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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the
Securities Exchange Act of 1934)
(Amendment No. 3)
HOLNAM INC.
(NAME OF THE ISSUER)
'HOLDERBANK' FINANCIERE GLARIS, LTD.,
HOLDERNAM INC. AND HOLCEM INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
436429 10 4
(CUSIP NUMBER OF CLASS OF SECURITIES)
JOSEPH W. SCHMIDT, ESQ.
WHITMAN BREED ABBOTT & MORGAN
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 351-3210
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF PERSON(S) FILING STATEMENT)
THIS STATEMENT IS FILED IN CONNECTION WITH (CHECK THE APPROPRIATE BOX):
A. [ ] THE FILING OF SOLICITATION MATERIALS OR AN INFORMATION STATEMENT SUBJECT
TO REGULATION 14A [17 CFR 240.14a-1 TO 240.14b-1], REGULATION 14C
[17 CFR 240.14c-1 TO 240.14c 101] OR RULE 13E-3(c)
[SECTIONS 240.13e-3 (c)] UNDER THE SECURITIES EXCHANGE ACT OF 1934.
B. [ ] THE FILING OF A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933.
C. [ ] A TENDER OFFER.
D. [X] NONE OF THE ABOVE.
CHECK THE FOLLOWING BOX IF THE SOLICITING MATERIALS OR INFORMATION
STATEMENT REFERRED TO IN CHECKING BOX (A) ARE
PRELIMINARY COPIES: [ ]
PAGE 1 OF PAGES
EXHIBIT INDEX ON PAGE 5
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CALCULATION OF FILING FEE
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TRANSACTION AMOUNT OF FILING FEE
VALUATION*
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$57,284,363, based
on 7,488,152 shares
of Holnam Inc. Common
Stock times $7.65 per share $11,457.00**
</TABLE>
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
**Previously paid.
[ ] Check box if any part of the fee is offset as provided in Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: ______________
Form or Registration No: _____________
Filing Party: ________________________
Date Filed: __________________________
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS
The Exhibit Index set forth on page 5 of this Transaction Statement is
incorporated herein by reference.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
<TABLE>
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'HOLDERBANK' FINANCIERE GLARIS LTD.
Dated: January 28, 1994 By /s/ Thomas Schmidheiny
______________________
Name: Thomas Schmidheiny
Title: Chairman
By /s/ Pierre Haesler
______________________
Name: Pierre Haesler
Title: Secretary
HOLDERNAM INC.
Dated: January 28, 1994 By /s/ Peter Byland
______________________
Name: Peter Byland
Title: President
HOLCEM INC.
Dated: January 28, 1994 By /s/ Peter Byland
______________________
Name: Peter Byland
Title: President
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
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EXHIBIT DESCRIPTION PAGE NO.
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17(b)(1) Opinion of Merrill Lynch, Pierce Fenner & Smith Incorporated, dated January 7, 1994,
incorporated by reference from Annex D to the Disclosure Statement and Notice filed as
Exhibit 17(d)(2) hereto................................................................... *
17(b)(2) Presentation Material from Goldman Sachs dated October 11, 1993........................... *
17(b)(3) Presentation Material from Merrill Lynch dated November 15, 1993.......................... *
17(b)(4) Presentation Material from Merrill Lynch dated January 7, 1994............................ *
17(d)(1) Preliminary Copy of Disclosure Statement and Notice....................................... *
17(d)(2) Revised Preliminary Copy of Disclosure Statement and Notice............................... *
17(d)(3) Disclosure Statement and Notice...........................................................
17(e) The description of appraisal rights set forth under the caption 'The Merger -- Appraisal
Rights' and the copy of Section 262 of the Delaware General Corporation Law attached as
Annex E to the Disclosure Statement and Notice are incorporated herein by reference....... --
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* Previously filed.
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HOLCEM INC.
6211 NORTH ANN ARBOR ROAD
DUNDEE, MICHIGAN 48131
(313) 529-2411
----------------------------------------------------
DISCLOSURE STATEMENT AND NOTICE
----------------------------------------------------
This Disclosure Statement and Notice is furnished by 'Holderbank'
Financiere Glaris, Ltd., a publicly-held Swiss corporation ('Holderbank'),
Holdernam Inc., a Delaware corporation ('Holdernam'), and Holcem Inc., a
Delaware corporation ('Holcem'), in connection with the taking of certain
corporate action described below by Holcem, as the holder of more than 90% of
the common stock and all the preferred stock of Holnam Inc., a Delaware
corporation (the 'Company'), pursuant to which the Company will become a
wholly-owned subsidiary of Holdernam. This Disclosure Statement and Notice is
first being sent to stockholders of the Company on or about January 31, 1994.
The board of directors of Holcem, together with Holdernam as the sole
stockholder of Holcem, approved on January 7, 1994 the merger (the 'Merger') of
Holcem with and into the Company pursuant to Section 253 of the General
Corporation Law of the State of Delaware (the 'DGCL') with the result that the
separate corporate existence of Holcem will cease, Holdernam will become the
owner of 100% of the outstanding equity of the Company and each outstanding
share of common stock, par value $.01 per share (the 'Common Stock'), of the
Company (other than any shares owned by Holcem or held by stockholders who
perfect their dissenters' appraisal rights) will be converted into the right to
receive $7.65 in cash from Holdernam. Such price is slightly higher than the
highest price at which the Common Stock has ever traded on the New York Stock
Exchange since it was first listed thereon in March 1990. The Merger will become
effective at the close of business on the date on which a certificate of
ownership and merger (the 'Certificate of Ownership and Merger') is filed by
Holcem with the Secretary of State of the State of Delaware. Such filing will
not be earlier than February 22, 1994, which is more than 20 days after the
mailing of this Disclosure Statement and Notice.
Holderbank, through its subsidiaries and affiliates, ranks among the
largest cement manufacturers and suppliers in the world with a presence in 30
countries. Holdernam is a wholly-owned subsidiary of Holderbank. Holcem is a
wholly-owned subsidiary of Holdernam recently formed for the purpose of
effecting the Merger. Holdernam and Holcem are holding companies. Holcem is the
owner of record of 128,491,701 shares of Common Stock, representing
approximately 94.9% of the outstanding Common Stock as of January 6, 1994.
Holcem is also the owner of record of 620,828 shares of 7% Cumulative
Convertible Preferred Stock, par value $.10 per share (the 'Series A Preferred
Stock'), of the Company which are convertible at a conversion price of $3.70 per
share into 8,381,178 shares of Common Stock.
As permitted and provided by Section 253 of the DGCL, the Merger has been
structured as a short-form merger requiring only the consent of the board of
directors of Holcem as the holder of more than 90% of the Common Stock and all
the Series A Preferred Stock of the Company concurred in by Holcem's sole
stockholder, Holdernam. The approval of the Company's stockholders other than
Holcem (the 'Public Stockholders')is not required and is not being requested.
The Public Stockholders are not being asked for a proxy and are requested not to
send a proxy. However, under Delaware law, the Public Stockholders are entitled
to be treated with 'entire fairness' in the Merger and also will have
dissenters' appraisal rights in connection with the Merger if they comply with
applicable requirements. See 'The Merger -- Appraisal Rights.' This Disclosure
Statement also constitutes notice by the Company to the Public Stockholders
pursuant to Section 262(d)(2) of the DGCL that appraisal rights are available
for any or all of the shares of Common Stock owned by them.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY
OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Disclosure Statement and Notice is January 31, 1994.
<PAGE>
TABLE OF CONTENTS
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PAGE
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THE MERGER................................................................................................. 3
General............................................................................................... 3
Special Factors....................................................................................... 3
Effective Time of the Merger.......................................................................... 3
Price to be Paid...................................................................................... 3
Regulatory Matters.................................................................................... 4
Record Date........................................................................................... 4
Background of the Merger.............................................................................. 4
Reasons for the Merger................................................................................ 10
Position of the Boards of Directors................................................................... 11
Opinion of Financial Advisor.......................................................................... 13
Potential Detriments and Adverse Effects of the Merger................................................ 18
Stock Options and Benefit Plans....................................................................... 18
Payment for Shares.................................................................................... 19
Amendment and Abandonment............................................................................. 19
Source of Funds; Expenses............................................................................. 19
Plans and Proposals................................................................................... 20
The Company's Post-Merger Capital Stock............................................................... 20
Reporting Requirements and Exchange Listing........................................................... 20
Certain Federal Income Tax Consequences............................................................... 20
Appraisal Rights...................................................................................... 21
Stockholders' Litigation.............................................................................. 23
MARKET INFORMATION AND DIVIDEND POLICY..................................................................... 25
Market Information.................................................................................... 25
Holders............................................................................................... 25
Dividends............................................................................................. 25
RATIO OF EARNINGS TO FIXED CHARGES......................................................................... 25
BOOK VALUE PER SHARE....................................................................................... 25
PRINCIPAL AND MANAGEMENT STOCKHOLDINGS..................................................................... 26
Security Ownership of Certain Beneficial Owners....................................................... 26
Security Ownership of Management...................................................................... 27
Security Ownership of Directors and Executive
Officers of Holderbank, Holdernam and Holcem.......................................................... 28
ADDITIONAL AVAILABLE INFORMATION........................................................................... 28
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Annex A -- Form of Certificate of Ownership and Merger of Holcem Inc. Into
Holnam Inc.
Annex B -- Projections for Holnam Operations
Annex C -- Projections for St. Lawrence
Annex D -- Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Annex E -- Section 262 of the Delaware General Corporation Law
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THE MERGER
GENERAL
The Certificate of Ownership and Merger provides that Holcem will be merged
with and into the Company. As a result of the Merger, the separate corporate
existence of Holcem will cease, Holdernam will become the owner of 100% of the
outstanding equity of the Company and the Public Stockholders will possess no
further interest in, or rights as stockholders of, the Company, other than their
right to receive $7.65 per share of Common Stock held by them or to exercise
dissenters' appraisal rights if they comply with applicable requirements. See
'The Merger -- Appraisal Rights.'
The description of the terms and conditions of the Merger included in this
Disclosure Statement and Notice is qualified in its entirety by reference to the
Certificate of Ownership and Merger, a copy of which is attached hereto as Annex
A and incorporated herein by reference.
SPECIAL FACTORS
For a description of certain special factors concerning the Merger, see
'The Merger -- Background of the Merger,' 'The Merger -- Reasons for the
Merger,' 'The Merger -- Position of the Boards of Directors,' 'The
Merger -- Opinion of Financial Advisor' and 'The Merger -- Potential Detriments
and Adverse Effects of the Merger.'
EFFECTIVE TIME OF THE MERGER
The Merger will become effective as of the close of business on the date on
which the Certificate of Ownership and Merger is filed with the Secretary of
State of the State of Delaware in accordance with applicable law. Such filing is
expected to occur on or about February 22, 1994. The time of such effectiveness
is referred to herein as the 'Effective Time of the Merger.' Holcem may decide
not to proceed with the Merger at any time, and for any reason sufficient unto
itself, before the filing of the Certificate of Ownership and Merger. See 'The
Merger -- Amendment and Abandonment.'
PRICE TO BE PAID
At the Effective Time of the Merger, Holcem will be merged with and into
the Company and each outstanding share of Common Stock (other than any shares
owned by Holcem or held by Public Stockholders who perfect their dissenters'
appraisal rights) will be converted into the right to receive $7.65 in cash from
Holdernam. As of January 6, 1994, there were 135,356,186 shares of Common Stock
outstanding and approximately 6,260 record holders of such shares. At the
Effective Time of the Merger, Holdernam will be required to pay an aggregate of
$52,513,310.25 for the 6,864,485 shares of Common Stock outstanding and held by
the Public Stockholders if no Public Stockholders perfect their dissenters'
appraisal rights.
In addition, there are outstanding under the Company's Stock Option Plan
employee stock options to purchase 623,667 shares of Common Stock, all of which
are currently exercisable and will terminate at the Effective Time of the
Merger. See 'The Merger -- Stock Options and Benefit Plans.' In order to spare
the holders of these stock options the burden of exercising them, Holdernam has
agreed to cause the Company to make a cash payment to such holders of
unexercised options after the Merger in an amount equal to the difference
between the per share exercise price of their options and the highest closing
sales price for the Common Stock on the New York Stock Exchange, Inc. (the
'NYSE') from January 6, 1994 through the Effective Time of the Merger. If such
highest NYSE closing sales price is $7.75 and all these stock options remain
unexercised at the Effective Time of the Merger, Holdernam will be required to
pay an aggregate of $624,833.50 to such holders. If any such options are
exercised, the shares issued upon such exercise will be converted in the Merger
into the right to receive $7.65 per share. See 'The Merger -- Stock Options and
Benefit Plans.'
Holcem will cease to exist at the Effective Time of the Merger and will
receive no cash for any of its shares of Common Stock or Series A Preferred
Stock. Holdernam will be issued shares of common stock and preferred stock of
the Company, as the surviving corporation in the Merger, which will
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constitute 100% of the outstanding common stock and preferred stock of the
Company after the Merger. See 'The Merger -- The Company's Post-Merger Capital
Stock.'
REGULATORY MATTERS
There are no federal or state regulatory approvals or consents that must be
obtained in connection with the Merger.
RECORD DATE
The record date for the Public Stockholders entitled to receive a copy of
this Disclosure Statement and Notice is January 18, 1994.
BACKGROUND OF THE MERGER
Holderbank's Investments in the United States and Canada. Founded in 1912,
Holderbank, through subsidiary companies, is engaged in the manufacture and sale
of cement and related construction products such as aggregates and ready-mix
concrete and operates or has investments in approximately 70 cement plants
located in 30 countries worldwide. Holderbank also provides technical and
consulting services to other cement manufacturers worldwide. Although published
information on the worldwide rated capacity of other cement manufacturers is
unavailable, based upon its knowledge of the industry, Holderbank believes that
it is one of the largest cement companies in the world in terms of rated
capacity with total worldwide rated capacity as of December 31, 1993 of
approximately 62 million short tons per year. Holderbank's shares are
publicly-held and traded on the Zurich, Basle and Geneva stock exchanges and in
London on the SEAQ International. Holderbank first entered the North American
cement industry in Canada in 1951 and is today, on a combined basis, one of the
largest cement companies in the United States and Canada in terms of rated
capacity. Holderbank's investments in the United States and Canada account for a
significant portion of its worldwide revenue and earnings.
Holderbank entered the cement industry in North America by investing in St.
Lawrence Cement Inc., a corporation incorporated on March 13, 1951 under Part I
of the Companies Act (Quebec) ('St. Lawrence'). St. Lawrence is primarily
involved in the manufacture and distribution of cement for use by the
construction industry. St. Lawrence's cement operations are supplemented by its
involvement in certain related industries such as ready-mix concrete, concrete
products, aggregates (crushed stone, sand and gravel), road construction and
certain other civil engineering work. Directly or indirectly through its
subsidiaries, St. Lawrence does business in Eastern Canada and in portions of
the Northeast and Middle Atlantic regions of the United States. Holderbank
currently owns through the Company 10,498,748 Class A subordinate shares and
15,252,848 Class B shares representing an approximately 59% equity interest in,
and approximately 77% of the voting rights of, St. Lawrence. The balance of the
Class A subordinate shares are publicly-held and traded on the Montreal and
Toronto stock exchanges.
Holderbank later invested in Dundee Cement Company, which was incorporated
on May 15, 1957 under the laws of the State of Delaware ('Dundee'). Dundee was
involved in the manufacture and distribution of a variety of Portland cements
used in the construction industry. Dundee operated in portions of the Midwest
and Southeast United States. The Company was incorporated on May 8, 1981 and
used as a holding company. Dundee was merged with and into the Company on March
21, 1990.
In order to expand and geographically diversify its holdings in North
America, Holderbank invested in Ideal Basic Industries, Inc., a publicly-held
manufacturer of Portland cement incorporated in 1924 under the laws of the State
of Colorado ('Ideal'). In connection with a major debt and equity restructuring
of Ideal that took place in December of 1986, Holdernam acquired, for the sum of
$110,000,000, from the bank and insurance company lenders to Ideal,
approximately 118.7 million shares of common stock of Ideal (the 'Ideal
Shares'), representing approximately 68.3% of the common shares of Ideal then
outstanding. The balance of the common shares were publicly-held and traded on
the NYSE. At the time of Holdernam's acquisition of the Ideal Shares, Holderbank
announced that, while respecting Ideal's autonomy, to enable Ideal to benefit
from combining with a financially healthy and more geographically diversified
group, it would consider the feasibility of a
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future business combination of Ideal with all or parts of Holderbank's other
North American cement operations.
To these ends, on March 8, 1990, Ideal was merged with and into the Company
(the 'Ideal Merger') following the approval of the terms of the merger
transaction by a majority of Ideal's board of directors after its receipt of the
report and recommendation of a special committee of Ideal directors and the
favorable vote of the stockholders of the Company and Ideal. Pursuant to the
merger agreement entered into in connection with the Ideal Merger, the Company
agreed that for three years following the Ideal Merger it would not enter into
any transaction which would result in the Common Stock being held of record by
fewer than 300 holders without the approval of at least a majority of the
Company's unaffiliated directors. As a result of the Ideal Merger, the separate
corporate existence of Ideal ceased. Upon consummation of the Ideal Merger,
Holderbank owned indirectly approximately 87.2% of the Common Stock then
outstanding, while the former public stockholders of Ideal owned approximately
12.8% of the Common Stock then outstanding. In order to make Dundee part of the
integrated North American cement business of Holderbank, Dundee was merged with
and into the Company (the 'Dundee Merger') following the Ideal Merger and the
separate corporate existence of Dundee ceased. Prior to the Ideal Merger, the
Company had become the holder of Holderbank's stockholdings in St. Lawrence.
Therefore, following the Ideal Merger and the Dundee Merger in 1990, all of
Holderbank's cement operations in the United States and Canada were consolidated
in the Company whose common shares were traded on the NYSE.
To provide additional equity needed by the Company, in October 1990,
Holdernam purchased from the Company 22,222,223 originally-issued shares of
Common Stock for an aggregate purchase price of $100,000,000 (or $4.50 per
share). The terms of the transaction were established in August 1990 in
negotiations between the management of the Company and Holderbank, reviewed by
the audit committee of and approved by the Company's Board of Directors. The
closing price of the Common Stock on the NYSE on the day of the agreement with
Holderbank was $4.25 per share and the average trading price for the 60 days
prior to the agreement was $4.38 per share. As a result of such purchase,
Holderbank owned indirectly approximately 89.3% of the Common Stock then
outstanding.
In connection with the settlement of certain litigation arising out of the
Ideal Merger, on December 31, 1991, Holdernam purchased 8,181,019 shares of
Common Stock from Philip F. Anschutz and The Anschutz Corporation for a total
consideration of $34,769,330.75 or $4.25 per share. The closing price of the
Common Stock on the NYSE on such date was $4.625 per share. As a result of such
purchase, Holderbank owned indirectly approximately 95.3% of the Common Stock
then outstanding.
On March 30, 1992, the Company entered into a Subordinated Loan Agreement
with Holdernam pursuant to which Holdernam lent $50,000,000 (the 'Subordinated
Loan') to the Company. Interest accrues on the outstanding principal amount of
the Subordinated Loan at a rate per annum equal to the LIBO Rate (as defined)
plus 3% in those calendar years in which the Consolidated Net Income (as
defined) of the Company equals or exceeds $5,000,000. Because Consolidated Net
Income of the Company did not equal or exceed $5,000,000 in 1992 and is not
expected to do so in 1993, no interest has accrued or is expected to accrue on
the outstanding principal amount of the Subordinated Loan for such years.
On January 1, 1993, the Company entered into a revolving credit note with
Holderfin B.V., an affiliate of Holderbank ('Holderfin'), pursuant to which
Holderfin lent $30,000,000 (the 'Revolving Credit Loan') to the Company. The
Revolving Credit Loan bears interest at LIBOR plus .75% and matures on December
31, 1996 or is payable on demand with 367 calendar days' prior notice. Accruals
on the Revolving Credit Loan during 1993 were approximately $1,123,000.
During 1993 and 1992, Holderbank provided financial support to the Company
in the form of comfort letters for certain bank debt and other obligations.
Holderbank received fees from the Company for this financial support in the
amount of approximately $1,123,000 and $2,345,000 in 1993 and 1992,
respectively. In view of the Company's current financial circumstances, the
Company's ongoing ability to borrow from its sources of financing is dependent
on Holderbank's continuance of such support and the lenders' acceptance of these
comfort letters.
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On May 18, 1993, the Company issued 600,000 shares of Series A Preferred
Stock to Holdernam for $30,000,000 in connection with the acquisition on the
same date by a Delaware limited partnership consisting of entities affiliated
with the Company and Trammel Crow of a cement manufacturing plant, two cement
distribution terminals, a related limestone quarry operation and working
capital. Each share of the Series A Preferred Stock is convertible into 13.5
shares of Common Stock representing a conversion price of $3.70 per share. The
closing price of the Common Stock on the NYSE on the date of issuance of the
Series A Preferred Stock was $3.00 per share. The Series A Preferred Stock
entitles the holder thereof to receive annual preferential cumulative dividends
of $3.50 per share, payable in quarterly installments on each February 15, May
15, August 15 and November 15, beginning August 15, 1993. The Company is
permitted to pay these dividends by issuing additional shares of Series A
Preferred Stock in an amount equivalent to the dividends otherwise payable in
cash based on the liquidation value of $50 per share. Pursuant to this right,
the Company issued 10,150 shares and 10,678 shares of Series A Preferred Stock
on August 15 and November 15, 1993, respectively; Holcem currently holds 620,828
shares of Series A Preferred Stock convertible into 8,381,178 shares of Common
Stock. If such conversion should occur, Holcem would hold approximately 95% of
the outstanding Common Stock. If the Merger should not occur, the Company is
expected to issue on February 15, 1994 another 10,864 shares of Series A
Preferred Stock convertible into an additional 146,664 shares of Common Stock.
Activities Preceding the Merger. The management of Holderbank from time to
time has reviewed the advantages and disadvantages of alternative methods of
structuring and financing its operations in North America. In this regard, in
February of 1992, a representative of Holderbank requested that the management
of the Company explore and report on the advantages and disadvantages of taking
the Company private at that time. In response to that request, management of the
Company forwarded to Holderbank a summary of the advantages (including
eliminating the 'fishbowl' management environment as well as the additional
costs and management time for auditing services, legal services, exchange
listing fees, printing services, mailing costs, directors fees and directors and
officers liability insurance premiums for a public company) and disadvantages
(including funding of the costs of such a transaction) of taking the Company
private at that time. The advantages and disadvantages contained in the summary
were discussed by representatives of Holderbank and the management of the
Company during a 30-minute tele-conference in March of 1992. Participating on
behalf of the Company were its then president and chief executive officer, its
chief financial officer and its general counsel. Participating on behalf of
Holderbank were various members of its executive committee. No conclusion or
action resulted from these discussions. In September 1993, following a recent
successful public offering of stock by a competitor and at Holderbank's request
for a report, the Company sought the views of Goldman, Sachs & Co. ('Goldman
Sachs'), an investment banking firm of international reputation retained from
time to time by the Company, as to the feasibility of effecting a public
offering by the Company of its Common Stock in the United States.
On October 11, 1993, Goldman Sachs presented its initial view, together
with written materials dated that date (the 'Goldman Sachs Presentation
Materials'), which preliminarily indicated that a public offering of Common
Stock in the United States might be feasible at the current trading price of the
Common Stock on the NYSE or at a slight reduction therefrom (i.e. $5.00 per
share or less), with final pricing to be determined at the time of any such
offering and dependent on the size of the offering and other relevant factors.
Goldman Sachs' preliminary report considered, first, the Company's potential
objectives in an equity offering -- to achieve a new source of funding for
attractive capital projects or potential acquisitions, to reduce leverage in the
capital structure of the Company, to promote liquidity of the Common Stock, to
broaden the ownership base and to create a research following. The report
reviewed the market for equity offerings which it viewed as relatively favorable
for any such offering, reviewed the Company's capitalization and the history of
the Common Stock prices and concluded with a listing of various steps to be
followed to maximize chances for a successful public offering at or slightly
below the then $5.00 market price. It should be noted that the Goldman Sachs
presentation was preliminary and was rendered in the context of a possible
transaction different from the Merger. Goldman Sachs provided further
preliminary advice and information to the management of the Company in October
and November 1993 to the effect that using the proceeds of a
6
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public offering of Common Stock by the Company to buy out the public minority
stockholders of St. Lawrence would be advantageous to the Company under certain
circumstances.
Neither Holderbank, Holdernam nor Holcem has currently or has had within
the past two years or hereafter contemplates having any material relationship
with Goldman Sachs or any of its affiliates. Goldman Sachs has, however,
provided investment banking services to the Company from time to time within the
past two years for which it has received customary fees. The Company has no
agreement to compensate Goldman Sachs for its work in connection with the
Goldman Sachs Presentation Materials or its subsequent advice. However,
Holderbank's understanding is that it is the Company's belief that, were it to
undertake a public offering of its Common Stock, the expectation of Goldman
Sachs was that such investment banking firm would serve as a managing
underwriter of the offering and would receive compensation in that capacity.
At the request of Holderbank, on November 15, 1993, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ('Merrill Lynch') made a presentation to the
management of Holderbank (the 'November 15 Presentation') together with written
presentation materials (the 'November 15 Presentation Materials'). Specifically,
Merrill Lynch was asked to analyze preliminarily (i) a public offering of the
Common Stock (the 'Public Offering'), (ii) alternatives available to Holderbank
with respect to the Public Stockholders and (iii) alternatives available to
Holderbank with respect to the Company's interest in St. Lawrence (the 'St.
Lawrence Interest') in light of Holderbank's long-term objectives of maximizing
the attractiveness of Holderbank's stock to investors, maximizing Holderbank's
financial efficiency (i.e., minimizing the cost of funds and optimizing access
to cash flows) and optimizing flexibility regarding the operations of its
subsidiaries. Merrill Lynch based its analysis on public information and
information provided by senior management of Holderbank from different sources,
including the Company's 1993 budget and 1994/5 forecast and the Goldman Sachs
Presentation Materials. In addition, Merrill Lynch, was provided with certain
projections of the Company and St. Lawrence by members of Holderbank and the
Company's management. Merrill Lynch presented its analysis in three parts: a
'subsidiary analysis' of St. Lawrence and the Company; an 'alternatives
analysis' for Holderbank; and a 'competitor analysis' with respect to Lafarge
Coppee.
Subsidiary Analysis. Merrill Lynch performed a preliminary analysis of the
historical and projected earnings of both St. Lawrence and the Company excluding
St. Lawrence (the 'Holnam Operations') from 1992 through 1997, calculating a
compounded average earnings growth from 1995 to 1997 of approximately 59% for
St. Lawrence and approximately 20% for Holnam Operations. Based on these
projected earnings, Merrill Lynch calculated a projected market value of the St.
Lawrence Interest of approximately $300 million based on a projected
price/earnings multiple (a 'P/E Multiple') of 19.5x in 1994, approximately $462
million based on a projected P/E multiple of 15.0x in 1995 and approximately
$500 million based on a projected P/E multiple of 13.0x in 1996 and a projected
market value of the Company of approximately $920 million based on a projected
P/E multiple of 15.0x in 1994, approximately $1,292 million based on a projected
P/E multiple of 14.0x in 1995 and approximately $1,455 million based on a
projected P/E multiple of 13.0x in 1996. In addition, Merrill Lynch calculated
free cash flows for St. Lawrence as increasing from approximately $10 million in
1994 to approximately $63 million in 1997 and for the Company as increasing from
approximately $47 million in 1994 to approximately $316 million in 1997.
Holderbank Alternatives. Merrill Lynch compared the internal rate of return
for Holderbank ('IRR') based on five strategic alternatives. Alternative I
assumed that Holderbank held a 79.8% stake in the Company after the Public
Offering (as $5.00 per share) and maintained status quo ownership for St.
Lawrence and resulted in an IRR of approximately 20.0%. Alternative II assumed
that Holderbank held a 68% stake in the Company after the Public Offering (at
$5.00 per share) and had completed a 100% buy out of St. Lawrence and resulted
in an IRR of approximately 17.78%. Alternative III assumed that Holderbank
maintained status quo ownership for both the Company and St. Lawrence and
resulted in an IRR of approximately 25.8%. Alternative IV assumed that
Holderbank held a 100% stake in both the Company due to a going private merger
(at $6.90 per share based on a premium of 20% over market price on November 12,
1993) and St. Lawrence due to a cash buy out (at Cdn. $12.19 per share based on
a premium of 25% over the market price on November 12, 1993) and resulted in an
IRR of approximately 30.4%. Alternative V assumed 100% ownership of the Company
due to a going
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private merger and status quo ownership for St. Lawrence and resulted in an IRR
of approximately 27.5%.
Merrill Lynch also calculated the cumulative free cash flow projected by
management of the Company and St. Lawrence from 1994 through 1997 and free cash
flow beyond 1997 based on the five strategic alternatives. Merrill Lynch
calculated that Holderbank would receive (i) approximately $71 million in public
offering proceeds plus dividends from the Company ('Holnam Dividends') under
Alternatives I and II through 1997 and Holnam Dividends beyond 1997; (ii) Holnam
Dividends throughout all periods under Alternative III; (iii) approximately $290
million (approximately $79 million after payment of acquisition debt) under
Alternative IV through 1997 and approximately $119 million annually thereafter;
and (iv) approximately $268 million (approximately $221 million after payment of
acquisition debt) plus dividends from St. Lawrence under Alternative V through
1997 and approximately $90 million annually thereafter.
Based on this analysis, Merrill Lynch concluded preliminarily that
Holderbank's long-term objectives would be most effectively addressed by
Alternative IV, the elimination of public holdings of both the Company and St.
Lawrence by a short-form cash merger and buy out for cash, respectively. It was
Merrill Lynch's belief that full ownership of the Company and St. Lawrence would
enhance Holderbank's share valuation in the European and other financial markets
in which its shares trade by focusing investors on Holderbank as a core global
cement investment and confirming Holderbank's industrial operating-company,
rather than holding-company, status.
