<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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: 1-4753
PUERTO RICAN CEMENT COMPANY, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
COMMONWEALTH OF PUERTO RICO 51-A-66-0189525
- - --------------------------- ---------------
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer ID No.)
PO Box 364487 - San Juan, P.R. 00936-4487
- - ------------------------------ ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (787) 783-3000
--------------
NOT APPLICABLE
--------------
Former name, former address and former fiscal year, if changed
since last report.
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common stock, $1 Par Value; 5,379,074 Shares Outstanding
--------------------------------------------------------
<PAGE> 2
PUERTO RICAN CEMENT COMPANY, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheet as of June 30, 1998 and
December 31, 1997.......................................................... 1 - 2
Consolidated Statement of Income for the three-month and
six-month periods ended on June 30, 1998 and 1997.......................... 3
Consolidated Statement of Comprehensive Income for the six-
month periods ended on June 30, 1998 and 1997.............................. 4
Consolidated Statement of Cash Flows for the six-month
periods ended on June 30, 1998 and 1997.................................... 5
Consolidated Statement of Changes in Stockholders' Equity for
the six-month periods ended on June 30, 1998 and 1997...................... 6
Notes to Consolidated Financial Statements................................. 7 - 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 9 - 11
Part II - Other Information 12 - 14
Signatures 15
</TABLE>
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Puerto Rican Cement Company, Inc.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
June December
30, 1998 31, 1997
---------- ----------
(In thousands)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 1,958 $ 2,996
---------- ----------
Investments available-for-sale 5,580
----------
Short-term investments 4,406 6,967
---------- ----------
Notes and accounts receivable - net of allowance
for doubtful accounts of $1,465 in 1998 and
$1,452 in 1997 31,177 28,764
---------- ----------
Inventories:
Finished products 1,669 1,891
Work in process 8,208 2,973
Raw materials 3,954 3,939
Maintenance and operating supplies 22,594 23,580
Land held for sale, including development costs 503 503
---------- ----------
Total inventories 36,928 32,886
---------- ----------
Prepaid expenses 5,808 4,533
---------- ----------
Total current assets 80,277 81,726
Property, plant and equipment - net of accumulated
depreciation and depletion of $80,485 in 1998
and $73,999 in 1997 161,830 158,611
Long-term investments 45,919 46,367
Other assets 4,920 4,347
---------- ----------
Total $ 292,946 $ 291,051
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
Puerto Rican Cement Company, Inc.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
June December
30, 1998 31, 1997
----------- -----------
(In thousands)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Notes payable $ 1,264 $ 669
Current portion of long-term debt 1,005 1,110
Accounts payable 8,740 7,879
Accrued liabilities 8,605 7,075
Income taxes payable 1,824 2,191
----------- -----------
Total current liabilities 21,438 18,924
----------- -----------
Long-term liabilities
Long-term debt, less current portion 75,761 76,180
Deferred income taxes 34,839 35,860
Other long-term liabilities, including
postretirement benefits 3,052 3,023
----------- -----------
Total long-term liabilities 113,652 115,063
----------- -----------
Total liabilities 135,090 133,987
----------- -----------
Stockholders' equity
Preferred stock, authorized 2,000,000
shares of $5.00 par value each; none issued
Common stock, authorized 20,000,000
shares of $1.00 par value each; issued
6,000,000 shares, outstanding 5,379,074 shares
as of June 30, 1998 and 5,452,074 shares as
of December 31, 1997 6,000 6,000
Additional paid-in capital 14,703 14,703
Accumulated other comprehensive income 568
Retained earnings 153,768 148,878
----------- -----------
174,471 170,149
Less: Shares of common stock in treasury, at cost
(620,926 shares as of June 30, 1998 and
547,926 shares as of December 31, 1997) 16,615 13,085
----------- -----------
Stockholders' equity - net 157,856 157,064
----------- -----------
Total $ 292,946 $ 291,051
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
Puerto Rican Cement Company, Inc.
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 39,334 $ 43,404 $ 75,793 $ 80,592
Revenue from real estate operations 25 25 50 49
---------- ---------- ----------- -----------
39,359 43,429 75,843 80,641
Cost of sales 27,225 29,654 54,902 56,217
---------- ----------- ----------- -----------
Gross margin 12,134 13,775 20,941 24,424
Selling, general and administrative expenses 6,272 5,252 11,794 10,026
---------- ---------- ----------- -----------
Income from operations 5,862 8,523 9,147 14,398
---------- ---------- ----------- -----------
Other charges (credits):
Interest and financial charges 1,367 1,384 2,368 2,707
Interest income (793) (819) (1,660) (1,660)
Other expense (income) 283 11 (446) 115
---------- ---------- ----------- -----------
Total other charges (credits) 857 576 262 1,162
---------- ---------- ----------- -----------
Income before income tax 5,005 7,947 8,885 13,236
Provision for income tax 1,385 2,801 1,950 4,147
---------- ---------- ----------- -----------
Net income $ 3,620 $ 5,146 $ 6,935 $ 9,089
========== ========== =========== ===========
Income per share:
Net income $ 0.67 $ 0.93 $ 1.28 $ 1.64
========== ========== ========== ============
Average Common Shares Outstanding 5,405,907 5,527,074 5,405,907 5,527,074
========== ========== ========== ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
Puerto Rican Cement Company, Inc.
Consolidated Statement of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1998 1997
(In Thousands)
<S> <C> <C>
Net income $ 6,935 $ 9,089
-------- --------
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding gain (loss)
arising during the period 147 (7)
Less: reclassification adjustment for
(gain) loss included in net income (903) -
--------- --------
Other comprehensive income before tax (756) (7)
Income tax expense related to items of other
comprehensive income 188 2
--------- --------
Other comprehensive income, net of tax (568) (5)
--------- --------
Comprehensive income $ 6,367 $ 9,084
========= ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 7
Puerto Rican Cement Company, Inc.
