the Registrant............ 64
Item 11. Executive Compensation........................................ 64
Item 12. Security Ownership of Certain Beneficial Owners and Management 64
Item 13. Certain Relationships and Related Transactions................ 64
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................... 64
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P A R T I
ITEM 1. BUSINESS.
GENERAL
Southdown, Inc. (Southdown or the Company) was organized in Louisiana
in 1930 and maintains its principal executive offices at 1200 Smith Street,
Suite 2400, Houston, Texas 77002-4486, telephone (713) 650-6200. Substantially
all of Southdown's cement and concrete products operations are conducted at the
parent company level. Unless the context indicates to the contrary, the terms
"Southdown" and the "Company" as used herein should be understood to include
subsidiaries of Southdown and predecessor corporations.
The Company is one of the leading cement and ready-mixed concrete
companies in the United States. The Company operates eight manufacturing
facilities, seven quarrying sites and a network of 20 cement storage and
distribution terminals for the production, importation and distribution of
portland and masonry cements, primarily in the Ohio valley and the southwestern
and southeastern regions of the United States. The Company is also vertically
integrated in the regional vicinity of its two largest cement plants, with
ready-mixed concrete operations serving markets in Florida and southern
California.
INDUSTRY
Demand for cement is derived from the demand for concrete products
which, in turn, is dependent on the demand for construction. According to
estimates of the Portland Cement Association (PCA), the industry's primary trade
organization, the three construction sectors that are the major components of
cement consumption are (i) public works construction, including public
buildings, (ii) commercial and industrial construction and (iii) residential
construction, which comprised 54%, 18% and 22%, respectively, of U.S. cement
consumption in 1995, the most recent period for which such data are available.
Construction spending and cement consumption have historically fluctuated
widely. The construction sector, and hence demand for cement and concrete, is
affected by the general condition of the economy and prevailing interest rates,
and can exhibit substantial variations in activity across the country as a
result of the differing cycles and structures of regional economies. The impact
on the Company of regional construction cycles may be mitigated to some degree
by its geographic diversification. Because of the high fixed-cost nature of the
business, however, the overall profitability of cement manufacturers, including
the Company, is sensitive to variations in sales volumes and shifts in the
balance between supply and demand. The Company's business is seasonal to the
extent that construction activity tends to diminish during the winter months in
many areas of the country and during other periods of inclement weather.
BUSINESS STRATEGY
To enhance profitability and return on investment, the Company intends
to continue to focus on its core business through internal growth opportunities,
improving productivity and enhancing the Company's market position. The Company
plans to take advantage of opportunities for internal growth by modernizing and
expanding certain of its existing cement plants. A capital project to upgrade
the Company's Ohio cement plant is nearing completion. This project is expected
to enhance productivity and efficiency, reduce manufacturing costs and increase
the plant's cement capacity by about 100,000 tons per year. Another major
capital project to increase the production capacity of the Company's
Victorville,
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California cement plant by approximately 300,000 tons per year is underway and
scheduled for completion in the last half of 1997. Capacity expansions and
efficiency modifications at several additional facilities are also being
evaluated. In the Company's two largest markets, Florida and southern
California, the Company has sought to improve its market position through the
recent acquisition of additional cement terminals and ready-mixed concrete
operations. The Company may also evaluate other opportunities to improve its
competitive position and increase profitability. Further, in an effort to
increase the demand for cement and concrete, the Company is taking a leadership
role in the industry's development of new promotional programs to increase
concrete's market share in certain applications relative to other building
products. In addition, the Company will continue to pursue antidumping actions,
if necessary, to prevent unfairly priced foreign cement from adversely impacting
the Company's markets.
CEMENT OPERATIONS
COMPANY OPERATIONS
Cement is the basic binding agent for concrete, a primary construction
material. The Company's cement products are produced primarily from raw
materials found at or near the Company's plant locations. Depending upon the
process at individual plants, production of one ton of finished product consumes
approximately 1.6 tons of raw material. The principal raw material used in the
production of portland cement is calcium carbonate found in the form of
limestone. The Company's total estimated recoverable reserves of limestone are
approximately 810 million tons located on approximately 20,000 acres, most of
which are owned by the Company in fee. Other raw materials, used in
substantially smaller portions than limestone, include sand, iron ore or other
iron bearing materials, clay and gypsum. When not found in adequate amounts in
the Company's quarries, these materials are purchased from outside suppliers.
The manufacture of portland cement primarily involves the crushing,
grinding and blending of limestone and other raw materials into a chemically
proportioned mixture which is then processed in a rotary kiln at extremely high
temperatures to produce an intermediate product known as clinker. The clinker is
cooled and interground with a small amount of gypsum to produce finished cement.
As fuel is a major component in the cost of producing clinker, the
pyroprocessing systems of most modern cement plants, including seven of the
eight plants operated by the Company, incorporate some form of the more fuel
efficient "dry process" technology. In preheater/precalciner kilns, the most
modern application of this technology, the raw materials are initially
introduced into a preheater tower that utilizes hot exhaust gases from the kiln
to effect partial calcination of the raw materials before they enter the rotary
kiln. At present, kilns utilizing some variation of the dry process
manufacturing technology comprise approximately 95% of the Company's clinker
capacity. In contrast, based on 1995 data, the most current information
available, the PCA estimates that approximately 28% of the domestic cement
industry's capacity utilizes "wet process" technology.
The Company's cement production facilities are located in California,
Florida, Kentucky, Ohio, Tennessee, Texas, Colorado and Pennsylvania. These
plants have a combined cement manufacturing capacity of approximately 6.5
million tons (6.2 million tons, excluding the joint venture interests of
others). All of the facilities are wholly-owned except for the Kentucky and
Pennsylvania plants. These two plants are owned by Kosmos Cement Company (Kosmos
Cement), a joint venture owned 75% by the Company and 25% by Lone Star
Industries, Inc. (Lone Star). The Company is the operator of all eight plants,
including the two joint venture plants.
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The following table sets forth certain information regarding the
Company's cement plants at December 31, 1996:
<TABLE>
<CAPTION>
ANNUAL
NO. CLINKER CEMENT ESTIMATED
OF MANUFACTURING CAPACITY (1) LIFE OF
PLANT LOCATION KILNS PROCESS (IN 000 TONS) (2) LIMESTONE RESERVES
-------------- ----- ------- ------------- ------------------
<S> <C> <C> <C> <C>
Victorville, California 2 Preheater/precalciner 1,666 (3) 100+ years
Long dry kiln
Brooksville, Florida 2 Preheater 1,304 90+ years
Kosmosdale, Kentucky (4) 1 Preheater 791 100+ years
Fairborn, Ohio 1 Preheater 650 (5) 45+ years
Knoxville, Tennessee 1 Preheater/precalciner 729 65+ years
Odessa, Texas 2 Preheater 538 100+ years
Long dry kiln
Lyons, Colorado 1 Preheater/precalciner 448 24 years
Pittsburgh, Pennsylvania (4) 1 Wet 408 30 years (6)
- --------------------------- ------------- -------------------------- -------------------------- -----------------------
</TABLE>
(1) Based on clinker capacity at December 31, 1996 converted to cement at each
plant's 1996 product mix.
(2) All references to "tons" in this table and throughout this document are
to U.S. short tons (2,000 pounds).
(3) Expansion project underway which is expected to increase cement capacity
by approximately 300,000 tons per year when the project is completed in
the second half of 1997.
(4) Owned by Kosmos Cement. The Company owns 75% of the joint venture and
operates the joint venture's plants, sales offices and terminals.
(5) Does not include capacity from expansion project underway which is
expected to increase cement capacity by 100,000 tons
per year when the project is completed in mid-1997.
(6) The Company has contracted for a long-term supply agreement with an
independent third party to provide limestone for this plant.
As a result of continued high uptime and demand, the ratio of actual
clinker production to rated kiln capacity was 98% in both 1996 and 1995 compared
with 93% in 1994. During each of the past three years, the Company has also
purchased cement from others for resale. In 1996, 6.2% of the cement sold by the
Company was acquired from third parties compared with 7.5% in 1995 and 5.9% in
1994.
During 1996, the Company sold approximately 7.0 million tons of cement
compared with 6.3 million tons in 1995 and 6.5 million tons in 1994. Excluding
the joint venture interests of others, sales volumes were 6.7 million tons, 6.1
million tons and 6.2 million tons for 1996, 1995 and 1994, respectively. High
levels of construction activity in most regions of the country during the last
several years has resulted in a more favorable balance in the supply and demand
for cement which, in turn, has allowed sales prices to rise. During 1996, higher
sales prices and continued strong demand resulted in further improvement in the
industry. As a consequence of these improvements in market conditions, the
Company's cement segment revenues and earnings have followed a pattern of
continued growth since 1991.
Although industry capacity has remained relatively stable in recent
years, according to the PCA total U.S. clinker capacity at the end of 1995, the
most recent data available, had declined by 7.0 million
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tons or 8% from its peak in 1975. During the last two years, several companies,
including the Company, announced or undertaken capital projects to enhance the
productivity and incrementally expand the capacity of existing cement
manufacturing facilities.
COMPETITION
On the basis of statistics published by the PCA, the Company believes
that, as of the end of 1995, the most recent period for which such data is
available, it ranked third in total active cement manufacturing capacity among
the 46 cement producers (including joint ventures) in the U.S. as set forth in
the following table:
<TABLE>
<CAPTION>
U.S. CLINKER (1)
CAPACITY PERCENT OF
RANK (000 TONS) U.S. INDUSTRY COMPANY NAME
- ----------------- ------------------------- ------------------------ ----------------------------------------------
<S> <C> <C> <C>
1 11,092 13.2% Holnam, Inc.
2 6,641 7.9 Lafarge Corporation
3 5,881 7.0 Southdown, Inc.
4 5,508 6.6 CBR-HCI Construction Materials Corporation
5 5,306 6.3 Ash Grove Cement Company
6 4,299 5.1 Blue Circle, Inc.
7 4,165 5.0 Essroc Corporation
8 3,850 4.5 Lone Star Industries, Inc.
9 3,675 4.4 Medusa Cement Company
10 3,275 3.9 California Portland Cement Company
--------- ----------
53,692 63.9 Total Top Ten
30,278 36.1 Others
--------- ----------
83,970 100.0% Total Industry
========= ==========
- ----------------- ------------------------- ------------------------ ----------------------------------------------
</TABLE>
Source: Portland Cement Association. Clinker capacity for joint venture
operations is based on each company's ownership interest.
(1) In general, one ton of clinker will produce approximately 1.05 tons of
cement although this conversion varies depending on the type of cement
being produced and other factors.
The cost of transporting cement is high relative to the value of the
product and, therefore, cement markets are generally regional. The majority of
the Company's cement sales are made directly to users of portland and masonry
cements, generally within a radius of approximately 200 miles of each plant.
However, access to water transport, which is generally less expensive than truck
or rail shipment, can effectively expand the market area of a particular
production facility.
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The following table presents information regarding the market area
served by each of the Company's plants and the Company's estimate of the number
of competitors serving the same market area.
<TABLE>
<CAPTION>
Plant Location PRINCIPAL MARKET AREA SERVED* NUMBER OF MAJOR COMPETITORS
- ----------------------------- --------------------------------------------- --------------------------------------
<S> <C> <C>
Victorville, California Southern California, Arizona and southern Six cement producers and four import
Nevada facilities
Brooksville, Florida Florida Four cement producers and eight
import facilities
Kosmosdale, Kentucky Kentucky, West Virginia and portions of Nine cement producers
Ohio, Indiana and Tennessee
Fairborn, Ohio Central and southern Ohio, eastern and Nine cement producers
southern Indiana and northern and central
Kentucky
Knoxville, Tennessee Eastern Tennessee, North Carolina, and Ten cement producers and an import
portions of Kentucky, Virginia, South facility
Carolina, Georgia and Alabama
Odessa, Texas Eastern New Mexico, Texas Panhandle Twelve cement producers and an
and west Texas, western Oklahoma, import facility
southeastern Colorado and southwestern
Kansas
Lyons, Colorado Northern and central Colorado and Four cement producers
southeastern Wyoming
Pittsburgh, Western Pennsylvania and portions of Four cement producers
Pennsylvania West Virginia and Ohio
- ----------------------------- -------------------------------------------- ------------------------------------------
</TABLE>
* Includes markets served by the Company's cement distribution terminals.
Cement is a homogeneous commodity that is manufactured to meet
standardized technical specifications and is marketed primarily in bulk
quantities without special packaging or labeling. The Company's bagged cement
products, which represented approximately 5 to 6% of the Company's total
sales volume over the past three years, are marketed under the "Southdown"
label. The Company also manufactures limited amounts of premium priced,
specialty cement products. Because of the commodity nature of the product,
competition among suppliers of cement is based primarily on price, with
consistency of quality and service to customers being of lesser significance.
The overall demand for cement is relatively price inelastic, however, since
cement represents only a small portion of total construction costs and cement
has few substitutes in many applications.
The primary purchasers of cement in each of the Company's regional
markets are ready-mixed concrete companies. Except with respect to certain
major construction projects, it is not common in the industry to enter into
long-term sales contracts. Although the Company has occasionally entered into
long-term contracts in prior years, all of these had expired as of December
31, 1996. From time-to-time, the Company has entered into annual sales
contracts with other cement manufacturers or distributors, but no one
customer represents 10% or more of the Company's consolidated revenues. As a
result of the Company's vertical integration, approximately 38%, 37% and 41%,
respectively, of the cement sold by the Company's Brooksville, Florida plant
in the years ended December 31, 1996, 1995 and 1994 was sold to the Company's
Florida ready-mixed concrete products operations. Approximately 18%, 14% and
15%, respectively, of the cement sold by the Company's California plant in
the years ended December 31, 1996, 1995 and 1994 was sold to the Company's
California ready-mixed concrete operations. Other principal customers are
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manufacturers of concrete products such as blocks, roof tiles, pipes and
prefabricated building components. Sales are also made to building materials
dealers, other cement manufacturers, construction contractors and, in some
regions, oil well cementing companies. During the years ended December 31,
1996, 1995 and 1994 approximately 58%, 57% and 47%, respectively, of the
Company's Texas plant's cement sales volume consisted of sales to oil well
cementing companies.
The Company's sales efforts are concentrated in its eight sales
offices. In addition, the Company utilizes a network of cement distribution
terminals which serves to broaden the Company's marketing area. These cement
sales offices and distribution terminals are located as follows:
<TABLE>
<CAPTION>
CEMENT SALES OFFICES CEMENT DISTRIBUTION TERMINALS
----------------------------------------------- ----------------------------------------------
STATE CITY STATE CITY
------------- ------------- -------------- ------------
<S> <C> <C> <C>
Arizona Phoenix (1)
California Brea California La Mirada
Colorado Denver Colorado Florence
Florida Brooksville Florida Jacksonville
Kentucky Kosmosdale(2) Florida Miami
Ohio Fairborn Florida Palm Beach
Pennsylvania Pittsburgh(2) Florida Pensacola
Tennessee Knoxville Florida Tallahassee
Texas Odessa Florida Tampa
Georgia Atlanta
Kentucky Lexington(2)
North Carolina Castle Hayne
North Carolina Statesville
North Carolina Wilmington
Ohio Cincinnati(2)
Tennessee Grey Station
Tennessee Kingsport
Texas Amarillo
West Virginia Charleston(2)
West Virginia Huntington(2)
</TABLE>
---------------
(1) Acquired July 31, 1996.
(2) Owned by Kosmos Cement. The Company operates the joint venture's
plants, sales offices and terminals.
Import Competition - Historically, cement imports into the U.S. have
increased primarily to supplement domestic cement production during peak
demand periods. Throughout most of the 1980's, however, competition from low
priced imported cement in most coastal and border areas of the U.S. grew
significantly. According to the PCA, U.S. consumption of foreign cement
increased from approximately 4% of total U.S. consumption in 1982 to a peak
of approximately 20% in 1987. The large volume of low priced imported cement
depressed cement prices during a period of strong growth in cement
consumption.
In response to the surge of unfairly priced imports, groups of U.S.
industry participants, including the Company, filed antidumping petitions in
1989 against imports from Mexico and, in subsequent years, against imports
from certain other countries. Based upon affirmative final determinations of
the International Trade Commission (ITC) and the Department of Commerce
(DOC), an antidumping order was imposed against Mexican cement and clinker in
1990 and against Japanese cement and clinker in 1991. In addition, in
February 1992, the DOC suspended antidumping and countervailing duty
investigations of cement and clinker from Venezuela, based upon (i) the
Venezuelan cement producers'
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agreement to revise their prices to eliminate the dumping of gray portland
cement and clinker from Venezuela into the U.S., and (ii) the Venezuelan
government's agreement not to subsidize the Venezuelan cement producers. The
Company and other U.S. producers have benefited substantially from the
antidumping orders and the suspension agreement.
As a result of these orders, importers must tender antidumping duty cash
deposits to the U.S. Customs Service with each entry of cement or clinker
from Mexico or Japan equal to the customs value of the cement times the cash
deposit rate applicable to the exporter. In the case of Japan, imports of
cement and clinker have declined precipitously since the imposition of
antidumping duty cash deposits. Although imports from Mexico have continued,
they declined significantly after the antidumping order and remain well below
pre-order levels. The dumping margins and resulting rates of antidumping duty
cash deposits are subject to annual review by the DOC. In addition,
legislation passed by the U.S. Congress in December 1994 requires the
initiation of "sunset" reviews of the antidumping orders prior to January
2000 to determine whether these antidumping orders and the suspension
agreement should terminate or remain in effect.
In the case of Mexico, the dumping margins are subject to appeal either
to the U.S. Court of International Trade (CIT) and the U.S. Court of Appeals
for the Federal Circuit (CAFC) or to binational dispute panels under the
North American Free Trade Agreement (NAFTA). NAFTA has thus far had no
material adverse effect on the antidumping duty cash deposit rates imposed on
gray portland cement and clinker imported from Mexico. On September 13, 1996,
a NAFTA binational dispute resolution panel unanimously rejected Cemex's
appeal of the DOC's final results of the third administrative review. The
binational panel found that DOC's initiation of the original investigation
was consistent with U.S. and international law and rejected Cemex's claim
that an unadopted 1992 recommendation by a General Agreement on Tariffs and
Trade (GATT) dispute resolution panel required DOC to terminate the
antidumping order. In the third administrative review, DOC determined a
dumping margin for Cemex of 62% based on using the margin from the original
investigation as best information available (BIA). The panel found that DOC
had properly used BIA because of Cemex's refusal to provide DOC with
requested information on Cemex's home market pricing of cement.
DOC has also found significant dumping margins in other administrative
reviews of the antidumping order on Mexican cement. On September 27, 1996,
DOC released its redetermination on remand from the CIT in the second
administrative review period of August 1991 through July 1992. The final
dumping margin in this review was 109%. In the fourth administrative review,
covering Cemex's imports during August 1993 - July 1994, DOC determined a
preliminary dumping margin of 62%. DOC's final results of this review, when
issued, may be appealed to a NAFTA binational panel. In the fifth
administrative review, covering imports by Cemex during August 1994 - July
1995, DOC determined a preliminary dumping margin of 108%. DOC is scheduled
to issue final results of the fifth administrative review in April 1997,
which may then be appealed to a NAFTA binational panel. If these rulings are
upheld, Cemex's estimated liability for antidumping duties exceeds $81
million for its entries during the second, fourth and fifth review periods.
In addition, Cemex's estimated liabilities for duties in the first and third
administrative reviews (for which the DOC will request liquidation during
1997) is approximately $49 million.
A substantial reduction or elimination of the existing antidumping duties
as a result of the World Trade Organization, NAFTA, currency devaluation or
any other reason, or an influx of low-priced cement from countries not
subject to antidumping orders, could materially adversely affect the
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Company's results of operations. The Company, however, is of the opinion an
influx of low-priced cement imports from countries not subject to antidumping
orders is unlikely given the present circumstances in the U.S. market and the
ownership profile of import terminals. U.S. imports of foreign cement once
again increased in the mid-1990's as U.S. cement consumption began its
recovery. The PCA has estimated that imports represented approximately 14% of
U.S. consumption in 1996 as compared with approximately 16% in 1995 and 13%
in 1994. During this recent period of strong demand, however, and as a result
of the outstanding antidumping orders and the suspension agreement, the
prices of cement imports have risen. Unlike the imports during the 1980's,
many of the current imports are playing a supplementary rather than a
disruptive role, because they are being made by domestic producers in
response to cement demand in excess of the domestic supply. The Company owns
or leases a total of four cement terminals in locations capable of receiving
imported cement. To supplement its production capacity, the Company sought to
meet excess demand with limited purchases of imported cement in 1994 and
increased purchases of imported cement in 1995 and 1996.
CONCRETE PRODUCTS
COMPANY OPERATIONS
Ready-mixed concrete is a versatile, low-cost building material used in
almost all construction applications. Concrete is produced in batch plants by
mixing stone, sand, water and admixtures with cement, the basic binding
agent, and is transported to the customer's job site in mixer trucks. The
Company has vertically integrated its operations in the regional vicinity of
its two largest cement plants, which are located in Florida and in southern
California. During the last three years, the Florida concrete products
operations have consumed between 37% and 41% of the cement sold by the
Company's Florida cement plant, while the southern California concrete
products operations have purchased between 14% and 18% of the cement sold by
the Company's California cement plant. The Company believes that this
vertical integration into ready-mixed concrete and concrete products enhances
its overall competitive position in these markets, where most cement
producers are vertically integrated. During 1995, the Company increased its
vertical integration in southern California with the mid-year acquisition of
City Concrete Products, Inc.
The Company, also doing business in southern California as Transit
Mixed Concrete Company (Transmix) and through its subsidiaries, is a major
producer of ready-mixed concrete in that area and is a supplier of aggregate
in southern California. Transmix and the Company's other concrete affiliates
in California sell primarily to commercial and industrial builders, as well
as contractors on public construction projects. The Company, doing business
as Florida Mining & Materials Concrete Corp. (Florida Mining), is a major
producer and supplier of ready-mixed concrete and concrete masonry in
Florida. Florida Mining's sales include a high percentage of sales to
residential builders.
The Company's Concrete Products segment operates a combined total of
approximately 600 ready- mixed concrete trucks, approximately 70 batch
plants, 12 concrete block plants and, in California, two aggregate quarries,
one of which is under a long-term lease. The Company's estimate of its
combined annual practical capacity as of December 31, 1996 is in excess of
5.0 million cubic yards. The Company's concrete products operations in
California and Florida each purchase most of their cement from the Company's
cement plant in California and Florida, respectively. The southern California
concrete products operations extract sand and gravel for use in its
operations primarily from the two California aggregate quarries. The Company
presently purchases sand and gravel for use in its Florida
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ready-mixed concrete operations under a long-term aggregate supply contract.
Alternative supplies of cement and aggregate are readily available from other
sources, if necessary.
COMPETITION
The demand for concrete products is derived from the demand for
construction. The construction sector is subject to the vagaries of weather
conditions, the availability of financing at reasonable interest rates and
overall fluctuations in regional economies, which tend to be cyclical. The
burden of relatively high fixed costs results in a disproportionate impact on
profits from only minor variations in sales volume. Seasonal factors are not
as significant in the market areas served by the Company's concrete products
businesses as in some markets, but construction activity tends to diminish
during prolonged periods of inclement weather. In 1996, Company sales volumes
were 3.7 million cubic yards of ready- mixed concrete and approximately 1.4
million tons of aggregate. In 1995 and 1994 ready-mixed concrete sales
volumes totaled approximately 3.4 million cubic yards and 3.5 million cubic
yards, respectively, while sales volumes for the Company's southern
California aggregate operations were approximately 1.4 million tons and 1.0
million tons of aggregates, respectively.
Competition within each market includes numerous small and several
large ready-mixed concrete operators. Competition for sales volume is
strong, and is based primarily on price, with consistency of quality and
service to customers being of lesser significance. In Florida, Florida
Mining's principal competitors include Tarmac Florida, Inc., Rinker
Materials Corp. and Florida Rock Industries, Inc. In California, the
Company's principal competitors include United Ready-Mixed Concrete Co.
Inc., A&A Ready-Mixed Concrete, Inc., Robertson's Ready Mix, Inc. and
Catalina Pacific Concrete, Inc. and, for aggregate, CalMat Co.
ENVIRONMENTAL MATTERS
The Company is subject to a wide range of federal, state and local
laws, regulations and ordinances pertaining to the protection of the
environment. The most significant of these federal laws are the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as
amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA),
the Federal Water Pollution Control Act (commonly known as the Clean Water
Act) and the Clean Air Act (as amended in 1990). These laws regulate water
discharges and air emissions, as well as the handling, use and disposal of
hazardous and non-hazardous waste materials. CERCLA creates joint and several
liability for the cost of cleaning up or correcting releases to the
environment of designated hazardous substances which may, as a result,
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 or elsewhere.
The Clean Air Act Amendments of 1990 provided comprehensive federal
regulation of various sources of air pollution, and established a new federal
operating permit and fee program for virtually all manufacturing operations.
The Clean Air Act Amendments will likely result in increased capital and
operational expenses for the Company in the future, the amounts of which are
not presently determinable. As mandated by the Clean Air Act, beginning in
late 1995, the Company commenced submitting permit applications and paying
annual permit fees for its cement manufacturing plants. In addition, the U.S.
Environmental Protection Agency (U.S. EPA) is developing air toxics
regulations for a broad spectrum of industrial sectors, including portland
cement manufacturing. U.S. EPA has indicated that the new maximum available
control technology standards could require significant reduction of air
pollutants
9
<PAGE> 12
below existing levels prevalent in the industry. Management has no reason to
believe, however, that these new standards would place the Company at a
disadvantage with respect to its competitors. To the contrary, given the age,
condition, design and other features of the Company's cement manufacturing
facilities, these more stringent standards may enhance the Company's
competitive position.
Industrial operations have been conducted at the Company's cement
manufacturing facilities for many years. In the past, the Company disposed of
various materials used in its cement manufacturing and concrete products
operations in onsite and offsite facilities. Some of these materials, if
discarded today, might be classified as hazardous substances. Several of the
Company's previously and currently owned facilities are the subject of
various local, state or federal environmental proceedings and inquiries,
including being named a potentially responsible party with regard to
Superfund sites, primarily at locations to which they are alleged to have
shipped materials for disposal. While some of these matters have been settled
for de minimis amounts, others are in their preliminary stages and final
results may not be determined for years. Based on information developed to
date, the Company has no reason to believe it will be required to spend
significant sums in excess of the amounts reflected in the Company's
reserves. However, until all environmental studies, investigations,
remediation work and negotiations with or litigation against potential
sources of recovery have been completed, the ultimate cost that might be
incurred by the Company to resolve these environmental matters can not be
assured.
Recurring Costs of Environmental Compliance - Management believes that
the Company's current procedures and practices for handling and management of
materials are generally consistent with industry standards and legal
requirements and that appropriate precautions are taken to protect employees
and others from harmful exposure to hazardous 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. Owners and operators of
industrial facilities may be subject to fines or other actions imposed by the
U.S. EPA and corresponding state regulatory agencies for violations of laws
or regulations relating to hazardous substances. The Company has incurred
fines imposed by various environmental regulatory agencies in the past.
The Company's compliance with the exacting requirements and varying
interpretations of applicable laws and regulations related to the protection
of human health and the environment requires substantial expenditures and
significant amounts of management time and energy. Although the Company does
not maintain records that segregate such costs from the other costs of
on-going operations, management believes recurring environmental compliance
costs are a material component of total costs. In addition to current period
expenses, the Company typically spends several million dollars a year on
capital projects related to environmental compliance. Approximately $3.9
million, 5% of the budgeted 1997 capital expenditures, is related to
compliance with environmental regulations.
While the Company commits substantial resources to complying with the
laws and regulations concerning the protection of human health and the
environment, the Company considers this dedication of resources to be an
integral part of its business. As a consequence, management does not believe
that environmental compliance expenditures place the Company at a competitive
disadvantage with respect to other companies engaged in similar lines of
business operating in the U.S.
Cement Kiln Dust - Cement kiln dust (CKD) is a by-product of the cement
manufacturing process. The regulatory status of CKD is governed by the
so-called Bevill amendment, enacted as part of the Solid
10
<PAGE> 13
Waste Disposal Act Amendments of 1980. Under the Bevill amendment, CKD, along
with several other low hazard, high volume wastes identified by Congress, was
excluded from regulation as hazardous waste under the Resource Conservation
and Recovery Act (RCRA), Subtitle C, pending completion of a study and
recommendations to Congress by the U.S. EPA. On January 31, 1995, the U.S.
EPA issued its decision on the regulatory status of CKD. Although the U.S.
EPA determined further regulation of CKD was necessary, the agency stated
that it (i) found no evidence of risks associated with the use of cement
products and (ii) believes most secondary uses of CKD do not present
significant risks to people or the environment. The U.S. EPA has initiated a
rulemaking process in order to develop specially tailored CKD management
standards. This rulemaking is not expected to identify CKD as a RCRA
hazardous waste and the Bevill amendment exemption will remain in effect for
CKD until issuance of the new CKD management standards. It is estimated that
the proposed new standards for CKD will be published in late 1997. A change
in the status of CKD may require the cement industry to develop new methods
for handling this high volume, low toxicity waste.
Most manufacturing plants in the industry have typically disposed of
CKD in and around their respective plant sites since the inception of cement
manufacturing operations. 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. Leaching has led
to the classification of at least three CKD disposal sites of other companies
as federal Superfund sites. Over the period from mid-1991 through the end of
1995, as information became available, the Company recorded charges
aggregating approximately $13.3 million relating to a remediation project at
an inactive CKD disposal site in Ohio. The Company has expended a total of
approximately $12.2 million of the reserved amount on remediation of the site
through January 31, 1997. In late 1996, the Company submitted to the Ohio
Environmental Protection Agency (OEPA) a Feasibility Study report which
identified various remedial alternatives to address long term control of
releases from the CKD disposal site. The OEPA is currently reviewing this
report and the Company is awaiting final action on the site. The unexpended
portion of the total accrued liability is intended to cover the costs for
this final remedy. Until the OEPA renders a final decision on the Feasibility
Study report, the Company is unable to determine what additional costs, if
any, may be incurred on the project.
On a voluntary basis, 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 Company believes that USX is a
responsible party because it owned and operated the larger of the two sites
(USX Site) at the time of disposal of the CKD, and also arranged for the
disposal and transported the CKD to the USX Site. Based on the facts known at
this time, the Company itself disposed of no CKD at the USX Site and is
potentially liable only because of its current ownership of the USX Site. No
regulatory agency has directly asserted a claim against the Company as the
owner of the USX Site requiring it to remediate the property, and no cleanup
of the USX Site has yet been initiated.
The Company has filed a complaint against USX, alleging that USX is a
potentially responsible party under both federal and applicable Ohio law, and
therefore, jointly and severally liable for costs associated with cleanup of
the USX Site. The Company and USX have held settlement discussions with
respect to this matter and are currently jointly funding a phased approach to
investigating the problems at the USX Site. Based on the information obtained
to date from this investigation project, the Company now believes a viable
remediation solution is available at an undiscounted cost of $3.0 million
with
11
<PAGE> 14
approximately $400,000 of that to be expended initially and the balance to be
incurred over 20-30 years of subsequent monitoring and maintenance costs.
This remediation solution is still subject to detailed engineering and
approval by the OEPA, however, the Company now believes the USX matter can be
resolved without potential material adverse impact on the financial
statements of the Company. Furthermore, under federal 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. Therefore, based on the advice of counsel,
the Company believes there is a reasonable basis for the apportionment of
cleanup costs relating to the USX Site between the Company and USX with USX
shouldering substantially all of the cleanup costs.
No substantial investigative work has been undertaken at the Company's
other CKD sites in Ohio, however, several of the Company's other inactive CKD
disposal sites around the country are under study to determine if remedial
action is required and, if so, the extent of any such remedial action. 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.
Concrete Products - As with the cement operations, the concrete
products operations are presently the subject of extensive local, state or
federal environmental laws and regulations. The Company, along with other
entities with operations in the San Gabriel basin in the vicinity of Azusa,
California, has received notices of potential responsibility and requests for
information by the U.S. EPA. The Company presently leases and operates a
quarry in the vicinity of Azusa which the Company sold, together with a
related landfill, to a subsidiary of Browning-Ferris Industries, Inc. (BFI)
in 1987.
BFI is contractually obligated to indemnify the Company for any
environmental liability arising from the Company's prior ownership of the
land comprising its current aggregate and ready-mixed plant and the landfill
site. BFI is also contractually obligated to indemnify the Company for any
environmental liability arising from the Company's operation of the Azusa
landfill prior to the sale of the property to BFI in 1987. The Company has
formally requested that BFI indemnify and defend the Company with respect to
these matters.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 2,400
persons, including approximately 1,100 in the cement manufacturing
operations, 1,200 in the concrete products operations and the remainder in
the corporate office. Approximately 34% of the employees are represented by
collective bargaining units, primarily the International Brotherhood of
Boilermakers for the cement plants and the International Brotherhood of
Teamsters at the Company's unionized concrete products operations in
California. Collective bargaining agreements are in effect at all the
Company's cement plants, except for the non-union facility located in
Florida. Collective bargaining agreements are also in effect with all of the
Teamster local unions at the southern California ready-mixed operations. The
Company and the Teamster local unions have begun negotiations on an extension
or renewal of collective bargaining agreements that expire on April 1, 1997.
Members of the International Union of Operating Engineers (Operating
Engineers) struck the concrete products industry in California in the third
quarter of 1995. In the fourth quarter of 1995, the Company replaced those
employees who refused to return to work. The Operating Engineers filed unfair
labor practice charges with the National Labor Relations Board against the
Company and others in the industry. The Board initially ruled in the
Company's favor, and
12
<PAGE> 15
the Operating Engineers appealed. A decertification petition was filed and,
as of February 28, 1997, is on hold pending the ruling on the appeal.
SEGMENT INFORMATION
Revenues and earnings before interest expense and income taxes
contributed by each of the Company's industry segments during the periods
indicated as well as identifiable assets, depreciation, depletion and
amortization and capital expenditures by segment are presented in Note 3 of
Notes to Consolidated Financial Statements, which is incorporated herein by
this reference.
ITEM 2. PROPERTIES
The material appearing under Item 1 herein is incorporated hereunder by
reference, pursuant to Rule 12b-23. The Company's ownership interest in five
cement manufacturing facilities and the Company's joint venture interest in
Kosmos Cement Company, a Kentucky general partnership, are pledged as
security under the Company's revolving credit facility. (See also Note 11 of
Notes to Consolidated Financial Statements.)
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company may from time-to-time
be a named defendant in lawsuits related to various matters including
personal injury, contractual indemnifications, environmental remediation,
product liability and employment matters. Based on the information developed
to date and advice of outside counsel, the Company is of the opinion the
liability related to these lawsuits individually or in the aggregate, if any,
will not materially exceed the amounts accrued on the Company's books as of
December 31, 1996 and will have no material adverse effect on the
consolidated financial statements of the Company.
(a) The information appearing under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Known Events, Trends and Uncertainties - Environmental
Matters" is incorporated hereunder by reference, pursuant to Rule 12b-23.
(b) The Company owns two inactive CKD disposal sites in Ohio that were
formerly owned by a division of USX Corporation (USX). 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. (GEC) v. Southdown, Inc., 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 larger
of these two sites (USX Site) and is seeking injunctive relief, unspecified
civil penalties and attorney's fees, including expert witness fees (GEC
Case). In December 1994, GEC agreed to a separate out-of-court settlement
which included a cash payment by the Company to GEC and a covenant by the
Company not to store, burn or dispose of hazardous wastes at the Ohio cement
plant. As a result of the settlement, the GEC Case was stayed until January
2, 1997. This stay has been extended pending the completion of a Phase II
investigation in the USX Case, as discussed below.
13
<PAGE> 16
In September 1993, the Company filed a complaint against USX alleging
that with respect to the USX Site, USX is a potentially responsible party
under CERCLA and, therefore, jointly and severally liable for costs
associated with cleanup of the USX Site. (Southdown, Inc. vs. USX
Corporation, Case No. C-3-93-354, U.S. District Court, Southern District of
Ohio Western Division) (USX Case). In late September 1995, the Company and
USX entered into a partial settlement agreement wherein the Company dismissed
its claim for response costs incurred prior to September 29, 1995 and USX
agreed to pay the Company a specified amount representing half of certain
costs already incurred by the Company at the USX Site. The Company and USX
jointly funded the initial project of a phased approach to investigating and
remediating the problems at the USX Site and have since agreed to undertake a
Phase II investigation of remedial options. As a result, on August 13, 1996,
the Court issued a stay of the USX Case until, at least, March 1997 in order
to allow the Phase II investigation to be completed.
(c) In the matter of Jack Blair, et al. vs. Ideal Basic Industries,
Inc., United Cement, Lime, Gypsum and Allied Workers International Union, and
Dixie Cement Company (Chancery Court of Knox County, Tennessee, No.
03A1-CH-00029), which is described in the Company's 1995 Annual Report on
Form 10-K and Quarterly Report on Form 10-Q for the period ended March 31,
1996, the plaintiffs are fifteen former employees of Ideal Basic Industries,
Inc. (Ideal), and the defendants are Ideal, Dixie Cement Company (Dixie) (a
subsidiary of Moore McCormack Resources Inc. which was acquired by the
Company in 1988), and the United Cement, Lime, Gypsum and Allied Workers
International Union (Union). The Union and Plaintiffs reached a separate
settlement agreement in early 1996 and Plaintiffs' claim against the Union
has been dismissed. In February 1997, the Company and Plaintiffs reached a
settlement agreement in principle and are finalizing the documentation.
(d) 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, Pelto Oil Company (Pelto), 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.
In mid-1994, Murphy notified the Company that it had settled with the DOE by
agreeing to pay $10.7 million and that it would contact the Company later
concerning the Company's alleged share of this amount. The Company advised
Murphy that it did not accept liability for any portion of the settlement
amount paid to the DOE other than its pro rata share of attorney's fees,
which the Company paid. On April 10, 1995, Murphy filed a complaint against
the Company in the U.S. District court for the Southern District of Texas,
Houston Division (Murphy Exploration & Production Company v. Southdown, Inc.
- Case No. H-95-1049) alleging that the Company was liable for the Company's
pro rata share of the payment made to the DOE by Murphy in its capacity as
operator of the property. In late 1996, the Company and Murphy reached an
agreement whereby Murphy, for and in consideration of a payment made by the
Company, agreed to dismiss the lawsuit with prejudice and release and
discharge the Company from all liabilities and claims in connection with this
matter.
(e) In late 1988, Southern Prestressed, Inc. (SPI), a wholly owned
subsidiary of Lohja, Inc., was designated the Buyer in an Agreement for Sale
of Properties (Agreement) whereby certain prestressed concrete product plants
owned and operated by the Company were acquired. On June 30, 1995, SPI
14
<PAGE> 17
filed suit against the Company (Southern Prestressed, Inc. v. Florida Mining
& Materials Concrete Corp. and Southdown, Inc., Case No. C95-2217,
Thirteenth Judicial Circuit Court, Hillsborough County, Florida) alleging
environmental contamination at certain of the facilities SPI acquired from
the Company and seeking compensation under the indemnification provisions
of the Agreement. The Company has denied liability and is vigorously
contesting the matter.
(f) On September 13, 1994, the United States Department of Justice
(DOJ), acting on behalf of the U.S. EPA, brought an action against the
Company in the United States District Court for the Northern District of
Florida alleging certain violations of the National Pollutant Discharge
Elimination System (NPDES) permit issued to a ready-mixed concrete facility
operated by the Company located in Tallahassee, Florida.
The Company and DOJ reached a settlement of this matter in mid-1996,
which was memorialized in a Consent Decree entered on September 4, 1996.
Under the Consent Decree, the Company committed to pay the United States the
sum of $350,000 and to carry out a Supplemental Environmental Project. The
Supplemental Environmental Project involved a commitment by the Company to
conduct a series of educational seminars for the ready-mixed concrete
association addressing the general environmental obligations of the industry,
with specific emphasis on the regulatory programs governing water and
wastewater. The Consent Decree called for the Company to invest a minimum of
$200,000 to complete these seminars.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the quarter ended December 31, 1996.
15
<PAGE> 18
P A R T I I
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS.
MARKET PRICES AND DIVIDENDS ON COMMON STOCK AND SHAREHOLDER INFORMATION
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 stock for the indicated periods as reported by the NYSE.
<TABLE>
<CAPTION>
FISCAL YEAR 1996 HIGH LOW DIVIDEND
- --------------------------------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
First Quarter, ended March 1996 $ 24.50 $ 18.00 0.10
Second Quarter, ended June 1996 24.88 20.75 0.10
Third Quarter, ended September 1996 25.75 19.50 0.10
Fourth Quarter, ended December 1996 32.88 24.50 0.10
FISCAL YEAR 1995 HIGH LOW DIVIDEND
- --------------------------------------------- ----------------- ----------------- ------------------
First Quarter, ended March 1995 $ 17.25 $ 11.50 *
Second Quarter, ended June 1995 20.75 17.00 *
Third Quarter, ended September 1995 21.75 16.50 *
Fourth Quarter, ended December 1995 19.75 14.25 *
</TABLE>
- ------------------------------------
* No dividend declared.
On January 31, 1997, the Board of Directors approved the payment of a
fifth consecutive $0.10 per share quarterly dividend on the Company's common
stock. The dividend was paid on February 28, 1997 to shareholders of record
on February 14, 1997.
For certain information describing the Company's capital stock, rights
plan and change in control provisions, see Note 18 of Notes to Consolidated
Financial Statements.
On February 28, 1997, there were 1,653 holders of record of the
Company's common stock. On February 28, 1997, the closing price of the stock
was $35.75.
16
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 664.4 $ 596.1 $ 560.3 $ 507.7 $ 463.1
============ ============ =========== =========== ==========
Earnings (loss) from continuing operations $ 71.2 $ 47.5 $ 30.1 $ 3.6 $(16.9)
Loss from discontinued environmental services
operations, net of income taxes (1) - - (5.9) (3.6) (24.5)
Loss on disposition of discontinued environmental
services operations, net of income taxes (1) - - (21.6) - -
Gain on disposition of discontinued oil and gas
operations, net of income taxes (2) - - - - 0.8
Extraordinary charge, net of income taxes (3) (11.5) - - (1.0) -
Cumulative effect of change in accounting
principle, net of income taxes (4) - - - (48.5) -
------------ ------------ ------------- --------- -----------
Net earnings (loss) $ 59.7 $ 47.5 $ 2.6 $ (49.5) $(40.6)
============ ============ ============= ========= ===========
Primary earnings (loss) per share -
Continuing operations $ 3.41 $ 2.15 $ 1.20$ (0.09) $ (1.29)
Loss from discontinued environmental services
operations, net of income taxes (1) - - (0.34) (0.21) (1.45)
Loss on disposition of discontinued environmental
services operations, net of income taxes (1) - - (1.26) - -
Gain on disposition of discontinued oil and gas
operations, net of income taxes (2) - - - - 0.05
Extraordinary charge, net of income taxes (3) (0.62) - - (0.06) -
Cumulative effect of change in accounting
principle, net of income taxes (4) - - - (2.86) -
------------ ------------ ------------- --------- -----------
Net earnings (loss) $ 2.79 $ 2.15 $ (0.40) $ (3.22) $ (2.69)
============ ============ ============= ========= ===========
Fully diluted earnings (loss) per share -
Continuing operations $ 2.96 $ 2.02 $ 1.20 $ (0.09) $ (1.29)
Loss from discontinued environmental services
operations, net of income taxes (1) - - (0.34) (0.21) (1.45)
Loss on disposition of discontinued environmental
services operations, net of income taxes (1) - - (1.26) - -
Gain on disposition of discontinued oil and gas
operations, net of income taxes (2) - - - - 0.05
Extraordinary charge, net of income taxes (3) (0.48) - - (0.06) -
Cumulative effect of change in accounting
principle, net of income taxes (4) - - - (2.86) -
------------ ------------ ------------- --------- -----------
Net earnings (loss) $ 2.48 $ 2.02 $ (0.40) $ (3.22) $ (2.69)
============ ============ ============= ========= ===========
Total assets $ 932.0 $ 875.5 $ 881.0 $ 907.0 $921.5
============ ============ ============= ========= ===========
Capital expenditures (5) $ 64.5 $ 32.9 $ 28.8 $ 13.4 $ 7.7
============ ============ ============= ========= ===========
Depreciation, depletion and amortization (6) $ 45.1 $ 42.9 $ 42.8 $ 41.3 $ 45.4
============ ============ ============= ========= ===========
Total debt $ 165.6 $ 175.2 $ 186.1 $ 293.9 $ 314.8
============ ============ ============= ========= ===========
Shareholders' equity $ 439.3 $ 375.0 $ 337.1 $ 262.2 $ 316.4
============ ============ ============= ========= ===========
Ratio of debt to total capitalization (7) 27.4% 31.8% 35.6% 52.9% 49.9%
============ ============ ============= ========= ===========
Cash dividends paid per share of
common stock $ 0.40 $ - $ - $ - $ -
============ ============ ============= ========= ===========
</TABLE>
- ---------------------
(1)In November 1994, the Company decided to exit the environmental services
business and these business activities are presented as discontinued
operations for years 1992 through 1994. (See also Note 20 of Notes to
Consolidated Financial Statements.)
