<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1998
REGISTRATION NO. 333-49161
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT No. 1
to
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
SOUTHDOWN, INC.
(Exact name of registrant as specified in its charter)
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LOUISIANA 3241
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
<CAPTION>
LOUISIANA 72-0296500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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1200 SMITH STREET, SUITE 2400
HOUSTON, TEXAS 77002-4486
(713) 650-6200
FACSIMILE: (713) 653-8010
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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PATRICK S. BULLARD ROBERT D. VILSACK
VICE PRESIDENT -- GENERAL COUNSEL AND SECRETARY VICE PRESIDENT -- GENERAL COUNSEL AND SECRETARY
SOUTHDOWN, INC. MEDUSA CORPORATION
1200 SMITH STREET, SUITE 2400 3008 MONTICELLO BLVD.
HOUSTON, TEXAS 77002-4486 CLEVELAND HEIGHTS, OHIO 44118
(713) 650-6200 (216) 371-4000
FACSIMILE: (713) 653-8010 FACSIMILE: (216) 371-4562
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
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EDGAR J. MARSTON III LAWRENCE LEDERMAN
BRACEWELL & PATTERSON, L.L.P. MILBANK, TWEED, HADLEY & MCCLOY
711 LOUISIANA STREET, SUITE 2900 1 CHASE MANHATTAN PLAZA
HOUSTON, TEXAS 77002-2781 NEW YORK, NEW YORK 10005
(713) 223-2900 (212) 530-5000
FACSIMILE: (713) 221-1212 FACSIMILE: (212) 530-5219
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective and all other
conditions to the merger (the "Merger") of a wholly-owned subsidiary of the
Registrant with and into Medusa Corporation ("Medusa") pursuant to the Agreement
and Plan of Merger, dated as of March 17, 1998, described in the enclosed Joint
Proxy Statement/Prospectus have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
PRELIMINARY COPY -- SUBJECT TO COMPLETION -- DATED MAY 11, 1998
[Southdown, Inc. Letterhead]
May , 1998
Dear Fellow Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Southdown, Inc. ("Southdown") to be held at the Doubletree Hotel at Allen
Center, 400 Dallas Street, Houston, Texas, at 8:30 a.m., Houston time, on
Friday, June 19, 1998.
In addition to the election of five directors, the approval of the
appointment of auditors and the approval of certain amendments to one of
Southdown's stock option plans, you will be asked to vote on proposals: (i) to
amend Southdown's Restated Articles of Incorporation, as amended, to increase
the authorized number of shares of common stock from 40,000,000 to 200,000,000;
and (ii) to approve the issuance of shares of common stock of Southdown pursuant
to a merger (the "Merger") in which Medusa Corporation ("Medusa") will become a
wholly-owned subsidiary of Southdown. In the Merger, outstanding common shares
of Medusa will be converted into the right to receive .88 shares of common stock
of Southdown and associated preferred stock purchase rights. Southdown will
issue a maximum of approximately 14.7 million shares in the Merger and reserve
approximately additional shares for issuance upon the exercise of
Medusa stock options to be assumed in the Merger. Southdown will have
approximately 38.3 million shares of common stock outstanding after the Merger.
Your Board of Directors believes that the Merger will enhance Southdown's
ability to capitalize on strong industry fundamentals which include: (i)
continuing growth of domestic cement demand which exceeds domestic productive
capacity; (ii) the strong pricing environment in most domestic regional cement
markets; (iii) the substantial reduction of dumped cement imports into the U.S.
after the imposition of antidumping duties; and (iv) the return of cement
imports to their traditional role as a supplemental source of supply in the U.S.
The combination of Southdown and Medusa will create the second largest and the
most modern system of cement manufacturing plants in the United States. Your
Board of Directors believes that the expanded network of preheater/precalciner
facilities should present additional opportunities for cost effective capacity
expansions and earnings growth. Medusa's operations complement Southdown's
existing asset base, and the combined network of plants and distribution
terminals provides broad coverage of the market east of the Mississippi River.
The Merger will create a significantly larger company with greater financial
flexibility, a stronger balance sheet, higher market capitalization and greater
earnings and cash flows, all of which should enhance shareholder value.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS DETERMINED THAT
THE TERMS OF THE MERGER ARE FAIR TO AND IN THE BEST INTEREST OF SOUTHDOWN
SHAREHOLDERS. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY APPROVED THE AGREEMENT
SETTING FORTH THE TERMS OF THE MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY
AND RECOMMENDS THAT SOUTHDOWN SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSALS TO AMEND THE RESTATED ARTICLES OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK AND TO ISSUE SHARES OF COMMON STOCK OF
SOUTHDOWN IN THE MERGER.
In connection with its approval of the Merger, the Board of Directors of
Southdown received a written opinion dated March 17, 1998 from its financial
advisor, Lehman Brothers Inc., to the effect that, as of the date of such
opinion and based upon and subject to certain matters stated therein, the
consideration to be paid to the shareholders of Medusa in connection with the
Merger is fair to Southdown from a financial point of view. The full text of the
written opinion of Lehman Brothers Inc., which sets forth a description of the
<PAGE> 3
assumptions made, matters considered and limits of its review, is attached to
the accompanying Joint Proxy Statement/Prospectus as Appendix B and should be
read carefully in its entirety.
In the material accompanying this letter, you will find a Notice of Annual
Meeting of Shareholders of Southdown, a Joint Proxy Statement/Prospectus
relating to the actions to be taken by shareholders at the Annual Meeting and a
proxy card. The Joint Proxy Statement/Prospectus more fully describes the
proposed capital stock increase and the Merger and includes information about
Southdown and Medusa, the reasons for the Merger and each other action proposed
to be taken at the Annual Meeting.
Your vote is important regardless of the number of shares you own. Approval
of the amendment to the Restated Articles of Incorporation requires the
affirmative vote of holders of a majority of the outstanding shares of common
stock of Southdown. Such affirmative vote will also be sufficient to approve
each other action proposed to be taken at the Annual Meeting. Please remember
that your failure to vote is equivalent to a vote against the charter amendment
proposal, without which the Merger cannot be effected. ACCORDINGLY, I URGE YOU
TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE PAID ENVELOPE. This will not prevent you from attending the
Annual Meeting or voting in person, but will assure that your vote is counted if
you are unable to attend the Annual Meeting.
On behalf of your Board of Directors, I thank you for your support and urge
you to vote FOR approval of each of the proposals submitted at the Annual
Meeting.
Very truly yours,
CLARENCE C. COMER
President and Chief Executive
Officer
2
<PAGE> 4
PRELIMINARY COPY -- SUBJECT TO COMPLETION -- DATED MAY 11, 1998
SOUTHDOWN, INC.
1200 SMITH STREET, SUITE 2400
HOUSTON, TEXAS 77002-4486
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, JUNE 19, 1998
To the Shareholders of
Southdown, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Southdown, Inc. ("Southdown") will be held at the Doubletree Hotel at Allen
Center, 400 Dallas Street, Houston, Texas, at 8:30 a.m., local time, on Friday,
June 19, 1998, for the following purposes:
1. To consider and vote upon a proposal to amend Southdown's Restated
Articles of Incorporation, as amended, to increase the authorized number of
shares of common stock, $1.25 par value, of Southdown ("Southdown Common
Stock") from 40,000,000 to 200,000,000;
2. To consider and vote upon a proposal to approve the issuance of
shares of Southdown Common Stock in a merger (the "Merger") in which Medusa
Corporation will become a wholly-owned subsidiary of Southdown and each
outstanding common share of Medusa will be converted into the right to
receive .88 shares of Southdown Common Stock and associated preferred stock
purchase rights;
3. To consider and vote upon a proposal to elect one director as a
member of Class II and four directors as members of Class I to Southdown's
Board of Directors to serve until the 1999 and 2001 annual meetings of
shareholders, respectively, and until their successors are duly elected and
have qualified;
4. To consider and vote upon a proposal to approve an amendment to
Southdown's 1989 Stock Option Plan to increase the number of shares of
Southdown Common Stock available for grant thereunder from 2,000,000 to
5,000,000;
5. To consider and vote upon a proposal to approve an amendment to
Southdown's 1989 Stock Option Plan that imposes an annual limit on the
number of options that may be awarded to any one person in order to comply
with applicable federal income tax requirements;
6. To consider and vote upon a proposal to appoint Deloitte & Touche
LLP as the independent auditors of the books and accounts of Southdown for
the year ending December 31, 1998; and
7. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
EACH NOMINEE FOR DIRECTOR AND FOR EACH OF THE PROPOSALS SET FORTH IN NUMBERED
PARAGRAPHS 1, 2, 4, 5 AND 6 ABOVE.
Shareholders of record at the close of business on May 15, 1998 are
entitled to notice of and to vote at the meeting and any adjournments or
postponements thereof. Please refer to the attached Joint Proxy Statement/
Prospectus for a more complete description of the proposals to be submitted to
the shareholders at the Annual Meeting. The agreement setting forth the terms of
the Merger is attached as Appendix A thereto.
<PAGE> 5
You are cordially invited to attend the meeting. Whether or not you are
planning to attend the meeting, you are urged to complete, date and sign the
enclosed proxy card and return it promptly.
By Order of the Board of Directors
Patrick S. Bullard
Vice President -- General Counsel
and Secretary
Houston, Texas
May , 1998
YOUR VOTE IS IMPORTANT
APPROVAL OF THE AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION
REQUIRES THE AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES
OF SOUTHDOWN COMMON STOCK. SUCH A VOTE WILL ALSO BE SUFFICIENT TO APPROVE THE
OTHER ACTIONS PROPOSED TO BE TAKEN AT THE ANNUAL MEETING. TO ENSURE YOUR
REPRESENTATION AT THE MEETING, PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN
THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. NO ADDITIONAL POSTAGE IS
NECESSARY IF MAILED IN THE UNITED STATES.
2
<PAGE> 6
PRELIMINARY COPY -- SUBJECT TO COMPLETION -- DATED MAY 11, 1998
May , 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Medusa Special Meeting") of Medusa Corporation ("Medusa") to be held on Friday,
June 19, 1998 at 9:00 a.m., local time, at the Sheraton Stamford Hotel, One
First Stamford Place, Stamford, Connecticut.
At the Medusa Special Meeting you will be considering and voting upon a matter
of great importance to Medusa: the merger of Medusa and a wholly-owned
subsidiary of Southdown, Inc. ("Southdown"), creating the largest publicly-held
cement company in the United States. If the transaction is approved by the
shareholders of Medusa and the shareholders of Southdown, and is effected, each
outstanding Medusa Share will be converted into .88 of a share of common stock
of Southdown in a tax-free exchange. A cash payment will be made in lieu of any
fractional share of Southdown Common Stock.
Medusa's Board of Directors believes that the merger represents a unique
strategic opportunity for Medusa. The Board believes that the larger,
financially strong combined company will benefit from significant synergies
while affording investors enhanced investment liquidity and diversification of
risk.
The attached Joint Proxy Statement/Prospectus provides you with detailed
information regarding the transaction and I urge you to read it carefully.
Your Board of Directors (with certain directors not present) has unanimously
approved the transaction and has determined that the transaction is fair to and
in the best interest of Medusa and its shareholders, and recommends that all
Medusa shareholders vote FOR the approval of the transaction.
WHETHER OR NOT YOU ARE PERSONALLY ABLE TO ATTEND THE MEDUSA SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE. IT IS IMPORTANT THAT YOUR MEDUSA SHARES BE REPRESENTED AT THE MEDUSA
SPECIAL MEETING REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. SHARES HELD BY YOU
AND NOT VOTED WILL HAVE THE EFFECT OF A VOTE AGAINST THE TRANSACTION.
If you plan to attend the Medusa Special Meeting, please check the proxy card in
the space provided. This will assist us in making preparations for the meeting,
and will enable us to expedite your admittance. If your shares are not
registered in your name and you would like to attend the Medusa Special Meeting,
please ask the broker, trust company, bank or other nominee which holds such
shares to provide you with evidence of your share ownership, which will enable
you to gain admission to the Medusa Special Meeting.
Very truly yours,
R. S. Evans
Chairman of the Board and
Chief Executive Officer
<PAGE> 7
MEDUSA CORPORATION
3008 MONTICELLO BLVD.
CLEVELAND HEIGHTS, OHIO 44118
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, JUNE 19, 1998
To the Shareholders of
Medusa Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Medusa
Corporation, an Ohio corporation ("Medusa"), will be held at the Sheraton
Stamford Hotel, One First Stamford Place, Stamford, Connecticut, at 9:00 a.m.,
local time, on Friday, June 19, 1998 for the following purposes:
1. To consider and vote on a proposal ("Merger Proposal") to approve
and adopt the Agreement and Plan of Merger, dated as of March 17, 1998
("Merger Agreement"), among Medusa, Southdown, Inc., a Louisiana
corporation ("Southdown"), and a recently formed Ohio corporation that is a
wholly-owned Ohio subsidiary of Southdown ("Sub"), pursuant to which, among
other things: (i) Sub will be merged with and into Medusa, resulting in
Medusa becoming a wholly-owned subsidiary of Southdown; and (ii) each
issued and outstanding common share, without par value, of Medusa ("Medusa
Shares") (other than shares, if any, held by shareholders who perfect their
dissenters' rights and shares held in the treasury of Medusa or any of its
subsidiaries or held by Southdown or any of its subsidiaries, which will be
canceled), will be converted into the right to receive .88 shares of
Southdown common stock, par value $1.25 per share ("Southdown Common
Stock"), and associated preferred stock purchase rights (with a cash
payment in lieu of any fractional share); and
2. To transact such other business, incident to the conduct of the
meeting, as may properly come before the meeting or any adjournment or
postponement thereof.
Your Board of Directors has fixed the close of business on May 15, 1998, as
the record date for the determination of the holders of Medusa Shares entitled
to notice of, and to vote at, the meeting and any adjournments or postponements
thereof. The Merger Proposal requires the affirmative vote of the holders of a
majority of the outstanding Medusa Shares. The executive officers and directors
of Medusa have expressed an intention to vote in favor of the Merger Proposal
and certain of them holding approximately 5.8% of the outstanding Medusa Shares
have given Southdown their irrevocable proxy to vote their shares in favor of
the Merger Proposal.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE MERGER
PROPOSAL.
Please refer to the attached Joint Proxy Statement/Prospectus for a more
complete description of the Merger Proposal. A copy of the Merger Agreement is
attached as Appendix A thereto.
<PAGE> 8
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. IT IS IMPORTANT THAT YOUR INTERESTS BE REPRESENTED AT THE MEETING. IF
YOU ATTEND THIS MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY.
By Order of the Board of Directors
Robert D. Vilsack
Vice President -- General Counsel and
Secretary
Cleveland Heights, Ohio
May , 1998
2
<PAGE> 9
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY COPY -- SUBJECT TO COMPLETION -- DATED MAY 11, 1998
SOUTHDOWN LOGO MEDUSA LOGO
SOUTHDOWN, INC.
AND
MEDUSA CORPORATION
JOINT PROXY STATEMENT
---------------------
SOUTHDOWN, INC.
PROSPECTUS
---------------------
This Joint Proxy Statement/Prospectus constitutes the proxy statement of
each of Southdown, Inc., a Louisiana corporation ("Southdown"), and Medusa
Corporation, an Ohio corporation ("Medusa"), relating to the solicitation of
proxies for use at the annual meeting of shareholders of Southdown and the
special meeting of shareholders of Medusa, each scheduled to be held on Friday,
June 19, 1998, and at any adjournments or postponements thereof (respectively,
the "Southdown Annual Meeting" and the "Medusa Special Meeting" and,
collectively, the "Shareholders' Meetings"). This Joint Proxy
Statement/Prospectus relates to the consideration at both Shareholders' Meetings
of the Agreement and Plan of Merger (the "Merger Agreement"), dated as of March
17, 1998, among Medusa, Southdown and Bedrock Merger Corp., a wholly-owned
subsidiary of Southdown ("Sub"), pursuant to which Sub will merge (the "Merger")
with and into Medusa (such combined company after the Merger is referred to
herein as "New Medusa" or the "Surviving Corporation"). In the Merger, the
Medusa shareholders who do not perfect their dissenters' rights will receive .88
shares (the "Exchange Ratio") of common stock, par value $1.25 per share, of
Southdown ("Southdown Common Stock"), together with the associated preferred
stock purchase rights under the Rights Agreement (the "Southdown Rights Plan"),
dated as of March 4, 1991, between Southdown and ChaseMellon Shareholder
Services, L.L.C., as successor rights agent ("Southdown Rights"), for each
common share, without par value, of Medusa ("Medusa Shares") held by such
shareholder. A cash payment will be made in lieu of any fractional share of
Southdown Common Stock. Medusa Shares held by Medusa and Southdown or their
respective subsidiaries will be canceled in the Merger.
This Joint Proxy Statement also relates to the consideration at the
Southdown Annual Meeting of: (i) an increase in the authorized number of shares
of Southdown Common Stock from 40,000,000 to 200,000,000 (the "Charter
Amendment"); (ii) the election of one Class II director and four Class I
directors; (iii) an increase in the number of shares of Southdown Common Stock
available for grant under Southdown's 1989 Stock Option Plan from 2,000,000 to
5,000,000; (iv) the imposition of an annual limit on the number of options that
may be awarded to any one person under Southdown's 1989 Stock Option Plan; (v)
the appointment of Deloitte & Touche LLP as the independent auditors of
Southdown's books and accounts for the year ending December 31, 1998; and (vi)
such other business as may properly come before the meeting.
The consummation of the Merger is subject to, among certain other
conditions: (i) the approval of the Charter Amendment by the holders of at least
a majority of the outstanding shares of Southdown Common Stock; (ii) the
approval of the issuance of shares of Southdown Common Stock (the "Stock
Issuance") pursuant to the Merger by the affirmative vote of the holders of a
majority of the shares of Southdown Common Stock present and entitled to vote at
the Southdown Annual Meeting, provided that the votes cast represent more than
50% of the shares of Southdown Common Stock entitled to vote; and (iii) the
approval and adoption of the Merger, the Merger Agreement and the transactions
contemplated thereby (the "Merger Proposal") by holders of at least a majority
of all outstanding Medusa Shares. A copy of the Merger Agreement is attached
hereto as Appendix A.
The Merger Agreement can be terminated under certain circumstances,
including a termination by Medusa in the event that: (i) its board of directors
determines that a competing transaction is more favorable to the shareholders of
Medusa in the aggregate and from a financial point of view than the Merger; or
(ii) the volume weighted average trading price of the Southdown Common Stock is
less than $57.50 for a specified period prior to the Merger and such stock
underperforms a composite index of five publicly traded cement companies by a
specified percentage. Medusa is obligated to pay Southdown a termination fee of
$30 million promptly following the consummation of a competing transaction if
the Merger Agreement is terminated in certain circumstances and a fee of $15
million promptly following a termination of the Merger Agreement based upon the
inadequacy of the trading price of the Southdown Common Stock.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Southdown with respect to Southdown Common Stock to be issued to Medusa
shareholders pursuant to the Merger. A registration statement on Form S-4 (the
"Registration Statement") has been filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Southdown Common Stock to be so
issued. Based on the current number of Medusa Shares outstanding, Southdown will
issue approximately 14.7 million shares of Southdown Common Stock to the Medusa
shareholders in connection with the Merger, which shares would have an aggregate
market value of approximately $1 billion, based on the closing price of
Southdown Common Stock on May 7, 1998. As a result of the Stock Issuance, Medusa
shareholders will hold approximately 38%, and Southdown shareholders will hold
approximately 62%, of all of the outstanding Southdown Common Stock after the
Merger. In addition, outstanding options to purchase Medusa Shares will be
assumed by Southdown and converted into options to purchase Southdown Common
Stock, based on the Exchange Ratio. As of May , 1998, these Medusa options
would entitle the holders thereof to purchase approximately shares of
Southdown Common Stock. Any shares of Southdown Common Stock that may be issued
pursuant to the Merger or upon exercise of outstanding Medusa options will be
authorized for listing, subject to official notice of issuance, on the New York
Stock Exchange, Inc. (the "NYSE") prior to the effective time of the Merger.
This Joint Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to the shareholders of each of Southdown and Medusa on or
about May , 1998.
---------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is May , 1998.
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FOLD-OUT MAP REFLECTING LOCATION OF FACILITIES
(printed behind cover page and first page of Table of Contents)
TABLE OF CONTENTS
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Available Information....................................... 1
Incorporation of Certain Documents by Reference............. 2
Summary..................................................... 3
General................................................... 3
The Companies............................................. 3
The Shareholders' Meetings................................ 4
The Merger and the Merger Agreement....................... 7
Cautionary Statement Concerning Forward-Looking
Statements............................................. 14
Market Price and Dividend Information..................... 14
Comparative Per Share Data................................ 16
Summary Selected Historical Consolidated Financial Data of
Southdown, Inc......................................... 18
Summary Selected Historical Consolidated Financial Data of
Medusa Corporation..................................... 19
Summary Unaudited Pro Forma Combined Financial Data....... 20
The Shareholders' Meetings.................................. 21
Southdown Annual Meeting.................................. 21
General................................................ 21
Date, Time and Place................................... 21
Purpose................................................ 21
Record Date; Shares Entitled to Vote................... 21
Quorum................................................. 21
Required Vote.......................................... 22
Security Ownership of Management....................... 22
Revocability of Proxies................................ 22
Recommendations of the Southdown Board................. 22
Dissenters' Rights..................................... 22
Other Information Regarding Proxies.................... 23
Medusa Special Meeting.................................... 23
General................................................ 23
Date, Time and Place................................... 23
Purpose................................................ 23
Record Date; Shares Entitled to Vote................... 23
Quorum................................................. 23
Required Vote.......................................... 24
Security Ownership of Management....................... 24
Revocability of Proxies................................ 24
Recommendation of the Medusa Board..................... 24
Dissenters' Rights..................................... 24
Other Information Regarding Proxies.................... 24
The Companies............................................... 25
Southdown................................................. 25
Medusa.................................................... 25
Sub....................................................... 26
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<PAGE> 11
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The Merger.................................................. 26
General................................................... 26
Background of the Merger.................................. 26
Reasons for the Merger; Recommendations of the Boards..... 27
Opinion of Southdown's Financial Advisor.................. 30
Opinion of Medusa's Financial Advisor..................... 34
Conflicts of Interest of Certain Persons.................. 39
Accounting Treatment...................................... 40
Federal Securities Law Consequences....................... 41
Facilities Map............................................ 41
Medusa Board of Directors and Officers Following the
Merger................................................. 42
Southdown Board Following the Merger...................... 42
Combined Operations After the Merger...................... 42
Federal Income Tax Consequences........................... 42
Governmental and Regulatory Approvals..................... 42
Dissenters' Rights........................................ 43
Stock Exchange Listing.................................... 43
Delisting and Deregistration of Medusa Shares............. 43
Amendment to Southdown Articles............................. 43
Summary Selected Historical Consolidated Financial Data of
Southdown, Inc............................................ 45
Summary Selected Historical Consolidated Financial Data of
Medusa Corporation........................................ 46
Market Price and Dividend Information....................... 47
The Merger Agreement........................................ 48
General................................................... 48
Merger Consideration; Exchange Ratio...................... 48
Exchange Procedures....................................... 48
Representations and Warranties............................ 49
Covenants................................................. 50
Conditions Precedent to the Merger........................ 53
No Negotiation or Solicitation by Medusa.................. 53
Termination of the Merger Agreement....................... 54
Amendment and Waiver...................................... 55
Medusa Options............................................ 55
Conduct of Business Prior to Merger....................... 56
Expenses.................................................. 57
Employee Benefits......................................... 57
Rights of Dissenting Shareholders........................... 58
Southdown Shareholders.................................... 58
Medusa Shareholders....................................... 58
Federal Income Tax Consequences............................. 60
Comparison of Shareholders Rights........................... 61
General................................................... 61
Southdown Common Stock.................................... 61
Southdown Rights.......................................... 62
Preferred Stock........................................... 64
Limitations on Dividends and Certain Other Payments....... 65
Change in Control Provisions.............................. 65
Comparison of Medusa Shares and Southdown Common Stock.... 66
</TABLE>
ii
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Other Matters For Southdown Annual Meeting.................. 72
Election of Directors..................................... 72
General................................................ 72
Nominees for Election.................................. 72
Continuing Directors................................... 74
Information Concerning Operation of the Southdown
Board................................................. 75
Executive Compensation and Other Matters.................. 76
Summary Compensation Table............................. 76
Employee Compensation and Benefits Committee Report on
Executive Compensation................................ 76
Stock Performance Graph................................ 79
Compensation Arrangements for and Transactions with
Members of the Board of Directors..................... 79
Employment and Other Agreements........................ 80
Pension Plans.......................................... 81
Stock Options.......................................... 81
Option/SAR Grants To Named Officers in Last Fiscal
Year.................................................. 82
Increase in Shares Available for Grant Under 1989 Stock
Option Plan............................................ 82
Background............................................. 82
Description of the 1989 Plan........................... 83
Required Vote for Approval............................. 85
Grant Limitation Under 1989 Stock Option Plan............. 85
Background............................................. 85
Description of the 1989 Plan........................... 85
Required Vote for Approval............................. 85
Appointment of Independent Auditors....................... 85
Beneficial Ownership of Common Stock...................... 86
Compliance with Section 16(a) of Exchange Act............. 87
Executive Officers of Southdown........................... 88
Date for Submission of Shareholder Proposals.............. 88
Date for Submission of Medusa Shareholder Proposals......... 89
Validity of Shares and Federal Income Tax Matters........... 89
Experts..................................................... 89
Index to Financial Statements............................... F-1
Merger Agreement........................................Appendix A
Fairness Opinion of Lehman Brothers Inc. ...............Appendix B
Fairness Opinion of J.P. Morgan Securities Inc. ........Appendix C
Section 1701.85 of Ohio Revised Code....................Appendix D
1989 Stock Option Plan..................................Appendix E
</TABLE>
iii
<PAGE> 13
AVAILABLE INFORMATION
Each of Southdown and Medusa is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, "Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed by either Southdown or
Medusa with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at its principal office at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the following Regional
Offices of the Commission: New York Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048, and Chicago Regional Office, Citicorp Center,
500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies of such material
can also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
also maintains a World Wide Web site that contains reports, proxy and
information statements, and other information regarding registrants (including
Southdown and Medusa) that file electronically with the Commission (at
http://www.sec.gov). Both the Southdown Common Stock and the Medusa Shares are
listed on the NYSE, and such reports, proxy statements and other information
concerning both Southdown and Medusa are available for inspection and copying at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and the exhibits thereto
for further information. Exhibits to the Registration Statement that are omitted
from this Joint Proxy Statement/ Prospectus may also be obtained at the
Commission's World Wide Web site described above. Statements contained or
incorporated by reference in this Joint Proxy Statement/Prospectus concerning
the provisions of any document are necessarily summaries of such documents and
not complete, and in each instance, reference is made to the copy of such
document attached hereto or filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
Each of Southdown and Medusa has supplied all information contained or
incorporated by reference in this Joint Proxy Statement/Prospectus relating to
Southdown and Medusa, respectively.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS
(OTHER THAN EXHIBITS THERETO WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER OF SOUTHDOWN COMMON STOCK OR MEDUSA SHARES TO WHOM THIS JOINT
PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, IN THE
CASE OF DOCUMENTS RELATING TO SOUTHDOWN, TO SOUTHDOWN, INC., 1200 SMITH STREET,
SUITE 2400, HOUSTON, TEXAS 77002-4486, TELEPHONE (713) 650-6200, ATTENTION:
PATRICK S. BULLARD, VICE PRESIDENT -- GENERAL COUNSEL AND SECRETARY, AND, IN THE
CASE OF DOCUMENTS RELATING TO MEDUSA, TO MEDUSA CORPORATION, 3008 MONTICELLO
BLVD., CLEVELAND HEIGHTS, OHIO 44118; ATTENTION: ROBERT D. VILSACK, VICE
PRESIDENT -- GENERAL COUNSEL AND SECRETARY; TELEPHONE: (216) 371-4000. IN ORDER
TO ENSURE TIMELY DELIVERY, ANY REQUEST FOR DOCUMENTS SHOULD BE MADE NO LATER
THAN JUNE 12, 1998.
---------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING
OF THE SECURITIES MADE BY THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SOUTHDOWN COMMON STOCK MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF
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<PAGE> 14
SOUTHDOWN OR MEDUSA SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME AFTER THE DATE
HEREOF. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Southdown with the Commission pursuant to
the Exchange Act (Commission File No. 1-6117) are hereby incorporated by
reference in, and shall be deemed a part of, this Joint Proxy
Statement/Prospectus:
1. Southdown's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended by Form 10-K/A filed on April 27, 1998;
2. Southdown's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
3. Southdown's Current Report on Form 8-K filed on March 18, 1998, as
amended by Form 8-K/A filed on April 10, 1998; and
4. Southdown's Registration Statement on Form 8-C relating to the
Southdown Common Stock and its Registration Statement on Form 8-A relating
to the Southdown Rights, each as amended to date.
The following documents filed by Medusa with the Commission pursuant to the
Exchange Act (Commission File No. 1-1274-2) are hereby incorporated by reference
in, and shall be deemed a part of, this Joint Proxy Statement/Prospectus:
1. Medusa's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
2. Medusa's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998;
3. Medusa's Current Report on Form 8-K filed on March 24, 1998, as
amended by Form 8-K/A filed on April 28, 1998; and
4. Medusa's Registration Statements on Form 8-A relating to the Medusa
Shares and the Medusa Rights to Purchase Preferred Shares, each as amended
to date.
All reports and other documents filed with the Commission by either
Southdown or Medusa pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Joint Proxy Statement/Prospectus and prior
to the date of the Southdown Annual Meeting and the Medusa Special Meeting, as
the case may be, shall be deemed to be incorporated by reference herein and to
be a part hereof from the respective dates of filing of such reports and other
documents, other than the portions of such documents which by statute, by
designation in such documents or otherwise, are not required to be filed with
the Commission or are not required to be incorporated herein by reference. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for all purposes to the extent that a statement contained in any other
subsequently filed document that is also incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
2
<PAGE> 15
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus and the Appendices hereto (the "Joint
Proxy Statement/Prospectus"). Reference is made to, and this Summary is
qualified in its entirety by, the more detailed information and financial
statements appearing elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus and in the Appendices hereto, including, but not limited
to, the Merger Agreement included as Appendix A hereto. Unless otherwise
defined, capitalized terms used in this Summary have the respective meanings
ascribed to them elsewhere in this Joint Proxy Statement/Prospectus. The
shareholders of Southdown and Medusa are urged to read and consider carefully
all of the information contained or incorporated by reference in this Joint
Proxy Statement/ Prospectus. Unless the context otherwise requires, as used
herein the term "Southdown" refers to Southdown, Inc. and its subsidiaries and
the term "Medusa" refers to Medusa Corporation and its subsidiaries.
GENERAL
The Merger of Medusa with a wholly-owned subsidiary of Southdown will
result in the shareholders of Medusa receiving in a tax-free transaction .88
shares of Southdown Common Stock (and associated Southdown Rights) in exchange
for each Medusa Share. Southdown will issue approximately 14.7 million shares of
Southdown Common Stock in the Merger, representing approximately 38% of the
Southdown Common Stock outstanding after giving effect to the Merger. As a
result of the Merger, Medusa will become a wholly-owned subsidiary of Southdown.
The Merger will enhance Southdown's ability to capitalize on strong
industry fundamentals which include: (i) continuing growth of domestic cement
demand which exceeds domestic productive capacity; (ii) the strong pricing
environment in most domestic regional cement markets; (iii) the substantial
reduction of dumped cement imports into the U.S. after the imposition of
antidumping duties; and (iv) the return of cement imports to their traditional
role as a supplemental source of supply in the U.S. The combination of Southdown
and Medusa will create the second largest and the most modern system of cement
manufacturing plants in the United States. Southdown believes that the expanded
network of preheater/precalciner facilities should present additional
opportunities for cost effective capacity expansions and earnings growth.
Medusa's operations complement Southdown's existing asset base, and the combined
network of plants and distribution terminals provides broad coverage of the
market east of the Mississippi River. The Merger will create a significantly
larger company with greater financial flexibility, a stronger balance sheet,
higher market capitalization and greater earnings and cash flows, all of which
should enhance shareholder value.
THE COMPANIES
SOUTHDOWN
Southdown is one of the leading cement and ready-mixed concrete companies
in the United States. Southdown's operations are strategically located in
various regions of the United States, many of which Southdown believes have
attractive prospects for long-term economic growth. Southdown operates eight
cement manufacturing facilities and seven quarrying sites and utilizes a network
of 20 cement storage and distribution terminals for the importation and
distribution of portland and masonry cements, primarily in the Ohio valley and
the southwestern and southeastern regions of the United States. Southdown 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. Southdown is the third largest producer of cement in the
United States and produces cement at its plants located in California, Florida,
Kentucky, Ohio, Tennessee, Texas, Colorado and Pennsylvania, which have a
combined cement manufacturing capacity of approximately 7.1 million short tons
(6.8 million short tons, excluding the joint venture interests of others).
Southdown's principal executive offices are located at 1200 Smith Street, Suite
2400, Houston, Texas 77002-4486, and its telephone number is (713) 650-6200.
3
<PAGE> 16
MEDUSA
Medusa operates in three business segments. Medusa's Cement Group produces
and sells gray portland cement and masonry cement. Its Aggregates Group mines,
processes and sells construction aggregates, limestone-related home and garden
products and industrial limestone products. Its James H. Drew Corporation
subsidiary provides construction services for highway safety. Medusa's
operations are conducted principally in the eastern half of the United States.
Medusa ranks ninth in capacity among all United States cement companies and
fourth in capacity among those domestically owned. Medusa's cement plants in
Michigan, Georgia, Alabama and Pennsylvania, which have a combined cement
manufacturing capacity of approximately 3.7 million short tons, serve markets in
portions of the Great Lakes, the southeast and the western
Pennsylvania/northeastern Ohio regions of the United States. The principal
executive offices of Medusa are located at 3008 Monticello Blvd., Cleveland
Heights, Ohio 44118, and its telephone number is (216) 371-4000.
THE SHAREHOLDERS' MEETINGS
SOUTHDOWN ANNUAL MEETING
Date, Time and Place. The Southdown Annual Meeting will be held at the
Doubletree Hotel at Allen Center, 400 Dallas Street, Houston, Texas, on Friday,
June 19, 1998, at 8:30 a.m., local time. See "The Shareholders'
Meetings -- Southdown Annual Meeting -- Date, Time and Place."
Purpose. The purpose of the Southdown Annual Meeting is: (i) to consider
and vote upon proposals to (a) approve the Charter Amendment; (b) approve the
Stock Issuance; (c) elect one director as a member of Class II and four
directors as members of Class I to Southdown's Board of Directors to serve until
the 1999 and 2001 annual meetings of shareholders, respectively; (d) approve an
increase in the number of shares of Southdown Common Stock available for grant
under Southdown's 1989 Stock Option Plan from 2,000,000 to 5,000,000; (e) impose
an annual limit on the number of options that may be awarded to any one person
under the 1989 Stock Option Plan in order to comply with applicable federal
income tax requirements; (f) approve the appointment of Deloitte & Touche LLP as
Southdown's independent auditors for 1998; and (ii) to transact such other
business as may properly come before the meeting. See "The Shareholders'
Meetings -- Southdown Annual Meeting -- Purpose."
Record Date; Shares Entitled to Vote. Only holders of record of shares of
Southdown Common Stock at the close of business on May 15, 1998 (the "Southdown
Record Date") are entitled to notice of and to vote at the Southdown Annual
Meeting. On the Southdown Record Date, there were shares of Southdown
Common Stock outstanding. Such shares of Southdown Common Stock will be entitled
to one vote, exercisable in person or by properly executed proxy, on each matter
to be acted upon at the Southdown Annual Meeting. See "The Shareholders'
Meetings -- Southdown Annual Meeting -- Record Date; Shares Entitled to Vote."
Quorum. The Restated Articles of Incorporation, as amended, of Southdown
("Southdown Articles") and the Bylaws, as amended, of Southdown ("Southdown
Bylaws") require the holders of a majority of the outstanding shares of
Southdown Common Stock to be present in person or by proxy for any action to be
taken at the Southdown Annual Meeting. For purposes of determining whether this
quorum requirement is met, abstentions and broker non-votes received in
connection with properly signed and returned proxies will be counted as shares
present. See "The Shareholders' Meetings-- Southdown Annual Meeting -- Quorum."
Required Vote. Approval of the Charter Amendment requires the affirmative
vote of the holders of a majority of the shares of Southdown Common Stock
outstanding on the Southdown Record Date. The Merger will not be consummated
unless the Charter Amendment is approved. Approval of the Stock Issuance
requires the affirmative vote of the holders of a majority of the shares of
Southdown Common Stock present in person or represented by proxy and entitled to
vote at the Southdown Annual Meeting, provided that the total votes cast
represent over 50% of the shares of Southdown Common Stock issued and
outstanding on the Southdown Record Date. Directors will be elected by a
plurality of votes cast at the Southdown Annual Meeting, and the
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<PAGE> 17
other matters scheduled to come before the Southdown Annual Meeting will require
the affirmative vote of a majority of the votes cast on each proposal. "The
Shareholders' Meetings -- Southdown Annual Meeting -- Required Vote."
An abstention with respect to the Charter Amendment, the Stock Issuance or
the proposed amendments to Southdown's 1989 Stock Option Plan will have the
effect of a vote against each proposal. Brokers who hold shares of Southdown
Common Stock will not have discretionary authority to vote such shares in
respect of the Charter Amendment, the Stock Issuance or the proposed amendments
to Southdown's 1989 Stock Option Plan in the absence of instructions from the
beneficial owners thereof. Assuming that a quorum is present at the Southdown
Annual Meeting, any shares which are not voted by such brokers will have no
impact on the vote with respect to the Stock Issuance or the amendments to
Southdown's 1989 Stock Option Plan but will have the effect of a vote against
the Charter Amendment. See "The Shareholders' Meetings -- Southdown Annual
Meeting -- Required Vote."
Security Ownership of Management. As of the Southdown Record Date, the
directors and executive officers of Southdown and certain of their affiliates
owned approximately % of the outstanding Southdown Common Stock, and each
such person has advised Southdown that such person intends to vote in favor of
the Charter Amendment and the Stock Issuance and the other matters proposed by
the Board of Directors of Southdown at the Southdown Annual Meeting. See "The
Shareholders' Meetings -- Southdown Annual Meeting -- Security Ownership of
Management."
Revocability of Proxies. Any proxy given pursuant to this solicitation by
Southdown may be revoked by: (i) filing with the Secretary of Southdown, before
the taking of the vote at the Southdown Annual Meeting, a written notice of
revocation bearing a later date than the date of the proxy or any later-dated
proxy relating to the same shares; or (ii) attending the Southdown Annual
Meeting and voting in person. Attendance at the Southdown Annual Meeting will
not in and of itself constitute the revocation of a proxy. See "The
Shareholders' Meetings -- Southdown Annual Meeting -- Revocability of Proxies."
Recommendations of the Board of Directors. The Board of Directors of
Southdown (sometimes hereinafter referred to as the "Southdown Board") has
determined that the terms of the Merger Agreement and the transactions
contemplated thereby are fair to and in the best interest of the Southdown
shareholders. Accordingly, the Southdown Board has approved the Merger Agreement
and the transactions contemplated thereby and recommends that Southdown
shareholders vote FOR the approval and adoption of the Charter Amendment and the
Stock Issuance. The Southdown Board also recommends that Southdown shareholders
vote FOR the approval of the other proposals to be submitted by it at the
Southdown Annual Meeting. See "The Merger -- Reasons for the Merger;
Recommendations of the Boards -- Southdown," "Amendment to Southdown Articles,"
and "Other Matters for Southdown Annual Meeting -- Election of Directors;"
"-- Increase in Shares Available for Grant Under 1989 Stock Option Plan; and
"-- Grant Limitation Under 1989 Stock Option Plan."
Dissenters' Rights. Southdown shareholders will not be entitled to
dissenters' rights under the Louisiana Business Corporation Law ("LBCL") with
respect to the Charter Amendment, the Stock Issuance or the other matters to be
presented at the Southdown Annual Meeting. See "Rights of Dissenting
Shareholders -- Southdown Shareholders."
MEDUSA SPECIAL MEETING
Date, Time and Place. The Medusa Special Meeting will be held at the
Sheraton Stamford Hotel, One First Stamford Place, Stamford, Connecticut, on
Friday, June 19, 1998, at 9:00 a.m., local time. See "The Shareholders'
Meetings -- Medusa Special Meeting -- Date, Time and Place."
Purpose. The purpose of the Medusa Special Meeting is: (i) to consider and
vote on the Merger Proposal; and (ii) to transact such other business, incident
to the conduct of the meeting, as may properly come before the Medusa Special
Meeting. See "The Shareholders' Meetings -- Medusa Special Meeting -- Purpose."
5
<PAGE> 18
Record Date; Shares Entitled to Vote. Only holders of record of Medusa
Shares at the close of business on May 15, 1998 ("Medusa Record Date") are
entitled to notice of and to vote at the Medusa Special Meeting. On the Medusa
Record Date, there were Medusa Shares outstanding. Each Medusa Share
will be entitled to one vote, exercisable in person or by properly executed
proxy, on each matter to be acted upon at the Medusa Special Meeting. See "The
Shareholders' Meetings -- Medusa Special Meeting -- Record Date; Shares Entitled
to Vote."
Quorum. The Code of Regulations of Medusa ("Medusa Regulations") requires
the holders of a majority of the outstanding Medusa Shares to be present in
person or by proxy for any action to be taken at the Medusa Special Meeting. For
purposes of determining whether this quorum requirement is met, abstentions and
broker non-votes received in connection with properly signed and returned
proxies will be counted as shares present. See "The Shareholders'
Meetings -- Medusa Special Meeting -- Quorum."
Required Vote. Approval and adoption of the Merger Proposal requires the
affirmative vote of the holders of a majority of the Medusa Shares outstanding
on the Medusa Record Date. An abstention with respect to the Merger Proposal
will have the effect of a vote against that proposal. Brokers who hold Medusa
Shares will not have discretionary authority to vote such shares in respect of
the Merger Proposal in the absence of instructions from the beneficial owners
thereof. Assuming that a quorum is present at the Medusa Special Meeting, any
shares which are not voted will have the effect of a vote against the Merger
Proposal. See "The Shareholders' Meetings -- Medusa Special Meeting -- Required
Vote."
Security Ownership of Management. As of the Medusa Record Date, the
directors and executive officers of Medusa and certain of their affiliates owned
approximately % of the outstanding Medusa Shares, and each such person has
advised Medusa that such person intends to vote in favor of the Merger Proposal.
See "The Shareholders' Meetings -- Medusa Special Meeting -- Required Vote."
Certain of these persons holding approximately 5.8% of the Medusa Shares
outstanding at the Medusa Record Date have given Southdown their irrevocable
proxy to vote their shares in favor of the Merger Proposal.
Revocability of Proxies. Any proxy given pursuant to this solicitation by
Medusa may be revoked by: (i) giving notice of revocation to the Secretary of
Medusa, before the taking of the vote at the Medusa Special Meeting, a written
notice of revocation bearing a later date than the date of the proxy or any
later-dated proxy relating to the same shares; or (ii) attending the Medusa
Special Meeting and voting in person. Attendance at the Medusa Special Meeting
will not in and of itself constitute a revocation of a proxy. See "The
Shareholders' Meetings -- Medusa Special Meeting -- Revocability of Proxies."
Recommendation of the Board of Directors. The Board of Directors of Medusa
("Medusa Board") has determined that the terms of the Merger Agreement and the
transactions contemplated thereby are fair to and in the best interest of the
Medusa shareholders. Accordingly, the Medusa Board has approved the Merger
Agreement and the transactions contemplated thereby and recommends that Medusa
shareholders vote FOR the approval and adoption of the Merger Proposal. See "The
Merger -- Reasons for the Merger; Recommendation of the Boards -- Medusa." In
considering the Medusa Board's recommendation, certain members of the Medusa
Board may be deemed to have interests in addition to or potentially different
from the interests of shareholders of Medusa generally. See "The
Merger -- Conflicts of Interest of Certain Persons."
Dissenters' Rights. The shareholders of Medusa will be entitled to
dissenters' appraisal rights in connection with the Merger under the Ohio
Revised Code ("ORC"), to the extent they fully comply with the procedural
requirements of the ORC. See "Rights of Dissenting Shareholders -- Medusa
Shareholders." Southdown's obligation to consummate the Merger is specifically
conditioned upon the holders of not more than 5% of the Medusa Shares, on a
fully diluted basis, perfecting their dissenters' rights under the ORC.
Southdown believes, however, that the perfection of dissenters' rights by the
holders of more than approximately 700,000 Medusa Shares (approximately 4% of
the Medusa Shares outstanding on the Medusa Record Date) may preclude pooling of
interests accounting treatment for the Merger, which is also a condition to
Southdown's obligation to consummate the Merger. See "The Merger
Agreement -- Conditions Precedent to the Merger."
6
<PAGE> 19
THE MERGER AND THE MERGER AGREEMENT
The Merger Agreement is attached as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference.
GENERAL
At the Effective Time (as defined below), Sub will be merged with and into
Medusa, with Medusa surviving the Merger as a wholly-owned subsidiary of
Southdown. The Merger will become effective upon the filing of a Certificate of
Merger (the "Certificate of Merger") with the Secretary of State of the State of
Ohio, which is currently expected to occur after receipt of requisite regulatory
and shareholder approvals and the satisfaction or waiver of certain other
conditions set forth in the Merger Agreement. As used in this Joint Proxy
Statement/Prospectus, the time at which the Merger becomes effective will be the
"Effective Time," and the date upon which the Effective Time occurs will be the
"Effective Date." See "The Merger Agreement -- Conditions Precedent to the
Merger."
EXCHANGE RATIO
In the Merger, each Medusa Share issued and outstanding immediately prior
to the Effective Time (excluding those held by shareholders who perfect their
dissenters' rights to receive cash and those held in the treasury of Medusa or
its subsidiaries and those held by Southdown or its subsidiaries, which will be
canceled), without any action on the part of the holder thereof, will be
converted into the right to receive .88 shares of Southdown Common Stock
together with the associated Southdown Rights. A cash payment will be made in
lieu of any fractional share of Southdown Common Stock. See "The Merger
Agreement -- Merger Consideration; Exchange Ratio."
BACKGROUND OF AND REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARDS
The Southdown Board believes that the Merger will enhance Southdown's
ability to capitalize on strong industry fundamentals which include: (i)
continuing growth of domestic cement demand which exceeds domestic productive
capacity; (ii) the strong pricing environment in most domestic regional cement
markets; (iii) the substantial reduction of dumped cement imports into the U.S.
after the imposition of antidumping duties; and (iv) the return of cement
imports to their traditional role as a supplemental source of supply in the U.S.
The combination of Southdown and Medusa will create the second largest and the
most modern system of cement manufacturing plants in the United States.
Southdown believes that the expanded network of preheater/precalciner facilities
should present additional opportunities for cost effective capacity expansions
and earnings growth. Medusa's operations complement Southdown's existing asset
base, and the combined network of plants and distribution terminals provides
broad coverage of the market east of the Mississippi River. The Merger will
create a significantly larger company with greater financial flexibility, a
stronger balance sheet, higher market capitalization and greater earnings and
cash flows, all of which should enhance shareholder value.
The Medusa Board believes that the Merger will have benefits to the
combined company resulting from its increased size, including the potential for
enhanced purchasing economies, financial and strategic position to pursue
additional consolidation opportunities, enhanced credit standing, a higher
profile with investors, and substantially greater liquidity for shareholders.
The Medusa Board also believes that Medusa shareholders who become shareholders
of the combined company would likely benefit from increased earnings due to
Southdown's operations on the West Coast, where markets are now in a strong
cyclical upswing. Additionally, the combined company, with its broader
geographic base, should have a diminished risk of earnings volatility from
weaknesses in specific markets. Furthermore, the Exchange Ratio represents a
substantial premium over the closing prices of Medusa Shares during the period
preceding the public announcement of the proposed Merger, and the Merger is
expected to be a tax-free transaction to Medusa and its shareholders.
To Southdown Shareholders:
THE SOUTHDOWN BOARD BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST
INTEREST OF THE SOUTHDOWN SHAREHOLDERS AND UNANIMOUSLY RECOM-
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<PAGE> 20
MENDS THAT THE HOLDERS OF SOUTHDOWN COMMON STOCK VOTE FOR APPROVAL OF THE
CHARTER AMENDMENT AND THE STOCK ISSUANCE. For a more detailed discussion of the
factors considered by the Southdown Board in reaching its decision and the
background and reasons for the Merger, see "The Merger -- Background of the
Merger" and "-- Reasons for the Merger; Recommendations of the
Boards -- Southdown."
To Medusa Shareholders:
THE MEDUSA BOARD BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST
INTEREST OF THE MEDUSA SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS
OF MEDUSA SHARES VOTE FOR APPROVAL AND ADOPTION OF THE MERGER PROPOSAL. For a
more detailed discussion of the factors considered by the Medusa Board in
reaching its decision and the background and reasons for the Merger, see "The
Merger -- Background of the Merger" and "-- Reasons for the Merger;
Recommendations of the Boards -- Medusa."
OPINIONS OF FINANCIAL ADVISORS
In deciding to approve the Merger, each of the Southdown Board and the
Medusa Board (together, the "Boards") considered opinions from their respective
financial advisors as to the fairness of the Exchange Ratio from a financial
point of view. Southdown received an opinion (the "Lehman Brothers Opinion")
from its financial advisor, Lehman Brothers Inc. ("Lehman Brothers"), to the
effect that, as of March 17, 1998, the Exchange Ratio to be paid by Southdown to
the shareholders of Medusa in the Merger is fair from a financial point of view
to Southdown. Medusa received an opinion (the "J.P. Morgan Opinion") from its
financial advisor, J.P. Morgan Securities Inc. ("J.P. Morgan"), to the effect
that, as of March 17, 1998, the Exchange Ratio is fair from a financial point of
view to Medusa's shareholders. The Lehman Brothers Opinion and the J.P. Morgan
Opinion are attached as Appendices B and C, respectively, to this Joint Proxy
Statement/ Prospectus. Shareholders are encouraged to read these opinions. See
"The Merger -- Opinion of Southdown's Financial Advisor" and "-- Opinion of
Medusa's Financial Advisor."
OWNERSHIP OF SOUTHDOWN FOLLOWING THE MERGER
The shares of Southdown Common Stock issued to Medusa shareholders in the
Merger will constitute approximately 38% of all of the outstanding Southdown
Common Stock after the Merger, and the current Southdown shareholders will hold
the remaining approximately 62% of such shares.
ACCOUNTING TREATMENT
The Merger is intended to qualify for "pooling of interests" accounting
treatment under generally accepted accounting principles. Conditions precedent
to the Merger include the delivery by Deloitte & Touche LLP to Southdown of a
letter concurring in Southdown's conclusion that, as of a specified date, no
conditions exist which could preclude Southdown accounting for the Merger as a
pooling of interests and the delivery by Deloitte & Touche LLP to Medusa of a
letter concurring with Medusa's conclusion that, as of a specified date, no
conditions exist that could preclude Medusa's ability to be a party in a
business combination to be accounted for as a pooling of interests. See "The
Merger -- Accounting Treatment" and "The Merger Agreement -- Conditions
Precedent to the Merger."
FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned upon receipt by Southdown of an
opinion of its tax counsel, Bracewell & Patterson, L.L.P., and by Medusa of an
opinion of its tax counsel, Milbank, Tweed, Hadley & McCloy, that the Merger
will qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). Hence, a holder of
Medusa Shares will not recognize gain or loss on the exchange of Medusa Shares
for Southdown Common Stock pursuant to the Merger, except to the extent that
such holder receives cash in lieu of a fractional share of Southdown Common
Stock or such holder receives fair cash value pursuant to the exercise of
dissenters' rights. All shareholders should read
8
<PAGE> 21
carefully the discussion in "Federal Income Tax Consequences" and the other
sections of this Joint Proxy Statement/Prospectus. All shareholders are urged to
consult their own tax advisors as to the specific consequences to them of the
Merger under United States federal, state, local or any other applicable tax
laws.
FACILITIES MAP
The map on the inside cover page of this Joint Proxy Statement/Prospectus
shows the location of the cement plants, distribution terminals and other
facilities owned by Southdown and Medusa as of March 31, 1998.
MEDUSA BOARD OF DIRECTORS AND OFFICERS FOLLOWING THE MERGER
If the proposed Merger is approved and consummated, holders of Medusa
Shares will become shareholders of Southdown, which will be under the direction
of the Southdown Board and the management of Southdown. The officers of Sub at
the date of the Merger Agreement will become the officers of New Medusa after
the Merger. The directors of Medusa at the date of the Merger Agreement will be
the directors of New Medusa at the time of the Merger. Southdown intends to
cause designees from its executive staff to be elected directors of the
Surviving Corporation promptly following the Merger.
SOUTHDOWN BOARD FOLLOWING THE MERGER
Immediately following the Effective Time, the Southdown Board will consist
of 13 members. Two members of the Southdown Board will be Robert S. Evans, the
current Chairman and Chief Executive Officer of Medusa, and George E. Uding,
Jr., the current President and Chief Operating Officer of Medusa. Neither Mr.
Evans nor Mr. Uding will be an officer of Southdown. See "The
Merger -- Southdown Board Following the Merger."
REGULATORY APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), prohibits consummation of the Merger until Premerger Notification
and Report Forms have been submitted and certain information has been furnished
to the United States Federal Trade Commission (the "FTC") and the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the specified waiting period requirements of the HSR Act have expired or
been terminated. The required waiting period under the HSR Act with respect to
the Merger was terminated on April 16, 1998. See "The Merger -- Governmental and
Regulatory Approvals."
CONDITIONS PRECEDENT TO THE MERGER
The obligations of Southdown and Medusa to effect the Merger are subject
to, among other things, the fulfillment of certain conditions, including without
limitation: (i) the absence of any temporary restraining order, preliminary or
permanent injunction or other order or decree or any statute, rule or regulation
that prevents consummation of the Merger; (ii) the expiration or termination of
any waiting period applicable to the consummation of the Merger under the HSR
Act and the receipt of all other required approvals, consents, permits or
authorizations from governmental authorities; (iii) the approval of the Merger
Proposal by the Medusa shareholders; (iv) the approval of the Charter Amendment
and the Stock Issuance by the Southdown shareholders; (v) the effectiveness of
the Registration Statement and the absence of the threat of any stop order or
similar restraining order; (vi) the receipt by Southdown of an opinion of
Bracewell & Patterson, L.L.P. and the receipt by Medusa of an opinion of
Milbank, Tweed, Hadley & McCloy, in each case that the Merger will constitute a
reorganization under Section 368(a) of the Code; (vii) the delivery by Deloitte
& Touche LLP to Southdown of a letter concurring with Southdown's conclusion
that, as of a specified date, no conditions exist that would preclude Southdown
accounting for the Merger as a pooling of interests; (viii) the delivery by
Deloitte & Touche LLP to Medusa of a letter concurring with Medusa's conclusion
that, as of a specified date, no conditions exist that would preclude Medusa's
ability to be a party in a business combination
9
<PAGE> 22
to be accounted for as pooling of interests; and (ix) the authorization for
listing on the NYSE of the shares of Southdown Common Stock issuable in the
Merger, subject to official notice of issuance.
The obligation of Medusa to effect the Merger is subject to the
satisfaction of certain additional conditions, including: (i) the absence of any
breach of the representations and warranties of Southdown and Sub in the Merger
Agreement that would reasonably be expected to have in the reasonably
foreseeable future a material adverse effect (as defined in the Merger
Agreement); (ii) the performance in all material respects of the obligations and
covenants of Southdown and Sub under the Merger Agreement; (iii) the receipt of
certificates from Southdown and Sub to the foregoing effects; and (iv) the
Southdown Rights, among other things, not having become exercisable or
transferable apart from the associated shares of Southdown Common Stock.
The obligation of Southdown and Sub to effect the Merger is also subject to
the satisfaction of certain additional conditions, including: (i) the absence of
any breach of the representations and warranties of Medusa that would reasonably
be expected to have in the reasonably foreseeable future a material adverse
effect (as defined in the Merger Agreement); (ii) the performance in all
material respects of the obligations and covenants of Medusa under the Merger
Agreement; (iii) the holders of not more than 5% of the Medusa Shares, on a
fully diluted basis, having perfected their appraisal rights under the ORC; (iv)
the receipt of a certificate from Medusa to the foregoing effects; and (v) the
preferred stock purchase rights issued by Medusa pursuant to the Rights
Agreement dated as of October 13, 1988, as amended ("Medusa Rights"), among
other things, not having become exercisable or transferable apart from the
associated Medusa Shares.
The parties to the Merger Agreement may, by an instrument in writing, waive
compliance by other parties with any term or provision of the Merger Agreement
on the part of such other party to be performed or complied with. However,
Southdown and Medusa have advised each other that they will not waive the
conditions to their respective obligations relating to the triggering of the
Southdown Rights or the Medusa Rights without a resolicitation of proxies from
their shareholders pursuant to revised proxy materials. Before waiving any other
condition, Southdown and Medusa will resolicit their respective shareholders to
the extent required by applicable law. See "The Merger Agreement -- Amendment
and Waiver."
NO NEGOTIATION OR SOLICITATION BY MEDUSA
Medusa has agreed, on behalf of itself and its affiliates, during the term
of the Merger Agreement that it will not: (i) solicit, initiate, encourage or
facilitate any Competing Transaction (as defined in the Merger Agreement) or
furnish confidential information with respect thereto; (ii) negotiate, explore
or otherwise engage in discussions with others regarding a possible Competing
Transaction; or (iii) enter into any agreement, arrangement or understanding
requiring Medusa to abandon the Merger. Notwithstanding the foregoing, the
Medusa Board may authorize Medusa's participation in a Competing Transaction if,
among other things, outside legal counsel renders a written opinion to the
Medusa Board that such action is required for the Medusa Board to comply with
its fiduciary duties under applicable law and a nationally recognized investment
banking firm renders a written opinion to the Medusa Board that the
consideration payable to the Medusa shareholders under the proposed Competing
Transaction is superior, from a financial point of view, to the consideration
payable to them in the Merger. Medusa is obligated to apprise Southdown at the
inception of any such Competing Transaction and to keep Southdown apprised of
the status of any ensuing developments. See "The Merger Agreement -- No
Negotiation or Solicitation by Medusa."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated by either Southdown or Medusa and
the Merger abandoned under certain circumstances, including, but not limited to,
the following: (i) any permanent injunction or other order or decree preventing
consummation of the Merger has become final and non-appealable, provided that
the terminating party has used its best commercial efforts to remove such
injunction, order or decree; (ii) the Merger has not been consummated by
September 30, 1998, provided that the terminating party has not failed to
perform any material covenant or agreement that caused or resulted in the
failure of the Merger to close; (iii) the shareholders of Medusa fail to approve
the Merger Proposal at the Medusa Special Meeting;
10
<PAGE> 23
(iv) the shareholders of Southdown fail to approve the Charter Amendment or the
Stock Issuance at the Southdown Annual Meeting; or (v) the other party fails to
cure a material breach under the Merger Agreement within 30 days following
receipt of written notice to do so, provided that the terminating party is not
in material breach of the Merger Agreement.
The Merger Agreement also may be terminated prior to the Effective Date,
whether before or after approval by the Medusa shareholders of the Merger
Proposal or approval by the Southdown shareholders of the Charter Amendment and
the Stock Issuance, in each event by the mutual consent of Southdown and Medusa.
The Merger Agreement also may be terminated by Medusa under the following
circumstances: (i) the lapse of five business days after Medusa's delivery of
written notice to Southdown that the Medusa Board has determined in good faith,
and continues to believe at the date of termination, that a Competing
Transaction is more favorable to the shareholders of Medusa in the aggregate and
from a financial point of view than the Merger ("Superior Offer"); or (ii) the
volume weighted average trading price of the Southdown Common Stock, rounded to
the nearest three decimal places, for the 15 consecutive trading days ending on
and including the third trading day prior to the date upon which the Merger is
expected to be consummated, as reported by Bloomberg Financial Markets, is less
than $57.50 and the volume weighted average trading price of a composite index
of five publicly-traded cement companies (excluding Southdown and Medusa) over
the same period outperforms the volume weighted average trading price of the
Southdown Common Stock by more than 20 percentage points ("Inadequate Price").
In determining whether to exercise Medusa's right to terminate the Merger
Agreement because of Inadequate Price, Medusa's directors must act in good
faith, in a manner they reasonably believe to be in or not opposed to Medusa's
best interests, and with the care that an ordinarily prudent person would
reasonably be expected to exercise in a like position and under similar
circumstances. The Medusa Board will consider all relevant factors in
determining whether to terminate the Merger Agreement because of an Inadequate
Price determination, including such factors as the value of the Merger
consideration currently and taking into account the prospects of the combined
company; the value of Medusa on a stand-alone basis, taking into account any
foreseeable consequences of the failure to consummate the Merger (including the
requirement to pay the $15 million termination fee); the reports and/or
recommendations of its advisors; the amount by which the volume weighted average
trading price was below the target of $57.50 (as described above); the amount by
which the peer group composite index outperforms, in excess of 20 percentage
points, the Southdown Common Stock index (as described above); the reasons for
such shortfall and excess; respectively; and other relevant factors. In the
event Medusa determines to exercise or waive the right to terminate the Merger
Agreement after the initial solicitation for the Merger Proposal because of
Inadequate Price, Medusa will resolicit the Medusa Shareholders regarding its
exercise of such termination right to the extent it is required by law to do so.
If Medusa terminates the Merger Agreement because of an Inadequate Price
determination, Medusa shall, within three business days after termination, pay
Southdown a termination fee of $15 million in immediately available funds. If,
after the occurrence of a Prior Event (as defined below), Southdown terminates
the Merger Agreement because of Medusa's material breach of the terms thereof or
either Medusa or Southdown terminates the Merger Agreement because the Medusa
shareholders fail to approve the Merger Proposal, Medusa shall, within three
business days after the termination, pay Southdown a termination fee of $30
million in immediately available funds. If Medusa terminates the Merger
Agreement because of the receipt of a Superior Offer, Medusa likewise shall pay
Southdown $30 million within three business days after the consummation of the
transaction relating to the Superior Offer.
For the foregoing purposes, a "Prior Event" shall occur if: (i) a person
(other than Southdown or one of its subsidiaries) commences a tender offer or an
exchange offer to purchase 15% or more of the Medusa Shares; (ii) Medusa
authorizes, recommends, proposes or publicly announces an intention, or another
person (other than Southdown or any of its subsidiaries) announces an intention,
to (a) enter into a recapitalization, merger, consolidation or business
combination with Medusa or acquire in excess of a stipulated amount of Medusa
capital stock or a material portion of Medusa's assets or any combination of the
foregoing,
11
<PAGE> 24
(b) purchase, lease or otherwise acquire 15% or more of the assets of Medusa or
any of its subsidiaries, or (c) purchase or otherwise acquire 15% or more of the
Medusa Shares; or (iii) any person (other than Southdown or its affiliates)
acquires 15% or more of the Medusa Shares.
See generally "The Merger Agreement -- Termination of the Merger
Agreement."
CONFLICTS OF INTEREST OF CERTAIN PERSONS
Certain members of Medusa's senior management and the Medusa Board may be
deemed to have certain interests in the Merger that are in addition to or
potentially different from the interests of shareholders of Medusa generally.
The following is a summary of such interests.
Immediately following the Effective Time, two members of the Southdown
Board will be Robert S. Evans, the current Chairman and Chief Executive Officer
of Medusa, and George E. Uding, Jr., the current President and Chief Operating
Officer of Medusa. In addition, Medusa has special severance agreements
("Severance Agreements") with eight of its executive officers, including Messrs.
Evans and Uding, providing for a lump sum cash payment of three times the amount
of the executive's annual base salary and a pro-rata portion of any annual
incentive compensation from the previous year upon the occurrence of a change of
control such as shareholder approval of the Merger Proposal even if the Merger
is not consummated. The Severance Agreements also provide for the reimbursement
of such executives on an after-tax basis in respect of any excise tax imposed on
benefits received by the executives in connection with the Merger under Section
4999 of the Code (the "Excise Tax Reimbursement"), irrespective of whether such
benefits are received by reason of the Severance Agreements or otherwise.
Each outstanding and unexercised option (each, a "Medusa Option") to
purchase Medusa Shares will be assumed by Southdown in the Merger and converted
into an option to purchase shares of Southdown Common Stock (each, a "Substitute
Option"), subject to the terms of Medusa's 1991 Long-Term Incentive Plan
("Medusa Incentive Plan") and the individual award agreements issued thereunder,
including the terms and provisions governing vesting and exercisability. Under
the Medusa Incentive Plan and the Merger Agreement, all Medusa Options will
become fully vested and exercisable as of the Effective Time, and the Merger
Agreement will extend the post-termination exercise period in certain
situations. As of the Medusa Record Date, approximately shares of
Southdown Common Stock would be issuable upon the exercise of Substitute Options
based on the number of Medusa Shares subject to existing Medusa Options
multiplied by the Exchange Ratio, with the exercise price under each Substitute
Option being equal to the exercise price under the Medusa Options divided by the
Exchange Ratio. See "The Merger Agreement -- Medusa Options."
Under the Medusa Incentive Plan and the senior executive restricted share
agreements issued pursuant thereto, the performance-based restricted Medusa
Shares awarded to all of the executive officers of Medusa will automatically
become fully vested upon the approval of the Merger Proposal by the Medusa
shareholders even if the Merger is not thereafter consummated for any reason. If
the Merger is consummated, the Medusa Shares will be exchanged for unrestricted
Southdown Common Stock. Such vesting in respect of the performance-based
restricted Medusa Shares will also entitle the holders thereof to an income tax
indemnity for the income taxes reportable in connection with such vesting, in
addition to Excise Tax Reimbursement.
Under the Medusa Non-Employee Director Restricted Stock Plan (the "Director
Stock Plan"), all Medusa non-employee directors receive a portion of their
annual director's fee in the form of Medusa Shares. A pro-rata portion of such
Medusa Shares are forfeitable if the non-employee director fails to remain a
member of the Medusa Board until the next annual meeting of Medusa's
shareholders. The forfeited amount is determined based on the number of full
months of service on the Medusa Board in such annual period prior to such
termination of the board services. Notwithstanding the above, pursuant to the
Director Stock Plan and the restricted share agreements issued thereunder, the
Medusa Shares awarded to the non-employee directors will automatically become
non-forfeitable upon the approval of the Merger Proposal by the Medusa
shareholders even if the Merger is not thereafter consummated for any reason. If
the Merger is consummated, the Medusa Shares will be exchanged for unrestricted
Southdown Common Stock. The approximate aggregate value of the shares as to
which this accelerated vesting will occur is approximately $94,000.
12
<PAGE> 25
Pursuant to the Merger Agreement, Southdown has agreed to assume the
obligations of Medusa under the foregoing arrangements.
In connection with the Severance Agreements and the Medusa Incentive Plan,
as described above, an aggregate of approximately $65 million in cash payments
and other benefits will be made to all Medusa executive officers. Of this
amount, nine executive officers of Medusa will receive payments and benefits
approximately valued as follows: Mr. Uding, $20 million; Mr. Evans, $14 million;
Mr. Kane, $7 million; Mr. Denny, $6 million; Mr. Knight, $6 million; Mr.