Competitor Analysis. Merrill Lynch presented a preliminary case study of
LaFarge Coppee and the public offering of its subsidiary, LaFarge Corp. Merrill
Lynch analyzed share price performance and volume from August 24, 1993 to
November 5, 1993 among LaFarge Coppee, Lafarge Corporation and Holderbank,
noting that the Lafarge Corporation roadshow coincided with a drop in Lafarge
Coppee share price and that Holderbank's relative volume was consistently above
Lafarge Coppee's during the period. Merrill Lynch concluded preliminarily on the
basis of the Lafarge Coppee case study that a public offering of the Company's
common stock could be well received by the equity markets but could also weaken
the perception of Holderbank as an operating company and otherwise might not be
beneficial to its share performance.
Merrill Lynch also analyzed relative valuations between Holderbank and
LaFarge Coppee. In comparison to LaFarge Coppee, Holderbank's market value to
estimated 1994 earnings was negative 15%, market value to estimated 1994 cash
flow was negative 27%, market capitalization to current capacity was negative
37% and market capitalization to the latest fiscal year output was negative 36%.
Merrill Lynch stated that reasons for this relative underperformance of
Holderbank could include Holderbank's lack of interim reporting, its less
developed investor program and less diversified shareholder base and the absence
of a control premium for Holderbank shares. Merrill Lynch recommended that
Holderbank increase its efforts to communicate with its investors, expand its
shareholder base and optimize control over its subsidiary operations.
The November 15 Presentation and the November 15 Presentation Materials
were not intended to, and do not, provide for a valuation of St. Lawrence,
Holnam Operations, the Company, any of their assets or the Holnam Shares. In
connection with the investigation of the Company and St. Lawrence conducted by
Merrill Lynch as part of its valuation analysis discussed below under 'Opinion
of Financial Advisor,' Merrill Lynch received substantially more information
with respect to the Company and St. Lawrence, and substantially more access to
information and personnel at the Company and St. Lawrence, than it received in
connection with the November 15 Presentation. Holdernam paid Merrill Lynch a fee
of $125,000 in connection with the November 15 Presentation.
Following the November 15 Presentation, Holderbank decided against a going
private transaction with respect to St. Lawrence but to pursue such a
transaction with respect to the Company. By letter agreement dated December 10,
1993, Holdernam retained Merrill Lynch to act as its exclusive financial advisor
in connection with the possible acquisition of all of the outstanding shares of
Common Stock not owned by Holdernam or its affiliates. Subsequent to such date,
officers of Holderbank, Holdernam, the Company and St. Lawrence engaged in due
diligence meetings with representatives of Merrill Lynch.
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During the course of these due diligence discussions management of the
Company and Merrill Lynch jointly prepared projections of the future performance
of the Holnam Operations, and management of St. Lawrence and Merrill Lynch
jointly prepared projections of the future performance of St. Lawrence, in each
case for the years 1994 through 2002, which were approved by management of
Holdernam (the 'Holnam Operations Projections' and the 'St. Lawrence
Projections,' respectively). Neither the Company nor St. Lawrence customarily
prepares such long-term projections. The Holnam Operations Projections and the
St. Lawrence Projections and the material assumptions related thereto are
attached hereto as Annex B and Annex C, respectively.
The projections were intended for the uses discussed below and were not
prepared with a view toward compliance with published guidelines of the
Commission or the American Institute of Certified Public Accountants regarding
projections and forecasts or generally accepted accounting principles. Because
of the inherent uncertainty of projections and forecasts for such lengthy
periods, no assurances can be given that such projections accurately determine
current values or future performance, which may be significantly more or less
favorable than as set forth therein.
Pursuant to the engagement agreement, on January 7, 1994, Merrill Lynch
delivered an opinion, subsequently confirmed in a written opinion dated January
7, 1994, to the board of directors of each of Holcem and Holdernam, and to the
special committee of the board of directors of Holderbank, that on the basis and
subject to the matters set forth therein, as of the date of such opinion, the
proposed cash consideration to be received by the Public Stockholders in the
Merger is fair to such stockholders from a financial point of view. See 'The
Merger -- Opinion of Financial Advisor.' Merrill Lynch further advised the board
of directors of each of Holcem and Holdernam and the special committee of the
board of directors of Holderbank that, in accordance with its assignment, its
opinion was directed to the issue of fairness to the Public Stockholders and not
to fairness to the stockholders of Holderbank. Merrill Lynch also reviewed at
length with the members of the boards and the special committee the bases for
its opinion. The members of the boards and the special committee considered
Merrill Lynch's presentation in support of its opinion, asked questions and
satisfied themselves that Merrill Lynch had fully considered all relevant
factors and performed its task with diligence and care appropriate in this
circumstance. The members of the boards and the special committee noted Merrill
Lynch's affirmative response when asked whether it was prepared to opine that a
price of $7.50 per share is fair from a financial point of view to the Public
Stockholders and further noted that $7.50 is above, or in the upper portion of,
each equity reference range derived by Merrill Lynch. In fact, none of the
various analyses performed by Merrill Lynch produced a mean valuation in excess
of the $7.65 per share of Common Stock which the board of directors of Holcem
determined to pay to the Public Stockholders in the Merger. In light of such
opinion and presentation and on advice from their counsel that their
responsibility was not to negotiate the best or most advantageous price for
Holcem, Holdernam or Holderbank but rather solely to ensure that the Public
Stockholders are treated with entire fairness, on January 7, 1994, the board of
directors of each of Holcem and Holdernam and the special committee of the board
of directors of Holderbank, for the reasons described under 'The
Merger -- Position of the Board of Directors,' concluded that the Merger is
entirely fair to the Public Stockholders.
In order to effect the Merger, Holdernam transferred the Common Stock and
Series A Preferred Stock owned by it to its newly-formed wholly-owned
subsidiary, Holcem, on January 7, 1994, in exchange for stock of Holcem. Neither
Holderbank, Holdernam nor Holcem nor any of the directors or executive officers
of any of them has engaged in any other transaction involving the Common Stock
since November 7, 1993.
REASONS FOR THE MERGER
After considering various alternatives to structuring and financing its
operations in North America as discussed above under 'The Merger -- Background
of the Merger,' Holderbank decided that the most advisable course of action was
to merge out the Public Stockholders for cash. Holderbank seeks to merge out the
Public Stockholders primarily for the following reasons:
(i) The Merger will secure for Holderbank the freedom to manage the
business of the Company without the inherent complexities of operating a
U.S. public company.
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(ii) The Merger will avoid the significant costs of maintaining a
publicly-traded U.S. company, particularly with its potential for expensive
and time-consuming litigation. The management of the Company and the
management of Holdernam have estimated that such savings may exceed
$500,000 per year apart from any litigation.
(iii) The Merger will allow Holderbank to fully control the cash flow
of the Company so that, if and when opportune, it might reinvest such funds
in business opportunities elsewhere.
(iv) The Merger will confirm Holderbank's industrial operating-company
status in the European and other financial markets.
The Merger was structured as a short-form merger because this approach is
expressly permitted and provided by Delaware law and is the most efficient way
to achieve the intended purposes. The board of directors of Holcem considered
the possibility of making the Merger subject to approval by a special committee
of independent directors of the Company and/or by the vote of at least a
majority of the shares of Common Stock held by the Public Stockholders. The
board of directors of Holcem decided against using such procedures for a number
of reasons, principally because the DGCL specifically makes available the
short-form merger described in this Disclosure Statement and Notice and because
the board of directors felt confident that it could, with the advice of Merrill
Lynch, arrive at a price per share that is fair to the Public Stockholders. The
Merger was undertaken at this time because, among other reasons, contractual
restrictions on such action arising in relation to the Ideal Merger lapsed in
March 1993, because equity offerings completed in 1993 by Holderbank have
enhanced its ability to undertake the transaction in 1994 and because reviews by
the management of the Company and the management of Holderbank in October and
November of 1993 and in February and March of 1992 of the advantages and
disadvantages of various alternative courses of action with respect to the
structure and financing of operations in the United States discussed above have
led to decisions being made at this time. More specifically, Holderbank
determined that it does not wish to increase public minority investment in the
Company because it does not believe such action would support Holderbank's
long-term objectives of maximizing the attractiveness of Holderbank's stock to
investors, maximizing Holderbank's financial efficiency and optimizing
flexibility regarding the operations of its subsidiaries. Having reached this
conclusion, Holderbank further determined that there were no significant
advantages and several disadvantages (namely, inherent operating complexities,
significant costs and the potential for litigation) to having the Public
Stockholders as continuing minority investors in the Company. This determination
in turn led to Holderbank's decision to effect a cash out merger of the Public
Stockholders.
POSITION OF THE BOARDS OF DIRECTORS
The boards of directors of Holderbank (acting through its special
committee), Holdernam and Holcem (collectively, the 'Boards') believe that the
Merger is fair to the Public Stockholders. The material factors on which this
belief is based and which support the conclusion that the Merger is fair to the
Public Stockholders include the following:
(i) Historical results of operations of the Company over the last
several years with particular note of significant operating losses
generated by the Company since the Company became a public company in 1990.
(ii) The fact that the industry in which the Company operates is
cyclical and there is some evidence that the industry is currently in a
period of growth in demand, with scant new capacity recently added or in
prospect, and that in certain markets prices for the Company's products may
increase.
(iii) The assets, liabilities, financial condition, business and
operations of the Company and the Boards' judgment concerning the future
prospects for the Company's business in light of the Company's competition,
forecasts of sales and costs, and projected levels of required capital
investment, corporate overhead, litigation expenses and environmental
expenses. A long-term concern with potential adverse effect on the
Company's profitability is that while approximately 31% of United States
cement manufacturing capacity employs the less efficient wet process, about
60% of the Company's capacity is wet process. In general, the Company's wet
process plants
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currently compete in markets supplied by other manufacturers with similar
cost structures. However, if these competitors upgrade their plants (e.g.,
by converting from wet to dry process), the Company could become
competitively disadvantaged in some markets unless it makes significant
additional investments to effect similar conversions. If cement price
levels (after adjusting for inflation) are not adequate to support such
investment, the Company could experience deterioration in profitability or
losses. Over the almost thirty year period from 1960 to 1989, cement price
levels after adjustment for inflation trended downward.
(iv) The opinion, dated January 7, 1994, of Merrill Lynch, as
financial advisor to Holdernam, that, on the basis and subject to the
matters set forth therein, as of the date of such opinion, the proposed
$7.65 per share of Common Stock to be received by the Public Stockholders
in the Merger is fair from a financial point of view to such stockholders;
and the considerations and analyses reflected therein and presented to the
Boards by Merrill Lynch. The Boards adopted Merrill Lynch's conclusion and
analyses as their own, but emphasized additional factors, as set forth
herein, further to support their judgment.
(v) The relationship between the price to be paid in the Merger and
the trading history of the Common Stock, including the level of trading
activity in the Common Stock and the fact that the price to be paid in the
Merger represents a premium of approximately 13.3% over the closing sales
price of $6.75 on the NYSE on January 6, 1994, the last trading day before
the public announcement of the Merger.
In view of the variety of factors considered in connection with their
evaluation of the Merger, the Boards did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative weights to the specific
factors they considered. However, the Boards gave particular weight to the
factors discussed in (iii) and the analyses and opinion described in (iv) above.
The Boards also considered that the Public Stockholders may elect to have the
value of their shares appraised by the Court of Chancery of the State of
Delaware in accordance with Section 262 of the DGCL.
Because the Merger is structured as a short-form merger requiring only the
consent of the board of directors of Holcem concurred in by Holcem's sole
stockholder, Holdernam, the Merger was not submitted to a vote of the directors
of the Company and the approval of a majority of the directors of the Company
who are not employees of the Company was not sought.
As permitted by Section 253 of the DGCL, the Merger has been structured as
a short-form merger requiring only the consent of the board of directors of
Holcem as the holder of more than 90% of the Common Stock and all the Series A
Preferred Stock of the Company concurred in by Holcem's sole stockholder,
Holdernam. The Boards decided not to condition the Merger on the affirmative
vote of at least a majority of the shares of Common Stock held by the Public
Stockholders or the approval by a special committee of independent directors of
the Company and not to have the independent directors of the Company retain an
unaffiliated representative to act solely on behalf of the Public Stockholders
for purposes of negotiating the terms of the Merger or preparing a report
concerning the fairness of the Merger to the Public Stockholders. However,
Holdernam did retain Merrill Lynch as an unaffiliated representative to render
an opinion whether, from a financial point of view, the cash consideration to be
received by the Public Stockholders in the Merger is fair solely with respect to
such stockholders and without considering fairness to the stockholders of
Holderbank. The Boards understood that, under Delaware law, the Public
Stockholders are entitled to 'entire fairness' with respect to the Merger. The
board of directors of Holcem felt confident that it could, with such advice from
Merrill Lynch, arrive at a price per share that is fair to such Public
Stockholders. The Boards also noted that the Public Stockholders may elect to
have the value of their shares appraised by the Court of Chancery of the State
of Delaware in accordance with Section 262 of the DGCL. On advice from their
counsel that their responsibility was not to negotiate the best price for
Holcem, Holdernam or Holderbank but instead solely to ensure that the Public
Stockholders are treated with entire fairness, on January 7, 1994, the Boards,
for the reasons described above, concluded that the Merger satisfies their
obligation of entire fairness to the Public Stockholders.
To the knowledge of Holderbank, Holdernam and Holcem after making
reasonable inquiry, no executive officer or director of the Company, other than
those who are directors of Holderbank, Holdernam or Holcem (all of whom voted
for the Merger), has made a recommendation in support of
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or opposed to the Merger. Each outstanding share of Common Stock owned by
executive officers and directors of the Company will also be converted into the
right to receive $7.65 in cash. As of January 6, 1994, all directors and
executive officers of the Company as a group owned an aggregate of 321,967
shares of Common Stock, including 230,887 shares which could be acquired
pursuant to currently exercisable stock options. See 'Principal and Management
Stockholdings -- Security Ownership of Management' and 'Principal and Management
Stockholdings -- Security Ownership of Directors and Executive Officers of
Holderbank, Holdernam and Holcem.'
In connection with the Merger, a special committee of the board of
directors of Holderbank formed for the purpose of considering the Merger acted
for such board of directors and each reference in this Disclosure Statement and
Notice to the board of directors of Holderbank is a reference to such special
committee. The special committee consisted of Thomas Schmidheiny, the Chairman,
Managing Director and Chairman of the Executive Committee of Holderbank, Dr.
Anton E. Schrafl, the Deputy Chairman of Holderbank, Dr. Max D. Amstutz, a
Managing Director of Holderbank and Vice Chairman of the Executive Committee,
Professor Dr. Angelo Pozzi, a director of Holderbank and director of Motor-
Columbus AG of Switzerland, and Dr. Jean-Claude Wenger, a director of Holderbank
and a lawyer. Except for Dr. Schrafl, who is a director of the Company and owns
250 shares of Common Stock, none of these persons has any interest in the Common
Stock or other securities of the Company or other involvement with the Company
except through his positions with Holderbank. See 'Principal and Management
Stockholdings.' The special committee was advised that its responsibility was to
ensure fair value to the Public Stockholders, not the transaction most favorable
to Holderbank. The special committee, with the advice of Merrill Lynch, felt
fully capable of discharging this duty to the Public Stockholders. The board of
directors of Holderbank has ratified the actions of the special committee.
OPINION OF FINANCIAL ADVISOR
Holdernam retained Merrill Lynch to act as its exclusive financial advisor
in connection with the possible acquisition of all of the outstanding shares of
Common Stock (the 'Holnam Shares') not owned by Holdernam or its affiliates. On
January 7, 1994, Merrill Lynch delivered its oral opinion, subsequently
confirmed in a written opinion, dated January 7, 1994, to the Boards, that on
the basis of and subject to the matters set forth therein, as of the date of
such opinion, the proposed cash consideration to be received by the Public
Stockholders in the Merger is fair to such stockholders from a financial point
of view (the 'Fairness Opinion'). No limitations were imposed by Holdernam with
respect to the investigations made or procedures followed by Merrill Lynch in
rendering the Fairness Opinion, except that Merrill Lynch was not authorized to,
and did not, solicit indications of interest for the acquisition of all or any
part of the Company.
A COPY OF THE FAIRNESS OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX D
TO THIS DISCLOSURE STATEMENT AND NOTICE AND IS INCORPORATED HEREIN BY REFERENCE.
THE SUMMARY OF THE FAIRNESS OPINION OF MERRILL LYNCH SET FORTH IN THIS
DISCLOSURE STATEMENT AND NOTICE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION. THE PUBLIC STOCKHOLDERS ARE URGED TO READ SUCH
OPINION IN ITS ENTIRETY.
Merrill Lynch's opinion is directed only to the fairness from a financial
point of view of the consideration to be received by the Public Stockholders in
the Merger. Merrill Lynch did not consider fairness to Holcem, Holdernam or the
stockholders of Holderbank. The consideration to be paid to the Public
Stockholders in the Merger was determined by the board of directors of Holcem
and concurred in by the board of directors of each of Holdernam and Holderbank.
In arriving at its opinion, Merrill Lynch, among other things, (1) reviewed
the Company's annual reports to stockholders for the three fiscal years ended,
and its Annual Report on Form 10-K for the two fiscal years ended, December 31,
1992 and the related audited financial information included therein, and the
Company's unaudited financial information and related Quarterly Reports on Form
10-Q for the three-, six-and nine-month periods ended March 31, June 30 and
September 30, 1993, respectively; (2) reviewed the annual reports to
stockholders and related audited financial information of St. Lawrence for the
three fiscal years ended December 31, 1992; (3) reviewed certain information,
including financial projections, relating to the businesses, earnings, cash
flow, assets and prospects of the Company, based upon information furnished to
Merrill Lynch by the Company, and of St. Lawrence,
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furnished to Merrill Lynch by St. Lawrence; (4) conducted discussions with
members of senior management of the Company and St. Lawrence concerning their
respective businesses and prospects, and conducted discussions with members of
senior management of Holderbank and Holdernam concerning such businesses and
prospects; (5) reviewed the Registration Statement on Form S-4 of the Company,
including the combined Proxy Statement and Prospectus dated February 14, 1990
included therein, filed with the Securities and Exchange Commission (the
'Commission') in connection with the Ideal Merger; (6) reviewed the current and
historical market prices and trading activity for the Common Stock and compared
them with that of certain publicly traded companies that Merrill Lynch deemed to
be reasonably similar to the Company, in whole or in part; (7) reviewed the
current and historical market prices and trading activity for the Class A
subordinate shares of St. Lawrence (the 'St. Lawrence Shares'); (8) compared the
results of operations of the Company with those of certain companies that
Merrill Lynch deemed to be reasonably similar to the Company, in whole or in
part; (9) reviewed a draft dated January 6, 1994 of the Certificate of Ownership
and Merger; (10) reviewed the Certificate of Designation relating to the Series
A Preferred Stock; (11) reviewed a draft dated January 6, 1994 of the Rule 13e-3
Transaction Statement, including the Disclosure Statement and Notice included
therein, proposed to be filed with the Commission in connection with the Merger;
(12) compared the financial terms of the transactions contemplated by the
January 6, 1994 draft of the Certificate of Ownership and Merger with the
financial terms of certain other business combinations and other transactions
that Merrill Lynch deemed to be relevant; and (13) reviewed such other financial
studies and analyses and performed such other investigations and took into
account such other matters as it deemed necessary.
In preparing its opinion Merrill Lynch relied without independent
verification upon the accuracy, completeness and fair presentation of all
financial and other information provided to it by Holderbank, Holdernam, the
Company and St. Lawrence, including information concerning certain tax matters
relevant to its analysis, or which was publicly available. In addition, Merrill
Lynch has not made an independent appraisal of any of the assets or liabilities
of the Company or St. Lawrence or of the shares of St. Lawrence. With respect to
the financial forecasts referred to above, Merrill Lynch assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of the Company or St. Lawrence, as the
case may be, as to the future financial performance of the Company or St.
Lawrence, as the case may be, and that the management of Holderbank and
Holdernam concur in those estimates and judgments. Merrill Lynch's opinion is
based upon general economic, market, monetary and other conditions as they
existed and can be evaluated, and upon the information made available to Merrill
Lynch, as of the date of its opinion.
The matters considered by Merrill Lynch in arriving at its opinion are
based upon numerous macroeconomic, operating and financial assumptions and
involve the application of complex methodologies and educated judgment. Any
estimates incorporated in the analyses performed by Merrill Lynch are not
necessarily indicative of actual past or future values or results, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future or at which their shares of
capital stock may trade in the future. Because such estimates are inherently
subject to uncertainty, none of Holderbank, Holdernam, Holcem, the Company, St.
Lawrence, Merrill Lynch or any other person assumes responsibility for their
accuracy.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in connection with the Fairness Opinion which it
discussed with the Boards. The summary of the financial and comparative analyses
set forth below does not purport to be a complete description of the analyses
employed by Merrill Lynch in reaching its opinion. Merrill Lynch believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all such
factors and analyses, could create a misleading view of the processes underlying
its opinion. Arriving at a fairness opinion is a complex process not necessarily
susceptible to partial or summary description.
In delivering its oral opinion on January 7, Merrill Lynch advised the
Boards that it could not give specific percentage weights to particular factors
in the following analyses. However, in response to questions by members of the
Boards, Merrill Lynch noted that it had considered (i) going concern
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values calculated from the analysis of companies comparable to the Company and
the discounted cash flow analysis of the Company described below relatively
important; (ii) both current and historical market prices of the Common Stock as
less important because for a thinly traded security like the Common Stock market
prices may be volatile and change rapidly while values of companies do not; and
(iii) net book value of the Common Stock and liquidation value relatively
unimportant because Merrill Lynch had been advised that no consideration had
been given to liquidating the assets of the Company and Merrill Lynch was not
authorized to and did not solicit indications of interest for the acquisition of
all or any part of the Company. In addition, Merrill Lynch noted that the
Company's public disclosure documents indicate that previous prices paid by
Holdernam for Common Stock were between $4.00 and $5.00 per share. See 'The
Merger -- Background of the Merger -- Holderbank's Investments in the United
States and Canada.'
Stock Trading History. Merrill Lynch reviewed and analyzed the historical
market prices and trading activity and volume for the Holnam Shares and for the
St. Lawrence Shares. In addition, Merrill Lynch reviewed and analyzed the
relationship between movements of the prices of the Holnam Shares and movements
in the Standard & Poor's Industrials average of approximately 500 stocks and of
the prices of the St. Lawrence Shares on the Toronto Stock Exchange 300
Composite Price Index. As a result of its analysis, Merrill Lynch concluded that
the price of the Holnam Shares and the St. Lawrence Shares already reflected the
expectation of financial improvement in the cement industry in general and the
Company and St. Lawrence in particular.
Stock Market Analysis of the Company. Merrill Lynch determined the 52 week
high and low closing prices of the Holnam Shares on the NYSE. This analysis
resulted in an equity reference range of $2.88 to $7.38 per Holnam Share.
Analysis of Selected Comparable Publicly Traded Companies. Merrill Lynch
compared certain financial information for the Company to the corresponding
publicly available financial information of certain other publicly traded
companies that Merrill Lynch believed to be comparable to the Company. The
companies that Merrill Lynch determined comparable are Lafarge Corp., Medusa
Corp. and Southdown Inc. For such companies, Merrill Lynch calculated multiples
of such companies' (i) current stock price to projected 1994 fiscal year
earnings per share ('EPS'), (ii) market capitalization (defined as the product
of primary shares outstanding and market price, plus preferred equity and debt
and less cash and marketable securities) to projected 1994 fiscal year earnings
before interest and taxes ('EBIT'), and (iii) market capitalization to projected
1994 fiscal year earnings before interest, taxes, depreciation and amortization
('EBITDA').
An analysis of the multiples for the group of comparable companies, as
adjusted to exclude certain results that Merrill Lynch considered anomalous,
yielded the following ranges of multiples: (1) stock price to 1994 EPS of 19.6x
to 23.0x (with a mean of 21.0x); (2) market capitalization to 1994 EBIT of 9.5x
to 15.7x (with a mean of 12.8x); and (3) market capitalization to 1994 EBITDA of
6.0x to 9.7x (with a mean of 8.0x).
Merrill Lynch then calculated aggregate per share imputed equity values for
the Company by applying the Company's forecasted financial results to the
multiples derived from Merrill Lynch's analysis described above. Based on this
analysis, Merrill Lynch calculated equity reference ranges per Holnam Share of
$6.30 to $7.39 (with a mean of $6.75) based on stock price to 1994 EPS, $3.73 to
$8.02 (with a mean of $6.01) based on market capitalization to 1994 EBIT, and
$4.24 to $8.53 (with a mean of $6.56) based upon market capitalization to 1994
EBITDA. In making this calculation, and in calculating the amounts per Holnam
Share described below, Merrill Lynch assumed the conversion of all outstanding
shares of Series A Preferred Stock and the exercise of all options exercisable
for Common Stock at a price below the closing market price as of January 4,
1994.
No company utilized by Merrill Lynch in the comparable company analysis is
identical to the Company. Accordingly, an analysis of the results of such a
comparison is not mathematical; rather, it involves complex considerations and
judgments concerning differences in historical and forecasted financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading value of such companies and the Company.
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Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis of the Company. In performing its analysis, Merrill Lynch first
performed a discounted cash flow analysis of the Holnam Operations. Second,
Merrill Lynch calculated the present value of net operating losses of the
Company. Merrill Lynch then calculated the value of the St. Lawrence Interest
using three different methodologies: (i) a going concern value derived from the
present value of a projected dividend stream from the St. Lawrence Interest;
(ii) a liquidation value derived from a discounted cash flow analysis of St.
Lawrence; and (iii) the aggregate stock market price of the St. Lawrence
Interest. Finally, Merrill Lynch added the sum of the calculated value of Holnam
Operations and the net operating losses to each of the three calculated values
for the St. Lawrence Interest in order to calculate three different equity
ranges for the Company.
Discounted Cash Flow Analysis of Holnam Operations. In performing its
discounted cash flow analysis of Holnam Operations, Merrill Lynch calculated an
equity value range for Holnam Operations based upon the present value of the
projected stream of unlevered free cash flow of Holnam Operations reflected in
the Holnam Operations Projections. Merrill Lynch used discount rates of 8.92% to
12.92% to calculate the present value of the forecasted stream of free cash
flows based upon variations of up to plus or minus 2% of the weighted average
cost of capital ('WACC') of Holnam Operations of 10.92%. Merrill Lynch used EBIT
multiples of 12.0x to 19.6x to calculate the present value of the terminal value
of such cash flow at year-end 2002. The EBIT multiples used by Merrill Lynch
were based on a ten year average of EBIT multiples in the cement industry and
were applied to the average projected EBIT of Holnam Operations from 1994
through 2002. After subtracting Holnam Operations' net debt, Merrill Lynch
calculated the effect of an increase in average cement prices projected by the
management of the Company by both $1.00 and $3.00 per ton (above, for example, a
projected average 1994 price of $57.82 per ton), in each case utilizing a
discount rate equivalent to the Company's WACC. Based on this analysis, Merrill
Lynch calculated an aggregate equity reference range for Holnam Operations of
$309,311,000 to $564,509,000 (the 'Holnam Operations DCF Range').
NOL Analysis. The management of the Company provided Merrill Lynch with net
operating loss carry forward figures as of January 1, 1994 that were expected to
be available to the Company during the period of the Holnam Operations
Projections. Applying projected taxable income throughout those years, and
assuming a 40% tax rate and an effective 2% alternative minimum tax rate,
Merrill Lynch calculated the present value of the aggregate effective tax
savings to the Company throughout the projected period of $114,844,000 using a
discount rate of 10.92%, based on the Company's WACC (the 'NOL Amount'). This
calculated tax savings was then added to the Holnam Operations DCF Range.
Going Concern Value of St. Lawrence Interest. Merrill Lynch calculated an
equity value for the St. Lawrence Interest based upon the present value of the
projected dividends for the St. Lawrence Interest (the 'Projected Dividends')
for the fiscal years 1994 through 2002. These projections were jointly prepared
by the management of St. Lawrence and Merrill Lynch and approved by the
management of Holdernam. Merrill Lynch used a discount rate of 16.4%, reflecting
St. Lawrence's cost of equity to calculate the present value of the forecasted
dividend stream. To calculate the present value of the terminal value of the
dividend stream at year-end 2002, Merrill Lynch assumed, based upon the
assessment of St. Lawrence management and Merrill Lynch that long term dividend
growth would be driven primarily by inflation, a perpetual growth rate of 4.0%
of the average of the Projected Dividends from 1994 to 2002. Based on this
analysis, Merrill Lynch calculated an equity value for the St. Lawrence Interest
of $54,180,000 (the 'St. Lawrence Going Concern Amount'). Merrill Lynch then
combined this amount with the Holnam Operations DCF Range and the NOL Amount to
arrive at an equity reference range of $3.34 to $4.52 per Holnam Share.
Discounted Cash Flow Analysis of St. Lawrence Interest. Merrill Lynch
performed a discounted cash flow analysis with respect to St. Lawrence
substantially similar to that performed on the Holnam Operations but based upon
the stream of unlevered free cash flow in the St. Lawrence Projections and using
a discount rate equal to St. Lawrence's WACC of 11.35% and a terminal value of
14.8x based on the ten year industry average EBIT. After subtracting St.
Lawrence's net debt, Merrill Lynch calculated the effect of an increase in
average cement prices projected by the management of St. Lawrence of both Can.
$1.00 and Can. $3.00 per metric ton (above, for example, a projected average
1994 price of Can. $69.37 per metric ton), in each case utilizing a discount
rate equivalent to St. Lawrence's WACC. Based
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on this analysis, Merrill Lynch calculated an equity reference range for the St.
Lawrence Interest of $162,991,000 to $207,582,000 (the 'St. Lawrence DCF
Range'). Merrill Lynch then combined this amount with the Holnam Operations DCF
Range and the NOL Amount to arrive at an equity reference range of $4.09 to
$5.59 per Holnam Share.
Stock Market Analysis of St. Lawrence. Merrill Lynch determined the January
5, 1994 closing price of the St. Lawrence Shares on the Toronto stock exchange.
A percentage of this amount reflecting the St. Lawrence Interest (the 'St.
Lawrence Market Amount') was then combined with the Holnam Operations DCF Range
and the NOL Amount to arrive at an equity reference range of $4.52 to $5.70 per
Holnam Share.
