-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KxDE3L0hAPMzjqHBjA5LmEL4v/h1i2ODggGkQ3Y+Ey0EvypI4s0fyB7/QZE53m0d EhBDgyScCrwKGnTauSpnEw== 0000950133-99-001137.txt : 19990402 0000950133-99-001137.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950133-99-001137 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAFARGE CORP CENTRAL INDEX KEY: 0000716783 STANDARD INDUSTRIAL CLASSIFICATION: CEMENT, HYDRAULIC [3241] IRS NUMBER: 581290226 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08584 FILM NUMBER: 99582951 BUSINESS ADDRESS: STREET 1: 11130 SUNRISE VALLEY DR STE 300 CITY: RESTON STATE: VA ZIP: 22091-4329 BUSINESS PHONE: 7032643600 10-K405 1 ANNUAL REPORT ON FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------ FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________. Commission File Number 0-11936 ------------------------------------ LAFARGE CORPORATION (Exact name of Company as specified in its charter) MARYLAND 58-1290226 (State or other jurisdiction of (I.R.S. Employer identification No.) incorporation or organization) 11130 SUNRISE VALLEY DRIVE 20191 SUITE 300, RESTON, VIRGINIA (Zip Code) (Address of principal executive offices)
COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 264-3600 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, par value $1.00 per share New York Stock Exchange, Inc. The Toronto Stock Exchange Montreal Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by nonaffiliates of the Company at March 8, 1999: $1,058,737,119 Indicate the number of shares of each of the Company's classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 8, 1999 ----- ---------------------------- Common Stock, par value $1.00 per share 72,386,782 shares (including 4,924,041 Exchangeable Preference Shares of Lafarge Canada Inc.)
DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive Proxy Statement for the 1999 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III of this Annual Report on Form 10-K as indicated herein. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 LAFARGE CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 TABLE OF CONTENTS
PAGE PART I Item 1. Business.................................................... 1 Executive Officers of the Company........................... 22 Item 2. Properties.................................................. 24 Item 3. Legal Proceedings........................................... 24 Item 4. Submission of Matters to a Vote of Security Holders......... 25 PART II Item 5. Market for the Company's Common Equity and Related Stockholder Matters......................................... 26 Item 6. Selected Consolidated Financial Data........................ 27 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 28 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 43 Item 8. Financial Statements and Supplementary Data................. 44 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.................................... 72 PART III Item 10. Directors and Executive Officers of the Company............. 73 Item 11. Executive Compensation...................................... 73 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 73 Item 13. Certain Relationships and Related Transactions.............. 73 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 74 Signatures.................................................. 78
i 3 FORWARD-LOOKING STATEMENTS Statements we make in this Annual Report on Form 10-K that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions ("Factors") which are difficult to predict. The Factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to: - - the cyclical nature of our business - - national and regional economic conditions in Canada and the United States - - Canadian currency fluctuations - - the outcome and impact of the Year 2000, including the Year 2000 readiness of third parties - - seasonality - - levels of construction spending in major markets - - supply/demand structure of our industry - - competition from new or existing competitors - - unfavorable weather conditions during peak construction periods - - changes in and implementation of environmental and other governmental regulations In general, we are subject to the risks and uncertainties of the construction industry and of doing business in the United States and Canada. The forward-looking statements are made as of this date, and we undertake no obligation to update them, whether as a result of new information, future events or otherwise. Throughout this discussion, when we refer to Lafarge, the Company, us, we, or our, we mean Lafarge Corporation and its subsidiaries. Our executive offices are located at 11130 Sunrise Valley Drive, Suite 300, Reston, Virginia 20191, and our telephone number is (703) 264-3600. PART I ITEM 1. BUSINESS Who are we? Lafarge Corporation, together with its subsidiaries, is North America's largest diversified supplier of construction materials. We provide the construction industry with a full range of aggregates, concrete and concrete products, cement and cementitious materials, and gypsum wallboard that build your world. We have more than 700 operations doing business in most states and throughout Canada where we conduct our business through our subsidiary, Lafarge Canada Inc. Our products are used in roads, hospitals, department stores, sports stadiums, banks, museums, high-rise apartments, amusement parks, swimming pools, bridges and even sewer pipes on which your world depends. In 1998, we generated net sales of $2.45 billion, and we shipped 13.5 million tons of cement, 78.5 million tons of aggregates, 10.3 million cubic yards of ready-mixed concrete and 732 million square feet of gypsum wallboard. Yet, our geographic and product diversity, although essential to increasing and maintaining our leadership in the industry, is only part of Lafarge. The other essential part of our business is the over 10,000 people we employ. Our employees provide customers with technical, engineering, research and customer service support to create, use and implement special types and applications of our products to meet specified structural and stringent environmental demands. How are we organized; what do we make? Our business is organized into three operating segments. Each segment represents a separately managed strategic business unit that has different capital requirements and marketing strategies. We call these segments the Cement Group, the Construction Materials Group and Lafarge Gypsum. 1 4 - The Cement Group - Produces and distributes portland and specialty cements; - Distributes cementitious materials such as fly ash and silica fume; and - Processes fuel-quality waste and alternative raw materials for cement kilns. - The Construction Materials Group - Produces and supplies aggregates (crushed stone, sand and gravel); - Produces and supplies ready-mixed concrete, concrete products and asphalt; and - Provides road paving and construction services. - Lafarge Gypsum - Produces and distributes a full line of gypsum wallboard products for commercial and residential construction. In addition to this discussion of each segment, you will be able to evaluate the financial performance of each segment by reviewing "Management's Discussion of Income" in Management's Discussion and Analysis of Financial Condition and Results of Operations set forth under Item 7, Part II of this Annual Report and the "Segment and Related Information" of Notes to Consolidated Financial Statements also set forth under Item 8, Part II of this Annual Report, which are incorporated herein by reference. What is the Lafarge Group? We are part of the Lafarge Group, which includes Lafarge S.A. and its consolidated subsidiaries. Lafarge S.A., a French company, holds over 50% of our common stock. The Lafarge Group, a world leader in building materials, holds leading positions in each of its five divisions: cement, aggregates and concrete, roofing, gypsum and specialty materials. The Lafarge Group employs 66,000 people in 65 countries and generated sales in excess of $11.4 billion in 1998. Among other things, Lafarge S.A. provides marketing, technical, research and development, and managerial assistance to us. For example, Lafarge S.A.'s 30-year experience in the gypsum business and building new plants around the world supported our entry into the gypsum industry. How our company developed 1956 Our majority shareholder, Lafarge S.A., entered the North American cement market by building a cement plant in Richmond, British Columbia and forming Lafarge Cement North America. 1970 Our majority shareholder acquired Canada Cement Company (now Lafarge Canada, our Canadian subsidiary), already Canada's largest cement producer. 1974 Lafarge Canada entered the U.S. market by a joint venture to operate three cement plants in the U.S. 1977 Although the joint venture terminated, we were incorporated in Maryland in 1977 as Citadel Cement Corporation of Maryland and operated two of the three U.S. cement plants. 1981 Lafarge Canada acquired the common stock of General Portland Inc., the second largest cement producer in the U.S. 1983 A corporate reorganization established us as the parent of Lafarge Canada and General Portland. We completed our initial public offering of common stock. 1986 We acquired National Gypsum's Huron Cement Division, consisting of the Alpena, Michigan cement plant, the largest cement plant in North America, 13 inland cement terminals and several Great Lakes distribution facilities. We also acquired Systech which processes fuel-quality waste and alternative raw materials for use in our cement kilns.
2 5 1989 We acquired 32 plant facilities in five states and mineral reserves from Standard Slag Holding Company, significantly expanding our construction materials operations in the U.S. 1991 We acquired three cement plants, 15 cement terminals, two quarries and more than 30 ready-mixed concrete and aggregates operations in the Mississippi River Basin when we acquired Missouri Portland Cement Company and Davenport Cement Company. 1993 We reorganized our business into the three cement regions and three construction materials regions. We divested our Texas and Alabama assets. 1995 We acquired National Portland Cement's 600,000 ton capacity cement grinding plant in Port Manatee, Florida. 1996 We entered the North American gypsum market when we bought two gypsum wallboard plants located in Buchanan, New York and Wilmington, Delaware, and created the new operating segment Lafarge Gypsum. 1997 We began work on new state-of-the-art cement manufacturing plants to replace existing facilities in Richmond, British Columbia and Sugar Creek, Missouri. The $110 million Richmond plant, expected to be completed in 1999, will increase annual clinker production from approximately 600,000 tons to 1.1 million tons. The $140 million Sugar Creek plant and an underground limestone quarry, expected to be completed in late 2000, will have a rated capacity of 900,000 tons of cement a year.
What were our acquisitions and capital improvements in 1998? In 1998, we finalized the largest acquisition in our history when we bought the construction materials businesses of Denver-based Western Mobile Inc.; Redland Genstar Inc. of Towson, Maryland; and the Ontario and New York based aggregates operations of Redland Quarries Inc. from Lafarge S.A. for $690 million in cash. This acquisition, which we refer to as Redland, made Lafarge the largest diversified supplier of construction materials in North America with over 10,000 employees and approximately 700 locations. - Like us, Redland produces and sells aggregates, asphalt, ready-mixed concrete and other concrete products, and performs paving and related contracting services; - Redland does business primarily in Colorado, New Mexico, Maryland and New York and owns two quarry operations in Ontario, Canada; - Redland increased our annual sales volumes of construction aggregates by about 75% to approximately 75 million tons, expanded our ready-mixed concrete sales volumes in North America by a third to approximately 10 million cubic yards and added more than 6 million tons of asphalt sales; - The 125 Redland operations acquired posted combined revenues of approximately $572 million in 1998. On October 20, 1998, we acquired a cement plant in Seattle, Washington, two cement distribution facilities, one of which we subsequently sold, and a limestone quarry in British Columbia from Holnam, Inc. The Seattle plant has an annual capacity of 420,000 tons of clinker and became the 15th cement plant in our cement manufacturing network, which we believe is the largest in North America. On December 17, 1998, we announced a definitive agreement to acquire Atlantic Group Limited, a Newfoundland, Canada gypsum wallboard manufacturing plant, and Atlantic Gypsum Resources, Inc., a Newfoundland gypsum quarry. We plan to upgrade and increase the manufacturing capacity of the plant and the quarry. Other major capital expenditures in 1998 included: - continuing construction on new state-of-the-art cement manufacturing plants to replace existing facilities in Richmond, British Columbia and Sugar Creek, Missouri; - acquiring a large supplier of fly ash in the United States which, when combined with our existing business, makes us one of the largest distributors of fly ash in the U.S.; 3 6 - constructing a new cement terminal in Chicago; - making numerous aggregates and concrete acquisitions to complement and reinforce our existing market positions; and - upgrading the mobile equipment in the Construction Materials Group. Our business is relatively capital-intensive. During the three-year period ended December 31, 1998, our capital expenditures were approximately $473 million, principally for the modernization or replacement of existing equipment. Of this amount, the Cement Group, the Construction Materials Group and Lafarge Gypsum represented approximately 66%, 33% and 1%, respectively. During the same period, excluding Redland which was financed by the issuance, in July 1998, of $650 million in public debt, we also invested approximately $192 million in various acquisitions that expanded our market and product lines. Of this amount, the Cement Group, the Construction Materials Group and Lafarge Gypsum represented approximately 34%, 33% and 33%, respectively. During the three-year period ended December 31, 1998, operating cash flows and divestment proceeds totaled $991 million. In 1998, operating cash flows and divestment proceeds totaled $399 million, while investments (capital expenditures and acquisitions), excluding the $690 million Redland acquisition, reached $324 million. During 1998, Lafarge's proceeds from the sale of nonstrategic assets, surplus land and other miscellaneous items totaled $22.9 million. In 1999, we expect capital expenditures to be approximately $450 million. We intend to invest in projects that maintain or improve the performance of our plants as well as in acquisition opportunities that will enhance our competitive position in the U.S. and Canada. The 1999 capital expenditures will include a portion of the $90 million state-of-the-art gypsum wallboard manufacturing facility, we plan to build in Kentucky, that we announced on January 27, 1999. The plant is expected to begin operations in the second quarter of 2000. This facility will produce up to 900 million square feet of wallboard a year, which currently would make it the largest single wallboard production line in the U.S. What is our business strategy? Our core business strategy continues to be defined by three fundamental elements -- growth and development, operational excellence and commitment to change. - - GROWTH AND DEVELOPMENT, both through acquisition and internal development, is one of our highest priorities. Along with the Redland acquisition in 1998, we strengthened our competitive position through acquisitions and capital improvements in each of our three segments: the Cement Group, the Construction Materials Group and Lafarge Gypsum. These acquisitions and capital improvements are discussed in this Annual Report in "What were our acquisitions and capital improvements in 1998?" These actions and other internal developments (described in Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Part II, Item 7 of this Annual Report) have changed our financial structure appreciably. Our ratio of long-term debt to total capitalization, which has been exceptionally low the past few years, increased to 30% at the end of 1998, a level that is well within Lafarge's internal target range. Our basic objective is to maintain a strong balance sheet with sufficient flexibility to capitalize on additional opportunities when they arise. We continue to pursue such opportunities, particularly in aggregates and related activities. It is worth noting that these less cyclical businesses now account for approximately 30% of our revenue stream, compared with only 17% in 1997. - - OPERATIONAL EXCELLENCE encompasses the range of programs we have established for manufacturing efficiency, cost control and continuous improvement. Synergy is an overused term; nonetheless, it is relevant to our concept of operational excellence. Lafarge is turning its size into a competitive advantage, capitalizing not only on the inherent synergies in our organization. One example is information technology. Lafarge Gypsum's new customer service 4 7 project will produce a system for forecasting, pricing and customer service that can also be adapted for use in the Cement Group. Also, purchasing activities and logistics now are coordinated across all product lines, leveraging the buying power of a $2.4 billion company so we can achieve substantial, permanent savings. Another example: having a large sales force that's dispersed across the U.S. and Canada opens new doors to cross-product sales and service. In the Maritimes and Quebec, for instance, we can capitalize on an already strong brand identity by using our existing cement and construction materials sales organizations to market gypsum wallboard from the plant we just acquired in Newfoundland. Our vision of operational excellence includes common operating models and the rigorous application of best business practices. These types of programs remain priorities for all of our product lines today and are supported at the corporate level through our Corporate Technical Services Department for the Cement Group and our new Business Performance Department in the Construction Materials Group. - - COMMITMENT TO CHANGE provides a third pathway to superior performance. As an example, in 1999 we will open a new Shared Services Center to provide low-cost, high-volume accounting and transaction services for our Cement Group. Prior to this, we had these services in all three of our cement regional offices. A second change we made in the past year was to realign our organizational structure to improve the efficiency of our business development process. In essence, this realignment has allowed us to add personnel who will support our field people in evaluating structural market conditions and identifying viable development and acquisition opportunities. A third change involves a more formal process to monitor the various business issues and concerns of our customer base. We have formed a new Product Development function to harness innovation within Lafarge, organize it and orient it in a more disciplined fashion to meet the demands of our customers while creating value for us. THE CEMENT GROUP Who are we? We are the largest cement-manufacturing company in Canada, the third largest in the U.S., and we operate North America's broadest cement distribution system by truck, rail, barge and freighter. Our Cement Group was formed by combining several prominent North American cement groups -- Canada Cement Lafarge, General Portland, National Gypsum's Huron Cement division, and the Missouri Portland and Davenport Cement companies. In 1998, net sales increased 7% to $1.12 billion and operating profit increased 12% to $288.7 million. During 1998, the Cement Group accounted for 46% of consolidated net sales, after the elimination of intracompany sales, and 60% of consolidated income from operations. We manufacture a diverse product line that includes basic cements in both bulk and bags: - Portland - Masonry And specialty cements: - Oil well - Low alkali - High early strength - Moderate heat of hydration - Sulfate resistant cements - Silica fume cement 5 8 Our cements are used in every facet of residential, institutional, commercial, industrial and public construction from offices and homes to dams, factories, tunnels, roads, highways and airports. In addition, our subsidiary, Systech Environmental Corporation, processes industrial hazardous and non-hazardous waste for use as fuel substitutes for coal, natural gas and petroleum coke used in heating cement kilns. Substitute fuels preserve natural resources and manage selected waste materials, while at the same time reducing fuel cost for manufacturing cement. At December 31, 1998, Systech had waste processing and storage facilities at three of Lafarge's U.S. cement plants. Systech processed approximately 63 million gallons of supplemental fuel in 1998. Waste-derived fuels supplied by Systech constituted approximately 11% of all fuel used by Lafarge in our cement operations during 1998. Another subsidiary, Mineral Solutions Inc., engages in the management and marketing of fly ash, a coal combustion by-product which is the residue produced by coal burning, electricity generating plants. One use of fly ash is as a cement supplement (replacing a portion of the portland cement) to enhance the performance of concrete used in large construction projects such as high-rise buildings, bridges and parking garages. We believe that Mineral Solutions is a leading North American supplier of fly ash. We include the financial results of Systech and Mineral Solutions in the Cement Group's financial results. How is cement made? Processed cement was discovered by Joseph Aspdin in 1824 and was called "portland cement" because it resembled a grey stone mined from the island of Portland off the coast of England. People often confuse cement with concrete. Concrete is a mixture of cement, aggregates and water that hardens to form a building material used for everything from sidewalks to skyscrapers. Cement is a fine powder that is the principal strength-giving and property-controlling component of concrete. While different types of cement vary in their ingredients, four common elements are found in all types of cement. They are (from most to least): calcium carbonates (limestone), silicates (sand), argillaceous material (clay, shale or kaolin), and iron. Cement is manufactured by a closely controlled chemical process: - beginning with the crushing and mixing of limestone, sand, clay and iron-rich materials; - next, the crushed raw materials undergo a grinding process, which mixes the various materials more thoroughly and increases fineness in preparation for the kiln; - mixing and grinding may be done by either the wet or the dry process; - in the wet process, the materials are mixed with water to form "slurry", which is heated in kilns, forming hard pellets called "clinker;" - in the more fuel efficient dry process, the addition of water and the formation of slurry are eliminated, and clinker is formed by heating the dry raw materials; - in the preheater process, which provides further fuel efficiencies, the dry raw materials are preheated by air exiting the kiln, and part of the chemical reaction takes place prior to entry of the materials into the kiln; - in the pre-calciner process, an extension of the preheater process, heat is applied to the raw materials, increasing the proportion of the chemical reaction taking place prior to heating in the kiln and, as a result, increases clinker production capacity; and - gypsum is added and the clinker is ground into an extremely fine powder, which is the portland cement, a binding agent which, when mixed with sand, stone or other aggregates and water, produces either concrete or mortar. 6 9 Where do we get the raw materials to make cement? We obtain the limestone required to manufacture cement principally from operations we own or in which we have long-term quarrying rights. These sources are located close to our manufacturing plants, except for the Joppa, Richmond and Seattle quarries which are located approximately 70, 80 and 180 miles, respectively, from their plant sites. Quarried materials are delivered to Joppa, Richmond and Seattle by barge. At Joppa, we own the reserves, but lease the quarrying rights and purchase limestone from the lessee. At Whitehall and Kamloops, we subcontract the quarry operations. Lafarge Canada's quarrying rights for limestone used by cement manufacturing plants in the Canadian provinces of Quebec, Nova Scotia, Ontario, Alberta and British Columbia are held under quarry leases, some of which require annual royalty payments to the provincial authorities. We estimate that limestone reserves for all cement plants currently producing clinker will be adequate to permit production at present capacities for at least 20 years. Other raw materials, such as clay, shale, sandstone and gypsum are either obtained from reserves owned by Lafarge or are purchased from suppliers and are readily available. Where is our cement made? Our U.S. plants are primarily concentrated in the central and midwestern states, extending from the northern Great Lakes southward along the Mississippi River system. We are the only cement producer serving all regions of Canada. At December 31, 1998, we operated 15 full-production cement manufacturing plants with a combined rated annual clinker production capacity of approximately 12.1 million tons consisting of 5.2 million tons in Canada and 6.9 million tons in the United States. We also operated two cement grinding facilities. The Portland Cement Association's ("PCA") "U.S. and Canadian Portland Cement Industry: Plant Information Summary" which was prepared as of December 31, 1997, the most recent date for which information is available, shows that Lafarge Canada's capacity is the largest of the cement companies in Canada and represented approximately 35% of the total active industry clinker production capacity in Canada. A similar report for the U.S. prepared as of December 31, 1997, shows that our operating cement manufacturing plants in the United States accounted for an estimated 8.5% of total U.S. active industry clinker production capacity. The following table indicates the location, types of process and rated annual clinker production capacity (based on management's estimates) of each of Lafarge's operating cement manufacturing plants at December 31, 1998. The total clinker production of a cement plant might be less than its rated capacity due principally to product demand and seasonal factors. Generally, a plant's cement production capacity is greater than its clinker production capacity. 7 10 RATED ANNUAL CLINKER PRODUCTION CAPACITY OF CEMENT MANUFACTURING PLANTS (IN SHORT TONS)*
UNITED STATES PLANTS - ---------------------------------------------- CLINKER LOCATION PROCESS CAPACITY -------- ------- --------- Paulding, OH......... Wet 471,200 Fredonia, KS......... Wet 376,200 Whitehall, PA........ Dry*** 785,900 Alpena, MI........... Dry 2,275,500 Davenport, IA........ Dry** 943,600 Sugar Creek, MO...... Dry 517,500 Joppa, IL............ Dry*** 1,172,900 Seattle, WA.......... Wet 420,000 --------- Total Capacity.............. 6,962,800 ========= Total 1998 clinker production............... 6,495,000 ========= 1998 production as a percentage of total capacity****............. 98% =========
CANADIAN PLANTS - ---------------------------------------------- CLINKER LOCATION PROCESS CAPACITY -------- ------- --------- Brookfield, N.S...... Dry 504,300 St. Constant, QUE.... Dry 1,046,200 Bath, ONT............ Dry*** 1,120,700 Woodstock, ONT....... Wet 560,200 Exshaw, ALTA......... Dry** 1,185,500 Kamloops, B.C........ Dry 211,700 Richmond, B.C........ Wet 558,100 --------- Total Capacity.............. 5,186,700 ========= Total 1998 clinker production............... 4,683,000 ========= 1998 production as a percentage of total capacity................. 90% =========
- --------------- * One short ton equals 2,000 pounds. ** Preheater, pre-calciner plants. The capacity of Exshaw's preheater, pre-calciner kiln is 65% of the plant's clinker production capacity. *** Preheater plants. The capacity of Joppa's preheater kiln is 55% of the plant's clinker production capacity. **** Calculated based on partial year ownership and operation of the Seattle plant. All of our cement plants are fully equipped with raw grinding mills, kilns, finish grinding mills, environmental dust collection systems and storage facilities. We own all of our cement plants and the land on which they are located free of major encumbrances, except the Exshaw cement plant and the Kamloops limestone and cinerite quarries. - The Exshaw plant is built on land leased from the province of Alberta. The original lease has been renewed for a 42-year term commencing in 1992. Annual payments under the lease are presently based on a fixed fee per acre. - The Kamloops limestone and cinerite quarries are on land leased from the province of British Columbia until March 2022. We believe that each of our cement manufacturing plants is in satisfactory operating condition. At December 31, 1998, we owned cement grinding plants for the processing of clinker into cement at Fort Whyte, Manitoba; Edmonton, Alberta; Montreal East, Quebec; Superior, Wisconsin; and Port Manatee and Tampa, Florida. The Fort Whyte grinding plant was shutdown in 1994; furthermore, the Edmonton, Montreal East and Superior grinding plants have been shutdown for several years because cement grinding has not been cost effective at these locations. These plants were used during 1998 for the storage of cement. The Port Manatee and Tampa plants include facilities for receiving clinker and cement by water. We also own clinker producing plants that have been shutdown in Havelock, New Brunswick and Fort Whyte, Manitoba. 8 11 The significance of fuel in making cement Fuel represents a significant portion of the cost of manufacturing cement. We place special emphasis on becoming, and have become, more efficient in our sourcing and use of fuel. In general, dry process plants consume significantly less fuel per ton of output than do wet process plants. At December 31, 1998, approximately 78% and 82% of our clinker production capacity in Canada and the U.S., respectively, used the dry process. As an additional means of reducing energy costs, most of our cement plants are equipped to convert from one form of fuel to another with very little interruption in production, thus avoiding dependence on a single fuel and permitting us to take advantage of price variations between fuels. Our use of fuel-quality waste supplied by Systech also has resulted in substantial fuel cost savings. At December 31, 1998, we used fuel-quality waste materials obtained and processed by Systech as fuel at three of our cement plants in the U.S. Fuel-quality waste supplied by Systech constituted approximately 11% of the fuel used by us in all of our cement operations during 1998. Our three U.S. cement plants which utilize fuel-quality waste are subject to emission limits and other requirements under the Federal Resource Conservation and Recovery Act ("RCRA") and Boiler and Industrial Furnaces ("BIF") regulations. See "Environmental Matters -- Resource Conservation and Recovery Act -- Boiler and Industrial Furnaces Regulations." The following table shows the possible alternative fuel sources of Lafarge's cement manufacturing plants in the U.S. and Canada at December 31, 1998.
PLANT LOCATION FUELS -------------- ------------------------------ United States: Paulding, Ohio......................................... Coal, Coke, Fuel-Quality Waste Fredonia, Kansas....................................... Coal, Fuel-Quality Waste, Natural Gas, Coke Whitehall, Pennsylvania................................ Coal, Oil, Coke, Tire Derived Fuel Alpena, Michigan....................................... Coal, Coke, Fuel-Quality Waste, Natural Gas Davenport, Iowa........................................ Coal, Coke Sugar Creek, Missouri.................................. Coal, Coke, Natural Gas Joppa, Illinois........................................ Coal, Coke, Natural Gas Seattle, Washington.................................... Natural Gas, Coal, Coke, Fuel- Quality Waste, Tire Derived Fuel Canada: Brookfield, Nova Scotia................................ Coal, Oil, Fuel-Quality Waste St. Constant, Quebec................................... Natural Gas, Oil, Coke, Pitch Fuel, Tire Derived Fuel Bath, Ontario.......................................... Natural Gas, Coke, Coal Woodstock, Ontario..................................... Natural Gas, Coal, Coke, Oil Exshaw, Alberta........................................ Natural Gas Kamloops, British Columbia............................. Natural Gas, Coal, Coke Richmond, British Columbia............................. Natural Gas, Coke, Coal Tailings, Bio Gas
9 12 Who buys our cement? We sell cement to several thousand unaffiliated customers. Our primary customers are: - manufacturers of ready-mixed concrete and other concrete products - contractors throughout Canada and in many areas of the U.S. The states in which we had the most significant U.S. sales in 1998 were Florida and Michigan. Other states in which we had significant sales included: Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, Nebraska, New York, North Dakota, Ohio, Pennsylvania, Tennessee, Wisconsin and Washington. In Canada, we made our most significant sales of cement products in Ontario and Alberta, which together accounted for approximately 50% of our total Canadian cement shipments in 1998. Other provinces in which we had significant sales included British Columbia and Quebec. Approximately 24% of our cement shipments in Canada were made to affiliates. No single unaffiliated customer accounted for more than 10% of Lafarge's consolidated sales during 1998, 1997 or 1996. How do we distribute our products to our customers? At December 31, 1998, our sales offices in the U.S. were located in Buffalo, New York; Port Manatee, Florida; Whitehall, Pennsylvania; Maumee and Avon Lake, Ohio; Lansing, Michigan; Milwaukee, Wisconsin; Seattle and Spokane, Washington; Kansas City, Missouri; Davenport, Iowa; Valley City, Bismarck and Grand Forks, North Dakota; and Nashville, Tennessee. At December 31, 1998, our sales offices in Canada were located in Moncton, New Brunswick; Quebec City and Montreal, Quebec; Richmond Hill, Ontario; Winnipeg, Manitoba; Regina and Saskatoon, Saskatchewan; Edmonton, Alberta; and Kamloops and Vancouver, British Columbia. Distribution and storage facilities are maintained at all cement manufacturing and finishing plants and at approximately 80 other locations including four deep water ocean terminals. These facilities are strategically located to extend the marketing areas of each plant. Because of freight costs, most cement is sold within a radius of 250 miles from the producing plant, except for waterborne shipments which can be economically shipped considerably greater distances. Our cement is distributed primarily in bulk but also in paper bags. We utilize trucks, rail cars and waterborne vessels to transport cement from our plants to distribution facilities or directly to our customers. Transportation equipment is owned, leased or contracted as required. In addition, some of our customers in the U.S. make their own transportation arrangements and take delivery of cement at our manufacturing plant or distribution facility. Each cement plant has facilities for shipping by rail and by truck. The Richmond, Alpena, Bath, Davenport, Sugar Creek, Seattle and Joppa plants have facilities for transportation by water. How do changes in the seasons affect our business? Our business is affected significantly by seasonal variations in weather conditions. Information with respect to quarterly financial results is set forth in "Notes to Consolidated Financial Statements -- Quarterly Data (Unaudited)" in Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report. Who are our competitors? The competitive marketing radius of a typical cement plant for common types of cement is approximately 250 miles except for waterborne shipments which can be economically transported considerably greater distances. Consequently, even cement producers with global operations compete on a regional basis in each market in which that company manufactures and distributes products. No single cement company in the U.S. has a production and distribution system extensive enough to serve all U.S. markets. A company's competitive 10 13 position in a given market depends largely on the location and operating costs of its plants and associated distribution terminals. Vigorous price, service and quality competition is encountered in each of our primary marketing areas. Our operating cement plants located in Canada represent an estimated 35% of the rated annual active clinker production capacity of all Canadian cement plants. We are the only cement producer serving all regions of Canada. Our largest competitor in Canada accounted for approximately 20% of rated annual active clinker production capacity. Our cement plants operating in the U.S., including the recently acquired Seattle plant, represented an estimated 8.5% of the rated annual active clinker production capacity of all U.S. cement plants. Our three largest competitors in the U.S. accounted for approximately 12%, 11% and 6%, respectively, of the rated annual active clinker production capacity. Our statements regarding Lafarge's ranking and competitive position in the cement industry are based on the PCA's "U.S. and Canadian Portland Cement Industry: Plant Information Summary" which was prepared as of December 31, 1997. Customer orders Sales of cement, as stated above, are made on the basis of competitive prices in each market area, generally pursuant to telephone orders from customers who purchase quantities sufficient for their immediate requirements. Our sales of these products do not typically involve long-term contractual commitments. The amount of backlog orders, as measured by written contracts, is normally not significant. THE CONSTRUCTION MATERIALS GROUP Who are we? We became one of the largest producers of aggregates in the U.S. after we completed our acquisition of more than 100 aggregates, road paving, concrete and other operations that were once part of the UK-based Redland PLC group. This gave us leading market positions in the western mountain states and Maryland, plus operations that complemented existing businesses in New York and southwestern Ontario. It also increased Lafarge's aggregates sales by approximately 75%. Our U.S. construction materials operations are located primarily in Colorado, New Mexico, Kansas, Louisiana, Missouri, Ohio, Maryland, Pennsylvania, West Virginia and Wisconsin. In Canada, we are the largest producer of concrete-related building materials. We are the only producer of ready-mixed concrete and construction aggregates in Canada that has operations extending from coast to coast. Our operations include ready-mixed concrete plants, crushed stone and sand and gravel sites, and concrete product and asphalt plants. During 1998, Lafarge's Construction Materials Group accounted for 55% of consolidated net sales, after the elimination of intracompany sales, and 36% of consolidated income from operations. We offer a broad range of products including: - Aggregates (crushed stone, sand and gravel) - Concrete and masonry sand - Slag aggregates - Asphalt for road paving and construction - Ready-mixed concrete - Roller compacted concrete - Gravity and pressure pipe - Pipe couplings, pipeline weights and coatings - Concrete brick, block and paving stones - Reinforcing steel 11 14 - Dry bagged products - Structural and architectural precast products - Concrete drainage systems and - Other building supplies Our aggregates are used as a base material in roads and buildings and as the raw materials for concrete, masonry, asphalt and many industrial processes. Our ready-mixed concrete (a blend of aggregates, water and cement) is used for a variety of applications from curbs and sidewalks to foundations, highways and buildings. Where are our aggregates, ready-mixed concrete and concrete products facilities located? In the U.S. and in Canada, we own substantially all of our aggregates, ready-mixed concrete and concrete products plants and believe that all of our plants are in satisfactory operating condition. In the U.S., we own or have a majority interest in approximately 200 construction materials locations at December 31, 1998, including: - 78 ready-mixed concrete plants of which 36% of the plants are concentrated in Colorado, with similar concentrations of the remaining plants in Missouri, Louisiana, Maryland and Wisconsin, and to a lesser extent in Kansas and New Mexico; - 84 U.S. construction aggregates facilities of which 48% are in Colorado, 14% are in Ohio, with the remainder located in Pennsylvania, Washington, West Virginia, Wisconsin, New Mexico, New York and Maryland; and - 33 U.S. asphalt facilities concentrated in Colorado and Maryland with the remaining plants in New York, New Mexico and Missouri. We owned or had a majority or joint interest in approximately 380 construction materials facilities in Canada at December 31, 1998, including: - 145 ready-mixed concrete plants concentrated in the provinces of Ontario (where approximately 71% of the plants are located), Alberta, Quebec and British Columbia and to a lesser extent in New Brunswick, Nova Scotia, Saskatchewan and Manitoba; - 162 construction aggregates facilities in Canada, approximately 42% of which are located in Ontario and other aggregates facilities located in Alberta, Saskatchewan, British Columbia, Quebec, Manitoba, New Brunswick and Nova Scotia; and - 28 Canadian asphalt facilities also concentrated primarily in Ontario with the remaining plants in Alberta, Nova Scotia, New Brunswick and Quebec. Where do we get the raw materials for our aggregates and ready-mixed concrete operations? The aggregates business consists of the mining, extraction, production and sale of stone, sand, gravel and lightweight aggregates such as expanded shale and clay. Aggregates are employed in virtually all types of construction, including highway construction and maintenance. The concrete business involves the mixing of cement with sand, gravel, crushed stone or other aggregates, and water to form concrete which is subsequently marketed and distributed to customers. We own the majority of our aggregates quarries and pits and facilities for production of ready-mixed concrete. We believe our reserves for our operations are adequate at current production levels. Moreover, even in our pits and quarries where the reserves are lower, we believe that new sources of aggregates would be available and obtainable without any interruption to our business. 12 15 Who buys our aggregates, ready-mixed concrete and concrete products? Aggregates are sold primarily to road building contractors and ready-mixed concrete producers. Ready-mixed concrete is sold primarily to building contractors and delivered to construction sites by mixer trucks. Precast concrete products and concrete pipe are sold primarily to contractors engaged in all types of construction activity. The states in which we had our most significant U.S. sales of construction materials in 1998 were Colorado and Maryland. Other states in which we had significant sales of construction materials included: Wisconsin, Ohio, New Mexico, Missouri, Louisiana, and Kansas. In Canada, we had our most significant sales of construction materials in Ontario and Alberta. In 1998, no single unaffiliated customer accounted for more than 10% of Lafarge's construction materials sales. How do we distribute our products to our customers? The cost of transportation of aggregates, ready-mixed concrete and concrete products is high, and consequently, producers are typically limited to a market area within 100 miles of their production facilities. We primarily utilize trucks and railroads to transport our aggregates and concrete products to customers. How do changes in the seasons and weather affect our business? Demand for aggregates, ready-mixed concrete and concrete products is seasonal because construction activity may diminish during the winter. Demand also may be adversely impacted by unfavorable weather conditions, including, for example, hurricanes. Information with respect to quarterly financial results is set fourth in "Notes to Consolidated Financial Statements -- Quarterly Data (Unaudited)" in Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report. Who are our competitors? Most local markets are highly competitive and are made up of both large multi-national companies as well as many small producers. Most ready-mixed concrete companies are comprised of 10 to 20 mixer trucks with annual sales in the $1.5 to $3.0 million range. Large ready-mixed concrete producers have over 300 mixer trucks. Some companies are vertically integrated and own cement plants and aggregates operations. Like the market for ready-mixed concrete, the market for aggregates is highly competitive and is made up of numerous aggregates producers including large multi-national, integrated producers and many small producers. Demand for both aggregates and ready-mixed concrete largely depends on regional levels of construction activity. Both the aggregates and concrete industries are highly fragmented, with numerous participants operating in localized markets. Both aggregates and concrete products are sold in competition with offerings by other suppliers of the same product and with other substitute products. The size of the market area for an aggregates quarry and a ready-mixed concrete plant is similar; therefore, the ability to compete is limited by the relatively high cost of truck and rail transportation compared with the value of the product. Proximity to customers is an important criterion. Most sales of ready-mixed concrete and aggregates are made on the basis of competitive prices in each market area, generally pursuant to telephone orders from customers who purchase quantities sufficient for their immediate requirements. In addition to price, we compete on the basis of service, quality and reliability. Customer orders Our sales of ready-mixed concrete and aggregates do not typically involve long-term contractual commitments. In addition, we believe our reserves of aggregates and inventories of products are sufficient to fill customer orders in the normal course of business. 13 16 LAFARGE GYPSUM Who are we? With the acquisition of two gypsum wallboard manufacturing plants in September 1996, Lafarge Gypsum was created. The Buchanan plant, located 30 miles outside of New York City, and the Wilmington plant in Delaware produce a wide-ranging line of gypsum wallboard products. On January 1, 1999, we acquired Atlantic Group Ltd., a supplier of gypsum wallboard in Newfoundland, Canada. Sales, marketing and distribution support will be provided by Lafarge's Cement and Construction Materials Groups to help the Atlantic Group reach new customers in Quebec and the Maritime Provinces. At the same time, we purchased a gypsum quarry, which has enough reserves to potentially supply our three existing plants for an extended period of time. We announced in late January 1999 our plans to construct a $90 million gypsum wallboard plant in northern Kentucky, just outside of Cincinnati. Scheduled to begin operations in the first half of 2000, this facility will have the capacity to produce up to 900 million square feet of wallboard a year, which would make it the largest single production line in the U.S. The state-of-the-art plant will use 100% recycled materials, including synthetic gypsum generated from scrubbers of a nearby power plant. We offer a full line of gypsum wallboard products for: - Partitions - Paneling - Linings - Ceilings - Floors Our products are used for both new residential and commercial construction and for repair and remodeling. How is gypsum wallboard made? Gypsum is the common term for calcium sulfate dihydrate. The water molecules are physically locked inside the crystal structure of the gypsum molecule. To make wallboard: - Gypsum rock is fed into a dryer, where surface moisture is removed. - Then the rock is ground to a flour-like consistency known as land plaster. - The land plaster is then calcined, or heated, into calcium sulfate hemihydrate, also known as stucco. (Gypsum is unique because it is the only mineral that can be calcined, and yet go back to its original state when rehydrated. It is this property that is being exploited in the manufacturing process.) - The stucco is blended with water and other ingredients in a mixer to form a slurry. - This slurry is extruded between two continuous sheets of paper at the forming station. - The extended product travels down a long line in order to give the stucco molecules time to rehydrate and recrystallize into gypsum. - As it travels, the gypsum crystals grow into each other and into the liner paper, giving the product 3-dimensional strength. - When the product has achieved initial "set" or firmness (approximately 3 minutes), the product is cut into lengths. 14 17 - The individual boards are then dried in a kiln to remove excess water. - The boards are packaged face to face and stored until ready for shipment. Where do we make our gypsum wallboard? We own two gypsum wallboard manufacturing plants with a combined rated annual production capacity of approximately 730 million square feet (MSF). The Buchanan, New York plant has a rated capacity of 330 MSF. Lafarge's Wilmington, Delaware plant has a rated capacity of 400 MSF. Both plants are fueled primarily by natural gas. Natural gas is purchased on a contract basis with transportation negotiated under long-term contracts. The Wilmington facility is located at the Port of Wilmington. The site is leased through November 2020. We own the Buchanan plant site. We believe that each of our manufacturing plants is in satisfactory operating condition. Where do we get the raw materials to make our wallboard? Currently, we have ten-year requirements contracts with an unaffiliated third party for gypsum rock and paper used in the production of gypsum wallboard. Both contracts terminate in September 2006. The Atlantic Group gypsum acquisition also included the purchase of a gypsum quarry, which has enough reserves to potentially supply our three existing plants for an extended period if required. Who buys our wallboard? Our gypsum wallboard products are sold to a variety of: - residential and commercial building materials dealers - individual and regional/national gypsum distributors - original equipment manufacturers - building materials distribution companies - lumber yards and "Do-It-Yourself" home centers The Buchanan, New York plant's principal markets include New York, Pennsylvania and New Jersey. The Wilmington, Delaware plant's largest markets are Pennsylvania and North Carolina followed closely by Maryland and Virginia. Sales are made on the basis of competitive prices in each market area, generally pursuant to telephone orders from customers who purchase quantities sufficient for their requirements. Customer orders are taken at a centralized customer service facility. During 1998, our gypsum wallboard operations accounted for 4% of consolidated net sales, after the elimination of intracompany sales and 4% of consolidated income from operations. How do we distribute our products to our customers? We utilize contracted trucks to transport finished gypsum board to distributors and other customers. Additionally, Wilmington is fully equipped to ship by rail. The Buchanan plant is in close proximity to its key markets resulting in over 90% of its production being shipped within 100-200 miles of the plant. The Wilmington plant ships over 50% of its production within 200 miles of the plant. How do changes in the seasons and in the weather affect our business? Our gypsum wallboard business is seasonal because construction activity may diminish during the winter. Demand also may be adversely impacted by unfavorable weather conditions, including, for example, hurricanes. Information with respect to quarterly financial results is set forth in "Notes to Consolidated Financial Statements -- Quarterly Data (Unaudited)" in Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report. 15 18 Who are our competitors? The gypsum industry is a large, integrated industry in which a few large companies are predominant. These companies operate gypsum wallboard plants and usually own the gypsum reserves used in manufacturing the wallboard. These companies also sell gypsum for use in portland cement production and agriculture and other manufactured gypsum products. The gypsum wallboard industry is highly competitive. Competition among wallboard producers is primarily on a regional basis. Producers whose customers are located close to their wallboard plants benefit from lower transportation costs. We have this competitive advantage because the Buchanan plant is in close proximity to its key markets resulting in over 90% of its production being shipped within 100-200 miles of the plant. The Wilmington plant ships over 50% of its production within 200 miles of the plant. In addition to price, we compete on the basis of product quality and customer service. Customer orders Sales of gypsum wallboard products are made on the basis of competitive prices in each market area, generally pursuant to telephone orders from customers. In the United States, plant capacity utilization is currently at 100% and there is an industry-wide allocation of product to all customer segments. At December 31, 1998, our backlog was 4 to 6 weeks. TRADEMARKS AND PATENTS As of December 31, 1998, Lafarge owns, has the right to use, or has pending applications for approximately 40 patents granted by the United States and Canada and 76 trademarks related to each of the Cement Group, the Construction Materials Group and Lafarge Gypsum and Lafarge's trademarked, high performance concrete, cement and gypsum products for commercial, agricultural, industrial and public works construction. For example, trademarked precast concrete products such as SPLITROCK(TM) retaining wall modules and paving stones are commonly used in municipal, commercial and residential landscaping designs. In addition, our trademarked concrete mix designs, including Futurecrete(TM), Agrifarge(TM) and WeatherMix(TM), provide customers with enhanced performance for specific applications. Specialty cements like Lafarge's trademarked SF(TM) cement are designed for durable applications such as bridges, underwater structures, skyscrapers and industrial floors. We believe that our rights under existing trademarks are of value to our operations, but no one trademark or group of trademarks is material to the conduct of our business as a whole. RESEARCH, DEVELOPMENT AND ENGINEERING We conduct research and development activities for the Cement Group's products at our laboratory located in Montreal, Canada, which we believe is one of the largest private laboratories in the North American cement industry. In addition, we have access to the state-of-the-art research and development resources of Lafarge S.A. We and Lafarge S.A. are parties to three agreements concerning the sharing of costs for research and development, strategic planning and marketing. In addition, we are involved in research and development through our participation in the Portland Cement Association. Our subsidiary, Systech, is engaged in research and development in an effort to further develop the technology to handle additional waste materials. Research and development costs, which are charged to expense as incurred, were $7.4 million, $7.2 million and $6.3 million for 1998, 1997, and 1996, respectively. This includes amounts accrued for technical services rendered by Lafarge S.A. to us, under the terms of the agreements discussed above, of $6.1 million during 1998, $6.3 million during 1997 and $5.7 million during 1996. WHO ARE OUR EMPLOYEES? As of December 31, 1998, we employed 10,400 individuals of which 6,840 were hourly employees. Approximately 1,070 of these hourly employees were employed by the Cement Group, 5,538 were employed by the Construction Materials Group and 150 were employed by Lafarge Gypsum. Salaried employees totaled 16 19 3,560. These employees generally act in administrative, managerial, marketing, professional and technical capacities. Overall, we consider our relations with our employees to be satisfactory. The Cement Group -- U.S. Cement Operations The majority of Lafarge's 569 U.S. hourly employees are represented by labor unions. During 1998, labor agreements were negotiated at the Paulding, Ohio and Sugar Creek, Missouri cement plants and at the Detroit, Michigan; Saginaw, Michigan; and Waukegan, Illinois distribution terminals. In addition, labor agreements at the Vancouver, Washington terminal and the recently acquired Seattle, Washington plant were successfully renegotiated without a work stoppage. During 1999, labor agreements will expire at the Davenport, Iowa cement plant and the Cleveland, Ohio; Toledo, Ohio; Duluth, Minnesota and Superior, Wisconsin distribution terminals. We expect the agreements to be successfully concluded without work stoppages. -- Canadian Cement Operations Substantially all of our 469 hourly employees are covered by labor agreements. In 1998, the labor agreements at the Bath, Ontario plant, the Brookfield, Nova Scotia plant and the Montreal-East terminal in Quebec were all successfully renegotiated without a work stoppage. Labor agreements at the Winnepeg terminal were successfully renegotiated without a work stoppage. In the fourth quarter of 1999, the Kamloops plant, and the Edmonton and Toronto terminals will have contracts that expire. All are expected to be renewed without a work stoppage. The Construction Materials Group -- U.S. Construction Materials Operations Lafarge's 3,652 U.S. construction materials employees consist of 2,809 hourly employees and 843 salaried employees. In the U.S., approximately 40% of our hourly workforce is covered by 20 collective bargaining agreements with eight major labor unions. During 1998, two collective bargaining and benefit agreements were successfully negotiated with union bargaining groups without a work stoppage. In 1999, six labor and benefit agreements will expire. All of these agreements are expected to be successfully negotiated without a work stoppage. -- Canadian Construction Materials Operations Lafarge's employees in the Canadian construction materials operations totaled 3,379 at the end of 1998 with 2,552 hourly employees and 827 salaried employees. In eastern Canada, hourly employees are covered by 84 collective bargaining agreements with a number of unions. There are 42 non-union business units in which discussions are held directly with employees. During 1998, 28 collective bargaining agreements were renegotiated with union bargaining agents, incurring a work stoppage at one location of four weeks. There was also one unsuccessful union organizing drive. Twenty-six collective bargaining agreements will expire during 1999 throughout eastern Canada and are expected to be successfully concluded without a work stoppage. In western Canada there are 35 collective labor agreements with several different unions. Six agreements are through employer associations. During 1998, 12 collective labor agreements were successfully negotiated. In addition, following a strike at the Vancouver Island location, a closure agreement was negotiated for the location. We continue to negotiate seven collective agreements that have expired, with no work stoppages anticipated. Three of these are through employer associations. During 1999, nine collective labor agreements will expire. These agreements are expected to be renewed without a work stoppage. 