Redeker, $5 million; Mr. Brown, $4 million; Mr. Vilsack, $2 million; and Mr.
Doles, $1 million. A substantial portion of these payments consist of amounts
expected to be owed by such individuals for income taxes and/or excise taxes.
Southdown expects to record a cash charge of approximately $45 million and a
non-cash charge of approximately $9 million in connection with the foregoing
payments. See "The Merger -- Conflicts of Interest of Certain Persons."
Southdown has also agreed, to the fullest extent permitted by Applicable
Laws (as defined in the Merger Agreement), to keep in effect the provisions of
the Medusa Articles and Regulations providing for indemnification of Medusa's
current directors and officers, and to continue for at least six years after the
Effective Time the current Medusa directors' and officers' liability insurance;
provided that the Surviving Corporation may substitute policies of comparable
coverage; and provided further that the Surviving Corporation will not be
required to spend more than 200% of Medusa's current insurance premium to secure
such insurance coverage.
In addition to the above, it is expected that Mr. Redeker will become an
employee of Southdown; however, the terms of his employment have not been
finalized. Also, Mr. Uding is considering entering into a consulting agreement
to provide advisory services to Southdown after the Merger. The terms and
provisions of such agreement are currently being negotiated by Mr. Uding and
Southdown.
See generally "The Merger -- Conflicts of Interest of Certain Persons."
EXCHANGE PROCEDURES
If the Merger Proposal is approved and the Merger is consummated, promptly
and, in any event, within three business days after the Effective Date, a letter
of transmittal will be mailed to each Medusa shareholder to be used in
forwarding certificates evidencing such holder's Medusa Shares for surrender in
exchange for certificates evidencing shares of Southdown Common Stock to which
such holder has become entitled and, if applicable, a cash payment in lieu of a
fractional share of Southdown Common Stock. After receipt of such letter of
transmittal, each holder of certificates formerly representing Medusa Shares
should surrender such certificates to ChaseMellon Shareholder Services, L.L.C.,
the exchange agent for the Merger ("Exchange Agent"), pursuant to and in
accordance with the instructions accompanying such letter of transmittal. Upon
such surrender, a Medusa shareholder will receive in exchange for the
certificates that formerly represented such holder's Medusa Shares certificates
evidencing the whole number of shares of Southdown Common Stock to which he or
she is entitled and, after the sale by the Exchange Agent of all fractional
shares in accordance with the Merger Agreement, any cash payment which may be
made in lieu of any fractional share of Southdown Common Stock. See "The Merger
Agreement -- Exchange Procedures."
Such letter of transmittal will be accompanied by instructions specifying
other details of the exchange. MEDUSA SHAREHOLDERS SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the Merger, Medusa Shares, which are issued by an Ohio
corporation, will be converted into the right to receive shares of Southdown
Common Stock, which are issued by a Louisiana corporation. There are differences
between the rights of the shareholders of Medusa and Southdown. These
differences result from differences between Ohio and Louisiana law and
differences between the governing instruments of Medusa and Southdown. For a
discussion of the various material differences between the rights of the
shareholders of Medusa and Southdown, see "Comparison of Shareholder Rights."
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<PAGE> 26
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. These statements are based on current expectations, estimates and
projections about the general economy and Southdown's and Medusa's lines of
business and are generally identifiable by statements containing words such as
"expects," "believes," "anticipates," "estimates" or similar expressions.
Statements related to future performance involve certain assumptions, risks and
uncertainties, many of which are beyond the control of Southdown or Medusa, and
cannot be guaranteed. Although Southdown and Medusa believe that their
respective expectations reflected in such forward-looking statements are based
upon reasonable assumptions, they can give no assurance that those expectations
will be achieved. Important factors that could cause actual results to differ
materially from those expectations include, among others, foreign and domestic
price competition, the loss or material adverse modification of existing
antidumping orders, 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. The reader is
cautioned to consider such disclosures in connection with the forward-looking
statements included herein ("Cautionary Disclosures"). Subsequent written and
oral forward-looking statements attributable to Southdown or Medusa or persons
acting on their behalf are expressly qualified in their entirety by reference to
these Cautionary Disclosures. For additional information with respect to these
factors, see both Southdown's and Medusa's respective Annual Report on Form 10-K
for the year ended December 31, 1997 and Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 that are incorporated by reference herein.
MARKET PRICE AND DIVIDEND INFORMATION
The Southdown Common Stock and the Medusa Shares are each listed and traded
on the NYSE. The following table sets forth the high and low trading prices per
share of the Southdown Common Stock and the Medusa Shares on the NYSE for the
periods indicated as reported in published financial sources and the dividends
declared per share for such periods:
<TABLE>
<CAPTION>
SOUTHDOWN
COMMON SOUTHDOWN MEDUSA MEDUSA
STOCK PRICES DIVIDENDS SHARE PRICES DIVIDENDS
--------------- DECLARED --------------- DECLARED
HIGH LOW PER SHARE HIGH LOW PER SHARE
------ ------ --------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter............... $24.50 $18.00 $0.10 $31.25 $25.25 $0.15
Second Quarter.............. 24.88 20.75 0.10 31.25 28.25 0.15
Third Quarter............... 25.75 19.50 0.10 32.63 27.25 0.15
Fourth Quarter.............. 32.88 24.50 0.10 35.13 30.63 0.15
1997
First Quarter............... 36.88 29.00 0.10 41.13 33.25 0.15
Second Quarter.............. 44.63 33.13 0.10 41.00 35.25 0.15
Third Quarter............... 54.63 41.63 0.10 50.50 38.38 0.15
Fourth Quarter.............. 59.44 51.75 0.10 48.94 35.56 0.15
1998
First Quarter............... 72.50 55.31 0.10 63.50 39.13 0.15
Second Quarter (through May
8, 1998)................. 74.00 64.00 0.10 64.38 56.69 --
</TABLE>
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<PAGE> 27
The following table sets forth the reported high and low sales prices and
the closing prices per share of the Southdown Common Stock and the Medusa Shares
on the NYSE on March 17, 1998, the last full trading day prior to the first
public announcement of the execution of the Merger Agreement, and on May 7,
1998, the last full trading day prior to the date of the preliminary copy of
this Joint Proxy Statement/Prospectus:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
------ ------ ------
<S> <C> <C> <C>
MARCH 17, 1998
Southdown Common Stock............................... $69.75 $68.75 $69.56
Medusa Shares........................................ 52.25 51.06 52.25
Medusa Shares on an equivalent basis................. 61.38 60.50 61.21
MAY 8, 1998
Southdown Common Stock............................... 67.75 64.75 67.38
Medusa Shares........................................ 58.69 56.75 58.25
</TABLE>
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR MEDUSA
SHARES AND SHARES OF SOUTHDOWN COMMON STOCK.
Southdown anticipates that it will continue to pay a regular quarterly cash
dividend of $.10 per share. However, the timing and amount of any future
dividends remain within the discretion of the Southdown Board and will depend on
Southdown's future earnings, financial condition, capital requirements and other
factors.
Pursuant to the Merger Agreement, each of Southdown and Medusa has agreed
that, during the period from the date of the Merger Agreement to the Effective
Time, it will not make, declare or pay any dividend or distribution on its
outstanding shares of capital stock other than regular quarterly cash dividends.
15
<PAGE> 28
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of
Southdown and Medusa and unaudited pro forma combined per share data after
giving effect to the proposed Merger on a pooling of interests basis at the
Exchange Ratio of .88 shares of Southdown Common Stock for each Medusa Share.
Earnings per common share and cash dividends per common share are presented for
the three months ended March 31, 1998 and 1997 and for each of the three years
in the period ended December 31, 1997. Book value per common share is presented
as of March 31, 1998 and December 31, 1997. The information set forth below
should be read in connection with the selected historical financial data and the
unaudited pro forma combined financial information included elsewhere in this
Joint Proxy Statement/Prospectus, and the separate historical financial
statements of Southdown and Medusa and the notes thereto, incorporated by
reference in this Joint Proxy Statement/Prospectus. The unaudited pro forma
combined financial data are not necessarily indicative of the operating results
or financial position that would have been achieved had the Merger been in
effect as of the beginning of the periods presented or as of March 31, 1998 or
December 31, 1997 and should not be construed as representative of future
operations.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------- ------------------------
1998 1997 1997 1996 1995
------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
HISTORICAL -- SOUTHDOWN
Basic earnings per share from continuing
operations(a).......................... $ 0.70 $0.57 $ 4.23 $3.50 $2.18
Diluted earnings per share from
continuing operations(a)............... 0.69 0.55 3.98 2.97 2.03
Cash dividends per common share.......... 0.10 0.10 0.40 0.40 --
Book value per common share(b)........... 21.05 20.54
HISTORICAL -- MEDUSA
Basic earnings per share from continuing
operations(a).......................... 0.16 0.11 3.44 3.38 2.70
Diluted earnings per share from
continuing operations(a)............... 0.16 0.11 3.41 3.15 2.54
Cash dividends per common share.......... 0.15 0.15 0.60 0.60 0.50
Book value per common share(b)........... 11.47 11.44
PRO FORMA DATA (UNAUDITED)
Basic earnings per share from continuing
operations(c).......................... 0.52 0.41 4.10 3.64 2.58
Diluted earnings per share from
continuing operations(c)............... 0.51 0.41 3.94 3.21 2.37
Cash dividends per common share(d)....... 0.10 0.10 0.40 0.40 --
Book value per common share(e)........... 16.27 15.92
EQUIVALENT PRO FORMA DATA (UNAUDITED)(F)
Basic earnings per share from continuing
operations............................. 0.46 0.36 3.61 3.20 2.27
Diluted earnings per share from
continuing operations.................. 0.45 0.36 3.47 2.82 2.09
Cash dividends per common share.......... 0.09 0.09 0.35 0.35 --
Book value per common share.............. 14.32 14.01
</TABLE>
- ---------------
(a) Basic earnings per share from continuing operations is computed based on
the weighted average number of common shares outstanding. Diluted earnings
per share from continuing operations is computed based on the weighted
average number of common shares outstanding plus the dilutive impact of
options, warrants and convertible securities of Southdown and Medusa for
each period.
(b) The historical book value per common share is computed by dividing
shareholders' equity by the number of shares of common shares outstanding
at the end of the period.
(c) Pro forma basic earnings per share from continuing operations is computed
based on the weighted average number of common shares outstanding. Pro
forma diluted earnings per share from continuing
16
<PAGE> 29
operations is computed based on the weighted average number of common
shares outstanding plus the dilutive impact of options, warrants and
convertible securities for each period after giving effect to the proposed
Merger on a pooling of interests basis.
(d) The pro forma cash dividends per common share is based upon the historical
cash dividends per common share paid by Southdown.
(e) The pro forma book value per common share is computed by dividing the pro
forma shareholders' equity at the end of the period by the pro forma number
of common shares outstanding at the end of that period.
(f) Pro forma amounts multiplied by the Exchange Ratio.
17
<PAGE> 30
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
OF SOUTHDOWN, INC.
The following summary selected financial data for the five years ended
December 31, 1997, are derived from the audited consolidated financial
statements of Southdown. The financial data for the three-month periods ended
March 31, 1998 and 1997 are derived from unaudited consolidated financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring adjustments, which Southdown considers necessary
for a fair presentation of the financial position and the results of operations
for those periods. Operating results for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1998. The data should be read in connection with
the consolidated financial statements, related notes, and other financial
information included and incorporated by reference herein. See "Available
Information" and "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues........................ $155.8 $151.4 $719.2 $664.4 $596.1 $560.3 $507.7
====== ====== ====== ====== ====== ====== ======
Earnings from continuing
operations................... 16.5 13.6 96.7 71.2 47.5 30.1 3.6
====== ====== ====== ====== ====== ====== ======
Basic earnings (loss) per share
from continuing operations... 0.70 0.57 4.23 3.50 2.18 1.20 (0.09)
====== ====== ====== ====== ====== ====== ======
Diluted earnings (loss) per
share from continuing
operations................... 0.69 0.55 3.98 2.97 2.03 1.16 (0.09)
====== ====== ====== ====== ====== ====== ======
BALANCE SHEET DATA (AT END OF
PERIOD)
Total assets.................... $989.2 $916.3 $974.2 $932.0 $875.5 $881.0 $907.0
====== ====== ====== ====== ====== ====== ======
Total long-term debt............ 162.9 148.8 162.9 164.4 174.5 185.8 274.0
====== ====== ====== ====== ====== ====== ======
CASH DIVIDENDS PAID PER SHARE OF
COMMON STOCK.................... $ 0.10 $ 0.10 $ 0.40 $ 0.40 -- -- --
====== ====== ====== ====== ====== ====== ======
</TABLE>
18
<PAGE> 31
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
OF MEDUSA CORPORATION
The following summary selected financial data for the five years ended
December 31, 1997, are derived from the audited consolidated financial
statements of Medusa. The financial data for the three-month periods ended March
31, 1998 and 1997 are derived from unaudited consolidated financial statements.
The unaudited financial statements include all adjustments, consisting of normal
recurring adjustments, which Medusa considers necessary for a fair presentation
of the financial position and the results of operations for those periods.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1998. The data should be read in connection with the consolidated
financial statements, related notes, and other financial information included
and incorporated by reference herein. See "Available Information" and
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues.................... $698.1 $ 56.8 $376.0 $323.4 $293.3 $276.3 $248.0
====== ====== ====== ====== ====== ====== ======
Earnings from continuing
operations............... 2.6 1.8 57.0 54.3 43.2 29.9 18.2
====== ====== ====== ====== ====== ====== ======
Basic earnings per share
from continuing
operations............... 0.16 0.11 3.44 3.38 2.70 1.83 1.12
====== ====== ====== ====== ====== ====== ======
Diluted earnings per share
from continuing
operations............... 0.16 0.11 3.41 3.15 2.54 1.76 1.09
====== ====== ====== ====== ====== ====== ======
BALANCE SHEET DATA (AT END OF
PERIOD)
Total assets................ $323.8 $235.5 $306.5 $223.4 $219.6 $218.6 $204.2
====== ====== ====== ====== ====== ====== ======
Total long-term debt........ 39.0 4.1 24.1 4.1 61.6 61.3 96.3
====== ====== ====== ====== ====== ====== ======
CASH DIVIDENDS PAID PER COMMON
SHARE....................... $ 0.15 $ 0.15 $ 0.60 $ 0.60 $ 0.50 $ 0.50 $ 0.27
====== ====== ====== ====== ====== ====== ======
</TABLE>
19
<PAGE> 32
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary unaudited pro forma combined
financial data which are presented to give effect to the Merger under the
pooling of interests method of accounting. The income statement data for the
three months ended March 31, 1998 and 1997 and for each of the three years in
the period ended December 31, 1997 assume that the Merger had been consummated
at the beginning of the earliest period presented. The balance sheet data assume
that the Merger had been consummated on the dates indicated. The unaudited pro
forma combined financial data do not reflect any cost savings and other
synergies anticipated by Southdown management as a result of the Merger, which
are estimated to be at least $10 million on an annual basis, and are not
necessarily indicative of the results of operations or the financial position
which would have occurred had the Merger been consummated on the assumed dates,
nor are they necessarily indicative of future results of operations or financial
position. The unaudited pro forma combined financial data should be read in
connection with the historical consolidated financial statements of Southdown
and Medusa, including the notes thereto, incorporated by reference in this Joint
Proxy Statement/Prospectus and the unaudited pro forma combined financial
statements contained elsewhere herein. See "Available Information" and
"Incorporation of Certain Documents by Reference" and "Index to Financial
Statements."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ------------------------------
1998 1997 1997 1996 1995
--------- ------- -------- -------- --------
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues.................................. $ 224.9 $208.2 $1,095.2 $ 987.8 $ 889.4
======== ====== ======== ======== ========
Earnings from continuing operations....... 19.8 16.1 153.7 125.5 90.7
======== ====== ======== ======== ========
Basic earnings per share from continuing
operations............................. 0.52 0.41 4.10 3.64 2.58
======== ====== ======== ======== ========
Diluted earnings per share from continuing
operations............................. 0.51 0.41 3.94 3.21 2.37
======== ====== ======== ======== ========
CASH DIVIDENDS PAID PER SHARE OF COMMON
STOCK (A)................................. $ 0.10 $ 0.10 $ 0.40 $ 0.40 $ --
======== ====== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
MARCH 31, ------------------------------
1998 1997 1996 1995
--------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.............................. $1,314.1 $1,280.7 $1,155.4 $1,095.1
======== ======== ======== ========
Total long-term debt...................... 201.9 187.0 $ 168.5 $ 236.1
======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
(a) The pro forma cash dividends per common share is based upon the historical
cash dividends per common share paid by Southdown.
20
<PAGE> 33
THE SHAREHOLDERS' MEETINGS
SOUTHDOWN ANNUAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Southdown Board of proxies to be used at the Southdown
Annual Meeting.
DATE, TIME AND PLACE
The Southdown Annual Meeting will be held at the Doubletree Hotel at Allen
Center, 400 Dallas Street, Houston, Texas, on Friday, June 19, 1998 at 8:30
a.m., local time.
PURPOSE
The purpose of the Southdown Annual Meeting is: (i) to consider and vote
upon proposals to (a) approve the Stock Issuance (see "The Merger" and "The
Merger Agreement"), (b) approve the Charter Amendment (see "Amendment to
Southdown Articles"), (c) elect one director as a member of Class II and four
directors as members of Class I to Southdown's Board of Directors (see "Other
Matters for Southdown Annual Meeting -- Election of Directors"), (d) approve an
amendment to Southdown's 1989 Stock Option Plan that increases the number of
shares of Southdown Common Stock available for grant thereunder from 2,000,000
to 5,000,000 (see "Other Matters for Southdown Annual Meeting -- Increase in
Shares Available for Grant Under 1989 Stock Option Plan"), (e) approve an
amendment to Southdown's 1989 Stock Option Plan that imposes an annual limit on
the number of options that may be awarded to any one person in order to comply
with applicable federal income tax requirements (see "Other Matters for
Southdown Annual Meetings -- Grant Limitation Under 1989 Stock Option Plan"),
and (f) approve the appointment of Deloitte & Touche LLP as Southdown's
independent auditors for 1998 (see "Other Matters for Southdown Annual
Meeting -- Appointment of Independent Auditors"); and (ii) to transact such
other business as may properly come before the meeting.
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of record of shares of Southdown Common Stock at the close of
business on the Southdown Record Date are entitled to notice of and to vote at
the Southdown Annual Meeting. On the Southdown Record Date, there were
shares of Southdown Common Stock outstanding. Such shares of Southdown
Common Stock will be entitled to one vote, exercisable in person or by properly
executed proxy, on each matter to be acted upon at the Southdown Annual Meeting.
QUORUM
The Southdown Articles and the Southdown Bylaws require the holders of a
majority of the outstanding shares of Southdown Common Stock to be present in
person or by proxy for any action to be taken at the Southdown Annual Meeting,
other than adjournments thereof. For purposes of determining whether this quorum
requirement is met, abstentions and broker non-votes received in connection with
properly signed and returned proxies will be counted as shares present.
REQUIRED VOTE
Approval of the Charter Amendment requires the affirmative vote of the
holders of a majority of the shares of Southdown Common Stock outstanding on the
Southdown Record Date. The Merger will not be consummated unless the Charter
Amendment is approved. Approval of the Stock Issuance requires the affirmative
vote of the holders of a majority of the shares of Southdown Common Stock
present in person or represented by proxy and entitled to vote at the Southdown
Special Meeting, provided that the total votes cast represent over 50% of the
shares of Southdown Common Stock issued and outstanding on the Southdown Record
Date. Directors will be elected by a plurality of votes cast at the Southdown
Annual Meeting, and all
21
<PAGE> 34
other matters scheduled to come before the Southdown Annual Meeting will require
the affirmative vote of a majority of the votes cast on each proposal.
An abstention with respect to the Charter Amendment, the Stock Issuance or
the proposed amendments to Southdown's 1989 Stock Option Plan will have the
effect of a vote against each proposal. Brokers who hold shares of Southdown
Common Stock will not have discretionary authority to vote such shares in
respect of the Charter Amendment, the Stock Issuance or the proposed amendments
to Southdown's 1989 Stock Option Plan in the absence of instructions from the
beneficial owners thereof. Assuming that a quorum is present at the Southdown
Annual Meeting, any shares which are not voted by such brokers will have no
impact on the vote with respect to the Stock Issuance or the proposed amendments
to Southdown's 1989 Stock Option Plan, but will have the effect of a vote
against the Charter Amendment.
SECURITY OWNERSHIP OF MANAGEMENT
As of the Southdown Record Date, the directors and executive officers of
Southdown and certain of their affiliates owned approximately % of the
outstanding Southdown Common Stock and each such person has advised Southdown
that such person intends to vote in favor of the Charter Amendment, the Stock
Issuance and the other matters proposed by the Southdown Board at the Southdown
Annual Meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation by the Southdown Board may be
revoked by: (i) filing with the Secretary of Southdown, before the taking of the
vote at the Southdown Annual Meeting, a written notice of revocation bearing a
later date than the date of the proxy or any later-dated proxy relating to the
same shares; or (ii) attending the Southdown Annual Meeting and voting in
person. Attendance at the Southdown Annual Meeting will not in and of itself
constitute a revocation of a proxy.
RECOMMENDATIONS OF THE SOUTHDOWN BOARD
The Southdown Board has determined that the terms of the Merger Agreement
and the transactions contemplated thereby are fair to and in the best interest
of the Southdown shareholders. Accordingly, the Southdown Board has approved the
Merger Agreement and the transactions contemplated thereby and recommends that
Southdown shareholders vote FOR the approval and adoption of the Charter
Amendment and the Stock Issuance. The Southdown Board also recommends that
Southdown shareholders vote FOR the approval of the other proposals to be
submitted by it at the Southdown Annual Meeting.
DISSENTERS' RIGHTS
Southdown shareholders will not be entitled to dissenters' rights under the
LBCL with respect to the Charter Amendment, the Stock Issuance or the other
proposals to be submitted at the Southdown Annual Meeting. See "Rights of
Dissenting Shareholders -- Southdown Shareholders."
OTHER INFORMATION REGARDING PROXIES
All shares of Southdown Common Stock represented by properly executed
proxies received prior to or at the Southdown Annual Meeting, and not duly and
timely revoked, will be voted in accordance with the instructions indicated on
such proxies. If no instructions are indicated on a properly executed returned
proxy, such proxies will be voted FOR the approval of each of the proposals
presented by the Southdown Board to the shareholders at the Southdown Annual
Meeting. A properly executed proxy marked "ABSTAIN," although counted for
purposes of determining whether there is a quorum and for purposes of
determining the aggregate voting power and the number of shares represented and
entitled to vote at the Southdown Annual Meeting, will not be voted.
The Southdown Board is not currently aware of any business to be acted upon
at the Southdown Annual Meeting other than as described in this Joint Proxy
Statement/Prospectus. If, however, other matters are properly brought before the
Southdown Annual Meeting, including among other things, consideration of a
22
<PAGE> 35
motion to adjourn the meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons
appointed as proxies will have discretion to vote or act thereon according to
their judgment. While Southdown may adjourn the Southdown Annual Meeting for the
purpose of soliciting additional proxies, it does not currently intend to do so.
If the Southdown Annual Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Southdown Annual Meeting, all proxies will be
voted in the same manner as such proxies would have been voted at the original
convening of the Southdown Annual Meeting (except for any proxies that have
theretofore effectively been revoked or withdrawn), notwithstanding that they
may have been effectively voted in the same or any other manner at a previous
meeting.
The cost of soliciting proxies for the Southdown Annual Meeting will be
borne by Southdown. In addition to the use of the mail, arrangements will be
made with brokerage houses and other custodians, nominees and fiduciaries to
send proxy material to beneficial owners, and Southdown will, upon request,
reimburse them for their reasonable expenses. Southdown has retained Georgeson &
Company to aid in the solicitation of proxies and to verify certain records
related to the solicitation at a maximum fee of $10,000 plus expenses. To the
extent necessary in order to ensure sufficient representation at the Southdown
Annual Meeting, Southdown may request by telephone, telegram or in person the
return of proxy cards. The extent to which this will be necessary depends
entirely upon how promptly proxy cards are returned. Shareholders are urged to
send in their proxy cards without delay.
MEDUSA SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Medusa Board of proxies to be used at the Medusa Special
Meeting.
DATE, TIME AND PLACE
The Medusa Special Meeting will be held at the Sheraton Stamford Hotel, One
First Stamford Place, Stamford, Connecticut, on Friday, June 19, 1998 at 9:00
a.m., local time.
PURPOSE
The purpose of the Medusa Special Meeting is: (i) to consider and vote upon
the approval and adoption of the Merger Proposal (see "The Merger" and "The
Merger Agreement"); and (ii) to transact such other business, incident to the
conduct of the meeting, as may properly come before the meeting.
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of record of shares of Medusa Shares at the close of business
on the Medusa Record Date are entitled to notice of and to vote at the Medusa
Special Meeting. On the Medusa Record Date, there were Medusa Shares
outstanding. Medusa Shares will be entitled to one vote, exercisable in person
or by properly executed proxy, on each matter to be acted upon at the Medusa
Special Meeting.
QUORUM
The Medusa Regulations require the holders of shares representing a
majority of the voting power of Medusa to be present in person or by proxy for
any action to be taken at the Medusa Special Meeting, other than adjournments
thereof. For purposes of determining whether this quorum requirement is met,
abstentions and broker non-votes received in connection with properly signed and
returned proxies will be counted as shares present.
23
<PAGE> 36
REQUIRED VOTE
Approval and adoption of the Merger Proposal requires the affirmative vote
of the holders of a majority of the Medusa Shares outstanding on the Medusa
Record Date. An abstention with respect to the Merger Proposal will have the
effect of a vote against that proposal. Brokers who hold Medusa Shares will not
have discretionary authority to vote such shares in respect of the Merger
Proposal in the absence of instructions from the beneficial owners thereof.
Assuming that a quorum is present at the Medusa Special Meeting, any shares
which are not voted by such brokers will have the effect of a vote against the
Merger Proposal.
SECURITY OWNERSHIP OF MANAGEMENT
As of the Medusa Record Date, the directors and executive officers of
Medusa and certain of their affiliates owned approximately % of the
outstanding Medusa Shares, and each such person has advised Medusa that such
person intends to vote in favor of the Merger Proposal. Certain of these persons
holding approximately 5.8% of the Medusa Shares outstanding at the Medusa Record
Date have given Southdown their irrevocable proxies to vote their shares in
favor of the Merger Proposal.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation by the Medusa Board may be
revoked by: (i) notifying Medusa, before the taking of the vote at the Medusa
Special Meeting, of such revocation in open meeting or in a writing bearing a
later date than the date of the proxy or by any later-dated proxy relating to
the same shares; or (ii) attending the Medusa Special Meeting and voting in
person. Attendance at the Medusa Special Meeting will not in and of itself
constitute a revocation of a proxy.
RECOMMENDATION OF THE MEDUSA BOARD
The Medusa Board has determined that the terms of the Merger Agreement and
the transactions contemplated thereby are fair to and in the best interest of
the Medusa shareholders. Accordingly, the Medusa Board has approved the Merger
Agreement and the transactions contemplated thereby and recommends that Medusa
shareholders vote FOR the approval and adoption of the Merger Proposal. In
considering the Medusa Board's recommendation, certain members of the Medusa
Board may be deemed to have interests in addition to or potentially different
from the interests of the shareholders generally. See "The Merger -- Conflicts
of Interest of Certain Persons."
DISSENTERS' RIGHTS
The shareholders of Medusa will be entitled to dissenters' appraisal rights
in connection with the Merger under the ORC, to the extent they fully comply
with the procedural requirements of the ORC. See "Rights of Dissenting
Shareholders -- Medusa Shareholders." Southdown's obligation to consummate the
Merger is specifically conditioned upon the holders of not more than 5% of the
Medusa Shares, on a fully diluted basis, perfecting their dissenters' rights
under the ORC. Southdown believes, however, that the perfection of dissenters'
rights by the holders of more than approximately 700,000 Medusa Shares
(approximately 4% of the Medusa Shares outstanding on the Medusa Record Date)
may preclude pooling of interests accounting treatment for the Merger, which is
also a condition to Southdown's obligation to consummate the Merger. See "The
Merger Agreement -- Conditions Precedent to the Merger."
OTHER INFORMATION REGARDING PROXIES
All Medusa Shares represented by properly executed proxies received prior
to or at the Medusa Special Meeting, and not duly and timely revoked, will be
voted in accordance with the instructions indicated on such proxies. If no
instructions are indicated on a properly executed returned proxy, such proxies
will be voted FOR the approval and adoption of the Merger Proposal. A properly
executed proxy marked "ABSTAIN," although counted for purposes of determining
whether there is a quorum and for purposes of determining the aggregate voting
power and the number of shares represented and entitled to vote at the Medusa
Special Meeting, will not be voted.
24
<PAGE> 37
The Medusa Board is not currently aware of any business to be acted upon at
the Medusa Special Meeting other than as described in this Joint Proxy
Statement/Prospectus. If, however, other matters are properly brought before the
Medusa Special Meeting, including among other things, consideration of a motion
to adjourn the meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons
appointed as proxies will have discretion to vote or act thereon according to
their judgment. While Medusa may adjourn the Medusa Special Meeting for the
purpose of soliciting additional proxies, it does not currently intend to do so.
If the Medusa Special Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Medusa Special Meeting, all proxies will be voted
in the same manner as such proxies would have been voted at the original
convening of the Medusa Special Meeting (except for any proxies that have
theretofore effectively been revoked or withdrawn), notwithstanding that they
may have been effectively voted in the same or any other manner at a previous
meeting.
The cost of soliciting proxies for the Medusa Special Meeting will be borne
by Medusa. In addition to the use of the mail, arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to send proxy
material to beneficial owners, and Medusa will, upon request, reimburse them for
their reasonable expenses. Medusa has retained Morrow & Co. to aid in the
solicitation of proxies and to verify certain records related to the
solicitation at a maximum fee of $8,500 plus expenses. To the extent necessary
in order to ensure sufficient representation at the Medusa Special Meeting,
Medusa may request by telephone, telegram or in person the return of proxy
cards. The extent to which this will be necessary depends entirely upon how
promptly proxy cards are returned. Shareholders are urged to send in their proxy
cards without delay.
THE COMPANIES
SOUTHDOWN
Southdown is one of the leading cement and ready-mixed concrete companies
in the United States. Southdown's operations are strategically located in
various regions of the United States, many of which Southdown believes have
attractive prospects for long-term economic growth. Southdown operates eight
cement manufacturing facilities and seven quarrying sites and utilizes a network
of 20 cement storage and distribution terminals for the importation and
distribution of portland and masonry cements, primarily in the Ohio valley and
the southwestern and southeastern regions of the United States. Southdown 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. Southdown is the third largest producer of cement in the
United States and produces cement at its plants located in California, Florida,
Kentucky, Ohio, Tennessee, Texas, Colorado and Pennsylvania, which have a
combined cement manufacturing capacity of approximately 7.1 million short tons
(6.8 million short tons, excluding the joint venture interests of others).
MEDUSA
Medusa operates in three business segments. Medusa's Cement Group produces
and sells gray portland cement and masonry cement. Its Aggregates Group mines,
processes and sells construction aggregates, limestone-related home and garden
products and industrial limestone products. Its James H. Drew Corporation
subsidiary provides construction services for highway safety. Medusa's
operations are conducted principally in the eastern half of the United States.
Medusa ranks ninth in capacity among all United States cement companies and
fourth in capacity among those domestically owned. Medusa's cement plants in
Michigan, Georgia, Alabama and Pennsylvania, which have a combined cement
manufacturing capacity of approximately 3.7 million short tons, serve markets in
portions of the Great Lakes, the southeast and the western
Pennsylvania/northeastern Ohio regions of the United States.
25
<PAGE> 38
SUB
Sub is a wholly-owned subsidiary of Southdown that was incorporated in Ohio
in March 1998 for the purpose of effecting the Merger and the other transactions
contemplated by the Merger Agreement. Prior to the consummation of the Merger,
Sub will not engage in any activity other than activities related to the
transactions contemplated by the Merger Agreement.
THE MERGER
GENERAL
At the Effective Time of the Merger, Sub will be merged with and into
Medusa, with Medusa surviving the Merger as a wholly-owned subsidiary of
Southdown. In the Merger, the Medusa Shares issued and outstanding immediately
before the Effective Time (excluding those held by shareholders who perfect
their dissenters' rights and those held in the treasury of Medusa or its
subsidiaries and those held by Southdown or its subsidiaries, which will be
canceled), without any action on the part of the holders thereof, will be
converted into the right to receive, without interest, .88 shares of Southdown
Common Stock (together with the associated Southdown Rights). The Merger will
become effective at the time the Certificate of Merger is filed with the
Secretary of State of the State of Ohio with respect to the Merger, which is
currently expected to occur after receipt of requisite regulatory and
shareholder approvals and the satisfaction of certain other conditions set forth
in the Merger Agreement. Upon consummation of the Merger, the former
shareholders of Medusa will own approximately 38% of the shares of Southdown
Common Stock then outstanding.
BACKGROUND OF THE MERGER
On January 21, 1997, Medusa hired J.P. Morgan to explore strategic
alternatives, including a possible sale of Medusa. In the Spring of 1997 J.P.
Morgan contacted 16 global cement producers on behalf of Medusa to explore
strategic options. No transactions were proposed.
On November 9, 1997, Clarence C. Comer, President and Chief Executive
Officer of Southdown, and George E. Uding, Jr., President and Chief Operating
Officer of Medusa, met to discuss whether Southdown and Medusa had an interest
in a possible business combination. On December 3, 1997, Robert S. Evans,
Chairman of the Board and Chief Executive Officer of Medusa, spoke by telephone
with Mr. Comer regarding pricing expectations and the potential structure of the
transaction as a merger with accounting treatment on a pooling of interests
basis. In early December 1997, and on several occasions thereafter, Mr. Evans
discussed with representatives of Lehman Brothers the structure of a business
combination and the range of conversion ratios that Medusa could consider
recommending to its shareholders. Representatives of J.P. Morgan and Lehman
Brothers also discussed the structure of a business combination and the range of
conversion ratios that Medusa could consider recommending to its shareholders.
On January 20, 1998, Southdown and Medusa entered into a confidentiality
agreement. On several occasions between January 20, 1998 and March 17, 1998,
Medusa and Southdown exchanged information covering various aspects of their
respective businesses. On February 3, 1998, Mr. Comer, J. Bruce Tompkins and
Dennis M. Thies, senior officers of Southdown, met with Mr. Evans, Mr. Uding and
R. Breck Denny, senior officers of Medusa, together with representatives from
Lehman Brothers and J.P. Morgan, to discuss the feasibility of a possible
business combination. On February 13, 1998, representatives of Southdown and
Medusa had a telephone conference call to discuss the preliminary due diligence
information that had been exchanged and to review operating performance, recent
acquisitions, capital spending and other matters. On February 17, 1998, the
general counsels of Southdown and Medusa met at Medusa's headquarters in
Cleveland, Ohio to review contingent liabilities and other matters. On February
23, 1998, representatives of Southdown had a telephone conference call with
senior officers of Medusa to discuss historical operating results, current
performance, budgets and the strategic rationale for the proposed transaction.
Also on this date, the Medusa Board met and received presentations from
representatives of J.P. Morgan and discussed the economic and strategic benefits
of the proposed transaction, the results of the preliminary due diligence
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investigation and the history of price negotiations. The Southdown Board met on
March 6, 1998 to discuss the economic and strategic benefits of the potential
transaction, the results of the preliminary due diligence investigation and the
history of price negotiations.
The initial discussions were held on February 23, 1998 and a range of
prices of Medusa Shares implying an exchange ratio of approximately 0.80x was
discussed. No agreement was reached during these discussions. Subsequent
discussions concerning the exchange ratio, collars and walkaway rights resulted
in a proposal by Lehman Brothers on behalf of Southdown on March 9, 1998 of
0.88x. No form of consideration other than Southdown Common Stock was ever
considered. This proposal was subject to final due diligence. The proposed
exchange ratio was reaffirmed subsequent to the completion of mutual due
diligence on March 14, 1998.
After receiving authorization from the Southdown Board, Southdown formally
engaged Lehman Brothers to render financial advice concerning the transaction
with Medusa. On March 11, 1998, Lehman Brothers and J.P. Morgan preliminarily
recommended to their respective clients that each Medusa Share be converted into
the right to receive .88 shares of Southdown Common Stock, subject to completion
of due diligence, approval by the Boards and negotiation of other material
terms. Southdown operations personnel inspected Medusa's cement manufacturing
facilities between March 12 and March 14, 1998, during which time Medusa
operations personnel were inspecting Southdown's cement manufacturing
facilities. Medusa senior officers and legal, financial and human resources
representatives arrived on March 12, 1998 at the Southdown headquarters in
Houston to conduct further due diligence investigations and to provide further
information to Southdown representatives.
Southdown submitted an initial draft of a merger agreement to Medusa and
its legal counsel on March 12, 1998. Medusa provided comments to the draft
agreement on March 14, 1998, and traveled to Houston, Texas to negotiate the
terms of the agreement on March 15, 1998. Negotiations continued until March 17,
1998, when the officers of Southdown and Medusa agreed on the form of merger
agreement and submitted the transaction for approval to their respective Boards.
The Southdown Board and the Medusa Board each met on March 17, 1998, and
received presentations from their respective officers, legal counsel and
investment bankers. After both Boards approved the transaction and related
matters on March 17, 1998, Messrs. Comer and Evans signed and delivered the
Merger Agreement.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS
Southdown. At a meeting held on March 17, 1998, at which all directors
participated in person or by telephone or were represented by proxy as permitted
by Louisiana law, the Southdown Board reviewed and discussed, among other
things: (i) its fiduciary duties; (ii) a transaction overview including the
history of the transaction, its strategic rationale, the financial profile of
the companies, the availability of pooling of interests accounting treatment,
key terms of the transaction and the risks; (iii) the operations, financial and
legal due diligence investigations; (iv) the financial opinion of Lehman
Brothers and its supporting analyses; and (v) the specific provisions of the
Merger Agreement. Based on the foregoing, the Southdown Board unanimously
approved the Merger Agreement and the transactions contemplated thereby and the
Charter Amendment. The Southdown Board believes that the Merger is fair to and
in the best interest of the Southdown shareholders and recommends that
Southdown's shareholders vote FOR approval of the Charter Amendment and the
Stock Issuance. At a meeting held on March 26, 1998, the Southdown Board
reviewed and discussed a draft of this Joint Proxy Statement/Prospectus.
In reaching its determination at the March 17, 1998 meeting, the Southdown
Board consulted with Southdown's management as well as its financial and legal
advisors, and considered the following matters:
(i) Improved Competitiveness. The belief that a merger with Medusa
would make Southdown the second largest cement manufacturer in the United
States, thereby enhancing the ability of the combined company not only to
be more competitive within the cement industry, but also to capture market
share from competing building materials such as asphalt and timber.
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(ii) Geographic Diversification. The belief that the increased
geographic diversity of the combined company should improve the long term
stability of earnings and cash flows by reducing the importance of any
individual plant or market and by decreasing exposure to regional cyclical
downturns.
(iii) Improved Capacity Expansion Potential. The belief that the
Medusa plants would provide significant opportunities for incremental
capacity expansions similar to those that Southdown has been and is
pursuing at its existing facilities. Southdown's management expertise in
technical and operating areas should enable it to cost effectively expand
capacity, which could provide a significant source of incremental earnings.
(iv) Improved Economies of Scale. The belief that the combined
enterprise could realize significant reductions in corporate overhead by
integrating administrative functions, and that Southdown could leverage the
expertise of its corporate technical and operational support group to
expand Medusa's facilities while spreading the cost of this group over a
larger asset and revenue base.
(v) Construction Aggregates and Specialty Limestone Products. The
transaction would significantly expand Southdown's presence in the
construction aggregates industry and provide an entry into the specialty
limestone products market. Medusa's expertise in these areas should provide
a good platform to develop and expand this business.
(vi) Stronger Company Positioned to Exploit Growth Opportunities. The
combined enterprise should have greater earnings and cash flows, higher
market capitalization and a stronger balance sheet. The resulting
improvement in financial flexibility should enhance the ability of
Southdown to realize its growth potential and pursue additional business
development opportunities.
(vii) Excellent Geographic Fit of Assets. The Medusa plants complement
Southdown's existing geographic base. They expand Southdown's markets into
the Great Lakes states and western Ontario, north of the region served by
Southdown's Fairborn, Ohio plant, and fill market voids in Georgia and
Alabama between the regions served by Southdown's Knoxville, Tennessee and
Brooksville, Florida plants. The combined network of cement terminals
provides excellent coverage of the market east of the Mississippi River and
provides significant distribution flexibility and the opportunity to reduce
shipping costs.
(viii) Modern Technology. All of Medusa's plants incorporate some form
of the more fuel efficient "dry process" technology; and approximately 80%
of Medusa's capacity consists of preheater and/or precalciner
pyroprocessing technology -- significantly higher than average technology
levels for other cement manufacturing capacity in the United States.
(ix) Earnings per Share Accretion. Excluding one-time costs directly
related to the Merger (currently estimated at $75 million based upon a
price of approximately $70 per share of Southdown Common Stock) the
transaction is expected to be accretive to Southdown's 1998 earnings per
share because of anticipated savings in overhead and distribution costs.
(x) Opinion of Financial Advisor. The receipt of the opinion from
Southdown's financial advisor, Lehman Brothers (described below) as to the
fairness to Southdown from a financial point of view of the consideration
proposed to be issued in the Merger. See "-- Opinion of Southdown's
Financial Advisor."
(xi) Transaction Terms. The terms of the Merger Agreement, including
pooling of interests accounting treatment.
(xii) Certain Risks. The potential risks associated with the Merger,
including the possibilities that the combined company may not be able to
retain and successfully integrate key personnel of Medusa and Southdown,
that the combined company may not realize significant operations or
financial synergies, that Southdown may face exposure to environmental or
other liabilities, and that the Merger could be disruptive to the business
or operations of Southdown or Medusa.
The foregoing discussion of the information and factors considered by the
Southdown Board is not intended to be exhaustive. In view of the wide variety of
factors considered in connection with its evaluation of
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the Merger, the Charter Amendment and the Stock Issuance, the Southdown Board
did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. Rather, the Southdown Board viewed its position and
recommendation as being based on the totality of the information presented and
considered. In addition, individual members of the Southdown Board may have
given different weights to different factors.
Medusa. At a meeting of the Medusa Board held on March 17, 1998, the Medusa
Board received and considered presentations of the senior management of Medusa
and its financial and legal advisors regarding the Merger Agreement and the
Merger Proposal. The Medusa Board also discussed the economic and strategic
benefits of the potential transaction, the results of the preliminary due
diligence investigation and the history of the price negotiations. After
considering the presentations, those members of the Medusa Board present
unanimously voted (with two members absent) to approve the Merger Proposal and
to recommend its approval and adoption by Medusa shareholders.
In reaching its determination, the Medusa Board considered a number of
factors, including those listed below. In view of the wide variety of factors
considered by the Medusa Board in connection with its evaluation of the Merger
Proposal and the complexity of those matters, the Medusa Board did not consider
it practicable to, nor did it attempt to, quantify or otherwise assign relative
weights to the specific factors it considered in reaching its determination, and
additionally, individual directors may have assigned differing weights to
differing factors.
(i) Increased Size. At closing, the combined company will be the
largest United States publicly-traded cement company and the second largest
domestic cement manufacturer. The Medusa Board considered that the
increased size of the combined company could have certain benefits,
including the potential for enhanced purchasing economies; a financial and
strategic position to pursue additional consolidation opportunities; an
enhanced credit standing; a higher profile with investors; and
substantially greater liquidity for shareholders.
(ii) Diversification of Earnings. The Medusa Board considered the fact
that the combined company, with its broader geographic base, should have a
diminished risk of earnings volatility from weaknesses in specific markets.
(iii) Possible Enhanced Earnings Growth. The Medusa Board considered
that realization of expected synergies and other business factors are
likely to enhance earnings growth over the short and intermediate term.
(iv) Exposure to West Coast Cyclical Upswing. Unlike Medusa, Southdown
has substantial operations on the West Coast where markets, depressed in
recent years, are now in a strong cyclical upswing. The Medusa Board
considered that the former Medusa shareholders of the combined company
would likely benefit from increased earnings due to the rapidly improving
California, Nevada and Arizona markets.
(v) Complementary Geographic Positioning. The Medusa Board considered
that the combined company would have a strong diversified market presence
in the eastern United States with only a limited amount of direct overlap.
(vi) Financial Strength and Liquidity. The Medusa Board considered
that the combined company would enjoy a strong balance sheet and increased
credit strength and would generate substantial cash flow.
(vii) Merger Agreement. The Medusa Board considered the express terms
and conditions of the Merger Agreement, which were viewed as providing an
equitable basis for the Merger Proposal from the standpoint of Medusa.
(viii) Tax and Accounting. The Medusa Board considered the expectation
that the Merger Proposal will be a tax-free transaction to Medusa and its
shareholders and will be accounted for by Southdown as a pooling of
interests transaction.
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(ix) Opinion of J.P. Morgan. The Medusa Board considered the oral
opinion of J.P. Morgan, subsequently confirmed in writing, that, as of
March 17, 1998, the Exchange Ratio was fair to the Medusa shareholders from
a financial point of view. See "-- Opinion of Medusa's Financial Advisor."
(x) Exchange Ratio. The Medusa Board considered the Exchange Ratio and
the fact that it represented a substantial premium over the closing price
of Medusa Shares during the period preceding the public announcement of the
proposed Merger.
The Medusa Board also considered certain countervailing factors associated
with the Merger Proposal, including the following:
(i) Southdown's Premium Multiple. The Medusa Board considered the fact
that Southdown Common Stock has appreciated very rapidly over the last 18
months and was, as of March 17, 1998, trading at the high end of the cement
industry earnings multiple range. Such risk, however, was deemed mitigated
by Southdown's demonstrated record of higher growth, its increased capacity
resulting from the recent modernization of two plants and the fact that its
cash flow multiple is more in line with those of its peers, in particular
with Medusa.
(ii) Diminished Share Repurchase for Extended Period for the Combined
Company. The Medusa Board considered the fact that the combined company
would not be able to pursue aggressive share repurchase programs for a
significant time period because of pooling of interest accounting
limitations.
(iii) Diminished Medusa Management and Board Influence at the Combined
Company. The Medusa Board considered that there would likely be diminished
senior management and director representation at the combined company from
Medusa. However, the Medusa Board also considered that, pursuant to the
Merger Agreement, two of its current directors would be appointed to the
Board of the combined company immediately following the Effective Time to
serve until the next annual meeting, and thereafter would be nominated to
the Board of the combined company for terms expiring in 2000 and 2001,
respectively, for each such director.
(iv) Reduced Dividend Yield. The dividend yield on Southdown Common
Stock is lower than on Medusa's. However, in light of the combined
company's anticipated strong cash flow, the Medusa Board considered that
Southdown may elect to increase the rate of dividends.
(v) Greater Potential for Earnings Volatility (Long Term). The Medusa
Board considered that Southdown operates in more cyclical geographic and
product markets than Medusa and has historically experienced higher
volatility of earnings than Medusa during turbulent economic periods.
However, the Medusa Board also considered that this earnings volatility
would likely be reduced by the more stable cash flows of Medusa.
Although the Medusa Board considered the foregoing factors in approving the
Merger Proposal, the Medusa Board concluded that the potential unfavorable
aspects of the Merger Proposal were outweighed by the positive impacts and
potential benefits of the Merger Proposal described above.
OPINION OF SOUTHDOWN'S FINANCIAL ADVISOR
In March 1998, the Southdown Board engaged Lehman Brothers to act as its
financial advisor with respect to pursuing an acquisition of Medusa. Southdown
instructed Lehman Brothers, in its role as financial advisor, to evaluate the
fairness, from a financial point of view, to Southdown of the consideration to
be paid to the shareholders of Medusa in the Merger.
On March 17, 1998, Lehman Brothers rendered its oral and written opinion to
the Southdown Board that as of such date and, based upon and subject to certain
matters stated therein, the Exchange Ratio to be paid by Southdown to the
shareholders of Medusa in the Merger was fair, from a financial point of view,
to Southdown.
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THE FULL TEXT OF THE LEHMAN BROTHERS OPINION, DATED MARCH 17, 1998, IS
ATTACHED AS APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS MAY READ THE LEHMAN BROTHERS
OPINION FOR A DISCUSSION OF THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, FACTORS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN
RENDERING ITS OPINION. THE FOLLOWING IS A SUMMARY OF THE LEHMAN BROTHERS OPINION
DATED MARCH 17, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE LEHMAN BROTHERS OPINION ATTACHED HERETO.
No limitations were imposed by Southdown on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion. Lehman Brothers was not requested to and did not make any
recommendation to the Southdown Board as to the form or amount of consideration
to be offered by Southdown to the shareholders of Medusa in the Merger, which
was determined through arm's-length negotiation between the parties. In arriving
at its opinion, Lehman Brothers did not ascribe a specific range of value to
Medusa or Southdown, but rather made its determination as to the fairness, from
a financial point of view, of the Exchange Ratio to be paid by Southdown to the
shareholders of Medusa in the Merger on the basis of financial and comparative
analyses, some of which are described below. The Lehman Brothers Opinion is for
the use and benefit of the Southdown Board and was rendered to the Southdown
Board in connection with its consideration of the Merger. The Lehman Brothers
Opinion is not intended to be and does not constitute a recommendation to any
shareholder of Southdown as to how such shareholder should vote with respect to
the Merger. Lehman Brothers was not requested to opine as to, and the Lehman
Brothers Opinion does not address, Southdown's underlying business decision to
proceed with or effect the Merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (1) the
Merger Agreement and the specific terms of the Merger; (2) publicly available
information concerning Medusa and Southdown that Lehman Brothers believed to be
relevant to its analysis; (3) financial and operating information with respect
to the business, operations and prospects of Medusa furnished to Lehman Brothers
by Medusa; (4) financial and operating information with respect to the business,
operations and prospects of Southdown furnished to Lehman Brothers by Southdown;
(5) a trading history of Medusa Shares from March 12, 1993 to the present and a
comparison of that trading history with those of other companies that Lehman
Brothers deemed relevant; (6) a trading history of Southdown Common Stock from
March 12, 1993 to the present and a comparison of that trading history with
those of other companies that Lehman Brothers deemed relevant; (7) a comparison
of the historical financial results and present financial condition of Medusa
with those of other companies that Lehman Brothers deemed relevant; (8) a
comparison of the historical financial results and present financial condition
of Southdown with those of other companies that Lehman Brothers deemed relevant;
(9) estimates of third party research analysts regarding the future financial
performance of Southdown and Medusa; (10) the potential pro forma impact of the
Merger, including the cost savings, operating synergies and strategic benefits
expected by management of Southdown to result from a combination of the
businesses of Southdown and Medusa; and (11) a comparison of the financial terms
of the Merger with the financial terms of certain other recent transactions that
Lehman Brothers deemed relevant. In addition, Lehman Brothers has had
discussions with the managements of Medusa and Southdown concerning their
respective businesses, operations, assets, financial conditions and prospects
and has undertaken such other studies, analyses and investigations it deemed
appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and has further relied upon the assurances of the managements of
Southdown and Medusa that they are not aware of any facts or circumstances that
would make such information inaccurate or misleading. With respect to the
financial projections of Southdown, Medusa and the combined company following
consummation of the Merger (the "Combined Company"), upon advice of Southdown,
Lehman Brothers assumed that such projections have been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
management of Southdown as to the future financial performance of Southdown,
Medusa and the Combined Company and that Southdown and the Combined Company will
perform substantially in accordance with such projections. In arriving at its
opinion, Lehman Brothers did not conduct a physical inspection of the properties
and facilities of Medusa or Southdown and did not make or obtain any evaluations
or appraisals of the assets or liabilities of Medusa and Southdown. Upon advice
of
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Southdown and its legal and accounting advisors, Lehman Brothers assumed that
the Merger will qualify for pooling of interests accounting treatment. The
Lehman Brothers Opinion states that it is necessarily based upon market,
economic and other conditions as they exist on, and can be evaluated as of, the
date of that opinion.
In connection with the preparation and delivery of its opinion to the
Southdown Board, Lehman Brothers performed certain financial and comparative
analyses as described below. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial and comparative analysis and the application of those methods to the
particular circumstances, and therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
Lehman Brothers did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of such analyses and factors, without considering all
analyses and factors as a whole, could create a misleading or incomplete view of
the process underlying its opinion. In its analyses, Lehman Brothers made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
Southdown and Medusa. Any estimates contained in these analyses were not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
Purchase Price Ratio Analysis. The purchase price ratio analysis provides
enterprise value multiples and equity value multiples of key operating
statistics for a range of transaction values. Based upon the Exchange Ratio, the
closing price of Southdown Common Stock on March 13, 1998 of $67.69 represented
a value to be received by holders of Medusa Shares of $59.57 per share. Based on
this implied equity value per share, Lehman Brothers calculated the ratio of
enterprise value to earnings before interest and taxes ("EBIT") and earnings
before interest, taxes, depreciation and amortization ("EBITDA") derived from
estimated earnings as published on First Call, a service reporting equity
analysts' estimates, and from a sensitivity scenario prepared by Southdown
management. The enterprise value of Medusa was obtained by adding the implied
equity value and short and long-term debt and subtracting its cash and cash
equivalents balance. Based upon the purchase price ratio analysis, the implied
equity value per share yielded a premium to market price of 18% over the closing
price of Medusa shares of $50.65 on March 13, 1998. The ratio of the enterprise
value to 1997 actual and 1998 estimated EBITDA and EBIT yielded multiples of
9.7x and 8.9x, and 11.6x and 10.8x, respectively. Using Southdown management's
sensitivity scenario, the enterprise value to 1998 estimated EBITDA and EBIT
yielded multiples of 8.2x and 9.8x, respectively.
Comparable Company Trading Analysis. Lehman Brothers reviewed the public
stock market trading multiples for the following selected companies that Lehman
Brothers deemed comparable to Medusa: Centex Construction Products, Inc., Giant
Cement Holdings, Inc., Lafarge Corporation, Lone Star Industries, Inc. and
Southdown, Inc. Using publicly available information, Lehman Brothers calculated
and analyzed the common equity market value multiples of certain historical and
projected financial criteria (such as net income) and the enterprise value
multiples of certain historical financial criteria (such as EBITDA and EBIT).
The projected net income was based on research analysts' estimates published on
First Call. The median latest twelve months ("LTM") and projected 1998 net
income multiples were 14.3x and 12.6x, respectively, compared to implied
multiples arising from the implied value in the Merger of 16.7x and 15.4x,
respectively. The median LTM EBITDA and LTM EBIT multiples were 7.0x and 8.6x,
respectively, compared to implied multiples arising from the Merger of 9.7x and
11.6x, respectively. Lehman Brothers noted that while the implied multiples
arising from the Merger were higher than the median multiples for the comparable
company trading analysis, this analysis excludes any transaction premium, cost
savings, operating synergies and strategic benefits and one-time charges
directly related to the Merger.
However, because of the inherent differences between the businesses,
operations, financial conditions and prospects of Southdown and Medusa and the
businesses, operations, financial conditions and prospects of the companies
included in the comparable company group, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis, and accordingly, also made
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qualitative judgments concerning differences between the financial and operating
characteristics of Medusa and companies in the comparable company group that
would affect the public trading values of Medusa and such comparable companies.
Contribution Analysis. Lehman Brothers analyzed the respective financial
and operating contributions of Southdown and Medusa to the Combined Company's
actual historical results for 1995 through 1997 and projected results for 1998,
based on historical reported financial results and research analysts' estimates
as reported on First Call and a sensitivity scenario prepared by Southdown
management, and without giving effect to any cost savings, operating synergies
and strategic benefits resulting from the Merger, or to one-time charges
directly related to the Merger. Using First Call estimates this analysis showed
that Medusa would have contributed approximately 34% of the Combined Company's
1997 sales and 35% of the Combined Company's 1998 sales, 33% of its 1997 and
1998 EBITDA, 34% of its 1997 and 1998 EBIT, 37% and 36% of its 1997 and 1998
cement production capacity, and 37% of its 1997 and 1998 net income. Using
Southdown management's sensitivity scenario, Medusa would have contributed
approximately 35% of the Combined Company's 1998 sales, 35% of its 1998 EBITDA,
36% of its 1998 EBIT, 36% of its 1998 cement production capacity, and 39% of its
1998 net income. Based on the Exchange Ratio, Medusa shareholders would own
approximately 38% of the Combined Company, which closely approximates Medusa's
contribution to the Combined Company in terms of these measures.
Exchange Ratio Analysis. Lehman Brothers reviewed the ratios of the closing
stock prices of Medusa Shares to Southdown Common Stock over the five one-year
periods ended on March 13, 1998 and compared such ratios to the Exchange Ratio
to be paid by Southdown to the shareholders of Medusa in the Merger. The average
of the ratios of the closing stock prices over the one year periods ended: March
11, 1994 was 1.22; March 13, 1995 was 1.29; March 13, 1996 was 1.36; March 13,
1997 was 1.24; and March 13, 1998 was 0.86. The implied exchange ratio using the
closing stock prices of Medusa Shares and Southdown Common Stock on March 13,
1998 was approximately 0.75. Lehman Brothers noted that the Exchange Ratio was
lower than the implied exchange ratios for the one year periods ended from March
11, 1994 through March 13, 1997 and closely approximated the implied exchange
ratio for the one year period ended March 13, 1998. These implied exchange
ratios exclude any transaction premium, cost savings, operating synergies and
strategic benefits and one-time charges directly related to the Merger.
Adjusted Medusa Projections. With respect to the financial projections of
Medusa following the consummation of the Merger, Southdown adjusted third party
research analysts earnings estimates resulting from discussions with management
of Medusa ("Adjusted Medusa Projections"). Based upon the Adjusted Medusa
Projections, Medusa's revenue growth rates for the years 1998 and 1999 increased
from 6.2% and 2.3% to 7.3% and 2.4%, respectively. Operating margins for the
years 1998 and 1999 increased from 24.1% and 26.0% to 26.2% and 27.4%
respectively.
THE PROJECTIONS ABOVE WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS OR FORECASTS AND ARE INCLUDED HEREIN ONLY BECAUSE SUCH INFORMATION
WAS PROVIDED TO SOUTHDOWN. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
SIGNIFICANT RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE PROJECTIONS. THE PROJECTIONS REFLECT NUMEROUS ASSUMPTIONS
WITH RESPECT TO INDUSTRY PERFORMANCE, GENERAL BUSINESS, ECONOMIC, MARKET AND
FINANCIAL CONDITIONS AND OTHER MATTERS, ALL OF WHICH ARE DIFFICULT TO PREDICT,
AND MANY OF WHICH ARE BEYOND SOUTHDOWN'S CONTROL. ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT THE ASSUMPTIONS MADE IN PREPARING THE PROJECTIONS WILL PROVE
ACCURATE, AND THE INCLUSION OF SUCH ESTIMATES HEREIN SHOULD NOT BE REGARDED AS
AN INDICATION THAT SOUTHDOWN OR ANY OTHER PERSON CONSIDERS SUCH PROJECTIONS TO
BE AN ACCURATE PREDICTION OF SUCH FUTURE EVENTS. SEE "SUMMARY -- CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS."
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Pro Forma Merger Analysis. Lehman Brothers analyzed the pro forma impact of
the Merger on Southdown's earnings per share based on the mean of the earnings
estimates for 1998 and 1999 of Southdown and Medusa as published on First Call
and sensitivity scenarios prepared following discussions with Southdown
management. In connection with these analyses, management of Southdown provided
Lehman Brothers with projections for cost savings, operating synergies and
strategic benefits resulting from the Merger. These projections were
incorporated in Lehman Brothers' analyses which excluded one-time charges
directly related to the Merger. Based on the Adjusted Merger Projections, Lehman
Brothers concluded that the Merger would be accretive to Southdown's earnings
for 1998 and 1999.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in,
among other things, the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. The Southdown Board
selected Lehman Brothers because of its expertise, reputation and familiarity
with Southdown and the cement industry generally and because its investment
banking professionals have substantial experience in transactions comparable to
the Merger.
As compensation for its services in connection with the Merger, Southdown
has paid Lehman Brothers a fee of $150,000 upon execution of the engagement
letter with Lehman Brothers, and a fee of $850,000 upon the signing of the
Merger Agreement. Southdown has agreed to pay Lehman Brothers a fee of 0.65% of
the consideration to be paid to Medusa shareholders pursuant to the Merger,
contingent on the consummation of the Merger, against which fees previously paid
will be credited. In addition Southdown has agreed to reimburse Lehman Brothers
for reasonable out-of-pocket expenses incurred in connection with the Merger and
to indemnify Lehman Brothers for certain liabilities that may arise out of its
engagement by Southdown and the rendering of the Lehman Brothers Opinion.
Lehman Brothers has previously rendered various investment banking services
to Southdown in the past and received customary fees for such services. In
addition, Mr. Steven B. Wolitzer, a Managing Director of Lehman Brothers, is
also a director of Southdown.
In the ordinary course of its business, Lehman Brothers may actively trade
in the debt or equity securities of Medusa and Southdown for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
OPINION OF MEDUSA'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated January 21, 1997, Medusa retained
J.P. Morgan as its financial advisor and to deliver a fairness opinion in
connection with the proposed Merger.
At the meeting of the Medusa Board on March 17, 1998, J.P. Morgan rendered
its oral opinion to the Medusa Board that, as of such date, the consideration to
be paid to holders of Medusa Shares was fair from a financial point of view to
such shareholders. J.P. Morgan has also delivered a written opinion to the
Medusa Board, dated March 17, 1998, that, as of such date, the consideration to
be paid was fair from a financial point of view to the holders of Medusa Shares.
No limitations were imposed by the Medusa Board upon J.P. Morgan with respect to
the investigations made or procedures followed by it in rendering its opinions.
THE FULL TEXT OF THE WRITTEN OPINION OF J.P. MORGAN DATED MARCH 17, 1998,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX C AND IS INCORPORATED HEREIN
BY REFERENCE. MEDUSA'S SHAREHOLDERS ARE URGED TO READ J.P. MORGAN'S OPINION IN
ITS ENTIRETY. J.P. MORGAN'S WRITTEN OPINION IS ADDRESSED TO THE MEDUSA BOARD, IS
DIRECTED ONLY TO THE CONSIDERATION TO BE PAID IN THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF MEDUSA SHARES AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE MEDUSA SPECIAL MEETING. THE SUMMARY OF THE
OPINION OF J.P. MORGAN SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, J.P. Morgan reviewed, among other things, the
Merger Agreement; the audited financial statements of Medusa and Southdown for
the fiscal year ended December 31, 1997, and the
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unaudited financial statements of Medusa and Southdown for the two month period
ended February 28, 1998; current and historical market prices of Medusa Shares
and Southdown Common Stock; certain publicly available information concerning
the business of Medusa and of certain other companies engaged in businesses
comparable to those of Medusa, and the reported market prices for certain other
companies' securities deemed comparable; publicly available terms of certain
transactions involving companies comparable to Medusa and the consideration paid
for such companies; the terms of other business combinations deemed relevant by
J.P. Morgan; and certain internal financial analyses and forecasts prepared by
Medusa management and financial analysis and forecasts for Southdown prepared by
J.P. Morgan and Medusa management. J.P. Morgan also held discussions with
certain members of the management of Medusa and Southdown with respect to
certain aspects of the Merger, the past and current business operations of
Medusa and Southdown, the financial condition and future prospects and
operations of Medusa and Southdown, and certain other matters believed necessary
or appropriate to J.P. Morgan's inquiry. In addition, J.P. Morgan reviewed such
other financial studies and analyses and considered such other information as it
deemed appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by Medusa and Southdown or otherwise reviewed by J.P.
Morgan, and J.P. Morgan has not assumed any responsibility or liability
therefor. J.P. Morgan has not conducted any valuation or appraisal of any assets
or liabilities, nor have any valuations or appraisals been provided to J.P.
Morgan. In relying on financial analyses and forecasts provided to J.P. Morgan,
J.P. Morgan has assumed that they have been reasonably prepared based on
assumptions reflecting the best currently available estimates and judgments by
management as to the expected future results of operations and financial
condition of Medusa to which such analyses or forecasts relate. J.P. Morgan has
also assumed that the Merger will have the tax consequences described in this
Joint Proxy Statement/Prospectus, and in discussions with, and materials
furnished to J.P. Morgan by, representatives of Medusa, and that the other
transactions contemplated by the Merger Agreement will be consummated as
described in the Merger Agreement and this Joint Proxy Statement/Prospectus.
In the course of its discussions with Medusa, J.P. Morgan was furnished
with certain business and financial information which were not publicly
available. Such information included, among other things, certain financial
projections prepared by Medusa management. The Medusa projections do not take
into account any of the potential effects of the Merger. The Medusa projections
disclose, among other things, that sales are estimated to grow between 7.3% and
3.1% annually during 1998 to 1999 and that annual operating margins are expected
to range between 26.2% and 28.4% during 1998 and 1999.
The projections furnished to J.P. Morgan for Medusa were prepared by the
management of Medusa. Medusa does not publicly disclose internal management
projections of the type provided to J.P. Morgan in connection with J.P. Morgan's
analysis of the Merger, and such projections were not prepared with a view
toward public disclosure. These projections were based on numerous variables and
assumptions that are inherently uncertain and may be beyond the control of
management, including, without limitation, factors related to general economic
conditions, general market conditions for Medusa's products, successful
execution of the internal operating plan and prevailing interest rates.
Accordingly, actual results could vary significantly from those set forth in
such projections.
The projections developed regarding Southdown were prepared by J.P. Morgan
and the management of Medusa. These projections were based on numerous variables
and assumptions that are inherently uncertain and may be beyond the control of
management, including, without limitation, factors related to general economic
conditions, general market conditions for Southdown's products, successful
execution of the internal operating plan and prevailing interest rates.
Accordingly, actual results could vary significantly from those set forth in
such projections.
J.P. Morgan's opinions are based on economic, market and other conditions
as in effect on, and the information made available to J.P. Morgan as of, the
date of such opinions. Subsequent developments may affect the written opinion
dated March 17, 1998, and J.P. Morgan does not have any obligation to update,
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revise, or reaffirm such opinion. J.P. Morgan expressed no opinion as to the
price at which Southdown Common Stock will trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion.
Public Trading Multiples. Using publicly available information, J.P. Morgan
compared selected financial data of Medusa and Southdown with similar data for
selected publicly traded companies engaged in businesses which J.P. Morgan
judged to be analogous to Medusa and Southdown. The companies selected by J.P.
Morgan were: Lafarge Corporation, Centex Construction Products, Lone Star
Industries, Giant Cement Holding Inc., Medusa and Southdown (the "Selected
Cement Companies"). The Selected Cement Companies were used for comparison
because, among other things, each serves principally the market for cement and
cement-related products. For each of the Selected Cement Companies, J.P. Morgan
considered: (i) the ratio of firm value (defined as equity value plus net debt)
to 1997 earnings before interest and taxes ("1997 EBIT"); (ii) the ratio of firm
value to 1997 earnings before interest, taxes, depreciation and amortization
("1997 EBITDA"); and (iii) the ratio of equity value to 1997 earnings ("1997
Earnings") and 1998 projected earnings ("1998 Earnings"), based on estimates of
the Institutional Brokers Estimate System. The ratio of firm value to 1997 EBIT
ranged from 6.5x to 10.2x for the Selected Cement Companies, compared to the
implied multiple arising from the Merger of 12.1x. The ratio of firm value to
1997 EBITDA ranged from 5.1x to 8.1x for the Selected Cement Companies, compared
to the implied multiple of earnings from the Merger of 9.8x. The ratio of equity
value to 1997 Earnings and 1998 Earnings ranged from 12.1x to 17.0x and 12.3x to
14.9x, respectively, for the Selected Cement Companies, compared to the implied
multiple of earnings arising from the Merger of 17.6x and 15.4x, respectively.