Consolidated Statement of Cash Flows - Unaudited
<TABLE>
<CAPTION>
For the six months ended
June June
30, 1998 30, 1997
-------- --------
(In thousands)
<S> <C>
Cash flows from operating activities:
Net income $ 6,935 $ 9,089
-------- --------
Adjustments to reconcile net income to
cash flows from operating activities:
Depreciation and depletion 6,587 6,034
Accretion of discount on investments (1,336) (1,261)
Provision for deferred income taxes (1,164) 2,052
Postretirement benefits cost 29 38
Gain on sale of investments available-for-sale (891) -
Loss (gain) on sale or disposition of fixed assets 17 (2)
Changes in assets and liabilities:
Increase in notes and accounts receivable (2,414) (6,647)
Increase in inventories (4,042) (320)
Increase in prepaid expenses (1,274) (1,588)
Increase in other long-term assets (600) (266)
Increase (decrease) in accounts payable 862 (729)
Increase in accrued liabilities 1,530 2,665
Decrease in income taxes payable (39) (493)
-------- --------
Total adjustments (2,735) (517)
-------- --------
Cash provided by operations 4,200 8,572
-------- --------
Cash flows from investing activities:
Capital expenditures (10,281) (10,968)
Redemption of long-term investments 3,373 1,512
Proceeds from sale of investments available-for-sale 6,690 -
Purchase of investments - (1,108)
Proceeds from sale of fixed assets 485 58
-------- --------
Cash provided by (used in) investing activities 267 (10,506)
-------- --------
Cash flows from financing activities:
Purchase of treasury stock (3,530) -
Repayment of long-term debt (525) (58,448)
Dividends paid (2,045) (2,100)
Proceeds from loans - 50,000
Increase in notes payable 595 -
-------- --------
Cash used in financing activities (5,505) (10,548)
-------- --------
Decrease in cash and cash equivalents $ (1,038) $(12,482)
======== ========
Cash and cash equivalents - beginning of year $ 2,996 $ 14,809
Cash and cash equivalents - end of period 1,958 2,327
-------- --------
Decrease in cash and cash equivalents $ (1,038) $(12,482)
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 8
Puerto Rican Cement Company, Inc.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1998 1997
(In Thousands)
<S> <C> <C>
Preferred stock:
Balance at beginning and end of period $ - $ -
----------- ----------
Common stock:
Balance at beginning and end of period 6,000 6,000
----------- ----------
Additional paid-in-capital:
Balance at beginning and end of period 14,703 14,703
----------- ----------
Accumulated other comprehensive income:
Balance at beginning of period 568 110
Other comprehensive income (568) (5)
----------- ----------
Balance at end of period - 105
----------- ----------
Retained earnings:
Balance at beginning of period 148,878 137,047
Net income 6,935 9,089
Cash dividends declared (2,045) (2,100)
----------- ----------
Balance at end of period 153,768 144,036
----------- ----------
Shares of common stock in treasury - at cost:
Balance at beginning of period (13,085) (10,439)
Treasury stock acquired (3,530) -
----------- ----------
Balance at end of period (16,615) (10,439)
----------- ----------
Total stockholders' equity $ 157,856 $ 154,405
=========== ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 9
PUERTO RICAN CEMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of Puerto Rican Cement Company, Inc. (the "Company" or
"Registrant"), the accompanying unaudited financial statements contain all
adjustments necessary to present fairly its financial position as of June 30,
1998 and December 31, 1997; the results of operations for the three-month and
six-month periods ended June 30, 1998 and 1997; and the comprehensive income,
cash flows, and changes in stockholders' equity for the six-month periods ended
June 30, 1998 and 1997. The results of operations are not necessarily
indicative of the results to be expected for the full year.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income." This statement
establishes standards for the reporting and displaying of comprehensive income
and its components in general-purpose financial statements. Comprehensive income
is intended to show all changes in the equity of a business enterprise during a
period from transactions and other events or circumstances, except those
resulting from investments by or distributions to owners. Certain
reclassifications have been made to the Company's 1997 financial statements to
conform these statements to the 1998 presentation.
Effective July 1, 1998, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (the "Statement"). SFAS No.
133 was issued on June 1998, and requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as hedge. The accounting for
changes in the fair value of a derivative (that is, gains and losses) depends on
the intended use of the derivative and the resulting designation.
The Statement is effective for all fiscal years beginning after June
15, 1999. Initial application of this Statement should be as of the beginning of
an entity's fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provision of this Statement.
Further, the Statement permits, at the time of its implementation, the
reclassification of securities currently classified as held-to-maturity, without
calling into question their original intent. Earlier application of all of the
provisions of this Statement is permitted only as of the beginning of any fiscal
quarter that begins after the issuance of this Statement.
The Company is not currently engaged in activities with derivatives.
Therefore, Management believes that the impact of the adoption of this
Statement is not significant.
Investments, including short-term, available-for-sale, and long-term
investments, decreased by $8.6 million to $50.3 million as of June 30, 1998
from $58.9 million as of December 31, 1997. This decrease resulted mainly from
the redemption of $3.4 million in short-term investments and the sale of $5.8
million in available-for-sale investments, net of $1.3 million of accretion in
value of the Company's investment in zero-coupon notes.
7
<PAGE> 10
PUERTO RICAN CEMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Notes and accounts receivable increased by $2.4 million to $31.2
million as of June 30, 1998 from $28.8 million as of December 31, 1997. The
increase resulted from a change in the customer mix in cement sales during 1998
favoring bulk cement clients which typically receive better credit terms.
Consolidated inventories increased by $4.0 million to $36.9 million as
of June 30, 1998 from $32.9 million as of December 31, 1997. The increase
resulted mainly from the remaining build up of work in process inventory,
specifically clinker, established to prevent a supply shortage during the
production interruption period related to the plant upgrade project performed
during the first quarter of 1998.
Property, plant and equipment increased by $3.2 million to $161.8
million as of June 30, 1998 from $158.6 million as of December 31, 1997. This
increase resulted from capital expenditures of $10.3 million net of
depreciation and amortization of $6.6 million.
Total current liabilities increased by $2.5 million to $21.4 million as
of June 30, 1998 from $18.9 million as of December 31, 1997. The increase was
mainly due to an increase in the accounts payable trade of the Company's
ready-mixed concrete subsidiary.
On June 23, 1998, the Registrant repurchased 5,000 shares of its
outstanding common stock for $242,000. This transaction is part of a 300,000
shares repurchase program approved by the Company's Board of Directors at its
February 1998 meeting.
At its June 24, 1998 meeting, the Board of Directors of the Registrant
declared a 19 cents per share dividend on its common stock, payable on August
10, 1998 to stockholders of record on July 13, 1998. As of June 30, 1998, the
Registrant had 5,379,074 shares of common stock issued and outstanding.
As of June 30, 1998, $51.4 million, or 17.5% of the Company's total
consolidated assets, were attributable to its ready-mixed concrete subsidiary,
Ready Mix Concrete, Inc. ("RMC").
8
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Working capital as of June 30, 1998, decreased by $4.0 million to
$58.8 million from $62.8 million as of December 31, 1997. The current ratio
decreased to 3.74 to 1 as of June 30, 1998, from 4.32 to 1 as of December 31,
1997. The decrease in both items was due mainly to the decrease in current
assets resulting from the redemption of short-term investments and the sale of
investments available-for-sale, coupled with an increase in current liabilities
resulting from higher accounts payable.
Capital expenditures incurred during the six-month period ended June
30, 1998, totaled $10.3 million. Depreciation and depletion expense for the
same period totaled $6.6 million.
As of June 30, 1998, the approximate aggregate maturities of long-term
debt for the remainder of 1998 and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 605
1999 1,005
2000 1,005
2001 2,151
2002 and thereafter 72,000
---------
Total $ 76,766
=========
</TABLE>
Loan agreements with term lenders impose certain restrictions on the
Company concerning working capital, indebtedness, dividends, investments and
certain advances, among other restrictions. As of June 30, 1998, the Company
was in compliance with the provisions of the loan agreements.
On May 1, 1998, the Company entered into a non-interest bearing,
short-term financing agreement of $1,210,000 as part of the purchase of income
tax credits. The full amount is payable on October 30, 1998.
