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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____ to _____
Commission file number 1-12091
MILLENNIUM CHEMICALS INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3436215
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
230 Half Mile Road
Red Bank, New Jersey 07701
(Address of principal executive offices)
732-933-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 77,665,208 shares of Common
Stock, par value $.01 per share, as of November 4, 1998.
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<PAGE>
MILLENNIUM CHEMICALS INC.
Table of Contents
Part 1
Item 1 Financial Statements........................................ 2
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 16
Part II
Item 6 Exhibits and Reports on Form 8-K............................ 22
Signature ......................................................... 23
Disclosure Concerning Forward-Looking Statements
All statements, other than statements of historical fact, included in this
Quarterly Report are, or may be deemed to be, forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934. Important
factors that could cause actual results to differ materially from those
discussed in such forward-looking statements ("Cautionary Statements") include:
material changes in the relationship between industry production capacity and
operating rates on the one hand, and demand for the products of Millennium
Chemicals Inc. (the "Company") and Equistar Chemicals, LP ("Equistar"),
including ethylene, polyethylene and titanium dioxide, on the other hand; the
economic trends in the United States and other countries which serve as the
Company's and Equistar's marketplaces; customer inventory levels; competitive
pricing pressures; the cost and availability of the Company's and Equistar's
feedstocks and other raw materials, including natural gas, ethylene and other
petroleum products; operating interruptions (including leaks, explosions, fires,
mechanical failures, unscheduled downtime, transportation interruptions, spills,
releases and other environmental risks); competitive technology positions;
failure to achieve the Company's and Equistar's productivity improvement and
cost reduction targets or to complete construction projects on schedule;
difficulties in completing remediation of Year 2000 issues by the Company,
Equistar, their suppliers or their customers; and other unforeseen
circumstances. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on behalf of the Company are
expressly qualified in their entirety by such Cautionary Statements.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
MILLENNIUM CHEMICALS INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
September 30, December 31,
1998 1997
--------------- -------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 118 $ 64
Trade receivables, net 259 369
Inventories 330 273
Other current assets 110 130
--------------- -------------
Total current assets 817 836
Property, plant and equipment, net 1,076 851
Investment in Equistar 1,537 1,934
Other assets 228 237
Goodwill 458 468
--------------- -------------
Total assets $ 4,116 $ 4,326
=============== =============
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt $ 21 $ 20
Trade accounts payable 113 86
Income taxes payable 5 12
Accrued expenses and other liabilities 253 323
--------------- -------------
Total current liabilities 392 441
Long-term debt 1,010 1,327
Deferred income taxes 344 280
Other liabilities 807 814
--------------- -------------
Total liabilities 2,553 2,862
--------------- -------------
Minority interest 12 -
Shareholders' equity:
Preferred stock (par value $.01 per
share,authorized 25,000,000 shares,
none issued and outstanding) - -
Common stock (par value $.01 per
share, authorized 225,000,000 shares;
issued and outstanding 77,595,293
shares in 1998 and 77,276,942 shares
in 1997) 1 1
Paid in capital 1,331 1,334
Retained earnings 267 177
Unearned restricted share (36) (42)
Cumulative translation adjustment (12) (6)
Treasury stock at cost (249,117 shares
in 1998) (7) -
Deferred compensation 7
--------------- -------------
Total shareholders' equity 1,551 1,464
--------------- -------------
Total liabilities and shareholders'
equity $ 4,116 $ 4,326
=============== =============
See Notes to Consolidated Financial Statements
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 408 $ 816 $ 1,215 $ 2,423
Operating costs and expenses
Cost of products sold 283 546 847 1,741
Depreciation and amortization 27 54 74 160
Selling, development and
administrative expense 40 59 112 167
------------- ------------- ------------- -------------
Operating income 58 157 182 355
Interest expense (19) (32) (57) (102)
Interest income 1 1 3 7
Equity in earnings of Equistar 3 - 58 -
Other income, net 7 1 18 45
------------- ------------- ------------- -------------
Income from continuing operations before
provision for income taxes and minority
interest 50 127 204 305
Provision for income taxes (17) (57) (79) (133)
------------- ------------- ------------- -------------
Income from continuing operations
before minority interest 33 70 125 172
Minority interest (1) - (1) -
------------- ------------- ------------- -------------
Income from continuing operations 32 70 124 172
Discontinued operations (net of
income tax) - (3) 1 (3)
------------- ------------- ------------- -------------
Net income $ 32 $ 67 $ 125 $ 169
============= ============= ============= =============
Income per share from
continuing operations - basic $ 0.43 $ 0.94 $ 1.65 $ 2.31
============= ============= ============= =============
Income per share from
continuing operations - diluted $ 0.42 $ 0.94 $ 1.65 $ 2.31
============= ============= ============= =============
Net income per share - basic $ 0.43 $ 0.90 $ 1.66 $ 2.27
============= ============= ============= =============
Net income per share - diluted $ 0.42 $ 0.90 $ 1.65 $ 2.27
============= ============= ============= =============
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
Nine Months Ended
September 30,
1998 1997
------------- -------------
(Unaudited)
Cash flows from operating activities
Income from continuing operations $ 124 $ 172
Adjustments to reconcile income to
net cash provided by operating
activities
Depreciation and amortization 74 160
Provision for deferred income taxes 52 97
Restricted stock amortization 3 8
Equity earnings (51) -
Minority interest 1 -
Changes in assets and liabilities net of
acquisitions
Decrease (increase) in trade receivables 12 (54)
(Increase) decrease in inventories (34) 27
Decrease in other current assets 1 29
Decrease in investments and other assets 11 56
Increase (decrease) in trade accounts payable 13 (38)
Decrease in accrued expenses and
other liabilities and income taxes payable (19) (51)
Decrease in other liabilities (40) (68)
------------- -------------
Cash provided by operating activities 147 338
------------- -------------
Cash flows from investing activities
Capital expenditures (150) (116)
Distributions from Equistar 317 -
Tibras acquisition - net of cash (85)
Proceeds from sale of fixed assets 10 2
------------- -------------
Cash provided by (used in)
investing activities 92 (114)
------------- -------------
Cash flows from financing activities
Dividends (35) (35)
New borrowings 97
Repayment of long-term debt (472) (550)
Accounts receivable collection
through Equistar 225 -
Increase (decrease) in notes payable - (13)
------------- -------------
Cash (used in) financing activities (185) (598)
Effect of exchange rate changes on cash - 1
------------- -------------
Increase (decrease) in cash and cash
equivalents 54 (373)
Cash and cash equivalents at beginning of
period 64 408
------------- -------------
Cash and cash equivalents at end
of period $ 118 $ 35
============= =============
See Notes to Consolidated Financial Statements
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
Common Stock Treasury Deferred Paid In Retained Restricted Translation
Shares Amount Stock Compensation Capital Earnings Shares Adjustment Total
------- ------- -------- ------------ -------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 76 $ 1 $ - $ $ 1,334 $ 177 $ (42) $ (6) $ 1,464
Comprehensive Income
Net income 125 125
Other comprehensive income
Currency translation adjustment (6) (6)
Amortization and adjustments
of unearned restricted shares (3) 6 3
-------- ------- --------- -------- ---------
Total comprehensive income (3) 125 6 (6) 122
Shares held by rabbi trust (7) 7 -
Dividends (35) (35)
-------- -------- --------- ---------- -------- -------- --------- --------- ---------
Balance at September 30, 1998
(Unaudited) 76 $ 1 $ (7) $ 7 $ 1,331 $ 267 $ (36) $ (12) $ 1,551
======== ======== ========= ========== ======== ========= ========= ========= =========
</TABLE>
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 1-Basis of Presentation and Description of Company
Millennium Chemicals Inc. (the "Company") is a major international chemicals
company, with leading market positions in a broad range of commodity,
industrial, performance and specialty chemicals operating through its wholly
owned subsidiaries: Millennium Inorganic Chemicals Inc. (and its non-United
States affiliates), Millennium Petrochemicals Inc. and Millennium Specialty
Chemicals Inc. and, beginning December 1, 1997, through its interest in Equistar
Chemicals, LP ("Equistar"), a joint venture formed by the Company and Lyondell
Chemical Company ("Lyondell") to jointly own and operate the olefins and
polymers businesses of the Company and Lyondell. On May 15, 1998, the Company's
interest in Equistar was reduced to 29.5% with the addition of the ethylene,
propylene, ethylene oxide and derivatives businesses of Occidental Petroleum
Corporation's ("Occidental") chemical subsidiary (see Note 2).
The Company was incorporated on April 18, 1996 and has been publicly owned since
October 1, 1996, when Hanson PLC ("Hanson") transferred its chemical operations
to the Company and, in consideration, all of the then-outstanding shares of the
Company's common stock were distributed pro rata to Hanson's shareholders (the
"Demerger").
The accompanying consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. They include all adjustments which the Company considers necessary
for a fair statement of the results of operations and financial position for the
periods presented. Such adjustments consist only of normal recurring items. All
significant intercompany accounts and transactions have been eliminated.
Note 2-Acquisitions and Dispositions
On December 1, 1997, the Company and Lyondell completed the formation of
Equistar, a joint venture partnership created to own and operate the olefins and
polymers and ethyl alcohol businesses of the Company and Lyondell. The Company
contributed to Equistar substantially all of the net assets of its polyethylene,
performance polymers and ethyl alcohol businesses. The Company retained $250
from the proceeds of accounts receivable collections and substantially all the
accounts payable and accrued expenses of its contributed businesses existing on
December 1, 1997, and received proceeds of $750 from borrowings under a new
credit facility entered into by Equistar. The Company used the $750 which it
received to repay debt. A subsidiary of the Company guaranteed $750 of
Equistar's credit facility. Equistar was owned 57% by Lyondell and 43% by the
Company until May 15, 1998 when the Company and Lyondell expanded Equistar with
the addition of the ethylene, propylene, ethylene oxide and derivatives
businesses of Occidental's chemical subsidiary. Occidental contributed the net
assets of those businesses (including approximately $205 of related debt) to
Equistar. In exchange, Equistar borrowed an additional $500, $420 of which was
distributed to Occidental and $75 to the Company. Equistar is now owned 41% by
Lyondell, 29.5% by Occidental and 29.5% by the Company. Equistar is managed by a
Partnership Governance Committee consisting of representatives of each partner.
Approval of Equistar's strategic plans and other major decisions requires the
consent of representatives of the three partners. All decisions of Equistar's
Governance Committee that do not require unanimity between the partners may be
made by Lyondell's representatives alone.
The Company accounts for its interest in Equistar using the equity method. The
investment in Equistar represents the carrying value of the Company's
contributed net assets less cash received and approximates the fair market value
of its interest in Equistar based upon independent valuation. The difference
between the carrying value of the Company's investment and its underlying equity
in the net assets of Equistar has been reduced from $617 to $404 as a result of
adding Occidental as a partner and is being amortized over 25 years.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 2-Acquisitions and Dispositions--Continued
On December 31, 1997, the Company completed the purchase of the shares of
Rhone-Poulenc Chimie S.A.'s Thann et Mulhouse titanium dioxide ("TiO2") and
specialty and intermediate chemicals subsidiary for $185, including assumed
debt. The purchase price was allocated to the net assets acquired, principally
property, plant and equipment and working capital based on their fair value.
On July 1, 1998, the Company completed the acquisition of 99% of the voting
shares and 72% of total shares of Titanio do Brazil S.A. ("Tibras"), Brazil's
only TiO2 producer, for $129 including assumed debt. The two TiO2 operations
comprising Tibras have approximately 60,000 metric tons per year of TiO2
capacity and a mineral sands mine with over 2 million metric tons of recoverable
reserves.
The Company has adopted a plan to monetize its investment in Suburban Propane.
Various options are being evaluated and it is anticipated that eventual disposal
will be completed within the next year. As such, Suburban Propane is being
reported as a discontinued operation and is included in other current assets.
Note 3-Significant Accounting Policies
Use of 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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash Equivalents: Cash equivalents represent investments in short-term deposits
and commercial paper with banks which have original maturities of ninety days or
less. In addition, investments and other assets include approximately $75 and
$83 in restricted cash at September 30, 1998 and December 31, 1997,
respectively, which is on deposit primarily to satisfy insurance claims.
Inventories: Inventories are stated at the lower of cost or market value. For
certain United States operations, cost is determined under the last-in,
first-out (LIFO) method. The first-in, first-out (FIFO) method is used by all
other subsidiaries.
Property, Plant and Equipment: Property, plant and equipment is stated on the
basis of cost. Depreciation is provided by the straight-line method over the
estimated useful lives of the assets, generally 20 to 40 years for buildings and
5 to 25 years for machinery and equipment.
Goodwill: Goodwill represents the excess of the purchase price over the fair
value of assets allocated to acquired companies. Goodwill is being amortized
using the straight-line method over 40 years. Management periodically evaluates
goodwill for impairment based on the anticipated future cash flows attributable
to its operations. Such expected cash flows, on an undiscounted basis, are
compared to the carrying value of the tangible and intangible assets and, if
impairment is indicated, the carrying value of goodwill is adjusted. In the
opinion of management, no impairment of goodwill exists at September 30, 1998.
Environmental Liabilities and Expenditures: Accruals for environmental matters
are recorded in operating expenses when it is probable that a liability has been
incurred and the amount of the liability can be reasonably estimated. Accrued
liabilities are exclusive of claims against third parties (except where payment
has been received or the amount of liability or contribution by such other
parties, including insurance companies, has been agreed) and are not discounted.
In general, costs related to environmental remediation are charged to expense.
Environmental costs are capitalized if the costs increase the value of the
property and/or mitigate or prevent contamination from future operations.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 3-Significant Accounting Policies--Continued
Foreign Currency Translation: Assets and liabilities of the Company's foreign
operating subsidiaries are translated at the exchange rates in effect at the
balance sheet dates, while revenue, expenses and cash flows are translated at
average exchange rates for the reporting period.
Federal Income Taxes: Deferred tax assets and liabilities are computed based on
the difference between the financial statement and income tax basis of assets
and liabilities using the enacted marginal tax rate. Deferred income tax
expenses or credits are based on the changes in the asset and liability from
period to period.
The Company and certain of its subsidiaries have entered into tax-sharing and
indemnification agreements with Hanson or its subsidiaries in which the Company
and/or its subsidiaries generally agreed to indemnify Hanson or its subsidiaries
for income tax liabilities attributable to periods when such other operations
were included in the consolidated tax returns of the Consolidated Group.
Earnings Per Share: Earnings per share ("EPS") are computed under the provisions
of SFAS No. 128. The weighted average number of common and common equivalent
shares outstanding used in computing EPS was as follows:
September 30,
1998 1997
------------- --------------
(Unaudited)
Basic 75,115,348 74,424,729
Options 110,264 33,816
Restricted shares 326,549 92,953
------------- --------------
Diluted 75,552,161 74,551,498
============= ==============
Comprehensive Income: SFAS No 130 requires reporting comprehensive income in the
financial statements which includes net income and other changes in equity. The
Company adopted this pronouncement effective January 1, 1998 and elected to
report such income within the consolidated statement of changes in shareholders'
equity.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 4-Supplemental Information
September 30, December 31,
1998 1997
--------------- -------------
(Unaudited)
Trade receivables
Trade receivables $ 263 $ 371
Less allowance for doubtful accounts (4) (2)
--------------- -------------
$ 259 $ 369
=============== =============
Inventories
Finished products $ 152 $ 121
In-process products 21 21
Raw materials 100 89
Other inventories 57 42
--------------- -------------
$ 330 $ 273
=============== =============
Inventories valued on a LIFO basis were approximately $29 and $32 less than the
amount of such inventories valued at current costs at September 30, 1998 and
December 31, 1997, respectively.