(2)Final portion of the Company's gain realized in conjunction with the
1989 sale of the Company's oil and gas operations.
(3)Premium on early extinguishment of debt.
(4)Cumulative after-tax effect of change in accounting for initial
obligation for estimated postretirement health care benefits as
required by adoption of Statement of Financial Accounting Standards No.
106 effective January 1, 1993.
(5)Excluding acquisition expenditures of $6.2 million, $12.6 million, $16.1
million and $2.9 million in years 1996, 1995, 1994 and 1993, respectively.
There were no acquisition expenditures in 1992.
(6)Includes amortization of debt issuance costs.
(7)Total capitalization represents the sum of the book value of total debt
and shareholders' equity.
Management's Discussion and Analysis of Financial Condition and Results
of Operations related to this information appears on Page 18 of this report.
17
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994
----------- ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues $ 664.4 $ 596.1 $ 560.3
=========== ============ ============
Costs and expenses $ 530.7 $ 492.8 $ 484.5
=========== ============ ============
Operating earnings (1) $ 127.5 $ 97.5 $ 71.7
=========== ============ ============
Interest expense $ (19.8) $ (26.7) $ (27.7)
=========== ============ ============
Income tax expense $ (36.5) $ (23.3) $ (13.9)
=========== ============ ============
Earnings from continuing operations $ 71.2 $ 47.5 $ 30.1
=========== ============ ============
Net earnings $ 59.7 $ 47.5 $ 2.6
=========== ============ ============
Fully diluted earnings (loss) per share
Continuing operations $ 2.96 $ 2.02 $ 1.20
=========== ============ ============
Net earnings (loss) $ 2.48 $ 2.02 $ (0.40)
=========== ============ ============
</TABLE>
(1) Continuing operations before interest and income tax expense.
CONSOLIDATED EARNINGS
1996 compared with 1995 - Net earnings for 1996 were $59.7 million or
$2.48 per share, fully diluted, compared with $47.5 million or $2.02 per
share in the prior year. Results for 1996 included an extraordinary charge of
$11.5 million, $0.48 per share fully diluted, reflecting prepayment premium
and other costs incurred on the early retirement of $125 million of the
Company's 14% Senior Subordinated Notes due 2001, Series B (the 14% Notes).
The year-over-year improvement resulted primarily from record Cement segment
earnings which surpassed the previous record by $22.1 million or 20%. A $5.9
million improvement in the results reported by Concrete Products, a 9%
reduction in Corporate expenses and a 26% reduction in interest expense also
contributed significantly to the year-over-year improvement. The Cement
segment benefited from a 667,000 ton increase in cement sales volumes and a
3% improvement in the weighted average sales price. Even excluding a third
quarter $1.5 million gain from the sale of surplus California real estate,
the Concrete Products segment achieved a significant improvement, primarily
because of higher earnings from the Florida Concrete operation. Corporate
overhead expenses declined primarily because the 1996 credit to pension
expense was $1.7 million higher than 1995. The 26% reduction of interest
expense for the year reflects the refinancing of the 14% Notes and lower
borrowings on the Company's revolving credit facility.
1995 compared with 1994 - Net earnings for 1995 were $47.5 million or
$2.02 per share, fully diluted, compared with $2.6 million, a loss of $0.40
per share, in the prior year, including a net after tax loss from the
discontinued environmental services operation of $27.5 million, $1.60 per
share.
18
<PAGE> 21
Consolidated revenues in 1995 were 6% higher than 1994 because of higher
average per unit sales prices. The year-over-year improvement in pre-tax
earnings resulted from a 24% increase in cement earnings, a 14% reduction in
corporate expenses and a 4% reduction in interest expense. The Cement segment
benefited from a 9% improvement in average sales prices, partly offset by a
3% decrease in sales volume and higher unit cost of sales. Excluding the 1994
gains on the sale of surplus used mixer trucks, operating earnings reported
by the Concrete Products segment for 1995 were approximately the same as
compared with the prior year period. Corporate overhead expenses in 1995 were
lower than in the prior year primarily because of a $3.3 million reduction in
post-retirement benefits expense. The reduction of interest expense primarily
reflects the early retirement of $90 million of the Company's 12% Senior
Subordinated Notes Due 1997 (12% Notes) during 1994.
The Company's effective tax rate, which includes state taxes,
approximated the federal statutory rate for 1996. The Company's effective tax
rate was lower than the federal statutory rate for 1995 and 1994 primarily
because of the favorable impact of permanent differences related to statutory
depletion in excess of cost depletion applicable to the Company's limestone
mining operations. The 1995 effective rate was higher than the 1994 effective
rate primarily because of the smaller relative benefit of statutory depletion
in 1995 compared with the higher 1995 pre-tax income.
SEGMENT OPERATING EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994
------------ ------------ -------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Cement $ 473.0 $ 419.1 $ 397.5
Concrete Products 241.0 219.2 208.1
Intersegment sales (49.6) (42.2) (45.3)
------------ ------------ -------------
$ 664.4 $ 596.1 $ 560.3
============ ============ =============
OPERATING EARNINGS (EXPENSE):
Cement $ 134.8 $ 112.7 $ 91.2
Concrete Products 13.8 7.9 9.3
Corporate overhead (21.1) (23.1) (28.8)
------------ ------------ -------------
$ 127.5 $ 97.5 $ 71.7
============ ============ =============
</TABLE>
Cement - Operating earnings for 1996 were $134.8 million compared with
$112.7 million in the prior year. The Cement segment benefited from a 667,000
ton increase in cement sales volumes and a 3% improvement in weighted average
sales price. The higher sales volumes and sales prices reflect strong demand
and continued improvement in market conditions. Sales volumes improved at all
of the Company's plants. Operating earnings for 1995 were $112.7 million
compared with $91.2 million in the prior year. Despite lower sales volumes
attributable to inclement weather in several market areas and higher per unit
operating costs, 1995 operating earnings improved over the prior year
primarily because of a $4.92 per ton increase in average cement sales prices.
The 1995 increase in unit cost of
19
<PAGE> 22
sales over 1994 reflects: (i) a 24% increase in outside purchases of higher
cost finished cement and (ii) higher terminal operating costs in the
Company's Florida market area where an additional terminal was acquired in
late 1994.
Sales volumes and average unit prices, unit manufacturing and other
plant operating costs and unit margins relating to cement plant operations
for the past three years appear in the table below:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- -------
<S> <C> <C> <C>
Tons of cement sold (in thousands) 6,725 6,058 6,218
=========== ========== =========
Weighted average per ton data:
Sales price (net of freight) $ 62.45 $ 60.69 $ 55.77
Manufacturing and other plant operating costs(1) 42.43 41.97 40.95
---------- ---------- ----------
Margin $ 20.02 $ 18.72 $ 14.82
=========== ========== =========
</TABLE>
--------------
(1) Includes fixed and variable manufacturing costs, selling
expenses, cost of purchased cement, plant general and
administrative costs, other plant overhead and miscellaneous
costs.
Concrete Products - The Concrete Products segment's operating earnings
for 1996 were $13.8 million compared with $7.9 million in the prior year.
Revenues increased 10% over the prior year reflecting higher sales volumes
from the Florida operation and improved sales prices from both Florida and
southern California operations. Even excluding a $1.5 million gain on the
sale of surplus California real estate in 1996, the Concrete Products segment
achieved a significant improvement, primarily because of higher earnings from
the Florida Concrete operation. Fair weather and a strong Florida
construction market resulted in higher sales volumes and sales prices.
Excluding the previously mentioned gain, operating results from the
California Concrete Products operations improved slightly. The California
Concrete Products operating results were favorably impacted by a 6%
improvement in ready-mixed concrete sales prices offset by a 16% decline in
earnings from the aggregate operation. Sluggish construction activity in the
California market area for concrete products continues to negatively impact
operating results.
The Concrete Products segment's operating earnings for 1995 were $7.9
million compared with $9.3 million in the prior year. The 1994 results
include $1.7 million in gains realized on sales of used mixer trucks. Higher
ready-mixed concrete sales prices attributable to price increases implemented
in Florida during the previous twelve months were offset by lower sales
volumes of ready-mixed concrete and higher operating costs. The decline in
ready-mixed sales volumes in 1995 compared with 1994 reflects strike related
problems in California and, in Florida, a decline in residential construction
as well as abnormally heavy rainfall in much of the market area. Operating
costs were higher because of: (i) lower volumes which resulted in fixed costs
being spread over fewer units, (ii) higher priced raw materials (primarily
the increases in cement prices which are discussed under "Cement" above) and,
(iii) costs associated with an industry-wide labor strike in California.
20
<PAGE> 23
Sales volumes, average unit prices and unit operating cost and unit
margins relating to the Company's ready-mixed concrete operations for the
past three years appear in the following table:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- -------
<S> <C> <C> <C>
Cubic yards of ready-mixed concrete
sold (in thousands) 3,704 3,442 3,530
=========== ========== ==========
Weighted average per cubic yard data:
Sales price $ 53.06 $ 51.34 $ 47.76
Operating costs (1) 51.45 50.75 47.32
----------- ---------- ----------
Margins $ 1.61 $ 0.59 $ 0.44
=========== ========== ==========
</TABLE>
(1) Includes variable and fixed plant costs, delivery, selling,
general and administrative and miscellaneous operating costs, but
excluding the $1.5 million gain realized on the sale of surplus
California real estate in 1996 and the $1.7 million gain realized
on the sale of trucks during 1994.
While most of the revenues for the segment are generated by ready-mixed
concrete operations, the Concrete Products segment operations also include
the manufacture and sale of concrete block, the sale of masonry contractors'
supplies, the mining and sale of aggregate to third parties in southern
California and, in Florida, the sale of flyash. These collateral operations
contributed approximately $6.3 million in 1996 and $6.0 million to this
segment's operating results in both 1995 and 1994.
Corporate Overhead - Corporate overhead consists primarily of costs
attributable to the Company's Houston, Texas office which are not generally
allocated to the business segments as well as interest income on invested
funds and miscellaneous other income and expense items. Corporate overhead in
1996 declined primarily because the current year credit to pension expense
was $1.7 million higher than the prior year. Corporate overhead in 1995
reflects the favorable impact of a further reduction in the long-term
liability for post retirement benefits. The reduction is the result of a
revision to actuarial assumptions used to compute the liability in order to
(i) take into account the higher interest rates in effect at the beginning of
the 1995 measurement period, (ii) factor in the Company's lower than expected
claims experience and (iii) conform the long-term post retirement benefits
contractually proffered to the Company's unionized cement plant workers with
those benefits available to the rest of the Company's employees.
Discontinued Operations - In November 1994, the Company decided to
discontinue its environmental services business and recorded an after-tax
charge of $21.6 million or $1.26 per share to reflect the difference between
the book value of this line of business' assets and the estimated proceeds
from asset sales, as well as the costs to exit the business and estimated
losses to be incurred prior to the sale of assets. The charge as well as the
results from the environmental services business are shown in the Company's
financial statements as discontinued operations, net of income tax effect,
for years 1994 and prior. The loss from operations of the discontinued
environmental services business was $5.9 million in 1994.
21
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995 1994
------------- ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Cash, cash equivalents and
short-term investments $ 57.2 $ 7.7 $ 7.4
============= ============= =============
Working capital $ 119.8 $ 81.8 $ 79.5
============= ============= =============
Net cash provided by operating
activities $ 150.4 $ 65.4 $ 86.8
============= ============= =============
Net cash used in investing activities $ 72.2 $ 37.6 $ 50.5
============= ============= =============
Net cash used in financing activities $ 40.5 $ 27.5 $ 36.3
============= ============= =============
Total assets $ 932.0 $ 875.5 $ 881.0
============= ============= =============
Total debt $ 165.6 $ 175.2 $ 186.1
============= ============= =============
Capital expenditures $ 59.0 $ 32.9 $ 28.8
============= ============= =============
Capital acquisitions $ 6.2 $ 12.6 $ 16.1
============= ============= =============
</TABLE>
The net proceeds from the Company's 1996 issuance of $125 million of
10% Senior Subordinated Notes due 2006 (the 10% Notes) and other funds were
utilized to repurchase $125 million of the Company's 14% Notes and to pay the
related prepayment premium and other costs.
The Company's short-term liquidity needs have generally been satisfied
by: (i) internally generated cash flow from operations, (ii) borrowings under
the Company's revolving credit facility or (iii) a combination of these two
sources. In 1996, internally generated funds from operations were utilized to
(i) invest approximately $59 million in plant, property and equipment, (ii)
acquire a cement distribution terminal in Phoenix, Arizona, (iii) reduce
borrowings outstanding under the Company's revolving credit facility, and
(iv) pay dividends on preferred and common stock. Internally generated cash
flow from operations and borrowings under its revolving credit facility were
utilized to meet all of the Company's cash requirements for the year ended
December 31, 1995. Such cash flow was utilized to: (i) fund working capital
requirements, including the build-up of inventories, (ii) invest
approximately $32.9 million in property, plant and equipment additions, (iii)
acquire additional ready-mixed concrete operations in Florida and southern
California for a total of $12.6 million, (iv) reduce long-term debt, and (v)
pay dividends on preferred stock.
The Company's revolving credit facility totals $200 million and matures
in October 2000. The Company's ownership interest in five cement
manufacturing facilities and the Company's joint venture interest in Kosmos
Cement are pledged to secure the Company's revolving credit facility. The
terms of the revolving credit facility also permit the issuance of standby
letters of credit up to a maximum of $95 million in lieu of borrowings. At
February 28, 1997, there were no borrowings and $51.4 million of letters of
credit were outstanding under the revolving credit facility, leaving $148.6
million of unused and unrestricted capacity.
22
<PAGE> 25
In late 1996, the Company called for redemption of all of the shares of
its Preferred Stock, $0.70 Cumulative Convertible Series A (Series A
Preferred Stock) and Preferred Stock, $3.75 Convertible Exchangeable Series B
(Series B Preferred Stock). One hundred percent of the Series A Preferred
Stock was converted into 997,000 shares of common stock prior to the
redemption date. All but 300 shares of the Series B Preferred Stock were
converted into 2,285,000 shares of common stock prior to the redemption date.
The conversion of the Series A Preferred Stock and the Series B Preferred
Stock into common stock has enhanced the Company's capital structure by
reducing fixed charges attributable to the difference between preferred and
common stock dividends by approximately $3.5 million per year.
During 1996, the Company received $20 million in proceeds from the
exercise of 1,250,000 warrants issued pursuant to the terms of a Warrant
Agreement dated as of October 31, 1991. Each warrant entitled the holder to
purchase one share of common stock at a price of $16 per share until October
31, 1996.
Early in 1994, the Company realized approximately $83 million in net
proceeds from the sale of 1,725,000 shares of a new issue of preferred stock.
The net proceeds were used to prepay a promissory note and to reduce
borrowings under the Company's revolving credit facility.
CASH FLOWS
Operating Activities - Cash provided by operating activities in 1996
was $150.4 million. Cash provided by operating activities in 1995 and 1994
was $65.4 million and $86.8 million, respectively. The increase in cash
provided by operating activities in 1996 resulted from: (i) a significant
increase in earnings from continuing operations before extraordinary charge,
(ii) the timing of payments on normal trade, tax and other obligations, (iii)
a decline in cement and clinker inventory levels, and (iv) the repayment of
various large notes receivables. The decline in cash provided by operating
activities in 1995 resulted from (i) payments made to exit the environmental
services business, (ii) the timing of payments on normal trade and other
obligations and (iii) the increase in cement and clinker inventory levels.
Investing Activities - Net cash used in 1996 investing activities was
$72.2 million including acquisitions of $6.2 million and $59 million of
additions to property, plant and equipment. Investing activities in 1995
included approximately $32.9 million of capital expenditures and $12.6
million in acquisitions. In addition to routine capital expenditures,
investing activities for 1994 included the acquisition of a cement import
terminal in Florida along with certain working capital items for
approximately $16 million in cash.
Financing Activities - The proceeds from the issuance of $125 million
of 10% Notes combined with other borrowings were utilized to repurchase $125
million of the 14% Notes and to pay the related prepayment premium and other
costs. Cash was also used in financing activities in 1996 to repurchase $5.6
million of common stock and pay dividends on capital stock. The exercise of
1.25 million warrants to purchase common stock provided $20 million in cash
from financing activities. Net cash used in financing activities in 1995 was
$27.5 million in order to reduce long-term debt by $12.7 million and pay
dividends on preferred stock. During 1994, the Company realized approximately
$83 million in net proceeds from the sale of a new series of preferred stock
which was used to prepay an $18 million promissory note and to reduce
borrowings under the Company's revolving credit facility. The Company
23
<PAGE> 26
had used borrowings under its revolving credit facility to redeem $90 million
of the Company's 12% Notes.
CHANGES IN FINANCIAL CONDITION
The change in the financial condition of the Company between December
31, 1995 and December 31, 1996 reflects the use of the proceeds from the
March 1996 issuance of $125 million of 10% Notes and the increase in
internally generated cash flow to complete the repurchase of $125 million of
the 14% Notes, pay down borrowings under the Company's revolving credit
facility and fund capital expenditures and capital stock dividends. Accounts
and notes receivable increased reflecting the additional sales activity
occurring in 1996 relative to the prior year. The decrease in inventories
reflects the higher than anticipated cement sales volumes during 1996. The
decrease in deferred income taxes primarily reflects the realization of
temporary differences related to the reduction of net operating loss
carryforwards. The decrease in other long-term assets reflects the final
settlement of various long-term receivables during 1996. Accounts payable and
accrued liabilities increased because of the timing of payments on taxes and
normal trade and other obligations. The decrease in the long-term portion of
postretirement benefit obligation reflects the continuing amortization of the
Company's unrecognized prior service credit and unrecognized net gain. Other
liabilities and deferred credits decreased because of payments made on
certain retained liabilities related to shipping operations formerly owned by
Moore McCormack Resources, Inc. The reduction in the Series A and B Preferred
Stock and the increase in common stock and additional paid in capital
reflects the conversion of substantially all of these preferred stock issues
into shares of common stock.
CAPITAL EXPENDITURES
The Company invested $64.5 million in property, plant and equipment in
1996 including approximately $56.7 million for the Cement operations and $6.8
million for Concrete Products. The Company's 1997 planned capital
expenditures are approximately $78 million, of which $65 million is allocated
for the Cement segment and $11 million for the Concrete Products segment.
Capital expenditures during 1996 amounted to $56.7 million for the
Cement segment compared with $25.1 million and $16.8 million in 1995 and
1994, respectively. While the Company had been somewhat capital constrained
for several years in the past, improved cash flow from operations enabled the
Company to significantly increase its capital expenditure budget in 1996 in
order to achieve process enhancements which are expected to yield
improvements in efficiency and productivity. The budgeted Cement segment 1997
capital outlays of approximately $65 million include $10.5 million
representing the final portion of the total cost to complete the
modernization and expansion of the Company's Ohio plant and approximately $23
million estimated to be spent in 1997 to expand and modernize the
Victorville, California plant. Budgeted 1997 capital expenditures also
include approximately $6.0 million in quarry development costs at the
Colorado plant and $2.4 million related to compliance with environmental
regulations. The Company believes its expected cash flow from operating
activities will be sufficient to fund these capital expenditures. If
necessary, the Company has sufficient borrowing capacity available under its
revolving credit facility to supplement these expected future operating cash
flows.
Capital expenditures during 1996 amounted to $6.8 million for the
Concrete Products segment, compared with $6.7 million and $9.4 million in
1995 and 1994, respectively. Capital expenditures in
24
<PAGE> 27
1996 were primarily designed to further increase labor productivity, improve
equipment availability and increase plant production rates. In most instances
new mobile equipment is being leased instead of purchased. Capital outlays
for the Concrete Products segment in 1997 have been budgeted at approximately
$11 million, including approximately $8.0 million in plant expansion,
equipment replacement and modernization, $1.0 million in quarry development,
$1.5 million related to compliance with environmental regulations and the
balance for general purchases.
KNOWN EVENTS, TRENDS AND UNCERTAINTIES
ENVIRONMENTAL MATTERS
The Company is subject to a wide range of federal, state and local
laws, regulations and ordinances pertaining to the protection of the
environment. The most significant of these federal laws are the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as
amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA),
the Federal Water Pollution Control Act (commonly known as the Clean Water
Act) and the Clean Air Act (as amended in 1990). These laws regulate water
discharges and air emissions, as well as the handling, use and disposal of
hazardous and non-hazardous waste materials and create joint and several
liability for the cost of cleaning up or correcting releases to the
environment of designated hazardous substances which may, as a result,
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 or elsewhere.
The Clean Air Act Amendments of 1990 provided comprehensive federal
regulation of various sources of air pollution, and established a new federal
operating permit and fee program for virtually all manufacturing operations.
The Clean Air Act Amendments will likely result in increased capital and
operational expenses for the Company in the future, the amounts of which are
not presently determinable. As mandated by the Clean Air Act, beginning in
late 1995, the Company commenced submitting permit applications and paying
annual permit fees for its cement manufacturing plants. In addition, the U.S.
Environmental Protection Agency (U.S. EPA) is developing air toxics
regulations for a broad spectrum of industrial sectors, including portland
cement manufacturing. U.S. 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. Management has no
reason to believe, however, that these new standards would place the Company
at a disadvantage with respect to its competitors. To the contrary, given the
age, condition, design and other features of the Company's cement
manufacturing facilities, these more stringent standards may enhance the
Company's competitive position compared with its competitors.
Industrial operations have been conducted at the Company's cement
manufacturing facilities for many years. In the past, the Company disposed of
various materials used in its cement manufacturing and concrete products
operations in onsite and offsite facilities. Some of these materials, if
discarded today, might be classified as hazardous substances. Cement kiln
dust (CKD) is a by-product of the cement manufacturing process. Most
manufacturing plants in the industry have typically disposed of CKD in and
around their respective plant sites since the inception of cement
manufacturing operations. 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. The regulatory
status of CKD is governed by the so-called Bevill amendment, enacted as part
of the Solid Waste Disposal Act Amendments of 1980. Under the Bevill
amendment, CKD, along with several other low hazard, high
25
<PAGE> 28
volume wastes identified by Congress, was excluded from regulation as
hazardous waste under the Resource Conservation and Recovery Act (RCRA),
Subtitle C, pending completion of a study and recommendations to Congress by
the U.S. EPA. On January 31, 1995, the U.S. EPA issued its decision on the
regulatory status of CKD. Although the U.S. EPA determined further regulation
of CKD was necessary, the agency stated that it (i) found no evidence of
risks associated with the use of cement products and (ii) believes most
secondary uses of CKD do not present significant risks to people or the
environment. The U.S. EPA has initiated a rulemaking process in order to
develop specially tailored CKD management standards. This rulemaking is not
expected to identify CKD as a RCRA hazardous waste and the Bevill amendment
exemption will remain in effect for CKD until issuance of the new CKD
management standards. It is estimated that the proposed new standards for CKD
will be published in late 1997. A change in the status of CKD may require the
cement industry to develop new methods for handling this high volume, low
toxicity waste.
Several of the Company's previously and currently owned facilities have
become the subject of various local, state or federal environmental
proceedings and inquiries. Included among these environmental matters are
being named a potentially responsible party with regard to Superfund sites,
primarily at locations to which the Company is alleged to have shipped
materials for disposal, and the Company's voluntary remediation of an
inactive CKD site in Ohio and investigation of several other inactive CKD
disposal sites in Ohio and elsewhere around the country. While some of these
matters have been settled for de minimis amounts, others are in their
preliminary stages and final results may not be determined for years. Over
the period from mid-1991 through the end of 1995, as information became
available, the Company recorded charges aggregating approximately $13.3
million relating to a remediation project at an inactive CKD disposal site in
Ohio. The Company has expended a total of approximately $12.2 million of the
reserved amount on remediation of the site through January 31, 1997. Based on
the information developed to date, the Company has no reason to believe it
will be required to spend significant sums in excess of the amounts reflected
in the Company's reserves. However, until all environmental studies,
investigations, remediation work and negotiations with or litigation against
potential sources of recovery have been completed, it is impossible to
determine the ultimate cost that might be incurred by the Company to resolve
these environmental matters.
Concrete Products - The Company presently leases and operates a quarry
in the vicinity of Azusa which the Company sold, together with a related
landfill, to a subsidiary of Browning-Ferris Industries, Inc. (BFI) in 1987.
The Company, along with other entities with activities and operations in the
San Gabriel basin in the vicinity of Azusa, California, has received notices
of potential responsibility and requests for information by the U.S. EPA. BFI
is contractually obligated to indemnify the Company for any environmental
liability arising from the Company's prior ownership of the land comprising
its current aggregate and ready-mixed plant and the landfill site. BFI is
also contractually obligated to indemnify the Company for any environmental
liability arising from the Company's operation of the Azusa landfill prior to
the sale of the property to BFI in 1987. The Company has formally requested
that BFI indemnify and defend the Company with respect to these matters.
Recurring Costs of Environmental Compliance - The Company's compliance
with the exacting requirements and varying interpretations of applicable laws
and regulations related to the protection of human health and the environment
requires substantial expenditures and significant amounts of management time
and energy. Although the Company does not maintain records that segregate
such costs from the other costs of on-going operations, management believes
recurring environmental compliance costs are a material component of total
costs.
26
<PAGE> 29
Management believes that the Company's current procedures and practices
for handling and management of materials are generally consistent with
industry standards and legal requirements and that appropriate precautions
are taken to protect employees and others from harmful exposure to hazardous
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. Owners and operators of industrial facilities may be subject to
fines or other actions imposed by the U.S. EPA and corresponding state
regulatory agencies for violations of laws or regulations relating to
hazardous substances.
In addition to current period expenses, the Company typically spends
several million dollars a year on capital projects related to environmental
compliance. Approximately $3.9 million, 5% of the budgeted 1997 capital
expenditures, is related to compliance with environmental regulations. While
the Company commits substantial resources to complying with the laws and
regulations concerning the protection of human health and the environment,
the Company considers this dedication of resources to be an integral part of
its business. Nonetheless, regulatory changes, enforcement activities or
other factors could alter environmental compliance costs at any time. In
addition, future changes in regulatory requirements related to the protection
of human health and the environment may require the Company and others
engaged in industry to modify various facilities and alter methods of
operations at costs that may be substantial. Management, however, has no
reason to believe that the Company would be placed at a competitive
disadvantage with respect to other companies engaged in similar lines of
business operating in the U.S.
OTHER CONTINGENCIES
Import Competition - Historically, cement imports into the U.S. have
increased primarily to supplement domestic cement production during peak
demand periods. Throughout most of the 1980's, however, competition from low
priced imported cement in most coastal and border areas of the U.S. grew
significantly. According to the Portland Cement Association (PCA), U.S.
consumption of foreign cement increased from approximately 4% of total U.S.
consumption in 1982 to a peak of approximately 20% in 1987. The large volume
of low priced imported cement depressed cement prices during a period of
strong growth in cement consumption.
In response to the surge of unfairly priced imports, groups of U.S.
industry participants, including the Company, filed antidumping petitions in
1989 against imports from Mexico and, in subsequent years, against imports
from certain other countries. Based upon affirmative final determinations of
the International Trade Commission (ITC) and the Department of Commerce
(DOC), an antidumping order was imposed against Mexican cement and clinker in
1990 and against Japanese cement and clinker in 1991. In addition, in
February 1992, the DOC suspended antidumping and countervailing duty
investigations of cement and clinker from Venezuela, based upon (i) the
Venezuelan cement producers' agreement to revise their prices to eliminate
the dumping of gray portland cement and clinker from Venezuela into the U.S.,
and (ii) the Venezuelan government's agreement not to subsidize the
Venezuelan cement producers. The dumping margins and resulting rates of
antidumping duty cash deposits are subject to annual review by the DOC. In
addition, legislation passed by the U.S. Congress in December 1994 requires
the initiation of "sunset" reviews of the antidumping orders prior to January
2000 to determine whether these antidumping orders and the suspension
agreement should terminate or remain in effect.
27
<PAGE> 30
A substantial reduction or elimination of the existing antidumping duties
as a result of the World Trade Organization, the North American Free Trade
Agreement, currency devaluation or any other reason, or an influx of
low-priced cement from countries not subject to antidumping orders, could
materially adversely affect the Company's results of operations. The Company,
however, is of the opinion an influx of low-priced cement imports from
countries not subject to antidumping orders is unlikely given the present
circumstances in the U.S. market and the ownership profile of import
terminals. U.S. imports of foreign cement once again increased in the
mid-1990's as U.S. cement consumption began its recovery. The PCA has
estimated that imports represented approximately 14% of U.S. consumption in
1996 as compared with approximately 16% in 1995 and 13% in 1994. During this
recent period of strong demand, however, and as a result of the outstanding
antidumping orders and the suspension agreement, the prices of cement imports
have risen. Unlike the imports during the 1980's, many of the current imports
are playing a supplementary rather than a disruptive role, because they are
being made by domestic producers in response to cement demand in excess of
the domestic supply.
Claims for Indemnification - Prior to the sale of the Company's then oil
and gas subsidiary, Pelto Oil Company (Pelto) in 1989 to Energy Development
Corporation (EDC), Pelto entered into certain gas settlement agreements,
including one with Tennessee Gas Pipeline Company (Tennessee Gas). The
Minerals Management Service (MMS) of the Department of the Interior (DOI) has
reviewed the 1988 agreement Pelto entered into with Tennessee Gas to
determine whether a payment to Pelto thereunder is associated with federal or
Indian leases and whether, in its view, any additional royalties may be due
as a result of that payment. In October 1995, the MMS's Houston Compliance
Division advised EDC it had determined that a lump sum payment made by
Tennessee Gas to Pelto was, for several alleged reasons, royalty bearing and,
accordingly, it had made a preliminary determination of underpayment of
royalties in the amount of $1.35 million attributable to these proceeds. The
Company has been notified by EDC that EDC was exercising its indemnification
rights under the 1989 stock purchase for Pelto with respect to both the
Tennessee Gas matter and an earlier similar MMS determination of royalty
underpayment, in an amount unspecified, with respect to a separate $5.9
million gas settlement payment from Transcontinental Gas Pipe Line
Corporation to Pelto. The Company disagrees with MMS' preliminary
determinations; however, if the determinations as to the payments to Pelto
are ultimately upheld, the Company could have liability for royalties, plus
late payment charges. Such expenditures would result in a charge to
discontinued operations.
In a case in which the Company is not involved, a three judge panel of
the U.S. Circuit Court of Appeals ruled 2-1 on August 27, 1996 that the DOI
impermissibly departed from established agency practices in attempting to
collect royalties on a settlement payment and that gas producers cannot be
required to pay royalties on payments in settlement of take-or-pay contracts
and related contract claims. Rehearing of the Circuit Court of Appeals'
decision, however, has been sought.
Discontinued Environmental Services Segment - The Company has both given
environmental and other indemnifications to and received environmental and
other indemnifications from others for properties previously owned although a
few courts have held that indemnification for such environmental liabilities
is unenforceable. No estimate of the extent of contamination, remediation
cost or recoverability of cost from prior owners, if any, is presently
available regarding these discontinued operations.
28
<PAGE> 31
INFLATION AND CHANGING PRICES
Inflation has become less of a factor in the U. S. economy as the rate
of increase has moderated during the last several years. The Consumer Price
Index rose 3.3% in 1996, 2.9% in 1995 and 2.7% in 1994. The impact of
inflation and changing prices on the Company's net sales and revenues and on
income from continuing operations, however, has been significant as a general
firming of cement and concrete prices throughout the industry during the
three years ended December 31, 1996 has enabled the Company to increase its
per unit profit margin in each successive year.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Items 1, 3 and 7 of this document include forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements are based on current expectations, estimates and projections about
the general economy and the Company's lines of business. Although the Company
believes that the expectations reflected in such forward looking statements
are based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved. Future performance involves certain
assumptions, risks and uncertainties and is not guaranteed. Important factors
that could cause actual results to differ materially from the Company's
expectations, including, among others, foreign and domestic price
competition, cost effectiveness, changes in environmental regulation, and
general economic and market conditions such as interest rates, the
availability of capital and the cyclical nature of the construction industry,
are disclosed in conjunction with the forward looking statements included
herein (Cautionary Disclosures). Subsequent written and oral forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Disclosures.
29
<PAGE> 32
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The businesses of the Company's Cement and Concrete Products segments
are seasonal to the extent that construction activity and hence, the demand
for cement and concrete products, tends to diminish during the winter months
and other periods of inclement weather. The following tables set forth
certain unaudited selected quarterly financial data for each of the last two
years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 127.4 $ 178.2 $ 189.3 $ 169.5
============= =========== =========== ===========
Gross profit (1) $ 26.3 $ 50.4 $ 57.5 $ 48.9
============= ============ ============ ============
Earnings from operations before
interest and income taxes $ 12.9 $ 34.1 $ 46.0 $ 34.5
============= ============ ============ ============
Earnings before extraordinary charge $ 4.8 $ 18.9 $ 27.4 $ 20.1
Extraordinary charge, net of income taxes (11.4) - - (0.1)
------------- ------------ ------------ -------------
Net earnings (loss) $ (6.6) $ 18.9 $ 27.4 $ 20.0
============= ============ ============ ============
Earnings (loss) per share:
Primary
Earnings before extraordinary charge $ 0.14 $ 0.92 $ 1.39 $ 0.95
Extraordinary charge, net of income taxes (0.66) - - (0.01)
------------- ------------ ------------ -------------
$ (0.52) $ 0.92 $ 1.39 $ 0.94
============= ============ ============ =============
Fully diluted
Earnings before extraordinary charge $ 0.14 $ 0.79 $ 1.15 $ 0.82
Extraordinary charge, net of income taxes (0.66) - - (0.01)
------------- ------------ ------------ -------------
$ (0.52) $ 0.79 $ 1.15 $ 0.81
============= ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues $ 119.1 $ 155.0 $ 170.4 $ 151.6
============= ============ ============ =============
Gross profit (1) $ 23.9 $ 38.4 $ 46.3 $ 43.6
============= ============ ============ ============
Earnings from operations before
interest and income taxes $ 10.3 $ 24.7 $ 31.2 $ 31.3
============= ============ ============ ============
Net earnings $ 2.5 $ 12.0 $ 16.5 $ 16.5
============= ============ ============ ============
Earnings per share:
Primary $ 0.01 $ 0.54 $ 0.80 $ 0.80
============= ============ ============ ============
Fully diluted $ 0.01 $ 0.51 $ 0.70 $ 0.70
============= ============ ============ ============
</TABLE>
---------------
(1) Gross profit is revenues less operating expense and depreciation
expense relating to cost of sales. Depreciation expense relating to
cost of sales was $9.2 million, $9.2 million, $9.8 million and $10.7
million in each of the quarterly periods of 1996, respectively.
Depreciation expense relating to cost of sales was $8.8 million, $8.6
million, $9.1 million and $9.1 million in each of the quarterly periods
of 1995, respectively.
30
<PAGE> 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Statement of Consolidated Earnings for the years ended
December 31, 1996, 1995 and 1994................................ 32
Consolidated Balance Sheet as of December 31, 1996 and 1995........... 33
Statement of Consolidated Cash Flows for the years ended
December 31, 1996, 1995 and 1994................................ 34
Statement of Consolidated Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994................................ 35
Notes to Consolidated Financial Statements............................ 36
Independent Auditors' Report.......................................... 63
31
<PAGE> 34
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
---------------------------------------------------
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
Revenues $ 664.4 $ 596.1 $ 560.3
------------- ------------- ------------
Costs and expenses:
Operating 442.4 408.3 399.3
Depreciation, depletion and amortization 42.4 40.3 39.4
Selling and marketing 16.0 15.0 13.6
General and administrative 34.8 34.6 37.8
Other income, net (4.9) (5.4) (5.6)
------------- ------------- -------------
530.7 492.8 484.5
Minority interest in earnings of consolidated
joint venture (Note 13) 6.2 5.8 4.1
------------- ------------- ------------
536.9 498.6 488.6
------------- ------------- ------------
Operating earnings 127.5 97.5 71.7
Interest, net of amounts capitalized (19.8) (26.7) (27.7)
------------- ------------- -------------
Earnings from continuing operations before income
taxes and extraordinary charge 107.7 70.8 44.0
Federal and state income tax expense (Note 12) (36.5) (23.3) (13.9)
------------- ------------- -------------
Earnings from continuing operations before
extraordinary charge 71.2 47.5 30.1
Loss from discontinued operations, net of income
taxes (Note 20) - - (5.9)
Loss on disposition of discontinued operations, net of
income taxes (Note 20) - - (21.6)
Extraordinary charge, net of income taxes (Note 11) (11.5) - -
------------- ------------- ------------
Net earnings $ 59.7 $ 47.5 $ 2.6
Dividends on preferred stock (7.7) (9.8) (9.4)
------------- ------------- -------------
Earnings (loss) attributable to common stock $ 52.0 $ 37.7 $ (6.8)
============= ============= =============
Earnings (loss) per share (Notes 18, 19 and Exhibit 11):
Primary
Earnings from continuing operations $ 3.41 $ 2.15 $ 1.20
Loss from discontinued operations, net of
income taxes (Note 20) - - (0.34)
Loss on disposition of discontinued operations, net of
income taxes (Note 20) - - (1.26)
Extraordinary charge, net of income taxes (Note 11) (0.62) - -
------------- ------------- ------------
Net earnings (loss) $ 2.79 $ 2.15 $ (0.40)
============= ============= =============
Fully diluted
Earnings from continuing operations $ 2.96 $ 2.02 $ 1.20
Loss from discontinued operations, net of
income taxes (Note 20) - - (0.34)
Loss on disposition of discontinued operations, net of
income taxes (Note 20) - - (1.26)
Extraordinary charge, net of income taxes (Note 11) (0.48) - -
------------- ------------- ------------
Net earnings (loss) $ 2.48 $ 2.02 $ (0.40)
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements
32
<PAGE> 35
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 4) $ 45.4 $ 7.7
Short-term investments (Note 10) 11.8 -
Accounts and notes receivable, net (Note 5) 77.3 68.9
Inventories (Note 6) 62.4 69.6
Deferred income taxes (Note 12) 5.9 11.7
Prepaid expenses and other 7.2 3.3
------------- ------------
Total current assets 210.0 161.2
Property, plant and equipment, net (Note 7) 588.8 565.4
Goodwill 75.4 79.3
Other long-term assets (Notes 8 and 15) 57.8 69.6
------------- ------------
$ 932.0 $ 875.5
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Notes 10 and 11) $ 1.2 $ 0.7
Accounts payable and accrued liabilities (Note 9) 89.0 78.7
------------- ------------
Total current liabilities 90.2 79.4
Long-term debt (Notes 10 and 11) 164.4 174.5
Deferred income taxes (Note 12) 120.3 116.9
Minority interest in consolidated joint venture (Note 13) 28.0 30.9
Long-term portion of postretirement benefit obligation (Note 16) 71.7 76.8
Other long-term liabilities and deferred credits (Note 14) 18.1 22.0
------------- ------------
492.7 500.5
------------- ------------
Commitments and contingent liabilities (Notes 14, 15, 16 and 17)
Shareholders' equity (Notes 18 and 19):
Preferred stock, $.05 par value, 10,000,000 shares authorized:
$ .70 Cumulative Convertible Series A, 1,994,000 shares
issued and outstanding in 1995 - 19.9
$3.75 Convertible Exchangeable Series B, 914,000 shares
issued and outstanding in 1995 - 45.7
$2.875 Cumulative Convertible Series D, 1,725,000 shares
issued and outstanding 86.3 86.3
Common stock, $1.25 par value, 40,000,000 shares authorized,
21,948,000 and 21,766,000 shares issued and outstanding, respectively,
in 1996 and 17,286,000 shares issued and outstanding in 1995 27.4 21.6
Capital in excess of par value 213.3 127.0
Reinvested earnings 117.9 74.5
Treasury stock, at cost (5.6) -
------------- ------------
439.3 375.0
------------- ------------
$ 932.0 $ 875.5
============= ============
</TABLE>
See Notes to Consolidated Financial Statements
33
<PAGE> 36
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
-----------------------------------------------------
1996 1995 1994
--------------- ------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Earnings from continuing operations before
extraordinary charge $ 71.2 $ 47.5 $ 30.1
Adjustments to reconcile earnings from continuing
operations before extraordinary charge to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 42.4 40.3 39.4
Deferred income tax expense 9.2 15.5 6.8
Amortization of debt issuance costs 2.7 2.6 3.4
Minority interest in earnings of consolidated
joint venture 6.2 5.8 4.1
Gain on sale of assets (3.3) (1.5) (1.2)
Changes in operating assets and liabilities
Decrease in accounts and notes receivable 8.4 9.8 7.9
(Increase) decrease in inventories 7.7 (15.5) 0.1
(Increase) decrease in prepaid expenses and other (3.8) 0.4 -
Increase in other long-term assets (3.4) (1.7) (2.0)
Increase (decrease) in accounts payable and
accrued liabilities 22.0 (24.7) 3.5
Increase (decrease) in other long-term liabilities
and deferred credits (7.5) (10.4) 0.5
Net cash used in discontinued operations (1.4) (2.7) (5.8)
------------- ------------- -------------
Net cash provided by operating activities 150.4 65.4 86.8
------------- ------------- ------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (59.0) (32.9) (28.6)
Purchase of short-term investments (11.8) - -
Acquisitions, net of cash acquired (6.2) (12.6) (16.1)
Proceeds from asset sales 6.5 7.0 3.7
Other (1.7) (0.3) (2.4)
Net cash provided by (used in) discontinued operations - 1.2 (7.1)
------------- ------------- -------------
Net cash used in investing activities (72.2) (37.6) (50.5)
------------- ------------- -------------
FINANCING ACTIVITIES:
Additions to long-term debt (Note 11) 125.0 - 3.6
Reductions in long-term debt (Note 11) (137.4) (12.7) (111.6)
Exercise of warrants to purchase common stock 20.0 - -
Proceeds from sale of preferred stock - - 86.3
Dividends (Note 18) (16.8) (9.8) (6.5)
Premium on early extinguishment of debt (Note 11) (11.9) - -
Distributions to minority interest (9.2) (3.8) (3.8)
Purchase of treasury stock (5.6) - -
Securities issuance costs (4.6) (1.2) (4.3)
------------- ------------- -------------
Net cash used in financing activities (40.5) (27.5) (36.3)
------------- ------------- -------------
Net increase in cash and cash equivalents 37.7 0.3 -
Cash and cash equivalents at the beginning of the year 7.7 7.4 7.4
------------- ------------- ------------
Cash and cash equivalents at the end of the year $ 45.4 $ 7.7 $ 7.4
============= ============= ============
</TABLE>
See Notes to Consolidated Financial Statements
34
<PAGE> 37
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(IN MILLIONS)
-----------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK CAPITAL
----------------- ----------------- IN EXCESS OF REINVESTED TREASURY
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS STOCK
------ ------ ------ ------ ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 3.0 $ 67.9 17.0 $ 21.3 $ 127.6 $ 45.4 -
Net earnings - - - - - 2.6 -
Issuance of Series D Preferred Stock 1.7 86.3 - - - - -
Dividends on preferred stock - - - - - (9.4) -
Issuance expenses of capital stock - - - - (4.0) - -
Exercise of stock options - - 0.2 0.2 (0.2) (1.6) -
Tax benefit from exercise of stock options - - - - 1.8 - -
Other (0.1) (2.2) 0.1 0.1 1.4 (0.1) -
Balance at December 31, 1994 4.6 $ 152.0 17.3 $ 21.6 $ 126.6 $ 36.9 $ -
Net earnings - - - - - 47.5 -
Dividends on preferred stock - - - - - (9.8) -
Exercise of stock options - - - - 0.2 (0.1) -
Tax benefit from exercise of stock options - - - - 0.1 - -
Other - (0.1) - - 0.1 - -
Balance at December 31, 1995 4.6 $ 151.9 17.3 $ 21.6 $ 127.0 $ 74.5 $ -
Net earnings - - - - - 59.7 -
Dividends on preferred stock - - - - - (7.7) -
Dividends paid on common stock - - - - - (7.4) -
Exercise of warrants to purchase
common stock - - 1.3 1.6 18.4 - -
Conversion of Series A and B Preferred
Stock into common stock (2.9) (65.6) 3.3 4.1 61.5 - -
Exercise of stock options - - - 0.1 - (1.2) -
Tax benefit from exercise of warrants
and stock options - - - - 6.4 - -
Purchase of treasury stock - - - - - -
5.6)
Balance at December 31, 1996 1.7 $ 86.3 21.9 $ 27.4 $ 213.3 $ 117.9 $ (5.6)
======== ======== ========== ======= ========== ========= ========
</TABLE>
See Notes to Consolidated Financial Statements
35
<PAGE> 38
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION:
Southdown, Inc. (Southdown or the Company) engages in the production
and marketing of cement and concrete products. The Company operates eight
manufacturing facilities, seven quarrying sites and utilizes a network of 20
cement storage and distribution terminals for the production, importation and
distribution of portland and masonry cements, primarily in the Ohio valley
and the southwestern and southeastern regions of the United States. The
Company is also vertically integrated in the regional vicinity of its two
largest cement plants, with ready-mixed concrete operations serving markets
in Florida and southern California. For information regarding the relative
importance of the Company's business segments see Note 3 of Notes to
Consolidated Financial Statements. The consolidated balance sheet of
Southdown, Inc. and subsidiary companies as of December 31, 1996 and 1995 and
the related statements of consolidated earnings, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996
are presented on the basis of generally accepted accounting principles. The
Company was also engaged in the environmental services business from mid-1990
through the fourth quarter of 1994 at which time the decision was made to
exit that business. The results for environmental services business
activities are presented as discontinued operations in 1994.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.
