FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 1-06124
LONE STAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE No. 13-0982660
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 First Stamford Place, P. O. Box 120014, Stamford, CT 06912-0014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-969-8600
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
The number of shares outstanding of each of the registrant's classes
of common stock as of July 23, 1998:
Common Stock, par value $1 per share - 10,681,030 shares
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations - For the
Three and Six Months Ended June 30, 1998 and
1997 (Unaudited)......................................3
Consolidated Statements of Retained Earnings -
For the Three and Six Months Ended June 30, 1998
and 1997 (Unaudited)..................................4
Consolidated Balance Sheets - June 30, 1998
(Unaudited) and December 31, 1997.....................5
Consolidated Statements of Cash Flows - For the
Six Months Ended June 30, 1998 and 1997
(Unaudited)...........................................6
Notes to Unaudited Consolidated Financial Statements.....7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........13
PART II. OTHER INFORMATION.......................................17
SIGNATURES.........................................................19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands Except Per Share Amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 97,702 $104,618 $155,496 $165,454
Joint venture income 2,231 2,335 3,054 3,077
Other income, net 1,936 391 5,705 1,065
-------- -------- -------- --------
101,869 107,344 164,255 169,596
-------- -------- -------- --------
Deductions from revenues:
Cost of sales 56,095 62,535 94,998 108,718
Selling, general and
administrative expenses 6,328 7,473 13,060 15,177
Depreciation and depletion 5,211 5,952 10,557 12,205
Interest expense 405 804 1,152 2,518
-------- -------- -------- --------
68,039 76,764 119,767 138,618
-------- -------- -------- --------
Income before income
taxes 33,830 30,580 44,488 30,978
Provision for income taxes (11,418) (10,399) (15,015) (10,533)
-------- -------- -------- --------
Net income applicable
to common stock $ 22,412 $ 20,181 $ 29,473 $ 20,445
======== ======== ======== ========
Weighted average common
shares outstanding:
Basic 10,710 10,994 10,713 10,924
======== ======== ======== ========
Diluted 13,786 13,220 13,680 13,159
======== ======== ======== ========
Earnings per common share:
Basic $ 2.09 $ 1.84 $ 2.75 $ 1.87
======== ======== ======== ========
Diluted $ 1.63 $ 1.53 $ 2.15 $ 1.55
======== ======== ======== ========
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Retained earnings, beginning
of period $ 184,978 $ 114,945 $ 178,444 $ 115,228
Net income 22,412 20,181 29,473 20,445
Dividends (536) (550) (1,063) (1,097)
--------- --------- --------- ---------
Retained earnings, end of
period $ 206,854 $ 134,576 $ 206,854 $ 134,576
========= ========= ========= =========
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
LONE STAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash including cash equivalents of $142,029
and $152,775 $ 146,331 $ 154,080
Accounts and notes receivable, net 40,877 28,217
Inventories:
Finished goods 19,350 14,850
Work in process and raw materials 6,992 6,417
Supplies and fuel 22,004 21,836
-------- --------
48,346 43,103
Deferred tax asset 3,825 3,825
Other current assets 4,482 3,751
-------- --------
Total current assets 243,861 232,976
Joint ventures 22,380 20,326
Property, plant and equipment 398,636 368,248
Less accumulated depreciation and depletion 79,325 68,993
-------- --------
319,311 299,255
Deferred tax asset 29,319 37,661
Other assets and deferred charges 8,704 8,759
-------- --------
Total assets $623,575 $598,977
======== ========
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 10,457 $ 13,400
Accrued liabilities 44,512 46,417
Other current liabilities 7,893 3,565
-------- --------
Total current liabilities 62,862 63,382
Senior notes payable 50,000 50,000
Postretirement benefits other than pensions 122,829 123,728
Other liabilities 28,371 28,233
Contingencies (See notes 7 and 8)
-------- --------
Total liabilities 264,062 265,343
-------- --------
Shareholders' Equity:
Common stock 12,096 12,092
Warrants to purchase common stock 15,418 15,554
Additional paid-in capital 175,052 174,915
Retained earnings 206,854 178,444
Treasury stock, at cost (49,907) (47,371)
-------- --------
Total shareholders' equity 359,513 333,634
Total liabilities and shareholders' -------- --------
equity $623,575 $598,977
======== ========
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 29,473 $ 20,445
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and depletion 10,557 12,205
Deferred income taxes 8,342 10,533
Changes in operating assets and
liabilities:
Accounts and notes receivable (12,596) (16,009)
Inventories and other current
assets (6,072) (4,986)
Accounts payable and
accrued liabilities (1,765) (5,940)
Equity income, net of dividends
received (2,054) (1,077)
Gain of sale of a surplus property (1,500) -
Other, net 522 678
-------- -------
Net cash provided by operating
activities 24,907 15,849
Cash Flows from Investing Activities:
Capital expenditures (31,571) (21,050)
Proceeds from sales of assets 2,539 9,490
-------- --------
Net cash used by investing
activities (29,032) (11,560)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term
senior notes - 50,000
Redemption of long-term senior notes - (78,000)
Proceeds from exercise of warrants 70 38
Purchase of treasury stock (2,765) -
Dividends paid (1,063) (1,097)
Proceeds from exercise of options 134 4,419
-------- --------
Net cash used by financing activities (3,624) (24,640)
-------- --------
Net decrease in cash and cash
equivalents (7,749) (20,351)
Cash and cash equivalents, beginning of
period 154,080 71,215
-------- --------
Cash and cash equivalents, end of period $ 146,331 $ 50,864
======== ========
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, which are of a normal
recurring nature, necessary to present fairly the financial position of
the Company as of June 30, 1998, the results of operations for the three
and six months ended June 30, 1998 and 1997 and the cash flows for the six
months ended June 30, 1998 and 1997.
The year-end consolidated balance sheet was derived from the Company's
audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. The financial
statements contained herein should be read in conjunction with the
financial statements and related notes in the Company's annual report on
Form 10-K for the year ended December 31, 1997. The Company's operations
are seasonal and, consequently, interim results are not indicative of the
results to be expected for a full year.
Note 2 - Common Stock
In February and May 1998, the Board of Directors declared $0.05 dividends per
common share, which were paid on March 16, 1998 and June 15, 1998 to
shareholders of record as of March 1, 1998 and June 1, 1998. In January
1998, pursuant to an order signed by the U.S. Bankruptcy Court, 14,572 shares
of common stock and 31,033 warrants were returned to the Company. The common
stock shares have been recorded as treasury shares and the returned warrants
have been cancelled. There was no effect on total equity of the Company as a
result. During the second quarter of 1998, the Company purchased 40,800
shares for $2,765,000.
Note 3 - Supplemental Disclosures of Cash Flow Information
Cash equivalents include the Company's marketable securities which are
comprised of short-term, highly liquid investments with original maturities
of three months or less. Interest paid during the six months ended June 30,
1998 and 1997 was $1,838,000 and $5,396,000, respectively. Income taxes paid
during the six months ended June 30, 1998 and 1997, were $2,345,000 and
$290,000, respectively.
Note 4 - Interest
Interest expense of $945,000, $1,890,000, $1,205,000 and $3,131,000 has been
accrued for the three and six months ended June 30, 1998 and 1997,
respectively. Interest capitalized during the three and six months ended June
30, 1998 and 1997, was $540,000, $738,000, $401,000 and $613,000,
respectively.
Note 5 - Earnings Per Share
In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"). Previously reported earnings per
share amounts have been restated. Basic earnings per common share for the
three and six months ended June 30, 1998 and 1997 are calculated by dividing
net income by weighted average common shares outstanding during the period.
Diluted earnings per common share for the three and six months ended June 30,
1998 and 1997 are calculated by dividing net income by weighted average
common shares outstanding during the period plus dilutive potential common
shares which are determined as follows:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Weighted average common
shares 10,710,390 10,994,323 10,713,227 10,923,583
Effect of dilutive
securities:
Warrants 2,961,815 2,133,264 2,855,542 2,102,171
Options to purchase
common stock 113,772 92,392 110,902 132,892
Adjusted weighted
average common shares 13,785,977 13,219,979 13,679,671 13,158,646
Dilutive potential common shares are calculated in accordance with the
treasury stock method which assumes that the proceeds from the exercise of
all warrants and options are used to repurchase common stock at market value.
The number of shares remaining after the proceeds are exhausted represents
the potentially dilutive effect of the securities.
Note 6 - Sale of Assets
In February 1998, the Company recorded a gain of $1,500,000 from the sale of
a piece of surplus real estate in Massachusetts. The gain is included in
other income on the accompanying consolidated statement of operations.
Note 7 - Environmental Matters
The Company is subject to extensive, stringent and complex federal, state
and local laws, regulations and ordinances pertaining to the quality and
the protection of the environment and human health and safety, requiring
the Company to devote substantial time and resources in an effort to
maintain continued compliance. Many of the laws and regulations apply to
the Company's former activities, properties and facilities as well as its
current operations. There can be no assurances that judicial or
administrative proceedings, seeking penalties or injunctive relief, will
not be brought against the Company for alleged non-compliance with
applicable environmental laws and regulations relating to matters as to
which the Company is currently unaware. For instance, if releases of
hazardous substances are discovered to have occurred at facilities
currently or previously owned or operated by the Company, or at facilities
to which the Company has sent waste materials, the Company may be subject
to liability for the investigation and remediation of such sites. In
addition, changes to such regulations or the enactment of new regulations
in the future could require the Company to undertake capital improvement
projects or to cease or curtail certain operations or could otherwise
substantially increase the capital, operating and other costs associated
with compliance. For example, recent initiatives for limitations on
carbon dioxide emissions as a result of the fear of global warming could
result in statutes or regulations which, if promulgated, could adversely
affect certain aspects of United States manufacturing, including the
cement industry.
The federal Water Pollution Control Act, commonly known as the Clean Water
Act, provides a comprehensive federal regulatory scheme governing the
discharge of pollutants to waters of the United States. This regulatory
scheme requires that permits be secured for discharges of wastewater,
including stormwater runoff associated with industrial activity, to waters
of the United States. The Company has secured or has applied for all
required permits in connection with its wastewater and stormwater
discharges.
The Clean Air Act was amended in 1990 to provide for a uniform federal
regulatory scheme governing the control of air pollutant emissions and
permit requirements. In addition, certain states in which the Company
operates have enacted laws and regulations governing the emission of air
pollutants and requiring permits for sources of air pollutants. As a
result of the 1990 amendments to the Clean Air Act, the Company is
required to apply for federal operating permits for each of its cement
manufacturing facilities at various dates through 1999. As part of the
permitting process, the Company may be required to install equipment to
monitor emissions of air pollutants from its facilities. In addition, the
Clean Air Act amendments require the United States Environmental
Protection Agency ("EPA") to develop regulations directed at reducing
emissions of toxic air pollutants from a variety of industrial sources,
including the portland cement manufacturing industry. As part of this
process, the EPA has identified maximum available control technology
("MACT") for the reduction of emissions of air toxics from cement
manufacturing facilities. In 1997, the EPA announced proposed MACT
standards for those cement manufacturing facilities (like Lone Star's
Greencastle and Cape Girardeau plants) that burn hazardous waste fuels
("HWF"). The proposed standards are extremely lengthy and complex and
have been commented on by concerned parties. They are anticipated by the
Company to be effective in late 1998 and thereafter will be implemented
over a three-year period for companies that plan to comply. Depending on
their final terms when effective, they could have the effect of limiting
or eliminating the use of HWF at one or both facilities. MACT standards
for facilities burning fossil fuels were proposed in early 1998, and these
standards are currently being studied by the Company. In 1997, the EPA
promulgated under the Clean Air Act new standards for small particulate
matter and ozone emissions, and related testing will be carried out over
the next several years. Depending on the result of this testing,
additional regulatory burdens could be imposed on the cement industry by
states not in compliance with the regulations. Also in 1997, the EPA
proposed new regulations to reduce nitrogen oxide emissions substantially
over the next eight years. This proposal would affect 22 states including
three in which the Company has cement plants: Indiana, Illinois and
Missouri. Depending on state implementation, this emissions reduction
could adversely affect the cement industry in these states.
The Resource Conservation and Recovery Act ("RCRA") establishes a cradle-
to-grave regulatory scheme governing the generation, treatment, storage,
handling, transportation and disposal of solid wastes. Solid wastes which
are classified as hazardous wastes pursuant to RCRA, as well as facilities
that treat, store or dispose of such hazardous wastes, are subject to
stringent regulatory requirements. Generally, wastes produced by the
Company's operations are not classified as hazardous wastes and are
subject to less stringent federal and state regulatory requirements.
Cement kiln dust ("CKD"), a by-product of cement manufacturing, is
currently exempted from regulation as a hazardous waste pursuant to the
Bevill Amendment to RCRA. However, in 1995, the EPA issued a regulatory
determination regarding the need for regulatory controls on the
management, handling and disposal of CKD. Generally, the EPA regulatory
determination provides that the EPA intends to draft and promulgate
regulations imposing controls on the management, handling and disposal of
CKD that will be based largely on selected components of the existing RCRA
hazardous waste regulatory program, tailored to address the specific
regulatory concerns posed by CKD. The EPA regulatory determination further
provides that new CKD regulations will be designed both to be protective
of the environment and to minimize the burden on cement manufacturers.
While it is not possible to predict at this time precisely what new
regulatory controls on the management, handling and disposal of CKD or
what increased costs (or range of costs) would be incurred by the Company
to comply with these requirements, the EPA announced in 1996 that
regulations will be promulgated through a rulemaking scheduled to be
completed shortly, and that, thereafter, these rules will be implemented
over a three-year period. The types of controls being considered by the
EPA include fugitive dust emission controls, restrictions for landfills
located in sensitive areas, groundwater monitoring, standards for liners
and caps, metals limits and corrective action for currently active units.
In 1995, the State of Indiana made a determination that the CKD stored at
the Company's Greencastle plant is a Type I waste and requested that the
Company apply for a formal permit for an on-site landfill for the CKD. The
Company understands that similar notices were sent to other cement
manufacturers in the State of Indiana. The Company is protesting this
determination through legal channels and has received a stay to allow it
to demonstrate that current management practices pose no threat to the
environment. The Company believes that the State's determination
ultimately will be reversed or the Company will receive the needed permit
or other adequate relief, such as an agreed order requiring certain
additional waste management procedures that are less stringent than those
generally required for Type I wastes. If the Company is not successful in
this regard, however, like other Indiana cement producers, the Greencastle
plant could incur substantially increased operating and capital costs.
The Cape Girardeau, Missouri and Greencastle, Indiana plants, which are
the Company's two cement manufacturing facilities using HWF as a cost-
saving energy source, are subject to strict federal, state and local
requirements governing hazardous waste treatment, storage and disposal
facilities, including those contained in the federal Boiler and Industrial
Furnace Regulations promulgated under RCRA (the "BIF Rules"). These
facilities qualified for and operate under interim status pursuant to RCRA
and the BIF Rules. While Lone Star believes that it is currently in
compliance with the extensive and complex technical requirements of the
BIF Rules, there can be no assurances that the Company will be able to
maintain compliance with the BIF Rules or that changes to such rules or
their interpretation by the relevant agencies or courts might not make it
more difficult or cost-prohibitive to continue to burn HWF.
The Company is currently engaged in the process of securing the permit
required under RCRA and the BIF Rules for the Cape Girardeau plant. The
Company anticipates that the Greencastle plant also will go through this
permitting process and will complete a three-year recertification of its
existing interim status in 1998. These permits are a requirement to enable
Lone Star to continue the use of HWF at those facilities. The permitting
process is lengthy and complex, involving the submission of extensive
technical data. There can be no assurances that the Company will be
successful in securing a final RCRA permit for either or both of its HWF
facilities. In addition, if received, the permits could contain terms and
conditions with which the Company cannot comply or could require the
Company to install and operate costly control technology equipment.
The federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund"), as well as many comparable state
statutes, creates a joint and several liability scheme for the
investigation and remediation of facilities where releases of hazardous
substances are found to have occurred. Liability may be imposed upon
current owners and operators of the facility, upon owners and operators of
the facility at the time of the release and upon generators and
transporters of hazardous substances released at the facility. While, as
noted above, wastes produced by the Company generally are not classified
as hazardous wastes, many of the raw materials, by-products and wastes
currently and previously produced, used or disposed of by the Company or
its predecessors contain chemical elements or components that have been
designated as hazardous substances or which otherwise may cause
environmental contamination. Hazardous substances are or have been used or
produced by the Company in connection with its cement manufacturing
operations (e.g. grinding compounds, refractory bricks), quarrying
operations (e.g. blasting materials), equipment operation and maintenance
(e.g. lubricants, solvents, grinding aids, cleaning aids, used oils), and
hazardous waste fuel burning operations. Past operations of the Company
have resulted in releases of hazardous substances at sites currently or
formerly owned by the Company and certain of its subsidiaries or where
waste materials generated by the Company have been disposed. CKD and other
materials were placed in depleted quarries and other locations for many
years. The Company has been named by the EPA as a potentially responsible
party for the investigation and remediation of several Superfund sites.
Available factual information indicates that the Company's disposal of
waste at these Superfund sites (other than sites that have been remediated
or as to which the Company has entered into settlement agreements with the
EPA) was small or non-existent, and the Company may have certain defenses
arising out of its reorganization. The Company is also reviewing certain
of its inactive properties to determine if any remedial action may be
required at these sites.
The Company's operations are also subject to federal and state laws and
regulations designed to protect worker health and safety. Worker
protection at the Company's cement manufacturing facilities is governed by
the federal Mine Safety and Health Act ("MSHA") and at other Company
operations is governed by the federal Occupational Safety and Health Act
("OSHA").
Note 8 - Litigation
From time to time the Company is named as a defendant in lawsuits
asserting product liability for which the Company maintains insurance
coverage. In this regard, the Company is one of many defendants, including
several cement manufacturers, named in two product liability lawsuits in
southern Texas that allege that cement is an unreasonably dangerous
product that has injured a large number of plaintiffs. The Company
believes this type of litigation is totally without merit and is
contesting the lawsuits vigorously. The Company also has been named in a
lawsuit asserting that it has successor liability for certain defunct
subsidiaries which allegedly manufactured faulty prestressed "double tees"
resulting in property damage to a retail store (and consequent loss of
business) in south Florida during Hurricane Andrew in 1992. In late 1995,
an office building in Boston, Massachusetts, constructed in 1983 using
concrete pilings produced by San-Vel Concrete Corporation, an inactive
Lone Star subsidiary ("San-Vel"), was demolished by order of the City of
Boston based upon an engineering report that the pilings were unreliable.
The owner of this demolished building brought suit against San-Vel and
the Company, alleging, among other things, that San-Vel was negligent in
producing, and that it breached representations relating to, the pilings.
At the request of the City of Boston, San-Vel has provided a list of the
approximate twenty-five other buildings built in that City between 1980
and 1990 using San-Vel pilings. The City has reportedly inspected these
buildings visually, without noting any apparent piling failure. Certain
engineering studies also have been conducted, and those limited results
that have been made available to the Company do not indicate any
additional failures. The Company believes that San-Vel used cement
produced by Lone Star at one of its formerly owned cement plants to mix
the concrete from which pilings in certain of these buildings (including
the demolished building) were produced. There has been no indication that
Lone Star's production of this cement was defective. The Company is
contesting this lawsuit vigorously, and believes that it has good defenses
to the lawsuit. The foregoing matters are being defended by the Company's
insurers. No assurances as to their ultimate outcome can be given.
ITEM 2 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
The Company believes that cash and marketable securities on hand
of $146.3 million and funds generated by operations will be adequate
to cover current working capital and capital expenditure needs.
The Company's financing agreement and the revolving credit
facility contain certain restrictive covenants which, among other
things, could have the effect of limiting the payment of dividends and
the repurchase of common stock and warrants. Approximately $113.5
million is currently available for such payments under the most
restrictive of such covenants.
Cash flows from operating activities of $24.9 million for the
six months ended June 30, 1998 primarily reflect income from
operations and changes in working capital. The utilization of net
operating loss carryforwards and other deferred tax assets during the
first six months reduced cash taxes otherwise payable by $8.3 million.
During the six months ended June 30, 1998, investing activities
used $29.0 million, representing $31.6 million for capital
expenditures, offset by $1.5 million received for the sale of a
surplus parcel of real estate and $1.0 million related to sales of
miscellaneous property, plant and equipment.
Net cash outflows from financing activities of $3.6 million for
the six months ended June 30, 1998 primarily reflect the repurchase of
40,800 shares of common stock for $2.8 million and dividends of $1.1
million paid during the first six months of 1998.
Working capital on June 30, 1998 was $181.0 million as compared
to $169.6 million on December 31, 1997. Current assets increased
$10.9 million primarily due to higher accounts and notes receivable
and inventory balances offset by lower short-term investments. Current
liabilities decreased $0.5 million primarily due to a decrease in
accounts payable and accrued expenses, partly offset by a increase in
accrued income taxes.
The $8.3 million decrease in the Company's long-term deferred
tax asset is due to the utilization of a portion of the tax assets
during the first six months of 1998. Investments in joint ventures
increased $2.1 million as the Company's share of equity earnings
exceeded cash distributions paid from Kosmos Cement Company. Net
property, plant and equipment increased $20.1 million reflecting
capital expenditures, partly offset by depreciation expense.
In February and May 1998, the Company's Board of Directors
declared $0.05 per share dividends which were paid on March 16, 1998
and June 15, 1998 to shareholders of record as of March 1, 1998 and
June 1, 1998. Total dividends paid during the six months ended June
30, 1998 were approximately $1.1 million.
The Company is subject to extensive, stringent and complex
federal, state and local laws, regulations and ordinances
pertaining to the quality and the protection of the environment and
human health and safety, requiring the Company to devote
substantial time and resources in an effort to maintain continued
compliance. Many of the laws and regulations apply to the Company's
former activities, properties and facilities as well as its current
operations. There can be no assurances that judicial or
administrative proceedings, seeking penalties or injuctive relief,
will not be brought against the Company for alleged non-compliance
with applicable environmental laws and regulations relating to
matters as to which the Company is currently unaware. For
instance, if releases of hazardous substances are discovered to
have occurred at facilities currently or previously owned or
operated by the Company, or at facilities to which the Company has
sent waste materials, the Company may be subject to liability for
the investigation and remediation of such sites. In addition,
changes to such regulations or the enactment of new regulations in
the future could require the Company to undertake capital
improvement projects or to cease or curtail certain operations or
could otherwise substantially increase the capital, operating and
other costs associated with compliance(See Note 7).
The Company believes that it has adequately provided for costs
related to its ongoing obligations with respect to known environmental
liabilities. Expenditures for environmental liabilities during the
first six months of 1998 did not have a material effect on the
financial condition or cash flows of the Company.
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition
and Results of Operations and other sections of this Form 10-Q contain
forward-looking statements within the meaning of Section 27A of the
Securities Exchange Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are based on
current expectations, estimates and projections concerning the general
state of the economy and the industry and market conditions in certain
geographic locations in which the Company operates. Words such as
"expects", "anticipates", "intends", "plans", "believes", "estimates"
and variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict.
Therefore, actual results and outcomes may differ materially from what
is expressed or forecasted in such forward-looking statements. The
Company undertakes no obligation to update publicly any forward-
looking statements as a result of new information, future events or
other factors.
The Company's business is cyclical and seasonal, the effects of
which cannot be accurately predicted. Risks and uncertainties include
changes in general economic conditions (such as changes in interest
rates), changes in economic conditions specific to any one or more of
the Company's markets (such as the strength of local real estate
markets and the availability of public funds for construction),
adverse weather, unexpected operational difficulties, changes in
governmental and public policy including increased environmental
regulation, the outcome of pending and future litigation, the
successful negotiation of labor contracts and the continued
availability of financing in the amounts, at the times, and on the
terms required to support the Company's future business. Other risks
and uncertainties could also affect the outcome of the forward-looking
statements.
Results of Operations
Consolidated net sales of $97.7 million during the second
quarter of 1998 and $155.5 million for the first six months of 1998
were $6.9 million and $10.0 million, respectively, lower than the
comparable prior-year results. The decrease in net sales primarily
reflects the sales of the Company's New York construction aggregates
and central Illinois ready-mixed concrete operations during 1997.
Sales of $97.7 million and $155.5 million from the Company's on-
going cement and ready-mixed concrete operations for the three and six
months ended June 30, 1998 were $6.6 million and $11.1 million,
respectively, higher than the comparable prior-year periods. Cement
shipments for the current quarter and six-month period were
approximately 3% and 4%, respectively, above the prior-year levels,
reflecting continued strong demand in most markets. Average net
realized selling prices for the second quarter and first six months of
1998 were 4% higher than comparable prior-year periods.
Gross profit from the Company's on-going cement and ready-mixed
concrete operations of $36.5 million and $50.1 million for the three
and six months ended June 30, 1998 was $2.8 million and $4.8 million,
respectively, higher than the comparable 1997 periods. This increase
in gross profit reflects higher average net realized cement selling
prices, greater cement production and higher overall cement and ready-
mixed concrete shipments for the quarter and six months ended June 30,
1998.
The construction aggregates and ready-mixed concrete operations
sold in 1997 contributed sales of $13.5 million and gross profit of
$2.5 million to the second quarter of 1997. The six-month results
include net sales of $21.1 million and a loss at the gross profit
level of $0.6 million from these operations. The third and fourth
quarters of 1997 included sales of $17.0 million and $2.2 million, and
gross profit of $3.7 million and $0.6 million, respectively. For the
full year 1997, these operations contributed net sales of $40.3
million and gross profit of $3.7 million.
The Company's operations are seasonal and, consequently, the
interim results are not indicative of the results to be expected for
the full year.
Included in the calculation of gross profit are sales less cost
of sales including depreciation related to cost of sales (which
excludes depreciation related to office equipment, furniture and
fixtures which are not related to the cost of sales).
Pre-tax income from joint ventures of $2.2 million and $3.1
million, respectively, during the three and six months ended June 30,
1998 reflects the results of the Kosmos Cement Company, a partnership
in which the Company has a 25% interest. The results for the second
quarter were $0.1 million lower than the comparable prior-year period.
The results for the six months ended June 30, 1998 approximated the
prior year. Both periods reflect higher net realized selling prices
offset by higher per unit production costs.
Other income of $1.9 million and $5.7 million during the three
and six months ended June 30, 1998 increased $1.5 million and $4.6
million, respectively, over the comparable 1997 periods. The increase
in other income for both periods primarily reflects higher interest
income due to higher short-term investment balances. In addition,
results for the six-month period ended June 30, 1998 include a gain of
$1.5 million on the sale of a surplus parcel of real estate during the
first quarter of 1998.
Selling, general and administrative expenses of $6.3 million and
$13.1 million during the three and six months ended June 30, 1998 were
$1.1 million and $2.1 million, respectively, lower than the comparable
period in 1997. This primarily reflects the decrease in expense
related to the Company's New York construction aggregates and central
Illinois ready-mixed concrete operations which were sold in 1997, in
addition to lower pension and other postretirement benefit expenses.
Interest expense of $0.4 million and $1.2 million during the
three and six months ended June 30, 1998 represents a decrease of $0.4
million and $1.4 million, respectively, over the comparable prior-year
period expense. Capitalized interest was $0.5 million and $0.7 million
for the three and six months ended June 30, 1998 and $0.4 million and
$0.6 million for the comparable prior-year periods. The reduction in
interest expense reflects lower debt and a lower interest rate. The
Company redeemed $78.0 million of its 10% senior notes in March and
April 1997 and issued $50.0 million of 7.31% senior notes through a
private placement agreement in April 1997.
The income tax expense of $11.4 million and $15.0 million during
the three and six months ended June 30,1998, reflects an increase of
$1.0 million and $4.5 million, respectively, from the prior-year
expense, reflecting higher pre-tax earnings in the first and second
quarters of 1998.
Net income of $22.4 million during the second quarter of 1998
was $2.2 million higher than the prior-year results. On a per share
basis, basic and diluted earnings for the three-month period were
$2.09 and $1.63, respectively, compared to $1.84 and $1.53,
respectively, for 1997. Net income of $29.5 million during the first
six months of 1998 was $9.0 million higher than the prior-year
results. On a per share basis, basic and diluted earnings for the
first half of 1998 were $2.75 and $2.15, respectively, compared to
$1.87 and $1.55, respectively, for 1997. The improvement in net income
for the three and six months ended June 30, 1998 is primarily due to
higher cement and ready-mixed concrete shipments, higher interest
income earned on higher short-term investment balances, lower interest
expense on lower outstanding debt, and a gain on the sale of surplus
real estate. In addition, the Company sold its construction aggregates
and ready-mixed concrete operations in 1997. The losses sustained by
these operations during the first six months of 1997 had a favorable
impact on the results for the comparable period of 1998. These
favorable results were partly offset by increased income tax expense
due to higher pre-tax earnings.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the Company was
held on May 14, 1998.
(b) The names of each director elected at the Annual Meeting
are: James E. Bacon and William M. Troutman. Each was
elected for a three year term. The names of each other
director whose term of office as a director continued
after the Annual Meeting are: Theodore F. Brophy,
Arthur B. Newman, Allen E. Puckett, Robert G. Schwartz,
David W. Wallace and Jack R. Wentworth.
(c) The following were the matters voted upon at the Annual
Meeting and the number of votes cast for, against or
abstentions and broker non-votes, as to each such
matter, including a separate tabulation with respect to
each nominee for office.
1.For the election of the persons named
below as directors of the Company:
James E. Bacon For: 9,766,008
Withheld: 125,612
William M. Troutman For: 9,767,494
Withheld: 124,126
2.Upon the ratification of the appointment of
Coopers & Lybrand L.L.P. as auditors of the
Company for the year 1998.
For: 9,886,493
Against: 3,072
Abstain and
Broker Non-Votes: 2,055
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits:
*10.5. Second Amended and Restated Employment Agreement,
dated as of May 1, 1998, between David W. Wallace
and Lone Star Industries, Inc.
*10.6. Second Amended and Restated Employment Agreement,
dated as of May 1, 1998, between William M. Troutman
and Lone Star Industries, Inc.
*10.7. Second Amended and Restated Agreement, dated May 1,
1998, between William M. Troutman and Lone Star
Industries, Inc.
*10.10 Form of amended "Change in Control" agreement for
certain named executive officers of Lone Star Industries, Inc.
27. Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Lone Star Industries, Inc. has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
LONE STAR INDUSTRIES, INC.
Date: July 31, 1998 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer,
Controller and Treasurer
Date: July 31, 1998 By: JAMES W. LANGHAM
James W. Langham
Vice President, General
Counsel and Secretary
* Indicates management contract or compensatory plan or arrangement.
Exhibit 10.5
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Second Amended and Restated Employment Agreement
("Agreement") made as of the 1st day of May, 1998, between David
W. Wallace ("Executive") and Lone Star Industries, Inc., a
Delaware corporation having its principal office at 300 First
Stamford Place, Stamford, Connecticut 06912 and its successors
and assigns ("Lone Star" or the "Company").
W I T N E S S E T H :
WHEREAS, the Company and the Executive are parties to
an Amended and Restated Employment Agreement dated as of February
1, 1996 (the "Superseded Employment Agreement"), and desire to
amend and restate the Superseded Employment Agreement in its
entirety.
