-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, tLu17CUdN76S4JTJwbHgs5tMltAZfl9qj5r5nR0VsRuUIMCvZN1tI/ihKCmWohLC Qvs/0bidn87hMCyxOmm0Fw== 0000950129-94-000033.txt : 19940121 0000950129-94-000033.hdr.sgml : 19940121 ACCESSION NUMBER: 0000950129-94-000033 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19940120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHDOWN INC CENTRAL INDEX KEY: 0000313058 STANDARD INDUSTRIAL CLASSIFICATION: 3241 IRS NUMBER: 720296500 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 33 SEC FILE NUMBER: 033-51131 FILM NUMBER: 94501995 BUSINESS ADDRESS: STREET 1: 1200 SMITH ST STE 2400 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7136506200 MAIL ADDRESS: STREET 1: 1200 SMITH STREET SUITE 2400 CITY: HOUSTON STATE: TX ZIP: 77002 S-3/A 1 AMENDMENT #2 - SOUTHDOWN S-3 COMMON STOCK 1 As filed with the Securities and Exchange Commission on January 20, 1994 Registration No. 33-51131 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- SOUTHDOWN, INC. (Exact name of registrant as specified in its charter) LOUISIANA 72-0296500 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
1200 SMITH STREET, SUITE 2400 HOUSTON, TEXAS 77002 (713) 650-6200 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) EDGAR J. MARSTON III 1200 SMITH STREET, SUITE 2400 HOUSTON, TEXAS 77002 (713) 650-6200 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO: R. DANIEL WITSCHEY, JR. JOSEPH A. CIALONE, II BRACEWELL & PATTERSON, L.L.P. BAKER & BOTTS, L.L.P. 2900 SOUTH TOWER PENNZOIL PLACE 3000 ONE SHELL PLAZA HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
CALCULATION OF ADDITIONAL REGISTRATION FEE - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS ADDITIONAL MAXIMUM AGGREGATE OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE - -------------------------------------------------------------------------------------------------- Common Stock, $1.25 par 345,000 value per share................. shares(2) $23.00(3) $7,935,000(3) $2,737 - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee. (2) Includes 45,000 shares which the several Underwriters may purchase from the Selling Shareholder to cover over-allotments, if any. Attached to each share of Common Stock is one Right pursuant to the registrant's Rights Agreement. Does not include 1,437,500 shares registered hereunder with respect to which the filing fee was paid on November 22, 1993. (3) Based on the average of the high and low prices of the Common Stock as reported in the New York Stock Exchange composite transactions reporting system on January 13, 1994. --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED PURSUANT TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX. / / IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF 1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. / / --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 *************************************************************************** * * * Information contained herein is subject to completion or amendment. A * * registration statement relating to these securities has been filed * * with the Securities and Exchange Commission. These securities may not * * be sold nor may offers to buy be accepted prior to the time the * * registration statement becomes effective. This prospectus shall not * * constitute an offer to sell or the solicitation of an offer to buy * * nor shall there be any sale of these securities in any State in which * * such offer, solicitation or sale would be unlawful prior to * * registration or qualification under the securities laws of any such * * State. * * * *************************************************************************** SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JANUARY 20, 1994 PROSPECTUS - --------------------- 1,550,000 SHARES SOUTHDOWN, INC. COMMON STOCK ------------------------- All 1,550,000 shares of Common Stock, par value $1.25 per share (the "Common Stock"), of Southdown, Inc. (the "Company") offered hereby are being offered by a selling shareholder (the "Selling Shareholder"). The Company will not receive any of the proceeds from the sale of shares offered hereby. See "Selling Shareholder." The Common Stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "SDW." On January 19, 1994, the last reported sale price of the Common Stock on the NYSE was $26 3/4 per share. See "Price Range of the Common Stock and Dividends." The offering of the Common Stock by the Selling Shareholder (the "Common Stock Offering") is being conducted concurrently with an offering (the "Preferred Stock Offering") of Preferred Stock, $ Cumulative Convertible Series D, par value $.05 per share (the "Series D Preferred Stock") of the Company. See "Recent Developments -- Concurrent Offerings." The closings of the Common Stock Offering and the Preferred Stock Offering are not conditioned on each other. SEE "INVESTMENT CONSIDERATIONS" FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY. ------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ PROCEEDS PRICE TO UNDERWRITING TO SELLING PUBLIC DISCOUNT(1) SHAREHOLDER(2) - ------------------------------------------------------------------------------------------------ Per Share....................................... $ $ $ - ------------------------------------------------------------------------------------------------ Total(3)........................................ $ $ $ - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
(1) The Company and the Selling Shareholder have agreed to indemnify the several Underwriters against certain liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting expenses of the offering payable by the Selling Shareholder, estimated at $280,000. (3) The Selling Shareholder has granted to the several Underwriters an option, exercisable within 30 days after the date hereof, to purchase up to 232,500 additional shares solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Selling Shareholder will be $ , $ and $ , respectively. ------------------------- The shares are offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York on or about January , 1994. ------------------------- MERRILL LYNCH & CO. KIDDER, PEABODY & CO. INCORPORATED LEHMAN BROTHERS ------------------------- The date of this Prospectus is January , 1994. 3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. AVAILABLE INFORMATION The Company, a Louisiana corporation organized in 1930, has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-3 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities to which this Prospectus relates. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is required to file reports, proxy statements and other materials with the Commission. Such reports, proxy statements and other materials filed with the Commission are available for inspection and copying at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and are available for inspection and copying at certain of the Commission's regional offices at the following locations: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511; and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such materials also may be obtained by mail, upon payment of the Commission's customary charges, by writing to its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. Such materials and other information concerning the Company are also available for inspection at the office of the NYSE, 20 Broad Street, New York, New York 10005. This Prospectus does not contain all of the information set forth in the Registration Statement of which this Prospectus is a part, including the exhibits to the Registration Statement. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the applicable documents filed with the Commission. For further information with respect to the Company and the securities offered hereby, reference is made to the Registration Statement, including the exhibits thereto, which may be inspected at the public reference facilities of the Commission referred to above, and copies of which may be obtained therefrom upon payment of the Commission's customary charges. The Company's principal executive office is located at 1200 Smith Street, Suite 2400, Houston, Texas 77002-4486, and its telephone number at that address is (713) 650-6200. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following materials previously filed by the Company with the Commission pursuant to the Exchange Act (File No. 1-6117), are incorporated herein by reference: the Annual Report on Form 10-K for the fiscal year ended December 31, 1992; the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1993; the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1993; the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1993; the Current Report on Form 8-K dated December 21, 1993, which was filed with the Commission on January 4, 1994; the Form 8-C dated September 17, 1969 with respect to the Common Stock; and the Form 8-A dated March 4, 1991 with respect to the Rights to Purchase Preferred Stock. For convenience of reference, the consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" from the September 30, 1993 Quarterly Report on Form 10-Q are reproduced in this Prospectus. All documents filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and before the termination of this offering shall be deemed to be incorporated herein by reference. Any statement contained in a document incorporated or deemed to be incorporated herein by reference (including such information that is also reproduced herein for convenience of reference) shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated herein by reference modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a copy of this Prospectus is delivered, upon request by such person, a copy of any and all documents that are incorporated herein by reference (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference in any such document). Requests for copies of such documents should be addressed to the Company at its principal executive offices as follows: Mr. James L. Persky, Senior Vice President -- Finance, Southdown, Inc., 1200 Smith Street, Suite 2400, Houston, Texas 77002-4486 (telephone (713) 650-6200). 2 4 [INSIDE FRONT COVER] PHOTOGRAPH OF THE COMPANY'S VICTORVILLE, CALIFORNIA CEMENT PLANT PHOTOGRAPH OF CONCRETE POURING AT COMMERCIAL JOB SITE 5 MAP OF UNITED STATES IDENTIFYING LOCATIONS OF THE COMPANY'S CEMENT PLANTS, CONCRETE PRODUCTS OPERATIONS AND HAZARDOUS WASTE PROCESSORS 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements included elsewhere or incorporated by reference into this Prospectus. As used herein, the terms "Southdown" and the "Company" refer to Southdown, Inc. together with its subsidiaries. Unless otherwise noted, all information in this Prospectus assumes the Underwriters' over-allotment option is not exercised. THE COMPANY Southdown is one of the leading producers of cement and ready-mixed concrete in the United States. The Company operates eight quarrying and manufacturing facilities and a network of 18 terminals for the production and distribution of portland and masonry cement, primarily in the Ohio valley and the southwestern and southeastern regions of the United States. Southdown is also vertically integrated, with ready-mixed concrete operations serving markets in southern California, Florida and southeast Georgia. In addition, the Company is engaged in the environmental services business, which involves the collection of hazardous waste and processing it into hazardous waste derived fuels that, together with tires and other waste materials, are utilized in certain of the Company's cement kilns as a supplement to conventional fuels. The Company is headquartered in Houston, Texas and employs approximately 2,700 people nationwide. SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA*
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ------------------ --------------------------------------------------------- 1993 1992 1992 1991 1990 1989 1988(A) ------ ------ ------ ------ ------- ------- ------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA) INCOME STATEMENT DATA: Revenues........................... $406.6 $383.3 $507.4 $506.9 $ 565.9 $ 592.5 $ 543.4 Operating earnings (loss).......... $ 28.9 $ 9.4 $(16.6) $(15.7) $ 47.6 $ 87.9 $ 77.9 Earnings (loss) from continuing operations....................... $ (0.3) $(14.9) $(41.4)(b) $(43.2)(c) $ 13.4(d) $ 23.0 $ 17.3 Earnings from discontinued operations, net of income taxes(e)......................... -- -- -- -- -- 11.6 19.8 Gain on sale of discontinued operations, net of income taxes(e)......................... -- 0.8 0.8 -- -- 33.4 -- Cumulative effect of change in accounting principle............. (48.5)(f) -- -- -- -- -- 19.6(g) Extraordinary charge, net of related tax benefit(h)........... -- -- -- (1.4) -- -- -- ------ ------ ------ ------ ------- ------- ------- Net earnings (loss)................ $(48.8) $(14.1) $(40.6) $(44.6) $ 13.4 $ 68.0 $ 56.7 ------ ------ ------ ------ ------- ------- ------- ------ ------ ------ ------ ------- ------- ------- Earnings (loss) per share -- Continuing operations.............. $(0.24) $(1.10) $(2.74) $(2.86) $ 0.44 $ 1.06 $ 0.99 Discontinued operations(e)......... -- -- -- -- -- 0.57 1.15 Gain on sale of discontinued operations(e).................... -- 0.05 0.05 -- -- 1.63 -- Cumulative effect of change in accounting principle............. (2.86)(f) -- -- -- -- -- 1.14(g) Extraordinary charge, net of related tax benefit(h)........... -- -- -- (0.08) -- -- -- ------ ------ ------ ------ ------- ------- ------- Net earnings (loss)................ $(3.10) $(1.05) $(2.69) $(2.94) $ 0.44 $ 3.26 $ 3.28 ------ ------ ------ ------ ------- ------- ------- ------ ------ ------ ------ ------- ------- ------- OPERATING DATA: Tons of cement sold (in thousands)....................... 4,637 4,369 5,788 5,340 5,876 6,155 5,923 Weighted average per ton data: Sales price (net of freight)..... $51.43 $50.27 $49.98 $52.26 $ 52.67 $ 52.88 $ 53.01 Manufacturing and other plant operating costs(i)............. 39.23 39.54(j) 39.70(j) 43.72 40.83 40.28 41.69 ------ ------ ------ ------ ------- ------- ------- Margin........................... $12.20 $10.73 $10.28 $ 8.54 $ 11.84 $ 12.60 $ 11.32 ------ ------ ------ ------ ------- ------- ------- ------ ------ ------ ------ ------- ------- ------- Yards of ready-mixed concrete sold (in thousands)................... 2,420 2,319 3,038 3,488 4,179 4,786 4,038 Weighted average per cubic yard data: Sales price...................... $43.70 $43.17 $43.13 $42.97 $ 45.70 $ 45.44 $ 45.24 Operating costs(k)............... 45.23 46.46 46.66 46.69 46.01 42.78 42.89 ------ ------ ------ ------ ------- ------- ------- Margin........................... $(1.53) $(3.29) $(3.53) $(3.72) $ (0.31) $ 2.66 $ 2.35 ------ ------ ------ ------ ------- ------- ------- ------ ------ ------ ------ ------- ------- -------
- --------------- * Alphabetical note references refer to the notes to Selected Historical Financial and Operating Data that appear on page 14. 3 7 THE COMMON STOCK OFFERING Common Stock Offered by the Selling Shareholder................................. 1,550,000 shares. See "Selling Shareholder" and "Description of Capital Stock -- Common Stock" and "-- Rights." Common Stock Offered by the Company........... None. Common Stock Outstanding at December 31, 1993........................... 17,045,809 shares(1). Selling Shareholder........................... The Common Stock is being offered by The Carpenters Pension Trust for Southern California. See "Selling Shareholder." Shares of Common Stock to be held by the Selling Shareholder after the Common Stock Offering.................................... 971,600 shares(2). Use of proceeds............................... The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Shareholder. See "Use of Proceeds." NYSE symbol................................... SDW. Concurrent Offering........................... Concurrently with the Common Stock Offering, the Company is conducting the Preferred Stock Offering. The net proceeds from the sale of the Series D Preferred Stock in the Preferred Stock Offering will be used to prepay an $18 million promissory note and reduce outstanding borrowings under the Company's Restated Revolving Credit Facility, $47 million of which was incurred on January 5, 1994 to redeem $45 million principal amount of the Company's 12% Senior Subordinated Notes due 1997 (the "12% Notes"). The Company intends to redeem the remaining $45 million outstanding principal amount of 12% Notes as promptly as practicable after May 1, 1994 with additional borrowings under the Restated Revolving Credit Facility. See "Recent Developments -- Concurrent Offerings" and "Use of Proceeds."
- --------------- (1) Excludes approximately 7.6 million additional shares of Common Stock reserved for issuance pursuant to outstanding convertible securities, warrants and stock options and additional shares of Common Stock initially reserved for issuance upon conversion of shares of Series D Preferred Stock which may be issued in the Preferred Stock Offering. (2) Includes 158,000 shares of Common Stock issuable upon conversion of 63,200 shares of Series B Preferred Stock owned by the Selling Shareholder. 4 8 INVESTMENT CONSIDERATIONS Prospective purchasers of the Common Stock offered hereby should consider the following matters, as well as the other information in this Prospectus and the documents incorporated herein by reference. DEPENDENCE ON CONSTRUCTION INDUSTRY; PROFIT SENSITIVITY Demand for cement is derived from demand for concrete products which, in turn, is derived from demand for construction. The construction sector is affected by the general condition of the economy and can exhibit substantial variations across the country as a result of the differing structures of regional economies. Regional cement markets are highly cyclical, experiencing peaks and valleys correlated with regional construction cycles. While the impact on the Company of construction cycles in individual regions may be mitigated to some degree by the geographic diversification of the Company, profitability is very sensitive to small shifts in the balance between supply and demand. New construction activities stagnated as the U.S. economy entered a recession during the later half of 1990, declined in 1991 in most areas and, in California, continued to decline in 1992. As a consequence, the Company's sales and earnings declined from the previous cyclical peak. Construction activity in some regions has rebounded slightly in 1993. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations." FIXED CHARGE DEFICIENCY; DIVIDENDS Since 1991, the Company's earnings have been insufficient to cover its combined fixed charges and preferred stock dividends. See "Selected Historical Financial and Operating Data." In addition, the Company's ability to pay dividends on its capital stock is restricted in certain circumstances by certain provisions of various of its debt instruments, including the Company's Restated Revolving Credit Facility and the Indenture relating to its 14% Senior Subordinated Notes Due 2001. See "Description of Capital Stock -- Limitations on Dividends and Certain Other Payments." The Company has paid no dividends on its Common Stock since the first quarter of 1991. See "Price Range of the Common Stock and Dividends." STATUS OF CERTAIN TARIFFS A group of domestic cement producers, including the Company, filed antidumping petitions which have resulted in the imposition of significant antidumping duty cash deposits on cement imported from Mexico and Japan. In addition, the U.S. Department of Commerce has signed an agreement with Venezuelan cement producers, which is designed to eliminate the dumping of gray portland cement from Venezuela into Florida and the United States generally. The antidumping duties are subject to annual review by the Department of Commerce and appeal to the U.S. Court of International Trade. Effective July 15, 1995, the Anti-dumping Code of the General Agreement on Tariffs and Trade will be substantially altered pursuant to the recently completed Uruguay Round of multilateral trade negotiations. The new Code applies to investigations initiated after July 1995 and to administrative reviews of outstanding orders that are initiated after July 1995. If Congress passes legislation to approve and implement the Uruguay Round agreement, changes will necessarily be made to U.S. antidumping law. While the antidumping orders outstanding against cement and clinker from Mexico and Japan and the suspension agreement on cement and clinker from Venezuela will remain in force, the new Code will require "sunset" reviews of the antidumping orders against Mexico and Japan prior to July 2000 to determine whether they should terminate or remain in effect, unless an earlier date is mandated by Congress. Under the new Code, it could be more difficult to obtain antidumping orders against other countries. A substantial reduction or elimination of the existing antidumping duties could adversely affect the Company's results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Status of Additional Sources of Cement Supply." The Company does not believe that the North American Free Trade Agreement will have a material adverse effect on the existing antidumping duties. 5 9 ENVIRONMENTAL MATTERS Industrial operations have been conducted at some of the Company's cement manufacturing facilities for almost 100 years. In the past, the Company disposed of various materials, including used refractory brick and other products generally used in its cement manufacturing and concrete products operations, in onsite and offsite facilities. Many of these residuals, when discarded, are now classified as hazardous wastes and are subject to regulation under federal and state environmental laws and regulations, which may require the Company to undertake corrective action to remediate these sites. Many of the raw materials, products and by-products associated with the operation of any industrial facility, including those for the production of cement or concrete products, contain chemical elements or compounds that are designated as hazardous substances. Some examples of such materials are the trace metals present in cement kiln dust ("CKD"), chromium present in refractory brick formerly widely used to line cement kilns and general purpose solvents. CKD is not classified as a hazardous waste, except CKD which is produced by kilns burning hazardous waste fuels and which fails to meet certain criteria. However, CKD that is infused with water may produce a leachate with an alkalinity high enough to be classified as hazardous and may also leach certain hazardous trace metals present therein. Several of the Company's inactive CKD disposal sites around the country are under study to determine if remedial action is required at any of the sites and, if so, the extent of any such remedial action. The Company has recorded charges aggregating $9.7 million as the total estimated cost to remediate one of these sites. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Known Events, Trends and Uncertainties -- Environmental Matters." Owners and operators of industrial facilities and those who handle, store or dispose of hazardous substances may be subject to fines and other sanctions imposed by the U.S. Environmental Protection Agency and corresponding state regulatory agencies for violations of laws or regulations relating to those substances. The Company has incurred fines imposed by those agencies in the past. Recently, as part of an aggressive inspection and enforcement initiative targeting combustion industry facilities in which it is seeking over $19.8 million in penalties against the owners and operators of 28 boilers and industrial furnaces, the U.S. EPA alleged certain violations by the Company and proposed the assessment of a civil penalty in the amount of $1.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Known Events, Trends and Uncertainties -- Environmental Matters." The Company's utilization of hazardous waste derived fuels ("HWDF") in its cement kilns has necessitated the familiarization of its work force with the more exacting requirements of applicable environmental laws and regulations with respect to human health and the environment related to these activities. The failure to observe the exacting requirements of these laws and regulations could jeopardize the Company's hazardous waste management permits and, under certain circumstances, expose the Company to significant liabilities and costs of cleaning up releases of hazardous substances into the environment or claims by employees or others alleging exposure to toxic or hazardous substances. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." LEGAL PROCEEDINGS The Company is involved in various legal proceedings, certain of which are described in Item 5. "Other Events" of the Company's Current Report on Form 8-K dated December 21, 1993, which was filed with the Commission on January 4, 1994, Item 1. "Legal Proceedings" of the Quarterly Report on Form 10-Q for the Quarterly Period ended September 30, 1993, and Item 3. "Legal Proceedings" of the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 6 10 THE COMPANY Southdown is one of the leading producers of cement and ready-mixed concrete in the United States. The Company operates eight quarrying and manufacturing facilities and a network of 18 terminals for the production and distribution of portland and masonry cement, primarily in the Ohio valley and the southwestern and southeastern regions of the United States. Southdown is also vertically integrated, with ready-mixed concrete operations serving markets in southern California, Florida and southeast Georgia. In addition, the Company is engaged in the environmental services business, which involves the collection of hazardous waste and processing it into HWDF that, together with tires and other waste materials, are utilized in certain of the Company's cement kilns as a supplement to conventional fuels. The Company is headquartered in Houston, Texas and employs approximately 2,700 people nationwide. Cement Operations. The Company is the third-largest cement producer in the United States and believes that its network of eight cement plants is one of the most modern and efficient of any large cement manufacturer in this country. Seven of its eight plants utilize a variation of the more fuel efficient "dry process" manufacturing technology. The Company's plants are located in California, Colorado, Florida, Kentucky, Ohio, Pennsylvania, Tennessee and Texas. Cement markets are generally regional, due to transportation costs which are high relative to the value of the products. The primary end-users of cement in each regional market include numerous small and sometimes one or more large ready-mixed concrete companies. Cement is the binding agent for concrete, a primary construction material. During the first nine months of 1993, the cement operations generated revenues of $277.6 million and operating earnings of $61.1 million compared with revenues of $256.5 million and operating earnings of $49.2 million during the comparable period a year ago. The improved performance is primarily a result of higher sales volumes and prices. The cement operations generated revenues of $339.5 million and operating earnings of $59.0 million in 1992 compared with revenues of $328.4 million and operating earnings of $41.8 million in 1991. The improved performance in 1992 was primarily a result of significant cost reductions and an 8% increase in sales volume, partially offset by a decline in the average price of cement. The demand for cement is highly cyclical and is derived from the demand for construction. Construction spending and cement consumption have historically fluctuated widely. Following this pattern, cement demand began to decline in 1990, appears to have reached its cyclical low in 1991 and was flat to slightly higher in most regions of the country during 1992 and the first nine months of 1993. The Portland Cement Association (the "PCA"), an industry trade group, estimates that total U.S. cement consumption will increase from a cyclical low of 79 million tons in 1991 to 98 million tons in 1996. This forecast of peak U.S. cement consumption compares with consumption of 93 million tons at the last cyclical peak in 1987. The demand for cement can be divided into three major market segments: residential construction, commercial and industrial construction, and infrastructure or public works projects which represented 24%, 22% and 54%, respectively, of cement consumption in 1992. The supply of cement in the U.S. has declined in recent years primarily because of a decrease in the volume of imported cement entering the country. During the 1980's, imported cement flooded U.S. markets, causing prices to fall despite strong growth in cement consumption. This situation has begun to reverse as evidenced by the reduction in imported cement to 8% of total U.S. consumption in 1992 as compared with 17% of total U.S. consumption in 1989. This decline is largely the result of successful antidumping actions filed against importers from Mexico, Japan and Venezuela. With respect to the California, Florida and Texas markets, the antidumping suits have provided an opportunity for domestic producers to displace large volumes of imported cement during the current recession. See "Investment Considerations -- Status of Certain Tariffs" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Known Events, Trends and Uncertainties -- Other Contingencies -- Status of Additional Sources of Cement Supply." The profitability of the cement industry is highly sensitive to changes in sales and production volumes because of the high fixed cost nature of the manufacturing process. High levels of capacity utilization are therefore important to the financial performance of the industry, as incremental sales volumes generate substantial variable gross profits. If the strong demand for cement projected by the PCA for the 1990's materializes and imports continue at present low levels, U.S. producers should be able to operate at or near 7 11 capacity as the industry moves toward the next cyclical peak. The pricing environment should also improve as demand increases and domestic capacity becomes fully utilized. In addition to an improved supply and demand situation in the 1990's, Southdown expects to benefit from enhanced cement manufacturing efficiency and productivity improvement programs. After several years in the formulation and early implementation stages, these programs have begun to produce results with approximately $16.0 million of cost savings in 1992. These cost reductions are expected to continue and to be augmented by some additional cost reductions in future periods. Concrete Products. The Company has vertically integrated its operations into concrete products in the regional vicinity of its two largest cement plants, which are located in southern California and Florida. The Company believes that vertical integration into ready-mixed concrete enhances its competitive position in these markets. Concrete is produced in batch plants by combining cement, aggregates, add-mixtures and water and is transported to the customer's jobsite in mixer trucks. Ready-mixed concrete is a versatile, low- cost building material used in almost all construction applications. In the third quarter of 1993 the concrete products segment recorded its first operating earnings in three years. The segment recorded $0.5 million of operating earnings in the third quarter of 1993 compared with an operating loss of $2.4 million for the third quarter of 1992. During the first nine months of 1993, the concrete products segment generated revenues of $129.6 million and an operating loss of $1.1 million compared with revenues of $119.9 million and an operating loss of $8.0 million in the comparable period a year ago. The improved earnings are a result of higher ready-mixed concrete volumes and prices in Florida, and lower unit costs and improved earnings from aggregates in southern California. In 1992 the concrete products segment generated revenues of $158.1 million and an operating loss of $11.6 million compared with revenues of $181.1 million and an operating loss of $12.7 million in 1991. While operating earnings from the Florida concrete products operations increased in 1992, this improvement was offset by the continued deterioration in the southern California market. Environmental Services. Southdown collects hazardous waste and processes it into HWDF through its wholly owned subsidiary, Southdown Environmental Systems, Inc. ("SES"). The HWDF, as well as tires and other waste materials, are used by Southdown as a partial replacement for conventional fuels in certain of its cement kilns. Southdown earns a fee for processing the hazardous waste and then uses the HWDF, tires and other waste materials in certain of its cement plants to reduce its outside purchases of conventional fuel, one of its largest variable costs. After suffering three years of start-up losses, in late 1992 Southdown reorganized this business, narrowing its focus to primarily providing HWDF for its own cement kilns. Southdown is in the process of consolidating this business, selling a number of processors and centralizing the bulk of its operations in its Tennessee processing facility, which is being upgraded and expanded to provide state-of-the-art capacity for blending HWDF. During the first nine months of 1993, the environmental services operations generated revenues of $27.5 million versus $32.4 million in the comparable 1992 period and an operating loss of $1.2 million for the first nine months of 1993, a $6.8 million improvement over the operating loss of $8.0 million in the first nine months of 1992. In 1992 the environmental services segment generated revenues of $43.4 million and an operating loss of $10.6 million, excluding the $21.4 million writedown related to the sale of processors and the related reorganization of these operations. In 1991 revenues were $36.8 million and losses from operations were $4.4 million. 8 12 RECENT DEVELOPMENTS ESTIMATED 1993 RESULTS On January 17, 1994, the Company announced that it expects to report break-even earnings for the year ended December 31, 1993 before the cumulative effect of a change in accounting principle under SFAS No. 106 and an extraordinary charge of $1 million, compared with a loss from continuing operations of $41.4 million in 1992. The anticipated 1993 results reflect higher operating earnings in the cement segment attributable to, among other things, increased sales volumes, higher average prices per ton and a decrease in average operating costs per ton. The Company expects to report decreased losses in its other two business segments in 1993 as compared to 1992. The anticipated results also reflect a fourth quarter charge of approximately $3 million related to a waste processor that the Company has been attempting to sell. RESTATED REVOLVING CREDIT FACILITY On November 19, 1993, the Company and its lending banks entered into a $200 million Restated Revolving Credit Facility. This facility includes the issuance of standby letters of credit up to a maximum of $95 million and also includes $20 million of borrowing capacity that is reserved solely for potential funding obligations under a Keepwell Agreement with the U.S. Maritime Administration. The Restated Revolving Credit Facility remains the same size as the Revolving Credit Facility described under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," and matures in November 1996. Substantially all of the Company's assets remain pledged to secure this facility. The Restated Revolving Credit Facility permitted borrowings to redeem up to $45 million in principal amount of the Company's 12% Senior Subordinated Notes due 1997 (the "12% Notes") (see "Capitalization"), which the Company has redeemed, and, subject to compliance with the customary conditions to borrowing set forth therein, also permits the Company to borrow funds sufficient to redeem the remaining $45 million in principal amount of the 12% Notes after the closing of the Preferred Stock Offering. The Company believes that this facility provides the Company with enhanced flexibility under the restrictive covenants contained therein. Borrowings under the Restated Revolving Credit Facility bear interest at margins above either a prime rate or LIBOR as selected by the Company from time to time. On January 19, 1994, the current interest rate under the Restated Revolving Credit Facility was approximately 6.0%. CONCURRENT OFFERINGS The Carpenters Pension Trust for Southern California (the "Trust") and Richard C. Blum & Associates, Inc. ("RCBA"), as investment manager for the Trust, beneficially own 2,363,600 shares of Common Stock and 63,200 shares of Series B Preferred Stock (which are convertible into 158,000 shares of Common Stock). Pursuant to a Registration Rights and Lock Up Agreement with RCBA and the Trust dated November 22, 1993 (the "Registration Rights Agreement"), the Company agreed to file a Registration Statement for the Common Stock Offering, and the Trust proposes to sell 1,550,000 shares of Common Stock (plus 232,500 shares solely to cover over-allotments) in the Common Stock Offering. RCBA has advised the Company that the holdings in Southdown have grown to be the Trust's largest investment position and that RCBA as investment manager and fiduciary has made the decision to reduce the holdings based on principles of prudent portfolio management. In the Preferred Stock Offering, which is an underwritten public offering being conducted concurrently with the Common Stock Offering, the Company is offering 1,500,000 shares of Series D Preferred Stock and has granted to the underwriters of that offering an option to purchase up to an additional 225,000 shares of Series D Preferred Stock, solely to cover over-allotments. For a description of the Series D Preferred Stock, see "Description of Capital Stock -- Preferred Stock -- Series D Preferred Stock." In the Registration Rights Agreement, RCBA and the Trust agreed that until 90 days after the effective date of the registration statement relating to the Preferred Stock Offering (or until the Company abandons the Preferred Stock Offering), they and their affiliates and associates would not directly or indirectly sell, contract or agree to sell, offer to sell or otherwise dispose of any of their shares of Common Stock or Series B Preferred Stock except a sale to the Underwriters of the Common Stock Offering contemporaneously with the Company's sale of the Series D Preferred Stock to the underwriters of the Preferred Stock Offering. If the 9 13 registration statement relating to the Preferred Stock Offering has not become effective by March 1, 1994, however, the Registration Rights Agreement will not prohibit RCBA and the Trust from selling their shares after that date. The Company has agreed that after the period in which RCBA and the Trust have agreed not to sell their shares, they may require the Company to register the sale of their remaining shares under the Securities Act. The Company will not be obligated to keep that registration statement effective after March 1, 1995. CKD AT FORMER USX SITE The Company owns two inactive CKD disposal sites in Ohio that were formerly owned by a division of USX Corporation ("USX"). In September 1993, the Company filed a complaint against USX alleging that with respect to the larger of these two sites (the "Site"), USX is a potentially responsible party and therefore jointly and severally liable for costs associated with cleanup of the Site. USX answered the complaint in November 1993 by filing a motion to dismiss the lawsuit. The Company filed a response to the motion to dismiss in December 1993. In late December 1993, the Company received a preliminary engineering cost estimate which reflects that, based on information developed to date, costs of Site remediation will probably range between $8 million and $32 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Known Trends, Events and Uncertainties -- Environmental Matters." Counsel to the Company on this matter has advised that it appears there is a reasonable basis for the apportionment of cleanup costs relating to the Site between the Company and USX, with USX shouldering substantially all of the cleanup costs because, based on the facts known at this time, the Company itself disposed of no CKD at the Site and is potentially liable under CERCLA because of its current ownership of the Site. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Known Trends, Events and Uncertainties -- Environmental Matters." CLAIM FOR INDEMNIFICATION In late August 1993 the Company was notified by Energy Development Corporation ("EDC"), the 1989 purchaser of the common stock of the Company's then oil and gas subsidiary, that EDC was exercising its indemnification rights under the 1989 stock purchase agreement with respect to a Department of Energy ("DOE") Remedial Order regarding the audit of crude oil produced and sold during the period September 1973 through January 1981 from an offshore, federal waters field in which the Company's oil and gas subsidiary owned an interest. The DOE alleged certain price overcharges and sought to recover a total of $68 million in principal and interest from Murphy Oil Corporation ("Murphy"), as operator of the property. Murphy estimated the Company's share of this total to be approximately $4 million. The Company understands that in January 1994 Murphy negotiated a tentative settlement with the DOE that would require Murphy to pay $35.1 million. The Company is unable to determine what liability it may have with respect to this matter, but any such expenditure would result in a charge to earnings from discontinued operations. The Company believes it has sufficient borrowing capacity under its Restated Revolving Credit Facility to fulfill obligations that may arise as a result of this claim. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Known Events, Trends and Uncertainties -- Other Contingencies." 10 14 USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Common Stock by the Selling Shareholder in the Common Stock Offering. The Company intends to use the net proceeds of the Preferred Stock Offering to prepay an $18 million promissory note and reduce outstanding borrowings under the Company's Restated Revolving Credit Facility, $47 million of which was incurred on January 5, 1994 to redeem $45 million principal amount of the 12% Notes. The Company intends to redeem the remaining $45 million outstanding principal amount of 12% Notes as promptly as practicable after May 1, 1994. See "Capitalization." The 12% Notes mature on May 1, 1997 and may be redeemed at the option of the Company at a current redemption price equal to 101.714% of the principal amount (decreasing to 100% of principal amount on May 1, 1994), plus accrued interest to the redemption date. See "Capitalization." See "Recent Developments -- Restated Revolving Credit Facility" for a description of certain terms of the Restated Revolving Credit Facility. The $18 million promissory note matures on March 31, 1994 and bears interest at margins above either a prime rate basis or a Eurodollar basis as selected by the Company from time to time. On January 19, 1994, the interest rate on this promissory note was approximately 6.0%. PRICE RANGE OF THE COMMON STOCK AND DIVIDENDS The Company's Common Stock is traded on the New York Stock Exchange (Symbol:SDW). The following table sets forth the high and low sales prices of the Common Stock for the indicated periods as reported by the NYSE and the dividends paid per share of Common Stock.