Actual results could differ from those estimates.
Consolidation - The consolidated financial statements of the Company
include the accounts of its divisions, its wholly-owned subsidiaries and its
majority-owned joint venture after elimination of significant intercompany
transactions and balances. Certain data for prior years have been
reclassified for purposes of comparison.
Cash and Statement of Consolidated Cash Flows Supplemental Disclosures
- For purposes of the Statement of Consolidated Cash Flows, short-term
investments which have an original maturity of three months or less are
considered cash equivalents. Cash payments for income taxes totaled $11
million in 1996, $12.1 million in 1995 and $300,000 in 1994. In addition, the
Company paid a $7.6 million tax assessment in January 1995 as a result of an
Internal Revenue Service audit of prior year federal income tax returns.
Interest paid, net of amounts capitalized was $16.7 million, $24.3 million
and $26.6 million in 1996, 1995 and 1994, respectively. Interest capitalized
was $2.0 million, $1.5 million and $2.0 million in 1996, 1995 and 1994,
respectively. Noncash financing activities in 1996 included the conversion of
2.9 million shares of preferred stock with a carrying value of $65.6 million
into 3.3 million shares of common stock. Noncash investing activities in 1995
included (i) the assumption of $4.1 million in liabilities as partial
consideration for the acquisition of six ready-mixed concrete batch plants
and (ii)
36
<PAGE> 39
the receipt of $8.4 million in notes receivable as partial consideration in
connection with the sale of the Company's remaining hazardous waste
processing facilities.
Investments - In addition to cash equivalents, the Company has
investments in debt securities that mature in more than 91 days but no more
than one year. All such investments are expected to be held-to- maturity and
are carried at amortized cost, without recognition of gains or losses that
are deemed to be temporary, because the Company has both the intent and the
ability to hold these investments until they mature. As of December 31, 1996,
the Company's investments consist solely of commercial paper maturing within
one year. The fair value of these investments approximates their amortized
cost.
Inventories - Inventories are valued at the lower of cost (which
includes material, labor and manufacturing overhead) or market. The valuation
of cement inventories is determined on the last-in, first-out (LIFO) method.
The valuation of the remaining inventories, primarily parts and supplies, is
determined on the first-in, first-out or average cost method. (See also Note
6 of Notes to Consolidated Financial Statements.)
Property, Plant and Equipment - The Company capitalizes all direct and
certain indirect expenditures incurred in conjunction with the acquisition or
construction of major facilities. Depreciation and amortization of these
capitalized costs commence when the completed facility is placed in service.
Depreciation and amortization of property, plant and equipment are computed
primarily on a straight-line basis over estimated useful lives of the related
assets, ranging from three to fifty years. On average, buildings and
improvements are depreciated based on a 50 year life; machinery and equipment
are depreciated over estimated useful lives ranging from ten to 35 years;
office furniture, fixtures and equipment over lives ranging from five to ten
years and mobile equipment over lives ranging from four to 25 years.
Depletion of mineral rights is computed on the units-of-production method.
Certain costs and expenses associated with the acquisitions of various
facilities have been capitalized and are being amortized over the estimated
useful lives of the related assets. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a loss
is recognized for the difference between the fair value and the carrying
value of the asset. Gain or loss is generally reflected in earnings upon the
retirement or sale of property, plant and equipment. (See also Note 7 of
Notes to Consolidated Financial Statements.)
Environmental Expenditures - The Company bases its estimates of
environmental liabilities on the nature or extent of contamination, methods
of remediation required, existing technology, presently enacted laws and
regulations and prior Company experience in remediation of contaminated
sites. Environmental expenditures that extend the life, increase the
capacity, improve the safety or efficiency of property owned by the Company,
mitigate or prevent environmental contamination that has yet to occur, or
that are incurred in anticipation of a sale of property are capitalized.
Expenditures that relate to an existing condition caused by past operations,
and which do not contribute to current or future revenue generation, are
expensed. The Company's policy is to accrue environmental and clean-up
related costs of a non-capital nature when it is both probable that a
liability has been incurred and the amount can be reasonably estimated,
whether or not a claim has been asserted or this coincides with the
completion of a remediation investigation/feasibility study or the Company's
commitment to a formal plan of action. Such estimates are revised as
additional information becomes known. (See also Note 17 of Notes to
Consolidated Financial Statements.)
37
<PAGE> 40
Goodwill - The excess of cost over the fair value of net assets of
businesses acquired is amortized, on a straight-line basis, over periods
ranging from 15 to 40 years. Such amortization amounted to $2.9 million, $2.7
million and $2.5 million in 1996, 1995 and 1994, respectively. Accumulated
amortization of goodwill was $19.4 million and $16.5 million as of December
31, 1996 and 1995, respectively. The Company utilizes estimates of
undiscounted future cash flows of the acquired operations to evaluate any
possible impairment of the related goodwill.
Revenue Recognition - Revenue is generally recognized on the sale of
products or services when the products are shipped or the services delivered,
all significant contractual obligations have been satisfied and the
collection of the resulting receivable is reasonably assured. Interest income
is recognized on impaired loans using a combination of the cost recovery and
the cash basis methods. The Company recognized approximately $1.1 million of
such interest income during the year ended December 31, 1996 but no material
amounts of interest income on impaired loans during the years ended December
31, 1995 and 1994.
Stock-Based Compensation - As permitted by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123), the Company continues to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Accordingly, no
compensation expense has been recognized for the Company's employee stock
option plans. The disclosure-only provisions of SFAS No. 123 have been
included in Note 19 of Notes to Consolidated Financial Statements.
Income Taxes - In computing its federal and state income tax
liabilities, the Company uses accelerated depreciation and deducts currently
certain expenditures that are capitalized for financial reporting purposes.
Deferred income taxes are provided on these and other temporary differences
between the tax bases of assets and liabilities and their bases for financial
statement purposes. Investment tax credit carryforwards are accounted for
under the flow-through method and, accordingly, reduce federal income taxes
in the years in which their utilization is assured. (See also Note 12 of
Notes to Consolidated Financial Statements.)
Earnings Per Share - Earnings used to compute primary per share
earnings in each of the three years ended 1996 were net of preferred stock
dividends of approximately $7.7 million in 1996, $9.8 million in 1995 and
$9.4 million in 1994. Primary earnings per share were computed using average
number of shares, dilutive options and warrants outstanding in 1996 and 1995
and using the average number of shares of common stock outstanding for 1994.
Additionally, the effect of an assumed conversion of all shares of preferred
stock was anti-dilutive and, therefore, fully diluted earnings per share for
1994 are the same as primary earnings per share. Fully diluted earnings for
1996 and 1995 assume the conversion of all shares of preferred stock to
common stock. (See also Note 18 of Notes to Consolidated Financial
Statements.)
38
<PAGE> 41
NOTE 3 - BUSINESS SEGMENT INFORMATION:
Operating results and certain other financial data for the Company's
principal business segments for and at the end of each year presented are as
follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-----------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Contributions to revenues:
Cement $ 473.0 $ 419.1 $ 397.5
Concrete Products 241.0 219.2 208.1
Intersegment sales (49.6) (42.2) (45.3)
------------ ------------ ------------
$ 664.4 $ 596.1 $ 560.3
============ ============ ===========
Contributions to operating earnings (loss):
Cement $ 134.8 $ 112.7 $ 91.2
Concrete Products 13.8 7.9 9.3
Corporate overhead (21.1) (23.1) (28.8)
------------ ------------ -----------
$ 127.5 $ 97.5 $ 71.7
============ ============ ===========
Identifiable assets, end of year:
Cement $ 621.7 $ 606.7 $ 596.1
Concrete Products 146.6 145.4 130.3
Discontinued Environmental Services - - 19.1
Other 163.7 123.4 135.5
------------ ------------ -----------
$ 932.0 $ 875.5 $ 881.0
============ ============ ===========
Depreciation, depletion and amortization:
Cement $ 29.4 $ 27.1 $ 25.8
Concrete Products 9.5 9.0 8.7
Other 6.2 6.8 8.3
------------ ------------ -----------
$ 45.1 $ 42.9 $ 42.8
============ ============ ===========
Capital expenditures:
Cement $ 56.7 $ 25.1 $ 16.8
Concrete Products 6.8 6.7 9.4
Other 1.0 1.1 2.6
------------ ------------ -----------
$ 64.5 $ 32.9 $ 28.8
============ ============ ===========
</TABLE>
The Cement segment includes the operations of seven quarrying sites,
eight manufacturing facilities and a network of 20 cement storage and
distribution terminals for the production, importation and distribution of
portland and masonry cement. The Concrete Products segment includes primarily
the production and sale of ready-mixed concrete, and to a lesser extent, the
sale of construction aggregate and concrete block. Corporate overhead is
generally not allocated to the operating segments. All of the Company's
operations are conducted in the United States. Intersegment sales occur
primarily between the Company's Florida cement manufacturing plant and the
Florida concrete products operations and the Company's southern California
cement manufacturing plant and the related California concrete products
operations. Intersegment sales are accounted for at prices which approximate
market prices and are eliminated for purposes of preparing consolidated
financial statements. Capital expenditures shown above exclude capital
acquisitions of $6.2 million, $12.6 million and $16.1 million, respectively,
for the years ended December 31, 1996, 1995 and 1994.
39
<PAGE> 42
NOTE 4 - CASH AND CASH EQUIVALENTS:
DECEMBER 31,
(IN MILLIONS)
------------------
1996 1995
------- -------
Cash on hand and demand deposits $ 6.0 $ 5.7
Commercial paper, Eurodollar investments and
money market preferreds - at cost, which
approximates market value 39.4 2.0
------- -------
$ 45.4 $ 7.7
======= =======
There is no requirement for the Company to maintain compensating
balances under any of the agreements with the Company's lending banks.
NOTE 5 - ACCOUNTS AND NOTES RECEIVABLE:
DECEMBER 31,
(IN MILLIONS)
------------------
1996 1995
------- -------
Trade accounts and notes receivable $ 80.5 $ 72.7
Allowance for doubtful accounts (7.4) (8.8)
------- -------
73.1 63.9
Other receivables 4.2 5.0
------- -------
$ 77.3 $ 68.9
======= =======
Significant Group Concentrations of Credit Risk - A majority of the
Company's receivables are from users of portland cement, such as ready-mixed
concrete producers and manufacturers of concrete products such as blocks,
roof tile, pipe and prefabricated building components. Sales are also made to
building materials dealers, other cement manufacturers, construction
contractors and, particularly from the Texas plant, oil well cementing
companies. During the years ended December 31, 1996, 1995 and 1994,
approximately 58%, 57% and 47%, respectively, of the Texas plant's cement
sales volume consisted of oil well cement sales and the balance represented
sales to local construction markets. Approximately 18%, 14% and 15%,
respectively, of the cement sold by the Company's California plant in the
three years ended December 31, 1996 was sold to the Company's ready-mixed
concrete operations in California and approximately 38%, 37% and 41%,
respectively, of the cement sold by the Florida plant in the three years
ended December 31, 1996 was sold to the Company's Florida concrete products
operations. The Company is a major producer of ready-mixed concrete in
southern California, and a major producer and supplier of such products
throughout Florida. There were no sales to any single third-party customer
which aggregated in excess of 10% of consolidated revenues for 1996, 1995 or
1994.
40
<PAGE> 43
An analysis of the activity in the allowance for doubtful accounts
follows:
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
----------------------------------------
1996 1995 1994
------------ ------------ ----------
Beginning balance $ 8.8 $ 7.2 $ 7.0
Additions charged to expense 2.6 3.6 4.8
Accounts written off (4.1) (2.2) (5.3)
Recoveries 0.1 0.2 0.7
------------ ------------ ----------
Ending balance $ 7.4 $ 8.8 $ 7.2
============ ============ ==========
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. As
of December 31, 1996 and 1995, restructured accounts receivables aggregated
$4.0 million and $13.9 million, respectively. At December 31, 1996 and 1995,
the related allowance for doubtful accounts attributable to the restructured
accounts receivables aggregated $3.8 million and $5.8 million, respectively.
In the opinion of management, the Company is adequately reserved for
credit risks related to its potentially uncollectible receivables. However,
the Company continues to assess its allowance for doubtful accounts and may
increase or decrease its periodic provision as additional information
regarding the collectibility of these and other accounts becomes available.
NOTE 6 - INVENTORIES:
DECEMBER 31,
(IN MILLIONS)
-----------------------
1996 1995
---------- ---------
Finished goods $ 16.9 $ 18.6
Work in process 9.6 14.6
Raw materials 6.8 6.5
Parts and supplies 29.1 29.9
---------- ---------
$ 62.4 $ 69.6
========== =========
Inventories valued on the LIFO method were $26.1 million at December
31, 1996 and $30.4 million at December 31, 1995 compared with current costs
of $34.7 million and $39.1 million, respectively.
41
<PAGE> 44
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT:
DECEMBER 31,
(IN MILLIONS)
-----------------------
1996 1995
Land (at cost):
Cement $ 33.1 $ 32.4
Concrete Products 22.5 24.8
Corporate and other 2.6 2.6
---------- ---------
58.2 59.8
---------- ---------
Plant and Equipment (at cost):
Cement 763.9 713.7
Concrete Products 104.2 106.2
Corporate and other 16.7 15.7
---------- ---------
884.8 835.6
Less accumulated depreciation, depletion
and amortization (354.2) (330.0)
---------- ----------
$ 588.8 $ 565.4
========== =========
NOTE 8 - OTHER LONG-TERM ASSETS:
DECEMBER 31,
(IN MILLIONS)
-----------------------
1996 1995
---------- ---------
Prepaid pension costs (Note 15) $ 28.5 $ 25.1
Land held for sale (1) 8.8 7.2
Unamortized debt issuance costs (2) 5.2 6.4
Long-term trade and other receivables 4.9 21.0
Net present value of purchased supply
contracts (3) 4.2 4.9
Other 6.2 5.0
---------- ---------
$ 57.8 $ 69.6
========== =========
-------------
(1) Includes various non-income producing real estate parcels offered
for sale.
(2) Costs and expenses associated with the issuance of certain of the
Company's senior debt and senior subordinated notes. Debt issuance
costs are being amortized over the respective terms of the debt.
(3) Two contracts to supply flyash through 1999 and 2004,
respectively, were acquired in conjunction with the purchase of
Moore McCormack Resources, Inc. (Moore McCormack) in 1988. The
supply contracts were recorded at their net present values at the
date of acquisition and are being amortized over the respective
lives of the contracts.
42
<PAGE> 45
NOTE 9- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1996 1995
---------- ---------
<S> <C> <C>
Trade accounts payable $ 26.0 $ 24.3
Accrued compensation and benefits 19.6 15.2
Accrued liabilities, trade 18.3 12.9
Accrued interest payable 4.5 4.2
Accrued taxes, other 3.2 3.5
Current portion of postretirement benefit obligation 3.0 3.0
Accrued environmental remediation costs 2.2 3.4
Income tax liability 1.5 -
Accrued dividends on preferred stock 1.2 3.0
Accrued loss contingencies on discontinued environmental
services segment 1.1 1.1
Other accrued liabilities 8.4 8.1
---------- ---------
$ 89.0 $ 78.7
========== =========
</TABLE>
NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Investments with maturities between three and twelve months are
considered short-term. Short- term investments consist of debt securities
such as commercial paper, time deposits, certificates of deposit, bankers'
acceptances and marketable direct obligations of the U.S. Treasury. All of
the Company's short-term investments as of December 31, 1996 were classified
as held-to-maturity in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Because of the short duration of these investments, changes in
market interest rates would not have a significant impact on their fair
value. Accordingly, the fair market value of these securities approximates
their amortized cost of $11.8 million as of December 31, 1996. The Company
held no short-term investments as of December 31, 1995.
The carrying amounts of the Company's other assets and liabilities
which are considered to be financial instruments approximate their value,
except for long-term debt. The estimated fair value amounts for the Company's
long-term debt as of December 31, 1996 and 1995 have been determined by the
Company using appropriate valuation methodologies and information currently
available to management. Considerable judgment is required in developing
these estimates and, accordingly, no assurance can be given that the
estimated values presented herein are indicative of the amounts that would be
realized in a free market exchange. The fair value of the Company's long-term
debt was estimated based on the quoted market prices for similar issues or on
the current rates available to the Company for debt with similar terms and
remaining maturities.
DECEMBER 31,
(IN MILLIONS)
-------------------------------------------------
1996 1995
----------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- --------- ---------- ----------
Long-term debt $ 165.6 $ 172.8 $ 175.2 $ 190.5
========= ========= ========== ==========
The Company held no derivative financial instruments as of December 31,
1996 or 1995.
43
<PAGE> 46
NOTE 11 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
------------------------
1996 1995
---------- -----------
<S> <C> <C>
Senior debt:
Revolving credit facility $ - $ 11.3
Industrial development and pollution control bonds 39.3 39.3
Other 1.3 2.4
Subordinated debt:
10% senior subordinated notes 125.0 -
14% senior subordinated notes - 122.2
---------- ----------
165.6 175.2
Less current maturities (1.2) (0.7)
---------- ----------
$ 164.4 $ 174.5
========== ==========
</TABLE>
Revolving Credit Facility - The Company's revolving credit facility is
with Wells Fargo Bank, N.A., in its individual capacity and as agent; Societe
Generale, Southwest Agency; The Bank of Nova Scotia; Credit Suisse; Caisse
Nationale De Credit Agricole; an affiliate of Canadian Imperial Bank of
Commerce; Banque Paribas and The First National Bank of Boston (Revolving
Credit Facility). The Company's ownership interest in five cement
manufacturing facilities and the Company's joint venture interest in Kosmos
Cement Company, a Kentucky general partnership, are pledged to secure the
Revolving Credit Facility.
The $200 million Revolving Credit Facility matures on October 30, 2000.
The Revolving Credit Facility also permits the issuance of standby letters of
credit up to a maximum of $95 million in lieu of borrowings. The Revolving
Credit Facility contains various negative and affirmative covenants and cross
default provisions and customary conditions to borrowing. Borrowings under
the Revolving Credit Facility bear interest at margins either at or above a
prime rate or above LIBOR as selected by the Company from time-to-time. As of
December 31, 1996, there were no borrowings outstanding and $51.4 million in
letters of credit outstanding under the Revolving Credit Facility leaving
$148.6 million of unused capacity.
Industrial Development and Pollution Control Bonds - The industrial
development and pollution control bonds were issued by various state or local
financing authorities and are due on various dates through the year 2006. The
obligations bear interest, which is nontaxable to the payees, at varying
rates ranging from approximately 50% of the prevailing prime rate to 5.5%.
The obligations are secured by irrevocable letters of credit issued under the
Revolving Credit Facility or by liens on the pollution control equipment.
10% Senior Subordinated Notes - On March 19, 1996, the Company issued
an aggregate of $125 million principal amount of 10% Senior Subordinated
Notes due 2006 (the Notes) in a private placement. The net proceeds of the
Notes and other funds were used to retire $125 million in principal amount of
the Company's 14% Senior Subordinated Notes due 2001, Series B (the 14%
Notes) which the Company had offered to repurchase. The Company repurchased
$120.2 million of the 14% Notes in March 1996 and redeemed the remaining $4.8
million of the issue in October 1996. The total cost to the Company was
$136.9 million plus accrued interest. The Company recorded a $11.5 million
net of tax extraordinary charge in 1996 to reflect the prepayment premium and
other costs incurred in the repurchase.
44
<PAGE> 47
The Notes were issued pursuant to an Indenture dated as of March 19,
1996 between the Company and State Street Bank and Trust Company, as Trustee
(Indenture). During 1996, all of the Notes were exchanged in a registered
exchange offer for $125 million aggregate principal amount of the Company's
10% Senior Subordinated Notes Due 2006, Series B (10% Notes) pursuant to a
Registration Rights Agreement entered into at the time of the private
placement. The 10% Notes were also issued under the Indenture, and the terms
of the 10% Notes are substantially identical to those of the Notes. The 10%
Notes pay interest semiannually, mature on March 1, 2006 and are noncallable
until March 1, 2001, after which the 10% Notes are callable at the option of
the Company, in whole or in part, at any time at 105% of the principal
amount, declining ratably in annual increments to par on or after March 1,
2004. The 10% Notes are subordinate in right of payment to all existing and
future senior debt, as defined, of the Company, rank on a parity with all
existing and future senior subordinated debt, as defined, of the Company, and
rank senior to all other existing and future subordinated debt of the
Company. The Indenture includes affirmative and negative covenants which in
certain instances restrict, among other things, incurrence of additional
indebtedness, certain sales of assets, certain mergers and consolidations,
dividends and distributions and redemptions and repurchases of equity
securities.
Annual Aggregate Maturities of Long-term Debt - The approximate
aggregate principal payments due in future years on long-term debt as of
December 31, 1996 are as follows:
(IN MILLIONS)
-------------
1997 $ 1.2
1998 26.8 (1)
1999 0.1
2000 0.1
2001 -
Thereafter 137.4
----------
$ 165.6
(1) The Company is currently in the process of negotiating an extension of at
least $18.8 million of the long-term debt that comes due during 1998.
NOTE 12 - INCOME TAXES:
The following table provides a breakdown of the current and deferred
components of the provisions for federal and state income taxes attributable
to the earnings from continuing operations before income taxes and
extraordinary charges.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
--------------------------------------
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Federal income tax expense:
Current $ 25.3 $ 6.9 $ 6.2
Deferred 8.7 14.5 6.4
State income tax expense (benefit):
Current 2.0 0.9 0.9
Deferred 0.5 1.0 0.4
------------ ------------ ---------
$ 36.5 $ 23.3 $ 13.9
============ ============ =========
</TABLE>
45
<PAGE> 48
The tax benefits allocated to the loss from discontinued operations and
the loss on disposition of discontinued operations were $3.0 million and $9.8
million, respectively, for the year ended December 31, 1994. The tax benefit
allocated to the 1996 extraordinary charge was $6.2 million.
A reconciliation between the income tax expense recognized in the
Company's Statement of Consolidated Earnings and the income tax expense
computed by applying the statutory federal income tax rate to the earnings
from continuing operations before income taxes and extraordinary charge
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
--------------------------------------------------------------------
1996 1995 1994
-------------------- --------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations before income taxes
and extraordinary charge $ 107.7 $ 70.8 $ 44.0
========= ========= ========
Income tax expense
computed at statutory rate $ 37.7 35.0 % $ 24.8 35.0% $ 15.4 35.0%
Benefit of statutory depletion (4.2) (3.9) (4.0) (5.6) (3.6) (8.2)
Effect of non-deductible goodwill 0.8 0.7 0.7 1.0 0.7 1.6
Effect of state income tax
expense 1.6 1.5 1.3 1.8 0.8 1.9
Other 0.6 0.6 0.5 0.7 0.6 1.3
--------- --------- --------- ---------- --------- -------
$ 36.5 33.9 % $ 23.3 32.9% $ 13.9 31.6%
========= ========= ========= ========= ========= =======
</TABLE>
The provision for deferred income taxes is based on the liability
method prescribed by SFAS No. 109, and represents the change in the Company's
deferred income tax liability during each year, including the effect of any
enacted tax rate changes. A deferred income tax liability or asset is
recognized for the net effect of (i) temporary differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements after applying enacted statutory tax rates and laws in effect for
the year in which the differences are expected to reverse and, in certain
instances, (ii) the deferred tax effects of tax net operating loss and tax
credit carryforwards.
46
<PAGE> 49
Significant components of the Company's net deferred tax liability as
of December 31, 1996 and 1995 were as follows:
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
--------------------------
1996 1995
----------- ----------
Deferred tax liabilities:
Differences between book and tax bases of
property, plant and equipment $ 151.1 $ 151.4
Assets of overfunded pension plan 10.9 9.6
Other 11.4 14.3
----------- ----------
173.4 175.3
----------- ----------
Deferred tax assets:
Postretirement benefit obligation 28.6 30.6
Reserves not currently deductible 11.6 14.6
Deferred state income taxes 3.7 6.2
Operating loss carryforwards 0.2 4.7
Tax credit carryforwards 1.9 5.0
AMT credit carryforwards 15.0 14.1
----------- ----------
61.0 75.2
Valuation allowance (2.0) (5.1)
----------- -----------
59.0 70.1
----------- ----------
Net deferred tax liability $ 114.4 $ 105.2
=========== ==========
Because of the increased profitability of the Company, the valuation
allowance to be applied against deferred tax assets at December 31, 1996 has
been reduced by $3.1 million compared with the prior year-end. The decrease
is attributable to the anticipated use on the 1996 federal income tax return
of investment tax credits acquired in prior business combinations and for
which no tax benefit was recognized at the time of acquisition. Goodwill
related to the acquisition of these investment tax credit carryforwards has
been reduced by a corresponding $3.1 million. The remaining valuation
allowance will be allocated to reduce goodwill and other non-current
intangible assets in future periods if realization of tax credit and net
operating loss carryforwards acquired as a result of business combinations
that occurred in prior years becomes more likely than not.
The Company has included in its calculation of the net deferred income
tax liability the tax benefits related to net operating loss carryforwards of
$0.2 million after valuation allowance of $0.1 million, net investment tax
credit carryforwards of $1.9 million offset by a valuation allowance of $1.9
million and an alternative minimum tax carryforward of $15 million. If not
used, the net operating loss and investment tax credit carryforwards will
expire between 2007 and 2010 and between 1999 and 2005, respectively.
The consolidated federal income tax returns of the Company for 1993 and
1994 and various state income tax returns are currently under examination. In
the opinion of management, adequate provision has been made at December 31,
1996 for income taxes that might be due as a result of these audits and any
resulting assessments will have no material effect on the Company's
consolidated earnings.
47
<PAGE> 50
NOTE 13 - MINORITY INTEREST IN CONSOLIDATED JOINT VENTURE:
Kosmos Cement Company (Kosmos Cement) is a partnership which includes a
cement plant located in Kosmosdale, Kentucky and a cement plant located near
Pittsburgh, Pennsylvania along with related terminals and facilities. The
partnership is 25% owned by Lone Star Industries, Inc. (Lone Star) and
operated and 75% owned by the Company. The Company's Consolidated Balance
Sheet includes 100% of the assets and liabilities of Kosmos Cement. Lone
Star's 25% interest in Kosmos Cement and the earnings therefrom have been
reflected as "Minority interest in consolidated joint venture" and "Minority
interest in earnings of consolidated joint venture" on the Company's
Consolidated Balance Sheet and Statement of Consolidated Earnings,
respectively.
NOTE 14 - OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
Accrued loss contingencies on discontinued
environmental services segment $ 3.0 $ 4.4
Estimated liabilities of discontinued Moore McCormack
operations 2.1 4.4
Deferred payment obligation 8.2 7.7
Supplemental pension liabilities 3.4 3.5
Other 1.4 2.0
---------- ---------
$ 18.1 $ 22.0
========== =========
</TABLE>
Discontinued Environmental Services Segment - The Company is
contingently liable for certain environmental issues under the
indemnification provisions of sales agreements associated with the
discontinued environmental services operations. (See Note 20 of Notes to
Consolidated Financial Statements.)
Discontinued Moore McCormack Operations - As part of the acquisition of
Moore McCormack in 1988, the Company assumed certain fixed and contingent
liabilities pursuant to certain guarantees and undertakings related to
operations that had been previously discontinued by Moore McCormack. As of
December 31, 1996 and 1995, such estimated liabilities totaled $2.6 million
and $5.4 million, respectively, $0.5 million and $1.0 million of which were
included in current liabilities in 1996 and 1995, respectively.
Deferred Payment Obligation - In connection with the July 1990 purchase
of a hazardous waste processing facility from an affiliate of Browning-Ferris
Industries, Inc. (BFI), the Company assumed a conditional payment obligation
payable to the former shareholders of the BFI subsidiary.
Supplemental Pension Liabilities - A small number of former employees
and retirees of the Company are eligible for payments under supplemental
pension agreements. Under such arrangements, the present value of probable
future cash outlays was accrued during the expected service life of the
employee and charged to earnings for financial reporting purposes.
48
<PAGE> 51
NOTE 15 - PENSION PLANS:
The Company has a defined benefit pension plan covering substantially
all employees. The benefits are based on years of service and the employee's
compensation and are integrated with Social Security. The Company's union
employees are covered by either a multi-employer plan, a final pay plan, or,
prior to December 31, 1994, a collectively bargained Company-sponsored plan
providing a flat dollar benefit for each year of service. Effective December
31, 1994, the collectively bargained Company-sponsored plan was merged into
the Company's defined benefit plan. The Company's policy is to fund its
pension plan in accordance with sound actuarial principles.
The funded status of the Company's pension plan is based on a
comparison of the market value of the plan's assets at the end of the year
with actuarial estimates of the projected benefit obligation. The assumed
weighted average discount rate used to measure the projected benefit
obligation was 7.5% in 1996, 7.5% in 1995 and 8.5% in 1994. The rate of
increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligation was 4.5% in both 1996 and
1995 and 4% in 1994. The expected long-term rate of return on assets was 8.5%
in all three years ended 1996. Differences in estimates used and actual
experience along with changes in assumptions from year-to-year are included
in net deferred gains or losses. The Company amortizes the unrecognized net
gains or losses whenever such amount exceeds 10% of the greater of the
projected benefit obligation or the market value of plan assets. The
unrecognized net obligation or net asset, unrecognized net gain or loss and
prior service costs were amortized over periods of 7 to 12 years for 1996,
over periods of 8 to 13 years for 1995 and over periods of 9 to 14 years for
1994 which approximated the estimated average remaining service periods of
employees expected to receive benefits under the plan.
The Company recognized pension income of approximately $3.4 million,
$1.6 million and $2.6 million in 1996, 1995 and 1994, respectively, under
such Company-sponsored plans. In addition to the Company-sponsored plan,
certain union employees of the Company's concrete operations in southern
California and the Colorado cement operations are covered under
multi-employer defined benefit plans administered by the respective unions.
Amounts contributed to the multi-employer plans and included in pension
expense were $1.1 million in 1996, $1.6 million in 1995 and $1.9 million in
1994.
49
<PAGE> 52
The pension plan's assets exceeded the accumulated benefit obligation
as of both December 31, 1996 and 1995. The following table sets forth
information regarding the plan's funded status and amounts recognized in the
Company's Consolidated Balance Sheet at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested portion $ (117.6) $ (107.6)
Nonvested portion (2.2) (2.3)
---------- ----------
Accumulated benefit obligation (119.8) (109.9)
Effect of estimated future pay increases (9.2) (8.4)
---------- ----------
Projected benefit obligation (129.0) (118.3)
Plan assets at fair value, primarily debt
and equity securities1 185.9 173.8
---------- ---------
Overfunded status 56.9 55.5
Unrecognized net gain (31.3) (33.6)
Unrecognized prior service cost 3.1 3.4
Unrecognized net asset (0.2) (0.2)
---------- ----------
Prepaid pension costs $ 28.5 $ 25.1
========== =========
</TABLE>
-----------------
(1) Plan assets include 224,500 shares of the Company's common stock
at December 31, 1996 and 449,000 shares of the Company's Series
A Preferred Stock at December 31, 1995.
The components of net periodic pension cost included in the results of
operations for the years ended December 31, 1996, 1995 and 1994 under
Company-sponsored plans were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
-----------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Service cost $ 2.5 $ 2.0 $ 2.2
Interest cost on projected benefit obligation 9.1 8.5 8.0
Actual return on assets (20.7) (38.3) (3.4)
Asset (loss) gain deferred 6.3 26.5 (9.0)
Amortization of unrecognized -
Net gain (1.0) (0.6) (0.7)
Prior service cost 0.4 0.4 0.4
Net asset - (0.1) (0.1)
------------ ------------ ------------
Net pension income $ (3.4) $ (1.6) $ (2.6)
============ ============ ============
</TABLE>
Directors Pension Plan - The Company also has an unfunded defined
benefit pension plan covering the members of its Board of Directors who have
five years of service and are not participants in any of the Company's
qualified pension plans. Eligible directors are entitled to a monthly benefit
equal to two-thirds of their average monthly fee. The benefit is payable over
a number of months equal to such director's service on the Board. During 1996
and 1995, the Company included in expense $154,000 and $100,000,
respectively, to provide for benefits accrued under the plan.
50
<PAGE> 53
Retirement Savings Plan - The Company maintains a retirement savings
plan (Savings Plan) in which substantially all employees are eligible to
participate. The Savings Plan is designed to qualify under Sections 401(a)
and 401(k) of the Internal Revenue Code of 1986 (Code). Under the Savings
Plan, a participating employee may elect to defer taxation on a portion of
his or her eligible earnings up to a maximum amount defined by the Code, by
directing the Company to contribute such earnings to the Savings Plan on the
employee's behalf. A participating employee may also make after-tax
contributions to the Savings Plan. The Company contributes an amount to the
Savings Plan equal to 50% of an employee's contributions, subject to certain
limitations. The Company's matching contributions are invested solely in its
common stock acquired in open market purchases. All employee contributions
and Company matching contributions are fully vested when made. Amounts held
by the Savings Plan for the account of a participating employee are
distributable as a lump-sum upon termination of employment for any reason.
Subject to certain conditions and restrictions, a participating employee may
receive a distribution or a loan of a portion of his account balance while
employed by the Company. The Company contributed $2.0 million in 1996 and
$1.9 million each year in 1995 and 1994, in matching contributions that were
charged to compensation expense and invested in the Company's common stock.
NOTE 16 - HEALTH CARE AND LIFE INSURANCE BENEFITS:
The Company offers health care benefits to active employees and their
dependents. Certain retirees under the age of sixty-five and their dependents
are also offered health care benefits which consist primarily of medical and
life insurance benefits. However, benefit payments for covered retirees
sixty-five years of age or older are reduced by benefits paid by Medicare.
The following table sets forth the Company's accumulated postretirement
benefit obligation, none of which has been funded, reconciled with the amount
shown in the Company's balance sheet at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO)
Retirees $ 26.3 $ 28.1
Fully eligible active participants 0.7 0.8
Other active participants 2.8 2.2
-------- --------
29.8 31.1
Plan assets at fair value - -
-------- --------
Accumulated postretirement benefit obligation 29.8 31.1
Unrecognized prior service credit 28.6 31.0
Unrecognized net gain 16.3 17.7
-------- --------
Accrued postretirement benefit costs $ 74.7 $ 79.8
======== ========
</TABLE>
51
<PAGE> 54
The components of net periodic postretirement benefit costs included in
the results of operations for the three years ended December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(IN MILLIONS)
---------------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Service cost $ 0.3 $ 0.3 $ 0.7
Interest cost on APBO 2.1 2.4 3.3
Amortization of unrecognized prior service
credit and net gain (4.2) (4.7) (2.7)
--------- -------- ---------
$ (1.8) $ (2.0) $ 1.3
========= ======== =========
</TABLE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation as of December 31, 1996 was
8.67% for general health care and prescription drugs decreasing each
successive year until it reaches 6% in 2004 and thereafter. As of December
31, 1995, the cost trend used was 9% for general health care and prescription
drugs decreasing each successive year until it reaches 6% in 2004 and
thereafter. As of December 31, 1994, the cost trend used was 9.5% for general
health care and 14% for prescription drugs, decreasing each successive year
until each reaches 6% in 2017 and thereafter. The health care cost trend rate
assumption has a significant effect on the amount of the obligation and
periodic cost reported. For example, a one- percentage-point increase in the
assumed health care cost trend rate for each year would increase the APBO as
of December 31, 1996 and net periodic postretirement health care cost by
approximately 4.9% and 4.1%, respectively. The assumed discount rates used in
determining the APBO were 7.5% as of December 31, 1996 and as of December 31,
1995 and 1994, 7.5% and 8.5%, respectively.
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. Claims, premiums and
administrative costs paid for active employees and their dependents were $7.8
million, $8.2 million and $9.8 million in 1996, 1995 and 1994, respectively.
For retirees and their dependents these costs were $3.4 million in 1996, $3.2
million in 1995 and $3.1 million in 1994.
The Company provides life insurance benefits to its active and retired
employees. Generally, life insurance benefits for retired employees are
reduced over a number of years from the date of retirement to a minimum
level. Costs paid for life insurance benefits for employees were
approximately $637,000 in 1996, $896,000 in 1995 and $584,000 in 1994. The
costs of providing such benefits for retired employees were de minimis in
each of the three years in the period ended December 31, 1996.
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<PAGE> 55
NOTE 17 - COMMITMENTS AND CONTINGENT LIABILITIES:
Operating Leases - Rental expense covering manufacturing,
transportation and certain other facilities and equipment for the years 1996,
1995 and 1994 aggregated $17.2 million, $14 million and $11.9 million,
respectively. Minimum annual rental commitments as of December 31, 1996 under
noncancellable leases are set forth as follows:
(IN MILLIONS)
-------------
MANUFACTURING
-----------------------------------------
MOBILE EQUIPMENT
EQUIPMENT AND OTHER TOTAL
------------ ------------ -----------
1997 $ 10.3 $ 2.5 $ 12.8
1998 8.4 2.3 10.7
1999 7.2 1.0 8.2
2000 5.5 0.8 6.3
2001 2.6 0.4 3.0
Thereafter 0.6 3.1 3.7
------------ ------------ -----------
$ 34.6 $ 10.1 $ 44.7
============ ============ ===========
Environmental Matters - Industrial operations have been conducted at
some of the Company's 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, contain chemical elements or compounds that are designated as
hazardous substances. All of these activities are regulated by federal, state
and local laws and regulations pertaining to the protection of human health
and the environment. In the past, the Company disposed of various materials,
both onsite and offsite, in a manner which in some cases would not be
permitted under current environmental regulations. Certain of these
materials, if discarded today, might be categorized as hazardous wastes.
Remediation under environmental clean-up rules can be costly. Federal
environmental laws as well as analogous laws in certain states, create joint
and several liability for the cost of cleaning up or correcting releases into
the environment of designated hazardous substances. Among those who may be
held jointly and severally liable are those who generated the hazardous
substances, those who arranged for disposal of the hazardous substances,
those who owned or operated the disposal site or facility at the time of
disposal, and subsequent owners and operators. With regard to the
discontinued environmental services business, the Company has both given
indemnification to and received indemnification from others for properties
previously owned although a few courts have held that indemnification for
such environmental liabilities is unenforceable. No estimate of the extent of
contamination, remediation cost or recoverability of cost from prior owners,
if any, is presently available regarding these discontinued operations.
While several of the Company's facilities are the subject of various
local, state or federal environmental proceedings and inquiries, most of
these investigations are in their preliminary stages and final results may
not be determined for years. In certain instances, the Company has been named
as one of several potentially responsible parties (PRP) charged with
remediation activities related to various alleged CERCLA violations. Despite
the fact current law imposes joint and several liability on all parties at
any Superfund site, the Company's accrual for estimated liability in these
instances
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<PAGE> 56
reflects only the Company's expected share based on the Company's assessment
of (i) its proportionate volumetric contribution to the waste material, (ii)
whether responsibility is being disputed, (iii) the terms of any existing
agreements, (iv) the solvency of other parties and (v) experience regarding
similar matters. The Company is also involved in remedial response and
voluntary environmental cleanup expenditures as to a number of other sites
which are not the subject of any Superfund law proceeding or investigation by
federal, state or local agencies. Included among these are the Company's
voluntary remediation of an inactive cement kiln dust (CKD) disposal site in
Ohio and investigation of several other inactive CKD disposal sites in Ohio
and elsewhere around the country. While some of these matters have been
settled for de minimis amounts, others are in their preliminary stages and
final results may not be determined for years. The Company accrues a charge
for an environmental reserve when it is probable that a liability has been
incurred and the amount of the liability is reasonably estimable, whether or
not claims have been asserted. All environmental accruals have been recorded
without giving effect to any possible future recoveries from insurance or
other third parties. It is often difficult to estimate the future impact of
environmental matters and accruals are adjusted as further information
develops or circumstances change.
Accrued liabilities specifically related to environmental matters were,
in the aggregate, $2.3 million, $3.4 million and $4.2 million at December 31,
1996, 1995 and 1994, respectively. Additional amounts related to closure,
remediation and other environmental related liabilities were included in the
charge accrued in conjunction with the 1994 loss on disposal of the
discontinued environmental services operations. Cash expenditures often lag
by a number of years the period in which an accrual is recorded. Based on the
information developed to date, the Company has no reason to believe it will
be required to spend significant sums in excess of the amounts reflected in
the Company's reserves. Until all environmental studies, investigations,
remediation work and negotiations with or litigation against potential
sources of recovery have been completed, however, the ultimate cost that
might be incurred by the Company to resolve these environmental issues can
not be assured.
Additions to and expenditures charged against the Company's
environmental accruals related to continuing operations during the past three
years were as follows:
YEARS ENDED DECEMBER 31,
(IN MILLIONS)
------------------------------------
1996 1995 1994
--------- --------- --------
Beginning balance $ 3.4 $ 4.2 $ 8.8
Expense provisions 0.3 1.7 2.9
Expenditures (1.4) (2.5) (7.5)
--------- --------- --------
Ending balance $ 2.3 $ 3.4 $ 4.2
========= ========= ========
Based solely upon the information the Company has developed to date,
which is subject to change as additional information becomes available,
management of the Company believes that known matters can be successfully
resolved in cooperation with local, state and federal regulating agencies.
However, because the Company's results of operations vary considerably with
construction activity and other factors, it is, at least reasonably possible
that future charges for environmental contingencies could, depending on their
timing and magnitude, have a material adverse impact on the Company's results
of operations in a particular period.
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<PAGE> 57
Claims for Indemnification - Prior to the sale of the Company's then
oil and gas subsidiary, Pelto Oil Company (Pelto) in 1989 to Energy
Development Corporation (EDC), Pelto entered into certain gas settlement
agreements, including one with Tennessee Gas Pipeline Company (Tennessee
Gas). The Minerals Management Service (MMS) of the Department of the Interior
(DOI) has reviewed the 1988 agreement Pelto entered into with Tennessee Gas
to determine whether a payment to Pelto thereunder is associated with federal
or Indian leases and whether, in its view, any additional royalties may be
due as a result of that payment. In October 1995, the MMS's Houston
Compliance Division advised EDC that it had determined that a lump sum
payment made by Tennessee Gas to Pelto was, for several alleged reasons,
royalty bearing and, accordingly, it had made a preliminary determination of
underpayment of royalties in the amount of $1.35 million attributable to
these proceeds. The Company has been notified by EDC that EDC was exercising
its indemnification rights under the 1989 stock purchase for Pelto with
respect to both the Tennessee Gas matter and an earlier similar MMS
determination of royalty underpayment, in an amount unspecified, with respect
to a separate $5.9 million gas settlement payment from Transcontinental Gas
Pipe Line Corporation to Pelto. The Company disagrees with MMS' preliminary
determinations; however, if the determinations as to the payments to Pelto
are ultimately upheld, the Company could have liability for royalties, plus
late payment charges. Such expenditures would result in a charge to
discontinued operations.
Status of Antidumping Orders - In response to the surge of unfairly
priced imports, groups of U.S. industry participants, including the Company,
filed antidumping petitions in 1989 against imports from Mexico and, in
subsequent years, against imports from certain other countries. Based upon
affirmative final determinations of the International Trade Commission and
the Department of Commerce (DOC), an antidumping order was imposed against
Mexican cement and clinker in 1990 and against Japanese cement and clinker in
1991. In addition, in February 1992, the DOC suspended antidumping and
countervailing duty investigations of cement and clinker from Venezuela,
based upon (i) the Venezuelan cement producers' agreement to revise their
prices to eliminate the dumping of gray portland cement and clinker from
Venezuela into the U.S., and (ii) the Venezuelan government's agreement not
to subsidize the Venezuelan cement producers.
As a result of these orders, importers must tender antidumping duty
cash deposits to the U.S. Customs Service with each entry of cement or
clinker from Mexico or Japan equal to the customs value of the cement times
the cash deposit rate applicable to the exporter. In the case of Japan,
imports of cement and clinker have declined precipitously since the
imposition of antidumping duty cash deposits. Imports from Mexico have
continued. The dumping margins and resulting rates of antidumping duty cash
deposits are subject to annual review by the DOC. In addition, legislation
passed by the U.S. Congress in December 1994 requires the initiation of
"sunset" reviews of the antidumping orders prior to January 2000 to determine
whether these antidumping orders and the Venezuelan suspension agreement
should terminate or remain in effect.
A substantial reduction or elimination of the existing antidumping
duties as a result of the World Trade Organization, North American Free Trade
Agreement, currency devaluation or any other reason, or an influx of
low-priced cement from countries not subject to antidumping orders, could
materially adversely affect the Company's results of operations. The Company,
however, is of the opinion an influx of low-priced cement imports from
countries not subject to antidumping orders is unlikely given the present
circumstances in the U.S. market and the ownership profile of import
terminals. U.S. imports of foreign cement once again increased in the
mid-1990's as U.S. cement
55
<PAGE> 58
consumption began its recovery. The PCA has estimated that imports
represented approximately 14% of U.S. consumption in 1996 as compared with
approximately 16% in 1995 and 13% in 1994. During this recent period of
strong demand, however, the prices of cement imports have risen. Unlike the
imports during the 1980's, many of the current imports are playing a
supplementary rather than a disruptive role.