September 30, December 31,
1998 1997
--------------- -------------
(Unaudited)
Property, Plant and Equipment
Land and buildings $ 267 $ 217
Machinery and equipment 1,428 1,205
--------------- -------------
1,695 1,422
Less allowance for depreciation
and amortization (619) (571)
--------------- -------------
$ 1,076 $ 851
=============== =============
Goodwill $ 528 $ 528
Less: Accumulated amortization (70) (60)
--------------- -------------
$ 458 $ 468
=============== =============
Note 5-Long-Term Debt and Credit Arrangements
September 30, December 31,
1998 1997
-------------- -------------
(Unaudited)
Revolving Credit Agreement bearing
interest at either the bank's prime
lending rate, LIBOR or NIBOR plus
.275% at the option of the Company plus
facility fee of .15% to be paid
quarterly $ 199 $ 546
7% Senior Notes due 2006 (net of
unamortized discount of $1 and $.5) 499 500
7.625% Senior Debentures due 2026
(net of unamortized discount of
$1.1 and $1.1) 249 249
Debt payable through 2007 at interest
rates ranging from 2.4% to 12% 84 52
Less current maturities of long-term debt (21) (20)
-------------- -------------
$ 1,010 $ 1,327
============== =============
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 5-Long-Term Debt and Credit Arrangements--Continued
Under the Revolving Credit Agreement, as amended as of October 20, 1997, certain
of the Company's subsidiaries may borrow up to $500 under an unsecured
multi-currency revolving credit facility, which matures in July 2001 (the
"Credit Agreement"). The Company is the guarantor of this facility. Borrowings
under the Credit Agreement may consist of standby loans or uncommitted
competitive loans offered by syndicated banks through an auction bid procedure.
The proceeds from these borrowings may be used to provide working capital and
for general corporate purposes.
The Credit Agreement contains covenants and provisions that restrict, among
other things, and with certain exceptions, the ability of the Company and its
material subsidiaries to: (i) create liens on any of their property or assets,
or assign any rights to or security interests in future revenues; (ii) engage in
sale and leaseback transactions; (iii) engage in mergers, consolidations and
sales of all or substantially all of their assets on a consolidated basis; (iv)
enter into agreements restricting dividends and advances by their subsidiaries;
and (v) engage in transactions with affiliates other than those based on
arm's-length negotiations. The Credit Agreement also limits the ability of
certain subsidiaries of the Company to incur indebtedness or issue preferred
stock. In addition, the Credit Agreement requires the Company to satisfy certain
financial-performance criteria.
The indenture under which the Senior Notes and Senior Debentures are issued
contains certain covenants that limit, among other things, and with certain
exceptions: (i) the ability of Millennium America Inc. and its Restricted
Subsidiaries (as defined) to grant liens or enter into sale and leaseback
transactions; (ii) the ability of the Restricted Subsidiaries to incur
additional indebtedness; and (iii) the ability of Millennium America Inc. and
the Company to merge, consolidate or transfer substantially all of their
respective assets.
Note 6-Financial Instruments
Fair Value of Financial Instruments: The fair value of all short-term financial
instruments approximate their carrying value due to their short maturity. The
fair value of long-term financial instruments approximates carrying value as
they were based on terms that continue to be available to the Company from its
lenders.
Off Balance Sheet Risk: The Company has certain receivables, payables and
short-term borrowings denominated in currencies other than the functional
currencies of the Company and/or its subsidiaries. During the quarter, the
Company has hedged certain of these exposures by entering into forward exchange
contracts. Gains and losses related to these hedges are recognized in income as
part of, and concurrent with, the hedged transactions. The Company does not use
derivative financial instruments for trading or speculative purposes.
SFAS 133: On June 15, 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivatives and Hedging Activities", effective for
fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company).
SFAS 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or as comprehensive income, depending on whether
a derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. The Company is currently evaluating the implications
of this new pronouncement but, due to the Company's limited use of derivative
instruments, the adoption of SFAS 133 is not expected to have a significant
effect on the Company's results of operations or its financial position.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 7-Employee Benefit Plans
The Company adopted a Long-Term Stock Incentive Plan ("Stock Incentive Plan")
for the purpose of enhancing the profitability and value of the Company for the
benefit of its shareholders. A maximum of 3,909,000 shares of Common Stock may
be issued or used for reference purposes pursuant to the Stock Incentive Plan.
The Stock Incentive Plan provides for the following types of awards: (i) stock
options, including incentive stock options and non-qualified stock options; (ii)
stock appreciation rights; (iii) restricted stock; (iv) performance units; and
(v) performance shares. The vesting schedule for granted restricted stock awards
is as follows: (i) three equal tranches aggregating 25% of the total award will
vest in each of October 1999, 2000 and 2001; and (ii) three equal tranches
aggregating 75% of the total award will be subject to the achievement of "value
creation" performance criteria established by the Compensation Committee for
each of the three performance cycles commencing January 1, 1997 and ending
December 31, 1999, 2000 and 2001, respectively. If and to the extent such
criteria are achieved, half of the earned portion of a tranche relating to a
particular performance-based cycle of the award will vest immediately and the
remainder will vest in five equal annual installments commencing on the first
anniversary of the end of the cycle.
Options granted under the Stock Incentive Plan vest three years from the date of
grant and expire ten years from the date of grant. All grants under the Stock
Incentive Plan fully vest in the event of a change-in-control (as defined by the
plan) of the Company, or in the case of employees of a subsidiary of the
Company, a change-in-control of the relevant subsidiary.
The Company has authorization under the Stock Incentive Plan to grant awards for
up to an additional 310,964 shares at September 30, 1998.
Unearned restricted stock, based on the market value of the shares at each
balance sheet date, is included as a separate component of shareholders' equity
and amortized over the restricted period. Compensation expense recognized in
accordance with Accounting Principles Board Opinion No. 25 was $3 and $8 for the
nine months ended September 30, 1998 and 1997, respectively.
The Company has a deferred compensation plan that permits officers, directors
and certain management employees to defer a portion of their compensation on a
pre-tax basis in the form of Company stock. A rabbi trust has been established
to hold shares of Company stock purchased in open market transactions to fund
this obligation. Shares purchased by the trust are reflected as treasury stock,
at cost and included in shareholders' equity, along with the related obligation
for this plan.
Note 8-Commitments and Contingencies
The Company is subject, among other things, to several proceedings under the
Federal Comprehensive Environmental Response Compensation and Liability Act and
other federal and state statutes or agreements with third parties. These
proceedings are in various stages ranging from initial investigation to active
settlement negotiations to implementation of the clean-up or remediation of
sites. Additionally, certain of the Company's subsidiaries are defendants or
plaintiffs in lawsuits that have arisen in the normal course of business
including those relating to commercial transactions and product liability. While
certain of the lawsuits involve allegedly significant amounts, it is
management's opinion, based on the advice of counsel, that the ultimate
resolution of such litigation will not have a material adverse effect on the
Company's financial position or results of operations. The Company believes that
the range of potential liability for these matters, collectively, which
primarily relate to environmental remediation activities, is between $150 and
$184 and has accrued $184 as of September 30, 1998.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 8-Commitments and Contingencies--Continued
The Company has various contractual obligations to purchase raw materials used
in its production of TiO2 and fragrance and flavor chemicals. Commitments to
purchase ore used in the production of TiO2 are generally three-to eight-year
contracts with competitive prices generally determined at a fixed amount subject
to escalation for inflation. Total commitments to purchase ore for TiO2
production approximate $1,100 and expire between 1998 and 2002. Commitments to
acquire crude sulfate turpentine, used in the production of fragrance and flavor
chemicals, are generally pursuant to one-to ten-year contracts, with prices
based on the market price, and which expire between 1998 and 2008.
The Company is organized under the laws of Delaware and is subject to United
States federal income taxation of corporations. However, in order to obtain
clearance from the United Kingdom Inland Revenue as to the tax-free treatment of
the Demerger for United Kingdom tax purposes for Hanson and Hanson shareholders,
Hanson agreed with the United Kingdom Inland Revenue that the Company will
continue to be centrally managed and controlled in the United Kingdom at least
until September 30, 2001. Hanson also agreed that the Company's Board of
Directors will be the only medium through which strategic control and policy
making powers are exercised, and that board meetings almost invariably will be
held in the United Kingdom during this period. The Company has agreed not to
take, or fail to take, during such five-year period, any action that would
result in a breach of, or constitute non-compliance with, any of the
representations and undertakings made by Hanson in its agreement with the United
Kingdom Inland Revenue and to indemnify Hanson against any liability and
penalties arising out of a breach of such agreement. The Company's By-Laws
provide for similar constraints. The Company and Hanson estimate that such
indemnification obligation would have amounted to approximately $421 if it had
arisen during the twelve months ended September 30, 1997, and that such
obligation will decrease by approximately $84 on each October 1, prior to
October 1, 2001, when it will expire.
If the Company ceases to be a United Kingdom tax resident at any time, the
Company will be deemed for purposes of United Kingdom corporation tax on
chargeable gains to have disposed of all of its assets at such time. In such a
case, the Company would be liable for United Kingdom corporation tax on
chargeable gains on the amount by which the fair market value of those assets at
the time of such deemed disposition exceeds the Company's tax basis in those
assets. The tax basis of the assets would be calculated in pounds sterling,
based on the fair market value of the assets (in pounds sterling) at the time of
acquisition of the assets by the Company adjusted for United Kingdom inflation.
Accordingly, in such circumstances, the Company could incur a tax liability even
though it has not actually sold the assets and even thought the underlying value
of the assets may not actually have appreciated (due to currency movements).
Since it is impossible to predict the future value of the Company's assets,
currency movements and inflation rates, it is impossible to predict the
magnitude of such liability, should it arise.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 9-Operations by Industry Segment
The Company's principal operations are grouped into four business segments:
titanium dioxide and related products, acetyls, specialty chemicals and
polyethylene, alcohol and related products.
The following is a summary of the Company's operations by industry segment:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------- ------------- -------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales
Titanium dioxide and related products $ 314 $ 217 $ 901 $ 639
Acetyls 59 72 202 200
Specialty chemicals 35 36 112 112
Polyethylene, alcohol and related
products (1) - 491 - 1,472
------------- ------------ ------------- -------------
Total $ 408 $ 816 $ 1,215 $ 2,423
============= ============= ============= ==============
Depreciation and amortization
Titanium dioxide and related products $ 20 $ 10 $ 52 $ 32
Acetyls 6 7 18 20
Specialty chemicals 1 2 4 4
Polyethylene, alcohol related
products (1) - 35 - 104
------------- ------------- ------------- -------------
Total $ 27 $ 54 $ 74 $ 160
============= ============= ============== =============
Operating Income
Titanium dioxide and related products $ 47 $ 22 $ 128 $ 38
Aceytls 1 12 20 29
Specialty chemicals 10 10 34 33
Polyethylene, alcohol and related
products (1) - 113 - 255
------------- ------------- ------------- -------------
Total $ 58 $ 157 $ 182 $ 355
============= ============= ============== =============
</TABLE>
1) Segment information for 1997 has been restated to combine information for the
polyethylene, alcohol and performance polymers businesses which have been
contributed to Equistar as one segment. The Company's interest in Equistar is
excluded from this segment beginning December 1, 1997, at which time the equity
method is used to account for this investment.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 10-Summary financial Information for Millennium America Inc.
Millennium America Inc. is a wholly owned subsidiary of the Company and is a
holding company for all of the Company's operating subsidiaries other than its
operations outside the United States. Millennium America Inc. is the issuer of
the Senior Notes and Senior Debentures and a borrower under the Credit
Agreement. Accordingly, the following summarized financial information is
provided for Millennium America Inc.:
September 30, December 31,
1998 1997
---------------- -------------
(Unaudited)
Current assets $ 421 $ 528
Investment in Equistar 1,537 1,934
Noncurrent assets 1,649 1,428
---------------- -------------
Total assets $ 3,607 $ 3,890
================ =============
Current liabilities $ 223 296
Noncurrent liabilities 2,365 2,647
Invested capital 1,019 947
---------------- -------------
Total liabilities and invested
capital $ 3,607 $ 3,890
================ =============
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
--------- ---------- --------- --------
(Unaudited) (Unaudited)
Net sales $ 247 $ 727 $ 771 $ 2,169
Operating income 15 148 88 342
Net income 16 63 72 167
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 11 -Summary financial Information for Equistar
The following is summarized financial information for Equistar:
September 30, December 31,
1998 1997
---------------- ---------------
(Unaudited)
Current assets $ 1,389 $ 1,209
Noncurrent assets 5,502 3,408
---------------- ---------------
Total assets $ 6,891 $ 4,617
================ ===============
Current liabilities $ 448 $ 353
Noncurrent liabilities 2,516 1,546
Partners' capital 3,927 2,718
---------------- ---------------
Total liabilities and
partners'capital $ 6,891 $ 4,617
================ ===============
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1998
---------------- ---------------
(Unaudited)
Net sales $ 1,149 $ 3,263
Operating income 69 292
Net income 29 194
Note 12 - Subsequent Event
On November 16, 1998, the Company announced that it had entered into agreements
to sell its La Porte, Texas synthesis gas ("syngas") unit and a 15% interest in
its methanol business to a wholly-owned subsidiary of Linde AG ("Linde") for
$122.5 million in cash.
The Company and Linde will establish a methanol production partnership to own
the methanol facility in La Porte. Linde will operate the facility and hold the
15% interest in the partnership, with an option to increase its partnership
interest to 20% at a later date. The Company will hold the remaining interest.
Linde has agreed to sell syngas and carbon monoxide to the Company and the
partnership under a supply agreement.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Millennium Chemicals Inc.'s (the "Company") principal operations are grouped
into four business segments: titanium dioxide and related products ("TiO2"),
acetyls, specialty chemicals and polyethylene, alcohol and related products. The
Company's businesses comprising the polyethylene, alcohol and related products
segment were contributed to Equistar Chemicals, LP ("Equistar"), a joint venture
partnership formed by the Company and Lyondell Chemical Company ("Lyondell") on
December 1, 1997, to own and operate the olefins and polymers businesses of the
partners. Results of the Company's businesses for the first eleven months of
1997, before the formation of Equistar, are consolidated. The Company's 43%
interest in Equistar was reduced on May 15, 1998 to 29.5% with the addition of
the ethylene, propylene, ethylene oxide and derivatives businesses of Occidental
Petroleum Corporation's ("Occidental") chemical subsidiary. The results of
Equistar are accounted for using the equity method. See Note 2 to the
Consolidated Financial Statements.
The following information should read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto. In connection with the
forward-looking statements that appear in the following information, the
Cautionary Statements referred to in "Disclosure Concerning Forward-Looking
Statements" should be reviewed carefully.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
The Company had operating income of $58 million for the three months ended
September 30, 1998, a decrease of $99 million (63%) from the three months ended
September 30, 1997. The third quarter of 1997 included $113 million related to
the polyethylene, alcohol and related products businesses contributed to
Equistar on December 1, 1997. Excluding these earnings, operating income for the
third quarter of 1998 from the Company's wholly owned subsidiaries increased $14
million (32%) over the 1997 period, principally as a result of improved TiO2
prices. Average TiO2 prices for the third quarter of 1998 were 15% higher than
in the third quarter of 1997.
Income before provision for income tax for the third quarter of 1998 of $50
million decreased $77 million (61%) from the third quarter of 1997. The
significant downturn in Equistar's results for the third quarter of 1998
compared to earnings of the Company's contributed businesses in the comparable
quarter of 1997 offset the improved results from TiO2 operations discussed
above.
Net income for the third quarter of 1998 was $32 million or $0.43 per share
(Basic EPS), while net income for the same quarter of 1997 was $67 million or
$0.94 per share. The effective tax rate for the third quarter of 1998 is 10
percentage points lower than 1997 as a result of the geographic mix of profit
and debt in the 1998 period.
Titanium dioxide and related products: Operating income for the third quarter of
1998 was $47 million, more than double the $22 million earned in the third
quarter of 1997. Net sales were $97 million (45%) higher than the same period of
last year. Higher selling prices accounted for the majority of the increase.
Average prices rose 15% over the comparable quarter of 1997 and 4% over the
second quarter of 1998 with increases evident in all regions in local currency
terms. Sales volumes were up 22% from the third quarter of 1997 due to added
volume from the French and Brazilian operations acquired on December 31, 1997
and July 1, 1998, respectively. Excluding the operations in France and Brazil,
sales volumes were down 10% from the third quarter of last year. Continued
weakness in the Asian markets and strong sales in the third quarter of 1997 in
advance of price increases were the primary factors related to the volume
decline. Markets in North America remained steady, offsetting weaker demand in
the Asian markets.