DIVIDENDS PRICE RANGE PAID ---------------- PER HIGH LOW SHARE ----- ----- ----- 1991 First Quarter......................................... $ 19 $11 1/8 $.125 Second Quarter........................................ 19 7/8 14 1/2 * Third Quarter......................................... 18 1/2 13 1/4 * Fourth Quarter........................................ 15 1/8 11 1/4 * 1992 First Quarter......................................... $ 16 $12 3/8 * Second Quarter........................................ 14 7/8 9 3/8 * Third Quarter......................................... 11 8 1/4 * Fourth Quarter........................................ 11 1/2 9 3/8 * 1993 First Quarter......................................... $12 1/4 $9 5/8 * Second Quarter........................................ 17 3/8 9 5/8 * Third Quarter......................................... 24 7/8 15 7/8 * Fourth Quarter........................................ 25 7/8 20 3/4 * 1994 First Quarter (through January 19, 1994).............. $26 7/8 $22 7/8 *
- --------------- * On April 25, 1991, the Board of Directors suspended the dividend on the Company's Common Stock. See the cover page of this Prospectus for a recent reported sale price of the Common Stock on the New York Stock Exchange. 11 15 CAPITALIZATION The table below sets forth the Company's capitalization at September 30, 1993, as adjusted to reflect the redemption on January 5, 1994, of $45 million in principal amount of the 12% Notes (including the payment of premium and accrued interest thereon) with borrowings of approximately $47.0 million under the Restated Revolving Credit Facility, and as further adjusted to reflect the closing of the Preferred Stock Offering (without exercise of the underwriters' over-allotment option in that offering) and the use of proceeds therefrom (assuming net proceeds to the Company of $72.0 million) as set forth under "Use of Proceeds." The Company intends to redeem the remaining $45 million outstanding principal amount of 12% Notes as promptly as practicable after May 1, 1994 with additional borrowings under the Restated Revolving Credit Facility.
SEPTEMBER 30, 1993 ------------------------------ AS AS FURTHER ACTUAL ADJUSTED ADJUSTED ------ ------ ------ (IN MILLIONS) Current maturities of long-term debt................. $ 20.4 $ 20.4 $ 2.4 ------ ------ ------ ------ ------ ------ Long-term debt, less current maturities Revolving Credit Facility(1)....................... $ 16.1 $ 63.1 $ 9.1 12% Senior Subordinated Notes due 1997............. 90.0 45.0 45.0 14% Senior Subordinated Notes Due 2001............. 121.6 121.6 121.6 Other.............................................. 42.5 42.5 42.5 ------ ------ ------ Total long-term debt....................... 270.2 272.2 218.2 ------ ------ ------ Series A Preferred Stock............................. 20.0 20.0 20.0 Series B Preferred Stock............................. 47.9 47.9 47.9 Series D Preferred Stock............................. -- -- 75.0 Common shareholders' equity.......................... 195.9 194.9(2) 191.9(2)(3) ------ ------ ------ Total shareholders' equity................. 263.8 262.8 334.8 ------ ------ ------ Total capitalization....................... $534.0 $535.0 $553.0 ------ ------ ------ ------ ------ ------ Long-term debt as a percentage of total capitalization............................... 50.6% 50.9% 39.5% ------ ------ ------ ------ ------ ------
- --------------- (1) The Revolving Credit Facility has been amended and restated. See "Recent Developments -- Restated Revolving Credit Facility." (2) Gives effect to the extraordinary charge, net of income tax, relating to the premium and debt issuance costs associated with the early extinguishment of $45 million principal amount of 12% Notes. (3) Gives effect to the estimated $3 million of costs associated with the issuance of the Series D Preferred Stock. 12 16 SELECTED HISTORICAL FINANCIAL AND OPERATING DATA The following table sets forth selected historical financial and operating data for the Company for the nine-month periods ended September 30, 1993 and 1992 and for each of the five fiscal years in the period ended December 31, 1992. The selected historical financial information for the Company for the nine-month periods ended September 30, 1993 and 1992 has been derived from the Company's unaudited condensed consolidated financial statements, which, in the opinion of the Company's management, reflect all adjustments (all of which are of a normal and recurring nature) necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis for such periods. The interim information for the period ended September 30, 1993 is not necessarily indicative of results to be expected for the full fiscal year. The selected historical financial information for the Company for each of the three fiscal years in the period ended December 31, 1992 has been derived from the consolidated financial statements of the Company audited by Deloitte & Touche, independent public accountants, as indicated in their reports thereon. The selected historical financial information for the Company for each of the two fiscal years in the period ended December 31, 1989 has been derived from the audited consolidated financial statements of the Company. This historical data should be read in conjunction with the condensed consolidated financial statements and the consolidated financial statements and notes thereto of the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Prospectus and in the Company's Annual Report on Form 10-K for the year ended December 31, 1992. See "Incorporation of Certain Documents by Reference." Certain data for prior years have been reclassified for purposes of comparison.
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ------------------ ------------------------------------------------------- 1993 1992 1992 1991 1990 1989 1988(A) ------ ------ ------ ------ ------- ------- ------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA) INCOME STATEMENT DATA: Revenues..................................... $406.6 $383.3 $507.4 $506.9 $ 565.9 $ 592.5 $ 543.4 Operating earnings (loss).................... $ 28.9 $ 9.4 $(16.6) $(15.7) $ 47.6 $ 87.9 $ 77.9 Interest expense............................. $ 30.3 $ 34.3 $ 45.0 $ 40.7 $ 31.7 $ 53.5 $ 48.5 Earnings (loss) from continuing operations... $ (0.3) $(14.9) $(41.4)(b) $(43.2)(c) $ 13.4(d) $ 23.0 $ 17.3 Earnings from discontinued operations, net of income taxes(e)............................ -- -- -- -- -- 11.6 19.8 Gain on sale of discontinued operations, net of income taxes(e)......................... -- 0.8 0.8 -- -- 33.4 -- Cumulative effect of change in accounting principle.................................. (48.5)(f) -- -- -- -- -- 19.6(g) Extraordinary charge, net of related tax benefit(h)................................. -- -- -- (1.4) -- -- -- ------ ------ ------ ------ ------- ------- ------- Net earnings (loss).......................... $(48.8) $(14.1) $(40.6) $(44.6) $ 13.4 $ 68.0 $ 56.7 ====== ====== ====== ====== ======= ======= ======= Primary earnings (loss) per share -- Continuing operations...................... $(0.24) $(1.10) $(2.74) $(2.86) $ 0.44 $ 0.99 $ 0.94 Discontinued operations(e)................. -- -- -- -- -- 0.69 1.39 Gain on sale of discontinued operations(e)............................ -- 0.05 0.05 -- -- 1.98 -- Cumulative effect of change in accounting principle................................ (2.86)(f) -- -- -- -- -- 1.39(g) Extraordinary charge, net of related tax benefit(h)............................... -- -- -- (0.08) -- -- -- ------ ------ ------ ------ ------- ------- ------- Net earnings (loss)........................ $(3.10) $(1.05) $(2.69) $(2.94) $ 0.44 $ 3.66 $ 3.72 ====== ====== ====== ====== ======= ======= ======= Fully diluted earnings (loss) per share -- Continuing operations...................... $(0.24) $(1.10) $(2.74) $(2.86) $ 0.44 $ 1.06 $ 0.99 Discontinued operations(e)................. -- -- -- -- -- 0.57 1.15 Gain on sale of discontinued operations(e)............................ -- 0.05 0.05 -- -- 1.63 -- Cumulative effect of change in accounting principle................................ (2.86)(f) -- -- -- -- -- 1.14(g) Extraordinary charge, net of related tax benefit(h)............................... -- -- -- (0.08) -- -- -- ------ ------ ------ ------ ------- ------- ------- Net earnings (loss)........................ $(3.10) $(1.05) $(2.69) $(2.94) $ 0.44 $ 3.26 $ 3.28 ====== ====== ====== ====== ======= ======= ======= OTHER DATA: Capital expenditures......................... $ 18.5 $ 11.9 $ 17.4 $ 31.0 $ 43.0 $ 37.4 $ 26.9 Depreciation, depletion and amortization..... 33.4 39.0 52.1 50.2 45.2 45.1 35.6 Cash dividends paid per share of common stock...................................... -- -- -- 0.125 0.50 0.50 0.50 BALANCE SHEET DATA: Total assets................................. $890.2 $961.2 $910.6 $986.1 $1,039.7 $1,063.5 $1,208.7 Total debt................................... 290.6 329.4 314.8 332.7 317.3 262.0 435.3 Preferred stock subject to mandatory redemption................................. -- -- -- -- 6.0 12.0 18.0 Shareholders' equity......................... 263.8 344.2 316.4 362.0 410.1 410.5 354.1
(Table continued on following page) 13 17
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ------------------ --------------------------------------------------------- 1993 1992 1992 1991 1990 1989 1988(A) ------ ------ ------ ------ ------- ------- ------- OPERATING DATA: Tons of cement sold (in thousands)............. 4,637 4,369 5,788 5,340 5,876 6,155 5,923 Weighted average per ton data: Sales price (net of freight)............. $51.43 $50.27 $49.98 $52.26 $ 52.67 $ 52.88 $ 53.01 Manufacturing and other plant operating costs(i)............. 39.23 39.54(j) 39.70(j) 43.72 40.83 40.28 41.69 ------ ------ ------ ------ ------- ------- ------- Margin................. $12.20 $10.73 $10.28 $ 8.54 $ 11.84 $ 12.60 $ 11.32 ------ ------ ------ ------ ------- ------- ------- ------ ------ ------ ------ ------- ------- ------- Yards of ready-mixed concrete sold (in thousands)........... 2,420 2,319 3,038 3,488 4,179 4,786 4,038 Weighted average per cubic yard data: Sales price............ $43.70 $43.17 $43.13 $42.97 $ 45.70 $ 45.44 $ 45.24 Operating costs(k)..... 45.23 46.46 46.66 46.69 46.01 42.78 42.89 ------ ------ ------ ------ ------- ------- ------- Margin................. $(1.53) $(3.29) $(3.53) $(3.72) $ (0.31) $ 2.66 $ 2.35 ------ ------ ------ ------ ------- ------- ------- ------ ------ ------ ------ ------- ------- -------
- --------------- (a) Includes operations of former Moore McCormack Resources, Inc. facilities subsequent to their acquisition by the Company on April 6, 1988. (b) Includes a $21.4 million pretax write-down of certain environmental services assets. (c) Includes $16 million equity in pretax loss of unconsolidated joint venture. (d) Includes a $10 million pretax charge attributable to an unfavorable arbitration ruling and a $6.6 million pretax credit to pension expense. (e) The Company's oil and gas operations, which were sold on November 15, 1989, are reflected as discontinued operations and, accordingly, have been excluded from continuing operations for all years shown. The final portion of the Company's gain on the sale was recognized in September 1992. See Note 7 of Notes to Consolidated Financial Statements contained herein. (f) After-tax effect of initial obligation for estimated postretirement health care benefits as required by adoption of SFAS No. 106 effective January 1, 1993. (g) Cumulative effect of change in accounting for income taxes in accordance with Statement of Financial Accounting Standards No. 96 adopted effective January 1, 1988. (h) Premium on early extinguishment of debt. (i) Includes fixed and variable manufacturing costs, selling expenses, plant general and administrative costs, other plant overhead and miscellaneous costs. (j) Excludes the effects of an $853,000 charge for unpaid use taxes related to prior years. (k) Includes variable and fixed plant costs, delivery, selling, general and administrative and miscellaneous operating costs. 14 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS* RESULTS OF OPERATIONS Consolidated Third Quarter Earnings Operating earnings for the third quarter of 1993 were $11.4 million compared with $9.5 million in the prior year quarter. Net earnings for the third quarter of 1993 were $1.5 million, $0.01 per share fully diluted, compared with a net loss from continuing operations of $500,000, $0.10 per share fully diluted, for the comparable quarter in 1992. The Company also recognized an $800,000 after-tax gain on discontinued operations, $0.05 per share fully diluted, in the third quarter of 1992 resulting from recognition of the final portion of the Company's gain realized in conjunction with the 1989 sale of the Company's oil and gas operations that had been deferred pending the expiration of certain contingencies. Third quarter 1993 revenues improved 12% compared with the prior year quarter primarily because of increased sales volumes from the cement and concrete products operating segments and improved cement sales prices. Improved results were reported by all three operating segments in the third quarter of 1993 compared with the prior year quarter as a result of improved margins in the Cement and Concrete Products operations and improved results related to the late 1992 restructuring of the Environmental Services segment and a prior year quarter $450,000 charge at one of the Company's hazardous waste processing facilities to record the estimated cost to decontaminate equipment and dispose of contaminated waste that was accepted and processed in error. The third quarter of 1993 included a $3 million charge to increase the estimated liability for remediation of an inactive cement kiln dust (CKD) disposal site while the prior year quarter included a $2.7 million gain recognized on the sale of a cement terminal. Depreciation, depletion and amortization in the third quarter of 1993 was lower than the prior year quarter because of the 1992 write-down of certain goodwill and non-compete contracts and the decision to lease, rather than purchase, new mobile equipment in the current year. General and administrative costs declined by $1 million compared with the prior year quarter because of cost reduction measures imposed during 1993. Primarily as a result of lower outstanding debt, interest expense for the third quarter of 1993 was $9.5 million compared with $10.8 million in the prior year quarter. Consolidated Year-to-date Earnings Operating earnings for the nine months ended September 30, 1993 were $28.9 million compared with $9.4 million for the prior year period. Including a $48.5 million, $2.86 per share, first quarter charge related to adoption of SFAS No. 106, the net loss for the nine months ended September 30, 1993 was $48.8 million, $3.10 per share fully diluted. The net loss from continuing operations for the prior year period was $14.9 million, $1.10 per share fully diluted. The prior year period also included an $800,000 after-tax gain on discontinued operations, $0.05 per share fully diluted. Consolidated revenues in the 1993 period increased slightly over the prior year period primarily because of improvements in sales volumes and sales prices from the cement and concrete products operating segments. The $19.5 million increase in operating earnings resulted primarily from improvements in each of the operating segments because of: (i) improved sales volumes and operating margins from the Cement and Concrete Products operations; (ii) the sale or prior year write-down of four hazardous waste processing facilities that generated operating losses in the prior year period and (iii) improved operating results from the remaining waste processors. The current year-to-date period included (i) a $3 million charge to increase the estimated liability for remediation of an inactive CKD disposal site; (ii) a $1.7 million charge for proxy contest fees and expenses and (iii) a $1.2 million gain from the sale of the Company's right to receive its portion of the settlement of bankruptcy claims against LTV Corporation. The prior year period included (i) a - --------------- * As presented in the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 1993, and reproduced herein for convenience of reference. For certain more recent information, see "Recent Developments" and "Investment Considerations -- Fixed Charge Deficiency; Dividends," "-- Legal Proceedings" and "-- Status of Certain Tariffs." 15 19 $3.6 million charge related to remediation of the same inactive CKD disposal site previously mentioned; (ii) a $1.1 million charge related to the decontamination of equipment and incineration of PCB materials; (iii) an $853,000 charge for unpaid use taxes and penalty and interest due thereon; (iv) a $2.7 million gain recognized on the sale of a cement terminal and (v) a $2.7 million gain representing a fee earned for approval of a non-affiliated debt refinancing. Although year-to-date revenues increased 6% over the 1992 period, operating costs increased only approximately 1% because of the favorable impact of continued cost savings measures. Operating costs were also favorably impacted by the elimination of operating costs attributable to the four hazardous waste processing facilities which were sold or classified as "Held for Sale" by the end of 1992. Depreciation, depletion and amortization for the first nine months of 1993 declined compared with the prior year period because of the 1992 write-down of certain goodwill and non-compete contracts and the decision to lease, rather than purchase, new mobile equipment in the current year. Primarily because of cost reduction measures imposed during 1993, general and administrative expenses for the nine months ended September 30, 1993 decreased by $1.4 million despite charges through June 30, 1993 totaling $3.5 million to accrue the estimated cost allocable to the period for providing postretirement health care benefits in excess of claims incurred as required by the 1993 adoption of SFAS No. 106. Interest expense for the nine months ended September 30, 1993 was $4 million lower than the prior year period primarily because of lower outstanding debt. The $48.5 million charge as a result of the adoption of SFAS No. 106 is reported as the "Cumulative effect of a change in accounting principle," net of tax, and represents the initial liability for postretirement benefits, other than pensions attributable to employee services provided in years prior to 1993. SEGMENT OPERATING EARNINGS Cement Third quarter -- Operating earnings for the three month period ended September 30, 1993 of $21.8 million improved over the $20.3 million reported in the prior year quarter. Despite higher per unit costs at several of the cement manufacturing plants, all of the plants reported improved quarter-to-quarter results attributable to higher sales volumes and sales prices except for the Pittsburgh, Pennsylvania plant which had lower sales volumes during the current year quarter. Year-to-date -- Operating earnings for the nine months ended September 30, 1993 were $61.1 million compared with $49.2 million (as reclassified for comparability) in the prior year period. The 1992 period included an $853,000 charge to record unpaid use taxes and penalties. Excluding the unusual 1992 charge, 1993 operating results improved over the prior year primarily as a result of a 6% increase in sales volumes and a 14% improvement in margins. The segment's cost containment program has produced additional reductions in 1993 operating costs compared with the prior year period. The average 1993 sales price is higher because of partial realization of price increases implemented at several of the Company's cement plants during the year. During the past several years, the Company has contracted for terms up to 15 months under large volume sales contracts with several other manufacturers or distributors. These contracts generally have lower sales prices than the Company's customary sales arrangements and some of them have take-or-pay provisions. The Company is in renegotiation of certain of these contracts to provide for, among other things, multi-year duration terms. Sales under these large volume, lower margin cement sales contracts during the nine months ended September 30, 1993 represented approximately the same percentage of the Cement segment's revenues and operating earnings as in the corresponding period of 1992. Improvements in operating earnings over the prior year period were realized at six of the Company's cement plants (all but the Pittsburgh, Pennsylvania and Knoxville, Tennessee plants). Operating earnings declined at the Pittsburgh and Knoxville plants primarily because of higher operating costs resulting primarily from greater than expected maintenance shutdowns and various other operating problems occurring during the year. 16 20 Sales volumes, average unit price and cost data and unit operating profit margins relating to the Company's cement plant operations appear in the following table:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------- ----------------- 1993 1992 1993 1992 ------ ------ ------ ------ Tons of cement sold (thousands)......... 1,784 1,635 4,637 4,369 ------ ------ ------ ------ ------ ------ ------ ------ Weighted average per ton data: Sales price (net of freight).......... $52.68 $50.32 $51.43 $50.27 Manufacturing and other plant operating costs(1)................. 38.37 37.69 39.23 39.54(2) ------ ------ ------ ------ Margin.................................. $14.31 $12.63 $12.20 $10.73 ------ ------ ------ ------ ------ ------ ------ ------
- --------------- (1) Includes fixed and variable manufacturing costs, selling expenses, plant general and administrative costs, other plant overhead and miscellaneous costs. (2) Excludes the effects of an $853,000 charge for unpaid use taxes related to prior years. The increase in the average sales price per ton for the three and nine months ended September 30, 1993 reflects a general firming of cement prices throughout the industry and at least the partial realization of price increases implemented at several of the Company's cement plants during 1993. The decrease in operating costs per ton for the nine months ended September 30, 1993 compared with the prior year period was attributable to the positive impact of cost savings measures as well as to higher sales volumes which resulted in fixed costs being spread over more units. Operating costs per ton for the three months ended September 30, 1993 were higher than the prior year quarter primarily because of higher maintenance and repair costs at several of the manufacturing facilities. Concrete Products Third quarter -- The operating results for the Concrete Products segment was a profit of $500,000 in the third quarter of 1993 compared with an operating loss of $2.4 million in the prior year quarter. Revenues increased 21% from the prior year quarter because improved sales volumes from the Florida and southern California concrete products operation and higher sales prices in Florida more than offset continued declines in sales prices from the southern California ready-mixed concrete operation. Despite lower ready-mixed concrete sales prices in southern California, the segment's operating results from that region improved primarily because of higher sales volumes of ready-mixed concrete and aggregates and lower costs. Operating results for the Florida ready-mixed operations also improved, reflecting higher sales volumes and prices from the ready-mixed concrete operation as well as continuing improvement from the block, resale and fly ash operations. The 1993 quarter comparison with the prior year quarter was also aided by the late 1992 sale of the remaining Florida aggregate operation which incurred losses of $400,000 in the third quarter of 1992. Year-to-date -- The Concrete Products segment's operating loss for the nine months ended September 30, 1993 improved to $1.1 million from the $8.0 million loss reported in the prior year period. Revenues increased approximately 8% over the prior year period because of higher sales volumes and prices from the Florida concrete products operation. In spite of lower sales volumes and prices and unusual, extremely heavy rains during the first two months of 1993, the operating loss for the southern California ready-mixed concrete operation declined significantly because cost containment measures were successful in reducing unit operating costs. Results also improved from higher aggregates sales volumes and prices. Operating results for the Florida ready-mixed operation improved because of a 3% increase in the average sales price per cubic yard of concrete combined with higher operating earnings from the concrete block, resale and fly ash operations. The period-to-period comparison was also aided by the late 1992 sale of the remaining Florida aggregate operation which lost $1.1 million in the prior year period. 17 21 Sales volumes, unit price and cost data and unit operating profit (loss) margins relating to the Company's ready-mixed concrete operations appear in the following table:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------- ----------------- 1993 1992 1993 1992 ------ ------ ------ ------ Yards of ready-mixed concrete sold (thousands)........................... 920 772 2,420 2,319 ------ ------ ------ ------ ------ ------ ------ ------ Weighted average per cubic yard data: Sales price........................... $43.32 $43.35 $43.70 $43.17 Operating costs(1).................... 44.15 46.71 45.23 46.46 ------ ------ ------ ------ Margin.................................. $(0.83) $(3.36) $(1.53) $(3.29) ------ ------ ------ ------ ------ ------ ------ ------
- --------------- (1) Includes variable and fixed plant costs, delivery, selling, general and administrative and miscellaneous operating costs. The increase in the weighted average sales price per yard for the nine months ended September 30, 1993 compared with the 1992 periods reflects higher sales prices in the Company's Florida market partially offset by lower prices in the Company's southern California market. The decrease in the weighted average operating costs per yard for the three and nine months ended September 30, 1993 compared with the 1992 periods is attributable to lower material costs and the implementation of an automated truck-tracking system which has resulted in increased productivity for the southern California operation. Environmental Services Third quarter -- Despite limited earnings from resource recovery operations, the operating loss of the Environmental Services segment for the three months ended September 30, 1993 was approximately $1 million compared with a loss of $3.1 million in the prior year quarter. The prior year quarter included a $450,000 charge related to the decontamination of equipment and incineration of contaminated waste materials that were accepted and processed in error. Excluding the $450,000 charge, hazardous waste processing operation's results improved $1.3 million as the operations of the Tennessee, Alabama and California hazardous waste processing facilities were improved over the prior year quarter. Four other hazardous waste processing facilities which were sold or written-down by the end of the 1992 incurred losses of a combined $1.4 million in the third quarter of 1992. Third quarter 1993 operations were also favorably impacted by the fourth quarter 1992 write-down of certain goodwill and non-compete contracts which resulted in a $644,000 decline in third quarter 1993 amortization costs. Year-to-date -- The Environmental Services segment reported an operating loss of approximately $1.2 million for the nine months ended September 30, 1993 compared with a loss of $8 million in the prior year period. Segment operating losses improved because: (i) the prior year period included $3.8 million in operating losses from four hazardous waste processing facilities which were sold or reclassified as "Held for Sale" by the end of 1992; (ii) the prior year period included a $1.1 million decontamination and incineration charge mentioned previously; (iii) improved operating results from the Tennessee, Alabama and California hazardous waste processing facilities and (iv) a $1.8 million decline in 1993 amortization costs as a result of the fourth quarter 1992 writedown. Corporate Third quarter -- Corporate general and administrative expenses were $6.5 million in the third quarter of 1993. Corporate general and administrative expenses were $7.3 million in the prior year quarter. General and administrative expenses in the third quarter of 1993 were lower than the comparable prior year quarter for various cost categories as a result of cost reduction measures imposed during early 1993. Miscellaneous expense in the 1993 quarter included a $3 million charge to increase the estimated liability for remediation of an inactive CKD disposal site. Miscellaneous income in the third quarter of 1992 included a $2.7 million gain on the sale of a cement terminal. 18 22 Year-to-date -- Excluding the $3.2 million in charges accrued in the first nine months of 1993 as a result of the adoption of SFAS No. 106, corporate general and administrative expenses were $20.5 million for the nine months ended September 30, 1993 compared with $23.7 million in the prior year period. General and administrative expenses during 1993 were lower than the prior year period for almost all cost categories as a result of cost reduction measures imposed during 1993. Miscellaneous income and expense during 1993 included: (i) a $3 million charge to increase the estimated liability for remediation of an inactive CKD disposal site; (ii) a $1.7 million charge for proxy contest fees and expenses and (iii) a $1.2 million gain on the sale of the Company's right to receive its portion of the settlement of the bankruptcy claims against LTV Corporation. Miscellaneous income for the prior year period included: (i) a $2.7 million gain representing a fee earned for approval of a non-affiliated debt refinancing; (ii) a $2.7 million gain related to the sale of the cement terminal as discussed above and (iii) a $3.6 million charge related to remediation of the same inactive CKD disposal site previously mentioned. LIQUIDITY AND CAPITAL RESOURCES The discussion of liquidity and capital resources included on pages 35 through 44 of the Company's Annual Report on Form 10-K for the year ended December 31, 1992, should be read in conjunction with the discussion of liquidity and capital resources contained herein. The Company's operating earnings improved from $9.4 million for the nine months ended September 30, 1992 to $28.9 million in the current period. Operating earnings improved by 34% in the Company's Cement segment and the operating losses generated by the Concrete Products and Environmental Services segments were reduced significantly compared with the prior year period. Before a $48.5 million after-tax, noncash charge for the cumulative effect of a change in accounting principle (see Note 3 of Notes to Consolidated Financial Statements), the net loss from continuing operations for the nine months ended September 30, 1993 was $300,000 compared with a $14.9 million net loss from continuing operations in the prior year period. Internally generated cash flow from operations, a $15.7 million Federal income tax refund from the carryback to prior years of the 1992 tax loss and $6.3 million in cash generated from asset sales, were utilized to meet all of the Company's cash requirements for the nine months ended September 30, 1993. Such cash flow was utilized to: (i) invest approximately $18.5 million in property, plant and equipment; (ii) reduce long-term debt by $24.1 million and (iii) pay dividends on preferred stock. Although effective January 1, 1993 the Company adopted an accrual basis of accounting for postretirement health care benefit costs as required by SFAS No. 106, the Company continues to pay for such costs as incurred. In the first nine months of 1992, the Company invested approximately $11.9 million in property, plant and equipment and, in addition, approximately $4.9 million for the acquisition of a hazardous waste processing facility. The Company also reduced long-term debt by $9.5 million in scheduled loan repayments in the prior year period. The Company borrowed approximately $6.2 million under its Revolving Credit Facility in the first nine months of 1992 and realized approximately $5.4 million in proceeds from miscellaneous asset sales. In April 1992, the Company received an $18.5 million Federal income tax refund from the carryback of the 1991 tax loss. The Company's Revolving Credit Facility totals $200 million and is comprised of an approximately $36 million borrowing base working capital facility maturing in 1994 and an approximately $164 million reducing revolving loan which converts to a term loan in early 1994 and matures in 1997. The Revolving Credit Facility includes the issuance of standby letters of credit up to a maximum of $95 million. The Revolving Credit Facility also includes $20 million of borrowing capacity that is reserved solely for potential funding obligations under a Keepwell Agreement with the U.S. Maritime Administration (MARAD). There were no amounts outstanding under the Keepwell Agreement as of September 30, 1993. Except for the amounts reserved under the Keepwell Agreement, loans under either the working capital facility or revolving loan can be used for general corporate purposes. All borrowings bear interest, at the option of the Company, at margins above prime, the reserve adjusted London InterBank Offering Rate or the certificate of deposit rate. As of September 30, 1993, $16.1 million of borrowings and $67.3 million of letters of credit were outstanding under the Revolving Credit Facility, leaving $96.6 million of unused capacity. Because the revolving loan facility converts into a term loan in early 1994, the Company has begun negotiations to extend the term of the revolver and to amend certain terms of the Revolving Credit Facility, 19 23 including the financial covenants, by the end of 1993. The Company also is actively considering the issuance of securities convertible into its common stock, the proceeds of which would probably be used to reduce a portion of its outstanding debt. The Company's 12% senior subordinated notes are due in 1997, but are redeemable at the option of the Company, in whole or in part, at redemption prices (plus accrued interest to the date of redemption) of 101.714% of the principal amount through April 30, 1994 and 100% of the principal amount thereafter. CHANGES IN FINANCIAL CONDITION The change in financial condition of the Company between December 31, 1992 and September 30, 1993 reflects the utilization of the federal income tax refund of $15.7 million combined with cash provided by operating activities to reduce outstanding balances under the Company's Revolving Credit Facility and other debt and to fund capital expenditures. The improved demand for cement and related products in 1993 has resulted in a decrease in inventories. The decline in prepaid expenses and other current assets reflects the February 1993 sale of the Ohio hazardous waste processing facility which had been classified as a current asset held for sale. Current maturities of long-term debt increased because of the reclassification of the final scheduled payment of $18 million on a promissory note due on March 31, 1994. Accounts payable and accrued liabilities increased because of the timing of payments on normal trade and other obligations including the aforementioned increase in the estimated liability for remediation of an inactive CKD disposal site. The large decrease in deferred income taxes and reinvested earnings and the large increase in the long-term portion of postretirement benefit obligation reflects the recording of the initial liability for postretirement benefits and the associated charges to income and deferred income taxes as a result of the Company's adoption of SFAS No. 106 effective January 1, 1993. (See Note 3 of Notes to Consolidated Financial Statements.) KNOWN EVENTS, TRENDS AND UNCERTAINTIES Environmental Matters The Company is subject to extensive Federal, state and local air, water and other environmental laws and regulations. These constantly changing laws regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of certain substances at the Company's various operating facilities. When it is determinable that a charge is both probable and estimatable at least within a reasonable range of estimates, an appropriate charge and estimated liability are accrued. Such estimates are revised periodically as additional information becomes known. In addition, beginning January 1, 1993 the Company implemented a systematic accrual of $125,000 a month to provide for certain routine environmental contingencies, based on the Company's experience with such matters. Actual cost to be incurred in future periods may vary from these estimates and there can be no assurances that additional accrual amounts will not be required in the future. Industrial operations have been conducted at some of the Company's cement manufacturing facilities for almost 100 years. Many of the raw materials, products and by-products associated with the operation of any industrial facility, including those for the production of cement or concrete products, may contain chemical elements or compounds that are designated as hazardous substances. Some examples of such materials are the trace metals present in CKD, chromium present in refractory brick used to line cement kilns and general purpose solvents. In the past, the Company disposed of various materials, including used refractory brick and other products generally used in its cement manufacturing and concrete products operations, in onsite and offsite facilities. Some of these residuals, when discarded, are now classified as hazardous wastes and subject to regulation under federal and state environmental laws and regulations, which may require the Company to remediate some or all of the affected disposal sites. During the same period, the Company placed CKD in abandoned quarries or other locations at its plant sites and elsewhere. Management believes that the Company's current procedures and practices for handling and management of materials are consistent with industry standards and legal requirements and that appropriate precautions are taken to protect employees and others from harmful exposure to such materials. However, because of the complexity of operations and legal requirements, there can be no assurance that past or future operations will not result in operational errors, violations, remediation liabilities or claims by employees or others alleging exposure to toxic or hazardous materials. 