Other - The Company has certain other commitments and contingent
liabilities incurred in the ordinary course of business including, among
other things, being a named defendant in lawsuits related to various matters
including personal injury, contractual indemnifications, environmental
remediation, product liability and employment matters. These various
commitments and contingent liabilities, in the judgment of management, will
not result in losses which would materially affect its consolidated financial
position. However, because the Company's results of operations vary
considerably with construction activity and other factors, it is at least
reasonably possible that future charges for contingencies could, depending on
their timing and magnitude, have a material adverse impact on the Company's
results of operations in a particular period.
NOTE 18 - CAPITAL STOCK:
The authorized capital stock of Southdown comprises 40,000,000 shares
of Common Stock, $1.25 par value (Common Stock), and 10,000,000 shares of
Preferred Stock, $.05 par value (the Preferred Stock). 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 D
Preferred Stock described below.
COMMON STOCK
At December 31, 1996, there were 21,948,366 shares of common stock
issued and 21,766,166 shares of common stock outstanding and held of record
by approximately 1,667 shareholders, and approximately 4.6 million shares
were reserved for future issuance upon exercise of options granted under
employee benefit plans or upon conversion of convertible securities. A
dividend of $0.10 per share of common stock has been paid quarterly beginning
in March 1996.
WARRANTS TO PURCHASE COMMON STOCK
In October 1991, the Company issued and sold an aggregate of 1,250,000
Warrants pursuant to the terms of a Warrant Agreement dated as of October 31,
1991. Each Warrant entitled 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 on October 31, 1996. 1,250,000 shares of common
stock were purchased upon exercise of all the Warrants during 1996.
COMMON STOCK REPURCHASE PROGRAM
On November 22, 1996, the Board of Directors approved a common stock
repurchase program under which the Company is authorized to repurchase up to
1.5 million shares of the Company's outstanding common stock. As of December
31, 1996, approximately 182,000 shares of common stock had been purchased in
open market transactions at a cost of $5.6 million.
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<PAGE> 59
SHAREHOLDER RIGHTS PLAN
On March 4, 1991, 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 Shareholders 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 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.
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.
In the event a person becomes an Acquiring Person (except pursuant to
certain Permitted Offers as defined in the Rights Agreement), each Right will
then entitle the holder 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, all Rights that are, or under certain
circumstances were, beneficially owned by any Acquiring Person (or by certain
related parties) will be null and void. 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.
In the 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 earnings 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.
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<PAGE> 60
At any time until ten days following a 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.
The provisions of the Rights and the Rights Agreement 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, on balance provide benefits to
the Company's shareholders by enhancing the Company's potential ability to
negotiate an improvement in terms with the proponent of any unfriendly or
unsolicited proposal to take over or restructure the Company.
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 and B Preferred Stock - In 1987, the Company issued 1,999,998
shares of Preferred Stock, $.70 Cumulative Convertible Series A (Series A
Preferred Stock). As of December 31, 1995, 1,994,000 shares of Series A
Preferred Stock were issued and outstanding. Dividends paid on the Series A
Preferred Stock amounted to approximately $1.0 million in 1996 and $1.4
million in both 1995 and 1994.
In 1988, the Company issued 960,000 shares of Preferred Stock, $3.75
Convertible Exchangeable Series B (Series B Preferred Stock). As of December
31, 1995, 914,360 shares of Series B Preferred Stock were issued and
outstanding. Dividends accrued or paid on the Series B Preferred Stock
amounted to approximately $1.7 million in 1996 and $3.4 million in both 1995
and 1994.
In late 1996, the Company called for redemption of all of the shares of
its Series A Preferred Stock and Series B Preferred Stock. One hundred
percent of the Series A Preferred Stock was converted into 997,000 shares of
common stock prior to the redemption date. All but 300 shares of the Series B
Preferred Stock were converted into 2,285,000 shares of common stock prior to
the redemption date. Had these conversions taken place at the beginning of
1996, primary earnings per share from continuing operations, primary
extraordinary charge net of income taxes and primary net earnings per share
would have been reduced by $0.31, $0.08 and $0.23, respectively, for the
year.
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. The Rights are not exercisable as of
the date hereof. See "Shareholder Rights Plan". If issued, the Series C
Preferred Stock would be junior to the Series D Preferred Stock with respect
to dividends and assets.
Series D Preferred Stock - In 1994, the Company issued 1,725,000 shares
of Preferred Stock, $2.875 Cumulative Convertible Series D (Series D
Preferred Stock). With respect to dividends and
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<PAGE> 61
assets, the Series D Preferred Stock will be senior to any Series C Preferred
Stock that may be issued. Dividends paid or accrued on the Series D Preferred
Stock were $5.0 million in both 1996 and 1995 and $4.6 million in 1994.
The Series D Preferred Stock (a) has a stated value and liquidation
preference of $50 per share, plus accrued and unpaid dividends, (b) carries a
cumulative annual dividend of $2.875 per share, payable quarterly, and
entitles the holders thereof, 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 vote with the Series D Preferred Stock in such a case (which does
not include the Series C Preferred Stock, if any is issued), to elect two
directors if dividends are in arrears for at least six quarterly dividend
periods, (c) is initially convertible into 1.511 shares of common stock for
each share of Series D Preferred Stock, subject to adjustment, (d) may be
converted at the option of the Company, in whole but not in part, at any time
on and after January 27, 1997 and until January 27, 2001, if for at least 20
trading days within a period of 30 consecutive trading days, the closing
price of the common stock equals or exceeds 130% of the conversion price,
into 1.511 shares of common stock, subject to adjustment, (e) is redeemable
at the option of the Company at 100% of the stated value thereof plus accrued
and unpaid dividends on and after January 27, 2001, and (f) 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 Series D Preferred Stock has certain class
voting rights. The Company has reserved 2,606,475 shares of common stock for
issuance upon conversion of the Series D Preferred Stock.
NOTE 19 - STOCK OPTION AND INCENTIVE PLANS:
Employee Stock Option Plans - As of December 31, 1996, there are two
stock option plans for officers and certain key employees of the Company.
Both the 1987 Stock Option Plan (1987 Plan) and the 1989 Stock Option Plan
(1989 Plan) each had a total of up to 2,000,000 shares of the Company's
common stock initially available for award. As of December 31, 1996,
1,993,622 options and 1,345,100 options for the 1987 Plan and the 1989 Plan,
respectively, had been awarded. The Employee Compensation and Benefits
Committee of the Board of Directors may determine to permit any option
granted thereunder to be exercisable immediately upon the date of grant or at
any time thereafter; provided, however, that no option granted thereunder may
be exercised within the first six months after the date of grant except in
the event of the death or disability of the optionee. Since August of 1994,
however, options granted have typically carried a vesting schedule such that
the options become exercisable over four annual installments at a rate of 25%
at the end of each year of continued employment with the Company. Options
granted are exercisable at the fair market value of the stock at the date of
grant and expire not more than ten years from the date of grant. Unoptioned
shares available for grant as of December 31, 1996 were 6,378 and 654,900
under the 1987 Plan and 1989 Plan, respectively.
Non-Employee Directors' Plan - Under the 1991 Nonqualified Stock Option
Plan for Non- Employee Directors (1991 Directors' Plan), options for a total
of up to 150,000 shares of the Company's common stock were initially
available for grant to directors of the Company who are not employed by the
Company or any of the Company's subsidiaries. Newly elected non-employee
directors are granted an initial option to acquire 10,000 shares of the
Company's common stock at
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<PAGE> 62
the time of their election to the Board of Directors. Subsequent options to
acquire 5,000 shares of the Company's common stock were awarded to each
non-employee director on the date of the annual meeting of shareholders at
which the non-employee director was reelected to serve an additional
three-year term. The 1991 Directors' Plan provided for options to vest
immediately to the extent of 25% of the total options granted and an
additional 25% on each of the first through the third anniversaries from the
date of the grant.
In November 1996, the Board amended, subject to approval by
shareholders at the next Annual Meeting, the 1991 Directors' Plan to provide
that: (i) all options which are outstanding and non-exercisable as of the
date of the next Annual Meeting of the shareholders of the Company shall be
exercisable six months after the date of such Annual Meeting, (ii) a
subsequent option shall no longer be an option to purchase 5,000 shares of
common stock which becomes exercisable over a three year period, but shall be
an option to purchase 2,000 shares of common stock which shall be granted to
each non-employee director on the date of each Annual Meeting of the
shareholders of the Company commencing on the date of the next Annual
Meeting, (iii) all options granted on or after the next Annual Meeting shall
be exercisable six months after the date of the grant, and (iv) upon the
termination of service as a director of the Board by a non-employee director
who is eligible for benefits under the Southdown, Inc. Directors' Retirement
Plan, any of such Director's options outstanding as of the date of such
termination of service on the Board shall be exercisable for ten years from
the date of grant of such options, and (v) an additional 250,000 shares of
common stock be reserved for issuance pursuant to the terms of the 1991
Directors' Plan as amended. As of December 31, 1996, a total of 170,000
options had been awarded under the 1991 Directors' Plan. Options granted
under the 1991 Directors' Plan are exercisable at the fair market value of
the stock at the date of grant and expire not more than ten years from the
date of grant. Unoptioned shares available for grant as of December 31, 1996
under the 1991 Director's Plan were 230,000.
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<PAGE> 63
Information with respect to the Company's stock option plans is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
VESTED SHARES AVERAGE
OPTIONS UNDER EXERCISE
EXERCISABLE OPTION PRICE
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1993 1,188,622 1,406,022 $ 17.25
============ ============
Granted 280,000 26.25
Exercised (545,129) 16.32
Canceled (37,200) 16.37
------------
Balance, December 31, 1994 743,993 1,103,693 $ 19.03
============ ============
Granted 182,800 20.27
Exercised (43,000) 14.21
Canceled (26,000) 21.30
------------
Balance, December 31, 1995 846,293 1,217,493 $ 19.34
============ ============
Granted 354,900 23.46
Exercised (420,705) 17.05
Canceled (19,400) 21.73
------------
Balance, December 31, 1996 580,278 1,132,288 $ 21.48
============ ============ ============
</TABLE>
The following table summarizes information about stock options
outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------- --------------------------------------------------------- ------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Exercise Exercisable Exercise
at 12/31/96 Life Price at 12/31/96 Price
- ------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 9.56 to 14.34 131,746 5.74 years $12.07 125,246 $12.13
14.375 to 21.56 425,742 6.55 years 19.27 233,632 18.29
21.875 to 31.00 574,800 7.22 years 25.13 221,400 27.31
- ------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
$ 9.56 to 31.00 1,132,288 $21.48 580,278 $20.40
========================= =================== ================= ================== ================= =================
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) encourages, but does not require
companies to record compensation cost for employee stock-based compensation
plans at fair value as determined by generally recognized option pricing
models such as the Black-Scholes model or the binomial model. Because of the
inexact and subjective nature of deriving stock option values using these
methods, the Company has adopted the disclosure-only provisions of SFAS No.
123 and continues to account for stock-based compensation as it has in the
past using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation expense has been recognized for the Company's
employee stock option plans. Had compensation cost for the Company's employee
stock option plans been determined based on the fair value at the grant date
for awards consistent with the provisions of SFAS No. 123, the Company's net
earnings and fully diluted earnings per share would have been
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reduced by $1.2 million or $0.05 per share, $717,000 or $0.03 per share and
$639,000 or $0.04 per share in 1996, 1995 and 1994, respectively. The pro
forma fair value of options at date of grant was estimated using the
Black-Scholes model and the following assumptions:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------ ---------------- ---------------- -----------------
<S> <C> <C> <C>
Expected life (years) 5 5 5
Interest rate (U.S. Treasury 5 year notes) 6.45% 6.14% 6.56%
Volatility 31.077% 31.687% 31.879%
Dividend yield 1.67% 0.0% 0.0%
- ------------------------------------------------ ---------------- ---------------- -----------------
Weighted average fair value at grant date $ 6.54 $ 6.28 $ 6.65
================================================ ================ ================ =================
</TABLE>
NOTE 20 - DISCONTINUED ENVIRONMENTAL SERVICES SEGMENT:
During the fourth quarter of 1994, the Company adopted a formal plan to
exit the environmental services business and recorded a $21.6 million charge
to earnings to reflect (i) the difference between the book value of the
environmental services assets and the estimated proceeds from the disposal of
those assets and (ii) the estimated losses to be incurred prior to the sale
of the assets and other direct costs of exiting the business. During April
1995, the Company sold all the outstanding shares of stock of its remaining
hazardous waste processing facilities for $11.8 million in cash and notes
plus certain working capital items. The Company remains contingently liable
for certain environmental remediation issues, known and unknown, under the
indemnification provisions of the sales agreements. (See also Notes 14 and 17
of Notes to Consolidated Financial Statements.)
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INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF SOUTHDOWN, INC.
Southdown, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheet of Southdown,
Inc. and subsidiary companies as of December 31, 1996 and 1995, and the
related statements of consolidated earnings, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Southdown, Inc. and subsidiary
companies as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Houston, Texas
January 22, 1997
63
<PAGE> 66
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
P A R T I I I
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120
days after the close of the Company's fiscal year.
Such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120
days after the close of the Company's fiscal year.
Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120
days after the close of the Company's fiscal year.
Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120
days after the close of the Company's fiscal year.
Such information is incorporated herein by reference.
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
Item 8 of this report lists certain consolidated financial
statements and supplementary data of the Company and its
subsidiaries.
2. FINANCIAL STATEMENT SCHEDULES
No schedules are included because they are not applicable or
the required information is shown in the financial statements
or notes thereto.
64
<PAGE> 67
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
3.1 Restated Articles of Incorporation of the Company, as amended through March
4, 1991 - incorporated by reference from Exhibit 4.1 to the Company's Current
Report on Form 8-K dated December 21, 1993
3.2 Articles of Amendment to the Restated Articles of Incorporation of the
Company dated January 25, 1994 - incorporated by reference from Exhibit 3.2
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993
*3.3 Bylaws of the Company amended as of March 20, 1997
4.1 Indenture dated as of March 19, 1996 between the Company and State Street
Bank and Trust Company as Trustee as relating to the Company's 10% Senior
Subordinated Notes due 2006, Series B - incorporated by reference from Exhibit
4.1 to the Company's Registration Statement on Form S-4 (Registration No.
333-02585) filed April 17, 1996
4.2 Certain instruments defining the rights of holders of long-term debt instruments
representing less than 10% of the consolidated assets of the Company have not
been filed as exhibits to this report. The Company agrees to furnish a copy of
any such instrument to the Commission upon request
*4.3 Rights Agreement dated as of March 4, 1991 between the Company and
Chemical Shareholder Services Group, Inc. (formerly Texas Commerce Bank
National Association) as Rights Agent
+10.1 1987 Stock Option Plan of Southdown, Inc. - incorporated by reference from
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992
+10.2 Form of Nonqualified Stock Option Agreement - incorporated by reference
from Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992
+10.3 1989 Stock Option Plan of Southdown, Inc. - incorporated by reference from
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993
+10.4 Special Severance Program dated May 18, 1989 - incorporated by reference
from Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993
+10.5 Form of Supplemental Pension Agreement and amendment to Supplemental
Pension Agreement - incorporated by reference from Exhibit 10.3 to the
Company's Quarterly Report for the quarter ended June 30, 1993
+10.6 Employment Agreements and form of Amendment to Employment
Agreements between the Company and certain executive officers, as
more specifically described below:
</TABLE>
65
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
Date of
Name of Officer Employment Agreement
(a) Clarence C. Comer June 1, 1988
(b) James L. Persky June 1, 1988
(c) Dennis M. Thies June 1, 1988
(d) J. Bruce Tompkins November 1, 1989
(e) Eugene P. Martineau March 23, 1992
- incorporated by reference from Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993
+10.7 Southdown, Inc. Pension Plan as adopted on May 19, 1994 - incorporated by
reference from Exhibit 99.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994
+10.8 Southdown, Inc. Retirement Savings Plan as amended and restated on July 1,
1990 - incorporated by reference from Exhibit 99.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994
+10.9 Southdown, Inc. Directors' Retirement Plan - incorporated by reference from
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995
*+10.10 First Amendment to the Southdown, Inc. Directors' Retirement Plan
*+10.11 Southdown, Inc. 1991 Nonqualified Stock Option Plan for Non-employee
Directors - as amended November 21, 1996
*+10.12 Southdown, Inc. Phantom Stock and Deferred Compensation Plan for Non-
employee Directors
*+10.13 Southdown, Inc. Annual Incentive Plan dated April 11, 1996
10.14 Third Amended and Restated Credit Agreement as of November 3, 1995 among
the Company; Wells Fargo Bank, N.A.; Societe Generale, Southwest Agency;
Credit Suisse; Caisse National De Credit Agricole; Banque Paribas; CIBC Inc.;
The Bank of Nova Scotia; and The First National Bank of Boston - incorporated
by reference to Exhibit 99.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995
10.15 Letter Agreement dated February 29, 1996, amending the Third Amended and
Restated Credit Agreement as of November 3, 1995, among the Company and
the banks party thereto - incorporated by reference from Exhibit 99.2 to the
Company's Registration Statement on Form S-4 (Registration No. 333-02585)
filed April 17, 1996
10.16 Agreement dated May 1, 1996 by and between Kosmos Cement Company and
the International Brotherhood of Boilermakers, Cement, Lime, Gypsum and
Allied Workers Division Lodge D595 - incorporated by reference from Exhibit
99.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996
</TABLE>
66
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.17 Agreement dated August 16, 1993, as amended November 16, 1995, by and
between the Company and the United Paperworkers International Union -
incorporated by reference from Exhibit 10.14 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995
10.18 Agreement dated as of December 15, 1993 between Kosmos Cement Company
and International Brotherhood of Boilermakers, Cement, Lime, Gypsum and
Allied Workers Division Lodge D-592 - incorporated by reference from Exhibit
99.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994
10.19 Agreement dated March 1, 1994 by and between the Southwestern Portland
Cement and the International Brotherhood of Boilermakers, Cement, Lime,
Gypsum and Allied Workers Division, Local Lodge No. D357 - incorporated by
reference from Exhibit 10.21 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994
10.20 Agreement dated July 31, 1994 by and between the Southwestern Portland
Cement Company (Odessa Plant) and the United Cement, Lime, Gypsum and
Allied Workers Division, Boilermakers International Union, A.F.L.-C.I.O.,
Local No. D476 - incorporated by reference from Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994
10.21 Agreement dated April 2, 1994 by and between the Company and Teamster
Local No. 420, 495, 692 and 986 C - incorporated by reference from Exhibit
99.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995
10.22 Agreement dated March 1, 1995 by and between the Company and Cement,
Lime and Gypsum Worker's Division Boilermaker's Union, Local Lodge No.
D140 - incorporated by reference from Exhibit 99.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995
10.23 Agreement dated June 21, 1995 by and between the Company and the
International Union of Operating Engineers, Local Union No. 9 - incorporated
by reference from Exhibit 99.2 to the Company's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1995
*11 Statement of computation of per share earnings
*21 Significant Subsidiaries of Southdown, Inc. as of December 31, 1996
*23 Consent of independent auditors
*27 Financial Data Schedule
</TABLE>
--------------------
* Filed herewith
+ Compensatory plan or management agreement.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter ended December
31, 1996
67
<PAGE> 70
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SOUTHDOWN, INC.
(Registrant)
By /s/ CLARENCE C. COMER
-------------------------
Clarence C. Comer
President and Chief Executive Officer
Date: March 26, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES POSITIONS DATE
---------- --------- ----
<S> <C> <C>
CLARENCE C. COMER President, Chief Executive Officer March 26, 1997
- -------------------------------------------- and Director (Principal Executive
Clarence C. Comer Officer)
JAMES L. PERSKY Executive Vice President - Finance March 26, 1997
- -------------------------------------------- and Administration (Principal
James L. Persky Financial Officer)
ALLAN KORSAKOV Corporate Controller (Principal March 26, 1997
- --------------------------------------------
Allan Korsakov Accounting Officer)
W. J. CONWAY Director March 26, 1997
- --------------------------------------------
W. J. Conway
V. H. VAN HORN, III Director March 26, 1997
- --------------------------------------------
V. H. Van Horn, III
K. L. HUGER, JR. Director March 26, 1997
- --------------------------------------------
K. L. Huger, Jr.
ROBERT G. POTTER Director March 26, 1997
- --------------------------------------------
Robert G. Potter
FRANK J. RYAN Director March 26, 1997
- --------------------------------------------
Frank J. Ryan
WHITSON SADLER Director March 26, 1997
- --------------------------------------------
Whitson Sadler
ROBERT J. SLATER Director March 26, 1997
- --------------------------------------------
Robert J. Slater
DAVID J. TIPPECONNIC Director March 26, 1997
- --------------------------------------------
David J. Tippeconnic
RONALD N. TUTOR Director March 26, 1997
- --------------------------------------------
Ronald N. Tutor
STEVEN B. WOLITZER Director March 26, 1997
- --------------------------------------------
Steven B. Wolitzer
</TABLE>
68
<PAGE> 71
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
3.1 Restated Articles of Incorporation of the Company, as amended through March
4, 1991 - incorporated by reference from Exhibit 4.1 to the Company's Current
Report on Form 8-K dated December 21, 1993
3.2 Articles of Amendment to the Restated Articles of Incorporation of the
Company dated January 25, 1994 - incorporated by reference from Exhibit 3.2
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993
*3.3 Bylaws of the Company amended as of March 20, 1997
4.1 Indenture dated as of March 19, 1996 between the Company and State Street
Bank and Trust Company as Trustee as relating to the Company's 10% Senior
Subordinated Notes due 2006, Series B - incorporated by reference from Exhibit
4.1 to the Company's Registration Statement on Form S-4 (Registration No.
333-02585) filed April 17, 1996
4.2 Certain instruments defining the rights of holders of long-term debt instruments
representing less than 10% of the consolidated assets of the Company have not
been filed as exhibits to this report. The Company agrees to furnish a copy of
any such instrument to the Commission upon request
*4.3 Rights Agreement dated as of March 4, 1991 between the Company and
Chemical Shareholder Services Group, Inc. (formerly Texas Commerce Bank
National Association) as Rights Agent
+10.1 1987 Stock Option Plan of Southdown, Inc. - incorporated by reference from
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992
+10.2 Form of Nonqualified Stock Option Agreement - incorporated by reference
from Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992
+10.3 1989 Stock Option Plan of Southdown, Inc. - incorporated by reference from
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993
+10.4 Special Severance Program dated May 18, 1989 - incorporated by reference
from Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993
+10.5 Form of Supplemental Pension Agreement and amendment to Supplemental
Pension Agreement - incorporated by reference from Exhibit 10.3 to the
Company's Quarterly Report for the quarter ended June 30, 1993
+10.6 Employment Agreements and form of Amendment to Employment
Agreements between the Company and certain executive officers, as
more specifically described below:
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
Date of
Name of Officer Employment Agreement
(a) Clarence C. Comer June 1, 1988
(b) James L. Persky June 1, 1988
(c) Dennis M. Thies June 1, 1988
(d) J. Bruce Tompkins November 1, 1989
(e) Eugene P. Martineau March 23, 1992
- incorporated by reference from Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993
+10.7 Southdown, Inc. Pension Plan as adopted on May 19, 1994 - incorporated by
reference from Exhibit 99.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994
+10.8 Southdown, Inc. Retirement Savings Plan as amended and restated on July 1,
1990 - incorporated by reference from Exhibit 99.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994
+10.9 Southdown, Inc. Directors' Retirement Plan - incorporated by reference from
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995
*+10.10 First Amendment to the Southdown, Inc. Directors' Retirement Plan
*+10.11 Southdown, Inc. 1991 Nonqualified Stock Option Plan for Non-employee
Directors - as amended November 21, 1996
*+10.12 Southdown, Inc. Phantom Stock and Deferred Compensation Plan for Non-
employee Directors
*+10.13 Southdown, Inc. Annual Incentive Plan dated April 11, 1996
10.14 Third Amended and Restated Credit Agreement as of November 3, 1995 among
the Company; Wells Fargo Bank, N.A.; Societe Generale, Southwest Agency;
Credit Suisse; Caisse National De Credit Agricole; Banque Paribas; CIBC Inc.;
The Bank of Nova Scotia; and The First National Bank of Boston - incorporated
by reference to Exhibit 99.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995
10.15 Letter Agreement dated February 29, 1996, amending the Third Amended and
Restated Credit Agreement as of November 3, 1995, among the Company and
the banks party thereto - incorporated by reference from Exhibit 99.2 to the
Company's Registration Statement on Form S-4 (Registration No. 333-02585)
filed April 17, 1996
10.16 Agreement dated May 1, 1996 by and between Kosmos Cement Company and
the International Brotherhood of Boilermakers, Cement, Lime, Gypsum and
Allied Workers Division Lodge D595 - incorporated by reference from Exhibit
99.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.17 Agreement dated August 16, 1993, as amended November 16, 1995, by and
between the Company and the United Paperworkers International Union -
incorporated by reference from Exhibit 10.14 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995
10.18 Agreement dated as of December 15, 1993 between Kosmos Cement Company
and International Brotherhood of Boilermakers, Cement, Lime, Gypsum and
Allied Workers Division Lodge D-592 - incorporated by reference from Exhibit
99.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994
10.19 Agreement dated March 1, 1994 by and between the Southwestern Portland
Cement and the International Brotherhood of Boilermakers, Cement, Lime,
Gypsum and Allied Workers Division, Local Lodge No. D357 - incorporated by
reference from Exhibit 10.21 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994
10.20 Agreement dated July 31, 1994 by and between the Southwestern Portland
Cement Company (Odessa Plant) and the United Cement, Lime, Gypsum and
Allied Workers Division, Boilermakers International Union, A.F.L.-C.I.O.,
Local No. D476 - incorporated by reference from Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994
10.21 Agreement dated April 2, 1994 by and between the Company and Teamster
Local No. 420, 495, 692 and 986 C - incorporated by reference from Exhibit
99.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995
10.22 Agreement dated March 1, 1995 by and between the Company and Cement,
Lime and Gypsum Worker's Division Boilermaker's Union, Local Lodge No.
D140 - incorporated by reference from Exhibit 99.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995
10.23 Agreement dated June 21, 1995 by and between the Company and the
International Union of Operating Engineers, Local Union No. 9 - incorporated
by reference from Exhibit 99.2 to the Company's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1995
*11 Statement of computation of per share earnings
*21 Significant Subsidiaries of Southdown, Inc. as of December 31, 1996
*23 Consent of independent auditors
*27 Financial Data Schedule
</TABLE>
--------------------
* Filed herewith
+ Compensatory plan or management agreement.
<PAGE> 1
EXHIBIT 3.3
- As Amended March 20, 1997 -
BYLAWS
OF
SOUTHDOWN, INC.
ARTICLE I
Shareholders
Section 1 - Place of Holding Meetings
All meetings of the shareholders shall be held at the principal business office
of the corporation in New Orleans, Louisiana, or at such other place as may be
specified in the notice of the meeting.
Section 2 - Annual Election of Directors
An annual meeting of shareholders for the election of directors shall be held in
each calendar year on such date as the board of directors may determine but not
later than 18 months after the date of the annual meeting held the preceding
year, at such time as may be specified in the notice of the meeting.
Section 3 - Voting
(a) On demand of any shareholder, the vote for directors, or on any
questions before a meeting, shall be by ballot. All elections shall be
had by plurality, and all questions decided by majority, of the votes
cast, except as otherwise provided by the articles or by law.
(b) At each meeting of shareholders, a list of the shareholders entitled to
vote, arranged alphabetically and certified by the transfer agent,
showing the number and class of shares held by each such shareholder on
the record date for the meeting, shall be produced on the request of
any shareholder.
(c) The date and time of the opening and the closing of the polls for each
matter on which the shareholders will vote at any meeting of the
shareholders shall be announced at the meeting by the chairman of the
meeting. The Board of Directors of the corporation (or any committee
designated by it for that purpose) may, to the extent not prohibited by
law, adopt by resolution such rules, regulations and procedures for the
conduct of any meeting of shareholders as it may deem appropriate or
convenient. Except to the extent inconsistent
<PAGE> 2
with such rules, regulations and procedures as adopted by the Board of
Directors or any such committee, the chairman of any meeting has the
right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of the chairman, are
appropriate or convenient for the conduct of any meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
any such committee or prescribed by the chairman of any meeting, may,
to the extent not prohibited by law, include, without limitation,
establishment of the following: (1) an agenda or order of business for
the meeting; (2) rules, regulations and procedures for maintaining
order at the meeting and the safety of those present; (3) limitations
on attendance at or participation in the meeting to shareholders of
record of the corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall
determine; (4) restrictions on entry to the meeting after the time
fixed for the commencement thereof; and (5) limitations on the time
allotted to questions or comments by participants at the meeting.
Unless, and to the extent, determined by the Board of Directors, by a
duly appointed committee or by the chairman of the meeting, meetings of
shareholders are not required to be held in accordance with the rules
of parliamentary procedure.
Section 4 - Quorum
Except as provided herein, any number of shareholders, together holding at least
a majority of the outstanding shares entitled to vote thereat, who are present
in person or represented by proxy at the meeting, constitute a quorum for the
transaction of business despite the subsequent withdrawal or refusal to vote of
any shareholder. If notice of any meeting is mailed to the shareholders entitled
to vote at the meeting, stating the purpose or purposes of the meeting and that
the previous meeting failed for lack of a quorum, then any number shareholders,
present in person or represented by proxy and together holding at least
one-fourth of the outstanding shares entitled to vote thereat, constitute a
quorum at such meeting.
Section 5 - Adjournment of Meeting
If less than a quorum is in attendance at any time for which a meeting is
called, the meeting may be adjourned by a majority in interest of the
shareholders present or represented and entitled to vote thereat.
Section 6 - Special Meeting: How Called
Special Meetings of the shareholders for any purpose or purposes may be called
in the manner set forth in the Restated Articles of Incorporation.
2
<PAGE> 3
Section 7 - Notice of Shareholders' Meetings
Written or printed notice, stating the place and time of any meeting, and, if a
special meeting, the general nature of the business to be considered, shall be
given to each shareholder entitled to vote thereat, at his last known address,
at least ten days before the meeting.
Section 8 - Form of Proxies
Without limiting the manner in which a shareholder may authorize another person
or persons to act for him as proxy, the following shall constitute a valid means
by which a shareholder may grant such authority:
(a) A shareholder may execute a writing authorizing another person or
persons to act for him or her as proxy. Execution may be accomplished
by the shareholder or his or her authorized officer, director, employee
or agent signing such writing or causing his or her signature to be
affixed to such writing by any reasonable means including, but not
limited to, by facsimile signature.
(b) Any copy, facsimile telecommunication or other reliable reproduction of
the writing created under subsection (a) of this section 8 may be
substituted or used in place of the original writing for any and all
purposes for which the original writing could be used, including filing
with the secretary of the corporation at or before the meeting,
provided that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original
writing.
ARTICLE II
Directors
Section 1 - Number of Directors
Subject to the provisions of the Restated Articles of Incorporation, as amended,
the number of directors is eleven (11) until the 1997 Annual Meeting of
Shareholders, at which time three members of Class III are to be elected and the
number of directors shall be ten (10).
Section 2 - Place of Holding Meetings
Meetings of the directors, regular or special, may be held at any place, within
or outside Louisiana, as the board may determine.
3
<PAGE> 4
Section 3 - Meeting After Annual Meeting
A meeting of the Board of Directors shall be held immediately following the
annual meeting of shareholders, and no notice of such meeting shall be necessary
to the directors, whether or not newly elected, in order legally to constitute
the meeting, provided a quorum is present; or they may meet at such time and
place as fixed by the consent in writing of all of the directors, or by notice
given by the majority of the remaining directors. At such meeting, or at any
subsequent meeting called for the purpose, the directors shall elect the
officers of the corporation.
Section 4 - Regular Directors' Meeting
Any regular meeting of the directors may be held without notice, if a calendar
of regular meeting dates including the date of such meeting has been established
by the directors at least two weeks prior to such meeting, at the principal
business office of the corporation or at any other location specified in such
calendar of regular meeting dates. Any regular meeting of the directors may be
held in the absence of establishment of such calendar of regular meeting dates,
or at a location other than the principal business office of the corporation or
location specified in such calendar, by the given notice as required for special
directors' meetings. Any proposed agenda for such regular meetings shall not be
exclusive of other matters properly brought before the meeting.
Section 5 - Special Directors' Meeting: How Called
Special meetings of the directors may be called at any time by the board of
directors or by the executive committee, if one be constituted, by the chairman
of the board of directors, or by the president, or in writing, with or without a
meeting, by a majority of the directors or of the members of the executive
committee. Special meetings may be held at such place or places within or
outside Louisiana as may be designated by the person or persons calling the
meeting.
Section 6 - Notice of Special Directors' Meetings
Notice of the place and time of every special meeting of the board of directors
(and of the first meeting of the newly-elected board, if held on notice) (i) if
given by telephone or telegraph shall be delivered to each director at his
residence or usual place of business at least 3 days before the date of the
meeting, and (ii) if given by a means other than telephone or telegraph shall be
sent to each director at his residence or usual place of business at least 5
days before the date of the meeting. Any proposed agenda or statement of purpose
or purposes for a special meeting of directors shall not be exclusive of other
matters properly brought before the meeting.
Section 7 - Quorum
At all meetings of the board, a majority of the directors in office constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the Board of Directors, unless the concurrence of a greater
4
<PAGE> 5
proportion is required for such action by law, the articles of the bylaws. If a
quorum is not present at any meeting of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present. If a quorum be present,
the directors present may continue to act by vote of a majority of a quorum
until adjournment, notwithstanding the subsequent withdrawal of enough directors
to leave less than a quorum or the refusal of any directors present to vote.
Section 8 - Remuneration to Directors
Directors, as such, shall not receive any stated salary for their services, but
by resolution of the Board, expenses of attendance, if any, and except as to
salaried officers or employees of the corporation or an affiliated company, a
fixed fee for the performance of their duties as directors, as may be determined
from time to time by resolution of the Board, may be allowed to directors, but
this Section does not preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
Section 9 - Powers of Directors
The board of directors has the management of the business of the corporation,
and subject to any restrictions imposed by law, the articles or these bylaws,
may exercise all the powers of the corporation. Without prejudice to such
general powers, the directors have the following specific powers:
(a) From time to time, to devolve the powers and duties of any officer
upon any other person for the time being.
(b) To confer upon any officer the power to appoint, remove and suspend, and fix
and change the compensation of, subordinated officers, agents and factors.
(c) To determine who shall be entitled to vote, or to assign and transfer any
shares of stock, bonds, debentures or other securities of other corporations
held by this corporation.
(d) To delegate any of the powers of the board to any standing or special
committee or to any officer or agent (with power to sub-delegate) upon such
terms as they deem fit.
Section 10 - Resignations
The resignation of a director shall take effect on receipt thereof by the
president or secretary, or on any later, date, not more than thirty days after
such receipt, specified therein.
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Section 11 - Term of Office
Each director of the corporation shall hold office for the full term of office
to whom he shall have been elected and until his successor shall have been
elected and shall qualify, or until his death, resignation or removal.
Section 12 - Participation in Meetings
Directors may participate in and be present at any meeting of the board by means
of conference telephone or similar communications equipment if all persons
participating in such meeting can hear and communicate with each other.
Section 13 - Chairman of the Board
The board of directors shall elect one of its members to be chairman of the
board, to serve in such capacity at the pleasure of the board. In his capacity
as chairman of the board, he shall not be an officer of the corporation. The
chairman of the board shall preside at meetings of the board of directors and
shareholders and perform such other duties as from time to time may be assigned
to him by the board.
Section 14 - Vice Chairman of the Board
The board of directors may elect one of its members to be vice chairman of the
board to serve in such capacity at the pleasure of the board. In his capacity as
vice chairman of the board, he shall not be an officer of the corporation. In
the absence of the chairman of the board, the vice chairman of the board shall
preside at meetings of the board of directors and shareholders and perform such
other duties as from time to time may be assigned to him by the board.
Section 15 - Eligibility
No person shall be eligible for election or reelection as a director after
having attained the age of seventy prior to or on the day of election or
reelection. Effective January 1, 1996, a director who attains the age of seventy
during his or her term of office shall be eligible to serve only until the
annual meeting of shareholders of the corporation next following such director
seventieth birthday, at which meeting the shareholders of the corporation shall
elect such director's successor in accordance with Article I of these bylaws.
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ARTICLE III
Committees
Section 1 - Executive Committee
The board may appoint an executive committee, which, when the board is not in
session, to the full extent of the powers of the board shall have and may
exercise the powers of the board in the management of the business and affairs
of the corporation and may have power to authorize the seal of the corporation
to be affixed to documents, provided that the executive committee shall not have
the power to make or alter bylaws, fill vacancies on the board or the executive
committee, or change the membership of the executive committee.
Section 2 - Minutes of Meeting of Committees
Any committees designated by the board shall keep regular minutes of their
proceedings, and shall report the same to the board when required, but no
approval by the board of any action properly taken by a committee shall be
required.
Section 3 - Procedure
If the Board fails to designate the chairman of a committee, the Chairman of the
Board, if a member, shall be Chairman. Each committee shall meet at such times
as it shall determine, and at any time on call of the chairman. A majority of a
committee constitutes a quorum, and the committee may take action by vote of a
majority of the members present at any meeting at which there is a quorum. The
Board has power to change the members of any committee at any time, to fill
vacancies, and to discharge any committee at any time.
Section 4 - Participation in Meetings
Members of a committee may participate in and be present at any meeting of the
committee by means of conference telephone or similar communications equipment
if all person participating in such meeting can hear and communicate with each
other.
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ARTICLE IV
Officers
Section 1 - Titles
The officers of the corporation shall be a president, one or more
vice-presidents, a treasurer, a secretary and such other officers, including a
chief executive officer and chief operating officer, as may, from time to time,
be elected or appointed by the board or appointed by the president. Any two
offices may be combined in the same person, provided that no person holding more
than one office may sign, in more than one capacity, any certificate or other
instrument required by law to be signed by two officers. No officer need be a
director.
Section 2 - President
The president shall be the chief executive officer of the corporation. Subject
to the direction of the board of directors, he shall have the responsibility for
the management and control of the business and affairs of the corporation; he
shall see that all orders and resolutions of the board are carried into effect
and direct the other officers in the performance of their duties; and he shall
perform all duties and have all powers that are commonly incident to the office
of chief executive or that are assigned to him by the board of directors. In the
absence of the chairman of the board and the vice chairman of the board, he
shall preside at shareholders' meetings and at directors' meetings.
Section 3 - Vice Presidents
Each vice president shall have such powers, and shall perform such duties, as
shall be assigned to him by the directors, by the chairman of the board, or by
the president, and, in the order determined by the board, shall, in the absence
or disability of the chairman and president, perform their duties and exercise
their powers.
Section 4 - Treasurer
The treasurer has custody of all funds, securities, evidences of indebtedness
and other valuable documents of the corporation. He shall receive and give, or
cause to be given, receipts and acquittances of moneys paid in on account of the
corporation, and shall pay out of the funds on hand all just debts of the
corporation of whatever nature, when due. He shall enter, or cause to be
entered, in books of the corporation to be kept for that purpose, full and
accurate accounts of all moneys received and paid out on account of the
corporation, and, whenever required by the president or the directors, he shall
render a statement of his accounts. He shall keep or cause to be kept such books
as will show a true record of the expenses, gains, losses, assets and
liabilities of the corporation; and he shall perform all of the other duties
incident to the office of treasurer. If required by the board,
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he shall give the corporation a bond for the faithful discharge of his duties
and for restoration to the corporation, upon termination of his tenure, of all
property of the corporation under his control.
Section 5 - Secretary
The secretary shall give, or cause to be given, notice of all meetings of
shareholders, directors and committees, and all other notices required by law or
by these bylaws, and in case of his absence or refusal or neglect so to do, any
such notice may be given by the shareholders or directors upon whose request the
meeting is called as provided in these bylaws. He shall record all of the
proceedings of the meetings of the shareholders, of the directors, and of
committees in a book to be kept for that purpose. Except as otherwise determined
by the directors, he has charge of the original stock books, transfer books and
stock ledgers, and shall act as transfer agent in respect of the stock and other
securities issued by the corporation. He has custody of the seal of the
corporation, and shall affix it to all instruments requiring it; and he shall
perform such other duties as may be assigned to him by the directors, the
chairman of the board of directors, or the president.
Section 6 - Assistants
Assistant secretaries or treasurers shall have such duties as may be assigned to
them by the directors, by the chairman of the board, or by the president, and as
may be delegated to them by the secretary and treasurer respectively.
ARTICLE V
Capital Stock
Section 1 - Certificates of Stock
Certificates of Stock, numbered and with the seal of the corporation affixed or
imprinted, signed by the Chairman of the Board of Directors, or the President or
Vice President, and the Treasurer or Secretary, shall be issued to each
shareholder, certifying the number of shares owned by him in the corporation.
Where such certificate is countersigned (1) by a transfer agent other than the
corporation or its employee, or (2) by a registrar other than the corporation or
its employee, any other signature on the certificate may be a facsimile.
Section 2 - Lost Certificates
A new certificate of stock may be issued in place of any certificate theretofore
issued by the corporation, alleged to have been lost, stolen, mutilated or
destroyed or mailed and not received, and the directors may in their discretion
require the owner of the replaced certificate to give the corporation a bond,
unlimited as to stated amount, to indemnify the corporation against any claim
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which may be made against it on account of the replacement of the certificate or
any payment made or other action taken in respect thereof.
Section 3 - Transfer of Shares
Shares of stock of the corporation are transferrable only on its books, by the
holders thereof in person or by their duly authorized attorneys or legal
representatives, and upon such transfer, the old certificate shall be
surrendered to the person in charge of the stock transfer records, by whom they
shall be cancelled, and new certificates shall thereupon be issued. A record
shall be made of each transfer, and whenever a transfer is made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer. The board may make regulations concerning the transfer of shares, and
may in their discretion authorize the transfer of shares from the names of
deceased persons whose estates are not administered, upon receipt of such
indemnity as they may require.
Section 4 - Record Dates
The board may fix a record date for determining shareholders of record for any
purpose, such date to be not more than sixty days and, if fixed for the purpose
of determining shareholders entitled to notice of and to vote at a meeting, not
less than ten days, prior to the date of the action for which the date is fixed.
Section 5 - Transfer Agents, Registrars
The board may appoint and remove one or more transfer agents and registrars for
any stock. If such appointments are made, the transfer agents shall effect
original issuances of stock certificate and transfers of shares, record and
advise the corporation and one another of such issuances and transfers,
countersign and deliver stock certificates, and keep the stock, transfer and
other pertinent records; and the registrars shall prevent over-issues by
registering and countersigning all stock certificates issued. A transfer agent
and registrar may be identical.
ARTICLE VI
Miscellaneous Provisions
Section 1 - Corporation Seal
The Corporate seal is circular in form, and contains the name of the corporation
and the words "SEAL, LOUISIANA". The seal may be used by causing it, or a
facsimile thereof, to be impressed or affixed or otherwise reproduced.
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Section 2 - Checks, Drafts, Notes
All checks, drafts, other orders for the payment of money, and notes or other
evidences of indebtedness, issued in the name of the corporation, shall be
signed by such officer or officers, agent or agents of the corporation and in
such manner as shall, from time to time, be determined by the board.
Section 3 - Fiscal Year
The fiscal year of the corporation begins on January 1.
Section 4 - Notice
Whenever any notice is required by these bylaws to be given, personal notice is
not meant unless expressly so stated; any notice is sufficient if given by
depositing the same in a mail receptacle in a sealed post-paid envelope
addressed to the person entitled thereto at his last known address as it appears
on the records of the corporation; and such notice is deemed to have been given
on the day of such mailing.
Section 5 - Waiver of Notice
Whenever any notice of the time, place or purpose of any meeting of
shareholders, directors or committee is required by law, the articles or these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
such notice and filed with the records of the meeting before or after the
holding thereof, or actual attendance at the meeting of shareholders in person
or by proxy or at the meeting of directors or committee in person, is equivalent
to the giving of such notice except as otherwise provided by law.
Section 6 - Indemnification of officers, directors, employees, and agents
(a) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, including
any action by or in the right of the corporation by reason of the fact
that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another business, foreign or
nonprofit corporation, partnership, joint venture or other enterprise,
against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interest of the corporation, and with respect to any
criminal action or proceeding, has no reasonable cause to believe his
conduct was unlawful. However, in case of actions by or in the right
of the corporation, the indemnity shall be limited to expenses,
including attorneys' fees and amounts paid in settlement not
exceeding, in the judgment of the board of directors,
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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 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 is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper. The termination of any
action, suit or proceeding by judgement, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, or
itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) In any event, a director, officer, employee or agent of the corporation
who has been successful on the merits or otherwise in defense of any
such action, suit or proceeding, or in defense of any claim, issue or
matter therein, shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(c) Any indemnification under subsection (a) of this Section, unless
ordered by the Court shall be made by the corporation only as
authorized in a specific case upon a determination that the applicable
standard of conduct has been met. Such determination shall be made (1)
by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or
(2) if such a quorum is not obtainable and the board of directors so
directs, by independent legal counsel or (3) by the shareholders.