NOW, THEREFORE, in consideration of the mutual
promises, agreements and covenants hereby made, the mutual
benefits to be derived from this Agreement and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree to amend and
restate the Superseded Employment Agreement as follows:
1. Lone Star hereby employs Executive, and Executive
hereby accepts employment by Lone Star, on the terms and
conditions set forth in this Agreement for an initial term of
twenty-six (26) consecutive months commencing as of the date
hereof and ending on June 30, 2000 (the "Initial Term"), as
Chairman of the Board, with such duties as are specified in the
By-Laws of Lone Star and such other duties customary to the
position as may be assigned to Executive from time to time by the
Board of Directors of Lone Star. Unless terminated pursuant to
the other terms hereof, this Agreement shall continue in full
force and effect after the Initial Term for successive terms of
two years (each such term, and the Initial Term, a "Term").
2. Lone Star shall pay Executive a salary ("Salary")
at the rate of $210,000 per annum until the effective date of
termination of this Agreement. Salary shall continue to be paid
to Executive on the currently established pay periods of Lone
Star. The Compensation and Stock Option Committee (or such other
Board committee as shall then be responsible for making such
decisions or, if none, the full Board of Directors) may in its
discretion consider increases in the Executive's Salary from time
to time, and upon any such increase "Salary" for purposes hereof
shall thereafter mean the Executive's salary as so increased
notwithstanding any purported subsequent reduction thereof by any
such committee or the Board. In addition, the Compensation and
Stock Option Committee (or such other Board committee as shall
then be responsible for making such decisions, or if none, the
full Board of Directors) may in its discretion consider granting
to the Executive from time to time such bonuses, stock options or
other incentive compensation as it deems appropriate.
3. (a) (i) Either party, by written notice to the
other at least six months prior to the expiration of the then
current Term, may terminate this Agreement effective at the
expiration of such Term. (ii) Lone Star, by written notice which
sets forth the effective date of termination (which shall not be
earlier than six (6) months after receipt of the written notice),
may terminate this Agreement at any time for reasons (including
without limitation disability of the Executive) other than Cause
(as hereinafter defined).
(b) In the event that this Agreement is
terminated by the Executive pursuant to Section 4 below or Lone
Star terminates this Agreement pursuant to Section 3(a) above,
Executive shall be entitled to a severance payment in an amount
equal to the Executive's Salary for the period from the effective
date of the termination through the date one year (18 months, in
the case of a termination pursuant to Section 4) after the
effective date of the termination (such period, the "Severance
Period"). Severance shall be paid in lump sum on the effective
date of the termination. In addition, the Executive shall
continue to receive life insurance and medical insurance under
the Company's Executive Medical Plan for Active Employees (as in
effect as of the date of this Agreement) provided pursuant to
Sections 5 and 6 hereof during the Severance Period (which is in
addition to, and not in lieu of, benefit continuation under the
Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA")). In furtherance and not in limitation of the
immediately preceding sentence, the Executive shall be deemed to
have continued his employment at his Salary during the Severance
Period for purposes of vesting, eligibility and benefit accrual
under any applicable Company employee pension plan (subject to
the requirements of the Internal Revenue Code of 1986, as amended
(the "Code")). In the event the Executive cannot receive any
such credit under any Company employee pension plan because of
limitations under the Code, within ninety days after the
expiration of the Severance Period, the Executive shall receive a
lump sum payment from the Company equal to the present value of
any additional benefits to which the Executive would have been
entitled under any Company employee pension plan had the
Severance Period counted for purposes of vesting, eligibility and
benefit accrual (discounted at 5% per annum). Severance pay
pursuant to this Section shall be in lieu of severance pay
pursuant to any Lone Star policy, except severance in respect of
service as a director.
(c) Lone Star shall have the right to terminate
this Agreement for Cause during the Initial Term and thereafter
and (subject to Section 7 below) Executive shall not be entitled
to receive severance pay pursuant to this Section or any other
policy or agreement of Lone Star except severance in respect of
service as a director. Cause shall be construed to mean:
(1) The willful and continued failure
by the Executive to substantially perform his duties with Lone
Star (other than any such failure resulting from his disability
due to physical or mental illness) after a written demand for
performance is delivered which specifically identifies the manner
in which he has not substantially performed his duties, or
(2) the willful engaging by Executive
in gross misconduct materially and demonstrably injurious to the
Company, monetarily or otherwise, or
(3) conviction of fraud, theft or
embezzlement.
For purposes of this Section, no act, or failure
to act, shall be considered "willful" unless done, or omitted to
be done, not in good faith or without reasonable belief that the
action or omission was in the best interest of the Company.
The written demand in Section (c)(1) shall be
delivered to the Executive by the Board of Directors and shall
set forth a reasonable period (not shorter than 30 business days)
in which Executive is expected to comply with said demand. If
Executive does not comply thereafter, Lone Star shall have the
right to terminate this Agreement upon seven (7) days' written
notice to Executive.
4. (a) Lone Star hereby agrees not to: (i) change
the Executive's duties so that a reasonable man would interpret
the change to be a demotion; or (ii) direct the Executive to
relocate his office to a new location which is either in a State
other than Connecticut or more than twenty-five (25) miles from
Stamford, Connecticut (excluding any relocation occurring prior
to a Change in Control, as defined below, of the Executive's
office (A) as a result of a relocation of Lone Star's operations
presently located in Stamford, Connecticut, and (B) applicable to
substantially all officers of Lone Star operating out of such
location). In the event Lone Star breaches its obligations in
the immediately preceding sentence, Executive, at his option (and
without limiting his remedies), can (if such demotion or
direction to relocate is not rescinded or corrected by the
Company within 30 days after written notice by Executive to the
Company, reasonably identifying, in the case of a demotion, the
change in duties complained of) declare himself terminated for
"Good Reason" by giving written notice to Lone Star, Lone Star
shall pay Executive severance pay and benefits as provided in
Section 3(b) of this Agreement. In no event shall Executive be
required to perform duties or to suffer relocation prohibited by
this Section 4.
(b) In the event of the Executive's physical or
mental incapacity, the Executive may declare himself terminated
for "Incapacity" by giving written notice to Lone Star, Lone Star
shall pay Executive severance pay and benefits as provided in
Section 3(b) of this Agreement. "Physical or mental incapacity"
shall mean the inability of Executive by reason of a physical or
mental illness to perform his duties hereunder for a period of 90
consecutive days or a total of 120 days in any twelve month
period and such incapacity is determined by a physician selected
by Executive (or his legal representatives) and reasonably
acceptable to the Company to be such as prevents Executive from
performing adequately his normal duties to the Company. During
any period that the Executive is unable to perform his duties by
reason of physical or mental incapacity, Executive shall continue
to receive his full compensation and benefits hereunder.
5. Executive shall participate in Lone Star's
employee benefit programs and plans in the same manner as other
executive salaried employees of Lone Star and in accordance with
the terms thereof. Benefit programs and plans include, but are
not limited to, life insurance, accidental death and
dismemberment insurance, hospital, medical, surgical and major
medical insurance, dental insurance, short and long-term
disability insurance, 401(k) savings plan and pension plan for
salaried employees and directors' and officers' liability
insurance ("Employee Benefit Plans"). Executive shall also
participate in Lone Star's vacation and holiday programs. In
addition to and not in limitation of the foregoing, and
notwithstanding the Company's policy with respect to other
employees, the Company shall, during their lives and whether or
not the Executive's employment or this Agreement terminates (for
Cause or otherwise), provide the Executive with life and medical
insurance and the Executive's spouse with medical insurance at no
cost to the Executive or his spouse at least equal to the life
and medical insurance provided to senior executive officers of
the Company; provided however, the medical benefits provided to
the Executive and his spouse shall be at least equal to the
medical benefits described in Exhibit A; provided further, the
annual deductible for medical coverage described in Exhibit A is
$750 for each individual. The Executive and his spouse are each
entitled to receive monthly reimbursement of Medicare Part B
premiums.
The Company agrees to use its best efforts to provide
the benefits listed on Exhibit A to the Executive and his spouse
in a manner that will not result in any income inclusion under
federal, state or local tax law. To the extent any such income
inclusion results to either the Executive or his spouse, the
Executive and his spouse (as the case may be) shall receive an
annual payment from the Company to fully pay for the federal,
state and local tax on such income inclusion (a "Gross-up
Payment") as well as any income inclusion from the Gross-up
Payment based on the highest marginal tax rate on the payment, so
that neither the Executive nor his spouse have any tax liability
as a result of participation in the Executive Medical Plan on
Exhibit A. For each year, such payment shall be made no later
than January 31st of the following year.
The Company shall maintain an insurance policy covering
the Executive Medical Plan to insure non-payment by the Company
in accordance with the terms on Exhibit B.
This section shall survive any termination of this
Agreement.
6. To the extent Executive voluntarily terminates his
employment at the end of any Term, he shall be entitled to
participate in Lone Star's employee benefit plans to the full
extent that they may be provided to other retirees (and spouses,
if applicable) including but not limited to the Pension Plan for
Salaried Employees, in the same manner as other salaried retirees
of Lone Star and in accordance with the terms thereof.
7. Following a Change in Control, as defined below,
the Executive, on thirty days written notice (which notice must
be delivered within twelve months after the Company gives the
Executive notice of the Change in Control or the Executive has
actual knowledge of such Change in Control), may terminate his
employment with the Company. Upon any such termination, the
Executive shall be entitled to lump sum severance pay in an
amount equal to thirty months' Salary. In addition, the
Executive shall continue to receive life insurance and medical
insurance under the Company's Executive Medical Plan for Active
Employees (as in effect as of the date of this Agreement)
provided pursuant to Sections 5 and 6 hereof during the Severance
Period (which is in addition to, and not in lieu of, benefit
continuation under COBRA). In furtherance and not in limitation
of the immediately preceding sentence, the Executive shall be
deemed to have continued his employment at his Salary during the
Severance Period for purposes of vesting, eligibility and benefit
accrual under any applicable employee pension plan (subject to
the requirements of the Code). In the event the Executive cannot
receive any such credit under any employee pension plan because
of limitations under the Internal Revenue Code, within ninety
days after the expiration of the Severance Period, the Executive
shall receive a lump sum payment from the Company equal to the
present value of any additional benefits to which the Executive
would have been entitled under any Company employee pension plan
had the Severance Period counted for purposes of vesting,
eligibility and benefit accrual (discounted at 5% per annum).
Severance hereunder shall be paid in lump sum on the effective
date of the termination. Severance pay pursuant to this Section
shall be in lieu of severance pay pursuant to any Lone Star
policy or other agreement (except that nothing contained in this
Agreement shall affect the Executive's rights to severance in
respect of service as a director and rights to bonuses under the
Company's Executive Incentive Plan, as may be in effect from time
to time, whether as a result of a Change in Control or otherwise)
and all other obligations of the Company for severance pay under
this Agreement. For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred upon the occurrence of
any of the following events:
(i) Any acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of shares of common
stock of the Company (the "Common Stock") and/or other voting
securities of the Company entitled to vote generally in the
election of directors ("Outstanding Company Voting Securities")
after which acquisition such individual, entity or group is the
beneficial owner of twenty percent (20%) or more of either (A)
(1) the then outstanding shares of Common Stock or (2) the
Outstanding Company Voting Securities; excluding, however, the
following: (1) any acquisition by the Company, (2) any
acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or (3) any acquisition by
any corporation pursuant to a reorganization, merger,
consolidation or similar corporate transaction (in each case, a
"Corporate Transaction"), if, pursuant to such Corporate
Transaction, the conditions described in clauses (1), (2) and (3)
of paragraph (iii) of this Section 7 are satisfied; or (B) any
transaction in which the Executive and the Chief Executive
Officer of the Company (both as of the date of this Agreement and
subject to health related availability) (1) retain their current
positions with the Company immediately after such transaction and
(2) will immediately after such transaction beneficially own an
aggregate (for both such executives), directly or indirectly
(including, without limitation, ownership by family members,
trusts or foundations for or controlled by family members), more
than 5% of either (a) the then outstanding shares of common stock
of the Company and/or (b) the other voting securities of the
Company entitled to vote generally in the election of directors
(any transaction under this clause (B) hereinafter referred to as
a "Management Event").
(ii) A change in the composition of the Board of
Directors of the Company (other than in connection with a
Management Event) such that the individuals who, as of the date
hereof, comprise a class of directors of the Board (the members
of each class of directors of the Board as of the date hereof
shall be hereinafter referred to as an "Incumbent Class" and the
members of all of the Incumbent Classes shall be hereinafter
collectively referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the class; provided,
however, for purposes of this subsection that any individual who
becomes a member of an Incumbent Class subsequent to the date
hereof whose election, or nomination for election by the
Company's stockholders, was approved in advance or
contemporaneously with such election by a vote of at least a
majority of those individuals who are members of the Incumbent
Board and a majority of those individuals who are members of such
Incumbent Class (or deemed to be such pursuant to this proviso),
shall be considered as though such individual were a member of
the Incumbent Class; but, provided further, that any such
individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board of Directors of the Company or actual or threatened tender
offer for shares of the Company or similar transaction or other
contest for corporate control (other than a tender offer by the
Company) shall not be so considered as a member of the Incumbent
Class; or
(iii) The approval by the stockholders of the Company
of a Corporate Transaction or, if consummation of such Corporate
Transaction is subject, at the time of such approval by stock-
holders, to the consent of any government or governmental agency,
the obtaining of such consent (either explicitly or implicitly);
excluding, however, a Management Event or a Corporate Transaction
pursuant to which (1) all or substantially all of the individuals
and entities who are the beneficial owners, respectively, of the
outstanding shares of Common Stock and Outstanding Company Voting
Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than eighty
percent (80%) of, respectively, the outstanding shares of common
stock of the corporation resulting from such Corporate
Transaction and the combined voting power of the outstanding
voting securities of such corporation entitled to vote generally
in the election of directors, (2) no Person (other than the
Company, any employee benefit plan (or related trust) of the
Company or the corporation resulting from such Corporate
Transaction and any Person beneficially owning, immediately prior
to such Corporate Transaction, directly or indirectly, twenty
percent (20%) or more of the outstanding shares of Common Stock
or Outstanding Company Voting Securities, as the case may be)
will beneficially own, directly or indirectly, twenty percent
(20%) or more of, respectively, the outstanding shares of common
stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in the
election of directors and (3) individuals who were members of the
Incumbent Board will constitute at least a majority of the
members of board of directors of the corporation resulting from
such Corporate Transaction; or
(iv) The approval of the stockholders of the Company
of (1) a complete liquidation or dissolution of the Company or
(2) the sale or other disposition of all or substantially all of
the assets of the Company; excluding, however, such a sale or
other disposition to a corporation (A) in connection with a
Management Event or (B) with respect to which following such sale
or other disposition, (1) more than eighty percent (80%) of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally
in the election of directors will be then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the outstanding shares of Common Stock and
Outstanding Company Voting Securities immediately prior to such
sale or other disposition, (2) no Person (other than the Company
and any employee benefit plan (or related trust) of the Company
or such corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or
indirectly, twenty percent (20%) or more of the outstanding
shares of Common Stock or Outstanding Company Voting Securities,
as the case may be) will beneficially own, directly or
indirectly, twenty percent (20%) or more of, respectively, the
then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors and (3) individuals who were members of the
Incumbent Board will constitute at least a majority of the
members of the board of directors of such corporation.
In the event of any conflict between this Section 7 and
any other Section of this Agreement (other than Section 5), the
terms of this Section 7 shall control, so that, without
limitation, the Executive shall be entitled to the payment and
benefits provided under this Section 7 notwithstanding any
purported termination (whether for Cause or otherwise) and
regardless of whether such purported termination precedes or
follows the giving of a notice of termination by the Executive
under this Section 7 by the Company.
8. Immediately upon the occurrence of a Change in
Control, the Company shall establish a grantor trust on behalf of
the Executive, subject to the claims of the Company's creditors
(commonly referred to as a "Rabbi Trust"). The Company shall
contribute to the Rabbi Trust an amount sufficient to provide for
the severance benefits and payment of all other benefits under
this Agreement (except benefits under the Executive Medical Plan
for Retired Employees). Any payments made to the Executive under
this Agreement shall be made from such Rabbi Trust. The Rabbi
Trust shall terminate and any remaining assets shall be returned
to the Company no sooner than July 1, 2005, unless the Executive
has provided written notice of an unsatisfied claim to the
trustee of the Rabbi Trust, in which case the Rabbi Trust shall
not terminate until such claim is resolved pursuant to
paragraph 12.