Upon evaluating the trading multiples J.P. Morgan concluded that the implied
multiples of the transaction exceeded the high end of the public trading
multiple ranges, supporting the fairness to Medusa of the proposed exchange
ratio.
Discounted Cash Flow Analysis. J.P. Morgan calculated the unlevered free
cash flows that Medusa is expected to generate during fiscal years 1998 through
2005 based upon financial projections prepared by the management of Medusa
through the years ended 2005. J.P. Morgan also calculated a range of terminal
asset values of Medusa at the end of the 8-year period ending December 31, 2005
by applying a terminal value EBITDA multiple ranging from 5.0 to 7.0 times to
the EBITDA of Medusa during the final year of the 8-year period. The unlevered
free cash flows and the range of terminal asset values were then discounted to
present values using a range of appropriate discount rates, which were chosen by
J.P. Morgan based upon an analysis of the weighted average cost of capital of
Medusa. The present value of the unlevered free cash flows and the range of
terminal asset values were then adjusted for Medusa's December 31, 1997 fiscal
year-end excess cash and total debt. Based on the management projections and a
range of discount rates from 10.0% to 12.0%, the discounted cash flow analysis
indicated a range of equity values between $52 and $69 per Medusa Share on a
stand-alone basis. J.P. Morgan also evaluated the present value of the unlevered
free cash flows and terminal value of Medusa based on the same assumptions
indicated above, but further assuming a two-year economic downturn in 2000 and a
return to normal operating performance by 2003. The discounted cash flow
analysis for this case indicated a range of equity values between $39 and $52
per share of Medusa Common Stock on a stand-alone basis.
J.P. Morgan also calculated the unlevered free cash flows that Southdown is
expected to generate during fiscal years 1998 through 2003 based upon financial
projections prepared by the management of Medusa and J.P. Morgan through the
years ended 2003. J.P. Morgan also calculated a range of terminal asset values
of Southdown at the end of the 6-year period ending December 31, 2003 by
applying a terminal value EBITDA multiple ranging from 5.0 to 7.0 times to the
EBITDA of Southdown during the final year of the 6-year period. The unlevered
free cash flows and the range of terminal asset values were then discounted to
present values using a range of appropriate discount rates, which were chosen by
J.P. Morgan based upon an analysis of the weighted average cost of capital of
Southdown. The present value of the unlevered free cash flows and the range of
terminal asset values were then adjusted for Southdown's December 31, 1997
fiscal year-end excess cash and total debt. Based on the J.P. Morgan and Medusa
management projections and a range of discount rates from 10.0% to 12.0%, the
discounted cash flow analysis indicated a range of equity values between $63
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and $86 per share of Southdown Common Stock on a stand-alone basis. J.P. Morgan
also evaluated the present value of the unlevered free cash flows and terminal
value of Southdown based on the same assumptions indicated above, but further
assuming a two-year economic downturn in 2000 and a return to normal operating
performance by 2003. The discounted cash flow analysis for this case indicated a
range of equity values between $46 and $63 per share of Southdown Common Stock
on a stand-alone basis.
Exchange Ratio Analysis. J.P. Morgan reviewed the ratios of closing stock
prices of Medusa Shares to Southdown Common Stock over various periods ending
March 13, 1998. J.P. Morgan observed that the averages of the ratios of closing
stock prices for the various periods ending March 13, 1998 were 0.86x for the
previous year, 0.81x for the previous nine months, 0.75x for the previous six
months, 0.71x for the previous 90 days, and 0.72x for the previous 30 days. J.P.
Morgan also observed that the implied exchange ratio based on the closing market
prices of Medusa Shares and Southdown Common Stock on March 13, 1998 was
approximately 0.75x.
Analysis at Various Prices. J.P. Morgan calculated the implied share price
for holders of Medusa Shares based on the Exchange Ratio of .88 and various
hypothetical prices of Southdown Common Stock. J.P. Morgan also calculated the
associated premium to the closing price of Medusa Shares on March 13, 1998 and
the premiums to the average of the closing prices of Medusa Shares for the 30
trading day and 60 trading day period ended March 13, 1998. Based on Southdown's
closing price on March 13, 1998 of $68 per Common Share, J.P. Morgan calculated
that the resulting implied value per Medusa Shares of approximately $60 per
share represented an 18% premium to Medusa's closing price on March 13, 1998 and
premiums of 29.1% and 36.6% to the average of the closing prices for the 30
trading days and 60 trading days ended March 13, 1998, respectively.
Contribution Analysis. J.P. Morgan analyzed the pro forma contribution of
each of Medusa and Southdown to the combined entity, if the Merger were to be
consummated, and reviewed certain historical and estimated future operating and
financial information including, among other things, the sales, EBIT, EBITDA and
net income of Medusa and Southdown, and the pro forma sales, EBIT, EBITDA, and
net income of the combined entity resulting from the Merger based on: (i)
internal financial analyses and forecasts for Medusa prepared by Medusa
management; and (ii) financial analyses and forecasts for Southdown prepared by
J.P. Morgan and Medusa management. Such analysis did not consider any potential
synergies or cost savings that might be realized after the Merger. Such analysis
indicated that, based on management forecasts, Medusa would contribute on a pro
forma basis to the combined entity resulting from the Merger approximately: (i)
34% of 1997 sales and 35% of 1998 sales; (ii) 35% of 1997 EBIT and 36% of 1998
EBIT; (iii) 34% of 1997 EBITDA and 35% of 1998 EBITDA; and (iv) 37% of 1997 net
income and 38% of 1998 net income. Pro forma ownership of Medusa shareholders in
the combined company is estimated to be approximately 38%.
Pro Forma Analysis of the Merger. J.P. Morgan analyzed certain pro forma
effects of the Merger on the earnings, balance sheet and cash flow of the
combined company, as well as Southdown's and Medusa's earnings per share, after
taking into account the Exchange Ratio of .88, but without giving effect to one
time charges directly related to the Merger. These analyses were based on the
forecast prepared by Medusa management and the forecast for Southdown, prepared
by J.P. Morgan and Medusa management. Based on such analysis J.P. Morgan
observed that the Merger (excluding synergies) would result in a slight decrease
in Southdown's earnings per share in 1999, and that the Merger (excluding
synergies) would be marginally dilutive to Medusa's pro forma earnings per share
in 1998. Based on pro forma ownership of Southdown, J.P. Morgan further observed
that the Merger (excluding synergies) would result in break-even accretion in
Medusa's pro forma earnings per share in 1999. J.P. Morgan did not attempt to
specifically identify, quantify, and detail synergies which might be achieved in
connection with the Merger. However, for illustrative purposes and as a
hypothetical example, J.P. Morgan also analyzed certain pro forma effects of the
Merger on the earnings per share of the combined company as well as Medusa
earnings per share, assuming pre-tax synergies would be realized in 1999 and
each year thereafter in connection with the Merger. While a level of synergy can
be expected to be achieved in a strategic business combination such as the
Merger as a result of rationalization and cost reductions, the pre-tax amount
was estimated by J.P. Morgan and Medusa management without any detailed
investigation or a result of any formal analysis, in order to ascertain the
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arithmetic sensitivity of the pro forma combination to the achievement of
synergies, and J.P. Morgan did not express any opinion as to whether these
synergies would be obtained, or the amount or timing of such synergies. No
assurances can be given that the hypothetical amount of these synergies bears
any relation to the synergies, if any, which might be realized as a result of
the Merger. Based on such illustrative analysis and after taking into account
such hypothetical synergies, the Merger would result in an increase in
Southdown's earnings per share in fiscal year 1999 of approximately 5.0%. Based
on such illustrative analysis and after taking into account such hypothetical
synergies, the Merger would result in an increase in Medusa's pro forma earnings
per share in fiscal year 1999 of approximately 8.0%, based on the pro forma
ownership of Southdown by holders of Medusa Shares.
Pro Forma Share Price Analysis. J.P. Morgan performed an analysis of
Southdown's potential share price assuming the consummation of the Merger. Based
on a range of multiples of net income for the combined company, ranging from
Medusa's current multiple of estimated earnings to Southdown's current multiple
of estimated earnings, and based on Medusa management estimates of Medusa's 1999
net income and estimates of Southdown's 1999 net income prepared by J.P. Morgan
and Medusa management, and after giving effect to the Exchange Ratio of .88,
J.P. Morgan calculated potential pro forma market values per share of Southdown
Common Stock, within twelve months, ranging from approximately $72 to $83. These
prices were compared to Southdown's market price of $68 per share on March 13,
1998. For illustrative purposes, J.P. Morgan performed a similar analysis
assuming hypothetical pre-tax synergies would be realized in connection with the
Merger. J.P. Morgan did not express any opinion as to whether these synergies
would be obtained or the amount or timing of such synergies. Such analysis
resulted in potential pro forma market values, within twelve months, ranging
from approximately $78 to $90 per share of Southdown Common Stock.
The summary set forth above does not purport to be a complete description
of the analyses or data presented by J.P. Morgan but describes, in summary form,
the principal elements of the presentation made by J.P. Morgan to the Medusa
Board on March 17, 1998. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analysis or summary
description. J.P. Morgan believes that the summary set forth above and their
analyses must be considered as a whole and that selecting portions thereof,
without considering all of its analyses, could create an incomplete view of the
processes underlying its analyses and opinion. J.P. Morgan based its analyses on
assumptions that it deemed reasonable, including assumptions concerning general
business and economic conditions and industry-specific factors. The other
principal assumptions upon which J.P. Morgan based its analyses are set forth
above under the description of each such analysis. J.P. Morgan's analyses are
not necessarily indicative of actual values or actual future results that might
be achieved, which values may be higher or lower than those indicated. Moreover,
J.P. Morgan's analyses are not and do not purport to be appraisals or otherwise
reflective of the prices at which businesses actually could be bought or sold.
As a part of its investment banking business, J.P. Morgan and its
affiliates are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements, and valuations for estate,
corporate and other purposes. J.P. Morgan was selected to advise Medusa with
respect to the Merger and to deliver an opinion to Medusa's Board with respect
to the Merger on the basis of such experience and its familiarity with Medusa.
J.P. Morgan has managed an offering of convertible debt securities for
Medusa, for which J.P. Morgan received customary fees. In the ordinary course of
their businesses, affiliates of J.P. Morgan may actively trade the debt and
equity securities of Medusa or Southdown for their own accounts or for the
accounts of customers and, accordingly, they may at any time hold long or short
positions in such securities.
For services rendered in connection with the Merger, Medusa has agreed to
pay J.P. Morgan an engagement fee of $100,000, and a transaction fee of .60% of
the aggregate purchase price paid in the Merger, payable upon consummation of
the Merger and against which the engagement fee will be credited. Medusa has
also agreed to reimburse J.P. Morgan for its reasonable expenses incurred in
connection with its services, including the fees and disbursements of counsel,
and will indemnify J.P. Morgan against certain liabilities, including
liabilities arising under the federal securities laws.
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CONFLICTS OF INTEREST OF CERTAIN PERSONS
General. Certain members of Medusa's senior management and the Medusa Board
may be deemed to have certain interests in the Merger that are in addition to or
potentially different from the interests of shareholders of Medusa generally.
The Medusa Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby. In considering the recommendation of the Medusa Board in respect of the
Merger Agreement and the transactions contemplated thereby, the Medusa
shareholders should be aware that such interests may present actual or potential
conflicts of interest with respect to the Merger.
Board of Directors. Immediately following the Effective Time, the Southdown
Board will consist of 13 members. Two members of the Southdown Board will be
Robert S. Evans, the current Chairman and Chief Executive Officer of Medusa, and
George E. Uding, Jr., the current President and Chief Operating Officer of
Medusa. At the annual meeting of Southdown shareholders next following the
Effective Time, Southdown's Board will nominate Messrs. Uding and Evans for
election as Class III and Class I Directors, respectively, with terms of office
expiring in 2000 and 2001, respectively.
Severance Arrangements. Medusa has Severance Agreements with eight of its
executive officers, including Messrs. Evans, Uding, Kane, Denny, Knight,
Redeker, Brown, and Vilsack, which provide for a lump sum cash payment of three
times the amount of the executive's annual base salary and a pro-rata portion of
any annual incentive compensation from the previous year upon a change of
control such as the approval of the Merger, even if the Merger is not
consummated. Each executive that is a party to a Severance Agreement is entitled
to such a payment if: (i) within two years from the approval of the Merger
Proposal by the Medusa Shareholders, such executive is terminated without Cause
(as defined in the Severance Agreements); (ii) within such two-year period, such
executive terminates his or her employment for Good Reason (as defined in the
Severance Agreements); or (iii) such executive terminates his or her employment
for any reason during a 30-day period following the end of the first year in
such two-year period. The Severance Agreements also provide for continuation of
the most favorable health and welfare benefits provided to the executive and his
or her family prior to or after the consummation of the Merger. All of the
Severance Agreements provide for Excise Tax Reimbursements, irrespective of
whether such benefits are paid by reason of the Severance Agreements or
otherwise. Pursuant to the Merger Agreement, Southdown has agreed to assume the
obligations of Medusa under the Severance Agreements.
Medusa Incentive Plan. As described above under "The Merger
Agreement -- Medusa Options," all Medusa Options outstanding at the Effective
Time will be automatically converted into Substitute Options, subject to the
terms of the Medusa Incentive Plan and the individual award agreements issued
thereunder, including the terms and provisions governing vesting and
exercisability. Under the Medusa Incentive Plan and the Merger Agreement, all
Medusa Options will become fully vested and exercisable as of the Effective
Time, and the Merger Agreement will extend the post-termination exercise period
in certain situations. As of the Medusa Record Date, approximately
shares of Southdown Common Stock would be issuable upon the exercise of
Substitute Options based on the number of Medusa Shares subject to existing
Medusa Options multiplied by the Exchange Ratio, with the exercise price under
each Substitute Option being equal to the exercise price under the Medusa
Options divided by the Exchange Ratio. See "The Merger Agreement -- Medusa
Options."
Under the Medusa Incentive Plan and the senior executive restricted share
agreements issued pursuant thereto, the performance-based restricted Medusa
Shares awarded to all of the executive officers of Medusa will automatically
become fully vested upon the approval of the Merger Proposal by the Medusa
shareholders even if the Merger is not thereafter consummated for any reason. If
the Merger is consummated, the Medusa Shares will be exchanged for unrestricted
Southdown Common Stock. Such vesting in respect of the performance-based
restricted Medusa Shares will also entitle the holders thereof to an income tax
indemnity for the income taxes reportable in connection with such vesting, in
addition to an Excise Tax Reimbursement.
Non-employee Director Grants. Under the Director Stock Plan, all Medusa
non-employee directors receive a portion of their annual director's fee in the
form of Medusa Shares. A pro-rata portion of such Medusa Shares is forfeitable
if the non-employee director fails to remain a member of the Medusa Board until
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the next annual meeting of Medusa's shareholders. The forfeited amount is
determined based on the number of full months of service on the Medusa Board in
such annual period prior to such termination of the board services.
Notwithstanding the above, pursuant to the Director Stock Plan and the
restricted share agreements issued thereunder, the Medusa Shares awarded to the
non-employee directors will automatically become non-forfeitable upon the
approval of the Merger Proposal by the Medusa shareholders even if the Merger is
not thereafter consummated for any reason. If the Merger is consummated, the
Medusa Shares will be exchanged for unrestricted Southdown Common Stock. The
approximate aggregate value of the shares as to which this accelerated vesting
will occur is $94,000.
Pursuant to the Merger Agreement, Southdown has agreed to assume Medusa's
obligations under the foregoing arrangements.
Estimated Costs. In connection with the Severance Agreements and the Medusa
Incentive Plan, as described above, an aggregate of approximately $65 million in
cash payments and other benefits will be made to all Medusa executive officers.
Of this amount, nine executive officers will receive payments and benefits
approximately valued as follows: Mr. Uding, $20 million; Mr. Evans, $14 million;
Mr. Kane, $7 million; Mr. Denny, $6 million; Mr. Knight, $6 million; Mr.
Redeker, $5 million; Mr. Brown, $4 million; Mr. Vilsack, $2 million; and Mr.
Doles, $1 million. A substantial portion of these payments consist of amounts
expected to be owed by such individuals for income taxes and/or excise taxes.
Southdown expects to record a cash charge of approximately $45 million and a
non-cash charge of approximately $9 million in connection with the foregoing
payments.
Indemnification; Directors and Officers Insurance. Pursuant to the Merger
Agreement, Southdown shall, cause the Surviving Corporation to keep in effect
the provisions in its Articles of Incorporation and Code of Regulations that
provide for exculpation of director and officer liability to the fullest extent
permitted by applicable law and to cause the Surviving Corporation to indemnify
present and former officers, directors, employees, trustees or agents of Medusa
or any of its subsidiaries or divisions against all losses, claims, damages,
liabilities, costs or expenses (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation against such persons in such capacities in
accordance with the terms of the foregoing documents. Southdown has also agreed
to use its reasonable best efforts to cause the Surviving Corporation to
maintain in effect for at least six years after the Effective Time the current
policies of directors' and officers' liability insurance maintained by Medusa
with respect to matters occurring prior to the Effective Time, subject to
certain limitations. See "The Merger Agreement -- Covenants."
Southdown Arrangements. In addition to the above, it is expected the Mr.
Redeker will become an employee of Southdown; however, the terms of his
employment have not been finalized. Also, Mr. Uding is considering entering into
a consulting agreement to provide advisory services to Southdown after the
Merger. The terms and provisions of such agreement are currently being
negotiated by Mr. Uding and Southdown.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Under the pooling of interests method of
accounting, the recorded assets and liabilities of Southdown and Medusa will be
carried forward to the combined company at their historical recorded amounts
subject to any adjustments required to conform accounting policies of the two
companies, income of the combined company will include income of Medusa and
Southdown for the entire fiscal year in which the Merger occurs, and the
reported income of the separate companies for previous periods will be combined
and restated as income of the combined company. See "The Merger
Agreement -- Conditions Precedent to the Merger," "General -- Summary Unaudited
Pro Forma Combined Financial Data" and "Index to Financial Statements."
Each of Medusa and Southdown has agreed to obtain written undertakings
("Affiliate Letters") at least 30 days prior to the Effective Date from each
person who may be, in its reasonable judgment, at the record date for its
respective Shareholders' Meetings or was on the date of the Merger Agreement an
"affiliate" of such party within the meaning of Rule 145 under the Securities
Act to the effect that, among other things, such person will not sell, transfer
or otherwise dispose of, or direct or cause the sale, transfer or other
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disposition of, any Medusa Shares or Southdown Common Stock, or any securities
exercisable, exchangeable or convertible therefor, beneficially owned thereby
during the 30 days prior to the Effective Time and will not sell, transfer or
otherwise dispose of, or direct or cause the sale, transfer or other disposition
of, any Southdown Common Stock, or any securities exercisable, exchangeable or
convertible therefor, beneficially owned thereby as a result of the Merger or
otherwise until after such time as Southdown shall have publicly released a
report in the form of a quarterly earnings report, registration statement filed
with the Commission, a report filed with the Commission or any other public
filing, statement or announcement which includes the combined financial results
of Southdown and Medusa for a period of at least 30 days of combined operations
of Southdown and Medusa following the Effective Time. Southdown has agreed to
file such earnings statement with the Commission as promptly as practical and in
any event within 45 days after the end of the month following the month in which
the Effective Time occurs. See "The Merger Agreement -- Conditions Precedent to
the Merger."
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Southdown Common Stock issued in connection with the Merger
will be freely transferable, except that any shares of Southdown Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of Southdown or Medusa prior to the Merger may be sold
by them only in transactions permitted by the resale provisions of Rule 145
under the Securities Act with respect to affiliates of Medusa, or Rule 144 under
the Securities Act with respect to persons who are or become affiliates of
Southdown, or as otherwise permitted under the Securities Act. Persons who may
be deemed to be affiliates of Southdown or Medusa generally include individuals
or entities that control, are controlled by or are under common control with
such person, and generally include the executive officers and directors of such
person as well as principal shareholders of such person.
Affiliates of Medusa prior to the Merger (each a "Medusa Affiliate") may
not sell their shares of Southdown Common Stock acquired in connection with the
Merger, except pursuant to an effective registration under the Securities Act
covering such shares or in compliance with Rule 145 under the Securities Act or
another applicable exemption from the registration requirements of the
Securities Act. In general, Rule 145 under the Securities Act provides that a
Medusa Affiliate (together with certain related persons) would be entitled to
sell shares of Southdown Common Stock acquired in connection with the Merger
only through unsolicited "broker transactions" or in transactions directly with
a "market maker," as such terms are defined in Rule 144. Additionally, the
number of shares to be sold by a Medusa Affiliate (together with certain related
persons and certain persons acting in concert) within any three-month period for
purposes of Rule 145 under the Securities Act may not exceed the greater of one
percent of the outstanding shares of Southdown Common Stock or the average
weekly trading volume of such shares during the four calendar weeks preceding
such sale. Rule 145 under the Securities Act will remain available to Medusa
Affiliates if Southdown remains current with its informational filings with the
Commission under the Exchange Act which Southdown has contractually committed to
do for a period of two years after the Effective Date. One year after the
Effective Date, a Medusa Affiliate will be able to sell such shares of Southdown
Common Stock without being subject to such manner of sale or volume limitations
provided that Southdown is current with its Exchange Act informational filings
and such affiliate is not then an affiliate of Southdown. Two years after the
Effective Date, a Medusa Affiliate will be able to sell such shares of Southdown
Common Stock without any restrictions so long as such affiliate had not been an
affiliate of Southdown for at least three months prior to the date of such sale.
FACILITIES MAP
The map on the inside cover page of this Joint Proxy Statement/Prospectus
shows the location of the cement plants, distribution terminals and other
facilities owned by Southdown and Medusa as of March 31, 1998.
41
<PAGE> 54
MEDUSA BOARD OF DIRECTORS AND OFFICERS FOLLOWING THE MERGER
If the proposed Merger is approved and consummated, holders of Medusa
Shares will become shareholders of Southdown. Southdown will remain under the
direction of the Southdown Board and the management of Southdown. The officers
of Sub at the date of the Merger Agreement will become the officers of New
Medusa after the Merger. The directors of Medusa at the date of the Merger
Agreement will be the directors of New Medusa at the time of the Merger.
Southdown intends to cause designees from its executive staff to be elected
directors of New Medusa promptly following the Merger.
SOUTHDOWN BOARD FOLLOWING THE MERGER
Immediately following the Effective Time, the Southdown Board will consist
of 13 members. Two members of the Southdown Board will be Robert S. Evans, the
current Chairman and Chief Executive Officer of Medusa, and George E. Uding,
Jr., the current President and Chief Operating Officer of Medusa. Neither Mr.
Evans nor Mr. Uding will be an officer of Southdown. Southdown has agreed in the
Merger Agreement, that at the next annual meeting of Southdown, the Southdown
Board shall cause to be nominated Mr. Uding for election as a Class III director
with a term of office expiring in 2000, and Mr. Evans for election as a Class I
director with a term of office expiring in 2001.
The respective ages, positions and periods of service as directors of
Medusa, business experience during the past five years and directorships in
other companies of Messrs. Evans and Uding are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
R. S. Evans..................... 54 Director since 1979; Chairman and Chief Executive Officer
of Medusa, 1987 to present; Chairman and Chief Executive
Officer of Crane Co., Stamford, CT (diversified
manufacturer of engineered products and an affiliate of
the Company), 1984 to present; Director of Crane Co.,
Fansteel Inc. (miner and producer of raw materials for
metal alloys), and HBD Industries, Inc. (holding company
of a diversified manufacturer)
George E. Uding, Jr............. 66 Director since 1993; President and Chief Operating Officer
of Medusa, 1994 to present; Consultant, 1992 to 1993;
Senior Vice President, ESSROC Corporation (producer of
cement and concrete products) through 1991.
</TABLE>
COMBINED OPERATIONS AFTER THE MERGER
Following the Merger, Southdown intends to complete an evaluation of the
physical and human resources of Medusa so that the operations of Southdown and
Medusa can be integrated on the most efficient and cost effective basis. Since
Southdown will be continued to be headquartered in Houston, Texas, it is likely
that Medusa's headquarters in Cleveland, Ohio will ultimately be closed and many
of the administrative functions provided by personnel in that office transferred
to Houston.
FEDERAL INCOME TAX CONSEQUENCES
See "Federal Income Tax Consequences."
GOVERNMENTAL AND REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until the following steps have been taken: (i)
Premerger Notification and Report Forms have been submitted and certain
information has been furnished to the FTC and the Antitrust Division; and (ii)
required waiting periods have expired or terminated.
42
<PAGE> 55
Southdown and Medusa have agreed, pursuant to the Merger Agreement, to use
their best efforts to file or cause to be filed with the FTC and the Antitrust
Division such notifications as are required to be filed under the HSR Act and
the rules and regulations promulgated thereunder, and to respond as promptly as
practicable to any requests for additional information made by either the FTC or
the Antitrust Division. Accordingly, Southdown and Medusa each completed filing
Premerger Notification and Report Forms with the FTC and the Antitrust Division,
by March 27, 1998. The required waiting period under the HSR Act was terminated
on April 16, 1998.
DISSENTERS' RIGHTS
Southdown. The shareholders of Southdown will not be entitled to
dissenters' rights under the LGCL with respect to the Charter Amendment, the
Stock Issuance or the other proposals to be presented at the Southdown Annual
Meeting.
Medusa. The shareholders of Medusa will be entitled to dissenters'
appraisal rights in connection with the Merger under the ORC, to the extent they
fully comply with the procedural requirements of the ORC. See "Rights of
Dissenting Shareholders -- Medusa Shareholders." Southdown's obligation to
consummate the Merger is specifically conditioned upon the holders of not more
than 5% of the Medusa Shares, on a fully diluted basis, perfecting their
dissenters' rights under the ORC. Southdown believes, however, that the
perfection of dissenters' rights by the holders of more than approximately
700,000 Medusa Shares (approximately 4% of the Medusa Shares outstanding on the
Medusa Record Date) may preclude pooling of interests accounting treatment for
the Merger, which is also a condition to Southdown's obligation to consummate
the Merger. See "The Merger Agreement -- Conditions Precedent to the Merger."
STOCK EXCHANGE LISTING
It is a condition to the Merger that, upon consummation of the Merger, the
shares of Southdown Common Stock to be issued by Southdown in connection with
the Merger will be authorized for listing on the NYSE, subject to official
notice of issuance.
DELISTING AND DEREGISTRATION OF MEDUSA SHARES
If the Merger is consummated, the Medusa Shares will be delisted from the
NYSE and removed from registration under the Exchange Act.
AMENDMENT TO SOUTHDOWN ARTICLES
Southdown is currently authorized to issue 40,000,000 shares of Southdown
Common Stock. The Southdown Board has unanimously approved a resolution which
would increase the number of authorized shares of Southdown Common Stock from
40,000,000 to 200,000,000. After giving effect to the consummation of the
Merger, the assumption of the Substitute Options and the increase in the number
of shares reserved for grant under Southdown's 1989 Stock Option Plan, Southdown
will have insufficient authorized but unissued shares of Southdown Common Stock
to satisfy all of the foregoing commitments. In addition, Southdown desires the
flexibility to issue additional shares of Southdown Common Stock and securities
convertible into Southdown Common Stock in connection with equity financing, the
acquisition of other businesses in exchange for equity securities and through
stock splits and dividends under appropriate circumstances. Accordingly, the
continued availability of shares of Southdown Common Stock is necessary to
provide Southdown with the flexibility to take advantage of opportunities that
may arise in the foregoing situations.
A potential effect of the Charter Amendment would be a dilution of present
shareholders' interest in Southdown if Southdown issues a substantial number of
the newly authorized shares. In addition, any issuance of additional shares of
Southdown Common Stock could have the effect of diluting the earnings per share,
and book value per share of existing shares of Southdown Common Stock. The
Southdown Board, however, does
43
<PAGE> 56
not believe that the consummation of the Merger will be dilutive of Southdown's
estimated 1998 earnings per share (excluding the one-time costs directly related
to the Merger). See "The Merger -- Reasons for the Merger; Recommendations of
the Boards -- Southdown."
The Southdown Board believes that the Charter Amendment will provide the
flexibility needed to meet corporate objectives and is in the best interest of
Southdown shareholders. The approval of the Charter Amendment is a condition to
Southdown's obligation to consummate the Merger. The Charter Amendment will, if
approved by the requisite vote of the holders of Southdown Common Stock, be
effected regardless of whether the Stock Issuance is approved or the Merger is
consummated. The affirmative vote of the holders of a majority of the shares of
Southdown Common Stock outstanding on the Southdown Record Date is required to
approve the Charter Amendment. The Southdown Board unanimously recommends that
Southdown shareholders vote FOR the Charter Amendment.
44
<PAGE> 57
SUMMARY SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA OF SOUTHDOWN, INC.
The following summary selected financial data for the five years ended
December 31, 1997, are derived from the audited consolidated financial
statements of Southdown. The financial data for the three-month periods ended
March 31, 1998 and 1997 are derived from unaudited consolidated financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring adjustments, which Southdown considers necessary
for a fair presentation of the financial position and the results of operations
for those periods. Operating results for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1998. The data should be read in conjunction
with the consolidated financial statements, related notes, and other financial
information included and incorporated by reference herein. See "Available
Information" and "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues...................... $155.8 $151.4 $719.2 $664.4 $596.1 $560.3 $507.7
====== ====== ====== ====== ====== ====== ======
Earnings from continuing
operations................. 16.5 13.6 96.7 71.2 47.5 30.1 3.6
====== ====== ====== ====== ====== ====== ======
Basic earnings (loss) per
share from continuing
operations................. 0.70 0.57 4.23 3.50 2.18 1.20 (0.09)
====== ====== ====== ====== ====== ====== ======
Diluted earnings (loss) per
share from continuing
operations................. 0.69 0.55 3.98 2.97 2.03 1.16 (0.09)
====== ====== ====== ====== ====== ====== ======
BALANCE SHEET DATA (AT END OF
PERIOD)
Total assets.................. $989.2 $916.3 $974.2 $932.0 $875.5 $881.0 $907.0
====== ====== ====== ====== ====== ====== ======
Total long-term debt.......... 162.9 148.8 162.9 164.4 174.5 185.8 274.0
====== ====== ====== ====== ====== ====== ======
CASH DIVIDENDS PAID PER SHARE OF
COMMON STOCK.................. $ 0.10 $ 0.10 $ 0.40 $ 0.40 -- -- --
====== ====== ====== ====== ====== ====== ======
</TABLE>
45
<PAGE> 58
SUMMARY SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA OF MEDUSA CORPORATION
The following summary selected financial data for the five years ended
December 31, 1997, are derived from the audited consolidated financial
statements of Medusa. The financial data for the three-month periods ended March
31, 1998 and 1997 are derived from unaudited consolidated financial statements.
The unaudited financial statements include all adjustments, consisting of normal
recurring adjustments, which Medusa considers necessary for a fair presentation
of the financial position and the results of operations for those periods.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1998. The data should be read in conjunction with the consolidated
financial statements, related notes, and other financial information included
and incorporated by reference herein. See "Available Information" and
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues...................... $ 69.1 $ 56.8 $376.0 $323.4 $293.3 $276.3 $248.0
====== ====== ====== ====== ====== ====== ======
Earnings from continuing
operations................. 2.6 1.8 57.0 54.3 43.2 29.9 18.2
====== ====== ====== ====== ====== ====== ======
Basic earnings per share from
continuing operations...... 0.16 0.11 3.44 3.38 2.70 1.83 1.12
====== ====== ====== ====== ====== ====== ======
Diluted earnings per share
from continuing
operations................. 0.16 0.11 3.41 3.15 2.54 1.76 1.09
====== ====== ====== ====== ====== ====== ======
BALANCE SHEET DATA (AT END OF
PERIOD)
Total assets.................. $323.8 $235.5 $306.5 $223.4 $219.6 $218.6 $204.2
====== ====== ====== ====== ====== ====== ======
Total long-term debt.......... 39.0 4.1 24.1 4.1 61.6 61.3 96.3
====== ====== ====== ====== ====== ====== ======
CASH DIVIDENDS PAID PER COMMON
SHARE......................... $ 0.15 $ 0.15 $ 0.60 $ 0.60 $ 0.50 $ 0.50 $ 0.27
====== ====== ====== ====== ====== ====== ======
</TABLE>
46
<PAGE> 59
MARKET PRICE AND DIVIDEND INFORMATION
The Southdown Common Stock and the Medusa Shares are each listed and traded
on the NYSE. The following table sets forth the high and low trading prices per
share of the Southdown Common Stock and the Medusa Shares on the NYSE for the
periods indicated as reported in published financial sources and the dividends
declared per share for such periods:
<TABLE>
<CAPTION>
SOUTHDOWN
COMMON SOUTHDOWN MEDUSA MEDUSA
STOCK PRICES DIVIDENDS SHARE PRICES DIVIDENDS
--------------- DECLARED --------------- DECLARED
HIGH LOW PER SHARE HIGH LOW PER SHARE
------ ------ --------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter................... $24.50 $18.00 $0.10 $31.25 $25.25 $0.15
Second Quarter.................. 24.88 20.75 0.10 31.25 28.25 0.15
Third Quarter................... 25.75 19.50 0.10 32.63 27.25 0.15
Fourth Quarter.................. 32.88 24.50 0.10 35.13 30.63 0.15
1997
First Quarter................... 36.88 29.00 0.10 41.13 33.25 0.15
Second Quarter.................. 44.63 33.13 0.10 41.00 35.25 0.15
Third Quarter................... 54.63 41.63 0.10 50.50 38.38 0.15
Fourth Quarter.................. 59.44 51.75 0.10 48.94 35.56 0.15
1998
First Quarter................... 72.50 55.31 0.10 63.50 39.13 0.15
Second Quarter (through May 8,
1998)........................ 74.00 64.00 0.10 64.38 56.69 --
</TABLE>
The following table sets forth the reported high and low sales prices and
the closing prices per share of the Southdown Common Stock and the Medusa Shares
on the NYSE on May 7, 1998, the last full trading day prior to the first public
announcement of the execution of the Merger Agreement, and on March 31, 1998,
the last full trading day prior to the date of the preliminary copy of this
Joint Proxy Statement/Prospectus:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
------ ------- -------
<S> <C> <C> <C>
MARCH 17, 1998
Southdown Common Stock............................. $69.75 $ 68.75 $ 69.56
Medusa Shares...................................... 52.25 51.06 52.25
Medusa Shares on an equivalent basis............... 61.38 60.50 61.21
MAY 8, 1998
Southdown Common Stock............................. 67.75 64.75 67.38
Medusa Shares...................................... 58.69 56.75 58.25
</TABLE>
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR MEDUSA
SHARES AND SHARES OF SOUTHDOWN COMMON STOCK.
Southdown anticipates that it will continue to pay regular quarterly cash
dividends of $.10 per share. However, the timing and amount of any future
dividends remain within the discretion of the Southdown Board and will depend on
Southdown's future earnings, financial condition, capital requirements and other
factors.
Pursuant to the Merger Agreement, each of Southdown and Medusa has agreed
that, during the period from the date of the Merger Agreement to the Effective
Time, it will not make, declare or pay any dividend or distribution on its
outstanding shares of capital stock other than regular quarterly cash dividends.
47
<PAGE> 60
THE MERGER AGREEMENT
The following is a summary of material provisions of the Merger Agreement,
a copy of which is attached as Appendix A to this Joint Proxy
Statement/Prospectus. This summary is qualified in its entirety by reference to
the Merger Agreement which is incorporated herein by reference. Certain defined
terms used in the description of the Merger Agreement below which are not
otherwise defined in this Joint Proxy Statement/Prospectus and which are defined
in the Merger Agreement or the exhibits thereto shall have the respective
meanings therein.
GENERAL
The Merger Agreement provides that Sub will be merged with and into Medusa
as a result of which Medusa, as the Surviving Corporation, will change its name
to Southdown Medusa, Inc. and become a wholly-owned subsidiary of Southdown,
subject to the requisite approvals of the Southdown shareholders and the Medusa
shareholders and the satisfaction or waiver of the other conditions to the
Merger. The Merger will become effective at the Effective Time upon the filing
of a duly executed Certificate of Merger with the Secretary of State of the
State of Ohio. This filing is to be made contemporaneously with the closing of
the Merger on the Effective Date specified by Southdown and Medusa, which date
will occur on the third business day following satisfaction or waiver of the
last of certain conditions precedent to the Merger set forth in the Merger
Agreement or such other time as the parties may mutually agree in writing, as
the case may be. See "-- Conditions Precedent to the Merger."
MERGER CONSIDERATION; EXCHANGE RATIO
Exchange Ratio. Upon consummation of the Merger pursuant to the Merger
Agreement, each Medusa Share outstanding immediately prior to the Effective Time
shall (other than shares, if any, held by shareholders who perfect their
dissenters' rights and other than shares held in the treasury of Medusa or any
of its subsidiaries or held by Southdown or any of its subsidiaries, which will
be canceled) be converted into the right to receive .88 fully paid and
non-assessable shares of Southdown Common Stock (plus the associated Southdown
Rights). In the event that prior to the Effective Time Southdown declares a
stock dividend or other distribution payable in shares of Southdown Common Stock
or securities convertible into shares of Southdown Common Stock, or effects a
stock split, reclassification, combination or other change with respect to
Southdown Common Stock, the Exchange Ratio will be adjusted to reflect such
dividend, distribution, stock split, reclassification, combination or other
change.
Fractional Shares. No certificates or scrip representing fractional shares
of Southdown Common Stock shall be issued upon the surrender for exchange of
certificates that formerly represented Medusa Shares, and such fractional share
interests will not entitle the owner thereof to vote, to receive dividends or to
any other rights of a shareholder of Southdown. Each holder of a certificate
that formerly represented Medusa Shares who would otherwise have been entitled
to receive a fraction of a share of Southdown Common Stock shall receive, from
the Exchange Agent in accordance with the procedures described under "Exchange
Procedures" below, a cash payment in lieu of such fractional share of Southdown
Common Stock.
Conversion of Sub Shares. Each share, par value $0.01 per share, of Sub
issued and outstanding immediately prior to the Effective Date will be converted
into one share of capital stock of the Surviving Corporation. Such newly issued
shares will thereupon constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
EXCHANGE PROCEDURES
SHARE CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE BY SHAREHOLDERS OF
MEDUSA PRIOR TO APPROVAL OF THE MERGER AND THE RECEIPT OF A LETTER OF
TRANSMITTAL.
Promptly and, in any event, within three business days after the Effective
Date, a letter of transmittal will be mailed to each holder of record of a
certificate or certificates ("Certificates") that immediately prior to the
48
<PAGE> 61
Effective Time represented outstanding Medusa Shares and whose shares were
converted in the Merger into the right to receive shares of Southdown Common
Stock. This letter of transmittal must be used in forwarding Certificates for
surrender in exchange for certificates evidencing shares of Southdown Common
Stock to which a holder of Medusa Shares prior to the Effective Date has become
entitled. Such letters of transmittal will be accompanied by instructions
specifying other details of the exchange. After receipt of such letter of
transmittal, each holder of Certificates should surrender such Certificates to
ChaseMellon Shareholder Services, L.L.C., the Exchange Agent for the Merger,
pursuant to and in accordance with the instructions accompanying such letter of
transmittal. Each such holder will receive in exchange therefor a certificate
evidencing the whole number of shares of Southdown Common Stock to which such
holder is entitled and a check representing unpaid dividends and distributions,
if any, which such holder has the right to receive pursuant to the Merger
Agreement, after giving effect to any required withholding tax. No interest will
be paid or accrued on the unpaid dividends and distributions, if any, payable to
holders of Certificates.
After the Effective Date, each Certificate, until so surrendered and
exchanged, will be deemed, for all purposes, to represent only the right to
receive upon surrender a certificate representing shares of Southdown Common
Stock, a cash payment in lieu of any fractional share and unpaid dividends and
distributions, if any, as provided above. The holder of such unexchanged
Certificates will not be entitled to receive any dividends or other
distributions declared or made by Southdown having a record date after the
Effective Date until the Certificate is surrendered.
Each holder of a Certificate exchanged in the Merger who would otherwise
have been entitled to receive a fraction of a share of Southdown Common Stock
shall receive, from the Exchange Agent, a cash payment in lieu of such
fractional share of Southdown Common Stock representing such holder's
proportionate interest, if any, in the net proceeds from the sale by the
Exchange Agent in one or more transactions (which sale transactions shall be
made at such time or times, in such manner and on such terms as the Exchange
Agent shall determine in its sole discretion are reasonable) on behalf of all
such holders of the aggregate of the fractional shares of Southdown Common Stock
which would otherwise have been issued ("Fractional Shares"). The sale of the
Fractional Shares by the Exchange Agent shall be executed on the NYSE through
one or more member firms of the NYSE and shall be executed in round lots to the
extent practicable. Until the net proceeds of such sale or sales shall have been
distributed to the holders of fractional share interests, the Exchange Agent
will hold such proceeds in trust for such holders of fractional shares.
Southdown shall pay all commissions, transfer taxes and other out-of-pocket
transactions costs, including the expenses and compensation of the Exchange
Agent incurred in connection with the sale of the Fractional Shares. As soon as
practicable after the determination of the amount of cash, if any, to be paid to
holders of fractional share interests in lieu of any fractional share of
Southdown Common Stock, the Exchange Agent shall make available such amounts to
such holders without interest.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations, warranties and
agreements of Southdown and Medusa relating, among other things, to the
following: (i) each of their incorporation, existence, good standing, corporate
power and similar corporate matters including with respect to their respective
subsidiaries; (ii) their capitalization; (iii) their corporate power and
authority to enter into the Merger Agreement and subject to shareholder
approval, consummate the Merger; (iv) the absence of (a) conflicts, violations
and defaults under their charter documents and bylaws (or other similar
organizational documents) and certain other agreements and documents, (b)
violations of orders, decrees, statutes, laws or regulations and (c) the
necessity to secure material governmental and other consents and approvals,
other than shareholder approvals and filings under the HSR Act and with the
Commission; (v) the absence of brokerage or finder's fees other than, with
respect to Southdown, those owing to Lehman Brothers, and with respect to
Medusa, those owing to J.P. Morgan; (vi) the receipt of an opinion of their
respective financial advisors stating the opinion that the Exchange Ratio is
fair to the respective company or its shareholders from a financial point of
view; (vii) the absence of their respective knowledge that either Southdown or
Medusa and their respective affiliates have taken or failed to take any action
that would prevent accounting for the Merger as a pooling of interests; (viii)
the timely filing of all filings required under the Exchange Act and the
Securities Act, and each such
49
<PAGE> 62
filing materially complying with the requirements of the Exchange Act and the
Securities Act and not containing any untrue statement of a material fact; (ix)
the determination by their respective Boards of Directors that the Merger
Agreement and the transactions contemplated thereby were fair to their
respective shareholders; (x) the accuracy of information supplied by each for
inclusion in this Joint Proxy Statement/Prospectus; (xi) the absence of certain
material changes or events, with respect to Southdown since December 31, 1997,
and with respect to Medusa since September 30, 1997; (xii) the absence of
undisclosed liabilities; and (xiii) the inapplicability of any antitakeover
statute to the Merger Agreement, the Merger or the transactions contemplated
thereby. Medusa made additional representations and warranties as to: (i)
employee benefits matters; (ii) compliance with Applicable Laws; (iii) the
absence of litigation that would materially affect Medusa or Medusa's ability to
enter into the Merger Agreement; (iv) matters concerning labor relations; (v)
the possession of all permits and other similar items necessary to carry on
Medusa's business; (vi) environmental matters; (vii) tax matters; and (viii)
certain other matters. Southdown made an additional representation that its
Board of Directors has approved the Charter Amendment and directed that such
action be submitted for consideration by the Southdown shareholders.
All representations and warranties of Southdown and Medusa expire on the
Effective Date.
COVENANTS
Common Covenants. Pursuant to the Merger Agreement, each of Southdown and
Medusa has agreed to: (i) use its best commercial efforts to take all action and
to do all things necessary, proper or advisable to consummate the Merger and the
transactions contemplated by the Merger Agreement, including without limitation
using, respectively, their best efforts to cause the conditions to the others'
obligations set forth in the Merger Agreement to be satisfied; (ii) make such
filings as may be required by the HSR Act with respect to the consummation of
the transactions contemplated by the Merger Agreement and use best efforts to
obtain early termination of any waiting period under the HSR Act; (iii) use its
best efforts to take any additional action that may be necessary, proper or
advisable in connection with any other notices to, filings with, and
authorizations, consents and approvals of any governmental authority and any
third parties that it may be required to give, make or obtain; (iv) not
knowingly take or fail to take any action that would cause the Merger not to
qualify for pooling of interests accounting treatment for financial reporting
purposes or cause the Merger not to constitute a tax-free "reorganization" under
Section 368(a) of the Code; (v) not, unless otherwise required by Applicable
Laws or requirements of the National Association of Securities Dealers, Inc. or
the NYSE (and in that event only if time does not permit), at any time prior to
the earlier of the Effective Date or termination of the Merger Agreement, issue
any press release with respect to the Merger without the consent of the other,
which consent shall not be unreasonably withheld; (vi) permit representatives of
the other to have appropriate access at all reasonable times to its premises,
properties, books, records, contracts, tax records, documents, customers and
suppliers in a manner that will not unreasonably interfere with its operations;
and (vii) indemnify and hold the other harmless from and against any and all
claims, liabilities or obligations with respect to any brokerage, finders or
similar fee or commission or expenses related to Lehman Brothers, in the case of
Southdown, and J.P. Morgan, in the case of Medusa, or asserted by any person on
the basis of any act or statement alleged to have been made by such party or its
affiliate.
Southdown Covenants. Southdown covenants in the Merger Agreement: (i) to
take all action in accordance with Applicable Laws and the Southdown Articles
and Southdown Bylaws necessary to convene a meeting of the Southdown
shareholders as promptly as practicable to consider and vote upon the Charter
Amendment and the Stock Issuance; (ii) to cooperate with Medusa to prepare and
file the Joint Proxy Statement/Prospectus and the Registration Statement and all
required amendments and supplements with the Commission, to cooperate with
Medusa and use all reasonable effort to respond to comments and to have the
Registration Statement declared effective by the Commission as promptly as
practicable and to maintain the effectiveness of the Registration Statement
through the Effective Date; (iii) to use its best commercial efforts to mail at
the earliest practicable date to Southdown shareholders the Joint Proxy
Statement/Prospectus, which shall include all information required under
Applicable Laws to be furnished to the Southdown shareholders in connection with
the Charter Amendment and the Stock Issuance; (iv) to advise Medusa promptly
after it receives notice of (a) the Registration Statement being declared
effective or any supplement
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or amendment thereto being filed with the Commission, (b) the issuance of any
stop order in respect of the Registration Statement, and (c) the receipt of any
correspondence, comments or requests from the Commission in respect of the
Registration Statement (copies of which it shall furnish to Medusa); (v) to give
Medusa and its counsel the opportunity to review the Joint Proxy
Statement/Prospectus and the Registration Statement and all responses to
requests for additional information by and replies to comments of the Commission
before their being filed with or sent to the Commission; and (vi) to cooperate
with Medusa and take such other reasonable actions (other than qualifying to do
business in any jurisdiction in which it is not so qualified) required to be
taken under any applicable state securities laws in connection with the issuance
of shares of Southdown Common Stock in the Merger.
Southdown further covenants in the Merger Agreement: (i) during the period
from the date of the Merger Agreement to the Effective Date, to conduct its
operations in the ordinary course except as expressly contemplated by the Merger
Agreement and the transactions contemplated thereby and to use its best
commercial efforts to maintain and preserve its business organization and its
material rights and franchises and to retain the services of its officers and
key employees and to maintain relationships with customers, suppliers and other
third parties to the end that its goodwill and ongoing business shall not be
impaired in any material respect; (ii) from and after the Effective Date to
cause the Surviving Corporation to keep in effect provisions in its Articles of
Incorporation and Code of Regulations providing for exculpation of director and
officer liability and indemnification of the Indemnified Parties (as defined in
the Merger Agreement) to the fullest extent permitted under Applicable Law,
which provisions shall not be amended except as required by Applicable Law or
except to make changes permitted by law that would enlarge the Indemnified
Parties' right of indemnification and to cause the Surviving Corporation to
indemnify in accordance therewith; (iii) from and after the Effective Date, to
cause the Surviving Corporation to pay the reasonable fees and expenses of
counsel selected by the indemnified party, which counsel shall be reasonably
acceptable to Southdown, in advance of the final disposition of any such action
to the full extent permitted by Applicable Law, upon receipt of any undertaking
required by Applicable Law, and to cause the Surviving Corporation to cooperate
in the defense of any such matter, provided however, that the Surviving
Corporation shall not be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld); (iv) to use its best
commercial efforts to cause the Surviving Corporation to maintain in effect for
not less than six years after the Effective Date the current policies of
directors' and officers' liability insurance maintained by Medusa with respect
to matters occurring prior to the Effective Date, provided however, that (a) the
Surviving Corporation may substitute therefor policies of comparable coverage
containing terms and conditions which, when taken as a whole, are no less
advantageous to the covered officers and directors, and (b) the Surviving
Corporation shall not be required to pay an annual premium for such insurance
coverage in excess of 200% of the current annual premium paid by Medusa for its
existing coverage, but in such case shall purchase as much coverage as possible
for such amount; (v) to give prompt notice to Medusa of and use all commercially
reasonable efforts to cure (a) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any representation or warranty
of Southdown or Sub contained in the Merger Agreement to be untrue or inaccurate
at or prior to the Effective Date, and (b) any material failure of Southdown to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it thereunder; (vi) to, as promptly as practicable, submit the
issuance of Southdown Common Stock in the Merger, as required by the NYSE, for
the approval of its shareholders at a meeting of its shareholders and, subject
to the fiduciary duties of the Southdown Board under Louisiana Law, to use its
reasonable best efforts to obtain shareholder approval of the Charter Amendment
and the Stock Issuance; (vii) through the Southdown Board, subject to the
fiduciary duties of the members thereof under Louisiana Law, to recommend to the
Southdown shareholders approval of Charter Amendment and the Stock Issuance;
(viii) to authorize and cause an officer of Southdown to vote Southdown's shares
of capital stock of the Sub for approval and adoption of the Merger Agreement
and the transactions contemplated thereby and to take all additional actions as
the sole shareholder of Sub necessary to approve and adopt the Merger Agreement
and the transactions contemplated thereby; (ix) to deliver to Medusa a list of
names and addresses of those Persons who are, in Southdown's reasonable
judgment, at the Southdown Record Date for the Southdown Annual Meeting,
affiliates within the meaning of Rule 145 of the Securities Act ("Southdown
Affiliates") and to use all reasonable efforts to deliver or cause to be
delivered to Medusa, prior to the Effective Date, from each of
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the Southdown Affiliates identified in the foregoing list, a written agreement
substantially in the form attached as Exhibit A to the Merger Agreement; and (x)
to cause the Southdown Board to take such action as may be necessary to increase
the size of the Southdown Board to 13 members and to cause to be appointed to
the Southdown Board Robert S. Evans and George E. Uding, Jr., effective
immediately following the Effective Date and, at the next annual meeting of
Southdown shareholders thereafter, to cause the Board to cause to be nominated
(a) George E. Uding, Jr. for election as a Class III Director with a term of
office expiring in 2000, and (b) Robert S. Evans for election as a Class I
Director with a term of office expiring in 2001.
Medusa Covenants. Medusa covenants in the Merger Agreement: (i) to take all
action in accordance with Applicable Laws and the Medusa Articles and
Regulations necessary to convene a meeting of the Medusa shareholders as
promptly as practicable to consider and vote upon the approval of the Merger,
the Merger Agreement and the transactions contemplated thereby; (ii) promptly to
furnish Southdown with all information concerning it as may be required for
inclusion in the Registration Statement, to cooperate with Southdown in the
preparation of the Registration Statement in a timely fashion and in Southdown's
efforts to have the Registration Statement declared effective by the Commission
as promptly as practicable and if at any time prior to the Effective Date, any
information pertaining to Medusa contained in or omitted from the Registration
Statement makes such statements contained in the Registration Statement false or
misleading, to promptly so inform Southdown and provide Southdown with the
information necessary to make statements contained therein not false and
misleading and to use all reasonable efforts to mail at the earliest practicable
date to the Medusa shareholders this Joint Proxy Statement/Prospectus, which
shall include all information required under Applicable Laws to be furnished to
the Medusa shareholders in connection with the Merger and the transactions
contemplated thereby; and (iii) during the period from the date of the Merger
Agreement to the Effective Date, to conduct its operations in the ordinary
course except as expressly contemplated by the Merger Agreement and the
transactions contemplated thereby and to use its best commercial efforts to
maintain and preserve its business organization and its material rights and
franchises and to retain the services of its officers and key employees and
maintain relationships with customers, suppliers and other third parties to the
end that its goodwill and ongoing business shall not be impaired in any material
respect.
Medusa further covenants in the Merger Agreement that: (i) at least 30 days
prior to the Effective Date, Medusa will deliver to Southdown a list of names
and addresses of those Persons who were, in Medusa's reasonable judgment, at the
Medusa Record Date for the Medusa Special Meeting, affiliates of Medusa within
the meaning of Rule 145 of the Securities Act ("Medusa Affiliates") and use all
reasonable efforts to deliver or cause to be delivered to the Southdown, prior
to the Effective Date, from each of the Medusa Affiliates identified in the
foregoing list, a written agreement substantially in the form of Exhibit B to
the Merger Agreement; (ii) it will give prompt notice to Southdown of (a) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would cause any Medusa representation or warranty contained in the
Agreement to be untrue or inaccurate at or prior to the Effective Date, and (b)
any material failure of Medusa to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it thereunder; (iii) each of
Robert S. Evans, George E. Uding, Jr., Robert J. Kane, R. Breck Denny, and each
other person who is a member of the Medusa Board (other than Mone Anathan III
and Jean Gaulin), shall have executed as of the date of the Merger Agreement a
letter in the form attached to the Merger Agreement as Exhibit C; (iv) it will
cause each person who is a participant in the Medusa Incentive Plan and who is
subject to the provisions of Section 16(b) of the Exchange Act to execute as of
the date of the Merger Agreement a waiver in the form of the letter agreement
attached as Exhibit D thereto to the effect that such person has waived his or
her right, as contemplated in Section 6.05 of the Medusa Incentive Plan, to
surrender for cancellation following the Change of Control (as defined in the
Medusa Incentive Plan) any Medusa Option held by such Person and receive a cash
payment therefor; and (v) it will execute, and promptly after the execution of
the Merger Agreement cause the Rights Agent under the Medusa Rights Agreement to
execute and deliver, an amendment to the Medusa Rights Agreement which provides
and specifically confirms that (a) neither the Merger Agreement, the Merger nor
any of the other transactions contemplated thereby (x) will cause Southdown to
become an "Acquiring Person," or result in the occurrence of a "Shares
Acquisition Date" or the occurrence of a "Distribution Date" (as defined in the
Medusa Rights Agreement), (y) will permit any Person to have the right under the
Medusa Rights Agreement to acquire, or to make the Rights (as such term is
defined in the Medusa Rights Agreement) (the "Medusa Rights") ever exercisable
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for, any securities of Southdown, or (z) will require the sending of any notices
under the Medusa Rights Agreement, that the Medusa Rights will expire
immediately prior to or simultaneously with the Effective Date and (h) that the
Merger Agreement, the Merger, the other transactions and all actions of
Southdown and its affiliates contemplated by the Merger Agreement will be
excluded and exempt from the operation of and will not trigger the provisions of
the Medusa Rights Agreement.
CONDITIONS PRECEDENT TO THE MERGER
The obligations of Southdown and Medusa to effect the Merger are subject
to, among other things, the fulfillment of certain conditions, including without
limitation: (i) the absence of any temporary restraining order, preliminary or
permanent injunction or other order or decree or any statute, rule or regulation
that prevents consummation of the Merger; (ii) the expiration or termination of
any waiting period applicable to the consummation of the Merger under the HSR
Act and the receipt of all other required approvals, consents, permits or
authorizations from governmental authorities; (iii) the approval of the Merger
Proposal by the Medusa shareholders; (iv) the approval of the Charter Amendment
and the Stock Issuance by the Southdown shareholders; (v) the effectiveness of
the Registration Statement and the absence of the threat of any stop order or
similar restraining order; (vi) the receipt by Southdown of an opinion of
Bracewell & Patterson, L.L.P. and the receipt by Medusa of an opinion of
Milbank, Tweed, Hadley & McCloy, in each case that the Merger will constitute a
reorganization under Section 368(a) of the Code; (vii) the delivery by Deloitte
& Touche LLP to Southdown of a letter concurring with Southdown's conclusion
that, as of a specified date, no conditions exist that would preclude Southdown
accounting for the Merger as a pooling of interests; (viii) the delivery by
Deloitte & Touche LLP to Medusa of a letter concurring with Medusa's conclusion
that, as of a specified date, no conditions exist that would preclude Medusa's
ability to be a party in a business combination to be accounted for as a pooling
of interests; and (ix) the authorization for listing on the NYSE of the shares
of Southdown Common Stock issuable in the Merger, subject to official notice of
issuance.
The obligation of Medusa to effect the Merger is also subject to the
satisfaction of certain additional conditions, including: (i) the absence of any
breach of the representations and warranties of Southdown and Sub in the Merger
Agreement that would, individually or in the aggregate, have a material adverse
effect; (ii) the performance in all material respects of the obligations and
covenants of Southdown and Sub under the Merger Agreement; (iii) the receipt of
certificates from Southdown and Sub to the foregoing effects; and (iv) the
Southdown Rights, among other things, not having become exercisable or
transferrable apart from the associated shares of Southdown Common Stock.
The obligation of Southdown and Sub to effect the Merger is also subject to
the satisfaction of certain additional conditions, including: (i) the absence of
any breach of the representations and warranties of Medusa that would,
individually or in the aggregate, have a material adverse effect; (ii) the
performance in all material respects of the obligations and covenants of Medusa
under the Merger Agreement; (iii) the receipt of certificates from Medusa to the
foregoing effects; (iv) the holders of not more than 5% of the Medusa Shares, on
a fully diluted basis, having perfected their appraisal rights under the OGCL;
and (v) the Medusa Rights, among other things, not having become exercisable or
transferable apart from the associated Medusa Shares.
Either party to the Merger Agreement may, by an instrument in writing,
waive compliance by the other party with any term or provision of the Merger
Agreement on the part of such other party to be performed or complied with.
However, Southdown and Medusa have advised each other that they will not waive
the conditions to their respective obligations relating to the triggering of the
Southdown Rights or the Medusa Rights without a resolicitation of proxies from
their shareholders pursuant to revised proxy materials. Before waiving any other
condition, Southdown and Medusa will resolicit their respective shareholders to
the extent required by law. See "The Merger Agreement -- Amendment and Waiver."
NO NEGOTIATION OR SOLICITATION BY MEDUSA
Pursuant to the Merger Agreement, Medusa has agreed that during the term of
the Merger Agreement, it will not and will not authorize or permit any of its
subsidiaries or any of its or its subsidiaries' directors, officers, employees,
agents or representatives, directly or indirectly, to: (i) solicit, initiate,
encourage or
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facilitate, or furnish or disclose non-public information in furtherance of, any
inquiries or the making of any proposal with respect to any recapitalization,
merger, consolidation or other business combination involving Medusa, or the
acquisition of 10% or more of the capital stock or any material portion of the
assets of Medusa, or any combination of the foregoing ("Competing Transaction");
(ii) negotiate, explore or otherwise engage in discussions with any person
(other than Southdown, Sub or their respective directors, officers, employees,
agents and representatives) with respect to any Competing Transaction; or (iii)
enter into any agreement, arrangement or understanding requiring Medusa to
abandon, terminate or fail to consummate the Merger or any other transactions
contemplated by the Merger Agreement. Notwithstanding the foregoing, the Medusa
Board may: (i) furnish information to (but only pursuant to a confidentiality
agreement in customary form and having terms and conditions no less favorable to
Medusa than the confidentiality agreement entered to by Southdown and Medusa
prior to the execution of the Merger Agreement) or enter into discussions or
negotiations with any person or group that makes an unsolicited bona fide
written proposal for a Competing Transaction (an "Alternative Proposal"), if,
and only to the extent that the Medusa Board, based upon the written opinion of
outside counsel (a copy of which shall be provided promptly to Southdown),
determines in good faith that such action is required for the Medusa Board to
comply with its fiduciary duties to shareholders imposed by law, that such
Alternative Proposal is not conditioned on the receipt of financing, that the
Medusa Board reasonably concludes in good faith that the person or group making
such Alternative Proposal will have adequate sources of financing to consummate
such Alternative Proposal and that such Alternative Proposal is more favorable
to the Medusa's shareholders than the Merger. The Medusa Board must also receive
a written opinion from a nationally-recognized investment banking firm (a copy
of which shall be provided promptly to Southdown) to the effect that the
consideration to be received by shareholders of Medusa in connection with such
Alternative Proposal is superior, from a financial point of view, to the
consideration to be received by them in the Merger. Prior to furnishing such
information to, or entering into discussions or negotiations with, such person
or entity, Medusa shall provide written notice to Southdown to the effect that
it is furnishing information to, or entering into negotiations with, such
Person, and Medusa shall keep Southdown informed of the status and all material
information with respect to any such discussions or negotiations; and (ii) to
the extent applicable, comply with Rule 14e-2 promulgated under the Exchange Act
with regard to any Alternative Proposal.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated by either Southdown or Medusa and
the Merger abandoned under certain circumstances, including, but not limited to,
the following: (i) any permanent injunction or other order or decree preventing
consummation of the Merger has become final and non-appealable, provided that
the terminating party has used its best commercial efforts to remove such
injunction, order or decree; (ii) the Merger has not been consummated by
September 30, 1998, provided that the terminating party has not failed to
perform any material covenant or agreement that caused the Merger not to close
or resulted in the failure of the Merger to close; (iii) the shareholders of
Medusa fail to approve the Merger Proposal at the Medusa Special Meeting; (iv)
the shareholders of Southdown fail to approve the Charter Amendment or the Stock
Issuance at the Southdown Annual Meeting; or (v) a party fails to cure a
material breach under the Merger Agreement within 30 days following receipt of
written notice to do so, provided that the terminating party is not in material
breach of the Merger Agreement.
The Merger Agreement may also be terminated prior to the Effective Date
before or after approval by the Medusa shareholders of the Merger Proposal or
approval by the Southdown shareholders of the Charter Amendment and the Share
Issuance by the mutual consent of Southdown and Medusa.
The Merger Agreement may be terminated by Medusa under the following
circumstance: (i) the lapse of five business days after Medusa's delivery of
written notice to Southdown that the Medusa Board has determined in good faith,
and continues to believe at the date of termination, that a Competing
Transaction is more favorable to the shareholders of Medusa in the aggregate and
from a financial point of view than the Merger, or (ii) the volume weighted
average trading price of the Southdown Common Stock, rounded to the nearest
three decimal places, for the 15 consecutive trading days ending on and
including the third trading day prior to the date upon which the Merger is
expected to be consummated, as reported by Bloomberg Financial
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Markets, is less than $57.50 and the volume weighted average trading price of a
composite index of five publicly traded cement companies (excluding Southdown
and Medusa) over the same period outperforms the volume weighted average trading
price of the Southdown Common Stock by more than 20 percentage points.
In determining whether to exercise Medusa's right to terminate the Merger
Agreement because of Inadequate Price, Medusa's directors must act in good
faith, in a manner they reasonably believe to be in or not opposed to Medusa's
best interests, and with the care that an ordinarily prudent person would
reasonably be expected to exercise in a like position and under similar
circumstances. The Medusa Board will consider all relevant factors in
determining whether to terminate the Merger Agreement because of an Inadequate
Price determination, including such factors as the value of the Merger
consideration currently and taking into account the prospects of the combined
company; the value of Medusa on a stand-alone basis, taking into account any
foreseeable consequences of the failure to consummate the Merger (including the
requirement to pay the $15 million termination fee); the reports and/or
recommendations of its advisors; the amount by which the volume weighted average
trading price was below the target of $57.50 (as described above); the amount by
which the peer group composite index outperforms, in excess of 20 percentage
points, the Southdown Common Stock index (as described above); the reasons for
such shortfall and excess, respectively; and other relevant factors. In the
event Medusa determines to exercise or waive the right to terminate the Merger
Agreement after the initial solicitation of the Merger Proposal to Medusa's
Shareholders because of Inadequate Price, Medusa will resolicit the Medusa
Shareholders regarding its exercise of such termination right to the extent it
is required by law to do so.
If Medusa terminates the Merger Agreement because of an Inadequate Price
determination, Medusa shall, within three business days after termination, pay
Southdown a termination fee of $15 million in immediately available funds. If,
after the occurrence of a Prior Event, Southdown terminates the Merger Agreement
because of Medusa's material breach of the terms thereof or either Medusa or
Southdown terminates the Merger Agreement because the Medusa shareholders fail
to approve the Merger Proposal, Medusa shall, within three days after the
termination, pay Southdown a termination fee of $30 million in immediately
available funds. If Medusa terminates the Merger Agreement because of the
receipt of a Superior Offer, Medusa shall likewise pay Southdown $30 million
within three business days after the consummation of the transaction relating to
the Superior Offer.
AMENDMENT AND WAIVER
The Merger Agreement may be amended in writing by the parties thereto, by
action taken or authorized by their respective Boards at any time before or
after adoption of the Merger Proposal by the Medusa shareholders or the Charter
Amendment and the Stock Issuance by the Southdown shareholders, but after each
such approval or authorization, no amendment shall be made which by law requires
further approval or authorization by the Medusa shareholders or the Southdown
shareholders, as the case may be, without such further approval or
authorization. Notwithstanding the foregoing, the Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
At any time prior to the Effective Date, Medusa (with respect to Southdown)
and Southdown (with respect to Medusa) by action taken or authorized by their
respective Boards, may, to the extent legally allowed: (i) extend the time for
the performance of any of the obligations or other acts of such party; (ii)
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement or in any document delivered pursuant thereto; and (iii) waive
compliance with any of the agreements or conditions contained therein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
MEDUSA OPTIONS
Southdown and Medusa have agreed that, prior to the Effective Date, each
will take all such action as may be necessary to cause each unexpired and
unexercised Medusa Option granted to current or former directors, officers or
employees of Medusa or its subsidiaries to be automatically converted at the
Effective Time into a Substitute Option. Each Substitute Option will reflect the
right to purchase that number of shares
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of Southdown Common Stock equal to the number of Medusa Shares issuable
immediately prior to the Effective Time upon exercise of the Medusa Option
(without regard to actual restrictions on exercisability) multiplied by the
Exchange Ratio. The exercise price of the Substitute Option will be equal to the
exercise price which existed under the corresponding Medusa Option divided by
the Exchange Ratio. All other terms and conditions will be the same as the terms
and conditions of such Medusa Option immediately before the Effective Time
(including, without limitation, the acceleration of the exercisability of each
such option upon the consummation of the Merger and the length of the period of
continuing exercisability of each such option after any termination of the
employment of the respective optionee). As of the Medusa Record Date, there were
outstanding Medusa Options to purchase Medusa Shares.