20 24 The Company's utilization of hazardous waste derived fuels (HWDF) in some of its cement kilns has necessitated the familiarization of its work force with the more exacting requirements of applicable environmental laws and regulations with respect to human health and the environment. The failure to observe the exacting requirements of these laws and regulations could jeopardize the Company's hazardous waste management permits and, under certain circumstances, expose the Company to significant liabilities and costs of cleaning up releases of hazardous wastes into the environment. The Clean Air Act Amendment of 1990 provided comprehensive federal regulation of all sources of air pollution and established a new federal operating permit and fee program for virtually all manufacturing operations. The Clean Air Act Amendment will likely result in increased capital and operational expenses for the Company in the future, the amounts of which are not presently determinable. By 1995, the Company's U.S. operations will have to submit detailed permit applications and pay recurring permit fees. In addition, EPA is developing air toxics regulations for a broad spectrum of industrial sectors, including portland cement manufacturing. It is unclear at this time whether the Company's aggregate operations will also be covered. EPA has indicated that the new maximum available control technology standards could require significant reduction of air pollutants below existing levels prevalent in the industry. Hazardous waste processing facilities and the cement plants that burn HWDF are highly regulated by federal, state and local environmental regulations. By definition, the activities of the Environmental Services segment involve materials that have been designated as hazardous wastes. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA), as well as analogous laws in certain states, create joint and several liability for the cost of cleaning up or correcting releases to the environment of designated hazardous substances. Among those who may be held jointly and severally liable are those who generated the waste, those who arranged for disposal, those who owned the disposal site or facility at the time of disposal and current owners. In general, this liability is imposed in a series of governmental proceedings initiated by the identification of a site for initial listing as a "Superfund site" on the National Priorities List or a similar state list and the identification of potentially responsible parties who may be liable for cleanup costs. Certain of the Company's disposal sites in Victorville, California and Fairborn, Ohio are in the preliminary stages of evaluation for inclusion on the National Priorities List. CKD is currently exempt from management as a hazardous waste, except CKD which is produced by kilns burning HWDF and which fails to meet certain criteria. However, CKD that comes in contact with water may produce a leachate with an alkalinity high enough to be classified as hazardous and may also leach the hazardous trace metals present therein. Leaching has led to the classification of at least three CKD disposal sites of other companies as federal Superfund sites. Several of the Company's inactive CKD disposal sites around the country are under study to determine if remedial action is required and in one case, the nature and extent of the remedial action required. These studies may take some time to complete. Thereafter, remediation plans, if required, will have to be devised and implemented, which could take several additional years. An inactive CKD disposal site in Ohio is currently under investigation by both the Company and state environmental agencies to determine appropriate remedial action required at the site. In late July 1991, the Company submitted to the Ohio Environmental Protection Agency (Ohio EPA) for evaluation an initial remediation study indicating the potential extent and nature of a remediation problem at this site. The initial study revealed that the leachate from the site was negatively impacting the environment in the vicinity through ground and surface water pathways. The full extent of the environmental impact, however, was not determined during the first phase of the investigation and a reliable estimate of total remedial costs could not be made at that time. However, the Company recorded a charge of $3.1 million as its initial estimate of the minimum remediation cost. In May 1992, a second phase investigation report related to this site was finalized by the Company's consultant. The report described the results of a hydrogeological investigation and provided background data for the assessment of probable remedial alternatives. In addition, in July 1992 the Ohio EPA issued an administrative order (Director's Order) with respect to this inactive CKD disposal site. The Director's Order formalized the Company's own investigation and remediation plans and required the Company to implement 21 25 an approved remediation workplan to be directed and monitored by the Ohio EPA. Because of the Director's Order and the additional information produced by the ongoing environmental and preliminary engineering investigations, the Company recorded an additional $3.6 million pre-tax charge in the second quarter of 1992 to increase its reserve with respect to this site to $6.7 million. In October 1993, the Company received a consulting report proposing additional refinements of earlier remediation estimates which increased the total estimated cost to remediate this site from $6.7 million to $9.7 million. Accordingly, the Company recorded an additional $3 million charge in the third quarter of 1993 to recognize the change in the estimate. On a voluntary basis, without administrative or legal action being taken, the Company is also investigating two other inactive Ohio CKD disposal sites. The two additional sites in question were part of a cement manufacturing facility that was owned and operated by a now dissolved cement company from 1924 to 1945 and by a division of USX Corporation (USX) from 1945 to 1975. The facility was acquired by the Company in December 1976. The former owners disposed of CKD and other plant waste materials at both sites but conditions at the two sites in question have remained virtually unchanged from when they were acquired by the Company. In 1991 the Company contracted to have an evaluation performed of surface and groundwater characteristics in the vicinity of the larger of the two sites (the Site). In general, the surface and groundwater samples downstream from the Site showed elevated levels of alkalinity and heavy metals classified as hazardous substances under CERCLA. The Company notified the proper authorities and the United States Environmental Protection Agency (U.S. EPA) has conducted a preliminary assessment to determine if the Site warrants further governmental action. In July 1993, the Ohio EPA placed the Site on its Master Sites List of sites that potentially pose a threat to public health or the environment from the release or potential release of hazardous wastes or substances into the environment. On September 24, 1993, the Company filed a complaint (the Complaint) in U.S. District Court, Southern District of Ohio, Western Division, Case No. C-3-93-354 (the USX Action), against USX, alleging that USX is a potentially responsible party under CERCLA and under applicable Ohio law, and therefore jointly and severally liable for costs associated with cleanup of the Site. Prior to filing the Complaint, the Company had filed a similar action against USX (the Prior Action) in U.S. District Court, Southern District of Ohio, in July, 1993, containing allegations with respect to contribution for cleanup costs relating to the Site under CERCLA substantially similar to those set forth in the Complaint. In responding to the complaint in the Prior Action, USX asserted that no liability for cleanup costs relating to the cement kiln dust in the Site could be asserted by the Company against USX under CERCLA. Prior to a determination by the U.S. District Court with respect to USX's motion to dismiss in the Prior Action, counsel for the Company withdrew because of a perceived conflict of interest. The Company then referred the matter to another law firm and, after consultation with this firm, determined to voluntarily dismiss the Prior Action without prejudice and to then immediately refile the matter in the form of the Complaint. USX has not yet answered the Complaint, but an answer by USX (or other preliminary motion by USX) in the USX Action is due on or before November 12, 1993. The Company intends to vigorously pursue its right to contribution from USX for cleanup costs under CERCLA and Ohio law. Based upon the advice of counsel, the Company believes (i) that USX should not prevail as a matter of law on a motion to dismiss the Complaint; (ii) it is probable that the court should find the Site constitutes a facility from which a release or threatened release of a hazardous substance has occurred; (iii) the release or threatened release has caused the Company to incur response costs necessary and consistent with CERCLA and (iv) that USX is a responsible party because it owned and operated the site at the time of disposal of the hazardous substance, arranged for the disposal of the hazardous substance and transported the hazardous substance to the Site. Therefore, counsel to the Company has advised that it appears there is a reasonable basis for the apportionment of cleanup costs relating to the Site between the Company and USX, with USX shouldering substantially all of the cleanup costs because, based on the facts known at this time, the Company itself disposed of no cement kiln dust at the Site and is potentially liable under CERCLA primarily because of its current ownership of the Site. These determinations, however, are preliminary, and are based only upon facts available to the Company prior to any discovery and prior to the filing of an answer to the Complaint by USX. The Company expects to have determined a reasonable estimate, or at least identified a range of Site remediation costs, by year-end 1993. Under CERCLA and applicable Ohio law a court generally applies 22 26 equitable principles in determining the amount of contribution which a potentially responsible party must provide with respect to a cleanup of hazardous substances and such determination is within the sole discretion of the court. In addition, no regulatory agency has directly asserted a claim against the Company as the owner of the Site requiring it to remediate the property, and no cleanup of the Site has yet been initiated. In late July 1993 a citizens' environmental group brought suit in U.S. District Court for the Southern District of Ohio, Western Division (Greene Environmental Coalition, Inc., an Ohio not-for-profit corporation v. Southdown, Inc., a Louisiana corporation -- Case No. C-3-93-270) alleging the Company is in violation of the Clean Water Act by virtue of the discharge of pollutants in connection with the runoff of stormwater and groundwater from the Site and is seeking injunctive relief, unspecified civil penalties and attorneys' fees, including expert witness fees. In August the Company moved to dismiss the complaint. The environmental group responded on October 22, 1993 and the Company is preparing a reply. Pursuant to a preliminary pretrial conference order issued by the court, the environmental group provided the Company with a written settlement demand in early October 1993 which the Company is still reviewing. Accordingly, the Company is unable to determine at this time what liability, if any, it may have with respect to this matter. No substantial investigative work has been undertaken at other CKD sites in Ohio. Although data necessary to enable the Company to estimate total remediation costs is not available, the Company acknowledges that the ultimate cost to remediate the CKD disposal problem in Ohio could be significantly more than the amounts reserved. The Federal Water Pollution Control Act, commonly known as the Clean Water Act (Clean Water Act) provides comprehensive federal regulation of all sources of water pollution. In September 1992 the Company filed a number of applications under the Clean Water Act for National Pollutant Discharge Elimination System (NPDES) stormwater permits. The Company now believes that some of its existing NPDES permits or pending applications relating to its cement plants and raw materials quarries may not cover all process water and stormwater discharges. Legal counsel has advised the Company, based upon its preliminary review of the matter, that while the Clean Water Act authorizes, among other remedies, the imposition of civil penalties of up to $25,000 per day for unpermitted discharges of pollutants to the waters of the United States, several factors may mitigate against the impositions of substantial fines. First, the Company is moving forward as expeditiously as practicable to correct all NPDES permitting deficiencies. Second, some of the permitting issues arise from mere technical deficiencies in permit applications or from changes in discharge patterns after submission of permit applications. In each such case, legal counsel believes that such deficiencies are neither unusual nor difficult to rectify. Finally, some of the deficiencies relate to questions of the scope of the Clean Water Act's jurisdiction that are, at best, unclear. The Company recorded loss reserves for pre-acquisition contingencies in conjunction with its acquisition of the hazardous waste processing facilities and received certain indemnifications for environmental matters from the former owners. However, there can be no assurance that such reserves and indemnifications will be adequate to cover all potential environmental losses that may occur with respect to these acquired entities. To the extent that reserves were not established, are insufficient, or recovery under indemnifications are not realizable, remediation amounts are charged to expense. While the Company's facilities at several locations are presently the subject of various local, state and federal environmental proceedings and inquiries, including being named a Potentially Responsible Party (PRP) with regard to Superfund sites at several locations to which they are alleged to have shipped materials for disposal, most of these matters are in their preliminary stages and final results may not be determined for years. Management of the Company believes, however, based solely upon the information the Company has developed to date, that known matters can be successfully resolved in cooperation with local, state and federal agencies without having a material adverse effect upon the consolidated financial condition of the Company, either individually or in the aggregate. This assessment is reviewed periodically as additional information becomes available. In forming its belief that the matters described will not have a material adverse effect on its consolidated financial condition, the Company considers, among other things, the nature of the matters, the likelihood that a future event or events will confirm the loss, impairment or the incurrence of a liability, the response of environmental authorities to date and the experience of the Company and others with the response of 23 27 environmental authorities to similar matters. The Company further evaluates various engineering, operational and other options which might be available to address these matters. Estimates of the future cost of environmental issues, however, are necessarily imprecise as a result of numerous uncertainties including, among others, the impact of new laws and regulations and the availability of new technologies. With respect to matters which require fixed or reasonably determinable expenditures by the Company, the Company also considers the period of time over which those expenditures might be made. Independently of the evaluation of any liabilities, the Company also considers whether such matters are within the scope of contractual indemnities provided by others, the applicability of insurance coverage or other potential recoveries from third parties, whether such potential sources of recovery could be considered probable of realization and, if so, how those indemnities would impact any cost to the Company. Accordingly, until all environmental studies, investigations, remediation work and negotiations with potential sources of recovery have been completed, it is impossible to determine the ultimate cost of resolving these environmental matters. EPA's Combustion Industry Strategy -- On May 18, 1993, the U.S. EPA promulgated the agency's combustion strategy and waste minimization policy. Under the combustion strategy, the U.S. EPA essentially imposed an 18-month moratorium on the permitting of new thermal treatment capacity and ordered all available agency resources be applied to issuing final burning permits to offsite boilers and industrial furnaces, including cement kilns. In addition, the U.S. EPA stated that it would use its omnibus permitting authority to reduce the particulate standard, to establish a dioxin standard and to require risk assessments of direct and indirect pathways of exposure. Furthermore, the U.S. EPA indicated that there was substantial excess thermal treatment capacity in the United States and that the U.S. EPA should reduce such permitted capacity by 25% over the next ten years. The Cement Kiln Recycling Coalition (CKRC), an organization of cement manufacturers that burn hazardous waste derived fuel as a fuel substitute and of which the Company is a member, sued to set aside the combustion strategy largely because it was, in effect, a rule making without notice and an opportunity for public hearing. The CKRC supports a legislative program that would result in technology based standards for particulate and dioxin controls applicable to all thermal treatment devices and risk assessment standards that have been exhaustively reviewed during public hearing process. The U.S. EPA has advised its regional administrators that the particulate and dioxin standards set forth in the combustion strategy were for discussion purposes, and would be definitively determined pursuant to subsequent rulemakings. Therefore, the U.S. EPA and the CKRC have agreed to a nine month stay of the CKRC's suit. On September 27, 1993, the U.S. EPA issued a Complaint and Compliance Order (Order) (United States Environmental Protection Agency, Region 5 v. Southdown, Inc. d/b/a Southwestern Portland Cement -- Docket No. VW 27-93) alleging certain violations of the Resource Conservation and Recovery Act (RCRA) applicable to the burning or processing of hazardous waste in an industrial furnace. The alleged violations included, among others, exceedence of certified feed rates for total hazardous waste at the Company's Ohio cement manufacturing facility, failure to demonstrate that CKD generated at the facility is excluded from the definition of hazardous waste and storage at the facility without a permit of CKD alleged to be hazardous by virtue of that failure to demonstrate its exclusion from the definition. The Order proposed the assessment of a civil penalty in the amount of $1.1 million and closure of certain storage silos containing the CKD that allegedly is hazardous waste. The Company was among a group of owners and operators of 28 boilers and industrial furnaces, including several other major cement manufacturers, from which the U.S. EPA is seeking over $19.8 million in penalties as part of an aggressive inspection and enforcement initiative targeting combustion industry facilities. The Company has engaged counsel to respond to the U.S. EPA Order and believes, after reviewing the complaint and the Company's compliance with the applicable regulations, there are substantial mitigating factors to the interpretations and allegations contained in the Order. The Company systematically accrues for routine environmental contingencies and believes, based on the information currently available, the Order can be resolved without material adverse financial statement effect on the consolidated financial condition of the Company. Other Contingencies Status of Additional Sources of Cement Supply -- Antidumping petitions filed by a group of domestic cement producers, including the Company, resulted in favorable determinations by the U.S. International 24 28 Trade Commission (ITC) against cement from Mexico and Japan in August 1990 and April 1991, respectively. As a result, significant antidumping duty cash deposits have been imposed on cement imports from these two countries. On February 11, 1992 the U.S. Department of Commerce (Commerce Department) announced that it had signed an agreement with Venezuelan cement producers which was designed to eliminate the dumping of gray portland cement from Venezuela into Florida and the United States generally. In response to the Mexican government's challenge of the ITC's injury determination, a dispute resolution panel of the General Agreement on Tariffs and Trade (GATT) recommended in July 1992 that the antidumping order be vacated and that all duties collected under the order be returned. The GATT panel determined that the antidumping order violates the GATT antidumping code because the U.S. Commerce Department initiated the investigation without first verifying that the petition was filed on behalf of the domestic cement producers in the region. Under GATT rules, the full Antidumping Code Committee, of which the U.S. is a member, must unanimously adopt the panel's recommendation before it becomes a binding GATT obligation. The decision whether the U.S., as a member of the Antidumping Code Committee, would vote to adopt the GATT dispute panel report would be made by the Office of the U.S. Trade Representative (USTR). Even if the USTR were to adopt the adverse panel report, the industry petitioners have been advised that an act of the U.S. Congress would be required to vacate the antidumping order. In February 1993, the U.S. Court of Appeals for the Federal Circuit affirmed the ITC's August 1990 decision that U.S. cement producers were injured by Mexican cement imports that were dumped at unfair prices in the southern tier of the United States. In April 1993, the Commerce Department reduced the antidumping duty cash deposit rate of Mexico's primary cement producer from 58 percent to 30 percent. In late August 1993 the Department of Commerce determined that Mexico's primary cement producer was selling various types of cement outside the ordinary course of trade in Mexico. As no information was available to perform a "difference in merchandise" calculation between the types of cement sold in the ordinary course of trade in Mexico and sold in the United States, the Department of Commerce used a constructed value approach to determine a 43 percent dumping margin for cement imported from Mexico's primary exporter between August 1991 and July 1992. In September 1993 the Department of Commerce amended its final determination of the dumping margin for cement imported from Mexico's primary exporter between April 1990 and July 1991, raising the margin from 30 percent to 41 percent. The Department of Commerce is currently reviewing imported Mexican cement for the period August 1992 through July 1993. The antidumping cash deposit rate on imported cement from Mexico is now 43 percent for the primary exporter and 58 percent for all other exporters. In April 1993, the U. S. Court of International Trade affirmed in part, reversed in part, and remanded the ITC's affirmative final injury determination against cement from Japan. In June 1993, the ITC issued an affirmative final injury determination on remand. The Japanese respondents have appealed the remand determination. If the remand determination is reversed on appeal, it could have an adverse impact on the Company's results of operations. In October 1993 the Commerce Department reduced the antidumping duty cash deposit rate of Japan's primary cement producer from approximately 45 percent to approximately 18 percent. The antidumping cash deposit rate on Japanese cement is now 18 percent for the primary exporter and between 64 percent and 70 percent for other exporters. The Department of Commerce is currently reviewing imported Japanese cement for the period May 1992 through April 1993. Discontinued Moore McCormack Operations -- In conjunction with the acquisition of Moore McCormack Resources, Inc. (Moore McCormack) in 1988, the Company assumed certain liabilities for operations that Moore McCormack had previously discontinued. These liabilities, some of which are contingent, represent guarantees and undertakings related to Moore McCormack's divestiture of certain businesses in 1986 and 1987. Payments relating to liabilities from these discontinued operations were $1.6 million for the first nine months of 1993, $2.5 million in 1992 and $2.4 million in 1991. A portion of these liabilities relate to a bulk cargo shipping company which owns three ocean-going tankers. The world tanker market is experiencing depressed conditions, and the three tankers generated operating losses in 1992 and through the first nine months of 1993. The Company is either a guarantor or directly liable under certain charter hire debt agreements totaling approximately $13 million at September 30, 1993, declining by approximately $4.0 million per year thereafter through February 1997. If such depressed market conditions continue, then the shipping company may be unable to meet its cash obligations in years subsequent to 1993 under certain of its charter 25 29 hire debt agreements, thereby requiring the Company to fund the amount of its guarantee in cash. Although the estimated liability under this guaranty has been included in the liability for discontinued Moore McCormack operations, enforcement of the guaranty, while not resulting in a charge to earnings, would result in a substantial cash outlay by the Company. However, the Company believes it currently has sufficient borrowing capacity under its Revolving Credit Facility to fund the guarantee, if required, as well as meet its other borrowing needs for the foreseeable future. The Company's Revolving Credit Facility includes $20 million of borrowing capacity that is reserved solely for potential funding of obligations under a Keepwell Agreement between the Company and MARAD related to certain Great Lakes shipping operations owned previously by Moore McCormack. During the second quarter of 1993, the Great Lakes shipping operation sold its right to receive its portion of the settlement of bankruptcy claims against LTV Corporation, which has been operating under the protection of Chapter 11 of the United States Bankruptcy Code since July 17, 1986, and received approximately $14 million in gross proceeds before expenses and taxes. The net proceeds of approximately $10 million are available and required to be used to fund the Great Lakes shipping operation's cash flow deficiencies before the Keepwell is utilized for such purposes. Restructured Accounts Receivable -- For many years, the Company has from time-to-time offered extended credit terms to certain of its customers, including converting trade receivables into longer term notes receivable. This practice became more prevalent during 1992 and has continued during 1993 in the southern California market area where many of the Company's customers have been adversely affected by the prolonged recession in the construction industry in that region. Specifically, a group of six customers were indebted to the Company at September 30, 1993 in the amount of $24.5 million, of which $2.7 million was included in current accounts and notes receivable with the balance in long-term receivables. The six customers have purchased a total of approximately 177,000 tons of cement during the first nine months of 1993. All of the notes and a portion of the accounts receivable are collateralized. During the first nine months of 1993, approximately $810,000 in interest income, of which approximately $575,000 has been collected, was recognized on these notes. During 1993, four of these customers defaulted on the payment terms of their notes. The Company restructured its agreement with one of the defaulting customers late in the second quarter of 1993 and that customer was in compliance with the terms of the restructured agreement as of September 30, 1993. Subsequent to September 30, 1993, the Company completed the purchase of the primary assets of one of the three remaining customers then in default for forgiveness of a total of approximately $7.3 million owed the Company, assumption of certain liabilities and other consideration. The Company realized no gain or loss on this transaction. The Company has also entered into a nonbinding letter of intent with another of these three customers to acquire the primary assets of that business as well for forgiveness of amounts owed the Company, approximately $1.7 million as of September 30, 1993, assumption of certain liabilities and other consideration. The Company has stopped selling cement on credit to the other customer in default and is presently evaluating its options for collection of outstanding balances. The Company is contractually committed to supply up to 90% of the cement requirements of one of the two non-defaulting customers on extended credit terms, provided this customer remains current with respect to both current purchases and payments on its note. In the opinion of management, the Company is adequately reserved for credit risks related to its potentially uncollectible receivables. However, the Company may have to increase its periodic provision for doubtful accounts as additional information regarding the collectibility of these and other accounts becomes available. Claim for Indemnification -- In late August 1993 the Company was notified by Energy Development Corporation (EDC), the 1989 purchaser of the common stock of the Company's then oil and gas subsidiary, that EDC was exercising its indemnification rights under the 1989 stock purchase agreement with respect to a Department of Energy (DOE) Remedial Order regarding the audit of crude oil produced and sold during the period September 1973 through January 1981 from an offshore, federal waters field known as Ship Shoal Block 113 Unit/South Pelto 20 of which the Company's oil and gas subsidiary was part owner. The DOE has alleged certain price overcharges and is seeking to recover a total of $68 million dollars in principal and interest. Murphy Oil Corporation, as operator of the property, has estimated the Company's share of this total 26 30 to be approximately $4 million. Murphy Oil Corporation has been coordinating the defense against the DOE claim and is currently in the process of appealing the DOE's Remedial Order to the Federal Energy Regulatory Commission (FERC) and is concurrently attempting to negotiate a settlement with the DOE. Oral arguments before the FERC were scheduled for late October 1993 with a ruling to follow shortly thereafter. The Company is unable to determine what liability it may have, if any, with respect to this matter, but should the Company be required to forfeit all or any portion of these amounts, such expenditure would result in a charge to earnings from discontinued operations. The Company believes it has sufficient borrowing capacity under its Revolving Credit Facility to fulfill obligations, if any, that arise as a result of this DOE claim. 