17 20 Lafarge Gypsum -- Gypsum Wallboard Operations Substantially all of Lafarge's 150 gypsum wallboard hourly employees are covered by labor agreements. There are four local labor agreements with two unions. Three of the labor agreements have been renegotiated, two agreements for two years at Buchanan and one at Wilmington for three years. The other agreement is in the fourth year of a six-year contract. The Buchanan and Wilmington plants have no recent history of labor disputes. ENVIRONMENTAL MATTERS The following discusses the environmental laws and their application to Lafarge, and sets forth the proposed changes to or new environmental laws or regulations that could affect us. Our operations, like those of other companies engaged in similar businesses, involve the use, release, discharge, disposal, and cleanup of substances regulated under increasingly stringent federal, state, provincial, and/or local environmental protection laws. Many of the regulations are technically and legally complex, posing significant compliance challenges. Our environmental compliance program includes an environmental policy and an environmental ethics policy that are designed to provide corporate direction for all operations and employees, an environmental audit and follow-up program, routine compliance oversight of our facilities, environmental guidance on key issues confronting us, routine training and exchange of information by environmental professionals, environmental recognition award program, and routine and emergency reporting systems. The current environmental laws affecting Lafarge are summarized below and our policies regarding environmental expenditures are discussed in "Other Factors Affecting the Company -- Environmental Matters" in Management's Discussion and Analysis of Financial Condition and Results of Operations set forth under Item 7 of Part II of this Annual Report, which is incorporated herein by reference. For the years ended December 31, 1998, 1997 and 1996, total capital expenditures and remediation expenses incurred are not material to the financial position, results of operations, or liquidity of Lafarge. However, our expenditures for environmental matters have increased and are likely to increase in the future. Because of different requirements in the environmental laws of the U.S. and Canada, the complexity and uncertainty of existing and future requirements of environmental laws, permit conditions, costs of new and existing technology, potential preventive and remedial costs, insurance coverages and enforcement related activities and costs, we cannot determine at this time whether capital expenditures and other remedial actions that we may be required to undertake in the future will materially affect our financial position, results of operations or liquidity. With respect to known environmental contingencies, we have recorded provisions for estimated probable liabilities and do not believe that the ultimate resolution of such matters will have a material adverse effect on the financial condition, results of operations or liquidity of Lafarge. Some of the proposed changes to or new environmental laws or regulations that could affect us are discussed below. Resource Conservation and Recovery Act -- Boiler and Industrial Furnaces Regulations We currently operate three U.S. cement plants using fuel-quality wastes that are subject to emission limits and other requirements under the federal Resource Conservation and Recovery Act ("RCRA") and Boiler and Industrial Furnaces ("BIF") regulations (Alpena, Michigan; Paulding, Ohio; and Fredonia, Kansas). The other BIF requirements include a permitting process, extensive recordkeeping of operational parameters and raw materials and waste-derived fuels use, demonstration of financial capability to cover future closures and spill cleanups, and corrective action requirements for other solid waste management units at the facilities. Our three BIF cement plants have submitted, in a timely manner, formal Part B permit applications, which is the first step in the permitting process. The Fredonia plant completed its trial burn in 1995 to establish permit limitations to be incorporated into the second step, the final Part B permit. A draft of the proposed Part B permit was reviewed during 1998; a public hearing was held on March 26, 1999. The Paulding 18 21 plant conducted its trial burn in May 1998. We expect a draft permit in mid-1999 for review and comment. On October 22, 1998, we announced that the Alpena plant will cease using fuel-quality wastes no later than June 1, 2001. During the interim, the plant will continue to use waste-derived fuels and comply with the applicable RCRA and BIF requirements. The U.S. Environmental Protection Agency ("EPA") is in the process of revising its BIF regulations. Proposed revision of the BIF regulations were initially published in May 1996, citing both RCRA and Clean Air Act authority. The proposal relied heavily on maximum achievable control technology ("MACT") requirements of Title III of the Clean Air Act Amendments of 1990 with certain elements of the risk-based authority of RCRA incorporated into the proposal. The proposed standards are based on technologies from a "pool" of the top 12 environmental performers of existing facilities that use fuel-quality waste as a supplemental fuel. Our Alpena plant was a MACT pool facility; it uses a baghouse as its primary air pollution control device. The Paulding plant recently installed a baghouse and a bypass system that will likely enable it to meet the final standards when they are promulgated. We have actively participated in the regulatory process to help formulate revised BIF standards that are reasonable, cost-effective, and comply with the RCRA and the Clean Air Act. In the past two years, EPA has reopened the rulemaking process on several occasions to solicit public comment on new data and proposed regulatory approaches, i.e., new limits for semi-volatile metals and a particulate matter continuous emission monitoring system. Our Fredonia plant is currently conducting, in conjunction with the EPA, a voluntary test program to evaluate the reliability and variability of various particulate matter continuous emissions monitoring systems to be used for the purpose of determining compliance with the revised BIF standards. A final revised regulation is not anticipated before mid-1999. Existing BIF facilities would then have up to three years to meet the new standards or cease using hazardous waste as a supplemental fuel. Cement kiln dust ("CKD") is a by-product of many of our cement manufacturing plants. CKD has been excluded from regulation as a hazardous waste under the so-called Bevill amendment to the RCRA until the EPA completes a study of CKD, determines whether it should be regulated as a hazardous waste, and issues appropriate implementing regulations. In January 1995, the EPA issued a regulatory determination in which it found that certain CKD management practices create unacceptable risks that require additional regulation. The EPA specifically identified the potential for groundwater contamination from CKD management in karst terrain, fugitive emissions from CKD handling and management, and surface water/stormwater runoff from CKD management areas. In March 1995, we joined other cement manufacturers in submitting to the EPA a proposed enforceable agreement for managing CKD that included specific CKD management standards. After a lengthy legal review, the EPA decided that it lacks the legal authority to enter into an enforceable agreement. In 1996, the EPA announced that it was recommending the process of developing CKD management standards using industry standards as the technical starting point and Subtitle C of RCRA as its legal authority. We believe it is inappropriate for the EPA to develop CKD standards under Subtitle C of RCRA. Lafarge and other cement manufacturers, through our trade association, continue to work with the EPA and various states to develop a consensus approach for implementing CKD management standards using state solid waste authority as the primary legal authority rather than federal Subtitle C authority. The EPA has revised its schedule and indicated that it will likely propose CKD management standards in 1999. Should the EPA ultimately proceed to promulgate highly tailored CKD management standards, we are likely to incur some additional capital costs and operational expenses to meet these new standards. In order to mitigate the anticipated future costs of CKD regulation at the federal and/or state levels, we continue to implement a program to assess our management practices for CKD at operational and inactive facilities in the both the U.S. and Canada. We also have been voluntarily taking remedial steps and instituting management practices consistent with the industry practices for CKD management as well as assessing and modifying process operations, evaluating and using alternative raw materials, and implementing new technologies to reduce the generation of CKD. Historical waste disposal and/or contaminated sites As with many industrial companies in the U.S. and Canada, we have been involved in certain remedial actions to clean up or to close certain historical waste disposal and/or contaminated sites, as required by 19 22 federal, provincial, and/or state laws. In addition, we have voluntarily initiated cleanup activities at certain of our properties in order to mitigate long-term liability exposure and/or to facilitate the sale of such property. We routinely review all of our active properties, as well as our idle properties, to determine whether remediation is required, the adequacy of accruals for such remediation, and the status of all remedial activities. It has been our experience that, over time, sites are added to and removed from the remediation list as cleanup actions are finalized and, where necessary, governmental signoff is obtained, or when it is determined that no governmental action will be initiated. Federal environmental laws that impose liability for remediation include the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, which together are referred to as "Superfund." Currently, we are involved in only two Superfund remediations. At one site where we have been named a PRP (a potentially responsible party) the remedial activities are complete and long-term maintenance and monitoring are under way. Partial contribution has been obtained from financially viable parties, including ourselves. The EPA will delist this site from the National Priority List in 1999. At the other site, also on the National Priority List, some of the PRPs named by the EPA have initiated a third-party action against 47 other parties, including us. We have also been named a PRP at this site. The suit alleges that in 1969 a predecessor company of Lafarge sold equipment containing hazardous substances that may now be present at the site. It appears that the largest disposer of hazardous substances at this site is the U.S. Department of Defense and that numerous other large disposers of hazardous substances are associated with this site. We believe that neither matter is material to the financial condition, results of operations or liquidity of Lafarge. In addition, during the year ended December 31, 1998, no enforcement matters were initiated or resolved or are outstanding that have a material effect on our financial statements. Clean Air Act The Clean Air Act Amendments of 1990 require the EPA to develop air toxics regulations for a broad spectrum of industrial sectors, including portland cement manufacturing. New MACT standards are to be established that will require plants to install the best feasible control equipment for certain hazardous air pollutants, thereby significantly reducing air emissions. We are actively participating with other cement manufacturers in working with the EPA to define test protocols, better define the scope of the MACT standards, determine the existence and feasibility of various technologies, and develop realistic emission limitations and continuous emissions monitoring/reporting requirements for the cement industry. EPA proposed standards for existing and new facilities were subject to review and public comment in 1998. It is anticipated that final MACT regulations will be promulgated in the first half of 1999, and existing facilities will then have three years to meet the standards or close down operations. Our Sugar Creek, Missouri plant that is being modernized and expanded will have to meet the new MACT standards at the time of startup. We believe that several of our other U.S. plants will likely be required to upgrade and/or replace existing air pollution control and/or emissions monitoring equipment as a result of MACT regulations. Although the costs of such new equipment may be significant, the actual plant specific costs will vary depending on the level of existing controls and/or emissions monitoring equipment and whether or not it can be modified or new equipment will be required to meet the final MACT standards. We will not be able to make a firm determination of costs and its materiality until the final MACT standards are promulgated. Title V of 1990 Clean Air Act Amendments may result in significant capital expenditures and operational expenses for us. The Clean Air Act Amendments established a new federal operating permit and fee program for many manufacturing operations. Under the Act, our U.S. operations deemed to be "major sources" of air pollution were required to submit detailed permit applications and pay recurring permit fees. Our "major sources" have been routinely paying permit fees for several years. The permitting requirements primarily affect our cement manufacturing, gypsum wallboard and waste-fuel operations. We have submitted all applicable permit applications. During 1999, we expect to begin reviewing several draft Title V permits for several of our facilities. We anticipate that it will be many years before all the initial title V permits are drafted and issued. 20 23 In July 1997, the EPA promulgated revisions to two National Ambient Air Quality Standards under the Clean Air Act-particulate matter and photochemical oxidants (ozone). Because of the nature of Lafarge's operations, the proposed addition of a particulate matter standard that will regulate particles 2.5 microns or less in diameter, and the regulation of nitrogen oxides emissions as the precursor pollutant to ozone, is of potential concern. Implementation of these new standards will not immediately have an impact on industrial operations. The first step is a several-year data collection and analysis activity by the states to determine whether or not the state will be able to meet the new standards. If a state is unable to demonstrate that it meets the standards, it will then be required to modify its state air quality implementation plan to describe actions to meet the new standards. This initial phase will take several years to complete. It is presently unknown whether states in which we operate will be able to meet the new standards, how the states will modify their implementation plans to demonstrate compliance and/or the ultimate technology and the cost impact on our operations. In 1998, the U.S. Congress clarified the time schedule for implementation of the particulate matter 2.5 program. The EPA is prohibited from requiring states to revise their implementation plan until after the next 5-year review of the particulate matter 2.5 and ozone standards in 2001. In 1998, the EPA also clarified its expectations of states in the ozone transport region (22 states east of the Mississippi River) in revising their NO(x) control strategies and standards to demonstrate future attainment of the ozone ambient air quality standards. In this regard, the EPA has recommended that states only require a 30% reduction of NO(x) from cement plants. The EPA recommendation allows cement plants to consider all NO(x) reductions that have occurred from a 1995 baseline. The EPA has requested that all corrections to the existing baseline be submitted no later than the first quarter of 1999. We do not believe that the costs associated with revised NO(x) standards will have a material impact on us. Global Climate Change An evolving issue of significance to Lafarge in the U.S. and Canada is global climate change, or CO(2) stabilization/reduction. In December 1997, the United Nations held an international convention in Kyoto, Japan to take further international action to ensure CO(2) stabilization and /or reduction after the turn of the century. The conference agreed to a protocol to the United Nations Framework Convention on Climate Change originally adopted in May 1992. The Kyoto Protocol establishes quantified emission reduction commitments for certain developed countries, including the U.S. and Canada, and certain countries that are undergoing the process of transition to a market economy. These reductions are to be obtained by 2008-2012. The Protocol was available for signature by member countries starting in the spring of 1998. Even though President Clinton signed the Kyoto Protocol in November of 1998, it will require Senate ratification and enactment of implementing legislation before it becomes effective in the United States. The consequences of CO(2) reduction measures for cement producers are potentially significant because CO(2) is generated from combustion of fuels such as coal and coke in order to generate the high temperatures necessary to manufacture clinker (which is then ground with gypsum to make cement). In addition, CO(2) is generated in the calcining of limestone to make clinker. Any imposition of raw material or production limitations, or fuel-use or carbon taxes could have a significant impact on the cement manufacturing industry. The Canadian cement industry, including Lafarge, has entered into a voluntary commitment with the Canadian government to annually improve energy efficiency 0.7% per ton of clinker from 1990 to 2000. In the U.S. in 1996, we joined the EPA's Climate Wise program. This voluntary program promotes energy efficiency in industrial operations and reduces or stabilizes the CO(2) emissions that result from the generation of electricity. The Conference of the Parties reconvened in November of 1998 to continue work on issues not clearly resolved in the Kyoto Protocol. The primary focus was on developing more details on the flexible mechanisms provisions, i.e., country-to-country emissions trading, joint implementation and a clean development mechanism. These provisions are potentially important to us as an option for meeting potential CO(2) reductions other than by reducing production, should the U.S. Senate ratify the Kyoto Protocol, and the Protocol goes into force and effect. It will not be possible to determine the impact on Lafarge until international, U.S. and Canadian governmental requirements are defined and we can determine whether emission offsets or credits are obtainable and whether alternative cementitious products can be substituted. 21 24 EXECUTIVE OFFICERS OF THE COMPANY The following sets forth the name, age and business experience for the last five years of each of the executive officers of the Company and indicates all positions and offices with the Company held by them.
NAME POSITION AGE ---- -------- --- Bertrand P. Collomb............... Chairman of the Board 56 Bernard L. Kasriel................ Vice Chairman of the Board 52 John M. Piecuch................... President and Chief Executive Officer 50 Edward T. Balfe................... Executive Vice President and 57 President -- Construction Materials Group Duncan S. Gage.................... Executive Vice President and President -- U.S. 49 Cement Operations Peter H. Cooke.................... Executive Vice President and President -- Canadian 50 Cement Operations Larry J. Waisanen................. Executive Vice President and Chief Financial 48 Officer Michael J. Balchunas.............. Senior Vice President and President -- Western 51 Cement Region Alain Bouruet-Aubertot............ Senior Vice President and President -- Lafarge 42 Gypsum Division Patrick Demars.................... Senior Vice President -- Corporate Technical 50 Services Guillaume Roux.................... Senior Vice President -- Planning and Marketing 39 James J. Nealis III............... Senior Vice President -- Human Resources 51 Joseph B. Sherk................... Vice President and Controller 50 David C. Jones.................... Vice President -- Legal Affairs and Secretary 57 David W. Carroll.................. Vice President -- Environment and Government 52 Affairs Kevin C. Grant.................... Vice President and Treasurer 43
Bertrand P. Collomb was appointed to his current position in January 1989. He has also served as Chairman of the Board and Chief Executive Officer of Lafarge S.A. since August 1, 1989. From January 1, 1989 to August 1, 1989 he was Vice Chairman of the Board and Chief Operating Officer of Lafarge S.A., and from 1987 until January 1, 1989 he was Senior Executive Vice President of Lafarge S.A. He served as Vice Chairman of the Board and Chief Executive Officer of the Company from February 1987 to January 1989. Bernard L. Kasriel was elected to his current position in May 1996. He has also served as Vice Chairman and Chief Operating Officer of Lafarge S.A. since January 1995. Prior to that he served as Managing Director of Lafarge S.A. from 1989 to 1994, Senior Executive Vice President of Lafarge S.A. from 1987 to 1989 and Executive Vice President of Lafarge S.A. from 1982 until 1987. John M. Piecuch was appointed to his current position effective October 1, 1996. He previously served as Group Executive Vice President of Lafarge S.A. from July 1994 until October 1996. He served as Senior Executive Vice President of the Company from 1992 to June 1994 and as Executive Vice President of the Company from 1989 to 1992. Edward T. Balfe was appointed to his current position in July 1994. Prior to that he served as Senior Vice President of the Construction Materials Group. He served as President of the Company's Construction Materials Eastern Region and President and General Manager of Permanent Lafarge, a construction materials affiliate of the Company, from 1990 to 1993. Duncan S. Gage was elected to his current position effective March 1, 1996. From October 1994 to February 1996 he was Senior Vice President and President of the Company's U.S. Cement Region. He 22 25 previously served as Senior Vice President -- Planning and Development from January 1994 to September 1994. Peter H. Cooke was elected to his current position effective March 1, 1996. He previously served as Senior Vice President and President of the Company's Eastern Cement Region from July 1990 to February 1996. Larry J. Waisanen was appointed to his current position effective February 10, 1998. He previously served as Senior Vice President and Chief Financial Officer of the Company from January 1996 to February 1998. He served as Assistant General Manager of Lafarge S.A.'s interests in Turkey from May 1992 to December 1995. Prior to that he served as Vice President Controller of Lafarge S.A. from March 1989 to April 1992. Michael J. Balchunas was appointed to his current position effective July 1, 1996. From March 1992 to July 1996 he was President of Systech Environmental Corporation, a wholly-owned subsidiary of the Company. Prior to that he served as Vice President of Operations of the Company's Great Lakes Region from July 1990 to March 1992. Alain Bouruet-Aubertot was appointed to his current position effective September 1, 1996. He served as Senior Vice President of Strategy & Development for Lafarge Platres, a division of Lafarge S.A., from December 1994 to September 1996. Prior to that, he was Project Director & Business Manager for Rhone-Poulenc Chemicals from November 1993 to November 1994 and Technical/Manufacturing Director for Rhone-Poulenc, Thann & Mulhouse from January 1992 to October 1993. Patrick Demars was appointed to his current position effective February 1991. He previously served as Vice President -- Products and Process of the Company's Corporate Technical Services operations from July 1990 to January 1991. He was a Regional Vice President at CNCP, a Brazilian subsidiary of Lafarge S.A., from July 1986 to June 1990. Guillaume Roux was appointed to his current position effective February 1, 1996. From May 1994 to January 1996 he served as Deputy General Manager of Clause Semences, a former subsidiary of Lafarge S.A. Prior to that, he served as a Vice President in the Lafarge S.A. Finance Department from November 1992 to May 1994. He was Chief Financial Officer of Harris Moran Seeds Company, a former subsidiary of Lafarge S.A., from May 1989 to November 1992. James J. Nealis III was appointed to his current position effective January 1, 1999. From August 1996 to December 1998 he served as Vice President -- International Human Resources for the Lafarge Group in Paris. From January 1994 to August 1996 he served as Vice President -- Human Resources, Cement Group. Joseph B. Sherk was appointed to his current position effective August 1, 1998. From January 1, 1994 to August 31, 1998 he was Vice President and Controller Eastern Region for Lafarge Canada Inc. David C. Jones was appointed to his current position in February 1990. He served as Corporate Secretary of the Company from November 1987 to February 1990. David W. Carroll was appointed to his current position in February 1992. He served as Director Environmental Affairs of the Company from February 1990 to February 1992. Prior to that he was Director Environmental Programs for the Chemical Manufacturers Association from 1978 to 1990. Kevin C. Grant was appointed to his current position effective February 10, 1998. He previously served as Treasurer of the Company from June 1995 to February 1998. He served as Vice President -- Human Resources Development from June 1994 to June 1995. He also was Sales Manager from June 1992 to June 1994 and Manager of Strategic Studies from June 1991 to June 1992 for Lafarge Fondu International, a subsidiary of Lafarge S.A. There is no family relationship between any of the executive officers of the Company or its subsidiaries. None was selected as an officer pursuant to any arrangement or understanding between him and any other person. The term of office for each executive officer of the Company expires at the first meeting of the Board 23 26 of Directors after the next annual meeting of stockholders following his or her election or appointment and until his or her successor is chosen and qualifies. ITEM 2. PROPERTIES Information set forth in Item 1 of this Annual Report that relates to the location and general character of the principal plants, mineral reserves and other significant physical properties owned in fee or leased by the Company is incorporated herein by reference in answer to this Item 2. All of the Company's cement plant sites (active and closed) and quarries (active and closed), as well as terminals, grinding plants, gypsum wallboard plants and miscellaneous properties, are owned by the Company free of major encumbrances, except the Exshaw cement plant, the Kamloops limestone and cinerite quarries, and the Wilmington gypsum wallboard plant. - The Exshaw plant is built on land leased from the province of Alberta. The original lease has been renewed for a 42-year term commencing in 1992. Annual payments under the lease are presently based on a fixed fee per acre. - The Kamloops limestone and cinerite quarries are on land leased from the province of British Columbia until March 2022. - The Wilmington gypsum wallboard facility is located at the Port of Wilmington, Delaware. The site is leased from Diamond State Port Corporation, an entity of the Delaware Department of Transportation. The lease expires in November 2020. Limestone quarry sites for the cement manufacturing plants in the United States are owned and are conveniently located near each plant, except for the Joppa, Richmond and Seattle quarries which are located approximately 70, 80 and 180 miles, respectively, from their plant sites. LCI's quarrying rights for limestone used by cement manufacturing plants in the Canadian provinces of Quebec, Nova Scotia, Ontario, Alberta and British Columbia are held under quarry leases, some of which require annual royalty payments to the provincial authorities. Management of the Company estimates that limestone reserves for the cement plants currently producing clinker will be adequate to permit production at present capacities for at least 20 years. Other raw materials, such as clay, shale, sandstone and gypsum are either obtained from reserves owned by the Company or are purchased from suppliers and are readily available. We have ready-mixed concrete and construction aggregates operations extending from coast-to-coast in Canada. Our U.S. activities are concentrated in the Rocky Mountain, midwestern, north-central and northeast states and Louisiana. We have approximately 600 locations that offer an extensive line of construction materials, consisting primarily of crushed stone, sand, gravel and other aggregates; ready-mixed concrete; concrete products such as pipe, brick, block, paving stones and utility structures; asphalt paving and road construction services; and dry bagged goods. Deposits of raw materials for the Company's aggregates producing plants are located on or near the plant sites. These deposits are either owned by the Company or leased upon terms which permit orderly mining of reserves. ITEM 3. LEGAL PROCEEDINGS In 1992, the Company's Canadian subsidiary, Lafarge Canada Inc., along with the Bertrand & Frere Construction Company Limited and others, became a defendant in lawsuits instituted in the Ontario (Canada) Court (General Division) arising from claims brought by building owners, the Ontario New Home Warranty Program and other plaintiffs regarding alleged defective concrete, fly ash and cement used in 24 27 defective footings, foundations and floors. The damages claimed total more than Canadian $65 million. The amount of Lafarge Canada's liability, if any, in these lawsuits is uncertain. Lafarge Canada has denied liability and is defending the lawsuits vigorously. Lafarge Canada has also introduced claims against some of its primary and excess insurers for defense costs and indemnity, if any. The lawsuits were joined and the hearing was completed in December 1998. The matter was taken under advisement by the presiding judge and a decision is expected in 1999. Lafarge Canada believes that it has insurance coverage that will respond to defense expenses and liability, if any, in the lawsuits. On March 18, 1998, a shareholder derivative lawsuit was filed in the Circuit Court for Montgomery County, Maryland. The lawsuit, filed against all of the directors of the Company, alleges that they committed breach of fiduciary duty, corporate waste, and gross negligence in connection with the Company's purchase of a number of construction materials businesses in North America from Lafarge S.A., its majority stockholder (the "Redland Transaction"). Lafarge S.A. took control of these businesses in late 1997, when it acquired the British construction materials firm Redland PLC. The Redland Transaction was proposed to the Company in late 1997. The Company's Board of Directors appointed a special committee of independent directors to evaluate the Redland Transaction. The special committee conducted extensive due diligence and retained independent professionals to assist with its evaluation, including an investment banking firm which advised the committee regarding the fairness of the price and terms of the proposed Redland Transaction. Based on its due diligence and the opinions of its specially-retained advisers, the special committee recommended the Redland Transaction for approval by the full Board of Directors of the Company. On March 16, 1998, the full Board, consisting of a majority of independent directors, approved the Redland Transaction. The Redland Transaction was publicly announced on March 17, 1998. The Company has been advised by its directors that the lawsuit against them, which challenges their conduct in evaluating and approving the Redland Transaction, is without merit. The directors have been vigorously defending against the lawsuit. The initial complaint was filed on March 18, 1998. The directors filed a motion to dismiss on May 19, 1998, which was granted on July 20, 1998. With the court's permission, the plaintiff filed an amended complaint on August 28, 1998. The directors filed a motion to dismiss the amended complaint on September 10, 1998. That motion was argued on February 22, 1999, and is currently under advisement with the court. On August 26, 1996, the Company, among others, was named in two similar lawsuits brought in the District Courts of Starr and Duval counties in Texas by plaintiffs alleging exposure to toxic substances. The plaintiffs alleged negligence, gross negligence, and products and strict liability and sought, among other things, both past and future damages, exemplary damages and cost of the suit in an unspecified amount. After extensive discovery and motion practice in these two cases, the plaintiffs in both cases have agreed to dismiss their claims without prejudice. Currently, the Company is involved in two remediations under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, which together are referred to as Superfund. At one site where the Company had been named a potentially responsible party ("PRP"), the remedial activities are complete, long-term maintenance and monitoring are under way, and partial contribution has been obtained from financially viable parties, including the Company. The United States Environmental Protection Agency ("EPA") will delist this site from the National Priority List in 1999. At the other site, also on the National Priority List, some of the PRPs named by the EPA have initiated a third-party action against some 47 other parties including the Company. The Company also has been named a PRP at this site. The suit alleges that in 1969 a predecessor company of the Company sold equipment containing hazardous substances that may now be present at the site. It appears that the largest disposer of hazardous substances at this site is the U.S. Department of Defense and numerous other large disposers of hazardous substances are associated with this site. Management believes that neither matter is material to the financial condition, results of operations or liquidity of the Company. When the Company determines that it is probable that a liability for environmental matters or other legal actions has been incurred and the amount of the loss is reasonably estimable, an estimate of the required remediation costs is recorded as a liability in the financial statements. As of December 31, 1998, 1997 and 1996, the liabilities recorded for environmental obligations are not material to the financial statements of the Company. Although the Company believes its environmental accruals are adequate, environmental costs may be incurred that exceed the amounts provided at December 31, 1998. However, management has concluded that the possibility of material liability in excess of the amount reported in the December 31, 1998 Consolidated Balance Sheets is remote. In the ordinary course of business, the Company is involved in certain other legal actions and claims, including proceedings under laws and regulations relating to environmental and other matters. Because such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the total amount of these legal actions and claims cannot be determined with certainty. Management believes that all legal and environmental matters will be resolved without material adverse impact to the Company's financial condition, results of operations or liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None during the fourth quarter ended December 31, 1998. 25 28 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information required in response to Item 5 is reported in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Management's Discussion of Shareholders' Equity" of this Annual Report and is incorporated herein by reference. On March 8, 1999, 67,462,741 shares of Common Stock ("Common Stock") were outstanding and held by 2,715 record holders. In addition, on March 8, 1999, 4,924,041 Exchangeable Preference Shares of Lafarge Canada Inc., which are exchangeable at the option of the holder into Common Stock on a one-for-one basis and have rights and privileges that parallel those of the shares of Common Stock, were outstanding and held by 6,238 record holders. The Company may obtain funds required for dividend payments, expenses and interest payments on its debt from its operations or from external sources, including bank or other borrowings. 26 29 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The table below summarizes selected financial information for the Company. For further information, refer to the Company's consolidated financial statements and notes thereto presented under Item 8 of this Annual Report.
YEARS ENDED DECEMBER 31 -------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (IN MILLIONS EXCEPT AS INDICATED BY AN *) OPERATING RESULTS Net Sales...................... $2,448.2 $1,806.4 $1,649.3 $1,472.2 $1,563.3 ======== ======== ======== ======== ======== INCOME BEFORE THE FOLLOWING ITEMS........................ $ 407.0 $ 300.9 $ 236.4 $ 185.4 $ 141.9 Interest expense, net.......... (27.2) (6.6) (14.1) (15.2) (28.8) Income taxes................... (144.3) (112.3) (81.4) (40.6) (32.5) -------- -------- -------- -------- -------- NET INCOME..................... 235.5 182.0 140.9 129.6 80.6 Depreciation, depletion and amortization................. 156.8 106.3 100.5 94.3 103.6 Other items not affecting cash......................... (16.2) 47.7 (33.4) (105.6) (36.2) -------- -------- -------- -------- -------- NET CASH PROVIDED BY OPERATIONS................... $ 376.1 $ 336.0 $ 208.0 $ 118.3 $ 148.0 ======== ======== ======== ======== ======== TOTAL ASSETS.............. $2,904.8 $2,774.9 $1,813.0 $1,713.9 $1,651.4 ======== ======== ======== ======== ======== FINANCIAL CONDITION AT DECEMBER 31 Working capital................ $ 522.9 $ (127.1)(A) $ 394.9 $ 448.6 $ 402.3 Property, plant and equipment, net.......................... 1,400.8 1,296.0 867.7 797.0 751.9 Other assets................... 566.1 529.4 213.0 198.3 192.4 -------- -------- -------- -------- -------- TOTAL NET ASSETS.......... $2,489.8 $1,698.3 $1,475.6 $1,443.9 $1,346.6 ======== ======== ======== ======== ======== Long-term debt................. $ 751.2 $ 135.2 $ 161.9 $ 268.6 $ 290.7 Other long-term liabilities.... 323.4 307.4 203.2 194.3 214.5 Shareholders' equity........... 1,415.2 1,255.7 1,110.5 981.0 841.4 -------- -------- -------- -------- -------- TOTAL CAPITALIZATION...... $2,489.8 $1,698.3 $1,475.6 $1,443.9 $1,346.6 ======== ======== ======== ======== ======== COMMON EQUITY SHARE INFORMATION Net income -- basic*........... $ 3.27 $ 2.56 $ 2.02 $ 1.89 $ 1.19 Net income -- diluted*......... $ 3.24 $ 2.54 $ 1.95 $ 1.82 $ 1.18 Dividends*..................... $ 0.51 $ 0.42 $ 0.40 $ 0.375 $ 0.30 Book value at December 31*..... $ 19.57 $ 17.52 $ 15.79 $ 14.17 $ 12.34 Average shares and equivalents outstanding.................. 72.1 71.1 69.8 68.7 67.7 Shares outstanding at December 31........................... 72.3 71.7 70.4 69.2 68.2 ======== ======== ======== ======== ======== STATISTICAL DATA Capital expenditures........... $ 224.3 $ 124.0 $ 124.8 $ 121.9 $ 95.4 Acquisitions................... $ 99.3(B) $ 8.8 $ 83.5 $ 29.3 $ 4.7 Net income as a percentage of net sales*................... 9.6% 10.1% 8.5% 8.8% 5.2% Return on average shareholders' equity*...................... 17.6% 15.4% 13.5% 14.2% 9.9% Long-term debt as a percentage of total capitalization*..... 30.2% 8.0% 11.0% 18.6% 21.6% Number of employees at December 31*.......................... 10,400 10,100 6,800 6,600 6,500 Exchange rate at December 31 (Cdn. to U.S.)*.............. 0.654 0.699 0.730 0.733 0.713 Average exchange rate for the year (Cdn. to U.S.)*......... 0.674 0.722 0.733 0.729 0.732 ======== ======== ======== ======== ========
- --------------- (A) Includes a liability of $690 million to Lafarge S.A for the Redland acquisition, of which $40 million was repaid in 1998 and the remaining $650 million was financed with long-term public debt in 1998. (B) Excludes the Redland acquisition which was accounted for similar to a pooling of interests. 27 30 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto: MANAGEMENT'S DISCUSSION OF INCOME The Consolidated Statements of Income included in Item 8. Financial Statements and Supplementary Data of this Annual Report summarize Lafarge Corporation's (the "Company's") operating performance for the past three years. To facilitate analysis, net sales and operating profit are discussed by operating segment and are summarized in the following table. (See "Segment and Related Information" in the Notes to Consolidated Financial Statements for further segment information.) The Company's three operating segments are: Cement Group -- the production and distribution of portland and specialty cements and cementitious materials and the processing of fuel-quality waste and alternative raw materials for use in cement kilns. Construction Materials Group -- the production and distribution of construction aggregates, ready-mixed concrete, other concrete products and asphalt and the construction and paving of roads. Lafarge Gypsum -- the production and distribution of gypsum wallboard and related products. 28 31
YEARS ENDED DECEMBER 31 ------------------------------------ 1998 1997 1996 -------- -------- -------- (IN MILLIONS) NET SALES Cement..................................................... $1,123.7 $1,050.5 $ 996.2 Construction materials..................................... 1,342.3 785.4 750.0 Gypsum..................................................... 102.4 92.1 24.0 Eliminations............................................... (120.2) (121.6) (120.9) -------- -------- -------- TOTAL............................................ $2,448.2 $1,806.4 $1,649.3 ======== ======== ======== GROSS PROFIT Cement..................................................... $ 367.7 $ 329.9 $ 291.2 Construction materials..................................... 250.9 119.8 101.5 Gypsum..................................................... 30.6 21.5 4.7 -------- -------- -------- TOTAL............................................ 649.2 471.2 397.4 -------- -------- -------- OPERATIONAL OVERHEAD AND OTHER EXPENSES Cement..................................................... (79.0) (71.1) (66.3) Construction materials..................................... (79.6) (39.8) (41.6) Gypsum..................................................... (10.6) (8.3) (2.3) -------- -------- -------- TOTAL............................................ (169.2) (119.2) (110.2) -------- -------- -------- INCOME FROM OPERATIONS Cement..................................................... 288.7 258.8 224.9 Construction materials..................................... 171.3 80.0 59.9 Gypsum..................................................... 20.0 13.2 2.4 -------- -------- -------- TOTAL............................................ 480.0 352.0 287.2 Corporate and unallocated expenses......................... (73.0) (51.1) (50.8) -------- -------- -------- EARNINGS BEFORE INTEREST AND TAXES......................... $ 407.0 $ 300.9 $ 236.4 ======== ======== ======== ASSETS Cement..................................................... $ 956.4 $ 795.2 $ 777.0 Construction materials..................................... 1,095.3 1,136.6 615.6 Gypsum..................................................... 70.6 71.8 70.7 Corporate, Redland goodwill and unallocated assets......... 782.5 771.3 349.7 -------- -------- -------- TOTAL............................................ $2,904.8 $2,774.9 $1,813.0 ======== ======== ========
YEAR ENDED DECEMBER 31, 1998 NET SALES The Company's net sales increased by 36 percent in 1998 to $2,448.2 million from $1,806.4 million in 1997. U.S. net sales increased 64 percent to $1,700.3 million. The improvement in U.S. sales was primarily due to the Company's acquisition of certain North American construction materials operations of Redland PLC ("Redland"). Other positive factors impacting sales were higher sales volumes and prices in both cement and gypsum. Canadian net sales were $747.9 million, a decrease of $21.6 million or 3 percent. The decrease was due to a decline of 7 percent in the average value of the Canadian dollar relative to the U.S. dollar that offset an underlying 4 percent improvement in Canadian dollar net sales. 29 32 Cement Net sales from cement operations increased by 7 percent to $1,123.7 million from $1,050.5 million in 1997 due to higher sales volumes and prices. Cement sales volumes increased by 0.6 million tons to 13.5 million tons, which represents a 5 percent increase, while the delivered price per ton to customers net of freight costs ("net realization") and excluding exchange rate fluctuation increased by 4 percent. U.S. net sales increased by $93.9 million to $850.8 million, a 12 percent improvement reflective of high levels of road paving and other infrastructure spending as well as strength in both the residential and nonresidential construction sectors. Cement shipments advanced 7 percent as most major markets posted gains. Net realization in the U.S. increased 4 percent. In Canada, net sales remained stable in local currency but declined 7 percent when converted to U.S. dollars. Cement shipments decreased by 1 percent while net realization (excluding exchange rate fluctuation) increased by 3 percent. In eastern Canada, cement sales volumes and net realization increased by 6 percent and 3 percent, respectively. Higher shipments in Ontario of 3 percent were due to an increase in residential and commercial construction combined with a mild autumn, an extended construction season and a strengthening economy. Cement shipments in Quebec and the Atlantic Provinces were both 8 percent higher than last year. In western Canada, cement shipments were 8 percent lower than 1997, reflecting weaker demand in all major markets. The two major factors were the negative impact on British Columbia of the depressed Asian economy and lower sales of oil well cement in the western provinces due to the negative impact of lower world oil prices on drilling activity. Construction Materials Net sales from construction materials operations increased by 71 percent to $1,342.3 million from $785.4 million in 1997. The major cause of this increase was the Company's acquisition of Redland from Lafarge S.A. for $690 million on June 3, 1998. Lafarge S.A., the majority shareholder of the Company, acquired Redland PLC in December 1997. Since the Company acquired Redland from its majority shareholder, the acquisition was accounted for similar to a pooling of interests for financial reporting purposes. Accordingly, Redland assets and liabilities were transferred to the Company at Lafarge S.A.'s historical cost, which approximates the purchase price paid by the Company. The accompanying consolidated balance sheets as of December 31, 1998 and December 31, 1997 include the balance sheets of Redland. The 1998 consolidated statements of income and cash flows include the full year results of Redland. Redland is engaged in the production and sale of aggregates, ready-mixed concrete, asphalt and performs paving and related contracting services primarily in Colorado, New Mexico, Maryland, New York and Ontario, Canada. The significant changes in the consolidated statements of income and cash flows between 1998 and 1997 are primarily due to this acquisition. Excluding Redland, net sales of construction materials operations in the U.S. and Canada were $770.2 million, which represents a 2 percent decrease from 1997, due to the decline in value of the Canadian dollar. Ready-mixed concrete shipments to customers in the U.S. and Canada were 7.5 million cubic yards in 1998, 1 percent higher than 1997, while aggregates sales volumes increased 3 percent to 44.5 million tons. In Canada, net sales in local currency increased by $13.1 million or 2 percent. The Redland operations had net sales of $572.1 million. The U.S. Redland operations contributed $547.6 million or 96 percent of total Redland net sales, while the Canadian operations contributed 4 percent or $24.5 million. In 1998, the Redland acquisition contributed 2.7 million cubic yards of ready-mixed concrete and 34.0 million tons of aggregates. The 2 percent increase in Canadian sales expressed in Canadian dollars, excluding Redland operations, reflects an increase in the price of most products. Ready-mixed concrete sales volumes were unchanged from 1997 levels, while prices increased by 3 percent. In eastern Canada, sales volumes were 7 percent higher and prices were equal to 1997 levels. A mild fall and winter extended the construction season which increased sales. Western Canada ready-mixed concrete volumes were off 6 percent; however, prices increased by 6 percent. The volume decline was primarily due to the weak economy in British Columbia. Aggregates sales volumes were 1 percent ahead of 1997 levels, while prices increased 6 percent. Volumes in eastern Canada increased by 11 percent with a price reduction of 1 percent. The price reduction was mainly due to a shift in the product mix to lower priced products. Aggregates volumes in the West declined by 11 percent largely due 30 33 to weak economic conditions in British Columbia. The volume decline was offset by an increase in the price of aggregates and a more favorable product mix of higher quality concrete and premium aggregates sales in Alberta. In the U.S., net sales, excluding Redland operations, increased by $14.0 million or 7 percent to $227.9 million. Ready-mixed concrete sales volumes increased by 1 percent as all major markets posted gains. Prices in the U.S. region increased by 2 percent due to increased sales of higher value ready-mixed concrete. Aggregates sales volumes in the U.S. increased by 8 percent while prices increased by 4 percent. Due to acquisitions, the Missouri division saw a volume increase of 45 percent. The strong Cleveland and Youngstown, Ohio markets helped increase volumes in the Northern division by 3 percent. The Milwaukee division saw a decrease of 11 percent due to slowing economic conditions. Gypsum Net sales from gypsum operations increased by 11 percent to $102.4 million from $92.1 million in 1997. Strong market demand in the residential and commercial construction sectors resulted in price increases of 8 percent. Volumes increased 4 percent to 732 million square feet. Both gypsum plants achieved record production levels due to productivity improvements. GROSS PROFIT AND COST OF GOODS SOLD The Company's average gross profit as a percentage of net sales increased modestly to 26.5 percent, reflecting significant improvements in all major product lines and a change in the Company's product portfolio resulting from the Redland acquisition. Cement gross profit was 33 percent compared with 31 percent. The improvement was the result of higher prices as well as a 1 percent reduction in cash production cost per ton. The Company's cement cost per ton is heavily influenced by plant capacity utilization. The following table summarizes the Company's cement and clinker production (in millions of tons) and the clinker production capacity utilization rate:
YEARS ENDED DECEMBER 31 -------------- 1998 1997 ----- ----- Cement production........................................... 12.77 12.15 Clinker production.......................................... 11.18 10.40 Clinker capacity utilization................................ 95% 89% ===== =====
Cement and clinker production were 5 and 8 percent higher than 1997, respectively. U.S. cement production totaled 7.9 million tons, up 7 percent. Clinker capacity utilization at U.S. plants increased to 98 percent from 94 percent as six of the eight U.S. plants established clinker production records. The largest production increase was at the Whitehall, Pennsylvania plant where a second kiln was restarted. Canadian cement production was 4.9 million tons, up 4 percent. Canadian clinker capacity utilization increased to 90 percent from 82 percent. These improvements were due to higher clinker production at six of the seven Canadian cement plants, while cement production was better at four of the seven. Construction materials gross profit increased by 4 percentage points to 19 percent. Higher ready-mixed concrete prices in the U.S. and western Canada were partially offset by lower aggregates prices and higher material costs. Operating costs were lower in eastern Canada and the U.S. Excluding Redland, ready-mixed concrete operating gross profit per cubic yard rose 8 percent while aggregates gross profit per ton improved 27 percent. Lafarge Gypsum's gross profit as a percentage of sales increased by 7 percentage points to 30 percent. This was primarily due to a price increase of $9 per thousand square feet. Both plants set production records in 1998. 31 34 SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses were $216.8 million in 1998 compared with $161.0 million in 1997. The increase was mainly due to the consolidation of the Redland operations as well as one-time costs associated with its acquisition and integration and certain other organizational changes related to the management structure. Selling and administrative expenses as a percentage of net sales were 8.9 percent in 1997 and 1998. GOODWILL AMORTIZATION Amortization of goodwill was $17.6 million in 1998 compared with $3.7 million in 1997. The increase was primarily due to amortization of $327.8 million of goodwill associated with the Redland acquisition. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. The Company expects to amortize the remaining goodwill over periods ranging from 15 to 40 years, based on the expected economic lives of the assets purchased. OTHER EXPENSE, NET Other expense, net which consists of items such as equity income and gains and losses from divestitures, was $7.8 million in 1998 compared with $5.5 million in 1997. The $2.3 million increase in 1998 was due to lower gains on divestments and asset sales of $3.1 million. PERFORMANCE BY LINE OF BUSINESS Cement The Company's operating profit from its cement operations (before corporate and unallocated expenses) was $288.7 million, a $29.9 million or 12 percent improvement from 1997. The Company's Canadian cement operations reported an operating profit in local currency of $152.1 million, $12.4 million better than in 1997 due to a 3 percent rise in domestic net realization and higher prices for exports to U.S. operations, which were partially offset by a 1 percent decrease in domestic cement shipments. These positive factors were largely offset by a 7 percent reduction in the value of the Canadian dollar, which resulted in a net increase in profits of $1.6 million denominated in U.S. dollars. Canadian cement cash cost per ton was 5 percent lower than 1997 levels mainly due to improvements in operating efficiencies at the St-Constant and Woodstock plants in eastern Canada. In the U.S., operating profit was $186.2 million, $28.3 million or 18 percent higher than 1997. The improvement was due to 7 percent higher shipments and a 4 percent increase in net realization partly offset by higher plant costs, clinker purchases (to supplement production) and higher prices for cement imports from Canadian operations. Construction Materials The Company's operating profit from construction materials operations (excluding Redland and before corporate and unallocated expenses) was $93.4 million, $13.4 million higher than 1997. The improvement was due to higher ready-mixed concrete and aggregates sales volumes in both the U.S and Canada. Higher prices for ready-mixed concrete and aggregates in the U.S. and western Canada, partially offset by higher material costs, also contributed to the improvement. The Canadian operations earned $64.7 million, $11.6 million better than 1997, primarily reflecting higher ready-mixed concrete and aggregates prices. In eastern Canada, higher shipments in all markets were offset by lower prices. Earnings in the West increased due to higher prices in most markets somewhat offset by lower demand and higher material and operating costs. U.S. operations earned $28.7 million, $1.8 million better than 1997 due to a 9 percent increase in aggregates sales volumes, a 2 percent improvement in ready-mixed concrete prices and a 1 percent increase in concrete volumes. 32 35 Gypsum The Company's gypsum wallboard operations reported an operating profit of $20.0 million due to the strength of the U.S. commercial and residential construction sectors, price increases and record production at both plants. EARNINGS BEFORE INTEREST AND TAXES (EBIT) In 1998, EBIT was $407.0 million, a $106.1 million or 35 percent improvement from 1997. The acquisition of Redland, net of non-recurring acquisition and integration costs but before amortization of goodwill, contributed more than $75 million. Included in EBIT is $12.1 million of amortization of Redland goodwill. Better results in all operations, partially offset by the $13.0 million impact of the lower Canadian dollar exchange rate, added $28.2 million. Operating profit from Canadian operations was $147.5 million, $11.2 million better than 1997. The operating profit in the U.S. was $259.5 million, $94.9 million better than 1997. INTEREST EXPENSE Interest expense increased by $27.7 million in 1998 to $47.7 million due to the issuance of $650.0 million of external debt (See Notes to Consolidated Financial Statements) to finance the Redland acquisition. Interest capitalized was $3.6 million and $1.4 million in 1998 and 1997, respectively. INTEREST INCOME Interest income increased $7.1 million in 1998 due to higher levels of short-term investments throughout the year. INCOME TAXES Income tax expense increased from $112.3 million in 1997 to $144.3 million in 1998 due to higher profits in both the U.S. and Canada. The Company's effective income tax rate was 38 percent in 1998 and 38.2 percent in 1997. NET INCOME The Company reported net income of $235.5 million in 1998 compared with $182.0 million in 1997. The 29.4 percent improvement resulted from the acquisition of Redland and higher volumes in all of the Company's product lines. Higher cement, ready-mixed concrete, aggregates and gypsum wallboard prices also contributed to the improvement. These increases were partially offset by higher interest expense, higher cement plant fixed costs, goodwill amortization related to Redland and other acquisitions, and higher selling and administrative expenses. GENERAL OUTLOOK The Company's general outlook for 1999 in all operating segments is favorable, particularly in the U.S. In the U.S., low interest rates and healthy levels of building activity in several sectors are expected to keep demand for construction materials at or near historically high levels. Also, in 1999, we anticipate an acceleration of construction spending for highways and related projects because of the enactment in 1998 of a six-year, $217 billion federal transportation funding program. Housing starts and sales increased in the fourth quarter of 1998, which should provide momentum into 1999. This is in line with other construction industry forecasts. In Canada, improving conditions in eastern Canada should offset expected softness in the western provinces. The oil and gas and agriculture economies of Alberta and Saskatchewan will likely be affected by low prices, lower drilling activity and lower farm incomes. The British Columbia economy, with its strong ties to the economies of Asia and the Pacific Rim, will likely be weak in 1999. The U.S. Portland Cement Association is forecasting a modest 0.9 percent increase in cement consumption in 1999. The Canadian Portland Cement Association predicts that Canadian cement consump- 33 36 tion will increase by 3 percent. The Company's operations in the U.S. and Canada should benefit from these generally favorable trends in construction. The outlook for 1999 in the Company's gypsum wallboard operations remains positive because of the high level of residential and commercial construction activity that is expected to continue. The start-up of new domestic production capacity during the year could increase competitive activity. YEAR ENDED DECEMBER 31, 1997 NET SALES The Company's net sales increased 10 percent in 1997 to $1,806.4 million from $1,649.3 million in 1996. Canadian net sales in local currency increased 9 percent to $769.5 million. U.S. net sales increased 10 percent to $1,036.9 million. The improvement in both Canada and the U.S. was primarily due to increased product shipments, higher cement and ready-mixed concrete prices, and the Company's gypsum wallboard operations, which were acquired in September 1996, added $92.1 million of sales in the U.S. Cement Net sales from cement operations were $1,050.5 million, an increase of 5 percent due to higher shipments and prices. Cement sales volumes escalated 2 percent to 12.9 million tons, while net realization increased 4 percent. U.S. net sales increased 4 percent reflecting continued high levels of infrastructure spending and paving work as well as strength in both the residential and nonresidential sectors. Cement shipments advanced 1 percent as most major markets posted gains. Net realization increased 4 percent. In Canada, net sales were 10 percent higher. Cement shipments and net realization (excluding exchange rate fluctuation) increased 6 percent and 4 percent, respectively. In eastern Canada, cement sales volumes declined 2 percent; however, net realization increased 3 percent. Higher shipments in Ontario (13 percent) due to an increase in residential and commercial construction were offset by declines in Quebec (weak economic conditions) and in the Atlantic provinces due to higher shipments in 1996 to the Confederation Bridge project which was completed in early 1997. In western Canada cement shipments were 17 percent higher, reflecting gains in all major markets except British Columbia. Substantially higher shipments in the Prairie provinces (up 31 percent) because of strong housing starts and higher spending levels in the oil and gas and farming sectors more than offset a 3 percent decline in British Columbia due to a softening of demand. Construction Materials Net sales from construction materials operations were $785.4 million, a 5 percent increase. The improvement was attributed to higher ready-mixed concrete and aggregates shipments and increased ready-mixed concrete prices partially offset by the divestment at mid-year of the Quebec construction operations. Ready-mixed concrete and aggregates sales volumes both increased 7 percent. Ready-mixed concrete shipments reached 7.4 million cubic yards in 1997, while aggregates volumes rose to 43.1 million tons. In Canada, net sales increased 7 percent reflecting higher volumes and ready-mixed concrete prices in western Canada. Ready-mixed concrete sales volumes increased 11 percent. In eastern Canada, sales volumes were 4 percent higher because of increased demand in Ontario partially offset by lower shipments in Quebec (weak economic conditions) and completion of the Confederation Bridge project in the Canadian Maritimes. In the West, higher demand in the Prairie provinces (shipments up 42 percent) pushed ready-mixed concrete sales volumes 17 percent higher, offsetting 7 percent lower shipments in British Columbia due to a softening of demand. Aggregates volumes increased 14 percent mainly due to an improving economy in Ontario and the high level of activity throughout western Canada, offset somewhat by declines in the Atlantic provinces and Quebec. In the U.S., net sales declined 1 percent. Ready-mixed concrete sales volumes increased slightly (1 percent) as all major markets posted gains except Milwaukee, Wisconsin where shipments dropped 10 percent due to a slowdown in the residential construction sector. Aggregates shipments declined 6 percent reflecting the divestment in early 1996 of a sand and gravel operation in Pittsburgh, Pennsylvania, the negative impact of a workers' strike at the Mingo, Ohio plant of a raw materials supplier which was settled in July and 34 37 the termination of operations at a plant in Cleveland, Ohio. These declines were partially offset by aggregate shipments of approximately 0.4 million tons from an April 1997 acquisition in Kansas City, Missouri and a 6 percent increase in the Milwaukee division due to higher external sales. Gypsum Net sales from gypsum operations were $92.1 million. Strong market demand in the residential and commercial construction sectors led to strong pricing as well as higher volumes. Wallboard shipments totaled 705 million square feet, with both plants achieving record production levels. GROSS PROFIT AND COST OF GOODS SOLD The Company's gross profit as a percentage of net sales increased to 26 percent from 24 percent in 1996. Cement gross profit was 31 percent compared to 29 percent. The improvement was the result of higher volumes and prices as well as a 1 percent reduction in cash costs (excluding depreciation) per ton. Construction materials gross profit increased by 2 percentage points to 15 percent. Higher ready-mixed concrete and aggregates volumes, coupled with higher ready-mixed concrete prices in the U.S. and western Canada, were partially offset by lower aggregates prices and increased material costs. Operating costs were lower in the U.S. and eastern Canada. Ready-mixed concrete operations gross profit per cubic yard rose 10 percent while aggregates operations gross profit per ton improved 8 percent. The gross profit for gypsum wallboard was 23 percent, up 3 percent. The Company's cement cost per ton is heavily influenced by plant capacity utilization. The following table summarizes the Company's cement and clinker production (in millions of tons) and the clinker production capacity utilization rate:
YEARS ENDED DECEMBER 31 -------------- 1997 1996 ----- ----- Cement production........................................... 12.15 11.54 Clinker production.......................................... 10.40 9.89 Clinker capacity utilization................................ 89% 85% ===== =====
Cement and clinker production were 5 percent higher than 1996. U.S. production totaled 7.4 million tons, up 5 percent. Clinker capacity utilization at U.S. plants increased to 94 percent from 91 percent. The improvement was due to higher production at a majority of the Company's U.S. cement plants as four plants established clinker production records. However, the Company experienced manufacturing setbacks at two U.S. plants which required higher purchases of clinker to replace lost production. Canadian cement production was 4.7 million tons, up 7 percent. Canadian clinker capacity utilization increased to 82 percent from 76 percent. These improvements were due to the record-setting kiln performance at the Exshaw plant in western Canada. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses were $161.0 million in 1997 compared with $151.4 million in 1996. The increase was mainly due to the full year operation of the Company's gypsum wallboard business in addition to higher professional fees. Selling and administrative expenses as a percentage of net sales declined to 8.9 percent in 1997 from 9.2 percent in 1996. GOODWILL AMORTIZATION Amortization of goodwill was $3.7 million in 1997 compared with $3.0 million in 1996. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. 35 38 The Company expects to amortize the remaining goodwill over periods ranging from 15 to 40 years, based on the expected economic lives of the assets purchased. OTHER EXPENSE, NET Other expense, net consists of items such as equity income, amortization of intangibles and gains and losses from divestitures. Other expense, net was $5.5 million in 1997 compared with $6.6 million in 1996. PERFORMANCE BY LINE OF BUSINESS Cement The Company's operating profit from its cement operations (before corporate and unallocated expenses) was $258.8 million, a $33.9 million improvement. Higher sales volumes and prices were somewhat offset by higher plant costs and higher clinker purchases in the U.S. The Company's Canadian operations reported an operating profit of $100.9 million, $22.4 million better than in 1996 due to a 6 percent increase in cement shipments, a 4 percent rise in net realization (excluding exchange rate fluctuation) and higher prices for exports to U.S. operations. Cement cash cost per ton was 3 percent lower due mostly to improvements in operating efficiencies at the Exshaw plant in western Canada. In the U.S., operating profit was $157.9 million, $11.5 million higher. The improvement was due to moderately higher shipments (1 percent) and a 4 percent increase in net realization partly offset by higher plant costs, clinker purchases to supplement production and higher prices for imports from Canadian operations. Three U.S. cement plants achieved lower cash costs per ton due to improvements in operating efficiencies. Construction Materials The Company's operating profit from construction materials operations (before corporate and unallocated expenses) was $80.0 million, $20.1 million higher than 1996. The improvement was due to higher ready-mixed concrete and aggregates sales volumes and an increase in ready-mixed concrete prices in the U.S. and western Canada somewhat offset by higher material costs. The Canadian operations earned $53.1 million, $15.0 million better, primarily reflecting higher ready-mixed concrete and aggregates volumes. In eastern Canada, higher shipments in Ontario, lower operating costs and increased prices in the Atlantic provinces were partly offset by a slow Quebec economy and lower shipments in the Canadian Maritimes due to completion of the Confederation Bridge project. Earnings in the West were up because of increased demand in the Prairie provinces and higher ready-mixed concrete prices somewhat offset by higher material and operating costs. U.S. operations earned $26.9 million, $5.1 million better due to a 4 percent improvement in ready-mixed concrete prices and lower operating costs resulting from specific cost reduction initiatives implemented during 1996 and 1997. As a result of these actions, ready-mixed concrete and aggregates operating costs were lower by 3 percent and 7 percent, respectively. These improvements were partially offset by a 6 percent reduction in aggregates volumes. Gypsum The Company's gypsum wallboard operations reported an operating profit of $13.2 million due to the strength of the U.S. commercial and residential construction sectors, a favorable pricing environment and record-setting production at both plants. EARNINGS BEFORE INTEREST AND TAXES (EBIT) In 1997, EBIT was $300.9 million, $64.5 million better, reflecting better performance in all major product lines. The gypsum wallboard operations contributed $13.2 million in its first full year of operation. EBIT from Canadian operations was $136.3 million, $31.6 million better. EBIT in the U.S. was $164.6 million, $32.9 million better. 36 39 INTEREST EXPENSE Interest expense decreased by $4.2 million in 1997 mainly due to lower average debt. Interest capitalized was $1.4 million and $1.2 million in 1997 and 1996, respectively. INTEREST INCOME Interest income increased $3.2 million in 1997 due to higher levels of short-term investments throughout the year. INCOME TAXES Income tax expense increased from $81.5 million in 1996 to $112.3 million in 1997. Income taxes increased due to higher profits in the U.S. and Canada. The Company's effective income tax rate was 38.2 percent in 1997 and 36.6 percent in 1996. NET INCOME The Company reported net income of $182.0 million in 1997 compared to 1996 income of $140.9 million. The improvement resulted from higher volumes in all of the Company's product lines, higher cement and ready-mixed concrete prices and lower net interest expense. These increases were partially offset by higher cement plant costs, increases in U.S. clinker purchases, higher materials costs in construction materials and increased selling and administrative expenses. OTHER FACTORS AFFECTING THE COMPANY Year 2000 Year 2000 computer issues may affect the Company's business application software and supporting computer infrastructure ("IT Systems") and embedded technology systems such as process control equipment, instrumentation and other field systems ("Non-IT Systems"). The Year 2000 computer problem originated from programmers writing software code that used two digits instead of four to represent the year. Computer systems using the "two-digit" format may experience problems handling date sensitive calculations beyond the year 1999. This could cause many computer systems to fail or to produce inaccurate results and could result in an interruption in, or a failure of, certain business activities or operations, which could materially and adversely affect the Company's results of operations, liquidity or financial condition. Although the Company believes it has an effective plan to address Year 2000 issues, certain Year 2000 issues are beyond the Company's control. Because these issues concern, for example, the Year 2000 readiness of third parties, including customers as well as utilities and other suppliers, the Company is unable to determine the likelihood of a material impact on its financial condition, results of operations or liquidity. However, the Company's Year 2000 compliance program (the "Year 2000 Program") is expected to significantly reduce the Company's level of uncertainty about Year 2000 issues, including readiness of third parties. The Company believes that after completion of the projects as scheduled, the possibility of significant interruptions of its normal operations should be reduced. In the first half of 1997, the Company organized and implemented its Year 2000 Program, which includes a program management office staffed with full time professionals dedicated to the resolution of Year 2000 issues. The objective of the Year 2000 Program is to avoid loss of revenues, unplanned downtime or other adverse impacts on the business. Each of the Company's major operating locations has a designated point of contact who is responsible for the development and implementation of the location's Year 2000 strategy. The Year 2000 Program addresses the essential phases, activities and tasks that the Company must undertake for the successful execution of its Year 2000 Program. The Company has identified four phases to describe its process of achieving Year 2000 readiness: (1) inventory and assessment, (2) optimum scenario definition, (3) transition plan definition and (4) implementation. 37 40 The Company has completed the first three phases and has determined the potential impact of the Year 2000 on its IT Systems and Non-IT Systems. As a result, the Company has developed a transition plan to resolve any issues. The plan includes the replacement of certain equipment and modification of certain software to recognize the turn of the century. IT Systems that were not Year 2000 ready are in the process of being replaced by software applications or upgraded to Year 2000 ready systems. The IT Systems implementation phase is expected to be completed by September 30, 1999. As of December 31, 1998, approximately 60 percent of Non-IT Systems are Year 2000 ready. The other systems are scheduled for upgrade or replacement during the first nine months of 1999. Other computer system projects have not been significantly postponed due to the Year 2000 efforts. The dates on which the Company believes the Year 2000 projects will be completed are based on the best estimates of management, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. There can be no guarantee that these estimates will be achieved or that there will not be a delay in, or increased costs associated with, the implementation of the Year 2000 Program. Operating locations have identified their most critical suppliers to whom letters have been sent requesting information on their Year 2000 readiness programs and their state of readiness. The Company evaluates the responses and develops contingency plans as necessary. Other contingency plans are currently being developed with an estimated completion date of August 31, 1999. The plans address information processing and reporting, operations and personnel. The contingency plans will also include trigger dates (the dates on which the contingency plan will replace the original action plan if a milestone is not met) for each non-compliant system. The Year 2000 Program is expected to result in estimated non-recurring spending of approximately $18 million to $20 million. As of December 31, 1998, the Company has incurred approximately $5.7 million ($3.2 million capital and $2.5 million expense) for upgrading or replacing its IT and Non-IT Systems. Of the expenditures remaining, approximately 75 percent will be capitalized. Internal resource requirements are estimated at 50,000 hours of which approximately 27,000 hours have been incurred through December 31, 1998. The Company believes, with appropriate system replacement or modification, it will be able to operate its time-sensitive IT Systems and Non-IT Systems through the turn of the century. However, certain Year 2000 issues are beyond the Company's control including the Year 2000 readiness of third parties. Environmental Matters The Company's operations, like those of its competitors, are subject to state, federal, local and Canadian environmental laws and regulations, which impose liability for cleanup or remediation of environmental pollution and hazardous waste arising from past acts; and require pollution control and prevention, site restoration and operating permits to conduct certain of the Company's operations. Federal environmental laws that impose liability for remediation include the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, which together are referred to as "Superfund," and the corrective action provisions of the Resource Conservation and Recovery Act of 1976 ("RCRA"). Under Superfund's current broad liability provisions, the United States Environmental Protection Agency ("EPA") may commence a civil action against potentially responsible parties ("PRPs") or order PRPs to remediate sites containing hazardous substances and pollution associated with past or ongoing practices. Under Superfund, strict liability for cleanup costs can be imposed even if a PRP was not directly responsible for site conditions. In addition, the liability is joint and several, which means that the EPA can seek the entire cost of cleaning up a site from one PRP, even if other PRPs were responsible for a substantial portion of the contamination. Some of the environmental laws intended to control or prevent pollution include the pollution control provisions of RCRA (controlling solid and hazardous wastes), the Clean Water Act (controlling discharge of pollutants into the waters of the United States) and the Clean Air Act (controlling emission of pollutants into the atmosphere). Proposed changes to or new environmental laws or regulations that could affect Lafarge are discussed in "Item 1. Business -- Environmental Matters" set forth in Part I of this Annual Report, which is incorporated herein by reference. 38 41 To prevent, control and remediate environmental problems and maintain compliance with permitting requirements, the Company maintains an environmental program designed to monitor and control environmental matters. This program includes recruitment, training and retention of personnel experienced in environmental matters. Employees of the Company are responsible for identifying potential environmental issues and bringing these issues to the attention of management who are responsible for addressing environmental matters. If necessary, the Company engages outside consultants to determine an appropriate course of action and estimate the likely financial exposure presented by the environmental matter. The Company routinely reviews all of its properties to determine whether remediation is required, the adequacy of accruals for such remediation, the status of all remedial activities and whether improvements to the site are required to meet current and future permit or other requirements under the environmental laws. Currently, the Company is involved in only two Superfund remediations. At one site where the Company had been named a PRP the remedial activities are complete and long-term maintenance and monitoring are under way. Partial contribution has been obtained from financially viable parties, including the Company. The EPA will delist this site from the National Priority List in 1999. At the other site, also on the National Priority List, some of the PRPs named by the EPA have initiated a third-party action against 47 other parties, including the Company. The Company also has been named a PRP at this site. The suit alleges that in 1969 a predecessor company of the Company sold equipment containing hazardous substances that may now be present at the site. It appears that the largest disposer of hazardous substances at this site is the U.S. Department of Defense and that numerous other large disposers of hazardous substances are associated with this site. Management of the Company believes that neither matter is material to the financial condition, results of operations or liquidity of the Company. In addition, the Company may be involved in certain environmental enforcement matters in both the U.S. and Canada. During the year ended December 31, 1998, no enforcement matters were initiated or resolved or are outstanding that have a material effect on the Company's financial statements. The Company records an environmental accrual when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. The accruals recorded for environmental remediation are based on internal studies and estimates, including shared financial liability with other third parties. The accruals are adjusted if further information or additional studies indicate an adjustment may be warranted. The environmental accruals are the undiscounted estimate of the required remediation costs without offset of potential insurance or other claims. When the amount of insurance or third party recoveries become probable, those amounts are reflected as receivables in the financial statements. Insurance or third party recoveries, if any, are not netted against the accruals. The liabilities recorded for environmental obligations are not material to the financial statements of the Company. Although the Company believes its environmental accruals are adequate, environmental costs may be incurred that exceed the amounts provided at December 31, 1998. However, management believes that the possibility of material liability in excess of the amounts included in the balance sheet is remote. Environmental expenditures that extend the life, increase the capacity, improve the safety or efficiency of Company-owned assets, or are incurred to mitigate or prevent future environmental contamination may be capitalized. Other environmental costs are expensed when incurred. For the years ended December 31, 1998, 1997 and 1996, total capital expenditures and remediation expenses incurred are not material to the financial position, results of operations or liquidity of the Company. However, the Company's expenditures for environmental matters have increased and are likely to increase in the future. Currently, proposed changes to or new environmental laws or regulations include: revisions to the EPA's Boiler and Industrial Furnaces regulations under RCRA; promulgation of new cement kiln dust management standards under RCRA; promulgation of final Clean Air Act maximum achievable control technology regulations governing air toxic emissions from cement plants; new permit requirements under Title V of the Clean Air Act which may affect the Company's cement, gypsum and waste-fuel operations; and U.S. Senate ratification and enactment of implementing legislation of the Kyoto Protocol which may require the Company to reduce CO(2) emissions. The Company cannot determine at this time whether capital expenditures or other remedial actions may be required to comply with these proposed changes, if implemented, or the effect such changes may have on the Company's financial statements. Because of different requirements in the environmental laws of the U.S. and 39 42 Canada, the complexity and uncertainty of existing and future requirements of environmental laws, permit conditions, costs of new and existing technology, potential preventive and remedial costs, insurance coverages and enforcement-related activities and costs, the Company cannot determine at this time whether capital expenditures and other remedial actions that the Company may be required to undertake in the future will materially affect its financial position, results of operations or liquidity. With respect to known environmental contingencies, the Company has recorded provisions for estimated probable liabilities and does not believe that the ultimate resolution of such matters will have a material adverse effect on the financial condition, results of operations or liquidity of the Company. MANAGEMENT'S DISCUSSION OF CASH FLOWS The Consolidated Statements of Cash Flows summarize the Company's main sources and uses of cash. These statements show the relationship between the operations presented in the Consolidated Statements of Income and liquidity and financial resources depicted in the Consolidated Balance Sheets. The Company's liquidity requirements arise primarily from the funding of its capital expenditures, working capital needs, debt service obligations and dividends. The Company generally meets its operating liquidity needs through internal generation of cash except in the event of significant acquisitions. Short-term borrowings are generally used to fund seasonal operating requirements, particularly in the first two calendar quarters. The net cash provided by operations for each of the three years presented reflects the Company's net income adjusted for noncash items. Depreciation, depletion and amortization increased in 1998 due to goodwill amortization and depreciation associated with the Redland acquisition and other capital projects completed in 1997 and in 1998. Depreciation, depletion and amortization increased from 1996 to 1997 primarily due to the full year impact of the gypsum wallboard acquisition. The changes in working capital are discussed in Management's Discussion of Financial Position. Capital expenditures are expected to be approximately $450 million in 1999. The Company intends to invest in projects that maintain or improve the performance of its plants as well as in acquisition opportunities that will enhance the Company's competitive position in the U.S. and Canada. In September 1996 the Company acquired G-P Gypsum Corp.'s (a subsidiary of Georgia-Pacific Corporation) gypsum wallboard manufacturing plants in Buchanan, New York and Wilmington, Delaware. The Company is building cement plants to replace existing facilities in Richmond, British Columbia and Sugar Creek, Missouri. The Richmond plant will cost approximately $110 million and is expected to be completed in 1999. The Sugar Creek plant and an underground limestone quarry are expected to cost approximately $140 million and to become operational in late 2000. On October 20, 1998 the Company completed the acquisition of a cement plant in Seattle, Washington and a limestone quarry in British Columbia from Holnam, Inc. On June 3, 1998, the Company consummated the acquisition of a number of construction materials businesses from Lafarge S.A., its majority shareholder, for $690 million in cash. This use of cash is reflected in the Consolidated Statements of Cash Flows as a repayment of a $690 million payable to Lafarge S.A., which was replaced in July 1998 with long-term senior notes with a face value of $650 million and proceeds, net of original issue discount, of $643 million. The interest expense on the debt associated with Redland will be approximately $12 million greater in 1999 compared with 1998. On January 27, 1999, the Company announced that it will build a $90 million gypsum wallboard manufacturing facility in Kentucky. Completion is scheduled for the second quarter of 2000. During 1998 and 1997, the Company's proceeds from the sale of nonstrategic assets, surplus land and other miscellaneous items totaled $22.9 million and $18.9 million, respectively. In August 1996, the Company sold two cement terminals on the Ohio River and in May 1996 the Company sold a sand and gravel operation in Pittsburgh, Pennsylvania. In December 1996, the Company redeemed all the $100 million outstanding 7 percent Convertible Debentures dated July 1, 1988. 40 43 The Company has access to a wide variety of short-term and long-term financing alternatives in both the U.S. and Canada and has a syndicated, committed, five-year revolving credit facility with nine participants totaling $300 million. At December 31, 1998, no amounts were outstanding under these credit facilities. MANAGEMENT'S DISCUSSION OF FINANCIAL POSITION The Consolidated Balance Sheets summarize the Company's financial position at December 31, 1998 and 1997. Lafarge S.A., the majority stockholder of the Company, acquired Redland PLC in December 1997. The Company acquired Redland from Lafarge S.A. on June 3, 1998 for $690 million. Since the Company acquired Redland from its majority shareholder, the acquisition was accounted for similar to a pooling of interests for financial reporting purposes. Accordingly, Redland assets and liabilities were transferred to the Company at Lafarge S.A.'s historical cost, which approximates the purchase price paid by the Company. The accompanying Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997 include the balance sheets of Redland. The Company is exposed to foreign currency exchange rate risk inherent in its Canadian revenues, expenses, assets and liabilities denominated in Canadian dollars, as well as interest rate risk inherent in the Company's debt. As more fully described in the Notes to Consolidated Financial Statements, the Company primarily uses fixed rate debt instruments to reduce the risk of exposure to changes in interest rates and has used forward treasury lock agreements to hedge interest rate changes on anticipated debt issuances. The value reported for Canadian dollar denominated net assets decreased from December 31, 1997 as a result of a decline in the value of the Canadian dollar relative to the U.S. dollar. At December 31, 1998, the U.S. dollar equivalent of a Canadian dollar was $0.65 versus $0.70 at December 31, 1997. Based on 1998 results, if the value of the Canadian dollar relative to the U.S. dollar changed by 10 percent, the consolidated net assets of the Company would change by approximately 3.7 percent and net income would change by approximately 4.4 percent. Liquidity is not materially impacted, however, since Canadian earnings are considered to be permanently invested in Canada. Working capital, excluding cash, short-term investments, current portion of long-term debt and the impact of exchange rate changes ($10.6 million), increased $26.7 million from December 31, 1997 to December 31, 1998. Accounts receivable excluding an exchange rate impact of $10.6 million increased $18.2 million primarily due to higher levels of sales in November and December. The increase of $32.3 million in accounts payable and accrued liabilities is mainly due to the growth of the Company and the timing of purchases and payments. Net property, plant and equipment increased $104.7 million during 1998, primarily due to the acquisition of the Seattle cement plant and the modernization of the Richmond, British Columbia cement plant. Capital expenditures and acquisitions of fixed assets totaled $323.6 million. The excess of cost over net tangible assets of businesses acquired relates primarily to an acquisition in the U.S. and the acquisition of the Redland operations. The Company's capitalization, after considering the Redland acquisition, is summarized in the following table:
DECEMBER 31 -------------- 1998 1997 ----- ----- Long-term debt.............................................. 30.2% 8.0% Other long-term liabilities................................. 13.0% 18.1% Shareholders' equity........................................ 56.8% 73.9% ----- ----- Total capitalization.............................. 100.0% 100.0% ===== =====
41 44 The decrease in shareholders' equity as a percentage of total capitalization is discussed in Management's Discussion of Shareholders' Equity. The increase in long-term debt is discussed in Management's Discussion of Cash Flows. MANAGEMENT'S DISCUSSION OF SHAREHOLDERS' EQUITY The Consolidated Statements of Shareholders' Equity summarize the activity in each component of shareholders' equity for the three years presented. In 1998, shareholders' equity increased by $159.5 million, mainly from net income of $235.5 million and $10.6 million from the exercise of stock options. These were partially offset by an increase in foreign currency translation adjustments of $55.3 million (resulting from a 7 percent decrease in the value of the Canadian dollar relative to the U.S. dollar) and dividend payments, net of reinvestments, of $33.1 million. Shareholders' equity increased $145.1 million in 1997 due to net income of $182.0 million and $18.7 million from exercise of stock options partially offset by foreign currency translation adjustments of $34.0 million and dividend payments, net of reinvestments, of $23.0 million. Common equity interests include the Company's common stock, $1.00 par value per share ("Common Stock") and the Lafarge Canada Inc. Exchangeable Preference Shares ("Exchangeable Shares"), which are exchangeable into Common Stock of the Company and have comparable voting, dividend and liquidation rights. The Company's Common Stock is traded on the New York Stock Exchange under the ticker symbol "LAF" and on the Toronto Stock Exchange and the Montreal Exchange. The Exchangeable Shares are traded on the Montreal Exchange and the Toronto Stock Exchange under the ticker symbol "LCI.PR.E." The Company adopted the Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). Comprehensive income, defined as the total of net income and all other non-owner changes in equity (such as foreign currency translation adjustments), is reported on an annual basis in the Consolidated Statements of Comprehensive Income and Accumulated Other Comprehensive Income (accumulated foreign currency translation adjustments) is reported in the Consolidated Balance Sheets and in the Consolidated Statements of Shareholders' Equity. The following table reflects the range of high and low closing prices of Common Stock by quarter for 1998 and 1997 as quoted on the New York Stock Exchange:
QUARTERS ENDED ----------------------------------------- MARCH JUNE SEPT. DEC. 31 30 30 31 ----- ---- ----- ---- 1998 Stock Prices High................................... $39 1/16 $41 7/8 $39 13/16 $40 1/2 Low.................................... 29 7/8 35 27 1/2 24 5/16 1997 Stock Prices High................................... $24 3/8 $25 7/8 $33 $33 9/16 Low.................................... 20 1/8 22 1/8 24 3/4 25 13/16
Dividends are summarized in the following table (in thousands, except per share amounts):
YEARS ENDED DECEMBER 31 ------------------------------------ 1998 1997 1996 ------- ------- -------- Common equity dividends......................... $36,880 $30,019 $ 28,008 Less dividend reinvestments..................... (3,736) (7,010) (15,843) ------- ------- -------- Net cash dividend payments...................... $33,144 $23,009 $ 12,165 ======= ======= ======== Common equity dividends per share............... $ 0.51 $ 0.42 $ 0.40 ======= ======= ========
The Company increased the quarterly dividend per share to $0.15 at its October 1998 Board of Directors meeting. 42 45 MANAGEMENT'S DISCUSSION OF SELECTED CONSOLIDATED FINANCIAL DATA The information provided in Item 6. Selected Consolidated Financial Data highlights certain significant trends in the Company's financial condition and results of operations. The Company's net sales declined 6 percent in 1995 due to divestments, weak construction activity in Canada and poor weather in the fourth quarter relative to 1994, partially offset by higher cement prices. The Company's net sales increased 12 percent in 1996 due to higher product shipments and prices as well as the effect of acquisitions (in late 1995 and early 1996) in the construction materials operations. Net sales also improved from the entry into the gypsum wallboard business. Net sales in 1997 increased 10 percent mainly due to increased product shipments, higher cement and ready-mixed concrete prices, and the first full year of operations of the gypsum wallboard business. In 1998, net sales increased by 36 percent primarily due to the addition of the Redland operations as well as increased shipments and prices. See Management's Discussion of Income for additional details. Inflation rates in recent years have not been a significant factor in the Company's net sales or earnings growth. The Company continually attempts to offset the effect of inflation by improving operating efficiencies, especially in the areas of selling and administrative expenses, productivity and energy costs. The Company competes with other suppliers of its products in all of its markets. The ability to recover increasing costs by obtaining higher prices for the Company's products varies with the level of activity in the construction industry, the number, size and strength of competitors and the availability of products to supply a local market. Net cash provided by operations consists of net income (loss) adjusted primarily for depreciation and a restructuring provision and related payments in 1994. The Company is in a capital-intensive industry and as a result recognizes large amounts of depreciation. The Company has used its cash provided by operations to expand its markets, improve the performance of its plants and other operating equipment, and for the years prior to the Redland acquisition, to reduce debt. During 1998, the Company acquired Redland for $690.0 million. Since the acquisition was from the Company's majority shareholder, it was treated similar to a pooling of interests and Redland's balance sheet was consolidated with the Company's balance sheet at December 31, 1997, and Redland's operating results were consolidated with the Company for the full year 1998. Capital expenditures and acquisitions, excluding Redland, totaled $916.1 million over the past five years, which included: the purchase of two gypsum wallboard manufacturing facilities; a cement plant and related limestone quarry; cement plant projects to increase production capacity and reduce costs; the installation of receiving and handling facilities of substitute fuels and raw materials; the building and purchasing of additional distribution terminals and water transportation facilities to extend markets and improve existing supply networks; the acquisition of ready-mixed concrete plants and aggregate operations; and the modernization of the construction materials mobile equipment fleet. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this Item is contained in "Management's Discussion of Financial Position" in Management's Discussion and Analysis of Financial Condition and Results of Operations reported in Item 7 of Part II of this Annual Report and is incorporated herein by reference, and in the "Debt" note of Notes to Consolidated Financial Statements reported in Item 8 of Part II of this Annual Report and is incorporated herein by reference. 43 46 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE ---- Financial Report: Report of Independent Public Accountants, Arthur Andersen LLP.................................................... 45 Consolidated Financial Statements: Consolidated Balance Sheets for the Years Ended December 31, 1998 and 1997...................................... 46 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996....................... 47 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996........... 48 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1998, 1997 and 1996........... 49 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996....................... 50 Notes to Consolidated Financial Statements................ 51 Financial Statement Schedule: Schedule II -- Consolidated Valuation and Qualifying Accounts for the Years Ended December 31, 1998, 1997 and 1996............................................... 72 All other schedules are omitted because they are not applicable.
44 47 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Lafarge Corporation: We have audited the accompanying consolidated balance sheets of Lafarge Corporation (a Maryland corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, cash flows, shareholders' equity and comprehensive income for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lafarge Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II in this Item 8 of Part II of the Annual Report is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Washington, D.C. January 26, 1999 45 48 LAFARGE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
DECEMBER 31 ----------------------- 1998 1997 ---------- ---------- ASSETS Cash and cash equivalents................................... $ 271,138 $ 174,163 Short-term investments...................................... 17,070 155,368 Receivables, net............................................ 335,229 327,612 Inventories................................................. 247,944 233,972 Deferred tax assets......................................... 40,738 33,126 Other current assets........................................ 25,772 25,205 ---------- ---------- Total current assets.............................. 937,891 949,446 Property, plant and equipment, net.......................... 1,400,753 1,296,020 Excess of cost over net tangible assets of businesses acquired, net............................................. 353,548 335,487 Other assets................................................ 212,605 193,898 ---------- ---------- TOTAL ASSETS...................................... $2,904,797 $2,774,851 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued liabilities.................... $ 353,736 $ 321,450 Income taxes payable........................................ 16,681 35,364 Short-term borrowings and current portion of long-term debt...................................................... 44,560 29,770 Payable to Lafarge S.A...................................... -- 690,000 ---------- ---------- Total current liabilities......................... 414,977 1,076,584 Long-term debt.............................................. 751,151 135,243 Other long-term liabilities................................. 323,495 307,336 ---------- ---------- Total Liabilities................................. 1,489,623 1,519,163 ---------- ---------- Common Equity Common stock ($1.00 par value; authorized 110.1 million shares; issued 67.4 and 65.3 million shares, respectively).......................................... 67,370 65,268 Exchangeable shares (no par or stated value; authorized 24.3 million shares; issued 4.9 and 6.4 million shares, respectively).......................................... 35,814 45,259 Additional paid-in capital.................................. 672,555 649,082 Retained earnings........................................... 792,058 593,438 Accumulated other comprehensive income (loss)............... (152,623) (97,359) ---------- ---------- Total Shareholders' Equity........................ 1,415,174 1,255,688 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $2,904,797 $2,774,851 ========== ==========
See Notes to Consolidated Financial Statements 46 49 LAFARGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except amounts per common equity share)
YEARS ENDED DECEMBER 31 -------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- NET SALES........................................ $2,448,205 $1,806,351 $1,649,280 ---------- ---------- ---------- Costs and expenses Cost of goods sold............................. 1,798,986 1,335,206 1,251,886 Selling and administrative..................... 216,829 160,963 151,442 Amortization of goodwill....................... 17,586 3,748 2,996 Other expense, net............................. 7,757 5,536 6,578 Interest expense............................... 47,652 19,949 24,118 Interest income................................ (20,429) (13,285) (10,068) ---------- ---------- ---------- Total costs and expenses............... 2,068,381 1,512,117 1,426,952 ---------- ---------- ---------- Earnings before income taxes..................... 379,824 294,234 222,328 Income taxes..................................... 144,324 112,258 81,462 ---------- ---------- ---------- NET INCOME....................................... $ 235,500 $ 181,976 $ 140,866 ========== ========== ========== NET INCOME PER SHARE-BASIC....................... $ 3.27 $ 2.56 $ 2.02 ========== ========== ========== NET INCOME PER SHARE-DILUTED..................... $ 3.24 $ 2.54 $ 1.95 ========== ========== ========== DIVIDENDS PER SHARE.............................. $ 0.51 $ 0.42 $ 0.40 ========== ========== ==========
See Notes to Consolidated Financial Statements 47 50 LAFARGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands)
YEARS ENDED DECEMBER 31 --------------------------------------------------------------- 1998 1997 1996 ------------------- ------------------- ------------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ---------- ------ ---------- ------ ---------- ------ COMMON EQUITY INTERESTS COMMON STOCK Balance at January 1........ $ 65,268 65,268 $ 62,590 62,590 $ 60,735 60,735 Issuance of shares for: Dividend reinvestment plans.................. 83 83 256 256 814 814 Employee stock purchase plan................... 31 31 33 33 36 36 Conversion of Exchangeable Shares.................... 1,527 1,527 1,421 1,421 810 810 Exercise of stock options... 461 461 968 968 195 195 ---------- ------ ---------- ------ ---------- ------ Balance at December 31...... $ 67,370 67,370 $ 65,268 65,268 $ 62,590 62,590 ========== ====== ========== ====== ========== ====== EXCHANGEABLE SHARES Balance at January 1........ $ 45,259 6,409 $ 53,817 7,764 $ 58,311 8,501 Issuance of shares for: Dividend reinvestment plans.................. 966 29 1,035 40 827 45 Employee stock purchase plan................... 172 25 180 26 190 28 Conversion of shares........ (10,583) (1,527) (9,773) (1,421) (5,511) (810) ---------- ------ ---------- ------ ---------- ------ Balance at December 31...... $ 35,814 4,936 $ 45,259 6,409 $ 53,817 7,764 ========== ====== ========== ====== ========== ====== ADDITIONAL PAID-IN CAPITAL Balance at January 1........... $ 649,082 $ 615,993 $ 593,310 Issuance of Common Stock and/or Exchangeable Shares for: Dividend reinvestment plans.................. 2,687 5,719 14,203 Employee stock purchase plan................... 1,923 1,241 1,154 Conversion of Exchangeable Shares...................... 9,056 8,352 4,701 Exercise of stock options...... 10,170 17,777 2,625 Other.......................... (363) -- -- ---------- ---------- ---------- Balance at December 31......... $ 672,555 $ 649,082 $ 615,993 ========== ========== ========== RETAINED EARNINGS Balance at January 1........... $ 593,438 $ 441,481 $ 328,623 Net income..................... 235,500 181,976 140,866 Dividends -- common equity interests................... (36,880) (30,019) (28,008) ---------- ---------- ---------- Balance at December 31......... $ 792,058 $ 593,438 $ 441,481 ========== ========== ========== ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Balance at January 1........... $ (97,359) $ (63,342) $ (60,001) Foreign currency translation adjustments................. (55,264) (34,017) (3,341) ---------- ---------- ---------- Balance at December 31......... $ (152,623) $ (97,359) $ (63,342) ========== ========== ========== TOTAL SHAREHOLDERS' EQUITY....... $1,415,174 $1,255,688 $1,110,539 ========== ========== ==========
See Notes to Consolidated Financial Statements 48 51 LAFARGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
YEARS ENDED DECEMBER 31 ------------------------------------------ 1998 1997 1996 -------- -------- -------- NET INCOME...................................... $235,500 $181,976 $140,866 Foreign currency translation adjustments...... (55,264) (34,017) (3,341) -------- -------- -------- COMPREHENSIVE INCOME............................ $180,236 $147,959 $137,525 ======== ======== ========
See Notes to Consolidated Financial Statements 49 52 LAFARGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
YEARS ENDED DECEMBER 31 --------------------------------- 1998 1997 1996 --------- --------- --------- CASH FLOWS FROM OPERATIONS Net income.............................................. $ 235,500 $ 181,976 $ 140,866 Adjustments to reconcile net income to net cash provided by operations Depreciation, depletion, and amortization............ 156,782 106,304 100,507 Provision for bad debts.............................. 3,395 2,365 255 Deferred income taxes................................ 17,331 9,815 8,491 Gain on sale of assets............................... (2,964) (6,038) (4,085) Other noncash charges and credits, net............... (9,948) 2,512 (156) Net change in operating working capital (see below)*............................................ (23,971) 39,052 (37,847) --------- --------- --------- NET CASH PROVIDED BY OPERATIONS........................... 376,125 335,986 208,031 --------- --------- --------- CASH FLOWS FROM INVESTING Capital expenditures.................................... (224,353) (123,970) (124,790) Acquisitions............................................ (99,280) (8,817) (83,484) Redemptions (purchases) of short-term investments, net.................................................. 138,298 (62,872) (7,980) Proceeds from property, plant and equipment dispositions......................................... 22,910 18,947 29,126 Other................................................... (541) 7,110 (203) --------- --------- --------- NET CASH USED FOR INVESTING............................... (162,966) (169,602) (187,331) --------- --------- --------- CASH FLOWS FROM FINANCING Repayment of Lafarge S.A. payable....................... (690,000) -- -- Issuance of senior notes, net of discount............... 643,464 -- -- Other repayment of long-term debt....................... (30,636) (16,758) (109,021) Issuance (repayment) of short-term borrowings, net...... 14,730 (77,850) 77,850 Issuance of equity securities, net...................... 12,757 20,199 4,201 Dividends, net of reinvestments......................... (33,144) (23,009) (12,165) Financing costs and other............................... (12,818) -- -- --------- --------- --------- NET CASH CONSUMED BY FINANCING............................ (95,647) (97,418) (39,135) --------- --------- --------- Effect of exchange rate changes........................... (20,537) (11,650) (1,153) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 96,975 57,316 (19,588) CASH AND CASH EQUIVALENTS AT JANUARY 1.................... 174,163 116,847 136,435 --------- --------- --------- CASH AND CASH EQUIVALENTS AT DECEMBER 31.................. $ 271,138 $ 174,163 $ 116,847 ========= ========= ========= *ANALYSIS OF CHANGES IN OPERATING WORKING CAPITAL ITEMS Receivables, net........................................ $ (18,217) $ 22,779 $ (20,015) Inventories............................................. (16,566) (7,692) 11,249 Other current assets.................................... (822) (2,287) (97) Accounts payable and accrued liabilities................ 28,789 19,262 (25,479) Income taxes payable.................................... (17,155) 6,990 (3,505) --------- --------- --------- NET CHANGE IN OPERATING WORKING CAPITAL................... $ (23,971) $ 39,052 $ (37,847) ========= ========= =========
See Notes to Consolidated Financial Statements 50 53 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Lafarge Corporation, together with its subsidiaries ("Lafarge" or the "Company"), is North America's largest diversified supplier of construction materials. The Company's major operating subsidiary, Lafarge Canada Inc. ("LCI"), operates in Canada. The Company's core businesses are organized into three operating segments: the Cement Group; the Construction Materials Group; and Lafarge Gypsum. For information regarding the Company's operating segments and products, see the "Segment and Related Information" note herein. Lafarge operates in the U.S. and throughout Canada. The primary U.S. markets are in the northeast, midsouth, midwest, northcentral, mountain and northwest areas. Lafarge's wholly owned subsidiary, Systech Environmental Corporation, supplies cement plants with substitute fuels and raw materials. Lafarge S.A., a French corporation, and certain of its affiliates ("Lafarge S.A.") own a majority of the voting securities of Lafarge, including the Company's outstanding Common Stock, par value $1.00 per share (the "Common Stock") and LCI's Exchangeable Preference Shares ("Exchangeable Shares"). On June 3, 1998, the Company acquired certain Redland PLC businesses in North America ("Redland") from Lafarge S.A. for $690 million. Redland produces and sells aggregates, ready-mixed concrete, asphalt and performs paving and related contracting services. Redland operates primarily in the U.S. and owns two quarry operations in Ontario, Canada. ACCOUNTING AND FINANCIAL REPORTING POLICIES Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses. Actual results may differ from these estimates. Principles of Consolidation The consolidated financial statements include the accounts of Lafarge and all of its wholly and majority-owned subsidiaries, after the elimination of intercompany balances and transactions. Investments in affiliates in which the Company has less than a majority ownership are accounted for by the equity method. Certain reclassifications have been made to prior years to conform to the 1998 presentation. Foreign Currency Translation The Company uses the U.S. dollar as its functional currency. The assets and liabilities of LCI are translated at the exchange rate prevailing at the balance sheet date. Related revenue and expense accounts for this subsidiary are translated using the average exchange rate during the year. Foreign currency translation adjustments are included in "accumulated other comprehensive income (loss)" in the Consolidated Balance Sheets and in the Consolidated Statements of Shareholders' Equity. Revenue Recognition Revenue from the sale of cement, concrete, concrete products, aggregates and gypsum wallboard is recorded when the products are shipped. Revenue from waste recovery and disposal is recognized when the material is received, tested and accepted. Revenue from road construction contracts is recognized on the basis of units of work completed, while revenue from other indivisible lump sum contracts is recognized using the percentage-of-completion method. 51 54 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Derivative Financial Instruments The Company at times uses derivative financial instruments ("Derivatives") in order to hedge the impact of changes in interest rates. These Derivatives are not held or issued for trading purposes. The Company is a party to an interest rate swap contract ("Interest Swap") requiring the Company to make a fixed interest rate payment and to receive a floating interest rate payment from a commercial bank. This Interest Swap was transacted in order to hedge a portion of the Company's floating interest rate borrowings from significant changes in interest rates. The net difference in interest payments is recognized over the life of the Interest Swap as a component of "interest expense" in the Consolidated Statements of Income. The Company also enters into forward contracts used to hedge interest rate changes on anticipated debt issuances. The differentials to be received or paid under such contracts designated as forward interest rate hedges are recognized in income over the life of the associated debt as adjustments to interest expense. Cash and Cash Equivalents The Company considers liquid investments purchased with an original maturity of three months or less to be cash equivalents. Because of the short maturity, their carrying amounts approximate fair value. Short-Term Investments Short-term investments consist primarily of commercial paper with original maturities beyond three months and fewer than 12 months. Such short-term investments are carried at cost, which approximates fair value, due to the short period of time to maturity. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk are primarily receivables, cash equivalents and short-term investments. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers. The allowance for non-collection of receivables is based upon analysis of economic trends in the construction industry and the expected collectibility of overall receivables. The Company places its cash equivalents and short-term investments in investment grade, short-term debt instruments and limits the amount of credit exposure to any one commercial issuer. Inventories Inventories are valued at lower of cost or market. The majority of the Company's U.S. cement inventories, other than maintenance and operating supplies, are stated at last-in, first-out ("LIFO") cost, and all other inventories are valued at average cost. Property, Plant and Equipment Depreciation of property, plant and equipment is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets. These lives range from three years on light mobile equipment to 40 years on certain buildings. Land and mineral deposits include depletable raw material reserves with depletion recorded using the units-of-production method. Excess of Cost Over Net Tangible Assets of Businesses Acquired The excess of cost over fair value of net tangible assets of businesses acquired ("goodwill") is amortized using the straight-line method over periods not exceeding 40 years. Goodwill related to Redland businesses 52 55 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) acquired will be amortized over lives averaging 27 years. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. In evaluating impairment, the Company estimates the sum of the expected future cash flows, undiscounted and without interest charges, derived from such goodwill over its remaining life. The Company believes that no impairment exists at December 31, 1998. The amortization recorded for 1998, 1997 and 1996 was $17.6 million, $3.7 million and $3.0 million, respectively. Accumulated amortization at December 31, 1998 and 1997 was $61.9 million and $44.3 million, respectively. Other Postretirement Benefits The Company accrues the expected cost of retiree health care and life insurance benefits and charges it to expense during the years that the employees render service. In addition, the Company accrues for benefits provided to former or inactive employees after employment but before retirement when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid. Income Taxes Deferred income taxes are determined by the liability method in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Environmental Remediation Liabilities When the Company determines that it is probable that a liability for environmental matters has been incurred, an undiscounted estimate of the required remediation costs is recorded as a liability in the consolidated financial statements, without offset of potential insurance recoveries. Costs that extend the life, increase the capacity or improve the safety or efficiency of Company-owned assets or are incurred to mitigate or prevent future environmental contamination may be capitalized. Other environmental costs are expensed when incurred. Research and Development The Company is committed to improving its manufacturing process, maintaining product quality and meeting existing and future customer needs. These objectives are pursued through various programs. Research and development costs, which are charged to expense as incurred, were $7.4 million, $7.2 million and $6.3 million for 1998, 1997 and 1996, respectively. Interest Interest of $3.6 million, $1.4 million and $1.2 million was capitalized in 1998, 1997 and 1996, respectively. Comprehensive Income The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") in 1998. Comprehensive income as presented in the Consolidated Statements of Comprehensive Income is defined as the total of net income and all other non-owner changes in equity (foreign currency translation adjustment in Lafarge's case). 53 56 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Net Income Per Common Equity Share The calculation of basic net income per common equity share is in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS No. 128") which the Company adopted in 1997 and is based on the weighted average number of shares of Common Stock and the Exchangeable Shares outstanding in each period. The weighted average number of shares and share equivalents outstanding was (in thousands) 72,071, 71,128 and 69,783 in 1998, 1997 and 1996, respectively. The weighted average number of shares and share equivalents outstanding, assuming dilution, was (in thousands) 72,665, 71,695 and 74,377 in 1998, 1997 and 1996, respectively, and assumed conversion in 1996 of the Convertible Subordinated Debentures which were redeemed in December 1996. Accounting for Stock-Based Compensation The Company accounts for employee stock options using the method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Generally, no expense is recognized related to the Company's stock options because the option's exercise price is set at the stock's fair market value on the date the option is granted. In accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company discloses the compensation cost based on the estimated fair value of the options at the grant dates. Accounting Pronouncements Not Yet Effective In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The Company must adopt this statement no later than January 1, 2000. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company is reviewing SFAS No. 133 and does not currently expect it to materially impact its financial condition or results of operations. Acquisitions Lafarge S.A., the majority stockholder of the Company, acquired Redland PLC in December 1997. Since the Company acquired Redland from its majority stockholder, the acquisition is accounted for similar to a pooling of interests for financial reporting purposes. Accordingly, as of December 31, 1997, Redland assets and liabilities acquired by the Company from Lafarge S.A. were transferred to the Company at Lafarge S.A.'s historical cost, which approximates the $690 million purchase price paid by the Company. The Company's consolidated balance sheets as of December 31, 1998 and 1997 include the balance sheets of Redland. The 1998 consolidated statements of income and cash flows include Redland, but the 1997 and 1996 consolidated statements of income and cash flows exclude Redland. A payable to Lafarge S.A. for $690 million was recorded as part of the acquisition. A portion of this payable ($40 million) was repaid in June 1998 and the balance of $650 million was financed in June 1998 with an interest-bearing short-term note to Lafarge S.A. This note was refinanced in July 1998 with long-term public debt. 54 57 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The Redland businesses acquired by the Company consist of Western Mobile Inc. of Denver, Colorado; Redland Genstar Inc. of Towson, Maryland; and the aggregate operations of Redland Quarries Inc. of Hamilton, Ontario. The operations acquired posted combined revenues of approximately $572 million in 1998. Redland is engaged in the production and sale of aggregates, asphalt, ready-mixed concrete, other concrete products and performs paving and related contracting services. Redland operates primarily in the U.S. and owns two quarry operations in Ontario, Canada. The primary U.S. markets are in the states of Colorado, New Mexico, Maryland and New York. The final allocation of the purchase price includes adjustments to the preliminary allocation primarily in the areas of property, plant and equipment, goodwill and deferred taxes. The final allocation, based on outside appraisals of the fair market value of Redland's net tangible assets as of December 31, 1997 is as follows (in thousands): Current assets.............................................. $128,655 Property, plant and equipment, including $152,899 of mineral deposits.................................................. 399,147 Goodwill (to be amortized over an average life of 27 years).................................................... 327,815 Other long-term assets...................................... 11,754 Current liabilities......................................... (93,824) Long-term debt.............................................. (2,906) Other long-term liabilities................................. (80,641) -------- Total............................................. $690,000 ========
The following unaudited 1997 pro forma financial information for the Company gives effect to the Redland acquisition as if Lafarge S.A. had purchased it on January 1, 1997 (in thousands except per share amounts). These pro forma results have been prepared for comparative purposes only and include certain adjustments, such as depreciation and depletion on the revalued property, plant and equipment and amortization of goodwill. The pro forma results of operations are not necessarily indicative of the combined earnings and results of operations had the acquisition been completed at the beginning of 1997, nor is such information necessarily indicative of future results of operations.