In connection with the issuance of Substitute Options, Southdown has agreed
to (i) reserve for issuance the number of shares of Southdown Common Stock that
will become subject to Substitute Options under the Merger Agreement; and (ii)
from and after the Effective Time, upon exercise of Substitute Options, make
available for issuance all shares of Southdown Common Stock covered thereby,
subject to the terms and conditions applicable thereto. Southdown will extend
the expiration date of the Substitute Option of each person who executed an
Affiliate Letter and whose employment is terminated following the Effective
Date, until the 90th day following the date that such director, officer or
employee of Medusa is first permitted to sell, transfer or otherwise dispose of
Southdown Common Stock under the terms of the Affiliate Letter. Medusa has
agreed to issue treasury shares, to the extent available, upon the exercise of
Medusa Options prior to the Effective Date.
Southdown has also agreed to file with the Commission as soon as reasonably
practicable after the Effective Date a Registration Statement on Form S-8 or
other appropriate form under the Securities Act to register shares of Southdown
Common Stock issuable upon exercise of the Substitute Options and use its best
efforts to cause such registration statement to remain effective until the
exercise or expiration of such options.
CONDUCT OF BUSINESS PRIOR TO MERGER
During the period from the date of the Merger Agreement to the Effective
Date or the earlier termination of the Merger Agreement, neither Medusa nor
Southdown shall, except as otherwise expressly contemplated by the Merger
Agreement and the transactions contemplated thereby, without the prior written
consent of the other party, which consent shall not be unreasonably withheld:
(i) with respect to its securities, (a) adjust, split, combine or reclassify its
capital stock, (b) make, declare or pay any dividend or distribution (except for
the declaration and payment of regular quarterly cash dividends on Medusa Shares
and Southdown Common Stock, respectively, in each case with usual record and
payment dates for such dividends in accordance with past dividend practices) on,
or directly or indirectly redeem, purchase or otherwise acquire, any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock (except in connection with the
use of shares of capital stock to pay the exercise price or tax withholding in
connection with stock-based employee benefit plans of the parties or any of
their respective subsidiaries), (c) grant any person any right or option to
acquire any shares of its capital stock other than pursuant to a currently
authorized stock option plan, (d) issue, deliver or sell or agree to issue,
deliver or sell any additional shares of its capital stock or such securities
(except pursuant to the exercise of outstanding convertible securities,
warrants, options or rights to purchase Southdown Common Stock or Medusa Shares
and other than the issuance of Southdown Rights and reservation of Southdown
Series C Preferred Stock (as defined in the Merger Agreement) pursuant to the
Southdown Rights Plan in accordance with the terms thereof), or (e) enter into
any agreement, understanding or arrangement with respect to the sale or voting
of its capital stock other than pursuant to the provisions of the Merger
Agreement; (ii) sell, transfer, lease, pledge, mortgage, encumber or otherwise
dispose of any of its property or assets which are material, individually or in
the aggregate, other than in the ordinary course of business consistent with
past practice; (iii) make or propose any changes in its charter documents (or
other similar organizational documents), each as amended and restated, other
than the amendment to the Southdown Articles necessary to implement the Charter
Amendment; (iv) merge or consolidate with any other person or acquire a material
amount of assets or capital stock of any other person other than in connection
with the Merger Agreement and the transactions contemplated thereby; (v) incur,
create, assume or otherwise become liable for indebtedness for borrowed
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money, other than in the ordinary course of business consistent with past
practice, or assume, guarantee, endorse or otherwise as an accommodation become
responsible or liable for obligations of any other individual, corporation or
other entity, other than in the ordinary course of business consistent with past
practice; (vi) enter into or modify any employment, severance, termination or
similar agreements or arrangements with, or grant any bonuses, salary increases,
severance or termination pay to, any officer, director, consultant or employee
other than salary increases and bonuses granted, or modifications made, in the
ordinary course of business consistent with past practice, or otherwise increase
the compensation or benefits provided to any officer, director, consultant or
employee except as may be required by Applicable Laws, the Merger Agreement, any
applicable collective bargaining agreement or a binding written contract in
effect on the date of the Merger Agreement; (vii) materially change its method
of doing business or materially change any method or principle of accounting in
a manner that is inconsistent with past practice; (viii) settle any Actions,
whether now pending or hereafter made or brought involving an amount in excess
of $250,000; (ix) except in the ordinary course of business, modify, amend or
terminate, waive, release or assign any material rights or claims with respect
to any material contract to which either is a party or any confidentiality
agreement to which either is a party; (x) incur or commit to any capital
expenditures, obligations or liabilities in respect thereof, other than in the
ordinary course of business consistent with past practice or pursuant to a
capital expenditure program previously approved by its Board or otherwise
currently underway; (xi) take any action to exempt under or make not subject to
any applicable state takeover law or state law that purports to limit or
restrict business combinations or the ability to acquire or vote shares, any
person or entity (other than between the parties or their subsidiaries) or any
action taken thereby, which person, entity or action would have otherwise been
subject to the restrictive provisions thereof and not exempt therefrom; (xii)
permit or cause any subsidiary to do any of the foregoing or agree or commit to
do any of the foregoing; or (xiii) agree in writing or otherwise to take any of
the foregoing actions.
EXPENSES
Medusa and Southdown shall pay their own costs and expenses associated with
the transactions contemplated by the Merger Agreement, except that Medusa and
Southdown shall share equally: (i) the filing fees in connection with the filing
of the Joint Proxy Statement/Prospectus and Registration Statement with the
Commission; (ii) the expenses incurred in connection with printing and mailing
the Joint Proxy Statement/Prospectus to the Medusa shareholders and the
Southdown shareholders; and (iii) any filing fees incurred under the HSR Act.
EMPLOYEE BENEFITS
Southdown has agreed that: (i) from and after the Effective Date, it will
cause the Surviving Corporation and its subsidiaries to provide for the benefit
of employees of the Surviving Corporation and its subsidiaries either (a)
benefits that are no less favorable, in the aggregate, as those provided to
Employees (as defined in the Merger Agreement) or Former Employees (as defined
in the Merger Agreement) of Medusa or its subsidiaries immediately prior to the
date of the Merger Agreement, or (b) benefits that are no less favorable, in the
aggregate, as those provided to employees of Southdown or its subsidiaries after
the Effective Date; (ii) if any Employee becomes a participant in any employee
benefit or compensation plan of Southdown, a Southdown subsidiary (other than
the Surviving Corporation) or a Southdown affiliate, to give such Employee
credit under such plan for all service with Medusa and its subsidiaries,
affiliates and predecessors which is recognized by Medusa under a similar Medusa
plan and is rendered prior to the time the Employee becomes such a participant,
for all purposes; provided, however, such service credit shall not result in a
duplication of benefits; and (iii) to the extent employee benefit plans of
Southdown or its subsidiaries or affiliates provide medical or dental welfare
benefits to Employees or Former Employees after the Effective Date, to cause
such plans to waive any preexisting conditions, medical certifications and
actively-at-work exclusions and to provide that any expenses incurred on or
before the Effective Date shall be taken into account under such plans for
purposes of satisfying applicable deductible, coinsurance and maximum
out-of-pocket provisions.
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Southdown has also agreed under the Merger Agreement to cause the Surviving
Corporation and its subsidiaries to honor all Medusa's existing agreements with
any Employee or Former Employee and to make severance payments to certain
executive officers of Medusa.
RIGHTS OF DISSENTING SHAREHOLDERS
SOUTHDOWN SHAREHOLDERS
Holders of Southdown Common Stock will not be entitled to dissenters'
appraisal rights under LBCL with respect to the Charter Amendment, the Stock
Issuance or the other matters to be presented at the Southdown Annual Meeting.
See "Comparison of Shareholder Rights -- Comparison of Medusa Shares and
Southdown Common Stock -- Dissenters' Rights."
MEDUSA SHAREHOLDERS
Holders of Medusa Shares have the right to dissent from the Merger Proposal
and to receive payment of the fair value of their shares upon full compliance
with Section 1701.85 of the ORC. Medusa shareholders seeking to exercise
dissenters' rights are referred to herein as "Dissenting Shareholders."
The following is a summary of the principal steps a Medusa shareholder must
take to perfect its dissenters' rights under Section 1701.85 of the ORC. This
summary does not purport to be complete and is qualified in its entirety by
reference to Section 1701.85, a copy of which is attached hereto as Appendix D
and incorporated herein by reference. Any Medusa shareholder contemplating the
exercise of its right to dissent is urged to review carefully such provisions
and to consult an attorney, since dissenters' rights will be lost if the
procedural requirements under Section 1701.85 are not fully and precisely
satisfied.
To perfect dissenters' rights with respect to any Medusa Shares so that
they become dissenting shares as described in this Joint Proxy
Statement/Prospectus, a Dissenting Shareholder must satisfy each of the
following conditions:
No Vote in Favor of Adoption of the Merger Proposal. Medusa Shares held by
the Dissenting Shareholder must not be voted at the Medusa Special Meeting in
favor of adoption of the Merger Proposal. This requirement will be satisfied if
a proxy is signed and returned with instructions to vote against the Merger
Proposal or to abstain from such vote, if no proxy is returned and no vote is
cast at the Medusa Special Meeting in favor of adoption of the Merger Proposal,
or if the Dissenting Shareholder revokes a proxy and thereafter abstains from
voting with respect to adoption of the Merger Proposal or votes against adoption
of the Merger Proposal at the Medusa Special Meeting. A vote in favor of
adoption of the Merger Proposal at the Medusa Special Meeting constitutes a
waiver of dissenters' rights. A proxy that is returned signed but on which no
voting preference is indicated will be voted in favor of adoption of the Merger
Proposal and will constitute a waiver of dissenters' rights. A Dissenting
Shareholder may revoke his or her proxy at any time prior to its exercise by
complying with the procedures set forth herein under "The Shareholders'
Meeting -- Medusa Special Meeting -- Revocability of Proxies."
Filing Written Demand. Not later than 10 days after the taking of the vote
on the proposal to adopt the Merger Proposal, a Dissenting Shareholder must
deliver to Medusa a written demand (the "Demand") for payment of the fair cash
value of the Medusa Shares with respect to which the Dissenting Shareholder
seeks payment. Each Demand should be delivered to Medusa at 3008 Monticello
Blvd., Cleveland Heights, Ohio 44118, Attention: Secretary. It is recommended,
although not required, that such Demand be sent by registered or certified mail,
return receipt requested. Voting against adoption of the Merger Proposal will
not itself constitute a Demand. Medusa will not send any further notice to
Medusa shareholders as to the date on which such ten-day period expires.
A Demand must identify the name and address of the holder of record of the
Medusa Shares with respect to which payment is sought, the number and class of
such shares and the amount claimed by such holder as the fair cash value
thereof. A beneficial owner of shares must, in all cases, have the record holder
of such
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shares submit the Demand in respect thereof. A Demand must be signed by the
shareholder of record (or by the duly authorized representative of such
shareholder) exactly as the shareholder's name appears on the shareholder
records of Medusa. A Demand with respect to shares owned jointly by more than
one person must identify and be signed by all of the holders of record. Any
person signing a Demand on behalf of a partnership or corporation or in any
other representative capacity (such as an attorney-in-fact, executor,
administrator, trustee or guardian) must indicate the nature of the
representative capacity and, if requested, must furnish written proof of his or
her capacity and his or her authority to sign such Demand.
Because only holders of record of Medusa Shares at the close of business on
the Medusa Record Date may exercise dissenters' rights, any person who
beneficially owns shares that are held of record by a broker, fiduciary,
nominee, or other holder and who wishes to exercise dissenters' rights must
instruct the record holder of the shares to satisfy the conditions outlined
above. If a record holder does not satisfy, in a timely manner, all of the
conditions outlined in the ORC, the dissenters' rights for all of the shares
held by such record holder will be lost.
From the time the Demand is given until either the termination of the
rights and obligations arising from such Demand or the purchase of the related
Medusa Shares by Medusa, all rights accruing to the holder thereof, including
voting and dividend or distribution rights, will be suspended. If any dividend
or distribution is paid in money on Medusa Shares or Southdown Common Stock
during the suspension, an amount equal to the dividend or distribution which
would have been payable on such shares, but for such suspension, will be paid to
the holder of record thereof as a credit upon the fair cash value of such
shares. If the right to receive the fair cash value is terminated other than by
the purchase of such Medusa Shares, all rights will be restored to the
Dissenting Shareholder and any distribution that would have been made to the
holder of record of such shares, but for the suspension, will be made to the
holder of record at the time of the termination.
If Medusa sends to a Dissenting Shareholder, at the address specified in
the Demand, a request for the certificates representing the related Medusa
Shares, the Dissenting Shareholder, within 15 days from the date of sending such
request, is required to deliver to Medusa the certificates requested. Medusa
will then endorse the certificates with a legend to the effect that a demand for
the fair cash value of such shares has been made, and promptly return such
endorsed certificates to the Dissenting Shareholder. Failure on the part of the
Dissenting Shareholder to deliver such certificates upon such request will
terminate his or her rights as a Dissenting Shareholder, at the option of
Medusa, exercised by written notice to the Dissenting Shareholder within 20 days
after the lapse of the 15-day period, unless a court, for good cause shown,
otherwise directs.
Petitions to be Filed in Court. Within three months after the service of
the Demand, if Medusa and the Dissenting Shareholder do not reach an agreement
on the fair cash value of the Medusa Shares subject to the Demand, the
Dissenting Shareholder or Medusa may file a complaint in the Court of Common
Pleas in Cuyahoga County, Ohio (the "Common Pleas Court"), or join or be joined
in an action similarly brought by another Dissenting Shareholder, for a judicial
determination of the fair cash value of the Medusa Shares held by such
Dissenting Shareholder(s).
Upon the motion of the complainant, the Common Pleas Court will hold a
hearing to determine whether the Dissenting Shareholder is entitled to be paid
the fair cash value of the Dissenting Shareholders' Medusa Shares. If the Common
Pleas Court finds that the Dissenting Shareholder is so entitled, it may appoint
one or more appraisers to receive evidence and to recommend a decision on the
amount of such fair cash value. The Common Pleas Court is thereafter required to
make a finding as to the fair cash value of such shares and to render a judgment
against Medusa for the payment thereof, with interest at such rate and from such
date as the Common Pleas Court considers equitable. Costs of the proceeding,
including reasonable compensation to the appraiser or appraisers, to be fixed by
the Common Pleas Court, are to be apportioned or assessed as the Common Pleas
Court considers equitable. Payment of the fair cash value of such shares is
required to be made within 30 days after the date of final determination of such
value or the Effective Date, whichever is later, only upon surrender to Medusa
of the certificates representing the Medusa Shares for which payment is made.
Definition of Fair Cash Value. Fair cash value is the amount which a
willing seller and willing buyer with neither any compulsion to sell or buy
would accept or pay, but in no event may the fair cash value exceed the amount
specified in the Demand. Because the Merger Proposal requires the approval of
the Medusa
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shareholders, the fair cash value is to be determined as of the day prior to the
day of the Medusa Special Meeting. In computing this value, any appreciation or
depreciation in the market value of the Medusa Shares held by the Dissenting
Shareholder resulting from the Merger Proposal is excluded.
The fair cash value determined by the Common Pleas Court may be higher or
lower than the value of the shares of Southdown Common Stock a Dissenting
Shareholder would have otherwise received pursuant to the Merger Proposal.
Termination of Dissenters' Rights. The dissenters' rights of any Dissenting
Shareholder will terminate if, among other things: (i) he or she has not
complied with Section 1701.85 of the ORC (unless the New Medusa directors waive
compliance); (ii) the Merger Proposal is abandoned or otherwise not carried out;
(iii) such Dissenting Shareholder withdraws his or her Demand with the consent
of the New Medusa directors; or (iv) no agreement has been reached between
Medusa and the Dissenting Shareholder as to the fair value for the shares and
neither the Dissenting Shareholder nor Medusa shall have timely filed or joined
in a complaint in the Common Pleas Court. For a discussion of the tax
consequences to a shareholder exercising dissenters' rights, see "Certain
Federal Income Tax Consequences."
Condition to Merger. Southdown's obligation to consummate the Merger is
specifically conditioned upon the holders of not more than 5% of the Medusa
Shares on a fully diluted basis perfecting their dissenters' rights under the
ORC. Southdown believes, however, that the perfection of dissenters' rights by
the holders of more than approximately 700,000 Medusa Shares (approximately 4%
of the Medusa Shares outstanding on the Medusa Record Date) may preclude pooling
of interests accounting treatment for the Merger, which is also a condition to
the parties' obligations to consummate the Merger.
BECAUSE A PROXY CARD WHICH DOES NOT CONTAIN VOTING INSTRUCTIONS WILL,
UNLESS REVOKED, BE VOTED IN FAVOR OF THE MERGER PROPOSAL, A MEDUSA SHAREHOLDER
WHO WISHES TO EXERCISE DISSENTERS' RIGHTS MUST EITHER NOT SIGN AND RETURN A
PROXY CARD OR, IF HE OR SHE SIGNS AND RETURNS A PROXY CARD, VOTE AGAINST OR
ABSTAIN FROM VOTING ON THE PROPOSAL TO ADOPT THE MERGER PROPOSAL.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion, which reflects the opinions of Bracewell &
Patterson, L.L.P., Southdown's tax counsel, and Milbank, Tweed, Hadley & McCloy,
Medusa's tax counsel, is a summary of the material federal income tax
consequences of the Merger and does not purport to be a complete analysis or
listing of all potential tax effects relative to a decision whether to vote for
the Merger. The discussion does not address all aspects of federal income
taxation that may be applicable to certain Medusa shareholders and subject to
special federal income tax treatment, including, without limitation, foreign
persons, insurance companies, tax-exempt entities, retirement plans and persons
who acquired their Medusa Shares pursuant to the exercise of employee stock
options or otherwise as compensation. The discussion addresses neither the
effect of applicable state, local or foreign tax laws nor the effect of any
federal tax laws other than those pertaining to federal income tax. Because of
the complexity of the tax laws, and because the tax consequences of any
particular shareholder may be affected by matters not discussed herein, each
Medusa shareholder is urged to consult his or her tax advisor with respect to
his or her particular circumstances and with respect to the specific tax
consequences of the Merger to him or her, including the applicability and effect
of state, local and foreign tax laws, estate tax laws and proposed changes in
applicable tax laws.
It is a condition to the consummation of the Merger that Southdown receive
an opinion from Bracewell & Patterson, L.L.P., and that Medusa receive an
opinion from Milbank, Tweed, Hadley & McCloy, to the effect that, based on the
assumptions set forth therein, under currently applicable laws, the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code
and, accordingly: (i) no gain or loss will be recognized by the shareholders of
Medusa upon the conversion of their Medusa Shares solely into shares of
Southdown Common Stock pursuant to the terms of the Merger to the extent of such
conversion; (ii) the tax basis of the shares of Southdown Common Stock into
which Medusa Shares are converted pursuant to the
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Merger will be the same as the basis of such shares of Medusa Shares exchanged
therefor; (iii) the holding period for shares of Southdown Common Stock into
which Medusa Shares are converted will include the period that such Medusa
Shares were held by the holder, provided such shares were a capital asset of the
holder; and (iv) the receipt of cash in lieu of a fractional share of Southdown
Common Stock by a Medusa shareholder will be treated as if the fractional share
was distributed as part of the exchange and then was redeemed by Southdown. In
delivering the foregoing opinions, Bracewell & Patterson, L.L.P. and Milbank,
Tweed, Hadley & McCloy will rely upon certain facts, assumptions,
representations and warranties of Medusa, Southdown, Sub and others.
The receipt of cash in lieu of a fractional share of Southdown Common Stock
by a Medusa shareholder pursuant to the Merger or upon receipt of a cash payment
for Medusa Shares as to which dissenters' rights have been perfected in
connection with the Merger by a holder thereof in each case will generally
result in taxable capital gain or loss to such shareholder for federal income
tax purposes based on the difference between the amount of cash received by such
shareholder and such shareholder's basis in such fractional share as set forth
above or such shareholder's basis in such dissenting Medusa Shares, as the case
may be.
The opinions of Bracewell & Patterson, L.L.P. and Milbank, Tweed, Hadley &
McCloy will be based on the Code, regulations and rulings in effect as of the
date of such opinions, current administrative rulings and practice and judicial
precedent, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences discussed herein. Such
opinions neither bind the Internal Revenue Service (the "IRS") nor preclude the
IRS from adopting a contrary position. The parties will not request and the
Merger is not conditioned upon a ruling from the IRS in connection with any of
the federal income tax consequences of the Merger.
COMPARISON OF SHAREHOLDERS' RIGHTS
Upon the conversion of their Medusa Shares into shares of Southdown Common
Stock pursuant to the Merger, the shareholders of Medusa, an Ohio corporation,
will become shareholders of Southdown, a Louisiana corporation. The following is
a description of Southdown capital stock, including the Southdown Common Stock
to be issued in the Merger, and a summary of certain differences between the
rights of holders of Medusa Shares and the rights of holders of shares of
Southdown Common Stock.
GENERAL
The following descriptions do not purport to be complete and are subject
to, and qualified in their entirety by reference to, the following documents,
copies of which are filed as exhibits to the Registration Statement: (i) the
Southdown Articles; (ii) the Southdown Bylaws; and (iii) the Southdown Rights
Agreement.
The authorized capital stock of Southdown is comprised of 40,000,000 shares
of Southdown Common Stock and 10,000,000 shares of Preferred Stock, $.05 par
value (the "Preferred Stock"). As discussed under "Amendment to Southdown
Articles," Southdown is seeking shareholder approval to increase the number of
authorized shares of Southdown Common Stock from 40,000,000 shares to
200,000,000 shares.
SOUTHDOWN COMMON STOCK
Subject to the preferences of any series of outstanding Preferred Stock,
holders of Southdown Common Stock are entitled to receive ratably such dividends
as may be declared by the Southdown Board out of funds legally available
therefor. In the event of a liquidation or dissolution of Southdown, holders of
Southdown Common Stock are entitled to share ratably (except as described below
under the caption "Preferred Stock" below with respect to the Series C Preferred
Stock referred to therein) in all assets remaining after payment of liabilities
and the liquidation preferences of any series of outstanding Preferred Stock.
Each share of Southdown Common Stock entitles the holder to one vote on matters
submitted to a vote of shareholders of Southdown, including the election of
directors. The Southdown Board is divided into three classes, as nearly equal in
number as possible, having staggered three-year terms. Holders of Southdown
Common Stock have no preemptive rights and no rights to convert their Southdown
Common Stock into any other securities. By
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the affirmative vote of the holders of 80% of the outstanding shares of all
classes of Southdown's stock entitled to vote in the election of directors,
Southdown's shareholders may remove any of Southdown's directors from office. A
similar vote is required to amend certain provisions of the Southdown Articles.
See "Change in Control Provisions" below. All of the outstanding shares of
Southdown Common Stock are fully paid and non-assessable.
ChaseMellon Shareholder Services, L.L.C. serves as the registrar and
transfer agent for the Southdown Common Stock.
SOUTHDOWN RIGHTS
On March 4, 1991, the Southdown Board declared a dividend of one Southdown
Right for each outstanding share of Southdown Common Stock, to shareholders of
record at the close of business on March 14, 1991. Each Southdown Right entitles
the registered holder to purchase from Southdown 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 Southdown Rights are set
forth in a Southdown Rights Agreement.
The Southdown Rights are attached to all certificates representing
outstanding shares of Southdown Common Stock, and no separate certificates for
the Southdown Rights ("Southdown Rights Certificates") have been distributed.
The Southdown Rights will separate from the Southdown Common Stock upon the
earlier of: (i) 10 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 Southdown Common Stock (the date of the announcement being
the "Stock Acquisition Date"); or (ii) 10 business days (or such later date as
may be determined by the Southdown Board 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 date upon which either of the
foregoing events first occurs is referred to as the "Distribution Date." Until
the Distribution Date, (a) the Southdown Rights will be evidenced by the
Southdown Common Stock certificates (together with a copy of a Summary of
Southdown Rights or bearing the notation referred to below) and will be
transferred with and only with such Southdown Common Stock certificates, (b) new
Southdown Common Stock certificates will contain a notation incorporating the
Southdown Rights Agreement by reference, and (c) the surrender for transfer of
any certificate for Southdown Common Stock outstanding (with or without a copy
of the Summary of Southdown Rights) will also constitute the transfer of the
Southdown Rights associated with the Southdown Common Stock represented by such
certificate.
The Southdown 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 Southdown as described below. In the Southdown Rights Agreement,
Southdown has generally agreed to use its best efforts to cause the securities
of Southdown issuable pursuant to the exercise of Southdown Rights to be
registered under the Securities Act as soon as practicable after the Southdown
Rights become exercisable, and to take such action as may be necessary to ensure
compliance with applicable state securities laws.
As soon as practicable after the Distribution Date, Southdown Rights
Certificates will be mailed to holders of record of Southdown Common Stock as of
the close of business on the Distribution Date and, from and after the
Distribution Date, the separate Southdown Rights Certificates alone will
represent the Southdown Rights. All shares of Southdown Common Stock issued
prior to the Distribution Date will be issued with Southdown Rights. Shares of
Southdown Common Stock issued after the Distribution Date in connection with
certain employee benefit plans or upon exercise or conversion of certain
securities will be issued with Southdown Rights. Except as otherwise determined
by the Southdown Board, no other shares of Southdown Common Stock issued after
the Distribution Date will be issued with Southdown 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
Southdown Common Stock at a price and on terms that a majority of the
independent directors of Southdown determines to be fair to and otherwise in the
best
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interest of Southdown and its shareholders (a "Permitted Offer")), each holder
of a Southdown Right will thereafter have the right to receive, upon exercise of
such Southdown Right, a number of shares of common stock (or, in certain
circumstances, cash, property or other securities) of Southdown having a Current
Market Price (as defined in the Southdown Rights Agreement) equal to two times
the exercise price of the Southdown Right. Notwithstanding the foregoing,
following the occurrence of any Flip-In Event, all Southdown Rights that are, or
(under certain circumstances specified in the Southdown 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 Southdown Rights
Agreement. However, Southdown Rights are not exercisable following the
occurrence of any Flip-In Event until such time as the Southdown Rights are no
longer redeemable by Southdown 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
Southdown Common Stock (or other consideration, as noted above), based upon its
then Current Market Price, for $60. Assuming that the Southdown Common Stock had
a Current Market Price of $60 per share at such time, the holder of each valid
Southdown Right would be entitled to purchase two shares of Southdown Common
Stock for $60.
In the event (a "Flip-Over Event") that, at any time on or after the Stock
Acquisition Date: (i) Southdown 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 Southdown's assets or earning power is
sold or transferred, each holder of a Southdown Right (except Southdown Rights
that previously have been voided as set forth above) shall thereafter have the
right to receive, upon exercise, a number of shares of common stock of the
acquiring company (or in certain cases its controlling person) having a Current
Market Price equal to two times the exercise price of the Right. Flip-In Events
and Flip-Over Events are collectively referred to as "Triggering Events."
The Purchase Price payable, and the number of Units or other securities or
property issuable, upon exercise of the Southdown Rights are subject to
adjustment from time to time to prevent dilution: (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Series C
Preferred Stock; (ii) if holders of the Series C Preferred Stock are granted
certain rights or warrants to subscribe for Series C Preferred Stock or
convertible securities at less than the current market price of the Series C
Preferred Stock; or (iii) upon the distribution to holders of the Series C
Preferred Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
No adjustment in the Purchase Price will be required until cumulative
adjustments amount to at least 1% of the Purchase Price. No fractional Units are
required to be issued and, in lieu thereof, an adjustment in cash may be made
based on the market price of the Series C Preferred Stock on the last trading
date prior to the date of exercise. Pursuant to the Southdown Rights Agreement,
Southdown reserves the right to require prior to the occurrence of a Triggering
Event that, upon any exercise of Southdown Rights, a number of Southdown Rights
be exercised so that only whole shares of Series C Preferred Stock will be
issued.
At any time until 10 days following the Stock Acquisition Date, Southdown
may redeem the Southdown Rights in whole, but not in part, at a price of $.01
per Southdown Right, payable, at the option of Southdown, in cash, shares of
Southdown Common Stock or such other consideration as the Southdown Board may
determine. After the redemption period has expired, Southdown'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 Southdown Common Stock in a transaction or series of
transactions not involving Southdown; and (ii) there are no other Acquiring
Persons. Immediately upon the effectiveness of the action of the Southdown Board
ordering redemption of the Southdown Rights, the Southdown Rights will terminate
and the only right of the holders of Southdown 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 Southdown Common
Stock then outstanding, Southdown may exchange the Southdown Rights (other than
Southdown Rights owned by an Acquiring Person or an affiliate or an associate
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of an Acquiring Person, which will have become void), in whole or in part, at an
exchange ratio of one share of Southdown Common Stock, and/or other equity
securities deemed to have the same value as one share of Southdown Common Stock,
per Southdown Right, subject to adjustment.
Until a Southdown Right is exercised, the holder thereof, as such, will
have no rights as a shareholder of Southdown, including, without limitation, the
right to vote or to receive dividends. Shareholders may, depending upon the
circumstances, recognize taxable income in the event that the Southdown Rights
become exercisable for Southdown Common Stock (or other consideration) 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 Southdown Rights, any of the provisions of the Southdown Rights Agreement
may be amended by the Southdown Board prior to the Distribution Date.
Thereafter, the provisions of the Southdown Rights Agreement may be amended by
the Southdown Board in order to cure any ambiguity, defect or inconsistency, to
make changes that do not materially adversely affect the interests of holders of
Southdown Rights (excluding the interests of any Acquiring Person), or to
shorten or lengthen any time period under the Southdown Rights Agreement;
provided, however, that no amendment to lengthen the time period governing
redemption shall be made at such time as the Southdown Rights are not
redeemable.
The provisions of the Southdown Rights and the Southdown Rights Agreement
may in some cases discourage or make more difficult the acquisition of control
of Southdown by means of a tender offer, open market purchase or similar means.
These provisions are intended to discourage, or may have the effect of
discouraging, partial tender offers, front-end loaded two-tier tender offers and
certain other types of coercive takeover tactics and inadequate takeover bids
and to encourage persons seeking to acquire control of Southdown first to
negotiate with Southdown. Southdown believes that these provisions, which are
similar to those of many other publicly-held companies, provide benefits by
enhancing Southdown's potential ability to negotiate with the proponent of any
unfriendly or unsolicited proposal to take over or restructure Southdown that
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement in their
terms.
PREFERRED STOCK
The Southdown Board 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. While the Southdown Board
has in the past designated and issued shares of several series of Preferred
Stock, only one series of Preferred Stock is currently authorized and no shares
of that series are outstanding. In connection with the distribution of the
Southdown Rights on March 14, 1991, the Southdown Board authorized 400,000
shares of Series C Preferred Stock, none of which are outstanding. Following
approval of the Charter Amendment and the Stock Issuance by the Southdown
shareholders and prior to the consummation of the Merger, the Southdown Board
intends to increase the number of authorized shares of Series C Preferred Stock
from 400,000 shares to 2,000,000 shares. The Series C Preferred Stock would be
issued only upon the exercise of Southdown Rights and only if the Southdown
Rights were exercised prior to a Flip-In Event or a Flip-Over Event. The
Southdown Rights are not exercisable as of the date hereof. See "Southdown
Rights" above.
The Series C Preferred Stock has a liquidation preference of $100 per
share, plus accrued and unpaid dividends and distributions (the "Series C
Liquidation Preference"). Following the payment of the Series C Liquidation
Preference, no additional distribution shall be made to the holders of shares of
Series C Preferred Stock unless the holders of Southdown Common Stock have
received an amount per share (the "Common Adjustment") equal to the quotient
obtained by dividing (x) the Series C Liquidation Preference by (y) the
Adjustment Number. The Adjustment Number initially is 100, and is subject to
adjustment in the event of Southdown: (i) declares any dividend on Southdown
Common Stock payable in shares of Southdown Common Stock; (ii) subdivides the
outstanding Southdown Common Stock; or (iii) combines the Southdown Common Stock
into a smaller number of shares. Following the payment of the full amount of the
Series C Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series C Preferred
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Stock and Southdown Common Stock, respectively, holders of Series C Preferred
Stock and holders of Southdown Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to one with respect to the Series C Preferred Stock and
Southdown Common Stock, on a per share basis, respectively.
If issued, the Series C Preferred Stock would carry a cumulative dividend
per share equal to the greater of (i) $2.00 or (ii) subject to certain
adjustments, the Adjustment Number times the aggregate per share amount of all
cash dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than
dividends or distributions payable in shares of Southdown Common Stock or a
subdivision of the outstanding shares of Southdown Common Stock (by
reclassification or otherwise), declared on the Southdown Common Stock since the
immediately preceding quarterly dividend payment date for the Series C Preferred
Stock. The Series C Preferred Stock is redeemable, at the option of Southdown,
at any time at a redemption price equal to the Adjustment Number times the
current per share market price (as defined) of the Southdown Common Stock,
together with accrued and unpaid dividends. Each share of Series C Preferred
Stock entitles the holder thereof to the number of votes equal to the Adjustment
Number for each share held and, except as otherwise provided by law, the Series
C Preferred Stock votes together as a single class with the Southdown Common
Stock and any other capital stock of Southdown entitled to vote. The Series C
Preferred Stock entitles the holders thereof (together with the holders of all
Preferred Stock upon which similar voting rights have been conferred) to elect
two directors if dividends are in arrears for at least 540 days.
LIMITATIONS ON DIVIDENDS AND CERTAIN OTHER PAYMENTS
Southdown's ability to pay dividends and make certain other payments with
respect to its capital stock is restricted in certain circumstances by certain
provisions of its debt instruments, including Southdown's Restated Revolving
Credit Facility and the Indenture relating to its 10% Senior Subordinated Notes
Due 2006, Series B.
CHANGE IN CONTROL PROVISIONS
Charter Provisions. The Southdown Articles require the affirmative vote or
consent of the holders of 80% of all classes of stock of Southdown entitled to
vote in the election of directors to approve: (i) any merger or consolidation of
Southdown with or into any other corporation; (ii) any sale or lease of all or
any substantial part of the assets of Southdown; or (iii) any sale or lease to
Southdown or any subsidiary thereof of assets with an aggregate fair market
value of $2 million or more in exchange for voting securities of Southdown or
any subsidiary thereof (or securities convertible into or exchangeable for such
securities), if as of the record date for the determination of shareholders
entitled to vote or consent with respect to such merger, consolidation, sale or
lease, the other party to such transaction is the beneficial owner (as defined),
directly or indirectly, of 5% or more of the outstanding shares of stock of
Southdown entitled to vote in the election of directors ("5% Beneficial Owner").
The foregoing provisions of the Southdown Articles are inapplicable to: (i) any
merger or similar transaction if the Southdown Board has approved a memorandum
of understanding with such other corporation prior to the time such corporation
became a 5% Beneficial Owner; or (ii) transactions with a majority-owned
subsidiary of Southdown.
Statutory Provision. Southdown believes that it is an "issuing public
corporation," subject to the control shares provisions of the LBCL. Under the
control share provisions of the LBCL, the voting rights of Southdown's shares of
voting stock are limited under certain circumstances. Subject to certain
exceptions, generally if "control shares" of Southdown are acquired in a
"control share acquisition," the LBCL provides that such shares have the voting
rights they had before the control share acquisition only to the extent granted
by resolution of the shareholders of Southdown. Such resolution must be adopted
by a majority of all votes entitled to be cast, excluding all "interested
shares."
"Interested shares" are defined as shares of Southdown in respect of which
any of the following persons may exercise or direct the exercise of the voting
power of Southdown in the election of directors: (i) an acquiring person or
member of a group with respect to a control share acquisition; (ii) any officer
of
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Southdown; or (iii) any employee of Southdown who is also a director of
Southdown. "Control shares" are defined generally as shares that, but for the
control share provisions of the LBCL, would have voting power with respect to
shares of Southdown that, when added to all other shares of Southdown owned by a
person or in respect to which that person may exercise or direct the exercise of
voting power, would entitle that person, immediately after acquisition of the
shares, directly or indirectly, alone or as a part of a group, to exercise or
direct the exercise of the voting power of Southdown in the election of
directors within any of the following ranges of voting power: (i) one-fifth or
more but less than one-third of all voting power; (ii) one-third or more but
less than a majority of all voting power; or (iii) a majority or more of all
voting power. Subject to certain exceptions, a "control share acquisition" means
the acquisition, directly or indirectly, by any person of ownership of, or the
power to direct the exercise of voting power with respect to, issued and
outstanding control shares.
Under certain circumstances (including, but not limited to, the giving of
an undertaking by the acquiring person to pay Southdown's expenses of the
meeting and, under certain circumstances, the obtaining by such person of
commitments for the financing of any cash portion of the consideration to be
paid), an acquiring person may compel the calling of a special meeting of
Southdown's shareholders for the purpose of considering the voting rights to be
accorded the shares acquired or to be acquired in the control share acquisition.
Unless the acquiring person agrees in writing to another date, the special
meeting of shareholders shall be held within 50 days after the date on which
definitive proxy materials (within the meaning of the Exchange Act and the
regulations thereunder) related to the special meeting on behalf of the
acquiring person and the Southdown Board have been filed with the Commission.
Southdown's Bylaws provide that: (i) if no acquiring person statement is
filed by the acquiring person; or (ii) if full voting rights are not approved,
Southdown may redeem control shares acquired in a control share acquisition (a)
in the case of (i), within 60 days after the last acquisition of control shares
by an acquiring person and (b) in the case of (ii), at any time during the
period ending two years after the shareholder vote with respect to the voting
rights of such control shares. Any such redemption shall be made at the fair
value of the control shares and pursuant to such procedures as may be adopted by
the Southdown Board. If control shares acquired in a control share acquisition
representing a majority or more of all voting power are accorded full voting
rights, then all shareholders of Southdown will have dissenters' rights to
receive the fair cash value of their shares, such amount not to be less than the
highest price per share paid by the acquiring person in the control share
acquisition.
COMPARISON OF MEDUSA SHARES AND SOUTHDOWN COMMON STOCK
The rights of Medusa shareholders are governed by the Medusa Articles, the
Medusa Regulations and the applicable provisions of Ohio law, while the rights
of Southdown shareholders are governed by the Southdown Articles, the Southdown
Bylaws and the applicable provisions of Louisiana law. If: (i) the Medusa
shareholders approve and adopt the Merger Proposal; (ii) the Southdown
shareholders approve the Charter Amendment and Stock Issuance; and (iii) the
Merger is subsequently completed, holders of Medusa Shares will become holders
of Southdown Common Stock. The following comparison of the rights of holders of
Medusa Shares and the Southdown Common Stock is based on current terms of the
governing documents and the respective companies and on the current provisions
of applicable state law.
The rights of holders of Southdown Common Stock and holders of Medusa
Shares are similar in several respects: each shareholder is entitled to one vote
for each share held on all matters submitted to a vote of shareholders and
neither is entitled to cumulative voting rights in connection with the election
of directors, each shareholder is entitled to receive pro rata any assets
distributed to shareholders upon liquidation, dissolution or winding up of the
affairs of the company (after all creditors have been satisfied and requisite
preferential amounts are paid to the holders of outstanding preferred stock),
and shareholders are not entitled to preemptive rights to subscribe for or
purchase any stock or other securities in proportion to their respect holdings
upon the offering or sale by Medusa or Southdown of such securities to others.
Although it is impracticable to note all the differences between Ohio law and
Louisiana law generally and all of the differences between the applicable
governing documents of Medusa and Southdown, the following is intended
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to be a summary of certain significant differences between the rights of holders
of Medusa Shares and the rights of holders of Southdown Common Stock.
Dividends. Under the Ohio law, dividends may be paid out of surplus,
including both earned surplus and capital surplus, in cash, property or shares
of the corporation, provided that such dividend payments are not in violation of
the rights of any other class of securities and are not made when the
corporation is insolvent or there is reasonable ground to believe that by such
payment it will be rendered insolvent. The Louisiana law permits the payment of
dividends, notwithstanding the absence of surplus, out of its net profits for
the then current year, the preceding fiscal year or both, unless at the time, or
as a result of such dividends, liabilities exceed assets or the net assets are
less than the amount payable upon liquidation to any class of securities with a
preferential right to participate in assets in the event of liquidation.
Dissenters' Rights. Under the Ohio law, the shareholders of an Ohio
corporation that is being merged into a surviving or new corporation, and the
shareholders of an Ohio corporation that is the surviving corporation of a
merger on which such shareholders are entitled pursuant to Ohio law to vote,
have the right to dissent from the merger and if certain procedural requirements
are satisfied, to receive, in lieu of the merger consideration, a payment equal
to the fair cash value of such shareholders' shares as of the day preceding the
shareholder vote. Shareholders of an Ohio corporation also are entitled to
exercise dissenters' rights in connection with the lease, sale, exchange,
transfer or other disposition of all or substantially all of the assets of such
corporation in connection with certain amendments to such corporation's articles
of incorporation and in connection with transactions covered by the Majority
Share Acquisition Statute (as defined below). See "Rights of Dissenting
Shareholders -- Medusa Shareholders."
The Louisiana law with respect to dissenters' rights upon a merger and upon
the sale or other disposition of all of a corporation's assets is substantially
the same, except that dissenters' rights are not available if either: (i) the
shares entitled to be voted are listed on a national securities exchange or
designated as a national market system security on an inter-dealer quotation
system by the National Association of Securities Dealers (unless the articles of
incorporation of the corporation provide otherwise) and such shares are
converted by the merger solely into shares of the surviving or new corporation;
or (ii) the transaction is approved by at least 80% of the total voting power
entitled to vote thereon. The Louisiana law does not provide for dissenters'
rights in connection with amendments to a Louisiana corporation's articles of
incorporation. See "Rights of Dissenting Shareholders -- Southdown
Shareholders."
Directors. Directors of Medusa may be removed, with or without cause, by
the affirmative vote of a majority of the voting power present at a meeting of
Medusa shareholders. Southdown directors may be removed from office, with or
without cause, by the affirmative vote of holders of 80% of the outstanding
shares of all classes entitled to vote in the election of directors. Under the
Southdown Articles, directors are authorized to vote by proxy.
The Louisiana law provides that the Southdown Board may declare vacant the
office of a director: (i) if he is indicted or adjudicated an incompetent; (ii)
an action is filed by or against him, or any entity of which he is employed as
his principal business activity, under the bankruptcy laws of the United States;
(iii) in the sole opinion of the Southdown Board he becomes incapacitated by
illness or other infirmity so that he is unable to perform his duties for a
period of six months or longer; or (iv) he ceases at any time to have the
qualifications required by law, the Southdown Articles or the Southdown Bylaws.
Under the Southdown Bylaws, a director who fails to attend at least two thirds
of all meetings of the Southdown Board and the committees of which he is a
member, during a period of 12 consecutive months, may be removed by the other
members of the Southdown Board.
The ORC provides that the Medusa Board may remove any director and thereby
create a vacancy; (i) if by order of court he has been found to be of unsound
mind or if he is adjudicated bankrupt; or (ii) if within 60 days from the date
of his election he does not qualify by accepting in writing his election to such
office or by acting at a meeting of the directors and by acquiring the
qualifications specified in Medusa's governing documents; or if, for the period
specified in such documents, he ceases to hold the required qualifications.
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Control Share and Fair Price Provisions. The Louisiana law contains a
control share acquisition statute. See "Change in Control
Provisions -- Statutory Provision" above. A merger under the Louisiana law
pursuant to an agreement to which the corporation being acquired is a party,
such as the Merger, is not subject to the Louisiana control share acquisition
statutes.
Combination and Majority Share Acquisition. Section 1701.83 of the ORC (the
"Majority Share Acquisition Statute") requires the directors and shareholders of
an acquiring corporation to authorize transactions involving a combination or
majority share acquisition if such transaction involves the issuance or transfer
by the acquiring corporation of such numbers of its shares as entitle the
holders to exercise one-sixth or more of the voting power of such corporation in
the election of directors immediately after the consummation of such
transaction.
Ohio Control Share Acquisition Act. Section 1701.831 of the ORC, the Ohio
Control Share Acquisition Act (the "Ohio Control Share Act"), provides that any
"Control Share Acquisition" of an Ohio "Issuing Public Corporation" may be made
only with the prior authorization of the shareholders of the Issuing Public
Corporation in accordance with the provisions of the Ohio Control Share Act. A
"Control Share Acquisition" is defined under the Ohio Control Share Act to mean
the acquisition, directly or indirectly, by any person of shares of an Issuing
Public Corporation that, when added to all other shares of the corporation such
person owns, would entitle such person, directly or indirectly, to exercise
voting power in the election of directors within the following ranges: more than
20%, more than 33%, and more than a majority. An "Issuing Public Corporation" is
defined as any Ohio corporation with 50 or more shareholders that has its
principal place of business, principal executive offices or substantial assets
within the State of Ohio.
The Ohio Control Share Act requires that the acquiring person in a proposed
Control Share Acquisition must deliver an acquiring person statement to the
Issuing Public Corporation containing specified information concerning the
acquiring person and the proposed Control Share Acquisition. The Issuing Public
Corporation must then call a special meeting of its shareholders to vote upon
the proposed acquisition within 50 days after the receipt of such acquiring
person statement, unless the acquiring person agrees to a later date. The Ohio
Control Share Act further specifies that the shareholders of the Issuing Public
Corporation must approve the proposed Control Share Acquisition by the
affirmative vote of: (i) a majority of the voting power of the Issuing Public
Corporation's common shares represented in person or by proxy at such special
meeting of shareholders; and (ii) a majority of the portion of the voting power
of the Issuing Public Corporation's common shares represented in person or by
proxy at such special meeting and excluding those of the Issuing Public
Corporation's common shares deemed to be "Interested Shares" for the purposes of
and as defined under the Ohio Control Share Act. "Interested Shares" under the
ORC means, with respect to Medusa, shares in which the acquiring person, any
officer of Medusa elected or appointed by the directors of Medusa, and any
employee of Medusa who is also a director of Medusa may exercise or direct the
exercise of the voting power of the corporation in the election of directors.
Interested Shares also include certain shares acquired by any person during the
period beginning with the date of first public disclosure of a proposed Control
Share Acquisition or certain other proposed transactions and ending on the date
of any special meeting held pursuant to the Control Share Act.
Ohio Control Bid Statute. Sections 1707.041, 1707.042, 1707.23 and 1707.26
of the ORC (collectively, the "Ohio Control Bid Statute") regulate tender offers
for an equity security of a Subject Company, as defined in the Ohio Control Bid
Statute, from a resident of Ohio if, after the purchase, the offeror would
directly or indirectly be the beneficial owner of more than 10% of any class of
issued and outstanding equity securities of such company (a "Control Bid"). A
"Subject Company" includes an issuer, such as Medusa, that either has its
principal place of business or principal executive offices located in Ohio or
owns or controls assets located in Ohio that have a fair market value of at
least $1.0 million, and that has more than 10% of its beneficial or record
equity security holders resident in Ohio, or has more than 10% of its equity
securities owned, beneficially or of record, by residents of Ohio, or has 1,000
beneficial or record equity security holders who are resident in Ohio. A Subject
Company, however, need not be incorporated in Ohio.
The Ohio Control Bid Statute prohibits an offeror from making a Control Bid
for securities of a Subject Company pursuant to a tender offer until the offeror
has filed specified information with the Ohio Division of
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Securities (the "Ohio Division"). In addition, the offeror is required to
deliver a copy of such information to the Subject Company not later than the
offeror's filing with the Ohio Division and to send or deliver such information
and the material terms of the proposed offer (the "Control Bid Materials") to
all offerees in Ohio as soon as practicable after the offeror's filing with the
Ohio Division. Within five calendar days of such filing, the Ohio Division may,
by order, summarily suspend the continuation of the Control Bid if it determines
that the offeror has not provided all of the specified information or that the
Control Bid Materials provided to offerees do not provide full disclosure of all
material information concerning the Control Bid. If the Ohio Division summarily
suspends a Control Bid, it must schedule and hold a hearing within 10 calendar
days of the date on which the suspension is imposed and must make its
determination within three calendar days after the hearing has not been
completed but no later than 14 calendar days after the date on which the
suspension is imposed. The Ohio Division may maintain its suspension of the
continuation of the Control Bid if, based upon the hearing, it determines that
all of the information required to be provided by the Ohio Control Bid Statute
has not been provided by the offeror, that the Control Bid Materials provided to
offerees do not provide full disclosure of all material information concerning
the Control Bid, or that the Control Bid is in material violation of any
provision of the Ohio securities laws. If, after the hearing, the Ohio Division
maintains the suspension, the offeror has the right to correct the disclosure
and other deficiencies identified by the Ohio Division and to reinstitute the
Control Bid by filing new or amended information pursuant to the Ohio Control
Bid Statute.
Certain Short-Term Profits. Chapter 1707 of the ORC generally requires a
person or entity that makes a proposal, or publicly discloses an intention or
possibility of making a proposal to acquire control of an Ohio corporation to
repay to that corporation any profits of an aggregate of $250,000 or more made
from dispositions of the company's stock within 18 months after making the
control proposal, unless such person can establish either that his, her or its
sole intention in making such proposal or disclosure was to succeed in acquiring
control of the corporation or that the proposal or disclosure was not made with
the purpose of affecting, and did not materially affect, market trading in the
corporation's stock.
Ohio Interested Shareholder Transactions Law. Chapter 1704 of the ORC
prohibits an "Issuing Public Corporation" from engaging in a "Chapter 1704
Transaction" with an "Interested Shareholder" for a period of three years
following the date on which the person becomes an Interested Shareholder unless,
prior to such date, the directors of the Issuing Public Corporation approve
either the Chapter 1704 Transaction or the acquisition of shares pursuant to
which such person became an Interested Shareholder. After the initial three-
year moratorium has expired, an Issuing Public Corporation may engage in a
Chapter 1704 Transaction if: (i) the acquisition of shares pursuant to which the
person became an Interested Shareholder received the prior approval of the board
of directors of the Issuing Public Corporation; (ii) the Chapter 1704
Transaction is approved by the affirmative vote of the holders of shares
representing at least two-thirds of the voting power of the Issuing Public
Corporation and by the holders of at least a majority of voting shares which are
not beneficially owned by an Interested Shareholder or an affiliate or associate
of a Interested Shareholder; or (iii) the Chapter 1704 Transaction meets certain
statutory tests designed to ensure that it is economically fair to all
shareholders.
"Issuing Public Corporation" is defined the same for purposes of Chapter
1704 of the ORC as it is for purposes of the Ohio Control Share Act. Medusa
currently is an Issuing Public Corporation as defined in Chapter 1704 of the
ORC. An "Interested Shareholder" is any person who is the beneficial owner of a
sufficient number of shares to allow such person, directly or indirectly, alone
or with others, including affiliates and associates, to exercise or direct the
exercise of 10% of the voting power of the Issuing Public Corporation. A
"Chapter 1704 Transaction" includes any merger, consolidation, combination or
majority share acquisition between or involving an Issuing Public Corporation
and an Interested Shareholder or an affiliate or associate of an Interested
Shareholder; or any purchase, lease, sale, distribution, dividend, exchange,
mortgage, pledge, transfer or other disposition of assets owned or controlled by
an Issuing Public Corporation to, by or with an Interested Shareholder or an
affiliate thereof, or by an Interested Shareholder or an affiliate thereof to,
by, or with an Issuing Public Corporation, if such assets have a fair market
value equal to at least 5% of the aggregate fair market value of either the
total assets or the outstanding shares of the Issuing Public Corporation, or
represent at least 10% of the earning power or income of the Issuing Public
Corporation, unless such
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transaction is in the ordinary course of business of the Issuing Public
Corporation on terms no more favorable to the Interested Shareholder than those
acceptable to third parties as demonstrated by contemporaneous transactions.
Finally, a "Chapter 1704 Transaction" includes certain transactions which: (i)
increase the proportionate share ownership of an Interested Shareholder; or (ii)
result in the adoption of a plan or proposal for the dissolution, winding up of
the affairs or liquidation of the Issuing Public Corporation if such plan is
proposed by or on behalf of the Interested Shareholder; or (iii) pledge or
extend the credit or financial resources of the Issuing Public Corporation to or
for the benefit of the Interested Shareholder. The Medusa Articles contain
provisions which are substantially similar to those contained in Chapter 1704.
The Louisiana law contains fair price provisions for business combinations.
The provisions of the Louisiana law are triggered if any shareholder or group of
shareholders acquires 10% or more of Southdown's outstanding capital stock.
Evaluation of Tender Offers and Business Combinations. The Louisiana law
provides that the Southdown Board, when evaluating a tender offer or an offer to
make a tender offer or exchange offer or to effect a merger or consolidation,
may consider certain enumerated factors in exercising its judgment in
determining what is in the best interest of Southdown and its shareholders. For
this purpose, the Southdown Board may consider, among other things, not only the
consideration being offered in relation to the then current market price of
Southdown's outstanding capital stock, but also the market price for Southdown's
outstanding capital stock over a period of years, the estimated price that might
be achieved in a negotiated sale of Southdown as a whole or in part or through
orderly liquidation, the premiums over market price for the securities of other
corporations in similar transactions, current political, economic and other
factors bearing on securities prices and Southdown's financial condition and
future prospects. The Southdown Board may also evaluate the business and
financial conditions and earnings prospects of the acquiring party or parties,
and the possible effect of such conditions upon Southdown and its subsidiaries
and the communities in which Southdown and its subsidiaries do business, and the
competence, experience and integrity of the acquiring party or parties and its
or their management.
The ORC includes a provision which permits directors, in determining
whether any matter is in the best interests of the corporation, to take into
consideration the interests of the corporation's employees, suppliers, creditors
and customers, the economy of the state and the nation, community and societal
considerations and the long-term and short-term interests of the corporation and
its shareholders, including the possibility that such interests may be best
served by the continued independence of the corporation.
Amendment of Governing Documents. The Southdown Articles may be amended by
the affirmative vote of holders of a majority of all classes of stock entitled
to vote in elections of directors except that the affirmative vote of 80% of
such holders is required to amend the articles governing the staggered board of
directors (Art. IV), amendments to the articles of incorporation (Art. VIII),
heightened shareholder voting requirements in certain business combinations and
other transactions (Art. IX), call of special meetings (Art. X), and board
authority to amend bylaws (Arts. VI and XI). The Medusa Articles may be amended
by the affirmative vote of the holders of a majority of the voting power of
Medusa, subject to the requirement to secure the approval of more than 80% of
the outstanding Medusa Shares to amend certain specified provisions.
The Southdown Bylaws may be amended or repealed or new bylaws may be
adopted by vote of a majority of the members of the Southdown Board present at a
meeting. Bylaws amended, repealed or adopted by the affirmative vote of 80% of
the entire Southdown Board may be amended or repealed by holders of 80% of the
shares outstanding and entitled to vote at the meeting. Generally, the Medusa
Regulations may only be amended by the affirmative vote of a majority of voting
power represented by the outstanding Medusa Shares or, without a meeting, by the
written consent of the holders of shares entitling them to exercise two-thirds
of the voting power of the Medusa Shares, subject to the requirement to secure
the approval of more than 80% of the outstanding Medusa Shares to amend certain
specified provisions.
Rights Agreements. The Southdown Rights Plan and the Medusa Rights
Agreement are substantially similar in effect except that the maximum permitted
level for stock accumulation under the Southdown Rights Plan is 15% and under
the Medusa Rights Agreement is 20%.
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Liability of Officers and Directors. Under both the Ohio law and the
Louisiana law, shareholders are entitled to bring suit, generally in an action
on behalf of the corporation, to recover damages caused by breaches of the duty
of care and the duty of loyalty owed to a corporation and its shareholders by
directors and, to a certain extent, officers. The Ohio law provides that the
business judgment presumption of good faith may only be overcome by clear and
convincing evidence, rather than the preponderance of the evidence standard
applicable in most states.
The Louisiana law permits corporations to include provisions in their
articles of incorporation that limit personal liability for monetary damages
resulting from breaches of duty of care, subject to certain exceptions. The Ohio
law provides that a director shall be liable in damages for any action he takes
or fails to take as a director only if it is proved by clear and convincing
evidence that his action or failure to act involved an act or omission
undertaken with deliberate intent to cause injury to the corporation or
undertaken with reckless disregard for the best interests of the corporation.
Both the Ohio law and the Louisiana law permit corporations to indemnify
officers and directors in certain circumstances for their expenses and
liabilities incurred in connection with defending pending or threatened suits,
as more fully described below.
Limitation of Liability. The Southdown Articles include a provision that
eliminates the liability of directors and officers to Southdown and to its
shareholders for monetary damages resulting from breaches of his fiduciary duty
as a director or officer, provided that such provision shall not limit the
liability of a director or officer for: (i) any breach of his duty of loyalty to
Southdown or its shareholders; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) liability
for unlawful distributions of Southdown's assets to, or redemption or repurchase
of Southdown's shares from Southdown shareholders; or (iv) any transaction from
which he derived an improper personal benefit. No amendment or repeal of this
provision will adversely affect the elimination or limitation of liability of a
director or officer with respect to any action or inaction occurring prior to
the time of such amendment or repeal.
Indemnification and Insurance. Under the Ohio law and the Louisiana law,
corporations are permitted, and in some circumstances required, to indemnify,
among others, current and prior officers, directors, employees or agents of the
corporation for expenses and liabilities incurred by such parties in connection
with defending pending or threatened suits instituted against them in their
corporate capacities, provided certain specified standards of conduct are
determined to have been met. Both the Ohio law and the Louisiana law further
permit corporations to grant indemnification rights more expansive than those
permitted by statute and to purchase insurance for indemnifiable parties against
any liability asserted against or incurred by such parties in their corporate
capacities. In addition, both the Ohio law and the Louisiana law contains
express authorization for corporations to establish trust funds, insurance
subsidiaries or other forms of self-insurance for the benefit of its officers,
directors, employees and agents.
The Southdown Articles and the Medusa Articles confirm the authority of the
respective Boards to: (i) adopt bylaws or resolutions, or cause the corporation
to enter into contracts, providing for indemnification of directors, officers
and other persons; and (ii) cause the corporation to exercise its powers to
procure directors' and officers' liability insurance.
The Southdown Bylaws and the Medusa Regulations expressly provide for
indemnification of the respective directors and officers to the fullest extent
permitted by law against any costs incurred in connection with any threatened,
pending or completed claim, action, suit or proceeding because of his or her
service as a director or officer of the respective corporations, or on behalf of
such respective corporations, for service in certain capacities with affiliated
entities.
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OTHER MATTERS FOR SOUTHDOWN ANNUAL MEETING
ELECTION OF DIRECTORS
GENERAL
The Southdown Articles classify the Southdown Board into three classes
(Class I, Class II and Class III) having staggered terms of three years each.
The present term of office of the directors in Class I will expire at the 1998
Southdown Annual Meeting, and the nominees listed below, if elected as Class I
directors, will serve for a three-year term expiring at the annual meeting of
shareholders in 2001 and until their successors are duly elected and have
qualified. In addition, one director who was elected by the Southdown Board in
March 1998 has been nominated as a Class II director, and if he is so elected,
he will serve for a one-year term expiring at the annual meeting of shareholders
in 1999 and until his successor is duly elected and has qualified. The present
terms of office of the remaining Class II and all the Class III directors of
Southdown expire at the annual meeting of shareholders in 1999 and 2000,
respectively. The election of directors requires the favorable vote of the
holders of a plurality of the shares of Southdown Common Stock present and
voting, in person or by proxy, at the Southdown Annual Meeting.
NOMINEES FOR ELECTION
The following table sets forth certain information with respect to each
nominee for election as a director. The information as to age, principal
occupation and directorships held has been furnished by each such nominee.
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR
PRINCIPAL CONTINUOUSLY COMMITTEE
NAME AND AGE OCCUPATION(1) SINCE MEMBERSHIPS
------------ ------------- ------------ -----------
<S> <C> <C> <C>
CLASS I (term expires 2001)
K.L. Huger, Jr. [69]........... Vice President of Canal Barge 1977 Nominating
Company, Inc., a marine towing Finance & Audit
company, New Orleans, Louisiana
David J. Tippeconnic [58]...... President and Chief Executive 1996 Compensation & Benefits
Officer of CITGO Petroleum Nominating
Corporation, Tulsa, Oklahoma(2)
V.H. Van Horn III [59]......... Retired President and Chief 1988 Compensation & Benefits
Executive Officer, National Nominating
Convenience Stores, Incorporated,
Houston, Texas(3)
Steven B. Wolitzer [45]........ Managing Director, Head of Mergers 1993 Finance & Audit
and Acquisitions Group, Lehman Nominating
Brothers Inc., an investment
banking firm, New York, New York
CLASS II (term expires 1999)
J. Bruce Tompkins [48]......... Executive Vice President and Chief 1998
Operating Officer of Southdown
</TABLE>
- ---------------
(1) Unless indicated otherwise in this table or below under the caption
"-- Executive Officers of Southdown," the individuals named in the table
have held their positions for more than five years.
(2) Mr. Tippeconnic has been President and Chief Executive Officer of CITGO
Petroleum Corporation since July 1997. CITGO is a refiner and marketer of
petrochemicals and other industrial products. From 1995 to 1997, Mr.
Tippeconnic was President and Chief Executive Officer of UNO-VEN Company.
For more than five years prior to his retirement in 1994, Mr. Tippeconnic
served in various executive positions with the Phillips Petroleum Company.
72
<PAGE> 85
(3) For more than five years prior to his retirement in January 1996, Mr. Van
Horn was President, Chief Executive Officer and a director of National
Convenience Stores Incorporated, an operator of convenience stores.
Unless authority to vote for the election of directors is withheld as to
any or all nominees, all shares represented by proxies will be voted for the
election of the nominees listed. If authority to vote for the election of
directors is withheld as to any but not all of the nominees listed, all shares
represented by such proxies will be voted for the election of the nominees as to
whom authority is not withheld. If a nominee becomes unavailable for any reason
before the election, the shares represented by proxies will be voted for such
person, if any, as may be designated by the Southdown Board. However, the
Southdown Board has no reason to believe that any nominee will be unavailable.
Any vacancy occurring between meetings may be filled by the Southdown Board. A
director elected to fill a vacancy shall hold office for a term expiring at the
annual meeting of shareholders at which the term of the class to which he was
elected expires.
Immediately following the consummation of the Merger, the Southdown Board
will increase the number of directors from 11 to 13 and will elect Messrs.
Robert S. Evans and George E. Uding, Jr., designees of Medusa, to the Southdown
Board. See "The Merger -- Southdown Board Following the Merger." If the Merger
is consummated, Messrs. Evans and Uding will be nominated for election at the
1999 annual meeting of shareholders of Southdown as a Class III Director and a
Class I Director, respectively.
Any vacancies resulting from an increase in the number of directors may be
filled by the Southdown Board. Any such director would serve for a term expiring
at the next annual meeting of shareholders of Southdown and would not be
designated as a member of any class of directors unless elected by the
shareholders at such annual meeting.
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<PAGE> 86
CONTINUING DIRECTORS
The following table sets forth certain information about those directors
whose terms of office continue after the Southdown Annual Meeting. The
information as to age, principal occupation and directorships held has been
furnished by each such director.
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR
PRINCIPAL CONTINUOUSLY COMMITTEE
NAME AND AGE OCCUPATION(1) SINCE MEMBERSHIPS
------------ ------------- ------------ -----------
<S> <C> <C> <C>
CLASS II (term expires 1999)
Frank J. Ryan [66]............. Chairman, Retired President and 1993 Compensation & Benefits
Chief Operating Officer, Air Nominating
Products and Chemicals, Inc.,
Allentown, Pennsylvania(2)
Whitson Sadler [57]............ President and Chief Executive 1996 Compensation & Benefits
Officer of Solvay America, Inc., Finance & Audit
Houston, Texas(3) Conflict of Interest
Ronald N. Tutor[58]............ President and Chief Executive 1992 Finance & Audit
Officer of Tutor-Saliba Nominating
Corporation, a construction
company, Sylmar, California(4)
CLASS III (term expires 2000)
Clarence C. Comer[50].......... President and Chief Executive 1986
Officer of Southdown(5)
Robert G. Potter[59]........... President, Chief Executive Officer 1996 Compensation & Benefits
and director of Solutia Inc., a Nominating
refiner and marketer of chemical Conflict of Interest
products, St. Louis, Missouri(6)
Robert J. Slater[60]........... President, Jackson Consulting, 1993 Compensation & Benefits
Inc., a private consulting and Finance & Audit
investment company specializing Conflict of Interest
in advising basic industries, New
Canaan, Connecticut(7)
</TABLE>
- ---------------
(1) Unless indicated otherwise in the table, the individuals named in the table
have held their positions for more than five years.
(2) Since 1990, Mr. Ryan has been a private investor and prior to that time was
President and Chief Operating Officer of Air Products and Chemicals, Inc., a
manufacturer of industrial gases and chemicals. Mr. Ryan was elected
Chairman of the Board of Southdown effective March 16, 1995.
(3) Solvay America, Inc. is a United States subsidiary of Solvay S.A., a major
European chemical company headquartered in Brussels, Belgium.
(4) Mr. Tutor is also a director of Perini Corporation, a company engaged in
general construction and real estate development.
(5) Mr. Comer is also a director of Consolidated Graphics, Inc., a company
engaged in commercial and financial printing.
(6) For more than five years prior to assuming his position with Solutia, Mr.
Potter was the Executive Vice President and Advisory Director of Monsanto
Company, a diversified chemical and manufacturing company located in St.
Louis, Missouri. Mr. Potter is also a director of Stepan Co., a manufacturer
of specialty and intermediate chemicals.
(7) Mr. Slater is also a director of First Industrial Realty Trust, Inc., an
owner and operator of industrial real estate.
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<PAGE> 87
INFORMATION CONCERNING OPERATION OF THE SOUTHDOWN BOARD
In order to facilitate the various functions of the Southdown Board, the
Southdown Board has created several standing committees, which include a Finance
and Audit Committee, an Employee Compensation and Benefits Committee, a
Nominating Committee and a Conflict of Interest Committee.
The members of the Finance and Audit Committee are Mr. Wolitzer, Chairman,
Mr. Huger, Mr. Sadler, Mr. Slater, and Mr. Tutor. The functions of Southdown's
Finance and Audit Committee are to review the financial statements with
Southdown's independent accountants prior to publication; determine the
effectiveness of the audit effort through regular periodic meetings with
Southdown's independent accountants and Director of Internal Audit; determine
through discussion with Southdown's independent accountants and Director of
Internal Audit that no unreasonable restrictions were placed on the scope or
implementation of their examinations; inquire into the effectiveness of
Southdown's financial and accounting functions and internal controls through
discussion with Southdown's independent accountants, Director of Internal Audit
and officers of Southdown; recommend to the full Southdown Board the engagement
or discharge of Southdown's independent auditors; review with the independent
auditors the plans and results of the auditing engagement as well as each
professional service provided by the independent auditors; periodically review
the financial performance of Southdown-sponsored defined benefit employee
retirement plan ("Pension Plan"); engage or discharge Pension Plan fund managers
and make recommendations to the Southdown Board regarding the portfolio asset
allocation; review and make recommendations to the Southdown Board regarding
investment objectives of the Pension Plan in light of financial risks and
potential returns; make recommendations to the Southdown Board with respect to
dividend and other distribution policies and the issuance, sale, repurchase or
redemption of Southdown securities; make recommendations regarding current and
proposed financing strategies, indebtedness and lease obligations; and review
Southdown's maintenance appropriations, taxes and budgets.