27 31 DESCRIPTION OF CAPITAL STOCK The following descriptions do not purport to be complete and are subject to, and qualified in their entirety by reference to, the following documents: (i) the Company's Restated Articles of Incorporation, as amended (the "Restated Articles"); (ii) the Articles of Amendment to the Restated Articles which will specify the preferences, limitations and relative rights of the Series D Preferred Stock; (iii) the Company's Bylaws, as amended; (iv) the Rights Agreement dated as of March 4, 1991, between the Company and Chemical Shareholder Services Group, Inc., as Rights Agent; and (v) the Warrant Agreement dated as of October 31, 1991 between the Company and Chemical Shareholder Services Group, Inc., as Warrant Agent. The authorized capital stock of Southdown comprises 40,000,000 shares of Common Stock, $1.25 par value, and 10,000,000 shares of Preferred Stock, $.05 par value (the "Preferred Stock"). COMMON STOCK At December 31, 1993, 17,045,809 shares of Common Stock were issued and outstanding and held of record by approximately 1,956 shareholders, and approximately 7.6 million shares were reserved for future issuance upon exercise of options granted under employee benefit plans or warrants or upon conversion of convertible securities, excluding shares reserved for issuance upon conversion of the Series D Preferred Stock. Subject to the preferences of each series of outstanding Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. In the event of a liquidation or dissolution of the Company, holders of Common Stock are entitled to share ratably (except as described below under the caption "-- Series C Preferred Stock") in all assets remaining after payment of liabilities and the liquidation preferences of each series of outstanding Preferred Stock. Each share of Common Stock generally entitles the holder to one vote on matters submitted to a vote of shareholders of the Company, including the election of directors. The Board of Directors of the Company is divided into three classes, as nearly equal in number as possible, having staggered three-year terms. Holders of Common Stock have no preemptive rights and no rights to convert their Common Stock into any other securities. By the affirmative vote of the holders of 80% of the outstanding shares of all classes of the Company's stock entitled to vote in the election of directors, the Company's shareholders may remove any of the Company's directors from office. A similar vote is required to amend certain provisions of the Restated Articles. See "-- Change in Control Provisions." All of the outstanding shares of Common Stock are fully paid and nonassessable. Chemical Shareholder Services Group, Inc., a subsidiary of Chemical Banking Corporation, serves as the registrar and transfer agent for the Common Stock and the Series A Preferred Stock and the Series B Preferred Stock described below. WARRANTS TO PURCHASE COMMON STOCK In October 1991, the Company issued and sold an aggregate of 1,250,000 Warrants to purchase Common Stock (the "Warrants") pursuant to the terms of a Warrant Agreement dated as of October 31, 1991 (the "Warrant Agreement"), between the Company and First City, Texas -- Houston, N.A., as Warrant Agent. Chemical Shareholder Services Group, Inc. is now the Warrant Agent. Each Warrant entitles the holder to purchase one share of Common Stock at a price of $16 per share, subject to adjustment in certain circumstances, until 5:00 p.m. New York City time on October 31, 1996. The number and kind of securities purchasable upon exercise of the Warrants are subject to adjustment from time-to-time upon the occurrence of certain reclassifications, mergers or consolidations, stock splits, stock dividends, certain other distributions and events and certain issuances or sales of Common Stock at prices less than market value (as defined in the Warrant Agreement). In lieu of an adjustment to the number of shares of Common Stock issuable pursuant to the exercise of the Warrants, the Company may elect to issue additional Warrants. 28 32 RIGHTS On March 4, 1991, the Board of Directors of the Company declared a dividend of one right to purchase preferred stock ("Right") for each outstanding share of the Company's Common Stock, to shareholders of record at the close of business on March 14, 1991. Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a "Unit") of Preferred Stock, Cumulative Junior Participating Series C, par value $.05 per share (the "Series C Preferred Stock"), at a purchase price of $60 per Unit, subject to adjustment (the "Purchase Price"). The description and terms of the Rights are set forth in a Rights Agreement dated as of March 4, 1991 (the "Rights Agreement") between the Company and First City, Texas-Houston, N.A., as Rights Agent. Chemical Shareholder Services Group, Inc. now serves as Rights Agent. The Rights are attached to all certificates representing outstanding shares of Common Stock, and no separate certificates for the Rights ("Rights Certificates") have been distributed. The Rights will separate from the Common Stock and a "Distribution Date" will occur upon the earlier of (i) ten days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock (the date of the announcement being the "Stock Acquisition Date"), or (ii) ten business days (or such later date as may be determined by the Company's Board of Directors before the Distribution Date occurs) following the commencement of a tender offer or exchange offer that would result in a person's becoming an Acquiring Person. Until the Distribution Date, (a) the Rights will be evidenced by the Common Stock certificates (together with a copy of a Summary of Rights or bearing the notation referred to below) and will be transferred with and only with such Common Stock certificates, (b) new Common Stock certificates will contain a notation incorporating the Rights Agreement by reference and (c) the surrender for transfer of any certificate for Common Stock outstanding (with or without a copy of the Summary of Rights) will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. The Rights are not exercisable until the Distribution Date and will expire at the close of business on March 14, 2001, unless earlier redeemed or exchanged by the Company as described below. In the Rights Agreement, the Company has generally agreed to use its best efforts to cause the securities of the Company issuable pursuant to the exercise of Rights to be registered under the Securities Act, as soon as practicable after the Rights become exercisable, and to take such action as may be necessary to ensure compliance with applicable state securities laws. As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of Common Stock as of the close of business on the Distribution Date and, from and after the Distribution Date, the separate Rights Certificates alone will represent the Rights. All shares of Common Stock issued prior to the Distribution Date will be issued with Rights. Shares of Common Stock issued after the Distribution Date in connection with certain employee benefit plans or upon exercise or conversion of certain securities will be issued with Rights. Except as otherwise determined by the Board of Directors, no other shares of Common Stock issued after the Distribution Date will be issued with Rights. In the event (a "Flip-In Event") that a person becomes an Acquiring Person, (except pursuant to a tender or exchange offer for all outstanding shares of Common Stock at a price and on terms that a majority of the independent directors of the Company determines to be fair to and otherwise in the best interests of the Company and its shareholders (a "Permitted Offer")) each holder of a Right will thereafter have the right to receive, upon exercise of such Right, a number of shares of Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a Current Market Price (as defined in the Rights Agreement) equal to two times the exercise price of the Right. Notwithstanding the foregoing, following the occurrence of any Flip-In Event, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person (or by certain related parties) will be null and void in the circumstances set forth in the Rights Agreement. However, Rights are not exercisable following the occurrence of any Flip-In Event until such time as the Rights are no longer redeemable by the Company as set forth below. For example, at an exercise price of $60 per Right, each Right not owned by an Acquiring Person (or by certain related parties) following an event set forth in the preceding paragraph would entitle its holder to 29 33 purchase $120 worth of Common Stock (or other consideration, as noted above), based upon its then Current Market Price, for $60. Assuming that the Common Stock had a Current Market Price of $15 per share at such time, the holder of each valid Right would be entitled to purchase 8 shares of Common Stock for $60. In the event (a "Flip-Over Event") that, at any time on or after the Stock Acquisition Date, (i) the Company is acquired in a merger or other business combination transaction (other than a specified type of merger that follows a Permitted Offer), or (ii) 50% or more of the Company's assets or earning power is sold or transferred, each holder of a Right (except Rights that previously have been voided as set forth above) shall thereafter have the right to receive, upon exercise, a number of shares of common stock of the acquiring company (or in certain cases its controlling person) having a Current Market Price equal to two times the exercise price of the Right. Flip-In Events and Flip-Over Events are collectively referred to as "Triggering Events." The Purchase Price payable, and the number of Units or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Series C Preferred Stock, (ii) if holders of the Series C Preferred Stock are granted certain rights or warrants to subscribe for Series C Preferred Stock or convertible securities at less than the current market price of the Series C Preferred Stock, or (iii) upon the distribution to holders of the Series C Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). No adjustment in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional Units are required to be issued and, in lieu thereof, an adjustment in cash may be made based on the market price of the Series C Preferred Stock on the last trading date prior to the date of exercise. Pursuant to the Rights Agreement, the Company reserves the right to require prior to the occurrence of a Triggering Event that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Series C Preferred Stock will be issued. At any time until ten days following the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right, payable, at the option of the Company, in cash, shares of Common Stock or such other consideration as the Board of Directors may determine. After the redemption period has expired, the Company's right of redemption may be reinstated prior to the occurrence of any Triggering Event if (i) an Acquiring Person reduces its beneficial ownership to 10% or less of the outstanding shares of Common Stock in a transaction or series of transactions not involving the Company and (ii) there are no other Acquiring Persons. Immediately upon the effectiveness of the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $.01 redemption price. At any time after the occurrence of a Flip-In Event and prior to a person's becoming the beneficial owner of 50% or more of the shares of Common Stock then outstanding, the Company may exchange the Rights (other than Rights owned by an Acquiring Person or an affiliate or an associate of an Acquiring Person, which will have become void), in whole or in part, at an exchange ratio of one share of Common Stock, and/or other equity securities deemed to have the same value as one share of Common Stock, per Right, subject to adjustment. Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. Shareholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Common Stock (or other consideration) of the Company or for the common stock of the acquiring company as set forth above or are exchanged as provided in the preceding paragraph. Other than certain provisions relating to the principal economic terms of the Rights, any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Company prior to the Distribution Date. Thereafter, the provisions of the Rights Agreement may be amended by the Board of Directors in order to cure any ambiguity, defect or inconsistency, to make changes that do not materially adversely affect the interests of holders of Rights (excluding the interests of any Acquiring Person), or to shorten or lengthen any 30 34 time period under the Rights Agreement; provided, however, that no amendment to lengthen the time period governing redemption shall be made at such time as the Rights are not redeemable. The provisions of the Rights and the Rights Agreement may in some cases discourage or make more difficult the acquisition of control of the Company by means of a tender offer, open market purchase or similar means. These provisions are intended to discourage, or may have the effect of discouraging, partial tender offers, front-end loaded two-tier tender offers and certain other types of coercive takeover tactics and inadequate takeover bids and to encourage persons seeking to acquire control of the Company first to negotiate with the Company. The Company believes that these provisions, which are similar to those of many other publicly held companies, provide benefits by enhancing the Company's potential ability to negotiate with the proponent of any unfriendly or unsolicited proposal to take over or restructure the Company that outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement in their terms. PREFERRED STOCK The Board of Directors is authorized to designate series of Preferred Stock and fix the powers, preferences and rights of the shares of such series and the qualifications, limitations or restrictions thereon. Series A Preferred Stock. Pursuant to the terms of the Restated Articles, the Board of Directors has created a series of Preferred Stock consisting of 1,999,998 shares of Preferred Stock, $.70 Cumulative Convertible Series A (the "Series A Preferred Stock"). The Series A Preferred Stock is senior to the Series B Preferred Stock with respect to dividends and assets. As of December 31, 1993, 1,999,000 shares of Series A Preferred Stock were issued and outstanding. All such shares are fully paid and nonassessable. The Series A Preferred Stock (a) has a stated value and liquidation preference of $10 per share, plus accrued and unpaid dividends, (b) carries a cumulative dividend of $.70 per year, payable quarterly, and entitles the holders of a majority thereof to elect two directors if dividends are in arrears for at least 540 days, (c) is initially convertible into one-half of a share of Common Stock for each share of Series A Preferred Stock, subject to adjustment, (d) is redeemable at the option of the Company at 120% of the stated value thereof (declining to 100% of the stated value after April 30, 1997) plus accrued and unpaid dividends, and (e) is entitled to one vote per share, voting as a class with the Common Stock and any other capital stock of the Company entitled to vote, on all matters submitted to shareholders. In addition, the holders of Series A Preferred Stock have certain class voting rights, including the right to approve certain mergers, consolidations and sales of assets; however, if a holder of Series A Preferred Stock does not grant a proxy to the Board of Directors to vote in favor of any such merger, consolidation or sale of assets, the Company may redeem such holder's shares of Series A Preferred Stock without the payment of any redemption premium. The Company has reserved 999,500 shares of Common Stock for issuance upon conversion of the Series A Preferred Stock. Series B Preferred Stock. Pursuant to the terms of the Restated Articles, the Board of Directors has created a series of Preferred Stock consisting of 960,000 shares of Preferred Stock, $3.75 Convertible Exchangeable Series B (the "Series B Preferred Stock"). The Series B Preferred Stock is junior to the Series A Preferred Stock with respect to dividends and assets. As of December 31, 1993, 959,000 shares of Series B Preferred Stock were issued and outstanding. All such shares are fully paid and nonassessable. The Series B Preferred Stock (a) has a stated value and liquidation preference of $50 per share, plus accrued and unpaid dividends, (b) carries a cumulative dividend of $3.75 per year, payable semi-annually, and entitles the holders of a majority thereof to elect two directors if dividends are in arrears for at least 180 days, (c) is initially convertible into two and one-half shares of Common Stock for each share of Series B Preferred Stock, subject to adjustment, (d) is redeemable at the option of the Company at the stated value thereof plus accrued and unpaid dividends, and (e) is entitled to one vote per share, voting as a class with the Common Stock and any other capital stock of the Company entitled to vote, on all matters submitted to shareholders. In addition, the holders of the Series B Preferred Stock have certain class voting rights. The Company has reserved 2,397,500 shares of Common Stock for issuance upon conversion of the Series B Preferred Stock. In addition, the Series B Preferred Stock is exchangeable, in whole but not in part, at the option of the Company at any time for the Company's 7 1/2% Convertible Subordinated Debentures Due 2013 (the "Debentures") at a rate of $50 in principal amount of Debentures per share of Series B Preferred Stock, provided that all 31 35 dividends on the Series B Preferred Stock have been paid through the date of such exchange. The Company's Restated Revolving Credit Facility requires the Company to obtain the consent of the lenders thereunder as a condition to the exchange of the Series B Preferred Stock for the Debentures. Series C Preferred Stock. In connection with the distribution of the Rights on March 14, 1991, the Board of Directors of the Company authorized 400,000 shares of Series C Preferred Stock, none of which are outstanding. The Series C Preferred Stock would be issued only upon the exercise of Rights and only if the Rights were exercised prior to a Flip-In Event or a Flip-Over Event. The Rights are not exercisable as of the date hereof. See "-- Rights." If issued, the Series C Preferred Stock would be junior to the Series A Preferred Stock, the Series B Preferred Stock and the Series D Preferred Stock with respect to dividends and assets. The Series C Preferred Stock has a liquidation preference of $100 per share, plus accrued and unpaid dividends and distributions (the "Series C Liquidation Preference"). Following the payment of the Series C Liquidation Preference, no additional distribution shall be made to the holders of shares of Series C Preferred Stock unless the holders of Common Stock have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series C Liquidation Preference by (ii) the Adjustment Number. The Adjustment Number initially is 100, and is subject to adjustment in the event the Company (i) declares any dividend on Common Stock payable in shares of Common Stock, (ii) subdivides the outstanding Common Stock or (iii) combines the Common Stock into a smaller number of shares. Following the payment of the full amount of the Series C Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series C Preferred Stock and Common Stock, respectively, holders of Series C Preferred Stock and holders of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to one with respect to the Series C Preferred Stock and Common Stock, on a per share basis, respectively. If issued, the Series C Preferred Stock would carry a cumulative dividend per share equal to the greater of (i) $2.00 or (ii) subject to certain adjustments, the Adjustment Number times the aggregate per share amount of all cash dividends, and the Adjustment Number times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than dividends or distributions payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding quarterly dividend payment date for the Series C Preferred Stock. The Series C Preferred Stock is redeemable, at the option of the Company, at any time at a redemption price equal to the Adjustment Number times the current per share market price (as defined) of the Common Stock, together with accrued and unpaid dividends. Each share of Series C Preferred Stock entitles the holder thereof to the number of votes equal to the Adjustment Number for each share held and, except as otherwise provided by law, the Series C Preferred Stock votes together as a single class with the Common Stock and any other capital stock of the Company entitled to vote. The Series C Preferred Stock entitles the holders thereof (together with the holders of all Preferred Stock (other than the Series A Preferred Stock and the Series B Preferred Stock) upon which similar voting rights have been conferred) to elect two directors if dividends are in arrears for at least 540 days. Series D Preferred Stock. In connection with the Preferred Stock Offering, the Board of Directors will authorize creation of a series of Preferred Stock consisting of 1,725,000 shares of Preferred Stock, $ Cumulative Convertible Series D. The Series D Preferred Stock will rank junior to the Series A Preferred Stock, pari passu with the Series B Preferred Stock, and will be senior to any Series C Preferred Stock that may be issued. All shares sold in the Series D Preferred Stock Offering will be fully paid and non-assessable. The Series D Preferred Stock (a) has a stated value and liquidation preference of $50.00 per share plus accrued and unpaid dividends, (b) carries a cumulative annual dividend of $ per share, payable quarterly, and entitles the holders thereof, voting together as a single class with all other series or classes of preferred stock which are pari passu with the Series D Preferred Stock as to dividends and which specifically state that they shall vote with the Series D Preferred Stock in such a case (which does not include the Series A Preferred Stock, the Series B Preferred Stock or, if any is issued, the Series C Preferred Stock), to elect two directors if dividends are in arrears for at least six quarterly dividend periods, (c) is initially convertible into shares of Common Stock for each share of Series D Preferred Stock, subject to adjustment, (d) may be converted at the option of the Company, in whole but not in part, at any time after January , 1997 and 32 36 until January , 2001, if for at least 20 trading days within a period of 30 consecutive trading days, including the last trading day of such 30 trading day period, the closing price of the Common Stock equals or exceeds 130% of the conversion price, into shares of Common Stock, subject to adjustment, (e) is redeemable at the option of the Company at 100% of the started value thereof plus accrued and unpaid dividends on and after January , 2001, and (f) is entitled to one vote per share, voting as a class with the Common Stock and any other capital stock of the Company entitled to vote, on all matters submitted to shareholders. In addition, the Series D Preferred Stock has certain class voting rights. The Company has initially reserved shares of Common Stock for issuance upon conversion of the Series D Preferred Stock. LIMITATIONS ON DIVIDENDS AND CERTAIN OTHER PAYMENTS The Company's ability to pay dividends and make certain other payments with respect to its capital stock is restricted in certain circumstances by certain provisions of its debt instruments, including the Company's Restated Revolving Credit Facility and the Indenture relating to its 14% Senior Subordinated Notes Due 2001. That Indenture provides a limitation on Restricted Payments, which are defined to include, among other things, cash dividends or distributions and repurchases or redemptions of capital stock. Subject to limited exceptions, the Indenture prohibits Restrictive Payments unless, at the time of or after giving effect to the proposed Restricted Payment, no Default or Event of Default shall have occurred and be continuing. The aggregate amount of all Restricted Payments declared or made after October 31, 1991 may not equal or exceed an amount calculated from time to time based on, among other things, the Company's consolidated net income (with certain adjustments) since October 1, 1991, and the proceeds from most sales of capital stock. As of September 30, 1993 (after giving effect to the completion of the Preferred Stock Offering and the application of the proceeds therefrom as set forth under "Capitalization"), the amount available under the Indenture for dividends and other Restricted Payments would have been approximately $45 million. So long as there is no Event of Default or Unmatured Event of Default under the Restated Revolving Credit Facility, that facility does not restrict the Company's payment of regularly scheduled cash dividends on the Series A Preferred Stock, Series B Preferred Stock or Series D Preferred Stock. So long as there is no Event of Default or Unmatured Event of Default under the Restated Revolving Credit Facility, the Company may also pay cash dividends with respect to the Common Stock so long as the Company's Adjusted Free Cash Flow Ratio (i) on the first date on which such dividends are commenced, and (ii) on the final day of each fiscal year in which such Common Stock dividends are paid, exceeds 1.00:1.00 (for 1993 and 1994), 1.30:1.00 (for 1995) and 1.60:1.00 (for 1996). As of September 30, 1993 (after giving effect to the Preferred Stock Offering and the use of proceeds thereof as set forth under "Use of Proceeds"), the Company's Adjusted Free Cash Flow Ratio would have been 1.10:1.00. CHANGE IN CONTROL PROVISIONS Charter Provisions. The Restated Articles require the affirmative vote or consent of the holders of 80% of all classes of stock of the Company entitled to vote in the election of directors to approve (a) any merger or consolidation of the Company with or into any other corporation, (b) any sale or lease of all or any substantial part of the assets of the Company or (c) any sale or lease to the Company or any subsidiary thereof of assets with an aggregate fair market value of $2 million or more in exchange for voting securities of the Company or any subsidiary thereof (or securities convertible into or exchangeable for such securities), if as of the record date for the determination of shareholders entitled to vote or consent with respect to such merger, consolidation, sale or lease, the other party to such transaction is the beneficial owner (as defined), directly or indirectly, of 5% or more of the outstanding shares of stock of the Company entitled to vote in the election of directors ("5% Beneficial Owner"). The foregoing provisions of the Restated Articles are inapplicable to (a) any merger or similar transaction if the Board of Directors of the Company has approved a memorandum of understanding with such other corporation prior to the time such corporation became a 5% Beneficial Owner or (b) transactions with a majority-owned subsidiary of the Company. Statutory Provision. Although the constitutionality of the control share provisions of the Louisiana Business Corporation Law ("LBCL") has not been judicially determined, the Company believes that it is an "issuing public corporation," subject to the control share provisions of the LBCL. Under the control share 33 37 provisions of the LBCL, the voting rights of the Company's shares of voting stock are limited under certain circumstances. Subject to certain exceptions, generally if "control shares" of the Company are acquired in a "control share acquisition," the LBCL provides that such shares have the voting rights they had before the control share acquisition only to the extent granted by resolution of the shareholders of the Company. Such resolution must be adopted by a majority of all votes entitled to be cast, excluding all "interested shares." "Interested shares" are defined as shares of the Company in respect of which any of the following persons may exercise or direct the exercise of the voting power of the Company in the election of directors: (a) an acquiring person or member of a group with respect to a control share acquisition, (b) any officer of the Company, or (c) any employee of the Company who is also a director of the Company. "Control shares" are defined generally as shares that, but for the control share provisions of the LBCL, would have voting power with respect to shares of the Company that, when added to all other shares of the Company owned by a person or in respect to which that person may exercise or direct the exercise of voting power, would entitle that person, immediately after acquisition of the shares, directly or indirectly, alone or as a part of a group, to exercise or direct the exercise of the voting power of the Company in the election of directors within any of the following ranges of voting power: (a) one-fifth or more but less than one-third of all voting power, (b) one-third or more but less than a majority of all voting power, or (c) a majority or more of all voting power. Subject to certain exceptions, a "control share acquisition" means the acquisition, directly or indirectly, by any person of ownership of, or the power to direct the exercise of voting power with respect to, issued and outstanding control shares. Under certain circumstances (including, but not limited to, the giving of an undertaking by the acquiring person to pay the Company's expenses of the meeting and, under certain circumstances, the obtaining by such person of commitments for the financing of any cash portion of the consideration to be paid), an acquiring person may compel the calling of a special meeting of the Company's shareholders for the purpose of considering the voting rights to be accorded the shares acquired or to be acquired in the control share acquisition. Unless the acquiring person agrees in writing to another date, the special meeting of shareholders shall be held within fifty days after the date on which definitive proxy materials (within the meaning of the Securities Exchange Act of 1934, as amended, and the regulations thereunder) related to the special meeting on behalf of the acquiring person and the Board of Directors of the Company have been filed with the Securities and Exchange Commission. The Company's Bylaws provide that (i) if no acquiring person statement is filed by the acquiring person or (ii) if full voting rights are not approved, the Company may redeem control shares acquired in a control share acquisition (a) in the case of (i), within 60 days after the last acquisition of control shares by an acquiring person and (b) in the case of (ii), at any time during the period ending two years after the shareholder vote with respect to the voting rights of such control shares. Any such redemption shall be made at the fair value of the control shares and pursuant to such procedures as may be adopted by the Board of Directors of the Company. If control shares acquired in a control share acquisition representing a majority or more of all voting power are accorded full voting rights, then all shareholders of the Company will have dissenters' rights to receive the fair cash value of their shares, such amount not to be less than the highest price per share paid by the acquiring person in the control share acquisition. 34 38 SELLING SHAREHOLDER All of the 1,550,000 shares of Common Stock offered hereby are being sold by the Selling Shareholder. Set forth below is certain information with respect to the Selling Shareholder and its ownership of Common Stock before and after the Common Stock Offering.
SHARES BEFORE THE OFFERING TO AFTER THE OFFERING --------------------- BE SOLD -------------------- PERCENTAGE IN NUMBER PERCENTAGE NUMBER OF THE OF OF SELLING SHAREHOLDER OF SHARES CLASS(1) OFFERING SHARES CLASS(1) - ------------------------------------- ----------- -------- -------- ------- -------- The Carpenters Pension Trust for Southern California(2)............. 2,521,600(2) 14.7% 1,550,000 971,600(2) 5.6% 909 Montgomery Street, Suite 400 San Francisco, California 94133
- --------------- (1) Includes the number of shares of Common Stock outstanding on December 31, 1993, plus 158,000 shares of Common Stock issuable upon conversion of 63,200 shares of Series B Preferred Stock owned by the Selling Shareholder. (2) RCBA and the Trust filed with the Commission a Schedule 13D dated June 28, 1991 which, as subsequently amended, reports beneficial ownership of 2,521,600 shares of Common Stock consisting of 2,363,600 shares of Common Stock and 158,000 shares of Common Stock issuable upon conversion of 63,200 shares of Series B Preferred Stock. The Schedule 13D reports that the Trust possesses economic beneficial ownership. The Schedule 13D also reports that full discretion, voting and acquisition and disposition authority have been granted to its investment adviser, RCBA, but the Trust has the power to terminate the advisory agreement. Richard C. Blum is Chairman and a Director of RCBA. Ronald N. Tutor, a director of the Company, is Co-Chairman of the Board of Trustees of the Carpenters Pension Trust for Southern California. See "Recent Developments -- Concurrent Offerings." The Company, RCBA and the Trust are parties to a Settlement Agreement dated April 16, 1993, pursuant to which a proxy contest was settled and certain persons, including Mr. Tutor, were nominated for election to the Company's Board of Directors. 35 39 UNDERWRITING Subject to the terms and conditions set forth in a purchase agreement (the "Purchase Agreement") among the Company, the Selling Shareholder and each of the underwriters named below (the "Underwriters"), the Selling Shareholder has agreed to sell to each of the Underwriters, and each of the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Kidder, Peabody & Co. Incorporated and Lehman Brothers Inc. are acting as representatives (the "Representatives"), has severally agreed to purchase, the number of shares of Common Stock set forth below opposite their respective names. The Underwriters are committed to purchase all of such shares if any are purchased. Under certain circumstances, the commitments of non-defaulting Underwriters may be increased as set forth in the Purchase Agreement.