<PAGE>
Capacity utilization was below the third quarter of 1997 at approximately 96%,
including the French and Brazilian plants. Excluding the French and Brazilian
production, the quarterly operating rate was down approximately 5% from last
year partially due to the shutdown in September at the Stallingborough, United
Kingdom, plant to begin commissioning a capacity expansion of 41,000 metric tons
per year. The Stallingborough plant is back on line and the commissioning
process will continue through January 1999.
Conditions are expected to be favorable for the balance of 1998 as pricing
trends and production costs continue to improve, offsetting anticipated seasonal
softening in demand.
Acetyls: Net sales for the third quarter of 1998 decreased 18% to $59 million.
Operating profit of $1 million for the third quarter of 1998 decreased $11
million from third quarter of 1997.
Higher sales volumes in methanol and acetic acid were more than offset by lower
selling prices in all product lines. New competitor capacity has created an
oversupply in the global methanol markets putting pressure on price as well as
sales volume, while weak demand for acetic acid and vinyl acetate monomer
("VAM") in Asia has severely impacted prices worldwide.
Methanol prices were down 40% from the third quarter of 1997 due to oversupply
from new global capacity, strong U.S. production and weaker demand from the MTBE
sector of the market. Conditions are not expected to improve short-term.
During the third quarter of 1998, domestic demand dropped off during September
in the acetic acid market due, in part, to operating and shipping problems at a
major customer. Conditions in Asia remained difficult, with weaker demand in
that region. Sales volume was slightly above the third quarter of 1997, but
prices were down 19% from the comparable quarter of 1997. While steady demand in
the domestic market is anticipated for the remainder of the year, continued
price pressure is expected to negatively impact results.
Third quarter 1998 VAM prices were down 17% from the same quarter of 1997 as a
result of lower ethylene costs and excess supply in Asia. VAM volumes for the
quarter were down 3% from 1997. The Asian economic crisis has adversely affected
demand and pricing in these markets. Although the North American market was
somewhat stable, excess supply in Europe and Asia put pressure on price. Such
conditions are expected to continue for the balance of the year.
Specialty chemicals: Third quarter operating profits of $10 million were equal
to the third quarter of 1997. Net sales for the 1998 quarter were in line with
the 1997 quarter of $35 million. Favorable product mix and higher volumes offset
lower prices and higher crude sulfate turpentine ("CST") costs. CST costs for
the quarter were 7% higher than in the same quarter of 1997. CST costs declined
approximately 10 cents per gallon at the start of the third quarter and another
15 cents per gallon effective October 1, 1998. While demand is softening due to
weaker sales in Asia, margins should be somewhat protected during the balance of
the year by declining raw material prices.
Equistar: On December 1, 1997, the Company's polyethylene, alcohol and related
products businesses were contributed to Equistar. Since that time, the Company
has accounted for its share of Equistar as equity earnings. Post-interest equity
earnings from Equistar for the third quarter of 1998 was $3 million compared to
$10 million in the second quarter of 1998. Declining ethylene and polymer prices
contributed to the decrease in profits during the third quarter. Ethylene prices
fell 12% during the third quarter and 36% since last year-end, as excess supply
levels from new competitor capacity came on stream during the year. Even though
feedstock costs were down slightly during the quarter, margins suffered. The
decline in ethylene prices also affected its derivative products including
polyethylene. Overall polyethylene prices for the third quarter were down an
average of 11% from the second quarter.
<PAGE>
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
The Company had operating income of $182 million for the first nine months of
1998, a decrease of $173 million (49%) from the same period of 1997. The first
nine months of 1997 included $255 million of operating income related to the
polyethylene, alcohol and related products businesses contributed to Equistar on
December 1, 1997. Excluding these earnings, 1998 operating income increased $82
million (82%) over 1997 primarily from increases in TiO2 profits. TiO2 operating
profit for the first nine months of 1998 was $128 million, an increase of $90
million, almost tripling the comparable 1997 period. TiO2 prices, which had
started to improve in the first nine months of 1997, continued their upward
trend through the first nine months of 1998. Year-to-date average TiO2 selling
prices increased 11% over the same period last year.
Titanium dioxide and related products: Operating income for the first nine
months of 1998 was $128 million compared to $38 in the first nine months of
1997. Net sales were 41% higher than in the 1997 period at $901 million. On
December 31, 1997, the Company acquired Rhone-Poulenc Chimie S.A.'s French TiO2
operations, Thann et Mulhouse, which included two plants providing 138,000
metric tons per year of TiO2 capacity along with certain specialty and
intermediate chemical businesses. On July 1, 1998, the Company acquired 99% of
the voting shares and 72% of total shares of Titanio do Brazil S.A. ("Tibras")
in Brazil, which has approximately 60,000 metric tons per year of TiO2 capacity.
Higher selling prices account for most of the profit increase. The impact of
higher sales volumes (24% above last year) was due mainly to the new French and
Brazilian operations, by higher functional costs incurred to reengineer business
processes and support organizational change. Volume weakness was experienced in
the Asian markets due to the overall declining economic conditions in that
region. Markets in North America and Europe, however, remained steady,
offsetting weaker demand in the Asian markets. This is expected to continue
through year-end. Capacity utilization for the first nine months of 1998 was
98.2%.
Acetyls: Operating income of $20 million for the first nine months of 1998 was
31% lower than the same period of 1997. Net sales of $202 million increased 1%
over 1997. Favorable costs were realized during 1998 as a result of the 1997
syngas plant conversion to natural gas feedstock. During the first nine months
of 1997, difficulties with this conversion were experienced, hampering
production and increasing costs. By late 1997, such problems were resolved.
However, lower selling prices more than offset the improved cost position for
this segment. Average selling prices were down 32%, 14% and 10% for methanol,
acetic acid and VAM, respectively, during the nine months compared to last year.
Specialty Chemicals: Operating income for the first nine months of 1998 was $34
million compared to $33 million in 1997. Net sales for the first nine months
ended September 30, 1998 were in line with the 1997 period at $112 million.
Favorable product mix was offset by lower volumes and higher CST costs. CST
costs were 20% higher than in the same period of 1997. CST costs declined
approximately 10 cents per gallon at the start of the third quarter and another
15 cents per gallon effective October 1, 1998. Demand remains stable in the
global markets with the exception of Asia. Price competition is being felt as
weaker European currencies relative to the U.S. dollar provide an advantage to
non U.S. competitors. Several competitors have also recently added capacity.
Equistar: On December 1, 1997, the Company's polyethylene, alcohol and related
products businesses were contributed to Equistar. Since that time, the Company
has accounted for its share of Equistar as equity earnings. Post-interest equity
earnings from Equistar for the first nine months of 1998 were $58 million, and
compare to operating income for the first nine months of 1997 of $255 million
for the businesses contributed to Equistar. Ethylene and ethylene derivative
markets started their decline towards the end of the first quarter of 1998.
Ethylene prices dropped 31% during the first nine months of 1998. Polyethylene
prices dropped dramatically during the first nine months of 1998 as compared to
1997. Pricing pressures continue in these markets. During the upcoming quarter,
Equistar's La Porte ethylene plant will be shut down for a maintenance
turnaround, limiting production and negatively impacting profits.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are provided by operations and
borrowings under the Company's revolving credit facility. Net cash provided by
operating activities was $147 million for the nine months ended September 30,
1998 compared to $338 million provided for the first nine months ended September
30, 1997. The decrease of $191 million is due primarily to the polyethylene,
alcohol and related products businesses included in 1997 but not in 1998 and
proceeds of $49 million received from an insurance settlement in 1997. Since
December 1, 1997, the polyethylene, alcohol and related products businesses have
been part of Equistar and cash distributed by the partnership in the first nine
months of 1998 of $317 million is included as cash from investing activities.
The remaining difference is primarily attributable to the timing of payments for
accrued expenses and other liabilities.
Net cash provided by investing activities was $92 million in the first nine
months of 1998, while $114 million was used in the first nine months of 1997.
1998 distributions from Equistar of $317 million, including $75 million relating
to Equistar's addition of Occidental as a partner and $150 million received in
July due to Lyondell's repayment of its note, primarily accounted for the
variance. Capital spending for the full year 1998 is expected to be
approximately $210 million, including spending on the Stallingborough, United
Kingdom plant expansion, SAP-based business systems projects and capacity
expansions at the specialties chemicals segment.
Net cash used in financing activities for the first nine months of 1998 was $185
million compared to $598 million in the first nine months of 1997. The 1998
period reflects gross debt repayment of $472 million, principally funded by
monies received from Equistar - $225 million from the collection of accounts
receivable related to the businesses contributed to Equistar and cash
distributions of $317 million. The 1997 period reflects gross debt repayment of
$550 million.
At September 30, 1998, the Company had net debt of $913 million, or $370 million
less than at December 31, 1997. Net debt at the end of 1998 is expected to be
near current levels.
During the third quarter, the Company approved plans to monetize its investment
in Suburban Propane. Various options are being evaluated and it is anticipated
that eventual disposal will be completed within the next year.
Year 2000
Each of the Company's three business units and its corporate headquarters has
established a plan to identify and correct Year 2000 compliance issues. Efforts
made and progress towards the goal of Year 2000 compliance is reported, on a
regular basis, to the Company's Operations Committee through teams formed to
take action on such plans. The Company's Board of Directors is being updated
through its Audit Committee.
The Company has focused its Year 2000 efforts on three major exposure areas:
information systems (which includes application software and technical
infrastructure), manufacturing process controls (non-IT systems) and supply
chain (which includes the Company's significant suppliers and customers). The
project phases common to all exposure areas are: 1) inventory/assessment; 2)
remediation; 3) testing; 4) implementation; and 5) designing contingency plans.
During 1997, as a part of a separate project to improve the quality of and
access to business information, the Company began a company-wide implementation
of the SAP R/3 enterprise resource planning system from SAP America, Inc.
("SAP"). This system integrates information, including financial, human
resources, customer and supply chain information, in a single database. The
Company has received representations from SAP that the SAP R/3 system has been
designed to be Year 2000 compliant. As part of the implementation, interfaces to
the SAP R/3 system have been minimized and complementary systems have been
represented to be Year 2000 compliant by the vendors of such systems. Two of the
Company's three business units completed their SAP implementations as of
November 2, 1998 and the third (Millennium Inorganic Chemicals) is on schedule
to complete its implementation by July 1, 1999. The Company is also making
<PAGE>
modifications to existing business information systems for Millennium Inorganic
Chemicals as a contingency plan in the unlikely event that the SAP
implementation is not completed on schedule. These modifications are expected to
be implemented by January 1999. The Company has outsourced the technical
infrastructure for the SAP R/3 system to an internationally recognized provider
of these services and has received assurances from the provider that all
hardware and related system software are Year 2000 compliant. The Company has
not deferred any of its currently planned projects as a result of Year 2000
efforts.
Inventories and assessments of non-IT systems are over fifty percent completed.
Where identified, remediation for non-IT systems is in progress, and a target
completion date for all business units has been set for October 1999. The
Company has engaged independent consultants at certain locations to monitor
remediation programs for certain systems and to provide additional expertise.
The Company has identified critical suppliers, customers and other third parties
and has begun to request Year 2000 compliance information from them. The Company
is evaluating and assessing third-party responses as they are received. The more
significant third-party relationships include suppliers of ores, electrical
power, natural gas and industrial gases and providers of transportation such as
pipelines, rail and barges. Contingency plans, where necessary and possible,
will be developed for significant third party risks identified by the Company as
a result of such evaluation and assessment. Although the Company has planned
these actions to address third-party issues and potential impacts to the
Company, it often has little direct ability to influence the compliance actions
of such parties.
The Company estimates that it will spend $84 million related to the company-wide
implementation of SAP and an additional $15 million for required modifications
and replacements of non-IT systems to become Year 2000 compliant. Such costs
have been, and in the future are expected to be, funded from cash generated from
operations. This estimate excludes Year 2000 costs that may be incurred by
Equistar. The total amount spent on the project through September 30, 1998 was
approximately $38 million, of which $33 million was capitalized and $5 million
was expensed. Costs incurred prior to 1998 were not material.
The Company owns a 29.5% interest in Equistar. Equistar has formed a steering
committee to oversee all Year 2000 remediation efforts. The chairman of the
Equistar Year 2000 Steering Committee reports project progress regularly to the
Equistar Governance Committee, which includes representatives from the Company's
senior management. The Equistar Year 2000 Steering Committee is in the process
of completing an assessment of the state of readiness of the information
technology and non-IT systems of Equistar. These assessments cover manufacturing
systems, including laboratory information systems and field instrumentation, and
significant third party vendor and supplier systems, including employee
compensation and benefit plan maintenance systems. The Steering Committee is
also in the process of assessing the readiness of significant customers and
suppliers. The operations of Millennium Petrochemicals are integrally related to
those of Equistar's La Porte, Texas facility from whom materials and utilities
are sourced and, as a result, any Year 2000 related interruption in Equistar's
operations at this location could severely impact Millennium Petrochemical's
ability to manufacture and ship products to customers.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. In particular, if suppliers fail to provide the Company with raw
materials which are necessary to manufacture its products, with sufficient
electrical power and other utilities to sustain its manufacturing processes, or
with adequate, reliable means of transporting its products to its customers,
then any such failure could result in the temporary inability to manufacture
and/or ship products to customers. This risk may be mitigated to some extent at
Millennium Inorganic Chemicals, where manufacturing capacity is distributed
among seven manufacturing facilities. Due to the uncertainty inherent in the
Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third party suppliers, the Company is unable to determine at this
time whether the consequences of Year 2000 failures, if any, would have a
material impact on the Company's results of operations and/or financial
condition.
The costs of the Company's Year 2000 project and the dates on which the Company
believes it will complete such efforts are based on management's current best
estimates, which were derived using numerous assumptions regarding future
<PAGE>
events, including the continued availability of certain resources and the
continued progression towards the implementation of SAP at various facilities.
There can be no assurance that these estimates will prove to be accurate, and
therefore actual results could differ materially from those anticipated.
Specific factors that could cause material differences with actual results
include, but are not limited to, the results of testing and the timeliness and
effectiveness of remediation efforts of third parties.
Formal contingency plans for certain Year 2000 related risks have not yet been
developed but are expected to include identification of alternate suppliers,
allowing for sufficient inventory levels in the event of manufacturing or
transportation interruption, and replacing electronic applications with manual
processes. These plans are expected to be completed by the end of the third
quarter 1999.
The Company's Year 2000 project is expected to reduce the Company's level of
uncertainty about the Year 2000 problem, and in particular the Year 2000
readiness of its significant suppliers and customers. The Company believes that
the Year 2000 issues will be addressed on a timely basis. However, in the event
that the Year 2000 issues of the Company and/or third parties with whom the
Company transacts business are not addressed on a timely basis, it is possible
that such issues could have an adverse impact on the Company's operations and/or
financial condition.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Form of Agreement with certain Corporate Executive Officers,
including Messrs. Landuyt, Lee, Hempstead and Lushefski
10.2 Form of Agreement with certain Executive Officers of Operating
Subsidiaries
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
99.1 Press Release dated November 16, 1998 relating to sale by
Millennium Petrochemicals of its syngas unit and an interest in its
methanol facility
(b) No Current Reports on Form 8-K were filed during the quarter ended
September 30, 1998 and through the date hereof.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MILLENNIUM CHEMICALS INC.
Date: November 16, 1998 John E. Lushefski
___________________________
John E. Lushefski
Senior Vice President and
Chief Financial Officer
(as duly authorized officer and principal
financial officer)
<PAGE>
EXHIBIT INDEX
10.1 Form of Agreement with certain Corporate Executive Officers,
including Messrs. Landuyt, Lee, Hempstead and Lushefski
10.2 Form of Agreement with certain Executive Officers of Operating
Subsidiaries
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
99.1 Press Release dated November 16, 1998 relating to sale by
Millennium Petrochemicals of its syngas unit and an interest in its
methanol facility
EXHIBIT 10.1
Millennium America Holdings Inc.