The Company has available credit facilities in the aggregate amount of
$20,600,000 with commercial banks for short-term financing and discount of
trade paper from customers. No amount was outstanding under these facilities as
of June 30, 1998. The maximum aggregate short-term borrowing outstanding at any
month-end during the six-month period ended June 30, 1998 was $3,335,000
bearing interest at rates ranging from 6.06% to 6.28%. These short-term
facilities are renewable annually at the discretion of the banks, which at this
time do not require any commitment fees.
9
<PAGE> 12
Results of Operations
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
The Registrant realized second quarter net income of $3,620,000, or
$0.67 per share, compared with $5,146,000, or $0.93 per share, for the same
period last year, representing a decrease of 28.0%, or $0.26, per share.
Consolidated net sales for the second quarter of 1998 decreased by 9.4%
to $39.3 million compared with $43.4 million in the same period of 1997. Total
cement sales decreased due to a reduction in the units sold of 11.1% to 271,000
tons in the second quarter of 1998 from 305,000 tons for the same period of
1997, coupled with a slight decrease in the average selling price per unit.
Sales of cement decreased due to unusually bad weather during the second quarter
of 1998. The decrease in average selling price was due to an increase in the
proportion of bulk cement sales relative to bagged cement sales. The price of
bulk cement is lower than the price of bagged cement. Sales by RMC decreased by
$2.0 million, or 9%, during the second quarter of 1998 compared with sales
during the same period of 1997 also due to the unusually bad weather which
caused delays on the island's construction projects. Lime sales for the second
quarter of 1998 increased 36% compared to lime sales during the same period of
1997 due to the export sales which had been interrupted through April 1997
because of a strike at a major customer. The paper and bag division sales for
the second quarter of 1998 remained flat compared to the sales for the same
quarter of 1997.
Consolidated cost of sales for the second quarter of 1998 decreased by
$2.4 million, or 8.2%, to $27.2 million from $29.6 million for the comparable
period of 1997. This decrease was mostly attributable to lower sales in our
cement and ready-mixed concrete operations as mentioned above. The decrease in
cost of sales was not proportionate to the reduction in sales because of an
increase in the cement's cost of production. Such increase resulted from a
33-day interruption in clinker production during the months of January and
February, when the Company performed substantial work on its kiln as part of a
plant upgrade project. The Company purchased higher-cost clinker to continue
the production of cement during the interruption period.
Gross margins decreased to 30.8% during the second quarter of 1998
compared with gross margins of 31.7% during the same period of 1997. Profit
margins were affected by the higher costs described in the preceding paragraph.
Selling, general and administrative expenses for the second quarter of
1998 increased by $1 million, or 19.4%, to $6.3 million from $5.3 million for
the comparable period of 1997. This increase was principally attributable to
normal inflationary growth and higher professional fees for legal services
associated mainly with ongoing legal proceedings against local Government
agencies in the federal and local courts. These expenses are expected to
continue to impact operations throughout the remainder of the year. The
Company's new projects are not yet contributing to consolidated operations.
Interest and financial charges remained constant at $1.4 million for
the second quarter of 1998 compared with the same period of 1997. The
additional interest charges associated with the $20 million, Series B Senior
Secured Notes issued in July 1997 were offset by the capitalization of other
interest charges as part of the cost of the plant upgrade project.
10
<PAGE> 13
Other expenses of $283,000 during the second quarter of 1998 respond
to the write-off of obsolete spare parts inventory.
The provision for income taxes as a proportion of income for the
second quarter of 1998 decreased to 27.7% from 35.2% for the same period of
1997. This decrease resulted from the Company's acquisition at a discount of
tax credits derived from investments in governmental incentive programs, and a
proportionately higher tax-free income for the period.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
Consolidated net sales for the six-month period ended June 30, 1998
decreased by approximately $4.8 million to $75.8 million compared with $80.6
million for the same period of 1997. Cement sales during the six-month period
ended June 30, 1998 decreased by 30,000 tons, or 5.4%, and ready mixed concrete
sales decreased by 33,000 cubic yards, or 5.7%. This was mostly the result of
unusually bad weather during the second quarter of 1998 as explained above. Lime
sales for the six-month period ended June 30, 1998 increased by 35% as compared
with sales during the same period of 1997 due to higher export sales during this
period, slightly offset by a slowdown in the local markets. Sales in the
Company's paper and bag division for the six-month period ended June 30, 1998
decreased less than 1% as compared with sales during the same period of 1997.
Gross margins over the six-month period ended June 30, 1998 were
reported at 27.6% as compared with 30.3% in the same period of 1997. The
decrease in gross margins resulted from higher costs as described in the
results of the second quarter in the preceding section.
Consolidated selling, general and administrative expenses during the
six-month period ended June 30, 1998 increased 17.6%, to $11.8 million from
$10.0 million over the comparable period of 1997. This increase was principally
attributable to normal inflationary growth and higher professional fees for
legal services associated mainly with ongoing legal proceedings against local
Government agencies in the federal and local courts. These expenses are
expected to continue to impact operations throughout the remainder of the year.
The Company's new projects are not yet contributing to consolidated operations.
Interest and financial charges during the six-month period ended June
30, 1998 decreased by $300,000 to $2.4 million compared with $2.7 million for
the same period of 1997. This decrease resulted mainly from interest charges
capitalized as part of the plant upgrade project, partially offset by
additional interest charges on the $20 million Series B Senior Secured Notes
issued in July 1997.
Other (income) expense during the six month period ended June 30, 1998
changed by $560,000 to $450,000 in income from $110,000 in expense during the
same period of 1997. The main reason for this change was the realization of
$900,000 on the sale of investments available-for-sale, net of the write-off of
obsolete spare parts inventory.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
As reported in the Company's 1997 Annual Report, the Company and RMC
are involved in several legal proceedings. Recent developments with respect to
these proceedings are described below.
On June 27, 1997, the Company filed a lawsuit against the Puerto Rico
Department of Consumer Affairs (the "Department") in response to the
Department's investigation of the Company's labeling of bags of cement during
1995 through 1997. The Department had asserted that the Registrant's bags should
have been labeled with a disclosure that the cement could not be used in public
works. Management believes that the Department's basis for this unreasonable
request was the fact that the cement was manufactured utilizing some imported
clinker. The lawsuit was based on the Company's belief that the Department did
not have legal jurisdiction with respect to this matter or, even if it did have
jurisdiction, that the Registrant has not violated any Department rule. On
August 18, 1997, it was determined that the Department had the authority to
conduct the investigations. Administrative hearings were held on January 8, 14
and 29, and March 13, 1998 by an independent administrative judge appointed by
the Department. On March 16, 1998, the administrative judge issued a decision in
the case, holding that the Company did not violate any Department rule. On April
16, 1998, the Department appealed the decision of the administrative judge. On
June 29, 1998, the Court of Appeals upheld the administrative judge's decision
and ordered the dismissal of the case. On August 4, 1998, the Department
appealed this decision before the Puerto Rico Supreme Court.