YEAR ENDED DECEMBER 31, 1997 ----------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Pro-forma: Net sales................................................... $2,323,407 Net income.................................................. $ 184,434 Net income per share -- Basic............................... $ 2.59 Net income per share -- Diluted............................. $ 2.57
In September 1996, the Company acquired two gypsum wallboard plants, located in Buchanan, New York and Wilmington, Delaware. On October 20, 1998, the Company completed the acquisition from Holnam, Inc. of a cement plant in Seattle, Washington and a related limestone quarry operation located on Texada Island, British Columbia. 55 58 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) RECEIVABLES Receivables consist of the following (in thousands):
DECEMBER 31 -------------------- 1998 1997 -------- -------- Trade and notes receivable.................................. $349,478 $342,760 Retainage on long-term contracts............................ 13,602 12,933 Allowances.................................................. (27,851) (28,081) -------- -------- Total receivables, net............................ $335,229 $327,612 ======== ========
INVENTORIES Inventories consist of the following (in thousands):
DECEMBER 31 -------------------- 1998 1997 -------- -------- Finished products........................................... $129,838 $123,774 Work in process............................................. 10,878 8,483 Raw materials and fuel...................................... 55,760 55,341 Maintenance and operating supplies.......................... 51,468 46,374 -------- -------- Total inventories................................. $247,944 $233,972 ======== ========
Included in the finished products, work in process and raw materials and fuel categories are inventories valued using the LIFO method of $64.1 million and $72.3 million at December 31, 1998 and 1997, respectively. If these inventories were valued using the average cost method, such inventories would have decreased by $4.4 million and $5.1 million, respectively. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following (in thousands):
DECEMBER 31 ------------------------- 1998 1997 ----------- ----------- Land and mineral deposits................................. $ 391,532 $ 370,111 Buildings, machinery and equipment........................ 1,973,392 1,914,491 Construction in progress.................................. 184,748 79,345 ----------- ----------- Property, plant and equipment, at cost.................... 2,549,672 2,363,947 Accumulated depreciation and depletion.................... (1,148,919) (1,067,927) ----------- ----------- Total property, plant and equipment, net........ $ 1,400,753 $ 1,296,020 =========== ===========
56 59 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) OTHER ASSETS Other assets consist of the following (in thousands):
DECEMBER 31 ------------------- 1998 1997 -------- -------- Long-term receivables....................................... $ 25,791 $ 20,328 Investments in unconsolidated companies..................... 22,913 22,301 Prepaid pension asset....................................... 93,519 92,900 Property held for sale...................................... 19,510 24,042 Other....................................................... 50,872 34,327 -------- -------- Total other assets................................ $212,605 $193,898 ======== ========
Property held for sale represents land that is carried at the lower of cost or estimated net realizable value. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of the following (in thousands):
DECEMBER 31 ------------------- 1998 1997 -------- -------- Trade accounts payable...................................... $123,063 $117,777 Accrued payroll expense..................................... 47,454 49,385 Bank overdrafts............................................. 21,266 10,076 Other accrued liabilities................................... 161,953 144,212 -------- -------- Total accounts payable and accrued liabilities.... $353,736 $321,450 ======== ========
DEBT Debt consists of the following (in thousands):
DECEMBER 31 ------------------- 1998 1997 -------- -------- Senior notes in the amounts of $250,000, $200,000 and $200,000, maturing in 2005, 2008 and 2013, respectively, bearing interest at fixed rates of 6.4 percent, 6.5 percent and 6.9 percent, respectively, stated net of original issue discount. The average effective interest rate is 6.9 percent....................................... $643,464 $ -- Medium-term notes maturing in various amounts between 1999 and 2006, bearing interest at fixed rates which range from 9.3 percent to 9.8 percent................................ 93,500 122,000 Tax-exempt bonds maturing in various amounts between 1999 and 2026, bearing interest at floating rates which range from 4.0 percent to 5.1 percent........................... 38,383 38,917 Short-term borrowings....................................... 14,730 -- Other....................................................... 5,634 4,096 -------- -------- Subtotal............................................... 795,711 165,013 Less short-term borrowings and current portion of long-term debt...................................................... (44,560) (29,770) -------- -------- Total long-term debt.............................. $751,151 $135,243 ======== ========
57 60 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The fair value of debt at December 31, 1998 and 1997, respectively, was approximately $819.7 million and $179.1 million compared with $795.7 million and $165.0 million included in the Consolidated Balance Sheets. This fair value was estimated based on quoted market prices or current interest rates offered to the Company for debt of the same maturity. The scheduled annual principal payment requirements on debt for each of the five years in the period ending December 31, 2003 are as follows (in thousands):
REPAYMENTS ---------- 1999..................................................... $ 44,560 2000..................................................... $ 34,841 2001..................................................... $ 29,872 2002..................................................... $ 15,194 2003..................................................... $ 620 Thereafter............................................... $670,624
The Company has a syndicated, committed revolving credit facility totaling $300 million extending through December 8, 2003. At the end of 1998, no amounts were outstanding. The Company is required to pay annual commitment fees of 0.10 percent of the total amount of the facilities. Borrowings made under the revolving credit facilities will bear interest at variable rates based on a bank's prime lending rate or the applicable federal funds rate and are subject to certain conditions. In July 1998, the Company issued $650 million in long-term senior notes to finance the acquisition of Redland's U.S. operations. Proceeds from the issuance of these notes were used to repay the $650 million balance of the note payable to Lafarge S.A. on July 15, 1998. The all-in average cost of these notes including the original issue discount, a treasury lock hedge and all issuance costs is 6.9 percent. In order to hedge the risk of interest rate fluctuations, the Company entered into forward treasury lock agreements in May and June, 1998 totaling a notional $640 million. Losses on these agreements have been deferred and are being amortized over the life of the debt. The Company's debt agreements require the maintenance of certain financial ratios relating to fixed charge coverage and leverage. At December 31, 1998, the Company was in compliance with these requirements. At December 31, 1998, the Company maintained one $25 million (notional amount) Interest Swap contract which matures in 1999. As of December 31, 1998, it required the Company to pay a fixed rate of 8.7 percent in exchange for a floating rate receipt of 5.3 percent. Throughout 1998, outstanding floating interest rate borrowings exceeded the amount of this Interest Swap. Therefore, no mark-to-market provision was recorded during the year. The differences in swapped interest rates are paid every three months pursuant to the Interest Swap contract. Although the Company is exposed to credit loss in the event of nonperformance by the other party to the contract, it does not anticipate nonperformance. Based on interest rates at December 31, 1998, the net termination cost for the Company to unwind its Interest Swap was approximately $0.4 million. 58 61 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) OTHER LONG-TERM LIABILITIES Other long-term liabilities consist of the following (in thousands):
DECEMBER 31 ------------------- 1998 1997 -------- -------- Deferred income taxes....................................... $110,398 $111,969 Minority interests.......................................... 6,058 6,252 Accrued postretirement benefit cost......................... 149,794 147,647 Accrued pension liability................................... 24,660 21,800 Other....................................................... 32,585 19,668 -------- -------- Total other long-term liabilities................. $323,495 $307,336 ======== ========
COMMON EQUITY INTERESTS Holders of Exchangeable Shares have voting, dividend and liquidation rights that parallel those of holders of the Company's Common Stock. The Exchangeable Shares may be converted to the Company's Common Stock on a one-for-one basis. Dividends on the Exchangeable Shares are cumulative and payable at the same time as any dividends declared on the Company's Common Stock. The Company has agreed not to pay dividends on its Common Stock without causing LCI to declare an equivalent dividend in Canadian dollars on the Exchangeable Shares. Dividend payments and the exchange rate on the Exchangeable Shares are subject to adjustment from time to time to take into account certain dilutive events. At December 31, 1998, the Company had reserved for issuance approximately 6.7 million shares of Common Stock for the exchange of outstanding Exchangeable Shares. Additional common equity shares are reserved to cover grants under the Company's stock option program (7.8 million), employee stock purchase plan (0.6 million) and issuances pursuant to the Company's optional stock dividend plan (2.0 million). OPTIONAL STOCK DIVIDEND PLAN The Company has an optional stock dividend plan that permits holders of record of common equity shares to elect to receive new common equity shares issued as stock dividends in lieu of cash dividends on such shares. The common equity shares are issued under the plan at 95 percent of the average market price, as defined in the plan. STOCK OPTION AND PURCHASE PLANS At December 31, 1998, the Company maintained two stock-based compensation plans -- a fixed stock option plan and an employee stock purchase plan. The Company applies APB Opinion No. 25 and related interpretations in accounting for these plans. Accordingly, no compensation cost has been recognized for these plans. If compensation cost for the Company's stock-based compensation plans had been determined based on the fair value at the grant dates for awards under those plans consistent with the method described by SFAS 59 62 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated as follows (in thousands except per share amounts):
YEARS ENDED DECEMBER 31 ------------------------------ 1998 1997 1996 -------- -------- -------- NET INCOME As reported......................................... $235,500 $181,976 $140,866 Pro forma........................................... $232,567 $180,402 $139,803 BASIC EARNINGS PER SHARE As reported......................................... $ 3.27 $ 2.56 $ 2.02 Pro forma........................................... $ 3.23 $ 2.54 $ 2.00 DILUTED EARNINGS PER SHARE As reported......................................... $ 3.24 $ 2.54 $ 1.95 Pro forma........................................... $ 3.19 $ 2.51 $ 1.94
The method of accounting under SFAS No. 123 has not been applied to options granted prior to January 1, 1995. The pro forma compensation cost may not be representative of that to be expected in future years. Under the stock option plan, options to purchase shares of the Company's Common Stock have been granted to key employees and directors of the Company at option prices based on the market price of the securities at the date of grant. One-fourth of the employee options granted is exercisable at the end of each year following the date of grant. Director options are exercisable based on the length of a director's service on the Company's Board of Directors and become fully exercisable when a director has served on the Board for over four years. The options expire ten years from the date of grant. The fair value of each option grant is estimated on the date of grant for purposes of the pro forma disclosures shown above using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants made in 1998, 1997 and 1996, respectively: dividend yield of 1.45, 1.90 and 2.12 percent; expected volatility of 25.8, 26.0 and 37.0 percent; risk-free interest rates of 5.80, 6.47 and 5.65 percent; and expected lives of 5.4 for all three years. A summary of the status of the Company's fixed stock option plans as of December 31, 1998, 1997 and 1996, and changes during the years ended on these dates is presented below:
YEARS ENDED DECEMBER 31 --------------------------------------------------------------- 1998 1997 1996 ------------------- ------------------- ------------------- AVERAGE AVERAGE AVERAGE OPTION OPTION OPTION SHARES PRICE SHARES PRICE SHARES PRICE --------- ------- --------- ------- --------- ------- Balance outstanding at January 1.................. 1,984,050 $19.43 2,481,287 $17.87 2,319,837 $17.33 Options granted.............. 843,500 33.98 541,000 21.43 492,000 18.88 Options exercised............ (471,250) 18.88 (967,612) 16.50 (194,925) 14.47 Options canceled............. (22,500) 35.21 (70,625) 20.05 (135,625) 19.11 --------- ------ --------- ------ --------- ------ Balance outstanding at December 31................ 2,333,800 $24.74 1,984,050 $19.43 2,481,287 $17.87 ========= ====== ========= ====== ========= ====== Options exercisable at December 31................ 839,725 $19.33 886,650 $18.35 1,452,937 $16.83 ========= ====== ========= ====== ========= ====== Weighted average fair value of options granted during the year................... $10.32 $ 6.50 $ 6.65 ====== ====== ======
60 63 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) As of December 31, 1998, the 2.3 million fixed stock options outstanding under the plans have an exercise price between $14.25 and $36.50 and a weighted average remaining contractual life of 7.38 years. The Company's employee stock purchase plan permits substantially all employees to purchase the Company's common equity interests through payroll deductions at 90 percent of the lower of the beginning or end of plan year market prices. In 1998, 56,000 shares were issued to employees under the plan at a share price of $22.28, and in 1997, 59,300 shares were issued at a share price of $19.24. At December 31, 1998 and 1997, $ 0.7 million was subscribed for future share purchases. NET INCOME PER COMMON EQUITY SHARE
(FOR THE YEARS ENDED DECEMBER 31) (IN THOUSANDS EXCEPT PER SHARE AMOUNT) INCOME SHARES -------------------------------------- ------ --------- 1998 BASIC Net Income............................................. $235,500 72,071 $3.27 ===== DILUTED Options................................................ 594 -------- ------ Income available to common stockholders plus assumed conversions......................................... $235,500 72,665 $3.24 ======== ====== ===== 1997 BASIC Net Income............................................. $181,976 71,128 $2.56 ===== DILUTED Options................................................ 567 -------- ------ Income available to common stockholders plus assumed conversions......................................... $181,976 71,695 $2.54 ======== ====== ===== 1996 BASIC Net Income............................................. $140,866 69,783 $2.02 ===== DILUTED Options................................................ 309 Add after tax interest expense applicable to convertible debentures.............................. 4,153 4,285 -------- ------ Income available to common stockholders plus assumed conversions......................................... $145,019 74,377 $1.95 ======== ====== =====
Basic earnings per common equity share were computed by dividing net income by the weighted average number of shares of Common Stock and Exchangeable Shares outstanding during the year. Diluted earnings per common equity share assumed the exercise of stock options for all years presented and, in 1996, assumed conversion of the convertible debentures. 61 64 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) INCOME TAXES Earnings before income taxes is summarized by country in the following table (in thousands):
YEARS ENDED DECEMBER 31 ------------------------------ 1998 1997 1996 -------- -------- -------- United States......................................... $214,608 $151,634 $ 97,267 Canada................................................ 165,216 142,600 125,061 -------- -------- -------- Earnings before income taxes.......................... $379,824 $294,234 $222,328 ======== ======== ========
The provision for income taxes includes the following components (in thousands):
YEARS ENDED DECEMBER 31 ----------------------------- 1998 1997 1996 -------- -------- ------- Current United States....................................... $ 68,434 $ 46,012 $27,600 Canada.............................................. 58,559 56,431 45,371 -------- -------- ------- Total current.................................... 126,993 102,443 72,971 -------- -------- ------- Deferred United States....................................... 14,083 12,200 8,800 Canada.............................................. 3,248 (2,385) (309) -------- -------- ------- Total deferred................................... 17,331 9,815 8,491 -------- -------- ------- Total income taxes.......................... $144,324 $112,258 $81,462 ======== ======== =======
The federal statute of limitations has closed for all U.S. income tax returns through 1994. The Company's Canadian federal tax liability for all taxation years through 1994 has been reviewed and finalized by Revenue Canada Taxation. During 1995, an agreement was reached with Revenue Canada Taxation related to the pricing of certain cement sales between the Company's operations in Canada and the U.S. Under the terms of the Canada-U.S. Income Tax Convention, the agreement has been submitted to the Competent Authorities of Canada and the U.S. and is subject to adjustment. The purpose of the Competent Authorities is to reach agreement for the elimination of double taxation that is not in accordance with the Convention. A reconciliation of taxes at the U.S. federal income tax rate to the Company's actual income taxes is as follows (in millions):
YEARS ENDED DECEMBER 31 ----------------------- 1998 1997 1996 ------ ------ ----- Taxes at the U.S. federal income tax rate................... $133.4 $103.0 $77.8 U.S./Canadian tax rate differential......................... 5.0 4.3 3.7 Canadian tax incentives..................................... (10.4) (8.8) (8.0) State and Canadian provincial income taxes, net of federal benefit................................................... 17.0 11.4 8.6 Other items................................................. (0.7) 2.4 (0.6) ------ ------ ----- Provision for income taxes.................................. $144.3 $112.3 $81.5 ====== ====== =====
Deferred income taxes reflect the tax consequences of "temporary differences" between the amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax law. These temporary differences are determined in accordance with SFAS No. 109. 62 65 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Temporary differences and carryforwards that give rise to deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31 ------------------- 1998 1997 -------- -------- Deferred tax assets: Reserves and other liabilities............................ $ 75,274 $ 73,226 Other postretirement benefits............................. 59,553 60,074 Tax loss carryforwards.................................... 5,910 7,621 Tax credit carryforwards.................................. 18,994 69 -------- -------- Gross deferred tax assets................................... 159,731 140,990 Valuation allowance......................................... (23,296) (24,525) -------- -------- Net deferred tax assets..................................... 136,435 116,465 -------- -------- Deferred tax liabilities: Property, plant and equipment............................. 171,661 160,739 Prepaid pension asset..................................... 28,743 28,168 Other..................................................... 5,691 6,401 -------- -------- Gross deferred tax liabilities.............................. 206,095 195,308 -------- -------- Net deferred tax liability.................................. 69,660 78,843 Net deferred tax asset -- current........................... 40,738 33,126 -------- -------- Net deferred tax liability -- noncurrent.................... $110,398 $111,969 ======== ========
A valuation allowance is provided to reduce the deferred tax assets to a level which, more likely than not under the rules of SFAS No. 109, will be realized. At December 31, 1998, the Company had net operating loss and tax credit carryforwards of $14.7 million and $19.0 million, respectively. The net operating loss carryforwards are limited to use in varying annual amounts through 2006. The tax credit carryforwards are alternative minimum tax credits that have no expiration date. Deferred tax assets include approximately $9.2 million that represent the tax effect of transfer pricing adjustments that have not been deducted in the U.S. pending settlement between the U.S. and Canadian Competent Authorities as previously noted. At December 31, 1998, cumulative undistributed earnings of LCI were $893.6 million. No provision for U.S. income taxes or Canadian withholding taxes has been made since the Company considers the undistributed earnings to be permanently invested in Canada. The Company's management has decided that the determination of the amount of any unrecognized deferred tax liability for the cumulative undistributed earnings of LCI is not practical to determine since it would depend on a number of factors that cannot be known until such time as a decision to repatriate the earnings might be made. SEGMENT AND RELATED INFORMATION Lafarge adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), during the fourth quarter of 1998. SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to shareholders. It also established standards for related disclosures about products and geographic areas. 63 66 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Lafarge's two geographic areas consist of the United States and Canada for which it reports revenues and fixed assets. Revenues from the major products sold to external customers include: cement, ready-mixed concrete, aggregates, gypsum wallboard and other miscellaneous products. Operating segments are defined as components of an enterprise that engage in business activities which earn revenues, incur expenses and prepare separate financial information that is evaluated regularly by the Company's chief operating decision makers in order to allocate resources and assess performance. Lafarge's three reportable operating segments, which represent separately managed strategic business units that have different capital requirements and marketing strategies, are the Cement Group, the Construction Materials Group and Lafarge Gypsum. The Cement Group produces portland, masonry and mortar cements, as well as slag, and distributes silica fume and fly ash. It also includes Systech Environmental Corporation, a subsidiary that supplies fuel-quality waste and raw materials to cement kilns. The Construction Materials Group produces and distributes construction aggregates, ready-mixed concrete, other concrete products (gravity and pressure pipe, precast structures, pavers and masonry units), asphalt and constructs and paves roads. Lafarge Gypsum produces wallboard for the commercial and residential construction sectors. The accounting policies of the operating segments are described in the summary of significant accounting policies. Lafarge evaluates operating performance based on profit or loss from operations before the following items: other postretirement benefit expense for retirees, goodwill amortization related to the Redland acquisition, income taxes, interest and foreign exchange gains and losses. Lafarge accounts for intersegment sales and transfers at market prices. Revenues are attributed to geographic areas based on the location of the assets producing the revenues. Operating segment information consists of the following (in millions):
1998 1997 1996 -------- -------- -------- Revenue: Cement Revenues from external customers........................ $1,005.8 $ 932.0 $ 879.8 Intersegment revenues................................... 117.9 118.5 116.4 Construction Materials Revenues from external customers........................ 1,340.0 782.3 745.5 Intersegment revenues................................... 2.3 3.1 4.5 Gypsum Revenues from external customers........................ 102.4 92.1 24.0 Eliminations.............................................. (120.2) (121.6) (120.9) -------- -------- -------- Total revenue...................................... $2,448.2 $1,806.4 $1,649.3 ======== ======== ========
1998 1997 1996 -------- -------- -------- Income from operations: Cement (a)................................................ $ 288.7 $ 258.8 $ 224.9 Construction Materials (a)................................ 171.3 80.0 59.9 Gypsum (a)................................................ 20.0 13.2 2.4 Corporate and other....................................... (73.0) (51.1) (50.8) -------- -------- -------- Earnings before interest and income taxes................... $ 407.0 $ 300.9 $ 236.4 Interest expense, net....................................... (27.2) (6.7) (14.1) -------- -------- -------- Earnings before income taxes................................ $ 379.8 $ 294.2 $ 222.3 ======== ======== ========
- --------------- (a) Excludes other postretirement benefit expense for retirees, goodwill amortization related to the Redland acquisition, income taxes, interest and foreign exchange gains and losses. 64 67 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31 ------------------------------ 1998 1997 1996 -------- -------- -------- Assets: Cement............................................... $ 956.4 $ 795.2 $ 777.0 Construction Materials............................... 1,095.3 1,136.6 615.6 Gypsum............................................... 70.6 71.8 70.7 Corporate, Redland goodwill and other................ 782.5 771.3 349.7 -------- -------- -------- Total assets................................. $2,904.8 $2,774.9 $1,813.0 ======== ======== ======== Capital expenditures: Cement............................................... $ 146.3 $ 74.2 $ 74.5 Construction Materials............................... 66.3 43.6 47.0 Gypsum............................................... 3.0 3.3 0.1 Corporate and other.................................. 8.7 2.9 3.2 -------- -------- -------- Total capital expenditures................... $ 224.3 $ 124.0 $ 124.8 ======== ======== ======== Depreciation, depletion and amortization: Cement............................................... $ 66.2 $ 59.9 $ 58.6 Construction Materials............................... 71.6 39.9 39.3 Gypsum............................................... 4.6 4.3 1.2 Corporate and goodwill amortization.................. 14.4 2.2 1.4 -------- -------- -------- Total depreciation, depletion and amortization............................... $ 156.8 $ 106.3 $ 100.5 ======== ======== ========
Information concerning product information was as follows (in millions):
1998 1997 1996 -------- -------- -------- Revenues from external customers: Cement............................................... $1,005.8 $ 932.0 $ 879.8 Ready-mixed concrete................................. 535.9 373.8 340.9 Aggregates........................................... 307.8 130.0 132.9 Gypsum wallboard..................................... 102.4 92.1 24.0 Other miscellaneous products......................... 496.3 278.5 271.7 -------- -------- -------- Total revenues............................... $2,448.2 $1,806.4 $1,649.3 ======== ======== ========
No single customer represented more than 10 percent of Lafarge's revenues. Information concerning principal geographic areas was as follows (in millions):
1998 1997 1996 ----------------------- ----------------------- ------------ FIXED FIXED NET REVENUES ASSETS NET REVENUES ASSETS NET REVENUES ------------ -------- ------------ -------- ------------ United States................. $1,700.3 $ 937.5 $1,036.9 $ 884.9 $ 942.9 Canada........................ 747.9 463.3 769.5 411.1 706.4 -------- -------- -------- -------- -------- Total............... $2,448.2 $1,400.8 $1,806.4 $1,296.0 $1,649.3 ======== ======== ======== ======== ========
Net revenues exclude intersegment revenues. 65 68 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) SUPPLEMENTAL CASH FLOW INFORMATION Non-cash investing and financing activities included the issuance of 112,000, 296,000 and 859,000 common equity shares on the reinvestment of dividends totaling $3.7 million, $7.0 million and $15.8 million in 1998, 1997 and 1996, respectively. The cash paid for acquisitions does not reflect the business combination with Redland since it was accounted for similar to a pooling of interests. The December 31, 1997 balance sheet included the $690 million liability to Lafarge S.A. as part of the Redland transaction. The Company refinanced this loan through a $650 million public debt issuance in 1998, and paid the remaining balance in cash. Cash paid during the year for interest and income taxes is as follows (in thousands):
YEARS ENDED DECEMBER 31 ---------------------------- 1998 1997 1996 -------- ------- ------- Interest................................................ $ 40,435 $20,415 $17,595 Income taxes (net of refunds)........................... $152,945 $93,045 $74,188 ======== ======= =======
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS The Company has several defined benefit and defined contribution retirement plans covering substantially all employees. Benefits paid under the defined benefit plans are generally based on either years of service and the employee's compensation over the last few years of employment or years of service multiplied by a contractual amount. The Company's funding policy is to contribute amounts that are deductible for income tax purposes. For 1998 and 1997, the assumed settlement interest rates for pension plans and other postretirement benefits were 6.75 and 7.0 percent, respectively, for the Company's U.S. plans and 6.25 and 6.75 percent, respectively, for the Canadian plans. For 1998 and 1997, the assumed rates of increase in future compensation levels used in determining the actuarial present values of the projected benefit obligations was 4.0 and 4.5 percent, respectively, for the Company's U.S. plans and 3.5 and 4.25 percent, respectively, for the Canadian plans. The benefit multiplier increase rate was 2.0 percent for the Company's U.S. hourly plans and 4.5 percent for the Canadian hourly plans. The expected long-term rate of investment return on pension assets, which includes listed stocks, fixed income securities and real estate, for each country was 9.0 percent for each year presented. The Company provides certain retiree health and life insurance benefits to eligible employees who retire in the U.S. or Canada. Salaried participants generally become eligible for retiree health care benefits when they retire from active service at age 55 or later, although there are some variances by plan or unit in the U.S. and Canada. Benefits, eligibility and cost-sharing provisions for hourly employees vary by location and/or bargaining unit. Generally, the health care plans pay a stated percentage of most medical and dental expenses reduced for any deductible, copayment and payments made by government programs and other group coverage. These plans are unfunded. An eligible retiree's health care benefit coverage is coordinated in Canada with Provincial Health and Insurance Plans and in the U.S., after attaining age 65, with Medicare. Certain retired employees of businesses acquired by the Company are covered under other health care plans that differ from current plans in coverage, deductibles and retiree contributions. In the U.S., salaried retirees and dependents under age 65 have a $1,000,000 health care lifetime maximum benefit. At age 65 or over, the maximum is $50,000. Lifetime maximums for hourly retirees are governed by the location and/or bargaining agreement in effect at the time of retirement. In Canada, some units have maximums, but in most cases there are no lifetime maximums. In some units in Canada, spouses of retirees have lifetime medical coverage. 66 69 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) In Canada, both salaried and nonsalaried employees are generally eligible for postretirement life insurance benefits. In the U.S., postretirement life insurance is provided for a number of hourly employees as stipulated in their hourly bargained agreements but it is not provided for salaried employees except those of certain acquired companies. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation differs between U.S. and Canadian plans. For plans in both the U.S. and Canada, the pre-65 assumed rate was 9.1 percent, decreasing to 5.5 percent over nine years. For post-65 retirees in the U.S., the assumed rate was 7.3 percent, decreasing to 5.5 percent over nine years with a Medicare assumed rate for the same group of 6.8 percent, decreasing to 5.5 percent over nine years. For post-65 retirees in Canada the assumed rate was 8.8 percent, decreasing to 5.5 percent over nine years. The following table summarizes the consolidated funded status of the Company's defined benefit retirement plans and other postretirement benefits and provides a reconciliation to the consolidated prepaid pension asset, accrued pension liability and accrued postretirement benefit cost recorded on the Company's Consolidated Balance Sheets at December 31, 1998 and 1997 (in millions).
PENSION BENEFITS OTHER BENEFITS ------------------------ ------------------------- 1998 1997 1996 1998 1997 1996 ------ ------ ------ ------- ------- ----- AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF: Prepaid pension asset................... $ 93.5 $ 92.9 $ -- $ -- Accrued pension liability............... (24.6) (21.8) (149.8) (147.6) ------ ------ ------- ------- Net amount recognized at December 31.... $ 68.9 $ 71.1 $(149.8) $(147.6) ====== ====== ======= ======= COMPONENTS OF NET PERIODIC PENSION COST Service cost............................ $ 15.7 $ 10.7 $ 9.7 $ 2.1 $ 1.6 $ 1.4 Interest cost........................... 34.1 28.9 28.5 9.5 8.0 7.7 Expected return on plan assets.......... (45.4) (37.5) (35.9) -- -- -- Amortization of prior service cost...... 1.3 1.4 1.2 (0.6) (0.6) (0.6) Amortization of transition asset........ (1.4) (1.2) (1.6) -- -- -- Amortization of actuarial (gain) or loss................................. 4.0 3.4 2.7 0.1 (0.2) (0.5) Settlement gain......................... (0.1) -- -- -- -- -- ------ ------ ------ ------- ------- ----- NET PERIODIC PENSION COST................. 8.2 5.7 4.6 11.1 8.8 8.0 DEFINED CONTRIBUTION PLAN COST............ 4.2 3.8 3.8 -- -- -- ------ ------ ------ ------- ------- ----- NET RETIREMENT COST....................... $ 12.4 $ 9.5 $ 8.4 $ 11.1 $ 8.8 $ 8.0 ====== ====== ====== ======= ======= =====
67 70 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
PENSION BENEFITS OTHER BENEFITS ------------------ -------------------- 1998 1997 1998 1997 ------ ------ ------- ------- CHANGE IN BENEFIT OBLIGATION Projected benefit obligation at January 1......... $514.3 $397.6 $ 141.7 $ 107.8 Exchange rate changes.......................... (18.0) (13.9) (1.5) (0.9) Service cost................................... 15.7 10.7 2.1 1.6 Interest cost.................................. 34.1 28.9 9.5 8.0 Employee contributions......................... 1.5 1.5 -- -- Plan amendments................................ 2.1 -- -- -- Acquisitions................................... -- 81.1 -- 21.2 Curtailment.................................... (0.1) -- -- -- Settlement..................................... (0.6) -- -- -- Benefits paid.................................. (34.9) (30.6) (7.7) (6.4) Actuarial loss................................. 15.3 39.0 6.8 10.4 ------ ------ ------- ------- PROJECTED BENEFIT OBLIGATION AT DECEMBER 31......... 529.4 514.3 150.9 141.7 ------ ------ ------- ------- CHANGE IN PLAN ASSETS Fair value of plan assets at January 1............ 598.3 474.1 Exchange rate changes.......................... (15.0) (8.3) Actual return on plan assets................... 63.9 78.0 Acquisitions................................... -- 82.5 Employer contributions......................... 2.3 1.7 Employee contributions......................... 1.6 1.4 Benefits paid.................................. (34.9) (30.6) Settlement..................................... (0.6) -- Administrative expenses........................ (0.8) (0.5) ------ ------ FAIR VALUE OF PLAN ASSETS AT DECEMBER 31............ 614.8 598.3 ------ ------ RECONCILIATION OF PREPAID (ACCRUED) BENEFIT COST Funded status.................................. 85.4 84.0 (150.9) (141.7) Exchange rate changes.......................... -- -- (0.2) (0.1) Unrecognized actuarial (gain) or loss.......... (23.8) (18.2) 3.7 (2.7) Unrecognized transition asset.................. (3.4) (5.0) -- -- Unrecognized prior service cost................ 10.7 10.3 (2.4) (3.1) ------ ------ ------- ------- PREPAID (ACCRUED) BENEFIT COST AT DECEMBER 31....... $ 68.9 $ 71.1 $(149.8) $(147.6) ====== ====== ======= =======
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $43.1 million, $39.0 million and $8.2 million, respectively, as of December 31, 1998 and $41.4 million, $37.6 million and $8.2 million, respectively, as of December 31, 1997. 68 71 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Certain employees are also covered under multi-employer pension plans administered by unions. Amounts included in the preceding table as defined benefit plans retirement cost include contributions to such plans of $4.5 million, $4.0 million and $3.7 million for 1998, 1997 and 1996, respectively. The data available from administrators of the multi-employer plans are not sufficient to determine the accumulated benefit obligation or the net assets attributable to these plans. The defined contribution plans' cost in the preceding table relate to thrift savings plans for eligible U.S. and Canadian employees. Under the provisions of these plans, the Company matches a portion of each participant's contribution. The net retirement costs were $12.4 million, $9.5 million and $8.4 million for each of the years ended December 31, 1998, 1997 and 1996, respectively for the Company's pension plans and $11.1 million, $8.8 million and $8.0 million for 1998, 1997 and 1996, respectively, for the Company's other postretirement benefit plans. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point increase or decrease in assumed health care cost trend rates would have the following effects (stated in millions of dollars):
ONE-PERCENTAGE-POINT ----------------------- INCREASE DECREASE -------- -------- Increase (decrease) in postretirement benefit obligation at December 31, 1998......................................... 13.9 (12.8) Increase (decrease) in the total of service and interest cost components for 1998.................................. 1.2 (1.1)
COMMITMENTS AND CONTINGENCIES The Company leases certain land, buildings and equipment. Total rental expenses under operating leases were $15.7 million, $14.9 million and $15.1 million for each of the three years ended December 31, 1998, 1997 and 1996, respectively. The table below shows the future minimum lease payments (in millions) due under noncancelable operating leases at December 31, 1998. Such payments total $86.2 million.
YEARS ENDING DECEMBER 31 -------------------------------------------------- 1999 2000 2001 2002 2003 LATER YEARS ----- ----- ----- ----- ---- ----------- Operating leases........................ $13.7 $11.8 $10.0 $10.2 $7.9 $32.6
The Company self-insures for workers' compensation, automobile and general liability claims up to a maximum per claim. The undiscounted estimated liability is accrued based on a determination by an outside actuary. This determination is impacted by assumptions made and actual experience. In 1992, the Company's Canadian subsidiary, LCI, along with the Bertrand & Frere Construction Company Limited and others, became a defendant in lawsuits instituted in the Ontario (Canada) Court (General Division) arising from claims brought by building owners, the Ontario New Home Warranty Program and other plaintiffs regarding alleged defective concrete, fly ash and cement used in defective footings, foundations and floors. The damages claimed total more than Canadian $65 million. The amount of LCI's liability, if any, in these lawsuits is uncertain. LCI has denied liability and is defending the lawsuits vigorously. LCI has also introduced claims against some of its primary and excess insurers for defense costs and indemnity, if any. The lawsuits were joined and the hearing was completed in December 1998. The matter was taken under advisement by the presiding judge and a decision is expected in 1999. LCI believes that it has insurance coverage that will respond to defense expenses and liability, if any, in the lawsuits. 69 72 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) On August 26, 1996, the Company, among others, was named in two similar lawsuits brought in the District Courts of Starr and Duval counties in Texas by plaintiffs alleging exposure to toxic substances. The plaintiffs alleged negligence, gross negligence, and products and strict liability and sought, among other things, both past and future damages, exemplary damages and cost of the suit in an unspecified amount. After extensive discovery and motion practice in these two cases, the plaintiffs in both cases have agreed to dismiss their claims without prejudice. Currently, the Company is involved in two remediations under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, which together are referred to as Superfund. At one site where the Company had been named a potentially responsible party ("PRP"), the remedial activities are complete, long-term maintenance and monitoring are under way, and partial contribution has been obtained from financially viable parties, including the Company. The United States Environmental Protection Agency ("EPA") will delist this site from the National Priority List in 1999. At the other site, also on the National Priority List, some of the PRPs named by the EPA have initiated a third-party action against some 47 other parties including the Company. The Company also has been named a PRP at this site. The suit alleges that in 1969 a predecessor company of the Company sold equipment containing hazardous substances that may now be present at the site. It appears that the largest disposer of hazardous substances at this site is the U.S. Department of Defense and numerous other large disposers of hazardous substances are associated with this site. Management believes that neither matter is material to the financial condition, results of operations or liquidity of the Company. When the Company determines that it is probable that a liability for environmental matters or other legal actions has been incurred and the amount of the loss is reasonably estimable, an estimate of the required remediation costs is recorded as a liability in the financial statements. As of December 31, 1998, 1997 and 1996, the liabilities recorded for environmental obligations are not material to the financial statements of the Company. Although the Company believes its environmental accruals are adequate, environmental costs may be incurred that exceed the amounts provided at December 31, 1998. However, management has concluded that the possibility of material liability in excess of the amounts reported in the December 31, 1998 Consolidated Balance Sheet is remote. In the ordinary course of business, the Company is involved in certain other legal actions and claims, including proceedings under laws and regulations relating to environmental and other matters. Because such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the total amount of these legal actions and claims cannot be determined with certainty. Management believes that all legal and environmental matters will be resolved without material adverse impact to the Company's financial condition, results of operations or liquidity. The Year 2000 issue resulted from programmers writing software codes that used two digits instead of four to represent the year. Before, on or after December 31, 1999, computers and software may incorrectly assume that the year is "1900" rather than "2000," which could lead to systems failures and disruptions. In addition, the Year 2000 is a leap year, which may further exacerbate incorrect calculations, functions or system failures. It is difficult to predict the impact of such failures and disruptions. Moreover, companies must consider not only their own products and computer systems, but also the Year 2000 readiness of any third parties, including vendors, suppliers and customers. Due to the uncertain nature of Year 2000 issues and their impact on all entities, it is not possible to fully assess the likelihood or magnitude of consequences of Year 2000 issues or the impact of reliance on any third parties. RELATED PARTY TRANSACTIONS The Company is a participant to agreements with Lafarge S.A. for the sharing of certain costs incurred for marketing, technical, research and managerial assistance and for the use of certain trademarks. The net 70 73 LAFARGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) expenses accrued for these services were $6.1 million, $6.3 million and $5.7 million during 1998, 1997 and 1996, respectively. In addition, the Company purchases various products from Lafarge S.A. which were $60.6 million, $52.5 million and $52.1 million in 1998, 1997 and 1996, respectively. All transactions with Lafarge S.A. were conducted on an arms-length basis. Lafarge S.A. reinvested a portion of dividends it was entitled to receive on the Company's Common Stock and Exchangeable Shares during 1997 and 1996. These reinvestments totaled $3.9 million and $13.2 million, respectively. SUBSEQUENT EVENT Subsequent to year-end the Company finalized its decision to build a $90 million gypsum wallboard manufacturing facility in Silver Grove, Kentucky, near Cincinnati. Completion of the plant with 900 million square feet of annual capacity is expected during the first half of the year 2000. Its primary raw material requirements will be met using recycled materials including synthetic gypsum, a byproduct from the Zimmer power plant, owned by Cinergy Corp. in nearby Moscow, Ohio. QUARTERLY DATA (UNAUDITED) The following table summarizes financial data by quarter for 1998 and 1997 (in millions, except per share information):
FIRST SECOND THIRD FOURTH TOTAL ------ ------ ----- ------ ------ 1998 Net sales...................................... $ 335 $ 675 $ 810 $ 628 $2,448 Gross profit................................... 1 201 267 180 649 Net income (loss).............................. (39) 85 124 66 236 Net income (loss) per common equity share (a) Basic........................................ (0.55) 1.18 1.71 0.92 3.27 Diluted...................................... (0.55) 1.17 1.70 0.91 3.24 ====== ===== ===== ===== ====== 1997 Net sales...................................... $ 244 $ 477 $ 612 $ 473 $1,806 Gross profit (loss)............................ (11) 143 202 137 471 Net income (loss).............................. (34) 60 97 59 182 Net income (loss) per common equity share (a) Basic........................................ (0.48) 0.84 1.36 0.83 2.56 Diluted...................................... (0.48) 0.84 1.35 0.82 2.54 ====== ===== ===== ===== ======
- ------------------------ (a) The sum of these amounts does not equal the annual amount because of changes in the average number of common equity shares outstanding during the year. 71 74 SCHEDULE II LAFARGE CORPORATION AND SUBSIDIARIES CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1998, 1997, 1996 (IN THOUSANDS)
ADDITIONS DEDUCTIONS --------- ----------------------- FROM RESERVE FOR PURPOSES BALANCE AT CHARGE TO FOR WHICH BEGINNING OF COST AND RESERVE WAS OTHER BALANCE AT END DESCRIPTIONS YEAR EXPENSES CREATED (1) OF YEAR ------------ ------------ --------- ------------ -------- -------------- Reserve applicable to current receivable For doubtful accounts: 1998............................. $24,899 $ 3,395 $ (3,328) $ (347) $24,619 1997............................. $18,793 $ 2,365 $ (3,177) $ 6,918(2) $24,899 1996............................. $20,685 $ 255 $ (2,108) $ (39) $18,793 For cash and other discounts: 1998............................. $ 3,182 $41,107 $(40,025) $(1,032) $ 3,232 1997............................. $ 3,750 $37,147 $(36,786) $ (929) $ 3,182 1996............................. $ 3,542 $30,909 $(30,583) $ (118) $ 3,750
- --------------- (1) Primarily foreign currency translation adjustments. (2) Includes $7,299 of allowance for doubtful accounts at December 31, 1997 related to the acquisition of Redland. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 72 75 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The section captioned "Election of Directors" in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders sets forth certain information with respect to the directors and nominees for election as directors of the Company and is incorporated herein by reference. Pursuant to General Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, certain information with respect to persons who are or may be deemed to be executive officers of the Company is set forth under the caption "Executive Officers of the Company" in Part I of this Annual Report. ITEM 11. EXECUTIVE COMPENSATION The section captioned "Executive Compensation" in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders sets forth certain information with respect to the compensation of management of the Company, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The sections captioned "Voting Securities," "Security Ownership of Certain Beneficial Owners," "Security Ownership of Management" and "Election of Directors" in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders set forth certain information with respect to the ownership of the Company's Voting Securities, and are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The sections captioned "Executive Compensation -- Compensation Committee Interlocks and Insider Participation," "Executive Compensation -- Indebtedness of Management" and "Executive Compensation -- Transactions with Management and Others" in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders set forth certain information with respect to relations of and transactions by management of the Company, and are incorporated herein by reference. 73 76 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. FINANCIAL STATEMENTS -- The financial statements listed in the accompanying Index to Consolidated Financial Statements and Financial Statement Schedule are filed as part of this Annual Report and such Index to Consolidated Financial Statements and Financial Statement Schedule is incorporated herein by reference. 2. FINANCIAL STATEMENT SCHEDULES -- The financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and Financial Statement Schedule is filed as part of this Annual Report and such Index to Consolidated Financial Statements and Financial Statement Schedule is incorporated herein by reference. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE ---- Financial Report: Report of Independent Public Accountants, Arthur Andersen LLP.................................................... 45 Consolidated Financial Statements: Consolidated Balance Sheets for the Years Ended December 31, 1998 and 1997...................................... 46 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996....................... 47 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996........... 48 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1998, 1997 and 1996........... 49 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996....................... 50 Notes to Consolidated Financial Statements................ 51 Financial Statement Schedule: Schedule II -- Consolidated Valuation and Qualifying Accounts for the Years Ended December 31, 1998, 1997 and 1996............................................... 72 All other schedules are omitted because they are not applicable.