230 Half Mile Road
P.O. Box 7015
Red Bank, New Jersey 07701
(732) 933-5000
July 24, 1998
[Name]
[Address]
Dear [Name]:
1. Introduction. Millennium America Holdings Inc. (the "Company") believes that
the maintenance of a sound and vital management of the Company and of Millennium
Chemicals Inc., which is the ultimate parent corporation of the Company
("Millennium"), is essential to the protection and enhancement of the interests
of the Company and Millennium and their stockholders. The Company also
recognizes that the possibility of a Change in Control (as defined in Part II of
Exhibit A) of Millennium, with the attendant uncertainties and risks, might
result in the departure or distraction of key employees of the Company to the
detriment of the Company, Millennium and their shareholders. In light of the
possibility of a Change in Control of Millennium, the Company has determined
that it is appropriate to induce key employees to remain with the Company, and
to reinforce and encourage their continued attention and dedication.
Accordingly, upon your written acceptance of the terms and conditions of this
agreement (the "Agreement") evidenced by signing below, the Company intends to
provide you the protections set forth herein as of the date first set forth
above (the "Effective Date"). Capitalized terms not defined in the body of this
Agreement shall have the meanings set forth in Exhibit A hereto, which is
incorporated herein and made a part of this Agreement. This Agreement shall
replace the prior agreement regarding a change in control of Millennium and the
Company dated July 1, 1996, by and between you and the Company, and said prior
agreement is hereby rendered null and void and shall no longer have any force
and effect.
2. Termination Following a Change in Control. If a Change in Control occurs on
or after the Effective Date and your employment is terminated during the Post
Change in Control Period (i) by the Company without Cause or due to your
Disability, (ii) by you for Good Reason or, subject to Section 3 below, without
Good Reason, (iii) due to your death or (iv) due to your Retirement, then you
shall be entitled to the amounts and benefits provided in Section 4 herein.
Furthermore, if a Change in Control occurs on or after the Effective Date and
your employment was terminated within the Pre Change in Control Period (i) by
the Company without Cause or due to your Disability, (ii) by you for Good Reason
(based on an event that occurred within the Pre Change in Control Period), or
(iii) due to your death, you shall be entitled to the amounts and benefits
provided in Section 4 herein.
3. Direct Pay Letter of Credit. Notwithstanding anything else herein, your right
to voluntarily terminate employment without Good Reason after the date of a
Change in Control and receive the amounts due under Section 4 hereof shall be
delayed until one-hundred and eighty (180) days after the Change in Control if,
simultaneous with the Change in Control, the Company or the person or entity
triggering the Change in Control delivers to you an irrevocable direct pay
letter of credit (the "Direct Pay Letter of Credit") satisfying the requirements
of this Section 3 and an indemnity agreement covering in a similar manner the
provisions of Section 6 with regard to activities after the Change in Control.
The Direct Pay Letter of Credit shall be in an amount equal to the aggregate
amount you would be entitled to receive under Sections 4(A)(i) and (ii) hereof
if you were terminated without Cause immediately upon the Change in Control and
shall have an expiration date of no less than two (2) years after the date of
such Change in Control. You (or, if applicable, your legal representative) shall
be entitled to draw on the Direct Pay Letter of Credit upon presentation to the
issuing bank of a demand for payment signed by you (or, if applicable, your
legal representative) that states that (i) a Good Reason event has occurred and
your employment has terminated during the Post Change in Control Period, or (ii)
one-hundred and eighty (180) days have expired since the Change in Control and
your employment has terminated during the Post Change in Control Period. There
shall be no other requirements (including no requirement that you first make
demand upon the Company) with regard to payment of the Direct Pay Letter of
Credit. To the extent the Direct Pay Letter of Credit is not adequate to cover
the amount owed to you under this Agreement, is not submitted by you or is not
paid by the issuing bank, the Company shall remain liable to you for any amounts
owed to you pursuant to the terms of this Agreement. To the extent any amount is
paid under the Direct Pay Letter of Credit it shall be a credit against any
amount the Company then or thereafter would owe to you under Section 4 of this
Agreement. The Direct Pay Letter of Credit shall be issued by a national money
center bank with a rating of at least A by Standard and Poor's. The Company
shall bear the cost of the Direct Pay Letter of Credit.
4. Compensation on Change in Control Termination. If pursuant to Section 2 you
are entitled to amounts and benefits under this Section 4, the Company shall,
subject to Section 8, pay and provide to you: (A) in a lump sum within five (5)
days after such termination (or, if such termination occurred during the Pre
Change in Control Period, within five (5) days after the Change in Control) the
sum of (i) three (3) times your highest annual base salary in effect within
one-hundred and eighty (180) days prior to the Change in Control, computed by
including the amount of base salary deferred by you (voluntarily or otherwise
pursuant to the Millennium Chemicals Inc. Salary and Bonus Deferral Plan (the
"Deferral Plan") or any other agreement or plan that is or may have been in
effect at the time of such deferral) as part of the base salary for the year in
which it was accrued, (ii) three (3) times the highest annual bonus paid or
payable to you for any of the last three (3) completed fiscal years by the
Company or its predecessors or any affiliate of the Company or its predecessors
(which shall in no event include amounts contributed or allocated by the Company
(or its predecessors or affiliates thereof) on your behalf or paid to you under
any supplemental executive bonus plans applicable to you (including, without
limitation, the 1993 or 1996 HI Long Term Incentive Plans, any other plan
commonly referred to by the Company as a "top-hat" plan or any equity plan such
as the Millennium Chemicals Inc. Long Term Stock Incentive Plan)), computed by
including the amount of any annual bonus deferred by you (voluntarily or
otherwise pursuant to the Deferral Plan or any other agreement or plan that is
or may have been in effect at the time of such deferral) as part of the annual
bonus for the year in which it was accrued, (iii) any unreimbursed business
expenses for the period prior to termination payable in accordance with the
Company's policies, and (iv) any base salary, bonus, vacation pay or other
deferred compensation accrued or earned under law or in accordance with the
Company's policies applicable to you but not yet paid; (B) any other amounts or
benefits due under the then applicable employee benefit, equity or incentive
plans of the Company applicable to you as shall be determined and paid in
accordance with such plans; (C) three (3) years of additional age, service and
compensation credit (using, for such purposes, the base salary and (to the
extent applicable) annual bonus calculated under Sections 4(A)(i) and (ii),
respectively, as your deemed compensation in such years) for pension purposes
under any defined benefit type qualified or nonqualified pension plan or
arrangement of the Company and its affiliates applicable to you, measured from
the date of termination of employment and not credited to the extent that you
are otherwise entitled to such credit during such three (3) year period, which
payments shall be made through and in accordance with the terms of the
nonqualified defined benefit pension plan or arrangement if any then exists, or,
if not, in an actuarially equivalent lump sum (using the actuarial factors then
applying in the Company's or its affiliates' defined benefit plan covering you
and your actual age on the date of termination of employment); (D) an amount
equal to the maximum amount which would be credited to your account balance(s)
under any type of qualified 401(k) plan or nonqualified excess 401(k) plan,
assuming you deferred the maximum amount and you continued employment for three
(3) years after the date of termination of employment at the base salary and, to
the extent applicable, the annual bonus calculated under Sections 4(A)(i) and
(ii), respectively, to the extent not otherwise contributed to such plans,
payable in a lump sum at the same time payment is made under Section 4(A)
hereof; and (E) payment by the Company of the premiums for you (except in the
case of your death) and your dependents' health coverage for three (3) years
from the date of termination of your employment under the Company's health plans
which cover the senior executives of the Company or materially similar benefits
(to the extent not otherwise provided), provided that in the case of termination
within one hundred eighty (180) days prior to a Change in Control, the
obligations under this subpart (E) shall only exist to the extent that you or
your dependents, as the case may be, had timely elected or timely elect COBRA
coverage which continued at the time of the Change in Control and the obligation
with regard to the period prior to the Change in Control shall be limited to
reimbursement of the COBRA premiums previously paid or due for such period. For
the avoidance of doubt, in calculating the amount of annual bonus "paid or
payable" to you in a particular year under the Millennium Chemicals Inc. Annual
Performance Incentive Plan or any similar plan that contains a "bonus bank"
feature, the annual bonus credited to your "bonus bank" account under such plan
for such year shall be deemed to be the bonus "paid or payable" to you under
such plan for such year. Any amendment or termination of benefits, equity or
incentive plans within one-hundred and eighty (180) days prior to, or after, a
Change in Control that is detrimental to you shall be ignored with respect to
(C), (D) and (E) above. Payments under (E) above may, at the discretion of the
Company, be made by continuing your participation in the plan as a terminee, by
paying the applicable COBRA premium for you and your dependents, or by covering
you and your dependents under substitute arrangements, provided that, to the
extent you incur tax that you would not have incurred as an active employee as a
result of the aforementioned coverage or the benefits provided thereunder, you
shall receive from the Company an additional payment in the amount necessary so
that you will have no additional cost for receiving such items or any additional
payment. Section 6 hereof shall also continue to apply in all instances.
5. Special Tax Provision. (a) Anything in this Agreement to the contrary
notwithstanding, in the event that any amount or benefit paid, payable, or to be
paid, or distributed, distributable, or to be distributed to or with respect to
you (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions result in a
change of ownership covered by Section 280G(b)(2) of the Internal Revenue Code
of 1986, as amended (the "Code") or any person affiliated with the Company or
such person) as a result of a change in ownership of Millennium covered by Code
Section 280G(b)(2), but not including the payment provided for in this Section 5
(collectively, the "Covered Payments"), is or becomes subject to the excise tax
imposed by or under Section 4999 of the Code (or any similar tax that may
hereafter be imposed), and/or any interest or penalties with respect to such
excise tax (such excise tax, together with such interest and penalties thereon,
is hereinafter collectively referred to as the "Excise Tax"), the Company shall
pay to you an additional amount (the "Tax Reimbursement Payment") such that
after payment by you of all taxes (including, without limitation, any payroll
tax, any income tax, any interest or penalties and any Excise Tax imposed on or
attributable to the Tax Reimbursement Payment itself), you retain an amount of
the Tax Reimbursement Payment equal to the sum of
(i) the amount of the Excise Tax imposed upon the Covered Payments,
and
(ii) without duplication, an amount equal to the product of
(A) any deductions disallowed for federal, state or local income
tax purposes because of the inclusion of the Tax Reimbursement Payment in your
adjusted gross income, and
(B) the highest applicable marginal rates of federal, state or
local income tax for the calendar year in which the Tax Reimbursement Payment is
made or is to be made. The intent of this Section 5 is that after paying your
federal, state and local income tax and any payroll taxes with respect to the
Tax Reimbursement Payment, you will be in the same position as if you were not
subject to the Excise Tax under Section 4999 of the Code and did not receive the
extra payments pursuant to this Section 5 and this Section 5 shall be
interpreted accordingly.
(b) Except as otherwise provided in Section 5(a), for purposes of
determining whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as "parachute payments"
(within the meaning of Section 280G(b)(2) of the Code) and such payments in
excess of the Code Section 280G(b)(3) "base amount" shall be treated as subject
to the Excise Tax, unless, and except to the extent that, the Company's
independent certified public accountants appointed prior to the change in
ownership covered by Code Section 280G(b)(2) or legal counsel (reasonably
acceptable to you) appointed by such public accountants (or, if the public
accountants decline such appointment and decline appointing such legal counsel,
such independent certified public accountants as promptly mutually agreed on in
good faith by the Company and you) (the "Accountant"), deliver a written opinion
to you, reasonably satisfactory to your legal counsel, that you have a
reasonable basis to claim that the Covered Payments (in whole or in part)
(A) do not constitute "parachute payments",
(B) represent reasonable compensation for services actually rendered
(within the meaning of Section 280G(b)(4) of the Code) in excess of the "base
amount" allocable to such reasonable compensation, or
(C) such "parachute payments" are otherwise not subject to such Excise
Tax (with appropriate legal authority, detailed analysis and explanation
provided therein by the Accountant); and
(ii) the value of any Covered Payments which are non-cash benefits or
deferred payments or benefits shall be determined by the Accountant in
accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax Reimbursement
Payment, you shall be deemed:
(i) to pay federal, state and/or local income taxes at the highest
applicable marginal rate of income taxation for the calendar year in which the
Tax Reimbursement Payment is made or is to be made, and
(ii) to have otherwise allowable deductions for federal, state and
local income tax purposes at least equal to those which would be disallowed due
to the inclusion of the Tax Reimbursement Payment in your adjusted gross income.
(d)(i)(A) In the event that prior to the time you have filed any of your
tax returns for the calendar year in which the change in ownership event covered
by Code Section 280G(b)(2) occurred, the Accountant determines, for any reason
whatsoever, the correct amount of the Tax Reimbursement Payment to be less than
the amount determined at the time the Tax Reimbursement Payment was made, you
shall repay to the Company, at the time that the amount of such reduction in Tax
Reimbursement Payment is determined by the Accountant, the portion of the prior
Tax Reimbursement Payment attributable to such reduction (including the portion
of the Tax Reimbursement Payment attributable to the Excise Tax and federal,
state and local income and payroll tax imposed on the portion of the Tax
Reimbursement Payment being repaid by you, using the assumptions and methodology
utilized to calculate the Tax Reimbursement Payment (unless manifestly
erroneous)), plus interest on the amount of such repayment at the rate provided
in Section 1274(b)(2)(B) of the Code.
(B) In the event that a determination described in (A) above is made
by the Accountant after the filing by you of any of your tax returns for the
calendar year in which the change in ownership event covered by Code Section
280G(b)(2) occurred but prior to one (1) year after the occurrence of such
change in ownership, you shall file at the request of the Company amended tax
returns in accordance with the Accountant's determination, but no portion of the
Tax Reimbursement Payment otherwise payable to the Company shall be required to
be refunded to the Company until actual refund or credit of such portion has
been made to you, and interest payable to the Company shall not exceed the
interest received or credited to you by such tax authority for the period it
held such portion (less any tax you must pay on such interest and which you are
unable to deduct as a result of payment of the refund).
(C) In the event you receive a refund pursuant to (B) above and repay
such amount to the Company, you shall thereafter file for any refunds or credits
that may be due to you by reason of the repayments to the Company. You and the
Company shall mutually reasonably agree upon the course of action, if any, to be
pursued (which shall be at the expense of the Company) if your claim for such
refund or credit is denied.
(ii) In the event that the Excise Tax is later determined by the
Accountant or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Reimbursement Payment is made (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Tax Reimbursement Payment), the Company shall make an
additional Tax Reimbursement Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) once the amount of
such excess is finally determined.
(iii) In the event of any controversy between you and the Internal
Revenue Service (or other taxing authority) that relates to the payment provided
for under this Section 5, subject to the second sentence of subpart (i)(C)
above, you shall permit the Company to control issues related to this Section 5
(at its expense), provided that such issues do not potentially materially
adversely affect you, but you shall control any other issues that you may have
with the Internal Revenue Service (or other taxing authority). In the event the
issues are interrelated, you and the Company shall in good faith cooperate so as
not to jeopardize resolution of either issue, but if the parties cannot agree
you shall make the final determination with regard to the issues that you may
have with the Internal Revenue Service (or other taxing authority). In the event
of any conference with any taxing authority as to the Excise Tax or associated
income taxes, you shall permit the representative of the Company to accompany
you, and you and your representative shall cooperate with the Company and its
representative.
(iv) With regard to any initial filing for a refund or any other
action required pursuant to this Section 5 (other than by mutual agreement) or,
if not required, agreed to by the Company and you, you shall cooperate fully
with the Company, and the Company shall bear the expense for the preparation of
any such filing or amended tax return, provided that the foregoing shall not
apply to actions that are provided herein to be at your sole discretion.