(d) Expenses incurred in defending such an action, suit or proceeding may
be paid by the corporation in advance of the final disposition thereof
if authorized by the board of directors, without regard to whether
participating members thereof are parties to such action, suit, or
proceeding, upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Section.
(e) The indemnification and advancement of expenses provided by or granted
pursuant to the other subsections of this Section shall not be
deemed exclusive of any other rights to which the person indemnified or
obtaining advancement of expenses is entitled under any agreement,
authorization of shareholders or directors, regardless of whether
directors authorizing such indemnification are beneficiaries thereof,
or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of his heirs and
legal representative; however, no such other
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indemnification measure shall permit indemnification of any person for the
results of such person's willful or intentional misconduct.
(f)C The corporation shall have power to procure or maintain insurance or
othersimilar arrangement on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another business, nonprofit or foreign
corporation, partnership, joint venture or other enterprise against
any liability asserted against or incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such
liability under the provisions of this Section. Without limiting the
power of the corporation to procure or maintain any other kind of
insurance or similar arrangement, the corporation may create a trust
fund or other form of self-insurance arrangement for the benefit of
persons indemnified by the corporation and may procure or maintain
such insurance with any insurer deemed appropriate by the board of
directors regardless of whether all or part of the stock or other
securities thereof are owned in whole or part by the corporation. In
the absence of actual fraud, the judgment of the board of directors as
to the terms and conditions of such insurance or self-insurance
arrangement and the identity of the insurer or other person
participating in a self-insurance arrangement shall be conclusive, and
such arrangements for insurance shall not be subject to voidability
and shall not subject the directors approving such arrangement to
liability, on any ground, regardless of whether directors
participating in approving such insurance arrangements shall be
beneficiaries thereof. The provisions of the Insurance Code (Title 22
of the Revised Statutes) will not apply to any wholly-owned subsidiary
of this corporation if it issues contracts of insurance only as
permitted by this subsection for coverage of a person who is or was a
director, officer, employee, or agent of this corporation, or who is
or was serving at the request of this corporation as a director,
officer, employee, or agent of another business, nonprofit or foreign
corporation, partnership, joint venture, or other enterprise, which
contracts of insurance for such directors, officers, employees, or
agents may be issued by such wholly-owned subsidiary without
compliance with the provisions of the Insurance Code.
Section 7 - Redemption of Control Shares
In accordance with Section 140.1 of the Louisiana Business Corporation Law, the
Company may redeem any or all control shares acquired in a control share
acquisition with respect to which either:
(a) no acquiring person statement has been filed with the Company in
accordance with Section 137 of the Louisiana Business Corporation Law;
or
(b) the control shares are not accorded full voting rights by the
shareholders of the Company as provided in Section 140 of the Louisiana
Business Corporation Law.
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A redemption pursuant to subparagraph (a) hereof may be made at any time during
the period ending sixty (60) days after the last acquisition of control shares
by an acquiring person. A redemption pursuant to subparagraph (b) hereof may be
made at any time during the period ending two (2) years after the shareholder
vote with respect to the voting rights of such control shares. Any redemption
pursuant to this Paragraph shall be made at the fair value of the control shares
and pursuant to such procedures as may be adopted by resolution of the Board of
Directors of the Company.
ARTICLE VII
Amendments
Except as otherwise provided in the Restated Articles of Incorporation, the
shareholders or the directors, by affirmative vote of a majority of those
present or represented, may at any meeting, amend or alter any of the bylaws;
subject, however, to the right of the shareholders to change or repeal any
bylaws made or amended by the directors.
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EXHIBIT 4.3
- -------------------------------------------------------------------------------
SOUTHDOWN, INC.
and
FIRST CITY, TEXAS-HOUSTON, N.A.,
Rights Agent
----------------
Rights Agreement
Dated as of March 4, 1991
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. Certain Definitions.................................................................1
Section 2. Appointment of Rights Agent.........................................................6
Section 3. Issue of Rights Certificates........................................................6
Section 4. Form of Rights Certificates.........................................................8
Section 5. Countersignature and Registration...................................................9
Section 6. Transfer, SplitUp, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates............................9
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights......................10
Section 8. Cancellation and Destruction of Rights Certificates................................12
Section 9. Reservation and Availability of Capital Stock......................................13
Section 10. Preferred Stock Record Date........................................................14
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number
of Rights..........................................................................15
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.........................22
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power...............22
Section 14. Fractional Rights and Fractional Shares............................................25
Section 15. Rights of Action...................................................................26
Section 16. Agreement of Rights Holders........................................................27
Section 17. Rights Certificate Holder Not Deemed a Shareholder.................................27
Section 18. Concerning the Rights Agent........................................................28
Section 19. Merger or Consolidation or Change of Name of Rights Agent..........................28
Section 20. Duties of Rights Agent.............................................................29
</TABLE>
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<TABLE>
<S> <C> <C>
Section 21. Change of Rights Agent.............................................................30
Section 22. Issuance of New Rights Certificates................................................31
Section 23. Redemption and Termination.........................................................32
Section 24. Exchange...........................................................................33
Section 25. Notice of Certain Events...........................................................34
Section 26. Notices............................................................................35
Section 27. Supplements and Amendments.........................................................35
Section 28. Successors.........................................................................36
Section 29. Determinations and Actions by the Board of Directors, etc..........................36
Section 30. Benefits of this Agreement.........................................................37
Section 31. Severability.......................................................................37
Section 32. Governing Law and Consent to Jurisdiction..........................................37
Section 33. Counterparts.......................................................................37
Section 34. Descriptive Headings...............................................................38
Exhibit A - Form of Articles of Amendment to Restated Articles of Incorporation
Exhibit B - Form of Rights Certificate
Exhibit C - Summary of Rights to Purchase Preferred Stock
</TABLE>
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<PAGE> 4
RIGHTS AGREEMENT
This Rights Agreement, dated as of March 4, 1991 (the
"Agreement"), between Southdown, Inc., a Louisiana corporation (the "Company"),
and First City, Texas-Houston, N.A., a national banking association (the "Rights
Agent"),
W I T N E S S E T H:
WHEREAS, on March 4, 1991 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company authorized and declared a dividend
of one Right for each share of common stock, par value $1.25 per share, of the
Company (the "Common Stock") outstanding at the close of business on March 14,
1991 (the "Record Date"), and has authorized the issuance of one Right (as such
number may hereinafter be adjusted pursuant to the provisions of Section 11(p)
hereof) for each share of Common Stock of the Company issued (whether originally
issued or delivered from the Company's treasury) between the Record Date and the
earlier of the Distribution Date (as hereinafter defined) and the expiration or
redemption of the Rights, and (in certain circumstances pursuant to Section 22)
after the Distribution Date, each Right initially representing the right to
purchase one one-hundredth of a share of Preferred Stock, Cumulative Junior
Participating Series C of the Company, upon the terms and subject to the
conditions hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms shall have the meanings indicated:
"Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15% or more of the shares of Common Stock then outstanding,
but shall not include any Exempt Person; provided, however, that a Person shall
not become an Acquiring Person if such Person, together with its Affiliates and
Associates, shall become the Beneficial Owner of 15% or more of the shares of
Common Stock then outstanding solely as a result of a reduction in the number of
shares of Common Stock outstanding due to the repurchase of Common Stock by the
Company, unless and until such time after such repurchase by the Company as such
Person or any Affiliate or Associate of such Person shall purchase or otherwise
become the Beneficial Owner of any additional shares of Common Stock, including
any increase in Beneficial Ownership because any other Person who is the
Beneficial Owner of any shares of Common Stock becomes an Affiliate or Associate
of such Person.
"Adjustment Shares" shall have the meaning set forth in
Section 11(a)(ii) hereof.
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"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date of this Agreement.
A Person shall be deemed the "Beneficial Owner" of, and shall
be deemed to "beneficially own," any securities:
(i) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement) or
otherwise has the right to vote or dispose of, including pursuant to
any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security under
this subparagraph (i) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (A) arises solely from a revocable proxy or consent
given in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions of the
General Rules and Regulations under the Exchange Act and (B) is not
also then reportable by such Person on Schedule 13D under the Exchange
Act (or any comparable or successor report);
(ii) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right or obligation to
acquire (whether such right or obligation is exercisable or effective
immediately or only after the passage of time or the occurrence of an
event) pursuant to any agreement, arrangement or understanding (whether
or not in writing) or upon the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," (A) securities tendered pursuant to a tender
or exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange, or (B) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Triggering Event, or
(C) securities issuable upon exercise of Rights from and after the
occurrence of a Triggering Event which Rights were acquired by such
Person or any of such Person's Affiliates or Associates prior to the
Distribution Date or pursuant to Section 3(a) or Section 22 hereof
(collectively, the "Original Rights") or pursuant to Section 11(i)
hereof in connection with an adjustment made with respect to any
Original Rights; or
(iii) that are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which
such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in writing) for
the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy or consent as described in the proviso to subparagraph
(i) of this definition) or disposing of any voting securities of the
Company;
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provided, however, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired or to be acquired through such
Person's participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of Texas or the State
of New York are authorized or obligated by law or executive order to close.
"close of business" on any given date shall mean 5:00 p.m.,
Houston, Texas time, on such date; provided, however, that if such date is not a
Business Day, it shall mean 5:00 p.m., Houston, Texas time, on the next
succeeding Business Day.
"Closing Price" of a security for any day shall mean the last
sales price, regular way, on such day or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, on such
day, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on the
New York Stock Exchange, or, if such security is not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which such security is listed or
admitted to trading, or, if such security is not listed or admitted to trading
on any national securities exchange, the last quoted sales price on such day or,
if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market on such day, as reported by NASDAQ or such other
self-regulatory organization or registered securities information processor (as
such terms are used under the Exchange Act) that then reports information
concerning such security or, if on such day such security is not quoted by any
such entity, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in such security selected by the Board
of Directors of the Company. If on such day no market maker is making a market
in such security, the fair value of such security on such day as determined in
good faith by the Board of Directors of the Company shall be used.
"Common Stock" shall mean the common stock, par value $1.25
per share, of the Company, except that "Common Stock" when used with reference
to stock issued by any Person other than the Company shall mean the capital
stock of such Person with the greatest voting power to control or direct the
management of such Person, or the equity securities or other equity interest
having power to control or direct the management, of such Person.
"Common Stock Equivalents" shall have the meaning set forth
in Section 11(a)(iii) hereof.
"Company" shall mean the Person named as the "Company" in the
preamble of this Agreement until a successor Person shall have become such or
until a Principal Party thereafter be liable for and shall assume all
obligations and duties of the Company hereunder, pursuant to the applicable
provisions of this Agreement, and thereafter "Company" shall mean such successor
Person or Principal Party.
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"Current Market Price" shall have the meaning set forth in
Section 11(d) hereof.
"Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Distribution Date" shall mean the earlier of (i) the close of
business on the tenth day (or, in connection with a Permitted Offer only, such
later date as may be determined by the Company's Board of Directors before the
Distribution Date occurs) after the Stock Acquisition Date (or, if the tenth day
after the Stock Acquisition Date occurs before the Record Date, the close of
business on the Record Date) or (ii) the close of business on the tenth Business
Day (or such later date as may be determined by the Company's Board of Directors
before the Distribution Date occurs) after the date that a tender offer or
exchange offer by any Person (other than any Exempt Person) is first published
or sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement,
if upon consummation thereof, such Person would be an Acquiring Person. The
Board of Directors of the Company may, if deferral is allowed in clause (i) or
(ii) of the preceding sentence, defer the date set forth in such clause, as
applicable, to a specified later date or an unspecified later date to be
determined by a subsequent action or event.
"Equivalent Preferred Stock" shall have the meaning set forth
in Section 11(b) hereof.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Exchange Ratio" shall have the meaning set forth in Section
24 hereof.
"Exempt Person" shall mean the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan during the time such Person acts in
such capacity.
"Expiration Date" shall mean the earliest of (i) the Final
Expiration Date, (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof and (iii) the time at which the Rights expire pursuant to
Section 13(d) hereof.
"Final Expiration Date" shall mean the close of business on
March 14, 2001.
"Flip-In Event" shall mean an event described in Section
11(a)(ii) hereof.
"Flip-In Trigger Date" shall have the meaning set forth in
Section 11(a)(iii) hereof.
"Flip-Over Event" shall mean any event described in clause
(x), (y) or (z) of Section 13(a) hereof.
"NASDAQ" shall mean the National Association of Securities
Dealers, Inc. Automated Quotations System.
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<PAGE> 8
"Original Rights" shall have the meaning set forth in the
definition of "Beneficial Owner."
"Permitted Offer" shall mean a tender offer or an exchange
offer for all outstanding shares of Common Stock determined by at least a
majority of the members of the Board of Directors who are not officers or
employees of the Company and who are not representatives, nominees, Affiliates
or Associates of an Acquiring Person, after receiving advice from one or more
investment banking firms, to be (a) at a price and on terms that are fair to
shareholders (taking into account all factors that such members of the Board
deem relevant including, without limitation, prices that could reasonably be
achieved if the Company or its assets were sold on an orderly basis designed to
realize maximum value) and (b) otherwise in the best interests of the Company
and its shareholders. In considering whether the condition set forth in (b)
above is satisfied, the Board of Directors may take into account the factors set
forth in LSA-R.S. 12:92, subd. G and any other factors it deems relevant.
"Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.
"Preferred Stock" shall mean shares of Preferred Stock,
Cumulative Junior Participating Series C, par value $.05 per share, of the
Company having the rights, powers and preferences set forth in the form of
Articles of Amendment to the Restated Articles of Incorporation attached hereto
as Exhibit A and, to the extent that there is not a sufficient number of shares
of Preferred Stock, Cumulative Junior Participating Series C authorized to
permit the full exercise of the Rights, any other series of preferred stock, par
value $.05 per share, of the Company designated for such purpose containing
terms substantially similar to the terms of the Preferred Stock, Cumulative
Junior Participating Series C.
"Principal Party" shall have the meaning set forth in
Section 13(b) hereof.
"Purchase Price" shall have the meaning set forth in
Section 4(a) hereof.
"Record Date" shall have the meaning set forth in the recitals
clause at the beginning of this Agreement.
"Redemption Price" shall have the meaning set forth in
Section 23(a) hereof.
"Rights" shall have the meaning set forth in the recitals
clause at the beginning of this Agreement.
"Rights Agent" shall mean the Person named as the "Rights
Agent" in the preamble of this Agreement until a successor Rights Agent shall
have become such pursuant to the applicable provisions hereof, and thereafter
"Rights Agent" shall mean such successor Rights Agent. If at any time there is
more than one Person appointed by the Company as Rights Agent pursuant to the
applicable provisions of this Agreement, "Rights Agent" shall mean and include
each such Person.
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"Rights Certificates" shall mean the rights certificates
evidencing the Rights after the Distribution Date.
"Rights Dividend Declaration Date" shall have the meaning set
forth in the recitals clause at the beginning of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Spread" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such.
"Subsidiary" shall mean, with reference to any Person, any
corporation or other Person of which an amount of voting securities sufficient
to elect at least a majority of the directors or other persons performing
similar functions is beneficially owned, directly or indirectly, by such Person,
or otherwise controlled by such Person.
"Substitution Period" shall have the meaning set forth in
Section 11(a)(iii) hereof.
"Summary of Rights" shall mean the Summary of Rights to
Purchase Preferred Stock sent pursuant to Section 3(b) hereof.
"Trading Day" with respect to a security shall mean a day on
which the principal national securities exchange on which such security is
listed or admitted to trading is open for the transaction of business or, if
such security is not listed or admitted to trading on any national securities
exchange, a Business Day.
"Triggering Event" shall mean any Flip-In Event or any
Flip-Over Event.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Stock) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such Co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issue of Rights Certificates.
(a) Until the Distribution Date, (x) the Rights will be
evidenced (subject to the provisions of paragraph (b) of this Section 3) by the
certificates for Common Stock registered in the names of the holders of the
Common Stock and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Common
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<PAGE> 10
Stock (including a transfer to the Company). As soon as practicable after the
Distribution Date, the Rights Agent will send by first-class, insured, postage
prepaid mail, to each record holder of the Common Stock as of the close of
business on the Distribution Date, at the address of such holder shown on the
records of the Company, one or more Rights Certificates, evidencing one Right
for each share of Common Stock so held, subject to adjustment as provided
herein. As of and after the Distribution Date, the Rights will be evidenced
solely by such Rights Certificates. In the event that an adjustment in the
number of Rights per share of Common Stock has been made pursuant to Section
11(p) hereof, at the time of distribution of the Right Certificates the Company
shall make the necessary and appropriate rounding adjustments (in accordance
with Section 14(a) hereof) so that Rights Certificates representing only whole
numbers of Rights are distributed and cash is paid in lieu of any fractional
Rights.
(b) As promptly as practicable following the Record Date, the
Company will send a copy of a Summary of Rights, in substantially the form
attached hereto as Exhibit C, by first-class, postage prepaid mail, to each
record holder of Common Stock as of the close of business on the Record Date, at
the address of such holder shown on the records of the Company. With respect to
certificates for Common Stock outstanding as of the Record Date, until the
Distribution Date or the earlier surrender for transfer thereof or the
Expiration Date, the Rights associated with the shares of Common Stock
represented by such certificates shall be evidenced by such certificates for
Common Stock together with a copy of the Summary of Rights, and the registered
holders of the Common Stock shall also be the registered holders of the
associated Rights. Until the earlier of the Distribution Date or the Expiration
Date, the transfer of any of the certificates for Common Stock outstanding on
the Record Date, with or without a copy of the Summary of Rights attached
thereto, shall also constitute the transfer of the Rights associated with the
Common Stock represented by such certificates.
(c) Rights shall be issued in respect of all shares of Common
Stock that are issued (whether originally issued or delivered from the Company's
treasury) after the Record Date but prior to the earlier of the Distribution
Date or the expiration or redemption of the Rights or, in certain circumstances
provided in Section 22 hereof, after the Distribution Date. Certificates issued
for shares of Common Stock that shall so become outstanding or shall be
transferred or exchanged after the Record Date but prior to the earlier of the
Distribution Date or the expiration or redemption of the Rights shall also be
deemed to be certificates for Rights, and shall bear the following legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in the Rights Agreement between
Southdown, Inc. (the "Company") and First City, Texas-Houston, N.A.
(the "Rights Agent") dated as of March 4, 1991 as it may from time to
time be supplemented or amended (the "Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a copy of which
is on file at the principal offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights may be
redeemed, may be exchanged, may expire or may be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Company will mail to the holder of this certificate a copy of the
Rights Agreement, as in effect
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<PAGE> 11
on the date of mailing, without charge promptly after receipt of a
written request therefor. Under certain circumstances set forth in the
Rights Agreement, Rights issued to, or held by, any Person who is, was
or becomes an Acquiring Person or an Affiliate or Associate thereof (as
such terms are defined in the Rights Agreement), whether currently held
by or on behalf of any such Person or by any subsequent holder, will
become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the expiration or redemption of the
Rights, the Rights associated with the Common Stock represented by such
certificates shall be evidenced by such certificates alone, and registered
holders of Common Stock shall also be the registered holders of the associated
Rights, and the transfer of any of such certificates shall also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase and of assignment to be printed on the reverse thereof), when, as and
if issued, shall be substantially in the form set forth in Exhibit B hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or quotation system
on which the Rights may from time to time be listed or quoted, or to conform to
usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever issued, shall be dated as of the Record Date and on their
face shall entitle the holders thereof to purchase such number of one
one-hundredths of a share of Preferred Stock as shall be set forth therein at
the price set forth therein (such exercise price per one one-hundredth of a
share, the "Purchase Price"), but the amount and type of securities purchasable
upon the exercise of each Right and the Purchase Price thereof shall be subject
to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by (i) an Acquiring
Person or an Associate or Affiliate of an Acquiring Person, (ii) a direct or
indirect transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such or
(iii) a direct or indirect transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person's becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person or
its Affiliates and Associates to holders of equity interests in such Acquiring
Person or its Affiliates and Associates or to any Person with whom such
Acquiring Person or its Affiliates and Associates has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
that the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding that has as a primary purpose or effect avoidance
of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6
or Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Rights Certificate referred to in
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<PAGE> 12
this sentence, shall contain (to the extent feasible) the following legend,
modified as applicable to apply to such Person:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or
an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights Certificate
and the Rights represented hereby will become null and void in the
circumstances and with the effect specified in Section 7(e) of such
Agreement.
The provisions of Section 7(e) of this Agreement shall be operative whether or
not the foregoing legend is contained on any such Rights Certificate. The
Company shall give notice to the Rights Agent promptly after it becomes aware of
the existence of any Acquiring Person or any Associate or Affiliate thereof.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof, which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be manually countersigned by the Rights
Agent and shall not be valid for any purpose unless so countersigned. In case
any officer of the Company who shall have signed any of the Rights Certificates
shall cease to be such officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the person who signed
such Rights Certificates had not ceased to be such officer of the Company; and
any Rights Certificate may be signed on behalf of the Company by any person who,
at the actual date of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certificate, although at the
date of the execution of this Rights Agreement any such person was not such an
officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its office or offices designated as the appropriate
place for surrender of Rights Certificates upon exercise or transfer, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the certificate number and the date of each of the Rights
Certificates.
Section 6. Transfer, Split-Up, Combination and
Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates.
(a) Subject to the provisions of Section 4(b), Section 7(e),
Section 13(d), Section 14 and Section 24 hereof, at any time after the close of
business on the Distribution Date,
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<PAGE> 13
and at or prior to the close of business on the Expiration Date, any Rights
Certificate or Rights Certificates may be transferred, split up, combined or
exchanged for another Rights Certificate or Rights Certificates, entitling the
registered holder to purchase a like number of one one-hundredths of a share of
Preferred Stock (or, following a Triggering Event, Common Stock, other
securities, cash or other assets, as the case may be) as the Rights Certificate
or Rights Certificates surrendered then entitled such holder (or former holder
in the case of a transfer) to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Rights Certificate or Rights
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged at the principal office or offices
of the Rights Agent designated for such purpose. Neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to the
transfer, split up, combination or exchange of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) thereof or of the
Affiliates or Associates thereof as the Company shall reasonably request.
Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e), Section
13(d), Section 14 and Section 24 hereof, countersign and deliver to the Person
entitled thereto a Rights Certificate or Rights Certificates, as the case may
be, as so requested. The Company may require payment by the holder of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split-up, combination or exchange of Rights
Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, completion and
signature of the certificate contained in the form of assignment on the reverse
side of such Rights Certificate (or a separate certificate in the same form) and
the receipt by the Company of such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) thereof or the Affiliates or
Associates thereof as the Company shall reasonably request and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Rights
Certificate if mutilated, the Company will execute and deliver a new Rights
Certificate of like tenor to the Rights Agent for countersignature and delivery
to the registered owner in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights.
(a) Subject to Section 7(e) hereof, the registered holder of
any Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly completed and executed, to the
Rights Agent at the office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of one one-hundredths of a share of Preferred Stock (or other
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<PAGE> 14
securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the earlier of (i) the
Expiration Date and (ii) the time at which all outstanding Rights are exchanged
as provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a share
of Preferred Stock pursuant to the exercise of a Right shall initially be $60,
and shall be subject to adjustment from time to time as provided in Sections 11
and 13(a) hereof and shall be payable in lawful money of the United States of
America in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate on
the reverse side thereof duly executed, accompanied by payment, with respect to
each Right so exercised, of the Purchase Price per one one-hundredth of a share
of Preferred Stock (or other shares, securities, cash or other assets, as the
case may be) to be purchased as set forth below and an amount equal to any
applicable transfer tax, the Rights Agent shall, subject to Section 20(k)
hereof, thereupon promptly (i)(A) requisition from any transfer agent of the
shares of Preferred Stock (or make available, if the Rights Agent is the
transfer agent for such shares) certificates for the total number of one
one-hundredths of a share of Preferred Stock to be purchased, and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) if the Company, in its sole discretion, shall have elected to
deposit the total number of shares of Preferred Stock issued upon exercise of
the Rights hereunder with a depositary agent, requisition from the depositary
agent depositary receipts representing such number of one one-hundredths of a
share of Preferred Stock as are to be purchased (in which case certificates for
the shares of Preferred Stock represented by such receipts shall be deposited by
the transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder and (iv) after receipt thereof, deliver such
cash, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) may be made in cash or by certified
check, cashiers or official bank check or bank draft payable to the order of the
Company or the Rights Agent. In the event that the Company is obligated to issue
other securities (including Common Stock) of the Company, pay cash and/or
distribute other property pursuant to Section 11(a) hereof, then, to the fullest
extent permissible under applicable law and regulations, the Company will make
all arrangements necessary so that such other securities, cash and/or other
property are available for distribution by the Rights Agent, if and when
appropriate. The Company reserves the right to require prior to the occurrence
of a Triggering Event that, upon exercise of Rights, a number of Rights be
exercised so that only whole shares of Preferred Stock would be issued.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to, or upon the
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<PAGE> 15
order of, the registered holder of such Rights Certificate, registered in such
name or names as may be designated by such holder, subject to the provisions of
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Flip-In Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person other than any such Person that the Board of Directors in good
faith determines was not involved in and did not cause or facilitate, directly
or indirectly, such Flip-In Event, (ii) a direct or indirect transferee of such
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such or (iii) a direct or indirect
transferee of such Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person's
becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from such Acquiring Person or such Affiliate
or Associate to holders of equity interests in such Acquiring Person or such
Affiliate or Associate or to any Person with whom such Acquiring Person or such
Affiliate or Associate has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer that the Board
of Directors of the Company has determined is part of a plan, arrangement or
understanding that has as a primary purpose or effect the avoidance of this
Section 7(e), shall become absolutely null and void without any further action
and no holder of such Rights shall have any rights whatsoever with respect to
such Rights, whether under any provision of this Agreement or otherwise. The
Company shall use all reasonable efforts to ensure that the provisions of this
Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Rights Certificates or other Person as a result of
its failure to make any determinations or identifications with respect to an
Acquiring Person or its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder of a Rights Certificate
upon the occurrence of any purported exercise as set forth in this Section 7
unless such registered holder shall have (i) completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Rights Certificate surrendered for such exercise and (ii)
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.
Section 8. Cancellation and Destruction of Rights
Certificates. All Rights Certificates surrendered for the purpose of exercise,
transfer, split-up, combination or exchange shall, if surrendered to the Company
or any of its agents, be delivered to the Rights Agent for cancellation or in
cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by
it, and no Rights Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Rights Certificate purchased
or acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all cancelled Rights Certificates to the Company, or shall,
at the written request of the Company, destroy such cancelled Rights
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
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<PAGE> 16
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock, the number of shares of Preferred Stock that will be sufficient
to permit the exercise in full of all outstanding Rights prior to the occurrence
of a Triggering Event. The Company further covenants and agrees that, following
the occurrence of a Triggering Event, it will cause to be reserved and kept
available out of its authorized and unissued shares of Common Stock or out of
its authorized and issued shares held in its treasury, the number of shares of
Common Stock required to be issued pursuant to the Rights and also to cause to
be reserved and kept available other securities as may be required to be issued
pursuant to the Rights.
(b) So long as the shares of Preferred Stock (and, following
the occurrence of a Triggering Event, Common Stock and/or other securities)
issuable and deliverable upon the exercise of the Rights may be listed on any
national securities exchange, the Company shall use its best efforts to cause,
from and after such time as the Rights become exercisable, all shares reserved
for such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
(c) The Company shall use its best efforts to (i) prepare and
file, as soon as practicable following the first occurrence of a Flip-In Event
or, if applicable, as soon as practicable following the earliest date after the
first occurrence of a Flip-In Event on which the consideration to be delivered
by the Company upon exercise of the Rights has been determined pursuant to this
Agreement (including in accordance with Section 11(a)(iii) hereof), a
registration statement on an appropriate form under the Securities Act with
respect to the securities purchasable upon exercise of the Rights, (ii) cause
such registration statement to become effective as soon as practicable after
such filing, and (iii) cause such registration statement to remain effective
(with a prospectus at all times meeting the requirements of the Securities Act)
until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities and (B) the Expiration Date. The Company will
also take such action as may be appropriate under, or to ensure compliance with,
the securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company may temporarily suspend, for a period
of time not to exceed 90 days after the date set forth in clause (i) of the
first sentence of this Section 9(c), the exercisability of the Rights in order
to prepare and file such registration statement and permit it to become
effective. In addition, if the Company shall determine that the Securities Act
requires an effective registration statement under the Securities Act following
the Distribution Date, the Company may temporarily suspend the exercisability of
the Rights until such time as such a registration statement has been declared
effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is no
longer in effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction shall not have been obtained, the
exercise thereof shall not be permitted under applicable law or any required
registration statement shall not have been declared effective.
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<PAGE> 17
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all one one-hundredths of a share
of Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of one one-hundredths of a
share of Preferred Stock (or Common Stock and/or other securities, as the case
may be) upon the exercise of Rights. The Company shall not, however, be required
to pay any transfer tax that may be payable in respect of any transfer or
delivery of Rights Certificates to a Person other than, or the issuance or
delivery of a number of one one-hundredths of a share of Preferred Stock (or
Common Stock and/or other securities, as the case may be) in respect of a name
other than that of, the registered holder of the Rights Certificates evidencing
Rights surrendered for exercise or to issue or deliver any certificates for a
number of one one-hundredths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have been
paid (any such tax being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
(f) The Company further covenants that on the date of this
Agreement, or within 30 days thereafter, the Company will cause a copy of this
Rights Agreement and all Exhibits hereto to be filed with the Louisiana
Secretary of State, in accordance with Section 51C of the Louisiana Business
Corporation Law.
Section 10. Preferred Stock Record Date. Each Person in whose
name any certificate for a number of one one-hundredths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of such shares (fractional or otherwise) of Preferred Stock (or
Common Stock and/or other securities, as the case may be) represented thereby
on, and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and all applicable transfer taxes) was made; provided, however,
that if the date of such surrender and payment is a date upon which the
Preferred Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares (fractional or otherwise) on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate, as such, shall not be
entitled to any rights of a shareholder of the Company with respect to shares
for which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
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Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights. The Purchase Price, the number and kind of shares or
other securities subject to purchase upon exercise of each Right and the number
of Rights outstanding are subject to adjustment from time to time as provided in
this Section 11.
(a)(i) In the event the Company shall at any time
after the Rights Dividend Declaration Date (A) declare a dividend on
the Preferred Stock payable in shares of Preferred Stock, (B) subdivide
the outstanding Preferred Stock, (C) combine the outstanding Preferred
Stock into a smaller number of shares or (D) issue any shares of its
capital stock in a reclassification of the Preferred Stock (including
any such reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e)
hereof, the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination
or reclassification, and the number and kind of shares of Preferred
Stock or capital stock, as the case may be, issuable on such date,
shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of
the Purchase Price then in effect, the aggregate number and kind of
shares of Preferred Stock or capital stock, as the case may be, which,
if such Right had been exercised immediately prior to such date and at
a time when the Preferred Stock transfer books of the Company were
open, he would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an adjustment
under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the
adjustment provided for in this Section 11(a)(i) shall be in addition
to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii) hereof.
(ii) Subject to Section 24 of this Agreement, in the
event any Person shall, at any time after the Rights Dividend
Declaration Date, become an Acquiring Person, unless the event causing
such Person to become an Acquiring Person is (1) a transaction set
forth in Section 13(a) hereof or (2) an acquisition of shares of Common
Stock pursuant to a Permitted Offer, then, following the occurrence of
such event each holder of a Right (except as provided below and in
Section 7(e) hereof) shall thereafter have the right to receive, upon
exercise thereof at the then current Purchase Price in accordance with
the terms of this Agreement, in lieu of a number of one one-hundredths
of a share of Preferred Stock, such number of shares of Common Stock of
the Company as shall equal the result obtained by (x) multiplying the
then current Purchase Price by the then number of one one-hundredths of
a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Flip-In Event and (y)
dividing that product (which product, following such first occurrence,
shall thereafter be the "Purchase Price" for each Right and for all
purposes of this Agreement) by 50% of the Current Market Price per
share of Common Stock on the date of such first occurrence (such number
of shares, the "Adjustment Shares"); provided that the Purchase Price
and the number of Adjustment Shares shall be further adjusted as
provided in this Agreement to reflect any events occurring after the
date of such first occurrence.
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<PAGE> 19
(iii) In the event that (a) the number of shares of
Common Stock that are authorized by the Company's articles of
incorporation but not outstanding or reserved for issuance for purposes
other than upon exercise of the Rights is not sufficient to permit the
exercise in full of the Rights in accordance with the foregoing
subparagraph (ii) of this Section 11(a), or (b) the quotient (the
"Quotient") obtained by dividing the Purchase Price by the number of
Adjustment Shares issuable upon exercise of a Right is less than the
then par value per share of Common Stock, the Company shall, to the
extent permitted by applicable law and regulation, (A) determine the
excess of (1) the value of the Adjustment Shares issuable upon the
exercise of a Right (computed using the Current Market Price used to
determine the number of Adjustment Shares) (the "Current Value") over
(2) the Purchase Price (such excess is herein referred to as the
"Spread"), and (B) with respect to each Right, make adequate provision
to substitute for the Adjustment Shares, upon the exercise of the
Rights and payment of the applicable Purchase Price, (1) cash, (2) a
reduction in the Purchase Price, (3) Common Stock or other equity
securities of the Company (including, without limitation, shares, or
units of shares, of preferred stock that the Board of Directors of the
Company has determined to have the same value as shares of Common Stock
(such shares of preferred stock are herein referred to as "Common Stock
Equivalents")), (4) debt securities of the Company, (5) other assets or
(6) any combination of the foregoing, having an aggregate value equal
to the Current Value, where such aggregate value has been determined by
the Board of Directors of the Company based upon the advice of a
nationally recognized investment banking firm selected by the Board of
Directors of the Company; provided, however, if the Company shall not
have made adequate provision to deliver value pursuant to clause (B)
above within 30 days following the later of (x) the first occurrence of
a Flip-In Event and (y) the date on which the Company's right of
redemption pursuant to Section 23(a) expires (the later of (x) and (y)
being referred to herein as the "Flip-In Trigger Date"), then the
Company shall be obligated to deliver, upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, shares
of Common Stock (to the extent available) and then, if necessary, cash,
which shares and/or cash have an aggregate value equal to the Spread.
If the Board of Directors of the Company shall determine in good faith
that it is likely that (a) sufficient additional shares of Common Stock
could be authorized for issuance upon exercise in full of the Rights or
(b) a reduction in the par value per share of Common Stock to an amount
that is equal to or less than the Quotient could be authorized, the 30-
day period set forth above may be extended to the extent necessary, but
not more than 90 days after the Flip-In Trigger Date, in order that the
Company may seek shareholder approval for the authorization of such
additional shares or for the reduction of such par value, as the case
may be (such period, as it may be extended, the "Substitution Period").
To the extent that the Company determines that some action need be
taken pursuant to the first and/or second sentences of this Section
11(a)(iii), the Company (x) shall provide, subject to Section 7(e)
hereof, that such action shall apply uniformly to all outstanding
Rights, and (y) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek any
authorization of additional shares or reduction of par value and/or to
decide the appropriate form of distribution to be made pursuant to such
first sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has
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been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. For purposes of this
Section 11(a)(iii), the value of the Common Stock shall be the Current
Market Price per share of the Common Stock on the Flip-In Trigger Date
and the value of any Common Stock Equivalent shall be deemed to have
the same value as the Common Stock on such date.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within 45
calendar days after such record date) Preferred Stock (or shares having the same
rights, privileges and preferences as the shares of Preferred Stock ("Equivalent
Preferred Stock")) or securities convertible into Preferred Stock or Equivalent
Preferred Stock at a price per share of Preferred Stock or per share of
Equivalent Preferred Stock (or having a conversion price per share, if a
security convertible into Preferred Stock or Equivalent Preferred Stock) less
than the Current Market Price per share of Preferred Stock on such record date,
the Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of shares of Preferred
Stock that the aggregate offering price of the total number of shares of
Preferred Stock and/or Equivalent Preferred Stock so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such Current Market Price, and the denominator of
which shall be the number of shares of Preferred Stock outstanding on such
record date, plus the number of additional shares of Preferred Stock and/or
Equivalent Preferred Stock to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible). In
case such subscription price may be paid by delivery of consideration, part or
all of which may be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of the Rights.
Shares of Preferred Stock owned by or held for the account of the Company shall
not be deemed outstanding for the purpose of any such computation. Such
adjustments shall be made successively whenever such a record date is fixed, and
in the event that such rights or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness, cash (other
than a regular quarterly cash dividend out of the earnings or retained earnings
of the Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the Current Market
Price per share of Preferred Stock on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement
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<PAGE> 21
filed with the Rights Agent and shall be conclusive for all purposes) of the
portion of the cash, assets or evidences of indebtedness so to be distributed or
of such subscription rights or warrants applicable to a share of Preferred Stock
and the denominator of which shall be such Current Market Price per share of
Preferred Stock. Such adjustments shall be made successively whenever such a
record date is fixed, and in the event that such distribution is not so made,
the Purchase Price shall be adjusted to be the Purchase Price which would have
been in effect if such record date had not been fixed.
(d)(i) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iii) hereof, the
"Current Market Price" per share of Common Stock of a Person on any
date shall be deemed to be the average of the daily Closing Prices per
share of such Common Stock for the 30 consecutive Trading Days
immediately prior to such date, and for purposes of computations made
pursuant to Section 11(a)(iii) hereof, the "Current Market Price" per
share of Common Stock on any date shall be deemed to be the average of
the daily Closing Prices per share of such Common Stock for the 10
consecutive Trading Days immediately following such date; provided,
however, that in the event that the Current Market Price per share of
Common Stock is determined during a period following the announcement
of (A) a dividend or distribution on such Common Stock other than a
regular quarterly cash dividend or the dividend of the Rights or (B)
any subdivision, combination or reclassification of such Common Stock,
and the ex-dividend date for such dividend or distribution, or the
record date for such subdivision, combination or reclassification,
shall not have occurred prior to the commencement of the requisite 30
Trading Day or 10 Trading Day period, as set forth above, then, and in
each such case, the Current Market Price shall be properly adjusted to
take into account ex- dividend or ex-distribution trading. If the
Common Stock is not publicly held or listed or traded, "Current Market
Price" per share shall mean the fair value per share as determined in
good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights
Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder,
the "Current Market Price" per share of Preferred Stock shall be
determined in the same manner as set forth above for the Common Stock
in clause (i) of this Section 11(d) (other than the last sentence
thereof). If the Current Market Price per share of Preferred Stock
cannot be determined in such manner or if the Preferred Stock is not
publicly held or listed or traded, the "Current Market Price" per share
of Preferred Stock shall be conclusively deemed to be an amount equal
to 100 (as such number may be appropriately adjusted for such events as
stock splits, stock dividends and recapitalizations with respect to the
Common Stock occurring after the date of this Agreement) multiplied by
the Current Market Price per share of the Common Stock. If neither the
Common Stock nor the Preferred Stock is publicly held or listed or
traded, Current Market Price per share of the Preferred Stock shall
mean the fair value per share as determined in good faith by the Board
of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent and shall be conclusive for all
purposes. For all purposes of this Agreement,
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<PAGE> 22
the Current Market Price of one one-hundredth of a share of Preferred
Stock shall be equal to the Current Market Price of one share of
Preferred Stock divided by 100.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Purchase Price; provided,
however, that any adjustments that by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest ten-thousandth of a share of Common Stock or
other share or one-millionth of a share of Preferred Stock, as the case may be.
(f) If as a result of an adjustment made pursuant to Section
11(a) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a), (b), (c), (e), (f), (g), (h), (i), (j), (k) and (m) hereof, and
the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the
Preferred Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a share of Preferred Stock (calculated to the nearest
one-millionth) obtained by (i) multiplying (x) the number of one one-hundredths
of a share of Preferred Stock covered by a Right immediately prior to such
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one one-hundredths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
the adjustment in the number of Rights shall be exercisable for the number of
one one-hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The
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<PAGE> 23
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the
Rights Certificates have been issued, shall be at least 10 days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a share of Preferred Stock issuable
upon the exercise of the Rights, the Rights Certificates theretofore and
thereafter issued may continue to express the Purchase Price per one
one-hundredth of a share and the number of one-hundredths of a share that were
expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value or stated value, if any, of
the number of one one-hundredths of a share of Preferred Stock or of the number
of shares of Common Stock or other securities issuable upon exercise of a Right,
the Company shall take any corporate action that may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable such number of one one-hundredths of a share of
Preferred Stock or such number of shares of Common Stock or other securities at
such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-hundredths of a share of Preferred Stock or the number of
shares of Common Stock or other securities of the Company, if any, issuable upon
such exercise over and above the number of one one-hundredths of a share of
Preferred Stock, number of shares of Common Stock and other securities of the
Company, if any, issuable upon such exercise on the basis of the Purchase Price
in effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares (fractional or otherwise)
or securities upon the occurrence of the event requiring such adjustment.
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<PAGE> 24
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board of
Directors of the Company shall determine to be advisable in order that any (i)
consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for
cash of any shares of Preferred Stock at less than the current market price,
(iii) issuance wholly for cash of shares of Preferred Stock or securities that
by their terms are convertible into or exchangeable for shares of Preferred
Stock, (iv) stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11 hereafter made by the Company to holders of its
Preferred Stock shall not be taxable to such shareholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction that complies with Section
11(o) hereof), (ii) merge with or into or be acquired pursuant to a share
exchange by any other Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(o) hereof), (iii) sell, lease or
transfer (or permit one or more Subsidiaries to sell, lease or transfer), in one
transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies and all of which together comply with Section 11(o) hereof), if (x) at
the time of or immediately after such consolidation, merger, share exchange,
sale, lease or transfer there are any rights, warrants or other instruments or
securities of the Company or any other Person outstanding or agreements,
arrangements or understandings in effect that would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (y)
prior to, simultaneously with or immediately after such consolidation, merger,
share exchange, sale, lease or transfer, the shareholders or other equity owners
of the Person who constitutes, or would constitute, the "Principal Party" for
purposes of Section 13(a) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates or Associates, or (z)
the identity, form or nature of organization of the Principal Party (including
without limitation the determination of the Principal Party that would be made
as a result of the Company's entering into one or a series of consolidations,
mergers, share exchanges, sales, leases or transfers with more than one party)
would preclude or limit the exercise of Rights or otherwise diminish
substantially or eliminate the benefits intended to be afforded by the Rights.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 27
hereof, take (or permit any Subsidiary to take) any action if the purpose of
such action is to, or if at the time such action is taken it is reasonably
foreseeable that such action will, diminish substantially or eliminate the
benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the
Rights Dividend Declaration Date and prior to the Distribution Date (i) declare
a dividend on the outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock, (iii) combine
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<PAGE> 25
the outstanding shares of Common Stock into a smaller number of shares or (iv)
otherwise reclassify the outstanding shares of Common Stock, the number of
Rights associated with each share of Common Stock then outstanding, or issued or
delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction (the "Adjustment
Fraction") the numerator of which shall be the total number of shares of Common
Stock outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event. In lieu of such
adjustment in the number of Rights associated with one share of Common Stock,
the Company may elect to adjust the number of one one-hundredths of a share of
Preferred Stock purchasable upon the exercise of one Right and the Purchase
Price. If the Company makes such election, the number of Rights associated with
one share of Common Stock shall remain unchanged, and the number of one
one-hundredths of a share of Preferred Stock purchasable upon exercise of one
Right and the Purchase Price shall be proportionately adjusted so that (i) the
number of one one-hundredths of a share of Preferred Stock purchasable upon
exercise of a Right following such adjustment shall equal the product of the
number of one one-hundredths of a share of Preferred Stock purchasable upon
exercise of a Right immediately prior to such adjustment multiplied by the
Adjustment Fraction and (ii) the Purchase Price following such adjustment shall
equal the product of the Purchase Price immediately prior to such adjustment
multiplied by the Adjustment Fraction. In the event that the Company shall at
any time after the Rights Dividend Declaration Date and prior to the
Distribution Date declare a dividend or other distribution on the outstanding
shares of Common Stock payable in securities which are convertible into,
exchangeable for or which otherwise represent the right to acquire shares of
Common Stock, equitable adjustments in the number of Rights associated with each
share of Common Stock then outstanding, or issued or delivered thereafter but
prior to the Distribution Date, shall be made as deemed appropriate by the
Board.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 or Section
13 hereof, the Company shall (a) promptly prepare a certificate setting forth
such adjustment and a brief statement of the facts accounting for such
adjustment, (b) promptly file with the Rights Agent, and with each transfer
agent for the Preferred Stock and the Common Stock, a copy of such certificate
and (c) mail a brief summary thereof to each holder of a Rights Certificate (or,
if prior to the Distribution Date, to each holder of a certificate representing
shares of Common Stock) in accordance with Section 26 hereof. The Rights Agent
shall be fully protected in relying on any such certificate and on any
adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power.