NUMBER OF UNDERWRITER SHARES ------------------------------------------------------------------ -------- Merrill Lynch, Pierce, Fenner & Smith Incorporated......................................... Kidder, Peabody & Co. Incorporated................................ Lehman Brothers Inc............................................... -------- Total.............................................. 1,550,000 -------- --------
The Representatives have advised the Company and the Selling Shareholder that the Underwriters propose to offer the shares of Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may re-allow, a discount not in excess of $ per share on sales to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Selling Shareholder has granted to the Underwriters an option, exercisable by the Representatives to purchase up to 232,500 additional shares of Common Stock at the initial public offering price, less the underwriting discount. Such option, which expires 30 days after the date of this Prospectus, may be exercised solely to cover over-allotments. To the extent that the Representatives exercise such option, each of the Underwriters will be obligated, subject to certain conditions, to purchase approximately the same percentage of the option shares that the number of shares to be purchased initially by that Underwriter bears to the total number of shares to be purchased initially by the Underwriters. The Company and the Selling Shareholder have agreed to indemnify the Underwriters against certain liabilities, including, liabilities under the Securities Act or to contribute to payments the Underwriters may be required to make in respect thereof. The Company, certain of its directors and executive officers, and the Selling Shareholder have agreed that they will not, without the prior written consent of Merrill Lynch & Co., directly or indirectly, offer, sell or otherwise dispose of any shares of preferred stock or Common Stock or securities convertible into preferred stock or Common Stock, except pursuant to (i) the exercise of options granted pursuant to existing employee plans, (ii) the exercise of outstanding Rights and Warrants, (iii) the conversion of the Series A Preferred 36 40 Stock, Series B Preferred Stock and Series D Preferred Stock, and (iv) the sale of Series D Preferred Stock in the Preferred Stock Offering, for a period of 90 days after the date of this Prospectus. Steven B. Wolitzer, a director of the Company, is also a managing director of Lehman Brothers Inc., one of the Representatives. Each of the Representatives has provided from time to time, and expects in the future to provide, investment banking services to the Company, for which it has received and will receive customary fees and commissions. LEGAL MATTERS The validity of the securities offered hereby will be passed upon for the Company by Bracewell & Patterson, L.L.P., Houston, Texas, and for the Underwriters by Baker & Botts, L.L.P., Houston, Texas. Certain legal matters will be passed on for the Selling Shareholder by Wilmer, Cutler, & Pickering, Washington, D.C. Edgar J. Marston III, Executive Vice President and General Counsel and a Director of the Company, is of counsel to the firm of Bracewell & Patterson, L.L.P. From time to time, Baker & Botts, L.L.P. performs certain services for the Company. Both Bracewell & Patterson, L.L.P. and Baker & Botts, L.L.P. will rely on the opinion of Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, Louisiana, as to matters of Louisiana law. EXPERTS The consolidated financial statements and consolidated financial statement schedules of the Company listed in the Index to Financial Statements and Index to Other Required Schedules appearing in the Company's Annual Report on Form 10-K for the year ending December 31, 1992, have been audited by Deloitte & Touche, independent public accountants, as set forth in their report included therein, and such report is incorporated herein by reference. See "Incorporation of Certain Documents by Reference." The consolidated financial statements and consolidated financial statement schedules referred to above have been incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. With respect to the unaudited interim financial information appearing in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993, June 30, 1993 and September 30, 1993, as set forth herein or incorporated by reference in this Prospectus, Deloitte & Touche, independent public accountants, have reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate reports included in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993, June 30, 1993 and September 30, 1993, and set forth herein or incorporated by reference, state that they did not audit and they do not express an opinion on that interim financial information. Accordingly, the degree of reliance on their reports on such information should be restricted in light of the limited nature of the review procedures applied. Deloitte & Touche are not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their reports on the unaudited interim financial information because those reports are not "reports" or a "part" of the registration statement prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Securities Act of 1933. 37 41 INDEX TO FINANCIAL STATEMENTS, AS PRESENTED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1993 AND REPRODUCED HEREIN FOR CONVENIENCE OF REFERENCE
PAGE NO. ---- Independent Accountants' Review Report............................... F-2 Consolidated Balance Sheet September 30, 1993 and December 31, 1992........................... F-3 Statement of Consolidated Earnings Three months and nine months ended September 30, 1993 and 1992..... F-4 Statement of Consolidated Cash Flows Nine months ended September 30, 1993 and 1992...................... F-5 Statement of Consolidated Revenues and Operating Earnings by Business Segment Three months and nine months ended September 30, 1993 and 1992..... F-6 Statement of Shareholders' Equity Nine months ended September 30, 1993............................... F-6 Notes to Consolidated Financial Statements........................... F-7
F-1 42 INDEPENDENT ACCOUNTANTS' REVIEW REPORT To the Shareholders and Board of Directors of Southdown, Inc. Houston, Texas We have reviewed the accompanying consolidated balance sheet of Southdown, Inc. and subsidiary companies as of September 30, 1993, and the related statements of consolidated earnings for the three and nine month periods ended September 30, 1993 and 1992, the consolidated statement of cash flows for the nine month periods ended September 30, 1993 and 1992 and the statement of shareholders' equity for the nine months ended September 30, 1993. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of the interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Southdown, Inc. and subsidiary companies as of December 31, 1992 and the related consolidated statements of earnings, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 28, 1993 (February 16, 1993 as to paragraph 5 of Note 2 of Notes to Consolidated Financial Statements), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1992 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. As discussed in Note 3 of Notes to the Consolidated Financial Statements, the Company changed its methods of accounting for income taxes and postretirement benefits other than pensions effective January 1, 1993 to conform with Statements of Financial Accounting Standards No. 109 and No. 106. DELOITTE & TOUCHE Houston, Texas November 1, 1993 F-2 43 SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 1993 1992 ------------- ------------ (IN MILLIONS) ASSETS Current assets: Cash and cash equivalents..................................... $ 11.9 $ 12.5 Accounts and notes receivable, less allowance for doubtful accounts of $6.8 and $6.2.................................. 88.8 85.2 Inventories (Note 2).......................................... 51.5 58.6 Prepaid expenses and other.................................... 9.2 14.6 ------ ------ Total current assets.................................. 161.4 170.9 Property, plant and equipment, less accumulated depreciation, depletion and amortization of $267.2 and $241.1............... 582.3 592.9 Goodwill........................................................ 72.9 74.6 Other assets: Long-term receivables......................................... 28.8 23.1 Other......................................................... 44.8 49.1 ------ ------ $890.2 $910.6 ------ ------ ------ ------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt.......................... $ 20.4 $ 8.3 Accounts payable and accrued liabilities...................... 98.3 89.7 ------ ------ Total current liabilities............................. 118.7 98.0 Long-term debt.................................................. 270.2 306.5 Deferred income taxes........................................... 101.3 130.7 Minority interest in consolidated joint venture................. 30.1 31.0 Long-term portion of postretirement benefit obligations......... 84.5 5.3 Other liabilities and deferred credits.......................... 21.6 22.7 ------ ------ 626.4 594.2 ------ ------ Shareholders' equity: Preferred stock redeemable at issuer's option (Note 6)........ 67.9 67.9 Common stock, $1.25 par value................................. 21.2 21.2 Capital in excess of par value................................ 126.6 126.6 Reinvested earnings........................................... 48.1 100.7 ------ ------ 263.8 316.4 ------ ------ $890.2 $910.6 ------ ------ ------ ------
F-3 44 SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES STATEMENT OF CONSOLIDATED EARNINGS (UNAUDITED)
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------- ----------------- 1993 1992 1993 1992 ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues: Trade.......................................................... $155.6 $138.6 $405.1 $382.0 Interest income................................................ 0.5 0.6 1.5 1.3 ------ ------ ------ ------ 156.1 139.2 406.6 383.3 ------ ------ ------ ------ Costs and expenses: Operating...................................................... 114.4 104.6 292.5 292.4 Depreciation, depletion and amortization....................... 9.8 12.1 31.3 36.5 Selling and marketing.......................................... 4.8 4.5 13.9 13.6 General and administrative..................................... 9.9 10.9 33.1 34.5 Other (income) expense, net.................................... 4.4 (3.5) 4.7 (4.8) ------ ------ ------ ------ 143.3 128.6 375.5 372.2 Minority interest in earnings of consolidated joint venture...... 1.4 1.1 2.2 1.7 ------ ------ ------ ------ 144.7 129.7 377.7 373.9 ------ ------ ------ ------ Operating earnings............................................... 11.4 9.5 28.9 9.4 Interest expense................................................. (9.5) (10.8) (30.3) (34.3) ------ ------ ------ ------ Earnings (loss) from continuing operations before income taxes and cumulative effect of a change in accounting principle...... 1.9 (1.3) (1.4) (24.9) Federal and state income tax (expense) benefit................... (0.4) 0.8 1.1 10.0 ------ ------ ------ ------ Earnings (loss) from continuing operations before cumulative effect of a change in accounting principle..................... 1.5 (0.5) (0.3) (14.9) Gain on discontinued operations, net of income taxes (Note 7).... -- 0.8 -- 0.8 Cumulative effect of a change in accounting principle (Note 3)... -- -- (48.5) -- ------ ------ ------ ------ Net earnings (loss).............................................. $ 1.5 $ 0.3 $(48.8) $(14.1) ------ ------ ------ ------ ------ ------ ------ ------ Dividends on preferred stock (Note 6)............................ $ (1.2) $ (1.2) $ (3.7) $ (3.7) ------ ------ ------ ------ ------ ------ ------ ------ Earnings (loss) available for common stock....................... $ 0.3 $ (0.9) $(52.5) $(17.8) ------ ------ ------ ------ ------ ------ ------ ------ Earnings (loss) per common share (Note 6 and Exhibit 11): Primary -- Earnings (loss) from continuing operations before cumulative effect of a change in accounting principle................ $ 0.01 $(0.10) $(0.24) $(1.10) Gain on discontinued operations, net of income taxes (Note 7)........................................................ -- 0.05 -- 0.05 Cumulative effect of a change in accounting principle (Note 3)........................................................ -- -- (2.86) -- ------ ------ ------ ------ $ 0.01 $(0.05) $(3.10) $(1.05) ------ ------ ------ ------ ------ ------ ------ ------ Fully diluted -- Earnings (loss) from continuing operations before cumulative effect of a change in accounting principle................ $ 0.01 $(0.10) $(0.24) $(1.10) Gain on discontinued operations, net of income taxes (Note 7)........................................................ -- 0.05 -- 0.05 Cumulative effect of a change in accounting principle (Note 3)........................................................ -- -- (2.86) -- ------ ------ ------ ------ $ 0.01 $(0.05) $(3.10) $(1.05) ------ ------ ------ ------ ------ ------ ------ ------ Average shares outstanding: Primary........................................................ 17.2 16.9 17.0 16.9 ------ ------ ------ ------ ------ ------ ------ ------ Fully diluted.................................................. 21.2 20.3 21.2 20.3 ------ ------ ------ ------ ------ ------ ------ ------
F-4 45 SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1993 1992 ------ ------ (IN MILLIONS) Operating activities: Net loss................................................................ $(48.8) $(14.1) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Cumulative effect of a change in accounting principle................ 48.5 -- Depreciation, depletion and amortization............................. 31.3 36.5 Deferred income tax provision........................................ (2.5) 0.8 Amortization of debt issuance costs.................................. 2.1 2.5 Changes in operating assets and liabilities.......................... 5.6 (3.0) Other adjustments.................................................... 2.2 (1.4) ------ ------ Net cash provided by (used in) operating activities....................... 38.4 21.3 ------ ------ Investing activities: Additions to property, plant and equipment.............................. (18.5) (11.9) Proceeds from asset sales............................................... 6.3 5.4 Acquisition of hazardous waste processor, net of cash acquired.......... -- (4.9) Other................................................................... 2.4 1.3 ------ ------ Net cash used in investing activities..................................... (9.8) (10.1) ------ ------ Financing activities: Additions to long-term debt............................................. -- 6.2 Reductions in long-term debt............................................ (24.1) (9.5) Dividends............................................................... (2.8) (2.8) Changes in minority interest............................................ (2.3) (1.0) Debt issuance costs..................................................... -- (0.9) ------ ------ Net cash provided by (used in) financing activities....................... (29.2) (8.0) ------ ------ Net (decrease) increase in cash and cash equivalents...................... (0.6) 3.2 Cash and cash equivalents at beginning of period.......................... 12.5 14.6 ------ ------ Cash and cash equivalents at end of period................................ $ 11.9 $ 17.8 ------ ------ ------ ------
Cash payments for income taxes totaled $1.9 million in 1993 and $200,000 in 1992. The Company received a $15.7 and an $18.5 million Federal income tax refund in 1993 and 1992, respectively, from the carryback to prior years of the 1992 and 1991 tax losses. Interest paid, net of amounts capitalized, was $21.8 million and $24.0 million in 1993 and 1992, respectively. The $48.5 million noncash operating charge for the cumulative effect of a change in accounting principle also resulted in a noncash charge to deferred income taxes of $25.9 million and a noncash credit to postretirement benefit obligations of $74.4 million. Noncash investing activities in 1993 included the sale of a hazardous waste processing facility for preferred stock which the Company valued at $4.8 million (see Note 5 of Notes to Consolidated Financial Statements). Noncash investing activities in 1992 included a $1.9 million note receivable as partial consideration for all of the common stock of a hazardous waste processor sold effective June 30, 1992 and the assumption of $1.1 million of noncash liabilities in the January 1992 acquisition of a hazardous waste processor. F-5 46 SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES STATEMENT OF CONSOLIDATED REVENUES AND OPERATING EARNINGS BY BUSINESS SEGMENT (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 1993 1992 1993 1992 ------ ------ ------ ------ (IN MILLIONS) Contributions to revenues: Cement............................................. $109.6 $ 96.7 $277.6 $256.5 Concrete products.................................. 49.0 40.6 129.6 119.9 Environmental services............................. 8.3 10.4 27.5 32.4 Corporate and other................................ 0.1 0.3 0.4 0.6 Intersegment sales................................. (10.9) (8.8) (28.5) (26.1) ------ ------ ------ ------ $156.1 $139.2 $406.6 $383.3 ------ ------ ------ ------ ------ ------ ------ ------ Contributions to operating earnings (loss) before interest expense and income taxes: Cement............................................. $ 21.8 $ 20.3 $ 61.1 $ 49.2 Concrete products.................................. 0.5 (2.4) (1.1) (8.0) Environmental services............................. (1.0) (3.1) (1.2) (8.0) Corporate General and administrative...................... (6.5) (7.3) (23.7) (23.7) Depreciation, depletion and amortization........ (1.1) (1.1) (3.3) (3.3) Miscellaneous income (expense).................. (2.3) 3.1 (2.9) 3.2 ------ ------ ------ ------ $11.4 $ 9.5 $ 28.9 $ 9.4 ------ ------ ------ ------ ------ ------ ------ ------
SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
CAPITAL IN EXCESS PREFERRED STOCK COMMON STOCK OF ---------------- ---------------- PAR REINVESTED SHARES AMOUNT SHARES AMOUNT VALUE EARNINGS ------ ------ ------ ------ ------ ---------- (IN MILLIONS) Balance at December 31, 1992.......... 3.0 $67.9 16.9 $21.2 $126.6 $100.7 Net loss.............................. -- -- -- -- -- (48.8) Dividends on preferred stock Note 6)............................. -- -- -- -- -- (3.7) Other................................. -- -- -- -- -- (0.1) ---- ----- ---- ----- ------ ------ Balance at September 30, 1993......... 3.0 $67.9 16.9 $21.2 $126.6 $ 48.1 ---- ----- ---- ----- ------ ------ ---- ----- ---- ----- ------ ------
F-6 47 SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS: The Consolidated Balance Sheet of Southdown, Inc. and subsidiary companies (the Company) at September 30, 1993 and the Statements of Consolidated Earnings, Consolidated Cash Flows, Consolidated Revenues and Operating Earnings by Business Segment and Shareholders' Equity for the periods indicated herein have been prepared by the Company without audit. The Consolidated Balance Sheet at December 31, 1992 is derived from the December 31, 1992 audited financial statements, but does not include all disclosures required by generally accepted accounting principles. It is assumed that these financial statements will be read in conjunction with the audited financial statements and notes thereto included in the Company's 1992 Annual Report on Form 10-K. Certain data for prior years have been reclassified for purposes of comparison. In the opinion of management, the statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis and all such adjustments are of a normal recurring nature. The interim statements for the period ended September 30, 1993 are not necessarily indicative of results to be expected for the full year. NOTE 2 -- INVENTORIES:
SEPTEMBER DECEMBER 30, 31, 1993 1992 ----- ----- (UNAUDITED, IN MILLIONS) Finished goods................................... $10.3 $14.7 Work in progress................................. 9.6 9.4 Raw materials.................................... 5.3 7.3 Supplies......................................... 26.3 27.2 ----- ----- $51.5 $58.6 ----- ----- ----- -----
Inventories stated on the LIFO method were $14.2 million at September 30, 1993 and $22.8 million at December 31, 1992 compared with current costs of $23.6 million and $32.2 million, respectively. NOTE 3 -- CHANGES IN ACCOUNTING PRINCIPLES: Postretirement Benefits Postretirement benefits other than pensions (postretirement benefits) currently provided by the Company to its eligible retirees consist primarily of health care and life insurance benefits. In certain instances, retirees under the age of sixty-five and their dependents are offered health care benefits which are essentially the same as benefits available to active employees. However, benefit payments for covered retirees over the age of sixty-five are reduced to the extent that such benefits are paid by Medicare. Most of the Company's health care benefits are self-insured and administered on cost plus fee arrangements with a major insurance company or provided through health maintenance organizations. Generally life insurance benefits for retired employees are reduced over a number of years from the date of retirement to a specified minimum level. Effective January 1, 1993 the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106) and recorded a $48.5 million after-tax, non-cash charge which represented the initial liability for postretirement benefits attributable to employee services provided prior to 1993. SFAS No. 106 requires the Company to accrue the estimated cost of retiree benefit payments as the employee provides services to the Company. The Company previously expensed the cost of these benefits as claims were incurred and continues to pay for postretirement benefit costs as incurred. F-7 48 SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) General and administrative expenses for the nine months ended September 30, 1993 include a charge of approximately $1.8 million in each of the first two quarters of the year ($3.5 million in the aggregate) representing the estimated cost of postretirement health care benefits in excess of claims incurred. The Company amended its plan for postretirement health care benefits in the latter part of the second quarter. Effective with the third quarter of 1993, the Company's accrual for estimated future postretirement benefit costs was reduced under the revised plan and the Company will also amortize an estimated $47 million pretax reduction in its recorded postretirement benefits obligation over the 16 years remaining average service life of its active employees as required by SFAS No. 106. These changes have effectively eliminated the requirement for the Company to continue to record a quarterly charge of approximately $1.8 million as incurred in each of the first and second quarters of 1993. Income Taxes The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109) effective January 1, 1993. SFAS No. 109 supersedes SFAS No. 96, "Accounting for Income Taxes" which was adopted by the Company in 1988. There was no cumulative effect on the Company's financial statements resulting from the adoption of SFAS No. 109. In early August 1993, the President signed into law a bill that includes, among other provisions, a one percent increase in the maximum Federal income tax rate for corporations retroactive to January 1, 1993. Under the requirements of SFAS No. 109 the Company recorded a charge of approximately $2.2 million in the third quarter of 1993 to recognize the increase in the deferred tax liability as a result of the change in the corporate income tax rate. NOTE 4 -- CKD REMEDIATION IN OHIO: As discussed in more detail under Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the caption "Liquidity and Capital Resources -- Known Events, Trends and Uncertainties -- Environmental Matters", three of a number of inactive cement kiln dust (CKD) disposal sites near the Company's Fairborn, Ohio cement plant have been under investigation by the Company, as well as in some cases by Federal and state environmental agencies, to determine if remedial action is required at any or all of these sites. The Company as well as state environmental agencies have conducted investigations to determine appropriate remedial action required at an inactive CKD disposal site in Ohio. Based on various remediation investigations, hydrogeological analyses and feasibility studies performed in prior years, the Company had recorded charges totaling $6.7 million through the end of 1992 as the estimated remediation cost for the site, increasing the initial estimates as additional information became known. In October 1993, the Company received a consulting report proposing additional refinements of earlier estimates which increased the total estimated cost to remediate this site from $6.7 million to $9.7 million. Accordingly, the Company recorded an additional $3 million charge in the third quarter of 1993 to recognize the change in the estimate. On a voluntary basis, without administrative or legal action being taken, the Company is also investigating two other inactive Ohio CKD disposal sites. The two additional sites in question were part of a cement manufacturing facility that was owned and operated by a now dissolved cement company from 1924 to 1945 and by a division of USX Corporation (USX) from 1945 to 1975. On September 24, 1993, the Company filed a complaint (the Complaint) against USX, alleging that USX is a potentially responsible party under CERCLA and under applicable Ohio law, and therefore jointly and severally liable for costs associated with cleanup of the larger of the two sites (the Site). The Company intends to vigorously pursue its right to contribution from USX for cleanup costs under CERCLA and Ohio law. Based upon the advice of counsel, the Company believes that USX is a responsible party because it owned and operated the Site at the time of disposal of the hazardous substance, arranged for the disposal of the hazardous substance and transported the hazardous substance to the Site. Therefore, F-8 49 SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) counsel to the Company has advised that it appears there is a reasonable basis for the apportionment of cleanup costs relating to the Site between the Company and USX, with USX shouldering substantially all of the cleanup costs because, based on the facts known at this time, the Company itself disposed of no cement kiln dust at the Site and is potentially liable under CERCLA primarily because of its current ownership of the Site. These determinations, however, are preliminary, and are based only upon facts available to the Company prior to any discovery and prior to the filing of an answer to the Complaint by USX. The Company expects to have determined a reasonable estimate, or at least identified a range of Site remediation costs, by year-end 1993. Under CERCLA and applicable Ohio law a court generally applies equitable principles in determining the amount of contribution which a potentially responsible party must provide with respect to a cleanup of hazardous substances and such determination is within the sole discretion of the court. In addition, no regulatory agency has directly asserted a claim against the Company as the owner of the Site requiring it to remediate the property, and no cleanup of the Site has yet been initiated. NOTE 5 -- SALE OF HAZARDOUS WASTE PROCESSING FACILITIES: In January 1993, the Company's Board of Directors approved a strategic realignment of the Company's environmental services operations and authorized the disposition of four of its six hazardous waste processing facilities. On February 16, 1993 the Company sold its Cincinnati, Ohio hazardous waste processing facility, which was classified at December 31, 1992 as a current asset held for sale. The facility was sold to Clean Harbors, Inc. for $1.4 million in cash and the balance in the form of a new issue of Clean Harbors, Inc. convertible preferred stock which the Company sold during the second quarter of 1993 for $4.9 million. The assets associated with two of the remaining hazardous waste processing facilities were classified on the Company's balance sheet as of December 31, 1992 and September 30, 1993 as current assets held for sale. Operating losses expected to occur prior to disposition of these two hazardous waste processing facilities were previously accrued in conjunction with a fourth quarter 1992 write-down of certain environmental services assets and, accordingly, are not reflected in the results of operations for the three and nine month periods ended September 30, 1993. Such losses were $336,000 and $1.2 million for the three and nine month periods, respectively. The Company has a non-binding Letter of Intent to sell its hazardous waste processing facility in Avalon, Texas which was classified as a current asset held for sale at December 31, 1992 and September 30, 1993. The sale is expected to close before the end of 1993. No material gain or loss is expected to be recognized in conjunction with the sale. NOTE 6 -- CAPITAL STOCK: Common Stock The Company's Board of Directors suspended the dividend on the Company's common stock on April 25, 1991. Preferred Stock Redeemable at Issuer's Option Series A Preferred Stock -- The Company had 1,999,000 shares of Preferred Stock, $0.70 Cumulative Convertible Series A (Series A Preferred Stock) issued and outstanding at September 30, 1993, December 31, 1992 and September 30, 1992. Each share of Series A Preferred Stock is initially convertible into one-half share of the Company's common stock, subject to adjustment to protect against dilution, and is redeemable at the Company's option at 140% of the $10.00 stated value thereof declining to par after April 30, 1997, plus accrued and unpaid dividends. Dividends paid on the Series A Preferred Stock were approximately $350,000 and $1,050,000, respectively, during each of the three and nine month periods ended September 30, 1993 and 1992. F-9 50 SOUTHDOWN, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Series B Preferred Stock -- The Company had 959,000 shares of Preferred Stock, $3.75 Convertible Exchangeable Series B (Series B Preferred Stock) issued and outstanding at September 30, 1993, December 31, 1992 and September 30, 1992. Each share of Series B Preferred Stock is convertible into 2.5 shares of the Company's common stock subject to adjustment to protect against dilution, and is currently redeemable at the Company's option at 100% of the $50.00 stated value thereof, plus accrued and unpaid dividends to the date of redemption. Dividends accrued on the Series B Preferred Stock were approximately $900,000 and $2.7 million, respectively, during each of the three and nine months ended September 30, 1993 and 1992. NOTE 7 -- DISCONTINUED OPERATIONS In late August 1993 the Company was notified by Energy Development Corporation (EDC), the 1989 purchaser of the common stock of the Company's then oil and gas subsidiary, that EDC was exercising its indemnification rights under the 1989 stock purchase agreement with respect to a Department of Energy (DOE) Remedial Order regarding the audit of crude oil produced and sold during the period September 1973 through January 1981 from an offshore, federal waters field known as Ship Shoal Block 113 Unit/South Pelto 20 of which the Company's oil and gas subsidiary was part owner. The DOE has alleged certain price overcharges and is seeking to recover a total of $68 million dollars in principal and interest. Murphy Oil Corporation, as operator of the property, has estimated the Company's share of this total to be approximately $4 million. Murphy Oil Corporation has been coordinating the defense against the DOE claim and is currently in the process of appealing the DOE's Remedial Order to the Federal Energy Regulatory Commission (FERC) and is concurrently attempting to negotiate a settlement with the DOE. Oral arguments before the FERC were scheduled for late October 1993 with a ruling to follow shortly thereafter. The Company is unable to determine what liability it may have, if any, with respect to this matter, but should the Company be required to forfeit all or any portion of these amounts, such expenditure would result in a charge to earnings from discontinued operations. NOTE 8 -- REVIEW BY INDEPENDENT ACCOUNTANTS: The unaudited financial information presented in this report has been reviewed by the Company's independent public accountants, to the extent indicated in their report. The review was limited in scope and did not constitute an audit of the financial information in accordance with generally accepted auditing standards such as is performed in the year-end audit of the consolidated financial statements. The report of Deloitte & Touche on its limited review of the financial information as of September 30, 1993 and for the three and nine month periods ended September 30, 1993 and 1992 is set forth on page F-2.* - --------------- * Italicized language indicates variance from Form 10-Q. F-10 51 PHOTOGRAPH OF COAL BEING FIRED INTO CEMENT KILN PHOTOGRAPH OF LIMESTONE QUARRY 52 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN, OR INCORPORATED BY REFERENCE IN, THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE --- Available Information.................. 2 Incorporation of Certain Documents by Reference............................ 2 Prospectus Summary..................... 3 Investment Considerations.............. 5 The Company............................ 7 Recent Developments.................... 9 Use of Proceeds........................ 11 Price Range of the Common Stock and Dividends............................ 11 Capitalization......................... 12 Selected Historical Financial and Operating Data....................... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 15 Description of Capital Stock........... 28 Selling Shareholder.................... 35 Underwriting........................... 36 Legal Matters.......................... 37 Experts................................ 37 Index to Financial Statements.......... F-1
1,550,000 SHARES SOUTHDOWN, INC. COMMON STOCK --------------------------- PROSPECTUS --------------------------- MERRILL LYNCH & CO. KIDDER, PEABODY & CO. INCORPORATED LEHMAN BROTHERS JANUARY , 1994 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 53 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated fees and expenses incurred in connection with the offering of Common Stock are as follows:
SELLING COMPANY SHAREHOLDER -------- ------------ Securities and Exchange Commission registration fee... $ 0 $ 13,147 National Association of Securities Dealers, Inc. filing fee.......................................... $ 0 $ 4,313 Printing and engraving expenses....................... $ 0 $235,000 Legal fees and expenses of counsel.................... $120,000 $ 20,000 Accounting fees and expenses.......................... $ 24,500 $ 0 Blue sky filing fees and expenses (including legal fees and expenses).................................. $ 0 $ 6,800 Miscellaneous......................................... $ 500 $ 740 -------- ------------ Total....................................... $145,000 $280,000 -------- ------------ -------- ------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Louisiana Business Corporation Law The Louisiana Business Corporation Law ("LBCL") generally gives a corporation the power to indemnify any of its directors or officers against certain expenses, judgments, fines and amounts paid in settlement in connection with certain actions, suits or proceedings, provided generally that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In the case of any action by, or in the right of, the corporation, the corporation may indemnify such person against expenses, including attorneys' fees and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expense of litigating the action to conclusion, actually and reasonably incurred in connection with the defense or settlement of such action, and no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for willful or intentional misconduct in the performance of his or her duty to the corporation, unless, and only to the extent that the court shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, he or she is fairly and reasonably entitled to indemnification for such expenses which the court shall deem proper. Indemnification provided pursuant to the foregoing provisions is not, under the LBCL, deemed exclusive of any other rights to which the person indemnified is entitled under any bylaw, agreement, authorization of shareholders or directors; however, no such other indemnification measure shall permit indemnification of any person for the results of such person's willful or intentional misconduct. In addition, the LBCL contains provisions to the general effect that any director shall in the performance of his or her duties be fully protected in relying in good faith upon the records of the corporation and upon such information, opinions, reports or statements presented to the corporation, the board of directors, or any committee thereof by any of the corporation's officers or employees or by any committee of the board of directors, or by any counsel, appraiser, engineer (including a petroleum reservoir engineer), or independent or certified public accountant selected by the board of directors or any committee thereof with reasonable care, or by any other person as to matters the director reasonably believes are within such other person's professional or expert competence and which person is selected by the board of directors or any committee thereof with reasonable care. A director shall not II-1 54 be liable for the commission of a prohibited act if his or her dissent was either noted in the minutes of the meetings or filed promptly thereafter in the registered office of the Registrant. Articles of Incorporation As permitted under Section 24(C)(4) of the LBCL, Article XIII of the Restated Articles of Incorporation of the Registrant eliminates the personal liability of any director or officer to the Registrant or its shareholders for monetary damages for breach of fiduciary duty in such capacity, except for (i) any breach of the duty of loyalty to the Registrant or its shareholders; (ii) acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law; (iii) unlawful payment of dividends or unlawful stock purchases or redemptions; or (iv) any transaction from which the director or officer derived an improper personal benefit. Bylaws of the Company Article VI, Section 6 of the Registrant's Bylaws contemplate that the Registrant shall indemnify its directors and officers to the maximum extent permitted by Louisiana law. Directors' and Officers' Insurance In addition, the Registrant has purchased a liability insurance policy under which its directors and officers are indemnified against certain losses arising from certain claims that may be made against them by reason of their serving in such capacity. Underwriting Agreement; Registration Rights and Lock Up Agreement Section 6 of the Purchase Agreement, a copy of the form of which is filed as Exhibit 1.1 to this Registration Statement, and the Registration Rights and Lock Up Agreement, a copy of which is filed as Exhibit 4.4 to this Registration Statement, provide for the indemnification of the directors and officers of the Registrant in certain circumstances. ITEM 16. EXHIBITS The following documents are filed as exhibits to this Registration Statement:
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 1.1* Form of Purchase Agreement relating to the Common Stock Offering by and among the Representatives on behalf of the Underwriters, the Company and the Selling Shareholder. 4.1 Restated Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibits 4.1 to the Registration Statement on Form S-3; Registration No. 33-51133). 4.2* Form of Articles of Amendment to the Restated Articles of Incorporation of the Company designating the Series D Preferred Stock. 4.3 Form of Certificate representing shares of Common Stock (incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-3; Registration Statement No. 33-24021). 4.4 Registration Rights and Lock Up Agreement dated November 22, 1993, among the Company, RCBA and the Trust (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K dated December 21, 1993). 5* Opinions of Bracewell & Patterson, L.L.P. and Stone, Pigman, Walther, Wittmann & Hutchinson as to the legality of the Common Stock covered by this Registration Statement.