9. Upon presentation to Lone Star of appropriate
documentation, Executive will be entitled to reimbursement within
guidelines established by Lone Star for all reasonable and
necessary business expenses incurred by him for entertainment,
travel and similar items and for costs for operating from the
Executive's Greenwich, Connecticut office. However, the
Executive shall be personally responsible for rental payments
such office as long as he decides, in his discretion, to maintain
such office.
10. Executive agrees that during his period of
employment by Lone Star and thereafter he shall hold in
confidence and not disclose to any unauthorized person any
knowledge or information acquired and possessed by him of a
confidential nature or any trade secret with respect to the
business of Lone Star, and not to disclose, publish or make use
of the same without the prior express consent of Lone Star.
Executive shall be free to disclose such information, knowledge
or trade secret in the ordinary course of his carrying out his
duties as an officer of Lone Star, and shall be free to disclose
such information, knowledge or trade secret during his period of
employment by Lone Star and thereafter if such matters become
public or if compelled by legal process.
11. Executive agrees that during the term of his
employment he will not without the consent of Lone Star, in any
manner, directly or indirectly, own, manage, be employed by,
operate, join, control, participate in, be connected with, engage
in, or become interested in any business competitive with, the
business then carried on by Lone Star in those parts of the world
where Lone Star does business. Ownership of publicly traded
securities of a business of the same or similar nature to, or
competitive with, that carried on by Lone Star, shall not violate
this paragraph, provided the Executive does not acquire more than
5% of the voting stock of any such corporation. Notwithstanding
any other provision of this Agreement, the Executive shall not be
required to use his full time efforts hereunder and may take on
outside business commitments provided they do not unreasonably
impair his ability or capacity to serve as the Chairman of the
Board of the Company.
12. (a) Any dispute relating to this Agreement
arising between the Executive and the Company shall be settled by
arbitration in accordance with the commercial arbitration rules
of the American Arbitration Association ("AAA"). The arbitration
proceedings, including the rendering of an award, shall take
place in Stamford, Connecticut (or such other location mutually
agreed upon by the Company and the Executive), and shall be
administered by the AAA.
(b) The arbitral tribunal shall be appointed
within 30 days of the notice of dispute, and shall consist of
three arbitrators, one of which shall be appointed by the
Company, one by the Executive, and the third by both the Company
and the Executive jointly; provided, however, that, if the
Company and the Executive do not select the third arbitrator
within such 30-day period, such third arbitrator shall be chosen
by the AAA as soon as practicable following notice to the AAA by
the parties of their inability to choose such third arbitrator.
(c) Decisions of such arbitral tribunal shall be
in accordance with the laws of the State of Connecticut
(excluding the conflicts of law rules which require the
application of any other law). The award of any such arbitral
tribunal shall be final (except as otherwise provided by the laws
of the State of Connecticut and the Federal laws of the United
States, to the extent applicable). Judgment upon such award may
be entered by the prevailing party in any state or Federal court
sitting in Connecticut or any other court having jurisdiction
thereof, or application may be made by such party to any such
court for judicial acceptance of such award and an order of
enforcement.
(d) The Company shall reimburse the Executive for
all costs, including reasonable attorneys' fees, in connection
with any proceeding (whether or not in arbitration) to obtain or
enforce any right or benefit under this Agreement in which the
Executive is the prevailing party.
Any amounts not paid by the Company under this
Agreement within five business days after the date they are due
shall be paid with interest from their due date at the rate
announced from time to time by Citibank, N.A. as its prime or
similar rate plus 3%.
13. Nothing is this Agreement shall in any manner
affect any benefit to which the Executive is entitled as a result
of Executive's position as an outside director of the Company,
and the Company hereby agrees that such benefits (including
without limitation post-service benefits consisting of $15,000
annual deferred compensation for ten years and continued life
insurance coverage) have fully vested and may not hereafter be
decreased, deleted, abridged, or in any other fashion adversely
affected by the Company.
14. (a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company (including any made from
plans sponsored by the Company, through annuities, Rabbi Trusts
or otherwise) to or for the benefit of Executive, whether paid or
payable or distributed or distributable pursuant to the terms of
this Agreement (including this Section 14), the Company's
Executive Incentive Plan or otherwise (any such payments or
distributions being individually referred to herein as a
"Payment", and any two or more of such payments or distributions
being referred to herein as "Payments"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended ("Code") (such excise tax, together with any
interest thereon, any penalties, additions to tax, or additional
amounts with respect to such excise tax, and any interest in
respect of such penalties, additions to tax or additional
amounts, being collectively referred herein to as the "Excise
Tax"), then Executive shall be entitled to receive and the
Company shall make an additional payment or payments
(individually referred to herein as a "Gross-Up Payment", and any
two or more of such additional payments being referred to herein
as "Gross-Up Payments") in an amount such that after payment by
the Executive of all Taxes (as defined in Section 14(e)) imposed
upon all Gross-Up Payments, Executive retains an amount of such
Gross-Up Payments equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 14(c) and
(d), any determination required to be made under Section 14(a)
including whether Gross-Up Payments are required and the amount
of such Gross-Up Payments, shall initially be made, at the
Company's expense, by nationally recognized tax counsel retained
to represent the Executive by the Company, such counsel to be
mutually acceptable to the Company and Executive ("Tax Counsel").
Tax Counsel shall provide detailed supporting legal authorities,
calculations and documentation both to the Company and Executive
within 15 business days after the termination of Executive's
employment, if applicable, and such other time or times as is
reasonably requested by the Company or the Executive. If Tax
Counsel makes the initial determination that no Excise Tax is
payable by the Executive with respect to a Payment or Payments,
it shall furnish the Executive with an opinion that no Excise Tax
will be imposed with respect to any such Payment or Payments. As
a result of the uncertainty in the application of Sections 4999
and 280G of the Code, it is possible that Gross-Up Payments (or
portions thereof) which will not have been made by the Company
should have been made, and if upon any reasonable written request
from Executive, the Company or Tax Counsel, Tax Counsel
thereafter determines that Executive is required to make a
payment of any Excise Tax or any additional Excise Tax, as the
case may be, Tax Counsel shall, at the Company's expense,
determine the amount of the underpayment that has occurred and
any such underpayment (together with any additional Taxes
resulting from the Payment or resulting from the underpayment of
Excise Tax) shall be promptly paid by the Company to Executive.
(c) The Company shall defend (by the Tax Counsel or by
other nationally recognized tax counsel acceptable to the
Executive), hold harmless and indemnify the Executive on a fully
grossed-up after Tax basis from and against any and all Excise
Tax, other Taxes, claims, losses, liabilities, obligations,
damages, impositions, assessments, demands, judgments,
settlements, fines, interest, costs and expenses (including
reasonable attorneys', accountants', and experts' fees and
expenses) (collectively, "Costs") with respect to any claim made
against the Executive by the Internal Revenue Service, any other
governmental agency or any other person or entity, for any Excise
Tax.
(d) Pending the outcome of any such claim, the Company
shall advance to Executive on an interest-free basis, the total
amount of the Excise Tax or other Taxes claimed in order for
Executive to pay or cause to be paid the Excise Tax or other
Taxes claimed. Executive shall, at the Company's reasonable
request and at the Company's sole cost and expense, file a claim
for refund of such Excise Tax and/or other Taxes and sue for a
refund of such Taxes if such claim for refund is disallowed by
the appropriate taxing authority (it being understood and agreed
by the parties hereto that the Company shall only be entitled to
sue for a refund and the Company shall not be entitled to
initiate any proceeding in, for example, United States Tax Court)
and shall indemnify and hold Executive harmless, on a fully
grossed-up after Tax basis, from any Tax imposed with respect to
such advance or with respect to any imputed income with respect
to such advance. Within ten (10) days after the Company is
notified of a claim against the Executive for Excise Tax, whether
such notice is provided by the Executive or otherwise, the
Company (i) shall notify the Executive in writing (a "Defense
Notice") that the Company is defending and indemnifying the
Executive for such claim pursuant to Section 14(c), and
thereafter (ii) shall control the defense or prosecution, at its
sole cost, expense and risk, of such claim by all appropriate
proceedings, which proceedings shall be defended or prosecuted
diligently by the Company to a final determination; provided,
however, that (i) the Company shall not, without Executive's
prior written consent, enter into any compromise or settlement of
such claim that would adversely affect Executive, (ii) any
request from the Company to the Executive regarding any extension
of the statute of limitations relating to assessment, payment or
collection of taxes for the taxable year of Executive with
respect to which the contested issues involved in, and amount of,
the claim relate is limited solely to such contested issues and
amount, and (iii) the Company's control of any contest or
proceeding shall be limited to issues with respect to the claim
and Executive shall be entitled to settle or contest, in his sole
and absolute discretion, any other issue raised by the Internal
Revenue Service or any other taxing authority. So long as the
Company is diligently defending or prosecuting such claim,
Executive shall provide or cause to be provided to the Company
any information reasonably requested by the Company that relates
to such claim, and shall otherwise cooperate (at the Company's
sole cost and expense) with the Company and its representatives
in good faith in order to contest effectively such claim. The
Company shall keep Executive informed of all developments and
events relating to any such claim (including, without limitation,
providing to Executive copies of all written materials pertaining
to any such claim), and Executive or his authorized
representatives shall be entitled, at Executive's expense, to
participate in all conferences, meetings and proceedings relating
to any such claim. If the Company fails to (i) timely deliver a
Defense Notice or (ii) thereafter perform the obligations under
Section 14(c) to the Executive's reasonable satisfaction, then
Executive shall at any time thereafter have the right (but not
the obligation), at his election and in his sole and absolute
discretion, to defend or prosecute, at the sole cost, expense and
risk of the Company, such claim. Executive shall have full
control of such defense or prosecution and such proceedings,
including any settlement or compromise thereof. If requested by
Executive, the Company shall cooperate, and shall cause its
affiliates to cooperate, in good faith with Executive and his
authorized representatives in order to contest effectively such
claim. The Company may attend, but not participate in or
control, any defense, prosecution, settlement or compromise of
any claim controlled by Executive pursuant to this Section 14(d)
and shall bear its own costs and expenses with respect thereto.
In the case of any claim that is defended or prosecuted by
Executive, Executive shall, from time to time, be entitled to
current payment, on a fully grossed-up after Tax basis, from the
Company with respect to Costs incurred by Executive in connection
with, or arising out of, such defense or prosecution.
(e) For purposes of this Section 14, the terms "Tax"
and "Taxes" mean any and all federal, state and local taxes of
any kind whatsoever (including, but not limited to, any and all
Excise Tax, income taxes, FICA taxes and employment taxes),
together with any interest thereon, any penalties, additions to
tax, or additional amounts with respect to such taxes and any
interest in respect of such penalties, additions to tax, or
additional amounts.
15. The Company has purchased and shall maintain in
effect, on behalf of the Executive, an insurance policy to cover
any litigation costs of the Executive (or his spouse) associated
with the enforcement of this Agreement against the Company in an
amount of $250,000. The Company shall fully reimburse the
Executive for the federal, state and local taxes incurred by the
Executive in connection with the purchase and maintenance of such
policy (the "Reimbursement") and any federal, state or local
taxes on the Reimbursement, based on the highest marginal tax
rate in effect so that the Executive has no federal, state or
local tax liability as a result of this section.
16. This Agreement constitutes the entire agreement
between the parties as to matters covered hereby and may not be
changed or modified except by an agreement in writing signed by
Lone Star and the Executive. This Agreement supersedes the
Superseded Employment Agreement.
17. This Agreement shall be governed by and construed
in accordance with the laws of the State of Connecticut.
18. This Agreement shall be binding upon and inure to
the benefit of the Company, including any purchaser of all or
substantially all of the assets of the Company and the surviving
entity of any merger or consolidation to which the Company is a
party and the Executive and his heirs, executors, administrators
and legal representatives.
19. The Company agrees that if the Executive's
employment with the Company is terminated pursuant to this
Agreement during the term of this Agreement, the Executive shall
not be required to seek other employment or to attempt in any way
to reduce any amounts payable to the Executive by the Company
pursuant to this Agreement. Further, the amount of any payment
or benefit provided for in this Agreement shall not be reduced by
any compensation earned by the Executive or benefit provided to
the Executive as the result of employment by another employer or
otherwise. Except as otherwise provided herein and apart from
any disagreement between the Executive and the Company concerning
interpretation of this Agreement or any term or provision hereof,
the Company's obligations to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any circumstances, including without
limitation, any set-off, counterclaim, recoupment, defense or
other right which the Company may have against the Executive.
20. Except as provided herein, this Agreement cannot
be assigned by Lone Star or Executive without prior written
consent.
21. All notices, communications, etc., shall be sent
to:
(a) Corporate Secretary
Lone Star Industries, Inc.
300 First Stamford Place
Stamford, CT 06912
(b) David W. Wallace
Two Greenwich Place, Suite 100
Greenwich, CT 06830
David W. Wallace
LONE STAR INDUSTRIES, INC.
By:
William M. Troutman
President and Chief
Executive Officer
- and -
By:
Jack R. Wentworth
Chairman of the Compensation and
Stock Option Committee
EXHIBIT A
THE EXECUTIVE MEDICAL PLAN
COVERAGE
(1) Provides for the full payment for medical services for the
employee and his qualified dependents which are recommended
or performed by a legally qualified physician.
(2) Provides for the full payment of hospital expenses.
(3) Provides for the full payment of the charges made by a
physician for the performance of a surgical operation.
(4) Provides for the full payment of examinations and laboratory
tests taken while not confined in a hospital.
(5) Provides for the full payment of medical expenses resulting
from an accident.
(6) Provides for the full payment of dental expenses.
(7) Provides for the full payment for prescription charges.
(8) Provides for the full payment for eye examinations and eye
glasses.
(9) Provides for short and long term nursing care (at home or in
nursing care facilities).
(10) Provides for reimbursement of Medicare Part B premiums.
EXCLUSIONS
The coverages set forth above are subject to the
following provisions and general exclusions:
Eligible expenses under the plan shall not include
payment of any charge as follows:
(1) For transportation or travel other than local use
of ambulance.
(2) In connection with an injury or disease resulting
from war or any act of war, whether declared or
undeclared, which war or act of war occurs while
an individual is insured under this coverage.
(3) Which are incurred on account of bodily injury
arising out of or in the course of employment by
an employer, or disease with respect to which any
benefits are payable under any workmen's
compensation, occupational disease, or similar
law.
(4) Which is paid or payable or reimbursable by or
through any plan or program of any government or
any subdivision or agency thereof, other than a
plan or program established for its civilian
employees.
- Lifetime Benefit
The maximum lifetime benefit under this Executive
Medical Plan is $1,000,000 for each participant.
- Non-Duplication of Benefits:
When benefits would be payable under another group
plan, benefits under those plans will be coordinated to
the extent that the total benefits under all programs
will not exceed full reimbursement.
EXHIBIT B
LONE STAR INDUSTRIES
EXECUTIVE MEDICAL AND LEGAL INSURANCE
Description: Single Premium Insurance covering the failure or refusal of Lone
Star Industries or successor company to pay benefits
that are due, including failure as a result of financial insolvency.