(e) The Tax Reimbursement Payment, or any portion thereof, payable by the
Company shall be paid not later than the fifth (5th) day following the
determination by the Accountant, and any payment made after such fifth (5th) day
shall bear interest at the rate provided in Code Section 1274(b)(2)(B). The
Company shall use its best efforts to cause the Accountant to promptly deliver
the initial determination required hereunder and, if not delivered, within
ninety (90) days after the change in ownership event covered by Section
280G(b)(2) of the Code, the Company shall pay you the Tax Reimbursement Payment
set forth in an opinion from counsel recognized as knowledgeable in the relevant
areas selected by you, and reasonably acceptable to the Company, within five (5)
days after delivery of such opinion. In accordance with Section 15, the Company
may withhold from the Tax Reimbursement Payment and deposit with the applicable
taxing authorities such amounts as they are required to withhold by applicable
law. To the extent that you are required to pay estimated or other taxes on
amounts received by you beyond any withheld amounts, you shall promptly make
such payments. The amount of such payment shall be subject to later adjustment
in accordance with the determination of the Accountant as provided herein.
(f) The Company shall be responsible for all charges of the Accountant and,
if Section 5(e) is applicable, the reasonable charges for the opinion given by
your counsel.
(g) You and the Company shall mutually agree on and promulgate further
guidelines in accordance with this Section 5 to the extent, if any, necessary to
effect the reversal of excessive or shortfall Tax Reimbursement Payments. The
foregoing shall not in any way be inconsistent with Section 5(d)(i)(C) hereof.
6. Indemnification. (a) The Company and Millennium, jointly and severally, agree
that if you are made a party to or threatened to be made a party to any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that you are or were a director or officer
of the Company or Millennium or their predecessors, and/or any other affiliate
of any of such companies, or are or were serving at the request of any of such
companies or affiliates as a director, officer, member, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including, without limitation, service with respect to employee
benefit plans, whether or not the basis of such Proceeding is alleged action in
an official capacity as a director, officer, member, employee, fiduciary or
agent while serving as a director, officer, member, employee, fiduciary or
agent, you shall be indemnified and held harmless by the Company and Millennium
to the fullest extent authorized by Delaware law (or, if different, the law
applicable to such company), as the same exists or may hereafter be amended,
against all Expenses incurred or suffered by you in connection therewith, and
such indemnification shall continue as to you even if you have ceased to be an
officer, director, member, fiduciary or agent, or are no longer employed by the
Company, and shall inure to the benefit of your heirs, executors and
administrators.
(b) As used in this Agreement, the term "Expenses" shall include, without
limitation, damages, losses, judgments, liabilities, fines, penalties, excise
taxes, settlements and reasonable costs, reasonable attorneys' fees, reasonable
accountants' fees, and reasonable disbursements and costs of attachment or
similar bonds, investigations, and any reasonable expenses of establishing a
right to indemnification under this Agreement.
(c) Expenses incurred by you in connection with any Proceeding shall be
paid by the Company and Millennium in advance upon your request and the giving
by you of any undertakings required by applicable law.
(d) You shall give the Company and Millennium prompt notice of any claim
made against you for which indemnity will or could be sought under this
Agreement. In addition, you shall give the Company and Millennium such
information and cooperation as it may reasonably require and as shall be within
your power and at such times and places as are reasonably convenient for you.
(e) With respect to any Proceeding as to which you notify the Company and
Millennium of the commencement thereof:
(i) the Company will be entitled to participate therein at its own
expense; and
(ii) except as otherwise provided below, to the extent that it may
wish, the Company jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof. You also shall have the right to
employ your own counsel in such Proceeding and the fees and expenses of such
counsel shall be at the expense of the Company.
(f) The Company and Millennium shall not be liable to indemnify you under
this Agreement for any amounts paid in settlement of any Proceeding effected
without its written consent. Neither the Company nor Millennium shall settle any
Proceeding in any manner which would impose any penalty or limitation on you
without your written consent. Neither the Company, Millennium nor you will
unreasonably withhold or delay their consent to any proposed settlement.
(g) The right to indemnification and the payment of expenses incurred in
defending a Proceeding in advance of its final disposition conferred in this
Section 6 shall not be exclusive of any other right which you may have or
hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the company, agreement, vote of stockholders or
disinterested directors or otherwise.
(h) The Company and Millennium agree to maintain or cause to be maintained
Officer and Director liability insurance policies covering you and shall
maintain at all times following the Effective Date and during your term of
employment with the Company and/or Millennium coverage under such policies in
the aggregate with regard to all officers and directors, including you, of an
amount not less than $20 million. The Company and Millennium shall maintain or
cause to be maintained for a six (6) year period commencing on the date you
cease to be both an employee or director of such entity or any of its
affiliates, Officer and Director liability insurance coverage for events
occurring during the period you were an employee or director of any such entity
or any of its affiliates in the same aggregate amount and under the same terms
as are maintained for its active officers and directors. The phrase "in the same
aggregate amount and under the same terms" shall include the same level of
self-insurance by the entity as shall be maintained for active officers and
directors.
7. Legal Fees. In the event that a claim for payment or benefits under this
Agreement or any other plan or agreement of the Company or its affiliates is
disputed as a result of events which occurred on or after a Change in Control,
or during the Pre Change in Control Period, the Company shall pay all reasonable
attorney, accountant and other professional fees and reasonable expenses
incurred by you in pursuing such claim, unless the claim by you is found to be
frivolous by any court or arbitrator.
8. No Duty to Mitigate/Set-off. The Company agrees that if your employment with
the Company is terminated during the term of this Agreement, you shall not be
required to seek other employment or to attempt in any way to reduce any amounts
payable to you by the Company pursuant to this Agreement. Further, the amount of
any payment or benefit provided for in this Agreement shall not be reduced by
any compensation earned by you or benefit provided to you as the result of
employment by another employer or otherwise. Except as otherwise provided herein
and apart from any disagreement between you and the Company concerning
interpretation of this Agreement or any term or provision hereof, the Company's
obligations to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any circumstances,
including without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Company may have against you. The amounts due under
Section 4 are inclusive, and in lieu of, any amounts payable under any other
salary continuation or cash severance arrangement of the Company and to the
extent paid or provided under any other such arrangement shall be offset against
the amount due hereunder.
9. Term. This Agreement shall be for a term (the "Term") commencing on the
Effective Date and terminating on the Termination Date as defined herein,
provided that if a Change in Control has taken place prior to the Termination
Date, this Agreement shall continue in full force and effect during the Change
in Control Protection Period and further provided that the payment and other
obligations hereunder shall survive such termination to the extent a Change in
Control has occurred during the Term, and in any event, the obligations under
Section 6 hereof shall survive the end of the Term with regard to matters
occurring during the Term (even if a claim is made after the Term). The
Termination Date shall initially be September 30, 2002 and shall automatically
be extended for successive one (1) year periods as of September 30, 2002 and as
of each anniversary of the Termination Date, unless notice is given in writing
to you by the Company at least 180 days prior to September 30, 2002, or any such
anniversary of the Termination Date, of its intention to not extend the
Termination Date.
10. Successors; Binding Agreement. In addition to any obligations imposed by law
upon any successor to the Company, the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree in writing to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place and this Agreement shall inure to the
benefit of such successor. Any such assignment shall not relieve the Company
from liability hereunder, for periods prior to such assignment, but shall
relieve the Company from liability for periods after such assignment. Reference
to the Company herein shall also include any successor to the Company. This
Agreement shall inure to the benefit of and be enforceable by your personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devises and legatees. If you die while any amount would still by
payable to you hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of the
Agreement to the executors, personal representatives, estate trustees, or
administrators of your estate. This Agreement is personal to you and neither
this Agreement nor any rights hereunder may be assigned by you.
11. Communications. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, or sent by
registered mail, postage prepaid as follows:
(i) If to the Company or Millennium, to such entity at:
230 Half Mile Road
P.O. Box 7015
Red Bank, New Jersey 07701
Attention: William M. Landuyt
Chairman and Chief Executive Officer
(ii) If to you, to the last shown address on the books of the
Company or Millennium.
Any such notice shall be deemed given when so delivered personally, or, if
mailed, five (5) days after the date of deposit (in the form of registered or
certified mail, return receipt requested, postage prepaid) in the United States
postal system. Any party may by notice designate another address or person for
receipt of notices hereunder.
12. Not an Agreement of Employment. This is not an agreement assuring employment
and the Company reserves the right to terminate your employment at any time with
or without Cause, subject to the payment provisions hereof if such termination
is during the Change in Control Protection Period. You acknowledge that you are
aware that you shall have no claim against the Company hereunder or for
deprivation of the right to receive the amounts hereunder as a result of any
termination that does not specifically satisfy the requirements hereof. The
foregoing shall not affect your rights under any other agreement with the
Company.
13. Miscellaneous. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Company Board (as defined in Part III of Exhibit A). No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. This Agreement constitutes the entire Agreement between the parties hereto
pertaining to the subject matter hereof and supersedes any prior agreements
between the Company and you. For the avoidance of doubt, the Company and you
concur that the formation of Equistar Chemicals, LP ("Equistar") and the
contribution of assets by Millennium Petrochemicals Inc. to Equistar on December
1, 1997, does not constitute a Change in Control under this Agreement or any
other agreement or plan affecting you (including your Restricted Stock Agreement
with Millennium); in addition, the sale or disposition of all or any part of
Millennium's interests in Equistar shall not be deemed to constitute a Change in
Control under this Agreement or any other agreement or plan affecting you. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. All references to any law shall be
deemed also to refer to any successor provisions to such laws.
14. Independent Representation. You acknowledge that you have been advised by
the Company to have the Agreement reviewed by independent counsel and you have
been given the opportunity to do so.
15. Withholding Taxes. The Company may withhold from any and all amounts payable
under this Agreement such federal, state and local taxes as may be required to
be withheld pursuant to any applicable law or regulation.
<PAGE>
16. Governing Law. This Agreement shall be construed, interpreted, and governed
in accordance with the laws of the State of Delaware without reference to rules
relating to conflicts of law.
Very truly yours,
MILLIENNIUM AMERICA HOLDINGS INC.
By______________________________
Name:
Title:
Agreed and Accepted as of the date first written above.
MILLENNIUM CHEMICALS INC.
(for purposes of Section 6 only)
By:___________________________ ___________________________
[Name]
<PAGE>
EXHIBIT A
Part I -- Cause
Subject to compliance with the notification provisions in this Exhibit A, this
Agreement shall not prevent the termination of your employment by the Company
for Cause. A termination for Cause means a termination by the Company effected
by a written notice of termination for Cause. For purposes of this Agreement,
the term "Cause" shall be limited to your: (i) willful misconduct with regard to
the Company or its affiliates or their businesses which has a material adverse
effect on the Company and its affiliates taken as a whole; (ii) refusal to
follow the proper written direction of the Company Board provided that the
foregoing refusal shall not be "Cause" if in good faith you believe that such
direction is illegal, unethical or immoral and you promptly so notify the
applicable Company Board; (iii) conviction of a felony (other than a felony
involving a motor vehicle) and either (x) exhausting all appeals without a
reversal of the conviction or (y) commencing a term of incarceration in a house
of detention; (iv) breach of any fiduciary duty owed to the Company or its
affiliates which has a material adverse effect on the Company and its affiliates
taken as a whole; or (v) your material fraud with regard to the Company or any
of its affiliates.
2. A notice of termination for Cause shall mean a notice that shall set forth in
reasonable detail the specific basis, facts and circumstances which provide for
a basis for termination for Cause and shall include a copy of a resolution duly
adopted by at least two-thirds of the directors of the applicable Company at a
meeting which was called for the purpose of considering such termination and
which you and your representative had the right to attend and address, finding
that, in the good faith opinion of the applicable board, you engaged in conduct
set forth in the definition of Cause herein and specifying the particulars
thereof in reasonable detail. The date of termination for a termination for
Cause shall be the date indicated in the notice of termination.
3. Notwithstanding anything to the contrary contained in this Agreement, if any
purported termination for Cause within the Change in Control Protection Period
that occurs on or after the Effective Date is held by a court not to have been
based on the grounds set forth in this Agreement, or not to have followed the
procedures set forth in this Agreement, such purported termination for Cause
shall be deemed a termination by the Company without Cause and you shall be
entitled to the amounts and benefits provided in Section 4 to the extent, if
any, applicable.
<PAGE>
Part II -- Change in Control
1. Change in Control. For purposes of this Agreement, the term "Change in
Control" shall mean (i) any "person" as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 ("Act") (other than Millennium, any
trustee or other fiduciary holding securities under any employee benefit plan of
Millennium or any company owned, directly or indirectly, by the stockholders of
Millennium in substantially the same proportions as their ownership of Common
Stock of Millennium), becoming the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of Millennium representing
twenty-five percent (25%) or more of the combined voting power of Millennium's
then outstanding securities; (ii) during any period of two (2) consecutive years
(not including any period prior to October 1, 1996), individuals who at the
beginning of such period constitute the Board of Directors of Millennium, and
any new director (other than a director designated by a person who has entered
into an agreement with Millennium to effect a transaction described in clause
(i), (iii), or (iv) of this paragraph or a director whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act)
or other actual or threatened solicitation of proxies or consents by or on
behalf of a person other than the Board of Directors of Millennium) whose
election by the Board of Directors of Millennium or nomination for election by
Millennium's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
two (2) year period or whose election or nomination for election was previously
so approved, cease for any reason to constitute at least a majority of the Board
of Directors of Millennium; (iii) the merger or consolidation of Millennium with
any other corporation, other than a merger or consolidation which would result
in the voting securities of Millennium outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of Millennium or such
surviving entity outstanding immediately after such merger or consolidation;
provided, however, that a merger or consolidation effected to implement a
recapitalization of Millennium (or similar transaction) in which no person
(other than those covered by the exceptions in (i) above) acquires more than
twenty-five percent (25%) of the combined voting power of Millennium's then
outstanding securities shall not constitute a Change in Control of Millennium;
or (iv) approval by the stockholders of Millennium of a plan of complete
liquidation of Millennium or the closing of the sale or disposition by
Millennium of all or substantially all of Millennium's assets other than the
sale of all or substantially all of the assets of Millennium to one or more
Subsidiaries (as defined below) of Millennium or to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or more
of the combined voting power of the outstanding voting securities of Millennium
at the time of the sale. "Subsidiary" shall have the meaning set forth in
Section 424 of the Code and the term shall also include any partnership, limited
liability company or other business entity if Millennium owns, directly or
indirectly, securities or other ownership interests representing at least fifty
percent (50%) of the ordinary voting power or equity or capital interests of
such entity. Only one (1) Change in Control may occur under this Agreement.
2. Change in Control Protection Period. For purposes of this Agreement, the term
"Change in Control Protection Period" shall mean the Pre Change in Control
Period and the Post Change in Control Period as defined below.
3. Pre Change in Control Period. For purposes of this Agreement, Pre Change in
Control Period shall mean the one-hundred and eighty (180) day period prior to
the date of a Change in Control that occurs on or after the Effective Date.
4. Post Change in Control Period. For purposes of this Agreement, Post Change in
Control Period shall mean the period commencing on the date of a Change in
Control that occurs on or after the Effective Date and ending the day
immediately prior to the second anniversary of the Change in Control.
Part III - Company Board
For purposes of this Agreement, the term "Company Board" shall be deemed to
refer to the Board of Directors of the Company and Millennium.
Part IV -- Disability
For purposes of this Agreement, the term "Disability" shall mean your
inability to perform your material duties and responsibilities hereunder due to
the same or related physical or mental reasons for more than one hundred eighty
(180) consecutive days in any twelve (12) consecutive month period. A
termination for Disability shall be deemed to occur when you are terminated by
the Company by written notice after you incur a Disability and while you remain
disabled.
<PAGE>
Part V -- Good Reason
1. For purposes of this Agreement, a termination for "Good Reason" shall mean a
termination by you effected by a written notice of termination for Good Reason
given within ninety (90) days after the occurrence of the Good Reason event.