II-2 55
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 15* Letter in lieu of consent from Deloitte & Touche regarding interim financial information. 23.1* Consent of Deloitte & Touche, independent auditors for the Registrant (See page II-6). 23.2* Consents of Bracewell & Patterson, L.L.P. (included in their opinion to be filed as Exhibit 5 to this Registration Statement) and Stone, Pigman, Walther, Wittmann & Hutchinson (included in their opinion filed as Exhibit 5 to this Registration Statement). 24 Powers of Attorney.
- --------------- * Filed herewith. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes: (a) that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liability arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (d) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 56 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Southdown, Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and had duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston and State of Texas on January 20, 1994. SOUTHDOWN, INC. By: CLARENCE C. COMER ------------------------------------ Clarence C. Comer President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment has been signed by the following persons in the indicated capacities on January 20, 1994.
SIGNATURE POSITIONS --------- --------- G. WALTER LOEWENBAUM II* Chairman of the Board - ------------------------------------------ of Directors G. Walter Loewenbaum II CLARENCE C. COMER President, Chief Executive - ------------------------------------------ Officer and Director Clarence C. Comer JAMES L. PERSKY Senior Vice President - ------------------------------------------ (Principal Financial Officer) James L. Persky ALLAN B. KORSAKOV Corporate Controller - ------------------------------------------ (Principal Accounting Officer) Allan B. Korsakov FENTRESS BRACEWELL* Director - ------------------------------------------ Fentress Bracewell W. J. CONWAY* Director - ------------------------------------------ W. J. Conway KILLIAN L. HUGER, JR.* Director - ------------------------------------------ Killian L. Huger, Jr. EDGAR J. MARSTON III Director - ------------------------------------------ Edgar J. Marston III MICHAEL A. NICOLAIS* Director - ------------------------------------------ Michael A. Nicolais FRANK J. RYAN* Director - ------------------------------------------ Frank J. Ryan ROBERT J. SLATER* Director - ------------------------------------------ Robert J. Slater RONALD N. TUTOR* Director - ------------------------------------------ Ronald N. Tutor
II-4 57
SIGNATURE POSITIONS --------- --------- V. H. VAN HORN III* Director - ------------------------------------------ V. H. Van Horn III STEVEN B. WOLITZER* Director - ------------------------------------------ Steven B. Wolitzer *By: EDGAR J. MARSTON III Edgar J. Marston III Attorney-in-Fact
II-5 58 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Amendment No. 2 to Registration Statement No. 33-51131 of Southdown, Inc. of our report dated January 28, 1993 (February 16, 1993 as to paragraph 5 of Note 2 of Notes to Consolidated Financial Statements) appearing in the Annual Report on Form 10-K of Southdown, Inc. for the year ended December 31, 1992 and to the references to us appearing under the captions "Experts" and "Selected Historical Financial and Operating Data" in the Prospectus, which is part of this Registration Statement. DELOITTE & TOUCHE Houston, Texas January 19, 1994 II-6 59 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 1.1* Form of Purchase Agreement relating to the Common Stock Offering by and among the Representatives on behalf of the Underwriters, the Company and the Selling Shareholder. 4.1 Restated Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibits 4.1 to the Registration Statement on Form S-3; Registration No. 33-51133). 4.2* Form of Articles of Amendment to the Restated Articles of Incorporation of the Company designating the Series D Preferred Stock. 4.3 Form of Certificate representing shares of Common Stock (incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-3; Registration Statement No. 33-24021). 4.4 Registration Rights and Lock Up Agreement dated November 22, 1993, among the Company, RCBA and the Trust (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K dated December 21, 1993). 5* Opinions of Bracewell & Patterson, L.L.P. and Stone, Pigman, Walther, Wittmann & Hutchinson as to the legality of the Common Stock covered by this Registration Statement. 15* Letter in lieu of consent from Deloitte & Touche regarding interim financial information. 23.1* Consent of Deloitte & Touche, independent auditors for the Registrant (See page II-6). 23.2* Consents of Bracewell & Patterson, L.L.P. (included in their opinion to be filed as Exhibit 5 to this Registration Statement) and Stone, Pigman, Walther, Wittmann & Hutchinson (included in their opinion filed as Exhibit 5 to this Registration Statement). 24 Powers of Attorney.
- --------------- * Filed herewith. EX-1.1 2 FORM OF PURCHASE AGREEMENT 1 Exhibit 1.1 DRAFT 1/20/94 ________________________________________________________________________________ SOUTHDOWN, INC. 1,550,000 SHARES COMMON STOCK PURCHASE AGREEMENT MERRILL LYNCH & CO. KIDDER, PEABODY & CO. INCORPORATED LEHMAN BROTHERS INC. ________________________________________________________________________________ 2 1,550,000 SHARES SOUTHDOWN, INC. (A LOUISIANA CORPORATION) COMMON STOCK (PAR VALUE $1.25 PER SHARE) PURCHASE AGREEMENT January __, 1994 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated KIDDER, PEABODY & CO. INCORPORATED LEHMAN BROTHERS INC. as Representatives of the several Underwriters c/o MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters World Financial Center North Tower 250 Vesey Street New York, New York 10281 Dear Sirs: Southdown, Inc., a Louisiana corporation (the "Company"), and Carpenters Pension Trust for Southern California, a California pension fund, and Richard C. Blum and Associates, Inc., a California corporation (collectively, the "Selling Shareholder"), confirm their respective agreements with you and each of the other underwriters named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriters substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Lehman Brothers Inc. ("Lehman Brothers") and Kidder, Peabody & Co. Incorporated ("Kidder, Peabody") are acting as representatives (in such capacity, Merrill Lynch, Lehman Brothers and Kidder, Peabody shall hereinafter be collectively referred to as the "Representatives") with respect to the sale by the Selling Shareholder of 1,550,000 shares of Common Stock, par value $1.25 per share, of the Company ("Common Stock") and the purchase by the Underwriters, acting severally and not jointly, of the respective number of shares of Common Stock set forth in Schedule A hereto and with respect to the grant by the Selling Shareholder to the Underwriters of the option described in Section 2 hereof to purchase all or any part of up 3 to an additional 232,500 shares of Common Stock to cover over-allotments, in each case except as may otherwise be provided in the Pricing Agreement, as hereinafter defined. The 1,550,000 shares of Common Stock to be sold by the Selling Shareholder ("Initial Securities"), together with all or any part of the 232,500 shares of Common Stock subject to the option described in Section 2 hereof (the "Option Securities"), are collectively hereinafter called the "Securities." Prior to the purchase and public offering of the Securities by the several Underwriters, the Selling Shareholder and the Representatives, acting on behalf of the several Underwriters, shall enter into an agreement substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Selling Shareholder and the Representatives and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Securities will be governed by this Agreement, as supplemented by the Pricing Agreement. From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate, and all references to "this Agreement" shall be deemed to include, the Pricing Agreement. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 33-51131) and a related preliminary prospectus for the registration of the Securities and associated rights to purchase preferred stock (the "Rights") under the Securities Act of 1933, as amended (the "1933 Act"), and has filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof, and will file such additional amendments thereto and such amended prospectuses as may hereafter be required. Such registration statement (as amended, if applicable) and the prospectus constituting a part thereof at the time such registration statement becomes effective (including in each case all documents incorporated by reference therein and the information, if any, deemed to be part thereof pursuant to Rule 430A(b) of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations")), as from time to time amended or supplemented pursuant to the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), or otherwise, are hereinafter referred to as the "Registration Statement" and the "Prospectus," respectively, except that if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Securities and the associated Rights which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the terms "Prospectus" shall refer to each such revised prospectus from and after the time it is first provided to the Underwriters for such use. All references in this Agreement to financial statements and schedules and other information which is "contained," "included," "described" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in -2- 4 this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include the filing of any document under the 1934 Act which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. The Company and the Selling Shareholder understand that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after the Registration Statement becomes effective and the Pricing Agreement has been executed and delivered. SECTION 1. Representations and Warranties. (a) The Company represents and warrants to each of the Underwriters as of the date hereof and as of the date of the Pricing Agreement (such latter date being hereinafter referred to as the "Representation Date") as follows: (i) At the time the Registration Statement becomes effective and at the Representation Date, the Registration Statement will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities and the associated Rights which differ from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the Underwriters for such use) and at Closing Time and each Date of Delivery referred to in Section 2 hereof, will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by the Underwriters expressly for use in the Registration Statement or Prospectus. The Company meets all conditions required for the use of Form S-3 to effect the registration of the Securities and the associated Rights under the Securities Act. (ii) The accountants who audited the financial statements and supporting schedules included in the Registration Statement or incorporated by reference therein are independent public accountants with respect to the Company and its subsidiaries as required by the 1933 Act and the 1933 Act Regulations. -3- 5 (iii) The consolidated financial statements, including the notes thereto, and supporting schedules included in the Registration Statement or incorporated by reference therein present fairly the consolidated financial position of the Company and its subsidiaries as at the dates indicated and the consolidated results of their operations and cash flows for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved; and the supporting schedules included in the Registration Statement or incorporated by reference therein present fairly the information required to be stated therein. The selected financial data included in the Registration Statement present fairly the information shown therein and have been compiled on a basis consistent with that of the audited consolidated financial statements from which it was derived. (iv) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and (B) there have been no transactions entered into by the Company or any of its subsidiaries other than those in the ordinary course of business, which are material to the Company and its subsidiaries considered as one enterprise. (v) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Louisiana with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in all jurisdictions in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise. (vi) No corporation in which the Company has an interest constitutes a "significant subsidiary" of the Company as defined in the 1933 Act Regulations. (vii) Each partnership in which the Company has an interest that constitutes a "significant subsidiary" of the Company as defined in the 1933 Act Regulations is specified in Schedule B hereto (the subsidiaries so specified being hereinafter collectively referred to as the "Partnership Subsidiaries"). Each Partnership Subsidiary has been duly formed and is validly existing as a partnership in good standing under the laws of the jurisdiction of its formation and is duly qualified as a foreign partnership to transact business and is in good standing in all -4- 6 jurisdictions in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries considered as one enterprise; all the outstanding partnership interests in each Partnership Subsidiary have been duly authorized and validly issued; and 75% of the general partnership interests in Kosmos Cement Company are owned by the Company, directly or indirectly, free and clear of any pledge, lien, encumbrance, claim or equity (except as described in the Prospectus and except for liens granted to the lending banks under the Company's Second Amended and Restated Credit Facility dated as of November 19, 1993). (viii) The Company had, at the date indicated, the authorized, issued and outstanding capital stock as set forth in the Prospectus under "Capitalization"; the shares of issued and outstanding Common Stock, including the Securities to be sold by the Selling Shareholder hereunder, have been duly authorized and validly issued and are fully paid and nonassessable; the Rights associated with such shares of Common Stock have been duly and validly issued by the Company in accordance with the Rights Agreement dated as of March 4, 1991 (the "Rights Agreement") between the Company and Chemical Shareholder Services Group, Inc., successor to First City, Texas-Houston, N.A., as Rights Agent; and the Common Stock and associated Rights conform to the descriptions thereof contained in the Prospectus. (ix) This Agreement has been duly and validly authorized, executed and delivered by the Company. (x) Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which it is a party or by which it may be bound or to which any of its properties may be subject, except for such defaults that would not have a material adverse effect on the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise. The execution and delivery by the Company of this Agreement, the consummation by the Company of the transactions contemplated herein and the transactions contemplated in the Registration Statement relating to the sale of the Securities and compliance by the Company with the terms of this Agreement have been duly authorized by all necessary corporate action on the part of the Company and do not and will not result in any violation of the charter or by-laws of the Company or any of its subsidiaries, and do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries under (A) any indenture, mortgage, loan agreement, note, lease or -5- 7 other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it may be bound or to which any of its properties may be subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise) or (B) any existing applicable law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of its properties (except for such violations, defaults, breaches or liens that would not have a material adverse effect on the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise). (xi) No labor dispute exists or to the knowledge of the Company is imminent with the Company's employees or with employees of any of its subsidiaries that reasonably could be expected to materially and adversely affect the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise. (xii) Except as described in the Prospectus, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries that is required to be disclosed in the Registration Statement, or that might reasonably be expected to (A) result in any material adverse change in the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise, (B) materially and adversely affect the properties or assets thereof or (C) materially and adversely affect the consummation by the Company of its obligations pursuant to this Agreement; and there are no contracts or documents of the Company or any of its subsidiaries that are required to be filed as exhibits to the Registration Statement by the 1933 Act or the 1933 Act Regulations that have not been so filed. (xiii) The documents incorporated by reference into the Registration Statement (in whole or in part) or deemed to be incorporated therein, when they were or hereafter are filed with the Commission, complied with or will comply with the requirements of the 1934 Act, and the rules and regulations of the Commission under the 1934 Act (the "1934 Act Regulations"); such documents incorporated by reference into the Registration Statement or deemed to be incorporated therein, at the time such documents were filed with the Commission did not contain an untrue statement of material fact or omitted or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and no further documents hereafter incorporated by reference into the Registration Statement or deemed to be incorporated therein will contain an untrue statement of material fact or omit to state a material fact required to be stated therein in light of -6- 8 the circumstances in which they were made or necessary to make the statements therein not misleading. (xiv) No authorization, approval, consent or license of any domestic government, governmental instrumentality or court is necessary in connection with the offering or the sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, except such as may be required under the 1933 Act, the 1933 Act Regulations, the 1934 Act, the 1934 Act Regulations or state securities or blue sky laws. (xv) Except as described in the Prospectus, the Company and its subsidiaries possess such licenses, permits, consents, orders, certificates or authorizations issued by the appropriate federal, state, local or foreign regulatory agencies or bodies currently necessary to conduct their respective businesses as now operated by them, except where the lack thereof would not have a material adverse effect on the Company and its subsidiaries considered as one enterprise, and neither the Company nor its subsidiaries have received any notice of proceedings relating to the revocation or modification of any such licenses, permits, consents, orders, certificates or authorizations in which the Company reasonably expects decisions, rulings or findings that, individually or in the aggregate, would have a material and adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise. (xvi) The Company, has not taken, directly or indirectly, any action designed to cause or result in, or which has constituted, stabilization or manipulation of the price of any security of the Company in order to facilitate the sale or resale of the Securities and the associated Rights. (xvii) Except as described in the Registration Statement, no holder of securities of the Company has any rights to require the registration of such securities under the 1933 Act as a result of the filing of the Registration Statement or in connection with the offering of the Securities and the associated Rights. (xiii) Except as described in the Prospectus, there has been no storage, disposal, generation, manufacture, spill, discharge, refinement, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by the Company or any of its subsidiaries at, upon or from any of the property now or previously owned or leased or under contract for purchase by the Company or any of its subsidiaries in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except for any violation or remedial action which the Company reasonably believes would not be reasonably likely to result in, individually or in the aggregate -7- 9 with all such violations and remedial actions, a material and adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries considered as one enterprise; and the terms "hazardous wastes," "toxic wastes," "hazardous substances" and "medical wastes" shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection. (b) The Selling Shareholder represents and warrants to, and agrees with, each of the Underwriters as follows: (i) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated will not result in a breach by the Selling Shareholder of, or constitute a default by the Selling Shareholder under, any indenture, deed of trust, contract, or other agreement or instrument or any decree, judgment or order to which Selling Shareholder is a party or by which the Selling Shareholder may be bound. (ii) The Selling Shareholder is, and immediately prior to Closing, will be, the sole registered owner of the Securities; the Selling Shareholder has good and marketable title to the Securities, free and clear of any mortgage, pledge, lien, security interest, encumbrance, claim or equity, and has full power, right and authority to sell, transfer and deliver such Securities under this Agreement; upon completion of the Closing, each of the Underwriters will be the registered owner of the Securities purchased by it from the Selling Shareholder and, assuming the Underwriters purchased the Securities for value in good faith and without notice of any adverse claim, the Underwriters will have acquired all rights of the Selling Shareholder in the Securities free and clear of any pledge, lien, security interest, encumbrance, claim or equity. (iii) All authorizations, approvals and consents necessary for the execution and delivery by the Selling Shareholder of this Agreement and the sale and delivery of the Securities have been obtained and are in full force and effect; and the Selling Shareholder has the full right, power and authority to enter into this Agreement and the Pricing Agreement and to sell, transfer and deliver the Securities. (iv) The Selling Shareholder has not taken, and will not take, directly or indirectly, any action that is designed to cause or result in, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. (v) The Selling Shareholder, having conducted no inquiry in connection with the preparation of the Registration Statement or the Prospectus, has read the Registration Statement and the Prospectus contained therein and has no -8- 10 knowledge of any fact, condition or information not disclosed in the Prospectus that has materially adversely affected or might be expected to materially adversely affect the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise; and the Selling Shareholder is not prompted to sell the Securities by any information concerning the Company or any subsidiary of the Company that is not set forth in the Registration Statement or the Prospectus. (vi) The Selling Shareholder agrees with each of the Underwriters that the Selling Shareholder shall not offer for sale, sell, grant an option for the sale of, or otherwise dispose of, directly or indirectly, without the prior written consent of Merrill Lynch, any shares of Common Stock or any securities convertible into or exchangeable into or exercisable for Common Stock owned by the Selling Shareholder or with respect to which the Selling Shareholder has the power of disposition, for a period of 90 days from the date of the Pricing Agreement. (c) Any certificate signed by any officer of the Company or any of its subsidiaries, as the case may be, and delivered to the Representatives or to counsel for the Underwriters in connection with the closing of the sale of the Securities to the Underwriters hereunder shall be deemed a representation and warranty by the Company or any such subsidiary, as the case may be, to each Underwriter as to the matters covered thereby; and any certificate signed by or on behalf of the Selling Shareholder and delivered to the Representatives or to counsel for the Underwriters in connection with the closing of the sale of the Securities to the Underwriters hereunder shall be deemed a representation and warranty by the Selling Shareholder to each Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to Underwriters; Closing. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Selling Shareholder agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Selling Shareholder, at the price per share set forth in the Pricing Agreement, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter (except as otherwise provided in the Pricing Agreement) plus any additional number of Initial Securities that such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, subject, in each case, to such adjustments as the Representatives in their discretion shall make to eliminate any sales or purchases of fractional securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Selling Shareholder hereby grants an option to the Underwriters, severally and not jointly, to purchase from it up to an additional 187,500 shares of Common Stock, at the purchase price per share set forth in the Pricing Agreement. The option hereby granted will expire on the 30th day after -9- 11 the date the Registration Statement becomes effective or, if the Company has elected to rely on Rule 430A of the 1933 Act Regulations, the 30th day after the Representation Date, and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities, upon notice by the Representatives to the Selling Shareholder and the Company setting forth the number of Option Securities as to which the Underwriters are then exercising the option and the time, date, and place of payment and delivery for such Option Securities. Any such time and date of delivery for the Option Securities (a "Date of Delivery") shall be determined by the Representatives but shall be not later than seven full business days after the exercise of said option, nor in any event prior to Closing Time (as hereinafter defined) unless otherwise agreed upon by the Representatives, the Selling Shareholder and the Company. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase from the Selling Shareholder that proportion of the number of Option Securities that the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter (plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof) bears to the total number of Initial Securities (except as otherwise provided in the Pricing Agreement), subject, in each case, to such adjustments as the Representatives in their discretion shall make to eliminate any sales or purchases of fractional securities. (i) If the Company has elected not to rely upon Rule 430A of the 1933 Act Regulations, the initial public offering price of the Securities and the purchase price per share to be paid by the several Underwriters for the Securities shall have each been determined and set forth in the Pricing Agreement, dated the date hereof, and an amendment to the Registration Statement and the Prospectus will be filed before the Registration Statement becomes effective. (ii) If the Company has elected to rely upon Rule 430A of the 1933 Act Regulations, the purchase price per share to be paid by the several Underwriters for the Securities shall be an amount equal to the initial public offering price, less an amount per share to be determined by agreement between the Representatives and the Selling Shareholder. The initial public offering price per share of the Securities shall be a fixed price to be determined by agreement between the Representatives and the Selling Shareholder. The initial public offering price per share and the purchase price, when so determined, shall be set forth in the Pricing Agreement. In the event that such prices have not been agreed upon and the Pricing Agreement has not been executed and delivered by the parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, unless otherwise agreed to by the Company, the Selling Shareholder and the Representatives. -10- 12 (b) Payment of the purchase price for, and delivery of certificates for, the Initial Securities to be purchased by the Underwriters, shall be made at the office of Baker & Botts, L.L.P., 910 Louisiana, Houston, Texas or at such other place as shall be agreed upon by the Representatives, the Company and the Selling Shareholder, at 10:00 A.M., New York City time, on the fifth business day (unless postponed in accordance with the provisions of Section 10 hereof) following the date of the execution of the Pricing Agreement or such other time not later than ten business days after such date as shall be agreed upon by the Representatives, the Company and the Selling Shareholder (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned office of Baker & Botts, L.L.P. or at such other place as shall be mutually agreed upon by the Representatives, the Selling Shareholder and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Selling Shareholder and the Company. Payment shall be made to the Selling Shareholder by certified or official bank check or checks drawn in New York Clearing House funds or similar next-day funds payable to the order of the Selling Shareholder against delivery to Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. Certificates for the Initial Securities and the Option Securities shall be in such denominations and registered in such names as the Representatives may request in writing at least two business days before Closing Time or the Date of Delivery, as the case may be. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Securities that it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Securities to be purchased by any Underwriter whose check has not been received by Closing Time or the Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. The certificates for the Initial Securities and the Option Securities to be purchased by the Underwriters will be made available in New York City for examination and packaging by the Representatives not later than 10:00 A.M. on the last business day prior to Closing Time or the Date of Delivery, as the case may be. SECTION 3. Covenants of the Company. The Company covenants with each of the Underwriters as follows: (a) The Company will notify the Representatives immediately, and confirm the notice in writing, (i) of the effectiveness of the Registration Statement and any amendment thereto (including any post-effective amendment), (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose. The Company will make every reasonable effort to prevent -11- 13 the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Securities which differs from the prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations) whether pursuant to the 1933 Act, the 1934 Act or otherwise) will furnish the Representatives with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which the Underwriters shall reasonably object. (c) The Company will deliver to the Representatives as many signed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) as the Representatives may reasonably request and will also deliver to the Representatives a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. (d) The Company will furnish to each Underwriter, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act or 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request for the purposes contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the 1934 Act Regulations. (e) If at any time any event shall occur as a result of which it is necessary, in the opinion of the Underwriters, to amend or supplement the Prospectus in order that the Prospectus not include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Company will forthwith notify you of the same, amend or supplement the Prospectus (in form and substance satisfactory to the Underwriters) and furnish to the Underwriters a reasonable number of copies of any amendment or amendments of or supplement or supplements to, the Prospectus, so that, as so amended or supplemented, the Prospectus will not contain such untrue statement or omission. (f) The Company, during the period when the Prospectus is required to be delivered under the 1933 Act, will file promptly all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the 1934 Act subsequent to the time the Registration Statement becomes effective. -12- 14 (g) The Company will use its best efforts to qualify the Securities and the associated Rights for offering and sale under the applicable securities laws of such states and other jurisdictions as the Representatives may designate; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. The Company will file such statements and reports as may be required by the laws of each jurisdiction in which the Securities and the associated Rights have been qualified as above provided. (h) The Company will make generally available to its security holders as soon as practicable, but not later than 90 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 of the 1933 Act Regulations) covering a 12-month period beginning not later than the first day of the Company's fiscal quarter next following the "effective date" (as defined in said Rule 158) of the Registration Statement. (i) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A of the 1933 Act Regulations, then immediately following the execution of the Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b) of the 1933 Act Regulations, copies of an amended Prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended Prospectus), containing all information so omitted. (j) During a period of 90 days from the date of the Pricing Agreement, the Company will not, without the prior written consent of Merrill Lynch, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, any Common Stock and associated Rights or any security convertible into, exchangeable into or exercisable for Common Stock (except for the shares of Preferred Stock, Cumulative Convertible Series D, of the Company to be issued and sold by the Company pursuant to the Purchase Agreement of even date herewith between the Company and the Underwriters, shares of Common Stock and associated Rights issuable upon conversion of convertible securities or exercise of currently outstanding warrants to purchase Common Stock, securities issuable upon the exercise of Rights, any shares of Common Stock and associated Rights issuable pursuant to exercise of options or similar rights granted to directors, officers or employees and any other interests in shares of Common Stock and associated Rights granted in connection with any other employee benefit plans of the Company). SECTION 4. Payment of Expenses. As between the Company and the Underwriters, the Company will pay or cause to be paid and bear or cause to be borne all costs and expenses incident to the performance of its obligations under this Agreement, including (i) the printing and filing of the Registration Statement as originally filed and of -13- 15 each amendment thereto and the cost of furnishing copies thereof to the Underwriters, (ii) the preparation, issuance and delivery of the Securities to the Underwriters, (iii) the fees and disbursements of the Company's counsel and accountants, (iv) the expenses in connection with the qualification of the Securities under state securities laws in accordance with the provisions of Section 3(g) hereof, including filing fees and the fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Memorandum, (v) the printing and delivery to the Underwriters of copies of each of the preliminary prospectuses, and of the Prospectus and any amendments or supplements thereto, (vi) the delivery to the Underwriters of copies of Blue Sky Memorandum, and (vii) the fees and expenses incurred in connection with any filings required to be made by the Underwriters with the National Association of Securities Dealers, Inc. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. The provisions of this Section shall not affect any agreement between the Company and the Selling Shareholder regarding the allocation or sharing of such expenses and costs. SECTION 5. Conditions of Obligations of the Underwriters. The obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company and the Selling Shareholder herein contained at the date hereof and at Closing Time, to the performance by the Company and the Selling Shareholder of their respective obligations hereunder required to be performed prior to Closing Time, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M. on the date hereof or at such later time and date as may be approved by the Representatives; and at Closing Time and any Date of Delivery, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. If the Company has elected to rely upon Rule 430A of the 1933 Act Regulations, the initial public offering price per share of the Securities, the purchase price per share to be paid by the Underwriters, and any other price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations within the prescribed time period, and prior to Closing Time the Company shall have provided evidence satisfactory to the Representatives of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the 1933 Act Regulations. -14- 16 (b) At Closing Time the Representatives shall have received: (1) The favorable opinion, dated as of Closing Time, of Bracewell & Patterson, L.L.P, counsel for the Company, in form and substance reasonably satisfactory to the Representatives, to the effect that: (i) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Louisiana. (ii) The Partnership Subsidiary identified on Schedule B hereto (the "Designated Partnership Subsidiary") is a general partnership duly formed and validly existing under the laws of the Commonwealth of Kentucky. (iii) Each of the Company and the Designated Partnership Subsidiary has all requisite corporate or partnership power, as the case may be, to own and lease its properties and to conduct its business as described in the Prospectus and, to the best of their knowledge after due inquiry is duly qualified as a foreign corporation or partnership, as the case may be, to transact business and is in good standing in each jurisdiction in which such qualification is required, except where the failure so to qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise; to the best of their knowledge after due inquiry, the Company owns 75% of the general partnership interests in the Designated Partnership Subsidiary. (iv) All of the issued and outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid, nonassessable and free of preemptive rights. The Company's authorized capital stock is as set forth in the Prospectus. At the close of business on , 1994, shares of Common Stock were outstanding, shares of Series A Preferred Stock were outstanding, shares of Series B Preferred Stock were outstanding, no shares of Series C Preferred Stock or Series D Preferred Stock were outstanding, and there were outstanding options or warrants to acquire shares of Common Stock. The shares of Common Stock issuable upon conversion of the Series A Preferred Stock, the Series B Preferred Stock, the Series D Preferred Stock and such options or warrants have been duly reserved for issuance upon exercise or conversion thereof. Except for the Series A Preferred Stock, the Rights, the Series B Preferred Stock, the 7 1/2% Convertible Subordinated Debentures Due 2013 issuable in exchange for the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, this Agreement, the warrants to purchase Common Stock and options to purchase Common Stock pursuant to various stock option plans of the Company described in the -15- 17 Prospectus or described in or attached as an exhibit to a document that is incorporated by reference in the Prospectus, to the best of their knowledge after due inquiry there are no (i) outstanding securities convertible into or exchangeable for shares of capital stock of the Company or (ii) contracts, commitments, agreements, understandings or arrangements of any kind to which the Company is a party obligating the Company to issue any capital stock, any securities convertible into or exchangeable for, or rights to purchase or subscribe for capital stock of the Company. (v) This Agreement has been duly authorized, executed and delivered by the Company. (vi) The Registration Statement has become effective under the 1933 Act and, to the best of their knowledge after due inquiry, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act and no proceeding for that purpose has been initiated or threatened by the Commission. (vii) The Registration Statement, as of its effective date, and the Prospectus, as of its date, and any supplements or amendments thereto, as of their respective dates, (other than the financial statements and schedules and other financial and statistical data included or incorporated by reference therein, as to which no opinion need be rendered) appeared on their face to comply as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (viii) The Common Stock conforms as to legal matters in all material respects to the description thereof contained under the caption "Description of Capital Stock" in the Prospectus, and the form of certificate used to evidence the Common Stock is in due and proper form and complies with all applicable statutory requirements of the Louisiana Business Corporation Law. (ix) To the best of their knowledge after due inquiry, there are no legal or governmental proceedings pending or threatened that are required to be disclosed in the Registration Statement other than those disclosed therein (or in a document incorporated by reference or deemed to be incorporated by reference therein). (x) Such counsel is not aware of any authorization, approval, consent or order of any court or governmental authority or agency that is required to be obtained by the Company in connection with the offering of the Securities to the Underwriters, except such as may be required under the 1933 Act or the 1933 Act Regulations or the 1934 Act or the 1934 Act Regulations or state securities law (or as expressly contemplated in this -16- 18 Agreement); and, to the best of their knowledge after due inquiry, the execution, delivery and performance by the Company of its obligations under this Agreement and the consummation of the transactions contemplated herein and compliance by the Company with its obligations hereunder will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the charter or by-laws of the Company, or any applicable law, administrative regulation or administrative or court decree which breach, default, imposition or violation would have a material adverse effect on the financial condition, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise. (xi) To the best of their knowledge after due inquiry, there are no contacts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed or incorporated by reference as exhibits thereto other than those described or referred to in the Registration Statement or filed as exhibits thereto; and the descriptions thereof or references thereto are correct in all material respects. (xii) To the best their knowledge after due inquiry, no holder of securities of the Company has rights to the registration under the 1933 Act of securities of the Company because of the filing of the Registration Statement that have not been waived. In rendering the foregoing opinion or opinions, Bracewell & Patterson, L.L.P. may state that such opinion or opinions are limited to the federal laws of the United States, the laws of the State of Texas and the Louisiana Business Corporation Law, and that they are relying (i) as to matters governed by the laws of the State of Louisiana, upon the favorable opinion, dated as of Closing Time, of Stone, Pigman, Walther, Wittmann & Hutchinson, Louisiana counsel to the Company, in form and substance satisfactory to the Representatives, and (ii) as to matters governed by the laws of any other jurisdiction upon the favorable opinion, dated as of Closing Time, of other counsel acceptable to the Representatives, in form and substance satisfactory to the Representatives; provided in each case that the Representatives shall have been delivered original signed copies of each such opinion. (2) The favorable opinion, dated as of the Closing Time, of Wilmer, Cutler & Pickering, counsel for the Selling Shareholder, in form and substance reasonably -17- 19 satisfactory to the Representatives, to the effect that this Agreement and the Pricing Agreement have each been duly and validly authorized, executed and delivered by the Selling Shareholder and, to the best knowledge and information of such counsel after due inquiry, the Selling Shareholder has good and marketable title to the Initial Securities to be sold by the Selling Shareholder hereunder, free and clear of any mortgage, pledge, lien, security interest, encumbrance or claim and full power, right and authority to sell such Securities without breach or violation of or default under any applicable law, administrative regulation or any administrative or court decree or agreement to which the Selling Shareholder is subject. (3) The favorable opinion, dated as of Closing Time, of Baker & Botts, L.L.P., counsel for the Underwriters, with respect to the matters set forth in (i), (v), (vi), (vii) and (viii) of subsection (b)(1) of this Section. In rendering such opinion or opinions, Baker & Botts, L.L.P. may state that such opinion or opinions are limited to the federal laws of the United States, the laws of the State of Texas and the Louisiana Business Corporation Law, and may state that they are relying as to matters governed by the laws of any other jurisdiction upon the favorable opinion of other counsel in substantially the same manner as described in subsection (b)(1) of this Section. (4) The written advice of Bracewell & Patterson, L.L.P. to the effect that nothing has come to their attention that causes them to believe that the Registration Statement, at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the Underwriters for such use) or at Closing Time, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; it being understood that such counsel need give no such advice as to the financial statements and schedules or other financial or statistical data contained or incorporated by reference in the Registration Statement or the Prospectus. (5) The written advice of Wilmer, Cutler & Pickering to the effect that nothing has come to its attention that causes it to believe that any information about the Selling Shareholder in the Registration Statement, at the time it became effective or at the Representation Date, or the Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file at the Commission at the time -18- 20 the Registration Statement becomes effective, in which case at the time it is first provided to the Underwriters for such use) or at Closing Time, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) At Closing Time, except as described in or contemplated by the Prospectus, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change in the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company or its subsidiaries considered as one enterprise, whether or not in the ordinary course of business, and the Representatives shall have received a certificate of the President or any Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties of the Company contained in Section 1(a) of this Agreement are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or threatened by the Commission. (d) At the time of the execution of this Agreement, the Representatives shall have received from Deloitte & Touche a letter dated such date, in form and substance satisfactory to the Representatives, to the effect that (i) they are independent public accountants with respect to the Company and its subsidiaries within the meaning of the 1933 Act and the 1933 Act Regulations; (ii) it is their opinion that the consolidated financial statements and supporting schedules included in the Registration Statement and covered by their opinions therein comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations; (iii) based upon limited procedures set forth in detail in such letter, nothing has come to their attention that causes them to believe that (A) the unaudited and other financial information of the Company and its subsidiaries included in the Registration Statement or incorporated by reference therein does not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations or is not presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited consolidated financial statements included in the Registration Statement or incorporated by reference therein, or (B) at a specified date not more than five days prior to the date of the Pricing Agreement, there has been any change in the capital stock of the Company or any increase in the consolidated long term debt of the Company and its subsidiaries or any decrease in consolidated net current assets or net assets as compared with the amounts shown in the September 30, 1993 balance sheet included in the Registration Statement or incorporated by reference therein or, during the period from September 30, 1993 to a specified date not more than five days prior to the -19- 21 date of the Pricing Agreement, there were any decreases, as compared with the corresponding period in the preceding year, in consolidated revenues, net income or net income per share of the Company and its subsidiaries, except in all instances for changes, increases or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur and for changes, increases or decreases set forth in such letter, in which case the letter shall be accompanied by an explanation by the Company as to the significance thereof unless said explanation is not deemed necessary by the Representatives; and (iv) in addition to the examination referred to in their opinions and the limited procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are included in the Registration Statement and Prospectus and which are specified by the Representatives, and have found such amounts, percentages and financial information to be in agreement with the relevant accounting, financial and other records of the Company and its subsidiaries identified in such letter. (e) At Closing Time the Representatives shall have received from Deloitte & Touche a letter, dated as of Closing Time to the effect that they confirm the statements made in the letter furnished pursuant to subsection (d) of this Section, except that the specified date referred to in such letter shall be a date not more than five days prior to Closing Time. (f) At Closing Time counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated and related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company and the Selling Shareholder in connection with the issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Representatives. (g) At Closing Time all actions, proceedings, instruments, opinions and documents required in connection with the consummation of the transactions contemplated by this Agreement shall be reasonably satisfactory to the Representatives, and the Company shall have delivered to the Representatives such other certificates and documents as the Representatives shall reasonably request. (h) At Closing Time the Representatives shall have received a certificate from the Selling Shareholder, dated as of the Closing Time, to the effect that (i) the representations and warranties of the Selling Shareholder contained in Section 1(b) are true and correct with the same force and effect as though expressly made at and as of Closing Time and (ii) the Selling Shareholder has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time. -20- 22 (i) At Closing Time, the Company shall have furnished to the Representatives "lock-up" letters, in form and substance reasonably satisfactory to the Representatives, signed by each of the directors and officers of the Company whose names are set forth in Schedule C hereto, pursuant to which each such person shall agree not to offer for sale, sell, grant an option for the sale of, or otherwise dispose of, directly or indirectly, without the prior written consent of Merrill Lynch, any shares of Common Stock or any securities convertible into or exchangeable into or exercisable for Common Stock owned by such person or with respect to which such person has the power of disposition, for a period of 90 days from the date of the Pricing Agreement (except for shares of Common Stock and the associated Rights issuable upon the exercise of options or similar rights granted by the Company to such person as a director, officer or employee and any other interests in shares of Common Stock and the associated Rights granted to such person in connection with any other employee benefit plans of the Company). (j) In the event the Underwriters exercise their option provided in Section 2 hereof to purchase all or any part of the Option Securities, and the Date of Delivery specified by the Representatives for any such purchase is a date other than Closing Time, the obligation of the Underwriters to purchase all or any such portion of the Option Securities shall be subject, in addition to the foregoing conditions, to the accuracy of the representations and warranties of the Company and the Selling Shareholder, respectively, at each Date of Delivery, to the performance by the Company and the Selling Shareholder, respectively, of its obligations hereunder required to be performed prior to each Date of Delivery, and to the receipt by the Representatives of the following: (1) A certificate, dated such Date of Delivery, of the President or any Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at Closing Time pursuant to subsection (c) of this Section remains true as of such Date of Delivery. (2) A certificate from the Selling Shareholder, dated such Date of Delivery, confirming that the certificate delivered at the Closing Time pursuant to subsection (h) of this Section remains true as of such Date of Delivery. (3) The favorable opinion of Bracewell & Patterson, L.L.P., counsel for the Company, in form and substance reasonably satisfactory to the Representatives, dated such Date of Delivery, to the same effect as the opinion required by Section 5(b)(1) hereof and the written advice required by Section 5(b)(4) hereof, together with original signed copies of any opinion of other counsel whose opinion has been relied upon by Bracewell & Patterson, L.L.P. (4) The favorable opinion of Wilmer, Cutler & Pickering, counsel for the Selling Shareholder, in form and substance reasonably satisfactory to the Representatives, dated such Date of Delivery, relating to the Option Securities and -21- 23 otherwise to the same effect as the opinion required by Section 5(b)(2) hereof and the written advice required by Section 5(b)(5) hereof. (5) The favorable opinion of Baker & Botts, L.L.P., counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(3) hereof. (6) A letter, dated as of such Date of Delivery, from Deloitte & Touche, in form and substance satisfactory to the Representatives, substantially the same in scope and substance as the letter furnished pursuant to Section 5(d) hereof, except that the "specified date" in such letter shall be a date not more than five days prior to such Date of Delivery. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Underwriters by notice to the Company and the Selling Shareholder at any time at or prior to Closing Time and such termination shall be without liability of any party to any other party except as provided in Section 4 hereof. SECTION 6. Indemnification. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including information deemed to be part of the Registration Statement pursuant to Rule 430A(b) of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless in each case such untrue statement or omission or such alleged untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company in writing by a Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto); provided, however, that with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus or the Prospectus the indemnity agreement -22- 24 contained in this subsection (a) shall not inure to the benefit of any Underwriter from whom the person asserting any such loss, liability, claim, damage or expense purchased the Securities concerned, to the extent that any such loss, liability, claim, damage or expense of such Underwriter results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the Prospectus (exclusive of material incorporated by reference) if the Company had previously furnished copies thereof to such Underwriter; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and expenses of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that (x) the Company is required to do so under subsection (e) of this Section below and (y) any such expense is not paid under (i) or (ii) above. Insofar as this indemnity may permit indemnification for liabilities under the 1933 Act of any person who is a partner of an Underwriter or who controls an Underwriter within the meaning of Section 15 of the 1933 Act and who, at the date of this Agreement, is a director, officer or controlling person of the Company, such indemnity is subject to the undertaking of the Company in the Registration Statement. (b) The Company and the Selling Shareholder each agree to indemnify and hold harmless the other pursuant to the terms set forth in the Registration Rights and Lock-Up Agreement dated November 22, 1993 ("Lock-up Agreement") by and among the Company and the Selling Shareholder. (c) Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act and the Selling Shareholder against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity -23- 25 with written information furnished to the Company by such Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (d) The Selling Shareholder agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage, and expense described in the indemnity contained in subsection (a) of the Section, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by the Selling Shareholder expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus. (e) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder but failure to so notify any indemnifying party shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and approved by the indemnified parties defendant in such action, except to the extent such indemnified parties retain separate counsel (the "Separate Counsel") with respect to legal defenses available to them that are different from or in addition to those available to such indemnifying party and such defenses are in conflict with the interests of the indemnifying parties. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for the reasonable fees and expenses of more than the Separate Counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. (f) This Agreement supersedes the provisions of the Lock-Up Agreement providing for indemnification of the Underwriters by the Company and the Selling Shareholder in connection with the offering and sale of the Securities. SECTION 7. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 6 hereof is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company and the Selling Shareholder and the -24- 26 Underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and the Selling Shareholder and one or more of the Underwriters in such proportions that the Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus bears to the initial public offering price appearing thereon and the Company and the Selling Shareholder are responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls an Underwriter or the Selling Shareholder within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter or Selling Shareholder, as the case may be, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement and the Pricing Agreement, or contained in certificates of officers of the Company or the Selling Shareholder submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company or the Selling Shareholder, and shall survive delivery of the Securities to the Underwriters. SECTION 9. Termination of Agreement. (a) The Representatives may terminate this Agreement, by notice to the Company and the Selling Shareholder, at any time at or prior to Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Prospectus any material adverse change in the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets of the United States or elsewhere or any outbreak or escalation of hostilities or other calamity or crisis the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or enforce contracts for the sale of the Securities, or (iii) if trading in the Common Stock has been suspended by the Commission, or if trading generally on either the New York Stock Exchange or the American Stock Exchange has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by either federal or New York authorities. -25- 27 (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party except as provided in Section 4 hereof and except that the provisions of Sections 6 and 7 shall remain in effect. As used in Section 9(a), the term "Prospectus" means the Prospectus in the form first used to confirm sales of the Securities. SECTION 10. Default by an Underwriter. If any one of the Underwriters shall fail to purchase and pay for any of the Initial Securities agreed to be purchased by such Underwriter under this Agreement and the Pricing Agreement and such failure to purchase shall constitute a default in the performance of its obligations hereunder and thereunder, the remaining Underwriters shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters or any other underwriters to purchase all, but not less than all, of Initial Securities not so purchased in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Underwriters shall not have completed such arrangements within said 24- hour period, then: (1) if the number of Initial Securities not so purchased does not exceed 10% of the Initial Securities, the non-defaulting Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (2) if the number of Initial Securities not so purchased exceeds 10% of the Initial Securities, the Selling Shareholder will be entitled to an additional period of 24 hours within which to find one or more substitute underwriters reasonably satisfactory to the Representatives to purchase such Securities on the terms set froth in this Agreement. A substitute underwriter will become an Underwriter for all purposes of this Agreement. (3) if the number of Initial Securities not so purchased exceeds 10% of the Initial Securities and the Selling Shareholder does not find one or more substitute underwriters pursuant to subsection (2) of this Section, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from any liability it may have hereunder in respect of its default. In the event of any such default that does not result in a termination of this Agreement, each of the Representatives and the Company shall have the right to postpone Closing Time for such period, not exceeding seven days, as they shall determine in order that the required changes in Registration Statement and the Prospectus or in any other documents or arrangements may be effected. -26- 28 SECTION 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives c/o Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated at World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281, to the attention of Lee R. Cole; notices to the Company shall be directed to it at 1200 Smith Street, Suite 2400, Houston, Texas 77002 to the attention of James L. Persky; and notices to the Selling Shareholder shall be directed to Richard C. Blum & Associates, Inc., 909 Montgomery Street, Suite 400, San Francisco, California 94133 to the attention of N. Colin Lind. SECTION 12. Parties. This Agreement and the Pricing Agreement shall each inure to the benefit of and be binding upon the Underwriters, the Company and the Selling Shareholder and their respective successors. Nothing expressed or mentioned in this Agreement or the Pricing Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the Company and the Selling Shareholder and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 hereof and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or the Pricing Agreement or any provision herein or therein contained. This Agreement and the Pricing Agreement and all conditions and provisions hereof and thereof are intended to be for the sole and exclusive benefit of the Underwriters, the Company and the Selling Shareholder and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. Governing Law and Time. This Agreement and the Pricing Agreement shall be governed by the laws of the State of New York applicable to agreements made and to be performed in said state. Except where otherwise provided, specified times of day refer to New York City time. -27- 29 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement among the Company, the Selling Shareholder and each of the Underwriters in accordance with its terms. Very truly yours, SOUTHDOWN, INC. By: ________________________________________ Name: Title: CARPENTERS PENSION TRUST FOR SOUTHERN CALIFORNIA By: Richard C. Blum and Associates, Inc., Investment Adviser By: ________________________________________ Name: Title: RICHARD C. BLUM & ASSOCIATES, INC. By: ________________________________________ Name: Title: CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated KIDDER, PEABODY & CO. INCORPORATED LEHMAN BROTHERS INC. By: Merrill Lynch, Pierce, Fenner & Smith Incorporated By: ______________________________________ Name: Title: -28- 30 SCHEDULE A
Number of Name of Initial Securities Underwriters to be Purchased - ------------ ------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated . . . . . . . . . . . . . . . . . . . . . . . Kidder, Peabody & Co. Incorporated . . . . . . . . . . . . . . . . . . Lehman Brothers Inc. _________ Total . . . . . . . . . . . . . . . . . . . . 1,550,000 ---------
-29- 31 SCHEDULE B Kosmos Cement Company, a Kentucky general partnership -30- 32 SCHEDULE C G. Walter Loewenbaum II Clarence C. Comer Fentress Bracewell W.J. Conway Killian L. Huger Jr. Edgar J. Marston III Michael A. Nicolais Frank J. Ryan Robert J. Slater Ronald N. Tutor V. H. Van Horn III Steven B. Wolitzer J. Bruce Tompkins James L. Persky Dennis M. Thies -31- 33 EXHIBIT A SOUTHDOWN, INC. (a Louisiana corporation) 1,550,000 Shares Common Stock (Par Value $1.25 Per Share) PRICING AGREEMENT January __, 1994 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated KIDDER, PEABODY & CO. INCORPORATED LEHMAN BROTHERS INC. as Representatives of the several Underwriters c/o MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters World Financial Center North Tower 250 Vesey Street New York, New York 10281 Dear Sirs: Reference is made to the Purchase Agreement, dated January __, 1994 (the "Purchase Agreement"), relating to the purchase by the several Underwriters named in Schedule A thereto, for whom Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Kidder, Peabody & Co. Incorporated and Lehman Brothers Inc. are acting as representatives (collectively, the "Underwriters") of the above-referenced shares of Common Stock of Southdown, Inc., a Louisiana corporation, from Carpenters Pension Trust for Southern California, a California pension fund, and Richard C. Blum & Associates, Inc., a California corporation (collectively, the "Selling Shareholder"), and the grant by the Selling Shareholder to the Underwriters of options to purchase up to an additional 232,500 shares of Common Stock to cover over-allotments. Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned thereto in the Purchase Agreement. Pursuant to Section 2 of the Purchase Agreement, the Selling Shareholder agrees with each Underwriter as follows: 34 1. The initial public offering price per share of the Securities, determined as provided in said Section 2, shall be $__________. 2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $________, being an amount equal to the initial public offering price set forth above less $______ per share If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Selling Shareholder a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between the Selling Shareholder and each of the Underwriters in accordance with its terms. Very truly yours, CARPENTERS PENSION TRUST FOR SOUTHERN CALIFORNIA By: Richard C. Blum and Associates, Inc. Investment Adviser By: ________________________ Name: Title: RICHARD C. BLUM & ASSOCIATES, INC. By: ________________________ Name: Title: CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated KIDDER, PEABODY & CO. INCORPORATED LEHMAN BROTHERS INC. By: Merrill Lynch, Pierce, Fenner & Smith Incorporated By: __________________________________ Name: Title: EX-4.2 3 FORM OF ARTICLES OF AMENDMENT 1 Exhibit 4.2 Draft 1/19/94 ARTICLES OF AMENDMENT STATE OF TEXAS TO RESTATED ARTICLES OF COUNTY OF HARRIS INCORPORATION OF CITY OF HOUSTON SOUTHDOWN, INC. BE IT KNOWN, That on this _____ day of January, 1994 BEFORE ME, _____________________, a Notary Public, duly commissioned and qualified in and for the County of Harris, State of Texas, and in the presence of the witnesses hereinafter named and undersigned: PERSONALLY CAME AND APPEARED: CLARENCE C. COMER and WENDELL E. PHILLIPS, II, appearing herein and acting for Southdown, Inc. (of which Corporation they are, respectively, President and Secretary), a corporation organized and existing under the laws of the State of Louisiana, domiciled in the Parish of Orleans, State of Louisiana, organized by Articles of Incorporation effective April 4, 1930, which Articles, as amended, were restated pursuant to Restated Articles of Incorporation effective September 15, 1983, and further amended as of April 10, 1987, December 2, 1987, April 23, 1988, May 23, 1988 and March 4, 1991 ("the Corporation"), who declared that pursuant to Sections 24B(6) and 33A of the Louisiana Business Corporation Law, Article IIIB of the Restated Articles of Incorporation of the Corporation, resolutions of the Board of Directors of the Corporation adopted at special meetings of the Board of Directors of the Corporation held on November 22, 1993 and January 20, 1994, and resolutions of its duly authorized Special Committee unanimously adopted at a special meeting of such committee held on January __, 1994, they now appear for the purpose of executing this act of amendment and putting into authentic form the amendment so adopted by the Special Committee of the Board of Directors of the Corporation. AND THE SAID APPEARERS further declare that by unanimous vote of the duly authorized Special Committee of the Board of Directors of the Corporation, it was resolved that Article III of the Restated Articles of Incorporation of the Corporation be further amended as follows: 2 1. There is added as a new paragraph F of Article III the following: F. Of the aforesaid 10,000,000 shares of Preferred Stock, 1,725,000 shares shall constitute a separate series of preferred shares designated "Preferred Stock, $____ Cumulative Convertible Series D" (hereinafter called the "Series D Preferred Stock"), which shall have a stated value of $50.00 per share. The preferences, limitations and relative rights of the Series D Preferred Stock are as follows: PREFERRED STOCK, $___ CUMULATIVE CONVERTIBLE SERIES D (1) Dividends. The holders of the Series D Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of the funds of the Corporation legally available therefor, subject to the prior and superior rights of the holders of the Corporation's Preferred Stock, $.70 Cumulative Convertible Series A (the "Series A Preferred Stock") and any other shares of any series or class of stock of the Corporation ranking senior to the Series D Preferred Stock as to dividends, but pari passu with the Corporation's Preferred Stock, $3.75 Convertible Exchangeable Series B (the "Series B Preferred Stock") and any other shares of any series or class of stock of the Corporation ranking pari passu with the Series D Preferred Stock as to dividends, and in preference to the holders of the Corporation's Preferred Stock, Cumulative Junior Participating Series C (the "Series C Preferred Stock") that may be issued and the holders of the Common Stock of the Corporation and any other stock of the Corporation ranking junior to the Series D Preferred Stock as to dividends, cumulative preferential dividends per share of Series D Preferred Stock in cash at the rate per annum of $______, and no more, until conversion or redemption. Dividends on the Series D Preferred Stock will be cumulative, will accrue from the date of original issuance and will be paid (when and as declared by the Board of Directors of the Corporation) in cash quarterly, in arrears, on the first day of each April, July, October and January, commencing on April 1, 1994. Each such regular dividend on the Series D Preferred Stock shall be paid to the holders of record of shares of the Series D Preferred Stock as they appear on the stock register of the Corporation on such record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board of Directors of the Corporation. Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board of Directors of the Corporation. No dividend may be -2- 3 declared on any other series or class of stock ranking on a parity with the Series D Preferred Stock as to dividends in respect of any dividend period, unless there shall also be or have been declared on the Series D Preferred Stock like dividends for all periods at the dividend rates fixed therefor. In the event that full cumulative dividends on the Series D Preferred Stock have not been paid or declared and set apart for payment, the Corporation may not declare or pay or set apart for payment any dividends or make any other distributions on, or make any payment on account of the purchase, redemption or retirement of, the Common Stock or any other stock of the Corporation ranking as to dividends or distributions of assets on liquidation, dissolution or winding up of the Corporation junior to the Series D Preferred Stock (other than, in the case of dividends or distributions, dividends or distributions paid in shares of Common Stock or such other junior ranking stock), until full cumulative dividends on the Series D Preferred Stock are paid or declared and set apart for payment. (2) Redemption. (a) Shares of Series D Preferred Stock shall be redeemable for cash, at the option of the Corporation, in whole or in part at any time or from time to time on or after January _____, 2001, at a redemption price of $50 per share of Series D Preferred Stock, plus an amount equal to accrued and unpaid dividends (whether or not declared) to the date fixed for redemption. If the date of redemption falls after a dividend payment record date but before the related payment date, the record holders of the Series D Preferred Stock on that record date shall be entitled to receive the dividend payable on the Series D Preferred Stock notwithstanding the redemption thereof. Except as provided in this subparagraph (2)(a), no payment or allowance shall be made for accrued dividends on any shares of Series D Preferred Stock called for redemption. (b) In case of the redemption of only part of the Series D Preferred Stock at the time outstanding, such redemption shall be made pro rata or by lot or in such other manner as the Board of Directors of the Corporation may determine; provided, however, that the Corporation shall not be required to effect the redemption in any manner that results in additional fractional shares being outstanding. If full cumulative dividends on the outstanding shares of Series D Preferred Stock shall not have been paid or declared and set apart for payment for all regular dividend payment dates to and including the last dividend payment date prior to the date fixed for redemption, the Corporation shall not call for redemption any shares of Series D Preferred Stock unless all -3- 4 such shares then outstanding are called for simultaneous redemption. (c) Notice of any proposed redemption of Series D Preferred Stock shall be given by the Corporation not less than 30 days nor more than 60 days prior to the date fixed for such redemption to each holder of record of the shares to be redeemed at the address appearing on the books of the Corporation. Notice of redemption shall be deemed to have been given when deposited in the United States mails, first class mail, postage prepaid, whether or not such notice is actually received. If on or before the redemption date specified in such notice all funds necessary for such redemption shall have been made available at the office of the transfer agent, in trust for the pro rata benefit of the holders of the shares so called for redemption, so as to be and continue to be available therefor, then from and after the date of redemption so designated, notwithstanding that any certificate representing shares of Series D Preferred Stock so called for redemption shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding, the right to receive dividends thereon shall cease to accrue and all rights with respect to such shares of Series D Preferred Stock so called for redemption shall forthwith at the close of business on such redemption date cease and terminate, except only the right of the holders thereof to receive the redemption price of such shares so to be redeemed plus an amount equal to accrued and unpaid dividends (whether or not declared) to the date fixed for redemption, but without interest thereon. (d) Any monies so set aside by the Corporation and unclaimed at the end of three years from the date fixed for redemption shall revert to the general funds of the Corporation. (e) The Corporation may, however, prior to the redemption date specified in the notice of redemption, deposit in trust for the account of the holders of the shares of Series D Preferred Stock to be redeemed, with a bank or trust company in good standing organized under the laws of the United States of America or of any state thereof, having its principal office located in the continental United States, and having a capital, surplus and undivided profits aggregating at least $50 million, designated in such notice of redemption, all funds necessary for such redemption (including accrued and unpaid dividends up to the date fixed for redemption), together with irrevocable written instructions authorizing such bank or trust company, on behalf and at the expense of the Corporation, to cause the notice of redemption to be -4- 5 mailed as herein provided at least 30 days but not more than 60 days prior to the redemption date and to include in said notice of redemption a statement that all funds necessary for such redemption have been so deposited in trust and are immediately available, and from and after the redemption date, notwithstanding that any certificate representing shares of Series D Preferred Stock so called for redemption shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding and all rights with respect to such shares of Series D Preferred Stock shall forthwith at the close of business on such redemption date cease and terminate, except only the right of the holders thereof to receive from such bank or trust company, at any time after the redemption date, the redemption price of such shares so to be redeemed plus accrued and unpaid dividends (whether or not declared) to the date fixed for redemption, but without interest thereon. In the event the holder of any such shares of Series D Preferred Stock shall not, within three years after the redemption date, claim the amount deposited for the redemption thereof, the depositary shall, upon the request of the Corporation expressed in a resolution of its Board of Directors, pay over to the Corporation such unclaimed amount after which time the holders of the shares so called for redemption shall look only to the Corporation for the payment thereof. (f) If any shares of Series D Preferred Stock called for redemption are not issued and outstanding as of the date fixed for redemption, the amount set aside or deposited for the redemption thereof shall revert to or be paid over to the Corporation. (g) Any shares of Series D Preferred Stock which are redeemed or otherwise purchased or acquired by the Corporation or any subsidiary thereof shall be cancelled. The number of shares of Series D Preferred Stock shall be reduced by the number of shares so cancelled and such cancelled shares shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be issued but not as shares of Series D Preferred Stock. For the purposes of this paragraph, a subsidiary means a corporation of which a majority of the capital stock having voting power under ordinary circumstances to elect a majority of the board of directors is owned by (a) the Corporation, (b) the Corporation and one or more of its subsidiaries or (c) one or more of the Corporation's subsidiaries. -5- 6 (3) Regarding Voting Rights. (a) Each share of Series D Preferred Stock shall entitle the holder thereof to one vote and, except as provided herein or as required by law, the Series D Preferred Stock and the Common Stock (and any other capital stock of the Corporation at any time entitled to vote) shall vote together as a single class. (b) In addition to any provisions herein and any requirement of law, the Series D Preferred Stock shall vote as a single class with respect to any proposal (i) to change the dividend rate, liquidation preference, redemption price, voting rights or conversion rights of the shares of Series D Preferred Stock or to increase the number of authorized shares of Series D Preferred Stock; (ii) to increase the authorized amount of any series or class of capital stock of the Corporation that ranks senior to the Series D Preferred Stock as to dividends or distribution of assets on liquidation; (iii) to authorize, create, issue or sell any shares of any series or any class of capital stock of the Corporation that ranks senior to the Series D Preferred Stock as to dividends or assets upon liquidation; (iv) to change or modify the voting rights of the Series D Preferred Stock and (v) for the alteration, change or modification of the rights set forth in this subparagraph (3)(b). The affirmative vote of the holders of at least two-thirds of the outstanding shares of Series D Preferred Stock shall be required to take any action on the matters specified in clauses (i) through (v) of this subparagraph (3)(b). (c) Unless the vote of a larger percentage is required by law or the Articles of Incorporation, the affirmative vote of the holders of a majority of the outstanding shares of Series D Preferred Stock entitled to vote on the matter shall be sufficient to take any action as to which a class vote of the holders of the Series D Preferred Stock is required by law or the Articles of Incorporation. (d) Whenever, at any time, dividends payable on the Series D Preferred Stock shall be in arrears for six quarterly dividend periods, the holders of all classes or series of preferred stock which rank pari passu with the Series D Preferred Stock as to dividends and which shall specifically state that they shall vote with the Series D Preferred Stock for the election of two directors in such a case (specifically excluding the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock) (the "Voting Preferred Stock"), shall have the exclusive right, voting separately as a class, irrespective of class or series, to elect by a plurality of the votes cast two directors of the Corporation, who shall be a Class I director and a Class II director, -6- 7 respectively, (i) at the Corporation's next annual meeting of shareholders, (ii) at a special meeting held in place thereof, (iii) at a special meeting of the holders of shares of the Voting Preferred Stock called by the Secretary of the Corporation upon the written request of the holders of record of 25% or more of the total number of shares of Voting Preferred Stock then outstanding, to be held within 30 days after delivery of such request, or (iv) by written consent of the holders of a majority of the issued and outstanding shares of Voting Preferred Stock in lieu thereof, and at each succeeding meeting of shareholders thereafter at which directors shall be elected until such rights shall terminate as hereinafter provided. The Board of Directors of the Corporation hereby unanimously directs the Secretary of the Corporation to give notice of any special meeting of the shareholders of the Corporation required from time to time by the provisions of this paragraph (3), in the manner prescribed by the Bylaws of the Corporation. At elections for such directors, each holder of the Voting Preferred Stock shall be entitled to one vote for each share held. Upon the vesting of such voting right in the holders of the Voting Preferred Stock, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of the Voting Preferred Stock as hereinabove set forth. The right of the holders of the Voting Preferred Stock, voting separately as a class, to elect members of the Board of Directors of the Corporation as aforesaid shall continue until such time as all dividends accumulated on the Voting Preferred Stock shall have been paid in full, at which time such right shall terminate, except as by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned. Upon any termination of the right of the holders of the Voting Preferred Stock to vote for directors as herein provided, the term of office of all directors then in office elected by such Voting Preferred Stock voting as a class shall terminate immediately. If the office of any director elected by the holders of the Voting Preferred Stock becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by the holders of Voting Preferred Stock voting as a class may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Whenever the special voting powers vested in the holders of the Voting Preferred Stock shall have expired, the number of directors shall become such number as may be provided for in the By-Laws, or resolution of the Board of Directors thereunder, irrespective of any increase made pursuant to the provisions of this subparagraph (3)(d). -7- 8 (4) Priority in Event of Dissolution. In the event of any liquidation, dissolution, or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation (including any liquidation preferences payable in respect of the Series A Preferred Stock and any other capital stock of the Corporation ranking senior to the Series D Preferred Stock as to assets), the holders of the Series D Preferred Stock shall be entitled to receive, out of the remaining net assets of the Corporation, $50.00 in cash for each share of Series D Preferred Stock, plus an amount equal to all dividends accrued and unpaid on each such share (whether or not declared) up to the date fixed for distribution, before any distribution shall be made to the holders of the Common Stock of the Corporation, the Series C Preferred Stock or any other stock of the Corporation ranking junior to the Series D Preferred Stock as to assets. If upon any liquidation, dissolution or winding up of the affairs of the Corporation, the assets distributable among the holders of the Series D Preferred Stock, the Series B Preferred Stock and any other capital stock of the Corporation ranking on a parity with the Series D Preferred Stock as to assets shall be insufficient to permit the payment in full to the holders of all shares of such Series D Preferred Stock, the Series B Preferred Stock and any other capital stock of the Corporation ranking on a parity with the Series D Preferred Stock as to assets of all preferential amounts payable to all such holders, then the entire assets of the Corporation thus distributable shall be distributed ratably among the holders of the Series D Preferred Stock, the Series B Preferred Stock and any other capital stock of the Corporation ranking on a parity with the Series D Preferred Stock as to assets in proportion to the respective amounts that would be payable per share if such assets were sufficient to permit payment in full. (5) Conversion at Option of Holder. (a) Subject to and upon compliance with the provisions herein, at the option of the holder, shares of Series D Preferred Stock may at any time be converted into fully paid and nonassessable shares of Common Stock at the rate of ______ shares of Common Stock for each share of Series D Preferred Stock to be converted (subject to adjustment as hereinafter provided) (the "Conversion Rate"); provided, however, that if the Corporation shall have given notice of redemption of any shares of Series D Preferred Stock pursuant to paragraph (2) above or notice of conversion at the option of the Corporation pursuant to paragraph (6) below, such right to convert such shares shall terminate at 5:00 p.m., New York City time, on the date fixed for redemption or such conversion, respectively (unless the Corporation shall default in the payment due upon -8- 9 redemption in which case such conversion rights shall not expire). The result obtained by dividing $50.00 by the Conversion Rate in effect from time to time is herein referred to as the "Conversion Price." Whenever the Conversion Price is adjusted pursuant to the provisions of subparagraph (7)(c) below, the Conversion Rate shall be redetermined by dividing $50.00 by the then adjusted Conversion Price. The Conversion Rate and the Conversion Price in effect from time to time shall be calculated to four decimal places and rounded to the nearer thousandths. (b) In order to exercise the right to convert, the holder of any shares of Series D Preferred Stock to be converted shall surrender the certificate representing such shares of Series D Preferred Stock, accompanied (if so required by the Corporation) by the proper instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder thereof or by his attorney duly authorized in writing, to the transfer agent of the Series D Preferred Stock and at such other office or offices, if any, as the Board of Directors shall designate and shall give written notice to the Corporation at such office that the holder elects to convert such Series D Preferred Stock. Such shares of Series D Preferred Stock surrendered for conversion shall be deemed to have been converted immediately prior to the close of business on the date of the giving of such notice and of the surrender of such certificates for conversion in accordance with the foregoing provisions, and at such time the rights of the holder of such Series D Preferred Stock as such holder shall cease, and the holder thereof shall be treated for all purposes as the record holder of Common Stock from and after such time. As promptly as practicable after receipt of such notice and the surrender of such certificates as aforesaid, the Corporation shall issue and deliver at such office a certificate or certificates for the number of full shares of Common Stock issuable upon conversion. (6) Conversion at Option of Corporation. (a) On and after January __, 1997 and until January __, 2001, shares of Series D Preferred Stock outstanding are convertible, at the option of the Corporation, in whole but not in part, at any time, into fully paid and non-assessable shares of Common Stock. The Corporation may exercise this option only if for at least 20 trading days within any period of 30 consecutive trading days, including the last trading day of such period, the Market Price (as defined) of the Common Stock exceeds 130 percent of the Conversion Price (as defined above) on such respective dates and only if all dividends on the Series D Preferred Stock for all dividend periods ending on or prior to -9- 10 the dividend payment date next preceding the Conversion Date (as defined herein) have been paid or set aside for payment. (b) In order to exercise its option to convert shares of the Series D Preferred Stock, the Corporation must, not fewer than 15 nor more than 60 days before the date of such conversion (the "Conversion Date"), issue a press release announcing the conversion and specifying the Conversion Date, which announcement shall be made prior to 9:00 A.M., New York City time, of the second trading day after the end of such 30- day trading period. The Corporation shall also give notice of such conversion to the holders of record of shares of Series D Preferred Stock to be converted at the holders' addresses shown on the books of the Corporation. Notice of such conversion must be given by first class mail, postage pre-paid, not fewer than 15 or more than 60 days before the Conversion Date and must state: (i) the Conversion Date; (ii) the Conversion Rate and the Conversion Price as of the date immediately preceding the date of the notice; (iii) the place or places where certificates for the shares of Series D Preferred Stock may be surrendered in exchange for certificates for shares of the Common Stock; and (iv) that dividends on the shares of the Series D Preferred Stock to be converted will cease to accrue on the Conversion Date. Notice is given when deposited in the United States mail, by first class mail, postage prepaid, whether or not actually received. The Corporation's failure to mail such notice to a shareholder shall not affect the validity or effectiveness of the conversion of the shares of Series D Preferred Stock into shares of Common Stock. (c) On the date fixed by the Corporation as of the Conversion Date, the rights of the holders of the shares of Series D Preferred Stock as such shall cease, the shares of Series D Preferred Stock to be converted shall no longer be deemed outstanding, dividends thereon shall cease to accrue and certificates for such shares shall represent (i) the shares of Common Stock issuable on conversion of the Series D Preferred Stock evidenced thereby and (ii) the right to receive the amounts payable under Section 7(b) in lieu of the issuance of any fractional share. (d) The number of shares of Common Stock issuable for each share of Series D Preferred Stock so converted shall be equal to the product of the number of shares of Series D Preferred Stock being converted and the Conversion Rate in effect as of the Conversion Date. -10- 11 (7) General Provisions Regarding Conversion. The following provisions shall be applicable to all conversions of Series D Preferred Stock pursuant to paragraphs (5) and (6): (a) If the Conversion Date falls after a dividend payment record date but before the related payment date, the record holder of the Series D Preferred Stock on that record date shall be entitled to receive the dividend payable on the Series D Preferred Stock notwithstanding the conversion thereof. Except as provided in this subparagraph (a), no payment or allowance shall be made for accrued dividends on any shares of Series D Preferred Stock converted or surrendered for conversion. (b) No fractional share of Common Stock shall be issued upon conversion of Series D Preferred Stock. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any Series D Preferred Stock, the Corporation shall pay a cash adjustment equal to such fraction multiplied by the Market Price per share of the Common Stock (as defined below) on the trading day next preceding the date of conversion. In determining the number of shares of Common Stock and the payment, if any, in lieu of fractional shares that a holder of Series D Preferred Stock shall receive, the total number of shares of Series D Preferred Stock surrendered for conversion by such holder shall be aggregated. (c) The number and kind of securities issuable upon the conversion of the Series D Preferred Stock shall be subject to adjustment from time to time upon the happening of certain events occurring on or after the date of original issue of the shares of the Series D Preferred Stock as follows: (i) In case of any reclassification or change of Common Stock issuable upon exercise of these conversion rights (other than a change in par value from par value to no par value, or from no par value to par value or as a result of a subdivision or combination), or in case of any consolidation or merger of the Corporation with or into another corporation (other than a merger with another corporation in which the Corporation is the surviving Corporation and which does not result in any reclassification or change -- other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination -- of Common Stock issuable upon exercise of these conversion rights), or in the case of a sale or conveyance in a -11- 12 single transaction or in a series of related transactions with the same purchaser or affiliates thereof of all or substantially all the assets of the Corporation as an entirety, or a statutory share exchange in which all shares of Common Stock are exchanged for shares of another corporation or entity, the holders of the Series D Preferred Stock shall have, and the Corporation, or such successor entity or purchaser, shall covenant in the constituent documents effecting any of the foregoing transactions that the holders of the Series D Preferred Stock do have, the right to obtain upon the exercise of these conversion rights, in lieu of each share of Common Stock theretofore issuable upon exercise of these conversion rights, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation or merger, conveyance or sale of assets or share exchange by a holder of one share of Common Stock issuable upon exercise of these conversion rights as if they had been exercised immediately prior to such reclassification, change, consolidation or merger, or share exchange. The constituent documents effecting any reclassification, change, consolidation or merger, conveyance or sale of assets or share exchange shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this subparagraph (c). The provisions of this subparagraph (c)(i) shall similarly apply to successive reclassifications, changes, consolidations or mergers, conveyances or sales of assets or share exchanges. (ii) If the Corporation at any time while any of the Series D Preferred Stock is outstanding shall subdivide or combine its Common Stock, the Conversion Price shall be proportionately reduced, in case of subdivision of shares, as at the effective date of such subdivision, or if the Corporation shall take a record of holders of its Common Stock for the purpose of so subdividing, as at such record date, whichever is earlier, or shall be proportionately increased, in the case of combination of shares, as at the effective date of such combination or, if the Corporation shall take a record of holders of its Common Stock for the purpose of so combining, as at such record date, whichever is earlier. (iii) If the Corporation at any time while any of the Series D Preferred Stock is outstanding shall pay to any holders of stock of the Corporation a dividend payable in, or make any other distribution of, Common Stock, the -12- 13 Conversion Price shall be adjusted, as of the date the Corporation shall take a record of the holders of such stock for the purpose of determining the holders entitled to receive such dividend or other distribution (or if no such record is taken, as at the date of such payment or other distribution), to that price determined by multiplying the Conversion Price in effect immediately prior to such record date (or if no such record is taken, then immediately prior to such payment or other distribution) by a fraction (1) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (2) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution (plus in the event that the Corporation paid cash for fractional shares, the number of additional shares which would have been outstanding had the Corporation issued fractional shares in connection with said dividend, except to the extent such payment of cash is treated as a dividend payable out of earnings or surplus legally available for the payment of dividends under the laws of the State of Louisiana); (iv) If the Corporation shall issue to all holders of its Common Stock any warrant, option or other right to subscribe for or purchase shares of Common Stock at a price per share less than the Market Price of the Common Stock, the Conversion Price shall be adjusted, as of the date the Corporation shall take a record of the holders of its Common Stock for the purpose of receiving such issuance or distribution, to that price determined by multiplying the Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such warrants, options or rights plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Market Price per share, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such warrants, options or rights plus the number of additional shares of Common Stock offered for subscription or purchase. (v) If the Corporation shall distribute to all holders of its Common Stock evidences of indebtedness of the Company, shares of capital stock of the Corporation (other than Common Stock) or assets or rights or warrants to subscribe for or purchase any of its securities (excluding those dividends, warrants, options and rights -13- 14 referred to in subparagraph (iv) above and dividends and other distributions paid in cash out of the profits or surplus of the Corporation legally available therefor under the laws of the State of Louisiana) then in each case the Conversion Price shall be adjusted, as of the date the Corporation shall take a record of the holders of its Common Stock for the purpose of determining the holders entitled to receive such issuance or distribution, to that price determined by multiplying the Conversion Price by a fraction the numerator of which shall be Market Price per share of the Common Stock less the fair market value (as determined by the Board of Directors of the Corporation, whose determination shall be conclusive) of the portion of the assets, evidences of indebtedness for subscription rights so distributed in respect of one share of Common Stock and the denominator of which is the Market Price per share of Common Stock on the record date for such distribution. (vi) No adjustment of the Conversion Price shall be made in an amount less than $.05 per share, but any such lesser adjustment shall be carried forward and shall be made at the time together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to $.05 per share or more. (vii) The Market Price per share of Common Stock on any day means the closing price for such shares as reported in The Wall Street Journal's NYSE-Composite Transactions listing for such day (corrected for obvious typographical errors), or if such shares are not reported in such listing, then the closing price for such shares on the largest national securities exchange (based on the aggregate dollar value of securities listed) on which such shares are listed or traded, or if such shares are not listed or traded on any national securities exchange, then the closing price for such shares in the over-the-counter market, as reported on the National Association of Securities Dealers Automated Quotations System, or, if such price shall not be reported thereon, the average between the closing bid and asked prices so reported, or, if such price shall not be reported, then the average closing bid and asked prices reported by the National Quotation Bureau Incorporated, or, in all other cases, the value established by the Board of Directors of the Corporation in good faith. (d) Whenever the Conversion Price and the Conversion Rate are required to be adjusted as provided herein, the -14- 15 Corporation shall forthwith compute the adjusted Conversion Price and the adjusted Conversion Rate and shall prepare a certificate setting forth such adjusted Conversion Price and adjusted Conversion Rate showing in detail the facts upon which such adjustment is based. A copy of such certificate shall forthwith be filed with the transfer agent or agents for the Series D Preferred Stock (if any) and for the Common Stock; and thereafter, until further adjusted, the adjusted Conversion Price and the adjusted Conversion Rate shall be as set forth in such certificate, provided that the computation of such adjusted Conversion Price and such adjusted Conversion Rate shall be reviewed at least annually by the independent public accountants regularly employed by the Corporation and said accountants shall file a corrected certificate, if required, with such transfer agent or agents. The Corporation shall mail or cause to be mailed to the holders of Series D Preferred Stock at the time of each quarterly dividend payment, a statement setting forth the adjustments, if any, made in the applicable Conversion Price and Conversion Rate and not theretofore reported to such holders, and the reasons for such adjustment. (e) The Corporation will at all times reserve and keep available, out of its authorized and unissued Common Stock solely for the purpose of issuance upon the conversion of the Series D Preferred Stock as herein provided, free from preemptive and other subscription rights, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding Series D Preferred Stock. The Corporation shall ensure that all shares of Common Stock which shall be so issuable shall upon issue be duly and validly issued and fully paid and nonassessable. (f) If any shares of Common Stock required to be reserved for the purposes of conversion of Series D Preferred Stock hereunder require registration with or approval of any governmental authority under any federal or state law, or listing upon any national securities exchange, before such shares may be issued upon conversion, the Corporation will in good faith and as expeditiously as possible endeavor to cause such shares to be duly registered, approved or listed, as the case may be. (g) The issuance of certificates for shares of Common Stock upon the conversion of Series D Preferred Stock shall be made without charge to the holders thereof for any transfer or similar taxes that may be payable in respect of the issue, delivery or acquisition of such certificates. Such certificates shall be issued in the respective names of the holders of the Series D Preferred Stock converted. -15- 16 (8) Sinking Fund. The Series D Preferred Stock shall not be entitled to any mandatory redemption or prepayment (except on liquidation, dissolution or winding up of the affairs of the Corporation) or to the benefit of any sinking fund. (9) Definition. If the day upon which any payment is to be made or any other action is to be taken or any event is scheduled to occur pursuant to the terms of Articles of Amendment is not a business day, the payment shall be made or the other action shall be taken on the next succeeding business day. A "business day" is defined as a day in the City of Houston, County of Harris, Texas, that is not a legal holiday or a day on which banking institutions are authorized or obligated by law to close. 2. Existing Paragraph F of Article III is relettered as paragraph G. APPEARERS further stated that all of the shares of the Corporation have par value; that the Corporation is authorized to issue 50,000,000 shares, of which 40,000,000 are common shares of the par value of $1.25 per share and 10,000,000 are preferred shares of the par value of $0.05 per share; and that the Board of Directors of the Corporation and the Special Committee thereof each has the authority to amend the articles to fix the preferences, limitations and relative rights of the preferred shares, and to establish, and fix variations and relative rights and preferences as between series of preferred shares, all as more fully set out in Article III of the Restated Articles of Incorporation. AND SAID APPEARERS having requested me, Notary, to note said amendment in authentic form, I do by these presents receive said amendments in the form of this public act to the end that said amendment may be promulgated and recorded and thus be read into the Restated Articles of Incorporation of Southdown, Inc., as hereinabove set forth. THUS DONE AND PASSED, in my office at Houston, Harris County, State of Texas, on the day, month and year first above written, in the presence of the undersigned competent -16- 17 witnesses, who hereunto sign their names with the said appearers and me, Notary, after a due reading of the whole. SOUTHDOWN, INC. By: __________________________ Clarence C. Comer President By: __________________________ Wendell E. Phillips, II Secretary WITNESSES: _____________________________ _____________________________ ____________________________ NOTARY PUBLIC -17- EX-5 4 OPINIONS 1 Exhibit 5 (Common) [Bracewell & Patterson, L.L.P. Letterhead] January 20, 1994 Southdown, Inc. 1200 Smith Street Suite 2400 Houston, Texas 77002 Gentlemen: We have acted as counsel to Southdown, Inc., a Louisiana corporation (the "Company"), in connection with the preparation of its Registration Statement on Form S-3 (Registration No. 33-51131), as amended, filed by the Company under the Securities Act of 1933, as amended (the "Registration Statement"), with respect to the offering and sale by a selling shareholder named in the Registration Statement (the "Selling Shareholder") of up to the number of shares of the Company's common stock, par value $1.25 per share (including the Rights attached thereto issued pursuant to the Rights Agreement dated as of March 4, 1991 between the Company and First City, Texas - Houston, N.A., (the "Common Stock") specified therein. We have examined originals or copies of (i) the Registration Statement; (ii) the Restated Articles of Incorporation of the Company, as amended; (iii) the Bylaws of the Company, as amended; (iv) certain resolutions of the Board of Directors of the Company, including resolutions of the Special Committee thereof; and (v) such other documents and records as we have deemed necessary and relevant for purposes hereof. In addition, we have relied upon certificates of officers of the Company and telegrams of public officials as to certain matters of fact relating to this opinion and have made such investigations of law as we have deemed necessary and relevant as a basis hereof. We have assumed the genuineness of all signatures, the authenticity of all documents, certificates and records submitted to us as originals, the conformity to original 2 Southdown, Inc. January 20, 1994 Page 2 documents, certificates and records of all documents, certificates and records submitted to us as copies, and the truthfulness of all statements of fact contained therein. Based upon the foregoing, and subject to the limitations and assumptions set forth herein, and having due regard for such legal considerations as we deem relevant, we are of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Louisiana. 2. The shares of Common Stock to be sold by the Selling Shareholder, are, validly issued, fully paid, and nonassessable. The foregoing opinion is based on and is limited to the laws of the State of Texas and the State of Louisiana and the relevant law of the United States of America, and we render no opinion with respect to the law of any other jurisdiction. Insofar as the law of the State of Louisiana is applicable to the matters discussed herein, we have relied upon the opinion of Messrs. Stone, Pigman, Walther, Wittmann & Hutchinson, a copy of which is attached hereto and our opinion is subject to the qualifications, limitations and assumptions set forth therein. We hereby consent to the filing of this opinion with the Securities and Exchange Commission as Exhibit 5 to the Registration Statement and to all references to our firm therein. You are advised that Edgar J. Marston III, who serves in an "of counsel" capacity to this firm, is an executive officer and a member of the Board of Directors of the Company. Very truly yours, Bracewell & Patterson, L.L.P. 3 [Stone, Pigman, Walther, Wittmann & Hutchinson Letterhead] January 20, 1994 47,919 Bracewell & Patterson 2900 South Tower, Pennzoil Place Houston, Texas 77002-2781 Re: Southdown, Inc. Registration Statement No. 33-51131 Offer and Sale of Common Stock by Selling Shareholder Ladies and Gentlemen: We have acted as special Louisiana counsel to Southdown, Inc., a Louisiana corporation (the "Company"), in connection with the preparation of its Registration Statement on Form S-3 (Registration No. 33-51131), as amended, filed by the Company under the Securities Act of 1933, as amended (the "Registration Statement"), with respect to the offering and sale of a number of shares of the Company's common stock, par value $1.25 per share (including the Rights attached thereto issued pursuant to the Rights Agreement dated as of March 4, 1991 between the Company and First City, Texas - Houston, N.A.), (the "Common Stock") by a selling shareholder as named therein (the "Selling Shareholder"). With your concurrence, in connection with your request, we have limited our review of documents to an examination of copies of (i) the Registration Statement; (ii) the Restated Articles of Incorporation of the Company, as amended; (iii) the Bylaws of the Company, as amended; (iv) certain resolutions of the Board of Directors of the Company, including resolutions of the 4 2 January 20, 1994 Special Committee thereof; and (v) certificates of officers of the Company and certificates or letters of public officials as to certain matters of fact relating to this opinion. In addition, for purposes of the opinions expressed in this letter, we have assumed: (a) the genuineness of all signatures; (b) the authenticity of all records, instruments and documents submitted to us as originals and the conformity to originals of all records, instruments and documents submitted to us as copies; (c) the truthfulness of all statements of fact and representations and warranties contained in the records, agreements, instruments and documents submitted to us; (d) that all records, instruments and documents referred to in this letter comply with all applicable laws other than the laws of the State of Louisiana and; (e) with respect to the shares of Common Stock to be sold by the Selling Shareholder, (i) that the consideration fixed for the issuance of any of such shares was paid before issuance thereof, (ii) that any of such shares previously issued upon the conversion of convertible securities or the exercise of options of the Company were issued upon the conversion or exercised in accordance with the terms and provisions of those securities or option plans and option agreements, as the case may be, (iii) the proper grant of any options in accordance with the terms of each option plan pursuant to which any such shares were issued, (iv) that the purchase price for any such shares issued upon the exercise of options was not less than the par value of the shares for which the options were exercised, and (v) with respect to the distribution of the Rights as a dividend, the availability of sufficient surplus from which dividends may legally be declared and legally paid under the Louisiana Business Corporation Law. In addition, in rendering the opinions expressed in this letter, we have assumed the accuracy and completeness of, and have relied upon, certificates and facsimile transmissions by public officials and officers of the Company. With your concurrence, the opinions rendered in this letter are based upon the assumptions and are subject to the qualifications and limitations set forth herein. Based upon and in reliance on the foregoing, we are of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Louisiana. 2. The shares of Common Stock to be sold by the Selling Shareholder are validly issued, fully paid, and nonassessable. The opinions expressed in this letter are limited to the matters stated herein, and no opinion may be inferred beyond the matters expressly stated, are given only as of this date, and are based on the law in effect as of this date. We have no obligation, and will not undertake, to report to you or any third parties changes in facts or laws, statutes or jurisprudence. 5 3 January 20, 1994 This letter is furnished at your request and may be relied upon only by Bracewell & Patterson for purposes of the opinion to be delivered by you in connection with the Registration Statement. We hereby consent to filing this opinion with the Securities and Exchange Commission as Exhibit 5 to the Registration Statement and the use of our name thereon. It may not be used, circulated or quoted, in whole or part, or relied upon for any other purpose or by any other person without our prior written consent. We are members of the Louisiana Bar, and the opinions in this letter are based on and limited to the laws of the State of Louisiana. The opinions contained in this letter are limited in that we express no opinion with respect to federal laws, state blue sky or other securities laws, tax or environmental laws or matters, the laws of any municipality, parish or other political subdivision of the State of Louisiana or any agency thereof, or the laws of any jurisdiction other than Louisiana. This letter expresses our professional legal opinion as to the matters addressed in this letter and is based upon our professional knowledge and judgment; it is not, however, to be construed as a guaranty. Very truly yours, Stone, Pigman, Walther, Wittmann & Hutchinson EX-15 5 CONSENT FROM DELOITTE & TOUCHE 1 EXHIBIT 15 January 19, 1994 Southdown, Inc. 1200 Smith Street Houston, Texas We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Southdown, Inc. and subsidiary companies for the periods ended March 31, 1993 and 1992, June 30, 1993 and 1992 and September 30, 1993 and 1992, as indicated in our reports dated April 21, 1993, August 9, 1993 and November 1, 1993, respectively; because we did not perform an audit, we expressed no opinion on that information. We are aware that our reports referred to above, which were included in your Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993, June 30, 1993 and September 30, 1993, are being used in Amendment No. 2 to Registration Statement No. 33-51131. We also are aware that the aforementioned reports, pursuant to Rule 436(c) under the Securities Act of 1933 (the "Act"), are not considered a part of Amendment No. 2 to Registration Statement No. 33-51131 prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. DELOITTE & TOUCHE -----END PRIVACY-ENHANCED MESSAGE-----