The members of the Employee Compensation and Benefits Committee are Mr. Van
Horn, Chairman, Mr. Potter, Mr. Ryan, Mr. Sadler, Mr. Slater and Mr.
Tippeconnic. The functions of the Employee Compensation and Benefits Committee
include reviewing the existing compensation arrangements with officers and
employees; periodically reviewing the overall compensation program of Southdown
and recommending to the Southdown Board modifications of such program which, in
the view of the development of Southdown and its business, the Committee
believes are appropriate; and administer the stock option plans of Southdown
(except the 1991 Nonqualified Stock Option Plan for Non-Employee Directors which
is administered by the full Southdown Board) as set forth in such plans.
The members of the Nominating Committee are Mr. Ryan, Chairman, Mr. Huger,
Mr. Potter, Mr. Tippeconnic, Mr. Tutor, Mr. Van Horn and Mr. Wolitzer. The
function of the Nominating Committee is to research, interview and recommend
candidates to fill vacancies in the membership of the Southdown Board. In
addition, the Nominating Committee will review shareholders' suggestions for
nominees for director that are submitted to the Nominating Committee, at the
address of Southdown's principal executive offices, not less than 60 days in
advance of the anniversary date of this Joint Proxy Statement/Prospectus.
The members of the Conflict of Interest Committee are Mr. Slater, Chairman,
Mr. Potter and Mr. Sadler. The functions of the Conflict of Interest Committee
are to approve or disapprove transactions, other than compensation matters,
between Southdown or its subsidiaries and any officer or director of Southdown
and to consider violations by senior management of Southdown's Code of Business
Conduct.
During the year ended December 31, 1997, the Southdown Board held six
meetings, the Finance and Audit Committee held seven meetings, the Employee
Compensation and Benefits Committee held six meetings, the Nominating Committee
held two meetings, and the Conflicts of Interest Committee held two meetings.
During the year ended December 31, 1997, each Director, for the period he
served on the Southdown Board, attended 75% or more of the aggregate of: (i) the
total number of meetings of the Southdown Board; and (ii) the total number of
meetings held by all committees of the Southdown Board on which he served,
except for Mr. Tippeconnic and Mr. Tutor.
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<PAGE> 88
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning cash and non-cash
compensation paid or accrued for services in all capacities to Southdown and its
subsidiaries during the year ended December 31, 1997 for the Chief Executive
Officer and each of the four other most highly compensated executive officers of
Southdown ("Named Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
FISCAL OTHER ANNUAL STOCK ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(1) COMPENSATION
- ------------------------- ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Clarence C. Comer......... 1997 $546,000 $645,372 -- 36,000 $ -0-
President and Chief 1996 546,000 479,934 -- 50,000 -0-
Executive Officer 1995 533,000 170,000 -- 38,000 -0-
J. Bruce Tompkins......... 1997 313,500 278,075 -- 11,800 4,800(2)
Executive Vice President 1996 313,500 206,597 -- 18,000 4,500(2)
and Chief Operating
Officer 1995 307,250 100,000 -- 17,600 9,828(2)
Eugene P. Martineau(3).... 1997 262,500 200,813(4) -- 10,600 10,785(4)
Executive Vice
President -- 1996 262,500 172,988 -- 18,000 10,920(4)
Concrete Products Group 1995 256,250 73,500 -- 14,600 15,593(4)
James L. Persky(5)........ 1997 262,500 227,325 -- 8,800 4,800(2)
Executive Vice
President -- 1996 262,500 172,988 -- 14,000 4,500(2)
Finance and
Administration 1995 256,250 73,500 -- 14,600 9,548(2)
Dennis M. Thies(6)........ 1997 233,000 179,410 -- 5,300 4,800(2)
Senior Vice President -- 1996 233,000 136,538 -- 6,000 4,500(2)
Corporate Development 1995 229,500 35,000 -- 11,000 7,906(2)
</TABLE>
- ------------
(1) Although the officers receive certain perquisites such as a car allowance
and Southdown provided life insurance, the value of such perquisites did not
exceed the lesser of $50,000 or 10% of the officer's salary and bonus.
(2) These amounts represent Southdown's contribution to Southdown's Retirement
Savings Plan.
(3) In March 1998, Mr. Martineau announced his resignation as an officer of
Southdown effective as of July 31, 1998.
(4) Mr. Martineau elected to receive an option to purchase securities under
Southdown's Key Employee Security Option Plan in lieu of receiving his 1997
bonus in cash. For a description of this plan, see the Employee Benefits and
Compensation Committee Report on Executive Compensation section of this
Joint Proxy Statement/Prospectus. At the time of his employment with
Southdown, Mr. Martineau was granted an interest free loan of $75,000 from
Southdown. In addition to Southdown's contributions to the retirement
savings plan, other compensation includes imputed interest income from this
loan. The current balance of this loan is $75,000.
(5) Mr. Persky resigned as an officer of Southdown in March 1998.
(6) Mr. Thies was elected Executive Vice President and Chief Financial Officer
in March 1998.
EMPLOYEE COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Employee Compensation and Benefits Committee (the "Committee") includes
only directors who are not employees of Southdown. The Committee is responsible
for recommending to the full Southdown Board the compensation arrangements for
senior management and directors, recommending to the full Southdown Board the
adoption of compensation plans in which senior management and directors are
eligible to participate and granting options or other benefits under such plans.
76
<PAGE> 89
Compensation Policies and Programs. The Committee believes that the
ultimate goal of the executive compensation program should be to align the
interests of management with those of the shareholders in maximizing shareholder
value over the long term. The Committee believes that the best way to do this is
by tying the financial interests of Southdown's executives closely to the
interests of Southdown's shareholders through a combination of annual cash
incentives and stock options. The Committee believes that Southdown's executive
compensation program should: (i) motivate executives toward effective long-term
management through stock programs which focus executives' attention on
increasing shareholder value, as measured by stock price; (ii) reward effective,
efficient ongoing management of Southdown operations through annual incentives
which are tied to Southdown and individual performance; and (iii) provide the
ability to attract and retain executives through salary levels which are
competitive with other leading industrial companies.
Southdown's executive compensation program includes base salary, annual
cash incentives, and stock options, each of which is tied to Southdown's and the
executive's performance.
Base Salary. It is the policy of the Committee that salaries should reflect
Southdown and individual performance in meeting the goal of maximizing
shareholder value. Some Southdown performance measures that are considered by
the Committee are profitability, positive stock price trends and effective cash
flow and balance sheet management. Individual performance measures considered by
the Committee vary depending on the executive's sphere of responsibility, but
generally include revenue growth, expense control, improvement of products and
services and asset management. No specific weighting is applied to any
particular measure. The Committee reviews annually the performance of each
senior executive officer other than the Chief Executive Officer ("CEO") who is
reviewed annually by the full Southdown Board. Salary increases are granted to
senior executive officers only in years during which both Southdown's and
individual performance justify an increase and are limited to ranges competitive
with other industrial companies.
Incentive Plan. The Annual Incentive Plan or bonus plan is based upon
performance measures set by the Committee at the beginning of the year. These
performance measures are: (i) a comparison of Southdown's earnings before
interest, taxes, depreciation and amortization to a targeted earnings
projection; and (ii) Southdown's return on average equity as compared to the
return on average equity of a peer group. Each of these measures is weighted at
35%. The remaining 30% of the award is discretionary based upon individual
performance. In the case of the Named Officers, the performance of the Southdown
Common Stock as compared to the peer group's stock performance is a major factor
considered by the Committee in setting the discretionary amount.
Key Employee Security Option Plan. Under Southdown's Key Employee Security
Option Plan, key employees, including the Named Officers, may elect to forgo
payment of all or a portion of amounts due them under the Annual Incentive Plan
and instead receive an option to purchase investment securities from Southdown.
The option, which is not exercisable until six months after the date of grant,
calls for an exercise price of 70% of the fair market value of the investment
securities on the date of exercise. The fair market value of the option on the
date of grant substantially equals the amount of the forfeited bonus payment.
The investment securities available for purchase under the option are
publicly-traded mutual funds of varying investment risk. The plan is structured
to defer recognition of taxable income by the employee until the option is
exercised.
Stock Options. The Committee believes that stock options are critical in
motivating the long-term creation of shareholder value because stock options
focus executive attention on stock price as the primary measure of performance.
The Committee considers the grant of options to senior executive officers each
year and bases the grants on Southdown and individual performances and
competitive practices within the industry. The Committee has established several
guidelines regarding the grant of options to senior executive officers. These
guidelines provide that: (i) all stock options will be granted at full market
value on the date of grant so that executives realize gain only to the extent
that Southdown's stock price appreciates; and (ii) the quantity of options
granted will be tied to industry practice and the compensation level of the
executive. In addition, since the options vest over a period of years they
enhance the ability of Southdown to retain senior executive officers while
encouraging such officers to take a long-term view in their management
decisions.
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<PAGE> 90
Compensation Agreements. Southdown has entered into employment agreements
with certain of its executives which specify the terms and conditions of their
employment. Central to these agreements are post-takeover employment
arrangements. The Committee believes that these change in control agreements are
an essential aspect of the terms of employment of senior executive officers and
recognizes the importance to Southdown of retaining its senior executive
officers during and after the disruption typically provoked by a takeover offer
(whether or not ultimately successful). See "Employment and Other Agreements"
for a detailed discussion of the terms of these employment agreements.
Compensation of the CEO. The CEO's salary, annual incentive payments and
stock option grants are determined in part based upon the same Southdown and
individual performance measures described above. Within this framework, the
CEO's compensation is based upon the Southdown's Board's judgment concerning the
CEO's individual contribution to the business, level of responsibility and
career experience. Although none of these factors has a specific weight and no
particular formulas or procedures are used, primary consideration is given to
the CEO's individual contribution to the business. This type of evaluation along
with a periodic review of the compensation levels of other CEO's and executive
officers of other cement companies of similar size, are the main factors in
determining the CEO's total compensation package.
The Employee Compensation and Benefits Committee
V.H. Van Horn III, Chairman
Robert G. Potter
Frank J. Ryan
Whitson Sadler
Robert J. Slater
David J. Tippeconnic
78
<PAGE> 91
STOCK PERFORMANCE GRAPH
The following graph compares total return of Southdown's Common Stock
against the S&P 500 Index and a peer group index consisting of public companies
in the cement industry.* The graph assumes that $100 was invested on December
31, 1992 in Southdown's Common Stock, the S&P 500 Index and the peer group and
that dividends thereon were reinvested quarterly.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Southdown Peer Group S&P 500
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 251.28 179.18 110.08
1994 148.71 142.36 111.53
1995 199.98 159.01 153.45
1996 324.30 194.24 188.68
1997 620.56 283.94 251.62
</TABLE>
- ---------------
* The peer group includes Giant Group, Ltd., Giant Cement Holding, Inc., Holnam
Inc., Lafarge Corporation, Lone Star Industries, Medusa Corporation and Centex
Construction Products, Inc. Giant Group Ltd. sold its cement operation in
October 1994 through a public offering of its subsidiary Giant Cement Holding,
Inc. The graph includes information for Giant Group, Ltd. for years prior to
1995 and for Giant Cement Holding, Inc. thereafter. Information for Holnam
Inc. is included only for years prior to 1994 when it ceased being a public
company. Information for Centex Construction Products, Inc. is included
beginning in 1994, its first year as a public company.
COMPENSATION ARRANGEMENTS FOR AND TRANSACTIONS WITH MEMBERS OF THE BOARD OF
DIRECTORS
Mr. Ryan receives a fee of $12,500 per month for his services as Chairman
of the Southdown Board. Members of the Southdown Board, other than the Chairman
of the Board and those directors who are employees of Southdown or its
subsidiaries, receive a fee of $2,000 per month for their services as directors.
Members of the Finance and Audit, Employee Compensation and Benefits and
Nominating Committees of the Board of Directors, other than the Chairman of the
Board and those members who are employees of Southdown or its subsidiaries,
receive an additional fee of $500 per month for their services on each such
committee. During 1998, directors (other than the Chairman of the Board and
those members who are employees of Southdown or its subsidiaries) will receive a
fee of $3,000 per month irrespective of their service on committees of the
Southdown Board.
At least 50% of the directors' fees are paid in fair market value of
Southdown Common Stock under Southdown's Phantom Stock and Deferred Compensation
Plan for Non-Employee Directors (the "Phantom Stock Plan"). The Phantom Stock
Plan defers the recognition of compensation by the director by deferring the
issuance of the Southdown Common Stock earned until he or she leaves the Board.
The directors also
79
<PAGE> 92
receive fair market value of Southdown Common Stock equal to cash dividends on
the Southdown Common Stock that would have been received had the Southdown
Common Stock been issued when earned.
The 1991 Nonqualified Stock Option Plan for Non-Employee Directors (the
"1991 Plan") provides for the grant of stock options to non-employee directors
of Southdown. Each director of Southdown who is not an employee of Southdown or
any of Southdown's subsidiaries ("Eligible Director"), will be granted options
to acquire 10,000 shares of Southdown Common Stock on the date of such
director's first election to the Board. Additional options to acquire 2,000
shares of Southdown Common Stock will thereafter be awarded to each Eligible
Director on the date of each annual meeting of shareholders during his or her
term on the Southdown Board.
The Director's Retirement Plan of Southdown provides a retirement benefit
to all directors who are not covered by a qualified retirement plan of Southdown
and who have served on the Board for a minimum of five years. In the event of a
change in control of Southdown, the retirement benefits vest immediately without
regard to the five years of service requirement. The annual benefit payable at
the later of age 65 or the date of retirement is equal to two-thirds of the
total fees paid to the director during his last 12 months of service on the
Southdown Board and is payable for a period equal to the period of his service
on the Southdown Board. Should the director die before full payment of this
retirement benefit, his surviving spouse will be entitled to 50% of the
remaining obligation.
Mr. Wolitzer is a managing director of Lehman Brothers, which has provided
from time to time investment banking services to Southdown for which it has
received customary fees and commissions, including rendering the Lehman Brothers
Opinion in connection with the Merger.
Mr. Tutor is President of Tutor-Saliba Corporation, which purchases
ready-mixed concrete from Southdown on terms and conditions comparable to those
offered to other customers of Southdown. According to Southdown's records,
Tutor-Saliba Corporation and various affiliated entities purchased approximately
$1,150,000 of ready-mixed concrete from Southdown in 1997.
EMPLOYMENT AND OTHER AGREEMENTS
At the date of this Joint Proxy Statement/Prospectus, Southdown had
employment agreements (the "Employment Agreements") with Messrs. Comer,
Tompkins, Martineau, Thies and one other executive. Under the Employment
Agreements, Southdown employs Mr. Comer as President and Chief Executive Officer
at an annual salary of no less than $546,000, Mr. Tompkins as Executive Vice
President and Chief Operating Officer at an annual salary of no less than
$350,000, Mr. Martineau, who has resigned as Executive Vice
President -- Concrete Products Group effective as of July 31, 1998, at an annual
salary of no less than $262,500, and Mr. Thies as Executive Vice President and
Chief Financial Officer at an annual salary of no less than $233,000. Under the
terms of the employment agreements, the salaries of Messrs. Comer, Tompkins, and
Thies may be increased by the Southdown Board (or the appropriate committee
thereof) from time to time.
Under the Employment Agreements, each executive is entitled to receive, in
addition to his annual salary, bonuses pursuant to Southdown's Annual Incentive
Plan and certain fringe benefits, including the right to participate in group
benefit plans of Southdown. The Employment Agreements are automatically extended
for a one-year period on a daily basis unless there is notice of termination
from either Southdown or the executive. In the event the executive's employment
is terminated because of his death, disability, voluntary termination of
employment prior to the occurrence of a "change in control event" (as defined
later this paragraph) or misappropriation of funds or properties of Southdown or
otherwise for cause (as defined in the Employment Agreements), the executive
shall receive only his annual salary on a pro rata basis to the date of
termination. If, prior to a change in control event, the executive's employment
is terminated because the executive is no longer discharging his duties in a
manner consistent with the effective administration of Southdown's affairs, the
executive shall be entitled to a lump sum payment equal to his base annual
salary. Upon the occurrence of a change in control event, all outstanding
options previously granted by Southdown to the executive under any stock option,
stock appreciation or other employee plan will be accelerated, and if the
executive's employment terminates following such change in control event,
Southdown must pay the executive a lump sum termination payment equal to 2.99
times the sum of his base annual salary and the average annual bonus, if any,
received
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<PAGE> 93
during the two years preceding the change in control event. Payments made to
such executives under all incentive agreements to which they are parties, in the
event of a change in control subject to the provisions of Sections 280G and 4999
of the Code, shall be "grossed up" so that the executives shall not be required
to bear any of the costs associated with any 20% excise tax payable in respect
of any such payment. As used in the Employment Agreements, a "change in control
event" is defined to be the acquisition by any person or entity of: (i)
beneficial ownership of more than 40% of Southdown's outstanding voting
securities; or (ii) all or substantially all of Southdown's assets. For a period
of one year after termination of an executive's employment under an Employment
Agreement, the executive may not engage in the business of manufacturing or
selling cement or ready-mixed concrete products within the United States.
PENSION PLANS
Substantially all employees of Southdown, including the Named Officers, are
covered by a noncontributory, defined benefit pension plan (the "Southdown
Plan") sponsored by Southdown. The formula used to determine the retirement
benefits to which an employee is entitled at age 65 under the Southdown Plan is
dependent on, among other things, the employee's length of service, his average
compensation level for the five consecutive years during his participation in
the plan yielding the highest average and his social security covered
compensation. The compensation used in the calculation of benefits under the
Southdown Plan is a participant's base salary excluding any bonuses or other
compensation and is limited by Section 401(a) of the Code. The maximum amount
any employee may receive under the Southdown Plan is subject to the annual
benefit limitations proscribed by the provisions of Section 415(b) of the Code.
Certain key employees, including the Named Officers, are also covered by
Southdown's Supplemental Executive Retirement Plan ( the "SERP"). The purpose of
the SERP is to attract and retain executives whose skills and talents are
important to Southdown's operations by providing replacement retirement income
in a percentage comparable to the benefits payable under the Southdown Plan. The
SERP benefit is calculated under the same formula as the Southdown Plan with two
exceptions. The compensation used to calculate the five year average includes
not only base salary but also bonuses received under the Annual Incentive Plan.
In addition, the computation of the annual benefit does not take into account
the limitations of Sections 401 and 415 of the Code. The annual benefit is
reduced for amounts payable under social security and the Southdown Plan.
The following table sets forth the aggregate annual retirement benefit
payable under the SERP and the Southdown Plan before reduction for amounts to be
paid under social security.
<TABLE>
<CAPTION>
YEARS OF SERVICE AT AGE 65
FINAL AVERAGE --------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
------------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$ 300,000............ $ 74,250 $ 99,000 $123,750 $148,500 $ 173,250
600,000........... 148,500 198,000 247,500 297,000 346,500
900,000........... 222,750 297,000 371,250 445,500 519,750
1,200,000........... 297,000 396,000 495,000 594,000 693,000
1,500,000........... 371,250 495,000 618,750 742,500 866,250
1,800,000........... 445,500 594,000 742,500 891,000 1,039,500
</TABLE>
STOCK OPTIONS
Southdown's 1987 Stock Option Plan (the "1987 Plan") and 1989 Stock Option
Plan (the "1989 Plan"), collectively referred to as the "Plans," provide for the
grant of stock options to key employees of Southdown and its affiliates. The
Plans authorize the issuance of options to purchase a total of 4,000,000 shares
of Southdown Common Stock (2,000,000 shares under the 1987 Plan and 2,000,000
shares under the 1989 Plan). The Plans are administered by the Employee
Compensation and Benefits Committee (the "Committee"). Members of the Committee
are not eligible to participate in the Plans or any other plan of Southdown or
its affiliates that the Committee administers at any time within one year prior
to appointment or while serving on the Committee. The Committee is authorized to
select key employees to whom stock options are granted under the Plans and to
determine the number of shares, exercise price and terms of each option
81
<PAGE> 94
granted. The Southdown Board has amended the 1989 Plan to increase the number of
shares available for grant from 2,000,000 to 5,000,000 and to limit the maximum
number of shares that may be granted under option to any one employee in any one
calendar year. Please see the discussion below for a description of these
amendments.
OPTION/SAR GRANTS TO NAMED OFFICERS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS/ ANNUAL RATES OF STOCK
UNDERLYING SARS PRICE APPRECIATION
OPTIONS/ GRANTED TO EXERCISE FOR OPTION TERM(3)
SARS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR SHARE(2) DATE 5% 10%
---- ---------- ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Clarence C. Comer......... 36,000 16.41 $31.5625 1/16/07 $714,582 $1,810,880
J. Bruce Tompkins......... 11,800 5.38 31.5625 1/16/07 234,224 593,569
Eugene P. Martineau....... 10,600 4.83 31.5625 1/16/07 210,405 533,206
James L. Persky........... 8,800 4.01 31.5625 1/16/07 174,675 442,662
Dennis M. Thies........... 5,300 2.42 31.5625 1/16/07 105,202 266,603
</TABLE>
- ---------------
(1) All options were granted under Southdown's 1989 Plan and become exercisable
in annual increments of 25% beginning January 16, 1998.
(2) All options are granted with an exercise price equal to the fair market
value of the Southdown Common Stock on the date of the grant.
(3) Potential realizable value was reported net of the option exercise price,
but before taxes associated with the exercise. These amounts represent
stated assumed rates of appreciation only. Actual values realized, if any,
on stock option exercises are dependent on the future performance of the
Southdown Common Stock and the officer's continued employment throughout the
vesting period. Accordingly, the amounts reflected in this table may not
necessarily be achieved.
NAMED OFFICERS'
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS HELD AT FISCAL AT FISCAL
SHARES YEAR END YEAR END*
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Clarence C. Comer...... 159,250 $2,406,113 -0- 101,750 $ -0- $3,455,938
J. Bruce Tompkins...... 13,150 248,682 -0- 38,350 -0- 1,322,500
Eugene P. Martineau.... 94,400 1,949,451 3,650 35,150 140,525 1,212,950
James L. Persky........ 22,050 332,572 -0- 30,350 -0- 1,052,563
Dennis M. Thies........ 7,000 147,945 -0- 18,050 -0- 627,481
</TABLE>
- ---------------
* Based upon the closing price on the NYSE of the Southdown Common Stock on
December 31, 1997.
INCREASE IN SHARES AVAILABLE FOR GRANT UNDER 1989 STOCK OPTION PLAN
BACKGROUND
On March 26, 1998, the Southdown Board unanimously adopted, subject to
shareholder approval, an amendment to Southdown's 1989 Plan which would increase
the aggregate number of shares of Southdown Common Stock which may be issued
thereunder from 2,000,000 to 5,000,000. Of the original 2,000,000 shares
authorized, there remains less than 325,000 available for grant. The Southdown
Board considers this amount insufficient to carry out the purposes of the 1989
Plan as outlined below. The primary features of the 1989 Plan
82
<PAGE> 95
are summarized below. The full text of the 1989 Plan, as amended, is set forth
in Appendix E to this Joint Proxy Statement/Prospectus.
The 1989 Plan provides for the grant of stock options to key employees to
purchase Southdown's Common Stock. The Southdown Board adopted the 1989 Plan to
enable Southdown and its shareholders to secure benefits of common stock
ownership by its key employees. The Southdown Board also believes that the 1989
Plan will foster Southdown's ability to attract, retain and motivate key
employees that will be expected to contribute significantly to Southdown's
future growth and profitability.
DESCRIPTION OF THE 1989 PLAN
Administration. The 1989 Plan is administered by the Employee Compensation
and Benefits Committee of the Board of Directors (the "Committee"). The
Committee is authorized to select key employees to whom stock options are
granted under the 1989 Plan and to determine the number of shares, exercise
price and terms of each option granted.
Authorized Shares and Adjustments. The 1989 Plan authorizes the grant of
option to purchase up to 2,000,000 shares of Southdown Common Stock for issuance
as either incentive stock options within the meaning of Section 422A of the Code
or non-qualified options within the meaning of Section 83 of the Code, as
designated by the Committee. Upon expiration of any option or its termination
prior to exercise, the unissued shares subject to the option will again be
available for grant under the 1989 Plan. The number of shares authorized for
issuance under the 1989 Plan and the number of shares and exercise prices of
outstanding options are subject to adjustment in the event of stock splits,
stock dividends and similar changes in Southdown's capitalization.
Eligibility. The 1989 Plan permits the grant of stock options to key
employees of Southdown as named by the Committee.
Option Price. The 1989 Plan requires that the purchase price of each share
of Southdown Common Stock subject to an incentive stock option equals 100% of
the fair market value of such share on the date the option is granted. The
purchase price of each share of Southdown Common Stock subject to a
non-qualified stock option under the 1989 Plan is determined by the Committee
upon granting the option. The Committee may set the purchase price for each
share subject to a non-qualified stock option at either fair market value of
each share on the date the option is granted, or at such other price as the
Committee in its sole discretion shall determine. In no event, however, may the
purchase price of a share subject to a non-qualified stock option be less than
50% of the fair market value of such share on the date the option is granted.
Exercise. Options may be exercised solely by the optionee during his
lifetime or after his death by the person or persons entitled thereto under his
will or by the laws of descent and distribution. No options granted under the
1989 Plan may be exercised within the first six months after the date of the
grant except in the event of death or disability of the optionee. In the event
of termination of employment for any reason other than death or disability of
the optionee, options may be exercised only with respect to the number of shares
purchasable at the time of such termination and for a period not to exceed the
shorter of: (i) 90 days from the date of termination of employment; or (ii) 10
years from the date the option was granted. In the event of the death or
disability of the optionee, all options outstanding in the name of the optionee
become exercisable in full without regard to any vesting restrictions. The
Committee may, in its discretion accelerate options held by any employee upon
his retirement. The Committee, in its discretion, may provide that any option
granted under the 1989 Plan shall become fully-exercisable upon the occurrence
of a change in control of Southdown; provided, however, that the Committee may
not exercise its discretion if such decision would preclude the use of the
pooling of interests method of accounting. A "change in control" is deemed to
have occurred under the 1989 Plan if, and only if: (i) a change in control is
reported by Southdown under the Exchange Act; (ii) any person becomes the
beneficial owner, directly or indirectly, of securities representing 40% or more
of the combined voting power of the outstanding securities of Southdown; or
(iii) after the election or removal of directors, a majority of the Southdown
Board consists of persons 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
83
<PAGE> 96
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.
The 1989 Plan requires that the purchase price of the shares for which an
option is exercised be paid in full at the time of exercise. The optionee may
elect to pay in cash, in Southdown Common Stock owned by such optionee, or in
any combination of cash and Southdown Common Stock. The Committee, in its
discretion, may permit the optionee to execute a promissory note in
consideration of the purchase price. The note would be subject to the
requirements of applicable law and such other terms and conditions as the
Committee may determine. The Committee, in its discretion, may also cause
Southdown to lend funds to the optionee, on such terms and conditions as the
Committee shall determine, sufficient for the optionee to pay the purchase price
of the shares.
Right of Relinquishment. The 1989 Plan empowers the Committee to determine
whether options granted pursuant to the 1989 Plan will include a right of
relinquishment. Options that contain such right of relinquishment will permit
the optionee, in lieu of purchasing the entire number of shares subject to
purchase thereunder, to relinquish all or any part of the then unexercised
portion of the option (to the extent then exercisable) for a number of shares of
Southdown Common Stock equal in value to the appreciated value in the option
relinquished. The 1989 Plan prohibits the exercise of any right of
relinquishment within the first six months of the date of grant; however, this
limitation does not apply in the event of death or disability.
Tax Matters. Southdown is advised by Baker & Botts, L.L.P. that, in
general, for federal income tax purposes, neither the grant nor the exercise of
an incentive option will result in taxable income to the optionee or a deduction
for Southdown. However, an optionee may be subject to the alternative minimum
tax in the year that an incentive option is exercised. The excess of the fair
market value (determined at the date of exercise) of the shares, acquired
through the exercise of an incentive option over the exercise price is an
addition to income in determining alternative minimum taxable income and such
additional amount may be sufficient in amount to subject the optionee to the
alternative minimum tax.
If the optionee holds shares acquired through the exercise of incentive
options for the full holding period (two years after the incentive option is
granted and one year after it is exercised), he will recognize a capital gain or
loss at the time of the sale of the shares based on the difference between the
incentive option exercise price and the sale price. Currently, long-term capital
gains (applicable for shares held more than 18 months) are taxed to an
individual at a maximum rate of 20% as opposed to a maximum rate of 39.6% for
ordinary income. If the shares are held for more than one year, but not more
than 18 months, capital gains will be taxed to the individual at a maximum rate
of 28%. There is no tax effect on Southdown from the sale of such shares.
If shares acquired through the exercise of an incentive option are disposed
of before the end of the holding period described in the preceding paragraph (a
"disqualifying disposition"), the optionee will recognize ordinary income equal
to the lesser of: (i) the difference between the fair market value of the shares
on the date the incentive option was exercised and the incentive option exercise
price; or (ii) the difference between the amount received on the sale of shares
and the incentive option exercise price. In the event of a disqualifying
disposition, Southdown will be entitled to a deduction in a corresponding
amount. If the amount received by the optionee on the disqualifying disposition
exceeds the fair market value of the shares on the date of exercise of the
incentive option, such excess will ordinarily constitute capital gain.
In general, the grant of a non-qualified stock option will not result in
taxable income to the optionee or a deduction to Southdown. Upon exercise of a
non-qualified stock option, Southdown will be entitled to a tax deduction and
the optionee will recognize ordinary income. The amount of such deduction and
income generally will equal the amount by which the fair market value of the
shares acquired on the date the non-qualified stock option is exercised exceeds
the non-qualified stock option exercise price of the shares.
Any difference between the basis of the shares acquired through the
exercise of a non-qualified stock option (the non-qualified stock option
exercise price plus the ordinary income recognized) and the amount realized upon
a subsequent sale of such shares will be treated as a short-term (if held one
year or less), mid-term (if held more than one year, but not more than 18
months), or long-term (if held more than 18 months) capital gain or loss,
depending on the length of the period such shares are held prior to sale.
84
<PAGE> 97
Amendment and Termination. The Southdown Board may amend or terminate the
1989 Plan at any time, provided that no amendment may impair the rights of any
optionee under the 1989 Plan without his consent and except that no amendment or
alteration may be made which, without the approval of the shareholders, would:
(i) increase the total number of shares reserved for issuance under the 1989
Plan; (ii) extend the duration of options; (iii) materially increase the
benefits accruing to optionee under the 1989 Plan; (iv) decrease the option
price; or (v) materially modify the requirements as to employee eligibility
under the 1989 Plan.
REQUIRED VOTE FOR APPROVAL
Approval of the amendment to the 1989 Plan that increases the number of
shares available for grant requires the affirmative vote of a majority of the
votes cast at the Southdown Annual Meeting.
The Southdown Board recommends a vote FOR the approval of this amendment to
the 1989 Plan.
GRANT LIMITATION UNDER 1989 STOCK OPTION PLAN
BACKGROUND
In March 1998 the Southdown Board voted to amend the 1989 Plan to limit the
number of Southdown Common Stock shares that may be granted under stock options
to any one employee in any one calendar year. This limit was set at 200,000
shares which is less than 1% of the total number of shares of Southdown Common
Stock outstanding on December 31, 1997.
The sole purpose of the amendment to the 1989 Plan is to entitle Southdown
to continue to deduct, for federal income tax purposes, the compensation
expenses resulting from exercise of options by its executive officers. Section
162(m) of the Code limits the tax deductibility of annual compensation paid to
these officers in excess of $1 million, except to the extent that the annual
compensation was paid pursuant to an arrangement that meets the
"performance-based" rules of the section and such arrangement has been approved
by a majority of votes cast by the shareholders. In order for stock option plans
to meet the "performance based" rules, Section 162(m) also requires that the
plan state a maximum number of shares that may be granted under option to any
one employee for a specified period of time.
DESCRIPTION OF THE 1989 PLAN
See the preceding section of this Joint Proxy Statement/Prospectus for a
summary description of the 1989 Plan and Appendix E to this Joint Proxy
Statement/Prospectus for the full text of the 1989 Plan as amended.
REQUIRED VOTE FOR APPROVAL
Approval of this amendment to the 1989 Plan requires the affirmative vote
of a majority of the votes cast at the Southdown Annual Meeting.
The Southdown Board recommends a vote FOR the approval of this amendment to
the 1989 Plan.
APPOINTMENT OF INDEPENDENT AUDITORS
The shareholders will be asked to ratify the appointment of Deloitte &
Touche LLP as independent auditors of the books and accounts of Southdown for
the year ending December 31, 1998. Such ratification will require the favorable
vote of the holders of a majority of the shares of Southdown Common Stock
present and voting, in person or by proxy, at the Southdown Annual Meeting.
Representatives of Deloitte & Touche LLP will be present at the Southdown Annual
Meeting, will be given an opportunity to make a statement, if they desire to do
so, and will be available to respond to appropriate questions.
85
<PAGE> 98
The Southdown Board recommends a vote FOR the reappointment of Deloitte &
Touche LLP as Southdown's independent auditors for 1998.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table is furnished as of February 28, 1998, to indicate
beneficial ownership of shares of the Southdown Common Stock by each director,
each nominee for director and each of the Named Officers individually, and all
executive officers and directors of Southdown as a group. The information in the
following table was provided by such persons.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
OWNERSHIP OF OF
NAME OF INDIVIDUAL SOUTHDOWN CLASS OR
OR GROUP COMMON STOCK(1) SERIES
------------------ --------------- --------
<S> <C> <C>
Clarence C. Comer........................................... 115,388 *
K. L. Huger, Jr............................................. 42,382(2) *
Eugene P. Martineau......................................... 27,531(3) *
James L. Persky............................................. 9,214(4) *
Robert G. Potter............................................ 12,836(5) *
Frank J. Ryan............................................... 40,483(6) *
Whitson Sadler.............................................. 13,418(7) *
Robert J. Slater............................................ 23,918(8) *
Dennis M. Thies............................................. 8,573(9) *
David J. Tippeconnic........................................ 17,836(10) *
J. Bruce Tompkins........................................... 5,652(11) *
Ronald N. Tutor............................................. 6,168(12) *
V. H. Van Horn III.......................................... 22,836(13) *
Steven B. Wolitzer.......................................... 17,418(14) *
All executive officers and directors as a group (eighteen
persons).................................................. 378,368(15) 1.6
</TABLE>
- ---------------
* Less than 1%.
(1) Except as otherwise noted, each person listed in the table has sole voting
and sole investment power with respect to the shares of Southdown Common
Stock listed in the table.
(2) Includes 22,464 shares of Southdown Common Stock owned by Mr. Huger's wife.
Mr. Huger has informed Southdown that reference to such shares should not
be construed as an admission of his beneficial ownership thereof. Stock
ownership also includes 19,500 shares of Southdown Common Stock as to which
Mr. Huger holds stock options that will be exercisable at April 30, 1998
and 418 shares held in Southdown's Phantom Stock Plan.
(3) Includes 8,250 shares of Southdown Common Stock as to which Mr. Martineau
holds stock options that will be exercisable at April 30, 1998 and 2,594
shares held in Southdown's Retirement Savings Plan.
(4) Includes 2,691 shares held in Southdown's Retirement Savings Plan.
(5) Includes 12,000 shares of Southdown Common Stock as to which Mr. Potter
holds stock options that will be exercisable at April 30, 1998 and 836
shares held in Southdown's Phantom Stock Plan.
(6) Includes 17,000 shares of Southdown Common Stock as to which Mr. Ryan holds
stock options that will be exercisable at April 30, 1998 and 3,483 shares
held in Southdown's Phantom Stock Plan.
(7) Includes 12,000 shares of Southdown Common Stock as to which Mr. Sadler
holds stock options that will be exercisable at April 30, 1998 and 418
shares held in Southdown's Phantom Stock Plan.
(8) Includes 17,000 shares of Southdown Common Stock as to which Mr. Slater
holds stock options that will be exercisable at April 30, 1998 and 418
shares held in Southdown's Phantom Stock Plan. Also includes 1,500 shares
of Southdown Common Stock owned by a trust of which Mr. Slater is trustee.
86
<PAGE> 99
Mr. Slater has informed Southdown that reference to such shares should not
be construed as an admission of his beneficial ownership thereof.
(9) Includes 4,250 shares of Southdown Common Stock as to which Mr. Thies holds
stock options that will be exercisable on April 20, 1998 and 2,244 shares
held in Southdown's Retirement Savings Plan.
(10) Includes 12,000 shares of Southdown Common Stock as to which Mr.
Tippeconnic holds stock options that will be exercisable on April 30, 1998
and 836 shares held in Southdown's Phantom Stock Plan.
(11) Includes 1,589 shares held in Southdown's Retirement Savings Plan.
(12) Includes 5,750 shares of Southdown Common Stock as to which Mr. Tutor holds
stock options that will be exercisable on April 30, 1998 and 418 shares
held in Southdown's Phantom Stock Plan.
(13) Includes 22,000 shares of Southdown Common Stock as to which Mr. Van Horn
holds stock options that will be exercisable on April 30, 1998 and 836
shares held in Southdown's Phantom Stock Plan.
(14) Includes 17,000 shares of Southdown Common Stock as to which Mr. Wolitzer
holds stock options that will be exercisable on April 30, 1998 and 418
shares held in Southdown's Phantom Stock Plan.
(15) Includes 151,321 shares of Southdown Common Stock subject to stock options
held by the officers and directors that will be exercisable on April 30,
1998 and 20,856 shares held in Southdown's Retirement Savings Plan and
Phantom Stock Plan.
The following table sets forth information with respect to each person who,
as of the date indicated in the footnote below, was known by Southdown to be the
beneficial owner of more than 5% of the Southdown Common Stock as "beneficial
ownership" is used in Section 13(d)(3) of the Exchange Act.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NATURE OF OF CLASS
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OR
OR SERIES BENEFICIAL OWNER OWNERSHIP SERIES
-------------- ------------------- ---------- --------
<S> <C> <C> <C>
Southdown Common Stock............................... FMR Corp. 2,403,700* 10.18
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ---------------
* FMR Corp. and various affiliates have filed with the Commission a Schedule 13G
and four amendments dated through February 14, 1998 reporting that FMR Corp.
is the beneficial owner of these shares because it has sole power to vote
600,200 of such shares and sole power to dispose of all such shares.
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
Under the securities laws of the United States, Southdown's directors, its
executive officers, and any persons holding more than 10% of the Southdown
Common Stock are required to report their initial ownership of Southdown Common
Stock and any subsequent changes in that ownership to the Commission and the
NYSE. Specific due dates for these reports have been established and Southdown
is required to disclose in this Joint Proxy Statement/Prospectus any failure to
file by these dates. All required filings in 1997 were satisfied on a timely
basis. In making these disclosures, Southdown has relied solely on written
statements of its directors, executive officers and shareholders and copies of
the reports that they have filed with the Commission.
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<PAGE> 100
EXECUTIVE OFFICERS OF SOUTHDOWN
The following list sets forth the names, ages and offices of the present
executive officers of Southdown serving until the annual meeting of the Board of
Directors to be held in June 1998. The periods during which such persons have
served in such capacities are indicated in the description of business
experience of such persons below.
Clarence C. Comer (50).................. President, Chief Executive
Officer and Director
J. Bruce Tompkins (48).................. Executive Vice President
and Chief Operating Officer
Eugene P. Martineau (58)................ Executive Vice
President -- Concrete
Products Group
James L. Persky (49).................... Executive Vice
President -- Finance and
Administration
Dennis M. Thies (49).................... Executive Vice President
and Chief Financial Officer
Patrick S. Bullard (36)................. Vice President -- General
Counsel and Secretary
Stephen R. Miley (50)................... Senior Vice
President -- Sales
Thomas E. Daman (41).................... Vice President and
Treasurer
Allan B. Korsakov (55).................. Vice President and
Corporate Controller
Mr. Comer was elected President and Chief Executive Officer effective
February 4, 1987.
Mr. Tompkins was elected Executive Vice President and Chief Operating
Officer in October 1997. For more than five years prior to this Mr. Tompkins was
Executive Vice President -- Cement Group.
Mr. Martineau was elected Executive Vice President -- Concrete Products
Group effective April 16, 1992. He has resigned as an officer of Southdown
effective as of July 31, 1998.
Mr. Persky resigned as an officer of Southdown in March 1998. He had held
his position of Executive Vice President -- Finance and Administration since May
1994. From July 1989 to May 1994, Mr. Persky was Senior Vice
President -- Finance of Southdown.
Mr. Thies was appointed Executive Vice President and Chief Financial
Officer in March 1998. From May 1995 to March 1998, Mr. Thies was Senior Vice
President -- Corporate Development. From April 1992 to May 1995, Mr. Thies was
Senior Vice President -- Environmental Systems.
Mr. Bullard was elected Vice President -- General Counsel and Secretary
effective May 16, 1996. From August 21, 1995 to May 1996, Mr. Bullard was Vice
President and General Counsel. From May 1993 to that time, Mr. Bullard was
associated with the law firm of Bracewell & Patterson, L.L.P., Houston, Texas.
Mr. Miley was elected Senior Vice President -- Sales in March 1998, having
been elected Vice President -- Sales in September 1994. From September 1990 to
September 1994, Mr. Miley was Vice President -- Sales & Marketing of Southdown.
Mr. Daman was elected Vice President and Treasurer in May 1997. From
February 1996 to May 1997, Mr. Daman was Treasurer. For more than five years
prior to that time he served as Assistant Treasurer of Southdown.
Mr. Korsakov was appointed Vice President and Corporate Controller in
February 1998. For more than five years prior to that time he served as
Corporate Controller.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
In order for shareholder proposals to be included in Southdown's Proxy
Statement and proxy relating to Southdown's 1999 Annual Meeting of Shareholders,
such proposals must be received by Southdown at its principal executive offices
prior to the close of business on January 19, 1999.
88
<PAGE> 101
DATE FOR SUBMISSION OF MEDUSA SHAREHOLDER PROPOSALS
In order for shareholder proposals to be included in Medusa's Proxy
Statement and proxy relating to Medusa's 1998 Annual Meeting of Shareholders, if
any, such proposals must have been received by Medusa at its principal executive
offices prior to the close of business on November 14, 1997.
VALIDITY OF SHARES AND FEDERAL INCOME TAX MATTERS
The validity of the shares of Southdown Common Stock to be issued in the
Merger will be passed upon for Southdown by Bracewell & Patterson, L.L.P.,
Houston, Texas. As to matters of Louisiana law, Bracewell & Patterson, L.L.P.
will rely on the opinion of Correro, Fishman, Haygood, Phelps, Weiss, Walmsley &
Casteix, L.L.P., New Orleans, Louisiana.
Federal income tax matters related to the Merger will be passed upon for
Medusa by Milbank, Tweed, Hadley & McCloy and for Southdown by Bracewell &
Patterson, L.L.P.
EXPERTS
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference from Southdown's Annual Report on Form 10-K
for the year ended December 31, 1997 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information of Southdown
for the periods ended March 31, 1998 and 1997 which is incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as stated
in their report included in Southdown's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 and incorporated by reference herein, they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP are not subject to the liability provisions of Section 11
of the Securities Act for their report on the unaudited interim financial
information because that report is not a "report" or a "part" of the
registration statement prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Securities Act.
The consolidated financial statements and the related financial statement
schedules incorporated in this Joint Proxy Statement/Prospectus by reference
from Medusa's Annual Report on Form 10-K for the year ended December 31, 1997
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
89
<PAGE> 102
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SOUTHDOWN, INC.
Pro Forma Combined Balance Sheet at March 31,
1998............................................ F-2
Pro Forma Combined Statement of Earnings for the
Three Months Ended March 31, 1998............... F-3
Pro Forma Combined Statement of Earnings for the
Three Months Ended March 31, 1997............... F-4
Pro Forma Combined Statement of Earnings for the
Year Ended December 31, 1997.................... F-5
Pro Forma Combined Statement of Earnings for the
Year Ended December 31, 1996.................... F-6
Pro Forma Combined Statement of Earnings for the
Year Ended December 31, 1995.................... F-7
Notes to Pro Forma Combined Financial Statements... F-8
</TABLE>
F-1
<PAGE> 103
SOUTHDOWN, INC.
PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED -- IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
AS REPORTED
------------------- PRO FORMA
SOUTHDOWN MEDUSA ADJUSTMENTS PRO FORMA
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 79.7 $ 0.6 $ $ 80.3
Short-term investments....................... 7.8 -- 7.8
Accounts and notes receivable, net........... 81.5 37.6 119.1
Inventories.................................. 75.8 36.3 1.1(1) 113.2
Prepaid expenses and other................... 9.2 15.0 24.2
------ ------ ------ --------
Total current assets................. 254.0 89.5 1.1 344.6
Property, plant and equipment, net............. 609.8 174.8 784.6
Goodwill....................................... 69.9 45.4 115.3
Other long-term assets......................... 55.5 14.1 69.6
------ ------ ------ --------
$989.2 $323.8 $ 1.1 $1,314.1
====== ====== ====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings........................ $ -- $ 12.4 $ $ 12.4
Current maturities of long-term debt......... 1.4 0.6 2.0
Accounts payable and accrued liabilities..... 82.5 40.1 66.6(1)(2) 189.2
------ ------ ------ --------
Total current liabilities............ 83.9 53.1 66.6 203.6
Long-term debt................................. 162.9 39.0 201.9
Deferred income taxes.......................... 133.1 -- 133.1
Minority interest in consolidated joint
venture...................................... 28.0 -- 28.0
Long-term portion of postretirement benefit
obligation................................... 66.8 28.4 95.2
Other long-term liabilities and deferred
credits...................................... 17.4 11.8 29.2
------ ------ ------ --------
492.1 132.3 66.6 691.0
------ ------ ------ --------
Shareholders' equity
Common stock................................. 30.9 -- 18.4(3) 49.3
Capital in excess of par value............... 300.5 72.9 (18.4)(3) 355.0
Reinvested earnings.......................... 212.0 187.0 (74.3)(1)(2) 324.7
Unearned restricted common shares............ -- (8.8) 8.8(2) --
Currency translation adjustment.............. -- (1.1) (1.1)
Treasury stock, at cost...................... (46.3) (58.5) (104.8)
------ ------ ------ --------
497.1 191.5 (65.5) 623.1
------ ------ ------ --------
$989.2 $323.8 $ 1.1 $1,314.1
====== ====== ====== ========
</TABLE>
See Notes to Pro Forma Combined Financial Statements
F-2
<PAGE> 104
SOUTHDOWN, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED -- IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS REPORTED
------------------- PRO FORMA
SOUTHDOWN MEDUSA ADJUSTMENTS PRO FORMA
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................................ $155.8 $ 69.1 $ -- $ 224.9
------ ------ ----- --------
Costs and expenses
Operating..................................... 101.6 49.4 (1.1)(1) 149.9
Depreciation, depletion & amortization........ 12.2 5.0 17.2
Selling and marketing......................... 4.6 2.3 6.9
General and administrative.................... 9.6 8.0 17.6
Other income, net............................. (2.1) (0.1) (2.2)
------ ------ ----- --------
125.9 64.6 (1.1) 189.4
------ ------ ----- --------
Earnings before interest and income taxes....... 29.9 4.5 1.1(1) 35.5
Interest........................................ (3.8) (0.6) (4.4)
Income tax expense.............................. (9.3) (1.3) (0.4)(1) (11.0)
------ ------ ----- --------
Earnings before minority interest............... 16.8 2.6 0.7 20.1
Minority interest in earnings of consolidated
joint venture................................. (0.3) -- (0.3)
------ ------ ----- --------
Net earnings.................................... $ 16.5 $ 2.6 $ 0.7 $ 19.8
====== ====== ===== ========
Earnings per common share
Basic......................................... $ 0.70 $ 0.16 $ 0.52
====== ====== ========
Diluted....................................... $ 0.69 $ 0.16 $ 0.51
====== ====== ========
Average shares outstanding
Basic......................................... 23.6 16.4 (2.0)(4) 38.0
====== ====== ===== ========
Diluted....................................... 24.0 16.7 (2.0)(4) 38.7
====== ====== ===== ========
</TABLE>
See Notes to Pro Forma Combined Financial Statements
F-3
<PAGE> 105
SOUTHDOWN, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED -- IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS REPORTED
------------------- PRO FORMA
SOUTHDOWN MEDUSA ADJUSTMENTS PRO FORMA
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................................ $151.4 $ 56.8 $ -- $ 208.2
------ ------ ----- --------
Costs and expenses
Operating..................................... 104.0 43.9 (1.0)(1) 146.9
Depreciation, depletion & amortization........ 11.6 3.8 15.4
Selling and marketing......................... 4.1 1.9 6.0
General and administrative.................... 8.7 4.8 13.5
Other income, net............................. (1.6) (0.3) (1.9)
------ ------ ----- --------
126.8 54.1 (1.0) 179.9
------ ------ ----- --------
Earnings before interest and income taxes....... 24.6 2.7 1.0(1) 28.3
Interest........................................ (3.2) (0.1) (3.3)
Income tax expense.............................. (7.5) (0.8) (0.3)(1) (8.6)
------ ------ ----- --------
Earnings before minority interest............... 13.9 1.8 0.7 16.4
Minority interest in earnings of consolidated
joint venture................................. (0.3) -- (0.3)
------ ------ ----- --------
Net earnings.................................... $ 13.6 $ 1.8 $ 0.7 $ 16.1
====== ====== ===== ========
Earnings per common share
Basic......................................... $ 0.57 $ 0.11 $ 0.41
====== ====== ========
Diluted....................................... $ 0.55 $ 0.11 $ 0.41
====== ====== ========
Average shares outstanding
Basic......................................... 21.5 16.7 (2.0)(4) 36.2
====== ====== ===== ========
Diluted....................................... 24.5 16.8 (2.0)(4) 39.3
====== ====== ===== ========
</TABLE>
See Notes to Pro Forma Combined Financial Statements
F-4
<PAGE> 106
SOUTHDOWN, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED -- IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS REPORTED
------------------- PRO FORMA
SOUTHDOWN MEDUSA ADJUSTMENTS PRO FORMA
--------- ------ ------------ ---------
<S> <C> <C> <C> <C>
Revenues........................................ $719.2 $376.0 $ -- $1,095.2
------ ------ ----- --------
Costs and expenses
Operating..................................... 460.6 237.7 698.3
Depreciation, depletion & amortization........ 45.9 18.2 64.1
Selling and marketing......................... 17.2 7.5 24.7
General and administrative.................... 38.0 27.6 65.6
Other income, net............................. (9.7) (0.3) (10.0)
------ ------ ----- --------
552.0 290.7 -- 842.7
------ ------ ----- --------
Earnings before interest and income taxes....... 167.2 85.3 252.5
Interest........................................ (14.0) (1.5) (15.5)
Income tax expense.............................. (51.5) (26.8) (78.3)
------ ------ ----- --------
Earnings before minority interest............... 101.7 57.0 -- 158.7
Minority interest in earnings of consolidated
joint venture................................. (5.0) -- (5.0)
------ ------ ----- --------
Net earnings.................................... $ 96.7 $ 57.0 $ -- $ 153.7
====== ====== ===== ========
Earnings per common share
Basic......................................... $ 4.23 $ 3.44 $ 4.10
====== ====== ========
Diluted....................................... $ 3.98 $ 3.41 $ 3.94
====== ====== ========
Average shares outstanding
Basic......................................... 22.3 16.6 (2.0)(4) 36.9
====== ====== ===== ========
Diluted....................................... 24.3 16.7 (2.0)(4) 39.0
====== ====== ===== ========
</TABLE>
See Notes to Pro Forma Combined Financial Statements
F-5
<PAGE> 107
SOUTHDOWN, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED -- IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS REPORTED
------------------- PRO FORMA
SOUTHDOWN MEDUSA ADJUSTMENTS PRO FORMA
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................................ $664.4 $323.4 $ -- $987.8
------ ------ ----- ------
Costs and expenses
Operating..................................... 442.4 201.0 643.4
Depreciation, depletion and amortization...... 42.4 13.4 55.8
Selling and marketing......................... 16.0 6.8 22.8
General and administrative.................... 34.8 20.6 55.4
Other income, net............................. (4.9) (1.3) (6.2)
------ ------ ----- ------
530.7 240.5 -- 771.2
------ ------ ----- ------
Earnings before interest and income taxes....... 133.7 82.9 216.6
Interest........................................ (19.8) (3.7) (23.5)
Income tax expense.............................. (38.6) (24.9) (63.5)
------ ------ ----- ------
Earnings before minority interest and
extraordinary charge.......................... 75.3 54.3 -- 129.6
Minority interest in earnings of consolidated
joint venture................................. (4.1) -- (4.1)
------ ------ ----- ------
Earnings before extraordinary charge............ $ 71.2 $ 54.3 $ -- $125.5
====== ====== ===== ======
Earnings per common share before extraordinary
charge
Basic......................................... $ 3.50 $ 3.38 $ 3.64
====== ====== ======
Diluted....................................... $ 2.97 $ 3.15 $ 3.21
====== ====== ======
Average shares outstanding
Basic......................................... 18.2 16.1 (1.9)(4) 32.4
====== ====== ===== ======
Diluted....................................... 24.0 17.9 (2.1)(4) 39.8
====== ====== ===== ======
</TABLE>
See Notes to Pro Forma Combined Financial Statements
F-6
<PAGE> 108
SOUTHDOWN, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED -- IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS REPORTED
------------------- PRO FORMA
SOUTHDOWN MEDUSA ADJUSTMENTS PRO FORMA
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................................ $596.1 $293.3 $ -- $889.4
------ ------ ----- ------
Costs and expenses
Operating..................................... 408.3 185.0 593.3
Depreciation, depletion & amortization........ 40.3 14.8 55.1
Selling and marketing......................... 15.0 6.4 21.4
General and administrative.................... 34.6 17.7 52.3
Other income, net............................. (5.4) (2.0) (7.4)
------ ------ ----- ------
492.8 221.9 -- 714.7
------ ------ ----- ------
Earnings before interest and income taxes....... 103.3 71.4 174.7
Interest........................................ (26.7) (7.6) (34.3)
Income tax expense.............................. (25.2) (20.6) (45.8)
------ ------ ----- ------
Earnings before minority interest............... 51.4 43.2 -- 94.6
Minority interest in earnings of consolidated
joint venture................................. (3.9) -- (3.9)
------ ------ ----- ------
Net earnings.................................... $ 47.5 $ 43.2 $ -- $ 90.7
====== ====== ===== ======
Earnings per common share
Basic......................................... $ 2.18 $ 2.70 $ 2.58
====== ====== ======
Diluted....................................... $ 2.03 $ 2.54 $ 2.37
====== ====== ======
Average shares outstanding
Basic......................................... 17.3 16.0 (1.9)(4) 31.4
====== ====== ===== ======
Diluted....................................... 23.4 18.0 (2.2)(4) 39.2
====== ====== ===== ======
</TABLE>
See Notes to Pro Forma Combined Financial Statements
F-7
<PAGE> 109
SOUTHDOWN, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The unaudited pro forma combined financial statements give effect to the
proposed merger of Southdown, Inc. (Southdown) and Medusa Corporation (Medusa)
under the pooling of interests method of accounting. The unaudited pro forma
combined financial statements should be read in conjunction with the historical
consolidated financial statements and the notes thereto of Southdown and Medusa
incorporated by reference in this Joint Proxy Statement/Prospectus. The
unaudited pro forma combined balance sheet assumes that the Merger had been
consummated on March 31, 1998 and combines Southdown's and Medusa's March 31,
1998 consolidated balance sheets. The pro forma combined balance sheet includes
adjustments which give effect to events that are directly attributable to the
transaction and factually supportable regardless of whether they have a
continuing impact or are nonrecurring. The unaudited pro forma combined
statements of earnings for the three months ended March 31, 1998 and 1997 and
for each of the three years ended December 31, 1997 assume that the Merger had
been consummated at the beginning of the earliest period presented. The
accompanying pro forma combined statements of earnings for the three months
ended March 31, 1998 and 1997 and for each of the three years ended December 31,
1997 have been prepared by combining the historical results of Southdown and
Medusa for such periods. The pro forma combined statements of earnings reflect
only costs directly attributable to the transaction that are factually
supportable and are expected to have a continuing impact on the combined entity.
Material nonrecurring charges totaling $75 million, net of a $5 million tax
benefit, which result directly from the transaction and which are expected to be
included in the results of operations of Southdown within the twelve months
succeeding the transaction have been excluded.
The preparation of unaudited pro forma combined financial statements
requires management to make estimates and assumptions based on information
currently available. The pro forma adjustments made in connection with the
development of the pro forma information are preliminary and have been made
solely for purposes of developing such pro forma information for illustrative
purposes necessary to comply with the disclosure requirements of the Securities
and Exchange Commission. The unaudited pro forma combined financial statements
do not purport to be indicative of the results of operations for future periods
or the combined financial position or the results that actually would have been
realized had the entities been a single entity during the periods presented.
Under the terms of the Merger, each Medusa Share outstanding immediately
prior to the Effective Time will be converted into .88 shares of Southdown
Common Stock.
NOTE B -- PRO FORMA ADJUSTMENTS
The pro forma combined financial statements as of March 31, 1998 and for
the three months ended March 31, 1998 and 1997 and for each of the three years
ended December 31, 1997 include the following adjustments to reflect the
combination as a pooling of interests:
(1) To adjust Medusa's ending inventory balances from standard cost to
actual cost, including related tax effects, in order to conform Medusa's
and Southdown's method of accounting for inventory costs during interim
reporting periods.
(2) To record the estimated costs to complete the combination of
Southdown and Medusa under the pooling of interests accounting. The costs,
which are calculated assuming a price of approximately $70 per share of
Southdown Common Stock, primarily relate to severance and change of control
payments, investment banking fees and other transaction costs, are
currently estimated to be approximately $75 million, net of a tax benefit
of $5 million, and are reflected as a reduction in reinvested earnings in
the accompanying balance sheet. Unearned restricted common shares have been
adjusted to
F-8
<PAGE> 110
zero in order to reflect the lapse of restrictions on these shares of
common stock in connection with the combination.
(3) To adjust common stock and capital in excess of par value to
reflect the issuance of approximately 14.7 million shares of Southdown
Common Stock to Medusa shareholders based on the previously mentioned
conversion ratio.
(4) Pro forma basic earnings per share from continuing operations is
computed based on the weighted average number of common shares outstanding.
Pro forma diluted earnings per share from continuing operations is computed
based on the weighted average number of common shares outstanding plus the
dilutive impact of options, warrants and convertible securities for each
period after giving effect to the Merger on a pooling of interests basis.
F-9
<PAGE> 111
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
MEDUSA CORPORATION,
SOUTHDOWN, INC.
AND
BEDROCK MERGER CORP.,
MARCH 17, 1998
<PAGE> 112
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
THE MERGER
1.1 The Merger............................................ A-1
1.2 Closing............................................... A-1
1.3 Effective Date........................................ A-2
1.4 Effect of the Merger.................................. A-2
1.5 Articles of Incorporation and Code of Regulations..... A-2
1.6 Directors and Officers of Surviving Corporation....... A-2
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock........................... A-2
2.2 Exchange of Certificates.............................. A-3
2.3 Treatment of Stock Options............................ A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
3.1 Organization and Standing............................. A-6
3.2 Subsidiaries.......................................... A-6
3.3 Capitalization of Parent.............................. A-6
3.4 Authorization of Additional Common Stock.............. A-7
3.5 Corporate Power and Authority......................... A-7
3.6 Conflicts, Consents and Approval...................... A-7
3.7 Brokerage and Finder's Fees........................... A-7
3.8 Opinion of Financial Advisor.......................... A-8
3.9 Accounting Matters.................................... A-8
3.10 Parent SEC Documents.................................. A-8
3.11 Registration Statement................................ A-8
3.12 Board Meeting......................................... A-8
3.13 Operation of Parent's Business........................ A-8
3.14 Company Stock Ownership............................... A-9
3.15 Vote Required......................................... A-9
3.16 Parent Rights Agreement............................... A-9
3.17 No Material Adverse Change............................ A-9
3.18 Undisclosed Liabilities............................... A-9
3.19 Antitakeover Statutes Not Applicable.................. A-9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
4.1 Organization and Standing............................. A-9
4.2 Subsidiaries.......................................... A-10
4.3 Capitalization of Company............................. A-10
4.4 Corporate Power and Authority......................... A-10
4.5 Conflicts, Consents and Approval...................... A-11
4.6 Brokerage and Finder's Fees........................... A-11
4.7 Opinion of Financial Advisor.......................... A-11
4.8 Accounting Matters.................................... A-11
4.9 Employee Benefit Plans................................ A-12
4.10 Company SEC Documents................................. A-14
4.11 Taxes................................................. A-14
4.12 Registration Statement................................ A-14
4.13 Compliance with Law................................... A-15
4.14 Litigation............................................ A-15
</TABLE>
A-i
<PAGE> 113
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.15 No Material Adverse Change............................ A-15
4.16 Board Meeting......................................... A-15
4.17 Undisclosed Liabilities............................... A-15
4.18 Labor Relations....................................... A-15
4.19 Operation of Company's Business....................... A-16
4.20 Permits; Compliance................................... A-16
4.21 Environmental Matters................................. A-16
4.22 Company Stock Ownership............................... A-16
4.23 Contracts............................................. A-16
4.24 Vote Required......................................... A-17
4.25 Company Rights Agreement.............................. A-17
4.26 Antitakeover Statutes Not Applicable.................. A-17
ARTICLE V
COVENANTS OF THE PARTIES
5.1 Mutual Covenants...................................... A-17
5.2 Covenants of Parent................................... A-20
5.3 Covenants of Company.................................. A-22
ARTICLE VI
CONDITIONS
6.1 Mutual Conditions..................................... A-24
6.2 Conditions to Obligations of Company.................. A-25
6.3 Conditions to Obligations of Parent and Subcorp....... A-25
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination........................................... A-26
7.2 Amendment............................................. A-27
7.3 Extension; Waiver..................................... A-27
7.4 Effect of Termination................................. A-27
ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations and Warranties............ A-27
8.2 Notices............................................... A-27
8.3 Interpretation........................................ A-28
8.4 Counterparts.......................................... A-28
8.5 Entire Agreement...................................... A-28
8.6 Third Party Beneficiaries............................. A-28
8.7 Governing Law......................................... A-28
8.8 Jurisdiction.......................................... A-28
8.9 Waiver of Jury Trial.................................. A-29
8.10 Specific Performance.................................. A-29
8.11 Assignment............................................ A-29
8.12 Expenses and Fees..................................... A-29
8.13 Severability.......................................... A-30
8.14 Definitions and Usage................................. A-30
EXHIBIT INDEX
Exhibit A Form of Parent Affiliate Letter................. A-35
Exhibit B Form of Company Affiliate Letter................ A-37
Exhibit C Form of Letter Agreement and Irrevocable........ A-40
Exhibit D Form of Incentive Plan Letter Agreement......... A-41
</TABLE>
A-ii
<PAGE> 114
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is made and entered into as
of the 17th day of March, 1998, among Medusa Corporation, an Ohio corporation
("Company"), Southdown, Inc., a Louisiana corporation ("Parent"), and Bedrock
Merger Corp., a newly formed Ohio corporation and wholly-owned subsidiary of
Parent ("Subcorp").
RECITALS
WHEREAS, the Boards of Directors of Company and Parent have unanimously
determined that the combination of Company and Parent is in the best interests
of the shareholders of Company and Parent, respectively;
WHEREAS, Company and Parent desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement;
WHEREAS, Company and Parent intend that the Merger constitute a tax-free
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended ("Code");
WHEREAS, Company and Parent intend that the Merger be accounted for as a
pooling of interests for financial accounting purposes;
WHEREAS, the Boards of Directors of Company, Parent and Subcorp by
resolutions duly adopted, have unanimously approved and adopted this Agreement;
and
WHEREAS, by resolutions duly adopted, the Board of Directors of the Parent
has unanimously recommended that the Parent Shareholders approve the Parent
Shareholder Authorizations and the Board of Directors of the Company has
unanimously recommended that the Company Shareholders vote in favor of the
Merger; and
WHEREAS, certain terms capitalized herein have the meanings given to
therein in Section 8.14 of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of these premises and the mutual and
dependent promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, and in
accordance with the provisions of the Ohio General Corporation Law ("OGCL"), on
the Effective Date (as hereinafter defined), Subcorp shall be merged ("Merger")
with and into Company, whereupon the separate corporate existence of Subcorp
shall cease and Company shall continue its existence under the laws of the State
of Ohio. Company, in its capacity as the corporation surviving the Merger, is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to satisfaction or, to the extent permitted hereunder, waiver
(where applicable) of the conditions set forth in Article VI, the closing of the
Merger ("Closing") will take place at the offices of Bracewell & Patterson,
L.L.P., South Tower Pennzoil Place, Suite 2900, 711 Louisiana Street, Houston,
Texas 77002-2781, at 10:00 a.m., local time, on the third business day following
satisfaction of the conditions set forth in Sections 6.1(b), (c) and (d) and the
satisfaction or waiver of the conditions set forth in Section 6.3(d), unless
another date, time or place is agreed to in writing by the parties hereto, which
agreement will not be unreasonably withheld ("Closing Date"). At
<PAGE> 115
the Closing there shall be delivered to Parent, Subcorp and Company the
certificates and other documents and instruments required to be delivered under
Article VI.
1.3 Effective Date. As soon as practicable after satisfaction or, to the
extent permitted hereunder, waiver of all conditions to the Merger set forth
herein, but in no event sooner than the Closing, the Merger shall be consummated
by filing with the Secretary of State of the State of Ohio ("Ohio Secretary of
State") a certificate of merger in such form as is required by and executed in
accordance with Section 1701.81 of the OGCL ("Certificate of Merger") and by
making all other filings or recordings required by Ohio law in connection with
the Merger. The Merger shall become effective when the Certificate of Merger has
been filed with the Ohio Secretary of State or at such later date as may be
agreed in writing by the parties hereto and specified in the Certificate of
Merger ("Effective Date").
1.4 Effect of the Merger. From and after the Effective Date, the Surviving
Corporation shall possess all rights, assets, powers, privileges and franchises
and shall be subject to all obligations, liabilities, restrictions and
disabilities of Company and Subcorp, all as provided under Ohio law.
1.5 Articles of Incorporation and Code of Regulations. The Certificate of
Merger shall provide that on the Effective Date (i) the Articles of
Incorporation of the Surviving Corporation, as in effect immediately prior to
the Effective Date, shall be the Articles of Incorporation of Company, except
for Article I thereof which shall read "The name of the corporation is
'Southdown Medusa, Inc.,' " and (ii) the Code of Regulations of the Surviving
Corporation in effect immediately prior to the Effective Date shall be in the
Code of Regulations of Company immediately prior thereto; in each case until
amended in accordance with applicable law.