3. EXHIBITS -- The exhibits listed on the accompanying List of Exhibits are filed as part of this Annual Report and such List of Exhibits is incorporated herein by reference.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 2.1 Stock Purchase Agreement dated June 3, 1998 among Redland International Limited, the Company and Lafarge S.A. [incorporated by reference to Exhibit 2.1 to the Form 8-K filed by the Company with the Securities and Exchange Commission on June 18, 1998]. 2.2 Acquisition Agreement dated June 3, 1998 among Redland Quarries Inc., Lafarge Canada Inc. and Lafarge S.A. [incorporated by reference to Exhibit 2.2 to the Form 8-K filed by the Company with the Securities and Exchange Commission on June 18, 1998]. 3.1 Articles of Amendment and Restatement of the Company, filed May 29, 1992 [incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1992]. *3.2 Amended By-Laws of the Company, amended on February 9, 1999. 4.1 Form of Indenture dated as of October 1, 1989 between the Company and Citibank, N.A., as Trustee, relating to $250 million of debt securities of the Company [incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 33-31333) of the Company, filed with the Securities and Exchange Commission on October 3, 1989].
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 4.2 Form of Fixed Rate Medium-Term Note of the Company [incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-3 (Registration No. 33-31333) of the Company, filed with the Securities and Exchange Commission on October 3, 1989]. 4.3 Instruments with respect to long-term debt which do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries have not been filed. The Company agrees to furnish a copy of such instruments to the Commission upon request. 9.1 Trust Agreement dated as of October 13, 1927 among Canada Cement Company Limited, Montreal Trust Company, Henry L. Doble and Alban C. Bedford-Jones, as amended (composite copy) [incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 (Registration No. 2-82548) of the Company, filed with the Securities and Exchange Commission on March 21, 1983]. 9.2 Amendment dated June 10, 1983 to Trust Agreement filed as Exhibit 9.1 [incorporated by reference to Exhibit 9.2 to the Registration Statement of Form S-1 (Registration No. 2-86589) of the Company, filed with the Securities and Exchange Commission on September 16, 1983]. 10.1 Exchange Agency and Trust Agreement dated as of May 1, 1983 among the Company, Canada Cement Lafarge, Lafarge Coppee and Montreal Trust Company, as trustee [incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 2-82548) of the Company, filed with the Securities and Exchange Commission on May 5, 1983]. Canada Cement Lafarge changed its name in 1988 to Lafarge Canada Inc. Lafarge Coppee changed its name in 1995 to Lafarge S.A. 10.2 Guarantee Agreement dated as of May 1, 1983 between the Company and Canada Cement Lafarge [incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registration Statement of Form S-1 (Registration No. 2-82548) of the Company, filed with the Securities and Exchange Commission on May 5, 1983]. 10.3 Special Surface Lease dated as of August 1, 1954 between the Province of Alberta and Canada Cement Lafarge, as amended [incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 (Registration No. 2-82548) of the Company, filed with the Securities and Exchange Commission on March 21, 1983]. +10.4 Director Fee Deferral Plan of the Company [incorporated by reference to Exhibit 10.21 to the Registration Statement on Form S-1 (Registration No. 2-86589) of the Company, filed with the Securities and Exchange Commission on September 16, 1983]. +10.5 1993 Stock Option Plan of the Company, as amended and restated February 7, 1995 [incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1997]. +10.6 1983 Stock Option Plan of the Company, as amended and restated May 2, 1989 [incorporated by reference to Exhibit 28 to the Company's report on Form 10-Q for the quarter ended June 30, 1989]. 10.7 Optional Stock Dividend Plan of the Company [incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1987]. +10.8 Director Fee Deferral Plan of General Portland, assumed by the Company on January 29, 1988 [incorporated by reference to Exhibit 10(g) to the Annual Report on Form 10-K filed by General Portland for the fiscal year ended December 31, 1980]. 10.9 Option Agreement for Common Stock dated as of November 1, 1993 between the Company and Lafarge Coppee [incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1993]. +10.10 Deferred Compensation Program of Canada Cement Lafarge [incorporated by reference to Exhibit 10.57 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 2-86589) of the Company, filed with the Securities and Exchange Commission on November 23, 1983].
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.11 Agreement dated November 8, 1983 between Canada Cement Lafarge and Standard Industries Ltd. [incorporated by reference to Exhibit 10.58 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 2-86589) of the Company, filed with the Securities and Exchange Commission on November 23, 1983]. 10.12 Stock Purchase Agreement dated September 17, 1986 between the Company and Lafarge Coppee, S.A. [incorporated by reference to Exhibit B to the Company's report on Form 10-Q for the quarter ended September 30, 1986]. 10.13 Cost Sharing Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the Company relating to expenses for research and development, strategic planning and human resources and communication techniques [incorporated by reference to Exhibit 10.42 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1988]. 10.14 Royalty Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the Company relating to access to the reputation, logo and trademarks of Lafarge Coppee [incorporated by reference to Exhibit 10.43 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1988]. 10.15 Amendment dated January 1, 1993 to Royalty Agreement filed as Exhibit 10.14 [incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1992]. +10.16 Description of Nonemployee Director Retirement Plan of the Company, effective January 1, 1989 [incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1989]. 10.17 Reimbursement Agreement dated January 1, 1990 between Lafarge Coppee and the Company relating to expenses for Strategic Planning and Communication techniques [incorporated by reference to Exhibit 10.41 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1990]. 10.18 Form of Revolving Credit Facility Agreements, dated as of September 1, 1994, among the Company and nine separate banking institutions [incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 10.19 Amendment dated September 13, 1991 to Cost Sharing Agreement filed as Exhibit 10.13 [incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 10.20 Amendments dated June 1 and August 1, 1996 to Revolving Credit Facility Agreements among the Company and six separate banking institutions filed as Exhibit 10.18 [incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1996]. 10.21 Cost Sharing Agreement dated January 2, 1996 between Lafarge Materiaux de Specialities and the Company related to costs of a new unit established for researching potential profitable markets for their respective products in North America [incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1996]. 10.22 Marketing and Technical Assistance Agreement dated October 1, 1996 between Lafarge S.A. and the Company related to research and development, marketing, strategic planning, human resources and communication techniques in relation to gypsum activities [incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1996].
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- +10.23 Consulting Agreement between the Company and Robert Murdoch dated October 1, 1997 [incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1997]. +10.24 1998 Stock Option Plan of the Company [incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (Regulation No. 333-65897) of the Company, filed with the Securities and Exchange Commission on October 20, 1998]. *10.25 Credit Agreement dated as of December 8, 1998 between the Company and nine separate banking institutions. +*10.26 Amendment dated August 1, 1998 to Nonemployee Director Retirement Plan of the Company filed as Exhibit 10.16. *11 Statement regarding computation of net income per common equity share. *21 Subsidiaries of the Company. *23 Consent of Arthur Andersen LLP, independent public accountants. *27 Financial Data Schedule.
- --------------- * Filed herewith + Represents a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this Annual Report. (b) Reports on Form 8-K. A Form 8-K/A was filed by the Company on October 2, 1998, to amend the Form 8-K, dated June 3, 1998. The Form 8-K/A was filed to discuss and present Lafarge Corporation's financial statements updated for the acquisition of certain Redland PLC businesses in North America from Lafarge S.A. for $690 million. 77 80 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS ANNUAL REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. LAFARGE CORPORATION By: /s/ LARRY J. WAISANEN ------------------------------------ LARRY J. WAISANEN EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Date: March 29, 1999 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS ANNUAL REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY AND IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN M. PIECUCH President and Chief Executive Officer March 29, 1999 - ------------------------------------------- and Director JOHN M. PIECUCH /s/ LARRY J. WAISANEN Executive Vice President and Chief March 29, 1999 - ------------------------------------------- Financial Officer LARRY J. WAISANEN /s/ JOSEPH B. SHERK Vice President and Controller March 29, 1999 - ------------------------------------------- JOSEPH B. SHERK /s/ BERTRAND P. COLLOMB Chairman of the Board March 29, 1999 - ------------------------------------------- BERTRAND P. COLLOMB /s/ THOMAS A. BUELL Director March 29, 1999 - ------------------------------------------- THOMAS A. BUELL /s/ MARSHALL A. COHEN Director March 29, 1999 - ------------------------------------------- MARSHALL A. COHEN /s/ PHILIPPE P. DAUMAN Director March 29, 1999 - ------------------------------------------- PHILIPPE P. DAUMAN /s/ BERNARD L. KASRIEL Director March 29, 1999 - ------------------------------------------- BERNARD L. KASRIEL /s/ JACQUES LEFEVRE Director March 29, 1999 - ------------------------------------------- JACQUES LEFEVRE
78 81
SIGNATURE TITLE DATE --------- ----- ---- /s/ PAUL W. MACAVOY Director March 29, 1999 - ------------------------------------------- PAUL W. MACAVOY /s/ CLAUDINE B. MALONE Director March 29, 1999 - ------------------------------------------- CLAUDINE B. MALONE /s/ ROBERT W. MURDOCH Director March 29, 1999 - ------------------------------------------- ROBERT W. MURDOCH /s/ BERTIN F. NADEAU Director March 29, 1999 - ------------------------------------------- BERTIN F. NADEAU /s/ JOHN D. REDFERN Director March 29, 1999 - ------------------------------------------- JOHN D. REDFERN /s/ JOE M. RODGERS Director March 29, 1999 - ------------------------------------------- JOE M. RODGERS /s/ MICHEL ROSE Director March 29, 1999 - ------------------------------------------- MICHEL ROSE /s/ RONALD D. SOUTHERN Director March 29, 1999 - ------------------------------------------- RONALD D. SOUTHERN
79 82 INDEX OF EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 2.1 Stock Purchase Agreement dated June 3, 1998 among Redland International Limited, the Company and Lafarge S.A. [incorporated by reference to Exhibit 2.1 to the Form 8-K filed by the Company with the Securities and Exchange Commission on June 18, 1998]. 2.2 Acquisition Agreement dated June 3, 1998 among Redland Quarries Inc., Lafarge Canada Inc. and Lafarge S.A. [incorporated by reference to Exhibit 2.2 to the Form 8-K filed by the Company with the Securities and Exchange Commission on June 18, 1998]. 3.1 Articles of Amendment and Restatement of the Company, filed May 29, 1992 [incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1992]. *3.2 Amended By-Laws of the Company, amended on February 9, 1999. 4.1 Form of Indenture dated as of October 1, 1989 between the Company and Citibank, N.A., as Trustee, relating to $250 million of debt securities of the Company [incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 33-31333) of the Company, filed with the Securities and Exchange Commission on October 3, 1989]. 4.2 Form of Fixed Rate Medium-Term Note of the Company [incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-3 (Registration No. 33-31333) of the Company, filed with the Securities and Exchange Commission on October 3, 1989]. 4.3 Instruments with respect to long-term debt which do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries have not been filed. The Company agrees to furnish a copy of such instruments to the Commission upon request. 9.1 Trust Agreement dated as of October 13, 1927 among Canada Cement Company Limited, Montreal Trust Company, Henry L. Doble and Alban C. Bedford-Jones, as amended (composite copy) [incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 (Registration No. 2-82548) of the Company, filed with the Securities and Exchange Commission on March 21, 1983]. 9.2 Amendment dated June 10, 1983 to Trust Agreement filed as Exhibit 9.1 [incorporated by reference to Exhibit 9.2 to the Registration Statement of Form S-1 (Registration No. 2-86589) of the Company, filed with the Securities and Exchange Commission on September 16, 1983]. 10.1 Exchange Agency and Trust Agreement dated as of May 1, 1983 among the Company, Canada Cement Lafarge, Lafarge Coppee and Montreal Trust Company, as trustee [incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 2-82548) of the Company, filed with the Securities and Exchange Commission on May 5, 1983]. Canada Cement Lafarge changed its name in 1988 to Lafarge Canada Inc. Lafarge Coppee changed its name in 1995 to Lafarge S.A. 10.2 Guarantee Agreement dated as of May 1, 1983 between the Company and Canada Cement Lafarge [incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registration Statement of Form S-1 (Registration No. 2-82548) of the Company, filed with the Securities and Exchange Commission on May 5, 1983]. 10.3 Special Surface Lease dated as of August 1, 1954 between the Province of Alberta and Canada Cement Lafarge, as amended [incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 (Registration No. 2-82548) of the Company, filed with the Securities and Exchange Commission on March 21, 1983]. +10.4 Director Fee Deferral Plan of the Company [incorporated by reference to Exhibit 10.21 to the Registration Statement on Form S-1 (Registration No. 2-86589) of the Company, filed with the Securities and Exchange Commission on September 16, 1983]. +10.5 1993 Stock Option Plan of the Company, as amended and restated February 7, 1995 [incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1997].
83
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- +10.6 1983 Stock Option Plan of the Company, as amended and restated May 2, 1989 [incorporated by reference to Exhibit 28 to the Company's report on Form 10-Q for the quarter ended June 30, 1989]. 10.7 Optional Stock Dividend Plan of the Company [incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1987]. +10.8 Director Fee Deferral Plan of General Portland, assumed by the Company on January 29, 1988 [incorporated by reference to Exhibit 10(g) to the Annual Report on Form 10-K filed by General Portland for the fiscal year ended December 31, 1980]. 10.9 Option Agreement for Common Stock dated as of November 1, 1993 between the Company and Lafarge Coppee [incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1993]. +10.10 Deferred Compensation Program of Canada Cement Lafarge [incorporated by reference to Exhibit 10.57 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 2-86589) of the Company, filed with the Securities and Exchange Commission on November 23, 1983]. 10.11 Agreement dated November 8, 1983 between Canada Cement Lafarge and Standard Industries Ltd. [incorporated by reference to Exhibit 10.58 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 2-86589) of the Company, filed with the Securities and Exchange Commission on November 23, 1983]. 10.12 Stock Purchase Agreement dated September 17, 1986 between the Company and Lafarge Coppee, S.A. [incorporated by reference to Exhibit B to the Company's report on Form 10-Q for the quarter ended September 30, 1986]. 10.13 Cost Sharing Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the Company relating to expenses for research and development, strategic planning and human resources and communication techniques [incorporated by reference to Exhibit 10.42 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1988]. 10.14 Royalty Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the Company relating to access to the reputation, logo and trademarks of Lafarge Coppee [incorporated by reference to Exhibit 10.43 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1988]. 10.15 Amendment dated January 1, 1993 to Royalty Agreement filed as Exhibit 10.14 [incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1992]. +10.16 Description of Nonemployee Director Retirement Plan of the Company, effective January 1, 1989 [incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1989]. 10.17 Reimbursement Agreement dated January 1, 1990 between Lafarge Coppee and the Company relating to expenses for Strategic Planning and Communication techniques [incorporated by reference to Exhibit 10.41 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1990]. 10.18 Form of Revolving Credit Facility Agreements, dated as of September 1, 1994, among the Company and nine separate banking institutions [incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 10.19 Amendment dated September 13, 1991 to Cost Sharing Agreement filed as Exhibit 10.13 [incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1994]. 10.20 Amendments dated June 1 and August 1, 1996 to Revolving Credit Facility Agreements among the Company and six separate banking institutions filed as Exhibit 10.18 [incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1996].
84
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.21 Cost Sharing Agreement dated January 2, 1996 between Lafarge Materiaux de Specialities and the Company related to costs of a new unit established for researching potential profitable markets for their respective products in North America [incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1996]. 10.22 Marketing and Technical Assistance Agreement dated October 1, 1996 between Lafarge S.A. and the Company related to research and development, marketing, strategic planning, human resources and communication techniques in relation to gypsum activities [incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1996]. +10.23 Consulting Agreement between the Company and Robert Murdoch dated October 1, 1997 [incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended December 31, 1997]. +10.24 1998 Stock Option Plan of the Company [incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (Regulation No. 333-65897) of the Company, filed with the Securities and Exchange Commission on October 20, 1998]. *10.25 Credit Agreement dated as of December 8, 1998 between the Company and nine separate banking institutions. +*10.26 Amendment dated August 1, 1998 to Nonemployee Director Retirement Plan of the Company filed as Exhibit 10.16. *11 Statement regarding computation of net income per common equity share. *21 Subsidiaries of the Company. *23 Consent of Arthur Andersen LLP, independent public accountants. *27 Financial Data Schedule.
- --------------- * Filed herewith + Represents a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this Annual Report. EX-3.2 2 AMENDED BY-LAWS OF THE COMPANY 1 Exhibit 3.2 BY-LAWS OF LAFARGE CORPORATION As amended February 9,1999 ARTICLE I STOCKHOLDERS SECTION 1.01. Annual Meetings. The Corporation shall hold each year an annual meeting of the stockholders for the election of directors and the transaction of any other business within the powers of the Corporation. Annual meetings of stockholders shall be held on such day during the period April l5th to May 14th of each calendar year as shall be designated by the Board of Directors and at a time stated in the notice of meeting. Any business of the Corporation may be considered at an annual meeting without the purpose of such business being specified in the notice, except such business as is specifically required by statute or by the Articles of Incorporation to be specified in the notice. Failure to hold an annual meeting at the designated time shall not, however, invalidate the corporate existence or affect any otherwise valid corporate acts. SECTION 1.02. Special Meetings. At any time in the interval between annual meetings, special meetings of the stockholders may be called by the Chairman of the Board, the Vice Chairman of the Board, the President and Chief Executive Officer, a majority of the Board of Directors or by any other person specified in the Charter. Special meetings of the stockholders shall also be called by the Secretary upon the written request of stockholders entitled to cast at least twenty-five per cent (25%) of all the votes entitled to be cast at such meeting; provided, however, that a special meeting need not be called to consider any matter which is substantially the same as a matter voted on at any special meeting of the stockholders held during the preceding twelve (12) months, unless a meeting is requested by 2 stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting. In any case in which a special meeting is called by written request of the stockholders, such request shall state the purpose of the meeting and the matters proposed to be acted on at it. SECTION 1.03. Place of Meetings. Except as limited by statute, all meetings of stockholders shall be held at such place within or without the State of Maryland as shall be determined from time to time by the Board of Directors and stated in the notice of meeting. SECTION 1.04. Notice of Meetings. Except as provided below, not less than ten (10) days nor more than ninety (90) days before the date of every stockholders' meeting, the Secretary shall give to each stockholder entitled to vote at such meeting, and to each stockholder not entitled to vote who is entitled by statute to notice, written or printed notice stating the time and place of the meeting and, in the case of a special meeting or if otherwise required by statute, the purpose or purposes for which the meeting is called, either by mailing it to him at his address as it appears on the records of the corporation or by delivering it to him personally or by leaving it at his residence or usual place of business. If a special meeting is called by the stockholders, the Secretary shall inform the stockholders who make the request of the reasonably estimated cost of preparing and mailing a notice of the meeting, and on payment of these costs to the Corporation shall notify each stockholder entitled to notice of the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at his post office address as it appears on the records of the Corporation, with postage thereon prepaid. Notwithstanding the foregoing provisions, a written waiver of any required notice regarding any stockholder meeting, signed by the person or persons entitled to such notice, whether before or after the holding thereof, and filed with the records of the meeting, or by actual attendance at the meeting in person or by proxy, shall be deemed equivalent to the giving of such notice to such person. SECTION 1.05. Conduct of Meetings. Meetings of stockholders shall be presided over by the Chairman of the Board, or, if he is not 2 3 present, by the Vice Chairman of the Board, or, if he is not present, by the President and Chief Executive Officer, or, if he is not present, by a Vice President, or, if none of said officers is present, by a chairman to be elected at the meeting. The Secretary or, if he is not present, any Assistant Secretary, shall act as secretary of such meetings; in the absence of the Secretary and any Assistant Secretary, the presiding officer may appoint a person to act as secretary of the meeting. SECTION 1.06. Quorum. Unless otherwise provided in the Charter, at any meeting of stockholders the presence in person or by proxy of stockholders entitled to cast a majority of the votes entitled to be cast thereat shall constitute a quorum; but this Section shall not affect any requirement under statute or under the Charter for the vote necessary for the adoption of any measure. In the absence of a quorum, the stockholders present in person or by proxy, by majority vote and without notice other than by announcement, may adjourn the meeting from time to time until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at any meeting as originally notified. In the event that at any meeting a quorum exists for the transaction of some business, but does not exist for the transaction of other business, the business as to which a quorum is present may be transacted by the holders of stock present in person or by proxy who are entitled to vote thereon. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place at a date not to exceed more than 120 days after the original record date, and no notice need be given of any such adjourned meeting other than by announcement. SECTION 1.07. Proxies. A stockholder may vote the shares owned of record by him either in person or by a written proxy signed by the stockholder or by his duly authorized attorney-in-fact. No proxy shall be valid after eleven (11) months from its date, unless otherwise provided in the proxy. A proxy need not be sealed, witnessed or acknowledged. SECTION 1.08. Votes Required. A majority of the votes cast at a meeting of stockholders, duly called and at which a quorum is present, shall be sufficient to take or authorize action upon any matter which may properly come before the meeting, unless otherwise provided by statute or by the Charter. 3 4 Unless the Charter provides for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. SECTION 1.09. Voting. In all elections for directors every stockholder shall have the right to vote, in person or by proxy, each share of stock owned of record by him, for as many persons as there are directors to be elected and for whose election the share is entitled to be voted. At all meetings of stockholders, unless the voting is conducted by inspectors, the proxies and ballots shall be received, and all questions touching the qualification of the voters and the validity of proxies and the acceptance or rejection of votes shall be decided by the chairman of the meeting. If demanded by a stockholder or stockholders, present at a meeting, in person or by proxy, entitled to cast ten per cent (10%) of the votes entitled to be cast thereat, or if ordered by the chairman, the vote upon any election or question shall be taken by ballot and, upon like demand or order, the voting shall be conducted by two inspectors, in which event the proxies and ballots shall be received, and all questions touching the qualification of voters and the validity of proxies and the acceptance or rejection of votes, shall be decided by such inspectors. Unless so demanded or ordered, no vote need be by ballot and voting need not be conducted by inspectors. If inspections are demanded by the stockholders or ordered by the chairman, the stockholders at any meeting may choose an inspector or inspectors to act at such meeting, and in default of such election the chairman of the meeting shall appoint such inspector or inspectors. No candidate for election as a director at a meeting shall serve as an inspector thereat. SECTION 1.10. Informal Action by Stockholders. Any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting if there is filed with the minutes of proceedings of stockholders a unanimous written consent which sets forth the action and is signed by each stockholder entitled to vote on the matter; and a written waiver of any right to dissent signed by each stockholder entitled to notice of the meeting, but not entitled to vote at it. 4 5 SECTION 1.11. Voting Rights of Certain Control Shares. Notwithstanding any other provision of the Charter of the Corporation or these By-laws, Title 3, Subtitle 7 of the Corporations and Associations Article of the Annotated Code of Maryland (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation. This Section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor by-law, apply to any prior or subsequent control share acquisition. ARTICLE II BOARD OF DIRECTORS SECTION 2.01. Powers. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors. All powers of the Corporation may be exercised by or under authority of the Board of Directors, except as conferred upon or reserved to the stockholders by statute, the Charter or the By-Laws. SECTION 2.02. Number of Directors. The number of directors of the Corporation which shall constitute the whole Board shall be fifteen (15). By vote of a majority of the entire Board of Directors, the number of directors fixed by the Charter or by the By-Laws may be increased or decreased, from time to time, not to exceed seventeen (17) nor to be less than three (3) directors, but the tenure of office of a director shall not be affected by any decrease in the number of directors so made by the Board. Directors need not be stockholders in the Corporation or residents of the State of Maryland. SECTION 2.03. Election of Directors. At each annual meeting, the stockholders shall elect directors to hold office until the next succeeding annual meeting or until their successors are elected and qualify. At any meeting of stockholders, duly called and at which a quorum is present, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office, except as otherwise provided by statute, and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of the removed directors. In case 5 6 such a removal occurs but the stockholders entitled to vote thereon fail to fill any resulting vacancies, such vacancies may be filled by the Board of Directors pursuant to Section 2.04. Any director may resign at any time upon written notice to the Corporation. SECTION 2.04. Vacancies. Subject to Section 2.03, any vacancy occurring in the Board of Directors for any cause other than by reason of an increase in the number of directors may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum. Any vacancy occurring by reason of an increase in the number of directors may be filled by action of a majority of the entire Board of Directors as constituted prior to such increase. A director elected by the Board of Directors to fill a vacancy shall be elected to hold office until the next annual meeting of the stockholders or until his successor is elected and qualifies. SECTION 2.05. Regular Meetings. After each meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors so elected shall meet as soon as practicable for the purpose of organization and the transaction of other business; and in the event that no other time is designated by the stockholders, the Board of Directors shall meet promptly following the close of such meeting on the day of such meeting. Such first meeting shall be held at such place within or without the State of Maryland as may be designated by the stockholders, or in default of such designation at the place designated by the Board of Directors for such first regular meeting, or in default of such designation at the place of the holding of the immediately preceding annual meeting of stockholders. No notice of such first meeting shall be necessary if held as hereinabove provided. Other regular meetings of the Board of Directors may be held on such dates and at such places within or without the State of Maryland as may be designated from time to time by the Board of Directors and no additional notice of such regular meetings shall be required. SECTION 2.06. Special Meetings. Special Meetings of the Board of Directors may be called at any time by the Chairman of the Board, by the President and Chief Executive Officer, or by a majority of the Board of Directors by vote at a meeting, or in writing with or without a meeting. Such special 6 7 meetings shall be held at such place or places within or without the State of Maryland as may be designated from time to time by the Board of Directors. SECTION 2.07. Notice of Meetings. Notice of the place, day and hour of every special meeting shall be given to each director at least forty-eight (48) hours before the time of the meeting, by delivering the same to him personally, by telephone, by telegraph, or by delivering the same at his residence or usual place of business, or, in the alternative, by mailing such notice no later than the seventh day preceding the day upon which the meeting is to be held, postage paid, and addressed to him at his last known post office address, according to the records of the Corporation; provided, however, that if the person calling the meeting is of the opinion that the matters to be considered thereat involve an emergency, notice of such meeting shall be given by such means and within such time preceding the time at which the meeting is to be held as the person calling the meeting shall in his discretion deem reasonable and appropriate under the circumstances. Unless required by a resolution of the Board of Directors, no notice of any meeting of the Board of Directors and no waiver of notice of any such meeting need state the business to be transacted thereat. No notice of any meeting of the Board of Directors need be given to any director who attends such meeting, or to any director who signs a waiver of notice of such meeting, either before or after the holding thereof, and such waiver is filed with the records of the meeting. Any meeting of the Board of Directors, regular or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. SECTION 2.08. Quorum. At all meetings of the Board of Directors, a majority of the entire Board of Directors, but in no event fewer than two (2) directors, shall be necessary and sufficient to constitute a quorum for the transaction of business. Except as otherwise provided by statute, by the Charter or by the By-Laws, the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be necessary to elect and pass any measure. In the absence of a quorum, the directors present by majority vote and without notice other than by announcement may adjourn the 7 8 meeting from time to time until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 2.09. Compensation. The Board of Directors may provide for the payment to directors of stated amounts annually for services incident to serving as directors and committee members, or in the alternative, a fixed sum for attendance at each meeting of the Board of Directors or committees thereof, Directors shall be reimbursed by the Corporation for reasonable expenses incurred in attending such meetings. Except as otherwise provided by the Board of Directors, the receipt of amounts or sums authorized hereby shall not preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 2.10. Informal Action by Directors. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if a unanimous written consent which sets forth such action is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or committee. SECTION 2.11. Telephone Meetings. Members of the Board of Directors may participate in a meeting of such Board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting. ARTICLE III COMMITTEES SECTION 3.01. Committees. The Board of Directors may appoint from among the directors an Executive Committee and such other committees, to consist of such numbers of directors, not less than two, as the Board of Directors may from time to time determine. The Board of Directors shall have power at any time to remove any members of the Executive Committee and of each other committee and 8 9 to fill vacancies therein. When the Board of Directors is not in session, the Executive Committee shall have and may exercise, in the absence of or subject to any restrictions which the Board of Directors may from time to time impose, all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, except the power to declare dividends or distributions on stock, to issue stock (except as provided by statute), to recommend to stockholders any action requiring stockholders' approval, to amend the By-Laws, or to approve any merger or share exchange which does not require stockholder approval. Other committees shall have such powers, subject to applicable law, as shall be designated by the Board of Directors from time to time. SECTION 3.02. Advisory Committees. The Board of Directors may designate such advisory committees from time to time as the Board of Directors, in its discretion, deems necessary and proper, to perform such duties as may be determined by the Board of Directors at the time of their designation or as may be modified thereafter by the Board of Directors or the Executive Committee; provided, however, that any such advisory committee or committees shall have and may exercise only the power to recommend action to the Board of Directors or the Executive Committee. Each advisory committee shall consist of two or more individuals (with such alternates, if any, as may be deemed desirable) selected by the Board of Directors, who may but need not be members of the Board of Directors. SECTION 3.03. Committee Meetings. Meetings of any committee of directors or advisory committee may be called by the Chairman of the Board or the President and Chief Executive Officer of the Corporation or by any member of the committee and may be held at any office of the Corporation or elsewhere, as specified in the notice or waiver of notice of the meeting, upon not less than twenty-four (24) hours notice by telephone or telegram (notice by telegram shall be deemed given upon delivery to the telegraph company), upon notice by mail if such notice is mailed postage prepaid not later than the second day preceding the day upon which the meeting is to be held, or upon written waiver of notice given before or after the meeting; provided, however, that if the person calling the meeting is of the opinion that the matters to be considered thereat involve an emergency, notice of the meeting shall be 9 10 given to each member by such means and within such time preceding the time the meeting is to be held as the person calling the meeting shall in his discretion deem reasonable and appropriate under the circumstances. Notice of any meeting may be given by the Chairman of the Board or the President and Chief Executive Officer of the Corporation, by any member of the committee or by the secretary of the committee. Neither the business to be transacted at, nor the purpose of, any meeting of a committee need be specified in the notice or the waiver of notice of such meeting. Members of any committee may participate in a meeting of the committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting through such means shall constitute presence in person at such meeting. Any action required or permitted to be taken at any meeting of a committee may be taken without a meeting if all members of the committee consent thereto in writing filed with the minutes of the proceedings of the committee. A majority of a committee shall constitute a quorum for the transaction of business, and in the event a quorum is not present at any meeting the member or members present may adjourn the meeting from time to time without further notice until a quorum is present. Each committee shall designate one of its members as chairman (except that the Chairman of the Board of the Corporation shall act as Chairman of the Executive Committee) and shall appoint a secretary (who need not be a member of the committee), who shall keep minutes of its meetings. As soon as practicable, the minutes of each meeting and any writing evidencing action by unanimous consent shall be submitted to the Board of Directors, with or without a report, as such committee may deem appropriate. ARTICLE IV OFFICERS SECTION 4.01. Elected Officers. The elected officers of the Corporation shall be a Chairman of the Board; a Vice Chairman of the Board; a President and Chief Executive Officer; one or more Executive Vice Presidents, one or more Senior Vice Presidents and one or more Vice Presidents as may be determined by the Board of Directors; a Secretary; a Treasurer; and a Controller. 10 11 SECTION 4.02. Election. The Board of Directors at its first meeting after each annual meeting of stockholders shall elect a Chairman of the Board from among its members, and a Vice Chairman of the Board, a President and Chief Executive Officer, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Secretary, a Treasurer and a Controller, none of whom need be a member of the Board. With the exception of the President and Chief Executive Officer, who may not serve concurrently as a Vice President, any officer may hold more than one office. A person who holds more than one office in the Corporation may not act in more than one capacity to execute, acknowledge or verify an instrument required by law to be executed, acknowledged or verified by more than one officer. SECTION 4.03. Appointed Officers. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. SECTION 4.04. Compensation. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors, except to the extent that the authority to fix such salaries has been delegated by the Board of Directors to designated officers of the Corporation. SECTION 4.05. Term of Office. Except as may be otherwise provided by the Board of Directors or in the By-Laws, each officer of the Corporation shall hold office until the first meeting of the Board of Directors after the next annual meeting of stockholders following his election or appointment and until his successor is chosen and qualifies. Any officer or agent elected or appointed by the Board of Directors may be removed at any time by an action of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. SECTION 4.06. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board of Directors and the stockholders. He shall have and exercise such powers as are, from time to time, assigned to him by the Board of Directors. 11 12 SECTION 4.07. Vice Chairman of the Board. The Vice Chairman of the Board shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECTION 4.08. President and Chief Executive Officer. The President and Chief Executive Officer shall be the chief executive officer of the Corporation and shall report to the Executive Committee and the Board of Directors, shall have and exercise general and active management of the business and affairs of the Corporation and shall see that all orders and resolutions of the Board of Directors and the Executive Committee are carried into effect. SECTION 4.09. The Vice Presidents. The Executive Vice Presidents, the Senior Vice Presidents and the Vice Presidents shall, in the absence or disability of the President and Chief Executive Officer and in the order determined by the Board of Directors, perform the duties and exercise the powers of the President and Chief Executive Officer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECTION 4.10. The Secretary and Assistant Secretaries. The Secretary shall attend all meetings of the Board of Directors and the Executive Committee and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors and the Executive Committee in a book to be kept for that purpose and shall perform like duties for the standing committees, if any. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform all of the duties incident to the office of secretary of a corporation and such other duties as may be prescribed by the Board of Directors or the President and Chief Executive Officer under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to 12 13 affix the seal of the Corporation and to attest the affixing by his signature. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary, shall generally assist the Secretary and shall perform such other duties and have such other powers as the President and Chief Executive Officer or the Secretary may from time to time prescribe. SECTION 4.11. The Treasurer and Assistant Treasurers. The Treasurer shall have charge of and be responsible for the collection, receipt, custody and disbursement of corporate funds and securities. Subject to the supervision and direction of the President and Chief Executive Officer or such Vice President or other officer as shall be designated as the Chief Financial Officer of the Corporation, he shall be responsible for: (a) carrying out policies with respect to the approving, granting or extending of credit by the Corporation, (b) the preparation and filing of all income tax returns and all other regular and special reports to governmental agencies, and (c) the maintenance of adequate records of authorized appropriations and the determination that all sums expended pursuant thereto are accounted for properly. In general, the Treasurer shall perform the duties incident to the office of treasurer of a corporation and such other duties as may from time to time be assigned to him by the Board of Directors, the President and Chief Executive Officer or by such Vice President or other officer as shall be designated as the Chief Financial Officer of the Corporation. In the absence or disability of the Treasurer or in the event the office of Treasurer is or becomes vacant for any reason, the duties of the Treasurer shall be performed by the Assistant Treasurers in the order designated by the Board of Directors or in the absence of any designation then in the order of their election, unless otherwise determined by the Board of Directors. Each Assistant Treasurer shall generally assist the Treasurer and shall perform such other duties and have such other powers as the President and Chief Executive Officer or the Treasurer may from time to time prescribe. SECTION 4.12. Delegation of Duties of Officers. In case of the absence of any officer of the Corporation, or for any other reason that the Board of Directors may deem sufficient, the Board of 13 14 Directors may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director, provided that a majority of the entire Board of Directors shall concur therein. ARTICLE V STOCK SECTION 5.01. Certificates of Stock. The certificates of stock of the Corporation shall be numbered and shall be entered in the books of the Corporation as they are issued. Each stock certificate shall include on its face the name of the Corporation, the name of the stockholder or other person to whom it is issued, the class of stock and the number of shares represented thereby and shall be signed by the Chairman of the Board, the President and Chief Executive Officer or a Vice President and countersigned by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, or by a facsimile or facsimiles of the signatures of any of such officers, and sealed with the seal of the Corporation or a facsimile of such seal. If any certificate is signed (1) by a transfer agent other than the Corporation or its employee, or (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. SECTION 5.02. Transfers of Stock. Transfers of stock shall be made on the books of the Corporation upon the surrender to the Corporation or a transfer agent of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and the Corporation shall thereupon issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The Board of Directors may appoint one or more transfer agents and one or more registrars for any one or more classes of the capital stock of the Corporation. 14 15 SECTION 5.03. Registered Stockholders. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to, or interest in, such shares in the name of any other person, whether or not it shall have express or other notice hereof, except as expressly provided by the laws of the State of Maryland. SECTION 5.04. Record Dates. The Board of Directors is hereby empowered to fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of stockholders for any other proper purpose. Except as otherwise provided by statute, such date shall not be prior to the close of business on the day the record date is fixed, and in any case shall be not more than ninety (90) days, and in case of a meeting of stockholders, not less than ten (10) days, prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, twenty (20) days. If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. SECTION 5.05. Stock Ledgers. Original or duplicate stock ledgers, containing the name and address of each stockholder of the Corporation and the number of shares of each class held by each stockholder, shall be kept at the principal executive office of the Corporation. SECTION 5.06. Lost Certificates. A new certificate or certificates for shares of stock of the Corporation may, upon the making of an affidavit of that fact by the person claiming a certificate of stock to be lost, stolen or destroyed, be issued in such manner and under such conditions as the Board of Directors may at any time or from time to time prescribe, to replace the certificate alleged to have been lost, stolen or destroyed, provided that the Board of Directors may, in its discretion, require the owner of 15 16 any such certificate, or his legal representatives, to give the Corporation a bond, with sufficient surety to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of a new certificate. A new certificate may be issued without requiring any bond when in the judgment of the directors it is proper so to do. ARTICLE VI FINANCE; CONTRACTS SECTION 6.01. Checks; Bank Accounts; Etc. Such officers or agents of the Corporation as from time to time shall be designated by the Board of Directors shall have authority to deposit any funds of the Corporation in such banks or trust companies as from time to time shall be designated by the Board of Directors. Such officers or agents of the Corporation as from time to time shall be authorized by the Board of Directors may withdraw any or all of the funds of the Corporation so deposited in any bank or trust company, upon checks, drafts or other instruments or orders for the payment of money, drawn against the account or in the name or behalf of the Corporation, and made or signed by such officers or agents; and each bank or trust company with which funds of the Corporation are so deposited is authorized to accept, honor, cash and pay, without limit as to amount, all checks, drafts or other instruments or orders for the payment of money, when drawn, made or signed by officers or agents so designated by the Board of Directors until written notice of the revocation of the authority of such officers or agents by the Board of Directors shall have been received by such bank or trust company. From time to time there shall be certified to the banks or trust companies in which funds of the Corporation are deposited, the signatures of the officers or agents of the Corporation so authorized to draw against the same. In the event that the Board of Directors shall fail to designate the persons by whom checks, drafts and other instruments or orders for the payment of money shall be signed, as hereinabove provided in this Section, all of such checks, drafts and other instruments or orders for the payment of money shall be signed by any one of the Chairman of the Board, the Vice Chairman of the Board, the President and Chief Executive Officer, an Executive Vice President, a Senior Vice President, 16 17 a Vice President or an Assistant Vice President and countersigned by any one of the Secretary, the Treasurer, an Assistant Secretary or an Assistant Treasurer. SECTION 6.02. Loans. Such officers or agents of the Corporation as from time to time shall be designated by the Board of Directors shall have authority to effect loans, advances or other forms of credit at any time or times for the Corporation from such banks, trust companies, institutions, corporations, firms or persons, in such amounts and subject to such terms and conditions as the Board of Directors from time to time shall designate; and, as security for the repayment of any loans, advances, or other forms of credit so authorized, to assign, transfer, endorse and deliver, either originally or in addition or substitution, any or all personal property, real property, stocks, bonds, deposits, accounts, documents, bills and accounts receivable and other commercial paper and evidences of debt or other securities or any rights or interest at any time held by the Corporation; and, in connection with any of the foregoing, for any loans, advances or other forms of credit so authorized, such officers or agents shall have authority to make, execute and deliver one or more notes, mortgages, deeds of trust, financing statements, security agreements, acceptances or written obligations of the Corporation, on such terms, and with such provisions as to the security or sale or disposition thereof as such officers or agents shall deem proper, and, also, to sell to, or discount or rediscount with, such banks, trust companies, institutions, corporations, firms or persons any and all commercial paper, bills and accounts receivable, acceptances and other instruments and evidences of debt at any time held by the Corporation, and to that end to endorse, transfer and deliver the same. From time to time there shall be certified to each bank, trust company, institution, corporation, firm or person so designated, the signatures of the officers or agents so authorized; and each such bank, trust company, institution, corporation, firm or person is authorized to rely upon such certification until written notice of the revocation by the Board of Directors or the authority of such officers or agents shall be delivered to such bank, trust company, institution, corporation, firm or person. 17 18 SECTION 6.03. Contracts. Contracts and other instruments in writing which may be properly made or entered into by the Corporation may be executed in its behalf and in its name by any one of the Chairman of the Board, the Vice Chairman of the Board, the President and Chief Executive Officer, an Executive Vice President, a Senior Vice President or a Vice President, under the corporate seal, attested by the Secretary or an Assistant Secretary; provided, that the Board of Directors may by resolution authorize the execution of contracts and other instruments in writing generally or in specific instances in such manner and by such persons as may therein be designated. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.01. Fiscal Year. The fiscal year of the Corporation shall be the calendar year beginning on the first calendar day of each year, unless otherwise provided by the Board of Directors. SECTION 7.02. Seal. The Board of Directors shall provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof. If the Corporation is required to place its corporate seal to a document, it is sufficient to meet the requirement of any law, rule or regulation relating to a corporate seal to place the word "(Seal)" adjacent to the signature of the authorized officer of the Corporation. SECTION 7.03. Annual Reports. There shall be prepared annually a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year, which shall be submitted at the annual meeting of the stockholders and placed on file within twenty (20) days thereafter at the principal office of the Corporation in the State of Maryland. Such statement shall be prepared or caused to be prepared by such executive officer of the Corporation as may be designated in an additional or supplementary by-law adopted by the Board of Directors. If no other executive officer is so designated, it shall be the duty of the President and Chief Executive Officer to prepare or cause to be prepared such statement. 18 19 SECTION 7.04. Bonds. The Board of Directors may require any officer, agent or employee of the Corporation to give a bond to the Corporation, conditioned upon the faithful discharge of his duties, with one or more sureties and in such amount as may be satisfactory to the Board of Directors. SECTION 7.05. Voting upon Shares in Other Corporations. Any shares in other corporations or associations, which may from time to time be held by the Corporation, may be voted at any meeting of the stockholders thereof by the President and Chief Executive Officer or a Vice President of the Corporation or by proxy or proxies appointed by the President and Chief Executive Officer or a Vice President of the Corporation. A by-law or a resolution of the Board of Directors may appoint some other person or persons to vote such shares, in which case such person or persons shall be entitled to vote such shares upon the production of a certified copy of such resolution. SECTION 7.06. Amendments. (a) Any and all provisions of the By-Laws may be altered or repealed and new by-laws may be adopted at any annual meeting of the stockholders, or at any special meeting called for that purpose, and (b) the Board of Directors shall have the power, at any regular or special meeting thereof, to make and adopt new by-laws, or to amend, alter or repeal any of the By-Laws of the Corporation. SECTION 7.07. Books and Records. The Corporation shall keep correct and complete books and records of its accounts (including its capital accounts in the manner provided by statute) and transactions and minutes of the proceedings of its stockholders and Board of Directors and of any executive or other committee when exercising any of the powers of the Board of Directors. The books and records of the Corporation may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction. The original or a certified copy of the By-Laws of the Corporation, including any amendments to them, shall be kept at the Corporation's principal office. SECTION 7.08. Inspection of Books. The Board of Directors shall determine, subject to law, from time to time, whether, and to what extent and at what time and places and under what conditions 19 20 and regulations the books, accounts and records of the Corporation or any of them shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any book, record, account or document of the Corporation, except as conferred by law or authorized by resolution of the directors. Unless provided otherwise by statute, any request by a stockholder to examine the books, accounts or records of the Corporation shall be referred to the Board of Directors for action at the first meeting thereof following such request to the end that proper consideration may be given to such request in the light of existing circumstances and of applicable provisions of law. SECTION 7.09. Dividends. The Corporation, if declared by the Board of Directors at any meeting thereof, may pay dividends on its shares in cash, property, or in shares of the capital stock of the Corporation, unless such dividend is contrary to law or to a restriction contained in the Corporation's Charter. SECTION 7.10. Reserves. Before payment of any dividend there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose or purposes as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. SECTION 7.11. Severability. The invalidity of any provision of the By-Laws shall not affect the validity of any other provision, and each provision shall be enforced to the extent permitted by law. SECTION 7.12. Gender. Whenever used herein, the masculine gender includes all genders. ARTICLE VIII INDEMNIFICATION SECTION 8.01. Required Indemnification of Directors. The Corporation shall indemnify any director made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), unless it is proved that (1) the act or omission 20 21 of the director was material to the cause of action adjudicated in the Proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (2) the director actually received an improper personal benefit in money, property or services, or (3) in the case of any criminal proceeding, the director had reasonable cause to believe that the act or omission was unlawful. Indemnification may be against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by the director in connection with the Proceeding; provided, however, if the Proceeding was one by or in the right of the Corporation, indemnification may not be made in respect of any Proceeding in which the director shall have been adjudged to be liable to the Corporation. The termination of any Proceeding by judgment, order or settlement does not create a presumption that the director did not meet the requisite standard of conduct set forth in this Section. The termination of any Proceeding by conviction, or upon a plea of nolo contendere or its equivalent or entry of an order of probation prior to judgment, creates a rebuttable presumption that the director did not meet the requisite standard of conduct set forth in this Section. SECTION 8.02. Prohibited Indemnification of Directors. A director shall not be indemnified under Section 8.01 in respect if any Proceeding charging improper personal benefit to the director, whether or not involving action in the director's official capacity, in which the director was adjudged to be liable on the basis that personal benefit was improperly received. SECTION 8.03. Indemnification for Successful Defense. Unless limited by the Charter, a director who has been successful, on the merits or otherwise, in the defense of any Proceeding referred to in Section 8.01 shall be indemnified against reasonable expenses incurred by the director in connection with such Proceeding. SECTION 8.04. Determination that Indemnification is Proper. Indemnification under Section 8.01 shall not be made by the Corporation unless authorized for a specific Proceeding after a determination has been made that indemnification of the director is permissible in the circumstances because the director has met the standard of conduct set forth in Section 8.01. Such determination shall 21 22 be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors not, at the time, parties to the Proceeding, or, if such a quorum cannot be obtained, then by a majority vote of a committee of the Board consisting solely of two or more directors not, at the time, parties to such Proceeding and who were duly designated to act in the matter by a majority vote of the full Board in which the designated directors who are parties may participate, (2) by special legal counsel selected by the Board of Directors or a committee of the Board by vote as set forth in (1) above, or, if the requisite quorum of the full Board cannot be obtained therefor and the committee cannot be established, by a majority vote of the full Board in which directors who are parties may participate, or (3) by the stockholders. Authorization of indemnification and determination as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible. However, if the determination that indemnification is permissible is made by special legal counsel, authorization of indemnification and determination as to reasonableness of expenses shall be made in the manner specified for selection of such counsel. Shares held by directors who are parties to the Proceeding may not be voted on the subject matter under this Section. SECTION 8.05. Payment of Expenses in Advance of Final Disposition. Reasonable expenses incurred by a director who is a party to a Proceeding may be paid or reimbursed by the Corporation in advance of the final disposition of the Proceeding upon receipt by the Corporation of (1) a written affirmation by the director of the director's good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met and (2) a written undertaking by or on behalf of the director to repay the amount if it shall ultimately be determined that the standard of conduct has not been met. The undertaking required shall be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make the repayment. Payments under this Section shall be made as provided by the Charter, these By-Laws or contract or as specified in Section 8.04. 22 23 SECTION 8.06. Expenses of Directors Incurred as a Witness. The Corporation shall pay or reimburse expenses incurred by a director in connection with an appearance as a witness in a Proceeding at a time when the director has not been named as a defendant or respondent to the Proceeding. SECTION 8.07. Director's Service to Employee Benefit Plan. For purposes of this Article, (1) the Corporation shall be deemed to have requested a director to serve an employee benefit plan where the performance of the director's duties to the Corporation also imposes duties on, or otherwise involves services by, the director to the plan or participants or beneficiaries of the plan, (2) excise taxes assessed on a director with respect to an employee benefit plan pursuant to applicable law shall be deemed fines; and (3) action taken or omitted by the director with respect to an employee benefit plan in the performance of the director's duties for a purpose reasonably believed by the director to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Corporation. SECTION 8.08. Officers, Employees or Agents. Unless limited by the Charter, (1) an officer of the Corporation shall be indemnified as and to the extent provided in Section 8.03 for a director, (2) the Corporation may indemnify and advance expenses to an officer, employee, or agent of the Corporation or of any subsidiary of the Corporation or a director of such a subsidiary to the same extent that it may indemnify directors of the Corporation under this Article, and (3) the Corporation, in addition, may indemnify and advance expenses to an officer, employee, or agent of the Corporation or of any subsidiary of the Corporation or a director of such a subsidiary who is not a director of the Corporation to such further extent, consistent with law as may be provided by the Charter, the By-Laws, by action of the Board of Directors or by contract. SECTION 8.09. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation or of any subsidiary of the Corporation, or who, while a director, officer, employee, or agent of the Corporation or of any subsidiary of the Corporation, is or was serving at the request of the Corporation as a director, officer, 23 24 partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, other enterprise, or employee benefit plan against any liability asserted against and incurred by such person in any such capacity or arising out of such person's position, whether or not the Corporation would have the power to indemnify against liability under the provisions of this Article. The Corporation may provide similar protection, including a trust fund, letter of credit, or surety bond, not inconsistent with this Section. The insurance or similar protection provided pursuant to this Section may be provided by a subsidiary or an affiliate of the Corporation. SECTION 8.10. Report of Indemnification to Stockholders. Any indemnification of, or advance of expenses to, a director in accordance with this Article, if arising out of a Proceeding by or in the right of the Corporation, shall be reported in writing to the stockholders with the notice of the next stockholders' meeting or prior to the meeting. SECTION 8.11. Terms. Terms used in this Article, which are not otherwise defined herein, shall have the meaning set forth in Section 2-418 of the General Corporation Law of the State of Maryland. SECTION 8.12. Scope. The indemnification and advancement of expenses provided or authorized by this Article shall not be deemed exclusive of any other rights, by indemnification or otherwise, to which a director, officer, employee or agent of the Corporation or of a subsidiary of the Corporation may be entitled under the Charter, the By-Laws, a resolution of stockholders or directors, an agreement or statute or otherwise, as to action in an official capacity or as to action in another capacity while holding such office, and the provisions of this Article shall not be construed to in any way limit any such other rights. ARTICLE IX NOTICES SECTION 9.01. Manner of Giving Notice. Whenever under the provisions of the statutes or of the Charter or of the By-Laws, notice is required to be given to any director or stockholder of the Corporation, and no provision is made as to how such notice shall be given, it shall not be construed to 24 25 mean personal notice, but such notice may be given in writing, by mail, by depositing the same in a post office or letter box, in a postpaid sealed wrapper, addressed to such director or stockholder at such address as it appears on the books of the Corporation, or, in default of other address, to such director or stockholder at the General Post Office in the City of Baltimore, Maryland, and such notice shall be deemed to be given at the time when the same shall be thus mailed. SECTION 9.02. Waiver of Notice. Whenever any notice is required to be given under the provisions of the statutes or of the Charter, or of the By-Laws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the holding of the meeting or the taking of any other action referred to therein, shall be deemed equivalent thereto. 25 EX-10.25 3 CREDIT AGREEMENT DATED AS OF DECEMBER 8, 1998 1 Exhibit 10.25 EXECUTION COPY - -------------------------------------------------------------------------------- CREDIT AGREEMENT dated as of December 8, 1998 among LAFARGE CORPORATION, THE LENDERS, and THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