Comparable Acquisition Analysis. Merrill Lynch reviewed the financial terms
of six recent acquisition transactions that it viewed as reasonably comparable
to an acquisition of Holnam Operations. The acquisitions that Merrill Lynch
deemed comparable are Holnam Inc./Midlothian, Medusa/Lafarge Plant,
Ssangyong/Riverside, Beazer/Gifford-Hill, Lafarge/Missouri Davenport and Cement
Mexicanos/Pacific Coast (Lone Star). Due to the scarcity of recent acquisitions
involving large multiplant cement companies like Holnam Operations, many of
these comparable acquisitions concern the purchase of specific production
facilities.
Merrill Lynch divided the transaction value (derived by adding the purchase
price and any assumption of debt) of each comparable acquisition by the capacity
of cement production for each acquired entity, arriving at an acquisition price
per ton of cement production capacity for each acquired entity. Merrill Lynch
did not take into account cost of production in its analysis due to a lack of
reliable public information on the acquisition targets.
Merrill Lynch then multiplied Holnam Operations' cement production capacity
(excluding minority interests) by the high, low and mean price per ton
calculated for the comparable acquired entities, added the value of Holnam
Operations' non-cement assets and subtracted net debt. Using this analysis,
Merrill Lynch calculated an equity reference range for Holnam Operations of
$226,206,000 to $754,298,000. After adding the NOL Amount, Merrill Lynch
combined this range with the St. Lawrence Going Concern Amount, the St. Lawrence
DCF Range, and the St. Lawrence Market Amount, to arrive at equity reference
ranges of $2.76 to $6.43, $3.52 to $7.19 and $3.94 to $7.62, respectively.
Holdernam selected Merrill Lynch as its financial advisor because Merrill
Lynch is an internationally recognized investment banking firm engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions and for other purposes and has substantial experience in
transactions similar to the Merger. Pursuant to an engagement letter dated
December 10, 1993 with Merrill Lynch, Holdernam paid Merrill Lynch an initial
fee for its advisory services of $225,000 and became obligated to pay Merrill
Lynch an additional fee of $500,000 upon consummation of the Merger. In
addition, the engagement letter provides that the Company will reimburse Merrill
Lynch for its reasonable out-of-pocket expenses (including reasonable fees and
disbursements of its legal counsel) and will indemnify Merrill Lynch and certain
related persons against certain liabilities arising out of its engagement.
Merrill Lynch has in the past provided financial advisory and financing
services to Holderbank and received customary fees for rendering such services.
In the ordinary course of its business, Merrill Lynch may also actively trade in
securities of both the Company and St. Lawrence for its own account and for the
account of its customers and, accordingly, may at any time hold a long or short
position in such securities.
Neither Holcem, the Company nor, except as described herein, Holdernam has
currently or has had within the past two years or hereafter contemplates having
any material relationship with Merrill Lynch or any of its affiliates. Merrill
Lynch was a co-managing underwriter of an offering of Holderbank's Subordinated
Convertible Bonds made in July 1993 and received customary compensation in
connection therewith. Holderbank currently has no definite plans to retain
Merrill Lynch in the future.
The Fairness Opinion, as well as the Merrill Lynch presentation material
related thereto and the Goldman Sachs Presentation Material and the November 15
Presentation Material, are available for inspection and copying at the principal
executive offices of Holcem during its regular business hours by any interested
Public Stockholder or his representative who has been so designated in writing.
A copy
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of any of the Fairness Opinion or the Merrill Lynch presentation material
related thereto or the Goldman Sachs Presentation Material or the November 15
Presentation Material will be transmitted by Holcem to any interested Public
Stockholder or his representative who has been so designated in writing upon
written request and at the expense of the requesting stockholder.
POTENTIAL DETRIMENTS AND ADVERSE EFFECTS OF THE MERGER
If the value of the Company increases after the Merger, the Public
Stockholders will not have the opportunity to benefit from that increase. Since
the Common Stock will no longer be publicly traded after the Merger, the Company
will not have access to public U.S. capital markets unless it elects to go
public again in the future and its financing flexibility will to some extent
thereby be reduced. However, the absence of public stockholders is not expected
to diminish the Company's opportunities to obtain private financing.
STOCK OPTIONS AND BENEFIT PLANS
There are currently outstanding under the Holnam Inc. 1990 Stock Option
Plan (the 'Stock Option Plan') employee stock options (including related stock
appreciation rights) to purchase 623,667 shares of Common Stock. These are
comprised of options to purchase 451,667 shares at an exercise price of $7.25
per share that were granted on March 23, 1990, options to purchase 132,000
shares at an exercise price of $5.75 per share that were granted on May 16, 1991
and options to purchase 40,000 shares at an exercise price of $4.375 per share
that were granted on August 15, 1991. All such options are currently
exercisable.
Pursuant to the power granted to it under the Stock Option Plan, the Board
of Directors of the Company has amended all such options to provide that they
will terminate if not exercised by the Effective Time of the Merger. However,
with respect to any option that is not exercised prior to the Effective Time of
the Merger, Holdernam will cause the Company, upon surrender of the option
agreement, to make a cash payment to the optionee in an amount equal to the
number of shares of Common Stock covered by such option immediately prior to the
Effective Time of the Merger multiplied by the difference between the per share
exercise price of their options and the highest closing sales price for the
Common Stock on the NYSE from January 6, 1994 through the Effective Time of the
Merger. If such highest NYSE closing sales price is $7.75 and none of such
options is exercised prior to the Effective Time of the Merger, the aggregate
amount of such payments will be $624,833.50. Funds for this purpose will be
furnished by Holdernam to the Company, in trust, for the benefit of the holders
of such options on the same terms as funds for payment to Public Stockholders
are furnished to the Paying Agent. See 'The Merger -- Payment for Shares.'
In addition to the options granted under the Stock Option Plan, options
held by certain former key employees of Ideal at the time of the Ideal Merger
were repriced and adjusted in connection with the Ideal Merger. These options,
which were issued at exercise prices of $9.50 and $11.00 (each being
considerably higher than the price per share to be paid to the Public
Stockholders in connection with the Merger), are essentially valueless and will
be canceled at the Effective Time of the Merger by action of the Board of
Directors of the Company.
Pursuant to the Holnam Inc. 1990 Employee Stock Purchase Plan (the 'Stock
Purchase Plan'), certain eligible employees of the Company may subscribe for
originally-issued shares of Common Stock at a purchase price of 90% of the
market price (as defined) of the Common Stock on the last business day of each
six-month purchase period. Payment of the purchase price for these shares is
made by participating employees in installments through payroll deductions. Each
of the shares of Common Stock purchased pursuant to the Stock Purchase Plan and
held by participating employees at the Effective Time of the Merger will be
converted into the right to receive $7.65 in cash. The Stock Purchase Plan will
be terminated in connection with the Merger by action of the Board of Directors
of the Company.
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PAYMENT FOR SHARES
Holdernam has selected American Stock Transfer & Trust Company as paying
agent (the 'Paying Agent') to make payments for shares of Common Stock. A letter
of transmittal containing instructions with respect to the surrender of the
stock certificates is enclosed herewith. After the Effective Time of the Merger,
there will be no further transfers on the stock transfer books of the Company of
shares of Common Stock which were outstanding immediately prior to the Effective
Time of the Merger. When a certificate representing such shares is presented for
transfer, it will be canceled and a check representing the value of the Common
Stock will be issued in exchange therefor.
The conversion of the Common Stock into the right to receive cash will
occur at the Effective Time of the Merger without regard to the date or dates on
which certificates for shares of Common Stock are physically surrendered. Each
certificate representing outstanding shares of Common Stock immediately prior to
the Effective Time of the Merger (other than shares owned by Holcem) will, at
the Effective Time of the Merger, be deemed for all corporate purposes to
represent the right to receive cash in lieu of such shares of Common Stock.
Until a certificate which formerly represented shares of Common Stock is
actually surrendered to and received by the Paying Agent, the holder thereof
will not be entitled to receive the cash consideration to which he is entitled.
Subject to applicable law, upon such surrender of the certificates, such
payments will be remitted (without interest) to the record holder, net of any
withholding taxes that may be applicable. All cash consideration payable to
holders of record of Common Stock after the Effective Time of the Merger will be
paid by Holdernam to the Paying Agent, in trust, for the benefit of such
holders. All such amounts held by the Paying Agent which remain unclaimed at the
end of one year after the Effective Time of the Merger will be paid to the
Company after which time the Company will act as paying agent and any holder of
a certificate which formerly represented Common Stock will, subject to
applicable law, be entitled to look as a general creditor only to the Company
for payment. However, neither the Company, Holdernam nor the Paying Agent will
be liable to a holder of Common Stock for any cash delivered to a public
official pursuant to applicable escheat laws.
AMENDMENT AND ABANDONMENT
The board of directors of Holcem may at any time prior to the filing of the
Certificate of Ownership and Merger with the Secretary of State of the State of
Delaware amend or supplement the Certificate of Ownership and Merger. Any
amendment or supplement to the Certificate of Ownership and Merger made prior to
such filing that is material to the Public Stockholders will be the subject of
additional disclosure material.
The board of directors of Holcem may also at any time prior to such filing
terminate and abandon the Merger for any reason sufficient unto itself. The
board of directors of Holcem does not currently intend to amend or supplement
the Certificate of Ownership and Merger or terminate and abandon the Merger.
SOURCE OF FUNDS; EXPENSES
Holderbank will provide the necessary funds to pay the Public Stockholders
for the shares of Common Stock held by them, to make payments with respect to
employee stock options and to pay the costs and expenses of the Merger. The
aggregate of such amounts is expected to be approximately $54,275,776 if all
stock options are exercised and no Public Stockholders perfect their dissenters'
appraisal rights and approximately $53,775,677 if no stock options are exercised
and no Public Stockholders perfect their dissenters' appraisal rights.
Holderbank will borrow such funds under existing lines of credit which are
more than sufficient for this purpose. Holderbank will make these funds
available to Holdernam as a contribution to the capital of Holdernam.
All costs and expenses incurred by Holcem, Holdernam, Holderbank or the
Company in connection with the Merger, including Commission filing fees, legal
fees and expenses, accounting fees and expenses, printing expenses, investment
banker's fees and expenses and the Paying Agent's fees and
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expenses, will be paid by Holdernam from such funds provided by Holderbank. Such
costs and expenses are estimated to be approximately $1,200,000 in the
aggregate.
PLANS AND PROPOSALS
Following the Merger, subject to obtaining any amendments, consents or
waivers of the provisions in the Company's debt instruments that may be required
as well as to the Company's ability to provide necessary funding on acceptable
terms, the Company may amend its restated certificate of incorporation so as to
permit the redemption of its preferred stock before it currently becomes
redeemable, which is May 15, 1997.
THE COMPANY'S POST-MERGER CAPITAL STOCK
In the Merger, the Company's restated certificate of incorporation will be
amended to change the capital stock the Company is authorized to issue. The
number of authorized shares of Common Stock will be reduced from 200,000,000
shares to 2,000 shares, of which 1,000 will be issued to Holdernam. The number
of authorized shares of preferred stock will be reduced from 50,000,000 shares
to 2,000 shares, of which 1,034.71333 shares, having rights and preferences
equal to the rights and preferences (including liquidation and redemption value)
of the 620,828 shares of Series A Preferred Stock currently held by Holcem, will
be issued to Holdernam. These changes to the Company's capital stock are
expected to reduce the annual franchise taxes payable by the Company to the
State of Delaware by up to $149,000 and permit the Company to pay less of
similar taxes to other states in the United States where the Company is
authorized to transact business.
REPORTING REQUIREMENTS AND EXCHANGE LISTING
As a result of the Merger, the Company will have only one stockholder and
will be able and intends to terminate its reporting obligations under the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and to remove
the Common Stock from listing on the NYSE.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material Federal income tax
consequences to the Public Stockholders who are citizens and residents of the
United States. It does not discuss all the tax consequences that may be relevant
to the Public Stockholders entitled to receive special treatment under the
Internal Revenue Code of 1986, as amended (such as insurance companies, foreign
persons and tax-exempt organizations), or to Public Stockholders who acquired
their shares of Common Stock pursuant to the exercise of employee stock options
or otherwise as compensation.
Under present law, the Merger of Holcem with and into the Company will be
treated for Federal income tax purposes as a taxable purchase by Holdernam of
the Company's stock from the Public Stockholders.
Gain or loss will be recognized by the Public Stockholders upon their
receipt of cash in exchange for their Common Stock equal to the difference
between the cash received and the Public Stockholders' basis in the stock
exchanged. Such gain or loss will be characterized as capital gain or loss to a
Public Stockholder if the Common Stock being exchanged was a capital asset in
the hands of such Public Stockholder, and will be long-term capital gain or loss
if such stock was held by such Public Stockholder for a period of more than one
year.
The Merger will not give rise to any taxable gain or loss for Federal
income tax purposes to the Company, Holdernam, Holderbank or Holcem.
A ruling has not been requested from the Internal Revenue Service (the
'IRS') with regard to any of the Federal income tax consequences of the Merger
and the statements as to the Federal income tax consequences of the Merger set
forth above will not be binding on the IRS.
THE FOREGOING IS ONLY A GENERAL DESCRIPTION OF THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER WITHOUT REGARD TO THE PARTICU-
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LAR FACTS AND CIRCUMSTANCES OF EACH PUBLIC STOCKHOLDER'S TAX SITUATION. PUBLIC
STOCKHOLDERS OF THE COMPANY ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THEM, AND ALSO AS TO ANY
STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES.
APPRAISAL RIGHTS
THE FOLLOWING SUMMARY OF THE RIGHTS OF THE PUBLIC STOCKHOLDERS SEEKING
APPRAISAL UNDER SECTION 262 OF THE DGCL DOES NOT PURPORT TO BE A COMPLETE
STATEMENT THEREOF AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
APPLICABLE STATUTORY PROVISIONS OF THE DGCL, WHICH ARE ATTACHED TO THIS
DISCLOSURE STATEMENT AND NOTICE AS ANNEX E.
If the Merger is consummated, a holder of record of Common Stock at the
Effective Time of the Merger who has followed the procedures set forth under
Section 262 of the DGCL ('Section 262') will be entitled to have any or all of
his shares of Common Stock appraised by the Delaware Court of Chancery under
Section 262. Section 262 represents the exclusive statutory remedy available
under Delaware law to holders of Common Stock who elect to seek appraisal of the
fair value of their shares. Persons who are beneficial owners of Common Stock
but whose shares are held of record by another person, such as a broker, bank or
nominee, should timely instruct the record holder to follow the procedure
outlined below if such persons wish to seek appraisal with respect to any or all
of their shares. Failure to take any necessary step may result in a termination
or waiver of appraisal rights under Section 262.
A holder of record of Common Stock electing to exercise appraisal rights
under Section 262 must deliver a written demand for appraisal of his Common
Stock to the Company prior to February 22, 1994, the proposed Effective Time of
the Merger. The written demand must be mailed or delivered to the Company at
6211 North Ann Arbor Road, Dundee, Michigan 48131, Attention: Robert J. Moir,
Esq. Such written demand must reasonably inform the Company of the identity of
the stockholder of record and that such stockholder intends thereby to demand
the appraisal of his shares of Common Stock.
Only the holder of record of Common Stock is entitled to seek appraisal of
the fair value for the shares registered in such holder's name. The demand for
appraisal must be executed by or for the holder of record, fully and correctly,
as such holder's name appears on the holder's stock certificates. If the stock
is owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, the demand should be made in that capacity, and if the stock is owned
of record by more than one person, as in a joint tenancy or tenancy in common,
the demand should be made by or for all owners of record. An authorized agent,
including one of two or more joint owners, may execute the demand for appraisal
for a holder of record; however, such agent must identify the record owner or
owners and expressly state, in such demand, that the agent is acting as agent
for the record owner or owners of such shares.
A record holder, such as a broker, who holds Common Stock as a nominee for
beneficial owners, some of whom desire to demand appraisal, must exercise
appraisal rights on behalf of such beneficial owners with respect to the shares
held for such beneficial owners. In such case, the written demand should set
forth the number of shares of Common Stock covered thereby. Otherwise, such
demand will be presumed to cover all shares held in the name of such record
owner.
Within 120 days after the Effective Time of the Merger, the Company or any
Public Stockholder who has complied with the applicable provisions of Section
262 and who is otherwise entitled to appraisal rights under Section 262, may
file a petition in the Delaware Court of Chancery demanding a determination of
the value of the Common Stock of all the Public Stockholders seeking appraisal.
Public Stockholders seeking to exercise appraisal rights should not assume that
the Company will file a petition with respect to the appraisal of the fair value
of the shares of Common Stock of such stockholders or that the Company will
initiate any negotiations with respect to the fair value of such shares.
Accordingly, Public Stockholders should initiate all necessary action with
respect to the perfection of their appraisal rights within the time periods and
in the manner prescribed in Section 262.
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Within 120 days after the Effective Time of the Merger, any Public
Stockholder who has complied with the above-described provisions of Section 262
is entitled, upon written request, to receive from the Company a statement
setting forth the aggregate number of shares of Common Stock with respect to
which demands for appraisal have been received by the Company and the aggregate
number of holders of such shares. Such written statement must be mailed to the
stockholder within ten days after his written request therefor has been received
by the Company or within ten days after the Effective Time of the Merger,
whichever is later.
If such petition for a determination of the value of the shares of Common
Stock of Public Stockholders entitled to appraisal rights is timely filed as
discussed above, after a hearing on such petition, the Delaware Court of
Chancery will determine the Public Stockholders entitled to appraisal rights and
will appraise the shares of Common Stock owned by such stockholders, determining
the fair value of such shares exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid on the amount determined to be the fair value. In
determining fair value, the Delaware Court of Chancery is to take into account
all relevant factors. Upon application of a Public Stockholder, the Delaware
Court of Chancery may order that all or a portion of the expenses incurred by
any Public Stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all shares of Common Stock entitled to appraisal.
Any Public Stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the Effective Time of the Merger, be entitled to
vote the shares of Common Stock subject to such demand for any purpose or to
receive payment of dividends or other distributions on such shares, except for
dividends or other distributions payable to Public Stockholders of record as of
a day prior to the Effective Time of the Merger.
A Public Stockholder will effectively lose his right to appraisal if no
petition for appraisal is filed in the Delaware Court of Chancery within 120
days after the Effective Time of the Merger. A Public Stockholder may withdraw
his demand for appraisal within 60 days after the Effective Time of the Merger
by delivering to the Company a written withdrawal of such stockholder's demand
for an appraisal and an acceptance of the Merger, and may withdraw such demand
for appraisal thereafter with the written approval of the Company.
In the event an appraisal proceeding is properly instituted, such
proceeding may not be dismissed as to any Public Stockholder who has established
his right of appraisal under the provisions of Section 262 without the approval
of the Delaware Court of Chancery, and any such approval may be conditioned upon
such terms as the Court of Chancery deems just.
FAILURE TO TAKE ANY REQUIRED STEP IN CONNECTION WITH THE EXERCISE OF
APPRAISAL RIGHTS MAY RESULT IN THE TERMINATION OF SUCH RIGHTS. IN VIEW OF THE
COMPLEXITY OF THESE PROVISIONS OF THE DGCL, PUBLIC STOCKHOLDERS WHO ARE
CONSIDERING EXERCISING THEIR RIGHTS UNDER SECTION 262 SHOULD CONSULT THEIR LEGAL
ADVISORS.
This Disclosure Statement also constitutes notice by the Company to the
Public Stockholders pursuant to Section 262(d)(2) that appraisal rights are
available for any or all of the shares of Common Stock owned by them.
STOCKHOLDERS' LITIGATION
On January 14, 1994, the Company and Holdernam, together with the directors
of the Company, were served with two substantially similar complaints,
purportedly brought as class actions by alleged Public Stockholders of the
Company on behalf of themselves and all other stockholders except for those
'related to or affiliated with' any defendant. Schulman v. Holnam Inc. and
Holdernam Inc., et al., C.A. No. 13336 (Del. Ch. filed Jan. 13, 1994); and
Hartman v. Holnam Inc. and Holdernam Inc., et al., C.A. No. 13324 (Del. Ch.
filed Jan. 10, 1994). Both complaints allege breaches of fiduciary duty and
conflicts of interest under Delaware law as well as failure to disclose material
non-public information as to the value of the Common Stock. Each complaint prays
for preliminary as well as permanent injunctive relief and, in the event the
Merger is consummated, recision plus the award of rescissory damages.
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Though defendants have not yet been served with any additional complaints,
counsel for plaintiffs as well as the court clerk's office in Delaware have
advised counsel for defendants that at least two more substantially similar
complaints have been filed, but not yet served, and defendants' counsel further
believe that a third such additional complaint is soon to be filed.
Counsel for defendants and representatives of counsel for each plaintiff
have conferred and agreed to propose to the Delaware Court consolidation for
purposes of discovery as well as trial of all such substantially similar
proceedings. In addition, on January 19, 1994, defendants' counsel was served
with an Amended Class Action Complaint which the parties will propose to the
court as the Consolidated Complaint (a copy of which is available to any Public
Stockholder upon written request to Holcem).
Named as defendants in the Amended Class Action Complaint are the Company,
Holcem and Holdernam, as well as three individuals, Peter Byland and Max
Amstutz, directors of each of the three corporate defendants and Anton E.
Schrafl, a director of the Company as well as a member of the special committee
of the Holderbank Board that approved the price of $7.65 as fair value to the
Public Stockholders. The Amended Class Action Complaint alleges that 'the
proposed merger is in furtherance of a fraudulent plan to take Holnam private,
violates the fiduciary duties to the Holnam minority, and has been timed and
structured unfairly in that'
-- Members of the Class would be eliminated as Public Stockholders at a
price per share which defendants knew or know is unfair and inadequate;
-- Holderbank and Holcem, aided and abetted by the individual
defendants, have structured and timed the transaction in an unfair
manner and have engaged in unfair dealing;
-- Holdernam and Holcem have unique knowledge of the Company and have
access to information denied or unavailable to the Class. Without
all material information, Class members are unable to determine
whether the price offered in the transaction is fair or whether they
should seek appraisal; and
-- Finally, defendants control the Company and it is unfair as well as
a violation of their fiduciary duties to consummate the Merger without
first obtaining the recommendation and input by a truly independent
representative of the Public Stockholders or otherwise ensuring a fair
price is offered.
By way of relief, the Amended Complaint seeks preliminary and permanent
injunctive relief against consummation of the Merger. Further, in the event the
Merger is consummated, the Amended Complaint prays for rescission of the Merger
and rescissory damages. Counsel for defendants believe the Amended Complaint to
be without merit and each defendant intends to contest its various claims.
Finally, counsel for defendants and counsel for plaintiffs intend to
cooperate in endeavoring to agree upon a schedule for expedited discovery to
enable a hearing on any motion for preliminary relief that plaintiffs may decide
to press in advance of February 22, 1994, the date the Merger is now scheduled
to take place.
MARKET INFORMATION AND DIVIDEND POLICY
MARKET INFORMATION
The Common Stock is listed on the NYSE under the symbol HLN. The trading of
such stock began on March 9, 1990.
The following table sets forth for the period indicated the quarterly high
and low sales prices of the Common Stock for 1993 and 1992 as reported on the
NYSE composite transactions tape:
<TABLE>
<CAPTION>
1993 SALES 1992 SALES
PRICES PRICES
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter.................................................... $3.875 $2.875 $5.00 $3.75
Second Quarter................................................... 5.625 2.875 4.25 2.875
Third Quarter.................................................... 5.50 4.125 3.375 2.875
Fourth Quarter................................................... 7.375 4.625 4.25 2.625
</TABLE>
22
<PAGE>
The closing sales price for the Common Stock on the NYSE on January 6,
1994, the last trading day before the public announcement of the Merger, was
$6.75.
HOLDERS
The approximate number of record holders of the Common Stock as of January
6, 1994 was 6,260.
DIVIDENDS
The Company has paid no dividends on its Common Stock during the past two
fiscal years. Certain of the Company's debt instruments presently limit the
Company's ability to pay dividends on the Common Stock. The most restrictive
such limit provides that the Company may declare and pay cash dividends on the
Common Stock up to a maximum of $15,000,000 in any fiscal year if the ratio of
earnings before interest, taxes, depreciation and amortization (excluding St.
Lawrence) to interest expense (excluding St. Lawrence) is 3.00 or greater. Under
this limit, the Company was not permitted to pay cash dividends with respect to
1992 and is not expected to be permitted to pay cash dividends with respect to
1993. Payment of dividends is otherwise within the discretion of the Company's
Board of Directors and will depend on the earnings, capital requirements and
operating and financial condition of the Company, among other factors.
RATIO OF EARNINGS TO FIXED CHARGES
For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of the amount of fixed charges plus earnings before income
taxes and extraordinary items. Fixed charges consist of interest and the portion
of rent deemed representative of the interest factor. For the years ended
December 31, 1991 and 1992 and the nine months ended September 30, 1993,
earnings as defined were less than fixed charges by approximately $115,570,000,
$66,112,000 and $3,073,000, respectively.
BOOK VALUE PER SHARE
The Company's book value per share as of December 31, 1992 was $3.23 and as
of September 30, 1993 was $2.69.
PRINCIPAL AND MANAGEMENT STOCKHOLDINGS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information concerning persons or groups who
are known to be the beneficial owners of more than 5% of the Common Stock as of
January 7, 1994.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAMES AND ADDRESS OF COMMON STOCK PERCENT OF
OF BENEFICIAL OWNERS(1) BENEFICIALLY OWNED COMMON STOCK
- ----------------------------------------------------------------------------- ------------------ ------------
<S> <C> <C>
Holcem Inc. ................................................................. 128,491,701(2) 94.9%
6211 North Ann Arbor Road
Dundee, Michigan 48131
Holdernam Inc. .............................................................. 128,491,701(2) 94.9%
6211 North Ann Arbor Road
Dundee, Michigan 48131
'Holderbank' Financiere ..................................................... 128,491,701(2) 94.9%
Glaris Ltd.
Insel 14
CH-8750 Glaris
Switzerland
Thomas Schmidheiny .......................................................... 128,491,701(2) 94.9%
Zuercherstrasse 170
CH-8645 Jona
Switzerland
</TABLE>
(footnotes on next page)
23
<PAGE>
(footnotes from previous page)
(1) As used in this table, 'beneficial ownership' means the sole or shared power
to vote, or to direct the voting of, a security, or the sole or shared
investment power with respect to a security (i.e., the power to dispose of,
or to direct the disposition of, a security). In addition, for purposes of
this table, a person is deemed, as of any date, to have 'beneficial
ownership' of any security that such person has the right to acquire within
60 days after such date.
(2) Holcem is a wholly-owned subsidiary of Holdernam. Holdernam is a
wholly-owned subsidiary of Holderbank. Holderbank has presently issued and
outstanding 14,100,000 shares of voting stock. Of these, 10,100,000 are
registered shares and 4,000,000 non-registered or bearer shares. Holders of
bearer shares are not generally known by Holderbank. However, holders of
registered shares can be identified. Based on the share register, Swiss
entities controlled by Mr. Thomas Schmidheiny and Societe Suisse de Ciment
Portland S.A., a publicly-held Swiss corporation ('SSCP'), are the sole
holders of registered shares corresponding to more than 5% of the voting
stock of Holderbank. Through various Swiss entities, legally or
beneficially, directly or indirectly, Mr. Thomas Schmidheiny holds
approximately 48% of Holderbank's voting stock and SSCP holds approximately
9% of Holderbank's voting stock. Mr. Schmidheiny is also a director of SSCP.
SSCP's address is 23, Faubourg de l'hopital, 2000 Neuchatel, Switzerland.
Messrs. Amstutz, Byland and Schrafl, directors of the Company, are directors
or officers of Holcem, Holdernam and/or Holderbank.
SECURITY OWNERSHIP OF MANAGEMENT
Shares of Common Stock beneficially owned as of January 7, 1994 by each
director of the Company, by each named executive officer and by all current
directors and executive officers of the Company as a group are set forth in the
following table. This table is based on information furnished to the Company by
such persons and statements filed with the Commission.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENT OF
BENEFICIALLY OWNED* COMMON STOCK
------------------- ------------
<S> <C> <C>
Max D. Amstutz.............................................................. 0(1)(2) 0
Robert A. Bicks............................................................. 500 **
Robert F. Boyd.............................................................. 32,000 **
Peter Byland................................................................ 250(1)(2) **
Thomas L. Cassidy........................................................... 4,000 **
Frank J. DeWitt............................................................. 0 0
Jack Edwards................................................................ 250 **
Herbert C. Pinder........................................................... 2,000 **
Anton E. Schrafl............................................................ 250(1)(2) **
Samuel K. Scovil............................................................ 3,000 **
George B. Weathersby........................................................ 500 **
Paul A. Yhouse.............................................................. 21,761 **
David A. Smith.............................................................. 57,631 **
R. Michael Johnson.......................................................... 23,000 **
Robert J. Moir.............................................................. 55,148 **
All directors and executive officers as a group (24 persons)................ 321,967(3) **
</TABLE>
- ------------
* Includes shares subject to options which are exercisable any time within 60
days of January 6, 1994.
** Less than 1% of the Common Stock.
(1) Does not include 128,491,701 shares of Common Stock owned by Holcem. Messrs.
Amstutz, Byland and Schrafl are directors or officers of Holderbank,
Holdernam and/or Holcem.
(footnotes continued on next page)
24
<PAGE>
(footnotes continued from previous page)
(2) Does not include 10,498,748 Class A subordinate shares and 15,252,848 Class
B shares of St. Lawrence stock. Messrs. Amstutz, Byland, DeWitt, Schrafl and
Yhouse are directors or officers of Holderbank, Holdernam, Holcem and/or St.
Lawrence.
(3) Includes 197,000 shares of Common Stock which are subject to outstanding
options under the Holnam Inc. 1990 Stock Option Plan and 33,887 shares of
Common Stock which are subject to options previously issued under the Ideal
Basic Industries, Inc. 1981 Stock Option Plan for Key Employees. See 'The
Merger -- Stock Options and Benefit Plans.'
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE
OFFICERS OF HOLDERBANK, HOLDERNAM AND HOLCEM
Except for Peter Byland and Anton E. Schrafl, who are directors of the
Company and who own 250 shares of Common Stock each, none of the directors and
executive officers of Holderbank, Holdernam and Holcem has any interest in the
Common Stock or other securities of the Company or other involvement with the
Company except through his positions with Holderbank, Holdernam and/or Holcem.
See Note (2) under 'Principal and Management Stockholdings -- Security Ownership
of Certain Beneficial Owners' and 'Principal and Management
Stockholdings -- Security Ownership of Management.'