1.6 Directors and Officers of Surviving Corporation. From and after the
Effective Date, until successors are duly elected or appointed and qualified in
accordance with applicable law, (i) the directors of Company on the date of
execution of this Agreement shall be the directors of the Surviving Corporation
and (ii) the officers of Subcorp on the date of execution of this Agreement
shall be the officers of the Surviving Corporation, subject to the exclusive
right of the Parent to remove or replace any such directors or officers.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. On the Effective Date, by virtue of the
Merger and without any action on the part of Parent, Subcorp or Company:
(a) Conversion of Company Common Shares. Each common share, without
par value, of Company ("Company Common Shares") outstanding immediately
prior to the Effective Date shall (other than shares to be canceled in
accordance with the last sentence of this paragraph (a) and other than
Company Dissenting Shares) be converted into the right to receive .88 fully
paid and non-assessable shares of common stock ("Exchange Ratio"), $1.25
par value, of Parent ("Common Stock") ("Merger Consideration"). The Merger
Consideration is subject to appropriate adjustment in the event of any
change in Common Stock during the period between the date of this Agreement
and the Effective Date, by reason of any reclassification,
recapitalization, stock split or combination, exchange or adjustment of
issued and outstanding shares, or any stock dividend thereon with a record
date during such period. Each Company Common Share, if any, owned by Parent
or any subsidiary of Parent or held in treasury by the Company or any
subsidiary of the Company immediately prior to the Effective Date shall be
canceled, and no consideration shall be paid in exchange therefor and shall
cease to exist from and after the Effective Date.
(b) Conversion of Subcorp Shares. Each common share of Subcorp
outstanding immediately prior to the Effective Date shall be converted into
and become one common share of the Surviving Corporation with the same
rights, powers and privileges as the shares so converted and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation.
A-2
<PAGE> 116
2.2 Exchange of Certificates.
(a) Exchange Agent. At or prior to the Effective Date, Parent shall
deposit with an exchange agent designated by Parent and reasonably
acceptable to Company ("Exchange Agent"), for the benefit of Company
Shareholders and for exchange in accordance with this Section 2.2,
certificates representing shares of Common Stock issuable pursuant to
Section 2.1 in exchange for outstanding Company Common Shares.
(b) Exchange Procedures. Promptly and, in any event, within three (3)
business days after the Effective Date, Parent shall cause the Exchange
Agent to mail to each holder of record of a certificate or certificates
("Certificates") that immediately prior to the Effective Date represented
outstanding Company Common Shares, whose shares were converted into the
right to receive shares of Common Stock pursuant to Section 2.1, (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Parent may reasonably specify), and
(ii) instructions for effecting the surrender of the Certificates in
exchange for certificates representing shares of Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together
with a duly executed letter of transmittal, the holder of such Certificate
shall be entitled to receive in exchange therefor (i) a certificate
representing that whole number of shares of Common Stock which such holder
has the right to receive pursuant to Section 2.1, and (ii) cash in lieu of
any fractional shares in the manner and amount as determined pursuant to
Section 2.2(c).
(c) No Fractional Shares. No certificates or scrip representing
fractional Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the
owner thereof to vote, to receive dividends or to any other rights of a
shareholder of the Parent. Notwithstanding any other provision of this
Agreement, each holder of a Certificate exchanged in the Merger who would
otherwise have been entitled to receive a fraction of a share of Common
Stock shall receive, from the Exchange Agent in accordance with the
provisions of this Section 2.2(c), a cash payment in lieu of such
fractional share of Common Stock representing such holder's proportionate
interest, if any, in the net proceeds from the sale by the Exchange Agent
in one or more transactions (which sale transactions shall be made at such
time or times, in such manner and on such terms as the Exchange Agent shall
determine in its sole discretion are reasonable) on behalf of all such
holders of the aggregate of the fractional shares of Common Stock which
would otherwise have been issued ("Fractional Shares"). The sale of the
Fractional Shares by the Exchange Agent shall be executed on the New York
Stock Exchange ("NYSE") or such other nationally recognized securities
exchange (collectively, a "National Exchange") on which the Common Stock is
traded through one or more member firms of the NYSE or a National Exchange
and shall be executed in round lots to the extent practicable. Until the
net proceeds of such sale or sales shall have been distributed to the
holders of fractional shares, the Exchange Agent will hold such proceeds in
trust ("Exchange Trust") for the holders of fractional shares. The Parent
shall pay all commissions, transfer taxes and other out-of-pocket
transactions costs, including the expenses and compensation of the Exchange
Agent, incurred in connection with the sale of the Fractional Shares. As
soon as practicable after the determination of the amount of cash, if any,
to be paid to holders of fractional shares in lieu of any fractional shares
of Common Stock, the Exchange Agent shall make available such amounts to
such holders of fractional shares without interest.
(d) Unregistered Transfers. In the event of a transfer of ownership of
shares of Company Common Shares which is not registered on the transfer
records of Company, a certificate representing the proper number of shares
of Common Stock, together with cash in lieu of fractional shares, if any,
or any unpaid dividends and distributions may be issued to such transferee
if the Certificate representing such Company Common Shares held by such
transferee is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any
time after the Effective Date to represent only the right to receive upon
surrender a certificate representing shares of Common Stock and cash in
lieu of any fractional share, if any, or any unpaid dividends and
distributions as provided in this Article II.
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(e) Distributions with Respect to Unexchanged Shares. Notwithstanding
any other provisions of this Agreement, no dividends or other distributions
declared or made after the Effective Date with respect to shares of Common
Stock and having a record date after the Effective Date shall be paid to
the holder of any unsurrendered Certificate, and no cash payment in lieu of
fractional shares shall be paid to any such holder, until the holder shall
surrender such Certificate as provided in this Section 2.2. Subject to the
effect of Applicable Laws, following surrender of any such Certificate,
there shall be paid to the holder of the certificates representing whole
shares of Common Stock issued in exchange therefor, without interest, (i)
at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Date theretofor
payable with respect to such whole shares of Common Stock and not paid,
less the amount of any withholding taxes which may be required thereon, and
(ii) at the appropriate payment date subsequent to surrender, the amount of
dividends or other distributions with a record date after the Effective
Date but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Common Stock, less the amount
of any withholding taxes which may be required thereon.
(f) No Further Ownership Rights in Company Common Shares. All shares
of Common Stock issued upon surrender of Certificates in accordance with
the terms hereof (including any cash paid pursuant to this Article II)
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Company Common Shares represented thereby, and from and
after the Effective Date there shall be no further registration of
transfers on the stock transfer books of Company of Company Common Shares.
If, after the Effective Date, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as
provided in this Section 2.2.
(g) Lost Certificate. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such Person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made with respect to such Certificate, Parent
will issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration to be paid in respect of the Company Common Shares
represented by such Certificates as contemplated by this Article II.
(h) Termination of Exchange Trust. Any portion of the Exchange Trust
which remains undistributed to Company Shareholders for one (1) year after
the Effective Date shall be delivered to Parent, upon demand thereby, and
holders of Company Common Shares who have not theretofor complied with this
Section 2.2 shall thereafter look only to Parent for payment of any claim
to shares of Common Stock, cash in lieu of fractional shares thereof, or
dividends or distributions, if any, in respect thereof.
(i) No Liability. None of Parent, the Surviving Corporation or the
Exchange Agent shall be liable to any person in respect of any Company
Common Shares (or, in each case, dividends or distributions with respect
thereto) or cash from the Exchange Trust delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If
any Certificates shall not have been surrendered prior to seven years after
the Effective Date of the Merger (or immediately prior to such earlier date
on which any cash, any cash in lieu of fractional shares or any dividends
or distributions with respect to whole Company Common Shares in respect of
such Certificate would otherwise escheat to or become the property of any
court, arbitral tribunal, administrative agency or commission or other
governmental or regulatory body, agency, instrumentality or authority)
("Governmental Authority"), any such cash, dividends or distributions in
respect of such Certificate shall, to the extent permitted by Applicable
Law, become the property of Parent, free and clear of all claims or
interest of any person previously entitled thereto.
(j) Investment of Exchange Trust. The Exchange Agent shall invest any
cash included in the Exchange Trust, as directed by Parent, on a daily
basis. Any interest and other income resulting from such investments shall
be paid to Parent upon termination of the Exchange Trust pursuant to
Section 2.2(h).
(k) Dissenters' Rights. The holder of any Company Common Shares
outstanding immediately prior
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to the Merger that has validly exercised such holder's dissenters' rights
under the OGCL ("Company Dissenting Shares") shall not be entitled to
receive Common Stock, in respect of Company Dissenting Shares as to which
such holder has validly exercised dissenters' rights, unless and until such
holder shall have failed to perfect, shall have validly withdrawn or shall
have lost or had terminated such holder's right to payment for such
holder's Company Dissenting Shares as provided by the OGCL. In such event,
such holder shall be entitled to receive, without interest, the Common
Stock such holder would have been entitled to receive had such holder not
exercised dissenters' rights.
(l) Parent Rights. Each share of Common Stock issued to holders of
Company Common Shares in the Merger shall be issued together with one
associated Parent Right in accordance with the Parent Rights Agreement.
References herein to the shares of Common Stock issuable in the Merger
shall be deemed to include the associated Parent Rights.
2.3 Treatment of Stock Options.
(a) Prior to the Effective Date, Company and Parent shall take all
such actions as may be necessary to cause each unexpired and unexercised
option or right to purchase shares of Company Common Shares under stock
option plans and stock purchase plans of Company in effect on the date
hereof which has been granted by Company to current or former directors,
officers or Employees of Company or its subsidiaries (each, a "Company
Option") to be automatically converted on the Effective Date into an option
(each, a "Parent Exchange Option") to purchase that number of shares of
Common Stock equal to the number of shares of Company Common Shares
issuable immediately prior to the Effective Date upon exercise of the
Company Option (without regard to actual restrictions on exercisability)
multiplied by the Exchange Ratio, with an exercise price equal to the
exercise price which existed under the corresponding Company Option divided
by the Exchange Ratio, and with other terms and conditions that are the
same as the terms and conditions of such Company Option immediately before
the Effective Date (including, without limitation, the acceleration of the
exercisability of each such option upon the consummation of the Merger and
the length of the period of continuing exercisability of each such option
after any termination of the employment of the respective optionee);
provided that with respect to any Company Option that is an "incentive
stock option" within the meaning of Section 422 of the Code, the foregoing
conversion shall be carried out in a manner satisfying the requirements of
Section 424(a) of the Code. In connection with the issuance of Parent
Exchange Options, Parent shall (i) reserve for issuance the number of
shares of Common Stock that will become subject to Parent Exchange Options
pursuant to this Section 2.3, and (ii) from and after the Effective Date,
upon exercise of Parent Exchange Options, make available for issuance all
shares of Common Stock covered thereby, subject to the terms and conditions
applicable thereto. Each director, officer or Employee of Company who is
required to execute and who executes the letter agreement contemplated in
Section 5.3(e) and whose employment is terminated following the Merger
shall have the expiration date of his Parent Exchange Option extended until
the 90th day following the date that such director, officer or Employee of
Company is first permitted to sell, transfer or otherwise dispose of Common
Stock under the terms of such letter agreement. Parent shall cause the
committee administering its stock incentive plan to grant Parent Exchange
Options in accordance with this Section 2.3.
(b) Company agrees to issue treasury shares of Company, to the extent
available, upon the exercise of Company Options prior to the Effective
Date.
(c) Parent agrees to file with the Securities and Exchange Commission
("Commission") as soon as reasonably practicable after the Closing Date a
registration statement on Form S-8 or other appropriate form under the
Securities Act to register shares of Common Stock issuable upon exercise of
the Parent Exchange Options and use its best efforts to cause such
registration statement to remain effective until the exercise or expiration
of such options.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents, warrants, covenants and agrees as follows:
3.1 Organization and Standing. Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Louisiana
with full power and authority (corporate and other) to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. Parent is duly qualified to do business
and in good standing in each jurisdiction in which the nature of the business
conducted by it or the property it owns, leases or operates makes such
qualification necessary, except where the failure to be so qualified or in good
standing in such jurisdiction would not have a Parent Material Adverse Effect.
Neither Parent nor any of its subsidiaries is in default in the performance,
observance or fulfillment of any provision of, in the case of Parent, its
Articles of Incorporation, as amended and restated, or Bylaws ("Parent Articles
and Bylaws"), or, in the case of any subsidiary of Parent, its Articles of
Incorporation, Bylaws or other organizational documents.
3.2 Subsidiaries. Section 3.2 of the Parent Disclosure Schedule lists the
name and jurisdiction of organization of each subsidiary of Parent and the
jurisdictions in which each such subsidiary is qualified or holds licenses to do
business as a foreign corporation or other organization as of the date hereof.
Each of Parent's subsidiaries is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, is duly qualified
to do business as a foreign entity and is in good standing in the jurisdictions
set forth in Section 3.2 of the Parent Disclosure Schedule, which includes each
jurisdiction in which the character of such subsidiary's properties owned or
leased by it or the nature of its business makes such qualification necessary,
except in jurisdictions, if any, where the failure to be so qualified would not,
individually or in the aggregate, result in a Parent Material Adverse Effect.
Each of Parent's subsidiaries has all requisite corporate (or other
organizational) power and authority to own, use or lease its properties and to
carry on its business as it is now being conducted. Parent has made available to
Company a complete and correct copy of the charter documents and bylaws (or
similar organizational documents) of each of Parent's subsidiaries, each as
amended to date, and the charter documents and bylaws (or similar organizational
documents) as so delivered are in full force and effect.
3.3 Capitalization of Parent. As of February 28, 1998, Parent's authorized
capital stock consisted of (i) 40,000,000 shares of common stock, $1.25 par
value per share of which (a) 23,607,047 shares were issued and outstanding, (b)
1,166,100 shares were issued and held in treasury (which does not include the
shares reserved for issuance as set forth in clause (i)(c) below) and (c)
1,622,935 shares were reserved for issuance upon the exercise or conversion of
options, warrants or convertible securities granted or issuable by Parent, and
(ii) 10,000,000 shares of preferred stock, $.05 par value per share ("Parent
Preferred Stock"), none of which are outstanding or designated except as
provided in the next sentence. As of the date hereof, 400,000 shares are
designated Preferred Stock, Cumulative Junior Participating Series C ("Parent
Series C Preferred Stock") and are reserved for issuance in accordance with the
Rights Agreement dated as of March 4, 1991, by and between Parent and Chase
Mellon Shareholder Services, L.L.C., as Rights Agent ("Parent Rights
Agreement"), pursuant to which Parent has issued rights ("Parent Rights") to
purchase shares of Parent Series C Preferred Stock. Each outstanding share of
Parent capital stock is, and all shares of Common Stock to be issued in
connection with the Merger will be, duly authorized and validly issued, fully
paid and nonassessable, and no outstanding share of Parent capital stock has
been, and no shares of Common Stock to be issued in connection with the Merger
will be issued in violation of any preemptive or similar rights. As of the date
hereof, other than as set forth in the Parent SEC Documents, pursuant to the
Parent Rights Agreement or in Section 3.3 to the Parent Disclosure Schedule,
there are no outstanding subscriptions, options, warrants, puts, calls,
agreements, understandings, claims or other commitments or rights of any type
relating to the issuance, sale or transfer by Parent or any of its subsidiaries
of any securities of Parent, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock of Parent, and
Parent has no obligation of any kind to issue any additional securities or to
pay for securities of Parent or any predecessor. Parent has no outstanding
bonds, debentures, notes or other similar obligations the holders of which have
the right to vote generally with holders of Parent Common Stock.
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3.4 Authorization of Additional Common Stock. The Board of Directors, at a
meeting duly called and held, has by the required vote of the directors then in
office, approved the authorization of an additional 160 million shares of Common
Stock ("Parent Amendment"), adopted a resolution declaring the advisability of
such action and directed that such action be submitted for consideration by the
Parent Shareholders. Subject to authorization by the holders of Common Stock
("Parent Shareholders") ("Common Stock Authorizations"), Parent will obtain all
necessary consents, approvals or authorizations necessary to effect the Parent
Amendment.
3.5 Corporate Power and Authority. Each of Parent and Subcorp has all
requisite corporate power and authority to enter into this Agreement and,
subject to the Common Stock Authorizations and the authorization of the issuance
of shares of Common Stock in connection with the Merger as required by the NYSE
(collectively, "Parent Shareholder Authorizations") by the Parent Shareholders,
to consummate the transactions contemplated by this Agreement and no other
corporate proceedings on the part of either of Parent or Subcorp or their
stockholders are necessary to authorize the execution, delivery and performance
of this Agreement by Parent and Subcorp and the consummation by Parent and
Subcorp of the transactions contemplated hereby, other than obtaining the Parent
Shareholder Authorizations. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of each of Parent and Subcorp,
subject to the Parent Shareholder Authorizations. This Agreement has been duly
executed and delivered by each of Parent and Subcorp, and constitutes the legal,
valid and binding obligation of each of Parent and Subcorp enforceable against
each of them in accordance with its terms.
3.6 Conflicts, Consents and Approval. Neither the execution and delivery of
this Agreement by Parent or Subcorp nor the consummation of the transactions
contemplated hereby will:
(a) conflict with, or result in a breach of any provision of the
Parent Articles and Bylaws or the Articles of Incorporation or Code of
Regulations of Subcorp;
(b) except as disclosed in Section 3.6(b) to the Parent Disclosure
Schedule, violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice,
the passage of time or otherwise, would constitute a default) under, or
entitle any party (with the giving of notice, the passage of time or
otherwise) to terminate, accelerate, modify or call a default under, or
result in the termination, acceleration or cancellation of, or result in
the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of Parent or any of its subsidiaries under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, contract, undertaking, agreement, lease
or other instrument or obligation to which Parent or any of its
subsidiaries is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to Parent or any of its subsidiaries or their
respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Parent or any of its affiliates with any third
party or any Governmental Authority other than: (i) the Parent Shareholder
Authorizations; (ii) actions required by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder ("HSR Act"); and (iii) registrations or other
actions required under federal and state securities laws as are
contemplated by this Agreement; all except for any of the foregoing that
are set forth in Section 3.6(d) to the Parent Disclosure Schedule and, in
the case of (b), (c) and (d), any of the foregoing that would not,
individually or in the aggregate, have a Parent Material Adverse Effect.
3.7 Brokerage and Finder's Fees. Except for Parent's obligation to Lehman
Brothers Inc. ("Lehman Brothers"), Parent has not incurred and will not incur,
directly or indirectly, any brokerage, finder's or similar fee in connection
with the transactions contemplated by this Agreement. Other than the foregoing
obligation to Lehman Brothers, Parent is not aware of any claim for payment of
any finder's fees, brokerage or agent's commissions or other like payments
payable by Parent and its affiliates in connection with the negotiation of this
Agreement or in connection with the transactions contemplated hereby.
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3.8 Opinion of Financial Advisor. Parent has received the opinion of Lehman
Brothers to the effect that, as of the date hereof, the Exchange Ratio is fair
to the Parent from a financial point of view, and a true and complete copy of
such opinion has been delivered to Company prior to the execution of this
Agreement.
3.9 Accounting Matters. To the best Knowledge of Parent, neither Parent nor
any of its Affiliates has taken, agreed to take or failed to take any action
that (without giving effect to any actions taken or agreed to be taken by
Company or any of its affiliates) would prevent Parent from accounting for the
business combination to be effected by the Merger as a pooling of interests for
financial accounting purposes in accordance with Accounting Principles Board
Opinion No. 16, the interpretative releases issued pursuant thereto, and the
pronouncements of the Commission thereon.
3.10 Parent SEC Documents. Parent has timely filed with the Commission all
forms, registrations and proxy statements, reports, schedules and statements
required to be filed by it since December 31, 1996 under the Securities Exchange
Act of 1934, as amended (together with the rules and regulations thereunder,
"Exchange Act") or the Securities Act of 1933, as amended ("Securities Act")
(all documents filed since such date, collectively, "Parent SEC Documents"). The
Parent SEC Documents, including, without limitation, any financial statements or
schedules included therein, at the time filed (in the case of registration
statements and proxy statements, solely on the dates of effectiveness and the
dates of mailing, respectively) (i) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and (ii) complied in all material
respects with the applicable requirements of the Exchange Act and the Securities
Act, as the case may be. The financial statements of Parent included in the
Parent SEC Documents at the time filed (and, in the case of registration
statements and proxy statements, on the date of effectiveness and the date of
mailing, respectively) complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the Commission with respect thereto, were prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q of the Commission), and
fairly present (subject in the case of unaudited statements to normal, recurring
and year-end audit adjustments) in all material respects the consolidated
financial position of Parent at the dates thereof and the consolidated results
of its operations and cash flows for the periods then ended.
3.11 Registration Statement. The information provided by Parent for
inclusion in the registration statement on Form S-4 to be filed with the
Commission by Parent under the Securities Act, including the prospectus (as
amended, supplemented or modified, "Prospectus") relating to shares of Common
Stock to be issued in the Merger and the joint proxy statement and form of
proxies relating to the vote of Company Shareholders with respect to the Merger
and the vote of Parent Shareholders with respect to the Parent Shareholder
Authorizations (collectively and as amended, supplemented or modified, "Joint
Proxy Statement") contained therein (such registration statement as amended,
supplemented or modified, "Registration Statement"), at the time the
Registration Statement becomes effective or, in the case of the Joint Proxy
Statement, at the date of mailing, will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading in light of
the circumstances under which they are made. Each of the Registration Statement
and Joint Proxy Statement, except for such portions thereof that relate to
Company and its subsidiaries, will comply as to form in all material respects
with the provisions of the Securities Act and Exchange Act.
3.12 Board Meeting. The Board of Directors of Parent, at a meeting duly
called and held, has by the required vote of the directors then in office
determined that this Agreement and the transactions contemplated hereby,
including the Merger and the Parent Amendment, taken together, are fair to and
in the best interests of Parent and the Parent Shareholders.
3.13 Operation of Parent's Business. Since December 31, 1997 through the
date of this Agreement, none of Parent or any of its subsidiaries has engaged in
any transaction which, if closed after execution of this Agreement, would
violate Section 5.2(c) hereof except as described or reflected in the Parent SEC
Documents or as set forth in Section 3.13 to the Parent Disclosure Schedule.
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3.14 Company Stock Ownership. Except as set forth in Section 3.14 to the
Parent Disclosure Schedule, neither Parent nor any of its subsidiaries owns any
Company Common Shares or other securities convertible into Company Common
Shares.
3.15 Vote Required. The affirmative vote of the holders of record of at
least a majority of the outstanding shares of Common Stock with respect to the
adoption of the Parent Amendment and the affirmative vote of at least a majority
of the votes cast by the holders of record of shares of Common Stock with
respect to the approval of the issuance of Common Stock (provided that the total
votes cast on the proposal represents more than 50% of the outstanding shares of
Common Stock entitled to vote thereon) in connection with the Merger are the
only votes of the holders of any class or series of the capital stock of Parent
required to approve the Merger and the other transactions contemplated hereby.
3.16 Parent Rights Agreement. As of the date hereof and after giving effect
to the execution and delivery of this Agreement, each Parent Right is
represented by the certificate representing the associated share of Common Stock
and is not exercisable or transferable apart from the associated share of Common
Stock, and the consummation of the transactions contemplated by this Agreement
will not result in a "Distribution Date" or a "Triggering Event" (as defined in
the Parent Rights Agreement), assuming that no "Person," together with all
"Affiliates" and "Associates" of such Person, shall be the "Beneficial Owner"
(as such terms are defined in the Parent Rights Agreement) of 15% or more of the
shares of Common Stock issuable in the Merger.
3.17 No Material Adverse Change. Except as set forth in or contemplated by
the Parent SEC Documents filed with the Commission as of the date hereof or in
Section 3.17 to the Parent Disclosure Schedule, since December 31, 1997, each of
Parent and its subsidiaries has conducted its business in the ordinary course,
consistent with past practice, and there has been no: (i) material adverse
change in the business or financial condition of Parent and its subsidiaries
taken as a whole, other than those occurring as a result of general economic or
financial conditions or other developments which are not unique to Parent and
its subsidiaries but also affect other Persons who participate or are engaged in
the lines of business of which Parent and its subsidiaries participate or are
engaged; (ii) material adverse effect on the ability of Parent to consummate the
transactions contemplated hereby; (iii) declaration, setting aside or payment of
any dividend or other distribution with respect to its capital stock; or (iv)
material change in its accounting principles, practices or methods.
3.18 Undisclosed Liabilities. Except: (i) as and to the extent disclosed or
reserved against on the consolidated balance sheet of Parent as of December 31,
1997 or the notes thereto included in the Parent SEC Documents or otherwise
disclosed in the Parent SEC Documents filed with the Commission as of the date
hereof; (ii) as incurred after the date thereof in the ordinary course of
business consistent with prior practice and not prohibited by this Agreement; or
(iii) as set forth in Section 3.18 to the Parent Disclosure Schedule, neither
Parent nor any of its subsidiaries have any liabilities or obligations of any
nature, whether known or unknown, absolute, accrued, contingent or otherwise and
whether due or to become due that would be required by generally accepted
accounting principles to be disclosed and that, individually or in the
aggregate, have or would reasonably be expected to have a Parent Material
Adverse Effect.
3.19 Antitakeover Statutes Not Applicable. Parent has taken all necessary
actions so that no "fair price", "moratorium", "control share acquisition" or
other similar antitakeover statute or regulation will apply to this Agreement,
the Merger or the other transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents, warrants, covenants and agrees as follows:
4.1 Organization and Standing. Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio with
full power and authority (corporate and other) to own, lease, use and operate
its properties and to conduct its business as and where now owned, leased, used,
operated and
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conducted. Company is duly qualified to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it or the property
it owns, leases or operates makes such qualification necessary, except where the
failure to be so qualified or in good standing in such jurisdiction would not
have a Company Material Adverse Effect. Neither Company nor any of its
subsidiaries is in default in the performance, observance or fulfillment of any
provision of, in the case of Company, its Articles of Incorporation, as amended
and restated or Code of Regulations ("Company Articles and Code of
Regulations"), or, in the case of any subsidiary of Company, its Articles of
Incorporation, Bylaws or other organizational documents.
4.2 Subsidiaries. Section 4.2 of the Company Disclosure Schedule lists the
name and jurisdiction of organization of each subsidiary of Company and the
jurisdictions in which each such subsidiary is qualified or holds licenses to do
business as a foreign corporation or other organization as of the date hereof.
Each of Company's subsidiaries is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, is duly qualified
to do business as a foreign entity and is in good standing in the jurisdictions
set forth in Section 4.2 of the Company Disclosure Schedule, which includes each
jurisdiction in which the character of such subsidiary's properties owned or
leased by it or the nature of its business makes such qualification necessary,
except in jurisdictions, if any, where the failure to be so qualified would not,
individually or in the aggregate, result in a Company Material Adverse Effect.
Each of Company's subsidiaries has all requisite corporate (or other
organizational) power and authority to own, use or lease its properties and to
carry on its business as it is now being conducted. Company has made available
to Parent a complete and correct copy of the charter documents and bylaws (or
similar organizational documents) of each of Company's subsidiaries, each as
amended to date, and the charter documents and bylaws (or similar organizational
documents) as so delivered are in full force and effect. Other than Company
subsidiaries, Company does not beneficially own or control, directly or
indirectly, any class of equity or similar securities of any corporation or
other organization, whether incorporated or unincorporated.
4.3 Capitalization of Company. As of February 28, 1998, Company's
authorized capital shares consisted of (i) 50,000,000 shares of common stock,
without par value, of which (a) 16,672,757 shares were issued and outstanding,
(b) 1,962,656 shares were issued and held in treasury (which does not include
the shares reserved for issuance as set forth in clause (i)(c) below) and (c)
625,025 shares were reserved for issuance upon the exercise or conversion of
options, warrants or convertible securities granted or issuable by Company
pursuant to the Company's Incentive Plan, and (ii) 3,000,000 shares of preferred
stock, without par value ("Company Preferred Shares"). As of the date of this
Agreement, Company has designated as to series: (i) 1,000,000 shares of "Class A
Serial Preferred", none of which is issued and outstanding; (ii) 1,000,000
shares of "Class B Serial Preferred", none of which is issued and outstanding;
and (iii) 1,000,000 shares of "Class C Preferred", none of which is issued and
outstanding. As of the date hereof, the series of "Class C Preferred" ("Class C
Preferred Shares") is reserved for issuance in accordance with the Rights
Agreement, dated as of October 13, 1988, as amended, by and between Company and
First Chicago Trust Company of New York (successor to Society National Bank,
successor to National City Bank), as Rights Agent ("Company Rights Agreement"),
pursuant to which Company has issued rights ("Company Rights") to purchase
shares of Class C Preferred Shares. Each outstanding share of Company capital
stock is a common share, duly authorized and validly issued, fully paid and
nonassessable, and no outstanding share of Company capital stock has been issued
in violation of any preemptive or similar rights. As of the date hereof, other
than as set forth in the Company SEC Documents, pursuant to the Company Rights
Agreement or in Section 4.3 to the Company Disclosure Schedule, there are no
outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type relating to
the issuance, sale or transfer by Company or any of its subsidiaries of any
securities of Company, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock of Company, and
Company has no obligation of any kind to issue any additional securities or to
pay for securities of Company or any predecessor. Company has no outstanding
bonds, debentures, notes or other similar obligations the holders of which have
the right to vote generally with holders of Company Common Shares.
4.4 Corporate Power and Authority. Company has all requisite corporate
power and authority to enter into this Agreement and, subject to authorization
of the Merger and the transactions contemplated hereby by
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the holders of Company Common Shares ("Company Shareholders"), to consummate the
transactions contemplated by this Agreement and no other corporate proceedings
on the part of either Company or Company Shareholders are necessary to authorize
the execution, delivery and performance of this Agreement by Company and the
consummation by Company of the transactions contemplated hereby, other than
obtaining the affirmative vote of Company shareholders owning a majority of the
Company Common Shares. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Company, subject to
authorization of the Merger and the transactions contemplated hereby by Company
Shareholders. This Agreement has been duly executed and delivered by Company,
and constitutes the legal, valid and binding obligation of Company enforceable
against Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
4.5 Conflicts, Consents and Approval. Neither the execution and delivery of
this Agreement by Company nor the consummation of the transactions contemplated
hereby will:
(a) conflict with, or result in a breach of any provision of the
Company Articles or Code of Regulations;
(b) except as disclosed in Section 4.5(b) to the Company Disclosure
Schedule, violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice,
the passage of time or otherwise, would constitute a default) under, or
entitle any party (with the giving of notice, the passage of time or
otherwise) to terminate, accelerate, modify or call a default under, or
result in the termination, acceleration or cancellation of, or result in
the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of Company or any of its subsidiaries under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, contract, undertaking, agreement, lease
or other instrument or obligation to which Company or any of its
subsidiaries is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to Company or any of its subsidiaries or their
respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Company or any of its Affiliates with any third
party or any Governmental Authority other than: (i) authorization of the
Merger and the transactions contemplated hereby by Company Shareholders;
(ii) actions required by the HSR Act; and (iii) registrations or other
actions required under federal and state securities laws as are
contemplated by this Agreement; except for any of the foregoing that are
set forth in Section 4.5(d) to the Company Disclosure Schedule and, in the
case of (b), (c) and (d), any of the foregoing that would not, individually
or in the aggregate, have a Company Material Adverse Effect.
4.6 Brokerage and Finder's Fees. Except for Company's obligation to J.P.
Morgan ("J.P. Morgan") (a copy of the written agreement relating to such
obligation having previously been provided to Parent), Company has not incurred
and will not incur, directly or indirectly, any brokerage, finder's or similar
fee in connection with the transactions contemplated by this Agreement. Other
than the foregoing obligation to J.P. Morgan, Company is not aware of any claim
for payment of any finder's fees, brokerage or agent's commissions or other like
payments payable by Company and its Affiliates in connection with the
negotiation of this Agreement or in connection with the transactions
contemplated hereby.
4.7 Opinion of Financial Advisor. Company has received the opinion of J.P.
Morgan to the effect that, as of the date hereof, the Exchange Ratio is fair to
the Company Shareholders from a financial point of view, and a true and complete
copy of such opinion has been delivered to Parent prior to the execution of this
Agreement.
4.8 Accounting Matters. To the best Knowledge of Company, neither Company
nor any of its Affiliates has taken, agreed to take or failed to take any action
that (without giving effect to any actions taken or agreed to be taken by Parent
or any of its Affiliates) would prevent Parent from accounting for the business
combination to be effected by the Merger as a pooling of interests for financial
accounting purposes in
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accordance with Accounting Principles Board Opinion No. 16, the interpretative
releases issued pursuant thereto, and the pronouncements of the Commission
thereon.
4.9 Employee Benefit Plans.
(a) Section 4.9(a) to the Company Disclosure Schedule lists all
Company Plans. With respect to each Company Plan, Company has made
available to Parent a true, correct and complete copy of: (i) each writing
constituting a part of such Company Plan, including without limitation all
plan documents, benefit schedules, trust agreements, and insurance
contracts and other funding vehicles; (ii) the most recent Annual Report
(Form 5500 Series) and accompanying schedule, include if any; (iii) the
current summary plan description, if any; (iv) the most recent annual
financial report, if any; and (v) the most recent determination letter from
the Internal Revenue Service, if any.
(b) Company has made available each favorable determination letter
from the Internal Revenue Service with respect to each Company Plan that is
intended to be a "qualified plan" within the meaning of Section 401(a) of
the Code ("Qualified Company Plan") and, to the Knowledge of Company, there
are no existing circumstances nor any events that have occurred that would
be likely to adversely affect the qualified status of any Qualified Company
Plan or the related trust.
(c) All contributions required to be made to any Company Plan by
Applicable Laws or by any plan document or other contractual undertaking,
and all premiums due or payable with respect to insurance policies funding
any Company Plan, for any period through the date hereof have been timely
made or paid in full and through the Closing Date will be timely made or
paid in full or, to the extent not required to be made or paid on or before
the date hereof or the Closing Date, as applicable, have been or will be
reflected in accordance with generally accepted accounting principles in
the Company SEC Documents filed or to be filed with the Commission.
(d) Company and its subsidiaries have complied, and are now in
compliance, in all material respects, with all provisions of ERISA, the
Code and all laws and regulations applicable to the Company Plans (except
where the failure to do so would not have a Company Material Adverse
Effect). There is not now, and, to the Knowledge of the Company, there are
no existing circumstances that could give rise to, any requirement for the
posting of security with respect to a Company Plan or the imposition of any
material lien on the assets of Company or any of its subsidiaries under
ERISA or the Code.
(e) Except as set forth in Section 4.9(e) to the Company Disclosure
Schedule, no Company Plan is subject to Title IV or Section 302 of ERISA or
Section 412 of the Code, nor has Company or any of its subsidiaries or any
of their respective ERISA Affiliates, at any time within the last five
years before the date hereof, contributed to or been obligated to
contribute to any employee pension benefit plan subject to Title IV of
ERISA or Section 302 of ERISA or Section 412 of the Code. Except as set
forth in Section 4.9(e) to the Company Disclosure Schedule, no Company Plan
is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA
("Multiemployer Plan") or a plan that has two or more contributing sponsors
at least two of whom are not under common control, within the meaning of
Section 4001(a)(3) of ERISA ("Multiple Employer Plan"), nor has Company or
any of its subsidiaries or any of their respective ERISA Affiliates, at any
time within five years before the date hereof, contributed to or been
obligated to contribute to any Multiemployer Plan or Multiple Employer
Plan.
(f) All Company Plans which are employee pension benefit plans, within
the meaning of Section 3(2) of ERISA ("Pension Plans") have been funded,
where required by applicable law, in compliance with the minimum funding
standards of ERISA, and Company has not sought a waiver of the minimum
funding standards under Code Section 412.
(g) With respect to each Pension Plan which is not a Multiemployer
Plan but which is subject to the provisions of Title IV of ERISA, to the
Company's Knowledge, there exists no ground upon which the Pension Benefit
Guaranty Corporation ("PBGC") would demand termination of such plan or
appointment of itself or its nominee as trustee thereunder.
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(h) As of the Closing Date, except as set forth in Section 4.9(h) to
the Company Disclosure Schedule, no liability to the PBGC has been incurred
with respect to the Pension Plans other than premiums due and not yet
payable. All premiums due and payable to the PBGC with respect to the
Pension Plans have been paid in full. The PBGC has not instituted
proceedings to terminate any of the Pension Plans.
(i) No notice of a reportable event has been required to be filed with
the PBGC under Section 4043 of ERISA and the regulations thereunder with
respect to any of the Pension Plans, other than those waived, and except as
set forth in Section 4.9(i) to the Company Disclosure Schedule, there has
been no event described in Section 4062(e) of ERISA which would have a
Company Material Adverse Effect.
(j) Except as set forth in Section 4.9(j) to the Company Disclosure
Schedule, none of the Pension Plans have been terminated or partially
terminated nor have the contributions to any Pension Plans been
discontinued, within the meaning of Section 411(d)(3) of the Code, nor, to
the Knowledge of the Company, have there been any events with regard to
such Pension Plans or their related funding instruments which constitutes
grounds for such a termination, partial termination or discontinuance of
contributions.
(k) Except as set forth in Section 4.9(k) to the Company Disclosure
Schedule, as of December 31, 1997, and using reasonable actuarial
assumptions, the fair market value of assets for each Pension Plan which is
subject to Title IV of ERISA (other than Multiemployer Plans) and which
constitute a "single plan" (as defined in Treasury Regulation Section
1.414(l) -- 1(b)(1)) exceeds the present value of benefits on a projected
benefit obligation basis.
(l) Except as set forth in Section 4.9(l) to the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries has incurred,
within 5 years before the date hereof, any withdrawal liability under Title
IV of ERISA with respect to any Multiemployer Plan.
(m) Neither Company nor any of its subsidiaries nor any of their
respective ERISA Affiliates has engaged in any transaction described in
Section 4204 of ERISA within six (6) years before the date hereof which
would have a Company Material Adverse Effect.
(n) Except as disclosed in Section 4.9(n) of the Company Disclosure
Schedule, or in the Company SEC Documents filed with the Commission as of
the date hereof, and except for health continuation coverage as required by
Section 4980B of the Code or Part 6 of Title I of ERISA, neither Company
nor any of its subsidiaries has any liability for life, health, medical or
other welfare benefits to former Employees or beneficiaries or dependents
thereof which would have a Company Material Adverse Effect. Except as set
forth in Section 4.9(n) to the Company Disclosure Schedule, each Company
Plan disclosed in Section 4.9(a) of the Company Disclosure Schedule
provides that it may be amended or terminated in accordance with its terms.
(o) Except as set forth in Section 4.9(o) of the Company's Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in, cause
the accelerated vesting or delivery of, or increase the amount or value of,
any payment or benefit to any Employee of Company or any of its
subsidiaries. Without limiting the generality of the foregoing and except
as set forth in Section 4.9(o) to the Company Disclosure Schedule, no
amount paid or payable by Company or any of its subsidiaries in connection
with the transactions contemplated hereby either solely as a result thereof
or as a result of such transactions in conjunction with any other events
will be an "excess parachute payment" within the meaning of Section 280G of
the Code.
(p) There are no pending or, to the Knowledge of the Company,
threatened claims (other than claims for benefits in the ordinary course),
lawsuits or arbitrations which have been asserted or instituted against the
Company Plans, any fiduciaries thereof with respect to their duties to the
Company Plans or the assets of any of the trusts under any of the Company
Plans which could reasonably be expected to result in any material
liability of Company or any of its subsidiaries to the PBGC, the Department
of Treasury, the Department of Labor or any Multiemployer Plan.
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(q) With respect to each Company Plan which is an employee benefit
plan under Section 3(3) of ERISA, no prohibited transaction (as defined in
Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary
duty has occurred which would be a material liability of Company or any of
its subsidiaries following the Closing.
4.10 Company SEC Documents. Company has timely filed with the Commission
all forms, registrations and proxy statements, reports, schedules and statements
required to be filed by it since December 31, 1996 under the Exchange Act or the
Securities Act (all documents filed since such date, collectively "Company SEC
Documents"). The Company SEC Documents, including, without limitation, any
financial statements or schedules included therein, at the time filed (in the
case of registration statements and proxy statements, solely on the dates of
effectiveness and the dates of mailing, respectively) (i) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, and (ii)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be. The financial
statements of Company included in the Company SEC Documents at the time filed
(and, in the case of registration statements and proxy statements, on the date
of effectiveness and the date of mailing, respectively) complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the Commission with respect thereto, were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q of the Commission), and fairly present (subject in the case of unaudited
statements to normal, recurring and year-end audit adjustments) in all material
respects the consolidated financial position of Company as at the dates thereof
and the consolidated results of its operations and cash flows for the periods
then ended.
4.11 Taxes. Except as set forth in Section 4.11 to the Company Disclosure
Schedule: (i) Company has duly filed all federal, state, local and foreign
income, franchise, excise, sales, use, gross receipts, severance, real and
personal property and other Tax returns and reports (including, but not limited
to, those filed on a consolidated, combined or unitary basis) required to have
been filed by Company prior to the date hereof, taking into account applicable
extensions, except for such failures to file as would not have a Company
Material Adverse Effect; (ii) all of the foregoing returns and reports are true
and correct in all respects except as would not have a Material Adverse Effect,
and Company has paid or, prior to the Effective Date, will pay all Taxes
required to be paid in respect of the periods covered by such returns or reports
to any federal, state, foreign, local or other taxing authority; (iii) Company
has paid or made adequate provision (in accordance with generally accepted
accounting principles) in the financial statements of Company included in the
Company SEC Documents for all Taxes payable in respect of all periods ending on
or prior to September 30, 1997; (iv) neither Company nor any of its subsidiaries
will have any material liability for any Taxes in excess of the amounts so paid
or reserves so established; (v) no deficiencies for any Tax, assessment or
governmental charge have been proposed in writing, asserted or assessed
(tentatively or definitely), in each case, by any Taxing authority, against
Company or any of its subsidiaries for which there are not adequate reserves (in
accordance with generally accepted accounting principles) except for those that
would not have a Material Adverse Effect; (vi) as of the date of this Agreement,
there are no pending requests for waivers of the time to assess any such Tax,
other than those made in the ordinary course and for which payment has been made
or there are adequate reserves (in accordance with generally accepted accounting
principles); (vii) the federal income Tax returns of Company and its
subsidiaries have been audited by the Internal Revenue Service through the
fiscal year ending December 31, 1992; (viii) Company has not filed an election
under Section 341(f) of the Code to be treated as a consenting corporation; and
(ix) Company Plans, to the extent intended by their express terms to provide
compensation that qualifies as "performance-based compensation" within the
meaning of Section 162(m) of the Code meet the requirements for such treatment
under Section 162(m) of the Code.
4.12 Registration Statement. None of the information provided by Company
for inclusion in the Registration Statement, including the Prospectus, and
relating to the Joint Proxy Statement with respect to the Merger and the vote of
Company Shareholders with respect to the Merger contained therein at the time
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the Registration Statement becomes effective or, in the case of the Joint Proxy
Statement, at the date of mailing, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Each of the
Registration Statement and Joint Proxy Statement, except for such portions
thereof that relate only to Parent and its subsidiaries, will comply as to form
in all material respects with the provisions of the Securities Act and Exchange
Act.
4.13 Compliance with Law. Except as set forth in Section 4.13 to the
Company Disclosure Schedule, each of Company and its subsidiaries is in
compliance with all applicable laws, statutes, orders, rules, regulations,
policies or guidelines promulgated, or judgments, decisions or orders entered by
any Governmental Authority (collectively, "Applicable Laws"), relating to it or
its business or properties, except for any such failures to be in compliance
therewith which, individually or in the aggregate, would not reasonably be
expected to have a Company Material Adverse Effect and its subsidiaries taken as
a whole.
4.14 Litigation. Except as set forth in Section 4.14 to the Company
Disclosure Schedule or in the Company SEC Documents, there is no suit, claim,
action, proceeding or investigation ("Action") pending or, to the Knowledge of
Company, threatened against Company or any of its subsidiaries which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on Company or a material adverse effect on the ability
of Company to consummate the transactions contemplated hereby. Neither Company
nor any of its subsidiaries is subject to any outstanding order, writ,
injunction or decree which, individually or in the aggregate, insofar as can be
reasonably foreseen, would have a Company Material Adverse Effect or a material
adverse effect on the ability of Company to consummate the transactions
contemplated hereby.
4.15 No Material Adverse Change. Except as set forth in or contemplated by
the Company SEC Documents filed with the Commission as of the date hereof or in
Section 4.15 to the Company Disclosure Schedule, since September 30, 1997, each
of Company and its subsidiaries has conducted its business in the ordinary
course, consistent with past practice, and there has been no: (i) material
adverse change in the business or financial condition of Company and its
subsidiaries taken as a whole, other than those occurring as a result of general
economic or financial conditions or other developments which are not unique to
Company and its subsidiaries but also affect other Persons who participate or
are engaged in the lines of business of which Company and its subsidiaries
participate or are engaged; (ii) material adverse effect on the ability of
Company to consummate the transactions contemplated hereby; (iii) declaration,
setting aside or payment of any dividend or other distribution with respect to
its capital stock; or (iv) material change in its accounting principles,
practices or methods.
4.16 Board Meeting. The Board of Directors of Company, at a meeting duly
called and held, has by the required vote of the directors then in office
determined that this Agreement and the transactions contemplated hereby,
including the Merger, taken together, are fair to and in the best interests of
Company and the Company Shareholders.
4.17 Undisclosed Liabilities. Except: (i) as and to the extent disclosed or
reserved against on the consolidated balance sheet of Company as of September
30, 1997 or the notes thereto included in the Company SEC Documents or otherwise
disclosed in the Company SEC Documents filed with the Commission as of the date
hereof; (ii) as incurred after the date thereof in the ordinary course of
business consistent with prior practice and not prohibited by this Agreement; or
(iii) as set forth in Section 4.17 to the Company Disclosure Schedule, neither
Company nor any of its subsidiaries have any liabilities or obligations of any
nature, whether known or unknown, absolute, accrued, contingent or otherwise and
whether due or to become due, and that would be required by generally accepted
accounting principles to be disclosed and that, individually or in the
aggregate, have or would reasonably be expected to have a Company Material
Adverse Effect.
4.18 Labor Relations. There is no unfair labor practice complaint against
Company or any of its subsidiaries pending before the NLRB and there is no labor
strike, dispute, slowdown or stoppage, or any union organizing campaign,
actually pending or, to the Knowledge of Company, threatened against Company or
any of its subsidiaries, except for any such proceedings which would not
reasonably be expected to have a
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Company Material Adverse Effect. Except as disclosed in the Company SEC
Documents or as set forth in Section 4.18 to the Company Disclosure Schedule,
neither Company nor any of its subsidiaries is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization. To the Knowledge of Company, there are
no organizational efforts with respect to the formation of a collective
bargaining unit presently being made or threatened involving Employees of
Company.
4.19 Operation of Company's Business. Since September 30, 1997 through the
date of this Agreement, none of Company or any of its subsidiaries has engaged
in any transaction which, if closed after execution of this Agreement, would
violate Section 5.3(c) hereof except as described or reflected in the Company
SEC Documents or as set forth in Section 4.19 to the Company Disclosure
Schedule.
4.20 Permits; Compliance. Each of Company and its subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
(collectively, "Permits") necessary to own, lease and operate its properties and
to carry on its business as it is now being conducted, except for any such
Permits the failure of which to possess, individually or in the aggregate, would
not reasonably be expected to have a Company Material Adverse Effect.
4.21 Environmental Matters.
(a) As used herein, the term "Environmental Laws" means all federal,
state, local or foreign laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or industrial,
toxic or hazardous substances or wastes (collectively, "Hazardous
Materials") into the environment, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal transport or
handling of Hazardous Materials, as well as all authorizations, codes,
decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(b) Except as set forth in the Company SEC Documents filed with the
Commission as of the date hereof or in Section 4.21(b) to the Company
Disclosure Schedule, there are, with respect to Company, its subsidiaries
or any predecessor of the foregoing, no past or present violations of
Environmental Laws, releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability
or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws, other than those which, individually or in the aggregate,
would not reasonably be expected to have a Company Material Adverse Effect,
and none of Company and its subsidiaries has received any notice with
respect to any of the foregoing, nor is any Action pending or the Company's
Knowledge threatened in connection with any of the foregoing.
(c) To Company's Knowledge, except as set forth in the Company SEC
Documents filed with the Commission as of the date hereof or in Section
4.21(c) to the Company Disclosure Schedule, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by
Company or any of its subsidiaries and no Hazardous Materials were released
on or about any real property previously owned, leased or used by Company
or any of its subsidiaries during the period the property was so owned,
leased or used, except in the normal course of Company's business except,
in any case, as could reasonably be expected not to have a Company Material
Adverse Effect.
4.22 Company Stock Ownership. Except as set forth in Section 4.22 to the
Company Disclosure Schedule, neither Company nor any of its subsidiaries owns
any shares of Common Stock or other securities convertible into Common Stock.
4.23 Contracts. Except as set forth in Section 4.23 to the Company
Disclosure Schedule, none of Company, any of its subsidiaries, or, to the
Knowledge of Company, any other party thereto is in violation of or in default
in respect of, nor has there occurred an event or condition which with the
passage of time or giving
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of notice (or both) would constitute a default by Company under, any contract,
agreement, guarantee, lease or executory commitment ("Company Contract")to which
it is a party, except such violations or defaults under such Company Contracts
which, individually or in the aggregate, would not have a Company Material
Adverse Effect.
4.24 Vote Required. The affirmative vote of the holders of record of at
least a majority of the outstanding Company Common Shares with respect to the
Merger are the only votes of the holders of any class or series of the capital
stock of Company required to approve the Merger and the other transactions
contemplated hereby.
4.25 Company Rights Agreement. As of the date hereof and after giving
effect to the execution and delivery of this Agreement, each Company Right is
represented by the certificate representing the associated Company Common Share
and is not exercisable or transferable apart from the associated share of
Company Common Share, and the execution and delivery of this Agreement will not
result in Parent becoming an "Acquiring Person" and the execution and delivery
of, and the consummation of the transactions contemplated by, this Agreement
will not result in a "Distribution Date" or a "Shares Acquisition Date" (each,
as defined in the Company Rights Agreement).
4.26 Antitakeover Statutes Not Applicable. Company has taken all necessary
actions so that no "fair price", "moratorium", "control share acquisition" or
other similar antitakeover statute or regulation will apply to this Agreement,
the Merger or the other transactions contemplated hereby.
ARTICLE V
COVENANTS OF THE PARTIES
The parties hereto agree as follows with respect to the period from and
after the execution of this Agreement.
5.1 Mutual Covenants.
(a) General. Company and Parent shall use, respectively, their best
commercial efforts to take all action and to do all things necessary,
proper or advisable to consummate the Merger and the transactions
contemplated by this Agreement; including, without limitation, using,
respectively, their best efforts to cause the conditions set forth in
Article VI to the other's obligations to be satisfied as soon as reasonably
practicable and will not take or fail to take any action that could
reasonably be expected to result in nonfulfillment of such condition, and
to prepare, execute and deliver such further instruments and take or cause
to be taken such other and further action as any other party hereto shall
reasonably request to consummate the Merger.
(b) HSR Act. Within ten (10) Business Days after the date hereof,
Company and Parent will make such filings as may be required by the HSR Act
with respect to the consummation of the transactions contemplated by this
Agreement and will use best efforts to obtain early termination of any
waiting period under the HSR Act. Company and Parent will file or cause to
be filed as promptly as practicable with the United States Department of
Justice ("Justice Department") any supplemental information which may be
requested pursuant to the HSR Act. All filings referred to in this Section
5.1(b) will comply in all material respects with the requirements of the
respective laws pursuant to which they are made.
Without limiting the generality or effect of the foregoing, and
notwithstanding any provision herein to the contrary, Company and Parent
will: (i) use best efforts to comply as expeditiously as possible with all
lawful requests of Governmental Authorities for additional information and
documents pursuant to the HSR Act; (ii) not (A) extend any waiting period
under the HSR Act or (B) enter into any voluntary agreement with any
Governmental Authorities not to consummate the transactions contemplated by
this Agreement, except with the prior consent of the other; and (iii)
cooperate with each other and use best efforts to obtain the requisite
approval of the FTC and Justice Department, including, without limitation,
(A) the removal, dissolution, stay, or dismissal of any temporary
restraining order which prevents the consummation of the transactions
contemplated by this Agreement or requires as a condition thereto that
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all or any part of the Business be held separate, or (B) the pursuit of
necessary litigation or administrative proceedings (including, if
necessary, participation in proceedings through the trial court level).
(c) Other Governmental Matters. Company and Parent shall use their
best efforts to take any additional action that may be necessary, proper or
advisable in connection with any other notices to, filings with, and
authorizations, consents and approvals of any Governmental Authority and
any third parties that it may be required to give, make or obtain.
(d) Pooling-of-Interests. Company and Parent shall not knowingly take
or fail to take any action that would cause the Merger not to qualify for
pooling of interests accounting treatment for financial reporting purposes.
(e) Tax-Free Treatment. Company and Parent shall not take or fail to
take any action that would cause the Merger not to constitute a Tax-free
"reorganization" under Section 368(a) of the Code.
(f) Public Announcements. Unless otherwise required by Applicable Laws
or requirements of the National Association of Securities Dealers or the
NYSE (and in that event only if time does not permit), at all times prior
to the earlier of the Effective Date or termination of this Agreement
pursuant to Section 7.1, Company and Parent shall not issue any press
release with respect to the Merger without the consent of the other, whose
consent shall not be unreasonably withheld.
(g) Access. From and after the date of this Agreement until the
Effective Date (or the termination of this Agreement), Company and Parent
shall permit representatives of the other to have appropriate access at all
reasonable times to the other's premises, properties, books, records,
contracts, tax records, documents, customers and suppliers in a manner that
will not unreasonably interfere with the other operations. Information
obtained by Parent and Company pursuant to this Section 5.1(g) shall be
subject to the provisions of the confidentiality agreement between them
dated January 20, 1998 ("Confidentiality Agreement"), which agreement
remains in full force and effect.
(h) Certain Actions. Without limiting the generality of, with respect
to Company, Section 5.3(c), and with respect to Parent, Section 5.2(c),
during the period from the date of this Agreement to the Effective Date or
the earlier termination of this Agreement pursuant to Section 7.1, neither
Company nor Parent shall, except as otherwise expressly contemplated by
this Agreement and the transactions contemplated hereby or as set forth in
Section 5.1(h) to each of the parties respective disclosure schedules,
without the prior written consent of the other party, which consent shall
not be unreasonably withheld:
(i) do or effect any of the following actions with respect to its
securities: (A) adjust, split, combine or reclassify its capital stock;
(B) make, declare or pay any dividend or distribution (except for the
declaration and payment of regular quarterly cash dividends on Company
Common Shares and Common Stock, respectively, in each case with usual
record and payment dates for such dividends in accordance with past
dividend practices) on, or directly or indirectly redeem, purchase or
otherwise acquire, any shares of its capital stock or any securities or
obligations convertible into or exchangeable for any shares of its
capital stock (except in connection with the use of shares of capital
stock to pay the exercise price or tax withholding in connection with
stock-based employee benefit plans of the parties or any of their
respective subsidiaries); (C) grant any person any right or option to
acquire any shares of its capital stock other than pursuant to a
currently authorized stock option plan; (D) issue, deliver or sell or
agree to issue, deliver or sell any additional shares of its capital
stock or such securities (except pursuant to the exercise of outstanding
convertible securities, warrants, options or rights to purchase Common
Stock or Company Common Shares and other than the issuance of Parent
Rights and reservation of Parent Series C Preferred Stock pursuant to
the Parent Rights Agreement in accordance with the terms thereof); or
(E) enter into any agreement, understanding or arrangement with respect
to the sale or voting of its capital stock other than pursuant to the
provisions of this Agreement.
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(ii) sell, transfer, lease, pledge, mortgage, encumber or otherwise
dispose of any of its property or assets which are material,
individually or in the aggregate, other than in the ordinary course of
business consistent with past practice;
(iii) make or propose any changes in its Articles of Incorporation
or Bylaws (or other similar organizational documents), each as amended
and restated, or other organizational documents, other than the Parent
Amendment;
(iv) merge or consolidate with any other person or acquire a
material amount of assets or capital stock of any other person other
than in connection with this Agreement and the transactions contemplated
hereby;
(v) incur, create, assume or otherwise become liable for
indebtedness for borrowed money, other than in the ordinary course of
business consistent with past practice, or assume, guarantee, endorse or
otherwise as an accommodation become responsible or liable for
obligations of any other individual, corporation or other entity, other
than in the ordinary course of business consistent with past practice;
(vi) enter into or modify any employment, severance, termination or
similar agreements or arrangements with, or grant any bonuses, salary
increases, severance or termination pay to, any officer, director,
consultant or employee other than salary increases and bonuses granted,
or modifications made, in the ordinary course of business consistent
with past practice, or otherwise increase the compensation or benefits
provided to any officer, director, consultant or employee except as may
be required by Applicable Law, this Agreement, any applicable collective
bargaining agreement or a binding written contract in effect on the date
of this Agreement;
(vii) materially change its method of doing business or materially
change any method or principle of accounting in a manner that is
inconsistent with past practice;
(viii) settle any Actions, whether now pending or hereafter made or
brought involving an amount in excess of $250,000;
(ix) except in the ordinary course of business, modify, amend or
terminate, or waive, release or assign any material rights or claims
with respect to, any material contract to which either is a party or any
confidentiality agreement to which either is a party;
(x) incur or commit to any capital expenditures, obligations or
liabilities in respect thereof, other than in the ordinary course of
business consistent with past practice or pursuant to a capital
expenditure program previously approved by the Board of Directors or
otherwise currently underway;
(xi) take any action to exempt under or make not subject to any
applicable state takeover law or state law that purports to limit or
restrict business combinations or the ability to acquire or vote shares,
any person or entity (other than between the parties or their
subsidiaries) or any action taken thereby, which person, entity or
action would have otherwise been subject to the restrictive provisions
thereof and not exempt therefrom;
(xii) permit or cause any subsidiary to do any of the foregoing or
agree or commit to do any of the foregoing; or
(xiii) agree in writing or otherwise to take any of the foregoing
actions.
(i) Brokers or Finders. Each of Parent and Company shall indemnify and
hold the other harmless from and against any and all claims, liabilities or
obligations with respect to any brokerage, finders or similar fee or
commission or expenses related to Lehman Brothers, in the case of Parent,
and J.P. Morgan, in the case of Company, or asserted by any person on the
basis of any act or statement alleged to have been made by such party or
its Affiliate.
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5.2 Covenants of Parent.
(a) Parent Shareholders' Meeting. Parent shall take all action in
accordance with Applicable Laws and the Parent Articles and Bylaws
necessary to convene a meeting of Parent Shareholders as promptly as
practicable to consider and vote upon the Parent Shareholder
Authorizations.
(b) Preparation of Joint Proxy Statement. Parent shall cooperate with
Company to, and shall, as soon as is reasonably practicable, prepare and
file a Joint Proxy Statement and Registration Statement and all required
amendments and supplements with the Commission and shall cooperate with
Company to, and shall, use all reasonable efforts to respond to comments
and to have the Registration Statement declared effective by the Commission
as promptly as practicable and to maintain the effectiveness of the
Registration Statement through the Effective Date. Parent shall use its
best commercial efforts to mail at the earliest practicable date to Parent
Shareholders the Joint Proxy Statement, which shall include all information
required under Applicable Laws to be furnished to Parent Shareholders in
connection with the Merger, the transactions contemplated thereby and the
authorization of additional shares. Parent shall advise Company promptly
after it receives notice of (i) the Registration Statement being declared
effective or any supplement or amendment thereto being filed with the
Commission, (ii) the issuance of any stop order in respect of the
Registration Statement, and (iii) the receipt of any correspondence,
comments or requests from the Commission in respect of the Registration
Statement (copies of which it shall furnish to Company). Parent shall give
Company and its counsel the opportunity to review the Joint Proxy Statement
and the Registration Statement and all responses to requests for additional
information by and replies to comments of the SEC before their being filed
with or sent to the SEC. Parent also shall cooperate with Company to, and
shall, take such other reasonable actions (other than qualifying to do
business in any jurisdiction in which it is not so qualified) required to
be taken under any applicable state securities laws in connection with the
issuance of shares of Parent Common Stock in the Merger.
(c) Conduct of Parent's Operations. During the period from the date of
this Agreement to the Effective Date, and except as set forth in Section
5.2(c) to the Parent Disclosure Schedule, Parent shall conduct its
operations in the ordinary course except as expressly contemplated by this
Agreement and the transactions contemplated hereby and shall use its best
commercial efforts to maintain and preserve its business organization and
its material rights and franchises and to retain the services of its
officers and key Employees and maintain relationships with customers,
suppliers and other third parties to the end that their goodwill and
ongoing business shall not be impaired in any material respect.
(d) Indemnification. Parent shall cause the Surviving Corporation to
keep in effect provisions in its Articles of Incorporation and Code of
Regulations providing for exculpation of director and officer liability and
indemnification of the Indemnified Parties to the fullest extent permitted
under Applicable Law, which provisions shall not be amended except as
required by Applicable Law or except to make changes permitted by law that
would enlarge the Indemnified Parties' right of indemnification and shall
cause the Surviving Corporation to indemnify in accordance therewith. In
the event of any actual or threatened claim, action, suit, proceeding or
investigation in respect of such acts or omissions, (i) Parent shall cause
the Surviving Corporation to pay the reasonable fees and expenses of
counsel selected by the indemnified party, which counsel shall be
reasonably acceptable to Parent, in advance of the final disposition of any
such action to the full extent permitted by Applicable Law, upon receipt of
any undertaking required by Applicable Law, and (ii) Parent shall cause the
Surviving Corporation to cooperate in the defense of any such matter;
provided, however, that the Surviving Corporation shall not be liable for
any settlement effected without its written consent (which consent shall
not be unreasonably withheld).
(e) Directors' and Officers' Insurance. Parent agrees to use its best
commercial efforts to cause the Surviving Corporation to maintain in effect
for not less than six years after the Effective Date the current policies
of directors' and officers' liability insurance maintained by Company with
respect to matters occurring prior to the Effective Date; provided,
however, that (i) the Surviving Corporation may substitute therefor
policies of comparable coverage containing terms and conditions which, when
taken as a whole, are no less advantageous to the covered officers and
directors and (ii) the Surviving Corporation shall not be required to pay
an annual premium for such insurance coverage in excess of 200% of the
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current annual premium paid by Company for its existing coverage, but in
such case shall purchase as much coverage as possible for such amount.
(f) Employee Benefits. Without limiting the effect of Section 2.3
Parent covenants and agrees that, from and after the Effective Date, it
will cause the Surviving Corporation and its subsidiaries to provide for
the benefit of employees of the Surviving Corporation and its subsidiaries
either (i) benefits that are no less favorable, in the aggregate, as those
provided to Employees or Former Employees of Company or its subsidiaries
immediately prior to the date of this Agreement, or (ii) benefits that are
no less favorable, in the aggregate, as those provided to employees of
Parent or its subsidiaries after the Effective Date. If any Employee (as
defined below) becomes a participant in any employee benefit or
compensation plan of Parent, a Parent subsidiary (other than the Surviving
Corporation) or a Parent affiliate, such Employee shall be given credit
under such plan for all service with Company and its subsidiaries,
affiliates and predecessors which is recognized by Company under a similar
Company Plan and is rendered prior to the time the Employee becomes such a
participant, for all purposes; provided, however, such service credit shall
not result in a duplication of benefits. To the extent employee benefit
plans of Parent or its subsidiaries or affiliates provide medical or dental
welfare benefits to Employees or Former Employees (as defined below) after
the Effective Date, such plans shall waive any preexisting conditions,
medical certifications and actively-at-work exclusions and shall provide
that any expenses incurred on or before the Effective Date shall be taken
into account under such plans for purposes of satisfying applicable
deductible, coinsurance and maximum out-of-pocket provisions. For purposes
of the foregoing, (i) "Employees" shall mean the employees of Company or a
subsidiary of Company whose terms of employment are not subject to a
collective bargaining agreement immediately prior to the Effective Date,
including, without limitation, any employee who is absent at the Effective
Date on short-term disability, long-term disability, Workers' Compensation
or an authorized leave (such as maternity, military, family and medical
leaves or other leaves where return to work is subject to statutory
requirements), and (ii) "Former Employees" shall mean any former Employees
of Company or a Company subsidiary whose employment terminated prior to the
Effective Date (whether by retirement or otherwise).
Parent shall cause the Surviving Corporation and its subsidiaries to
honor all Company's existing agreements with any Employee.
(g) Notification of Certain Matters. Parent shall give prompt notice
to Company of and will use all commercially reasonable efforts to cure (i)
the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any Parent or Subcorp representation or
warranty contained in this Agreement to be untrue or inaccurate at or prior
to the Effective Date and (ii) any material failure of Parent to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.2(g) shall not limit or otherwise affect
the remedies available hereunder to Company.
(h) Parent Shareholders' Approvals. Parent shall, as promptly as
practicable, submit the issuance of Parent Common Stock in the Merger as
required by the NYSE for the approval of its shareholders at a meeting of
its shareholders ("Parent Shareholders' Meeting") and shall, subject to the
fiduciary duties of the Board of Directors of Parent under Louisiana Law,
use its reasonable best efforts to obtain the Parent Shareholder
Authorizations. Parent shall, through its Board of Directors (i) subject to
the fiduciary duties of the members thereof under Louisiana Law, recommend
to its shareholders approval of Parent Shareholder Authorizations and (ii)
authorize and cause an officer of Parent to vote Parent's shares of common
stock of the Subcorp for approval and adoption of this Agreement and the
transactions contemplated hereby and shall take all additional actions as
the sole shareholder of Subcorp necessary to approve and adopt this
Agreement and the transactions contemplated hereby.
(i) Affiliates of Parent. The Persons named in Section 5.2(i) to the
Parent Disclosure Schedule are, to Parent's Knowledge, the only Persons who
may be deemed Affiliates of Parent under Rule 145 of the 1933 Act. Each
person named in Section 5.2(i) to the Parent Disclosure Schedule has
executed a written agreement substantially in the form of Exhibit A. At
least 30 days prior to the Effective Date, Parent shall deliver to the
Company a list of names and addresses of those Persons who were, in
Parent's
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reasonable judgment, at the record date for the Parent Shareholders'
Meeting, Affiliates of Parent within the meaning of Rule 145 of the 1933
Act (each such person, "Parent Affiliate"). Parent shall use all reasonable
efforts to deliver or cause to be delivered to the Company, prior to the
Effective Date, from each of the Parent Affiliates identified in the
foregoing list, a written agreement substantially in the form of Exhibit A.
(j) Change in Control. Parent agrees that the consummation of the
Merger shall constitute a "Change in Control" of Company for all purposes
within the meaning of all compensation or benefit plans or agreements of
Company and its subsidiaries.
(k) Directors of Parent. Parent shall cause its Board of Directors to
take such action as may be necessary to increase the size of Parent's Board
of Directors from ten (10) to thirteen (13) members and shall cause to be
appointed to the Board of Directors of Parent Robert S. Evans and George E.
Uding, Jr., effective immediately following the Effective Date. At the next
annual meeting of Parent Shareholders thereafter, the Board of Directors of
Parent shall cause to be nominated (i) George E. Uding, Jr. for election as
a Class III Director with a term of office expiring in 2000, and (ii)
Robert S. Evans for election as a Class I Director with a term of office
expiring in 2001.
5.3 Covenants of Company.
(a) Company Shareholders' Meeting. Company shall take all action in
accordance with Applicable Laws and its Articles of Incorporation and Code
of Regulations, each as amended and restated, necessary to convene a
meeting of Company Shareholders as promptly as practicable to consider and
vote upon the approval of the Merger, this Agreement and the transactions
contemplated hereby.
