building a STRONGER foundation - Cemex

The November 2001 Voluntary Exchange Program
In November 2001, we implemented a voluntary exchange program to offer participants in our ESOP new options in exchange
for their existing options. The new options had an escalating strike price in Dollars at a 7% annual rate, while the old options had a
fixed strike price in Pesos. As of December 31, 2010, considering the options granted under the program, the exercise of options
through that date, the result of the February 2004 exchange program described below and the 2004 voluntary early exercise program,
options to acquire 7,119,529 CPOs remained outstanding under this program, with a weighted average exercise price of approximately
U.S.$1.52 per CPO. As of December 31, 2010, the outstanding options under this program had a remaining tenure of approximately
1.3 years. Exercise prices and the number of underlying CPOs are technically adjusted for the dilutive effect of stock dividends and
recapitalization of retained earnings.
The February 2004 Voluntary Exchange Program
In February 2004, we implemented a voluntary exchange program to offer ESOP participants, as well as holders of options
granted under our existing voluntary employee stock option plan, or VESOP, new options in exchange for their existing options. The
strike price of the new options increased annually at a 7% rate. Holders of these options were entitled to receive an annual payment of
U.S.$0.10 net of taxes per option outstanding as of the payment date until exercise or maturity of the options, which was scheduled to
grow annually at a 10% rate. Exercise prices and the number of underlying CPOs were technically adjusted for the dilutive effect of
stock dividends and recapitalization of retained earnings.
The new options were automatically exercised when the closing CPO market price reached U.S.$7.50. Any gain realized
through the exercise of these options was required to be invested in restricted CPOs at a 20% discount to market. The restrictions
would be removed gradually within a period of between two and four years, depending on the exercise date.
As a result of the voluntary exchange offer, 122,708,146 new options were issued in exchange for 114,121,358 existing options,
which were subsequently cancelled. All options not exchanged in the offer maintained their existing terms and conditions.
On January 17, 2005, the closing CPO market price reached U.S.$7.50 and, as a result, all existing options under this program
were automatically exercised. Holders of these options received the corresponding gain in restricted CPOs, as described above.
The 2004 Voluntary Early Exercise Program
In December 2004, we offered ESOP and VESOP participants new options, conditioned on the participants exercising and
receiving the intrinsic value of their existing options. As a result of this program, 120,827,370 options from the February 2004
voluntary exchange program, 16,580,004 options from other ESOPs, and 399,848 options from VESOP programs were exercised, and
we granted a total of 139,151,236 new options. The new options had an initial strike price of U.S.$7.4661 per CPO, which was
U.S.$0.50 above the closing CPO market price on the date on which the old options were exercised, and which increased at a rate of
5.5% per annum. All gains from the exercise of these new options would be paid in restricted CPOs. The restrictions would be
removed gradually within a period of between two and four years, depending on the exercise date.
Of the 139,151,236 new options, 120,827,370 would be automatically exercised if the closing CPO market price reached
U.S.$8.50, while the remaining 18,323,866 options did not have an automatic exercise threshold. Holders of these options were
entitled to receive an annual payment of U.S.$0.10 net of taxes per option outstanding as of the payment date until exercise or
maturity of the options or until the closing CPO market price reached U.S.$8.50, which payment was scheduled to grow annually at a
10% rate.
On June 17, 2005, the closing CPO market price reached U.S.$8.50, and, as a result, all outstanding options subject to automatic
exercise were automatically exercised and the annual payment to which holders of the remaining options were entitled was terminated.
As of December 31, 2010, options to acquire 70,481,496 CPOs remained outstanding under this program, with an exercise price of
approximately U.S.$2.00 per CPO and a remaining tenure of approximately 1.5 years.
For accounting purposes under MFRS and U.S. GAAP, as of December 31, 2010, we accounted for the options granted under
the February 2004 voluntary exchange program by means of the fair value method through earnings. See notes 2T and 17 to our
consolidated financial statements included elsewhere in this annual report.
138