Subject to subsection 3 below, "Good Reason" shall mean the occurrence or
failure to cause the occurrence, as the case may be, without your express
written consent, of (i) any material diminution of your positions, duties or
responsibilities with the Company from the highest position held within the Pre
Change in Control Period (except in each case in connection with the termination
of your employment for Cause, Disability or as a result of your death, or in the
case of a material diminution of duties or responsibilities, temporarily as a
result of your illness or other absence) or the assignment to you of duties or
responsibilities that are inconsistent with your aforementioned highest
position; (ii) your removal from, or the nonreelection to, your positions as an
officer with the Company or Millennium held during the Pre Change in Control
Period; (iii) a relocation of the Company's principal United States executive
offices to a location more than twenty-five (25) miles from where they are at
the time of the Change in Control, or a relocation by the Company of your
principal office away from such principal United States executive offices; (iv)
a failure by the Company or Millennium (A) to continue any bonus plan, program
or arrangement in which you were entitled to participate during the Pre Change
in Control Period (the "Bonus Plans"), provided that any such Bonus Plans may be
modified at the Company's discretion from time to time but shall be deemed
terminated if (x) any such plan does not remain substantially in the form in
effect prior to such modification or (y) if plans providing you with
substantially similar benefits are not substituted therefor ("Substitute
Plans"), or (B) to continue you as a participant in the Bonus Plans or
Substitute Plans on not less than the same maximum level of award and not more
than the same level of difficulty for achievability thereof as was applicable to
you immediately prior to any change in such plans, in accordance with the Bonus
Plans and the Substitute Plans; (v) any material breach by the Company or
Millennium of any provision of this Agreement; (vi) if on the Company Board
during the Pre Change in Control Period, your removal from or failure to be
reelected to the Company Board; (vii) a reduction by the Company of your rate of
annual base salary to a level below your highest rate of base salary within
one-hundred and eighty (180) days prior to the Change in Control; or (viii)
failure of any successor of the Company to assume in a writing delivered to you
upon the assignee becoming such, the obligations of the Company hereunder.
2. A notice of termination for Good Reason shall indicate the specific basis for
termination relied upon and set forth in reasonable detail the facts and
circumstances claimed to provide a basis for a termination for Good Reason. The
failure by you to set forth in the notice of termination for Good Reason any
facts or circumstances which contribute to the showing of Good Reason shall not
waive any of your rights hereunder or preclude you from asserting such fact or
circumstance in enforcing your rights hereunder. The notice of termination for
Good Reason shall provide for a date of termination not less than ten (10) nor
more than sixty (60) days after the date such notice of termination for Good
Reason is given.
3. In the event that a Direct Pay Letter of Credit is delivered in accordance
with Section 3 of this Agreement at the time of a Change in Control, the
definition of Good Reason shall not include the events set forth in subsections
1(i), (ii) and (vi) above so long as during such period you are maintained in a
senior advisory capacity (without any line or other staff responsibilities) to
assist in the orderly transition to new management.
Part VI - Retirement
For purposes of this Agreement, the term "Retirement" shall mean your
retirement by the Company at or after your sixty-fifth (65th) birthday to the
extent such termination is specifically permitted as a stated exception from
applicable federal and state age discrimination laws based on position and
retirement benefits.
EXHIBIT 10.2
Millennium Inorganic Chemicals Inc.
200 International Circle
Suite 5000 and Suite 2000
Hunt Valley, Maryland 21030
(410) 229-4400
July 24, 1998
[Name]
[Address]
Dear [Name]:
1. Introduction. Millennium Inorganic Chemicals Inc. (the "Company") believes
that the maintenance of a sound and vital management of the Company and of
Millennium Chemicals Inc., which is the ultimate parent corporation of the
Company ("Millennium"), is essential to the protection and enhancement of the
interests of the Company and Millennium and their stockholders. The Company also
recognizes that the possibility of a Change in Control of the Company or a
Change in Control of Millennium (each as defined in Part II of Exhibit A), with
the attendant uncertainties and risks, might result in the departure or
distraction of key employees of the Company to the detriment of the Company,
Millennium and their shareholders. In light of the possibility of a Change in
Control of the Company or Millennium, the Company has determined that it is
appropriate to induce key employees to remain with the Company, and to reinforce
and encourage their continued attention and dedication. Accordingly, upon your
written acceptance of the terms and conditions of this agreement (the
"Agreement") evidenced by signing below, the Company intends to provide you the
protections set forth herein as of the date first set forth above (the
"Effective Date"). Capitalized terms not defined in the body of this Agreement
shall have the meanings set forth in Exhibit A hereto, which is incorporated
herein and made a part of this Agreement. This Agreement shall replace the prior
agreement regarding a change in control of Millennium and the Company dated July
1, 1996, by and between you and the Company, and said prior agreement is hereby
rendered null and void and shall no longer have any force and effect.
2. Termination Following a Change in Control. If a Change in Control occurs on
or after the Effective Date and your employment is terminated during the Post
Change in Control Period (i) by the Company without Cause or due to your
Disability, (ii) by you for Good Reason or, subject to Section 3 below, without
Good Reason, (iii) due to your death or (iv) due to your Retirement, then you
shall be entitled to the amounts and benefits provided in Section 4 herein.
Furthermore, if a Change in Control occurs on or after the Effective Date and
your employment was terminated within the Pre Change in Control Period (i) by
the Company without Cause or due to your Disability, (ii) by you for Good Reason
(based on an event that occurred within the Pre Change in Control Period), or
(iii) due to your death, you shall be entitled to the amounts and benefits
provided in Section 4 herein.
3. Direct Pay Letter of Credit. Notwithstanding anything else herein, your right
to voluntarily terminate employment without Good Reason after the date of a
Change in Control and receive the amounts due under Section 4 hereof shall be
delayed until one hundred and eighty (180) days after the Change in Control if,
simultaneous with the Change in Control, the Company or the person or entity
triggering the Change in Control delivers to you an irrevocable direct pay
letter of credit (the "Direct Pay Letter of Credit") satisfying the requirements
of this Section 3 and an indemnity agreement covering in a similar manner the
provisions of Section 6 with regard to activities after the Change in Control.
The Direct Pay Letter of Credit shall be in an amount equal to the aggregate
amount you would be entitled to receive under Sections 4(A)(i) and (ii) hereof
if you were terminated without Cause immediately upon the Change in Control and
shall have an expiration date of no less than two (2) years after the date of
such Change in Control. You (or, if applicable, your legal representative) shall
be entitled to draw on the Direct Pay Letter of Credit upon presentation to the
issuing bank of a demand for payment signed by you (or, if applicable, your
legal representative) that states that (i) a Good Reason event has occurred and
your employment has terminated during the Post Change in Control Period, or (ii)
one-hundred and eighty (180) days have expired since the Change in Control and
your employment has terminated during the Post Change in Control Period. There
shall be no other requirements (including no requirement that you first make
demand upon the Company) with regard to payment of the Direct Pay Letter of
Credit. To the extent the Direct Pay Letter of Credit is not adequate to cover
the amount owed to you under this Agreement, is not submitted by you or is not
paid by the issuing bank, the Company shall remain liable to you for any amounts
owed to you pursuant to the terms of this Agreement. To the extent any amount is
paid under the Direct Pay Letter of Credit it shall be a credit against any
amount the Company then or thereafter would owe to you under Section 4 of this
Agreement. The Direct Pay Letter of Credit shall be issued by a national money
center bank with a rating of at least A by Standard and Poor's. The Company
shall bear the cost of the Direct Pay Letter of Credit.
4. Compensation on Change in Control Termination. If pursuant to Section 2 you
are entitled to amounts and benefits under this Section 4, the Company shall,
subject to Section 8, pay and provide to you: (A) in a lump sum within five (5)
days after such termination (or, if such termination occurred during the Pre
Change in Control Period, within five (5) days after the Change in Control) the
sum of (i) three (3) times your highest annual base salary in effect within
one-hundred and eighty (180) days prior to the Change in Control, computed by
including the amount of base salary deferred by you (voluntarily or otherwise
pursuant to the Millennium Chemicals Inc. Salary and Bonus Deferral Plan (the
"Deferral Plan") or any other agreement or plan that is or may have been in
effect at the time of such deferral) as part of the base salary for the year in
which it was accrued, (ii) three (3) times the highest annual bonus paid or
payable to you for any of the last three (3) completed fiscal years by the
Company or its predecessors or any affiliate of the Company or its predecessors
(which shall in no event include amounts contributed or allocated by the Company
(or its predecessors or affiliates thereof) on your behalf or paid to you under
any supplemental executive bonus plans applicable to you (including, without
limitation, the 1993 or 1996 HI Long Term Incentive Plans, any other plan
commonly referred to by the Company as a "top-hat" plan or any equity plan such
as the Millennium Chemicals Inc. Long Term Stock Incentive Plan)), computed by
including the amount of any annual bonus deferred by you (voluntarily or
otherwise pursuant to the Deferral Plan or any other agreement or plan that is
or may have been in effect at the time of such deferral) as part of the annual
bonus for the year in which it was accrued, (iii) any unreimbursed business
expenses for the period prior to termination payable in accordance with the
Company's policies, and (iv) any base salary, bonus, vacation pay or other
deferred compensation accrued or earned under law or in accordance with the
Company's policies applicable to you but not yet paid; (B) any other amounts or
benefits due under the then applicable employee benefit, equity or incentive
plans of the Company applicable to you as shall be determined and paid in
accordance with such plans; (C) three (3) years of additional age, service and
compensation credit (using, for such purposes, the base salary and (to the
extent applicable) annual bonus calculated under Sections 4(A)(i) and (ii),
respectively, as your deemed compensation in such years) for pension purposes
under any defined benefit type qualified or nonqualified pension plan or
arrangement of the Company and its affiliates applicable to you, measured from
the date of termination of employment and not credited to the extent that you
are otherwise entitled to such credit during such three (3) year period, which
payments shall be made through and in accordance with the terms of the
nonqualified defined benefit pension plan or arrangement if any then exists, or,
if not, in an actuarially equivalent lump sum (using the actuarial factors then
applying in the Company's or its affiliates' defined benefit plan covering you
and your actual age on the date of termination of employment); (D) an amount
equal to the maximum amount which would be credited to your account balance(s)
under any type of qualified 401(k) plan or nonqualified excess 401(k) plan,
assuming you deferred the maximum amount and you continued employment for three
(3) years after the date of termination of employment at the base salary and, to
the extent applicable, the annual bonus calculated under Sections 4(A)(i) and
(ii), respectively, to the extent not otherwise contributed to such plans,
payable in a lump sum at the same time payment is made under Section 4(A)
hereof; and (E) payment by the Company of the premiums for you (except in the
case of your death) and your dependents' health coverage for three (3) years
from the date of termination of your employment under the Company's health plans
which cover the senior executives of the Company or materially similar benefits
(to the extent not otherwise provided), provided that in the case of termination
within one hundred eighty (180) days prior to a Change in Control, the
obligations under this subpart (E) shall only exist to the extent that you or
your dependents, as the case may be, had timely elected or timely elect COBRA
coverage which continued at the time of the Change in Control and the obligation
with regard to the period prior to the Change in Control shall be limited to
reimbursement of the COBRA premiums previously paid or due for such period. For
the avoidance of doubt, in calculating the amount of annual bonus "paid or
payable" to you in a particular year under the Millennium Chemicals Inc. Annual
Performance Incentive Plan or any similar plan that contains a "bonus bank"
feature, the annual bonus credited to your "bonus bank" account under such plan
for such year shall be deemed to be the bonus "paid or payable" to you under
such plan for such year. Any amendment or termination of benefits, equity or
incentive plans within one-hundred and eighty (180) days prior to, or after, a
Change in Control that is detrimental to you shall be ignored with respect to
(C), (D) and (E) above. Payments under (E) above may, at the discretion of the
Company, be made by continuing your participation in the plan as a terminee, by
paying the applicable COBRA premium for you and your dependents, or by covering
you and your dependents under substitute arrangements, provided that, to the
extent you incur tax that you would not have incurred as an active employee as a
result of the aforementioned coverage or the benefits provided thereunder, you
shall receive from the Company an additional payment in the amount necessary so
that you will have no additional cost for receiving such items or any additional
payment. Section 6 hereof shall also continue to apply in all instances.
5. Special Tax Provision. (a) Anything in this Agreement to the contrary
notwithstanding, in the event that any amount or benefit paid, payable, or to be
paid, or distributed, distributable, or to be distributed to or with respect to
you (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions result in a
change of ownership covered by Section 28OG(b)(2) of the Internal Revenue Code
of 1986, as amended (the "Code") or any person affiliated with the Company or
such person) as a result of a change in ownership of Millennium covered by Code
Section 28OG(b)(2), but not including the payment provided for in this Section 5
(collectively, the "Covered Payments"), is or becomes subject to the excise tax
imposed by or under Section 4999 of the Code (or any similar tax that may
hereafter be imposed), and/or any interest or penalties with respect to such
excise tax (such excise tax, together with such interest and penalties thereon,
is hereinafter collectively referred to as the "Excise Tax"), the Company shall
pay to you an additional amount (the "Tax Reimbursement Payment") such that
after payment by you of all taxes (including, without limitation, any payroll
tax, any income tax, any interest or penalties and any Excise Tax imposed on or
attributable to the Tax Reimbursement Payment itself), you retain an amount of
the Tax Reimbursement Payment equal to the sum of (i) the amount of the Excise
Tax imposed upon the Covered Payments, and (ii) without duplication, an amount
equal to the product of (A) any deductions disallowed for federal, state or
local income tax purposes because of the inclusion of the Tax Reimbursement
Payment in your adjusted gross income, and (B) the highest applicable marginal
rates of federal, state or local income tax for the calendar year in which the
Tax Reimbursement Payment is made or is to be made. The intent of this Section 5
is that after paying your federal, state and local income tax and any payroll
taxes with respect to the Tax Reimbursement Payment, you will be in the same
position as if you were not subject to the Excise Tax under Section 4999 of the
Code and did not receive the extra payments pursuant to this Section 5 and this
Section 5 shall be interpreted accordingly.
(b) Except as otherwise provided in Section 5(a), for purposes of
determining whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax, (i) such Covered Payments will be treated
as "parachute payments" (within the meaning of Section 28OG(b)(2) of the Code)
and such payments in excess of the Code Section 28OG(b)(3) "base amount" shall
be treated as subject to the Excise Tax, unless, and except to the extent that,
the Company's independent certified public accountants appointed prior to the
change in ownership covered by Code Section 28OG(b)(2) or legal counsel
(reasonably acceptable to you) appointed by such public accountants (or, if the
public accountants decline such appointment and decline appointing such legal
counsel, such independent certified public accountants as promptly mutually
agreed on in good faith by the Company and you) (the "Accountant"), deliver a
written opinion to you, reasonably satisfactory to your legal counsel, that you
have a reasonable basis to claim that the Covered Payments (in whole or in part)
(A) do not constitute "parachute payments", (B) represent reasonable
compensation for services actually rendered (within the meaning of Section
28OG(b)(4) of the Code) in excess of the "base amount" allocable to such
reasonable compensation, or (C) such "parachute payments" are otherwise not
subject to such Excise Tax (with appropriate legal authority, detailed analysis
and explanation provided therein by the Accountant); and (ii) the value of any
Covered Payments which are non-cash benefits or deferred payments or benefits
shall be determined by the Accountant in accordance with the principles of
Section 28OG of the Code.
(c) For purposes of determining the amount of the Tax Reimbursement
Payment, you shall be deemed: (i) to pay federal, state and/or local income
taxes at the highest applicable marginal rate of income taxation for the
calendar year in which the Tax Reimbursement Payment is made or is to be made,
and (ii) to have otherwise allowable deductions for federal, state and local
income tax purposes at least equal to those which would be disallowed due to the
inclusion of the Tax Reimbursement Payment in your adjusted gross income.
(d)(i) (A) In the event that prior to the time you have filed any of your
tax returns for the calendar year in which the change in ownership event covered
by Code Section 28OG(b)(2) occurred, the Accountant determines, for any reason
whatsoever, the correct amount of the Tax Reimbursement Payment to be less than
the amount determined at the time the Tax Reimbursement Payment was made, you
shall repay to the Company, at the time that the amount of such reduction in Tax
Reimbursement Payment is determined by the Accountant, the portion of the prior
Tax Reimbursement Payment attributable to such reduction (including the portion
of the Tax Reimbursement Payment attributable to the Excise Tax and federal,
state and local income and payroll tax imposed on the portion of the Tax
Reimbursement Payment being repaid by you, using the assumptions and methodology
utilized to calculate the Tax Reimbursement Payment (unless manifestly
erroneous)), plus interest on the amount of such repayment at the rate provided
in Section 1274(b)(2)(B) of the Code.