(b) Information for the Registration Statement and Preparation of
Joint Proxy Statement. Company shall promptly furnish Parent with all
information concerning it as may be required for inclusion in the
Registration Statement. Company shall cooperate with Parent in the
preparation of the Registration Statement in a timely fashion and in
Parent's efforts to have the Registration Statement declared effective by
the Commission as promptly as practicable. If at any time prior to the
Effective Date, any information pertaining to Company contained in or
omitted from the Registration Statement makes such statements contained in
the Registration Statement false or misleading, Company shall promptly so
inform Parent and provide Parent with the information necessary to make
statements contained therein not false and misleading. Company shall use
all reasonable efforts to mail at the earliest practicable date to Company
Shareholders the Joint Proxy Statement, which shall include all information
required under Applicable Laws to be furnished to Company Shareholders in
connection with the Merger and the transactions contemplated thereby.
(c) Conduct of Company's Operations. During the period from the date
of this Agreement to the Effective Date, Company shall conduct its
operations in the ordinary course except as expressly contemplated by this
Agreement and the transactions contemplated hereby and shall use its best
commercial efforts to maintain and preserve its business organization and
its material rights and franchises and to retain the services of its
officers and key employees and maintain relationships with customers,
suppliers and other third parties to the end that their goodwill and
ongoing business shall not be impaired in any material respect.
(d) No Solicitation. Company agrees that, during the term of this
Agreement, it shall not, and shall not authorize or permit any of its
subsidiaries or any of its or its subsidiaries' directors, officers,
employees, agents or representatives, directly or indirectly, to: (i)
solicit, initiate, encourage or facilitate, or furnish or disclose
non-public information in furtherance of, any inquiries or the making of
any proposal with respect to any recapitalization, merger, consolidation or
other business combination involving Company, or acquisition of 10% or more
of the capital stock or any material portion of the assets (except as set
forth in Section 5.3(d) to the Company Disclosure Schedule and except for
acquisition of assets in the ordinary course of business consistent with
past practice) of Company, or any combination of the foregoing ("Company
Competing Transaction"); (ii) negotiate, explore or otherwise engage in
discussions with any person (other than Parent, Subcorp or their respective
directors, officers,
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employees, agents and representatives) with respect to any Company
Competing Transaction; or (iii) enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transactions contemplated by this Agreement; provided,
however, that nothing contained in this Section 5.3(d) shall prohibit the
Board of Directors of Company from (i) furnishing information to (but only
pursuant to a confidentiality agreement in customary form and having terms
and conditions no less favorable to Company than the Confidentiality
Agreement) or entering into discussions or negotiations with any person or
group that makes an unsolicited bona fide written proposal for a Company
Competing Transaction (an "Alternative Proposal"), if, and only to the
extent that, (A) the Board of Directors of Company, based upon the written
opinion of outside counsel (a copy of which shall be provided promptly to
Parent), determines in good faith that such action is required for the
Board of Directors to comply with its fiduciary duties to shareholders
imposed by law, (B) such Alternative Proposal is not conditioned on the
receipt of financing, the Board of Directors has reasonably concluded in
good faith that the person or group making such Alternative Proposal will
have adequate sources of financing to consummate such Alternative Proposal
and that such Acquisition Proposal is more favorable to the Company's
shareholders than the Merger, and the Board of Directors has received a
written opinion from a nationally-recognized investment banking firm (a
copy of which shall be provided promptly to Parent) to the effect that the
consideration to be received by shareholders of Company in connection with
such Alternative Proposal is superior, from a financial point of view, to
the consideration to be received by them in the Merger, (C) prior to
furnishing such information to, or entering into discussions or
negotiations with, such person or entity, Company provides written notice
to Parent to the effect that it is furnishing information to, or entering
into negotiations with, such Person, and (D) Company keeps Parent informed
of the status and all material information with respect to any such
discussions or negotiations, and (ii) to the extent applicable, complying
with Rule 14e-2 promulgated under the Exchange Act with regard to an
Alternative Proposal.
(e) Affiliates of Company. The Persons named in Section 5.3(e) to the
Company Disclosure Schedule are, to Company's Knowledge, the only Persons
who may be deemed Affiliates of Company under Rule 145 of the 1933 Act.
Each person in Section 5.3(e) to the Company Disclosure Schedule has
executed a written agreement substantially in the form of Exhibit B. At
least 30 days prior to the Effective Date, Company shall deliver to Parent
a list of names and addresses of those Persons who were, in Company's
reasonable judgment, at the record date for the Company's Shareholders'
Meeting, affiliates of Company within the meaning of Rule 145 of the 1933
Act (each such person, "Company Affiliate"). Company shall use all
reasonable efforts to deliver or cause to be delivered to the Parent, prior
to the Effective Date, from each of the Company Affiliates identified in
the foregoing list, a written agreement substantially in the form of
Exhibit B.
(f) Notification of Certain Matters. Company shall give prompt notice
to Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any Company
representation or warranty contained in this Agreement to be untrue or
inaccurate at or prior to the Effective Date and (ii) any material failure
of Company to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that
the delivery of any notice pursuant to this Section 5.3(f) shall not limit
or otherwise affect the remedies available hereunder to Parent.
(g) Letter Agreement and Irrevocable Proxy. Each of Robert S. Evans,
George E. Uding, Jr., Robert J. Kane, R. Breck Denny, and each other person
who is a member of the Board of Directors of Company (other than Mone
Anathan III and Jean Gaulin), shall have executed as of the date of this
Agreement a letter in the form attached hereto as Exhibit C.
(h) Incentive Plan Letter Agreement. Each person who is a participant
in Company's 1991 Long-Term Incentive Plan ("Incentive Plan") and who is
subject to the provisions of Section 16(b) of the Exchange Act shall have
executed as of the date of this Agreement a letter in the form attached as
Exhibit D to the effect that such person has waived his or her right, as
contemplated in Section 6.05 of the Incentive Plan, to surrender for
cancellation following the Change of Control (as defined in the
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Incentive Plan) contemplated by this Agreement any Option (as defined in
the Incentive Plan) held by such person and to receive a cash payment
therefor.
(i) Company Rights Agreement. The Board of Directors of Company has
approved and Company has executed, and promptly after the execution of this
Agreement the Company will cause the Rights Agent under the Company Rights
Agreement to execute and deliver, an amendment to the Company Rights
Agreement which provides and specifically confirms that: (i) neither this
Agreement, the Merger nor any of the other transactions contemplated hereby
(A) will cause Parent to become an "Acquiring Person," or result in the
occurrence of a "Shares Acquisition Date" or the occurrence of a
"Distribution Date" (as defined in the Company Rights Agreement), (B) will
permit any Person to have the right under the Company Rights Agreement to
acquire, or to make the Company Rights ever exercisable for, any securities
of Parent, or (C) will require the sending of any notices under the Company
Rights Agreement; (ii) the Rights (as such term is defined in the Company
Rights Agreement) will expire immediately prior to or simultaneously with
the Effective Date; and (iii) this Agreement, the Merger, the other
transactions and all actions of Parent and its Affiliates contemplated
hereby will be excluded and exempt from the operation of and will not
trigger the provisions of the Company Rights Agreement (including, without
limitation, Sections 11(a) and 13 and all similar provisions).
ARTICLE VI
CONDITIONS
6.1 Mutual Conditions. The obligations of the parties to consummate the
Merger shall be subject to fulfillment of the following conditions:
(a) No temporary restraining order, preliminary or permanent
injunction or other order or decree which prevents the consummation of the
Merger shall have been issued and remain in effect, and no statute, rule or
regulation shall have been enacted by any Governmental Authority which
prevents the consummation of the Merger.
(b) All waiting periods applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated and all other
consents, approvals, permits or authorizations required to be obtained
prior to the Effective Date from any Governmental Authority in connection
with the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby shall have been obtained, failure to
obtain which would reasonably be expected to have a Parent Material Adverse
Effect following the Effective Date.
(c) The Merger and the transactions contemplated hereby shall have
been approved by the Company Shareholders in the manner required by any
Applicable Law.
(d) The Parent Shareholder Authorizations shall have been approved by
the Parent Shareholders in the manner required by any Applicable Law.
(e) The Commission shall have declared the Registration Statement
effective. On the Closing Date and at the Effective Date, no stop order or
similar restraining order shall have been threatened by the Commission or
entered by the Commission or any state securities administrator prohibiting
the Merger.
(f) Parent shall have received an opinion of Bracewell & Patterson,
L.L.P. and Company shall have received an opinion of Milbank, Tweed, Hadley
& McCloy substantially to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion which are
consistent with the state of the facts then existing, under Applicable Law,
for Federal income tax purposes, the Merger will constitute a
reorganization under Section 368(a) of the Code. In rendering such
opinions, Bracewell & Patterson, L.L.P. and Milbank, Tweed, Hadley & McCloy
may require and rely on representations contained in certificates of
Parent, Company, Subcorp and others, as they deem reasonably appropriate.
(g) Parent shall have received a letter, in form and substance
reasonably satisfactory to Parent, from Deloitte and Touche LLP, dated the
Closing Date, stating that Deloitte & Touche LLP concurs
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with the Parent's conclusion that, as of the date of their report, no
conditions exist that would preclude the Parent's accounting for the Merger
as a pooling of interests.
(h) Company shall have received a letter, in form and substance
reasonably satisfactory to Company, from Deloitte & Touche LLP, dated the
Closing Date, stating that Deloitte & Touche LLP concurs with the Company's
conclusion that, as of the date of their report, no conditions exist that
would preclude the Company's ability to be a party in a business
combination to be accounted for as a pooling of interests.
(i) The shares of Parent Common Stock to be issued in the Merger shall
have been authorized for listing on the NYSE, subject to official notice of
issuance.
6.2 Conditions to Obligations of Company. The obligations of Company to
consummate the Merger and the transactions contemplated hereby shall be subject
to the fulfillment of the following conditions unless waived by Company:
(a) The representations and warranties of each of Parent and Subcorp
set forth in Article IV shall be true and correct on the date hereof and on
and as of the Closing Date as though made on and as of the Closing Date
(except for representations and warranties made as of a specified date,
which need be true and correct only as of the specified date), except as
affected by the transactions contemplated by this Agreement and except for
such inaccuracies which have not had and would not reasonably be expected
to have in the reasonably foreseeable future a Parent Material Adverse
Effect.
(b) Each of Parent and Subcorp shall have performed in all material
respects each obligation and agreement and shall have complied in all
material respects with each covenant to be performed and complied with by
it hereunder at or prior to the Effective Date.
(c) Each of Parent and Subcorp shall have furnished Company with a
certificate dated the Closing Date signed on behalf of it by the Chairman,
President or any Vice President to the effect that the conditions set forth
in Sections 6.2(a) and (b) have been satisfied.
(d) On or prior to the Closing Date, the Parent Rights shall not have
become exercisable or transferable apart from the associated shares of
Common Stock, no "Stock Acquisition Date" or "Distribution Date" (each as
defined in the Parent Rights Agreement) shall have occurred and the Parent
Rights shall not have become nonredeemable, in each case other than as a
result of actions by Company or any of its Affiliates.
6.3 Conditions to Obligations of Parent and Subcorp. The obligations of
Parent to consummate the Merger and the other transactions contemplated hereby
shall be subject to the fulfillment of the following conditions unless waived by
each of Parent and Subcorp:
(a) The representations and warranties of Company set forth in Article
III shall be true and correct on the date hereof and on and as of the
Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which need be
true and correct only as of the specified date), except as affected by the
transactions contemplated by this Agreement and except for such
inaccuracies which have not had and would not reasonably be expected to
have in the reasonably foreseeable future a Company Material Adverse
Effect.
(b) Company shall have performed in all material respects each
obligation and agreement and shall have complied in all material respects
with each covenant to be performed and complied with by it hereunder at or
prior to the Effective Date.
(c) Company shall have furnished Parent with a certificate dated the
Closing Date signed on its behalf by its Chairman, President or any Vice
President to the effect that the conditions set forth in Sections 6.3(a),
(b) and (d) have been satisfied.
(d) Company shall not have received, prior to the end of the ten (10)
day period set out in section 1701.85(A)(2) of the OGCL, notice from the
holder or holders of more than five percent (5%),
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on a fully diluted common stock basis, of the Company Shares issued and
outstanding on the record date for the determination of Company
Shareholders entitled to vote on the Merger who have not voted in favor of
the Merger, have perfected their appraisal rights under the OGCL and have
not withdrawn or lost such rights that such holders have exercised or
intend to exercise their appraisal rights under Sections 1701.84 and
1701.85 of the OGCL. Company will give prompt notice to Parent of any such
notice and deliver copies to Parent the next business day after any such
notice is received.
(e) On or prior to the Closing Date, the Company Rights shall not have
become exercisable or transferable apart from the associated shares of
Company Common Shares, no "Shares Acquisition Date" or "Distribution Date"
(each as defined in the Company Rights Agreement) shall have occurred and
the Company Rights shall not have become nonredeemable, in each case other
than as a result of actions by Parent or any of its Affiliates.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Date, whether before or after approval and adoption of this Agreement
by Company Shareholders and approval of the Parent Shareholder Authorizations:
(a) by mutual consent of Company and Parent;
(b) by either Company or Parent if any permanent injunction or other
order or decree of a court or other competent Governmental Authority
preventing the consummation of the Merger shall have become final and
nonappealable, provided that the party seeking to terminate this Agreement
under Section 7.1(b) shall have used its best commercial efforts to remove
such injunction, order or decree;
(c) by either Company or Parent if the Merger shall not have been
consummated before September 30, 1998, unless extended by the Boards of
Directors of both Company and Parent (provided that the right to terminate
this Agreement under this Section 7.1(c) shall not be available to any
party whose failure or whose affiliate's failure to perform any material
covenant or obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date);
(d) by either Company or Parent if at the meeting of Company
Shareholders held for such purpose (including any adjournment or
postponement thereof) the requisite vote of the Company Shareholders to
approve the Merger and the transactions contemplated hereby shall not have
been obtained;
(e) by either Company or Parent if at the meeting of Parent
Shareholders held for such purpose (including any adjournment or
postponement thereof) the requisite vote of the Parent Shareholders to
approve the Parent Shareholder Authorizations shall not have been obtained;
(f) by either Company or Parent (provided that the terminating party
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material
breach of any of the covenants or agreements or any of the representations
or warranties set forth in this Agreement on the part of the other party,
which breach is not cured within thirty (30) days following written notice
given by the terminating party to the party committing such breach, or
which breach, by its nature, cannot be cured prior to the Closing;
(g) by Company if its Board of Directors shall in good faith determine
that a competing transaction is more favorable to its shareholders in the
aggregate and from a financial point of view than the transactions
contemplated by this Agreement and there shall be delivered to Parent
written notice of the determination by the party's Board of Directors to
terminate this Agreement pursuant to this Section 7.1(g); provided,
however, that neither party may terminate this Agreement pursuant to this
Section 7.1(g) unless (i) five business days shall have elapsed after
delivery of the notice referred to above, and (ii) at the end of such five
business-day period the party's Board of Directors shall continue to
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believe that such competing transaction is more favorable to such party's
shareholders in the aggregate and from a financial point of view than the
transactions contemplated by this Agreement; or
(h) by the Company in the event that the volume weighted average
trading price of Common Stock, rounded to the nearest three decimal places,
for the fifteen consecutive trading days ending on and including the third
trading day prior to the Closing Date ("Test Period"), as reported by
Bloomberg Financial Markets, is less than $57.50, and that the Peer Group
Composite Index outperforms the Common Stock Index by more than 20
percentage points.
7.2 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after adoption of this Agreement by Company Shareholders or
authorization of issuance of shares of Common Stock in the Merger by Parent
Shareholders, but after each such approval or authorization, no amendment shall
be made which by law requires further approval or authorization by the Company
Shareholders or Parent Shareholders, as the case may be, without such further
approval or authorization. Notwithstanding the foregoing, this Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
7.3 Extension; Waiver. At any time prior to the Effective Date, Company
(with respect to Parent) and Parent (with respect to Company) by action taken or
authorized by their respective Boards of Directors, may, to the extent legally
allowed: (i) extend the time for the performance of any of the obligations or
other acts of such party; (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party.
7.4 Effect of Termination. If this Agreement is terminated pursuant to
Section 7.1, this Agreement shall become void and of no effect with no liability
on the part of any party hereto, except that (i) the confidentiality provisions
in Sections 5.1(g) and Sections 5.1(i), 8.7, 8.8, 8.9 and 8.12 shall survive the
termination of this Agreement and (ii) such termination shall not relieve any
party hereto of any liability for any willful breach by that party of its
covenants, agreements or other obligations under this Agreement occurring prior
to such termination.
ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations and Warranties. The representations and
warranties made herein by the parties hereto shall not survive the Effective
Date. This Section 8.1 shall not limit any covenant or agreement of the parties
hereto, which by its terms contemplates performance after the Effective Date or
the termination of this Agreement.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (delivery
of which is confirmed) or received through a nationally recognized overnight
courier service to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Subcorp:
Southdown, Inc.
1200 Smith Street
Suite 2400
Houston, Texas 77002-4486
Attention: Patrick S. Bullard
Telecopy No.: (713) 653-8010
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with a copy to
John L. Keffer
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place, Suite 2900
Houston, Texas 77002-2781
Telecopy No.: (713) 221-1212
(b) if to Company:
Medusa Corporation
3008 Monticello Blvd.
Cleveland Heights, Ohio 44118
Attention: Robert D. Vilsack
Telecopy No.: (216) 371-4562
with a copy to
Lawrence Lederman
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Telecopy No.: (212) 530-5219
8.3 Interpretation. When a reference is made in this Agreement to an
Article or Section, such reference shall be to an Article or Section of this
Agreement unless otherwise indicated. The headings and the table of contents
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
8.4 Counterparts. This Agreement may be executed in counterparts, which
together shall constitute one and the same Agreement. The parties may execute
more than one copy of the Agreement, each of which shall constitute an original.
8.5 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein), the disclosure schedules of the Company and
Parent and the Confidentiality Agreement constitute the entire agreement among
the parties and supersede all contemporaneous oral and all prior agreements and
understandings, agreements or representations by or among the parties, written
and oral, with respect to the subject matter hereof and thereof. Each of Company
and Parent expressly warrants and represents and does hereby state that no
promise or agreement which is not herein expressed has been made in executing
this Agreement, and that neither Company nor Parent is relying on any statement
or representation of any agent of the parties to this Agreement.
8.6 Third Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended or shall be construed to create any third party
beneficiaries, except for the provisions of Sections 2.3, 5.2(d), 5.2(e),
5.2(f), 5.2(j) and 5.2(k), which may be enforced by the beneficiaries thereof
(the expenses, including reasonable attorneys' fees, that may be incurred
thereby in enforcing such provisions to be paid by Parent).
8.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW EXCEPT TO THE EXTENT THE OGCL IS MANDATORILY APPLICABLE TO
THE MERGER.
8.8 Jurisdiction. Any legal action, suit, or proceeding in law or equity
arising out of or relating to this Agreement and transactions contemplated by
this Agreement may be instituted in any state or federal court (or if subject
matter jurisdiction is unavailable in such court, then in state court) in
Cleveland, Ohio or Harris County, Houston, Texas, and each party agrees not to
assert, by way of motion, as a defense, or otherwise, in any such action, suit,
or proceeding, any claim that it is not subject personally to the jurisdiction
of such court, that its property is exempt or immune from attachment or
execution, that the action, suit, or proceeding is brought in an inconvenient
forum, that the venue of the action, suit, or proceeding is improper or that
this
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Agreement, or the subject matter hereof or thereof may not be enforced in or by
such court. Each party further irrevocably submits to the jurisdiction of any
such court in any such action, suit, or proceeding. Any and all service of
process and any other notice in any such action, suit, or proceeding shall be
effective against any party if given by registered or certified mail, return
receipt requested, or by any other means of mail which requires a signed
receipt, postage prepaid, mailed to such party at the address listed in Section
8.2. Nothing herein contained shall be deemed to affect the right of any party
to serve process in any manner permitted by law or to commence legal proceedings
or otherwise proceed against any other party in any jurisdiction other than Ohio
or Texas.
8.9 Waiver of Jury Trial. COMPANY, PARENT AND SUBCORP HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
8.10 Specific Performance. The transactions contemplated by this Agreement
are unique. Accordingly, each of the parties acknowledges and agrees that, in
addition to all other remedies to which it may be entitled, each of the parties
hereto is entitled to a decree of specific performance, provided that such party
is not in material default hereunder.
8.11 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
8.12 Expenses and Fees.
(a) Company and Parent shall pay their own costs and expenses
associated with the transactions contemplated by this Agreement, except
that Company and Parent shall share equally: (i) the filing fees in
connection with the filing of the Joint Proxy Statement and Registration
Statement with the Commission; (ii) the expenses incurred in connection
with printing and mailing the Joint Proxy Statement to the Company
Shareholders and Parent Shareholders; and (iii) any filing fees incurred
pursuant to Section 5.1(b).
(b) If this Agreement is terminated: (i) by Company pursuant to
Section 7.1(g); (ii) by Parent pursuant to Section 7.1(f) if Company's
material breach of any representation, warranty, covenant or other
agreement under this Agreement is the basis for such termination and a
Prior Event shall have occurred prior thereto; (iii) by Company or Parent
pursuant to Section 7.1(d) if a Prior Event shall have occurred prior to
such termination; or (iv) by Company pursuant to Section 7.1(h); then
Company will, in the case of a termination under clauses (i) or (ii) of
this paragraph, within three business days following such termination, or
in the case of a termination under clause (iii) of this paragraph, within
three business days following the consummation of a Company Competing
Transaction, pay to Parent a termination fee in the amount of $30,000,000,
and in the case of a termination under clause (iv) of this paragraph,
within three business days following such termination, pay to Parent a
termination fee in the amount of $15,000,000, in each case payable in cash
by wire transfer in immediately available funds to an account designated by
Parent.
(c) As used herein, the terms "Beneficial Ownership" and "Beneficially
Own" shall have the meanings ascribed to them in Rule 13d-3 under the
Exchange Act; the term "person" shall have the meaning specified in
sections 3(a)(9) and 13(d)(3) of the Exchange Act. A "Prior Event" shall
mean any of the following events:
(i) any person (other than Parent or its subsidiaries) shall have
commenced (as such term is defined in Rule 14d-2 under the Exchange Act)
or shall have filed a registration statement under the Securities Act,
with respect to, a tender offer or exchange offer to purchase any shares
of Company Common Shares such that, upon consummation of such offer,
such person would Beneficially Own or control 15% or more of the then
outstanding Company Common Shares; or
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(ii) Company or any of its subsidiaries shall have entered into,
authorized, recommended, proposed, or publicly announced an intention to
enter into, authorize, recommend or propose an agreement, arrangement or
understanding with any person (other than Parent or any of its
subsidiaries) to, or any person (other than Parent or any of its
subsidiaries) shall have publicly announced an intention to (A) effect
any Company Competing Transaction, (B) purchase, lease or otherwise
acquire 15% or more of the assets of Company or any of its subsidiaries
or (C) purchase or otherwise acquire (including by way of merger,
consolidation, tender or exchange offer or other similar transaction)
Beneficial Ownership of securities representing 15% or more of the
voting power of Company or any of its subsidiaries; or (iii) any person
(other than Parent or its subsidiaries) shall have acquired Beneficial
Ownership of a number of shares of Company Common Shares in addition to
the number of shares of Company Common Shares Beneficially Owned by such
person on the date hereof equal to 15% or more of the voting power of
Company.
8.13 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
8.14 Definitions and Usage. For the purposes of this Agreement:
"Action" shall have the meaning specified in Section 4.14.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with such Person.
"Agreement" shall have the meaning specified in the introductory
paragraph of this Agreement and Plan of Merger.
"Alternative Proposal" shall have the meaning specified in Section
5.3(d).
"Applicable Laws" shall have the meaning specified in Section 4.13.
"Beneficial Ownership" and "Beneficially Own" shall have the meanings
specified in Section 8.12(c).
"Business Day" shall mean any day other than a Saturday, Sunday or
legal holiday recognized by banking institutions in the State of Texas.
"Certificate of Merger" shall have the meaning specified in Section
1.3.
"Certificates" shall have the meaning specified in Section 2.2(b).
"Change in Control" shall have the meaning specified in Section
5.2(j).
"Class C Preferred" shall have the meaning specified in Section 4.3.
"Closing" shall have the meaning specified in Section 1.2.
"Closing Date" shall have the meaning specified in Section 1.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor thereto.
"Commission" shall have the meaning specified in Section 2.3(c).
"Common Stock" shall have the meaning specified in Section 2.1(a).
"Common Stock Authorizations" shall have the meaning specified in
Section 3.4.
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"Common Stock Index" is defined as the percentage change (expressed in
positive or negative percentage points) in the volume weighted average
trading prices of Common Stock, as reported by Bloomberg Financial Markets,
from the date of this Agreement to the last day of the Test Period.
"Company" shall have the meaning specified in the introductory
paragraph of this Agreement and Plan of Merger.
"Company Affiliate" shall have the meaning set forth in Section
5.3(e).
"Company Articles and Code of Regulations" shall have the meaning
specified in Section 4.1.
"Company Common Shares" shall have the meaning specified in Section
2.1(a).
"Company Competing Transaction" shall have the meaning specified in
Section 5.3(d).
"Company Contract" shall have the meaning specified in Section 4.23.
"Company Dissenting Shares" shall have the meaning specified in
Section 2.2(k).
"Company Material Adverse Effect" shall mean any Material Adverse
Effect with respect to the Company and any of its subsidiaries when taken
as a whole.
"Company Option" shall have the meaning specified in Section 2.3(a).
"Company Plan" means all employee benefit plans, programs, policies,
practices, and other arrangements providing benefits which includes, but is
not limited to incentive compensation programs, stock incentive programs,
employment contracts, retention agreements and employee fringe benefit
programs to any Employee or former Employee or beneficiary or dependent
thereof, whether or not written, and whether covering one person or more
than one person, sponsored or maintained by Company or any of its
subsidiaries or to which Company or any of its subsidiaries contributes or
is obligated to contribute. Without limiting the generality of the
foregoing, the term "Company Plans" includes all employee welfare benefit
plans within the meaning of Section 3(1) of ERISA and all employee pension
benefit plans within the meaning of Section 3(2) of ERISA.
"Company Preferred Shares" shall have the meaning specified in Section
4.3.
"Company Rights" shall have the meaning set forth in Section 4.3.
"Company Rights Agreement" shall have the meaning set forth in Section
4.3.
"Company SEC Documents" shall have the meaning specified in Section
4.10.
"Company Shareholders" shall have the meaning specified in Section
4.4.
"Confidentiality Agreement" shall have the meaning specified in
Section 5.1(g).
"Control" means (including the terms "controlling", "controlled by",
and "under common control with") the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting shares, by contract, or
otherwise.
"Controlled Group Liability" means any and all liabilities under: (i)
Title IV of ERISA; (ii) section 302 of ERISA; (iii) sections 412 and 4971
of the Code; (iv) the continuation coverage requirements of section 601 et
seq. of ERISA and section 4980B of the Code; and (v) corresponding or
similar provisions of foreign laws or regulations, in each case other than
pursuant to the Parent Plans as defined below.
"Effective Date" shall have the meaning specified in Section 1.3.
"Employees" shall mean the employees of the Parent or the Company, as
the context may require, except as otherwise defined in Section 5.2(f).
"Environmental Laws" shall have the meaning specified in Section
4.21(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
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"ERISA Affiliate" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA that includes the first entity, trade or business, or
that is a member of the same "controlled group" as the first entity, trade
or business pursuant to Section 4001(a)(14) of ERISA.
"Exchange Act" shall have the meaning specified in Section 3.10.
"Exchange Agent" shall have the meaning specified in Section 2.2(a).
"Exchange Ratio" shall have the meaning specified in Section 2.1(a).
"Exchange Trust" shall have the meaning specified in Section 2.2(c).
"Former Employees" shall have the meaning specified in Section 5.2(f).
"Fractional Shares" shall have the meaning specified in Section
2.2(c).
"Governmental Authority" shall have the meaning specified in Section
2.2(i).
"Hazardous Materials" shall have the meaning specified in Section
4.21(a).
"HSR Act" shall have the meaning specified in Section 3.6(d).
"Incentive Plan" shall have the meaning specified in Section 5.3(h).
"Indemnified Liabilities" shall have the meaning set forth in Section
5.2(d).
"Indemnified Parties" shall mean each person who is now, or has been
at any time prior to the date hereof, an officer, director, employee,
trustee or agent of Company (or any subsidiary or division thereof),
including, without limitation, each person controlling any of the foregoing
persons (individually, "Indemnified Party" and collectively, "Indemnified
Parties")
"Indemnified Party" shall have the meaning set forth in Section
5.2(d).
"J.P. Morgan" shall have the meaning specified in Section 4.6.
"Joint Proxy Statement" shall have the meaning specified in Section
3.11.
"Justice Department" shall have the meaning specified in Section
5.1(b).
"Knowledge" when used in relation to any Person shall mean the actual
(but not constructive) knowledge of such Person's executive officers.
"Lehman Brothers" shall have the meaning specified in Section 3.7.
"Material Adverse Effect" means a material adverse effect on the
assets, liabilities, results of operations, business or financial condition
of such party and its subsidiaries, taken as a whole.
"Merger" shall have the meaning specified in Section 1.1.
"Merger Consideration" shall have the meaning specified in Section
2.1(a).
"Multiemployer Plan" shall have the meaning specified in Section
4.9(e).
"Multiple Employer Plan" shall have the meaning specified in Section
4.9(e).
"National Exchange" shall have the meaning specified in Section
2.2(c).
"NYSE" shall have the meaning specified in Section 2.2(c).
"Officer" means in the case of Parent and Company, any executive
officer of Parent or the Company, as applicable, within the meaning of Rule
3b-7 of the 1934 Act.
"OGCL" shall have the meaning specified in Section 1.1.
"Ohio Secretary of State" shall have the meaning specified in Section
1.3.
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"Parent" shall have the meaning specified in the introductory
paragraph of this Agreement and Plan of Merger.
"Parent Affiliate" shall have the meaning specified in Section 5.2(i).
"Parent Amendment" shall have the meaning set forth in Section 3.4.
"Parent Articles and Bylaws" shall have the meaning specified in
Section 3.1.
"Parent Exchange Option" shall have the meaning specified in Section
2.3(a).
"Parent Material Adverse Effect" shall mean any Material Adverse
Effect with respect to the Parent and any of its subsidiaries when taken as
a whole.
"Parent Preferred Stock" shall have the meaning specified in Section
3.3.
"Parent Rights" shall have the meaning set forth in Section 3.3.
"Parent Rights Agreement" shall have the meaning set forth in Section
3.3.
"Parent SEC Documents" shall have the meaning specified in Section
3.10.
"Parent Series C Preferred Stock" shall have the meaning set forth in
Section 3.3.
"Parent Shareholder Authorizations" shall have the meaning specified
in Section 3.5.
"Parent Shareholders" shall have the meaning specified in Section 3.4.
"Parent Shareholders' Meeting" shall have the meaning specified in
Section 5.2(h).
"PBGC" shall have the meaning specified in Section 4.9(g)(ii).
"Peer Group" shall mean the following companies: Giant Cement Holding,
Inc., Lafarge Corporation, Lone Star Industries, Inc. and Centex
Construction Products, Inc.
"Peer Group Composite Index" is defined as the percentage change
(expressed in positive or negative percentage points) in the average of the
volume weighted average trading prices of the common stock of each of the
companies in the Peer Group, as reported by Bloomberg Financial Markets,
weighted by the market capitalization of each such company, from the date
of this Agreement to the last day of the Test Period. For this purpose, the
market capitalization of each such company on a given date shall be
determined by multiplying the number of outstanding shares of common stock
of such company, as reflected in the most recently available filings with
the Commission (with appropriate adjustments for any stock splits, stock
dividends or similar events), times the volume weighted average trading
price of such common stock on the such date.
"Pension Plans" shall have the meaning specified in Section 4.9(f).
"Permits" shall have the meaning specified in Section 4.20.
"Person" shall mean an individual, partnership, corporation, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other legal entity
of any kind.
"Prior Event" shall have the meaning specified in Section 8.12(c).
"Prospectus" shall have the meaning specified in Section 3.11.
"Qualified Company Plan" shall have the meaning specified in Section
4.9(b).
"Registration Statement" shall have the meaning specified in Section
3.11.
"Securities Act" shall have the meaning specified in Section 3.10.
"Separation Date" shall have the meaning specified in Section 6.2(d).
"Stock Acquisition Date" shall have the meaning specified in Section
6.2(d).
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"Subcorp" shall have the meaning specified in the initial paragraph of
this Agreement and Plan of Merger.
"subsidiary" or "subsidiaries" means, with respect to any Person, any
entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at any time directly or indirectly owned
by such Person.
"Surviving Corporation" shall have the meaning specified in Section
1.1.
"Tax" or "Taxes" shall mean all federal, state, local and foreign
taxes including interest and penalties thereon (including, without
limitation, income, franchise, excise, sales, use, gross receipt,
severance, real and personal property taxes).
"Test Period" shall have the meaning specified in Section 7.1(h).
A reference in this Agreement to any statute shall be to such statute as
amended from time to time, and the rules and regulations promulgated thereunder.
IN WITNESS WHEREOF, Company, Parent and Subcorp have signed this Agreement
as of the date first written above.
MEDUSA CORPORATION
By: /s/ ROBERT S. EVANS
----------------------------------
Robert S. Evans
SOUTHDOWN, INC.
By: /s/ CLARENCE C. COMER
----------------------------------
Clarence C. Comer
BEDROCK MERGER CORP.
By: /s/ CLARENCE C. COMER
----------------------------------
Clarence C. Comer
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EXHIBIT A
SOUTHDOWN, INC. AFFILIATE LETTER
March 17, 1998
Southdown, Inc.
1200 Smith Street, Suite 2400
Houston, Texas 77002-4486
Medusa Corporation
3008 Monticello Boulevard
Cleveland Heights, Ohio 44118
Gentlemen:
The undersigned has been advised that as of the date of this letter, the
undersigned may be deemed to be an "affiliate" of Southdown, Inc., a Louisiana
corporation ("Parent"), as the term "affiliate" is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations ("Rules and
Regulations") of the Securities and Exchange Commission ("Commission") under the
Securities Act of 1933, as amended ("Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated March 17, 1998 ("Agreement"), between the
Parent and Medusa Corporation, an Ohio corporation ("Company"), Bedrock Merger
Corp., a newly formed Ohio corporation and wholly-owned subsidiary of Parent,
will be merged with and into the Company with the Company to be the surviving
corporation in the merger ("Merger").
The undersigned represents, warrants, and covenants to Parent and the
Company that:
A. From and after the date that is thirty (30) days prior to the
Effective Date (as such term is defined in the Agreement) the undersigned
shall not offer to sell, sell or otherwise dispose of, or in any other way
reduce the undersigned's risk relative to, any shares of Common Stock or
Company Common Stock (other than by way of conversion into shares of Common
Stock pursuant to the Merger) in any case until an earnings statement
containing at least thirty (30) days of post-Merger combined financial
results of Parent and the Company has been issued in a manner satisfying
the requirements of the Commission's Accounting Release No. 135.
B. The undersigned will not take or fail to take any action reasonably
likely to cause the Merger not to be accounted for as a pooling of
interests for financial accounting purposes.
C. The undersigned understands and agrees that the representations,
warranties, covenants and agreements of the undersigned set forth herein
are for the benefit of Parent, Company and the Surviving Corporation (as
such term is defined in the Agreement) and will be relied upon by such
entities and their respective counsel and accountants.
A-35
<PAGE> 149
Southdown, Inc.
Medusa Corporation
March 17, 1998
Execution of this letter should not be considered an admission on the part
of the undersigned that the undersigned is an "affiliate" of the Company as
described in the first paragraph of this letter or as a waiver of any rights the
undersigned may have to object to any claim that the undersigned is such an
affiliate on or after the date of this letter.
Very truly yours,
------------------------------------
Signature
------------------------------------
Print Name
Accepted this day of
, 1998
MEDUSA CORPORATION SOUTHDOWN, INC.
By: ------------------------------- By: --------------------------------
Name: Name:
Title: Title:
Dated: Dated:
A-36
<PAGE> 150
EXHIBIT B
MEDUSA CORPORATION AFFILIATE LETTER
March 17, 1998
Medusa Corporation
3008 Monticello Boulevard
Cleveland Heights, Ohio 44118
Southdown, Inc.
1200 Smith Street, Suite 2400
Houston, Texas 77002-4486
Gentlemen:
The undersigned has been advised that as of the date of this letter, the
undersigned may be deemed to be an "affiliate" of Medusa Corporation, an Ohio
corporation ("Company"), as the term "affiliate" is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations ("Rules and
Regulations") of the Securities and Exchange Commission ("Commission") under the
Securities Act of 1933, as amended ("Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated March 17, 1998 ("Agreement"), between the
Company and Southdown, Inc., a Louisiana corporation ("Parent"), Bedrock Merger
Corp., a newly formed Ohio corporation and wholly-owned subsidiary of Parent,
will be merged with and into the Company with the Company to be the surviving
corporation in the merger ("Merger").
As a result of the Merger, the undersigned will receive (i) shares of
common stock, par value $1.25 per share, of Parent ("Common Stock") in exchange
for common shares, without par value, of the Company ("Company Common Shares")
owned by the undersigned, and (ii) options convertible into Common Stock
("Parent Options") in exchange for options convertible into Company Common
Shares.
The undersigned represents, warrants, and covenants to Parent and the
Company that in the event the undersigned received any Common Stock as a result
of the Merger:
A. The undersigned shall not make any sale, transfer or other
disposition of the Common Stock or with respect to the Parent Options in
violation of the Act or the Rules and Regulations.
B. The undersigned has carefully read this letter and the Agreement
and discussed the requirements of such documents and other applicable
limitations upon the undersigned's ability to sell, transfer or otherwise
dispose of the Common Stock and the Parent Options to the extent the
undersigned felt necessary with the undersigned's counsel or counsel for
Company.
C. The undersigned has been advised that the issuance of Common Stock
to the undersigned pursuant to the Merger will be registered with the
Commission under the Act on a Registration Statement on Form S-4. However,
the undersigned has also been advised that, since at the time the Merger is
submitted for a vote of the shareholders of Company, the undersigned may be
deemed to be an affiliate of Company, the undersigned may not sell,
transfer or otherwise dispose of the Common Stock issued to the undersigned
in the Merger unless: (i) such sale, transfer or other disposition has been
registered under the Act; (ii) such sale, transfer or other disposition is
made in conformity with Rule 145 promulgated by the Commission under the
Act; or (iii) in the opinion of counsel reasonably acceptable to Parent or
pursuant to a "no action" letter obtained by the undersigned from the staff
of the Commission, such sale, transfer or other disposition is otherwise
exempt from registration under the Act (in which case Parent shall cause
removal of the legends referred to in Paragragh G below).
D. From and after the date that is thirty (30) days prior to the
Effective Date (as such term is defined in the Agreement) the undersigned
shall not offer to sell, sell or otherwise dispose of, or in any
A-37
<PAGE> 151
Medusa Corporation
Southdown, Inc.
March 17, 1998
other way reduce the undersigned's risk relative to, any shares of Common
Stock or Company Common Stock (other than by way of conversion into shares
of Common Stock pursuant to the Merger) in a manner that would cause the
Merger to be treated in a manner other than as a pooling of interests for
financial accounting purposes, in any case until an earnings statement
containing at least thirty (30) days of post-Merger combined financial
results of Parent and the Company has been issued in a manner satisfying
the requirements of the Commission's Accounting Release No. 135.
E. By its acceptance hereof, Parent agrees, for a period of two years
after the Effective Date, that it will file on a timely basis all reports
required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), so that the public
information provisions of Rule 144(c) under the Exchange Act are satisfied
and the resale provisions of Rules 145(d)(1) and (2) under the Exchange Act
are therefore available to the undersigned in the event the undersigned
desires to transfer any Parent securities issued to undersigned in the
Merger. Parent agrees to publish financial results covering at least 30
days of post Merger operations as soon as practicable and in any event
within 45 days after the end of the month following the month in which the
Effective Date occurs.
F. The undersigned understands and agrees that this letter agreement
shall apply to all shares of the capital stock of the Parent and the
Company that are deemed to be beneficially owned by the undersigned
pursuant to applicable federal securities laws.
G. The undersigned understands and agrees that:
(i) Parent is under no obligation to register the sale, transfer or
other disposition of the shares of Parent Common Stock to be received by
the undersigned in the Merger except as set forth in written agreements,
if any, with the undersigned which have been entered into by Parent or
which have been specifically assumed by Parent.
(ii) Stop transfer instructions will be given to the transfer agent
of Parent with respect to the shares of Parent Common Stock to be
received by the undersigned in the Merger, and there will be placed on
the certificate representing such stock, or any certificates delivered
in substitution therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 UNDER THE SECURITIES ACT OF 1933
(THE "ACT") APPLIES. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH (i) THE
TERMS OF A LETTER AGREEMENT DATED MARCH 17, 1998 AND (ii) RULE
145(D) OF THE ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE ACT."
(iii) Unless the transfer by the undersigned of the shares of
Parent Common Stock is a sale made in conformity with the provisions of
Rule 145(d), or is made pursuant to a registration statement under the
Securities Act, Parent reserves the right to put an appropriate legend
on the certificate issued to a transferee.
H. The undersigned further understands and agrees that the
representations, warranties, covenants and agreements of the undersigned
set forth herein are for the benefit of Parent, Company and the Surviving
Corporation (as such term is defined in the Agreement) and will be relied
upon by such entities and their respective counsel and accountants.
A-38
<PAGE> 152
Medusa Corporation
Southdown, Inc.
March 17, 1998
Execution of this letter should not be considered an admission on the part
of the undersigned that the undersigned is an "affiliate" of the Company as
described in the first paragraph of this letter or as a waiver of any rights the
undersigned may have to object to any claim that the undersigned is such an
affiliate on or after the date of this letter.
Very truly yours,
------------------------------------
Signature
------------------------------------
Print Name
Accepted this day of
, 1998
MEDUSA CORPORATION SOUTHDOWN, INC.
By: --------------------- By: --------------------------------
Name: Name:
Title: Title:
Dated: Dated:
A-39
<PAGE> 153
EXHIBIT C
March 17, 1998
Southdown, Inc.
1200 Smith Street, Suite 24000
Houston, Texas 77002-4486
Attention: President and Chief Executive Officer
Reference is made to the Agreement and Plan of Merger between Medusa
Corporation ("Company") and Southdown, Inc. ("Parent") dated March 17, 1998 (the
"Agreement"), which provides for the merger of a subsidiary of Parent with and
into the Company (the "Merger"). The undersigned is the beneficial owner (as
that term is defined in the Agreement) of common shares (the "Shares")
of Company and has supported and encouraged the decision by Company to execute
the Agreement and to consummate the Merger.
In that connection, and as an inducement to, and in further consideration
of, Parent's entering into the Agreement, the undersigned hereby grants the
irrevocable proxy provided in paragraph (i), and further covenants and agrees to
the matters set forth in paragraphs (ii) through (v) below:
(i) In consideration of Parent's entering into the Agreement, the
undersigned, being the beneficial owner of Shares, hereby
irrevocably appoints and constitutes Clarence C. Comer and Patrick S.
Bullard as proxies for the undersigned, with full power of substitution, to
vote such Shares, and any other Shares beneficially owned at the time by
the undersigned, at any regular or special meeting of the stockholders of
the Company at which the adoption of the Agreement is to be voted upon, in
favor of adoption of the Agreement. The proxy granted hereby is irrevocable
and coupled with an interest.
(ii) The undersigned will not directly or indirectly (A) solicit,
initiate or encourage the submission of any Alternative Proposal (as
defined in the Agreement) with respect to the Company, (B) enter into any
agreement with respect to any Alternative Proposal with respect to the
Company, or (C) participate in any discussion or negotiation regarding, or
furnish to any person any information with respect to, the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Alternative Proposal with respect to the Company; provided, however, that
the foregoing clause shall not prohibit the undersigned who serves as a
director, officer or employee of the Company from taking any action
(subject to Section 5.3(d) of the Agreement) solely in such capacity.
(iii) The undersigned agrees, for the term of this agreement, not to
sell, convey or dispose of any Shares other than in connection with the
Merger.
(iv) The undersigned agrees to sign the affiliate letter in the form
attached as Exhibit B to the Agreement, as provided in the Agreement.
(v) The proxy provided hereby, and the covenants and agreements
contained herein, shall terminate on the earlier of the date (i) that the
Agreement is terminated for any reason other than pursuant to Section
7.1(g), and (ii) the date set forth in Section 7.1(c) of the Agreement, as
such date may be modified by Company and Parent.
Very truly yours,
[Shareholder]
A-40
<PAGE> 154
EXHIBIT D
WAIVER AGREEMENT
WHEREAS, Medusa Corporation, an Ohio corporation (the "Company"), has
entered into that Agreement and Plan of Merger between Medusa Corporation,
Bedrock Merger Corp. and Southdown, Inc., dated March 17, 1998 (the "Merger");
and
WHEREAS, pursuant to the 1991 Long-Term Incentive Plan, as amended through
March 27, 1995 (the "Plan"), the consummation of the Merger will constitute a
Change in Control, as such term is defined in the Plan; and
WHEREAS, pursuant to Section 6.05(a) of the Plan, upon consummation of the
Merger the undersigned will have certain rights to surrender for cancellation
within sixty days after such Change in Control any Option or portion of an
Option to the extent not exercised and to receive a cash payment in an amount
equal to the excess, if any, of (A) the Adjusted Fair Market Value of the
Company Common Shares subject to the Option or portion thereof surrendered, over
(B) the Purchase Price of such Option; and
WHEREAS, the undersigned acknowledges and agrees that the Merger is
intended to be accounted for as a "pooling of interests" transaction and agrees
that such treatment is of material benefit directly to the consolidated business
and indirectly to the undersigned;
NOW, THEREFORE, the undersigned hereby agrees as follows:
1. The undersigned hereby waives and relinquishes the rights of the
undersigned, if any, with respect to the transactions contemplated by the
Merger, to receive a cash payment with respect to the undersigned's Option
or portion of an option, and acknowledges that the Company and Southdown,
Inc. will rely on such waiver.
2. Except as specified above, this Waiver Agreement does not
constitute a waiver of, nor shall it otherwise affect, the rights of the
undersigned set forth in the Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Waiver Agreement as
of the 17th day of March, 1998.
By:
------------------------------------
A-41
<PAGE> 155
APPENDIX B
[LEHMAN BROTHERS LOGO]
March 17, 1998
Board of Directors
Southdown, Inc.
1200 Smith Street
Suite 2400
Houston, TX 77002
Members of the Board:
We understand that Southdown, Inc., a Louisiana corporation ("Southdown" or
the "Company"), Bedrock Merger Corporation, an Ohio corporation and a
wholly-owned subsidiary of Southdown ("Merger Sub") and Medusa Corporation, an
Ohio corporation ("Medusa") are proposing to enter into an Agreement and Plan of
Merger, dated as of March 17, 1998 (the "Agreement") which provides, among other
things, for the merger (the "Merger" or the "Proposed Transaction") of Merger
Sub with and into Medusa, and upon effectiveness of the Merger, each issued and
outstanding share of Medusa's common stock ("Medusa Common Stock"), being
converted into the right to receive 0.8800 shares (the "Exchange Ratio") of
common stock of Southdown ("Southdown Common Stock"). The terms and conditions
of the Proposed Transaction are set forth in more detail in the Agreement.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company of the Exchange Ratio to be paid to the stockholders of Medusa in the
Proposed Transaction. We have not been requested to opine as to, and our opinion
does not in any manner address, the Company's underlying business decision to
proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) publicly available
information concerning Medusa and the Company that we believe to be relevant to
our analysis, (3) financial and operating information with respect to the
business, operations and prospects of Medusa furnished to us by Medusa, (4)
financial and operating information with respect to the business, operations and
prospects of the Company furnished to us by the Company, (5) a trading history
of Medusa Common Stock from March 12, 1993 to the present and a comparison of
that trading history with those of other companies that we deemed relevant, (6)
a trading history of Southdown Common Stock from March 12, 1993 to the present
and a comparison of that trading history with those of other companies that we
deemed relevant, (7) a comparison of the historical financial results and
present financial condition of Medusa with those of other companies that we
deemed relevant, (8) a comparison of the historical financial results and
present financial condition of the Company with those of other companies that we
deemed relevant, (9) estimates of third party research analysts regarding the
future financial performance of Southdown and Medusa, (10) the potential pro
forma impact of the Proposed Transaction, including the cost savings, operating
synergies and strategic benefits expected by management of the Company to result
from a combination of the businesses of Southdown and Medusa, and (11) a
comparison of the financial terms of the Proposed Transaction with the financial
terms of certain other recent transactions that we deemed relevant. In addition,
we have had discussions with the managements of Medusa and the Company
concerning their respective businesses, operations, assets, financial conditions
and prospects and have undertaken such other studies, analyses and
investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of the managements of Southdown and
Medusa
<PAGE> 156
that they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of the Company, Medusa and the combined company following consummation of the
Proposed Transaction (the "Combined Company"), upon advice of the Company we
have assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company,
Medusa and the Combined Company and that the Company and the Combined Company
will perform substantially in accordance with such projections. In arriving at
our opinion, we have not conducted a physical inspection of the properties and
facilities of Medusa or the Company and have not made or obtained any
evaluations or appraisals of the assets or liabilities of Medusa and the
Company. Upon advice of the Company and its legal and accounting advisors, we
have assumed that the Merger will qualify for pooling of interests accounting
treatment. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be paid
by the Company to the stockholders of Medusa in the Proposed Transaction is fair
to the Company.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We also have performed various investment banking
services for the Company in the past and have received customary fees for such
services. Mr. Steven B. Wolitzer, a Managing Director of Lehman Brothers, is
also a director of the Company. In the ordinary course of our business, we may
trade in the debt and equity securities of Medusa and the Company for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
B-2
<PAGE> 157
APPENDIX C
J.P. MORGAN SECURITIES INC.
March 17, 1998
The Board of Directors
Medusa Corporation
3008 Monticello Blvd.,
Cleveland Heights, Ohio 44118
Attention: R. Shell Evans
Chairman & Chief Executive Officer
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Medusa Corporation (the "Company") of the
consideration proposed to be paid to them in connection with the proposed merger
(the "Merger") of the Company with Bedrock Merger Corp. ("Subcorp"), a wholly
owned subsidiary of Southdown, Inc. (the "Buyer"). Pursuant to the Agreement and
Plan of Merger, dated as of March 17, 1998 (the "Agreement"), among the Company,
the Buyer and Subcorp, Subcorp will merge with and into the Company, the Company
will become a wholly owned subsidiary of the Buyer, and each share of common
share, without par value, of the Company (other than canceled shares and shares
held by dissenting shareholders) will be converted into the right to receive
0.88 shares of common stock, $1.25 par value, of the Buyer.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii)
certain publicly available information concerning the business of the Company
and of certain other companies engaged in businesses comparable to those of the
Company, and the reported market prices for certain other companies' securities
deemed comparable; (iii) publicly available terms of certain transactions
involving companies comparable to the Company and the consideration received for
such companies; (iv) current and historical market prices of the common stock of
the Company and the Buyer; (v) the audited financial statements of the Company
and the Buyer for the fiscal year ended December 31, 1997, and the unaudited
financial statements of the Company and the Buyer for the period ended February
28, 1998; (vi) certain internal financial analyses and forecasts prepared by the
Company and the Buyer and their respective managements; and (vii) the terms of
other business combinations that we deemed relevant.
In addition, we have held discussions with certain members of the
management of the Company and the Buyer with respect to certain aspects of the
Merger, the past and current business operations of the Company and the Buyer,
the financial condition and future prospects and operations of the Company and
the Buyer, the effects of the Merger on the financial condition and future
prospects of the Company and the Buyer, and certain other matters we believed
necessary or appropriate to our inquiry. We have reviewed such other financial
studies and analyses and considered such other information as we deemed
appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and the Buyer or otherwise
reviewed by us, and we have not assumed any responsibility or liability
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been provided to us. In
relying on financial analyses and forecasts provided to us, we have assumed that
they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of the Company and the
Buyer to which such analyses or forecasts relate. We have also assumed that the
Merger will have the tax consequences described in the Agreement and in
discussions with, and materials furnished to us by, representatives of the
Company, and that the other transactions contemplated by the Agreement will be
<PAGE> 158
consummated as described in the Agreement. We have relied as to all legal
matters relevant to rendering our opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. It should be understood that subsequent developments may affect this
opinion and that we do not have any obligation to update, revise, or reaffirm
this opinion. We are expressing no opinion herein as to the price at which the
Buyer's common stock will trade at any future time.
We have acted as financial advisor to the Company with respect to the
proposed Merger and will receive a fee from the Company for our services. We
will also receive an additional fee if the proposed Merger is consummated.
Please be advised that in the past we managed an offering of convertible debt
securities of the Company. In the ordinary course of their businesses, our
affiliates may actively trade the debt and equity securities of the Company or
the Buyer for their own account or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the consideration to be paid to the Company's shareholders in
the proposed Merger is fair, from a financial point of view, to such
shareholders.
This letter is provided to the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the Merger. This
opinion does not constitute a recommendation to any shareholder of the Company
as to how such shareholder should vote with respect to the Merger. This opinion
may be reproduced in full in any proxy or information statement mailed to
shareholders of the Company.
Very truly yours,
J.P. MORGAN SECURITIES INC.
C-2
<PAGE> 159
APPENDIX D
SECTION 1701.85 OF THE OHIO REVISED CODE
DISSENTING SHAREHOLDER DEMAND FOR FAIR COST VALUE OF SHARES
(A) (1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a recordholder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of
<PAGE> 160
common pleas of the county in which the principal office of the corporation that
issued the shares is located or was located when the proposal was adopted by the
shareholders of the corporation, or, if the proposal was not required to be
submitted to the shareholders, was approved by the directors. Other dissenting
shareholders, within that three-month period, may join as plaintiffs or may be
joined as defendants in any such proceeding, and any two or more such
proceedings may be consolidated. The complaint shall contain a brief statement
of the facts, including the vote and the facts entitling the dissenting
shareholder to the relief demanded. No answer to such a complaint is required.
Upon the filing of such a complaint, the court, on motion of the petitioner,
shall enter an order fixing a date for a hearing on the complaint and requiring
that a copy of the complaint and a notice of the filing and of the date for
hearing be given to the respondent or defendant in the manner in which summons
is required to be served or substituted service is required to be made in other
cases. On the day fixed for the hearing on the complaint or any adjournment of
it, the court shall determine from the complaint and from such evidence as is
submitted by either party whether the dissenting shareholder is entitled to be
paid the fair cash value of any shares and, if so, the number and class of such
shares. If the court finds that the dissenting shareholder is so entitled, the
court may appoint one or more persons as appraisers to receive evidence and to
recommend a decision on the amount of the fair cash value. The appraisers have
such power and authority as is specified in the order of their appointment. The
court thereupon shall make a finding as to the fair cash value of a share and
shall render judgment against the corporation for the payment of it, with
interest at such rate and from such date as the court considers equitable. The
costs of the proceeding, including reasonable compensation to the appraisers to
be fixed by the court, shall be assessed or apportioned as the court considers
equitable. The proceeding is a special proceeding and final orders in it may be
vacated, modified, or reversed on appeal pursuant to the Rules of Appellate
Procedure and, to the extent not in conflict with those rules, Chapter 2505 of
the Revised Code. If, during the pendency of any proceeding instituted under
this section, a suit or proceeding is or has been instituted to enjoin or
otherwise to prevent the carrying out of the action as to which the shareholder
has dissented, the proceeding instituted under this section shall be stayed
until the final determination of the other suit or proceeding. Unless any
provision in division (D) of this section is applicable, the fair cash value of
the shares that is agreed upon by the parties or fixed under this section shall
be paid within thirty days after the date of final determination of such value
under this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be willing to accept and that a willing
buyer who is under no compulsion to purchase would be willing to pay, but in no
event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D) (1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
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(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
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APPENDIX E
1989 STOCK OPTION PLAN
OF
SOUTHDOWN, INC.
1. PURPOSE OF PLAN
This 1989 Stock Option Plan (the "Plan") is intended as an employment
incentive (a) to retain in the employ of Southdown, Inc. (the "Company") and its
Affiliates (as defined below) persons of training, experience and ability, (b)
to attract new employees whose services are considered unusually valuable, (c)
to encourage the sense of proprietorship of such persons, and (d) to stimulate
the active interest of such persons in the development and financial success of
the Company. It is further intended that certain options issued pursuant to this
Plan may constitute incentive stock options within the meaning of Section 422A
of the Internal Revenue Code of 1986, as amended ("Code"), while certain other
options granted under this Plan will be nonqualified options within the meaning
of Section 83 of the Code. As used in this Plan, the term "Affiliates" means any
Parent of the Company and any Subsidiary of the Company within the meaning of
Sections 425(e) and (f) of the Code, respectively.
2. ADMINISTRATION OF PLAN
(a) The Board of Directors shall appoint and maintain as administrator of
this Plan the Employee Compensation and Benefits Committee (the "Committee")
which shall consist of at least three members of the Board of Directors. No
member of the Committee shall have been eligible to participate in this Plan or
any other plan of the Company or its Affiliates which entitles participants to
acquire stock appreciation rights or stock options of the Company or its
Affiliates at any time within one year prior to appointment. No member of such
Committee shall be eligible to receive stock options under this Plan ("Options")
or any other plan of the Company or its Affiliates while serving on the
Committee. The limitations set forth in the preceding two sentences shall not be
applicable to participation in any nonemployee director stock option plan
maintained by Company in which the participation of nonemployee directors is not
subject to any nonemployee director discretion and would not adversely affect
any such nonemployee director's status as a disinterested member of the
Committee within the meaning of Rule 16b-3 promulgated by the Securities and
Exchange Commission ("Commission") pursuant to the Securities Exchange Act of
1934, as amended ("Exchange Act"). The members of the Committee shall serve at
the pleasure of the Board of Directors. The Committee shall have full power and
authority to designate participants, to determine the terms and provisions of
respective option agreements (which need not be identical) and to interpret the
provisions and supervise the administration of this Plan. All decisions and
selections made by the Committee pursuant to the provisions of this Plan shall
be made by a majority of its members. Any decision reduced to writing and signed
by all of the members shall be fully effective as if it had been made by a
majority at a meeting duly held.
(b) All Options granted under this Plan are subject to, and may not be
exercised before, the approval of this Plan at the 1990 Annual Meeting, or at a
special meeting of shareholders called for that purpose prior to the 1990 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; provided that if such approval by the shareholders of
the Company at the annual or special meeting is not forthcoming, all Options
previously granted under this Plan shall be void.
(c) The Committee shall have the authority to designate which Options
granted under this Plan shall be incentive stock options and which shall be
nonqualified stock options. The Committee, in its sole discretion, may determine
that all the Options granted under this Plan may be incentive or nonqualified
options.
(d) The Committee shall have the authority to set the number of shares of
the option granted to any one grantee with the limitation that the total number
of shares that may effectively be granted under stock options to any one grantee
in any one calendar year may not exceed 200,000 shares. Such number of shares is
subject to adjustment as provided in Paragraph 9 of this Plan.
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3. DESIGNATION OF PARTICIPANTS
The persons eligible for participation in this Plan as recipients of
Options shall include only key employees of the Company and its Affiliates.
Directors of the Company shall not be eligible to participate in this Plan as
directors, but directors otherwise qualified shall be eligible to participate.
An employee who has been granted an Option hereunder ("Optionee") may be granted
an additional Option or Options, if the Committee shall so determine.
4. STOCK RESERVED
Subject to adjustment as provided in Paragraph 9, a total of 5,000,000
shares ("Stock") of Common Stock, par value $1.25 per share, of the Company
("Common Stock") shall be subject to this Plan. The shares of Stock subject to
this Plan shall consist of unissued shares or previously issued shares
reacquired and held by the Company or its Affiliates, and such number of shares
shall be and is hereby reserved for sale for such purpose. Any of such shares
which may remain unsold and which are not subject to outstanding Options at the
expiration of this Plan shall cease to be reserved for the purpose of this Plan,
but until termination of this Plan and the expiration, exercise or lapse of all
Options granted hereunder, the Company shall at all times reserve a sufficient
number of shares to meet the requirements of this Plan. Should any Option expire
or be cancelled prior to its exercise or relinquishment in full, the shares
theretofore subject to such Option may again be subjected to an Option under
this Plan, except that shares subject to purchase pursuant to any Options or
portion thereof relinquished and not required to be issued upon such
relinquishment shall not again be available for Options under this Plan.
5. OPTION PRICE
(a) The purchase price of each share of Stock subject to an incentive stock
option under this Plan shall be 100% of the fair market value of such share on
the date the Option is granted. The purchase price of each share of Stock
subject to a nonqualified stock option under this Plan shall be determined by
the Committee prior to granting the Option. The Committee shall set the purchase
price for each share subject to a nonqualified stock option at either the fair
market value of each share on the date the Option is granted, or at such other
price as the Committee in its sole discretion shall determine; provided,
however, that in no event shall the purchase price of a share subject to a
nonqualified stock option under this Plan be less than 50% of the fair market
value of such share on the date the Option is granted.
(b) The fair market value of a share of 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 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 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.
6. OPTION PERIOD
Each Option granted under this Plan shall terminate and be of no force and
effect with respect to any shares not previously taken up by the Optionee upon
the expiration of ten years from the date of granting of such Option or such
earlier date as the Committee, in its sole discretion, may prescribe at the date
of grant.
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7. EXERCISE OF OPTIONS
(a) The Committee, in granting Options hereunder, shall have discretion to
determine the terms upon which such Options shall be exercisable, subject to the
applicable provisions of this Plan. The Committee may determine to permit any
Option granted hereunder to be exercisable immediately upon the date of grant or
at any time thereafter; provided, however, that no Option granted hereunder 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.
(b) Options may be exercised solely by the Optionee during his lifetime or
after his death by the person or persons entitled thereto under this will or the
laws of descent and distribution.
(c) In the event of termination of employment for any reason other than
death, disability or retirement, Options may be exercised only with respect to
the number of shares purchasable at the time of such termination, unless the
Committee shall otherwise approve on a case by case basis.
(d) In the event of the death or disability of the Optionee following the
date of grant and while in the employ of the Company or any of its affiliates,
and while Options granted hereunder are still in force and unexpired under the
terms of Paragraph 6, any unmatured installments 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
Optionee shall thereupon be exercisable in full without regard to any
installment exercise provisions.
(e) In the event the Optionee terminates his employment because of
retirement under any retirement plan of the Company or any of its Affiliates
while Options granted hereunder are still in force and unexpired under the terms
of Paragraph 6, the Committee shall have discretion to permit any unmatured
installments of the Options to be accelerated as of the date of retirement and
the Options shall thereupon be exercisable in full without regard to any
installment exercise provisions.
(f) The purchase price of the shares as to which an Option is exercised
shall be paid in full at the time of the exercise. Such purchase price shall be
payable in cash (including certified check, bank draft and postal or express
money order payable to the order of the Company), or at the option of the holder
of such Option, in Common Stock theretofore owned by such holder (or any
combination of cash and Common Stock). For purposes of determining the amount,
if any, of the purchase price satisfied by payment of Common Stock, such Common
Stock shall be valued at its fair market value on the date of exercise in
accordance with Paragraph 5(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. The Committee may, in its discretion and
to the extent permitted by the laws of the State of Louisiana, determine to
permit the holder of an Option to satisfy the purchase price of the shares as to
which an Option is exercised by delivery of the Option holder's promissory note,
such note to be subject to such terms and conditions as the Committee may
determine. The Committee may, in its discretion and to the extent permitted by
the laws of the State of Louisiana, determine to cause the Company to lend to
the holder of an Option funds, on such terms and conditions as the Committee may
determine to be appropriate, sufficient for the holder of an Option to pay the
purchase price of the shares as to which an Option is to be exercised. No holder
of an Option shall be, or have any of the rights or privileges of, a shareholder
of the Company in respect of any shares purchasable upon the exercise of any
part of an Option unless and until certificates representing such shares shall
have been issued by the Company to such holder.
(g) The option agreement evidencing any incentive stock option granted
under this Plan shall provide that if the Optionee makes a disposition, within
the meaning of Section 425(c) of the Code and the regulations promulgated
thereunder, of any share or shares of Stock issued to him pursuant to his
exercise of an Option granted under this Plan within the two-year period
commencing on the day after the date of the grant of such Option or within a
one-year period commencing on the day after the date of transfer of the share or
shares to him pursuant to the exercise of such Option, he shall, within ten days
of such disposition, notify the Company thereof and immediately deliver to the
Company any amount of federal income tax withholding required by law.
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8. RELINQUISHMENT OF OPTIONS; ASSIGNABILITY
(a) The Committee, in granting Options hereunder, shall have discretion to
determine whether or not Options shall include a right of relinquishment as
hereinafter provided by this Paragraph 8. The Committee shall also have
discretion to determine whether an option agreement evidencing an Option
initially granted by the Committee without a right of relinquishment shall be
amended or supplemented to include such a right of relinquishment. Neither the
Committee nor the Company shall be under any obligation to incur any liability
to any person by reason of the Committee's refusal to grant or include a right
of relinquishment in any Option granted hereunder or in any option agreement
evidencing the same. Subject to the Committee's determination in any case that
the grant by it of a right of relinquishment is consistent with Paragraph 1
hereof, any Option granted under this Plan, and the option agreement evidencing
such Option, may provide:
(i) That the Optionee, or his heirs or other legal representatives to
the extent entitled to exercise the Option under the terms thereof, in lieu
of purchasing the entire number of shares subject to purchase thereunder,
shall have the right to relinquish all or any part of the then unexercised
portion of the Option (to the extent then exercisable) for a number of
shares of Stock, for an amount of cash or for a combination of Stock and
cash to be determined in accordance with the following provisions of this
clause (i):
(A) The written notice of exercise of such right of relinquishment
shall state the percentage, if any, of the Appreciated Value (as defined
below) that the Optionee elects to receive in cash ("Cash Percentage"),
such Cash Percentage to be in increments of 10% of such Appreciated
Value up to 100% thereof;
(B) The number of shares of Stock of the Company, if any, issuable
pursuant to such relinquishment shall be the number of such shares,
rounded to the next greater number of full shares, as shall be equal to
the quotient obtained by dividing (x) the difference between (I) the
Appreciated Value and (II) the result obtained by multiplying the
Appreciated Value and the Cash Percentage by (y) the then current market
value per share of Stock;
(C) The amount of cash payable pursuant to such relinquishment
shall be an amount equal to the Appreciated Value less the aggregate
current market value of the Stock issued pursuant to such
relinquishment, if any, which cash shall be paid by the Company subject
to such conditions as are deemed advisable by the Committee to permit
compliance by the Company with the withholding provisions applicable to
employers under the Code and any applicable state income tax laws; and
(D) For the purposes of this clause (i), "Appreciated Value" means
the excess of (x) the aggregate current market value of the shares of
Stock covered by the Option or the portion thereof to be relinquished
over (y) the aggregate purchase price for such shares specified in such
Option;
(ii) That such right of relinquishment may be exercised only upon
receipt by the Company of a written notice of such relinquishment which
shall be dated the date of election to make such relinquishment; and that,
for the purposes of this Plan, such date of election shall be deemed to be
the date when such notice is sent by registered or certified mail, or when
receipt is acknowledged by the Company, if mailed by other than registered
or certified mail or if delivered by hand or by any telegraphic
communications equipment of the sender or otherwise delivered; provided,
that, in the event the method just described for determining such date of
election shall not be or remain consistent with the provisions of Section
16(b) of the Exchange Act or the rules and regulations adopted by the
Commission thereunder, as presently existing or as may be hereafter
amended, which regulations exempt from the operation of Section 16(b) of
the Exchange Act in whole or in part any such relinquishment transaction,
then such date of election shall be determined by such other method
consistent with Section 16(b) of the Exchange Act or the rules and
regulations thereunder as the Committee shall in its discretion select and
apply;
(iii) That the "current market value" of a share of Stock on a
particular date shall be deemed to be its fair market value on that date as
determined in accordance with Paragraph 5(b); and
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(iv) That the Option, or any portion thereof, may be relinquished only
to the extent that (A) it is exercisable on the date written notice of
relinquishment is received by the Company, (B) the Committee, subject to
the provisions of Paragraph 8(b), shall consent to the election of the
holder to relinquish such Option in whole or in part for cash as set forth
in such written notice of relinquishment and (C) the holder of such Option
pays, or makes provision satisfactory to the Company for the payment of,
any taxes which the Company is obligated to collect with respect to such
relinquishment.