Policy Period: To be effective as agreed
Non-Cancelable
Coverage: This policy will indemnify the executives for lost benefits, up to
the Limits of Liability shown above for the following classes:
A) David Wallace and Spouse
William Troutman and Spouse
B) Other eligible executives of Lone Star Industries, Inc. (9)
The medical portion, applicable to Class A above, provides for the full payment
of:
- Medical services recommendation or performed by a legally qualified physician
- Hospital expenses
- Surgical charges
- Out patient examinations and laboratory tests
- Medical expenses resulting from an accident
- Dental expenses
- Prescription charges
- Eye examinations and glasses
- Short and long term nursing care, at home or in a nursing care facility,
including room and board charges for the convalescent center
- Reimbursement of Medicare Part B premiums
This program excludes charges for:
- Transportation or travel other than those approved by Medicare
- Treatment resulting from war or acts of war
- Treatment arising out of or in the course of employment
- Any expenses payable through any plan or program of government or any
subdivision or agency thereof
Limits of Liability: A) Per Individual $1,000,000 Lifetime
Legal Expense Limit of Liability: $250,000 Each
B) Legal Expense Limit of Liability: $100,000 Each
Premium: $507,500 due at inception
Exhibit 10.6
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Second Amended and Restated Employment Agreement
("Agreement") made as of the 1st day of May, 1998, between
William M. Troutman ("Executive") and Lone Star Industries, Inc.,
a Delaware corporation having its principal office at 300 First
Stamford Place, Stamford, Connecticut and its successors and
assigns ("Lone Star" or the "Company").
W I T N E S S E T H:
WHEREAS, the Company and the Executive are parties to
an Amended and Restated Employment Agreement dated as of February
1, 1996, as amended effective August 1, 1996 (the "Superseded
Employment Agreement"), and desire to amend and restate the
Superseded Employment Agreement in its entirety.
NOW, THEREFORE, in consideration of the mutual
promises, agreements and covenants hereby made, the mutual
benefits to be derived from this Agreement and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree to amend and
restate the Superseded Employment Agreement as follows:
1. Lone Star hereby employs Executive, and Executive
hereby accepts employment by Lone Star, on the terms and
conditions set forth in this Agreement for an initial term of
twenty-six (26) consecutive months commencing as of the date
hereof and ending on June 30, 2000 (the "Initial Term"), as
President and Chief Executive Officer, with such duties as are
specified in the By-Laws of Lone Star and such other duties
customary to the position as may be assigned to Executive from
time to time by the Board of Directors of Lone Star. Unless
terminated pursuant to the other terms hereof, this Agreement
shall continue in full force and effect after the Initial Term
for successive terms of two years (each such term, and the
Initial Term, a "Term").
2. Lone Star shall pay Executive a salary ("Salary")
at the rate of $400,000 per annum until the effective date of
termination of this Agreement. Salary shall continue to be paid
to Executive on the currently established pay periods of Lone
Star. The Compensation and Stock Option Committee (or such other
Board committee as shall then be responsible for making such
decisions or, if none, the full Board of Directors) may in its
discretion consider increases in the Executive's Salary from time
to time, and upon any such increase "Salary" for purposes hereof
shall thereafter mean the Executive's salary as so increased,
notwithstanding any purported subsequent reduction thereof by any
such committee or the Board. In addition, the Compensation and
Stock Option Committee (or such other Board committee as shall
then be responsible for making such decisions, or if none, the
full Board of Directors) may in its discretion consider granting
to the Executive from time to time such bonuses, stock options or
other incentive compensation as it deems appropriate.
3. (a) (i) Either party, by written notice to the
other at least six months prior to the expiration of the then
current Term, may terminate this Agreement effective at the
expiration of such Term. (ii) Lone Star, by written notice which
sets forth the effective date of termination (which shall not be
earlier than six (6) months after receipt of the written notice),
may terminate this Agreement at any time for reasons (including
without limitation, disability of the Executive) other than Cause
(as hereinafter defined).
(b) In the event that this Agreement is
terminated by the Executive pursuant to Section 4 below or Lone
Star terminates this Agreement pursuant to Section 3(a) above,
Executive shall be entitled to a severance payment in an amount
equal to Executive's Salary for the period from the effective
date of the termination through the date one year (18 months, in
the case of a termination pursuant to Section 4) after the
effective date of the termination (the "Severance Period").
Severance shall be paid in lump sum on the effective date of the
termination. In addition, the Executive shall continue to
receive life insurance and medical insurance under the Company's
Executive Medical Plan for Active Employees (as in effect as of
the date of this Agreement and described in Article III of the
Supplemental Agreement) during the Severance Period (which is in
addition to, and not in lieu of, benefit continuation under the
Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA")). Severance pay pursuant to this Section shall be in
lieu of severance pay pursuant to any other Lone Star severance
policy.
(c) Lone Star shall have the right to terminate
this Agreement for Cause during the Initial Term and thereafter
and (subject to Section 6 below) Executive shall not be entitled
to receive severance pay pursuant to this Section or any other
policy or agreement of Lone Star. Cause shall be construed to
mean:
(1) The willful and continued failure
by the Executive to substantially perform his duties with Lone
Star (other than any such failure resulting from his disability
due to physical or mental illness) after a written demand for
performance is delivered which specifically identifies the manner
in which he has not substantially performed his duties, or
(2) the willful engaging by Executive
in gross misconduct materially and demonstrably injurious to the
Company, monetarily or otherwise, or
(3) conviction of fraud, theft or
embezzlement.
For purposes of this Section, no act, or failure
to act, shall be considered "willful" unless done, or omitted to
be done, not in good faith or without reasonable belief that the
action or omission was in the best interest of the Company.
The written demand in Section (c)(1) shall be
delivered to the Executive by the Board of Directors and shall
set forth a reasonable period (not shorter than 30 business days)
in which Executive is expected to comply with said demand. If
Executive does not comply thereafter, Lone Star shall have the
right to terminate this Agreement upon seven (7) days' written
notice to Executive.
4. (a) Lone Star hereby agrees not to: (i) change
the Executive's duties so that a reasonable man would interpret
the change to be a demotion; or (ii) direct the Executive to
relocate his office to a new location which is either in a State
other than Indiana or more than twenty-five (25) miles from
Indianapolis, Indiana (excluding any relocation occurring prior
to a Change in Control, as defined below, of the Executive's
office (A) as a result of a relocation of Lone Star's operations
presently located in Indianapolis, Indiana and (B) applicable to
substantially all officers of Lone Star operating out of such
location). In the event Lone Star breaches its obligations in
the immediately preceding sentence, Executive, at his option (and
without limiting his remedies), can (if such demotion or
direction to relocate is not rescinded or corrected by the
Company within 30 days after written notice by Executive to the
Company, reasonably identifying, in the case of a demotion, the
change in duties complained of) declare himself terminated for
"Good Reason" by giving written notice to Lone Star, and Lone
Star shall pay Executive severance pay and benefits as provided
in Section 3(b) of this Agreement. In no event shall Executive
be required to perform duties or to suffer relocation prohibited
by this Section 4.
(b) In the event of the Executive's physical or
mental incapacity, the Executive may declare himself terminated
for "Incapacity" by giving written notice to Lone Star, Lone Star
shall pay Executive severance pay and benefits as provided in
Section 3(b) of this Agreement. "Physical or mental incapacity"
shall mean the inability of Executive by reason of a physical or
mental illness to perform his duties hereunder for a period of 90
consecutive days or a total of 120 days in any twelve month
period and such incapacity is determined by a physician selected
by Executive (or his legal representatives) and reasonably
acceptable to the Company to be such as prevents Executive from
performing adequately his normal duties to the Company. During
any period that the Executive is unable to perform his duties by
reason of physical or mental incapacity, Executive shall continue
to receive his full compensation and benefits hereunder.
5. Executive shall participate in Lone Star's 401(k)
savings plan and vacation and holiday programs and other benefits
in the same manner as other executive salaried employees of Lone
Star and in accordance with the terms thereof; provided that
Executive shall not participate in any short term disability
insurance plan, long term disability insurance plan or the
Company's Supplemental Executive Retirement Plan dated July 16,
1996.
6. Following a Change in Control, as defined below,
the Executive, on thirty days written notice (which notice must
be delivered within twelve months after the Company gives the
Executive notice of the Change in Control or the Executive has
actual knowledge of such Change in Control), may terminate his
employment with the Company. Upon any such termination, the
Executive shall be entitled to lump sum severance pay in an
amount equal to thirty months' Salary. In addition, the
Executive shall continue to receive life insurance and medical
insurance under the Company's Executive Medical Plan for Active
Employees (as in effect as of the date of this Agreement and
described in Article III of the Supplemental Agreement) during
the Severance Period (which is in addition to, and not in lieu
of, benefit continuation under COBRA). Severance pay pursuant to
this Section shall be in lieu of severance pay pursuant to any
Lone Star policy or other agreement and all other obligations of
the Company for severance pay under this Agreement. For purposes
of this Agreement a "Change in Control" shall be deemed to have
occurred upon the occurrence of any of the following events:
(i) Any acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of shares of common
stock of the Company (the "Common Stock") and/or other voting
securities of the Company entitled to vote generally in the
election of directors ("Outstanding Company Voting Securities")
after which acquisition such individual, entity or group is the
beneficial owner of twenty percent (20%) or more of either (A)(1)
the then outstanding shares of Common Stock or (2) the
Outstanding Company Voting Securities; excluding, however, the
following: (1) any acquisition by the Company, (2) any
acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or (3) any acquisition by
any corporation pursuant to a reorganization, merger,
consolidation or similar corporate transaction (in each case, a
"Corporation Transaction"), if, pursuant to such Corporate
Transaction, the conditions described in clauses (1), (2) and (3)
of paragraph (iii) of this Section 6 are satisfied; or (B) any
transaction in which the Executive and the Chairman of the
Company (both as of the date of this Agreement and subject to
health related availability) (1) retain their current positions
with the Company immediately after such transaction and (2) will
immediately after such transaction beneficially own an aggregate
(for both such executives), directly or indirectly (including,
without limitation, ownership by family members, trusts or
foundations for or controlled by family members), more than 5% of
either the (a) then outstanding shares of common stock of the
Company and/or (b) the other voting securities of the Company
entitled to vote generally in the election of directors (any
transaction under this clause (B) hereinafter referred to as a
"Management Event").
(ii) A change in the composition of the Board of
Directors of the Company (other than in connection with a
Management Event) such that the individuals who, as of the date
hereof, comprise a class of directors of the Board (the members
of each class of directors of the Board as of the date hereof
shall be hereinafter referred to as an "Incumbent Class" and the
members of all of the Incumbent Classes shall be hereinafter
collectively referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the class; provided,
however, for purposes of this subsection that any individual who
becomes a member of an Incumbent Class subsequent to the date
hereof whose election, or nomination for election by the
Company's stockholders, was approved in advance or
contemporaneously with such election by a vote of at least a
majority of those individuals who are members of the Incumbent
Board and a majority of those individuals who are members of such
Incumbent Class (or deemed to be such pursuant to this proviso),
shall be considered as though such individual were a member of
the Incumbent Class; but, provided further, that any such
individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board of Directors of the Company or actual or threatened tender
offer for shares of the Company or similar transaction or other
contest for corporate control (other than a tender offer by the
Company) shall not be so considered as a member of the Incumbent
Class; or
(iii) The approval by the stockholders of the Company
of a Corporate Transaction or, if consummation of such Corporate
Transaction is subject, at the time of such approval by stock-
holders, to the consent of any government or governmental agency,
the obtaining of such consent (either explicitly or implicitly);
excluding, however, a Management Event or a Corporate Transaction
pursuant to which (1) all or substantially all of the individuals
and entities who are the beneficial owners, respectively, of the
outstanding shares of Common Stock and Outstanding Company Voting
Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than eighty
percent (80%) of, respectively, the outstanding shares of common
stock of the corporation resulting from such Corporate
Transaction and the combined voting power of the outstanding
voting securities of such corporation entitled to vote generally
in the election of directors, (2) no Person (other than the
Company, any employee benefit plan (or related trust) of the
Company or the corporation resulting from such Corporate
Transaction and any Person beneficially owning, immediately prior
to such Corporate Transaction, directly or indirectly, twenty
percent (20%) or more of the outstanding shares of Common Stock
or Outstanding Company Voting Securities, as the case may be)
will beneficially own, directly or indirectly, twenty percent
(20%) or more of, respectively, the outstanding shares of common
stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in the
election of directors and (3) individuals who were members of the
Incumbent Board will constitute at least a majority of the
members of board of directors of the corporation resulting from
such Corporate Transaction; or
(iv) The approval of the stockholders of the Company
of (1) a complete liquidation or dissolution of the Company or
(2) the sale or other disposition of all or substantially all of
the assets of the Company; excluding, however, such a sale or
other disposition to a corporation (A) in connection with a
Management Event or (B) with respect to which following such sale
or other disposition, (1) more than eighty percent (80%) of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally
in the election of directors will be then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the outstanding shares of Common Stock and
Outstanding Company Voting Securities immediately prior to such
sale or other disposition, (2) no Person (other than the Company
and any employee benefit plan (or related trust) of the Company
or such corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or
indirectly, twenty percent (20%) or more of the outstanding
shares of Common Stock or Outstanding Company Voting Securities,
as the case may be) will beneficially own, directly or
indirectly, twenty percent (20%) or more of, respectively, the
then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors and (3) individuals who were members of the
Incumbent Board will constitute at least a majority of the
members of the board of directors of such corporation.
In the event of any conflict between this Section 6 and
any other Section of this Agreement (other than Section 5), the
terms of this Section 6 shall control so that, without
limitation, the Executive shall be entitled to the payment and
benefits provided under this Section 6 notwithstanding any
purported termination (whether for Cause or otherwise) and
regardless of whether such purported termination precedes or
follows the giving of a notice of termination by the Executive
under this Section 6 by the Company.
7. Immediately upon the occurrence of a Change in
Control, the Company shall establish a grantor trust on behalf of
the Executive, subject to the claims of the Company's creditors
(commonly referred to as a "Rabbi Trust"). The Company shall
contribute to the Rabbi Trust an amount sufficient to provide for
the severance benefits and payment of all other benefits under
this Agreement. Any payments made to the Executive under this
Agreement shall be made from such Rabbi Trust. The Rabbi Trust
shall terminate and any remaining assets shall be returned to the
Company no sooner than July 1, 2005, unless the Executive has
provided written notice of an unsatisfied claim to the trustee of
the Rabbi Trust, in which case the Rabbi Trust shall not
terminate until such claim is resolved pursuant to paragraph 12.
8. Upon presentation to Lone Star of appropriate
documentation, Executive will be entitled to reimbursement within
guidelines established by Lone Star for all reasonable and
necessary business expenses incurred by him for entertainment,
travel and similar items.
9. Executive agrees that during his period of
employment by Lone Star and thereafter he shall hold in
confidence and not disclose to any unauthorized person any
knowledge or information acquired and possessed by him of a
confidential nature or any trade secret with respect to the
business of Lone Star, and not to disclose, publish or make use
of the same without the prior express consent of Lone Star.
Executive shall be free to disclose such information, knowledge
or trade secret in the ordinary course of his carrying out his
duties as an officer of Lone Star, and shall be free to disclose
such information, knowledge or trade secret during his period of
employment by Lone Star and thereafter if such matters become
public or if compelled by legal process.
10. Executive agrees that during the term of his
employment he will not without the consent of Lone Star, in any
manner, directly or indirectly, own, manage, be employed by,
operate, join, control, participate in, be connected with, engage
in, or become interested in any business of the same or similar
nature to, or competitive with, that carried on by Lone Star
during the Executive's employment by Lone Star, in those parts of
the world where Lone Star does business. Ownership of publicly
traded securities of a business of the same or similar nature to,
or competitive with, that carried on by Lone Star, shall not
violate this paragraph, provided the Executive does not acquire
more than 5% of the voting stock of any such corporation.
11. The Executive agrees that any copyright or
patentable invention that he may conceive, make, invent, suggest
or reduce to practice during the period of his employment with
Lone Star (whether individually or jointly with any other person
or persons), relating in any way to the business of Lone Star
shall be the sole, exclusive and absolute property of Lone Star.
12. Any dispute hereunder shall be resolved in the
same manner as is provided in Section 4.1 of the Supplemental
Agreement. Any amounts not paid by the Company hereunder within
five business days after the date they are due shall be paid with
interest from its due date at the rate announced from time to
time by Citibank, N.A. as its prime or similar rate plus 3%.