ADDITIONAL AVAILABLE INFORMATION
The Company is currently subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements and
other information with the Commission (although the Company will be able and
intends to terminate its reporting obligations under the Exchange Act promptly
after the Effective Time of the Merger). Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices at 7 World Trade Center, New York, New
York 10048 and Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois
60621-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, copies of such reports, proxy statements and
other information concerning the Company may also be inspected and copied at the
library of the New York Stock Exchange at 20 Broad Street, New York, New York
10005.
In addition, Holderbank, Holdernam and Holcem have filed with the
Commission a Rule 13e-3 Transaction Statement (the 'Schedule 13E-3') furnishing
certain additional information with respect to the transaction described herein.
The Schedule 13E-3 and all amendments thereto, including exhibits, can be
inspected and copied at the public reference facilities maintained by Commission
set forth above.
HOLCEM WILL PROVIDE TO ANY PUBLIC STOCKHOLDER, UPON WRITTEN OR ORAL
REQUEST, A COPY OF THIS DISCLOSURE STATEMENT AND NOTICE. REQUESTS SHOULD BE
DIRECTED TO ROBERT J. MOIR, ESQ., C/O HOLCEM INC., 6211 NORTH ANN ARBOR ROAD,
DUNDEE, MICHIGAN 48131; (313) 529-2411.
25
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE
- --------------------------------- ----
<S> <C>
Report of Independent Public Accountants -- Arthur Andersen & Co........................................... F-2
Auditors' Report -- Peat Marwick Thorne.................................................................... F-3
Consolidated Balance Sheets as of December 31, 1992 and 1991............................................... F-4
Consolidated Statements of Income for the years ended December 31, 1992, 1991 and 1990..................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1992, 1991 and
1990..................................................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1991 and 1990................. F-7
Notes to Consolidated Financial Statements -- Notes 1 through 18........................................... F-8
Schedule II -- Amounts Receivable from Related Parties and Underwriters, Promoters and Employees other than
Related Parties for the years ended December 31, 1992, 1991 and 1990..................................... F-28
Schedule V -- Property, Plant and Equipment for the years ended December 31, 1992, 1991 and 1990........... F-29
Schedule VI -- Accumulated Depreciation and Depletion of Property, Plant and Equipment for the years ended
December 31, 1992, 1991 and 1990......................................................................... F-30
Schedule VIII -- Valuation and Qualifying Accounts for the years ended December 31, 1992, 1991 and 1990.... F-31
Schedule IX -- Short Term Borrowings for the years ended December 31, 1992, 1991 and 1990.................. F-32
Schedule X -- Supplementary Income Statement Information for the years ended December 31, 1992, 1991 and
1990..................................................................................................... F-33
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Statements of Operations for the third quarter and nine months ended September 30,
1993 and 1992 (unaudited)................................................................................ F-34
Condensed Consolidated Balance Sheets as of September 30, 1993 (unaudited), December 31, 1992 and September
30, 1992 (unaudited)..................................................................................... F-36
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1993 and 1992
(unaudited).............................................................................................. F-37
Notes to Condensed Consolidated Financial Statements -- Notes 1 through 7.................................. F-39
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Holnam Inc.:
We have audited the accompanying consolidated balance sheets of HOLNAM INC.
(a Delaware corporation) AND SUBSIDIARIES as of December 31, 1992 and 1991, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1992. These
financial statements are the responsibility of Holnam's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of St. Lawrence Cement
Inc., which statements reflect assets constituting 43% and 42% of the
consolidated totals as of December 31, 1992 and 1991, respectively, and revenues
constituting 42%, 47% and 52% of the consolidated totals for the years ended
December 31, 1992, 1991 and 1990, respectively. Those statements, prior to
reflecting certain adjustments to conform and translate such statements to U.S.
generally accepted accounting principles using U.S. dollars, were audited by
other auditors whose reports have been furnished to us, and our opinion, insofar
as it relates to the amounts included for that entity, is based solely upon the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Holnam Inc. and subsidiaries as of December 31, 1992
and 1991, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1992, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
accompanying index are the responsibility of Holnam's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in our audits of the basic consolidated financial statements and, in our
opinion, based on our audits and the reports of other auditors, fairly state, in
all material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Detroit, Michigan,
February 19, 1993.
<PAGE>
AUDITORS' REPORT
To the Shareholders of
ST. LAWRENCE CEMENT INC.
We have audited the consolidated balance sheets of St. Lawrence Cement Inc.
as at December 31, 1992 and 1991 and the consolidated statements of operations,
retained earnings and changes in financial position for the years ended December
31, 1992, 1991 and 1990. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1992 and 1991 and the results of its operations and the changes in its financial
position for the years ended December 31, 1992, 1991 and 1990 in accordance with
Canadian generally accepted accounting principles.
PEAT MARWICK THORNE
Chartered Accountants
Montreal, Canada
February 3, 1993
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1992 AND 1991
<TABLE>
<CAPTION>
1992 1991
---------- ----------
(000'S OMITTED, EXCEPT SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................. $ 7,527 $ 12,155
Receivables, less allowances of $13,749 in 1992 and $14,058 in 1991........ 178,540 182,828
Inventories and supplies (Note 5).......................................... 177,875 199,524
Prepaid expenses and other................................................. 5,271 11,702
---------- ----------
Total current assets.................................................. 369,213 406,209
---------- ----------
Property, Plant and Equipment, net (Notes 6 and 9).............................. 855,882 929,114
---------- ----------
Cost in excess of net assets acquired (Note 3).................................. 62,008 58,761
---------- ----------
Other assets (Notes 7, 8 and 11)................................................ 66,029 62,505
---------- ----------
Total assets.......................................................... $1,353,132 $1,456,589
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable (Note 9)..................................................... $ 3,000 --
Current portion of long-term debt (Note 9)................................. 13,013 12,909
Accounts payable (Note 12)................................................. 55,153 54,191
Accrued liabilities........................................................ 34,486 37,862
Accrued compensation....................................................... 17,541 18,780
Accrued interest........................................................... 9,062 8,799
Accrued restructuring costs (Note 4)....................................... 10,112 5,538
---------- ----------
Total current liabilities............................................. 142,367 138,079
---------- ----------
Long-term debt (Notes 9 and 12)................................................. 584,452 606,605
---------- ----------
Other liabilities (Notes 4, 11 and 13).......................................... 21,484 27,795
---------- ----------
Deferred income taxes (Note 10)................................................. 58,253 74,210
---------- ----------
Minority equity (Note 3)........................................................ 111,100 128,692
---------- ----------
Commitments and contingencies (Notes 13 and 14)
Stockholders' equity:
Preferred stock, $.10 par value, 50,000,000 shares authorized, none
issued................................................................... -- --
Common stock, $.01 par value, 200,000,000 shares authorized, 134,971,136
and 134,850,035 shares issued and outstanding in 1992 and 1991,
respectively............................................................. 1,350 1,349
Additional paidin capital.................................................. 457,156 456,810
Retained earnings (deficit) (Note 9)....................................... (23,390) 5,182
Cumulative translation adjustment.......................................... 360 17,867
---------- ----------
Total stockholders' equity............................................ 435,476 481,208
---------- ----------
Total liabilities and stockholders' equity............................ $1,353,132 $1,456,589
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-4
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- ----------
(000'S OMITTED, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net sales............................................................ $946,176 $979,297 $1,074,579
Cost of sales........................................................ 836,066 857,520 912,771
Selling, general and administrative expenses......................... 109,789 119,997 116,392
Unusual charges (Note 4)............................................. 11,037 61,672 --
-------- -------- ----------
Income (loss) from operations................................... (10,716) (59,892) 45,416
Interest expense, net (Note 9)....................................... 51,808 56,534 58,942
Other (income) expense............................................... 4,469 (4,416) (3,103)
-------- -------- ----------
Income (loss) before income taxes and minority equity in net
income (loss)................................................. (66,993) (112,010) (10,423)
Income tax provision (Credit) (Note 10).............................. (23,657) (13,794) 6,168
Minority equity in net income (loss) (Note 3)........................ (14,764) (3,162) 8,525
-------- -------- ----------
Net income (loss)............................................... $(28,572) $(95,054) $ (25,116)
-------- -------- ----------
-------- -------- ----------
Net income (loss) per share.......................................... $ (.21) $ (.71) $ (.22)
-------- -------- ----------
-------- -------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-5
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
ADDITIONAL RETAINED CUMULATIVE
PAR PAID-IN EARNINGS TRANSLATION
SHARES VALUE CAPITAL (DEFICIT) ADJUSTMENT TOTAL
----------- ------ ---------- --------- ----------- --------
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1989...................... 98,103,460 $ -- $249,625 $ 125,352 $16,650 $391,627
Add (deduct) -
Net loss.............................. -- -- -- (25,116) -- (25,116)
Translation of foreign currency
financial statements................ -- -- -- -- 390 390
Issuances of common stock (Notes 3 and
15)................................. 36,659,714 -- 208,147 -- -- 208,147
Conversion from no par to $.01 par of
common stock........................ -- 1,348 (1,348) -- -- -- --
----------- ------ ---------- --------- ----------- --------
Balance, December 31, 1990...................... 134,763,174 1,348 456,424 100,236 17,040 575,048
Add (deduct) -
Net loss.............................. -- -- -- (95,054) -- (95,054)
Translation of foreign currency
financial statements................ -- -- -- -- 827 827
Issuances of common stock (Note 15)... 86,861 1 386 -- -- 387
----------- ------ ---------- --------- ----------- --------
Balance, December 31, 1991...................... 134,850,035 1,349 456,810 5,182 17,867 481,208
Add (deduct) -
Net loss.............................. -- -- -- (28,572) -- (28,572)
Translation of foreign currency
financial statements................ -- -- -- -- (17,507) (17,507)
Issuances of common stock (Note 15)... 121,101 1 346 -- -- 347
----------- ------ ---------- --------- ----------- --------
Balance, December 31, 1992...................... 134,971,136 $1,350 $457,156 $ (23,390) $ 360 $435,476
----------- ------ ---------- --------- ----------- --------
----------- ------ ---------- --------- ----------- --------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-6
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- --------
(000'S OMITTED, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................. $(28,572) $(95,054) $(25,116)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities (net of effects of acquisitions) -
Unusual charges (Note 4).......................................... 11,037 61,672 --
Depreciation, depletion and amortization.......................... 79,918 82,157 76,792
Net gain on dispositions of property, plant and equipment......... (2,256) (917) (1,003)
Deferred income taxes............................................. (11,945) (19,554) 659
Minority interest in net income (loss), net of dividends paid..... (16,598) (8,154) (2,081)
Change in -
Receivables.................................................. (3,433) 17,754 9,251
Inventories and supplies..................................... 13,356 (1,955) (19,033)
Prepaid expenses and other................................... 3,666 613 3,752
Accounts payable and accrued liabilities..................... (2,503) (2,943) (17,113)
Other assets and other liabilities........................... (12,110) 3,828 (10,901)
-------- -------- --------
Cash provided by operating activities................... 30,560 37,447 15,207
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales of assets..................................... 15,529 4,005 3,385
Capital expenditures (including capitalized interest of $1,562 in
1991 and $1,559 in 1990)........................................ (47,753) (54,178) (94,410)
Advances to BoxCrow (Note 8)...................................... -- (8,026) (4,500)
Acquisitions of subsidiaries and investments in unconsolidated
entities (Note 3)............................................... (5,688) (45,090) (114,038)
Other investing activities........................................ 244 (986) 7,643
-------- -------- --------
Cash used for investing activities...................... (37,668) (104,275) (201,920)
-------- -------- --------
Cash flows from financing activities:
Issuance of common stock.......................................... 347 387 100,147
Proceeds from short-term borrowings, net.......................... 3,000 -- --
Repayment of long-term borrowings................................. (221,993) (263,026) (347,656)
Proceeds from long-term borrowings................................ 217,158 332,097 411,547
Other............................................................. 3,968 1,936 1,146
-------- -------- --------
Cash provided by financing activities........................ 2,480 71,394 165,184
-------- -------- --------
Net increase (decrease) in cash and cash equivalents......... (4,628) 4,566 (21,529)
Cash and cash equivalents, beginning of year........................... 12,155 7,589 29,118
-------- -------- --------
Cash and cash equivalents, end of year................................. $ 7,527 $ 12,155 $ 7,589
-------- -------- --------
-------- -------- --------
Supplemental disclosures of cash flow information:
Interest paid..................................................... $ 50,802 $ 52,983 $ 58,633
-------- -------- --------
-------- -------- --------
Income taxes paid, net of refunds in 1991......................... $ 2,899 $ (5,736) $ 15,815
-------- -------- --------
-------- -------- --------
Supplemental disclosure of noncash investing and financing activities:
In 1990, Holnam issued approximately 14.4 million common shares in
a noncash transaction (see Note 3)
In 1992, St. Lawrence issued preferred stock in a noncash
transaction (see Note 3)
</TABLE>
F-7
<PAGE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-8
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BACKGROUND
Holnam Inc. and its subsidiaries (Holnam) are involved in the production
and sale of cement and certain related products. As of December 31, 1992,
approximately 95.2% of the outstanding shares of common stock were owned by
Holdernam Inc. (Holdernam). Holdernam, in turn, is a wholly-owned subsidiary of
'Holderbank' Financiere Glaris, Ltd. (Holderbank), a publicly-traded Swiss
corporation.
Most of Holnam's sources of financing are supported by Holderbank letters
of comfort. In view of Holnam's current financial circumstances, Holnam's
ongoing ability to borrow from these sources is dependent on Holderbank's
continuance of such support and the lenders' acceptance of these letters of
comfort. Without such support, Holnam's existing sources of financing would be
in jeopardy and its ability to secure other sources of financing cannot be
assured.
Throughout the reporting period, Holnam has held an approximate 60%
interest (59% at December 31, 1992) in St. Lawrence Cement, Inc. (St. Lawrence),
a publicly-traded Canadian corporation. In addition, throughout the reporting
period, Holnam has held interests in Dundee Cement Company (Dundee) and Ideal
Basic Industries (Ideal). As of January 1, 1990, Holnam owned 100% of Dundee and
67.4% of Ideal. During 1990 the 32.6% minority interest in Ideal was acquired by
Holnam; Dundee and Ideal were then merged with and into Holnam (see Note 3).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Holnam and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
REVENUE RECOGNITION
Revenue from the sale of cement and related products is recorded at the
time of passage of title, which generally is when the products are shipped.
INVENTORIES AND SUPPLIES
Production inventories are valued at the lower of average cost or market.
Cost includes material, labor and manufacturing overhead. Supplies and spare
parts are inventoried when purchased, and when they are placed in service they
are charged to expense or capitalized as plant and equipment, as appropriate.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation and depletion. Depreciation and depletion is provided based on
estimated service lives using the straight-line method for financial reporting
purposes. Estimated service lives are as follows:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Land improvements........................................................................... 10 to 50
Buildings and improvements.................................................................. 8 to 45
Machinery and equipment..................................................................... 3 to 25
</TABLE>
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance costs are expensed. The
cost and accumulated depreciation applicable to assets retired are removed from
the accounts and the gain or loss on disposition recognized in income.
Quarry preparation and reclamation costs are expensed when incurred.
F-9
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired is amortized on a straight-line basis
over 40 years. As of December 31, 1992 and 1991, the accumulated amortization
was approximately $20,000,000 and $ 18,000,000, respectively.
INCOME TAXES
Holnam and its U.S. subsidiaries file a consolidated U.S. income tax return
with other members of the Holdernam group and share in the resulting tax
liability (or benefit) in accordance with the terms of an intercompany tax
sharing agreement. Under the provisions of the tax sharing agreement, each
member of the Holdernam group determines its tax liability (benefit) based on
the tax it would pay as a separate company (or, in the event of a loss, based on
the benefit received by the group company for its separate company losses), and
pays or receives payment from Holdernam accordingly.
Provision is made for appropriate taxes on unremitted earnings of St.
Lawrence.
Income taxes are provided based upon Statement of Financial Accounting
Standards No. 96, 'Accounting for Income Taxes'. As required, Holnam will adopt
the provisions of Statement of Financial Accounting Standards No. 109,
'Accounting for Income Taxes' in 1993. Adoption of this statement will not have
a significant impact on Holnam's consolidated financial position or results of
operations.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share for each of the respective years has been
computed by dividing net income (loss) by the weighted average number of common
shares outstanding during the year. The weighted average number of common shares
for 1992, 1991 and 1990 was 134,882,927, 134,782,030 and 115,669,884,
respectively.
FOREIGN CURRENCY TRANSLATION
For significant foreign operations, the local currencies have been
designated as the functional currencies; the assets and liabilities of such
foreign subsidiaries are translated into U.S. dollars at year-end rates, and
income and expenses are translated at average rates for the year. Changes in the
cumulative foreign currency translation adjustment are included in stockholders'
equity. For certain U.S. operations of St. Lawrence for which the Canadian
dollar has been designated as the functional currency, translation losses are
included in income and amounted to $6,211,000, $3,296,000 and $3,429,000 in
1992, 1991 and 1990, respectively.
CASH FLOW INFORMATION
For purposes of the consolidated statement of cash flows all short-term
investments with an original maturity less than three months are considered to
be cash equivalents.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1991 and 1990 financial
statements to conform to the 1992 presentation.
(3) MERGER, ACQUISITIONS AND INVESTMENTS IN UNCONSOLIDATED ENTITIES
In January 1990, Dundee acquired all of the outstanding common shares of
Northwestern States Portland Cement Company (Northwestern States) for an
aggregate purchase price of $22.4 million. In
F-10
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
addition, Dundee paid approximately $21.9 million of outstanding indebtedness of
Northwestern States. The total cash outlay was approximately $46.9 million,
including direct costs of the acquisition.
In March 1990, Ideal shareholders approved a plan of merger through which
Holnam acquired all of the remaining 32.6% minority interest in Ideal by issuing
one share of Holnam stock for every four shares of Ideal stock held by the Ideal
minority shareholders. The total cost of the acquisition of the minority
interest, including the value of the shares issued (calculated at $7.50 per
share) and the related costs (approximately $8 million) incurred in conjunction
with the merger, was $116 million.
In August 1990, Holnam acquired all of the outstanding common shares of
United Cement Company. The aggregate purchase price was $60.7 million, including
direct costs of the acquisition.
In October 1990, Holnam acquired the assets of Diversified Materials Inc.
for approximately $2 million.
The transactions discussed above have been accounted for as purchases and
the total purchase price was allocated, based upon estimates of fair value, as
follows (in thousands):
<TABLE>
<S> <C>
Net working capital................................................................. $18,608
Cost in excess of net assets acquired............................................... 4,795
Property, plant and equipment, net.................................................. 185,331
Long-term debt...................................................................... 4,732
Other, net.......................................................................... 12,084
-----------------
Total purchase price...................................................... $225,550
-----------------
-----------------
</TABLE>
Unaudited, pro forma consolidated results of operations, assuming that the
acquisitions of Northwestern States, United Cement Company, Diversified
Materials Inc. and of the minority interests in Ideal had occurred as of January
1, 1990, follow (in thousands except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1990
-----------------
<S> <C>
Net sales........................................................................... $ 1,098,830
Net loss............................................................................ (30,558)
Net loss per share.................................................................. (.26)
-----------------
-----------------
</TABLE>
These results include adjustments for increased amortization, depreciation,
interest and income tax expense and elimination of minority equity in net loss,
and are not necessarily indicative of what the actual results of operations
would have been had the acquisitions taken place on January 1, 1990.
During 1991, St. Lawrence acquired a 10.8% interest in Philip Environmental
Inc., two ready-mix operations, and a 49% interest in Unilock Inc. Also in 1991,
Holnam acquired a 49.98% interest in Cemtech LP, a limited partnership
specializing in programs involving waste derived fuels and raw materials
associated with the cement industry. The aggregate purchase prices totaling
$45.0 million have been accounted for as either cost method investments ($22.0
million), equity method investments ($17.2 million) or business combinations
accounted for as purchases ($5.8 million), as appropriate. The pro-forma effect
of the 1991 business combinations, had they occurred as of January 1, 1990, on
the consolidated results of operations for the years ended December 31, 1991 and
1990 is not material.
During 1992, St. Lawrence acquired Beton Mathers, an eastern Canada
concrete operation. The acquisition price was $11.6 million. This acquisition
was funded with $3.1 million cash and the issuance of $8.5 million of St.
Lawrence preferred stock that has a 7% cumulative dividend, callable after 5
years and redeemable after 5 years and before 10 years. In addition, Holnam
purchased the assets of C-Cure of Florida, Inc., a blender of grouts and cement
products for a price of approximately $1.6 million. The pro-forma effect of the
1992 business combinations, had they occurred as of January 1, 1991, on the
consolidated results of operations for the years ended December 31, 1992 and
1991 is not material. Also, St. Lawrence acquired a 49% interest in Euclid
Admixture Canada Inc., an admixture company, for a price of approximately $1.0
million.
F-11
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) UNUSUAL CHARGES
Unusual charges consisted of the following (in thousands):
<TABLE>
<CAPTION>
1992 1991
------- -------
<S> <C> <C>
Restructuring charges (see below)................................................. $11,037 $18,556
BoxCrow (Note 8).................................................................. -- 38,616
Litigation settlement and other................................................... -- 4,500
------- -------
$11,037 $61,672
------- -------
------- -------
</TABLE>
During the fourth quarter of 1992, St. Lawrence committed to a
restructuring plan to significantly reduce costs and recorded a pre-tax charge
of $11.0 million. The charge includes consulting costs, separation costs of
employees leaving St. Lawrence, and other restructuring costs.
During the fourth quarter of 1991, Holnam implemented a restructuring plan
to reduce costs and rationalize facilities within its U.S. operations. In
connection with this plan, Holnam recorded a pre-tax charge of $18.6 million.
The restructuring charge included future costs under a non-cancellable facility
lease, provisions for employee relocation, separation costs for employees
leaving the Company and reductions (to net realizable value) in the carrying
amount of assets related to facilities that management had concluded should be
sold or closed.
(5) INVENTORIES AND SUPPLIES
Inventories and supplies consisted of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1992 1991
-------- --------
<S> <C> <C>
Raw materials................................................................... $ 16,005 $ 26,520
Finished goods and work-in-process.............................................. 88,823 102,409
Supplies and spare parts........................................................ 73,047 70,595
-------- --------
$177,875 $199,524
-------- --------
-------- --------
</TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of December 31
(in thousands):
<TABLE>
<CAPTION>
1992 1991
---------- ----------
<S> <C> <C>
Land, land improvements and mineral deposits................................ $ 97,565 $ 102,038
Buildings, machinery and equipment.......................................... 1,392,263 1,454,276
Construction in progress.................................................... 43,519 44,331
---------- ----------
1,533,347 1,600,645
Less -- Accumulated depreciation and depletion.............................. 677,465 671,531
---------- ----------
Property, plant and equipment..................................... $ 855,882 $ 929,114
---------- ----------
---------- ----------
</TABLE>
(7) OTHER ASSETS
Other assets consisted of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1992 1991
------- -------
<S> <C> <C>
Investments in unconsolidated entities (Note 3)................................... $36,749 $39,509
Long-term receivables............................................................. 23,415 18,554
Other............................................................................. 5,865 4,442
------- -------
$66,029 $62,505
------- -------
------- -------
</TABLE>
F-12
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1992 the fair value of long-term receivables, estimated
using the expected future cash flows discounted at interest rates between 4.5%
and 6.0%, approximated $21 million.
The fair value of St. Lawrence's investment in Philip Environmental Inc.,
carried at its original cost of approximately $20.0 million (differs from 1991
U.S. dollar acquisition costs of $22.0 million discussed in Note 3 due to the
strengthening of the U.S. dollar in 1992), approximated $26 million at December
31, 1992.
(8) BOXCROW
In 1989, Holnam acquired an option to purchase the business and assets of
BoxCrow Cement Company, L.P. (BoxCrow) and a 50% equity interest of $500 in the
general partner of BoxCrow. Holnam terminated its option to purchase the
business and assets of BoxCrow in September, 1991.
During the period of this option, Holnam agreed to provide working capital
and management services. Under the working capital agreement, Holnam was
obligated to provide working capital loans to BoxCrow, the repayment of which
is, in general, subordinate to other BoxCrow indebtedness. The loans are due by
January 1, 1999 and are interest bearing. As of December 31, 1991 and 1990,
Holnam had made working capital loans of $30.6 million and $22.6 million,
respectively, to BoxCrow. In 1992, holders of senior debt and other obligations
drew $5.8 million on Holnam-reimbursable letters of credit. These draws, which
were fully reserved in 1991, became additional subordinated working capital
loans to BoxCrow. As such, at December 31, 1992 the total working capital loans
approximate $36.4 million.
Holnam management believes it is highly unlikely that BoxCrow will repay
the working capital loans. A provision of $38.6 million was recorded in 1991 to
reduce the carrying value of subordinated working capital loans to their
estimated net realizable value. In August 1992, BoxCrow filed for Chapter 11
bankruptcy protection. In mid-September, the bankruptcy court appointed a
trustee to oversee the business and assets of BoxCrow for an indefinite period.
Holnam's obligations under its management agreement expired in September, 1992.
(9) SHORT-TERM NOTES PAYABLE AND LONG-TERM DEBT
At December 31, 1992, Holnam had $3,000,000 outstanding on a $13,000,000
short-term uncommitted credit agreement expiring in December 1993. Interest is
at LIBOR plus .6%. This facility is used to fund Holnam's working capital
requirements. Additionally, St. Lawrence has available, for working capital
requirements, a series of short-term, uncommitted credit agreements with several
banks aggregating approximately $76.3 million ($97,000,000 Canadian) expiring in
December 1993, none of which was outstanding at December 31, 1992. Interest is
at bank prime rate. Outstanding balances are payable on demand.
F-13
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt consisted of the following as of December 31:
<TABLE>
<CAPTION>
1992 1991
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving Lines of Credit --
$225,000,000 credit agreement, due 1995, unsecured, interest not to exceed LIBOR plus
.5-.625%, 4.1% average interest rate as of December 31, 1992 (a).................... $ 80,000 $100,000
Canadian $200,000,000, unsecured (U.S. $156,625,000 at December 31, 1992) available
in Canadian or U.S. dollars; additional $40,000,000 available only in U.S. dollars.
Borrowings outstanding at December 31, 1992 consist of U.S. $65,000,000 and Canadian
$148,978,000 (U.S. $117,171,000). Due 1994, convertible to a term loan payable over
a six year period. Various interest rates, average interest rate as of December 31,
1992 was 6.17% (b)(f)............................................................... 182,171 167,501
Credit agreement, paid in 1992....................................................... -- 50,000
Credit agreement, due 1994, convertible into a term loan payable in seven quarterly
installments of $4,375,000 commencing in 1996 with final payment of $4,375,000 in
1998, interest at 8.00% (c)(f)...................................................... 35,000 35,000
-------- --------
Total revolving lines of credit................................................. 297,171 352,501
-------- --------
Senior Notes, Term Notes and Loans --
Term loan, due in 2001, payable in annual installments of approximately $23,300,000
in 1999, 2000 and 2001, interest at 9.75% (c)(f).................................... 70,000 70,000
Term loan, due 1998, interest at 8.03% (c)(f)........................................ 30,000 30,000
8 1/2% senior notes, due in 1993 (c)................................................. 2,875 5,750
14 1/4% senior notes, due in annual installments of $1,000,000 through 1995 (c)...... 3,000 4,000
9.5% senior notes, payable in annual installments of $3,000,000 in 1993 through 1997
(c)................................................................................. 15,000 17,000
Other notes and loans................................................................ 5,611 7,128
-------- --------
Total senior notes, term notes and loans........................................ 126,486 133,878
-------- --------
Industrial Revenue Bonds (d) --
7% Industrial Revenue Bonds, due in 1995, secured by a letter of credit.............. 18,000 18,000
6.8% Revenue Bonds, net of discount of $13,594,000 in 1992 and $14,031,000 in 1991,
respectively; due in various installments between 1999 and 2009..................... 53,336 52,899
5.8% Pollution Control Revenue Bonds, net of discount of $50,000 in 1992 and $150,000
in 1991, respectively, due in 1993.................................................. 1,560 3,622
Other................................................................................ 4,623 4,888
-------- --------
Total Industrial Revenue Bonds.................................................. 77,519 79,409
-------- --------
Subordinated Notes --
8% senior subordinated notes, unsecured, payable in semi-annual installments of
$1,000,000 through 1997 (c)......................................................... 10,000 12,000
Currently non-interest bearing subordinated notes (e)................................ 50,000 --
9.6% subordinated notes, net of discount of $19,000 and $39,000 as of December 31,
1992 and 1991, respectively, due in 1998............................................ 16,126 16,106
16% subordinated notes, due in 1998.................................................. 5,000 5,000
-------- --------
Total Subordinated Notes........................................................ 81,126 33,106
-------- --------
Other --
Sinking fund debentures, 9.25% coupon rate, unsecured, publicly-held, net of discount
of $2,937,000 in 1992 and $4,229,000 in 1991, respectively, sinking fund payments in
various installments between 1996 and 2000.......................................... $ 12,329 $ 16,849
Capital lease obligations, interest at an average of 9.42% and payable through
1998................................................................................ 2,834 3,771
-------- --------
Total other obligations......................................................... 15,163 20,620
-------- --------
Total long-term debt............................................................ 597,465 619,514
Less current portion of long-term debt.................................................... 13,013 12,909
-------- --------
</TABLE>
F-14
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C> <C>
$584,452 $606,605
-------- --------
-------- --------
</TABLE>
- ------------
(a) The agreement contains various restrictive covenants including the
maintenance of specified ratios or amounts of tangible capitalization,
interest coverage, debt to equity and current assets to current
liabilities, all as defined in the agreement. The agreement also contains a
subjective acceleration clause. Additionally, an event of default will
occur if Holderbank and affiliates cease to own directly or indirectly a
majority of the issued and outstanding shares of stock of Holnam. A
facility fee is charged on the total commitment.
The agreement also governs the amount of retained earnings available for
the payment of dividends. The Company may declare and pay cash dividends on
its common stock up to a maximum amount of $15,000,000 in any fiscal year
if the ratio of earnings before interest, taxes, depreciation and
amortization (excluding St. Lawrence) to interest expense (excluding St.
Lawrence) is 3:00 or greater.
