August 13, 2001

 

Via Fax and Certified Mail

 

SEC Division of Enforcement

Enforcement Complaint Center

450 Fifth St. N.W.

Washington, D.C. 20549-0710

 

Re: background information and a complaint against CEMEX, S.A. de C.V. Ave. Constitucion 444 Pte. Monterrey, Nuevo Leon, Mexico 64000(CX on the NYSE).

 

Background

 

The Green Environmental Coalition (Coalition) is a non-profit environmental advocacy organization based in Yellow Springs, Ohio.  The Coalition educates public officials about policy related to environmental matters and closely monitors air and water emissions from various industrial facilities in Ohio.

 

The Coalition owned shares of Southdown Corporation (SDW) until the company was purchased by CEMEX Corporation (CX) in November of 2000. The Coalition now owns shares in CEMEX*.

 

Southdown/Cemex (Company) operates an industrial facility in Fairborn, Ohio, which is closely monitored by the Coalition. The Coalition discovered a 500 acre site owned by the company that contained a 175 acre industrial landfill which was discharging leachate from a waste product known as Cement Kiln Dust (CKD) directly into a stream.  The site is known as Landfill 1.

 

In 1993 the Coalition filed suit in Federal Court charging the Company with discharging pollution into the waters of the state without a permit.  The case lingered in the court without resolution as a result of numerous stays granted to the Company.  In September, 1997, the Company transferred title to the 500 acre property to two recently formed corporations for approximately $50 per acre.

 

In Southdown's September 30, 1997 10Q the company states "the company sold the property that is the subject of these lawsuits to independent third parties. The property was sold "as is where is" and the company assumed no obligations to remediate the property…The company intends to move the Court for a dismissal of the GEC case based on the recent transaction."  The Company has not listed this potential liability in reports to the SEC since the September, 1997 10Q.

 

The Judge in the Federal Court did not agree with the Company's proposed dismissal, nor with the numerous motions for summary judgment that followed.  The court has repeatedly held that Southdown/Cemex may have transferred title to the land, but the company may be subject to civil penalties for violation of the Clean Water Act. 

 

Recently, the Company again asked the Judge to reconsider his opinion and release them from liability under the Clean Water Act.  On August 9th, just 4 days before the trial is to begin, the Judge again ruled that the company may be liable for penalties under the Clean Water Act and refused to release Southdown from the case.

 

Because of the grievous nature of the contamination and the Company's attempt to circumvent Federal Law, the Coalition has asked the Court to impose the maximum penalty of $25,000 per day for every day the pollution occurs from the date of filing in 1993.  This number now exceeds 73 million dollars, and would have a serious impact on the Company's annual earnings.

 

Complaint

 

Southdown failed to properly report this potential liability when CEMEX tendered its offer to purchase the outstanding shares of Southdown.  In addition, CEMEX failed to conduct due diligence prior to its offer.  The result is that CEMEX has misled its shareholders and transferred the potential liability to the shareholders without properly informing them prior to the acquisition of Southdown.

 

Cemex reported in Form 20-F for period ending December 31, 2000 that "Cemex does not believe it will be required to spend significantly more than the amounts already recorded in our consolidated financial statements included elsewhere in this annual report."  The report does not list any significant environmental liabilities.

 

In the tender offer CEMEX reports on both due diligence and the company's bid for Southdown (emphasis is added - Zambrano is CEO of CEMEX, Comer was CEO of Southdown).

 

"During this meeting Mr. Zambrano agreed that CEMEX would be interested in pursuing the acquisition of the Company in the range of U.S.$70 to U.S.$72 per Share. Subsequently, representatives of CEMEX visited the Company's manufacturing facilities and conducted additional in-depth financial, environmental and operations due diligence."

 

"In early September, Mr. Zambrano reviewed with Mr. Comer the preliminary results of CEMEX's due diligence investigation and potential financing discussions. Mr. Zambrano told Mr. Comer that he was encouraged by the progress of both and believed that CEMEX would be in a position to make a definitive acquisition proposal earlier than had been planned. Messrs. Zambrano and Comer agreed that it would be appropriate to begin discussions concerning the form the necessary merger agreement would take in the event that CEMEX made, and the Company accepted, an acquisition proposal. These discussions began soon thereafter and continued through the time of execution of the Merger Agreement."

 

 

Cemex fails to report the potential liability on form 10Q for the period ending June 30, 2000 in the section discussing environmental liabilities.  This section reports on Cement Kiln Dust (CKD).  While the report mentions CKD landfills in Michigan, it does not mention any of the Fairborn landfills (Landfill#1 or Landfill#6, which is now subject to OEPA orders that will cost the company millions).  This is the only mention of potential liability from CKD landfills in any current SEC reports.
 
"Cement Kiln Dust -- Cement manufacturing plants, depending on their process design, raw materials characteristics, product specifications and other factors, may generate a low toxicity by-product known as cement kiln dust or CKD. Most manufacturing plants in the industry typically disposed of CKD in and around their plant sites since the inception of cement manufacturing operations. If CKD comes into contact with water, liquid that leaches out may have an alkalinity level high enough to be classified as hazardous waste, if discarded. CKD in contact with water may also leach out trace amounts of certain hazardous metals if they are present. CKD is currently not regulated as a hazardous waste, but on August 20, 1999, EPA published a proposed rule addressing CKD management standards. As proposed, these CKD standards may require the cement industry to adopt more stringent management, monitoring and recordkeeping practices for this material. No final action is scheduled in this rulemaking until 2001. If a final rule is adopted, it could be substantially different from that initially proposed."
 
"The Company has been investigating potential contamination from several CKD piles at its cement plant in Michigan. On March 1, 2000, the Michigan Department of Environmental Quality confirmed that the parties had agreed in principle to a remediation plan. The parties are continuing to negotiate the terms of a consent order, which would incorporate the terms of the remediation plan, among other things. Management believes, based on current information, that the reserves previously accrued on the books of the Company are adequate to cover the estimated cost of remediation and penalty payments. However, it is possible that the ultimate remediation costs will be greater than current estimates."

 

 

Resources

 

Detailed information regarding the extent of the contamination and details about the litigation can be found at http://www.LANDFILL1.com 

 

 

 

Contact Information

 

Green Environmental Coalition

PO Box 266

Yellow Springs, OH 45387

 

(937) 767 2109

info@greenlink.org

 

 

* held by TD Waterhouse Investment Services Inc.