13. Nothing contained in this Agreement (including,
without limitation, any of the terms and conditions of the last
sentence of Section 3(b), Section 5, Section 6 and this Section
13) shall affect the force and effect of (i) the Second Amended
and Restated Agreement, of even date herewith, between the
Company and the Executive relating to certain supplemental
retirement, medical insurance, disability and other benefits and
rights, a copy of which is attached hereto as Exhibit A (the
"Supplemental Agreement"); (ii) the Company's Executive Incentive
Plan as in effect from time to time or his right to receive
benefits thereunder (including, without limitation, his right to
any bonus thereunder upon a Change in Control or otherwise) or
(iii) any indemnification agreements or arrangements including
those set forth in the Company's Certificate of Incorporation or
By-laws. This Agreement and the Supplemental Agreement
constitute the entire agreement between the parties as to matters
covered hereby and thereby and may not be changed or modified
except by an agreement in writing signed by Lone Star and the
Executive. This Agreement supersedes the Superseded Employment
Agreement.
14. (a) Anything in this Agreement or the
Supplemental Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by
the Company (including any made from plans sponsored by the
Company, through annuities, Rabbi Trusts or otherwise) to or for
the benefit of Executive, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement
(including this Section 14), the Supplemental Agreement, the
Company's Executive Incentive Plan or otherwise (any such
payments or distributions being individually referred to herein
as a "Payment", and any two or more of such payments or
distributions being referred to herein as "Payments"), would be
subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended ("Code") (such excise tax,
together with any interest thereon, any penalties, additions to
tax, or additional amounts with respect to such excise tax, and
any interest in respect of such penalties, additions to tax or
additional amounts, being collectively referred herein to as the
"Excise Tax"), then Executive shall be entitled to receive and
the Company shall make an additional payment or payments
(individually referred to herein as a "Gross-Up Payment," and any
two or more of such additional payments being referred to herein
as "Gross-Up Payments") in an amount such that after payment by
the Executive of all Taxes (as defined in Section 14(e)) imposed
upon all Gross-Up Payments, Executive retains an amount of such
Gross-Up Payments equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 14(c)
and (d), any determination required to be made under Section
14(a) including whether Gross-Up Payments are required and the
amount of such Gross-Up Payments, shall initially be made, at the
Company's expense, by nationally recognized tax counsel retained
to represent the Executive by the Company, such counsel to be
mutually acceptable to the Company and the Executive ("Tax
Counsel"). Tax Counsel shall provide detailed supporting legal
authorities, calculations and documentation both to the Company
and the Executive within 15 business days after the termination
of the Executive's employment, if applicable, and such other time
or times as is reasonably requested by the Company or the
Executive. If Tax Counsel makes the initial determination that
no Excise Tax is payable by the Executive with respect to a
Payment or Payments, it shall furnish the Executive with an
opinion that no Excise Tax will be imposed with respect to any
such Payment or Payments. As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it is possible
that Gross-Up Payments (or portions thereof) which will not have
been made by the Company should have been made, and if upon any
reasonable written request from the Executive, the Company or Tax
Counsel, Tax Counsel thereafter determines that the Executive is
required to make a payment of any Excise Tax or any additional
Excise Tax, as the case may be, Tax Counsel shall, at the
Company's expense, determine the amount of the underpayment that
has occurred and any such underpayment (together with any
additional Taxes resulting from the Payment or resulting from the
underpayment of Excise Tax) shall be promptly paid by the Company
to Executive.
(c) The Company shall defend (by the Tax Counsel
or by other nationally recognized tax counsel acceptable to the
Executive), hold harmless and indemnify the Executive on a fully
grossed-up after Tax basis from and against any and all Excise
Tax, other Taxes, claims, losses, liabilities, obligations,
damages, impositions, assessments, demands, judgments,
settlements, fines, interest, costs and expenses (including
reasonable attorneys', accountants', and experts' fees and
expenses) (collectively, "Costs") with respect to any claim made
against the Executive by the Internal Revenue Service, any other
governmental agency or any other person or entity, for any Excise
Tax.
(d) Pending the outcome of any such claim, the
Company shall advance to Executive on an interest-free basis, the
total amount of the Excise Tax or other Taxes claimed in order
for Executive to pay or cause to be paid the Excise Tax or other
Taxes claimed. Executive shall, at the Company's reasonable
request and at the Company's sole cost and expense, file a claim
for refund of such Excise Tax and/or other Taxes and sue for a
refund of such Taxes if such claim for refund is disallowed by
the appropriate taxing authority (it being understood and agreed
by the parties hereto that the Company shall only be entitled to
sue for a refund and the Company shall not be entitled to
initiate any proceeding in, for example, United States Tax Court)
and shall indemnify and hold Executive harmless, on a fully
grossed-up after Tax basis, from any Tax imposed with respect to
such advance or with respect to any imputed income with respect
to such advance. Within ten (10) days after the Company is
notified of a claim against the Executive for Excise Tax, whether
such notice is provided by the Executive or otherwise, the
Company (i) shall notify the Executive in writing (a "Defense
Notice") that the Company is defending and indemnifying the
Executive for such claim pursuant to Section 14(c), and
thereafter (ii) shall control the defense or prosecution, at its
sole cost, expense and risk, of such claim by all appropriate
proceedings, which proceedings shall be defended or prosecuted
diligently by the Company to a final determination; provided,
however, that (i) the Company shall not, without Executive's
prior written consent, enter into any compromise or settlement of
such claim that would adversely affect Executive, (ii) any
request from the Company to the Executive regarding any extension
of the statute of limitations relating to assessment, payment or
collection of taxes for the taxable year of Executive with
respect to which the contested issues involved in, and amount of,
the claim relate is limited solely to such contested issues and
amount, and (iii) the Company's control of any contest or
proceeding shall be limited to issues with respect to the claim
and Executive shall be entitled to settle or contest, in his sole
and absolute discretion, any other issue raised by the Internal
Revenue Service or any other taxing authority. So long as the
Company is diligently defending or prosecuting such claim,
Executive shall provide or cause to be provided to the Company
any information reasonably requested by the Company that relates
to such claim, and shall otherwise cooperate (at the Company's
sole cost and expense) with the Company and its representatives
in good faith in order to contest effectively such claim. The
Company shall keep Executive informed of all developments and
events relating to any such claim (including, without limitation,
providing to Executive copies of all written materials pertaining
to any such claim), and Executive or his authorized
representatives shall be entitled, at Executive's expense, to
participate in all conferences, meetings and proceedings relating
to any such claim. If the Company fails to (i) timely deliver a
Defense Notice or (ii) thereafter perform the obligations under
Section 14(c) to the Executive's reasonable satisfaction, then
Executive shall at any time thereafter have the right (but not
the obligation), at his election and in his sole and absolute
discretion, to defend or prosecute, at the sole cost, expense and
risk of the Company, such claim. Executive shall have full
control of such defense or prosecution and such proceedings,
including any settlement or compromise thereof. If requested by
Executive, the Company shall cooperate, and shall cause its
affiliates to cooperate, in good faith with Executive and his
authorized representatives in order to contest effectively such
claim. The Company may attend, but not participate in or
control, any defense, prosecution, settlement or compromise of
any claim controlled by Executive pursuant to this Section 14(d)
and shall bear its own costs and expenses with respect thereto.
In the case of any claim that is defended or prosecuted by
Executive, Executive shall, from time to time, be entitled to
current payment, on a fully grossed-up after Tax basis, from the
Company with respect to Costs incurred by Executive in connection
with, or arising out of, such defense or prosecution.
(e) For purposes of this Section 14, the terms
"Tax" and "Taxes" mean any and all federal, state and local taxes
of any kind whatsoever (including, but not limited to, any and
all Excise Tax, income taxes, FICA taxes and employment taxes),
together with any interest thereon, any penalties, additions to
tax, or additional amounts with respect to such taxes and any
interest in respect of such penalties, additions to tax, or
additional amounts.
15. The Company has purchased and shall maintain in
effect, on behalf of the Executive, (i) an insurance policy to
cover any litigation costs of the Executive (or his spouse)
associated with the enforcement of this Agreement or the
Supplemental Agreement against the Company in an amount of
$250,000 and (ii) an insurance policy to cover certain medical
benefits under the Supplemental Agreement in the event of a
default thereunder by the Company. The Company shall fully
reimburse the Executive for the federal, state and local taxes
incurred by the Executive in connection with the purchase and
maintenance of such policies (the "Reimbursement") and any
federal, state or local taxes on the Reimbursement, based on the
highest marginal tax rate in effect so that the Executive has no
federal, state or local tax liability as a result of this
section.
16. The Company agrees that if the Executive's
employment with the Company is terminated pursuant to this
Agreement during the term of this Agreement, the Executive shall
not be required to seek other employment or to attempt in any way
to reduce any amounts payable to the Executive by the Company
pursuant to this Agreement. Further, the amount of any payment
or benefit provided for in this Agreement shall not be reduced by
any compensation earned by the Executive or benefit provided to
the Executive as the result of employment by another employer or
otherwise. Except as otherwise provided herein and apart from
any disagreement between the Executive and the Company concerning
interpretation of this Agreement or any term or provision hereof,
the Company's obligations to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or
other right which the Company may have against the Executive.
17. This Agreement shall be governed by and construed
in accordance with the laws of the State of Connecticut.
18. This Agreement shall be binding upon and inure to
the benefit of the Company, including any purchaser of all or
substantially all of the assets of the Company and the surviving
entity of any merger or consolidation to which the Company is a
party and the Executive and his heirs, executors, administrators
and legal representatives.
19. Except as provided herein, this Agreement cannot
be assigned by Lone Star or Executive without prior written
consent.
20. All notices, communications, etc., shall be sent
to:
(a) Corporate Secretary
Lone Star Industries, Inc.
300 First Stamford Place
Stamford, CT 06912
(b) William M. Troutman
8751 Jaffa Court, East Drive
Apartment 31
Indianapolis, IN 46260
William M. Troutman
LONE STAR INDUSTRIES, INC.
By:
David W. Wallace
Chairman of the Board
- and -
By:
Jack R. Wentworth
Chairman of the Compensation
and Stock Option Committee
17
Exhibit 10.7
This SECOND AMENDED AND RESTATED AGREEMENT effective as of
the 1st day of May 1998, by and between Lone Star Industries,
Inc., a corporation organized under the laws of the State of
Delaware with its principal office at 300 First Stamford Place,
Stamford, Connecticut 06912 and it successors and assigns (the
"Corporation"), and William M. Troutman (the "Executive")
residing at 8751 Jaffa Court, East Drive, Apartment 31,
Indianapolis, Indiana 46260 (the "Agreement").
W I T N E S S E T H
WHEREAS, the Executive is President and Chief Executive
Officer of the Corporation; and
WHEREAS, the Corporation and the Executive have entered
into a Second Amended and Restated Employment Agreement, of even
date herewith (the "Employment Agreement"); and
WHEREAS, the Corporation and the Executive are parties to
an Amended and Restated Agreement, effective as of the 20th day
of November, 1996 (the "Superseded Supplemental Agreement"),
which provides for certain supplemental retirement benefits for
the Executive and his spouse, and the Corporation and the
Executive wish to amend and restate the Superseded Supplemental
Agreement as provided for herein.
NOW, THEREFORE, in consideration of the mutual promises,
agreements and covenants hereby made, the mutual benefits to be
received from this Agreement, the execution and delivery of the
Employment Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree to amend and restate the
Superseded Supplemental Agreement as follows:
ARTICLE I
DEFINITIONS
1.1 "Annual Retirement Benefit" shall mean an annual amount to
be paid to the Executive by the Corporation under Article II
hereof equal to the greater of (i) 50% of the sum of Salary and
Bonus or (ii) $350,000. The Annual Retirement Benefit shall be
reduced in certain instances as provided in Section 2.2 if the
Termination Date occurs prior to the Executive's attainment of
age 62. The Annual Retirement Benefit shall be reduced for any
year by the amounts paid to the Executive or Spouse from the
Plan for such year. The Annual Retirement Benefit shall be paid
from certain annuities, and adjusted as a result of certain tax
considerations, to the extent provided in Section 2.5.
1.2 "Annuity" shall mean National Home Life Assurance
Company Policy Number N101058 (August 7, 1989).
1.3 "Bonus" shall mean the greater of: (i) $300,000 or
(ii) the average annual aggregate of all bonuses earned by the
Executive in respect of (a) the last three calendar years ending
prior to the Termination Date or (b) if higher, the three
successive 12-month periods ending with the month in which the
Termination Date occurs.
1.4 "Board" shall mean the Board of Directors of the
Corporation or its duly authorized committee.
1.5 "Change in Control" shall have the meaning ascribed
thereto in the Employment Agreement.
1.6 "Disability" shall mean Executive's inability, because
of physical or mental incapacity, to perform in a competent
manner executive duties of a nature equivalent to the duties the
Executive currently performs for a period of ninety (90) days.
1.7 "Discontinuation Date" shall mean the date of the
later to occur of: (i) the death of the Executive; or (ii) the
death of the Spouse.
1.8 "Plan" shall mean the Lone Star Industries, Inc.
Salaried Employees Pension Plan.
1.9 "Qualified Dependents" shall mean the Executive's:
(i) spouse, if not divorced or legally separated from the
Executive, (ii) children under the age of (A) 19 or (B) 23 if a
full-time student, unmarried, and not employed on a regular and
full-time basis, and dependent on the Executive for support;
provided however, if due proof is received within 31 days of the
day the Qualified Dependent has reached his maximum age that he
is incapable of self-sustaining employment by reason of mental
retardation or physical handicap, the child shall continue to be
deemed a dependant after such birthday, for purposes of only
accident and health coverage; and (iii) legally adopted
children, or children living in a parent-child relationship and
primarily dependent on the Executive.
1.10 "Salary" shall mean the greater of: (i) the
Executive's annual base salary in effect immediately prior to
the Termination Date or (ii) $400,000.
1.11 "Spouse" shall mean the Executive's legal spouse on
the Termination Date.
1.12 "Termination Date" shall mean the date the Executive
ceases to be an employee of the Corporation for any reason
whatsoever including, without limitation, by reason of a Change
in Control, death, Disability or for actual or alleged "Cause",
whether as defined in the Employment Agreement or under
applicable law; provided however, in the event that the
Executive's termination of employment results in his receiving
severance pay under Sections 3(b) or 6 of the Employment
Agreement, the Termination Date for purposes hereof shall occur
on the last day of the last month in respect of which such
severance is actually paid to the Executive.
ARTICLE II
2.1 Payment of Benefits. The Corporation shall pay to the
Executive (or his Spouse, as the case may be) the Annual
Retirement Benefit each year commencing on the Termination Date
and continuing until the Discontinuation Date. The Annual
Retirement Benefit shall be paid in equal monthly installments
in advance. Upon the Discontinuation Date (i) no refund for any
partial month shall be required to be paid by the Executive's or
Spouse's estate, as the case may be, and (ii) thereafter, no
additional monthly installments of the Annual Retirement Benefit
in respect of the year during which the Discontinuation Date
occurs shall be paid. The Annual Retirement Benefit shall be
paid irrespective of the reason for the Termination Date,
whether it be by reason of a Change in Control, death,
Disability, actual or alleged "Cause", whether as defined in the
Employment Agreement or under applicable law or any other
reason.
2.2 Reduction of Benefits Payable in Certain Instances if
Termination Date Occurs prior to Executive's Attainment of Age
62. The Annual Retirement Benefit shall be reduced by one
twelfth (1/12) of 5% for each complete month by which the
Termination Date precedes the Executive's attainment of age 62;
provided, however, no such reduction shall occur (i) if the
Termination Date results from the Executive's Disability or (ii)
at any time after a Change in Control or (iii) if the
Termination Date occurs on or after the Executive's 62nd
birthday. As an illustration of the foregoing, if the
Termination Date were to occur on December 31, 1998, other than
as a result of the Executive's Disability or after a Change in
Control (in either of which case no reduction would occur), the
Annual Retirement Benefit would be reduced by 18.33% (e.g., 1/12
x 0.05 x 44 complete months prior to the Executive's 62nd
birthday).