(b) A two- year period of non-mandatory repayment of principal is provided for
in the loan agreement and may be renewed each year by mutual consent. After
this period, the loan may be converted into a term loan payable over a
six-year period.
(c) These loan agreements contain various covenants which in no instance are
materially more restrictive than those discussed in (a) above.
(d) Industrial Revenue bonds issued by city or county governments or industrial
developments are included in long-term debt. Holnam is obligated under
related lease agreements to make payments sufficient to pay interest costs
of the bonds plus principal payments as they become due.
(e) This debt, provided in 1992 by Holderbank, through Holdernam, is presently
non-interest bearing and matures at the latest of (1) January 1, 1994, (2)
after written demand, or (3) the date on which repayment would not result
in a Holnam default of any covenants existing under financing arrangements
with Holnam's senior lenders. The obligation becomes interest bearing at
LIBOR plus 3% when Holnam's (exclusive of St. Lawrence) net income in a
calendar year equals or exceeds $5,000,000.
(f) In 1991 and early 1992, the Company entered into interest rate swap
agreements with commercial banks. Pursuant to the swap agreements, the
Company makes fixed interest payments. These agreements expire when the
related debt obligations mature. St. Lawrence makes fixed interest payments
through 1994 at an effective rate of 8.75% on a notional principal amount
of $50 million. Holnam and St. Lawrence are exposed to credit loss in the
event of non-performance by the other parties to the interest rate swap
agreements but do not anticipate nonperformance by such parties.
- ----------------------------------------------------------
Holderbank has issued letters of comfort to certain of Holnam's lenders
(Note 1).
Financial institutions have issued irrevocable letters of credit for the
account of Holnam or St. Lawrence in favor of the lessors under a certain
operating lease ($25 million; Note 13) holders of industrial revenue bonds ($18
million), and others ($9.5 million). As of December 31, 1992, these letters of
credit totaled approximately $52.5 million.
In addition, Holnam guarantees approximately 50% of the bank debt of
Cemtech LP. This guarantee is for an amount not to exceed approximately $7.5
million, of which approximately $2.6 million was outstanding at December 31,
1992. St. Lawrence separately has issued guarantees to others totalling
approximately $7.3 million.
F-15
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1992, scheduled maturities of long-term debt are as
follows (in thousands):
<TABLE>
<S> <C>
1993.......................................................................... $ 13,013
1994.......................................................................... 56,813
1995.......................................................................... 116,076
1996.......................................................................... 38,067
1997.......................................................................... 49,337
Thereafter.................................................................... 324,159
--------
$597,465
--------
--------
</TABLE>
The fair value of Holnam's long-term, fixed rate debt (excluding debt on
which interest rate swap agreements have been entered into) at December 31, 1992
has been estimated based on quoted market prices for the issue, or on the
current rates offered to Holnam for debt of the same or similar remaining
maturities. The carrying amount of such debt totalled $197 million, while the
estimated fair value is $221 million.
The fair value of interest rate swaps, approximately $17 million, is the
estimated amount that Holnam would pay to terminate the swap agreements at
December 31, 1992, taking into consideration the current interest rates.
(10) INCOME TAXES
Income (loss) before income taxes and minority equity in income (loss)
consisted of the following for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1992 1991 1990
-------- --------- --------
<S> <C> <C> <C>
Domestic.......................................................... $(30,465) $(115,352) $(76,360)
Foreign........................................................... (36,528) 3,342 65,937
-------- --------- --------
$(66,993) $(112,010) $(10,423)
-------- --------- --------
-------- --------- --------
</TABLE>
The consolidated provision (credit) for income taxes consisted of the
following for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Current --
Domestic --
Federal.................................................. $ (324) $ (1,104) $(10,850)
State and local.......................................... 10 1,125 219
Foreign....................................................... (10,214) 249 10,955
-------- -------- --------
(10,528) 270 324
-------- -------- --------
Deferred --
Domestic...................................................... $ (1,038) $(13,394) $ 1,163
Foreign....................................................... (12,091) (670) 4,681
-------- -------- --------
(13,129) (14,064) 5,844
-------- -------- --------
Total provision (credit) for income taxes........... $(23,657) $(13,794) $ 6,168
-------- -------- --------
-------- -------- --------
</TABLE>
F-16
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the consolidated provision (credit) for income
taxes and the amount computed at the statutory United States federal income tax
rate is as follows (in thousands):
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Provision (credit) computed at the statutory rate of 34%........... $(22,778) $(38,083) $ (3,544)
Foreign rate differential.......................................... (4,886) (1,514) 4,294
Tax benefit of net operating losses which could not be
recognized....................................................... 4,673 22,517 5,488
Other.............................................................. (666) 3,286 (70)
-------- -------- --------
Tax provision (credit)................................... $(23,657) $(13,794) $ 6,168
-------- -------- --------
-------- -------- --------
</TABLE>
Deferred income taxes provided in the consolidated financial statements
relate to certain income and expense items recorded for financial reporting
purposes in one period and for tax purposes in another period. Major components,
which are principally related to St. Lawrence, include temporary differences for
excess financial reporting over tax basis on certain plant and equipment,
depreciation, depletion and amortization, and gain on disposition of plant and
equipment.
Holnam has recognized the benefit of certain loss carryforwards for
financial reporting purposes through the elimination of deferred taxes that
would reverse during the loss carryforward period. At December 31, 1992, Holnam
had net operating loss carryforwards of approximately $360 million which have
not been recognized for financial reporting purposes, and are available to
offset future taxable income. They expire in 1997 through 2007. Utilization of
the operating loss carryforwards depends upon Holnam's ability to generate
future taxable income, the Company's ability to sustain the ordinary (versus
capital) loss treatment of approximately $136 million of net operating loss
carryforwards, as well as any issues which may result from an audit by the
Internal Revenue Service which is currently in process. Holnam also has
$4,200,000 of investment tax credit carryforwards which are available to offset
future income taxes payable and expire in 1994 through 2000.
(11) PENSION AND CERTAIN OTHER BENEFIT PLANS
Holnam has several noncontributory defined benefit pension plans covering
substantially all employees. Plan benefits are generally based on length of
service and average compensation. It is Holnam's policy to fund actuarially
determined pension costs subject to minimum funding requirements of the Employee
Retirement Income Security Act of 1974. Pension plan assets are invested
primarily in equity securities, short-term investments and government bonds.
Total pension expense under these defined benefit plans amounted to
$4,797,000, $5,216,000 and $4,074,000 in 1992, 1991 and 1990, respectively. The
net periodic pension cost of these plans included the following components for
the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Service cost....................................................... $ 5,296 $ 4,959 $ 4,550
Interest on projected benefit obligation........................... 15,279 15,052 13,697
Actual return on assets............................................ (10,893) (14,944) (4,955)
Net amortization and deferral...................................... (4,885) 149 (9,218)
-------- -------- --------
Net pension cost.............................................. $ 4,797 $ 5,216 $ 4,074
-------- -------- --------
-------- -------- --------
</TABLE>
F-17
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1992 and 1991, the status of all of Holnam's pension
plans was as follows (in thousands):
<TABLE>
<CAPTION>
1992
-------------------------
UNDERFUNDED OVERFUNDED
PLANS PLAN 1991
----------- ---------- --------
<S> <C> <C> <C>
Actuarial present value of projected benefit obligations --
Vested employees........................................... $ 112,064 $ 65,127 $176,028
Nonvested employees........................................ 2,999 683 2,989
----------- ---------- --------
Accumulated benefit obligation........................ $ 115,063 $ 65,810 $179,017
----------- ---------- --------
----------- ---------- --------
Projected benefit obligations................................... $ 123,189 $ 65,810 $187,500
Plan assets at fair value....................................... 108,520 69,710 183,279
----------- ---------- --------
Assets in excess of (less than) projected benefit
obligation............................................... (14,669) 3,900 (4,221)
Unrecognized net loss........................................... 1,198 4,652 1,169
Prior service costs not yet recognized in net periodic pension
cost.......................................................... 3,929 (470) 3,869
Unrecognized net transition asset............................... (5,229) (1,004) (7,271)
----------- ---------- --------
Accrued pension asset (liability).......................... $ (14,771) $ 7,078 $ (6,454)
----------- ---------- --------
----------- ---------- --------
</TABLE>
Rates utilized in determining the actuarial present values of the benefit
obligation in 1992 and 1991, for U.S. and Canadian plans, are presented below:
<TABLE>
<CAPTION>
1992 1991
---------- ----------
<S> <C> <C>
Weighted average discount rate...................................................... 8.0%-9.0% 8.0%-9.0%
Rate of increase in future compensation levels...................................... 5.0-6.0 5.0-6.0
Expected longterm rate of return on assets.......................................... 9.0-10.0 9.0-10.0
</TABLE>
In addition to providing pension benefits, Holnam provides health care and
life insurance benefits for certain retired employees. The cost of health care
benefits is recognized as claims arise. For 1992, 1991 and 1990, the total costs
of all of these benefits aggregated approximately $3.7 million, $4.3 million and
$3.8 million, respectively.
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 106 'Employers' Accounting for Postretirement
Benefits Other than Pensions' which requires companies to recognize the
liability for postretirement benefits as the benefits are earned by their
employees. The unfunded Accumulated Postretirement Benefit Obligation and the
unfunded Expected Postretirement Benefit Obligation as of January 1, 1993 under
the postretirement medical and life insurance benefits plan approximates $70
million and $77 million, respectively. Effective January 1, 1993, Holnam will
adopt the new accounting standard, recognizing the Accumulated Postretirement
Benefit Obligation (the transition obligation) as a cumulative effect of a
change in accounting principle. Management estimates that the adoption of the
standard will also increase postretirement benefit expense by $2.5 million in
1993.
In 1992, the FASB issued Statement of Financial Accounting Standards No.
112, 'Employers' Accounting for Postemployment Benefits.' This standard requires
employers to recognize the obligation to provide benefits to former or inactive
employees after employment but before retirement under certain conditions. The
obligation should be recognized if it is attributable to employees' service
already rendered, the rights to these benefits accumulate or vest, payment of
the benefits is probable and the amount can be reasonably estimated. Holnam must
adopt the provisions of Statement No. 112 no later than January 1, 1994.
Management believes that the adoption of this standard will not have a
significant impact on Holnam's consolidated financial position or results of
operations.
F-18
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) RELATED PARTY TRANSACTIONS
As of December 31, 1992 and 1991, Holnam reflected accounts payable of
$582,000 and $ 1,220,000, respectively, to Holderbank and affiliates.
As of December 31, 1992 and 1991, Holderbank subsidiaries and related
parties are holders of subordinated notes consisting of approximately $4,340,000
in 16% notes due in 1998 and $14,350,000 in 9.6% notes due in 1998. Additionally
in 1992, $50,000,000 of currently interest free notes, due at the earliest in
1994, was borrowed from a Holderbank subsidiary. Interest expense on related
party debt was $2,088,000, $2,087,000 and $2,454,000 in 1992, 1991 and 1990,
respectively.
Holnam purchased $6,011,000 and $6,279,000 of cement in 1991 and 1990 from
BoxCrow (see Note 8).
Holderbank and Holnam have a general assistance agreement which, among
other things, provides for the sharing of research and development, technical
knowledge and certain facilities. Fees charged by an affiliate of Holderbank
pursuant to the general assistance agreement for 1992, 1991 and 1990 were
$3,897,000, $4,715,000 and $3,749,000, respectively.
Commissions and expenses of $385,000, $412,000 and $883,000 were paid to
Holderbank and affiliates in 1992, 1991 and 1990, respectively.
As discussed in Note 9, Holderbank has provided certain comfort letters to
issuers of letters of credit and various lenders. Related fees charged by
Holderbank for such letters were $2,345,000, $2,939,000 and $656,000 in 1992,
1991 and 1990, respectively.
Pursuant to the terms of the intercompany tax sharing agreement (see Note
2), Holnam received payment of $2,001,000 in 1991 (related to the 1990 tax
benefit), and made payments of $303,000 in 1990 (related to the 1989 tax
provision).
(13) LEASES
Holnam leases the facilities and equipment at the Tijeras, New Mexico
cement plant. The lease expires in 2003 with Holnam having an option to renew
the lease for a seven year period and then to either renew the lease or purchase
the facilities and equipment at fair market value (see also Note 9). Rental
expense under the Tijeras lease was $6,399,000, $6,399,000 and $6,501,000 in
1992, 1991 and 1990, respectively.
Holnam also leases certain other office space, terminal facilities, and
manufacturing, transportation and office equipment under leases expiring on
various dates through 2020. Rental expense under these other leases was
$10,711,000, $13,789,000 and $13,342,000 in 1992, 1991 and 1990, respectively.
As of December 31, 1992, the minimum future operating lease payments
payable by Holnam were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1993.............................................................................. $15,813
1994.............................................................................. 15,602
1995.............................................................................. 13,462
1996.............................................................................. 12,109
1997.............................................................................. 11,241
Thereafter........................................................................ 67,797
---------
$136,024
---------
---------
</TABLE>
(14) CONTINGENCIES
As of December 31, 1992, a Holnam subsidiary was a defendant or third party
defendant in approximately 80 silicosis actions. Ideal (a Holnam predecessor) is
also named as a defendant in several
F-19
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of these actions. Other filings may occur in the future. In those lawsuits which
specify damages, the individual claims range from $600,000 to $4 million.
Historically, most actions have been resolved before trial with a number of
defendants contributing to each settlement. To date, the Company's disposition
cost per case has not been material, nor has the aggregate disposition cost for
all such cases. Although the ultimate outcome of these matters cannot be
predicted with certainty, management of Holnam believes, after consultation with
counsel, that the resolution of these actions will not have a material adverse
effect on Holnam's consolidated financial position or results of operations.
Under an agreement with the Air Quality Division of the Michigan Department
of Natural Resources, Holnam conducted testing in 1991 at its Dundee, Michigan
plant to determine what control devices, in addition to the baghouse completed
in 1991, are necessary to achieve satisfactory opacity of the kiln stack plume.
Based on such testing, Holnam believes that the use of gas stream absorbents
results in an acceptable opacity level. Holnam has presented the results of the
testing to the Michigan Department of Natural Resources and is negotiating
permit conditions with the Air Quality Division.
There are various other contingent liabilities and pending legal and
environmental proceedings involving Holnam's subsidiaries which are considered
by management as incidental to its ordinary course of business. Although the
final outcome cannot be predicted with certainty, management believes that the
resolution of these matters will not have a material adverse effect on Holnam's
consolidated financial position or results of operations.
(15) EMPLOYEE STOCK PLANS
Two million shares of common stock have been reserved for issuance under
the Employee Stock Purchase Plan (Purchase Plan). Under the Purchase Plan,
eligible employees (generally all fulltime employees of Holnam, excluding those
employed by St. Lawrence and St. Lawrence subsidiaries) may subscribe for shares
of common stock at a purchase price of 90% of the closing market price (as
defined). The Purchase Plan will terminate when all 2,000,000 shares of common
stock reserved thereunder shall have been subscribed for, unless earlier
terminated by the Board of Directors. In 1990, 54,000 shares of stock were
purchased under the Purchase Plan for a purchase price of approximately
$147,000. In 1991, approximately 87,000 shares of stock were purchased under the
Purchase Plan for a purchase price of approximately $387,000. In 1992,
approximately 121,000 shares of stock were purchased under the Purchase Plan for
a purchase price of approximately $347,000.
In 1990, Holnam established the 1990 Stock Option Plan (Stock Option Plan)
for certain fulltime key employees of Holnam. The Stock Option Plan provides for
the grant of options to purchase up to 2,150,000 shares of Holnam common stock
at not less than the fair market value of such stock at the date of grant.
Additionally, stock appreciation rights (SARs) may be granted in tandem with
options. Also in 1990, options to purchase 249,531 shares at $9.50 per share
(all immediately exercisable) were issued to holders of options to purchase
Ideal shares (pursuant to an Ideal plan which was assumed by Holnam as part of
the merger).
On March 23, 1990, options to purchase an aggregate of 473,000 shares of
Holnam common stock at an exercise price of $7.25 per share were granted under
the Stock Option Plan. The options become exercisable at the rate of 33 1/3
percent per year on each of the first three annual anniversaries of their date
of grant, and such options expire on March 22, 2000. In addition, SARs were
granted in tandem with such options.
ln 1991, options to purchase an additional 172,000 shares were granted.
These options become exercisable six months from the date of grant and expire in
2001. In addition, SARs were granted in tandem with such options.
Transactions under the Stock Option Plan are as follows:
F-20
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1992 1991
------------------------------- -------------------------------
OPTION SHARES OPTION PRICE OPTION SHARES OPTION PRICE
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Balance outstanding at beginning of year..... 824,056 $4.38-$9.50 715,118 $7.25-$9.50
Granted --
New options............................. -- -- 172,000 4.38 - 5.75
Exercised.................................... -- -- -- --
Forfeited.................................... (49,662) -- (63,062) 7.25
------------- -------------- ------------- --------------
Balance outstanding at end of year........... 774,394 $4.38-$9.50 824,056 $4.38 - $9.50
------------- -------------- ------------- --------------
------------- -------------- ------------- --------------
Options exercisable at end of year........... 616,728 $4.38 - $9.50 508,723 $5.75 - $9.50
------------- -------------- ------------- --------------
------------- -------------- ------------- --------------
</TABLE>
(16) SEGMENT INFORMATION
Holnam and its subsidiaries operate in the United States and Canada in one
dominant industry segment, the manufacture and distribution of cement and
related products for the construction industry. Information about Holnam's
operations in different geographical segments for the three years ended December
31, 1992 is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED
STATES CANADA TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Net sales to unaffiliated customers --
1992 $ 585,442 $ 360,734 $ 946,176
1991 572,146 407,151 979,297
1990............................................................. 562,068 512,511 1,074,579
Segment income (loss) from operations (a) --
1992 $ (31,449) $ (31,075) $ (62,524)
1991 (118,928) 2,502 (116,426)
1990............................................................. (78,187) 64,661 (13,526)
Identifiable assets --
1992 $ 912,216 $ 440,916 $1,353,132
1991 984,409 472,180 1,456,589
1990............................................................. 1,039,637 454,532 1,494,169
Capital expenditures --
1992 $ 33,070 $ 14,683 $ 47,753
1991 33,987 20,191 54,178
1990............................................................. 61,814 32,596 94,410
Depreciation, depletion and amortization --
1992 $ 57,103 $ 22,815 $ 79,918
1991 58,933 23,224 82,157
1990............................................................. 53,692 23,100 76,792
</TABLE>
- ------------
(a) Segment income (loss) from operations is defined as income (loss) before
income taxes and minority equity in net income (loss) less other income. In
1992, the United States and Canada segment results include charges of
$1,750, and $9,287, respectively, relating to unusual charges. In 1991, the
United States segment results include charges of $61,672 relating to unusual
charges.
Holnam sells cement to various classes of customers who are part of the
construction industry, including ready-mix concrete customers. Other customers
include concrete products manufacturers, building materials dealers and other
large-scale users of cement. Although the Company's customer base is
geographically diversified, collection of receivables is partially dependent on
the economics of the construction activity. There were no sales to any single
customer which aggregated in excess of 10% of sales for 1992, 1991 or 1990.
F-21
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(17) SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
-------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1992 --
Net sales.................................. $138,361 $263,507 $304,384 $239,924 $946,176
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cost of sales.............................. $135,113 $226,880 $261,335 $212,738 $836,066
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Unusual charges (Note 4)................... $ -- $ -- $ -- $11,037 $11,037
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss).......................... $(26,236) $78 $2,072 $(4,486) $(28,572)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share................ $(.19) $.00 $.02 $(.04) $(.21)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
1991 --
Net sales.................................. $135,277 $268,578 $324,381 $251,061 $979,297
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cost of sales.............................. $130,648 $230,354 $271,254 $225,264 $857,520
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Unusual charges (Note 4)................... $ -- $ -- $ -- $61,672 $61,672
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss).......................... $(25,409) $(3,635) $5,067 $(71,077) $(95,054)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share................ $(.19) $(.03) $.04 $(.53) $(.71)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(18) INVESTMENT IN ST. LAWRENCE CEMENT COMPANY, INC.
As discussed in Notes 1 and 2, Holnam owns approximately 59% of the
outstanding common shares of St. Lawrence and Holnam's principal financial
statements consolidate the accounts of St. Lawrence. As supplementary
information, the following condensed financial statement information separately
reflects Holnam's investment in St. Lawrence on the equity method:
HOLNAM CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1992 1991 1990
--------- --------- ---------
(000'S OMITTED)
<S> <C> <C> <C>
Net sales................................................................. $548,735 $525,290 $516,756
Cost of sales............................................................. (469,627) (467,291) (464,430)
Selling, general and administrative expenses.............................. (55,980) (62,566) (60,930)
Unusual charges (Notes 4, 16 and 17)...................................... -- (60,364) --
Interest expense and other................................................ (34,599) (35,610) (38,419)
--------- --------- ---------
Loss before income taxes and equity interest in net income (loss) of
St. Lawrence....................................................... (11,471) (100,541) (47,023)
Income tax provision (credit)............................................. 109 (10,385) (9,468)
--------- --------- ---------
Net loss before equity interest in net income (loss) of St.
Lawrence........................................................... (11,580) (90,156) (37,555)
Equity interest in net income (loss) of St. Lawrence (a).................. (16,992) (4,898) 12,439
--------- --------- ---------
Net loss............................................................. $(28,572) $(95,054) $(25,116)
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------
(a) Cash dividends received by Holnam from St. Lawrence were approximately $2.1
million, $7.2 million and $15.9 million in 1992, 1991 and 1990,
respectively.
F-22
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HOLNAM CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1992 1991
--------- ---------
(000'S OMITTED)
<S> <C> <C>
Current assets................................................................ $187,498 $214,350
Property, plant and equipment, net............................................ 531,124 558,950
Investment in St. Lawrence.................................................... 162,718 197,691
Other......................................................................... 53,790 55,766
--------- ---------
$935,130 $1,026,757
--------- ---------
--------- ---------
Current liabilities........................................................... $80,202 $90,224
Long -- term debt............................................................. 379,823 409,611
Deferred income taxes and other............................................... 39,629 45,714
Stockholders' equity.......................................................... 435,476 481,208
--------- ---------
$935,130 $1,026,757
--------- ---------
--------- ---------
</TABLE>
St. Lawrence separately reports its financial statements in accordance with
Canadian accounting principles. The following condensed information regarding
the results of operations and financial condition of St. Lawrence and its
subsidiaries was derived from the separately-reported consolidated financial
statements of St. Lawrence adjusted to reflect U.S. generally accepted
accounting principles and translated to U.S. dollars.
ST. LAWRENCE CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1992 1991 1990
--------- --------- ---------
(000'S OMITTED)
<S> <C> <C> <C>
Net sales................................................................. $397,441 $454,908 $557,823
Cost of sales............................................................. (366,439) (391,130) (448,341)
Selling, general and administrative expenses.............................. (53,809) (57,431) (55,462)
Unusual charges (Notes 4, 16 and 17)...................................... (11,037) (1,308) --
Interest expense and other................................................ (21,678) (16,508) (17,420)
--------- --------- ---------
Income (loss) before income taxes.................................... (55,522) (11,469) 36,600
Income tax (provision) credit (b).................................... 23,766 3,409 (15,636)
--------- --------- ---------
--------- --------- ---------
Net income (loss)......................................................... $(31,756) $(8,060) $20,964
--------- --------- ---------
--------- --------- ---------
</TABLE>
(b) Includes (provision) credit related to unremitted earnings to Holnam.
F-23
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ST. LAWRENCE CONDENSED BALANCE SHEETS
HOLNAM CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1992 1991
--------- ---------
(000'S OMITTED)
<S> <C> <C>
Current assets................................................................ $ 182,448 $194,121
Property, plant and equipment, net............................................ 324,758 370,164
Other......................................................................... 74,072 65,500
--------- ---------
$581,278 $629,785
--------- ---------
--------- ---------
Current liabilities........................................................... $62,898 $55,117
Long -- term debt............................................................. 204,629 191,994
Deferred income taxes and other............................................... 40,108 56,244
Stockholders' equity.......................................................... 273,643 326,430
--------- ---------
$581,278 $629,785
--------- ---------
--------- ---------
</TABLE>
F-24
<PAGE>
SCHEDULE II
HOLNAM INC. AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN D COLUMN E
--------------------- ------------------
COLUMN B DEDUCTIONS BALANCE AT END OF
---------- --------------------- PERIOD
COLUMN A BALANCE AT COLUMN C AMOUNT ------------------
- ------------------------------ BEGINNING -------- AMOUNTS WRITTEN- OTHER NON-
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED OFF CHANGES (1) CURRENT CURRENT
- ------------------------------ ---------- -------- --------- -------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1992:
Employee Stock Purchase
Plan................... $ 6,590 $1,076 $ (356) $ -- $ (637) $-- $ 6,673
Employees' Mortgages..... 1,202 271 (70) -- (76) 150 1,177
BoxCrow Working Capital
Loans.................. -- 5,847 -- -- (5,847)(2) -- --
1991:
Employee Stock Purchase
Plan................... 6,361 944 (738) -- 23 -- 6,590
Employees' Mortgages..... 1,365 74 (243) -- 6 53 1,149
BoxCrow Working Capital
Loans.................. 22,600 8,026 -- (30,626) -- -- --
1990:
Employee Stock Purchase
Plan................... 6,438 935 (1,002) -- (10) -- 6,361
Employees' Mortgages..... 1,222 470 (325) -- (2) 80 1,285
BoxCrow Working Capital
Loans.................. 18,100 4,500 -- -- -- -- 22,600
</TABLE>
- ------------
(1) Includes the effect of foreign currency translation.
(2) See Note 8 to the consolidated financial statements.
F-25
<PAGE>
SCHEDULE V
HOLNAM INC. AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN B COLUMN F
---------- COLUMN C COLUMN E ----------
COLUMN A BALANCE AT -------- COLUMN D ----------- BALANCE AT
- ----------------------------------------- BEGINNING ADDITIONS ----------- OTHER END
DESCRIPTION OF PERIOD AT COST RETIREMENTS CHANGES (1) OF PERIOD
- ----------------------------------------- ---------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1992:
Land, land improvements and mineral
deposits.......................... $ 102,038 $ 1,250 $ (2,325) $ (3,398) $ 97,565
Buildings, machinery and
equipment......................... 1,454,276 10,650 (47,011) (25,652) 1,392,263
Construction in progress............ 44,331 35,853 (5,081) (31,584) 43,519
---------- -------- ----------- ----------- ----------
$1,600,645 $47,753 $ (54,417) $ (60,634) $1,533,347
---------- -------- ----------- ----------- ----------
---------- -------- ----------- ----------- ----------
1991:
Land, land improvements and mineral
deposits.......................... $ 102,108 $ 1,445 $ (1,788) $ 273 $ 102,038
Buildings, machinery and
equipment......................... 1,392,138 12,197 (13,738) 63,679 1,454,276
Construction in progress 64,616 40,536 -- (60,821) 44,331
---------- -------- ----------- ----------- ----------
$1,558,862 $54,178 $ (15,526) $ 3,131(3)(4) $1,600,645
---------- -------- ----------- ----------- ----------
---------- -------- ----------- ----------- ----------
1990:
Land, land improvements and mineral
deposits.......................... $ 87,615 $ 1,703 $ (121) $ 12,911 $ 102,108
Buildings, machinery and
equipment......................... 1,249,483 15,223 (11,696) 139,128 1,392,138
Construction in progress............ 37,092 77,484 -- (49,960) 64,616
---------- -------- ----------- ----------- ----------
$1,374,190 $94,410 $ (11,817) $ 102,079(2) $1,558,862
---------- -------- ----------- ----------- ----------
---------- -------- ----------- ----------- ----------
</TABLE>
- ------------
(1) Includes the effect of foreign currency translation and transfers from
construction in progress.
(2) Amount includes $88,300 in connection with the acquisition of the minority
interest in Ideal and the acquisitions of Northwestern States Portland
Cement Company, United Cement Company and Diversified Materials Inc.
(3) Amount is net of a $9,171 writedown of property, plant and equipment to
estimated recoverable values (Note 4 to the consolidated financial
statements).
(4) Amount includes $5,263 of additions to property, plant and equipment through
acquisitions (Note 3 to the consolidated financial statements).
F-26
<PAGE>
SCHEDULE VI
HOLNAM INC. AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND DEPLETION
OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ---------- COLUMN F
---------- ADDITIONS COLUMN E ----------
COLUMN A BALANCE AT CHARGED TO COLUMN D ----------- BALANCE AT
- ----------------------------------------------- BEGINNING COST AND ----------- OTHER END
DESCRIPTION OF PERIOD EXPENSES RETIREMENTS CHANGES (1) OF PERIOD
- ----------------------------------------------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1992:
Land, land improvements and mineral
deposits................................ $ 27,638 $ 2,912 $ (1,285) $ (1,493) $ 27,772
---------- ---------- ----------- ----------- ----------
Buildings, machinery and equipment........ 643,893 75,319 (35,504) (34,015) 649,693
---------- ---------- ----------- ----------- ----------
$671,531 $ 78,231 $ (36,789) $ (35,508) $677,465
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
1991:
Land, land improvements and mineral
deposits................................ $ 25,748 $ 2,087 $ (240) $ 43 $ 27,638
Buildings, machinery and equipment........ 574,246 78,106 (11,666) 3,207 643,893
---------- ---------- ----------- ----------- ----------
$599,994 $ 80,193 $ (11,906) $ 3,250 $671,531
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
1990:
Land, land improvements and mineral
deposits................................ $ 23,054 $ 2,669 $ -- $ 25 $ 25,748
Buildings, machinery and equipment........ 605,633 71,295 (8,689) (93,993) 574,246
---------- ---------- ----------- ----------- ----------
$628,687 $ 73,964 $ (8,689) $ (93,968)(2) $599,994
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
</TABLE>
- ------------
(1) Includes the effect of foreign currency translation.
(2) Amount includes a reduction of accumulated depreciation and depletion of
$97,000 as a result of the acquisition of the minority interests in Ideal.