On July 8, 1997, The Puerto Rico Planing Board (the "Planning Board")
issued a temporary cease and desist order against the Company's housing project
at Vega Alta, asserting that the Company did not have the permits needed to
extract and process sand and gravel from the site. The Company had previously
received permits to build a housing project there, including a "temporary
aggregate permit" which the Company believes was properly obtained and is
sufficient to conduct the planned operations. The Planning Board held public
hearings on the dispute on August 25, and September 23 and 24, 1997. The
Planning Board upheld their cease and desist order upon termination of those
hearings.
On August 22, 1997, the Company filed an appeal before the Court of
Appeals seeking to overturn the action of the Planning Board, but the Court
ruled that the Planning Board's action was a temporary suspension not currently
subject to court review. On September 25, 1997, the Company appealed this
decision to the Puerto Rico Supreme Court. On June 30, 1998, the Supreme Court
announced the Court was evenly divided. As a result, the decision of the Court
of Appeals that the Company's appeal of the Planning Board's actions was not
currently subject to court review was affirmed. On July 17, 1998 the Company
requested a motion for rehearing by the Supreme Court.
Management believes, based on the advice of its legal counsel, that
the outcome of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
12
<PAGE> 15
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held at the executive
offices of the Company, at Guaynabo, Puerto Rico, on May 6,
1998.
(c) The election of Class II Directors was submitted to a vote
at that meeting. The result of the votes taken at such
meeting for the election of Class II directors is as follows:
<TABLE>
<CAPTION>
Number of
Number of Shares Withheld
Shares Voted from Voting
Name of Nominee for Nominee for Nominee
--------------- ------------ ---------------
<S> <C> <C>
Rosario J. Ferre 5,166,856 3,152
Esteban D. Bird 5,164,656 5,352
Federico F. Sanchez 5,165,856 4,152
Jorge L. Fuentes 5,165,656 4,352
Juan A. Albors 5,165,656 4,352
</TABLE>
ITEM 5 - OTHER INFORMATION
On June 23, 1998, the Registrant repurchased 5,000 shares of its
outstanding common stock for $242,000. This transaction is part of a 300,000
shares repurchase program approved by the Company's Board of Directors at their
February 1998 meeting.
On the July 1998 Board meeting, the Company entered into ten-year
agreements with 25 of the Company's executives, including Messrs. Antonio Luis
Ferre, Miguel A. Nazario, Antonio Luis Ferre Rangel, Jose O. Torres, and Rene Di
Cristina, among others. For 17 of these executives, these contracts are an
extension of a similar contract granted on July 7, 1988 or at a later date, that
became due in July 1998. Eight of these contracts were granted to other
executives for the first time with terms similar to those of the contracts
previously extended.
The contracts, among other things, grant an amount equal to
two-and-a-half times the compensation based on salary plus bonus during the
preceding three-year period, in the event of a takeover or change in control of
ownership of the Company, and any of these executives is laid-off or forced to
resign. A form of each of these contracts is included as Exhibits 10.1 and 10.2
to this Report.
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Certain statements contained in this document, including in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, that are not historical facts, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results or performance
of the Company and its businesses to be materially different from that expressed
or implied by such forward-looking statements. Such factors include, among
others, the following: general economic and business conditions; political and
social conditions; government regulations and compliance therewith; demographic
changes; sales mix; pricing levels; changes in sales to, or the identity of,
significant customers; changes in technology, including the technology of cement
production; capacity constraints; availability of raw materials and adequate
labor; availability of liquidity sufficient to meet the Company's needs; the
ability to adapt to changes resulting from acquisitions; and various other
factors referenced in this Management's and Discussion Analysis. The Company
could be particularly affected by weather in Puerto Rico, changes in the Puerto
Rico economy, and changes in the Government of Puerto Rico or the manner in
which it regulates the Company.
The Company assumes no obligation to update forward-looking statements
to reflect actual results or changes in or additions to the factors affecting
such forward-looking statements.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
10. Material Contracts
10.1 Form of Amended and Restated Severance Compensation
Agreement executed by the Company on June 15, 1998 with 17
of the Company's key executives.
10.2 Form of Severance Compensation Agreement executed by the
Company on June 15, 1998 with eight of the Company's key
executives.
27. Financial Data Schedule (for SEC use only).
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUERTO RICAN CEMENT COMPANY, INC.
Registrant
By: /S/ Angel Amaral
----------------------------------
Angel Amaral
Vice President and Controller
By: /S/ Jose O. Torres
----------------------------------
Jose O. Torres
Vice President of Finance
and Treasurer
Date: 8/13/98
15
<PAGE> 1
AGREEMENT
AMENDMENT AND RESTATEMENT dated as of June 15, 1998, of an Agreement
dated as of (original Agreement date) , between PUERTO RICAN CEMENT COMPANY,
INC. (the "Company"), and ________________ (the "Executive") (as amended and
restated, the "Agreement"). (The term "Company" shall include Ready Mix
Concrete, Inc. ("Ready Mix"), a wholly owned subsidiary of Puerto Rican Cement
Company, Inc., if the Executive is employed principally by Ready Mix).
This Agreement sets forth the severance compensation that the Company
agrees to pay to the Executive if the Executive's employment with the Company
terminates on or after June 15, 1998, under any of the circumstances described
herein following a Change in Control (as defined herein).
WITNESSETH
WHEREAS, the Executive has made an is expected to make a major
contribution to the profitability, growth and financial strength of the
Company;
WHEREAS, the Company considers the continued services of the Executive
to be in the best interests of the Company and its shareholders and desires to
encourage the continued services of the Executive without distraction or
concern over any possible change in the control of the Company; and
WHEREAS, the Executive is willing to remain in the employ of the
Company upon the understanding that the Company will provide him with severance
compensation, as herein set forth, if his employment terminates on or after
June 15, 1998, under one of the circumstances described herein following a
Change of Control (as defined herein):
NOW, THEREFORE, in consideration of the premises, and other good and
valuable
1
<PAGE> 2
consideration receipt of which is acknowledged, the parties agree as follows:
(a) If a Change in Control shall have occurred while the Executive is
still an employee of the Company, the Executive shall be entitled
to the compensation and benefits provided in this Agreement upon
the termination, after such Change of Control, of the Executive's
employment with the Company by the Executive or by the Company in
the following circumstances:
the Executive's resignation for Good Reason
(as defined in section 1(d)) at any time during the
term of this Agreement; or
the termination by the Company of the
Executive's employment at any time during the term
of this agreement, other than for Cause (as defined
in section 1(e)).
The date of the termination of the Executive's employment
shall be the effective date of such termination as specified in any resignation
tendered by the executive to the Company or in any notice of termination given
by the Company to the Executive. No compensation shall be payable under this
Agreement unless and until (i) there shall have been Change in Control while
the Executive is still an employee of the Company and (ii) the executive's
employment by the Company thereafter shall have terminated in any of the
circumstances described in section 1(a).