(B) In the event that a determination described in (A) above is made
by the Accountant after the filing by you of any of your tax returns for the
calendar year in which the change in ownership event covered by Code Section
28OG(b)(2) occurred but prior to one (1) year after the occurrence of such
change in ownership, you shall file at the request of the Company amended tax
returns in accordance with the Accountant's determination, but no portion of the
Tax Reimbursement Payment otherwise payable to the Company shall be required to
be refunded to the Company until actual refund or credit of such portion has
been made to you, and interest payable to the Company shall not exceed the
interest received or credited to you by such tax authority for the period it
held such portion (less any tax you must pay on such interest and which you are
unable to deduct as a result of payment of the refund).
(C) In the event you receive a refund pursuant to (B) above and repay
such amount to the Company, you shall thereafter file for any refunds or credits
that may be due to you by reason of the repayments to the Company. You and the
Company shall mutually reasonably agree upon the course of action, if any, to be
pursued (which shall be at the expense of the Company) if your claim for such
refund or credit is denied.
(ii) In the event that the Excise Tax is later determined by the Accountant
or the Internal Revenue Service to exceed the amount taken into account
hereunder at the time the Tax Reimbursement Payment is made (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Tax Reimbursement Payment), the Company shall make an additional Tax
Reimbursement Payment in respect of such excess (plus any interest or penalties
payable with respect to such excess) once the amount of such excess is finally
determined.
(iii) In the event of any controversy between you and the Internal Revenue
Service (or other taxing authority) that relates to the payment provided for
under this Section 5, subject to the second sentence of subpart (i)(C) above,
you shall permit the Company to control issues related to this Section 5 (at its
expense), provided that such issues do not potentially materially adversely
affect you, but you shall control any other issues that you may have with the
Internal Revenue Service (or other taxing authority). In the event the issues
are interrelated, you and the Company shall in good faith cooperate so as not to
jeopardize resolution of either issue, but if the parties cannot agree you shall
make the final determination with regard to the issues that you may have with
the Internal Revenue Service (or other taxing authority). In the event of any
conference with any taxing authority as to the Excise Tax or associated income
taxes, you shall permit the representative of the Company to accompany you, and
you and your representative shall cooperate with the Company and its
representative.
(iv) With regard to any initial filing for a refund or any other action
required pursuant to this Section 5 (other than by mutual agreement) or, if not
required, agreed to by the Company and you, you shall cooperate fully with the
Company, and the Company shall bear the expense for the preparation of any such
filing or amended tax return, provided that the foregoing shall not apply to
actions that are provided herein to be at your sole discretion.
(e) The Tax Reimbursement Payment, or any portion thereof, payable by the
Company shall be paid not later than the fifth (5th) day following the
determination by the Accountant, and any payment made after such fifth (5th) day
shall bear interest at the rate provided in Code Section 1274(b)(2)(B). The
Company shall use its best efforts to cause the Accountant to promptly deliver
the initial determination required hereunder and, if not delivered, within
ninety (90) days after the change in ownership event covered by Section
28OG(b)(2) of the Code, the Company shall pay you the Tax Reimbursement Payment
set forth in an opinion from counsel recognized as knowledgeable in the relevant
areas selected by you, and reasonably acceptable to the Company, within five (5)
days after delivery of such opinion. In accordance with Section 15, the Company
may withhold from the Tax Reimbursement Payment and deposit with the applicable
taxing authorities such amounts as they are required to withhold by applicable
law. To the extent that you are required to pay estimated or other taxes on
amounts received by you beyond any withheld amounts, you shall promptly make
such payments. The amount of such payment shall be subject to later adjustment
in accordance with the determination of the Accountant as provided herein.
(f) The Company shall be responsible for all charges of the Accountant and,
if Section 5(e) is applicable, the reasonable charges for the opinion given by
your counsel.
(g) You and the Company shall mutually agree on and promulgate further
guidelines in accordance with this Section 5 to the extent, if any, necessary to
effect the reversal of excessive or shortfall Tax Reimbursement Payments. The
foregoing shall not in any way be inconsistent with Section 5(d)(i)(C) hereof.
6. Indemnification. (a) The Company and Millennium, jointly and severally, agree
that if you are made a party to or threatened to be made a party to any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that you are or were a director or officer
of the Company or Millennium or their predecessors, and/or any other affiliate
of any of such companies, or are or were serving at the request of any of such
companies or affiliates as a director, officer, member, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including, without limitation, service with respect to employee
benefit plans, whether or not the basis of such Proceeding is alleged action in
an official capacity as a director, officer, member, employee, fiduciary or
agent while serving as a director, officer, member, employee, fiduciary or
agent, you shall be indemnified and held harmless by the Company and Millennium
to the fullest extent authorized by Delaware law (or, if different, the law
applicable to such company), as the same exists or may hereafter be amended,
against all Expenses incurred or suffered by you in connection therewith, and
such indemnification shall continue as to you even if you have ceased to be an
officer, director, member, fiduciary or agent, or are no longer employed by the
Company, and shall inure to the benefit of your heirs, executors and
administrators.
(b) As used in this Agreement, the term "Expenses" shall include, without
limitation, damages, losses, judgments, liabilities, fines, penalties, excise
taxes, settlements and reasonable costs, reasonable attorneys' fees, reasonable
accountants' fees, and reasonable disbursements and costs of attachment or
similar bonds, investigations, and any reasonable expenses of establishing a
right to indemnification under this Agreement.
(c) Expenses incurred by you in connection with any Proceeding shall be
paid by the Company and Millennium in advance upon your request and the giving
by you of any undertakings required by applicable law.
(d) You shall give the Company and Millennium prompt notice of any claim
made against you for which indemnity will or could be sought under this
Agreement. In addition, you shall give the Company and Millennium such
information and cooperation as it may reasonably require and as shall be within
your power and at such times and places as are reasonably convenient for you.
(e) With respect to any Proceeding as to which you notify the Company and
Millennium of the commencement thereof: (i) the Company will be entitled to
participate therein at its own expense; and (ii) except as otherwise provided
below, to the extent that it may wish, the Company jointly with any other
indemnifying party similarly notified will be entitled to assume the defense
thereof. You also shall have the right to employ your own counsel in such
Proceeding and the fees and expenses of such counsel shall be at the expense of
the Company.
(f) The Company and Millennium shall not be liable to indemnify you under
this Agreement for any amounts paid in settlement of any Proceeding effected
without its written consent. Neither the Company nor Millennium shall settle any
Proceeding in any manner which would impose any penalty or limitation on you
without your written consent. Neither the Company, Millennium nor you will
unreasonably withhold or delay their consent to any proposed settlement.
(g) The right to indemnification and the payment of expenses incurred in
defending a Proceeding in advance of its final disposition conferred in this
Section 6 shall not be exclusive of any other right which you may have or
hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the company, agreement, vote of stockholders or
disinterested directors or otherwise.
7. Legal Fees. In the event that a claim for payment or benefits under this
Agreement or any other plan or agreement of the Company or its affiliates is
disputed as a result of events which occurred on or after a Change in Control,
or during the Pre Change in Control Period, the Company shall pay all reasonable
attorney, accountant and other professional fees and reasonable expenses
incurred by you in pursuing such claim, unless the claim by you is found to be
frivolous by any court or arbitrator.
8. No Duty to Mitigate/Set-off. The Company agrees that if your employment with
the Company is terminated during the term of this Agreement, you shall not be
required to seek other employment or to attempt in any way to reduce any amounts
payable to you by the Company pursuant to this Agreement. Further, the amount of
any payment or benefit provided for in this Agreement shall not be reduced by
any compensation earned by you or benefit provided to you as the result of
employment by another employer or otherwise. Except as otherwise provided herein
and apart from any disagreement between you and the Company concerning
interpretation of this Agreement or any term or provision hereof, the Company's
obligations to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any circumstances,
including without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Company may have against you. The amounts due under
Section 4 are inclusive, and in lieu of, any amounts payable under any other
salary continuation or cash severance arrangement of the Company and to the
extent paid or provided under any other such arrangement shall be offset against
the amount due hereunder.
9. Term. This Agreement shall be for a term (the "Term") commencing on the
Effective Date and terminating on the Termination Date as defined herein,
provided that if a Change in Control has taken place prior to the Termination
Date, this Agreement shall continue in full force and effect during the Change
in Control Protection Period and further provided that the payment and other
obligations hereunder shall survive such termination to the extent a Change in
Control has occurred during the Term, and in any event, the obligations under
Section 6 hereof shall survive the end of the Term with regard to matters
occurring during the Term (even if a claim is made after the Term). The
Termination Date shall initially be September 30, 2002 and shall automatically
be extended for successive one (1) year periods as of September 30, 2002 and as
of each anniversary of the Termination Date, unless notice is given in writing
to you by the Company at least 180 days prior to September 30, 2002, or any such
anniversary of the Termination Date, of its intention to not extend the
Termination Date.
10. Successors; Binding Agreement. In addition to any obligations imposed by law
upon any successor to the Company, the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree in writing to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place and this Agreement shall inure to the
benefit of such successor. Any such assignment shall not relieve the Company
from liability hereunder, for periods prior to such assignment, but shall
relieve the Company from liability for periods after such assignment. Reference
to the Company herein shall also include any successor to the Company. This
Agreement shall inure to the benefit of and be enforceable by your personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devises and legatees. If you die while any amount would still by
payable to you hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of the
Agreement to the executors, personal representatives, estate trustees, or
administrators of your estate. This Agreement is personal to you and neither
this Agreement nor any rights hereunder may be assigned by you.
<PAGE>
11. Communications. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, or sent by
registered mail, postage prepaid as follows:
(i) If to the Company or Millennium, to such entity at:
c/o Millennium American Holdings Inc.
230 Half Mile Road
P.O. Box 7015
Red Bank, New Jersey 07701
Attention: George H. Hempstead, III Senior Vice
President-Law and Administration
(ii) If to you, to the last shown address on the books of the
Company or Millennium.
Any such notice shall be deemed given when so delivered personally, or, if
mailed, five (5) days after the date of deposit (in the form of registered or
certified mail, return receipt requested, postage prepaid) in the United States
postal system. Any party may by notice designate another address or person for
receipt of notices hereunder.
12. Not an Agreement of Employment. This is not an agreement assuring employment
and the Company reserves the right to terminate your employment at any time with
or without Cause, subject to the payment provisions hereof if such termination
is during the Change in Control Protection Period. You acknowledge that you are
aware that you shall have no claim against the Company hereunder or for
deprivation of the right to receive the amounts hereunder as a result of any
termination that does not specifically satisfy the requirements hereof. The
foregoing shall not affect your rights under any other agreement with the
Company.
13. Miscellaneous. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Company Board (as defined in Part III of Exhibit A). No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. This Agreement constitutes the entire Agreement between the parties hereto
pertaining to the subject matter hereof and supersedes any prior agreements
between the Company and you. For the avoidance of doubt, the Company and you
concur that the formation of Equistar Chemicals, LP ("Equistar") and the
contribution of assets by Millennium Petrochemicals Inc. to Equistar on December
1, 1997, does not constitute a Change in Control under this Agreement or any
other agreement or plan affecting you (including your Restricted Stock Agreement
with Millennium); in addition, the sale or disposition of all or any part of
Millennium's interests in Equistar shall not be deemed to constitute a Change in
Control under this Agreement or any other agreement or plan affecting you. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. All references to any law shall be
deemed also to refer to any successor provisions to such laws.
14. Independent Representation. You acknowledge that you have been advised by
the Company to have the Agreement reviewed by independent counsel and you have
been given the opportunity to do so.
15. Withholding Taxes. The Company may withhold from any and all amounts payable
under this Agreement such federal, state and local taxes as may be required to
be withheld pursuant to any applicable law or regulation.
16. Governing Law. This Agreement shall be construed, interpreted, and governed
in accordance with the laws of the State of Delaware without reference to rules
relating to conflicts of law.
Very truly yours,
MILLENNIUM INORGANIC CHEMICALS INC.
By:________________________________
Name:
Title:
Agreed and Accepted as of the first date written above:
MILLENNIUM CHEMICALS INC.
(for purposes of Section 6 only)
By___________________________ ___________________________________
Name: [Name]
Title:
<PAGE>
EXHIBIT A
Part I - Cause
1. Subject to compliance with the notification provisions in this Exhibit A,
this Agreement shall not prevent the termination of your employment by the
Company for Cause. A termination for Cause means a termination by the Company
effected by a written notice of termination for Cause. For purposes of this
Agreement, the term "Cause" shall be limited to your: (i) willful misconduct
with regard to the Company or its affiliates or their businesses which has a
material adverse effect on the Company and its affiliates taken as a whole; (ii)
refusal to follow the proper written direction of the Company Board provided
that the foregoing refusal shall not be "Cause" if in good faith you believe
that such direction is illegal, unethical or immoral and you promptly so notify
the applicable Company Board; (iii) conviction of a felony (other than a felony
involving a motor vehicle) and either (x) exhausting all appeals without a
reversal of the conviction or (y) commencing a term of incarceration in a house
of detention; (iv) breach of any fiduciary duty owed to the Company or its
affiliates which has a material adverse effect on the Company and its affiliates
taken as a whole; or (v) your material fraud with regard to the Company or any
of its affiliates.
2. A notice of termination for Cause shall mean a notice that shall set forth in
reasonable detail the specific basis, facts and circumstances which provide for
a basis for termination for Cause and shall include a copy of a resolution duly
adopted by at least two-thirds of the directors of the applicable Company at a
meeting which was called for the purpose of considering such termination and
which you and your representative had the right to attend and address, finding
that, in the good faith opinion of the applicable board, you engaged in conduct
set forth in the definition of Cause herein and specifying the particulars
thereof in reasonable detail. The date of termination for a termination for
Cause shall be the date indicated in the notice of termination.
3. Notwithstanding anything to the contrary contained in this Agreement, if any
purported termination for Cause within the Change in Control Protection Period
that occurs on or after the Effective Date is held by a court not to have been
based on the grounds set forth in this Agreement, or not to have followed the
procedures set forth in this Agreement, such purported termination for Cause
shall be deemed a termination by the Company without Cause and you shall be
entitled to the amounts and benefits provided in Section 4 to the extent, if
any, applicable.
<PAGE>
Part II - Change in Control
1. For purposes of this Agreement, a "Change in Control" shall mean either a
Change in Control of Millennium or a Change in Control of the Company. Only one
(1) Change in Control may occur under this Agreement.
2. Change in Control of Millennium. For purposes of this Agreement, the term
"Change in Control of Millennium" shall mean (i) any "person" as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act")
(other than Millennium, any trustee or other fiduciary holding securities under
any employee benefit plan of Millennium or any company owned, directly or
indirectly, by the stockholders of Millennium in substantially the same
proportions as their ownership of Common Stock of Millennium), becoming the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of Millennium representing twenty-five percent (25%)
or more of the combined voting power of Millennium's then outstanding
securities; (ii) during any period of two (2) consecutive years (not including
any period prior to October 1, 1996), individuals who at the beginning of such
period constitute the Board of Directors of Millennium, and any new director
(other than a director designated by a person who has entered into an agreement
with Millennium to effect a transaction described in clause (i), (iii), or (iv)
of this paragraph or a director whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a person
other than the Board of Directors of Millennium) whose election by the Board of
Directors of Millennium or nomination for election by Millennium's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the two (2) year period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority of the Board of Directors of
Millennium; (iii) the merger or consolidation of Millennium with any other
corporation, other than a merger or consolidation which would result in the
voting securities of Millennium outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent (50%) of the
combined voting power of the voting securities of Millennium or such surviving
entity outstanding immediately after such merger or consolidation; provided,
however, that a merger or consolidation effected to implement a recapitalization
of Millennium (or similar transaction) in which no person (other than those
covered by the exceptions in (i) above) acquires more than twenty-five percent
(25%) of the combined voting power of Millennium's then outstanding securities
shall not constitute a Change in Control of Millennium; or (iv) approval by the
stockholders of Millennium of a plan of complete liquidation of Millennium or
the closing of the sale or disposition by Millennium of all or substantially all
of Millennium's assets other than the sale of all or substantially all of the
assets of Millennium to one or more Subsidiaries (as defined below) of
Millennium or to a person or persons who beneficially own, directly or
indirectly, at least fifty percent (50%) or more of the combined voting power of
the outstanding voting securities of Millennium at the time of the sale.