F-27
<PAGE>
SCHEDULE VIII
HOLNAM INC. AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
---------------------------
COLUMN B ADDITIONS COLUMN E
---------- --------------------------- ----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
- --------------------------------------------- BEGINNING COST AND OTHER ---------- END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (2) DEDUCTIONS OF PERIOD
- --------------------------------------------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
1992:
Allowance for doubtful accounts......... $ 14,058 $ 9,160 $ (652) $ (8,817) $ 13,749
Reserve for spare parts obsolescence.... 1,459 2,541 -- -- 4,000
Reserve for notes receivable............ 750 -- -- -- 750
Reserve for BoxCrow working capital
loans................................. 30,626 -- 5,847(1) -- 36,473
---------- ---------- ------------ ---------- ----------
$ 46,893 $ 11,701 $5,195 $ (8,817) $ 54,972
---------- ---------- ------------ ---------- ----------
---------- ---------- ------------ ---------- ----------
1991:
Allowance for doubtful accounts......... $ 12,375 $ 4,421 $ 25 $ (2,763) $ 14,058
Reserve for spare parts obsolescence.... 371 1,088 -- -- 1,459
Reserve for notes receivable............ -- 750 -- -- 750
Reserve for BoxCrow working capital
loans................................. -- 30,626(1) -- -- 30,626
---------- ---------- ------------ ---------- ----------
$ 12,746 $ 36,885 $ 25 $ (2,763) $ 46,893
---------- ---------- ------------ ---------- ----------
---------- ---------- ------------ ---------- ----------
1990:
Allowance for doubtful accounts......... $ 6,831 $ 7,023 $ 583 $ (2,062) $ 12,375
Reserve for spare parts obsolescence.... 373 86 -- (88) 371
---------- ---------- ------------ ---------- ----------
$ 7,204 $ 7,109 $ 583 $ (2,150) $ 12,746
---------- ---------- ------------ ---------- ----------
---------- ---------- ------------ ---------- ----------
</TABLE>
- ------------
(1) See Note 8 to the consolidated financial statements.
(2) Includes the effect of foreign currency translation.
F-28
<PAGE>
SCHEDULE IX
HOLNAM INC. AND SUBSIDIARIES
SCHEDULE IX -- SHORT TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN F
COLUMN D COLUMN E ----------
COLUMN C ----------- ----------- WEIGHTED
COLUMN B -------- MAXIMUM AVERAGE AVERAGE
COLUMN A ---------- WEIGHTED AMOUNT AMOUNT INTEREST
- ------------------------------------------------- BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE
CATEGORY OF AGGREGATE END INTEREST DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS OF PERIOD RATE PERIOD PERIOD PERIOD
- ------------------------------------------------- ---------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1992:
Short Term Borrowings Under Uncommitted
Credit Agreement.......................... $-- -- $ 6,232 $ 1,584 6.9%
Short Term Uncommitted Credit Agreement..... 3,000 3.7% 3,000 14 3.7%
1991:
Short Term Borrowings Under Uncommitted
Credit Agreement.......................... -- -- 46,151 19,675 10.2%
1990:
Short Term Borrowings Under Uncommitted
Credit Agreement.......................... -- -- 9,193 2,322 14.4%
</TABLE>
- ------------
(1) The average amount outstanding during the period is calculated by using
daily balances.
(2) Weighted average interest rate during the period is calculated by dividing
the sum of interest expense by the aggregate principal amounts, factored by
the time outstanding.
SCHEDULE X
HOLNAM INC. AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
COSTS AND
ITEM EXPENSES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
1992:
Maintenance and repairs expenses................................................................ $111,098
----------
----------
Taxes, other than payroll and income taxes -- Real Estate, municipal and other.................. $ 16,306
----------
----------
1991:
Maintenance and repairs expenses................................................................ $117,671
----------
----------
Taxes, other than payroll and income taxes -- Real Estate, municipal and other.................. $ 15,525
----------
----------
1990:
Maintenance and repairs expenses................................................................ $118,327
----------
----------
Taxes, other than payroll and income taxes -- Real Estate, municipal and other.................. $ 15,424
----------
----------
</TABLE>
F-29
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
3RD QUARTER NINE MONTHS
-------------------- --------------------
1993 1992 1993 1992
-------- -------- -------- --------
<S> <C> <C> <C> <C>
For the period ended September 30
Sales....................................................... $328,355 $304,384 $728,498 $706,252
Cost of Sales............................................... 269,257 261,335 623,167 623,328
Selling, general and administrative expense................. 26,249 29,654 78,395 84,445
-------- -------- -------- --------
Income (loss) from operations............................... 32,849 13,395 26,936 (1,521)
Interest expense, net....................................... 11,788 13,368 34,873 40,301
Other income................................................ 2,061 1,065 6,019 3,573
-------- -------- -------- --------
Income (loss) before income taxes, minority equity in net
income (loss) and the cumulative effect of changes in
accounting principles..................................... 23,122 1,092 (1,918) (38,249)
Income tax provision (credit)............................... 3,386 (336) (1,478) (6,701)
Minority equity in net income (loss)........................ 2,615 (644) (1,224) (7,462)
-------- -------- -------- --------
Income (loss) before the cumulative effect of changes in
accounting principles..................................... 17,121 2,072 784 (24,086)
Cumulative effect of changes in accounting principles....... -- -- (65,700) --
-------- -------- -------- --------
Net income (loss)........................................... $ 17,121 $ 2,072 $(64,916) $(24,086)
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per share
Primary:
Income (loss) before the cumulative effect of
changes in accounting principles............................ $ .13 $ .02 $ .01 $ (.18)
Cumulative effect of changes in accounting
principles........................................... -- -- (.49) --
-------- -------- -------- --------
Net income (loss) per share................................. $ .13 $ .02 $ (.48) $ (.18)
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per share
Assuming full dilution:
Income (loss) before the cumulative effect of changes
in accounting principles............................. $ .12 $ .02 $ .01 $ (.18)
Cumulative effect of changes in accounting
principles........................................... -- -- (.47) --
-------- -------- -------- --------
Net income (loss) per share................................. $ .12 $ .02 $ (.46) $ (.18)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common shares outstanding and common
equivalent shares outstanding
Primary:............................................... 135,328 134,915 135,199 134,872
Assuming full dilution:................................ 143,498 134,915 139,228 134,872
</TABLE>
The Company's business is highly seasonal; consequently results for interim
periods should not be considered representative of the expected results for the
full year.
F-30
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1993 1992 1992
------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash............................................................... $ 2,807 $ 7,527 $ 19,426
Receivables, net of allowance for doubtful accounts of $13,492,
$13,749 and $14,338, respectively................................ 240,890 178,540 246,243
Inventories and supplies........................................... 151,058 177,875 170,433
Prepaid expenses and other......................................... 7,216 5,271 6,615
------------- ------------ -------------
Total current assets............................................... 401,971 369,213 442,717
Property, plant and equipment...................................... 893,869 855,882 876,716
Cost in excess of net assets acquired.............................. 60,207 62,008 62,414
Other assets....................................................... 70,635 66,029 66,838
------------- ------------ -------------
TOTAL.................................................... $ 1,426,682 $1,353,132 $ 1,448,685
------------- ------------ -------------
------------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities........................... $ 129,486 $ 126,354 $ 119,540
Notes payable and current portion of long-term debt................ 18,768 16,013 19,903
------------- ------------ -------------
Total current liabilities.......................................... 148,254 142,367 139,443
Long-term debt..................................................... 625,370 584,452 653,652
Deferred income taxes.............................................. 55,904 58,253 71,935
Other liabilities.................................................. 89,097 21,484 20,312
Minority equity.................................................... 113,916 111,100 119,360
Preferred stock.................................................... 30,508 -- --
Common stock....................................................... 1,353 1,350 1,349
Additional paid in capital......................................... 457,797 457,156 456,992
Retained earnings (deficit)........................................ (88,306) (23,390) (18,904)
Cumulative translation adjustment.................................. (7,211) 360 4,546
------------- ------------ -------------
Total stockholders' equity......................................... 394,141 435,476 443,983
------------- ------------ -------------
TOTAL.................................................... $ 1,426,682 $1,353,132 $ 1,448,685
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
F-31
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
-------------------------------
1993 1992
------------- ---------
<S> <C> <C>
Sources (uses) of net cash
OPERATIONS
Net loss................................................................. $(64,916) $(24,086)
Cumulative effect of changes in accounting principles.................... 65,700 --
Adjustment to reconcile income (loss) before the cumulative effect of
changes in accounting principles to cash flow from operations, net of
effects of acquisitions.................................................. 19,426 (5,486)
----------- ----------
Cash provided (used) by operations....................................... 20,210 (29,572)
INVESTING ACTIVITIES:
Capital expenditures..................................................... (42,297) (34,938)
Investment in unconsolidated entities.................................... (2,538) (959)
Acquisition of subsidiaries.............................................. (54,172) (3,131)
Proceeds from sales of assets............................................ 8,330 8,490
Other.................................................................... 1,537 (3,833)
----------- ----------
Cash used for investing activities....................................... (89,140) (34,371)
FINANCING ACTIVITIES:
Issuance of preferred stock.............................................. 30,000 --
Issuance of common stock................................................. 1,152 182
Net proceeds from short-term borrowings.................................. 2,800 1,684
Net proceeds from revolving borrowings................................... (1,594) 21,567
Proceeds from other long-term borrowings................................. 30,965 51,476
Repayment of other long-term borrowings.................................. (6,702) (5,056)
Other.................................................................... 1,121 1,361
----------- -----------
Cash provided from financing activities.................................. 57,742 71,214
----------- -----------
Increase (decrease) in cash.............................................. $(11,188) $ 7,271
----------- -----------
----------- -----------
</TABLE>
F-32
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
SUPPLEMENTAL CASH FLOW DATA
In conjunction with the 1993 acquisition, a Holnam subsidiary assumed
existing industrial revenue bond indebtedness of $26.7 million. In conjunction
with the 1992 acquisition, a Holnam subsidiary issued $8.5 million of preferred
stock in a non-cash transaction.
In August, the Company issued a stock dividend of 10,150 shares at $50 per
share on the $50 cumulative convertible preferred stock.
Interest and income taxes paid for the nine months ended September 30, were
as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Interest paid........................................................... $35,668 $40,419
------- -------
------- -------
Income taxes paid....................................................... $ 1,823 $ 3,573
------- -------
------- -------
</TABLE>
F-33
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
(1) GENERAL
The accompanying financial statements have been prepared by Holnam Inc.
('Holnam') without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Holnam believes that the disclosures are adequate to make the
information presented not misleading when read in conjunction with the
consolidated financial statements and the notes thereto included in Holnam's
Form 10-K, as amended by Form 10-K/A-1, filed with the Securities and Exchange
Commission for the year ended December 31, 1992.
The financial information presented reflects all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
The Company's business is highly seasonal; consequently, the results for interim
periods should not be considered representative of the expected results for the
full year.
Certain reclassifications have been made to the 1992 financial data to
conform to the 1993 presentation.
(2) ACQUISITIONS
On May 19, 1993, Holnam acquired a 75% interest in a partnership (the
Partnership) that operates a cement manufacturing plant located in Midlothian,
Texas. The purchase price was approximately $90.6 million.
The transaction was financed as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Assumption of existing industrial revenue bonds............................... $ 26,700
Drawing on a $25.0 million long-term revolving line of credit................. 23,859
Equity contribution by partner................................................ 10,000
Holnam equity contribution.................................................... 30,000
--------------
Acquisition price............................................................. $ 90,559
--------------
--------------
</TABLE>
The Holnam equity contribution was funded via the issuance, to an affiliate
of Holderbank, of 600,000 shares of non-voting, $50 Cumulative Convertible
Preferred Stock, dividend payable in-kind at Holnam's option, each share
convertible into 13.5 shares of Holnam common stock, redeemable after May 15,
1997.
The transaction has been accounted for as a purchase and the purchase price
was allocated, based upon preliminary estimates of fair value which may be
revised at a later date, as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash.......................................................................... $ 6,468
Receivables, net.............................................................. 5,980
Inventories and supplies...................................................... 6,476
Property, plant and equipment................................................. 75,152
Other assets.................................................................. 606
Accounts payable and accrued liabilities...................................... (4,123)
--------------
$ 90,559
--------------
--------------
</TABLE>
Unaudited, pro forma consolidated results of operations, assuming that the
acquisition of the Midlothian, Texas cement operation had occurred as of January
1, 1992 follow:
F-34
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1993 1992
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE)
<S> <C> <C>
Sales..................................................................................... $739,869 $726,943
Net income (loss)......................................................................... (64,826) (24,910)
Earning (loss) per share.................................................................. (.48) (.18)
</TABLE>
These results include adjustments for amortization, depreciation, interest
expense and elimination of minority equity in net loss or income and are not
necessarily indicative of what the actual results of operations would have been
had the acquisition taken place on January 1, 1992.
(3) INVENTORIES AND SUPPLIES
Inventories and supplies consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1993 1992
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.................................................. $ 17,374 $ 16,005
Finished goods and work-in-process............................. 68,724 88,823
Supplies and spare parts....................................... 64,960 73,047
------------- ------------
$ 151,058 $177,875
------------- ------------
------------- ------------
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1993 1992
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Land, land improvements and mineral deposits................... $ 113,283 $ 108,869
Buildings, machinery and equipment............................. 1,436,947 1,380,959
Construction in progress....................................... 45,998 43,519
------------- ------------
1,596,228 1,533,347
Less-accumulated depreciation and depletion.................... 702,359 677,465
------------- ------------
Property, plant and equipment, net............................. $ 893,869 $ 855,882
------------- ------------
------------- ------------
</TABLE>
(5) LONG-TERM DEBT
In conjunction with the acquisition discussed in Note 2, a Holnam
subsidiary assumed the obligation for $26.7 million of industrial revenue bonds
maturing on December 1, 2009. A letter of credit expiring May 1, 1996 permits
the bond trustee to draw amounts to pay principal and accrued interest for up to
65 days on the related bonds. The interest rate applicable to the bonds is based
on a weekly variable rate.
In addition, the Holnam subsidiary established a $25.0 million unsecured
revolving credit facility, which reduces by $5.0 million per year until
termination in 1996. Interest on the facility varies with LIBOR.
The obligations of the Holnam subsidiary under the letter of credit and the
revolving credit facility are guaranteed jointly and severally by Holnam Inc.
and its partner in the investment.
F-35
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(6) CONTINGENCIES
A Holnam subsidiary is a defendant or third party defendant in
approximately 77 silicosis actions. Ideal (a Holnam predecessor) is also named a
defendant in several of these actions. Other filings may occur in the future. In
those lawsuits which specify damages, the individual claims range from $600,000
to $4 million. Historically, most actions have been resolved before trial with a
number of defendants contributing to each settlement. To date, the Company's
disposition cost per case has not been material, nor has the aggregate
disposition cost for all such cases. Although the ultimate outcome of these
matters cannot be predicted with certainty, management of Holnam believes that
the resolution of these actions will not have a material adverse effect on
Holnam's consolidated financial position or results of operations.
Under an agreement with the Air Quality Division of the Michigan Department
of Natural Resources, Holnam conducted testing in 1991 at its Dundee, Michigan
plant to determine what control devices, in addition to the baghouse completed
in 1991, are necessary to achieve satisfactory opacity of the kiln stack plume.
Based on such testing, Holnam believes that the use of gas stream absorbents
results in an acceptable opacity level. Holnam has presented the results of the
testing to the Michigan Department of Natural Resources and is negotiating
permit conditions with the Air Quality Division.
There are various other contingent liabilities and pending legal and
environmental proceedings involving Holnam or Holnam's subsidiaries which are
considered by management as incidental to its ordinary course of business.
Although the final outcome cannot be predicted with the certainty, management
believes that the resolution of these matters will not have a material adverse
effect on Holnam's consolidated financial position or results of operations.
(7) CHANGES IN ACCOUNTING PRINCIPLES
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, l993, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 106 'Employees' Accounting for
Postretirement Benefits Other than Pensions', which requires companies to
recognize the liability for postretirement benefits as they are earned by their
employees (other than employees of St. Lawrence). Holnam provides health care
and life insurance benefits for substantially all current and former employees
who retired from active service and their dependents. Benefits are extended to
dependents of deceased retirees for one year following the death of the retiree.
Employees retiring prior to January 1, l996 will receive benefits in accordance
with various individual plan agreements. Employees retiring after January 1,
l996 will receive a fixed dollar subsidy that can be used to purchase one of the
three retiree medical plans, with differences between the subsidy amount and the
total cost of coverage being paid by the retiree. The health care and life
insurance benefit plans are unfunded. In adopting SFAS No. 106, Holnam elected
to immediately recognize, as of January 1, l993, the unfunded, Accumulated
Postretirement Benefit Obligation (the Transition Obligation) of approximated
$67.0 million ($64.0 million net of applicable income taxes) as a cumulative
effect of a change in accounting principle. The Expected Postretirement Benefit
Obligation as of January 1, l993 approximated $71.0 million. The adoption of
this standard will result in 1993 postretirement benefit expense of
approximately $5.5 million, an increase of approximately $2.0 million over the
estimated 1993 cash costs. The Transition Obligation, Expected Postretirement
Benefit Obligation and the l993 postretirement benefit expense all differ from
the Company's previously disclosed estimates as a result of finalizing actuarial
calculations.
The actuarial assumptions used are as follows:
F-36
<PAGE>
HOLNAM INC. AND SUBSIDIARIES
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
Initial annual health care trend rate
<S> <C>
Pre-age 65 benefits................................................................. 15%
Post-age 65 benefits................................................................ 10%
Discount rate............................................................................ 8%
Average remaining service period (years)................................................. 15
</TABLE>
A one percent increase in the health care cost trend rate would result in a
transition obligation of approximately $72.5 million and annual service and
interest costs of approximately $6.0 million.
ACCOUNTING FOR INCOME TAXES
Effective January 1, l993, Holnam adopted the provisions of SFAS 109,
'Accounting for Income Taxes.' SFAS 109 replaced SFAS 96, of the same title,
which Holnam previously used to account for income taxes. The effect of adopting
SFAS 109 was to recognize a deferred tax liability of $1.7 million that was not
recognized under SFAS 96. In addition, Holnam determined that approximately $160
million of tax benefits did not satisfy the recognition criteria set forth in
the standard. Accordingly, a valuation allowance was recorded against the
deferred tax asset.
A valuation allowance is provided when it is more likely then not that some
portion of the deferred tax asset will not be realized. Holnam has established a
valuation allowance for the full amount of operating loss carry forwards which
are not anticipated to offset existing net taxable temporary differences. Future
utilization of operating loss carryforwards currently fully reserved will depend
on Holnam's ability to generate future taxable income, the Company's ability to
sustain the ordinary (versus capital) loss treatment of approximately $136
million of net operating loss carryforwards, as well as the resolution of any
issues which may result from an audit by the Internal Revenue Service.
(8) SUBSEQUENT EVENT
On November 8, 1993, the Company announced the calling of all its $15.3
million 9.25% sinking-fund debentures outstanding, due in 2000, at a price of
$1,009.30 per $1,000.00 principal amount, plus accrued interest. The redemption
will occur in December, 1993.
F-37
<PAGE>
ANNEX A
FORM OF
CERTIFICATE OF OWNERSHIP AND MERGER
OF
HOLCEM INC.
(A DELAWARE CORPORATION)
INTO
HOLNAM INC.
(A DELAWARE CORPORATION)
(FILED PURSUANT TO SECTION 253 OF
THE GENERAL CORPORATION LAW OF
THE STATE OF DELAWARE)
The undersigned hereby certify that:
(1) Holnam Inc. ('Holnam') was incorporated on the 8th day of May, 1981
under the name HOFI North America Inc. pursuant to the General Corporation Law
of the State of Delaware.
(2) Holcem Inc., a corporation incorporated on the 23rd day of December,
1993 pursuant to the General Corporation Law of the State of Delaware
('Holcem'), owns more than 90% of the issued and outstanding shares of common
stock, par value $.01 per share, of Holnam and 100% of the issued and
outstanding shares of 7% Cumulative Convertible Preferred Stock, par value $.10
per share, of Holnam, which constitute all the outstanding classes of stock of
Holnam.
(3) The directors of Holcem, at a meeting duly called and held on January
7, 1994, unanimously adopted the following resolutions authorizing the merger of
Holcem with and into Holnam (the 'Merger') and the amendment of the Restated
Certificate of Incorporation, as amended, of Holnam:
MERGER OF HOLCEM WITH HOLNAM
RESOLVED, that, pursuant to Section 253 of the General Corporation Law of
the State of Delaware (the 'DGCL'), Holcem merge (the 'Merger') with and into
Holnam Inc., a Delaware corporation ('Holnam').
RESOLVED, that at the effective time of the Merger each outstanding share
of common stock of Holnam (other than any shares owned by Holcem and subject to
the rights of stockholders of Holnam who perfect their dissenters' appraisal
rights) be converted into the right to receive $7.65 in cash (the 'Cash
Consideration') upon the surrender of the certificates for such shares of common
stock of Holnam to the paying agent for Holdernam Inc.
RESOLVED, that this Board of Directors has reviewed and considered such
information from and related to Holnam and concerning the Merger as it deemed
relevant and appropriate, and a presentation by and the opinion of Merrill
Lynch, Pierce, Fenner & Smith, dated January 7, 1994 and addressed to Holcem and
certain affiliates of Holcem, concerning the fairness of the Cash Consideration
to be received by the stockholders of Holnam other than Holcem and, on the basis
of such review and consideration, this Board of Directors finds the Merger to be
fair to the stockholders of Holnam other than Holcem.
RESOLVED, that upon the surrender by Holdernam Inc., a Delaware corporation
and the owner of all the issued and outstanding capital stock of Holcem
('Holdernam'), of the certificates for the shares of common stock of Holcem to
the paying agent after the effective time of the Merger, Holnam shall deliver or
cause to be delivered to Holdernam certificates for (a) 1,000 shares of common
stock of Holnam in lieu of the 128,491,701 shares of common stock of Holnam held
by Holcem prior to the Merger, and (b) 1,034.71333 shares of 7% Cumulative
Convertible Preferred Stock of Holnam in lieu of the 620,828 shares of the 7%
Cumulative Convertible Preferred Stock of Holnam held by Holcem prior to the
Merger, which newly issued certificates shall represent all the issued and
outstanding equity securities of Holnam immediately after the Merger.
RESOLVED, that the stockholders of Holnam other than Holcem shall have
appraisal rights as set forth in Section 262 of the DGCL.
<PAGE>
RESOLVED, that the proper officers of Holcem are authorized to execute,
acknowledge, file and record a certificate of ownership and merger in accordance
with the requirements of Section 253 of the DGCL (the 'Certificate of Ownership
and Merger') and to cause the Merger to become effective, all without further
action by this Board of Directors.
RESOLVED, that at any time before the Certificate of Ownership and Merger
is filed with the Secretary of State of the State of Delaware, this Board of
Directors may amend these resolutions and abandon the Merger, all in the manner
and to the extent permitted by Sections 253(c) and 251(d) of the DGCL.
AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION OF HOLNAM
RESOLVED, that upon the effectiveness of the Merger, the restated
certificate of incorporation, as amended, of Holnam be amended as follows:
(a) The preamble of Article FOURTH shall be amended so that, as
amended, said preamble shall be and read as follows:
'FOURTH: The total number of shares of stock of all classes which
the corporation is authorized to issue is 4,000 shares, consisting of
2,000 shares of Common Stock, par value $.01 per share (the 'Common
Stock'), and 2,000 shares of Preferred Stock, par value $.10 per share
(the 'Preferred Stock'). The voting powers, designations, preferences,
relative rights, qualifications, limitations and restrictions of each
class shall be as follows:'
(b) The resolutions set forth in the Certificate of Designation of the
7% Cumulative Convertible Preferred Stock, par value $.10 per share (the
'Series A Preferred'), of Holnam dated as of June 2, 1993 shall be amended
as follows:
(i) The Series A Preferred shall consist initially of 1,000 shares
instead of the 600,000 shares currently provided in the first and tenth
such resolutions and the 10,150 shares and 10,678 shares of Series A
Preferred Stock issued on August 15 and November 15, 1993, respectively,
as dividends shall instead aggregate 34.71333 shares;
(ii) The form of stock certificate annexed thereto as Exhibit A
shall be amended to the extent necessary to reflect the changes in the
Series A Preferred set forth herein;
(iii) The annual preferential cumulative dividend per share set
forth in the third such resolution shall be changed from $3.50 per share
to $2,100.00 per share effective as of the date hereof;
(iv) The preferential distribution provided in clause (x) of the
fifth such resolution shall be changed from $50 per share to $30,000 per
share;
(v) The number of shares of Common Stock into which each share of
Series A Preferred may be converted shall be changed from 13.5 shares
set forth in the sixth such resolution to 0.06 shares; and
(vi) The table of Redemption Prices set forth in the seventh such
resolution is replaced in its entirety by the following table:
<TABLE>
<CAPTION>
REDEMPTION
REDEMPTION DATE PRICE
- ----------------------------------------------------------------------------- ----------
<S> <C>
From May 15, 1997 to May 14, 1998............................................ $ 31,260
From May 15, 1998 to May 14, 1999............................................ $ 31,050
From May 15, 1999 to May 14, 2000............................................ $ 30,840
From May 15, 2000 to May 14, 2001............................................ $ 30,630
From May 15, 2001 to May 14, 2002............................................ $ 30,420
From May 15, 2002 to May 14, 2003............................................ $ 30,210
On or after May 15, 2003..................................................... $ 30,000
</TABLE>
(4) The Merger has been duly approved by the sole stockholder of Holcem at
a meeting duly called and held on January 7, 1994.
(5) The Restated Certificate of Incorporation, as amended, of Holnam,
further amended as provided in paragraph (3) above, shall be the certificate of
incorporation of the surviving corporation.
<PAGE>
(6) The Merger shall become effective as of the close of business on the
date on which this Certificate of Ownership and Merger is filed with the
Secretary of State of the State of Delaware, at which time Holcem shall merge
with and into Holnam, which, as the surviving corporation, shall continue its
corporate existence under the laws of the State of Delaware under its current
name, Holnam Inc.
<PAGE>
IN WITNESS WHEREOF, Holcem Inc. has caused this Certificate of Ownership
and Merger to be signed in its corporate name by its President and attested by
its Secretary, and each signatory acknowledges, under penalties of perjury, that
this instrument is the act and deed of Holcem Inc. and that the facts stated
herein are true as of the day of February, 1994.
HOLCEM INC.
By:
...................................
NAME: PETER BYLAND
TITLE: PRESIDENT
ATTEST
....................................
NAME: PIERRE F. HAESLER
TITLE: SECRETARY
<PAGE>
ANNEX B
PROJECTIONS FOR HOLNAM OPERATIONS
The following projections for Holnam Operations were not prepared with a
view toward compliance with published guidelines of the Commission or the
American Institute of Certified Public Accountants regarding projections and
forecasts or generally accepted accounting principles. Because of the
inherent uncertainty of projections and forecasts for such lengthy periods,
no assurances can be given that such projections accurately determine current
values or future performance, which may be significantly more or less favorable
than as set forth below.