For purposes of this Agreement, a "Change in Control" shall
be deemed to have occurred if (i) there shall be consummated (A) any
consolidation or merger of the Company with or into any other corporation, in
which the Company is not the continuing or surviving corporation or pursuant to
which shares of the Company's common stock would be converted into cash,
securities or other property, other than a merger of the Company in which the
holders of the Company's common stock immediately prior to the merger have the
same proportionate ownership of common stock of the surviving corporation
2
<PAGE> 3
immediately after the consolidation or merger or (B) any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Company, provided that there
shall be excluded any merger, consolidation or sale of assets in which the
surviving corporation or the purchaser is an entity controlled in its majority
by the present principal stockholders and their affiliates; (ii) the Company's
stockholders have approved any plan or proposal for the liquidation or
dissolution of the Company; (iii) any person (as such term is used in sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than the present principal stockholders and their
affiliates, becomes the beneficial owner, within the meaning of rule 13d-3
under the Exchange Act, of 20% or more of the Company's outstanding common
stock; or (iv) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Company's entire board of directors
cease for any reason to constitute a majority thereof unless the election, or
the nomination for election by the Company's stockholders, of each new director
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period.
For purposes of this Agreement, "Good Reason" shall mean the
occurrence (without the Executive's express written consent) of any of the
following after a Change in Control has occurred:
any material reduction or adverse change in the
duties, position, authority or reporting responsibility of
the Executive from that in effect immediately prior to a
Change in Control;
a reduction by the Company in the executive's
aggregate compensation;
(iii) the Executive's relocation to any office
other than the principal
3
<PAGE> 4
executive office of the Company or the office at which the
Executive was located prior to a Change in Control, or any
material increase in the travel obligations imposed on the
Executive from those in effect prior to a Change in Control;
(iv) a reduction in the number of annual paid
vacation days to which the Executive was entitled prior to a
Change in Control;
any failure by the Company to continue to
provide the Executive with benefits substantially
equivalent to those in effect prior to a Change in
Control under the Company's pension and welfare
plans or any of the perquisites associated with his
position in effect or being provided prior to a
Change of Control (other than a reduction in
benefits or perquisites effected for all executives
ratably);
any failure of the Company to obtain from
any successor an assumption of the Company's
obligations to the Executive under this Agreement;
or
any purported termination by the Company
of the Executive's employment other than a
termination for Cause.
For purposes of this Agreement, "Cause" for termination of
the Executive's employment means, and is limited to, (i) the Executive's gross
willful misconduct which is demonstrably and substantially injurious to the
Company or (ii) the commission of a felony or misdemeanor which impairs the
Executive's ability substantially to perform his duties to the Company. Acts or
omissions by the executive in good faith and with a reasonable belief that such
actions or omissions are in the best interests of the Company shall not
constitute gross willful misconduct, unless such acts or omissions continue
after notice from the Company to desist therefrom. The Executive's employment
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the Company's board of directors at a meeting called and held for that
purpose (after reasonable notice to the Executive and an opportunity for the
Executive, together with the Executive's counsel, to be heard before the
4
<PAGE> 5
board of directors), finding that in the good faith opinion of the board of
directors, Cause, as herein defined, exists for such termination and specifying
the basis for such finding.
2. (a) If the Executive shall be entitled to compensation
pursuant to section 1 of this Agreement, then the Company shall pay to the
Executive as severance pay an amount equal to the sum of (i) two and one-half
times his annual base salary as of the time of the Change in Control or as of
the date of termination, whichever is greater; (ii) two and one-half times the
average of the Executive's annual bonus awards with respect to the three years
immediately preceding the Change in Control; and (iii) an amount sufficient to
permit the Executive to rent and operate for a 24-month period an automobile
comparable to the one provided by the Company at the time of termination;
provided, however, that if such amount either alone or together with other
payments that the Executive has the right to receive from the Company provided
for in this Agreement and any other payments that the Executive has the right
to receive from the Company, would constitute a "parachute payment" (as defined
in section 280G of the Internal Revenue Code of 1986, as in effect on the date
hereof (the "Code")), such severance payments shall be reduced to the largest
amount that could be payable to the Executive without any portion of the
severance payments under this Agreement being subject to the excise tax imposed
under section 4999 of the Code, as determined by the Company. (The limitation
contained in the foregoing provides shall be determined as if the Code and
section 280G of the Code were applicable in Puerto Rico, even if such is not
the case.)
The amount payable pursuant to section 2(a) shall be payable
at the Company's election in (i) equal monthly installments over a three-year
period following termination of the Executive's employment commencing the first
day of the month following
5
<PAGE> 6
the effective date of termination or (ii) in one lump sum payment payable the
first day of the month following the effective date of termination. If the
Company elects to pay the Executive in installments, the Company's obligation
to make those payments shall be secured by an irrevocable letter of credit in
an amount equal to the amount payable to the Executive pursuant to section 2(a)
issued by the Banco Popular de Puerto Rico or any other bank in Puerto Rico
selected by the Company and satisfactory to the Executive. The letter of credit
shall not expire earlier than 30 days after the date that the last installment
payment is due. If payments pursuant to section 2(a) are not made, the
Executive shall have the right to draw on the letter of credit in one lump sum
or in installments, at his election. If the Executive dies prior to the payment
in full of the amounts payable to the Executive pursuant to section 2(a), a
lump sum payment equal to the aggregate amount of the then unpaid payments
shall be made to the Executive's estate.
3. (a) If the Executive shall be entitled to compensation
pursuant to section 1 of this Agreement, the Company shall continue to provide
the Executive with health insurance, life insurance and other benefits to which
the Executive is entitled under plans in effect prior to the Change of Control
for a period of 24 months following his termination, provided that the Company
is unable to provide any such insurance and/or benefit to the Executive, the
Company shall pay the Executive an amount equal to the cost to the Executive of
obtaining such insurance an/or benefit for a period of 24 months. Such amount
shall be payable to the Executive in one lump sum the first business day of the
month following the effective date of the termination of the Executive's
employment.
The Company shall pay to the Executive, commencing on the
Executive's
6
<PAGE> 7
"normal retirement date" (as defined in the Company's Employees' Pension Plan),
the amounts by which the Executive's pension benefits under the Company's
Employees' Pension Plan are less than the pension benefits that would have been
accrued by the Executive under the Company's Employees' Pension Plan if the
Executive had remained in the Company's employ to the earlier of (i) his
"normal retirement date" (as defined in the company's Employees' Pension Plan)
or (ii) an additional five years after the Executive's date of termination, at
compensation equivalent to his highest annual compensation during the three
years preceding the termination of his employment.
Company's obligations to make payments pursuant to section
3(b) shall be unfunded and unsecured and the Company shall not be required to
segregate any assets that may at any time be required to provide the benefits
under section 3(b).
4. (a) The Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, nor shall be amount of any payment
provided for under this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer after the date of the
Executive's termination, or otherwise.
The payments described in sections 2 and 3 of this Agreement
shall be in addition to any termination payments prescribed by Law 80 of 1976,
29 LPRA Section 1B5. Should termination be made due to a "Change in Control",
the Company agrees to make the payments set forth under Law 80 of 1976. The
payments describe in sections 2 and 3 of this Agreement shall be in addition to
any remedy which may be available to the employees under any federal,
commonwealth, state or local law.