3. For purposes of this Agreement, unless the Board of Directors of Millennium
shall determine prior to the occurrence of an event set forth in Section (i) or
(ii) of this paragraph 3 that such event is not a Change in Control of the
Company, the term "Change in Control of the Company" shall mean (i) any "person"
as such term is used in Sections 13(d) and 14(d) of the Act (other than
Millennium or a Subsidiary (as defined below) of Millennium) becoming the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities
entitled to vote in a general election for directors; or (ii) all or
substantially all of the Company's assets are sold other than to Millennium or a
Subsidiary of Millennium. "Subsidiary" shall have the meaning set forth in
Section 424 of the Code and the term shall also include any partnership, limited
liability company or other business entity if Millennium owns, directly or
indirectly, securities or other ownership interests representing at least fifty
percent (50%) of the ordinary voting power or equity or capital interests of
such entity.
4. Change in Control Protection Period. For purposes of this Agreement, the term
"Change in Control Protection Period" shall mean the Pre Change in Control
Period and the Post Change in Control Period as defined below.
5. Pre Change in Control Period. For purposes of this Agreement, Pre Change in
Control Period shall mean the one hundred and eighty (180) day period prior to
the date of a Change in Control that occurs on or after the Effective Date.
6. Post Change in Control Period. For purposes of this Agreement, Post Change in
Control Period shall mean the period commencing on the date of a Change in
Control that occurs on or after the Effective Date and ending the day
immediately prior to the second anniversary of the Change in Control.
Part III - Company Board
For purposes of this Agreement, the term "Company Board" shall be deemed to
refer to the Board of Directors of the Company and Millennium.
Part IV - Disability
For purposes of this Agreement, the term "Disability" shall mean your
inability to perform your material duties and responsibilities hereunder due to
the same or related physical or mental reasons for more than one hundred eighty
(180) consecutive days in any twelve (12) consecutive month period. A
termination for Disability shall be deemed to occur when you are terminated by
the Company by written notice after you incur a Disability and while you remain
disabled.
<PAGE>
Part V - Good Reason
1. For purposes of this Agreement, a termination for "Good Reason" shall mean a
termination by you effected by a written notice of termination for Good Reason
given within ninety (90) days after the occurrence of the Good Reason event.
Subject to subsection 3 below, "Good Reason" shall mean the occurrence or
failure to cause the occurrence, as the case may be, without your express
written consent, of (i) any material diminution of your positions, duties or
responsibilities with the Company from the highest position held within the Pre
Change in Control Period (except in each case in connection with the termination
of your employment for Cause, Disability or as a result of your death, or in the
case of a material diminution of duties or responsibilities, temporarily as a
result of your illness or other absence) or the assignment to you of duties or
responsibilities that are inconsistent with your aforementioned highest
position; (ii) your removal from, or the nonreelection to, your positions as an
officer with the Company or Millennium held during the Pre Change in Control
Period; (iii) a relocation of the Company's principal United States executive
offices to a location more than twenty-five (25) miles from where they are at
the time of the Change in Control, or a relocation by the Company of your
principal office away from such principal United States executive offices; (iv)
a failure by the Company or Millennium (A) to continue any bonus plan, program
or arrangement in which you were entitled to participate during the Pre Change
in Control Period (the "Bonus Plans"), provided that any such Bonus Plans may be
modified at the Company's discretion from time to time but shall be deemed
terminated if (x) any such plan does not remain substantially in the form in
effect prior to such modification or (y) if plans providing you with
substantially similar benefits are not substituted therefor ("Substitute
Plans"), or (B) to continue you as a participant in the Bonus Plans or
Substitute Plans on not less than the same maximum level of award and not more
than the same level of difficulty for achievability thereof as was applicable to
you immediately prior to any change in such plans, in accordance with the Bonus
Plans and the Substitute Plans; (v) any material breach by the Company or
Millennium of any provision of this Agreement; (vi) if on the Company Board
during the Pre Change in Control Period, your removal from or failure to be
reelected to the Company Board; (vii) a reduction by the Company of your rate of
annual base salary to a level below your highest rate of base salary within
one-hundred and eighty (180) days prior to the Change in Control; or (viii)
failure of any successor of the Company to assume in a writing delivered to you
upon the assignee becoming such, the obligations of the Company hereunder.
2. A notice of termination for Good Reason shall indicate the specific basis for
termination relied upon and set forth in reasonable detail the facts and
circumstances claimed to provide a basis for a termination for Good Reason. The
failure by you to set forth in the notice of termination for Good Reason any
facts or circumstances which contribute to the showing of Good Reason shall not
waive any of your rights hereunder or preclude you from asserting such fact or
circumstance in enforcing your rights hereunder. The notice of termination for
Good Reason shall provide for a date of termination neither less than ten (10)
nor more than sixty (60) days after the date such notice of termination for Good
Reason is given.
3. In the event that a Direct Pay Letter of Credit is delivered in accordance
with Section 3 of this Agreement at the time of a Change in Control, the
definition of Good Reason shall not include the events set forth in subsections
1 (i), (ii) and (vi) above so long as during such period you are maintained in a
senior advisory capacity (without any line or other staff responsibilities) to
assist in the order transition to new management.
Part VI - Retirement
For purposes of this Agreement, the term "Retirement" shall mean your retirement
by the Company at or after your sixty-fifth (65th) birthday to the extent such
termination is specifically permitted as a stated exception from applicable
federal and state age discrimination laws based on position and retirement
benefits.
COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 PAGE 1 OF 3
<TABLE>
<CAPTION>
BASIC
- ----------
1997 WEIGHTED AVERAGE # SHARES
- ---------- --------------------------------------
SHARES YEAR
O/S QUARTER TO DATE
------------ ------------------ --------------
<S> <C> <C> <C>
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1996 74,412,283 74,412,283 74,412,283
------------ ------------- --------------
BALANCE AT MARCH 31, 1997 74,412,283 74,412,283 74,412,283
------------ ------------- --------------
EPS EPS
INCOME FROM CONTINUING OPERATIONS 17,000,000 17,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,412,283 0.23 74,412,283 0.23
NET INCOME 20,000,000 20,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,412,283 0.27 74,412,283 0.27
BALANCE AT JUNE 30, 1997 74,412,283 74,412,283 74,412,283
------------ ------------- --------------
INCOME FROM CONTINUING OPERATIONS 85,000,000 102,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,412,283 1.14 74,412,283 1.37
NET INCOME 82,000,000 102,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,412,283 1.10 74,412,283 1.37
ISSUED AUGUST, 1997 56,006 36,964 12,456
------------ ------------- --------------
BALANCE SEPTEMBER 30, 1997 74,468,289 74,449,247 74,424,739
============ ============= ==============
INCOME FROM CONTINUING OPERATIONS 70,000,000 172,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,449,247 0.94 74,424,739 2.31
NET INCOME 67,000,000 169,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,449,247 0.90 74,424,739 2.27
1998
- ----------
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1997 75,099,648 75,099,648 75,099,648
BALANCE AT MARCH 31, 1998 75,099,648 75,099,648 75,099,648
------------ ------------- --------------
INCOME FROM CONTINUING OPERATIONS 46,000,000 46,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,099,648 0.61 75,099,648 0.61
NET INCOME 50,000,000 50,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,099,648 0.67 75,099,648 0.67
<PAGE>
COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 PAGE 2 OF 3
ISSUED APRIL 1, 1998 5,600 5,600 2,800
------------ ------------- --------------
BALANCE AT JUNE 30, 1998 75,105,248 75,105,248 75,102,448
------------ ------------- --------------
INCOME FROM CONTINUING OPERATIONS 46,000,000 92,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,105,248 0.61 75,102,448 1.23
NET INCOME
WEIGHTED AVG SHARES OUTSTANDING 43,000,000 93,000,000
------------- --------------
75,105,248 0.57 75,102,248 1.24
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1997 75,099,648 75,099,648 75,099,648
APRIL 1998 5,600 5,600 3,700
JULY 1998 36,000 36,000 12,000
------------ ------------- --------------
BALANCE AT SEPTEMBER 30, 1998 75,141,248 75,141,248 75,115,348
============ ============= ==============
INCOME FROM CONTINUING OPERATIONS 32,000,000 124,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,141,248 0.43 75,115,348 1.65
NET INCOME 32,000,000 125,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,141,248 0.43 75,115,348 1.66
DILUTED
- -------------------
1997 WEIGHTED AVERAGE # SHARES
- ---------- --------------------------------------
SHARES YEAR
O/S QUARTER TO DATE
------------ ------------------ --------------
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1996 74,412,283 74,412,283 74,412,283
------------ ------------- --------------
BALANCE AT MARCH 31, 1997 74,412,283 74,412,283 74,412,283
------------ ------------- --------------
EPS EPS
INCOME FROM CONTINUING OPERATIONS 17,000,000 17,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,412,283 0.23 74,412,283 0.23
NET INCOME 20,000,000 20,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,412,283 0.27 74,412,283 0.27
BALANCE AT JUNE 30, 1997 74,412,283 74,412,283 74,412,283
------------ ------------- --------------
INCOME FROM CONTINUING OPERATIONS 85,000,000 102,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,412,283 1.14 74,412,283 1.37
NET INCOME 82,000,000 102,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,412,283 1.10 74,412,283 1.37
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1997 74,412,283 74,412,283 74,412,283
AUGUST 1997 56,006 36,964 12,446
OPTIONS 64,254 33,816
TIME VESTED RETRICTED STOCK 117,072 92,953
------------ ------------- --------------
<PAGE>
COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 PAGE 3 OF 3
BALANCE AT SEPTEMBER 30, 1997 74,468,289 74,630,573 74,551,498
============ ============= ==============
INCOME FROM CONTINUING OPERATIONS 70,000,000 172,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,630,573 0.94 74,551,498 2.31
NET INCOME 67,000,000 167,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,630,573 0.90 74,551,498 2.24
1998
- ----------
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1997 75,099,648 75,099,648 75,099,648
OPTIONS 112,665 112,665
TIME VESTED RESTRICTED STOCK 114,685 114,685
------------- --------------
BALANCE AT MARCH 31, 1998 75,326,998 75,326,998
------------- --------------
INCOME FROM CONTINUING OPERATIONS 46,000,000 46,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,326,998 0.61 75,326,998 0.61
NET INCOME 50,000,000 50,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,326,998 0.67 75,326,998 0.66
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1997 75,099,648 75,099,648 75,099,648
ISSUED 4/1/98 5,600 5,600 2,800
OPTIONS 159,596 136,499
TIME VESTED RESTRICTED STOCK 302,971 278,333
- -------------------------------------------------- ------------- --------------
BALANCE AT JUNE 30, 1998 75,105,248 75,567,815 75,517,280
------------ ------------- --------------
INCOME FROM CONTINUING OPERATIONS 46,000,000 92,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,567,815 0.62 75,517,280 1.22
NET INCOME 43,000,000 93,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,567,815 0.57 75,517,280 1.23
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1997 75,099,648 75,099,648 75,099,648
APRIL 5,600 5,600 3,700
JULY 36,000 36,000 12,000
OPTIONS 47,923 110,264
TIME VESTED RESTRICTED STOCK 256,452 326,549
- -------------------------------------------------- ------------- --------------
BALANCE SEPTEMBER 30, 1998 75,141,248 75,445,623 75,552,161
============ ============= ==============
INCOME FROM CONTINUING OPERATIONS 32,000,000 124,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,445,623 0.42 75,552,161 1.64
NET INCOME 32,000,000 125,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,445,623 0.42 75,552,161 1.65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 118
<SECURITIES> 0
<RECEIVABLES> 259
<ALLOWANCES> 4
<INVENTORY> 330
<CURRENT-ASSETS> 826
<PP&E> 1076
<DEPRECIATION> 619
<TOTAL-ASSETS> 4116
<CURRENT-LIABILITIES> 392
<BONDS> 1010
0
0
<COMMON> 1
<OTHER-SE> 1550
<TOTAL-LIABILITY-AND-EQUITY> 4116
<SALES> 0
<TOTAL-REVENUES> 1215
<CGS> 847
<TOTAL-COSTS> 1033
<OTHER-EXPENSES> (18)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> 203
<INCOME-TAX> 79
<INCOME-CONTINUING> 124
<DISCONTINUED> 1
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.65
</TABLE>
EXHIBIT 99.2
MILLENNIUM CHEMICALS INC.
NEWS RELEASE
Contact: Mickey Foster
Vice President - Investor Relations
(732) 933-5140
FOR IMMEDIATE RELEASE
MILLENNIUM CHEMICALS TO SELL ACETYLS' SYNGAS UNIT
AND 15% OF METHANOL CAPACITY FOR $122.5 MILLION
London, England, and Red Bank, New Jersey, November 16, 1998 - Millennium
Chemicals Inc. ("Millennium") (NYSE-MCH) today announced that its wholly owned
subsidiary Millennium Petrochemicals Inc. ("Millennium Petrochemicals") has
entered into an agreement to sell its La Porte, Texas, synthesis gas ("syngas")
unit and a 15% interest in its methanol business to a wholly owned subsidiary of
Linde AG ("Linde") for $122.5 million in cash.
Millennium Petrochemicals and Linde will establish a methanol production
partnership to own the methanol facility in La Porte. Linde will operate the
facility and hold the 15% interest in the partnership, with an option to
increase its partnership interest to 20% at a later date. Millennium
Petrochemicals will hold the remaining interest. Linde has agreed to sell syngas
and carbon monoxide to Millennium Petrochemicals and the partnership under a
supply agreement.
"This `win-win' transaction with Linde demonstrates once again Millennium's
determination to go beyond traditional ways of doing business to be a truly
value-creative chemical company" said William M. Landuyt, Chairman and CEO of
Millennium. "The sales proceeds will increase our financial flexibility while
Linde's industrial gases expertise supports their ability to supply syngas to us
at a very competitive price." Landuyt added, "This transaction will create a
partnership which will bring Linde's specialized technology and know-how to the
syngas and methanol operations. It will further allow Millennium Petrochemicals
to focus its energies on its core acetic acid and vinyl acetate monomer
businesses."
Background
Natural gas is used to produce syngas, a combination of carbon monoxide and
hydrogen. Some carbon monoxide is separated from syngas and purified. Syngas is
used to make methanol. Millennium uses a portion of its methanol, along with the
purified carbon monoxide, to make acetic acid; the remainder of the methanol
produced is sold to third parties. Acetic acid and ethylene are used to produce
vinyl acetate monomer ("VAM").
Acetyls Process Integration
La Porte, Texas
CHART OMITTED
Methanol is a feedstock used to produce acetic acid; methyl tertiary butyl ether
("MTBE"), a gasoline additive; formaldehyde and solvents for chemicals,
coatings, inks and adhesives. Acetic acid is a feedstock used to produce VAM,
terephthalic acid (used to produce polyester for textiles and plastic bottles),
industrial solvents, dyes and pharmaceuticals. VAM is a petrochemical product
used to produce adhesives, water-based paints, textile coatings, paper coatings
and a variety of polymer products.
Millennium Chemicals Inc. (website: www.millenniumchem.com) is a major
international chemicals company, with leading market positions in a broad range
of commodity, industrial, performance and specialty chemicals.
Millennium Chemicals Inc. is:
The second-largest producer of TiO2 in the world and a leading producer of
titanium tetrachloride;
The second-largest producer of acetic acid and vinyl acetate monomer in the
United States; A leading producer of fragrance chemicals and other
products, including cadmium/selenium pigments and silica gel; and
Through its partnership interest in Equistar Chemicals, LP, a partner in
the largest producer of ethylene, propylene and polyethylene in North
America and a leading producer of ethylene oxide and its derivatives and
high value-added specialty polymers, color concentrates and polymeric
powders.
The statements in this release relating to matters that are not historical facts
are forward-looking statements that involve risks and uncertainties, including,
but not limited to, future global economic conditions, production capacity,
competitive products and prices and other risks and uncertainties detailed in
the Securities and Exchange Commission filings of Millennium Chemicals.
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