The following projections for Holnam Operations assume the following:
(1) Total Cement Sold (in short tons):
<TABLE>
<S> <C> <C>
Historical:............................................. 1991 8,967,000
1992 10,023,000
Forecast:............................................... 1993 10,386,000
Budget:................................................. 1994 10,989,000
Projections:............................................ 1995-1998 11,000,000
1999 10,500,000
2000-2001 10,000,000
2002 10,500,000
</TABLE>
(2) Total Weighted Average Price (per short ton):
<TABLE>
<S> <C> <C>
Historical:.................................................. 1991 $53.20
1992 $52.36
Forecast:.................................................... 1993 $55.43
Budget:...................................................... 1994 $57.82
Projections:................................................. 1995 $60.32
1996 $62.32
1997-1998 $64.32
1999-2002 $62.32
</TABLE>
<PAGE>
HOLNAM OPERATIONS
INCOME STATEMENT 1991 - 2002
<TABLE>
<CAPTION>
HISTORICAL
--------------------- FORECAST BUDGET
(US$ IN '000 ) 1991 1992 1993 1994
- ---------------------------------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Cement Sales............................ 477,044 524,820 521,976 635,384
Other Sales............................. 48,246 35,522 25,322 17,523
--------- -------- --------- --------
Total Sales............................. 525,290 560,342 547,298 652,907
Total Costs of Sales.................... 465,341 476,108 449,677 505,163
--------- -------- --------- --------
Gross Margin (as reported)(1)........... 59,949 84,234 97,621 147,744
(Addback: Depreciation)(1).............. 50,351 48,407 48,384 52,079
--------- -------- --------- --------
Gross Margin (as restated).............. 110,300 132,641 146,005 199,823
Selling Expense......................... 27,318 28,214 29,617 30,579
Administrative Expense.................. 32,362 28,742 30,150 30,051
Other (Income)/Expense.................. (3,540) (1,634) (2,250) (2,047)
Contribution TLP........................ -- -- 5,922 --
--------- -------- --------- --------
EBITDA.................................. 54,160 77,319 94,410 141,240
Depreciation............................ 50,351 47,049 41,874 48,519
Amortisation............................ 0 1,358 6,510 3,560
--------- -------- --------- --------
EBIT.................................... 3,809 28,912 46,026 89,161
Interest Expenses:
(Interest Income) @ 2.50%............... -- -- -- --
Revolving Line of Credit @ 4.44%........ -- -- -- --
Revolving Line of Credit @ 3.94%........ -- -- -- --
TLP Revolving Credit @ 4.06%............ -- -- -- --
Senior @ 9.85%.......................... -- -- -- --
Senior @ 8.03%.......................... -- -- -- --
Senior @ 9.50%.......................... -- -- -- --
Senior @ 8.00%.......................... -- -- -- --
Industrial Revenue Bonds @ 6.80%........ -- -- -- --
Subordinated Notes @ 8.00%.............. -- -- -- --
Subordinated Notes @ 9.60%.............. -- -- -- --
Subordinated Notes @ 16.00%............. -- -- -- --
--------- -------- --------- --------
Total Net Interest Expense.............. 43,986 40,383 37,800 40,825
Extraordinary Expenses.................. 60,364 -- 64,000 --
--------- -------- --------- --------
Pretax Profit........................... (100,541) (11,471) (55,774) 48,336
Tax (Credit) Provision @ 40.00%......... (10,385) 109 2,415 7,300
Minority Interest....................... -- -- -- 3,184
--------- -------- --------- --------
Net Income (Loss)....................... (90,156) (11,580) (58,189) 37,852
<CAPTION>
PROJECTIONS
--------------------------------------------------------------------------------
(US$ IN '000 ) 1995 1996 1997 1998 1999 2000 2001
- ---------------------------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C>
Cement Sales............................ 663,520 685,520 707,520 707,520 654,360 623,200 623,200
Other Sales............................. 17,000 17,000 17,000 17,000 17,000 17,000 17,000
-------- -------- -------- -------- -------- -------- --------
Total Sales............................. 680,520 702,520 724,520 724,520 671,360 640,200 640,200
Total Costs of Sales.................... 519,791 532,827 527,161 527,496 520,633 514,945 517,364
-------- -------- -------- -------- -------- -------- --------
Gross Margin (as reported)(1)........... 160,729 169,693 197,359 197,024 150,727 125,255 122,836
(Addback: Depreciation)(1).............. 57,780 62,605 65,064 67,854 70,948 74,321 77,952
-------- -------- -------- -------- -------- -------- --------
Gross Margin (as restated).............. 218,509 232,298 262,423 264,878 221,674 199,576 200,788
Selling Expense......................... 31,558 32,504 33,479 34,484 35,518 36,584 37,681
Administrative Expense.................. 31,013 31,943 32,901 33,888 34,905 35,952 37,031
Other (Income)/Expense.................. (2,047) (2,047) (2,047) (2,047) (2,047) (2,047) (2,047)
Contribution TLP........................ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
EBITDA.................................. 157,986 169,898 198,089 198,552 153,298 129,087 128,123
Depreciation............................ 54,220 59,045 61,504 64,294 67,388 70,761 74,392
Amortisation............................ 3,560 3,560 3,560 3,560 3,560 3,560 3,560
-------- -------- -------- -------- -------- -------- --------
EBIT.................................... 100,206 107,293 133,025 130,699 82,350 54,766 50,171
Interest Expenses:
(Interest Income) @ 2.50%............... (113) (113) (113) (113) (113) (113) (113)
Revolving Line of Credit @ 4.44%........ 1,669 1,047 796 1,373 1,329 781 405
Revolving Line of Credit @ 3.94%........ 1,181 1,181 1,181 1,181 1,181 1,181 1,181
TLP Revolving Credit @ 4.06%............ 366 0 0 0 0 0 0
Senior @ 9.85%.......................... 6,895 3,448 2,266 2,266 0 0 0
Senior @ 8.03%.......................... 2,409 2,409 2,409 0 0 0 0
Senior @ 9.50%.......................... 570 285 0 0 0 0 0
Senior @ 8.00%.......................... 2,800 2,100 700 0 0 0 0
Industrial Revenue Bonds @ 6.80%........ 4,891 4,891 4,891 4,891 4,551 4,551 4,551
Subordinated Notes @ 8.00%.............. 320 160 0 0 0 0 0
Subordinated Notes @ 9.60%.............. 1,548 1,548 1,548 0 0 0 0
Subordinated Notes @ 16.00%............. 800 800 800 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Total Net Interest Expense.............. 23,336 17,755 14,477 9,598 6,948 6,400 6,025
Extraordinary Expenses.................. --
-------- -------- -------- -------- -------- -------- --------
Pretax Profit........................... 76,870 89,537 118,548 121,101 75,402 48,366 44,146
Tax (Credit) Provision @ 40.00%......... 32,172 37,239 48,843 49,864 31,585 20,771 19,082
Minority Interest....................... 3,578 3,831 4,750 4,667 2,941 1,956 1,792
-------- -------- -------- -------- -------- -------- --------
Net Income (Loss)....................... 44,698 52,298 69,705 71,237 43,817 27,596 25,064
<CAPTION>
(US$ IN '000 ) 2002
- ---------------------------------------- --------
<S> <C>
Cement Sales............................ 664,860
Other Sales............................. 17,000
--------
Total Sales............................. 681,860
Total Costs of Sales.................... 526,806
--------
Gross Margin (as reported)(1)........... 155,054
(Addback: Depreciation) (1)............. 81,819
--------
Gross Margin (as restated).............. 236,873
Selling Expense......................... 38,812
Administrative Expense.................. 38,142
Other (Income)/Expense.................. (2,047)
Contribution TLP........................ --
--------
EBITDA.................................. 161,967
Depreciation............................ 78,259
Amortisation............................ 3,560
--------
EBIT.................................... 80,148
Interest Expenses:
(Interest Income) @ 2.50%............... (520)
Revolving Line of Credit @ 4.44%........ 0
Revolving Line of Credit @ 3.94%........ 1,181
TLP Revolving Credit @ 4.06%............ 0
Senior @ 9.85%.......................... 0
Senior @ 8.03%.......................... 0
Senior @ 9.50%.......................... 0
Senior @ 8.00%.......................... 0
Industrial Revenue Bonds @ 6.80%........ 4,551
Subordinated Notes @ 8.00%.............. 0
Subordinated Notes @ 9.60%.............. 0
Subordinated Notes @ 16.00%............. 0
--------
Total Net Interest Expense.............. 5,213
Extraordinary Expenses..................
--------
Pretax Profit........................... 74,935
Tax (Credit) Provision @ 40.00%......... 31,398
Minority Interest....................... 2,862
--------
Net Income (Loss)....................... 43,537
</TABLE>
- ------------
(1) Holnam recognises Depreciation as part of its Cost of Sales. For purposes of
presentation in the Income Statements, Depreciation was separated in order
to determine EBITDA.
33
<PAGE>
HOLNAM OPERATIONS
CASH FLOWS STATEMENT 1991 - 2002
<TABLE>
<CAPTION>
HISTORICAL
-------------------- FORECAST BUDGET
('000 US$) 1991 1992 1993 1994
- ---------------------------------------- -------- -------- --------- --------
<S> <C> <C> <C> <C>
Net Income (Loss)....................... (90,156) (11,580) (58,189) 37,852
-------- -------- --------- --------
Noncash Charges (Credits)
Depreciation of PP&E.................... 50,351 47,049 41,874 48,519
Amortisation of Goodwill................ 0 1,358 6,510 3,560
Net (Gain) Loss on Sale of Fixed
Assets................................ (78) (2,186) (194) 0
Deferred Income Taxes.................. (13,577) 179 1,880 2,300
Postretirement benefit Obligation...... 0 0 0 2,000
Minority Interest (net of capital
returned)............................. 0 0 0 2,437
Extraordinary Items.................... 60,364 -- 64,000 --
-------- -------- --------- --------
Changes in Assets and Liabilities
(Increase) Decrease in Receivables...... 6,034 3,083 4,039 (3,863)
(Increase) Decrease in Inventories...... (9,637) 12,853 (9,487) 610
(Increase) Decrease in Prepayments...... 1,304 3,963 (12,516) 0
(Decrease) Increase in Accounts
Payable................................ 5,079 (5,289) 1,454 5,138
(Increase) Decrease in Other Working
Capital................................ 7,136 (4,127) (868) 0
-------- -------- --------- --------
Cash provided by Operations............. 16,820 45,303 38,503 98,553
-------- -------- --------- --------
Cash Flow Before Investments............ 16,820 45,303 38,503 98,553
-------- -------- --------- --------
Proceeds from Sale of Assets............ 1,062 12,724 0 0
Capital Expenditures.................... (29,348) (31,800) (44,456) (61,900)
Investments in Affiliates............... (10,207) (1,551) (37,034) (72)
Advances to Box -- Crow................. (8,026) 0 0 0
Dividends Received from St. Lawrence.... 8,841 1,968 0 0
Other Investing Activities.............. (1,937) 2,374 2,507 0
-------- -------- --------- --------
Cash used for Investments............... (39,615) (16,285) (78,983) (61,972)
-------- -------- --------- --------
Cash Flow Before Financing.............. (22,795) 29,018 (40,480) 36,581
-------- -------- --------- --------
Net Proceeds (Repayment) -- Revolver.... (90,000) (20,000) (4,372) (27,050)
Proceeds from Short-Term Borrowings..... 0 3,000 55,500 0
Repayment of Short-Term Borrowings...... 0 0 (58,500) 0
Repayment of Other Borrowings........... (68,026) (66,993) (14,829) (11,000)
Proceeds from Other Borrowings.......... 185,000 50,000 30,000 0
Issuance of Common Stock................ 387 347 1,153 0
Issuance of Preffered Stock............. 0 0 30,000 0
-------- -------- --------- --------
Cash (Used for) Provided by Financing... 27,361 (33,646) 38,952 (38,050)
-------- -------- --------- --------
Net Increase (Decrease) in Cash......... 4,566 (4,628) (1,528) (1,469)
-------- -------- --------- --------
Cash Balance -- Beginning of Year....... 7,589 12,155 7,527 5,999
-------- -------- --------- --------
Cash Balance -- End of Year............. 12,155 7,527 5,999 4,530
-------- -------- --------- --------
-------- -------- --------- --------
<CAPTION>
PROJECTIONS
-------------------------------------------------------------------------------------
('000 US$) 1995 1996 1997 1998 1999 2000 2001
- ---------------------------------------- -------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (Loss)....................... 44,698 52,298 69,705 71,237 43,817 27,596 25,064
-------- -------- --------- --------- --------- --------- ---------
Noncash Charges (Credits)
Depreciation of PP&E.................... 54,220 59,045 61,504 64,294 67,388 70,761 74,392
Amortisation of Goodwill................ 3,560 3,560 3,560 3,560 3,560 3,560 3,560
Net (Gain) Loss on Sale of Fixed
Assets................................ 0 0 0 0 0 0 0
Deferred Income Taxes.................. 2,300 2,300 2,300 2,300 2,300 2,300 2,300
Postretirement benefit Obligation...... 2,000 2,000 2,000 2,000 2,000 2,000 2,000
Minority Interest (net of capital
returned)............................. 2,684 2,874 3,563 3,501 2,206 1,467 1,344
Extraordinary Items.................... -- -- -- -- -- -- --
-------- -------- --------- --------- --------- --------- ---------
Changes in Assets and Liabilities
(Increase) Decrease in Receivables...... (11,003) (2,956) (2,956) (0) 7,143 4,187 0
(Increase) Decrease in Inventories...... (23,890) (3,136) 1,363 (80) 1,651 1,369 (582)
(Increase) Decrease in Prepayments...... 0 0 0 0 0 0 0
(Decrease) Increase in Accounts
Payable................................ (3,274) 2,028 (881) 52 (1,068) (885) 376
(Increase) Decrease in Other Working
Capital................................ 0 0 0 0 0 0 0
-------- -------- --------- --------- --------- --------- ---------
Cash provided by Operations............. 71,295 118,013 140,157 146,862 128,997 112,355 108,454
-------- -------- --------- --------- --------- --------- ---------
Cash Flow Before Investments............ 71,295 118,013 140,157 146,862 128,997 112,355 108,454
-------- -------- --------- --------- --------- --------- ---------
Proceeds from Sale of Assets............ 0 0 0 0 0 0 0
Capital Expenditures.................... (58,685) (46,239) (100,000) (100,000) (100,000) (100,000) (100,000)
Investments in Affiliates............... 0 0 0 0 0 0 0
Advances to Box -- Crow................. 0 0 0 0 0 0 0
Dividends Received from St. Lawrence.... 0 0 0 0 0 0 0
Other Investing Activities.............. 0 0 0 0 0 0 0
-------- -------- --------- --------- --------- --------- ---------
Cash used for Investments............... (58,685) (46,239) (100,000) (100,000) (100,000) (100,000) (100,000)
-------- -------- --------- --------- --------- --------- ---------
Cash Flow Before Financing.............. 12,610 71,774 40,157 46,862 28,997 12,355 8,454
-------- -------- --------- --------- --------- --------- ---------
Net Proceeds (Repayment) -- Revolver.... 28,190 (14,024) (5,657) 13,014 (997) (12,355) (8,454)
Proceeds from Short-Term Borrowings..... 0 0 0 0 0 0 0
Repayment of Short-Term Borrowings...... 0 0 0 0 0 0 0
Repayment of Other Borrowings........... (40,800) (57,750) (34,500) (59,876) (28,000) 0 0
Proceeds from Other Borrowings.......... 0 0 0 0 0 0 0
Issuance of Common Stock................ 0 0 0 0 0 0 0
Issuance of Preffered Stock............. 0 0 0 0 0 0 0
-------- -------- -------- -------- --------- --------- ---------
Cash (Used for) Provided by Financing... (12,610) (71,774) (40,157) (46,862) (28,997) (12,355) (8,454)
-------- -------- -------- -------- --------- --------- ---------
Net Increase (Decrease) in Cash......... 0 0 0 0 0 0 0
-------- -------- -------- -------- --------- --------- ---------
Cash Balance -- Beginning of Year....... 4,530 4,530 4,530 4,530 4,530 4,530 4,530
-------- -------- -------- -------- --------- --------- ---------
Cash Balance -- End of Year............. 4,530 4,530 4,530 4,530 4,530 4,530 4,530
-------- -------- -------- -------- --------- --------- ---------
-------- -------- -------- -------- --------- --------- ---------
<CAPTION>
('000 US$) 2002
- ---------------------------------------- ---------
<S> <C>
Net Income (Loss)....................... 43,537
---------
Noncash Charges (Credits)
Depreciation of PP&E.................... 78,259
Amortisation of Goodwill................ 3,560
Net (Gain) Loss on Sale of Fixed
Assets................................ 0
Deferred Income Taxes.................. 2,300
Postretirement benefit Obligation...... 2,000
Minority Interest (net of capital
returned)............................. 2,147
Extraordinary Items.................... --
---------
Changes in Assets and Liabilities
(Increase) Decrease in Receivables...... (5,598)
(Increase) Decrease in Inventories...... (2,271)
(Increase) Decrease in Prepayments...... 0
(Decrease) Increase in Accounts
Payable................................ 1,469
(Increase) Decrease in Other Working
Capital................................ 0
---------
Cash provided by Operations............. 125,402
---------
Cash Flow Before Investments............ 125,402
---------
Proceeds from Sale of Assets............ 0
Capital Expenditures.................... (100,000)
Investments in Affiliates............... 0
Advances to Box -- Crow................. 0
Dividends Received from St. Lawrence.... 0
Other Investing Activities.............. 0
---------
Cash used for Investments............... (100,000)
---------
Cash Flow Before Financing.............. 25,402
---------
Net Proceeds (Repayment) -- Revolver.... (9,137)
Proceeds from Short-Term Borrowings..... 0
Repayment of Short-Term Borrowings...... 0
Repayment of Other Borrowings........... 0
Proceeds from Other Borrowings.......... 0
Issuance of Common Stock................ 0
Issuance of Preffered Stock............. 0
---------
Cash (Used for) Provided by Financing... (9,137)
---------
Net Increase (Decrease) in Cash......... 16,265
---------
Cash Balance -- Beginning of Year....... 4,530
---------
Cash Balance -- End of Year............. 20,795
---------
---------
</TABLE>
34
<PAGE>
HOLNAM OPERATIONS
EQUITY BASIS BALANCE SHEET 1991 -- 2002
<TABLE>
<CAPTION>
HISTORICAL
---------------------- FORECAST BUDGET
('000 US$) 1991 1992 1993 1994
- ---------------------------------------- ---------- -------- --------- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash................................. 12,155 7,527 6,000 4,531
Accounts Receivable.................. 76,584 72,287 76,580 80,443
Inventories & Supplies............... 118,499 104,685 101,770 101,160
Prepayments.......................... 7,112 2,999 2,779 2,779
---------- -------- --------- --------
Total Current Assets.................... 214,350 187,498 187,129 188,913
---------- -------- --------- --------
Property,Plant & Equipment -- Net....... 558,950 531,124 599,491 611,247
---------- -------- --------- --------
Other Assets
Cost in Excess of Net Fixed Assets... 39,892 38,534 32,024 28,464
Investment in St. Lawrence........... 197,691 162,718 149,311 149,311
Other Assets......................... 15,874 15,256 18,006 18,078
---------- -------- --------- --------
Total Other Assets...................... 253,457 216,508 199,341 195,853
Total Assets............................ 1,026,757 935,130 985,961 996,013
---------- -------- --------- --------
---------- -------- --------- --------
Liabilities & Net Worth
Current Liabilities
Accounts Payable & Accrued
Liabilities......................... 74,897 69,950 78,993 84,131
Current Maturity of Long-Term Debt... 15,327 10,252 11,000 11,000
---------- -------- --------- --------
Total Current Liabilities............... 90,224 80,202 89,993 95,131
---------- -------- --------- --------
Long-Term Debt.......................... 409,611 379,823 380,350 342,975
---------- -------- --------- --------
Deferred Taxes.......................... 17,966 18,145 16,767 16,767
---------- -------- --------- --------
Deferred Credits & Liabilities.......... 27,748 21,484 91,075 93,075
---------- -------- --------- --------
Shareholders' Equity
Common Stock......................... 1,349 1,350 32,394 32,394
Paid in Capital...................... 456,810 457,156 457,264 457,264
Retained Earnings.................... 5,182 (23,390) (86,522) (48,670)
Minority Interest TLP................ 0 0 11,889 14,326
Currency Translation Adjustments..... 17,867 360 (7,249) (7,249)
---------- -------- --------- --------
Total Shareholders' Equity.............. 481,208 435,476 407,776 448,065
---------- -------- --------- --------
Total Liabilities & Shareholders'
Equity................................. 1,026,757 935,130 985,961 996,013
---------- -------- --------- --------
---------- -------- --------- --------
<CAPTION>
PROJECTIONS
--------------------------------------------------------------------------------
('000 US$) 1995 1996 1997 1998 1999 2000
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash................................. 4,530 4,530 4,530 4,530 4,530 4,530
Accounts Receivable.................. 91,446 94,402 97,359 97,359 90,215 86,028
Inventories & Supplies............... 125,050 128,186 126,823 126,903 125,252 123,884
Prepayments.......................... 2,779 2,779 2,779 2,779 2,779 2,779
---------- ---------- ---------- ---------- ---------- ----------
Total Current Assets.................... 223,805 229,898 231,491 231,571 222,777 217,221
---------- ---------- ---------- ---------- ---------- ----------
Property,Plant & Equipment -- Net....... 615,712 602,906 641,402 677,108 709,721 738,960
---------- ---------- ---------- ---------- ---------- ----------
Other Assets
Cost in Excess of Net Fixed Assets... 24,904 21,344 17,784 14,224 10,664 7,104
Investment in St. Lawrence........... 149,311 149,311 149,311 149,311 149,311 149,311
Other Assets......................... 18,079 18,079 18,079 18,079 18,079 18,079
---------- ---------- ---------- ---------- ---------- ----------
Total Other Assets...................... 192,294 188,734 185,174 181,614 178,054 174,494
Total Assets............................ 1,031,811 1,021,537 1,058,066 1,090,293 1,110,551 1,130,674
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Liabilities & Net Worth
Current Liabilities
Accounts Payable & Accrued
Liabilities......................... 80,857 82,884 82,003 82,055 80,988 80,103
Current Maturity of Long-Term Debt... 40,800 57,750 34,500 59,876 28,000 0
---------- ---------- ---------- ---------- ---------- ----------
Total Current Liabilities............... 121,657 140,634 116,503 141,931 108,988 80,103
---------- ---------- ---------- ---------- ---------- ----------
Long-Term Debt.......................... 300,565 211,842 194,935 122,697 125,576 141,221
---------- ---------- ---------- ---------- ---------- ----------
Deferred Taxes.......................... 19,067 21,367 23,667 25,967 28,267 30,567
---------- ---------- ---------- ---------- ---------- ----------
Deferred Credits & Liabilities.......... 95,075 97,075 99,075 101,075 103,075 105,075
---------- ---------- ---------- ---------- ---------- ----------
Shareholders' Equity
Common Stock......................... 32,394 32,394 32,394 32,394 32,394 32,394
Paid in Capital...................... 457,264 457,264 457,264 457,264 457,264 457,264
Retained Earnings.................... (3,972) 48,326 118,031 189,267 233,085 260,681
Minority Interest TLP................ 17,010 19,883 23,446 26,947 29,152 30,619
Currency Translation Adjustments..... (7,249) (7,249) (7,249) (7,249) (7,249) (7,249)
---------- ---------- ---------- ---------- ---------- ----------
Total Shareholders' Equity.............. 495,447 550,619 623,886 698,623 744,646 773,709
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities & Shareholders'
Equity................................. 1,031,811 1,021,537 1,058,066 1,090,293 1,110,551 1,130,674
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
('000 US$) 2001 2002
- ---------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash................................. 4,530 20,795
Accounts Receivable.................. 86,028 91,626
Inventories & Supplies............... 124,466 126,737
Prepayments.......................... 2,779 2,779
---------- ----------
Total Current Assets.................... 217,803 241,938
---------- ----------
Property,Plant & Equipment -- Net....... 764,568 786,309
---------- ----------
Other Assets
Cost in Excess of Net Fixed Assets... 3,544 (16)
Investment in St. Lawrence........... 149,311 149,311
Other Assets......................... 18,079 18,079
---------- ----------
Total Other Assets...................... 170,934 167,374
Total Assets............................ 1,153,304 1,195,620
---------- ----------
---------- ----------
Liabilities & Net Worth
Current Liabilities
Accounts Payable & Accrued
Liabilities......................... 80,479 81,948
Current Maturity of Long-Term Debt... 0 0
---------- ----------
Total Current Liabilities............... 80,479 81,948
---------- ----------
Long-Term Debt.......................... 132,767 123,630
---------- ----------
Deferred Taxes.......................... 32,867 35,167
---------- ----------
Deferred Credits & Liabilities.......... 107,075 109,075
---------- ----------
Shareholders' Equity
Common Stock......................... 32,394 32,394
Paid in Capital...................... 457,264 457,264
Retained Earnings.................... 285,744 329,281
Minority Interest TLP................ 31,963 34,109
Currency Translation Adjustments..... (7,249) (7,249)
---------- ----------
Total Shareholders' Equity.............. 800,116 845,800
---------- ----------
Total Liabilities & Shareholders'
Equity................................. 1,153,304 1,195,620
---------- ----------
---------- ----------
</TABLE>
35
<PAGE>
HOLNAM OPERATIONS
PP&E ANALYSIS 1991 to 2002
<TABLE>
<CAPTION>
HISTORICAL
-------------------- FORECAST BUDGET
('000 US$) 1991 1992 1993 1994
- ---------------------------------------- -------- -------- --------- --------
<S> <C> <C> <C> <C>
Existing Net PP&E....................... 558,950 531,124 599,491 611,247
Depreciation on exist. Net PP&E(t-1).... 50,351 47,049 41,874 48,519
Dep/Net PP&E............................ NA 8.4% 7.9% 8.1%
Year CAPEX Rate
-------- ------- ---------
1995.... 58,685 8.09%
1996.... 46,239 8.09%
1997.... 100,000 6.55%
1998.... 100,000 6.55%
1999.... 100,000 6.55%
2000.... 100,000 6.55%
2001.... 100,000 6.55%
2002.... 100,000 6.55%
-------- -------- --------- --------
New Depreciation
Total Depreciation
--------
Balance Net PP&E Beginning of Year...... 599,491
Capital Expenditure..................... 61,900
Total Depreciation...................... 48,519
Other Adjustment to Net PP&E............ 1,625
--------
Balance Net PP&E End of Year............ 611,247
<CAPTION>
PROJECTIONS
--------------------------------------------------------------------------------
('000 US$) 1995 1996 1997 1998 1999 2000 2001
- ---------------------------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Existing Net PP&E....................... 624,628 574,075 527,613 484,911 445,665 409,596 376,446
Depreciation on exist. Net PP&E (t-1)... 49,470 50,553 46,462 42,702 39,246 36,069 33,150
Dep/Net PP&E............................ 8.1% 8.1% 8.1% 8.1% 8.1% 8.1% 8.1%
4,750 4,750 4,750 4,750 4,750 4,750 4,750
3,742 3,742 3,742 3,742 3,742 3,742
6,550 6,550 6,550 6,550 6,550
6,550 6,550 6,550 6,550
6,550 6,550 6,550
6,550 6,550
6,550
-------- -------- -------- -------- -------- -------- --------
4,750 8,492 15,042 21,592 28,142 34,692 41,242
54,220 59,045 61,504 64,294 67,388 70,761 74,392
-------- -------- -------- -------- -------- -------- --------
Balance Net PP&E Beginning of Year...... 611,247 615,712 602,906 641,402 677,108 709,721 738,960
Capital Expenditure..................... 58,685 46,239 100,000 100,000 100,000 100,000 100,000
Total Depreciation...................... 54,220 59,045 61,504 64,294 67,388 70,761 74,392
Other Adjustment to Net PP&E............ 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Balance Net PP&E End of Year............ 615,712 602,906 641,402 677,108 709,721 738,960 764,568
<CAPTION>
('000 US$) 2002
- ---------------------------------------- --------
<S> <C>
Existing Net PP&E....................... 345,979
Depreciation on exist. Net PP&E (t-1)... 30,467
Dep/Net PP&E............................ 8.1%
4,750
3,742
6,550
6,550
6,550
6,550
6,550
6,550
--------
47,792
78,259
--------
Balance Net PP&E Beginning of Year...... 764,568
Capital Expenditure..................... 100,000
Total Depreciation...................... 78,259
Other Adjustment to Net PP&E............ 0
--------
Balance Net PP&E End of Year............ 786,309
</TABLE>
- ------------
(1) Regular Expenditure is depreciated at historical 8.1%, incremental
investment in new plant is for long-life assets at 5% resulting in a blended
rate of 6.55%
36
<PAGE>
HOLNAM OPERATIONS
DEBT SCHEDULE 1991 - 2002
<TABLE>
<CAPTION>
HISTORICAL FORECAST BUDGET PROJECTIONS
-------------- ------ ------ --------------
('000 US$) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
- ------------------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revolving Line of Credit 1.... 100,000 80,000 35,000 9,419 37,609 23,586 17,929 30,943 29,946 17,591 9,137 0
Revolving Line of Credit 2
(HOFI)...................... 0 0 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
Revolving Line of Credit 3.... 50,000 0 0 0 0 0 0 0 0 0 0 0
TLP Revolving Credit Line..... 0 0 9,000 9,000 9,000 0 0 0 0 0 0 0
Senior 1...................... 70,000 70,000 70,000 70,000 70,000 35,000 23,000 23,000 0 0 0 0
Senior 2...................... 30,000 30,000 30,000 30,000 30,000 30,000 30,000 0 0 0 0 0
Senior 3...................... 5,750 2,875 0 0 0 0 0 0 0 0 0 0
Senior 4...................... 4,000 3,000 2,000 1,000 0 0 0 0 0 0 0 0
Senior 5...................... 35,000 35,000 35,000 35,000 35,000 26,250 8,750 0 0 0 0 0
Senior 6...................... 17,000 15,000 12,000 9,000 6,000 3,000 0 0 0 0 0 0
Industrial Revenue Bonds...... 61,409 59,519 71,930 71,930 71,930 71,930 71,930 71,930 66,930 66,930 66,930 66,930
Subordinated Notes 1.......... 12,000 10,000 8,000 6,000 4,000 2,000 0 0 0 0 0 0
Subordinated Notes 2.......... 0 50,000 50,000 13,000 0 0 0 0 0 0 0 0
Subordinated Notes 3.......... 16,106 16,126 16,126 16,126 16,126 16,126 16,126 0 0 0 0 0
Subordinated Notes 4.......... 5,000 5,000 5,000 5,000 5,000 5,000 5,000 0 0 0 0 0
Subordinated Notes 5.......... 20,620 15,163 0 0 0 0 0 0 0 0 0 0
TLP Subordinated Notes........ 0 0 26,700 26,700 26,700 26,700 26,700 26,700 26,700 26,700 26,700 26,700
Other......................... (1,947) (1,608) (9,406) 21,800 0 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------
Total Debt............... 424,938 390,075 391,350 353,975 341,365 269,592 229,435 182,573 153,576 141,221 132,767 123,630
Current Portion of LTD........ 15,327 10,252 11,000 11,000 40,800 57,750 34,500 59,876 28,000 0 0 0
Total LTD................ 409,611 379,823 380,350 342,975 300,565 211,842 194,935 122,697 125,576 141,221 132,767 123,630
- ------------------------------------------------------------------------------------------------------------------------------
Repayment of Revolving Line of
Credit 1.................... NA (20,000)(45,000)(25,581) 0 (14,024) (5,657) 0 (997)(12,355) (8,454) (9,137)
Borrowing with Revolving Line
of Credit 1................. 0 28,190 0 0 13,014 0 0 0 0
Revolving Line of Credit 2.... NA 0 30,000 0 0 0 0 0 0 0 0 0
Revolving Line of Credit 3.... NA (50,000) 0 0 0 0 0 0 0 0 0 0
TLP Revolving Credit Line..... NA 0 9,000 0 0 (9,000) 0 0 0 0 0
Senior 1...................... NA 0 0 0 0 (35,000)(12,000) 0 (23,000) 0 0 0
Senior 2...................... NA 0 0 0 0 0 0 (30,000) 0 0 0 0
Senior 3...................... NA (2,875) (2,875) 0 0 0 0 0 0 0 0 0
Senior 4...................... NA (1,000) (1,000) (1,000) (1,000) 0 0 0 0 0 0 0
Senior 5...................... NA 0 0 0 0 (8,750)(17,500) (8,750) 0 0 0 0
Senior 6...................... NA (2,000) (3,000) (3,000) (3,000) (3,000) (3,000) 0 0 0 0 0
Industrial Revenue Bonds...... NA (1,890) 12,411 0 0 0 0 0 (5,000) 0 0 0
Subordinated Notes 1.......... NA (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) 0 0 0 0 0
Subordinated Notes 2.......... NA 50,000 0 (37,000)(13,000) 0 0 0 0 0 0 0
Subordinated Notes 3.......... NA 20 0 0 0 0 0 (16,126) 0 0 0 0
Subordinated Notes 4.......... NA 0 0 0 0 0 0 (5,000) 0 0 0 0
Subordinated Notes 5.......... NA (5,457)(15,163) 0 0 0 0 0 0 0 0 0
TLP Subordinated Notes........ NA 0 26,700 0 0 0 0 0 0 0 0 0
Other......................... NA 339 (7,798) 31,206 (21,800) 0 0 0 0 0 0 0
------------------------------------------------------------------------------------------------
Total Debt.................. NA (34,863) 1,275 (37,375)(12,610)(71,774)(40,157) 46,862)(28,997)(12,355) (8,454) (9,137)
------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
HOLNAM OPERATIONS
GROWTH RATES -- FINANCIAL RATIOS -- ASSUMPTIONS
<CAPTION>
HISTORICAL FORECAST BUDGET PROJECTIONS
-------------- ------ ------ --------------
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Items:
Cement Sales Growth
Rates.................. NA 10.0% -0.5% 21.7% 4.4% 3.3% 3.2% 0.0% -7.5% -4.8% 0.0% 6.7%
Other Sales Growth
Rates.................. NA -26.4% -28.7% -30.8% -3.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
------------------------------------------------------------------------------------------
Total Sales Growth
Rates............. NA 6.7% -2.3% 19.3% 4.2% 3.2% 3.1% 0.0% -7.3% -4.6% 0.0% 6.5%
Overall Gross Margin
(1).................... 21.0% 23.7% 26.7% 30.6% 32.1% 33.1% 36.2% 36.6% 33.0% 31.2% 31.4% 34.7%
EBITDA Margin............ 10.3% 13.8% 17.3% 21.6% 23.2% 24.2% 27.3% 27.4% 22.8% 20.2% 20.0% 23.8%
EBIT Margin.............. 0.7% 5.2% 8.4% 13.7% 14.7% 15.3% 18.4% 18.0% 12.3% 8.6% 7.8% 11.8%
Pretax Margin............ -19.1% -2.0% -10.2% 7.4% 11.3% 12.7% 16.4% 16.7% 11.2% 7.6% 6.9% 11.0%
Net Margin............... -17.2% -2.1% -10.6% 5.8% 6.6% 7.4% 9.6% 9.8% 6.5% 4.3% 3.9% 6.4%
Selling Expenses Growth
(%).................... NA 3.3% 5.0% 3.2% 3.2% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
General & Admin. Expenses
Growth (%)............. NA -11.2% 4.9% -0.3% 3.2% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
EBIT Growth (%) (2)...... NA 659.0% 59.2% 93.7% 12.4% 7.1% 24.0% -1.7% -37.0% -33.5% -8.4% 59.8%
Dividend Payout Ratio to
TLP Minority........... 0.0% 0.0% 23.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Balance Sheet Items:
Accounts Receivable
Days................... N/A 49.9 48.2 49.0 49.0 49.0 49.0 49.0 49.0 49.0 49.0 49.0
Accounts Payable &
Accrued Liabilities
Days................... N/A 57.4 56.8 56.8 56.8 56.8 56.8 56.8 56.8 56.8 56.8 56.8
Debt/Equity.............. 88.3% 89.6% 96.0% 79.0% 68.9% 49.0% 36.8% 26.1% 20.6% 18.3% 16.6% 14.6%
Debt/Total Capital....... 46.9% 47.3% 49.0% 44.1% 40.8% 32.9% 26.9% 20.7% 17.1% 15.4% 14.2% 12.8%
Equity/Total Capital..... 53.1% 52.7% 51.0% 55.9% 59.2% 67.1% 73.1% 79.3% 82.9% 84.6% 85.8% 87.2%
Return on Equity......... NA -2.4% -13.4% 9.3% 10.0% 10.6% 12.7% 11.4% 6.3% 3.7% 3.2% 5.4%
Return on Net Operating
Assets (RONOA)............ NA 4.2% 7.2% 12.7% 14.1% 14.2% 17.8% 16.6% 10.0% 6.5% 5.8% 8.9%
Cash Flow Statement Items:
Capital Expenditure (US$
'000).................. 29,348 31,800 44,456 61,900 58,685 46,239 100,000 100,000 100,000 100,000 100,000 100,000
Depreciation (US$'000)... NA 47,049 41,874 48,519 54,220 59,045 61,504 64,294 67,388 70,761 74,392 78,259
Amortisation (US$
'000).................. NA 1,358 6,510 3,560 3,560 3,560 3,560 3,560 3,560 3,560 3,560 3,560
</TABLE>
- ------------
(1) Gross Margin adjusted for Depreciation
(2) EBIT Growth Rate drives development of TLP minority interest
38
<PAGE>
[CAPTION]
HOLNAM OPERATIONS
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
<TABLE>
<S> <C>
Risk-Free Interest Rate--10 yrs. Treasury Bond(1)............................................. 5.79%
Market Risk Premium(2)........................................................................ 7.60%
Tax Rate...................................................................................... 40.00%
Cost of Debt(3)............................................................................... 9.81%
Levered Beta(4)............................................................................... 1.31%
After-Tax Cost of Debt(5)..................................................................... 5.89%
Debt/Total Capital............................................................................ 49.0%
Equity/Total Capital.......................................................................... 51.0%
Cost of Equity(6)............................................................................. 15.75%
WACC(7)....................................................................................... 10.92%
</TABLE>
- ------------
(1) Source: Financial Times December 18, 1993
(2) Historical U.S. Equity Market Risk Premium (Approx.)