7
<PAGE> 8
The provisions of this Agreement, and any payment provided
hereunder, shall not reduce or increase any amounts otherwise payable, or
affect the Executive's rights under, any benefit plan of the Company or any
other compensation to which the Executive may be entitled apart from this
Agreement.
This Agreement does not constitute a contract of employment,
and nothing in this Agreement shall entitle the Executive to continuing
employment with the Company or to any rights other than the specific payments
provided for herein.
5. (a) This Agreement shall terminate (except to the extent
that any obligation of the Company shall have accrued hereunder prior to
termination and remains unpaid as of such time) upon the earliest of (i) June
15, 2008, if a Change in Control has not occurred by that date; (ii) the
termination of the Executive's employment with the Company prior to a Change in
Control as a result of death, disability, or retirement or for any other
reason, whether resulting from the Executive's voluntary resignation or from
termination by the Company for any reason, without limitation; (iii) two years
after the first Change in Control to occur after the date of this Agreement if
the Executive has not terminated his employment for Good Reason within that
period; and (iv) after a Change in Control, if the Executive's employment with
the Company is terminated for Cause or as a result of death, disability,
retirement or otherwise than for Good Reason.
For purposes of section 5(a), (I) "disability" shall mean
the Executive's incapacity due to physical or mental
illness resulting in the Executive's failure to
perform his duties for a period of 360 consecutive
days, as determined by the Company's board of
directors; and (ii) "retirement"
8
<PAGE> 9
shall mean the termination of the Executive's
employment upon the attainment of the age set forth
in the Company's employees' Pension Plan as the age
required for "normal retirement" or the termination
of the Executive's employment at his election upon
the attainment of the age and after completion of
the number of years of service with the Company, in
each case as designated in the Company's Employees'
Pension Plan as the age and service requirement for
"early retirement", but shall not include the
Executive's election for early retirement following
a Change of Control if Good Reason existed for the
Executive's resignation.
Notwithstanding anything to the contrary contained in this Agreement,
the Executive shall be entitled to the compensation provided
for in this Agreement, if, prior to a Change of Control, but
in contemplation of that Change of Control, the Executive's
employment with the Company is terminated by the Company
other than for Cause or by the Executive for Good Reason
(regardless of whether the Change of Control shall have
actually occurred). For purposes of this Agreement, the
termination of the Executive's employment shall be deemed to
be in contemplation of a Change of Control, if, at the time
of termination for the Executive's employment the Company had
announced its intention to enter into, or had entered into,
an agreement with respect to one of the transactions
described in section 1(c)(i) and such transaction is
consummated within 180 days after the date of termination of
the Executive's employment. The compensation provided for in
sections 2 and 3 of this
9
<PAGE> 10
Agreement shall be paid to the Executive in accordance with
sections 2 and 3 as if the effective date of the termination
of the Executive's employment is the effective date of the
Change of Control of the Company.
1. This Agreement shall inure to the benefit of and be
enforceable by the Executive's heirs, distributees and
personal and legal representatives, and shall be binding on
the Company and its respective successors and assigns.
8. For purposes of this Agreement, all notices and other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered mail,
return receipt registered, postage prepaid, as follows:
If to the Company:
Puerto Rican Cement Company, Inc.
P. O. Box 364487
San Juan, PR 00936-4487
Attention: Chief Executive Officer.
If to the Executive:
[ ]
or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
Any claim or controversy arising between the parties hereto in
connection with the subject matter hereof that cannot be settled
by the mutual agreement of the parties shall be resolved by
binding arbitration held before a single arbitrator in a location
within San Juan, Puerto Rico. The arbitration proceedings shall
be
10
<PAGE> 11
in accordance with the rules of the American Arbitration
Association then in effect and the decision of the arbitrator
shall be final. Written notice of the demand for arbitration
shall be made within a reasonable time after the claim,
dispute or other matter in question has arisen, and shall be
made prior to the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in
question would be barred by the applicable statute of
limitations.
If the Executive incurs reasonable legal or other fees and expenses in
a reasonable effort to establish entitlement to benefits
under this Agreement, regardless of whether the Executive
ultimately prevails, the Company shall reimburse him for such
fees and expenses to the extent not reimbursed by the
Company's officers' and directors' insurance policy, if any.
Reimbursement of fees and expenses shall be made monthly
during the course of any action upon the written submission
of a request for reimbursement together with proof that the
fees and expenses are incurred.
This Agreement may not be amended except by a writing signed by the
Executive and the Company. No waiver shall be effective
unless in writing signed by the party to be charged, and no
waiver of any breach of any term or provision of this
Agreement shall constitute a waiver of any other breach or of
any other term or provision. No agreements or
representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in
accordance with the laws of
11
<PAGE> 12
Puerto Rico. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
If any claim shall be made that any provision of this agreement is
invalid or unenforceable under or by reason of any federal or
Commonwealth of Puerto Rico law, rule or regulation, such
provision shall, to the extent possible, be given effect in
such manner as will render the same valid and enforceable. If
any such provision, notwithstanding the preceding sentence,
be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect or render invalid or
unenforceable any other provision of this agreement. Should
any percentage of the payments and/or compensation received
by the Executive under this Agreement be illegal under any
federal or Commonwealth of Puerto Rico law, the Company shall
be obligated to make the percentage of the payment or
compensation that is not illegal.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EXECUTIVE
- - ----------------
Puerto Rican Cement Company, Inc.
12
<PAGE> 13
By:
------------------------------
Miguel A. Nazario
President
Affidavit Number:
Sworn and subscribed to before me by_____________, of legal age, and
resident of ______________, Puerto Rico and by Migueal A. Nazario, in his
capacity of President of Puerto Rican Cement Company, Inc., of legal age, and
resident of San Juan, Puerto Rico, whom I personally know, at San Juan, Puerto
Rico, this ____day of _____, 1998.
-------------
NOTARY PUBLIC
13
<PAGE> 1
AGREEMENT
AGREEMENT dated as of June 15, 1998, between PUERTO RICAN CEMENT COMPANY,
INC. (the "Company"), and ________________ (the "Executive") (the "Agreement").
(The term "Company" shall include Ready Mix Concrete, Inc. ("Ready Mix"), a
wholly owned subsidiary of Puerto Rican Cement Company, Inc., if the Executive
is employed principally by Ready Mix).
This Agreement sets forth the severance compensation that the Company
agrees to pay to the Executive if the Executive's employment with the Company
terminates on or after June 15, 1998, under any of the circumstances described
herein following a Change in Control (as defined herein).