(a) In the event that, on or after the Stock Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(o) hereof),
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and the Company shall not be the continuing or surviving corporation of such
consolidation or merger, (y) any Person (other than a Subsidiary of the Company
in a transaction that complies with Section 11(o) hereof) shall consolidate
with, or merge with or into, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation or merger, or the
Company shall be party to a share exchange, and, in connection with such
consolidation or merger or share exchange, all or part of the outstanding shares
of Common Stock shall be changed into or exchanged for stock or other securities
of the Company or any other Person or cash or any other property, or (z) the
Company shall sell, lease or otherwise transfer (or one or more of its
Subsidiaries shall sell, lease or otherwise transfer), in one transaction or a
series of related transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to any Person or Persons (other than the Company or any Subsidiary of
the Company or any combination thereof in one or more transactions each of which
complies, and all of which together comply, with Section 11(o) hereof), then,
and in each such case (except as may be contemplated by Section 13(d) hereof),
proper provision shall be made so that: (i) on and after the Distribution Date,
each holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement, such
number of validly authorized and issued, fully paid, nonassessable and freely
tradeable shares of Common Stock of the Principal Party (as such term is
hereinafter defined), not subject to any liens, encumbrances, rights of first
refusal or other adverse claims, as shall be equal to the result obtained by (1)
multiplying the then current Purchase Price by the number of one one-hundredths
of a share of Preferred Stock for which a Right was exercisable immediately
prior to the first occurrence of a Flip-Over Event (or, if a Flip-In Event has
occurred prior to the first occurrence of a Flip-Over Event, multiplying the
number of such one one-hundredths of a share of Preferred Stock for which a
Right was exercisable immediately prior to the first occurrence of a Flip-In
Event by the Purchase Price in effect immediately prior to such first
occurrence), and dividing that product (which, following the first occurrence of
a Flip-Over Event, shall be the Purchase Price for each Right and for all
purposes of this Agreement) by (2) 50% of the Current Market Price per share of
the Common Stock of such Principal Party on the date of consummation of such
Flip-Over Event; (ii) such Principal Party shall thereafter be liable for, and
shall assume, by virtue of such Flip-Over Event, all the obligations and duties
of the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Flip-Over Event; (iv) such
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock) in connection
with the consummation of any such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock thereafter deliverable upon
the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof
shall be of no effect following the first occurrence of any Flip-Over Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause
(x) or (y) of the first sentence of Section 13(a), (A) the Person
that is the issuer of any securities into which
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shares of Common Stock of the Company are converted in such merger or
consolidation or share exchange, or, if there is more than one such
issuer, the issuer the Common Stock of which has the greatest aggregate
market value, or (B) if no securities are so issued, (x) the Person
that survives such consolidation or is the other party to the merger
and survives such merger, or, if there is more than one such Person,
the Person the Common Stock of which has the greatest aggregate market
value or (y) if the Person that is the other party to the merger does
not survive the merger, the Person that does survive the merger
(including the Company if it survives); and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions, or, if each
Person that is a party to such transaction or transactions receives the
same portion of the assets or earning power so transferred, or if the
Person receiving the greatest portion of the assets or earning power
cannot be determined, the Person the Common Stock of which has the
greatest aggregate market value;
provided, however, that in any such case, if (1) such Person is a direct or
indirect Subsidiary of another Person, "Principal Party" shall refer to such
other Person; (2) such Person is a Subsidiary, directly or indirectly, of more
than one Person, "Principal Party" shall refer to whichever of such Persons is
the issuer of the Common Stock having the greatest aggregate market value; and
(3) such Person is owned, directly or indirectly, by a joint venture formed by
two or more Persons that are not owned, directly or indirectly, by the same
Person, the rules set forth in (1) and (2) above shall apply to each of the
chains of ownership having an interest in such joint venture as if such party
were a "Subsidiary" of both or all of such joint venturers and the Principal
Parties in each such chain shall bear the obligations set forth in this Section
13 in the same ratio as their direct or indirect interests in such Person bear
to the total of such interests.
(c) The Company shall not consummate any Flip-Over Event
unless (x) each such Principal Party (or Person that may become a Principal
Party as a result of such Flip-Over Event) shall have a sufficient number of
authorized shares of its Common Stock that have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and (y) prior thereto the Company and each such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of such
Flip-Over Event, each such Principal Party at its own expense will
(i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, and
will use its best efforts to cause such registration statement to (A)
become effective as soon as practicable after such filing and (B)
remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the Expiration Date;
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<PAGE> 28
(ii) take such action as may be appropriate under or to ensure
compliance with, the securities or "blue sky" laws of such
jurisdictions in connection with the Rights and the securities
purchasable upon exercise of the Rights;
(iii) use its best efforts, if the Common Stock of the
Principal Party is or shall become listed on a national securities
exchange, to list (or continue the listing of) the Rights and the
securities purchasable upon exercise of the Rights on such securities
exchange and, if the Common Stock of the Principal Party shall not be
listed on a national securities exchange, to cause the Rights and the
securities purchasable upon exercise of the Rights to be reported by
NASDAQ or such other transaction reporting system then in use; and
(iv) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates that
comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Flip-Over Event
shall occur at any time after the occurrence of a Flip-In Event, the Rights that
have not theretofore been exercised shall thereafter become exercisable as
described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is
consummated with a Person or Persons who acquired shares of Common Stock
pursuant to a Permitted Offer (or a wholly owned subsidiary of any such Person
or Persons), (ii) the price per share of Common Stock offered in such
transaction is not less than the price per share of Common Stock paid to all
holders of Common Stock whose shares were purchased pursuant to such Permitted
Offer, and (iii) the form of consideration being offered to the remaining
holders of shares of Common Stock pursuant to such transaction is the same as
the form of consideration paid pursuant to such Permitted Offer. Upon
consummation of any such transaction contemplated by this Section 13(d), all
Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights, except prior to the Distribution Date, unless the Company elects to
utilize the first sentence of Section 11(p) hereof, or to distribute Rights
Certificates or scrip evidencing fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Rights Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the Closing Price of one Right for
the Trading Day immediately prior to the date on which such fractional Rights
would have been otherwise issuable.
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than, except as provided in the last sentence
of Section 7(c) hereof, fractions that are integral multiples of one
one-hundredth of a share of Preferred Stock) upon exercise of the Rights
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<PAGE> 29
or to distribute certificates or scrip evidencing fractional shares of Preferred
Stock (other than, except as provided in the last sentence of Section 7(c)
hereof, fractions that are integral multiples of one one-hundredth of a share of
Preferred Stock). Fractions of shares of Preferred Stock in integral multiples
of one one-hundredth of a share of Preferred Stock may, at the election of the
Company in its sole discretion, be evidenced by depositary receipts, pursuant to
an appropriate agreement between the Company and a depositary selected by it,
provided that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the shares of Preferred Stock represented by
such depositary receipts. In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-hundredth of a share of Preferred Stock,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of one one-hundredth of the Closing Price of a share of Preferred Stock
for the Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the
Company shall not be required to issue fractions of shares of Common Stock upon
exercise of the Rights or to distribute certificates or scrip evidencing
fractional shares of Common Stock. In lieu of fractional shares of Common Stock,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the Closing Price of one share of Common Stock for the Trading Day
immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect
of this Agreement, other than rights of action vested in the Rights Agent
pursuant to Section 18 hereof, are vested in the respective registered holders
of the Rights Certificates (and, prior to the Distribution Date, the registered
holders of the Common Stock) and, where applicable, the Company; and any
registered holder of any Rights Certificate (or, prior to the Distribution Date,
of the Common Stock), without the consent of the Rights Agent or of the holder
of any other Rights Certificate (or, prior to the Distribution Date, of the
Common Stock), may, in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Rights Certificate in the manner provided in such Rights
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to the extent not prohibited by
applicable law and regulations to specific performance of the obligations
hereunder and injunctive relief against actual or threatened violations of the
obligations hereunder of any Person subject to this Agreement. After a
Triggering Event, holders of Rights shall be entitled to recover the reasonable
costs and expenses, including attorneys' fees, incurred by them in any action to
enforce the provisions of this Agreement.
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<PAGE> 30
Section 16. Agreement of Rights Holders. Every holder of a
Right by accepting the same consents and agrees with the Company and the Rights
Agent and with every other holder of a Right that it accepts the terms and
conditions of this Agreement and the Rights Certificates and, without limiting
the generality of the foregoing, that:
(a) prior to the Distribution Date, the Rights will not
be evidenced by Rights Certificates and will be transferable only in connection
with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates will
be transferable only on the registry books of the Rights Agent if surrendered at
the office or offices of the Rights Agent designated for such purposes, duly
endorsed or accompanied by a proper instrument of transfer and with the form of
assignment set forth on the reverse side thereof and the certificate contained
therein duly completed and fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the Person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificates made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a
Shareholder. No holder, as such, of any Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of the number of
one one-hundredths of a share of Preferred Stock or any other securities of the
Company that may at any time be issuable upon the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in Section 25 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Rights Certificate
shall have been exercised in accordance with the provisions hereof.
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<PAGE> 31
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other reasonable disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement or other
paper or document believed by it, after proper inquiry or examination, to be
genuine and to be signed, executed and, where necessary, guaranteed, verified or
acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name
of Rights Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer business of the Rights Agent
or any successor Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto; provided, however, that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name
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or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Rights Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of "Current Market Price") be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
the Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for
its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates (except as to its countersignature on such Rights
Certificates), or be required to verify the same but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11 or Section 13 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after receipt of actual knowledge of any such
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Preferred Stock or Common Stock or other securities to be issued pursuant to
this Agreement or any Rights Certificate or as to whether any
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<PAGE> 33
shares of Preferred Stock or Common Stock or other securities will, when so
issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, omission, default, neglect or misconduct
of any such attorneys or agents or for any loss to the Company resulting from
any such act, omission, default, neglect or misconduct; provided, however, that
reasonable care was exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing to the Company, and to each transfer
agent of the Common Stock and the Preferred Stock, by registered or certified
mail, and to the holders, if any, of the Rights Certificates by first-
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<PAGE> 34
class mail. The Company may remove the Rights Agent or any successor Rights
Agent (with or without cause) upon 30 days' notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Stock and the Preferred Stock, by registered or certified
mail, and to the holders of the Rights Certificates by first-class mail. If the
Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent.
Notwithstanding the foregoing provisions of this Section 21, in no event shall
the resignation or removal of a Rights Agent be effective until a successor
Rights Agent shall have been appointed and have accepted such appointment. If
the Company shall fail to make such appointment within a period of 30 days after
giving notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit his
Rights Certificate for inspection by the Company), then the Rights Agent or the
registered holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be (a) a
corporation organized and doing business under the laws of the United States or
of the States of New York, Texas or Louisiana (or of any other state of the
United States so long as such corporation is authorized to conduct a stock
transfer or corporate trust business in the States of New York, Texas or
Louisiana), in good standing, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$100,000,000 or (b) an affiliate of a corporation described in clause (a) of
this sentence. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock and the Preferred Stock, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the expiration or redemption of the
Rights, the Company (a) shall, with respect to shares of Common Stock so issued
or sold pursuant to the exercise of stock options or under any employee plan or
arrangement granted or awarded on or prior to the Distribution Date, or upon the
exercise, conversion or exchange of securities issued by the Company on or prior
to the Distribution Date,
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<PAGE> 35
and (b) may, in any other case, if deemed necessary or appropriate by the Board
of Directors of the Company, issue Rights Certificates representing the
appropriate number of Rights in connection with such issuance or sale; provided,
however, that (i) no such Rights Certificate shall be issued and/or none of the
Rights that would be evidenced by the Rights Certificates will be granted if,
and to the extent that, the Company shall be advised by counsel that such
issuance or such grant would create a significant risk of material adverse tax
consequences to the Company or the Person to whom such Rights Certificate would
be issued, and (ii) no such Rights Certificate shall be issued if, and to the
extent that, appropriate adjustment shall otherwise have been made in lieu of
the issuance thereof.
Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at its option,
at any time prior to the earlier of (i) the close of business on the tenth day
following the Stock Acquisition Date (or, if the Stock Acquisition Date shall
have occurred prior to the Record Date, the close of business on the tenth day
following the Record Date) and (ii) the Final Expiration Date cause the Company
to redeem all but not less than all the then outstanding Rights at a redemption
price of $.01 per Right, as such amount may be appropriately adjusted, if
necessary, to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"); provided, however, that the Rights may
not be redeemed following any merger to which the Company is a party that (i)
occurs after a Flip-In Event has occurred and (ii) was not approved by the
shareholders of the Company at a shareholders' meeting. If, following the
occurrence of a Stock Acquisition Date and following the expiration of the right
of redemption hereunder but prior to any Triggering Event, (i) a Person who is
an Acquiring Person shall have transferred or otherwise disposed of a number of
shares of Common Stock in one transaction or series of transactions, not
directly or indirectly involving the Company or any of its Subsidiaries, which
did not result in the occurrence of a Triggering Event such that such Person
together with its Affiliates and Associates is thereafter a Beneficial Owner of
10% or less of the outstanding shares of Common Stock, and (ii) there are no
other Persons, immediately following the occurrence of the event described in
clause (i), who are Acquiring Persons, then the right of redemption set forth in
this Section 23(a) shall be reinstated and thereafter be subject to the
provisions of this Section 23. Notwithstanding anything contained in this
Agreement to the contrary, the Rights shall not be exercisable after the first
occurrence of a Flip-In Event until such time as the Company's right of
redemption hereunder has expired. The Company may, at its option, pay the
Redemption Price in cash, shares of Common Stock (based on the Current Market
Price of the Common Stock at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors.
(b) Immediately upon the effectiveness of the action of the
Board of Directors of the Company ordering the redemption of the Rights (which
action may be conditioned on the occurrence of one or more events or on the
existence of one or more facts or may be effective at some future time),
evidence of which shall have been filed with the Rights Agent and without any
further action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights shall be to
receive the Redemption Price for each Right so held. Promptly after the
effectiveness of the action of the Board of Directors ordering the
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<PAGE> 36
redemption of the Rights, the Company shall give notice of such redemption to
the Rights Agent and the holders of the then outstanding Rights by mailing such
notice to all such holders at each holder's last address as it appears upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the Company for the Common Stock. Any notice that is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption shall state the method by
which the payment of the Redemption Price will be made. The failure to give
notice as set forth above shall not affect the validity of the redemption of the
Rights.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option,
at any time and from time to time after the first occurrence of a Flip-In Event,
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become void pursuant to the provisions of Section
7(e) hereof) for shares of Common Stock or Common Stock Equivalents or any
combination thereof, at an exchange ratio of one share of Common Stock, or such
number of Common Stock Equivalents or units representing fractions thereof as
would be deemed to have the same value as one share of Common Stock, per Right,
appropriately adjusted, if necessary, to reflect any stock split, stock dividend
or similar transaction occurring after the Rights Dividend Declaration Date
(such exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors may not effect such
exchange at any time after any Person (other than an Exempt Person), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the shares of Common Stock then outstanding.
(b) Immediately upon the effectiveness of the action of the
Board of Directors of the Company ordering the exchange of any Rights pursuant
to and in accordance with subsection (a) of this Section 24 (which action may be
conditioned on the occurrence of one or more events or on the existence of one
or more facts or may be effective at some future time) and without any further
action and without any notice, the right to exercise such Rights shall terminate
and the only right thereafter of a holder of such Rights shall be to receive
that number of shares of Common Stock and/or Common Stock Equivalents equal to
the number of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the shares of Common Stock and/or Common Stock
Equivalents for Rights will be effected and, in the event of any partial
exchange, the number of Rights that will be exchanged. Any partial exchange
shall be effected as nearly pro rata as possible based on the number of Rights
(other than Rights which have become void pursuant to the provisions of Section
7(e) hereof) held by each holder of Rights.
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<PAGE> 37
(c) In the event that the number of shares of Common Stock
that are authorized by the Company's certificate of incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise of
the Rights is not sufficient to permit an exchange of Rights as contemplated in
accordance with this Section 24, the Company may, at its option, to the fullest
extent permitted by applicable law and regulations, take all such action as may
be necessary to authorize additional shares of Common Stock for issuance upon
exchange of the Rights.
(d) The Company shall not be required to issue fractions of
shares of Common Stock or to distribute certificates or scrip evidencing
fractional shares of Common Stock. If the Company elects not to issue fractional
shares, then in lieu of such fractional shares of Common Stock, the Company
shall pay to the registered holders of Rights with regard to which such
fractional shares of Common Stock would otherwise be issuable an amount in cash
equal to the same fraction of the value of a whole share of Common Stock. For
purposes of this Section 24, the value of a whole share of Common Stock shall be
the Closing Price per share of Common Stock for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24, and the value of any
Common Stock Equivalent shall be deemed to have the same value as the Common
Stock on such date.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o) hereof), or to effect any sale,
lease or other transfer (or to permit one or more of its Subsidiaries to effect
any sale or other transfer), in one transaction or a series of related
transactions, of more than 50% of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to any other Person or Persons (other than
the Company and/or any of its Subsidiaries in one or more transactions each of
which complies and all of which together comply with Section 11(o) hereof), or
(v) to effect the liquidation, dissolution or winding up of the Company, or (vi)
to be acquired pursuant to a share exchange, then, in each such case, the
Company shall give to each holder of record of a Rights Certificate, to the
extent feasible and in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winding up is to take place and the date of participation therein
by the holders of the shares of Preferred Stock, if any such date is to be
fixed, and such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least 20 days prior to the record date for
determining holders of the shares of Preferred Stock for purposes of such
action, and in the case of any such other action, at least 20 days prior to the
date of the taking of such proposed action
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<PAGE> 38
or the date of participation therein by the holders of the shares of Preferred
Stock, whichever shall be the earlier. The failure to give notice required by
this Section 25 or any defect therein shall not affect the legality or validity
of the action taken by the Company or the vote upon any such action.
(b) In case any Flip-In Event shall occur, then (i) the
Company shall as soon as practicable thereafter give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 26 hereof, a
notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Section 11(a)(ii) hereof,
and (ii) all references in the preceding paragraph to Preferred Stock shall be
deemed thereafter to refer to Common Stock and/or, if appropriate, other
securities.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Southdown, Inc.
1200 Smith Street, Suite 2400
Houston, Texas 77002
Attention: General Counsel
Subject to provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
First City, Texas-Houston, N.A.
1301 Fannin, 21st Floor
Houston, Texas 77002
Attention: Richard Cartwright
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Prior to the
Distribution Date and subject to the penultimate sentence of this Section 27,
the Company may in its sole and absolute discretion and the Rights Agent shall,
if the Company so directs, supplement or amend any provision of this Agreement
in any respect without the approval of any holders of certificates representing
shares of Common Stock. From and after the Distribution Date and subject to the
penultimate sentence of this Section 27, the Company may and the Rights Agent
shall, if the Company so directs, supplement or amend this Agreement without the
approval of any holders
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<PAGE> 39
of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or
supplement any provision contained herein that may be defective or inconsistent
with any other provisions herein, (iii) to shorten or lengthen any time period
hereunder or (iv) to change or supplement the provisions hereunder in any manner
that the Company may deem necessary or desirable and that shall not materially
adversely affect the interests of the holders of Rights Certificates (other than
an Acquiring Person or an Affiliate or Associate of an Acquiring Person);
provided, that this Agreement may not be supplemented or amended to lengthen,
pursuant to clause (iii) of this sentence, (A) a time period relating to when
the Rights may be redeemed at such time as the Rights are not then redeemable or
(B) any other time period unless such lengthening is for the purpose of
protecting, enhancing or clarifying the rights of, and/or the benefits to, the
holders of Rights (other than any Acquiring Person and its Affiliates and
Associates). Upon the delivery of a certificate from an appropriate officer of
the Company which states that the proposed supplement or amendment is in
compliance with the terms of this Section 27, the Rights Agent shall execute
such supplement or amendment; provided, however, that the Rights Agent may, but
shall not be obligated to, enter into any such supplement or amendment that
adversely affects the Rights Agent's own rights, duties or immunities under this
Agreement. Notwithstanding anything contained in this Agreement to the contrary,
no supplement or amendment shall be made that decreases the Redemption Price,
shortens the Final Expiration Date, increases the initial Purchase Price or
decreases the number of one one-hundredths of a share of Preferred Stock for
which a Right is initially exercisable. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with the interests
of the holders of Common Stock.
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Determinations and Actions by the Board of
Directors, etc. For all purposes of this Agreement, any calculation of the
number of shares of Common Stock outstanding at any particular time, including
for purposes of determining the particular percentage of such outstanding shares
of Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act as in effect on the date hereof. The
Board of Directors of the Company (or, as set forth herein, certain specified
members thereof) shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board of Directors of the Company or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including, without limitation, a determination
to redeem or not redeem the Rights or to amend this Agreement). All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) that
are done or made by the Board of Directors of the Company in good faith, shall
(x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights, as such, and all other parties, and (y) not subject the
Board of Directors to any liability to the holders of the Rights unless such
liability is
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<PAGE> 40
otherwise required to be imposed by applicable law, regulations or the Company's
restated articles of incorporation.
Section 30. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be absolutely null, invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated; provided, however, that notwithstanding anything in this
Agreement to the contrary, if any such term, provision, covenant or restriction
is held by such court or authority to be absolutely null, invalid, void or
unenforceable and the Board of Directors of the Company determines in its good
faith judgment that severing the invalid language from this Agreement would
adversely affect the purpose or effect of this Agreement, the right of
redemption set forth in Section 23 hereof shall be reinstated and shall not
expire until the close of business on the tenth day following the date of such
determination by the Board of Directors of the Company. Without limiting the
foregoing, if any provision requiring that a determination be made by less than
the entire Board of Directors of the Company is held by a court of competent
jurisdiction or other authority to be absolutely null, invalid, void or
unenforceable, such determination shall then be made by the entire Board of
Directors of the Company.
Section 32. Governing Law and Consent to Jurisdiction. This
Agreement, each Right and each Rights Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Louisiana and for
all purposes shall be governed by and construed in accordance with the laws of
such State applicable to contracts made and to be performed entirely within such
State. The Company, the Rights Agent and each holder of a Right by accepting
same agrees that any suit, action or other proceeding arising out of this
Agreement (including without limitation any request that any Person take any
action in connection with this Agreement) initiated by any of the foregoing
Persons shall be brought and litigated only in the State or Federal courts
located in the State of Louisiana, and each of such Persons hereby waives any
claim it may have that such court is an inconvenient forum for the purposes of
any such suit, action or other proceeding, or that such court does not have
personal jurisdiction, or that venue is not proper in any suit, action or other
proceeding brought in such court, or that reasonable service of process has not
been effected in any suit, action or other proceeding brought in such court.
Section 33. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
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<PAGE> 41
Section 34. Descriptive Headings. Descriptive headings of
the several Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
Attest: SOUTHDOWN, INC.
- ----------------------- By ----------------------------
Name: Name:
Title: Title:
Attest: FIRST CITY, TEXAS-HOUSTON, N.A.
- ----------------------- By ----------------------------
Name: Name:
Title: Title:
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<PAGE> 42
Exhibit A
FORM OF
ARTICLES OF AMENDMENT
TO RESTATED ARTICLES OF
INCORPORATION OF SOUTHDOWN, INC.
ARTICLES OF AMENDMENT ss. STATE OF TEXAS
TO ss.
RESTATED ARTICLES OF ss. COUNTY OF HARRIS
INCORPORATION ss.
OF ss. CITY OF HOUSTON
SOUTHDOWN, INC.
BE IT KNOWN, That on this 4th day of March, 1991,
BEFORE ME, JoAnn M. Pavlock, 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, who declared that pursuant to
Section 24B(6) and 33A of the Louisiana Business Corporation Law, Article IIIB
of the Restated Articles of Incorporation of the Corporation, and resolutions of
the Board of Directors of the Corporation adopted at a special meeting of the
Board of Directors of the Corporation held on March 4, 1991, they now appear for
the purpose of executing this act of amendment and putting into authentic form
the amendment so adopted by the Board of Directors of said Corporation.
AND THE SAID APPEARERS further declare that by vote of the
Board of Directors of said Corporation, it was resolved that Article III of the
Restated Articles of Incorporation of Southdown, Inc. be further amended as
follows:
1. There is added as a new paragraph E of Article III
the following:
E. Of the aforesaid 10,000,000 shares of
Preferred Stock, 400,000 shares shall constitute a separate series of preferred
shares designated "Preferred Stock,
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<PAGE> 43
Cumulative Junior Participating Series C" (the "Series C Preferred Stock"). The
preferences, limitations and relative rights of the Series C Preferred Stock are
as follows:
PREFERRED STOCK,
CUMULATIVE JUNIOR PARTICIPATING SERIES C
1. Dividends. (A) The holders of the Series C 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 ("Series A Preferred Stock"), the Corporation's
Preferred Stock, $3.75 Convertible Exchangeable Series B ("Series B Preferred
Stock") and any other shares of any series of Preferred Stock ranking senior to
the shares of Series C Preferred Stock as to dividends, but in preference to the
holders of the Common Stock, par value $1.25 per share, of the Corporation (the
"Common Stock") and any other capital stock of the Corporation ranking junior to
the Series C Preferred Stock as to dividends, cumulative preferential dividends
per share of Series C Preferred Stock payable in cash on the last day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series C Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $2.00 or (b) subject to the provision
for adjustment hereinafter set forth, the Adjustment Number (as defined below)
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 a dividend or distribution 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, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series C Preferred Stock. The "Adjustment Number" shall
initially be 100. In the event the Corporation shall at any time after March 4,
1991 (i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
Adjustment Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series C Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series C
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall accrue and be cumulative from the date
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<PAGE> 44
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series C Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date.
(C) Each dividend on the Series C Preferred Stock shall be
paid to the holders of record of shares of the Series C 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 declared on any other
series or class of stock ranking on a parity with the Series C Preferred Stock
as to dividends in respect of any dividend period, unless there shall also be or
have been declared on the Series C Preferred Stock like dividends for all
periods in the amounts provided therefor in paragraph 1(A) above. In the event
that full cumulative dividends on the Series C Preferred Stock have not been
declared and paid or 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 junior to the Series
C Preferred Stock as to dividends or distributions of assets on liquidation,
dissolution or winding up of the Corporation (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 C Preferred Stock are declared and paid or set apart for payment.
Further, the Corporation shall not declare a dividend or distribution on the
Common Stock unless it also declares a dividend or distribution on the Series C
Preferred Stock as provided in paragraph (A) above immediately after it declares
a dividend or distribution on the Common Stock (other than a dividend or
distribution payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $2.00 per share on the Series C
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
2. Redemption. (A) The Corporation, at its option, may redeem
shares of Series C Preferred Stock in whole at any time and in part from time to
time, at a redemption price equal to the Adjustment Number times the current per
share market price (as such term is hereinafter defined) of the Common Stock on
the date of the mailing of the notice of redemption, together with accrued and
unpaid dividends to the date of such redemption. The "current per share market
price" on any date shall be deemed to be the average of the closing price per
share of such Common Stock for the ten consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date; provided, however, that in
the event that the current per share market price of the
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<PAGE> 45
Common Stock is determined during a period following the announcement of (A) a
dividend or distribution on the Common Stock other than a regular quarterly cash
dividend or (B) any subdivision, combination or reclassification of such Common
Stock and the ex- dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, shall not have
occurred prior to the commencement of such ten Trading Day period, then, and in
each such case, the current per share market price shall be properly adjusted to
take into account ex-dividend or ex-distribution trading. The closing price for
each day shall be the last sales price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange, or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the last quoted sales price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System or such other self-regulatory organization or registered
securities information processor (as such terms are used under the Securities
Exchange Act of 1934, as amended) that then reports information concerning the
Common Stock or, if on any such date the Common Stock is not quoted by any such
entity, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Board of Directors of the Corporation. If on any such date no such market maker
is making a market in the Common Stock, the fair value of the Common Stock on
such date as determined in good faith by the Board of Directors of the
Corporation shall be used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Common Stock is listed or
admitted to trading is open for the transaction of business or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
a business day.
(B) In case of the redemption of only part of the Series C
Preferred Stock at the time outstanding, such redemption shall be made pro rata,
provided, however, that the Corporation shall not be required to effect the
redemption in any manner that results in fractional shares being outstanding
(unless immediately prior to such time fractional shares were outstanding, in
which case the Corporation shall not be required to effect the redemption in any
manner that results in fractions of shares, other than one-hundredths of shares,
being outstanding); if full cumulative dividends shall not have been paid or
declared and set apart for payment for all quarterly dividends to and including
the last Quarterly Dividend Payment Date prior to the date fixed for redemption,
the Corporation shall not:
(i) call for redemption (except for redemptions
in accordance with subparagraph 2(B)(iii) below) any shares
of Series C Preferred Stock
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<PAGE> 46
unless all such shares then outstanding are called for
simultaneous redemption; or
(ii) redeem or purchase or otherwise acquire (except
for redemptions, purchases or acquisitions in accordance with
subparagraph 2(B)(iii) below) for consideration shares of any
stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with Series C
Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the
Corporation ranking junior (both as to dividends and upon
dissolution, liquidation or winding up) to Series C Preferred
Stock; or
(iii) redeem or purchase or otherwise acquire (except
for redemptions, purchases or acquisitions in accordance with
subparagraphs 2(B)(i) and 2(B)(ii) above) for consideration
any shares of Series C Preferred Stock, or any shares of stock
ranking on a parity with Series C Preferred Stock, except in
accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares of parity stock and Series C Preferred
Stock upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or
classes.
(C) Notice of any proposed redemption of Series C Preferred
Stock shall be given by the Corporation not less than 15 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 his 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, by first class mail, 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 set aside by the Corporation,
separate and apart from its other funds, 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 C 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 C 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) up to the date fixed for redemption, but
without interest thereon.
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<PAGE> 47
(D) 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 C 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 mailed as
herein provided at least 15 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 on the redemption date, notwithstanding that any
certificate representing shares of Series C Preferred Stock called for
redemption shall not have been surrendered for cancellation, all shares of
Series C Preferred Stock with respect to which such deposit shall have been made
and which are outstanding on such redemption date shall no longer be deemed to
be outstanding and all rights with respect to such shares of Series C 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 up to
the date fixed for redemption.
(E) If any shares of Series C 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.
(F) Any shares of Series C 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 C 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 that
are undesignated as to series. 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.
3. Regarding Voting Rights. The holders of shares of Series
C Preferred Stock shall have the following voting rights:
(A) Each share of Series C Preferred Stock shall entitle the
holder thereof to a number of votes equal to the Adjustment Number for each
share held and, except as otherwise provided herein or by law, the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Common Stock (and any other capital stock of the Corporation entitled to
vote) shall vote together as a single class.
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(B) Unless the vote of a larger percentage is required by law
or the Restated Articles of Incorporation, the affirmative vote of the holders
of a majority of the outstanding shares of Series C Preferred Stock shall be
sufficient to take any action as to which a class vote of the holders of the
Series C Preferred Stock is required by law or the Restated Articles of
Incorporation.
(C) Whenever, at any time, dividends payable on the Series C
Preferred Stock shall be in arrears for such number of dividend payments as
shall include not less than 540 calendar days, the holders of all Preferred
Stock (including holders of the Series C Preferred Stock) upon which these or
like voting rights have been conferred (without limiting the generality of the
foregoing, not including the Series A Preferred Stock and the Series B Preferred
Stock) and are exercisable (the "Voting Preferred Stock") with dividends in
arrears for such number of dividend payments as shall include not less than 540
calendar days, shall have the exclusive right, voting separately as a class,
irrespective of series, to elect by a majority of the votes cast two directors
of the Corporation, (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
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, in the manner
prescribed by the Bylaws of the Corporation. 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 Series C 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 Bylaws, or resolution
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<PAGE> 49
of the Board of Directors thereunder, irrespective of any increase made pursuant
to the provisions of this paragraph 3.
(D) At any time that any shares of Series C Preferred Stock
are outstanding, the Restated Articles of Incorporation, as amended, of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of Series C Preferred Stock so
as to affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares of Series C Preferred Stock, voting
separately as a class.
4. Priority in Event of Dissolution. (A) Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series C Preferred Stock unless, prior thereto, the holders of shares of Series
C Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series C Liquidation Preference"). Following
the payment of the full amount of the Series C Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series C
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall 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. 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 shares 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 1 with respect to such Series C
Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series C Liquidation
Preference and the liquidation preferences of all other series of Preferred
Stock, if any, that rank on a parity with Series C Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares (including the Series C Preferred Stock) in proportion to their
respective liquidation preferences.
5. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series C Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share equal to the Adjustment Number times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is changed or exchanged.
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6. Ranking. The Series C Preferred Stock shall rank junior to
the Series A Preferred Stock and Series B Preferred Stock as to the payment of
dividends and distribution of assets, and shall also rank junior to all other
series of the Corporation's Preferred Stock as to the payment of dividends and
the distribution of assets, unless the terms of any such series shall provide
otherwise.
7. Fractional Shares. The Series C Preferred Stock may be
issued in fractions of a share that shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series C Preferred Stock.
8. Sinking Fund. The Series C 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. Amount. The number of shares of Series C Preferred Stock
may be increased or decreased by resolution of the Board of Directors; provided,
however, that no decrease shall reduce the number of shares of Series C
Preferred Stock to less than the number of shares then issued and outstanding
plus the number of shares issuable upon exercise of outstanding rights, options
or warrants or upon conversion of outstanding securities issued by the
Corporation.
10. 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 these 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.
11. Notice. Except as otherwise provided herein, any notice,
demand or other communication shall be deemed given and received as of the date
of delivery in person or receipt set forth on the return receipt. The inability
to deliver because of rejection or other refusal to accept any notice, demand or
other communication, shall be deemed to be receipt of such notice, demand or
other communication as of the date of such inability to deliver or rejection or
refusal to accept.
2. Paragraph E of Article III is relettered as paragraph F.
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; that of the preferred shares, 1,999,998 shares have been designated
as the Series A Preferred Stock, 960,000 have been designated as the Series B
Preferred Stock, and 400,000 have been designated as the Series C Preferred
Stock; and that the Board of Directors of the Corporation has the
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<PAGE> 51
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 amendment 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 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
A-10
<PAGE> 52
Exhibit B
Form of Rights Certificate
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER MARCH 14, 2001 OR EARLIER IF REDEEMED OR EXCHANGED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT
$.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE
OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS WILL BECOME NULL AND VOID.
[THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED
HEREBY WILL BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e)
OF SUCH AGREEMENT.]*
RIGHTS CERTIFICATE
SOUTHDOWN, INC.
This certifies that _____________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of March 4, 1991 as it may from
time to time be supplemented or amended (the "Rights Agreement"), between
Southdown, Inc., a Louisiana corporation (the "Company"), and First City,
Texas-Houston, N.A., a national banking association (the "Rights Agent"), to
purchase from the Company at any time prior to 5:00 p.m. (Houston, Texas time)
on March 14, 2001 at the office or offices of the Rights Agent designated for
such purpose, or its successors as Rights Agent, one one-hundredth of a fully
paid, nonassessable share of Preferred Stock, Cumulative Junior Participating
Series C (the "Preferred Stock") of the Company, at a purchase price of $60 per
one one-hundredth of a share (the "Purchase Price"), upon presentation and
surrender of this Rights Certificate with the Form of Election to Purchase and
related Certificate set forth on the reverse hereof duly executed.
- --------
* The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
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<PAGE> 53
The Purchase Price may be paid in cash or by certified check, cashiers or
official bank check or bank draft payable to the order of the Company or the
Rights Agent. The number of Rights evidenced by this Rights Certificate (and the
number of shares which may be purchased upon exercise thereof) set forth above,
and the Purchase Price per share set forth above, are the number and Purchase
Price as of March 4, 1991, based on the Preferred Stock as constituted at such
date. The Company reserves the right to require prior to the occurrence of a
Triggering Event (as such term is defined in the Rights Agreement) that a number
of Rights be exercised so that only whole shares of Preferred Stock will be
issued.
From and after the occurrence of a Flip-In Event (as such term
is defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a direct or indirect transferee of any such Acquiring Person,
Associate or Affiliate, or (iii) under certain circumstances specified in the
Rights Agreement, a direct or indirect transferee of a person who, concurrently
with or after such transfer, became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person, such Rights shall become null and void in the
circumstances set forth in the Rights Agreement, and no holder hereof shall have
any rights whatsoever with respect to such Rights from and after the occurrence
of such Flip-In Event.
As provided in the Rights Agreement, the Purchase Price and
the number and kind of shares of Preferred Stock or other securities or other
assets that may be purchased upon the exercise of the Rights evidenced by this
Rights Certificate are subject to modification and adjustment upon the happening
of certain events, including Triggering Events.
This Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Rights Certificates,
which limitations of rights include the temporary suspension of the
exercisability of such Rights under the specific circumstances set forth in the
Rights Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and are also available upon written
request to the Company.
As provided in the Rights Agreement, this Rights Certificate,
with or without other Rights Certificates, upon surrender at the principal
office or offices of the Rights Agent designated for such purpose, and with the
Certificate in the Form of Assignment on the reverse hereof duly executed, may
be exchanged for another Rights Certificate or Rights Certificates of like tenor
and date evidencing Rights entitling the holder to purchase a like aggregate
number of one one-hundredths of a share of Preferred
B-2
<PAGE> 54
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at its option
at a redemption price of $.01 per Right, payable, at the election of the
Company, in cash or shares of Common Stock or such other consideration as the
Board of Directors may determine, at any time prior to the earlier of the close
of business on (a) the tenth day following the Stock Acquisition Date (as
defined in the Rights Agreement) (as such time period may be extended or
shortened pursuant to the Rights Agreement) and (b) the Expiration Date (as such
term is defined in the Rights Agreement) or (ii) may be exchanged in whole or in
part for shares of the Company's Common Stock, par value $1.25 per share, and/or
other equity securities of the Company deemed to have the same value as shares
of Common Stock. After the expiration of the redemption period, the Company's
right of redemption may be reinstated 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.
No fractional shares of Preferred Stock are required to be
issued upon the exercise of any Right or Rights evidenced hereby (other than,
except as set forth above, fractions that are integral multiples of one
one-hundredth of a share of Preferred Stock, which may, at the election of the
Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment may be made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder of
shares of Preferred Stock or of any other securities of the Company that may at
any time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
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<PAGE> 55
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of ____________, 19__
ATTEST: SOUTHDOWN, INC.
_______________________________ By_____________________________
Secretary Title:
Countersigned:
FIRST CITY, TEXAS-HOUSTON, N.A.
By ____________________________
Authorized Signature
B-4
<PAGE> 56
Form of Reverse Side of Rights Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ________________________________________ hereby sells,
assigns and transfers unto ___________________________________________________
______________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________ Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated: _________________, 19__
______________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States.
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned, transferred, split up, combined or exchanged by or on behalf of a
Person who is or was an Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined pursuant to the Rights Agreement);
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<PAGE> 57
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person or who is a direct or
indirect transferee of an Acquiring Person or an Affiliate or Associate of an
Acquiring Person.
Dated: _____________, 19__
____________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States.
NOTICE
The signatures to the foregoing Assignment and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
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<PAGE> 58
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate.)
To: SOUTHDOWN, INC.
The undersigned hereby irrevocably elects to exercise
_________ Rights represented by this Rights Certificate to purchase the shares
of Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person that may be issuable upon the
exercise of the Rights) and requests that certificates for such shares (or other
securities) be issued in the name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced
by this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
Dated: ____________, 19__
____________________________
Signature
Signature Guaranteed:
B-7
<PAGE> 59
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States.
B-8
<PAGE> 60
Certificate
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [
] are not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or who is a direct or indirect
transferee of an Acquiring Person or an Affiliate or Associate of an Acquiring
Person.
Dated: _____________, 19__
_______________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States.
NOTICE
The signatures to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
B-9
<PAGE> 61
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
On March 4, 1991, the Board of Directors of Southdown, Inc.
(the "Company") declared a dividend of one right to purchase preferred stock
("Right") for each outstanding share of the Company's Common Stock, par value
$1.25 per share ("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 "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.
Initially, the Rights will be attached to all certificates
representing outstanding shares of Common Stock, and no separate certificates
for the Rights ("Rights Certificates") will be 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 this 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 issued after March 14, 1991 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 this 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.
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 conversion
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<PAGE> 62
of certain securities 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.
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 of
Preferred Stock 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 Preferred Stock, (ii) if holders of the Preferred Stock
are granted certain rights or warrants to subscribe for Preferred Stock or
convertible securities at less than the current market price of the Preferred
Stock, or (iii) upon the distribution to holders of the Preferred Stock of
evidences of indebtedness
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<PAGE> 63
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 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 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. While the distribution of the Rights
should not be taxable to shareholders or to the Company, 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
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
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<PAGE> 64
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.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an exhibit to a Registration Statement on
Form 8-A. A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
C-4
<PAGE> 1
EXHIBIT 10.10
ANNEX 2
FIRST AMENDMENT TO THE
SOUTHDOWN, INC. DIRECTORS' RETIREMENT PLAN
W I T N E S S E T H:
WHEREAS, Southdown, Inc. (the "Company") maintains the Southdown, Inc.
Directors' Retirement Plan (the "Plan"); and
WHEREAS, the Company, pursuant to Section 5.1 of the Plan, has the
right to amend the Plan from time to time subject to certain limitations.
NOW, THEREFORE, in order to make certain revisions desired by the
Company, the Plan is hereby amended in the following manner effective as of
January 1, 1997:
1. Section 4.1 is hereby amended in its entirety to read as follows:
4.1 Amount of Benefit. Plan Benefits payable to a Participant
pursuant to Paragraph 3.1 will be paid in an amount equal to sixty-six
and two-thirds percent (662/3%) of the per month average of the
combined board and committee fees earned by such Participant during the
last twelve consecutive Months of Service. For purposes of this
Paragraph, the term "combined board and committee fees earned by such
Participant" includes any board and committee fees received in cash or
any board and committee fees converted into Stock Units pursuant to
Sections 4.1 and 4.2 of the Southdown, Inc. Phantom Stock and Deferred
Compenstaion Plan for Non-Employee Directors.
Approved:_____________________________ Date:________________________________
<PAGE> 1
EXHIBIT 10.11
As Amended 11/21/96
SOUTHDOWN, INC.
1991 NONQUALIFIED STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Purpose of Plan.
The purpose of the Southdown, Inc. 1991 Nonqualified Stock Option Plan for
Non-Employee Directors ("Plan") is to attract and retain the services of
experienced and knowledgeable non-employee directors and provide an opportunity
for ownership of the common stock, $1.25 par value ("Common Stock"), of
Southdown, Inc., a Louisiana corporation ("Company").
2. Administration of Plan.
The Plan shall be administered by the Board of Directors of the Company
("Board"). Subject to the terms of the Plan, the Board shall have the power to
interpret the provisions and supervise the administration of the Plan. All
decisions made by the Board pursuant to the provisions of the Plan shall be made
by a majority of its members at a duly held regular or special meeting or by
written consent in lieu of any such meeting. A majority of the directors in
office shall constitute a quorum and all decisions made by the Board pursuant to
the provisions of the Plan shall be made by a majority of the directors present
at any duly held regular or special meeting at which a quorum is present (unless
the concurrence of a greater proportion is required by law or by the articles or
bylaws of the Company) or by the written consent of all of the directors in lieu
of any such meeting.
3. Stock Reserved for the Plan.
Subject to adjustment as provided in paragraph 11, the shares subject to
the Plan shall consist of 400,000 unissued shares of Common Stock or previously
issued shares reacquired and held by the Company and such amount of shares shall
be and is hereby reserved for issuance pursuant to this Plan. Any of such shares
that may remain unsold and that are not subject to outstanding options at the
termination of the Plan shall cease to be reserved for the purpose of the Plan,
but until termination of the Plan and the expiration, exercise, cancellation,
surrender or lapse of all outstanding options granted under the Plan, the
Company shall at all times reserve a sufficient number of shares to meet the
requirements of the Plan. Should any option expire or be cancelled prior to its
exercise in full, the shares theretofore subject to such option may again be
made subject to an option under the Plan.
4. Grant of Options.
Each director of the Company who is not otherwise an employee of the
Company or any of the Company's subsidiaries (as defined in Section 424(f) of
the Internal Revenue Code of 1986) (hereinafter referred to as an "Eligible
Director", which term shall include any transferee permitted pursuant to
paragraph 9 below) shall be granted one option to acquire 10,000 shares of
Common Stock ("Initial Option"), in the case of an Eligible Director serving on
the Board on the date of adoption of the Plan by the Board, on such date of
adoption and in all other cases on the date of such director's first election to
the Board. An additional option to acquire 2,000 shares of Common Stock
("Subsequent Option") shall thereafter automatically be granted to each Eligible
Director on the date of each Annual Meeting of Shareholders where he continues
to serve as a Director of the Company after such meeting. The options granted to
Eligible Directors shall be automatic, nondiscretionary, and subject to the
following conditions and limitations in addition to those set forth elsewhere in
this Plan: (i) the exercise price of each option shall be equal to the greater
of the par value of the Common Stock or 100% of the fair market value of the
Common Stock on the Date of Grant; (ii) each option shall become exercisable six
months after the Date of Grant; (iii) notwithstanding clause (ii) above, each
option shall become fully exercisable upon the death or disability of the
Eligible Director while serving as a Director of the Company or upon a Change in
Control of the Company while serving as a Director of the Company.