(3) Holnam's Effective Interest Rate 1993
(4) Source: Datastream (as of Dec 17, 1993)
(5) (Cost of Debt) * (1--Tax Rate)
(6) (Risk-Free Interest Rate) + (Levered Beta) * (Market Risk Premium)
(7) (Debt/Total Capital) * (Cost of Debt) * (1--Tax Rate) + (Equity/Total
Capital) * (Cost of Equity)
39
<PAGE> ANNEX C
PROJECTIONS FOR ST. LAWRENCE
The following projections were not prepared with a view toward compliance
with published guidelines of the Commission or the American Institute of
Certified Public Accountants regarding projections and forecasts or generally
accepted accounting principles. Because of the inherent uncertainty of
projections and forecasts for such lengthy periods, no assurances can be given
that such projections accurately determine current values or future performance,
which may be significantly more or less favorable than as set forth below.
<PAGE>
ST. LAWRENCE CEMENT
CONSOLIDATED SALES ANALYSIS 1991 TO 2002
<TABLE>
<CAPTION>
HISTORICAL FORECAST BUDGET PROJECTIONS
-------------- ------ ------ --------------
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
------ ------ ------ ------ ------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CEMENT
Total Sales Volume
('000 m.t.)............ 3,375 2,961 3,306 3,218 3,411 3,515 3,461 3,486 3,437 3,389 3,341 3,341
Average Price
(Can$/m.t.)............ 65.85 63.18 64.18 69.37 72.49 75.05 78.05 80.24 78.24 77.24 77.24 77.24
Total Sales (Can$)....... 222,244 187,076 212,179 223,224 247,281 263,826 270,131 279,729 268,884 261,759 258,070 258,070
AGGREGATES
Total Sales Volume
('000 m.t.)............ 9,257 8,671 8,894 8,772 9,590 10,041 10,129 10,129 9,985 9,846 9,708 9,708
Average Price
(Can$/m.t.)............ 5.63 5.77 5.75 6.09 6.23 6.40 6.57 6.78 6.61 6.53 6.53 6.53
Total Sales (Can$)....... 52,105 50,061 51,137 53,437 59,721 64,236 66,571 68,702 66,039 64,288 63,382 63,382
CONCRETE
Total Sales Volume
('000 c.m.)............ 1,738 1,375 1,477 1,544 1,693 1,779 1,781 1,781 1,756 1,732 1,707 1,707
Average Price
(Can$/c.m.)............ 80.55 84.05 83.95 84.56 86.41 88.74 91.24 94.16 91.81 90.64 90.64 90.64
Total Sales (Can$)....... 139,963 115,580 123,967 130,555 146,333 157,846 162,540 167,741 161,238 156,965 154,753 154,753
OTHER
Construction............. 110,498 118,696 119,390 123,000 135,883 151,638 169,266 166,945 164,575 162,288 160,001 160,001
Concrete Products........ 2,120 1,716 428 0 0 0 0 0 0 0 0 0
Building Products........ 24,460 22,376 23,259 12,690 12,969 13,319 13,692 14,130 13,929 13,736 13,542 13,542
Others................... 17,475 16,595 14,132 25,691 26,243 27,730 28,582 29,561 29,141 28,736 28,331 28,331
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Other Sales(a) 154,553 159,383 157,209 161,381 175,095 192,687 211,540 210,636 207,646 204,760 201,874 201,874
TOTAL SALES................... 568,865 512,100 544,492 568,597 628,430 678,595 710,782 726,808 703,807 687,772 678,080 678,080
INTRA-COMPANY SALES(b)....... (64,386)(45,015)(64,319)(68,018)(61,479) (56,751)(50,157)(20,589)(20,589)(20,589)(20,589)(20,589)
-----------------------------------------------------------------------------------------------
CONSOLIDATED NET SALES........ 504,479 467,085 480,173 500,579 566,951 621,844 660,625 706,219 683,218 667,183 657,491 657,491
</TABLE>
- ------------
(a) 'Other Sales' have been projected by management through 1998 and develop in
line with cement volumes through 2002
(b) Intra-Company Sales have been projected by management through 1998.
Intra-Company Sales 1999 to 2002 are based on average 1991 to 1998 data
<PAGE>
ST. LAWRENCE CEMENT
INCOME STATEMENT 1991-2002
<TABLE>
<CAPTION>
HISTORICAL PROJECTIONS
---------------- FORECAST BUDGET ----------------------------------------------------------------------
(CAN$ IN '000 ) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SALES................... 504,479 467,085 480,173 500,579 566,951 621,844 660,625 706,219 683,218 667,183 657,491 657,491
Total Costs of Sales.... 381,422 378,148 370,146 364,949 405,789 446,402 478,290 518,085 500,339 509,549 516,089 526,833
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross Margin............ 123,057 88,937 110,027 135,630 161,162 175,442 182,335 188,134 182,879 157,634 141,402 130,657
Selling &
Administrative........ 75,334 78,092 68,802 69,429 70,176 69,483 72,517 74,809 72,373 70,674 69,647 69,647
Corporate Reserve/Cost
Adjustment (a)........ 0 0 0 4,300 (16,400) (21,000) (21,800) (20,600) (22,000) (22,000) (22,000) (22,000)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
EBITDA.................. 47,723 10,845 41,225 61,901 107,386 126,959 131,618 133,925 132,506 108,960 93,754 83,010
Depreciation............ 35,428 36,726 34,860 34,634 38,164 38,960 39,671 41,309 38,762 39,336 39,856 40,329
Amortisation............ 920 1,165 1,157 1,157 1,157 1,157 1,157 1,157 1,157 1,157 1,157 1,157
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
EBIT.................... 11,375 (27,046) 5,208 26,110 68,065 86,842 90,790 91,459 92,587 68,468 52,741 41,524
Net Interest Expense.... (19,892) (19,600) (18,000) (15,500) (15,226) (15,226) (18,624) (20,429) (14,568) (12,807) (11,382) (10,411)
Extraordinary
Expenses.............. -- (13,333) (642) (-500) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Pretax Profit........... (8,517) (59,979) (13,434) 10,110 52,839 71,616 72,166 71,030 78,020 55,660 41,359 31,113
Tax (Credit) Provision
@..................... (2,789) (20,110) (3,115) 5,511 19,550 26,498 26,701 26,281 28,867 20,594 15,303 11,512
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Income (Loss)....... (5,728) (39,869) (10,319) 4,599 33,289 45,118 45,465 44,749 49,152 35,066 26,056 19,601
</TABLE>
(a) Corporate Reserve/Cost Adjustment reflects top management's views on certain
items which were not otherwise taken into account
in the five-year plan.
Ajustment consists of: - Savings under EXCEL and BCM Cost reduction
programs
- Fees to Holderbank Financiere (Management and R&D
Fees)
- Reserve on ability to increase prices as
projected
44
<PAGE>
ST. LAWRENCE CEMENT
BALANCE SHEET 1991-2002
<TABLE>
<CAPTION>
HISTORICAL PROJECTIONS
--------------- FORECAST BUDGET ---------------------------------------------------------------
(CAN$ IN '000 ) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Current Assets:
Accounts
Receivable........ 130,686 138,917 135,804 135,212 149,608 150,674 159,438 169,741 154,245 150,625 148,437 148,437
Inventories &
Supplies.......... 93,627 93,058 82,627 80,095 93,108 103,367 108,712 115,206 104,988 106,921 108,293 110,548
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Current Assets.... 224,313 231,975 218,431 215,307 242,716 254,041 268,150 284,947 259,233 257,546 256,730 258,985
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Property,Plant &
Equipment -- Net...... 427,738 412,915 398,117 399,684 406,520 412,560 417,888 421,579 427,817 433,482 438,626 443,296
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Other Assets...... 60,938 85,064 82,786 70,788 74,058 81,544 92,771 78,106 76,949 75,792 74,635 73,478
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Assets............ 712,989 729,955 699,335 685,779 723,294 748,145 778,809 784,633 764,000 766,820 769,991 775,759
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Liabilities & Net Worth
Current Liabilities
Accounts Payable &
Accrued
Liabilities....... 55,480 72,178 73,243 59,907 69,061 74,158 78,761 84,172 76,063 77,463 78,458 80,091
Short Term Debt..... 2,984 3,510 1,711 16,558 44,998 51,509 22,528 13,883 13,883 13,883 13,883 13,883
Taxes Deferred or
Payable........... 5,226 5,585 5,585 5,585 5,585 5,585 5,585 5,585 5,585 5,585 5,585 5,585
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Current
Liabilities........... 63,690 81,273 80,539 82,050 119,645 131,252 106,874 103,640 95,531 96,931 97,926 99,559
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Long-Term Debt.......... 221,856 260,176 240,289 215,913 179,849 158,615 183,443 163,734 117,698 101,800 88,926 80,153
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Deferred Taxes.......... 71,781 65,376 63,756 65,566 67,504 69,949 73,204 75,859 78,513 81,167 83,821 86,475
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Shareholders' Equity
Common Stock........ 110,605 134,724 137,364 140,964 144,264 147,264 150,264 153,389 156,514 159,639 162,764 165,889
Retained Earnings... 245,057 188,406 177,387 181,286 212,033 241,065 265,024 288,011 315,744 327,283 336,554 343,683
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Shareholders'
Equity................ 355,662 323,130 314,751 322,250 356,297 388,329 415,288 441,400 472,258 486,922 499,318 509,572
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Liabilities &
Shareholders'
Equity................ 712,989 729,955 699,335 685,779 723,294 748,145 778,809 784,633 764,000 766,820 769,991 775,759
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
45
<PAGE>
ST. LAWRENCE CEMENT
CASH FLOW STATEMENT 1991-2002
<TABLE>
<CAPTION>
HISTORICAL PROJECTIONS
---------------- FORECAST BUDGET -----------------------------------------------------------------------
(CAN$ IN '000) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income
(Loss)......... (5,728) (39,869) (10,319) 4,599 33,289 45,118 45,465 44,749 49,152 35,066 26,056 19,601
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Noncash Charges
(Credits)
Depreciation
of PP&E........ 35,428 36,726 34,860 34,634 38,164 38,960 39,671 41,309 38,762 39,336 39,856 40,329
Amortisation
of Goodwill.... 920 1,165 1,157 1,157 1,157 1,157 1,157 1,157 1,157 1,157 1,157 1,157
Deferred Income
Taxes.......... (552) (6,405) (1,621) 1,811 1,938 2,445 3,255 2,654 2,654 2,654 2,654 2,654
Other Non-Cash
Items.......... (962) (31) (1,200) (1,200) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(Increase)
Decrease in
Receivables.... -- -- -- 592 (14,396) (1,066) (8,764) (10,303) 15,496 3,620 2,188 0
(Increase)
Decrease in
Inventories.... -- -- -- 2,532 (13,013) (10,259) (5,345) (6,494) 10,218 (1,933) (1,372) (2,255)
(Decrease)
Increase in
Accounts
Payable........ -- -- -- (13,336) 9,154 5,097 4,603 5,411 (8,109) 1,400 994 1,633
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Changes in
Working
Capital........ 2,096 9,434 14,648 (10,212) (18,255) (6,228) (9,506) (11,386) 17,605 3,088 1,810 (621)
CASH PROVIDED
BY OPERATIONS.. 31,202 1,020 37,525 30,789 56,293 81,452 80,042 78,483 109,330 81,300 71,534 63,120
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
CASH FLOW
BEFORE
INVESTMENTS.... 31,202 1,020 37,525 30,789 56,293 81,452 80,042 78,483 109,330 81,300 71,534 63,120
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Proceeds from
Sale of
Assets......... 3,375 3,388 10,000 10,000 0 0 0 0 0 0 0 0
Capital
Expenditures... (24,606) (19,271) (28,862) (45,000) (45,000) (45,000) (45,000) (45,000) (45,000) (45,000) (45,000) (45,000)
Acquisitions..... (6,644) (13,864) 0 0 0 0 0 0 0 0 0 0
Investments in
Affiliates/
Minority
Interests...... (33,355) (1,136) (85) 0 (6,500) 0 0 0 0 0 0 0
Hudson-Catskill
Project....... (4,624) 0 0 0 0 0 0 0 0 0 0 0
Increase in
Long-term
receivables.... (1,749) (9,732) 840 7,987 2,336 2,098 (3) 0 0 0 0 0
Deferred Exchange
on US Debt..... 0 (6,671) (1,275) 816 0 (13,100) (19,650) 9,355 0 0 0 0
Loans to
Employees...... 0 (836) 0 0 0 0 0 0 0 0 0 0
Other Investing
Activities..... (130) 919 1,605 2,038 (262) 2,358 7,270 4,152 0 0 0 0
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
CASH
USED FOR
INVESTMENTS.... (67,733) (47,203) (17,777) (24,159) (49,426) (53,644) (57,383) (31,493) (45,000) (45,000) (45,000) (45,000)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
CASH FLOW
BEFORE
FINANCING...... (36,531) (46,183) 19,748 6,630 6,867 27,808 22,659 46,990 64,330 36,300 26,534 18,120
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Variation in
Debt........... 2,647 777 37,374 (3,945) (1,096) (44,556) (937) (20,960) 0 0 0 0
Capital Issued... 19,563 24,119 2,640 3,600 3,300 3,000 3,000 3,125 3,125 3,125 3,125 3,125
Stock Dividends
paid........... (17,343) (11,897) 0 0 0 0 0 0 0 0 0 0
Cash Dividends... (13,960) (4,885) (700) (700) (2,542) (16,086) (21,505) (21,762) (21,419) (23,527) (16,785) (12,472)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(9,093) 8,114 39,314 (1,045) (338) (57,642) (19,442) (39,597) (18,294) (20,402) (13,660) (9,347)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET DECREASE
(INCREASE) IN
REVOLVER....... (45,624) (38,069) 59,062 5,585 6,529 (29,834) 3,217 7,393 46,036 15,898 12,874 8,773
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
46
<PAGE>
ST. LAWRENCE CEMENT
GROWTH RATES-FINANCIAL RATIOS-ASSUMPTIONS
<TABLE>
<CAPTION>
HISTORICAL PROJECTIONS
-------------- FORECAST BUDGET --------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Ratios:
Sales Growth Rate.................. NA -7.4% 2.8% 4.2% 13.3% 9.7% 6.2% 6.9% -3.3% -2.3% -1.5% 0.0%
Gross Margin....................... 24.4% 19.0% 22.9% 27.1% 28.4% 28.2% 27.6% 26.6% 26.8% 23.6% 21.5% 19.9%
EBITDA Margin...................... 9.5% 2.3% 8.6% 12.4% 18.9% 20.4% 19.9% 19.0% 19.4% 16.3% 14.3% 12.6%
EBIT Margin........................ 2.3% -5.8% 1.1% 5.2% 12.0% 14.0% 13.7% 13.0% 13.6% 10.3% 8.0% 6.3%
Pretax Margin...................... -1.7% -12.8% -2.8% 2.0% 9.3% 11.5% 10.9% 10.1% 11.4% 8.3% 6.3% 4.7%
Net Margin......................... -1.1% -8.5% -2.1% 0.9% 5.9% 7.3% 6.9% 6.3% 7.2% 5.3% 4.0% 3.0%
Cost of Sales/Sales................ 75.6% 81.0% 77.1% 72.9% 71.6% 71.8% 72.4% 73.4% 74.5% 74.5% 74.5% 74.5%
S,G&A/Sales........................ 14.9% 16.7% 14.3% 13.9% 12.4% 11.2% 11.0% 10.6% 10.6% 10.6% 10.6% 10.6%
Effective Interest Rate............ 8.8% 7.4% 7.5% 6.6% 6.3% 6.7% 8.5% 11.1% 11.1% 11.1% 11.1% 11.1%
Effective Tax Rate................. 32.7% 33.5% 23.2% 34.5% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0%
Canadian Inflation................. 5.6% 1.7% 1.8% 1.9% 2.2% 2.7% 2.8% 3.2% 3.2% 3.2% 3.2% 3.2%
Balance Sheet Ratios:
Accounts Receivable Days........... N/A 102.1 105.6 99.0 87.0 87.8 83.2 82.4 82.4 82.4 82.4 82.4
Inventories & Supplies Turns....... N/A 4.0 4.0 4.4 5.1 4.8 4.6 4.8 4.8 4.8 4.8 4.8
Accounts Payable & Accrued
Liabilities Days................. N/A 53.6 71.2 73.3 53.9 56.5 56.6 55.5 55.5 55.5 55.5 55.5
Debt/Equity........................ 63.2% 81.6% 76.9% 72.1% 63.1% 54.1% 49.6% 40.2% 27.9% 23.8% 20.6% 18.5%
Debt/Total Capital................. 38.7% 44.9% 43.5% 41.9% 38.7% 35.1% 33.2% 28.7% 21.8% 19.2% 17.1% 15.6%
Equity/Total Capital............... 61.3% 55.1% 56.5% 58.1% 61.3% 64.9% 66.8% 71.3% 78.2% 80.8% 82.9% 84.4%
Dividend/Net Income (t-1).......... NA -85.3% -1.8% -6.8% 55.3% 48.3% 47.7% 47.9% 47.9% 47.9% 47.9% 47.9%
RONOA.............................. 1.9% -4.8% 1.0% 4.9% 12.9% 16.2% 15.7% 15.2% 15.7% 11.5% 8.8% 6.9%
Cash Flow Statement Ratios
Capital Expenditure (US$ '000)..... 24,606 19,271 28,862 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000
Capital Expenditure/Net PP&E
(t-1)............................ NA 4.5% 7.0% 11.3% 11.3% 11.1% 10.9% 10.8% 10.7% 10.5% 10.4% 10.3%
Depreciation, Amortisation (CAN$
'000)............................ 35,428 36,726 34,860 34,634 38,164 38,960 39,671 41,309 38,762 39,336 39,856 40,329
as % of Net PP&E (t-1)............. NA 8.59% 8.44% 8.70% 9.55% 9.58% 9.62% 9.89% 9.19% 9.19% 9.19% 9.19%
of which 'Depreciation'
(CAN$'000)....................... 34,508 35,561 33,703 33,477 37,007 37,803 38,514 40,152 37,605 38,179 38,699 39,172
of which 'Amortisation'
(CAN$'000)....................... 920 1,165 1,157 1,157 1,157 1,157 1,157 1,157 1,157 1,157 1,157 1,157
</TABLE>
47
<PAGE>
ST. LAWRENCE CEMENT INC. DRAFT
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
<TABLE>
<S> <C>
Risk-Free Interest Rate -- 10 yrs. Treasury Bond (1)..... 6.78%
Market Risk Premium (2).................................. 7.60%
Tax Rate................................................. 34.50%
Cost of Debt(3).......................................... 7.4%
Levered Beta(4).......................................... 1.26
After-Tax Cost of Debt(5)................................ 4.85%
Debt/Total Capital....................................... 43.47%
Equity/Total Capital..................................... 56.53%
Cost of Equity(6)........................................ 16.36%
WACC (7)................................................. 11.35%
</TABLE>
(1) Source: Datastream December 17, 1993
(2) Historical US Equity Market Risk Premium (Approx.)
(3) St. Lawrence's effective cost of debt
(4) Source: Bloomberg Dec 17, 1993
(5) (Cost of Debt) * (1 -- Tax Rate)
(6) (Risk-Free Interest Rate) + (Levered Beta) * (Market Risk Premium)
(7) (Debt/Total Capital) * (Cost of Debt) * (1-Tax Rate) + (Equity/Total
Capital) * (Cost of Equity)
48
<PAGE>
ANNEX D
MERRILL LYNCH Investment Banking Group
World Financial Center
North Tower
New York, NY 10281-1330
January 7, 1994
Board of Directors
Holcem Inc.
6211 North Ann Arbor Road
Dundee, Michigan 48131
Board of Directors
Holdernam Inc.
6211 North Ann Arbor Road
Dundee, Michigan 48131
Special Committee of the
Board of Directors
'Holderbank' Financiere Glaris, Ltd.
Hauptstrasse 44
CH-8570 Glaris
Switzerland
Holnam Inc.
Gentlemen:
We understand that the Board of Directors and the sole stockholder of
Holcem Inc. ('Holcem'), which is the holder of more than 90% of the common
stock, par value $.01 per share (the 'Common Stock'), and all of the 7% Series A
Convertible Preferred Stock, par value $.10 per share (the 'Preferred Stock'),
of Holnam, Inc. (the 'Company'), intend to take certain corporate action
pursuant to Section 253 of the Delaware General Corporation Law as a result of
which Holcem will be merged (the 'Merger') with and into the Company, the
Company will become a wholly-owned subsidiary of Holdernam Inc. ('Holdernam')
and an indirect wholly-owned subsidiary of 'Holderbank' Financiere Glaris, Ltd.
('Holderbank'), and each outstanding share of Common Stock held by shareholders
other than the Company, Holcem or any of its affiliates (the 'Public
Shareholders') will be converted into the right to receive $7.65 in cash per
share from Holdernam, subject to the rights of shareholders who perfect their
dissenters' appraisal rights. We understand the Merger will be effected by the
filing of a Certificate of Ownership and Merger (the 'Certificate') with the
Secretary of State of the State of Delaware, which filing is expected to be made
on or about February 10, 1994.
You have asked us for our opinion as to whether or not the proposed cash
consideration to be received by the Public Shareholders pursuant to the Merger
is fair to such shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) reviewed the Company's annual reports to shareholders for the
three fiscal years ended, and its annual report on Form 10-K for the two
fiscal years ended, December 31, 1992 and the related audited financial
information included therein, and the Company's unaudited financial
information and related Forms 10-Q for the three-, six-, and nine-month
periods ended March 31, June 30, and September 30, 1993, respectively;
(2) reviewed the annual reports to shareholders and related audited
financial information of St. Lawrence Cement, Inc. ('St. Lawrence'), a
corporation organized under the law of the Province of Quebec, Canada,
whose securities are publicly traded on the Montreal and Toronto stock
<PAGE>
exchanges, and of which the Company owns shares representing approximately
59% of the equity interest and 77% of the voting rights for the three
fiscal years ended December 31, 1992;
(3) reviewed certain information, including financial projections,
relating to the businesses, earnings, cash flow, assets and prospects of
the Company, based upon information furnished to us by the Company, and of
St. Lawrence, furnished to us by St. Lawrence;
(4) conducted discussions with members of senior management of the
Company and St. Lawrence concerning their respective businesses and
prospects, and conducted discussions with members of senior management of
Holderbank concerning such businesses and prospects;
(5) reviewed the Registration Statement on Form S-4 of the Company,
including the combined Proxy Statement and Prospectus dated February 14,
1990 included therein, filed with the Securities and Exchange Commission
('SEC') in connection with the merger of the Company and Ideal Basic
Industries, Inc.;
(6) reviewed the current and historical market prices and trading
activity for the Common Stock and compared them with that of certain
publicly traded companies which we deemed to be reasonably similar to the
Company, in whole or in part;
(7) reviewed the current and historical market prices and trading
activity for the Class A subordinate shares of St. Lawrence;
(8) compared the results of operations of the Company with those of
certain companies which we deemed to be reasonably similar to the Company,
in whole or in part;
(9) reviewed a draft dated January 6, 1994 of the Certificate;
(10) reviewed the Certificate of Designation relating to the Preferred
Stock;
(11) reviewed a draft dated January 7, 1994 of the Rule 13e-3
Transaction Statement, including the Disclosure Statement included therein,
proposed to be filed with the SEC in connection with the Merger; and
(12) compared the financial terms of the transactions contemplated by
the Certificate with the financial terms of certain other business
combinations and other transactions which we deemed to be relevant.
We have also reviewed such other financial studies and analyses, and
performed such other investigation and taken into account such other matters as
we deemed necessary.
In preparing our opinion we have relied without independent verification
upon the accuracy, completeness and fair presentation of all financial and other
information provided to us by Holderbank, the Company and St. Lawrence,
including information concerning certain tax matters relevant to our analysis,
or which was publicly available. In addition, we have not made an independent
appraisal of any of the assets or liabilities of the Company or St. Lawrence or
of the shares of St. Lawrence. With respect to the financial forecasts referred
to above, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of the Company or St. Lawrence, as the case may be, as to the future
financial performance of the Company or St. Lawrence, as the case may be, and
that management of Holderbank concur in those estimates and judgments. In light
of the fact that Holcem owns in excess of 90% of the Common Stock and has
indicated that it will not sell such shares of Common Stock, we were not
requested to, and did not, solicit indications of interest for the acquisition
of all or part of the Common Stock.
We have provided investment banking services to Holderbank and its
subsidiaries in the past, other than the Company, for which we have received
compensation.
On the basis of, and subject to the foregoing, we are of the opinion that
the cash consideration to be received by the Public Shareholders pursuant to the
Merger is fair to such shareholders from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: ................................
<PAGE>
ANNEX E
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word 'stockholder' means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words 'stock' and
'share' mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 stockholders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the vote of
the stockholders of the surviving corporation as provided in subsection (f) of
[^251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to 251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation;
b. Shares of stock of any other corporation which at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 stockholders;
c. Cash in lieu of fractional shares of the corporations described in
the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of
fractional shares described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall
<PAGE>
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before the
taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to SS228 or 253 of
this title, the surviving or resulting corporation, either before the effective
date of the merger or consolidation or within 10 days thereafter, shall notify
each of the stockholders entitled to appraisal rights of the effective date of
the merger or consolidation and that appraisal rights are available for any or
all of the shares of the constituent corporation, and shall include in such
notice a copy of this section. The notice shall be sent by certified or
registered mail, return receipt requested, addressed to the stockholder at his
address as it appears on the records of the corporation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing of
the notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsection (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
<PAGE>
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of the holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