ARTICLE I: DEFINITIONS...........................................................................1 1.1. Definitions..........................................................................1 1.2. Accounting Terms and Determinations.................................................13 ARTICLE II: THE LOAN FACILITY...................................................................13 2.1. Commitment..........................................................................13 2.2. Required Payments...................................................................13 2.3. Ratable Loans; Types of Advances....................................................13 2.4. Fees................................................................................13 2.4.1. Facility Fee.................................................................13 2.4.2. Utilization Fee..............................................................14 2.4.3. Agent Fees...................................................................14 2.5. Reductions in Aggregate Commitment..................................................14 2.6. Minimum Amount of Each Advance......................................................14 2.7. Optional Principal Payments.........................................................14 2.8. Method of Selecting Types and Interest Periods for New Advances.....................14 2.9. Conversion and Continuation of Outstanding Advances.................................15 2.10. Changes in Interest Rate, etc.......................................................15 2.11. Rates Applicable After Default......................................................16 2.12. Method of Payment...................................................................16 2.13. Noteless Agreement; Evidence of Indebtedness........................................16 2.14. Telephonic Notices..................................................................17 2.15. Interest Payment Dates; Interest and Fee Basis......................................17 2.16. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions..........................................................................18 2.17. Lending Installations...............................................................18 2.18. Non-Receipt of Funds by the Agent...................................................18 2.19. Increase of Commitments.............................................................18 2.20. Extension of Termination Date.......................................................19 ARTICLE III: CHANGE IN CIRCUMSTANCES............................................................20 3.1. Taxes...............................................................................20 3.2. Yield Protection....................................................................22 3.3. Changes in Capital Adequacy Regulations.............................................23 3.4. Availability of Types of Advances...................................................23 3.5. Funding Indemnification.............................................................24 3.6. Mitigation of Additional Costs or Adverse Circumstances.............................24 3.7. Lender Statements; Survival of Indemnity............................................24 ARTICLE IV: CONDITIONS PRECEDENT................................................................25 4.1. Initial Advance.....................................................................25 4.2. Each Advance........................................................................26
3 ARTICLE V: REPRESENTATIONS AND WARRANTIES......................................................26 5.1. Existence and Standing..............................................................26 5.2. Authorization and Validity..........................................................27 5.3. No Conflict; Government Consent.....................................................27 5.4. Financial Statements................................................................27 5.5. Material Adverse Change.............................................................27 5.6. Taxes...............................................................................27 5.7. Litigation and Contingent Obligations...............................................28 5.8. Subsidiaries........................................................................28 5.9. ERISA...............................................................................28 5.10. Accuracy of Information.............................................................29 5.11. Margin Stock Regulations............................................................29 5.12. Material Agreements.................................................................29 5.13. Compliance With Laws................................................................29 5.14. Ownership of Properties.............................................................29 5.15. Intellectual Property...............................................................29 5.16. Plan Assets; Prohibited Transactions................................................30 5.17. Environmental Matters...............................................................30 5.18. Investment Company Act..............................................................30 5.19. Public Utility Holding Company Act..................................................30 5.20. Year 2000 Issues....................................................................30 ARTICLE VI: COVENANTS...........................................................................30 6.1. Financial Reporting.................................................................31 6.2. Use of Proceeds.....................................................................32 6.3. Notice of Default...................................................................32 6.4. Corporate Existence; Conduct of Business............................................32 6.5. Taxes...............................................................................33 6.6. Insurance...........................................................................33 6.7. Compliance with Laws................................................................33 6.8. Inspection..........................................................................33 6.9. Maintenance of Properties...........................................................33 6.10. Consolidations, Mergers and Sale of Assets..........................................33 6.11. Liens. .............................................................................34 6.12 Subsidiary Debt.....................................................................35 6.13 Hedging Obligations.................................................................35 6.14 Leverage Ratio......................................................................35 6.15 Interest Coverage Ratio.............................................................35 6.16. Affiliates..........................................................................36 6.17 Year 2000 Issues....................................................................36
4 ARTICLE VII: DEFAULTS...........................................................................36 ARTICLE VIII: ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES....................................38 8.1. Acceleration........................................................................38 8.2. Amendments..........................................................................38 8.3. Preservation of Rights..............................................................39 ARTICLE IX: GENERAL PROVISIONS..................................................................39 9.1. Governmental Regulation.............................................................39 9.2. Taxes. .............................................................................39 9.3. Headings............................................................................39 9.4. Entire Agreement....................................................................40 9.5. Several Obligations.................................................................40 9.6. Expenses; Indemnification...........................................................40 9.7. Numbers of Documents................................................................41 9.8. Severability of Provisions..........................................................41 9.9. Nonliability of Lenders. ...........................................................41 9.10. Confidentiality.....................................................................41 9.11. Nonreliance.........................................................................41 ARTICLE X: THE AGENT............................................................................41 10.1. Appointment.........................................................................41 10.2. Powers..............................................................................42 10.3. General Immunity....................................................................42 10.4. No Responsibility for Loans, Collateral, Recitals, etc. ............................42 10.5. Action on Instructions of Lenders...................................................42 10.6. Employment of Agents and Counsel....................................................43 10.7. Reliance on Documents; Counsel......................................................43 10.8. Agent's Reimbursement and Indemnification...........................................43 10.9. Notice of Default...................................................................44 10.10. Rights as a Lender..................................................................44 10.11. Lender Credit Decision..............................................................44 10.12. Successor Agent.....................................................................44 10.13. Delegation to Affiliates............................................................45 10.14. Co-Agents, Documentation Agent, Syndication Agent, etc. ............................45 ARTICLE XI: SETOFF; RATABLE PAYMENTS............................................................45 11.1. Setoff..............................................................................45 11.2. Ratable Payments....................................................................45
5 11.3 Application of Payments.............................................................45 ARTICLE XII: BENEFIT OF AGREEMENT; PARTICIPATIONS; ASSIGNMENTS.......................................................................46 12.1. Successors and Assigns..............................................................46 12.2. Participations......................................................................47 12.2.1. Permitted Participants; Effect.............................................47 12.2.2. Voting Rights..............................................................47 12.2.3. Benefit of Setoff..........................................................47 12.3. Assignments.........................................................................47 12.3.1. Permitted Assignments......................................................47 12.3.2. Effect; Effective Date.....................................................48 12.4. Dissemination of Information........................................................48 12.5. Tax Treatment.......................................................................48 ARTICLE XIII: NOTICES...........................................................................49 13.1. Giving Notice.......................................................................49 13.2. Change of Address...................................................................49 ARTICLE XIV: COUNTERPARTS.......................................................................49 ARTICLE XV: CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL........................49 15.1. CHOICE OF LAW.......................................................................49 15.2. CONSENT TO JURISDICTION.............................................................49 15.3. WAIVER OF JURY TRIAL................................................................50
6 SCHEDULES AND EXHIBITS
SCHEDULES - --------- Schedule I -- Commitments Schedule II -- Pricing Schedule Schedule 5.8 -- Subsidiaries Schedule 5.14 -- Liens
EXHIBITS - -------- Exhibit A -- Form of Assignment Agreement Exhibit B -- Form of Note Exhibit C -- Form of Opinion of Counsel to the Company Exhibit D -- Form of Opinion of Canadian Counsel to Lafarge Canada Inc. Exhibit E -- Form of Opinion of Counsel to the Agent Exhibit F -- Form of Money Transfer Instructions Exhibit G -- Form of Compliance Certificate
7 CREDIT AGREEMENT This Credit Agreement (this "AGREEMENT"), dated as of December 8, 1998, is among Lafarge Corporation, a Maryland corporation (the "COMPANY"), the Lenders and The First National Bank of Chicago, as Administrative Agent (the "AGENT"). The parties hereto agree as follows: ARTICLE I: DEFINITIONS 1.1. DEFINITIONS. As used in this Agreement: "ACQUISITION" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Company or any of its Subsidiaries (a) acquires any going business or all or substantially all of the assets of any firm, corporation, limited liability company or division thereof, whether through purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the Capital Stock of a corporation, partnership, or limited liability company which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company. "ADVANCE" means a borrowing hereunder, (i) made by the Lenders on the same Borrowing Date, or (ii) converted or continued by the Lenders on the same date of conversion or continuation, consisting, in either case, of the aggregate amount of the several Loans of the same Type and, in the case of Eurodollar Loans, for the same Interest Period. "AFFILIATE" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of Capital Stock, by contract or otherwise. "AGENT" means The First National Bank of Chicago in its capacity as contractual representative for the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Agent appointed pursuant to Article X. "AGGREGATE COMMITMENT" means the aggregate of the Commitments of all the Lenders, as the same may be reduced from time to time pursuant to Section 2.5 or increased pursuant to Section 2.19. The initial Aggregate Commitment is Three Hundred Million and 00/100 Dollars ($300,000,000). 8 "AGREEMENT" means this Credit Agreement, as it may be amended, modified, supplemented or restated and in effect from time to time. "ALTERNATE BASE RATE" means, for any day, a rate of interest per annum equal to (a) the higher of (i) the Corporate Base Rate for such day and (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum, plus (b) the percentage indicated as the Applicable Margin in connection with Alternate Base Rate Loans. "ALTERNATE BASE RATE ADVANCE" means an Advance which bears interest at the Alternate Base Rate. "ALTERNATE BASE RATE LOAN" means a Loan which bears interest at the Alternate Base Rate. "APPLICABLE FEE RATE" means, at any time, the percentage rate per annum at which facility fees and utilization fees are accruing on the Aggregate Commitment (without regard to usage) at such time as set forth in the Pricing Schedule. "APPLICABLE MARGIN" means, with respect to Advances of any Type at any time, the percentage rate per annum which is applicable at such time with respect to Advances of such Type as set forth in the Pricing Schedule. "ARRANGER" means First Chicago Capital Markets, Inc. "ARTICLE" means an article of this Agreement unless another document is specifically referenced. "AUTHORIZED OFFICER" means any of the Treasurer or any Assistant Treasurer of the Company, acting singly. "BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35) of ERISA (other than a Multiemployer Plan) subject to Title IV of ERISA in respect of which the Company or any ERISA Affiliate is an "employer" as defined in Section 3(5) of ERISA or with respect to which the Company or any ERISA Affiliate has any potential liability. "BORROWING DATE" means a date on which an Advance of any Type is made hereunder. "BORROWING NOTICE" is defined in Section 2.8. "BUSINESS DAY" means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (ii) for 2 9 all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago for the conduct of substantially all of their commercial lending activities. "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (howsoever designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing person, in each such case regardless of class or designation. "CAPITALIZED LEASE" means any lease the obligation for rentals with respect to which is required to be capitalized on a balance sheet of the lessee in accordance with U.S. GAAP. "CHANGE IN CONTROL" means Lafarge S.A. shall cease to own directly or indirectly at least 50% of the outstanding shares of voting stock of the Company on a fully diluted basis. "CODE" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "COMMITMENT" means, for each Lender, the obligation of such Lender to make Loans not exceeding the amount set forth on Schedule I hereof or as set forth in the applicable Assignment Agreement in the form of Exhibit A hereto received by the Agent under the terms of Section 12.3, as such amount may be modified from time to time pursuant to the terms of this Agreement or to give effect to any applicable assignment and acceptance. "COMPANY" means Lafarge Corporation, a Maryland corporation, and its successors and assigns, including a debtor-in-possession on behalf of the Company. "CONSOLIDATED EBITDA" means, for any period, EBITDA of the Company and its Consolidated Subsidiaries for such period, determined on a consolidated basis in accordance with U.S. GAAP. "CONSOLIDATED INTEREST EXPENSE" means, for any period, the amount of interest expense, net of interest income, of the Company and its Consolidated Subsidiaries for such period, determined on a consolidated basis in accordance with U.S. GAAP. "CONSOLIDATED NET WORTH" means, at any date as of which the same is to be determined, the total shareholders' equity of the Company and its Consolidated Subsidiaries, determined on a consolidated basis as of such date in accordance with U.S. GAAP. "CONSOLIDATED SUBSIDIARY" means, at any date as of which the same is to be determined, any Subsidiary or other entity the accounts of which would be consolidated with those of the Company 3 10 in its consolidated financial statements if such statements were prepared as of such date in accordance with U.S. GAAP. "CONSOLIDATED TOTAL DEBT" means, at any date as of which the same is to be determined, the Debt of the Company and its Consolidated Subsidiaries, determined on a consolidated basis as of such date in accordance with U.S. GAAP. "CONTROLLED GROUP" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "CONVERSION/CONTINUATION NOTICE" is defined in Section 2.9. "CORPORATE BASE RATE" means a rate per annum equal to the corporate base rate of interest announced by First Chicago from time to time, changing when and as said corporate base rate changes. "DEBT" means, with respect to any Person at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under Capitalized Leases, (v) all obligations of such Person to purchase securities (or other property) which arise out of or in connection with the sale of the same or substantially similar securities or property, (vi) all obligations of such Person to reimburse any bank or other person in respect of amounts paid under a letter of credit or similar instrument, (vii) all Debt of others secured by a lien on any asset of such Person to the extent of the fair market value of such asset, whether or not such Debt is assumed by such Person, (viii) all Synthetic Lease Liabilities of such Person, and (ix) all Debt of others guaranteed by such Person to the extent such Debt represents a liability of such Person; provided that liabilities resulting from the recognition of other postretirement benefits required by Financial Accounting Standard No. 106 shall not constitute "Debt." "DEFAULT" means an event described in Article VII. "DERIVATIVE CONTRACT" means any agreement, whether or not in writing, relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swaption, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing, and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing. 4 11 "DERIVATIVE TERMINATION VALUE" means, in respect of any one or more Derivative Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Derivative Contracts, (a) for any date on or after the date such Derivative Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Derivative Contracts, as determined by the Company based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Derivative Contracts (which may include any Lender). "DOL" means the United States Department of Labor and any successor department or agency. "DOLLARS" and "$" shall mean lawful money of the United States of America. "EBITDA" means, for any period, pre-tax income (loss) plus interest expense, net of interest income, as set forth in the consolidated statement of income of the Company and its Consolidated Subsidiaries, plus depreciation, depletion and amortization, as set forth in the consolidated statement of cash flows of the Company and its Consolidated Subsidiaries, in each case for such period, taking into account, on a pro-forma basis, any such amounts in connection with any permitted Acquisition (as if such Acquisition had occurred at the beginning of such period). "ENVIRONMENTAL LAWS" means any and all federal, state, local, regional, departmental and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (iv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof, including, without limitation, relating to releases, discharges, emissions or disposals to air, water, land or ground water, to the withdrawal or use of ground water, to the use, handling or disposal of polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde, to the treatment, storage, disposal or management of hazardous or dangerous substances (including, without limitation, petroleum, crude oil or any fraction thereof, or other hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or other controlled, prohibited or regulated substances or emissions. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statute. "ERISA AFFILIATE" means any (i) corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as the Company, (ii) partnership or other trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with the Company, and 5 12 (iii) member of the same affiliated service group (within the meaning of Section 414(m) of the Internal Revenue Code) as the Company, any corporation described in clause (i) above or any partnership or trade or business described in clause (ii) above. "EURODOLLAR ADVANCE" means an Advance which bears interest at the Eurodollar Rate. "EURODOLLAR BASE RATE" means, with respect to any Eurodollar Advance for the relevant Interest Period, the rate determined by the Agent to be the rate at which First Chicago offers to place deposits in Dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of First Chicago's relevant Eurodollar Loan and having a maturity equal to such Interest Period. "EURODOLLAR LOAN" means a Loan which bears interest at a Eurodollar Rate requested by the Company pursuant to Section 2.2. "EURODOLLAR RATE" means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, plus (ii) the Applicable Margin. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "EXCLUDED TAXES" means, in the case of each Lender or applicable Lending Installation and the Agent, taxes imposed on its overall net income, and franchise taxes based on net income imposed on it, by (i) the jurisdiction under the laws of which such Lender or the Agent is incorporated or organized or (ii) the jurisdiction in which the Agent's or such Lender's principal executive office or such Lender's applicable Lending Installation is located. "FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (i) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the preceding Business Day) by the Federal Reserve Bank of New York; or (ii) if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 a.m. (New York time) for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by the Agent. "FEE LETTER" is defined in Section 2.4.3. "FINANCIAL OFFICER" means the Chief Financial Officer or the Treasurer of the Company. "FOREIGN EMPLOYEE BENEFIT PLAN" means any employee benefit plan as defined in Section 3(3) of ERISA which is maintained or contributed to for the benefit of the employees of the 6 13 Company, any of its Subsidiaries or any members of its Controlled Group and is not covered by ERISA pursuant to ERISA Section 4(b)(4). "FOREIGN PENSION PLAN" means any employee benefit plan as described in Section 3(3) of ERISA which (i) is maintained or contributed to for the benefit of employees of the Company, any of its Subsidiaries or any of its ERISA Affiliates, (ii) is not covered by ERISA pursuant to Section 4(b)(4) of ERISA, and (iii) under applicable local law, is required to be funded through a trust or other funding vehicle. "GOVERNMENTAL AUTHORITY" means any nation or government, any federal, state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative authority or functions of or pertaining to government including any authority or other quasi-governmental entity established to perform any of such functions. "GROSS NEGLIGENCE" means either recklessness or actions taken or omitted with conscious indifference to or the complete disregard of consequences. Gross Negligence does not mean the absence of ordinary care or diligence, or an inadvertent act or inadvertent failure to act. If the term "gross negligence" is used with respect to the Agent or any Lender or any indemnitee in any of the other Loan Documents, it shall have the meaning set forth herein. "HEDGING OBLIGATIONS" of a Person means any and all net obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, or any similar derivative transactions and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing. "INTEREST PERIOD" means, with respect to a Eurodollar Advance or a Eurodollar Loan, a period of one, two, three or six months commencing on a Business Day selected by the Company pursuant to this Agreement. Such Interest Period shall end on (but exclude) the day which corresponds numerically to such date of commencement one, two, three or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new month, such Interest Period shall end on the immediately preceding Business Day. 7 14 "IRS" means the Internal Revenue Service and any Person succeeding to the functions thereof. "LENDERS" means the financial institutions listed on the signature pages of this Agreement and their respective successors and assigns including, without limitation, any Lender which becomes party to this Agreement pursuant to Section 12.3. "LENDING INSTALLATION" means any office, branch, subsidiary or affiliate of any Lender or the Agent. "LIEN" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "LOAN" means, with respect to any Lender, such Lender's loan made pursuant to Article II (or any conversion or continuation thereof). "LOAN DOCUMENTS" means this Agreement, any Notes issued pursuant to Section 2.13 and the Fee Letter. "MATERIAL ADVERSE CHANGE" means any change in the business, property, condition (financial or otherwise) or results of operations or prospects of the Company and its Subsidiaries taken as a whole which could reasonably be expected to have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, property, condition (financial or otherwise) or results of operations or prospects of the Company and its Subsidiaries taken as a whole, the ability of the Company to perform its obligations under the Loan Documents, or the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agent or the Lenders thereunder. "MATERIAL DEBT" means Debt (other than the Obligations hereunder or under the Notes) of the Company and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal or face amount exceeding $10,000,000. "MOODY'S" means Moody's Investors Service, Inc. or any rating agency which is generally recognized as a successor thereto. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA subject to Title IV of ERISA and which is contributed to by either the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate has potential liability. 8 15 "NOTE" means any promissory note issued by the Company at the request of a Lender pursuant to Section 2.13 in the form of Exhibit B. "NOTICE OF ASSIGNMENT" is defined in Section 12.3.2. "OBLIGATIONS" means all Loans, Advances, debts, liabilities, obligations, covenants and duties owing by the Company or any of its Subsidiaries to the Agent, any Lender, any Affiliate of the Agent or any Lender or any indemnitee, of any kind or nature, present or future, arising under this Agreement, the Notes issued hereunder, any other Loan Document, whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest charges, expenses, fees, attorneys' fees and disbursements, paralegals' fees, and any other sum chargeable to the Company or any of its Subsidiaries under this Agreement or any other Loan Document. "OTHER TAXES" is defined in Section 3.1(i). "PBGC" means the Pension Benefit Guaranty Corporation or any Person succeeding to the function thereof. "PAYMENT DATE" means the last Business Day of each calendar quarter. "PERCENTAGE" means, with respect to any Lender, the percentage obtained by dividing (A) such Lender's Commitment at such time (in each case, as adjusted from time to time in accordance with the provisions of this Agreement) by (B) the Aggregate Commitment at such time; provided, however, if all of the Commitments are terminated pursuant to the terms of this Agreement, then "Percentage" means the percentage obtained by dividing (i) the aggregate principal amount of such Lender's outstanding Loans at such time by (ii) the aggregate principal amount of all outstanding Loans at such time. "PERSON" means any corporation, limited liability company, natural person, firm, joint venture, partnership, trust, unincorporated organization, enterprise, government or any department or agency of any government. "PLAN" means any employee benefit plan defined in Section 3(3) of ERISA in respect of which the Company or any ERISA Affiliate is an "employer" as defined in Section 3(5) of ERISA or with respect to which the Company or any ERISA Affiliate has any potential liability. "PLAN ASSET RATIO" means the ratio (expressed as a percentage) of (a) the fair market value of all assets of all Single Employer Plans allocable to currently accrued vested nonforfeitable benefits under such Plans to (b) the present value of all such currently accrued vested nonforfeitable Plan 9 16 benefits, all determined on an ongoing Plan basis as set forth in the then most recent actuarial valuation for such Plans. "PRICING SCHEDULE" means the Schedule attached hereto as Schedule II. "PURCHASERS" is defined in Section 13.2.1. "REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "REGULATION T" means Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by and to brokers and dealers of Securities for the purpose of purchasing or carrying margin stock (as defined therein). "REGULATIONS U AND X" means Regulations U and X of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulations or official interpretations of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "REPORTABLE EVENT" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "REQUIRED LENDERS" means Lenders having, in the aggregate, Percentages of more than fifty-one percent (51%). "RESERVE REQUIREMENT" means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. "S&P" means Standard and Poor's Rating Services, a division of The McGraw-Hill Companies, Inc., or any rating agency which is generally recognized as a successor thereto. 10 17 "SEC FILINGS" means the Company's annual and quarterly reports on Forms 10-K and 10-Q as filed with the U.S. Securities and Exchange Commission for the fiscal year ended December 31, 1997 and the fiscal quarter ended September 30, 1998, respectively. "SECTION" means a numbered section of this Agreement, unless another document is specifically referenced. "SINGLE EMPLOYER PLAN" means a Plan maintained by the Company or any member of the Controlled Group for employees of the Company or any member of the Controlled Group. "SIGNIFICANT SUBSIDIARY" means at any time any Subsidiary of the Company or group of Subsidiaries of the Company which, in either case, holds or owns total assets with a book value in excess of $10,000,000 or has annual revenues in excess of $10,000,000. "SUBSIDIARY" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Company. "SUBSTANTIAL PORTION" means, with respect to the property of the Company and its Subsidiaries, property which represents more than 20% of the consolidated assets of the Company and its Subsidiaries as would be shown in the consolidated financial statements of the Company and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made. "SYNTHETIC LEASE LIABILITIES" of a Person means any liability under any tax retention operating lease or so-called "synthetic" lease transaction, or any obligations arising with respect to any other similar transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the consolidated balance sheets of such Person and its Subsidiaries (other than leases which do not have an attributable interest component that are not Capitalized Leases). "TAXES" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and any and all liabilities (including but not limited to interest and penalties) with respect to the foregoing, imposed by any Governmental Authority, but excluding Excluded Taxes. "TERMINATION DATE" means the earlier of (i) the December 8, 2003 and (ii) the date the Loans may be accelerated in accordance with this Agreement. 11 18 "TERMINATION EVENT" means (i) a Reportable Event with respect to any Benefit Plan; (ii) the withdrawal of the Company or any ERISA Affiliate from a Benefit Plan during a plan year in which the Company or such ERISA Affiliate was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the cessation of operations which results in the termination of employment of 20% of Benefit Plan participants who are employees of the Company or any ERISA Affiliate; (iii) the imposition of an obligation on the Company or any ERISA Affiliate under Section 4041 of ERISA to provide affected parties written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC or any similar foreign governmental authority of proceedings to terminate a Benefit Plan or a Foreign Pension Plan; (v) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan; (vi) a foreign governmental authority shall appoint or institute proceedings to appoint a trustee to administer any Foreign Pension Plan; or (vii) the partial or complete withdrawal of the Company or any ERISA Affiliate from a Multiemployer Plan or a Foreign Pension Plan. "TOTAL CAPITALIZATION" means, at any date, the sum of Consolidated Total Debt and Consolidated Net Worth as of such date. "TYPE" means, with respect to any Loan or Advance, its nature as an Alternate Base Rate Advance or Loan or Eurodollar Advance or Loan. "UNFUNDED LIABILITIES" means the amount (if any) by which the present value of all currently accrued vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined on an ongoing Plan basis as set forth in the then most recent actuarial valuation for such Plans. "UNMATURED DEFAULT" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "U.S. GAAP" means accounting principles generally accepted in the United States of America as recommended by the Financial Accounting Standards Board as in effect as of the date hereof applied consistently with the audited financial statements of the Company and its Consolidated Subsidiaries for the year ended December 31, 1997. "WHOLLY-OWNED," when used in connection with any Subsidiary, means (i) any Subsidiary all of the outstanding voting securities of which (other than nominal shares consisting of directors' qualifying shares) shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, limited liability company, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. 12 19 "YEAR 2000 ISSUES" means, with respect to any Person, anticipated costs, problems and uncertainties associated with the inability of certain computer applications and imbedded systems to effectively handle data, including dates, on and after January 1, 2000, as it affects the business, operations, and financial condition of such Person, and such Person's customers, suppliers and vendors. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. 1.2. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with U.S. GAAP. ARTICLE II: THE LOAN FACILITY 2.1. Commitment. From and including the date of this Agreement and prior to the Termination Date, each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Loans to the Company from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Commitment. Subject to the terms of this Agreement, the Company may borrow, repay and reborrow at any time prior to the Termination Date. The Commitments to lend hereunder shall expire on the Termination Date. 2.2. Required Payments. Any outstanding Advances and all other unpaid Obligations shall be paid in full by the Company on the Termination Date. 2.3. Ratable Loans; Types of Advances. Each Advance hereunder shall consist of Loans made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment. The Advances may be Alternate Base Rate Advances or Eurodollar Advances, or a combination thereof, selected by the Company in accordance with Sections 2.8 and 2.9. 2.4. Fees. 2.4.1. Facility Fee. The Company agrees to pay to the Agent for the account of each Lender a facility fee at a per annum rate equal to the Applicable Fee Rate on such Lender's Commitment (without regard to usage) from the date hereof to and including the Termination Date, payable in arrears on each Payment Date hereafter and on the Termination Date or earlier termination of the Commitments. All accrued facility fees shall be payable on the effective date of any termination of the obligations of the Lenders to make Loans hereunder. 13 20 2.4.2. Utilization Fee. If, at the end of any fiscal quarter, the average daily aggregate principal amount of outstanding Loans during such quarter exceeded thirty-three percent (33%) of the average daily amount of the Aggregate Commitment during such quarter, the Company hereby agrees to pay to the Agent, for the ratable account of each Lender in accordance with its Percentage, a utilization fee at a rate per annum equal to the Applicable Fee Rate on the average daily Aggregate Commitment (without regard to usage) during such quarter, payable quarterly in arrears on each Payment Date hereafter and on the Termination Date or earlier termination of the Commitments. 2.4.3. Agent Fees. The Company agrees to pay certain fees to the Agent and the Arranger, solely for their account (to be allocated among the Agent and the Arranger in their discretion), on the dates and in the amounts set forth in the fee letter among the Company, the Arranger and First Chicago, dated October 16, 1998 (the "FEE LETTER"). 2.5. Reductions in Aggregate Commitment. The Company may permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders in a minimum amount of $5,000,000 and in integral multiples of $1,000,000, upon at least three Business Days' written notice to the Agent, which notice shall specify the amount of any such reduction, provided, however, that the amount of the Aggregate Commitment may not be reduced below the aggregate principal amount of the outstanding Advances. 2.6. Minimum Amount of Each Advance. Each Eurodollar Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof), and each Alternate Base Rate Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof), provided, however, that any Alternate Base Rate Advance may be in the amount of the unused Aggregate Commitment. 2.7. Optional Principal Payments. The Company may from time to time pay, without penalty or premium, all outstanding Alternate Base Rate Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Alternate Base Rate Advances upon written notice to the Agent prior to 10:00 a.m. (Chicago time) on the date of such prepayment. The Company may from time to time pay, subject to the payment of any funding indemnification amounts required by Section 3.5 but without penalty or premium, all outstanding Eurodollar Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Eurodollar Advances upon three Business Days' prior written notice to the Agent. 2.8. Method of Selecting Types and Interest Periods for New Advances. The Company shall select the Type of Advance and, in the case of each Eurodollar Advance, the Interest Period applicable thereto from time to time. The Company shall give the Agent irrevocable notice (a "BORROWING NOTICE") not later than 10:00 a.m. (Chicago time) on the Borrowing Date of each Alternate Base Rate Advance and three Business Days before the Borrowing Date for each Eurodollar Advance, specifying: 14 21 (i) the Borrowing Date, which shall be a Business Day, of such Advance, (ii) the aggregate amount of such Advance, (iii) the Type of Advance selected, and (iv) in the case of each Eurodollar Advance, the Interest Period applicable thereto. Not later than noon (Chicago time) on each Borrowing Date, each Lender shall make available its Loan or Loans in funds immediately available in Chicago to the Agent at its address specified pursuant to Article XIII. Not later than 1:00 p.m. (Chicago time) on each Borrowing Date, the Agent will make the funds so received from the Lenders available to the Company at the Agent's aforesaid address. 2.9. Conversion and Continuation of Outstanding Advances. Alternate Base Rate Advances shall continue as Alternate Base Rate Advances unless and until such Alternate Base Rate Advances are converted into Eurodollar Advances pursuant to this Section 2.9 or are repaid in accordance with Section 2.7. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Alternate Base Rate Advance unless (x) such Eurodollar Advance is or was repaid in accordance with Section 2.7 or (y) the Company shall have given the Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurodollar Advance continue as a Eurodollar Advance for the same or another Interest Period. Subject to the terms of Section 2.6, the Company may elect from time to time to convert all or any part of a Alternate Base Rate Advance into a Eurodollar Advance. The Company shall give the Agent irrevocable notice (a "CONVERSION/CONTINUATION NOTICE") of each conversion of a Alternate Base Rate Advance into a Eurodollar Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (Chicago time) at least three Business Days prior to the date of the requested conversion or continuation, specifying: (i) the requested date, which shall be a Business Day, of such conversion or continuation, (ii) the aggregate amount and Type of the Advance which is to be converted or continued, and (iii) the amount of such Advance which is to be converted into or continued as a Eurodollar Advance and the duration of the Interest Period applicable thereto. 2.10. Changes in Interest Rate, etc. Each Alternate Base Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is automatically converted from a Eurodollar Advance into a Alternate Base Rate Advance pursuant to Section 2.9, to but excluding the date it is paid or is converted into a Eurodollar Advance pursuant to Section 2.9 hereof, at a rate per annum equal to the Alternate Base Rate for such day. 15 22 Changes in the rate of interest on that portion of any Advance maintained as a Alternate Base Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined by the Agent as applicable to such Eurodollar Advance based upon the Company's selections under Sections 2.8 and 2.9 and otherwise in accordance with the terms hereof. No Interest Period may end after the Termination Date. 2.11. Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.8 or 2.9, during the continuance of a Default or Unmatured Default the Required Lenders may, at their option, by notice to the Company (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default the Required Lenders may, at their option, by notice to the Company (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that (i) each Eurodollar Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum and (ii) each Alternate Base Rate Advance shall bear interest at a rate per annum equal to the Alternate Base Rate in effect from time to time plus 2% per annum, provided that, during the continuance of a Default under Section 7.6 or 7.7, the interest rates set forth in clauses (i) and (ii) above shall be applicable to all Advances without any election or action on the part of the Agent or any Lender. 2.12. Method of Payment. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Agent at the Agent's address specified pursuant to Article XIII, or at any other Lending Installation of the Agent specified in writing by the Agent to the Company, by noon (local time) on the date when due and shall be applied ratably by the Agent among the Lenders. Each payment delivered to the Agent for the account of any Lender shall be delivered promptly by the Agent to such Lender in the same type of funds that the Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Agent from such Lender. The Agent is hereby authorized to charge the account of the Company maintained with First Chicago for each payment of principal, interest and fees as it becomes due hereunder. 2.13. Noteless Agreement; Evidence of Indebtedness. (i) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Company to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (ii) The Agent shall also maintain accounts in which it will record (a) the amount of each Loan made hereunder, the Type thereof and the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from the Company to each 16 23 Lender hereunder and (c) the amount of any sum received by the Agent hereunder from the Company and each Lender's share thereof. (iii) The entries maintained in the accounts maintained pursuant to paragraphs (i) and (ii) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, that the failure of the Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Company to repay the Obligations in accordance with their terms. (iv) Any Lender may request that its Loans be evidenced by a promissory note (a "NOTE"). In such event, the Company shall prepare, execute and deliver to such Lender a Note payable to the order of such Lender in the form of Exhibit B. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after any assignment pursuant to Section 12.3) be represented by one or more Notes payable to the order of the payee named therein or any assignee pursuant to Section 12.3, except to the extent that any such Lender or assignee subsequently returns any such Note for cancellation and requests that such Loans once again be evidenced as described in paragraphs (i) and (ii) above. 2.14. Telephonic Notices. The Company hereby authorizes the Lenders and the Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Agent or any Lender in good faith believes to be acting on behalf of the Company, it being understood that the foregoing authorization is specifically intended to allow Borrowing Notices and Conversion/Continuation Notices to be given telephonically. The Company agrees to deliver promptly to the Agent a written confirmation, if such confirmation is requested by the Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Agent and the Lenders, the records of the Agent and the Lenders shall govern absent manifest error. 2.15. Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Alternate Base Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Alternate Base Rate Advance is prepaid, whether due to acceleration or otherwise, and at maturity. Interest accrued on that portion of the outstanding principal amount of any Alternate Base Rate Advance converted into a Eurodollar Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Eurodollar Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest on Eurodollar Advances and commitment fees shall be calculated for actual days elapsed on the basis of a 360-day year, and interest on Alternate Base Rate Advances shall be calculated for actual days elapsed on the basis of a 365, or when appropriate 366, day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if 17 24 payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.16. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. Promptly after receipt thereof, the Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. The Agent will notify each Lender of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. 2.17. Lending Installations. Each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Loans and any Notes issued hereunder shall be deemed held by each Lender for the benefit of any such Lending Installation. Each Lender may, by written notice to the Agent and the Company in accordance with Article XIII, designate replacement or additional Lending Installations through which Loans will be made by it and for whose account Loan payments are to be made. 2.18. Non-Receipt of Funds by the Agent. Unless the Company or a Lender, as the case may be, notifies the Agent prior to the date on which it is scheduled to make payment to the Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of the Company, a payment of principal, interest or fees to the Agent for the account of the Lenders, that it does not intend to make such payment, the Agent may assume that such payment has been made. The Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Company, as the case may be, has not in fact made such payment to the Agent, the recipient of such payment shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (x) in the case of payment by a Lender, the Federal Funds Effective Rate for such day for the first three days and, thereafter, the interest rate applicable to the relevant Loan or (y) in the case of payment by the Company, the interest rate applicable to the relevant Loan. 2.19. Increase of Commitments. (a) Not more than twice during the term of this Agreement and not earlier than six months after the date hereof, the Company may, upon at least thirty (30) days' prior written notice to the Agent and on the terms set forth below, request that the Aggregate Commitment hereunder be increased to an amount not to exceed $400,000,000; provided, however, that an increase in the Aggregate Commitment hereunder may only be made at a time when no Default or Unmatured Default shall have occurred and be continuing. Each of the Lenders shall be given the opportunity to participate in the increased Commitments (x) initially ratably in the proportions that their respective Commitments bear to the Aggregate Commitment and (y) to the 18 25 extent that the requested increase of Commitments is not fulfilled pursuant to the preceding clause (x), in such additional amounts as a Lender desires, and to the extent that the Lenders do not elect so to participate in such increased Commitments after being afforded an opportunity to do so, then the Company shall consult with the Agent as to the number, identity and requested Commitments of additional financial institutions which the Company may, upon the written consent of the Agent (which consent shall not be unreasonably withheld), invite to participate in the Commitments. (b) No Lender shall have any obligation to increase its Commitment pursuant to a request by the Company hereunder. No Lender shall be deemed to have approved an increase in its Commitment unless such approval is in writing. Failure on the part of a Lender to respond to a request by the Company hereunder shall be deemed a rejection of such request. In no event shall any Lender's Commitment, after giving effect to an increase in its Commitment hereunder, exceed 33 1/3% of the Aggregate Commitment under this Agreement. (c) In the event that the Company and one or more of the Lenders (or other financial institutions) shall agree upon such an increase in the Aggregate Commitments, the Company, the Agent and each Lender or other financial institution increasing its Commitment or extending a new Commitment shall enter into an amendment to this Agreement setting forth the amounts of the Commitments, as so increased, providing that the financial institutions extending new Commitments shall be Lenders for all purposes of this Agreement, and setting forth such additional provisions as the Agent shall consider reasonably appropriate to implement the foregoing changes. No such amendment shall require the approval or consent of any Lender whose Commitment is not being increased. Upon the execution and delivery of such amendment as provided above, and upon satisfaction of such other conditions as the Agent may reasonably specify upon the request of the financial institutions that are increasing or extending new Commitments (including the delivery of certificates, evidence of corporate authority and legal opinions on behalf of the Company), this Agreement shall be deemed to be amended accordingly. 