For the purposes of this paragraph 4, the following terms shall have the
following meanings:
<PAGE> 2
(a) "Date of Grant" means (i) in the case of an Initial Option granted to
an Eligible Director serving on the Board on the date of the adoption of the
Plan by the Board, on such date of adoption and in all other cases on the date
on which the Eligible Director is first elected to the Board; and (ii) in the
case of a Subsequent Option, the date of each Annual Meeting of Shareholders.
(b) The fair market value of a share of Common Stock on a particular date
shall be deemed to be the average (mean) of the reported "high" and "low" sales
prices 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 sec urities 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 Company in good faith.
5. Option Agreement.
Each option granted under the Plan shall be evidenced by an agreement, in a
form approved by the Board, which shall be subject to the terms and conditions
of the Plan. Any agreement may contain such other terms, provisions and
conditions not inconsistent with the Plan as may be determined by the Board.
6. Term of Option.
Each option granted under this Plan shall provide that it shall terminate
and be of no force or effect with respect to any shares not previously taken up
by the Eligible Director upon the first to occur of (a) the expiration of ten
years from the date the grant of the option or (b) the expiration of ninety days
after the termination of the Eligible Director's service as a Director of the
Company for any reason (other than death, disability or retirement under a
retirement plan of the Company) prior to a Change in Control of the Company;
provided, that if death of the Eligible Director occurs within ninety days of
termination of service as a Director of the Company prior to a Change in Control
of the Company, clause (b) shall be inapplicable. If, following a Change in
Control of the Company, the Eligible Director's service as a Director is
terminated for any reason, each option may be exercised during the remainder of
its full ten-year term to the extent unexercised.
7. Procedure for Exercise.
Options shall be exercised by written notice to the Company setting forth
the number of shares with respect to which the option is to be exercised and
specifying the address to which the certificates for such shares are to be
mailed. Such notice shall be accompanied by cash or certified check, bank draft,
or postal or express money order payable to the order of the Company, for the
amount of the option price for the number of shares of the Common Stock with
respect to which the option is then being exercised or, at the option of the
Eligible Director, accompanied by Common Stock theretofore owned by the Eligible
Director equal in value to the full amount of the option price (or any
combination of cash or such Common Stock). For purposes of determining the
amount, if any, of the purchase price satisfied by payment in Common Stock, such
Common Stock shall be valued at its fair market value on the date of exercise in
accordance with paragraph 4(b). Any Common Stock delivered in satisfaction of
all or a portion of the purchase price shall be appropriately endorsed for
transfer and assigned to the Company. As promptly as practicable after receipt
of such written notification and payment, the Company shall deliver to the
Eligible Director certificates for the number of shares with respect to which
such option has been so exercised, issued in the Eligible Director's name;
provided, however, that such delivery shall be deemed effected for all purposes
when a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the Eligible Director, at
the address specified pursuant to this paragraph 7.
8. Effect of Death or Disability.
(a) In the event of the death or disability of an Eligible Director
following the Date of Grant and while serving as a Director of the Company, and
while options granted hereunder are still in force and
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<PAGE> 3
unexpired under the terms of paragraph 6, the exercisability of the options
shall be accelerated. Such acceleration shall be effective as of the date of
death or disability, as the case may be. The options outstanding in the name of
the Eligible Director shall thereupon be exercisable in full without regard to
any exercise provisions.
(b) No transfer of an option by an Eligible Director by will, by the laws
of descent and distribution or pursuant to a qualified domestic relations order
shall be effective to bind the Company unless the Company shall have been
furnished with written notice of the same and an authenticated copy of the will
or order and such other evidence as the Board may deem necessary to establish
the validity of the transfer and the acceptance of the transferee or transferees
of the terms and conditions of such option.
9. Assignability.
An option shall not be assignable or otherwise transferable except by will,
by the laws of descent and distribution or pursuant to a qualified domestic
relations order as that term is defined by the Internal Revenue Code of 1986, as
amended, or Title I of the Employee Retirement Income Security Act, or the rules
thereunder.
10. No Rights as Shareholder.
No Eligible Director shall have any rights as a shareholder with respect to
shares covered by an option until the date of issuance of a stock certificate
for such shares; except as provided in paragraph 11, no adjustment for
dividends, or otherwise, shall be made if the record date therefor is prior to
the date of issuance of such certificate.
11. Stock Dividends, Stock Splits and Certain Other Corporation Transactions.
(a) The existence of this Plan and the Options granted hereunder shall not
affect in any way the right or power of the Company or its shareholders to make
or authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures or preferred or
preference stocks ranking prior to or affecting the Common Stock or the rights
attendant thereto, or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of the Company's assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
(b) The shares with respect to which options may be granted hereunder are
shares of Common Stock of the Company as presently constituted. If, and
whenever, prior to the delivery by the Company of all of the shares of the
Common Stock which are subject to options granted hereunder, the Company shall
effect a subdivision or consolidation of shares or other capital readjustment,
the payment of a stock dividend, a stock split, a combination of shares, a
recapitalization or other increase or reduction of the number of shares of the
Common Stock outstanding without receiving consideration therefor in money,
services or property, the number of shares of Common Stock available under this
Plan and the number of shares of Common Stock with respect to which options
granted hereunder may thereafter be exercised shall (i) in the event of an
increase in the number of outstanding shares, be proportionately increased, and
the cash consideration payable per share shall be proportionately reduced, and
(ii) in the event of a reduction in the number of outstanding shares, be
proportionately reduced, and the cash consideration payable per share shall be
proportionately increased.
(c) If the Company is reorganized, merged or consolidated or is otherwise a
party to a Plan of exchange with another corporation pursuant to which
reorganization, merger, consolidation or Plan of exchange shareholders of the
Company receive any shares of Common Stock or other securities or if the Company
shall distribute ("Spin Off") securities of another corporation to its
shareholders, there shall be substituted for the shares subject to the
unexercised portions of outstanding options granted hereunder an appropriate
number of shares of (i) each class of stock or other securities which were
distributed to the shareholders of the Company in respect of such shares in the
case of a reorganization, merger, consolidation or plan of exchange, or (ii) in
the case of a Spin Off, the securities distributed to shareholders of the
Company together with shares of Common Stock, such number of shares or
securities to be determined in accordance with the provisions of Section 424 of
the Code (or other applicable provisions of the Code or regulations issued
thereunder which may from time to time govern the treatment of stock options in
such a transaction); provided, however, that all such options may be
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<PAGE> 4
cancelled by the Company as of the effective date of (x) a reorganization,
merger, consolidation, plan of exchange or Spin Off or (y) any dissolution or
liquidation of the Company, by giving notice to each Eligible Director of its
intention to do so and by permitting the purchase for a period of at least
thirty days during the sixty days next preceding such effective date of all of
the shares subject to such outstanding options, without regard to the
installment provisions set forth in the Plan or the option agreements; and
provided further that in the event of a Spin Off, the Company may, in lieu of
substituting securities or accelerating and canceling options as contemplated
above, elect (i) to reduce the purchase price for each share of Common Stock
subject to an outstanding option by an amount equal to the fair market value, as
determined in accordance with the provisions of paragraph 4(b), of the
securities distributed in respect of each outstanding share of Common Stock in
the Spin Off or (ii) to reduce pro portionately the purchase price per share and
to increase proportionately the number of shares of Common Stock subject to each
option in order to reflect the economic benefits inuring to the shareholders of
the Company as a result of the Spin Off.
(d) Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into or exchangeable for
shares of stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into or exchangeable for shares of stock of any class shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of shares
of Common Stock subject to options granted hereunder.
(e) Each option granted hereunder shall become fully exercisable upon a
Change in Control of the Company (as defined in the next sentence). "Change in
Control" of the Company shall be conclusively deemed to have occurred if (and
only if) any of the following shall have taken place: (i) a Change in Control is
reported by the Company in response to either Item 6 (e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") or Item 1 of Form 8-K promulgated under the Exchange Act;
(ii) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing forty percent or more of the combined voting power of the Company's
then outstanding securities; or (iii) following the election or removal of
directors, a majority of the Board consists of individuals who were not members
of the Board two years before such election or removal, unless the election of
each director who was not a director at the beginning of such two-year period
has been approved in advance by directors representing at least a majority of
the directors then in office who were directors at the beginning of the two-year
period.
12. Purchase for Investment.
Unless the options and shares of Common Stock covered by this Plan have
been registered under the Securities Act of 1933, as amended, or the Company has
determined that such registration is unnecessary, each person exercising an
option under this Plan may be required by the Company to give a representation
in writing that he is acquiring such shares for his own account for investment
and not with a view to, or for sale in connection with, the distribution of any
part thereof.
13. Taxes.
(a) The Company may make such provisions as it may deem appropriate for the
withholding of any taxes which it determines is required in connection with any
options granted under this Plan.
(b) Any Eligible Director may pay all or any portion of the taxes required
to be withheld by the Company or paid by him in connection with the exercise of
an option by electing to have the Company withhold shares of Stock, or by
delivering previously owned shares of Common Stock, having a fair market value,
determined in accordance with paragraph 4(b), equal to the amount required to be
withheld or paid. An Eligible Director must make the foregoing election on or
before the date that the amount of tax to be withheld is determined ("Tax
Date"). All such elections are irrevocable and subject to disapproval by the
Board and are subject to the additional restriction that such election may not
be made within six months of the grant of an option, provided that this
limitation shall not apply in the event of death or disability. Where the Tax
Date in respect of an option is deferred until six months after exercise and the
Eligible Director elects share withholding, the full amount of shares of Common
Stock
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<PAGE> 5
will be issued or transferred to him upon exercise of the option, but he shall
be unconditionally obligated to tender back to the Company the number of shares
necessary to discharge the Company's withholding obligation or his estimated tax
obligation on the Tax Date.
14. Effective Date of Plan.
This Plan shall be effective as of February 14, 1991. Options granted under
this Plan are subject to, and may not be exercised before, the approval of the
Plan at the 1991 Annual Meeting of Shareholders by the affirmative vote of the
holders of a majority of the outstanding shares of the Company present, or
represented by proxy, and entitled to vote thereat. If such approval of the Plan
by the shareholders is not forthcoming, any options granted pursuant to this
Plan shall be void.
15. Amendment or Termination.
The Board may amend, alter or discontinue this Plan, except that no
amendment or alteration shall be made which would impair the rights of any
Eligible Director under any option theretofore granted, without his consent, and
except that no amendment or alteration shall be made which, without the approval
of the shareholders, would:
(a) Increase the total number of shares reserved for the purposes of this
Plan or decrease the option price provided for in paragraph 4, except in each
case as provided in paragraph 11, or change the class of persons eligible to
participate in this Plan as provided in paragraph 4;
(b) Extend the option period provided for in paragraph 6;
(c) Materially increase the benefits accruing to Eligible Directors under
this Plan; or
(d) Modify the requirements as to eligibility for participation in
this Plan.
Notwithstanding the foregoing, to the extent but only to the extent required in
order that Rule 16b- 3(c)(2)(ii)(B), as promulgated in SEC Release No. 34-28869,
February 8, 1991, (or any replacement rule adopted pursuant to the Exchange Act,
as the same now exist and as any of the above may be amended from time-to-time)
be complied with, the Plan shall not be amended more than once every six months,
other than to comport with changes in Internal Revenue Code of 1986, the
Employee Retirement Income Security Act, or the rules thereunder.
16. Government Regulations.
This Plan, and the grant and exercise of options thereunder, and the
obligation of the Company to sell and deliver shares under such options, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies or national securities exchanges as may be
required, including but not limited to the provisions of Rule 16b-3 of the
Exchange Act, (or any replacement rule adopted pursuant to the Exchange Act, as
the same now exist and as any of the above may be amended from time-to-time)
that qualify the option grant and exercise for an exemption from the provisions
of Section 16(b) of the Exchange Act. Further, if any Plan provision is found or
determined by the Board not to be in compliance with Rule 16b-3 or Section
16(b), the provision shall be deemed null and void, and shall have no effect.
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<PAGE> 1
EXHIBIT 10.12
ANNEX 1
SOUTHDOWN, INC.
PHANTOM STOCK AND
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
SECTION I.
PURPOSES OF PLAN, EFFECTIVE DATE AND DEFINITIONS
1.1 Purpose. The purpose of the Southdown, Inc. Phantom Stock and
Deferred Compensation Plan for Non-Employee Directors ("Plan") is to attract and
retain the services of experienced and knowledgeable non-employee directors and
provide an opportunity for ownership of the common stock, $1.25 par value
("Common Stock") of Southdown Inc., a Louisiana corporation ("Company"). The
Plan shall be an unfunded deferred compensation arrangement.
1.2 Effective Date. The Plan shall be effective as of the 1st day of
January, 1997 ("Effective Date") provided the Plan is approved by the
stockholders of the Company within twelve (12) months of the date the Plan is
approved by the Board. Notwithstanding any provision of the Plan, a Participant
will not be entitled to a distribution of Common Stock pursuant to Section V
prior to the approval of the Plan by the stockholders of the Company.
1.3 Definitions. For purposes of this Plan, the following phrases or
terms shall have the indicated meanings unless otherwise clearly apparent from
the context.
(a) "Beneficiary" means any person or persons so
designated in accordance with the provisions of Section 5.3.
(b) "Board" means the Board of Directors of the Company.
(c) "Compensation" means the sum of (i) the monthly fee a
Participant earns for services rendered as a Board member and (ii) the monthly
fee a Participant earns for services rendered on each committee of the Board on
which a Participant serves.
(d) "Fair Market Value" means the average (mean) of the
reported "high" and "low" sales prices for a share of Common Stock as reported
in The Wall Street Journal's NYSE- Composite Transactions listing for such day
(corrected for obvious typographical errors), or if shares of Common Stock are
not reported in such listing, 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
<PAGE> 2
closing bid and asked prices reported by the national Quotation Bureau
Incorporated, or, in all other cases, the value established by the Board in good
faith.
(e) "Last Trading Day" means the last day of each
calendar month on which shares of Common Stock are traded on the New York
Stock Exchange. The first Last Trading Day shall be January 31, 1997.
(f) "Participant" means each non-employee member of the
Board.
(g) "Plan Year" means the twelve month period commencing
on January 1st and ending December 31st.
(h) "Stock Unit" means a right to receive one share of
Common Stock.
SECTION II.
ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board. Subject to the terms of
the Plan, the Board shall have the power to interpret the provisions and
supervise the administration of the Plan. All decisions made by the Board
pursuant to the provisions of the Plan shall be made by a majority of its
members at a duly held regular or special meeting or by written consent in lieu
of any such meeting. A majority of the Directors in office shall constitute a
quorum and all decisions made by the Board pursuant to provisions of the Plan
shall be made by a majority of directors present at any duly held regular or
special meeting at which a quorum is present (unless the concurrence of a
greater proportion is required by law or by the articles or bylaws of the
Company) or by the written consent of a majority of the directors in lieu of any
such meeting.
SECTION III.
COMMON STOCK RESERVED FOR THE PLAN
3.1 Reserved. The aggregate number of shares of Common Stock that may
be issued under the Plan shall not exceed 250,000. The Company shall at all
times reserve a sufficient number of shares of Common Stock to satisfy the
requirements of the Plan.
3.2 Common Stock Offered. The Common Stock to be delivered
pursuant to the Plan may be authorized but unissued Common Stock or Common
Stock previously issued and outstanding and reacquired by the Company.
3.3 Adjustment in Capitalization. In the event of any change
in the outstanding shares of Common Stock that occurs after the Effective Date
by reason of a Common Stock dividend or split,
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<PAGE> 3
recapitalization, merger, consolidation, combination, exchange of shares or
other similar corporate change, the aggregate number of shares of Common Stock
subject to a Stock Unit shall be adjusted appropriately by the Board whose
determination shall be conclusive.
SECTION IV.
STOCK UNITS
4.1 Award of Stock Units. Effective as of each Last Trading Day,
the Participant will be awarded a number of Stock Units in accordance with the
following formula:
One-half of a Participant's
Stock Units Awarded = Compensation divided by
the Fair Market Value of a
share of Common Stock on
the Last Trading Day of the
month in which the
Compensation is earned
Fractional amounts shall be rounded to the nearest ten thousandth
share. The Company shall maintain an account ("Account") for each Participant
which will reflect the current number of Stock Units maintained on behalf of a
Participant at any time. The Stock Units awarded a Participant pursuant to this
Section 4.1 are in lieu of and replace one-half of the amount of cash
Compensation a Participant would have received prior to the Effective Date.
4.2 Deferred Compensation - Stock Units.
(a) Any Participant may irrevocably elect, prior to the
beginning of each Plan Year, but no later than the November 30 preceding the
beginning of a Plan Year, to defer receipt of one-half of the amount of
Compensation a Participant is to earn during the Plan Year which would otherwise
have been payable in cash to the Participant. A new Participant may make an
election with respect to one-half of the amount of Compensation such Participant
will earn during such Participant's first Plan Year of eligibility within 30
days of becoming a Participant.
(b) The election will be made on a written form called a
"Notice of Election", which shall be signed by the Participant and delivered to
the Board. This election will continue in effect for future years in which the
Participant is eligible to participate unless the Participant submits a written
request revoking or revising his or her election on a new Notice of Election
form. Any revocation or revised election will be applicable only to one-half the
amount of Compensation the Participant may earn in the future and will be
effective as of the first day of the Plan Year specified in such revocation or
revised election, provided that the new, signed Notice of Election form has been
received by the Board by November 30 immediately preceding such specified Plan
Year.
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<PAGE> 4
(c) If a Participant has elected to defer receipt of one-half
of the amount of Compensation as set forth in paragraph (a) above, then the
one-half of Compensation deferred will be converted into Stock Units and added
to a Participant's Account effective as of each Last Trading Day in accordance
with the following formula:
One-half of a Participant's
Stock Units Awarded = Compensation divided by
the Fair Market Value of a
share of Common Stock on
the Last Trading Day of the
month in which the
Compensation is earned
Fractional amounts shall be rounded to the nearest ten thousandth
share.
4.3 Dividend - Stock Units.
Upon the payment of any cash dividend by the Company to holders of
Common Stock, a Participant will be awarded a number of Stock Units to be added
to such Participant's Account in an amount equal to the product of (i) the
number of Stock Units held in a Participant's Account on the date the cash
dividend was declared (rounded down to the nearest whole share), multiplied by
(ii) a fraction, where the numerator is the amount of cash dividend paid on one
share of Common Stock and the denominator is the Fair Market Value of a share of
Common Stock on the date the cash dividend was paid by the Company to the
holders of Common Stock.
SECTION V.
DISTRIBUTION OF BENEFITS
5.1 Cessation from Board. Within ten (10) days from the date a
Participant ceases to serve on the Board for any reason, the Company shall
deliver a certificate or certificates to such Participant for a number of shares
of Common Stock equal to the total number of Stock Units (rounded up to the
nearest whole Stock Unit) in such Participant's Account as of the date the
Participant's service on the Board ceased.
5.2 Termination of the Plan. If the Plan is terminated pursuant to
Section 6.4, within ten (10) days from the date of such termination of the Plan
("Plan Termination Date"), the Company shall deliver a certificate or
certificates to each Participant for a number of shares of Common Stock equal to
the total number of Stock Units (rounded up to the nearest whole Stock Unit) in
a Participant's Account as of the Plan Termination Date.
5.3 Beneficiary. In the event of the death of a Participant before
delivery of a certificate or certificates of Common Stock pursuant to Sections
5.1 or 5.2 above, the Company shall deliver the shares of Common Stock to the
individual designated as Primary Beneficiary on the latest
-4-
<PAGE> 5
executed "Notice of Change of Beneficiary" form on file with the Company within
a reasonable time period, but no later than 180 days after the date of death of
the Participant. If the Primary Beneficiary designated on the latest executed
"Notice of Change of Beneficiary" form is no longer living, the Company shall
deliver the shares of Common Stock to the individual designated as Secondary
Beneficiary on the latest executed "Notice of Change of Beneficiary" form on
file with the Company. If the Second Beneficiary designated on the latest
executed "Notice of Change of Beneficiary" form is no longer living, the Company
shall deliver the shares of Common Stock to the Participant's estate. If a
Participant desires to change the Beneficiary he or she has previously
designated, the Participant may do so at any time by submitting a new "Notice of
Change of Beneficiary" form to the Board of Directors.
SECTION VI.
MISCELLANEOUS
6.1 Benefits Payable from General Assets. Amounts payable hereunder
shall be paid exclusively from the general assets of the Company, and no person
entitled to payment hereunder shall have any claim, right, security interest, or
other interest in any fund, trust, account, insurance contract, or asset of the
Company which may be looked to for such payment. The Company's liability for the
payment of benefits hereunder shall be evidenced only by this Plan. A
Participant shall have only the right of a general unsecured creditor of the
Company with respect to any rights under the Plan. Nothing contained in the Plan
shall constitute a guaranty by the Company or any other entity or person that
the assets of the Company will be sufficient to pay any benefit hereunder.
6.2 Nonalienation of Benefits. No right or benefit under this Plan
shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber or charge the same will be void. No right or benefit hereunder
shall in any manner be liable for or subject to any debts, contracts,
liabilities or torts of the person entitled to such benefits. If any Participant
or Beneficiary hereunder shall become bankrupt or attempt to anticipate,
alienate, assign, sell, pledge, encumber or charge any right of benefit
hereunder, or if any creditor shall attempt to subject the same to a writ of
garnishment, attachment, execution, sequestration or any other form of process
or involuntary lien or seizure, then such right or benefit shall be held by the
Company for the sole benefit of the Participant or the Beneficiary, his or her
spouse, children or other dependents, or any of them in such manner and in such
proportion as the Board shall deem proper, free and clear of the claims of any
other party whatsoever.
6.3 Prerequisites to Benefits. No Participant, or any person claiming
through a Participant, shall have any right or interest in the Plan or any
benefits hereunder unless and until all the terms, conditions and provisions of
the Plan that affect such Participant or such other person shall have been
complied with as specified herein. The Participant shall complete such forms and
furnish such information as the Board may require in the administration of the
Plan.
-5-
<PAGE> 6
6.4 Amendment or Termination of the Plan. The Board may amend or
terminate this Plan at any time. Any amendment or termination of this Plan shall
not, however, affect the rights of any Participant to the benefits provided
under Stock Units then standing to the credit of any such Participant in the
Participant's Account at the time of such amendment or termination. The Board
may not, without approval of the stockholders of the Company, amend the Plan to
increase the aggregate number of shares of Common Stock reserved for the Plan,
except as provided in Section 3.3.
6.5 Governing Law. The Plan is established under, and the execution,
validity, interpretation and performance of this Plan shall be determined and
governed exclusively by, the laws of the State of Texas, without reference to
the principles of conflict of laws. Exclusive jurisdiction with respect to any
legal proceeding brought by a Participant, or any party representing Participant
or claiming to have an interest in Participant's benefits under the Plan, shall
be settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction. In reaching his
or her decision, the arbitrator shall have no authority to change or modify any
provision of this Plan. In addition, any and all charges which may be made for
the cost of the arbitration and the fees and expenses of the arbitrator shall be
borne equally by the parties. Jurisdiction with respect to any legal proceeding
brought by Company, concerning any subject matter contained in this Plan shall
rest in state or federal courts sitting in the State of Texas or in any
jurisdiction where Participant resides, does or has done business, or owns
property. Also, Company, at its election, may submit any dispute it has with
Participant or claiming party to arbitration in accordance with the procedures
set forth in this Section.
6.6 Severability. All provisions herein are severable and in the event
any one of them shall be held invalid by any court of competent jurisdiction,
the Plan shall be interpreted as if such invalid provisions was not contained
herein.
6.7 Headings. The headings of the sections of this Plan are
inserted for convenience only and shall not be deemed to constitute a part
of this Plan.
6.8 Non-Waiver. Failure on the part of any party in any one or more
instances to enforce any of its rights which arise in connection with this Plan
or to insist upon the strict performance of any of its terms, conditions, or
covenants of this Plan shall not be construed as a waiver or a relinquishment
for the future of any such rights, terms, conditions, or covenants. No waiver of
any condition of this Plan shall be valid unless it is in writing.
-6-
<PAGE> 7
6.9 Plan on File. The Company shall place this Plan on file in
the office of its principal place of business.
6.10 Notices. Any notices to be given hereunder by either party to the
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid with return receipt requested. Notices
delivered personally shall be deemed communicated as of actual receipt; mailed
notices shall be deemed communicated as of three (3) days after mailing.
Approved: ______________________________ Date: ____________________________
<PAGE> 8
NOTICE OF ELECTION
for the
SOUTHDOWN, INC.
PHANTOM STOCK AND
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
To be effective on the date set forth in paragraph 2 below, this Notice of
Election must be completed and returned to the Board of Directors ("Board")
prior to the November 30th immediately preceding such date.
1. Name of Participant:____________________________
2. Date of commencement of deferral of compensation (as
described in paragraph 3 below): January 1, 199__.
3. Pursuant to the Southdown, Inc. Phantom Stock and Deferred
Compensation Plan for Non-Employee Directors, the undersigned
individual does hereby elect to defer one-half of the sum of
the monthly fee the undersigned earns (i) for services
rendered as a Board member and (ii) for services rendered on
each committee of the Board on which the undersigned serves.
The undersigned acknowledges that this election is irrevocable
with respect to compensation earned in the coming year, but
may be revoked with respect to compensation earned in future
years by written notice.
Dated this ____________ day of ____________________________, 19___.
Participant: _____________________________
<PAGE> 9
NOTICE OF CHANGE OF BENEFICIARY
for the
SOUTHDOWN, INC.
PHANTOM STOCK AND
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
This Beneficiary designation is an:
|_| Initial designation, or
|_| Change of designation
Designation of PRIMARY BENEFICIARY: Name, Address, Society Security Number
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Designation of SECONDARY BENEFICIARY: Name, Address, Society Security Number
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
I understand that this Beneficiary designation form will remain in effect until
I submit a "Notice of Change of Beneficiary" form.
Name of Participant:_________________________
Date:________________________________________
<PAGE> 1
EXHIBIT 10.13
Southdown, Inc.
Summary of Provisions of
Annual Incentive Plan
Final Report
April 11, 1996
<PAGE> 2
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
I. Plan Objectives
II. Basic Plan Concept
III. Eligibility Criteria
IV. Award Opportunities
V. Performance Measures and Weightings
VI. Performance Standards
VII. Award Calculations
VIII. Award Payments
IX. Transfers
X. Retirement and Terminations
XI. Plan Administration and Modification
<PAGE> 3
1
- -------------------------------------------------------------------------------
I. PLAN OBJECTIVES
The primary objective of the Southdown, Inc. Annual Incentive
Plan (AIP) is to achieve specific business and financial goals
key to the organization's success which the company believes can
best be accomplished by providing incentives to key Southdown
employees.
The AIP helps prioritize and focus efforts on the accomplishment
of goals established each year. This is achieved by linking a
significant element of variable annual compensation to the
accomplishment of selected financial and non-financial goals. At
target performance levels, the AIP provides incentive
compensation opportunities which, in combination with base
salary, will yield competitive total annual compensation levels.
II. BASIC PLAN CONCEPT
For corporate positions, the plan concept provides for incentives
to be paid based on a combination of corporate (i.e., Southdown)
and individual performance criteria. For business unit positions,
the plan provides for incentives to be paid based on a
combination of business unit and individual performance criteria.
The corporate/business unit measures will be financial or
quantitative in nature while individual measures may be both
quantitative and qualitative, but will be assessed in a
subjective fashion (i.e., actual performance level will be
determined in a non-formula fashion). All goals measured under
the plan are measured independently and award payouts are made on
each goal category independently of other goal categories.
Although the individual performance element of the plan is
subjective in nature, aggregate funding in this category for the
top 5 officers will be determined considering Southdown's total
shareholder return performance relative to peers during the year.
III. ELIGIBILITY CRITERIA
Eligibility for participation in the AIP will be extended to key
officers and employees that directly impact the company's
success. The specific positions eligible to participate in the
plan will be reviewed and determined annually by Southdown's
senior management team with any changes in program eligibility
approved by the Compensation Committee of the Board. Positions
eligible to participate in the plan include all employees in
management salary grade 12 or higher.
IV. AWARD OPPORTUNITIES
At the start of each fiscal year, Southdown will specify
threshold, target, and maximum incentive awards for each plan
eligible position. The incentive award opportunities at target
performance levels are intended to provide competitive annual
cash compensation opportunities in line with comparable positions
in the market. These award opportunities will be reviewed
annually by Southdown's senior management team, with any changes
being submitted to the Compensation Committee for approval.
<PAGE> 4
2
- -------------------------------------------------------------------------------
For performance between stated levels (i.e, between threshold and
target and target and maximum) awards will be determined using
straight-line interpolation.
V. PERFORMANCE MEASURES AND WEIGHTINGS
In any given year, the company, each business unit and each
individual will be assigned accountability for performance on
selected performance measures.
Each of the goals operate independently of one another.
Performance on the corporate return on average equity (ROAE)
measure will be assessed relative to the industry peers. ROAE is
defined as pre-tax income + DD&A (i.e., pre-tax cash flow)
divided by beginning and ending shareholders' equity, and will be
assessed for the 4 fiscal quarters ended nearest to September 30.
Corporate Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) will be assessed against an internal
probability of outcome forecast as will performance on each of
the business unit measures. These measures will be assessed for
the fiscal year.
Individual performance will be assessed in a subjective manner.
The individual measures will be communicated separately to each
individual covered by the plan. For the top 5 proxy-named
executives, the Compensation Committee will informally consider
Southdown's total shareholder return performance relative to
peers for determining total funding of the individual performance
component of the plan.
VI. PERFORMANCE STANDARDS
Standards of performance on the corporate/business unit
performance measures in the AIP will be established each year as
part of the company's planning process. Business unit performance
standards will be independently established and communicated
separately to business unit participants.
<PAGE> 5
3
- -------------------------------------------------------------------------------
VII. AWARD CALCULATIONS
A point score is calculated for performance on each measure
against the standard for that measure. Performance standards on
each objective are stated, and a point score ranging from "0" to
"3" is determined for each objective based on actual performance
against performance standards.
============================================
Performance Points
-------------------- ------
Below Threshold 0
Threshold 1
Target 2
Maximum 3
============================================
Interpolation is used to determine the point score when
performance falls between threshold and target or between target
and maximum levels. The point scores for each component are used
to determine the actual performance adjustment factors. The
weighting of each factor is multiplied by the overall target
bonus percent to create a target percent of salary applicable to
each performance objective component. These target percents are
then "adjusted" to reflect actual estimated performance using the
adjustment factors. The weight adjusted incentives earned for
each component are then summed together to produce the overall
total award.
ROAE and EBITDA performance levels are determined on a formula
basis, while the individual performance assessment is
discretionary. Also, each performance measure operates and pays
out independently.
VIII. AWARD PAYMENTS
Annual incentive awards will typically be paid within 3 months
after the fiscal year end. Awards will be paid in cash as a
lump-sum amount with taxes and any income deferrals (such as
401(k) contributions) withheld.
IX. TRANSFERS
In the event that a participant transfers from one position to
another during the course of the year, his/her award for the year
will be calculated on a prorata basis according to the number of
months spent in each position during the year. However, no awards
typically will be paid to employees who are in a plan eligible
position for less than six months of the year.
<PAGE> 6
4
- -------------------------------------------------------------------------------
X. RETIREMENT AND TERMINATIONS
To receive an award under the AIP, the participant generally must
be employed on the date awards are paid. Exceptions to this
policy will be made for retirement, long-term disability, or
death, in which case the award will be pro-rated to reflect the
actual number of months of service during the year.
XI. PLAN ADMINISTRATION AND MODIFICATION
The AIP will be administered by Southdown's Compensation
Committee and the President & CEO, who may delegate certain
elements of program administration to certain finance, legal, and
human resources staff as required. However, final award
determinations, performance standards and program modifications
must be approved by the Compensation Committee. For the President
& CEO, the AIP will be administered by the Compensation
Committee.
<PAGE> 1
AGREEMENT
KOSMOS CEMENT COMPANY
- -------------------------------------------------------------------------------
KOSMOSDALE - BATTLETOWN, KENTUCKY
AGREEMENT
BETWEEN
KOSMOS CEMENT COMPANY
OPERATED BY SOUTHDOWN, INC.
AND
INTERNATIONAL BROTHERHOOD OF BOILERMAKERS,
CEMENT, LIME, GYPSUM & ALLIED WORKERS DIVISION
LODGE D-595
1996-1999
[GRAPHIC OMITTED]
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I - RECOGNITION......................................................1
ARTICLE II - UNION AND COMPANY COOPERATION...................................1
ARTICLE III - THE BASE CREW..................................................2
ARTICLE IV - UNION SECURITY..................................................2
ARTICLE V - MANAGEMENT RIGHTS................................................5
ARTICLE VI - WAGES...........................................................5
ARTICLE VII - VACATIONS......................................................6
ARTICLE VIII - JURY DUTY - WITNESS PAY ......................................7
ARTICLE IX - COPIES..........................................................8
ARTICLE X - GRIEVANCE PROCEDURE..............................................8
ARTICLE XI - NON-BARGAINING UNIT EMPLOYEES...................................9
ARTICLE XII - STRIKES AND LOCKOUTS..........................................10
ARTICLE XIII - HOLIDAYS.....................................................10
ARTICLE XIV - SENIORITY.....................................................11
ARTICLE XV - LAYOFF/RECALL..................................................12
ARTICLE XVI - JOB BIDDING...................................................13
ARTICLE XVII - INCAPACITATED EMPLOYEE.......................................14
ARTICLE XVIII - WORKWEEK AND OVERTIME.......................................15
ARTICLE XIX - BEREAVEMENT LEAVE.............................................16
ARTICLE XX - ANNUAL RESERVE TRAINING LEAVE..................................16
ARTICLE XXI - SAFETY AND HEALTH.............................................17
<PAGE> 3
ARTICLE XXII - BULLETIN BOARD...............................................17
ARTICLE XXIII - FURNISHING OF TOOLS.........................................17
ARTICLE XXIV - TRAINING COMMITTEE...........................................17
ARTICLE XXV - OVERTIME LUNCH ALLOWANCE......................................18
ARTICLE XXVI - BENEFIT PLANS................................................18
ARTICLE XXVII - TERMS OF AGREEMENT..........................................20
SCHEDULE A - PAY PROCEDURES.................................................21
A1 - GAINSHARING.............................................21
A2 - LEADPERSONS.............................................21
A3 - JOB GROUPINGS...........................................21
A4 - PROGRESSION SCHEDULES...................................23
LETTERS OF AGREEMENT........................................................25
<PAGE> 4
This Agreement, dated May 1, 1996 is made by and between the
KOSMOS CEMENT COMPANY, Louisville, Kentucky, and the INTERNATIONAL BROTHERHOOD
OF BOILERMAKERS, CEMENT, LIME, GYPSUM, AND ALLIED WORKERS DIVISION LOCAL LODGE
NO. D595, referred to respectively as the "Company" and the "Union."
ARTICLE I - RECOGNITION
1.1 The Company recognizes the Union as the sole bargaining agent for its
employees as is defined in paragraph 1.2 who work at the Company's operations at
Louisville and Battletown, Kentucky, for the purpose of collective bargaining
with respect to rates of pay, hours, and other conditions of employment.
1.2 The term "employee" as used in this Agreement shall include all permanent
production and maintenance employees including lead men, but excluding all
clerical employees, guards and supervisors as defined in the Act and all other
employees.
1.3 Union officers and members shall refrain from any union solicitation on
company time.
1.4 All provisions of this Agreement shall be applied to all employees without
regard to race, color, sex, religious creed, age, national origin, or veteran
status. The Company and the Union will comply with all Federal and State laws
concerning the rights of employees, including the Americans with Disability Act
and the Family and Medical Leave Act.
ARTICLE II - UNION AND COMPANY COOPERATION
2.1 The Union agrees that it will cooperate with the Company in all matters of
industrial relations including carrying out Equal Employment Opportunity
obligations and will support the Company's efforts to assure a fair day's work
on the part of its members and that it will actively strive to eliminate
absenteeism and other practices which restrict production. It further agrees
that its members will abide by the rules of the Company in its effort to prevent
accidents, to eliminate waste in production, conserve materials and supplies,
improve the quality of workmanship, and strengthen goodwill between the Company
and its employees.
2.2 The Union agrees that it will use its best efforts to
assist the Company in enhancing the competitiveness of the Company, and
augmenting or increasing revenue generation. For example, the
Union will support, through community involvement and pro-active measures, the
efforts of the Company to obtain permits and/or other necessary certifications
to utilize alternative fuels.
2.3 The parties hereto intend by this Agreement to provide a stabilized and
mutually beneficial relationship between them and to insure the production of
quality products on schedule and at competitive costs during the life of this
Agreement. The Company and the Union will also
2
<PAGE> 5
establish an active Employee Participation Program to facilitate ideas and
develop and implement programs to improve the overall operations and enhance
employee involvement.
ARTICLE III - THE BASE CREW
3.1 The parties agree that due to business conditions and the need for effective
plant operations, it is necessary to utilize outside contract labor to perform
work in the operation. Base Crew employees will perform most of the work to be
done at the plant with the remainder to be performed by various numbers and
types of outside contractors. The parties recognize that the Company is in the
primary business of manufacturing cement and other products requiring
similar process (utilizing hazardous waste as fuel). The
parties further recognize that the business is limited in scope and that the
Company should avoid, to the extent possible, getting into other businesses such
as special projects, special maintenance other than routine preventive
maintenance, laborer work, janitorial work, trucking and the like, where other
business concerns may have more expertise, competence, economies of scale or
other advantages. Therefore, the Union agrees that the Company has the right to
subcontract these and other types of work when in the Company's judgement it is
in the economic best interest of the Company and its employees to do so. The
base crew concept is intended to enhance the job security of our permanent
employees.
3.2 In an effort to provide the employees of Kosmos Cement Company with positive
labor relations and maximum job security, it is not the intention of the Company
to permanently displace members of the bargaining unit through the use of
contract employees without substantial economic justification.
ARTICLE IV - UNION SECURITY
4.1 All employees covered by this Agreement, who as of
May 1, 1991, are members of the Union in good standing, and all employees who
thereafter become members, shall, as a condition of continued employment, remain
members of the Union in good standing for the duration of the Agreement. All new
employees covered by the Agreement shall, as a condition of employment, become
members of the Union on or immediately after successful completion of their
probationary period. The Company will notify the Union of all permanent new
hires' addresses, telephone numbers, and Social Security numbers.
4.2 The Company agrees that during all reasonable times when the plant is
operating a duly accredited representative of the Union shall be entitled access
to the premises during the regular working hours for the purpose of assisting in
the adjustment of pending grievances, provided that the designated
representative of the Company is properly notified in advance and the Union
representative establishes proper identification. If it is necessary to go into
the work area of the plant (for example, to view a particular operation relative
to a pending grievance), then the appropriate Company official shall accompany
the Union representative so that both parties see the same thing so as to aid in
resolving the grievance.
3
<PAGE> 6
4.3 The Union Grievance Committee representing the employees in matters other
than negotiations shall consist of not more than three (3) employees.
4.4 Any employee elected or appointed to a full time position with the
International Brotherhood of Boilermakers, Cement, Lime, Gypsum and Allied
Workers Division may be granted a leave of absence up to one (1) year provided
thirty (30) days written notice is given to the Company prior to the beginning
of such leave. During such leave, seniority shall accumulate. Insurance benefits
shall be suspended upon the commencement of such leave and will be in effect the
first day of returning to work with the Company. Upon returning to work such
employee shall be reinstated to his or her former job within the bargaining unit
by means of the then-existing bidding procedure. The Company agrees to consent
to the absence of no more than one (1) employee at any time under this
paragraph.
4.5 Up to two (2) employees may be excused from work for up to two (2) weeks in
a calendar year for the purpose of attending an International Union meeting or
convention. The leave shall be granted provided the Company receives fifteen
(15) days advance written notice.
4.6 Check-off: During the term of this Agreement, the Company will continue to
check off monthly dues, and initiation fees, each as designated by the Treasurer
of the Local Union, as membership dues in the Union on the basis of and for the
term of individually signed check-off authorization cards, a copy of which is
reproduced below, or hereafter submitted to the Company. The Company shall
promptly remit any and all amounts so deducted to the Treasurer of the Local
Union with a list of the employees from whom the deduction was checked off. On
or before the last Friday of each calendar month the Union shall submit to the
Company a summary list of cards transmitted in each month. Dues for a given
month shall be deducted weekly; deductions on the basis of authorization cards
submitted to the Company shall commence with respect to dues for the month in
which the Company receives such authorization cards. Unless the Company is
otherwise notified, the only Union membership dues to be deducted for payment to
the Union from the pay of the employee who has furnished an authorization shall
be the monthly Union dues. The Company will deduct initiation fees when notified
as designated by the Treasurer of the Local Union. The Union shall indemnify the
Company and hold it harmless against any and all suits, claims, demands and
liabilities that shall arise out of or by reason of any action that shall be
taken or not taken by the Company for the purpose of complying with the
foregoing provisions of this Article, or in reliance on any list or certificate
which shall have been furnished to the Company by the Union under any such
provisions.
4
<PAGE> 7
CHECK-OFF AUTHORIZATION
FOR INTERNATIONAL BROTHERHOOD OF
BOILERMAKERS, CEMENT DIVISION
I hereby authorize _____________________ (Name of Employer) to deduct
from any wages earned or to be earned by me, as your employee, and assign
to Local Lodge No. , of the International Brotherhood of Boilermakers, Iron
Ship Builders, Blacksmiths, Forgers and Helpers, the sum of money
determined by the Union in succeeding calendar weeks, beginning with the
week next following thereof, until such weekly deductions shall total the
sum of my Initiation or Reinstatement Fees, and thereafter the sum of money
set by the Union per month in payment of my Membership Dues, in accordance
with its Constitution and Bylaws, and became due to it as my Membership
Dues in said Union.
This assignment, authorization and description shall be irrevocable for the
period of one (1) year, or until the termination of the current Agreement
between the Employer and the Union, whichever occurs sooner; and I agree and
direct that this assignment, authorization and direction shall be automatically
renewed and shall be irrevocable for successive periods of one (1) year each, or
for the period each succeeding applicable Agreement between the Employer and the
Union, whichever is shorter, unless written notice is given by me to the
Employer and the Union not more than twenty (20) days and not less than ten (10)
days prior to the expiration of each period of one (1) year, or of each
applicable collective agreement between the Employer and the Union, whichever
occurs sooner.
Executed as _____________________ this ______ day of __________, 1991.
5
<PAGE> 8
ARTICLE V - MANAGEMENT RIGHTS
5.1 The Union recognizes that the management of the plant, river, and quarry
operations, the direction of the working forces, including the right to hire,
discipline for just cause, the right to make and change and enforce (after
posting) rules for the maintenance of discipline and safety; the exclusive
rights to determine partial or permanent discontinuance or shutdown of
operations (the Company's only obligation when exercising this right is to
bargain with the Union over the effects of that decision); the right to promote,
or transfer employees; the right to transfer and relieve employees from duty
because of lack of work or other legitimate reason, and the right to establish
and change the working schedules and duties of employees are vested in the
Company, except as otherwise provided in the Agreement. The listing of specific
rights in this Agreement is not intended to be nor shall be considered
restrictive of or a waiver of any of the rights of management not listed and not
specifically surrendered herein, whether or not such rights have been exercised
by the Company in the past.
ARTICLE VI - WAGES
6.1 It is agreed that for the duration of this Agreement,
the wage groups and the rates of pay shall be those set in
Schedule "A".
6.2 (1) All scheduled work beginning between 5:00
A.M. and 12:59 P.M. inclusive, shall be considered 1st
shift work.
(2) All scheduled work beginning between 1:00 P.M.
and 8:59 P.M. inclusive, shall be considered 2nd shift
work.
(3) All scheduled work beginning between 9:00 P.M.
and 4:59 A.M. inclusive, shall be considered 3rd shift
work.
6.3 Each employee regularly scheduled to work on the 2nd shift shall be paid a
premium of fifty cents ($.50) for all hours worked by him or her on that shift.
Each employee regularly scheduled to work on the 3rd shift shall be paid
sixty-five ($.65) for all hours worked by him or her on that shift. These
premium rates do not apply to day workers even though they may work over into a
premium pay shift. If, however, the day worker is scheduled to take the place of
a regular scheduled shift worker, then the premium rate applies. Employees
called out will receive the appropriate shift premium for hours worked prior to
their normal shift.
6.4 All consecutive hours (exclusive of meal periods) worked by an employee who
normally begins work at a time specified in the preceding paragraphs, shall be
deemed to be worked by him or her on the shift on which he or she begins work.
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ARTICLE VII - VACATIONS
7.1 Each employee meeting all the requirements of paragraph 7.2 of this Article
shall be eligible for vacation in accordance with the following schedule:
Continuous Service Vacation Weeks
------------------ --------------
1 Year of Service 2 Weeks
5 Years of Service 3 Weeks
10 or more Years of Service 4 Weeks
7.2 An employee must have been actively employed at some time during the
calendar year to be eligible for vacation with pay during that calendar
year. An employee shall receive a full vacation provided that such employee
has actually worked at least one thousand two hundred (1,200) hours during
the year preceding his or her most recent anniversary date. Employees who
work less than one thousand two hundred (1,200) hours in the preceding year
will receive their vacation pay prorata with one/twelfth of their vacation
entitlement paid for every one hundred of hours of actual work performed.