WITNESSETH
WHEREAS, the Executive has made an is expected to make a major
contribution to the profitability, growth and financial strength of the
Company;
WHEREAS, the Company considers the continued services of the Executive to
be in the best interests of the Company and its shareholders and desires to
encourage the continued services of the Executive without distraction or
concern over any possible change in the control of the Company; and
WHEREAS, the Executive is willing to remain in the employ of the Company
upon the understanding that the Company will provide him with severance
compensation, as herein set forth, if his employment terminates on or after
June 15, 1998, under one of the circumstances described herein following a
Change of Control (as defined herein):
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration receipt of which is acknowledged, the parties agree as
follows:
<PAGE> 2
1. (a) If a Change in Control shall have occurred while the Executive
is still an employee of the Company, the Executive shall be entitled to the
compensation and benefits provided in this Agreement upon the termination,
after such Change of Control, of the Executive's employment with the Company by
the Executive or by the Company in the following circumstances:
(i) the Executive's resignation for Good Reason (as defined
in section 1(d)) at any time during the term of this Agreement; or
(ii) the termination by the Company of the Executive's
employment at any time during the term of this agreement, other
than for Cause (as defined in section 1(e)).
(b) The date of the termination of the Executive's employment shall
be the effective date of such termination as specified in any resignation
tendered by the executive to the Company or in any notice of termination given
by the Company to the Executive. No compensation shall be payable under this
Agreement unless and until (i) there shall have been Change in Control while
the Executive is still an employee of the Company and (ii) the executive's
employment by the Company thereafter shall have terminated in any of the
circumstances described in section 1(a).
(c) For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred if (i) there shall be consummated (A) any consolidation
or merger of the Company with or into any other corporation, in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of the Company's common stock would be converted into cash, securities
or other property, other than a merger of the Company in which the holders of
the Company's common stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the consolidation or merger or (B) any sale,
2
<PAGE> 3
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company,
provided that there shall be excluded any merger, consolidation or sale of
assets in which the surviving corporation or the purchaser is an entity
controlled in its majority by the present principal stockholders and their
affiliates; (ii) the Company's stockholders have approved any plan or proposal
for the liquidation or dissolution of the Company; (iii) any person (as such
term is used in sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), other than the present principal
stockholders and their affiliates, becomes the beneficial owner, within the
meaning of rule 13d-3 under the Exchange Act, of 20% or more of the Company's
outstanding common stock; or (iv) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Company's entire
board of directors cease for any reason to constitute a majority thereof unless
the election, or the nomination for election by the Company's stockholders, of
each new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.
(d) For purposes of this Agreement, "Good Reason" shall mean the
occurrence (without the Executive's express written consent) of any of the
following after a Change in Control has occurred:
(i) any material reduction or adverse change in the duties,
position, authority or reporting responsibility of the Executive
from that in effect immediately prior to a Change in Control;
(ii) a reduction by the Company in the executive's aggregate
compensation;
(iii) the Executive's relocation to any office other than the
principal executive office of the Company or the office at which
the Executive was located prior to a Change in Control, or any
material increase in the travel
3
<PAGE> 4
obligations imposed on the Executive from those in effect prior to
a Change in Control;
(iv) a reduction in the number of annual paid vacation days
to which the Executive was entitled prior to a Change in Control;
(v) any failure by the Company to continue to provide the
Executive with benefits substantially equivalent to those in effect
prior to a Change in Control under the Company's pension and
welfare plans or any of the perquisites associated with his
position in effect or being provided prior to a Change of Control
(other than a reduction in benefits or perquisites effected for all
executives ratably);
(vi) any failure of the Company to obtain from any successor
an assumption of the Company's obligations to the Executive under
this Agreement; or
(vii) any purported termination by the Company of the
Executive's employment other than a termination for Cause.
(e) For purposes of this Agreement, "Cause" for termination of the
Executive's employment means, and is limited to, (i) the Executive's gross
willful misconduct which is demonstrably and substantially injurious to the
Company or (ii) the commission of a felony or misdemeanor which impairs the
Executive's ability substantially to perform his duties to the Company. Acts or
omissions by the executive in good faith and with a reasonable belief that such
actions or omissions are in the best interests of the Company shall not
constitute gross willful misconduct, unless such acts or omissions continue
after notice from the Company to desist therefrom. The Executive's employment
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the Company's board of directors at a meeting called and held for that
purpose (after reasonable notice to the Executive and an opportunity for the
Executive, together with the Executive's counsel, to be heard before the board
of directors), finding that in the good faith opinion of
4
<PAGE> 5
the board of directors, Cause, as herein defined, exists for such termination
and specifying the basis for such finding.
2. (a) If the Executive shall be entitled to compensation pursuant to
section 1 of this Agreement, then the Company shall pay to the Executive as
severance pay an amount equal to the sum of (i) two and one-half times his
annual base salary as of the time of the Change in Control or as of the date of
termination, whichever is greater; (ii) two and one-half times the average of
the Executive's annual bonus awards with respect to the three years immediately
preceding the Change in Control; and (iii) an amount sufficient to permit the
Executive to rent and operate for a 24-month period an automobile comparable to
the one provided by the Company at the time of termination; provided, however,
that if such amount either alone or together with other payments that the
Executive has the right to receive from the Company provided for in this
Agreement and any other payments that the Executive has the right to receive
from the Company, would constitute a "parachute payment" (as defined in section
280G of the Internal Revenue Code of 1986, as in effect on the date hereof (the
"Code")), such severance payments shall be reduced to the largest amount that
could be payable to the Executive without any portion of the severance payments
under this Agreement being subject to the excise tax imposed under section 4999
of the Code, as determined by the Company. (The limitation contained in the
foregoing provides shall be determined as if the Code and section 280G of the
Code were applicable in Puerto Rico, even if such is not the case.)
(b) The amount payable pursuant to section 2(a) shall be payable at
the Company's election in (i) equal monthly installments over a three-year
period following termination of the Executive's employment commencing the first
day of the month
5
<PAGE> 6
following the effective date of termination or (ii) in one lump sum payment
payable the first day of the month following the effective date of termination.
If the Company elects to pay the Executive in installments, the Company's
obligation to make those payments shall be secured by an irrevocable letter of
credit in an amount equal to the amount payable to the Executive pursuant to
section 2(a) issued by the Banco Popular de Puerto Rico or any other bank in
Puerto Rico selected by the Company and satisfactory to the Executive. The
letter of credit shall not expire earlier than 30 days after the date that the
last installment payment is due. If payments pursuant to section 2(a) are not
made, the Executive shall have the right to draw on the letter of credit in one
lump sum or in installments, at his election. If the Executive dies prior to
the payment in full of the amounts payable to the Executive pursuant to section
2(a), a lump sum payment equal to the aggregate amount of the then unpaid
payments shall be made to the Executive's estate.
3. (a) If the Executive shall be entitled to compensation pursuant to
section 1 of this Agreement, the Company shall continue to provide the
Executive with health insurance, life insurance and other benefits to which the
Executive is entitled under plans in effect prior to the Change of Control for
a period of 24 months following his termination, provided that the Company is
unable to provide any such insurance and/or benefit to the Executive, the
Company shall pay the Executive an amount equal to the cost to the Executive of
obtaining such insurance an/or benefit for a period of 24 months. Such amount
shall be payable to the Executive in one lump sum the first business day of the
month following the effective date of the termination of the Executive's
employment.