2.20. Extension of Termination Date. The Company may request an extension of the Termination Date by submitting a request for an extension to the Agent (an "EXTENSION REQUEST") no more than 90 days prior to the Termination Date. The Extension Request must specify the date (which must be at least 30 days after the Extension Request is delivered to the Agent) by which the Lenders must respond to the Extension Request (the "RESPONSE DATE"). The new Termination Date shall be one year after the Termination Date in effect at the time the Extension Request is received. Promptly upon receipt of an Extension Request, the Agent shall notify each Lender of the contents thereof. Each Lender approving the Extension Request shall deliver its written consent to the Agent no later than the Response Date, which consent may be given or withheld by each Lender in its sole and absolute discretion. Any Lender that fails to notify the Agent of its consent or non-consent by the Response Date shall be deemed to have withheld consent (each such Lender together with each Lender that has provided notice of its non-consent is referred to herein as a "NON-CONSENTING LENDER"). If as of the close of business on the Response Date, any Lender is a Non-Consenting Lender, the Agent shall immediately so advise the Company. During the period beginning on the first 19 26 day following the Response Date and ending on the existing Termination Date, each Non-Consenting Lender shall, at the request of the Company, either (a) assign without recourse or warranty all of its rights and obligations under this Agreement (i) first, to the Lenders who have consented to the extension and are willing to accept such assignment, subject to ratable allocation by the Agent among such Lenders, and (ii) to the extent such Non-Consenting Lender's rights and obligations hereunder have not been assigned to an existing Lender as contemplated in the foregoing clause (i), to another financial institution, nominated by the Company and acceptable to the Agent, that is willing to become a Lender hereunder through the Termination Date as extended in accordance with the relevant Extension Request or (b) terminate its Commitment hereunder; provided, that upon such Non-Consenting Lender's replacement or cancellation of such Non-Consenting Lender's Commitment, such Non-Consenting Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.1, 3.2, 3.3, 3.5 and 9.6, as well as to any fees accrued for its account hereunder and not yet paid, and shall continue to be obligated under Section 10.8 to the extent such obligations relate to the period such Non-Extending Lender is a Lender hereunder. The obligation of a Non-Consenting Lender to assign its rights and obligations hereunder or terminate its Commitment hereunder as contemplated by this Section 2.20 is subject to the requirements that (x) all amounts owing to that Non-Consenting Lender under the Loan Documents, including, without limitation, any amounts owing pursuant to Section 3.5, are paid in full upon the completion of such assignment or prior to such termination and (y) any assignment is effected in accordance with the terms of Section 12.3 and on terms otherwise satisfactory to the Non-Consenting Lender (it being understood that the Company shall pay the processing fee payable to the Agent pursuant to Section 12.3.2 in connection with any such assignment). A requested extension of the Termination Date shall become effective only if (1) it has been approved by the Required Lenders as of the close of business on the Response Date, and (2) prior to the expiration of the ensuing period described above, each Non-Consenting Lender has either (A) assigned all of its rights and obligations hereunder to a successor financial institution or (B) terminated its Commitment hereunder and the Aggregate Commitment has been reduced accordingly. In any other event, the requested extension will be deemed to have been denied, and the Termination Date will remain unchanged without liability to any Non-Consenting Lender. The Company may request no more than two (2) successive one-year extensions pursuant to this Section 2.20. ARTICLE III: CHANGE IN CIRCUMSTANCES 3.1. Taxes. (i) All payments by the Company to or for the account of any Lender or the Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all Taxes. If the Company shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Agent, (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.1) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (b) the Company shall make such deductions, (c) the Company shall pay the full amount deducted to the relevant authority 20 27 in accordance with applicable law and (d) the Company shall furnish to the Agent the original copy of a receipt evidencing payment thereof within 30 days after such payment is made. (ii) In addition, the Company hereby agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note ("OTHER TAXES"). (iii) The Company hereby agrees to indemnify the Agent and each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 3.1) paid by the Agent or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Payments due under this indemnification shall be made within 30 days of the date the Agent or such Lender makes demand therefor pursuant to Section 3.7. (iv) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a "NON-U.S. LENDER") agrees that it will, not less than ten (10) Business Days after the date of this Agreement, (i) deliver to each of the Company and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and (ii) deliver to each of the Company and the Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of the Company and the Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Company or the Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Company and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. (v) For any period during which a Non-U.S. Lender has failed to provide the Company with an appropriate form pursuant to clause (iv), above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section 3.1 with respect to U.S. federal income taxes imposed by the United States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to 21 28 Taxes because of its failure to deliver a form required under clause (iv), above, the Company shall take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes. (vi) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or any treaty upon written request from the Company shall deliver to the Company (with a copy to the Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law and specified in the Company's written request as will permit such payments to be made without withholding or at a reduced rate. (vii) If the U.S. Internal Revenue Service or any other governmental authority of the United States or any other country or any political subdivision thereof asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or properly completed, because such Lender failed to notify the Agent of a change in circumstances which rendered its exemption from withholding ineffective, or for any other reason), such Lender shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax, withholding therefor, or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Agent under this subsection, together with all costs and expenses related thereto (including attorneys fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent). The obligations of the Lenders under this Section 3.1(vii) shall survive the payment of the Obligations and termination of this Agreement. 3.2. Yield Protection. If, on or after the date of this Agreement, the adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or applicable Lending Installation with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) subjects any Lender or any applicable Lending Installation to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to any Lender in respect of its Loans, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or 22 29 (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining its Loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with its Loans, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of Loans held or interest received by it, by an amount deemed material by such Lender, and the result of any of the foregoing is to increase the cost to such Lender or applicable Lending Installation of making or maintaining its Loans or Commitment or to reduce the return received by such Lender or applicable Lending Installation in connection with such Loans or Commitment, then, within 15 days of demand by such Lender, the Company shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received. 3.3. Changes in Capital Adequacy Regulations. If a Lender determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, then, within 15 days of demand by such Lender, the Company shall pay such Lender, as applicable, the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans or its Commitment to make Loans hereunder (after taking into account such Lender's policies as to capital adequacy). "CHANGE" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "RISK-BASED CAPITAL GUIDELINES" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.4. Availability of Types of Advances. If any Lender determines that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to Eurodollar Advances does not accurately reflect the cost of making or maintaining Eurodollar Advances, then the Agent shall suspend the availability of Eurodollar Advances and require any affected Eurodollar Advances to be repaid or converted to Alternate Base Rate Advances, subject to the payment of any funding indemnification amounts required by Section 3.5. 23 30 3.5. Funding Indemnification. If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by the Company for any reason other than default by the Lenders, the Company will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Advance, provided that such Lender shall have delivered to the applicable Company a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. 3.6. Mitigation of Additional Costs or Adverse Circumstances. If, in respect of any Lender, circumstances arise which would or would upon the giving of notice result in: (a) an increase in the liability of the Company to such Lender under Section 3.1, 3.2 or 3.3 or (b) the unavailability of a Type of Loan under Section 3.4; then, without in any way limiting, reducing or otherwise qualifying the Company's obligations under any of the clauses referred to above in this Section 3.6, such Lender shall promptly upon becoming aware of the same notify the Agent thereof and shall, in consultation with the Agent and the Company and to the extent that it can do so in a manner that is not, in the judgment of such Lender, disadvantageous to such Lender, take such reasonable steps as may be reasonably available to it to mitigate the effects of such circumstances. If and so long as a Lender has been unable to take, or has not taken, steps acceptable to the Company to mitigate the effect of the circumstances in question, such Lender shall be obliged, at the request of the Company, to assign all its rights and obligations hereunder to a financial institution nominated by the Company with the approval of the Agent and willing to participate in the facility in place of such Lender; provided that such financial institution satisfies all of the requirements of this Agreement, including, but not limited to, providing the forms required by Sections 3.1(iv) and 12.3.2. Notwithstanding any such assignment, the obligations of the Company under Sections 3.1, 3.2, 3.3 and 9.6 shall survive any such assignment and be enforceable by such Lender. 3.7. Lender Statements; Survival of Indemnity. Each Lender shall deliver a written statement of such Lender to the Company (with a copy to the Agent) as to the amount due, if any, under Section 3.1, 3.2, 3.3 or 3.5. Such written statement shall set forth in reasonable detail the event by reason of which such Lender is entitled to make a claim for such amount and the calculations upon which such Lender determined such amount, which shall be final, conclusive and binding on the Company in the absence of demonstrable error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded such Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the interest rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement shall be payable within three (3) Business Days of demand after receipt by the Company of the written 24 31 statement. The obligations of the Company under Sections 3.1, 3.2, 3.3 and 3.5 shall survive payment of any other of the Company's Obligations and the termination of this Agreement. ARTICLE IV: CONDITIONS PRECEDENT 4.1. Initial Advance. No Lender shall be required to make the initial Loans to the Company unless the Company has furnished or caused to be furnished to the Agent with sufficient copies for the Lenders: (i) Copies of the articles or certificate of incorporation (or other similar constituting documents) of the Company, together with all amendments, and a certificate of good standing, each certified by the appropriate governmental officer in its jurisdiction of incorporation; (ii) Copies, certified by the Secretary or Assistant Secretary of the Company, of the Company's by-laws (or other similar governing documents) and Board of Directors' resolutions and of resolutions or actions of any other body authorizing the execution of the Loan Documents; (iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of the Company, which shall identify by name and title and bear the signatures of the officers of the Company authorized to sign the Loan Documents to which the Company is a party and to request Advances, upon which certificate the Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Company; (iv) A certificate, signed by a Financial Officer of the Company, stating that on the date hereof no Default or Unmatured Default has occurred and is continuing and the representations and warranties contained in the Loan Documents are true and correct; (v) A written opinion of counsel to the Company, addressed to the Lenders in substantially the form of Exhibit C, and a written opinion of counsel to Lafarge Canada Inc., addressed to the Lenders in substantially the form of Exhibit D; (vi) A written opinion of counsel to the Agent, addressed to the Lenders in substantially the form of Exhibit E; (vii) The Notes, if any, requested by a Lender pursuant to Section 2.13 payable to the order of each such requesting Lender; (viii) Written money transfer instructions, in substantially the form of Exhibit F, addressed to the Agent and signed by a Financial Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested; 25 32 (ix) Evidence reasonably satisfactory to the Agent that the bilateral credit agreements, each dated as of September 1, 1994 and amended as of June 1, 1996, between the Company and the respective lenders party thereto have been terminated, and all indebtedness, liabilities and obligations thereunder have been paid in full; and (x) Such other documents as any Lender or its counsel may have reasonably requested. 4.2. Each Advance. The Lenders shall not be required to make any Advance (including the initial Advance hereunder) unless on the applicable Borrowing Date: (i) Prior to and after giving effect to such Advance, there exists no Default or Unmatured Default; (ii) After giving effect to such Advance and to the application of the proceeds thereof, if such Advance increases the aggregate amount of outstanding Advances, the representations and warranties contained in Sections 5.5 and 5.7 are true and correct in all material respects as of such Borrowing Date; (iii) The other representations and warranties contained in the Loan Documents are true and correct in all material respects as of such Borrowing Date (except such representations and warranties which expressly relate solely to, and were true and correct in all material respects as of, an earlier date); and (iv) All legal and regulatory matters incident to the making of such Advance shall be satisfactory to the Lenders and their counsel. Each Borrowing Notice with respect to each such Advance shall constitute a representation and warranty by the Company that the applicable conditions contained in Sections 4.1 and 4.2 have been satisfied. Any Lender may require a duly completed compliance certificate in substantially the form of Exhibit G as a condition to making an Advance. ARTICLE V: REPRESENTATIONS AND WARRANTIES The Company represents and warrants as follows to each Lender and the Agent as of the date hereof and thereafter on each date as required by Section 4.2: 5.1. Existence and Standing. Each of the Company and its Subsidiaries is a corporation, partnership (in the case of Subsidiaries only) or limited liability company duly and properly incorporated or organized, as the case may be, validly existing and (to the extent such concept applies to such entity) in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted 26 33 except to the extent that the failure to have such authority could not reasonably be expected to result in a Material Adverse Effect. 5.2. Authorization and Validity. The Company has the power and authority and legal right to execute and deliver the Loan Documents and to perform its obligations thereunder. The execution and delivery by the Company of the Loan Documents and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents constitute legal, valid and binding obligations of the Company enforceable against it in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 5.3. No Conflict; Government Consent. Neither the execution and delivery by the Company of the Loan Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Company or any of its Subsidiaries or (ii) the Company's articles or certificate of incorporation or organization, by-laws, or operating or other management agreement, as the case may be, or (iii) the provisions of any indenture, instrument or agreement to which the Company or any of its Subsidiaries is a party or is subject, or by which any of them, or any of their property, is bound, or conflict with or constitute a default thereunder, or result in or require the creation or imposition of any Lien in, of or on the property of the Company or any of its Subsidiaries pursuant to the terms of any such indenture, instrument or agreement, in any such case which violation, conflict, default, creation or imposition could reasonably be expected to have a Material Adverse Effect. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, which has not been obtained by the Company or any of its Subsidiaries, is required to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, any of the Loan Documents. 5.4. Financial Statements. The December 31, 1997 and June 30, 1998 financial statements of the Company and its Consolidated Subsidiaries heretofore delivered to the Lenders were prepared in accordance with U.S. GAAP in effect on the date such statements were prepared and fairly present the financial condition of the Company and its Consolidated Subsidiaries at such date and the results of their operations for the periods then ended. 5.5. Material Adverse Change. Since June 30, 1998 there has been no change in the business, property, prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.6. Taxes. The Company and its Subsidiaries have filed all United States federal tax returns (or extensions therefor) and all other material tax returns (or extensions therefor) which are required to be filed by any Governmental Authority and have paid all taxes due pursuant to said 27 34 returns or pursuant to any assessment received by the Company or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with U.S. GAAP and as to which no Lien exists. The United States income tax returns of the Company and its Subsidiaries have been audited by the Internal Revenue Service through the fiscal year ended December 31, 1982. No tax liens have been filed and no claims are being asserted with respect to any such taxes. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7. Litigation and Contingent Obligations. Except as disclosed in the SEC Filings, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Company or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect or which seeks to prevent, enjoin or delay the making or repayment of any Loans. Other than any liability incident to any litigation, arbitration or proceeding which could not reasonably be expected to have a Material Adverse Effect, the Company and its Subsidiaries have no material contingent obligations not provided for or disclosed in the financial statements referred to in Section 5.4 or in the SEC Filings. 5.8. Subsidiaries. Schedule 5.8 contains an accurate list of all Significant Subsidiaries of the Company as of the date of this Agreement, setting forth their respective jurisdictions of organization and the percentage of their respective Capital Stock or other ownership interests owned by the Company or other Subsidiaries. All of the issued and outstanding shares of Capital Stock or other ownership interests of such Significant Subsidiaries have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable. 5.9. ERISA. (a) the Company and each of its ERISA Affiliates has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. Neither the Company nor any ERISA Affiliate has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. (b) Each Foreign Employee Benefit Plan is in compliance in all respects with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plan, except for any non-compliance the consequences of which, in the aggregate, would not result in a material obligation to pay money. The aggregate of the accumulated benefit obligations under all Foreign Pension Plans does not exceed the current fair market value of the assets held in the trusts or similar funding vehicles for such Plans or reasonable reserves have been established in 28 35 accordance with prudent business practices or as required by U.S. GAAP with respect to any shortfall. With respect to any Foreign Employee Benefit Plan maintained or contributed to by the Company or any Subsidiary or any member of its Controlled Group (other than a Foreign Pension Plan), reasonable reserves have been established in accordance with prudent business practice or where required by ordinary accounting practices in the jurisdiction in which such Plan is maintained. There are no actions, suits or claims (other than routine claims for benefits) pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary or any ERISA Affiliate with respect to any Foreign Employee Benefit Plan. 5.10. Accuracy of Information. No information, exhibit or report furnished by the Company or any of its Subsidiaries to the Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading. 5.11. Margin Stock Regulations. The Company and its Subsidiaries are in compliance with Regulations T, U and X. Margin stock (as defined in Regulation U) constitutes less than 25% of the value of those assets of the Company and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.12. Material Agreements. Neither the Company nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect. 5.13. Compliance With Laws. The Company and its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective property, except for any failure to comply with any of the foregoing which could not reasonably be expected to have a Material Adverse Effect. 5.14. Ownership of Properties. Except as set forth on Schedule 5.14, on the date of this Agreement, the Company and its Subsidiaries have good title, free of all Liens other than those permitted by Section 6.11, to all of the property and assets reflected in the Company's most recent consolidated financial statements provided to the Agent as owned by the Company and its Subsidiaries. 5.15. Intellectual Property. The Company and each of its Subsidiaries owns or possesses all material patents, trademarks, trade names, service marks, copyright, licenses and rights with respect to the foregoing necessary for the future conduct of its business, without any known material conflict with the rights of others. 29 36 5.16. Plan Assets; Prohibited Transactions. Neither the Company nor any of its Subsidiaries is an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or any plan (within the meaning of Section 4975 of the Code), and neither the execution of this Agreement nor the making of Loans hereunder gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. 5.17. Environmental Matters. In the ordinary course of its business, the officers of the Company consider the effect of Environmental Laws on the business of the Company and its Subsidiaries, in the course of which they identify and evaluate potential risks and liabilities accruing to the Company and its Subsidiaries due to Environmental Laws. On the basis of this consideration, the Company has concluded that Environmental Laws cannot reasonably be expected to have a Material Adverse Effect. Except as disclosed in the SEC Filings, neither the Company nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable Environmental Laws or are the subject of any foreign or domestic, federal, state or local investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 5.18. Investment Company Act. Neither the Company nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company" or an "affiliated person" thereof or an "affiliated person" of such affiliated person, in each case within the meaning of the Investment Company Act of 1940, as amended. 5.19. Public Utility Holding Company Act. Neither the Company nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.20. Year 2000 Issues. The Company and its Subsidiaries have made a full and complete assessment of the Year 2000 Issues and have a realistic and achievable program for remediating the Year 2000 Issues on a timely basis, as described in the SEC Filings. Based on this assessment and program, the Company reasonably believes that Year 2000 Issues cannot be expected to have a Material Adverse Effect. ARTICLE VI: COVENANTS During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 30 37 6.1. Financial Reporting. The Company will maintain, for itself and each Consolidated Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Agent, for distribution to the Lenders: (i) Within 100 days after the close of each of its fiscal years, an unqualified audit report (with all amounts stated in Dollars) certified by Arthur Andersen LLP or any other independent certified public accountants of recognized international standing, prepared in accordance with U.S. GAAP on a consolidated basis for itself and the Consolidated Subsidiaries, including a consolidated balance sheet and the related consolidated statements of income, cash flows and statements of changes in common shareholders' equity, setting forth in each case in comparative form the figures for such fiscal year and the previous fiscal year (it being understood that the requirement to deliver such information may be satisfied by the delivery of the Company's annual report on Form 10-K for such fiscal year so long as such annual report continues to include such information). (ii) Within 50 days after the close of the first three quarterly periods of each of its fiscal years, for itself and the Consolidated Subsidiaries, an unaudited consolidated balance sheet as at the close of each such period and a consolidated income statement and a statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, setting forth in the case of such statements of income and cash flows in comparative form the figures for the corresponding quarter and the corresponding portion of the Company's previous fiscal year (it being understood that the requirement to deliver such information may be satisfied by the delivery of the Company's quarterly report on Form 10-Q for such fiscal quarter so long as such quarterly report continues to include such information), all certified (subject to normal year-end adjustments) as to fairness of presentation, preparation in accordance with U.S. GAAP and consistency by a Financial Officer of the Company. (iii) Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit G hereto signed by its Financial Officer showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (iv) Promptly upon the furnishing thereof to the shareholders of the Company, or to the shareholders of any other Person in connection with an Acquisition, copies of all financial statements, reports and proxy statements so furnished. (v) Promptly upon the filing thereof, copies of all registration statements, tender offer documents and annual, quarterly, monthly or other regular reports which the Company or any of its Subsidiaries files with the Securities and Exchange Commission. 31 38 (vi) On or before October 31 of each fiscal year, a statement of the Unfunded Liabilities of each Single Employer Plan, certified as correct by an actuary enrolled under ERISA, for the prior fiscal year. (vii) As soon as possible and in any event within 30 days after the Company knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by a Financial Officer of the Company, describing said Reportable Event and the action which the Company proposes to take with respect thereto. (viii) As soon as possible and in any event within 30 days after receipt by the Company, a copy of (a) any notice or claim to the effect that the Company or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Company, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Company or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect. (ix) Such other information (including non-financial information) as the Agent or any Lender may from time to time reasonably request. 6.2. Use of Proceeds. The Company will, and will cause each Subsidiary to, use the proceeds of the Advances to provide funds for working capital purposes (including to repay outstanding Advances) and other general corporate purposes. None of the proceeds of the Advances shall be used in any manner which would violate or cause any Lender to be in violation of Regulations T, U or X of the Board of Governors of the Federal Reserve System. None of the proceeds of the Advances shall be used in connection with any Acquisition unless (i) such Acquisition is consummated on a non-hostile basis pursuant to a negotiated acquisition agreement approved by the board of directors or other applicable governing body of the applicable seller or entity to be acquired prior to the commencement thereof, and (ii) such Acquisition is in substantially the same fields of enterprise as the business of the Company and its Subsidiaries is presently conducted or reasonably related thereto. 6.3. Notice of Default. The Company will, and will cause each Subsidiary to, give prompt notice (and in any event within five (5) Business Days of occurrence) in writing to the Agent of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise (including, without limitation, developments with respect to Year 2000 Issues), which could reasonably be expected to have a Material Adverse Effect. 6.4. Corporate Existence; Conduct of Business. The Company will, and will cause each Subsidiary to, do all things reasonably necessary to remain duly organized, validly existing and in good standing in its jurisdiction of organization and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except as otherwise permitted by 32 39 Section 6.10(b) and except to the extent that the failure to maintain such authority could not reasonably be expected to result in a Material Adverse Effect. The Company will, and will cause each Subsidiary to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted or lines of business reasonably related thereto. 6.5. Taxes. The Company will, and will cause each Subsidiary to, timely file complete and correct United States federal, state and local and applicable foreign tax returns (or extensions therefor) required by laws and to pay when due all material taxes, assessments and governmental charges and levies upon it or its income, profits or property, except those which are being contested in good faith by appropriate proceedings, with respect to which adequate reserves have been set aside in accordance with U.S. GAAP and as to which no Lien exists. 6.6. Insurance. The Company will, and will cause each Subsidiary to, maintain (either in the name of the Company or in such Subsidiary's own name) with financially sound and responsible insurance companies or through a program of self-insurance, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to any Lender, upon request from such Lender, information presented in reasonable detail as to the insurance so carried. 6.7. Compliance with Laws. The Company will, and will cause each Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, including, without limitation, laws relating to pension funds and Environmental Laws, which, if violated, could reasonably be expected to have a Material Adverse Effect. 6.8. Inspection. The Company will, and will cause each Subsidiary to, permit the Agent and the Lenders, by their respective representatives and agents, to inspect any of the properties, corporate books and financial records of the Company and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Company and each Subsidiary, and to discuss the affairs, finances and accounts of the Company and each Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Lenders may designate. 6.9. Maintenance of Properties. The Company will, and will cause each Subsidiary to, do all things reasonably necessary to maintain, preserve, protect and keep its property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times in accordance with past practices. 6.10. Consolidations, Mergers and Sale of Assets. (a) The Company will not consolidate or merge with or into any other Person or sell, lease or otherwise transfer all or any Substantial Portion of its assets to any other Person; provided that the Company may merge with another Person 33 40 if (A) the Company is the corporation surviving such merger and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing. (b) The Company will not permit any Significant Subsidiary to consolidate or merge with or into any Person, or to sell, lease or otherwise transfer all or any Substantial Portion of its assets to any Person unless the surviving corporation or transferee, as the case may be, is the Company or a Wholly-Owned Subsidiary. 6.11. Liens. The Company will not, nor will it permit any Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the property of the Company or any Subsidiary, except: (i) Liens for taxes, assessments or governmental charges or levies on its property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with U.S. GAAP shall have been set aside on its books. (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with U.S. GAAP shall have been set aside on its books. (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation. (iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Company or its Subsidiaries. (v) Liens existing on the date hereof and described in Schedule 5.14 and securing Debt outstanding on the date of this Agreement in an aggregate principal or face amount not exceeding $6,862,000. (vi) Liens existing on any asset of any corporation at the time such corporation becomes a Subsidiary of the Company and not created in contemplation of such event. (vii) Liens on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof. 34 41 (viii) Liens on any asset of any corporation existing at the time such corporation is merged or consolidated with or into the Company or a Subsidiary of the Company and not created in contemplation of such event. (ix) Liens existing on any asset prior to the acquisition thereof by the Company or a Subsidiary of the Company and not created in contemplation of such acquisition. (x) Liens arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, provided that such Debt is not increased and is not secured by any additional assets. (xi) Liens on cash and cash equivalents securing Hedging Obligations, provided that the aggregate amount of cash and cash equivalents subject to such Liens may at no time exceed $5,000,000. (xii) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal or face amount at any date not to exceed $25,000,000. 6.12 Subsidiary Debt. Other than pursuant to this Agreement, the Company will not permit any of its Subsidiaries to incur or at any time be liable with respect to any Debt, or to issue or have outstanding any preferred stock, except: (i) Debt or preferred stock outstanding on the date hereof; (ii) Debt or preferred stock of a Subsidiary issued to and held by the Company or a Wholly-Owned Subsidiary; (iii) Debt or preferred stock of any corporation existing at the time such corporation becomes a Subsidiary of the Company and not created in contemplation of such event; (iv) refinancing, extension, renewal or refunding of any Debt or preferred stock permitted by the foregoing clauses (i) through (iii); and (v) Debt or preferred stock in addition to that set forth in clauses (i) through (iv), if, after giving effect thereto, the aggregate outstanding principal amount of Debt of all Subsidiaries pursuant to this clause (v) does not exceed $250,000,000 at any time. 6.13 Hedging Obligations. The Company shall not and shall not permit any of its Subsidiaries to enter into any interest rate, commodity or foreign currency exchange, swap, collar, cap, leveraged derivative or similar agreements other than interest rate, foreign currency or commodity exchange, swap, collar, cap or similar agreements pursuant to which the Company or any Subsidiary has hedged its reasonably estimated interest rate, foreign currency or commodity exposure. 6.14 Leverage Ratio. At any and all times, the Company shall not permit the ratio of Consolidated Total Debt to Total Capitalization to exceed fifty percent (50%). 6.15 Interest Coverage Ratio. The Company shall not, as of the last day of each fiscal quarter, permit the ratio of Consolidated EBITDA for the 12-month period ending on such date to Consolidated Interest Expense for such period to be less than 3.00 to 1.00. 35 42 6.16. Affiliates. The Company will not, and will not permit any Subsidiary to, enter into any transaction (including, without limitation, the purchase or sale of any property or service) with, or make any payment or transfer to, any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms not materially less favorable to the Company or such Subsidiary than the Company or such Subsidiary would obtain in a comparable arms-length transaction. 6.17 Year 2000 Issues. The Company shall, and shall cause each of its Subsidiaries to, take all actions reasonably necessary to assure that the Year 2000 Issues will not have a Material Adverse Effect. The Company shall promptly notify the Agent in writing if any Year 2000 Issues will have or could reasonably be expected to have a Material Adverse Effect. ARTICLE VII: DEFAULTS The occurrence and continuance of any one or more of the following events shall constitute a Default: 7.1. Any representation or warranty made or deemed made under Article V by the Company or any Subsidiary to the Lenders or the Agent under or in connection with this Agreement or any certificate or other document delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made or deemed made. 7.2. Nonpayment of principal of any Loans when due, or nonpayment of interest upon any Loan or of any facility fee, utilization fee or other obligations under any of the Loan Documents within three (3) Business Days after the same becomes due. 7.3. The breach by the Company of any of the terms or provisions of Sections 6.2, 6.10, 6.11, 6.12, 6.14 or 6.15. 7.4. The breach by the Company (other than a breach which constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of this Agreement which is not remedied within thirty (30) days after written notice from the Agent or any Lender. 7.5. Failure of the Company or any of its Subsidiaries to pay any Material Debt when due; or the default by the Company or any of its Subsidiaries in the performance of any term, provision or condition contained in any agreement under which any Material Debt was created or is governed, or any other event shall occur or condition exist, the effect of which is to cause, or to permit the holder or holders of such Material Debt to cause such Material Debt to become due prior to its stated maturity; or Material Debt of the Company or any of its Subsidiaries shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment or as a result of the sale of an asset securing such Material Debt) prior to the stated maturity thereof; or there shall occur under any Derivative Contract an Early Termination Date (as defined in such Derivative Contract 36 43 resulting from (1) any event of default under such Derivative Contract as to which the Company or any Subsidiary is the Defaulting Party (as defined in such Derivative Contract) or (2) any Termination Event (as defined in such Derivative Contract) as to which the Company or any Subsidiary is an Affected Party (as defined in such Derivative Contract), and, in either event, the Derivative Termination Value owed by the Company or such Subsidiary as a result thereof is greater than $10,000,000. 7.6. The Company or any Significant Subsidiary shall (i) commence a voluntary case under any bankruptcy, insolvency or other similar law as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) fail to pay, or admit in writing its inability to pay, its debts generally as they become due, (iv) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its property, (v) institute any proceeding seeking an order for relief under any bankruptcy, insolvency or other similar law as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (vi) take any corporate action to authorize or effect any of the foregoing actions set forth in this Section 7.6 or (vii) fail to contest in good faith any appointment or proceeding described in Section 7.7. 7.7. Without the application, approval or consent of the Company or any Significant Subsidiary, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Company or any Significant Subsidiary or any Substantial Portion of the property of any such Person, or a proceeding described in Section 7.6(iv) shall be instituted against the Company or any Significant Subsidiary and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 consecutive days. 7.8. Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of (each a "CONDEMNATION"), all or any portion of the property of the Company or any Subsidiary which, when taken together with all other property of the Company and the Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such Condemnation occurs, constitutes a Substantial Portion. 7.9. The Company or any of its Subsidiaries shall fail within 30 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $10,000,000, which is not stayed on appeal or otherwise being appropriately contested in good faith. 7.10. The Plan Asset Ratio shall be less than 91.0% for a period of 60 consecutive days, or any Reportable Event shall occur in connection with any Plan which could reasonably be expected to have a Material Adverse Effect. 37 44 7.11. The Company or any of its Subsidiaries shall be the subject of any proceeding or proceedings pertaining to the spill, release or disposal by the Company or any of its Subsidiaries, or any other Person of any toxic, dangerous or hazardous waste or substance into the environment, or to any violation of any federal, state, regional, departmental or local environmental, health or safety law or regulation, which could reasonably be expected to result in total liability to the Company or any of its Subsidiaries, in the aggregate, in excess of an amount equal to the value of a Substantial Portion of the property of the Company and its Subsidiaries. 7.12. Any Change in Control shall occur. 7.13. Any Termination Event occurs which could reasonably be expected to subject either the Company or any ERISA Affiliate to liability individually or in the aggregate in excess of $10,000,000 and, in the case of a Termination Event described in clause (i) or (ii) of the definition of "Termination Event" only, such event shall not have been cured within 60 days after such occurrence. 7.14. The plan administrator of any Plan applies under Section 412(d) of the Code for a waiver of the minimum funding standards of Section 412(a) of the Code. ARTICLE VIII: ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs with respect to the Company or any of its Subsidiaries, the obligations of the Lenders to make Loans hereunder shall automatically terminate and the Obligations shall immediately become due and payable without presentment, demand, protest or notice of any kind (all of which the Company hereby expressly waives) or any other election or action on the part of the Agent or any Lender. If any other Default occurs and is continuing, the Required Lenders may terminate or suspend the obligations of the Lenders to make Loans hereunder, or declare the Obligations to be due and payable, or both, in either case upon written notice to the Company, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which the Company hereby expressly waives. 8.2. Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Agent with the consent in writing of the Required Lenders, or the Agent and each Lender or other financial institution increasing its Commitment or extending a new Commitment in accordance with Section 2.19(c)) and the Company may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Company hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of each Lender affected thereby: (i) Postpone or extend the Termination Date (except with respect to any modifications of the provisions relating to prepayments of Loans and other Obligations). 38 45 (ii) Reduce the principal amount of any Loans, or reduce the rate or extend the time of payment of interest or fees thereon. (iii) Reduce the percentage specified in the definition of Required Lenders or any other percentage of Lenders specified to be the applicable percentage in this Agreement to act on specified matters or amend the definitions of "Required Lenders" or "Percentage". (iv) Increase the amount of the Commitment of any Lender hereunder or increase any Lender's Percentage. (v) Permit the Company to assign its rights under this Agreement. (vi) Amend or modify Section 8.1 or this Section 8.2. No amendment of any provision of this Agreement relating in any way to the Agent shall be effective without the written consent of the Agent. The Agent may waive payment of the fees required under Section 2.4.3 or Section 12.3.2 without obtaining the consent of any of the Lenders. 8.3. Preservation of Rights. No delay or omission of the Lenders or the Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of the Company to satisfy the conditions precedent to such Loan or such issuance shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been paid in full. ARTICLE IX: GENERAL PROVISIONS 9.1. Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Company in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.2. Taxes. Any recording or documentary taxes or other similar assessments or charges payable or ruled payable by any governmental authority in respect of the Loan Documents shall be paid by the Company. 9.3. Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 39 46 9.4. Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Company, the Agent and the Lenders and supersede all prior agreements and understandings among the Company, the Agent and the Lenders relating to the subject matter thereof except as contemplated in Section 2.4.3. 9.5. Several Obligations. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agent is authorized to act as Agent hereunder). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. No Lender shall have any liability for the failure of any other Lender to perform its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns, provided, however, that the parties hereto expressly agree that the Arranger shall enjoy the benefits of the provisions of Sections 9.6, 9.9 and 10.11 to the extent specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement. 9.6. Expenses; Indemnification. The Company shall reimburse (i) the Agent and the Arranger for any reasonable costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and, in connection with the preparation, execution and delivery of the Loan Documents, time charges of attorneys for the Agent and/or the Arranger, which attorneys may be employees of the Agent and/or the Arranger) including title insurance premiums, lien search charges, recording taxes, filing charges and other similar expenses paid or incurred by the Agent or the Arranger in connection with the preparation, review, execution, delivery, amendment, modification and administration of the Loan Documents, and (ii) the Agent, the Arranger and the Lenders for any costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent, the Arranger or the Lenders) paid or incurred by the Agent, the Arranger or any Lender in connection with the collection and enforcement of the Loan Documents (except to the extent that a court of competent jurisdiction rules against the Agent, the Arranger or the Lenders in a final non-appealable judgment in any such collection or enforcement action), any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or any insolvency or bankruptcy proceedings in respect of the Company or any Subsidiary. The Company further agrees to indemnify the Agent, the Arranger, each Lender and their respective directors, officers and employees (the "INDEMNITEES") against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all reasonable expenses of litigation or preparation therefor whether or not the Agent, the Arranger or any Lender is a party thereto) (collectively, the "INDEMNIFIED AMOUNTS") which any of them may pay or incur arising out of or relating to this Agreement, the Notes or any transaction contemplated herein; provided, however, that the Company shall not be liable to any Indemnitee for any Indemnified Amounts to the extent that a court of competent jurisdiction has determined in a final non-appealable judgment that the foregoing resulted from such Indemnitee's Gross Negligence or willful misconduct. The Company further agrees (a) to assert no claims for special, indirect, consequential or punitive damages on any theory of liability in connection in any way with the Loan Documents or the transactions evidenced thereby 40 47 and (b) not to settle any claim, litigation or proceeding relating to the Loan Documents or the transactions evidenced thereby unless such settlement releases all Indemnitees from any and all liability in respect of such transaction or unless each Indemnitee approves such settlement. The obligations of the Company under this Section 9.6 shall survive the termination of this Agreement. 9.7. Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Agent with sufficient counterparts so that the Agent may furnish one to each of the Lenders. 9.8. Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.9. Nonliability of Lenders. The relationship between the Company and the Lenders and the Agent shall be solely that of borrower and lender. Neither the Agent, the Arranger nor any Lender shall have any fiduciary responsibilities to the Company. Neither the Agent, the Arranger nor any Lender undertakes any responsibility to the Company to review or inform the Company of any matter in connection with any phase of the Company's business or operations. 9.10. Confidentiality. Each Lender agrees to hold any confidential information which it may receive from the Company or any Subsidiary pursuant to this Agreement in confidence, except for disclosure (i) to other Lenders and their respective affiliates, (ii) to legal counsel, accountants, and other professional advisors to that Lender who agree to hold such information confidential in accordance with the terms hereof, (iii) to regulatory officials, (iv) as requested pursuant to or as required by law, regulation, or legal process, (v) in connection with any legal proceeding to which that Lender is a party, and (vi) permitted by Section 12.4. The restrictions in this Section 9.10 shall not apply to any information which is or becomes generally available to the public other than as a result of disclosure by a Lender or a Lender's representatives. 9.11. Nonreliance. Each of the Lenders represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. ARTICLE X: THE AGENT 10.1. Appointment. First National Bank of Chicago is hereby appointed Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Agent to act as the contractual representative of such Lender. The Agent agrees to act as such upon the express conditions contained in this Article X. The Agent shall not have a fiduciary relationship in respect of the Company or any Lender by reason of this Agreement or the Loan Documents. Notwithstanding the use of the defined term "Agent," it is expressly understood and agreed that the 41 48 Agent shall not have any fiduciary responsibilities to any Lender by reason of this Agreement and that the Agent is merely acting as the representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as the Lenders' contractual representative, the Agent (i) does not assume any fiduciary duties to any of the Lenders, (ii) is a "representative" of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (iii) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders agrees to assert no claim against the Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender waives. 10.2. Powers. The Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agent shall have no implied duties to the Lenders or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Agent. 10.3. General Immunity. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to the Company or any Lender for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any other Loan Document except to the extent such action or inaction is found in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the Gross Negligence or willful misconduct of such Person or an Affiliate thereof. 10.4. No Responsibility for Loans, Collateral, Recitals, etc. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (i) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder, including statements made in any offering memorandum or "Bank Book"; (ii) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (iii) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered solely to the Agent; (iv) the existence or possible existence of any Default or Unmatured Default; or (v) the validity, effectiveness or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith, except for the authority of the Agent's signatory to this Agreement. The Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties herein or in any of the other Loan Documents, for the perfection or priority of any of the Liens on any collateral, if any, or for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any of the other Loan Documents or the transactions contemplated thereby, or for the financial condition of any guarantor of any or all of the Obligations, the Company or any of its Subsidiaries. 10.5. Action on Instructions of Lenders. The Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance 42 49 with written instructions signed by the Required Lenders or all the Lenders, as applicable, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes. The Lenders hereby acknowledge that the Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Document unless it shall be requested in writing to do so by the Required Lenders. The Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action, provided that, such indemnity need not include liability, costs and expenses which a court of competent jurisdiction has determined in a final non-appealable judgment arose from the Gross Negligence or willful misconduct of the Agent. 10.6. Employment of Agents and Counsel. The Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document. 10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Agent, which counsel may be employees of the Agent. 10.8. Agent's Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Agent ratably in proportion to their respective Percentages (i) for any amounts not reimbursed by the Company for which the Agent is entitled to reimbursement by the Company under the Loan Documents, (ii) for any other expenses not reimbursed by the Company incurred by the Agent on behalf of the Lenders in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including , without limitation, for any expenses incurred by the Agent in connection with any dispute between the Agent and any Lender or between two or more of the Lenders) and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever and not reimbursed by the Company which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that (i) no Lender shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the Gross Negligence or willful misconduct of the Agent and (ii) any indemnification required pursuant to Section 3.1(vii) shall, notwithstanding the provisions of this Section 10.8, be paid by the relevant Lender in accordance with the provisions thereof. The 43 50 obligations of the Lenders under this Section 10.8 shall survive payment of the Obligations and termination of this Agreement. 10.9. Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Unmatured Default hereunder unless the Agent has received written notice from a Lender or the Company referring to this Agreement describing such Default or Unmatured Default and stating that such notice is a "notice of default." In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Lenders. 10.10. Rights as a Lender. With respect to its Commitment, Loans made by it and the Notes issued hereunder issued to it held by it, the Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender and may exercise the same as though it were not the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Company or any of its Subsidiaries. 10.11. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent, the Arranger or any other Lender and based on the financial statements prepared by the Company and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Agent, the Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.12. Successor Agent. The Agent may resign at any time by giving at least 30 days' prior written notice thereof to the Lenders and the Company and such resignation shall be effective at the end of such 30-day period or upon the earlier appointment of a successor agent, and the Agent may be removed at any time with or without cause by written notice received by the Agent from the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, on behalf of the Lenders, a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty days after the retiring Agent's removal or giving notice of resignation, then the retiring Agent may appoint, on behalf of the Lenders, a successor Agent. Such successor Agent shall be a commercial bank having capital and retained earnings of at least $500,000,000. The retiring Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents upon the effectiveness of its removal or resignation hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article X shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder and under the other Loan Documents. In the event that there is a successor to the Agent by merger, then the term 44 51 "Corporate Base Rate" as used in this Agreement shall mean the prime rate, base rate or other analogous rate of the new Agent. 10.13. Delegation to Affiliates. The Company and the Lenders agree that the Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which the Agent is entitled under Articles IX and X. 10.14. Co-Agents, Documentation Agent, Syndication Agent, etc. Neither any of the Lenders identified in this Agreement as a "co-agent" nor the Documentation Agent or the Syndication Agent shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of such Lenders shall have or be deemed to have a fiduciary relationship with any Lender. Each Lender hereby makes the same acknowledgments with respect to such Lenders as it makes with respect to the Agent in Section 10.11. ARTICLE XI: SETOFF; RATABLE PAYMENTS 11.1. Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if the Company becomes insolvent, however evidenced, or any Default occurs, any Debt from any Lender to the Company (including all account balances, whether provisional or final and whether or not collected or available) may be offset and applied toward the payment of the Obligations owing to such Lender whether or not the Obligations, or any part thereof, shall then be due. 11.2. Ratable Payments. If, after the occurrence of a Default, any Lender, whether by setoff or otherwise, has payment made to it upon its share of any Advance (other than payments received which are for the account of the Agent or pursuant to Article III) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans comprising that Advance held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans comprising that Advance. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. 11.3 Application of Payments. The Agent shall, unless otherwise specified at the direction of the Required Lenders which direction shall be consistent with the last sentence of this Section 11.3, apply all payments and prepayments in respect of any Obligations in the following order: 45 52 (A) first, to pay interest on and then principal of any portion of the Loans which the Agent may have advanced on behalf of any Lender for which the Agent has not then been reimbursed by such Lender or the Company; (B) second, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Agent; (C) third, to pay Obligations in respect of any fees, expenses, reimbursements or indemnities then due to the Lenders; (D) fourth, to pay interest due in respect of Loans; and (E) fifth, to the ratable payment of all other Obligations. Unless otherwise designated (which designation shall only be applicable prior to the occurrence of a Default) by the Company, all principal payments in respect of Loans shall be applied first, to repay outstanding Alternate Base Rate Loans, and then to repay outstanding Eurodollar Loans with those Loans which have earlier expiring Interest Periods being repaid prior to those which have later expiring Interest Periods. The order of priority set forth in this Section 11.3 and the related provisions of this Agreement are set forth solely to determine the rights and priorities of the Agent and the Lenders as among themselves. The order of priority set forth in clauses (D) and (E) of this Section 11.3 may at any time and from time to time be changed by the Required Lenders without necessity of notice to or consent of or approval by the Company or any other Person. The order of priority set forth in clauses (A) through (C) of this Section 11.3 may be changed only with the prior written consent of the Agent. ARTICLE XII: BENEFIT OF AGREEMENT; PARTICIPATIONS; ASSIGNMENTS 12.1. Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Company, the Lenders and their respective successors and assigns, except that (i) the Company shall have no right to assign its rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may at any time, without the consent of the Company or the Agent, assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank; provided, however, that no such assignment shall release the transferor Lender from its obligations hereunder. The Agent may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Agent. Any assignee or transferee of a Note or any other interest in the Obligations agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving 46 53 such authority or consent is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 12.2. Participations. 12.2.1. Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more financial institutions ("PARTICIPANTS") participating interests in any Loan owing to such Lender, any Note held by such Lender, the Commitment of such Lender, or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the holder of any such Note for all purposes under the Loan Documents, all amounts payable by the Company under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Company and the Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. 