2.3 Benefits to Spouse. There shall be no reduction in
the Annual Retirement Benefit payable under this Agreement due
to the age of the Spouse. All payments under this Agreement
shall be made to the Executive until his death, and then to the
Spouse for her life if she survives the Executive.
2.4 Purchase of Annuity. The Corporation agrees to
purchase within thirty days after the date on which the
Executive ceases to be an employee (which date will not be
deferred even if the Termination Date is to be deferred
thereafter as a result of the proviso to Section 1.12), an
annuity from a reputable provider of annuities rated at least
"AA" by Standard & Poors for the Executive and the Spouse which
provides, together with annual amounts paid to the Executive or
Spouse from the Plan and Annuity, for an annual retirement
benefit to Executive and his Spouse equal to the Annual
Retirement Benefit called for by this Agreement. Within 30 days
after the purchase of such annuity, the Corporation shall pay
the Executive an amount equal to the federal and applicable
state and local income taxes and FICA taxes which shall be
payable by the Executive upon receipt of the annuity, said
amount to be grossed up to reflect the additional taxes payable
due to the receipt of such payment.
2.5 Payments from Annuities; Tax Matters.
(a) To the extent practicable, the Annual Retirement
Benefit shall be paid from the Annuity and from the annuity
purchased under Section 2.4 above, and the Annual Retirement
Benefit paid from these annuities shall be adjusted so that the
after-tax retirement benefits provided by the annuities are
equal to the after-tax retirement benefits the Executive would
have received from the Corporation had the Plan paid the Annual
Retirement Benefit directly rather than through the annuities.
(b) On or before the January 31 following the first calendar
year or partial calendar year ending after the Termination Date,
the Company shall cause its independent certified public
accountants to provide a signed statement to the Executive or to
the Spouse, as the case may be, setting forth a reasonably
detailed calculation of the annual amount to be paid to the
Executive or the Spouse from the Annuity and the annuity
purchased as provided in Section 2.4 which calculation shall set
forth the amounts of such annuities that are subject to federal
and applicable state and local income tax.
ARTICLE III
HEALTH AND MEDICAL BENEFITS
From the date hereof until the Discontinuation Date, the
Corporation agrees to provide the Executive with life insurance
and the Executive and Qualified Dependents with medical
insurance at no cost to the Executive and Qualified Dependents
at least equal to the life and medical insurance provided to
senior elected officers of the Corporation; provided, however,
upon the earlier to occur of the Executive's attainment of age
65 or the Executive's application for a pension benefit under
the Plan, the medical benefits provided to the Executive and
Qualified Dependents shall be at least equal to the medical
benefits described in the Executive Medical and Life Insurance
Plan - William Troutman and Qualified Dependents, effective
March 1, 1996 (the "SPD"), a copy of which is attached hereto
and the terms of which are incorporated by reference herein.
The Corporation agrees to use its best efforts to provide
the benefits listed on the SPD to the Executive and his spouse
in a manner that will not result in any income inclusion under
federal, state or local tax law. To the extent any such income
inclusion results to either the Executive or his spouse, the
Executive and his spouse (as the case may be) shall receive an
annual payment from the Corporation to fully pay for the
federal, state or local tax on such income inclusion (a "Gross-
up Payment") as well as any income inclusion from the Gross-up
Payment based on the highest marginal tax rate on the payment,
so that neither the Executive nor his Spouse have any federal,
state or local tax liability as a result of participation in the
Executive Medical Plan described in the SPD. For each year,
such payment shall be made no later than January 31st of the
following year.
This section shall survive any termination of this
Agreement.
ARTICLE IV
4.1 Dispute Resolution
(a) Any dispute relating to this Agreement arising
between the Executive (and/or the Spouse) and the Corporation
(or any successor or assign) shall be settled by arbitration in
accordance with the commercial arbitration rules of the American
Arbitration Association ("AAA"). The arbitration proceeding,
including the rendering of an award, shall take place in
Indianapolis, Indiana (or such other location mutually agreed
upon by the Corporation and the Executive (and/or the Spouse))
and shall be administered by the AAA.
(b) The arbitral tribunal shall be appointed within
30 days of the notice of dispute, and shall consist of three
arbitrators, one of which shall be appointed by the Company, one
by the Executive, and the third by both the Company and the
Executive (and/or the Spouse) jointly; provided, however, that
if the Company and the Executive (and/or the Spouse) do not
select the third arbitrator within such 30-day period, such
third arbitrator shall be chosen by the AAA as soon as
practicable following notice to the AAA by the parties of their
inability to choose such third arbitrator.
(c) Decisions of such arbitral tribunal shall be in
accordance with the laws of the State of Connecticut (excluding
the conflicts of law rules which require the application of any
other law). The award of any such arbitral tribunal shall be
final (except as otherwise provided by the laws of the State of
Connecticut and the Federal laws of the United States, to the
extent applicable). Judgment upon such award may be entered by
the prevailing party in any state or Federal court sitting in
Connecticut or any other court having jurisdiction thereof, or
application may be made by such party to any such court for
judicial acceptance of such award and an order of enforcement.
(d) The Corporation shall reimburse the Executive and
Spouse for all costs, including reasonable attorney's fees, in
connection with any arbitration hereunder in which the Executive
(and/or the Spouse) is the prevailing party.
ARTICLE V
MISCELLANEOUS
5.1 Unfunded Plan. This Agreement is unfunded and shall
at all times remain unfunded until required pursuant to Section
2.6. The obligations of the Corporation with respect to the
benefits payable hereunder shall be paid out of the
Corporation's general assets and shall not be secured. At its
discretion, the Corporation may establish one or more trusts,
with such trustees as the Board may appoint, for the purpose of
providing payment of such benefits. Such trust or trusts may be
irrevocable, but the assets thereof shall be subject to the
claims of the Corporation's creditors. To the extent any
benefits provided under the Agreement are actually paid from any
such trust, the Corporation shall have no further obligation
with regard thereto, but to the extent not so paid, such benefit
shall remain the obligation of, and shall be paid by the
Corporation. To the extent that any person acquires a right to
receive payments from the Corporation under this agreement, such
right shall be no greater than the right of any unsecured
general creditor of the Corporation.
5.2 No Effect on Employment. Nothing contained herein
shall be construed as adversely affecting, in any manner, the
terms and conditions of the Executive's employment including,
without limitation, the terms and conditions of the Employment
Agreement; provided however, in the event there are any
conflicts between this Agreement and the Employment Agreement
regarding supplemental retirement benefits and life and medical
insurance, the terms of this Agreement shall prevail. In
furtherance and not in limitation of the proviso to the
immediately preceding sentence, the Annual Retirement Benefit
provided for herein is not, and shall not be deemed to be,
severance pay for purposes of Sections 3(b), 3(c) or 6 of the
Employment Agreement.
5.3 Payments Not Compensation. Any compensation payable
under this Agreement shall not be deemed salary or compensation
to the Executive for the purposes of computing benefits to which
he may be entitled under any pension plan or other arrangement
of the Corporation for the benefit of its employees.
5.4 No Reduction in Plan Benefits. Nothing in this
Agreement shall reduce the benefits to which the Executive and
the Spouse are entitled under the Plan.
5.5 Invalidity. In case any provision of this Agreement
shall be illegal or invalid for any reason, said illegality or
invalidity shall not affect the remaining parts hereof, but this
Agreement shall be construed and enforced as if such illegal and
invalid provision never existed.
5.6 Withholding of Taxes. The Corporation shall have the
right to make such provisions as it deems necessary or
appropriate to satisfy any obligations it may have to withhold
federal, state or local income or other taxes incurred by reason
of payments pursuant to this Agreement.
5.7 Binding Affect. This Agreement shall be binding upon
and inure to the benefit of the Corporation, including any
purchaser of all or substantially all of the assets of the
Corporation and the surviving entity of any merger or
consolidation to which the Corporation is a party and the
Executive and his heirs, executors, administrators and legal
representatives.
5.8 No Assignment. Except as provided herein, the
benefits payable under this Agreement shall not be subject to
alienation, transfer, assignment, garnishment, execution or levy
of any kind, and any attempt to cause any benefits to be so
subjected shall not be recognized.
5.9 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of
Connecticut.
IN WITNESS WHEREOF, the Corporation has caused this
Agreement to be executed by its duly authorized officers and the
Executive has hereunto set his hand as of the date first above
written.
__________________________
William M. Troutman
Executive
LONE STAR INDUSTRIES, INC.
By: ___________________________
David W. Wallace
Lone Star Industries, Inc.
Chairman of the Board
- and -
By: ___________________________
Jack R. Wentworth
Chairman of the
Compensation and Stock
Option Committee
Exhibit 10.10
As of May 1, 1998
Dear Mr. :
This letter will evidence the agreement of Lone Star
Industries, Inc. and its successors and assigns (the "Company")
with you on the terms specified herein.
1. If, after the occurrence of a Change in Control,
"Substantially Comparable" employment (as defined below) does
not continue to be offered to you by the Company for a period of
at least one year following such Change in Control (whether
because of a termination of your employment by such Company for
any reason, or because of a change in the terms of such
employment so that it is no longer Substantially Comparable to
your employment by the Company prior to the Change in Control),
and as a result your employment is terminated by you or the
Company) of if you separate from the Company (or are terminated
by the Company) for any reason in the thirty-day period
commencing on the first anniversary of the occurrence of a
Change in Control, then you shall be entitled to severance in an
amount equal to the greater of (A) thirty months of your base
salary as in effect upon your separation of employment from the
Company or (B) thirty months of your base salary as in effect
immediately prior to the Change in Control (the higher of the
salary upon your separation or immediately prior to the Change
in Control hereinafter referred to as the "Effective Base
Salary"). Such severance shall be paid in a lump sum on the
effective date of the termination of your employment. In
addition, (x) you and your spouse and eligible dependents shall
continue to receive health insurance coverage under the
Company's Executive Medical Plan (as in effect immediately prior
to such Change in Control) during a period of thirty months
commencing upon the termination of your employment and (y) you
shall receive such life insurance as is in effect immediately
prior to such Change in Control during a period of thirty months
commencing upon the termination of your employment. In
addition, you shall be deemed to have continued your employment
at your Effective Salary Base during such thirty-month period
for purposes of vesting, eligibility, qualifying and benefit
accrual under any applicable employee pension plan (and, as
provided in clause (ii) below, retiree health and life
insurance) and shall receive, within fifteen days after the
commencement of the thirty-month period of benefit continuation,
a lump sum payment equal to the present value of any additional
benefits to which you would have been entitled under any Company
employee pension plan (and the Company's Supplemental Employee
Retirement Plan) had the thirty-month period counted for
purposes of vesting, eligibility and benefit accrual (discounted
at 5% per annum) as computed by the actuarial firm engaged by
the Company immediately prior to the Change in Control. Nothing
in this Agreement shall limit your eligibility for or
entitlement to any benefits or programs to which you are
otherwise entitled, including any severance due under the
Company's regular severance policy ("Policy Severance") and any
bonus under the Company's Executive Incentive Plan ("Incentive
Compensation"). However, if you are entitled to severance under
this Agreement, you will also be entitled to receive any Policy
Severance in a lump sum at date of termination. Any severance
received under this Agreement shall be reduced by any Policy
Severance (but not Incentive Compensation) actually received by
you.
Without limiting your right to the life and health
insurance coverage set forth above, (i) you shall continue to
have the right to apply for and secure your entitlement to any
life insurance and health coverage you may become entitled to as
a terminated employee (e.g., "COBRA" insurance); and (ii) from
and after the occurrence of a Change in Control, the Company
shall provide to you Retiree Life Insurance until your death and
to you and your spouse (and eligible dependants) retiree medical
insurance benefits (provided you qualify therefor after taking
into consideration the effect of clauses (b) and (e) below)
under a plan that (a) guarantees coverage for you and your
spouse and eligible dependants until the later of your or your
spouse's death; (b) provides life insurance for you and medical
benefits which are at least as favorable to you and your spouse
as under the Company's salaried employee Retiree Medical
Insurance and Retiree Life Insurance Program as in effect on the
date of the first public announcement of the transaction that
resulted in the Change in Control including, without limitation,
covered medical benefits, lifetime maximum benefits, annual out-
of-pocket maximums, contributions, annual deductibles and
eligibility requirements; (c) may not thereafter be modified,
amended or terminated including, without limitation, by
decreasing covered medical benefits or lifetime maximum
benefits, or increasing annual out-of-pocket maximums,
contributions, annual deductibles or eligibility requirements;
(d) is not taxable as income (unless the Company fully
reimburses you on an after tax basis for all such taxes); and
(e) recognizes the thirty-month period in respect of which you
are receiving a severance payment under this agreement for
purposes of determining whether you qualify for such retiree
health and life insurance. It is not the intent of this
agreement to provide for any duplication of insurance coverage;
but any benefit contribution payment made by you in connection
with one coverage (e.g., Company provided Executive Medical)
shall be an offset against the same type of obligation under a
comparable plan in which you may be a participant (e.g., retiree
medical or COBRA medical insurance) for the same period of
coverage).
2. For purposes of this Agreement (i) a "Change in
Control" shall be deemed to have occurred upon the occurrence of
any of the following events:
(i) Any acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of shares of common
stock of the Company (the "Common Stock") and/or other voting
securities of the Company entitled to vote generally in the
election of directors ("Outstanding Company Voting Securities")
after which acquisition such individual, entity or group is the
beneficial owner of twenty percent (20%) or more of either (1)
the then outstanding shares of Common Stock or (2) the
Outstanding Company Voting Securities; excluding, however, the
following: (A) (1) any acquisition by the Company, (2) any
acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or (3) any acquisition by
any corporation pursuant to a reorganization, merger,
consolidation or similar corporate transaction (in each case, a
Corporate Transaction), if, pursuant to such Corporate
Transaction, the conditions described in clauses (1), (2) and
(3) of paragraph (iii) of this Section 2 are satisfied; or (B)
any transaction in which the Chairman and the Chief Executive
Officer and President of the Company (both as of the date of
this Agreement and subject to health related availability) (1)
retain their current positions with the Company immediately
after such transaction and (2) will immediately after such
transaction beneficially own an aggregate (for both such
executives), directly or indirectly (including, without
limitation, ownership by family members, trusts or foundations
for or controlled by family members), more than 5% of either the
(a) then outstanding shares of common stock of the Company
and/or (b) the other voting securities of the Company entitled
to vote generally in the election of directors (any transaction
under the clause (B) hereinafter referred to as a "Management
Event").