(b) The Committee shall have sole discretion to consent to or disapprove,
and neither the Committee nor the Company shall be under any liability by reason
of the Committee's disapproval of, any election by a holder of an Option to
relinquish such Option in whole of in part for cash as provided in Paragraph
8(a).
(c) The Committee, in granting Options hereunder, shall have discretion to
determine the terms upon which such Options shall be relinquishable, subject to
the applicable provisions of this Plan, and including such provisions as are
deemed advisable to permit the exemption from the operation from Section 16(b)
of the Exchange Act of any such relinquishment transaction, and Options
outstanding, and option agreements evidencing such Options, may be amended, if
necessary, to permit such exemption. If an Option is relinquished, such Option
shall be deemed to have been exercised to the extent of the number of shares of
Stock covered by the Option or part thereof which is relinquished, and no
further Options may be granted covering such shares of Stock.
(d) Neither any Option nor any right to relinquish the same to the Company
as contemplated by this Paragraph 8 shall be assignable or otherwise
transferable except by will or the laws of descent and distribution.
(e) No right of relinquishment may be exercised within the first six months
after the initial award of any Option containing, or the amendment or
supplementation of any existing option agreement adding, the right of
relinquishment; provided, however, that this limitation shall not apply in the
event of death or disability.
9. STOCK DIVIDENDS, STOCK SPLITS AND CERTAIN OTHER CORPORATION TRANSACTIONS
(a) The existence of this Plan and 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 deliver by the Company of all of the shares of the 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 Stock available under this Plan
and the number of shares of 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 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 (i) in the case of
a Spin
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Off, the securities distributed to shareholders of the Company together with
shares of Stock, such number of shares or securities to be determined in
accordance with the provisions of Section 425 of the Code (or other applicable
provisions of the Code or regulations issued thereunder which may from time to
time govern the treatment of incentive stock options in such a transaction);
provided, however, that all such Options may be 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 holder thereof or his personal representative 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 option agreements; and provided further
that in the event of a Spin Off, the Company may, in lieu of substituting
securities or accelerating and cancelling Options as contemplated above, elect
(i) to reduce the purchase price for each share of Stock subject to an
outstanding Option by an amount equal to the fair market value, as determined in
accordance with the provisions of Paragraph 5(b), of the securities distributed
in respect of each outstanding share of Common Stock in the Spin Off or (ii) to
reduce proportionately the purchase price per share and to increase
proportionately the number of shares of Stock subject to each Option in order to
reflect the conomic 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 of 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 Stock subject to Options granted hereunder.
(e) The Committee may, in its sole discretion, provide that an Option 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 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.
Notwithstanding the foregoing, the Committee is prohibited from exercising its
discretion to accelerate the exercisability of options upon a Change in Control
if such action would preclude the use of the pooling of interests method of
accounting for the combination of business interests.
10. PURCHASE FOR INVESTMENT
Unless the Options and shares of 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.
11. 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.
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(b) Notwithstanding the terms of Paragraph 11(a), any Optionee 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 a nonqualified 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 5(b), equal to the amount required to be withheld or paid. An Optionee
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 Committee. Elections by persons who are subject to
the short-swing profits recapture provisions of Section 16(b) of the Exchange
Act ("Covered Optionees") are subject to the additional restriction that such
election may not be made within six months of a 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 Covered Optionee elects share withholding, the full amount of shares of
Common Stock 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.
12. EFFECTIVE DATE OF PLAN
This Plan shall be effective as of November 16, 1989.
13. AMENDMENT OR TERMINATION
The Board of Directors may amend, alter or discontinue this Plan, except
that no amendment or alteration shall be made which would impair the rights of
any Optionee 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 5, except
in each case as provided in Paragraph 9, or change the class of employees
eligible to participate in this Plan as provided in Paragraph 3;
(b) Extend the option period provided for in Paragraph 6;
(c) Materially increase the benefits accruing to Optionees under this
Plan; or
(d) Materially modify the requirements as to eligibility of
participation in this Plan.
14. 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.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Louisiana Business Corporation Law
The Louisiana Business Corporation Law ("LBCL") generally gives a
corporation the power to indemnify any of its directors or officers against
certain expenses, judgments, fines and amounts paid in settlement in connection
with certain actions, suits or proceedings, provided generally that such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. In the case of an action by, or in the right of, the corporation, the
corporation may indemnify such person against expenses, including attorneys'
fees and amounts paid in settlement not exceeding, in the judgment of the board
of directors, the estimated expense of litigating the action to conclusion,
actually and reasonably incurred in connection with the defense or settlement of
such action, and no indemnification shall be made in respect of any claim,
issue, or matter as to which such person shall have been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
for willful or intentional misconduct in the performance of his 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.
Indemnification provided pursuant to the foregoing provisions is not, under
the LBCL, deemed exclusive of any other rights to which the person indemnified
is entitled under any bylaw, agreement, authorization of shareholders or
directors; however, no such other indemnification measure shall permit
indemnification of any person for the results of such person's willful or
intentional misconduct. In addition, the LBCL contains provisions to the general
effect that any director shall in the performance of his duties be fully
protected in relying in good faith upon the records of the corporation and upon
such information, opinions, reports or statements presented to the corporation,
the board of directors, or any committee thereof by any of the corporation's
officers or employees, or by any committee of the board of directors, or by any
counsel, appraiser, engineer (including a petroleum reservoir engineer), or
independent or certified public accountant selected by the board of directors or
any committee thereof with reasonable care, or by any other person as to matters
the director reasonably believes are within such other person's professional or
expert competence and which person is selected by the board of directors or any
committee thereof with reasonable care. A director shall not be liable for the
commission of a prohibited act if his dissent was either noted in the minutes of
the meetings or filed promptly thereafter in the registered office of the
Registrant.
Articles of Incorporation
As permitted under Section 24(C)(4) of the LBCL, Article XIII of the
Restated Articles of Incorporation of the Registrant eliminates the personal
liability of any director or officer to the Registrant or its shareholders for
monetary damages for breach of fiduciary duty in such capacity, except for (i)
any breach of the duty of loyalty to the Registrant or its shareholders; (ii)
acts or omissions not in good faith or involving intentional misconduct or a
knowing violation of law; (iii) unlawful payment of dividends or unlawful stock
purchases or redemptions; or (iv) any transaction from which the director or
officer derived an improper personal benefit.
Bylaws of Southdown
Article VI, Section 6 of the Registrant's Bylaws contemplate that the
Registrant shall indemnify its directors and officers to the maximum extent
permitted by Louisiana law.
II-1
<PAGE> 170
Directors' and Officers' Insurance
In addition, the Registrant has purchased a liability insurance policy
under which its directors and officers are indemnified against certain losses
arising from certain claims that may be made against them by reason of their
serving in such capacity.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following documents are filed as exhibits to this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 -- Agreement and Plan of Merger dated as of March 17, 1998,
among Medusa Corporation, the Registrant and Bedrock
Merger Corp. (included as Appendix A to the Joint Proxy
Statement/Prospectus)
**3.1 -- Restated Articles of Incorporation of the Registrant, as
amended through March 4, 1991 -- incorporated by
reference from Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated December 21, 1993
**3.2 -- Articles of Amendment to the Restated Articles of
Incorporation of the Registrant dated January 25,
1994 -- incorporated by reference from Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993
3.3 -- Form of Articles of Amendment to the Restated Articles of
Incorporation of the Registrant
**3.4 -- Bylaws of the Registrant amended as of March 26,
1998 -- incorporated by reference from Exhibit 3.3 to the
Registrant's Form 8-A/A dated April 1, 1998
**4.1 -- Rights Agreement dated as of March 4, 1991 between the
Registrant and ChaseMellon Shareholder Services, L.C.C.
(formerly Texas Commerce Bank National Association) as
successor Rights Agent -- incorporated by reference from
Exhibit 4.3 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996
5.1 -- Opinion of Bracewell & Patterson, L.L.P. as to the
validity of the securities being registered
5.2 -- Opinion of Correro, Fishman, Haygood, Phelps, Weiss,
Walmsley & Casteix, L.L.P. as to the validity of the
securities being registered
8.1 -- Opinion of Bracewell & Patterson, L.L.P. with respect to
certain federal income tax matters
8.2 -- Opinion of Milbank, Tweed, Hadley & McCloy with respect
to certain federal income tax matters
**10.1 -- 1987 Stock Option Plan of Registrant -- incorporated by
reference from Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1997
10.2 -- 1989 Stock Option Plan of Registrant, as amended
(included as Appendix E to the Joint Proxy
Statement/Prospectus)
**10.3 -- Form of Nonqualified Stock Option Agreement
Registrant -- incorporated by reference from Exhibit 10.3
to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997
**10.4 -- Special Severance Program dated May 18,
1989 -- incorporated by reference from Exhibit 10.2 to
Registrant'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 of
Registrant -- incorporated by reference from Exhibit 10.3
to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993
**10.6 -- Form of Employment Agreement between the Registrant and
certain executive officers, as more specifically
described below:
</TABLE>
<TABLE>
<CAPTION>
NAME OF OFFICER DATE OF EMPLOYMENT AGREEMENT
--------------- ----------------------------
<S> <C> <C>
(a) Clarence C. Comer December 19, 1997
(b) Dennis M. Thies December 19, 1997
(c) Steven R. Miley December 19, 1997
(d) J. Bruce Tompkins March 24, 1998
</TABLE>
II-2
<PAGE> 171
<TABLE>
<C> <S>
-- incorporated by reference from Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997
**10.7 -- Employment Agreement and Form of Amendment to Employment
Agreement between the Company and the following executive
officer:
</TABLE>
<TABLE>
<CAPTION>
NAME OF OFFICER DATE OF EMPLOYMENT AGREEMENT
--------------- ----------------------------
<S> <C> <C>
Eugene P. Martineau March 23, 1992
-- incorporated by reference from Exhibit 10.4 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993
**10.8 -- Registrant's Pension Plan as adopted on May 19,
1994 -- incorporated by reference from Exhibit 99.1 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994
**10.9 -- Registrant's Retirement Savings Plan as amended and
restated on July 1, 1990 -- incorporated by reference
from Exhibit 99.2 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994
**10.10 -- Registrant's Directors' Retirement Plan -- incorporated
by reference from Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995
**10.11 -- First Amendment to Registrant's Directors' Retirement
Plan -- incorporated by reference from Exhibit 10.10 to
Registrant's Annual Report on Form 10-K for the fiscal
year ended 1996
**10.12 -- Registrant's 1991 Nonqualified Stock Option Plan for
Non-employee Directors -- as amended November 21,
1996 -- incorporated by reference from Exhibit 10.11 to
Registrant's Annual Report on Form 10-K for the fiscal
year ended 1996
**10.13 -- Medusa Corporation 1991 Long-Term Incentive
Plan -- incorporated by reference from Exhibit 4.3 to
Medusa's Form S-8 filed with the Commission on February
20, 1996
**10.14 -- Form of Senior Executive Officer Restricted Share
Agreement under the Medusa Corporation 1991 Long-Term
Incentive Plan -- incorporated by reference from Exhibit
4.4 to Medusa's Form S-8 filed with the Commission on
February 20, 1996
**10.15 -- Form of Employment Agreement between Medusa Corporation
and certain employees -- incorporated by reference from
Exhibit 10.6 to Medusa's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988
10.16 -- Fourth Amendment to Rights Agreement, dated as of March
31, 1998 between Medusa Corporation and First City Trust
Company of New York (successor to Society National Bank,
successor to National City Bank), as rights agent
15 -- Letter of Deloitte & Touche LLP regarding unaudited
interim financial information
23.1 -- Consent of Deloitte & Touche LLP, independent auditors
for the Registrant
23.2 -- Consent of Deloitte & Touche LLP, independent auditors
for Medusa Corporation
*23.3 -- Consent of Lehman Brothers Inc.
*23.4 -- Consent of J.P. Morgan Securities Inc.
23.5 -- Consents of Bracewell & Patterson, L.L.P. (included in
their opinions filed as Exhibit 5.1 and 8.1 to this
Registration Statement)
23.6 -- Consent of Correro, Fishman, Haygood, Phelps, Weiss,
Walmsley & Casteix, L.L.P. (included in their opinion
filed as Exhibit 5.2 to Amendment No. 1 to this
Registration Statement)
23.7 -- Consent of Milbank, Tweed, Hadley & McCloy (included in
their opinion filed as Exhibit 8.2 to Amendment No. 1 to
this Registration Statement)
23.8 -- Consent of Baker & Botts, L.L.P.
23.9 -- Consent of Robert S. Evans to be named as a director
23.10 -- Consent of George E. Uding, Jr. to be named as a director
*24 -- Powers of Attorney
99.1 -- Form of Proxy for the Registrant
99.2 -- Form of Proxy for Medusa Corporation
</TABLE>
II-3
<PAGE> 172
<TABLE>
<C> <S>
99.3 -- Form of Certificate from Registrant supporting the tax opinions referred to in Exhibits 8.1 and 8.2
99.4 -- Form of Certificate from Medusa Corporation supporting the tax opinions referred to in Exhibits 8.1
and 8.2
</TABLE>
- ---------------
* Previously filed herewith.
** Incorporated by reference.
(b) FINANCIAL STATEMENT SCHEDULES.
None.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) That, for the purpose of determining any liability under the
Securities Act of 1933 (the "Act"), each filing of the Registrant's annual
report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to
the securities offered herein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to such request.
(d) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-4
<PAGE> 173
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on the 8th day of May, 1998.
SOUTHDOWN, INC.
By: /s/ CLARENCE C. COMER
----------------------------------
Clarence C. Comer
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on May 8, 1998.
<TABLE>
<CAPTION>
SIGNATURES POSITIONS
---------- ---------
<C> <S> <C>
/s/ CLARENCE C. COMER President, Chief Executive
- ----------------------------------------------------- Officer and Director
Clarence C. Comer (Principal Executive
Officer)
/s/ DENNIS M. THIES Executive Vice
- ----------------------------------------------------- President -- Chief Financial
Dennis M. Thies Officer (Principal Financial
Officer)
/s/ ALLAN KORSAKOV Vice President and Corporate
- ----------------------------------------------------- Controller (Principal
Allan Korsakov Accounting Officer)
* Director
- -----------------------------------------------------
K. L. Huger, Jr.
* Director
- -----------------------------------------------------
Robert G. Potter
* Director
- -----------------------------------------------------
Frank J. Ryan
* Director
- -----------------------------------------------------
Whitson Sadler
* Director
- -----------------------------------------------------
Robert J. Slater
* Director
- -----------------------------------------------------
David J. Tippeconnic
* Director
- -----------------------------------------------------
J. Bruce Tompkins
</TABLE>
II-5
<PAGE> 174
<TABLE>
<CAPTION>
SIGNATURES POSITIONS
---------- ---------
<C> <S> <C>
* Director
- -----------------------------------------------------
Ronald N. Tutor
* Director
- -----------------------------------------------------
V. H. Van Horn, III
* Director
- -----------------------------------------------------
Steven B. Wolitzer
/s/ PATRICK S. BULLARD
- -----------------------------------------------------
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 175
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 -- Agreement and Plan of Merger dated as of March 17, 1998,
among Medusa Corporation, the Registrant and Bedrock
Merger Corp. (included as Appendix A to the Joint Proxy
Statement/Prospectus)
**3.1 -- Restated Articles of Incorporation of the Registrant, as
amended through March 4, 1991 -- incorporated by
reference from Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated December 21, 1993
**3.2 -- Articles of Amendment to the Restated Articles of
Incorporation of the Registrant dated January 25,
1994 -- incorporated by reference from Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993
3.3 -- Form of Articles of Amendment to the Restated Articles of
Incorporation of the Registrant
**3.4 -- Bylaws of the Registrant amended as of March 26,
1998 -- incorporated by reference from Exhibit 3.3 to the
Registrant's Form 8-A/A dated April 1, 1998
**4.1 -- Rights Agreement dated as of March 4, 1991 between the
Registrant and ChaseMellon Shareholder Services, L.C.C.
(formerly Texas Commerce Bank National Association) as
successor Rights Agent -- incorporated by reference from
Exhibit 4.3 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996
5.1 -- Opinion of Bracewell & Patterson, L.L.P. as to the
validity of the securities being registered
5.2 -- Opinion of Correro, Fishman, Haygood, Phelps, Weiss,
Walmsley & Casteix, L.L.P. as to the validity of the
securities being registered
8.1 -- Opinion of Bracewell & Patterson, L.L.P. with respect to
certain federal income tax matters
8.2 -- Opinion of Milbank, Tweed, Hadley & McCloy with respect
to certain federal income tax matters
**10.1 -- 1987 Stock Option Plan of Registrant -- incorporated by
reference from Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1997
10.2 -- 1989 Stock Option Plan of Registrant, as amended
(included as Appendix E to the Joint Proxy
Statement/Prospectus)
**10.3 -- Form of Nonqualified Stock Option Agreement
Registrant -- incorporated by reference from Exhibit 10.3
to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997
**10.4 -- Special Severance Program dated May 18,
1989 -- incorporated by reference from Exhibit 10.2 to
Registrant'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 of
Registrant -- incorporated by reference from Exhibit 10.3
to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993
**10.6 -- Form of Employment Agreement between the Registrant and
certain executive officers, as more specifically
described below:
</TABLE>
<TABLE>
<CAPTION>
NAME OF OFFICER DATE OF EMPLOYMENT AGREEMENT
--------------- ----------------------------
<S> <C> <C>
(a) Clarence C. Comer December 19, 1997
(b) Dennis M. Thies December 19, 1997
(c) Steven R. Miley December 19, 1997
(d) J. Bruce Tompkins March 24, 1998
-- incorporated by reference from Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997
**10.7 -- Employment Agreement and Form of Amendment to Employment
Agreement between the Company and the following executive
officer:
</TABLE>
<TABLE>
<CAPTION>
NAME OF OFFICER DATE OF EMPLOYMENT AGREEMENT
--------------- ----------------------------
<S> <C> <C>
Eugene P. Martineau March 23, 1992
</TABLE>
<PAGE> 176
<TABLE>
<C> <S>
-- incorporated by reference from Exhibit 10.4 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993
**10.8 -- Registrant's Pension Plan as adopted on May 19,
1994 -- incorporated by reference from Exhibit 99.1 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994
**10.9 -- Registrant's Retirement Savings Plan as amended and
restated on July 1, 1990 -- incorporated by reference
from Exhibit 99.2 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994
**10.10 -- Registrant's Directors' Retirement Plan -- incorporated
by reference from Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995
**10.11 -- First Amendment to Registrant's Directors' Retirement
Plan -- incorporated by reference from Exhibit 10.10 to
Registrant's Annual Report on Form 10-K for the fiscal
year ended 1996
**10.12 -- Registrant's 1991 Nonqualified Stock Option Plan for
Non-employee Directors -- as amended November 21,
1996 -- incorporated by reference from Exhibit 10.11 to
Registrant's Annual Report on Form 10-K for the fiscal
year ended 1996
**10.13 -- Medusa Corporation 1991 Long-Term Incentive
Plan -- incorporated by reference from Exhibit 4.3 to
Medusa's Form S-8 filed with the Commission on February
20, 1996
**10.14 -- Form of Senior Executive Officer Restricted Share
Agreement under the Medusa Corporation 1991 Long-Term
Incentive Plan -- incorporated by reference from Exhibit
4.4 to Medusa's Form S-8 filed with the Commission on
February 20, 1996
**10.15 -- Form of Employment Agreement between Medusa Corporation
and certain employees -- incorporated by reference from
Exhibit 10.6 to Medusa's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988
10.16 -- Fourth Amendment to Rights Agreement, dated as of March
31, 1998 between Medusa Corporation and First City Trust
Company of New York (successor to Society National Bank,
successor to National City Bank), as rights agent
15 -- Letter of Deloitte & Touche LLP regarding unaudited
interim financial information
23.1 -- Consent of Deloitte & Touche LLP, independent auditors
for the Registrant
23.2 -- Consent of Deloitte & Touche LLP, independent auditors
for Medusa Corporation
*23.3 -- Consent of Lehman Brothers Inc.
*23.4 -- Consent of J.P. Morgan Securities Inc.
23.5 -- Consents of Bracewell & Patterson, L.L.P. (included in
their opinions filed as Exhibit 5.1 and 8.1 to this
Registration Statement)
23.6 -- Consent of Correro, Fishman, Haygood, Phelps, Weiss,
Walmsley & Casteix, L.L.P. (included in their opinion
filed as Exhibit 5.2 to Amendment No. 1 to this
Registration Statement)
23.7 -- Consent of Milbank, Tweed, Hadley & McCloy (included in
their opinion filed as Exhibit 8.2 to Amendment No. 1 to
this Registration Statement)
23.8 -- Consent of Baker & Botts, L.L.P.
23.9 -- Consent of Robert S. Evans to be named as a director
23.10 -- Consent of George E. Uding, Jr. to be named as a director
*24 -- Powers of Attorney
99.1 -- Form of Proxy for the Registrant
99.2 -- Form of Proxy for Medusa Corporation
99.3 -- Form of Certificate from Registrant supporting the tax
opinions referred to in Exhibits 8.1 and 8.2
99.4 -- Form of Certificate from Medusa Corporation supporting
the tax opinions referred to in Exhibits 8.1 and 8.2
</TABLE>
- ---------------
* Previously filed herewith.
** Incorporated by reference.
<PAGE> 1
EXHIBIT 3.3
ARTICLES OF AMENDMENT TO Section STATE OF TEXAS
RESTATED ARTICLES OF Section COUNTY OF HARRIS
INCORPORATION OF Section CITY OF HOUSTON
SOUTHDOWN, INC. Section
BE IT KNOWN, That on this day of , 1998
BEFORE ME, _____________________, a Notary Public, duly commissioned
and qualified in and for the County of Harris, State of Texas, and in the
presence of the witnesses hereinafter named and undersigned:
PERSONALLY CAME AND APPEARED:
CLARENCE C. COMER and PATRICK S. BULLARD, appearing herein and acting
for Southdown, Inc. (of which Corporation they are, respectively, President and
Secretary), a corporation organized and existing under the laws of the State of
Louisiana, domiciled in the Parish of Orleans, State of Louisiana, organized by
Articles of Incorporation effective April 4, 1930, which Articles, as amended,
were restated pursuant to Restated Articles of Incorporation effective
September 15, 1983, and further amended as of April 10, 1987, December 2, 1987,
April 23, 1988, May 23, 1988, March 4, 1991 and January 25, 1994 ("the
Corporation"), who declared that pursuant to Sections 24B(6) and 33A of the
Louisiana Business Corporation Law, Article IIIB of the Restated Articles of
Incorporation of the Corporation, resolutions of the Board of Directors of the
Corporation adopted at special meetings of the Board of Directors of the
Corporation held on March 17, 1998 and March 26, 1998, and resolutions of its
duly authorized Special Committee unanimously adopted at a special meeting of
such committee held on May 5, 1998, they now appear for the purpose of
executing this act of amendment and putting into authentic form the amendment
so adopted by the Special Committee of the Board of Directors of the
Corporation.
AND THE SAID APPEARERS further declare that by a vote of the
shareholders of said Corporation, it was:
RESOLVED, that Article III of the Restated Articles of Incorporation
of Southdown, Inc. be amended so that:
1. Paragraph A. is amended to read in its entirety as follows:
A. The Corporation has authority to issue 200,000,000 shares
of Common Stock of the par value of $1.25 per share (the "Common Stock") and
10,000,000 shares of Preferred Stock of the par value of $.05 per share (the
"Preferred Stock").
<PAGE> 2
AND SAID APPEARERS further declare that of the outstanding shares of
capital stock of the Corporation were represented at said meeting and
that shares were voted for the said amendment and that shares
were voted against the said amendment or abstained from voting thereon.
APPEARERS FURTHER stated that all of the shares of the Corporation have par
value; that the Corporation is authorized to issue 210,000,000 shares, of which
200,000,000 are common shares of the par value of $1.25 per share and 10,000,000
are preferred shares of the par value of $0.05 per share; and that the Board of
Directors of the Corporation and the Special Committee thereof each has the
authority to amend the articles to fix the preferences, limitations and relative
rights of the preferred shares, and to establish, and fix variations and
relative rights and preferences as between series of preferred shares, all as
more fully set out in Article III of the Restated Articles of Incorporation.
AND SAID APPEARERS having requested me, Notary, to note said amendment in
authentic form, I do by these presents receive said amendments in the form of
this public act to the end that said amendment may be promulgated and recorded
and thus be read into the Restated Articles of Incorporation of Southdown, Inc.,
as hereinabove set forth.
THUS DONE AND PASSED, in my office at Houston, Harris County, State of
Texas, on the day, month and year first above written, in the presence of the
undersigned competent witnesses, who hereunto sign their names with the said
appearers and me, Notary, after a due reading of the whole.
SOUTHDOWN, INC.
WITNESSES: By:
--------------------------------------
Clarence C. Comer
- ----------------------------- President and Chief
Executive Officer
By:
- ----------------------------- --------------------------------------
Patrick S. Bullard, Vice President,
General Counsel and Secretary
- -----------------------------
NOTARY PUBLIC
-2-
<PAGE> 1
EXHIBIT 5.1
[Letterhead of Bracewell & Patterson, L.L.P.]
May 8, 1998
Southdown, Inc.
1200 Smith Street, Suite 2400
Houston, Texas 77002-4486
Ladies and Gentlemen:
We are acting as counsel to Southdown, Inc., a Louisiana corporation
("Southdown"), in connection with the Registration Statement on Form S-4
(Registration No. 333-49161), as amended (the "Registration Statement"), under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
merger (the "Merger") of Bedrock Merger Corp., a wholly-owned subsidiary of
Southdown ("Bedrock"), with and into Medusa Corporation, an Ohio corporation
("Medusa"). Pursuant to the Agreement and Plan of Merger dated as of March 17,
1998 among Medusa, Southdown and Bedrock ("Merger Agreement"), Southdown will
issue to the holders of common shares, no par value, of Medusa ("Medusa
Shares") in the Merger (other than holders who perfect their dissenters'
rights) shares of Southdown's Common Stock, $1.25 par value, including
associated preferred stock purchase rights ("Southdown Common Stock").
We have examined the originals, or certified, conformed or reproduction copies,
of all such records, agreements, instruments and documents as we have deemed
relevant or necessary as the basis for the opinion hereinafter expressed. In
all such examinations, we have assumed the genuineness of all signatures, the
authenticity of all original or certified copies submitted to us as conformed
or reproduction copies. We also have assumed, with respect to all parties to
agreements or instruments relevant hereto other than Southdown, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to various questions of fact relevant to such opinion, we
have relied upon, and have assumed the accuracy of, certificates and oral or
written statements and other information of or from public officials, officers
or representatives of Southdown and others.
<PAGE> 2
Southdown, Inc.
May 8, 1988
Page 2
Based upon the foregoing and such other considerations as we deem relevant and
assuming that all Medusa Shares are validly issued, fully paid and
nonassessable, it is our opinion that, when shares of Southdown Common Stock
(and associated preferred stock purchase rights) are issued upon the
consummation of the Merger in accordance with the terms of the Merger
Agreement, such shares will be validly issued, fully paid and nonassessable.
The foregoing opinion is based on and is limited to the law of the State of
Texas, the law of the State of Louisiana and the relevant law of the United
States of America, and we render no opinion with respect to the law of any
other jurisdiction. Insofar as the law of the State of Louisiana is applicable
to the matters discussed herein, we have relied upon the opinion of Messrs.
Correro, Fishman, Haygood, Phelps, Weiss, Walmsley & Casteix, L.L.P. filed as
Exhibit 5.2 to the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Validity of Shares and Federal Income Tax Matters" in the Proxy
Statement/Prospectus forming a part of the Registration Statement as having
passed upon the validity of the issuance of the shares of Southdown Common
Stock in the Merger. In giving this consent, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
/s/ Bracewell & Patterson, L.L.P.
<PAGE> 1
EXHIBIT 5.2
[LETTERHEAD OF CORRERO, FISHMAN, HAYGOOD, PHELPS, WEISS,
WALMSLEY & CASTEIX, L.L.P.]
May 8, 1998
1140-01
Bracewell & Patterson
2900 South Tower, Pennzoil Place
Houston, Texas 77002-2781
Re: Southdown, Inc.
Registration Statement No. 333-49161
Offer and Sale of Common Stock by Selling Shareholder
Ladies and Gentlemen:
We have acted as special Louisiana counsel to Southdown, Inc., a Louisiana
corporation (the "Company"), in connection with the preparation of its
Registration Statement on Form S-4 (Registration No. 333-49161), as amended,
filed by the Company under the Securities Act of 1933, as amended (the
"Registration Statement"), with respect to the issuance of a number of shares of
Company's common stock, par value $1.25 per share (including the Rights attached
thereto issued pursuant to the Rights Agreement dated as of March 4, 1991
between the Company and First City, Texas - Houston, N.A.), (the "Common Stock")
pursuant to a merger (the "Merger") in which Medusa Corporation, an Ohio
corporation, will become a wholly-owned subsidiary of the Company.
With your concurrence, in connection with your request, we have limited
our review of documents to an examination of copies of (i) the Agreement and
Plan of Merger (the "Plan of
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Bracewell & Patterson
May 8, 1998
Page 2
Merger") among the Company, Medusa Corporation and Bedrock Merger Corp. dated
March 17, 1998; (ii) the Registration Statement; (iii) the Restated Articles of
Incorporation of the Company, as amended; (iv) the Bylaws of the Company, as
amended; (vi) certain resolutions of the Board of Directors of the Company,
including resolutions of the Special Committee thereof; and (v) certificates of
officers of the Company and certificates or letters of public officials as to
certain matters of fact relating to this opinion.
In addition, for purposes of the opinions expressed in this letter, we
have assumed: (a) the genuineness of all signatures; (b) the authenticity of all
records, instruments and documents submitted to us as originals and the
conformity to originals of all records, instruments and documents submitted to
us; and (d) that all records, instruments and documents referred to in this
letter comply with all applicable laws other than the laws of the State of
Louisiana. In addition, in rendering the opinions expressed in this letter, we
have assumed the accuracy and completeness of, and have relied upon,
certificates and facsimile transmissions by public officials and officers of
the Company.
With your concurrence, the opinions rendered in this letter are based upon
the assumptions and are subject to the qualifications and limitations set forth
herein. Based upon and in reliance on the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Louisiana.
2. The shares of Common Stock are duly authorized and, when issued and
delivered pursuant to the Plan of Merger, will be validly issued, fully paid,
and nonassessable.
The opinions expressed in this letter are limited to the matters stated
herein, and no opinion may be inferred beyond the matters expressly stated, are
given only as of this date, and are based on the law in effect as of this date.
We have no obligation, and will not undertake, to report to you or any third
parties changes in facts or laws, statutes or jurisprudence.
This letter is furnished at your request and may be relied upon only by
Bracewell & Patterson for purposes of the opinion to be delivered by you in
connection with the Registration Statement. We hereby consent to filing this
opinion with the Securities and Exchange Commission as Exhibit 5 to the
Registration Statement and the use of our name thereon. It may not be used,
circulated or quoted, in whole or part, or relied upon for any other purpose or
by any other person without our prior written consent.
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Bracewell & Patterson
May 8, 1998
Page 3
We are members of the Louisiana Bar, and the opinions in this letter are
based on and limited to the laws of the State of Louisiana. The opinions
contained in this letter are limited in that we express no opinion with respect
to federal laws, state blue sky or other securities laws, tax or environmental
laws or matters, the laws of any municipality, parish or other political
subdivision of the State of Louisiana or any agency thereof, or the laws of any
jurisdiction other than Louisiana.
This letter expresses our professional legal opinion as to the matters
addressed in this letter and is based upon our professional knowledge and
judgment; it is not, however, to be construed as a guaranty.
Very truly yours,
Correro Fishman Haygood Phelps
Weiss Walmsley & Castiex, L.L.P.
<PAGE> 1
EXHIBIT 8.1
[Letterhead of Bracewell & Patterson, L.L.P.]
May 8, 1998
Southdown, Inc.
1200 Smith Street, Suite 2400
Houston, Texas 77002-4486
Ladies and Gentlemen:
We have acted as tax counsel to Southdown, Inc., a Louisiana corporation
("Southdown"), in connection with the proposed merger (the "Merger") of Bedrock
Merger Corp., an Ohio corporation and wholly-owned subsidiary of Southdown
("Sub"), with and into Medusa Corporation, an Ohio corporation ("Medusa"), upon
the terms and conditions set forth in the Agreement and Plan of Merger (the
"Merger Agreement") dated as of March 17, 1998 among Medusa, Southdown and Sub.
In so acting, we have examined the Merger Agreement, the Proxy
Statement/Prospectus constituting part of Amendment No. 1 to Southdown's
Registration Statement on Form S-4 (Registration No. 333-49161) (the
"Registration Statement") and the exhibits to each such document, and certain
statements and representations contained in certificates to be signed by
certain officers of Medusa, Southdown and Sub upon consummation of the Merger.
Based upon and subject to the foregoing, we hereby confirm that the discussion
set forth in the Proxy Statement/Prospectus forming a part of the Registration
Statement under the caption "Federal Income Tax Consequences," as it relates to
the federal income tax consequences of the Merger is our opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the captions
"Federal Income Tax Consequences" and "Validity of Shares and Federal Income
Tax Matters" in the Proxy Statement/Prospectus forming a part of the
Registration Statement as having passed upon certain tax aspects of the Merger
on behalf of Southdown. In giving this consent, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
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Southdown, Inc.
May 8, 1998
Page 2
We express no opinion as to the laws of any jurisdiction other that the federal
laws of the United States of America.
Very truly yours,
/s/ Bracewell & Patterson, L.L.P.
<PAGE> 1
EXHIBIT 8.2
[LETTERHEAD OF MILBANK, TWEED, HADLEY & McCLOY]
TAX OPINION LETTER FOR MEDUSA
May 8, 1998
Medusa Corporation
3008 Monticello Blvd.
Cleveland Heights, Ohio 44118
Dear Medusa Corporation:
We have acted as special counsel to Medusa Corporation, an
Ohio corporation ("Medusa"), in connection with the merger (the "Merger") of
Bedrock Merger Corp. ("Bedrock"), a newly formed, wholly-owned Ohio corporate
subsidiary of Southdown, Inc. ("Southdown"), a Louisiana corporation, into
Medusa, pursuant to the Agreement and Plan of Merger among Southdown, Bedrock
and Medusa dated March 17, 1998 (the "Merger Agreement").
You have requested our opinion regarding certain material
federal income tax consequences of the Merger. In rendering our opinion, we have
examined and relied upon the accuracy and completeness of facts, information,
covenants, and representations contained in originals or copies, certified or
otherwise identified to our satisfaction, of the Merger Agreement, the Joint
Proxy Statement/Prospectus filed as part of the Registration Statement (the
"Proxy Statement/Prospectus"), other than the descriptions of the tax
consequences, and other documents we have deemed necessary and appropriate.
Capitalized terms used in this opinion and not otherwise defined have the
meanings given to them in the Proxy Statement/Prospectus. Our opinion is
conditioned on, among other things, the accuracy of the facts, information,
covenants and representations set forth in the Officer Certificates required to
be delivered by Merger Agreement Sections 6.2(c) and 6.3(c), and their being
true on the date of the Merger.
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of those documents. We have also assumed the
transactions related to the Merger or contemplated by the Merger Agreement will
be
<PAGE> 2
consummated in accordance with the Merger Agreement and as described in the
Proxy Statement/Prospectus.
The opinions set forth here are as of the date of this Letter
and are subject in each case to the truth and accuracy as of the date of the
Merger of the representations stated here as being relied upon with respect to
our opinions as to the Merger. In rendering our opinions, we have considered the
applicable provisions of the Internal Revenue Code of 1986 (the "Code"),
Treasury Regulations promulgated thereunder, pertinent judicial authorities,
Internal Revenue Service ("IRS") interpretive rulings, and other authorities we
consider relevant. We caution that statutes, regulations, judicial decisions,
and administrative interpretations are subject to change at any time and, in
some circumstances, with retroactive effect. A change in the authorities upon
which our opinion is based could affect our conclusions.
The Merger
Southdown's wholly-owned subsidiary, Bedrock, will be merged
into Medusa, with Medusa surviving the Merger as a wholly-owned Southdown
subsidiary. In the Merger, the Medusa shareholders who do not perfect their
dissenters' rights will receive 0.88 shares of Southdown Common Stock and
associated preferred stock purchase rights in exchange for each Medusa Share
owned by them immediately prior to the Merger. Cash will be paid in lieu of any
fractional shares of Southdown Common Stock and upon exercise of any appraisal
rights. Outstanding options to purchase Medusa Shares will be assumed by
Southdown and converted into options to purchase Southdown Common Stock.
In rendering our opinion, we have relied upon the following
Medusa and Southdown representations:
1. At the time of the Merger, the fair market value of the
Southdown Common Stock and other consideration received by
each Medusa shareholder will be approximately equal to the
fair market value of the Medusa Shares surrendered in the
exchange.
2. Prior to and in connection with the Merger, Medusa has not
redeemed, nor have any of its affiliates purchased, Medusa
Shares.
3. Prior to and in connection with the Merger, Medusa has not
issued any extraordinary distributions to any of its
shareholders.
4. Neither Southdown nor any of its affiliates has any plan or
intention to reacquire any Southdown stock issued in the
Merger.
5. Neither Southdown nor any of its affiliates now, or at any
time during the past five years, owns or has owned any shares
of Medusa capital stock.
6. Following the Merger, Medusa will hold at least 90 percent of
the fair market value of its net assets and at least 70
percent of the fair market value of its gross
2
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assets and all of Bedrock's net assets and all of Bedrock's
gross assets held immediately prior to the Merger. For
purposes of this representation, amounts paid to Medusa
shareholders who receive cash or other property, amounts used
by Medusa to pay reorganization expenses, and all redemptions
and distributions (except for regular, normal dividends) made
by Medusa will be included as assets of Medusa or Bedrock,
respectively, immediately prior to the Merger.(1)
7. Prior to the Merger, Southdown will own 100 percent of the
total combined voting power and 100 percent of the total
number of shares of each Bedrock stock class.
8. Medusa has no plan or intention to issue additional shares of
its stock that would result in Southdown owning less than 80
percent of the total combined voting power and 80 percent of
the total number of shares of each other Medusa stock class.
9. Southdown has no plan or intention to liquidate Medusa; to
merge Medusa with or into another corporation; to sell or
otherwise dispose of the stock of Medusa except for transfers
of stock to a member of Southdown's qualified group(2) or to a
partnership in which Southdown (or a member of Southdown's
qualified group) is a partner and owns at least a one-third
interest in the partnership and has active and substantial
management functions as a partner in the partnership.
10. Other than closing down Medusa's Cleveland headquarters,
Southdown has no plan or intention to cause Medusa to sell or
otherwise dispose of any of its assets except for dispositions
to be made in the ordinary course of business or transfers of
assets to a member of Southdown's qualified group or to a
partnership of which Southdown (or a member of Southdown's
qualified group) is a partner and owns at least a one-third
interest in the partnership and has active and substantial
management functions as a partner in the partnership.
11. Bedrock will have no material liabilities assumed by Medusa,
and will not transfer to Medusa any assets subject to material
liabilities, in the Merger.
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(1) Rev. Proc. 77-37, 1977-2 C.B. 568 (payments to dissenters, redemptions,
and distributions other than regular, normal distributions immediately
preceding the transfer as part of the plan will be considered assets
held immediately prior to the transfer in determining the 70 percent
gross asset and 90 percent net asset "substantially all" tests); Boris
I. Bittker & James S. Eustice, FEDERAL INCOME TAXATION OF CORPORATIONS
AND SHAREHOLDERS 12-65 [hereinafter Bittker & Eustice] ("linked"
threshold distributions must be considered in calculating the 70
percent gross asset and 90 percent net asset tests).
(2) Treas. Reg. Section 1.368-1(d)(4)(ii) defines a qualified group as
including Southdown and all its direct and remote subsidiaries, 80% of
the voting stock of which and 80% of all other classes of stock of
which are owned by one or more members of Southdown's qualified group.
3
<PAGE> 4
12. Following the transaction, Medusa will continue its historic
business and use a significant portion of its historic
business assets.(3)
13. Other than as provided in the Merger Agreement, Southdown,
Bedrock, Medusa and the shareholders of Medusa will pay their
respective expenses, if any, incurred in connection with the
Merger.
14. There is no intercorporate indebtedness existing between
Southdown and Medusa or between Bedrock and Medusa that was
issued, acquired, or will be settled at a discount.
15. At the time of the Merger, except for the Stock Option
Agreements, Medusa will not have outstanding any warrants,
options, convertible securities, or any other type of right
pursuant to which any person could acquire stock of Medusa
that, if exercised or converted, would affect Southdown's
acquisition or retention of at least 80 percent of the total
combined voting power and at least 80 percent of the total
number of shares of each other Medusa stock class.
16. No two parties to the Merger are regulated investment
companies, real estate investment trusts, or corporations
fifty percent or more of the value of whose total assets are
stock and securities, and eighty percent or more of the value
of whose total assets are assets held for investment. In
making the percentage determinations under the preceding
sentence, stock and securities in any subsidiary corporation
are disregarded and the parent corporation is deemed to own
its ratable share of the subsidiary's assets, and a
corporation is considered a subsidiary if the parent owns
fifty percent or more of the combined voting power of all
classes of stock entitled to vote or fifty percent or more of
the total value of shares of all classes of stock outstanding.
17. On the date of the Merger, the fair market value of the Medusa
assets will exceed the sum of its liabilities, plus the amount
of liabilities, if any, to which the assets are subject.
18. Medusa is not under the jurisdiction of a court in a case
under Title 11 of the United States Code or a receivership,
foreclosure, or similar proceeding in a federal or state
court.
19. The statutory and nonstatutory stock options currently
outstanding under Medusa's Stock Option Plan are not actively
traded on an established securities market and are not
transferable except by will or by the laws of descent or
distribution. Similarly, the statutory and nonstatutory stock
options for Southdown Common Stock to be received by Medusa
option holders will not be actively traded on an established
securities market and will not be transferable except by will
or by the laws of descent and distribution.
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(3) Treas. Reg. Section 1.368-1(d)(1998). See generally Bittker & Eustice,
supra note 1, at 12-204.
4
<PAGE> 5
20. The Merger will enhance Southdown's ability to capitalize on
strong industry fundamentals and the growth in cement
consumption that is expected to result from proposed increases
in federal and state infrastructure spending.
21. The Merger will result in the second largest and most modern
cement plant manufacturing system in the United States. The
expanded network of preheater/precalciner facilities should
present additional opportunities for cost effective capacity
expansions and earnings growth.
22. Medusa's operations complement Southdown's existing asset
base, and the combined network of plants and distribution
terminals will provide broad coverage of the markets east of
the Mississippi River.
23. The Merger will create a significantly larger company with
greater financial flexibility, a strong balance sheet, higher
market capitalization and greater earnings and cash flows, all
of which should enhance shareholder value by enabling
Southdown to realize its growth potential and pursue
attractive business opportunities in the future.
Based on the foregoing, it is our opinion that:
1. The Merger will constitute a reorganization within the meaning
of Code Section 368(a)(2)(E) and Code Section 368(a)(1)(A) and
Southdown, Bedrock and Medusa will each be a party to the
reorganization within the meaning of Code Section 368(b).
2. No gain or loss will be recognized by Southdown, Bedrock or
Medusa as a result of the Merger.
3. No gain or loss will be recognized by a Medusa shareholder who
receives solely shares of Southdown in exchange for Medusa
Common Stock. Code Section 354(a)(1). A Medusa Common
Shareholder who receives cash in lieu of a Southdown
fractional share will recognize gain or loss equal to the
difference between the cash received and the tax basis
allocated to the fractional share interest.(4) Any gain or
loss recognized by a shareholder will constitute capital gain
or loss, provided the shareholder's Medusa Common Stock was
held as a capital asset on the date of the Merger.
4. The tax basis of the Southdown Common Stock received by a
Medusa shareholder will be the same as the shareholder's tax
basis in the Medusa Shares exchanged for it. Code Section
358(a)(1).
5. The holding period of the Southdown Common Stock received by a
Medusa shareholder will include the holding period or periods
of the Medusa Shares
- ----------
(4) See Rev. Rul. 66-365, 1966-2 C.B.116 (cash in lieu of fractional shares
treated as a distribution in full payment in exchange for the
fractional share interest under Code Section 302(a)).
5
<PAGE> 6
exchanged, provided the Medusa Shares were held as capital
assets within the meaning of Code Section 1221 on the Merger
Date. Code Section 1223(1).
Except as expressly set forth above, we express no opinion to
any party as to the consequences, whether federal, state, local or foreign, of
the Merger or any transaction related to the Merger or contemplated by the
Merger Agreement or the Joint Proxy Statement/Prospectus. We are furnishing this
opinion to you in connection with "The Merger and The Merger Agreement - Federal
Income Tax Consequences" section of the Proxy Statement/Prospectus, which states
Medusa's obligation to effect the Merger is conditioned on the delivery of this
opinion. This opinion is solely for your benefit and is not to be used,
circulated, quoted or otherwise referred to for any purpose without our express
prior written permission. We consent to the references to our Firm under the
heading "The Merger and The Merger Agreement - Federal Income Tax Consequences"
and "Validity of Shares and Federal Income Tax Consequences." in the Proxy
Statement/Prospectus and to the filing of this opinion as Exhibit 8 to the
Registration Statement.
Very truly yours,
/s/ MILBANK, TWEED, HADLEY & MCCLOY
<PAGE> 1
EXHIBIT 10.16
FOURTH AMENDMENT TO RIGHTS AGREEMENT
This Amendment, dated as of March 31, 1998 (the "Amendment"),
between Medusa Corporation, an Ohio corporation (the "Company"), and First
Chicago Trust Company of New York (successor to Society National Bank, successor
to National City Bank), as rights agent (the "Rights Agent").
WHEREAS, the Company and the Rights Agent are parties to a
Rights Agreement dated as of October 13, 1988 and as amended as of August 20,
1990, February 3, 1995 and May 22, 1997 (as so amended, the "Agreement"); and
WHEREAS, pursuant to Section 27 of the Agreement, the Company
and the Rights Agent desire to amend the Agreement as set forth below.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Amendments to Section 1.
(a) The definitions of "Beneficial Owner" and "beneficially
own" are amended by adding the following at the end thereof:
"Notwithstanding anything contained in this Agreement to the contrary,
neither Parent, Sub, nor any of their Affiliates or Associates shall be
deemed to be the Beneficial Owner of, nor to beneficially own, any of
the Common Shares of the Company solely by virtue of the approval,
execution or delivery of the Merger Agreement or the consummation of
the transactions contemplated thereby."
(b) The following definitions are added to Section 1 of the
Agreement:
""Sub" shall mean Bedrock Merger Corp., an Ohio corporation."
""Parent" shall mean Southdown, Inc., a Louisiana corporation."
""Merger" shall mean the merger of Sub with and into the Company in
accordance with the General Corporation Law of the State of Ohio upon
the terms and subject to the conditions set forth in the Merger
Agreement."
""Merger Agreement" shall mean the Agreement and Plan of Merger, dated
as of March 17, 1998, by and among Parent, Sub and the Company, as the
same shall be amended from time to time in accordance with the Merger
Agreement."
<PAGE> 2
2
Section 2. Expiration Date.
Section 7(a) of the Agreement is hereby amended by adding to
the end thereof the following:
""Notwithstanding the foregoing, the Rights may not be exercised at or
after the Effective Time (as defined in the Merger Agreement)."
Section 3. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power.
Section 13 of the Agreement is hereby amended by adding to the
end thereof the following:
"Notwithstanding anything contained in this Section 13 to the contrary,
the approval, execution, and delivery of the Merger Agreement and the
consummation of the transactions contemplated thereby shall be excluded
and exempt from the operation of and will not trigger the provisions of
this Section 13."
Section 4. New Section 34.
The following is added as a new Section 34 to the Agreement:
"Section 34. The Merger, etc.
Notwithstanding anything contained in this Agreement to the contrary,
the approval, execution and delivery of the Merger Agreement and the
consummation of the transactions contemplated thereby shall not cause
(i) Parent or Sub or any of their Affiliates or Associates to be an
Acquiring Person, (ii) a Shares Acquisition Date to occur or (iii) a
Distribution Date to occur, which Distribution Date, if any, shall
instead be indefinitely deferred until such time as the Board of
Directors may otherwise determine."
Section 5. Severability. If any term, provision,
covenant or restriction of this Amendment is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Amendment
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
Section 6. Governing Law. This Amendment shall be
deemed to be a contract made under the laws of the State of Ohio 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.
Section 7. Counterparts. This Amendment 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.
Section 8. Effect of Amendment. Except as expressly
modified herein the Agreement shall remain in full force and effect.
<PAGE> 3
3
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed all as of the day and year first above written.
MEDUSA CORPORATION
By /s/Robert D. Vilsack
-------------------------------
Name: Robert D. Vilsack
Title: Vice President
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By: /s/Joanne Gorostiola
-------------------------------
Name: Joanne Gorostiola
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 15
May 8, 1998
Southdown, Inc.
1200 Smith Street, Suite 2400
Houston, Texas 77002
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Southdown, Inc. and subsidiary companies for the periods ended
March 31, 1998 and 1997, as indicated in our report dated April 16, 1998.
Because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which was included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 is being
used in this Registration Statement.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Houston, Texas
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-49161 of Southdown, Inc. on Form S-4 of our
report dated January 27, 1998, appearing in the Annual Report on Form 10-K of
Southdown, Inc. for the year ended December 31, 1997, and to the reference to us
under the heading "Experts" in the Joint Proxy Statement/Prospectus, which is
part of this Registration Statement.
DELOITTE & TOUCHE LLP
Houston, Texas
May 8, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-49161 of Southdown, Inc. on Form S-4 of our
reports dated January 26, 1998 (March 18, 1998 as to Notes Q and R), appearing
in the Annual Report on Form 10-K of Medusa Corporation for the year ended
December 31, 1997, and to the reference to us under the heading "Experts" in the
Joint Proxy Statement/ Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
May 8, 1998
<PAGE> 1
EXHIBIT 23.8
CONSENT OF BAKER & BOTTS, L.L.P.
We hereby consent to the reference to our firm under the caption "Increase
in Shares Available for Grant Under 1989 Stock Option Plan -- Description of the
1989 Plan -- Tax Matters" in Amendment No. 1 to the Registration Statement on
Form S-4 of Southdown, Inc. (File No. 333-49161) to be filed with the Securities
and Exchange Commission. In giving such consent, we do not thereby concede that
we are within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations
promulgated thereunder.
Dated: May 8, 1998
BAKER & BOTTS, L.L.P.
By /s/ JOSEPH A. CIALONE, II
------------------------------------
<PAGE> 1
EXHIBIT 23.9
CONSENT TO BE NAMED AS A DIRECTOR
OF
SOUTHDOWN, INC.
The undersigned, Robert S. Evans, hereby consents to be named as a director
of Southdown, Inc. (the "Company") in Amendment No. 1 to the Registration
Statement on Form S-4 (File No. 333-49161) to be filed by the Company with the
Securities and Exchange Commission.
Dated: May 8, 1998
/s/ ROBERT S. EVANS
--------------------------------------
Robert S. Evans
<PAGE> 1
EXHIBIT 23.10
CONSENT TO BE NAMED AS A DIRECTOR
OF
SOUTHDOWN, INC.
The undersigned, George E. Uding, Jr., hereby consents to be named as a
director of Southdown, Inc. (the "Company") in Amendment No. 1 to the
Registration Statement on Form S-4 (File No. 333-49161) to be filed by the
Company with the Securities and Exchange Commission.
Dated: May 8, 1998
/s/ GEORGE E. UDING, JR.
--------------------------------------
George E. Uding, Jr.
<PAGE> 1
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SOUTHDOWN, INC.
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, JUNE 19, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Clarence C. Comer, Robert G.
Potter and Robert J. Slater, and each of them, attorneys and agents, with full
power of substitution to vote as proxy all the shares of Southdown Common Stock
standing in the name of the undersigned at the Annual Meeting of Shareholders of
Southdown, Inc. ("Southdown") to be held at the Doubletree Hotel at Allen
Center, 400 Dallas Street, Houston, Texas at 8:30 A.M., Houston time, on Friday,
June 19, 1998, and at all adjournments and postponements thereof, in accordance
with the instructions noted below, and with discretionary authority with respect
to such other matters, not known or determined at the time of the solicitation
of this proxy, as may properly come before said meeting and all adjournments and
postponements thereof. Receipt of notice of the meeting and Joint Proxy
Statement/Prospectus dated May 19, 1998 is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED IN
ACCORDANCE WITH THE SHAREHOLDER'S SPECIFICATIONS HEREON. IN THE ABSENCE OF SUCH
SPECIFICATIONS, THE PROXY WILL BE VOTED "IN FAVOR" OF EACH NOMINEE FOR DIRECTOR
AND "FOR" PROPOSALS 1, 2, 4, 5 AND 6.
The undersigned hereby revokes any proxies heretofore given and directs said
attorneys to act or vote as follows:
1. APPROVAL OF ISSUANCE OF SHARES OF SOUTHDOWN COMMON STOCK CONTEMPLATED BY THE
AGREEMENT AND PLAN OF MERGER, DATED AS OF MARCH 17, 1998, AMONG MEDUSA
CORPORATION, SOUTHDOWN AND A WHOLLY OWNED SUBSIDIARY OF SOUTHDOWN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. APPROVAL OF CHARTER AMENDMENT TO INCREASE SHARES OF SOUTHDOWN COMMON STOCK
FROM 40,000,000 TO 200,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary) listed
</TABLE>
NOMINEES -- J. BRUCE TOMPKINS, K. L. HUGER, JR., DAVID J. TIPPECONNIC, V. H. VAN
HORN III AND STEVEN B. WOLITZER
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
(PLEASE DATE AND SIGN ON REVERSE SIDE)
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
4. APPROVAL OF AMENDMENT TO 1989 STOCK OPTION PLAN THAT INCREASES NUMBER OF
SHARES AVAILABLE FOR GRANT FROM 2,000,000 TO 5,000,000 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. APPROVAL OF AMENDMENT TO 1989 STOCK OPTION PLAN THAT IMPOSES LIMIT ON SIZE OF
ANNUAL GRANT TO ANY ONE PERSON TO COMPLY WITH FEDERAL INCOME TAX
REQUIREMENTS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. APPROVAL OF APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS OF
THE BOOKS AND ACCOUNTS OF SOUTHDOWN FOR THE YEAR ENDING DECEMBER 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated
- ------------------------------------------------------------------------ , 1998
-------------------------------
-------------------------------
Signature of Shareholder(s)*
* Please sign as name appears.
Joint owners each should
sign. When signing as
attorney, trustee,
administrator, executor,
etc., please indicate your
full title as such.
PLEASE DATE, SIGN AND MAIL YOUR PROXY PROMPTLY. PLEASE DO NOT FOLD THIS PROXY
- --------------------------------------------------------------------------------
EXHIBIT 99.2
MEDUSA CORPORATION PROXY
P. O. BOX 5668 THIS PROXY IS SOLICITED ON BEHALF OF
Cleveland, Ohio 44101 THE BOARD OF DIRECTORS
The undersigned hereby appoints R. S. EVANS and G. E. UDING, JR. as Proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all of the Common Shares of
Medusa Corporation held of record by the undersigned on May 15, 1998, at the
Special Meeting of Shareholders to be held on June 19, 1998, or any
adjournment thereof.
<TABLE>
<S> <C> <S>
- ----- Please mark SHARES IN YOUR NAME REINVESTMENT SHARES
your votes as in
------- this example.
X
<CAPTION>
- -----
-------
X
-------
</TABLE>
<PAGE> 1
<TABLE>
<S> <C> <C> <C> <C> <S>
------
FOR AGAINST ABSTAIN
I Plan to Attend the Meeting.
1. Approve and Adopt the ------
Agreement and Plan of Merger,
the Merger and the
Transactions Contemplated
thereby.
</TABLE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL, STATED ABOVE.
Signature
- ---------------------------------------- Dated
- -------------
Signature
- ---------------------------------------- Dated
- -------------
<TABLE>
<S> <C>
--------------------------------------------------------
Please sign exactly as name appears above. When shares are held by joint PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
tenants, both should sign. When signing as attorney, executor, PROMPTLY USING THE ENCLOSED ENVELOPE.
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other --------------------------------------------------------
authorized officer. If a partnership, please sign in partnership name by
authorized person.
</TABLE>
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.3
[SOUTHDOWN LETTERHEAD]
, 1998
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 1005
Bracewell & Patterson, L.L.P.
711 Louisiana Street, Suite 2900
Houston, Texas 77002
Re: March 17, 1998 Agreement and Plan of Merger ("Merger
Agreement") among Southdown, Inc. ("Southdown"), Bedrock
Merger Corp. ("Bedrock") and Medusa Corporation ("Medusa").
Gentlemen:
We furnish this letter to you in connection with your opinion as to
certain federal income tax consequences of the proposed merger contemplated by
the Merger Agreement. Capitalized terms not otherwise defined have meanings
assigned to them in Joint Proxy Statement/Prospectus dated , 1998 of
Southdown and Medusa. The Merger is described in detail in the Agreement.
To enable you to render your opinion, we make the following
representations:
1. At the time of the Merger, the fair market value of the
Southdown Common Stock and other consideration received by
each Medusa shareholder will be approximately equal to the
fair market value of the Medusa Shares surrendered in the
exchange.
2. Neither Southdown nor any of its affiliates has any plan or
intention to reacquire any Southdown stock issued in the
Merger.
3. Neither Southdown nor any of its affiliates now, or at any
time during the past five years, owns or has owned any shares
of Medusa capital stock.
<PAGE> 2
4. Immediately following the Merger, Medusa will hold at least
90 percent of the fair market value of its net assets and at
least 70 percent of the fair market value of its gross assets
and all of Bedrock's net assets and all of Bedrock's gross
assets held immediately prior to the Merger. For purposes of
this representation, amounts paid to Medusa shareholders who
receive cash or other property, amounts used by Medusa to pay
reorganization expenses, and all redemptions and distributions
(except for regular, normal dividends) made by Medusa will be
included as assets of Medusa or Bedrock, respectively,
immediately prior to the Merger.
5. Prior to the Merger, Southdown will own 100 percent of the
total combined voting power and 100 percent of the total
number of shares of each Bedrock stock class.
6. Southdown has no plan or intention to liquidate Medusa; to
merge Medusa with or into another corporation; to sell or
otherwise dispose of the stock of Medusa except for transfers
of stock to a member of Southdown's qualified group(1) or to a
partnership in which Southdown (or a member of Southdown's
qualified group) is a partner and owns at least a one-third
interest in the partnership and has active and substantial
management functions as a partner in the partnership.
7. Other than closing down Medusa's Cleveland headquarters,
Southdown has no plan or intention to cause Medusa to sell or
otherwise dispose of any of its assets except for dispositions
to be made in the ordinary course of business or transfers of
assets to a member of Southdown's qualified group or to a
partnership of which Southdown (or a member of Southdown's
qualified group) is a partner and owns at least a one-third
interest in the partnership and has active and substantial
management functions as a partner in the partnership.
8. Bedrock will have no material liabilities assumed by Medusa,
and will not transfer to Medusa any assets subject to material
liabilities, in the Merger.
9. Following the transaction, Medusa will continue its historic
business and use a significant portion of its historic
business assets.
10. Other than as provided in the Merger Agreement, Southdown will
pay all of Bedrock's expenses, if any, incurred in connection
with the Merger.
11. There is no intercorporate indebtedness existing between
Southdown and Medusa or between Bedrock and Medusa that was
issued, acquired, or will be settled at a discount.
- ----------------------
(1) Treas. Reg. Section 1.368-1(d)(4)(ii) defines a qualified group as
including Southdown and all its direct and remote subsidiaries, 80% of
the voting stock of which and 80% of all other classes of stock of
which are owned by one or more members of Southdown's qualified group.
2
<PAGE> 3
12. Neither Southdown nor Bedrock is a regulated investment
company, a real estate investment trust, or a corporation
fifty percent or more of the value of whose total assets are
stock and securities, and eighty percent or more of the value
of whose total assets are assets held for investment. In
making the percentage determinations under the preceding
sentence, stock and securities in any subsidiary corporation
are disregarded and the parent corporation is deemed to own
its ratable share of the subsidiary's assets, and a
corporation is considered a subsidiary if the parent owns
fifty percent or more of the combined voting power of all
classes of stock entitled to vote or fifty percent or more of
the total value of shares of all classes of stock outstanding.
13. The statutory and nonstatutory stock options to acquire
Southdown Common Stock to be received by Medusa option holders
will not be actively traded on an established securities
market and will not be transferable except by will or by the
laws of descent and distribution.
14. The Merger will enhance Southdown's ability to capitalize on
strong industry fundamentals and the growth in cement
consumption that is expected to result from proposed increases
in federal and state infrastructure spending.
15. The Merger will result in the second largest and most modern
cement plant manufacturing system in the United States. The
expanded network of preheater/precalciner facilities should
present additional opportunities for cost effective capacity
expansions and earnings growth.
16. Medusa's operations complement Southdown's existing asset
base, and the combined network of plants and distribution
terminals will provide broad coverage of the markets east of
the Mississippi River.
17. The Merger will create a significantly larger company with
greater financial flexibility, a strong balance sheet, higher
market capitalization and greater earnings and cash flows, all
of which should enhance shareholder value by enabling
Southdown to realize its growth potential and pursue
attractive business opportunities in the future.
Unless written notification to the contrary is received by you prior to
the Merger, these representations will continue to be true and correct at all
times from today through the day of the Merger.
Very truly yours,
Southdown, Inc.
By:
------------------------------------
Title:
----------------------------------
3
<PAGE> 1
EXHIBIT 99.4
[MEDUSA LETTERHEAD]
, 1998
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 1005
Bracewell & Patterson, L.L.P.
711 Louisiana Street, Suite 2900
Houston, Texas 77002
Re: March 17, 1998 Agreement and Plan of Merger ("Merger Agreement")
among Southdown, Inc. ("Southdown"), Bedrock Merger Corp.
("Bedrock") and Medusa Corporation ("Medusa").
Gentlemen:
We furnish this letter to you in connection with your opinion as to
certain federal income tax consequences of the proposed merger contemplated by
the Merger Agreement. Capitalized terms not otherwise defined have meanings
assigned to them in the Joint Proxy Statement/Prospectus dated , 1998
of Southdown and Medusa. The Merger is described in detail in the
Agreement.
To enable you to render your opinion, we make the following
representations:
1. At the time of the Merger, the fair market value of the
Southdown Common Stock and other consideration received by
each Medusa shareholder will be approximately equal to the
fair market value of the Medusa Shares surrendered in the
exchange.
2. Prior to and in connection with the Merger, Medusa has not
redeemed, nor have any of its affiliates purchased, Medusa
Shares.
3. Prior to and in connection with the Merger, Medusa has not
issued any extraordinary distributions to any of its
shareholders.
<PAGE> 2
4. Immediately following the Merger, Medusa will hold at least 90
percent of the fair market value of its net assets and at least
70 percent of the fair market value of its gross assets and all
of Bedrock's net assets and all of Bedrock's gross assets held
immediately prior to the Merger. For purposes of this
representation, amounts paid to Medusa shareholders who receive
cash or other property, amounts used by Medusa to pay
reorganization expenses, and all redemptions and distributions
(except for regular, normal dividends) made by Medusa will be
included as assets of Medusa or Bedrock, respectively,
immediately prior to the Merger.
5. To the best knowledge of the management of Medusa, Medusa
has no plan or intention to dispose of any of its assets
after the Merger.
6. Medusa has no plan or intention to issue additional shares of
its stock that would result in Southdown owning less than 80
percent of the total combined voting power and 80 percent of
the total number of shares of each other Medusa stock class.
7. Medusa will not assume any of Bedrock's material liabilities
nor will it receive any of Bedrock's assets subject to
material liabilities, in the Merger.
8. To the best knowledge of the management of Medusa, following
the transaction, Medusa will continue its historic business and
use a significant portion of its historic business assets.
9. Other than as provided in the Merger Agreement, Medusa and its
shareholders will pay their respective expenses incurred in
connection with the Merger.
10. There is no intercorporate indebtedness existing between
Southdown and Medusa or between Bedrock and Medusa that was
issued, acquired, or will be settled at a discount.
11. At the time of the Merger, except for the Stock Option
Agreements, Medusa will not have outstanding any warrants,
options, convertible securities, or any other type of right
pursuant to which any person could acquire stock of Medusa
that, if exercised or converted, would affect Southdown's
acquisition or retention of at least 80 percent of the total
combined voting power and at least 80 percent of the total
number of shares of each other Medusa stock class.
12. Medusa is not a regulated investment company, a real estate
investment trust, or a corporation fifty percent or more of
the value of whose total assets are stock and securities, and
eighty percent or more of the value of whose total assets are
assets held for investment. In making the percentage
determinations under the preceding sentence, stock and
securities in any subsidiary corporation are disregarded and
the parent corporation is deemed to own its ratable share of
the subsidiary's assets, and a corporation is considered a
subsidiary if the parent owns fifty percent or more of the
combined voting power of all classes of stock entitled to vote
or fifty percent or more of the total value of shares of all
classes of stock outstanding.
2
<PAGE> 3
13. On the date of the Merger, the fair market value of the Medusa
assets will exceed the sum of its liabilities, plus the amount
of liabilities, if any, to which the assets are subject.
14. Medusa is not under the jurisdiction of a court in a case
under Title 11 of the United States Code or a receivership,
foreclosure, or similar proceeding in a federal or state
court.
15. The statutory and nonstatutory stock options currently
outstanding under Medusa's Stock Option Plan are not actively
traded on an established securities market and are not
transferable except by will or by the laws of descent or
distribution.
16. The Merger will enhance Southdown's ability to capitalize on
strong industry fundamentals and the growth in cement
consumption that is expected to result from proposed increases
in federal and state infrastructure spending.
17. The Merger will result in the second largest and most modern
cement plant manufacturing system in the United States. The
expanded network of preheater/precalciner facilities should
present additional opportunities for cost effective capacity
expansions and earnings growth.
18. Medusa's operations complement Southdown's existing asset
base, and the combined network of plants and distribution
terminals will provide broad coverage of the markets east of
the Mississippi River.
19. The Merger will create a significantly larger company with
greater financial flexibility, a strong balance sheet, higher
market capitalization and greater earnings and cash flows, all
of which should enhance shareholder value by enabling
Southdown to realize its growth potential and pursue
attractive business opportunities in the future.
Unless written notification to the contrary is received by you from
Medusa prior to the Merger, these representations will continue to be true and
correct at all times from today through the day of the Merger.
Very truly yours,
Medusa Corporation
By:
---------------------------------
Title:
-------------------------------
3