6
<PAGE> 7
(b) The Company shall pay to the Executive, commencing on the
Executive's "normal retirement date" (as defined in the Company's Employees'
Pension Plan), the amounts by which the Executive's pension benefits under the
Company's Employees' Pension Plan are less than the pension benefits that would
have been accrued by the Executive under the Company's Employees' Pension Plan
if the Executive had remained in the Company's employ to the earlier of (i) his
"normal retirement date" (as defined in the company's Employees' Pension Plan)
or (ii) an additional five years after the Executive's date of termination, at
compensation equivalent to his highest annual compensation during the three
years preceding the termination of his employment.
(c) Company's obligations to make payments pursuant to section 3(b)
shall be unfunded and unsecured and the Company shall not be required to
segregate any assets that may at any time be required to provide the benefits
under section 3(b).
4. (a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall be amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of the Executive's
termination, or otherwise.
(b) The payments described in sections 2 and 3 of this Agreement
shall be in addition to any termination payments prescribed by Law 80 of 1976,
29 LPRA Section 1B5. Should termination be made due to a "Change in Control",
the Company agrees to make the payments set forth under Law 80 of 1976. The
payments describe in
7
<PAGE> 8
sections 2 and 3 of this Agreement shall be in addition to any remedy which may
be available to the employees under any federal, commonwealth, state or local
law.
(c) The provisions of this Agreement, and any payment provided
hereunder, shall not reduce or increase any amounts otherwise payable, or
affect the Executive's rights under, any benefit plan of the Company or any
other compensation to which the Executive may be entitled apart from this
Agreement.
(d) This Agreement does not constitute a contract of employment,
and nothing in this Agreement shall entitle the Executive to continuing
employment with the Company or to any rights other than the specific payments
provided for herein.
5. (a) This Agreement shall terminate (except to the extent that any
obligation of the Company shall have accrued hereunder prior to termination and
remains unpaid as of such time) upon the earliest of (i) June 15, 2008, if a
Change in Control has not occurred by that date; (ii) the termination of the
Executive's employment with the Company prior to a Change in Control as a
result of death, disability, or retirement or for any other reason, whether
resulting from the Executive's voluntary resignation or from termination by the
Company for any reason, without limitation; (iii) two years after the first
Change in Control to occur after the date of this Agreement if the Executive
has not terminated his employment for Good Reason within that period; and (iv)
after a Change in Control, if the Executive's employment with the Company is
terminated for Cause or as a result of death, disability, retirement or
otherwise than for Good Reason.
(b) For purposes of section 5(a), (I) "disability" shall mean the
Executive's incapacity due to physical or mental illness resulting in the
Executive's failure
8
<PAGE> 9
to perform his duties for a period of 360 consecutive days, as determined by
the Company's board of directors; and (ii) "retirement" shall mean the
termination of the Executive's employment upon the attainment of the age set
forth in the Company's employees' Pension Plan as the age required for "normal
retirement" or the termination of the Executive's employment at his election
upon the attainment of the age and after completion of the number of years of
service with the Company, in each case as designated in the Company's
Employees' Pension Plan as the age and service requirement for "early
retirement", but shall not include the Executive's election for early
retirement following a Change of Control if Good Reason existed for the
Executive's resignation.
6. Notwithstanding anything to the contrary contained in this Agreement,
the Executive shall be entitled to the compensation provided for in this
Agreement, if, prior to a Change of Control, but in contemplation of that
Change of Control, the Executive's employment with the Company is terminated by
the Company other than for Cause or by the Executive for Good Reason
(regardless of whether the Change of Control shall have actually occurred). For
purposes of this Agreement, the termination of the Executive's employment shall
be deemed to be in contemplation of a Change of Control, if, at the time of
termination for the Executive's employment the Company had announced its
intention to enter into, or had entered into, an agreement with respect to one
of the transactions described in section 1(c)(i) and such transaction is
consummated within 180 days after the date of termination of the Executive's
employment. The compensation provided for in sections 2 and 3 of this Agreement
shall be paid to the Executive in
9
<PAGE> 10
accordance with sections 2 and 3 as if the effective date of the termination of
the Executive's employment is the effective date of the Change of Control of
the Company.
7. This Agreement shall inure to the benefit of and be enforceable by
the Executive's heirs, distributees and personal and legal representatives, and
shall be binding on the Company and its respective successors and assigns.
8. For purposes of this Agreement, all notices and other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered mail, return receipt
registered, postage prepaid, as follows:
If to the Company:
Puerto Rican Cement Company, Inc.
P. O. Box 364487
San Juan, PR 00936-4487
Attention: Chief Executive Officer.
If to the Executive:
[ ]
or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
9. Any claim or controversy arising between the parties hereto in
connection with the subject matter hereof that cannot be settled by the mutual
agreement of the parties shall be resolved by binding arbitration held before a
single arbitrator in a location within San Juan, Puerto Rico. The arbitration
proceedings shall be in accordance with the rules of the American Arbitration
Association then in effect and the decision of the
10
<PAGE> 11
arbitrator shall be final. Written notice of the demand for arbitration shall
be made within a reasonable time after the claim, dispute or other matter in
question has arisen, and shall be made prior to the date when institution of
legal or equitable proceedings based on such claim, dispute or other matter in
question would be barred by the applicable statute of limitations.
10. If the Executive incurs reasonable legal or other fees and expenses
in a reasonable effort to establish entitlement to benefits under this
Agreement, regardless of whether the Executive ultimately prevails, the Company
shall reimburse him for such fees and expenses to the extent not reimbursed by
the Company's officers' and directors' insurance policy, if any. Reimbursement
of fees and expenses shall be made monthly during the course of any action upon
the written submission of a request for reimbursement together with proof that
the fees and expenses are incurred.
11. This Agreement may not be amended except by a writing signed by the
Executive and the Company. No waiver shall be effective unless in writing
signed by the party to be charged, and no waiver of any breach of any term or
provision of this Agreement shall constitute a waiver of any other breach or of
any other term or provision. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws
of Puerto Rico. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
11
<PAGE> 12
12. If any claim shall be made that any provision of this agreement is
invalid or unenforceable under or by reason of any federal or Commonwealth of
Puerto Rico law, rule or regulation, such provision shall, to the extent
possible, be given effect in such manner as will render the same valid and
enforceable. If any such provision, notwithstanding the preceding sentence, be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect or render invalid or unenforceable any other provision of this
agreement. Should any percentage of the payments and/or compensation received
by the Executive under this Agreement be illegal under any federal or
Commonwealth of Puerto Rico law, the Company shall be obligated to make the
percentage of the payment or compensation that is not illegal.
13. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EXECUTIVE
- - ----------------
Puerto Rican Cement Company, Inc.
By:__________________________
Miguel A. Nazario
President
12
<PAGE> 13
Affidavit Number:
Sworn and subscribed to before me by_____________, of legal age, and
resident of ______________, Puerto Rico and by Migueal A. Nazario, in his
capacity of President of Puerto Rican Cement Company, Inc., of legal age, and
resident of San Juan, Puerto Rico, whom I personally know, at San Juan, Puerto
Rico, this ____day of _____, 1998.
--------------
NOTARY PUBLIC
13
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