(ii) A change in the composition of the Board of Directors
of the Company (other than in connection with a Management
Event) such that the individuals who, as of the date hereof,
comprise a class of directors of the Board (the members of each
class of directors of the Board as of the date hereof shall be
hereinafter referred to as an "Incumbent Class" and the members
of all of the Incumbent Classes shall be hereinafter
collectively referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the class, provided,
however, for purposes of this subsection that any individual who
becomes a member of an Incumbent Class subsequent to the date
hereof whose election, or nomination for election by the
Company's stockholders, was approved in advance or
contemporaneously with such election by a vote of at least a
majority of those individuals who are members of the Incumbent
Board and a majority of those individuals who are members of
such Incumbent Class (or deemed to be such pursuant to this
proviso), shall be considered as though such individual were a
member of the Incumbent Class; but, provided further, that any
such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board of Directors of the Company or actual or
threatened tender offer for shares of the Company or similar
transaction or other contest for corporate control (other than a
tender offer by the Company) shall not be so considered as a
member of the Incumbent Class; or
(iii) The approval by the stockholders of the Company of a
Corporate Transaction or, if consummation of such Corporate
Transaction is subject, at the time of such approval by
stockholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or
implicitly); excluding, however, a Management Event or a
Corporate Transaction pursuant to which (1) all or substantially
all of the individuals and entities who are the beneficial
owners, respectively, of the outstanding shares of Common Stock
and Outstanding Company Voting Securities immediately prior to
such Corporate Transaction will beneficially own, directly or
indirectly, more than eighty percent (80%) of, respectively, the
outstanding shares of common stock of the corporation resulting
from such Corporate Transaction and the combined voting power of
the outstanding voting securities of such corporation entitled
to vote generally in the election of directors, (2) no Person
(other than the Company, and employee benefit plan (or related
trust) of the Company or the corporation resulting from such
Corporate Transaction and any Person beneficially owning,
immediately prior to such Corporate Transaction, directly or
indirectly, twenty percent (20%) or more of the outstanding
shares of Common Stock or Outstanding Company Voting Securities,
as the case may be) will beneficially own, directly or
indirectly, twenty percent (20%) or more of, respectively, the
outstanding shares of common stock of the corporation resulting
from such Corporate Transaction or the combined voting power of
the then outstanding securities of such corporation entitled to
vote generally in the election of directors and (3) individuals
who were members of the Incumbent Board will constitute at least
a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(iv) The approval of the stockholders of the Company of (1)
a complete liquidation or dissolution of the Company or (2) the
sale or other disposition of all or substantially all of the
assets of the Company; excluding, however, such a sale or other
disposition to a corporation (A) in connection with a Management
Event or (B) with respect to which following such sale or other
disposition, (1) more than eighty percent (80%) of,
respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors will be then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding shares of
Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition, (2) no
Person (other than the Company and any employee benefit plan (or
related trust) of the Company or such corporation and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, twenty (20%) or more of the
outstanding shares of Common Stock or Outstanding Company Voting
Securities, as the case may be) will beneficially own, directly
or indirectly, twenty percent (20%) or more of, respectively,
the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors and (3) individuals who were members of
the Incumbent Board will constitute at least a majority of the
members of the board of directors of such corporation.
3. For purposes of this Agreement, "Substantially
Comparable" employment shall mean employment which (a) has a
base salary which is equal to or higher than your Effective Base
Salary and a benefits package which, in total, is equivalent or
superior to your benefits package in effect prior to the Change
in Control; (b) is at the same or a higher Level of
Responsibility and Title; and (c) is at a location no more than
25 miles from (and located in the same State as) your then
current employment location. "Level of Responsibility and
Title" are set forth in Exhibit A hereto. In any dispute under
this Agreement concerning "Substantially Comparable" employment,
the Company shall have the burden of proving that your
employment was "Substantially Comparable".
4. (i) Immediately upon the occurrence of a Change in
Control, the Company shall: (A) establish (if not already in
existence) a grantor trust subject to the claims of the
Company's creditors (commonly referred to as a "Rabbi Trust");
and (B) contribute to the Rabbi Trust an amount sufficient to
provide for the severance benefits and payment of all other
benefits under Sections 1 and 10 of this Agreement. The amount
of payments made to you from the Rabbi Trust shall be determined
by the accounting firm (who, with respect to payments to you
under Section 10, shall rely on the calculations made by Tax
Counsel), engaged by the Company immediately prior to the Change
in Control and reviewed by outside legal counsel (which costs
shall be borne by the Company). Payments made to you under this
Agreement shall be made from such Rabbi Trust unless made
directly by the Company; provided however, that in the event the
funds contributed in the Rabbi Trust by the Company on your
behalf are insufficient to provide for benefits under this
Agreement, nothing in this Agreement shall limit the Company's
liability to you for payments hereunder. The Rabbi Trust shall
terminate and any remaining assets shall be returned to the
Company no sooner than July 1, 2005, unless you have provided
written notice of an unsatisfied claim to the trustee of the
Rabbi Trust, in which case the Rabbi Trust shall not terminate
until such claim is resolved pursuant to Section 9.
(ii) The Company agrees to use its best efforts to provide
the benefits under the Executive Medical Plan to you and your
eligible dependents in a manner that will not result in any
income inclusion under federal, state or local tax law. To the
extent any such income inclusion results to either you or your
eligible dependents, you and your eligible dependents (as the
case may be) shall receive an annual payment from the Company to
fully pay for the federal, state or local tax on such income
inclusion (a "Gross-up Payment") as well as any income inclusion
from the Gross-up Payment based on the highest marginal tax rate
on the payment, so that neither you or your eligible dependents
have any net tax liability as a result of participation in the
Executive Medical Plan. Such payments will be made by the
Company within 15 days of final determination by the Internal
Revenue Service (I.R.S.), state taxing authorities or Court of
Law that taxes are due or, if it is determined in advance of any
audit that the payments will be taxable, 30 days after the end
of the calendar year such payments are includible in income.
5. This Agreement shall not confer upon you any right to
continuance of employment with the Company or with any successor
or in any way interfere with the right of the Company or such
successor to terminate such employment.
6. This Agreement constitutes the entire agreement
between the parties and may not be changed or modified except by
an agreement in writing signed by you and the Company. The
effectiveness of this Agreement shall commence as of the date
hereof and shall terminate on July 1, 2001.
7. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
8. This Agreement shall inure to the benefit of, and be
binding upon, any successor in interest or assign of the Company
including, without limitation, purchaser of all or substantially
all of the assets of the Company and the surviving entity of any
merger or consolidation to which the Company is a party. This
Agreement cannot be assigned by you without prior written
consent of the Company.
9. a. Any dispute relating to this Agreement arising
between you or your spouse and the Company (or any successor or
assign) shall be settled by arbitration in accordance with the
commercial arbitration rules of the American Arbitration
Association ("AAA"). The arbitration proceedings, including the
rendering of an award, shall take place in Stamford, Connecticut
(or such other location mutually agreed upon by the Company and
you), and shall be administered by the AAA.
b. The arbitral tribunal shall be appointed within
30 days of the notice of dispute, and shall consist of three
arbitrators, one of which shall be appointed by the Company, one
by you, and the third by both you and the Company jointly;
provided, however, that, if you and the Company do not select
the third arbitrator within such 30-day period, such third
arbitrator shall be chosen by the AAA as soon as practicable
following notice to the AAA by the parties of their inability to
choose such third arbitrator.
c. Decisions of such arbitral tribunal shall be in
accordance with the laws of the State of Connecticut (excluding
the conflicts of law rules which require the application of any
other law). The award of any such arbitral tribunal shall be
final (except as otherwise provided by the laws of the State of
Connecticut and the Federal laws of the United States, to the
extent applicable). Judgment upon such award may be entered by
the prevailing party in any state of Federal court sitting in
Connecticut or any other court having jurisdiction thereof, or
application may be made by such prevailing party to any such
court for judicial acceptance of such award and an order of
enforcement.
d. The Company shall reimburse you for all costs,
including reasonable attorneys' fees, in connection with any
proceeding (whether or not in arbitration) to obtain or enforce
any right or benefit under this Agreement in which you are the
prevailing party.
e. Without intending to limit the remedies available
to you, the Company acknowledges that a breach of any of the
covenants contained in this Agreement may result in material
irreparable injury to you for which there is no adequate remedy
at law, that it will not be possible to measure damages for such
injuries precisely and that, in the event of such a breach or
threat thereof, you shall be entitled to obtain a temporary
restraining order and/or a preliminary or permanent injunction
requiring specific performance of the Company or such other
relief as may be required to specifically enforce any of the
provisions of this Agreement.
10. a. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company (including any made from
plans sponsored by the Company, through annuities, Rabbi Trusts
or otherwise), whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement (including
this Section 10), the Company's Executive Incentive Plan or
otherwise (any such payments or distributions being individually
referred to herein as a "Payment", and any two or more of such
payments or distributions being referred to herein as
"Payments"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended
("Code") (such excise tax, together with any interest thereon,
any penalties, additions to tax, or additional amounts with
respect to such excise tax, and any interest in respect of such
penalties, additions to tax or additional amounts, being
collectively referred herein to as the "Excise Tax"), then you
shall be entitled to receive and the Company shall make an
additional payment or payments (individually referred to herein
as a "Gross-Up Payment", and any two or more of such additional
payments being referred to herein as "Gross-Up Payments") in an
amount such that after payment by you of all Taxes (as defined
in Paragraph 10(e)) imposed upon all Gross-Up Payments, you
retain an amount of such Gross-Up Payments equal to the Excise
Tax imposed upon the Payments.
b. Subject to the provisions of Paragraph 10(c) and
(d), any determination required to be made under Paragraph 10(a)
including whether Gross-Up Payments are required and the amount
of such Gross-Up Payments, shall initially be made, at the
Company's expense, by nationally recognized tax counsel retained
to represent you by the Company, such counsel to be mutually
acceptable to the Company and you ("Tax Counsel"). Tax Counsel
shall provide detailed supporting legal authorities,
calculations and documentation both to the Company and you
within 15 business days after the termination of your
employment, if applicable, and such other time or times as is
reasonably requested by the Company or you. If Tax Counsel
makes the initial determination that no Excise Tax is payable by
you with respect to a Payment or Payments, it shall furnish you
with an opinion that no Excise Tax will be imposed with respect
to any such Payment or Payments. As a result of the uncertainty
in the application of Sections 4999 and 280G of the Code, it is
possible that Gross-Up Payments (or portions thereof) which will
not have been made by the Company should have been made, and if
upon any reasonable written request from you, the Company or Tax
Counsel, Tax Counsel thereafter determines that you are required
to make a payment of any Excise Tax or any additional Excise
Tax, as the case may be, Tax Counsel shall, at the Company's
expense, determine the amount of the underpayment that has
occurred and any such underpayment (together with any additional
Taxes resulting from the Payment or resulting from the
underpayment of Excise Tax) shall be promptly paid by the
Company to you.
(c) The Company shall defend (by the Tax Counsel or
by other nationally recognized tax counsel acceptable to you),
hold harmless and indemnify you on a fully grossed-up after Tax
basis from and against any and all Excise Tax, other Taxes,
claims, losses, liabilities, obligations, damages, impositions,
assessments, demands, judgments, settlements, fines, interest,
costs and expenses (including reasonable attorneys',
accountants', and experts' fees and expenses) (collectively,
"Costs") with respect to any claim made against you by the
Internal Revenue Service, any other governmental agency or any
other person or entity, for any Excise Tax.
(d) Pending the outcome of any such claim, the
Company shall advance to you on an interest-free basis, the
total amount of the Excise Tax or other Taxes claimed in order
for you to pay or cause to be paid the Excise Tax or other Taxes
claimed. You shall, at the Company's reasonable request and at
the Company's sole cost and expense, file a claim for refund of
such Excise Tax and/or other Taxes and sue for a refund of such
Taxes if such claim for refund is disallowed by the appropriate
taxing authority (it being understood and agreed by the parties
hereto that the Company shall only be entitled to sue for a
refund and the Company shall not be entitled to initiate any
proceeding in, for example, United States Tax Court) and shall
indemnify and hold you harmless, on a fully grossed-up after Tax
basis, from any Tax imposed with respect to such advance or with
respect to any imputed income with respect to such advance.
Within ten (10) days after the Company is notified of a claim
against you for Excise Tax, whether such notice is provided by
you or otherwise, the Company (i) shall notify you in writing (a
"Defense Notice") that the Company is defending and indemnifying
you for such claim pursuant to Paragraph 10(c), and thereafter
(ii) shall control the defense or prosecution, at its sole cost,
expense and risk, of such claim by all appropriate proceedings,
which proceedings shall be defended or prosecuted diligently by
the Company to a final determination; provided, however, that
(i) the Company shall not, without your prior written consent,
enter into any compromise or settlement of such claim that would
adversely affect you, (ii) any request from the Company to you
regarding any extension of the statute of limitations relating
to assessment, payment or collection of taxes for your taxable
year with respect to which the contested issues involved in, and
amount of, the claim relate is limited solely to such contested
issues and amount, and (iii) the Company's control of any
contest or proceeding shall be limited to issues with respect to
the claim and you shall be entitled to settle or contest, in
your sole and absolute discretion, any other issue raised by the
Internal Revenue Service or any other taxing authority. So long
as the Company is diligently defending or prosecuting such
claim, you shall provide or cause to be provided to the Company
any information reasonably requested by the Company that relates
to such claim, and shall otherwise cooperate (at the Company's
sole cost and expense) with the Company and its representatives
in good faith in order to contest effectively such claim. The
Company shall keep you informed of all developments and events
relating to any such claim (including, without limitation,
providing to you copies of all written materials pertaining to
any such claim), and you or your authorized representatives
shall be entitled, at your expense, to participate in all
conferences, meetings and proceedings relating to any such
claim. If the Company fails to (i) timely deliver a Defense
Notice or (ii) thereafter perform the obligations under
Paragraph 10(c) to your reasonable satisfaction, then you shall
at any time thereafter have the right (but not the obligation),
at your election and in your sole and absolute discretion, to
defend or prosecute, at the sole cost, expense and risk of the
Company, such claim. You shall have full control of such
defense or prosecution and such proceedings, including any
settlement or compromise thereof. If requested by you, the
Company shall cooperate, and shall cause its affiliates to
cooperate, in good faith with you and your authorized
representatives in order to contest effectively such claim. The
Company may attend, but not participate in or control, any
defense, prosecution, settlement or compromise of any claim
controlled by you pursuant to this Paragraph 10(d) and shall
bear its own costs and expenses with respect thereto. In the
case of any claim that is defended or prosecuted by you, you
shall, from time to time, be entitled to current payment, on a
fully grossed-up after Tax basis, from the Company with respect
to Costs incurred by you in connection with, or arising out of,
such defense or prosecution.
(e) For purposes of this Section 10, the terms "Tax"
and "Taxes" mean any and all federal, state and local taxes of
any kind whatsoever (including, but not limited to, any and all
Excise Tax, income taxes, FICA taxes and employment taxes),
together with any interest thereon, any penalties, additions to
tax, or additional amounts with respect to such taxes and any
interest in respect of such penalties, additions to tax, or
additional amounts.
11. The Company has purchased, on your behalf, and shall
maintain an insurance policy to cover any litigation costs of
you or your spouse associated with the enforcement of this
Agreement against the Company (or defense against claims made
under this Agreement by the Company) in an amount of $100,000.
The Company shall fully reimburse you for the federal, state and
local income and employment-related taxes incurred by you in
connection with the purchase and maintenance of such policy (the
"Reimbursement") and any federal, state or local taxes on the
Reimbursement, based on the highest marginal tax rate in effect,
so that you have no federal, state or local tax liability as a
result of this Section.
12. All notices, communications, etc., shall be sent to:
(a) Corporate Secretary
Lone Star Industries, Inc.
300 First Stamford Place
Stamford, CT 06912
(b)
13. This Agreement replaces and supersedes the Agreement
between the Company and you, dated February 1, 1996.
Very truly yours,
LONE STAR INDUSTRIES, INC.
By:_________________________
Read and Agreed to:
Mr. ____________
As of May 1, 1998
Page 5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Lone Star
Industries' consolidated statements of operations and consolidated balance
sheets and is qualified in its entirety by reference to such financial
statments.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,302
<SECURITIES> 142,029
<RECEIVABLES> 44,549
<ALLOWANCES> 3,672
<INVENTORY> 48,346
<CURRENT-ASSETS> 243,861
<PP&E> 398,636
<DEPRECIATION> 79,325
<TOTAL-ASSETS> 623,575
<CURRENT-LIABILITIES> 62,862
<BONDS> 50,000
0
0
<COMMON> 12,096
<OTHER-SE> 347,417
<TOTAL-LIABILITY-AND-EQUITY> 623,575
<SALES> 155,496
<TOTAL-REVENUES> 164,255
<CGS> 94,998
<TOTAL-COSTS> 118,615
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,152
<INCOME-PRETAX> 44,488
<INCOME-TAX> 15,015
<INCOME-CONTINUING> 29,473
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,473
<EPS-PRIMARY> 2.75
<EPS-DILUTED> 2.15
</TABLE>