12.2.2. Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan or Commitment, postpones any date fixed for any regularly-scheduled payment (but not prepayments) of principal of, or interest or fees on, any such Loan or Commitment, releases any guarantor of any such Loan (other than as contemplated hereunder or under any other Loan Document), if any, or releases all or substantially all of the collateral, if any, securing any such Loan. 12.2.3. Benefit of Setoff. The Company agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 12.2 as if each Participant were a Lender. 12.3. Assignments. 12.3.1. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more financial institutions ("PURCHASERS") all or a portion of its rights and obligations under the Loan Documents, 47 54 which assignment shall (unless (i) such assignment is to another Lender or an Affiliate thereof or (ii) each of the Agent and, if no Default has occurred and is continuing, the Company otherwise consents) be in amounts equal to or greater than $5,000,000 or, if less, all of such assigning Lender's remaining Loans and Commitments hereunder. Such assignment shall be substantially in the form of Exhibit A hereto. The consent of the Agent and, if no Default has occurred and is continuing, the Company (which consent shall not be unreasonably withheld or delayed) shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof. It shall not be considered to be unreasonable if such consent is withheld because the rating issued by Moody's and then in effect with respect to the prospective Purchaser's senior unsecured long-term debt securities without third party credit enhancement is below Aa3 or the rating issued by S&P and then in effect with respect to the prospective Purchaser's senior unsecured long-term debt securities without third party credit enhancement is below AA-. 12.3.2. Effect; Effective Date. Upon (i) delivery to the Agent of a notice of assignment, substantially in the form attached as Exhibit I to Exhibit A hereto (a "NOTICE OF ASSIGNMENT"), together with any consent required by Section 12.3.1 (provided however, that no consent shall be required for an assignment from a Lender to an Affiliate of the Lender), and (ii) payment of a $3,500 fee to the Agent by the assigning Lender for processing such assignment, such assignment shall become effective on the effective date specified in such Notice of Assignment. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Company, the Lenders or the Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent and the Company shall, if the transferor Lender or the Purchaser desires that its Loans be evidenced by Notes, make appropriate arrangements so that new Notes or, as appropriate, replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment. 12.4. Dissemination of Information. The Company authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Company and its Subsidiaries; provided that each Transferee and prospective Transferee agrees to be bound by Section 9.10 of this Agreement. 12.5. Tax Treatment. If any interest in any Loan Document is transferred to any Purchaser which is organized under the laws of any jurisdiction other than the United States of America or any State thereof, the transferor Lender shall cause such Purchaser, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 3.1(iv). 48 55 ARTICLE XIII: NOTICES 13.1. Giving Notice. All notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by telex or by facsimile and addressed or delivered to such party at its address set forth below its signature hereto or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes). 13.2. Change of Address. The Company, the Agent and each Lender may change the address for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XIV: COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Company, the Agent and the Lenders and each party has notified the Agent by telex or telephone, that it has taken such action. ARTICLE XV: CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL 15.1. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING 735 ILCS 105/5-1 ET SEQ. BUT OTHERWISE WITHOUT REGARD TO THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 15.2. CONSENT TO JURISDICTION. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE COMPANY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES 49 56 ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE COMPANY AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 15.3. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 50 57 IN WITNESS WHEREOF, the Company, the Lenders and the Agent have executed this Agreement as of the date first above written. LAFARGE CORPORATION By: /s/ KEVIN GRANT ------------------------- Kevin Grant Vice President and Treasurer 11130 Sunrise Valley Drive, Suite 300 Reston, VA 20191 Attention: Kevin Grant, Treasurer Telephone: 703-264-3673 Facsimile: 703-264-0634 Signature Page to Lafarge Corporation Credit Agreement dated as of December 8, 1998 51 58 THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent and as a Lender By: /s/ MARGUERITE BURTZLAFF --------------------------------- Title: AS AGENT ------------------------------ 153 West 51st Street, Suite 400 New York, NY 10019 Attention: Marguerite Burtzlaff Telephone: 212-373-1057 Facsimile: 212-373-1639 Signature Page to Lafarge Corporation Credit Agreement dated as of December 8, 1998 52 59 FIRST UNION NATIONAL BANK, as Documentation Agent and as a Lender By: /s/ FRANK S. KAULBACK III -------------------------------- Title: VICE PRESIDENT ---------------------------- 1970 Chain Bridge Road 3rd Floor (VA-1937) McLean, VA 22102 Attention: Frank S. Kaulback III Telephone: 703-760-6259 Facsimile: 703-760-5457 Signature Page to Lafarge Corporation Credit Agreement dated as of December 8, 1998 53 60 WACHOVIA BANK, N.A., as Syndication Agent and as a Lender By: /s/ ROBERTS A. BASS ------------------------------ Title: VICE PRESIDENT --------------------------- 100 North Main Street (P.O. Box 3099) Winston Salem, NC 27150 Attention: Roberts A. Bass Telephone: 336-732-7235 Facsimile: 336-732-6935 Signature Page to Lafarge Corporation Credit Agreement dated as of December 8, 1998 54 61 SUNTRUST BANK, CENTRAL FLORIDA, N.A., as Co-Agent and as a Lender By: /s/ Ronald K. Rueve ------------------------------ Title: VP --------------------------- 200 South Orange Avenue Orlando, FL 32801 Attention: Andrew J. Hines Telephone: 407-237-4839 Facsimile: 407-237-6894 STATE OF GEORGIA COUNTY OF FULTON AFFIDAVIT OF OUT-OF-STATE EXECUTION On the 4 day of December, 1998 personally appeared Ronald K. Rueve, as the Vice President of SunTrust Banks, Inc. and before me executed the attached Credit Agreement, dated as of December 8, 1998, among Lafarge Corporation, a Maryland corporation the Lenders and The First National Bank of Chicago, as Administrative Agent IN WITNESS WHEREOF, /s/ CHERI JACOBS ---------------------------- Signature Affiant sayeth naught Cheri Jacobs Typed or Printed Name Title: Corporate Officer Subscribed to and sworn to before me this 4 day of December 1998 by Cheri Jacobs, who is personally known to me or produced _______________ as identification. /s/ TONYA ADAMS ---------------------------------- Signature of Notary Public, State of Georgia TONYA ADAMS ---------------------------------- Typed or Printed Name of Notary Public My Commission No: My Commission Expires: [stamp] 55 Signature Page to Lafarge Corporation Credit Agreement dated as of December 8, 1998 62 BANK OF MONTREAL, CHICAGO BRANCH, as a Lender By: [sig] Bruce A. Pietka ------------------------------ Title: Director --------------------------- 115 South LaSalle Street Chicago, IL 60603 Attention: Craig Reynolds, Team Leader Telephone: 312-750-6047 Facsimile: 312-750-6061 with a copy to: Bank of Montreal 430 Park Avenue, 14th Floor New York, NY 10022 Attention: Glen Pole Telephone: 212-605-1462 Facsimile: 212-605-1454 56 Signature Page to Lafarge Corporation Credit Agreement dated as of December 8, 1998 63 BANQUE NATIONALE DE PARIS, as a Lender By: /s/ RICHARD PACE -------------------------------- Title: Vice President, Corporate Banking Division ----------------------------- By: /s/ BONNIE G. EISENSTAT -------------------------------- Title: Vice President ----------------------------- 499 Park Avenue, 9th Floor New York, NY 10022 Attention: Bonnie Eisenstat Telephone: 212-415-9708 Facsimile: 212-415-9606 57 Signature Page to Lafarge Corporation Credit Agreement dated as of December 8, 1998 64 BAYERISCHE LANDESBANK GIROZENTRALE, Cayman Islands Branch, as a Lender By: /s/ PETER OBERMANN ------------------------------ Title: Senior Vice President --------------------------- By: /s/ OLIVER HILDENBRAND ------------------------------ Title: Second Vice President --------------------------- 560 Lexington Avenue, 17th Floor New York, NY 10022 Attention: Oliver Hildenbrand Telephone: 212-310-9835 Facsimile: 212-310-9868 Signature Page to Lafarge Corporation Credit Agreement dated as of December 8, 1998 58 65 CITIBANK, N.A., as a Lender By: /s/ STUART G. MILLER ---------------------------- Title: Attorney-in-Fact ------------------------- 399 Park Avenue 8th Floor, Zone 11A New York, NY 10043 Attention: Anne Serewicz Telephone: 212-559-0802 Facsimile: 212-793-3053 Signature Page to Lafarge Corporation Credit Agreement dated as of December 8, 1998 59 66 WESTDEUTSCHE LANDESBANK GIROZENTRALE, as a Lender By: /s/ RICHARD J. PEARSE -------------------------------- Title: Managing Director ----------------------------- By: /s/ ELISABETH R. WILDS -------------------------------- Title: Associate ----------------------------- 1211 Avenue of the Americas New York, NY 10036 Attention: Andreas Schroeter Telephone: 212-852-5949 Facsimile: 212-852-6307 Signature Page to Lafarge Corporation Credit Agreement dated as of December 8, 1998 60 67 SCHEDULE I COMMITMENTS
Lender Commitment ------ ---------- The First National Bank of Chicago $48,000,000 First Union National Bank 46,000,000 Wachovia Bank, N.A. 46,000,000 SunTrust Bank, Central Florida, N.A. 35,000,000 Bank of Montreal, Chicago Branch 25,000,000 Banque Nationale de Paris 25,000,000 Bayerische Landesbank Girozentrale, 25,000,000 Cayman Islands Branch Citibank, N.A. 25,000,000 Westdeutsche Landesbank Girozentrale 25,000,000 ------------ Total $300,000,000
61 68 SCHEDULE II PRICING SCHEDULE
APPLICABLE LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI MARGIN STATUS STATUS STATUS STATUS STATUS STATUS - ------------------------------------------------------------------------------------------- Eurodollar 0.145% 0.16% 0.175% 0.20% 0.275% 0.50% Rate - ------------------------------------------------------------------------------------------- Alternate 0% 0% 0% 0% 0% 0% Base - -------------------------------------------------------------------------------------------
APPLICABLE LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI MARGIN STATUS STATUS STATUS STATUS STATUS STATUS - ------------------------------------------------------------------------------------------- Facility 0.09% 0.10% 0.11% 0.125% 0.15% 0.20% Fee - ------------------------------------------------------------------------------------------- Utilization 0.05% 0.05% 0.075% 0.10% 0.125% 0.15% Fee - -------------------------------------------------------------------------------------------
For the purposes of this Schedule, the following terms have the following meanings, subject to the final paragraph of this Schedule: "LEVEL I STATUS" exists at any date if, on such date, the Company's Moody's Rating is A2 or better or the Company's S&P Rating is A or better. "LEVEL II STATUS" exists at any date if, on such date, (i) the Company has not qualified for Level I Status and (ii) the Company's Moody's Rating is A3 or better or the Company's S&P Rating is A- or better. "LEVEL III STATUS" exists at any date if, on such date, (i) the Company has not qualified for Level I Status or Level II Status and (ii) the Company's Moody's Rating is Baa1 or better or the Company's S&P Rating is BBB+ or better. "LEVEL IV STATUS" exists at any date if, on such date (i) the Company has not qualified for Level I Status, Level II Status or Level III Status and (ii) the Company's Moody's Rating is Baa2 or better or the Company's S&P Rating is BBB or better. 62 69 "LEVEL V STATUS" exists at any date if, or on such date, (i) the Company has not qualified for Level I Status, Level II Status, Level III Status or Level IV Status and (ii) the Company's Moody's Rating is Baa3 or better or the Company's S&P Rating is BBB- or better. "LEVEL VI STATUS" exists at any date if, on such date, the Company has not qualified for Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status. "MOODY'S RATING" means, at any time, the rating issued by Moody's Investors Service, Inc. and then in effect with respect to the Company's senior unsecured long-term debt securities without third-party credit enhancement. "S&P RATING" means, at any time, the rating issued by Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. and then in effect with respect to the Company's senior unsecured long-term debt securities without third-party credit enhancement. "STATUS" means either Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status or Level VI Status. The Applicable Margin and Applicable Fee Rate shall be determined in accordance with the foregoing table based on the Company's Status as determined from its then-current Moody's and S&P Ratings. The credit rating in effect on any date for the purposes of this Schedule is that in effect at the close of business on such date. If at any time the Company has no Moody's Rating or no S&P Rating, Level VI Status shall exist. If the Company is split-rated and the ratings differential is one level, the higher rating will apply. If the Company is split-rated and the ratings differential is two levels, the intermediate rating at the midpoint will apply. If the Company is split-rated and the ratings differential is more than two levels, the rating that is one level above the lowest rating will apply. 63 70 Schedule 5.8 LIST OF SIGNIFICANT SUBSIDIARIES
PERCENT OF JURISDICTION OF NAME OWNERSHIP INCORPORATION - --------------------------------- --------------- ----------------- Friday Harbor Sand and Gravel Co. 100% Washington International Atlantins Insurance 100% Vermont Company Lafarge Canada Inc. 100% Canada Lafarge Dakota Inc. 100% North Dakota Lafarge Florida Inc. 100% Florida Mineral Solutions Inc. 100% Delaware Systech Environmental Corporation 100% Delaware Redland Genstar Inc. 100% Delaware Redland Quarries (USA) Inc. 100% Delaware Redland Quarries NY Inc. 100% Delaware Redland Frontier Inc. 100% New York Western Mobile Inc. 100% Delaware Richvale York Block Inc. 61.8% Ontario Valley Rite-Mix Ltd. 100% British Columbia
64 71 Schedule 5.14 PERMITTED LIENS LAFARGE CORPORATION SUGAR CREEK PLANT, SUGAR CREEK, MO. Title to this plan has been conveyed to the City of Sugar Creek, which will hold title to the property and improvements for a period of 22 years pursuant to a local tax abatement procedure. Subsequently, title will revert to Lafarge Corporation. K & H CONCRETE (READY-MIX) LTD. (1) $600,000 Operating Line Secured By: $1,000,000 Fixed and Floating Charge General Security Agreement covering all assets of K & H Concrete (Ready-Mix) Ltd. in favor of the Royal Bank of Canada RICHVALE YORK BLOCK INC. (1) $4,000,000 Operating Line Secured By: $10,000,000 Fixed Charge Debenture General Security Agreement covering all assets of Richvale York Block Inc. in favor of the Royal Bank of Canada. PERIMETER CONCRETE LTD. (1) $1,250,000 Operating Line $ 12,000 Corporate Visa Expense Secured By: $2,000,000 Fixed Charge Debenture General Security Agreement covering all assets of Perimeter Concrete Ltd. in favor of the Royal Bank of Canada. WESTERN MOBILE INC. $1,000,000 Capitalized Lease Obligation for the Quivas Office Building which is leased by Western Mobile Inc. from Mr. Burt Boothby. - ----------- (1) All amounts in Canadian Dollars. 65 72 EXHIBIT A ASSIGNMENT AGREEMENT This Assignment Agreement (this "Assignment Agreement") between _____________________________________ (the "Assignor") and _____________________ (the "Assignee") is dated as of ____________, ____. The parties hereto agree as follows: 1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit Agreement (which, as it may be amended, modified, renewed or extended from time to time is herein called the "Credit Agreement") described in Item 1 of Schedule 1 attached hereto. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement. 2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement such that after giving effect to such assignment the Assignee shall have purchased pursuant to this Assignment Agreement the percentage interest specified in Item 3 of Schedule 1 of all outstanding rights and obligations under the Credit Agreement relating to the facilities listed in Item 3 of Schedule 1 and the other Loan Documents. The aggregate Commitment (or Loans, if the applicable Commitment has been terminated) purchased by the Assignee hereunder is set forth in Item 4 of Schedule 1. 3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the "Effective Date") shall be the later of the date specified in Item 5 of Schedule 1 or two Business Days (or such shorter period agreed to by the Agent) after a Notice of Assignment substantially in the form of Exhibit I attached hereto has been delivered to the Agent. Such Notice of Assignment must include any consents required to be delivered to the Agent by Section 12.3.1 of the Credit Agreement. In no event will the Effective Date occur if the payments required to be made by the Assignee to the Assignor on the Effective Date under Sections 4 and 5 hereof are not made on the proposed Effective Date. The Assignor will notify the Assignee of the proposed Effective Date no later than the Business Day prior to the proposed Effective Date. As of the Effective Date, (i) the Assignee shall have the rights and obligations of a Lender under the Loan Documents with respect to the rights and obligations assigned to the Assignee hereunder and (ii) the Assignor shall relinquish its rights and be released from its corresponding obligations under the Loan Documents with respect to the rights and obligations assigned to the Assignee hereunder. 4. PAYMENT OBLIGATIONS. On and after the Effective Date, the Assignee shall be entitled to receive from the Agent all payments of principal, interest and fees with respect to the interest assigned hereby. The Assignee shall advance funds directly to the Agent with respect to all Loans and reimbursement payments made on or after the Effective Date with respect to the interest assigned hereby. [In consideration for the sale and assignment of Loans hereunder, (i) the Assignee shall pay the Assignor, on the Effective Date, an amount equal to the principal amount of the portion of all Alternate Base Rate Loans assigned to the Assignee hereunder and (ii) with respect to each 66 73 Eurodollar Loan made by the Assignor and assigned to the Assignee hereunder which is outstanding on the Effective Date, (a) on the last day of the Interest Period therefor or (b) on such earlier date agreed to by the Assignor and the Assignee or (c) on the date on which any such Eurodollar Loan becomes due (by acceleration or otherwise)(the date as described in the foregoing clauses (a), (b) or (c) being hereinafter referred to as the "Payment Date"), the Assignee shall pay the Assignor an amount equal to the principal amount of the portion of such Eurodollar Loan assigned to the Assignee which is outstanding on the Payment Date. If the Assignor and the Assignee agree that the Payment Date for such Eurodollar Loan shall be the Effective Date, they shall agree to the interest rate applicable to the portion of such Loan assigned hereunder for the period from the Effective Date to the end of the existing Interest Period applicable to such Eurodollar Loan (the "Agreed Interest Rate") and any interest received by the Assignee in excess of the Agreed Interest Rate shall be remitted to the Assignor. In the event interest for the period from the Effective Date to but not including the Payment Date is not paid by the Company with respect to any Eurodollar Loan sold by the Assignor to the Assignee hereunder, the Assignee shall pay to the Assignor interest for such period on the portion of such Eurodollar Loan sold by the Assignor to the Assignee hereunder at the applicable rate provided by the Credit Agreement. In the event a prepayment of any Eurodollar Loan which is existing on the Payment Date and assigned by the Assignor to the Assignee hereunder occurs after the Payment Date but before the end of the Interest Period applicable to such Eurodollar Loan, the Assignee shall remit to the Assignor the excess of the prepayment penalty paid with respect to the portion of such Eurodollar Loan assigned to the Assignee hereunder over the amount which would have been paid if such prepayment penalty was calculated based on the Agreed Interest Rate. The Assignee will also promptly remit to the Assignor (i) any principal payments received from the Agent with respect to Eurodollar Loans prior to the Payment Date and (ii) any amounts of interest on Loans and fees received from the Agent which relate to the portion of the Loans assigned to the Assignee hereunder for periods prior to the Effective Date, in the case of Alternate Base Rate Loans or fees, or the Payment Date, in the case of Eurodollar Loans, and not previously paid by the Assignee to the Assignor.](1) In the event that either party hereto receives any payment to which the other party hereto is entitled under this Assignment Agreement, then the party receiving such amount shall promptly remit it to the other party hereto. 5. FEES PAYABLE BY THE ASSIGNEE. [The Assignee shall pay to the Assignor a fee on each day on which a payment of interest, facility fees or utilization fees is made under the Credit Agreement with respect to the amounts assigned to the Assignee hereunder (other than a payment of interest, facility fees or utilization fees for the period prior to the Effective Date or, in the case of Eurodollar Loans, the Payment Date, which the Assignee is obligated to deliver to the Assignor pursuant to Section 4 hereof). The amount of such fee shall be the difference between (i) the interest or fee, as applicable, paid with respect to the amounts assigned to the Assignee hereunder and (ii) the interest or fee, as applicable, which would have been paid with respect to the amounts assigned to the Assignee hereunder if each interest rate was of 1% less than the interest rate paid by the Company or if the facility fee was of 1% less than the facility fee paid by the Company or if the utilization fee was ___ of 1% less than the utilization fee paid by the Company, as applicable. In - --------------- (1) Each Assignor may insert its standard payment provisions in lieu of the payment terms included in this Exhibit. 67 74 addition,] the Assignee agrees to pay % of the recordation fee required to be paid to the Agent in connection with this Assignment Agreement. 6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S LIABILITY. The Assignor represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim created by the Assignor. It is understood and agreed that the assignment and assumption hereunder are made without recourse to the Assignor and that the Assignor makes no other representation or warranty of any kind to the Assignee. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys shall be responsible for (i) the due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of any Loan Document, including without limitation, documents granting the Assignor and the other Lenders a security interest in assets of the Company or any guarantor, (ii) any representation, warranty or statement made in or in connection with any of the Loan Documents, (iii) the financial condition or creditworthiness of the Company or any guarantor, (iv) the performance of or compliance with any of the terms or provisions of any of the Loan Documents, (v) inspecting any of the property, books or records of the Company, (vi) the validity, enforceability, perfection, priority, condition, value or sufficiency of any collateral securing or purporting to secure the Loans or (vii) any mistake, error of judgment, or action taken or omitted to be taken in connection with the Loans or the Loan Documents. 7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements requested by the Assignee and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information at it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, (iii) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto, (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender, (v) agrees that its payment instructions and notice instructions are as set forth in the attachment to Schedule 1, (vi) confirms that none of the funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are "plan assets" as defined under ERISA and that its rights, benefits and interests in and under the Loan Documents will not be "plan assets" under ERISA, [and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States certifying that the Assignee is entitled to receive payments under the Loan Documents without deduction or withholding of any United States federal income taxes].(2) - -------- (2) To be inserted if the Assignee is not incorporated under the laws of the United States, or a state thereof. 68 75 8. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor harmless against any and all losses, costs and expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee's non-performance of the obligations assumed under this Assignment Agreement. 9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall have the right pursuant to Section 12.3.1 of the Credit Agreement to assign the rights which are assigned to the Assignee hereunder to any entity or person, provided that (i) any such subsequent assignment does not violate any of the terms and conditions of the Loan Documents or any law, rule, regulation, order, writ, judgment, injunction or decree and that any consent required under the terms of the Loan Documents has been obtained and (ii) unless the prior written consent of the Assignor is obtained, the Assignee is not thereby released from its obligations to the Assignor hereunder, if any remain unsatisfied, including, without limitation, its obligations under Sections 4, 5 and 8 hereof. 10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the Aggregate Commitment occurs between the date of this Assignment Agreement and the Effective Date, the percentage interest specified in Item 3 of Schedule 1 shall remain the same, but the dollar amount purchased shall be recalculated based on the reduced Aggregate Commitment. 11. ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice of Assignment embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings between the parties hereto relating to the subject matter hereof. 12. GOVERNING LAW. This Assignment Agreement shall be governed by the internal law, and not the law of conflicts, of the State of Illinois. 13. NOTICES. Notices shall be given under this Assignment Agreement in the manner set forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until notice of a change is delivered) shall be the address set forth in the attachment to Schedule 1. 69 76 IN WITNESS WHEREOF, the parties hereto have executed this Assignment Agreement by their duly authorized officers as of the date first above written. [NAME OF ASSIGNOR] By: ------------------------------------ Title: --------------------------------- [NAME OF ASSIGNEE] By: ------------------------------------ Title: --------------------------------- 70 77 SCHEDULE 1 to Assignment Agreement 1. Description and Date of Credit Agreement: Credit Agreement dated as of December 8, 1998 among Lafarge Corporation, the financial institutions from time to time party thereto as lenders (the "Lenders") and The First National Bank of Chicago, as Administrative Agent for the Lenders (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"). 2. Date of Assignment Agreement: ____________, ____ 3. Amounts (As of Date of Item 2 above): a. Total of Commitments (Loans)(3) under Credit Agreement $ ------------ b. Assignee's Percentage of the facility purchased under the Assignment Agreement(4) % ------- c. Amount of Assigned Share in the facility purchased the Assignment Agreement $ ------------ 4. Assignee's Aggregate (Loan Amount)(3) Commitment Amount Purchased Hereunder: $ ------------ 5. Proposed Effective Date: --------------, ---- Accepted and Agreed: [NAME OF ASSIGNOR] [NAME OF ASSIGNEE] By: By: --------------------------- --------------------------- Title: Title: ------------------------ ------------------------ - --------------- (3) If a Commitment has been terminated, insert outstanding Loans in place of Commitment. (4) Percentage taken to 10 decimal places. 71 78 Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT ADMINISTRATIVE INFORMATION SHEET Attach Assignor's Administrative Information Sheet, which must include notice addresses for the Assignor and the Assignee 72 79 EXHIBIT I to Assignment Agreement NOTICE OF ASSIGNMENT [Date] To: [Lafarge Corporation 11130 Sunrise Valley Drive Suite 300 Reston, Virginia 20191](5) The First National Bank of Chicago, as Agent One First National Plaza Chicago, Illinois 60670 From: [NAME OF ASSIGNOR] (the "Assignor") [NAME OF ASSIGNEE] (the "Assignee") 1. We refer to that Credit Agreement (the "Credit Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement. 2. This Notice of Assignment (this "Notice") is given and delivered to [the Company and](5) the Agent pursuant to Section 12.3.2 of the Credit Agreement. 3. The Assignor and the Assignee have entered into an Assignment Agreement, dated as of __________________, ____ (the "Assignment"), pursuant to which, among other things, the Assignor has sold, assigned, delegated and transferred to the Assignee, and the Assignee has purchased, accepted and assumed from the Assignor the percentage interest specified in Item 3 of Schedule 1 of all outstandings, rights and obligations under the Credit Agreement relating to the facilities listed in Item 3 of Schedule 1. The Effective Date of the Assignment shall be the later of the date specified in Item 5 of Schedule 1 or two Business Days (or such shorter period as agreed to by the Agent) after this Notice of Assignment and any consents and fees required by Sections 12.3.1 and 12.3.2 of the Credit Agreement have been delivered to the Agent, provided that the Effective Date shall not occur if any condition precedent agreed to by the Assignor and the Assignee has not been satisfied. - ----------- (5) To be included only if consent must be obtained from the Company pursuant to Section 12.3.1 of the Credit Agreement. 73 80 4. The Assignor and the Assignee hereby give to the Company and the Agent notice of the assignment and delegation referred to herein. The Assignor will confer with the Agent before the date specified in Item 5 of Schedule 1 to determine if the Assignment Agreement will become effective on such date pursuant to Section 3 hereof, and will confer with the Agent to determine the Effective Date pursuant to Section 3 hereof if it occurs thereafter. The Assignor shall notify the Agent if the Assignment Agreement does not become effective on any proposed Effective Date as a result of the failure to satisfy the conditions precedent agreed to by the Assignor and the Assignee. At the request of the Agent, the Assignor will give the Agent written confirmation of the satisfaction of the conditions precedent. 5. The Assignor or the Assignee shall pay to the Agent on or before the Effective Date the processing fee of $3,500 required by Section 12.3.2 of the Credit Agreement. 6. If Notes are outstanding on the Effective Date, the Assignor and the Assignee request and direct that the Agent prepare and cause the Company to execute and deliver new Notes or, as appropriate, replacement notes, to the Assignor and the Assignee. The Assignor and, if applicable, the Assignee each agree to deliver to the Agent the original Note received by it from the Company upon its receipt of a new Note in the appropriate amount. 7. The Assignee advises the Agent that notice and payment instructions are set forth in the attachment to Schedule 1. 8. The Assignee hereby represents and warrants that none of the funds, monies, assets or other consideration being used to make the purchase pursuant to the Assignment are "plan assets" as defined under ERISA and that its rights, benefits, and interests in and under the Loan Documents will not be "plan assets" under ERISA. 9. The Assignee authorizes the Agent to act as its agent under the Loan Documents in accordance with the terms thereof. The Assignee acknowledges that the Agent has no duty to supply information with respect to the Company or the Loan Documents to the Assignee until the Assignee becomes a party to the Credit Agreement.(6) [NAME OF ASSIGNOR] [NAME OF ASSIGNEE] By: By: ----------------------------- ----------------------------- Title: Title: -------------------------- -------------------------- - ----------- (6) May be eliminated if Assignee is a party to the Credit Agreement prior to the Effective Date. 74 81 ACKNOWLEDGED AND [ACKNOWLEDGED AND CONSENTED TO: CONSENTED TO: THE FIRST NATIONAL BANK LAFARGE CORPORATION] OF CHICAGO, as Agent By: By: ------------------------------- -------------------------- Title: Title: ---------------------------- ----------------------- 75 82 [Attach photocopy of Schedule 1 to Assignment] 76 83 EXHIBIT B NOTE $ , -------------- ------------ - ---------- LAFARGE CORPORATION, a Maryland corporation (the "Company"), promises to pay to the order of ____________________________________ (the "Lender") the lesser of the principal sum of ______________________________ Dollars or the aggregate unpaid principal amount of all Loans made by the Lender to the Company pursuant to Article II of the Credit Agreement (as hereinafter defined), in immediately available funds at the main office of The First National Bank of Chicago in Chicago, Illinois, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Credit Agreement. The Company shall pay the principal of and accrued and unpaid interest on the Loans in full on the Termination Date. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Loan and the date and amount of each principal payment hereunder. This Note is one of the Notes issued pursuant to, and is entitled to the benefits of, the Credit Agreement dated as of December 8, 1998 (which, as it may be amended or modified and in effect from time to time, is herein called the "Credit Agreement"), among the Company, the lenders party thereto, including the Lender, and The First National Bank of Chicago, as Administrative Agent, to which Credit Agreement reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Credit Agreement. LAFARGE CORPORATION By: ---------------------------- Title: ------------------------- 77 84 SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO NOTE OF LAFARGE CORPORATION DATED ____________, ___ Principal Maturity Principal Amount of of Interest Amount Unpaid Date Loan Period Paid Balance - ------------------------------------------------------------------------- 78 85 EXHIBIT C OPINION OF DAVID C. JONES, VICE PRESIDENT - LEGAL AFFAIRS AND SECRETARY OF THE COMPANY [Date] To each of the Lenders party to the Credit Agreement referred to below and to The First National Bank of Chicago, as Agent Ladies and Gentlemen: As Vice President - Legal Affairs and Secretary for Lafarge Corporation, a Maryland corporation (the "Company"), I have acted as counsel for the Company in connection with the Credit Agreement dated as of December 8, 1998 (the "Credit Agreement") among the Company, the financial institutions from time to time party thereto as Lenders and The First National Bank of Chicago, as Administrative Agent. Unless otherwise defined herein, capitalized terms defined in the Credit Agreement are used herein as therein defined. I have reviewed a copy of the Credit Agreement and the Notes and have examined the Articles of Incorporation and by-laws of the Company and such other corporate records, certificates, agreements and other documents as I deemed necessary for the opinions hereinafter expressed. Based upon the foregoing and subject to the qualifications and exceptions hereinafter set forth, I am of the opinion that: 1. The Company is duly incorporated, validly existing and in good standing under the laws of the State of Maryland. 2. The Company is duly qualified to do business in the State of Maryland and is duly qualified as a foreign corporation in each of the jurisdictions set forth on Schedule 1 hereto, which jurisdictions, to the best of my knowledge, are all of the jurisdictions in which the Company has a significant business presence. 3. The execution, delivery and performance by the Company of the Credit Agreement and the Notes are within the Company's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene any provision of the Articles of Incorporation or by- 79 86 laws of the Company, or contravene or constitute a default under any provision of applicable law or regulation or, to the best of my knowledge, of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or, except as permitted by the Credit Agreement, result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries. 4. The Credit Agreement constitutes the valid and binding agreement of the Company and the Notes constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms except to the extent that enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and by equity principles (regardless of whether enforcement is sought in equity or at law). 5. Except as set forth in the Company's Forms 10-K and 10-Q as filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1997 and the fiscal quarter ended September 30, 1998, respectively, there is no action, suit or proceeding pending or, to the best of my knowledge, threatened against or affecting the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision that could have a Material Adverse Effect. The opinions expressed above are based in part upon the assumptions and are subject to the exceptions, limitations and qualifications set forth below: (a) The foregoing opinions are limited in all respects to the laws of the Commonwealth of Virginia and, to the extent applicable, the Annotated Code of Maryland, Corporations and Associations (without regard to case law), with respect to the State of Maryland. I am licensed to practice law in the Commonwealth of Virginia and I am not an expert on, and, except for applicable federal law and the Maryland law referred to above, have not in connection with this opinion made any investigation of, the laws of any other jurisdiction. Insofar as this opinion relates to matters of Illinois law, I have, with your permission, relied upon the opinion dated ______________ of Sidley & Austin, special Illinois counsel for the Agent, a copy of which opinion has been delivered to you. (b) In rendering the opinion set forth in paragraph 4 above, I have assumed that (i) the Agent and each of the Lenders is duly authorized to and has executed and delivered the Credit Agreement and (ii) upon the execution and delivery of the Credit Agreement by the Agent and each of the Lenders, such agreement will constitute the valid and binding obligation of each of such parties. (c) In rendering the opinion set forth in paragraph 2 above as to the Company's qualification to do business and good standing in each state listed on Schedule 1 hereto, I have relied solely upon certificates of public officials of such states dated as of ___________, 1998 together with a certificate of an officer of the Company dated the date hereof as to the Company's continued qualification to do business and good standing in such states. 80 87 (d) No opinion is expressed herein with respect to the securities laws of the United States or of any state or jurisdiction other than the Commonwealth of Virginia. (e) This opinion is limited to, and no opinion is implied or may be inferred beyond, the matters expressly stated herein. (f) This opinion is provided to you pursuant to Section 4.1 of the Credit Agreement and for no other purpose. This opinion is to be limited in its use to reliance by you in connection with the transactions contemplated by the Credit Agreement. In rendering their opinion referred to above, Sidley & Austin may rely on this opinion as if it were addressed to them. No other person or entity may rely upon any opinion set forth herein except with my prior written consent. Respectfully submitted, 81 88 SCHEDULE 1 STATES OF FOREIGN QUALIFICATION LAFARGE CORPORATION Illinois 1-28-88 Iowa 1-15-91 Kansas 1-22-88 Michigan 1-21-88 Missouri 1-17-91 Ohio 1-22-88 Pennsylvania 1-25-88 Washington 3-7-88 82 89 EXHIBIT D OPINION OF CANADIAN COUNSEL FOR LAFARGE CANADA, INC. [Date] To each of the Lenders party to the Credit Agreement referred to below and to The First National Bank of Chicago, as Agent Ladies and Gentlemen: As Director, Legal Services and Secretary of Lafarge Canada Inc., a Canadian corporation (the "Corporation"), I have acted as counsel for the Corporation in connection with the Credit Agreement dated as of December 8, 1998 (the "Credit Agreement"), among Lafarge Corporation, the financial institutions from time to time party thereto as Lenders and The First National Bank of Chicago, as Administrative Agent. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, extra-provincial licenses and other similar documents issued by governmental authorities and other documents, and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1) the Corporation is duly incorporated, validly existing and in good standing under the laws of Canada; and 2) the Corporation has all governmental licenses, authorizations, consents and approvals required to carry on its business and is in good standing in each province or other jurisdiction in which the nature of its business or properties requires such qualification, except for those provinces or jurisdictions in which the failure to be so qualified or be in good standing could not reasonably be expected to have a Material Adverse Effect (as defined in the Credit Agreement). In rendering this opinion, I am not purporting to opine as to any laws other than the laws of the Province of Quebec and the federal laws of Canada applicable therein in effect on the date hereof. 83 90 This opinion is provided to you pursuant to Section 4.1 of the Credit Agreement and for no other purpose. This opinion is to be limited and to be used in reliance by you in connection with the transactions contemplated by the Credit Agreement. No other person or entity may rely upon any opinion set forth herein except with my prior written consent. Very truly yours, ------------------------------ Alain Fredette Director, Legal Services and Secretary 84 91 EXHIBIT E OPINION OF SIDLEY & AUSTIN COUNSEL TO THE AGENT [Date] To each of the Lenders party to the Credit Agreement referred to below and to The First National Bank of Chicago, as Agent Re: Lafarge Corporation Ladies and Gentlemen: We have acted as counsel to The First National Bank of Chicago, as Administrative Agent, in connection with that certain Credit Agreement, dated as of December 8, 1998 (the "Credit Agreement"), among Lafarge Corporation, a Maryland corporation (the "Company"), the financial institutions from time to time party thereto as Lenders and The First National Bank of Chicago, as Administrative Agent. Capitalized terms used herein and not otherwise defined are used as defined in the Credit Agreement. In connection with this opinion, we have examined and relied upon originals or copies, certified or otherwise, of the following documents: (a) the Credit Agreement; (b) [the Notes]; and (c) the opinion of even date herewith of David C. Jones, Vice President - Legal Affairs and Secretary of the Company (the "Opinion"). In our examination of the Credit Agreement [and the Notes], we have assumed the authenticity of all such documents submitted to us as originals, the conformity to authentic originals of all such documents submitted to us as copies, the genuineness of all signatures, the due authorization, execution and delivery by each of the parties executing such documents and such other legal and factual assumptions as are described in the Opinion. We have also assumed the accuracy of the legal conclusions set forth in the Opinion, except as to the matters on which we expressly opine below. We have further assumed that the execution, delivery and performance of the Credit Agreement [and 85 92 the Notes] by the Company (i) do not require any action by any governmental agency or private party except for those which have been obtained, (ii) do not violate any provision of law applicable to the and (iii) do not conflict with, result in a breach of or constitute a default under any indenture, agreement, or other instrument to which the Company or any of its Subsidiaries is a party or by which any of them is bound. Based upon the foregoing assumptions and examination of documents and upon such investigation as we have deemed necessary, and subject to the qualifications set forth in subparagraphs (a) through (d) below, we are of the opinion as of the date hereof that the Credit Agreement [and the Notes] constitute[s] the legal, valid and binding obligation[s] of the Company enforceable against the Company in accordance with [its] [their respective] terms. Our opinion is expressly qualified as follows: (a) Our opinion is subject to the effect of applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and other laws affecting creditors' rights generally and to the effect of general equitable principles (whether considered in a proceeding in equity or at law). In applying such principles, a court, among other things, might not allow a creditor to accelerate maturity of a debt upon the occurrence of a default deemed immaterial or for non-credit reasons or might decline to order a debtor to perform covenants. Such principles applied by a court might include a requirement that a creditor act with reasonableness and in good faith. Furthermore, a court may refuse to enforce a covenant or any provision providing for indemnification if and to the extent that it deems such covenant or indemnification provision to be violative of applicable public policy. (b) We render no opinion with respect to the enforceability of Section 12.2.3 of the Credit Agreement. (c) Our opinions expressed are limited to the law of the State of Illinois and the federal laws of the United States, and we do not express any opinion herein concerning any other laws. (d) We express no opinion as to the effect of the compliance or noncompliance by the Agent or any of the Lenders with any federal or state laws or regulations applicable to the Agent or any of the Lenders because of any such entity's legal or regulatory status or the nature of such entity's business or requiring the Agent or any of the Lenders to qualify to conduct business in any jurisdiction. In rendering the Opinion, David C. Jones, Vice President - Legal Affairs and Secretary of the Company, may rely on this opinion as if it were addressed to him. The opinions expressed herein are being delivered to you as of the date hereof and are solely for your benefit in connection with the transactions contemplated in the Credit Agreement and, 86 93 except as set forth above, may not be relied on in any manner or for any purpose by any other person, nor any copies published, communicated or otherwise made available in whole or in part to any other person or entity without our express prior written consent, except that you may furnish copies thereof (1) to any party that becomes a Lender after the date hereof pursuant to the Credit Agreement and to a prospective assignee of the Loans, (2) to your independent auditors and attorneys, (3) upon the request of any state or federal authority or official having regulatory jurisdiction over you, and (4) pursuant to order or legal process of any court or governmental agency or in any legal proceedings involving the Credit Agreement or this opinion. We do not express any opinion, either implicitly or otherwise, on any issue not expressly addressed above. The opinions expressed above are based solely on factual matters in existence as of the date hereof and laws and regulations in effect on the date hereof. We assume no obligation to revise or supplement this opinion should such factual matters change or should such laws or regulations be changed by legislative or regulatory action, judicial decision or otherwise. Very truly yours, 87 94 EXHIBIT F LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION To The First National Bank of Chicago, as Administrative Agent (the "Agent") under the Credit Agreement described below Re: Credit Agreement dated as of December 8, 1998 (as the same may be amended or modified, the "Credit Agreement"), among Lafarge Corporation (the "Company"), the Lenders named therein and the Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement. The Agent is specifically authorized and directed to act upon the following standing money transfer instructions with respect to the proceeds of Advances or other extensions of credit from time to time until receipt by the Agent of a specific written revocation of such instructions by the Company, provided, however, that the Agent may otherwise transfer funds as hereafter directed in writing by the Company in accordance with Section 13.1 of the Credit Agreement or based on any telephonic notice made in accordance with Section 2.14 of the Credit Agreement. Facility Identification Number(s) --------------------------------------- Customer/Account Name --------------------------------------------------- Transfer Funds To ------------------------------------------------------- For Account No. --------------------------------------------------------- Reference/Attention To -------------------------------------------------- Authorized Officer (Customer Representative) Date ------------- - --------------------------------- ------------------------------------ (Please Print) Signature 88 95 Bank Officer Name Date ----------------------------- - --------------------------------- ---------------------------------- (Please Print) Signature (Deliver Completed Form to Credit Support Staff For Immediate Processing) 89 96 EXHIBIT G COMPLIANCE CERTIFICATE To: The Lenders party to the Credit Agreement described below This Compliance Certificate (this "Certificate") is furnished pursuant to that certain Credit Agreement dated as of December 8, 1998 among Lafarge Corporation, the Lenders and The First National Bank of Chicago, as Administrative Agent (as the same may be amended and in effect from time to time, the "Credit Agreement"). Unless otherwise defined herein, capitalized terms used in this Certificate have the meanings ascribed thereto in the Credit Agreement. THE UNDERSIGNED HEREBY CERTIFIES THAT: 1. I am the duly elected or appointed ___________ of the Company; 2. I have reviewed the terms of the Credit Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Company and its Consolidated Subsidiaries during the accounting period covered by the attached financial statements; 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or Unmatured Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below; and 4. Schedule I attached hereto sets forth financial data and computations evidencing the Company's compliance with Sections 6.14 and 6.15 of the Agreement, all of which data and computations are true, complete and correct. 90 97 Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Company has taken, is taking, or proposes to take with respect to each such condition or event: ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this ____ day of ____________, _____. -------------------------- 91 98 [SAMPLE] SCHEDULE I TO COMPLIANCE CERTIFICATE Schedule of Compliance as of ___________, ____with Provisions of Sections 6.14 and 6.15 of of the Credit Agreement A. Leverage Ratio (Section 6.14). 1. Consolidated Total Debt $ ------------ 2. Consolidated Net Worth $ ------------ 3. Total Capitalization $ (Consolidated Debt +Consolidated Net Worth) ------------ 4. Ratio of Line 1 to Line 3 % (may not exceed 50%) ------- B. Interest Coverage Ratio (Section 6.15) 1. Consolidated EBITDA for 12 month period $ (pre-tax income (loss) + interest expense, ------------ net of interest income + depreciation, depletion and amortization) 2. Consolidated Interest Expense $ ------------ 3. Ratio of Line 1 to Line 2 to 1.00 (may not be less than 3.00 to 1.00) ----- 92 EX-10.26 4 NONEMPLOYEE DIRECTOR RETIREMENT PLAN, AS AMENDED 1 Exhibit 10.26 LAFARGE CORPORATION NONEMPLOYEE DIRECTOR RETIREMENT PLAN, AS AMENDED 1. Effective Date. The effective date of the Plan shall be January 1, 1989. 2. Eligibility. All members of the Board of Directors of Lafarge Corporation who are not employees of Lafarge Corporation or any wholly-owned or majority-owned subsidiary of Lafarge Corporation, and who meet all other eligibility requirements set forth in the Plan, shall be entitled to receive the benefits specified in the Plan. 3. (a) Normal Retirement. A director who is 70 years of age or older (or, with the approval of the Board Governance Committee of the Board, between the ages of 65 and 69, inclusive) and has seven or more years of Credited Service (as described below) at the date of retirement shall receive U.S. $15,000 per year for the remainder of his/her life, and his/her surviving spouse, if any, shall receive a survivor's benefit of U.S. $7,500 per year for the remainder of her/his life following such director's death. (b) Early Retirement. A director who does not meet the requirements of paragraph (a) above but who is 55 years of age or older and has three or more years of Credited Service at the date of retirement shall receive U.S. $15,000 per year for a period of time equal to his/her Credited Service at the date of retirement and, in the event of his/her death prior to the end of such period, his/her surviving spouse, if any, shall receive a survivor's benefit of U.S. $7,500 per year for the balance of such period (or until such spouse's death, if earlier). (c) Survivor's Benefits Following Death in Office. If a director who meets the requirements of paragraph (a) or (b) above dies in office, his/her surviving spouse, if any, shall receive the survivor's benefit described in the applicable paragraph beginning as of the date of such director's death. (d) Pension Increase. Pension and survivor's benefit amounts described in paragraphs (a), (b), and (c) above shall be increased to $20,000 and $10,000, respectively, for eligible directors who retire or die in office on or after August 1, 1998. 4. Credited Service. The number of years of Credited Service under the Plan for each Nonemployee Director shall be determined at the date of his/her retirement as a director of Lafarge Corporation or his/her death while in office and shall equal the number of full years that he/she has served (including service prior to the effective date of the Plan), without interruption, as a director of Lafarge Corporation and/or General Portland Inc., formerly a Delaware corporation and wholly-owned subsidiary of the Corporation, and/or Lafarge Canada Inc. 2 (formerly Canada Cement Lafarge Ltd.), a Canadian corporation and a wholly-owned subsidiary of the Corporation, provided, however, that if a Nonemployee Director was at any time an employee of Lafarge Corporation or any wholly-owned or majority-owned subsidiary of Lafarge Corporation, the number of years of Credited Service under the Plan for such Nonemployee Director shall include only the period of time beginning after the date on which he/she ceased to be such an employee. 5. Payment of Benefits. The obligation of Lafarge Corporation to pay benefits in accordance with the Plan shall be a general obligation of the Corporation and shall not be funded in advance. EX-11 5 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 LAFARGE CORPORATION AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON EQUITY SHARE (Unaudited and in thousands except per share amounts)
Years Ended December 31 --------------------------------------------------- 1998 1997 1996 --------------------------------------------------- Basic Calculation Net income applicable to common equity shareholders $ 235,500 $ 181,976 $ 140,866 =================================================== Weighted average number of common equity shares outstanding 72,071 71,128 69,783 =================================================== Basic net income per common equity share $ 3.27 $ 2.56 $ 2.02 =================================================== Diluted Calculation Net income $ 235,500 $ 181,976 $ 140,866 Add after tax interest expense applicable to 7% Convertible Debentures - - 4,153 =================================================== Net income assuming Dilution $ 235,500 $ 181,976 $ 145,019 =================================================== Weighted average number of common equity shares outstanding 72,071 71,128 69,783 Net effect of dilutive stock options based on the treasury stock method 594 567 309 Add additional shares assuming conversion of 7% Convertible Debentures - - 4,285 --------------------------------------------------- Weighted average number of common equity shares assuming full conversion of all potentially dilutive securities 72,665 71,695 74,377 =================================================== Diluted net income per common equity share $ 3.24 $ 2.54 $ 1.95 ===================================================
EX-21 6 MAJOR SUBSIDAIARES OF LAFARGE CORPORATION 1 Exhibit 21 MAJOR SUBSIDIARIES OF LAFARGE CORPORATION The following indicates the corporate names (and all other significant names, if any, under which business is conducted) and jurisdictions of incorporation of the subsidiaries of Lafarge Corporation, all of which are wholly owned or majority owned. Indirect subsidiaries of Lafarge Corporation are indented and listed following their direct parent corporations. Jurisdiction Name(s) of Incorporation - -------------------------------- ---------------- American Transport Leasing, Inc. Delaware Cement Transport, Ltd. North Dakota Friday Harbor Sand & Gravel Co. Washington International Atlantins Insurance Company Vermont Lafarge Dakota Inc. North Dakota Lafarge Florida Inc. Florida Mineral Solutions Inc. Delaware Mountain Prairie Insurance Company, Inc. Vermont Systech Environmental Corporation Delaware Tews Company Delaware Redland, Inc. Delaware Redland Genstar, Inc. Delaware Redland Quarries NY Inc. Delaware Western Mobile, Inc. Delaware Lafarge Canada Inc. Canada International Atlantins Agencies Inc. British Columbia Johnson Concrete & Material Ltd. Saskatchewan Lafarge Gypsum Canada Inc. Newfoundland Logan Paving Ltd. New Brunswick Lulu Transport Inc. British Columbia Mitchell Park Ash Ltd. Ontario N C Rubber Products Inc. Ontario National Slag Limited Ontario Quality Ready-Mix Limited Ontario Re-Wa Holdings Ltd. Alberta Richvale York Block Inc. Ontario Les sablieres Forestville Inc. Quebec Valley Rite-Mix Ltd. British Columbia W.M. Rogers Custom Mobile Concrete Ltd. Ontario Lafarge Corporation also does business under the following names: Florida Portland Cement Company, Lafarge Construction Materials, Lafarge Gypsum, Mobile Premix Concrete, Inc., Redland Frontier, Inc., Trinity Portland Cement Company, Western-Mobile Northern, Inc., Western Mobile Southern, Inc., Western-Mobile New Mexico, Inc., Western Mobile Santa Fe, Inc. Lafarge Canada Inc. also does business under the following names: Alberta Concrete Products, Apex Gravel, Bestpipe, Canada Concrete, Capital Concrete, Challenge Concrete, Champion Concrete, Cinq Concrete, Coldstream Concrete, Columbia Concrete, Conmac Western Industries, Consolidated Sand & Gravel Company, Construction Chemicals, Country Building Supplies, Crown Equipment, Crown Paving and Engineering, Duracon, Forbes Ready Mix, Francon-Lafarge, Guelph Sand and Gravel, Great Lakes Flyash, High River Concrete, Johnston Ready Mix, Lafarge Concrete, Lafarge Construction Materials, Lethbridge Concrete Products, Manitoulin Precast, Maritime Cement, Nelson Aggregate Co., O.K. Construction Materials, Permanent-Lafarge, Red-D-Mix Block, Richvale - McCord, Richvale - York, Rocky Mountain Precast, Spartan Explosives, Standard Aggregates, Standard Asphalt, Supercrete, Trans-Alta Flyash. Information regarding 63 additional subsidiaries of the Registrant has been omitted because such subsidiaries, considered in the aggregate as a single subsidiary, do not constitute a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X [17 CFR 210.1-02(w)]. EX-23 7 CONSENT OF PUBLIC ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the following Registration Statements of Lafarge Corporation previously filed with the Securities and Exchange Commission: (i) Registration Statement on Form S-8, File No. 2-92414, (ii) Registration Statement on Form S-8, File No. 33-9813, (iii) Registration Statement on Form S-8, File No. 33-32645, (iv) Registration Statement on Form S-3, File No. 33-32644 (which also constitutes Post-Effective Amendment No. 6 to Registration Statement on Form S-1, File No. 2-82548), (v) Registration Statement on Form S-8, File No. 33-20865, (vi) Registration Statement on Form S-3, File No. 33-46093 (which also constitutes Post-Effective Amendment No. 7 of Registration Statement on Form S-1, File No. 2-82548), (vii) Registration Statement on Form S-8, File No. 33-51873, (viii) Registration Statement on Form S-8, File No. 333-65897, (ix) Registration Statement on Form S-8, File No. 333-65899, and (x) Registration Statement on Form S-3, File No. 333-57333. ARTHUR ANDERSEN LLP Washington, D.C. March 26, 1999 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 271,138 17,070 363,080 (27,851) 247,944 937,891 2,549,672 1,148,919 2,904,797 414,977 751,151 0 0 775,739 639,435 2,904,797 2,448,205 2,448,205 1,798,986 1,798,986 25,343 0 47,652 379,824 144,324 235,500 0 0 0 235,500 3.27 3.24
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