An employee shall be considered as having worked for the purpose of
vacation eligibility on the basis of an eight (8) hour day and forty (40)
hour week during absence from work because of a work related illness or
injury for a period not to exceed four hundred (400) hours.
7.3 Vacations will not be cumulative, and the final right to allotment of
vacation period is exclusively reserved to the Company in order to ensure the
orderly operation of the plant. When requested vacation periods conflict,
preference shall be given to the employee with the most plant seniority. In the
event a paid holiday falls during an employee's vacation period, the employee
shall receive holiday pay in addition to vacation pay.
7.4 The Company determines the number of employees by classification allowed on
vacation on any given week. Management will schedule vacation in a fair and
equitable manner. Vacation scheduling will begin on November 15th of the
previous year and be concluded by December 15th. The final schedule will be
posted by the Company no later than January 1st.
7.5 Vacation must be scheduled by week or weeks (a week is seven (7)
calendar days). Employees may request vacation pay in lieu of the time off
provided they produce a good and sufficient reason to the Company and it is
mutually agreed by the Company and the Union.
7.6 Vacation pay will based on forty (40) hours for each week of entitlement at
the employee's highest rate held for at least thirty (30) weeks in the previous
calendar year.
7.7 Prime Months Vacation Scheduling.
(1) Prime months for vacation scheduling are June,
July, and August.
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(2) Employees may request a vacation of up to two
(2) consecutive weeks during prime months in
their classification based on plant seniority. The
Company will approve a vacation request
provided there are openings in the schedule and
it does not adversely affect the efficient
operations of the plant or quarry.
(3) Once all employees in a job classification have
had an opportunity to request a prime month
vacation provided there are openings and it does
not adversely impact operations, the Company
will consider second requests.
7.8 One (1) week of vacation can be taken one day at a time provided:
(1) The employee makes a request at least seventy-
two (72) hours in advance, and,
(2) The request is granted by the Company.
(3) Employee may use the above to cover a day of
sickness provided the Company is notified as
soon as possible but no later than 30 minutes
before the start of the shift.
It is the intent to arrange absences so that the Company will not
incur penalties, and, as such, the Company reserves the right to
disallow any request for a one day vacation.
ARTICLE VIII - JURY DUTY - WITNESS PAY
8.1 It is agreed that the Company shall make up the wage loss incurred by a
regular employee (as distinguished from a probationary employee) because of jury
service by payment of the difference between the amount received
for such jury service on the day such employee would have been regularly
scheduled to work and his or her regular rate of pay computed on the same basis
as vacation pay. Any employee reporting for jury duty will not be required to
work his or her regular shift that calendar day. The employee will be excused
for the entire day without loss of pay. Hours spent on jury duty service and
paid for hereunder shall be considered as time actually worked for the 40 hour
overtime requirements. Further as outlined above, the Company shall make up the
wage loss incurred by an employee when subpoenaed as a witness in an action when
the employee or the Union or the Company are neither the plaintiff nor the
defendant.
8.2 To receive pay from the Company under this provision, the employee must
provide the Company with a statement signed by an official of the court
certifying as to the employee's service as a juror or court witness or
appearance in court for such purposes, the date or dates of attendance, and the
compensation paid him or her exclusive of any transportation and/or subsistence
allowance.
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ARTICLE IX - COPIES
9.1 The Labor Agreement and Summary Plan Descriptions for the Pension Plan,
401K, and Insurance Plan will be printed at Company expense. The Company will
provide each member with a copy of the booklet.
ARTICLE X - GRIEVANCE PROCEDURE
10.1 Should differences arise during the term of this Agreement between the
Company and the Union, or an individual employed by the Company, as to the
meaning and application of the provisions of this Agreement, an earnest effort
shall be made by the parties to settle such differences promptly and in the
following manner:
(1) STEP I. The complaint, within three (3) days
of its occurrence, or the occurrence of the matter out of
which the complaint arises, may be taken up by the employee involved, with or
without Union representation, with his or her supervisor. The employee shall
state the specific article(s) and paragraph(s) of the Contract that is alleged
to have been violated in order for the grievance to be considered and processed.
(2) STEP II. If no satisfactory settlement is
reached in Step I, the matter shall be reduced to writing and presented to the
Plant Manager within five (5) days from the date of the meeting with the
supervisor. The employee shall state the specific article(s) and paragraph(s) of
the Contract that is alleged to have been violated in order for the grievance to
be considered and processed. At the time of presentation, or within five (5)
days, the Plant Manager or his designee will meet with the grievance committee
to hear and discuss the grievance. The Company shall answer the grievance in
writing within five (5) days after said meeting.
(3) STEP III. If no agreement is reached in Step
II, the Committee may, within five (5) days of the receipt of the above answer,
refer the matter to higher officials of the Company and the Union, who may
attend a meeting to be held at a time mutually agreed to by the parties.
(4) STEP IV. Any grievance not settled in Step III
above may be referred to the Dispute Resolution Panel. This panel will consist
of one (1) official of the International Union, one (1) official of the
Corporate Human Resources Department, and one (1) individual mutually agreed
upon by these two (2) officials. Notice to refer a grievance to the Dispute
Resolution Panel shall be given in writing within fifteen (15) days after being
notified of the decision rendered in Step III or the matter will be considered
closed. Only one (1) grievance may be submitted to or be under review by the
Dispute Resolution Panel at any one (1) time unless by prior mutual written
consent of the parties. The Dispute Resolution Panel shall have no power to add
to or subtract from or change, modify or amend any of the provisions of this
Agreement. The decision rendered by the Dispute Resolution Panel will be final
and binding upon the Union,
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the Company, the grievant, and all the employees covered by this Agreement. The
Dispute Resolution Panel shall interpret and apply the terms of this Agreement;
they shall not substitute their discretion and judgement for that of the
Company. Disputes shall be settled by majority vote. The actual vote cast by
each party shall not be revealed. It is expressly agreed that the Dispute
Resolution Panel shall not have the authority to decide any matter involving the
exercise of a right reserved to management under this Agreement. The expenses
incident to the services of the third party, including the cost of the meeting
room, etc. shall be shared equally by the Company and the Union.
10.2 Any grievance growing out of a discharge or suspension must be submitted in
writing by the aggrieved employee directly to the Union and from the Union to
the Director of Human Resources or Plant Manager within forty-eight (48) hours
from the time the Union is notified in writing of the discharge or suspension or
it will not be recognized and action taken shall be final.
10.3 The time limits referred to in the foregoing paragraphs exclude
Saturdays, Sundays and holidays.
10.4 Any grievance not presented or appealed within the time limits provided,
unless mutually agreed in writing to extend the time, shall be considered
settled on the basis of the decision which was not appealed and shall be final
and binding on the parties involved.
10.5 Grievances presented in any of the regular steps set forth and not answered
within the specified time shall be considered as having been appealed to the
next step of the grievance procedure.
10.6 The Company will schedule grievance meetings at mutually convenient times
and the Union Grievance Committee as defined in Article 4.3 will not lose
regularly scheduled pay for time spent in grievance meetings.
ARTICLE XI - NON-BARGAINING UNIT
EMPLOYEES
11.1 It is understood and agreed that during the normal course of operations it
may be necessary for non-bargaining unit employees to perform some bargaining
unit work from time to time. Such work will be incidental to the normal duties
of said non-bargaining unit employees, as long as such work does not permanently
displace or replace a bargaining unit employee. Such work shall include work
involving corrective action which must be performed expeditiously; instruction
or training of employees; demonstration; inspection or testing of equipment;
work of an emergency nature; and development work for new processes and/or
procedures.
11.2 Temporary employees will be used to perform work that is incidental to the
manufacturing of cement. This will include but not be limited to clean-up,
janitorial duties, lawn and ground maintenance and short-term projects, etc. In
addition, the parties recognize that temporary
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employees may be used for other assignments such as to address temporary surges
in business, to facilitate the scheduling of permanent employees for training
and development opportunities, to enhance the job security of permanent
employees, etc. Temporary employees will not be permitted to work for the plant
or the quarry more than 180 consecutive calendar days.
11.3 The Company will not expand beyond three (3) temporary employees without
first notifying the Union committee in writing. Any new temporary employees
added cannot be utilized for longer than 180 calendar days without mutual
agreement between the parties.
ARTICLE XII - STRIKES AND LOCKOUTS
12.1 The Union agrees that there shall be no picketing or strikes by the Union
or by its members, of any kind or degree whatsoever, or walkout, suspension of
work, slowdowns, limiting of production, or any other interference or stoppage,
total or partial, of the Company's operations for any reason whatsoever, such
reasons including, but not limited to, unfair labor practices by the Company or
any other Employer. It is further agreed that neither the Union or its members
shall engage in the above prohibited conduct in support of picketing, strikes or
any labor dispute actions engaged in by any other organization or person. In
addition to any other recourse or remedy available to the Company for violation
of the terms of this Article by the Union and/or any Union member, the Company
may discharge or otherwise discipline any employee who authorizes, causes,
engages in, sanctions, recognizes, or assists in any violation of this Article.
The Company will not engage in any lockouts during the term of this Agreement.
ARTICLE XIII - HOLIDAYS
13.1 The Company recognizes the following nine (9) paid holidays per year: New
Year's Day, Good Friday, Memorial Day, 4th of July, Labor Day, Thanksgiving, Day
after Thanksgiving, Christmas Eve, and Christmas Day.
13.2 Holiday pay will be equal to eight (8) hours pay at the employee's straight
time hourly rate. Such holiday pay will not be paid if the employee is absent
from work on the holiday if scheduled to work on the holiday or if the employee
is absent on the scheduled day preceding or following the holiday unless such
absences are excused by Management. In no event shall a holiday be paid for
unless an employee has also actually worked at least one (1) day during the
fifteen (15) day period immediately preceding or immediately following the
holiday. If a ten (10) hour shift employee is scheduled off for a holiday
falling during his or her regular four (4) days of work, he or she will receive
ten (10) hours of holiday pay.
13.3 If an employee is required to work on a holiday, he or she will receive
eight (8) hours pay for the holiday (holiday pay) plus one and one-half (1-1/2)
times the employee's regular hourly rate for the first eight (8) hours actually
worked on the holiday. The employee will receive two
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(2) times the employee's
regular hourly rate for hours worked in excess of eight (8) on the holiday.
13.4 The eight (8) hours holiday pay shall be counted toward the calculation of
overtime pay paid for working in excess of forty (40) hours per week.
13.5 Since the employee is receiving one and one-half (1-1/2) times the
employee's regular hourly rate for hours actually worked on the holiday, such
hours actually worked on the holiday shall not be counted toward the calculation
of overtime pay received for working in excess of forty (40) hours per week.
13.6 When a holiday falls on Sunday, it will normally
be observed on the following Monday.
ARTICLE XIV - SENIORITY
14.1 Seniority shall consist of an employee's length of continuous service with
the Company since the employee's last day of hire at its facility located at
Louisville and/or
Battletown, Kentucky.
14.2 Each new employee shall be considered as a probationary employee for the
first ninety (90) calendar days of full time employment after which the
employee's seniority shall date back to his or her date of hire. There shall be
no seniority among probationary employees. Such employees shall not have
recourse to the grievance procedure of this Agreement and may be laid off or
discharged as exclusively determined by the Company.
14.3 Seniority and the employment relationship shall
be automatically terminated when an employee:
1. is discharged;
2. is terminated upon permanent shutdown of the
Company's facilities;
3. is laid off for a period of twenty-four (24)
months or the length of his or her seniority as of
his or her last day of work, whichever period is
shorter;
4. voluntarily quits which shall be deemed to
include:
a) failure to notify the Company of the employee's
intention to return to work after layoff within
three (3) working days, and to actually report to
work within seven (7) working days (unless this
latter period is extended in writing by the
Company) after he or she has
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been notified by certified mail (either by delivery
or attempted delivery) at his or her last address
appearing on the Company's records to report to
work;
b) an absence for two (2) consecutive scheduled
work days without notifying the Company or
reporting to work unless excused by
Management in advance;
c) the employee fails to return to work on the
first regularly scheduled work day following the
termination of any leave of absence or any other
leave approved by the Company unless excused
by Management.
5. retires.
14.4 When a vacancy occurs for which a laid off employee is qualified, he or she
will be given notice of recall at his or her last address as shown on Company
records. The employee must notify the Company of the employee's intention to
return to work after layoff within three (3) working days and must actually
report to work within seven (7) working days after he or she has been notified.
This may be extended for an additional seven (7) days if the employee has
another job which requires a two (2) week resignation notice.
14.5 An employee on continuous absence due to disability shall accrue seniority
and retain recall rights for a period not to exceed twenty-four (24) months. An
employee absent because of disability shall only be returned to work after he or
she is physically able to perform the job. However, should such an employee be
declared totally and permanently disabled prior to twenty-four (24) months, such
employee's name shall be removed from the payroll and a notice to this effect
will be sent to his or her last address as shown on Company records.
14.6 Seniority lists agreed to by and between the Company and the Union shall be
posted on the bulletin board as of May 1 and November 1 of each year.
Corrections shall be made in the seniority lists when it is proved an employee
is placed in the wrong position on said list, but all requests for corrections
must be made within thirty (30) days from date of posting or the list shall be
valid as posted. The Union will be given a copy of the seniority list.
14.7 All employees have the obligation to notify the Company of their current
address and telephone number and immediately advise the Company of any changes.
ARTICLE XV - LAYOFF/RECALL
15.1 The Company recognizes that all employees shall retain the right to
seniority preference in cases of layoffs and recall. The last employee hired
shall be the first laid off and the last laid off the first rehired. Such
preferences in the cases of layoffs and recall shall take into consideration the
employee's ability to perform the available work and the efficient operations of
the operation. It is recognized that, in periods where business conditions
necessitate that the level of production be reduced to a point where only a
minimum of employees is required, it shall be
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necessary, in some cases, to deviate from strict plant seniority in order that
some positions be available to service and adjust the equipment when production
requirements increase. In the event of a layoff which is scheduled to last
ninety (90) or more days, the Company will layoff employees in Job Groups one
(1) through four (4) by plant seniority. Any such employee who displaces the
least senior person in a position must be qualified to perform in that position
within a reasonable period of time not to exceed thirty (30) days of being
placed on the job. If the Company does not layoff in accordance with seniority,
the Company will meet with the Union to explain the reasons prior to the layoff.
15.2 In the event that an employee is displaced by the installation of
mechanical equipment, change in production methods, the installation of new or
larger equipment, the combining of jobs, the elimination of jobs, or by a more
senior person, the employee may elect to exercise his or her plant seniority to
displace the least senior person in a position the employee is qualified to
perform within a reasonable period of time not to exceed thirty (30) days of
being placed on the job.
15.3 In the event the Company determines it is necessary to permanently change
the shift schedule or off days of an employee, the affected employee may
exercise seniority to displace a less senior employee within the same
classification.
ARTICLE XVI - JOB BIDDING
16.1 When the Company determines a permanent vacancy exists, other than a
minimum pay job and it cannot be filled from senior employees within the same
job classification, the Company will post a notice of such fact, such notice to
remain posted for a period of five (5) days, not including Saturdays, Sundays,
or holidays. Any employee on vacation during the posting period (not to exceed
two (2) weeks) will have forty-eight (48) hours from the time the employee was
scheduled to return from vacation to determine if any bids were posted during
the vacation and to submit a job bid for consideration. This notice shall state
rates of pay, hours, current shifts and off days, and job requirements.
Employees who wish the job shall be considered in the manner provided herein in
paragraph 16.2 and the successful applicant's name should the job be awarded,
will be posted within fourteen (14) days after the bid is removed from the
bulletin board, no more than thirty (30) days where testing is required. The
successful bidder will be placed on the job as needed. If a successful bidder is
not assigned to the job within ninety (90) days following the awarding of the
bid, and the Company still intends to fill the job, the employee shall receive
the applicable rate of the new job. If there are no qualified bidders, the
Company may assign the least senior qualified employee who does not hold a bid
job to the vacancy.
16.2 The following factors shall apply in the awarding of all jobs:
(1) Qualifications of the Applicant (which shall
include: ability to perform the work, aptitude,
skills, experience, training for the job, score on
the mechanical aptitude examination published by
The Psychological Corporation, and attendance);
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(2) Physical ability to perform the essential functions
of the job;
(3) Experience gained through holding jobs under
the bid system, outside schooling, as well as
skills, knowledge, training and ability acquired
by an employee prior to employment with the
Company, will be given consideration in
awarding jobs. Experience gained through
temporary reassignments will not be given
consideration in awarding jobs.
(4) In the event that the three previous criterion are
equal the position will be filled by the most
senior applicant.
If the employee selected shall fail to qualify after a fair trial
period, in the exclusive judgement of the Company he or she shall be returned to
his or her former position and the next bidder shall be given consideration. No
employee with a formal disciplinary action in the record within the last 12
months may be considered for promotion. Employees may only bid for promotional
job opportunities except by mutual agreement between the parties an employee may
bid on a job which would not result in a promotion when there is a good and
sufficient reason.
16.3 Temporary Reassignment. An employee who is temporarily assigned by his or
her supervisor to perform work of a higher paid job classification will be paid
the rate of such higher job classification for time actually worked. An employee
temporarily assigned by his or her supervisor to perform work in an equal or
lower paid classification will be paid the base hourly wage rate of his or her
permanent classification.
16.4 In no event shall the Company be requested or required to post any job
temporarily vacated by reason of vacations, illness, or injury. The Company, at
its discretion, may create temporary jobs not to exceed one hundred twenty (120)
work days, which may be extended by mutual agreement between the Company and the
Union. Should the Company determine that any temporary job become permanent, the
Company shall post the job as provided in this Article.
16.5 In the event that two (2) or more existing positions are combined, the
affected employees in the classification will be assigned, if needed, in the new
combined job by seniority and ability to perform the work. Any vacancies created
by this action will be bid in accordance with Article 16.1.
ARTICLE XVII - INCAPACITATED EMPLOYEE
17.1 Any employee who becomes incapacitated and, on the basis of competent
medical opinion, cannot perform the duties of his or her regular job may be
placed in a vacant or other job by mutual agreement between the Local Management
and the Local Union Committee providing the employee can perform the job within
a reasonable training program. In placing an incapacitated employee under this
provision, the Parties will take into consideration the fair placement of any
employee who may be displaced by such assignment.
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ARTICLE XVIII - WORKWEEK AND OVERTIME
18.1 During the life of this Agreement it is understood that the work day shall
be twenty-four (24) hours commencing with the beginning of the employee's
morning shift and the work week shall be seven (7) days beginning with the
beginning of the morning shift on Monday. One and one-half (1-1/2) times the
employee's regular hourly rate shall be paid for all hours worked in excess of
forty (40) hours per week.
18.2 One and one-half (1-1/2) times the employee's regular hourly
rate shall be paid for all hours worked in excess of eight (8) in
a day and two (2) times the employees regular hourly rate
shall be paid for all hours worked in excess of twelve (12) in a work day for
employees scheduled to work a normal eight (8) hour day. One and one-half
(1-1/2) times the employee's regular hourly rate shall be paid for all hours
worked in excess of ten (10) in a day and two (2) times the employee's regular
hourly rate shall be paid for all hours worked in excess of fourteen (14) in a
work day for employees scheduled to work a normal ten (10) hour day. Daily
overtime shall not be counted toward the calculation of overtime pay received
for working in excess of forty (40) hours per week.
18.3 Callouts.
(1) If an employee is called out after his or her regular shift
and after leaving the plant, or on off days, he or she shall be paid a minimum
of four (4) hours pay at one and one-half (1-1/2) times the employee's regular
rate. However, such hours shall not be counted toward the calculation of
overtime pay paid for working in excess of forty (40) hours per week.
(2) If such employee is notified twelve (12) hours or more in
advance of his or her shift, the four (4) hour minimum will not apply.
(3) If an employee is called out within four (4) hours of his or
her scheduled shift start, he or she shall receive the applicable call out rate
for the first four (4) hours worked.
18.4 Weekly manning schedule shall be posted no
later than 10:00 A.M. on Fridays barring unforeseen
circumstances outside the Company's control.
18.5 Employees who have not been notified of a schedule change after the Friday
posting and who report to work shall be guaranteed a minimum of four (4) hours
pay if no work is available. If an employee is assigned to work, he or she shall
be scheduled a minimum of eight (8) hours of work during the work day. This
provision shall not apply if failure to provide work is due to circumstances
outside the Company's control such as but not limited to fire, flood, storm,
major equipment failure, or utility failure. Every reasonable effort shall be
made to notify employees in advance of their reporting to work.
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18.6 Report Pay.
If an employee shows up for work at his or her scheduled time and is not put to
work (sent home for lack of available work) he or she shall receive four (4)
hours pay.An employee who works will be paid for hours worked but not less
than four (4) hours pay if sent home by the Company. This provision shall not
apply if failure to provide work is due to circumstances outside the Company's
control such as, but not limited to, fire, flood, storm, major equipment
failure or utility failure.
18.7 The current Overtime Distribution Policy will be posted by the Company.
This policy may be amended by a mutual agreement between the parties.
ARTICLE XIX - BEREAVEMENT LEAVE
19.1 When an employee who has completed the probationary period is absent from
work to arrange for and/or attend the funeral of his or her parent, stepfather,
stepmother, wife or husband, son or daughter, or stepchildren, brother, sister,
grandfather, grandmother, grandchildren, father-in-law, mother-in-law, spouse's
grandparents, spouse's brother, spouse's sister, the Company will pay up to the
next three (3) scheduled work days (up to the next four (4) scheduled days off
with pay if the employee is required to travel beyond a radius of five hundred
(500) miles), for eight (8) hours at the employee's regular hourly rate for each
scheduled workday the employee is absent.
19.2 Funeral leave will be granted within seven (7) days of the death or service
only for absences occurring on the employee's regularly scheduled workdays and
will not apply to employees on layoff or other non-working status. Hours paid
under this Article will be counted as hours worked for the purpose of computing
overtime. To be eligible for benefit under the Article, the employee must supply
reasonable documentary evidence of covered death, family relationship, and
attendance at the funeral or service.
19.3 Employees who normally work a ten (10) hour, four (4) day work week will be
compensated in accordance with paragraph 19.1 for up to ten (10) hours at the
employee's regular hourly rate for each scheduled workday absent provided the
employee would have worked ten (10) hours on those days of absence. The maximum
funeral leave allowance for ten (10) hour shift employees will be thirty (30)
hours of pay per bereavement.
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ARTICLE XX - ANNUAL RESERVE TRAINING
LEAVE
20.1 Employees who are members of organized reserve components of the Armed
Forces, including the National Guard, will be allowed leave of absence annually
for the purpose of attending required military training encampments or cruises.
The Company will pay any employee who goes on such leave of absence the
difference between the employee's straight time pay for up to (2) two weeks and
the employee's military pay including longevity pay but excluding all allowances
such as rent, subsistence, uniform and travel. Payment will be made when the
employee returns from reserve training on presentation of satisfactory proof of
the amount of pay received.
ARTICLE XXI - SAFETY AND HEALTH
21.1 A joint Safety and Health Committee shall be established consisting of
members, appointed by the Company and the Union. The committee will consist of
not more than four (4) members from the Union and four (4) members from the
Company plus the Plant Manager or his representative. Meetings will be held
regularly to address safety and health concerns and make recommendations to the
Plant Manager.
ARTICLE XXII - BULLETIN BOARD
22.1 The Union agrees to post only notices concerning elections, meetings,
reports and other official Union business and notices of social and recreational
activities on the Company bulletin board. A copy of each notice will be supplied
to the Plant Manager at the time of its posting. The Union agrees further that
it will post no matter which is in the disinterest of the Company. However,
notwithstanding the above, it is understood that the Company's decision
concerning the use of the bulletin board shall be final.
ARTICLE XXIII - FURNISHING OF TOOLS
23.1 The Company shall furnish all special tools and equipment. Maintenance
employees shall furnish their own tools; in case of breakage, loss, or worn out
tools, the Company will replace or repair such tools. All breakage or loss shall
be reported immediately to the Company.
ARTICLE XXIV - TRAINING COMMITTEE
24.1 A joint Union Management Training Committee will be established consisting
of an equal number of representatives from the Union and the Management.
Other representatives may be invited to participate in the meetings from time to
time by mutual agreement as needed.
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24.2 The purpose of the Committee will be to assist management by making
recommendations as to the selections, evaluations and progression of employees
in training and the overall successful administration of the plant training
program. The Committee shall meet quarterly or otherwise as necessary to
accomplish this objective.
24.3 A trainee will not be disqualified from the program without first being
advised of and placed in a probationary status unless the trainee's conduct
requires immediate removal. The Parties recognize it may be necessary to rotate
shift assignments to enable employees to obtain the necessary work experience.
Employees placed on probationary status shall not advance in pay.
ARTICLE XXV - OVERTIME LUNCH ALLOWANCE
25.1 Any employee who works more than ten (10) consecutive hours or twelve (12)
consecutive hours for employees on ten (10) hour shifts where such overtime
hours are unscheduled, shall be given a lunch allowance. Any employee called out
who works more than four (4) consecutive hours outside his or her normal shift
will receive a lunch allowance. No lunch allowance will be provided if such
overtime hours are scheduled with twelve (12) hours advance notice. The lunch
allowance will not exceed $6.
ARTICLE XXVI - BENEFIT PLANS
26.1 During the term of this Agreement the Company will provide employees with
participation in the Southdown, Inc. Medical Plan, the Southdown, Inc. Group
Dental Benefit Plan, the Southdown, Inc. Life Insurance and Accidental Death and
Dismemberment Plan, the Southdown, Inc. Long Term Disability Plan, the
Southdown, Inc. Pension Plan, the Southdown, Inc. Retirement Savings Plan, and
the Southdown, Inc. Voluntary Life Insurance Plan, and continue said plans for
the life of this Agreement unless the parties agree mutually to modify the
provisions of these plans.
26.2 During the life of and for the term of this Agreement dated May 1, 1996,
the Company will provide post retirement medical insurance coverage to all
eligible employees covered under this bargaining unit who retire
after having achieved age 62 with at least 15 years of company service. The
provisions of this coverage will be the same as the benefits and eligibility
requirements provided for in the Southdown Inc. Retiree Medical Insurance Plan
which are subject to modification.
26.3 SICKNESS AND ACCIDENT BENEFITS
If an employee with at least one (1) year of service is absent from work due to
disability, sickness and accident benefits are payable. The disability must
prevent the employee from performing the duties of the job because of a
non-occupational sickness or injury. This benefit is payable if confined to a
hospital or home.
19
<PAGE> 22
After a waiting period of three (3) work days, disability benefits are payable
at a rate of twenty five dollars ($25) per day for the fourth and fifth work day
of absence, then at a rate of fifty dollars ($50) per day for a maximum of five
days per week. The waiting period will be waived if the employee is hospitalized
as an in-patient and the daily benefits will be paid immediately at the fifty
dollar ($50) rate. A disabled employee may receive weekly sickness and accident
benefits during the period of disability not to exceed five (5) months. It is
the employee's responsibility to make application for this benefit and the
attending physician must document the nature of the disability and expected
date of return to work.
No benefits shall be payable for the following:
1. disability which you are not under the direct care
of a licensed physician.
2. sickness or injury which is purposefully self-
inflicted while sane or insane.
3. disability due to an injury arising out of the
course of employment.
4. disability due to disease which benefits are
payable under Worker's Compensation,
Occupational Disease or similar law.
This benefit terminates upon retirement or upon termination of employment.
Any employee currently not participating in the long term disability (LTD) plan
and who applies for LTD coverage no later than July 1, 1996 and is rejected or
shows evidence of prior rejection, will be eligible for up to fifty two (52)
weeks of sickness and accident benefits.
20
<PAGE> 23
ARTICLE XXVII - TERMS OF AGREEMENT
27.1 After ratification by the members of the Local Union, this Agreement shall
become effective and remain in force and effect and be binding upon the parties
hereto from May 1, 1996, to and including April 30, 1999, and it shall continue
to be in full force and effect thereafter from year to year until either party
on or before February 28 of any year, beginning February 28,1999, gives written
notice to the other party of its desire or intention either to alter and modify
or terminate the same. If such notice is given, the parties hereto shall begin
negotiations not later than April 1 in such year.
IN WITNESS WHEREOF, the Union has caused this Agreement to be
executed in its name, after due authorization by a vote of a majority of its
members, and the Company has caused it to be executed in its name, by its duly
authorized representatives.
INTERNATIONAL BROTHERHOOD OF
KOSMOS CEMENT COMPANY
BOILERMAKERS, CEMENT, LIME,
GYPSUM AND ALLIED WORKERS,
DIVISION LOCAL LODGE NO. D595
__________________________ _________________________
By: J. C. Todd By: Bernard M. Reuland
__________________________ _________________________
By: Timothy E. By: Wayne W. Emmer
__________________________ _________________________
By: David L. Sw By: David E. Tiller
__________________________ _________________________
By: Gary W. Killen By: Steven K. Martin
__________________________ _________________________
By: Patrick M. Granzow By: Paul J. Anderson
__________________________
By: William G. Bennett
21
<PAGE> 24
__________________________
By: Robert B. Allen
Signed this 1st day of May, 1996. Signed this 1st day of May, 1996.
22 `
<PAGE> 25
SCHEDULE A - PAY PROCEDURES
A1 - GAINSHARING: The employees will participate in a gainsharing program
developed by the Company.
A2 - LEADPERSONS: Leadpersons may only be appointed at the sole discretion of
management. They shall be paid $1.25 per hour in addition to their normal rate
of pay while they are designated as leadpersons to perform certain
quasi-supervisory tasks incidental to their normal hands-on work.
A3 - JOB GROUPINGS: The following positions shall be grouped together for pay
purposes:
JOB GROUP ONE - GENERAL PLANT WORKER
Town Pick-Up Truck Driver
Sweeper
Bobcat Operator
Quarry Pick-up Truck Driver
Laborer
JOB GROUP TWO - UTILITY WORKER
River Watchman
Storeroom Attendant
Maintenance Lift Truck Driver
Shipping Lift Truck Driver
Shipper/Packer*/Loader
Root Catcher
Utility Person
*The Company will continue the current practice of providing an incentive to
packhouse employees of $3/1,000 bags of product packed per day.
JOB GROUP THREE - MATERIAL HANDLERS
Quarry Lube Serviceman
Crusher Operator
Clay Feeder
Clay Dryer Operator
Drill Operator
Quarry Driver
Quarry Barge Loader
Quarry Front-end Loader
Material Handler
23
<PAGE> 26
JOB GROUP FOUR - PROCESS/HEAVY EQUIPMENT
Process Attendant
Quarry Mobile Equipment Operator
Derrick Operator
Resource Recovery Specialist
JOB GROUP FIVE - LABORATORY
Laboratory Technicians
JOB GROUP SIX - SKILLED REPAIRMAN
Mechanical Repairman*
Electrical Repairman*
Garage Mechanic
Machinist
*Requires Department of Labor Journeyman's Certificate
to achieve Journeyman's rate.
JOB GROUP SEVEN - INSTRUMENTS & CONTROL
Instrument Technician**
Control Room Operator
**Must be Journeyman Electrical Repairman.
24
<PAGE> 27
A4 - PROGRESSION SCHEDULES: The following wage schedules reflect a forty-five
cent ($.45) increase effective 5/1/96, a forty-five cent ($.45) increase
effective 5/1/97, and a forty-five cent ($.45) increase effective 5/1/98.
5/1/96 5/1/97 5/1/98
JOB GROUP ONE
Starting Rate $ 9.80 $10.25 $10.70
End of 6 Months Worked $10.45 $10.90 $11.35
JOB GROUP TWO
Starting Rate $10.45 $10.90 $11.35
End of 6 Months Worked $11.35 $11.80 $12.25
End of 12 Months Worked $12.30 $12.75 $13.20
End of 18 Months Worked $12.60 $13.05 $13.50
JOB GROUP THREE
Starting Rate $12.15 $12.60 $13.05
End of 6 Months Worked $13.00 $13.45 $13.90
End of 12 Months Worked $13.50 $13.95 $14.40
End of 18 Months Worked $14.00 $14.45 $14.90
JOB GROUP FOUR
Starting Rate $12.70 $13.15 $13.60
End of 6 Months Worked $13.05 $13.50 $13.95
End of 12 Months Worked $13.45 $13.90 $14.35
End of 18 Months Worked $13.85 $14.30 $14.75
End of 24 Months Worked $14.25 $14.70 $15.15
End of 30 Months Worked $14.65 $15.10 $15.55
End of 36 Months Worked $15.15 $15.60 $16.05
JOB GROUP FIVE
Starting Rate $12.95 $13.40 $13.85
End of 6 Months Worked $13.35 $13.80 $14.25
End of 12 Months Worked $13.85 $14.30 $14.75
End of 18 Months Worked $14.35 $14.80 $15.25
End of 24 Months Worked $14.80 $15.25 $15.70
End of 30 Months Worked $15.10 $15.55 $16.00
End of 36 Months Worked $15.45 $15.90 $16.35
End of 42 Months Worked $15.80 $16.25 $16.70
25
<PAGE> 28
JOB GROUP SIX
Starting Rate $13.25 $13.70 $14.15
End of 6 Months Worked $13.55 $14.00 $14.45
End of 12 Months Worked $13.85 $14.30 $14.75
End of 18 Months Worked $14.15 $14.60 $15.05
End of 24 Months Worked $14.45 $14.90 $15.35
End of 30 Months Worked $14.75 $15.20 $15.65
End of 36 Months Worked $15.05 $15.50 $15.95
End of 42 Months Worked $15.35 $15.80 $16.25
End of 48 Months Worked $16.00 $16.45 $16.90
JOB GROUP SEVEN
Starting Rate $16.00 $16.45 $16.90
End of 6 Months Worked $16.20 $16.65 $17.10
End of 12 Months Worked $16.35 $16.80 $17.25
End of 18 Months Worked $16.50 $16.95 $17.40
End of 24 Months Worked $16.70 $17.15 $17.60
End of 30 Months Worked $16.85 $17.30 $17.75
End of 36 Months Worked $17.05 $17.50 $17.95
End of 42 Months Worked $17.20 $17.65 $18.10
End of 48 Months Worked $17.40 $17.85 $18.30
Requires satisfactory progress in each 6 month period worked in above designated
classifications.
26
<PAGE> 29
LETTERS OF AGREEMENT
May 1, 1996
Mr. J. C. Todd
International Representative
International Brotherhood of Boilermakers
Cement, Lime, Gypsum and Allied Workers Division
80 Sweetbriar Trail
Fayetteville, GA 30215
Dear J.C.:
When bargaining unit employees are working side-by-side with
outside contractors and there is a need to work overtime to continue or complete
the job, the bargaining unit employees will be offered the overtime to work with
the outside contractors provided they are qualified to perform the work.
Sincerely,
Bernard M. Reuland
Director, Employee Relations
BMR:mjb
cc: W. W. Emmer
D. E. Tiller
T. E. McCoy
27
<PAGE> 30
May 1, 1996
Mr. J. C. Todd
International Representative
International Brotherhood of Boilermakers
Cement, Lime, Gypsum and Allied Workers Division
80 Sweetbriar Trail
Fayetteville, GA 30215
Subject: Letter of Understanding
Current Practices
Dear J. C.:
This will confirm our discussions during 1996 contract
negotiations. The Company will continue our current policies regarding safety
procedures, uniforms, and employee travel expenses at our Louisville and Quarry
operations during the life of this Agreement for the following:
o Supply to employees personal protective safety
equipment required by the Company such as
hard hats, safety shoes not to exceed two (2) pairs
per year up to $110 per pair, hearing protection,
safety glasses, and respirators.
o License fee reimbursement for blasting and
welding certification as required by the
Company.
o Current uniform arrangements.
o Reasonable reimbursement for meals and other
expenses while traveling on Company business.
Sincerely,
Bernard M. Reuland
Director, Employee Relations
BMR:mjb
cc: W. W. Emmer
D. E. Tiller
T. E. McCoy
28
<PAGE> 31
May 1, 1996
Mr. J. C. Todd
International Representative
International Brotherhood of Boilermakers
Cement, Lime, Gypsum and Allied Workers Division
80 Sweetbriar Trail
Fayetteville, GA 30215
Subject: Seniority Provisions for Same Date
Hire and Prospective Employees
Dear J.C.:
Confirming our Agreement reached during the KOSMOS negotiations
in Louisville, Kentucky, the initial plant seniority roster as referenced in
Article 14.6 of the Labor Agreement will be ranked in seniority order by the
lottery system for current employees hired on the same date. This seniority
roster will be used for prospective application of provisions in the Labor
Agreement.
Prospective same date hires will be placed on the seniority list
according to the date and time of their initial employment application.
Sincerely,
Bernard M. Reuland
Director, Employee Relations
BMR:mjb
cc: W. W. Emmer
D. E. Tiller
T. E. McCoy
29
<PAGE> 32
May 1, 1996
Mr. J. C. Todd
International Representative
International Brotherhood of Boilermakers
Cement, Lime, Gypsum and Allied Workers Division
80 Sweetbriar Trail
Fayetteville, GA 30215
Subject: Letter of Understanding - Dispute Resolution Panel
Dear J.C.:
This will confirm our discussion during 1996 negotiations
covering Louisville Operations regarding the Dispute Resolution Panel.
The Parties agree to select by mutual agreement three (3)
impartial representatives who will be available to serve for the term of this
Agreement for a reasonable fee when called upon to serve on the Panel. When
necessary for the Panel to meet to resolve a grievance in accordance with
Article 10.1(4), the Parties will mutually select one of these impartial
representatives to serve on the Panel.
It is understood that following the discussions and hearing of
the grievance, the Panel will determine the outcome of the grievance. The
outcome of the grievance will be determined by majority vote of the Panel and
communicated by a brief written description of the disposition of the grievance
by the impartial representative. The individual vote of the Panel will not be
disclosed, only the fact that a majority was reached. If additional information
is needed prior to making a determination on the result of the grievance, it
must be gathered and the decision will be made within three (3) working days.
The Company or Union representatives may call upon various witnesses to be
present at the hearing and the cost incurred or lost-time pay involved for the
witness will be the responsibility of the Party calling the witness.
The Company or Union Representative may cancel the use of any
third party representative with thirty (30) days notice to the other Party and
another impartial representative will be selected in accordance with the above.
Sincerely,
Bernard M. Reuland
Director, Employee Relations
BMR:mjb
cc: W. W. Emmer
D. E. Tiller
T. E. McCoy
30
<PAGE> 33
May 1, 1996
Mr. J. C. Todd
International Representative
Cement, Lime, Gypsum, and Allied Workers Division
International Brotherhood of Boilermakers
80 Sweetbriar Trail
Fayetteville, GA 30215
Re: Letter of Understanding
Dear J. C.:
Pursuant to our discussions during the 1996 Kosmosdale labor contract
negotiations, the Company agrees to establish a joint committee for the purpose
of developing an incentive plan for employees assigned to the
Shipper/Packer/Loader position. This incentive plan would be subject to mutual
agreement. If mutual agreement is not reached, the current packhouse incentive
will remain as in the Agreement.
Sincerely,
Bernard M. Reuland
Director, Employee Relations
BMR:mjb
cc: W. W. Emmer
D. E. Tiller
T. E. McCoy
31
<PAGE> 34
May 1, 1996
Mr. J. C. Todd
International Representative
Cement, Lime, Gypsum, and Allied Workers Division
International Brotherhood of Boilermakers
80 Sweetbriar Trail
Fayetteville, GA 30215
Re: Letter of Understanding - Working Spouse
Dear J. C.:
Pursuant to our discussions during the 1996 Kosmosdale Labor Contract
negotiations, if an employee's spouse is eligible for health care coverage under
another employer's group health plan, that spouse will not be eligible to
participate in the Southdown Medical Plan. If the premium which the spouse is
required to pay exceeds $30.00 per month for individual coverage under that
plan, the Company will offset the cost in excess of $30.00 per month by reducing
the employee's monthly contribution to the Southdown Plan. The offset will not
be greater than the total monthly premium the employee is required to pay for
the Southdown Plan. Affected employees will provide reasonable documentation to
substantiate the cost of spousal coverage.
Sincerely,
Bernard M. Reuland
Director, Employee Relations
BMR:mjb
cc: W. W. Emmer
D. E. Tiller
T. E. McCoy
<PAGE> 1
EXHIBIT 11
SOUTHDOWN, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
---------------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Earnings (loss) for primary earnings per share:
Earnings from continuing operations before
preferred stock dividends $ 71.2 $ 47.5 $ 30.1
Preferred stock dividends (7.7) (9.8) (9.4)
--------- -------- --------
Earnings (loss) from continuing operations 63.5 37.7 20.7
Loss from discontinued operations, net of income taxes - - (5.9)
Loss on disposition of discontinued operations,
net of income taxes - - (21.6)
--------- -------- --------
Earnings (loss) before extraordinary charge 63.5 37.7 (6.8)
Extraordinary charge, net of income taxes (11.5) - -
--------- -------- --------
Net earnings (loss) for primary earnings per share $ 52.0 $ 37.7 $ (6.8)
========= ======== ========
Earnings (loss) for fully diluted earnings per share:
Earnings from continuing operations before
preferred stock dividends $ 71.2 $ 47.5 $ 30.1
Antidilutive preferred stock dividends - - (9.4)
--------- -------- --------
Earnings (loss) from continuing operations 71.2 47.5 20.7
Loss from discontinued operations, net of income taxes - - (5.9)
Loss on disposition of discontinued operations,
net of income taxes - - (21.6)
--------- -------- --------
Earnings (loss) before extraordinary charge 71.2 47.5 (6.8)
Extraordinary charge, net of income taxes (11.5) - -
--------- -------- --------
Net earnings (loss) for fully diluted earnings per share $ 59.7 $ 47.5 $ (6.8)
========= ======== ========
</TABLE>
<PAGE> 2
EXHIBIT 11
SOUTHDOWN, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Average shares outstanding:
Common stock 18.2 17.3 17.2
Common stock equivalents from assumed
exercise of stock options and warrants
(treasury stock method) 0.5 0.2 0.5
-------- -------- --------
Total for primary earnings per share 18.7 17.5 17.7
Other potentially dilutive securities:
- additional common stock equivalent from assumed
exercise of stock options and warrants at ending
market price 0.1 0.1 --
- assumed conversion of Series A convertible
preferred stock at one-half share of common stock 0.8 1.0 1.0
- assumed conversion of Series B convertible
preferred stock at 2.5 shares of common stock 1.9 2.3 2.3
- assumed conversion of the Series D convertible
preferred stock at 1.51 shares of common stock 2.6 2.6 2.4
-------- -------- --------
Total for fully diluted earnings per share 24.1 23.5 23.4
Less: Antidilutive securities
Stock options and warrants -- -- (0.5)
Series A preferred stock -- -- (1.0)
Series B preferred stock -- -- (2.3)
Series D preferred stock -- -- (2.4)
-------- -------- --------
24.1 23.5 17.2
======== ======== ========
Per share earnings (loss):
Primary
Earnings (loss) from continuing operations $ 3.41 $ 2.15 $ 1.20
Loss from discontinued operations, net of
income taxes -- -- (0.34)
Loss on disposition of discontinued operations, net of
income taxes -- -- (1.26)
Extraordinary charge, net of income taxes (0.62) -- --
-------- -------- --------
$ 2.79 $ 2.15 $ (0.40)
======== ======== ========
Fully diluted
Earnings (loss) from continuing operations $ 2.96 $ 2.02 $ 1.20
Loss from discontinued operations, net of
income taxes -- -- (0.34)
Loss on disposition of discontinued operations, net of
income taxes -- -- (1.26)
Extraordinary charge, net of income taxes (0.48) -- --
-------- -------- --------
$ 2.48 $ 2.02 $ (0.40)
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES OF SOUTHDOWN, INC.
AS OF DECEMBER 31, 1996
STATE OF
SUBSIDIARY * ORGANIZATION
------------ ------------
KOSMOS CEMENT COMPANY (A PARTNERSHIP)..................... KENTUCKY
- -------------------
*KOSMOS CEMENT COMPANY CONDUCTS BUSINESS UNDER ITS NAME.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement No.
33-23328 on Form S-8, Registration Statement No. 33-35011 on Form S-8,
Registration No. 33-45144 on Form S-8, and Registration Statement No. 33-16517
on Form S-3, of our report dated January 22, 1997 on the consolidated financial
statements of Southdown, Inc. and subsidiary companies appearing in this Annual
Report on Form 10-K for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Houston, Texas
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet as of December 31, 1996 and the related
statement of consolidated earnings and is qualified in its entirety by reference
to such statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 45
<SECURITIES> 12
<RECEIVABLES> 85
<ALLOWANCES> 7
<INVENTORY> 62
<CURRENT-ASSETS> 210
<PP&E> 943
<DEPRECIATION> 354
<TOTAL-ASSETS> 932
<CURRENT-LIABILITIES> 90
<BONDS> 164
27
0
<COMMON> 86
<OTHER-SE> 326
<TOTAL-LIABILITY-AND-EQUITY> 932
<SALES> 664
<TOTAL-REVENUES> 664
<CGS> 481
<TOTAL-COSTS> 537
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 108
<INCOME-TAX> 37
<INCOME-CONTINUING> 71
<DISCONTINUED> 0
<EXTRAORDINARY> (12)
<CHANGES> 0
<NET-INCOME> 59
<EPS-PRIMARY> 2.79
<EPS-DILUTED> 2.48
</TABLE>
